HIMALAYA WELLNESS COMPANY,BENGALURU V. DCIT, CIRCLE-6(1)(1), BENGALURU

ITTPA 2225/BANG/2024

AI Insights

The case involves Himalaya Wellness Company appealing against the assessment order for the assessment year 2021-22, which included significant transfer pricing adjustments. The adjustments were primarily based on the application of the Cost Plus Method (CPM) by the Transfer Pricing Officer (TPO), which the company contested, advocating for the Transactional Net Margin Method (TNMM) instead. The Tribunal considered various precedents and the specific circumstances of the case, including the functional and risk profiles of the company's domestic and international operations, and the nature of the transactions with associated enterprises. The Tribunal's decision leaned towards the methods and findings that favored the company's stance, leading to the partial allowance of the appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 779371 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 22 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 13-10-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2021-2022
• Appeal Filed On: 21-11-2024
• Other Referred Cases: Himalaya Drug Company vs. Deputy Commissioner of Income Tax, Essilor India (P.) Ltd. vs. Dy. CIT, Nike India (P.) Ltd. vs. Dy. CIT, Maruti Suzuki India Ltd. vs. CIT, Whirlpool of India Ltd. vs. CIT, Bausch & Lomb Eyecare (India) (P.) Ltd. vs. Addl. CIT, Yum Restaurants (India) Pvt. Ltd. vs. ITO, Honda Sel Products vs. CIT, Daiichi Sankyo Company Ltd. vs. Jayaram Chigurupati, Vodafone India Services (P.) Ltd. vs. UOI, DLF Hotel Holdings Ltd. vs. CIT, Shell India Markets Ltd. vs. CIT, Vodafone India Services (P.) Ltd. vs. UOI
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REVENUE; PADAMCHAND KHINCHA
• Assessee Lawyers: ADOPTING IDENTICAL METHODOLOGY; ADOPTING TRANSACTIONAL NET MARGIN; GIVING A NONEXISTENT
• Keywords: Set aside; Additional evidence; Revenue expenditure; Transfer pricing; International transaction; Bad and doubtful debts; Corroborative evidences; Fair market value; Rule of consistency; Capital expenditure; Ignorance of law; TDS; Assessment record; Wholly owned subsidiary; Validity of assessment
• Section: 143(3); 92; 37(1); 92B; 10B; 92C; 92D; 92F; 92A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER IT(TP)A No.2225/Bang/2024 Assessment year : 2021-22 Himalaya Wellness Company, Makali, Tumkur Road, Bengaluru – 562 162. PAN: AADFT 3025B Vs. The Deputy Commissioner of Income Tax, Circle 6(1)(1), Bengaluru. APPELLANT RESPONDENT Revenue by : Shri Padam Chand Khincha, CA Respondent by : Dr. Divya K J, CIT(DR)(ITAT) Date of hearing : 14.07.2025 Date of Pronouncement : 13.10.2025 O R D E R Per Prashant Maharishi, Vice President 1. This appeal is filed by M/s Himalaya Wellness Company (the assessee/appellant), a partnership firm for the assessment year 2021-22 against the assessment order passed by the Assessment Unit [ld. AO] dated 27/09/2024 u/s. 143(3) of the Income-tax Act, 1961 [the Act] determining total income of the assessee at Rs. 544,41,16,186/-. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 2 of 170 2. Assessee aggrieved with the same has preferred this appeal raising the following grounds: - “1. The Order of the Learned Assessing Officer (Ld. AO) in so far as it is prejudicial to the interest of the Appellant is not justified in law and on facts and circumstances of the case. 2. The Directions of the Hon'ble Dispute Resolution Panel (DRP) in so far as the same are prejudicial to the interest of the Appellant are not justified in law and on facts and circumstances of the case. 3. AS REGARDS THE TRANSFER PRICING ADJUSTMENTS: 3.1 As regards reference made u/s 92CA(1) by the Ld. Assessing Officer is without satisfying the conditions of section 92CA(1) and Ld. Principal CIT is not justified in approving such reference mechanically: 3.2 The Officers below erred in ignoring the Hon'ble Tribunal's order in the Appellant's own case of AY 2011-12; AY 2010¬11; 2012- 13; 2013-14; 2014-15; 2015-16, 2016-17; 2017-18 and 2018-19 wherein the identical addition made under this head has been deleted. 3.3 The Ld. Assessing Officer is not justified in making reference to the Ld. TPO u/s 92CA(1) of the IT Act without there being any just cause thus the reference to the Ld. TPO was mechanically made and bad in law and without satisfying the conditions precedent thereto, without application of mind, contrary to the provisions of the Act and jurisprudence. 3.4 The Hon'ble DRP has failed to appreciate that as the reference u/s 92CA (1) of the IT Act being bad & void-ab-initio, the draft Assessment Order and the impugned assessment order passed by the Ld. Assessing Officer is invalid rendering all the subsequent proceedings as bad. 3.5 The Hon'ble DRP has failed to appreciate that as the reference u/s 92CA (1) being bad & void-ab-initio, the impugned Assessment Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 3 of 170 Order passed by the Ld. Assessing Officer is barred by limitation in terms of section 153 (1) of the IT Act. 3.6 The Hon'ble DRP and the Ld. TPO have erred in holding that the Appellant and The Himalaya Drug Company FZCO, The Himalaya Drug Company (FZC) LLC, Himalaya Drug Company USA, The Himalaya Drug Company Pte Ltd, The Himalaya Drug Company Ltd, Latvia, The Himalaya Wellness Company (Cayman) Ltd., Cayman and The Himalaya Drug Company (PTY) Ltd -South Africa, Himalaya Global Research Centre FZ, PT The Himalaya Drug Company, Himalaya Ilac Ticaret Ltd. Sti, Gulf Centre for soap and chemical industries LLC, Torf Corporation Sp. Z.0.0 Soap and chemical industrial & trading Co(Scitra), Quality Wipes LLC are associated enterprises when the conditions of section 92A(2) of the IT Act are not present. 4. As regards rejection of the TP study done by the Appellant under TNMM and adoption of CPM as the Most Appropriate Method: 4.1 The Hon'ble DRP is not justified in upholding the action of the Ld. TPO in rejecting the Transfer Pricing study carried out by the Appellant under TNMM. 4.2 The Hon'ble DRP is not justified in upholding the action of the Ld. TPO in rejecting ALP determined by the Appellant under TNMM for the impugned AY 2018-19 though the ALP determined by the Appellant by adopting identical methodology in similar kind of transactions for AY 2005-06 had been accepted by the Ld. Joint Director of Income-tax (TP — II), Bangalore in his order dated 31.10.2008 passed under section 92CA of the IT Act and hence the assessing authority's approach is inconsistent. 5 As regards flaws in determination of ALP based on CPM: 5.1 The Hon'ble DRP is not justified in upholding the action of the Ld. TPO in selecting the CPM as the Most Appropriate Method by failing to appreciate that the CPM does not suit in the facts and circumstances of the case of the Appellant. 5.2 The Hon'ble DRP is not justified in failing to appreciate that Rule 10B(1)(c) requires adoption of normal gross profit mark-up Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 4 of 170 arising from the transfer of same or similar property by the Appellant, in a comparable uncontrolled transaction on direct and indirect costs of production in an international transaction, thereby clearly mandating that comparison has to be made only when Appellant distributes its products in the domestic market at the same level at which it distributes in its international transactions, and not when the Appellant's functions are totally different between domestic transactions and international transactions. 5.3 The Hon'ble DRP is not justified in upholding the action of the Ld. TPO in adopting 95.60% as the comparable gross profit margin on cost which is extremely high and abnormal and also failed to make any adjustments for the functional differences identified and agreed by him between the compared transaction and the tested transaction. 5.4 Without prejudice to the objection on adoption of CPM as MAM, as regards not allowing adjustments as per Rule 10B(1)(c)(iii): Without prejudice to the objection on adoption of CPM as MAM, the Hon'ble DRP is not justified in upholding the action of the Learned TPO in determining the ALP under CPM without making adjustments, as required to be made under Rule 10B(1)(c)(iii), for the differences in respect of administrative, selling and distribution expenses, marketing functions, AMP expenditure, freight expenses, bad debt risk, market risk, financial risk, investment risk, foreign exchange fluctuation risk, debt risk and inventory risk which materially affect the gross profit mark-up in the open market. 6 As regards adjustment on account of alleged advertisement and marketing promotion (AMP) expenditure: 6.1 The Officers below erred in ignoring the Hon'ble Tribunal's order in the Appellant's own case of AY 2011-12; AY 2010-11; 2012- 13; 2013-14; 2014-15; 2015-16, 2016-17; 2017-18 and 2018-19 wherein the identical addition made under this head has been deleted. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 5 of 170 6.2 The Hon'ble DRP is not justified in directing adjustments towards alleged AMP expenditure though, such expenditure cannot be treated as an international transaction within the meaning of section 92B of the IT Act. 6.3 The Hon'ble DRP ought to have appreciated that the mandate in section 92(1) is to compute only income arising from an international transaction at arm's length and if there is no consensus ad idem among the parties that brand promotion service is rendered, the lower authorities cannot presume rendition of such services and bring notional income to tax. 6.4 The Hon'ble DRP failed to appreciate that the Learned TPO is not justified in holding that the appellant had rendered brand promotion services to its AEs merely relying on the expenditure incurred without bringing on record any evidence to prove that the Appellant has actually rendered those services and the capability of the Appellant to render those services. 6.5 The Hon'ble DRP is not justified in treating the AMP expenditure incurred by the appellant as brand promoting expense and that it is an international transaction though the Department had treated similar kind of expenditure as expenditure incurred in respect of domestic consumer products' division of the Appellant in the AY 2005-06, thereby taking contradictory and inconsistent stand. 6.6 The Hon'ble DRP has failed to appreciate that the Appellant is in fact the economic owner of the brand with unfettered right to use the brand although Himalaya Global Holdings Ltd., may be legal owner for the purpose of international registration of products. 6.7 Without prejudice to the above, the Hon'ble DRP has failed to appreciate that as the appellant is a manufacturer as well as full- fledged distributor of its own products using its own technology and comprehensive distribution network, the profit split method is not applicable as per internationally accepted guidelines and Indian Transfer Pricing Laws. 6.8 Without prejudice to the above grounds, the Hon'ble DRP ought to have held that the manner of determination of ALP is not in accordance with section 92C read with relevant Rules. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 6 of 170 6.9 Without prejudice to the above, the Hon'ble DRP is not justified in directing adjustment towards the alleged AMP expenditure without carrying out or causing to be carried out any transfer pricing analysis, including outlining the alleged international transaction, selection of comparable uncontrolled transactions, determination of most appropriate method, applying the Most Appropriate Method, carrying out various adjustments and determining the arm's-length price. 6.10 Without prejudice to the above, the Hon'ble DRP is not justified in upholding the action of the learned TPO in arriving at the normal AMP expenditure by dividing the advertisement and selling expenses of the comparable enterprises by the turnover of those companies without making an FAR analysis and without making any suitable adjustment for various qualitative and quantitative differences. 6.11 Without prejudice to the above, the Hon'ble DRP is not justified in upholding the action of the Learned TPO in identifying Rs. 3,01,71,79,632/- as alleged AMP expenditure and applying the purported profit split method(PSM) though the said sum essentially represents all the expenses debited to profit and loss account below the gross profit level. 6.12 Without prejudice to the above, the Hon'ble DRP is not justified in upholding the action of the learned TPO in identifying Rs. 3,01,71,79,632/- as alleged AMP expenditure and applying the profit split method though the said sum includes commission paid to C&F agents, discounts to retailers, wholesalers, stockists, franchise / store expenses, target incentives, salaries for logistics staff and the related travelling expenses, cost of expired / damaged goods, etc. which are not in the nature of AMP expenditure. 6.13 The Hon'ble DRP and Learned TPO are not justified in taking contradictory positions between justification for royalty adjustment and justification for AMP expenditure. 6.14 Without prejudice to other grounds, the Ld. TPO has erred in changing the methodology of computation of ALP of AMP arbitrarily from Bright Line Test followed till AY 2012-13 altogether to purported Residual Profit Split Method, both of Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 7 of 170 which are not notified methods and recognised methods under the Transfer Pricing Regulations, without providing the basis for the change, erred under the principles of consistency, when the facts remained same, failed to appreciate that the Profit split method can be used only for splitting the profit and not an expense. The Hon'ble DRP erred in confirming the same. 6.15 The Ld. TPO erred in allocating 25% of the profit split conferred to AE without bringing any concrete basis and cogent reasons. The Hon'ble DRP erred in confirming the same. 6.16 The Officers below have erred in working out the Operating Profit and operating cost of the compared companies without making proper analysis and proper basis. 6.17 The officers below erred in artificially bifurcating the expenses into routine AMP and Non-routine AMP expenses, especially when the methodology is not backed up by the statute. 6.18 Without prejudice to the above, the Hon'ble DRP has failed to appreciate that the Ld. TPO is not justified in considering Maharishi Ayurveda Products Pvt. Ltd, Desh Rakshak Aushdhalaya Ltd, Primacy Industries Pvt. Ltd., Vasu Healthcare Pvt. Ltd, as comparable for arriving at normal AMP expenditure. The Officers below also erred in ignoring that the AMP expenditure incurred by these companies as a percentage of turnover is widely varied among the comparables themselves and hence, are not proper indicators for arriving at the normal AMP. 7 As regards adjustment of Its. 11,54,80,420/- made in respect of Royalty: 7.1 The Officers below erred in ignoring the Hon'ble Tribunal's order in the Appellant's own case for AY 2013-14; AY 2014-15; AY 2015-16, AY 2016-17; AY 2017-18 and 2018-19 wherein the identical addition made under this head has been deleted. 7.2 The Hon'ble DRP is not justified in summarily upholding the action of the Ld. Assessing Officer in directing adjustment on account of alleged royalty income by completely relying on the Order of the Ld. TPO and without application of mind. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 8 of 170 7.3 The Hon'ble DRP is not justified in upholding adjustments towards alleged royalty income in the absence of any such international transaction entered into by the Appellant. 7.4 The Lower Authorities have grossly erred in assuming that the mere initial product registrations in various countries constitute intangible properties owned by the Appellant by failing to appreciate that such registrations are obtained in compliance with the statutory preconditions for sale of the products. 7.5 The Lower Authorities have failed to appreciate that the alleged associated enterprises are acting as distributors and are paying the purchase consideration to the appellant in respect thereof leaving nothing else to be paid whether by way of royalty or otherwise. 7.6 The Hon'ble DRP and Ld. TPO are not justified in taking contradictory positions between justification for Royalty adjustment and justification for AMP expenditure. 7.7 Without prejudice to the above, the Hon`ble DRP has failed to appreciate that the Ld. TPO has determined ALP of 5.66% on turnover in respect of alleged royalty income on an arbitrary basis and without adopting any methodology prescribed u/s 92C(1). Further the same Ld. TPO used to adopt the royalty rate of 2% from AY 2013-14 to 2018-19 for 6 years but modified the stand on Adhoc basis, opposed to the principle of consistency. 8 Regarding disallowance of revenue expenses expenditure on scientific research claimed u/s 35(1)(1): 8.1 Appellant had repeatedly furnished the Ledger and Expenditure Supporting details for over 6 TIMES before the Ld. Officers below i.e. Ld. FAO and Ld. AO and Ld. DRP and the Ld. JAC) sought additional details in Remand Proceedings copy of the same was again submitted before the Ld. DRP but Adhoc addition was made without controverting the evidences, on fallacious grounds by merely stating that- Ledger and Supporting was not submitted and Approval from the DSIR was not furnished. 8.2 The Ld. DRP sought the remand report from the office of the Ld. Jurisdictional Assessing Officer [JAO] and once again evidences were furnished and JA0 actively queried and sought additional Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 9 of 170 supporting documents in the personal hearing. But the Ld. JAC) without first bringing any contrary to the materials on record, sustained the addition on purported technical grounds. Even the Ld. DRP failed to consider the submissions on record and upheld the addition, failed to render justice. 8.3 The Ld. Officers below erred in disallowing Rs. 15,90,29,576/-, part of R&D expenditure of out of the gross expenditure of Rs. 38,65,24,390/- on Adhoc basis. 8.4 The Ld. Officers below disallowed the Employee benefit expenses of Special allowance and Employee Performance Pay (EPP) and R&D related Vehicles Expenses though the Appellant has furnished the employee wise gross salary paid, Employees mail id, Internal Department wherein the concerned employee works, Employee's Academic Qualification, Employee PAN, Employee ID, and the tax deducted at source and additional materials were furnished as called for by the Ld. AO in Factual Report Proceedings, but the Ld. AO without first disproving any of the facts disallowed Rs.13,44,76,315/- on Adhoc basis. 8.5 The Ld. Officers below erred in disallowing the Professional Fees of Rs. 1,27,64,338/- incurred when the details of the vendors along with invoices are furnished on sample basis and when these amounts are paid after deducting tax at source and when materials in this regard were furnished even during Remand Report proceedings. 8.6 The Honourable DRP and the learned AO has erred in disallowing Repairs and Maintenance expenses of Rs. 9,70,598/-, Spares parts of Rs. 68,83,497/- incurred for the purpose of Appellant's vast R&D unit building and machinery, which demands huge set up requiring continuous maintenance and the same is normal, though ledger and also vendor's invoice was furnished on sample basis and applicable TDS was deducted and when materials in this regard were furnished even during Remand Report proceedings. 8.7 The Ld. Officers below erred in holding that the expenditure claimed is in excessive/unnatural/non genuine without first disproving the Appellant's documentary evidences, without discarding Appellant's books maintained in the normal course of Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 10 of 170 business, ignoring the fact that ratio of current year R&D expense to Turnover is only 1.10% and the same is least in the preceding 5 assessment years. 8.8 The Ld. Officers below erred in insisting for a certificate from the prescribed authority- DSIR when such requirement is not provided u/s 35(1) of the Act, without first referring to the specific Form, Rule, moreover the Ld. AO has actively called for the details and allowed the R&D expenditure of capital in nature of Rs. 1,69,31,861F but denied the Revenue Expenditure and hence the order is contradictory, without any basis and the same expenditure was allowed after thorough verification in the earlier year AY 2016-17 and AY 2017-18 scrutiny assessments and even in the subsequent year AY 2022-23 scrutiny assessment, opposed to the principle of consistency. 8.9 Without prejudice the Ld. Officers below erred by not adverting to the Appellant's alternative claim of allowing the R&D expenditure u/s 37(1) when the expenditure is incurred wholly and exclusively for the purpose of the business and the claim was repeatedly made from the stage of assessment. 9 Regarding interest demand: The learned AO erred in the order in demanding the interest u/s 234A/ 2343/ 234C/ 234D, excessive, without any basis and the Hon'ble DRP is not justified in upholding the levy of interest when the conditions for levying such interest did not exist in the present case. 10 For the above reasons and for such other reasons which may be allowed by the Hon'ble Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.” 3. Later on, assessee filed a concise ground of appeal separately. Same are also considered for disposal of the appeal. 4. At the inception itself, the ld. AR submitted that in the concise grounds of appeal, grounds of appeal 1 & 2 are general in nature and ground No. 3 is on the jurisdictional issues of determination of AE Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 11 of 170 relationship, validity of assessment Ground no. 4 and 5 is on the issue of determination of arm’s length price [ALP] with respect to International Transaction of Export of Goods where the most appropriate method adopted by assessee i.e., TNMM is upheld by the coordinate benches, hence, covered in favour of assessee. Ground no 6 is related to adjustment on account of AMP expenses which is also covered in favour of assessee for earlier years. He submits that ground No. 7 related to the adjustment on account of Royalty Income is also covered in favour of assessee by the orders of the coordinate bench from AY 2013-14 to 2018-19. . With respect to ground No. 9 [ in the original appeal memo] , he submits that assessee has been denied the weighted average deduction of research & development which was decided by the AO in the remand report without considering the claim of the assessee. 5. The brief facts of the case show that assessee is a partnership firm engaged in the business of manufacture and sale of herbal pharmaceutical products such as ayurvedic medicaments and preparations, consumer and personal care products and animal health care products. The assessee manufactures herbal health supplements, herbal personal care, FMC the products and herbal pharmaceutical products for any middle held. It has its own range of product for the domestic market. Associated enterprises chooses the products from the range of products of the assessee and they develop the packing for the products, establish the distribution chain in the importing country and they place orders for the manufacture of these products by assessee. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 12 of 170 6. Assessee filed its return of income at Rs. 326,21,03,510/- on 15.3.2022. The case of assessee was selected for scrutiny and notice u/s. 143(2) was issued on 26.8.2022. 7. The reason for selection of the return of income for the scrutiny under the e-Assessment scheme 2019 was stated to be large value of international transactions in the nature of technical services fees, amount of deduction claimed under section 35 (1) is in excess of amount debited to the profit and loss account. 8. It was found that assessee has entered into an international transactional as per form number 3CEB with its associated enterprises of (i) sale of Ayurvedic medicaments and preparations of ₹ 2,040,290,103/–, (ii) web designing and support services of Rs. 1,92,12,500/–, (iii) reimbursement of expenses recoverable of ₹ 29,147,941/– and (iv) reimbursement of expenses payable of ₹ 6,834,009/-. 9. In its transfer pricing study report the assessee benchmarked the international transaction of sale of medicaments and preparations and web designing and support services adopting the most appropriate method of Transactional Net Margin Method [TNMM] and applied internal TNMM for benchmarking considering the domestic sale of personal care products segment as comparable to export sales to associated enterprises. It was stated that margin of assessee's personal care division is 8.41% while the margins earned by the assessee from its sale to associated enterprises is 32.88%. Thus, the margin earned from the export is much higher than the margin earned from its domestic business and therefore these international Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 13 of 170 transactions are stated to be at arm's-length. The assessee submitted financial statement along with the segmentation to prove the above facts. The other transaction of reimbursement of expenses were benchmarked adopting the comparable uncontrolled price [CUP] method and same were stated to be at arm's-length. 