TaxTMI 
TaxTMI 
2019 (4) TMI 753
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bhumi Consultants. 3. The assessee company was set up in 2006 as a sales subsidiary with an assembly plant in Chennai. The company is 99.99% owned by BMW Holdings, B.V. Netherlands and the balance shares being held by BMW, AG Germany. During the year under consideration, the assessee was engaged in the import and resale of CBUs of the 6-series, 7-series, X3,X5,X6, Z and M Models of cars from BMW group for resale in the Indian market. 4. The company also carried out assembling of CKD Kits for BMW 3 and 5 series and X12 from its assembly facility in Chennai. The plant in Chennai started its commercial operations from early 2007. During the year, the assessee company provided certain procurement support and training services to BMW Group. 5. During the year, the assessee has undertaken the following international transactions with its AEs: Nature of Transaction Value Method Used Purchase of raw materials 8,44,93,14,008 RPM/TNMM Purchase of traded vehicles 2,62,57,40,869 RPM/TNMM Purchase of spare parts 67,19,73,711 RPM/TNMM Interest paid on delayed payments 99,20,566 RPM/TNMM Purchase of fixed assets 5,22,98,047 TNMM C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and the amount that should have been compensated to the assessee company were computed as under: Value of gross sales 19,29,20,43,581 AMP Sales of the comparables 1.35% of sales Amount that represents bright line 26,04,42,588 Total expenditure on AMP by the assessee 42,32,58,681 Expenditure in excess of the bright line 16,28,16,093 12. Since the TPO was of the firm belief that the assessee company has provided some services for promoting intangibles owned by the AE, therefore, for these services, the assessee company is eligible for remuneration equivalent to the cost mark up being earned by market support services/business services companies. Accordingly, total of 10.84% mark up on AMP spend was considered to be appropriate. The TPO finally computed AMP adjustment as under: Value of Gross Sale 19,29,20,43,581 AMP/Sales of the Comparables 1.35% Amount that represents bright line 26,04,42,588 Total expenditure on AMP by the assessee 42,32,58,681 Expenditure in excess of the bright line 16,28,16,093 Mark up Mark up @ 10.84% 1,76,49,264/- Adjustment u/s 92CA 18,04,65,357 13. The assessee rai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d is concerned. In support of his contention, the ld. AR relied upon the decision of the Hon'ble High Court of Delhi in the case of Maruti Suzuki India Ltd 381 ITR 117, Whirlpool of India Ltd vs DCIT 381 ITR 154, Bausch & Lomb Eye Care [India] Pvt Ltd TA No. 643/2014 and 675/2014, Valvoline Cummins Pvt Ltd TA No. 158/2016 and Mary Kay Cosmetic Pvt. Ltd in ITA No. 1010/2018. 18. It is the say of the ld. AR that the Hon'ble High Court of Delhi in these cases have categorically held that the onus is on the Revenue to demonstrate that the AMP spend is an international transaction and further stated that since there is no machinery provision, therefore, bench marking cannot be done. 19. Per contra, the ld. DR strongly supported the findings of the DRP. It is the say of the ld. DR that the Tribunal, in assessee's own case in A.Y 2010-11 has considered AMP spend as international transaction and since the assessee is performing the same functions as performed in earlier A.Ys, decision of the coordinate bench should be followed. 20. We have given thoughtful consideration to the submissions of both the sides. We have also considered the orders of the co-ordinate bench in ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffective sales promotion and advertising for the contract goods including available optional equipment and accessories". 27. On a careful perusal of the relevant clauses of Importation Agreement, it can be seen that it is the duty of the BMW India is to import and distribute BMW CBUs, CKD kits and original BMW parts/accessories and in doing so, BMW India will operate its business in its own name and is responsible for promoting the sales in India. Nowhere itis agreed that BMW India shall promote the brand name owned by the AEs. 28. There is no dispute that the TPO has made adjustment applying BLT which was enhanced by DRP though for a different reason. 29. At the outset, we have to state that the Hon'ble High Court of Delhi in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT 374 ITR 118 has discarded the BLT. The Hon'ble High Court, at para 120 held as under: "120. Notwithstanding the above position, the argument of the Revenue goes beyond adequate and fair compensation and the ratio of the majority decision mandates that in each case where an Indian subsidiary of a foreign AE incurs AMP expenditure should be subjected to the bright line test o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... questioned the existence of an international transaction involving the concerned foreign AE. It was also not disputed that the said international transaction of incurring of AMP expenses could be made subject matter of transfer pricing adjustment in terms of Section 92 of the Act. 44. However, in the present appeals, the very existence of an international transaction is in issue. The specific case of MSIL is that the Revenue has failed to show the existence of any agreement, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed out that the BLT has been applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and (b) to make a quantitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Ericsson having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses, the very basis of the Revenue's case is negated. XXX 51. The result of the above discussion is that in the considered view of the Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsaction' 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 92B (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. XXX 68....................In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ord to show that two parties have "acted in concert". XXX 37. The provisions under Chapter X do envisage a 'separate entity concept'. