9911796707
TMI Blog2018 (7) TMI 2083X X X X Extracts X X X X X X X X Extracts X X X X ..... l./2016 (AY : 2011-12) 1. That on the facts and circumstances of the case and in law, the order passed by the Learned Assessing Officer (Ld. AO') under section 143(3) read with section 144C of the Act, in pursuance of the directions issued by the Honorable Dispute Resolution Panel (Hon. DRP'), is bad in law to the extent of adjustment of INR 59,552,876 made in the impugned assessment order. 2. That on the facts and circumstances of the case and in law, the Ld. AO/Transfer Pricing Officer (TPO') following the directions of Hon'ble DRP, erred in assessing the total income of the Appellant of INR 7,96,25,548 at INR 13,91,78,424. 3. That on the facts and circumstances of the case and in law, the Ld. AO/ TPO/ Hon'ble DRP erred in disregarding multiple year/ prior years' data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2010-11) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its Transfer Pricing ("TP") documentation. 4. That on the facts and circumstances of the case and in law, the Ld. AO/ TPO/ Hon'ble DRP gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of AMP expenses incurred by the Appellant and incorrectly holding that such expenses results in developing marketing intangibles for the AEs; 10.2 disregarding the fact that the gross profit earned by the Appellant more than compensate the allegedly excessive AMP spends, if any, incurred by it; 10.3 alleging that the AMP expenses incurred by the Appellant need to be reimbursed by the AEs along with a mark-up on the same by implicating the same as a service rendered by the Appellant to its AE for which it has not been compensated and in doing so grossly erred in; 10.3.1 applying the concept of 'intra-group services' without a due understanding thereof and without demonstrating that services has been rendered for the benefit of the AEs or any tangible benefits have been received by the AEs for which a return needs to earned by the Appellant; 10.3.2 applying a mark-up of 6.55% in respect of the Appellant's "alleged excessive" AMP expenses, which is completely untenable and based on mere surmises and conjectures; and 10.3.3 Wrongly computing the adjustment on account of AMP. 11. Not providing any opportunity of being heard to the Appellant before making the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;) and correspondingly rejecting Gross Profit/ Sales (GP /Sales) as the relevant Profit Level Indicator (,PLI') and substituting the same with Operating Profit/ Sales (OP /Sales) to ascertain the arm's length price in the Appellant's case based on several subjective presumptions. 6. That on the facts and circumstances of the case and in law, the Ld. AO/ TPO erred in enhancing the income of the appellant from INR 7,92,43,871 to INR 8,20,07,004 with respect to the distribution segment of the Appellant on account of working capital adjustment without providing back up calculations for the same. Transfer Pricing Adjustment amounting to INR 3,96,82,107 on account of Advertisement, Marketing & Promotion ('AMP') expenses incurred by the Appellant 7. That on the facts and circumstances of the case and in law, the Ld. AO/TPO/ Hon'ble DRP erred in alleging that the Appellant is rendering a service to its Associated Enterprise CAE') for creation of marketing intangibles in India. 8. That on the facts and circumstances of the case and in law, the Ld. AO/TPO (on the directions of the DRP) erred in alleging that the AMP expenses incurred by the Appellant resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case and in law, the Ld. AO/TPO/Hon'ble DRP erred in computing the AMP adjustment by considering the AMP expenditure in total, irrespective of the fact that the Appellant has multiple segments including the AE & Non-AE Segments. Therefore, considering the entire AMP expenditure for the computation of adjustment is erroneous. 11. The Hon'ble DRP erred in law and fact by making a suo moto transfer pricing adjustment amounting to INR 3,96,82,107 on account of AMP expenses incurred by the Appellant and in doing so, completely overlooked the fact that such addition did not arise out of the draft order/TP Order and was not a ground of objection raised before the Hon'ble DRP. 12. The Hon'ble DRP erred in law and fact by not giving an opportunity of being heard to the appellant on the issue of AMP (as raised in ground no. n)(supra) thereby violating the rule of natural justice. 13. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(C) of the Act without assigning cogent reasons for the same. 14. That on the facts and circumstances of the case and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Method ('TNMM') and correspondingly rejecting Gross Profit/ Sales (GP /Sales) as the relevant Profit Level Indicator CPLI') and substituting the same with Operating Profit/ Sales (OP /Sales) to ascertain the arm's length price in the Appellant's case based on several subjective presumptions. Transfer Pricing Adjustment amounting to INR 472,412,147 on account of AMP expenses incurred by the Appellant 6. The Ld. AO/TPO/Hon'ble DRP erred in treating a portion of the Appellant's AMP expenses as being excessive. Furthermore, Ld. AO/TPO/Hon'ble DRP erred in treating the alleged excessive AMP expenses as an international transaction under section 92B of the Act. In doing so, the Ld. AO/TPO/Hon'ble DRP have grossly erred in: 6.1 assuming jurisdiction in respect of the AMP expenditure when such expenditure did not satisfy the requisites of being international transaction under Section 92B read with Section 92F(V) of the Act; 6.2 not considering that there are no machinery provisions in Chapter X of the Act which are applicable to determine the quantum of transfer pricing adjustment made on account of AMP expenses. 6.3 alleging that the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the AMP expenses incurred by the Appellant to be "excessive" on the basis of a "bright line test"; 9.2 applying a mark-up of 12.18% in respect of the Appellant's "alleged excessive" AMP expenses; 9.3 disregarding the fact that bright line test has no statutory mandate and it is not obligatory to subject AMP expenses to a bright line test 10. That on the facts and circumstances of the case and in law, the Ld. Ld. AO/TPO/ Hon'ble DRP has grossly erred in making both substantive and protective adjustment. 11. The Hon'ble DRP erred in law and fact by suo mota directing AMP adjustment based on the addition of previous year and not giving an opportunity of being heard to the appellant on the issue of AMP thereby violating the rule of natural justice. 12. That on the facts and circumstances of the case and in law, the Ld. Ld. AO/TPO has grossly erred in computing adjustment both on account of change in method from RPM to TNMM to the distribution segment of the Appellant and AMP adjustment on substantive basis, which has led to comparability adjustments being made twice to the income of the Appellant leading to double taxation in the hands of the Appellant; 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenance support services 7,050,209 4. Provision of IT Services 29,180,273 5. Provision of Business support services 281,034,456 6. Provision of fixed assets 10,426,407 7. Reimbursement of Expenses 63,758,725 8. Recovery of Expenses 13,570,867 Total 1,132,473,830 5. Common/identical issue involved in all the aforesaid appeals is that the taxpayer in its TP analysis has selected Resale Price Method (RPM) as the Most Appropriate Method (MAM) with Gross Profit / Sales (GP/Sales) as the Profit Level Indicator (PLI), selected 16 comparables in AY 2011-12 with GP/Sales margin at 5.51% as against taxpayer's GP/Sales margin at 6.55% and found its international transactions qua AYs 2011-12, 2012-13 and 2013-14 with regard to trading of goods at arm's length. 6. TPO in all the years viz. Ayrs. 2011-12, 2012-13 & 2013-14 rejected RPM as the MAM applied by the taxpayer for benchmarking its international transactions for trading Fujitsu products in India i.e. purchase of goods and spares for trading in India, however applied Transactional Net Margin Method (TNMM) as MAM adopted same comparables as selected by the taxpayer in TP study by applying RPM method and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by rejecting the Gross Profit/Sales (GP/Sales) as the Profit Level Indicator (PLI) by substituting the same with OP/Sales to determine the Arm's Length Price (ALP) of the international transactions entered into between the taxpayer and its Associated Enterprises (AE) during the years under assessment?" 13. Ld. AR for the taxpayer contended inter alia that the taxpayer is to be treated as a normal distributor even if there are multiple transactions; that the taxpayer is selling servers, laptops and notepads without any value addition; that the taxpayer is incurring a routine normal advertising expenses which cannot increase the value of the product but will certainly increase the sales. 