ALCON LABORATORIES (INDIA) PRIVATE LIMITED ,BANGALORE V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 1(1)(1), BANGALORE

ITA 1899/BANG/2024

AI Insights

The case involves Alcon Laboratories (India) Private Limited appealing against the assessment order for the assessment year 2020-21, which included significant adjustments related to transfer pricing and disallowances under various sections of the Income Tax Act. The primary issues revolved around the arm's length pricing of AMP expenditures, interest on delayed receivables, and disallowances related to seminar and convention expenses. The Tribunal examined precedents and the specific agreements and transactions of the assessee with its associated enterprises, leading to a decision that partly favored the assessee by aligning with previous rulings on similar issues while also upholding certain adjustments like the interest on delayed receivables as a separate international transaction.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 829171 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Bangalore
• Assessment Year: misc
• Appeal Filed On: 27-09-2024
• Other Referred Cases: Apex Laboratories Ltd v. DCIT, Essilor India Pvt Ltd vs DCIT, Maruti Suzuki India Ltd v. Addl. CIT, TPO, Sony Ericsson India Pvt Ltd v. ACIT, Whirlpool of India Ltd v. CIT (LTU)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PERCY PARDIWALA
• Keywords: Set aside; Business income; Transfer pricing; International transaction; Onus to prove; TDS; Initiation of penalty proceedings; Non-deduction of tax; Tangible material
• Section: 37; 92; 43B; 92B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA No.1899/Bang/2024 Assessment year : 2020-21 Alcon Laboratories (India) Private Limited, 11th Floor, RMZ Azure, Bellary Road, Hebbal, Bangalore – 560 092. PAN: AACCA 3430F Vs. The Assistant Commissioner of Income Tax, Circle 1(1)(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri Percy Pardiwala, Sr. Advocate Respondent by : Shri Aseem Sharma, CIT(DR)(ITAT), Bengaluru. Date of hearing : 16.10.2025 Date of Pronouncement : 13.01.2026 O R D E R Per Prashant Maharishi, Vice President 1. This appeal is filed by Alcon Laboratories (India) Private Limited (the assessee/appellant) against assessment order passed u/s. 143 (3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (The Act) on 29 July 2024 passed by the Assessment Unit, Income Tax Department (the ld. AO) wherein total income shown as per return of income filed of ₹ Printed from counselvise.com ITA No.1899/Bang/2024 Page 2 of 29 444,408,150/– computed u/s. 143(1)(a) at ₹ 563,943,540/– was further added by the variations proposed with respect to the transfer pricing adjustment including an addition of ₹ 924,872,078 on account of excessive expenditure incurred towards Advertisement, Marketing and Promotion [AMP] amounting to ₹ 922,592,886 and an additional adjustment of ₹ 2,279,192/– on account of interest on delayed receivables and further disallowance of expenditure amounting to ₹ 24,66,60,121/– was made determining the total income of the assessee at ₹ 1,733,923,553/–. 2. The brief facts of the case shows that assessee filed its return of income for the year under consideration on 15 February 2021 which was revised on 26 March 2021 at the taxable income of ₹ 444,408,150/–. The assessee is a company engaged in the business of selling ophthalmic surgical electronic equipment, intraocular lenses, spare parts and pharmaceutical products and also provide services in relation to maintenance of the products and support services to its group companies. The return of income was picked up for scrutiny and notice u/s. 143 (2) was issued on 29 June 2021, the assessee was also found to have entered into international transactions with its associated enterprises [AE]. Therefore the reference was made to the learned Transfer Pricing Officer [TPO] - ACIT, TP 1(1)(1), Bangalore (the ld. TPO) for determination of the arm's-length price [ALP]. The assessee has entered into 10 different types of international transaction amounting to ₹ 5,086,098,130/–. No other transfer pricing adjustments were examined but it was found that the assessee has incurred the AMP Printed from counselvise.com ITA No.1899/Bang/2024 Page 3 of 29 expenses for the benefits of its AE amounting to ₹ 769,019,660/–. The arm's-length margin on that was considered at 19.97% and therefore it was found that arm's-length price of the international transaction is 92,25,92,886. The assessee was also found to have given advances to its AE in the form of overdue outstanding receivable. The assessee was asked to file the details which was furnished on 5 July 2023. According to that the ld. TPO computed the interest of ₹ 2,279,192/– adopting the standard credit period of 30 days and imputing the interest by LIBOR rate. Thus the total addition of ₹ 924,872,078/– was proposed by the ld. TPO. Based on this the draft assessment order u/s. 144C (1) of the Act was also passed on 21/9/2023. It was found that assessee has entered into expenditure on account of Seminar & Convention expenses amounting to ₹ 246,660,121 for which a show cause notice was issued on 21 March 2022. The assessee replied on 24 March 2022. It was found that assessee has stated that Indian Medical Council [IMC] regulations would not be applicable to the pharma company like the assessee and therefore the above stated expenditure are allowable u/s. 37 (1) of the Act and are not hit by the Explanation to the same. The ld. AO was of the view that in view of the decision of the Hon’ble Supreme Court in case of Apex laboratories Ltd v. DCIT, the above sum is not allowable for the reason that same are hit by the Explanation to section 37 (1) of the Act. Accordingly the Seminar & Convention expenses of ₹ 246,660,121/– was disallowed. 3. The ld. AO further found that the assessee company has not deducted tax at source on a sum of ₹ 220,529,064 and therefore invoking the Printed from counselvise.com ITA No.1899/Bang/2024 Page 4 of 29 provisions of section 40 (a) (ia) of the Act for non-deduction of tax at source made disallowance of the same at the rate of 30%. It was found that assessee disallowed ₹ 66,158,719. The AO after taking the explanation of the assessee found that TDS has not been deducted on total payment of ₹ 220,994,591/– as per form No. 3CD. Accordingly the disallowance works out to ₹ 66,298,377/– whereas the assessee itself has disallowed ₹ 66,158,719/– and therefore the balance disallowance of ₹ 139,568/– was made. Accordingly the total income of the assessee was computed at ₹ 1,735,615,397/– by the above draft order. 