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TMI Blog2023 (3) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the business of manufacturing, marketing and selling of wrist watches and after selling services - HELD THAT:- Assessee provided services in ITES segment. In fact, in the order passed under section 92CA(3) of the Act, the TPO himself has stated that the assessee provides limited IT help desk and support services to the AEs. In spite of such factual position established on record, the TPO has gone forward to re-characterize the assessee as a software development service provider and selected fresh comparables in the software development segment. Unfortunately, Commissioner (Appeals) has also completely misconceived the facts by approving the re-characterization of the assessee. As observed, similar erroneous approach was adopted by the TPO while proposing adjustment to similar transaction with the AEs in assessment year 2011-12. While deciding assessee s objections on the issue, learned DRP accepted assessee s business profile as an IT service provider and directed the AO/TPO to select comparables in ITES segment. However, the TPO again selected comparables providing Knowledge Process Outsourcing (KPO) services. While deciding the issue in appeal, the Tribunal in [ 2018 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY: 2009-10 (Assessee s Appeal) ITA No. 1505/Del/2018 for AY: 2010-11(Assessee s Appeal) 2. The first common issue arising in the aforesaid appeals relates to adjustment made on account of Advertisement, Marketing and Promotion (AMP) expenses, alleged to have been incurred on behalf of the Associated Enterprises (AEs) 2.1 Before us, it is a common point between the parties that the issue is squarely covered by the decision of the Coordinate Bench in assessee s own case in assessment year 2008-09. 2.2 Having considered rival submissions, we find, the Transfer Pricing Officer (TPO) has made the adjustment to AMP expenses by treating it as international transaction coming within the definition of section 92B of the Act and has computed the adjustment applying Bright Line Test (BLT) method. It is observed, while deciding identical issue in assessee s own case for assessment year 2008-09, the Tribunal in order dated 16.11.2021 passed in ITA No. 1502/Del/2018 has held that the transaction relating to AMP expenses will not fall in the category of international transaction. However, the Tribunal restored the issue to the Assessing Officer to decide afresh abiding with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of AMP expenses is not permissible within the framework of Chapter-X as has been held by the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. v. CIT ITA No. 110/2014 710/2015). Hon 'We High Court has categorically held that none of the substantive or procedural provisions of Chapter-X permits adjustment on account of AMP expenses. 24 The taxpayer has contested before Id. DRP that incurring of AMP expenses are not international transactions and BET method has no statutory basis to infer the existence of international transactions qua AMP expenses, however, the Id. DRP has proceeded to hold inter alia that incurring of AMP expenses is an international transaction and directed to exclude the routine selling and distribution expenses and directed the TPO to use the cost plus method and further directed to apply the markup on excess AMP expenses as per sub-clause (ii) of Rule 108(I)(c). 25. However, we are of the considered view that following the decision rendered by Hon ble Delhi High Court in Maruti Suzuki India Ltd. (supra), the first step for the Revenue to benchmark the AMP expenses is to establish the existence of international transaction; if i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of Hon'ble Apex Court would be binding upon all the authorities. In view of the above, we set aside the orders of authorities below and restore the matter to the file of the Assessing Officer. We hold that as per the facts of the case and the legal position as of now and discussed above in this order, the adjustment made by the TPO/DRP/AO in respect of AMP expenses is not sustainable. However, if the above decisions of Hon'ble Jurisdictional High Court which is under consideration. before the Hon'ble Apex Court is modified or reversed by the Hon'ble Apex Court, then the Assessing Officer would pass the order afresh considering the decision of Hon'ble Apex Court. In those circumstances, he will also allow opportunity of being heard to the assessee. 18. Since the aforesaid issues stand covered by the earlier decisions of this Court, no question of law arises for our consideration. 7. It is not in dispute that the case of the assessee has been that the primary engagement of the assessee is in manufacturing operations and the AMP expenditure incurred by it is to the benefit of its operations in India. In the case of the assessee, Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d after selling services. Besides the above, the assessee also provides limited IT help desk and support services to AEs. As far as provision of ITES to the AE, the assessee benchmarked the transaction by adopting Transactional Net Margin Method (TNMM) as, the most appropriate method with operating profit to total cost as the Profit Level Indicator (PLI). The assessee selected 16 comparables in assessment year 2009-10 and 7 comparables in assessment year 2010-11. Since, the margin shown by the assessee in both the assessment years under dispute were within the acceptable range of the average margin of the comparables, the transaction with the AE was claimed to be at arm s length. The TPO, however, did not accept the benchmarking of the assessee. Re-characterizing the assessee as a software development service provider, the TPO rejected the comparables selected by the assessee in the ITES segment and introduced fresh comparables from software development services segment and accordingly, proposed adjustment in both the assessment years under dispute. Based on the adjustment proposed by the TPO, the Assessing Officer made additions in the assessment orders. Though, the assessee prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails at the threshold itself. Consequently, the comparables selected by the TPO under the software development segment, being functionally different, cannot be treated as comparables to the assessee. Thus, we direct the Assessing Officer to delete the additions. ITA No. 2013/Del/2018 for AY: 2009-10 (Revenue s Appeal) ITA No. 2015/Del/2018 for AY: 2010-11 (Revenue s Appeal) 4. The first common issue arising in the appeal of the Revenue relates to deletion of addition made on account of advance written off. 4.1 Briefly the facts are, in course of assessment proceeding, the Assessing Officer noticed that the assessee has debited certain amounts on account of advances written off. Being of the view that the deduction claimed by the assessee does not satisfy the condition of section 36(2) of the Act, the Assessing Officer disallowed the deduction. The assessee contested the disallowance before learned Commissioner (Appeals). Relying upon the decision of the Tribunal in assessee s own case in assessment years 2004-05 and 2005-06, learned Commissioner (Appeals) deleted the disallowance. 4.2 We have considered rival submissions and perused the materials on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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