9911796707
TMI Blog2019 (4) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... a sales subsidiary with an assembly plant in Chennai. The company is 99.99% owned by BMW Holdings, B.V. Netherlands and the balance shares being held by BMW, AG Germany. During the year under consideration, the assessee was engaged in the import 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 52,96,590 TNMM Receipt of IT Support services 1,71,32,019 n TNMM Provision of procurem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appropriate. The TPO finally computed AMP adjustment as under: Value of Gross Sale 19,29,20,43,581 AMP/Sales of the Comparables 1.35% 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 Mark up Mark up @ 10.84% 1,76,49,264/- Adjustment u/s 92CA 18,04,65,357 13. The assessee raised objection before the DRP but without any success. 14. Dismissing the objection of the assessee, the DRP held as under: "As per Rule 10B(l(c) appropriate mark-up is arrived at by comparison with comparable uncontrolled transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td 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 that the AMP spend is an international transaction and further stated that since there is no machinery provision, therefore, bench marking cannot be done. 19. Per contra, the ld. DR strongly supported the findings of the DRP. It is the say of the ld. DR that the Tribunal, in assessee's own case in A.Y 2010-11 has considered AMP spend as international transaction and since the assessee is performing the same functions as performed in earlier A.Ys, decision of the coordinate bench should be followed. 20. We have given thoughtful consideration to the submissions of both the sides. We have also considered the orders of the co-ordinate bench in assessee's own case in A.Y 2010-11 and the various judicial decisions relied upon by the ld. AR and also by the ld. DR. 21. A perusal of the transactions with related parties at page 128 of the paper book Volume I shows that there was a reimbursement of marketi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its 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 that the TPO has made adjustment applying BLT which was enhanced by DRP though for a different reason. 29. At the outset, we have to state that the Hon'ble High Court of Delhi in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT 374 ITR 118 has discarded the BLT. The Hon'ble High Court, at para 120 held as under: "120. Notwithstanding the above position, the argument of the Revenue goes beyond adequate and fair compensation and the ratio of the majority decision mandates that in each case where an Indian subsidiary of a foreign AE incurs AMP expenditure should be subjected to the bright line test on the basis of comparables mentioned in paragraph 17.4. Any excess expenditure beyond the bright line should be regarded as a separate international transaction of brand building. Such a broad-brush universal approach is unwarranted and would amount to judicial legislation. During the course of arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls, 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 out that the BLT has been applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and (b) to make a quantitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Ericsson having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses, the very basis of the Revenue's case is negated. XXX 51. The result of the above discussion is that in the considered view of the Court the Revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;, 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' part and the 'includes' part of Section 92B (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC. XXX 68....................In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT." 33. In the light of the aforesaid finding of the Hon'ble High Court, before embarking upon a benchmarking analysis, the Revenue needs to demonstrate on the basis of tangible material or evidence that there exists an international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses. XXX 39. It is in this context that it is submitted, and rightly, by the Assessee that there must be a machinery provision in the Act to bring an international transaction involving AMP expense under the tax radar. In the absence of any clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, should be ascertained and further how the ALP of such a transaction should be ascertained, it cannot be left entirely to surmises and conjectures of the TPO. XXX 47. For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 embark upon the bench marking analysis of allocating AMP expenses as attributed to the AE without there being an 'agreement' or 'arrangement' for incurring such AMP expenses. 39. The aforesaid view that existence of an international transaction is a sine qua non for invoking the transfer pricing provisions contained in Chapter X of the Act, can be further supported by analysis of section 92(1) of the Act, which seeks to benchmark income / expenditure arising from an international transaction, having regard to the arm's length price. The income / expenditure must arise qua an international transaction, meaning thereby that the (i) income has accrued to the Indian tax payer under an international transaction entered into with an associated enterprise; or (ii) expenditure payable by the Indian enterprise has accrued / arisen under an international transaction with the foreign AE. The scheme of Chapter X of the Act is not to benchmark transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GP/Sales 21.44% 11.60% 11.40% OP/Sales 12.60% 3.65% 4.08% Most of the companies selected by Assessee have AMP functions. The margin computation after excluding 2 companies which do not incur any expense on account of AMP is as follows: Particulars BMW - India Margin of comparables' arm's length Result adjusted for assembly return (FY 2010-11) (after excluding 2 companies with Zero AMP) Sales 21.44% 11.58% OP/Sales 12.60% . 3.93% 42. Since the operating margins of the assessee are in excess of the selected comparable companies, no adjustment on account of AMP expenses is warranted. 43. The DRP, while dismissing the objection of the assessee observed that the panel is left with no alternative except to utilize the gross profit of the assessee as an appropriate mark-up for the services rendered by the assessee to its AE. 44. Nowhere the DRP has brought on record or referred to any tangible material which could suggest that there are expenses of international transaction in so far as AMP spend is concerned. The DRP was well aware with the decision of the Hon'ble Delhi High Court in the case of Maruti Suzuki [supra], yet neither the DRP itself brought on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arate international transaction, independent of final result and capable of verifiable separately and the TPO accordingly determined ALP separately rather than aggregating it with other transactions under TNMM. 52. The assessee raised objection before the DRP but without any success. 53. Before us, the ld. AR stated that once the services have been accepted to be rendered by the AEs, then ALP has to be determined as per the provisions of law. 54. The ld. DR strongly supporting the findings of the TPO/DRP, pointed out that the services claimed to have been received by the assessee are very routine. It is the say of the ld. DR that the assessee has not given details of total costs incurred by the AE on a particular service and how the same or basis on which the AE has charged the cost to the tax payer. 55. We have carefully considered the orders of the authorities below. We find that a similar quarrel arose in A.Y 2010-11 and the matter travelled upto the Tribunal which, in ITA No. 1406/DEL/2015 held as under: "31. In the ultimate analysis, the Hon'ble jurisdictional High Court in Knorr Bremse (supra) remitted the matter for fresh adjudication by noting in para 3 of its jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that during the year under consideration, legal and professional expenses were claimed as deduction. When called for details, the assessee submitted the copy of invoices, alongwith TDS certificates including details of M/s Bhumi Consultants. It was explained that M/s Bhumi Consultants is in the business of providing consultancy and adversary services in the field of investment, accountancy, legal, income tax, company law, sales tax, VAT, excise, customs and service tax matters. It was further explained that the assessee engaged M/s Bhumi Consultants represented through Shri Anuj Gupta for providing assistance in reassessment of the bills entry, assisting in drafting of application to be filed before the custom authorities, attending to hearing for customs duty refund. 59. The Assessing Officer issued a commission u/s 131(1)(a) of the Act and accordingly, an Inspector was send to serve the notice as well as make personal investigation and conduct local enquires of M/s Bhumi Consultants. The said Inspector made out a report to the effect that the company does not exist at the given address and there was no indication, such as, sign boards, letter box, etc. The Inspector also ma ..... 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