2023 (3) TMI 676 - HC - Income Tax

TP Adjustment - upward adjustment on account of ALP of marketing intangible created by the assessee for the associate enterprises - HELD THAT - After examining the facts, the Tribunal found that the revenue had only assumed that the assessee had promoted the brand of the AE by incurring AMP expenditure in India thereby warranting any compensation. On facts, it was found that the assessee had not paid any royalty or trade-mark fee to its Associated Enterprises and had been benefited by the excess premium return in the same price of goods.Tribunal found that AMP expenditure is duly factored into the said pricing fixed by the Associated Enterprises. Tribunal found that the international transactions with the Associated Enterprises of purchase of raw materials, purchase of finished goods, sale of finished goods and recovery of expenses have been duly accepted to be at arm s length. Selling expenses which were sought to be included as part of AMP expenditure by the TPO and the DRP - Tribunal after thoroughly examining the factual position found that these expenses are purely related to products of the assessee and not for any brand. Further, it found that the total expenditure towards AMP and selling expenditure had duly bifurcated the same by identifying at the time of incurrence itself, whether the said expenditure constitutes AMP expenditure or selling expenditure. This bifurcation of expenditure was ignored by the revenue and this has been rightly pointed out by the learned Tribunal in the impugned order. Thus, we are fully satisfied that the Tribunal, on facts, was convinced with the case of the assessee and granted relief and in the absence of any perversity in the order passed by the learned Tribunal, we find no grounds to interfere with the same. Decided against the revenue.

Summary

Issues Involved:
The appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal for the assessment years 2012-13 and 2013-14.

Addition of ALP of Marketing Intangible:
The substantial question of law raised was whether the ITAT erred in law in deleting the addition of Rs.7,07,55,565/- for AY 2012-13 and Rs.15,60,70,670/- for AY 2013-14 made upward adjustment on account of ALP of marketing intangible created by the assessee for the associate enterprises.

The Tribunal examined the facts and found that the assessee company outsources its production requirements to toll manufacturers, and after analyzing the financial statements, it concluded that the revenue's contention that the assessee is only a distribution company and not a manufacturing company was incorrect. The Tribunal referred to a similar case and held that the assessee is a manufacturer, rejecting the revenue's argument.

Usage of Foreign Word 'Organon':
The Tribunal also considered the contention that the assessee's name 'Organon (India) Pvt. Ltd.' contains a foreign word, 'Organon,' which is the name of the Associate Enterprise (AE). The Tribunal held that the usage of a foreign word as the company name is immaterial, and what matters is the products manufactured by the assessee. It further stated that the mere usage of a foreign word does not automatically classify a transaction as international.

The Tribunal examined whether the assessee was promoting any of the brands of the AE in India and found that the revenue's assumption was unfounded. It was established that the assessee had not paid any royalty or trade-mark fee to its Associated Enterprises and that the AMP expenditure was factored into the pricing fixed by the Associated Enterprises.

Selling Expenses and AMP Expenditure:
The Tribunal addressed the inclusion of selling expenses as part of AMP expenditure by the TPO and the DRP. It determined that these expenses were related to the assessee's products and not to any brand. The Tribunal highlighted that the total expenditure towards AMP and selling expenses had been bifurcated at the time of incurrence, a fact overlooked by the revenue.

The Tribunal, being convinced with the case of the assessee, granted relief based on the factual findings. It concluded that there was no perversity in the order passed and dismissed the appeal filed by the revenue, answering the substantial question of law against the revenue.

*The application for stay was closed.*