AI Drafter 
TaxTMI 
TaxTMI 
2025 (2) TMI 324
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....g Section 92CA(3) of the Act and disregarding the relevant submissions made during the assessment proceedings 1. Erred in making an addition of Rs.302.22 crore to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustments in the arm's length price (ALP') of the alleged international transactions undertaken by the Appellant. Presumption of fictitious transaction in the nature of provision of brand promotion services since AMP is not an international transaction 2. Erred in alleging that the AMP expense incurred by the Appellant is an international transaction under Section 92B of the Act. 3. Erred in ignoring that the Appellant has not rendered any service to the Associated Enterprises (AEs) and hence erroneously treating and categorizing AMP expense incurred by the Appellant on its own behalf, as an international transaction of the nature of provision of brand promotion services between the Appellant and AEs under Section 92B of the Act: 4. Failed to appreciate the fact that AMP expenses were incurred wholly and exclusively' for purpose of business of the Appellant in India and no benefit was....
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....éal Group globally. Therefore, the AMP expenses incurred by the Appellant has to be considered as being incurred for its own entrepreneurial activities and therefore ought not to / cannot be construed as an international transaction which warrants a separate adjustment; 12. Erred in artificially bifurcating the Appellant's entrepreneurial business activities into manufacturing and distribution segment without any cogent reasons for the same and arbitrarily and in an adhoc manner selecting comparable companies for manufacturing and distribution segment without adopting a scientific search process for applying bright line test ('BLT') using 'Other Method to determine the arm's length price of the AMP expenses incurred by the Appellant; Business and commercial expediency 13. Erred in holding that the Appellant incurred AMP expenses for promoting the brands owned by overseas AE, instead of appreciating that the Appellant was only carrying out its business by using the well-established brands and any benefit derived by the AE is purely incidental; 14. Erred in ignoring that the advertisements by the Appellant are product adv....
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....ce Double Taxation Avoidance Agreement in determining the dividend declared and paid by the appellant to the non-resident shareholder Loreal S.A France being tax on dividend income. 25. On the facts and circumstances, the AO/DRP have erred in not adjudicating the refund claim of the assessee tot its non-resident shareholder as was claimed during appellate proceedings. 26.Without prejudice to above,the AO be directed to compute the tax payuable u/s 115-O at the rate prescribed in tax treaty inrespect of dividend paid by the appellant ,the Hon'ble ITAT may consider as a fresh claim 27.The DRP erred in holding that a fresh claim was raised before it when the appellant had already raised the claim with the AO prior to assessment proceeding as well as with Assessment Unit on multiple occasions during assessment proceedings. 28.The AO/DRP erred in not appreciating that fact that there is no mechanism available in the return to raise such a claim of refund of excess DDT paid. 29. Initiation of penalty proceedings 29. Erred in initiating penalty proceedings u/s 270A of the Act. 3. The brief facts of the case are that the L'oreal ....
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....s objected to the TP adjustment on account of AMP expenses which were incurred for the business of the assessee and not for the brand promotion of the AE. All the issues involved are recurring in nature with no material change in facts and have been consistently decided by the DRP on identical lines. The manner in which these issues were dealt with by the DRP in AY 2015-16 is reproduced below: "During the course of assessment, the TPO had considered these expenses as Advertisement Expenses for the calculation of AMP expenses. However, the assessee objects to the selection of below given expenses for calculation of AMP expenses: • Marketing Promotion Expenses (5,92,65,878/-) The assessee contended these expenses to be in nature of selling expenses as the same were incurred in malls and retail outlets. The TPO on the other hand has stated that expenses incurred in malls and retail outlets for sales were in the nature of Advertisement and Brand Promotion Expenses only. • Public Relation (25,27,58,689/-) The assessee again contended that the said expenses were towards customer relation maintenance which includes Photo shoot, BSP Sala....
