9911796707
TMI Blog2022 (2) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2013-14 [ 2020 (9) TMI 341 - ITAT MUMBAI] would be applicable for the year under consideration also and accordingly, we direct the ld. TPO to delete the ALP adjustment made in respect of AMP expenditure. Accordingly, the Grounds raised by the assessee in this regard are allowed. ALP adjustment made in relation to import of finished goods (i.e. pringles) - tested party for benchmarking the international transaction of import of finished goods - HELD THAT:- We find that the assessee had to carry on multiple functions as detailed above in order to market the imported Pringles in India. We find that the Singapore AE is remunerated on mere cost plus mark up basis and undertakes only limited functions. Hence we hold that for all practical purposes, Singapore AE would be the least complex entity. The statute requires that tested party selected should be the least complex party. Moreover, the main basis for rejection of the Singapore AE as tested party by the ld. TPO was in view of the fact that the financials of AE as well as foreign comparable companies were not produced before him. This fact has been found to be incorrect as the assessee had indeed furnished the financials of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/2018 respectively for the A.Y. 2014-15. 2. The Ground No. 1.1 and 1.2, raised by the assessee is with regard to Arm's Length Price (ALP) adjustment made in respect of Advertisement, Marketing and Promotional (AMP) expenses incurred by the assessee on the pretext that the assessee company had benefitted the Associated Enterprise (AE) by incurring the said expenditure. 2.1. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in manufacturing and sales of breakfast cereals and convenience foods and it operates as a licensed manufacturer of ready to eat cereals. At the outset, both the parties before us fairly stated that this issue has been already decided in favour of the assessee by this tribunal in earlier years upto Asst Year 2013-14. We find that the ld. TPO and ld. DRP had relied on their respective findings recorded for the Asst Year 2013-14 which goes to prove that the facts involved in those years are identical with the facts involved during the year under consideration. Accordingly we deem it fit and appropriate to reproduce the relevant operative portion of the order of this tribunal passed for the Asst Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent would constitute international transaction. In the above background, Ld. TPO proceeded to determine the ALP of the same using other method since the assessee could not submit benchmarking information as called for by Ld. TPO. 3.4 In working out TP adjustment, Ld. TPO computed mean AMP expenditure as percentage of sales of two comparable entity as 12.33% and applying the same to the assessee's turnover, proposed TP adjustment of ₹ 4585.16 Lacs in its order dated 28-10-2016. In other words, the Ld. TPO chose to benchmark the same primarily by using Bright Line Test (BLT) method. The working of the adjustment has been provided in para-18 of Ld. TPO's order. The TP adjustment, thus proposed, were incorporated in draft assessment order dated 29-12-2016 which were subjected to assessee's objections before Ld. DRP. 3.5 The Ld. DRP confirmed the TP adjustments primarily relying upon the directions given by predecessor DRP in AY 2012-13. It is evident from para 4.6 of Ld. DRP's order that facts of the case as well as the arguments raised by the assessee for the year under consideration are stated to be same as for AY 2012-13. Aggrieved as aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brand value of Kellogg. Thus, the Transfer Pricing Officer has inferred that there is an arrangement between the assessee and the AE with regard to promotion of the brand of the AE by incurring AMP expenditure. However, he has not provided any factual basis on which he has drawn such inference. By merely stating that there is an arrangement between the assessee and the AE, the Transfer Pricing Officer cannot bring the AMP expenditure within the purview of international transaction. If the Transfer Pricing Officer alleges that the AMP expenditure comes within the purview of international transaction by virtue of an arrangement between the related parties, the burden is entirely upon the Transfer Pricing Officer to demonstrate the existence of such arrangement. A careful reading of the impugned order of the Transfer Pricing Officer does not reveal any such factual basis which can demonstrate the existence of an arrangement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE. That being the case, the entire approach of the Transfer Pricing Officer in determining the arm's length price of AMP expenditure is fallacious. 7. Moreover, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deal with the contention of the learned Departmental Representative to restore the issue to the Assessing Officer for keeping it pending till the issue is settled by the Hon'ble Supreme Court. In our view, the aforesaid contention of the learned Departmental Representative is not acceptable. As per the prevailing legal position, the AMP expenditure incurred by the assessee in India cannot come within the purview of international transaction. That being the case, the adjustment made by the Transfer Pricing Officer cannot survive. Therefore, we do not find any necessity to restore the issue to the Assessing Officer. Grounds are allowed. The aforesaid decision has subsequently been followed by another coordinate bench in assessee's own case for AY 2011-12 in revenue's appeal ITA No. 1906/Mum/2016 and also in assessee's appeal for AY 2012-13 ITA No. 2314/Mum/2017; common order dated 24-2-2020. 