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TMI Blog2025 (2) TMI 324X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned transaction is not an international transaction for which the TPO was not entitled to invoke the provision of Chapter X of the Act.
This issue is no longer resintegra and has been decided by the Tribunal in its earlier decision in favour of the assessee by holding that the impugned transaction is not an international transaction as per the provisions of the law - Decided in favour of assessee.
Excess claim of refund - AR has fairly conceded that the issue has already been decided against it as in the case of DCIT vs Total Oil India P. Ltd [2023 (4) TMI 988 - ITAT MUMBAI (SB)] has decided the issue in favour of the Revenue holding that DTAA does not get triggered at all when a domestic company pays DDT u/s 115-O of the Act. Thus, the above grounds stand dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... he orders of the Hon'ble the ITAT in the Appellant's own case for AY 2008- 09, AY 2009-10, AY 2010-11, AY 2011-12, AY 2012-13, AY 2013- 14, AY 2014-15, AY 2015-16, AY 2016-17 and AY 2017-18 which were brought to notice, where on identical facts, the Hon'ble ITAT has held that there is no 'arrangement between the Appellant and AEs and directed to delete the entire AMP adjustment along with mark-up on AMP, holding that the same is not an international transaction; 9. Erred in concluding that the Appellant is engaged in performing development, enhancement, maintenance, protection or exploitation (DEMPE') services which includes market development, value addition, creation of marketing intangibles etc and there is mutual agreement/ arrangement between the Appellant and its AE for discharging market development functions; 10. Erred in overriding the charging provisions of Section 4 of the Act by the machinery provisions of Section 92 of the Act to bring to tax fictional/ assumed/ hypothetical income/ benefit. Re-characterisation of Appellants Entrepreneur Activities 11. Erred in disregarding the Appellant's contention that the issue of AMP is not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting comparables which are not truly aligned with the functional risk and asset profile of the assessee for application of BLT. Moreover, nature and channels of AMP spend of comparable companies selected by TPO do not fully align with that of the company. Mark-up on AMP expenses 19. Without prejudice to the above, erred in holding that the Appellant should have earned a mark-up of 5.52% on the alleged excessive AMP expenses in relation to manufacturing and distribution segment, which are to be reimbursed to the Appellant by considering comparable company (ies) 20. Without prejudice to the above, erred in not adopting a scientific search process to identify BVG India Limited as a company engaged in marketing activity for computing the mark- up to be applied to the alleged excessive AMP expenses; 21. Without prejudice to the above, erred in computing mark-up over alleged excessive AMP expenses incurred without appreciating that an addition if any, should be commensurate with agency function, undertaken by the Appellant; 22. Without prejudice to the above ered in computing mark up over alleged excessive AMP expenses incurred without appreciating that an addition if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 case was referred to the TPO who passed an order u/s.92CA(3) of the Act dated 30.09.2023, pursuant to which the draft assessment order u/s.144C was issued proposing an addition on TP parameters by determining the TP adjustment proposed by the TPO amounting to Rs.302,22,00,000/- and thereby determining the total income at Rs.818,37,11,765/-. 4. The assessee was in appeal before the ld.DRP which vide order dated 20.05.2024 rejected the objections raised by the assessee. The DRP observed as below: "We have considered the facts of the case and submissions made by the assessee. Ground Nos. 1 - 21 relate to the international transaction in the nature of 'provision of brand promotion service AMP expenditure' incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The DRP finds the computation of expenses in order. With respect to the change in margin on AMP services rendered to the assessee, the TPO in the order had selected certain companies as comparables, however, the assessee objects to the selection of comparable on the ground that the same are not functionally comparable to the business of the assessee. * Dabur India Limited * Marico Limited * Godrej Consumer Products Limited * Emami Limited * Jyothi Laboratories Limited The TPO had selected all companies which are into FMCG industry and even the assessee is into FMCG industry. The assessee has not produced before the panel detailed arguments for rejection of the said comparables. Hence, in absence of detailed submission of the assessee on reasons for objection, the said ground of objection of assessee is dismissed. We are in agreement with the TPO regarding the determining the non- routine AMP expense which should be recovered from the AE. In the present case, the international transaction being considered is not the AMP expenditure incurred per se, but the benefit conferred on the AEs in the form of promotion and brand-value augmentation of brands owned by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out to domestic parties by the assessee does not by itself lead to lack of international transaction to the AE; the facts shows that part of those expenses are attributable to DEMPE functions for the AE and major part of the benefits were reaped by the AE by way of brand promotion/ maintenance and consequent increased receipt of royalty but the lack of commensurate compensation to the assessee for these DEMPE functions, clearly make out AMP as a case of international transaction with the AE. g. Further, looking it from another perspective, the AMP is a deemed international transaction by virtue of provisions in Section 92B(2) of the Income Tax Act. The agreement between the assessee and the AE is arranged in such a way that incurring of AMP has become a compulsion on the assessee, thus it gets covered within the ambit of international transactions and accordingly it has to be benchmarked appropriately. h. It is notable that the increased sales turnover of the assessee will directly benefit the AE by way of increased repatriation of royalty to the AE. Thus, the entire profits generated out of the increased sales on account of increased AMP expenditure is not retained in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R relied on the orders of the lower authorities. 11. We have heard the rival submissions and perused the materials available on record. The ld. DRP in its finding has stated that grounds 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. 2018-19 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 were 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 material, gift, cards, etc. was not in the nature of advertising expenses. 11.1 The comparables namely Dabur India Ltd., Marico Limited, Godrej Consumer Products Limited, Emami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 (AMP). The ld. AR of the assessee submits that these grounds of appeal are covered in favour of assessee by the decision of Tribunal in A.Y. 2008-09 to 2014-15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 once AMP was held not to be an international transaction, this adjustment which was based thereon, could not survive. (vii) I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 remand proceedings and not adversely commented thereon, thereby accepting the same. 7. Further, it is submitted that L'Oreal SA, France (recipient of income) has offered to tax the income received from the Appellant and the said service income has been accepted to be at an arm's length by the TPO in hands of L'Oreal SA. Thus, the provision of services being availed by the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in assessee's own case for A.Y. 2013-14 vide order dated 23.8.2019 for following concluding adjudication on this issue:- "8. We find that in the backdrop of our aforesaid observations that de hors any 'understanding' or an 'arrangement' or 'action in concert', as per which the assessee had agreed for incurring of AMP expenses for brand building of its AE, viz L'Oreal S.A., France, the provisions of Chapter-X could not have been invoked for undertaking TP adjustment exercise. Apart there from, we find that a similar view had been taken by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations, finding ourselves to be in agreement with the view taken by the Tribunal in the assesses own case for A.Y 2012-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 for brand building of its AE, viz. L'Oreal S.A., France, the TP adjustment of Rs. 354.73 crores in respect of AMP expenses cannot be sustained and is liable to be vacated." 12. Since the facts are identical we set aside the order of authorities below and direct that the TP adjustment of Rs. 198.18 crores is to be deleted." 12. Considering the consistent decision of Tribunal on identical set of fact on identical issue for earlier years, wherein no factual difference for the year under consideration is brought to our notice, nor any contrary law is shown to us, to take any other view, therefore, respectfully following the orders for earlier years the Ground No.2 to 18 are allowed. 12. From the above obse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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