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2016 (7) TMI 1053 - ITAT DELHI

2016 (7) TMI 1053 - ITAT DELHI - [2016] 51 ITR (Trib) 629 - Transfer pricing adjustment - AMP expenses - selling expenses - Held that:- We are of the considered opinion that it would be in the fitness of things if the impugned order is set aside and the matter is restored to the file of TPO/AO for a fresh determination of the question as to whether there exists an international transaction of AMP expenses. If the existence of such an international transaction is not proved, the matter will end t .....

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expenses. See Sony Ericsson Mobile Communications India Pvt. Ltd. (Now known as Sony India Limited) & others Versus Commissioner of Income Tax III [2015 (3) TMI 580 - DELHI HIGH COURT ] - ITA No. 6314/Del/2015 - Dated:- 15-7-2016 - SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAV, JUDICIAL MEMBER For The Assessee : Shri Mukesh Bhutani and Shri Vishal Kalra, Advocates For The Department : Shri Amrendra Kumar, CIT, DR ORDER PER R.S. SYAL, AM: This appeal filed by the assessee is d .....

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ng the AMP expenses as an international transaction; determining its ALP; and then making transfer pricing addition, without any jurisdiction. This was countered by the ld. DR, who made two-fold submissions on this issue, viz., first, that the assessee could not take up the jurisdiction issue before the tribunal for the first time without raising it before the authorities below, and second, that the assessee has not taken any such ground in its Memorandum of appeal. In response, the ld. AR submi .....

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towards para C.1 of the assessee s reply to the show cause notice, which reads as under:- C.1 Your goodself has concluded that the marketing intangible is an international transaction by disregarding the fact that the AMP expenses incurred by the Assessee represent purely domestic transaction(s) undertaken towards third parties, not covered under the purview of Section 92 of the Act and that the analysis of domestic transactions undertaken with third parties, in respect of which no TP reference .....

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by the AO/TPO were bad in law as the pre-requisite of applying Chapter-X i.e., existence of an international transaction between two Associated Enterprises ( AE ) under the provisions of section 92B of the Act, was not satisfied or existed in the present case. 4. On the basis of the above ground, it was contended that the assessee has raised this issue vide ground no. 3 of the appeal. 5. As regards the assessee s reply to the first objection of the ld. DR about not raising jurisdiction issue bef .....

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an international transaction between two Associated Enterprises ( AE ) under the provisions of section 92B of the Act, was not satisfied or existed in the present case. The ground only challenges the existence of an international transaction and not the jurisdiction of the TPO to determine the ALP of the AMP expenses. There is a vast difference between saying that AMP expenses is not an international transaction and that the TPO did not have jurisdiction to determine the ALP of AMP expenses. Be .....

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as held that an additional ground on question of law can be raised before the Tribunal for the first time which has a bearing on the tax liability of the assessee notwithstanding the fact that the same was not raised before the lower authorities. The only condition for raising such a ground is that the factual position governing such a legal ground should be available on record and the ground should be capable of rendering decision without carrying out any fresh investigation of facts. Since the .....

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P of this international transaction. The ld. AR heavily banked upon Instruction No.3/2016 dated 10th March, 2016 laying down guidelines for implementation of transfer pricing provisions. Referring to para 3.4 of this Instruction, the ld. AR argued that the AO must have first provided an opportunity of being heard to the assessee before recording a satisfaction in respect of the transaction of AMP expenses. Then, he referred to para 4.1 of the Instruction to submit that the TPO could not have und .....

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PO to determine the ALP of AMP expenses be declared invalid. 7. This was opposed by the ld. DR, who submitted that the Instruction dated 10th March, 2016 is procedural in nature and, hence, can never have a retrospective effect. To be more specific, he submitted that no Instruction issued by the CBDT laying down a particular procedure to be followed by the authorities, can ever be retrospective in nature. He also relied on the judgment of the Hon ble Supreme Court in the case of Anandji Haridas .....

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ere is no need to look into the Instruction, at least before the date of its applicability. 8. We find that there are two aspects of this issue requiring our decision, first, the content of the Instruction and second, the prospective or retrospective effect of the Instruction. 9. The ld. AR relied on para 3.4 of the Instruction to bolster his argument that the AO could not have referred the matter of ALP of AMP expenses to the TPO without recording his satisfaction and such satisfaction could ha .....

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national transaction or specified domestic transaction before seeking approval of the PCIT or CIT to refer the matter to the TPO for determination of the ALP: • where the taxpayer has not filed the Accountant s report under Section 92E of the Act but the international transactions or specified domestic transactions undertaken by it come to the notice of the AO; • where the taxpayer has not declared one or more international transaction or specified domestic transaction in the Accountan .....

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e three situations, the AO must provide an opportunity of being heard to the taxpayer before recording his satisfaction or otherwise. In case no objection is raised by the taxpayer to the applicability of Chapter X [Sections 92 to 92F] of the Act to these three situations, then AO should refer the international transaction or specified domestic transaction to the TPO for determining the ALP after obtaining the approval of the PCIT or CIT. However, where the applicability of Chapter X [Sections 9 .....

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t AMP expenses as an international transaction. We find that the language of the above para makes it clear that before making a reference by the AO to the TPO, there is a jurisdictional requirement on the part of the AO to record his satisfaction that there is an income or a potential of an income arising on determination of the ALP of an international transaction before seeking approval of the CIT where the assessee, inter alia, has not declared a particular transaction as international transac .....

