9911796707
TMI Blog2020 (12) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... lution Panel ('DRP'). 1.1. That the TPO/DRP erred on facts and in law in not discharging the onus of bringing on record any tangible material to demonstrate, existence of the international transaction in relation to the advertisement, marketing and brand promotion expenses unilaterally incurred by the appellant, so as to establish that the same constituted an international transaction. 1.2 That the DRP erred on facts and in law in allegedly holding that "the conduct of the appellant, in brand promotion per the displays and showroom arrangements apart from other functional innovations etc., clearly point to the existence of the AMP transaction." 1.3 That the TPO/ DRP erred on the facts and in law in rejecting Resale Price Method ('RPM') directed to be applied by the Hon'ble High Court in the appellant's own case for benchmarking the transaction of AMP expenses, allegedly holding that: a. In appellant's case, AMP expenditure is very significant in quantum. b. Appellant is adding value to the goods by incurring considerable AMP expenditure creating market intangibles and enhancing brand value of the product. c. Appellant is carrying out two distinct functions (i) Distribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The original TP adjustment of Rs. 57,24,40,796/-in AY 2008- 09 by the TPO after considering the AMP expenses of Rs. 74,04,23,369/- and upheld by the DRP, was challenged before the ITAT. Hon'ble Tribunal following the decision of ITAT (SB) in case of LG Electronics India Pvt. Ltd (2013) 22 ITR (Trib) 1 (Delhi) (SB) approve the application of Bright line test and held that ALP of AMP expenses should be determined by cost plus method after excluding the selling expenses like rebate, discount etc. The matter was taken before the Hon'ble High Court of Delhi which framed 5 questions of law as listed out in para 7 of the ITAT Delhi order dated 28- 10-2015. With regard to the issues framed in question no 1 and 2, it was held that the TPO adjustment on account of AMP expenses in the absence of specific reference made by the AO was legally correct, in terms of section 92 CA of the IT Act 1961, as amended by the Finance Act 2012, as discussed in paragraph no 41 to 50 of the Hon'ble High Court order. It was also held that the AMP expenses incurred by the assessee in India can be treated and categorized as an international transaction u/s 92B of the I.T Act 1961. Hon'ble Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spective customers for promoting sales of the company's products and installation of the goods at customers places. iv) Printing of Materials: Expenditure incurred on printing of product body stickers/ price tags and brochures to be placed on the products or provided to the customers at the time of sale of products. v) Sales Counter expenses: Such expenditure is in the nature of payment made to home interior company for temporary construction of counters at the area available at dealers' location for display of Haier products. vi) Free Gifts: The said expenditure is in nature of providing small free gifts like, pens, t-shirt, caps, jackets etc. along with the product. Such gifts are purchased from local market and the name of the assessee company is embossed on it through third party printing agencies. vii) Others: Others include diwali and festival gifts given by the assessee to its employees, dealers etc. Benchmarking AMP expenses applying RPM: Sales A 2,276,497,423 3,634,123,511 Cost of Goods Sold B 1,702,366,577 3,177,456,936 Gross Profit ('GP') C=A-B 574,130,846 456,666,575 GP/ Sales 25.22% 12.57% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as international transaction. The submission of the assessee that in order to promote sales of products, the assessee entered into agreements with various bankers and finance companies wherein the assessee agreed to buyer the cost of interest of credit period allowed to the end customers on purchase of Haier Products. But the interest costs on the installment given by the customer are directly paid by the assessee company to the banker's finance companies. Therefore, the contention of the assessee that it has the zero percent finance pays, as regards second contention dealer expenses are monthly payment made by the assessee to its dealers for the exclusive area demarcated by the dealer at its show room for its play and sale of its product and the same expenses are agreed between the assessee and its dealers on the basis of the area allotted for sale of products to the assessee the location of the show room etc. This submission is factually correct. ISD salary and expenditure on this is in the nature of monthly payment made by the assessee to 3rd party agency for providing sales representative for sale of the products from the premises of its dealers on contract basis. The sale rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriate method is resale price method or CUP method left for application by the TPO. Having regard to the peculiarity of the assessee business module adopted by the assessee. The remit by the Tribunal shall be therefore, decided in the light of the Hon'ble Court's observation in the preceding paragraph. From the submissions of the Ld. AR as well as the reliance of the Hon'ble Delhi High Court decision in case of Sony Ericsson Ltd. (supra) it can be seen that in the present case assessee is not conducting any band promotion, but in fact is engaged in the business of distribution of consumer durable products. The Hon'ble High Court quoted OECD Transfer Pricing Guidelines in para 133 of the said decision as follows: "133. Transfer Pricing Officers have referred to paragraphs 6.36 to 6.39. For the sake of completeness, we would quote the said paragraphs from the OECD Transfer Pricing Guidelines, which read:- "6.36 Difficult transfer pricing problems can arise when marketing activities are undertaken by enterprises that do not own the trademarks or tradenames that they are promoting (such as a distributor of branded goods). In such a case, it is necessary to determine how the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the trademark, perhaps through a decrease in the purchase price of the product or a reduction in royalty rate. 6.39 The other question is how the return attributable to marketing activities can be identified. A marketing intangible may obtain value as a consequence of advertising and other promotional expenditures, which can be important to maintain the value of the trademark. However, it can be difficult to determine what these expenditures have contributed to the success of a product. For instance, it can be difficult to determine what advertising and marketing expenditures have contributed to the production or revenue, and to what degree. It is also possible that a new trademark or one newly introduced into a particular market may have no value or little value in that market and its value may change over the years as it makes an impression on the market (or perhaps loses its impact). A dominant market share may to some extent be attributable to marketing efforts of a distributor. The value and any changes will depend to an extent on how effectively the trademark is promoted in the particular market. More fundamentally, in many cases higher returns derived from the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mined without any assumption against the assessed. A finding on the said aspect would require detailed verification and ascertainment. 165. An external comparable should perform similar AMP functions. Similarly the comparable should not be the legal owner of the brand name, trade mark etc. In case a comparable does not perform AMP functions in the marketing operations, a function which is performed by the tested party, the comparable may have to be discarded. Comparable analysis of the tested party and the comparable would include reference to AMP expenses. In case of a mismatch, adjustment could be made when the result would be reliable and accurate. Otherwise, RP Method should not be adopted. If on comparable analysis, including AMP expenses, gross profit margins match or are within the specified range, no transfer pricing adjustment is required. In such cases, the gross profit margin would include the margin or compensation for the AMP expenses incurred. Routine or non-routine AMP expenses would not materially and substantially affect the gross profit margins when the tested party and the comparable undertake similar AMP functions. 166. On behalf of the assessee, it was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessed and the Revenue should be asked to furnish details or tables. The Tribunal, at the first instance, would try and dispose of the appeals, rather than passing an order of remand to the Assessing Officer/TPO. The endeavour should be to ascertain and satisfy whether the gross/net profit margin would duly account for AMP expenses. When figures and calculations as per the TNM or RP Method adopted and applied show that the net/gross margins are adequate and acceptable, the appeal of the assessed should be accepted. Where there is a doubt or the other view is plausible, an order of remand for re- examination by the Assessing Officer/TPO would be justified. A practical approach is required and the tribunal has sufficient discretion and flexibility to reach a fair and just conclusion on the arm's length price." In this context, we hereby held that in present case the Revenue has not pointed out as to how the Resale Price Method will not be applicable. Benchmarking AMP expenses applying RPM is as under: Sales A 2,276,497,423 3,634,123,511 Cost of Goods Sold B 1,702,366,577 3,177,456,936 Gross Profit ('GP') C=A-B 574,130, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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