TMI Blog2019 (5) TMI 1798X X X X Extracts X X X X X X X X Extracts X X X X ..... to the AE may be incidental. The settled legal position as discussed at length is that the supporting facts have to be brought on record by the Revenue to discharge the onus placed on it and presumption alone that expenses are excessive by way of some arbitrary parameters which lack judicial and statutory support cannot be subscribed to. In the absence of any such fact which has been referred to by the Revenue, the presumption drawn has no legal legs to stand on and deserves to fail. Co-ordinate Bench in the immediately preceding assessment year where Joint Venture Agreement existed between Widex A/S Denmark and Mr. T.S. Anand in the ratio of 78.43% and 21.57% wherein a similar issue was considered and the issue was stated to be covered by the assessee and contested by the Revenue. We find that the parties were in agreement that change in shareholding pattern in the year under consideration had no impact is a position which has not been varied despite the fact that the change was pointed out by the Bench. In the facts as they stand, we then find that since the said factor is stated to be not a relevant or material fact and when considered in the context of the case laws cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment towards mark up. 6. That the Ld. AO/TPO/DRP has grossly erred in failing to appreciate and apply the principles laid down by Hon'ble Delhi High Court and various tribunal decisions in letter and spirit, thereby proceeding to make separate adjustments towards AMP expenditure by reference to the very same comparables used for benchmarking other international transactions pertaining to the distribution segment. Thus this duplicative approach that has been used is ultra vires under the law and should be held as invalid just as the Bright line Method. 7. Ld. AO/ Ld. DRP erred in presuming existence of international transaction, relying on irrelevant material, upholding application of Bright line test, directing inclusion of selling and distribution expenses, concluding that existence of international transaction of AMP is not even necessary while upholding adjustment, directing TPO/AO to carry out further verification/analysis and in upholding two protective adjustments in addition to substantive AMP adjustment. 8. Impugned assessment order / demand as also protective adjustments are self- contradictory, unlawful and contrary to law and further decision making p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made. The application was dismissed by order dated 28.12.2017 in M.A. 76/CHD/2017 ( copy filed). The ld. Sr.DR agreed that M.A. had been filed. It was his submission that since the Revenue did not succeed before the ITAT, the issue is pending before the Hon'ble High Court. The Ld. AR on the other hand relying upon the Miscellaneous Application dated 28.12.2017submitted that there is no other agreement and this repeated insistence of the Department has been addressed by the assessee. 5. The Ld. AR addressing the assessee's stand has also filed an application requesting for admission of additional ground as ground number 8(a). Subsequently the assessee has filed another application requesting for admission of another additional ground titled as 8 (b) without prejudice to the main arguments advanced. It was his submission that the arms length calculation resorted to by the TPO on the directions of the DRP by applying the intensity adjustment is opposed in principle by the assessee as it is invalid in law and a mirror image to Bright Line Test which does not have any judicial approval. However, without prejudice to this argument, it was his submission that there are ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said finding it was his submission that these varying stands of the department demonstrate the pre-mediated determination to somehow make an addition. This wavering and varying stand without addressing whether the addition is to be made on a protective basis as they describe or on a substantive basis or Intensity basis as they propose clearly demonstrates the hollowness of their claim as it unfailingly demonstrate that where the tax authorities themselves are not sure as to which calculation is correct, the occasion to fault the assessee does not arise. 5.1 It was also his submission that the multiple different ways of calculation and the different calculations have admittedly been made in the absence of relevant Rules in the provisions and the Act. The said actions, it was argued accepts that it is not possible for the Revenue to come to one acceptable computation. Thus, where the department itself is unsure faulting the assessee for not following the nonexistent Rules and provisions is contrary to all settled legal principles and canons of taxation. It was his submission that it is well accepted that there should be certainty of who is to be taxed; what event is to be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlier has made a statement at bar that apart from the Joint Venture Agreement, there is no other Agreement. However, at the time of dictation, it was noticed that the parties have been in an error in mentioning that the facts of the two years are identical as the TPO in his page 3 of his 46 paged order has noticed that the assessee in the year under consideration is 100% subsidiary of AE (Widex A/S. Denmark) with GSA Invest A/S, Denmark having only 1 share. The DRP, it was noticed at page 6 of its 90 paged on the contrary proceeds on the footing that Widex India is a Joint Venture between Widex A/S Denmark and Mr. T.S.Anand. The facts considered by the DRP in as much as that there was no change in the shareholding pattern of the assessee was admittedly contrary to record. Accordingly, since in the course of the hearings, the parties had also proceeded on the footing that there was no change in facts, the parties were put to notice of this fact and required to address their arguments. The attention of the parties was invited to para 2 page 2 of the order of the ITAT wherein it had been noticed that the share of the AE in the year under consideration as then considered by the ITAT wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, apart from the trade mark Agreements etc., there is no other agreement. Thus, the issue, it was submitted, is fully covered in his favour. Inviting specific attention to page 8 para 8 which continues at page 9 of the order of the ITAT, the ld. AR carried us through the written submissions which had been placed on behalf of the assessee, which have been recorded at page 12 of the ITAT order and considering these, the ITAT relying on the decision of the Hon'ble Delhi High Court in the case of Bausch Lomb 381 ITR 227 (Delhi) allowed the appeal of the assessee. Para 11, 12 and 13 of the order of the ITAT were heavily relied upon. Inviting specific attention to the decision of the Delhi High Court in the case of Bausch Lomb which has been extracted at pages 17 to 21 of the order of the ITAT, specific attention was invited to para 62 of the aforesaid decision wherein the fact that the holding company held 99.9% shares in the assessee, it was submitted, was a near similar fact in the said case also. Accordingly, it was his submission that the change in share holding pattern has no impact specifically when taken into consideration the fact that there was no other agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to place the written reply of the AO/TPO on record. The ld. Sr.DR as noted has placed the TPO s reply on record stating that the change in shareholding pattern in the year under consideration does not impact the issue. For the sake of completeness, the departmental response is extracted hereunder: OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX TRANSFER PRICING OFFICER-1(3)(2), ROOM NO.510, 5th FLOOR, E-2, BLOCK, CIVIC CENTRE, MINTO ROAD, NEW DELHI F.No. TPO - 1(3)(2)/COMMENTS/2018-19/481 Dated : 25.02.2019 The Assistant Commissioner of income Tax, Circle 2(1), Chandigarh, Sub: Appeal in the case of M/s Widex India Pvt. Ltd. AY 2012-13 in , ITA No. 269/CHD/2017-reg. Please refer to ITAT's order dated 01/02/2019 disposing the stay application of the assessee. 