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TMI Blog2019 (12) TMI 1483X X X X Extracts X X X X X X X X Extracts X X X X ..... in a number of judgments. Even otherwise, in the absence of any agreement, arrangement or understanding between the taxpayer and its AE, expressed or implied, that AMP spent of the taxpayer would also be beneficial to the AE or it would enhance the brand value of the AE in any manner, no international transaction can be inferred. Thus we are of the considered opinion that the ALP of an international transaction involving AMP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. At the same time, we cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon'ble Apex Court is modified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Act qua the assessment year 2008-09 on the grounds inter alia that :- Order being bad in law 1. That on the facts and in the circumstances of the case and in law, the order passed by the Learned Assessing Officer ( AO ) under section 143(3) read with section 144(C) of the Act is erroneous and bad in law. 2. That on the facts and in circumstances of the case and in law, the Learned AO erred in assessing the returned income of ₹ 15,50,03,450 at ₹ 52,89,44,734. Transfer Pricing Grounds 3. That on the facts and in the circumstances of the case and in law, the Learned AO erred in upholding the adjustment made by the Learned Transfer Pricing Officer (''TPO'') of INR 364,127,428 to the income of the Appellant. 4. That on the facts and in the circumstances of the case and in law, the Learned TPO erred by taking suo moto cognizance of an alleged international transaction on account of Advertisement, Marketing and Promotion ( AMP') expenses of Appellant. 5. That on the facts and in the circumstances of the case and in law, the Learned TPO/AO/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure against AMP expenditure incurred by comparable companies. 12. That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO erred in concluding that the Appellant's AMP is excessive and has resulted in creation of marketing intangible in favour of AE, for which it should be compensated along with a mark-up by the AE. 13. That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO erred by not taking cognizance of the business model, functional and risk profile of the Appellant and in concluding AMP expenditure to be excessive. 14. That on the facts and in the circumstances of the case and in law, the Learned AO / DRP / TPO erred by identifying incorrect set of comparables. 15. That on the facts and in the circumstances of the case and in law, the learned AO / DRP / TPO erred by excluding few companies from the set of comparables while benchmarking the percentage of AMP expenditure incurred by the Appellant against the percentage of AMP expenditure incurred by comparable companies in an ad-hoc manner. Further, learned AO erred by stating that no arguments were providing against Rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of arm's length price as required under section 92C of the Act read with rule 10D of Income Tax Rules, 1962. Corporate Tax Grounds Disallowance of Depreciation on account of capital assets converted into stock in trade 26. That on the facts and circumstances of the case and in law, the AO/DRP has erred in making an adjustment of depreciation of ₹ 24,94,155 on account of capital assets getting converted into stock-in-trade. 27. That on the facts and circumstances of the case, the AO/DRP erred in not following the decision of Hon'ble ITAT and Hon'ble Delhi High Court in Appellant's own case deleting a similar disallowance in earlier year. Disallowance of depreciation on computer peripherals 28. That on the facts and circumstances of the case, the Learned AO has erred in law and facts in disallowing depreciation amounting to ₹ 8,89,960 on the assets written off. 29. That on the facts and circumstances of the case, Learned AO/DRP erred in law and facts by disallowing a sum of ₹ 8,26,071, by not allowing the depreciation at 60% on printers, routers, UPS SMF battery etc. as they fall under the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeded to benchmark the same. 5. TPO declined the contentions raised by the taxpayer qua expenditure incurred under the head AMP expenses that trade discounts and commissions are not part of the AMP expenses and the trade discount and commissions are not used to undertake AMP activities. TPO found AMP expenditure to sales in case of taxpayer at 6.93% vis- -vis AMP/sales ratio of comparables at 1.20%. AMP/sales ratio of the comparables used by the taxpayer is tabulated as under :- Sl.No. Name AMP/Sales (%) 1 Dhoot Industrial Finance Ltd. 0.06% 2 Intex Technologies Ltd. 5.53% 3 HCL Infosystems Ltd. 0.58% 4 Iris Computers Ltd. 0.48% 5 Kilburn Office Automation Ltd. 1.04% 6 Priya Ltd. 0.06% 7 Rathi Graphic Technologies Ltd. 12.96% 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctions performed by the