TMI Blog2019 (4) TMI 413X X X X Extracts X X X X X X X X Extracts X X X X ..... judice to each other. General Ground of Appeal 1. That Ld. Assessing Officer ( AO ) /Hon ble Dispute Resolution Panel ( DRP )/ Ld. Transfer Pricing Officer ( TPO ) erred in assessing the loss of the Appellant at INR. 267,771,897/- as against returned loss of INR 337,317,454 under normal provisions of the Act. Transfer Pricing Ground of appeals 2. The Ld.TPO/AO/DRP have erred in making an adjustment under section 92CA (3) of the Act without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of sub-section (3) of section 92C of the Act. 3. The Ld. TPO/AO/ Hon ble DRP have erred in computing an adjustment of INR 6,95,45,557/- to the total income of the Appellant on account of adjustment in arm s length price ( ALP ) of the alleged international transaction pertaining to Advertisement, Marketing and Promotional ( AMP ) expenditure entered into by the Appellant with its Associated Enterprise ( AE ). 4. The Ld. TPO/ AO/ DRP have erred in holding AMP expenditure as a separate international transaction under section 92B of the Act and assuming jurisdiction to determine the ALP thereof, when such expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iotic fermented milk)) and any benefits resulting from such expenditure accrue to the Appellant and benefit, if any to the AE is purely incidental in nature; d. Erroneously assuming that the Appellant had rendered services to its AE by incurring AMP expenses and holding that it should earn a mark-up on the allegedly incurred excessive AMP expenditure.; and e. Applying GP/AMP ratio as the mark-up percentage for the alleged services provided by the Appellant to the AE towards AMP activities. 11. The learned TPO/ AO/DRP have erred, on facts and circumstances of the case. in: a. Holding that advertising is done for brand promotion and not for product promotion; and b. Computing adjustment thereon, without appreciating that no expenditure attributable to brand promotion can be separately identified. Corporate tax Ground of Appeals 12. That on facts and in laws, the Ld. AO erred in holding that the appellant has furnished inaccurate particulars of income in respect of each item of disallowance/ additions and in initiating penalty proceedings under section 274 read with section 271 (1) (c) of the Act. The appellant craves leave to submit suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stores and spares TNMM 12,30,252 3. Payment of Royalty TNMM 13,55,782 4. Reimbursement of expenses to AE (in the nature of travelling other expenses) paid No bench marking required 5,75,745 5. Reimbursement of expenses by AE (in the nature of travelling other expenses) paid No bench Marking required 90,66,471 2.5. Ld. TPO, after calling for various details/explanations/evidences and on consideration of same proposed adjustment with respect to AMP expenses incurred by assessee as he was of view that assessee has carried out brand building activities, for benefit of its AE s, for which assessee has been adequately compensated. Ld. AO was of the opinion that assessee do not have any right on trademarks and brands/trade name or any other marketing intangibles in India and such brands are owned by its AEs outside India and therefore expenditure incurred on AMP activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12/15 and reduced adjustment to ₹ 6,95,45,557/-. 2.8. Aggrieved by adjustment made by Ld. AO, assessee is in appeal before us now. 3. It has been submitted that Ground No. 1 is general in nature and therefore do not require adjudication. 4. Ld.Counsel submitted that Ground No. 2-11 are regarding adjustment of ₹ 6.95 crores made on account of AMP expenses. He submitted that Ld.TPO applied bright line test, which was originally sanctioned by Special Bench of this Tribunal in case of LG Electronics vs ACIT reported in (2013) 29 Taxmann.com 300. He submitted that said approach has been overruled by Hon ble Delhi High Court in case of Sony Ericson Mobile Communications India Pvt. Ltd., (supra) and Maruti Suzuki India Ltd (supra). Ld.Counsel argued that, bright line test method is not the prescribed method under Indian Income Tax laws. 4.1. Ld.Counsel submitted that, assessee incurred AMP expenditure where payments have been made to unrelated parties, in respect of its business operation in India, to boost its sales in India. It has been submitted that, these expenses are incurred to penetrate into market, and to educate consumers in India about its nove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be sustained. 