TaxTMI 
TaxTMI 
TaxTMI 
2020 (12) TMI 562
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 contours of transfer pricing. 6. That on the facts and circumstances of the case ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 of the assessee company and upheld the adjustment proposed in relation to AMP expenditure. Pursuant to the directions of the DRP, the TPO passed order giving effect to the directions of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stion 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 carried out, then also, the ALP of the international transaction of the assessee company are at arm's length. The TPO passed another order dated 16.05.2017 under Section 92CA(3) read with Section 254 of the Act. The TPO vide above stated subsequent order dated 16.05....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd, 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). The Ld. AR pointed out that nowhere in the above-mentioned rectification notice, proposing rectification of the earlier order the TPO has given reasons as to what were the mistakes apparent from record which form the basis for rectifying that earlier order; besides summarily stated that there ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otice, 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 also not diligent enough to mention the earlier TP order dated November 10, 2016 stands modified/ rectified. Nowhere in the of the order, an averment/ reference has been made to the earlier TP order, making it apparent that the lower authorities were well aware that rectification of the earlier TP....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 India. The expenses incurred by the assessee company are required in the routine course of business to increase the sale of its products within India. It is clear that assessee company's marketing efforts only cater for promoting the products that it deals in, solely with an intention to boost its sales in India. The mark....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ere 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 stated that the international transaction shall include the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of licenses, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature. The explanation further described intangible property as mark....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 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." But on 15/3/2017, the TPO issued Show ....