TMI Blog2018 (11) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon'ble Apex Court is modified or reversed by the Hon'ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon'ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee. - ITA No.269/Del./2017 - - - Dated:- 19-11-2018 - Hon ble Vice President, Shri G.D. Agrawal And Shri Kuldip Singh, Judicial Member For the Assessee : Shri Ajay Vohra, Senior Advocate Shri Neeraj Jain, Advocate S/shri Abhishek Agarwal Ramit Katyal, CAs For the Revenue : Shri Sanjay I. Bara, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : The Appellant, M/s. Sennheiser Electronics India Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegedly holding that the appellant has reported reimbursement received from associated enterprises on account of AMP expenses as an international transaction in form 3CEB 3.2 The DRP/TPO erred on facts and in law in not appreciating that AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B of the Act, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise (hereinafter referred to as 'AE'). 3.3 The DRP/ TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price (ALP) and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure. 3.4 The TPO/DRP erred on facts and in law in relying upon the decision of the Special Bench of the Tribunal in case of LG Electronics (ITA No. 5140/De1/2011) to hold that AMP expenses incurred by the appellant constitutes an international transaction, not appreciatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd 374 ITR 118 3.12 Without prejudice that the DRP/TPQ erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying TNMM. 3.13 That the DRP on facts and in law erred in not holding that the AMP expenditure I function, being closely linked with its operation of sales and distribution of headphones etc. and the profit margin of the appellant being higher than the comparable companies and application of Transactional Net Margin Method (TNMM) having been accepted by the Revenue, no separate adjustment was required to be made in respect of such AMP expenses 3.14 That the DRP erred on facts and in law in relying upon the BEPS report not appreciating that the recommendations of the said report are not part of the Indian Transfer Pricing legislation. 3.15 Without prejudice that the DRP erred on facts and in law in relying upon examples 8-13 of the BEPS report not appreciating that the said examples provide for compensation in respect of AMP expenses in various forms including by way of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes, headsets, wired and wireless microphones and box/speakers. 3. During the year under assessment, the taxpayer entered into international transactions with its AE as under :- S.No. Type of international transaction Method Selected Total value of transaction (Rs.) MAM PLI i. Purchase of goods Transactional Net Margin Method Operating profit/ Operating sales 192,717,790 ii. Provision of services 19,992,561 iii. Allocation of expenses paid 978,832 iv. Reimbursement of expenses paid 926,903 v. Interest expenses paid 487,203 4. During the TP proceedings, TPO noticed that the taxpayer has incurred significant amount of ₹ 402,42,425/- on account of Advertisement, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,693/- plus mark-up of 12.06% for undertaking AMP activities for its AE. TPO proposed the ALP of AMP expenses as under :- Substantive adjustment (Para 8.1.3) Rs.37,472,708 Protective adjustment (Para 8.2.5) Rs.30,519,120 9. The taxpayer carried the matter before the ld. DRP by filing objections who has disposed of the objections. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 10. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 11. Undisputedly, TPO/DRP have used BLT in order to compare the AMP expenses of the taxpayer with that of the comparables. It is also not in dispute that the TPO has relied upon Special Bench decision of the Tribunal rendered in LG Electronics India Pvt. Ltd. (supra) in applying the BLT for determining the existence of international transactions in order to compute the ALP of such transactions, which has since been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as international transaction more particularly when basis for treating the AMP expenses as international transaction i.e. BLT is not a legally sustainable method. 16. Hon ble Delhi High Court in Valvoline Cummins Private Limited in ITA 158/2016 order dated 31.07.2017 categorically held that merely because of the fact that the taxpayer was permitted to use the brand name Valvoline will not automatically lead to an inference that any expense incurred by the taxpayer towards AMP was only to enhance the brand. To prove this fact, the Revenue is required to prove specific arrangement or agreement between taxpayer and the AE leading to the conclusion that AMP expenses incurred by the taxpayer was not for its own benefit but for the benefit of its AE. 17. So, we are of the considered view that merely by applying the BLT, the existence of international transactions cannot be proved and as such the adjustment made by the TPO/DRP/AO on this account is not sustainable in the eyes of law. We are further of the considered view that ALP expenses incurred by the taxpayer were not for the benefit of AE but only to enhance sales of the taxpayer. Identical issue has already been decided ..... X X X X Extracts X X X X X X X X Extracts X X X X
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