4.4. He vehemently submitted that expenditure unilaterally incurred by assessee for purposes of its business, cannot give rise to a transaction or international transaction, between associated enterprises, so as to be covered under section 92B of the Act. He placed reference to Clause (v) of section 92F of Act defines term transaction is as under: (v) transaction includes an arrangement, understanding or action in concert. - (a) Whether or not such arrangement, understanding or action is formal or in writing; or (b)Whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding . (c) It is the case of the applicant that unilateral incurring of AMP expenses by the applicant in India does not result in any transaction , much less an international transaction , between the applicant, on the one hand, and the foreign AE, on the other, so as to invoke the transfer pricing regulations 4.5. From a conjoint reading of section 92B read with section 92F(v) of the Act, it would kindly be appreciated that transfer pricing regulations would be applicable to any transaction , being an arrangement, under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue of existence of international transaction for purpose of making transfer pricing adjustment in relation to AMP expense incurred by assessee, wherein Hon ble High Court observed and held as under: Step wise analysis of statutory provisions 62. If a step by step analysis is undertaken of Sections 92B to 92F, the sine qua non for commencing the transfer pricing exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with the ALP and make the transfer pricing adjustment by substituting the ALP for the contract price. 63. A reading of the heading of Chapter X [ Computation of income from international transactions having regard to arm's length price ] and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP. Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of TP provisions to determine whether the Indian subsidiary is incurring AMP expenses unilaterally on its own or at the instance of the AE is to find out whether an independent party would have also done the same. It is asserted: An independent party with a short term agreement with the MNC will not incur costs which give long term benefits of brand market development to the other entity. An independent party will, in such circumstances, carry out the function of development of markets only when it is adequately remunerated for the same. 67. Reference is made by Mr. Srivastava to some sample agreements between Reebok (UK) and Reebok (South Africa) and 1C Issacs Co and BHPC Marketing to urge that the level of AMP spend is a matter of negotiation between the parties together with the rate of royalty. It is further suggested that it might be necessary to examine whether in other jurisdictions the foreign AE i.e., SMC is engaged in AMP/brand promotion through independent entities or their subsidiaries without any compensation to them either directly or through an adjustment of royalty payments. Absence of a machinery provision 68. The above submissions proceed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transaction price with the ALP. Rules IOB. IOC and the new Rule 10AB only deal with the determination of the ALP. Thus for the purposes of Chapter X of the Act, what is envisaged is not a quantitative adjustment but only a substitution of the transaction price with the ALP. 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. 4.11. Ld.Counsel placing reliance on specific observations by Hon ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purposes of ascertaining, if there exists an international transaction of brand promotion services between assessee and associated enterprises. 4.16. He submitted that Hon ble Delhi High Court in case of Maruti Suzuki India Ltd. (supra) held that existence of an international transaction needs to be established de hors Bright Line Test. He placed reliance upon following decisions of Hon ble Delhi High Court, which has followed aforestated view: Honda Seil Power Products Ltd. Vs. DCIT reported in (2016) 237 Taxmann 304 Bausch and Lomb Eyecare India Pvt.Ltd. vs. Addl.CIT reported in (2016) 237 Taxmann 24; Valvoline Cummins P Ltd. Vs. DCIT (ITA No.527/Del/2016) CIT vs Whirlpool of India Ltd reported in (2015) 64 Taxmann.com 324; Pepsico India Holdings P Ltd. Vs. ACIT (2018) 100 Taxmann.com 159 (Delhi-Trib) LOreal India P Ltd. Vs. DCIT (TA No.7714/Mum/2012) Goodyear India Ltd. Vs. DCIT (ITA No.5650/Del/2011) 4.17. Ld.Counsel submitted that it has been reiterated by Hon ble Court that, Revenue needs to establish on basis of some tangible material or evidence that there exists an international transaction of provision of brand buildin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing analysis. 4.22. He placed reliance upon decision of Hon ble Delhi High Court in case of Sony Ericsson Mobile Communications India P Ltd(supra), in relation to aforesaid aspect of economic ownership held, wherein Hon ble Court observed and held as under. 133. Transfer Pricing Officers have referred to paragraphs 6.36 to 6.39. For the sake of completeness, we would quote the said paragraphs from the OECD Transfer Pricing Guidelines, which read: 6.36. Difficult transfer pricing problems can arise when marketing activities are undertaken by enterprises that do not own the trademarks or trade names that they are promoting (such as a distributor of branded goods). In such a case, it is necessary to determine how the marketer should be compensated for those activities. The issue is whether the marketer should be compensated as a service provider, i.e. for providing promotional services, or whether there are any cases in which the marketer should share in any additional return attributable to the marketing intangibles. A related question is how the return attributable to the marketing intangibles can be identified. 