2020 (4) TMI 26 - AT - Income Tax

TP Adjustment - AMP expenses - HELD THAT:- The authorities below have failed to brought on record any documents or evidence showing the existence of the agreement between the assessee and it's AE by virtue of which, the assessee was under no obligation to incur the marketing expenditure for the brand building of the brand owned by the assessee. No such finding of fact recorded by the lower authority, was brought to our notice by the DR for the revenue. In the light of the above we deem appropriate to reproduce the finding recorded by the tribunal for the earlier assessment year in the case of the assessee while dealing with the AMP issue.

Merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. Following the decision of the coordinate bench for the assessment year 2008 – 09 to assessment year 2012 – 13 [2018 (3) TMI 1665 - ITAT MUMBAI] the issue of AMP is allowed in favour of the assessee and against the revenue.

Adjustment on import of finished goods - suitability of foreign AE as a tested party - HELD THAT:- TPO for the assessment year under consideration had recorded the finding that the assessee did not provide the requisite information. However, during the course of argument, AR had drawn our attention to the annual accounts of the comparables, which are provided by the assessee before the TPO. However, despite providing the requisite information TPO had recorded that the said information's were not provided to TPO. Further, we also noticed that the annual reports of the comparables was not considered as comparables were having different calendar years’, other than the financial year of the tested party.

Assessee is carrying out the distribution function with respect to goods imported from its AE. Therefore, foreign AE of the assessee cannot be considered as a tested party for benchmarking the international transaction.

On perusal of the paper book and documents submitted by the assessee, it is abundantly clear that the assessee had provided requisite necessary data of the foreign AE of the assessee as well as the comparables to the TPO, this fact was duly acknowledged by the DRP in the order reproduced hereinabove. Both the lower authorities had rejected the contention of the assessee for considering the foreign AE as a tested party by following the reasons given by the DRP for the assessment year 2009-2010.

Order passed by the lower authorities is required to be set aside, as the order passed by the lower authorities were cryptic orders, as authorities have failed to consider the documentary evidence produced before it while passing the order on the submissions of the assessee. Further the lower authorities have failed to pass reasoned speaking order dealing with the submissions/documentary evidence of the assessee. Therefore, we remand these grounds back to the file of the Dispute Resolution Panel (DRP) for denovo examination and passing the reasoned speaking order without influencing with the order passed by the DRP for the assessment year 2009-10.

DRP is directed to pass a detailed speaking order after considering the documents/ evidence already on record :- Whether the foreign AE of the assessee can be considered as tested party for the purpose of benchmarking the international transaction subject matter of the present dispute and If on examination of the above parameters, the DRP comes to the conclusion that the foreign AE can be considered as tested party, then the DRP will examine the suitability of comparable provided by the assessee in the TP study on the basis of the parameter laid down in Chapter 10 and the rule framed therein for said purpose. DRP shall also find out whether the comparables provided by the assessee are into the same line of business or not. DRP shall also find out whether these comparables are from the same country or from the same region having the similar economic, geographical and political condition or not which may affect the profitability of these comparable. The DRP shall apply appropriate filters for the purpose of including and excluding the comparables.

If the DRP comes to the conclusion that the foreign AE of the assessee can be considered as a tested party and thereafter DRP rejects the comparables selected by the assessee, then the DRP may include any other suitable comparable which satisfy the various filters applied by the DRP for that purposes after following the procedure as laid down in chapter 10 of the income tax act read with rule framed there under.