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TMI Blog2021 (5) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... le income of Rs.85,69,74,660/-. The case was selected for scrutiny and first notice u/s 143(2) dated 30.09.2016 was issued and served on the assessee. It was noticed that assessee had undertaken international transactions amounting to Rs.152 crore with Associated Enterprises (AE) and thereafter in accordance with the provision of Section 92CA of the I.T. Act, the international transaction and specified domestic transactions entered by the assessee to its AE was referred to TPO to determine the Arm's length price (ALP). The TPO vide order passed u/s 92CA-(3) dated 29.03.2018 suggested following adjustments: Nature of International Transaction Adjustment u/s 92CA suggested by TPO AMP Services Rs.12,16,92,066/- On protective basis AMP Services Rs.12,71,08,610/- On substantive Basis 4. The AO thereafter in the draft assessment order u/s 144C of the Act dated 22.12.2018, after considering the additions proposed by TPO, proposed to assess the total income of the assessee at Rs.111,98,84,050/-. 5. Against the draft order dated 22.12.2018 passed u/s 144C of the Act by the AO, assessee filed objections u/s 144C(2) of the Act before the DRP. The DRP vide order dated 05.08.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AE. (v) AE is directly benefitted by any expenditure incurred by assessee on AMP. (vi) AE directs the AMP strategy and the expenditure incurred by appellant in India. (vii) Legal ownership of the marketing intangible would get transferred to the AE without any consideration on termination of the distribution agreement; (viii) Appellant has failed to furnish any material to demonstrate that it enjoyed economic ownership of brand. (ix) Appellant has failed to show that for excessive AMP expenditure it was compensated by the AE through a set-off. 5. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transaction of AMP was "closely linked" with the main activity carried on by the appellant and hence it cannot be segregated and benchmarked on a stand-alone basis. 5.1 That on facts and in law the AO/TPO/DRP erred in holding that there is no suitable comparable available for benchmarking the alleged "international Transaction" of incurring excessive AMP expense by applying the aggregated approach. 6. That on facts and in law DRP erred in holding that appellant has not been able to substantiate benchmarking of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application of the Brightline Test for benchmarking the AMP expenditure has been rejected by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. It was further submitted that the benefit of the AMP expenditure accrue to the assessee only and so expenditure was wholly and exclusively for assessee's business and therefore no disallowance u/s 37(1) was possible and the AMP expenditure cannot be considered to be equivalent to brand building. The TPO did not accept the contentions of the assessee. The TPO thereafter proposed AMP adjustment of Rs.12,71,08,610/- on Substantive basis. He also proposed adjustment of Rs.12,16,92,066/- under protective basis. When the matter was carried before DRP, DRP noted that AMP adjustment was a legacy issue in the assessee's case and the Hon'ble Delhi High Court has decided the issue against the Revenue but Revenue has filed SLP before the Hon'ble Apex Court. It was noted by DRP that for A.Y. 2007-08 the Hon'ble High Court has decided the issue against the Revenue in ITA No.535/2014 order dated 15.04.2015 and the department has filed SLP. With respect to A.Y. 2009-10, it was noted that ITAT, Delhi had dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er hand supported the order of TPO and DRP. 11. We have heard the Learned DR and perused the material available on record. The issue in the present ground is with respect to the TP Adjustment on account of AMP Expenses. We find that identical issue arose in assessee's own case in earlier years and while deciding the issue in A.Y. 2014-15, the Coordinate Bench of Tribunal vide order dated 8th March, 2021 in ITA No.7376/Del/2018 observed as under: "18. We have given thoughtful consideration to the orders of the authorities below and have carefully considered the decision of the Hon'ble High Court and the Tribunal. We find force in the contention of the ld. counsel for the assessee. Similar quarrel was there before the Tribunal in ITA No. 1811 and 7691/DEL/2017 A.Y 2012-13 and 2013-14. We find that the Tribunal had the benefit of considering all the agreements relied upon by the TPO in his order. Relevant findings read as under: "2.5 The assessee entered into an agreement with M/s Amadeus Spain on 1st October, 2004. The main activity of the assessee is to provide connectivity to the subscribers in India to the host the CRS system by creation/ modification/up-gradation of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales 231,73,07,014 231,73,07,014 Rs AMP/Sales of the Comparables 1.48% 1.48% Amount that represent bright line 3,42,96,144 3,42,96,144 Rs Expenditure on AMP by assessee 94,31,24,844 94,31,24,844 Rs Expenditure in excess of bright line 90,88,28,700 90,88,28,700 Rs PLI 11.69 % 26.42% Markup 24,01,12,542 10,62,42,075 Rs Cumulative addition 114,89,41,243 101,50,70,775 Rs 2.8 Being aggrieved by the above proposed transfer pricing adjustment, the assessee filed detailed objections before the Ld. DRP. The Ld. DRP, while referring to decision of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications reported in 374 ITR 118(Del), has examined the contentions put forth by the assessee before it as under:- Sub Grounds of Appeal summarized as per issue from Form 35A Sony Ericsson High Court order dt.16March, 2015 Re-characterization of expenses incurred for own business as a service para to AE is not justified Upheld at Para 64 