6.37. As regards the first issue- whether the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have contributed to the success of a product. For instance, it can be difficult to determine what advertising and marketing expenditures have contributed to the production or revenue, and to what degree. It is also possible that a new trademark or one newly introduced into a particular market may have no value or little value in that market and its value may change over the years as it makes an impression on the market (or perhaps loses its impact). A dominant market share may to some extent be attributable to marketing efforts of a distributor. The value and any changes will depend to an extent on how effectively the trademark is promoted in the particular market. More fundamentally, in many cases higher returns derived from the sale of trademarked products may be due as much to the unique characteristics of the product or its high quality as to the success of advertising and other promotional expenditures. The actual conduct of the parties over a period of years should be given significant weight in evaluating the return attributable to marketing activities. See paragraphs 3.75-3.79 (multiple year data). 134. The aforesaid paragraphs do not support the Revenue's s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3rd year 1.0% 4th year 2.0% 5th year 2.0% 6th year and subsequent years (but subject to the proviso to paragraph (a) of Article 5) 3.0% 5.1. Referring to Transfer Pricing order, Ld.CIT DR submitted that, apart from trademark fee and royalty fee, assessee is purchasing major raw materials for its manufacturing activity, from its AEs, which is reported as international transaction. He submitted that AE apart from trademark fee and royalty is also deriving benefits by way of selling its products in India. Referring to chart of estimated profits filed by assessee, Ld.CIT DR submitted that assessee has a gross profit of 70.54% during year and operating loss at 309% at net level. He submitted that, main reason for such a huge loss is sales and distribution expenses and administrative and sales promotion expenses incurred by assessee amounting to ₹ 3,73,11,582/- and ₹ 6,45,14,654/- respectively. Ld. CIT DR thus submitted that assessee is substantially engaged in business of brand building/trademark for A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch assistance, Yakult Danone India in FY 2007-08 paid a royalty to its AEs amounting to 1% of its net sales. Apart from the above, for use of the Yakult trademark, Yakult Danone India also paid an additional royalty amounting to 1% of its net sales to its Group Companies. c) Sales Promotion: Yakult Danone India deals in the FMCG sector which is typically characterized by heavy expenditure on planning and execution of sales promotion. Toward this end Yakult Danone India engages in domestic sales promotion activities. In line with the global sales strategy, Yakult Danone India primarily sells its products through Yakult Ladies . This strategy was adopted by Yakult Danone India to help customers fully understand the benefits of lactobacilli and bring Yakult products to them every day. Yakult Ladies are particularly well-suited for serving housewives in this way as the great majority of them are housewives themselves. Delivery of Yakult products is performed by Yakult Ladies working through regional marketing companies. These Yakult Ladies are provided the required training for sale of the products at these centres itself. At the same time, however, these centres also serve a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intangibles. 4.4 Risk Analysis Risks are those business factors that may expose a company to the possibility of loss or damage. In other words, Risk is the probability that a particular adverse event may occur during a stated period of time, or may result from a particular challenge. The following section discusses the risk borne by Company vis- -vis Group Companies. Market Risk Market risk arises when a company is subject to adverse sales conditions due to either increased competition in the marketplace, adverse demand conditions within the market, or the inability to develop markets or position products to service targeted customers. Yakult Danone India is exposed to this risk as it is dependent on market patterns and trends, while the Group Companies have relatively lower risk relating to Indian operations. Customer Credit Risk When a company supplies products or services to a customer in advance of customer payment, the company runs the risk that the customer will fail to make payment. This risk is known as customer credit risk. Yakult Danone India is exposed to the risk of non-payment from the customers to whom they have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risk. Research and Development Risk It represents the risk that the research performed by an enterprise may not be successful. As Yakult Danone India does not undertake any R D on its own account, it is not exposed to this risk. R