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2015 (10) TMI 312 - ITAT DELHI

2015 (10) TMI 312 - ITAT DELHI - TMI - Addition on account of armís length price under sec. 92CA(3) - whether marketing and selling expenses like trade discount etc. are not AMP expenses? - Held that:- We find that the Honíble jurisdictional High Court of Delhi in the case of Sony Ericsson Mobile Communication India (P) Ltd. [2015 (3) TMI 580 - DELHI HIGH COURT] after discussing the majority view of the Special Bench of the ITAT in the case of L.G. Electronics (2013 (6) TMI 217 - ITAT DELHI), ha .....

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applicable on them and made the adjustment, if any, accordingly in view of the above ratios laid down by the Honíble Jurisdictional High Court in the case of Sony Ericson Mobile Communication India Pvt. Ltd. (supra) after affording opportunity of being heard to the assessee. Decided in favour of assessee for the statistical purposes. - ITA No. 5184/Del/2011 - Dated:- 17-7-2015 - SHRI N.K. SAINI AND SHRI I.C. SUDHIR For The Appellant by: Shri Pradeep Dinodia, Adv. For The Respondent by: S/Shri Vi .....

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involving advertisement, cash discount, services expenses and business promotion expenses with unrelated parties are international transaction under sec. 92B of the Income-tax Act, 1961 and application of transfer pricing provisions upon them; determination of ALP of the transaction of the assessee using the methodology i.e. not prescribed by the Income-tax Act, 1961 and without substantiating the basis for mark up of 12% on the reimbursement received and addition made; application of the transf .....

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egorically held that if the expenses are incurred for effecting sales in India, then, even if the expenses are high, there is no issue of AMP expenses. The Learned AR submitted further that the Hon'ble Delhi High Court has upheld the decision of Special Bench of the ITAT in the case of LG Electronics on the direct marketing expenses and has held that marketing and selling expenses like trade discount etc. are not AMP expenses. 4. The Learned AR submitted further that as per the ratio of the .....

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be categorized as AMP expenditure. The only expenditure left thereafter is advertisement expenditure, which also already recorded and as per past history of the assessee s case, it has always been held to have been incurred for the immediate benefit of the assessee for affecting the sales in India, as such, advertisement are released in the regional newspapers/media in different Indian languages to attract the Indian customers for buying the products, which are being sold by the assessee through .....

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le by the assessee for and on behalf of its foreign AE and segregated AMP expenses from the PLI used for the TN MM analysis in the TP of the assessee. The TPO in his order observed that incurring of high cost of these expenses creates and promotes brand Panasonic , which does not belong to the assessee and its legal ownership lies with the foreign A.E. He submitted that the TPO proceeded to examine the issue of creation of brand image and noted that assessee had incurred expenses of 18.98% durin .....

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,70,36,527. The learned DRP has agreed with all the contentions of the TPO and has confirmed the addition. 5. The learned AR submitted further that there is decreasing trend in sales inspite of substantial amount of selling expenses. The assessee has thus to put extra efforts for making its presence felt in the competitive market by advertising its product and offering other attractive sales promotional schemes to its dealer and to the ultimate customers through dealers. He pointed out sales whi .....

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operating receipts and while comparing the margins of assessee with the comparables, such amount was excluded from operating income. The ITAT in the year after year orders has held it to be an operative income. He drew our attention at page Nos. 422 to 483 wherein copy of the order of the ITAT for the assessment year 2002-03 has been made available. The learned AR submitted further that assessee s margins as compared with the undisputed comparable are better, no ALP adjustment was required to b .....

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expenses. The relevant para No. 176 of the said judgment is being reproduced hereunder: The aforesaid argument, when AMP expenses are segregated from the composite transaction including distribution and marketing function, is flawed and has to be rejected. The respondent-assessees are engaged in distribution and marketing of consumer goods. Distribution and marketing exercise in case of tangibles requires transfer/sale of goods to third parties, be it sub-distributors or retailers. The said tran .....

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ng expenses like trade or volume discount or incentive as brand building exercise would be contrary to common sense and would be highly exaggerated. These reduce the net profit margin. It would lead to abnormal financial results defying accountancy practices and commercial and business sense. The expenses being in the nature of selling expenses have an immediate connect with price/consideration payable for the goods sold. They are not incurred for publicity or advertisement. Direct marketing and .....

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ion of the assessee remained that in the past, it has been held that to have been incurred for the immediate benefit of the assessee for affecting the sales in India, as such, advertisement are released in the regional newspapers/media in different Indian languages to attract the Indian customers for buying the products, which are being sold by assessee through its retail outlets/distributors etc. Therefore, no part of the expenditure can be said to have been incurred by the assessee towards AMP .....

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ver, once the Assessing Officer/TPO accepts and adopts TNM method, but then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation/segregation, it would as noticed above, lead to unusual and incongruous results as AMP expenses is the cost or expense and is not diverse. It is factored in the net profit of the inter-linked transaction. This would be also in consonance with Rule 10B(1)(e), which mandates only arriving at the net profit margin .....

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