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TMI Blog2019 (1) TMI 2064X X X X Extracts X X X X X X X X Extracts X X X X ..... de subject matter of adjustment in arms length pricing ? " 3. This issue was remitted for A.Ys. 2007-2008 and 2008-2009. Learned Counsel for the Assessee, therefore, submitted that in the present appeal Ground Nos. 3 to 16 are relevant on this issue, which shall have to be adjudicated upon. The Grounds 3 to 16 are reads as under : "3. That the TPO erred in assuming jurisdiction in respect of the advertising, marketing and promotion ('AMP') expenditure when such expenditure did not satisfy the requisites of being an international transaction under section 92B of the Act. 4. That the TPO also erred in not appreciating that even post the amendments by Finance Act 2012, he was not empowered to deem a transaction to be an international transaction. 5. That the Hon'ble Dispute Resolution Panel (hereinafter referred as "DRP")/learned AO erred in making an adjustment aggregating to INR 1,126,715,023 out of the proposed adjustments made by the TPO u/s 92CA aggregating to INR 1,218,822,482 and only granting a partial relief of INR 92,107,459. 6. That the learned DRP has completely misconceived the facts and has grossly erred in endorsing the findings of the TPO that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to comprehend that to the extent of expenditure of INR 190,489,900/- incurred on advertising and sales promotion, there has been double disallowance/addition as this expenditure has been treated as 'capital' by the learned AO, and hence entirely disallowed under section 37(1) in computing the taxable income whereas the said amount has been included by the learned TPO while computing the alleged excessive AMP expenditure. 14. That the learned DRP has erred in endorsing the approach followed by the TPO who has erroneously held that the appellant has rendered a service to the AEs by incurring the advertisement and marketing expense and by holding that a markup of 12.5% has to be earned by the appellant in respect of the "alleged excessive" AMP expenses. 15. That the learned TPO has erred in law by assuming that no benefit has accrued to the assessee from the AMP expenditure incurred by it without having regard to the functions, assets and risks profile of the AEs and the assessee. 16. The learned DRP erred in law in not applying the Proviso to section 92C of the Act and has failed to allow the Appellant the benefit of upward variation of 5 percent in determining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Shri Sandeep Karhail, Adv Revenue by : Shri H.K. Chaudhary, CIT- DR Smt. Namita Pandey, Sr. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, This appeal by the assessee is heard pursuant to the directions of the Hon'ble High Court of Delhi. 2. The Hon'ble High Court, vide order dated 23.07.2018 in ITA Nos. 508 & 509/2013 and 148 & 149/2014 has remitted the following issues for fresh adjudication in the light of the decision of the Hon'ble High Court in the case of Sony Ericson Mobile Communication of India Private Limited 374 ITR 118 : "Whether the Advertisement and marketing expenditure incurred by the appellant assessee can be treated as international transaction and made subject matter of adjustment in arms length pricing?" 3. The relevant findings of the Hon'ble High Court in the case of Sony Ericson Mobile Communication India P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y including AMP expenses. (iii) A comparable is acceptable, if based upon comparison of conditions a controlled transaction is similar with the conditions in the transactions between independent enterprises. In other words, the economically relevant characteristics of the two transactions being compared must be sufficiently comparable. This entails and implies that difference, if any, between controlled and uncontrolled transaction, should not materially affect the conditions being examined given the methodology being adopted for determining the price or the margin. When this is not possible, it should be ascertained whether reasonably accurate adjustments can be made to eliminate the effect of such differences on the price or margin. Thus, identification of the potential comparables is the key to the transfer pricing analysis. As a sequitur, it follows that the choice of the most appropriate method would be dependent upon availability of potential comparable keeping in mind the comparability analysis including befitting adjustments which may be required. As the degree of the comparability increases, extent of potential differences which would render the analysis inaccurate nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which can mar or enhance the value. (x) Parameters specified in paragraph 17.4 of the order dated 23rd January, 2013 in the case of L.G. Electronics India Pvt Ltd (supra) are not binding on the assessed or the Revenue. The "bright line test" has no statutory mandate and a broad-brush approach is not mandated or prescribed. We disagree with the Revenue and do not accept the overbearing and orotund submission that the exercise to separate "routine" and "non-routine" AMP or brand building exercise by applying "bright line test" of