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TMI Blog2017 (7) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... al transaction”, in the light of the judgments rendered by Hon’ble Delhi High Court discussed in preceding paras. In case the existence of such an international transaction is not proved, there shall not be any transfer pricing addition, by the ld. AR for the assessee. However, in case the international transaction is proved to be existed, then the TPO will determine such international transaction in the light of the judgment rendered by Hon’ble jurisdictional High Court after providing an opportunity of being heard to the assessee. TPO/AO is also required to benchmark the distribution and marketing functions both being interconnected and intertwined on an aggregate basis in accordance with the decision rendered by coordinate Bench in assessee’s own case for AY 2011-12. However, so far as first part of the directions issued by the DRP qua legal issues are concerned, the assessee sought to reserve its right to argue the same before the competent forum. However, we are of the considered view that this remedy is otherwise always available to the assessee to argue on legal issues before the competent authority X X X X Extracts X X X X X X X X Extracts X X X X ..... s' length price ('ALP') of the international transaction. Further, the DRP erred in not adjudicating the objections challenging the jurisdiction of the TPO in this regard. 5.1. That on the facts and circumstances of the case and in law, the TPO erred in suo-mota benchmarking the alleged international transaction related to AMP expenditure without their being any order or reference from the AO in relation thereto. 6. That on facts and circumstances of the case and in law, AO I DRP have erred in holding that the Appellant has failed to demonstrate business purpose I benefit from incurrence of alleged excessive AMP expenditure without providing any cogent reasons and completely ignoring that incurrence of the AMP expenditure has accelerated growth of Appellant's turnover over the years. 7. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in re-characterizing the Appellant as service provider rendering brand building services to its AE, without appreciating that it is a full risk bearing distributor incurring AMP expenditure in the course of its own business to promote its sales in India. 8. That on the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n applying the same de hors the Indian Transfer Pricing Regulations. 12.1. Without prejudice and notwithstanding, that on the facts and circumstances of the case and in law, the AO I DRP I TPO have erred in not granting set-off of excessive gross profit earned by the Appellant from distribution function, against TP adjustment proposed in relation to AMP expenses, even if segregate approach was to be adopted for benchmarking the AMP expenditure. 13. That on the facts and circumstances of the case and in law, AO I DRP / TPO have erred in not appreciating that the Appellant had not provided any value added I brand building services to its AE by incurring AMP expenditure, and therefore, no mark-up could have been charged I levied on such expenditure, even if the same was to be characterized as an 'international transaction'. 14. Notwithstanding and without prejudice to the above ground, even if the mark-up is to be applied, the same could have been charged only on the value added expenses incurred by the Appellant for such alleged brand promotion service and not on the entire amount incurred / paid to third party vendors. 14.1. Without prejudice and notwithstanding, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and in law, the AO / DRP / TPO have erred in not providing the Appellant the benefit of (+/-) 5% range as provided by the proviso to section 92C(2) of the Act. 20. That on the facts and circumstances of the case and in law, the AO has erred in charging interest under sections 234B and 234C of the Act. 20.1. That on the facts and circumstances of the case and in law, the AO has further erred in incorrect calculation of interest under sections 234B and 234C of the Act." 2. Briefly stated, facts of this case are : Nikon Group is into broad spectrum of businesses viz. precision equipment, imaging products, instruments and other business which are being carried out through separate divisions, namely, precision equipment business; imaging project business; instrument business and other businesses. However, assessee company being incorporated in May, 2007 is wholly owned subsidiary of Nikon Corporation, Japan and operating through a network of local distributors from August, 2007. Assessee company is engaged in the distribution and marketing services for Nikon products in India. It also provides repair services for complete range of Nikon imaging and instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has rendered intra group services which are required to be separately benchmarked. TPO used "bright line" test for benchmarking to make adjustment on protective basis. TPO used cost plus method for benchmarking and also applied mark up using assessee's own GP margin rate for making substantive adjustment and thereby proposed the adjustment of ₹ 51,89,69,687/- on substantive basis. 7. The assessee company carried the matter by way of filing objections before the DRP but failed to get relief. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. 9. At the very outset, it is brought to the notice of the Bench by both the ld. Representatives of the parties that identical issue has already been determined by the coordinate Bench in assessee's own case bearing ITA No.6314/Del/2015 order dated 15.07.2016 by restoring the matter back to the TPO to determine afresh as to whether there exists any international ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available to him. Aforesaid decisions have consistently been followed by coordinate Benches of the Tribunal. 16. In these circumstances, we are of the considered view that it would be in the interest of justice if the impugned order is set aside and the matter is restored to the file of TPO/AO for fresh determination of the question to determine, "as to whether AMP expenditure is international transaction", in the light of the judgments rendered by Hon'ble Delhi High Court discussed in preceding paras. 17. In case the existence of such an international transaction is not proved, there shall not be any transfer pricing addition, by the ld. AR for the assessee. However, in case the international transaction is proved to be existed, then the TPO will determine such international transaction in the light of the judgment rendered by Hon'ble jurisdictional High Court after providing an opportunity of being heard to the assessee. 18. The ld. AR for the assessee also brought on record the factual error committed by AO by not following the directions issued by ld. DRP regarding AMP intensity adjustment to be made on protective basis which are reproduced as under for ready perusal:- "3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjusted OP/OR U=T/S 4.16% Average margin 4.16% Arm's Length Margin V 4.16% Adjustment W=V - LA/AA 14.575 Assumption: For the purpose of illustration, 15% is taken as the return on "AMP expenses" incurred by any independent entity providing marketing support services. (The particular margin applicable has been quantified at 17.32% as discussed in para 12.10.) 4. It may be mentioned that this adjustment is not dependent on whether there is an international transaction. As discussed in para 4, there is clearly an international transaction in this case however, if this view is not accepted by higher judicial authorities, the AMP intensity adjustment would still stand." 19. Aforesaid error pointed out by the ld. AR for the assessee is apparent on the record and AO is required to follow the directions in accordance with law. 20. TPO/AO is also required to benchmark the distribution and marketing functions both being interconnected and intertwined on an aggregate basis in accordance with the decision rendered by coordinate Bench in assessee's own case for AY 2011-12. However, so far as first part of the directions issued by the DRP qua legal issues are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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