TMI Blog2016 (7) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... have been held to be falling in the exclusive domain of the AO. Accordingly, in view of the aforesaid, we are of the opinion that since the operating margin of the assessee at 6.96% is higher than the comparables at 2.77%, the international transaction of payment of royalty entered into by the assessee are to be considered being at arm’s length applying TNMM as the most appropriate method. Transfer pricing issue w.r.t. to Advertising, Marketing and Promotion (‘AMP’) Expenses - Held that:- the adjustment made by the TPO is squarely covered by the decision of Delhi High Court in the case of Maruti (2015 (12) TMI 634 - DELHI HIGH COURT ) and Honda Siel Power Products (2015 (12) TMI 1333 - DELHI HIGH COURT ) and therefore, in the absence of any international transaction of brand building of ‘Goodyear’ brand, undertaken by the assessee with its AE, there cannot be any adjustment under the transfer pricing provisions. Further, as held by the Hon’ble High Court, Chapter – X of the Act does not authorize the revenue to make quantitative adjustment under the transfer pricing provisions, such as AMP expense. The contention of the ld. DR about abnormal increase in advertisement expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which is not permissible under the law. We are of the considered view that AO was not justified in making such ad-hoc disallowances and therefore, direct the assessing officer to delete the adjustment on this account. - ITA No. 5650/Del/2011, 6240/Del/2012 and 916/Del/2014 - - - Dated:- 29-4-2016 - SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER For The Appellant : Mr. Ajay Vohra, Sr. Adv., Mr. Neeraj Jain, Adv. and Mr. Abhishek Agarwal, CA For The Respondent : Mr. Amrinder Singh, CIT-DR ORDER Per L.P. SAHU, AM: These are three appeals filed by the assessee against assessment orders passed consequent to directions of the Dispute Resolution Panel, New Delhi U/s 144C(5) of the Income-tax Act, 1961, relating to A.Y. 2007-08, 2008-09 and 2009-10. Since all these appeals were heard together and most of the issues involved in these three appeals are common, hence for the sake of convenience and brevity, all these appeals are being disposed of by way of this consolidated order as under : ITA No. 5650/Del/2011 Assessment Year 2007-08 2. This appeal by the assessee is directed against the order of the Assessing Officer u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not charged trademark fee from the appellant in earlier years because of its non capability to pay the same due to adverse financial condition and the AE was assisting the appellant in maintaining a competitive end customer price in times of its financial constraints. 3.6 That the assessing officer/DRP erred on facts and in law in not appreciating that the trademark fee paid by appellant to its AE is far below as compared to the trademark fee paid by other nonmanufacturing and manufacturing subsidiaries of Goodyear USA. 3.7 That the assessing officer/DRP erred on facts and in law in not appreciating that the trademark fees paid by the appellant to the AE (1% of the net domestic sales and 2% of the net export sales) is within the limits prescribed by the Reserve Bank of India (RBI). 3.8 That the assessing officer/DRP erred on facts and in law in comparing the other subsidiary (Goodyear South Asia Tyres Private Limited, Aurangabad, Maharashtra, hereinafter referred as Goodyear Aurangabad ) of Goodyear USA with the appellant, with reference to trademark fees even when business dynamics and commercial realities (end customer profile, need to be associated with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the AE. 4.8 That the assessing officer erred on facts and in law in not appreciating that the power of the TPO is restricted to the determination of arm s length price of international transactions by applying any of the prescribed method and not to make disallowance of business expenses incurred by the appellant. 4.9 That the assessing officer erred on facts and in law in not appreciating that bright line limit is not a prescribed method under the purview of section 92C of the Act. 4.10 That the assessing officer erred on facts and in law in applying Bright Line Test ( BLT ) for computing adjustment on account of expenditure on advertisement and brand promotion expenses without appreciating that in absence of specific provision under the Transfer Pricing Regulations in India., adjustment on account of the arm s length price of the advertisement and brand promotion expenses could not be made. 4.11 That the assessing officer/DRP erred on facts and in law in not appreciating that the expenditure incurred by the appellant on marketing and advertisement is 1.37% of sales and 2.26% of sales after including payment of trademark fees which is substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature. 6.1 That the assessing officer erred on facts and in law in not appreciating that the aforesaid expenditure on repair and maintenance of plant and machinery did not result in acquisition of / bringing into existence any capital asset and were not expenditure incurred in the capital field. 6.2 Without prejudice, that the assessing officer erred on facts and in law in not allowing depreciation on the aforesaid amount of ₹ 79,65,320 held to be capital expenditure. 7. That the assessing offer erred on facts and in law in disallowing the sum of ₹ 17,72,000 being the provision for warranty holding the same to be contingent liability. 8. That the assessing officer erred on facts and in law in making ad-hoc disallowance of ₹ 33,08,500 allegedly on account of increase in the expenditure on advertisement and marketing expense as compared to previous year. 8.1 Without prejudice, the assessing officer erred on facts and in law in disallowing advertisement and marketing expense for which a transfer pricing adjustment has been made to the income of the appellant by the TPO, thereby resulting in double disallowance in respect of same expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the payment of trademark fee for the first time during the previous year was designed to shift profits out of India. The TPO accordingly determined the arm s length price of the international transactions of payment of royalty at NIL by applying CUP method. The order passed by the TPO was upheld by the Dispute Resolution Panel on appeal made by the appellant before the DRP. 7. In this regard, the appellant has submitted the following before us: (i) Payment ofTrademark fee from FY 2006-07 : The appellant has been using the Goodyear trade name as its company name and associated trademarks in respect of all its manufactured products since its inception. However, as an exception, since the appellant was recovering from financial difficulties in its earlier year, the payment of trademark fee was waived off by Goodyear USA until financial year 2006- 07. The arrangement for payment of Trade Mark Fees in consideration for use of the Goodyear trade name and associated trademarks by the appellant was formalized by way of the Trademark License Agreement dated October 1, 2006 (the Agreement) and the trademark fee was paid by the appellant to Goodyear USA only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Years Particulars 2003-04 2004-05 2005-06 2006-07 Total sales 6,747,593 7,273,997 7,701,819 9,776,898 Operating Profit (OP) 28,860 102,813 217,792 620,066 