TaxTMI 
TaxTMI 
2021 (5) TMI 1053
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....or A.Y. 2015-16 on 27.11.2015 declaring taxable income of Rs.85,69,74,660/-. The case was selected for scrutiny and first notice u/s 143(2) dated 30.09.2016 was issued and served on the assessee. It was noticed that assessee had undertaken international transactions amounting to Rs.152 crore with Associated Enterprises (AE) and thereafter in accordance with the provision of Section 92CA of the I.T. Act, the international transaction and specified domestic transactions entered by the assessee to its AE was referred to TPO to determine the Arm's length price (ALP). The TPO vide order passed u/s 92CA-(3) dated 29.03.2018 suggested following adjustments: Nature of International Transaction Adjustment u/s 92CA suggested by TPO AMP Services Rs.12,16,92,066/- On protective basis AMP Services Rs.12,71,08,610/- On substantive Basis 4. The AO thereafter in the draft assessment order u/s 144C of the Act dated 22.12.2018, after considering the additions proposed by TPO, proposed to assess the total income of the assessee at Rs.111,98,84,050/-. 5. Against the draft order dated 22.12.2018 passed u/s 144C of the Act by the AO, assessee filed objections u/s ....
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.... is in the nature of AMP. (iv) By incurring excess/ extraordinary AMP expense the appellant had rendered intra group services to its AE. (v) AE is directly benefitted by any expenditure incurred by assessee on AMP. (vi) AE directs the AMP strategy and the expenditure incurred by appellant in India. (vii) Legal ownership of the marketing intangible would get transferred to the AE without any consideration on termination of the distribution agreement; (viii) Appellant has failed to furnish any material to demonstrate that it enjoyed economic ownership of brand. (ix) Appellant has failed to show that for excessive AMP expenditure it was compensated by the AE through a set-off. 5. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transaction of AMP was "closely linked" with the main activity carried on by the appellant and hence it cannot be segregated and benchmarked on a stand-alone basis. 5.1 That on facts and in law the AO/TPO/DRP erred in holding that there is no suitable comparable available for benchmarking the alleged "international Transaction" of incurri....
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....saction on substantive basis. The Assessee inter alia submitted that the AMP expenses were not an international transaction. With respect to the application of Bright-line Test (BLT) for benchmarking AMP expenditure, it was submitted that the application of the Brightline Test for benchmarking the AMP expenditure has been rejected by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. It was further submitted that the benefit of the AMP expenditure accrue to the assessee only and so expenditure was wholly and exclusively for assessee's business and therefore no disallowance u/s 37(1) was possible and the AMP expenditure cannot be considered to be equivalent to brand building. The TPO did not accept the contentions of the assessee. The TPO thereafter proposed AMP adjustment of Rs.12,71,08,610/- on Substantive basis. He also proposed adjustment of Rs.12,16,92,066/- under protective basis. When the matter was carried before DRP, DRP noted that AMP adjustment was a legacy issue in the assessee's case and the Hon'ble Delhi High Court has decided the issue against the Revenue but Revenue has filed SLP before the Hon'ble Apex Court. It was noted....
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....ar binding precedents and held that there is no transaction for AMP. He therefore submitted that in view of the aforesaid decisions of the Tribunal in assessee's own case, the issue be decided in assessee's favour. 10. Learned DR on the other hand supported the order of TPO and DRP. 11. We have heard the Learned DR and perused the material available on record. The issue in the present ground is with respect to the TP Adjustment on account of AMP Expenses. We find that identical issue arose in assessee's own case in earlier years and while deciding the issue in A.Y. 2014-15, the Coordinate Bench of Tribunal vide order dated 8th March, 2021 in ITA No.7376/Del/2018 observed as under: "18. We have given thoughtful consideration to the orders of the authorities below and have carefully considered the decision of the Hon'ble High Court and the Tribunal. We find force in the contention of the ld. counsel for the assessee. Similar quarrel was there before the Tribunal in ITA No. 1811 and 7691/DEL/2017 A.Y 2012-13 and 2013-14. We find that the Tribunal had the benefit of considering all the agreements relied upon by the TPO in his order. Relevant findings read as under: ....
