TaxTMI 
TaxTMI 
2020 (12) TMI 562
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....ngth price ("ALP") of (alleged) international transaction of Advertisement, Marketing and Promotion ("AMP") expenditure holding the same to be not at ALP, applying the intensity approach. 3. That on the facts and circumstances of the case and in law, the order dated May 16, 2017 passed by the TPO is non-est and invalid since the TPO rectified its order dated November 10, 2016 giving effect to the directions of the Hon'ble Tribunal without specifying the mistakes (which is apparent from records) in that order and without considering objections of Appellant. 4. That on the facts and circumstances of the case and in law, the impugned order passed by the AO / TPO is bad in law as it has concluded existence of 'international transaction' without discharging onus to prove existence of an agreement, understanding or arrangement between the Appellant and the AE for incurrence of AMP expenditure. 5. That on the facts and circumstances of the case and in law, the order of the TPO is non-est and invalid as the TPO has computed ALP of AMP expenditure (alleged international transaction) simultaneously on substantive as well as protective basis which is against the con....
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....ed Price Method 28,94,378 6 Cost Reimbursements Received 4,61,95,300 7 Cost Reimbursements Paid 37,99,998 These transactions were accepted to be at arm's length price (ALP) by the Transfer Pricing Officer ("TPO") / Assessing Officer. The TPO, vide order dated 06.01.2015 observed that the assessee company was incurring excessive Advertisement, Marketing and Promotion Expenditure (AMP) for development of the brand owned by its foreign AE, therefore such excessive AMP expenditure would amount to 'international transaction'. Consequently, adjustment of Rs. 68,50,65,162/- was made by the TPO by applying Bright Line Test (BLT). Further, the TPO had included direct selling and distribution expenditure within the ambit of AMP expenditure. The Assessing Officer passed a draft assessment order dated 20.02.2015 in conformity with the order of the TPO and determined the total income of the assessee company at Rs. 80,85,90,910/- as against the returned income of Rs. 12,35,25,748/-. The assessee company filed objections dated 26.03.2015 against the said draft order before the Dispute Resolution Panel (DRP). The DRP vide order dated 30.09.2015 rejected the objections o....
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.... Order Giving Effect to the Directions of the Hon'ble ITAT, New Delhi The Hon'ble ITAT, New Delhi vide his order dated 15.07.2016 has set aside the case and the matter is restored to the file of TPO/AO for fresh determination of question as to whether there exists an international transaction of AMP expenses. The selling expenses directly incurred in connection with sales not leading to brand promotion, should not be brought within the ambit of AMP. Therefore, in view of the direction of the Hon'ble the ITAT, the earlier adjustment of Rs. 75,02,87,734/- is being revised to Nil. Thereafter, the TPO issued a notice dated 15.03.2017, stating that the order of the TPO has encountered certain discrepancies and accordingly, the assessee company was requested to show-cause why the earlier order dated 10.11.2016, be not amended as per the TP order for Assessment Year 2010-11. A response was filed by the assessee company in this regard vide submissions dated 30.03.2017 and it was elaborately submitted that the said order could not be rectified under Section 154 of the Act. Notwithstanding it was also submitted that even if an intensity adjustment is....
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....ng the said alleged international transaction. The assessee vide submissions dated November 8, 2016 filed detailed objections in respect to the above-mentioned questionnaire. The TPO after taking into consideration, the submissions filed and also the earlier submissions / documents on record, passed an appeal effect order dated November 10, 2016 determining the ALP of the alleged incurrence of excessive AMP expenditure as an international transaction Nil. In other words, no adjustment was proposed on account of the said alleged international transaction. Thereafter, the TPO issued a show-cause notice dated March 15, 2016. In the said notice, the TPO stated that there are certain discrepancies in the order dated November 10, 2016 and therefore, why the said order should not be rectified in terms of the transfer pricing order passed for AY 2010-11. Meaning thereby, the TPO intended to make transfer pricing adjustment on account of alleged excessive AMP expenditure as an international transaction on substantive basis using intensity method and bright line method on protective basis, as was done in AY 2010-11 in the second round of proceedings (i.e., post remand by the Tribunal).....
