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2017 (2) TMI 120 - BOMBAY HIGH COURT

2017 (2) TMI 120 - BOMBAY HIGH COURT - TMI - International transaction being reimbursement of advertisement expenses incurred by the Associated Enterprise of the assessee in Dubai, Egypt and Malaysia at arm's length of the basis of the profits earned by the assessee on its entire exports of various products on application of Rule 10B(1)(e) - Held that:- TPO has to examine whether or not the method adopted to determine the ALP is the most appropriate and also whether the comparables selected are .....

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e TPO's determination of ALP of the advertisement expenses. - Therefore, the issue for examination in this appeal is only the issue of ALP as determined by the TPO in respect of advertisement expenses. The jurisdiction of the TPO is specific and limited i.e. to determine the ALP of an International Transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the Income Tax Rules. The determination of the ALP by the respondent assessee of its advertisement expenses has not been .....

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S. Sanklecha And A. K. Menon, JJ. Mr. Suresh Kumar for the appellant Mr. Nishant Thakkar a/w Mr. Rajesh Poojary i/b Mulla & Mulla and Craigie Blunt and C for the respondent ORDER P. C. 1. These Appeals under Section 260A of the Income Tax Act, 1961 (the Act) challenge the order dated 11th February, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The common impugned order is in respect of Assessment Years 2003-04, 2004-05 and 2005-06. Thus, the three appeals before us. 2. The .....

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t assessee is engaged in the business of manufacture and export of cosmetic and toiletry products. During the subject assessment year, the respondent assessee had reimbursed 20% of the advertisement expenses incurred by its Associated Enterprises in respect of the new products. This expenditure was reimbursed as a part of its business strategy to develop its brands. The respondent assessee applied the Transaction Net Margin Method (TNMM) to determine the Arms Length Price in respect of the adver .....

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eld that as the transaction between the parties were on principal to principal basis, no reimbursement of advertisement expenditure by the respondent assessee to its Associated Enterprises can be allowed. Consequently, determined the Arms Length Price (ALP) at Nil by virtue of disallowing the expenditure. The Assessing Officer passed a final assessment order in accordance with the determination of ALP done by the TPO inter alia with regard to the reimbursement of advertisement expenses. 4. Being .....

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etermine it. In the above view, it held that addition was made on adhoc basis and the same is not permissible. Thus, the appeals were allowed and the addition deleted. 5. On further appeal by the Revenue, the Tribunal held that the TPO has not disputed the comparable selected nor the appropriate method of determining the ALP. It was not a case of the TPO that the ALP of the advertisement expenses is nil on application of some other comparables or invoking some other method to determine the ALP. .....

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the Tribunal. 7. We note that the Tribunal has recorded the fact that the respondent assessee has launched new products which involved huge advertisement expenditure. The sharing of such expenditure by the respondent assessee is a strategy to develop its business. This results in improving the brand image of the products, resulting in higher profit to the respondent assessee due to higher sales. Further, it must be emphasized that the TPO's jurisdiction was to only determine the ALP of an I .....

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