2. While passing the above mentioned order the Hon'ble ITAT has questioned about the changed share holding structure of the assessee company from earlier year to the previous year. The tribunal has asked to file written submission addressing the change of share holding pattern of the assessee company. It is pertinent to mention here that in the AY 201112. 21.57% of_ shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's own case. 14.1 The ld. Sr.DR opposing the prayer, re-iterated the departmental prayer stating that the order may be upheld. The issue, it was submitted, was before the Hon'ble High Court as the assessee before the ITAT had not placed the complete agreements and accordingly the said order was under challenge. 14.2 The ld. AR Mr. N. Rao as noted earlier also took a strong objection to the line of the departmental argument. It was re-iterated that the department has canvassed these arguments in the Miscellaneous Application before the ITAT. Attention was invited to order dated 28.12.2017 in M.A. 76/2017 wherein it was submitted that the very same arguments of the department namely that there was some other agreement between the assessee and its associated enterprises or any other arrangement had been speakingly dismissed by the ITAT. It was his submission that even before the Hon'ble High Court on behalf of the assessee, he has made a statement at bar that apart from the Joint Venture Agreement available with the TPO referred to in the earlier assessment year, there was no other agreement and infact in the year under consideration, even this was not relevant. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the very same comparables have been retained for working out the so called excess AMP applying the intensity approach of methodology itself gives approval to the assessee's claim as having been accepted by the TPO that the assessee is a distributor. Thus, in the circumstances, reverse BLT which has been described as intensity approach, it was his prayer, may not be permitted. 14.5 It was his submission that without prejudice to this argument, the assessee addressing the departmental calculations on the basis of which the additions have been proposed and have been made, has pointed out that there are factual inaccuracies and calculation errors in the TPO s/AO s order. The assessee has placed his calculations on record, it was his submission that as far as the year under consideration is concerned, even if for a moment, the directions of the DRP are not interfered with, even in such an eventuality no addition applying this method also can be made, thus since the net impact in the year under consideration is zero . Accordingly, it was his submission that in the year under consideration subject to the department agreeing to the calculations of the assessee, the Intensity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n up the case by way of his written submissions. The ld. Sr.DR argued that though the TPO has given up the issue, however it was his submission that it appears to be an incorrect decision to do so. The ld. Sr.DR was required to address whether he can argue beyond the brief of the AO/TPO as he is standing in to defend the TPO s stand whether in the circumstances, he can go beyond what the TPO instructs, the Sr.DR considering his position submitted that he relies on the order of the DRP and the final assessment order. 16. We have heard the rival submissions and perused the material available on record. Before adverting to the issues which require adjudication in the present proceedings, it is necessary to first address the facts and the reasoning of the respective authorities on record which led to the additions made which are under challenge in the present proceedings. 16.1 The relevant facts of the case are that the assessee in the year under consideration filed a loss return of ₹ 4,62,24,540/- The Assessing Officer after issuing due notices etc. made a reference to the TPO in view of the international transactions entered into by the assessee with its AE. Reference is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and above similar expenses by the accepted comparable entities which constitutes the component of international transaction attributed to the AE towards build -up of intangibles that needs to be suitably compensated by the AE 5,32,86,413 Markup 49.84% 2,65,57,948 Adjustment u/s 92CA 7,98,44,360 16.2 The assessee disputed the adjustment as per its reply dated 18.01.2018 extracted in the TPO s order at internal page 10 on the following grounds: The Assessee is a routine/normal distributor which employs routine tangible assets and bears normal risks associated with its operations; The expense incurred is not an international transaction as per section 92B read with section 92F(v) of the Act, which together define an 'international transaction'. Bright line concept is not applicable Expenditure on AMP is incurred by the Assessee as a routine / normal distributor for the purpose of its own business and there is a benefit from the expenditure. The AMP costs were incurred for advertisement in the designated territory o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... line on which the judicial system rests, it also erodes the trust reposed in the fairness of the tax administration. For ready reference, the relevant extract from the TPO s order is reproduced hereunder : (a) LG Electronics India Private Limited v. Assistant Commissioner of Income Tax (ITA No. 5140/DEL/ 2011) A three-member Special Bench was formed in the case of LG Electronics to adjudicate the issue of advertisement, marketing and promotion expenditure. The majority decision held that advertisement carried by LG India using foreign brand coupled with proportionately high AMP expenditure leads to the conclusion that an international transaction exists between the LG India and LG Korea. Hence, it was held that AMP expenditure is an international transaction. In addition to the above, following are a few key principles laid down by the Special Bench: Dealer incentives, point of sale expenditure, etc. does not constitute AMP expenditure; Only advertisement and publicity expenditure constitutes the AMP expenditure. The same is required to be benchmarked to determine the compensation for the brand building activity undertaken by LG India; Bright-line is a to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing