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2019 (8) TMI 1534 - AT - Income TaxTP Adjustment - AMP expenses - international transaction - absence of any ‘agreement‘ with its AE for incurring of AMP expenses for carrying out DEMPE functions for the intangibles owned by the AE, the AMP expenses incurred by the assessee would not fall within the realm of the meaning of an international transaction envisaged in Sec. 92B - HELD THAT:- As relying on assessee's own case [2019 (3) TMI 459 - ITAT MUMBAI] and being of the considered view that as the revenue had failed to discharge the ‘onus‘ that was cast upon it as regards proving that there was any 'understanding' or an 'arrangement' or 'action in concert' as per which the assessee had agreed for incurring of AMP expenses for brand building of its AE, viz. L‘Oreal S.A., France, the TP adjustmentin respect of AMP expenses cannot be sustained and is liable to be vacated. TP Adjustment in respect of the ‘distribution segment' - differences in intensity of AMP functions performed by the assessee vis a vis the comparable companies - HELD THAT:- As the revenue had failed to establish the existence of any 'understanding' or an 'arrangement' or 'action in concert' as per which the assessee had agreed for incurring of AMP expenses for brand building of its AE, viz. L‘Oreal S.A., France, therefore, the AMP expenses incurred by the assessee had been held by us as not having been incurred by the assessee for brand building of its AE. Accordingly, as no part of the AMP expenses are attributable to rendering of any DEMPE functions for the brands owned by the AE, therefore, the TP adjustment of ₹ 60.03 crore made by the TPO in respect of the ‘distribution segment‘ of the assessee on account of alleged differences in intensity of AMP functions performed by the assessee vis a vis the comparable companies in order to align the functions, assets and risks profile of the assessee with that of the comparable companies, cannot be sustained and are liable to be vacated. Adjustments on account of payment of royalty on trademarks - HELD THAT:- Adhoc disallowance of the royalty payment by the TPO is beyond the realm of his jurisdiction and cannot be sustained. It is also the claim of the assessee that the payment of royalty on trademarks at 1.75% (on sales) had been accepted by the TPO in its case for A.Y 2015-16. We find that the Tribunal while disposing off the appeal of the assessee for the immediately preceding year viz. A.Y 2012-13 [2019 (3) TMI 459 - ITAT MUMBAI] was seized of a similar adhoc disallowance of royalty on trademarks of 1.75% (on sales). After necessary deliberations, the Tribunal had restored the matter to the file of the DRP for fresh adjudication. Accordingly, finding ourselves to be in agreement with the view taken by the Tribunal in the aforementioned preceding year viz. A.Y 2012-13, we thus on similar terms restore the matter to the file of the DRP. The DRP shall in the course of the ‘set aside‘ proceedings readjudicate the issue afresh. Needless to say, the DRP shall in the course of the ‘set aside‘ proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim that the payment of royalty on trademarks @1.75% (on sales) was at ALP, and no adjustment was called for in respect of the same. Grounds of appeal allowed for statistical purposes. TP adjustment as regards the royalty payment towards technical know-how - HELD THAT:- The method adopted by the TPO for arriving at a TP adjustment of 2.7% as regards royalty on technical know-how does not inspire any confidence. Be that as it may, we find that the Tribunal while disposing off the appeal of the assessee for the immediately preceding year viz. A.Y 2012-13 had restored the matter pertaining to TP adjustment as regards royalty paid by the assessee towards technical knowhow to its AE, viz. L‘Oreal., S.A, France to the file of the DRP for fresh adjudication. Accordingly, not finding ourselves to be in agreement with the novel method adopted by the TPO for benchmarking the royalty for technical knowhow of 5% (on sales) paid by the assessee (manufacturing segment) to its AE during the year under consideration i.e. A.Y. 2013-14, which we are afraid is neither backed by the mandate of law nor any logical reasoning, therefore, in consistence with the view taken by the Tribunal in the aforementioned preceding year viz. A.Y 2012-13, on similar terms restore the matter to the file of the DRP. The DRP shall in the course of the ‘set aside‘ proceedings readjudicate the issue afresh. DRP shall in the course of the ‘set aside‘ proceedings afford a reasonable opportunity of being heard to the assessee, who shall be at a liberty to substantiate its claim that the payment of royalty on technical knowhow @5% (on sales) was at ALP and no adjustment was called for in respect of the same.
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