TMI Blog2021 (4) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Dispute Resolution Panel (in short learned DRP ) dated 18.11.2015. The grounds raised by the assessee and the Revenue are reproduced as under: Grounds of appeal raised by the assessee: 1. That on facts and in law the orders passed by the Assessing Officer [hereinafter referred as the AO ] / Dispute Resolution Panel [hereinafter referred as the DRP ] / Transfer Pricing Officer [hereinafter referred as the TPO ] are bad in law and void abinitio. 2. That on facts and in law the AO/TPO/DRP erred in making/proposing/upholding Transfer Pricing adjustment of ₹ 3,98,97,000/- on account of Advertisement, Marketing and Promotion (AMP) expenses. 2.1 That on facts and in law the TPO/DRP erred in not appreciating that in absence of a transaction as envisaged under section 92F of the Act between appellant and its AE for brand promotion or for establishing a marketing intangible the TPO had no jurisdiction to propose an adjustment on account AMP expenses. 2.2 That on facts and in law the TPO erred in holding and the DRP inter alia erred in upholding/observing that the: (i) Appellant had incurred AMP expenditure of ₹ 288.69 lakhs on development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve by 8.52% 6. Without Prejudice, that on facts and in law the comparable set adopted by the AO/DRP/TPO for the purpose of benchmarking AMP transactions is not proper and akin to the FAR of the appellant. 7. Without Prejudice, that on facts and in law the TPO/DRP erred in making/upholding the applicability of a markup of 38.20% on the alleged excessive AMP expenses incurred by the appellant on behalf of the Associated Enterprise. 8. That on facts and in law the AO/DRP erred in making/upholding a disallowance of ₹ 26,09,863/- being depreciation allowance on capital assets converted into stock in trade. 8.1 That on facts and in law the AO/DRP erred in not following the decision of Hon ble ITAT / High Court in appellant s own case in AY 2007-08 on identical issue 9. That on facts and in law while computing the final tax liability the AO erred innot granting credits for TDS Certificates of ₹ 8,40,136/- . That the appellant prays for leave to add, alter, amend and/or vary the ground(s) of appeal at or before the time of hearing. Grounds of appeal raised by the Revenue: 1. On the facts and in the cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied with by the assessee. The Assessing Officer noticed various international transactions carried out by the assessee and referred the matter for determination of the Arms Length Price of the transactions to the Transfer Pricing Officer (in short the TPO ). The learned TPO though did not make any adjustment to the amount of the international transactions reported by the assessee, however, proposed an adjustment on account of international transaction, namely, Creation of Marketing Intangible in favour of the AE arising out of the advertisement and marketing promotion (AMP). The TPO determined the adjustment of ₹ 14,46,58,620/- in his order dated 29.01.2015. Consequently, the Assessing Officer in the Draft Assessment order issued to the assessee included transfer pricing adjustment of ₹ 14,46,58,620/-. Against the said Draft Assessment order, the assessee filed objection before the learned DRP on 20th April, 2015. The learned DRP vide its order dated 18.11.2015, directed the TPO to re-compute the margin of transfer pricing adjustment. In compliance to the direction of the learned DRP, the learned TPO gave effect and computed transfer pricing adjustment on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e over form. Decision of Special Bench in case of LG Electronics reported in 150 ITD 94(Del)(SB) has been followed. (b) Selling expenses like rebate, commission, discount should be included within the ambit of AMP. (c) Assessee company does not own any trademark or brand and had performed significant functions like brand development, market development, etc. on behalf of AE in lndia and hence, the amount of expenses should be reimbursed (d) Bright Line Test has been applied as the Method for benchmarking alleged AMP Transaction. 6.1 We find that in the year under consideration the learned DRP has issued following directions relying upon the decision of the Hon ble Delhi High Court in the Case of Sony Ericsson Mobile Communications India Pvt. Ltd. v Commissioner of Income Tax [(2015) 374 ITR 118] : (a) The assessee has executed an international transaction for incurring AMP expenses on behalf of its AE. (b) Routine selling and distribution expenses shall be excluded subject to the verification by TPO. (c) The TPO to follow decision in case of Sony Ericsson Mobile (supra) and held that Segregated approach is to be applied for separating routine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this exercise. 19. Ld. TPO also observed that AMP expenditure of the taxpayer are more than the normal range of expenditure incurred by the routine distributor and such high level of AMP expenses is not incurred only for increasing its sales but to promote the brand which is evident from the fact that AMP/ sales ratio of taxpayer is 6.93% vis-a-vis 1.18% the AMP/sales ratio of routine distributors. We are of the considered view that all these findings are general in nature and are not factual objective findings based upon any evidence. Merely because of the fact that AMP expenses of the taxpayer are on higher side, the same cannot be treated to promote the brand and create intangibles for its AE. 20. Ld. AR for the taxpayer further contended that no direct benefit accrues to any other Xerox enterprise or holding company (Xerox US) as a result of marketing activities undertaken by it. However, dismissing the contentions raised by the taxpayer, ld. TPO made out the case that, by incurring these expenses, the taxpayer has enhanced the value of intangibles owned by the parent company . 