D is primarily the responsibility of Yakult Danone Group and hence it bears all the risks associated with this activity. Technology Risk This risk arises if the market in which an enterprise operates is sensitive to the introduction of new products and variants. In such a case, the enterprise may lose potential revenues arising from obsolete infrastructure, tools and manufacturing process. Yakult Danone India does not own the manufacturing technology and relies on AEs for constant up-gradation of technology. Accordingly, the Indian entity is relatively less exposed to this risk. As AEs have (over the years) spent considerable amount in developing the technology and are also responsible for constant up-gradation of technology, they bear significant risk on this account. Inventory Risk Inventory risk relates to the potential for losses associated with carrying finished product inventory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 15. Man Power Risk - 16. Price Risk - 17. Research and Development Risk - 18. Technology Risk - 19. Inventory Risk - ASSETS USED 20. Tangible Assets - 21. Intangible Assets - 6.2. Admittedly, assessee is a joint venture between Yakult Honsha of Japan and Groupe Danone of France with 50:50 shareholdings. There is no dispute that this company has been set up to manufacture and sell Probiotic milk in India. In TP study, assessee categorised itself to be a manufacturer of Probiotic milk. Admittedly, assessee started its commercial sale in financial year 2007-08 and made significant losses at operating level during year. It is also observed that assessee has entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of raw materials as international transaction, which is duly reported in Form 3CEB and also filed transfer pricing documentation on which no adverse inference has been drawn by revenue. 6.5. It is observed that assessee engages itself into domestic sales promotion activities in line with global sales strategy. Assessee sells its products through Yakult Ladies that help customers fully understand benefits of lactobacilli, and bring Yakult products to them everyday. It has been submitted in transfer pricing study that, these Yakult Ladies are provided with required training for sale of product, at these centres itself, where these ladies form strong bond with co-workers and foster new enthusiasm for important work they do. It has also been submitted that the products are sold via convenience stores, on the street or in office, schools, hospitals and elderly care facilities. It is also observed that assessee is exposed to market risk, customer credit risk, foreign exchange risk, capacity utilisation risk, manpower risk and inventory risk. 6.6. From the above, it is clear that all necessary functions of strategizing, advertising and marketing activities, its implementati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of AMP expenditures by an Assessee. 42. As already noticed, the judgment in Sony Ericsson Mobile Communications India (P.) Ltd. (supra) does not seek to cover all the cases which may have been argued before the Division Bench. In particular, as far as the present appeal ITA No. 110 of 2014 is concerned, although it was heard along with the batch of appeals, including those disposed of by the Sony Ericsson Mobile Communications India (P.) Ltd. (supra) judgment, at one stage of the proceedings on 30th October 2014 the appeal was delinked to be heard separately. 43. Secondly, the cases which were disposed of by the Sony Ericsson Mobile Communications India (P.) Ltd. (supra) judgment, i.e. of the three Assessees Canon, Reebok and Sony Ericsson were all of distributors of products manufactured by foreign AEs. The said Assessees were themselves not manufacturers. In any event, none of them appeared to have questioned the existence of an international transaction involving the concerned foreign AE. It was also not disputed that the said international transaction of incurring of AMP expenses could be made subject matter of transfer pricing adjustment in terms of Section 92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considerable merit in the contention of the Assessee that the only TP adjustment authorised and permitted by Chapter X is the substitution of the ALP for the transaction price or the contract price. It bears repetition that each of the methods specified in S.92C (1) is a price discovery method. S.92C (1) thus is explicit that the only manner of effecting a TP adjustment is to substitute the transaction price with the ALP so determined. The second proviso to Section 92C (2) provides a 'gateway' by stipulating that if the variation between the ALP and the transaction price does not exceed the specified percentage, no TP adjustment can at all be made. Both Section 92CA, which provides for making a reference to the TPO for computation of the ALP and the manner of the determination of the ALP by the TPO, and Section 92CB which provides for the safe harbour rules for determination of the ALP, can be applied only if the TP adjustment involves substitution of the transaction price with the ALP. Rules 10B, 10C and the new Rule 10AB only deal with