9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (1) TMI 1266 - AT - Income TaxTP Adjustment - adjustment qua AMP expenses - ALP of AMP expenses - HELD THAT - We are of the considered opinion that the ALP of an international transaction involving AMP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. We cannot ignore the submission of the DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. We set aside the orders of authorities below and restore the matter to the file of the AO. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. If the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon'ble Apex Court is modified or reversed by the Hon'ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon'ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee. We are of the considered view that following the law laid down in Sony Ericsson Mobile Communications India Pvt. Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT adjustment made by the TPO/DRP/AO on account of ALP of AMP expenses is not sustainable in the eyes of law, hence deleted. So, the appeal filed by the taxpayer is allowed and the appeal filed by the Revenue is dismissed.
Issues Involved:
1. Validity of assessing the income higher than the returned income. 2. Legality of the order passed by the AO under section 143(3) read with section 144C of the Income-tax Act, 1961. 3. Transfer Pricing Adjustment concerning Advertisement, Marketing, and Promotion (AMP) Expenses. 4. Determination of AMP expenditure as an international transaction. 5. Application of the "Bright Line" Method. 6. Disallowance of Selling Expenses. 7. De-bundling of Transactions. 8. Initiation of penalty proceedings under section 271 (1)(c) of the Act. Detailed Analysis: 1. Validity of Assessing the Income Higher than the Returned Income: The taxpayer contended that the AO erred in assessing the income at INR 195,817,140 as against the returned income of INR 192,663,625. This issue was raised as a general ground of appeal. 2. Legality of the Order Passed by the AO: The taxpayer argued that the impugned order passed by the AO under section 143(3) read with section 144C of the Income-tax Act, 1961, is bad in law and void ab-initio. This contention was based on the procedural and substantive grounds of the assessment order. 3. Transfer Pricing Adjustment concerning AMP Expenses: The taxpayer challenged the enhancement of income by INR 31,53,519 due to the TP adjustment on AMP expenses. The TPO had considered these expenses excessive and required reimbursement by the Associated Enterprises (AE). The taxpayer argued that the AMP expenditure was not an international transaction within the meaning of section 92B of the Act. 4. Determination of AMP Expenditure as an International Transaction: The taxpayer contended that the AMP expenditure incurred was not an international transaction and that the AO/TPO erred in assuming it as such without any machinery provisions under Indian TP regulations for determining AMP expenditure as an international transaction. The taxpayer also argued that the AE did not derive any benefit from the AMP expenditure. 5. Application of the "Bright Line" Method: The taxpayer argued that the "Bright Line" Method (BLT) applied by the TPO was rejected by the Delhi High Court in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. vs. CIT. The taxpayer contended that the AO/TPO erred in comparing the AMP/GP ratio with that of comparable companies using the BLT, which has no statutory mandate. 6. Disallowance of Selling Expenses: The taxpayer argued that the AMP expenses considered by the AO/TPO for AMP adjustment were primarily in the nature of "point of sale expenditure" and thus should be regarded as selling expenses. The taxpayer contended that any expenses incurred for enhancing sales fall under the purview of selling expenses. 7. De-bundling of Transactions: The taxpayer contended that since the entity-level operating margin under the transactional net margin method (TNMM) was higher than the comparable companies, no adjustment was warranted for excessive/non-routine AMP expenses. The taxpayer also argued that the DRP erred in not allowing the benefit of "set off" by adjusting the excessive margin earned in other business segments against the AMP expenditure. 8. Initiation of Penalty Proceedings: The taxpayer argued that the AO erred in initiating penalty proceedings under section 271 (1)(c) of the Act. Tribunal's Findings: 1. The Tribunal noted that the TPO had used the BLT method to make an upward adjustment for AMP expenses, which was overruled by the DRP in light of the Delhi High Court's judgment in Sony Ericsson Mobile Communications India Pvt. Ltd. vs. CIT. 2. The Tribunal observed that the DRP had directed the TPO to exclude routine selling and distribution expenses and apply a segregation approach for AMP expenses. However, the Tribunal found that this approach was akin to applying the BLT, which has no statutory mandate. 3. The Tribunal held that the existence of international transactions cannot be presumed merely by applying the BLT and that the Revenue must first prove the existence of such transactions before determining the ALP. 4. The Tribunal agreed with the taxpayer's contention that selling expenses should not be included in AMP expenses and that the Revenue failed to prove any specific arrangement or agreement between the taxpayer and its AE regarding AMP expenses. 5. The Tribunal noted that the matter is pending before the Hon'ble Apex Court, and any decision by the Apex Court would be binding. However, the Tribunal set aside the orders of the authorities below and restored the matter to the AO for fresh consideration in light of the Apex Court's decision. 6. The Tribunal concluded that the adjustment made by the TPO/DRP/AO on account of AMP expenses is not sustainable in law and deleted the adjustment. The taxpayer's appeal was allowed, and the Revenue's appeal was dismissed. Order Pronounced: The Tribunal pronounced the order on January 22, 2021, allowing the taxpayer's appeal and dismissing the Revenue's appeal.
|
