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TMI Blog2017 (10) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... onal High Court has not approved the application of the bright line test in several decisions. - ITA No. 980/Del/2017 - - - Dated:- 6-10-2017 - SHRI R.S. SYAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER For The Appellant : Shri Vishal Kalra, Adv. Shri Ankit Sahni, Adv. Shri S. Tomar, Adv. For The Respondent : Shri Amrendra Kumar, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER This appeal filed by the assessee is directed against the final Assessment Order dated 30.01.2017 passed by the Assessing Officer (AO) u/s 143(3) read with section 144C of the Income-Tax Act, 1961 (hereinafter called the Act ) pertaining to assessment year 2012-13. The main issue of grievance is the addition on account of transfer pricing adjustment towards Advertisement, Marketing and Promotion expenses amounting to ₹ 97,539,656/-. 2. The facts of the case, in brief, are that the assessee is an Indian subsidiary of M/s Louis Vuitton Malletier SA, France and is engaged in the business of retailing the products of the group. The assessee imports material from its group companies and resells the same in the Indian markets. The products which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the case and in law, the orders passed by the AO /TPO were bad in law as the pre-requisite for applying Chapter-X, i.e., existence of an international transaction between two Associated Enterprises ( AE ) under section 92B of the Act, was not satisfied or existed as there was no agreement, understanding or arrangement between the Appellant and the AE for incurrence of such expenditure by the Appellant. Further, the DRP erred in upholding the same. 4. Without prejudice, the orders passed by the AO / TPO were bad in law as the unilateral AMP expenditure incurred by the Appellant was categorized as international transaction under chapter X of the Act, by the AO / DRP / TPO, contrary to law in as much the AO neither granted the Appellant proper opportunity of being heard, nor recorded his satisfaction in respect thereof. 5. That on the facts and circumstances of the case and in law, the TPO erred in re-characterizing the unilateral AMP expenditure being payments made by Appellant to independent third parties as an international transaction under chapter X of the Act and particularly when the jurisdiction of the TPO is only to compute arms len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and should be benchmarked on an aggregate basis. The AO / DRP / TPO further erred in not appreciating that if the two functions are segregated and benchmarked, then the same would result in over taxation and is contrary to the provisions of the Act. 11.1 That on facts and circumstances of the case and in law, the AO / TPO have erred in holding that the Appellant did not propose / furnish comparables which performed distribution as well as AMP function, without appreciating that the comparables companies furnished by the Appellant were undertaking AMP expenditure / function as well. Further, the DRP erred in summarily rejecting such comparables without providing any opportunity to the Appellant. 12. That on facts and circumstances of the case and in law, the AO / DRP / TPO erred in not appreciating that the operating margin of the Appellant was better than the average mean margin of the comparable companies submitted by the Appellant using TNMM, in the course of assessment. 13. That on facts and circumstances of the case and in law, the AO / DRP / TPO have erred in applying cost plus method to benchmark the AMP expenses, and further erred in applying the same d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re issuing any direction which is prejudicial to the interest of the assessee, while directing AO / TPO to include sales relating expenditure as part of AMP expenditure while benchmarking the said international transaction. 17. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in not granting quantitative / economic adjustments (such as non-payment of royalty / expenses on product launches) while quantifying adjustments relating to alleged excessive AMP expenditure. Re: Additions made on protective basis 18. Notwithstanding and without prejudice to the other grounds, the AO / DRP / TPO have erred in determining adjustments on protective basis by applying Bright Line Test ( BLT ) method which has been jettisoned by the Hon ble Delhi High Court. 18.1. Notwithstanding and without prejudice, on facts and circumstances of the case and in law, the DRP has erred in not appreciating that AO / TPO failed to exclude direct marketing expenses, such as expenses relating to business promotion, public relations, window display, merchandising and brochures catalogues; from the ambit of AMP expenditure while benchmarking the alleged inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further erred in incorrect calculation of interest under sections 234A, 234B and 234C of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant prays for leave to ad, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal. 3. The Ld. AR contended that the incurring of AMP expenses is not an international transaction at all and, hence, there can be no question of determining the arm s length price of this transaction or making any addition thereon. It was submitted that there was no finding of the TPO on the issue of determination of international transaction and as such the addition was baseless. It was also submitted that no addition on account of AMP adjustment had been made in the preceding assessment year i.e. AY 2011-12. A copy of the ITAT s order in assessee s own case for AY 2010-11 was also placed before us wherein the ITAT in ITA 775/Mum/2015 had restored the issue of AMP adjustment to the file of the AO/TPO on the ground that when the TPO had held AMP expenses to be an international transaction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. and, hence, the matter should be restored for a fresh determination. It was further submitted that there is no blanket rule of the AMP expenses as a non-international transaction. He stated that the Hon ble High Court in Whirlpool (supra) has made certain observations, which should be properly weighed for ascertaining if an international transaction of AMP expense does exist. It was argued that the ITAT in several cases, including the assessee s own case for AY 10-11, had restored this issue to the file of TPO to be decided afresh in the light of the available judgments of the Hon ble Delhi High Court. He also relied on another judgment dated 28.1.2016 of the Hon ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (for the AY 2010-11) in which the question as to whether AMP expense is an international transaction, had been restored for a fresh determination. He still further referred to the three later judgments of the Hon ble Delhi High Court, viz., Rayban Sun Optics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e noted is that the AO has not made any addition on the basis of intensity adjustment on a protective basis as directed by the Hon ble DRP and, thus, no addition by applying AMP intensity adjustment has been eventually made in the impugned order. Without going into the merits of the decision of the Hon ble DRP on this issue and, therefore, the same has no impact in the proceedings for the year under consideration. This contention of the Id. AR, ergo, fails. 5.2 The other point urged by the Ld. AR was to decide this issue at our end as the TPO had passed order on 29.01.2016 in which he had considered certain High Court judgments on the point. Once such judgments were taken into consideration, the Ld. AR argued, that there was no point in again directing the TPO to consider the effect of the judgments delivered by the Hon'ble High Court on the point. The argument put forth on behalf of the assessee in this regard is partly correct. It is seen that though 16 the TPO has referred to certain rulings of the Hon ble jurisdictional High Court on the point in coming to the conclusion that there was a separate international transaction, yet, there are certain other important judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X
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