TaxTMI 
TaxTMI 
2018 (12) TMI 111
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....d by the appellant. Adjustment on account of Advertisement, Marketing and Promotion Expenses incurred by the appellant - Rs. 4,73,64,582 2. That the assessing officer erred on facts and in law in making transfer pricing adjustment of Rs. 4,73,64,582 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 3. That the assessing officer erred on facts and in law in making an addition of Rs. 4,73,64,582 on account of the arm's length price of the alleged international transaction of AMP expenses, holding that the appellant was promoting the brand of the associated enterprise and the appellant should have received a compensation for creating and developing marketing intangibles in India. 4. The assessing officer erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 928, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise (hereinafter referred to as '....
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....y the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 12. That the assessing officer erred on facts and in law in holding that AMP expenses incurred by the appellant resulted in promotion of brand owned by the associated enterprise, thereby creating marketing intangibles whose ultimate benefit inured to the associated enterprise 13. That the assessing officer erred on facts and in law by questioning the commercial expediency of AMP expenditure incurred by the appellant and assuming that benefit has accrued to AE on account of AMP expenses incurred by the appellant in India. 14. The assessing officer 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. 15. That the assessing officer / TPO erred on fa....
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....on of AMP expenditure incurred by the appellant. 24. Without prejudice, the assessing officer erred on facts and in law in applying a markup of 12.25% on the alleged excess AMP expenditure incurred by the appellant, while computing the value of compensation to be received by the appellant on account of creation of marketing intangible of 'Suzuki' brand. Addition on account of difference in TDS credit - Rs. 4,048/- 25. That the assessing officer erred on facts and in law in making an addition of Rs. 4,048/- merely on the basis of statement in Form 26AS. 26. That the assessing officer erred on facts and in law in not appreciating that the income reflected in the aforesaid statement did not pertain to the appellant." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Suzuki Motorcycles (I) Pvt. Ltd., the taxpayer is a subsidiary of M/s. Suzuki Motorcycles Company, Japan (SMC Japan) holding 99.99% equity share capital of the taxpayer. SMC Japan is owning significant intangibles like patents, trademarks, manufacturing know-how, etc.. The taxpayer being in technical collaboration with SMC Japan is in....
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....presentatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 7. Undisputedly, the taxpayer is a manufacturing entity and the AMP/sales ratio in taxpayer's case is 6.56%. It is also not in dispute that the AE has compensated the taxpayer with an amount of Rs. 33,91,55,186/- on account of expenditure incurred by it. TPO has also applied mark-up of 12.50% of AMP expenses by using bright line limit over and above the AMP expenses computed on the basis of comparability analysis. TPO, by using the bright line test, came to the conclusion that the taxpayer has expended huge amount in excess of the bright line limit in order to promote the brand/trade name of its AE which is required to be compensated. TPO on the basis of his TP analysis has taken 3 comparable companies showing average ratio of AMP/ Sales expenditure at 1.76% as against 6.56%, which are as under :- "20. BENCHMARKING OF INTERNATIONAL TRANSATION CALCULATION OF ARM'S LENGTH PRICE OF AMP EXPENSES 20.1 In view of the foregoing discussion, the following companies shall be....
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....ishing Sony Ericsson India Pvt. Ltd. vs. CIT - (2015) 374 ITR 118 (Del.) case wherein the assessee has not disputed the existence of international transaction qua its AMP expenses. So, in case of assessee, being a manufacturing entity, ratio of Sony Ericsson India Pvt. Ltd. (supra) cannot be applied. At the same time, in Sony Ericsson India Pvt. Ltd. (supra), Hon'ble High Court has held that BLT has no statutory mandate and considering the excess expenditure beyond the bright line as an international transaction was unwarranted. 11. Hon'ble Delhi High Court in series of decisions inter alia Maruti Suzuki India Ltd.; Bausch & Lomb Eyecare (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 the Revenue is to discharge first the onus of proving the existence of an international transaction between assessee and the AE and such transactions cannot be inferred merely on the basis of bright line test. Revenue has to discharge the initial onus by bringing on record some tangible material that the taxpayer and its AE have acted in concert and further that there was an agreement to enter into internation....
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....n qua incurring of AMP expenses between the taxpayer and its AE or that the taxpayer and its AE have acted in concert by way of any agreement as to incurring of international transactions qua AMP expenses. 16. So, when the BLT method adopted by the TPO incurring the AMP expenses by following the ratio of LG Electronics India Pvt. Ltd. (supra) decided by Special Bench of the Tribunal, has been held to be not legally sustainable by the Hon'ble Delhi High Court in series of judgments discussed in preceding paras, the entire exercise of determining AMP expenses as international transaction by the TPO is without any basis, hence not sustainable. 17. Learned DR for the Revenue, although admitted the legal position enunciated in the preceding paragraphs, but he contended that since all the aforesaid decisions are lying challenged before the Hon'ble Apex Court, the matter may be kept pending till the decision by Hon'ble Apex Court. However, we are of the considered view that since it is a stay granted matter and the proceedings before the second appellate authority have not been stayed by any higher forum, the same cannot be kept pending. 18. After considering the legal po....