EDWARDS LIFESCIENCES (INDIA) PVT LTD,MUMBAI V. ACIT-2(1)(1), MUMBAI

ITA 6188/MUM/2024

AI Insights

The case involves Edwards Lifesciences (India) Pvt. Ltd., which appealed against the final assessment order passed under sections 143(3), 144C(13), and 144B of the Income Tax Act, 1961. The appeal contested the Transfer Pricing Adjustment made by the TPO concerning AMP expenses incurred by the assessee. The TPO had treated these expenses as international transactions benefiting the Associated Enterprises and applied the Bright Line Test to determine the arm's length price, which led to the adjustment. The Tribunal's decision was influenced by the substantial subvention income received by the assessee, which exceeded the adjustment amount, and the lack of statutory basis for the Bright Line Test as per judicial precedents.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706134 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2021-2022
• Other Referred Cases: M/s. Edwards Lifesciences (India) Pvt. Ltd. v/s. ACIT in ITAs No.1189 and 7198/Mum/2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHAGIRATH RAMAWAT
• Assessee Lawyers: CHANDNI SHAH
• Keywords: Business income; Transfer pricing; International transaction; Initiation of penalty proceedings; Tangible material
• Section: 143(3); 234B; 92B; 92C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No.6188/MUM/2024 (Assessment Year : 2021-22) Edwards Lifesciences (India) Pvt. Ltd., 4th Floor Commerz – II, International Business Park Oberoi Garden City, Goregaon (East), Off Western Express Highway Goregaon (East), Mumbai - 400063 PAN : AAACB4203F ............... Appellant v/s Assistant Commissioner of Income Tax, Circle-2(1)(1), Kautilya Bhawan, BKC, Mumbai - 400012 ……………… Respondent Assessee by : Ms. Chandni Shah Ms. Riddhi Maru Ms. Kinjal Patel Revenue by : Shri Bhagirath Ramawat, Sr.DR Date of Hearing – 25/06/2025 Date of Order - 30/06/2025 O R D E R PER SANDEEP SINGH KARHAIL, J.M. The assessee has filed the present appeal against the impugned final assessment order dated 30.09.2024, passed under section 143(3) r.w. section 144C(13) r.w. section 144B of the Income Tax Act, 1961 (“the Act”) pursuant to the directions issued by the learned Dispute Resolution Panel (“learned DRP”) under section 144C(5) of the Act, for the assessment year 2021-22. 2. In this appeal, the assessee has raised the following grounds: - ITA No.6188/Mum/2024 (A.Y. 2021-22) 2 “Grounds pertaining to Transfer Pricing adjustments: General Ground: 1.1. On the facts and in the circumstances of the case, and in law, the Assessment Order passed in pursuance to the directions issued by the Ld. Dispute Resolution Panel ('DRP') is a vitiated order, as the Ld. DRP erred both on facts and in law in confirming the addition made by the Learned ('Ld.\") Assessing Officer ('AO') and Ld. Transfer Pricing Officer ('Ld. TPO') to the Appellant's income. The Appellant humbly prays that the additions made by the La. AO to the income of the Appellant be deleted. Ground on Limitation: 1.2. On the facts and circumstances of the case and in law, the Final Assessment Order dated 30 September 2024, passed by the Ld. AO under section 143(3) read with section 144C(13) and Section 144B of the Act, having being passed beyond limitation provided in terms of Section 153 of the Act, is void-ab-initio, illegal, bad in law and therefore liable to be quashed. Advertisement, Marketing and Promotional ('AMP') Adjustment. Advertisement, Marketing and Promotional (‘AMP’) Adjustment 2.1. On the facts and in the circumstances of the case and law, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in making a Transfer Pricing (TP) adjustment of INR 9,212,742 on account of alleged creation of marketing intangibles and promoting the brand of the Associate Enterprises (ABs') by incurring excess AMP expenses over and above the Bright Line Test (‘BLT’) i.e., the AMP expenses incurred by the comparables. Further the Ld. DRP/ Ld. AO/ Ld. TPO erred in, charging of a mark-up for rendering such services. In doing so the Hon'ble DRP/ Ld. AO has grossly erred in upholding the action of Ld. TPO in: a) Treating and categorizing the AMP expenses incurred by the Appellant in India as an international transaction under Section 92B of the Act. b) Not appreciating that the issue of marketing intangibles is not relevant for limited risk distributor as in the case of the Appellant, the Appellant has been already compensated by the supplying AEs, by way of subvention income, to help the Appellant in order to achieve the arm's length operating margin according to India Transfer Pricing regulations; c) Alleging that incurrence of advertising, marketing promotion and conference expenditure leads to value addition in the intangibles/brand of the AEs; d) Considering the arithmetical mean of the AMP spend ratio of the companies without appreciating that the determination of routine vs. non-routine AMP spend is a qualitative exercise and not a numerical one and accordingly the general rule of arithmetic mean/ averaging should not apply to bright line; ITA No.6188/Mum/2024 (A.Y. 2021-22) 3 e) Failing to bring any direct or indirect material on record to support that AEs have benefitted from AMP expenses incurred by the Appellant. 