OP/Sales 0.43% 1.41% 2.83% 6.34% * *After taking into account trademark fees paid / payable for the year. It would be appreciated that the mere fact that, on account of loss in the earlier years, Goodyear USA did not charge royalty for allowing use of trademark Goodyear from the appellant, cannot be held against the appellant and would not constitute a bar in charging royalty for use of the intangibles in the relevant previous year. (ii) Erroneous conclusion that Goodyear brand was weak/ worthless : The TPO in the transfer pricing order disallowed the payment of trademark f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant for the year, it is stated on page 9 that Globally, the tyre industry is highly competitive with the top three players viz. Bridgestone, Goodyear and Michelin constantly jostling for the top spot . This clearly substantiates the fact that the Goodyear trade name is a very strong name in the global tyre industry. It would also be pertinent to mention that Goodyear USA does not license the Goodyear trade name and associated trademarks to any third party for the same / similar products. However, Goodyear USA does license use of the Goodyear trade name to third parties for different products which do not relate to Goodyear's core and continuing businesses, for instance apparel, shoes, sports and leather accessories etc. These third parties normally pay fixed brand usage fees or royalties as a percentage of their sales to Goodyear USA for using the Goodyear name on their products. This fact alone establishes beyond doubt that the Goodyear name is a valuable intangible . This is because no third party would ever pay for something that was not valuable. Reference in this regard is made to the decision of Delhi Bench of Tribunal in the case of Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands available on internet . Following the order passed for the assessment year 2005-06, Hon ble Delhi Bench of Tribunal in the appeal for assessment year 2006-07, bearing ITA No. 5120/Del/2010 too, deleted the transfer pricing adjustment made on account of payment of royalty. In view of the same, it cannot be anybody s case that the Goodyear name has no beneficial impact whatsoever on Goodyear India. Goodyear is a valuable name and Goodyear USA, which owned and developed the same over years, would certainly charge those who were licensed the right to use it. (iii) Benchmarking of payment of royalty applying TNMM The international transactions entered into by the appellant have been aggregated for the purpose of benchmarking applying the Transactional Net Margin Method (TNMM) as the most appropriate method. In the Transfer pricing report, the appellant had selected TNMM as the most appropriate method. In respect of the international transactions related to the manufacturing segment the appellant has chosen TNMM as the most appropriate method with Operating Profit/Sales (OP/sales%) as the PLI. The appellant has arrived at a set of 6 comparables with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid. Without such technology supply the appellant s business will cease to exist and its entire operations would come to a halt. Thus, we agree with the appellant s submission TPO has arbitrarily divided the license agreement of the appellant without appreciating that all the license agreement is a single in severable agreement. In view of the aforesaid, it would be appreciated that the royalty has been paid by the appellant in pursuance of the license agreement to manufacture the products. It is submitted that in the absence of such an agreement, the appellant would not have been able to manufacture and sell its products, which is the cornerstone of its business. Accordingly since the entire operation of the appellant is based on the rights and licenses to manufacture the automobile tyres and farm tyres, for whichroyalty is being paid , the royalty payments cannot be separately evaluated. Therefore entity wise TNMM has appropriately been applied as the most appropriate method. Rule 10A(d) provides that closely linked transaction can be considered together. Further, para 3.9 of the revised OECD guidelines on transfer pricing states that: 3.9 Ideally, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (d) states that ―for the purpose of this Rule and Rules 10AB and 10E, the term transaction would include a number of closely linked transactions. This Rule in positive terms declares that the legislative intent is not to deviate from the generic rule that singular includes plural. The meaning or definition of the expression transaction in clause (d) to Rule 10A read with sub-section (1) to Section 92C, therefore, does not bar or prohibit clubbing of closely connected or intertwined or continuous transactions. This is discernible also from sub-rule (2) to Rule 10B quoted above. The subrule refers to services provided, functions performed, contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or impliedly the responsibilities, risks and benefits to be divided between the respective parties to the transactions. Use of plurality by way of necessity and legislative mandate is evident in the said Rule. 81. Similarly, sub-rule (3) to Rule 10B refers to transactions being compared or comparison of the enterprises entering into such transactions likely to affect the price or cost charged etc. A reading of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The Hon ble Court held as under: 101. However, 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 by comparing the profits and loss account of the tested party with the comparable . The TNM Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm s length price. Then to make a comparison of a horizontal item without segregation would be impermissible . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein, payment of royalty has been considered to be at arm s length price, applying TNMM: - Lumax Industries Ltd. vs. ACIT (ITA No. 4456/Del/2012) - The finding of the Hon ble Tribunal was upheld by the Hon ble Delhi High Court - DCIT vs. CLSA India Limited (ITA No. 2362/Mum/2011) - Cadbury India Limited vs. ACIT (ITA No. 7408/Mum/2010) - Thyssen Krupp Industries India Pvt Ltd vs ACIT (ITA No 7032/Mum/2011) It is respectfully submitted that transaction of payment of royalty was considered by the appellant as closely linked with other transactions of the manufacturing segment such as import of raw material service parts etc. and such transactions were therefore rightly benchmarked on an aggregate basis. However, the TPO, without assigning any reason which could justify separate benchmarking of transaction of payment of royalty, arbitrarily disregarded the benchmarking analysis applying TNMM undertaken by the appellant and proceeded to evaluate the transaction of payment of trademark fees on a stand- alone basis. Section 92C(1) of the Income-tax Act provides five methods for determination of arm s length price of an international transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of trade mark fee is required to be made by the appellant to Goodyear, USA, since the other group entity in India, i.e., Goodyear Aurangabad was not making any such payment to Goodyear USA. At the outset it is respectfully submitted that it is beyond the intention of the transfer pricing regulations to compare the international transactions entered between two associated enterprises with another related party transaction. Therefore, international