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2019 (6) TMI 696 - AT - Income TaxTP Adjustment - AMP spend while determining the Arm s Length Price ALP in respect of international transaction - HELD THAT - We find that the facts are identical to the facts considered by the Tribunal in assessee's own case 2018 (7) TMI 1991 - ITAT DELHI wherein held Testing the functions performed by the assessee vis a vis AMP expenses incurred by it, we do not find that the assessee has incurred AMP for the benefit of its AE. All the expenditure incurred by the assessee are in relation to its business and its promotion. Moreover, as mentioned elsewhere, the net margin is much higher than the comparables and looking from that angle also, we do not find any merit in the transfer pricing adjustments. It is incorrect to say that the amount of ₹ 73.83 crores received by the assessee by way of credit notes represents the excess price charged by AE which has been credited to the assessee. The business model of the assessee with its AE is such that the AE ensures that the assessee achieves an arms length return on sales made by it. Assuming, yet not accepting that the assessee should have been compensated by its AE towards AMP and such compensation as worked out by the TPO is ₹ 69.94 crores, then also no adjustment is required since the assessee has received credit notes worth 74.83 crores and has been suitably compensated. Thus as the assessee company has been suitably compensated by its AEs and, therefore, no further adjustment is required - decided in favour of assessee
Issues Involved:
1. Transfer Pricing Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses. 2. Determination of Arm's Length Price (ALP) for International Transactions. 3. Application of Bright Line Test. 4. Penalty Proceedings under Section 271(l)(c). Detailed Analysis: Transfer Pricing Adjustment on AMP Expenses: The primary issue revolves around the Transfer Pricing adjustment made on account of AMP spend while determining the ALP in respect of international transactions. The assessee had incurred significant AMP expenses, which the Transfer Pricing Officer (TPO) believed were exclusively to promote products of the associated enterprises (AEs) bearing the brand/trade name Sony Ericsson. The TPO concluded that these expenses resulted in brand building and increased awareness of the products, thereby benefiting the AE. Determination of Arm's Length Price (ALP): The TPO initially proposed an adjustment of ?35,75,26,343/- to the value of international transactions, which was later revised to ?5,90,87,389/- after directions from the Dispute Resolution Panel (DRP). The assessee argued that the AMP expenses were part of its distribution activity and had been suitably compensated by the AE through credit notes, ensuring an arm's length return on sales. Application of Bright Line Test: The TPO applied the Bright Line Test to determine the ALP for AMP expenses, selecting comparables for AMP analysis and determining that the assessee should have been reimbursed ?782,167,040/- by the AE, out of which ?424,640,697/- was already reimbursed. The remaining amount of ?357,526,343/- was proposed as an adjustment. Penalty Proceedings under Section 271(l)(c): The TPO initiated penalty proceedings under Section 271(l)(c) for furnishing inaccurate particulars of income by the assessee. Tribunal Findings: The Tribunal found that the facts of the case were identical to those considered in the assessee's case for the assessment year 2008-09. It was noted that the business profile, international transactions, and AMP spend were similar, with differences only in figures. The Tribunal referred to its earlier findings, where it was concluded that the assessee had been suitably compensated by its AE and no further adjustment was required. High Court Judgment: The High Court affirmed the Tribunal's findings, stating that the Tribunal's analysis of the comparables and the AMP expenditure was exhaustive and reasonable. It was held that the AMP expenditure could not have benefited the AE, as the brand was relatively unknown in India at the time. The High Court dismissed the revenue's appeal, finding no substantial question of law. Conclusion: Respecting the findings of the Tribunal and the High Court, the Tribunal allowed the assessee's appeal and dismissed the revenue's appeal. Consequently, the stay petition filed by the assessee became otiose. Final Order: - The assessee's appeal in ITA No. 883/DEL/2016 was allowed. - The revenue's appeal in ITA No. 2106/DEL/2016 was dismissed. - The stay petition SA No. 856/DEL/2018 became otiose. The order was pronounced in the open court on 14.05.2019.
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