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Louis Vuitton India Retail Pvt. Ltd. Versus DCIT, Circle-2, Gurgaon

2017 (10) TMI 535 - ITAT DELHI

Transfer pricing adjustment towards Advertisement, Marketing and Promotion expenses - Held that:- In light of the non-sustainability of the objections taken by the Ld. AR and following the earlier view taken by the ITAT in assessment year 2010-11 in the case 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 intern .....

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ing adjustment should be made by applying the Bright Line Test because the Hon’ble Jurisdictional High Court has not approved the application of the bright line test in several decisions. - ITA No. 980/Del/2017 - Dated:- 6-10-2017 - SHRI R.S. SYAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri Vishal Kalra, Adv. Shri Ankit Sahni, Adv. Shri S. Tomar, Adv. For The Respondent : Shri Amrendra Kumar, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER This .....

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n Indian subsidiary of M/s Louis Vuitton Malletier SA, France and is engaged in the business of retailing the products of the group. The assessee imports material from its group companies and resells the same in the Indian markets. The products which are imported in India by the assessee are fashion accessories, leather bags and shoes. 2.1 For the year under consideration, the assessee filed return declaring Nil income and also reported certain international transactions. The AO referred the mat .....

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applied Comparable Uncontrolled Method (CUP). During the course of the proceedings, the TPO observed that the assessee had incurred Advertisement, Marketing and Promotion (AMP) expenses. Treating this as an international transaction, the TPO proposed transfer pricing adjustment on account of AMP expenses at ₹ 9,75,39,656/- on substantive basis by intensity adjustment by applying the cost-plus method. As an alternate, the TPO proposed an addition of ₹ 6,64,95,995/- on protective basi .....

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ised by the assessee are as under- 1. That on the facts and circumstances of the case and in law, the AO erred in assessing the total income of the Appellant under section 143(3) read with section 144C(13) of the Act, for the relevant AY at INR 15,77,78,710 as against NIL income returned by the Appellant. Further, the DRP erred in upholding the same. 2. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in making adjustment of INR 9,75,39,656 to the arm s l .....

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the AE for incurrence of such expenditure by the Appellant. Further, the DRP erred in upholding the same. 4. Without prejudice, the orders passed by the AO / TPO were bad in law as the unilateral AMP expenditure incurred by the Appellant was categorized as international transaction under chapter X of the Act, by the AO / DRP / TPO, contrary to law in as much the AO neither granted the Appellant proper opportunity of being heard, nor recorded his satisfaction in respect thereof. 5. That on the fa .....

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d circumstances of the case and in law, the TPO erred in suo-moto benchmarking the alleged international transaction related to AMP expenditure without their being any order or reference from the AO in relation thereto. 6. That on facts and circumstances of the case and in law, AO / DRP have erred in holding that the Appellant has failed to demonstrate business purpose / benefit from incurrence of alleged excessive AMP expenditure without providing any cogent reasons and completely ignoring that .....

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d in law, the AO / DRP / TPO have erred in not following the various decisions of the High Court. The DRP further erred in sustaining the order of AO / TPO on the premises that the Special Leave Petition against such decisions have been admitted by the Hon ble Supreme Court. 9. That on the facts and circumstances of the case and in law, the DRP has grossly erred in sustaining the order of AO / TPO since the Department cannot file an appeal against the directions of the DRP. 10. That on the facts .....

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stances of the case and in law, the AO / DRP / TPO have erred in not appreciating that distribution and marketing are inter-connected and intertwined functions and should be benchmarked on an aggregate basis. The AO / DRP / TPO further erred in not appreciating that if the two functions are segregated and benchmarked, then the same would result in over taxation and is contrary to the provisions of the Act. 11.1 That on facts and circumstances of the case and in law, the AO / TPO have erred in ho .....

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e Appellant was better than the average mean margin of the comparable companies submitted by the Appellant using TNMM, in the course of assessment. 13. That on facts and circumstances of the case and in law, the AO / DRP / TPO have erred in applying cost plus method to benchmark the AMP expenses, and further erred in applying the same de hors the Indian Transfer Pricing Regulations. 13.1 Without prejudice and notwithstanding, that on the facts and circumstances of the case and in law, the AO / D .....

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refore, no mark-up could have been charged / levied on such expenditure, even if the same was to be characterized as an 'international transaction . 15. Notwithstanding and without prejudice to the above ground, even if the mark-up is to be applied, the same could have been charged only on the value added expenses incurred by the Appellant for such alleged brand promotion service and not on the entire amount incurred / paid to third party vendors. 15.1 Without prejudice and notwithstanding, .....

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ng and brochures & catalogues; from the ambit of AMP expenditure while benchmarking the alleged international transaction of AMP expenditure on substantive basis, disregarding various decisions of the Hon'ble Delhi High Court 16.1 That on facts and circumstances of the case and in law, DRP has erred in directing AO / TPO to include sales relating expenditure while benchmarking the alleged international transaction of AMP expenditure, disregarding various decisions of the High Court. 16.2 .....

