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TMI Blog2019 (5) TMI 1798X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the AE cannot be termed as an international taxation on presumptions where at best benefit to the AE may be incidental. The settled legal position as discussed at length is that the supporting facts have to be brought on record by the Revenue to discharge the onus placed on it and presumption alone that expenses are excessive by way of some arbitrary parameters which lack judicial and statutory support cannot be subscribed to. In the absence of any such fact which has been referred to by the Revenue, the presumption drawn has no legal legs to stand on and deserves to fail. Co-ordinate Bench in the immediately preceding assessment year where Joint Venture Agreement existed between Widex A/S Denmark and Mr. T.S. Anand in the ratio of 78.43% and 21.57% wherein a similar issue was considered and the issue was stated to be covered by the assessee and contested by the Revenue. We find that the parties were in agreement that change in shareholding pattern in the year under consideration had no impact is a position which has not been varied despite the fact that the change was pointed out by the Bench. In the facts as they stand, we then find that since the said factor is stated to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a further adjustment towards mark up. 6. That the Ld. AO/TPO/DRP has grossly erred in failing to appreciate and apply the principles laid down by Hon'ble Delhi High Court and various tribunal decisions in letter and spirit, thereby proceeding to make separate adjustments towards AMP expenditure by reference to the very same comparables used for benchmarking other international transactions pertaining to the distribution segment. Thus this duplicative approach that has been used is ultra vires under the law and should be held as invalid just as the Bright line Method. 7. Ld. AO/ Ld. DRP erred in presuming existence of international transaction, relying on irrelevant material, upholding application of Bright line test, directing inclusion of selling and distribution expenses, concluding that existence of international transaction of AMP is not even necessary while upholding adjustment, directing TPO/AO to carry out further verification/analysis and in upholding two protective adjustments in addition to substantive AMP adjustment. 8. Impugned assessment order / demand as also protective adjustments are self- contradictory, unlawful and contrary to law and further decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been made. The application was dismissed by order dated 28.12.2017 in M.A. 76/CHD/2017 ( copy filed). The ld. Sr.DR agreed that M.A. had been filed. It was his submission that since the Revenue did not succeed before the ITAT, the issue is pending before the Hon'ble High Court. The Ld. AR on the other hand relying upon the Miscellaneous Application dated 28.12.2017submitted that there is no other agreement and this repeated insistence of the Department has been addressed by the assessee. 5. The Ld. AR addressing the assessee's stand has also filed an application requesting for admission of additional ground as ground number 8(a). Subsequently the assessee has filed another application requesting for admission of another additional ground titled as 8 (b) without prejudice to the main arguments advanced. It was his submission that the arms length calculation resorted to by the TPO on the directions of the DRP by applying the intensity adjustment is opposed in principle by the assessee as it is invalid in law and a mirror image to Bright Line Test which does not have any judicial approval. However, without prejudice to this argument, it was his submission that there are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said finding it was his submission that these varying stands of the department demonstrate the pre-mediated determination to somehow make an addition. This wavering and varying stand without addressing whether the addition is to be made on a protective basis as they describe or on a substantive basis or Intensity basis as they propose clearly demonstrates the hollowness of their claim as it unfailingly demonstrate that where the tax authorities themselves are not sure as to which calculation is correct, the occasion to fault the assessee does not arise. 5.1 It was also his submission that the multiple different ways of calculation and the different calculations have admittedly been made in the absence of relevant Rules in the provisions and the Act. The said actions, it was argued accepts that it is not possible for the Revenue to come to one acceptable computation. Thus, where the department itself is unsure faulting the assessee for not following the nonexistent Rules and provisions is contrary to all settled legal principles and canons of taxation. It was his submission that it is well accepted that there should be certainty of who is to be taxed; what event is to be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt at bar that apart from the Joint Venture Agreement, there is no other Agreement. However, at the time of dictation, it was noticed that the parties have been in an error in mentioning that the facts of the two years are identical as the TPO in his page 3 of his 46 paged order has noticed that the assessee in the year under consideration is 100% subsidiary of AE (Widex A/S. Denmark) with GSA Invest A/S, Denmark having only 1 share. The DRP, it was noticed at page 6 of its 90 paged on the contrary proceeds on the footing that Widex India is a Joint Venture between Widex A/S Denmark and Mr. T.S.Anand. The facts considered by the DRP in as much as that there was no change in the shareholding pattern of the assessee was admittedly contrary to record. Accordingly, since in the course of the hearings, the parties had also proceeded on the footing that there was no change in facts, the parties were put to notice of this fact and required to address their arguments. The attention of the parties was invited to para 2 page 2 of the order of the ITAT wherein it had been noticed that the share of the AE in the year under consideration as then considered by the ITAT was 78.43% and the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ark Agreements etc., there is no other agreement. Thus, the issue, it was submitted, is fully covered in his favour. Inviting specific attention to page 8 para 8 which continues at page 9 of the order of the ITAT, the ld. AR carried us through the written submissions which had been placed on behalf of the assessee, which have been recorded at page 12 of the ITAT order and considering these, the ITAT relying on the decision of the Hon'ble Delhi High Court in the case of Bausch & Lomb 381 ITR 227 (Delhi) allowed the appeal of the assessee. Para 11, 12 and 13 of the order of the ITAT were heavily relied upon. Inviting specific attention to the decision of the Delhi High Court in the case of Bausch & Lomb which has been extracted at pages 17 to 21 of the order of the ITAT, specific attention was invited to para 62 of the aforesaid decision wherein the fact