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.... TPO before passing of the subsequent order dated May 16, 2017 making transfer pricing adjustment on account of alleged excessive AMP expenditure as an international transaction, neither independently dispose the objections filed by the assessee to the above-mentioned rectification show-cause notice, nor were they considered while passing the later transfer pricing order and also nowhere, in the later TP order it has been mentioned that the earlier order stands rectified for the reasons as may have been considered / culled out by the TPO. In other words, TPO being aware of the position that debatable claims/ additions/ disallowances do not come within the purview of section 154 of the Act, chose to remain silent and passed a non-speaking TP order dated May 16, 2017. The Ld. AR submitted that when the earlier order has not been rectified or reversed in the subsequent TP order passed by the TPO, two transfer pricing orders for the same assessment year cannot co-exist. The same is undisputed from the subsequent order dated May 16, 2017, passed by the TPO that not only the TPO has ignored the submissions of the assessee filed against rectification notice issued section 154, but was als....
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....eting intangibles, in the course of incurrence of such expenditure; and - make payment for rendering marketing development services or other allied activities. AMP expenditure can, at best, be termed as unilateral endeavour by the domestic company for achieving higher sales / retaining market share and any alleged benefit to AE would be merely incidental which cannot at all be brought under the umbrella of 'international transaction' as referred to in section 92B of the Act. The TPO in its order could not prove any such separate arrangement/ agreement existed, hence the domestic transactions does not fall under the ambit of Section 92B(2) of the Act. The TPO has simply placed reliance on the decision of the Delhi High Court in the case of Sony Ericsson Mobile Communications India P. Ltd. vs. CIT: [2015] 374 ITR 118 (Delhi) and stated that the expenditure incurred by the assessee company is excessive, thus, is an international transaction. There is no understanding, what so ever in the agreement to depict that Nikon India is incurring excessive expenditure owing to any arrangement between Nikon India and its AE with the intention to promote the brand of foreign AE in Ind....
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....out pointing out what mistakes (which are apparent from records) have crept-in the said order, the TPO rectified the earlier order which is against. The Ld. AR further pointed out that the said order was passed solely on the basis of change in opinion and not based on any mistake apparent. Further, it was passed without the mention of the previous order dated 10.11.2016. 7. The Ld. DR submitted that the order passed under Section 154 of the Act is valid and there was a mistake apparent in respect of order giving effect to the directions of the Tribunal in order dated 10.11.2016 passed by the TPO. The Ld. DR further submitted that the assessee has incurred huge AMP expenditure to develop marketing intangible to promote the trademark/Brand name owned by its AE. The AE has received benefit in the form of enhanced brand value in India and increased sales of their products. The Ld. DR relied upon the order of the TPO and submitted that the AMP expenditure constitutes an "International Transaction" within the meaning of Section 92B(1) of the Act. The Ld. DR pointed out the amendments made by Finance Act, 2012 to Section 92B of the Act which added an explanation, wherein it was s....
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....international transaction is found to be existing, then the TPO will determine the ALP of such an international transaction in the light of the relevant judgments of the Hon'ble High Court, after allowing a reasonable opportunity of being heard to the assessee. In doing so, the selling expenses directly incurred in connection with sales not leading to brand promotion, should not be brought within the ambit of AMP expenses. This view taken by the Special Bench of the Tribunal in the case of LG Electronics India Pvt. Ltd. vs. ACIT (2013) 152 TTJ (Del) 273 (SB) has been upheld by the Hon'ble Delhi High Court in the case of Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del.) The contention of the ld. DR that SLP has been admitted against the exclusion of selling expenses from the ambit of AMP expenses in the case of Amadus India Ltd., does not alter the legal position prevailing as on today." As per the directions of the Tribunal, the TPO vide order dated 10.11.2016 passed the following order: "Order Giving Effect to the Directions of the Hon'ble ITAT, New Delhi The Hon'ble ITAT, New Delhi vide his order dated 15.07.2016 h....