transactions entered between Goodyear USA and the appellant cannot be compared with the international transaction entered between Goodyear USA and Goodyear, Aurangabad. The third Member Bench of the Mumbai Tribunal, in the case of Tecnimont ICB Pvt. Ltd. vs. ACIT (ITA No. 4608 5085/Mum/2010), wherein, while explaining the import of clause (i) of Rule 10B(e) of the Act, held that the Rules strictly provides that an uncontrolled transaction shall be a transaction undertaken between two unrelated parties and cannot be given a wider term to include transaction entered between two other related parties, as under: 14. What is an uncontrolled transaction has been clearly defined under Rule 10A(a) to mean a transaction be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of such provisions will be frustrated. Thus, it follows that the ALP can be determined only by making comparison with a comparable uncontrolled transaction and not a comparable controlled transaction. The aforesaid decision in the case of Tecnimont (supra), was also followed by the Mumbai Bench of Tribunal in the case of ACIT vs. Fuchs Lubricants (India) Pvt. Ltd. in ITA No. 7629/Mum/2010. It is further humbly submitted, that although Goodyear Aurangabad did not pay any trademark fee to Goodyear Group during the financial year 2006- 07, Goodyear group was compensated in as much as majority (around 60%) of the sales of Goodyear Aurangabad during the year were exported to the AEs and only around 40% of sales were to third parties. On the contrary, majority (around 98%) of the sales of Goodyear India during the year were to third parties and only around 2% of the sales were to the AEs. Thus the business dynamics and commercial realities (end customer profile, need to be associated with a valuable brand, etc.) in both the companies were entirely different to warrant a comparison with each other. It would be appreciated that there is no bar under the Act to have tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the expenditure should have been incurred wholly and exclusively for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above . XXX So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised. Reliance in this regard is also placed on the decision of Hon ble Delhi High Court in the case of CIT vs. Reebok India Co Ltd (ITA no 213/2014), wherein, while deleting the adjustment made by the TPO with respect to transaction of payment of royalty, held as under: 187. The Tribunal in the impugned order, therefore, had rightly applied the test of commercial expediency and has recorded that the assessed was free to cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G Polymers India Pvt Ltd vs Addl. CIT (ITA No 524/Vizag/2010) - Ericsson India Pvt. Ltd. vs. DCIT (ITA No. 5141/Del/2011) - SC Enviro Agro India Ltd vs DCIT (ITA No 2057 2058/Mum/2009) - Lumax Industries Ltd. (supra) - DCIT vs. Air Liquide Engineering India P. Ltd. (ITA No. 1040/Hyd/2011) - TNS India Pvt Ltd. (ITA No. 944/Hyd/2007 - Quintiles Research (India) Private Ltd. vs DCIT (ITA 1605/Bang/2012) - Festo Controls India Pvt. Ltd. v. DCIT Thus, whether or not a particular expenditure has to be incurred, depends on the perception of the businessman / appellant, and the Revenue cannot seek to put itself in the armchair of the businessman to decide whether or not such expenditure should have been incurred. 8. We have heard the rival contentions in light of the material produced and the decisions relied upon. Ld. Counsel of the assessee has emphasized on the benchmarking of payment of trademark as closely linked transaction with the manufacturing segment. The Ld. Counsel of the assessee has submitted that the royalty relates to the entire turnover/production of the appellant and constitutes an essential part of the cost of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction as a number of closely linked transactions. Royalty, then, is a transaction closely linked with production and sales. It cannot be segregated from these activities of an enterprise, being embedded therein. That being so, royalty cannot be considered and examined in isolation on a standalone basis .. Royalty is to be calculated on a specified agreed basis, on determining the net sales which, in the present case, are required to be determined after excluding the amounts of standard bought out components, etc., since such net sales do not stand recorded by the assessee in its books of account. Therefore, it is our considered opinion that the assessee was correct in employing an overall TNMM for examining the royalty. The TPO worked out the difference in the PLI of the outside party (the assessee) at 4.09% and the comparables at 7.05%. This has not been shown to fall outside the permissible range. The Hon ble Tribunal accordingly held that the assessee was correct in applying overall TNMM for examining royalty. 10. The aforesaid decision of this Tribunal has been upheld by the Hon ble High Court in the case of ACIT vs. Lumax Industries Ltd. (ITA No. 102 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction entered between another AE, Goodyear South Asia Pvt. Ltd. with Goodyear Inc. USA. 14. The AR of the assessee has rightly palced reliance on the decision of third Member Bench of the Mumbai Tribunal, in the case of Tecnimont ICB Pvt. Ltd. vs. ACIT (ITA No. 4608 5085/Mum/2010), wherein, while explaining the import of clause (i) of Rule 10B(e) of the Act, held that the Rules strictly provides that an uncontrolled transaction shall be a transaction undertaken between two unrelated parties and cannot be given a wider term to include transaction entered between two other related parties, as under: 14. What is an uncontrolled transaction has been clearly defined under Rule 10A(a) to mean a transaction between enterprises other than associated enterprises whether resident or non-resident . A plain reading of the meaning given to the expression uncontrolled transaction leaves no room for any doubt that it is a transaction between two non-associated enterprises. If he transaction is between two associated enterprises, it goes out of the ambit of uncontrolled transaction under Rule 10A. When section 92C is read along with Rule 10B(e) and 10A, it becomes abundantly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence, i.e. (i) certificate issued by the associated enterprise, i.e. The Goodyear Tire Rubber Company, USA explaining the reasons for not charging royalty in the earlier years; (ii) Copy of extracts of Minutes of Board of Directors meeting dated 31.07.2006 regarding approval for execution of Trademark License Agreement and (iii) copy of an email exchanged between the appellant and the associated enterprise regarding payment of trade mark fee in July 2006. These evidences are admitted on record. The ld. DR has no objection to admit these evidences on record. In these evidences, the AE has clarified that it did not charge royalty in the earlier years in order to support the appellant who was yet to achieve higher market share, stabilize operations, maintain competitive pricing and was recovering from financial difficulties. Subsequently, when the financial position of the assessee improved, the AE started charging royalty in consideration for allowing the assessee to use its valuable brand name. The reasons given by the AR of the assessee, for not charging royalty by the AE, prior to the year under consideration is duly corroborated from the year to year profits shown by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve domain of the AO. 17. Accordingly, in view of the aforesaid, we are of the opinion that since the operating margin of the assessee at 6.96% is higher than the comparables at 2.77%, the international transaction of payment of royalty entered into by the assessee are to be considered being at arm s length applying TNMM as the most appropriate method. 