TMI Blog2023 (10) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is not an international transaction for which the TPO was not entitled to invoke the provision of Chapter X of the Act. We are of the considered opinion that this issue is no longer resintegra and has been decided by the Tribunal in its earlier decision in favour of the assessee by holding that the impugned transaction is not an international transaction as per the provisions of the law. As there has been no change in the factal matrix of this case in order to have a consistent view on this issue, we hereby allow these grounds of appeal raised by the assessee. - SHRI OM PRAKASH KANT, AM AND MS. KAVITHA RAJAGOPAL, JM For the Appellant : Shri Niraj Sheth For the Respondent : Dr. Yogesh Kamat ORDER Per Kavitha Rajagopal, J M: This is an appeal filed by the assessee, challenging the assessment order passed by the Assessing Officer/Transfer Pricing Officer (TPO for short) pursuant to the direction of the Hon ble Dispute Resolution Panel ('DRP' for short) passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act relevant to the Assessment Year (A.Y. for short) 2018-19. 2. The assessee has challenged the grounds of transfer pricing adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AY 2015-16, AY 2016-17 and AY 2017-18 which were brought to notice, where on identical facts, the Hon'ble ITAT has held that there is no 'arrangement between the Appellant and AEs and directed to delete the entire AMP adjustment along with mark-up on AMP, holding that the same is not an international transaction; 9. Erred in concluding that the Appellant is engaged in performing development, enhancement, maintenance, protection or exploitation (DEMPE') services which includes market development, value addition, creation of marketing intangibles etc and there is mutual agreement/ arrangement between the Appellant and its AE for discharging market development functions; 10. Erred in overriding the charging provisions of Section 4 of the Act by the machinery provisions of Section 92 of the Act to bring to tax fictional/ assumed/ hypothetical income/ benefit. Recharacterisation of Appellants Entrepreneur Activities 11. Erred in disregarding the Appellant's contention that the issue of AMP is not applicable to the Appellant, as the Appellant is an entrepreneur licensee in the Indian market and is entitled to entrepreneurial returns in the for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AMP expenses in relation to manufacturing and distribution segment, which are to be reimbursed to the Appellant by considering comparable company (ies) 19. Without prejudice to the above, erred in not adopting a scientific search process to identify BVG India Limited as a company engaged in marketing activity for computing the mark- up to be applied to the alleged excessive AMP expenses; 20. Without prejudice to the above, erred in computing mark-up over alleged excessive AMP expenses incurred without appreciating that an addition if any, should be commensurate with agency function, undertaken by the Appellant; B. Assessment order is time-barred 21. Based on the facts and circumstances of the case and in law, the order passed by the Ld. Assessing Officer ( Ld. AO ) dated 02nd August , 2022 under section 143 (3) r.w.s. 144B r.w.s 144C(13) of the Income Tax Act, 1961 is bad in law and liable to be quashed since it has been passed after the period of time limitation prescribed in Section 144C(13) the Act. C. Interest under section 234B and 234C of the Act: 22. Erred in charging interest under section 234B and 234C of the Act amounting to Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Ground no.1 challenges the addition of Rs. 143.56 crores made to the total income of the assessee u/s. 92CA(3) of the Act on account of adjustments in the arms length price of the impugned international transaction. As this ground is general in nature, it does not require separate adjudication. 8. Ground nos. 2 to 20 pertains to the advertisement, marketing and promotion expenses incurred by the assessee which is held to be an international transaction as per the provisions of section 92B of the Act. The ld. AR has contended that the assessee has not rendered any service to the AEs and the lower authorities have erroneously treated the AMP expenses as international transaction in the nature of the provision of brand promotion services between the assessee and its AEs. The ld. AR further contends that the impugned expenses were incurred wholly and exclusively for the purpose of business of the assessee in India and was not benefited to the AE and incurs no reimbursement of such expenses. The ld. AR also contended that there was no arrangement between the assessee and its AE for promotion of AEs brand by incurring AMP expenses on behalf of the AEs. The ld. AR submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing reliance on the decision of the Hon'ble Delhi High Court in the case of Maruti Suzuki (I) Ltd., Whirlpool of India Ltd., Bausch and Lom Eyecare (India) Pvt. Ltd. and Honda Siel Power Products, wherein it was held that when there was no explicit arrangement between the assessee its AEs for incurring expenses, the same cannot be considered as an international transaction with AEs. The Revenue has contended that it had filed appeal against the decision of the Maruti Suzuki (I) Ltd. before the Hon'ble Apex Court, the decisions have not attained finality and, hence, the Dispute Resolution Panel ('DRP' for short) has rejected the objections raised by the assessee on these issues. The assessee, on the other hand, has contended that the A.O./TPO has failed to prove by cogent evidence that the existence of an arrangement between the assessee and the AE to discharge market development function and had relied on the decision of the Hon'ble High Court in the case of Whirlpool of India vs. CIT (in ITA No. 228 of 2015 CM No. 5751/2015) and in the case of Bausch Lomb which has held that the Revenue cannot presume that the assessee was acting for the benefit of the AE, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dice before the Honb le High Court. 