10. As assessee has entered into international transactions, reference was made to the TPO to determine the ALP of the international transactions. (i) With respect to the manufacturing, sales and administrative activities, the learned transfer pricing officer held that in case of export of manufactured products these products are supplied by the taxpayer to the associated enterprises on the basis of the order placed by them out of the selections from their existing products. Therefore the taxpayer acts as a contract manufacturer and performed the function of manufacturing the products on cost plus profit margin basis. Therefore in case of export to associated Enterprises the taxpayer has not performed any function beyond manufacturing. Further the use of internal TNMM to compare the export sales of products to its associated enterprise with domestic sales of consumer products, the learned TPO held that internal TNMM can only be used provided the two functions are exactly alike. In case of the assessee the domestic segment involves substantial activity as of selling, marketing and distribution functions and therefore both these segments are functionally different. Thus on a Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 14 of 170 function assets and risk profile under TNMM it is akin to comparing a simple manufacturer devoid of any other functions to a full-fledged manufacturer which is not correct. Further the net profit indicator of the company is also not proper in the reason that substantial expenses in the form of marketing and sales promotion in the domestic segment has a significant effect on the net profits. Therefore transactional net margin method is not appropriate method. The TPO held that assessee performs various functions such as marketing, selling and administration in the comparative domestic segment as against a mere manufacturing function with the associated Enterprises and therefore comparison at net profit level is incorrect. The learned TPO further referred to the OECD guidelines which prefers pricing methods over transactional methods. Therefore he held that transactional net margin method cannot be considered as most appropriate method for comparability analysis. He held that to remove difference of the expenses related to selling, distribution, administration, marketing functions in domestic segment, cost-plus method is considered as the most appropriate method for benchmarking the export sales. Accordingly he adopted the cost plus method as the most appropriate method. The assessee objected to the same stating that that since last several years the coordinate bench had confirmed that the transactional net margin method is the most appropriate method for AY 2014 – 15 onwards till to date and Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 15 of 170 therefore the cost plus method should not be adopted. The learned TPO rejected this contention stating that there is no res judicata applicable to the assessment proceedings as each assessment year is unique and therefore different. Thus he rejected the contention of the assessee and further determine the profit level indicator of gross profit to cost of goods sold. On the basis of the above analysis he found that in the domestic segment, the gross profit of ₹ 11,031,156,404/– is determined on a cost of ₹ 11,538,535,060/– resulting into the gross profit margin of 95.60%. He found the cost of the export to associated enterprise is at ₹ 1,402,403,988/- and determined the arm's- length price of the same at ₹274,39,43,643/– against the international transactions of ₹ 2,145,493,451/– proposing and adjustment of ₹ 598,450,192/–. (ii) The learned TPO further found that that the taxpayer has spent ₹ 3,017,179,632/– towards advertisement, sales and market promotion expenditure. The assessee has undertaken these activities in respect of brands and other marketing intangibles owned by its associated enterprises. As the foreign company is the owner of all the assets of intangible, the advertisement marketing and promotion expenditure incurred by the assessee has resulted into the benefit to the owner of the brand which is also an associated enterprises and therefore it is an international transaction which needs to be benchmarked. The learned TPO further held that as per the information furnished by the Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 16 of 170 assessee, the assessee has carried out the functions of Development, Enhancement, Maintenance, Protection And Exploitation [ DEMPE] of marketing intangibles related to the above brand. Thus there is a direct relationship between these expenses and improvement in the value of marketing intangibles, including brand owned by its associated enterprises therefore these AMP expenses are required to be benchmarked. The learned transfer pricing Officer carried out the search benchmarking process adopting nine different filters using prowess database and adopting the keywords, soap, cosmetics and toiletries and, oral and dental hygiene, oils and preparation on the use on the hair etc. Uultimately the learned TPO selected five comparable companies whose operating profit on operating revenue comparing three financial years was found to be 9.22%. The assessee objected to the comparables but ultimately the learned transfer pricing officer selected four comparable companies whose amount of AMP expenditure over sales ratio was 5.10%. As the assessee has incurred advertisement and sales promotion expenditure of ₹ 3,017,179,632/– on manufacturing sales of ₹ 3567 crores, the AMP expenses ratio to sales was considered at 8.45%. Based on the above analysis the learned transfer pricing held that the most appropriate method would be combination of transactional net margin method and a residual profit split method as the most appropriate method. Thereafter on the basis of finding out the Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 17 of 170 routine AMP expenses he computed the profit level indicator of OP/OR margin of the comparable for companies considering three financial years results reaching at an average margin of 11.49%. Therefore he computed the routine AMP expenditure at the rate of 5.10% of the net sales amounting to ₹ 1,819,389,248/– whereas the assessee has incurred the total AMP expenditure of ₹ 3,017,179,632/– and held that no nonroutine AMP expenditure are incurred by the assessee amounting to ₹ 1,197,790,384/–. He further computed the Profit level Indicator [PLI] of the assessee after removing nonroutine AMP expenditure from the operating cost and reached at the margin of the assessee of OP/OC of 20.45% and OP/OR of 16.98%. Therefore he held that the difference in the margin is 5.49% over sales (16.98% minus margins of the comparable company at 11.49%/–). He considered profit of 25% should be conferred to associated enterprises and therefore in the profit the sale of the associated enterprises would be only 1.37%. Accordingly on the sale of ₹ 3567 crores, the AE ‘s shares was considered to be ₹ 488,737,896/- whereas the actual expenditure incurred by the assessee on the AE brand is Rs 119,77,90,384/- resulting into an adjustment of ₹ 709,052,488/– in respect of advertisement marketing sales promotion activity incurred by the taxpayer. (iii) The learned TPO also noted that assessee has a research and development unit situated in India on which the assessee has Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 18 of 170 also incurred considerable expenses on research and development activities. As the assessee does not sale any of the products manufactured by it outside India however it exports to its associated enterprises and others who then sell the goods manufactured by the assessee in foreign countries. Further the product registration is also owned by the assessee. The underlying intellectual property based on which the registration was granted has also been generated in a research and development unit of the assessee. Therefore the bundle of tangible and intangible assets in the project registration belong to the taxpayer exclusively. These are used by the associated enterprises and surprisingly assessee was not remunerated by associated Enterprises. Therefore the learned TPO used RoyalStat database carried out search considering the industry of beauty and cosmetics, chemicals, pharmaceuticals and biotech considered distribution and marketing agreements and reached at three comparable companies where the royalty was paid on an average of 5.66% of sales. The assessee was issued a show cause notice where the assessee objected to the same after rejecting the explanation of the assessee, the learned TPO adopted 5.66% of the sales as royalty amount. Therefore royalty was benchmarked at ₹11,54,80,420 on manufacture and sale of preparations of ₹ 204, 2,90,103/-, as the arm's length price. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 19 of 170 11. The ld. TPO passed an order u/s. 92CA(3) of the Act on 17.10.2023 wherein he made a TP adjustment on sale of finished goods of Rs. 59,84,50,192, on AMP expenditure of Rs. 70,90,52,488 and royalty payment amounting to Rs. 11,54,80,420. The above TP adjustment was made in the draft assessment order. 12. Assessee has claimed deduction under section 35 being expenditure on scientific research of ₹ 403,456,251/–. Assessee provided the details pertaining to the in-house expenditure of research along with the nature of expenses bifurcating into the revenue expenditure and capital expenditure. The assessee also submitted the details of the employees engaged in research and allotment activities, backup of revenue expenditure including salary and payments made for purchase of material used in scientific research. The Ledger of consumable/material procured along with sample invoices, copies of invoices in respect of material purchased were also submitted. After examination of the details the learned assessing officer accepted the expenditure related to productive allotment, clinical trial, R&D chemical, R&D input extract and trail medicines expenses as eligible for deduction. However the learned assessing officer held that an expenditure of special allowance amounting to ₹ 107,215,439/–, the EPP of ₹ 22,895,000/–, legal and professional charges of ₹ 12,764,338/–, Repair land and building expenditure of ₹ 970,598/–, repairs & maintenance machinery and equipment's of ₹ 6,883,497/–, repairs and maintenance Sapre part of ₹ 3,934,818/– and maintenance of vehicles amounting to ₹ 4,365,885/– totalling to ₹ 169,029,576/– is not allowable. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 20 of 170 13. The learned assessing officer disallowed the above expenditure for the reason that assessee has failed (i) to justify claim of expenses, (ii) to submit any admissible evidence in support of its claims as genuine, (iii) to submit the copy of Ledger account of the said expenses along with relevant voucher. Further the claim of special allowances amounting to ₹ 10.72 crores being 27.73% of total revenue expenditure claimed for exemption under section 35 (1) (i) seems to be excessive, unnatural, non-genuine. Further the assessee has not submitted any certificate from the prescribed authority regarding the limitation of deduction to the claim. Therefore, the learned assessing officer proposed to disallow a sum of ₹ 159,029,576/– to the total income of the assessee out of the various revenue expenses claim for deduction under section 35 (1) (i) of the act. 14. Thus, along with Transfer pricing adjustments, ld AO also disallowed revenue expenditure on scientific research u/s. 35(1)(i) of the Act of Rs. 15,90,29,576/- resulting into draft assessment order dated 30.11.2023 at a total income of Rs. 5,44,41,16,186/-. 15. The assessee filed objection before the ld. Dispute Resolution Panel- 1, Bengaluru [ld. DRP] and it passed a direction dismissing the objections raised by the assessee on 30.8.2024 and accordingly final assessment order was passed on 5.9.2024, 16. The ld. AR stated the decision of the coordinate Bench in assessee’s own case for AYs 2010-11, 2012-13, 2014-15, 2015-16, 2016-17, 2017-18 & 2018-19 submitting that by all these orders, the grounds of appeal in assessee’s case so far as it relates to TP addition are covered in favour of the Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 21 of 170 assessee. He submitted 4 paper books consisting of 1385 pages to support his case. Paper Book contains his written submission before us of 210 pages, submissions before the ld AO, ld TPo and Ld DRP. However, the ld AR referred to the decision of the coordinate bench in case of assessee’s own cases from AY 2010-11 to 2018-19. 17. The learned authorised submitted that ground No. 1 and 2 are general in nature therefore no comments/arguments were offered and therefore same are dismissed. 18. Per ground no. 3, ld AR has challenged the validity of reference to TPO, validity of assessment, assessment being barred by limitation and raised an issue that there is no transaction with associated enterprises and hence there is no international transaction, therefore TP additions deserves to be deleted and consequently extended period of one year is also not available to the ld AO, so assessment is barred by limitation. 19. Coming to ground number 4, the assessee contends that the identical issue has been decided in the assessee’s own case for AYs 20010-11 , 2011 – 12, 2012 – 13, 2013 – 14 to 2018 – 19 wherein the identical addition made by the learned AO/TPO was deleted by the coordinate bench. He submitted the copies of the relevant orders of the coordinate bench and also stated that there is no change in the facts and circumstances of the case as well as the reasons given by the learned lower authorities for making this addition. 20. He explained the facts of the case stating that the assessee has adopted transactional net margin method and adopted internal transactional net Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 22 of 170 margin for the comparison of international transaction, where the margin in the domestic market is lower than the margin earned by the assessee on export goods with its associated enterprises and therefore the international transactions are held to be arm’s-length by the coordinate benches. It has been submitted that the learned transfer pricing officer has adopted the cost plus method which has been rejected by the coordinate benches in favour of the assessee. Therefore, addition on the merits is squarely covered in favour of the assessee. 21. Arguing ground no. 3, more precisely Ground no. 3.3 to 3.6, he submits that the assessee has challenged that there are no international transaction as the parties to whom the goods been exported are not associated enterprises. If those parties are not associated enterprises, then there is no international transaction and consequently there is no addition/adjustment could be made to the export of goods transaction made by the assessee with those parties. He further stated that if the AE relations does not exist , the additional time allowed under section 153 (4) to the learned assessing officer is not available and therefore the assessment order itself is passed beyond the time limit and hence deserves to be quashed in its entirety. He submitted that assessee has also stated to be the transactions with the associated enterprises in form number 3CEB and also in the transfer pricing report. However it has come to the notice of the assessee, that relationship between the assessee and those parties with whom it has entered into transaction of export of goods are not associated enterprises. He further stated that identical claim was raised by the assessee earlier AYs also however the coordinate bench has not decided the issue for the reason that Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 23 of 170 as in those cases the addition was deleted on merits, the coordinate benches have dismissed this argument of the assessee and held it to be merely academic. He submits that those grounds are not academic and should have been decided by the coordinate bench for the reason that if there is no international transaction, as there is no transaction with the associated enterprises, the process of determination of the arm’s-length price by the learned transfer officer is redundant. He even otherwise stated that in that case the extended time period is not allowable to the assessing officer under section 153 (4) of the act and then the assessment order itself is barred by limitation. 22. With respect to the arguments that assessee does not have any associate enterprises, written submissions submitted by the assessee are as follows:- “As regards treating the Appellant and The Himalaya Drug Company FZCO, UAE; The Himalaya Drug Company USA; The Himalaya Drug Company PTE Ltd, Singapore; SIA The Himalaya Drug Company Ltd, Latvia; Himalaya Wellness (Caymen) Ltd.; The Himalaya Drug Company (PTY) Ltd; Himalaya ilaç Ticaret Ltd. sti, Turkey; The Himalaya Drug Company, (FZC) LLC, Oman; Himalaya Global Research Centre FZ; PT. The Himalaya Drug Company, Indonesia; The Himalaya Drug Company S.A.C, Peru; The Himalaya Drug Company S.A., Mexico; The Himalaya Drug Company SP. Z O.O, Poland; HIMALAYA SINCE 1930 RETAIL LTD., UAE as Associated Enterprises as defined u/s 92A of the IT Act: [Ground 3.3 to 3.6] 1. The Ld. DRP and the Ld. TPO have erred in holding that the Appellant and other 15 Entities are Associated Enterprises when the conditions of section 92A(2) of the IT Act are not present. 2. The Ld. DRP has failed to appreciate that the reference made to Ld. TPO under section 92CA of the Act is invalid for the reason that the Appellant and above 15 Entities are not Associated Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 24 of 170 Enterprises and consequently, the relevant transactions entered into between them are not international transactions. 3. The Ld. DRP is not justified in upholding the action of the Ld. Assessing Officer in referring the determination of ALP to the Ld. TPO though the Ld. Assessing Officer has merely relied on the Form 3CEB filed by the Appellant without independently ascertaining whether the above 15 entities satisfy any of the criteria laid down in clauses (a) to (m) of section 92A(2) of the IT Act. 4. The Ld. DRP is not justified in holding that the Appellant and above 15 Entities are Associated Enterprises just because the Appellant itself reported the transactions with these Entities in the Form 3CEB without first independently ascertaining whether satisfy any of the criteria laid down in clauses (a) to (m) of section 92A(2) of the IT Act. 5. The Ld. DRP erred in law in holding that the Appellant and above 15 Entities are Associated Enterprises just because Mr. Meraj Manal is common Chairman of these enterprises as well as the Appellant, without bringing on record any evidence to prove that any of the criteria laid down in clauses (a) to (m) of section 92A(2) of the IT Act is satisfied. 6. The Ld. DRP erred in law and on facts in relying on clause (b) of section 92A (1) without appreciating that section 92A (1) should be first read along with section 92A(2) and unless and until any of the criterion laid down in clauses (a) to (m) of section 92A (2) of the IT Act is satisfied, two or more entities cannot be treated as Associated Enterprises. 7. The Hon’ble DRP ought to have appreciated that if the DRP’s interpretation of section 92A were taken to be correct, it would render clause (m) of section 92A (2) of IT Act otiose. 8. It is submitted that the Officers below got carried away and framed the order mechanically on the basis of reporting made in Form 3CEB. The Ld. TPO framed the order without application of mind, by not considering the merits of the case. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 25 of 170 9. A combined reading of sections 92 and 92B shows that income arising from a transaction between two or more Associated Enterprises, either or both of whom are non-residents, shall be computed having regard to the arm’s length price. Therefore, only if the transaction is between two or more Associated Enterprises, same would qualify as international transaction. For application of sections 92 to 92F, it should be first ascertained whether the enterprises between whom the transactions take place are Associated Enterprises. Section 92A defines “associated enterprise”. 10. Section 92A(2) has been amended by the Finance Act, 2002 w.e.f. 01.04.2002. The effect of this amendment has been explained in Circular No. 8/2002 dated 27.08.2002 as under: “50.3.1 The Finance Act, 2002 has amended sub‑section (2) of section 92A to clarify that where any of the criteria specified in sub‑section (2) is fulfilled, two enterprises shall be deemed to be associate enterprises. 11. The Explanatory memorandum to Financial Bill, 2002 has clarified the intention behind amendment of section 92A(2) as under: “The existing provisions contained in section 92A of the Income- tax Act to provide as to when two enterprises shall be deemed to be Associated Enterprises. It is proposed to amend sub-section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled.” 12. The Officers below failed to appreciate that Sections 92A(1) and 92A(2) are not independent. This position has been clarified by the amendment made by Finance Act, 2002. Therefore, in order to deem two enterprises as Associated Enterprises, it is essential that any one or more of the criteria specified in clauses (a) to (m) needs to be satisfied. From a perusal of the various Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 26 of 170 clauses, the only applicable clause in the appellant’s case is clause(l) of section 92A(2). As per clause(l) of section 92A(2), if an enterprise holds not less than 10% interest in the Firm, the Firm and such enterprise shall be deemed to be Associated Enterprises. 13. The partners of the Appellant Firm and their profit / loss sharing ratio during the period under appeal is as under: Partners % of profit / loss sharing Himalaya Global Holdings Ltd (Formerly known as MMI Corporation) 88% Himalaya Drug Company Pvt. Ltd., 12% 14. The major partner Himalaya Global Holdings Ltd has various subsidiaries. The Appellant has entered into transactions with such subsidiaries. The shareholding pattern of the above companies is given in the following table: Entity Shareholders % of holding Himalaya Drug Company FZCO,UAE Himalaya Global Holdings Ltd 100% The Himalaya Drug Company Ltd., USA -Do- 100% The Himalaya Drug Company PTE Ltd, Singapore -Do- 100% SIA The Himalaya Drug Company Ltd, Latvia -Do- 100% Himalaya Wellness, (Caymen) Ltd. -Do- 100% The Himalaya Drug Company PTY Ltd. -Do- 100% Himalaya ilaç Ticaret Ltd. sti, Turkey -Do- 100% The Himalaya Drug Company, (FZC) LLC, Oman -Do- 99% Argentum Investments Ltd. 01% Himalaya Global Research Centre FZ Himalaya Global Holdings Ltd 100% Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 27 of 170 PT. The Himalaya Drug Company, Indonesia -Do- 99.68% Argentum Investments Ltd. 0.32% The Himalaya Drug Company S.A.C, Peru Himalaya Global Holdings Ltd 99.90% Argentum Investments Ltd. 0.10% The Himalaya Drug Company S.A., Mexico Himalaya Global Holdings Ltd. 100.00% The Himalaya Drug Company SP. Z O.O, Poland -Do- 100.00% HIMALAYA SINCE 1930 RETAIL LTD., UAE -Do- 100.00% 15. A pictorial depiction of the relationship would be as under. 16. But the officers below have treated Appellant and above 15 Entities as Associated Enterprises, without first substantiating as to under which clause of section 92A(2) can they be deemed to be Associated Enterprises. APPELLANT, A PARTNERSHIP FIRM Himalaya Drug Company Pvt Ltd 12% profit / loss sharing. Himalaya Global Holdings Ltd 88% Profit / loss sharing. Subsidiaries of Himalaya Global Holdings Ltd Commercial transactions between the Appellant and Subsidiaries of Himalaya Global Holdings Ltd Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 28 of 170 17. It is submitted that Mr. Meraj Manal is the common chairman of the group concerns. The fact that Mr. Meraj Manal, who owns Himalaya Global Holdings Ltd which is a major partner of the Appellant, also happens to be the chairman of M/s. Himalaya Drug Company LLC, Dubai and Himalaya USA is not sufficient to treat them as Associated Enterprises. None of the clauses (a) to (m) of section 92A(2) state that two enterprises having common chairman become Associated Enterprises. It is submitted that there is no room for assumption when it comes to ascertainment of Associated Enterprises. Section 92A should be strictly construed. Unless it is proved with cogent evidence that any of the criteria specified in clauses (a) to (m) of section 92A(2) are satisfied, the transfer pricing regulations cannot be pressed into operation. 18. The Assessing Officer has mechanically made reference to the TPO under section 92CA of the Act which is evident from paragraph 6 in page 3 of the final assessment order as under “6. On examination of the 3CEB report, it was found that the assessee firm entered into specified international transactions with its Associated Enterprises (AEs). Therefore, with the approval of Pr. CIT, the case was referred to Transfer Pricing Officer (TPO) for determining Arm’s Length Price u/s 92CA(1) of the IT Act, 1961.” 19. The Learned TPO at pages 1 of the Order under section 92CA has stated as under: “Reference u/s 92CA to determine the arm’s length price in respect of the international transaction entered into during the FY 2020-21 has been received in this case.” 20. A reading of the above noting would show that the Officers below has proceeded mechanically on the presumption that the transactions entered into by the Appellant with the group concerns are international transactions just because the Appellant has filed Form 3CEB. Copy of the Form 3CEB was furnished as per Annexure no 6 of Paper book II filed on 11.2.2025 at page 311 – 315. TP documentation is available at page 636 to 728 of paper book III filed on 11.2.2025. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 29 of 170 21. It is submitted that just because the Appellant reported the transactions in Form 3CEB, it does not act as estoppel against it. nor foreclose the tax payer from claiming the same as not being an international transaction. At best it can form the starting point of an enquiry. The transaction will become international transaction necessitating arm's length adjustment if the ingredients of the transaction bring it within the purview of Chapter X. The disclosure made by way of abundant caution or due to ignorance of law on facts cannot be the basis of the decision of the tax authorities more so if the assessee raises objections questioning the same. It is submitted that the decision of the tax authorities has to be based on facts supporting the conclusion. The AO, TPO and DRP have bounden duty to determine whether the transactions are between Associated Enterprises or not. The Appellant relies on the following decisions: a) DLF Hotel Holdings Ltd. [2016] 71 taxmann.com 300 (Delhi - Trib.) [Para 7.16.1] b) Sanchez Capital Services Ltd vs. ITO 26 Taxmann.com 61 [para 12]; c) ITO vs. Alumeco India Extrusion Ltd. TS-143-ITAT- 2013(HYD)-TP [Para 16]; d) Shell India Markets Ltd. v. CIT [2014] 369 ITR 516 (Bom) [Para 10]; e) Vodafone India Services (P.) Ltd. vs. UOI and others [2014] 361 ITR 531 (Bom.-HC) [Para 40 and 45]; f) Vodafone India Services (P.) Ltd. vs. UOI and others [2014] 368 ITR 1 (Bom.-HC) [Para 27]; 22. Therefore, unless the onus on the Department with regard to independent ascertainment of AEs is discharged, the provisions of sections 92 to 92F cannot be triggered. Hence, the reference to the TPO under section 92CA without independently ascertaining whether the Appellant and the group concerns are legally Associated Enterprises is bad in law. 23. Various clauses of section 92A(2) and its non-applicability to the present case is explained hereunder. 