2.2 Without prejudice to the above, on the facts and in the circumstances of the case and in law, while applying BLT, the Ld. DRP/ Ld. TPO/ AO have grossly erred in: a) Applying the bright line method to determine the alleged excessive AMP spend without appreciating the fact that such method has not been prescribed under the Act and the Rules; b) Failing to appreciate the fact that these expenses were incurred wholly and exclusively for purpose of business of the Appellant in India and no direct benefit was passed on to the AE and hence, there should not be any reimbursement of such expenses to the Appellant; c) Arbitrarily selecting the comparable companies for BLT without undertaking a structured search process and without considering the relevant factors such as size of company, volume of AMP spend, functional/product profile etc., thus rendering them to be not comparable to the Appellant and hence liable to be rejected; d) Determining the arm's length price of the transaction under 'Other Method' on an ad hoc basis in contravention to provisions of the section 92C of the Act; e) Considering an ad hoc mark-up of 7.02% towards marketing support services (based on ad-hoc comparable companies selected by the Ld. TPO), for alleged support service provided to AEs without undertaking a structured search process and without considering the various relevant factors such as size of the company, functional profile, etc. for the current financial year; f) Selecting comparable companies without applying the check for companies having significant RPT and failing the RPT filter; and g) Disregarding the decision of Hon'ble Tribunal of Mumbai in the Appellant own case for AY 2012-13 and AY 2013-14 where similar adjustments were deleted. 2.3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Hon'ble DRP/ Ld. TPO/ AO have grossly erred in: a) Disregarding the aggregation/ bundled approach for benchmarking the advertising, marketing promotion and conference expenditure as stated by the Appellant; and b) Disregarding the fact that the arm's length return earned by the Appellant for its distribution activities has already taken into account the incurrence of such AMP expenditure. The Appellant therefore prays the entire AMP adjustment INR 9,212,742 / - to be deleted. 3. Initiating penalty proceedings under section 270A of the Act ITA No.6188/Mum/2024 (A.Y. 2021-22) 4 On the facts and circumstances of the case and in law, the Ld.AO has erred in initiating penalty proceedings under section 270A of the Act for under reporting of income in consequence of misreporting. Without prejudice to above grounds Interest u/s. 234B of the Act 4.1. On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest u/s. 234B amounting to INR 2,143,706/-. The Appellant prays that the Ld. AO be directed to delete / appropriately reduce the interest u/s. 234B of the Act, being consequential in nature.” 3. Ground No.1.1 is general in nature. Therefore, the same needs no separate adjudication. 4. Ground No.1.2 raised in assessee’s appeal was not pressed vide letter dated 18.06.2025 filed by the assessee. Accordingly, the same is dismissed as not pressed. 5. The issue arising in Ground No.2, raised in assessee’s appeal, pertains to Transfer Pricing Adjustment on account of advertisement, marketing and sale promotion (“AMP”) expenses incurred by the assessee. 6. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an indirect subsidiary of Edward Lifesciences Corporation, USA and a distributor of Cardiovascular range of product in India. The products distributed by the assessee fall within the cardiac care (which consists of heart valve therapy products, cardiac pulmonary products and RMI Products), critical care and vascular product line. For the year under consideration, the assessee filed its return of income on 26.02.2022 declaring a total income of ₹ 10,47,13,769/-. The return filed by the assessee was selected through CASS for complete scrutiny, inter alia, for the reason of high ITA No.6188/Mum/2024 (A.Y. 2021-22) 5 risk international transactions. During the year under consideration, the assessee entered into following international transaction with its Associated Enterprises. Sr. No. Nature of transaction Amount in (INR) Method used 1. Purchase of Traded Goods 57,34,48,498 Transactional Net Margin Method (TNMM) 2. Aid from fellow subsidiaries 39,17,89,834 3. Purchase return of traded goods 2,58,03,811 4. Purchase of fixed assets 1,20,000 5. Reimbursement of expenses 1,26,25,776 