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....determining the total income at Rs.540,72,77,100/- after making TP adjustments of Rs.302,22,00,000/-. 6. The assessee is in appeal before us, challenging the impugned order. 7. Ground no.1 challenges the addition of Rs.302.22 cr. made to the total income of the assessee u/s. 92CA(3) of the Act on account of adjustments in the arms length price of the impugned international transaction. As this ground is general in nature, it does not require separate adjudication. 8. Ground nos. 2 to 22 pertain to the advertisement, marketing and promotion expenses incurred by the assessee which is held to be an international transaction as per the provisions of section 92B of the Act. The sum and substance of the Department's stand on the issue is as follows: a. The marketing strategy of L'Oreal India (referred as assessee) is to popularise the brand of the L'Oreal SA France (referred as AE) which results into increase in the sales which results into increased payment of royalty and technical fees to the L'Oreal SA. Thus, it has served the interests of the L'Oreal SA, France on one hand by promoting/maintaining the brand and on the other hand by paying higher roya....
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....y the assessee but is attributable mainly to AE's benefit for brand maintenance, creating marketing intangible and for other direct benefits, such arranged incurring of AMP expenses for benefit of AE, cannot be taken as incidental. j. It may be true that factors like quality of product, design and up gradation also play a vital role in brand enhancement; but it is also true that part of the AMP spend is also responsible for brand maintenance, as above and later in the order. Thus, huge part of AMP spends is attributable to brand promotion/maintenance. k. Assessee has cited many decisions in its favor. Some are distinguishable on facts and the same are not applicable to the case assessee. Whereas some of the case laws, with due respect, the decisions are not accepted by the Department and further appeals have been filed, above. Thus, no finality has been reached on this issue. 9. The ld. AR has contended that the assessee has not rendered any service to the AEs and the lower authorities have erroneously treated the AMP expenses as international transaction in the nature of the provision of brand promotion services between the assessee and its AEs. The ld. AR....
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....so not accepted by the assessee for the reason that they were not functionally comparable to the business of the assessee. Further, the ld.DRP held that the international transaction is not merely AMP expenditure but was benefiting the AEs in the form of promotion and brand value of the AE brands. The ld. DRP also stated that in the A.Y. 2011-12, this issue was decided in favour of the assessee by the DRP by placing reliance on the decision of the Hon'ble Delhi High Court in the case of Maruti Suzuki (I) Ltd., Whirlpool of India Ltd., Bausch and Lom Eyecare (India) Pvt. Ltd. and Honda Siel Power Products, wherein it was held that when there was no explicit arrangement between the assessee and its AEs for incurring expenses, the same cannot be considered as an international transaction with AEs. The Revenue has contended that it had filed appeal against the decision of the Maruti Suzuki (I) Ltd. before the Hon'ble Apex Court, the decisions have not attained finality and, hence, the Dispute Resolution Panel has rejected the objections raised by the assessee on these issues. The assessee, on the other hand, has contended that the A.O./TPO has failed to prove by cogent evidence....
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....idated decision of Tribunal for A.Y. 2008-09 to 2020-11, order of Tribunal for AYs 2011- 12, 2012-13, 2013-14 & 2014-15 respectively. 10. On the other hand, the ld. DR for the revenue relied upon the order of lower authorities. The ld. DR for the revenue further submits that revenue has already filed appeal against the order of Tribunal for various assessment years before the jurisdictional High Court and the issue is sub-judice before the Hon'ble High Court. 11. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also gone through the orders of Tribunal for various earlier years. We have noted that the TPO while passing the order under section 92CA basically followed the order for AY 2014-15. We have further noted that in appeal for AY 2014-15 in ITA No. 6448/Mum/2018, the Tribunal while considering the orders for earlier year passed the following order: "9. We have heard both the counsel and perused the records. Learned Counsel of the assessee submitted that identical issues have been considered by the ITAT in assessee's own case for earlier year except for the alternative adjustment ....
