2022 (11) TMI 981

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....d order dated 23rdAugust, 2018, passed by the Income Tax Appellate Tribunal ('ITAT') in ITA No. 1906/Del/2014 for the Assessment Year ('AY') 2009-10, in ITA No. 892/2019. 1.1. The Revenue, has impugned order dated 9th April, 2019, passed by the ITAT in ITA No. 85/Del/2015 for the AY 2010-11 in ITA No. 133/2022. 2. The Assessee filed its Return of Income ('ROI') for AY 2009-10, on 30th September, 2009, declaring loss of Rs. 8,70,19,143/-. The Assessee's return was processed under Section 143(1) of the Income Tax Act, 1961 ('the Act'), and its case was selected for scrutiny assessment, wherein the Assessing Officer ('AO') observed that the Assessee Company had entered into international transactions with its Associated Enterprises (AEs). The AO consequently, made a reference to the Transfer Pricing Officer ('TPO') for determining the Arms's Length Price ('ALP') of the international transactions under Section 92CA(3) of the Act. 2.1. The TPO in its order dated 29th January, 2013, observed that the Assessee has incurred huge Advertising, Marketing and Promotion ('AMP') expenditure with the objective of expanding the reach of the AE's brand in India, who is the legal owner of the bra....

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....ilar to that of AY 2009-10 with respect to the ALP adjustment of AMP expenditure. The ITAT in AY 2010-11, held that the issue of absence of international transaction already stands decided in favour of the Assessee by its predecessor bench in AY 2009-10. The ITAT relied on the decision of this Court in Sony Ericsson (Supra) and Maruti Suzuki vs. CIT, [2016] 381 ITR 117, to hold that the Revenue has failed to discharge the onus to prove the existence of an international transaction between the Assessee and its AE and held that there doesn't exist any cogent material to treat the AMP expenditure as international transaction. ITAT vide its impugned order dated 9th April, 2019, allowed the appeal filed by the Assessee and deleted the adjustment of Rs. 712,19,145/- made on account of AMP expenditure incurred by the Assessee. 4. The learned senior standing counsel for the Revenue states that the ITAT erred in holding that the AMP expenses is not an international transaction and in doing so it ignored the nature and purpose of such expenses which are meant to create intangible asset for its AE in India. He states that the ITAT erred in holding that the AMP expenses incurred by the Assess....

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....nsaction on a matter of a presumption, which runs counter to the decision of this Court in Maruti Suzuki (supra). 9. The ITAT while allowing the Assessee's appeal for AY 2009-10 has after considering the material on record held that there was no international transaction between the Assessee and its AE. The relevant findings of the ITAT are as under: - "9. On a careful consideration of all these factors, including the inconsistency in the approach of the AO/TPO with respect to the AMP expenditure being in the nature of an international  transaction as expenditure incurred on behalf of the assessee, including the quantum and nature of expenditure and including lack of any material to suggest that there was "an arrangement, understanding or action in concert" with respect of the expenditure incurred by the assessee and including the fact that, in our considered view, the expenditure incurred by the assessee was in nature of bonafide business expenditure in furtherance of its legitimate business interests, we are of the considered view that there is no legally sustainable basis for the TPO coming to the conclusion that there was an international transaction, under section 92B,....

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....xpenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. And, yet, that is what appears to have been done by the Revenue in the present case. It first arrived at the 'bright line' by comparing the AMP expenses incurred by MSIL with the average percentage of the AMP expenses incurred by the comparable entities. Since on applying the BLT, the AMP spend of MSIL was found 'excessive' the Revenue deduced the existence of an international transaction. It then added back the excess expenditure as the transfer pricing 'adjustment'. This runs counter to legal position explained in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Del), which required a TPO "to examine the 'international transaction' as he actually finds the same." In other words the very existence of an international transaction cannot be a matter for inference or surmise. 66. As already noticed, the decision in Sony Ericsson has done away with the BLT as means for determining the ALP of an international transaction involvin....