TaxTMI 
TaxTMI 
2026 (7) TMI 118
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.... passed without adequate inquiries and hence is liable to be quashed as such. Jurisdictional Ground 2. The Impugned Order is void-ab-initio, invalid and without jurisdiction on account of being barred by the period of limitation prescribed under Section 153 of the Act and is liable to be quashed as such. Transfer Pricing Grounds - Adjustment towards advertisement expenses 3 The Lower Authorities erred in confirming an upward TP adjustment of INR 173.40 Crores towards the alleged international transaction of brand-building activities, disregarding the binding decisions of the Hon'ble ITAT in the Appellant's own cases for AY 2012-13 and AY 2020-21, which held on identical facts that such transactions are not 'international transactions' under the Act. 4. The Lower Authorities erred in treating the advertisement and sales/product promotion expenses incurred by the Appellant towards domestic unrelated parties for its own business as 'international transactions', baselessly alleging these constituted brand-building services for its overseas Associated Enterprises ("AES"). 5 Without prejudice, the Ld. TPO erred....
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....ustment is warranted. The TPO however did not accept the submission of the assessee and held that the AMP expenditure incurred by the assessee benefits the AE in brand building and therefore need to be recovered from the AE. Accordingly, the TPO made an adjustment of Rs. 173,40,22,134/-. The A.O passed the draft assessment order incorporating the TP adjustment. Aggrieved, the assessee filed further objections before the Disputes Resolution Panel (DRP), who confirmed the TP adjustment. The assessee is in appeal before the Tribunal against the final assessment order passed by the A.O pursuant to the directions of the DRP. 3. Ground No. 1 is general and does not warrant any separate adjudication. The Ld. AR during the course of hearing submitted that ground No. 2 on the legal issue with regard to limitation is not pressed and hence the same is dismissed as not pressed. 4. Ground No. 3 to 5 is with regard to TP adjustment towards AMP expenses. The Ld. Authorized Representative (AR) of the assessee submitted that the impugned issue of TP adjustment towards AMP expenses is considered by the Coordinate Bench of the Tribunal in assessee's own case for AY 2020-21 [IT(TP)A No. 43/C....
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....ion. What was observed by the Id. TPO in its order on this issue is reproduced hereunder:- Here it is the assessee's own admission that its business plan is "distribution of Renault Cars in India and to promote the Renault brand in India and to create a market share for Renault cars in India. Therefore no further evidence is required to make out an international transactions either by going through BLT or otherwise". Expenditure was incurred by the assessee, to create market share for its Cars and marginal benefits derived by its principal abroad, as an off shoot cannot in our opinion convert it to a international transaction. Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd (supra), had held as under at paras 68 to 86 of its judgment:- "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a "mirage". First of all, there has to be a clear statutory mandate for such an exercise. The court is unable to find one. To the question whether there is any "machinery" provision for determining t....
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....C and the new rule 10AB only deal with the determination of the arm's length price. Thus for the purposes of Chapter X of the Act, what is envisaged is not a quantitative adjustment but only a substitution of the transaction price with the arm's length price. 70. What is clear is that it is the "price" of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an arm's length price, an "adjustment" has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed "price" of such transaction and thereafter ask whether it is an arm's length price. If the answer to that is in the negative the transfer pricing adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the associated enterprises involved may seek to shift from one jurisdiction to another. An "assumed" price cannot form the reason for making an arm's length price adjustment. 71. Since a quantitative ad....
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....reign associated enterprise to whose benefit also such expense enures. The "non-routine" AMP spent is taken to have "subsumed" the portion constituting the "compensation" owed to the Indian entity by the foreign associated enterprise. In such a scenario what will be required to be benchmarked is not the AMP expense itself but to what extent the Indian entity must be compensated. That is not within the realm of the provisions of Chapter X. 74. The problem with the Revenue's approach is that it wants every instance of an AMP spent by an Indian entity which happens to use the brand of a foreign associated enterprise to be presumed to involve an international transaction, and this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign associated enterprise is able to be located in some agreement, written (for e.g., the sample agreements produced before the court by the Revenue) or otherwise, how should a Transfer Pricing Officer proceed to benchmark the portion of such AMP spend that the Indian entity sho....
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....ssue is concerning the economic ownership and legal ownership of the brand. According to the Revenue, viewing legal ownership as something distinct from economic ownership "may not be the right way of looking at things". 78. It is necessary at this juncture to examine the history of the relationship between MSIL and SMC. When the licence agreements were originally entered in 1982, MSIL was known as Maruti Udyog Limited ("MUL") and SMC did not hold a single share in Maruti Udyog Limited. In 2003 SMC acquired the controlling interest in MSIL. There are various models of Suzuki motor cars manufactured by MSIL and each model is covered by a separate licence agreement. Under these agreements SMC grants licence to MSIL to manufacture that particular car model; provides technical know-how and information and right to use Suzuki's patents and technical information. It also gives MSIL the right to use Suzuki's trade mark and logo on the product. Pursuant to the above agreement, MSIL has been using the co-brand, i.e., Maruti-Suzuki trade mark and logo for more than 30 years. As already noted, this co-brand cannot be used by SMC and is not owned by it. 79. The clause....
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....as a result of proceeding on surmises or conjectures. The Transfer Pricing Officer will need to access data as regards the strength of the foreign associated enterprise's brand and what it commands in the international market and to what extent the presence of the brand in the advertisement actually adds to the benefit of the brand internationally. 82. Para. 6D of the OECD Guidelines deals with "Marketing activities undertaken by enterprises not owning trademarks or trade names". It contains a discussion on promotion of trade marks by distributors of branded goods. It acknowledges the difficulties in determining the extent to which the expenses have contributed to the success of a product. It is stated: "For instance, it can be difficult to determine what advertising and marketing expenditures have contributed to the production or revenue, and to what degree. It is also possible that a new trade mark or one newly introduced into a particular market may have no value or little impression on the market (or perhaps loses its impact). A dominant market share may to some extent be attributable to marketing efforts of a distributor. The value and any changes will de....
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.... 86. In Sony Ericsson it was held that if an Indian entity has satisfied the transactional net margin method, i.e., the operating margins of the Indian enterprise are much higher than the operating margins of the comparable companies, no further separate adjustment for AMP expenditure was warranted. This is also in consonance with rule 108 which mandates only arriving at the net profit by comparing the profit and loss account of the tested party with the comparable. As far as MSIL is concerned, its operating profit margin is 11.19 per cent, which is higher than that of the comparable companies whose profit margin is 4.04 per cent. Therefore, applying the transactional net margin method it must be stated that there is no question of transfer pricing adjustment on account of AMP expenditure". Accordingly, we are of the opinion that no Arms Length Price adjustment could have been carried out on the advertisement and marketing expenditure incurred by the assessee. Ground No. 3 of the assessee stands allowed. 21. Since we have held the transactions between assessee and M/s. RNAIPL as not international transactions, grounds 4 & 5 have become academic and are not nec....