18. We therefore direct the assessing officer to delete the adjustment on this account. 19. In the result, the appeal is allowed on this ground. Grounds No. 4-4.15 Transfer pricing issue w.r.t. to Advertising, Marketing and Promotion ( AMP ) Expenses The brief facts relating to these grounds are that during the relevant previous year incurred advertisement and sales promotion expenses (AMP) expenses amounting to ₹ 11,10,58,000 for purpose of its business. The Transfer Pricing Officer , however, has without undertaking benchmarking analysis of AMP incurred by the appellant by applying any of the prescribed methods, held that since the Goodyear brand is weak, instead of making trade mark fee computed at the rate of 1% of domestic sales and 2% of export sales, amounting to ₹ 2,83,23,000, the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has the following two limbs: (I) There should be a transaction between two or more associated enterprises. Or (II) There should be mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of or contribution to any cost or expense incurred in connection with benefit, service or facility provided to one or more of the associated enterprises. (A) Re: Whether there exists a Transaction ? Clause (v) of section 92F of the Act defines the term transaction to include an arrangement, understanding or action in concert, whether or not, the same is formal or in writing, or intended to be enforceable by legal proceedings. From conjoint reading of section 92B read with section 92F(v) of the Act, it would be appreciated that transfer pricing regulations would be applicable to any transaction , being an arrangement, understanding or action in concert, whether formal or in writing or whether or not enforceable by legal proceedings. Meaning of terms arrangement , understanding or action in concert , as provided in the dictionary / Court rulings are extracted as under: Arrange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has, therefore, to be established as a matter of fact. In order to constitute an international transaction in terms of section 92B of the Act, an arrangement , understanding or action in concert must, in fact, first be shown to exist between the appellant in India and its foreign associated enterprise. This Hon ble Court has repeatedly held that under Chapter X, the TPO has to benchmark international transactions as he actually finds and is not empowered to construct or create an international transaction [refer CIT vs. EKL Appliance Ltd. : 345 ITR 241 (paras 15 16) and Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT : 374 ITR 118 (para 147) ]. Under the Transfer Pricing regulations, the actual transaction entered into between the assessee and the AE is to be benchmarked by the TPO and there is no scope for construing transaction or international transaction on the basis of assumption, suspicion or surmises. It is also not permissible to construct an international transaction by undertaking a mathematical analysis and thereby inferring, implying or presuming that the parties would have been acting in concert. Further, under the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, celebrity goodwill, general business going concern value; .. .. On the facts of the present case, it would be appreciated that AMP expenses had been incurred by the appellant (s) (tax resident of India) unilaterally, at its own discretion, by way of payment to unrelated Indian parties, for purpose of its own business, having regard to local market needs. The expenditure incurred on AMP was held allowable deduction by the AO in terms of section 37(1) of the Act. The appellant is not engaged in the business of brand building or brand promotion. Such business is not sanctioned by the objects clause as contained in the Memorandum of Association of the appellant company. No positive tangible material has been brought on record by the Revenue to demonstrate that AMP expenditure have been incurred by the appellant at the instance, direction or at behest of the associated enterprise, so as to allege an arrangement, understanding or action in concert for incurring such AMP expenditure for rendering service of promoting brand of the overseas AE and creating marketing intangible belonging to the AE, requiring arm s length compensation. The lower authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cases which were disposed of by the judgment, i.e. of the three Assessees Canon, Reebok and Sony Ericsson were all of distributors of products manufactured by foreign AEs. The said Assessees were themselves not manufacturers. In any event, none of them appeared to have questioned the existence of an international transaction involving the concerned foreign AE. It was also not disputed that the said international transaction of incurring of AMP expenses could be made subject matter of transfer pricing adjustment in terms of Section 92 of the Act. 44. However, in the present appeals, the very existence of an international transaction is in issue. The specific case of MSIL is that the Revenue has failed to show the existence of any agreement, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed out that the BLT has been applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and (b) to make a quantitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Ericsson having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) expense payable by the Indian enterprise has accrued / arisen under an international transaction with the foreign AE. The scheme of Chapter X of the Act is not to benchmark transactions between the Indian enterprise and unrelated third parties in India, where there is no income arising to the Indian enterprise from the foreign payee or there is no payment of expense by the Indian enterprise to the associated enterprise. Conversely, transfer pricing provisions enshrined in Chapter X of the Act do not seek to benchmark transactions between two Indian enterprises. In view of the aforesaid submission, it is respectfully submitted that unilateral incurring of AMP expenses by the appellant does not amount to international transaction of rendering brand building service warranting benchmarking under the transfer pricing provisions. It is further submitted that during the previous year relevant to the assessment year in consideration, the appellant had incurred, in the course of business, expenditure on advertisement and sales promotion amounting to ₹ 13,09,79,000, which is 1.37% to total sales. Advertisement and promotion expenditure incurred during the past five years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.28% 2.77% M R F Ltd. 4.51% 4.42% 4.84% 4.66% 4.44% 3.84% 3.43% Kesoram Industries Ltd. 3.92% 3.99% 3.54% 2.37% 3.22% 2.86% 2.96% Mean 4.65 % 5.13 % 4.83 % 4.69 % 4.35 % 3.68 % 3.56 % Even otherwise, it would be appreciated, that during the year under consideration, the appellant has spent 1.37% of its sales on advertisement and sales promotion while comparable companies spent an average of 3.56% of their sales on advertisement and sales promotion, i.e. about three times of the AMP expenditure of the appellant. The fact that AMP expenses incurred by the appellant are lower than that of the other comparable companies clearly establishes that such expenses are incurred in routine, i.e., in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not a quantitative adjustment but only a substitution of the transaction price with the ALP. 