TaxTMI 
TaxTMI 
2025 (2) TMI 324
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....nt 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 passed on to the AE and hence, there should not be any reimbursement of such expenses....
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....trepreneurial 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 advertisements to enable higher sales of the products in the Indian market and not brand advertisements for or on behalf of the AE. Most appropriate method ....
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.... 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 Group is a French conglomerate, a leading supplier in the global cosmetic industry. It is mainly into cosmetic business segments such as make-up, hair care, hair coloring, skincare and fragrances. The assessee is a 100% foreign owned company in which L'oreal, SA holds 99.99%....
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....ntical 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 Salary etc. The TPO was of the view that the said expenses were incurred so as to maintain the Brand Value of L'Oreal, hence, the same was treated as Advertisement Expenses. * Promotions - Animation (30,57,60,407/-) These are in respect of various cost towards animations promotional material gifts event cards etc. The ....
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....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 royalty and technical fees. The profits are not fully retained in India on account of huge royalty payout (in addition to regular dividends, if any). Thus, the assessee has not been compensated for incurring such huge AMP expenses for the benefit of the L'Oreal SA, France. b. AMP spends of the assessee is in excess of the comparables. The excess spend is attributable to development, enhancement, maintenance, protection and ....
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....e 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 further contends the impugned expenses were incurred wholly and exclusively for the purpose of business of the assessee in India and was not benefited to the AE and incurs no reimbursement of such expenses. The ld. AR also contended that there was no arrangement between the assessee and its AE for promotion of AEs brand by incurring AMP expenses on behalf of the AEs. The ld. AR submitted that the lower authorities have not considered the decision of the Tribunal in the assessee's c....
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....aruti 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 that the existence of an arrangement between the assessee and the AE to discharge market development function and had relied on the decision of the Hon'ble High Court in the case of Whirlpool of India vs. CIT (in ITA No. 228 of 2015 & CM No. 5751/2015) and in ITA No. 2269/Mum/ 2022 ( A Y 2018-19) in the case of Bausch & Lomb which has held that the Revenue cannot presume that the assessee was acting for the benefit of the AE, in this case, the marketing activity for promoting the AEs bra....
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....ion 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 on manufacturing segment. Submission of learned counsel in this regard is summarised as under :- (A) Adjustment on account of advertisement, marketing and brand promotion (AMP) expenses :- (i) Covered by appellant's own ITAT order for A.Y. 2013-14 (page No. 31 para 18) (copy of aforesaid orders were submitted during the course of hearing). (ii) Also appellant's own ITAT order for A.Y. 2008-09 to A.Y. 2010- 11 (page 16- 17 and para 2.4), A.Y. 2011-12 (page 13 and para 16) and A.Y. 2012-13 (page 23-24 and pa....
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....g 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 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 extent, Appellant has submitted extensive evidences to TPO including advertising creative/concepts developed by AEs, sample story boards for Television Commercial conceptualized by AEs and adopted by the Appellant, agreements, sample invoices, Organisation structure of Marketing support services team, sample email correspondences, product and marketing dossiers, public relationship gu....
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.... 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 has submitted extensive evidences inter alia including agreements, sample invoices, evidences for technical/ consulting advise provided by AE through sample emails etc. in support of receipt of consultancy services and the benefits derived. Further, the Appellant submitted additional evidences before DRP comprising of agreement, certificate for costs allocated, evidences for technical/consulting advise provided by AE through sample emails in relation to Packaging Services, Environmental, Health and Safety Services, Finance Services, Supply Chain Services, HR Services along with a list summarizing the evidences submitted and benefits derived thereof 4. After veri....
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....reement 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. However, it excludes any free trade zone, which may exist or may be created. Further it excludes duty free shops located in the duty free or travel retail area which is specialized in sales against foreign currency to foreigner or diplomatic corps, ship chlanders, airlines companies or shipping companies. Though the AE has reserves its right for the zones of excluded areas. The contentions of the ld. A.R for the assessee is that clause 8 of the agreement does not obligates the assessee to incur expenses on AMP so as to promote the brand owned by its AEs. And that the expenses are incurred by assessee in the normal course of its business. The perusal of the Clause 7 and 8 reveals that there is no agreement between ....