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Valvoline Cimmins Private Limited Versus Dy. Commissioner of Income Tax, Circle 26 (1) , New Delhi

2015 (6) TMI 928 - ITAT DELHI

Transfer Pricing Adjustment - excess advertisement, marketing and promotion expenses incurred by the assessee - Held that:- In view of the directions given in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. [2015 (3) TMI 580 - DELHI HIGH COURT] on the basis of the legal ratio expounded in this decision, facts have to be ascertained and applied. If required and necessary, the assessed and the Revenue should be asked to furnish details or tables. The Tribunal, at the first instance .....

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xamination by the Assessing Officer/TPO would be justified. - The issue may be remanded back to the file of the AO for fresh verification of facts. - Decided in favour of assessee for statistical purposes. - I.T.A. No. 608/DEL/2015 - Dated:- 31-3-2015 - Shri J. S. Reddy And Shri George George K.,JJ. For the Petitioner : Sh. Ajay Vohra, Adv. & Neeraj Jain, Adv For the Respondent : Sh. Judy James, Spl. Counsel ORDER Per J. S. Reddy : AM This appeal by the Assessee is directed against the ass .....

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para 2.1 of the DRP s order, which is reproduced below for ready reference:- 2.1 The assessee, a join venture between Valvoline International Inc. USA (100% subsidiary of Ashland Inc. USA) and Cummins India Ltd., is engaged in manufacturing and marketing of automotive lubricants, transmission fluids, gear oils, hydraulic lubricants, automotive filters, speciality products, greases and cooling systems products. It also offers Car Brite, Car Care products for automotive cleaning and maintenance. 3 .....

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Communications India Pvt. Ltd. being the lead matter, dealt with the Transfer Pricing Dispute related to AMP expenses. The Delhi High Court, while primarily dealing with several cases of distributors, rejected the taxpayer's contention that AMP expenses do not give rise to international transactions, holding that in most cases the appellant have submitted that the international transactions between them and the AE, resident abroad included the- cost I value of the AMP expenses, which the ap .....

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the case of the appellant, it is submitted that the appellant generates almost entire revenue from sale of manufactured products such as automotive lubricants, transmission fluids, gear oils, hydraulic lubricants and its trading segment, having a sale of ₹ 44.74 crore out of the total sale of ₹ 763.16 crore, constitutes a mere 5.8% of the total sales. It would be appreciated that the appellant, being a fullfledged manufacturer and not a distributor, most of the AMP expense is incurre .....

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routine and non-routine AMP expenses or brand building exercise. The Court held that the contention of the Revenue that any excess expenditure beyond the bright line should be regarded as separate international transactions is unwarranted and amounts to judicial legislation. Accordingly, the Court held that such approach is not mandated either in the Act or in the Rules. Even otherwise, it is submitted that Hon'ble Delhi High Court also reversing the view of the Special Bench of the Tribunal .....

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ors and laid down important transfer pricing principles, viz. (a) 'Bright Line Test' applied by the Revenue has no statutory mandate, and the contention of the Revenue that any excess expenditure beyond the bright line should be regarded as separate international transactions is unwarranted (b) clubbing of closely linked transactions is permissible, (c) benchmarking of a bundle of transactions applying entity wide TNMM is permissible (d) once the Revenue accepts the TNMM as the most appr .....

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Court, the AMP expenses would not be required to be segregated to be treated as a separate international transaction and instead would be considered as bench marked along with other international transactions under the entityvide TNMM. The appellant, in its transfer pricing document, for the purpose of benchmarking its international transactions, considered TNM method as the most appropriate method. It was submitted that the OP/OC ratio of the appellant in its Manufacturing segment at 21.89% was .....

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companies selected in the Transfer Pricing study, the TPO and DRP has on that basis accepted all other international transactions to be at arm's length applying TNMM. In our respectful submission, therefore, applying the aforesaid decision of the Hon'ble Delhi High Court to the facts of the present case the Transfer Pricing adjustment made on account of AMP expenses in the relevant year, therefore, liable to be deleted. 5. On enquiry from the Bench, Ld. Counsel of the assessee submitted .....

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nder TNMM would duly subsume AMP expenses. On enquiry from the Bench, he though not leaving his ground, agreed that data on which the conclusion could be arrived are not on record. 7. Rival contentions heard. On a careful consideration of the facts and circumstances of the case, a perusal of the records and the orders of the authorities below as well as the case law cited, we hold as follows:- 7.1 The Hon ble Delhi Jurisdictional High Court in the case of Sony Ericsson Mobile Communications Indi .....

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he legal standards or ratio accepted and applied by the Tribunal was erroneous. On the basis of the legal ratio expounded in this decision, facts have to be ascertained and applied. If required and necessary, the assessed and the Revenue should be asked to furnish details or tables. The Tribunal, at the first instance, would try and dispose of the appeals, rather than passing an order of remand to the Assessing. Officer/TPO. The endeavour Should be to ascertain and satisfy whether the gross/net .....

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