24. Clause(j) of sub-section(2) of section 92A reads as under: Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 30 of 170 Clause AE relationship as per the clause Justification for non- applicability of the clause (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise Appellant is a Partnership firm and does not have shares. Hence, this clause is not applicable (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises Appellant is a Partnership firm and does not have shares. Hence, this clause is not applicable (c) a loan advanced by one enterprise to the other enterprise constitutes not less than fifty- one per cent of the book value of the total assets of the other enterprise There is no loan advanced by the appellant to various subsidiaries of Himalaya Global Holdings Ltd and vice versa. Hence, this clause is not applicable. (d) one enterprise guarantees not less than ten per cent of the total borrowings of the other enterprise Appellant or the various subsidiaries of Himalaya Global Holdings Ltd have not guaranteed the loans taken by the other entity. Hence, this clause is not applicable. (e) more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise, are appointed by the other enterprise Appellant is a Partnership firm and does not have board of directors or members of the governing board. Appellant or the various subsidiaries of Himalaya Global Holdings Ltd have not appointed the board of directors or members of the governing board for the other entity. (f) more than half of the directors or members of the governing board, or one or more of the executive directors or members of the governing board, of each of the two enterprises are Appellant is a Partnership firm and does not have board of directors or members of the governing board. Board of directors or members Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 31 of 170 appointed by the same person or persons. of the governing board of the subsidiaries of Himalaya Global Holdings Ltd are not appointed by the Chairman. Hence, this clause is not applicable (g) the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, or any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights the manufacture or processing of goods or articles or business carried out by the Appellant is not wholly dependent on the IPR, business or commercial rights of subsidiaries of Himalaya Global Holdings Ltd, if any. Hence, this clause is not applicable (h) ninety per cent or more of the raw materials and consumables required for the manufacture or processing of goods or articles carried out by one enterprise, are supplied by the other enterprise, or by persons specified by the other enterprise, and the prices and other conditions relating to the supply are influenced by such other enterprise Raw materials and consumables required for the manufacture or processing of goods or articles carried out by the Appellant, are not supplied by the subsidiaries of Himalaya Global Holdings Ltd, or by persons specified by these subsidiaries, and the prices and other conditions relating to the supply are not influenced by such other enterprise. Hence, this clause is not applicable. (i) the goods or articles manufactured or processed by one enterprise, are sold to the other enterprise or to persons As per ICAI Guidance note on report under section 92E, test of ‘influence’ should be established in order to attract Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 32 of 170 specified by the other enterprise, and the prices and other conditions relating thereto are influenced by such other enterprise this clause. In the present case, the goods or articles manufactured or processed by the Appellant, are not ENTIRELY i.e., 100% sold to the subsidiaries of Himalaya Global Holdings Ltd or to persons specified by these subsidiaries, and further the prices and other conditions relating thereto are not influenced by such other enterprise. Hence, this clause is not applicable. (j) where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual Appellant and the group concerns are neither directly nor indirectly controlled by any individual. Hence, this clause is not applicable. (k) where one enterprise is controlled by a Hindu undivided family, the other enterprise is controlled by a member of such Hindu undivided family or by a relative of a member of such Hindu undivided family or jointly by such member and his relative Appellant or and the group concerns are controlled by any HUF, any member of HUF or any relative of any member of HUF. Hence, this clause is not applicable. (l) where one enterprise is a firm, association of persons or body of individuals, the other enterprise holds not less than ten per cent interest in such firm, association of persons or body of individuals; Appellant is a Partnership firm. However, the subsidiaries of Himalaya Global Holdings Ltd does not hold any interest in Appellant firm. Hence, this clause is not applicable. (m) there exists between the two enterprises, any relationship of mutual interest, as may be prescribed No such relationship of mutual interest is prescribed till date. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 33 of 170 24. Clause(j) of sub-section(2) of section 92A reads as under: “where one enterprise is controlled by an individual, the other enterprise is also controlled by such individual or his relative or jointly by such individual and relative of such individual;” 25. Clause(j) of sub-section(2) of section 92A gets attracted if two enterprises are either controlled by same individual or his relative or jointly by such individual and relative of such individual. It is submitted that the expression used in the aforementioned clause is ‘controlled’. This means that only if the individual or his relative has direct control on the enterprises, then such enterprises would be termed as Associated Enterprises. The clause does not use the expression ‘directly or indirectly’. In the absence of specific mention of indirect control, the word 'indirect' cannot be read into the clause. Wherever legislature wanted even indirect holding or power to be covered, it has been explicitly stated so. A comparison can be made of language used in various other clauses of section 92A. Some of them are reproduced below: (a) one enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in the other enterprise; or (b) any person or enterprise holds, directly or indirectly, shares carrying not less than twenty-six per cent of the voting power in each of such enterprises; 26. The Appellant relies on the decision of the Hon’ble Supreme Court in Vodafone International Holdings B.V. vs. Union of India & Anr. [2012] 341 ITR 1 (SC) [para 71] wherein the Hon’ble Court held that if a provision does not contain the word ‘indirect’, the same cannot be read into it. 27. In the present case, the Appellant and the group concerns are neither directly nor indirectly controlled by any individual. 28. Further reliance is also placed on the CBDT instruction No. 2/2015 dated 29.01.2015, wherein it was stated as under: Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 34 of 170 “In reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. for A.Y. 2009-10 (WP No.871/2014), wherein the Court has held, inter-alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. 2. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgment, it is directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the ITAT, DRPs and CsIT (Appeals). 3. This issues with the approval of Chairperson, CBDT.” It is submitted the tax authorities having communicated to the world at large their acceptance of the decision of the Court in the case of Vodafone India Services (P.) Ltd. (supra) now cannot resile from the position in the case of the Appellant. 29. It is submitted that the impugned Assessment Order passed by the Learned Assessing Officer is barred by limitation in terms of section 153(1) of the IT Act. As per the Third proviso to section 153 (1) of the IT Act the Learned Assessing Officer has to pass order at any time before the expiry of 9 months from the end of the assessment year. In case where a valid reference under section 92CA (1) has been made, as per the third proviso to section 153 (1) of the IT Act read with section 153(4), the Learned Assessing Officer has to pass order at any time before the expiry of 30 months [9 + 12 + 9] from the end of the assessment year. 30. The impugned assessment year being 2021-22, the time limit within which the order ought to have passed is as under: Particulars End of AY Time limit Where there is no reference under section 92CA (1) - i.e. As per 3rd proviso to section 153 (1) 31.03.2022 31.12.2022 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 35 of 170 Where valid reference under section 92CA (1) is made - i.e. As per 3rd proviso to section 153 (1 ) read with section 153(4) 31.03.2022 30.09.2024 31. As submitted earlier that the very initiation of section 92CA proceedings by the Learned Assessing Officer and approval of the Learned Principal Commissioner under section 92CA (1) of the IT Act is invalid. Therefore, the Learned Assessing Officer does not get extended time limit under 3rd proviso to section 153 (1) of the IT Act read with section 153(4). 32. Hence, the Learned Assessing Officer ought to have passed assessment order before 31.12.2022. However, in the present case the Learned Assessing Officer has passed final assessment order dated 27.09.2024. 33. Therefore, it is submitted that the assessment Order is barred by limitation as it is passed after the expiry of 9 months from the end of the relevant assessment year, 2021-22. Prayer: 34. For the above reasons and for such other reasons which may be allowed by the Hon’ble Members to be urged at the time of hearing, it is prayed that the aforesaid appeal be allowed.” 23. The learned CIT DR on the issue of the merit of the addition of determination of arm’s-length of the international transaction submitted that issue is covered in favour of the assessee by the decision of the coordinate bench in assessee’s own case for earlier years. However she submitted that the proper facts were not appreciated by the coordinate bench where the learned transfer pricing officer has specifically stated that the internal Transactional net margin comparable selected by the assessee has a different functions, assets and risk and therefore same is not comparable. She submitted that the learned transfer pricing officer has correctly Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 36 of 170 computed the adjustment adopting the cost plus method as the most appropriate method. Coming to the orders of the bench in earlier years it was submitted that ITAT has held that in internal TNMM the contract manufacturing activity of the assessee towards its AE is held to be comparable with the full-fledged manufacturer sellers who undertakes marketing functions is also held to comparable. She submitted that internal comparability is possible if same functions are carried out. She said that there are no instances or sanity in the comparability upheld by ITAT where a contract manufacturer who does not carry any marketing function is compared with full fledged manufacturer. She referred to the findings of the ld DRP at page no 13 to 15 and stated that issue is pending before Honourable High Court. 24. On the issue of the claim of the assessee that there is no associated enterprises of the assessee and therefore there is no international transaction in existence and therefore the assessment order passed by making the adjustment on account of transfer pricing adjustment is barred by limitation is devoid of any merit. She submitted that assessee itself has shown these parties as associated enterprises in its transfer pricing study report, in its declaration filed before the assessing officer and also determine the international transactions arm’s-length price on its own. Therefore now the assessee cannot backtrack and say that the associated enterprise relationship does not exist between the assessee and the other parties. Even otherwise she submitted that in earlier years the coordinate bench has dismissed this ground of appeal and therefore same should be followed. She referred to the decision of the coordinate bench in ITA No. 807/Bang/2016 for AY 2011-12 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 37 of 170 wherein the coordinate bench has decided this issue as per paragraph No. 7 wherein this ground is not adjudicated. She further submitted that subsequently also the assessee admitted by filing form number 3CEB for subsequent years also admitting the relationship of the associated enterprises. Therefore from year to year the assessee has admitted the relationship of associated enterprises and now at this stage of the tribunal, the assessee has raised these grounds of appeal which deserves to be dismissed. It is also submitted that the assessee has not raised this issue at any time before the assessing officer though the appeals of the assessee are decided for almost 10 years now. 25. Referring to the provisions of section 92A (1) (b), the assessee satisfies the indirect and direct management control and capital relationship and therefore the assessee has entered into international transaction with its associated enterprises only. She further submitted that provisions of subsection 2 of section 92A is a deeming fiction and therefore it expands or enlarges the scope and meaning of expression associated enterprise as provided under subsection (1) of section 92A of the act. Since subsection (2) is a deeming fiction it can be applied only in the specific facts of the case where any of the conditions stipulated in clauses of this subsection are fulfilled. It does not have any general application in respect of the meaning of associated enterprises. For the above proposition the learned departmental representative vehemently supported the decision of the coordinate bench in case of Kaybee Ltd versus income tax Officer -10 (1) (3), Mumbai in ITA No.2166 & 2167/MUM/2015 for AY 2010 – 11 and 2011 – 12. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 38 of 170 26. The learned DR further submitted that though the principle of estoppel i.e. the principle which precludes a person from asserting something contrary to what is implied by a previous section or statement of that person or by a previous pertinent judicial determination is not strictly applicable in income tax proceedings, facts and circumstances in each case has to be looked into. On analysing the modus operandi employed by the assessee, initially the assessee admits associated enterprise relationship in form number 3CEB, then agitating before the tribunal and subsequently not pressing that ground before the tribunal is followed by the assessee from AY 2011 – 12 to 2018 – 19. In this context, the principle of estoppel needs to be seen in the light of the legal maxim ‘res Ipsa loquitor’. She further submitted that it needs to be considered in the circumstances based on the modus operandi employed by the assessee. From the actions of the assessee, it is clear that, in order to mislead, the assessee in all the years, in form number 3 CEB admits a relationship, then agitating before tribunal and subsequently not pressing that ground before the tribunal and hence estoppel must be seen in the light of the above maxim. She further relied upon the decision of the coordinate bench in case of Diageo India (P) Ltd versus DCIT (2011) 13 taxmann.com 62 Mumbai wherein it has been held that when same persons participate, directly or indirectly or through an intermediary, in management or control or capital of two or more enterprises, such enterprises are required to be treated as associated enterprises. It was further held that through test of associated enterprises is controlled by one enterprise over other or control of two or more associated enterprises are common interest and such control is essentially an effective Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 39 of 170 control in decision-making process. It was submitted that it is not the case of the assessee that these parties are not effectively controlled and managed directly or indirectly by same set of persons/entities. Accordingly, the argument of the assessee deserves to be dismissed. 27. The learned AR vehemently supported the arguments and submitted that unless there is an relationship of associated enterprises between the assessee and those entities, there cannot be an international transaction and therefore there cannot be any adjustment on account of arm’s-length price. It was submitted that assessee has contested before the tribunal and such a legal ground could have been raised at any time. Further the relationship of associated enterprise needs to be established first. Merely because assessee has shown it to be an associated enterprises in form number 3CEB but later on when assessee has challenged the same before the coordinate bench, the issue needs to be decided on its own merits according to the provisions of the law. And therefore, according to him the issue needs to be first decided whether there is a relationship of associated enterprises exist or not. It was further stated that the decision relied upon by the learned departmental representative are with respect to the fact that there is an associated enterprises relationship between the parties because of the management, control and capital by a common interest. In this case, even that does not exist. Therefore the decision of the coordinate bench in 13 taxmann.com 62 (Mumbai) does not apply to the facts of the case. With respect to the decision of the coordinate bench in 98 taxmann.com 278 (Mumbai) in case of Kaybee private limited versus ITO, it was held that the test of associated enterprises stands satisfied between the assessee company and the foreign Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 40 of 170 company within the provisions of section 92A of the Act. He submits that assessee does not deny that assessee has stated in its filing before the learned assessing officer that there exists an associated enterprises with whom the assessee has carried out certain transaction. But now the assessee says that that relationship does not exist at all. Therefore the issue is not that assessee denies the relationship of associated enterprises and the learned assessing officer/transfer pricing officer has established it. The issue here is that nobody has tested whether there is a relationship exist between the assessee and those entities of associated enterprises as specified under the provisions of section 92A of the Act. Therefore it needs to be tested first. 28. We have carefully considered the rival contention and perused the orders of the learned lower authorities. With respect to the transfer pricing adjustment on account of export of goods to its AE, the ld TPO in para no 2.1.1. to 7.4 of his order has held as under:- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 41 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 42 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 43 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 44 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 45 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 46 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 47 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 48 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 49 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 50 of 170 29. The ld DRP gave its direction in para no 2.1.1. to 2.1.29 as under :- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 51 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 52 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 53 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 54 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 55 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 56 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 57 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 58 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 59 of 170 30. We find that identical issue arose in the case of the assessee for assessment year 2011 – 12 wherein the coordinate bench in assessee’s own case in ITA (TP) number 807/Bang/2016 dated 4/7/2018 [Himalaya Drug Company vs. Deputy Commissioner of Income tax Circle 1(1), Bangalore [2018] 96 taxmann.com 335 (Bangalore - Trib.)[04-07-2018] for that assessment year as per paragraph number 8.5.1 – 8.5.16 has categorically held that transactional net margin method is the most appropriate method in Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 60 of 170 the peculiar facts and circumstances of the case. Further in paragraph number 9.1 and 9.2 of the order the coordinate bench has held that that cost plus method cannot be applied as transactional net margin method would be the most appropriate method in the particular case. It was further held that in view of the overall consideration of the peculiar facts and circumstances of the case the coordinate bench held that cost plus method adopted by the learned transfer pricing officer is incorrect and contrary to the facts of the instant case and that assessee is justified in adopting transactional net margin method for determining the arm’s-length price in respect of finished goods exported to its associated enterprises. Therefore the addition for that assessment year of ₹ 411,232,939/– made by the learned transfer pricing Officer adopting the cost plus method was deleted. The Coordinate bench held as under :- “8. Ground VIII to X. 8.1 Ground VIII (supra) is raised in respect of the rejection of the assessee's TP Study/documentation done adopting TNMM as the Most Appropriate Method (MAM) and the TPO's adoption of CPM as the MAM in place of TNMM. Ground IX (supra) is in respect of the alleged flaws in determination of ALP based on CPM, without admitting CPM as the MAM. In Ground No.X, the assessee is aggrieved with the TPO/DRP action is not allowing adjustments as per Rule 10B(1)(c)(iii) of the IT Rules, 1962 ('the Rules'), without prejudice to the assessee's objection on adoption of CPM as MAM. As these grounds (supra) are inter-related and deal with the merits of the case, we deem it appropriate to consider these grounds together. 8.2 Briefly stated, the facts relevant for adjudication of these grounds are as under :- 8.2.1 The assessee firm is engaged in the business of manufacture and sale of (a) herbal pharmaceutical products (ayurvedic medicaments and preparations); (b) consumer/personal care products and (c) animal Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 61 of 170 health care products. The manufactured products are sold in India (domestic sales) and are also exported to AEs/related entities outside India. The exports to related entities are from all these ranges of products, i.e., pharmaceutical products, consumer/personal care products and animal health care products. The assessee also sells these products to unrelated parties in CIS countries. In India, pharmaceutical products are driven by the prescription of Doctors. In CIS countries, Ayurveda is widely recognized and therefore largely the practice is akin to India. However, in the other countries, the international business for these products is largely, driven by marketing and advertisement and not by prescription; as is the case with the personal care range of products in India. The personal care division in the domestic market undertakes full fledged marketing activities; including advertisement, sales promotion, etc. However, in respect of exports to AEs/related parties outside India, the entire marketing activities is done by the AEs as the assessee only manufactures the goods as per requirement of the AEs and dispatches the same to them. 8.2.2 In the year under consideration, the assessee exported products amounting to Rs. 74,26,02,810 to AEs. In its TP Study, the assessee selected TNMM as the MAM for determination of the ALP of the international transactions with its AEs. As per its TP Study, the net margin earned by the assessee in respect of personal care division in the domestic segment at 11.30% was compared to the net margin of 15.80% from exports to its AEs. This was stated to be done as the pharmaceutical range of products are on par with the personal care range of products exported outside India and further the margin of domestic pharma division was not comparable as the parameters of marketing, manufacturing, competition, exposure and acceptance of ayurvedic products by customers, government control, etc. are entirely different in India for pharma division. 8.2.3 On the other hand, the personal care division products are sold through distributors and the same is market driven and therefore the ranges of personal care division in India was considered with export to AEs. Since the net margin from exports to AEs was higher than the net margin from domestic sales to unrelated parties, the assessee concluded that its exports to AEs were at arm's length. 8.2.4 The TPO after examining the assessee's TP Study issued show cause notice to the assessee proposing to substitute CPM as the MAM in place of TNMM adopted by the assessee. In this regard, the TPO Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 62 of 170 compared the gross margin earned on exports at 23.32% as against gross profit of 50.65% earned by the domestic consumer product division and proposed Transfer Pricing Adjustment. The assessee filed its objections thereto challenging the adoption of CPM as the MAM, inter alia, that the GP ratio differed mainly in respect of the marketing, distribution, selling and other similar expenses incurred by the assessee in the domestic market, whereas no such expenditure was incurred by it in respect of exports to AEs, as such expenses were incurred by the AEs in their respective territories and not by the assessee. It was also submitted that there were inherent difficulties in applying CPM and contended that, without admitting that CPM is the MAM, the TPO ought to reduce the gross profit margin earned in the domestic market on account of various difference between domestic sales such as marketing and selling costs, discounts, administrative costs, etc. whereas export sales to AEs are at a price ex-factory. Therefore, since the gross profits would be different in both these segments, they cannot be compared by applying CPM. It was also contended that since the net margin in both segments are less effected by transactional differences at net profit level, therefore TNMM is the MAM. 8.2.5 The TPO, however, rejected the assessee's contention and passed order under Section 92CA of the Act wherein he considered CPM as the MAM and considered the Gross Profit margin earned in the consumer product division for bench marking. The TPO also held that the assessee acted as a contract manufacturer in respect of products manufactured and exported to AEs as it did not undertake distribution, advertisement, marketing and selling expenditure and alleged that the goods are sold at a mark up of 15% on cost. The TPO computed the Gross Profit margin on cost of goods sold in the domestic consumer product division at 102.63% and the cost of goods sold to AEs amounting to Rs. 56,94,29,812 was accordingly increased by the above rate to Rs. 115,38,35,749. From this, the exports to AEs amounting to Rs. 74,26,02,810 was reduced and the Transfer Pricing Adjustment in respect of exports to AEs was determined at Rs. 41,12,32,939. The DRP upheld these views/actions of the TPO. 8.3.1 Before us, the learned Authorised Representative of the assessee sought to explain the transactional and functional differences between the domestic sales to unrelated parties and export sales to AEs to justify the GP margin under the segments. The learned Authorised Representative, referring to the TPO's order under Section 92CA of the Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 63 of 170 Act, argued that the TPO accepted that various expenditure like distribution, marketing, advertisement, selling, administrative costs, etc were incurred in the domestic market segment and that the same was not incurred in connection with exports to AEs. It was submitted that in the domestic market, since the assessee had to incur huge expenditure on distribution, marketing, advertisement, selling, etc. in the domestic market, the selling price and gross profit of products for sale in domestic market was fixed at a high price. On the other hand, as the AEs themselves incur similar expenses in the foreign markets, the selling price of products exported to AEs does not factor in similar expenditure and hence the selling price and gross profit of these products are lower when compared to that of products sold in the domestic market. 