taxpayer, ld. TPO proceeded to observe that the taxpayer is making serious efforts to market the products of its AEs for which it has developed marketing strategy, identified customers and finally most importantly borne the cost of marketing activities. It is also observed that the taxpayer is making an extremely high level of advertising and marketing expenditure promotion under the head advertisement expenses , discounts and commissions which are 6.93% of the sales. Details of discounts are as under :- Account code Description Amount in Rs. Nature 30050111 Discount on Equipment Sales ORS 8,82,06,873 Rebate or discount given to partners/distributors on sale of Equipments(photocopy machines) based on schemes announced by the company 31100111 Discount on Paper Sales 1,45,58,446 Rebate or discount given to partners on sale of paper based on approved schemes 31200111 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Priya Ltd. 0.06% 7 Savex Computers Ltd. 0.31% 8 SPS International Ltd. 0.38% 9 Spice Mobiles Ltd. 13.71% 10 Tyche Peripherals Ltd. 2.19% 11 Universal Print Systems Ltd. 1.20% Average 1.18% 13. In order to determine the mark-up, the TPO chosen 17 comparables with average of 22.24% which are as under :- Sl.No. Name PBIT/Cost (%) 1 Tamil Nadu Ex-Servicemen's Corpn. Ltd. 9.29% 2 Apitco Ltd. 49.35% 3 Best Mulyankayan Consultants Ltd 12.84% 4 Choksi Laboratories Ltd 29.18% 5 Genins India T P A Ltd. 9.11% 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an international transaction between the taxpayer and its AE and only thereafter ALP of international transactions involving AMP can be computed. 16. Ld. AR for the taxpayer vehemently contended that AMP expenditure is not an international transaction nor any objective findings have been returned by the ld. TPO. When we peruse the findings of ld. TPO in paras 3.5 3.6, the TPO in order to find out whether AMP is an international transaction relied upon section 92F(v) which defines transaction as under :- (v) transaction includes an arrangement, understanding or action in concert,- (A) whether or not such arrangement, 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. 17. Ld. TPO by relying upon section 92F (v) of the Act returned the findings declaring AMP expenditure as an international transaction as under :- The issue of AMP expenditure falls squarely within the definition of transaction as per sec. 92F(v). Hence, there is no infirmity with the action of this office. 18. The ld. AR for the taxpayer further contended that continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no doubt taxpayer uses Xerox logo but all the information in relation to contract address, brand ambassador, product, market and other similar details in the advertisement is confined to India only. So, it cannot be said to promote the Xerox brand world-wide. Moreover, when it is undisputed fact that the taxpayer has not paid any royalty for use of Xerox brand name, incidental benefits, if any, to overseas entity does not call for any compensation for the taxpayer. 23. In case of Valvoline Cummins (P.) Ltd. vs. DCIT (2017) 84 taxmann.com 191 (Delhi), Hon ble Delhi High Court held that mere use of brand name or logo owned by the AEs by the taxpayer will not automatically lead to influence that any expenses that the taxpayer incurred towards AMP was only to enhance the brand by returning following findings :- 17. Once the BLT has been declared by this Court in Sony Ericsson India Pvt. Ltd.(supra) to no longer be a valid basis for determining the existence of or the ALP of an international transaction involving AMP expenses, the order of the TPO was unsustainable in law. The mere fact that the Assessee was permitted to use the brand name Valvoline will not automatically l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t comparables which are not engaged in creation of brand name. In respect of the third company, M/s. Rathi Graphics Ltd., the TPO has observed in the order that it was carrying out AMP activities on behalf of its subsidiaries also. The assessee has not given any arguments to rebut the contention of the AO. Therefore, the assessee's objection regarding rejection of all the three comparables is turned down by the Panel. The assessee has also given a list of its own comparables for determining the brightline . However, all the comparables proposed by the assessee are distributors of branded goods and, therefore, for the reasons mentioned above, such comparables cannot be accepted. However, the Panel, on its own, has carefully examined the functional profile as well as the financials of all the comparables used by the TPO. It has been noted that more than 50% of turnover of M/s Dhoot Industrial Finance Ltd. is from sale of shares. The Panel is, therefore, of the view that it should have not been considered as a comparable. 