2024 (8) TMI 1461 - HC - Income Tax

TP Adjustment - AMP expenditure incurred during the year by the assessee constitute an 'International Transaction' or not? - ITAT held that AMP (advertisement, market promotion) expenditure incurred does not constitute an 'International Transaction' - ITAT justification in holding that the 'Brightline Test' was not mandated in law, existence of an international transaction cannot be arrived at, from the clauses of an MDF agreement and also stating that the value of international transaction cannot be expanded beyond the reimbursements received under MDF agreement, on application of TNMM as the Most Appropriate Method at segmental/entity level, then individual component of AMP cannot be segregated for benchmarking and protective adjustment to preserve the interest of the revenue cannot be made in this case when the issue of AMP is still sub-judice and is pending before the Hon'ble Apex Court - HELD THAT - Tribunal has rested its view on the decision rendered by this Court in Sony Ericsson Mobile Communications India Pvt. Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT The view so expressed is clearly unexceptionable. Comparable selection - Assessee company is stated to be engaged in the business of manufacturing and distributing various Samsung products falling in the consumer electronics and home appliances category. We are, however, in the present appeal concerned with the trading segment of the aforesaid operations. OTS E- Solutions Pvt. Ltd. was held as not comparable in subsequent assessment year i.e. A.Y. 2014-15 by the Tribunal. The functional dissimilarity is apparent on record and there are no changes in the present assessment year. Redington India Ltd., company is engaged in distribution of IT products such as computers, printers, software storage systems and also a leading supply chain solutions provider for global brands of IT hardware and software product which appears to be similar to that of assessee functions. Therefore, we direct the TPO to look into the portfolio of this, company, and applying the filters, this comparable i.e. Redington India Limited may be included in the final comparable list. HCL Infosystems Ltd. company is engaged in distribution of telecommunication and digital lifestyle products such as cellular phones, computers, printers, scanners etc. and hence functionally similar to the assessee company. Besides this fact, this company is allowed as comparable in A.Y. 2005-06 to 2011-12 by the Tribunal and there are no different facts emerging as relates to function conducted by the present assessment year to that of previous assessment years. Therefore, we direct the TPO to look into the portfolio of this company and applying the filters, this comparable i.e. HCL Infosystems. Limited may be included in the final comparable list. No substantial question of law.

Summary

Issues:
1. Delay in refiling the appeal.
2. Impugning the order of the Income Tax Appellate Tribunal.
3. Questions of law regarding AMP expenditure, international transactions, and comparables.

Delay in Refiling the Appeal:
The High Court condoned the delay in refiling the appeal after considering the disclosures made by the appellant. The application for condonation of delay was disposed of accordingly.

Impugning the Order of the Income Tax Appellate Tribunal:
The Principal Commissioner of Income Tax challenged the order of the Income Tax Appellate Tribunal (ITAT) dated 14 December 2020. The questions of law raised for consideration included the justification of the ITAT's decision on various aspects related to AMP (advertisement, market promotion) expenditure, international transactions, and the application of the Brightline Test.

Questions of Law Regarding AMP Expenditure, International Transactions, and Comparables:
The High Court examined several questions of law raised by the Principal Commissioner, focusing on the ITAT's decisions regarding AMP expenditure, international transactions, and the inclusion/exclusion of comparables. The Court noted that the ITAT's reliance on a previous decision rendered by the Court was valid in certain aspects. The Court further analyzed the findings related to three specific comparables: OTS E-Solutions Pvt Ltd., Redington India Ltd., and HCL Infosystems Ltd. The Court upheld the ITAT's directions to exclude OTS E-Solutions Pvt Ltd. as not comparable, include Redington India Ltd. in the final comparable list, and include HCL Infosystems Ltd. as a comparable entity. Ultimately, the Court concluded that the appeal did not raise any substantial question of law and dismissed it accordingly.