TaxTMI 
TaxTMI 
2025 (1) TMI 1714
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....rs, storage systems, workstations, notebooks, desktops & displays. Fujitsu India is also engaged in IT product, Maintenance and Support services. The International transactions undertaken by the Assessee during AY 2013-14 are : * Purchase of goods for trading * Purchase of spares * Provision of IT services * Receipt of IT services * Receipt of maintenance support services * Provision of business support services * Purchase of fixed assets * Reimbursement/recovery of expenses 2.1 During the course of TP Assessment proceedings, the Ld. TPO, considered TNMM as the most appropriate method against RPM applied by the Assessee in the distribution segment. While doing the above, the Ld. TPO concluded the characterization of the Assessee. Further, the Ld. TPO did not allow the working capital adjustment to the operating profit margins of the comparables. Thus the Ld. TPO, vide order dated October 21, 2016, enhanced the income of the Assessee by INR 44,94,92,709 on account of change in most appropriate method for benchmarking the international transactions of the Assessee. The Dispute Resolution Panel ('DRP') upheld t....
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....d the contentions against the said reply and passed the order with the following approaches: (1) Adjustment on Substantive Basis 2.3 The Ld. TPO proposed an adjustment amounting to INR 4,13,09,280 on a substantive basis by applying Residual Profit Split Method ("RPSM") which is extension of BLT for the purpose of benchmarking, the AMP expense incurred by the Assessee to determine the reimbursement of alleged non-routine AMP expenditure to be recovered from AE. (2) Adjustment proposed on Protective basis The Ld. TPO proposed an adjustment amounting to INR 8,58,91,766 by applying bright line test to determine the amount of excessive AMP expenditure (or cost) incurred by Assessee. 2.4 Aggrieved with the draft assessment order, the Assessee filed its objections before the DRP which rejected the contentions of the Assessee and accordingly order giving effect to directions of the Hon'ble DRP was passed by the Ld. TPO dated February 16, 2022. Further final assessment order dated February 18, 2022 was passed by the Ld. AO. Aggrieved by the same, the Assessee filed this appeal before us raising following grounds:- "1. That on the facts and circumstances of the case a....
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....ses in the trading segment does not conform to the adjudication by the Hon'ble ITAT in the first round of proceedings (ITA No. 7088/Del/2017); and 2.9 without prejudice, not allowing the benefit of proportionate adjustment in relation to the AMP expenditure that was incurred for the overall business instead of only for the trading segment. 3. That the Ld. AO/Ld. TPO erred on facts and in law in proposing the adjustment to the income of the Appellant by INR 8,56,94,502 on protective basis by holding that the Appellant should have received reimbursement along with mark-up for the excess AMP expenses from its AEs using the "bright line test", spent allegedly towards brand building for the AEs and in doing so grossly erred in: 3.1. making an adjustment on protective basis which has no legal existence as per the provisions of the Act and accordingly the said adjustment is bad in law and void-ab-initio; 3.2. ignoring the fact that no legal provisions exist on AMP being an international transaction, no machinery provisions are applicable on transfer pricing adjustment on account of AMP expenses and misconceiving the facts and circumstances of the ca....
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.... said to be involved with respect to such AMP expenditure incurred by the domestic enterprise, which may be covered within the ken of TP regulations. It was submitted that nowhere in the order, the Ld. TPO has demonstrated that there was any action in concert or any understanding between the Assessee and the AE that such AMP expense has to be carried out. In absence of such arrangement / understanding, there is no case of AMP being an international transaction. This same ratio has been upheld by courts in various cases. Reliance was placed on various judicial pronouncements in Maruti Suzuki India Limited [[2015] 282 CTR 1 (Delhi)] ('Maruti High Court Ruling');Sony Ericsson Mobile Communications India Pvt. Ltd. [TS- 543-HC-2016(DEL); Gillette India Ltd. vs ACIT (ITA Nos. 01/JP/2013 and 02/JP/2015) TP]; Whirlpool of India Ltd. {[2016] 381 ITR 154 (Delhi); Honda Siel Power Products Limited ([2016] 283 CTR 322 (Delhi)) 5. Ld. AR has also submitted that there is no machinery provisions in chapter X of the Act which are applicable to the TP adjustment on account of AMP expenses. Treating alleged excessive AMP as an "international transaction" i.e. a "Service" can only be through a dee....
