TaxTMI 
TaxTMI 
2019 (1) TMI 2064
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.... treated as international transaction and made subject matter of adjustment in arms length pricing ? " 3. This issue was remitted for A.Ys. 2007-2008 and 2008-2009. Learned Counsel for the Assessee, therefore, submitted that in the present appeal Ground Nos. 3 to 16 are relevant on this issue, which shall have to be adjudicated upon. The Grounds 3 to 16 are reads as under : "3. That the TPO erred in assuming jurisdiction in respect of the advertising, marketing and promotion ('AMP') expenditure when such expenditure did not satisfy the requisites of being an international transaction under section 92B of the Act. 4. That the TPO also erred in not appreciating that even post the amendments by Finance Act 2012, he was not empowered to deem a transaction to be an international transaction. 5. That the Hon'ble Dispute Resolution Panel (hereinafter referred as "DRP")/learned AO erred in making an adjustment aggregating to INR 1,126,715,023 out of the proposed adjustments made by the TPO u/s 92CA aggregating to INR 1,218,822,482 and only granting a partial relief of INR 92,107,459. 6. That the learned DRP has completely misconceived the facts and ha....
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....nse for computation of transfer pricing adjustment. 13. That the learned AO/TPO/Hon'ble DRP have failed to comprehend that to the extent of expenditure of INR 190,489,900/- incurred on advertising and sales promotion, there has been double disallowance/addition as this expenditure has been treated as 'capital' by the learned AO, and hence entirely disallowed under section 37(1) in computing the taxable income whereas the said amount has been included by the learned TPO while computing the alleged excessive AMP expenditure. 14. That the learned DRP has erred in endorsing the approach followed by the TPO who has erroneously held that the appellant has rendered a service to the AEs by incurring the advertisement and marketing expense and by holding that a markup of 12.5% has to be earned by the appellant in respect of the "alleged excessive" AMP expenses. 15. That the learned TPO has erred in law by assuming that no benefit has accrued to the assessee from the AMP expenditure incurred by it without having regard to the functions, assets and risks profile of the AEs and the assessee. 16. The learned DRP erred in law in not applying the Pr....
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....nt : 21.12.2018 Assessee by : Shri Nageshwar Rao, Adv. Shri Sandeep Karhail, Adv Revenue by : Shri H.K. Chaudhary, CIT- DR Smt. Namita Pandey, Sr. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, This appeal by the assessee is heard pursuant to the directions of the Hon'ble High Court of Delhi. 2. The Hon'ble High Court, vide order dated 23.07.2018 in ITA Nos. 508 & 509/2013 and 148 & 149/2014 has remitted the following issues for fresh adjudication in the light of the decision of the Hon'ble High Court in the case of Sony Ericson Mobile Communication of India Private Limited 374 ITR 118 : "Whether the Advertisement and marketing expenditure incurred by the appellant assess....
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....ysis, which would include AMP function/expenses. (ii) The second step mandates ascertainment of comparables or comparable analysis. This would have reference to the method adopted which matches the functions and obligations performed by the tested party including AMP expenses. (iii) A comparable is acceptable, if based upon comparison of conditions a controlled transaction is similar with the conditions in the transactions between independent enterprises. In other words, the economically relevant characteristics of the two transactions being compared must be sufficiently comparable. This entails and implies that difference, if any, between controlled and uncontrolled transaction, should not materially affect the conditions being examined given the methodology being adopted for determining the price or the margin. When this is not possible, it should be ascertained whether reasonably accurate adjustments can be made to eliminate the effect of such differences on the price or margin. Thus, identification of the potential comparables is the key to the transfer pricing analysis. As a sequitur, it follows that the choice of the most appropriate method would be dependen....
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....assortment largely representing reputation and quality. "Brand" has reference to a name, trademark or trade name and like "goodwill" is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which can mar or enhance the value. (x) Parameters specified in paragraph 17.4 of the order dated 23rd January, 2013 in the case of L.G. Electronics India Pvt Ltd (supra) are not binding on the assessed or the Revenue. The "bright line test" has no statutory mandate and a broad-brush approach is not mandated or prescribed. We disagree with the Revenue and do not accept the overbearing and orotund submission that the exercise to separate "routine"....
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.... Transfer Pricing adjustment is to ensure that the controlled taxpayers are given tax parity with uncontrolled taxpayers by determining their true taxable income. Costs or expenses incurred for services provided or in respect of property transferred, when made subject matter of arm's length price by applying CP Method, cannot be again factored or included as a part of inter-connected international transaction and subjected to arm's length pricing 6. The first point is to ascertain and conduct detailed functional analysis which would include AMP expenses. The Transfer Pricing Officer has mentioned the copy of Advertisement Agreement which was entered into on 01.04.2005 but there is no reference to any advertisement agreement relevant to A.Y 2007-08 which is the year under appeal. The ld. AR stated that there is no agreement for the year under consideration to which the DR stated that in the absence of any agreement, it would not be possible to determine the marketing function of the assessee and, therefore, fresh comparables have to be considered. 7. The business profile of the assessee shows that it has distribution net work comprising of over 7,000 channel partne....
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....y's products in India, any benefit arising from advertisement activities including resultant increment to the value of brand in India is available to the assessee only. The ld. AR further pointed out that the assessee's management is independently responsible for undertaking all strategic decisions, such as, introduction of new products, deciding the marketing initiatives, business development, sales strategies etc. Such decisions are undertaken by the assessee based on the assessment of the market condition, nature of competition prevailing in the market and competitors strategies. The ld. AR concluded by saying that the assessee is sole beneficiary of AMP expenditure carried out by the company. 13. In our considered opinion, by virtue of incurring expenditure of AMP, the assessee cannot acquire ownership of intangibles which belongs to the AE. In our considered opinion, the AMP expenditure was not incurred for the AE. The assessee exploits the intangibles created by its AE in India though no brand royalty payment is made by the assessee and it cannot be denied that brand name Sony is global brand across the globe. Therefore, it cannot be said that Sony brand has become p....
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..../B) (in %) 1. Allied Photo graphics India Ltd 8,74,164 37,48,48,199 0.23% 2. Bajaj Electronics Ltd 47,61,14,000 10,83,16,54,000 4.39% 3. Blue Star Limited 345.812,000 16,07,40,69,000 2.15% 4. Usha International Ltd 677,37,000 124,49,72,000 5.44% 5. Voltas Limited 30,53,84,000 24,00,55,16,000 1.27% Arithmetic mean 2.69% 19. The assessee's operating margin is at 3.29% of operating revenue from its consumer Electronic Division and arithmetic mean of operating margin of companies' owner of same brand is 2.09% as mentioned at the above chart. As per the observation of the Hon'ble High Court in the case of Sony Ericson Mobile Communication India Private Limited [supra], if the return earned by the assessee is similar or more than that the return earned by the owner of the brand, no further amount should be contributed towards such brand activities. Any amount that would be attributable to the assessee from the creation of such marketing intangible has already been received by the assessee in terms of higher profitability for the product sold. 20. Before us, the ld. DR vehement....