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2019 (3) TMI 75 - AT - Income TaxTP adjustment - AMP expenses and transfer pricing adjustment in Intra Group Services - re-characterization of transaction involving AE - HELD THAT - Issues are squarely covered in assessee s favour by the Hon ble High Court as well as Tribunal in Assessment Year 2012- 13 2015 (12) TMI 1332 - DELHI HIGH COURT Assessee is justified in contending that the re-characterization of its transaction involving its AE for the two years which have been fully disclosed in the TP Study on the basis of it not being for commercial expediency of the Assessee is clearly beyond the powers of the TPO and contrary to the legal position explained in EKL Appliances Ltd. s case 2012 (4) TMI 346 - DELHI HIGH COURT ) The Court is satisfied that the Revenue has not been able to show the existence of an international transaction involving AMP expenses between the Assessee and its AE - Decided in favour of assessee.
Issues Involved:
1. Transfer pricing adjustment relating to Advertising, Marketing, and Promotion (AMP) expenditure. 2. Transfer pricing adjustment in relation to payment towards intra-group services. 3. Initiation of penalty proceedings under Section 271(1)(c) read with Section 274 of the Income Tax Act. 4. Charging of interest under Sections 234B and 234D of the Income Tax Act. Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment Relating to AMP Expenditure: The appellant contested the addition of ?24,79,23,197/- made by the Transfer Pricing Officer (TPO) regarding AMP expenses, arguing it contradicted the Delhi High Court's decision in their own case for earlier years. The appellant claimed the TPO erred by not assessing the international transaction at arm's length and instead re-writing it based on imaginary assumptions. The use of 'intensity adjustment' was criticized as it mirrors the Bright Line Test (BLT), which has been deemed unlawful by the Delhi High Court. The appellant argued that AMP expenses were incurred in the normal course of business for generating domestic sales and should not be viewed as creating marketing intangibles for associated enterprises (AEs). 2. Transfer Pricing Adjustment in Relation to Payment Towards Intra-Group Services: The appellant challenged the adjustment of ?11,88,13,177/- made by the TPO for intra-group services, arguing that the TPO incorrectly determined the arm's length price (ALP) at nil. The appellant provided detailed documentation and evidence to establish the actual rendition of services and contended that the TPO's application of the Comparable Uncontrolled Price (CUP) method was flawed. The appellant also argued that the TPO failed to establish the conditions specified in Section 92C(3) of the Act before disregarding the arm's length price determined by the appellant. 3. Initiation of Penalty Proceedings: The appellant argued that the initiation of penalty proceedings under Section 271(1)(c) read with Section 274 of the Act was erroneous. This ground was raised independently and without prejudice to other grounds. 4. Charging of Interest: The appellant contested the charging of interest under Sections 234B and 234D of the Act, arguing that it was erroneous under the facts and circumstances of the case. Judgment: The Tribunal noted that the issues involved were covered by the Delhi High Court's decision in the appellant's own case for Assessment Years 2006-07 to 2009-10 and by the Tribunal for Assessment Year 2012-13. The High Court had held that the re-characterization of transactions involving AEs was beyond the powers of the TPO and contrary to legal positions. It was satisfied that the Revenue failed to show the existence of an international transaction involving AMP expenses between the appellant and its AE. Consequently, the Tribunal allowed the appeal of the appellant, dismissing the stay application. Conclusion: The Tribunal's decision affirmed that the adjustments made by the TPO regarding AMP expenses and intra-group services were not justified, aligning with previous judgments in the appellant's favor. The appeal was allowed, and the stay application was disposed of accordingly. The order was pronounced in the open court on 25th February 2019.
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