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TMI Blog2023 (4) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... an Advertising Limited - We find that the assessee s main stream of revenue is for providing services pertaining to advertisement on radio, television and public relation. The same prima facie cannot be compared with the profile of the assessee s business support services. Since the matter needs fresh examination, we restore the issue to the AO / TPO to consider whether Pressman Advertising Limited s profile is the same as that of the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... ity) and the Honourable DRP-l, Bengaluru ("AO", "TPO" and DRP collectively referred as "lower authorities" for brevity) are bad in law and liable to be quashed. GROUNDS RELATING TO TRANSFER PRICING (TP) - LEGAL ISSUES 2. The learned AO has erred in: a) Making a reference for the determination of the Arm's Length Price of the international transactions to the TPO without demonstrating as to why it was necessary and expedient to do so. b) Passing the order without demonstrating that the Appellant had any motive of tax evasion. c) Not appreciating that there is no amendment to the definition of "income" and the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in raw. GROUNDS RELATING TO TP ADJUSTMENT WITH RESPECT TO ADVERTISEMENT, MARKETING, PROMOTION ('AMP') EXPENSES 3. The lower authorities have erred in making transfer pricing adjustment of Rs. 27,32,19,9091- towards AMP expenses. 4. The lower authorities have erred in: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search Services & Solutions Ltd. • Scarecrow Communications Ltd. (vi) Charging mark-up on excess AMP expenses, which is not supported by any provision under the Act or Rules. 7. Without prejudice to above, the learned TPO has erred in incorrectly computing the operating profit margins in case of the comparables selected by him. 8. The Hon'ble DRP has erred in upholding the action of the TPO / AO of segregating the AMP expenses incurred by the Appellant into routine and non-routine and observing that non-routine AMP expenditure is towards Development, Enhancement, Maintenance, Protection and Exploitation ("DEMPE") functions. requiring compensation from AE without placing any evidence on record to demonstrate that there is a transaction as envisaged in section 92F(v) of the Act. GROUNDS RELATING TO TP ADJUSTMENT WITH RESPECT TO BUSINESS SUPPORT SERVICES SEGMENT 9. The lower authorities have erred in making transfer pricing adjustment of Rs.24,41,647/- for the business support services segment. 10. The lower authorities have erred in: (i) Adopting inappropriate filters like persistent loss making, RPT filter etc. in the process of selecting c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R submitted that when the net profit margin is tested on touchstone of ALP under TNMM, it presupposes that the various components of income and expenditure considered in the process of arriving at the net profit are also at arm's length. In support of the above submission, the learned AR relied on the order of the Bangalore Bench of the Tribunal in assessee's own case in IT(TP)A No.205/Bang/ 2021 for assessment year 2015-2016 (order dated 18.04.2022). The learned AR also submitted that the above order of the Tribunal was followed later by the Bangalore Bench of the Tribunal in assessee's own case for assessment year 2016-2017 in IT(TP)A No.206./Bang/2021 (order dated 14.07.2022). 8. The learned DR was unable to controvert the submissions of the learned AR. 9. We have heard rival submissions and perused the material on record. We find on identical facts, the Tribunal in assessee's own case for assessment year 2015-2016 and 2016-2017 (supra) had decided the issue raised in grounds 4(v) and 4(vi) in favour of the assessee. The relevant finding of the Tribunal for assessment year 2015-2016, reads as follows:- "8. We have heard the rival submissions and perused the materials on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the comparables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible." 9. The coordinate bench of the Tribunal in the case of Himalaya Drug Company (supra) has held that for the AMP expenses to fall under the category of 'international transaction' the revenue should show that there existed an agreement between the assessee and its AE in the matter of incurring AMP expenses. We notice that in assessee's case the revenue has not shown that there is any agreement in place between the assessee and the AE with regard to incurring AMP expenses. The Hon'ble Tribunal has also held that when the MAM for the entire international transaction is accepted by the TPO, no separate adjustment is required to be done for AMP expenses. The Hon'ble Tribunal has held that - 34. We notice that the co-ordinate bench has, following various decisions, held that the revenue has to first show that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functions of its AE" 11. For the year under consideration, the issue for consideration is treating the AMP expenses as a separate transaction from the distribution segment and making TP adjustment for the same. The Ld AR submitted that whether AMP expenses is a separate international transaction is not contended in the year under consideration and prayed that the decision rendered by the coordinate bench on this specific count need not be applied in the year under consideration. 12. Considering the ratio laid down by the Hon'ble Delhi High Court in the case of Sony Ericsson mobile communication India Private Limited (supra) and the other decisions of the coordinate bench of the Tribunal, with respect to treating AMP expenses as a separate transaction when the TPO has not otherwise rejected the gross margin and the net margin of the assessee, we hold that there is no separate adjustment to be made in respect of AMP expenses. The appeal is allowed in favour of the assessee." 10. Since the facts of the instant case are identical to the facts considered by the Tribunal for assessment year 2015- 2016, we hold that when the TPO has not rejected the gross margin and the net margi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, since it is engaged in the business of providing market research services and the company offers wide range of quantitative and qualitative research services. The learned AR relied on the order of the Bangalore Bench of the Tribunal in assessee's own case for assessment year 2016-2017 (supra) and contended that the above company has been excluded from the comparable list, and since, the profile for the relevant assessment year 2017-2018 is same, the same needs to be excluded. 18. The learned DR supported the orders of the TPO and the DRP. 19. We have heard rival submissions and perused the material on record. The relevant extract of the annual report of Majestic Research Services & Solutions Limited for the year ending 31.03.2017 are placed in PB-I from pages 1097 onwards. On perusal of the same, we find that the said company is functionally not compatible with that of the assessee as the company is engaged in the business of providing marketing research services and offers wide range of qualitative and quantitative research services. The TPO has taken the data for the assessment years 2015-2016, 2016- 2017 and 2017-2018 for computing the ALP. This is on the basis tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the material on record. The relevant extracts of the annual report of the company, Scarecros Communications Limited is placed on record at page 1124 and 1131 of the PB-I submitted by the assessee. On perusal of the same, it is clear that the company renders services pertaining to advertisement on radio, television and public relations, which is different from the business of support services rendered by the assessee. The Tribunal in assessee's own case for assessment year 2016- 2017 (supra) had excluded the company from the list of comparables, since it was functionally incompatible with that of the assessee. The relevant finding of the Tribunal for assessment year 2016-2017 (supra), reads as follows:- "20.4 Scarecrow Communications Ltd. 20.4.1 We have considered the submissions advanced by both sides in the light of records placed before us. This company is rendering service pertaining to advertisement in radio and television and public shows which are different from the business support service rendered by the assessee. Pages 315- 316 of Paper Book Vol. I gives the details of revenue generated by this comparable. Further, this comparable is rendering services not on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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