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TMI Blog2014 (1) TMI 1529X X X X Extracts X X X X X X X X Extracts X X X X ..... o be processed as per the mandate of the LG Electronics [2013 (6) TMI 217 - ITAT DELHI] to find out the amount spent towards brand building for the foreign AE and then making addition by way of TP adjustment with appropriate mark-up - The total AMP expenses are segregated into two classes, one benefiting the assessee's business and two, benefiting the foreign AE by way of promotion of the brand. Once the total amount of AMP expenses is processed through the provisions of Chapter X of the Act with the aim of making TP adjustment towards AMP expenses incurred for the foreign AE, or in other words such expenses as are not incurred for the assessee's business, there can be no scope for again reverting to section 37(1) qua such amount to make addition by considering the same expenditure as having not been incurred `wholly and exclusively' for the purposes of assessee's business. - The AO was not justified in observing alternatively that a sum of ₹ 180 crore and odd is not allowable as per section 37(1) of the Act - The issue has been restored for fresh adjudication. - I.T.A. No. 426/Del/2013 - - - Dated:- 13-1-2014 - Shri R. S. Syal And Shri C. M. Garg,JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs.143.36 crore in the total AMP expenses for the purposes of benchmarking. The DRP, and, in turn, the AO accepted the TPO's point of view on this aspect. Now the assessee wants this amount to be deleted from the gross qualifying amount of AMP expenses. 5. We have heard the rival submissions and perused the relevant material on record. The Special Bench of the Tribunal in the case of LG Electronics (supra) has held vide Paras 18.5 and 18.6 of its order that: 'the expense in connection with the sales which do not lead to brand promotion cannot be brought within ambit of 'Advertisement, Marketing and Promotion expenses' for determining the cost/value of international transactions'. It has further been held that the logic in the exercise of finding out the AMP expenses towards creation of marketing intangible for the foreign AE starts with identifying the expenses which are otherwise in the nature of Advertisement, Marketing and Promotion. If an expenditure itself is not in the nature of Advertising, Marketing or Promotion, that ought to be excluded at the very threshold. From the above observations of the Special Bench on this issue, it is manifest that the expenses which are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngaged at the dealers' / distributors' outlets. The ld. AR contended that since this amount was in the nature of salaries paid to the dealer's staff in connection with the sale of products, the same should be eliminated from the total AMP expenses. The ld. DR opposed this contention. 8. Having heard the rival submissions and perused the relevant material on record, we find that the true nature and character of the amount of Rs.6 crore is not properly coming up from the material on record. Though it was contended that this amount was in the nature of reimbursement of salary paid to sales staff of dealers/distributors, but no material has been shown to substantiate this contention. We want to make it clear that it is the correct nature of amount which is decisive and not the nomenclature given by the parties. As the correct nature of this amount of Rs.6 crore is not ascertainable, we are handicapped to render any decision on it. As such, we deem it proper to set aside the impugned order on this issue and remit the matter to the file of the AO/TPO for taking a fresh decision after ascertaining the correct nature of this amount. If this amount or its part is found to be leading to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rs.180.73 crore is that such expenditure on AMP is not incurred `wholly and exclusively' for the assessee's business and it has resulted in spending the reach of the brand of the parent company. 13. At this juncture, we would like to espouse the contention of ld. AR referred to hereinabove for the deductibility of the full amount of AMP expenses as having been incurred wholly and exclusively for the business purpose in terms of section 37(1) of the Act. 14. It is imperative to note that the ld. AR relied on the judgment of the Hon'ble Supreme Court in Sassoon J. David Co. P. Ltd. Vs. CIT [(1979) 118 ITR 261 (SC) to buttress his argument that the assessee can claim deduction for full amount of expenses incurred for its business purpose and the fact that somebody else also got benefited incidentally by such expenditure would not mar the deductibility, if it otherwise satisfies the test of deductibility. There is no doubt about the general proposition as laid down in this judgment that if an expenditure is deductible u/s 37(1) as having being incurred wholly and exclusively for the business purpose, the same has to be allowed in entirety notwithstanding the fact that som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 16. This proposition can be viewed from another angle also. It is trite that the avowed object of the TP adjustment on account of AMP expenses is to first find out and attribute the amount spent by the assessee towards promotion of its foreign AE's brand/logo etc. and then make addition for such amount with appropriate mark-up. By this exercise, the total AMP expenses get segregated into two classes, viz., one benefiting the assessee's business and two, benefiting the foreign AE by way of promotion of the brand. Whereas the first amount is deductible in full subject to the regular provisions, the second amount is added to the total income with suitable mark-up by way of the TP adjustment. Once the total amount of AMP expenses is processed through the provisions of Chapter X of the Act with the aim of making TP adjustment towards AMP expenses incurred for the foreign AE, or in other words such expenses as are not incurred for the assessee's business, there can be no scope for again reverting to section 37(1) qua such amount to make addition by considering the same expenditure as having not been incurred `wholly and exclusively' for the purposes of assessee's business. If the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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