6. Recovery of expenses 96,17,412 7. Tax cost on vesting of ESOPs 82,01,525 8. Payments in relation of ESPP/RSUs 88,86,288 Total 1,04,95,27,391 7. Pursuant the reference made by the Technical Unit under Section 92CA(1) of the Act to the Transfer Pricing Officer (“TPO”) for determination of arm’s length price (“ALP”) of the international transactions undertaken by the assessee, the TPO asked the assessee to submit the details in relation to advertisement, conference and marketing promotion expenses incurred by the assessee during the year under consideration. The assessee was also asked to show cause as to why the expenses relating to advertising, marketing, and conference expenses, along with educational and training expenses, should not be considered as brand-building expenses for Associated Enterprises, creating an intangible, and why they should not be treated as an international transaction. In response, the assessee submitted that the assessee operates as a limited risk distributor, and accordingly, it incurs conference and marketing promotion expenses to solicit customers and distribute its products in India, thereby increasing its sales. The assessee submitted that the benefits derived from incurring these expenses are enjoyed by the assessee by way of an increase in sales. It was further submitted that ITA No.6188/Mum/2024 (A.Y. 2021-22) 6 there is a need in assessee’s business to create awareness amongst the members about the availability of new technology in medical equipment and accordingly, in order to educate about the improved medical technology, and products offered by the assessee, these conferences and marketing promotion expenses were expended as a strategy to increase sales, like any other third- party distributor. It is further submitted that such expenses are incurred wholly and exclusively for the assessee’s own business, which were paid to the third parties in India that are not in any way related either to the assessee or its Associated Enterprises. In response to the show cause notice issued by the TPO, the assessee furnished the following details of expenses incurred by the assessee: - Sr. No. Nature of Expense Amount in (INR) 1. Faculty Related 7,01,795 2. Consultant Related 68,00,241 3. Contribution to Medical Congress / Institutions 1,06,38,507 4. Marketing Promotional activities 1,60,37,235 Total 3,41,77,778 8. The assessee further provided the following details of specific expenses:- “Training expenses - These expenses are incurred in relation to the Assessee's employees growth like soft skill trainings, leadership training, finance related trainings, etc. Conference expenses - These expenses have been incurred in relation to travel and other costs of doctors in order for them to attend conferences to educate them about Edwards products offerings. Marketing promotion expenses - These expenses are incurred in relation to promote/ market Edwards products offered by the Assessee. These expenses are incurred by sponsoring Continuing Medical Education ('CME Programme') held in different hospitals to create awareness of medical devices available in the market, printing books and video shooting expenses for CMP programme etc.” ITA No.6188/Mum/2024 (A.Y. 2021-22) 7 9. Before the TPO, the assessee further submitted that pursuant to the supplementary distribution agreements entered into by the assessee with the suppliers / Edwards group entities, the assessee received compensation from the supplying group entities, to enable the assessee to meet the arm’s length benchmark margin at the net level vis-à-vis the margin earned by the comparable companies. It was further submitted that accordingly, during the year under consideration, the assessee received an amount of ₹ 39,17,89,834/- as subvention income from its Associated Enterprises to help it achieving an arm’s length margin in India which effectively tantamount to compensating the assessee for any or all expenses relating to its distribution activities (including advertisement, marketing and conference expenses). Thus, it was submitted that even if it is assumed that such expenditure leads to brand building for its Associated Enterprises and presence of an international transaction, still the same has been recovered by the assessee by way of receiving the subvention income which is duly offered to tax and which is much higher than the proposed Transfer Pricing Adjustment. The assessee also placed reliance upon various judicial pronouncements wherein it has been held that mere incurring an AMP expenditure should not lead to inference of the existence of an international transaction and the Revenue has to prove with tangible material, the existence of arrangement, understanding or action in concert between the Associated Enterprises for the same. 10. The TPO, vide order dated 23.10.2023 passed under section 92CA(3) of the Act, disagreed with the