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2016 (5) TMI 1379 - AT - Income TaxAMP expenditure - international transaction - absence of any agreement for payment of AMP expenses by the AE.s - proof of international transaction on the basis AMP expenditure - Held that - Absence of an agreement between the assessee and the AE.s. for sharing AMP expenses payment made by the assessee under the head AMP to the domestic parties failure of the TPO prove that expenses were not for the business carried out by the assessee in India-and following the judgments of the Hon ble Delhi High Court delivered in the case of Bausch and Lomb (India) Pvt. Ltd (supra) we are of the opinion that the transaction in question was not an international transaction and that the TPO had wrongly invoked the provisions of Chapter X of the Act for the said transaction. Restoration of issue back to the file of the AO - Held that - No availability of a particular decision of the higher forum cannot justify the restoration of issue/cases to the file of AO in each and every case. Unnecessary litigation has to be avoided and issues have to be settled for once and all. We are of the opinion that after the judgments of Maruti Suzuki and Bausch Lomb (2015 (12) TMI 1332 - DELHI HIGH COURT ) there is no scope of any other interpretation about the AMP expenditure. In the case under consideration the AO/TPO has not brought anything on record that there existed and agreement formal or informal between the assessee and the AE to share/reimburse the AMP expenditure incurred by the assessee in India. In absence of such an agreement the first and primary precondition of treating the transaction in question an international transaction remains un-fulfilled. Conducting FAR analysis or adopting an appropriate method is the second stage of transfer pricing adjustments. The first thing is to find out whether the disputed transaction in is international transaction or not. Without crossing the first threshold second cannot be approached. In the case under consideration we are of the opinion that AMP expenditure is not an international transaction and therefore we are not inclined to restore back the issue to the file of the AO. - Decided in favour of the assessee. Set of off unabsorbed depreciation - Time limit for carry forward - Held that - The said issue has been considered in the case of M/s Arch Fine Chemicals Pvt. Ltd. V/s ACIT (2013 (10) TMI 425 - ITAT MUMBAI) to which one of us (JM) is also party wherein held Provisions of section 32(2) as amended by Finance (No.1) Act 2001 would allow the unabsorbed depreciation allowance available in the assessment years 1997-98 1999- 2000 2000-01 and 2001-02 to be carried forward to the succeeding years and if any unabsorbed depreciation or part thereof could not set off till the assessment year 2002-03 then it would be carried forward till the time it is set off against the profits and gains of subsequent years without any limit whatsoever. Thus we hold that the assessee is entitled to claim set off of unabsorbed depreciation pertaining to assessment years 1997-98 to 1999-2000 against business income of the assessment years under consideration.- Decided in favour of assessee.
Issues Involved:
1. Transfer pricing adjustment on account of advertisement, marketing, and sales promotion expenses (AMP expenses). 2. Set-off of unabsorbed depreciation. 3. Inclusion of selling expenses for determining the value of the brand. 4. Application of the Bright Line Test (BLT) method. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment on Account of AMP Expenses: The primary issue revolves around the transfer pricing (TP) adjustment related to AMP expenses, including a mark-up of Rs. 41.74 crores. The assessee, a wholly-owned subsidiary of a French company, incurred AMP expenses which the Transfer Pricing Officer (TPO) deemed excessive. The TPO applied the Profit Split Method (PSM) and Bright Line Test (BLT) to determine the Arm's Length Price (ALP) of the AMP expenses, attributing a significant portion of global profits to AMP activities. The TPO rejected most of the comparables selected by the assessee and introduced new ones, ultimately making substantial AMP adjustments. The assessee contended that AMP expenses were not international transactions as per section 92B of the Act and were incurred for business promotion within India without any agreement with the associated enterprises (AEs) for reimbursement. The Dispute Resolution Panel (DRP) upheld the TPO's findings. Upon appeal, it was argued that AMP expenses were incurred for promoting the assessee's own products and not the brands owned by the AEs. The Tribunal, referencing various High Court judgments, concluded that AMP expenses do not constitute an international transaction in the absence of an agreement for sharing such expenses. The Tribunal directed the deletion of the TP adjustments made by the AO, including the mark-up adjustments. 2. Set-off of Unabsorbed Depreciation: The second issue pertained to the set-off of unabsorbed depreciation amounting to Rs. 1.52 crores. The AO did not allow the set-off in the final assessment order, despite allowing it in the draft order, citing the decision in Times Guaranty Ltd. The assessee argued that unabsorbed depreciation from earlier years should be carried forward and set off without any limit, as per the amended section 32(2) of the Act and supported by the Gujarat High Court's decision in General Motors India Private Limited. The Tribunal, following the precedent set by the Gujarat High Court and other Tribunal decisions, allowed the set-off of unabsorbed depreciation, reversing the AO's disallowance. 3. Inclusion of Selling Expenses for Determining the Value of the Brand: In the appeal for AY 2009-10, the AO challenged the DRP's direction to exclude selling expenses while determining the value of the brand. However, since the Tribunal had already held that AMP expenditure is not an international transaction, the issue of excluding certain items for adjustments became infructuous. 4. Application of the Bright Line Test (BLT) Method: The AO also challenged the DRP's direction regarding the application of the BLT method. The Tribunal, referencing the Delhi High Court's decision, held that the BLT method cannot be applied to determine the ALP of international transactions. Consequently, the Tribunal decided this issue against the AO. Conclusion: The Tribunal allowed the appeals filed by the assessee for all three assessment years, directing the deletion of TP adjustments related to AMP expenses and allowing the set-off of unabsorbed depreciation. The appeals filed by the AO for both assessment years were dismissed. The Tribunal emphasized the absence of any agreement for sharing AMP expenses and the necessity to avoid unnecessary litigation, settling the issues conclusively in favor of the assessee.
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