2017 (11) TMI 1871 - HC - Income Tax

TP Adjustment - addition on account of Advertisement, Marketing and Promotion (AMP) Expenditure - HELD THAT - As decided in MSD PHARMACEUTICALS PVT LTD. VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX ANR. 2017 (7) TMI 1346 - DELHI HIGH COURT referring to Sony Ericson Mobile Communications (India) Pvt. Ltd. v. CIT 2015 (3) TMI 580 - DELHI HIGH COURT held that in matters of transfer pricing the first exercise that is to be undertaken is to determine if in fact there existed an international transaction between the Assessee at its Associated Enterprise. Only if the said question is answered in the affirmative, the further question of determining its arm s length price would arise. Counsel on both sides state that all the necessary documents and information for determining the above question already form part of the record of the case in the ITAT. Restore the aforementioned appeal to the file of the ITAT for a fresh de novo adjudication on merits without reference to the order of the ITAT that has been set aside by this judgment.

Summary

Issues:
1. Transfer pricing adjustment due to expenditure attributed to Advertising Marketing Promotion.
2. Adoption of Bright Line Test (BLT) for determining arms length price (ALP).
3. Remand of the matter for fresh determination of ALP.
4. Restoration of appeal before ITAT for fresh finding on issues.
5. Finality of the matter and remittance to AO.

Analysis:
1. The High Court heard two appeals concerning the Assessment Year 2011-2012, both by the assessee, related to transfer pricing adjustment due to expenditure on Advertising Marketing Promotion considered part of an international transaction. The Taxation Officer (TPO) applied the 'Bright Line Test' for ALP determination, following a previous ruling which was later set aside by the Court. The ITAT directed a remand to the TPO for fresh ALP determination considering the Court's ruling.

2. The assessee raised grievances regarding the remittance of the matter for fresh finding, citing a previous case where the Court restored the appeal for a fresh finding on similar issues for another Assessment Year. Additionally, the assessee argued against remitting the matter to the Assessing Officer (AO) for issues that had already obtained finality without any finding by the ITAT.

3. Referring to previous judgments related to transfer pricing adjustments on Advertisement, Marketing, and Promotion (AMP) Expenditure, the Court emphasized the need to determine the existence of an international transaction before assessing the arm's length price. The Court set aside the impugned order and directed the ITAT to conduct a fresh adjudication on merits without reference to the previous order, allowing both parties to present their contentions.

4. In alignment with the above order, the High Court modified the impugned order in the two appeals, instructing the ITAT to consider and decide the appeals based on the parties' arguments. The Court emphasized that the appellant's contentions on settled matters should also be examined, and a merit-based finding should be provided.

5. Consequently, the appeals were partly allowed, and the ITAT was directed to reconsider the appeals, addressing the issues raised by the parties and providing a fresh determination on the merits, without reference to the previous order that was set aside.