9911796707
TMI Blog2017 (9) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... s to Toshiba group companies worldwide. 99.99% of the assessee's share capital is held by Toshiba Corporation, Japan and only 0.01% is held by others. The assessee filed return declaring total income of Rs. 31.99 crore. Certain international transactions were reported in Form No.3CEB. The Assessing Officer made reference to the Transfer Pricing Officer (TPO) for determining the arm's length price of the international transactions. The TPO did not dispute any other international transaction except finding that the assessee incurred AMP expenses for promoting the brand owned by its AE. After carrying out a detailed exercise and dealing with the objections raised by the assessee, the TPO held that there was an international transaction between the assessee and its AE for promotion of brand. Applying the bright line approach, the TPO worked out transfer pricing adjustment at Rs. 77.46 crore on protective basis. Then, the TPO proceeded to determine the ALP of the international transaction of AMP expenses on substantive basis. In doing so, he noted that the assessee incurred total AMP expenses to the tune of Rs. 148.77 crore. Non-routine AMP expenses were worked out at Rs. 89.66 crore an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a fresh determination. It was argued, that the judgment in the case of Yum Restaurants and Sony Ericson (for AY 2010-11) delivered in January, 2016 is later in point of time to the earlier judgments in the case of Maruti Suzuki and Whirlpool, etc. relied by the ld. AR and, hence, the matter of determination of the ALP of the international transaction should be restored for a fresh determination, after primarily holding the incurring of AMP expenses as an international transaction. It was argued that the Tribunal in several cases, including the assessee's own case for the A.Y. 2010-11 has held that the AMP expenses is an international transaction. He further relied on the order of the tribunal for the immediately preceding year, that is, A.Y. 2011-12, in which the question of determination of the ALP of the AMP expenses has been restored to the file of TPO to be decided afresh in the light of various judgments of the Hon'ble Delhi High Court. 6. The first moot question which, ergo, looms large before us is the determination of the existence or otherwise of an international transaction on account of AMP expenses incurred by the assessee. In order to decide it, we need to highlig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In this regard, it is observed that the TPO made substantive addition by considering the non-routine AMP expenses as incurred on behalf of its AE for brand promotion and then added 5% mark up. Impliedly, the TPO applied Cost Plus Method for determining the ALP of the international transaction. 9. At this juncture, it is relevant to note that the Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (supra) has elaborately examined this issue. It considered the distribution and the brand promotion activities as inter-connected transactions and harped on their aggregation. Crux of the relevant observations of the Hon'ble High Court, which is crucial for our purpose, can be summarized as under:- * Inter-connected international transactions can be aggregated and section 92(3) does not prohibit the set-off [Paras 80 & 81]; * AMP is a separate function. An external comparable should perform similar AMP functions. [Paras 165 &166] ; * Bright line test cannot be applied to work out non-routine AMP expenses for benchmarking [Para 194(x)]; * ALP of AMP expenses should be determined preferably in a bundled manner with the distribution activity [Paras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried out by the assessee and the comparables. Manner of determination of the ALP of the distribution activity and AMP activity has been set out by the Hon'ble High Court to be conducted, firstly, in a bundled manner by considering the distribution and AMP functions performed by the assessee as well as the probable comparables. If probable comparables having performed both the functions are not available, then to determine the ALP of AMP expenses in a segregated manner. As such, it becomes immensely important to separately examine the distribution and AMP functions undertaken by the assessee as well as probable comparables. It is vital to highlight the difference between the AMP expenses and AMP functions. Whereas the AMP functions are the means by which the AMP activity is performed, the AMP expenses are the amount spent on the performance of such means (functions). To put it simply, an examination of AMP functions carried out by the assessee and the probable comparables is sine qua non in the process of determination of the ALP of the international transaction of AMP spend, either in a segregate or an aggregate manner. What Their Lordships have held is to bundle the distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, such probable comparable should be dropped from the list of comparables. If, in doing this exercise, there remains no company doing comparable distribution and AMP functions, then, both the international transactions are required to be segregated and then examined on individual basis by finding out probable comparables doing such separate functions similarly. For the international transaction of AMP spend, this can be done by, firstly, seeing the AMP functions actually performed by the assessee and then comparing it with the AMP functions performed by a probable comparable. If both are found out to be similar, then the matter ends and a comparable is found and one can go ahead with determining the ALP of such a transaction. If the AMP functions performed by the two entities are found to be different, then adjustment is required to be made in the case of a probable comparable, so as to make it uniform with the assessee. The assessee may have possibly done, say, four different AMP functions as against the probable comparable having done, say, only three. In such a scenario, again the adjustment will be warranted. In another situation, the AMP functions performed by the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the judgment in Sony Ericsson (supra) that the distribution and AMP functions are two separate international activities, which need to be compared with uncontrolled transactions. Because of their inter-twinning, it is only for the purposes of determining their ALP that both these transactions can be aggregated in the first instance, so that the surplus from one could be adjusted against the deficit from the other in an overall approach. It does not mean that because of aggregation, the AMP expense transaction sheds its character of a separate international transaction and hence the AMP functions should not be matched with the AMP functions carried out by probable comparables. If suitable comparables can be found having performed both distribution and AMP functions, then, their ALP should be determined on aggregate basis. If, however, there is some difference in the distribution or AMP functions performed by the assessee vis-à-vis the probable comparables, then an attempt should first be made to iron out such difference by making a suitable adjustment to the profit margin of comparables. If such an adjustment is not possible, then such probable comparable should be elimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well as comparables. As such, we are handicapped to determine the ALP of AMP expenses at our end, either in a combined or a separate approach. 15. Since the orders of the authorities below are not in conformity with the ratio laid down in Sony Ericsson (supra) as discussed above and further necessary details for doing this exercise at our end are also not available, we set aside the impugned order and send the matter back to the file of the TPO/AO for determining the ALP of the international transaction of AMP spend afresh in accordance with the manner laid down by the Hon'ble High Court in Sony Ericson Mobile (supra). Before parting, we consider it relevant to record that similar issue was raised by the assessee before the Tribunal for the immediately preceding two assessment years. The Tribunal in both the years, by its separate orders, has restored the matter to the Assessing Officer/TPO for a fresh adjudication. 16. The next issue raised by the assessee through ground nos.11 and 12 is that the Assessing Officer has erred in not following the directions of DRP and not allowing deduction for additional claim of employees' contribution of PF while computing the taxable profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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