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TMI Blog2017 (4) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transaction is not proved, the matter will end there and then, calling for no transfer pricing addition. If, on the other hand, the international transaction is found to be existing, then the TPO will determine the ALP of such an international transaction in the light of the relevant judgments of the Hon’ble High Court, after allowing a reasonable opportunity of being heard to the assessee - ITA No. 6135/Del/2012, ITA No. 5611/Del/2012 - - - Dated:- 3-4-2017 - SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Nageswar Rao, Adv For The Revenue : Sh. TM Shivakumar, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. ITA No. 6135/Del/2012 (AY 2007-08) 5611/Del/2012 (AY 2008-09) 1. The only issue raised in these appeals is against the addition of ₹ 20071538/- and ₹ 53244393/- on account of transfer pricing adjustment of advertisement, marketing and promotion (AMP) expenses for Ay 2007-08 and 2008-09 respectively. 2. These appeals filed by the parties were earlier disposed of by the Tribunal vide its orders dated 13.12.2013 and restoring the computation of ALP of AMP expenses to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise afresh in the light of various directions. This decision of Special bench was challenged before the Hon'ble High Courts and in several cases including the case of the assessee for the year under consideration, has been disposed of by Hon ble High Court conferring jurisdiction in the TPO to determine the ALP of the international transaction of AMP expenses. The Hon'ble High Court has held, inter alia , that the international transaction of AMP expenses should be bundled or aggregated with other international transaction carried out by the assessee as a distributor, who either simply acts an agent of manufacturer or purchases goods from the manufacturer for resale at his own account. However, in the case of a manufacturer, the import of raw material has been held to be an independent transaction of marketing and distribution. In the case of a distributor, the Hon'ble High Court held that where TNMM has been applied as the most appropriate method, which method has not been disturbed by the TPO, then, the international transactions of AMP and distribution activities should be clubbed. It further held that for determining the ALP of such transactions under a combine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a function, which has subsumed in the profit of the assessee. It is pertinent to note that the TPO examined and got satisfied with the assessee's profit margin vis- -vis the comparables only of the international transactions of distribution function. He determined the ALP of AMP expenses by applying bright line test and in this process simply compared the quantitative figures of AMP expenses incurred by the assessee and comparables for working out the non-routine expenses. He did not examine the AMP functions carried out by the assessee and the comparables. As the bright line test primarily concentrates on the quantitative aspects of the AMP expenses alone, it overlooks the examination of the AMP functions carried out by the assessee on one hand and the comparables on the other. Now, the Hon'ble High Court in Sony Ericson Mobile Communications India (P.) Ltd. ( supra ) has proceeded held that AMP expense is a separate international transaction and also bright line test is not applicable for determining the ALP of AMP expenses. The manner for the determination of the ALP of the distribution activity and AMP activity has also been set out by the Hon'ble High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses are two separate but related international transactions. It is only for the purposes of determining their ALP that these two should be aggregated. The process of such aggregation does not take away the separate character of the AMP transaction. An analysis and examination of the Distribution and AMP functions carried out by the assessee must be necessarily done in the independent manner at first instance and then comparability analysis, which is now a reasonably developed exercise with respect to segregation and selecting comparables. The essence of the judgment in the case of Sony Ericson Mobile Communications India (P.) Ltd. ( supra ) is that the two international transactions of Distribution and AMP should be examined on the touchstone of transfer pricing provisions, but on an aggregate basis. Determining the ALP of two transactions in an aggregate manner postulates making a comparison of both the functions of Distribution and AMP carried out by the assessee with the comparables, so that surplus from the distribution activity could be adjusted against the deficit in the AMP activity. 9. Coming back to the facts of the instant case, we find that no detail of the AMP ..... X X X X Extracts X X X X X X X X Extracts X X X X
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