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....g the main functions of the assessee. Thereafter, by applying a mark-up of 11.69%, the TPO has computed the final adjustment for the alleged transaction of brand promotion as under:- TPO Order dated 20-01-2015 TPO order dated28.02.2016 giving effect to DRP Value of Gross Sales 231,73,07,014 231,73,07,014 Rs AMP/Sales of the Comparables 1.48% 1.48% Amount that represent bright line 3,42,96,144 3,42,96,144 Rs Expenditure on AMP by assessee 94,31,24,844 94,31,24,844 Rs Expenditure in excess of bright line 90,88,28,700 90,88,28,700 Rs PLI 11.69 % 26.42% Markup 24,01,12,542 10,62,42,075 Rs Cumulative addition 114,89,41,243 101,50,70,775 Rs 2.8 Being aggrieved by the above proposed transfer pricing adjustment, the assessee filed detailed objections before the Ld. DRP. The Ld. DRP, while referring to decision of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications reported in 374 ITR 118(Del), has examined the contentions put forth by the assessee before it as under:- Sub Grounds of Appeal summarized as per issue from Form 35A Sony Ericsson High Co....
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....leged international transaction has been determined AE incorrectly Page. 137 The assessed, i.e., the domestic must be compensated for the AMP expenses by the foreign AE. Such compensation may be included or subsumed in low purchase price or by not charging or charging lower royalty. Direct compensation can also be paid. The method selected and comparability analysis should be appropriate and reliable so as to include the AMP functions and costs. The Ld.AO/Ld.TPO has selected inappropriate comparables AMP is a separate function. An external comparable should perform similar AMP functions. [Paras 165 & 166]; For determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses, should be chosen (Paras 194(i), (ii), (viii) & others); The AO/TPO can reject a method selected by the assessed for several reasons including want of reliability in the factual matrix or lack / nonavailability of comparables (see Section 92C(3) of the Act). Page 138 When the AO/TPO rejects method adopted by assessed, he is entitled to select MAM, and undertake comparabi....
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....d in 381 ITR 154 (Delhi); (iii) Honda Siel Power Products Ltd. vs. Dy. CIT reported in 237 Taxman 304 (Delhi); (iv) Bausch and Lomb Eyecare (India) Pvt. Ltd. v. Addl. reported in CIT 381 ITR 227 (Delhi); 5.1 In the year under consideration there is no change in the facts and circumstances of the case as compared to A.Y. 2009-10 and even the agreements between assessee and the AE continue to be operational for the year under consideration. We, therefore, concur with the reasoning given by the coordinate Bench for A.Y. 2009- 10,wherein, it is held as under:- "8. We have considered the submissions made by the parties and have also perused the material available on record. Undisputedly, the main data processing and subsidiary distribution activities of the appellant have been held to be at the arm's length price applying the transactional net margin method. Provision of the information technology enabled services to associated enterprise under the agreement has been thoroughly benchmarked by the Transfer Pricing Officer. Most appropriate method being the transactional net margin method has not been doubted and after an in-depth analysis of compar....
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....stion is answered in favour of the assessee, then no other question would arise. If answered against the assessee, then the Income-tax Appellate Tribunal will decide the further issues that arise in the appeal in accordance with law." 8.1 The case records further show that both the lower authorities have categorically given a finding that there existed a "transaction" for brand promotion between appellant and its associated enterprise. This is also under challenge before us. Hence, it cannot be said that necessary facts are not on record. With regard to the submissions of the learned Departmental representative that the issue of advertisement, marketing and promotion expenses be restored back to the file of the learned Transfer Pricing Officer, we would like to state that since facts necessary to determination are on record the law laid down by the honourable jurisdictional High Court has to be given effect to. It is not even the argument of the learned Commissioner of Income-tax (Departmental representative) that any fresh fact is required for such a determination. Under the circumstances, a direction for remand is not called for. The honourable jurisdictional High Court ....
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....tion' as under: '92B. Meaning of international transaction.-(1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit service or facility 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 enterpris....
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....by the court by pointing out (page 144): 'Even if the word "transaction" is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to section 92F(v), which defines "transaction" to include "arrangement", "understanding" or "action in concert", "whether formal or in writing", it is still incumbent on the Revenue to show the existence of an "understanding" or an "arrangement" or "action in concert" between MSIL and SMC as regards advertisement, marketing and promotion spend for brand promotion. In other words, for both the "means", part and the "includes" part of section 92B(1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC.' In Whirlpool of India Ltd. [2016] 381 ITR 154 (Delhi), the court interpreted the expression 'acted in concert' and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Co. Ltd. v. Jayaram Chigurupati [2010] 157 Comp Cas 380 (SC) ; [2010] 6 MANU/SC/0454/2010, which arose in the context ....