the determination of the ALP. Thus, for the purposes of Chapter X of the Act, what is envisaged is not a quantitative adjustment but on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not joining issue, the Court was told, that the Indian entity would be entitled to claim such expenses as revenue expense in terms of Section 37 of the Act. It is not for the Revenue to dictate to an entity how much it should spend on AMP. That would be a business decision of such entity keeping in view its exigencies and its perception of what is best needed to promote its products. The argument of the Revenue, however, is that while such AMP expense may be wholly and exclusively for the benefit of the Indian entity, it also ensures to building the brand of the foreign AE for which the foreign AE is obliged to compensate the Indian entity. The burden of the Revenue's song is this: an Indian entity, whose AMP expense is extraordinary (or 'nonroutine') ought to be compensated by the foreign AE to whose benefit also such expense enures. The 'nonroutine' AMP spend is taken to have 'subsumed' the portion constituting the 'compensation' owed to the Indian entity by the foreign AE. In such a scenario what will be required to be benchmarked is not the AMP expense itself but to what extent the Indian entity must be compensated. That is not within the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against arbitrariness while at the same time addressing the apprehension of tax avoidance. 76. As explained by the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 and PNB Finance Ltd. v. CIT [ 2008] 307 ITR 75 in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise. Further in the judgment of Sony Ericsson Mobile Communication (P.) Ltd. (supra), the High Court itself has distinguished the cases before it wherein there were cases which already themselves had accepted that there exists international transaction and there were other set of cases where the assessee has disputed the international transaction. This is clear from the following passage of the judgment: - 120. Notwithstanding the above position, the argument of the Revenue goes beyond adequate and fair compensation and the ratio of the majority decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would include AMP functions. This would ensure adequate transaction price and hence assure no loss of revenue. When the distribution and marketing functions are interconnected and reliable comparables are available, arm's length price could be computed as a package, if required and necessary by making adequate adjustments. When the Assessing Officer/TPO comes to the conclusion that it is not possible to compute arm's length price without segregating and dividing distribution and marketing or AMP functions, he can so proceed after giving justification and adequate reasons. At that stage, he would have apportioned the price received or the compensation paid by the foreign AE towards distribution and marketing or AMP functions. The TPO can then apply an appropriate method and compute the arm's length price of the two independently and even by applying separate methods. This will be in terms of the provisions of the Act and the Rules and also as per the general principles of international taxation accepted and applied universally. On the other hand, as recorded by us above, applying 'bright line test' on the basis of parameters prescribed in paragraphs 17.4 and 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... romotions and thereby benefitting the AE, has been discussed in detail by the Hon'ble High Court in the case of Sony Ericsson Mobile Communication (supra) which for the sake of ready reference is reproduced hereunder: - Brand and brand building 102. We begin our discussion with reference to elucidation on the concept of brand and brand building in the minority decision in the case of L. G. Electronics India Pvt Ltd. (supra). The term brand , it holds, refers to name, term, design, symbol or any other feature that identifies one seller's goods or services as distinct from those of others. The word brand is derived from the word brand of Old Norse language and represented an identification mark on the products by burning a part. Brand has been described as a duster of functional and emotional 103 It is a matter of perception and reputation as it reflects customers' experience and faith. Brand value is not generated overnight but is created ever a period of time, when there is recognition that the logo or the name guarantees a consistent level of quality and expertise. Leslie de Chematony and McDonald have described a successful brand is an identifiabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the human body into the various substances of which it is said to be composed. The goodwill of a business is one whole, and in a case like this it must be dealt with as such. For my part, I think that if there is one attribute common to all cases of goodwill it is the attribute of locality. For goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again ... 