TaxTMI 
TaxTMI 
2026 (8) TMI 1556
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns carried out by the assessee with its AE. The TPO passed the order on 28.01.2016 u/s 92CA(3) of the Act, making following adjustments: A. Advertising, marketing and promotion (AMP) expenses by applying Cost Plus method Rs. 4,38,32,839/- (substantive basis) B. AMP expenses by applying bright line test (BLT) Rs. 10,38,02,465/- (protective basis) 3. Thereafter, the AO passed the draft assessment order dt. 11.02.2016 wherein total adjustments of Rs. 4,38,32,839/- as proposed by TPO were incorporated and total income was proposed to be assessed at INR 11,83,38,040/-. Against such order, assessee filed objections before learned DRP who vide its order dated 29.11.2016 rejected the objections raised by appellant. The Assessing Officer thereafter, passed the final assessment order u/s 143(3) r.w.s. 144C(13) of the Act, dated 25.01.2017 wherein total income of the assessee was assessed at Rs. 11,83,38,040/- by making addition on account of transfer pricing adjustments of Rs. 4,38,32,839/-. 4. Aggrieved by the assessment order, assessee is in appeal before the Tribunal by taking various grounds of appeal as per the revised appeal memo filed and placed on records. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xcessive, thus, it is an international transaction. The TPO has further placed reliance on the distribution agreement between Zimmer India and its AE to simply allege the existence of an agreement to incur 'excessive AMP' expenditure on behalf of AE, which as per assessee simply pertains to purchase and sale of Zimmer products in India and there was no understanding, what so ever in the agreement to depict that assessee is under obligation to incur 'excessive AMP' spend owing to any written arrangement between the assessee and its AE with the intention to promote the brand of foreign AE in India. 8. Ld. AR further submits that any business would need to incur AMP spend to reach its target audience or simply to sell its product, and the expenses incurred by the assessee are necessary in day-to-day business. He submits that the Assessee operates as a sole distributer in India of the products developed by AE who do not sell the same / similar products to any other distributer in India apart from the Assessee. Accordingly, all sales made in the Indian Territory are necessarily to the account of the assessee and any expense incurred and income earned by assessee are a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ia) Ltd vs DCIT: ITA No. 1261 & 1238/Mum/2015 10. On the other hand, the ld. CIT DR vehemently supported the orders of the lower authorities. 11. We have heard the rival submissions and perused the material available on record. In this case, the AO has made protective adjustment by following the BLT for AMP expenses. The Hon'ble Jurisdictional High Court in the case of Sony Ericson (supra) holding the BLT approach of computing transfer pricing adjustment of AMP expenses as invalid. Further, the Hon'ble High Court in the case of CIT vs Whirlpool of India Ltd. [2016] 381 ITR 154 (Delhi) held as under:- 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 conjectures of the TPO. 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the transaction price with the ALP." 42. Again in Maruti Suzuki India Ltd. (supra) the Court held: "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 ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next step is to ascertain the disclosed 'price' of such a transaction and thereafter ask whether it is at ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment." 43. As regards allowing the entire expenditure under Section 37 of the Act, there is an obvious contradiction which was attributed to be resolved by the ITAT in the impugned order by asking the TPO to rework the AMP expenses into that which was incurred for building the brand of the foreign AE and that which was incurred wholly or exclusively for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 45. 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 it explicit that in the absence of any machinery provision, bringing an imagined transaction to tax is not possible. Here, 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. 46. As already mentioned, merely because there is an incidental benefit to Whirlpool USA, it cannot be said that the AMP expenses incurred by WOIL was for promoting the brand of Whirlpool USA. As mentioned in Sassoon J David (supra) "the fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". Conclusion 47. For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Test adopted by the TPO has been discarded by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT 374 ITR 118 = 2015-TII-06- HC-DEL-TP. Nowhere the TPO has brought any tangible material on record to show that there exists an international transaction in so far as AMP spend is concerned. In support of his contention, the ld. AR relied upon the decision of the Hon'ble High Court of Delhi in the case of Maruti Suzuki India Ltd 381 ITR 117 = 2015-TII-58-HC-DEL-TP, Whirlpool of India Ltd vs DCIT 381 ITR 154 = 2015-TII-62-HC-DEL-TP, Bausch & Lomb Eye Care [India] Pvt Ltd TA No. 643/2014 and 675/2014 = 2015-TII-65- HC-DEL-TP, Valvoline Cummins Pvt Ltd TA No. 158/2016 = 2017- TII-57-HC-DEL-TP and Mary Kay Cosmetic Pvt. Ltd in ITA No. 1010/2018 = 2018-TII-256-HC-DELTP. Hon'ble High Court of Delhi in these cases have categorically held that the onus is on the Revenue to demonstrate that the AMP spend is an international transaction and further stated that since there is no machinery provision, therefore, bench marking cannot be done. There is no dispute that the TPO has made adjustment-applying BLT. At the outset, we have to state....