2016 (8) TMI 608 - AT - Income Tax

TP adjustment - AMP expenditure - Held that:- We are of the opinion that after the judgments of Maruti Suzuki [2015 (12) TMI 634 - DELHI HIGH COURT] and Bausch & Lomb (2015 (12) TMI 1332 - DELHI HIGH COURT) there is no scope of any other interpretation about the AMP expenditure. In the case under consideration, the AO/TPO has not brought anything on record that there existed and agreement, formal or informal, between the assessee and the AE to share/reimburse the AMP expenses incurred by the assessee in India. In absence of such an agreement the first and primary precondition of treating the transaction-in-question an IT remains unfulfilled. Conducting FAR analysis or adopting an appropriate method is the second stage of TP adjustments. The first thing is to find out whether the disputed transaction in is IT or not. Without crossing the first threshold second cannot be approached, as stated earlier. In the case under consideration, we are of the opinion that AMP expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. Considering the facts and circumstances of the case under consideration, we are of the opinion that the FAA was not justified in upholding the order of the TPO. Therefore, reversing his order, we decide second ground in favour of the assessee.

TP adjustment made in relation to purchase of Raw material from its AE.s - Held that:- Provision of section 92 are applicable to the IT only. Transactions entered in to by an assessee with the Non-AE.s are not governed by the provisions of Chapter X of the Act. So, there was no justification for applying the TP provisions to entire purchases. Thus we direct the AO/TPO to restrict the adjustment to the transactions entered into between the assessee and its AE.s only.

ALP expenses computation - deducting the license income received from the third party manufacturers - Held that:- While the assessee had earned sub-license-fees from thirdparty manufacturers it had not paid any royalty/fee to its AE.s, that it resulted in additional operating revenue, that the assessee had not paid any royalty was a relevant factor to determine the ALP of the transaction, that the sub license fee earned by the assessee was from the same brands that were being promoted through the AMP expenses under consideration, that the sub license fee received by it were the net receipts in its hands, that it was in the nature of cost saving from the gross ALP expenses incurred by it. Therefore, in our opinion the FAA had rightly excluded the said amount for calculating the ALP expenses. We are not inclined to interfere with his order.