4. Aggrieved with the same the assessee preferred an objection before the learned Dispute Resolution Panel-1, Bangalore [DRP]. The ld. DRP passed its direction u/s. 144C(5) of the Act on 22 June 2024. According to the direction para No. 2.2.8 the disallowance of ₹ 246,660,121/– u/s. 37 (1) of the Act in violation of the guidelines of the Indian Medical Council was upheld. With respect to the determination of the arm's-length price of AMP expenditure were also confirmed. The several comparables objected by the assessee for determination of the arm's-length price of the AMP expenditure was also dismissed. Therefore the ld. DRP upheld the selections of comparable as well as upheld the addition with respect to the arm's- length price of the AMP expenditure. With respect to the imputation of interest on outstanding overdue receivable from its AE as per ground No. 5 were also rejected including the markup of 350 basis points over the six months LIBOR was also upheld. Printed from counselvise.com ITA No.1899/Bang/2024 Page 5 of 29 5. Based on the direction of the ld. DRP, ld. TPO passed an order giving effect to the direction u/s. 144C of the Act on 18 July 2024 wherein the AMP expenditure reimbursable adjustment was retained at ₹ 920,901,042 and adjustment in respect of interest on delayed receivable was restricted to 22,79,192/–. Based on this the assessment order was passed which is under challenge before us. 6. Thus the challenge in this appeal is with respect to addition of ₹ 922,592,886/– on account of the excessive expenditure incurred towards AMP expenditure, addition of ₹ 2,279,192 on account of interest on overdue receivable and further the disallowance of ₹ 246,660,121/– of various expenditure incurred in violation to the IMC guidelines. The assessee has raised 35 grounds of appeals before us. One of the ground is with respect to disallowing the provision of gratuity amounting to ₹ 119,535,383/– u/s. 43B of the Act despite the fact that the assessee had suo motu disallowed the same in its return of income under the provisions of section 40A(7) of the Act but the Central Processing Centre [CPC] has once again made this disallowance which has resulted into double disallowance. The DRP was also requested to delete the above adjustment, but it refrained from adjudicating the same. Over and above this issue, the other issues are with respect to the chargeability of interest under various provisions of the Act as well as initiation of penalty proceedings u/s. 270A of the Act. Printed from counselvise.com ITA No.1899/Bang/2024 Page 6 of 29 7. The ld. AR, Shri Percy Pardiwala, Senior Advocate, submitted that ground No. 1 is general in nature and ground No. 2 covers all the additions. 8. With respect to ground No. 3 – 21, he submits that these are the grounds relating to the adjustment on account of arm's-length price of the AMP expenses. He submits that that issue is squarely covered in favour of the assessee by the various decisions of the coordinate benches in assessee's own case. He referred to the decision of the coordinate bench for AY 2012–13 in ITA No. 726/Bang/2017 placed at page No. 1305 – 1324, for AYs 2013-14 and 2014–15 (ITA No. 2889/Bang/2017 and ITA No. 3376/Bang/2018 for AY 2016 – 17 in ITA No. 2 to 4/Bang/2021, for AY 2017–18 in ITA No. 535/Bang/2022 and for AY 2018–19 in ITA No. 1018/Bang/2022. Thus his submission was that this issue is squarely covered in favour of the assessee. Thus he submitted that that first the issue arose in case of the assessee for AY 2012 – 13 wherein as per order dated 29th April 2022, the addition of the arm's-length expenditure was made of ₹ 620,630,238/–. This ground is decided as per ground No. 2 – 10 as per paragraph No. 9 of the appellate order. The contention of the assessee therein was that assessee is merely acting as a distribution agent and carries on marketing activities and therefore the assessee is promoting its own business in India as a distributor. He further stated that the argument of the assessee therein was that addition was made by using the Brightline test. He submits that that the coordinate bench in paragraph No. 9.8 has referred that assessee is mandated to incur expenditure as per agreement Printed from counselvise.com ITA No.1899/Bang/2024 Page 7 of 29 between the assessee and its AE. The expenses incurred by the assessee are towards its own business promotion in India as assessee is a distributor. The coordinate bench further referred to the fact that as per the transfer pricing study report it was proved that the assessee operates in a limited risk and environment in respect of the distribution and marketing segment. In paragraph No. 9.8 the coordinate bench reproduced the various functions of distributors commission, sales promotion and seminar and conventions. In paragraph No. 9.9 the coordinate bench noted the decision in case of Essilor India private limited in ITA No. 29/Bangalore/2014 and thereafter in paragraph No. 10 the additions were deleted. He further stated that subsequently for AYs 2013–14 and 2014–15 as per order dated 16.11.2022 the coordinate bench in paragraph No.3 following the AY 2012–13 deleted the addition. Further with respect to AY 2016-17, coordinate bench vide order dated 19/12/2022 deleted the addition of ₹ 352,445,858 as per paragraph No. 7 of that decision following the AY 2012–13. He further referred to the decision for AY 2017–18 rendered by the ITAT on 29th of March 2023 wherein the adjustment with respect to the AMP expenditure of ₹ 23,19,45,467 was deleted as per paragraph No. 4 once again following the same judgement. He further referred to the ITAT decision for AY 2018–19 dated 12.7.2023 wherein the adjustment with respect to the alleged excessive AMP expenditure of ₹ 154,418,487 were deleted. Therefore according to him this issue stands covered in favour of the assessee by the series of decisions of the coordinate benches. He further stated that the distributors who has been following Printed from counselvise.com ITA No.1899/Bang/2024 Page 8 of 29 the Transactional Net Margin method, no further adjustment is required to be made because it takes into consideration all the aspects of the functions rendered by a distributor. 