2020 (3) TMI 426 - AT - Income Tax

TP Adjustment - adjustment of AMP expenditure - method to be adopted for benchmarking the trading transactions - RPM v/s TNMM - assessee had benchmarked its trading segment by adopting Resale Price Method as the most appropriate method - HELD THAT - There is no dispute with regard to the fact that the assessee does not make any value addition to the products imported by it from its AE. When there is no value addition and the imported products are sold as it is then Resale Price method is held to be most appropriate method in the cases relied upon by Ld A.R. Resale Price Method is most appropriate method in the facts and circumstances of the present case. Accordingly we direct the AO/TPO to adopt Resale Price Method as most appropriate method and determine the ALP of the transactions accordingly. Validity of Transfer pricing adjustment made in respect of AMP expenses - Following the decision rendered in AY 2012-13 in the assessee s own case 2019 (5) TMI 1541 - ITAT BANGALORE we hold that no adjustment needs to be done in respect of AMP expenses and accordingly direct the AO to delete the impugned addition.

Issues Involved:
1. Validity of Transfer Pricing Adjustment in respect of AMP expenses.
2. Validity of Transfer Pricing Adjustment in respect of Trading Segment by changing the method of benchmarking.

Detailed Analysis:

1. Validity of Transfer Pricing Adjustment in respect of AMP expenses:

The Tribunal initially disposed of the appeal for AY 2013-14 along with AY 2012-13 by a common order dated 10-05-2019, but later recalled the order for AY 2013-14 to adjudicate ground Nos. 32 to 41 related to the Transfer Pricing adjustment of ?58.35 crores concerning AMP expenditure. The TPO had originally made an adjustment of ?207.42 crores under AMP expenses, which was deleted by the Tribunal, leading to the revival of the ?58.35 crores adjustment.

The assessee argued that AMP expenses were incurred for its own business purposes, primarily consisting of trade discounts, sales commissions, and scheme discounts, and should not be considered as brand promotion expenses. The TPO, however, held that the AMP expenditure was more than the average amount spent by comparable companies and considered it as value addition, thus rejecting the Resale Price Method (RPM) in favor of the Transactional Net Margin Method (TNMM).

The Tribunal found the TPO's view to be based on surmises and conjectures, noting that the TPO did not provide material evidence to support his view. The Tribunal emphasized that when no value addition is made to the imported products, RPM is the most appropriate method. It cited several case laws, including M/s Celio Future Fashion P Ltd and M/s A.O. Smith India Water Heating P Ltd, to support this stance.

For AY 2014-15, the Tribunal followed the same reasoning and held that no adjustment was required for AMP expenses, directing the AO to delete the addition.

2. Validity of Transfer Pricing Adjustment in respect of Trading Segment by changing the method of benchmarking:

The TPO rejected the RPM adopted by the assessee for benchmarking its trading segment, arguing that AMP expenses should be included in the cost as they constitute value addition to the AE's brand. Consequently, the TPO adopted TNMM and made an adjustment of ?58.35 crores for AY 2013-14 and ?42.96 crores for AY 2014-15, although no separate addition was made due to the AMP expenses adjustment.

The Tribunal, however, upheld the RPM as the most appropriate method for the trading operations of the assessee, as it involved no value addition to the imported products. The Tribunal directed the AO/TPO to adopt RPM and determine the ALP of the transactions accordingly.

Conclusion:
The Tribunal concluded that the RPM is the most appropriate method for the assessee's trading operations and that no adjustment is required for AMP expenses. Consequently, the Tribunal directed the AO/TPO to adopt RPM and delete the additions made under AMP expenses for both AY 2013-14 and AY 2014-15.

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