non-comparables should be sanctioned and in all cases, costs or compensation paid for AMP expenses would be "NIL", or at best would mean the amount or compensation expressly paid for AMP expenses. It would be conspicuou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be again factored or included as a part of inter-connected international transaction and subjected to arm's length pricing 6. The first point is to ascertain and conduct detailed functional analysis which would include AMP expenses. The Transfer Pricing Officer has mentioned the copy of Advertisement Agreement which was entered into on 01.04.2005 but there is no reference to any advertisement agreement relevant to A.Y 2007-08 which is the year under appeal. The ld. AR stated that there is no agreement for the year under consideration to which the DR stated that in the absence of any agreement, it would not be possible to determine the marketing function of the assessee and, therefore, fresh comparables have to be considered. 7. The business profile of the assessee shows that it has distribution net work comprising of over 7,000 channel partners, 215 Sony World and Sony Exclusive outlets and 21 direct branch locations. The assessee has strong service presence across the country with 21 company owned and 172 authorised service centers. We further find that the assessee has shut down the business operations relating to manufacturing operations as on 01.07.2004. Therefore, as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, sales strategies etc. Such decisions are undertaken by the assessee based on the assessment of the market condition, nature of competition prevailing in the market and competitors strategies. The ld. AR concluded by saying that the assessee is sole beneficiary of AMP expenditure carried out by the company. 13. In our considered opinion, by virtue of incurring expenditure of AMP, the assessee cannot acquire ownership of intangibles which belongs to the AE. In our considered opinion, the AMP expenditure was not incurred for the AE. The assessee exploits the intangibles created by its AE in India though no brand royalty payment is made by the assessee and it cannot be denied that brand name Sony is global brand across the globe. Therefore, it cannot be said that Sony brand has become popular only as a result of efforts of the assessee company. 14. Assuming that the AMP expenditure incurred by the assessee has resulted in creation of Sony brand in India and that the assessee is the economic owner of such brand in the light of the decision of the Hon'ble High Court [supra], all that has to be seen is whether the assessee has earned returns similar to the returns earned by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue from its consumer Electronic Division and arithmetic mean of operating margin of companies' owner of same brand is 2.09% as mentioned at the above chart. As per the observation of the Hon'ble High Court in the case of Sony Ericson Mobile Communication India Private Limited [supra], if the return earned by the assessee is similar or more than that the return earned by the owner of the brand, no further amount should be contributed towards such brand activities. Any amount that would be attributable to the assessee from the creation of such marketing intangible has already been received by the assessee in terms of higher profitability for the product sold. 20. Before us, the ld. DR vehemently stated that since the TPO has proceeded by applying BLT which was prevalent at the time of Transfer Pricing assessment proceedings and since the Hon'ble High Court has discarded the BLT, then the TPO should be given an opportunity to debundle the transaction vis a vis the comparables and determine the issue afresh. 21. We do not find merit in this contention of the ld. DR. Firstly, the TPO has used the same comparables as that of the assessee and the TPO chose to examine the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is an incidental benefit to A.E. Sony Company, it cannot be stated that AMP expenses incurred by the assessee was for promoting the brand Sony Japan. The issues have been decided in favour of assessee on identical facts. 4. On the other hand, Ld. D.R. submitted that the department has already filed M.A. in the case of M/s. Sony Ericson Mobile Communication India Private Limited and that some of the observations of the Tribunal in the Order dated 21.12.2018 for the A.Y. 2007-2008 are not as per the Judgment of Hon'ble High Court, though the Ld. D.R. did not dispute that the issue is covered by the Order of the Tribunal dated 21.12.2018 (supra). 5. After considering the submissions of the parties, we are of the view that the issue involved in Ground Nos. 3 to 16 are covered by the above Order of the Tribunal dated 21.12.2018. Merely because department has filed M.A. in the case of M/s. Sony Ericson Mobile Communication India Private Limited, is no ground to take a contrary view at this stage. Further, the subsequent Bench of the Tribunal is not sitting in appeal against the Order of the Coordinate Bench Dated 21.12.2018. Therefore, following the Order of the Tribunal dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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