TaxTMI 
TaxTMI 
2019 (6) TMI 1741
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....,124, by holding that the international transactions with Associated Enterprises CAEs") do not satisfy the arm's length principle envisaged under the Income-tax Act, 1961 ("the Act"). 2. The Ld. AO / Hon'ble DRP, erred on facts and in law in enhancing the income of the Appellant by Rs. 81,05,72,232, by holding that the Appellant should have received reimbursement along with mark-up for Advertising, Marketing and Promotion ("AMP") expenditure from its AEs, alleged to be towards brand building for the AEs, and in doing so have grossly erred in: 2.1 assuming jurisdiction in respect of the AMP expenditure when such expenditure did not satisfy the requisites of being an international transaction under Section 92B read with Section 92F(v) of the Act; 2.2 not considering that there are no machinery provisions in Chapter X of the Act which are applicable to determine the quantum of transfer pricing adjustment made on account of AMP expenses; 2.3 misconceiving the facts by holding that the Appellant company was "promoting" BMW brand and creating marketing intangibles for the parent company; instead of appreciating that the Appellant company was only carry....
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....e of the Appellant by Rs. 5,82,61,892 by holding that the transaction pertaining to receipt of Information Technology ("IT") support services does not satisfy the arm's length principle envisaged under the Act and in doing so grossly erred in: 5.1 rejecting the Transactional Net Margin Method ("TNMM") as the most appropriate method to test the said transaction without appreciating that the transaction is closely linked to the distribution/assembling functions of the Appellant and applying Comparable Uncontrolled Price ("CUP") Method in contravention of the provisions of Rule 10B of the Rules merely based on presumptions and holding the arm's length value of the transaction as Rs. 15,11,411; 5.2 disregarding the separate transaction level analysis undertaken by the Appellant on a without prejudice basis during the assessment proceedings to benchmark the transaction of receipt of IT support services; 5.3 failing to acknowledge the business efficacy of the transaction and the benefits received by the Appellant from the same; thereby challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the judicia....
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....ng penalty proceedings under section 271(i)(c) of the Act for concealment and furnishing inaccurate particulars of income." 2. The brief facts of the cases that Assessee Company is engaged in the business of manufacturing and trading of motor vehicles and related spare parts. It filed its return of income on 28/11/2012 showing income of INR 95,48,01,550/-. Assessee is a subsidiary of BMW holding B.V. Netherlands setup in 2006 as a sales subsidiary with an assembly plant in Chennai. 99.99% of the equity is held by Netherlands Company and 0.01% is held by BMW AG, Germany. The main business of the company was of the import, assembly, and sale of premium segment cars in India and operates as a normal sales subsidiary. It carried out assembly of knockdown kit (CKD) for BMW - 3, 5 X1 and X3 services from its assembly plant facility in Chennai. It is also engaged in the import and resale of completely built units (CBU) of six series 7 series, X5, Xt 6, and M models of cars from BMW group for resale in the Indian market. 3. It has entered into an international transaction of purchase of raw materials, purchase of traded vehicles, spare parts, and payment of interest on delayed paymen....
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....roperty rights and other commercial or marketing intangibles and is involved in complex product development, manufacturing, and brand development operations. He further noted that expenditure on AMP has been incurred to promote the BMW brand/trade name, which is owned by the associated enterprise. Such expenditure has resulted in brand building and increased awareness of the products bearing the BMW brand name/trade name. He further noted that in the transfer pricing study report the assessee has characterized itself as a distributor of group's products in India. The assessee objected to the above analysis of the learned transfer-pricing officer stating that assessee is a routine normal distributor, which employs routine intangible assets and bears normal risk associated with its operations. It was further stated that expenses incurred is not an international transactions as per section 92B of the income tax act. Assessee further objected to the adoption of the bright line concept by the learned transfer-pricing officer. However, the learned TPO rejected the explanation of the assessee holding that since the associated enterprises directly selling its products in India, it is in it....
