TMI Blog2020 (8) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... GH COURT] We are of the considered view that addition made by AO/DRP/TPO on account of AMP expenses is not sustainable and as such question framed is answered in the negative. We set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. Adjustment made by the TPO/DRP/AO by applying the BLT on account of AMP expenses in the absence of international transactions between the taxpayer and AE is not sustainable in the eyes of law, hence ordered to be deleted. Decided in favour of assessee. - ITA No.7142/Del./2017 - - - Dated:- 31-8-2020 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER For the Assessee : Shri Ajay Vohra, Senior Advocate Shri Neeraj Jain, Advocate Shri Ramit Katiyal, Advocate For the Revenue : Shri Anupam Kant Garg, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Suzuki Motorcycles (I) Pvt. Ltd. (hereinafter referred to as the taxpayer ) by fili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iating that such expenses were reimbursed by the associated enterprise in order to support the operations of the appellant and not in pursuance of any understanding, arrangement or action in concert to incur AMP expenses. 8. That the DRP/TPO erred on facts and in law in holding that the associated enterprise not only owns the intangibles but also controls further development and growth of its intangibles. 9. That the DRP/TPO erred on facts and in law in not appreciating that the appellant was performing the critical decision making functions with regard to advertisement and marketing activity and was therefore independently controlling the AMP expenditure incurred by it. 10. That the DRP/TPO erred on facts and in law in relying upon the memorandum entered into between the appellant and the associate enterprises which states that the AE commissioned the assessee to put in effect the advertisement and publicity of assessee's products in India to hold that the associated enterprise has a definite say in the decisions regarding incurring of advertisement in India without appreciating that such memorandum provides for advertisement and promotion of appellant' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not on behalf of or for the benefit of the AE; any benefit to the AE being only incidental. 19. The assessing officer erred on facts and in law in applying Bright Line Test not appreciating that use of bright line test for the purpose of undertaking benchmarking analysis has been jettisoned by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications Pvt Ltd 374 ITR 118 20. Without prejudice that the assessing officer/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying TNMM. 21. Without prejudice that the assessing officer erred on facts and in law in considering rebate amounting to Rs 27,43,804 and discount of Rs.4,37,65,020 for the purpose of calculating alleged AMP expenditure of the assessee. 22. Without prejudice, the assessing officer erred on facts and in law considering companies having different product profile than the appellant as comparable companies for the purpose of benchmarking the alleged international transaction of AMP expenditure incurred by the appellant. 23. Without prejudice, the assessing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. Transfer Pricing Officer (TPO) accepted the benchmarking analysis of international transactions made by the taxpayer to be at arm s length except disputing the Advertisement, Marketing and Promotion (AMP) expenses incurred by the taxpayer for the products having brand name of Suzuki and proceeded to carry out the benchmarking analysis of the same. During Transfer Pricing (TP) study, ld. TPO noticed that in the process of manufacturing and selling of goods by the taxpayer, significant AMP expenditure have been incurred which are as under:- S.No. Nature of Transactions Reimbursement in INR 1. Discounts 43765020 2. Advertisement 835776644 3. Rebate Traded Motorcycle 27143804 Total 906685468 4. Ld. TPO noticed that in the process of manufacturing and selling of goods which bear the brand and trademark of AE, valuable marketing intangibles have been credited by way of well developed sales network and valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity and its AMP/sales ratio is 6.23% as against 2.29% of the comparables by applying the BLT. It is also not in dispute that the AE has compensated the taxpayer with an amount of Rs.32,42,62,780/- on account of expenditure made by it. Ld. TPO also applied the mark up of 15.43% of AMP expenses by using the BLT over and above the AMP expenses computed on the basis of comparable analysis. Ld. TPO consequently reached the conclusion that the taxpayer has incurred huge amount in excess of the Bright Line limit in order to promote the brand and trademark of its AE which is required to be compensated. 10. Ld. TPO on the basis of its TP study computed the average ratio of AMP/sales expenditure at 2.29% of comparables vis- -vis 6.23% of the comparables and proceeded to compute the AMP expenditure as under :- Particulars Value of gross sales of assessee A 14560170913 Arithmetic mean of AMP/SALES of comparables B 2.75% Amount that represents price for routine AMP activities C=B*A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination in this case is :- as to whether Revenue has discharged its onus of proving the international transactions between the taxpayer and the AE and as to whether existence of international transactions can be inferred merely on the basis of BLT? 15. Coordinate Bench of the Tribunal in taxpayer s own case for AY 2010-11 (supra) decided this issue by returning following findings :- 10. Hon ble Delhi High Court in Maruti Suzuki India Ltd. v. CIT (2016) 381 ITR 117 (Del.) has decided the identical issue of AMP expenses in case of manufacturing entity in favour of the assessee by distinguishing Sony Ericsson India Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del.) case wherein the assessee has not disputed the existence of international transaction qua its AMP expenses. So, in case of assessee, being a manufacturing entity, ratio of Sony Ericsson India Pvt. Ltd. (supra) cannot be applied. At the same time, in Sony Ericsson India Pvt. Ltd. (supra), Hon ble High Court has held that BLT has no statutory mandate and considering the excess expenditure beyond the bright line as an international transaction was unwarranted. 11. Hon ble Delhi High Court in series of dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on i.e. BLT method to determine the existence of or the ALP of international transactions involving AMP expenses is held to be not sustainable, the entire adjustment made by TPO/DRP/AO is not sustainable. 15. In view of what has been discussed above, we are of the considered view that following the series of decisions rendered by Hon ble Delhi High Court discussed in preceding paras, when the taxpayer has disputed the existence of international transaction qua its AMP expenses the Revenue has failed to discharge its initial onus to prove on the basis of tangible material that there exists an international transaction qua incurring of AMP expenses between the taxpayer and its AE or that the taxpayer and its AE have acted in concert by way of any agreement as to incurring of international transactions qua AMP expenses. 16. So, when the BLT method adopted by the TPO incurring the AMP expenses by following the ratio of LG Electronics India Pvt. Ltd. (supra) decided by Special Bench of the Tribunal, has been held to be not legally sustainable by the Hon ble Delhi High Court in series of judgments discussed in preceding paras, the entire exercise of determining AMP expenses a ..... 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