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses. XXX 39. It is in this context that it is submitted, and rightly, by the Assessee that there must be a machinery provision in the Act to bring an international transaction involving AMP expense under the tax radar. In the absence of any clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ofit/ income as declared and accepted in respect of the international transactions." 38. In our understanding of the facts and law, mere agreement or arrangement for allowing use of their brand name by the AE on products does not lead to an inference that there is an "action in concert" or the parties were acting together to incur higher expenditure on AMP in order to render a service of brand building. Such inference would be in the realm of assumption/surmise. In our considered opinion, for assumption of jurisdiction u/s 92 of the Act, the condition precedent is that an international transaction has to exist in the first place. The TPO is not permitted to embark upon the bench marking analysis of allocating AMP expenses as attributed to the AE without there being an 'agreement' or 'arrangement' for incurring such AMP expenses. 39. The aforesaid view that existence of an international transaction is a sine qua non for invoking the transfer pricing provisions contained in Chapter X of the Act, can be further supported by analysis of section 92(1) of the Act, which seeks to benchmark income / expenditure arising from an international transaction, having regard to the arm's len....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ould be impermissible." 41. Considering the aforementioned findings of the Hon'ble Jurisdictional High Court of Delhi in the case in hand, the relevant ratios can be understood from the following: Particulars BMW India TP Documentation Comparables' Effective arm's length Result adjusted for Effective assembly return Margin of comparables' Effective arm's length Result adjusted for assembly return (FY 2010-11) GP/Sales 21.44% 11.60% 11.40% OP/Sales 12.60% 3.65% 4.08% Most of the companies selected by Assessee have AMP functions. The margin computation after excluding 2 companies which do not incur any expense on account of AMP is as follows: Particulars BMW - India Margin of comparables' arm's length Result adjusted for assembly return (FY 2010-11) (after excluding 2 companies with Zero AMP) Sales 21.44% 11.58% OP/Sales 12.60% . 3.93% 42. Since the operating margins of the assessee are in excess of the selected comparable companies, no adjustment on account of AMP expenses is warranted. 43. The DRP, while dismissing the objection of the assessee observed that the panel is left with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the company in this regard are as under: (i) Inventory/asset management. 50. To justify its claim, the assessee provided I.T. support diagram depicting an overall arrangement of the process flow. Further, the assessee submitted screen shots from companies I.T. system, which provides details of services, such as, wholesale integrated template, SAP licenses, third level support, etc. provided by the AEs to the assessee company. 51. Payment for intra group services to the AE was treated as separate international transaction, independent of final result and capable of verifiable separately and the TPO accordingly determined ALP separately rather than aggregating it with other transactions under TNMM. 52. The assessee raised objection before the DRP but without any success. 53. Before us, the ld. AR stated that once the services have been accepted to be rendered by the AEs, then ALP has to be determined as per the provisions of law. 54. The ld. DR strongly supporting the findings of the TPO/DRP, pointed out that the services claimed to have been received by the assessee are very routine. It is the say of the ld. DR that the assessee has not given details....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ons of purchase etc. Since the view of the TPO as regards the receipt of no services etc. has been set aside by us, we remit the matter to the AO/TPO for determining the ALP of this international transaction afresh as per law after allowing a reasonable opportunity of being heard to the assessee." 56. Respectfully following the findings of the coordinate bench, we direct accordingly. Ground No. 2 is treated as allowed for statistical purposes. 57. Third grievance is in respect of disallowance of Rs. 83,70,085/-. 58. Facts on record show that during the year under consideration, legal and professional expenses were claimed as deduction. When called for details, the assessee submitted the copy of invoices, alongwith TDS certificates including details of M/s Bhumi Consultants. It was explained that M/s Bhumi Consultants is in the business of providing consultancy and adversary services in the field of investment, accountancy, legal, income tax, company law, sales tax, VAT, excise, customs and service tax matters. It was further explained that the assessee engaged M/s Bhumi Consultants represented through Shri Anuj Gupta for providing assistance in reassessment of the bills en....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsidered view that unless such evidences are brought on record, the expenses cannot be considered as allowable expenditure. We, therefore, remit this issue to the file of the Assessing Officer. The assessee is directed to demonstrate that the impugned payment was in relation to the services received from M/s Bhumi Consultants. The Assessing Officer is directed to examine the claim and decide the issue afresh after giving reasonable opportunity of being heard to the assessee. Ground No. 3 is treated as allowed for statistical purposes. 66. In the result, the appeal of the assessee in ITA No. 1514/DEL/2016 is allowed in part for statistical purposes. he order is pronounced in the open court on 25.01.2019. ============= Document 1 Sl. Company Name Adverti No sing Marketing Distributi Total Expenses on Sales AMP/Sales (%) Expens Expenses es 1 ACL Components Ltd 0.02 0.01 0.03 1.66 1.8% 2 AVG Motors Ltd 0.54 0 3 Associated Auto Parts Pvt 2.51 3.05 62.66 4.87% Ltd 4 CAI Inds. Pvt. Ltd ° LO 5 CML Holdings Ltd 0,09 о 0.09 26.38 0.34% 6 Competent Au....