9. He also explained the facts of the case by looking at the order of the ld. TPO dated 10 July 2023, he submitted that in paragraph No. 4.2 the ld. TPO has recorded based on the perusal of the financial statement that assessee has incurred the expenditure of ₹ 12,545 lakhs in respect of distributor, commission, sales commission, travel and conveyance expenses and Seminar and Convention, that these expenses are 12.25% of the total sales of the company. Thereafter he referred to the profile of the assessee company wherein it is stated that (paragraph No. 3.1 of the TPO’s order) that that assessee distributes the products of Alcon group companies in India and provides marketing support and maintenance services to its group companies in relation to the products during the year and after the warranty period. For this purpose assessee has entered into an ongoing agreement with Alcon Laboratories Inc. on 1 January 2001. Indian entity also distributes the pharmaceutical products of Alcon group in addition to distribution of ophthalmic surgical products. India imports various materials for distribution in India. Therefore he submits that the assessee is merely a distributor, he submits that agreement of the assessee is placed at paper book page No. 1 wherein the distribution and marketing service agreement effective as on the 1st April 2006 is entered into with Switzerland Co. Thus he further referred to section 3 of the agreement to show that the assessee is carrying on marketing activities as described in section 3.2 in the Printed from counselvise.com ITA No.1899/Bang/2024 Page 9 of 29 territory for products for which it has been appointed as distributor. He submits that assessee will execute the marketing plan for the territory that has been developed by or at the expense of the supplier. The distributor will assess and provide information and make recommendations regarding the identification of target audience, implementation of the marketing plan, appropriate product positioning within the territory, optimal pricing within established guidelines, product file and labelling and contribute to the regulatory effort, organise, contact and manage relationship with opinion leaders, manage all issues related to all country customers such as physician Association, pricing authorities and monitor new trends. It will also look at the medical inquiries, complaints, adverse events, medical information, promotional material and reimbursement. He further referred to the service agreement entered into on 12 March 2014 wherein also he stated that services to be provided by the assessee is as the principal may reasonably request from time to time which would be reimbursed to the assessee at a markup of 15%. He further referred to the transfer pricing study report placed at page No. 510 of the paperbook and functions are recorded at page No. 527. He further referred to the page No. 540 of the transfer pricing study report wherein the distribution segment shows the operating margin of the assessee on sales at the rate of 4.52% by considering the profit level indicator of operating revenue/operating expenses and further in the Business Support Segment the margin of the assessee was computed at 15.25% considering the profit level indicator of operating revenue/operating Printed from counselvise.com ITA No.1899/Bang/2024 Page 10 of 29 expenses and stated to be at arm's-length price. He submits that distribution and marketing segment of the assessee as well as the service segment are considered by the learned transfer pricing officer at arm's-length. He further stated that there is no change in the terms and conditions of the agreement which was part of the appellate proceedings before the coordinate benches for all these years and therefore the issue is squarely covered in favour of the assessee. 10. The ld. TPO’s order was referred to by the ld. CIT DR and he referred to page No. 209 paragraph No. 8 of the order of the ld. TPO, he submitted that distribution and marketing services agreement provides for AMP functions to be carried out by the taxpayer under the overall control and supervision of the associated enterprises. He referred to the agreement and also stated that it is obligatory for the assessee to undertake marketing activities on behalf of its AE. He further stated that assessee is operating under the direct control and supervision of its AE and the entire market strategy and the marketing plan is devised by the overseas company from Switzerland. He further stated that the expenses in relation to marketing are agreed to be reimbursed to the assessee company therefore it is apparent that the assessee company has spent some money on marketing on behalf of its AE which has not been reimbursed adequately. It was further stated that the person who bears the risk relating to AMP activity is entitled to all the excess profits generated on account of the function. He further referred to paragraph No. 8.2 wherein referring to the provisions of section 92B it was stated that mutual agreement/arrangement can be inferred from the conduct of Printed from counselvise.com ITA No.1899/Bang/2024 Page 11 of 29 the taxpayer and therefore it becomes a separate international transactions to be benchmarked. He further referred to paragraph No. 8.3 where conduct of the taxpayer was demonstrated which clearly shows the presence of an arrangement for promotion of marketing intangibles. The ld. TPO referred that the taxpayer distributes the products imported from its AE through its authorised distributor. Though the company does not make direct sales to the hospitals and medical professional, it has a dedicated team of sales/marketing representatives whose primary job is to promote the products of its AE among the hospitals and doctors community. It was further stated that doctors and hospitals are not concerned about the brand of the medicine that they prescribe, they are concerned only with the generic medicine that would treat the ailment of their patients. It was further stated that assessee has a big team of marketing professionals who are entrusted with the field job of meeting the medical practitioners and promoting the brand and products of its AE. The ld. TPO has reported a specific incident that since financial year 2018–19, the assessee company contacted with a leading Indian cricketer to endorse its brand and during the relevant financial year it ran a promotional campaign with the tagline \"never compromise\". Thus it was stated that the taxpayer company incurs huge expenditure on the employees engaged in sales promotion which results in promotion of the marketing intangibles of its AE situated outside India. He further stated that distribution function and the advertisement marketing and promotions are two distinct and separate functions therefore it cannot be said that when the distribution Printed from counselvise.com ITA No.1899/Bang/2024 Page 12 of 29 functions are rewarded at arm's-length adopting the transactional net margin method, there cannot be any imputation of additional profit attributable to the functions performed by the assessee of advertisement marketing and promotion. It was the contention of the ld. TPO that each function is required to