TaxTMI 
TaxTMI 
2025 (4) TMI 1786
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....disposed of by this common order for the sake of convenience. ITA No. 462 /Del/2022 - Assessment Year 2017-18 - Assessee Appeal 2. The assessee has raised the following grounds of appeal :- "1 . that assessment order passed by the Learned Assessing Officer ("Ld. AO") under section 143(3) read with section 144C of the act pursuant to the directions of Learned Dispute Resolution Panel ("Ld. DRP") is bad in law and void-ab- initio as it is not in conformity with the provisions of section 144C of the Act. 2. That on the facts and circumstances of the case and in law, the Ld. AO erred in passing the impugned assessment order thereby making an adjustment of Advertisement, Marketing and Promotional expenses both on substantive as well as protective basis which is not in consonance with the provisions of the Act. 3. That on the facts and circumstances of the case and in law, the Ld. AO erred in following the directions of Ld. DRP and thereby erred in assessing the returned income of the Appellant from INR 539,664,200 to INR 1,669,927,005. TRANSFER PRICING GROUNDS: 4. That the Ld. DRP/Ld. AO/ Additional Commissioner of Income Tax, Transfer ....
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....le companies for the purposes of determining routine return for application of Residual Profit Split Method ("RPSM"); and 5.11 determining the weightage of split for application of RPSM on an adhoc basis, thus violating the fundamental principle of transfer pricing. 5.12. incorrectly considering an arbitrary amount incurred by the Appellant together on alleged AMP expenses and payment of royalty, 5.13. including sales and distribution expenses as part of AMP expenditure, and ignoring the Ld. DRP's directions pronounced in this regard in Appellant's own case for AY 2013-14; 5.14, not considering the amount of royalty as disclosed in Form No. 3CEB and Transfer Pricing Documentation and instead, considering the amount disclosed in the financial statements, which is inclusive of service tax paid to the Government of India under reverse charge. 6. That the Ld. DRP/Ld. AO/Ld. TPO have erred in proposing adjustment on protective basis amounting to INR 374,498,064 for excessive AMP expenses applying Bright Line Test ("BLT"). In doing so, Ld. DRP/Ld. TPO/Ld. AO have erred by: 6.1. not appreciating that BLT has been expressly reje....
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....and payment of management service fees. 11. That on the facts and circumstances of the case and in law, the Ld. DRP/Ld. AO/Ld. TPO have erred in enhancing the income of the Appellant by INR 450,010 by imputing interest on receivables from the AEs. In doing so, Ld. DRP/Ld. AO/Ld. TPO have erred in: 11.1. re-characterizing the amount of overdue receivable as a deemed loan and treating it as a separate international transaction; 11.2. not appreciating the fact that arm's length price determination for outstanding receivables is subsumed within the arm's length price determination of the principal international transaction itself; and 11.3. ignoring the judicial pronouncement of Hon'ble Delhi High Court in the case of Kusum Healthcare Private Limited (ITA No. 765/HC/Del/2016). CORPORATE TAX GROUNDS: 12. That the Ld. AO has erred in disallowing the provision for warranty created, while computing the income of the Assessee under minimum alternate tax provisions, by considering the same to be unascertainable in nature which is akin to a contingent liability as defined in section 115JB explanation 1(c) of the Act. 1....
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....l transaction of AMP expenditure. The assessee before the Learned DRP also submitted that AMP expenditure per se cannot be construed as an international transaction and hence there is no need to separately benchmark the same. The assessee also relied on the decision of Hon'ble Jurisdictional High Court in the case of Maruti Suzuki India Ltd vs CIT in ITA No.110/2014 and ITA 710 /2015 wherein the Hon'ble High Court held that onus is to prove that a particular international transaction arising from AMP expenses is on the revenue authorities and not on the assessee . 6. The Hon'ble High Court held that the onus to demonstrate that AMP expenses incurred by the tax payers constitute an international transaction would rests upon the revenue authorities. The existence of international transaction would have to be established by the revenue authorities without application of bright line test, based upon documentary evidence of an arrangement between the assessee and its AEs. 7. The ld TPO made substantive addition for AMP expenses and payment of royalty by using RPSM in the sum of Rs. 510510213/- and protective addition for AMP expenses by using BCT in the sum of Rs. 37,4....
