TaxTMI 
TaxTMI 
2018 (9) TMI 1810
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.... on the facts and in the circumstances of the cases, the DRP is justified in holding that the 'Bright Line Test' (BLT) was not mandated in law and hence impermissible without considering the fact that BLT was not used as a method to determine the price but only as an economic tool to arrive at the cost of services rendered to the foreign enterprise by the Indian Entity and the TPO has the mandate to 'determine' such 'cost' as a primary step in ALP determination as provided under the Rules." 3. "Whether on the facts and in the circumstances of the case and in law, the Hon'ble DRP was justified in ignoring the provisions of section 92C(1)(b) of the Act which specifically prescribes 'any other method' for determination of ALP as held by the Hon'ble Delhi High Court in the case of M/s. Toll Global Forwarding India Pvt. Ltd. vide order No. 5025/Del/10 and M/s. Turn Restaurant (I) Pvt. Ltd. Vs. ITO - ITA No. 349/2015 and CIT vs. Yum Restaurant India Pvt. Ltd. - ITA No. 388/2015." 4. "Whether, on the facts and in the circumstances of the case and in law, the Hon'ble DRP was justified in not appreciating the distinction made by the Revenue be....
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.... of trademark royalty paid to AE; The CIT(A) erred in concluding on the basis of factual assumption that the Appellant is the economic owner of the intangibles and hence should not pay any trademark royalty to its AE; Rejection of transfer pricing analysis under CUP The CIT(A) erred in rejecting the transfer pricing analysis undertaken by the Appellant by applying CUP with respect to payment of trademark royalty to AE without providing any cogent reasons for the same; 5. Adjustment in respect of technical know-how royalty paid to AE of Rs. 17.99 Crores The CIT(A) erred in restricting the ALP of technical know-how royalty at 3% instead of 5% and thereby making adjustment of Rs. 17.99 Crores on account of excess technical know-how royalty paid to AE; Inappropriate use of CUP The CIT(A) erred in rejecting the transfer pricing analysis undertaken by the Appellant by applying CUP with respect to payment of technical know-how royalty to AE without providing any cogent reasons for the same; without prejudice to above, the CIT(A) erred in considering the technology agreement between L'Oreal and Mennen in isolation as internal CUP for determining ALP of technical know-h....
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....ve AMP expenses; 4. Without prejudice to above, the learned TPO/DRP should be directed not to make any separate AMP adjustment as AMP adjusted margin of respondent are better than AMP adjusted margin of its comparables; 5. Without prejudice to above, the learned TPO/DRP should be directed to consider the following expenses as selling expenses and not part of AMP expenditure while computing the adjustment: * Marketing promotions run at malls and retail site outlet on various occasions * Customer relations maintenance expenses and sales promoter salary * Expenses towards Point of Sales materials * Rent cost of hiring spaces at various Point of sales * Expenses incurred in respect of product animation, training and simulation * Expenses relating to market research * Marketing fees paid to AE 6. Without prejudice to above, the learned TPO/DRP should be directed to consider following companies as comparable companies for determining BLT for AMP expenses; Manufacturing segment:  Gilette India Limited  Procter & Gamble Home Products  Procter & Gamble Hygiene and Healthcare Limited  Henkel India Limited  Reckitt Benck....
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....rademark, etc. 584,766,594 Availing marketing support services 184,491,457 Availing consultancy services 26,100,995 Import of fixed assets 1,987,666 Reimbursement of expenses (receipts) 44,707,919 Reimbursement of expenses (payments) 105,533,065 6. The arm's length price of the international transactions in the manufacturing segment and in the distribution segment is determined by applying cost plus method and the resale price method respectively, which is stated to be the most appropriate method in the facts and circumstances of the case. The gross margin to sales ratio is taken as the profit level indicator (PLI) in the manufacturing segment and distribution segment. In the manufacturing segment, the PLI of the company is arrived at 168.16% on input cost whereas the average PLI of the comparables is arrived at 129.35% as per the analysis in the TP document. It is seen that the PLIs of the comparable companies have been worked out by adopting the data for the year 2010-11. As the price charged in its international transactions is greater than the said arithmetical mean price, the price charged in the international transactions is treated as at arm's....
