TMI Blog2014 (6) TMI 892X X X X Extracts X X X X X X X X Extracts X X X X ..... from the selling price to determine the cost of goods sold. We accept the submissions made by the learned authorised representative and direct the Assessing Officer to treat the cash discount and outward freight and storage charges towards selling and distribution expenses instead of reducing the same from the selling price. Consideration of Multiple year data of the comparables for determining gross profit margin - Held that:- Since the gross profit margin of the assessee after the deletion of the downward adjustment of purchase cost would be 14.69 per cent., therefore, it will fall within ± 5 per cent. range of gross profit margin of the comparables reworked by the Transfer Pricing Officer. Thus, the arithmetic mean 18.74 per cent. determined by the Transfer Pricing Officer will have no bearing on the transfer pricing study. Transfer pricing adjustment to marketing expenditure - Held that:- Undisputedly, the assessee itself has categorised the expenditure into two sub-heads herein above, i.e., the advertisement head comprises of expenses which have been incurred for 'brand building'. The other head is of business promotion expenses. Admittedly, there is no dispute about ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The Transfer Pricing Officer vide order dated October 31, 2011, made : (i) A downward adjustment of purchase cost from associated enterprises-Rs. 14,55,37,321 ; and (ii) An upward adjustment of development and business promotion expenses-Rs. 6,06,31,493. On the basis of the order of the Transfer Pricing Officer under section 92CA, the Assessing Officer made draft assessment order. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The Dispute Resolution Panel vide directions, dated August 31, 2012, rejected the objections of the assessee and confirmed the draft assessment order. Now, the assessee has come in appeal before the Tribunal assailing the assessment order based on the directions of the Dispute Resolution Panel. 4. Shri Sandeep Dinodia, appearing on behalf of the assessee submitted that the additions have been made in the income returned by the assessee on account of downward adjustment on purchases and addition in international transactions involving market support income. The learned authorised representative submitted that the undisputed facts in the case of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant to the financial year (FY) 2007-08 alone. The assessee has calculated the gross profit margin of comparables as 16.47 per cent. which has not been disputed by the Dispute Resolution Panel. The Transfer Pricing Officer reworked the selling price and gross profit margins of the assessee and the comparables, and computed the arm's length price of the assessee's cost of goods sold as ₹ 1,59,87,32,508 as against the assessee's calculation of cost of goods sold of ₹ 1,74,42,69,829, thereby making transfer pricing adjustment of ₹ 1,45,53,732. Since, the gross profit margin as computed by the Transfer Pricing Officer of the comparables was not within the permissible limit of 5 per cent., the benefit of the proviso to section 92C(2) is denied to the assessee by the Transfer Pricing Officer. The learned authorised representative contended that the assessee is following uniform method of accounting for purchase of goods. The Department has accepted the computation of the arm's length price in the previous assessment year, i.e., 2007-08 and in the subsequent assessment year 2009-10. The learned authorised representative made an alternate submission that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and are entirely different in nature from trade discounts. Therefore, the contention of the Transfer Pricing Officer to reduce it from the selling price is misconceived. Similarly, the Transfer Pricing Officer has erred in reducing freight and storage expenses from the selling price. The expenditure is towards the cost of packing and transportation of goods from the warehouse of the assessee to the customers. The expenditure incurred by the assessee on outward freight is in the nature of selling and distribution expenses. Therefore, by no stretch of imagination, it can be reduced from the selling price to determine the cost of goods sold. We accept the submissions made by the learned authorised representative and direct the Assessing Officer to treat the cash discount and outward freight and storage charges towards selling and distribution expenses instead of reducing the same from the selling price. 9. For determining gross profit margin, the assessee has taken into consideration multiple year data of the comparables and computed weighted average of profit level indicator for three years. The Transfer Pricing Officer rejected the gross profit margin of the comparables determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing two questions had arisen for adjudication : 1. Whether, on the facts and in circumstances of the case, the Assessing Officer was justified in making transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee ? 2. Whether, the Assessing Officer was justified in holding that the assessee should have earned a mark up from the associated enterprise in respect of advertising, marketing and promotion expenses alleged to have been incurred for and on behalf of the associated enterprise ?' We find that after detailed discussion, it has been held that the advertising, marketing and promotion expenses incurred (AMP expenditure) more than those in case of comparables, are transactions exigible to proceedings under Chapter X of the Act, being a case of brand building. A perusal of the same also shows that after a minute analysis of relevant provisions in the aforesaid Chapter X sections 92, 92B, 92C, 92CA, 92F(v), the Special Bench concludes that such expenses, even if paid to Indian entities, are covered by the definition of 'transaction' within the meaning of section 92F(v) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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