4.2 It was observed by the bench in AY 2009-10 that the assessee was not merely a distributor of the products manufactured by its AE but the assessee itself was manufacturing its own products in India under license from the AE. Further, with a view to market and promote its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by way of additional grounds. As the facts relevant for adjudication of this additional ground are already on record, we are inclined to admit the same and take up for adjudication. 3.1. We find that during the year under consideration, the assessee was engaged in manufacturing and sales of breakfast cereals and convenience foods and operated as a licensed manufacturer of ready to eat cereals. During the year under consideration, the assessee had commenced business of distributing Pringles products in the Indian markets. The assessee purchases the pringles product from its AE Pringles International Operations SARL, based in Singapore. The undisputed facts are that the Singapore AE does not manufacture pringles, but in turn gets it manufactured from a third party contract manufacturer. Thereafter, the goods are supplied at a cost plus mark up of 5% on third party manufacturer's cost. These Pringles are later imported by the assessee from its AE and distributed in the Indian market. The ld. TPO had also stated that the AE cross charges the transportation costs to assessee without any mark up. In the Transfer Pricing (TP) study report, the assessee characterised itself as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Operating Expenses excluding Import of Pringles B (3,691,948) ALP margin C 4.33% ALP profit D=A*C 1,331,498 ALP for import of pringles E=A-B-D 28,455,940 Price actually paid F 41,616,139 Proposed Adjustment G = F-E 13,160,199 3.4. This action of the ld. TPO was upheld by the ld. DRP. However, considering that AMP expenses were also disallowed in the hands of the assessee, the ld. DRP deleted the adjustment proposed in import of pringles as the operating profit margins of assessee company post disallowance of AMP expenses was at ALP. However, the ld. DRP noted that in case the adjustment on account of AMP is deleted by the tribunal, the adjustment on account of import of finished goods i.e. Pringles would be sustained. Accordingly, in the final assessment order dated 29.10.2018, there was no adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Contra, the ld. DR reiterated the stand taken by the ld. TPO and ld. DRP and vehemently argued that the foreign AE cannot be taken as the tested party in view of the fact that the said AE is in Singapore and that the comparable companies are not stationed in Singapore and were located in different countries. The ld. AR in rebuttal argued that the assessee had carried out regional benchmarking and identified comparables based in Asia Pacific Region and this practice has been considered by the co-ordinate bench of Delhi Tribunal in the case of Ranbaxy Laboratories Ltd. vs ACIT in ITA No. 196/Del/2013 for Asst Year 2008-09 dated 25.04.2016, wherein the Delhi Tribunal had relied on the Advance Pricing Agreement (APA) entered into by that assessee u/s. 92CC of the Act on 7.8.2015 with CBDT for Asst Year 2014-15. In the said APA, the CBDT had accepted the selection of comparables based on regional benchmarking in case country-by-country benchmarking is not feasible and in the appendix to APA, CBDT has agreed to benchmark South African, Ireland and Romania AEs benchmarking region as Europe; in case of Nigeria, Malaysia and Morocco, the regional benchmarking has been accepted of Asia; in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparable uncontrolled transaction. RPM measures a value of functions performed and is appropriate in cases involving purchase and resale of tangible goods/services in which the buyer/reseller does not add substantial value to the goods by physically altering them. As per Rule 10B(1)(b) of the Income Tax Rules, TPM begins with the price at which a product has been purchased from AE is resold to an independent enterprise. The resale price is then reduced by an appropriate gross margin representing the amounts out of which the reseller would seek to cover its selling and other operating expenditure and in the light of the functions performed. Hence in case of RPM being applied, what is required to be compared is only the gross margins earned by the assessee vis a vis the gross margins earned by the comparable companies. Hence the ld. AR alternatively argued on without prejudice basis, that even if all the comparables chosen by the ld. TPO are considered and benchmarking is done using RPM as MAM, then still the assessee would be through as the gross margins earned by the assessee at 47% (Refer page 608 of paper book filed before us) are much more than gross margins of comparable compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