submissions of the assessee and held that giving the intensity of the AMP functions carried out by the assessee, it can be ITA No.6188/Mum/2024 (A.Y. 2021-22) 8 concluded that these vital functions should actually be carried out by the Associated Enterprises (being the entrepreneur), which has been assigned to the assessee. The TPO further held that this assignment can be inferred from the conduct of the parties, and thus, there is an existence of an arrangement by which the brand owned by the Associated Enterprises is being promoted by the assessee by incurring AMP expenses. The TPO further held that the assessee has a well-established network for sales, marketing, and distribution of branded products manufactured by the Associated Enterprises, which resulted in the creation of marketing intangible in favour of the Associated Enterprises in India, and the same is an international transaction that calls for benchmarking. The TPO, by adopting the Bright Line Test (i.e., by considering the AMP/Sales ratio) of the comparable companies, concluded that the assessee is not being suitably compensated for the development of marketing intangible. Thus, therefore, by considering the AMP/Sales ratio of suitable comparable, which comes to 3.1%, as an arm’s length margin and further adding the mark up of 7.02% (being the arithmetic mean of operating profit to operating cost of the companies which are exclusively functioning as advertising and marketing services), the TPO computed the ALP of the international transaction relating to AMP expenses leading to creation of marketing intangible benefitting the Associated Enterprises at Rs.92,12,,742/-. 11. The Assessing Officer (“AO”), vide draft assessment order dated 20.11.2023 passed under section 144C(1) of the Act, computed the total income of the assessee at Rs.11,39,26,511/- after incorporating the Transfer ITA No.6188/Mum/2024 (A.Y. 2021-22) 9 Pricing Adjustment made by the TPO. The assessee filed detailed objections before the learned DRP against the Transfer Pricing Adjustment made by the TPO, again reiterating its submission, inter alia, that the assessee pursuant to the supplementary distribution agreement received subvention payment from the Associated Enterprises and thus the assessee has been adequately compensated by its Associated Enterprises for all its functions. The assessee also placed reliance upon the decision of the Co-ordinate Bench in its own case for assessment years 2012-13 and 2013-14, wherein a similar adjustment made on account of incurring AMP expenses was deleted. The learned DRP, vide its directions dated 30.08.2024 passed under section 144C(5) of the Act, upheld the findings of the TPO that there is an arrangement, understanding or action in concert between the assessee and its Associated Enterprises, whereby the assessee has incurred non-routine expenditure in the form of AMP expenses for providing services of brand building to the Associated Enterprises for which no adequate compensation has been received. Accordingly, the learned DRP held that there is clearly an international transaction covered under the provisions of section 92B of the Act. As regards the reliance placed by the assessee upon the decisions of the Hon’ble Delhi High Court, wherein the adoption of the Bright Line Test for computing the Transfer Pricing Adjustment was rejected, the learned DRP held that the issue has not attained finality as the Department has filed appeal before the Higher Judicial Forum. In conformity with the directions issued by the DRP, the AO passed the final assessment order computing the total income of the assessee at Rs.11,39,26,511/- after adding the Transfer Pricing ITA No.6188/Mum/2024 (A.Y. 2021-22) 10 Adjustment of Rs.92,12,742/-. Being aggrieved, the assessee is in appeal before us. 12. During the hearing, the learned Authorized Representative (“learned AR”), at the outset, by referring to the submissions made by the assessee before the lower authorities submitted that the assessee was adequately compensated by its Associated Enterprises as it received a subvention payment of Rs.39,17,89,834/- for the functions rendered by it which is much higher than the Transfer Pricing Adjustment of Rs.92,12,742/- made by the TPO. The learned AR further submitted that the said subvention has resulted in an arm’s length benchmark margin at the net level vis-à-vis the margin earned by the comparable companies. By referring to the decision of the Co- ordinate Bench of the Tribunal rendered in assessee’s own case for assessment years 2012-13 and 2013-14, the learned AR submitted that on the basis that subvention income received by the assessee was much more than the entire Transfer Pricing Adjustment made by the TPO, the Co-ordinate Bench of the Tribunal granted relief to the assessee and deleted similar Transfer Pricing Adjustment made on account of incurring AMP expenses by the assessee. 