TaxTMI 
TaxTMI 
2020 (10) TMI 924
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.... that AMP expenditure would not fall within the ambit of an international transaction and hence, no adjustment to arm's length price (ALP) need to be made thereof. Since assessee has raised a legal issue in its cross objection, it would be proper to take up cross objection of the assessee for the purpose of adjudication before proceeding to taking up the other issue on merits. Now, the short point that arises for our consideration in the cross objection of the assessee is as to whether Advertising, Marketing and Promotion (AMP) expenditure could be construed as an international transaction in the facts and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is engaged in the manufacturing, distribution of sales of "Mattel" toys. Its operations include import of finished goods from group companies, purchase of finished goods from local manufacturer and also manufacturing, mainly involving componentassembly to core party manufacturers. The assessee's product portfolio includes well known toy brands like Barbie, Hot Wheels and Fisher Price. We find that the ld. TPO had observed from the profit....
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.... of the said tribunal order is reproduced as under:- "7.We have heard the rival submissions and perused the material before us. Before proceeding further, it would be useful to understand the philosophy of the TP provisions. It is said that the purpose and object of introduction of the provisions contained in Chapter X is to prevent an assessee from avoiding payment of tax by transferring income yielding assets to non-residents even while retaining the power to enjoy the fruits of such transactions i.e. the income so generated. The present provisions were been incorporated vide Finance Act, 2001.Same were further amended vide Finance Act,2002 and are being amended from time to time to meet the new challenges thrown up by the dynamism of the current commercial and business realities. Having regard to the object for which provisions have been enacted, applicability of the said provisions has to be limited to situations where there is diversion of profits out of India or where there may be erosion of tax revenue in intra group transaction. So, intra-group transaction is the first pre-condition for invoking the TP provisions. Calculation of ALP is the next and logical....
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....tain expenditure by an assessee in India, is not covered by the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and that those parties were located in India. 7.2.In the cases of Bausch & Lomb Eyecare(India) Pvt. Ltd(supra),the issue of AMP expenses had been deliberated upon extensively and each and every argument raised by the departmental authorities have been analysed thread bare. We would like to reproduce relevant portion of the said judgment and same reads as under: "53.Areading of the heading of Chapter X['Computation of income from international transactions having regard to arm's length price"]and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP and Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such internat....
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....tween two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection- with the - benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part. of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or' 'understanding' between BLI -and B&L, USA whereby BLI is obliged to spend excessively on AMP in order topromote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as an 'International transaction'. This might be only an illustrative list, but significantly' it does not l....
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....sons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared common Objective' or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship' can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purposemay be in pursuance of an agreement' or an understanding, formal or informal; 'the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they may agree to, cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being. " 60. The transfer pricing adjustment is not expected to be ....
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.... (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions",Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another inuncontrolled 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 Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT, 70. What is clear is that it. is the 'price' of an international transaction which is required to be adjusted: The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an adjustment had to be made. The -burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction an....
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....s a deduction." The AO in such an instance deploys the 'best judgment'assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables' an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found' that there is an International transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be "impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax av....
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....inion that AMP expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. Considering the facts and circumstances of the case under consideration, we are of the opinion that the FAA was not justified in upholding the order of the TPO. Therefore, reversing his order, we decide second ground in favour of the assessee." 5.1. Respectfully following the aforesaid decision of this Tribunal in assessee's own case referred to supra, we hold that the AMP expenditure is not an international transaction and hence no adjustment to ALP need to be made thereon. Accordingly, the grounds raised by the assessee in its cross objections are allowed. Since the issue is adjudicated in favour of the assessee on technical ground, we refrain to give our opinion on the ground raised in the revenue appeal in this regard on merits as the adjudication of the same would become infructuous. 6. The ground Nos. 1 & 2 raised by the revenue is with regard to act of the ld. CIT(A) in holding that unabsorbed depreciation pertaining to A.Yrs. 1998-1999 and upto A.Y. 2001-02 was allowable to be carried forward and adjusted in view of Section 32(2) of the Act. 6.....