9911796707
TMI Blog2024 (11) TMI 1017X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 - Appeal of the revenue is hereby dismissed. - Shri Waseem Ahmed, Accountant Member And Shri Keshav Dubey, Judicial Member For the Assessee : Shri Ajay Vohra, Sr. Advocate And Shri Karan Dhanuka, Advocate For the Revenue : Ms. Neera Malhotra, CIT (DR) ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER : This is an appeal filed by the revenue against the order passed by the CIT, Bengaluru - 12 dated 30/01/2024 in DIN No.ITBA/APL/S/250/2023-24/1060262432(1) for the assessment year 2016-17. 2. The revenue has raised following grounds of appeal: i. Whether the Hon'ble CIT(A) has erred on facts and law, in holding that AMP expenses is not covered under the definition of the international transactions when as per the amended provisions of section 92B(l), mere fact that service or benefit has been provided by one party to the other would by itself cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinuous business with foreign AE may not compel the assessee to do excessive expenditure for promotion and benefits of foreign brand and whether that desire and compulsion cannot be equated with the existence of unwritten agreement between both the parties especially in view of the transfer pricing provisions' being anti abuse. ix. Whether the prohibition for using the trademark of the supplier with its own commercial name mandated by foreign AE/supplier can be equated to a written agreement for,. promotion of foreign brand. 3. The only effective issue raised by the revenue is that the learned CIT-A erred in deleting the upward TP adjustment on account of AMP expenses. 4. The assessee i.e. HPISPL is a subsidiary of Alpha Holding One BV (99.99%) and providing range of technologies products and services to Indian consumers, enterprises, and education market. The assessee predominantly imports computers and computer peripheral from its AE for resale in India. The traded goods include commercial PCs, workstations, storage solutions servers, Printers, supplies etc. The assessee is also in distribution of laptops, monitors, projectors, and peripheral products. 5. The assessee durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in assessee's own case for assessment year 2012-2013, dated 18-08-2022 is extracted as under: 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 for the contract price. 63. A reading of the heading of Chapter X [ Computation of income from international transactions having regard to arm's length price ] and Section 92 (1) which states that any income arising from an international transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 further suggested that it might be necessary to examine whether in other jurisdictions the foreign AE i.e., SMC is engaged in AMP/brand promotion through independent entities or their subsidiaries without any compensation to them either directly or through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules 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 should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial 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 drawn by the TPO in respect of the distribution segment results. Thus, the TPO has accepted the entity level margins earned by the assessee but proceeded to make TP adjustment on AMP expenses. The Hon ble Delhi High Court in Sony Ericsson Mobile Communica ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
