M/s. Toshiba India Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1053/DEL/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97766 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 24-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR; A M RINDRA KUMAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary
• Section: 143(3); 2

Judgement Text

PAGE 1 OF 10 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. T .S. KAPOO R, ACCOUNTANT MEMBER I.T.A .NO. - 1053 /DEL/201 4 (ASSESSMENT YEAR - 200 9 - 10 ) TOSHIBA INDIA PVT.LTD., E - 20, 1 ST & 2 ND FLOOR, HAUZ KHAS, NEW DELHI - 110018. PAN - AABCT4829N (A PPELLANT) VS DCIT , CIRCLE - 16(1), NEW DELHI (RESPONDENT) APPELLANT BY MS. RASHMI CHOPRA, ADV. RESPONDENT BY SH. AMRINDRA KUMAR, CIT DR & MS.Y.KAKKAR, SR.DR ORDER PER DIVA SINGH, JM THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE ASSAILING THE CORRECTNESS OF THE ORDER DATED 21.01.2014 PASSED BY THE AO U/S 143(3) R.W.S 144C OF THE INCOME TAX ACT, 1961 IN 2009 - 10 ASS ESSMENT YEAR . THE APPEAL HAS COME UP FOR HEARING BEFORE THE TRIBUNAL BY WAY OF A REMAND BY THE HON BLE HIGH COURT, AS AGAINST THE DECISION OF THE CO - ORDINATE BENCH VIDE ITS ORDER DATED 15.07.2014, THE REVENU E FILED AN APPEAL BEFORE THE HON BLE HIGH COURT. THE HON BLE COURT WAS PLEASED TO REMAND THE ISSUE BACK TO THE ITAT VIDE ORDER DATED 22.04.2015 IN ITA NO. - 54/2015 WITH THE FOLLOWING DIRECTIONS: - 1. THIS IS THE APPEAL OF THE ASSESSEE DIRECTED AGAINST THE ITAT S ORDER DATED 15.07.2014 IN ITA NO.1053/DEL/2014. THE ITAT HAD REMITTED THE MATTER TO THE TPO TO DECIDE THE QUESTION OF TRANSFER PRICING ADJUSTMENTS ON ACCOUNT OF AMP EXPENSES, WHICH IN THIS CASE ARE DISTRIBUTOR EXPENSES. IN LIGHT OF THE PREVIOUS SP ECIAL BENCH RULING IN LG ELECTRONICS INDIA PVT. LTD. VS ACIT (ITA NO.5140/DEL/2011 REPORTED IN (2013) 152 TTJ [DEL.] {SB} 273) AND THE JUDGEMENT OF THE DIVISION BENCH OF THIS COURT IN SONY ERICSON MOBILE COMMUNICATION INDIA PVT. LTD. V. COMMISSIONER OF INC OME TAX (ITA NO.16/2014) DECIDED ON 16 TH DATE OF HEARING 24 .0 8 .2015 DATE OF PRONOUNCEMENT 3 0 . 1 0.2015 I.T.A .NO. - 1053/DEL/2014 PAGE 2 OF 10 MARCH 2015, IT IS HELD THAT DISTRIBUTOR EXPENSES ARE ALLOWABLE. THE MATTER IS THEREFORE REMITTED TO THE ITAT FOR DUE CONSIDERATION. PARTIES ARE DIRECTED TO BE PRESENT BEFORE THE ITAT ON 21.05.2015. 2. BOTH THE L D. AR & LD. CIT DR ALONGWITH SR. DR WERE HEARD. A PERUSAL OF THE RECORD SHOWS THAT THE CO - ORDINATE BENCH VIDE ITS AFORESAID ORDER AFTER SUMMING UP THE ASSESSEE S GROUNDS AND THE ARGUMENTS OF THE RESPECTIVE PARTIES RESTORED THE ISSUE BACK TO THE FILE OF TH E TPO WITH THE DIRECTION TO DECIDE THE ISSUE IN TERMS OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF L .G. ELECTRONICS CASE [2013] 140 ITD 41 (DEL.) (SPECIAL BENCH). THE SAME IS REPRODUCED HEREUNDER FOR READY - REFERENCE: - 2. ALL THE GROUNDS TAKEN IN THE MEMORANDUM OF APPEAL ARE AGAINST THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, IT WAS ADMITTED BY THE LD. AR THAT THE ISSUE IN THIS CASE IS FULLY COVERED BY THE SPECIAL BENCH ORDER IN THE CASE OF LG ELECTRONICS PVT. LTD. VS. ACIT (2013) 140 ITD 41 (DEL) (SB). THE LD. AR CONTENDED THAT SIMILAR DIRECTION BE GIVEN TO THE AO/TPO FOR DECIDING THIS ISSUE AFRESH AND RESTRICTING THE TRANSFER PRICIN G ADJUSTMENT, IF ANY, IN THE LIGHT OF THE SPECIAL BENCH DECISION, AFTER EXCLUDING THE SELLING EXPENSES OUT OF THE AMOUNT CONSIDERED BY THE AO UNDER AMP EXPENSES. THE LD. DR WAS FAIR ENOUGH TO CONCEDE THE POSITION STATED ON BEHALF OF THE ASSESSEE. 