set-off: o Any reimbursement, grant, subsidy received by the Indian entity from the AE on account of AMP; o Additional margins earned by India entity from the distribution operations over and above the comparable margins. (c) Maruti Suzuki India Limited v. Commissioner of Income Tax (ITA No. 110/2014 and 710/2015) Delhi High Court adjudicated the appeals pertaining to Maruti Suzuki India Limited ( MSIL ). In the said order, the Delhi High Court distinguished the earlier order issued in case of Sony Ericsson and held that the AMP expenditure is not an international transaction. The key highlights of the order are: The order of the High Court in case of Sony Ericsson and others, was restricted to distributors, hence, there was a need to adjudicate the issue in the case of full risk / licensed manufacturers; The Sony Ericsson decision was on the premise that AMP is an international transaction and dispute pertained to adequacy of compensation to Indian subsidiary for incurring and performing marketing and non-routine AMP expenses; MSIL contended the existence of an international transaction in respect of the Indian transfer pricing regulations and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AMP adjustment, the existence of transaction was deduced from comparison of AMP / sales of WOIL with the bright-line and the expenditure in excess of bright-line was held to be the TP adjustment. Brightline has been disregarded in the case of Sony Ericsson and there is no other mechanism specified in the Act to establish the existence of an international transaction on account of AMP; (emphasis supplied by the Bench) In relation to the allegation of the AO / TPO that WOIL and its AE have acted in concert for incurrence of such expenditure by the former at the behest of the latter, the Court held that the RAs have failed to demonstrate based on any tangible material that the parties have acted in concert and that there is an arrangement between the two for such incurrence of AMP expenditure. (e) Bausch Lomb Eyecare (India) Private Limited v. The Additional Commissioner of Income Tax (ITA No. 643/2014F (f) Honda Siel Power Products limited v. Deputy Commissioner of Income Tax (ITA No.346/2015) In both the decisions of Bausch Lomb Eyecare (India) Private Limited ( BL ) and Honda Siel Power Products Limited ( Honda Siel ), the High Court ruled out existe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s length by the TPO; TPO may not use any fresh data but may re-use the data already on record for benchmarking the AMP transaction, considering the rejection of bright-line by High Court in Sony Ericsson; and TPO to apply principles laid down by High Court in the case of Maruti Suzuki India Limited (ITA No; 110/2014 and ITA No. 710/2015) for benchmarking AMP transaction during remand proceedings. (h) Yum Restaurants (India) Private Limited v ITO (ITA No 349/2015 and 388/2015) In the said appeals the Hon'ble High Court, held the following:- Examination of the agreement of the Assessee, its marketing arm and franchisees is required to determine if any AMP expenditure is incurred by Yum India for creation of marketing intangibles for its AEs; Once the transaction between Yum India and its AEs is established, then, the question arises, whether such transaction of creation of marketing intangibles is at arm's length In view of the above questions, the Hon'ble High Court remanded the matter back to the files of AO / TPO for determination of international transaction and determination of ALP of such transaction in light of decision in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Internal Revenue Tax Court case, DHL corporation, TCM 1998-46 laffd in part, rev'd in part 285F.3d.1285, 89AFTR2d 2002- 1978 (CA-9,2002) decided in 2002; the Glaxo Smith Kline Holding (Americas) Inc. Vs Commissioner, T.C No.5750-04, Glaxo Smith Kline Holding (Americas) Inc Vs Commissioner, T.C. No 6959-05 and Australian legal position as set out in Australia published guidance in 2005 (NAT 14586-11.2005) related to the compensation of distribution / marketing companies for activities that enhance the value of marketing intangibles that they do not own. 16.7 Accordingly, rejecting the assessee's explanation, he required the assessee to make a submission on bench-marking the transaction. 16.8 The assessee submitted that AMP expenditure cannot be segregated and has to be bench marked by aggregating the same with the distribution activity as it was closely and directly linked to its distribution activity and hence if at all it should be bench marked using RPM. The assessee supported the said argument by placing reliance on the decision of the Delhi High Court in the case of Sony Ericsson wherein the Court has held that; Where the Assessing Officer/TPO accepts the compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able analysis of the tested party and the comparable would include reference to AMP expenses. In case of a mismatch, adjustment could be made when the result would be reliable and accurate. 16.11 The TPO noting that since no reliable comparables were found to have been proposed which performed both distribution and similar AMP function, accordingly concluded that a transaction by transaction approach of separately bench marking the AMP expenses on facts was justified. Relying on the decision of the Delhi High Court in the case of Sony Ericsson he concluded that the Hon'ble High Court has held that when suitable comparables are not available, then a segregation approach may be adopted for the purposes of bench marking. 16.12 The TPO concluded that the assessee has failed to show that the AMP expenditure was compensated by the AE through a set of any other transaction. Accordingly, adjustment was proposed on protective basis in the following manner : Adjustment on protective basis 65. Since the instant matter is sub-judice before various appellate forums, the benchmarking is being initially done on a protective basis/ in accordance with the stand of the Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparable entities which constitutes the component of international transaction attributed to the AE towards buildup of intangibles that needs to be suitably compensated by the AE 5,32,86,413 69. The difference of ₹ 5,32,86,413/- represents the amount that has been spent by the assessee to create the marketing intangible and should have been reimbursed by the AE along with a mark-up. The question of mark-up arises because you have provided some service for promoting the marketing intangible owned by your AE. For these services, you should be eligible for remuneration equivalent to your gross profit to sales ratio (49.84%). Therefore, because of the efforts made by you, a further mark up of 49.84% on the above AMP spend amount is considered appropriate which is computed as under:- Value of Gross Sales of the assessee 36,19,12,878 AMP/Sales ratio of the Comparables 2.38% Amount that represents similar expenses on AMP by the accepted comparable 86,13,526 Total Expenditure on AMP by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Sales of the assessee 36,19,12,878 AMP/Sales ratio of tine Comparables 2.38% Amount that represents similar expenses on AMP by the accepted comparable entities 86,13,526 Total Expenditure on AMP by the assessee, as