TaxTMI 
TaxTMI 
2022 (2) TMI 1136
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....prise (AE) by incurring the said expenditure. 2.1. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in manufacturing and sales of breakfast cereals and convenience foods and it operates as a licensed manufacturer of ready to eat cereals. At the outset, both the parties before us fairly stated that this issue has been already decided in favour of the assessee by this tribunal in earlier years upto Asst Year 2013-14. We find that the ld. TPO and ld. DRP had relied on their respective findings recorded for the Asst Year 2013-14 which goes to prove that the facts involved in those years are identical with the facts involved during the year under consideration. Accordingly we deem it fit and appropriate to reproduce the relevant operative portion of the order of this tribunal passed for the Asst Year 2013-14 in ITA No. 137/Mum/2018 dated 7.9.2020 as under:- "3.2 The assessee carried out certain international transactions with its Associated Enterprises (AE) which were subject matter of determination of Arm's Length price (ALP) before Ld. Transfer pricing Officer (TPO) vide order u/s. 92CA (3) dated 28-10-2016. The....
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....tage of sales of two comparable entity as 12.33% and applying the same to the assessee's turnover, proposed TP adjustment of Rs. 4585.16 Lacs in its order dated 28-10-2016. In other words, the Ld. TPO chose to benchmark the same primarily by using Bright Line Test (BLT) method. The working of the adjustment has been provided in para-18 of Ld. TPO's order. The TP adjustment, thus proposed, were incorporated in draft assessment order dated 29-12-2016 which were subjected to assessee's objections before Ld. DRP. 3.5 The Ld. DRP confirmed the TP adjustments primarily relying upon the directions given by predecessor DRP in AY 2012-13. It is evident from para 4.6 of Ld. DRP's order that facts of the case as well as the arguments raised by the assessee for the year under consideration are stated to be same as for AY 2012-13. Aggrieved as aforesaid, the assessee is under further appeal before us by way of elaborate ground no. 1 and assails the TP adjustments so made. 4.1 As rightly pointed out by Ld. AR, this issue stood covered in assessee's favor by the order of coordinate bench of this Tribunal in assessee's own case for AY 2009-10 (lea....
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....ating that there is an arrangement between the assessee and the AE, the Transfer Pricing Officer cannot bring the AMP expenditure within the purview of international transaction. If the Transfer Pricing Officer alleges that the AMP expenditure comes within the purview of international transaction by virtue of an arrangement between the related parties, the burden is entirely upon the Transfer Pricing Officer to demonstrate the existence of such arrangement. A careful reading of the impugned order of the Transfer Pricing Officer does not reveal any such factual basis which can demonstrate the existence of an arrangement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE. That being the case, the entire approach of the Transfer Pricing Officer in determining the arm's length price of AMP expenditure is fallacious. 7. Moreover, there is no doubt that the Transfer Pricing Officer has determined the arm's length price of AMP expenditure by applying BLT method. While doing so, he has heavily relied upon the Special Bench decision of the Tribunal, in LG Electronics India Pvt. Ltd. (supra). Now, it is fairly well established that d....
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.... As per the prevailing legal position, the AMP expenditure incurred by the assessee in India cannot come within the purview of international transaction. That being the case, the adjustment made by the Transfer Pricing Officer cannot survive. Therefore, we do not find any necessity to restore the issue to the Assessing Officer. Grounds are allowed. The aforesaid decision has subsequently been followed by another coordinate bench in assessee's own case for AY 2011-12 in revenue's appeal ITA No. 1906/Mum/2016 and also in assessee's appeal for AY 2012-13 ITA No. 2314/Mum/2017; common order dated 24-2-2020." 4.2 It was observed by the bench in AY 2009-10 that the assessee was not merely a distributor of the products manufactured by its AE but the assessee itself was manufacturing its own products in India under license from the AE. Further, with a view to market and promote its own manufactured products, the assessee incurred AMP expenditure by making payments to third parties in India. There was no express arrangement/agreement between the assessee and the AE for incurring such expenditure to promote the brand of the AE and therefore, the said transactions would n....
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.... breakfast cereals and convenience foods and operated as a licensed manufacturer of ready to eat cereals. During the year under consideration, the assessee had commenced business of distributing Pringles products in the Indian markets. The assessee purchases the pringles product from its AE Pringles International Operations SARL, based in Singapore. The undisputed facts are that the Singapore AE does not manufacture pringles, but in turn gets it manufactured from a third party contract manufacturer. Thereafter, the goods are supplied at a cost plus mark up of 5% on third party manufacturer's cost. These Pringles are later imported by the assessee from its AE and distributed in the Indian market. The ld. TPO had also stated that the AE cross charges the transportation costs to assessee without any mark up. In the Transfer Pricing (TP) study report, the assessee characterised itself as a distributor of Pringles products and is responsible for the strategic and overall management of Pringles business in India and on the other hand, Singapore AE, being the least complex entity, was selected as the tested party for benchmarking the international transaction of import of finished goo....
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....tion, which had eventually led to the inadvertent omission on the part of the assessee to agitate the same in the original grounds. 3.5. The ld. AR stated that based on the FAR analysis stated in the TP study, the assessee acts as an entrepreneur in the Indian market by undertaking all the key decisions and performing all the significant functions with respect to its business operations in India and thus bears significant entrepreneurial risk. On the other hand, Singapore AE is not subjected to the dynamics of the Indian market and hence is a low risk entity remunerated with a steady return on cost. The assessee is entirely responsible for selling the Pringles products in the Indian markets through its distribution network whereas the Singapore AE who supply Pringles based on requisition of the assessee, are not responsible for marketing the products manufactured by them. The assessee is also involved in supply chain management including identifying the market opportunities, purchasing, logistics, production, distribution, marketing, finance and sale of finished products, which is not the case with the Singapore AE. From a risk perspective, the assessee undertakes all the market....
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....e; and in case of Egypt, Brazil and Thailand, benchmarking of Asia was accepted. 3.8. We find from the perusal of the TP Study Report and on hearing both the sides, all the risks are associated with the assessee as the assessee is responsible for developing the market in India and bear market risk and also responsible for the risk and rewards for the distribution activity. We hold that the assessee bears significant entrepreneurial risk in India. We find that the assessee had to carry on multiple functions as detailed above in order to market the imported Pringles in India. We find that the Singapore AE is remunerated on mere cost plus mark up basis and undertakes only limited functions. Hence we hold that for all practical purposes, Singapore AE would be the least complex entity. The statute requires that tested party selected should be the least complex party. Moreover, the main basis for rejection of the Singapore AE as tested party by the ld. TPO was in view of the fact that the financials of AE as well as foreign comparable companies were not produced before him. This fact has been found to be incorrect as the assessee had indeed furnished the financials of AE as well as fo....