that the holding company held 99.9% shares in the assessee, it was submitted, was a near similar fact in the said case also. Accordingly, it was his submission that the change in share holding pattern has no impact specifically when taken into consideration the fact that there was no other agreement and infact in the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten reply of the AO/TPO on record. The ld. Sr.DR as noted has placed the TPO's reply on record stating that the change in shareholding pattern in the year under consideration does not impact the issue. For the sake of completeness, the departmental response is extracted hereunder: OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX TRANSFER PRICING OFFICER-1(3)(2), ROOM NO.510, 5th FLOOR, E-2, BLOCK, CIVIC CENTRE, MINTO ROAD, NEW DELHI F.No. TPO - 1(3)(2)/COMMENTS/2018-19/481 Dated : 25.02.2019 The Assistant Commissioner of income Tax, Circle 2(1), Chandigarh, Sub: Appeal in the case of M/s Widex India Pvt. Ltd. AY 2012-13 in , ITA No. 269/CHD/2017-reg. Please refer to ITAT's order dated 01/02/2019 disposing the stay application of the assessee. 2. While passing the above mentioned order the Hon'ble ITAT has questioned about the changed share holding structure of the assessee company from earlier year to the previous year. The tribunal has asked to file written submission addressing the change of share holding pattern of the assessee company. It is pertinent to mention here that in the AY 201112. 21.57% of_ shares of the assessee held by Sh. T.S.Anand and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-iterated the departmental prayer stating that the order may be upheld. The issue, it was submitted, was before the Hon'ble High Court as the assessee before the ITAT had not placed the complete agreements and accordingly the said order was under challenge. 14.2 The ld. AR Mr. N. Rao as noted earlier also took a strong objection to the line of the departmental argument. It was re-iterated that the department has canvassed these arguments in the Miscellaneous Application before the ITAT. Attention was invited to order dated 28.12.2017 in M.A. 76/2017 wherein it was submitted that the very same arguments of the department namely that there was some other agreement between the assessee and its associated enterprises or any other arrangement had been speakingly dismissed by the ITAT. It was his submission that even before the Hon'ble High Court on behalf of the assessee, he has made a statement at bar that apart from the Joint Venture Agreement available with the TPO referred to in the earlier assessment year, there was no other agreement and infact in the year under consideration, even this was not relevant. Addressing the other issues, inviting attention to the TPO's order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so called excess AMP applying the "intensity" approach of methodology itself gives approval to the assessee's claim as having been accepted by the TPO that the assessee is a distributor. Thus, in the circumstances, reverse BLT which has been described as intensity approach, it was his prayer, may not be permitted. 14.5 It was his submission that without prejudice to this argument, the assessee addressing the departmental calculations on the basis of which the additions have been proposed and have been made, has pointed out that there are factual inaccuracies and calculation errors in the TPO's/AO's order. The assessee has placed his calculations on record, it was his submission that as far as the year under consideration is concerned, even if for a moment, the directions of the DRP are not interfered with, even in such an eventuality no addition applying this method also can be made, thus since the net impact in the year under consideration is 'zero'. Accordingly, it was his submission that in the year under consideration subject to the department agreeing to the calculations of the assessee, the Intensity approach issue may be left open to be decided in some other year when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though the TPO has given up the issue, however it was his submission that it appears to be an incorrect decision to do so. The ld. Sr.DR was required to address whether he can argue beyond the brief of the AO/TPO as he is standing in to defend the TPO's stand whether in the circumstances, he can go beyond what the TPO instructs, the Sr.DR considering his position submitted that he relies on the order of the DRP and the final assessment order. 16. We have heard the rival submissions and perused the material available on record. Before adverting to the issues which require adjudication in the present proceedings, it is necessary to first address the facts and the reasoning of the respective authorities on record which led to the additions made which are under challenge in the present proceedings. 16.1 The relevant facts of the case are that the assessee in the year under consideration filed a loss return of ₹ 4,62,24,540/- The Assessing Officer after issuing due notices etc. made a reference to the TPO in view of the international transactions entered into by the assessee with its AE. Reference is made to the fact that Widex was one of the leading companies engaged in researc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkup® 49.84% 2,65,57,948 Adjustment u/s 92CA 7,98,44,360 16.2 The assessee disputed the adjustment as per its reply dated 18.01.2018 extracted in the TPO's order at internal page 10 on the following grounds: • The Assessee is a routine/normal distributor which employs routine tangible assets and bears normal risks associated with its operations; • The expense incurred is not an international transaction as per section 92B read with section 92F(v) of the Act, which together define an 'international transaction'. • Bright line concept is not applicable • Expenditure on AMP is incurred by the Assessee as a routine / normal distributor for the purpose of its own business and there is a benefit from the expenditure. • The AMP costs were incurred for advertisement in the designated territory of the Assessee. However, the primary spend of the Assessee is on sales promotion activities which are meant to promote its sales in its Territory. • The Assessee had the sole discretion of deciding the form, manner, content and timing of its advertisement, sales promotion as well as selling activity; • The Assessee has earned the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as formed in the case of LG Electronics to adjudicate the issue of advertisement, marketing and promotion expenditure. The majority decision held that advertisement carried by LG India using foreign brand coupled with proportionately high AMP expenditure leads to the conclusion that an international transaction exists between the LG India and LG Korea. Hence, it was held that AMP expenditure is an international transaction. In addition to the above, following are a few key principles laid down by the Special Bench: • Dealer incentives, point of sale expenditure, etc. does not constitute AMP expenditure; • Only advertisement and publicity expenditure constitutes the AMP