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....rprise. In any event, after the decision in Sony Ericsson [2015] 374 ITR 118 (Delhi), the question of applying the bright line test to determine the existence of an international transaction involving the advertisement, marketing and promotion expenditure does not arise. There is merit in the contention of the assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function, cannot be construed as a 'transaction'. Further, the Revenue's attempt at recharacterising the advertisement, marketing and promotion expenditure incurred as a transaction by itself when it has neither been identified as such by the assessee or legislatively recognised in the Explanation to section 92B runs counter to the legal position explained in CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 (Delhi) which required a Transfer Pricing Officer 'to examine the "international transaction" as he actually finds the same'. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc. holds 99.9 per cent. of the share of the assessee will not ipso facto lead to the conclusi....
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.... such transaction and thereafter ask whether it is an arm's length price. If the answer to that is in the negative the transfer pricing adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the associated enterprises involved may seek to shift from one jurisdiction to another. An "assumed" price cannot form the reason for making an arm's length price adjustment. Since a quantitative adjustment is not permissible for the purposes of a transfer pricing adjustment under Chapter X, equally it cannot be permitted in respect of advertisement, marketing and promotion expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the advertisement, marketing and promotion spend of the assessee on application of the bright line test, is excessive, thereby evidencing the existence of an international transaction involving the associated enterprise. The quantitative determination forms the very basis for the entire transfer pricing exercise in the present case. . . . The probl....
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....the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance.' In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) ; [2002-TIOL-587-SC-IT-LB] and PNB Finance Ltd. v. CIT [2008] 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a transfer pricing adjustment exercise. As already mentioned, merely because there is an incidental benefit to the foreign associated enterprise, it cannot be said that the advertisement, marketing and promotion expenses incurred by the ....
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....ding in the year under consideration. In this regard the honourable High Court at paragraph 153 of its reported judgment has been pleased to be hold as under (page 217): "Economic ownership of a brand is an intangible asset, just as legal ownership. Undifferentiated, economic ownership brand valuation is not done from moment to moment but would be mandated and required if the assessed is deprived, denied or transfers economic ownership. This can happen upon termination of the distribution-cum-marketing agreement or when economic ownership gets transferred to a third party. Transfer pricing valuation, therefore, would be mandated at that time. The international transaction could then be made a subject matter of transfer pricing and subjected to tax." 8.3 As held above, the appellant has raised objections before the learned Dispute Resolution Panel that none of the above clauses of the agreement make it mandatory for the appellant to incur the brand promotion expenses for and on behalf of the associated enterprise. The learned Dispute Resolution Panel has not disturbed these objections but has upheld the case of the learned Transfer Pricing Officer on some other grounds, i.e....
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.... a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that the advertisement, marketing and promotion expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning the advertisement, marketing and promotion expenses . . . . As already mentioned, merely because there is an incidental benefit to Whirlpool, USA, it cannot be said that the advertisement, marketing and promotion expenses incurred by WOIL was for promoting the brand of Whirlpool, USA. As mentioned in Sassoon J. David [1979] 118 ITR 261 (SC) 'the fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under section 10(2)(xv) of the Act (Indian Income-tax Act, 1922) if it satisfies otherwise the tests laid do....
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....ion do not require any adjudication as having become in fructuous." 20. The Hon'ble High Court of Delhi in assessee's own case in ITA No. 154/2017 order dated 26.04.2017 had the occasion to consider this quarrel. Order of the Hon'ble Jurisdictional High Court reads as under: 2. There are broadly two issues raised by the Revenue in this appeal under Section 260A of the Income Tax Act, 1961 ('Act') against the order dated 21st August, 2016 passed by the Income Tax Appellate Tribunal ('ITAT') in ITA No. 1804/Del/2014 for the Assessment Year ('AY') 2009-10. 3. The first issue concerns the deletion of the transfer pricing adjustment of Rs. 75,40,09,515/- on account of Advertising, Marketing and Sales Promotion Expenses (AMP Expenses) relying upon the decisions of this Court including the decision in Bausch & Lomb Eyecare (India) Pvt. Ltd. v. Additional Commissioner of Income Tax (2016) 381 ITR 227(Del). 4. As far as the above issue is concerned, it is covered by the earlier decisions of this Court against the Revenue. This Court is not inclined to frame any substantial question of law on this issue." 21. This order was again followed ....