9911796707
TMI Blog2019 (5) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 for the Assessment Year 2013-14:- "1. That on the facts and circumstances of the case and in law, Ld. AO erred in assessing the income of the Appellant at INR 414,94,12,230/- as against the returned income of INR 183,50,33,230/-. 2. That on the facts and circumstances of the case and in law, the Final Assessment order passed under section 143(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 Adjustment in respect of Import of finished goods on account of alleged additional Advertisement, Marketing and Promotion related functions ("AMP functions'') carried out by the Appellant 3. The Ld TPO/AO have erred in law and facts of the case by not analysing the transaction as entered into but re-writing the same on imaginary basis. 4. Without prejudice to all other grounds, the Ld. TPO/AO have erred in law and facts of the case by not considering Credit Note received by the Appellant against its purchases as an operating item and Hon'ble DRP has erred by g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies without appreciating that intensity adjustment leads to the assumption that Appellant has not earned any benefit in terms of sales/profit out of AMP expenses and in arm's length situation, it would have earned a 8.5% return on every extra AMP spend. This assumption was negated by Hon'ble Delhi High Court while rejecting BLT test. 13. Without prejudice to all other grounds, Ld TPO/AO erred in performing the intensity adjustment on all indirect expenses instead of considering the quantum of marketing related function and Hon'ble DRP erroneously upheld the approach of the Ld. TPO/AO. 14. The Ld. TPO/ AO have erred in law and circumstances of the case in concl uding that FAR of the comparables is not similar to the FAR of the Appellant and thus, intensity adjustment is required for a fair analysis and Hon'ble DRP erroneously upheld the approach of the Ld. TPO/AO. 15. Without prejudice to all other grounds the Ld. AO/TPO erred in making inappropriate selection of comparables and rejected the comparables proposed by Appellant based on either factually incorrect reasons or by applying inappropriate filters, for the purpose of comparability analysis and Hon'ble DRP erroneousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plying the BLT method to determine the excessive/non-routine MMDS 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. 23. Without prejudice, even if MMDS expenses are held to be "non-routine" and "excessive", the Appellant was not required to be compensated by its AE, considering that the purported benefit caused to the AE on account of incurring of MMDS expenses incurred by the Appellant was only incidental. 24. Without prejudice, even if MMDS expenses are held to be "non-routine" and "excessive", the Ld. TPO/AO and Hon'ble DRP erred in not appreciating that the functions performed by the Appellant had already been adequately compensated by the AE since the Appellant's business model allows it to earn an arm 's length margin on all costs incurred including MMDS expenses. 25. That the Ld. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate that once the net operating margins of the Appellant had met the arm's length test, no further adjustment was required for any non-routine function or non-routine MMDS expenditure 26. Without preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y services it was 14.72%. To determine the Arms length price of ITs the assessee has undertaken with its associated enterprise, The ld AO referred the matter was referred to the learned transfer pricing officer [ TPO] . The learned TPO passed order u/s 92CA (3) of the income tax act, 1961 on 24/10/2016, wherein 2 adjustments were made under Chapter X of The Act to returned income (1) intensity as the comparability adjustment as substantive adjustment to the international transaction of distribution and (2) adjustment on account of advertisement marketing and publicity expenditure by applying the bright line test as a protective adjustment. Consequently draft assessment order was passed on 23/11/2016 wherein the transfer pricing adjustment was incorporated amounting to Rs. 2562145000/- and total income of the assessee was assessed at Rs. 4402665254/-. 5. Assessee filed objection before the learned Dispute Resolution Panel - 2, New Delhi [ DRP] . The learned DRP issued direction u/s 144C (5) of the act on 18/8/2017. Consequently the assessment order u/s 143 (3) read with section 144C of The Act was passed on 15/9/2017 wherein the adjustment INR 2 314379000 was made on subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up in expenditure account will need to be considered as part of Income reported in Profit and loss account to arrive at correct margin. If corresponding amount is not grossed up in income, it would lead to an absurd and incorrect results. He submitted that TPO failed to make this corresponding adjustment in his computation. This error resulted in artificially and incorrectly suppressing the margin earned by appellant. Vide rectification application dated 18th January 2018, Appellant requested rectification of above error and pointed out that by correcting this error, intensity adjustment would be deleted. However, Ld. TPO denied benefit of correction. He stated that l TPO has erred in holding that operating cost of the assesse is to be adjusted to that extent so as to facilitate comparability. None of the comparables received the same kind of financial assistance in their business. This approach of making suo moto adjustment only to expenditure portion of audited Profit & loss account would lead to absurd and incorrect results, in case correspondent amount is not grossed up to Income, because amount of Rs. 12710 lacs credited to expenditure account cannot be altogether be ignored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by TPO and approved by DRP. 11. The learned CIT DR submitted that the prayer of the assessee that the learned transfer pricing officer has recast the profit and loss account of the assessee is incorrect. He submitted that the learned transfer pricing officer has extracted the figure from the audited annual accounts of the assessee. He therefore stated that INR 5338/- lakhs and INR 7372 lakhs of reimbursement received were correctly added to the operating cost. He submitted that the reimbursements are part of the cost and revenue of the assessee and therefore they cannot be excluded. With respect to the 2 comparables he submitted that the learned dispute resolution panel has given a tribulation of both this comparable is and therefore to be functionally comparable with the assessee. Therefore it is proved that these 2 companies do not on any brand value and hence the argument of the learned authorised representative is incorrect that both these companies on huge brand value and therefore they should be excluded. 12. We have carefully considered the rival contentions and perused the orders of the learned transfer pricing officer and the learned dispute resolution panel which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous and incorrect. Therefore the learned TPO is directed to remove the addition made of INR 1 2710/- lakhs to the other operating expenses of the assessee. 14. Coming to the acceptability of 2 comparable companies being Micromax informatics Ltd and Lava international Ltd where the assessee has claimed that both these companies have the brand available to them have been shown to be correct by producing the extracts from the website of controller general of patents, designs and trademarks, government of India. Such evidences are placed at page number 77 - 82 of the paper book. On perusal of page number 77 of the paper book it is apparent that Micromax informatics Ltd have certain brand available to it. However the status of such brand in some of them are mentioned as "abandon"in 2 cases and registered in case of one registration. Further on perusal of page number 79 of the paper book in case of Lava international Ltd, several brands are found to be registered. Therefore, apparently it cannot be said that both these company does not have any brand. The learned dispute resolution panel has also given a finding that on the basis of the annual report of these companies there does no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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