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TMI Blog2023 (12) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Tribunal [hereafter referred to as "the Tribunal"]. 2. Although a perusal of the appeal discloses that three (3) questions are proposed on behalf of the appellant/revenue, in substance, they veer around one (1) issue, which is, whether the reimbursement of advertising, marketing and promotion expenses (AMP), incurred by the respondent/assessee on behalf of its Associated Enterprise (AE), was at arm's length. In other words, whether any upward adjustment was required to be carried out in the amount received by the respondent/assessee from its AE. 2.1 The inter-related issue that arose for consideration was whether the Transfer Pricing Officer (TPO) ought to have used the bright line test (BLT) in computing the arm's length price (ALP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, for the determination of ALP. 4.3 The TPO issued a notice, dated 22.09.2010, calling upon the respondent/assessee to show cause as to why international transactions concerning reimbursement of advertisement expenses should not be benchmarked under the provisions of Section 92C of the Act. The thrust of the show cause notice was that the respondent/assessee, which was primarily engaged in the distribution of imported audio and visual products in the Indian market, was incurring AMP expenses on behalf of its AE. 4.4 As per the TPO, although the respondent/assessee had incurred Rs. 119,54,43,600/- towards brand promotion and developing marketing intangibles for its AE, it was reimbursed only Rs. 72,63,324/-. 4.5 In response to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting expenditure incurred by the appellant/assessee can be treated as international transaction and made subject matter of adjustment in arm's length pricing?" 8.1 The operative directions, by the coordinate bench, qua the aforementioned question are extracted hereafter: "3. After hearing the parties we are inclined to set aside the order passed by the Tribunal in view of decision in Sony Ericson Mobile Communication India Private Limited v. CIT, (2015) 374 ITR 118 (Del). 4. Accordingly, the question is answered in terms of the decision in Sony Ericson Mobile Communication (supra) with an order of remit to the Tribunal to decide the issue afresh in light of the direction given in the aforesaid decision. 5. We may record that coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced by Mr Sanjeev Menon can be, broadly, paraphrased as follows: (i) The 'Sony' brand is promoted by the respondent/assessee in India. The respondent/assessee has incurred huge expenses for the promotion and development of the brand and has, therefore, created a marketing intangible for its AE. Therefore, the TPO was right in holding that the effort made by the respondent/assessee qua its AE needed to be adequately compensated. Because of the advent of modern technology, brand promotion in India has a cross-border impact, and thus, the benefit to the AE is direct and immediate, contrary to the view held by the Tribunal. (ii) Merely because the TPO accepted other international transactions by applying the transactional net margin met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and insufficient. (ii) On merits, it was submitted that from the list of international transactions extracted by the TPO, the single largest transaction for the import of goods amounted to Rs. 1445 crores. It was stated that these goods were sold in India for a gross value of Rs. 2340 crores, resulting in a net margin of 3.29% after adjusting AMP expenses, amounting to Rs. 119,54,43,600/-. As compared to the net margin earned by the respondent/assessee, the comparable companies/entities selected by the TPO, during the same period, earned a margin of 2.09%. (iii) The TPO had rejected the respondent's/assessee's contention that he ought to adopt the aggregated benchmark analysis. The TPO, instead, applied the BLT to determine ALP, cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, is whether the respondent/assessee was adequately compensated for expenses incurred for AMP activities carried out in India. 16. Before one answers the issue, one way or the other, one must bear in mind the following undisputed facts which obtain in the instant case: (i) First, the respondent/assessee had shut down its manufacturing activity in India with effect from 01.07.2004. (ii) Second, in the period in issue, i.e., FY 2006-07 (AY 2007-08), there was no advertising agreement obtaining between the respondent/assessee and its AE. The last agreement was entered into on 01.04.2005, which apparently, had come to an end. (iii) Third, the TPO had used comparables furnished by the respondent/assessee for employing the BLT tool, in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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