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TMI Blog2020 (10) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction is established by the learned transfer pricing officer, question of determination of its arm s-length price does not arise. Therefore respectfully following the decision of assessee s own case we also hold that the approach of the learned transfer pricing officer of determining ALP of international transaction of incurring of higher AMP expenditure cannot be benchmarked either on Bright line test bases or on transactional net margin method unless first it is established that there existed an international transaction. Accordingly all the grounds of the appeal of the assessee relating to the transfer pricing adjustment from ground number 2-15 are allowed. - Shri Bhavnesh Saini, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Himanshu Sinha, Adv Ms. Vvindha, Adv Mr. Bhuvan Dhooper Adv Shri Yash Varmani, Adv. For the Revenue Shri H. K. Choudhary, CIT DR. ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by Yakult Danone India Private Limited [Assessee/ Appellant] against the order of The Deputy Commissioner Of Income Tax, Circle 27-2, New Delhi (Ld AO) dated 16.01.2017 for the Assessment Year 2012-13 passed u/s 143 (3) r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of adjustment in arm s length price ( ALP ) of the alleged international transaction pertaining to Advertisement, Marketing and Promotional ( AMP ) expenditure entered into by the Appellant with its Associated Enterprise ( AE ) 4. The Ld. TPO/ AO/Hon ble DRP have erred in holding AMP expenditure as a separate international transaction under section 92B of the Act and assuming jurisdiction to determine the ALP thereof, when such expenditure represents only domestic transactions with unrelated parties and does not satisfy the requisites of being an international transaction under section 92B read with section 92F(v) of the Act 5. On the facts and in circumstances of the case and in law, even if the word 'transaction' is given its widest connotation, the Ld. TPO/AO/DRP have failed to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between the appellant and its AE as regards AMP spend for brand promotion; 6. That on the facts and circumstances of the case and in law, the Ld. AO/Hon ble DRP/Ld. TPO have erred in not appreciating the benefit arising from incurrence of AMP expenses by the Appellant has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e separately identified iii. Ignoring the fact that an internally generated brand name is not an iv. not giving due consideration to the fact that the company is into its startup phase of operations and have incurred heavy advertising and sales promotion v. questioning the commercial expediency of the Appellant Corporate tax Ground of Appeals 16. That on facts and in laws, the Ld. AO erred in holding that the appellant has furnished inaccurate particulars of income in respect of each item of disallowance/ additions and in initiating penalty proceedings under section 274 read with section 271 (1) (c) of the Act. 5. The assessee deals in manufacturing and sale of probiotic milk in India. It is the sole manufacturer of Yakult groups products in India and performs all business functions relating to sale of such products as identifying customers, negotiating purchase terms, arranging the necessary resources, undertaking sales promotion activities etc. it has entered into five different international transactions during the year of purchase of raw material and packing material, stores and spares. It is also paid royalty. These transactions were benchmarked adopting Transactional Net Marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as product offered by the assessee is a niche product. The learned TPO rejected all the explanations of the assessee and selected four comparables whose margin of AMP/sales is 0.83 percentage. He noted that assessee has advertisement and sales promotion expenses of Rs. 95,571,222 which is 57.44% of sales of the assessee, Whereas the bright line of all the four comparable selected is 0.83 percentage and the arm s length price of AMP expenditure is only ₹ 1,380,974/- and therefore, the assessee has incurred excessive AMP expenditure of ₹ 94,190,248. He applied a markup of 12.06% on that of RS 105,549,592. Accordingly applying the bright line test he determined the AMP adjustment of ₹ 94,190,248. He also stated that determination of arm s-length price is also required to be determined by adopting adjusted margin using transactional net margin method as an alternative approach. According to that cost basis is enhanced of the comparables and a markup is added thereon. He noted that the markup is required to be taken at 12.06 percentage. According to that he noted that operating cost of the assessee is Rs 452,537,528 whereas the international transaction is shown of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have carefully considered the rival contentions and perused the order of the coordinate bench in assessee s own case for assessment year 2011-12. The issue involved in that appeal is also with respect to the determination of ALP of AMP functions. In para number 6.10 of that order the coordinate bench has rejected the Bright line test applied by the learned transfer pricing officer and further held that AMP expenditure cannot be considered as an international transaction in the facts and circumstances of the case of the assessee. The learned departmental representative could not show us any reason to deviate from such an order in assessee s own case for earlier year. Even in this particular order of the learned transfer pricing officer for the impugned assessment year, we do not find that the learned transfer pricing officer has first established that there is an international transaction entered into by the assessee by incurring a higher AMP expenditure. Unless first the international transaction is established by the learned transfer pricing officer, question of determination of its arm s-length price does not arise. Therefore respectfully following the decision of the coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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