be remunerated separately. He further referred to the functions of marketing intangibles which requires compensation for development, enhancement, maintenance protection or exploitation of intangibles. He referred to the base erosion and profit shifting report. He submitted that all these functions are performed for the benefit of associated enterprises and should invariably form part of the transfer pricing order. The report and the illustrative example included therein also recognise that performing these functions and incurring marketing expenditure thereby providing benefit to its associated enterprises and substantially in excess of the level of functions and expenditure of independent enterprises in comparable transaction is required to be compensated at arm's-length. Thus the ld. CIT DR vehemently supported the order of the ld. TPO and stated that benchmarking of the AMP and functions is required to be done separately. It was further stated that the facts during the course of the assessment year shows separately that the assessee is engaged in contract with a leading India cricketer to endorse its brand and is running a promotional campaign. He submits that no distributor is shown to have run such a promotional campaign. It was further argued that such organisation of promotional campaign itself shows that the assessee is promoting the brand of its associated enterprises. He submits that these functions were not Printed from counselvise.com ITA No.1899/Bang/2024 Page 13 of 29 recorded by the coordinate bench in its order and all the decisions of the coordinate bench are decided on the basis of the order of the ITAT for AY 2012 – 13. He submits that we are in assessment year 2020–21 and these facts were not there in those years and therefore those decisions must not be applied and the order of the ld. TPO with the direction of the ld. DRP deserves to be upheld. The ld. CIT DR vehemently referred to the grounds of objection No. 4 before the ld. DRP and the direction of the panel wherein the action of the learned assessing officer was upheld. 11. The Ld. CIT DR vehemently submitted that the reasons given by the ITAT for AY 2012-13 are not at all based on the facts of the case of the assessee. It merely relied up on some other judgements of the coordinate bench. He submits that decisions bereft of the facts of the case of the assessee, is not a biding precedent. The ld CIT DR refers to the decision sand submits that revenue disputes that these expenses are not for the business of the assessee as no distributor in normal circumstances would have hired a cricketer to advertise the product of the AE. He submits that decision in case of Essilor relied up on by the Bench is distinguishable. He submits that assessee has neither shown the agreement with the cricketer nor the facts that under whose instructions this advertisements is given. He also submitted that assessee has failed to show that whether the expenditure are for its own business and to what extent. He submitted that conduct of the assessee speaks louder than the agreement in this case. Therefore he urged not to follow the decision of the coordinate Benches in assessee’s own case Printed from counselvise.com ITA No.1899/Bang/2024 Page 14 of 29 which did not discuss that facts of the case at all and also disputed that assessee is incurring the expenses for its own purposes. 12. The ld. CIT DR vehemently submits that finding recorded by the bench in para no 9.8 of its order that It is not the case of the revenue that assessee is mandated to incur such expenditure as per any agreement between the assessee and a. It is also not disputed that these expenditures incurred by assessee or towards its own business promotion in India, is devoid of any merit. That is the dispute by the ld. TPO. That is the dispute of the ld. DRP and that is what is contended here. He once again referred to the findings of ld. DRP to show that. He submits that following that decision would render a great injustice to revenue as the view canvassed here is disputing the facts itself as recorded by ITAT. He further submits that it is not the case here that ld DRP refused to follow any judicial precedents. He submits that strangely, the assessee did not submit despite these decision for number of years in favour of the assessee either before ld. TPO or before ld. DRP, for the reason that these decision of ITAT are not on the facts but merely following decision of AY 2012-13 which itself is in dispute here. He submits that none of the above decision considers that DEMPE function of marketing intangibles performed by the assessee. 13. The ld. Sr. Advocate vehemently supported the orders of the coordinate Bench in assessee's own case and stated that there is no change in the agreement and facts are also similar and therefore the decision of the coordinate bench rendered in case of the assessee are required to be Printed from counselvise.com ITA No.1899/Bang/2024 Page 15 of 29 followed. He further stated that judicial discipline requires that if there is no change in the facts and circumstances of the case, the orders of the coordinate Bench in assessee's own case on similar set of facts are required to be followed. 14. During the course of hearing, the Bench raised a query whether the decision of the coordinate Benches relied up on by the ld. AR in case of the assessee are challenged and pending before the Hon’ble High Court as the points raised by the ld. CIT DR, the information was not available. 15. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that the facts of the case for assessment year 2012–13 till 2017–18 wherein the coordinate Bench has decided the issue in favour of the assessee squarely covers this issue also before us in favour of the assessee. Though all the decision of the coordinate benches are following the order in case of assessee for AY 2012-13. 16. In M/s. Alcon Laboratories (India) Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Circle – 1 (1) (1), Bangalore. [2022] 99 ITR (Trib) 357 (ITAT [Bang]) 2022 (12) TMI 238 - ITAT BANGALORE coordinate bench for AY 2012-13 has held that: - “9.6 We have perused submissions advanced by both sides in light of records placed before us. Sl. No. Nature of sales and distribution expenditure Brief description 1. Distributor's commission Comprises of commission paid to the Printed from counselvise.com ITA No.1899/Bang/2024 Page 16 of 29 third party distributor of ophthalmic surgical and ophthalmic pharmaceutical products on the basis of sales effected by them. The amount of commission includes consideration for various services provided by consignment agents to Alcon India like warehouse charges, collection charges, charges for distribution activities in 38 locations across India. 