TaxTMI 
TaxTMI 
2018 (3) TMI 1665
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....-09 (-) Rs. 26.46 crores 05/10/12 Rs.7.20 crores 14/09/12 2009-10 Rs.51.21 crores 06/01014 Rs.35.67 crores 31/12/13 2010-11 Rs.18.69 crores 30/01/15 Rs.14.90 crores 30/114 2011-12 (-) Rs. 78.76 lakhs 15/01/16 Rs.16.74 crores 14/12/15 2012-13 (-)Rs.19.39 crores 20/01/2017 Rs.27.63 crores 21/11/16 2.Vide its applications,dtd.11/01/2018,the assessee has requested to admit additional grounds for all the above five AY.s.During the course of hearing before us, the Authorised Representative (AR)stated that additional grounds,raised by the assessee,were pure legal grounds and did not require verification of facts.The Departmental Representative (DR) left the issue to the discretion of the Bench.We have gone through the additional grounds and find that they are true legal grounds and not require verification of facts.Therefore,we admit the same. 3.The assessee had also filed an application for admission of additional evidences,as per Rule 29 of the ITAT Rules 1963. It was stated that the evidences were crucial to decide Grounds No.23 and 30 for the AY.2008-09,that the AO had ign....
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....e method applied was Gross Profit/Sales, as the PLI. 4.1.a.During the TP proceedings,the TPO suggested certain adjustments towards purchase of raw material/packing material, purchase of finished goods and AMP expenses.The AO issued draft assessment orders to the assessee.Aggrieved by the orders, the assessee filed objections before the DRP.As per the directions of the DRP, the AO made following adjustments: Particulars AY.08-09 A.Y.09-10 A.Y.10-11 A.Y.-11-12 A.Y.12-13 Purchase of raw material 1,61,63,293 -- -- -- -- Purchase of finished goods -- 24,13,90,418/- NIL (23.38 crores) NIL (9.30 crores) NIL (29.59 crores) AMP i.Manufacturing 14,10,35,885/- -- -- -- -- ii.Distribution 12,01,75,610/- 62,33,52,350/- 33,88,08,293/- 17,53,09,450/- 47,03,00,000/- Total AMP adjustment 26,12,11,495/- 62,33,52,350/- 33,88,08,293/- 17,53,09,450/- 47,03,00,000/- Total Adjustment 27,73,74,788/- 86,47,42,768/- 33,88,08,293/- 17,53,09,450/- 47,03,00,000/- During the TP proceedings,the TPO observed that assessee was i....
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....elling & distribution expenses ratio 48% 48% 55-49% 35-05% 23.26% 38.70% Arm's length AMP/ sales ratio derived by TPO 3-4% 7% 5-93% 6-54% 8.50% 12.60% Excessive AMP and selling expenses 14-1035 12.0175 59-3668 29.4821 15.36 41-07 Mark up - - 5% 13.97% 14-13% 14.51% Mark up% - - 2.9683 4.1186 2.17 5-96 AMP Adjustment 14,10,35,885 12,01,75,610 6,23,32,350 33,60,07,620 17,53,09,450 47,03,00,000 4.2.Before us,the AR stated that AMP expenditure incurred by the assessee was not an IT,that there was no agreement/arrangement between it and the AE to prove that the assessee was obliged to incur AMP expenses on behalf of the AE,that the AMP expenses were incurred towards third parties to promote the sales of its products,that the TPO/DRP had not shown the existence of arrangement or an understanding, that the assessee was an entrepreneur licensee for Indian market who would sell the products in India, that the benefit arising from the AMP expenses was to the account of the assessee in the form of its market share and increased turnover,that....
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....the parent company,already existed with huge reputation then there was no need to incur any expenses to maintain the same in India,that even if the brand was required to be maintained then the responsibility was with the owner of the brand and not with the licensee,that as per the LOU the expenses relating to maintenance of the brand was compensated with non-payment of royalty ,that the understanding or transaction was subject to ALP determination, that para 8 of the LOU, further imposed the condition that once a license agreement entered into it was the licensee that would make the financial investment for developing and/or maintaining the trademarks and related brand equity within its territory,that and as a consequence,it was entitled to residual profits/loss generated by the trademarks exploitation in its territory after the licensor had been paid an arm's length royalty as remuneration,that para 10 of the LOU talked of compensation in the event of termination of the license arrangement between BDF and Nivea India,that quantum of the compensation depended on a fair assessment of whether any intangibles had been created by Nivea India,longevity of such intangibles,level of i....