8.3.2 The learned Authorised Representative referred to and placed reliance on OECD Guidelines for transfer pricing, illustration given thereunder and various judicial pronouncements in order to explain why TNMM and not CPM be regarded as the MAM. It was submitted that CPM cannot be considered as MAM due to transactional and functional differences between domestic and export sales and that TNMM be taken as the MAM as it was less affected by the transactional and functional differences as comparison is made at the net profit level. The learned Authorised Representative submitted that, without prejudice to the assessee's above contentions, if CPM is to be considered as the MAM, there being various differences between domestic sales and exports sales, adjustments should be allowed for all these differences. Arguments were also put forth that the assessee was a full fledged manufacturer and not a contract manufacturer as held by the TPO for the purpose of applying CPM. 8.4 Per contra, the learned Departmental Representative for Revenue argued justifying the action of the TPO in adopting CPM as the MAM due to the difference in G P Margin in domestic and export sales. The learned Departmental Representative filed a chart showing the percentage of GP to cost of goods sold, in both consumer products in domestic market and exports to AEs for Assessment Years 2009-10 to 2013-14 and submitted that due to huge difference in G P rate in both the above segments, the Transfer Pricing Adjustment made by the TPO is fully justified. The learned Departmental Representative contended that TNMM cannot be considered as the MAM since distribution, marketing, selling expense are incurred only in the domestic market Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 64 of 170 and not in connection with the products exported to AEs. The learned Departmental Representative relied on various judicial pronouncements to contend that CPM was the MAM to be adopted in the case on hand. 8.5.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The first issue for consideration is that of what would be the MAM in the facts and circumstances in the case on hand. As per Sec. 92C(1) of the Act, the ALP in relation to an international transaction hall be determined by any of the following methods, being the MAM, having regard to the nature of transaction or class of transaction OR class of associated persons OR functions performed by such persons OR such other relevant factors as the Board may prescribe, viz., (a) Comparable Uncontrolled Price Method; (b) Resale Price Method; (c) Cost Plus Method; (d) Profit Split Method; (e) Transactional Net Margin Method; (f) Such other method as may be prescribed by the Board. Sub-section 2 of Section 92C of the Act provides that the MAM referred to in sub-section (1) shall be applied, for determination of the ALP, in the manner as may be prescribed. Rule 10B of the IT Rules, 1962 provides for the determination of ALP under Section 92C of the Act. The TPO in the case on hand has applied CPM as the MAM. Rule 10B(1)(c) deals with the determination of ALP as per CPM and the same is extracted hereunder :— \"(c) cost plus method, by which,— (i) the direct and indirect costs of production incurred by the enterprise in respect of property transferred or services provided to an associated enterprise, are determined; (ii) the amount of a normal gross profit mark-up to such costs (computed according to the same accounting norms) arising from the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a comparable uncontrolled transaction, or a number of such transactions, is determined; Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 65 of 170 (iii) the normal gross profit mark-up referred to in sub-clause (ii) is adjusted to take into account the functional and other differences, if any, between the international transaction 55b[or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect such profit mark-up in the open market; (iv) the costs referred to in sub-clause (i) are increased by the adjusted profit mark-up arrived at under sub-clause (iii); (v) the sum so arrived at is taken to be an arm's length price in relation to the supply of the property or provision of services by the enterprise;\" 8.5.2 As per CPM, the direct and indirect costs of production incurred by the enterprise in respect of property transferred to an AE is increased by the 'adjusted profit mark up' to determine the ALP. The 'adjusted profit mark up' is determined by making adjustments to 'normal gross profit mark up' to take into account the functional and other differences, if any, between the international transaction and the comparable uncontrolled transactions OR between the enterprises entering into such transactions, which could materially affect such profit mark up in the open market. The 'normal gross profit mark up' means the gross profit mark up on direct and indirect costs of production arising from the transfer of the same OR similar property by the enterprise or by an unrelated enterprise, in a comparable uncontrolled transaction OR a number of such transactions. 8.5.3 In the case on hand, the assessee compared the net profit margin from domestic consumer product division with the net profit margin for exports to AEs. At page 46 of his order, the TPO has held that the exports to AEs is comparable in terms of nature of goods to the domestic consumer product division and therefore this section is considered as comparable to exports to AEs. Thus, there is no dispute on the domestic consumer product division being compared with exports to AEs. The TPO, however, compared the gross margin of domestic consumer product division with the gross margin of exports to the AEs. In doing so, we find the TPO disregarded the mandate of Rule 10B(1)(c) of the Rules which require determination of 'adjusted profit mark up' by making adjustments to the 'normal gross profit mark up' by taking into account the functional and other differences between Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 66 of 170 the international transactions and the comparable uncontrolled transactions. 8.5.4 It is an undisputed fact on record that, in respect of finished goods exported to AEs, the entire marketing, adjustment, distribution and sales activities are performed by the AEs and not by the assessee. The TPO has acknowledged/accepted this fact at various places in his order under Section 92CA of the Act; viz. at the 1st para on page 3 and 6, last para of page 4, 2nd para on page 5, etc. The TPO, however, rejected TNMM as the MAM and adopted CPM for determination of ALP of sale of finished goods to the assessee for the reason that, even though the products sold in the domestic consumer product division are comparable to the products sold to AEs, the functions performed, assets employed and risks undertaken in both the segments are not the same. The selling price and gross profit of products sold in the domestic consumer division is higher than that of the products exported to AEs for the reason that the assessee in the domestic consumer product division undertakes all function and incurs expenditure on distribution, marketing, advertisement, transportation, sales promotion, commission, travel, salary, travelling, administrative costs and also undertakes risks such as market risk, debt risk, etc. Therefore the selling price and gross profit of products sold in the domestic consumer products are fixed at a higher level than in the case of export of finished goods to AEs where the selling price is the ex-factory price; the freight at actual is collected by the assessee and also as all other expenditure mentioned above like distribution, marketing, advertisement, transportation, sales promotion, etc. are entirely incurred by the AEs and not by the assessee. Therefore, since the assessee does not undertake the above functions and risks, the selling price of products sold to Assessing Officer are fixed considering a net margin of 15% on the estimated costs. 8.5.5 In our considered view, the TPO has completely disregarded the above important differences in functions performed, assets employed and risks undertaken by the domestic consumer product division and export to AEs; the pricing policy followed by the assessee due to these differences in both segments. In this view of the matter, we are of the considered opinion that the TPO's approach, in applying the gross profit margin of the domestic consumer product division to the cost of goods sold in exports to AEs to determine the ALP, is factually erroneous and contrary to the mandate of Rule 10B(1)(c) of the Rules. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 67 of 170 8.5.6 As per Rule 10B(2), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following namely :— \"(a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail.\" As per Rule 10B(3), an uncontrolled transaction shall be comparable to an international transaction if :— \"E (3) An uncontrolled transaction shall be comparable to an international transaction if— (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences.\" The effect of Rule 10B(2) and (3) is to compare an international transaction with an uncontrolled transaction with reference to the parameters as explained at (a) to (d) above and to make reasonably accurate adjustments to eliminate the material effects of differences between the international transactions and uncontrolled transactions. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 68 of 170 8.5.7 In the case on hand, as discussed above, the assessee mentions a higher gross margin in the domestic market because it incurs significant administration, selling and distribution expenses, etc. In case of group concerns (AEs) since the administration, selling, distribution and other expenses are incurred by the group concerns themselves, necessitating the levying of higher margins for the group concerns/AEs and consequently, keeping correspondingly lower margin for the assessee. Before the TPO, the assessee put forth the above discussed explanations in respect of functional differences between exports to AEs and the domestic consumer product division (extracted at pages 16 to 21, pages 31 to 33 of TPO's order). Several other differences like public awareness of ayurvedic products in India and outside India, popularity of Brand 'Himalaya' in India and abroad, support of doctors and Govt. of India and abroad, etc. were explained before the TPO. The assessee also submitted that if CPM is considered as the MAM, then the gross profit margin earned in the domestic market should be reduced on account of the many/various differences like, freight to move goods to the sales depots and subsequently to the stockists, commission to C&F Agents through whom the sales are achieved, filed staff salaries, sales commission to employees, travelling cost to promote and achieve sales all over India, communication charges, brand premium, allowances for negative publicity in the international market, etc. 8.5.8 Rule 10B(1)(c) r.w. Rule 10B(3) provides for making reasonably accurate adjustments to eliminate the material effects of differences between transactions being compared. In the case on hand, from the details on record, the differences between domestic sales and export sales are large in number and some being qualitative, unless reasonably accurate adjustments are made to normal gross profit mark up to eliminate the material effects of the many differences between domestic sales and export sales, the two margins cannot be compared. In our view, to give a mathematical number to all these differences would mean indulging in the exercise within a realm of subjectivity which is to be avoided. We are conscious of the principle that CPM can be applied in the case of a manufacturer selling goods to both AEs and non-AEs. However, in our considered view, in the peculiar factual matrix of the case on hand, as discussed and laid out above, we are of the view that CPM cannot be considered as the MAM. In coming to this view, we are fortified by the decision of the Pune Bench of the ITAT in the case of Drilbits International (P.) Ltd. v. Dy. CIT [2011] Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 69 of 170 142 TTJ 86, wherein on similar facts and circumstances, it was held that gross profit mark up on domestic sales cannot be compared with gross profit on export sales to AE, reasonably accurate adjustments cannot be made to eliminate the differences between the domestic sale; export sales and consequently CPM cannot be considered as the MAM; and in this regard at para 50 thereof held as under :— \"50. Considering the above submissions, vis-à-vis the method i.e. CPM (cost plus method) adopted by the learned TPO to determine the ALP, which has been relied upon by the learned Departmental Representative, we find that the learned TPO while adopting CPM has failed to appreciate several material aspects of the issue as discussed above. In our view, the learned TPO was not justified in comparing the gross margin in export segment vis-a-vis gross margins in domestic segment. There are various differences in the functions performed and the risk assumed in these two segments and therefore, the same cannot be considered as comparable cases for determining the ALP. There is no marketing risk in the export segment, no risk of bad debts, no product liability risk in export segments whereas the assessee has to bear all these risks in the domestic segment. The contractual statements also defer in the domestic segment vis-a-vis export segments. There are different characteristics and contractual terms in the two segments and further geographical and marked differences are also present. Thus, we are of the view that it is very difficult to make suitable adjustments for these differences, hence the CMA method is not appropriate method for determining the ALP. The learned TPO, in our view, has thus erred in adopting the CMA method as appropriate method.\" 8.5.9 Similarly, the ITAT, Pune Bench in the case of Alfa Lavel (I) Ltd. v. Dy. CIT [2014] 46 taxmann.com 394/149 ITD 285 (Pune - Trib.), rejected CPM as the MAM. In its decision in that case, where the assessee was engaged in the business of manufacture and sale of various industrial products such as decanters, separators, etc. to its AE located abroad as well as in the domestic sector, in view of the fact that there were various differences in export segment and domestic segment, such as market fluctuations, geographic differences, volume difference, credit risk, RPT, etc., the Bench held that the TPO was not justified in adopting CPM as the MAM as suitable adjustments are not possible. 8.5.10 The learned Departmental Representative for Revenue placed reliance on the decision of the Delhi Bench of ITAT in the case of Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 70 of 170 Wrigley India (P.) Ltd. v. Addl. CIT [2011] 14 taxmann.com 91/48 SOT 53 (URO) (Delhi) to put forward the proposition that CPM should be considered as the MAM for manufacture and sale of finished goods in the domestic markets and exports to AEs. In fact, in this decision (supra), the Tribunal held that 'since the marketing and advertisement expenditure has to be also incurred by the AEs to market the product in their respective territories, therefore this aspect for making adjustments as provided in Rule 10B(1)(c)(iii) has to be considered. It is thus seen that the above decision relied on by the learned Departmental Representative also recognizes that adjustments have to be made as per Rule 10B(1)(c)(iii) under CPM also. No doubt, as a proposition, the above principle holds good, however, as we have held that, in the case on hand reasonably accurate adjustments cannot be made to determine the adjusted profit mark up as per Rule 10B(1)(c), CPM cannot be considered as the MAM. 8.5.11 The learned Departmental Representative also placed reliance on the decision in the case of Diamond Dye Chem Ltd. v. Dy. CIT in ITA No.3073/Mum/2006 dt.14.5.2010, wherein the Tribunal accepted CPM as MAM for the following reasons as held at para 35 thereof, which is extracted hereunder :— \"35. We find the assessee is manufacturing Optical Brightening Agents (OBAs) which are being used in textile and paper industries and which are exported by the assessee to the AEs as well as Non-AEs. Therefore, we do not find any merit in the contention of the assessee that there is product dissimilarity between goods exported to AEs and unrelated parties and, therefore, the Cost Plus Method is not applicable. Further the learned counsel for the assessee also could not satisfactorily explain as to what are the substantial differences in the functional and risk profiles of the activities undertaking by the assessee in respect of the exports made to the AEs and Non-AEs. Therefore, we do not find merit in the submission of the learned counsel for the assessee that in cases where the differences in functional profile are so material that the same cannot be reasonably adjusted while carrying out a gross profit analysis, it may be appropriate to consider a net level analysis using operating margin in view of Rule 10B(1)(c)(iii). Therefore, the submission of the learned counsel for the assessee that if at all an internal comparison has to be carried out in the instant case then it should be carried out at the operating level i.e., using the net/operating margin. Further we find force in the submission of the learned DR that Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 71 of 170 since the cost data for the manufacture of products are available as per cost audit report, the reliability there of is assured and therefore Cost Plus Method is the most appropriate method. In this view of the matter and in view of the detailed discussion by the learned CIT (A), we hold that the Cost Plus Method (CPM) is the most suitable method for the international transactions with AEs in the instant case.\" In this decision (supra), the Tribunal accepted CPM as the MAM considering the fact that the assessee was not able to satisfactorily explain the substantial difference in the FAR analysis in respect to exports to AEs and non-AEs and therefore did not accept that comparison should be made at the operating level using the net operating margin. In the case on hand, however, the assessee has brought on record many functional, quantitative and qualitative differences between the domestic consumer product division and the exports to AEs. As discussed earlier, reasonably accurate adjustments cannot be made in the case on hand to determine the adjusted profit mark up as per Rule 10B(1)(c) and therefore CPM cannot be considered as the MAM. Consequently, the aforesaid decision relied on by the learned Departmental Representative is not applicable to the facts of the case on hand. 8.5.12 The OECD, TP Guidelines, 2010 relied on by the assessee provides that CPM may become less reliable when there are differences between the controlled and uncontrolled transactions and those differences have a material effect on the attribute being used to measure arm's length conditions. It further states that when there are material differences that affect the gross margins earned in controlled and uncontrolled transactions, adjustments should be made to account for such differences. The extent and reliability of those adjustments will affect the relative reliability of the analysis. 8.5.13 On the other hand, the OECD,TP Guidelines, 2010, provides that TNMM is less affected by the transactional and functional differences as seen form Part III, B.2 at 2.68 thereof :— \"2.68 One strength of the transactional net margin method is that net profit indicators (e.g. return on assets, operating income to sales, and possibly other measures of net profit) are less affected by transactional differences than is the case with price, as used in the CUP method. Net profit indicators also may be more tolerant to some functional differences between the controlled and uncontrolled transactions than Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 72 of 170 gross profit margins. Differences in the functions performed between enterprises are often reflected in variations in operating expenses. Consequently, this may lead to a wide range of gross profit margins but still broadly similar levels of net operating profit indicators. In addition, in some countries the lack of clarity in the public data with respect to the classification of expenses in the gross or operating profits may make it difficult to evaluate the comparability of gross margins, while the use of net profit indicators may avoid the problem.\" 8.5.14 Rule 10B(1)(c) deals with the determination of ALP a per TNMM. As per this Rule, the net profit margin from a comparable uncontrolled transaction is adjusted to take into account the differences between the international transactions and comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. This is compared with the net profit margin from the international transactions entered into with an AE. TNMM requires establishing comparability at a broad functional level, requiring comparison between net margins derived from the operation of the uncontrolled transactions and net margin derived in similar international transactions. Thus, TNMM removes the limitations of other methods and since the comparison is made at the net profit level, it is the only method where comparison is possible when there are differences in the transactions and further making reasonable adjustments to the comparable transaction is impossible. The Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 55 taxmann.com 240/231 Taxman 113/374 ITR 118 held that the TNMM is a preferred TP Method for determination of ALP of international transactions for its proficiency, convenience and reliability and in TNMM preference should be given to internal or in-house comparables; as held in paras 89 and 90 thereof :— \"89. The TNM Method has seen a transition from a disfavoured comparable method, to possibly the most appropriate Transfer Pricing method due to ease and flexibility of applying the compatibility criteria and enhanced availability of comparables. Net profit record/data is assessable and within reach. It is readily and easily available, entity- wise in the form of audited accounts. The TNM Method is a preferred transfer pricing arm's length principle for its proficiency, convenience and reliability. Ideally, in TNM Method preference should be given to internal or in-house comparables. In absence of internal comparables, Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 73 of 170 the taxpayer can and would need to rely upon external comparables, i.e. comparable transactions by independent enterprises. For several reasons, database providers, it is apparent, have the requisite information and data of external comparables to enable comparability analysis of the controlled and uncontrolled transactions with necessary adjustment to obtain reliable results under TNM Method. This method also works to the benefit and advantage of the tax authorities in view of convenience and easier availability of data not only from third party providers, but on their own level, i.e. assessment records of other parties. 90. The strength of the TNM Method is that net profit indicators are less affected by transactional differences in comparison with some other methods. This method is more tolerant to functional differences between controlled and uncontrolled transactions in comparison with resort to gross profit margins…….\" 8.5.15 In the case on hand, the net margin earned by the assessee in respect of personal care division in the domestic segment at 11.30% was compared to the net margin from exports to AEs at 15.80%. Since the net margin from exports to AEs was higher than the net margin from domestic sales to unrelated parties, the assessee concluded that its exports to AEs were at arm's length. The TPO has taken AE sales comprising of both pharma and personal care products and compared the same with the personal care products of the domestic segment. Since the products compared are different, consequently the gross profits are also different. Further, the number of differences and adjustments to be carried out for comparison purposes as detailed from page 19 of the TPO's order are large in number and therefore where differences are many, CPM cannot be considered as MAM. Consequently, in our considered view, TNMM is the MAM in the peculiar facts and circumstances of the case on hand. 9.1 The TPO held that the assessee acted as a contract manufacturer in respect of products exported to AEs since the products are sold to AEs at cost plus 15% and the assessee does not undertake any other functions. The OECD, TP Guidelines, 2010 explain the meaning of contract manufacturing with an example wherein a 100% subsidiary company assembles products (a) at the expense/risk of the holding company; (b) based on all necessary component, know how provided by the holding company (c) based on guarantee provided by the holding company for purchase of products. The OECD, TP Guidelines Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 74 of 170 further states that in contract manufacturing, the producer may get extensive instructions about what to produce, in what quantity and of what quality and therefore in such circumstances, the producing company bears low risk. The Guidelines also provide that a contract manufacturer under control of principal, manufactures the product on behalf of the principal, using technology that belongs to the principal, where purchase of the products manufactured and remuneration are guaranteed by the principal, irrespective of whether and if so at what price the principle is able to re-sell the product. 