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....P expenses of INR 6 80466951/-. He noted that the BMW India sale is Rs. 22411679254/- and therefore the AMP/sales ratio is 3.04 percentage. Thus he noted that INR 6 80466951/- is attributed towards advertisement marketing services rendered by the assessee for its parent associated enterprise for brand building. He further applied mark up at the rate of 19.12 percentage thereon of INR 130105281/- and therefore on substantive basis he proposed the adjustment of INR 810572232/- u/s 92CA of the income tax act. 6. With respect to the availing of the IT support services, titled as IGS by the assessee of INR 59773303/-, where the assessee noted that that these transaction are intrinsically linked to the primary business activity and operation of the assessee hence it has been aggregated and benchmarked accordingly, the learned transfer pricing officer rejected it and stated that none of the benefits stated to have been received a tangible or real and therefore out of the total payment of INR 59773303/- made by the assessee to its associated enterprise for intragroup services, he held that arm's length price of such transaction is only INR 1511411/- on application of CUP method and ther....
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....erefore the assessee is aggrieved with the order of the learned assessing officer has preferred this appeal before us. 12. Ground number 1 of the appeal is related to the overall transfer pricing adjustment. Ground number 2 relates to the adjustment on account of AMP expenditure on substantive basis. Ground number 3 relates to the adjustment on account of AMP expenditure on protective basis by applying bright line test. Ground number 4 relates to the reliance by the learned transfer-pricing officer on various judicial pronouncements. Ground number 5 related to the adjustment on account of IGS. 13. Ground number 1 of the appeal of the assessee is against the adjustment proposed by the learned transfer-pricing officer in appeal by the learned dispute resolution panel in general. As the specific grounds with respect to both the adjustment has been raised by ground number 2 - 5 of the appeal this ground of appeal is held to be general and hence dismissed. 14. Coming to ground number 2 - 4 of the appeal, with respect to the adjustment on account of the AMP expenditure and ground number 5 of adjustment related to the IGS services, The learned authorised representative vehemently....
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....he decision of the coordinate bench in assessee's own case for assessment year 2011 - 12 in ITA number 1514/del/2016 dated 25/1/2019 as under:- "20. We have given thoughtful consideration to the submissions of both the sides. We have also considered the orders of the co-ordinate bench in assessee's own case in A.Y 2010-11 and the various judicial decisions relied upon by the ld. AR and by the ld. DR. 21. A perusal of the transactions with related parties at page 128 of the paper book Volume I shows that there was a reimbursement of marketing/business promotion/other expenses from ultimate holding company amounting to Rs. 3,33,945/- in F.Y. 2009-10, which is not there during F.Y under consideration. This means that in the immediately preceding F.Y, the assessee itself has reported reimbursement of marketing/business promotion/other expenses, accepting the same as international transaction. On these peculiar facts of F.Y. 2009-10, the coordinate bench came to the conclusion that AMP spend is an international transaction and set aside the assessment to the file of the Assessing Officer/TPO for determining ALP of international transaction of AMP spend afresh in accord....
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....para 120 held as under: "120. Notwithstanding the above position, the argument of the Revenue goes beyond adequate and fair compensation and the ratio of the majority decision mandates that in each case where an Indian subsidiary of a foreign AE incurs AMP expenditure should be subjected to the bright line test on the basis of comparables mentioned in paragraph 17.4. Any excess expenditure beyond the bright line should be regarded as a separate international transaction of brand building. Such a broad-brush universal approach is unwarranted and would amount to judicial legislation. During the course of arguments, it was accepted by the Revenue that the TPOs/Assessing Officers have universally applied bright line test to decipher and compute value of international transaction and thereafter applied Cost Plus Method or Cost Method to compute the arm's length price. The said approach is not mandated and stipulated in the Act or the Rules. The list of parameters for ascertaining the comparables for applying bright line test in paragraph 17.4 and, thereafter, the assertion in paragraph 17.6 that comparison can be only made by choosing comparable of domestic cases not using any ....
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....ties. It is submitted that with the decision in Sony Ericsson having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses the very basis of revneus" case is negated. XXX 51. The result of the above discussion is that in the considered view of the court the revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the issue as far as the present Assessee MSIL is concerned since finding in Sony Ericsson to the above effect is in the context of those Assessee's whose cases have been disposed of by that judgment and who did not dispute the existence of an international transaction regarding AMP expenses. XXX 60. As far as clause (a) is concerned, SMC is a non-resident. It has, since 2002, a substantial share holding in MSIL and can, therefore, be construed to be a non-resident AE of MSIL. While it does have a number of 'transactions....