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....vive. (vii) It is further submitted that L'Oreal SA, France (recipient of income) has offered the royalty income received from the Appellant and the said royalty income has been accepted to be at arm's length by the TPO in hands of L'Oreal SA. In view of the above, the appellant prays that the adjustment on account of royalty should be deleted. (C) Alternate adjustment on the distribution segment-international transaction of import of finished goods from AEs for resale. Appellant' own ITAT order for A.Y. 2013-14. (D) Alternate adjustment on the manufacturing segment- international transaction of payment for availing of marketing support services to AEs. (a brief description of marketing support services availed is described in Annexure 2 to this note). 1. The TPO in his order has instead of examining whether or not the method adopted to determine the ALP is the most appropriate method or whether the comparable companies selected are appropriate or not, has gone into the question of determining the need for such services, proof of rendition of such services, commercial expediency, basis of cost allocation etc. It is submitted that ....
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....#39;Oreal SA. Thus, the provision of services being availed by the Appellant, its rendition and benefits of services etc. stands accepted in the case of the income recipient, L'Oreal SA. 8. In light of the above, it is humbly submitted that the matter should not be remanded back since there were extensive evidences submitted before the lower authorities and the same was accepted by the TPO in remand proceedings. E) Alternate adjustment on the manufacturing segment- international transaction of payment for availing of consulting services. 1. The TPO in his order has instead of examining whether or not the method adopted to determine the ALP is the most appropriate method or whether the comparables selected are appropriate or not, has gone into the question of determining the need for such services, proof of rendition of such services, commercial expediency, basis of cost allocation etc. It is submitted that it is not part of the TPO's jurisdiction to consider the above aspects. 2. In this regard, the Appellant relies on the Judgment of Bombay High Court in the case of CIT vs. Lever India Exports Ltd. (supra) 3. In any event, the Appellant ....
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.... not have been invoked for undertaking TP adjustment exercise. Apart there from, we find that a similar view had been taken by the Tribunal while disposing off the appeals of the assessee for the preceding years viz. A.Ys 2008-09 to 2011-12. In fact, the Tribunal while disposing off the appeal of the assessee for A.Y 2012-13 in [ITA No. 1417/Mum/2017; dated 30.01.2019], had followed the view earlier taken in the preceding years and had vacated the adjustment of 304.69 crores that was made by the TPO by alleging that the AMP expenses incurred by the assessee was an international transaction under Sec. 92B of the Act. The Tribunal while so concluding had observed as under: "12. We have also perused the agreement of assessee with its AE dated 4th January 2011 executed between assessee and its AE. Clause 7 of the agreement descries about right of distribution of licensed product in the territory. As per Clause 8 of the said agreement the assessee is responsible for the advertising the licensed product in the territory. The territory is defined under clause 1.5 of the agreement, which means the territory of Nepal, Bhutan, Bangladesh, Maldives, Mauritius, India and Sri Lanka. Ho....
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.... other view, therefore, respectfully following the orders for earlier years the Ground No.2 to 18 are allowed. 12. From the above observations, it is evident that this recurring issue raised in this appeal has been decided in favour of the assessee wherein it was held that there was no arrangement between the assessee and the AE pertaining to AMP expenses. The Tribunal in the earlier years has held that the onus of proof lies on the Revenue to prove that there was an international transaction in existence. The Tribunal further held that the proposition laid down in the case of Maruti Suzuki India Ltd. (supra) is that the absence of a machinery provision qua AMP expenses, the A.O. is not at liberty to levy tax on an imagined transaction. In such case, the provisions of Chapter X cannot be invoked for making a TP adjustment. The Tribunal has also relied on the decision of the Hon'ble Delhi High Court in the case of Bausch and Lomb (India) Pvt. Ltd. and held that the impugned transaction is not an international transaction for which the TPO was not entitled to invoke the provision of Chapter X of the Act. 13. Respectfully following the above said decision, we are of the cons....