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TMI Blog2020 (8) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessing officer erred on facts and in law in making transfer pricing adjustment of Rs.17,29,19,161 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as 'the AMP expenses') incurred by the appellant. 3. That the DRP/TPO erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 928, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 4. That the DRP/TPO erred on facts and in law in holding that there exists an international transaction in connection with incurring of AMP expenses without placing on record any tangible material or evidence to substantiate the existence of such transaction. 5. That the DRP/TPO erred on facts and in law in holding that valuable marketing intangible has been created by the appellant in India in favor of the associated enterprises. 6. That the TPO/DRP erred on facts and in law in holding that there exists an international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice (ALP) and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure. 13. That the DRP/TPO erred on facts and in law in not appreciating that by virtue of long term right to use the 'Suzuki' brand in India, the appellant has gained economic ownership of the said brand. 14. That the DRP/TPO erred on facts and in law in not appreciating that adjustment on account of allegedly excess AMP expenses is not warranted in the case of the appellant, a full risk bearing entrepreneur. 15. That the TPO erred on facts and in law in holding that the associated enterprise is benefiting from the AMP expenses incurred by the appellant on account of royalty, sale of goods etc. not appreciating that such transactions have been separately bench marked and accepted to be at arm's length. 16. That the TPO erred on facts and in law in holding that the associated enterprise is benefiting from the AMP expenses on account of development of brand without appreciating that the associated enterprise is not selling any goods directly in the Indian market. 17. That assessing officer erred on facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r :- S. No. Nature of International Transaction Amount in INR Most Appropriate Method 1. Import/Purchase of component/raw material Transactional Net Margin Method ('TNMM') 1.1 Import of components/consumables 8425780 1.2 Purchase of raw material and component 4625788711 2. Sale of motorcycle/scooters 9644921 3. Sale of components 14990823 4. Purchase of manufacturing machineries, tools and equipments 4591533 5. Royalty payment 97559309 6. Supervision fee paid 2 7380184 7. License fee paid 170776 8. Reimbursement of expenses to AEs 33383056 9. Recovery of expenses from AEs 386045879 10. Rent paid 18792582 11. Salary of deputed employee paid 14317532 12. Repair and Maintenance paid 76700 13. Director's remuneration paid 12102309 14. Purchase of traded motorcycle 100026522 3. Ld. Transfer Pricing Officer (TPO) accepted the benchmarking analysis of international transactions made by the taxpayer to be at arm's length except disputing the Advertisement, Marketing and Promotion (AMP) expenses incurred by the taxpayer for the products having brand name of Suzuki and proceeded to carry out the benchmarking analysis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so directed the TPO to verify the margin of the comparable companies for the purpose of computing adjustment. After DRP order, AO computed the adjustment at Rs.17,29,19,161/- on account of AMP expenses. Feeling aggrieved, the taxpayer has come up before the Tribunal by way of filing the present appeal. 8. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case. 9. Undisputedly, the taxpayer is a manufacturing entity and its AMP/sales ratio is 6.23% as against 2.29% of the comparables by applying the BLT. It is also not in dispute that the AE has compensated the taxpayer with an amount of Rs.32,42,62,780/- on account of expenditure made by it. Ld. TPO also applied the mark up of 15.43% of AMP expenses by using the BLT over and above the AMP expenses computed on the basis of comparable analysis. Ld. TPO consequently reached the conclusion that the taxpayer has incurred huge amount in excess of the Bright Line limit in order to promote the brand and trademark of its AE which is required to be compensated. 10. Ld. TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid facts and circumstances of the case, the sole question arises for determination in this case is :- "as to whether Revenue has discharged its onus of proving the international transactions between the taxpayer and the AE and as to whether existence of international transactions can be inferred merely on the basis of BLT? 15. Coordinate Bench of the Tribunal in taxpayer's own case for AY 2010-11 (supra) decided this issue by returning following findings :- "10. Hon'ble Delhi High Court in Maruti Suzuki India Ltd. v. CIT (2016) 381 ITR 117 (Del.) has decided the identical issue of AMP expenses in case of manufacturing entity in favour of the assessee by distinguishing Sony Ericsson India Pvt. Ltd. vs. CIT - (2015) 374 ITR 118 (Del.) case wherein the assessee has not disputed the existence of international transaction qua its AMP expenses. So, in case of assessee, being a manufacturing entity, ratio of Sony Ericsson India Pvt. Ltd. (supra) cannot be applied. At the same time, in Sony Ericsson India Pvt. Ltd. (supra), Hon'ble High Court has held that BLT has no statutory mandate and considering the excess expenditure beyond the bright line as an international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit but for the benefit of its AE. So, when the factual foundation i.e. BLT method to determine the existence of or the ALP of international transactions involving AMP expenses is held to be not sustainable, the entire adjustment made by TPO/DRP/AO is not sustainable. 15. In view of what has been discussed above, we are of the considered view that following the series of decisions rendered by Hon'ble Delhi High Court discussed in preceding paras, when the taxpayer has disputed the existence of international transaction qua its AMP expenses the Revenue has failed to discharge its initial onus to prove on the basis of tangible material that there exists an international transaction qua incurring of AMP expenses between the taxpayer and its AE or that the taxpayer and its AE have acted in concert by way of any agreement as to incurring of international transactions qua AMP expenses. 16. So, when the BLT method adopted by the TPO incurring the AMP expenses by following the ratio of LG Electronics India Pvt. Ltd. (supra) decided by Special Bench of the Tribunal, has been held to be not legally sustainable by the Hon'ble Delhi High Court in series of judgments discussed in precedin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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