AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (1) TMI 2077
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....y allegedly assuming the expenditure on account of Advertisement, 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....
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....pany was only carrying out its business by using the well-established brand name. In doing so the Ld. AO/Ld. TPO and the Ld. 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 ....
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....up of Gross Profit/Cost of goods sold ("GP/COGS") of the comparables of 69.05 percent, has to be earned by the Appellant in respect of the "alleged excessive" AMP expenses, which is completely untenable and based 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 resu....
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....sactions as shown by the assessee in respect of creation of marketing intangibles. After due deliberation, the TPO found the transfer pricing report furnished by the assessee to be erroneous. The TPO after discussion vide Order dated 29.01.2015 determined the ALP 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 o....
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....re incurred, in view of the circumstances of the case, therefore, departmental appeal has become infructuous. 6. On the other hand, Ld. D.R. relied upon the Orders of the A.O./DRP. 7. After considering the submissions of the parties, we are of the view that the issue 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 tre....
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.... Assessing Officer accepted the expenditure incurred on AMP as business expenditure u/s 37(1) of the Act, and not as expenditure incurred for the purposes of 'Brand building' of the AE. It is further submitted that for the AY 2005-06 and 2006- 07, in orders made u/s 92CA(3) the learned TPO made adjustment by using Cost Plus Method, against 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 tran....
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.... cited in paragraph 18 it has been held by the Courts of India that BLT is inapplicable. 13. The Ld. TPO has stated that though the appellant is a manufacturer, yet it is a distributor also. The TPO has erred in ignoring that every manufacturer has to sell the goods it produces and this does not make it a distributor. 14. Without prejudice, it is stated that the Ld. 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....
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....t line test; bright line test has no statutory mandate and in all cases costs or compensation paid for AMP expenses cannot be 'NIL'. ii. Honda Siel Power Products Ltd. vs DCIT [2016] 237 Taxman 304 (Delhi) Bright Line Test (BLT) is not a valid method for either determining existence of international transaction or for determination of ALP of such transaction. iii. CIT vs. Whirlpool of India Ltd. [2016] 381 ITR 154 (Delhi) Where 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 ....
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.... the AMP reported, could lead to the conclusion that there was an international transaction. When doing so, it should have remitted the matter back for examination to the A.O. in this case. Accordingly, following the decision of Sony Ericsson Mobile Communications India (P.) Ltd. {supra) and a subsequent decision in Daikin Air conditioning India (P.) Ltd. v. Asstt. CIT in ITA 269/2016, decided on 27.07.2016, this Court hereby remits the matter for a comprehensive decision by the I.T.A.T. In other words, 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 (....
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....ssue of advertising, marketing and promotion expenses (in short, AMP) The Assessing Officer was of the view that the associated enterprise (AE) being the legal owner of the brand should have compensated the assessee for AMP expenses as AE derives benefit from such expenses incurred by the assessee and the creation of resulting marketing intangible. The assessee is a wholly owned subsidiary of Wm. Wrigley Jr. Co., USA (WWJC). It is engaged in the manufacturing and sale of confectionary products like chewing gum, bubble gums, toffees, etc. In the year under 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. Th....
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....on'ble High Court has followed its earlier decision in the case of Sony Ericcsion Mobile Communication India P. Ltd. Vs. CIT (2015) 374 ITR 118 (Del). Respectfully following the ratio laid down in the cited decision of Hon'ble High Court in the case of Maruti Suzuki India Ltd. (supra) we hold that AMP expenses incurred by the assessee cannot be treated and categorized as an international transaction under section 92B of the Act and in view of this finding, the TPO was not justified in making any transfer pricing adjustment in respect of such transaction under Chapter X of the Act. The ground Nos. 5 to 14 are thus allowed in favour of the assessee. The ground No. 15 is alternative ground with this contention that the Id. Assessing Officer/TPO has erred by not adhering to the principles of comparability and in using inappropriate comparablesio determine the bright line limit. In view of the finding on the issue raised in ground Nos. 5 to 14, the alternative issue raised in ground No. 15 does not stand. This ground is accordingly disposed off. " 15. The ld DR urged to not to follow the decision of coordinate bench but could not show us any reasons that why above order sho....