computed above 1,99,69,057 Expenditure over and above similar expenses by the accepted comparable entitles which constitutes the component of international transaction attributed to the AE towards build up of intangibles that needs to be suitably compensated by the AE 1,13,55,531 Markup @ 19.55% 22,20,006 Adjustment u/s 92CA 1,35,75,537/- 82. The above amount of ₹ 1,35,75,537/- is being proposed as an adjustment u/s 92CA of the Income-tax Act on substantive basis. Since the AMP issue is sub-judice before various appellate forums, the benchmarking was initially done on a protective basis resulting in an adjustment of ₹ 7,98,44,360/-u/s 92CA of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the inventory holding is not more than 3 - 4 Months and technology is not prone to change No Risk The above far analysis establishes that the AE has benefits and risks in the Indian market and is dependent upon the DEMPE functions carried out by the Indian subsidiary that is the taxpayer. Thus, a natural consequence is that the Indian taxpayer should be suitably compensated for the DEMPE functions being carried out by it. 17.2 We find on a reading of the DRP s decision that the abrupt conclusion that the assessee is performing DEMPE functions unilaterally arrived at has no build up either by way of any prior discussion or basis for the conclusion on facts. The acronyon DEMPE stands for Development, Enhancement, Maintenance, Production and Exploitation of the intangibles. For the said abrupt conclusion, we find there is no supporting discussion in the order or what was the assessee's stand thereto. Though the issue is not relevant for adjudicating in the present proceedings, we briefly refer for the sake of completeness hereunder to the 6 steps envisaged for addressing the same : 1. Identify the intangibles and risks within a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Purchase of goods from AE 11, 74,88,410 13,61,14,710 16,23,32,008 12,60,73,607 18,85,23,124 6.6 Selling and Distr ibution Expenses of the Assessee for Past Five Years The assessee has provided, the following details pertaining to all selling and distribution expenses incurred by it in the past five years to the Panel. Particulars FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 Advertisement Expenses 1,22,89,791 34,58,863 1,56,52,452 2,03,05,084 1,71,73,609 Inauguration Expenses 7,61,591 99,901 1,22,322 2,41,643 55,537 Marketing Expenses - - - 7,60,266 Business Promo Entertainment 5,79,450 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith evidences on all the risks assumed, risk mitigations undertaken and risks in practice materialized in India and who has borne the loss due to the same. What were (he reimbursements/compensation by the AE in this regard to the taxpayer? In this regard, we wish to mention that the Assessee is the exclusive distributor of Widex products under the trade name 'Widex in the geographical territory of India. The Assessee operates in the capacity of a 'full-risk bearing entity1 and is exposed to all entrepreneurial risks and rewards associated with its trading operations. The Assessee assumes all functions relating to trading such as forecasting demand, scheduling timely purchases, sales and marketing, warehousing, distribution and supply, estimating expected sale price and making recommendation to dealers / retailers on retails prices etc. There are no arrangements guaranteeing Assessee a return on the expenses it bears or making up for any financial losses it may experience for the relevant year. Thus, the operating income or loss realized by the Assessee is directly dependent on the financial success or failure of its entrepreneurial efforts, including its marketing, ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Knorr Bremse India P.Ltd. by the Hon'ble Punjab Haryana High Court. 17.8.1 It is seen that reference made to the decision of the Hon'ble Delhi High Court in the case of Toshiba (India) Pvt. Ltd. was misplaced as the said decision does not, in any way, lay down the proposition that bundled approach for considering the transaction identified by the tax authorities was ousted outrightly. 17.8.2 Similarly, it is seen on a reading of the decision of the Hon'ble Punjab Haryana High Court in the case of Knorr Bremse India P.Ltd (supra), the Court noted that the assessee failed to point out anything on record to suggest that each of the transactions entered into with different entities were infact one single transaction however, noting that since facts were not available considering the prayer of the assessee, the issue was remanded back. Accordingly, by no stretch of imagination, it can be said that the said decision lays down the proposition that the Bundled Approach was negated by the Court. On the contrary, the said decision lays out the proposition that even where in a case the assessee even before the High Court, fails to point out supporting evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons that were forthcoming, were apparently unconvincing. What the assessee banks upon in its appeal to this Court is the unbending and inflexible acceptance of its TP exercise; according to its logic, a bundled or aggregated series or chain of transactions used in the TP report should remain undisturbed. Now, there can be no dispute that the AO would normally accept the figures given, if they do not show features that call for his interference. However, his job also extends to critically evaluating materials and in cases which do require scrutiny, go ahead and do so. In the process, at least in this case, the unusual features which remained unexplained by the assessee, influenced the TPO and the AO to resort to transfer pricing adjustment and determine ALP by adopting the CUP method for the procurements from Sumitomo Japan. The second test spoken of in Sony Ericcson -(supra) i.e 4he form and-. substance of the transaction were the same but the arrangements made in relation to a transaction, when viewed in their totality, differ from those which would have been adopted by an independent enterprise behaving in a commercially rational manner. was in effect adopted. This Court fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to suggest suitable comparables for the segregated approach in the following manner : 13.2 Assessee's failure to suggest suitable comparables for the aggregated approach During proceedings before the DRP, the assessee has not been able to controvert the fact that the above companies are not suitable comparables, for benchmarking the AMP expenditure following the aggregated approach. The assessee has also failed to file any new comparables which may be suitable for this purpose. In view of these facts, no suitable comparable is available for benchmarking the AMP expenditure following the aggregated approach The AMP to sales ratio is a good measure of the AMP intensity. In the above companies, the AMP to sales ratio ranges from 0% to 6.78%, The average AMP expenditure is 2.38% of sales, as compared to the assessee's AMP expenditure of 17.10% of sales. The above companies show a very wide range of AMP expenditure and intensity. The AMP intensity of the assessee is very different from the AMP intensity of the above comparables. In view of these facts, the above companies are not suitable