11. We have considered the rival submission of the parties and have gone through the orders of authorities below. We have also gone through the orders of Tribunal for various earlier years. We have noted that the TPO while passing the order under section 92CA basically followed the order for AY 2014-15. We have further noted that in appeal for AY 2014-15 in ITA No. 6448/Mum/2018, the Tribunal while considering the orders for earlier year passed the following order: 9. We have heard both the counsel and perused the records. Learned Counsel of the assessee submitted that identical issues have been considered by the ITAT in assessee s own case for earlier year except for the alternative adjustment on manufacturing segment. Submission of learned counsel in this regard is summarised as under :- (A) Adjustment on account of advertisement, marketing and brand promotion (AMP) expenses :- (i) Covered by appellant s own ITAT order for A.Y. 2013-14 (page No. 31 para 18) (copy of aforesaid orders were submitted during the course of hearing). (ii) Also appellant s own ITAT order for A.Y. 2008-09 to A.Y. 2010- 11 (page 16- 17 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant own ITAT order for A.Y. 2013-14 (page 33 and para 20). (D) Alternate adjustment on the manufacturing segment- international transaction of payment for availing of marketing support services to AEs. (a brief description of marketing support services availed is described in Annexure 2 to this note). 1. The TPO in his order has instead of examining whether or not the method adopted to determine the ALP is the most appropriate method or whether the comparable companies selected are appropriate or not, has gone into the question of determining the need for such services, proof of rendition of such services, commercial expediency, basis of cost allocation etc. It is submitted that it is not part of the TPO's jurisdiction to consider the above aspects. 2. In this regard, the Appellant relies on the Judgment of Bombay High Court in the case of CIT vs. Lever India Exports Ltd. (supra) 3. In any extent, Appellant has submitted extensive evidences to TPO including advertising creative/concepts developed by AEs, sample story boards for Television Commercial conceptualized by AEs and adopted by the Appellant, agreements, sample invoices, Organisation stru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter should not be remanded back since there were extensive evidences submitted before the lower authorities and the same was accepted by the TPO in remand proceedings. E) Alternate adjustment on the manufacturing segment- international transaction of payment for availing of consulting services. (Brief description). 1. The TPO in his order has instead of examining whether or not the method adopted to determine the ALP is the most appropriate method or whether the comparables selected are appropriate or not, has gone into the question of determining the need for such services, proof of rendition of such services, commercial expediency, basis of cost allocation etc. It is submitted that it is not part of the TPO's jurisdiction to consider the above aspects. 2. In this regard, the Appellant relies on the Judgment of Bombay High Court in the case of CIT vs. Lever India Exports Ltd. (supra) 3. In any event, the Appellant has submitted extensive evidences inter alia including agreements, sample invoices, evidences for technical/ consulting advise provided by AE through sample emails etc. in support of receipt of consultancy services and the benefits derived [Page 53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar view had been taken by the Tribunal while disposing off the appeals of the assessee for the preceding years viz. A.Ys 2008-09 to 2011-12. In fact, the Tribunal while disposing off the appeal of the assessee for A.Y 2012-13 in M/s L Oreal India Pvt. Ltd. Vs. ACIT-7(1)(2), Mumbai [ITA No. 1417/Mum/2017; dated 30.01.2019], had followed the view earlier taken in the preceding years and had vacated the adjustment of 304.69 crores that was made by the TPO by alleging that the AMP expenses incurred by the assessee was an international transaction under Sec. 92B of the Act. The Tribunal while so concluding had observed as under: 12. We have also perused the agreement of assessee with its AE dated 4 th January 2011 executed between assessee and its AE. Clause 7 of the agreement descries about right of distribution of licensed product in the territory. As per Clause 8 of the said agreement the assessee is responsible for the advertising the licensed product in the territory. The territory is defined under clause 1.5 of the agreement, which means the territory of Nepal, Bhutan, Bangladesh, Maldives, Mauritius, India and Sri Lanka. However, it excludes any free trade zone, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , nor any contrary law is shown to us, to take any other view, therefore, respectfully following the orders for earlier years the Ground No. 2 to 18 are allowed. 11. From the above observation, it is evident that this recurring issue raised in this appeal has been decided in favour of the assessee wherein it was held that there was no arrangement between the assessee and the AE pertaining to AMP expenses. The tribunal in the earlier years has held that the onus of proof lies on the Revenue to prove that there was an international transaction in existence. The Tribunal further held that the proposition laid down in the case of Maruti Suzuki India Ltd. (supra) is that the absence of a machinery provision qua AMP expenses, the A.O. is not at liberty to levy tax on an imagined transaction. In such case, the provisions of Chapter X cannot be invoked for making a TP adjustment. The Tribunal has also relied on the decision of the Hon'ble Delhi High Court in the case of Bausch and Lomb (India) Pvt. Ltd . and held that the impugned transaction is not an international transaction for which the TPO was not entitled to invoke the provision of Chapter X of the Act. 12. By respectfu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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