104 Brand has reference to a name, trade mark or trade name. A brand like goodwill , therefore, is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. To use words from CTT v. Chunilal Prabhudas and Co. [ 1970] 76 ITR 566 (Cal) ; AIR 1971 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing substantial advertisement or promotion expenses and also cases where in spite of extensive and large scale advertisements, brand values have not been created. Therefore, it would be erroneous and fallacious to treat brand building as counterpart or to commensurate brand with advertisement expenses. Brand building or creation is a vexed and complexed issue, surely not just related to advertisement. Advertisements may be the quickest and effective way to tell a brand story to a large audience but just that is not enough to create or build a brand. Market value of a brand would depend upon how many customers you have, which has reference to brand goodwill, compared to a baseline of an unknown brand. It is in this manner that the value of the brand or brand equity is calculated. Such calculations would be relevant when there is an attempt to sell or transfer the brand name. Reputed brands do not go in for advertisement with the intention to increase the brand value but to increase the sales and thereby earn larger and greater profits. It is not the case of the Revenue that the foreign associated enterprises are in the business of sale/transfer of brands. Accounting Standard 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent trades, different businesses in the same trade, as one element may pre-dominate one business, another element may dominate in another business. It remains substantial in form and nebulous in character. In progressing business, brand value or goodwill will show progressive increase but in falling business, it may vain. Thus, its value fluctuates from one moment to another, depending upon reputation and everything else relating to business, personality, business rectitude of the owners, impact of contemporary market reputation, etc. Importantly, there can be no account in value of the factors producing it and it is impossible to predicate the moment of its birth for it comes silently into the world unheralded and unproclaimed. Its benefit and impact need not be visibly felt for some time. Imperceptible at birth, it exits unwrapped in a concept, growing or fluctuating with numerous imponderables pouring into and affecting the business. Thus, the date of acquisition or the date on which it comes into existence is not possible to determine and it is impossible to say what was the cost of acquisition. The aforesaid observations are relevant and are equally applicable to the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with reference to indicators mentioned in paragraph 17.4 as well as the ratio expounded by the majority judgment in L. G. Electronics India Pvt Ltd.'s case (supra) in paragraph 17.6 to bifurcate and segregate the AMP expenses towards brand building and creation, the results would be startling and unacceptable. The same is the situation in case we apply the parameters and the bright line test in terms of paragraph 17.4 or as per the contention of the Revenue, i.e., AMP expenses incurred by a distributor who does not have any right in the intangible brand value and the product being marketed by him. This would be unrealistic and impracticable, if not delusive and misleading (aforesaid reputed Indian companies, it is patent, are not to be treated as comparables with the assessee, i.e., the tested parties in these appeals, for the latter are not the legal owners of the brand name/trade mark). 112. Branded products and brand image is a result of consumerism and a commercial reality, as branded products own and have a reputation of intrinsic believability and acceptance which results in higher price and margins. Transborder brand reputation is recognised judicially and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible asset will generate probable future benefit. Because, the value fluctuates from one moment to other depending upon reputation and other factors. Reputation of a brand only enhances the sale and profitability and here in this case is only benefitting the assessee company when marketing its products using the trade mark and the brand of AE. Even otherwise also, the value of the brand which has been created in India by the assessee company will only be relevant when at some point of time the foreign AE decides to sell the brand, then perhaps that would be the time when brand value will have some significance and relevance. But to make any transfer pricing adjustment simply on the ground that assessee has spent advertisement, marketing expenditure which is benefitting the brand/trademark of the AE would not be correct approach. Thus, this line of reasoning given by the TPO is rejected. 6.10. Respectfully following the same, we also reject Bright line Test applied by Ld.TPO and further hold that, AMP expenditure cannot be considered as International transaction in the facts and circumstances of present case. 6.11. Accordingly we allow ground nos. 1- 11 raised by assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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