comparables for the purpose of comparing AMP expenditure. As discussed above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Rule 10B(l)(f). The said observation is patently contrary to the settled legal position. To revert back, the DRP proceeded to conclude at internal page 72 of its order as under : 14.4 Conclusion This issue has been discussed in detail by the TPO in his order. The decision of TPO to use the bright line method on a protective basis is supported by the judicial decisions and Rule 10AB discussed above. The TPO has placed reliance on the decision of the Hon'ble ITAT in LG Electronics. The TPO has held that expenses up to the Bright Line are routine in nature and since the assessee has incurred AMP expenses in excess of the Bright Line, the amount in excess of the Bright Line has been held to be non-routine AMP expenditure for the creation of marketing intangibles. The TPO has used the Bright Line method to segregate routine and non-routine AMP expenses. He has used similar comparables and worked out the Bright Line of AMP expenses. The selection of comparables and the computation of Bright Line has been discussed in detail in the TPO's order. Considering the facts as above and that the department's SLP has been admitted, the TP adjustment made using the bright li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irections finally in the following manner : 16. Final Conclusion Summary As discussed Issue wise above the TPO has given valid reasons for his decision. The various issues raised by the assessee in its Grounds of objections have been discussed in the above paras. The assessee has failed to controvert the findings of the TPO. The Assessee objection to it being an international Transaction has been discussed in great detail and on the basis of adequate support from judicial Decisions it has been successfully held to be an International Transaction. The Far Analysis and Justification for Compensation has been discussed in Para 6 which is adequately supported by the BEPs report as discussed in para 7. This takes care of most of the Assessee's objections. As discussed, the assessee has also failed to demonstrate that the AMP expenditure done by the assessee was compensated by the AE through a set off in any other Ha-action. After discussion on why the transaction needs to be separately benchmarked the use of Cost plus method has been justified and is upheld. In view of the SIP filed against the decision of Sony Ericsson the TPO has been directed not to exclude selling an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in the case of Sony Ericsson (2015) 374 ITR 118 (Delhi) has been extensively referred to by the TPO and the DRP. A careful perusal of the same shows that in the facts of that case, the Hon'ble Court was not called upon to decide whether AMP was an international transaction or not. The assessees before the Court did not dispute the existence of an international transaction. This legal position is well settled and is no longer open for debate as had been well elaborated and discussed in a plethora of cases which came subsequently thereafter namely Maruti Suzuki India Ltd. Vs CIT (2016) 381 ITR 117 (Delhi); CIT Vs Whirlpool of India Ltd. (2016) 381 ITR 154 (Delhi); Bausch and Lomb Vs ACIT (2016) 381 ITR 227 (Delhi). There is no doubt whatsoever that the decision in the case of Sony Ericsson proceeded on the footing that AMP expenses was accepted by the parties to be an international transaction. This material fact cannot be lost sight of. A perusal of the aforesaid decisions leaves no doubt whatsoever that the decision rendered in the case of Sony Ericsson came up repeatedly for examination where the respective assessees pleaded in each of the cases that AMP expenses incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier paras to our minds un-ambiguously settles the legal position that the existence of an international transaction cannot be presumed on account of excessive AMP incurred. There can be no debate at this stage as the Courts have been very clear and categoric in holding that the existence of the international transaction has to be demonstrated and the onus to do so is on the Revenue. The Revenue has to show that there existed an agreement or an understanding or an arrangement that an Indian entity would enter into AMP expenditure for and on behalf of the AE which owns the brand. The legal position as settled by the Delhi High Court would show that after the decision of the Delhi High Court in the case of Sony Ericsson in early 2015 the Delhi High Court in the series of decisions rendered on 11.12.2015, 22.12.2015 and 23.12.2015 in the cases of Maruti Suzuki India Ltd., CIT Vs Whirlpool of India Ltd. and Bausch Lomb Eyecare India Pvt. Ltd. respectively have one after the other repeatedly held that existence of international transaction of AMP cannot be presumed, it has to be demonstrated by the Revenue. We find on a perusal of the record that not only the TPO in the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them should be non-resident. The transaction, it has been defined should be in the nature of purchase, sale or lease of tangible or intangible property or provision of services or a transaction of lending or borrowing money. The statute makes it clear that any other transaction can also be contemplated which has a bearing on the profits, income, loss or assets of such enterprise. The Statute further makes it clear that the word transactions contemplated in the provision will also include mutual agreement and the arrangement between the parties for allocation, apportionment or any contribution to any cost or expense incurred or to be incurred in connection with benefit, services and facility provided to any of such enterprises. A reading of sub-section (2) of the above also makes it clear that a transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of subsection (1), be deemed to be an international transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... understanding or action in concert whether or not such arrangement, understanding or action is formal or in writing; whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding or not. The relevant definition as available in the Statute is extracted hereunder : Definitions of certain terms relevant to computation of arm s length price, etc. 92F. In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires,- (i) . (ii) . (iii) (iv) . (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.] 