TaxTMI 
TaxTMI 
TaxTMI 
2019 (1) TMI 2077
X X X X Extracts X X X X
X X X X Extracts X X X X
....tisement, Marketing and Promotional ("AMP") incurred by the Appellant results in international transaction and consequently benchmarked the same separately in the present case. 3. On the facts, in law and in the circumstances of the case, the Ld. AO/ Ld. TPO and Ld. Panel erred in alleging that the Appellant is rendering a service to its Associated Enterprise ('AE') for creation of marketing intangibles in India and proceeded to make an adjustment completely disregarding the binding decisions of the Jurisdictional High Court in the case of Maruti Suzuki India Ltd. v. CIT [(2016) 237 Taxmann 256 (Delhi), thereby not following the judicial discipline as mandated by law. 4. On the facts, in law and in the circumstances of the case, the Ld. AO/ Ld. TPO and Ld. Panel erred in not appreciating the characterisation of Wrigley India and in not appreciating that; 4.1. key decisions making functions with respect to Marketing function are performed by the Appellant; 4.2. by testing each of the "international transactions" (including import of raw materials and sale of finished goods) separately, it has been clearly demonstrated that the residual/entrepreneurial profits, inter-alia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. Panel has misunderstood the use of brand in the form of trademark i.e. brand exploitation as brand development. 11. On the facts and in the circumstances of the case, the Ld. AO/Ld. TPO and the Ld. Panel erred in considering that the primary benefit of incurring AMP expense is to Wrigley India's account and not appreciating that incidental benefit, if any does not warrant a reimbursement. 12. The Ld. AO/Ld. TPO and Ld. Panel erred in not appreciating the fact that the AMP expenses cannot be considered as a controlled transaction undertaken by the Appellant. However the same should be constituted as a function performed by the Appellant and not a transaction undertaken by the Appellant. 13. On the facts, in law, and in the circumstances of the case, the Ld. AO/Ld. TPO and the Ld. Panel erred in applying AMP/Gross Profit ratio, a modified form of Bright Line Test ("BLT"), for establishing the existence of international transaction and computing the value of adjustment on account AMP expenditure without appreciating that in absence of specific provision under the Transfer Pricing Regulations in India such an adjustment could not be made. 14. On the facts, in law and in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ased on mere surmises and conjectures; and 15.7 computing the adjustment on account of AMP wrongly. 16. That the Ld. AO erred on facts and in law in levying interest under sections 234A, 234B, 234C and 234D of the Act. 17. That on facts and in laws, the Ld.AO/Ld. Panel erred in holding that the Appellant has furnished inaccurate particulars of income in respect of each item of disallowance/ additions and in initiating penalty proceedings under section 271 (1) (c) of the Act. That the above grounds of appeal are independent and without prejudice to each other." 2. ITA.No. 1596/Del./2016 by the Revenue has been directed against the Order of the DRP-2, New Delhi, Dated 10.12.2015, for the A.Y. 2011-2012 under section 144C(5) of the I.T. Act on the following grounds : 1. "On the facts and in the circumstances of the case, the DRP-2 erred in directing AO to complete the assessment as per observations made by DRP in the order which resulting in reducing the addition to Rs. 18,02,86,000/- in place of original recommended ALP of Rs. 20,94,17,158/- for the International transactions undertaken the assessee company with its associate/ parent enterprise. 2. Whether the DRP w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....P of the international transaction relating to marketing intangibles at Rs. 23,26,06,386/-. The TPO has directed that the A.O. shall enhance the assessee's income by the aforesaid amount on account of creation of marketing intangibles. The opinion of the TPO is based on a scientific and lawful interpretation of the relevant valuation provisions of ALP. The assessee filed an application under section 154 before TPO. In its application, assessee has referred to computation of upward T.P. adjustment amounting to Rs. 23,26,06,386/-. In the said computation "total sales made by you" figure has been taken as Rs. 297.35 crores instead of Rs. 318.87 crores as reported in the audited financial statements of the assessee. After considering the above facts, it was noted that there was indeed an advertant mistake apparent from record in taking an incorrect figure for total sales. Accordingly, adjustment of Rs. 23,26,06,386 made in the original order was reduced to Rs. 20,94,17,158. The assessee filed objections to the draft assessment order before DRP. The DRP vide Order dated 10.12.2015 directed the TPO to exclude certain comparables i.e., routine selling and distribution expenses and to cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is covered in favour of the assessee by Order of ITAT, Delhi Bench in the case of assessee in four years above vide Order dated 31.01.2017 and 25.09.2018 whereby the Tribunal has held that AMP expenses incurred by assessee cannot be treated and categorized as an international transaction under section 92B of the I.T. Act. The Tribunal in its Order dated 25.09.2018 has followed the Order of the Tribunal dated 31.01.2017. This Order dated 25.09.2018 in paras 9 to 15 is reproduced as under : 9. "With respect to the grounds No. 2 to 111 of appeal, it was stated by the learned authorized representative that addition on the same ground was made by the Learned Assessing Officer for the A Y 2007-08, 2008 - 09 and 2009-10 and the coordinate bench vide order dated 31 January 2017, has allowed the appeal of the assessee deleting the above additions holding that AMP expenditure incurred by the assessee cannot be treated and categorised as an international transactions under section 92B of The Income Tax Act. It was stated that the principal ground in the appeal filed by the assessee for the assessment year 2010 - 11 is therefore covered in favour of the assessee by the order of the coordinat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gainst the Transactional Net Margin Method chosen by the appellant, in respect of international transaction of export of finished goods. It is thus evident that the expenditure incurred in the AY 2006- 07 on AMP which was of Rs. 30,94,79,033/- was accepted as an expenditure incurred u/s 37(1) of the Act and that it does not represent an international transaction. 