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.......In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the 18 Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT" 33. In the light of the aforesaid finding of the Hon'ble High Court, before embarking upon a benchmarking analysis, the Revenue needs to demonstrate on the basis of tangible material or evidence that there exists an international transaction between the assessee and the AE. Needless to mention, that the existence of such a transaction cannot be a matter of inference. 34. The Hon'ble Delhi High Court in case of Whirlpool of India Ltd vs DCIT 381 ITR 154 has held that there should be some tangible evidence on record to demonstrate that there exists an international transaction in relation with incurring of AMP expenses for development of brand owned by the AE. In our considered opinion, in the absence of such de....
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.... Assessee that there must be a machinery provision in the Act to bring an international transaction involving AMP expense under the tax radar. In the absence of any clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, should be ascertained and further how the ALP of such a transaction should be ascertained, it cannot be left entirely to surmises and conjectures of the TPO. XXX 47. For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP expenses between WOIL and Whirlpool USA. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In any event, in the absence of a machinery provision it would be hazardous for any TPO to proceed to determine the ALP of such a transaction since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP." ....
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.... expenses. 39. The aforesaid view that existence of an international transaction is a sine qua non for invoking the transfer pricing provisions contained in Chapter X of the Act, can be further supported by analysis of section 92(1) of the Act, which seeks to benchmark income / expenditure arising from an international transaction, having regard to the arm's length price. The income / expenditure must arise qua an international transaction, meaning thereby that the (i) income has accrued to the Indian tax payer under an international transaction entered into with an associated enterprise; or (ii) expenditure payable by the Indian enterprise has accrued / arisen under an international transaction with the foreign AE. The scheme of Chapter X of the Act is not to benchmark transactions between the Indian enterprise and unrelated third parties in India, where there is no income arising to the Indian enterprise from the foreign payee or there is no payment of expense by the Indian enterprise to the associated enterprise. Conversely, transfer pricing provisions enshrined in Chapter X of the Act do not seek to benchmark transactions between two Indian enterprises. 40. Th....
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....he assessee to its AE. 44. Nowhere the DRP has brought on record or referred to any tangible material which could suggest that there are expenses of international transaction in so far as AMP spend is concerned. The DRP was well aware with the decision of the Hon'ble Delhi High Court in the case of Maruti Suzuki [supra], yet neither the DRP itself brought on record any material to suggest that the AMP spend is an international nor it directed the TPO to do the same. Therefore, we see no reason to remit the matter to the file of the TPO as is prayed for by the ld. DR. Remand to the assessment stage cannot be a matter of routine. It has to be so done only when there is anything in the facts and circumstances to so warrant or justify. In our considered opinion, no 27 new facts have emerged and all the facts brought on record during the course of scrutiny assessment proceedings do not indicate legally sustainable basis for remitting the matter to the file of the TPO. 45. Considering the facts of the case in totality, we are of the view that the Revenue has failed to demonstrate by bringing any tangible material evidence on record to show that international transac....
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....onal claim of a. deduction of interest on custom duty, b. interest on service tax and c. interest on excise duty, d. provision of warranty and e. deduction u/s 80 JJAA of the act 22. Assessee rose above claims before the ld AO by way of a letter during the course of assessment proceedings but not filing any revised return of income. Ld AO did not entertain it simultaneously DRP also did not entertain it. There for assessee is in appeal. 23. The ld AR submits that the learned assessing officer has grossly erred by applying the decision of the honourable Supreme Court in case of Goetz India Ltd vs CIT 284 ITR 323 by completely ignoring the circular number 14 dated 11/04/1955 issued by the central board of direct taxes which provides that all legitimate claims made by the taxpayer should be considered and allowed. He submit that learned dispute resolution panel also rejected the claim of the assessee stating that there is no evidence to substantiate the additional claim of deduction made by the appellant during the course of assessment proceedings. He submitted that learned dispute resolution panel has completely ignored the submissio....