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Bausch & Lomb India Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Circle-4 (1) , New Delhi

2016 (9) TMI 1397 - ITAT DELHI

Transfer pricing adjustment on account of AMP expenses - Held that:- Revenue has not been able to show the existence of an international transaction involving AMP expenses between the Assessee and its AE. - Decided in favour of the assessee. - ITA No. 6778/Del/2015 - Dated:- 23-9-2016 - Sh. N. K. Saini, AM and Smt. Beena Pillai, JM Assessee by : Sh. Sandeep Karhail, Adv. Revenue by : Sh. N. C. Swain, CIT DR ORDER Per N. K. Saini, AM: This is an appeal by the assessee against the order dated 18.1 .....

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377; 7,67,36,387/- made by the Transfer Pricing Officer ('TPO') on account of alleged excessive Advertising, Marketing and Promotion expenses ("AMP expenses") incurred by the appellant, and c) Addition of ₹ 7,22,87,247/- made by the TPO in respect of services availed by the Appellant from its associated enterprises. Transfer Pricing Adjustment on account of AMP expenditure 2. Impugned order, to the extent it confirms adjustment under Transfer Pricing Regulations with refe .....

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ircumstances of the case and in law, even if the word 'transaction' is given its widest connotation, the TPO/AO/DRP has failed to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between the assessee and its AE as regards AMP spend for brand promotion; 5. That on the facts and circumstances of the case and in law impugned order erred in recharacterizing amounts paid by the Appellant to domestic third-parties, for availing service .....

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and exclusively focused on generating domestic sales for its manufacturing and distribution operations. 8. That on the facts and circumstances of the case and in law, learned AO/DRP/TPO have erred in alleging that the AMP expenses incurred by the Appellant in India, were not wholly and exclusively for purposes of its business and resulted in creation of marketing intangibles for the AEs. 9. That on the facts and circumstances of the case and in law, learned AO/DRP/TPO have erred in not apprecia .....

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on the facts and circumstances of the case and in law, learned AO/DRP/TPO failed to appreciate that the Appellant has benefitted by using B&L brand without paying fee for the same. 12. That on the facts and circumstances of the case and in law, without prejudice to any other ground, learned AO/TPO while segregating AMP expenses as an independent international transaction-erred in giving benefit of set off or adjustment in respect of profits and gains against another international transaction .....

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national transaction of the Appellant relating to AMP, without considering that the Appellant has been fully compensated for its marketing efforts as evident from the arm's length margin earned by it. Without prejudice, the further direction to verify and modify' the adjustment is also contrary to express provisions of law. 15. That on the facts and circumstances of the case and in law, learned AO/TPO were not justified in considering discounts, selling and promotion expenses, and other .....

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AMP. 17. That on the facts and circumstances of the case and in law, learned AO/TPO have erred in benchmarking the AMP expenditure incurred by the Appellant in India without correctly applying CUP in the manner prescribed under Rule 10B of the Rules. 18. That on the facts and circumstances of the case and in law, learned AO/TPO have erred in considering the 'bright line' concept as a tool while applying CUP method. 19. That on the facts and circumstances of the case and in law, learned .....

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ndered by the Appellant to its AEs. 21. That on the facts and circumstances of the case and in law, learned AO/DRP/TPO has erred, in arbitrarily applying a mark-up on such alleged AMP services. Transfer pricing adjustment on account on intragroup services 22. That the TPO/AO/DRP erred on facts and in law in making an addition of ₹ 7,22,87,247/- to income of the Appellant by determining the arm's length price for international transactions in respect of intra-group services, i.e. region .....

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his statutory onus of establishing that the conditions specified in clause (a) to (d) of Section 92C (3) of the Act had been satisfied before disregarding the arm's length price determined by the Appellant and proceeding to determine the arm's length price himself. 25. That in making the aforesaid addition, the TPO/AO/DRP have erred in alleging that the Appellant failed to establish the actual rendition or services without appreciating the detailed documentation and evidences submitted .....

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d in alleging that the Appellant failed to establish the necessity and/or benefit arising to the Appellant from services rendered by its AEs without appreciating that the benefit accruing out of said services and the necessity for availing services are both, commercial decisions, which cannot be questioned by the Revenue and, therefore, no addition could have been made on any of the aforesaid grounds. 28. That the TPO/AO/DRP further erred on facts in alleging that the intra-group services were i .....

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s operations. 30. That the TPO/AO/DRP farther erred on facts in holding that the ability of the AEs to render such services has not been demonstrated, ignoring the fact that the AEs, having specialized knowledge and skills and being in the industry/business for a long time, are better equipped to render such services. 31. That the TPO/AO/DRP erred on facts and in law in ignoring the transaction-by-transaction analysis made by the Appellant using TNMM for benchmarking the international transactio .....

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ctions filed with the DRP. 33. The TPO/AO/DRP erred on facts and in law in alleging that the Appellant has attempted to shift profits out of India by making payments to its AEs without appreciating that the said AEs, have filed their respective income tax returns in India on the taxable income derived from the Appellant. Common Grounds 34. That on the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under Section 271(l)(c) read with Secti .....

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the above grounds of appeal before or at the time of hearing. 3. Ground No. 1 is general in nature and Ground No. 34 is pre-maturely raised, so these grounds do not require any adjudication on our part. 4. Vide Ground Nos. 2 to 21, the grievance of the assessee relates to the transfer pricing adjustment on account of AMP expenses and vide Ground Nos. 22 to 33, the assessee is aggrieved by the transfer pricing adjustment on account of intra group services. 5. Facts of the case related to these is .....

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ophthalmic and surgical equipments. During the course of assessment proceedings, the AO noticed that the assessee entered into international transactions with Associated Enterprises (AEs) within the meaning of Section 92B of the Income Tax Act, 1961 (hereinafter referred to as the Act). The details of the said transaction were mentioned in Form No. 3CEB filed by the assessee. The AO, therefore, referred the case to the Transfer Pricing Officer as per provisions of Section 92CA(1) of the Act for .....

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urn of income with DCIT, Circle-2(1), New Delhi, the Assessing Officer. A reference was received from the Assessing Officer by the undersigned to determine the arm s length price u/s 92CA(3) in respect of international transactions entered into by the assessee during the F.Y. 2010-11. In response to notice u/s 92CA(2), Mr. Tarun Bindish, from S.R. Batlibol & Co., the authorized representative of the assessee appeared from time to time. The documentation prescribed under Rule 10B of the Incom .....

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nal transactions undertaken by the taxpayer during the F.Y. 2010-11. The taxpayer was afforded reasonable opportunity of being heard, as mentioned on page 1 of this order. It has already been decided in Para 46 that the AMP expenditure is an international transaction within the meaning of Section 92B(1) of the Act read with clause (v) of Section 92F of the Act. Being an international transaction it was required to be reported in Form No. 3CEB under Section 92E of the Act. The taxpayer was also r .....

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d 24.02.2015. Against the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP) who passed the order u/s 144C(5) of the Act dated 06.10.2015 and upheld the findings of the TPO. Accordingly, the AO made the additions on account of AMP expenses of ₹ 7,67,36,387/- and Intra group services additions of ₹ 7,22,87,247/-. 7. Now the assessee is in appeal. During the course of hearing the ld. Counsel for the assessee at the very outset stated that bo .....

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