9911796707
TMI Blog2019 (1) TMI 2064X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee has been directed against the assessment order dated 26.11.2012 passed by the Addl. CIT, Range-9, New Delhi, under section 143(3) r.w.s. 144C of the I.T. Act, 1961. 2. This appeal by Assessee is heard pursuant to the directions of the Hon'ble Delhi High Court. The Hon'ble Delhi High Court vide Order dated 23.07.2018 in ITA.Nos.508 and 509 of 2013 and ITA.No.148 and 149 of 2014 has remitted the following issue for fresh adjudication in the light of decision of the Hon'ble Delhi High Court in the case of Sony Ericson Mobile Communication India Private Limited vs. CIT (2015) 374 ITR 118 (Del.). "Whether the advertisement and marketing expenditure incurred by the appellant-assessee can be treated as international transaction and made subject matter of adjustment in arms length pricing ? " 3. This issue was remitted for A.Ys. 2007-2008 and 2008-2009. Learned Counsel for the Assessee, therefore, submitted that in the present appeal Ground Nos. 3 to 16 are relevant on this issue, which shall have to be adjudicated upon. The Grounds 3 to 16 are reads as under : "3. That the TPO erred in assuming jurisdiction in respect of the advertising, marketing and promotion ('AMP') expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dual elements of cost as the approach is inconsistent with the tenets of application of TNMM. 11. That, the learned TPO has incorrectly held both on facts and in law that, the AMP expenses incurred by the appellant to be "excessive" on the basis of a "bright line limit" arrived at by considering inappropriate comparables not having similar product, brand profile and market circumstances as the appellant. 12. That the learned TPO/DRP has made a gross error in considering rebates and cash discounts given to dealers, point of sales expenditures and other sales promotion expenditures as a part of the advertisement and marketing expense for computation of transfer pricing adjustment. 13. That the learned AO/TPO/Hon'ble DRP have failed to comprehend that to the extent of expenditure of INR 190,489,900/- incurred on advertising and sales promotion, there has been double disallowance/addition as this expenditure has been treated as 'capital' by the learned AO, and hence entirely disallowed under section 37(1) in computing the taxable income whereas the said amount has been included by the learned TPO while computing the alleged excessive AMP expenditure. 14. That th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; [Appellant] [Respondent] Date of Hearing : 12.12.2018 Date of Pronouncement : 21.12.2018 Assessee by : Shri Nageshwar Rao, Adv. Shri Sandeep Karhail, Adv Revenue by : Shri H.K. Chaudhary, CIT- DR Smt. Namita Pandey, Sr. DR ORDER PER N.K. BILLAIYA, ACCOUNTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have carefully perused the orders of the authorities below qua the issue and the relevant documentary evidences brought on record in the light of Rule 18(6) of the ITAT Rules. 5. While delivering the judgement in the case of Sony Ericson Mobile Communication India Private Limited [supra], the Hon'ble High Court has enlisted its findings as under: "(i) In case of a distributor and marketing AE, the first step in transfer pricing is to ascertain and conduct detailed functional analysis, which would include AMP function/expenses. (ii) The second step mandates ascertainment of comparables or comparable analysis. This would have reference to the method adopted which matches the functions and obligations performed by the tested party including AMP expenses. (iii) A comparable is acceptable, if based upon comparison of conditions a controlled transaction is similar with the conditions in the transactions between independent enterprises. In other words, the economically relevant characteristics of the two transactions being compared must be sufficiently comparable. This entails and implies that difference, if any, between controlled and uncontrolled transaction, should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons is permissible, provided the said transactions can be evaluated and adequately compared on aggregate basis. This would depend on the method adopted and comparability analysis and the most reliable means of determining arm's length price. (ix) To assert and profess that brand building as equivalent or substantial attribute of advertisement and sale promotion would be largely incorrect. It represents a coordinated synergetic impact created by assortment largely representing reputation and quality. "Brand" has reference to a name, trademark or trade name and like "goodwill" is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off. (xiii) CP Method is a recognised and accepted method under Indian transfer pricing