TMI Blog2019 (5) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ilability of brands registered in their name in current assessment year - HELD THAT:- We set aside the issue with respect to the selection of comparable companies with respect to these 2 companies back to the file of the learned transfer pricing officer to determine whether there is any brand registered in the name of this companies for assessment year 2013 14 or not and then to find out whether such brands have made any impact on their profitability. Such information may be obtained by the learned transfer pricing officer by exercising powers u/s 133 (6). On receipt of such information, it should be provided to the assessee to submit its contention, and then decide about whether such companies can be selected as a comparable companies are not. AMP expenditure - international transactions for marketing and development of marketing services based on Bright line test approach on protective basis - bright line test used for making an adjustment of excessive advertisement marketing promotion expenditure - HELD THAT:- With respect to the protective adjustment made by the learned transfer pricing officer by bright line test method it was submitted by the learned authorised represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Advertisement, Marketing and Promotion related functions ( AMP functions' ) carried out by the Appellant 3. The Ld TPO/AO have erred in law and facts of the case by not analysing the transaction as entered into but re-writing the same on imaginary basis. 4. Without prejudice to all other grounds, the Ld. TPO/AO have erred in law and facts of the case by not considering Credit Note received by the Appellant against its purchases as an operating item and Hon ble DRP has erred by giving ambiguous directions for the treatment, of Credit Note received by the Appellant. 5. Without prejudice to all other grounds, Hon ble DRP has erred, in noting that two companies considered comparable by AO/TPO, i.e., Lava International Limited and Micromax Informatics Limited are not, brand owners and hence need to be deleted. 6. Without prejudice to all other grounds, the Ld. TPO/AO have erred in not giving complete effect to directions of the Hon ble DRP thereby resulting in erroneous computation of demand arising from the substantive; adju.stment. 7. The Ld. TPO/AO and Hon ble DRP have erred in law and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le DRP erroneously upheld the approach of the Ld. TPO/AO. 14. The Ld. TPO/ AO have erred in law and circumstances of the case in concl uding that FAR of the comparables is not similar to the FAR of the Appellant and thus, intensity adjustment is required for a fair analysis and Hon ble DRP erroneously upheld the approach of the Ld. TPO/AO. 15. Without prejudice to all other grounds the Ld. AO/TPO erred in making inappropriate selection of comparables and rejected the comparables proposed by Appellant based on either factually incorrect reasons or by applying inappropriate filters, for the purpose of comparability analysis and Hon ble DRP erroneously upheld the approach of the Ld. TPO/AO. 16. Without prejudice to all other grounds, the Ld. AO/TPO1 erred in making inappropriate selection of comparables providing marketing support services for benchmarking marketing function and Hon ble DRP erroneously upheld the approach of the Ld. TPO/AO. Transfer Priding Adjustment in respect of inter-national transaction for Marketing and Development of Market Services ( MMDS ) based on BLT approach (Protective adjustment) 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensated by its AE, considering that the purported benefit caused to the AE on account of incurring of MMDS expenses incurred by the Appellant was only incidental. 24. Without prejudice, even if MMDS expenses are held to be non-routine and excessive , the Ld. TPO/AO and Hon ble DRP erred in not appreciating that the functions performed by the Appellant had already been adequately compensated by the AE since the Appellant s business model allows it to earn an arm s length margin on all costs incurred including MMDS expenses. 25. That the Ld. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate that once the net operating margins of the Appellant had met the arm's length test, no further adjustment was required for any non-routine function or non-routine MMDS expenditure 26. Without prejudice to all other grounds, the Ld. TPO/AO/Hon ble DRP have erred in fact and in law by determining the arm s length level of routine MMDS expenses by considering inappropriate companies. 27. Without prejudice to other grounds, that the Ld. TPO/AO have erred in levying a further mark-up of service providers on MMDS expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed order u/s 92CA (3) of the income tax act, 1961 on 24/10/2016, wherein 2 adjustments were made under Chapter X of The Act to returned income ( 1) intensity as the comparability adjustment as substantive adjustment to the international transaction of distribution and ( 2) adjustment on account of advertisement marketing and publicity expenditure by applying the bright line test as a protective adjustment. Consequently draft assessment order was passed on 23/11/2016 wherein the transfer pricing adjustment was incorporated amounting to ₹ 2562145000/ and total income of the assessee was assessed at ₹ 4402665254/ . 5. Assessee filed objection before the learned Dispute Resolution Panel 2, New Delhi [ DRP] . The learned DRP issued direction u/s 144C (5) of the act on 18/8/2017. Consequently the assessment order u/s 143 (3) read with section 144C of The Act was passed on 15/9/2017 wherein the adjustment INR 2 314379000 was made on substantive basis and INR 4 813200000 on a protective basis. Therefore the net addition of INR 2 314379000 was made to the total income of the assessee and assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account to arrive at correct margin. If corresponding amount is not grossed up in income, it would lead to an absurd and incorrect results. He submitted that TPO failed to make this corresponding adjustment in his computation. This error resulted in artificially and incorrectly suppressing the margin earned by appellant. Vide rectification application dated 18th January 2018, Appellant requested rectification of above error and pointed out that by correcting this error, intensity adjustment would be deleted. However, Ld. TPO denied benefit of correction. He stated that l TPO has erred in holding that operating cost of the assesse is to be adjusted to that extent so as to facilitate comparability. None of the comparables received the same kind of financial assistance in their business. This approach of making suo moto adjustment only to expenditure portion of audited Profit loss account would lead to absurd and incorrect results, in case correspondent amount is not grossed up to Income, because amount of ₹ 12710 lacs credited to expenditure account cannot be altogether be ignored from consideration while computing margin earned. Refusal by Ld. TPO to correct this error on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR submitted that the prayer of the assessee that the learned transfer pricing officer has recast the profit and loss account of the assessee is incorrect. He submitted that the learned transfer pricing officer has extracted the figure from the audited annual accounts of the assessee. He therefore stated that INR 5338/- lakhs and INR 7372 lakhs of reimbursement received were correctly added to the operating cost. He submitted that the reimbursements are part of the cost and revenue of the assessee and therefore they cannot be excluded. With respect to the 2 comparables he submitted that the learned dispute resolution panel has given a tribulation of both this comparable is and therefore to be functionally comparable with the assessee. Therefore it is proved that these 2 companies do not on any brand value and hence the argument of the learned authorised representative is incorrect that both these companies on huge brand value and therefore they should be excluded. 12. We have carefully considered the rival contentions and perused the orders of the learned transfer pricing officer and the learned dispute resolution panel which were later on rectified. There are only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore the learned TPO is directed to remove the addition made of INR 1 2710/ lakhs to the other operating expenses of the assessee. 14. Coming to the acceptability of 2 comparable companies being Micromax informatics Ltd and Lava international Ltd where the assessee has claimed that both these companies have the brand available to them have been shown to be correct by producing the extracts from the website of controller general of patents, designs and trademarks, government of India. Such evidences are placed at page number 77 82 of the paper book. On perusal of page number 77 of the paper book it is apparent that Micromax informatics Ltd have certain brand available to it. However the status of such brand in some of them are mentioned as abandon in 2 cases and registered in case of one registration. Further on perusal of page number 79 of the paper book in case of Lava international Ltd, several brands are found to be registered. Therefore, apparently it cannot be said that both these company does not have any brand. The learned dispute resolution panel has also given a finding that on the basis of the annual report of these companies there does not exist ..... X X X X Extracts X X X X X X X X Extracts X X X X
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