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2013 (9) TMI 155 - AT - Income TaxRejecting the assessee's internal TNMM as there was a huge expenditure on advertisement and promotion of sales in both the segments - The assessee's key business activities comprised of manufacturing and marketing of various international brands of alcoholic beverages in India - The assessee has maintained segmental accounts with regard to international transactions with the A.E. and transactions with the non-A.E. - The A.E. transactions were mostly related to whisky segment whereas transactions with unrelated parties consist of other than whisky segment viz. Vodka, Rum, Gin, Brandy, etc. In the transfer pricing report, the assessee had submitted that it had carried out comparability analysis between the transactions involving the A.E. and the domestic transactions treating it to be the internal comparable under the TNMM - The assessee also submitted 15 external comparables wherein the average profit margin worked out to 0.96% as compared to assessee's operating profit upon total sales at (-) 20.71% - The TPO, after rejecting the internal TNMM adopted by the assessee in the transfer pricing report benched marked the operating profit margin with that of the 15 external comparables and made an upward adjustment of ₹ 1.56 crores. The main reason for rejecting the assessee's internal TNMM was that there was a huge expenditure on advertisement and promotion of sales in both the segments – Held that:- Reliance has been put on decision of the Tribunal in L.G. Electronics India P. Ltd. [2013 (6) TMI 217 - ITAT DELHI]. Further held that with regard to the issue that such a nature of transaction is an international transaction within the ambit of section 92B r/w section 92F, has been settled by the Special Bench deciding that it does fall within the realm of international transaction and, hence, transfer pricing mechanism is triggered. In the present case, the TPO has chosen 15 external comparables by applying TNMM for bench marking the percentage of cost of advertisement and brand promotion expenses with the net sales and by taking the average cost of 7.95% to be bright line and over and above this line, the expenditure is deemed to increase the value of brand intangible for the A.E. The DRP has also endorsed the observation and conclusion of the TPO except for the fact that the DRP has directed the TPO to apply CUP method by considering the value of advertisement and brand promotion expenses incurred by the independent enterprise as percentage of the sales - Applying the ratio of the decision in L.G. Electronics India P. Ltd. (supra), the computation of ALP in the present case to be done – Decided in favor of Assessee.
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