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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 ..... e made, hence liable to be deleted. In view of what has been discussed above, the appeal filed by the taxpayer is allowed. - ITA Nos. 9312/Del./2019 AND Stay No.1092/Del/2019 (in ITA Nos.9312/Del./2019) - - - Dated:- 18-5-2020 - SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER For the Assessee : Shri Nageshwar Rao, Advocate, Shri S. Chakarborty, Advocate For the Revenue : Shri Surender Pal, CIT DR, Ms. Shashi Kajle, Senior DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER: Appellant, Casio India Company Pvt. Ltd. (hereinafter referred to as the taxpayer ) by filing the present appeal sought to set aside the impugned order dated 31.10.2019 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) r/w section 144C of the Income-tax Act, 1961 (for short the Act ) qua the assessment year 2015-16 on the grounds inter alia that :- General Grounds: 1. That the Learned TPO (Ld. TPO')/ Learned Assessing Officer (Ld. AO')/ Hon'ble Dispute Resolution Panel (,Hon'ble DRP') has erred on the facts and circumstances of the case and in law in making adjustment of INR 11,49,17,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and does not constitute an international transaction, disregarding the findings of the Hon'ble Delhi High Court in the case of Whirlpool of India Ltd. 6.3 That, on facts and in law, the Ld. AOI Ld. TPO/ Hon'ble DRP have erred in attributing additional revenues to the assessee from the Exploitation of the intangibles (without prejudice to appellant's contention that expenditure on AMP does not create any non-routine intangibles), without appreciating the fact that all the revenues from exploitation of the intangibles (sales in India) are earned by the assessee only, and that there is no further revenue from the intangibles, which could be attributed to the assessee. 7. That the Ld. AO/ Ld. TPO/ Hon'ble DRP have erred in re-characterization of AMP expenditure incurred by Appellant as rendition of advertisement and brand promotion services to its overseas associated enterprises and without satisfying the criteria of re-characterization as laid out in various judicial precedents. 8. That tile Ld. AO/ Ld. TPO/ Hon'ble DRP disregarding the findings of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd and Sony Ericsson Mobile Communicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO/ Hon'ble DRP have erred on facts and circumstances of the case and in law in holding Residual Profit Split Method ('RPSM') as the MAM for benchmarking AMP spend. 16. The Ld. AO/ Ld. TPO/ Hon'ble DRP have erred on facts and circumstances of the case by considering RPSM as the Most Appropriate Method (UMAM ) given multiple fallacies in application of the method. 16.1 The Ld. AO/ Ld. TPO/ Hon'ble DRP have erred in considering the Appellant's own profitability for undertaking a profit split instead of the combined profits of the group as required for application of PSM. In the absence of reliable information to apply PSM, PSM cannot be applied. 16.2 The first step for computation of non-routine AMP expenses to arrive ct profit split for substantive adjustment using PSM is BLT. Thus, the impugned order errs in retaining PSM based on the BLT even though the same has been held to be unlawful by the Hon'ble Delhi High Court in multiple cases and struck down by Hon'ble ITAT in Appellant's own case for AY 2014-15. 16.3 That on the facts and in circumstances of the case and in law, Ld. AO/ TPO/ DRP have grossly erred in assessment of funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs.26,40,06,099/- which has not been separately benchmarked. Consequently, the TPO proceeded to use Bright Line Test (BLT) and computed the ratio of AMP/Sales in case of tested party as under :- Expenditure on AMP 26,40,06,099 Value of Gross Sales 4,11,33,74,971 AMP/Sales 6.42% 5. The ld. TPO used the BLT to determine the bright line limit i.e. routine advertisement, marketing and promotional expenditure including trade discount and volume rebate, which is no risk bearing distributor as it is not owner of brand name intangibles and as such, not expected to spend to exploit the items of intangible property to which it is provided. So, in order to benchmark the international transactions qua AMP expenditure finally selected two comparables with average AMP/sales ratio of 2.84% which is as under :- S.No. Company name AMP/Sales (%) 1 Ethos Ltd. 1.92% 2 KDDL Ltd. 3.46% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ethos Ltd. 3.29% 2 KDDL Ltd. 11.08% Average 7.19% as against adjusted OP/OI E/A at 6.95% which is as under :- Particulars Amount Operating Income (A) 4,15,69,69,211 Operating Cost (B) 4,01,67,16,997 Less : AMP Expenses (C) 14,88,19,498 Adjusted operating cost (D) = B-C 3,86,78,97,499 Adjusted Operating profit (E) = A-D 28,90,71,712 Adjusted OP/OR E/A 6.95% 9. Since the OP/OI margin earned by comparable is more than the OP/OR earned by the taxpayer, ld. TPO made an adjustment of Rs.26,40,06,099/- being the AMP expenses incurred by the taxpayer on AMP issue. 10. The taxpayer carried the matter before the ld. DRP by filing the objections who has disposed off the objections qua adjustment on account of AMP expenses by primarily relying on the fact that the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier 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 decided by the Hon ble Delhi High Court vide which bright line approach has been discarded. 17. Hon ble Delhi High Court in Sony Ericsson India Pvt. Ltd. v. CIT (2015) 374 ITR 118 (Del.) and subsequently in Maruti Suzuki India Ltd. v. CIT (2016) 328 ITR 210 (Del.) has categorically held that BLT is not a valid basis for determining the existence of international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hesis 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 cannot be treated as separate international transaction which needs separate benchmarking and accordingly we delete the entire AMP adjustment made by the Assessing Officer. 22. So, in view of what has been discussed above and following the order passed by the Tribunal in taxpayer s own case in AY 2010-11, when there is no international transaction no sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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