TMI Blog2022 (4) TMI 1491X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/03/2021 passed under section 143 (3) r.w.s 144C of the income tax act 1961 (the Act) for the assessment year 2015-16 2. The assessee is a wholly owned subsidiary of Epson Singapore PTE Ltd. The assessee is primarily engaged in distribution of Epson group products like printers, cartridges, scanners, projectors, spares and other consumables. In terms of the provisions of Sec.92-A of the Act, the assessee and its wholly owned holding company were Associated Enterprises ( AEs ). In terms of Sec.92B(1) of the Act, the transaction of providing distribution services was an international transaction and in terms of Sec.92(1) of the Act, any income arising from an international transaction shall be computed having regard to the arm's length price. 3. The assessee filed its return of income AY 2015-16 on 24.11.2015 by declaring a total income of Rs.50,94,90,730. The assessing officer (AO) initiated reassessment proceedings u/s. 147 by issue of notice u/s. 148 on 15.09.2017. The matter was referred to TPO to determine the ALP of international transaction. The TPO wide order dated 28.10.2019 treated the Advertising, Marketing and Promotional (AMP) expenditure incurred by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution of trading goods but has performed additional functions in the form of AMP expenses. The TPO concluded that the assessee needs to be adequately compensated for such additional function undertaken and proceeded to compute the ALP following the Other Method . The TPO segregated the AMP expenses as routine and non-routine and made a TP adjustment by adding a margin @ 11.20% on the non-routine AMP expenses. The DRP confirmed the TP adjustment and accordingly the AO passed the final order. 6. The Ld AR submitted that (i) The functional profile of the assessee (pages 173-182 of paper book) identifies marketing activities as a key function performed by the assessee for distribution of products and the functional profile of the assessee has not been disputed by the TPO in his order. (ii) The assessee is procuring finished products from its AE and distributing them in India under the brand name of the AE. The Hon ble Delhi High Court in the case Sony Ericsson mobile communication India Private Limited 55 Taxmann.com 240 (Delhi) has held that the workings of section 92F and that Rule 10A explicitly states that the term transaction includes a number of closely linked t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4% (page 189 to 190 of paper book). The gross profit margin of the assessee from undertaking distribution activities during the year under consideration resulted in gross profit of 17.87% on sales (Page 254 of the paper book). Since the assessee s margin is more than the arm s length range, the margin of the assessee from its distribution activities is considered to be at arm s length from TP perspective. In a corroborative analysis done under Transaction Net Margin Method (TNMM) the assessee s margin is taken to be at arm s length as the median of the comparables was 1.08% whereas the operating profit of the assessee from undertaking the distribution activities was 3.12% (Page 255 of the paper book). We notice that the while arriving at the operating profit of the assessee the Selling and Marketing expenses to the tune of Rs.68,16,40,898 has been included. The TPO in the order (Page 13 of TPO order para 4.7.5) has mentioned that TP analysis with respect to AMP and the mark up the methods as used by the assessee like RPM with GPM as the PLI and TNMM with OP/OC as the PLI are not suitable, however he had not rejected the TP analysis of the distribution segment. This issue is parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant case that there existed any agreement relating to incurring of AMP expenses. Thus, we notice that there is no change in facts relating to this issue between the current year and the AY 2010- 11/2011-12. It was also held that when TNMM method is applied to benchmark the entire international transactions, then there is no requirement of making separate TP adjustment on account of AMP expenditure. In the earlier paragraphs, we have also held that TNMM as most appropriate method and has also held that the international transaction of Exports to AEs is at arms length. Hence, no separate adjustment is required to be made in respect of AMP expenses on this account also. 10. We have considered the Ld DR s submission that the coordinate bench of the Tribunal in assessee s own case (supra) has remanded the case back to the TPO. In the said assessment years, the case was remanded back mainly for the purpose of determining whether the AMP expenses in an international transaction or now. The relevant para from the judgment is reproduced here for reference In the present case also TPO had not brought anything on record to show existence of international transaction whereby the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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