13. On the other hand, the learned Departmental Representative (“learned DR”) submitted the very fact that the assessee received subvention income from the Associated Enterprises goes on to prove that there was an arrangement between the assessee and the Associated Enterprises for rendering marketing functions in India on behalf of the Associated Enterprises. ITA No.6188/Mum/2024 (A.Y. 2021-22) 11 14. We have considered the submissions of both sides and perused the material available on record. We find that the Co-ordinate Bench of the Tribunal in assessee’s own case in M/s. Edwards Lifesciences (India) Pvt. Ltd. v/s. ACIT in ITAs No.1189 and 7198/Mum/2017, for assessment years 2012- 13 and 2013-14, vide order dated 10.07.2019, while deleting the Transfer Pricing Adjustment made on account of incurring AMP expenses by the assessee, observed as follows: - “5. We have heard the rival submissions and perused the order of the Id. TPO, submissions made by the assessee before the ld. TPO and ld. DRP, objections raised by the assessee before the ld. DRP and arguments of both the Counsels before us and the paper book of the assessee together with the judicial pronouncements relied upon to which our attention was drawn by both the counsels before us. From perusal of the same, we find that the nature of expenditure incurred by the assessee was to create produce awareness among doctors in order to make them aware about the technology and product benefits; to educate and make the doctors aware about the latest products available in the market. We find that the expenditure incurred were in the nature of scientific meetings, medical advice, awareness campaign, scientific sessions, training etc., The various arguments by the Id. AR by referring to various documents in the paper book and the appeals are summarised as under:- \"3.1 The assessee's industry is highly competitive, any new product development and technological change characterize the areas in which the assessee compete. To help broaden awareness of products and technologies, the assessee conduct educational symposia and provide training to physician, hospital executive, service line leadership, and clinical-based customers. 3.2 The need in assessee's business which is technologically upgrading at every step is to create awareness among the doctors about the availability of new technology in medical equipment. Accordingly, in order to educate about the improved medical technology products offered by the assessee, these conference and marketing promotion expenses are expended worth INR 2.65 crores and INR 1.52 crores respectively, like any other independent third party distributor. 3.3 The assessee has incurred conference and marketing promotional expense in order to create awareness of its products in the Indian market which is amongst the doctors in order to make them aware about the technology and product benefits. These expenditures have been incurred in order to educate and make aware the doctors about the latest products available in the market which is in the nature of scientific meetings, medical device awareness campaign, scientific sessions, etc. 3.4 Further, it is via marketing promotion, conference sponsorship, doctor's participation in medical conferences, etc. that the doctors are being made aware about path-breaking medicine and its technology in the Western world. ITA No.6188/Mum/2024 (A.Y. 2021-22) 12 The training expenses has been incurred in relation to the assessee's employee's growth like soft skill trainings, leadership finance related trainings, etc. The nature of Conference expenses is travel and other costs of doctors in order for them to attend conferences to educate them about Edward's products offerings. The marketing promotion expenses are incurred in relation to promote/ market Edward's products offered by the assessee in India. These Indian market. This could be in the nature of publications, books, advertisements, training modules etc. 3.5 Such expenses are incurred wholly and exclusively for the assessee's own business, which are paid to third parties in India that are not in any way related either to the assessee or its AEs. The assessee has the sole discretion of deciding the form, manner, content and timing of the advertising. The direct benefit in terms of increased sales, market share etc. resulting from such conference and marketing promotion expenses is to the assessee's own account\" 5.1. We find the crucial aspect which has been ignored by the lower authorities while adjudicating the issue in dispute before us was that the assessee was in respect of subvention income from its AEs. This was received pursuant to supplementary distribution agreements entered into by the assessee with the AEs wherein the assessee received compensation from the AEs to enable it to meet the arm's length benchmark margin at net level