2017 (6) TMI 873 - AT - Income Tax

Existence of an international transaction involving AMP Expenses between the assessee and its AE - Held that - Remanding the matter relating to the existence of international transaction to the TPO/AO. The TPO/AO is further directed that selling expenses should not be considered within the ambit of AMP. The Ld. AR s contention in the tabulated form for Annexure 3 annexed to his submissions for all the years has to be considered by the TPO/AO. For Assessment Year 2007-08 & 2008-09 though the Hon ble High Court in case of Sony Ericson Mobile Communication India Pvt. Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT has decided the legal issue against the assessee, the factual aspect related to international transaction related to AMP in assessee s case has to be dealt with by the TPO/AO. Matter remanded back to the TPO/A.O for deciding as per the directions given hereinabove.- Decided partly in favour of assessee for statistical purposes.

Issues Involved:
1. Existence of international transactions involving AMP expenses.
2. Inclusion of selling expenses within the ambit of AMP.
3. Determination of the arm's length price (ALP) for AMP expenses.
4. Application of the 'Bright Line Test' for AMP expenses.
5. Remand of issues to the Transfer Pricing Officer (TPO) and Assessing Officer (AO).

Detailed Analysis:

1. Existence of International Transactions Involving AMP Expenses:
The Hon'ble Delhi High Court remanded the issue of the existence of international transactions involving AMP expenses between the assessee and its Associated Enterprises (AEs) to the ITAT. The ITAT was directed to determine this question without remanding it to lower authorities. However, the assessee's representative requested that the matter be remanded to the TPO/AO for determining the existence of such transactions, which was supported by the Departmental Representative (DR). Consequently, the ITAT remanded the matter to the TPO/AO for this determination.

2. Inclusion of Selling Expenses within the Ambit of AMP:
The assessee argued that selling expenses should not be considered within the ambit of AMP expenses. The DR referenced the Delhi High Court's judgment in CIT Vs. M/s. Cushman and Wakefield (India) Pvt. Ltd. to support this view. The ITAT directed the TPO/AO to exclude selling expenses from the AMP expenses while determining the ALP.

3. Determination of the Arm's Length Price (ALP) for AMP Expenses:
For Assessment Years 2006-07, 2007-08, and 2008-09, the ITAT had previously remanded the determination of the ALP of the international transaction of AMP expenses to the TPO/AO. The High Court's direction necessitated the ITAT to first decide the existence of an international transaction involving AMP expenses. The factual aspect of determining the ALP for AMP expenses was thus remanded to the TPO/AO.

4. Application of the 'Bright Line Test' for AMP Expenses:
The TPO applied the 'Bright Line Test' to determine excessive AMP expenditure by comparing the AMP/Sales ratios of the assessee with those of comparable companies. The ITAT had followed the Special Bench decision in the case of L.G. Electronics and the Delhi High Court's judgment in Sony Ericsson Mobile Communication Pvt. Ltd. to exclude sales commission and dealer incentives from AMP expenses.

5. Remand of Issues to the TPO and AO:
The ITAT accepted the submission from both sides to remand the matter to the TPO/AO for determining the existence of international transactions involving AMP expenses. The TPO/AO was directed to exclude selling expenses from the AMP expenses and consider the assessee's contentions in a tabulated form for all years. For Assessment Years 2007-08 and 2008-09, the legal issue was decided against the assessee by the High Court, but the factual aspect related to the international transaction of AMP expenses was to be dealt with by the TPO/AO.

Conclusion:
The ITAT remanded the issues related to the existence and determination of international transactions involving AMP expenses back to the TPO/AO for all three assessment years. The TPO/AO was instructed to exclude selling expenses from AMP expenses and follow the directions given by the High Court and ITAT. The appeals were partly allowed for statistical purposes, and the order was pronounced in the Open Court on April 17, 2017.

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