9.2 In the case on hand, the products involved are standard goods manufactured by the assessee and selling them in the ordinary course of its business, both in the domestic and overseas markets. The assessee does not depend on the technology of the AEs for manufacture of products; whose specifications whether technical or otherwise are decided by the assessee itself. At para 1.2 on page 3 of his order under Section 92CA of the Act, the TPO has accepted that the assessee has its own range of products and the AEs only choose from the standard products which are manufactured by the assessee for the Indian Market. In our view, the TPO's understanding of a contract manufacturer will make every manufacturer of goods in India who would not only make domestic sales but also effect sales to an overseas distributor as a contract manufacturer. A co-ordinate bench of this Tribunal in the case of Essilor Mfg. India (P.) Ltd. v. Dy. CIT [2016] 67 taxmann.com 377 held that an assessee carrying out its independent activity of manufacturing cannot be treated as a contract manufacturer. It was held that in such circumstances CPM cannot be applied and TNMM will be the MAM. In view of the overall consideration of the peculiar facts and circumstances of the case, as discussed above, we hold that CPM adopted by the TPO is incorrect and contrary to the facts of the instant case and that the assessee is justified in adopting TNMM for determining the ALP in respect of finished goods exported to AEs. In this view of the matter, the Transfer Pricing Adjustment of Rs. 41,12,32,939 made by the TPO by adopting CPM is accordingly deleted. Consequently, ground No. VIII & IX raised by the assessee are allowed.” Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 75 of 170 31. Similarly for AY 2010 – 11 in ITA No. 187/Bang/2015 the coordinate bench as per paragraph number 6.6 of the order at page number 23 of 50 of that order relying upon the decision for the assessment year 2011 – 12 held that transactional net margin method is the most appropriate method. The coordinate bench further held that the assessee has earned net margin of 13.39% from export to its associated enterprises whereas the net loss suffered by the assessee in respect of the personal care division in the domestic segment is 10.16%. As the net margin from the assessee is export to its associated enterprises is higher when compared to the result of its margin in respect of transactions in the personal care division in the domestic segment, the price of the sale of finished goods at our at arm’s- length. In that factual background the coordinate bench deleted the transfer pricing adjustment of ₹ 388,432,315/– made by the learned transfer pricing officer by adopting the cost plus method as the most appropriate method. Further going ahead, for assessment year 2012 – 13 in ITA number 2248/Bang/2016 dated 2 November 2020, up after relying upon the decision of the coordinate bench in assessee’s own case for the assessment year 2010 – 11 and 2011 – 12, in paragraph number 5.7 the coordinate bench held that the assessee earned the net profit margin of 10.70% in domestic personal care division by the margin earned by the assessee in respect of export sales to its associated enterprises was 12.01%. Therefore the assessee has claimed that its export made to the associated Enterprises was at arm’s-length. However the learned transfer pricing officer has recast the profit and loss account and further worked out the net profit margin at the rate of 19.43% in Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 76 of 170 domestic personal care division and 13.08% on export to its AE division. Since the transfer pricing officer proceeded to compare gross profit margin, he did not give any significance to the net profit margin. In view of this fact the coordinate bench rejected the methodology adopted by the learned transfer pricing officer and upheld the assessee stand on transactional margin method and net profit margin. Subsequently for AY 2014 – 15 in ITA No. 3071/Bang/2018 dated 17/12/2028 paragraph number 21 has dealt identical issue wherein the coordinate bench relying on the decision of the coordinate bench in assessee’s own case for AY 2011 – 12 (2018) (96 taxmann.com 335) at paragraph No.7.98 page no. 41 of 75 of the decision has deleted the addition holding that the profit element net profit margin in domestic personal care division was 12.31% where the net profit margin worked out for the export to associated Enterprises was 24.03% and therefore the transaction of export was held to be at arm’s-length. For AY 2015 – 16 in ITA No. 2434/Bang/2019 dated 8/12/2020, for AY 2016 – 17 in ITA No. 303/Bang/2021 dated 22/10/2021, for AY 2017 – 18 in ITA No. 259/Bang/2022 dated 14 June 2022 and for AY 2018 – 19 in ITA No.758/Bang/2022 dated 19/10/2022 the coordinate bench has taken the similar stand following the decision of the coordinate benches in assessee’s own case for earlier years. 32. As the coordinate benches have decided this issue for almost a decade following a similar line of findings on the same set of facts wherein they have compared the margins earned by the assessee in its domestic segment with the margins earned by the assessee in its export segment with its associated enterprises and as the margins in the domestic segment are lesser Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 77 of 170 than the margin in the export segment with associated enterprises, coordinate benches have consistently held that internal transaction net margin comparison by the assessee by adopting transactional net margin method adopted by the assessee for determination of the arm’s-length price is the most appropriate method. The coordinate benches have consistently negative the findings of the learned transfer pricing officer that there is a difference between the functions carried on by the assessee on export to its associated enterprises and compared with the functions adopted by the assessee for its domestic sales. The learned transfer pricing officers argument was also negated that assessee has incurred a substantial function of marketing, advertisement etc. while making sales in the domestic market whereas in sales to be made to the associated enterprises for export, no such activities are to be carried out by the assessee. Thus the coordinate benches have rejected the cost plus method adopted by the learned transfer pricing officer for all these years. The ld DR could not show us any change in the facts and circumstances of the case. The courts of equity have since long has embraced the principle that decision must not vary like the “Chancellor’s foot’ and the principle of consistency ensures that like cases are treated a like. Further the issues are stated to be pending before honourable High court. 33. Therefore, respectfully following the decision of the coordinate benches in assessee’s own case for earlier years commencing from assessment year 2010 – 11 to assessment year 2018 – 19, we also hold that the method adopted by the assessee of the transactional net margin method as the most appropriate method for benchmarking the arm’s-length price of Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 78 of 170 the international transaction of export of goods. Further as the margin earned by the assessee in the domestic segment is less than the margin earned by the assessee in export segment, we also hold that the transaction of export carried out by the assessee with its associated enterprises is at arm’s-length. Accordingly ground number 4 of the appeal following the decision of the coordinate benches as indicated above is allowed. 34. As the ground number 5 of the appeal is with respect to the determination of the arm’s-length price based on the cost plus method is infructuous in view of our decision in ground number 4 of the appeal wherein we have directed the learned transfer pricing officer delete the adjustment made holding that transactional net margin method is the most appropriate method. Accordingly ground number 5 is dismissed as infructuous. 35. Coming to ground no 3 on determination of the fact whether the assessee has entered into an international transaction or not claim of the assessee is before us is that assessee does not have any associated enterprises relationship with the parties to whom the goods are exported and therefore it has not entered into any international transaction with those parties and therefore there is no need to determine the arm’s-length price of these transactions. In the earlier years, the coordinate benches have not decided this issue for the reason that the addition on the merits were deleted and this issue was held to be really academic and therefore not adjudicated. It is also a fact that assessee is in its filing before the assessing officer in form number 3CEB as well as in the transfer pricing study report has Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 79 of 170 categorically held that those entities with whom the assessee has entered into export transaction are associated enterprise. However, if the claim of the assessee is correct that these parties are not the associated enterprise as provided under section 92A of the income tax act, the whole transfer pricing exercise will come to a nought. Indeed, without first deciding whether there is a relationship exists between the assessee and the parties to whom goods are exported as associated enterprises but first deciding whether such transactions are carried out at arm’s-length price or not is just like putting cart before the horse. 36. It is also true that for AY 2011 – 12 the assessee has raised this issue before the coordinate bench that there does not exist the AE relationship. The coordinate bench in ITA No. 807/Bang/2016 decided this issue as per paragraph no. 7 wherein this ground was not adjudicated for the reason that merits of the transfer pricing additions were examined and then deleted. Similarly for assessment year 2015 – 16 also the assessee has raised this ground which came to be decided in ITA No.2434/Bang/2019 wherein both the parties agreed that the issue relating to the validity of reference made to the learned transfer pricing officer as has been decided against the assessee for AY 2011 – 12, that ground was dismissed. However looking at the order for AY 2011 – 12, that ground was not dismissed but was not adjudicated. Further for AY 2012 – 2013 to 2018 – 19, the assessee challenged the identical issue of the existence of the relationship of the associated enterprises with those parties, however the same was not adjudicated. The reason being that for all those years ITAT has deleted the addition of the transfer pricing issue on merits following the decision for assessment year Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 80 of 170 2011 – 12. However it is true that if there does not exist an associated enterprise relationship in terms of subsection 92 A, there cannot be any issue of existence of international transaction and consequently determination of arm’s-length price. 37. This issue has neither been raised before and decided by either the ld TPO or ld DRP. Therefore there is no discussion in the orders of ld lower authorities. Further in the discussion was also absent in any of the orders of the coordinate benches as stated by the ld CIT DR. 38. As this issue been raised before us and debated by both the parties, for the first time, in the interest of justice, we restore this issue back to the file of the learned assessing officer, with a direction to assessee to show before them that there does not exist any relationship of associated enterprises as prescribed under section 92A of the act. The learned assessing officer may examine the same and then decide the issue that whether there exist such relationship as envisaged under section 92A of the income tax act. If there does not exist, the issue of transfer pricing relating to determination of arm’s-length price, benchmarking etc. does not arise at all. If there exist such relationship, the addition was made by the learned transfer pricing officer is covered in favour of the assessee by the decision of the coordinate benches stated above. Thus, ground number 3.6 is restored to file of the learned assessing officer as directed. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 81 of 170 39. With respect to the issue in ground number 3.3, ground number 3.4 with respect to the validity of assessment order and as per ground number 3.5 of the limitation, we find that as the assessee itself has stated these parties as its associated enterprises, therefore , all these grounds of appeal are dismissed for the reason that the assessee in its transfer pricing study report, in its declaration before the assessing officer has stated them to be an associated enterprises. The assessee has also disclosed the relationship between these parties as per clause number 10 of form number 3CEB wherein complete list of associated enterprises is provided. It is placed at page number 312 of the paper book filed by the assessee. The assessee also could not show any submission made before the learned transfer pricing officer that the disclosure made by the assessee in form number 3CEB is incorrect so far as it relates to the associated enterprises. Therefore it was an agreed fact before the learned assessing officer that there exist an associated enterprise relationship between the assessee and those parties to whom export of goods are been made. Therefore on that basis, the assessment orders were passed. The assessment orders were passed by following the proper procedure of reference to the transfer pricing officer, approval by the correct authority and believing the submission of the assessee by the learned transfer pricing officer and the learned assessing officer that there exits an international transaction. Believing a submission of the assessee, if there is no contrary evidence exist, cannot go against the assessing officer that he accepted the submission of the assessee without verification and then the assessee also did not draw any inference on those facts, we do not find any fault in the order of the learned TPO, learned AO, the approving authority Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 82 of 170 and reference made by the assessing officer to the learned TPO for determination of arm’s-length price of international transaction. Therefore we also hold that the order is valid, is not barred by limitation and also correctly framed so far as jurisdiction, timelines are concerned. Accordingly all other facets of ground number 3 of the appeal are dismissed except the issue of determination of arm’s-length price covered by ground number 3.6 which is restored back to the file of the AO limited to determination of Associated enterprises relationship. 40. Ground No.6 is related to the adjustment made by the learned transfer pricing officer on account of the advertisement and marketing promotion expenditure amounting to ₹ 709,052,488/–, (ground No.7 of the original grounds of appeal). The argument of the assessee is that all these issue has been decided in case of the assessee by the coordinate bench since AY 2011 – 12 to AY 2018 – 19 which is on the identical facts and circumstances. The learned authorised representative furnished copies of the decision of the coordinate benches in assessee’s own case for all these years and also referred to the relevant paragraphs dealing with the same. He submits that there are 18 facets to the ground number 6 however, all the issues are covered in favour of the assessee. With respect to ground number 6.7 he submitted that for the first time the learned transfer pricing officer adopted the profit Split Method to make an adjustment to the arm’s-length price of the advertisement marketing and promotion expenditure which has also been dealt with by the coordinate bench in paragraph No. 11.4.3 holding that the requirement of their being an international transaction has not been satisfied in the case. He further submitted that ground number 9 for AY 2013 – 14, Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 83 of 170 covers this issue. He categorically stated that when the margins of the international transaction as a whole under the transactional net margin method are at arm’s-length price, there should not be any separate adjustment to be made for the advertisement marketing and promotion expenditure. He further submitted that in absence of an arrangement between the assessee and its associated enterprises brought on record by the learned assessing officer/officer transfer pricing adjustment cannot be made on account of advertisement marketing and promotion expenditure. He further referred that the specific finding on aspect of notional income of such notional income and its taxability has been given. The assessee further submitted that the coordinate bench has taken a note of the affidavit filed from the major partner of the appellant stating that the appellant is exclusively and beneficially entitled to exploit the brand name which confirms that the appellant is the owner of the brand has been accepted. Therefore the adjustment made by the learned transfer pricing officer and confirmed by the learned dispute is squarely covered in favour of the assessee and then deserves to be deleted. 41. The learned departmental representative vehemently supported the orders of the learned lower authorities and submitted that the learned transfer pricing officer has adopted the most appropriate method for determination of the arm’s-length price of the advertisement marketing and promotion expenditure incurred by the assessee which enhances the brand owned by a foreign entity. Therefore, according to her, there is no infirmity in the order of the learned lower authorities. It was her submission that Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 84 of 170 though the issue is decided by the coordinate benches in assessee’s favour or all these assessment years, the issue deserves to be looked into. 42. We have carefully considered the rival contention and the orders of the learned lower authorities. 43. The ld TPO discussed this issue in para no 8 to at page no 23 to 43 as under :- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 85 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 86 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 87 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 88 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 89 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 90 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 91 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 92 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 93 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 94 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 95 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 96 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 97 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 98 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 99 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 100 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 101 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 102 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 103 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 104 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 105 of 170 44. The ld DRP discussed this issue at para No.2.6.1 to 2.6.25 as under:- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 106 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 107 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 108 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 109 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 110 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 111 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 112 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 113 of 170 45. We find that this issue first arose in the case of the assessee for AY 2011 – 12 Himalaya Drug Company vs. DCIT [2018] 96 taxmann.com 335 (Bangalore - Trib.)[04-07-2018] wherein the coordinate bench has decided this issue as under:- “11. Ground No.XI - Advertisement, Marketing & Sales Promotion (AMP) Expenses - Transfer Pricing Adjustment : Rs. 31,69,02,034. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 114 of 170 11.1 In the course of proceedings, the TPO noted that the assessee had incurred huge advertisement and selling expenditure in marketing its products. Taking into account the fact that the brand name and logo 'Himalaya' is owned by M/s. Himalaya Global Holding Ltd; Cayman Islands, the TPO held that the legal owner, namely, M/s. Himalaya Global Holding Ltd., Cayman Islands (viz. holding 88% share in the assessee firm) should meet the expenditure on promotion of the brand name OR it should compensate the assessee for performing the function of developing the brand name and logo in India. The TPO was of the view that the AMP expenditure incurred by the assessee is in excess of the gross profit itself, it cannot be said that the entire AMP expenditure is incurred for the purpose of the assessee's business. In this view of the matter, the TPO applied the 'Bright Line Test' to identify the expenditure on AMP which is routine in nature and which an entity working at arm's length is expected to incur and held the balance expenditure to be non-routine and for the purpose of development of the brand and logo. The TPO worked out the non- routine AMP identifying the percentage of AMP expenditure (i.e. selling and marketing expenditure/sales) incurred by uncontrolled companies ;and in this context selected five companies as comparables and determined the average percentage of selling and marketing expenditure to sales @ 24.05%. The TPO applied this rate to sales of Rs. 197,25,42,327 and the routine expenses were determined at Rs. 47,43,96,429. Reducing this amount from the actual selling and marketing expenditure of Rs. 77,62,07,890, the non-routine expenditure was computed at Rs. 30,18,11,461 and after adding a mark up of 5% on this, the TPO determined the adjustment at Rs. 31,69,02,034. The DRP upheld and confirmed the above views/contentions of the TPO. 11.2.1 Before us, the learned Authorised Representative for the; assessee placed reliance on the decisions of the co-ordinate bench of this Tribunal in the case of Essilor India (P.) Ltd. v. Dy. CIT [2016] 68 taxmann.com 311 (Bang. - Trib.); Dy. CIT v. Nike India (P.) Ltd. in IT (TP) Appeal No.232/Bang/2014 and other judicial pronouncements to contend that in the absence of any agreement OR arrangement with M/s. Himalaya Global Holdings Ltd., Cayman Islands to incur AMP expenses on its behalf to promote the brand value of the products, the AMP expenses cannot be treated as an international transaction. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 115 of 170 11.2.2 Reliance was placed by the learned Authorised Representative on the Affidavit of Sri Meraj Alim Manal dt.27.8.2012 (pages 452 to 454 of Paper Book 2), the major shareholder of M/s. Himalaya Global Holdings Ltd., Cayman Islands ('HGH'), to contend that it is the assessee firm which has developed all its assets including the trade marks of the products in India and the assessee is exclusively and beneficially entitled to explore and use the same in India. It was submitted that as per the above Affidavit, the legal ownership of the brand with 'HGH' was necessitated by the fact that the assessee, being a firm was not recognized as a legal entity outside India and therefore 'HGH', being a partner and a legal entity was recognized as the owner of the brand. It was contended that Sec. 92 of the Act is a machinery provision and not a charging section and therefore notional income cannot be charged to tax. According to the learned Authorised Representative, the advertisements aired OR printed do not carry the name of 'HGH' and in this regard, relying on the certificate issued by M/s. Starcom Worldwide (page 471 of Paper Book - 2) submitted that the advertisement expenses are for the Indian Market only as these advertisements are not aired in the international market. The learned Authorised Representative further contended that the 'Bright Line Test' adopted by the TPO for making the Transfer Pricing Adjustment has no legal sanctity and hence entire Transfer Pricing Adjustment should be deleted. 11.2.3 Without prejudice, it was contended by the learned Authorised Representative that selling expenses do not form part of AMP and consequently if the correct amount of advertisement expenses is considered, it would be seen that it is well within the routine AMP limit determined by the TPO. In this context, the learned Authorised Representative prayed for the deletion of the Transfer Pricing Adjustment on AMP expenditure. 11.3 Per contra, the learned Departmental Representative placed strong reliance on the order of the TPO. It was contended that as the assessee is not the legal owner of the brand 'Himalaya', any AMP expenses incurred by the assessee will directly or indirectly result in promotion of the brand 'Himalaya' owned by 'HGH' Cayman Islands. It was therefore argued that the TPO rightly made the Transfer Pricing Adjustment on AMP. 11.