2. Sales promotion This predominantly comprises of education grants paid to hospitals and institutions 3. Seminar and convections Comprises of cost incurred on sponsorship towards All India Ophthalmic Society Conference, All State level Conferences, performing live surgeries and all other conference held in the state level Ophthalmic societies. 9.7 We know that the DRP refused to follow the above decisions of Hon’ble Delhi High Court by observing that these decisions have not been accepted by the Department and SLP has been filed before Hon’ble Supreme Court. 9.8 It is not the case of the revenue that assessee is mandated to incur such expenditure as per any agreement between the assessee and a. It is also not disputed that these expenditures incurred by assessee or towards its own business promotion in India as assessee is a distributor further from the transfer pricing study report we note that assessee operates in limited risk environment in respect of the distribution and marketing segment. As per the TP study the description of activities carried on by the assessee that has been allegedly characterised by the Ld.TPO towards the promotion of brand are as under: Printed from counselvise.com ITA No.1899/Bang/2024 Page 17 of 29 9.9 On an identical situation, Coordinate Bench of this Tribunal in case of Essilor India Pvt.Ltd vs DCIT in IT(TP)A No 29/Bang/2014 and IT(TP)A No. 227/Bang/2015 observed and held as under: “12. We have heard the submissions of the learned counsel for the assessee as well as the ld.DR. The first aspect which was brought tour notice by the ld. counsel for the assessee is the decision of the ITAT in assessee's own case for assessment year 2009-10 and 2010-11 on the same issue of AMP expenses. The Tribunal took the following view after extracting the decision of the Hon'ble Delhi High Court in the case of M/s Maruti Suzuki India Ltd. (supra). \"21. Respectfully following the ratio of the decision of the Hon'ble Delhi High Court in the above cases, we hold that no TP adjustment can be made by deducing from the difference between AMP expenditure incurred by assessee-company and AMP expenditure of comparable entity, if there is no explicit arrangement between the assessee - company and its foreign AE for incurring such expenditure. The fact that the benefit of such AMP expenditure would also ensure to its foreign AE is not sufficient to infer existence of international trans action. The onus lies on the revenue to prove the existence of international transaction involving AMP expenditure between the assessee-company and its foreign AE. We also hold that that in the absence of machinery provisions to ascertain the price incurred by the assessee-company to promote the brand values of the products of the foreign entity, no TP adjustment can be made by invoking the provisions of Chapter X of the Act. 22.Applying the above legal position to the facts of the present case, it is not a case of revenue that there existed an arrangement and agreement between the assessee-company and its foreign AE to incur AMP expenditure to promote brand value of its products on behalf of the foreign AE, merely because the assessee-company incurred more expenditure on AMP compared to the expenditure incurred by comparable companies, it cannot be inferred that there existed international transaction between assessee-company and its foreign AE. Therefore, the question of determination of ALP on such transaction does not arise. However, the transaction of expenditure on AMP should 'co treated as a part of aggregate of bundle of transactions on which TNMM should be applied in order to determine the ALP of its transactions with its AE. In other words, the transaction of expenditure on AMP cannot be treated as a separate transaction. In the present case, Printed from counselvise.com ITA No.1899/Bang/2024 Page 18 of 29 we find from the TP study that the operating profit cost to the total operating cost was adopted as Profit Level Indicator which means that the AMP expenditure was not considered as a part of the operating cost. This goes to show that the AMP expenditure was not subsumed in the operating profitability of the assessee-company. Therefore, in order to determine the ALP of international transaction with its AE, it is sine qua non that the AMP expenditure should be considered a part of the operating cost Therefore, we restore the issue of determination of ALP, on the above lines, to the file of the AO/TPO. The grounds of appeal raised by the assessee-company on this issue are partly allowed.\" 13. The ld. counsel for the assessee pointed out that none of the reasons given by the TPO in the order for assessment year 2013-14, for not following decision of the ITAT can be sustained. In this regard, the ld. counsel brought to our notice the facts which were highlighted by the assessee before the DRP. ……………………. 16. We have given our careful consideration to the rival submissions. The Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. (MSIL) v. Addl. CIT, TPO [2010] 328 ITR 210 (Delhi), in the case of a licensed manufacturer incurring AMP expenses it was held that it incurring of AMP expenses would be an international transaction and the issue of determination of ALP was remanded. This decision was however overruled in Maruti Suzuki India Ltd. v. Addl. CIT [2011] 335 ITR 121 (SC) wherein the Hon'ble Supreme Court left the question whether AMP expenses gives raise to international transaction or not open with the following observations: \"In this case, the High Court has remitted the matter to the Transfer Pricing Officer (\"the TPO\" for short) with liberty to issue fresh show- cause notice. The High Court has further directed the Transfer Pricing Officer to decide the matter in accordance with law. Further, on going through the impugned judgment of the High Court dated July 1, 2010, we find that the High Court has not merely set aside the original show cause notice but it has made certain observations on the merits of the case and has given directions to the Transfer Pricing Officer, which virtually conclude the matter. In the circumstances, on that limited issue, we hereby direct the Transfer Pricing Officer, who, in the meantime, has already issued a show cause notice on September 16, Printed from counselvise.com ITA No.1899/Bang/2024 Page 19 of 29 2010, to proceed with the matter in accordance with law uninfluenced by the observations/directions given by the High Court in the impugned judgment dated July 1, 2010. The Transfer Pricing Officer will decide this matter on or before December 31, 2010. The civil appeal is, accordingly, disposed of with no order as to costs.