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TMI Blog2023 (1) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 143(3A) & 143(3B) of the Income Tax Act, 1961 ("the Act") dated 30March 2021 for the Assessment Year ("AY") 2016-17("impugned order"), in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel (hereinafter referred to as the "DRP"), Bangalore dated 05 February 2021under section 144C(5) of the Act inter-alia on the following grounds which are without prejudice to each other: That on the facts and circumstances of the case and in law: 1. The learned AO/ Transfer Pricing Officer ("TP0")/ DRP has erred, in law and in fact. in making TP adjustment of INR 46.16,66,814 with respect to advertisement, marketing and promotion ("AMP") expenses. 2. The learned AO/ TPO/ DRP has erred, in law and in fact by considering the selling and marketing expenditure of INR 40,01.61,926 incurred by the Appellant during the FY 2015-16, towards value added functions under the AMP activity, and treating it as a separate international transaction. 3. The learned AO/ TPO/ DRP has erred in not appreciating that there are no machinery provisions in the Act to make adjustment in relation to AMP expenses. 4. The learned AO/ TPO/ DRP has erred, in law and in fact in st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od ("MAW) and in not appreciating that TNMM has been considered as the MAM and the operating margin of the Appellant is higher that the operating margins of the comparable companies, thus no separate adjustment for AMP expenditure is required. 12. The learned AO/ TPO/ DRP has erred, in law and in fact, by making a TP adjustment after applying a markup, of 15.37% on operating cost, on selling and marketing expenditure incurred by the Appellant 13. Without prejudice to the above grounds. analysis should be undertaken on comparing the gross profit margin earned by the Appellant with that of comparable companies after undertaking the intensity of functions adjustment. 14. Without prejudice to the above grounds, the learned AO/ TPO/ DRP has erred in law and in fact. by accepting the following as comparable companies: Sl.No. Company Reason for rejectionby the Appellant 1. Ugam Solutions Pvt. Ltd. Non-comparable function 2. Majestic Research Services & Solutions Ltd. Non-comparable function 3. Killick Agencies & Mktg. Ltd. Non-comparable function 4. Scarecrow Communications Ltd. Non-comparable function 15. Without prejudice to the above grounds, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by assessee at Rs.46,16,66,814/- as transfer pricing adjustment. On receipt of the DRP directions, the Ld.AO passed the final assessment order making the addition in the hands of the assessee. The Ld.AR at the outset submitted that, identical issue was considered in great detail by Coordinate Bench of this Tribunal in assessee's own case, the details of which are as under: a) AY 2009-10 reported at IT(TP)A No. 29/Bang/2014 b) AY 2010-11 reported at IT(TP)A No. 227/Bang/2015 c) AY 2011-12 reported at IT(TP)A No. 542(B)/2016 and IT(TP)A No.551(B)/2016 d) AY 2012-13 reported at IT(TP)A No. 358(B)/2017 e) AY 2013-14 reported at IT(TP)A No. 2905(B)/2017 f) AY 2014-15 reported at IT(TP)A No. 3328(B)/2018 4. The Ld.CIT.DR on the contrary, relied on the orders passed by the authorities below. We note that the assessee gave details of expenses incurred towards the advertisement and sales promotion that was debited to the profit & loss account including the selling expenses, marketing expenses. It was submitted for the year under consideration that, the assessee incurred expenses to enable it to sell its products, rather than, promoting the AE. It is submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Maruti Suzuki India Ltd. Vs. CIT 381 ITR 117 (Delhi) held that the fact that the benefit of such AMP expenses would also ensure to the AE is itself insufficient to infer the existence of an international transaction. Similar decision was also rendered by the Hon'ble Delhi High Court in the case of CIT (LTU) v. Whirlpool of India Ltd., 381 ITR 154. The bright line test which was applied by the AO in the present case was also applied by the AO in the aforesaid cases. The bright line test which was accepted by the Special Bench of ITAT in the case of L.G. Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1 (Del)(SB) was held by the Hon'ble Delhi High Court to be not correct. In the case of Maruti Suzuki (supra), the facts were Maruti Suzuki India Ltd. (MSIL) was engaged in the manufacture of passenger cars in India. It was a subsidiary of SMC, a Japanese company. MSIL started its business in 1982 as a Government of India owned company. SMC was selected as the business partner independently by MSIL. The cobranded trade mark "Maruti-Suzuki" was used since the inception of MSIL. A licence agreement was entered into between MSIL and SMC in October 1982 for its models M- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, i.e., SMC. Moreover as MSIL was concerned, its operating profit margin was 11.19 per cent. which was higher than that of the comparable companies whose profit margin was 4.04 per cent. Therefore, applying the transactional net margin method it must be stated that there was no question of a transfer pricing adjustment on account of advertisement, marketing and sales promotion expenditure. The advertisement, marketing and sales promotion expenses incurred by MSIL could not be treated and categorised as an international transaction under section 92B of the Act." 18. In the case of Whirlpool of India Ltd. (supra), it was held that there had to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the arm's length price. The transfer pricing adjustment was not expected to be made by deducing from the difference between the excessive advertising, marketing and sales promotion expenditure incurred by the assessee and the advertising, marketing and sales promotion expenditure of a comparable entity that an international transaction existed and then proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other aspects whether the comparable companies chosen by the TPO are in fact comparable in terms of Functions performed, Assets employed and Risks assumed (FAR) analysis and other aspects of determination of ALP does not require any consideration. Therefore the addition made on account of determination of ALP of AMP expenses in AY 2011-12 to 2014-15 is directed to be deleted." 6. We note that the facts and circumstances in respect of this issue is identical and similar to the preceding assessment years considered by this Tribunal. Revenue has brought nothing on record to establish that assessee incurred the AMP expenses at the behest of the AE. 6.1 Respectfully following the consistent view in identical facts, we direct the Ld.AO to delete the addition made on account of AMP expenses for year under consideration. Accordingly ground nos. 1 to 9 raised by assessee stands allowed. 7. Ground nos. 10-15 are alternative grounds without prejudice grounds that need not be adjudicated as the issue has been considered in favour of the assessee on the main grounds raised. 8. Ground nos. 16-17 are consequential in nature and therefore do not require adjudication. In the result, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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