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TMI Blog2017 (9) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to draw our attention towards any material divulging the AMP functions performed by the assessee 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. 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. Not allowing deduction towards interest on Customs Duty - Held that:- We are convinced with the view canvassed by the DRP as followed in the impugned order. Obvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, 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 ₹ 148.77 crore. Non-routine AMP expenses were worked out at ₹ 89.66 crore and the remaining amount of routine expenses was not considered further for benchmarking. After applying 5% mark-up as per international guidelines on such non-routine expenses, the TPO came to hold that the assessee ought to have recovered a sum of ₹ 94.14 crore (Rs.89.66 crore plus ₹ 4.48 crore mark-up) from its AE for brand building. As only a sum of ₹ 52.38 crore was actually recovered, the TPO proposed transfer pricing adjustment amounting to ₹ 41.75 crore (Rs.94.14 crore minus ₹ 52.38 crore) on this international transaction. The DRP reduced the amount of transfer pricing adjustment to ₹ 38,60,51,832/- by approving the stand of the TPO in principle. That is how, the Assessing Officer made addition of ₹ 38.60 crore in the final assessment order, against which the assessee has come up in appeal before the Tribunal. 4. We have heard the rival submissions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 highlight certain relevant facts of the case. The assessee (TIPL) started the distribution activity pursuant to the Exclusive distribution agreement dated 21.9.2007 entered into with Toshiba Singapore Pte Ltd. (TSP), its AE, whose copy is placed at page 367 onwards of the paper book. The preamble of the Agreement provides that TSP is engaged in the sale and marketing of Toshiba brand electronic products, accessories and consumables, which appointed the TIPL ( the assessee) to act as its distributor of certain Toshiba brand electronic products and to promote the sale of such products, accessories and consumables and the Toshiba brand name in the territory. Clause 3 of the Agreement provides for purchase and sale. Later part of this clause reads as under :- TIPL shall use its best efforts to promote and sell Products and to promote the Toshiba brand na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 91, 121 others] ; * For determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses, should be chosen [Paras 194(i), (ii), (viii) others]; * If no comparables having performed both the functions in a similar manner are available, then, suitable adjustment should be made to bring international transactions and comparable transactions at par [Para 194 (iii)] ; * If adjustment is not possible or comparable is not available, then, the TNMM on entity level should not be applied [Paras 100, 121, 194(iii) (vi)] ; * In the above eventuality, international transaction of AMP should be viewed in a de-bundled manner or separately [Paras 121 194(xi)] ; * In separately determining the AL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 distribution activity with the AMP activity, being two separate but connected international transactions, for the purposes of determination of the ALP of both these international transactions in a combined manner. The argument of the ld. AR that since the profit margin of the comparables is much less than the assessee and hence no separate addition should be made for AMP functions, if taken to a logical conclusion, will make the AMP spend as a non-international transaction, which, in our considered opinion, is not appropriate in the given facts. Once AMP expense has been held to be an international transaction, it is, but, natural that the functions performed by the assessee under such a transaction need to be compared with similar functions performed by a comparable case. If AMP functions performed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, 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 and probable comparable may be similar but with varying standards, which will also call for an adjustment. Crux of the matter is that the AMP functions performed by the assessee must be similar to those done by the comparables, in the same manner as such functions are compared in any other international transaction. However, in computing ALP of AMP spend, the adjustment or set off, if any, available from the distribution function, should be made. The essence of the judgment in the case of Sony Ericson Mobile (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 distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determined on aggregate basis. If, however, there is some difference in the distribution or AMP functions performed by the assessee vis- -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 eliminated. If, by making a comparative analysis of the distribution and AMP functions jointly, there remains no comparable case performing such distribution and AMP functions, then, the international transaction of AMP should be segregated and its ALP be determined separately by applying a suitable method. However, in so determining the ALP of such an international transaction of AMP expenses on separate basis, a proper set off, if any, available from the distribution activity, should be allowed. 13. Adverting to the facts of the instant case, we find that though the assessee separately reported the international transaction of Reimbursement of expenses to AEs (received) with value of ₹ 49,96,34,639, but did not determine its ALP. Under the column Method , it has been mentioned as NA . Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal 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 profits during the financial year. 17. The ld. AR contended that the DRP gave direction on page 11 of its order to the Assessing Officer for allowing deduction subject to verification of the deposit of dues in the Government account by the assessee. This was countered by the ld. DR who submitted that the Assessing Officer has made only addition on account of AMP expenses and such issue of allowing employees contribution to PF/ESIC etc. was not there. 18. Having heard both the sides and gone through the relevant part of the order of the DRP, it is observed that the assessee raised 8th ground of objection reading as under:- 1. Eighth Ground of Objection a) The ld. A.O. has erred on facts and in law in not allowing the additional claim of employee s contribution to PF/ESIC made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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