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. 71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the assessee be made, on the basis of incidental benefit accrued to foreign AE from such expenditure, the Hon ble High Court in the case of Maruti (supra) held: Incidental benefit to SMC 84. The Court next deals with the submission of the Revenue that the benefit to SMC as a result of the MSIL selling its products with the cobrand Maruti-Suzuki is not merely incidental. The decision in Sony Ericsson acknowledges that an expenditure cannot be disallowed wholly or partly because its incidentally benefits the third party. This was in context on Section 57(1) of the Act. Reference was made to the decision in Sassoon J David Co Pvt. Ltd. v. CIT ( 1979) 118 ITR 26 (SC) . The Supreme Court in the said decision emphasised that the expression 'wholly and exclusively' used in Section 10 (2) (xv) of the Act did not mean 'necessarily'. It said: The fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act if it satisfies otherwise the tests laid down by the law. 85. The OECD Transfer Pricing Guide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the contract would be renewed. 153. Economic ownership of a brand is an intangible asset, just as legal ownership. Undifferentiated, economic ownership brand valuation is not done from moment to moment but would be mandated and required if the assessed is deprived, denied or transfers economic ownership. This can happen upon termination of the distribution-cum-marketing agreement or when economic ownership gets transferred to a third party. Transfer Pricing valuation, therefore, would be mandated at that time. The international transaction could then be made a subject matter of transfer pricing and subjected to tax . 154. Brand or trademark value is paid for, in case of sale of the brand or otherwise by way of merger or acquisition with third parties. . .. .. Re-organisation, sale and transfer of a brand as a result of merger and acquisition or sale is not directly a subject matter of these appeals. As noted above, in a given case where the Indian AE claims economic ownership of the brand and is deprived or transfers the said economic ownership, consequences would flow and it may require transfer pricing assessment . (emphasis supplied) The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o transfer pricing adjustment in relation to AMP expenses. The Special Bench, vide order dated 23-01-2013 in ITA No. 5140/Del/2011, inter alia, came to the conclusion that where the expenditure on advertisements of the foreign brand incurred by the taxpayer are proportionately higher than those incurred by comparable cases, the same leads to the inference of transaction between the taxpayer and the foreign AE for creating marketing intangibles on behalf of the later. The Special bench further held that the bright line test is used only to ascertain the cost / value of service rendered by the taxpayer to foreign AE towards creation and improvement of marketing intangibles. 23. In the meanwhile, the Delhi High Court in a batch of appeals including the case of Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT (374 ITR 118) and others, dealing with the controversy relating to transfer pricing adjustment in relation to AMP expenses held the decision of the Special Bench in the case of LG Electronics India Pvt. Ltd. relied upon by the TPO in the impugned order, as erroneous and unacceptable. 24. The Hon ble Delhi High Court considering the dispute on facts of severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom other cases, wherein, the revenue has applied bright line test to determine the non-routine expenditure incurred for the purpose of building brand owned by the associated enterprise and therefore, the decision of High Court in the case of Maruti Suzuki (supra) does not apply to the case of the assessee. 29. We are unable to gather as to how the conclusion drawn by the revenue in making such transfer pricing adjustment on account of incurring AMP expense, by the assessee, is different from the controversy dealt by the Hon ble High Court in the case of Maruti (supra).In the present case, the TPO at page 26 of his order dated 27.09.2010 has arrived at the following conclusion for making such adjustment: 5.8 After going through the discussion in the preceding paras the following conclusions may be arrived at: (i) the assessee has been mandatorily using the Goodyear trademark/ logo in India since 1922 (ii) Over the years, the assessee has made efforts by way of expenditure and human effort to develop the brand in India. It continues to do so to replenish the brand value. (iii) The entire marketing efforts in India is admittedly drive, planned and executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From conjoint reading of the orders passed by the TPO under both cases, it is noted that in both the cases, the TPO is claiming the foreign brand to be weak, and seeking compensation of the marketing efforts undertaken by the assessee for promoting/ building that foreign brand in India. The only difference in both the cases is that in the case of Maruti Suzuki, the TPO has applied bright line test to determine the compensation, however, in the case of the assessee, the TPO has determined the compensation equivalent to what the assessee was paying for use of such trade name. In our opinion, there may be a difference in the computation mechanism of seeking compensation, however, the important element, i.e. seeking compensation for the alleged brand promotion of the AE is common in both the cases. 32. The ld. Departmental Representative subsequently changed his line of argument and held that there exists an international transaction in the case of the assessee and therefore, the case of the assessee is different from the case of Maruti Suzuki. The ld. DR referred page 15 of the transfer pricing study to state that as per the overview of the functions drawn in the study, it is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebuttal, first made elaborate arguments as to whether the DR is empowered to improve upon the order passed by the TPO himself. The AR of the assessee further submitted that the chart depicted at page 15 of the transfer pricing report, under the head overview of the function discriminates the functions undertaken by the respective parties to the international transactions undertaken during the year under consideration and it cannot be assumed that since the associated enterprise is undertaking the function of brand development and core marketing, the associated enterprise controls and supervises the local sales and marketing function of the assessee. The assessee undertakes the function of marketing in India for the purpose of selling goods manufactured by it in India and as the chart suggests, the associated enterprise, on its own, undertakes the brand development and core marketing, without influencing the assessee, in any manner, whatsoever. 