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2015 (8) TMI 1386 - AT - Income TaxTransfer pricing adjustment on account of advertisement, marketing and promotion expenses - Held that:- If the expenses which are included by the TPO as part of AMP are excluded from the AMP expenses being the expenses directly linked with the sales and marketing as well as trade discounts allowed by the assessee as incentive to the distributors than, the AMP to sales ratio of the assessee comes to 0.74%. There is no ambiguity, a it is manifest from the items of expenditure included by the TPO in the category of AMP expenses that the same are directly related with the sales, marketing and other sales promotion expenses in the shape of trade discounts allowed to the distributors. Therefore, these expenses cannot be included as part of the AMP expenses for the purpose of determining the arm’s length price. The TPO has not disputed the operating margin of the assessee at 6.25% in comparison to the margin of the comparables at =0.13%. Therefore, there is enough scope of accommodating the AMP to sales ratio at 0.74% if the said transaction is clubbed with the other international transaction of the assessee. Even after giving effect to the AMP expenditure of the assessee the margins of the assessee would still the higher than the margin of the comparable which is =0.13%. Thus, in the facts and circumstances of the case, the inclusion of the sales related expenditure in the category of AMP is not justified as held in the light of the judgment of the Hon’ble Delhi High Court in the case of M/s Sony Ericsson Mobile Communication Ltd (2015 (3) TMI 580 - DELHI HIGH COURT ). Accordingly, we delete the addition made by the TPO on account of AMP adjustment. Adjustment on account of ‘Royalty” payment - Held that:- TPO has not undertaken any exercise as per the provisions of transfer price rules and regulation to determine the arm’s length price of royalty payment by the assessee to the AE. The assessee has also not furnished a separate comparable analysis to establish that the payment of royalty is at arm’s length. We find that the issue was not raised by the assessee before the DRP because the TPO did not make any adjustment on account of royalty payment on the ground that the same has got subsumed in the AMP adjustment. Thus, it is clear that neither the TPO has undertaken proper process of determining the arm’s length price nor this issue was raised before the DRP. Therefore, this issue requires a proper examination and verification as the assessee has not submitted any separate transfer pricing analysis on this issue except TNM method analysis in respect of the purchase and sale transaction with AE. Accordingly, in facts and circumstances of the case, we set aside the issue to the record of the TPO/AO for adjudication of the issue afresh in the light of the jurisdictional High Court in the case of CA Computers Associates Pvt. Ltd (2012 (7) TMI 560 - BOMBAY HIGH COURT ).
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