2021 (4) TMI 1114 - AT - Income Tax

TP Adjustment - international transaction of AMP and adjustment on account of the same - HELD THAT - As relying on ow case 2020 (8) TMI 130 - ITAT DELHI we hold that no international transaction of AMP exist in the case of assessee. Hence, we delete the adjustment made on account of the AMP transaction. Corresponding grounds raised by the assessee are accordingly allowed. Accordingly, the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of orders passed by AO/DRP/TPO.
2. Transfer Pricing adjustment on AMP expenses.
3. Jurisdiction of TPO to propose AMP adjustment.
4. Inclusion of various expenses within AMP for benchmarking.
5. Rejection of TNMM and application of AMP/GP ratio for ALP.
6. Segregation of AMP transactions from main distributorship activity.
7. Computation of ratios for AMP expense.
8. Comparable set adopted for benchmarking AMP transactions.
9. Applicability of markup on excessive AMP expenses.
10. Disallowance of depreciation allowance on capital assets converted into stock in trade.
11. Granting credit for TDS certificates.

Detailed Analysis:

1. Validity of Orders Passed by AO/DRP/TPO:
The assessee contended that the orders passed by AO/DRP/TPO are "bad in law and void ab initio." However, the Tribunal did not explicitly address this issue in the final judgment.

2. Transfer Pricing Adjustment on AMP Expenses:
The TPO proposed an adjustment of ?14,46,58,620 for AMP expenses, which the DRP reduced to ?3,98,97,000. The assessee argued that no international transaction exists for AMP, citing precedents from earlier years where similar adjustments were deleted. The Tribunal agreed, holding that no international transaction of AMP exists in the assessee's case and deleted the adjustment.

3. Jurisdiction of TPO to Propose AMP Adjustment:
The assessee argued that the TPO lacked jurisdiction to propose an AMP adjustment in the absence of a "transaction" as defined under Section 92F of the Act. The Tribunal, following previous decisions, held that the TPO's jurisdiction was not justified in this context.

4. Inclusion of Various Expenses within AMP for Benchmarking:
The TPO included various expenses like marketing and sales promotion, market research, printing and stationary, selling expenses, partner training, CRS expense, and membership and subscription within the ambit of AMP. The Tribunal, however, found that the inclusion of these expenses was not justified in the absence of an international transaction.

5. Rejection of TNMM and Application of AMP/GP Ratio for ALP:
The TPO rejected the TNMM method and applied the AMP/GP ratio to determine the ALP of the AMP transaction. The Tribunal, however, rejected this approach, following the precedent that BLT (Bright Line Test) is not a valid method for determining the existence of an international transaction or its ALP.

6. Segregation of AMP Transactions from Main Distributorship Activity:
The assessee argued that AMP transactions were closely linked with its main distributorship activity and should not be segregated. The Tribunal agreed, holding that AMP expenses cannot be treated separately from the main business activity.

7. Computation of Ratios for AMP Expense:
The TPO computed various ratios for AMP expense, including Gross Profit Ratio, AMP Expense to Sales Ratio, AMP to GP Ratio, and AMP to Sales Ratio. The Tribunal, however, found these computations irrelevant in the absence of an international transaction.

8. Comparable Set Adopted for Benchmarking AMP Transactions:
The assessee contended that the comparable set adopted by the TPO/DRP was not proper. The Tribunal did not delve into this issue in detail, as it found no international transaction of AMP exists.

9. Applicability of Markup on Excessive AMP Expenses:
The TPO/DRP applied a markup of 38.20% on the alleged excessive AMP expenses. The Tribunal found this markup inapplicable as it held that no international transaction of AMP exists.

10. Disallowance of Depreciation Allowance on Capital Assets Converted into Stock in Trade:
The AO/DRP disallowed ?26,09,863 as depreciation allowance on capital assets converted into stock in trade. The Tribunal did not explicitly address this issue in the final judgment.

11. Granting Credit for TDS Certificates:
The AO did not grant credit for TDS certificates amounting to ?8,40,136. The Tribunal did not explicitly address this issue in the final judgment.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the adjustment made on account of AMP transactions, and dismissed the appeal of the Revenue, rendering the issues raised by the Revenue infructuous. The Tribunal's decision was based on the finding that no international transaction of AMP exists in the assessee's case, following precedents from earlier years.