2021 (5) TMI 382 - AT - Income Tax

TP Adjustment - determination of Most Appropriate Method (MAM) for the transfer pricing adjustment of the transactions - benchmarking the international transactions with regard to the AMP expenses, the assessee has opted for Resale Price Method (RPM) whereas the revenue has resorted to Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) - HELD THAT - This issue has already been covered by the order of the ITAT in assessee's own case for the earlier assessment year 2013-14 2017 (5) TMI 1367 - ITAT DELHI wherein it was held that RPM was MAM for benchmarking. Since, the matter stands covered in favour of the assessed for the earlier years and in the absence of any material change in the facts of the case brought to our notice, we hereby direct that the adjustment be determined considering as RPM as MAM. Adjustment on protective basis following the BLT method - HELD THAT - This issue has been squarely covered by the order of the Co-ordinate Bench In the case of M/s. Toshiba India Pvt. Ltd. 2017 (12) TMI 125 - ITAT DELHI wherein held that the BLT for computing Arm s Length Price of AMP transaction has already been rejected by the Hon ble Delhi High Court in the case of Sony Ericsson 2015 (3) TMI 580 - DELHI HIGH COURT and thus adjustment even protective basis cannot be sustained. The decision of the Hon ble Jurisdictional High Court is a binding precedent and the lower authorities cannot disregard it merely because the Revenue has challenged it before the Hon ble Supreme Court. Thus, respectfully following the above decision of the Tribunal, we direct the Ld. AO/TPO to delete the protective addition. Accordingly, we allow the relevant grounds of the appeal of the assessee.

Issues Involved:
1. Determination of the Most Appropriate Method (MAM) for Transfer Pricing Adjustment.
2. Transfer Pricing Adjustment on Account of Advertisement, Marketing, and Promotion (AMP) Expenses.
3. Whether AMP Expenses Constitute an International Transaction.
4. Application of Bright Line Test (BLT) for Transfer Pricing Adjustment on a Protective Basis.
5. Levying Interest under Sections 234B and 234C.
6. Initiation of Penalty Proceedings under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Determination of the Most Appropriate Method (MAM) for Transfer Pricing Adjustment:
The primary issue relates to determining the Most Appropriate Method (MAM) for transfer pricing adjustment of transactions. The assessee opted for the Resale Price Method (RPM) for benchmarking international transactions regarding AMP expenses, while the revenue resorted to the Transactional Net Margin Method (TNMM). The Tribunal referenced its earlier decision for the assessment year 2013-14, where it was held that RPM was the MAM for benchmarking. The Tribunal directed that the adjustment be determined considering RPM as the MAM, following the principle of consistency as there was no material change in the facts of the case.

2. Transfer Pricing Adjustment on Account of Advertisement, Marketing, and Promotion (AMP) Expenses:
The Ld. AO/TPO enhanced the income of the appellant by ?13,39,13,000 by making a TP adjustment on account of AMP expenses, asserting that the expenses were excessive and should be compensated by the Associated Enterprises (AEs). The Tribunal found that the issue had been covered by the ITAT’s order in the assessee’s own case for the earlier assessment year, which upheld RPM as the MAM for benchmarking. The Tribunal directed that the adjustment be determined considering RPM as the MAM.

3. Whether AMP Expenses Constitute an International Transaction:
The Hon’ble DRP/Ld. AO/Ld. TPO erred in assuming that the AMP expenditure incurred by the appellant is an "international transaction" within the meaning of section 92B of the Act. The Tribunal noted that the AMP expenses were incurred by the appellant as part of its role and responsibility as a distributor and not for providing any benefit to its AE. The Tribunal emphasized that the AE did not derive any benefit from the AMP expenditure incurred by the appellant.

4. Application of Bright Line Test (BLT) for Transfer Pricing Adjustment on a Protective Basis:
The Tribunal referenced the Hon’ble Delhi High Court’s decision in the case of Sony Ericsson, which rejected the BLT method for computing the arm’s length price of the AMP transaction. The Tribunal noted that the substantive addition on AMP adjustment had already been deleted by the Ld. DRP, and only the addition made on a protective basis following the BLT method was sustained. The Tribunal directed the Ld. AO/TPO to delete the protective addition, as the BLT for computing the Arm’s Length Price of AMP transactions had already been rejected by the Hon’ble Delhi High Court.

5. Levying Interest under Sections 234B and 234C:
The Tribunal did not specifically address the issue of levying interest under sections 234B and 234C, as the primary focus was on the transfer pricing adjustments and the application of the appropriate method.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
Similarly, the Tribunal did not specifically address the initiation of penalty proceedings under section 271(1)(c), as the primary focus was on the transfer pricing adjustments and the application of the appropriate method.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing that the adjustment be determined considering RPM as the MAM and deleting the protective addition made following the BLT method. The Tribunal emphasized the principle of consistency and the binding nature of judicial precedents, particularly the decisions of the Hon’ble Delhi High Court. The order was pronounced in the open court on 26/04/2021.

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