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TMI Blog2019 (4) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... atter to the file of the TPO. Revenue has failed to demonstrate by bringing any tangible material evidence on record to show that international transaction does exist so far as AMP expenditure is concerned. Therefore, we hold that the incurring of expenditure in question does not give rise to any international transaction as per judicial discussion hereinabove. - Decided in favour of assessee Adjustment to transaction pertaining to receipt of Information Technology Support Services - Arm’s Length principle satisfaction - HELD THAT:- We find that a similar quarrel arose in A.Y 2010-11 and the matter travelled upto the Tribunal and hold that the international transaction of `Receipt of I.T. Support Services' is required to be separately benchmarked, distinct from the international transactions of purchase etc. Since the view of the TPO as regards the receipt of no services etc. has been set aside by us, we remit the matter to the AO/TPO for determining the ALP of this international transaction afresh as per law after allowing a reasonable opportunity of being heard to the assessee Allowable revenue expenses - proof of payment in relation to the services received from M/s Bhu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and resale of CBUs of the 6-series, 7-series, X3,X5,X6, Z and M Models of cars from BMW group for resale in the Indian market. 4. The company also carried out assembling of CKD Kits for BMW 3 and 5 series and X12 from its assembly facility in Chennai. The plant in Chennai started its commercial operations from early 2007. During the year, the assessee company provided certain procurement support and training services to BMW Group. 5. During the year, the assessee has undertaken the following international transactions with its AEs: Nature of Transaction Value Method Used Purchase of raw materials 8,44,93,14,008 RPM/TNMM Purchase of traded vehicles 2,62,57,40,869 RPM/TNMM Purchase of spare parts 67,19,73,711 RPM/TNMM Interest paid on delayed payments 99,20,566 RPM/TNMM Purchase of fixed assets 5,22,98,047 TNMM Commission Received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right Line Test [BLT], the TPO was of the firm belief that any expenditure in excess of the Bright Line is for the promotion of brand/trade name which is owned by the AE that needs to be suitably compensated by the AE. The amount which represents the Bright Line and the amount that should have been compensated to the assessee company were computed as under: Value of gross sales 19,29,20,43,581 AMP Sales of the comparables 1.35% of sales Amount that represents bright line 26,04,42,588 Total expenditure on AMP by the assessee 42,32,58,681 Expenditure in excess of the bright line 16,28,16,093 12. Since the TPO was of the firm belief that the assessee company has provided some services for promoting intangibles owned by the AE, therefore, for these services, the assessee company is eligible for remuneration equivalent to the cost mark up being earned by market support services/business services companies. Accordingly, total of 10.84% mark up on AMP spend was considered to be appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above discussion, the assessee's Grounds of objections on this issue are dismissed. 15. Pursuant to the directions of the DRP, the Assessing Officer finally made addition of ₹ 53,11,37,361/-. Aggrieved by this, the assessee is before us. 16. At the very outset, the ld. AR stated that Bright Line Test adopted by the TPO has been discarded by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT 374 ITR 118. 17. The ld. AR further stated that nowhere the TPO has brought any tangible material on record to show that there exists an international transaction in so far as AMP spend is concerned. In support of his contention, the ld. AR relied upon the decision of the Hon'ble High Court of Delhi in the case of Maruti Suzuki India Ltd 381 ITR 117, Whirlpool of India Ltd vs DCIT 381 ITR 154, Bausch Lomb Eye Care [India] Pvt Ltd TA No. 643/2014 and 675/2014, Valvoline Cummins Pvt Ltd TA No. 158/2016 and Mary Kay Cosmetic Pvt. Ltd in ITA No. 1010/2018. 18. It is the say of the ld. AR that the Hon'ble High Court of Delhi in these cases have categorically held that the onus is on the Revenue to demonstrate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in accordance with the laws of the contracting territory: (i) establishment and supervision of an efficient BMW distribution network; (ii) performance of an adequate advertisement and sales promotion as well as public and media relations; and (iii) collection, evaluation and communication of market information to BMW AG. 26. At Clause 3.1 under the head Responsibilities for Sales and Advertising , it is mentioned BMW of India will meet its responsibility for the promotion of sales and the full utilisation of the market potential for the contract goods by applying its best efforts and adequate resources towards effective sales promotion and advertising for the contract goods including available optional equipment and accessories . 27. On a careful perusal of the relevant clauses of Importation Agreement, it can be seen that it is the duty of the BMW India is to import and distribute BMW CBUs, CKD kits and original BMW parts/accessories and in doing so, BMW India will operate its business in its own name and is responsible for promoting the sales in India. Nowhere itis agreed that BMW India shall promote the brand name owned by the AEs. 28. There is no dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port from the judgment of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd 381 ITR 117. 32. In this case, the Hon'ble High Court held that existence of an international transaction needs to be established de hors the Bright Line Test. The relevant finding of the Hon ble High Court reads as under: 43. Secondly, the cases which were disposed of by the judgment, i.e. of the three Assessees Canon, Reebok and Sony Ericsson were all of distributors of products manufactured by foreign AEs. The said Assessees were themselves not manufacturers. In any event, none of them appeared to have questioned the existence of an international transaction involving the concerned foreign AE. It was also not disputed that the said international transaction of incurring of AMP expenses could be made subject matter of transfer pricing adjustment in terms of Section 92 of the Act. 44. However, in the present appeals, the very existence of an international transaction is in issue. The specific case of MSIL is that the Revenue has failed to show the existence of any agreement, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r clauses (i) (a) to (e) to Section 92B are described as 'international transaction'. This might be only an illustrative list, but significantly it does not list AMP spending as one such transaction. 