TaxTMI 
TaxTMI 
2026 (8) TMI 1769
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.... assessee company filed its return of income on 29.11.2012 for A.Y. 2012-13 showing the total loss of Rs. (-1,79,27,970/-). The case was selected for scrutiny through CASS. It was noted that the assessee company had made international transaction with its associated enterprises. Therefore, a reference u/s 92CA(1) of the I.T. Act, 1961 was made to the Transfer Pricing Officer, New Delhi for determining Arm's Length Price, Subsequently, a draft assessment order u/s 143(3) r.w.s 144C of the Income Tax Act, 1961 was passed on 15.03.2016 proposing Transfer Pricing adjustment of Rs. 19,21,78,080/- on the basis of TPO's order dated 28.01.2016. 3.1 In response to draft assessment order, the assessee filed objections before the Hon'ble Dispute Resolution, Delhi. The Hon'ble DRP, Delhi vide its order 22.12.2016 disposed the objections by confirming the additions in proposed in draft order. In light of the same, assessment order was passed u/s 143(3) r.w.s 144C of the Act dated 31.01.2017 assessing the total income of the assessee at Rs. 17,42,50,110/-. Aggrieved by the order, the assessee filed an appeal before the Hon'ble ITAT, New Delhi. Hon'ble ITAT, vide its order ....
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....referred present appeal on following grounds: "TRANSFER PRICING ADJUSTMENT FOR THE EXCESSIVE ALLEGED AMP EXPENDITURE - METHODOLOGY 1. That the Ld. AO/TPO/DRP erred in law and on facts by making inappropriate adjustments based on Bright Line Test in the garb of intensity adjusted TNMM in the third round of appeal. TRANSFER PRICING ADJUSTMENT FOR THE EXCESSIVE ALLEGED AMP EXPENDITURE - BENCHMARKING 2. Without prejudice, the Ld. AO/TPO/DRP erred in disregarding the fact that the AMP expenditure had already been benchmarked under the company-wide TNMM analysis conducted by the Appellant in its transfer pricing report. 3. Without prejudice to any other ground, that on the facts and circumstances of the case and in law, AMP transaction may be benchmarked using the adjusted Resale Price Method ('RPM'). 4. Without prejudice to any other ground, that on facts and circumstances of the case and in law, the computation of AMP to sales ratio of comparables undertaken by Ld. AO/TPO/DRP is erroneous and the same does not reconcile with the annual reports of these comparables as well as the computation undertaken by the AO/TPO/DRP in th....
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.... Panel) Rules, 2009." 12. That on the facts and in the circumstances of the case and in law, the Ld. DRP has exceeded its jurisdiction in passing the rectified order dated 31.05.2025 by changing its opinion on the appropriate benchmarking methodology, which amounts to a review of its earlier directions and is beyond the limited scope of rectifying an "error apparent from the record" under Rule 13." 13. That on the facts and in the circumstances of the case and in law, the Ld. AO/TPO violated the mandatory provisions of Section 144C(10) of the Act by making a protective addition of INR 7,26,43,754/- in the rectified final assessment order dated 25.11.2025, in direct contravention of the Ld. DRP's binding directions dated 30.11.2024, which had categorically directed the deletion of the said protective adjustment." 7. Ld. Authorized Representative for appellant/assessee submitted that "The transfer pricing adjustment on AMP expenses has already gone through two rounds of litigation before the present third round. In the first round, the Ld. TPO's order dated 28.01.2016 treated AMP expenditure as an international transaction and made both substanti....
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....ed 31.05.2025. 12. Ld. DRP vide its order dated 31.05.2025 reviewed its earlier directions and restored the TNMM intensity-based method as was originally applied by the Ld. TPO. This order was termed as a rectification order. 13. Pursuant to the DRP directions, Ld. AO passed the order dated 25.11.2025 in which the TNMM intensity method based addition made in the TP order was reinstated and the additions were revised to INR 11,73,03,438/- (as opposed to addition of INR 11,76,01,024 made in original TP order). The income of the Appellant was recomputed at INR 9,93,75,468/-, Since the Ld. DRP has rectified its directions subsequent to the filing of the appeal, the submissions against the rectified directions are also being dealt with in the present appeal. SUBMISSIONS ON THE GROUNDS RAISED IN THE APPEAL Ground Nos. 11-13 (raised by way of the additional ground application taken on record on 09 February 2026): Submissions against the rectified DRP directions dated 31.05.2025 (3d round of proceedings) 14. The Ld. DRP's rectified directions are being assailed on three grounds which will be elaborated in the subsequent paragraphs: ....