36. With regard to the Trade Mark License Agreement, the AR of the assessee submitted that from reading of the aforesaid clauses, it cannot be concluded that the AE is controlling and supervising the AMP expense of the assessee. The AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no dispute that the Assessee is engaged in developing and maintenance of brand/trade name in India. 28. A reference is made by the Revenue to the Export Agreement whereunder the Assessee has been granted rights to export products to certain permitted countries for payment of royalty of 8 per cent of the export price, which was subsequently raised to 12.25 per cent from 1st February 2008. Honda, Japan reserved the right to change the permitted countries at any time. According to the Revenue this indicates that the Assessee has not been an independent manufacturer and is only functioning as a contract manufacturer for the AE. It is also pointed out that the list of countries to which export is permitted by Honda, Japan included the countries falling in the same geographical location as India. It is stated that the terms of the agreement with such distributors in other countries could have worked as a sound comparable but that the Assessee had not chosen to make any such attempt in its TP documentation. 29. In response, it is pointed out on behalf of the Assessee that the payment of royalty fee for the HONDA trademark are separately benchmarked by the Assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and administrative expenses. 41. It was submitted before the TPO that for computing the gross profit margin or the mark-up from such international transactions of export of traded goods to the AEs, the export incentive amounting to ₹ 62,92,772/- in respect of such purchases from GSATL in terms of off take agreement dated 01-09-2001 is to be deducted from the cost of goods sold. 42. The TPO, however, did not accepted this contention of the assessee and without deducting export incentive from the cost of goods sold, computed the margin of the assessee. The TPO, to the extent of shortfall in the margin of the assessee than the margin of 5% agreed between the parties in terms of Global Transfer Pricing Policy, made transfer pricing adjustment with respect to transaction of export of goods. The assessee in this case has submitted the objections to the Dispute Resolution Panel. However, the DRP rejected the assessee s submission and upheld the TPO order. 43. Against the above order the assessee is in appeal before us. 44. We have heard the rival contentions in the light of the material produced and precedent relied upon. The AR of the assessee, in all fairnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO s reference to the OECD guidelines is also germane. In this regard, we find that in the said guidelines gross profit are defined as the gross profits from a business transactions are the amount computed by deducting from the gross receipts of the transactions the allocable purchased or production costs of sales, with due adjustment for increases or decreases in inventory or stock in traded, but without taking account of other expenses. 11.7 From the above it follows that while determining the gross profits from sale of goods such incentives cannot be adjusted to determine the cost of goods sold. TPO has rightly observed that export incentives does not form part of the invoice price of goods sold. In such a case, it cannot be reduced from the cost of goods sold. We agree with the TPO that an expenditure that does not form part of the books of accounts cannot be treated as an expense for the purpose of transfer pricing accounting. 11.8 Assessee s reliance of Accounting Standard (AS)-II- Verification of inventories issued by Institute of Chartered Accountant of India (ICAI), for the purpose of determining the cost of purchase is not cogent as the reference to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our considered opinion, assessee is entitled for deduction of rebate received upon purchase of goods from the value of goods sold. 12.2 We further find that the rebate amount was netted off and net amount of purchase cost shown in the profit and loss account. In this regard, TPO has contended that the said amount was not reflected in the books and accounts of the assessee. In our considered opinion, this factual aspect needs verification. Hence, we remit this issue regarding verification of netting off of rebate from cost of purchase to the file of Assessing Officer. Needless to add that the assessee should be given adequate opportunity of being heard. 45. Respectfully following the decision of the co-ordinate bench of Tribunal in the assessee s own case for the assessment year 2006-07, we uphold the order of the TPO to the extent of netting off of export incentive from the cost of goods sold and set aside the issue of netting off of rebate/discount from the cost of goods sold, to the file of assessing officer/TPO, for verification of the claim in light of our decision for the assessment year 2006-07. Needless to add that the assessee should be given reasonable oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 2003-04 and 2004-05 upheld the order of the Ld. Commissioner of Income Tax (A) deleting the similar disallowance of expenditure out of repair and maintenance expenses for plant and machinery. We also note that Revenue has not filed any appeal before the High Court of Delhi against the aforesaid order passed by the Tribunal. Hence, in the background of the aforesaid discussions and precedents, we set aside the order of the Assessing Officer and decide the issue in favour of the assessee. 51. Ld. AR of the assessee also brought our attention toe order of the DRP, wherein, following the order of the Hon ble Tribunal, DRP in the appellant s own case for the assessment year 2008-09, deleted the similar ad-hoc disallowance of 20% of expenditure incurred on machinery repair and maintenance expenses, proposed by the assessing officer. 52. The Ld. DR relied upon the order of the AO and DRP. 53. We have heard the rival contentions and in light of the material produced and precedent relied upon, respectfully following the decision of the Hon ble coordinate bench of tribunal in the assessee s own case (supra) for the assessment year 2006-07 and earlier a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2006- 07, wherein, similar ad-hoc disallowance of warranty were deleted, as under: We agree with the assessee s contention that provision for estimated expenditure to be incurred for warranty obligation in respect of sales made in the relevant previous years is to be accounted as expenditure in the year of sale, in order to match the cost with revenue. The provision for warranty is necessarily required to be made by the companies which are required to follow mercantile system of accounting. In this regard, we further find that Courts have consistently held the view that liability for provision for warranty for replacement on account of manufacturing defects arises at the time of sale and is to be allowed as deduction in that year on the basis of rational /scientific estimate, notwithstanding that the exact amount of liability is ascertained at a later date. We further find that action of the assessee in creating provision for warranty is also in consonance with the decision of the Hon ble Apex Court in the case of Rotork Controls India Ltd. vs. C.I.T. 314 ITR 62. Similarly, we find that relying on the above decision in the case of Rotork Controls the Hon ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded Retail Stores, the appellant had spent nearly ₹ 2,27,35,000 during the year and an amount of ₹ 1,93,08,000 was spent towards launching and introducing the new product range called Excellence for passenger cars. This two expenses alone totaled to ₹ 4,20,43,000 out of total increase in expenditure of ₹ 4,87,14,000. Further, it was submitted that with the increase in advertisement and sales promotion expense, the company has demonstrated sales growth of nearly 28% as compared to financial year 2005-06. The gross sale in year 2005- 06 was ₹ 751.74 crores, which has grown to ₹ 958.11 crores in 2006-07. It would be appreciated that despite having low spending on advertisement and marketing expenditure, the appellant has maintained substantial growth in terms of sales and sustained in this competitive business. In terms of section 37(1) of the Act, deduction is admissible for expenditure incurred wholly and exclusively for purposes of business. Expenditure justified by business considerations and incurred out of commercial expediency is allowable deduction. It was also submitted that since the aforesaid expenditure of advertisem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed on this issue. Ground No. 9-10 pertaining to levy of interest u/s. 234B 234C and initiation of penalty proceedings are consequential and Premature. ITA No. 6240/Del/2012 Assessment Year 2008-09 This appeal by the assessee is directed against the order of the Assessing Officer u/s. 143(3) read with section 144C of the I.T Act for the assessment year 2008- 09 on the following grounds : 1. That the assessing officer / the Transfer Pricing Officer (TPO) erred on facts and in law in making adjustment of ₹ 11,60,71,871 to the arm s length price of the international transaction entered into by the appellant with its associated enterprise. 2. That the assessing officer/the TPO erred on facts and in law in disregarding the payment of trademark fee of ₹ 5,64,08,000 to the Associated Enterprise ( AE ), The Goodyear Tire Rubber Company, Akron, USA (hereinafter referred as Goodyear USA or Goodyear Group ) without providing any cogent reasons and basis. 3. That the assessing officer/the TPO erred on facts and in law in holding that arm s length price of the international transactions regarding payment of trademark fees to be nil allegedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the income of the appellant of ₹ 5,64,08,000 on account of the arm s length price of the alleged international transaction AMP expenses, holding that instead of payment of the trademark fee to the AE of ₹ 5,64,08,000 the appellant should receive the equivalent amount as compensation for creating and developing marketing intangibles in India. 4.2 That the assessing officer/TPO erred on facts and in law in not appreciating that AMP expenditure unilaterally incurred by the appellant, could not be regarded as a transaction in absence of any understanding / arrangement between the appellant and the associated enterprise. 4.3 That the assessing officer/TPO erred on facts and in law in not appreciating that the AMP expenses, incurred by the appellant in India cannot be characterized as an international transaction in terms of section 92B, so as to invoke the provisions of section 92 of the Act. 4.4 That the Dispute Resolution Panel (DRP) erred on facts and in law in upholding the transfer pricing adjustment allegedly on account of AMP expenditure even while observing that, we are of the opinion that economic realities cannot yield to agreement or arran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for analysis of quantum of expenditure and the method used is CUP 4.14 Without prejudice that the assessing officer/TPO erred on facts and in law in not appreciating that even applying Bright Line Test ( BLT ) no adjustment on account of AMP expenditure could be made in as much as AMP expenditure incurred by the appellant was lower than AMP expenditure incurred by comparable companies. 4.15 That the assessing officer/TPO erred on facts and in law in relying upon the decision of the Hon ble Delhi High Court in the case of Maruti Suzuki India Ltd. vs. Addl. CIT, TPO, New Delhi. [in W.P.(C) 6876/2008 [WP(C) 6876/2008], which has been set aside by the Supreme Court in a Special Leave Petition filed against the decision of the Hon ble High Court. 4.16 Without prejudice that the assessing officer/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm s length applying Transactional Net Margin Method (TNMM) on entity-wide basis. 5. That the assessing officer / TPO erred on facts and in law in making adjustment of ₹ 32,55,871 in the arm s length price of the international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That the assessing officer erred on facts and in law in not appreciating that the advertisement and publicity expenses were incurred by the appellant in the course of carrying on of its business and were allowable deduction as business expenditure. 7.2 That the assessing officer erred on facts and in law in disallowing expense incurred on advertisement of ₹ 15,11,304 holding that the details of these expense were not furnished by the appellant, grossly ignoring the complete details of advertisement expense of ₹ 17,06,32,000 submitted by the assessee. 7.3 Without Prejudice, the assessing officer erred on facts and in law in making disallowance of advertisement expense of ₹ 5,12,04,000 without appreciating the fact that similar disallowance has already been made by the TPO for ₹ 5,64,08,000, thereby making total disallowance of ₹ 10,76,12,000 on the same account. 8. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act at ₹ 2,98,47,544 instead of correct interest computed under that section at ₹ 2,79,96,013. 9. That the assessing officer erred on facts and in law in wron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, in order to promote the sales of products produced/ traded and marketed in India, the appellant incurred expenses amounting to ₹ 17,06,32,000 on advertisement and sale promotion expenses respectively. 71. The assessing officer held that (i) the assessee has incurred a large amount on advertisement and publicity which is resulting in benefit to the associated enterprises who own the brand, (ii) the assessee was not able to demonstrate as to how it is wholly benefited from such brand building and that whole arrangement was concocted to lower its profit and to save expenditure of the associated enterprises. 72. The assessing officer accordingly made disallowance of ₹ 5,12,04,000 out of the total expenditure of ₹ 17,06,32,000 incurred on advertisement and publicity, allegedly relatable to the promotion of brand in India. 