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TMI Blog2022 (12) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2012-2013 [ 2023 (3) TMI 656 - ITAT BANGALORE ] has also taken a similar view. Thus, we restore the issue raised to the files of the A.O. with the direction to allow deduction u/s 43B(f) of the I.T.Act with regard to leave encashment on actual payment basis. Not allowed appropriate credit for TDS as claimed - The issue raised is restored to the files of the A.O. to examine the matter and grant TDS credit in accordance with law. - Shri George George K, JM And Shri Laxmi Prasad Sahu, AM For the Appellant : Sri.Ajay Vohra, Advocate. For the Respondent : Sri.Arun Kumar, CIT(TP)-2-DR. ORDER PER GEORGE GEORGE K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 28.07.2022 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2018-2019. 2. The assessee has raised 10 grounds and various sub grounds. Grounds 1 and its sub-grounds are general in nature and no adjudication is called for, hence, the same are dismissed. Ground 10.1 is with reference to levy of interest u/s 234B of the I.T. Act. The levy of interest u/s 234B of the I.T. Act is consequential, hence, ground 10.1 is dismissed. Ground 10.2 is with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses in the nature of sales promotions costs cannot be considered as part of the brand promotion / AMP expense 3.1 The learned DRP / AO/ TPO has erred in law and on facts in considering expenses in the nature of sales promotion as expenses leading to brand promotion as a part of the alleged AMP / brand promotion expenses without due consideration to the Appellant's submissions. 3.2 The learned DRP / AO/ TPO has erred in law and on facts in not considering the several judicial precedents, stating that selling expenses are not in the nature of AMP. Ground No. 4: Alleged DEMPE functions undertaken by the Appellant 4.1 The learned DRP / AO/ TPO have erred in law and on facts in concluding that the Appellant contributes to the development, enhancement, maintenance, protection, and exploitation ( DEMPE ) of the alleged marketing intangible generated by the Appellant as a result of incurring AMP expenditure. 4.2 The learned DRP / AO/ TPO have erred in law and on facts in concluding that the distribution and AMP are two distinctive functions and failed to appreciate the aggregation approach adopted by the Appellant. 4.3 Notwithstanding and without prejudice to the above, the learned D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as erred in law and on facts in not accepting the following company as comparable to the Appellant despite the same passing the comparability criteria of the TPO: a) Best IT World (India) India Private Limited, b) SPS International Limited, c) Computronix Infotech Private Limited; and d) Intex Technologies (India) Limited. Ground No. 8: Other TP related grounds 8.1 The learned DRP / AO/ TPO has erred by not carrying out the determination of arm's length price as required under Section 92C of the Act read with Rule 10D of the Rules. 8.2 The learned DRP / AO/ TPO has failed to appreciate the Appellant's commercial judgment about the application of arm's length principle which is tied to the business realities. 8.3 The learned DRP / AO/ TPO has erred in law and on facts, in making several observations and findings, which are based on incorrect interpretation of law and contrary to facts of the case. Ground No. 9: Corporate tax grounds 9.1 The learned DRP / AO has erred in not granting the deduction of INR 1,55,96,001 towards payments for leave encashment made during the year. 9.2 The Learned NFAC, having noted the correctness of the claim made towards brought forward TDS a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi), the Hon ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT reported in (2015) 374 ITR 118 (Delhi) and directed the A.O. to delete the AMP TP adjustment and the mark up thereon. The relevant finding of the Bangalore Bench of the Tribunal in assessee s own case for assessment year 2012-2013, reads as follows:- 8. We have heard rival submissions and perused the material on record. The issue as to whether AMP expenditure is an international transaction or not was considered by the Delhi High Court in Maruti Suzuki India Ltd. 381 ITR 117 and it was held as under:- Step wise analysis of statutory provisions 62. If a step by step analysis is undertaken of Sections 92B to 92F, the sine qua non for commencing the transfer pricing exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with the ALP and make the transfer pricing adjustment by substituting the ALP f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement with the parent company for this activity. It is urged that merely because MSIL and SMC do not have an explicit arrangement/agreement on this aspect cannot lead to the inference that there is no such