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 116 of 170 pronouncements cited. The question of whether incurring AMP expenditure result in an international transaction was considered at length by a co-ordinate bench of this Tribunal in the case of Essilor India (P.) Ltd. (supra) which decision was followed by another co- ordinate bench of this Tribunal in the case of Nike India (P.) Ltd. (supra). In the case of Nike India (P.) Ltd. (supra), after considering various judicial pronouncements on the subject, the co-ordinate bench held that in the absence of any arrangement between the assessee and the foreign AE for incurring AMP expenditure, no Transfer Pricing Adjustment can be made in respect of AMP expenditure. In this regard, we find that at paras 19 to 22 of its order in the case of Essilor India (P.) Ltd. (supra), it was held as under :— '19. In the present case, the assessee-company imports the lens from its foreign AE and after some processing, sells the products on its own. However, the amount of value addition on account of processing in terms of total revenue is not clear from the material on record. That apart, the assessee-company has been throughout contesting before all the authorities the very existence of international transaction on account of incurring AMP expenditure between assessee-company and its AE and therefore, the contentions that the law laid down by the Hon'ble Delhi High Court in Sony Ericsson Mobile Communication India (P.) Ltd. (supra) should be applied to the case on hand, is not correct. Therefore, the submission of the learned Departmental Representative that the matter be remanded to the file of TPOD for fresh decision in the light of law laid down by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communication India (P.) Ltd. (supra), cannot be acceded to. 20. Subsequent to the decision in the case of Sony Ericsson Mobile Communication India (P.) Ltd. (supra), the Hon'ble Delhi High Court had rendered five decisions on the same issue. Those decisions are: (i) Maruti Suzuki India Ltd. v. CIT (282 CTR 1), (ii) CIT v. Whirlpool of India Ltd. (129 DTR (169), (iii) Bausch & Lomb Eyecare (India) (P.) Ltd. v. Addl. CIT (129 DTR 201) and (iv) Yum Restaurants (India) Pvt. Ltd. v. ITO (ITA No.349/2015 dated 13/01/2016) and (v) Honda Seil Products Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 117 of 170 In the above-mentioned decisions, the issue of the very existence of international transaction on incurring AMP expenditure and the method of determination of ALP was the subject matter of appeal before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court had categorically held that in the absence of agreement between Indian entity and foreign AE whereby the Indian entity was obliged to incur AMP expenditure of a certain level for foreign entity for the purpose of promoting the brand value of the products of the foreign entity, no international transaction can be presumed. It was further held that the fact that there was an incidental benefit to the foreign AE, it cannot be said that AMP expenditure incurred by an Indian entity was for promoting brand of foreign AE. One more aspect highlighted by the Hon'ble High Court is that in the absence of machinery provisions, bringing an imagined transaction to tax was not possible. While coming to this conclusion, the Hon'ble High Court had placed reliance on the decisions of the Hon'ble Apex Court in the cases of CIT v. B.C. Srinivasa Setty (128 ITR 294) and PNB Finance Ltd. v. CIT (307 ITR 75). The Hon'ble Delhi High Court after referring to its earlier decision in the case of Maruti Suzuki India Ltd. (supra) and Whirlpool of India (P.) Ltd. (supra) had considered the question of existence of the international transaction and computation of ALP thereon in the case of Bausch & Lomb Eyecare (India) (P.) Ltd. (supra) vide para 51 to 65 as under: \"51. The central issue concerning the existence of an international transaction regarding AMP expenses requires the interpretation of provisions of Chapter X of the Act, and to determine whether the Revenue has been able to show prima facie the existence of international transaction involving AMP between the Assessee and its AE. 52. At the outset, it must be pointed out that these cases were heard together with another batch of cases, two of which have already been decided by this Court. The two decisions are the judgement dated 11th December 2015 in ITA No. 110/2014 (Maruti Suzuki India Ltd. v. Commissioner of Income Tax) and the judgment dated 22nd December 2015 in ITA No. 610 of 2014 (The Commissioner of Income Tax-LTU v. Whirlpool of India Ltd.) and many of the points urged by the counsel in these appeals have been considered in these two judgments. 53. A reading of the heading of Chapter X [\"Computation of income from international transactions having regard to arm's length price\"] Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 118 of 170 and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP and Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has 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 ALP. 54. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. 55. Section 92B defines 'international transaction' as under: \"Meaning of international transaction. 92B.(1) For the purposes of this section and sections 92, 92C, 92D and 92E, \"international transaction\" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.\" Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 119 of 170 56. Thus, under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection with the benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is \"any other transaction having a bearing\" on its \"profits, incomes or losses\", for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the 'includes' part of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between BLI and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as an 'international transaction'. This might be only an illustrative list, but significantly it does not list AMP spending as one such transaction. 58. In Maruti Suzuki India Ltd. (supra) one of the submissions of the Revenue was: \"The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit.\" This was negatived by the Court by pointing out: \"Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v) which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means' part and the 'includes' part of Section 92B Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 120 of 170 (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC.\" 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression \"acted in concert\" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati 2010(6) MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., Daiichi Sankyo Company and Ranbaxy were \"acting in concert\" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In para 44, it was observed as under: \"The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a certain target company. There can be no \"persons acting in concert\" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares etc. of the target company. For, de hors the element of the shared common objective or purpose the idea of \"person acting in concert\" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of \"persons acting in concert\" is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares etc. may be direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they may agree to cooperate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of \"persons acting in concert\" to come into being.\" 60. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 121 of 170 make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. In any event, after the decision in Sony Ericsson (supra), the question of applying the BLT to determine the existence of an international transaction involving AMP expenditure does not arise. 61. There is merit in the contention of the Assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function cannot be construed as a 'transaction'. Further, the Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT v. EKL Appliances Ltd. (supra) which required a TPO \"to examine the 'international transaction' as he actually finds the same.\" 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99.9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard, with B&L, USA. A similar contention by the Revenue, namely, that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also enure to the AE is itself sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: \"68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price \"which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions\". Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 122 of 170 in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT. ** ** ** 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment.\" 71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on application of the BLT, is excessive, thereby evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. ** ** ** 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 123 of 170 63. Further, in Maruti Suzuki India Ltd. (supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: \"75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO \"is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods.\" In such event, \"so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.\" The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance.\" 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) and PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. 65. As already mentioned, merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 124 of 170 mentioned in Sassoon J David (supra) \"the fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law\". 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 enure to its foreign AE is not sufficient to infer existence of international transaction. 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 be 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, 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 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 125 of 170 to determine the ALP of international transaction with its AE, it is sine qua non that the AMP expenditure should be considered as 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.' 11.4.2 In the case on hand, the TPO has made the Transfer Pricing Adjustment in respect of AMP expenses on the ground that the said expenditure has resulted in promotion of the brand 'Himalaya' owned by M/s. Himalaya Global Holdings Ltd., Cayman Islands and has applied the 'Bright Line Test' for this purpose. However, neither the TPO nor the Assessing Officer has brought on record any material evidence to substantiate the existence of any agreement or arrangement, either express or implied between the assessee and 'HGH', Cayman Islands for promotion of its brand. The Hon'ble High Court of Delhi in a series of decisions, inter alia, including the case of Maruti Suzuki India Ltd. v. CIT [2015] 64 taxmann.com 150/[2016] 237 Taxman 256/381 ITR 117 (Delhi) emphasized the importance of Revenue having to first discharge the initial burden upon it with regard to showing the existence of an international transaction between the assessee and the AE. In the case of Maruti Suzuki India Ltd. (supra), at para 64 it was held as under :— \"64. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. And, yet, that is what appears to have been done by the Revenue in the present case. It first arrived at the 'bright line' by comparing the AMP expenses incurred by MSIL with the average percentage of the AMP expenses incurred by the comparable entities. Since on applying the BLT, the AMP spend of MSIL was found 'excessive' the Revenue deduced the existence of an international transaction. It then added back the excess expenditure as the transfer pricing 'adjustment'. This runs counter to legal position explained in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Del), which required a TPO \"to examine the 'international transaction' as he actually finds the same.\" In other words the very existence of an international transaction cannot be a matter for inference or surmise.\" At para 76 of its order, the Hon'ble High Court has held as under :- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 126 of 170 \"76. As explained by the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) and PNB Finance Ltd. v. CIT (2008) 307 ITR 75 (SC) in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise.\" 11.4.3 In our considered view, the requirement of there being an international transaction has not been satisfied in the case on hand. In fact, it is not the case of the TPO that there exists an arrangement between the assessee and 'HGH' to promote the brand by incurring AMP expenses. The case of the TPO is that the AMP expenditure incurred by the assessee has resulted in a benefit to the legal owner of the brand and the logo, i.e. M/s. Himalaya Global Holdings, Cayman Islands. The contentions of the TPO that the foreign AE has benefitted on account of the AMP expenditure incurred and therefore the AMP expenditure cannot be said to have been incurred by the assessee for its own business, etc. have been rejected by the Hon'ble Delhi High Court. In the case of Sony Ericsson Mobile Communications India (P.) Ltd. (supra), the Hon'ble Delhi High Court at para 121 of its order observed that there is nothing in the Act on Rules to hold that it is obligatory that AMP expenses must be necessarily be subjected to the 'Bright Line Test' as this would amount to adding words in the statute and Rules and introducing a new concept which has not been recognized and accepted as per the general principles of international taxation accepted and applied universally. In the case of Maruti Suzuki India Ltd. (supra), the Hon'ble Delhi High Court at paras 84 to 86 thereof have held as under :— '\"84. The Court next deals with the submission of the Revenue that the benefit to SMC as a result of the MSIL selling its products with the co- brand 'Maruti-Suzuki' is not merely incidental. The decision in Sony Ericsson acknowledges that an expenditure cannot be disallowed wholly or partly because its incidentally benefits the third party. This was in context on Section 57(1) of the Act. Reference was made to the decision in Sassoon J David & Co (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC). The Supreme Court in the said decision emphasised that the expression 'wholly and exclusively' used in Section 10 (2) (xv) of the Act did not mean 'necessarily'. It said: \"The fact that somebody other Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 127 of 170 than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act if it satisfies otherwise the tests laid down by the law.\" 85. The OECD Transfer Pricing Guidelines, para 7.13 emphasises that there should not be any automatic inference about an AE receiving an entity group service only because it gets an incidental benefit for being part of a larger concern and not to any specific activity performed. Even paras 133 and 134 of the Sony Ericsson judgment makes it clear that AMP adjustment cannot be made in respect of a full-risk manufacturer. MSIL's higher operating margins 86. In Sony Ericsson it was held that if an Indian entity has satisfied the TNMM i.e. the operating margins of the Indian enterprise are much higher than the operating margins of the comparable companies, no further separate adjustment for AMP expenditure was warranted. This is also in consonance with Rule 10B which mandates only arriving at the net profit by comparing the profit and loss account of the tested party with the comparable. As far as MSIL is concerned, its operating profit margin is 11.19% which is higher than that of the comparable companies whose profit margin is 4.04%. Therefore, applying the TNMM method it must be stated that there is no question of TP adjustment on account of AMP expenditure.' 11.4.4 In the case on hand, the net margin from exports to AEs at 15.80% is more than the net margin earned by the assessee in respect of personal care product division in the domestic argument at 11.30%. In the factual matrix of the case, as discussed above, the ALP of the assessee's international transactions with its AEs were at Arm's Length and therefore no separate adjustment for AMP expenditure is called for. We, consequently hold that the Transfer Pricing Adjustment of Rs. 31,69,02,034 made by the TPO in respect of AMP expenditure is to be deleted. Ground No. XI is accordingly allowed.” 46. Thereafter for AY 2013-14 the issue of applicability of profit split method arose for AY 2013-14 where in the coordinate bench in Himalaya Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 128 of 170 Drug Company vs. ACIT [2020] 119 taxmann.com 421 (Bangalore - Trib.)[14-07-2020] has decided this issue as under :- “29. The next issue urged by the assessee relates to the transfer pricing adjustment made in respect of Advertisement and Marketing Promotion (AMP) expenses. The facts relating to the same are discussed in brief. The TPO noticed that the assessee firm came into existence in 1930. The logo and brand name were developed by the Firm over the years. Initially, the firm did not spend much on advertisement and marketing, since its business, at that point of time, was by way of canvassing its products through the doctors. In 1995, the Hon'ble Supreme Court banned cross prescriptions, i.e., doctors other than ayurvedic discipline cannot prescribe ayurvedic products. Hence, in 1998, the assessee firm started consumer products division and started advertising of its products. At the same time, the assessee firm underwent change in its constitution by introduction of new partner named partner named MMI Corporation (which was later renamed as Himalaya Global holdings Ltd.), which was a foreign company registered in Cayman islands. Consequently, the profit sharing ratio between the partners also underwent change from time-to-time. Finally, following two persons remained as partners with the following profit sharing ratio:- M/s. Himalaya Global Holdings Ltd. - 88% M/s. Himalaya Drug Company Pvt Ltd. - 12% New partnership deed was executed whenever, there was change. In the partnership deed executed in 2003, it was stated that the \"brand name of Himalaya\" and \"logo\" shall be owned by the major partner, viz., M/s. Himalaya Global Holdings Ltd. 30. Under the above discussed back ground, the A.O. examined the AMP expenses incurred by the assessee and noticed that the assessee has incurred a sum of Rs. 152.27 crores during the year under consideration. The TPO sought to segregate this expense into \"routine'' and \"Non-routine\" expenses. Based on T.P study of the assessee, the TPO identified seven companies in order to find out the limit of \"routine AMP expenses\", i.e., AMP expenses normally incurred by other companies. The same worked out to 3.16% of the turnover. The TPO took the view that the expenses incurred towards AMP over and above 3.16% of the turnover should be considered as \"non-routine Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 129 of 170 AMP expenses\". Accordingly, the expenses incurred over and above the said limit of 3.16% was computed by TPO at Rs. 144,52 crores and it was termed as \"non-routine AMP expenses\". The TPO took the view that the non-routine expenses have been incurred to promote \"brand and logo\", which are legally owned by M/s. Himalaya global holdings Ltd. Cayman Islands now. Accordingly, he took the view that part of AMP expenses should have been borne by M/s. Himalaya Global Holdings Ltd. The TPO adopted Profit split method in order to ascertain the amount attributable to the above said AE. Accordingly, he proposed an adjustment of Rs. 91.24 crores as Transfer pricing adjustment in respect of AMP expenses. The Ld. DRP also confirmed the same. 31. The Ld A.R submitted that an identical issue was examined by the co-ordinate bench in the assessee's own case relating to A.Y. 2011-12 (referred supra) and it was held that the AMP transaction is not an international transaction in the absence of specific agreement between assessee and its AE on the matter of incurring of AMP expenses and hence there was no requirement for determining the ALP of the said expenses. He submitted that the co-ordinate bench has relied upon various case laws. He submitted that the same view was also taken in the assessee's own case in A.Y. 2010-11. The Ld. D.R, however, relied on the order passed by the tax authorities on this issue. 32. We heard rival contentions on this issue and perused the record. We notice that the assessee herein is producing the products by using logo and brand name of \"Himalaya\". Though the said logo and brand name was developed by the assessee herein, yet, at some point of time, the ownership of the same was transferred to one of the partners named M/s. Himalaya Global holdings Ltd. located in Caymen islands. However, the assessee herein has continued to use the said logo and brand name for manufacturing the products. It is an admitted fact that the assessee does not pay any royalty to M/s. Himalaya Global Holdings Ltd. for using the brand name and logo. It is also an admitted fact that there is no agreement between the assessee and M/s. Himalaya Global Holdings Ltd. with regard to incurring of advertisement expenses. The assessee has incurred following expenses towards advertisement and market promotion: — Advertisement and Publicity Rs.69,23,19,080 Sales Promotion Rs.32,46,93,420 Promotional discounts Rs.50,57,77,473 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 130 of 170 Total Rs.152,27,89,973 It is the submission of Ld. A.R that the expenditure incurred on Sales promotion and promotional discounts are directly related to actual sales realised and hence the same cannot be said to be related to alleged brand building. He submitted that the actual amount spent on advertisement and publicity was only Rs. 69.23 crores, while the domestic turnover of the assessee is around Rs. 1000 crores. Hence the advertisement expenses account for only about 7% of the turnover, while the average advertisement spent of comparable companies was 3.19%, He also submitted that the advertisement expenses should not be taken as an international transaction, since they are incurred in the routine course. The Ld. A.R also contended that, when TNM method is adopted to bench mark the international transactions all related items get subsumed in the net profit. Accordingly, he submitted that no separate adjustment is called for AMP expenses alone when TNM method is adopted. The Ld. D.R, on the contrary, supported the order passed by the A.O. on this issue. 33. We notice that an identical issue was examined by the co-ordinate bench in the assessee's own case in A.Y. 2011-12. The relevant discussions made by the co-ordinate bench in assessment year 2011-12 are extracted below:- \"11. Ground No. XI - Advertisement, Marketing & Sales Promotion (AMP) Expenses - Transfer Pricing Adjustment: Rs. 31,69,02,034. 11. 1 In the course of proceedings, the TPO noted that the assessee had incurred huge advertisement and selling expenditure in marketing its products. Taking into account the fact that the brand name and logo 'Himalaya' is owned by M/s. Himalaya Global Holding Ltd; Cayman Islands, the TPO held that the legal owner, namely, M/s. Himalaya Global Holding Ltd., Cayman Islands (viz. holding 88% share in the assessee firm) should meet the expenditure on promotion of the brand name or it should compensate the assessee for performing the function of developing the brand name and logo in India. The TPO was of the view that the AMP expenditure incurred by the assessee is in excess of the gross profit itself, it cannot be said that the entire AMP expenditure is incurred for the purpose of the assessee's business. In this view of the matter, the TPO applied the 'Bright Line Test' to identify the expenditure on AMP which is routine in nature and which an entity working at arm's length is expected to incur and held the balance Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 131 of 170 expenditure to be non-routine and for the purpose of development of the brand and Logo. The TPO worked out the non-routine AMP identifying the percentage of AMP expenditure (i.e. selling and marketing expenditure/sales) incurred by uncontrolled companies and in this context selected five companies as comparables and determined the average percentage of selling and marketing expenditure to sales @ 24.05%, The TPO applied this rate to sales of Rs. 197,25,42,327 and the routine expenses were determined at Rs. 47,43,96,429. Reducing this amount from the actual selling and marketing expenditure of Rs. 77,62,07,890, the non-routine expenditure was computed at Rs. 30,18,11,461 and after adding a mark up of 5% on this, the TPO determined the adjustment at Rs. 31,69,02,034. The DRP upheld and confirmed the above views/contentions of the TPO. 11.2.1 Before us, the learned Authorised Representative for the; assessee placed reliance on the decisions of the co-ordinate bench of this Tribunal in the case of Essilor India (P.) Ltd. v. Dy. CIT [2016] 68 taxmann.com 311 (Bang - Trib); Dy. CIT v. Niks India (P.) Ltd. IT (TP) Appeal No.232/Bang/2014 and other judicial pronouncements to contend that in the absence of any agreement or arrangement with M/s. Himalaya Global Holdings Ltd., Cayman Islands to incur AMP expenses on its behalf to promote the brand value of the products, the AMP expenses cannot be treated as an international transaction. 11.2.2 Reliance was placed by the learned Authorised Representative on the Affidavit of Sri Meeraj Alim Manal dated 27-8-2012 (pages 452 to 454 of Paper Book 2), the major shareholder of M/s. Himalaya Global Holdings Ltd., Cayman Islands ('HGH'), to contend that it is the assessee firm which has developed all its assets including the trademarks of the products in India and the assessee is exclusively and beneficially entitled to explore and use the same in India. It was submitted that as per the above Affidavit, the legal ownership of the brand with 'HGH' was necessitated by the fact that the assessee, being a firm was not recognized as a legal entity outside India and therefore 'HGH' being a partner and a legal entity was recognized as the owner of the brand. It was contended that sec. 92 of the Act is a machinery provision and not a charging section and therefore notional income cannot be charged to tax. According to the learned Authorised Representative, the advertisements aired or printed do not carry the name of 'HGH' and in this regard, relying on the certificate issued by M/s. Star.com Worldwide (page 471 of Paper Book - 2) submitted that Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 132 of 170 the advertisement expenses are for the Indian Market only as these advertisements are not aired in the international market. The learned Authorised Representative further contended that the 'Bright Line Test' adopted by the TPO for making the Transfer Pricing Adjustment has no legal sanctity and hence entire Transfer Pricing Adjustment should be deleted. 11.2.3 Without prejudice, it was contended by the learned Authorised Representative that selling expenses do not form part of AMP and consequently if the correct amount of advertisement expenses is considered, it would be seen that it is well within the routine AMP limit determined by the TPO. In this context, the learned Authorised Representative prayed for the deletion of the Transfer Pricing Adjustment on AMP expenditure. 