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....ble that is created or enhanced by it. That by spending huge amounts on advertisement and marketing, L'oreal India is enhancing the brands 'L'oreal', 'Garnier' and others in India. The TPO rejected the assessee's submission that AMP expenses are payments to third parties in India and hence not an international transaction. The TPO further rejected the assessee's reliance upon several decisions of the ITAT to contend that AMP expenditure incurred by the assessee for the product sold by it in India, do not result in any kind of direct benefit to its foreign affiliates. The TPO further referred to the decision of the Special Bench of the ITAT in the case of L G Electronics Ltd. 152 TTJ (Del)(SB) 273 and held that the assessee's reliance on tribunal's order is no longer relevant. The Assessing Officer (A.O. for short) proceeded to compute the AMP expenses and mark up thereon to be covered from the AE. He proceeded to compute a sum of Rs. 1,90,23,50,373/- as an adjustment towards AMP on the advertisement expenditure incurred by the assessee for the brand owned by the AE for the manufacture segment. However, he computed an amount of Rs. 53,34,40,068/- as adjustment towards AMP expenditur....
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.... his order u/s.92CA for this year may be upheld as the Revenue has not accepted the decision of the Hon'ble Delhi High Court in the case of Sony Ericson regarding rejection of BLTand SLP has been filed against the said decision before the Supreme Court. 2. In case, the Hon'ble DRP is of the view that the transaction of AMP expenditure incurred by the assessee is an international transaction and, the decision of Hon'ble Delhi High Court in the case of Sony Ericson is applicable both to the manufacturing and the distribution segment, and if BIT is to be rejected and aggregate approach is to be followed then, an adjustment of Rs. 22.03 crore for the distribution segment and Rs. 98.32forthe manufacturing segment may be upheld. 3. In case, the Hon'ble DRP is of the view that the transaction of AMP expenditure incurred by the assessee is an international transaction and, the decision of Hon'ble Delhi High Court in the case of Sony Ericson is applicable only to the distribution segment, and if BLT is to be rejected and aggregate approach is to be followed then, an adjustment of Rs. 22.03 crore for the distribution segment may be upheld. In addition the alternative ....
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....emark royalty on facts of the case. Therefore the.AO is directed to made adjustment on account of trademark royalty as proposed by TPO of Rs. 13,49,46,137/- @ 1.5% of sales. We find that the Mennen agreement is an internal CUP for know-how royalty. Though agreement was entered in F.Y. 2005-06 but it is still a valid agreement and acted on by the parent of the assessee, therefore we are of the considered opinion that royalty @ 3% charged by the parent to Mennen is a valid internal CUP available to benchmark the royalty paid by the assessee. Accordingly excess royalty paid of Rs. 17,99,28,183/- is also directed to be disallowed as TP adjustment for technical know-how royalty. We have considered the facts of the case and submissions made. Before the Panel also, the assessee has not submitted any evidence in support of rendition of services by the AE and receives of the services by the assessee. Therefore ALP of such services in absence of evidence has to be determined at Rs. Nil. The A.O. is directed accordingly. 14. The DRP concluded as under: In view of the judicial precedents as well as the facts on record, we are of the view that the assessee has failed to demonstrate that ....
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....he same. Hence, the Revenue's appeal is dismissed. 17. As regards the assessee's appeal, one issue relates to power of transfer pricing officer to suggest alternative than that asked by the DRP in remand. In this regard, the ld. Counsel of the assessee has referred to case law from the Hon'ble Allahabad High Court for the jurisdiction of remand proceedings. However, we note that this decision is with reference to the Wealth Tax Act and is not applicable to the facts of the present case. Furthermore, the ld. Departmental Representative also referred to paragraph 191 of Sony Ericson Mobile Communications (India) Pvt. Ltd. order wherein the Hon'ble High Court had held that other issues are also relevant. The Hon'ble High Court has observed as under: 191 The fact that royalty has been paid would be a relevant consideration and factum, when we consider arm's length price of the international transaction of distribution and marketing. Tax treatment of royalty payments being different, the royalty transaction, therefore, may be benchmarked separately. However, payment of royalty even if justified and appropriate on applying arm's length principle, can be a relevant factor when the ques....