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TMI Blog2025 (5) TMI 1388X X X X Extracts X X X X X X X X Extracts X X X X ..... b. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the transfer pricing adjustment in respect of AMP transactions on the basis of principles laid down by Hon'ble Delhi High Court in the case of M/s. Maruti Suzuki India Ltd. vs CTT, TTA No. 110/2014 and TTA 701/2015 dated 11.09.2015? c. Whether in the facts and circumstances of the case the Ld. CIT(A) was justified in holding that AMP expense does not constitute an international transaction and hence it does not lead to the creation of marketing intangibles? d. Whether in the facts and circumstances of the case the Ld. CIT(A) was justified in law in stating that the existence of an international transaction cannot be arrived at from the clauses of an intercompany arrangement? e. Whether under chapter X of the Income Tax Act, 1961 a transfer pricing adjustment can be made by the TPO in respect of expenditure treated as AMP expense and if so, in which circumstances? 3. Whether on the facts and circumstances of the case the Ld. CIT(A) erred in rejecting the benchmarking done by the TPO of the transaction of the provision of software services by giving an incorrect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case and in law, the Ld.AO/Ld. TPO erred in: e) applying other method to determine the alleged excessive AMP spend; f) comparing the AMP expense ratio of the Appellant with AMP expense ratio of the comparable companies engaged in FMCG industry and concluding that the excess is non-routine AMP spend. In doing so he also erred in ignoring the fact that the Appellant is engaged in selling of ready to eat breakfast cereals and convenience foods; g) making an arbitrary adjustment to the AMP to sales ratio of selected comparable companies to arrive at the percentage of AMP to sales of 12.07% as ordinary / routine AMP expenses to be considered for applying the other method. h) arbitrarily selecting comparables for determining a mark-up on the excessive AMP spend without following a structured search process: i) arbitrarily applying a mark-up on the alleged excessive AMP spend; and j) AMP expense treated as service transaction. 2. On the facts and in the circumstances of the case and in law, the Ld. AO/Ld. TPO erred in making an adjustment of Rs. 1,05,00,578 in relation to provision of IT Support Services to the income of the Cross Objector. On the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisement, marketing and sales promotion expenses (AMP Expenses) has been consistently made by AO/TPO has been deleted by the Tribunal by holding that AMP expenditure does not constitute an international transaction under Chapter-X of Income Tax Act in absence of any agreement/arrangement for incurring AMP expenditure on behalf of Associated Enterprises (AE). It was also consistently held that application of Bright Line (BLT) was invalid under the India Transfer Pricing regulations. In the current assessment year, the TPO relied on his predecessor's order and made/suggested adjustment on account of AMP expenditure, without bringing anything on record to distinguish the fact from earlier years. The learned CIT(A) while allowing relief followed the decisions of earlier years and deleted the Transfer Pricing adjustment/addition. There is no variation in facts in the year under consideration, thus, this issue is squarely covered in favor of the assessee and against the revenue by the decisions of Tribunal in assesses own case for AY 2009-10 to 2014-14 and 2018-19, copy of all such decisions are placed on record. 4. Ground No. 4 & 5 relates to addition made by TPO/AO by classifying the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n case for earlier assessment years supported the order of AO/TPO. 6. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on the various case laws relied by ld Sr DR for the revenue. Ground Nos. 1 and 2 relates to Transfer Pricing Adjustment on account of advertisement, marketing and sale promotion (AMP) expenditure of Rs. 61.24 crores. We find that TPO while passing his order followed the order of his predecessor in AYs 2013-14 and 2014-15. The TPO also recorded that assessee relied the order of Tribunal in their favour in AY 2009-10, wherein, similar AMP expenditure were deleted. However, the TPO not followed the order of Tribunal by taking view that further appeal is filed before High Court. The TPO suggested adjustment of Rs. 61.24 crores as per his determination of AMP as per working in Para 27 of his order. We find that learned CIT(A) deleted the adjustment on the basis of decision of Tribunal in assessee's own case for A.Ys. 2009-10 to 2014-15. We find that in A.Y. 2009-10 in ITA No. 2866/Mum/2014 a coordinate Bench of Tribunal has passed the following order: "6. We have con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer alleges that the AMP expenditure comes within the purview of international transaction by virtue of an arrangement between the related parties, the burden is entirely upon the Transfer Pricing Officer to demonstrate the existence of such arrangement. A careful reading of the impugned order of the Transfer Pricing Officer does not reveal any such factual basis which can demonstrate the existence of an arrangement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE. That being the case, the entire approach of the Transfer Pricing Officer in determining the arm's length price of AMP expenditure is fallacious. 7. Moreover, there is no doubt that the Transfer Pricing Officer has determined the arm's length price of AMP expenditure by applying BLT method. While doing so, he has heavily relied upon the Special Bench decision of the Tribunal, in LG Electronics India Pvt. Ltd. (supra). Now, it is fairly well established that determination of arm's length price of AMP expenditure by applying BLT method is not valid. In a catena of decisions, the Hon'ble Delhi High Court while disapproving the decision of the Tribunal in L.G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cannot survive. Therefore, we do not find any necessity to restore the issue to the Assessing Officer. Grounds are allowed. 10. In ground no.4, the assessee has challenged the addition made on account of adjustment to the arm's length price of royalty paid to the A.E. 11. Brief facts are, in course of proceedings before him, the Transfer Pricing Officer found that during the year the assessee has paid royalty to its AE which has been benchmarked by using Comparable Uncontrolled Price (CUP) method. As observed by the Transfer Pricing Officer, the assessee could not furnish any comparable royalty agreement to demonstrate that royalty payment was at arm's length. Further, he observed, the royalty agreement of the assessee is for more than 10 years and the comparable agreements produced before him were of short duration of two to three years. Further, such agreements were neither contemporaneous nor from the same sector. Thus, he held that the arm's length price of royalty payment is not at arm's length and determined the same at nil. However, since he has already made adjustment on account of AMP expenditure, he did not make any separate adjustment on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport services or business processing out sources to arrive in tolerance range. The TPO disregarded the bench marking and conducted his own independent search and selected comparable companies engaged in software development services and computed adjustment at Rs. 1.05 crores. The learned CIT(A) held that assessee is not involved in development of software or software system and did not own any intellectual property (IP) while undertaking said activities. The TPO in his order has accepted functions performed by assessee despite recording such fact TPO inadvertently characterized assessee as company engaged in software development services and wrongly selected companies engaged in software development activities to arrive at the ALP. The learned CIT(A) on perusal of TP study report and order of TPO held that TPO is incorrectly characterized services of assessee. The assessee has rightly selected company engaged in IT enable services or BPO services. Thus, no adjustment to ALP was required to on the basis of such observation the learned CIT(A) deleted the addition/adjustment. 9. We have independently examined the facts of the case and find that once the nature of services rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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