expenditure. The same is required to be benchmarked to determine the compensation for the brand building activity undertaken by LG India; • Bright-line is a tool to bifurcate the AMP expenses between routine and nonroutine AMP expenses, i.e. expenditure incurred towards brand building services; • For the purpose of benchmarking, AMP cannot be aggregated with any other transaction; • Comparable companies owning domestic brand may be adopted to benchmark the AMP expenditure, once th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 710/2015) Delhi High Court adjudicated the appeals pertaining to Maruti Suzuki India Limited ("MSIL"). In the said order, the Delhi High Court distinguished the earlier order issued in case of Sony Ericsson and held that the AMP expenditure is not an international transaction. The key highlights of the order are: • The order of the High Court in case of Sony Ericsson and others, was restricted to distributors, hence, there was a need to adjudicate the issue in the case of full risk / licensed manufacturers; • The Sony Ericsson decision was on the premise that AMP is an international transaction and dispute pertained to adequacy of compensation to Indian subsidiary for incurring and performing marketing and non-routine AMP expenses; • MSIL contended the existence of an international transaction in respect of the Indian transfer pricing regulations and the High Court appreciated that the provision in the regulations do not permit AMP adjustment, as computed by the RAs; • RAs failed to establish existence of any arrangement, understanding or action in concert between MSIL and Suzuki Motors Corporation, Japan ('SMC significant shareholde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ericsson and there is no other mechanism specified in the Act to establish the existence of an international transaction on account of AMP; (emphasis supplied by the Bench) • In relation to the allegation of the AO / TPO that WOIL and its AE have acted in concert for incurrence of such expenditure by the former at the behest of the latter, the Court held that the RAs have failed to demonstrate based on any tangible material that the parties have acted in concert and that there is an arrangement between the two for such incurrence of AMP expenditure. (e) Bausch & Lomb Eyecare (India) Private Limited v. The Additional Commissioner of Income Tax (ITA No. 643/2014F (f) Honda Siel Power Products limited v. Deputy Commissioner of Income Tax (ITA No.346/2015) In both the decisions of Bausch & Lomb Eyecare (India) Private Limited ("BL") and Honda Siel Power Products Limited ("Honda Siel"), the High Court ruled out existence of an international transaction on account of the following: • High Court relied on the decision in case of Maruti Suzuki and held that AO. / TPO have been unable to demonstrate existence of an international transaction involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son; and • TPO to apply principles laid down by High Court in the case of Maruti Suzuki India Limited (ITA No; 110/2014 and ITA No. 710/2015) for benchmarking AMP transaction during remand proceedings. (h) Yum Restaurants (India) Private Limited v ITO (ITA No 349/2015 and 388/2015) In the said appeals the Hon'ble High Court, held the following:- • Examination of the agreement of the Assessee, its marketing arm and franchisees is required to determine if any AMP expenditure is incurred by Yum India for creation of marketing intangibles for its AEs; • Once the transaction between Yum India and its AEs is established, then, the question arises, whether such transaction of creation of marketing intangibles is at arm's length • In view of the above questions, the Hon'ble High Court remanded the matter back to the files of AO / TPO for determination of international transaction and determination of ALP of such transaction in light of decision in case of Sony Ericsson Mobile Communications India P. Limited (2015) 374ITR118 (Del). 16.5 Reverting back to the facts on record, we note that ignoring the fact the Bright Line Test did not have either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c. Vs Commissioner, T.C No.5750-04, Glaxo Smith Kline Holding (Americas) Inc Vs Commissioner, T.C. No 6959-05 and Australian legal position as set out in Australia published guidance in 2005 (NAT 14586-11.2005) related to the compensation of distribution / marketing companies for activities that enhance the value of marketing intangibles that they do not own. 16.7 Accordingly, rejecting the assessee's explanation, he required the assessee to make a submission on bench-marking the transaction. 16.8 The assessee submitted that AMP expenditure cannot be segregated and has to be bench marked by aggregating the same with the distribution activity as it was closely and directly linked to its distribution activity and hence if at all it should be bench marked using RPM. The assessee supported the said argument by placing reliance on the decision of the Delhi High Court in the case of Sony Ericsson wherein the Court has held that; "Where the Assessing Officer/TPO accepts the comparables adopted by the assessed, with or without making adjustments, as a bundled transaction, it would be illogical and improper to treat AMP expenses as a separate international transaction, for the simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that since no reliable comparables were found to have been proposed which performed both distribution and similar AMP function, accordingly concluded that a transaction by transaction approach of separately bench marking the AMP expenses on facts was justified. Relying on the decision of the Delhi High Court in the case of Sony Ericsson he concluded that the Hon'ble High Court has held that when suitable comparables are not available, then a segregation approach may be adopted for the purposes of bench marking. 16.12 The TPO concluded that the assessee has failed to show that the AMP expenditure was compensated by the AE through a set of any other transaction. Accordingly, adjustment was proposed on protective basis in the following manner : Adjustment on protective basis 65. Since the instant matter is sub-judice before various appellate forums, the benchmarking is being initially done on a protective basis/ in accordance with the stand of the Department explained in the show-cause notice dated 07/01/2016. 