TaxTMI 
TaxTMI 
2026 (1) TMI 822
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....P] amounting to Rs. 922,592,886 and an additional adjustment of Rs. 2,279,192/- on account of interest on delayed receivables and further disallowance of expenditure amounting to Rs. 24,66,60,121/- was made determining the total income of the assessee at Rs. 1,733,923,553/-. 2. The brief facts of the case shows that assessee filed its return of income for the year under consideration on 15 February 2021 which was revised on 26 March 2021 at the taxable income of Rs. 444,408,150/-. The assessee is a company engaged in the business of selling ophthalmic surgical electronic equipment, intraocular lenses, spare parts and pharmaceutical products and also provide services in relation to maintenance of the products and support services to its group companies. The return of income was picked up for scrutiny and notice u/s. 143 (2) was issued on 29 June 2021, the assessee was also found to have entered into international transactions with its associated enterprises [AE]. Therefore the reference was made to the learned Transfer Pricing Officer [TPO] - ACIT, TP 1(1)(1), Bangalore (the ld. TPO) for determination of the arm's-length price [ALP]. The assessee has entered into 10 different....
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....8/- was made. Accordingly the total income of the assessee was computed at Rs. 1,735,615,397/- by the above draft order. 4. Aggrieved with the same the assessee preferred an objection before the learned Dispute Resolution Panel-1, Bangalore [DRP]. The ld. DRP passed its direction u/s. 144C(5) of the Act on 22 June 2024. According to the direction para No. 2.2.8 the disallowance of Rs. 246,660,121/- u/s. 37 (1) of the Act in violation of the guidelines of the Indian Medical Council was upheld. With respect to the determination of the arm's-length price of AMP expenditure were also confirmed. The several comparables objected by the assessee for determination of the arm's-length price of the AMP expenditure was also dismissed. Therefore the ld. DRP upheld the selections of comparable as well as upheld the addition with respect to the arm'slength price of the AMP expenditure. With respect to the imputation of interest on outstanding overdue receivable from its AE as per ground No. 5 were also rejected including the markup of 350 basis points over the six months LIBOR was also upheld. 5. Based on the direction of the ld. DRP, ld. TPO passed an order giving effect to th....
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....order dated 29th April 2022, the addition of the arm's-length expenditure was made of Rs. 620,630,238/-. This ground is decided as per ground No. 2 - 10 as per paragraph No. 9 of the appellate order. The contention of the assessee therein was that assessee is merely acting as a distribution agent and carries on marketing activities and therefore the assessee is promoting its own business in India as a distributor. He further stated that the argument of the assessee therein was that addition was made by using the Brightline test. He submits that that the coordinate bench in paragraph No. 9.8 has referred that assessee is mandated to incur expenditure as per agreement between the assessee and its AE. The expenses incurred by the assessee are towards its own business promotion in India as assessee is a distributor. The coordinate bench further referred to the fact that as per the transfer pricing study report it was proved that the assessee operates in a limited risk and environment in respect of the distribution and marketing segment. In paragraph No. 9.8 the coordinate bench reproduced the various functions of distributors commission, sales promotion and seminar and conventions.....
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....n of ophthalmic surgical products. India imports various materials for distribution in India. Therefore he submits that the assessee is merely a distributor, he submits that agreement of the assessee is placed at paper book page No. 1 wherein the distribution and marketing service agreement effective as on the 1st April 2006 is entered into with Switzerland Co. Thus he further referred to section 3 of the agreement to show that the assessee is carrying on marketing activities as described in section 3.2 in the territory for products for which it has been appointed as distributor. He submits that assessee will execute the marketing plan for the territory that has been developed by or at the expense of the supplier. The distributor will assess and provide information and make recommendations regarding the identification of target audience, implementation of the marketing plan, appropriate product positioning within the territory, optimal pricing within established guidelines, product file and labelling and contribute to the regulatory effort, organise, contact and manage relationship with opinion leaders, manage all issues related to all country customers such as physician Associatio....
