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TMI Blog2016 (9) TMI 1332X X X X Extracts X X X X X X X X Extracts X X X X ..... brought any material to controvert these factual aspects noted by ld. DRP. We, therefore, sustain the order of ld. CIT(A) following the decision of Hon’ble Supreme Court in the case of Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT) wherein it has been held that the loss incurred by the assessee on the date of balance-sheet is an allowable loss u/s 37(1). X X X X Extracts X X X X X X X X Extracts X X X X ..... t efforts to promote the brand of the AE. He pointed out that advertisement expenses over and above the normal AMP expenses incurred by comparable companies was towards brand building. He compared the AMP/ sales ratio with Vivek Ltd. and observed that assessee had incurred 16.04% of AMP to gross sales as compared to 3.87% of the AMP to gross sales incurred by Vivek Ltd. He, inter alia, show caused the assessee as under: "This segment is proposed to be benchmarked using CUP with a markup to the calculated over costs. It must be kept in mind that this process of providing AMP services involves deploying your funds. It is considered prudent that a mark-up of at least equal to the prime lending rate of the State Bank of India be applied on this account The PLR of SBI was 12.75% for the FY 2008-09. In the whole process, you have not only deployed your funds but also engaged your trained manpower towards this task. You have also spent on staff salaries, office expenses, Travelling and conveyance, rent, electricity, communication costs etc. etc. Therefore, because of these indirect expenses made by you, a further mark up of at least 2.25% on the above AMP spend amount is considered appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true market value of the transaction and accordingly the adjustment, if required, is made. The exercise has its own object and purpose. Advertising, marketing and sales promotion expenses incurred by the assessee in India can be treated and categorised as an international transaction under section 92B of the Income-tax Act, 1961. LG. ELECTRONICS INDIA P. LTD. v. ASST. CIT [2013] 22 ITR (Trib) 1 (Delhi) [5B] approved on this point". xxxx xxxx xxx xxx "It would be incorrect to treat advertisement as equivalent or synonymous with "brand building" for the latter in a commercial sense refers to several facets and components, the primary being the quality and reputation of the product or name, which is acquired gradually and silently over a passage of time. The following factors would govern the determination of arm's length price in relation to advertising, marketing and promotion expenses: (i) In the case of a distributor and a marketing associated enterprise, the first step in transfer pricing is to ascertain and conduct a detailed functional analysis, which would include the advertising, marketing and promotion functions/expenses. (ii) The second step mand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otion expenses are duly accounted for. It would be incongruous to accept the comparables and determine or accept the transfer price and still segregate the advertising, marketing and promotion expenses as an international transaction. (vi) The Assessing Officer/Transfer Pricing Officer can reject a method selected by the assessee for several reasons including want of reliability in the actual matrix or lack/non-availability of comparables (section 92C(3) of the Act). (vii) When the Assessing Officer/Transfer Pricing Officer rejects the method adopted by the assessee, he is entitled to select the most appropriate method, and undertake a comparability analysis. Selection of the method and comparables should be as per the command and directive of the Act and Rules and justified by giving reasons. (viii) Distribution and marketing are interconnected and intertwined functions. Bunching of interconnected and continuous transactions is permissible, provided the transactions can be evaluated and adequately compared on aggregate basis. This would depend on the method adopted and comparability analysis and the most reliable means of determining the arm's length price. (ix) To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approach. Transfer pricing is an income all allocating exercise to prevent artificial shifting of net incomes of controlled taxpayers and to place them on parity with uncontrolled, unrelated tax-payers. The exercise undertaken should not result in over or double taxation. Thus, the Assessing Officer/Transfer Pricing Officer can segregate the advertising, marketing and promotion expenses as an independent international transaction but only after elucidating grounds and reasons for not accepting the bunching adopted by the assessee and examining and giving the benefit of set off. Section 92(3) does not bar or prohibit set-off. (xiii) The cost plus method is a recognised and accepted method under lie Indian transfer pricing regulation. It can be applied by the Assessing Officer/Transfer Pricing Officer in case the advertising, marketing and promotion expenses are treated as a separate international transaction, provided the cost plus method is the most appropriate and reliable method. Adoption of the cost plus method and computation of cost and gross profit margin comparable must be justified. (xiv) The object and purpose of transfer pricing adjustment is to ensure that the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 2,93,89,615/- on account of the unrealized exchange loss on 31.3.2009 by making MTM bench marking of the outstanding payments on account of import of goods from Overseas Vendors. According to the information submitted before the Panel, such out standings are with the following break up: S. NO. Name of the Vendor MTM Loss/Gain 1 HAH Hongkong Company -28,947,584.41 2 Haier America Refrigerators Company -296,667.80 3. Zhongshan Changhong Electric Co Ltd. -145,636.56 4 Hefei Rongshida Washing Equipment 273.34 Total -29,389,615.43 The said claim is made pursuant to the provisions of AS-11 issued by the ICAI. The taxpayer has placed strong reliance upon the decision on Hon'ble Supreme Court in the case of Woodward Governor India P. Ltd (supra). Thus, it is to be considered if the case of the taxpayer is covered by it or not? The reported decision was rendered in the context of loan liability in the books of account of the taxpayer. The said loan was on revenue account as a monetary transaction appearing in the balance sheet and was raised in the foreign exchange. The taxpayer debited the unrealized loss due to foreign exchange fluctuation as on the 31s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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