9911796707
TMI Blog2018 (9) TMI 1810X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to contest the alternative addition suggested by the transfer pricing officer and sustained by the DRP - HELD THAT:- We admit the submission of the ld. Counsel of the assessee that proper opportunity was not given to the assessee to make the submissions on the alternatives. However, we also do not agree with the ld. Counsel of the assessee that since on one of the alternative, the DRP's direction is silent, it can be understood that this issue has been considered by the DRP. Hence, we remit these issues on the alternative suggested by the TPO to the DRP. The DRP shall consider the same after giving the assessee an opportunity of being heard. The ld. Counsel of the assessee has fairly agreed to the above proposition. X X X X Extracts X X X X X X X X Extracts X X X X ..... t, hence the reference made by the learned AO to learned TPO suffers from jurisdictional error; 2. POWER OF TPO IN REMAND The CIT(A) erred in making alternate adjustment on account payment for royalty and intra-group services to its AE (in the remand report), without appreciating that the Hon'ble DRP had issued remand only on the applicability of Delhi High Court decision in case of Sony Ericsson Mobile Communication India Pvt Ltd in the facts of the present case, thereby exceeding the jurisdiction of remand; The CIT(A) erred in suggesting alternate adjustment in the remand proceedings, without appreciating that the international transactions on account royalty and intra-group services are independent transactions as against alleged international transaction of AMP expenses, thereby grossly erred in recommending alternate adjustment in remand proceedings having accepted the same in the draft order; 3. ENHANCEMENT DONE BY THE PRP IS BEYOND JURISDICTION The Hon'ble DRP erred in taking cognizance of remand report (which were issued beyond jurisdiction) and thereby proceeded to make adjustment on alternate grounds (which were accepted at arm's length by TPO in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided either by the learned TPO/ Hon'ble DRP before determining the ALP at Nil; Failure to consider benefit test without prejudice to above, failed to appreciate the business model and business realities of the Appellant and the role of its AEs and concluding that there is no significant benefit received by the Appellant from the services being rendered by the AEs; without referring to Transfer pricing documentation wherein the benefit test was substantiated; PART II - CORPORATE TAX ADJUSTMENTS 7. Non-grant of MAT Credit The CIT(A) erred in non-granting MAT credit claimed by the Appellant of ₹ 3,21,99.634/-; 8. Levy of interest under section 234B of the Act The CIT(A) erred in charging of interest under section 234B of the Act; 9. Levy of interest under section 234C of the Act The CIT(A) erred in charging of interest under section 234C of the Act; Initiation of penalty proceedings under section 274 read with section 271(1)(c) of the Act 4. The issues raised in cross objection read as under: 1. Erred in objecting Dispute Resolution Panel ('DRP') directions without appreciating that Advertising, Marketing and Promotion ('AMP') expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned AO/DRP should be directed to reject the cherry picking approach and also consider following comparables submitted by respondent for applying mark-up for the alleged marketing functions; . ' '. Alternate Brand Solutions (India) Limited Aditya Birla Minacs Worldwide limited Gaur & Nagi Limited Vision Technology India Limited 5. The assessee is a private limited company incorporated in India which is a wholly owned subsidiary of L'oreal S. A. France. The assessee is engaged in the business of manufacturing and distribution of cosmetics and beauty products. In the transfer pricing order, the Transfer Pricing Officer (TPO for short) observed that L'oreal India has acted as a distributor of cosmetic products that are not manufactured by it. It was noted that L'oreal India purchased finished products from its overseas Associated Enterprises ('AE' for short) and resells the same in the Indian market without any value addition. The associated enterprise is a L'oreal group which is a French conglomerate. As per the transfer pricing adjustment report, the assessee company had entered into with following international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d royalty for the exclusive right to manufacture and distribute the licensed products using the technology and trademarks to its overseas associated enterprises in accordance with the agreement entered into by L'Oreal India with its associated enterprises. As per the assessee company, L'Oreal S.A. grants its group companies throughout the world the exclusive right and license to exploit the licensed products in its territory, including: • The rights to manufacture the licensed products in its territory, using license technology, trademarks and designs • The right to import and distribute the licensed products. As the international transactions take into account both the segments that is manufacturing segment and distribution segment, the transfer pricing analysis has been undertaken independently in respect of both the segments by the assessee company. 