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2020 (2) TMI 248 - AT - Income TaxTP Adjustment - MAM selection - HELD THAT:- Assessee is a wholly owned subsidiary of Brother Japan. It is engaged in the business of distribution of information and communication equipments such as printers and facsimile machines by importing from AE and selling in the local market. RPM is a transfer pricing method where the resale price to the independent party is reduced by comparable resale price margin to arrive at ALP of the product transferred between the related parties. Resale price margin is a margin representing the amount out of which a reseller would seek to cover its selling and other operating expenses and, in the light of the functions performed (taking into account assets used and risks assumed) make an appropriate profit. It is well settled that RPM is to be used for determining ALP only when goods purchased from the associated enterprise are resold to unrelated parties and there is very little value addition involved. In CIT v. L’ Oreal India (P.) Ltd. [2012 (10) TMI 1191 - ITAT MUMBAI] it is held that in case of distribution or marketing activities when goods are purchased from associated entities and sales are effected to unrelated parties without any further processing, then, RPM (resale price method) is most appropriate method to determine ALP of said transaction. In ACIT v. L’ Oreal India (P.) Ltd. [2015 (2) TMI 407 - BOMBAY HIGH COURT] it is held that where assessee buys products from its AEs and sells to unrelated parties without any further processing, RPM is most appropriate method to determine ALP. Having examined the facts of the present case, we are of the considered view that the principles laid down in the above decisions are applicable here. Therefore, we set aside the order of the Ld. CIT(A) on the above grounds of appeal and delete the adjustment made by the AO u/s 92CA(3) of the Act. Adjustment as the compensation for its Advertisement Marketing and Promotion ('AMP') services - appellant incurs 'excessive' AMP expenses in relation to its distribution activities thereby qualifying as 'services' as per the arm's length principle - HELD THAT:- We find that out of total expenses on advertisement of ₹ 1.22 crore, only ₹ 36.34 lacs are expenses towards brand promotion, while the remaining expenses of ₹ 86 lacs pertain to the selling expenses such as incentives and other benefits paid to dealers/distributors for promoting sale and not the brand name of the AE. In Maruti Suzuki India Limited v. CIT [ 2015 (12) TMI 634 - DELHI HIGH COURT] , the Hon’ble Delhi High Court held that “there being no international transaction on AMP spend with an ascertainable price, neither substantive nor machinery provision of Chapter X were applicable to the transfer pricing adjustment exercise”. In Honda Siel Power Products Limited [2015 (12) TMI 1333 - DELHI HIGH COURT] again held that “when assessee is carrying on business as independent enterprise and is incurring AMP expenses for its own benefit and not at the behest of AE, hence benefit of creation of marketing intangibles for foreign AE on account of AMP expenses can at best said to be incidental”. All the more, since the AMP expenses of the assessee, after reducing selling expenses are just 0.91%, which is nearly equivalent to the average AMP expenses of comparables at 0.9%, the same meets the ALP standard under the Act and hence, no adjustment is required - Decided in favour of assessee.
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