18.8 When the definition of transaction is read along with the definition given in Section 92B it clearly emerges that first it is necessary to cross the bar as set out in Section 92B(1) and the transaction so sought to be classified should also fall within the definition as set out in Section 92F. The Courts in the three specific decisions rendered in December,2015 have cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the legal position as he chose to understand rejected the assessee's claim. Relying on the very same FAR analysis on the basis of which it was claimed that the assessee was infact independent risk bearing distributor was rejected by the DRP also on the reasoning that the assessee in its TP Study has claimed to be a low risk distributor and repeated the said argument before the TPO cannot now be allowed to claim to be a high risk distributor. The TPO s stand was upheld and enhancement on the protective calculations was directed further alternate calculation methodology also on a protective basis was prescribed. Before we advert to it, it is appropriate to first refer to the FAR analysis extracted by the TPO and the DRP and addressed by the assessee before the Tax Authorities. As noted, the assessee in its TP Study claims to be a low risk distributor and the major risks associated with product technology, warranty and market risks were stated to borne by the AEs as they own the marketing and commercial intangibles with respect to the products. For making these claims, the following FAR analysis carried out by the assessee in its TP Study was relied upon by the assessee and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under condition of perfect completion, increase in an entity's risk should result in an increase in expected return. Under similar circumstances, a risky investment would not be pursued if a lower risk alternative provides the same reward. Therefore, controlled and uncontrolled transactions and entities are not comparable if tiny do not assume similar risk and it is not possible to make appropriate adjustments for the differences in risk assumed. Markets Risk Market risk occurs when an entity is subjected to adverse sales conditions due to either increased completion in the marketplace, adverse demand conditions within the market, or the inability to develop markets or position products to service targeted customers. Markets risk represents standard risk borne by any enterprise in market driven transactions. Market risk affects the ability of a company to meet short and long term financial obligations if price and/or quantities demanded decrease. Widex India does not have any exposure to market risk as it is only a trading in hearing aids provided by AE after customization as per user requirements. The market risk are borne entirely by AE. Product Liability /W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AEs bear the major risks associated with product technology, warranty and market risks. They bear these risks, as they own the marketing and commercial intangibles with respect to the products. [Unquote] 18.12 As noted in the earlier part of this order in detail, the TPO identifying the comparables selected by the assessee proceeded to apply the Bright Line Test and excluded the direct selling expenses. No further authority still needs to be quoted to hold that the application of Bright Line Test does not have judicial sanction and the TPO erred in resorting to it. We have also seen that the DRP though conscious of the decisions of the Delhi High Court in the case of Sony Ericsson amongst others did not give appropriate directions to the TPO and instead proposed a procedure which also does not have any legal sanction i.e. the intensity approach. The methodology, therefore, does not require any detailed discussion as the methodology itself does not have any either statutory recognition or legal sanction. For the purposes of the present proceedings, suffice it to say that the DRP directed that the very same companies which were identified for bright line test for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's grievance which deliberations would show that the legal position as canvassed by the parties was fully addressed by the aforesaid decision. The issue identified by the Court is extracted hereunder for ready reference: The issue 2. These appeals concern the issue of transfer pricing ('TP') adjustment in relation to the incurring of advertisement, marketing and sales promotion ('AMP') expenses by the Indian entities involved in international transactions with their respective foreign associated enterprises ('AEs'). The case of the Revenue is that the arm's length price ('ALP') of the AMP expenses incurred by the Indian entity i.e the Assessee is required to be determined since it has been using, for marketing and promotion or otherwise the brand of its foreign AE and that the incurring of such AMP expenses, while enuring to the benefit of the Assessee, is also benefiting the brand of the foreign AE. The attempt by the revenue is to attribute some part of the AMP expenses incurred as having been incurred for the foreign AE for which the Assessee is to be compensated or reimbursed by the foreign AE. 18.14.1 Having identified the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of service by the Assessee to the AE? (d) Whether on the facts and in the circumstances of the case, the ITAT erred in law in not appreciating that such a TP adjustment could not at all be made in respect of AMP expenses which were found to constitute legitimate, bona fide and deductible business expenditure and the Assessee was the economic owner of the benefit of such expenses? (e) Whether on the facts and in the circumstances of the case, the ITAT erred in law in not quashing the adjustment made by the TPO using the bright line test , without following any of the prescribed methods for determination of the ALP? (f) Whether on the facts and in the circumstances of the case, the ITAT erred in setting aside the order to the file of the Assessing Officer/TPO for fresh benchmarking/comparability analysis adopting only domestic comparable companies, not using foreign brand?' 18.14.3 The Court in very clear terms referring to Questions (ii) and (iii) projected by the Revenue in para 21 of its order held that these stand answered by the decision in Sony Ericsson Mob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stava, the Court noted, argued that clause 3.2 thereof indicates that the Assessee has no rights in the trade name and that the manner of the use of the trademark has to be approved by Whirlpool USA; Clauses 6.1, 6.2 and 6.3 indicate that the contents of the advertisements for brand promotion also needs to be approved. It was seen that during the FY in consideration, the Assessee had received a grant of ₹ 1.66 crores from its AE. In the earlier year, it received ₹ 4.22 crores. The nature of this grant had not been specified and this was also not shown as an international transaction in the TP report. This according to him was a clear indication that the Assessee was getting certain amount of contribution from its AE towards the expenses incurred . This showed that the AE was sharing some part of the cost and it would be a matter to be examined whether such contribution is at arm's length . 18.14.7 Considering the following arguments in the context of the Trade Name Licensing Agreement, the Revenue also argued : 29. Mr. Srivastava submits that Clause 19.2 of the TLA indicates that the AE's primary objective in entering into this agreement was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act which defines international transaction , the Court was pleased to hold that; Under Sections 92B to 92F, the pre-requisite for commencing the TP 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 that of the ALP and make the TP adjustment by substituting the ALP for the contract price. (emphasis supplied by bold texting). The Court held that ; A reading of the heading of Chapter X [ Special provisions relating to Avoidance of Tax ] 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 the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price. The TP adjustment envisages the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they may agree to cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of persons acting in concert to come into being.'