TaxTMI 
TaxTMI 
2021 (4) TMI 1114
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....the "TPO"] are bad in law and void abinitio. 2. That on facts and in law the AO/TPO/DRP erred in making/proposing/upholding Transfer Pricing adjustment of Rs. 3,98,97,000/- on account of Advertisement, Marketing and Promotion (AMP) expenses. 2.1 That on facts and in law the TPO/DRP erred in not appreciating that in absence of a "transaction" as envisaged under section 92F of the Act between appellant and its AE for brand promotion or for establishing a marketing intangible the TPO had no jurisdiction to propose an adjustment on account AMP expenses. 2.2 That on facts and in law the TPO erred in holding and the DRP inter alia erred in upholding/observing that the: (i) Appellant had incurred AMP expenditure of Rs. 288.69 lakhs on development of marketing intangibles for the benefit of AE. (ii) AMP expenditure of Rs. 288.69 lakhs incurred by the appellant is an "International Transaction" u/s 92B of the Act. (iii) AE is directly benefited by any expenditure incurred by assesse on AMP (iv) Alleged transactions of AMP expenditure is to benchmarked in a segregated manner. 2.3 That on facts and in law, the AO/TPO while giving effect to DRP directions erred in holding that ....
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..... "On the facts and in the circumstances of the case, the DRP-2 erred in directing AO to complete the assessment as per observations made by DRP in the order which resulting in reducing the addition to Rs. 3,98,97,000/- in place of original recommended ALP of Rs. 14,46,58,620/- for the International transactions undertaken the assessee company with its associate/parent enterprise". 2. "Whether the DRP was justified in not appreciating the fact that bright line is a mere step [of the most appropriate method for benchmarking the AMP services] carried out to estimate and bifurcate expenditure pertaining to the taxpayer for its own routine distribution function and the expenditure incurred on AMP service provided to the AE in a situation where the assessee has not reported the international transaction pertaining to marketing function." 3. "Whether under the facts and circumstances of the case and in law the Hon'ble DRP was correct in holding that PLR cannot be the basis for computing markup on AMP expenses without appreciating the Revenue's case wherein the PLR of banks has been used as an uncontrolled comparable to benchmark the opportunity cost of money involved and locked u....
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....ansaction to Rs. 3,98,97,000/-. The learned Assessing Officer accordingly in the final assessment order made adjustment of Rs. 3,98,97,0000/- on account of alleged AMP transactions. 2.1 Aggrieved with the final assessment order of the Assessing Officer, both the assessee as well as the Department are in appeal raising their respective grounds as reproduced above. 3. Before us, both the parties appeared through Videoconferencing and filed documents/paper-books electronically. 4. The learned counsel for the assessee referred to para 8 of the TPO and various paras of the order of the learned DRP. The learned counsel submitted that no international transaction exist in the case of the assessee and the Tribunal in ITA No. 5528/Del./2012 for AY 2008-09 and ITA No. 2060/Del./2015 for AY 2010-11 has given a finding that no international transaction of AMP exist in the case of the assessee and accordingly adjustment has been deleted in the case of the assessee. He submitted that following the above precedents in the case of the assessee, the transfer pricing adjustment made in the year under consideration also needs to be deleted. With regard to the appeal of the Revenue, he submitted th....
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....rable companies and TPO to apply cost plus method instead of TNMM. (d) Use of Bright Line Method has been rejected and directions have been issued to TPO to benchmark alleged transaction alternatively" 6.2 Further, we find that identical issue of existence of International Transaction in the case of assessee came up for consideration before the Tribunal for assessment year 2008-09 in ITA No. 5528/Del/2012. The relevant finding of the Tribunal is reproduced as: "15. Hon'ble Delhi High Court in subsequent decisions viz. Bausch & Lomb Eye Care (India) Pvt. Ltd. v. Additional CIT (2016) 381ITR 227 (Del.) and Honda Siel Power Products Ltd. v. Dy. CIT (2016) 237 Taxman 304 held that it is for the Revenue to firstly discharge the onus to prove the existence of an international transaction between the taxpayer and its AE and only thereafter ALP of international transactions involving AMP can be computed. 16. Ld. AR for the taxpayer vehemently contended that AMP expenditure is not an international transaction nor any objective findings have been returned by the ld. TPO. When we peruse the findings of ld. TPO in paras 3.5 & 3.6, the TPO in order to find out whether AMP is an internati....
