TaxTMI 
TaxTMI 
2019 (9) TMI 937
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....86,369 being a Transfer Pricing (TP) adjustment in relation to an alleged international of Advertisement, Marketing & Sales Promotion (AMP) expenses incurred by the assessee. The second issue raised in Gr.No.3 is with regard to correctness of determination of Arm's Length Price (ALP) in respect of a trading transaction of sale of cookies by the assessee to its Associated Enterprise (AE) of a sum of Rs. 39,99,056 consequent to determination of ALP. 3. The factual details with regard to the aforesaid two issues are that the assessee is a company engaged in the business of manufacturing of wide variety of products including biscuits and related bakery products and confectionaries. During the previous year, the assessee had entered into a transaction of sale of cookies manufactured by it in India to Unibic Australia which was an Associated Enterprise (AE). Since the transaction of sale of cookies was an international transaction, the price at which the Assessee sells cookies to its AE has to be at Arm's Length as laid down under the provisions of Sec.92 of the Act. In terms of Sec.92CA of the Act, the Assessing Officer (AO) referred to the Transfer Pricing Officer (TPO) the qu....
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.... Rs. 93,62,626/- Display Rs. 57,56,680/- Discounts & trade schemes Rs. 6,38,89,612/- Inshop promotion Rs. 15,10,356/- Sampling Rs. 17,11,432/- Sales Promotion Rs. 43,13,091/- Total Rs. 10,11,83,218/- AMP as percentage of net sales 18.22% 5. As can be seen from the above table, the percentage of AMP expenses to Net Sales was 18.22%. We have already seen that the assessee did not furnish any details with regard to the international transaction for the purpose of determining the ALP. In the course of proceedings before the TPO, he called upon the assessee to explain the reasons for incurring such huge AMP expenses and by doing to the assessee was indirectly promoting the brand of AE. In the TPO's order, there is a reference to the assessee increasing the brand value of Unibic licensing Co.Ltd., which belonged to AE and thereby increasing the goodwill of the AE. The TPO was of the view that incurring of such AMP expenses was an international transaction and the ALP in respect of such transaction had to be determined u/s. 92 of the Act. Thereafter, the TPO adopted Bright Line test for determining the ALP. The Bright Line test is a test by which similar AMP expenses i....
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....not be any adjustment on account of determination of ALP. Computation of margin filed by the Assessee before DRP is given as Annexure-1 to this order. The AP analysis done was filed on 20.4.2015 before the DRP and the same is available at pages 158 to 223 of assessee's PB. Despite such submissions, the DRP confirmed the order of AO which incorporate the directions of TPO observing as follows:- "2.1 The assessee has objected to the TP adjustment of Rs. 39,99,056/- on its sales to AE. The taxpayer did not furnish any document to the TPO though requested for the same a number of times. The TPO has recorded a date wise summary of non-compliance in his order at Pare 3. In view of non-compliance by the assessee the TPO proceeded to complete TP analysis on the basis of material on record. As a result of fresh search the TPO selected 5 comparables as under: Anmol Biscuits Ltd. Cremica Agro Foods Ltd. International Bakery Products Ltd. Shah Foods Ltd. JB Mangharam Foods Pvt. Ltd. The PLI (OP/OC) of these comparables was worked out at 2.79%. Consequently, the TPO worked out the ALP on sales of Rs. 138,82,560/- to AE at Rs. 178,81,616/-. Thus, TP adjustment of Rs. 39,99,056/....
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....he aforesaid addition sustained by the DRP, the assessee has filed the present appeal before the Tribunal. We have heard the rival submissions. It is clear from a reading of the order of DRP and the submissions made by the assessee before the DRP vide letter dated 17.4.2015 (copy of which is at page 158 of PB) that the TP analysis filed by the assessee before the DRP has not been considered. The reasons for not filing the TP analysis before the TPO was that the consultant could not complete the assignment in due time. In our opinion, the DRP ought to have considered the TP study filed by the assessee before it and considered the objections of assessee. We are also of the view that in the light of the fact that net margins on cost of goods sold to unrelated parties being less than the net margins on sale of related parties, the transactions with AE has to regarded as at arm's length. In other words, the internal TNMM adopted by the assessee would show that the price charged in the international transaction on sale of cookies to Unibic, Australia was at arm's length. Since the TPO did not have an occasion to examine this report, we deem it fit and appropriate to set aside the....