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TMI Blog2018 (12) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... e hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable - Appeal filed by the assessee is allowed pro tanto. - ITA No.476/Del./2015 - - - Dated:- 26-11-2018 - MR PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER For The ASSESSEE : Shri Ajay Vohra, Senior Advocate Shri Neeraj Jain, Advocate Shri Ramit Katyal, CA For The REVENUE : Shri Sandeep Kumar Mishra, Senior DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : The Appellant, M/s. Suzuki Motorcycles (I) Pvt. Ltd. (hereinafter referred to as the taxpayer ) by filing the present appeal sought to set aside the impugned order dated 25.11.2014 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short the Act ) qua the assessment year 2010-11 on the grounds inter alia that :- 1. That the assessing officer erred on facts and in law in completing the assessment under section 144C read with section143(3) of the Income-tax Act, 1961 ('the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the later. 8. That the assessing officer erred on facts and in law in not appreciating that since the appellant was performing the key people/critical decision making functions with regard to advertisement and marketing activity and was also entitled to the profit attributable to such activities, the appellant was justified in bearing the cost associated with such advertisement and marketing function 9. That the assessing officer erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price (ALP) and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure. 10. That assessing officer erred on facts and in law in not appreciating that the Transfer Pricing adjustment made by the TPO in the present case was a mere quantitative adjustment, on the footing that the appellant had incurred excessive amount of AMP expenditure and consequently that such Transfer Pricing adjustment was not at all permitted or authorized by Chapter X of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertisement and brand promotion expenses could not be made. 19. The assessing officer! TPO erred on facts and in law in not appreciating that such a Transfer Pricing adjustment cannot at all be made in law without determining the Arm's Length Price ( ALP ) by applying one of the methods specified in section 92C of the Act. 20. Without prejudice that the assessing officer/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying TNMM. 21. Without prejudice that the assessing officer erred on facts and in law in considering rebate and discounts and other selling expenses for the purpose of calculating alleged AMP expenditure of the assessee. 22. Without prejudice, the assessing officer erred on facts and in law considering companies having different product profile than the appellant as comparable companies for the purpose of benchmarking the alleged international transaction of AMP expenditure incurred by the appellant. 23. Without prejudice, the assessing officer erred on facts and in law in rejecting comparable companies having do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Purchase of Motorcycle for resale 43,460,744 TNMM 6. Refund of Custom Duty 7,481,545 - 4. The taxpayer in its TP study recorded that SMC Japan is responsible for core global marketing and as per licence agreement, SMC Japan also grants the right to use its trademarks and brand to the taxpayer. The taxpayer in its TP study benchmarked its international transactions at net level by using TNMM and its total marketing expenditure came to ₹ 33,91,55,186/-. TPO in order to benchmark the AMP expenses used Bright Line Test (BLT) in order to work out the limit of the routine AMP expenditure including trade discounts, commissions and rebates. TPO resorted to compare the AMP expenditure of the taxpayer with AMP expenditure of other comparable companies in similar business using AMP expenditure to sales ratio. By using bright line limit, the TPO determined the average ratio of AMP expenditure to sales of comparables at 1.76% as against 6.56% of the taxpayer and held that excess expenditure of ₹ 38,73,80,613/-, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 27.2 0.44 2.79** Average 1.76 (** As per Page 12/AR, sales and marketing costs were 2.79% of revenue) 20.2 Thus in view of the above discussion, the AMP expenditure incurred by the assessee is computed hereunder : Amount in Rs.Crores) Advertisement and Sales Promotion expenses as debited in the P L account 115,696,037 Discount paid 15,731,087 Reimbursement of AMP expenses as discussed in Para 3.2 above 339,155,186 Total AMP expenses 470,582,310 Sales 7,172,953,830 AMP/Sales 6.56% 20.3 The amount which represents the bright line and the amount that should have been compensated to the assessee company are computed as follows : Particulars Amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 227 (Del) and Honda Siel Power Products Ltd. v. Dy.CIT (2016) 237 Taxman 304 held that the Revenue is to discharge first the onus of proving the existence of an international transaction between assessee and the AE and such transactions cannot be inferred merely on the basis of bright line test. Revenue has to discharge the initial onus by bringing on record some tangible material that the taxpayer and its AE have acted in concert and further that there was an agreement to enter into international transactions concerning AMP expenses. 12. In the instant case, there is not an iota of material on the file apart from applying the BLT and by taking the view that the taxpayer has incurred huge AMP/sales expenses to the extent of 10.26%, no cogent material is there to treat the incurring of AMP expenses as international transaction more particularly when basis for treating the AMP expenses as international transaction i.e. BLT is not a legally sustainable method. 13. So, we are of the considered view that merely by applying the BLT, the existence of international transactions cannot be proved and as such the adjustment made by the TPO/DRP/AO on this account is not sustainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, although admitted the legal position enunciated in the preceding paragraphs, but he contended that since all the aforesaid decisions are lying challenged before the Hon'ble Apex Court, the matter may be kept pending till the decision by Hon'ble Apex Court. However, we are of the considered view that since it is a stay granted matter and the proceedings before the second appellate authority have not been stayed by any higher forum, the same cannot be kept pending. 18. After considering the legal position as discussed in the preceding paragraphs, we are of the considered opinion that the ALP of an international transaction involving AMP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. At the same time, we cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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