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TMI Blog2014 (2) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue of interest as per aforementioned decision of Hon’ble Supreme Court. TP adjustment - expenses of advertisement reimbursed by the assessee to its AE - Held that:- The expenses of advertisement reimbursed by the assessee to its AE belongs to the export activity of the assessee. To all the three AEs to whom the assessee has reimbursed advertisement expenditure huge export sales are made. It is the case of the assessee that its operating margin on its export activity is 47.17% as against similar margin of comparables of 8.08%. If the case of the assessee is examine in the light of these facts, then we are of the opinion that Ld. CIT(A) was right in deleting the adjustment as though the transaction of sharing the advertisement expenditure may be an independent transaction but it relates to the activity of export. Even if the total expenditure made by the assessee on sharing of advertisement expenses is reduced from operating margin of exports then also the operating margin of the assessee will be much more than the operating margin of the comparables and operating margin of assessee on export activity has been held to be at arms length by the TPO. It is not the case of TPO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate that the appellant had also incurred interest cost of ₹ 1,43,82,000/- and therefore 90% of Net interest(i.e. Interest income net of Interest cost) only should have reduced from the profit of business for the purpose of deduction u/s 8OHHC. Grounds of appeal in ITA No.6865/M/2010-Revenue s Appeal: 1. Whether on the facts and in the circumstances of the case, and ion law the CIT(A) erred in deleting the adjustment of ₹ 1,39,12,066/- in respect of advertisement expenses paid to Associate Enterprise u/s. 92CA(3) of the I.T. Act. Grounds of appeal in ITA No.6866/Mum/2010- Revenue s Appeal: 1. Whether on the facts and in the circumstances of the case, and ion law the CIT(A) erred in deleting the adjustment of ₹ 1,61,47,000/- in respect of advertisement expenses paid to Associate Enterprise u/s. 92CA(3) of the I.T. Act. Grounds of appeal in ITA No.6866/Mum/2010- Revenue s Appeal: 1. Whether on the facts and in the circumstances of the case, and ion law the CIT(A) erred in deleting the adjustment of ₹ 88,83,650/- in respect of advertisement expenses paid to Associate Enterprise u/s. 92CA(3) of the I.T. Act. 2. Since all these appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the comparable companies at 8.08%. Reference can be made to the following two tables. A. Operating Margin of the Company: Figures in 000 Particulars Amount Gross Sales 850,709 Net Sales 850,709 Less: Operating Expenses Depreciation 449,405 Operating Profit 401,304 OM 47.17% A. Operating Margin of the comparable Companies: Company Name OM 1. Ajay Home Products Ltd. -6.45% 2. Emami Ltd. 14.65% 3. Fem Care PharmaLtd. 6.20% 4. Nirma Ltd. 21.23% 5. Pee Cee Cosma Sope Ltd. 5.81% 6. Ultramarine Pigments Ltd. 7.07% Mean 8.08% 3.2 Ld. TPO has accepted the transactions mentioned at Sl. No.1 3 to be at arms length. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncipal basis whereas AE of the assessee was responsible for its own business. There was no basis for payment of advertisement cost of the AE by the assessee. Therefore, TPO observed that the transaction was not at arms length price. The ALP of such transaction was taken at nil and whole amount of ₹ 1,39,12,066/- was added as T.P. Adjustment. 3.3 An appeal was filed before Ld. CIT(A). It was submitted that the reimbursement of advertisement expenses were integral part of the export transaction with the relevant AEs and the cost is solely incurred to maximize the over all profit from such export market and to sustain export in future. It was further submitted that the export business of the assessee company is highly profitable and it has earned operating margin of 47.17% as against operating margin of 8.08% of the comparable companies and operating margin has been held by the TPO to be at arms length. Apart from these submissions the submissions made before TPO were reiterated. Considering all these submissions of the assessee Ld. CIT(A) has decided the issue in favour of the assessee on the ground that TPO has made this addition in adhoc manner without adopting any method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be determined as per method described in the statute and if it is not so done then the adjustment is required to be struck down. For this purpose Ld. AR relied upon the decision of Tribunal in the case of Kotak India Pvt. Ltd. vs. Addl.CIT, 88 DTR (Mum)(Trib) 242. Ld. AR also relied upon the decision of ITAT, Mumbai in the case of C.A.Computer Associates Pvt. Ltd. vs. DCIT in ITA No.5420 5421/Mum/06, 2010 TOIL 68 (ITAT)(Mum). 3.7 We have heard both the parties and their contentions have carefully been considered. The expenses of advertisement reimbursed by the assessee to its AE belongs to the export activity of the assessee. To all the three AEs to whom the assessee has reimbursed advertisement expenditure huge export sales are made. It is the case of the assessee that its operating margin on its export activity is 47.17% as against similar margin of comparables of 8.08%. If the case of the assessee is examine in the light of these facts, then we are of the opinion that Ld. CIT(A) was right in deleting the adjustment as though the transaction of sharing the advertisement expenditure may be an independent transaction but it relates to the activity of export. Even if the total ..... X X X X Extracts X X X X X X X X Extracts X X X X
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