21. Ld. AR for the taxpayer further contended that to improve its business market, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efit of its AE. That factual foundation has been unable to be laid by the Revenue in the present case. On the basis of the existing record, the TPO has found no basis other than by applying the BLT, to discern the existence of international transaction. Therefore, no purpose will be served if the matter is remanded to the TPO, or even the IT AT, for this purpose. 24. When all these objections were raised by the taxpayer before the ld. DRP, same has been dismissed by using same ratio applied by the TPO firstly to declare the AMP expenditure as an international transaction and then to treat the AMP expenditure incurred by the taxpayer in excess of routine expenditure to promote the brand and creating intangibles for its AE by using the BLT, as is evident form para 5.3 of the ld. DRP order. In para 5.8, ld. DRP again applied the BLT to benchmark the international transaction qua AMP expenditure by returning following findings:- 5.8 We have also considered the assessee's objection about rejection of certain comparables by the TPO. Two of them, namely, Mis Ricoh India Ltd. and Mis Spice Mobile Ltd. are engaged in the distribution of branded goods. We have already m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. 35. It is for the above reason that the BLT has been rejected as a valid method for either determining the existence of international transaction or for the determination of ALP of such transaction. Although, under Section 92B read with Section 92F(v), an international transaction could include an arrangement, understanding or action in concert, this cannot be a matter of inference. There has to be some tangible evidence on record to show that two parties have acted in concern . 37. The provisions under Chapter X do envisage a separate entity concept . 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 Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been expressly negative by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT. 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. .. 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of this case, the nature of the AMP reported, could lead to the conclusion that there was an international transaction. When doing so, it should have remitted the matter back for examination to the A.O. in this case. Accordingly, following the decision of Sony Ericsson Mobile Communications India Pvt. Ltd.(supra) and a subsequent decision in Daikin Airconditioning India Pvt. Limited v. Assistant Commissioner of Income Tax in ITA 269/2016, decided on 27.07.2016, this Court hereby remits the matter for a comprehensive decision by the I.T.A.T. In other words, the I.T.A.T. will decide whether the reporting of the AMP in regard to the outbound business constitutes an international transaction for which ALP determination was necessary and if so, the effect thereof. The parties are directed to appear before the I.T.A.T. on 01.02.2017. The appeal is partly allowed in the above terms. 29. Hon ble Delhi High Court in Valvoline Cummins (P.) Ltd. vs. DCIT (supra) further decided the issue in favour of the taxpayer that merely because of the fact that AMP expenditure incurred by the taxpayer was in excess, existence of international transaction cannot be inferred. Operative p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or understanding between the taxpayer and its AE, expressed or implied, that AMP spent of the taxpayer would also be beneficial to the AE or it would enhance the brand value of the AE in any manner, no international transaction can be inferred. 33. Moreover, on the other hand, the taxpayer has come up with specific pleading that it has analysed a principal to principal relationship with its AE and at no point, it has acted as agent of the AE. If this is so, AMP expenses which the taxpayer has incurred to boost up its sales cannot be treated to enhance the brand value and to create intangibles in favour of the AE. All these facts stand proved from the growing sale pattern of the taxpayer which shows that benefit of AMP activities accrued in favour of the taxpayer. Moreover when TPO has failed to prove that there is an existence of international transaction between taxpayer and AE, the addition on account of AMP expenses cannot be made on the basis of the fact that AMP expenses of the taxpayer are far excess than the AMP expenses of comparables. 34. Even otherwise, the mere use of logo of AE is per se not international transaction. Consequently, we are of the considered vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer to pass order afresh after considering the decision of the Hon ble Supreme Court, which was not yet delivered. He further submitted that in assessment year 2010-11, the Tribunal has modified the order and deleted the adjustment. He, therefore, submitted that in the year under consideration also, the adjustment should be deleted without restoring the matter to the Assessing Officer. We have perused the relevant finding of the Tribunal in assessment years 2008-09 and 2010-11. The finding of the Tribunal in para 7.1 for assessment year 2010-11 is reproduced as under: Para 7.1. We are of the considered opinion that issues raised by the Learned DR have already been considered in the decision of the Hon'ble High Court's cited in the order of the Tribunal (supra). In view of the binding precedent, following the decision of the Tribunal, we hereby direct to delete adjustment made on account of AMP transactions. The corresponding grounds raised are accordingly allowed. . 6.5 As question of existence of international transaction of AMP and adjustment on account of the same in the case of assessee have been deleted in the assessment year 2008-09 and 2010-11, thu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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