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/ TPO have erred in not granting quantitative / economic adjustments (such as non-payment of royalty / expenses on product launches) while quantifying adjustments relating to alleged excessive AMP expenditure. Re: Additions made on protective basis 18. Notwithstanding and without prejudice to the other grounds, the AO / DRP / TPO have erred in determining adjustments on protective basis by applying Bright Line Test ( BLT ) method which has been jettisoned by the Hon ble Delhi High Court. 18.1. .....

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ble Delhi High Court 18.2 Notwithstanding and without prejudice, on facts and circumstances of the case and in law, the AO / TPO have erred in rejecting comparable companies proposed by Appellant for applying the BLT in the course of transfer pricing proceedings without proving any cogent reasons for the same. Further, DRP erred in upholding the order of AO / TPO. 19. Notwithstanding and without prejudice to the other grounds, the DRP has erred in not affording opportunity of being heard to the .....

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comparable companies, for determining the average return on market support services and further, erred in considering companies which are functionally different. Other grounds: 20. That on the facts and circumstances of the case and in law, the AO / DRP have erred in not granting / directing set-off of brought forward loss and unabsorbed depreciation, as per the provisions of section 72 and section 32 of the Act, before determining total income of the Appellant. 21. That on the facts and in the .....

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of the Act. 23. That on the facts and circumstances of the case and in law, the AO has erred in charging interest under sections 234A, 234B and 234C of the Act. 23.1 That on the facts and circumstances of the case and in law, the AO has further erred in incorrect calculation of interest under sections 234A, 234B and 234C of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to ad, alter .....

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ss. It was also submitted that no addition on account of AMP adjustment had been made in the preceding assessment year i.e. AY 2011-12. A copy of the ITAT s order in assessee s own case for AY 2010-11 was also placed before us wherein the ITAT in ITA 775/Mum/2015 had restored the issue of AMP adjustment to the file of the AO/TPO on the ground that when the TPO had held AMP expenses to be an international transaction, he did not have any occasion to consider the ratio laid down in several judgmen .....

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d Vs. CIT of the Hon ble Delhi High Court reported in 276 CTR 97 (Del), Toshiba India (P) Ltd. Vs. DCIT of ITAT Delhi reported in 2015- TII-191 - ITAT - DEL - TP, Zimmer India (P) Ltd. Vs. DCIT of ITAT Delhi reported in 2015 - TII- 222- ITAT- DEL- TP, Baush & Lomb India Pvt. Ltd. Vs. DCIT of ITAT Delhi reported in 2015- TII- 244- ITAT- DEL- TP, Casio India Company Pvt. Ltd Vs. DCIT of ITAT Delhi reported in 2015- TII- 268 - ITAT - DEL- TP, Nikon India P Ltd Vs. DCIT of ITAT Delhi reported in .....

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T DR, in response, relied on the judgment of the Hon ble Delhi High Court in the case of Sony Ericson Mobile Communications (India)Pvt. Ltd. vs. CIT reported in (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 was restored. He also relied on a later judgment of the Hon ble Jurisdictional High Court in the case of Yum Restaurants (India) P. Ltd. vs. ITO reported in (2016) 380 1TR 637 (Del) and still another .....

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, etc. and, hence, the matter should be restored for a fresh determination. It was further submitted that there is no blanket rule of the AMP expenses as a non-international transaction. He stated that the Hon ble High Court in Whirlpool (supra) has made certain observations, which should be properly weighed for ascertaining if an international transaction of AMP expense does exist. It was argued that the ITAT in several cases, including the assessee s own case for AY 10-11, had restored this is .....

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ban Sun Optics India Ltd. Vs. CIT (order dated 14.9.2016), Pr. CIT VS. Toshiba India Pvt. Ltd. (order dated 16.8.2016) and Pr. CIT VS. Bose Corporation (India) Pvt. Ltd. (order dated 23.8.2016) in all of which similar issue had been restored for fresh determination in the light of the earlier judgment in Sony Ericsson Mobile Communications India Pvt. Ltd. (supra). The Ld. CIT DR argued that the Hon ble Delhi High Court in its earlier decision in Sony Ericson Mobile Communications (India) Pvt. Lt .....

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by the TPO, are available for consideration. As the entirety of the judicial position, as laid down by the Hon ble High Court, is now required to be applied to the factual position prevailing in this case, we direct that a fresh determination of the ALP of AMP expense be done at the end of the TPO/AO. 5.1 It is seen that a similar issue came up for consideration before the ITAT in assessee s own case for assessment year 2010- 11 and ITAT Delhi Bench, vide its order dated 01/03/2017 in ITA No.775 .....

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e Hon ble DRP on AMP intensity adjustment. The Ld. AR argued that in none of the earlier years, did the Hon ble DRP direct the carrying out of AMP intensity adjustment. It is true that the issue of AMP intensity adjustment has been considered by the Hon ble DRP, as an alternate, for the first time in the proceedings for the instant year which was not there in earlier years. However, the pertinent fact to be noted is that the AO has not made any addition on the basis of intensity adjustment on a .....

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had considered certain High Court judgments on the point. Once such judgments were taken into consideration, the Ld. AR argued, that there was no point in again directing the TPO to consider the effect of the judgments delivered by the Hon'ble High Court on the point. The argument put forth on behalf of the assessee in this regard is partly correct. It is seen that though 16 the TPO has referred to certain rulings of the Hon ble jurisdictional High Court on the point in coming to the conclu .....

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