vis-à-vis margin earned by the comparable companies. Based on such distribution agreement, the AE agreed to compensate the assessee in case it does not earn the arm's length margin on its own. Accordingly, during the year, the assessee had received the subvention income from its AEs to help it achieving an arm's length margin in India, which effectively tantamount to compensating the assessee for all the expenses relating to its distribution activity. Hence, even for a moment if it has to be assumed that incurrence of the aforesaid various expenditure by the assessee were on behalf of the AE and would constitute services rendered by the assessee to its AE which in turn would lead to an international transaction thereof is to be accepted, still it could be safely concluded that the assessee had recovered from its AE by way of subvention income which has been duly offered to tax by the assessee. It is not in dispute that the subvention income so offered in the sum of Rs.8,75,17,611/- is much higher than even the adjustment contemplated by the Id. TPO in the sum of Rs.4,83,30,978/- which includes the mark up of 15.66%. We find that the Id. AR had placed major reliance on this as an alternative argument wherein by considering the subvention income, the assessee's operating margin is higher than the arithmetic mean operating margin of 4.92% earned by independent distributors and hence any sort of conference and related expenses, if at all were to be considered, are already included / benchmarked under the net margin based analysis and accordingly there cannot be any adjustment to ALP thereon. The Id. DR relied on the findings of the Id. DRP with regard to the aspect of subvention income received by the assessee and made an elaborate arguments only on the aspect that assessee being a low risk distributor, need not have incurred the aforesaid expenditure to the tune of Rs.4.17 Crores and those expenditures were incurred only for promotion of brand building of the AE in India and hence, it would result in 'marketing intangibles' and accordingly, would constitute rendering of services by the assessee to its AE which are to be adequately compensated by the AE to the assessee. Hence, he vehemently relied on the orders of the lower authorities. ITA No.6188/Mum/2024 (A.Y. 2021-22) 13 5.2. We also find that the Id. AR made a specific submission that the Id. DRP and the Id. TPO had made reference to the annual report of certain AE wherein it was stated that the AE is supposed to conduct educational symposia and provide training to customers. In this regard, it was pleaded that such reference does not preclude the operational distribution subsidiaries for performing their respective distribution functions. It was argued that the annual report talks about entire Edwards group including all subsidiaries and affiliates and it does not say that the operational subsidiaries are debarred from / not required to undertake such functions or that the entire liability at the group level. It is a general statement about the group's business activity and its profile. It was argued that the lower authorities have picked up some lines from the annual report which was not apparently submitted by the assessee but rather obtained by the Id. TPO independently. It was specifically brought to the notice of the Bench that the Annual report relied upon by the lower authorities was not that of the AE which had given subvention income to the assessee herein. Therefore, it was submitted that the remarks made in one of the group entities annual report which had not even entered into any international transaction with the assessee cannot constitute any agreement or arrangement with the assessee and hence, cannot be relied upon. This was not controverted by the Id DR before us. We find lot of force in this specific argument of the Id. AR. 5.3. In view of the aforesaid findings in the facts and circumstances of the case, we are inclined to grant relief to the assessee on the ground that subvention income received by the assessee is much more than even the entire ALP adjustment made by the Id. TPO and upheld by the Id. DRP towards advertising, marketing, sales promotion, conference expenses etc., and in view of this decision, the other arguments made by the Id. AR that the incurrence of said expenditure was only for its benefit in the form of increase in turn over and there was no brand building of AE pursuant to incurrence of such expenditure and that it does not fall within the ambit of an international transaction u/s.92B of the Act, need not be gone into. The Grounds raised by the assessee in this regard are disposed off accordingly. 