AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2021 (1) TMI 1266
X X X X Extracts X X X X
X X X X Extracts X X X X
....circumstances of the case and in law, Assessing Officer ("Ld. AO") erred in assessing the income of the Appellant at INR 195,817,1401- as against the returned income of INR 192,663,625/-. 2. That on the facts and circumstances of the case and in law, the impugned order passed by Ld. AO in pursuance to the directions of the Hon'ble Dispute Resolution Panel - II (Hon'ble DRP"), under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act"), is bad in law and void ab-initio. Re: Transfer Pricing Adjustment in respect of Advertisement, Marketing and Promotion Expenses ("AMP Expenses") 3. That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. Transfer Pricing Officer (Ld. TPO") erred in enhancing the income of the Appellant by INR 315,3519/- by making a Transfer Pricing ("TP") adjustment on account of AMP expenses incurred by the Appellant in the regular course of its business on the ground that it was excessive and should be reimbursed by the Associated Enterprises ("AE"). Re : No Transaction much less than an International Transaction 3.1 That on the facts and circumstances of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for developing marketing intangibles for the AE. Re: "Bright Line" Method has been rejected by the Delhi High Court in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. Vs. CIT -III. (ITA No.16/2014) and other appellants in the High Court of Delhi. 3.5 That on the facts and circumstances of the case and in law, Hon'ble DRP has erred in comparing the AMP/GP ratio of the Appellant with that of the comparable companies for the purpose of determining the value of the international transaction of AMP. In doing so, the Hon'ble DRP has applied a bright line test and failed to consider the findings of Sony He order according to which bright line test has no statutory mandate. Re: Disallowance of Selling Expenses 3.6 That the Hon'ble DRP/Ld. AO/Ld. TPO grossly erred in facts and in law in by not appreciating that the AMP expense considered by the Hon'ble DRP/Ld. AO/Ld. TPO for AMP adjustment are primarily in the nature of at "point of sale expenditure" and thus are in the nature of selling expenses. 3.7 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO failed to appreciate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the adjustment. Re: Consequential Grounds 4. That on the facts and circumstances of the case, Ld. AO erred in initiating penalty proceedings under section 271 (1)(c) of the Act.." 3. Appellant, ACIT, Circle 21 (1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeal sought to set aside the impugned order dated 29.01.2016 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C / 92CA(4) of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2007-08 on the grounds inter alia that :- "1. 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 the situation where the assessee has not reported the international transaction pertaining to marketing function? 2. Whether under the facts and circumstances of the case and in law the Hon'ble....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sunglasses and other luxury brand sunglasses from Luxottica Group entities for sale to independent third party dealers/ distributors in India. Ld. TPO while examining the Transfer Pricing (TP) study made by the taxpayer noticed that huge expenditure has been made by the taxpayer towards AMP in brand building and marketing of Rayban products in India for which it sought to be compensated with minimum certain amount. In the earlier order dated 27.10.2010, ld. TPO noticed from the annual report of the Associated Enterprises (AE) that sales, gross profit and operating income of AE has been increasing over the past 5 years i.e. from 2003 to 2007 and the benefit of this expenditure incurred on AMP is flowing from the Luxottica Group and thereby held that AMP expenditure of Rs.8.38 crores as an international transaction under section 92B(1) read with clause (v) of section 92F of the Act. 7. Ld. TPO after examining the documents pertaining to trade and channel discount amounting to Rs.3.90 crores and sale of licence of brand of sunglasses amounting to Rs.40.80 lacs considered the AMP expenditure to Rs.4.07 crores and taken this amount for benchmarking its Arm's Length Price (ALP). Ld. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bursement of AMP expenses and the reimbursement of AMP expenses received by the assessee from its AEs i.e. the Assessing Officer shall enhance the income of the assessee by an amount of Rs.4.42 crs. While computing its total income, the Assessing Officer may examine feasibility of initiating penalty proceedings u/s 271(1)(c) of the Act in accordance with Explanation 7 of the same." 11. Pursuant to the directions issued by the coordinate Bench of the Tribunal, ld. TPO examined the Agreement dated 22.04.2008. The taxpayer intimated that the taxpayer has not entered into any specific agreement with its AE for undertaking AMP expenses for brands owned by the AEs and the AMP expenditure amounting to Rs.44,733,369 incurred by the taxpayer for AY 2007-08 were incurred for its own business promotion and sale of eyewear products manufactured and imported by it from AEs. The taxpayer further stated that it has only entered into licence distribution agreement with its AE on 22.04.2008. 12. Ld. TPO proceeded to conclude that since the taxpayer has not been able to produce any agreement for the relevant previous year as claimed for before the Tribunal, there is no change in the facts and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as AMP by the TPO post DRP's directions Advertisement 4,06,53,036 4,06,53,036 18. Ld. TPO proceeded to compute the gross margins and detail of AMP expenditure in case of the taxpayer and comparables as under :- S. No. Comparable company Gross profit to sales AMP to sales AMP to GP GP to COGS 1 A C I Infocom Ltd. 4.61 0.00 0.00 4.83 2 Compuage Infocom Ltd. 12.03 0.00 0.00 13.67 3 C C S Infotech Ltd. -Trading segment 3.61 1.47 40.76 3.74 4 Priya Ltd. - Electronics segment 14.08 0.03 0.22 16.01 Average 8.58% 0.38% 10.24% 9.56% Tested party 52.06% 5.74% 11.02% 6. Since the ratio of AMP/Sale and AMP /GP is more than the comparables in the case of the assessee, an adjustment is required to be carried out The difference of AMP /GP ratio in the case of the assessee and the comparables comes to 0.78% (being the difference between 11.02% and 10.24%). In the case of the assessee, the quantum of gross profit, of the assessee is Rs.36,90,19,139/-. Considering this value the excess AMP comes to Rs.28,78....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Suzuki India Ltd. v. CIT (supra). 24. So, we are of the considered view that by merely relying upon Sony Ericsson Mobile Communications India Pvt. Ltd. (supra), ld. DRP/AO/TPO cannot presume the existence of international transactions qua AMP expenditure as the taxpayer has denied the existence of international transactions and has not received any subsidy/grant in connection with international transactions with its AE. 25. Hon'ble Delhi High Court in the cases of Bausch & Lomb Eye Care (India) Pvt. Ltd. vs. Addl.CIT (2016) 381 ITR 227 (Del.) and Honda Siel Power Products Ltd. vs. DCIT (2016) 327 Taxman 304 held that it is for the Revenue to firstly discharge the onus to prove the existence of international transactions between the taxpayer and its AEs and thereafter the ALP of international transactions only can be computed. In the instant case, there is not an iota of material on the file apart from applying BLT and by taking the view that the taxpayer has incurred huge and excessive expenditure on AMP and sales to the tune of 15% of the total sales, no cogent material is there to treat the incurring of AMP expenses as international transactions. 26. So far as question ....