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TMI Blog2022 (6) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Appellant : Surender Pal, CIT-DR For the Respondents : Nageswar Rao and S. Chakarborty, Advs ORDER Per Dr. B. R. R. Kumar , Accountant Member The present appeals have been filed by the Revenue as well as the assessee against the orders of the ld. CIT(A)-42, New Delhi dated 28.02.2019. 2. Since, the issues involved in all these appeals are identical, they were heard together and being adjudicated by a common order. 3. In ITA No. 4069/Del/2019, following grounds have been raised by the Revenue: 1. Whether on the facts and circumstances of the case, the ld. CIT(A) is legally justified in not treating AMP expenditure as International Transaction without appreciating the arguments of the TPO in para 3.1 to para 10 of order and when the Hon'ble ITAT has held AMP expenditure as an International Transaction in assessee's own case for A.Y. 2011-12 in ITA No. 1197/Del/2016 dated 27.03.2019. 2. Whether on the facts and circumstances of the case, the ld. CIT(A) is justified in issuing direction to include the four comparables which were already rejected by the TPO by giving proper reasoning in his order. 4. In ITA No. 4517/Del/2019, follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c.) for the purpose of computing AMP expenses. 1.7 Without prejudice, on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in applying an arbitrary mark-up to be determined, having regard to the average return earned by the entities engaged in providing marketing support services. 1.8 Without prejudice, the Hon'ble CIT(A) has erred by not appreciating the basic concepts, mechanism and the methodology and guidance for applying the intensity based comparability adjustment and thereby not passing a speaking order. 1.9 That, the Hon'ble CIT(A) and the Learned Assessing Officer ( AO )/Learned TPO has erred in law and on facts while arbitrarily isolating outstanding trade receivables arising from the international transaction involving sale of goods to AEs and thus recharacterizing such outstanding receivables as a loan extended to AEs. 1.10 Without prejudice, the Hon'ble CIT(A) and the Learned AO/TPO has erred in not appreciating that any interest due on account of outstanding payments is already embedded in the sale price of goods/services sold to AEs. 1.11 Without prejudice, the Hon'ble CIT(A) and the Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation furnished, the AO concluded the assessment proceedings by issuing the order under section 143(3) of the Act on 09 April 2013, thereby making an addition of INR 36,14,92,303/- to the income of the Appellant against which brought forward losses of INR 16,74,76,243/- was set off resulting in Nil income. The additions made were on account of the following: Particulars Amount ( in INR) Total income/( loss) return of income declared by the Appellant in ( 194 , 016 , 060 ) Add: Transfer Pricing adjustment AMP Expenses Mark- up- Rs. 36 , 12 , 24 , 752 /- Interest on Receivables Rs. 2 , 67 , 551 /- 361 , 492 , 303 Total 167 , 476 , 243 Set off brought forward losses 167 , 476 , 243 Total Assessed assessment order income/( loss) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale of products was spearheaded by the AE having 74% share in JV, it indicated that the marketing effort undertaken by the Appellant was at the behest and under the control of its AEs. The TPO, thereafter contended that such efforts created a marketing intangible in favour of the AE and in that sense was an international transaction that needed to be benchmarked. The TPO observed that the liquor companies resort to surrogate advertising by brand building through the launch of mineral water soda. Further, TPO added that some companies also launch cassettes and CDs while others offer coasters, bottle openers and whiskey glasses. Thus, TPO concluded that such advertising, which is not product specific, develops the marketing intangible in the form of strong brand. As per TPO, the fact of carrying out high intensity of AMP activities was itself a proof that there existed an arrangement between the assessee and the AE, that compelled the assessee to carry out this level of expenditure, which in terms of section 92B(1) read with section 92F(v) of the Income-tax Act, 1961 ( Act ) was an international transaction that needed to be benchmarked. TPO also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction of AMP expenses does not take place between two AEs. The AMP expenses incurred by the Appellant represent a domestic transaction and are undertaken with the third parties which are not covered under the definition of international transaction within the purview of Section 92 of the Act. Analysis of such domestic transactions undertaken with third parties, in respect of which, no reference has been made by the AO to the TPO is beyond the powers vested with the TPO under Section 92CA of the Act. Accordingly, the aforesaid addition made by the TPO is invalid and liable to be quashed. The distribution agreement between the Appellant and its AE confirms that 100 percent of the advertisement, marketing and promotion expenses will be borne by the AE (itself), and therefore in line with the distribution agreement, the Appellant has received reimbursement of advertisement expenses from its AE which has been duly reported in the form 3CEB as well as benchmarked in the transfer pricing report. 12. During the proceedings before the ld. CIT(A), the TPO was specifically asked to list out the FAR analysis to showcase the carrying out of DEMPE functions. In this reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re being incurred by the Appellant involves promotion of AE's brand and thus, the Appellant's marketing efforts results in creating marketing intangibles in India and therefore, the Appellant must receive an appropriate return for such marketing efforts. The Appellant has through its efforts developed local marketing intangibles by i. Promoting AE's brand and creating awareness among Indian customers ii. Developing and maintaining network of sub-directors, dealers, retailers and other business partners. iii. Creating customer awareness and loyalty by advertisement, organizing events, exhibitions, trade shows, and conferences etc. 13. The aforesaid observations of the TPO were confronted to the appellant by the ld. CIT(A). The submission of the appellant is that, The alleged AMP expenditure are incurred by the Appellant for pushing sales of its products; Quantum or intensity of an expenditure per-se cannot be presumed to be expenditure incurred for the promotion or development of brand. Bacardi - one of the world most recognizable and valuable brands. The Appellant is not undertaking any brand building efforts for the AE's Brands, ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strative list, but significantly it does not list AMP spending as one such specific transaction. The settled position emerging out of various decisions of judicial authorities including jurisdictional Delhi High Court is that for a 'transaction' there has to be involvement of two associated entities and the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between two entities whereby one is obliged to spend excessively on AMP in order to promote the brand of other entity. The courts have held that it is important to demonstrate that the parties were acting in concert . Further, there can be no persons acting in concert unless there is a shared common objective or purpose between two or more persons. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal. The ld. CIT(A) held that the TPO mainly relied on the TP study report that the appellant is engaged in brand buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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