TaxTMI 
TaxTMI 
2025 (7) TMI 1370
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....to the directions issued by the Ld. Dispute Resolution Panel ('DRP') is a vitiated order, as the Ld. DRP erred both on facts and in law in confirming the addition made by the Learned ('Ld.") Assessing Officer ('AO') and Ld. Transfer Pricing Officer ('Ld. TPO') to the Appellant's income. The Appellant humbly prays that the additions made by the La. AO to the income of the Appellant be deleted. Ground on Limitation: 1.2. On the facts and circumstances of the case and in law, the Final Assessment Order dated 30 September 2024, passed by the Ld. AO under section 143(3) read with section 144C(13) and Section 144B of the Act, having being passed beyond limitation provided in terms of Section 153 of the Act, is void-ab-initio, illegal, bad in law and therefore liable to be quashed. Advertisement, Marketing and Promotional ('AMP') Adjustment. Advertisement, Marketing and Promotional ('AMP') Adjustment 2.1. On the facts and in the circumstances of the case and law, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in making a Transfer Pricing (TP) adjustment of INR 9,212,742 on account of alleged creation of marke....
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.... AMP spend, functional/product profile etc., thus rendering them to be not comparable to the Appellant and hence liable to be rejected; d) Determining the arm's length price of the transaction under 'Other Method' on an ad hoc basis in contravention to provisions of the section 92C of the Act; e) Considering an ad hoc mark-up of 7.02% towards marketing support services (based on ad-hoc comparable companies selected by the Ld. TPO), for alleged support service provided to AEs without undertaking a structured search process and without considering the various relevant factors such as size of the company, functional profile, etc. for the current financial year; f) Selecting comparable companies without applying the check for companies having significant RPT and failing the RPT filter; and g) Disregarding the decision of Hon'ble Tribunal of Mumbai in the Appellant own case for AY 2012-13 and AY 2013-14 where similar adjustments were deleted. 2.3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon'ble DRP/ Ld. TPO/ AO have grossly erred in: a) Disregarding the agg....
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....Enterprises. Sr. No. Nature of transaction Amount in (INR) Method used 1. Purchase of Traded Goods 57,34,48,498 Transactional Net Margin Method (TNMM) 2. Aid from fellow subsidiaries 39,17,89,834 3. Purchase return of traded goods 2,58,03,811 4. Purchase of fixed assets 1,20,000 5. Reimbursement of expenses 1,26,25,776 6. Recovery of expenses 96,17,412 7. Tax cost on vesting of ESOPs 82,01,525 8. Payments in relation of ESPP/RSUs 88,86,288 Total 1,04,95,27,391 7. Pursuant the reference made by the Technical Unit under Section 92CA(1) of the Act to the Transfer Pricing Officer ("TPO") for determination of arm's length price ("ALP") of the international transactions undertaken by the assessee, the TPO asked the assessee to submit the details in relation to advertisement, conference and marketing promotion expenses incurred by the assessee during the year under consideration. The assessee was also asked to show cause as to why the expenses relating to advertising, marketing, and conference expenses, along with educational....
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....) held in different hospitals to create awareness of medical devices available in the market, printing books and video shooting expenses for CMP programme etc." 9. Before the TPO, the assessee further submitted that pursuant to the supplementary distribution agreements entered into by the assessee with the suppliers / Edwards group entities, the assessee received compensation from the supplying group entities, to enable the assessee to meet the arm's length benchmark margin at the net level vis-à-vis the margin earned by the comparable companies. It was further submitted that accordingly, during the year under consideration, the assessee received an amount of Rs. 39,17,89,834/- as subvention income from its Associated Enterprises to help it achieving an arm's length margin in India which effectively tantamount to compensating the assessee for any or all expenses relating to its distribution activities (including advertisement, marketing and conference expenses). Thus, it was submitted that even if it is assumed that such expenditure leads to brand building for its Associated Enterprises and presence of an international transaction, still the same has been recovered by the....
