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2014 (1) TMI 393 - AT - Income TaxTransfer pricing adjustment in respect of Advertising, Marketing & Promotion (AMP) expenses - Held that - Following LG Electronics India Pvt. Ltd. Vs. ACIT 2013 (6) TMI 217 - ITAT DELHI - Incurring of AMP expenses towards promotion of brand, legally owned by the foreign AE, constitutes a transaction' - To determine correct ALP of AMP expenses, the Tribunal listed out 14 parameters which should be examined by the AO/TPO before reaching the final conclusion about the warrant for a TP Adjustment on this score - The first parameter that the AO/TPO should ascertain as to whether the Indian AE is simply a distributor or is holding a manufacturing license from its Foreign AE - The second parameter talks of examining as to whether or not the Indian AE is a full fledge manufacturer and whether it is selling the goods purchased from the Foreign AE as such or is making some value addition to the goods purchased from its Foreign AE before selling it to customers - There is not even a slightest doubt that the special bench order not only applies to a Manufacturer', but also extends to a distributor, whether he is a bearing full risk or least risk - Such tests are applicable with full vigor to the extent applicable, to the distributors - The assessee was a full fledge distributor and as such the benefit of AMP expenses did not spill over to the foreign AE - Decided in favour of Revenue.
Issues involved:
- Transfer Pricing Adjustment in respect of Advertising, Marketing & Promotion (AMP) expenses for Assessment Year 2007-08 and 2008-09. Analysis: A.Y. 2007-08: 1. Issue: Deletion of addition on account of AMP expenses. - The Revenue challenged the deletion of addition on account of AMP expenses by the assessee, who is a distributor of products of a foreign company. - The Transfer Pricing Officer (TPO) proposed an adjustment based on the differential amount of AMP expenses incurred and reimbursed by the Associated Enterprise (AE). - The first appellate authority deleted the addition, stating that the AMP expenses were part of the distribution function, and the benefit to the AE was incidental. 2. Analysis: - The Tribunal referred to the Special Bench decision in LG Electronics India Pvt. Ltd. case, which held that incurring AMP expenses for brand promotion constitutes a transaction and upheld the transfer pricing adjustment principle. - The Special Bench directed the AO/TPO to determine the ALP of AMP expenses based on specific parameters, applicable to distributors as well. - The Tribunal found that the decision of the first appellate authority was not in line with the Special Bench decision as it did not consider the ALP determination parameters. - The Tribunal rejected the argument to follow a different case law and remitted the matter to the AO/TPO for fresh determination in accordance with the Special Bench decision. A.Y. 2008-09: 1. Issue: Similarity of facts with the preceding year and confirmation of addition by the CIT (A). - The facts and circumstances for this year were similar to the previous year, with the addition being confirmed by the CIT (A). - No separate arguments were presented for this year. 2. Analysis: - Given the similarity of facts with the preceding year, the Tribunal set aside the CIT (A) order and remitted the matter to the AO/TPO for fresh determination of ALP regarding AMP expenses. - Both appeals were allowed for statistical purposes, maintaining consistency with the decision for the Assessment Year 2007-08. In conclusion, the Tribunal upheld the transfer pricing adjustment principle for AMP expenses, emphasizing the need to determine the ALP based on specific parameters laid down by the Special Bench. The matter was remitted to the AO/TPO for fresh assessment in both Assessment Years 2007-08 and 2008-09.
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