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....r the provisions of the Act since section 92B of Act does not list incurrence of AMP expense as an international transaction. Hence, the same is not required to be disclosed in the Form 3CEB and benchmarked in the TP Study maintained by the Appellant. 10. He furthermore, submitted that AO/TPO have brought no record or any material evidence to establish how the expenditure incurred by the Appellant had contributed to the promotion of the brand name. The Ld. Counsel relied heavily upon the decision of Hon'ble Delhi High Court in case of Maruti Suzuki India Ltd Vs CIT (ITA 110/2014 & ITA 710/2015), in which, accordingly to him, the Hon'ble High Court, has cast the onus to prove an international transaction arising from AMP expense, upon the Revenue authorities. It is contended that the Hon'ble High Court has held that the onus to demonstrate that an AMP expense incurred by a taxpayer constitutes an international transaction would rest upon the Revenue authorities. The existence of an international transaction would have to be established by the Revenue authorities without application of bright line test, based upon documentary evidence of an arrangement between th....
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....s) wherein, accordingly to him, the Hon'ble High Court ruled that value of a brand depends upon the nature and quality of goods and services sold or dealt with. Treating brand building as equivalent to or direct resultant of advertisement and sales promotion would be largely incorrect. It is contended that the Hon'ble High Court further has held that the taxpayers do not undertake advertisement with a purpose to increase the value of brand but to increase sale and thereby earn higher profits. In this respect, the relevant part of decision as relied is reproduced as under: "105. There is a line of demarcation between development and exploitation. Development of a trademark or goodwill takes place over a passage of time and is a slow ongoing process. In cases of well recognised or known trademarks, the said trademark is already recognised. Expenditures incurred for promoting product(s) with a trademark is for exploitation of the trademark rather than development of its value. A trademark is a market place device by which the consumers identify the goods and services and their source. In the context of trademark, the said mark symbolises the goodwill or the likelihood....
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....schemes for its direct selling partners in order to increase the market reach of Tupperware products and drive the sales in India, thereby remaining competitive in the market. 14. On a without prejudice basis, it is pleaded before us that the Appellant has earned higher profits than the comparables and any profit earned on account of AMP expenses incurred by the Appellant by way of economic exploitation of the trademark/ brand in India already stands captured in the profit and loss account for the Appellant company and the same has been duly offered to tax and hence there was no logic to compute or make any Transfer Pricing Adjustment on this account. It is submitted by ld. Counsel that in the case of an entrepreneur, once all transactions are at arm's length, there is no need to test the AMP expense separately. As per the contentions of the Appellant, the TP study demonstrates that the international transactions have been undertaken at arm's length. Comparing individual element cost, i.e., of AMP expenses would amount to comparison or reconstruction of profit and loss account of Tupperware India to make it identical - cost-to-cost, to that of the comparable compan....
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....obile Communications India Pvt. Ltd. (supra) after giving reasonable opportunity of hearing to the assessee. 11. Before us, the assessee has prayed that if the AMP adjustment is determined at Rs. NIL by application of jurisdictional High Court decisions (supra) the issue whether this is an international transaction would become academic and thus the assessee will not press this ground. However, leave may be granted to the assessee to argue this issue in the subsequent assessment years if so required. We have no objection and allow the assessee to argue on this issue in future." 18. It is relevant here to understand as to how the issue was dealt by the DRP, and for sake of convenience the relevant part of the DRP order is reproduced below; ""DRP Directions: 2.21 This is a legacy issue arising since AY 2013-14, and the DRP has confirmed the proposed adjustment. 2.2.2 The assessee is manufacturer and distributor of molded plastic kitchenware products under the brand name of the AE, i.e. "Tupperware". The assessee has objected to treatment of AMP expenses as International transaction and adjustment of ALP on this count. This issue has been r....
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.... any such setoff. The assessee argued that its overall results have been accepted by the TPO therefore, the AMP transaction cannot be separately examined. This argument is unacceptable. The TPO was justified in benchmarking the AMP expenses as a separate transaction. 2.2.5 The conduct of the assessee, in brand promotion per the displays and other promotional activities apart from various functional innovations etc, clearly point to the existence of the AMP transaction. The assessee had submitted that the International Transaction because the AMP spend could not be viewed as such in the absence of agreement/ arrangement/understanding to incur AMP expenses or excessively incur AMP expenses, AMP expenditure incurred by the assessee does not result in an international transaction. Mere absence of a formal agreement doesn't help the case of the assessee, whereas the conduct has the transaction written all across. In such a scenario, it does not help the case of the assessee as the assessee indeed undertakes the AMP action resulting in promotion of the brand. The TPO concluded that the Assessee incurs. excessive AMP expenditure; by this act the assessee renders a service to ....
