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2022 (2) TMI 1136 - AT - Income TaxTP Adjustment - Arm's Length Price (ALP) adjustment made in respect of Advertisement, Marketing and Promotional (AMP) expenses incurred by the assessee on the pretext that the assessee company had benefitted the Associated Enterprise (AE) by incurring the said expenditure - HELD THAT - The facts with regard to the impugned dispute before us for the year are identical with earlier years. The ld. DR tried to distinguish the decision taken supra by stating that the tribunal had held that Bright Line Test (BLT) method adopted by the ld. TPO in earlier year was not a valid method to benchmark the transactions, and that during the year under consideration, the ld. TPO had only applied 'other method' for benchmarking the AMP expenditure. AR stated that the ld. TPO by merely mentioning 'other method' in his order had effectively applied only BLT method while doing the determination of ALP in respect of AMP expenditure. Hence the facts are exactly identical. In view of the above, the decision rendered by this tribunal for Asst Year 2013-14 2020 (9) TMI 341 - ITAT MUMBAI would be applicable for the year under consideration also and accordingly, we direct the ld. TPO to delete the ALP adjustment made in respect of AMP expenditure. Accordingly, the Grounds raised by the assessee in this regard are allowed. ALP adjustment made in relation to import of finished goods (i.e. pringles) - tested party for benchmarking the international transaction of import of finished goods - HELD THAT - We find that the assessee had to carry on multiple functions as detailed above in order to market the imported Pringles in India. We find that the Singapore AE is remunerated on mere cost plus mark up basis and undertakes only limited functions. Hence we hold that for all practical purposes, Singapore AE would be the least complex entity. The statute requires that tested party selected should be the least complex party. Moreover, the main basis for rejection of the Singapore AE as tested party by the ld. TPO was in view of the fact that the financials of AE as well as foreign comparable companies were not produced before him. This fact has been found to be incorrect as the assessee had indeed furnished the financials of AE as well as foreign comparable companies which are also enclosed in the paper book filed before us. The ld. DR before us could not controvert this fact before us. Yet another argument on regional benchmarking of comparable companies carried out by the assessee had already been addressed by the Delhi Tribunal in Ranbaxy Laboratories Ltd. 2016 (5) TMI 157 - ITAT DELHI and accepted by CBDT as stated supra. Hence that argument of the ld. DR also fails. Accordingly, we hold that it would be safe to treat the Singapore AE as the least complex entity and consequentially Singapore AE had been rightly taken as the tested party by the assessee. Selection of RPM as MAM - We hold that Singapore AE should be considered as the tested party, being the least complex entity, in the facts and circumstances of the case, which has been rightly done by the assessee. Hence no adjustment to ALP is required to be made. Even if the comparables chosen by the ld. TPO are considered, undisputably since the assessee is only engaged in purchase and resale of goods without any substantial value addition thereon, RPM would be the MAM and in case of RPM only the gross margins are to be compared. We find that gross margins of assessee are much more than the gross margins of comparable companies chosen by the ld. TPO. Hence no adjustment to ALP is to be made in respect of import of finished goods even if the comparable companies chosen by the ld. TPO are upheld. Hence we hold that no adjustment to ALP is required to be made in the instant case in respect of import of finished goods in either case. Accordingly, the said adjustment is hereby directed to be deleted. Accordingly, the Additional Grounds raised by the assessee are allowed
Issues Involved:
1. Arm's Length Price (ALP) adjustment in respect of Advertisement, Marketing, and Promotional (AMP) expenses. 2. ALP adjustment related to the import of finished goods (Pringles). Detailed Analysis: 1. Arm's Length Price (ALP) Adjustment in Respect of Advertisement, Marketing, and Promotional (AMP) Expenses: The assessee raised issues regarding the ALP adjustment for AMP expenses, arguing that these expenses benefited the Associated Enterprise (AE). The Tribunal noted that this issue had been previously decided in favor of the assessee in earlier years up to the Assessment Year (AY) 2013-14. The Tribunal reiterated the findings from AY 2013-14, emphasizing that the facts for the current year were identical. The Tribunal reviewed the case where the Transfer Pricing Officer (TPO) had determined the ALP of AMP expenses by using the Bright Line Test (BLT) method, which was not prescribed by statute and had been invalidated by various judicial precedents, including the Delhi High Court in Maruti Suzuki India Ltd. The Tribunal found no factual basis for the TPO's inference that there was an arrangement between the assessee and the AE for incurring AMP expenses to promote the AE's brand. Consequently, the Tribunal directed the TPO to delete the ALP adjustment for AMP expenses, aligning with the decisions in earlier years. 2. ALP Adjustment Related to the Import of Finished Goods (Pringles): The assessee raised an additional ground challenging the ALP adjustment for the import of Pringles amounting to ?1,31,60,199/-. The Tribunal admitted this additional ground as the relevant facts were already on record. The assessee argued that it acted as an entrepreneur in the Indian market, undertaking all key decisions and significant functions, bearing significant entrepreneurial risks, while the Singapore AE was a low-risk entity remunerated with a steady return on cost. The TPO had selected the Indian entity as the tested party and used the Transactional Net Margin Method (TNMM) to determine the ALP, resulting in an adjustment of ?1,31,60,199/-. The Tribunal found that the Singapore AE should be considered the least complex entity and thus the appropriate tested party. The Tribunal noted that the financial details of the AE and foreign comparables were provided to the TPO, contrary to the TPO’s claim. The Tribunal also referenced the Delhi Tribunal's decision in Ranbaxy Laboratories Ltd., where regional benchmarking was accepted. Additionally, the Tribunal considered the assessee's alternative argument that if the Indian entity were the tested party, the Resale Price Method (RPM) should be the Most Appropriate Method (MAM) due to the nature of the transaction involving the purchase and resale of goods without significant value addition. The Tribunal found that the gross margins of the assessee were much higher than those of the comparables chosen by the TPO, indicating no need for ALP adjustment. The Tribunal directed the deletion of the ALP adjustment for the import of finished goods, concluding that no adjustment was required in either case. Conclusion: The Tribunal allowed the appeal of the assessee, directing the deletion of the ALP adjustments for both AMP expenses and the import of finished goods. The judgment emphasized the importance of adhering to established legal precedents and proper benchmarking methods in transfer pricing cases. The order was pronounced on 16/02/2022.
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