66. The ratio of AMP/Sales in the case of the tested party, i.e., the assessee has been computed as under:- Expenditure on AMP 6,18,99,939 Value of Sales 36,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 2.38% Amount that represents similar expenses on AMP by the accepted comparable 86,13,526 Total Expenditure on AMP by the assessee 6,18,99,939 Expenditure over and above similar expenses by the accepted comparable entities which constitutes the component of international transaction attributed to the AE towards build -up of intangibles that needs to be suitably compensated by the AE 5,32,86,413 Markup @49.84% 2,65,57,948 Adjustment u/s 92CA 7,98,44,360 70. The above amount of ₹ 7,98,44,360/- is proposed as an adjustment u/s 92CA if the Income Tax Act on a protective basis 16.13 Referring to the above paras, it was submitted that in view of the fact that the issue was sub-judiced the TPO proceeded also to make an adjustment on substantive basis applying Cost Plus Method by making reference to Rule 10B(1)(c). Reliance was also placed upon the decision of the Delhi High Court in the case of Sony Ericson to hold that cost plus method was the most appropriate method. Further reliance was also placed upon the DRP's decision dated 17.11.2015 in the immediately preceding assessment year wherein it had been held that Cost Plus Method was justified on facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , said ground extracted in the order is reproduced hereunder : "Ground 2: The ld. TPO has erred on the facts and circumstances of the case and in law in benchmarking AMP expenditure as an international "transaction" ignoring that its just a function performed by Widex India as a part of its roles and responsibility as a full-fledged distributor for its own business and therefore, not an international transaction as per Indian Transfer Pricing Regulations." 17.1 The DRP after summing up the facts considered by the TPO and the FAR analysis referred to by the TPO proceeded to hold that the benefit of the expenses was for the AE and the DEMPE functions carried out by the Indian subsidiary resulted in a benefit to the AE. For ready reference, the relevant finding is reproduced hereunder : "Thus as per the TP Study Report furnished by the assessee, it is apparent that the various risks assumed by the taxpayer and by the assessee are as under : Nature of Risk Taxpayer/Assessee Associated Enterprises Markets Risk Nil Entirely Borne by the AE Product Liability/ Warranty Risk Nil Warranty Risk for the Warranty Period of Product of 27 Months is Borne by the AE Technology R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following manner :- "6.5 Information from Past Annual Reports regarding AMP Spent Information of 5 years in regard to turnover, gross profit, net profit, selling and distribution expenses, AMP expenses, royalty payment, infra-group service charge payment, purchase of key components from the AE, was provided by the Taxpayer as under. Particulars FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12 Turnover (Net sales) 20,97,02,066 24,64,70,948 30,58,61,516 33,53,40,893 36,19,12,878 Gross pro/it 10,34,59,687 1 1,28,85,554 14,31,17,038 16,62,82,418 17,39,47,919 Net profit before taxes (1,10,66,673) (1,05,609) 1,57,23,649 (1,88,93,562) (5,04,80,124) Selling and distribution expenses 3,16,35,473 2,11,30,988 4,16,88,884 5,29,97,907 6,18,99,939 Advertisement expenses -- -- -- -- -- Royalty payment - - - - - Intro-group services - - - - - Purchase of goods from AE 11, 74,88,410 13,61,14,710 16,23,32,008 12,60,73,607 18,85,23,124 6.6 Selling and Distribution Expenses of the Assessee for Past Five Years The assessee has provided, the following details pertaining to all selling and distribution expenses incurred by it in the past fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases, sales and marketing, warehousing, distribution and supply, estimating expected sale price and making recommendation to dealers / retailers on retails prices etc. There are no arrangements guaranteeing Assessee a return on the expenses it bears or making up for any financial losses it may experience for the relevant year. Thus, the operating income or loss realized by the Assessee is directly dependent on the financial success or failure of its entrepreneurial efforts, including its marketing, advertising, and promotional activities, in India. It Is apparent from the above reply of the assessee in response to the questionnaire that the assessee is trying to project itself as a high risk distributor inspite of the fact that as per the TP document it has shown that it is a low risk distributor and most of the risk in respect of the functions undertaken by the taxpayer are borne by the AE. 17.6 The DRP, accordingly, held that the assessee was unable to show that it was in any way receiving any compensation from the AE in any of the following manners : i. Reduction in Purchase Price of the products (raw material/finished goods), ii. Reduction In the rate of royalty, ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities were infact one single transaction however, noting that since facts were not available considering the prayer of the assessee, the issue was remanded back. Accordingly, by no stretch of imagination, it can be said that the said decision lays down the proposition that the Bundled Approach was negated by the Court. On the contrary, the said decision lays out the proposition that even where in a case the assessee even before the High Court, fails to point out supporting evidence for its claim that the multiple transactions were infact one and the single transaction necessitated accepting the whole or rejecting the entire bundle of transactions as a whole failed on facts before the AO /TPO, the DRP and the ITAT, even then the matter can be remanded back accepting the prayer of the assessee to demonstrate that it was actually one single transaction, even if there were multiple transactions with different entities as facts were not referred to in such a manner before the authorities below. 17.9 The DRP, it is seen also placed reliance upon the decision of the Delhi High Court in the case of Denso India Ltd. Vs CIT. On a reading of the extract of para 6 of the aforesaid decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to resort to transfer pricing adjustment and determine ALP by adopting the CUP method for the procurements from Sumitomo Japan. The "second test" spoken of in Sony Ericcson -(supra) i.e "4he form and-. substance of the transaction were the same but the arrangements made in relation to a transaction, when viewed in their totality, differ from those which would have been adopted by an independent enterprise behaving in a commercially rational manner." was in effect adopted. This Court finds no infirmity in this approach. As a result, the first question framed is answered against the assessee and in favour of the revenue. 17.10 The reliance placed on the said decision it is seen is misplaced. 17.11 The DRP in internal pages 64 onwards in para 14.2 titled as "Judicial decisions supporting the bright line method" notes that in Sony Ericsson's case, the Hon'ble Delhi High Court had not approved the bright line method concurs with the TPO's action of making TP adjustment on a protective basis in view of the issues pending adjudication not in appeal but in a SLP before the Hon'ble Apex Court 17.12 The DRP over-ruling the assessee's objections held that A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above companies, the AMP to sales ratio ranges from 0% to 6.78%, The average AMP expenditure is 2.38% of sales, as compared to the assessee's AMP expenditure of 17.10% of sales. The above companies show a very wide range of AMP expenditure and intensity. The AMP intensity of the assessee is very different from the AMP intensity of the above comparables. In view of these facts, the above companies are not suitable comparables for the purpose of comparing AMP expenditure. As discussed above, the Hon'ble Delhi High Court have upheld the decision of the Hon'ble ITAT in Toshiba and dismissed an appeal against this decision. 