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TMI Blog2023 (10) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Erred in making an addition of Rs. 143.56 crore to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustments in the arm's length price (ALP') of the alleged international transactions undertaken by the Appellant. Presumption of fictitious transaction in the nature of provision of brand promotion services' since AMP is not an international transaction 2. Erred in alleging that the AMP expense incurred by the Appellant is an international transaction under Section 92B of the Act. 3. Erred in ignoring that the Appellant has not rendered any service to the Associated Enterprises (AEs) and hence erroneously treating and categorizing AMP expense incurred by the Appellant on its own behalf, as an international transaction of the nature of provision of brand promotion services between the Appellant and AEs under Section 92B of the Act: 4. Failed to appreciate the fact that AMP expenses were incurred wholly and exclusively' for purpose of business of the Appellant in India and no benefit was passed on to the AE and hence, there should not be any reimbursement of such expenses to the Appellant; 5. Erred in ignoring that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / cannot be construed as an international transaction which warrants a separate adjustment; 12. Erred in artificially bifurcating the Appellant's entrepreneurial business activities into manufacturing and distribution segment without any cogent reasons for the same and arbitrarily and in an adhoc manner selecting comparable companies for manufacturing and distribution segment without adopting a scientific search process for applying bright line test ('BLT') using 'Other Method to determine the arm's length price of the AMP expenses incurred by the Appellant; Business and commercial expediency 13. Erred in holding that the Appellant incurred AMP expenses for promoting the brands owned by overseas AE, instead of appreciating that the Appellant was only carrying out its business by using the well-established brands and any benefit derived by the AE is purely incidental; 14. Erred in ignoring that the advertisements by the Appellant are product advertisements to enable higher sales of the products in the Indian market and not brand advertisements for or on behalf of the AE. Most appropriate method 15. Without prejudice to the above, erred in applyi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99.99% equity shares and remaining 0.01% equity shares is held by Holdial, France which is a subsidiary of L'oreal France. L'oreal group is of French origin and headquartered in France and has its subsidiaries in around 130 countries. The assessee company is mainly engaged in the business of manufacturing of cosmetic products and marketing and sales of cosmetic products manufactured by the assessee and imported from overseas associated enterprises (AE). It is observed that the assessee company which is a subsidiary of L'oreal SA is an entrepreneur licensee for the Indian market where key decisions with respect to the business in India is taken and bears the entrepreneur risk in India. It is also said that the assessee received all residual profit/losses from the sale of goods in India after paying royalty, goods and services suppliers including AE suppliers. The assessee filed its return of income for the impugned year dated 29.11.2018, declaring total income of Rs. 3,97,16,77,100/-. The assessee's case was selected for scrutiny only for the reason of TP risk parameter. The assessee's case was referred to the TPO who passed an order u/s. 92CA(3) of the Act dated 28.07.2021, pursuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been challenged by the Revenue before the Hon'ble Jurisdictional High Court and since the said orders have not attained finality, the same cannot be relied upon. The ld. DR relied on the orders of the lower authorities. 10. We have heard the rival submissions and perused the materials available on record. The ld. DRP in its finding has stated that ground nos. 1 to 20 pertaining to the international transaction in the nature of provision of brand promotion service AMP expenditure incurred by the assessee was a recurring issue which was there in the earlier years where the DRP in those cases have rejected the objections raised by the assessee. The ld. DRP relied on the findings of the ld. DRP in A.Y. 2015-16 which has concurred with the finding of the TPO that the expenses incurred in malls and retail outlets for sales were in the nature of advertisement and brand promotion and further stated that the said expenses was to maintain the brand value of L'oreal and rejected the assessee's contention that these were in the nature of selling expenses, expenses towards customer relation, maintenance which includes photo shoot, BSP, salary, etc. and was also for animations, promotional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roof of arrangement between the assessee and the AE which has not been corroborated by any other evidence to conclude the impugned transaction to be for the benefit of AEs. The assessee's contention that the impugned expense related to marketing was only for the benefit of the assessee and not for the AEs holds merit. It is observed that the Tribunal in its earlier years have decided this issue in favour of the assessee by holding that the same does not amount to international transaction and that there was no arrangement between the assessee and its AE pertaining to the AMP expenses. The relevant extract