9. While considering the international transaction relating to manufacturing segment, the TPO observed that L'oreal India has imported raw materials, packing materials which are used to manufacture finished goods, which are then subsequently sold in the Indian market. He observed that brand intangible is a maj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, the DRP took note of the judgment of the Hon'ble Delhi High Court decision in the case of Sony Ericsson Mobile Communications India Pvt. Ltd vs. Dy. CIT [2015] 374 ITR 118 (Delhi). The TPO was directed to examine the facts of the case afresh in view of the said judgment of Delhi High Court and determine the adjustment on account of AMP adjustment vide DRP letter dated 19.11.2015. The said letter reads as under: "2. In this case as per TP order dated 27.01.2015, TP adjustment of ₹ 53.34 crores has been made. The adjustment includes AMP expenses etc. 2.1. While making the AMP adjustment, BIT has been applied and thereafter the excess AMP expenses have been determined at ₹ 49.04 crores. Mark-up of 8.41% has been added for the services to the AE regarding excessive AMP expenses. 2.2. Subsequently, Delhi High Court in the case of Sony Ericsson Mobile 'Communication India Pvt. Ltd. in their order dated 16.03.2015 have inter-alia held that BIT is not appropriate method to bench mark AMP transactions. Further High Court has also held that AMP analysis in the case of distributor would be different from the AMP analysis in case of a manufacturer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lpool of India Ltd. On 22nd December, 2015. On the basis of all these judgments of Delhi High Court, it emerges that unless there exist an agreement or arrangement or understanding between the assessee and its AE for AMP expenses, any international transaction cannot be said to have been undertaken. ! Bright Line Test has no statutory sanction to benchmark any international transaction including AMP. Since on facts of this case it cannot be said that there exist any agreement or understanding or arrangement between the assessee and the AE and the TPO has not shown anything except BLT to benchmark the alleged excess AMP expenses, the adjustment made by the TPO in this regard is therefore directed to be deleted. The objections of the assessee in this respect are therefore directed to be deleted. The objections of the assessee in this respect are therefore accepted. 13. The DRP further noted that the TPO in his report dated 17.12.2015 had also made alternate contentions which were with relations to disallowance of ₹ 31,48,74,320/- out of royalty of ₹ 18.44 crores out of intra group services towards availing support services. In this regard, the DRP noted that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice. The perusal of the e-mails and other contemporaneous record only goes to show that incidental and passive association benefits have been provided by the AE. In this view of the matter, there could neither be any cost contribution or payment for such service to the AE. Further, as no expenditure would have been incurred, there is no necessity to apply a particular method to arrive at such conclusion. The TPO has been more than fair in granting the deduction on estimates based on the evidence produced. Therefore, the AO is directed to make TP adjustment of ₹ 18.44 crores on account of Intra-group services. 15. Against the above order, cross appeals have been filed. The ld. Counsel of the assessee submitted that regarding AMP, the issue is covered by the decision of the Hon'ble Delhi High Court decision in the case of Sony Ericson Mobile Communications (India) Pvt. Ltd. (supra) and also in assessee's own case by ITAT. He further relied upon the decision of Hon'ble Delhi High Court decision in the case of Maruti Suzuki India Ltd. (supra) and Whirlpool of India Ltd. (in ITA No. 610/2014). 16. Upon hearing both the counsel and perusing the records. We find in Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the transfer pricing officer and sustained by the DRP. Hence, the ld. Counsel of the assessee has requested to send the issue on merits of alternatives to the Dispute Resolution Panel. The ld. Counsel of the assessee has also submitted two letters for admission of additional evidence before the DRP in connection with the alternative which has been claimed to have not been considered. He prayed that the matter may be remitted to the DRP to give proper opportunity of being heard. 20. Although no specific ground has been raised. There was an alternative addition suggested by the Transfer Pricing Officer relating to distribution expense which has not been discussed by the Dispute Resolution Panel. However, the learned counsel of the assessee submitted that since the Dispute Resolution Panel has held that there is no international transaction, it is to be understood that this issue has been considered by the Dispute Resolution Panel. 21. Upon careful consideration, we admit the submission of the ld. Counsel of the assessee that proper opportunity was not given to the assessee to make the submissions on the alternatives. However, we also do not agree with the ld. Counsel of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
