TaxTMI 
TaxTMI 
2018 (11) TMI 1052
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....r Section 143(3) read with Section 144C of the Incometax Act, 1961 ('Act'), is bad in law, violative of principles of natural justice and void ab-initio. 1.1 That the assessing officer erred on facts and in law in determining income of the appellant at Rs. 3,39,05,406 against returned total income of Rs. Nil (after set-off of brought forward loss and depreciation) under the normal provisions of the Act. 1.2 That the assessing officer erred on facts and in law in determining income of the appellant at Rs. 26,952,818 on protective basis against returned total income of Rs. Nil (after set-off of brought forward loss and depreciation) under the normal provisions of the Act. Transfer Pricing Adjustment for Advertisement, Marketing And Sales Promotion ('AMP') expenses: Transfer Pricing Adjustment for Advertisement, Marketing and Sales Promotion ('AMP') expenses 2. That the assessing officer/ TPO erred on facts and in law in making addition to the income of the appellant of Rs. 3,74,72,708 on account of the alleged difference in arm's length price of the international transaction of advertisement, marketing and promotion expenses. ....
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....ibutor not appreciating that the appellant was characterized as a normal risk bearing or full risk bearing distributor in the transfer pricing documentation maintained by the appellant. 3.7 That the DRP erred on facts and in law in arbitrarily holding that "it is the AE, which directs the AMP strategy and expenditure done by the assessee in India" not appreciating that the appellant, as an independent entrepreneur, is responsible for controlling and coordinating the marketing activities and incurring advertisement, marketing and promotion expenses for the purpose of it's business in India. 3.8 The DRP/TPO erred on facts and in law in not appreciating that the advertisement and marketing expenses were incurred by the appellant wholly and exclusively for purposes of its business and not on behalf of or for the benefit of the AE; any benefit to the AE being only incidental. 3.9 The DRP/ TPO erred on facts and in law in holding that expenditure incurred by the appellant which resulted in benefit by way of brand building and increases sales for the foreign AE, and therefore resulting in a transaction of creating and improving marketing intangibles for and ....
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....adjustment on account of allegedly excessing AMP expenses incurred by the appellant 3.18 Without prejudice to the above mentioned Objection, the DRP/TPO erred on facts and in law in adopting a markup of 12.06% on the basis of prime lending rate and an adhoc increase to the same, without furnishing any evidence and basis for adopting such a rate. 3.19 Without prejudice, the DRP/ TPO erred on facts and in law in not reducing the reimbursement received by the assessee amounting to Rs. 10,674,331, while computing the arm's length price of alleged international transaction of provision of brand building services. 3.20 Without prejudice, the DRP/TPO erred on facts and in law in considering recovery made by the appellant from its AEs on account of advertisement expenses incurred at their behest as Rs. 9,304,419 instead of the correct amount of Rs. 10,674,331, while computing the protecting adjustment on account of alleged international transaction of provision of brand building services." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Sennheiser Electronics India Pvt. Ltd., the taxpayer is a subsidiary of Senn....
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....iser brand in India as the taxpayer is not the legal owner of the brand in India. The ld. TPO, by applying the decision of Special Bench decision rendered by the Tribunal in case of LG Electronics India Pvt. Ltd. (ITA No.5140/Del/2011), rejected the contentions raised by the taxpayer that the expenses were incurred for its own activity in India and is for the benefit of Indian business only. 7. TPO accordingly proposed that the taxpayer has incurred Rs. 229,49,081/- under the head 'AMP' which is purely for brand promotion. However, the TPO excluded Rs. 79,88,925/- included by the taxpayer under the head "Selling & other expenses" from the computation of AMP treating the same as sales promotion expenses and thereby proposed ALP adjustment relating to AMP expenses at Rs. 374,72,708/-. 8. TPO used Bright Line Test (BLT) for computation of percentage of AMP to sales by determining the bright line limit. TPO by examining indirect expenses made by the taxpayer added further mark-up of 3% on the AMP spent amount and determined the total mark-up of 12.06% on AMP spent and proposed that the taxpayer should have been compensated by the AE to the tune of Rs. 355,37,693/- plus mark-up of....
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....10 (Del.) has categorically held that BLT is not a valid basis for determining the existence of international transaction or for that matter for computing the ALP of such international transaction involving AMP expenses, the order of TPO passed by making BLT as basis of the ALP adjustment is not sustainable in the eyes of law. 14. Furthermore, Hon'ble Delhi High Court in subsequent decisions viz. Bausch & Lomb Eye Care (India) Pvt. Ltd. v. Additional CIT (2016) 381 ITR 227 (Del.) and Honda Siel Power Products Ltd. v. Dy. CIT (2016) 237 Taxman 304 held that it is for the Revenue to firstly discharge the onus to prove the existence of an international transaction between the taxpayer and its AE and only thereafter ALP of international transactions involving AMP can be computed. 15. In the instant case, there is not an iota of material on the file apart from applying the BLT and by taking the view that the taxpayer has incurred huge AMP/sales expenses to the tune of 10.26%, no cogent material is there to treat the incurring of AMP expenses as international transaction more particularly when basis for treating the AMP expenses as international transaction i.e. BLT is not a legall....