TaxTMI 
TaxTMI 
2022 (12) TMI 238
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.... with section 144C of the Income-tax Act. 1961 ('the Act") on the following grounds: That on the facts and circumstances of the case and in law- 1. The learned AO I Transfer Pricing Officer (''TP0"), based on directions of the DRP, erred in assessing the total income at Rs.53,66.26.873 as against returned income of Rs.17,12,92.190 computed by the Appellant, 2. The learned AO / TPO and the learned DRP have erred in making an addition of Rs.36,53.34.683 to the total income of the Appellant on account of the alleged excessive expenditure incurred towards Advertising. Marketing and Promotion ("AMP") and adjustment to the Arms Length Price ("ALP") of the IT Support Services transaction entered by the Appellant with its Associated Enterprises ("AE"); Grounds relating to adjustment on account of alleged excessive AMP expenditure 3. The learned AO / TPO and the learned DRP have erred, in law and in facts, by concluding that the Appellant has incurred excessive or extraordinary AMP expenses for the purpose of development of marketing intangibles of AE and that such expenditure is a separate international transaction of provision of service: ....
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....tional transaction to benchmark it independently from distribution activity, as in the absence of any computation mechanism prescribed under the Act. the machinery provision fails Grounds relating to adjustment in respect of IT support services 11. The learned AO / TPO and the learned DRP have ignored the functional analysis undertaken by the Appellant in accordance with the provisions of the Act, read with the Rules. Further, the learned AO TPO and the learned DRP, have erroneously concluded that the IT support services function performed by the Appellant is in the nature of end-to end software development services. 12. The learned AO I TPO and the learned DRP have erred, in law and in facts. by making an addition to the total income of the Appellant, by disregarding the aggregation approach adopted by the Appellant in the transfer pricing documentation and adopting a transaction by transaction approach to arrive at the ALP for IT support services transaction; 13. The learned AO / TPO and the learned DRP have erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Ac....
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.... Appellant under the provisions of Section 92C(2) of the Act. General Grounds 23. The learned AO has erred. in law and in facts, by levying interest under section 234A and 234B of the Act: 24. The learned AO erred, in law and in facts. in initiating penalty proceedings u/s 271(1)(c), 271AA and 271G of the Act: The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide on the appeal in accordance with the law." 2. Brief facts of the case are as under: 2.1. The assessee filed its return of income for the year under consideration on 09/02/2013 declaring total income of Rs. 17,12,92,190/-. The case was selected for scrutiny and notice under section 143(2) of the act along with notice under section 142(1) of the act were issued. In response to the statutory notices, the assessee appeared before the Ld.AO, through its representatives and filed requisite details as called ....
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....AMP expenditure incurred by assessee for promoting and marketing intangible owned by the AE, by making necessary transfer pricing adjustment. The Ld.TPO proposed to make transfer pricing adjustment on account of markup for the service of brand promotion rendered by assessee to its AE. After considering various submissions filed by assessee, the Ld.TPO selected following set of comparables and it remind the adjustment for the excess AMP incurred by assessee towards the benefit of AE at Rs. 6,09,88,000/-. 3. The total adjustment proposed by the Ld.TPO are as under: IT support service-Rs. 1,11,42,238 AMP expenditure-Rs. 62,06,30,238 On receipt of the order under section 92CA of the act, the Ld.AO pass the draft assessment order incorporating the proposed additions in the hands of assessee. Against the draft assessment order, the assessee filed objections before the DRP 4. The DRP excluded 6 comparable companies the 10 comparable companies chosen by the Ld.TPO. However, on the AMP expenditure added, the DRP confirmed the view of the Ld.AO/TPO. 5. On receipt of the DRP order, the Ld.AO passed the final assessment order making addition of Rs.36,53,34,638/- in the han....
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....excessive sales and distribution expenditure to the additional function of promoting and developing the marketing intangibles of the AE by assessee in India by using bright line test. It is the submission of the Ld.AR that, this is not a recognised method under the transuprising regulation. 9.4 The Ld.AR submitted that, there is no agreement between the assessee and the AE to make such expenditure in order to promote the intangibles of the AE in India. And in the absence of any specific requirement to make such expenditure on behalf of AE, the expenditures incurred by assessee cannot be treated to be an international transaction. In support, he placed reliance on the decision of Hon'ble Delhi High Court in case of Maruti Suzuki India Ltd. vs. CIT, reported in 381 ITR 117 and M/s. Sony Ericsson Mobile Communications Pvt.Ltd. vs CIT reported in 374 ITR 118. 9.5 On the contrary the Ld.CIT.DR placed reliance on orders passed by authorities below. 9.6 We have perused submissions advanced by both sides in light of records placed before us. 9.7 We know that the DRP refused to follow the above decisions of Hon'ble Delhi High Court by observing that these decisions have not been....
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....ade by deducing from the difference between AMP expenditure incurred by assessee-company and AMP expenditure of comparable entity, if there is no explicit arrangement between the assessee - company and its foreign AE for incurring such expenditure. The fact that the benefit of such AMP expenditure would also ensure to its foreign AE is not sufficient to infer existence of international trans action. The onus lies on the revenue to prove the existence of international transaction involving AMP expenditure between the assessee-company and its foreign AE. We also hold that that in the absence of machinery provisions to ascertain the price incurred by the assessee-company to promote the brand values of the products of the foreign entity, no TP adjustment can be made by invoking the provisions of Chapter X of the Act. 22.Applying the above legal position to the facts of the present case, it is not a case of revenue that there existed an arrangement and agreement between the assessee-company and its foreign AE to incur AMP expenditure to promote brand value of its products on behalf of the foreign AE, merely because the assessee-company incurred more expenditure on AMP compared ....