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....e Letter further imposed the condition that once a license agreement entered into, it was the licensee that would make the financial investment for developing and/or maintaining the trademarks and related brand equity within its territory, and as a consequence, was entitled to residual profits/loss generated by the trademarks exploitation in its territory after the licensor had been paid an arm's length royalty as remuneration,that para 10 of the LOU talked of compensation in the event of termination of the license arrangement between BDF and Nivea India,that quantum of the compensation depended on a fair assessment of whether any intangibles had been created by Nivea India, longevity of such intangibles, level of investment put by Nivea India under the assumption of long term rights of the licensee,that the financial investment made by the appellant in India towards development and/or to maintain the trademarks and related brand equity intangible within its territory was not at ALP and it had to be compensated by the BDF every year and not at the time of termination of license,,that the letter of understanding between the BDF and the appellant shows the existence of an 'ag....
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.... Medtro -nic Private Limited (ITA/2168/M/2014-AY.2009-10). With regard to RPM being MAM for distribution segment,the DR argued that the assessee had company adopted RPM as MAM for its distribution segment,that the the TPO had rejected the same and had adopted TNMM as MAM for the reason that the appellant had incurred huge AMP expenses as value addition to the functions and the same could not be considered as simple low risk distributor,that the RPM could be MAM only for simple low risk distributor with nil value addition, that where incurring of high AMP expenses would result in value addition to the functions RPM could not be applied as MAM as such without any adjustment, that in case suitable adjustment was not possible to be made then TNMM had to adopted as applied by the TPO,that even under TNMM,the AMP was to be considered as a function and suitable adjust - ment had to be made to the PLI of the comparable companies, that under TNMM, the AMP expenses(considered as extra ordinary expenses by the assessee for some AY) incurred was to be considered as operating expenses to arrive PLI of the assessee via-vis comparables. He relied upon cases of M/s. Luxottica India Eyewear P....
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....pectively. 5.1.We are of the opinion that in the absence of an agreement or arrangement between an assessee and the AE,for incurring AMP expenses,no TP adjustment can be made.In the case before us,the TPO and the DRP have not brought on record the fact that the expenses incurred by the assessee were not for the its own business.Even if for the sake of argument,it is accepted that the AE was benefitted indirectly because of the expenses incurred by the assessee,it has to be held that the transaction was not an IT.The logic behind the finding is very simple-the basic purpose for incurring expenses by the assessee was to expand its business in India and not to look after the interest of the AE.We have taken note of the fact that the assessee had started manufacturing activities in India and wanted to establish its foothold in the country.For that purpose,if it had incurred certain expenditure,it has to be accepted that it wanted to create awareness about its product in the Indian market.We would like to refer to the growth of the business of the assessee for some of the years: AY. Turnover/Revenue from Sales (Crores) Growth (%) taking AY 2007-08 as base 2007-08 ....
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....econd case,brand is highlighted and not the product. In the case under consideration the assessee was introducing new products in the fields of body - care, deodorants, creams, shower soaps. talc, first aid dressing etc. If it has to penetrate the local market, it will had to promote the products that could compete with the similar products of other players. 5.4. We find that the issue of AMP expenditure incurred by an assessee,is an IT or not, has been deliberated upon in many a cases. In the case of Thomas Cook (India) Ltd.(supra) the Tribunal, after considering the available High Court judgments had held as under: "8.3.1.First of all, we would like to mention that as on today the legal position is as clear as crystal with regard to AMP expenses.The Hon'ble Delhi High Court has dealt the issue in depth and has arrived at the conclusion that in absence of any agreement for sharing AMP expenses it cannot be held that AMP expenditure was an IT. Probable incidental benefit to the AE would not make such a transaction an IT.The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take aw....
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....e price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. 55. Section 928 defines 'international transaction' as under: "Meaning of international transaction. 928.(1) For the purposes of this section and sections 92,92C,92D and 92E ,"international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents; in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost. or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyo....
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.... the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit. "This was negatived by the Court by pointing out; "Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v), which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means', part and the 'includes' part of Section 928 (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC." 59. In Whirlpool of India Ltd. (sup....