11.3 Per contra, the learned Departmental Representative placed strong reliance on the order of the TPO. It was contended that as the assessee is not the legal owner of the brand 'Himalaya', any AMP expenses incurred by the assessee will directly or indirectly result in promotion of the brand 'Himalaya' owned by 'HGH' Cayman Islands. It was therefore argued that the TPO rightly made the Transfer Pricing Adjustment on AMP. 11.4.1 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. The question of whether incurring AMP expenditure result in an International transaction was considered at length by a co-ordinate bench of this Tribunal in the case of Essilor India (P.) Ltd. (supra) which decision was followed by another co- ordinate bench of this Tribunal in the case of Nike India (P.) Ltd. (supra). In the case of Nike India (P.) Ltd. (supra), after considering various judicial pronouncements on the subject, the co-ordinate bench held that in the absence of any arrangement between the assessee and the foreign AE for incurring AMP expenditure, no Transfer Pricing Adjustment can be made in respect of AMP expenditure. In this regard, we find that at paras 19 to 22 of its order in the case of Essilor India (P.) Ltd. (supra), it was held as under :— '19. In the present case, the assessee-company imports the lens from its foreign AE and after some processing, sells the products on its own. However, the amount of value addition on account of processing in terms of total revenue is not clear from the material on record. That Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 133 of 170 apart, the assessee-company has been throughout contesting before all the authorities the very existence of international transaction on account of incurring AMP expenditure between assessee-company and its AE and therefore, the contentions that the law laid down by the Hon'ble Delhi High Court in Sony Ericsson Mobile Communication India (P.) Ltd. (supra) should be applied to the case on hand, is not correct. Therefore, the submission of the learned Departmental Representative that the matter be remanded to the file of TPO for fresh decision in the light of law laid down by the Hon'ble Delhi High Court in Sony Ericsson Mobile Communication India. (P.) Ltd. (supra), cannot be acceded to. 20. Subsequent to the decision in the case of Sony Ericsson Mobile Communication India (P.) Ltd. (supra) the Hon'ble Delhi High Court had rendered five decisions on the same issue. Those decisions are: (i) Maruti Suzuki India Ltd. v. CIT (282 CTR 1), (ii) CIT v. Whirlpool of India Ltd. (129 DTR 169), (iii) Baush & Lomb Eyecare (India) (P.) Ltd. v. Addl. CIT (129 DTR 201) and (iv) Yum Restaurant (India) Pvt. Ltd. v. ITO (ITA No. 349/2015 dated 13-1-2016) and (v) Honda Sel Products In the above-mentioned decisions, the issue of the very existence of international transaction on incurring AMP expenditure and the method of determination of ALP was the subject matter of appeal before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court had categorically held that in the absence of agreement between Indian entity and foreign AE whereby the Indian entity was obliged to incur AMP expenditure of a certain level for foreign entity for the purpose of promoting the brand value of the products of the foreign entity, no international transaction can be presumed. It was further held that the fact that there was an incidental benefit to the foreign AE, it cannot be said that AMP expenditure incurred by an Indian entity was for promoting brand of foreign AE. One more aspect highlighted by the Hon'ble High Court is that in the absence of machinery provisions, bringing an imagined transaction to tax was not possible. While coming to this conclusion, the Hon'ble High Court had placed reliance on the decisions of the Hon'ble Apex Court in the cases of CIT v. B.C. Srinivasa Setty (128 ITR 294) and PNB Finance Ltd. v. CIT (301 ITR 75). The Hon'ble Delhi High Court after referring to its earlier decision Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 134 of 170 in the case of Maruti Suzuki India Ltd. (supra) and Whirlpool of India (P.) Ltd. (supra) had considered the question of existence of the international transaction and computation of ALP thereon in the case of Bausch & Lomb Eyecare (India) (P.) Ltd. (supra) vide paras 51 to 65 as under: 51. The central issue concerning the existence of an international transaction regarding AMP expenses requires the interpretation of provisions of Chapter X of the Act, and to determine whether the Revenue has been able to show prima facie the existence of international transaction involving AMP between the Assessee and its AE. 52. At the outset, it must be pointed out that these cases were heard together with another batch of cases, two of which have already been decided by this Court. The two decisions are the judgment dated 11th December 2015 in ITA No. 110/2014 (Maruti Suzuki India Ltd. v. Commissioner of Income Tax) and the judgment dated 22nd December 2015 in ITA No. 610 of 2014 (The Commissioner of Income Tax-LTU v. Whirlpool of India Ltd.) and many of the point urged by the counsel in these appeals have been considered in these two judgments. 53. A reading of the heading of Chapter X [\"Computation of income from international transactions having regard to arm's length price\"] and section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP and section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has 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 ALP. 54. Under sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 135 of 170 55. Section 92B defines 'international transaction' as under: \"Meaning of international transaction. 92B.(1) For the purposes of this section and sections 92, 92C, 92D and 92E, \"international transaction\" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises, (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.\" 56. Thus, under section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, either or both of whom are non-resident (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreements or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection with the benefit, service or facility provided or to be provided to one or more of such enterprises. 57. Clauses (b) and (c) above cannot be read disjunctively, Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is \"any other transaction having a bearing\" on its \"profits, incomes or losses\", for a 'transaction' there has to be two parties. Therefore for the purposes of the 'means' part of clause (b) and the includes' part of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between BLI and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 136 of 170 promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to section 92B are described as an 'international transaction'. This might be only an illustrative list, but significantly it does not list AMP spending as one such, transaction. 58. In Maruti Suzuki India Ltd. (supra) one of the submissions of the Revenue was: \"The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit.\" This was negatived by the Court by pointing out: \"Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to section 92F (v) which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing, it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means' part and the 'includes' part of section 92B (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC.\" 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression \"acted in concert\" and in that context referred to file decision of the Supreme Court in Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati 2010 (6) MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., Daiichi Sankyo Company and Ranbaxy were \"acting in concert\" within the meaning of Regulation 20(4)(b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In para 44, it was observed as under: \"The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares etc. of a certain target company. There can be no \"persons acting in concert\" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 137 of 170 shares etc. of the target company. For, de hors the element of the shared common objective or purpose the idea of \"person acting in concert\" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of \"persons acting in concert\" is not about a fortuitous relationship coming into existence by accident or chance, The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter that the common objective or purpose maybe in pursuance of an agreement or an understanding, formal or informal; the acquisition of shares etc. maybe direct or indirect or the persons acting in concert may co- operate in actual acquisition of shares etc, or they may agree to co- operate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of \"persons acting in concert\" to come into being.\" 60. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. In any event, after the decision in Sony Ericsson (supra), the question of applying the BLT to determine the existence of an international transaction involving AMP expenditure does not arise. 61. There is merit in the contention of the Assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function cannot be construed as a 'transaction'. Further, the Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to section 92B runs counter to legal position explained in CIT v. EKL Appliances Ltd. (supra) which required a TPO \"to examine the 'international transaction' as he actually finds the same.\" 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc. holds 99.9% of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard, with B&L, USA. A similar contention by the Revenue, namely, that even if Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 138 of 170 there is no explicit arrangement, the fact that the benefit of such AMP expenses would also enure to the AE is itself sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: \"68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F(ii) which defines ALP to mean a price \"which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions\". Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT. ** ** ** 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment.\" 71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 139 of 170 the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on application of the BLT, is excessive, thereby evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. ** ** ** 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction; And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. (supra) the Court further explained the absence of a 'machinery' provision qua AMP expenses by the following analogy: \"75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to section 40A(2)(a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO \"is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods.\" In such event, \"so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction.\" The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 140 of 170 nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance.\" 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) and PNB Finance Ltd. v. CIT [2008] 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown lo exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a TP adjustment exercise. 65. As already mentioned, merely because there is an incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As mentioned Sassoon J. David (supra) \"the fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under section 10(2)(xv) of the Act (Indian Income-tax Act, 1922) if it satisfies otherwise the tests laid down by the law\". 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 enure to its foreign AE is not sufficient to infer existence of international transaction. 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. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 141 of 170 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 be 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 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 as 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.' 11.4.2 In the case on hand, the TPO has made the Transfer Pricing Adjustment in respect of AMP expenses on the ground that the said expenditure has resulted in promotion of the brand 'Himalaya' owned by M/s. Himalaya Global Holdings Ltd., Cayman Islands and has applied the 'Bright Line Test' for this purpose. However, neither the TPO nor the Assessing Officer has brought on record any material evidence to substantiate the existence of any agreement or arrangement, either express or implied between the assessee and 'HGH', Cayman Islands for promotion of its brand. The Hon'ble High Court of Delhi in a series of decisions, inter alia, including the case of Maruti Suzuki India Ltd. v. CIT [2015] 64 taxmann.com 150/[2016] 237 Taxman 256/381 ITR 117 (Delhi) emphasized the importance of Revenue having to first discharge the initial burden upon it with regard to showing the existence of an international transaction between the assessee and the AE. In the case of Maruti Suzuki India Ltd. (supra), at para 64 it was held as under :— Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 142 of 170 \"64. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. And, yet, that is what appears to have been done by the Revenue in the present case. It first arrived at the 'bright line' by comparing the AMP expenses incurred by MSIL with the average percentage of the AMP expenses incurred by the comparable entities. Since on applying the BLT, the AMP spend of MSIL was found 'excessive' the Revenue deduced the existence of an international transaction. It then added back the excess expenditure as the transfer pricing 'adjustment'. This runs counter to legal position explained in CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 (Del), which required a TPO \"to examine the 'international transaction' as he actually finds the same.\"In other words the very existence of an International transaction cannot be a matter for inference or surmise.\" At para 76 of its order, the Hon'ble High Court has held as under :- \"76. As explained by the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) and PNB Finance Ltd. v. CIT [2008] 307 ITR 75 (SC) in the absence of any machinery provision, bringing an imagined international transaction to lax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise.\" 11.43 In our considered view, the requirement of there being an international transaction has not been satisfied in the case on hand. In fact, it is not the case of the TPO that there exists an arrangement between the assessee and 'HGH' to promote the brand by incurring AMP expenses. The case of the TPO is that the AMP expenditure incurred by the assessee has resulted in a benefit to the legal owner of the brand and the logo, i.e. M/s. Himalaya Global Holdings, Cayman Islands. The contentions of the TPO that the foreign AE has benefitted on account of the AMP expenditure incurred and therefore the AMP expenditure cannot be said to have been incurred by the assessee for its own business, etc. have been rejected by the Hon'ble Delhi High Court. In the case of Sony Ericsson Mobile Communications India (P.) Ltd. (supra), the Hon'ble Delhi High Court at para 121 of its order observed Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 143 of 170 that there is nothing in the Act on Rules to hold that it is obligatory that AMP expenses must be necessarily be subjected to the 'Bright Line Test' as this would amount to adding words in the statute and Rules and introducing a new concept which has not been recognized and accepted as per the general principles of international taxation accepted and applied universally. In the case of Maruti Suzuki India Ltd. (supra), the Hon'ble Delhi High Court at paras 84 to 86 thereof have held as under :— '\"84. The Court next deals with the submission of the Revenue that the benefit to SMC as a result of the MSIL selling its products with the co- brand 'Maruti-Suzuki' is not merely incidental. The decision in Sony Ericsson acknowledges that an expenditure cannot be disallowed wholly or partly because its incidentally benefits the third party. This was in context on Section 57(1) of the Act. Reference was made to the decision in Sassoon J. David & Co (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC). The Supreme Court in the said decision emphasised that the expression 'wholly and exclusively' used in section 10(2)(xv) of the Act did not mean 'necessarily'. It said: \"The fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by the law.\" 85. The OECD Transfer Pricing Guidelines, para 7.13 emphasises that there should not be any automatic inference about an AE receiving an entity group service only because it gets an incidental benefit for being part of a larger concern and not to any specific activity performed. Even paras 133 and 134 of the Sony Ericsson judgment makes it clear that AMP adjustment cannot be made in respect of a full-risk manufacturer. MSIL's higher operating margins 86. In Sony Ericsson it was held that if an Indian entity has satisfied the TNMM i.e. the operating margins of the Indian enterprise are much higher than the operating margins of the comparable companies, no further separate adjustment for AMP expenditure was warranted. This is also in consonance with Rule 10B which mandates only arriving at the net profit by comparing the profit and loss account of the tested party with the comparable. As far as MSIL is concerned, its operating profit margin is 11.19% which is higher than that of the comparable Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 144 of 170 companies whose profit margin is 4.04%. Therefore, applying the TNMM method it must be stated that there is no question of TP adjustment on account of AMP expenditure.' 11.4.4 In the case on hand, the net margin from exports to AEs at 15.80% is more than the net margin earned by the assessees in respect of personal care product division in the domestic argument at 11.30%. In the factual matrix of the case, as discussed above, the ALP of the assessee's international transactions with its AEs were at Arm's Length and therefore no separate adjustment for AMP expenditure is called for. We, consequently hold that the Transfer Pricing Adjustment of Rs. 31,69,02,034 made by the TPO in respect of AMP expenditure is to be deleted. Ground No. XI is accordingly allowed.\" 34. We notice that the co-ordinate bench has, following various decisions, held that the revenue has to first show that the AMP expenses would fall under the category of \"international transactions\". For that purpose, the revenue has to show that there existed an agreement between the assessee and its AE in the matter of incurring of AMP expenses. Admittedly, it is not shown in the instant case that there existed any agreement relating to incurring of AMP expenses. Thus, we notice that there is no change in facts relating to this issue between the current year and the AY 2010-11/2011-12. It was also held that when TNMM method is applied to benchmark the entire international transactions, then there is no requirement of making separate TP adjustment on account of AMP expenditure. In the earlier paragraphs, we have also held that TNMM as most appropriate method and has also held that the international transaction of Exports to AEs is at arms length. Hence, no separate adjustment is required to be made in respect of AMP expenses on this account also. 35. We notice that, in this case, there is one more reason to state that the TP adjustment for AMP expenses is not required. We noticed earlier that the \"legal owner\" of the \"brand and logo\" is neither the assessee nor the AEs to which the exports were made. The legal ownership rests with M/s. Himalaya Global Holdings Ltd. which is one of the partners of the assessee firm. While hearing the appeal of the assessee for AY 2011-12 by the co-ordinate bench, the Tribunal took note of an affidavit dated 27-8-2012 filed by Mr. Meeraj Alim Manal with regard to the ownership of the brand name. At the cost of repetition, we extract below the observations made by the co-ordinate bench in AY 2011-12 on the said affidavit:- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 145 of 170 \"11.2.2 Reliance was placed by the learned Authorised Representative on the Affidavit of Sri Meeraj Alim Manal dated 27-8-2012 (pages 452 to 454 of Paper Book 2), the major shareholder of M/s. Himalaya Global Holdings Ltd., Cayman Islands ('HGH'), to contend that it is the assessee firm which has developed all its assets including the trademarks of the products in India and the assessee is exclusively and beneficially entitled to explore and use the same in India. It was submitted that as per the above Affidavit, the legal ownership of the brand with 'HGH' was necessitated by the fact that the assessee, being a firm was not recognized as a legal entity outside India and therefore 'HGH', being a partner and a legal entity was recognized as the owner of the brand.\" The submissions of the assessee would show that though M/s. Himalaya Global Holdings Ltd. (HGH) is the legal owner, yet it was admitted that the assessee firm only has developed all its assets including trademarks. Hence the brand name has actually been developed by the assessee. It is also stated that the assessee is exclusively and beneficially entitled to explore and use the same in India. Hence, it is admitted that the legal ownership was transferred to HGH due to business necessity/compulsion. Hence the transfer of legal ownership is an internal arrangement between related parties, which was made on account of business necessities. However, it is made to clear that the right to exploit the brand name, logo, trademarks etc., continue with the assessee only. Hence, the assessee is also beneficiary of AMP expenses or the promotion of brand. In this view of the matter also, the question of making TP adjustment in respect of AMP expenses on account of \"brand promotion\" does not arise. Hence, on this reasoning also, the impugned TP adjustment on AMP expenses is liable to be quashed.” 47. For all other assessment years also the coordinate benches have followed these decisions and decided the issue in favour of the assessee. The learned departmental representative could not show us any of the reason that why we should deviate from the above finding of the coordinate bench. Contrary to that both the parties confirmed that there is no change in the facts and circumstances of the case. Therefore, respectfully following the decision of the coordinate bench in assessee’s own case for the earlier years Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 146 of 170 involving the identical facts and circumstances contested by both the parties making similar arguments, we decide the issue in favour of the assessee and direct the learned assessing officer to delete the adjustment made on account of alleged advertisement and marketing promotion expenditure considering it as an international transaction. Accordingly ground No.6 of the appeal is allowed. 48. Ground No. 7 of the appeal as per revised ground of appeal, (ground number 8 in the original grounds) is with regard to the adjustment of ₹ 115,480,420 made in respect of the royalty. The learned authorized representative vehemently submitted that the coordinate bench in assessee’s own case for AY 2013 – 14 & 2018 – 19 being an identical issue and identical adjustment made by the learned transfer pricing officer has decided the issue in favour of the assessee and therefore this issue is squarely covered. It was the further claim of the assessee that despite there being an identical facts and circumstances, the addition was made for the first time in AY 2013 – 14 without there being any change in the facts and circumstances in earlier years. He referred to ground No.7.3 of the grounds of appeal and stated that in AY 2013 – 14 in paragraph No.15, the coordinate bench has held that the associated enterprises have not exploited the product registration/license owned by the assessee and therefore there is no question of payment of royalty. He further submitted that the coordinate bench has held that it is not the trade practice to levy separate charges royalty over and above the selling price. No such royalty was collected from the domestic customers from the non-AE for similar goods sold. Coming to ground number 7.7 he submitted that this ground taken for AY 2021-22 for the first Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 147 of 170 time where in the learned TPO has determined the arm’s-length price at the rate of 5.66% on turnover in respect of alleged royalty income on arbitrary basis and without adopting any method. Further the learned TPO from AY 2013 – 14 to AY 2018 – 19 for six assessment years have considered the royalty rate at the rate of 2%. There is no reason that why this change has been made by the learned TPO in his stand. Even otherwise he submitted that as the issue is decided by the coordinate bench in favour of the assessee, ground No. 7.7 of the appeal becomes infructuous if the issue are decided on the basis of the earlier orders of the Tribunal. 49. The learned CIT DR vehemently supported the orders of the learned lower authorities and submitted that the assessee has given the product registration and licenses to the associated Enterprises and therefore on the sale of the products, the assessee should have got royalty income from those associated enterprises. The learned TPO has adopted the proper mechanism for determination of the arm’s-length price of such royalty. She extensively referred to the order of the learned TPO wherein the royalty is determined. She further submitted that benefit given by the assessee to its associated enterprises is an international transaction which needs to be benchmarked. She further submitted that no royalty has been collected from the domestic customers from the non-AE does not impact the arm’s-length price of the international transaction of royalty which should have been collected by the assessee from its associated enterprises. On the issue whether the transactions are covered by the decision of the coordinate bench, she submitted that though these transactions are covered by the decision of the Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 148 of 170 coordinate bench in assessee’s own case, still reasons given by the learned TPO and the learned DRP deserves to be considered. 