(emphasis supplied by bold texting). In the backdrop of the said legal position, the Court reverting to the provisions under Chapter X held that they also do envisage a 'separate entity concept'. In the circumstances, in unambiguous terms, the Court held, In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the tax radar. In the absence of any clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, should be ascertained and further how the ALP of such a transaction should be ascertained, it cannot be left entirely to surmises and conjectures of the TPO. 40. Mr. Srivastava submitted that Section 92F (ii) which defines ALP to mean a price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions could be construed as a machinery provision. But then that provision refers to 'price' and to 'uncontrolled conditions'. It implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. BLT as a determinative tool has been expressly invalidated by the Court in Sony Ericsson Mobile Communications India (P.) Ltd. (supra). Therefore, it is not possible to view this as a machinery provision. The existence of an intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason for making an ALP adjustment. 18.14.11 The above conclusion drawn by the Court was further fortified by making a reference to the decisions of the Apex Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC) and PNB Finance Ltd. v. CIT [2008] 307 ITR 75/175 Taxman 242 (SC) to hold that in the absence of any machinery provision, bringing an imagined transaction to tax is not possible. For ready reference, the relevant finding is reproduced hereunder : 45. The decisions in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1 (SC) and PNB Finance Ltd. v. CIT [2008] 307 ITR 75/175 Taxman 242 (SC) make it explicit that in the absence of any machinery provision, bringing an imagined transaction to tax is not possible. Here, therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. 46. As already mentioned, merely because there is an incidental benefit to Whirlpool USA, it cannot be said that the AMP expenses incurred by WOIL was for promoting the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble High Court in the aforesaid decision amongst others, we are of the view that there is nothing in the conduct of the assessee referred to by the Revenue to show that the incurring of AMP was an international transaction and not a function of the assessee as a distributor. There is no reference to any instance of concerted action or design so as to suggest that the advertising, marketing and promotion expenses were not for the benefit of the assessee and were infact for the benefit of the AE. In the facts as they stand, the expenses incurred for the benefit of the assessee exploiting the brand of the AE cannot be termed as an international taxation on presumptions where at best benefit to the AE may be incidental. The settled legal position as discussed at length is that the supporting facts have to be brought on record by the Revenue to discharge the onus placed on it and presumption alone that expenses are excessive by way of some arbitrary parameters which lack judicial and statutory support cannot be subscribed to. In the absence of any such fact which has been referred to by the Revenue, the presumption drawn has no legal legs to stand on and deserves to fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re much less excessive marketing expenditure to benefit the AE. The Ld. counsel for the assessee stated that the onus to prove existence of international transaction was on the Department and having failed to do so the entire adjustment deserves to be deleted. Reliance was placed on the following decisions in support of his above contention : 1) Bausch and Lomb Eyecare (India) Pvt. Ltd. v. Addl. CIT, 381 ITR 227 (Del) 2) Amadeus India Pvt. Limited (I.T.A.T. Delhi) L Oreal India (P) Ltd. (I.T.A.T., Mumbai K Bench 3) Sony Ericsson Mobile Communications India P. Ltd. v. Commissioner of Income Tax (2015) 374 ITR 118 (Del) 9. The next contention of the Ld. counsel for the assessee was that without prejudice to the above contention, the selling expenditure were to be excluded from AMP, which despite the clear directions of the DRP had not been done. Ld Counsel for the assessee further argued that all the dealings with the associated enterprises were at arm s length and the AO had ignored the fact that no royalty payment was made by the assessee for use of the established trade mark/brand usage. Ld.Counsel for the assessee contended that the Ld.DRP had substituted gross marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n upon appellant company to undertake marketing expenditure - much less excessive marketing expenditure to benefit AE Bausch and Lomb [(Delhi High court 381ITR 227) from paragraphs 51 to 67 more particularly paras 61,65and 67] Amadeus India Pvt limited [(ITAT - Delhi 1-2 bench paragraphs 4 to 8.4 more particularly para 7, 8.1, 8.2, 8.3 8.4)], L'Oreal India (P) Ltd., [(ITAT ,Mumbai K Bench) paragraphs 2.1 ,2.2 2.4}, Sony Ericson (374 ITR 118 decision of 16.3.2015 - paras 82,100,101,159,160,161, 164 and 176) and Sony Ericsson [decision of Hon'ble Del High court on 28.1.2016 - para 11 (ii)] were cited at the hearing. With reference to particular paragraphs of above decisions it was submitted that onus to prove existence of international transaction is on department. In Appellant's case department has failed to discharge this onus. On this ground itself, without anything further, entire adjustment deserves to be deleted. 111. Without prejudice to above selling expenses are to be excluded for AMP: o Purpose of such expenditure was to increase Appellant's sales Details of expenditure can be found at pages 123 to 125 and 130 of Paper book; no basis cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of hearing) and ignores that AMP expenditure should be ₹ 1.88 crores after exclusion of non- amp expenditure ( kindly refer page 146 of paper book). o Department Representatives counter about pendency of further appeals by department on the issue of onus to prove existence of AMP as international transaction cannot be basis for not following decision of Hon'ble High court of Delhi in Bausch Lomb as also series of coordinate bench decisions of Hon'ble Tribunal cited and copies handed over during hearing. Appellant accordingly prays that adjustment relating to AMP deserves to be deleted. 10. Ld. DR on the other hand relied on the order of the AO/DRP. 18.16.1 It is seen that considering these submissions, the Co-ordinate Bench was pleased to hold as under : 11. We have considered the submissions made by the parties and have also perused the material available on record. Undisputedly, the main object of the assessee i.e. purchase of digital aids and its spare parts and import of lab equipment, advertisement material, consumables had been held to be at Arms Length Price by applying TNMM method. No adjustment has been made on this account. