2020 (12) TMI 562 - AT - Income Tax

Rectification of mistake - TP Adjustment - adjustment on account of Advertisement, Marketing and Promotion Expenditure ( AMP ) as alleged international transaction - TPO intended to make transfer pricing adjustment on account of alleged excessive AMP expenditure as an international transaction on substantive basis using intensity method and bright line method on protective basis, as was done in AY 2010-11 in the second round of proceedings (i.e., post remand by the Tribunal) - whether there exists an international transaction of AMP expenses, the Tribunal in Assessment Year 2011-12 categorically held that if the existence of such an international transaction is not proved, the mater will end there and then, calling for no transfer pricing addition - HELD THAT - Remanding back the question as to whether there exists an international transaction of AMP expenses, the Tribunal in Assessment Year 2011-12 categorically held that if the existence of such an international transaction is not proved, the mater will end there and then, calling for no transfer pricing addition. In terms of Section 154(1A) of the Act wherein it has been laid that where any matter has been considered and decided in any proceedings by way of appeal or revision relating to an order referred to in sub section (1), the authority passing such order, may notwithstanding anything contained in any law for the time being in force, amend the order under that sub section in relation to any matter other than the matter which has been so considered and decided. The order of the Appellate Tribunal having become final and after the final decision of the Appellate Tribunal, the Revenue could not initiate fresh assessment proceedings, as the order of the Tribunal was binding on the Revenue. It was noted that various High Court had expressed a similar view. Thus, the questions which are expressly raised before or decided by the appellate or revisional authority cannot be re-agitated and no rectification proceedings will be maintainable in respect thereof, under section 154 of the Income Tax Act, 1961, before the TPO/Assessing Officer in the garb of amending his/her own order. Thus, the assumption of jurisdiction by the TPO/AO u/s 154 is bad in law and void ab intio. Therefore, the assessment order passed by the Assessing Officer on 10.07.2017 is also bad in law and void ab initio, thus, the Assessment order is set-aside.

Issues Involved:
1. Assessment of total income under section 143(3) read with sections 144C and 254.
2. Adjustment to the arm’s length price (ALP) of Advertisement, Marketing, and Promotion (AMP) expenditure.
3. Validity of the TPO's order dated May 16, 2017.
4. Existence of an 'international transaction' concerning AMP expenditure.
5. Computation of ALP of AMP expenditure on substantive and protective bases.
6. Application of Bright Line Test (BLT) for transfer pricing adjustment.
7. Non-allowance of the benefit of (+/-) 5% as per the second proviso to section 92C(2).
8. Non-granting of quantitative/economic adjustments while quantifying ALP.
9. Levying/charging interest under sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Assessment of Total Income:
The appellant contested the assessment of total income at INR 16,66,11,280 as against the returned income of INR 12,35,25,748. The Tribunal noted that the initial assessment was based on adjustments made by the TPO concerning AMP expenditure.

2. Adjustment to ALP of AMP Expenditure:
The TPO made an adjustment of INR 4,30,85,529 to the ALP of AMP expenditure, holding it to be not at ALP by applying the intensity approach. The Tribunal found that the TPO's adjustment was not justified as the AMP expenditure was not proven to be an international transaction.

3. Validity of the TPO's Order Dated May 16, 2017:
The appellant argued that the TPO's order dated May 16, 2017, was non-est and invalid as it rectified the earlier order dated November 10, 2016, without specifying the mistakes apparent from the record. The Tribunal held that the TPO's rectification was beyond the purview of section 154 as it involved debatable issues, making the order void ab initio.

4. Existence of 'International Transaction' Concerning AMP Expenditure:
The Tribunal examined whether the AMP expenditure constituted an international transaction. It was held that the AMP expenditure incurred by the appellant was solely for its own benefit and any incidental benefit to the AE was not sufficient to constitute an international transaction. The TPO failed to prove any arrangement or agreement between the appellant and its AE concerning AMP expenditure.

5. Computation of ALP of AMP Expenditure on Substantive and Protective Bases:
The TPO computed the ALP of AMP expenditure on a substantive basis using the intensity adjustment method and on a protective basis using the BLT method. The Tribunal found this approach flawed as the AMP expenditure was not an international transaction, rendering the adjustments invalid.

6. Application of Bright Line Test (BLT):
The TPO applied the BLT to propose a transfer pricing adjustment of INR 30,99,61,631 on a protective basis. The Tribunal noted that the BLT had been rejected by higher judicial authorities, making the application of BLT invalid in this case.

7. Non-Allowance of the Benefit of (+/-) 5%:
The appellant argued that the TPO erred in not allowing the benefit of (+/-) 5% as per the second proviso to section 92C(2). The Tribunal did not specifically address this issue as the primary ground concerning the validity of the TPO's order was sufficient to decide the appeal.

8. Non-Granting of Quantitative/Economic Adjustments:
The appellant contended that the TPO failed to grant quantitative/economic adjustments while quantifying the ALP of the AMP expenditure. The Tribunal did not delve into this issue due to the primary ground of the invalidity of the TPO's order.

9. Levying/Charging Interest Under Sections 234B and 234C:
The appellant challenged the levying/charging of interest under sections 234B and 234C. The Tribunal's decision to set aside the assessment order rendered this issue moot.

Conclusion:
The Tribunal allowed the appeal, setting aside the assessment order dated July 10, 2017, as the TPO's rectification order dated May 16, 2017, was found to be invalid and void ab initio. The AMP expenditure was not considered an international transaction, and the adjustments made by the TPO were held to be unjustified.

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