50. We have carefully considered the rival contention and perused the orders of the learned lower authorities. The issue here is research and development centers are in India wherein the assessee has incurred considerable expenses of the research and development of these products. The assessee is not selling any of the products manufactured by it to others outside India, however, it exports only to its associated enterprises who then sell these goods in foreign countries. Therefore, the learned TPO was of the view that such product registration is owned by the taxpayer , such products are being sold by the associated enterprises outside India and the product registration etc. is because of the R & D made by the assessee and therefore the assessee must be remunerated by the associated enterprises in the form of royalty. The learned TPO searched Royalstat database, showing the relevant search criteria determined the arm’s-length price of the royalty at the rate of 5.66% of the sales. The average rate of royalty was determined by adopting three comparable companies wherein case of one company rate of royalty was 2 percent, in another company is 5% and in the third company it is 10%. Based on this the learned TPO has considered the average rate of royalty at the rate of 5.66% and made the adjustment. 51. Coming to the arguments of the assessee , it was submitted that R&D units consist of discovery scientist, Phyto chemists , and other scientist who performed different functions in product development stages. After Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 149 of 170 development, the clinical trial protocols are conducted. Thereafter application is made to the Government of India for drug license. After obtaining the drug license the company can manufacture the product on a commercial scale. Without this assessee could not have marketed the goods. With respect to the product registration in various countries, the assessee also stated that these are obtained in compliance with the statutory precondition for sale of the products in those countries. It is also the case of the assessee that obtaining such product registration is in the interest of the assessee without which there not have been any distribution of the product in the respective countries. It is also the claim of the assessee that the purchaser of the goods pays for the product only. Assessee also submitted that no distributor is made to pay consideration for the product registration apart from the price he pays on purchase of goods to MNC. Therefore, product registration. Therefore, it was contested that no royalty could have been charged by the assessee and also the similar circumstances not been charged by the multinational corporation from distributor. Product Registration is for the benefit of assessee and not for the benefit of AE therefore there is no reason to charge any royalty. Assessee has also not charged royalty on sale of goods in India from its distributors i.e., Non AE, therefore it did not charge such royalty from AE also. The learned by the officer rejected the above explanation and made an addition of ₹ 115,480,420/– as under :- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 150 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 151 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 152 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 153 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 154 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 155 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 156 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 157 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 158 of 170 52. The learned Dispute Resolution Panel has categorically stated that the issue is squarely covered in favour of the assessee however the department is in appeal before the honourable High Court and therefore the reliance by the assessee on the earlier years decision of the coordinate benches cannot be accepted. Direction of the ld DRP is as under :- Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 159 of 170 Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 160 of 170 53. In view of the above facts, it is crystal-clear that the revenue accepts that this issue is covered in favour of the assessee by the decision of the coordinate benches. 54. The Coordinate bench in assessee’s own case in AY 2013-14 in Himalaya Drug Company vs. Assistant Commissioner of Income Tax, Central Circle-1(1), Bangalore [2020] 119 taxmann.com 421 (Bangalore - Trib.)[14-07-2020] has held as under :- “37. The next issue urged by the assessee relates to the Transfer Pricing adjustment relating to \"royalty\". The facts relating thereto are discussed in brief. The TPO noticed that the assessee is having a \"Research & Development\" unit in India and accordingly developing all its products. He also noticed that, if any company wants to market any of its food/medical products in any country, then it has to obtain approval from local authorities of that Country. The drug controller in any Country will need valid test data and clinical reports on the efficacy and genuineness of the drug in order to give approval for marketing the products. The TPO noticed that it is the assessee, which has obtained approval for its products in various Countries. However, it did not directly market any of its products in those Countries directly, i.e., it has exported the products to its AEs located in that Country, which in turn has marketed the products. 38. The TPO called for sample application forms submitted to Drug control authorities of various Countries like Nigeria, Romania, Ghana, Latvia etc. He noticed that the assessee has furnished Clinical study report, technical specifications etc., and applied for registration. He also noticed that one of the conditions put by the concerned authorities is that they can visit to India in order to audit the manufacturing Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 161 of 170 facilities of the assessee in India. The TPO noticed that the assessee possesses 597 products registrations in various Countries. The TPO took the view that the \"Product registrations/license\" is an intangible asset. The TPO noticed that the assessee did not market its products directly by using the \"Product registration/license\" obtained from various Countries. However, it has indirectly marketed the products through its AEs and has also allowed its AEs to use the Product registration/license. Accordingly, he took the view that the assessee should have collected royalty from its AEs. Accordingly, he took the view that the AEs have exploited the benefits of the product licenses obtained by the assessee without paying royalty or usage charges to the assessee. Following observations made by the TPO are relevant here:— \"3.6 It is also observed that an AE which is resident in UAE is marketing products in African Countries using taxpayer's product registration. Had taxpayer itself marketed the products in Africa, it would have gained the entire profits. The AE based in UAE/Dubai is getting the profits because it performs the critical functions-assets- risks. But the taxpayer is performing the critical function of providing license to AE to trade in the African Country; the taxpayer is owner of the critical and intangible assets underlying the license; and taxpayer is taking all the risk of research and clinical trials. Hence, the taxpayer has a critical FAR role in the business of UAE-based AE in African Countries.\" Since the TPO took the view that the \"Product registration/licenses'' constitute an intangible asset, he also took the view that the assessee would have charged royalty from third parties for using such intangibles. 39. Accordingly, the TPO issued a show cause notice to the assessee asking it to show as to why ALP of royalty should not be determined on use of intangible assets, referred above. The assessee submitted that the selling price charged to its AEs is inclusive of everything. It was also submitted that nowhere in the world, a manufacturer would sell the goods for a price and also charge separate amount for royalty. The assessee also submitted that the TPO has made TP adjustments in respect of sale of goods to the AEs and hence no further adjustment is required on account of royalty. 40. The TPO, however, took the view that the royalty payable on usage of a license/product registration is an independent transaction, i.e., Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 162 of 170 independent of export. Hence it is a separate intangible, and the assessee would have charged royalty from non-related parties. Accordingly, the TPO held that the ALP of the royalty should be determined. He noticed that the royalty rates reported by Association of University Technology Managers (AUTM) and the Licensing Executive Society (LES) range from 0.1% to 25%. The TPO noticed that the products manufactured by taxpayer are both pharma and beauty care products, whose product registrations vary in complexity. According, the TPO held that the ALP of royalty maybe determined at 2% of the export value of export value of product exported to the AEs of the assessee. Accordingly, he proposed T.P adjustment, towards royalty on usage of product registration/licenses, of Rs. 2,52,10,867/-. The Ld. DRP also confirmed the same. 41. The Ld. A.R submitted that the price charged by the assessee on exports would include all the costs incurred by it for sale of its products in foreign countries. He submitted that the view taken by the TPO is against trade practice, i.e., no manufacturer would charge separate amount as royalty over and above the selling price. He submitted that the product license/registration could be obtained only by the manufacturer of the drugs, since the manufacturer alone would hold the details of clinical trials, technical details of products etc. He submitted that it is primary condition prescribed by any Country to obtain product registration/licences before marketing the drugs/beauty products and the same has to be obtained only by the manufacturer, before marketing the products in a Country. Hence it is only a matter of compliance with concerned Government regulations. He submitted that the decision as to direct marketing of products by itself or marketing the products through distributors appointed, is a commercial decision/business strategy of any business concern. The compliance of Government regulations actually help or enable the assessee to market its products in those Countries and hence the real beneficiary is the assessee only. He submitted that the AEs are marketing the products as mere traders and they are not concerned with the registration formalities. In fact, the dealers should have obtained necessary license to deal with pharma products at their individual level, Accordingly, the Ld. A.R. submitted that the view taken by the tax authorities in this regard is contrary to trade practice. He submitted that the TPO did not make similar kinds of adjustments in A.Y. 2011-12 or earlier years. Accordingly, he contended that impugned TP adjustment should be deleted. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 163 of 170 42. The Ld. D.R. however, reiterated the views expressed by TPO. She submitted that the \"principle of res-judicata\" will not apply to income tax proceedings, as held by the co-ordinate bench in the case of Nike India (P) Ltd v. DCIT [2013] 34 taxmann.com 282 (Bang. - Trib.). Hence the fact that no TP adjustment was made in A.Y. 2011-12 and earlier years would not debar the A.O./TPO to make adjustments in this year. She submitted that the product registration/license is a separate intangible asset, which has been used by the AEs without adequately compensating the assessee. The Ld. D.R. submitted that the AEs could not have conducted the business in their respective countries without these licenses. The Ld. D.R. submitted that, had the assessee has not obtained the product license, the AEs would have obtained it themselves. She submitted that the assessee would have collected royalty from third parties for use of these licenses. The Ld. D.R. further submitted that there is no requirement of existence of any agreement for payment of royalties for use of intangibles. 43. The Ld. D.R. placed her reliance on the decision rendered by Delhi bench of Tribunal in the case of Dabur India Ltd. v. Asstt. CIT [2017] 83 taxmann.com 305, which has since been affirmed by Hon'ble Delhi High Court in the same case reported in Dabur India Ltd. v. Pr. CIT [2018] 89 taxmann.com 78/253 Taxman 129 (Delhi). She submitted that, in the above cited case, the Tribunal and High Court has upheld the ALP adjustment made in respect of royalty payable by foreign AE of the assessee for using the brand name \"Dabur\" in its products, even though there was no agreement for charging royalty. 44. The Ld. A.R, in the rejoinder, submitted that the selling price charged to the AE subsumes all expenses including the alleged royalty. He submitted that the assessee has also exported to non-AEs and did not charge royalty separately. He further submitted that the AEs did not carry on any manufacturing activity and assessee has not given any license to the AEs. It has simply exported the finished goods for resale only. 45. He submitted that the decision rendered in the case of Dabur India Ltd. (supra) is not applicable to the facts of the present case. He submitted that, in the case of Dabur India Ltd. (supra), the foreign AE was carrying on manufacturing activity and the assessees therein gave license to the said AE to use its brand name on the products manufactured by the foreign AE. It was also noted that the said products were manufactured earlier by another company (unrelated to Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 164 of 170 the assessee), from whom the assessee had collected royalty for use of its brand name. The said company was acquired by the assessee and hence it became its AE. After becoming AE, it stopped collecting royalty contending that there is no agreement to pay royalty. Under the above set of facts, it was held that the TPO was justified in making T.P adjustment. He submitted that the assessee herein is simply exporting the Finished goods, to its AEs, which in turn, sell those products as mere traders. The AEs do not carry on any manufacturing activity and there was no necessity to give license to them. The product registration/license is only a basic formality to be complied with in order to market finished products and hence it cannot be said that the same has resulted in any intangible asset. 46. We heard rival contentions on this issue and perused the record. We noticed that the assessee has exported finished goods to its AEs located in various Countries and the AEs have only marketed the goods. Since the finished goods exported by the assessee are drugs and beauty care items, the assessee was required to comply with the requirement of local laws of the concerned Country with regard to marketing of the said products. There should not be any dispute that the technical details; the details of clinical trials etc., are available with the assessee only since it has actually developed the products. Hence the assessee could submit those details to the concerned Government authorities for getting product registration/license. The TPO has expressed the view that the concerned AEs would have obtained the product registration/license if the assessee had not obtained the same. However, it is the undisputed fact that, if at all the AEs wanted to obtain product registration/license, they have to get relevant details from the assessee only. 47. The assessee has submitted that such kind of approvals are required to market pharma products in any country. Hence these licenses enable the assessee to market its products. The AEs, in the capacity of distributors, should have also obtained separate license for trading in pharma products. There is also no dispute that the AEs have marketed products as re-sellers only. It is also submitted that it is not the commercial practice to charge any amount as royalty over and above the selling rate. In our view, this submission of the assessee is a reasonable one and also makes sense. 48. We have gone through the decision rendered in the case of Dabur India Ltd. (supra) The facts prevailing in the case of M/s. Dabur India Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 165 of 170 Ltd. are discussed in brief. M/s. Dabur India Ltd. used to provide its expertise and also permit use of its name \"Dabur\" to a UAE based entity named M/s. Redrock. There was an agreement between both the parties, as per which M/s. Redrock has to pay royalty @ 1% to M/s. Dabur India Ltd. Subsequently M/s. Dabur India Ltd. acquired 100% shareholding in M/s. Redrock. Consequently M/s. Redrock was renamed as M/s. Dabur International Ltd. It is pertinent to note that M/s. Dabur International Ltd. was manufacturing certain items with the support of M/s. Dabur India Ltd. and it was also manufacturing certain other items without such support However, it used the brand name of \"Dabur\" for all its products, i.e., whether the products were produced with or without the support of M/s. Dabur India Ltd. However, during the year under consideration, it did not pay the royalty of 1% on the products manufactured without the support of M/s. Dabur India Ltd. The TPO determined ALP of royalty @ 1%, as the same rate was paid by erstwhile M/s. Redrock. The action of the TPO was upheld by the Tribunal and the Hon'ble Delhi High Court. 49. We notice that the facts prevailing in the case of M/s. Dabur India Ltd. is totally different from the facts prevailing in the instant case. We have noticed that M/s. Dabur International Ltd. was manufacturing certain goods without the support of M/s. Dabur India Ltd. but used the Dabur brand name for those items also. Hence it was a clear case of exploitation of Brand name belonging to M/s. Dabur India Ltd. Non- charging of Royalty was sought to be defended by submitting that there was no agreement for collecting royalty. The said contention was rejected by the Tribunal and High Court On the contrary, in the instant case, the foreign AEs do not manufacture any product, i.e., they only market the finished products exported by the assessee. 50. The product registration/licensing are requirement of statute, without which the said products could not be marketed in those countries. As noticed earlier, such kinds of product registration/license could be obtained by the manufacturer only, in normal circumstances. The traders should have obtained separate license for trading in the drugs/beauty items. Hence, it cannot be said that the traders have exploited the registration/license obtained by the suppliers under the various statutes. Further, the manufacturers and other suppliers of the products sell them at profit and the practice or presumption is that the supplier has determined the selling price by taking into account all relevant costs. The Ld. A.R. also submitted that the obtaining product Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 166 of 170 registration/license is usually the responsibility of the manufacturer and it is not the trade practice to levy separate charges as royalty over and above the selling price. He also submitted that the assessee has not collected any amount over and above the selling price from export made to non-AEs. We have noticed that the tax authorities have taken the view that the assessee would have collected royalty amount for finished goods exported to unrelated parties. However, the Ld. A.R. pointed out that the assessee has not collected any amount over and above the selling price either from domestic customers or from non- AEs, Hence, the basic premise of the TPO, which formed the basis for determining ALP of alleged royalty fails here. Accordingly, we are of the view that, in the facts and circumstances of the case, it cannot be taken that the AEs have exploited the product registration/license obtained by the assessee from various Governments. Hence the question of payment of royalty does not arise. Accordingly, we set aside the order passed by A.O./TPO on this issue and direct the A.O. to delete this T.P. adjustment.” 55. The Coordinate Bench for subsequent year has followed this decision and deleted the adjustment on account of royalty. Before us, no distinction in the facts or in the circumstances was pointed out. Further the learned dispute resolution panel has also confirmed that issue is covered by the decision of the coordinate benches in assessee own case, in view of this, we respectfully following the decision of the coordinate bench in assessee’s own case for AY 2013 – 15 and subsequent years till 2018 – 19 direct the learned assessing officer to delete the adjustment on account of determination of arm’s-length price of the royalty charges amounting to ₹ 115,480,420/– and allow ground No. 7.1 to 7.6 of the appeal. 56. As the learned assessing officer has computed the arm’s-length price of the royalty at the rate of 5.66% of the turnover wherein for earlier years computed it at the rate of 2%, in view of our decision in ground number 7.1 to 7.6, this ground of appeal becomes infructuous and hence dismissed. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 167 of 170 57. Accordingly ground number 7 of the appeal is allowed as indicated above. 58. The last ground No. 9 on the appeal is from memo of appeal was against the disallowance of revenue expenses claimed under section 35 (1) (i) of expenditure on scientific research. It is the claim of the assessee that during the course of assessment proceedings the assessee in response to the show cause notice dated 23 October 2023 furnished the submission like Ledger, details and supporting evidence. The learned assessing officer did not brought any contrary material and made the ad hoc disallowance of ₹ 15,90,29,576/– holding that the ledgers and supporting are not submitted and approval from the Department of Scientific & Industrial Research was also not furnished. 59. In the proceedings before the learned DRP the remand report was called from the learned AO. During the course of remand proceedings, assessee once again furnished the submission made during the course of assessment proceedings which were also examined by the learned AO and further additional supporting documents were also called for. These documents were submitted on 20 August 2024 but then learned AO without bringing any contrary material on record, sustained the addition and therefore the learned DRP also confirmed the same. This has resulted into the disallowance. 60. The learned authorized representative supported the above facts and submitted that complete details were submitted before the learned assessing officer during the original assessment proceedings and further during the Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 168 of 170 remand proceedings but the learned assessing officer has not looked into the same despite furnishing additional evidences during the remand proceedings also, It was further submitted that the learned assessing officer has disallowed the deduction with respect to the employee benefit expenses, research and development expenditure related to various vehicles and plant and machinery etc. The assessee has furnished the employee wise gross salary paid, there email IDs, internal departmental communication with their educational qualification and tax deducted at source on payment made to them. The learned assessing officer without disproving that any of the expenditure is not allowable, made the disallowance. It was further stated that the professional fees of Rs. 127,64,338/– was disallowed despite the invoices of the vendor’s was furnished before the learned assessing officer. He further looked into the details of expenditure and stated that the disallowance of repairs and maintenance expenditure, spare parts consumed etc. could not have been disallowed by the learned assessing officer. He submitted that the observation of the learned assessing officer that this is excessive is also not supported by any finding. He also submitted that the learned assessing officer has incorrectly held that there should be a certificate from the prescribed authority. It was the claim of the assessee that though the capital expenditure has been allowed and some of the revenue expenditures are also allowed as deduction then why the part of the expenditure has not been allowed to the assessee by giving a non-existent reason of certificate from the prescribed authority. It was further stated that in the earlier years, in the scrutiny assessment and the subsequent years, no Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 169 of 170 disallowance is made on identical facts and circumstances. Therefore, the addition deserves to be deleted. 61. The learned CIT DR vehemently supported the orders of the learned lower authorities and stated that assessee has failed to submit the complete detail coupon the learned lower authorities and therefore the disallowance has been made. Submitting the invoices on sample basis for showing the expenditure on sample basis not have been the answer for allowance of the whole of the expenditure. And therefore, she supported the orders of the learned lower authorities. 62. We have carefully considered the rival contention and perused the orders of the learned lower authorities. We find that identical issue has been examined in the earlier years and also in the subsequent years and the no disallowance has been made , despite there being no certificate from the Department of scientific and industrial research. The assessee has also submitted certain details; however, it has also submitted certain details on sample basis. Therefore, unless the complete details are produced before the learned assessing officer and the assessing Officer is satisfied to that extent, the issue cannot be decided here. Therefore, in the interest of justice, the issue is set-aside to the file of the learned assessing officer with a direction to the assessee to substantiate the expenditure incurred by it with the evidence before the learned assessing officer. The learned assessing officer may examine the same and then decide the issue afresh after granting an opportunity of hearing to the assessee. In the result ground No. 9 of the appeal of the assessee is allowed as indicated above. Printed from counselvise.com IT(TP)A No.2225/Bang/2024 Page 170 of 170 63. All other grounds are not pressed before us and therefore same are dismissed. 64. In the result appeal filed by the assessee is partly allowed. Pronounced in the open court on this 13th day of October 2025. Sd/- Sd/- ( KESHAV DUBEY ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 13th October 2025. /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 "