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2017 (2) TMI 594 - AT - Income TaxAddition made on account of determination of arm s length price of transaction relating to AMP expenses - Held that - The issue in the present case, we find ,is identical to that in Bausch & Laumb 2015 (12) TMI 1332 - DELHI HIGH COURT . In the present case, the AMP spend has been treated as an international transaction since it was found to be benefitting the AE only as the brand was owned by the AE. There is no finding of any clause in the agreement entered into between the two parties requiring the assessee to undertake brand promotion expenses on behalf of the AE.The existence of some sort of arrangement between the assessee and the AE obliging the assessee to undertake AMP expenditure on behalf of the AE, has not been demonstrated. On the contrary the obligation to incur the expenditure has been presumed to exist only on the basis of the quantum of expenditure ,and the fact that since the brand was owned by the AE the expenditure was for its benefit only. This basis has already been rejected by the Delhi High Court as we have pointed out above in the case of Bausch and Laumb(supra). Further the TPO has not been able to prove that the AMP expenses incurred was not for the benefit of the assessee. Therefore, in view of the aforestated decision of the Delhi High Court ,international transaction in such circumstances cannot be presumed to exist .No imaginary price can be attributed to it, as held by the Delhi High Court ,in the aforestated case, by allocating costs incurred on AMP expense and then adjusting the same by applying the TP provisions. In view of the above we hold that the payment made by the assessee under the head AMP to the domestic parties cannot be termed as international transaction. Since we have held that there did not exist any international transaction qua AMP spend made by the assessee we are of the opinion that the TPO has wrongly invoked the provisions of Chapter X of the Act for the said AMP spend. Addition made of ₹ 4,59,11,663/- is, therefore, directed to be deleted. Further since the addition made has been deleted for the aforestated reason we do not consider it necessary to deal with the other arguments raised by the Ld.Counsel for the assessee. - Decided in favour of assessee.
Issues Involved:
1. Determination of AMP expenses as an international transaction. 2. Exclusion of routine selling and distribution expenses from AMP. 3. Selection and application of comparables and methods for benchmarking AMP transactions. 4. Adjustment towards AMP expenditure and mark-up. 5. Credit for unabsorbed depreciation brought forward from previous years. 6. Charging of interest under sections 234B and 234D of the Income Tax Act. Detailed Analysis: 1. Determination of AMP Expenses as an International Transaction: The assessee contended that AMP expenses should not be treated as a separate international transaction under Chapter-X of the Income Tax Act. The assessee argued that the AMP expenditure was not mentioned as a separate transaction in their TP Study but was considered as a function for benchmarking import and trading business. The TPO, however, treated AMP expenses as an international transaction, applying the Bright Line Test (BLT) and Cost Plus Method (CPM) to determine the arm's length price (ALP). The Tribunal referred to the Delhi High Court's decision in Bausch and Lomb Eyecare (India) Pvt. Ltd., which emphasized that the existence of an international transaction requires an arrangement or understanding between the associated enterprises (AEs). The mere benefit to the AE from the AMP expenses does not constitute an international transaction. The Tribunal found that there was no agreement obliging the assessee to incur AMP expenses for the AE's benefit. Thus, the AMP expenses could not be treated as an international transaction. 2. Exclusion of Routine Selling and Distribution Expenses from AMP: The assessee argued that routine selling and distribution expenses should be excluded from AMP expenses. The DRP had directed the exclusion of such expenses, but the TPO failed to comply. The Tribunal noted the clear directions of the DRP and found that the TPO had incorrectly included routine selling expenses in the AMP calculation. The Tribunal directed the exclusion of these expenses. 3. Selection and Application of Comparables and Methods for Benchmarking AMP Transactions: The TPO had selected comparables and applied the Cost Plus Method (CPM) with the State Bank of India Prime Lending Rate (SBI PLR) as the markup. The DRP retained the comparables but rejected the SBI PLR, directing the use of the gross profit/AMP ratio of comparables as the markup. The Tribunal upheld the DRP's directions, emphasizing the need for appropriate comparables and methods. 4. Adjustment Towards AMP Expenditure and Mark-up: The assessee challenged the adjustment made towards AMP expenditure and the mark-up applied. The Tribunal found that the TPO had incorrectly computed the AMP expenditure and the resulting adjustment. The Tribunal directed the deletion of the addition made on account of AMP expenditure, as there was no international transaction. 5. Credit for Unabsorbed Depreciation Brought Forward from Previous Years: The assessee sought directions for the AO to give credit for unabsorbed depreciation brought forward from previous years. The Tribunal directed the AO to examine the claim and decide in accordance with the law after giving due opportunity of hearing to the assessee. 6. Charging of Interest Under Sections 234B and 234D: The assessee contested the charging of interest under sections 234B and 234D. The Tribunal did not specifically address this issue in detail but allowed the appeal in favor of the assessee, implying that the interest charges would be reconsidered in light of the main issues being resolved. Conclusion: The Tribunal allowed the appeal of the assessee, directing the deletion of the addition made on account of AMP expenditure and instructing the AO to examine the claim for unabsorbed depreciation. The Tribunal emphasized the need for compliance with the DRP's directions and appropriate benchmarking methods, highlighting the absence of an international transaction in the AMP expenses.
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