TMI Blog2021 (1) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... portunity of being heard to the assessee. We are of the considered view that following the law laid down in Sony Ericsson Mobile Communications India Pvt. Ltd.[ 2015 (3) TMI 580 - DELHI HIGH COURT] adjustment made by the TPO/DRP/AO on account of ALP of AMP expenses is not sustainable in the eyes of law, hence deleted. So, the appeal filed by the taxpayer is allowed and the appeal filed by the Revenue is dismissed. - ITA No.1727/Del./2016, ITA No.1619/Del./2016 - - - Dated:- 22-1-2021 - SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ASSESSEE BY : Shri Nageshwar Rao, Advocate Shri Purushottam Anand, Advocate REVENUE BY : Shri Anupam Kant Garg, CIT DR O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : Present cross appeals filed by the assessee as well as by the revenue are being disposed off by way of composite order to avoid repetition of discussion. 2. Appellant, M/s. RayBan Sun Optics India Limited (hereinafter referred to as the taxpayer ) by filing the present appeal sought to set aside the impugned order dated 29.01.2016 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant had admitted to the existence of an international transaction. 3.3 That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO/ Hon'ble DRP has erred in not appreciating that the AE of the Appellant did not derive any benefit from the AMP expenditure incurred by the Appellant. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO/ Hon'ble DRP erred in not appreciating that the AMP expenses were incurred by the Appellant as a part of its role and responsibility as a manufacturer cum distributer and not for the purpose of providing any benefit to its AE and thus could not be considered to be a transaction under section 92F(v) of the Act, in the absence of any understanding or arrangement or action in concert for any provision of service. Re : No arrangement / Agreement / Understanding / Contract with AE's 3.4 The Hon'ble DRP/Ld. AO/Ld. TPO grossly erred on facts and in law in not appreciating that AMP expenditure incurred by the Applicant at its own behest could not be regarded as a 'transaction', much less than an international transaction under section 92B of the Act, in the absence of any u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributing any revenue to the alleged transaction of AMP expenditure as required by the Hon'ble High Court in the case of Sony Ericsson Mobile Telecommunications India Private Limited (supra). 3.11 That the Hon'ble DRPI Ld. TPO/Ld. AO erred in not allowing the benefit of set off' to the Appellant by adjusting the excessive margin earned by the Appellant in the other business segments against the cost incurred on account of AMP expenditure treated as segregated transaction. This is in contradiction to the decision of the Hon'ble High Court in the case of Sony Ericsson Mobile Telecommunications India Private Limited (supra) wherein it was held that TPO can segregate AMP expense as international transaction only after giving benefit of set off', 3.12 That the Hon'ble DRP/Ld. AO/Ld. TPO erred in facts and in law, in concluding that the non-routine functions (being the alleged excessive AMP expenditure) amounted to a 'service' being rendered by the Appellant to its AE and that a mark-up was required to be charged in respect of such services. 3.13 That the Hon'ble DRP/Ld. AO/Ld. TPO erred in facts and in law, in applying the gross profit r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the Tribunal in ITA No.5282/Del/2011 vide order dated 09.08.2012 by determining following findings :- 5. We have heard rival contentions and gone through the relevant material available on record. The assessee has raised a legal plea that the issue of AMP expenses is not covered by Section 92B(1) explanation (d) as they do not amount to provision of services and are actually arrangement of expenses. As the assessee and other enterprises are claimed to have separate agreements about the arrangements of advertisement and sales promotion expenses. It will be desirable that this aspect is taken into consideration. In view of these facts, we set aside this issue back to the file of the Assessing Officer for decision afresh in accordance with law. 6. Briefly stated the facts necessary for adjudication of the controversy at hand are : The taxpayer was engaged in manufacturing and distribution of RAYBAN