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TMI Blog2023 (8) TMI 627X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to be quashed. Grounds relating to transfer pricing ('TP') matters 2. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('Hon'ble DRP') erred in not appreciating that the order of the learned Deputy Commissioner of Income-tax (Transfer Pricing) - 1(3)(1), Bangalore ('learned Transfer Pricing Officer' or 'learned TPO') passed under section 92CA of the Act is contrary to law and, thus, liable to be quashed. 3. On the facts and in the circumstances of the case and in law, the Hon'ble DRP/ learned AO/ learned TPO, erred in determining the arm's length price of an alleged international transaction of an alleged advertising, marketing and sales promotion ('AMP') expenses of INR 2,705,042,061. 4. Adjustment with respect to alleged advertising, marketing and promotion expenses On the facts and in the circumstances of the case and in law, the Hon'ble DRP / learned AO erred in upholding the learned TPO's approach of 4.1 assuming that there is an arrangement and understanding between the Appellant and its Associated Enterprise ('AE') to promote the brand or trade name o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacturer and has asserted that separate compensation is required for the alleged excess AMP expenses; 4.10 disregarding the multiple submissions furnished by the Appellant to provide a detailed representation of facts in relation to the FAR profile of the Appellant and its AEs; 4.11 determining the ALP separately for the alleged excess AMP expenses and disregarded that marketing function forms an intrinsic part of the manufacturing along with sales process of the Appellant; 4.12. concluding that 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; 4.13 rejecting the comparability analysis carried out by the Appellant in the TP documentation and in conducting a fresh comparability analysis for the licensed manufacturing segment. 4.14 the learned TPO has erred in performing a fresh comparability analysis to determine the alleged excess AMP expense. In addition, the Hon'ble DRP / learned AO / learned TPO erred in: a. rejecting filters applied by the Appellants in its TP documentation; b. applying modified or additional filters; c. e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which the CSR expenditure which is eligible for deduction under section 803 of the Act should be allowed subject to satisfaction of the conditions mentioned therein. 5 4. On the facts and in the circumstances of the case, the learned AO failed to distinguish the Assessee's reliance on favourable judicial precedents on the issue. (Tax Effect: INR 3,218,544) 6. Incorrect levy of interest 6.1. On the facts and in the circumstances of the case, the learned AO erred in computing the interest under section 234B of the Act amounting to INR 473,078,485. (Tax Effect: INR 473,078,485) 7. Penalty Proceedings 7.1. On the facts and in the circumstances the Learned AO erred in initiating penalty proceedings under section 274 read with section 270A of the Act and penalty proceedings under section 274 read with section 271AA of the Act. That the Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal." 2. Brief facts of the case are as under: 2.1 The assessee company filed its original return of income for A.Y 2018-19 on 20.11.2018 returning a total income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 4.1 We note that this issue has been considered by Coordinate Bench of this Tribunal in the following manner: "We have perused the submissions advanced by both sides in the light of records placed before us. 3.15 In rejoinder the Ld.Counsel submitted that the DRP without appreciating the Business model adopted by the assessee took the view in 2.3.19 that the assessee merely purchases the products from AE and sells it further to the distributors / dealers in India. The DRP failed to appreciate that the products are sold to end customers by Direct Selling model and all the incentives / payouts to the agents are subjected to TDS. 3.16 He also referred to para 2.3.16 wherein the DRP is accepting that the assessee do not require to incur any advertisement expenses as they are one of the leading multilevel marketing company. He thus submitted for the adjustment to be deleted. 3.17. Indian subsidiaries of foreign entities may carry out certain activities as part of their business in India. Generally, they may undertake manufacturing, advertising, or promotion activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isapproving the decision of Hon'ble Delhi Special Bench in L.G. Electronics India (P.) Ltd. (supra) have held that, BLT method is invalid as it is not prescribed in the statute. In this context, we may refer to the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra). Following the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra) and various other decisions, different Benches of the Tribunal have also held that in absence of an express arrangement/agreement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE, AMP expenditure incurred by making payment to third parties for promoting and marketing the product manufactured by the assessee, does not come within the purview of international transaction. Thus the sum and substance of the ratios in various decisions by Hon'ble High Courts, consistently followed by the Tribunals are that: * Bright-line test alone cannot be considered an indicator that the AMP expenditure constitutes an international transaction under the Income Tax Act. * Even if the foreign entity is to gain by the AMP services carried out by the domestic entity, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the com parables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible" 3.23 We also find merit in the submission of the Ld.Counsel that, if the net profit margin meets the Arm's length price, then no separate addition needs to be made. Considering the fact that no adverse inference is drawn by the Ld.TPO in respect of the Manufacturing segment which means that the Ld.TPO has accepted the overall margins of the said segment and respectfully following decision of the Hon'ble Delhi Court in the case of Sony Ericsson (supra), we direct the Ld.TPO to delete the adjustment made towards the AMP. Accordingly ground nos. 2 to 4 raised by assessee stands allowed." Respectfully following the above view, we direct the Ld.AO/TPO to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, for computing income under the head, "Income from Business and Profession". 17. For claiming benefit under section 80G, deductions are considered at the stage of computing "Total taxable income". Even if any payments under section 80G forms part of CSR payments( keeping in mind ineligible deduction expressly provided, the same would already stand excluded while computing, Income under the head, "Income form Business and Profession". The effect of such disallowance would lead to increase in Business income. Thereafter benefit accruing to assessee under Chapter VIA for computing "Total Taxable Income" cannot be denied to assessee, subject to fulfillment of necessary conditions therein. 18. We therefore do not agree with arguments advanced by Ld.Sr.DR. 19. In present facts of case, Ld.AR submitted that all payments forming part of CSR does not form part of profit and loss account for computing Income under the head, "Income from Business and Profession". It has been submitted that some payments forming part of CSR were claimed as deduction under section 80G of the Act, for computing "Total taxable income", which has been disallowed by authorities below. In our view, ass ..... 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