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TMI Blog2021 (5) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by the Appellant in the regular course of its business on the ground that it was excessive and should be compensated by the Associated Enterprises ("AEs"). 3. That on the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the transfer pricing adjustment made by the Ld. TPO without giving due consideration to the objections raised by the Appellant against the said adjustment. Re: No Transaction much less than an International Transaction 3.1 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO erred in assuming that the AMP expenditure incurred by the Appellant is an "international transaction" within the meaning of the term as contained in section 92B of the Act (including the explanation to section 92B) without appreciating that the AMP expenses incurred by the Appellant is a function performed by the Appellant for the purpose of sales of goods in India. 3.2 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO erred in holding that the AMP expenditure incurred by the Appellant is an international transaction by relying upon the decision of the Son ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO have erred in using modified Transactional Net Margin Method ("TNMM") to determine the arm's length nature of the alleged international transaction by comparing the net margin earned by the Appellant with adjusted net margins of comparable companies ("intensity adjustment"), without giving any reasons for rejecting the RPM method used by the Appellant which has been upheld as the most appropriate method for determination of arm's length price of import of finished goods by the order of Hon'ble High Court in Appellant's own case for AY 2009-10. 3.9 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO have erred in not considering that even if intensity adjustment is to be performed to determine the ALP of the alleged AMP transaction, the same should be performed on the gross profit margins of comparable companies while applying the RPM selected by the Appellant. 3.10 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO have erred in using intensity adjustment to adjust the net profit margin of comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of BLT approach as the very concept of protective assessment is only relevant where there is an ambiguity regarding the assessee in V. whose hands income is chargeable to tax. 4.1 That on the facts and circumstances of the case and in law, Ld. AO/Ld. TPO have grossly erred in not following the directions issued by Hon'ble DRP to eliminate routine selling expenses for L the purpose of computing the AMP expense incurred by the Appellant. 4.2 That the Hon'ble DRP/Ld. AO/Ld. TPO grossly erred in facts and in law in by not appreciating that the AMP expense considered by the Ld. TPO for computing the adjustment using BLT approach are primarily in the nature of at "point of sale expenditure" and thus are in the nature of selling expenses. 4.3 That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO failed to appreciate that ambit of "selling expenses" is not only limited to trade discount/volume discount, rather, any expense(s) which have been incurred for the purposes of enhancing sales will fall under the purview of "selling expenses". Re: Errors in computation of the adjustment while applying the approach of "intensity adjustment" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is likely to be challenged in the higher forum. For the sake of ready reference, the relevant part of the order of the ld. DRP is reproduced as under: "h. TPO has concluded that the intensity of AMP spend expressed as an AMP/Sales ratio is much higher than that of the comparables. But, the Assessee is not suitably compensated for this additional function. This situation is also covered by example 10/BEPS report [G-20 (Action Plan 8-10)]. The example concludes that an entity, performing functions and incurring marketing expenditure substantially in excess of the level of function and expenditure of independent marketer/distributor/manufacturer in comparable transactions, is required to be compensated and the appropriate tax administration must propose a transfer pricing adjustment based on such compensation for such AMP activity performed. Such adjustment may be consistent with what Independent enterprises would have earned in similar transactions. i. In view of the discussions supra, it is held that the International Transaction on account of AMP does exist. The same calls for examination to determine ALP. Resale price method cannot be invoked in this case due to wide scope o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied as the most appropriate method. Later on, the TPO went with the TNMM as the most appropriate method. The Tribunal noticed that the main business of the assessee was to carry on trading of sunglasses and frames. The goods purchased were sold without making any value addition. It was, therefore, held that RPM was the most appropriate method in preference over the TNMM. The Hon'ble High Court did not interfere with the view taken by the Tribunal. It is, therefore, manifest that the application of the RPM as the most appropriate method has been finally approved for the A.Y. 2009-10. However, a significant factor which cannot be lost sight of for the A.Y. 2009-10 is that instead of making any AMP intensity adjustment in the profit rate of comparables, the TPO considered AMP expenditure as a separate international transaction and determined its ALP independent of the ALP of the international transaction of purchase of material from its AE. As such there was no need to subsume the AMP function in the determination of the ALP of the international transaction of purchase of material. But in so far as the facts for the extant year are concerned, it is patent that the AMP functio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the AMP transaction and directed that for the purpose of comparability, the comparable should be identified in such a way that they are carrying out marketing and distribution function and the comparables should have comparable intensities of expenses incurred for sales and marketing and in the case of the assessee. The Ld. TPO computed the adjustment under AMP according to the manner proposed by the Hon'ble Delhi High Court in the case of Sony Ericsson (supra) on substantive basis at Rs. 19,80,30,988/- and also proposed addition on protective basis following the BLT method amounting to Rs. 131,21,90,000/-. 3.2 Against the adjusted proposed by the ld. TPO, the assessee before the Ld. DR, the assessee filed objections before the Ld. DRP. The Ld. DRP directed to verify the segmental account and other arithmetical errors/factual mistakes to allow certain expenses out of AMP. In view of the directions of the Ld. DRP, adjustment was revised. A table revising the adjustment both on substantive as well as protective basis by the Assessing Officer in the impugned final assessment order is reproduced as under: On Substantive Basis S. No. Nature of International Transaction Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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