8. It is further clarified that for the AY 2006-07 the expenditure incurred on AMP was of Rs. 30,94,79,033/- which has not been disputed by the learned TPO when he accepted that the said expenditure incurred does not represent an international transaction. In other words, the contention of the assessee as is reflected in its TP report was accepted when it had not been disputed that the said expenditure incurred did not warrant any interference so to be regarded as an international transaction. It is submitted that the assessee is incurring the expenditure for its own business for making advertisement, publicity and marketing its products. 9. However, for the AYs 2007-08, 2008-09 and 2009- 10 the learned TPO had held expenditure on AMP to be an international transaction. In doing so the learned TPO, did not have the ben....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. TPO has held that the AMP expenditure incurred by the appellant is highly excessive and should have been in line with the expenditure being incurred by comparable companies (i.e 4.66% of sales). However, the comparable cases selected by the Ld. TPO are incomparable. A statement showing the goods manufactured by the companies cited by the TPO as comparable cases is Annexed. 15. The contention of the appellant is that by incurring expenses on AMP, it has not provided any services to its AE or incurred any expenses for the benefit of the AE. 16. The learned TPO in his order however on the basis of ratio of LG Electronics India Pvt. Ltd. (special bench) has held that the AMP expenditure incurred represents international transaction. On the aforesaid basis he held that the bright line test identifies the expenditure attributable to the requirement of domestic sale and those expenditure which are over and above the requirement. Reliance by the TPO on clause (f) in rule 1 OB (1) of the Income-tax Rules does not advance the contention of the Income-tax Authorities. The said clause (f) provides another method for determining the arm's length price, namely, "any other method as pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP expenses between Indian subsidiary and foreign parent, revenue cannot proceed to determine ALP of AMP expenses by inferring existence of an international transaction based on bright line test. iv. Valvoline Cummins (P.) Ltd. vs DCIT [2017] 298 CTR 349 (Delhi) 17. Once the BLT has been declared by this Court in Sony Ericsson Mobile Communications India (P.) Ltd.{supra) to no longer be a valid basis for determining the existence of or the ALP of an international transaction involving AMP expenses, the order of the TPO was unsustainable in law. The mere fact that the Assessee was permitted to use the brand name 'Valvoline' will not automatically lead to an inference that any expense that the Assessee incurred towards AMP was only to enhance the brand 'Valvoline'. The onus was on the Revenue to show the existence of any arrangement or agreement on the basis of which it could be inferred that the AMP expense incurred by the Assessee was not for its own benefit but for the benefit of its AE. That factual foundation has been unable to be laid b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ords, the I.T.A.T. will decide whether the reporting of the AMP in regard to the outbound business constitutes an international transaction for which ALP determination was necessary and if so, the effect thereof. The parties are directed to appear before the I.T.A.T. on 01.02.2017. The appeal is partly allowed in the above terms. vi. Bausch & Lomb Eyecare (India) (P.) Ltd. vs. Additional Commisssioner of Income-tax [2016] 381 ITR 227 (Delhi) vii. Denso India Ltd. vs. Commissioner of Income-tax [2016] 388 ITR 324 (Delhi) viii. Expenditure had been incurred on account of commercial expediency: Knorr-Bremse India (P.) Ltd. vs. Asst. CIT 2016] 380 ITR 307 (Punjab & " 11. He further referred to the various documents submitted in the paper book to support his claim, such as the annual accounts of the assessee and the methodology adopted by the assessee for determination of ALP of the international transactions contained therein. He further referred to the various submissions made by the assessee before the learned transfer pricing officer. In the end, his submission was that the addition made by the learned transfer pricing officer of adjustment towards the arms length pri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder reference it had international transactions with its associated enterprise (AE) amounting to Rs 48.26 crores which were in the form of import of raw materials, sale of finished goods, purchase of fixed" assets and SAP Software, payment of royalty, receipt of services, interest on ECB loan and cost recharge. The TPO accepted the aforementioned international transactions at arm's length. However, she examined the taxpayer's advertising, marketing and promotion (AMP) expenses mainly for the purposes of examining as to whether the taxpayer was creating marketing intangible for the brand name "Wingley" which was owned by its AE. The TPO found that the taxpayer had incurred these expenses which were much above the average expenses incurred by the comparable companies. According to her while the taxpayer's AMP expenses were 16.93% of its sales similar expenses of the comparables were only 4.32%. Applying the "bright line" test, the TPO held that AMP expenses in excess of 4.32% of the taxpayer's sales amounted to international transaction and the same should have been reimbursed by the AE, Such excess expenditure was computed by her at Rs. 28.60 crores. The TPO applied a mark up o....