5.4. The above decision rendered for A.Y.2012-13 would apply with equal force in A.Y.2013-14 also on the said issue. However, we find that the Id. TPO while adjudicating the issue on similar grounds had additionally applied Bright Line Test (BLT) to justify his adjustment to ALP which is reflected in para 17.3 of his order as under:- Particulars Amount in INR Total sales 83,52,87,811 Arm’s length level of AMP exp. (% of sale) 3.29% Arm’s length AMP 2,74,80,969 Amount actually spent on AMP exp. 3,81,47,558 Amount spent in excess of bright line and on creation of marketing intangible 1,06,66,589 Mark-up @ 7.09% 756.261 The amount by which the assessee company should have been reimbursed by AE and for which the adjustment is proposed to be made. 1,14,22,850 ITA No.6188/Mum/2024 (A.Y. 2021-22) 14 5.5. We find that the application of Bright Line Test has been negatived by the Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd., reported in 381 ITR 117. Hence, the action of the lower authorities would not be justified even on that count. Accordingly, the ground No. 2 raised by the assessee for A.Y.2013-14 is disposed off in line with the A.Y.2012-13 supra and in view of the decision of Hon'ble Delhi High Court supra.” 15. As noted in the foregoing paragraphs, in the present case, it has been consistently contended by the assessee before the lower authorities that during the year under consideration, pursuant to the supplementary distribution agreement, the assessee received subvention income of Rs.39,17,89,834/- from its Associated Enterprises to help it achieve an arm’s length margin in India, which effectively tantamount to compensating it for all expenses relating to distribution activity (including advertisement, marketing and conference expenses). We find that in this regard during the transfer pricing assessment proceedings, the TPO specifically issued notice on 05.10.2023 asking the assessee to provide detailed working of the amount received as subvention income and other details such as the agreement under which the payment was made, how the said amount was determined and the benchmarking of the transaction after considering the subvention payment. Replying to the aforesaid notice, the assessee vide its letter dated 10.10.2023, forming part of the paper book from pages 236-238, provided the details as sought by the TPO and submitted that after considering the subvention payment of Rs.39,17,89,834/-, the assessee achieved the arm’s length operating sales margin of 6.92%. We find that similar submissions were also made before the learned DRP , as noted on pages 37–39 of the DRP’s direction. However, the aforesaid submissions of the assessee were not dealt with by any of the lower authorities, and the impugned Transfer Pricing Adjustment ITA No.6188/Mum/2024 (A.Y. 2021-22) 15 was made by considering the incurring of AMP expenses as an international transaction. It is pertinent to note that the objective of the entire exercise of Transfer Pricing Benchmarking analysis is to arrive at an arm’s length remuneration, which the assessee should have earned from rendering the distribution services to its Associated Enterprises and once the assessee has shown that the income earned by it including the subvention income of Rs.39,17,89,834/- has resulted in an arm’s length margin in India vis-à-vis the margin earned by the comparable companies, any further adjustment is unwarranted and uncalled for, particularly when the subvention income received by the assessee is much more than the entire Transfer Pricing Adjustment of Rs.92,12,742/- made by the TPO. Therefore, on this basis alone, we do not find any merits in the Transfer Pricing Adjustment made by the TPO and upheld by the learned DRP. 16. It is further evident from the record that the TPO for making the impugned addition has adopted the Bright Line Test, which was held to be not having any statutory mandate by the Hon’ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT, reported in (2015) 374 ITR 118 (Del). We find that this was also one of the basis for deleting a similar Transfer Pricing Adjustment by the Co-ordinate Bench of the Tribunal in the decision cited supra. Accordingly, in view of our aforesaid findings, without going into any other aspect of the issue involved, the impugned Transfer Pricing Adjustment is deleted. As a result, Ground No.2 raised in assessee’s appeal is allowed. ITA No.6188/Mum/2024 (A.Y. 2021-22) 16 17. Ground No.3 raised in assessee’s appeal pertains to the initiation of penalty proceedings under section 270A of the Act, which is premature in nature. Accordingly, Ground No.3 is dismissed. 18. Ground No.4 raised in assessee’s appeal pertains to the levy of interest under section 234B of the Act, which is consequential in nature and therefore, needs no separate adjudication. 19. In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 30/06/2025 Sd/- NARENDRA KUMAR BILLAIYA ACCOUNTANT MEMBER Sd/- SANDEEP SINGH KARHAIL JUDICIAL MEMBER MUMBAI, DATED: 30/06/2025 Prabhat Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By Order Assistant Registrar ITAT, Mumbai "