14. However, on the other hand, to repel the arguments of the ld. AR for the taxpayer, the ld. DR for the Revenue contended that in the gross margin level, the taxpayer has not considered all the relevant cost because the taxpayer has positive gross profit in trading segment but at the net level, there is a loss of 75.26%; that the taxpayer is performing multiple functions including purchase order, warehousing inventory control, quality control, budgets and for casting, pricing and marketing an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice margin. 19. Undisputedly, these costs are qua unrelated parties and to our mind, these activities are not linked to the international transactions entered into between the taxpayer and the AEs as the AEs do not have any control on such activities and the answer to the question is to be found in case law relied upon by the taxpayer as under. 20. Coordinate Bench of the Tribunal in Horiba India (P.) Ltd. v. Dy. CIT [2017] 81 taxmann.com 209 (Delhi-Trib.) while deciding the identical issue as to whether RPM or TNMM is the most appropriate method to determine ALP of international transactions in case of distribution of marketing activities by relied upon the decision rendered by Hon'ble Mumbai High Court in CIT v. L'oreal India (P.) Ltd. ITA No.1046 of 2012, decisions of the Tribunal in Nokia India (P.) Ltd. v. Dy. CIT (2015) 167 TTJ 243 (Del.) and Mattel Toys (I.)(P.) Ltd. vs. DCIT - (2013) 34 taxmann.com 203 and decided the issue in favour of the assessee by returning following findings :- "14. From the aforesaid decision it is quite ostensible that in case of a distributor, wherein the goods are purchased from AE and resold to other independent entities without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and accordingly, we agree with the learned CIT(A) that on the facts of the present case, RPM should be the adopted as the most appropriate method for benchmarking assessee's international transactions. So far as the two comparables chosen by the TPO apart from assessee's comparables are concerned, we find that, T & I Global Limited has rightly been rejected by learned CIT(A), because this company was manufacturing machinery, therefore, same cannot be compared 15 ITA-6401/Del/2012 with the assessee which is purely performing the distribution function. Thus, the final list of comparables, i.e., three chosen by the assessee and accepted by the TPO and one as selected by the TPO and upheld by the learned CIT(A), is sustained for comparing the margins under RPM. As a consequence, we hold that the TP adjustment made by the learned TPO has rightly been deleted by Ld CIT(A). Accordingly, the grounds raised by the Revenue are dismissed." 22. Keeping in view the facts and circumstances of the case and following the decisions rendered by the Hon'ble Mumbai High Court in L'oreal India (P.) Ltd. in (supra) and the decisions of the Coordinate Bench of the Tribunal in Horiba Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same as separate international transactions. It is the case of the taxpayer that since the AMP expenses incurred by the taxpayer is not international transactions and bright line test cannot be accepted to benchmark the international transactions of AMP, the addition is not sustainable and relied upon the decision of Maruti Suzuki India Ltd. vs. CIT - ITA No.110 of 2014 & 710 of 2015, Yum Restaurants (India) Pvt. Ltd. vs. ITO - ITA No.349 of 2015, CIT vs. Whirlpool of India Ltd. - ITA No.610/2014 and Bausch & Lomb Eyecare (India) (P.) Ltd. vs. ACIT - ITA No.643, 675 to 677 of 2014, 165, 166 & 950 of 2015. 26. However, on the other hand, to repel the arguments of the ld. AR for the taxpayer, the ld. DR for the Revenue contended that since the taxpayer is a distributor, it is covered by the decision of Hon'ble High Court in case of Sony Ericson - ITA No.16 of 2014. 27. However, without going into the merits of the case, when we examine letter dated December 29, 2015 written by the taxpayer to the ld. DRP, no opportunity of being heard has been given to the taxpayer before making ALP adjustment on account of AMP expenses. For ready perusal, operative part of the letter (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
