TMI Blog2018 (9) TMI 1810X X X X Extracts X X X X X X X X Extracts X X X X ..... per opportunity was not given to the assessee to make the submissions on the alternatives. However, we also do not agree with the ld. Counsel of the assessee that since on one of the alternative, the DRP's direction is silent, it can be understood that this issue has been considered by the DRP. Hence, we remit these issues on the alternative suggested by the TPO to the DRP. The DRP shall consider the same after giving the assessee an opportunity of being heard. The ld. Counsel of the assessee has fairly agreed to the above proposition. - I.T.A. No. 963/Mum/2016 & CO No. 139/Mum/2016 (Arising out of ITA No. 1264/Mum/2016) And I.T.A. No. 1264/Mum/2016 - - - Dated:- 11-9-2018 - SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM For the Appellant : Shri Perey J. Pardiwala/Shri Nishant Thakkar/Shri Hiten Chande Shri Nimesh Vora For the Respondent : Shri Jayant Kumar ORDER Per Shamim Yahya, A. M.: These are cross appeals by the Revenue and assessee and cross objection by the assessee arising out of the order of the Assessing Officer passed u/s. 143(3) r/w s. 144C(13) of the Income Tax Act, 1961 ( the Act' for short) dated 14.01.2016 pursuant to the directi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned TPO suffers from jurisdictional error; 2. POWER OF TPO IN REMAND The CIT(A) erred in making alternate adjustment on account payment for royalty and intra-group services to its AE (in the remand report), without appreciating that the Hon'ble DRP had issued remand only on the applicability of Delhi High Court decision in case of Sony Ericsson Mobile Communication India Pvt Ltd in the facts of the present case, thereby exceeding the jurisdiction of remand; The CIT(A) erred in suggesting alternate adjustment in the remand proceedings, without appreciating that the international transactions on account royalty and intra-group services are independent transactions as against alleged international transaction of AMP expenses, thereby grossly erred in recommending alternate adjustment in remand proceedings having accepted the same in the draft order; 3. ENHANCEMENT DONE BY THE PRP IS BEYOND JURISDICTION The Hon'ble DRP erred in taking cognizance of remand report (which were issued beyond jurisdiction) and thereby proceeded to make adjustment on alternate grounds (which were accepted at arm's length by TPO in order under section 92CA of the Act) withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by the learned TPO/ Hon'ble DRP before determining the ALP at Nil; Failure to consider benefit test without prejudice to above, failed to appreciate the business model and business realities of the Appellant and the role of its AEs and concluding that there is no significant benefit received by the Appellant from the services being rendered by the AEs; without referring to Transfer pricing documentation wherein the benefit test was substantiated; PART II - CORPORATE TAX ADJUSTMENTS 7. Non-grant of MAT Credit The CIT(A) erred in non-granting MAT credit claimed by the Appellant of ₹ 3,21,99.634/-; 8. Levy of interest under section 234B of the Act The CIT(A) erred in charging of interest under section 234B of the Act; 9. Levy of interest under section 234C of the Act The CIT(A) erred in charging of interest under section 234C of the Act; Initiation of penalty proceedings under section 274 read with section 271(1)(c) of the Act 4. The issues raised in cross objection read as under: 1. Erred in objecting Dispute Resolution Panel ('DRP') directions without appreciating that Advertising, Marketing and Promotion ('AMP' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o above, the learned AO/DRP should be directed to reject the cherry picking approach and also consider following comparables submitted by respondent for applying mark-up for the alleged marketing functions; . ' '. Alternate Brand Solutions (India) Limited Aditya Birla Minacs Worldwide limited Gaur Nagi Limited Vision Technology India Limited 5. The assessee is a private limited company incorporated in India which is a wholly owned subsidiary of L oreal S. A. France. The assessee is engaged in the business of manufacturing and distribution of cosmetics and beauty products. In the transfer pricing order, the Transfer Pricing Officer (TPO for short) observed that L oreal India has acted as a distributor of cosmetic products that are not manufactured by it. It was noted that L oreal India purchased finished products from its overseas Associated Enterprises ( AE for short) and resells the same in the Indian market without any value addition. The associated enterprise is a L oreal group which is a French conglomerate. As per the transfer pricing adjustment report, the assessee company had entered into with following internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the comparable companies have been worked out by adopting the data for the year 2010-11. As the price charged in its international transactions is greater than the said arithmetical mean price, the price charged in the international transactions is treated as at arm's length. The taxpayer selected companies as comparables on the basis of the search conducted in the public data base, Prowess. 