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TMI Blog2021 (1) TMI 1266X X X X Extracts X X X X X X X X Extracts X X X X ..... er ("Ld. AO") erred in assessing the income of the Appellant at INR 195,817,1401- as against the returned income of INR 192,663,625/-. 2. That on the facts and circumstances of the case and in law, the impugned order passed by Ld. AO in pursuance to the directions of the Hon'ble Dispute Resolution Panel - II (Hon'ble DRP"), under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act"), is bad in law and void ab-initio. Re: Transfer Pricing Adjustment in respect of Advertisement, Marketing and Promotion Expenses ("AMP Expenses") 3. That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. Transfer Pricing Officer (Ld. TPO") erred in enhancing the income of the Appellant by INR 315,3519/- by making a Transfer Pricing ("TP") adjustment on account of AMP expenses incurred by the Appellant in the regular course of its business on the ground that it was excessive and should be reimbursed by the Associated Enterprises ("AE"). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Sony Ericsson Mobile Communication India Pvt. Ltd. Vs. CIT -III. (ITA No.16/2014) and other appellants in the High Court of Delhi. 3.5 That on the facts and circumstances of the case and in law, Hon'ble DRP has erred in comparing the AMP/GP ratio of the Appellant with that of the comparable companies for the purpose of determining the value of the international transaction of AMP. In doing so, the Hon'ble DRP has applied a bright line test and failed to consider the findings of Sony He order according to which bright line test has no statutory mandate. Re: Disallowance of Selling Expenses 3.6 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 Hon'ble DRP/Ld. AO/Ld. TPO for AMP adjustment are primarily in the nature of at "point of sale expenditure" and thus are in the nature of selling expenses. 3.7 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT, Circle 21 (1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeal sought to set aside the impugned order dated 29.01.2016 passed by the Assessing Officer (AO) in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C / 92CA(4) of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2007-08 on the grounds inter alia that :- "1. Whether the DRP was justified in not appreciating the fact that bright line is a mere step (of the most appropriate method for benchmarking the AMP services) carried out to estimate and bifurcate expenditure pertaining to the taxpayer for its own routine distribution function and the expenditure incurred on AMP service provided to the AE in the situation where the assessee has not reported the international transaction pertaining to marketing function? 2. Whether under the facts and circumstances of the case and in law the Hon'ble DRP was correct in holding that PLR cannot be the basis for computing markup on AMP expenses without appreciating the Revenue's case wherein the PLR of banks has been used as an uncontrolled comparable to benchmark the oppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the taxpayer towards AMP in brand building and marketing of Rayban products in India for which it sought to be compensated with minimum certain amount. In the earlier order dated 27.10.2010, ld. TPO noticed from the annual report of the Associated Enterprises (AE) that sales, gross profit and operating income of AE has been increasing over the past 5 years i.e. from 2003 to 2007 and the benefit of this expenditure incurred on AMP is flowing from the Luxottica Group and thereby held that AMP expenditure of Rs.8.38 crores as an international transaction under section 92B(1) read with clause (v) of section 92F of the Act. 7. Ld. TPO after examining the documents pertaining to trade and channel discount amounting to Rs.3.90 crores and sale of licence of brand of sunglasses amounting to Rs.40.80 lacs considered the AMP expenditure to Rs.4.07 crores and taken this amount for benchmarking its Arm's Length Price (ALP). Ld. TPO discussed the concept of marketing intangibles in the light of the OECD Guidelines. After dealing with the contentions raised by the taxpayer, ld. TPO reached the conclusion that :- "since no independent company operating in completely uncontrolled situa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rections issued by the coordinate Bench of the Tribunal, ld. TPO examined the Agreement dated 22.04.2008. The taxpayer intimated that the taxpayer has not entered into any specific agreement with its AE for undertaking AMP expenses for brands owned by the AEs and the AMP expenditure amounting to Rs.44,733,369 incurred by the taxpayer for AY 2007-08 were incurred for its own business promotion and sale of eyewear products manufactured and imported by it from AEs. The taxpayer further stated that it has only entered into licence distribution agreement with its AE on 22.04.2008. 12. Ld. TPO proceeded to conclude that since the taxpayer has not been able to produce any agreement for the relevant previous year as claimed for before the Tribunal, there is no change in the facts and law regarding the issue and ratified upward adjustment of Rs.4.21 crores made by the ld. TPO vide order dated 22.01.2016 to the income of the taxpayer. 13. The taxpayer carried the matter before the ld. DRP by way of filing the objections who has partly allowed the objections. Ld. TPO passed order dated 22.01.2016 giving effect to the directions of the ld. DRP and computed the AMP adjustment to Rs.31,53,519/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C C S Infotech Ltd. -Trading segment 3.61 1.47 40.76 3.74 4 Priya Ltd. - Electronics segment 14.08 0.03 0.22 16.01 Average 8.58% 0.38% 10.24% 9.56% Tested party 52.06% 5.74% 11.02% 6. Since the ratio of AMP/Sale and AMP /GP is more than the comparables in the case of the assessee, an adjustment is required to be carried out The difference of AMP /GP ratio in the case of the assessee and the comparables comes to 0.78% (being the difference between 11.02% and 10.24%). In the case of the assessee, the quantum of gross profit, of the assessee is Rs.36,90,19,139/-. Considering this value the excess AMP comes to Rs.28,78,349/- (being 0.78% of Rs.36,90,19,139/-). Accordingly as per the directions of Hon'ble DRP, the excess AMP cost is calculated as Rs. 28,78,349/-. 7. For the purpose of determination of the markup on the AMP cost, it is directed by the Panel that the GP ratio of the comparables should be considered. The average GP/COGS ratio of the comparables as shown above is 9.56%." 19. Ld. TPO accordingly proceeded to compute the adjustment on account of AMP as under :- Excess AMP (A) 28,78,349 Mark up (B) @ 9.56% 2,75,170 AMP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Siel Power Products Ltd. vs. DCIT (2016) 327 Taxman 304 held that it is for the Revenue to firstly discharge the onus to prove the existence of international transactions between the taxpayer and its AEs and thereafter the ALP of international transactions only can be computed. In the instant case, there is not an iota of material on the file apart from applying BLT and by taking the view that the taxpayer has incurred huge and excessive expenditure on AMP and sales to the tune of 15% of the total sales, no cogent material is there to treat the incurring of AMP expenses as international transactions. 26. So far as question of applying mark-up of excessive expenses as per sub-clause (ii) to Rule 10B(1)(c) by the ld. DRP/TPO/A0 is concernedly, Hon'ble Delhi High Court in para 178 of Sony Ericsson Mobile Communications India Pvt. Ltd. (supra) held that, "the Revenue's stand in some cases applying the prime lending rate fixed by the Reserve Bank of India with a further mark-up, is mistaken and unfounded, and as such is not sustainable." Ld. DRP however erred in directing the TPO to determine the mark up on the ALP by taking the GP/AMP ratio as laid down by Hon'ble Delhi High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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