TaxTMI 
TaxTMI 
2023 (1) TMI 569
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....ravention to Rule 46A of the Income Tax Rules, 1962? ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified accepting the contention of the assessee based on incorrect factual data? iii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in rejecting the benchmarking done by TPO on the basis of PLI of AMP expenses/Sales, without assigning any cogent reason and adopting and accepting an entirely different PL of Operating Profit/Operating Income? 2. The learned CIT(A)'s order is contrary in law and deserves to be set aside. 3. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of hearing. 3. The grounds raised cross-objection of the assessee are reproduced as under: 1. Transfer Pricing grounds: 1.1 On the facts and circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) ["CIT(A)"] erred in rejecting the Respondent's contention that expen....
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....expenses were not incurred by the assessee on behalf or for the benefit of the Associated Enterprises and if any it was incidental. The Ld. TPO applied bright line test (BLT) for making adjustment in respect of excess AMP expenditure. The Ld. CIT(A) following the finding of his predecessor, deleted the addition, observing as under: "My predecessor has deleted the addition on the ground that the appellant has higher operating profit the comparables even after considering AMP expenses and therefore no separate adjustment can be r in respect AMP expenditure. In the current year the assessee submitted that the operating profit of assessee is 15.80% as against 3.34% of the comparables. The details are as under. Sr. No. Company Name Operating Income Operating Expenses Operating Profit Operating Profit Ratio 1. Arihant Industrial Corpn. Ltd. 62,61,85,975/- 58,07,38,704 4,54,47,271 7.26% 2. Cravatex Ltd. 1,56,57,98,218 1,45,15,45,560 11,42,52,658 7.30% 3. Funskool (India) Ltd. NA NA NA NA 4. Kokuyo Camlin Ltd. 3,83,90,35,000 3,77,22,77,000 6,67,58,000 1.74% 5. OK Play India Ltd. 41,5....
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....d primary condition of holding the transaction in question as an international transaction remains to be fulfilled. As the assessee cannot be held liable for expenses incurred on advertising marketing and promotion as an international transaction of AMP, the consequent benchmarking by the Ld. TPO is also not justified. The ITAT in assessment year 2010-11(supra) has allowed the cross-objection of the assessee observing as under: "5. We find that this Tribunal in assessee's own case for the A.Yrs. 2008-09 and 2009-10 in ITA No. 4350 and 4415/Mum/2014 and ITA No. 84/Mum/2015 and Cross Objection No. 33/Mum/2015 for A.Yrs 2008- 09 and 2009-10 respectively vide order dated 08/07/2016 already held that AMP expenditure is not an international transaction and hence, no ALP adjustment could be made thereon. This Tribunal had also placed reliance on the decision of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. vs CIT reported in 64 taxmann.com 150 (Delhi HC). The relevant operative portion of the said tribunal order is reproduced as under:- "7. We have heard the rival submissions and perused the material before us. Before proceeding further, it....
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....the AMP expenditure for catering its own business needs. 7.1. We hold that there exists a fine but very important distinction between products promoted and nurtured by an assessee and the brand owned and supported by its AE. In the modern world both exist and play different and specified roles. Therefore, until and unless some -thing positive is brought on record about sharing/incurring AMP expenditure under the head by an assessee on behalf of its AE, it cannot be held that it should have recovered some amount from the AE as the expenditure by it indirectly helped in augmenting the brand value owned by its overseas AE. If the AMP expenditure incurred by an assessee benefits the AE indirectly it would not mean that it was an IT. The basic purpose of introducing the various provisions of chapter X, as stated earlier, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas AE. In our opinion, a perceived/notional indirect benefit to the AE, due to incurring of certain expenditure by an assessee in India, is not covered by the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and t....
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....ty provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes 'of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise." 56. Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection- with the - benefit, servi....
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.... 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati 2010(6) MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was observed as under: "The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a- certain target company, There can be no "persons acting in concert" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared common Objective' or purpose the idea of "person acting in concert" ....
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.... conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard with B&L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also ensure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wildgoose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions", Since the reference is to ....
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....n involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: "75. As an analogy; and for-no other purpose; in the-context of a domestic transaction involving two or more related parties, reference may' be made to Section 40A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no correspond....
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....t justify the restoration of issue/cases to the file of AO in each and every case. Unnecessary litigation has to be avoided and issues have to be settled for once and all. We are of the opinion that after the judgments of Maruti Suzuki and Bausch & Lomb (supra)there is no scope of any other interpretation about the AMP expenditure. In the case under consideration, the AO/TPO has not brought anything on record that there existed and agreement, formal or informal between the assessee and the AE to share/reimburse the AMP expenses incurred by the assessee in India. In absence of such an agreement the first and primary precondition of treating the transaction-in-question an IT remains unfulfilled. Conducting FAR analysis or adopting an appropriate method is the second stage of TP adjustments. The first thing is to find out whether the disputed transaction in is IT or not. Without crossing the first threshold second cannot be approached, as stated earlier. In the case under consideration, we are of the opinion that AMP expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. Considering the facts and circumstances of the case under cons....