17.13 Referring to these decisions, the DRP concluded that assessee was more than a normal risk distributor but was not the owner of the brand, accordingly, the expenditure was considered to have been incurred for promoting the brand in India on sales made through it. For the services rendered to the AE, it was noticed that compensation was not received. Accordingly, suitable Arm's Length Price adjustment was considered to be necessary. The DRP took note of the fact that assessee was receiving mostly advertising material from the AE. However, the price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be non-routine AMP expenditure for the creation of marketing intangibles. The TPO has used the Bright Line method to segregate routine and non-routine AMP expenses. He has used similar comparables and worked out the Bright Line of AMP expenses. The selection of comparables and the computation of Bright Line has been discussed in detail in the TPO's order. Considering the facts as above and that the department's SLP has been admitted, the TP adjustment made using the bright line method on a protective basis is justified and is upheld. 17.16 The DRP further directed the TPO to carry out the following method for benchmarking the entire distribution function including purchase, marketing and market development etc. on a protective basis. without prejudice to the earlier directions in the event that the adjustments are not approved by the higher judicial authorities, in the following manner and again on an entirely protective basis. The following supporting facts were referred to : "……………..The TPO took the same comparables selected by the assessee in its TP study and observed that these comparables have an average AMP expenditure of 2.38% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s report as discussed in para 7. This takes care of most of the Assessee's objections. As discussed, the assessee has also failed to demonstrate that the AMP expenditure done by the assessee was compensated by the AE through a set off in any other Ha-action. After discussion on why the transaction needs to be separately benchmarked the use of Cost plus method has been justified and is upheld. In view of the SIP filed against the decision of Sony Ericsson the TPO has been directed not to exclude selling and distribution expenses. The Protective adjustment made using the bright line method has been justified in Para 14 and is upheld. A Without Prejudice Method of Intensity Adjustment using TNMM has been given in Para 15 for TPO to compute and add on protective basis. The order of the TPO is thus upheld. The taxpayer as well as the TPO has cited various decisions of higher authorities which have been taken into account while deciding the issues under consideration. However, the same have not been discussed in detail by this panel for the reason that many of such decisions have been inspired by the factual matrix and circumstances specific to those decisions." 17.18 Pursuant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b Vs ACIT (2016) 381 ITR 227 (Delhi). There is no doubt whatsoever that the decision in the case of Sony Ericsson proceeded on the footing that AMP expenses was accepted by the parties to be an international transaction. This material fact cannot be lost sight of. A perusal of the aforesaid decisions leaves no doubt whatsoever that the decision rendered in the case of Sony Ericsson came up repeatedly for examination where the respective assessees pleaded in each of the cases that AMP expenses incurred were not an international transaction in terms of the relevant provisions and the assessees were allowed to take up this plea in the respective cases and the Court referring to the provisions of the Act, facts on record and the decisions available including the decision in the case of Sony Ericsson case held that the assessees were successful in their challenge posed to the existence of an international transaction. 18.2. We will come to the decisions and the provisions subsequently as first we must also set out the other applicable, well settled legal position namely that the Hon'ble Delhi High Court in the case of Sony Ericsson also unambiguously held that Bright Line Test was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Sony Ericsson in early 2015 the Delhi High Court in the series of decisions rendered on 11.12.2015, 22.12.2015 and 23.12.2015 in the cases of Maruti Suzuki India Ltd., CIT Vs Whirlpool of India Ltd. and Bausch & Lomb Eyecare India Pvt. Ltd. respectively have one after the other repeatedly held that existence of international transaction of AMP cannot be presumed, it has to be demonstrated by the Revenue. We find on a perusal of the record that not only the TPO in the facts of the present case having passed the order on 28.01.2016 had the benefit of these decisions but even the Dispute Resolution Panel was fully aware of these decisions wherein the Court has un-ambiguously addressed the legal position and made it clear that the existence of an international transaction cannot be presumed. In the face of these decisions, neither the TPO's action nor the DRP's directions, we find are in accord with the settled legal position. 18.4 At this stage, it would be apposite to refer to the relevant statutory provisions as admittedly the tax authorities were statutorily bound to consider the issue in the light of the relevant provisions of the Act. International transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty provided to any of such enterprises. A reading of sub-section (2) of the above also makes it clear that a transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of subsection (1), be deemed to be an international transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise where the enterprise or the associated enterprise or both of them are non-residents irrespective of whether such other person is a non-resident or not. However, for the purposes of the present proceedings, we need not be concerned with sub Section (2) of Section 92B. 18.6 A further reading of the relevant Explanation to Section 92B as inserted by Financial Act, 2012 further clarifies that the expression "international transaction" shall include the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rangement, understanding or action is formal or in writing; or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.] 18.8 When the definition of transaction is read along with the definition given in Section 92B it clearly emerges that first it is necessary to cross the bar as set out in Section 92B(1) and the transaction so sought to be classified should also fall within the definition as set out in Section 92F. The Courts in the three specific decisions rendered in December,2015 have clearly held that the Revenue has to demonstrate the existence of the transaction by either referring to some arrangement, understanding or action whether formal or informal whether enforceable in a Court of law or not. In the said backdrop, let us examine the facts on record. 