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....lso controls further development and growth of its intangibles This factum clearly demonstrates that the AE has ingeniously segregated the functions of Intangible management and product related operational aspects to reduce exposure to routine business risks and to protect and enhance margins through Intangibles. The study of these indicates clear delineation of the functions pertaining to the intangibles and the increase in volumes/turnover. The assessee furnished a set of comparables to the TPO for examining under TNMM. The TPO has accepted the same for comparability analysis. The panel upholds the action of the TPO in the above terms subject to the final direction. 2.2.9 As regards the contention of the assessee that the said AMP is not an international transaction, while in Sony Ericsson Mobile Communications India (P.) Ltd. v. Commissioner of Income-tax -III [2015] 55 taxmann.com 240 (Delhi) the Hon'ble Delhi High Court has disapproved the bright line test for finding out the cost/ value of international transaction, which is the first variable under the TP provisions, the Hon'ble Court has held that the TPO has authority to examine and determine the internati....
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....efore the Hon'ble Supreme Court for final decision. to According Taxsutra/Taxmann, the Hon'ble Supreme Court has admitted the Department's SLP in several cases involving AMP, in respect of a distributor as also a manufacturer-distributor, where the Hon'ble Delhi High Court has decided the issue against the Revenue." 19. The relevant conclusions of the TPO, as considered vital by the DRP to sustain order of TPO to hold the AMP expenditure to be international transaction, have been culled out in para 2.2.10 of the order of DRP and same are also worthy to be reproduced herein below :- "2.2.10 The TPO, in the TP order, has made detailed discussion on the treatment of the AMP spend as international transactions basis facts of the case and the legal position related thereto, not repeated for sake of brevity. The TPO has made certain pertinent and noteworthy observations, which inter alia are, ● The taxpayer had incurred INR 373427630/- on account of AMP expenditure which represents 7.85% of its sales, ● The taxpayer does not have any agreements for use of trademarks and patent owned by the parent entity. The said tr....
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....ssee himself admits to the fact the assessee provides support in the implementation of the global marketing policy. This function read along with other functions clearly indicates towards the steps taken by Tupperware India to promote the brand name owned by AEs (Extract of the same has been reproduced in the TP order at pages-36 & 37 of TP order) ● 12.1 The "Tupperware" brand and the trademark, copyrights etc is owned by Tupperware Group As per the information available from the website of Tupperware India, it is seen that the brand Tupperware is always displayed. It is also seen that the AEs undertake functions relating to formulation of marketing strategy and brand building for their global operations. The Tupperware Group also has a separate sales and marketing team that is responsible for formulation of marketing strategy and distribution of products in the Indian market. Therefore, it appears that the AEs bear significant business and entrepreneurial risks of product acceptability in the market. On the other hand, the Assessee does not own any interest in the intangible and is only a manufacturer and seller of "Tupperware" products in India. ● 12....
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....sidered while carrying out the benchmarking of the international transactions ● Taxpayer has incurred excessive non-routine AMP spend of Rs 37.34,27,630 as compared to other comparable companies This exercise was conducted only to find out if any International Transaction in marketing intangible has happened due to extra AMP spend The very fact that assessee has excessively spend on AMP activity proves that substantial services were rendered to the AE for which it should have been compensated ● The taxpayer is not only creating marketing intangibles for the AEs but also maintaining and expanding the scope of the existing brand owned by AE ● In an independent party scenario, the entity developing the brand would seek the remuneration for the efforts and risks being undertaken for developing the brand. Since the taxpayer has not denied the fact that the brand has been developed in India with its own efforts, in a third party scenario the risks and rewards for the brand development should also lie with the taxpayer. 2.2.11 To benchmark the transaction related to AMP spend and to determine the cost of AMP spend, the TPO adopted segr....
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.... AMP expenses were to be compensated by the AE. 21. It is pertinent to mention that assessee is in manufacturing and trading of consumer or house hold product used in kitchen and is not some niche area of technology or products. The customer base is households which is localized and market potential is based on numerous individual, local and personal preferences. This necessitates to bring on record on the basis of some material that AMP expenses were integral part of assessee's business functions to create some marketing intangibles benefiting the brand of AE in the other markets or to other customers where the similar products are sold by the AE or any of its affiliates. However, no such exercise is done by TPO and the DRP merely relied the order of TPO, on first principles as to in which cases AMP as separate transaction should be examined for its ALP. We are of considered view that the AMP expenses cannot be alleged to be excessive or for creating any brand for AE or adding to its worth on the basis of theoretical principles without establishing on the basis of material and evidences that expenditure does not commensurate to the functions carried out and risk assum....
