TMI Blog2017 (5) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... uncontrolled transactions. Thus, it is vivid that it is the adjusted gross profit mark up of the comparables which is applied to the direct and indirect cost incurred by the assessee in respect of international transaction, for determining the ALP under Cost Plus Method and there is no mandate for considering the assessee’s own gross profit rate for this purpose. We, therefore, do not countenance the working done by the TPO in this regard. To sum up, the impugned order on this score is set aside and the matter is sent back to the TPO/AO for a fresh determination of the ALP of AMP expenses. - Decided in favour of assessee for statistical purposes. Denial of deduction u/s 80IC - quantification of income for the purpose of granting deduction u/s 80-IC - Held that:- The issue of quantification of deduction u/s 80IC has not attained finality in at least the immediately preceding three assessment years. In the absence of any decision on such issue for the earlier years, it is not possible to independently evaluate and examine the issue in the instant appeal. Under these circumstances, we set aside the impugned order on this score and remit the matter to the file of the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee incurred AMP expenses for promoting the brand/trade name which was owned by its AE and, hence, the same constituted an international transaction. Applying the bright line test, the TPO determined the amount of routine advertising, marketing and promotional expenses and proposed transfer pricing adjustment on protective basis for a sum of ₹ 298,84,99,682/-. In computing the above amount of transfer pricing adjustment, the TPO applied mark-up of 38.27%, being the gross profit rate of the assessee itself. Thereafter, he proceeded to work out the transfer pricing adjustment towards AMP expenses on substantive basis by using Cost plus method taking the amount of AMP expenses at ₹ 122.72 crore, after reduction of selling expenses from the total AMP expenses. Here again, he applied mark-up of 38.27%, being the gross profit rate of the assessee itself and consequently, computed the amount of transfer pricing adjustment at ₹ 169.69 crore. The draft order was passed by the Assessing Officer on 30.03.2016 making addition, inter alia , on account of TP adjustment amounting to ₹ 169.69 crore. The assessee assailed the draft order before the Dispute Resolution Pan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as an international transaction. 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. 5. Au contraire , the ld. DR, relied on the judgment of the Hon ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del) in which AMP expenses have been held to be an international transaction and the matter of determination of its ALP has been restored. He also relied on a later 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 expense is an international transaction has been restored for a fresh determination. It was argued, that the judgment in the case of Yum Restaurants and Sony Ericson (for AY 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P of AMP expense be done at the end of the TPO/AO. 7. It has been brought to our notice that similar issue came up for consideration before the Tribunal in assessee s own case for the immediately preceding assessment year 2011-12. Vide its order dated 28.04.2017 in ITA No.789/Del/2016, the Tribunal has restored such matter to the file of TPO/A.O. for a fresh consideration. It has also been informed that similar view has been taken by the Tribunal in assessee s own case for the earlier two assessment years as well. 8. Despite the above consistent position settled by the Tribunal in assessee s own case for the immediately preceding three assessment years restoring the matter to the TPO/AO for a fresh determination, the ld. AR argued that the matter be decided by the Tribunal itself as, in his opinion, there were certain distinguishing features prevalent for this year vis-a-vis the preceding years. 9. The first such issue brought to our notice by the ld. AR is the view canvassed by the DRP on AMP intensity adjustment. The ld. AR argued that in none of the earlier years, the DRP directed to carry out AMP intensity adjustment to the financials of the comparables for determini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the ld. AR, claiming departure from the earlier years on this score, is not tenable. 12. In the light of the non-sustainability of the objections taken by the ld. AR and following the consistent view taken by the Tribunal in the preceding three years of the assessee, we set aside the impugned order and remit the matter 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 there and then, calling for no transfer pricing addition. If, on the other hand, the international transaction is found to be existing, then the TPO will determine the ALP of such an international transaction in the light of the relevant judicial position, after allowing a reasonable opportunity of being heard to the assessee. 13. We want to clarify that if a situation for determining the ALP of AMP expenses arises, then no transfer pricing adjustment should be made by applying the bright line test, as has been done on protective basis, because the Hon ble High Court has not approved the application of the bright line test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enterprises entering into such transactions, which could materially affect such profit markup in the open market ; (iv) the costs referred to in sub-clause (i) are increased by the adjusted profit mark-up arrived at under sub-clause (iii) ; (v) the sum so arrived at is taken to be an arm s length price in relation to the supply of the property or provision of services by the enterprise ; 16. A bare perusal of the mandate of Rule 10B(1)(c) postulates under sub-clause (ii) that: the amount of a normal gross profit mark-up to such costs ... in a comparable uncontrolled transaction is determined. Such gross profit mark-up of comparable uncontrolled transactions is adjusted under sub-clause (iii) to take into account the functional and other differences, if any, between the international transaction and the comparable uncontrolled transactions. Thus, it is vivid that it is the adjusted gross profit mark up of the comparables which is applied to the direct and indirect cost incurred by the assessee in respect of international transaction, for determining the ALP under Cost Plus Method and there is no mandate for considering the assessee s own gross profit rate for this pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for this year is the quantification of income for the purpose of granting deduction u/s 80-IC. The eligibility condition is not disputed as is apparent from para 5.1 of the final order, in which the AO considered granting of deduction u/s 80IC(a)(2). 21. It is observed that the claim of deduction u/s 80IC came up for consideration before the Tribunal in the assessee s own case for the immediately preceding assessment year 2011-12 as well. The Bench recorded that the AO noticed for such preceding year also that the assessee declared profit @ 19.75% from the Rudrapur unit and loss of 11.62% from Manesar unit and 9.68% from Chennai unit. The Assessing Officer did not allow deduction on the similar facts as are prevalent in the instant year. Apart from that, the Assessing Officer also disputed the eligibility claim of the assessee on account of the computation of deduction u/s 80IC(2)(a). The Tribunal vide para 8.2 of its order held that: the Assessing Officer has only disallowed this claim as the assessee was not involved in manufacture of any item covered by Schedule XIV, whereas the assessee has referred Schedule XIII and submitted that it is not considered. Thereafter, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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