TMI Blog2020 (10) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... Ram Lal Negi, JM For the Assessee : Shri Milin Thakore - AR For the Revenue : Shri Vodhal Raj Singh - DR ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.3903/Mum/2016 and CO No.152/Mum/2019 for A.Y.2010-11 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-57, Mumbai in appeal No.CIT(A)-57/Arr.82/2015-16 dated 03/02/2016 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 13/03/2014 by the ld. Income Tax Officer 6(3)3, Mumbai (hereinafter referred to as ld. AO). 2. The ground Nos.3-6 raised by the revenue is with regard to deletion of adjustment to arm s length price in respect of AMP expenditure by the ld. CIT(A) on merits. We find that assessee had also preferred cross objection before us on the ground that AMP expenditure would not fall within the ambit of an international transaction and hence, no adjustment to arm s length price (ALP) need to be made thereof. Since assessee has raised a legal issue in its cross objection, it would be proper to take up cross objection of the assessee for the purpose of adjudication before proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, the preliminary objectionraised by the assessee that AMP expenditure is not an international transaction was dismissed by the ld. CIT(A). 4. Aggrieved, the revenue is in appeal before us on merits and the assessee has preferred cross objections before us on the legal issue. 5. We find that this Tribunal in assessee s own case for the A.Yrs.2008-09 and 2009-10 in ITA No.4350 and 4415/Mum/2014 and ITA No.84/Mum/2015 and Cross Objection No.33/Mum/2015 for A.Yrs 2008-09 and 2009-10 respectively vide order dated 08/07/2016 already held that AMP expenditure is not an international transaction and hence, no ALP adjustment could be made thereon. This Tribunal had also placed reliance on the decision of the Hon ble Delhi High Court in the case of Maruti Suzuki India Ltd vs CIT reported in 64 taxmann.com 150 (Delhi HC). The relevant operative portion of the said tribunal order is reproduced as under:- 7.We have heard the rival submissions and perused the material before us. Before proceeding further, it would be useful to understand the philosophy of the TP provisions. It is said that the purpose and object of introduction of the provisions contained in Chapter X is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee and the brand owned and supported by its AE. In the modern world both exist and play different and specified roles. Therefore, until and unless some -thing positive is brought on record about sharing/ incurring AMP expenditure under the head by an assessee on behalf of its AE, it cannot be held that it should have recovered some amount from the AE as the expenditure by it indirectly helped in augmenting the brand value owned by its overseas AE .If the AMP expenditure incurred by an assessee benefits the AE indirectly it would not mean that it was an IT. The basic purpose of introducing the various provisions of chapter X, as stated earlier, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas AE. In our opinion, a perceived/notional indirect benefit to the AE, due to incurring of certain expenditure by an assessee in India, is not covered by the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and that those parties were located in India. 7.2.In the cases of Bausch Lomb Eyecare(India) Pvt. Ltd(supra),the issue of AMP expenses had been deliberated upon extensively an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1), be deemed to be a 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the 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 ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplicit arrangement, the fact that the benefit of such AMP expenses would also ensure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omb (supra)there is no scope of any other interpretation about the AMP expenditure. In the case under consideration, the AO/TPO has not brought anything on record that there existed and agreement, formal or informal between the assessee and the AE to share/reimburse the AMP expenses incurred by the assessee in India. In absence of such an agreement the first and primary precondition of treating the transaction-in-question an IT remains unfulfilled. Conducting FAR analysis or adopting an appropriate method is the second stage of TP adjustments. The first thing is to find out whether thedisputed transaction in is IT or not. Without crossing the first threshold second cannot be approached, as stated earlier. In the case under consideration, we are of the opinion that AMP expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. Considering the facts and circumstances of the case under consideration, we are of the opinion that the FAA was not justified in upholding the order of the TPO. Therefore, reversing his order, we decide second ground in favour of the assessee. 5.1. Respectfully following the aforesaid decision of this Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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