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2019 (3) TMI 7 - AT - Income TaxTP Adjustment - AMP expenses by applying bright line test on protective basis - HELD THAT - We are of the considered view that following the decision rendered in case of Sony Ericsson Mobile Communications India (P.) Ltd. Sony Ericsson Mobile Communications India (P.) Ltd & Others V. CIT 2015 (3) TMI 580 - DELHI HIGH COURT and in Perfetti Van Melle India Pvt. Ltd. (2017 (5) TMI 1305 - ITAT DELHI), TP adjustment amounting by applying BLT is not sustainable on protective basis having no statutory mandate. Consequently, protective adjustment made by the TPO/DRP/AO qua AMP expenses by applying bright line test on protective basis is not sustainable in the eyes of law having no statutory mandate, hence appeal filed by the taxpayer is allowed.
Issues Involved:
1. Validity of the assessment order. 2. Transfer Pricing adjustments related to Advertisement, Marketing, and Promotion (AMP) expenses. 3. Application of the Bright Line Test (BLT). 4. Classification of AMP expenses as international transactions. 5. Penalty proceedings under Section 271(1)(c). 6. Charging of interest under Sections 234A and 234B. Detailed Analysis: 1. Validity of the Assessment Order: The taxpayer contended that the assessment order passed under Section 143(3) read with Section 144C of the Income Tax Act, 1961, was flawed as it did not consider complete and relevant facts, and was not in accordance with the provisions of law and principles laid down by Hon'ble courts. 2. Transfer Pricing Adjustments Related to AMP Expenses: The taxpayer argued that the Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) erred in making adjustments based on a protective assessment, which led to the computation of the total income at INR 1,59,60,90,000 as opposed to the returned income of INR 13,58,61,680. The taxpayer also contested the determination of AMP expenses as an international transaction under Section 92B, asserting that these expenses were incurred in the normal course of business and not solely for the benefit of its associated enterprise (AE). 3. Application of the Bright Line Test (BLT): The TPO applied the BLT to benchmark the international transaction for marketing and development services for its AEs. The taxpayer contended that the BLT method was not sustainable as it lacked statutory mandate, a position supported by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communication India (P.) Ltd. The Tribunal also referenced other cases, such as Perfetti Van Melle India Pvt. Ltd., to support the taxpayer's argument that BLT should not be applied for determining the arm's length price (ALP) of AMP expenses. 4. Classification of AMP Expenses as International Transactions: The taxpayer argued that the AMP expenses did not constitute an international transaction under Section 92B of the Act. The DRP and TPO's decision to classify these expenses as such was contested on the grounds that there was no machinery or computation provision in law to test AMP expenses and determine compensation for the same. The taxpayer further argued that the expenses were not for the sole benefit of the AE and thus did not fall within the purview of an international transaction. 5. Penalty Proceedings Under Section 271(1)(c): The taxpayer contended that the Assessing Officer (AO) erred in initiating penalty proceedings under Section 271(1)(c) of the Act based on an adjustment resulting from a protective assessment. The Tribunal did not delve deeply into this issue but noted the taxpayer's contention. 6. Charging of Interest Under Sections 234A and 234B: The taxpayer also argued that the AO erred in charging interest under Sections 234A and 234B of the Act. This issue was not specifically addressed in the detailed analysis but was part of the taxpayer's grounds for appeal. Conclusion: The Tribunal concluded that the transfer pricing adjustment of INR 146,02,28,320 by applying the BLT on a protective basis was not sustainable in the eyes of the law, following the Hon'ble Delhi High Court's decision in Sony Ericsson Mobile Communication India (P.) Ltd. and the Tribunal's decision in Perfetti Van Melle India Pvt. Ltd. Consequently, the protective adjustment made by the TPO/DRP/AO regarding AMP expenses by applying the BLT was not sustainable, and the appeal filed by the taxpayer was allowed.
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