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....ompany 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. The fact of implementation of global direct selling marketing policy by the assessee in itself cannot be a basis to hold that the same benefits the foreign AE. International brands have their own marketing, selling and advertisement parameters to be followed throughout the world and as the owners of reputed brands the foreign AE have an inherent right to see that their affiliates in developing markets do not resort to any selling or marketing policy which is not according to the standards set. It has taken years of strategic costs for the foreign brand to create the brand so requiring Indian entity to follow the minimum of standards cannot be equated with a concert action to build the brand further. It is incorrect to say that the assessee is just a transit point of the products towards the end user and the assessee is not subject to the related risks of a brand owner producer. Therefore, the assessee should be compensated for the AMP expenses. In the case before us, the assessee is ....
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....ra), wherein the Hon'ble Delhi High Court held that even if the word 'transaction' is given its widest connotation, it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' as regards AMP spend for brand promotion. The relevant extract is provided below for ready reference. "59. Nevertheless, there is no specific mention of AMP expenses as one of the items of expenditure which can be deemed to be an international transaction. For this purpose, Section 92B(i) read with Section 92(1) becomes significant. Under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expens....
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....e." 28. Further, the reliance placed by the Ld. TPO on the judgment of Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT ([2015] 55 taxmann.com 240 (Delhi) while benchmarking the AMP expenses as a separate international transaction seems erroneous. As in a subsequent judgment of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra), the existence of an international transaction was discussed in light of judgement of Sony Ericsson (supra) wherein it was held as under :- "47. As regards the submission regarding the BLT having been rejected in the decision in Sony Ericsson is concerned, the Court notes that the decision in Sony Ericsson Mobile Communications India (P.) Ltd. (supra) expressly negatived the use of the BLT both as forming the base and determining if there is an international transaction and secondly for the purpose of determining the ALP. Once BLT is negatived, there is no basis on which it can be said in the present case that there is an international transaction as a result of the AMP expenses incurred by MSIL. Although the Revenue seems to contend that the BLT was used on....
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....uns counter to legal position explained in CIT v. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same." 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) and PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a TP adjustment exercise." 30. It is also pertinent to add that subsequent to the decision in the case of Maruti Suzuki India Ltd. (supra) which is a manufacturer, the Hon'ble jurisdictional High Court has passed judgment specific to Distributor as well. Reliance in this regard is placed on the decision of Moet Hennessy India (P.) Ltd. (2023) 146 taxmann.com 551 (Delhi) wherein it was held as under :- "13. We are also unable to agree with submission of the learned counsel for the Revenue that in the judg....
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....ere 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 India Ltd [supra] read as under :- "32. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. XXX XXX XXX 34. The TP adjustment is not expec....
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.... 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." 32. Thus we are of the considered view that on the basis of AMP expenditure quantum alone assessee cannot be said to have benefitted the AEs' brand. Brands are not product or services centric, but, more of customer centric. In exercise of brand building or enhancement, it is essential to establish as to how the AMP expenses generated awareness of the brand which was more useful to the foreign AE than to help the assessee in procuring its share of market. The AO was, thus, required to establish that the AMP expenses were not for tearing into the local market alone, but, were made at the instance of foreign AE for enhancement and creating a brand value beyond the local market. In the absence of an....
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....he issue stands set aside to the file of the ld. AO with directions to the assessee to furnish certain information, etc., in support of his claim that the services were actually rendered and the benefit were derived by the assessee. The ld. representatives of both the sides submitted that there is no change in facts and circumstances and, in fact, we find that when in the final order passed by the ld. AO, the DRP directions have been followed wherein only in reference to earlier year orders the DRP had re-asserted any directions. Accordingly, the grounds No.8 and 9 before us are also restored to the file of the ld. AO to proceed in accordance with the law as per the directions issued by the coordinate Benches in AY 2013-14 and 2014-15. The ground is sustained for statistical purposes." 13. Respectfully following the same the ground Nos. 9 and 10 raised by the assessee are allowed for statistical purposes in the light of the some direction as reproduced supra. 14. Ground No. 11 raised by the assessee is challenging the transfer pricing adjustment on account of interest of outstanding receivables for delayed realisation from the AE beyond the stipulated period in the sum of Rs.....