\" 17. The Hon'ble Delhi High Court in another case of Maruti Suzuki India Ltd. Vs. CIT 381 ITR 117 (Delhi) held that the fact that the benefit of such AMP expenses would also ensure to the AE is itself insufficient to infer the existence of an international transaction. Similar decision was also rendered by the Hon'ble Delhi High Court in the case of CIT (LTU) v. Whirlpool of India Ltd., 381 ITR 154. The bright line test which was applied by the AO in the present case was also applied by the AO in the aforesaid cases. The bright line test which was accepted by the Special Bench of ITAT in the case of L.G. Electronics India Pvt. Ltd. v. ACIT (2013) 22 ITR (Trib.) 1 (Del)(SB) was held by the Hon'ble Delhi High Court to be not correct. In the case of Maruti Suzuki (supra), the facts were Maruti Suzuki India Ltd. (MSIL) was engaged in the manufacture of passenger cars in India. It was a subsidiary of SMC, a Japanese company. MSIL started its business in 1982 as a Government of India owned company. SMC was selected as the business partner independently by MSIL. The co- branded trade mark \"Maruti-Suzuki\" was used since the inception of MSIL. A licence agreement was entered into between MSIL and SMC in October 1982 for its models M-800, Omni and Gypsy. By the agreement, MSIL was permitted to use the cobranded trade mark \"Maruti- Suzuki\" on the vehicles. In the assessment of MSIL for assessment year 2005-06, the AO invoked the provisions of section 92CA(1) of the Act and referred the case to the Transfer Pricing Officer for determination of the arm's length price in relation to the international transactions undertaken by MSIL with its associated enterprise, SMC. The Transfer Pricing Officer passed an order making an adjustment of Rs. 154.12 crores towards the advertisement, marketing and sales promotion expenses imputing a notional arm's length compensation towards the advertisement, marketing and sales promotion expenses incurred by MSIL for SMC. On the above facts, the Hon'ble Delhi High Court held as follows: Printed from counselvise.com ITA No.1899/Bang/2024 Page 20 of 29 \".... when the licence agreements were originally entered into in 1982, MSIL was known as MUL and SMC did not hold a single share in MUL. In 2003 SMC acquired the controlling interest in MSIL. There were various models of Suzuki motor cars manufactured by MSIL and each model was covered by a separate licence agreement. Under these agreements, granted licence to MSIL to manufacture that particular car model and provided technical know-how and information and right to use Suzuki's patents and technical information. It also gave MSIL the right to use Suzuki's trade mark and logo on the product. Pursuant to this agreement, MSIL was using the co-brand, i.e., Maruti Suzuki trade mark and logo for more than 30 years. This co-brand could not be used by SMC and was not owned by it. The clauses in the agreement between MSIL and SMC indicated that permission was granted by SMC to MSIL to use the co- brand \"Maruti Suzuki\" name and logo. The mere fact that the cars manufactured by MSIL bore the symbol \"S\" was not decisive as the advertisements were of a particular model of the car with the logo \"Maruti- Suzuki\". The Revenue had been unable to contradict the submission of MSIL that the co-brand mark \"Maruti- Suzuki\" in fact did not belong to SMC and could not be used by SMC either in India or anywhere else. The decision in the case of Sony Ericsson requires that the mark or brand should belong to the foreign associated enterprise. The Revenue also did not deny that as far as the brand \"Suzuki\" was concerned its legal ownership vested with the foreign associated enterprise, i.e., SMC. Moreover as MSIL was concerned, its operating profit margin was 11.19 per cent. which was higher than that of the comparable companies whose profit margin was 4.04 per cent. Therefore, applying the transactional net margin method it must be stated that there was no question of a transfer pricing adjustment on account of advertisement, marketing and sales promotion expenditure. The advertisement, marketing and sales promotion expenses incurred by MSIL could not be treated and categorised as an international transaction under section 92B of the Act.\" 18. In the case of Whirlpool of India Ltd. (supra), it was held that there had to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the arm's length price. The transfer pricing adjustment was not expected to be made by deducing from the difference between the excessive advertising, marketing and sales promotion expenditure incurred by the assessee and the Printed from counselvise.com ITA No.1899/Bang/2024 Page 21 of 29 advertising, marketing and sales promotion expenditure of a comparable entity that an international transaction existed and then proceeding to make the adjustment of the difference in order to determine the value of such advertising, marketing and sales promotion expenditure incurred for the associated enterprise. Thus, the bright line test had been rejected as a valid method for either determining the existence of an international transaction or for the determination of the arm's length price of such transaction. Although under section 92B read with section 92F(v), an international transaction could include an arrangement, understanding or action in concert, this could not be a matter of inference. There had to be some tangible evidence on record to show that two parties had acted in concert. It was also held that the provisions under Chapter X envisaged a separate entity concept. In other words, there could not be a presumption that the assessee was a subsidiary of the foreign company and that all the activities of the assessee were in fact dictated by the foreign company. Merely because the foreign company had a financial interest, it could not be presumed that advertising, marketing and sales promotion expenses incurred by the assessee were at the instance or on behalf of the foreign company. The initial onus was on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning advertising, marketing and sales pro-motion expenses.