73. In this regard, he appellant has submitted the following before us: The aforesaid advertisement and sales promotion expenses are generally required to be incurred to beat competition in the trade for promoting their products and had direct nexus with the sales of the products in India. The above mentioned expenses were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 37 of the Act. The Hon ble Delhi Bench of the Tribunal in the case of DCIT vs. Maruti Countrywide Auto Financial Services Pvt. Ltd. (ITA Nos. 2181 to 2183/Del/2010), similarly upheld the order passed by the Commissioner of Income-tax (Appeals), deleting the disallowance of advertisement and promotion expenses, made on the ground that such expenses incidentally resulted in promotion of the brand owned by Maruti Udyog Limited. It is further respectfully submitted that since the aforesaid expenditure of advertisement and brand promotion has undergone a benchmarking analysis under the Transfer Pricing regulations and an arm s length price thereof has been determined, there could not be any further disallowance of the said payment under section 37(1) of the Act, holding the same to be not an expenditure incurred wholly and exclusively for the purpose of the business of the appellant. Reliance is placed on the decision of the Hon ble Delhi Bench of the Tribunal in the case of Whirlpool of India Ltd. vs. DCIT (ITA No. 426/D/13), wherein, it is held as under: 16. .Once the total amount of AMP expenses is processed through the provisions of Chapter X of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was for promoting the brand of Whirlpool USA. As mentioned in Sassoon J David (supra) the fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law . 76. Respectfully following the decision of the Hon ble Delhi High Court in the case of Whirlpool and several other decisions submitted by the assessee, we are of the considered view that AO was not justified in making such disallowance and therefore, direct the assessing officer to delete the adjustment on this account. 77. In the result, the appeal of the assessee is allowed on this issue. Grounds No. 8-9 are consequential in nature and thus, need no specific adjudication. ITA No. 961/Del/2014 Assessment Year 2009-10 This appeal by the assessee is directed against the order of the Assessing Officer u/s. 143(3) read with section 144C of the I.T Act for the assessment year 2009- 10 on the following grounds : 1. That the assessing officer erred on facts and in law in completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred on facts and in law in comparing the other subsidiary (Goodyear South Asia Tyres Private Limited, Aurangabad, Maharashtra, hereinafter referred as Goodyear Aurangabad ) of Goodyear USA with the appellant with reference to trademark fees even when business dynamics and commercial realities (end customer profile, need to be associated with a valuable brand, etc.) in both the companies were entirely different. 4. That the assessing officer/TPO erred on facts and in law in making transfer pricing adjustment amounting to 6,69,11,000 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as the AMP expenses ) incurred by the appellant. 4.1 That the assessing officer/TPO erred on facts and in law in making an addition of ₹ 6,69,11,000 on account of the arm s length price of the alleged international transaction AMP expenses, holding that the appellant was promoting the brand of the associated enterprise and instead of payment of the trademark fee to the AE of 6,69,11,000 the appellant should receive the equivalent amount as compensation for creating and developing marketing intangibles in India. 4.2 That on the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure. 4.10 The DRP erred on facts and in law in not appreciating that the Transfer Pricing adjustment sought to be made by the TPO in the present case was a mere quantitative adjustment, on the footing that the appellant had incurred excessive amount of AMP expenditure and consequently that such Transfer Pricing adjustment was not at all permitted or authorized by Chapter X of the Act. 4.11 The DRP/TPO erred on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 4.12 That the DRP/TPO erred on facts and in law in holding that AMP expenses incurred by the appellant resulted in promotion of brand owned by the associated enterprise, thereby creating marketing intangibles whose ultimate benefit inured to the associated enterprise 4.13 That TPO / DRP erred on facts and in law by questioning the commercial expediency of AMP expenditure incurred by the appellant and assum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing officer/TPO erred on facts and in law in not appreciating that even applying Bright Line Test ( BLT ) no adjustment on account of AMP expenditure could be made in as much as AMP expenditure incurred by the appellant was lower than AMP expenditure incurred by comparable companies. 4.24 Without prejudice that the assessing officer/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm s length applying Transactional Net Margin Method (TNMM). 5. That the assessing officer / TPO erred on facts and in law in making adjustment of ₹ 30,35,865 in the arm s length price of the international transaction of export of finished goods entered into by the appellant with its associated enterprise. 5.1 That the assessing officer /TPO erred on facts and in law in not appreciating export incentive, being a compensation for the cost incurred for sale of goods, is required to be reduced from the cost of goods sold for computing gross profit margin for determining the arm s length price. 5.2 That the assessing officer / TPO erred on facts and in law in holding that incentive recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on facts and in law in making the adhoc disallowance of expense incurred on advertisement of ₹ 3,20,71,500 holding that certain information / break-up of the amount of expense incurred towards brand building and advertisement were not furnished by the appellant, not appreciating that the complete details of such expenses was placed on record. 7.3 That the assessing officer erred on facts and in law in not appreciating that when the said expenditure of advertisement has been subjected to benchmarking analysis by the TPO under section 92 of the Act and appropriate arm s length price in this regard has been determined, there cannot be any further disallowance for the said expenditure under section 37 of the Act on the basis that a part of such expenditure was incurred for the benefit of the overseas associated enterprise. 7.4 Without Prejudice, the assessing officer erred on facts and in law in making disallowance of advertisement expense of ₹ 3,20,71,500 without appreciating the fact that similar disallowance has already been made by the TPO for ₹ 6,69,11,000, thereby making a double disallowance to that extent. 8. That the assessing officer erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007-08 in ITA No. 5650/Del/2011. Respectfully following our decision in the appeal for the assessment year 2007-08, these grounds of the assessee is allowed. Grounds No. 7-7.4 - Disallowance of advertisement expenditure under section 37 of the Act: The aforesaid grounds and issue are identical to the grounds raised by the assessee in ground No. 7-7.1 for the appeal for the assessment year 2008-09 in ITA No. 6240/Del/2012. Respectfully following our decision in the appeal for the assessment year 2008-09, these grounds of the assessee is allowed. Grounds No. 8 - Disallowance of miscellaneous expenditure of ₹ 11,16,932 81. The ld. AR of the assessee submitted that the assessing officer has made disallowance for want of details of such expenses. The details of expenditure incurred by the appellant were furnished before the DRP on 14.11.2013. However, without properly appreciating the facts of the case, has sustained the disallowance. Therefore, the assessing officer may kindly be directed to decide the issue after examine the details. 82. The CIT-DR made no objection in sending the issue back to the file of assessing officer for verification of detail ..... X X X X Extracts X X X X X X X X Extracts X X X X
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