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.... not been reimbursed adequately. It was further stated that the person who bears the risk relating to AMP activity is entitled to all the excess profits generated on account of the function. He further referred to paragraph No. 8.2 wherein referring to the provisions of section 92B it was stated that mutual agreement/arrangement can be inferred from the conduct of the taxpayer and therefore it becomes a separate international transactions to be benchmarked. He further referred to paragraph No. 8.3 where conduct of the taxpayer was demonstrated which clearly shows the presence of an arrangement for promotion of marketing intangibles. The ld. TPO referred that the taxpayer distributes the products imported from its AE through its authorised distributor. Though the company does not make direct sales to the hospitals and medical professional, it has a dedicated team of sales/marketing representatives whose primary job is to promote the products of its AE among the hospitals and doctors community. It was further stated that doctors and hospitals are not concerned about the brand of the medicine that they prescribe, they are concerned only with the generic medicine that would treat the a....
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.... shown to have run such a promotional campaign. It was further argued that such organisation of promotional campaign itself shows that the assessee is promoting the brand of its associated enterprises. He submits that these functions were not recorded by the coordinate bench in its order and all the decisions of the coordinate bench are decided on the basis of the order of the ITAT for AY 2012 - 13. He submits that we are in assessment year 2020-21 and these facts were not there in those years and therefore those decisions must not be applied and the order of the ld. TPO with the direction of the ld. DRP deserves to be upheld. The ld. CIT DR vehemently referred to the grounds of objection No. 4 before the ld. DRP and the direction of the panel wherein the action of the learned assessing officer was upheld. 11. The Ld. CIT DR vehemently submitted that the reasons given by the ITAT for AY 2012-13 are not at all based on the facts of the case of the assessee. It merely relied up on some other judgements of the coordinate bench. He submits that decisions bereft of the facts of the case of the assessee, is not a biding precedent. The ld CIT DR refers to the decision sand submits that....
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....red to be followed. He further stated that judicial discipline requires that if there is no change in the facts and circumstances of the case, the orders of the coordinate Bench in assessee's own case on similar set of facts are required to be followed. 14. During the course of hearing, the Bench raised a query whether the decision of the coordinate Benches relied up on by the ld. AR in case of the assessee are challenged and pending before the Hon'ble High Court as the points raised by the ld. CIT DR, the information was not available. 15. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that the facts of the case for assessment year 2012-13 till 2017-18 wherein the coordinate Bench has decided the issue in favour of the assessee squarely covers this issue also before us in favour of the assessee. Though all the decision of the coordinate benches are following the order in case of assessee for AY 2012-13. 16. In M/s. Alcon Laboratories (India) Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle - 1 (1) (1), Bangalore. [2022] 99 ITR (Trib) 357 (ITAT [Bang]) 2022 (12) TMI 238 - ITAT BANGALORE c....
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....e Tribunal took the following view after extracting the decision of the Hon'ble Delhi High Court in the case of M/s Maruti Suzuki India Ltd. (supra). "21. Respectfully following the ratio of the decision of the Hon'ble Delhi High Court in the above cases, we hold that no TP adjustment can be made by deducing from the difference between AMP expenditure incurred by assessee-company and AMP expenditure of comparable entity, if there is no explicit arrangement between the assessee - company and its foreign AE for incurring such expenditure. The fact that the benefit of such AMP expenditure would also ensure to its foreign AE is not sufficient to infer existence of international trans action. The onus lies on the revenue to prove the existence of international transaction involving AMP expenditure between the assessee-company and its foreign AE. We also hold that that in the absence of machinery provisions to ascertain the price incurred by the assessee-company to promote the brand values of the products of the foreign entity, no TP adjustment can be made by invoking the provisions of Chapter X of the Act. 22.Applying the above legal position to the facts of th....
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....India Ltd. v. Addl. CIT [2011] 335 ITR 121 (SC) wherein the Hon'ble Supreme Court left the question whether AMP expenses gives raise to international transaction or not open with the following observations: "In this case, the High Court has remitted the matter to the Transfer Pricing Officer ("the TPO" for short) with liberty to issue fresh show-cause notice. The High Court has further directed the Transfer Pricing Officer to decide the matter in accordance with law. Further, on going through the impugned judgment of the High Court dated July 1, 2010, we find that the High Court has not merely set aside the original show cause notice but it has made certain observations on the merits of the case and has given directions to the Transfer Pricing Officer, which virtually conclude the matter. In the circumstances, on that limited issue, we hereby direct the Transfer Pricing Officer, who, in the meantime, has already issued a show cause notice on September 16, 2010, to proceed with the matter in accordance with law uninfluenced by the observations/directions given by the High Court in the impugned judgment dated July 1, 2010. The Transfer Pricing Officer will decid....