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.... TPO" for short) with liberty to issue fresh show-cause notice. The High Court has further directed the Transfer Pricing Officer to decide the matter in accordance with law. Further, on going through the impugned judgment of the High Court dated July 1, 2010, we find that the High Court has not merely set aside the original show cause notice but it has made certain observations on the merits of the case and has given directions to the Transfer Pricing Officer, which virtually conclude the matter. In the circumstances, on that limited issue, we hereby direct the Transfer Pricing Officer, who, in the meantime, has already issued a show cause notice on September 16, 2010, to proceed with the matter in accordance with law uninfluenced by the observations/directions given by the High Court in the impugned judgment dated July 1, 2010. The Transfer Pricing Officer will decide this matter on or before December 31, 2010. The civil appeal is, accordingly, disposed of with no order as to costs." 17. The Hon'ble Delhi High Court in an other case of Maruti Suzuki India Ltd. Vs. CIT 381 ITR 117 (Delhi) held that the fact that the benefit of such AMP expenses would ....
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....echnical information. It also gave MSIL the right to use Suzuki's trade mark and logo on the product. Pursuant to this agreement, MSIL was using the co-brand, i.e., Maruti Suzuki trade mark and logo for more than 30 years. This co-brand could not be used by SMC and was not owned by it. The clauses in the agreement between MSIL and SMC indicated that permission was granted by SMC to MSIL to use the co- brand "Maruti Suzuki" name and logo. The mere fact that the cars manufactured by MSIL bore the symbol "S" was not decisive as the advertisements were of a particular model of the car with the logo "Maruti- Suzuki". The Revenue had been unable to contradict the submission of MSIL that the co-brand mark "Maruti-Suzuki" in fact did not belong to SMC and could not be used by SMC either in India or anywhere else. The decision in the case of Sony Ericsson requires that the mark or brand should belong to the foreign associated enterprise. The Revenue also did not deny that as far as the brand "Suzuki" was concerned its legal ownership vested with the foreign associated enterprise, i.e., SMC. Moreover as MSIL was concerned, its operating profit margin was 11.19 per cent. which was higher ....
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....further that there was an agreement to enter into an international transaction concerning advertising, marketing and sales pro-motion expenses." 19. In the light of the law as it exists today, we shall examine the arguments of the rival parties. There has been no agreement between Essilor International which owns the various brands set out by the TPO in his order and the Assessee to incur any Advertisement and Marketing or Sales promotion expenses. None of the other reasons given by the TPO which have been explained by the Assessee and set out in the earlier paragraph can be the basis to hold that there was in fact an international transaction in the matter of incurring of AMP expenses by the Assessee. The order of the Tribunal in Assessee's own case for A.Y.2009-10 and 2010-11 in our view requires to be followed and there are no reasons whatsoever to take a different view. Consequently, there could not be any exercise of determining the ALP of the AMP expenses by comparing the expenses incurred by the Assessee with comparable companies. In view of the above conclusions, the other aspects whether the comparable companies chosen by the TPO are in fact comparable in term....
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....ove comparables have been dealt with by this Tribunal as under: "PERSISTENT SYSEMS LIMITED 6. The assessee objected for the exclusion of this company by the lower authorities in the tally of comparables by arguing that it is engaged in OPD and there is a difference in OPD and IT services and that the assessee is having revenue from other sources and no segmental data is available. It was also submitted that in the assessment year 2012-2013, it is an abnormal year of operation and it is owning various intangibles. For this purpose, he relied on the order of the Bangalore Bench of the Tribunal in the case of NXP Semiconductor India Private Limited in IT(PA) No.1634/Bang/ 2014 for assessment year 2009-2010 - order dated 22nd July, 2015. 6.1 We have carefully gone through the order of the coordinate Bench in the case of NXP Semiconductor India Pvt. Ltd. (supra) for the assessment year 2009-2010, wherein it was observed that Persystent Systems Limited was engaged in product development and product design and analysis services is functionally different from a pure software service provider and therefore, excluded it from the list of comparables for software dev....
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....t contribute not only to building features for the .current release but must also contribute enhancements and provide feedback for future releases of the product." 6.2 Persystent Systems Limited having revenue of 8103.64 Million from software services and other income of 323.76 million from income from other sources. Assessment year 2012-2013 is an abnormal year of operation to Persystent Systems Limited, which is evident from the annual report placed on record by the assessee in its paper book. Further, Persystent Systems Limited is having intangibles to the tune of 2402.67 million as evident from its balance sheet ended on 31.03.2012. Being so, it is not comparable to assessee's case. We, therefore, direct the TPO to exclude Persystent Systems Limited from the list of comparables. LARSEN & TOUBRO INFOTECH LIMITED 7. The learned AR relied on the order of the ITAT Bangalore Benches in the case of CGI Information Systems and Management Consultants Private Limited in IT(TP)A No.586/Bang/2015 - order dated 11.04.2018 and submitted that it was excluded from the list of comparables for the reason that Larsen & Toubro Infotech Limited was a software product....