of the decisions in ITA No. 1198/Mum/2021 and 802/Mum/2022 for the A.Y. 2016-17 and 2017-18 vide order dated 29.06.2022 are cited hereunder for ease of reference: 6. We have heard learned Departmental Representative and perused the record. We noticed that the issue of primary adjustment relating to AMP expenses and secondary adjustment on account of training, saloon, promotional goods have been deleted by the Coordinate Bench in assessee's own case with following observations :- "9. Ground No. 2 to 18 relates to adjustment on account of advertisement and marketing expenses (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO in his order has not examined whether or not the method adopted by the appellant to determine the Arm's length price (ALP) is the most appropriate method and has instead concluded that the payments for trademark and technical know-how royalty are excessive in nature (page 176 of appeal memo) (iv) Accordingly, the TPO has exceeded his jurisdiction by making an addition to the international transaction of payment of royalty for technical know-how and trademark. In this regard, the appellant relies on the Judgment of Bombay High Court in the case of CIT Vs. Lever India Exports Ltd. (78 taxmann.com 88) (copy enclosed as Annexure1) (v) Without prejudice to the above, it is submitted that the TPO has proposed the royalty adjustment, inter alia on the basis of AMP spend of the Appellant (page 141 and 142 of the appeal memo). Therefore, in the event it is held that AMP does not constitute an international transaction, then this adjustment would not survive. (vi) In this connection, a reference may be made to Para 20 on Page 33 of ITAT order for AY 2013-14, wherein an alternate adjustment for the distribution segment (based on AMP) was deleted by the ITAT on the ground that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 7 and 8)]. These have been examined by TPO in remand proceedings and no fault is found with the same [Refer remand report on Page No. 498 to 535 of Paper book (Volume 1)] 4. Accordingly, the Appellant submits that considering that no adverse comments are provided by the TPO as well as the DRP, the said transaction should not be remanded back to the file of the AO/DRP as it would tantamount to giving a second inning to the Department and taking advantage of its own wrong. 5. In this regard, reliance is placed on the following judicial precedents: - Kansai Nerolac Paints Ltd. Vs Deputy Commissioner of Income-tax, [2014] 49 taxmann.com 208 (Bombay High Court) (Copy enclosed as Annexure 3); - K. Rajiv v. Additional Commissioner of Income-tax, [2018] 98 taxmann.com 418 (Madras High Court) (Copy enclosed as Annexure 4). 6. Further, it may be noted that in AY 2011 -12, the ITAT has remanded the issue of marketing support services availed to the DRP since additional evidences were submitted before the ITAT. However, in the year under consideration, all evidences which are filed before the ITAT were filed before the lower authorities and the TPO has himself examined them in reman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, that they have benefited the Appellant and were necessary. He has only made a vague allegation that cost justification in a third- party situation needs to be established. (Refer remand report on Page No. 535 of Paperbook Volume 1) 5. Accordingly, the Appellant submits that the said transaction should not be remanded back to the file of the AO / DRP as it would tantamount to giving a second inning to the Department and taking advantage of its own wrong. 6. In this regard, reliance is placed on the following judicial precedents: - Kansai Nerolac Paints Ltd. Vs Deputy Commissioner of Income-tax (supra); -K. Rajiv v. Additional Commissioner of Income-tax (supra) 7. Further, it is humbly submitted that Transfer Pricing officer allowed identical expenses in earlier years and subsequent years of AY 2015-16 and AY 2016-17 after detailed scrutiny. 10 Per contra, learned Departmental Representative relied upon the orders of the authorities below. 11. Upon careful consideration we hold as under :- As regards the adjustment on account of AMP expenses in manufacturing segment the ITAT has decided the issue in favour of the assessee. In this regard, we may refer to ITAT order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement between the assessee and the AEs for sharing the expenses and the payments made by the assessee for the expenses of AMP. The TPO has also not brought any fact on record that there exist any agreement between the assessee and its AE to share or reimburse the AMP expenses. Moreover, we have seen that there is no material change in the facts for the year under consideration. Therefore, considering the above factual discussions and the decision of the coordinate bench of Tribunal for A.Y. 2008-09 to 2010-11, on the identical issue the ground No. 2 to 21 of the appeal is allowed." We thus in terms of our aforesaid observations, finding ourselves to be in agreement with the view taken by the Tribunal in the assessees own case for A.Y 2012-13 viz M/s L'Oreal India Pvt. Ltd. Vs. ACIT-7(1)(2), Mumbai [ITA No. 1417/Mum/2017; dated 30.01.2019], therefore, respectfully follow the same. Accordingly, being of the considered view that as the revenue had failed to discharge the onus that was cast upon it as regards proving that there was any 'understanding' or an 'arrangement' or 'action in concert' as per which the assessee had agreed for incurring of AMP expenses fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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