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2020 (12) TMI 801 - ITAT DELHITP adjustment - AMP expenses - main contention of the assessee is that the AMP expenditure do not constitute an international transaction - Bright Line Test (‘BLT’) application - HELD THAT:- Regarding the BLT, the Hon’ble High Court of Delhi in Sony Ericsson Mobile Communications India Pvt. Ltd.[2015 (3) TMI 580 - DELHI HIGH COURT] held that BLT could not be applied for either determining the existence of an international transaction involving AMP expenses or for determining ALP of such transaction. Thus, the decision of the Special Bench of ITAT in LG Electronics [2013 (6) TMI 217 - ITAT DELHI] relied upon by the revenue was rendered non-existent. The instant assessee is not engaged in distribution and marketing of branded products but selling its own manufacturing goods to the extent of 95% and paying royalty to the AE. This also proves that the AMP has not helped the parent company in anyway. The incurring the AMP expenses by the assessee was a function performed by it and this cannot be regarded as an international transaction u/s 92B. The basic purpose of introducing the various provisions of chapter X, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas AE. In our opinion, a perceived/notional indirect benefit to the AE, due to incurring of certain expenditure by an assessee in India, is not covered by the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and that those parties were located in India. In the cases of Bausch & Lomb Eyecare (India) Pvt. Ltd. [2015 (12) TMI 1332 - DELHI HIGH COURT](HC), the issue of AMP expenses had been deliberated upon extensively and each and every argument raised by the departmental authorities have been analysed thread bare. The Courts held that the existence of an international transaction will have to be established de hors the BLT, the burden is on the Revenue to first show the existence of an international transaction. 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. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. AMP expenditure is not an international transaction in the case of instant assessee for the instant year and hence no adjustment to ALP need to be made thereon. Accordingly, the grounds raised by the assessed are allowed. Interest on FCDs - Adjustment on account of interest payment - assessee stated that it paid interest on foreign convertible debentures - HELD THAT:- This issue has been adjudicated by the Coordinate Bench of ITAT for the assessment 2011-12 wherein the Tribunal held that the adjustment is not required based on the judgment of Hon’ble Delhi High Court in the case of Cotton NatuRals India Pvt. Ltd. [2015 (3) TMI 1031 - DELHI HIGH COURT]. Since, the matter stands adjudicated by the earlier order of the Tribunal in the absence of any material change, we hold that no adjustment on account of interest payment is required. Payment of Royalty - assessee has paid royalty payment to its AE - this was based on royalty @5% on net domestic sales and 8% on the net sales outside India - HELD THAT:- As gone through the issue and we are unable to accept with the contention of the revenue that the waiver of the royalty by the AE would not give any perpetual right to the assessee. Since, the revenue could not bring anything on record as to why the royalty is not payable when the assessee is manufacturing with the technical know-how from the AE and an agreement stipulates payment of royalty. Hence, the appeal of the assessee on this ground is allowed.
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