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TMI Blog2018 (12) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of transfer pricing adjustment amounting to Rs. 219,834,275 allegedly in respect of advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 2.1 That the AOIDRP 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' I extent of business expenditure. 2.2 That the AOIDRP erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not De characterized as an international transaction as per section 928, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 2.3 That the DRP erred on facts and in law in concluding that unilateral incurring of AMP expenditure by the appellant is an international transaction as per the findings of the order of the Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 92C of the Act. 2.12 Without prejudice, that the DRP/TPO erred on facts and in law in not appreciating that since the operating profit margins of the appellant were higher than margins of the comparable companies, the appellant was adequately compensated for the allegedly excess AMP expenses incurred by the appellant. 2.13 Without prejudice, that the DRP erred on facts and in law in directing the TPO to apply segregated approach for benchmarking the alleged transaction of AMP expense, without providing any basis or reason for such segregation, in terms of decision of Hon'ble High Court in the case of Sony Ericsson. 2.14 Without prejudice, that the TPO erred on facts and in law in not excluding entire expenditure incurred by the appellant on account of sales promotion, being in the nature of routine selling and distribution expenses, from the ambit of AMP expenditure for the purpose of the benchmarking analysis. 2.15 Without prejudice, that the TPO erred on facts and in law in considering a sum of Rs. 20,85,84,445 being 50% of the selling and distribution expenses of Rs. 41,71,68,890, on ad-hoc basis, as non-routine expenditure incurred for creating marketing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -routine expenditure to promote the brand of AE and to develop marketing intangibles for the AE. So, for incurring non-routine AMP expenditure, the taxpayer should have been reimbursed. TPO, in order to benchmark the AMP expenditure, used Bright Line Test (BLT) and proposed that any expenditure in excess of the BLT is for the development of marketing intangibles, owned by the AE, which needs to be suitably compensated by the AE. Declining the contentions raised by the taxpayer, TPO proceeded to propose the Arm's Length Price (ALP) of value of remuneration for AMP expenses at Rs. 36,34,86,455/- as against nil receipt shown by the taxpayer. 5. 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. 6. 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. 7. It is the case of the taxpayer that AMP expenditure is a domestic transaction and not an international tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uti Suzuki Ltd. v. CIT (2016) 381 ITR 117 (Del) the ITAT was justified in holding that there was an international transaction between the Assessee and its Associated Enterprise with regard to advertising, marketing and publicity (AMP) expenses and in remanding the matter to the Assessing Officer/Transfer Pricing Officer for determining the arms length price of such transaction for the purposes of transfer pricing adjustment? 13. Hon'ble High Court of Delhi answered the aforesaid question against the Revenue and in favour of the taxpayer that for determining the ALP of alleged international transactions qua AMP expenses, the Revenue has failed to prove if there is any international transaction between the taxpayer and its AE by returning following findings :- "9. The Assessee drew the attention of the ITAT to the decision of this Court in Sony Ericsson India Pvt. Ltd. v. CIT (2015) 374 ITR 118 (Del) whereby the Court had declared that the BLT had no statutory mandate and considering the excess expenditure beyond the bright line as an international transaction was 'unwarranted'. 10. In para 5 of the impugned order, the ITAT noted as under: "5. On enquiry from the Bench, Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d.(supra) turned on the fact that there was no determination by the TPO in the first place whether there was an international transaction. In the present case, however, the TPO did apply his mind to the existence of an international transaction involving AMP expense. The only ground on which the conclusion was reached by the TPO was that the AMP expenditure incurred by the Assessee was in excess of that incurred by the comparables. His conclusion was not based on any other factor. In other words, it was not as if the conclusion arrived by the TPO was based on two or three grounds, one of which was the BLT. 16. This Court in Sony Ericsson India Pvt. Ltd.(supra) categorically found that the BLT was not an appropriate yardstick for determining the existence of an international transaction or for that matter for calculating the ALP of such transaction. The decision of the Full Bench of the ITAT in L.G. Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1 which sought to make BLT the basis was set aside by this Court. 17. Once the BLT has been declared by this Court in Sony Ericsson India Pvt. Ltd.(supra) to no longer be a valid basis for determining the existence of or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to positioning of new services or solutions, launching a new service line or solution, developing plans to capture a certain segment of the market, etc. are all development by the AEs, and as such, this case is squarely covered by the taxpayer's own case decided by Hon'ble Delhi High Court for AY 2010-11. 15. Learned DR for the Revenue, although admitted the legal position enunciated in the preceding paragraphs, but he contended that since all the aforesaid decisions are lying challenged before the Hon'ble Apex Court, the matter may be kept pending till the decision by Hon'ble Apex Court. However, we are of the considered view that since it is a stay granted matter and the proceedings before the second appellate authority have not been stayed by any higher forum, the same cannot be kept pending. 16. After considering the legal position as discussed in the preceding paragraphs, we are of the considered opinion that the ALP of an international transaction involving AMP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. At the same time, we cannot ignore the submission of the learned DR that the matter is pending before Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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