18.9 On a perusal of the record, it can be seen that the assessee in its TP Study had disclosed the following international transactions : 9. The international transactions entered into by the assessee during F.Y 2011-12as stated in the TP study are tabulated below:- Transactions entered into by Widex India with Associated Enterprise during the period April V 2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee and considered by the TPO as well as the DRP : 10. FAR Analysis The assessee company has submitted the following FAR analysis vide its TP report for the FY 2011-12:- [Quote] The section below discusses the functions that are carried out by the Widex India. Purchasing The Widex India is responsible for all the purchasing activities in India. The Widex India determines the number of digital hearing aids to be imported from its AEs. The Widex India handles the import administration of the goods. Activities/Marketing/Product Strategy The Widex India is responsible for implementing and developing the marketing strategy for the digital hearing aids to be sold in India. It also helps deciding as to which new products should be introduced in the market. The Widex India is responsible for advertisement and planning the usage of media. It also organizes shows and conventions relating to its own area of expertise. The Widex India handles the training of its sales force and co-ordinates the implementation of the marketing strategy. Sales The Widex India does the entire sales activity starting from procuring the digital hearing aids to selling them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability / warranty risk refers to the risk of having to bear the cost of a claim or return of defective product. Depending on warranty terms, this cost may have to be incurred through the repair or replacement of defective products. Widex India does not have any exposure to warranty risk because warranty period of product of 27 months is borne by AE. Associated Enterprises are responsible for any claims on the products. Technology Risk The risk arises if the market in which the company operates is sensitive to introduction of new products and technologies. Widex India does not bear any risk on this count because the AE, own the product and the technology associated with the product. In addition, AE determine the specifications of the products and technologies to be developed. Since AE are the owners of the technology associated with the product, it solely bears the risk of technological obsolescence of its products. Foreign Exchange Fluctuation Risk Changes in currency rates can cause foreign exchanges profits and losses where products, resources or services are purchased in one currency and then sold in another currency. Widex India does bear some foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said approach cannot be upheld. We have gone through the FAR analysis available on record carried out by the assessee in its TP Report extracted by the TPO as well as the DRP in their orders. On a reading therefrom, we have no hesitation in holding that the assessee is an independent risk bearing distributor, responsible for marketing, sales, operating in a very narrow competitive market with limited product warranty risk the exposure is only to the credit risk and foreign exchange fluctuation risk etc. and the assessee is not exposed to any technology risk, product risks; warranty risk etc. The fact that the entire shareholding pattern of 100% is owned by the foreign AE and even a Joint Venture Agreement for the year under consideration has no relevance which position of fact has been argued by the parties also. Thus, there is no other material brought out on record to suggest that the expenditure incurred was at the behest of the AE. 18.13. Considering the FAR analysis of the assessee, it can be safely concluded in the absence of anything to the contrary that the decision of incurring AMP expenses etc. was purely market driven in the interest of assessee itself exploiting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue : "(i) Whether the ITAT erred in directing the TPO to consider the combined effect of fourteen factors of determining the cost value of the international transaction which will make the whole process of comparability impractical and ineffective and not in accordance with Rule 10B(3) of the Rules and other provisions of Chapter X of the Act? (ii) Whether the ITAT erred in directing the TPO to exclude the expenses incurred in connection with sales from AMP expenses by treating them as expenses not adding to the value of marketing intangible legally owned by the AE by drawing analogy from Section 37(3A) once present in the Act without giving any reasons for the same? (iii) Whether the ITAT erred in directing the TPO/AO to exclude the expenses incurred in connection with sales from AMP expenses when similar expenses have not been excluded by the TPO from the AMP expenses of comparables for the reasons that such expenses lead to benefit to the AE? (iv) Whether the ITAT erred in deleting the addition of ₹ 1,80,73,10,769/- made by AO/TPO on account of advertising and marketing promotion under Section 37 of the Act? (v) Whether the ITAT erred in directing the AO/T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and against the Revenue. The Court held that, "In that decision, this Court held that the expenses in connection with sales and marketing are to be excluded for the purposes of determination of AMP expenses." The Court further held that; "Question (i) also stands answered by that decision inasmuch as it has been held that fourteen factors specified in para 17.4 of the decision of the ITAT in LG Electronics India (P.) Ltd. are not binding on the Assessee or the Revenue." In view thereof, the following question was framed for consideration as far as the Revenue's appeal was concerned: "Whether the ITAT erred in deleting the addition of ₹ 180,73,10,769 made by the AO/TPO on account of AMP expenses under Section 37 of the Act?" 18.14.4 Addressing the questions raised in assessee's appeal, it was held that "question (e) does not survive after the decision of this Court in Sony Ericsson Mobile Communications India (P.) Ltd. (supra), since it specifically overruled the decision of the majority of the Special Bench of the ITAT in LG Electronics India (P.) Ltd. and held that the BLT could not be adopted for determining the ALP of an international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its uniquely valuable marks and name". Therefore, it could not be said that "AE is not concerned with what the appellant does or benefit is not intended or not arising to the AE." Clause 3.1 of the agreement states that the goodwill connected with the marks shall continue to inure to the benefit of the AE. Further the licensor i.e., Whirlpool USA has power to assign the rights to any other entity. In such circumstances, no licensee could ever undertake such AMP expenses if the benefits of such expenditure could be taken away by the AE at its own will. 18.14.8 The following