\" 19. In the light of the law as it exists today, we shall examine the arguments of the rival parties. There has been no agreement between Essilor International which owns the various brands set out by the TPO in his order and the Assessee to incur any Advertisement and Marketing or Sales promotion expenses. None of the other reasons given by the TPO which have been explained by the Assessee and set out in the earlier paragraph can be the basis to hold that there was in fact an international transaction in the matter of incurring of AMP expenses by the Assessee. The order of the Tribunal in Assessee's own case for A.Y.2009-10 and 2010-11 in our view requires to be followed and there are no reasons whatsoever to take a different view. Consequently, there could not be any exercise of determining the ALP of the AMP expenses by comparing the expenses incurred by the Assessee with comparable companies. In view of the above conclusions, the other aspects whether the comparable companies chosen by the TPO are in fact comparable in terms of Functions performed, Assets employed and Risks assumed (FAR) analysis and Printed from counselvise.com ITA No.1899/Bang/2024 Page 22 of 29 other aspects of determination of ALP does not require any consideration. Therefore the addition made on account of determination of ALP of AMP expenses in AY 2011-12 to 2014-15 is directed to be deleted.” 10. In our view the above view by the coordinate bench requires to be followed, and there are no reasons whatsoever to take a different view. Respectfully following the above view, we redirect the Ld.AO/TPO to delete the addition made towards AMP expenses. Accordingly these grounds raised by assessee stands allowed.” 17. We have appreciated the arguments of the ld. CIT DR, however the decision of the coordinate Benches bind us at least for the reason of consistency. According to us all the arguments of the ld. CIT DR may have merit but those are now required to be challenged before the Hon’ble High court. Accordingly, respectfully following the decision of the coordinate Bench for earlier years, we direct the ld. TPO/AO to delete the adjustment with respect to the advertisement marketing and promotion expenditure of the assessee. Accordingly ground No. 3 to 21 of the appeal are allowed. 18. On Ground no 22-23 , Relating to adjustment in respect of interest on delayed receivable we find that the ld. AR has stated that Outstanding receivable from associated enterprises are part of the sales function of the Assessee. It has not charged any interest from any party including an unrelated party and therefore there is no reason to charge interest from associated enterprises. It was also stated that that the associated enterprises also have not charged any interest on overdue receivable from the Assessee . In view of this, he relied upon the decision of the Hon’ble Delhi High Court in case of Kusum Healthcare and Sony Printed from counselvise.com ITA No.1899/Bang/2024 Page 23 of 29 Pictures P. Ltd. According to him the addition made by the ld. TPO and confirmed by the ld. DRP is devoid of any merit. He further referred to the fact ground #23 of the appeal was stating that the charging of the interest considering the 400 basis points spread over and above the LIBOR rate on adhoc basis without providing actually any reason is incorrect. 19. The ld. DR supported the order of the learned lower authorities and submitted that assessee has not charged interest on overdue outstanding receivable from its associated enterprises and therefore it is a separate international transaction which needs to be benchmarked separately. He submitted that all the reasons given by the ld. AR that it is a part of sales function has already been held that the outstanding receivable till the due credit period should only be considered part of the sales function and not beyond the agreed sales credit. He further stated that it is immaterial that the assessee is not charging any interest from its associated enterprises non-associated enterprises and further it is also immaterial that the associated enterprises has also not charged any interest on dues received from the assessee. He submitted that this consideration does not merit at all. Accordingly, he submitted that there is no infirmity in the order of the learned lower authorities so far as the interest is considered as a separate international transaction on overdue receivable from assessee’s associated enterprises. With respect to the rate of interest, he submitted that the appropriate rate has been charged by the ld. TPO and confirmed by the ld. DRP. He further stated that the decision relied upon by the assessee of the Hon’ble Delhi High Court Printed from counselvise.com ITA No.1899/Bang/2024 Page 24 of 29 in paragraph #10 categorically states that it is the duty of the assessee to show what are the consideration for keeping the outstanding for such a long period. The assessee has failed to discharge its duty and therefore there is no infirmity in considering the same transaction as a separate international transaction. Referring to the decision of Sony Pictures Networks India Private Limited, he submitted that in that case all the funds were received by the assessee within the time specified in the invoices. He referred to specifically paragraph #13 of that decision where the learned counsel for the assessee has made such statement. He submitted that there is no such statement made by the assessee and the facts clearly show that the outstanding are pending for receipt for a long time, he therefore submitted that the decision relied upon by the learned authorized representative does not apply to the facts of the case. 20. We have carefully considered the rival contentions and perused the orders of the learned lower authorities. We find that the outstanding dues from the AE are not received by the assessee in time. We have also considered the paragraph #12.20 of the order of the ld. TPO wherein he has categorically mentioned that the assessee has not been able to discharge its burden of proof and substantiate its claims that adjustment towards interest on overdue receivable is not justified. The assessee further failed to demonstrate that the selected comparables had similar overdue receivables and no separate adjustment is required for interest on overdue receivable. We also consider the paragraph number 12.17 of the order of the ld. TPO where the assessee has also failed to show that the delay in payment of receivable was compensated by the Printed from counselvise.com ITA No.1899/Bang/2024 Page 25 of 29 AE through a set off in any other transaction. Thus, we do not find any infirmity in the order of the learned lower authorities in inputting that international transaction of interest on overdue receivable from its associated enterprises is a separate international transaction and is also required to be benchmarked separately. By virtue of explanation 1 ( c) of section 92 B of the Act, it is an international transaction “capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business; Thus, it needs to be benchmarked separately. 