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2018 (11) TMI 1106 - AT - Income TaxTPA - Adjustment made to the arm s length price of advertisement, marketing and promotional (AMP) expenditure incurred by the assessee in respect of consumer segment - whether AMP expenditure incurred in India gives rise to international transaction with the AEs? - Held that - It is relevant to observe, the DRP has upheld the adjustment made by the Transfer Pricing Officer simply for the reason that the Department has no remedy available against an order of the DRP favourable to the assessee. As regards the decisions relied upon by the DR as noted herein before, on a careful analysis of each one of these decisions we are of the considered opinion that they will not be of any help to the Department, since, they were rendered prior to the decision of the Hon ble Delhi High Court in Maruti Suzuki India Ltd. (2015 (12) TMI 634 - DELHI HIGH COURT) and all of them proceeded on the basis of the decision rendered in Sony Ericson Mobile Communications (2015 (3) TMI 580 - DELHI HIGH COURT). We hold that the AMP expenditure incurred by the assessee not being an international transaction as defined under section 92B of the Act, no transfer pricing adjustment could have been made by the Transfer Pricing Officer. More so, when the method adopted by the Transfer Pricing Officer for making such adjustment is not provided under the statute. Before parting, we must observe that all other international transactions entered into between the assessee and its AE were found to be at arm s length. It is also not disputed, if the international transactions are considered as a whole, the margin shown by the assessee is more than the margin shown by the comparables selected by the Transfer Pricing Officer. Grounds raised are allowed. Short TDS credit granted to the assessee - Held that - We are inclined to restore the issue to the Assessing Officer with a direction to verify assessee s claim and grant credit for TDS as per supporting evidence to be furnished by the assessee. This ground is allowed for statistical purposes.
Issues Involved:
1. Validity of the assessment order passed beyond the period of limitation. 2. Adjustment to the arm's length price (ALP) of advertisement, marketing, and promotional (AMP) expenditure. 3. Short credit of Tax Deducted at Source (TDS). 4. Levy of interest under section 234B of the Income Tax Act. Detailed Analysis: 1. Validity of the Assessment Order Passed Beyond the Period of Limitation: - Grounds no. 2 to 4: The assessee raised issues regarding the validity of the assessment order passed beyond the period of limitation as provided under section 153(2A) of the Income Tax Act. These grounds were noted but not adjudicated upon as they were to be taken up if needed at a later stage. 2. Adjustment to the Arm's Length Price (ALP) of AMP Expenditure: - Grounds no. 5 to 17: The core issue was the adjustment made to the ALP of AMP expenditure incurred by the assessee in respect of the consumer segment. - Facts: The assessee, an Indian company engaged in manufacturing pharmaceuticals, medical care, and consumer goods, entered into international transactions with its overseas Associated Enterprises (AE). The Transfer Pricing Officer (TPO) determined that the AMP expenditure incurred by the assessee benefited the overseas AE and proposed an adjustment of ?108,01,70,615. - Assessee's Arguments: - AMP expenses were paid to third parties in India and should not be considered as an international transaction. - There was no arrangement between the assessee and its AE for incurring AMP expenses. - The AMP expenditure was solely for the benefit of the assessee. - The bright line test (BLT) used by the TPO was disapproved by the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. v/s CIT. - DRP and TPO's Stand: The DRP upheld the TPO's adjustment, reasoning that excessive AMP expenditure benefits the AE and should be benchmarked separately. - Tribunal's Decision: - The Tribunal referred to the Hon'ble Delhi High Court's decision in Maruti Suzuki India Ltd., which held that AMP expenditure cannot be considered an international transaction in the absence of an arrangement between the assessee and the AE. - The Tribunal found that the TPO's reliance on the Special Bench decision in L.G. Electronics India Pvt. Ltd. was misplaced as the BLT method was disapproved by the Delhi High Court. - The Tribunal concluded that the AMP expenditure incurred by the assessee did not constitute an international transaction and thus, no transfer pricing adjustment was warranted. The grounds were allowed in favor of the assessee. 3. Short Credit of Tax Deducted at Source (TDS): - Ground no. 18: The assessee claimed short credit for TDS. - Tribunal's Decision: The issue was restored to the Assessing Officer to verify the claim and grant credit for TDS based on supporting evidence provided by the assessee. This ground was allowed for statistical purposes. 4. Levy of Interest under Section 234B: - Ground no. 19: The issue of levy of interest under section 234B was raised. - Tribunal's Decision: The levy of interest was deemed consequential. The Assessing Officer was directed to give consequential effect while re-computing the income of the assessee based on the Tribunal's findings. Conclusion: The appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the main issue of AMP expenditure adjustment and directing the Assessing Officer to verify the TDS credit claim. The levy of interest under section 234B was to be addressed consequentially.
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