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....MP activities undertaken by the Assessee are only one of the 'Functions' undertaken by the Assessee and the same is certainly relevant in the overall 'Functions, Assets, Risks' ('FAR') analysis of the Assessee and further the Ld. TPO has erred in considering AMP expenses Incurred by the Assessee as a "transaction" undertaken by the Assessee. 6. Ld. DR has relied the orders of the ld. tax authorities below and it was contended on the basis of the TP Study Report that the assessee has itself mentioned in the functional analysis that it is responsible for identification of customers in India for its AE. It was submitted that as the assessee is engaged in import of products from an AE and market them in India, therefore, the overall quality control being of the AE, the AMP expenses ultimately benefit the brand of AE. 7. As this ground no 2 read with sub grounds 2.1 to 2.8, goes to the root of other grounds on merits we determine it first and we find that assessee had not reported any international transaction related to this disputed AMP expenses. No benchmarking has been carried out in this regard on the force of claim that is a cost reimbursement and does not call for bench mar....
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....rom operations from sale of products at Rs. 87,92,28,859/- and sales of services at Rs. 54,03,80,663/- establish that the revenue from sale of products is as good as sale of services, therefore, the AMP expenditure cannot on its face be held to be excessive qua the traded goods so as to entitle the assessee any compensation from the AE. 10. Indeed the assessee imports a range of Fujitsu products for the purpose of resale to various customers in India. However, the identification of customers in India is at the discretion of the assessee. Thus, it is assessee's marketing and sales team which is executing the policy of the assessee company with regard to identification of customers, medium of advertisement and promotional activities, discounts and the same is independent and without any understanding or an arrangement with the AE. 11. Thus we find substance in the contention of ld. AR that in the absence of any 'understanding', 'arrangement' or 'action in concert', the AMP expense cannot be held as an international transaction as per Section 92B read with Section 92F(v) of the Act. Reliance in this regard is rightly placed by him on the decision of Hon'ble Delhi High Court in t....
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....to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC." 11.1 Thereafter, the Hon'ble High Court went on to hold that in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provisions of Chapter X of the Act are applicable to the transfer pricing exercise. Thus, the inevitable conclusion is that Chapter X as a whole does not permit such an adjustment. The relevant extract is reproduced below:- "76. As explained by the Supreme Court in CIT v. B.C Srinivasa Setty (1979) 128 ITR 294 (SC) and PNB Finance Ltd vs. CIT (2008) 307 ITR 75 (SC) in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise." 12. Further, the reliance placed by ....
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....y Ericsson to the above effect is in the context of those Assessees whose cases have been disposed of by that judgment and who did not dispute the existence of an international transaction regarding AMP expenses." 13. Further, the reliance of ld. AR on the decision of Hon'ble Delhi High Court's in the case of Bausch & Lomb Eyecare (India) Pvt. Ltd. (ITA 643/2014) is also relevant wherein the Hon'ble High Court distinguished between a 'function' and a 'transaction' and held that AMP expenditure is not an international transaction. The relevant extracts are reproduced below for ready reference:- "61. There is merit in the contention of the Appellant that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function cannot be construed as a 'transaction'. Further, the Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Appellant or legislatively recognised in the Explanation to Section 92B runs counter to legal position explained in CIT v. EKL Appliances Ltd. (supra) which required....
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....s being performed by the Whirlpool India for its AE. Hence Revenue claimed that Indian AE should then be compensated for this on an arm's-length basis, given that such expenses come under the ambit of "international transactions" subject to transfer pricing. However, Whirlpool India argued that such costs are incurred wholly to build the business in India and part of its independent functions so shouldn't be subject to transfer pricing. The decision of the Hon'ble Supreme Court in Whirlpool India Case (SLP(C) 29270/2016 order dated 20/11/2024 has recognised the cardinal principles covering this issue that there should be concrete evidence to establish international transactions. 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 demonstration, there is no question of undertaking any benchmarking of AMP expenses. The relevant findings of the Hon'ble High Court in the case of Whirlpool of ....
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....ed by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses. XXX XXX XXX 39. It is in this context that it is submitted, and rightly, by the 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 conje....