8. During the year under consideration L'Oreal India has paid royalty for the exclusive right to manufacture and distribute the licensed products using the technology and trademarks to its overseas associated enterprises in accordance with the agreement entered into by L'Oreal India with its associated enterprises. As per the assessee company, L'Oreal S.A. grants its group companies throughout the world the exclusive right and license to exploit the licensed products in its territory, including: The rights to manufacture the licensed products in its territory, using license technology, trademarks and designs The right to import and distribute the licensed products. As the international transactions take into account both the segments that is manufacturing segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer is proposing to apply Bright Line Method and the adjustment to arm s length price is determined at ₹ 243,57,90,441/-. Thus, an amount of ₹ 243,57,90,441/- is treated as an adjustment under section 92CA of the Income Tax Act, 1961 being shortfall in the compensation that the assessee company should have been received from its AE. 10. Against the above order, the assessee filed objections before the DRP. 11. Considering the objections of the assessee, the DRP took note of the judgment of the Hon'ble Delhi High Court decision in the case of Sony Ericsson Mobile Communications India Pvt. Ltd vs. Dy. CIT [2015] 374 ITR 118 (Delhi). The TPO was directed to examine the facts of the case afresh in view of the said judgment of Delhi High Court and determine the adjustment on account of AMP adjustment vide DRP letter dated 19.11.2015. The said letter reads as under: 2. In this case as per TP order dated 27.01.2015, TP adjustment of ₹ 53.34 crores has been made. The adjustment includes AMP expenses etc. 2.1. While making the AMP adjustment, BIT has been applied and thereafter the excess AMP expenses have been determined at ₹ 49.04 crores. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices may be considered. 12. The DRP also obtained response of the assessee in this regard. Thereafter, the DRP referred to various case laws including that from Hon'ble Delhi High Court decision in the case of Maruti Suzuki India Ltd. (in ITA No. 110/2014) dated 11.12.2015 and in the case of Bausch Lomb Eyecare (India) Pvt. Ltd. at 23.12.2015. The DRP concluded as under: 3.20. We also find that Delhi High Court have passed similar order in the case of Whirlpool of India Ltd. On 22nd December, 2015. On the basis of all these judgments of Delhi High Court, it emerges that unless there exist an agreement or arrangement or understanding between the assessee and its AE for AMP expenses, any international transaction cannot be said to have been undertaken. ! Bright Line Test has no statutory sanction to benchmark any international transaction including AMP. Since on facts of this case it cannot be said that there exist any agreement or understanding or arrangement between the assessee and the AE and the TPO has not shown anything except BLT to benchmark the alleged excess AMP expenses, the adjustment made by the TPO in this regard is therefore directed to be deleted. The obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther failed to demonstrate the incurrence of cost by the AE as well as its allocation among the various group entities. We are of the view that the TPO has not questioned the commercial expediency of such transaction entered into by the assessee, rather, has only worked out the arms length price of the purported service. We are further of the view that no services are rendered nor received by the assessee and what is received (if at all) do not take character of chargeable service. The perusal of the e-mails and other contemporaneous record only goes to show that incidental and passive association benefits have been provided by the AE. In this view of the matter, there could neither be any cost contribution or payment for such service to the AE. Further, as no expenditure would have been incurred, there is no necessity to apply a particular method to arrive at such conclusion. The TPO has been more than fair in granting the deduction on estimates based on the evidence produced. Therefore, the AO is directed to make TP adjustment of ₹ 18.44 crores on account of Intra-group services. 15. Against the above order, cross appeals have been filed. The ld. Counsel of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. 18. In this regard, the ld. DR submitted that what the TPO has done is to examine the issue on the touchstone of this decision which was the direction of the DRP. 19. Upon careful consideration of the above case law, we are inclined to reject the assessee s submission that the TPO has no jurisdiction to suggest alternative. However, in this regard, the ld. Counsel of the assessee has urged that proper opportunity was not granted to contest the alternative addition suggested by the transfer pricing officer and sustained by the DRP. Hence, the ld. Counsel of the assessee has requested to send the issue on merits of alternatives to the Dispute Resolution Panel. The ld. Counsel of the assessee has also submitted two letters for admission of additional evidence before the DRP in connection with the alternative which has been claimed to have not been considered. He prayed that the matter may be remitted to the DRP to give proper opportunity of being heard. 20. Although no specific ground has been raised. There was an alternative addition suggested by the Transfer Pricing Officer relating to distribution expense which has not been discussed by the Dispute Resolution Panel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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