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....of the same both under normal provisions of the Act as well as in the computation of book profit u/s 115JB of the Act. In fact the assessee gave the basis of making the provision for warranty. 17. Actual sales for the year under consideration multiplied by actual warranty expenses for 5 years (current plus last 4 years) / sales for last 5 years). The ld AR also submitted that this provision has been made year on year in the in the same fashion and the same was duly allowed as deduction by the revenue for the past and that only for the year under consideration the same was sought to be disturbed. The ld AR also placed on record the chart showing the warranty provision criteria and actual warranty expenses incurred for 3 AY as under: - AY Warranty provision created Actual warranty expenses claimed to have incurred 2015-16 1,10,53,518 1,48,90,492 2016-17 1,38,89,007 1,61,76,668 2017-18 1,83,15,530 1,92,22,270 18. The ld DR vehemently argued that the provision has been made in contingent expenses and the same as unascertained liability and accordingly liable to be added back while computing book profit u/s 115JB of the Act. 19. We find that ....
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.... sell the licensed products in the territory of India. Non-exclusive right to use all the manufacturing and technical information, and marketing information in connection with the marketing of the licensed products. 23. The operations of Tupperware India, in its initial years, were in a development stage and took a reasonably long time to attain maturity Till such time, Tupperware India was allowed use of the licensed trademarks for its manufacturing and trading/ marketing activities without any charge. Since the operations of Tupperware India have attained maturity and are further growing, Tupperware India has developed capabilities to earn the desired level of returns from the business by using licensed IP (owned and developed by Tupperware Group) and pay the due share of those returns to Tupperware USA. While the registered trademarks include trademarks like "Tupperware", "Tuppercraft", 425 PB Tuppertoys", and other trademarks which include the derivative "Tupper". The trademarks developed by the Tupperware Group are considered to be of material importance of Tupperware India's business. In addition to the license to use the trademarks and tradenames, Tupperware India ....
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....alty rate for the comparable agreements for the use of marketing information and licensed trademark was 9%. 27. The assessee also submitted that before the ld TPO over view of the trade marks as know how as under: - The operations of Tupperware India, in its initial years, were in a development stage and took a reasonably long time to attain maturity Till such time, Tupperware India was allowed use of the licensed trademarks for its manufacturing and trading/ marketing activities without any charge. Since the operations of Tupperware India have attained maturity and are further growing, Tupperware India has developed capabilities to earn the desired level of returns from the business by using licensed IP (owned and developed by Tupperware Group) and pay the due share of those returns to Tupperware USA. 28. In order to ensure identical high quality Tupperware Products, Tupperware group also provided the manufacturing know how to Tupperware group entities as quality, design, commission, look and feel etc are of utmost impossible to the Tupperware group and the Tupperware brand. 29. In this regard, the Ld. TPO has conducted a fresh search for royalty and identified t....
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....s which include the derivative "Tupper", the 'marketing information received by the assessee from Tupperware USA pertains to brand guidelines, product portfolio, details on products/product lines (such as guides for usage, utility, positioning ideas) including training material for sales force, sales force management guidelines, consumer flyers, marketing ideas including sharing of global best practices and successful campaign ideas, social media for advertising etc. use of social media for advertising etc. 13.1 The Ld. AR also submitted that the approach adopted by the Ld. TPO does not constitute a valid CUP as the conditions stipulated by RBI/ FIPB for royalty payments are for ease of doing business and cannot be considered as a valid CUP for transfer pricing purposes. In support thereof, the Ld. AR relied upon the decision in the case of Sara Lee TTK Limited (TS- 663-ITAT-2016(Mum)-TP) wherein the Hon'ble Tribunal has held that the purpose of the RBI/FIPB approvals is entirely different and cannot be equated with the arm's length principles. 13.2 The Ld. AR further submitted that the Ld. TPO In his fresh search conducted in the remand report identif....
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....rket, promote, manufacture, distribute, use and sell flatware, dinnerware, kitchen gadgets, tools, barware and cutlery products, and other products cookware, including bakeware, glassware, hollowware, stemware, serve ware, and storage accessories, for sale to consumers in the retail trade channel, excluding the consumer direct channel and foodservice institutional channels 8.00% Average 5.00% From the aforementioned agreements, it can be noticed that only 2.00% royalty is paid in case of Amen Wardy, Sr. Amen Wardy, Ir for the payment of trademarks, tradenames and copyrights. In case of Mikasa Inc., American Commercial Inc., Mikasa Licensing Inc., ARC International, SA, S.00% royalty is payable for Asset Purchase; Copyrights, Know-how, Patent; Proprietary Information, Technology, Trade Name, Trademark, Web content and in case of Oneida Ltd., 8.00% royalty is payable for Copyrights; Know-how; Patent; Trademark. These three agreements overage out to 5.00%. These findings clearly show that when only trademarks or tradenomes are involved, only nominal payment of 2.00% is sufficient. With the increase in the royalty rates, various....
