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2018 (12) TMI 1852 - AT - Income TaxTP Adjustment - existence of international transactions qua AMP expenses - HELD THAT - We are of the considered view that since the taxpayer is a full-fledged manufacturer as 87% of its turnover is from the sale of its manufactured goods in India and the entire AMP expenses have been incurred by it to enhance its sale in India and not for promoting the brand of its AE and for creating intangibles for its AE the alleged excess AMP expenditure does not fall in the category of international transactions. Moreover the Revenue has not brought on record any cogent evidence to prove these facts. So following the law laid down by the Hon ble Delhi High Court in case cited as Maruti Suzuki India Ltd. v. CIT 2010 (7) TMI 84 - DELHI HIGH COURT we are of the considered view that adjustment made by the Revenue on account of incurrence of AMP expenses are not sustainable in the eyes of law. ALP of an international transaction involving AMP expenses the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. Comparable selection - functional dissimilarity - HELD THAT - The taxpayer during the year under assessment entered into international transactions qua provision of Information Technology Enabled Services (ITES) in the form of provisions of services in the nature of payroll processes account processes etc. thus companies functionally dissimilar with that of assessee need to be deselected.
Issues Involved:
1. Legality of the assessment order. 2. Transfer Pricing adjustment related to AMP expenses. 3. Transfer Pricing adjustment related to provision of back-office support services. 4. Levy of interest under Sections 234B and 234C of the Income-tax Act. Detailed Analysis: Legality of the Assessment Order: Issue: The appellant challenged the assessment order framed under Section 143(3) read with Section 144C of the Income-tax Act, claiming it to be bad in law, violative of principles of natural justice, and void ab-initio. Analysis: The Tribunal noted that this ground was general in nature and did not require specific adjudication. Transfer Pricing Adjustment Related to AMP Expenses: Issue: The appellant contested the addition of ?27,87,32,906 made by the AO on account of AMP expenses, arguing that these expenses should not be characterized as an international transaction under Section 92B of the Act. Analysis: The Tribunal observed that the TPO had applied the "Bright Line Test" (BLT) to infer the existence of an international transaction and to compute the ALP of such transactions. It was noted that the Delhi High Court in various judgments, including Sony Ericsson India Pvt. Ltd. v. CIT and Maruti Suzuki India Ltd. v. CIT, had held that BLT is not a valid basis for determining the existence of international transactions or for computing the ALP involving AMP expenses. The Tribunal concluded that the adjustment made by the TPO based on BLT was not sustainable. The Tribunal also emphasized that the Revenue failed to provide evidence of an agreement or concerted action between the taxpayer and its AE regarding AMP expenses. Consequently, the Tribunal set aside the orders of the authorities below and restored the matter to the AO, directing that the adjustment made by the TPO/DRP/AO in respect of AMP expenses was not sustainable. Transfer Pricing Adjustment Related to Provision of Back-Office Support Services: Issue: The appellant contested the transfer pricing adjustment of ?40,66,466 related to the provision of back-office support services, arguing that the TPO had selected inappropriate comparables. Analysis: The Tribunal examined the comparables selected by the TPO and found that several of them were engaged in providing high-end KPO services, which were not comparable to the routine ITES services provided by the appellant. Specifically, the Tribunal ordered the exclusion of the following comparables: - Accentia Technologies Ltd.: Engaged in KPO services and owning various software products. - Acropetal Technologies Ltd. (Seg.): Providing high-end healthcare services. - Eclerx Services Ltd.: Providing high-end KPO services. - ICRA Techno Analytics Ltd.: Engaged in business analytics and software development. - Infosys BPO Ltd.: High turnover and engaged in business process management services. - TCS E-Serve Ltd.: Providing KPO services and exploiting the TATA brand. The Tribunal directed the AO/TPO to recompute the transfer pricing adjustment of international transactions accordingly. Levy of Interest under Sections 234B and 234C: Issue: The appellant contested the levy of interest under Sections 234B and 234C of the Act. Analysis: The Tribunal did not specifically address this issue in the detailed analysis provided. Conclusion: The Tribunal allowed the appeal filed by the assessee partly and dismissed the cross-objection filed by the Revenue. The adjustments made by the TPO/DRP/AO in respect of AMP expenses were found to be unsustainable, and the matter was restored to the AO for fresh consideration. The Tribunal also directed the exclusion of certain comparables for the transfer pricing adjustment related to back-office support services.
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