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.... decisions, it is respectfully submitted that the rectified order passed by the Ld. DRP on the basis of an application by the Ld. CIT(DR), which is not envisaged under Rule 13, is invalid and liable to be quashed. II. The Ld. DRP has exceeded its scope in passing the rectified order, which is permissible only for rectifying an error apparent on the face of the record, whereas the present rectification amounts to a change of opinion. 20. It is submitted that even if the application were deemed maintainable, the alleged rectification itself amounts to an impermissible review of its directions by the Ld. DRP. 21. The scope of the expression 'mistake/error apparent from the record' is well settled now. The Hon'ble Supreme Court, while examining the scope of Section 154 of the Act in T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC), shed light on what 'mistake apparent from the record' means. The findings are reproduced below, "A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be t....
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....ed 31.05.2025 (3rd round) amounts to review of its original directions dated 30.11.2024 (3rd round), intensity method is completely contrary to its original directions dated 30.11.2024 (3d round) as well aggregated benchmarking using TNMM as Ld. DRP's rectified directions dated 24.03.2017 (1" round) 27. It is submitted that the principle of segregating AMP expenses to avoid double taxation was conclusively settled by the Ld. DRP itself in the first round of proceedings. In its rectified directions dated 24.03.2017, the Ld. DRP explicitly mandated the exclusion of AMP expenses from the operating costs of the Appellant and the comparables before conducting the aggregated TNMM benchmarking for the 'import of finished goods transaction (para 1.1 on pg. 3-4 of PB Part 2). This direction was issued precisely because the AMP expenses were already subject to a separate benchmarking exercise, and the Ld. DRP correctly recognized that including them again in the aggregated analysis would invariably lead to double taxation. 28. This judicially settled position remained consistent throughout the first and second rounds of proceedings. However, the Ld. TPO unilaterally....
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....ections. IV. The Ld. TPO/AO have violated Section 144C(10) of the Act by making protective addition of INIR 7,26,43,753/- using BLT in the rectified final assessment order dated 25.11.2025 when the DRP in its directions dated 30.11.2024 has categorically directed for deletion of the protective adjustment 32. It is submitted that the Ld. DRP in its original directions dated 30.11.2024 had directed for deletion of protective adjustment (refer para 14 on internal page 18-19 of DRP directions/page 50-51 of appeal set). There was no change of position qua protective adjustment in the rectified DRP directions. Despite the DRP directions, the Ld. AO/TPO have made a protective adjustment of INR 7,26,43,754/- using BLT in the rectified assessment order dated 25.11.2025 (refer internal page 3 of rectified final assessment order dated 25.11.2025). This is in clear violation of Section 144C(10) of the Act which provides that the directions of the L.d. DRP are binding on the L.d. AO. Therefore, the protective addition made using BLT is liable to be set aside. Ground No. 1: Submissions against the final assessment order dated 27.12.2024 passed in pursuance of ....
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....sed to determine excessive AMP expenditure of the assessee and a mark-up is added to the assessee's excessive costs, while under TNMM intensity, assessee's AMP expenses are replicated in the financials of the comparables and the mark-up is indirectly forced into the assessee's margins by changing the comparables' margins. 38. It is submitted that there is no economic or logical justification in first increasing the cost base and then applying an artificial profit margin of marketing and advertising companies on the artificially enhanced cost base. Such a method has not basis in rules. 39. It is further submitted that it is not possible to determine the impact of increased intensity of advertising function on profit margin, because the impact of advertising on sales cannot be determined and quantified. In the absence of a quantifiable measurement, it is not possible to make a "reasonably accurate" adjustment to the profit margins of the comparable companies as mandated under law. In view of the above, it was submitted that it would be erroneous to treat AMP as a separate international transaction and any attempt to benchmark such an imaginary transa....
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.... the Ld. TPO, by order dated 29.01.2024, proposed a substantive adjustment by applying intensity-adjusted TNMM, while also computing a protective adjustment under the BLT. The Ld. DRP, however, in its original directions dated 30.11.2024, directed benchmarking on the basis of the comparable AMP/sales ratio of 1.45%, pursuant to which the TPO passed an order dated 20.12.2024 and the AO issued the final assessment order dated 27.12.2024. 9.3 Substantive transfer pricing adjustment made to advertisement, marketing and promotion expenses ("AMP") by applying Bright Line Test: INR 5,70,78,459/- (pg. 21-24 of appeal set for AY 2012-13). Protective addition earlier made by applying Bright Line Test was reduced to NIL. Appeal was filed before this Ld. ITAT on 28.02.2025 against final order dated 27.12.2024. 9.4 The Ld. CIT(DR) then moved an application before the Ld. DRP under Rule 13 of Income Tax (Dispute Resolution Panel) Rules, 2009 for rectification of the DRP directions dated 30.11.2024. Ld. DRP vide its order dated 31.05.2025 reviewed its earlier directions and restored the TNMM intensity-based method as was originally applied by the L.d. TPO. This order was termed as a rectifi....