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TMI Blog2023 (1) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... uch other person and the associated enterprises. In the case under consideration, the AO/TPO did not bring on record exists of any formal or informal agreement between the assessee and AE to share/reimburse AMP expenses incurred by the assessee in India. In absence on any such agreement, the first and primary condition of holding the transaction in question as an international transaction remains to be fulfilled. As the assessee cannot be held liable for expenses incurred on advertising marketing and promotion as an international transaction of AMP, the consequent benchmarking by the Ld. TPO is also not justified. As relying on assessee own case [ 2020 (10) TMI 924 - ITAT MUMBAI] we uphold the finding of the Ld. CIT(A) that AMP expenditure is not an international transaction. The grounds of the cross-objection of the assessee are accordingly allowed. Since, we have already held that AMP expenditure is not an international transaction therefore, adjustment to said transaction for arm's length price is rendered infructuous and no adjustment could have been made. The ground of appeal of the Revenue is accordingly dismissed. - ITA No. 2304/MUM/2021 CO No. 124/MUM/2022 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 152/M/2019 for AY 2008-09, 2009-10 and 2010-11 respectively. 4. Briefly stated facts of the case are that the assessee company is incorporated in India. It is an indirectly wholly owned subsidiary of Mattel Inc., USA and is engaged in manufacturing and sales of 'toys' products of Mattel ground in India. For the year under consideration, the assessee filed return of income on 29.11.2012 declaring total income of ₹ 9,59,73,110/-. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 (in short 'the Act') were issued and complied with. In the assessment order passed u/s. 143(3) r.w.s. 144C(3) of the Act, the Assessing Officer made addition for transfer pricing adjustment of advertising marketing and promotion (AMP) expenses of ₹ 4,80,31,291/- along with disallowance of depreciation on unused plant and machinery of ₹ 1,73,829/-. Further, the Assessing Officer vide order u/s. 154 dated 30.03.2017 rectified the transfer pricing adjustment and added further sum of ₹ 36,86,308/- making the transfer pricing adjustment to ₹ 5,20,17,599/-. 5. On further appeal, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,83,90,35,000 3,77,22,77,000 6,67,58,000 1.74% 5. OK Play India Ltd. 41,58,59,525 44,95,52,125 -3,36,92,601 -8.10% 6. Sanspareils Greenlands Pvt. Ltd. 91,20,16,886 83,44,66,681 7,75,50,206 8.50% Average of comparable selected by TPO 3.34% Mattel India 1,03,92,80,542 43,75,63,542 16,41,93,07 6 15.80% Considering the above the facts of the current year are almost identical to AY 2010-11. Following my predecessor order it is held that no separate adjustment can be made in respect of AMP expenses. In view of the above no separate finding ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2009-10 respectively vide order dated 08/07/2016 already held that AMP expenditure is not an international transaction and hence, no ALP adjustment could be made thereon. This Tribunal had also placed reliance on the decision of the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. vs CIT reported in 64 taxmann.com 150 (Delhi HC). The relevant operative portion of the said tribunal order is reproduced as under:- 7. We have heard the rival submissions and perused the material before us. Before proceeding further, it would be useful to understand the philosophy of the TP provisions. It is said that the purpose and object of introduction of the provisions contained in Chapter X is to prevent an assessee from avoiding payment of tax by transferring income yielding assets to non-residents even while retaining the power to enjoy the fruits of such transactions i.e. the income so generated. The present provisions were been incorporated vide Finance Act, 2001. Same were further amended vide Finance Act, 2002 and are being amended from time to time to meet the new challenges thrown up by the dynamism of the current commercial and business realities. Having regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re incurred by an assessee benefits the AE indirectly it would not mean that it was an IT. The basic purpose of introducing the various provisions of chapter X, as stated earlier, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas AE. In our opinion, a perceived/notional indirect benefit to the AE, due to incurring of certain expenditure by an assessee in India, is not covered by the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and that those parties were located in India. 7.2. In the cases of Bausch Lomb Eyecare(India) Pvt. Ltd(supra), the issue of AMP expenses had been deliberated upon extensively and each and every argument raised by the departmental authorities have been analysed thread bare. We would like to reproduce relevant portion of the said judgment and same reads as under: 53. A reading of the heading of Chapter X['Computation of income from international transactions having regard to arm's length price ]and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP and Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection- with the - benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is any other transaction having a bearing on its profits, incomes or losses , for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part. of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or' 'understanding' between BLI -and B L, USA whereby BLI is obliged to spend exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a- certain target company, There can be no persons acting in concert unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared common Objective' or purpose the idea of person acting in concert is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of persons acting in concert is not about a fortuitous relationship coming into existence by accident or chance. 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 of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement' or an understanding, formal or informal; 'the acquisition of shares etc. may be direct or indirect or the persons acting in concert may c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions , Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly -in-light of the fact that -the-BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT, 70. What is clear is that it. is the 'price' of an international transaction which is required to be adjusted: The very existence of an internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods. In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables' an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found' that there is an International transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g an appropriate method is the second stage of TP adjustments. The first thing is to find out whether the disputed transaction in is IT or not. Without crossing the first threshold second cannot be approached, as stated earlier. In the case under consideration, we are of the opinion that AMP expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. Considering the facts and circumstances of the case under consideration, we are of the opinion that the FAA was not justified in upholding the order of the TPO. Therefore, reversing his order, we decide second ground in favour of the assessee. 5.1. Respectfully following the aforesaid decision of this Tribunal in assessee's own case referred to supra, we hold that the AMP expenditure is not an international transaction and hence no adjustment to ALP need to be made thereon. Accordingly, the grounds raised by the assessee in its cross objections are allowed. Since the issue is adjudicated in favour of the assessee on technical ground, we refrain to give our opinion on the ground raised in the revenue appeal in this regard on merits as the adjudication of the same would become inf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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