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....ing of the income. The taxpayer also relied upon para 7.13 of the OECD Guidelines which state inter alia that, "an AE should not be considered to receive an intra-group service when it obtains incidental benefits attributable solely to its being part of a larger concern and not to a specific activity being performed". 22. Ld. AR for the taxpayer further contended that use of any logo across the globe is not considered equivalent to enhancing a brand. However, ld. TPO proceeded to observe on the basis of general observation that the mandatory use of brand name or logo of the overseas parent company will lead to the creation of a marketing intangibles in favour of the taxpayer. However, when we examine the facts of this case in entirety, no doubt taxpayer uses "Xerox" logo but all the information in relation to contract address, brand ambassador, product, market and other similar details in the advertisement is confined to India only. So, it cannot be said to promote the Xerox brand world-wide. Moreover, when it is undisputed fact that the taxpayer has not paid any royalty for use of Xerox brand name, incidental benefits, if any, to overseas entity does not call for any compensat....
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....istribution expenditure by them. The AMP expenditure incurred by the distributors of the branded goods would include certain amount of brand promotion expenses. That is why such distributors have not been considered as comparables because o~ aim is to determine the routine marketing and distribution expenses to fix the 'brightline' and ascertain the expenditure incurred by the assessee which is attributable to brand promotion. Only routine distributors are to be taken who are nor engaged in any brand building exercise. The purpose of bright line is to ascertain as to how much AMP expenses would normally be incurred by a manufacturer distributor for carrying on its routine distribution activity. For this it is necessary to select comparables which are not engaged in creation of brand name. In respect of the third company, M/s. Rathi Graphics Ltd., the TPO has observed in the order that it was carrying out AMP activities on behalf of its subsidiaries also. The assessee has not given any arguments to rebut the contention of the AO. Therefore, the assessee's objection regarding rejection of all the three comparables is turned down by the Panel. The assessee has also given....
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....wo parties acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses. ........... 47. For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP expenses between WOIL and Whirlpool USA. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In any event, in the absence of a machinery provision it would be hazardous for any TPO to proceed to determine the ALP of such a transaction since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP. " 26. Hon'ble Delhi High Court in case of Maruti Suzuki India Ltd. vs. CIT (2015) 64 taxmann.com 150 (Delhi) also decided as to how the international transaction qua AMP expenditure is to be determined and as to how the price of international transaction qua AMP expenditure is to be determined by returning following findings:- "68. The above submissions proceed purel....
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....sted under the Explanation to Section 92Bof the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue)or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for?" 27. In case of Honda Siel Power Products Ltd. vs. DCIT (2015) 64 taxmann.com 328 (Delhi), Hon'ble Delhi High Court held that:- "25. If the BLT is kept aside as a valid means of determining the existence of an international transaction concerning AMP expenses, the Revenue would have to make out its case on the basis of the other tangible material which might show the existence of any 'arrangement' or 'understanding' or any conduct of either party to show that they were 'acting in concert' as far as the Assessee having to promote the brand of the foreign AE is concerned. 28. In case of LE Passage to India Tour & Travels (P.) Ltd. (2017) 391 ITR 207 (Delhi), Hon'ble Delhi High Court again held that all transactions reporting AMP cannot be treated as international transaction ....
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....determination by the TPO in the first place whether there was an international transaction. In the present case, however, the TPO did apply his mind to the existence of an international transaction involving AMP expense. The only ground on which the conclusion was reached by the TPO was that the AMP expenditure incurred by the Assessee was in excess of that incurred by the comparables. His conclusion was not based on any other factor. In other words, it was not as if the conclusion arrived by the TPO was based on two or three grounds, one of which was the BLT. 16. This Court in Sony Ericsson India Pvt. Ltd. (supra) categorically found that the BLT was not an appropriate yardstick for determining the existence of an international transaction or for that matter for calculating the ALP of such transaction. The decision of the Full Bench of the IT AT in L.G. Electronics India Pvt. Ltd. v. AC IT (2013) 22 ITR (Trib.) 1 which sought to make BLT the basis was set aside by this Court. " 30. In the instant case, there is not an iota of material on the file apart from relying upon the fact that by incurring huge AMP expenses to the tune of 6.93%, taxpayer has enhanced brand value and cre....
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.... determined in favour of the taxpayer. 35. Before parting with this order, we would like to bring on record the fact that ld. DR for the Revenue, although admitted the legal position enunciated in the preceding paragraphs, but he contended that since all the aforesaid decisions are lying challenged before the Hon'ble Apex Court, the matter may be kept pending till the decision by Hon'ble Apex Court. However, we are of the considered view that since it is a stay granted matter and the proceedings before the second appellate authority have not been stayed by any higher forum, the same cannot be kept pending. 36. After considering the legal position as discussed in the preceding paragraphs, we are of the considered opinion that the ALP of an international transaction involving AMP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. At the same time, we cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file....