TMI Blog2021 (8) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue against the orders dated 28.01.2016 passed by the AO u/s. 143(3) r.w.s. 144C of the Income Tax Act, 1961. 2. In ITA No. 1594/Del/2016, following grounds have been raised by the revenue: (1) Whether Ld. DRP was justified in not appreciating the fact that bright line is a mere step [of the most appropriate method for benchmarking the AMP service] carried out to estimate and bifurcate expenditure pertaining to the taxpayer for its own routine distribution function and the expenditure incurred on AMP service provided to the AE in a situation where the assessee has not reported the international transaction pertaining to marketing function? (2) Whether in the facts and circumstances of the case and in law the DRP was justified in stating that routine selling and distribution expenses would not form part of AMP expenses (disregarding the fact that these expenses contribute to creation of marketing intangible) even while the same is a factor for comparability analysis as different entities account for such expenditure under different heads? (3) Whether under the fact and circumstances of the case and in law the Hon'ble DRP was correct in holding that PLR canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 271(1)(c) of the Act. 4. The issue in both the appeals relate to benchmarking of AMP services and hence there being dealt together. 5. The relevant facts of the case are that the assessee is a wholly owned subsidiary company of Haier Electrical Appliances Corp. Ltd., China and is engaged in the business of manufacturing and distribution of consumer durables, e.g., air-conditioner, refrigerator, washing machine, television etc. In terms of Trade Mark License Agreement entered with Haier China, the assessee has exclusive right for use of the trade mark 'HAIER' in India. During the relevant previous year, the assessee has undertaken international transaction amounting to ₹ 2,24,55,12,538/- with its associated enterprise. 6. In the Transfer Pricing Document, the international transaction relating to trading segment were benchmarked applying Resale Price Method ( RPM ) and manufacturing segment applying Transaction Net Margin Method ('TNMM'') as the most appropriate method. The TPO has proceeded to undertake benchmarking analysis of the advertisement, marketing and sales promotion ('AMP') expenses incurred by the assessee for the product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The DRP, however, directed the TPO to reduce the mark up on the provision of services from 15% to 9%. Giving effect to the order of the DRP, the TPO, vide order dated 24th February, 2014, recomputed the transfer pricing adjustment on account of AMP at ₹ 11,46,01,751/-. The assessee has claimed that in the above working, the TPO has considered the rebate and discount of ₹ 22,64,61,618/- which is evident from paragraph 4 of the TPO's order. Hon'ble Jurisdictional High Court in the case of Sony Ericsson Mobile Communications (supra) held as under:- 176. The aforesaid argument, when AMP expenses are segregated from the composite transaction including distribution and marketing function, is flawed and has to be rejected. The respondent-appellants are engaged in distribution and marketing of consumer goods. Distribution and marketing exercise in case of tangibles requires transfer/sale of goods to third parties, be it sub-distributors or retailers. The said transaction is in the nature of sale of goods for consideration. The marketing or selling expenses like trade discounts, volume discounts, etc. offered to sub-distributors or retailers are not in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer be deleted. 10. The facts in the instant year are akin to the facts of the earlier year. No differential points have been brought to our notice. 11. During the year, the assessee incurred total advertisement and publicity expenses of ₹ 45,51,10,196/- which included selling and distribution expenses of ₹ 24,86,68,459. After excluding the selling and distribution expenses, the advertisement expenses of ₹ 20,64,41,737/- was considered by the TPO in the final order. The same is allocated between trading manufacturing segment as under: AMP Expenses [ As per TPO] 20 , 64 , 41 , 737 AMP expenses allocated to the Manufacturing segment [ As per TP Study considering total expense of ₹ 45 , 51 , 10 , 1196 ] 17 , 24 , 02 , 889 Proportionate AMP expenses allocable to the Manufacturing segment [ Considering AMP expense of ₹ 20 , 64 , 41 , 737 ] 7 , 82 , 03 , 371 Remaining expenditure not benchmarked/ relatable to trading segment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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