regulation. It can be applied by the Assessing Officer/TPO in case AMP expenses are treated as a separate international transaction, provided CP Method is the most appropriate and reliable method. Adoption of CP Method and computation of cost and gross profit margin comparable must be justified. (xiv) The object and purpose of Transfer Pricing adjustment is to ensure that the controlled taxpayers are given tax parity with uncontrolled taxpayers by determining their true taxable income. Costs or expenses incurred for services provided or in respect of property transferred, when made subject matter of arm's length price by applying CP Method, cannot be again factored or included as a part of inter-connected international transaction and subjected to arm's length pricing 6. The first point is to ascertain and conduct detailed functional analysis which would include AMP expenses. The Transfer Pricing Officer has mentioned the copy of Advertisement Agreement which was entered into on 01.04.2005 but there is no reference to any advertisement agreement relevant to A.Y 2007-08 which is the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO further observed that ownership of brand was with AE and the assessee was incurring expenditure to promote the brand of AE and as a consequence, was creating marketing intangible in India which implies that marketing intangible is with the assessee and its legal ownership is with AE. 12. It is the say of the ld. AR that as a sole distributor of Sony's products in India, any benefit arising from advertisement activities including resultant increment to the value of brand in India is available to the assessee only. The ld. AR further pointed out that the assessee's management is independently responsible for undertaking all strategic decisions, such as, introduction of new products, deciding the marketing initiatives, business development, sales strategies etc. Such decisions are undertaken by the assessee based on the assessment of the market condition, nature of competition prevailing in the market and competitors strategies. The ld. AR concluded by saying that the assessee is sole beneficiary of AMP expenditure carried out by the company. 13. In our considered opinion, by virtue of incurring expenditure of AMP, the assessee cannot acquire ownership of intangibles which be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Limited 4.54% Voltas Limited -3.07% Arithmetic mean 2.09% 18. The TPO has also used the same comparables for applying BLT: SL No Name of the company Advertising, Marketing And Promotional Expense (A) Sales (B) Advt, Marketing And Promotion Expense/ Sales (A/B) (in %) 1. Allied Photo graphics India Ltd 8,74,164 37,48,48,199 0.23% 2. Bajaj Electronics Ltd 47,61,14,000 10,83,16,54,000 4.39% 3. Blue Star Limited 345.812,000 16,07,40,69,000 2.15% 4. Usha International Ltd 677,37,000 124,49,72,000 5.44% 5. Voltas Limited 30,53,84,000 24,00,55,16,000 1.27% Arithmetic mean 2.69% 19. The assessee's operating margin is at 3.29% of operating revenue from its consumer Electronic Division and arithmetic mean of operating margin of companies' owner of same brand is 2.09% as mentioned at the above chart. As per the observation of the Hon'ble High Court in the case of Sony Ericson Mobile Communication India Private Limited [supra], if the return earned by the assessee is similar or more than that the return earned by the owner of the brand, no further amount should be contributed towards su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewhere, since the operating profit margin of the appellant company is better than those of the comparables, it can be safely concluded that the assessee has been suitably remunerated and no further adjustment is required to bench mark the AMP expenses. Following the guidelines listed by the Hon'ble High Court in the case of Sony Ericson Mobile Communication India Private Limited [supra], the grounds raised by the assessee are allowed. 25. In the result, the appeal of the assessee in ITA No. 4978/DEL/2011 is allowed." 3.2. Learned Counsel for the Assessee, therefore, submitted that that the entire issues are covered by the Order of ITAT, Delhi Bench in the case of assessee for A.Y. 2007-2008 in which it was held that merely because there is an incidental benefit to A.E. Sony Company, it cannot be stated that AMP expenses incurred by the assessee was for promoting the brand Sony Japan. The issues have been decided in favour of assessee on identical facts. 4. On the other hand, Ld. D.R. submitted that the department has already filed M.A. in the case of M/s. Sony Ericson Mobile Communication India Private Limited and that some of the observations of the Tribunal in the Order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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