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2021 (4) TMI 1114
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..../ Transfer Pricing Officer [hereinafter referred as 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. ....
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.... Certificates of Rs. 8,40,136/- . That the appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing. Grounds of appeal raised by the Revenue: 1. "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 hold....
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....The learned DRP vide its order dated 18.11.2015, directed the TPO to re-compute the margin of transfer pricing adjustment. In compliance to the direction of the learned DRP, the learned TPO gave effect and computed transfer pricing adjustment on account of AMP transaction 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 bee....
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.... (b) Routine selling and distribution expenses shall be excluded subject to the verification by TPO. (c) The TPO to follow decision in case of Sony Ericsson Mobile (supra) and held that Segregated approach is to be applied for separating routine selling and distribution expenses from AMP expenses considering comparable 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 int....
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....y it. However, dismissing the contentions raised by the taxpayer, ld. TPO made out the case that, "by incurring these expenses, the taxpayer has enhanced the value of intangibles owned by the parent company". 21. Ld. AR for the taxpayer further contended that to improve its business market, it is the sole responsibility of the taxpayer and as such, the AMP expenditure has direct nexus with its earning 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 "Xe....
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....rnational transaction qua AMP expenditure by returning following findings:- "5.8 We have also considered the assessee's objection about rejection of certain comparables by the TPO. Two of them, namely, Mis Ricoh India Ltd. and Mis Spice Mobile Ltd. are engaged in the distribution of branded goods. We have already mentioned that the TPO has considered the distributors of only the similar unbranded goods to determine the routine marketing and distribution 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 neces....
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....ty concept'. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two 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 tr....
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....Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. ................. 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed 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 existenc....
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....was necessary and if so, the effect thereof. The parties are directed to appear before the I.T.A.T. on 01.02.2017. The appeal is partly allowed in the above terms. " 29. Hon'ble Delhi High Court in Valvoline Cummins (P.) Ltd. vs. DCIT (supra) further decided the issue in favour of the taxpayer that merely because of the fact that AMP expenditure incurred by the taxpayer was in excess, existence of international transaction cannot be inferred. Operative part of the findings is extracted as under '15. The decision in Le Passage to India Tour & Travels (P) Ltd.(supra) turned on the fact that there was no 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. ....
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....hows that benefit of AMP activities accrued in favour of the taxpayer. Moreover when TPO has failed to prove that there is an existence of international transaction between taxpayer and AE, the addition on account of AMP expenses cannot be made on the basis of the fact that AMP expenses of the taxpayer are far excess than the AMP expenses of comparables. 34. Even otherwise, the mere use of logo of AE is per se not international transaction. Consequently, we are of the considered view that AO/DRP/TPO have erred in making addition of Rs. 36,41,27,428/- which is not sustainable in the eyes of law, hence ordered to be deleted. Hence, grounds no.3 to 25 are 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 se....