2024 (12) TMI 258 - HC - Income Tax

TP Adjustment - adjustment in relation to purchase of finished goods and on account of advertisement, marketing and promotion (AMP) expenses - AMP expenses were considered as a separate international transaction and benchmarked by applying the Bright Line Test (BLT) - HELD THAT - This Court is unable to accept that adjudication of the issue regarding the determination of ALP on account of AMP expenses would necessarily entail determination of transfer pricing adjustments on the ground of purchase of finished goods. Concededly, the impugned order does not reflect that learned ITAT had adjudicated any of the aforesaid grounds. It is apparent that the learned ITAT had proceeded on the basis that since the matter is remanded to the TPO, the petitioner s challenge to the adjustment on account of purchase of finished goods would also be considered afresh. We consider it apposite to remand the matter to the ITAT to consider the grounds raised by the Assessee regarding transfer pricing adjustment in respect of transactions pertaining to purchase of the finished goods. We also clarify that we have not expressed any opinion on the merits of the transfer pricing adjustment and the learned ITAT shall consider the same and pass a reasoned order.

Summary

Issues:
Transfer Pricing Adjustment - AMP Expenses
Transfer Pricing Adjustment - Purchase of Finished Goods

Transfer Pricing Adjustment - AMP Expenses:
The appellant, an Indian company engaged in trading sunglasses, filed an appeal under Section 260A of the Income Tax Act, challenging the ITAT's order regarding assessment year 2010-11. The AO referred the transactions with associated enterprises to the TPO, who proposed adjustments totaling Rs. 13,19,05,725, including Rs. 3,13,20,369 for AMP expenses. The ITAT remanded the matter to the TPO based on a previous case disapproving the Bright Line Test application. The appellant questioned the remand scope, arguing that only AMP expenses were to be reconsidered. The court remanded the issue to ITAT for detailed consideration of the transfer pricing adjustment on AMP expenses.

Transfer Pricing Adjustment - Purchase of Finished Goods:
The appellant contested the rejection of Resale Price Method and application of Transaction Net Margin Method for determining ALP of international transactions. The grounds highlighted errors in rejecting RPM, ignoring gross margins, and disregarding commercial reality due to initial years of operation. The court noted no discussion or adjudication on these grounds in the impugned order. It remanded the matter to ITAT to consider the appellant's challenges regarding transfer pricing adjustments on the purchase of finished goods, without expressing any opinion on the merits. The ITAT was directed to pass a reasoned order on the transfer pricing adjustment issue.

Conclusion:
The High Court remanded the matter to the ITAT for detailed consideration of the transfer pricing adjustment on AMP expenses and the challenges raised by the appellant regarding the purchase of finished goods. The court clarified that it had not expressed any opinion on the merits of the transfer pricing adjustments and instructed the ITAT to pass a reasoned order on the issue.