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er TP provisions and International Transaction cannot be presumed by assigning some price to it then deciding that it is not at ALP and thus adjusting the same. It was also held that no machinery provision exists qua AMP to determine fair compensation if an international transaction of brand promotion found to exist. We would like to reproduce relevant portion of the judgment in the case of Bausch and Lomb Eyecare (India) Pvt. Ltd. (supra) as follows : The central issue concerning the existence of an international transaction regarding AMP expenses requires the interpretation of provisions of Chapter X of the Act, and to determine whether the Revenue has been able to show prima facie the existence of international transaction involving AMP between the Assessee and its AE. 52. At the outset, it must be pointed out that these cases were heard together with another batch of cases, two of which have already been decided by this Court. The two decisions are the judgement dated 11th December 2015 in ITA No. 110/2014 (Maruti Suzuki India Ltd. v. Commissioner of Income Tax) and the judgment dated 22nd December 2015 in ITA No. 610 of 2014 (The Commissioner of Income Tax-LTU v. Whirlp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. 56. Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection with the benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is any other transaction having a be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., Daiichi Sankyo Company and Ranbaxy were acting in concert within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In para 44, it was observed as under: The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a certain target company. There can be no persons acting in concert unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company. For, de hors the element of the shared common objective or purpose the idea of person acting in concert is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of persons acting in concert is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tived by the Court in Maruti Suzuki India Ltd. (supra) as under: 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions . Since the reference is to price and to uncontrolled conditions it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion qua AMP expenses by the following analogy: 75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods. In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. The issue in the present case, we find ,is identical to that in Bausch Laumb (supra). In the present case, the AMP spend has been treated as an international transaction since it was found to be benefitting the AE only as the brand was owned by the AE. There is no finding of any clause in the agreement entered into between the two parties requiring the assessee to undertake brand promotion expenses on behalf of the AE.The existence of some sort of arrangement between the assessee and the AE obliging the assessee to undertake AMP expenditure on behalf of the AE, has not been demonstrated .On the contrary the obligation to incur the expenditure has been presumed to exist only on the basis of the quantum of expenditure ,and the fact that since the brand was owned by the AE the expenditure was for its benefit only. This basis has already been rejected by the Delhi High Court as we have pointed out above in the case of Bausch and Laumb(supra). Further the TPO has not been able to prove that the AMP expenses incurred was not for the benefit of the assessee. Therefore, in view of the aforestated decision of the Delhi High Court ,international transaction in such circumstances canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Marketing and Promotion (AMP) expenses incurred by the assessee were for the purpose of promoting the brand/development of marketing intangible for Widex products in India and, therefore, was an international transaction in terms of section 92 of the Income Tax Act. The arms length price of the said transaction was determined by applying the most appropriate method (MAM) and addition to the tune of ₹ 4,86,95,241/- was made to the income of the assessee. A draft assessment order in this regard was passed, against which objections were filed by the assessee to the Dispute Resolution Panel, who in turn scaled down the addition to ₹ 4,59,11,663/-. 3. Aggrieved by the same the assessee came up in appeal before the I.T.A.T. and contended that the AMP spend was not an international transaction in the first place and in any case ALP determined of the said transaction was incorrect. The I.T.A.T. found that identical issue had been dealt with by various High Courts in a number of decisions and thereafter referring to the decision of the Hon'ble Delhi High Court in the case of Bausch Laumb Eyecare (India) Pvt. Ltd., 381 ITR 227 (Del) held that the provisions of transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the JV Agreement, which reads as, 22 TRADE MARKET AGREEMENT The Widex Trade Mark Name and Logo is the exclusive property of Widex and both the parties agree to execute a separate agreement in this regard which shall ensure that the Widex Trade Mark, Trade Name and Logo shall at all times remain the property of Widex. There has to be a separate agreement dealing with trademark etc. Ld.DR contended that this agreement was not produced before the TPO during the transfer pricing proceedings which fact has been mentioned in Para 7.1 of the TPO order passed u/s 92CA of the l.T. Act. 1961 dated 29.01.2015. Ld.DR contended that this agreement was important in the case as addition in this case had been done on the basis of AMP expenditure. 10. The Ld. counsel for assessee, on the other hand, contended that the above two clauses in the joint venture agreement nowhere demonstrate that the assessee was entrusted with the responsibility of incurring brand promotion expenses and, therefore, there is no merit in the present Miscellaneous Application filed by the Revenue which therefore needs to be dismissed. 18.17.1 It is seen that the challenge was repulsed by the Co-ordinate B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the change was pointed out by the Bench. In the facts as they stand, we then find that since the said factor is stated to be not a relevant or material fact and when considered in the context of the case laws cited and relied upon, it is seen that the assessee's claim stands addressed. 18.19 Accordingly, for the detailed reasons as set out hereinabove in the earlier paras, we find there is no material referred to whatsoever on record to show that the AMP expenses were excessive and thus be presumed to be an international transaction. We have also seen that the reliance placed by the assessee in the order passed by the Co-ordinate Bench in the immediately preceding assessment year is not misplaced. Accordingly, we hold that the claim of the Revenue fails on the primary threshold itself as we hold AMP expenses incurred by the assessee in the facts as they stand is not an international transaction. 18.20 Since the assessee succeeds on the jurisdictional foundational fact itself, we find that though we have referred in passing to the claims and counter claims on substantive and the two protective assessments and the respective methodologies, however, in the af ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
