TaxTMI 
TaxTMI 
2022 (6) TMI 338
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....ture as an International Transaction in assessee's own case for A.Y. 2011-12 in ITA No. 1197/Del/2016 dated 27.03.2019. 2. Whether on the facts and circumstances of the case, the ld. CIT(A) is justified in issuing direction to include the four comparables which were already rejected by the TPO by giving proper reasoning in his order." 4. In ITA No. 4517/Del/2019, following grounds have been raised by the assessee: "1.1 That, the Hon'ble Commissioner of Income Tax (Appeals) ["CIT(A)"] has grossly erred in directing to undertake a fresh benchmarking analysis for the transaction involving "export of finished goods" while adopting a perplexing approach of an intensity based comparability adjustment for alleged Advertising, Marketing and Promotion ("AMP") expenses. 1.1.1 This despite clearly concluding that on the facts in the instant case, AMP expenditure is not an international transaction and that any adjustment in respect of such AMP expenditure is not justified. 1.2 Without prejudice, on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has grossly erred while directing to re-determine the arm's length pric....
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....onal transaction involving sale of goods to AEs and thus recharacterizing such outstanding receivables as a loan extended to AEs. 1.10 Without prejudice, the Hon'ble CIT(A) and the Learned AO/TPO has erred in not appreciating that any interest due on account of outstanding payments is already embedded in the sale price of goods/services sold to AEs. 1.11 Without prejudice, the Hon'ble CIT(A) and the Learned AO/Learned TPO has erred on facts and in law while concluding that outstanding trade receivables constitute separate international transaction and proceeding to benchmark the same by incorrect application of Comparable Uncontrolled Price ("CUP") method using the six months London Interbank Offered Rate ("LIBOR") plus 400 basis points. 1.12 Without prejudice, the Hon'ble CIT(A) and the Learned AO/TPO is not justified in ignoring that the trade practice of the Appellant of not charging/recovering interest on outstanding balances with AEs is also consistent with its practice of not charging/recovering interest on outstanding balance with unrelated/third parties. 1.13 Without prejudice, the Hon'ble CIT(A) is not justified in arbitr....
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....p; Set off brought forward losses 167 , 476 , 243 Total Assessed assessment order income/( loss) as per NIL 7. The appellant has challenged the action of AO/TPO in a) treating AMP as a separate international transaction, b) using bright line test from benchmarking, c) incurring expenditure on account of advertisement, marketing and promotion, under influence or control of the AE. 8. The international transactions as disclosed by the assessee in Form 3CEB were as follows: S.No. Type of transaction Value ( in INR) Method used 1. Export of finished goods to AEs 2, 90, 95 , 650 TNMM 2. Import of liquor for resale 7, 67, 70 , 608 RPM 3. Provision of marketing support services 71 , 78 ,495 TNMM 4. Payment of interest on ECB 44 , 00 ,715 CUP 5. Payment of interest on FCD 56 , 26 ,056 CUP 6. Reimbursement of expenses by AEs 9, 23, 74 , 118 No benchmarking required 7. Reimbursement of expenses by AEs 76 , 13 ,465 8. Interest free loan - 9. The TPO after noting the international transactions mentioned proceeded to benchmark the transa....
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....incurred) by the Appellant for assistance in the sales promotion and marketing activities, be considered as an "international transaction" between two associated enterprise ('AE') under Section 92B(1) or 92B(2) of the Act. * Therefore, in order to be characterized as an "international transaction', it would have to be demonstrated that the same arises pursuant to an arrangement, understanding or action in concert. A "transaction", per se involves a bilateral arrangement or contract between the parties. Unilateral action by one of the parties, without any binding obligation, in absence of a mutual understanding or contract, could not be termed as a "transaction". A unilateral action, therefore, cannot be characterized as an "international transaction" capable of invoking the provisions of Section 92 of the Act. * In the instant case, the Appellant has incurred expenditure on AMP to cater to the needs of the customers in the local market. Such AMP expenditure was neither incurred at the instance/behest of overseas AEs, nor was there any mutual agreement or understanding or arrangement as to allocation or contribution by the AE towards reimbursement of an....
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.... its own cost and risk by investing huge sums in marketing and other selling activities. The AE of the Appellant has made nil contribution to total expenditure incurred by the Appellant on development of brand and marketing intangibles for the AEs in India. This is evident from the fact that the Appellant has launched and promoted 'Bacardi' brand in India and had incurred huge expenditure under AMP in earlier years and in the year under consideration. * The Appellant has incurred a cost in connection with the benefit and services provided to the AE through the marketing expenditure. Since the benefit of entire expenditure incurred on AMP is flowing to the AE, the AMP expenditure was an international transaction under section 92B(1) read with clause (v) of section 92F of the Income Tax Act, 1961 ('Act'). * The brand received by the Appellant has no intrinsic value. The AMP expenses that the Appellant has incurred is adding value to the brand. It is the Appellant's marketing efforts that have increased the sales of the products of the Appellant. The increased sale will come about only when the Appellant is able to so position the brand in the mar....
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....e and Appellant is direct beneficiary of such expenses. Any indirect benefit to third party (read AEs) is purely incidental. * Seeking compensation for AMP expenditure is inconsistent with the characterization/business model of the Appellant; the Appellant is entitled to the economic benefits related to the ownership of brand 'Bacardi' in India. * Incurrence of domestic AMP expenses does not constitute 'international transaction' under either of sub-sections (1) or (2) of section 92B of the Act. 14. On going through the entire issue, the ld. CIT(A) held as under: * that under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. * The next step is to determine the price of such transaction. * The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. * The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. Under Section 92B (1) an 'internationa....
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....AMP expenditure by applying bright line limit of 7.52% as ALP of AMP expenditure. Further, mark up of 15% was also applied to arrive at the amount of TP adjustment equivalent to the amount of compensation to be provided by AE for incurring AMP expenses for brand building. * The ld. CIT(A) relied on the decision of Hon'ble Delhi High Court in CIT vs. EKL Appliances Ltd., wherein the court held that the very existence of international transaction cannot be a matter for inference or surmise. * The ld. CIT(A) held that the TPO is not correct in treating AMP expenditure as international transaction in the absence of sufficient evidence towards understanding, arrangement or action in concert in the case of manufacturing segment. The high scale of AMP expenditure year on year basis per se cannot be the yardstick to hold it as international transaction. The ld. CIT(A) held that, at the best it can be the starting point to investigate but it cannot be taken as the evidence in itself. * The ld. CIT(A) held that the appellant company is using the brand logo of the foreign AE as economic owner in a commercial sense for the purpose of exploiting it for the busines....