61. The submission of the Revenue in this regard is: The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit. Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v) which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the means par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. 35. It is for the above reason that the BLT has been rejected as a valid method for either determining the existence of international transaction or for the determination of ALP of such transaction. Although, under Section 92B read with Section 92F (v), an international transaction could include an arrangement, understanding or action in concert, this cannot be a matter of inference. There has to be some tangible evidence on record to show that two parties have acted in concert . XXX 37. The provisions under Chapter X do envisage a separate entity concept . In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment order and do not find any good ground and reason given therein to treat advertisement and sales promotion expenses as a separate and independent international transaction and not to regard and treat the said activity as a function performed by the respondent-assessee, who was engaged in marketing and distribution. Further, while segregating / debundling and treating advertisement and sales promotion as an independent and separate international transaction, the assessing officer did not apportion the operating profit/ income as declared and accepted in respect of the international transactions. 38. In our understanding of the facts and law, mere agreement or arrangement for allowing use of their brand name by the AE on products does not lead to an inference that there is an action in concert or the parties were acting together to incur higher expenditure on AMP in order to render a service of brand building. Such inference would be in the realm of assumption/surmise. In our considered opinion, for assumption of jurisdiction u/s 92 of the Act, the condition precedent is that an international transaction has to exist in the first place. The TPO is not permitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm s length price. Then to make a comparison of a horizontal item without segregation would be impermissible. 41. Considering the aforementioned findings of the Hon'ble Jurisdictional High Court of Delhi in the case in hand, the relevant ratios can be understood from the following: Particulars BMW India TP Documentation Comparables' Effective arm's length Result adjusted for Effective assembly return Margin of comparables' Effective arm's length Result adjusted for assembly return (FY 2010-11) GP/Sales 21.44% 11.60% 11.40% OP/Sales 12.60% 3.65% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinate bench was seized with the matter where the assessee itself has admitted that there exists an international transaction. Facts of the year under consideration are totally different in so far as this issue is concerned. 47. This Ground of the assessee is allowed. 48. The next issue relates to adjustment of ₹ 1,71,32,019/- by holding that the transaction pertaining to receipt of Information Technology Support Services does not satisfy the Arm s Length principle. 49. With respect to I.T related needs of the company, BMW group supports BMW India by providing online trouble shooting for its various hardware/software related problems and helps maintaining the I.T. infrastructure used by BMW India. In lieu of this support, BMW India paid certain IT support service charges to BMW Group during the year. The services availed by the company in this regard are as under: (i) Inventory/asset management. 50. To justify its claim, the assessee provided I.T. support diagram depicting an overall arrangement of the process flow. Further, the assessee submitted screen shots from companies I.T. system, which provides details of services, such as, wholesale integrated templ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermined nil ALP of the international transaction of intra group services in the same manner as has been done in the case under our consideration by applying the CUP method, it did not order for the deletion of addition, but chose to remit the matter for fresh adjudication. This judgment, being that of the Hon'ble jurisdictional High Court, has primacy over the judgments of the other Hon'ble High Courts or of the Tribunal. There is hardly any need to accentuate that judgment of a jurisdictional High Court bears binding force and cannot be overlooked even if there are judgments of the other High Courts holding to the contrary. 32. To sum up, we hold that the international transaction of `Receipt of I.T. Support Services' is required to be separately benchmarked, distinct from the international transactions of purchase etc. Since the view of the TPO as regards the receipt of no services etc. has been set aside by us, we remit the matter to the AO/TPO for determining the ALP of this international transaction afresh as per law after allowing a reasonable opportunity of being heard to the assessee. 56. Respectfully following the findings of the coordinate bench, we dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te that the impugned transaction took place in F.Y. 2010-11. The Inspector carried out his inspection in the month of March 2015. There is every possibility that M/s Bhumi Consultants must have moved away from the given address. Be that as it may, the assessee should have filed documentary evidences to prove that the assessee did receive services from M/s Bhumi Consultants. Before us also, no such evidence has been brought on record. Whatever evidences the assessee has furnished only establishes the identity of M/s Bhumi Consultants and that the payments have been made through banking channel after deducting tax at source. But not a single evidence has been place on record which could conclusively prove that the assessee did receive services from M/s Bhumi Consultants in lieu of which payments were made. We are of the considered view that unless such evidences are brought on record, the expenses cannot be considered as allowable expenditure. We, therefore, remit this issue to the file of the Assessing Officer. The assessee is directed to demonstrate that the impugned payment was in relation to the services received from M/s Bhumi Consultants. The Assessing Officer is directed to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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