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....now-how was provided to the assessee by Tupperware USA 15. In rebuttal to the DR's contentions above, the Ld. AR submitted that the license agreement clearly shows that the marketing information which is the synonymous of marketing know-how has been provided to the assessee and that copies of all the relevant documentary evidence including the license agreement were provided to the Ld. TPO. 16. We have heard the rival submissions of the Ld Representative of the parties and perused the material available on records The Ld. TPO as well as the Hon'ble DRP has upheld CUP as the most appropriate method for benchmarking transactions with respect to payment of royalty Since the application of CUP is not disputed either by Ld. AR or DR, we hold CUP to be the most appropriate method for benchmarking the payment of royalty. The issue thus remaining for our consideration is with respect to inclusion / exclusion of comparables 16.1 We note that in the transfer pricing study report, the payment of royalty has been benchmarked by the assessee using CUP method. The benchmarking was done on the basis of the search conducted using the RoyaltyStats online database ....
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....ment u/ s 92CA (D-C-B) 5,65,90,752 16.2 We find force in the contention of the assessee that royalty agreements operating in different geographical regions can be applied as a filter as the Ld. TPO himself has accepted royalty agreements operating in foreign jurisdictions. While the primary objection of the Hon'ble DRP in respect of comparability analysis is that the comparable selected by the assessee are from a different geographical region (i.e. USA), we observe that the three comparables considered by the Ld. TPO in the remand report are from the same geographical location (ie. USA) and hence in our view the objection relating to difference in geographical region does not hold good 16.3 So far as the objection of the Hon'ble DRP on the product dissimilarity is concerned, it is observed from the perusal of the description of the agreements as provided in the Royaltstat database, all the three comparables selected by the Ld TPO and the comparables selected by the assessee belong to same industry i.e. "kitchenware and home furnishing items" and hence these are valid comparables. 16.4 The License agreement which is already on record adequately ....
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....uding any soles rebates; (2) sales returns; and (3) indirect taxes (value added tax, etc.) on sales of goods." 16.5 Coming to the issue whether the set of comparables selected by the assessee are appropriate for benchmarking the payment of royalty or not, we note that the assessee selected ten comparables in the transfer pricing study (refer para 12.2 above), however, all of them were rejected by the Ld. TPO/Hon'ble DRP. Before us, the assessee is contending inclusion of five comparables out of ten comparables selected in the transfer pricing study and inclusion of all three comparables analysed by the Ld. TPO in the remand report proceedings (refer para 13.2 above). Therefore, the assessee's submission before the Tribunal is to consider eight comparables, three of the Ld. TPO and five from the TP study which will result into the payment of royalty at ALP. The assessee submitted a chart of eight comparables which showing the arithmetic mean for royalty rate at 6% vız a viz. 5.56% paid by the assessee to Tupperware USA which is reproduced below .- S no Licensor Royalty rates Industry Product Geography 1. Amen Wardy, Sr. Amen Wardy, Jr ....
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.... in ITA 304/2023 dated 14.03.2024. Respectfully following the same we hold that no transfer pricing adjustment need to be made in respect of royalty paid on brand marketing fees. Accordingly, ground No. 8 raised by the assessee is disposed of in the above mentioned manner by allowing it for statistical purposes. 35. In the result, the appeal of the assessee for AY 2017-18 in ITA No. 462/Del/2022 partly allowed for statistical purposes. 2409/Del/2022 for AY 2018-19 36. The ground No. 1 to 9 raised by the assessee for AY 2018-19 are identical to ground Nos. 1 to 4 raised for AY 2017-18. Hence, the decision rendered by us for AY 2017-18 shall apply mutatis mutandis for ground No. 1 to 9 for AY 2018-19 also in view of the identical facts except with variance in figures. 37. Ground No. 10 raised by the assessee is general in nature and does not require any specific adjudication. 38. Ground No. 12 raised by the assessee is identical to ground No. 12 raised by the assessee for AY 2017-18. Hence, the decision rendered by us for AY 2017-18 shall apply mutatis mutandis also in view of the identical facts except with variance in figures. 39. Ground No. 11 raised by the asses....