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....o make the adjustment of the difference in order to determine the value of such AMP expenditure incurred , for the AE. In any event, after the decision in Sony Ericsson (supre), -- the question of applying the BLT to determine the existence-of an-international transaction involving AMP expenditure does not arise. 61. There is merit in the contention of the Assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function, cannot be construed as a 'transaction'. Further, the- Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same." 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99.9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasi....
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....Es involved may seek to shift from one jurisdiction to another.An 'assumed' price cannot form the reason for making an ALP adjustment. " 71- Since a quantitative adjustment is not permissible for the purposes of a TP adjust -ment under Chapter X,equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbetore,what the Revenue has sought to do in the present. case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee onapplication of the BLT,is excessive,thereby evidenc -ing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. 74.The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act.The problem does not stop here.Even if a transaction involving an AMP spend for a foreign ....
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.... CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore,where the existence of an international transaction involving AMP expense with an ascertainable price isunable to be shown to exist, even if such price is nil,Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. 65. As already mentioned, merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As mentioned-in- Sassoon -J David-(supra)-"the--fact thatsomebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". With reference to the submissions of the DR,we would like mention that first of all the issue before us is not an assessee that is engaged in distribution and manufacturing of certain goods,so the question of slicing of expense in two portions would not arise.However,the other part of the argument that matter should be restored ....
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.... media,that it involved continuous change in the advertisement of products,that the advertisements of the assessee did not had a life span of more than a year,that it had not acquired any capital asset or right or benefit of enduring nature.He referred to the cases of Geoffrey Manners & Co. Ltd.(315 ITR134), Procter and Gamble Home Products Ltd.(377 ITR 66);LÓreal India P. Ltd. (ITA/823/Mum/2010) and Metro Shoes Pvt. Ltd.(5960/Mum/1994).The DR supported the order of the AO and relied upon the case of Patel International (supra). 6.3. We have heard the rival submissions and perused the material before us.We find that disallowance of TV cost/cost of production films has been deliberated upon by the jurisdictional High Court in the cases of Geoffrey Manners & Co. Ltd. (supra) and Procter & Gamble Home Products Ltd.(supra).In the case of Procter & Gamble,the Hon'ble Court has held as under: "5. In our opinion the correct test to be applied in such a case would be, that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. If, however, and if it is in respect of business....
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....he above documents,so,in the interest of justice,we are restoring back the matter to the file of the AO to decide the issue afresh after considering the documents produced before us for the first time.He would afford a reasonable opportunity of hearing to the assessee with regard to TDS made for Rs. 6.34 crores. 8.With respect to the payment of Rs. 4.39 crores,the AR argued that the said payment had been made to various super stockists/distributors on account of cost recoveries/reimbursement of salary/incentives paid to various sales representatives appointed by them,that the super stockists/ distributors sell various products through its .employees, who were referred to as Direct Sales Representatives(DSR.s)/Pilot Sales Representatives(PSR.s)/Beauty Advisors('BA.s),that the DSR .s/ PSR.s/BA.s,were on the payroll of the distributor and the assessee would reimburses the salary/incentives paid by the super stockists / distributors to the DSRs/PSRs/BAs on a cost to cost basis,that the super stockists /distributors did not earn any income out of such reimburse - ments/cost recoveries received from the assessee,that in the assessment proceedings for AY. 2011-12,the AO has not mad....
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....of the full year.The DR left the issue to the discretion of the Bench. We are of the opinion,that the matter needs further verification.So,we direct the AO to verify the correct amount of stamp duty charges and allow the depreciation as per rules.Gs.AO 24-25 stand partly allowed. 10.Ground no.26 is about levy of interest u/s.234B of the Act.As it is a consequential ground,so, we are not adjudicating it. 11.Ground no.27 deals with initiation of penalty proceedings.Being a pre mature ground same is being dismissed. ITA/1105/Mum/2015,AY.2010-11: 12.The first Non-TP ground of appeal for the year is about non taxability of provision for bad debts.Before us,it was argued that the AO had taxed the reversal of provision for bad debts of Rs. 20.74 lakhs,that the provision had been disallowed in the assessment order of AY .2009-10, that it resulted in taxing the same amount twice,that AO had not granted the deduction for reversal of provision while computing book profit u/s. 115JB. 12.1.We find that while dealing with the objections raised by the assessee, the DRP held that the objective of the Act was to tax any income once only. It directed the AO to verify as to whether ....