arrangement or the entire AMP activity of the Indian entity is unilateral and only for its own benefit. According to the Revenue, the only credible test in the context of TP provisions to determine whether the Indian subsidiary is incurring AMP expenses unilaterally on its own or at the instance of the AE is to find out whether an independent party would have also done the same. It is asserted: An independent party with a short term agreement with the MNC will not incur costs which give long term benefits of brand market development to the other entity. An independent party will, in such circumstances, carry out the function of development of markets only when it is adequately remunerated for the same. 67. Reference is made by Mr. Srivastava to some sample agreements between Reebok (UK) and Reebok (South Africa) and IC Issacs Co and BHPC Marketing to urge that the level of AMP spend is a matter of negotiation between the parties together with the rate of royalty. It is furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage, no TP adjustment can at all be made. Both Section 92CA, which provides for making a reference to the TPO for computation of the ALP and the manner of the determination of the ALP by the TPO, and Section 92CB which provides for the safe harbour rules for determination of the ALP, can be applied only if the TP adjustment involves substitution of the transaction price with the ALP. Rules 10B, 10C and the new Rule 10AB only deal with the determination of the ALP. Thus for the purposes of Chapter X of the Act, what is envisaged is not a quantitative adjustment but only a substitution of the transaction price with the ALP. 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... burden of the Revenue's song is this: an Indian entity, whose AMP expense is extraordinary (or 'non-routine') ought to be compensated by the foreign AE to whose benefit also such expense enures. The 'non- routine' AMP spend is taken to have 'subsumed' the portion constituting the 'compensation' owed to the Indian entity by the foreign AE. In such a scenario what will be required to be benchmarked is not the AMP expense itself but to what extent the Indian entity must be compensated. That is not within the realm of the provisions of Chapter X. 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE 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 AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 374 ITR 118 was followed and it was held that the bright line test followed by the Revenue in making the AMP TP adjustment cannot be accepted. In the present case also, no material is brought on record by the TPO to establish the existence of an arrangement, understanding or action in concert with the AE for incurring the AMP expenses for the benefit of the AE. Merely because the AE has a financial interest, it cannot be presumed that AMP expenses incurred by the assessee are at the instance or on behalf of the associated enterprise. In the absence of any international transaction relating to AMP expenses, the impugned TP adjustment cannot be sustained. Moreover, the TPO having accepted the ALP of other international transactions at the entity level, proceeded to make a separate TP adjustment for the AMP expenses. At para 4.2 of the TPOs order, the TPO has given a finding that the net margins earned by the taxpayer from the product segment is 3.82% and that at the entity level is 7.29%. The margin earned by the taxpayer at the entity level as calculated by the TPO is 2.50%. Hence, no adverse inference dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by comparing the profit and loss account of the tested party with the comparable. As far as MSIL is concerned. its operating profit margin is 11.19% which is higher than that of the comparable companies whose profit margin is 4.04%. Therefore, applying the TNMM method it must be stated that there is no question of TP adjustment on account of AMP expenditure. 11. Respectfully following the above judgment of the Hon ble Delhi High Court, we delete the AMP TP adjustment of Rs. 25,09,60,200 and the mark up thereon amounting to Rs. 3,93,75,655. 8. The facts of the instant case being identical to the facts considered by the Tribunal in assessee s own case for assessment year 2012-2013, we delete the TP adjustment made on AMP expenses. It is ordered accordingly. 9. Since we have deleted the TP adjustment on account of AMP expenses, the specific grounds regarding the comparables and other TP related grounds, namely, grounds 3 to 8 and its sub-grounds have become infructuous and the same are not adjudicated. Ground No. 9.1 (Corporate Tax Issue) 10. In the above ground, the assessee submits that a sum of Rs. 1,55,96,001 is to be allowed as deduction on payment basis u/s 43B(f) of the I.T.A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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