supporting submissions on behalf of the Revenue also are extracted hereunder for ready reference : 26. Mr. G.C. Srivastava, learned Special counsel for the Revenue, made an elaborate argument and also filed written submissions. He made an extensive reference to the TP study submitted by the Assessee which according to him shows that the Assessee is engaged both in manufacturing and distribution of products. It also imports some finished goods and spares from its AE which are sold in India. The Assessee distributes the manufactured products to neighbouring countries such as Nepal, Bangladesh, Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... envisages the substitution of the price of such international transaction with the ALP." It was held that; "The TP adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE." (emphasis supplied by bold texting). The Court clarified that; "It is for the said 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". (emphasis supplied by bold texting). Referring to the decision of the Apex Court in the case of Daiichi Snakyo Co. Ltd. v. Jayaram Chigurupati [Civil Appeal No. 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses." Considering the clauses of the TLA which had been referred to in extenso by the Revenue, the Court held that they go to show that Whirlpool USA was protective of its brand. However, the Court held that on a perusal of these, it was not discernible from the clauses that WOIL was under any obligation to incur an extent of AMP expense for building the brand or mark of Whirlpool USA. The Court in very categoric terms held that; "The Revenue has been unable to explain why there should a presumption that as a result of the TLA, there must have been an understanding between Whirlpool USA and WOIL and that WOIL will spend 'excessively' on AMP in order to promote the ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, it is not possible to view this as a machinery provision. The existence of an international transaction will have to be established de hors the BLT. There is nothing in the Act which indicates how, in the absence of the BLT, one can discern the existence of an international transaction as far as AMP expenditure is concerned. 41. Recently this Court has in its decision dated 11th December 2014 in ITA No. 110 of 2014 (Maruti Suzuki India Ltd. (supra)) while interpreting the provisions of Chapter X of the Act observed: 'the only TP adjustment authorised and permitted by Chapter X is the substitution of the ALP for the transaction price or the contract price. It bears repetition that each of the methods specified in S.92C(1) is a price discovery method. S.92C(1) thus is explicit that the only manner of effecting a TP adjustment is to substitute the transaction price with the ALP so determined. The second proviso to Section 92C(2) provides a 'gateway' by stipulating that if the variation between the ALP and the transaction price does not exceed the specified percentage, no TP adjustment can at all be made. Both Section 92CA, which provides for making a referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit to Whirlpool USA, it cannot be said that the AMP expenses incurred by WOIL was for promoting the brand of Whirlpool USA. As mentioned in Sassoon J. David (supra) "the fact that somebody other than the Assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10(2)(xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". 18.14.12 Accordingly, for the reasons as addressed, the Court was pleased to dismiss the Revenue's appeal and allow the appeal of the assessee. The following reasons as summed up by the Court in the penultimate paras are also extracted hereunder for the sake of completeness : "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 expenses between WOIL and Whirlpool USA. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In any event, in the absence of a machinery provision it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any such fact which has been referred to by the Revenue, the presumption drawn has no legal legs to stand on and deserves to fail. 18.16 Now in this backdrop of factual and legal position, as appreciated by us, we note that the Co-ordinate Bench in the immediately preceding assessment year where Joint Venture Agreement existed between Widex A/S Denmark and Mr. T.S. Anand in the ratio of 78.43% and 21.57% wherein a similar issue was considered and the issue was stated to be covered by the assessee and contested by the Revenue. We propose to first set out the issue before the Co-ordinate Bench: 8. During the course of hearing before us, the Ld. counsel for the assessee challenged the addition made on various counts. The first contention raised by the Ld. counsel for the assessee was that AMP expenditure incurred by the assessee could not be treated as a separate international transaction for the purpose of Chapter-X of the Act. The Ld. counsel for the assessee contended that the AMP expenditure incurred had not been mentioned as a separate international transaction in the TP Study by the assessee but was considered as a function for benchmarking import and trading business. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the established trade mark/brand usage. Ld.Counsel for the assessee contended that the Ld.DRP had substituted gross margin as the mark up rate by incorrect interpretation of Sony Ericson decision - even while rightly rejecting PLR rate adopted by TPO. Ld.Counsel contended that the Order giving effect to DRP directions selectively adopts 32.32 % of Gross margin from calculation submitted and ignored that AMP expenditure should be ₹ 1.88 crores after exclusion of non-AMP expenditure. A brief synopsis of the submissions made was filed before us which reads as under: "1. Onus on department to establish existence of international transaction not discharged: > Appellant is engaged in business of import (from AE) and sale of hearing aid to third parties.(kindly refer internal page 2&3 of transfer pricing order, internal page 4 of DRP order para (a)) > Transfer pricing order recommends ₹ 4.86 crore addition on account of Advertising Marketing and Promotion (AMP) expenditure (refer internal page 35). A categorical finding is recorded that other transactions are at arms-length (this includes international transaction of imports). > AMP spending not mentioned as separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to increase Appellant's sales - Details of expenditure can be found at pages 123 to 125 and 130 of Paper book; no basis cited by DRP /TPO to support allegation that any part of such expenditure was incurred by Appellant at the instance of AE; cursory look at details would show no portion of such spending can be said to be for brand building ; in any case brand value is a function of several aspects like quality of product, reliability of service etc., as explained in paras 102 to 112 of Sony Ericsson decision ( 374 ITR 118) o Despite clear direction of DRP which are binding on TPO to exclude selling and distribution expenses (refer internal page 6 of DRP order), final assessment order dated 28.12.2015 considers ₹ 3.58 crores (refer