TaxTMI 
TaxTMI 
2023 (12) TMI 721
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....'s length. In other words, whether any upward adjustment was required to be carried out in the amount received by the respondent/assessee from its AE. 2.1 The inter-related issue that arose for consideration was whether the Transfer Pricing Officer (TPO) ought to have used the bright line test (BLT) in computing the arm's length price (ALP) concerning AMP activities carried out by the respondent/assessee. 3. The aforementioned issues arise for consideration against the backdrop of the following broad facts and circumstances. 3.1 In and about November 1994, the respondent/assessee was incorporated as a wholly-owned subsidiary of Sony Corporation, Japan (SCJ). SCJ held shares in the respondent/assessee via its subsidiaries, Sony Holding (Asia) B.V., Netherlands, and Sony Gulf FZE, Dubai. 3.2 Initially, the respondent/assessee was into manufacturing, assembling, importing, and distributing various colour televisions, audio recording media equipment, information technology products, software, and general audio products. 3.3 However, with effect from 01.07.2004, the respondent/assessee shut down its manufacturing activities. 3.4 Thereafter, on 01.04.2005, the responden....
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....ses, albeit, after taking into account a proper comparable, and granting a hearing to the authorized representative of the respondent/assessee. 8. The record discloses that cross-appeals were preferred to this court against the order of the Tribunal. These appeals were disposed of by a coordinate bench of this court via an order dated 23.07.2018. One of the questions raised in the appeal preferred by the respondent/assessee concerned AMP expenses. The said question reads as follows: "Whether the advertising and marketing expenditure incurred by the appellant/assessee can be treated as international transaction and made subject matter of adjustment in arm's length pricing?" 8.1 The operative directions, by the coordinate bench, qua the aforementioned question are extracted hereafter: "3. After hearing the parties we are inclined to set aside the order passed by the Tribunal in view of decision in Sony Ericson Mobile Communication India Private Limited v. CIT, (2015) 374 ITR 118 (Del). 4. Accordingly, the question is answered in terms of the decision in Sony Ericson Mobile Communication (supra) with an order of remit to the Tribunal to decide the issu....
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....nnot be said that the respondent/assessee was not required to be compensated for promoting the brand owned by its AE. (iii) A person/entity at arm's length would expect remuneration/compensation commensurate with the effort put in for promoting and marketing the brand of its AE. Therefore, the remuneration/compensation paid for such effort should factor in not only the entrepreneurial effort but also the cost of funds utilized, and the opportunity cost involved in incurring such marketing expenses. If regard is had to such aspects, then the markup of 7.01%, applied by the TPO, would appear to be quite reasonable. (iv) The Tribunal failed to appreciate that the import of 'electronic' goods was distinct and independent of AMP activity. The AMP activity was not incidental or in any way, irreversibly bundled with the import of goods. Thus, the ALP for AMP expenses could have been arrived at by separately benchmarking AMP services. (v) The Tribunal erred in accepting comparables selected by the respondent/assessee even when the said comparables had been rejected for good reasons by the TPO. 14. Mr Nageshwar Rao, on the other hand, resisted the appeal, both ....
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....mpugned order. Reasons and Analysis: 15. Having heard the learned counsel for the parties, and examined the record, the only issue, as noted at the outset, which arises for consideration, is whether the respondent/assessee was adequately compensated for expenses incurred for AMP activities carried out in India. 16. Before one answers the issue, one way or the other, one must bear in mind the following undisputed facts which obtain in the instant case: (i) First, the respondent/assessee had shut down its manufacturing activity in India with effect from 01.07.2004. (ii) Second, in the period in issue, i.e., FY 2006-07 (AY 2007-08), there was no advertising agreement obtaining between the respondent/assessee and its AE. The last agreement was entered into on 01.04.2005, which apparently, had come to an end. (iii) Third, the TPO had used comparables furnished by the respondent/assessee for employing the BLT tool, in ascertaining the ALP qua AMP activities. (iv) Fourth, concededly, the respondent's/assessee's net operating margin was 3.29%, whereas, the arithmetic mean of the net operating margin of comparables chosen by the TPO was 2.09%. ....