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TMI Blog2018 (12) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... e stated that the AMP expenses incurred by the assessee was for promoting the brand Sony Japan. Since the operating profit margin of the appellant company is better than those of the comparables, it can be safely concluded that the assessee has been suitably remunerated and no further adjustment is required to bench mark the AMP expenses. Following the guidelines listed by the Hon'ble High Court in the case of Sony Ericson Mobile Communication India Private Limited [2015 (3) TMI 580 - DELHI HIGH COURT], the grounds raised by the assessee are allowed. - ITA No. 4978/DEL/2011 - - - Dated:- 21-12-2018 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER For The Assessee : Shri Nageshwar Rao, Adv. And Shri Sandeep Karhail, Adv For The Revenue : Shri H.K. Chaudhary, CIT- DR And Smt. Namita Pandey, Sr. DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, This appeal by the assessee is heard pursuant to the directions of the Hon'ble High Court of Delhi. 2. The Hon'ble High Court, vide order dated 23.07.2018 in ITA Nos. 508 509/2013 and 148 149/2014 has remitted the following issues for fresh adjudication in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ], the Hon'ble High Court has enlisted its findings as under: (i) In case of a distributor and marketing AE, the first step in transfer pricing is to ascertain and conduct detailed functional analysis, which would include AMP function/expenses. (ii) The second step mandates ascertainment of comparables or comparable analysis. This would have reference to the method adopted which matches the functions and obligations performed by the tested party including AMP expenses. (iii) A comparable is acceptable, if based upon comparison of conditions a controlled transaction is similar with the conditions in the transactions between independent enterprises. In other words, the economically relevant characteristics of the two transactions being compared must be sufficiently comparable. This entails and implies that difference, if any, between controlled and uncontrolled transaction, should not materially affect the conditions being examined given the methodology being adopted for determining the price or the margin. When this is not possible, it should be ascertained whether reasonably accurate adjustments can be made to eliminate the effect of such differences on the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd profess that brand building as equivalent or substantial attribute of advertisement and sale promotion would be largely incorrect. It represents a coordinated synergetic impact created by assortment largely representing reputation and quality. Brand has reference to a name, trademark or trade name and like goodwill is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which can mar or enhance the value. (x) Parameters specified in paragraph 17.4 of the order dated 23rd January, 2013 in the case of L.G. Electronics India Pvt Ltd (supra) are not binding on the assessed or the Revenue. The bright line test has no statutory man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... most appropriate and reliable method. Adoption of CP Method and computation of cost and gross profit margin comparable must be justified. (xiv) The object and purpose of Transfer Pricing adjustment is to ensure that the controlled taxpayers are given tax parity with uncontrolled taxpayers by determining their true taxable income. Costs or expenses incurred for services provided or in respect of property transferred, when made subject matter of arm s length price by applying CP Method, cannot be again factored or included as a part of inter-connected international transaction and subjected to arm s length pricing 6. The first point is to ascertain and conduct detailed functional analysis which would include AMP expenses. The Transfer Pricing Officer has mentioned the copy of Advertisement Agreement which was entered into on 01.04.2005 but there is no reference to any advertisement agreement relevant to A.Y 2007-08 which is the year under appeal. The ld. AR stated that there is no agreement for the year under consideration to which the DR stated that in the absence of any agreement, it would not be possible to determine the marketing function of the assessee and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. It is the say of the ld. AR that as a sole distributor of Sony s products in India, any benefit arising from advertisement activities including resultant increment to the value of brand in India is available to the assessee only. The ld. AR further pointed out that the assessee s management is independently responsible for undertaking all strategic decisions, such as, introduction of new products, deciding the marketing initiatives, business development, sales strategies etc. Such decisions are undertaken by the assessee based on the assessment of the market condition, nature of competition prevailing in the market and competitors strategies. The ld. AR concluded by saying that the assessee is sole beneficiary of AMP expenditure carried out by the company. 13. In our considered opinion, by virtue of incurring expenditure of AMP, the assessee cannot acquire ownership of intangibles which belongs to the AE. In our considered opinion, the AMP expenditure was not incurred for the AE. The assessee exploits the intangibles created by its AE in India though no brand royalty payment is made by the assessee and it cannot be denied that brand name Sony is global brand across the globe. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The TPO has also used the same comparables for applying BLT: SL No Name of the company Advertising, Marketing And Promotional Expense (A) Sales (B) Advt, Marketing And Promotion Expense/Sales (A/B) (in %) 1. Allied Photo graphics India Ltd 8,74,164 37,48,48,199 0.23% 2. Bajaj Electronics Ltd 47,61,14,000 10,83,16,54,000 4.39% 3. Blue Star Limited 345.812,000 16,07,40,69,000 2.15% 4. Usha International Ltd 677,37,000 124,49,72,000 5.44% 5. Voltas Limited 30,53,84,000 24,00,55,16,000 1.27% Arithmetic mean 2.69% 19. The assessee s operating margin is at 3.29% of operating revenue from its consumer Electronic Divisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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