internal page 14 of final assessment order) even while DRP in its order considers ₹ 1.88 crores (refer (i) para (b) on internal page 4 & table at page 11 of DRP order (II) table at page 146 of Paperbook). IV. Without prejudice to above all dealings with Associated Enterprises are at arms-length o Alternative analysis by applying Resale price method submitted before DRP( kindly refer running page 71, internal page 34, of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een held to be at Arms Length Price by applying TNMM method. No adjustment has been made on this account. The learned TPO, however has segregated AMP and held that it was an international transaction and was required to be benchmarked independently. The first objection of the Ld Counsel for the assessee is vis a vis this finding of the TPO/DRP that there existed an international transaction on account of AMP expenditure incurred by the assessee, more specifically in the absence of any agreement, arrangement or understanding for either incurring AMP expenditure on behalf of or for the benefit of AE and merely on the basis that AMP expenditure incurred by the assessee would have benefited the AE who owned the brand used by the assessee. 12. We find that this issue has been dealt with in various cases by the High Courts which have highlighted the tests to be applied for ascertaining whether there existed a transaction for brand promotion in a particular case. We find that in the case of Bausch and Laumb Eyecare (India) Pvt. Ltd. (supra) the Hon'ble Delhi High Court has deliberated extensively on the issue of AMP expenditure and the existence of international transaction vis a vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the judgment dated 22nd December 2015 in ITA No. 610 of 2014 (The Commissioner of Income Tax-LTU v. Whirlpool of India Ltd.) and many of the points urged by the counsel in these appeals have been considered in these two judgments. 53. A reading of the heading of Chapter X ["Computation of income from international transactions having regard to arm's length price"] and Section 92(1) which states that any income arising from an international transaction shall be computed having regard to the ALP and Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the ALP. 54. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is had to the residuary part of clause (b) to contend that the AMP spend of BLI is "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between BLI and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as an 'international transaction'. This might be only an illustrative list, but significantly it does not list AMP spending as one such transaction. 58. In Maruti Suzuki India Ltd. (supra) one of the submissions of the Revenue was: "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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they may agree to cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being." 60. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. In any event, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tity 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. ........... 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment." 71. Since a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance." 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) and PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra). Further the TPO has not been able to prove that the AMP expenses incurred was not for the benefit of the assessee. Therefore, in view of the aforestated decision of the Delhi High Court ,international transaction in such circumstances cannot be presumed to exist .No imaginary price can be attributed to it, as held by the Delhi High Court ,in the aforestated case, by allocating costs incurred on AMP expense and then adjusting the same by applying the TP provisions. 14. In view of the above we hold that the payment made by the assessee under the head AMP to the domestic parties cannot be termed as international transaction. Since we have held that there did not exist any international transaction qua AMP spend made by the assessee we are of the opinion that the TPO has wrongly invoked the provisions of Chapter X of the Act for the said AMP spend. Addition made of ₹ 4,59,11,663/- is, therefore, directed to be deleted. Further since the addition made has been deleted for the aforestated reason we do not consider it necessary to deal with the other arguments raised by the Ld.Counsel for the assessee. 15.Ground No.1 to 8 raised by the assessee are, therefore, allowed. 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h by various High Courts in a number of decisions and thereafter referring to the decision of the Hon'ble Delhi High Court in the case of Bausch & Laumb Eyecare (India) Pvt. Ltd., 381 ITR 227 (Del) held that the provisions of transfer pricing as outlined in Chapter-X of the Act begin with the existence of an international transaction at a certain disclosed price which is substituted with the ALP by way of adjustment under TP provisions. The I.T.A.T. held that international transaction has to exist as per the definition of the same as provided in section 92B of the Act, which provides for the existence of an arrangement or agreement or understanding between the two associated enterprises whereby one is obliged to spend on AMP to promote the brand of the other , and that merely because the expenses resulted in service or benefit to the other party would not by itself constitute the transaction as an international transaction. The I.T.A.T. found that in the present case, there was no finding of any clause in the agreement entered into between the two parties, requiring the assessee to undertake brand promotion expenses on behalf of the assessee and it was also found that AMP spend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponsibility of incurring brand promotion expenses and, therefore, there is no merit in the present Miscellaneous Application filed by the Revenue which therefore needs to be dismissed. 18.17.1 It is seen that the challenge was repulsed by the Co-ordinate Bench holding as under : 11. Having heard both the parties, we find no merit in the contention raised by the Revenue. As stated above, the basis for allowing the appeal by the I.T.A.T. and basis for holding that the AMP spend by the assessee was not an international transaction in the first place, was on account of the fact that the Revenue had failed to point out the existence of any arrangement or agreement between the assessee and its associated enterprise reflecting the entrustment of the liability/responsibility to carry out brand promotion expenses on behalf of the parent AE by the assessee. The clauses now referred to by the Revenue in support of its contention that they reflect the entrustment of the responsibility of carrying out brand promotion to the assessee by AE, we find are of no relevance. Clause No.21 of the JV referred to by the Revenue only states that the assessee company would market the licensed products ..... X X X X Extracts X X X X X X X X Extracts X X X X
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