9911796707
TMI Blog2019 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) read with section 144C of the Income Tax Act, 1961 ("the Act") by the Ld. AO is bad in law as the same does not consider complete and relevant facts, are not in accordance with provisions of law and principles of law as laid down by Hon'ble courts. TRANSFER PRICING GROUNDS 3. That the impugned order passed by Ld. AO/Transfer Pricing Officer (Ld. TPO) computing the total income at INR 1,59,60,90,0001- is blatantly erroneous since adjustment based on a protective assessment has been added by the Ld. AO in computing the total income of the Appellant. 4. That on the facts and circumstances of present case, the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") has erred in holding that the Appellant has not contested the use of the Bright Line Test ("BLT") for undertaking the adjustment under the protective assessment. 5. That on the facts and circumstances of present case, the Ld. AO/Ld. TPO have erred in determining that the Hon'ble DRP directed them to conclude the assessment based on the BLT. 6. That without prejudice to the above, if BLT was to be applied then the Appellant should have been given reasonable opportunity to present its detailed obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciating that the AMP expenses were incurred by the Appellant as part of its distribution business and not for the purpose of providing sole benefit to its associated enterprise and thus could not be considered to be a transaction under section 92F(v) of the Act, since there was no understanding or arrangement or action in concert for provision of service. 14. Without prejudice to the other grounds, the Ld. TPO / has erred in facts and circumstances of the case and in law by ignoring the fact that even if a transaction by transaction approach is applied, the AMP function has been benchmarked under transactional net margin method (TNMM) analysis carried out by the TPO and found to be at arm's length. 15. Without prejudice to other grounds, the Ld. TPO/ Ld. AO/Hon'ble DRP erred in applying the BLT method to determine the excessive/nonroutine AMP expenses in complete disregard of the Transfer Pricing Regulations in India, commercial circumstances of the case and the principles and findings laid down by the Hon'ble Delhi High Court. 16. Without prejudice to other grounds, the Ld. AO/ TPO and Hon'ble DRP while computing the protective adjustment have erred in q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration for its AMP activities, in direct contravention to the principles laid down by the Hon'ble Delhi High Court. Miscellaneous contentions 23. Ld. AO has erred in initiating penalty proceedings under Section 271(1)(c) of the Act on account of an adjustment that was a result of a protective assessment. 24. Ld.AO has erred) in charging interest under Sections 234A and 234B of the Act." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : M/s. Sony Mobile Communication India Pvt.Ltd., the taxpayer is primarily engaged in the business of importing, buying and selling and distributing wide range of mobile phones in India and providing related post sale support services. The year under assessment is the fourth year of the operation of the company. The taxpayer trades Sony Ericsson Mobile handset in India and part of its activity undertakes the promotion, marketing and distribution of mobile handsets. During the year under assessment, the taxpayer entered into international transactions with its Associated Enterprises (AEs) as under :- S. No. Description of the transactions Method Applied Amount (in INR) i. Import of compone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riya Ltd. 0.68 192.47 0.35% Redington (India) Ltd. 26.19 9567.82 0.27% Savex Computers Pvt. Ltd. 105.89 2905.23 3.64% Vivek Ltd. 19.71 384.31 5.13% Average 3.15% 24.6 The amount which represents the bright -line and the amount that should have been compensated to the assessee company are computed hereunder:- Particulars Value (Rs.) Value of gross sales of assessee A 6928209949 Arithmetic mean of AMP /Sales of comparables B 3.15% Amount that represents price for routine AMP activities C = B/A 218238613 Total expenditure incurred by assessee on AMP D 1501955818 Arm's Length Price of the service/expenditure for creation of marketing intangible in India in favour of the AE E=D-C 1283717205 Mark-up @ 13.75% F=13.75% of E 176511116 The amount by which the assessee company should have been reimbursed by A.E, and for which the adjustment is proposed to be made G=E+F 1460228320 Price Received from the AE for creation of marketing intangibles H 0 Adjustment required to be made for creation of marketing intangibles I=G - H 1430228320 24.7 The markup is considered at 13.75%, being the same as consideration alternati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.05.2017 determined the issue as to applying the BLT for determining the ALP of AMP expenses and observed as under :-
"13. We want to clarify that if a situation for determining the ALP of AMP expenses arises, then no transfer pricing adjustment should be made by applying the bright line test, as has been done on protective basis, because of Hon'ble High Court has not approved the application of the bright line test in several decisions."
11. In view of what has been discussed above, we are of the considered view that following the decision rendered by Hon'ble Delhi High Court in case of Sony Ericsson Mobile Communications India (P.) Ltd. (supra) and coordinate Bench of the Tribunal in Perfetti Van Melle India Pvt. Ltd. (supra), TP adjustment amounting to Rs. 146,02,28,320/- by applying BLT is not sustainable on protective basis having no statutory mandate. Consequently, protective adjustment made by the TPO/DRP/AO qua AMP expenses by applying bright line test on protective basis is not sustainable in the eyes of law having no statutory mandate, hence appeal filed by the taxpayer is allowed.
Order pronounced in open court on this 21st day of February, 2019. X X X X Extracts X X X X X X X X Extracts X X X X
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