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TMI Blog2020 (5) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... t of INR 11,49,17,092 (substantive) and INR 21,25,04,111 (protective) on account of AMP expenses incurred by the Appellant. 2. That the Ld. AO/ Ld. TPO/ Hon'ble DRP have erred in assessing the' income of the Appellant at INR 53,44,80,710 as against the returned income of INR 20,70,59,510/- under the provisions of the Act. Grounds related to validity of proceedings : 3 That on the facts and circumstances of the case and in law, the impugned order passed by ld. AO/Ld. TPO computing the total income at INR 53,44,80,710 is blatantly erroneous since adjustment based on a protective assessment has been added by the Ld AO in computing the total income of the Appellant. While doing so, the Ld. AO has not followed the directions of Hon'ble DRP mentioning that no demand to be computed on protective adjustment. 4. That on the facts and circumstances of the case and in law, the final assessment order passed under section 143(3) read with section 144C of the Income Tax Act, 1961 ("the Act") by the Ld. AO is bad in law as the same is not in accordance with the provisions of the Act. Grounds in relation to treatment of AMP as an international transaction: 5. That on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons India Pvt. Ltd., failed to appreciate that once the appellant has satisfied arm's length basis using Transactional Net Margin Method ("TNMM") i.e. operating margin of the appellant is more than the operating margin of comparable companies, no further separate adjustment for AMP expenditure is warranted. Grounds in relation to Protective adjustment using Bright Line approach 9. The Ld. AO/ Ld. TPO/ Hon'ble DRP have grossly erred in applying Bright Line Test ('BLT') for computing adjustment on protective basis on account of AMP, disregarding the principles laid by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd and subsequently followed in case of Maruti Suzuki India Ltd., which rejected the application of BLT. 10. The Ld. AO/ Ld. TPO/ Hon'ble DRP have erred by not providing set-off against appellant's distribution margins while using the de-bundled approach to benchmark AMP expenditure, as directed by the Hon'ble High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. 11. The Ld. AO/ Ld. TPO/ Hon'ble DRP have erred in quantifying AMP expenses by considering certain s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofile of the Appellant/AE while applying if Other Grounds 17. That on the facts and circumstances of the case, the Ld. AO erred in law and in fact by initiating penalty proceedings under section 271 (1)(c) of the Act." 2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Casio India Company Pvt. Ltd., the taxpayer, a wholly owned subsidiary of Casio Japan, is a distributor of Casio products in India manufactured by its parent company. The taxpayer has been operating in India since 1996 and has established the distribution channel in India for the products like watches, electronic diaries, calculator in India. The taxpayer imports finished goods and spares for further distribution in Indian market which are in the nature of office automation products, such as, handheld calculators, desktop calculators, scientific calculators, printing calculators, data banks, digital diaries, label printers, PDA, wrist watches, digital clocks, digital cameras, electronic cash registers, projectors and electronic musical instruments. For this purpose, the taxpayer places the order directly with Associated Enterprises (AE) which undertakes the responsibility of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances should have charged a mark up on this amount for the money spent and for the service element and consequently identified the average profit margin returned by the entities providing market support functions with average Operating Profit/Operating Cost (OP/OC) at 15.62% of 12 comparable companies and thereby proceeded to hold that the taxpayer company should have been compensated by the AE at Rs.14,72,86,256/- plus mark-up at 15.62% for undertaking AMP activities purely for AEs for which it was creating marketing intangibles and computed the net adjustment at Rs.17,02,92,370/- and proposed the adjustment thereof on protective basis. Ld. TPO adopted segregated approach treating the AMP expenses as a separate international transaction to determine the ALP. 8. Ld. TPO then proceeded to Residual Profit Split Method (RPSM) as the taxpayer has incurred AMP expenditure to the tune of 6.42% vis-à-vis 3.58% as comparable companies for which AE has not reimbursed the taxpayer for the excess AMP expenditure incurred by it. Ld. TPO in order to compute the ALP OP/OI on account of two companies as comparables with average OP/OR at 7.19% computed as under :- S.No. Company na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sustainable by the coordinate Bench of the Tribunal in taxpayer's own case in ITA No.8060/Del/2018 for AY 2014-15 vide order dated 24.01.2019. 15. Undisputedly, this is a case of AMP adjustment in case of pure distributor. It is also not in dispute that in case of the taxpayer, AMP adjustment has been a legacy issue and the ld. DRP decided the same on the basis of earlier year order by taking defence that Revenue has already filed the Special Leave Petition before the Hon'ble Supreme Court. It is also not in dispute that the ld. DRP mentioned in para 3 of its order that during AY 2014-15, the matter as to whether routine AMP spent is an "international transaction" is pending before the Hon'ble Supreme Court for final decision and thereby upheld AMP adjustment made by the AO. 16. We have perused the aforesaid order dated 24.02.2019 passed by the coordinate Bench of the Tribunal having identical issue, which the ld. DR for the Revenue has opposed on the sole ground that the enforcement of protective adjustment would depend on final outcome of the decision of Hon'ble Supreme Court in case of CIT vs. Sony Ericsson Mobil Communication India Ltd. reported in (2015) 55 taxman.com 240 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the Tribunal vide order dated 22.04.2019 passed in ITA No.1764/Del/2015, available at page 484 of the paper book, held that the Revenue has failed to prove that AMP expenditure by the taxpayer is a separate international transaction by returning following findings :- "29. The entire finding and approach of the TPO and DRP has been purely based on hypothesis and one of the agreement entered in the earlier year for a limited period of six months and this has been stated to be a material so as to determine that there was an international transaction qua AMP expenditure in this year. Such a presumption based on said agreement cannot be inferred in this year at all as, firstly, it was for a very limited period in one of the earlier year as stated above; and secondly, each year has to be seen independently and if no such material act is permeating then presumption cannot be drawn for perpetuity. Thus, Revenue has failed to bring on record any material or any kind of arrangement existing between the AE and Assessee Company that there was separate international transaction with regard to AMP expenditure. Thus, on the facts and circumstances of the case, we hold that AMP expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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