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TMI Blog2019 (11) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... - 1) The learned Dispute Resolution Panel/ Assessing Officer erred in holding that 50% of the expenditure incurred on advertisement and publicity was incurred for promotion of products in export markets and consequent thereto, restricting the adjustment to the domestic selling price to 50% of the advertisement and publicity expenses incurred, for the purpose of computing the comparable uncontrolled arms length price in respect of sales made by the Appellant to Associated Enterprises. 2) Without prejudice to Ground 1, the learned Dispute Resolution Panel erred in ignoring the alternate submissions and the benchmarking analysis carried out by the Appellant Company by applying the Internal and External Transactional Net Margin Method. 3) The learned Dispute Resolution Panel/ Assessing Officer erred in disregarding the specific permission granted by the Government of India, Ministry of Commerce and Industry, New Delhi, for the use of Trademark and restricting the royalty paid by the Appellant Company to its Associated Enterprise @ 1% of the qualifying Net Sales as against the royalty payable @ 5% of such sales. 4) The learned Dispute Resolution Panel/ Assessing Officer erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods were sold to its AEs are higher than the price at which goods were sold to non-AE's. However, Ld. TPO opined that the adjustment of advertisement & publicity expenses would not be allowed since the advertisement would have mass product appeal inherent in it and therefore, the said adjustment could not be allowed. Out of export incentive, it was held that exchange gain would be purely hedging income and therefore, the deduction of exchange gain would not be allowed. Regarding cost of credit, the assessee claimed that in domestic market, it extended the credit in distribution chain whereas in export market, any credit in distribution chain is taken care of by its AE. However, in the absence of evidence, the said adjustment was not allowed, Similarly, the adjustment of trade promotions expenditure was not allowed. Finally, as against distribution cost of 2.45% as claimed by the assessee during proceedings, the same was allowed only to the extent of 1.96% of sale price, being rate worked out by the assessee in the beginning of the year. Accordingly, modifying the adjustment on product basis, Ld. TPO proposed TP adjustment of Rs. 603.42 Lacs. Payment for Royalty & Technical know-h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vertisement and publicity were directed to be treated as exclusively for the promotion of products in domestic market and therefore, the adjustment thereof was to be provided to the assessee. The assessee's plea regarding adjustment of sale promotion expenditure was accepted but the adjustment of foreign gains was not allowed. It is evident from final assessment order that the directions of Ld. DRP has reduced the proposed TP adjustment, under this head, to Rs. 79.95 Lacs. 3.3 The Ld. DRP also noted that, as per the direction of Ld. TPO, the assessee had carried out comparability analysis using Transactional Net Margin Method (TNMM), using internal as well as external data and taking operating profit as Profit Level indicator (PLI). The assessee's margin, using internal as well as external TNMM, were shown to be higher in export sales and therefore, it was pleaded that no adjustment would be warranted. However, keeping in view the directions given by Ld. DRP, under CUP method, the said plea was dismissed as being redundant. 3.4 The adjustment on account of royalty payment was confirmed following the order of first appellate authority in AY 2007-08. The ground relating to brand de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Kiwi Products Brand. The documents on record establish that the said rates have duly been approved by Department of Industrial Policy & Promotion, Secretariat for industrial Assistance (SIA), Government of India vide approval letters dated 07/07/2010 & 08/07/2010, the copies of which have been placed on record. The Ld. Sr. Counsel has relied upon the decision of Pune Tribunal rendered in Spicer India Private Limited V/s ACIT (ITA Nos. 376,826/Pun/2016 order dated 09/02/2018 for the submissions that approval of royalty rates by SIA / RBI would constitute CUP data and the transactions were to be considered at Arm's Length Price. On the other hand, the revenue has drawn attention to the fact that similar issue of trademark royalty arose in AY 2007-08 which was restored by the Tribunal vide ITA No.376/Mum/2012 order dated 24/08/2016. The attention has further been drawn to the fact that in the set aside proceedings, vide order dated 31/10/2018, the ALP of the royalty was determined as 3.88% being mean rate reflected by 17 entities. 6.2 Upon due consideration, in line with view taken by Tribunal in assessee's own case for AY 2007-08, we deem it fit to restore the matter of trademar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and sold by the assessee under the Global Brands. In turn, the assessee was to pay to its AE a compensation in proportion to assessee's share in costs of such services computed on the basis of Net Sales Value in certain segment. The perusal of these documents would demonstrate that the impugned payments were made by the assessee pursuant to well defined contractual terms under an agreement. The nature of services being availed by the assessee were clearly spelt out in the agreement and the fact that the allocations were on cost basis, remain uncontroverted. It is also noteworthy that Ld. TPO, without determining the ALP of these transactions by adopting any of the prescribed method, disallowed the entire payment. The same, in our opinion, could not be said to be correct approach. Another fact is that similar payments have been made by the assessee in preceding years which emanates from the same agreement but no such adjustment has bene made in earlier years. Therefore, the given factual matrix does not inspire us to confirm the impugned additions. Hence, by deleting the same, we allow Ground No.5. 8. Finally, the appeal stands partly allowed in terms of our above order. Order pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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