brand sunglasses and prescription frames in India and to carry out manufacturing operation, the taxpayer imported certain raw material and components from Luxottica Group entities for manufacturing of finished sunglasses in India. In addition and for the distribution operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.91 crs. 9. Ld. TPO also proposed to apply a mark-up of 13.04% based on independent search by taking companies engaged in advertisement, publicity and allied services and computed the average mean of 13.04% as under :- S.No. Company Name OP/Cost 1 Rockman Advertising Mktg. (India) Ltd. 35.13% 2 Cybermedia India Online Ltd. 22.70% 3 Gokimine Advertising Ltd. 3.56% 4 Marketing Consultants Agencies Ltd. 14.96% 5 Needwise Advertising Pvt. Ltd. 1.59% 6 Adbur Pvt. Ltd. 0.30% Mean 13.04% 10. Ld. TPO accordingly determined the ALP of receipt of reimbursement as under :- Particulars Formula Amount in Rs. in Crores Total Revenue of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r before the ld. DRP by way of filing the objections who has partly allowed the objections. Ld. TPO passed order dated 22.01.2016 giving effect to the directions of the ld. DRP and computed the AMP adjustment to Rs.31,53,519/- as against Rs.4,21,00,000/- proposed by the TPO in the order passed u/s 92CA (3) of the Act. The Assessing Officer (AO) accordingly framed the assessment at an income of Rs.19,58,17,140/- u/s 143(3)/144C/92CA (4) of the Act. Feeling aggrieved, both the taxpayer as well as the Revenue has come up before the Tribunal by way of filing the present cross appeals. 14. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. 15. Undisputedly, ld. TPO has made upward adjustment qua AMP expenses incurred by the taxpayer by using Bright Line Test (BLT) by comparing alleged excessive AMP expenses with that of the comparables. However, ld. DRP has overruled this issue taken by the TPO in the light of the judgment of the Hon ble Delhi High Court rendered in Sony Ericsson Mobile Communications India P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Since the ratio of AMP/Sale and AMP /GP is more than the comparables in the case of the assessee, an adjustment is required to be carried out The difference of AMP /GP ratio in the case of the assessee and the comparables comes to 0.78% (being the difference between 11.02% and 10.24%). In the case of the assessee, the quantum of gross profit, of the assessee is Rs.36,90,19,139/-. Considering this value the excess AMP comes to Rs.28,78,349/- (being 0.78% of Rs.36,90,19,139/-). Accordingly as per the directions of Hon'ble DRP, the excess AMP cost is calculated as Rs. 28,78,349/-. 7. For the purpose of determination of the markup on the AMP cost, it is directed by the Panel that the GP ratio of the comparables should be considered. The average GP/COGS ratio of the comparables as shown above is 9.56%. 19. Ld. TPO accordingly proceeded to compute the adjustment on account of AMP as under :- Excess AMP (A) 28,78,349 Mark up (B) @ 9.56% 2,75,170 AMP Adjustment (C=A+B) 31,53,519 20. So far as question of overruling BLT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Revenue to firstly discharge the onus to prove the existence of international transactions between the taxpayer and its AEs and thereafter the ALP of international transactions only can be computed. In the instant case, there is not an iota of material on the file apart from applying BLT and by taking the view that the taxpayer has incurred huge and excessive expenditure on AMP and sales to the tune of 15% of the total sales, no cogent material is there to treat the incurring of AMP expenses as international transactions. 26. So far as question of applying mark-up of excessive expenses as per sub-clause (ii) to Rule 10B(1)(c) by the ld. DRP/TPO/A0 is concernedly, Hon ble Delhi High Court in para 178 of Sony Ericsson Mobile Communications India Pvt. Ltd. (supra) held that, the Revenue s stand in some cases applying the prime lending rate fixed by the Reserve Bank of India with a further mark-up, is mistaken and unfounded, and as such is not sustainable. Ld. DRP however erred in directing the TPO to determine the mark up on the ALP by taking the GP/AMP ratio as laid down by Hon ble Delhi High Court in Sony Ericsson Mobile Communications India Pvt. Ltd. (supra) because the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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