25. By now, it is settled principle of law that BLT is not a valid method for determining the existence of international transaction or for determination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the existence of an international transaction and thereafter its ALP. 26. Hon ble Delhi High Court in case of Maruti Suzuki India Ltd. vs. CIT (2015) 64 taxmann.com 150 (Delhi) also decided as to how the international transaction qua AMP expenditure is to be determined and as to how the price of international transaction qua AMP expenditure is to be determined by returning following findings :- 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions . Since the reference is to price and to uncontrolled conditions it implicitly brings in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h might show the existence of any arrangement or 'understanding' or any conduct of either party to show that they were acting in concert as far as the Assessee having to promote the brand of the foreign AE is concerned. 28. In case of LE Passage to India Tour Travels (P.) Ltd. (2017) 391 ITR 207 (Delhi), Hon ble Delhi High Court again held that all transactions reporting AMP cannot be treated as international transaction and the fact of each case would have to be examined independently by returning following findings :- 4. This Court is of the view that whilst L.G. Electronics India Pvt. Ltd.(supra) indicated that AMPs were or did constitute the basis for an inquiry into the international transaction and indicated a bright line test for it, Sony Ericsson Mobile Communications India Pvt. Ltd.(supra) overruled that decision. This per se does not mean that every endeavour will be to conclude that all transactions reporting AMPs are to be treated as international transactions, the facts of each case would have to be examined for some deliberations. Whilst the TPO and the DRP undoubtedly held that the international transactions existed - that understanding appa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction or for that matter for calculating the ALP of such transaction. The decision of the Full Bench of the ITAT in L.G. Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1which sought to make BLT the basis was set aside by this Court. 30. In the instant case, there is not an iota of material on the file apart from relying upon the fact that by incurring huge AMP expenses to the tune of 6.93%, taxpayer has enhanced brand value and created intangibles in favour of its AE, no cogent material is there to treat the incurring of AMP expenses as international transactions. TPO has also not returned the finding that how the benefit of AMP expenditure incurred by the taxpayer have benefited AE, no calculation has come on record, so in these circumstances when we discarded the BLT the entire case of ld. TPO/DRP fell flat. 31. In view of what has been discussed above and following the decisions rendered by Hon ble High Court discussed in the preceding paras, we are of the considered view that firstly, there is not an iota of material with ld. TPO to prove the existence of an international transactions involving AMP expenses by the taxpayer. TPO rather proceeded on the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion that the ALP of an international transaction involving AMP expenses, the adjustment made by the TPO/DRP/AO is not sustainable in the eyes of law. At the same time, we cannot ignore the submission of the learned DR that the matter is pending before Hon'ble Apex Court and the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration before the Hon'ble Apex Court is modified or reversed by the Hon'ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon'ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee. CORPORATE GROUNDS GROUNDS NO.26 27 37. AO/DRP have made adjustment of depreciation of ₹ 24,94,155/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no loss to the Revenue. Consequently, the addition of ₹ 24,94,155/- made by the AO/DRP is ordered to be deleted. Hence, ground nos.26 27 are determined in favour of the taxpayer. GROUND NO.28 39. Ground No.28 is dismissed having not been pressed during the course of arguments. GROUND NO.29 40. The taxpayer challenged the disallowance of ₹ 8,26,071/- by AO/DRP on the ground that the depreciation @ 60% on printers, routers, UPS SMF battery etc. is allowable as against 15% depreciation by AO/DRP by treating the same as plant and machinery. 41. Hon ble Delhi High Court in case of CIT vs. BSES Yamuna Power Ltd. in ITA 1267/2010 order dated 31.08.2010 affirmed the findings returned by the Tribunal that computer accessories and peripherals, such as, printers, scanners and server etc. are integral part of the computer system, hence entitled for depreciation @ 60% instead of 15% allowed by the DRP/AO. Consequently, following the decision rendered by the Hon ble Delhi High Court in case of CIT vs. BSES Yamuna Power Ltd. (supra), we are of the considered view that the taxpayer is entitled for depreciation @ 60% on computer accessories and peripher ..... 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