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hearing to the assessee. We do not find the assessee s case falling under the second bullet point, because it is not the AO who formulated his view on AMP expenses as an international transaction and then required determination of its ALP by the TPO. As in the instant case, the AO did not make any reference to the TPO for determining the ALP of the unreported international transaction of AMP expenses, this para of the Instruction, can have no application. 11. Now, we take up the challenge to the .....

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he is empowered to determine the ALP of such other international transactions also by virtue of Section 92CA (2A) and (2B). The transfer price has to be determined by the TPO in terms of Section 92C. The price has to be determined by using any one of the methods stipulated in sub-section (1) of Section 92C and by applying the most appropriate method referred to in Sub-section (2) thereof. There may be occasions where application of the most appropriate method provides results which are different .....

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ear that the role of the TPO is limited to the determination of the ALP of the international transactions referred to him by the AO. This para further provides : However, if any other international transaction comes to the notice of the TPO during the course of proceedings before him then he is empowered to determine the ALP of such other international transaction also by virtue of section 92CA(2A) and (2B). On going through this mandate of the Instruction, it becomes palpable that though the or .....

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ined in sub-section (2A) and (2B) of section 92CA, which reads as under :- (2A) Where any other international transaction other than an international transaction referred under sub-section (1), comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1). (2B) Where in respect of an international transa .....

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evenue by holding in para 47 that: The majority decision of the Tribunal in L.G. Electronics India Pvt Ltd. (supra) has rightly drawn a distinction between sub-section (2B) and sub-section (2A) to Section 92CA of the Act. Sub-section (2A) was inserted in 2011, i.e. nearly one year before insertion of Section (2B) by the Finance Act, 2012. Sub- section (2A) has not been given retrospective effect and it applies only w.e.f. 1st June, 2011. Subsection (2A) applies to any international transaction o .....

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international transactions in respect of which report under Section 92E is not furnished . 14. In the light of the above articulation of law by the Hon ble jurisdictional High Court on sub-sections (2A) and (2B) of section 92CA of the Act, it is clear beyond any shadow of doubt that the TPO is empowered to determine the ALP of any other international transaction which comes to his notice during the course of proceedings before him. As the instant international transaction of AMP expenses was ta .....

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e Hon ble Supreme Court in Vatika Township Pvt. Ltd. (supra) is completely out of context. The question in that case was as to whether the proviso to section 113 introduced by the Finance Act, 2002 w.e.f. 1st June, 2002 should be considered as retrospective or prospective. The Hon ble Supreme Court held that such proviso casting additional burden on the tax payer, must be construed as prospective in nature. We do not approve the borrowing by the ld. AR of certain observations made in this judgme .....

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uideline to be followed by the AOs and TPOs in implementing the transfer pricing provisions. This Instruction is in supersession of the earlier Instruction No.15 of 2015. It has been clearly mentioned in para 7 of the later Instruction dated 10th March, 2016 that: This issues u/s 119 of the Income-tax Act, 1961 and replaces Instruction No.15 of 2015 with immediate effect. It is plentifully clear that this later Instruction has been implemented with immediate effect from the date of its issuance, .....

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nt took place in India. The Revenue argued before the Hon ble High Court that such Instruction stood withdrawn with immediate effect by a later Circular No. 7 of 2009 dt. 22nd Oct., 2009, and hence the later Circular be treated as retrospective. The argument of the ld. AR in case before us is similar to that advanced by the Revenue in that case before the Hon ble High Court that the later Instruction implemented with immediate effect be given retrospective effect. Rejecting the contention of ret .....

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ecording his satisfaction in terms of para 3.4, we fail to comprehend as to how this procedural aspect made applicable with immediate effect from 10th March, 2016, can be read in the provision ab initio. If this Instruction, as argued by the ld. AR, is construed as retrospective enjoining upon the AO to record satisfaction as discussed in para 3.4, it would render several earlier assessment orders containing transfer pricing additions, null and void. Since this procedure has been put in place by .....

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re is no flaw in the AO making transfer pricing addition, which action is also intra vires. 17. Now we are left with the merits of addition on account of transfer pricing adjustment of AMP expenses. The ld. AR contended that the incurring of AMP expenses is not an international transaction at all and, hence, there can be no question of determining the arm s length price of this transaction or making any addition thereon. He relied on the judgment of the Hon ble Delhi High Court in the case of CI .....

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sition. In the light of these judgments and some other Tribunal orders, it was submitted that there was no international transaction of AMP expenses on the basis of principles laid down in these judgments and, hence, the entire exercise of determining its ALP and, consequently, making transfer pricing adjustment, be set aside. 18. In the oppugnation, the ld. DR submitted that there is no blanket rule of the AMP expenses as non-international transaction. He submitted that the Hon ble High Court i .....

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ater judgment of the Hon ble jurisdictional High Court in Yum Restaurants (India) P. Ltd. vs. ITO (2016) 380 ITR 637 (Del) and still another judgment dated 28.1.2016 of the Hon ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (for the AY 2010-11) in which the question as to whether AMP expenses is an international transaction has been restored for a fresh determination. The ld. DR argued that the Hon ble Delhi High Court in its earlier decision in Sony Ericson Mobile .....

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file of TPO for a fresh determination of the question of the existence or otherwise of the international transaction of AMP expenses, post the above referred three sets of judgments by the Hon ble Delhi High Court - in favour of the Revenue (Sony Ericsson, the earlier judgment); in favour of the assessee (Whirlpool and Maruti etc.); and restoring the matter for a fresh determination (Yum Restaurant and Sony Ericsson, the later judgment). These tribunal orders include Fuji Film India Pvt. Ltd. v .....

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