2016 (2) TMI 1073 - AT - Income Tax

Recomputation of arm s length price of international transactions - benchmarking the AMP transactions - Held that - The issue of benchmarking the AMP transactions was remanded in the case of M/s. Johnson & Johnson Limited (2016 (1) TMI 1280 - ITAT MUMBAI) and judgment of the Hon ble Delhi High Court in the case of Perfetti Van Melle India Pvt Ltd vs. DCIT 2015 (6) TMI 130 - ITAT DELHI . Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of arm's length price of international transactions
2. Methodology for bifurcation of marketing expenses
3. Use of multiple year data for comparables
4. Denial of plus/minus 5% benefit

1. Addition of Arm's Length Price of International Transactions:
The appeal filed against the CIT (A) order for the assessment year 2007-2008 challenged the addition of Rs. 1,59,54,395 as the arm's length price of international transactions. The Tribunal dismissed Ground nos. 1, 3, and 4, leaving Ground no. 2 for adjudication. The appellant, a subsidiary of Cobra Beer Ltd., UK, received funds for marketing services in India. The TPO suggested the addition, which was upheld by the CIT (A) despite the appellant's contentions regarding the bifurcation of marketing expenses and the Bright Line Test (BLT) calculation methodology.

2. Methodology for Bifurcation of Marketing Expenses:
The appellant contended that the CIT (A) erred in rejecting their approach to bifurcate marketing expenses into value-added and non-value added components. The appellant argued against the BLT calculation methodology and the rejection of their documentation approach. The Tribunal considered precedents and remanded Ground no. 2 for fresh adjudication by the AO/TPO following guidelines from relevant judgments, emphasizing the need to benchmark international transactions accurately.

3. Use of Multiple Year Data for Comparables:
Regarding the use of financial data from FY 2007-2008 for comparables, the appellant argued against the CIT (A)'s decision and highlighted the need for contemporaneous data as per Rule 10D(4) of Income Tax Rules, 1962. The Tribunal acknowledged the appellant's submissions and remanded the issue for proper benchmarking based on current guidelines and legal precedents.

4. Denial of Plus/Minus 5% Benefit:
The appellant raised concerns about the denial of the proviso to section 92C, which allows for a 5% adjustment from the arithmetic mean of comparables. The Tribunal considered relevant judgments and directed the AO to reevaluate the benchmarking of international transactions, allowing Ground no. 2 and its sub-grounds for statistical purposes. The appeal was partly allowed for statistical purposes based on the remand for fresh adjudication.

This detailed analysis of the judgment addresses the key issues raised in the appeal, including the arm's length price addition, methodology for marketing expenses, use of multiple year data, and the denial of the 5% benefit adjustment. The Tribunal's decision to remand Ground no. 2 for proper benchmarking following legal guidelines reflects a comprehensive approach to ensuring fair assessment of international transactions.