21. Further with respect to the credit period, the learned transfer pricing officer has considered 30 days credit period as reasonable. Before us it is disputed that the credit of 60 days should be considered. We find that there is no justification or evidence produced before us to show that general credit period granted by the assessee to the non associate enterprises is also for 60 days. Fact clearly shows that according to article 3.2 of the agreement of services, it says assessee should have received the amounts invoiced within 30 days therefore there is no reason to grant the credit for 60 days to the assessee from outstanding due receivable from its associated enterprises. With respect to the benchmark interest rate adopted by the learned transfer pricing officer of LIBOR plus 400 basis points , no evidence was lead before us that it is not arms’ length, however several judicial precedents were cited to show that in case of such a transaction of capital financing the LIBOR Printed from counselvise.com ITA No.1899/Bang/2024 Page 26 of 29 + 200 basis points is appropriate. Therefore, respectfully following those decisions, we direct the ld AO to adopt LIBOR + 200 basis points as appropriate ALP. This is also because there is no risk of credit involved in money outstanding with the parent company. With respect to the decisions relied upon by the learned authorized representative we find that assessee has failed to furnish the details which are also mandated by those decisions therefore reliance upon them is devoid of any merit. Accordingly, we do not find any merit in ground #22-23 of the appeal except reduction in ALP from LIBOR + 400 to LIBOR + 200 basis points. These grounds no 22-23 are partly allowed. 22. Coming to ground #24-27 of the appeal wherein the seminar and convenience expenses of Rs. 24,66,60,121/- were disallowed under section 37 of the Act shows that the submission filed by the assessee in response to the notice issued, the assessee has claimed the above expenditure as expenditure on account of seminar and convention expenses. A show cause notice was issued to the assessee on 21st of March 2022 disallowing the above expenditure. In response to the show cause notice the assessee filed submission on 24th March 2022 wherein it is stated that Indian Medical Council regulations would not be applicable to the pharma company like the assessee and therefore the aforesaid expenditure incurred by the assessee it must not be covered by the Explanation to section 37 of the Act. This submission was considered, and it was held by the ld. AO that in view of the decision of the Hon’ble Supreme Court in case of Apex Laboratories Limited, the above decision squarely covers that this expenditure could not be Printed from counselvise.com ITA No.1899/Bang/2024 Page 27 of 29 allowed to be assessee. Accordingly, the same was disallowed. When the assessee approached the learned dispute resolution panel, claim of the assessee that it submitted certain documents on 27 September 2022 and the remand report from the learned assessing officer was called for. Such a remand report was never received and despite that the action of the learned assessing officer was confirmed. Therefore, assessee is in appeal on this ground. 23. The ld. AR submitted that identical issue in the earlier years also arose wherein on the identical ground most of the expenses such as advertisement expenses, promotional material, National sales meeting expenses under the head seminar and convention expenses were verified and, on that basis, these expenses were allowed and held that they are not hit by the above provisions. He further stated that when the remand report of the assessing officer has not been received, the learned dispute resolution panel without giving an opportunity of hearing and verifying those expenses, confirmed the disallowance. 24. The learned departmental representative vehemently supported the orders of the learned lower authorities. 25. We have carefully considered the rival contention and perused the orders of the learned lower authorities and found that during the course of hearing before the learned dispute resolution panel the assessee furnished the information about the expenditure, however, despite calling for the remand report, the learned dispute resolution panel did not wait for the remand report of the assessing officer, which was Printed from counselvise.com ITA No.1899/Bang/2024 Page 28 of 29 never received during the course of hearing before the panel, but the panel confirmed the disallowance. It is also the claim of the assessee that in the earlier years, the learned assessing officer has granted relief to the assessee with respect to most of the expenses. These expenses are in the nature of advertisement expenses, promotional materials, some sales meeting and seminar expenses which is under the head of seminar and convention expenses. It is a fact that the learned assessing officer has not found them to be violative of the provisions of section 37 of the act or the decision of the honourable Supreme Court. In view of these facts, we restore the whole issue back to the file of the learned assessing officer with a direction to follow the decision of the honourable Supreme Court in its letter and spirit and verify each of the expenditure. If those are found to be not in violation of the decision of the honourable Supreme Court, same should be allowed. Accordingly ground No. 24 – 29 of the appeal are allowed with above direction. 26. Ground No. 30 is with respect to the double disallowance under section 43B of the act of ₹ 119,535,383 wherein the claim of the assessee is that it has SUO Moto disallowed the same in its return of income under the section 40A (7) of the act. On hearing the parties, we restore this issue back to the file of the learned assessing officer with a direction to delete the same disallowance if it is found to be the double disallowance and the assessee has disallowed the same in its computation of income. Accordingly ground No. 30 of the appeal is allowed as above. Printed from counselvise.com ITA No.1899/Bang/2024 Page 29 of 29 27. Ground No. 31 – 34 are against living of the interest under various provisions of section 234A, B, C and F of the act which are consequential in nature and therefore same are dismissed. 28. Ground No. 35 is with relation to the initiation of penalty proceedings under section 270A of the act which is premature and hence dismissed. 29. Accordingly appeal of the assessee is partly allowed. Pronounced in the open court on this 13th day of January, 2026. Sd/- Sd/- ( KESHAV DUBEY ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 13th January 2026. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore. Printed from counselvise.com "