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.... There were various models of Suzuki motor cars manufactured by MSIL and each model was covered by a separate licence agreement. Under these agreements, granted licence to MSIL to manufacture that particular car model and provided technical know-how and information and right to use Suzuki's patents and technical information. It also gave MSIL the right to use Suzuki's trade mark and logo on the product. Pursuant to this agreement, MSIL was using the co-brand, i.e., Maruti Suzuki trade mark and logo for more than 30 years. This co-brand could not be used by SMC and was not owned by it. The clauses in the agreement between MSIL and SMC indicated that permission was granted by SMC to MSIL to use the co- brand "Maruti Suzuki" name and logo. The mere fact that the cars manufactured by MSIL bore the symbol "S" was not decisive as the advertisements were of a particular model of the car with the logo "Maruti- Suzuki". The Revenue had been unable to contradict the submission of MSIL that the co-brand mark "Maruti- Suzuki" in fact did not belong to SMC and could not be used by SMC either in India or anywhere else. The decision in the case of Sony Ericsson requires that the mark or b....
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.... financial interest, it could not be presumed that advertising, marketing and sales promotion expenses incurred by the assessee were at the instance or on behalf of the foreign company. The initial onus was 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 advertising, marketing and sales pro-motion expenses." 19. In the light of the law as it exists today, we shall examine the arguments of the rival parties. There has been no agreement between Essilor International which owns the various brands set out by the TPO in his order and the Assessee to incur any Advertisement and Marketing or Sales promotion expenses. None of the other reasons given by the TPO which have been explained by the Assessee and set out in the earlier paragraph can be the basis to hold that there was in fact an international transaction in the matter of incurring of AMP expenses by the Assessee. The order of the Tribunal in Assessee's own case for A.Y.2009-10 and 2010-11 in our view requires to be followed and there are no reasons whatsoever to take a differ....
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....s points spread over and above the LIBOR rate on adhoc basis without providing actually any reason is incorrect. 19. The ld. DR supported the order of the learned lower authorities and submitted that assessee has not charged interest on overdue outstanding receivable from its associated enterprises and therefore it is a separate international transaction which needs to be benchmarked separately. He submitted that all the reasons given by the ld. AR that it is a part of sales function has already been held that the outstanding receivable till the due credit period should only be considered part of the sales function and not beyond the agreed sales credit. He further stated that it is immaterial that the assessee is not charging any interest from its associated enterprises non-associated enterprises and further it is also immaterial that the associated enterprises has also not charged any interest on dues received from the assessee. He submitted that this consideration does not merit at all. Accordingly, he submitted that there is no infirmity in the order of the learned lower authorities so far as the interest is considered as a separate international transaction on overdue recei....
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....anation 1 ( c) of section 92 B of the Act, it is an international transaction "capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; Thus, it needs to be benchmarked separately. 21. Further with respect to the credit period, the learned transfer pricing officer has considered 30 days credit period as reasonable. Before us it is disputed that the credit of 60 days should be considered. We find that there is no justification or evidence produced before us to show that general credit period granted by the assessee to the non associate enterprises is also for 60 days. Fact clearly shows that according to article 3.2 of the agreement of services, it says assessee should have received the amounts invoiced within 30 days therefore there is no reason to grant the credit for 60 days to the assessee from outstanding due receivable from its associated enterprises. With respect to the benchmark interest rate adopted by the learned transfer pricing officer of LIBOR plus 400 basis point....
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....rs also arose wherein on the identical ground most of the expenses such as advertisement expenses, promotional material, National sales meeting expenses under the head seminar and convention expenses were verified and, on that basis, these expenses were allowed and held that they are not hit by the above provisions. He further stated that when the remand report of the assessing officer has not been received, the learned dispute resolution panel without giving an opportunity of hearing and verifying those expenses, confirmed the disallowance. 24. The learned departmental representative vehemently supported the orders of the learned lower authorities. 25. We have carefully considered the rival contention and perused the orders of the learned lower authorities and found that during the course of hearing before the learned dispute resolution panel the assessee furnished the information about the expenditure, however, despite calling for the remand report, the learned dispute resolution panel did not wait for the remand report of the assessing officer, which was never received during the course of hearing before the panel, but the panel confirmed the disallowance. It is also the c....