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....al income of the assessee at Rs. 11,39,26,511/- after incorporating the Transfer Pricing Adjustment made by the TPO. The assessee filed detailed objections before the learned DRP against the Transfer Pricing Adjustment made by the TPO, again reiterating its submission, inter alia, that the assessee pursuant to the supplementary distribution agreement received subvention payment from the Associated Enterprises and thus the assessee has been adequately compensated by its Associated Enterprises for all its functions. The assessee also placed reliance upon the decision of the Co-ordinate Bench in its own case for assessment years 2012-13 and 2013-14, wherein a similar adjustment made on account of incurring AMP expenses was deleted. The learned DRP, vide its directions dated 30.08.2024 passed under section 144C(5) of the Act, upheld the findings of the TPO that there is an arrangement, understanding or action in concert between the assessee and its Associated Enterprises, whereby the assessee has incurred non-routine expenditure in the form of AMP expenses for providing services of brand building to the Associated Enterprises for which no adequate compensation has been received. Accord....
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....'s own case in M/s. Edwards Lifesciences (India) Pvt. Ltd. v/s. ACIT in ITAs No.1189 and 7198/Mum/2017, for assessment years 2012-13 and 2013-14, vide order dated 10.07.2019, while deleting the Transfer Pricing Adjustment made on account of incurring AMP expenses by the assessee, observed as follows: - "5. We have heard the rival submissions and perused the order of the Id. TPO, submissions made by the assessee before the ld. TPO and ld. DRP, objections raised by the assessee before the ld. DRP and arguments of both the Counsels before us and the paper book of the assessee together with the judicial pronouncements relied upon to which our attention was drawn by both the counsels before us. From perusal of the same, we find that the nature of expenditure incurred by the assessee was to create produce awareness among doctors in order to make them aware about the technology and product benefits; to educate and make the doctors aware about the latest products available in the market. We find that the expenditure incurred were in the nature of scientific meetings, medical advice, awareness campaign, scientific sessions, training etc., The various arguments by the Id. AR by refe....
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.... that are not in any way related either to the assessee or its AEs. The assessee has the sole discretion of deciding the form, manner, content and timing of the advertising. The direct benefit in terms of increased sales, market share etc. resulting from such conference and marketing promotion expenses is to the assessee's own account" 5.1. We find the crucial aspect which has been ignored by the lower authorities while adjudicating the issue in dispute before us was that the assessee was in respect of subvention income from its AEs. This was received pursuant to supplementary distribution agreements entered into by the assessee with the AEs wherein the assessee received compensation from the AEs to enable it to meet the arm's length benchmark margin at net level vis-à-vis margin earned by the comparable companies. Based on such distribution agreement, the AE agreed to compensate the assessee in case it does not earn the arm's length margin on its own. Accordingly, during the year, the assessee had received the subvention income from its AEs to help it achieving an arm's length margin in India, which effectively tantamount to compensating the assesse....
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.... including all subsidiaries and affiliates and it does not say that the operational subsidiaries are debarred from / not required to undertake such functions or that the entire liability at the group level. It is a general statement about the group's business activity and its profile. It was argued that the lower authorities have picked up some lines from the annual report which was not apparently submitted by the assessee but rather obtained by the Id. TPO independently. It was specifically brought to the notice of the Bench that the Annual report relied upon by the lower authorities was not that of the AE which had given subvention income to the assessee herein. Therefore, it was submitted that the remarks made in one of the group entities annual report which had not even entered into any international transaction with the assessee cannot constitute any agreement or arrangement with the assessee and hence, cannot be relied upon. This was not controverted by the Id DR before us. We find lot of force in this specific argument of the Id. AR. 5.3. In view of the aforesaid findings in the facts and circumstances of the case, we are inclined to grant relief to the assessee....
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....or all expenses relating to distribution activity (including advertisement, marketing and conference expenses). We find that in this regard during the transfer pricing assessment proceedings, the TPO specifically issued notice on 05.10.2023 asking the assessee to provide detailed working of the amount received as subvention income and other details such as the agreement under which the payment was made, how the said amount was determined and the benchmarking of the transaction after considering the subvention payment. Replying to the aforesaid notice, the assessee vide its letter dated 10.10.2023, forming part of the paper book from pages 236-238, provided the details as sought by the TPO and submitted that after considering the subvention payment of Rs. 39,17,89,834/-, the assessee achieved the arm's length operating sales margin of 6.92%. We find that similar submissions were also made before the learned DRP, as noted on pages 37-39 of the DRP's direction. However, the aforesaid submissions of the assessee were not dealt with by any of the lower authorities, and the impugned Transfer Pricing Adjustment was made by considering the incurring of AMP expenses as an international tran....