page 48 of 142 service para 147, page 111 The burden is on the assessed to select and justify the method adopted and the arm's length price declared under sub-section (3) to section 92C, the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty analysis should be appropriate and reliable so as to include the AMP functions and costs. The Ld.AO/Ld.TPO has selected inappropriate comparables AMP is a separate function. An external comparable should perform similar AMP functions. [Paras 165 & 166]; For determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses, should be chosen (Paras 194(i), (ii), (viii) & others); The AO/TPO can reject a method selected by the assessed for several reasons including want of reliability in the factual matrix or lack / nonavailability of comparables (see Section 92C(3) of the Act). Page 138 When the AO/TPO rejects method adopted by assessed, he is entitled to select MAM, and undertake comparability analysis. Selection of method and comparables should be as per the command and directive of the Act and Rules and justified by giving reasons. The choice of comparables cannot be restricted only to domestic companies using any foreign brand (para 120);If no comparables having performed both the functions in a similar manner are available, then, suitable adjustment shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operational for the year under consideration. We, therefore, concur with the reasoning given by the coordinate Bench for A.Y. 2009- 10,wherein, it is held as under:- "8. We have considered the submissions made by the parties and have also perused the material available on record. Undisputedly, the main data processing and subsidiary distribution activities of the appellant have been held to be at the arm's length price applying the transactional net margin method. Provision of the information technology enabled services to associated enterprise under the agreement has been thoroughly benchmarked by the Transfer Pricing Officer. Most appropriate method being the transactional net margin method has not been doubted and after an in-depth analysis of comparable companies selected by the appellant and by tinkering with the same the learned Transfer Pricing Officer has given a finding that OP/OC of the assessee is 20.27 per cent and OP/OC of revised comparable set is 23.94 per cent. No adjustment made on this account has been made as the difference is within + five per cent range. The learned Transfer Pricing Officer, however, has segregated the advertisement, marketing and promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also under challenge before us. Hence, it cannot be said that necessary facts are not on record. With regard to the submissions of the learned Departmental representative that the issue of advertisement, marketing and promotion expenses be restored back to the file of the learned Transfer Pricing Officer, we would like to state that since facts necessary to determination are on record the law laid down by the honourable jurisdictional High Court has to be given effect to. It is not even the argument of the learned Commissioner of Income-tax (Departmental representative) that any fresh fact is required for such a determination. Under the circumstances, a direction for remand is not called for. The honourable jurisdictional High Court in various cases have highlighted the tests to be applied for ascertaining whether there exists a transaction for brand promotion in a particular case. The learned authorised representative has impartially summarised the relevant propositions from these decisions in his note, which we have reproduced above. We find that in the cases of Maruti Suzuki India Ltd. v. CIT [2015] 64 taxmann.com 150/[2016] 237 Taxman 256/381 ITR 117, CIT v. Whirlpool of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise; or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.' Thus, under section 92B (1) an 'international transaction' means- (a) a transaction between two or more associated enterprises, 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and SMC as regards advertisement, marketing and promotion spend for brand promotion. In other words, for both the "means", part and the "includes" part of section 92B(1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC.' In Whirlpool of India Ltd. [2016] 381 ITR 154 (Delhi), the court interpreted the expression 'acted in concert' and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Co. Ltd. v. Jayaram Chigurupati [2010] 157 Comp Cas 380 (SC) ; [2010] 6 MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy group. The question that was examined was whether at the relevant time the appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy' were 'acting in concert' within the meaning of regulation 20(4)(b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In paragraph 44, it was observed as under (page 408 of 157 Comp Cas): 'The other limb of the concept requires two or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, the Revenue's attempt at recharacterising the advertisement, marketing and promotion expenditure incurred as a transaction by itself when it has neither been identified as such by the assessee or legislatively recognised in the Explanation to section 92B runs counter to the legal position explained in CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 (Delhi) which required a Transfer Pricing Officer 'to examine the "international transaction" as he actually finds the same'. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc. holds 99.9 per cent. of the share of the assessee will not ipso facto lead to the conclusion that the mere increasing of the advertisement, marketing and promotion expenditure by the assessee involves an international transaction in that regard with B&L, USA. A similar contention by the Revenue, namely that even if there is no explicit arrangement, the fact that the benefit of such advertisement, marketing and promotion expenses would also enure to the associated enterprise is itself sufficient to infer the existence of an international transaction has been negatived by the court in Maruti Suzuki India Ltd. [2016]381 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent under Chapter X, equally it cannot be permitted in respect of advertisement, marketing and promotion expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the advertisement, marketing and promotion spend of the assessee on application of the bright line test, is excessive, thereby evidencing the existence of an international transaction involving the associated enterprise. The quantitative determination forms the very basis for the entire transfer pricing exercise in the present case. . . . The problem with the Revenue's approach is that it wants every instance of an advertisement, marketing and promotion spend by an Indian entity which happens to use the brand of a foreign associated enterprise to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to section 92B of the Act. The problem does not stop here. Even if a transaction involving an advertisement, marketing and promotion spend for a foreign associated enterprise is able to be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) ; [2002-TIOL-587-SC-IT-LB] and PNB Finance Ltd. v. CIT [2008] 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a transfer pricing adjustment exercise. As already mentioned, merely because there is an incidental benefit to the foreign associated enterprise, it cannot be said that the advertisement, marketing and promotion expenses incurred by the Indian entity was for promoting the brand of the foreign associated enterprise. As mentioned in Sassoon J. David [1979] 118 ITR 261, 276 (SC) 'the fact that somebody other than the assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under section 10(2)(xv) of the Act (Indian Income-tax Act, 1922) if it satisfies otherwise the tests laid down by the law'." 8.2 On a careful consideration of the facts on record we are of the opinion that there is nothing on record to show that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transfer pricing valuation, therefore, would be mandated at that time. The international transaction could then be made a subject matter of transfer pricing and subjected to tax." 8.3 As held above, the appellant has raised objections before the learned Dispute Resolution Panel that none of the above clauses of the agreement make it mandatory for the appellant to incur the brand promotion expenses for and on behalf of the associated enterprise. The learned Dispute Resolution Panel has not disturbed these objections but has upheld the case of the learned Transfer Pricing Officer on some other grounds, i.e., (i) by relying upon the Special Bench decision in the case of L. G. Electronics India (P.) Ltd. v. Asstt. CIT [2013] 29 taxmann.com 300/140 ITD 41 (Delhi - Trib.) [SB] ; (ii) by holding that since the appellant is a dependent agency permanent establishment of its associated enterprise hence all the expenses on advertisement, marketing and promotion are being incurred by it for the benefit of the associated enterprise, and (iii) by relying upon the amended provisions of section 92B. We do not find any substance in the above approach of the learned Dispute Resolution Panel. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketing and promotion expenses . . . . As already mentioned, merely because there is an incidental benefit to Whirlpool, USA, it cannot be said that the advertisement, marketing and promotion expenses incurred by WOIL was for promoting the brand of Whirlpool, USA. As mentioned in Sassoon J. David [1979] 118 ITR 261 (SC) 'the fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under section 10(2)(xv) of the Act (Indian Income-tax Act, 1922) if it satisfies otherwise the tests laid down by the law." 8.4 Considering the material facts like the absence of an agreement, arrangement or understanding between the appellant and its associated enterprise for sharing the advertisement, marketing and promotion expenses or for incurring the advertisement, marketing and promotion expenses for the sole benefit of the associated enterprise, payments made by the appellant under the head "advertisement, marketing and promotion" to the domestic parties cannot be termed as an "international transaction" specifically when the learned Transfer Pricing Officer has not been able to prove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er pricing adjustment of Rs. 75,40,09,515/- on account of Advertising, Marketing and Sales Promotion Expenses (AMP Expenses) relying upon the decisions of this Court including the decision in Bausch & Lomb Eyecare (India) Pvt. Ltd. v. Additional Commissioner of Income Tax (2016) 381 ITR 227(Del). 4. As far as the above issue is concerned, it is covered by the earlier decisions of this Court against the Revenue. This Court is not inclined to frame any substantial question of law on this issue." 21. This order was again followed by the Hon'ble High Court in ITA No. 901 of 2019 order dated 16.10.2019. The relevant findings read as under: "3. The Revenue is in appeal to assail the order dated 27.02.2019 passed by the Income Tax Appellate Tribunal, Delhi Bench 'I', New Delhi. We are concerned with ITA 1662/Del/2016 relevant to the assessment year 2011-12 in respect of the Respondent assessee. The Tribunal has rejected the said appeal. On the issue of Transfer Pricing Adjustment on account of AMP expenses, the Tribunal relied upon the Coordinate Bench decision in the Respondent assessee's own case for the assessment year 2010- 11 which has been upheld by this Court in ITA 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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