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TMI Blog2022 (1) TMI 886X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Appellant : Nageshwar Rao and Deepika Agarwal, Advs For the Respondents : Mahesh Shah, CIT-DR ORDER Per N. K. Billaiya, Accountant Member This appeal by the assessee is preferred against the order dated 18.05.2021 framed under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income-tax Act, 1961 [hereinafter referred to as 'The Act']. 2. Grievances of the assessee read as under: 1. On the facts and circumstances of the case and in law, the assessment order/directions passed by Id. AO/Transfer Pricing Officer ( TPO )/DRP are bad in law. 2. On the facts and circumstances of the case, the final assessment order is bad in law in not following the directions of DRP and the appeal effect order passed by the TPO, consequently all further proceedings are also vitiated and invalid in law. 3. Impugned final assessment order dated 18.05.2021 is invalid and void ab initio since the same is not in accordance with the procedure laid down under the provisions of section 144B of the Act. 4. On the facts and circumstances of the case, Ld. DRP has failed to adjudicate critical grounds of objections raised by the assessee. 5. Without prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurrence of sales promotion expenses, the same is merely incidental. 10. On facts and circumstances of the case and in law, Ld. AO/TPO/DRP erred in assuming that AMP expenses incurred by Appellant have led to creation of marketing intangibles by relying on and with reference to irrelevant material and without citing any valid legal basis. 11. Without prejudice to the other grounds, even if AMP is considered as an international transaction, the TPO has himself considered AMP costs as part of Transaction Net Margin Method ( TNMM ) analysis while benchmarking import transaction and the same has been considered to be at arm's length. Without prejudice to the above grounds and the contentions, 12. that AMP/Sales ratio is not a measure of intensity of AMP function, Ld. AO/TPO/DRP failed to take note of companies which had same level of AMP expenses and use the same to apply aggregation approach using TNMM. 13. Ld. AO/TPO/DRP erred in not benchmarking AMP using the adjusted Resale Price Method ('RPM'). 14. Ld. AO/TPO/DRP proposes adjustment to the value of AMP expenses; direct selling expenses should be excluded from the value of such AMP expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Sony Ericsson (supra) holds the field and is fully operational especially in context to Bright Line Test ( BLT ). 27. Without prejudice to all other contentions, if Ld. AO/TPO/DRP proposes adjustment to the value of AMP expenses by BLT; direct selling expenses should be excluded from the value of such AMP expenses. 28. Without prejudice to the above grounds, Ld. TPO/AO/DRP erred in, facts and circumstances of the case and in law in concluding that the assessee has rendered brand building services to its AEs and it should charge markup on cost incurred in rendering such services. 29. Without prejudice to other grounds, that Ld. TPO/AO/DRP erred in making inappropriate selection of comparables for the mark-up on alleged brand building/AMP expenditure while computing adjustment in protective assessment. Further, since the above-mentioned approach has been followed at present only on protective basis, the Appellant reserves all rights in law to raise suitable objections in future, if office of Ld. TPO propose any adjustment to the Appellant's income using Bright Line or any other variant of the same approach. GROUNDS AGAINST ADJUSTMENT IN RELATI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate forums, the benchmarking has been initially done on a protective basis resulting in an adjustment of ₹ 5,61,80,593/- u/s. 92CA of the Income Tax Act, as stated in detail supra.). Accordingly, the Assessing Officer shall enhance the income of the assessee by ₹ 4,90,46,335/-. The Assessing Officer may examine issue of initiation of penalty u/s. 271(1)(c) of the Act in accordance with Explanation 7 of the same. 6. Vide order dated 21.12.2019, post rectification under section 154 of the Act, the AO framed draft assessment order. 7. The assessee raised objections before the DRP. 8. The DRP disposed of the objections of the assessee vide order dated 17.03.2021. The relevant part of the DRP directions read as under: Having considered the submission of the assessee, we find that the issue of AMP adjustment has been a widely debated issue in international tax jurisprudence. The assessee has relied upon certain cases where the Hon'ble Delhi High Court has decided this issue against the Department. The Department has filed SLP against these decisions and the decision of the Hon'ble Supreme Court is awaited. The assessee has merely placed reliance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not reproduced here. As the factual matrix of the case remains same, following the DRP directions issued in A.Y. 2012-13, the findings of, the Ld. TPO/AO are upheld. The objections raised by the assessee are dismissed. The assessee has raised the objection there are certain inaccuracies in the computation of margins of comparable companies selected for calculating the residual PLI to be conferred to AE which ought to be rectified. DRP directs the Ld. TPO to correct the inaccuracies in the computation of margins of comparable companies while determining the proposed adjustment. 9. Pursuant to the directions of the DRP, the TPO passed order dated 26.04.2021 giving effect to the DRP directions as under: Issue Adjustment Amount [Rs.] TPO Order (i) The TPO held that AMP is an international transaction and the same was benchmarked using rPSM method on substantive basis and using BLT method on protective basis. (ii) Interest on receivables 4,85.11,004/- [Substantive Basis) ₹ 5,61,80.593/- Protective Basis] ₹ 5,61,80.593/- [ Protective Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars of income are being initiated separately, 7. Assessed at a total income of Rs. ₹ 10,41,53,180/- as above. Issue Tax and Interest u/s. 234B and 234C have been charged as per tax calculation sheet which forms part of this order. Demand notice, and necessary forms are being issued along with copy of this Assessment Order. Penalty notice u/s. 271(1)(c) is initiated separately. 11. Income of ₹ 10,41,53,180/- is the same as computed in the draft assessment order dated 21.12.2019. Considering the aforementioned factual matrix, we are of the opinion that as per the provisions of section 144C(5) of the Act, directions given by the DRP are binding on the Assessing Officer and in terms of section 144C(13) of the Act, the Assessing Officer was obliged to pass final order of assessment in accordance with the directions of the DRP. In the present case, final order of assessment does not incorporate the directions of the DRP and is verbatim repetition of the draft order of assessment. We are of the view that final order of assessment, in conformity with the directions of the DRP, has to be passed within one month from the end of the month in which the directions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of assessment dated 17/1/2014 has not given effect to or carried out the binding directions of the DRP as required u/s. 144C(10) within the time specified u/s. 144C(13) of the Act; which is a clear violation of the binding provisions of sec. 144C(10) and (13) of the Act. Therefore, in our considered opinion, the conduct of the AO/TPO in passing the impugned final order of assessment dated 17/1/2014 is a clear case of defiance and disregard to the binding directions of the higher authorities, i.e., the DRP in the case on hand. In fact, in the impugned order dated 17/1/2014 there is not even a single reference to the DRP's directions issued u/s. 144C(5) of the Act vide order dated 30/12/2013. 3.3.2 In the factual and legal matrix of the case on hand, as discussed above, we are of the considered view that the impugned final order of assessment for asst. year 2008-09 passed u/s. 143(3) r.w.s. 92CA of the Act by the AO, in violation of the express mandatory provisions of sec. 144C(10) and (13) of the Act by not passing the impugned order in pursuance of and in conformity with the binding directions of the DRP issued u/s. 144C(5) of the Act, within the time specified for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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