4. IT I S OBSERVED THAT THE SPECIAL BENCH IN THE CASE OF LG ELECTRONICS (SUPRA) HAS HELD THAT THE AMP EXPENSES REFER ONLY TO ADVERTISEMENT, MARKETING AND PUBLICITY AND, AS SUCH, THE SELLING EXPENSES WHICH ARE SPECIFIC TO SALES CANNOT BE CONSIDERED WITHIN THE AMBIT OF AMP EXPENSES. SOME OF THE INSTANCES OF SELLING EXPENSES CONSIDERED IN THAT CASE, ARE COMMISSION PAID TO THE DEALERS AND SALES AGENTS. IN THE SAME CATEGORY WOULD FALL REBATE AND DISCOUNT, ETC. ALLOWED TO THE PARTIES IN CONNECTION WITH BOOSTING SALES. TH E CRUX OF THE MATTER IS THAT THE EXPENSES FOR THE PROMOTION OF SALES ARE TO BE CONSIDERED WITHIN THE PURVIEW OF AMP EXPENSES, WHEREAS THE EXPENSES IN CONNECTION WITH THE SALES WHICH ARE SIMPLY SALES SPECIFIC, ARE OUTSIDE THE SCOPE OF AMP EXPENSES. WE, THER EFORE , SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DECIDING THE QUESTION TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES, IF ANY, IN CONFORMITY WITH THE VIEW TAKEN BY THE SPECIAL BENCH IN THE CASE OF LG ELECTRONICS (S UPRA). (EMPHASIS PROVIDED) I.T.A .NO. - 1053/DEL/2014 PAGE 3 OF 10 3. IN THE SAID BACKGROUND THE LD. AR INITIALLY TOOK THE STAND THAT ALL THE RELEVANT FACTS WERE AVAILABLE BEFORE THE ITAT IN ORDER TO IDENTIFY AND DIRECT THE EXCLUSION OF DISTRIBUTOR EXPENSES. FOR THE SAID PURPOSE AN ORAL REQUEST SEEKING TIME TO CULL OUT TH E DETAILS WAS INITIALLY MADE. IN ORDER TO CONSIDER THE FEASIBILITY OF ACCEPTING THE REQUEST MADE WHERE ALREADY AS PER RECORD THE APPEAL HAD BEEN ADJOURNED ON THREE DIFFERENT OCCASIONS WHEREIN AS PER THE LAST ADJOURNMENT ON ASSESSEE S REQUEST TIME HAD BEE N GRANTED. T HUS IT WAS CONSIDERED APPROPRIATE TO DIRECT THE LD. AR TO SHOW FROM THE ORDERS OF THE TPO OR THE DRP THAT THE RELEVANT FACTS WERE AVAILABLE ON RECORD. AFTER MAKING VARIOUS ATTEMPTS TO GO THROUGH THE VARIOUS PAGES OF THE TPO S ORDER/THE DRP S ORDER/THE SUBMISSIONS OF THE ASSESSEE ON RECORD IT WAS FINALLY CONCEDED THAT THE FACTS WERE REQUIRED TO BE LOOKED INTO AFRESH AS THEY HAD NOT BEEN PRESENTED IN SUCH A MANNER . THE SUBMISSION WAS FOUND TO BE CORRECT AS THE ENTIRE FOCUS OF THE ASSESSEE AND T HE TAX AUTHORITIES DURING THE ASSESSMENT STAGE HAS REMAINED ON THE ASPECT THAT AMP EXPENSES ARE AN INTERNATIONAL TRANSACTION A POSITION DISPUTED BY THE ASSESSEE; AND ON THE APPLICATION OF BRIGHT LINE AFTER IDENTIFYING THE COMPARABLES RESULTING IN ARM S LEN GTH PRICE ADJUSTMENT WHICH ADJUSTMENT WAS ASSAILED BY THE ASSESSEE BEFORE THE TRIBUNAL WHEREIN THE CO - ORDINATE BENCH IN THE FIRST ROUND REMANDED THE ISSUE TO THE TPO DIRECTING EXCLUSION OF SELLING EXPENSES IN LINE WITH THE ORDERS OF THE SPECIAL BENCH IN L. G. ELECTRONICS (CITED SUPRA). THE SAID ORDER WAS ASSAILED BY THE REVENUE IN APPEAL BEFORE THE HON BLE HIGH C O URT WHO HAVE DIRECTED A REMAND BACK TO THE ITAT. THUS IN THE ABSENCE OF RELEVANT DETAILS THE LD. AR SUBMITTED THAT THE ISSUE MAY BE RESTORED TO THE TPO. THE LD. AR FURTHER SUBMITTED THAT THE TPO MAY BE RESTRAINED FROM CARRYING OUT THE DIRECTIONS GIVEN IN THE CASE OF THE ASSESSEE BY THE ITAT VIDE ITS ORDER DATED 25.05.2015 IN ITA NO. - 1101/DEL/2015 IN 2010 - 11 ASSESSMENT YEARS . IT WAS SUBMITTED THA T THE DIRECTIONS GIVEN IN 2010 - 11 IS ON FACTS WHICH WERE NOT AVAILABLE BEFORE THE ITAT AND IS INFACT BASED ON INCORRECT APPRECIATION OF FACTS. IT WAS ALSO HER STAND THAT THE FATE OF THE SAID DECISION IS INFLUX AS THE DIRECTIONS GIVEN TO THE TPO IN THE SAI D DECISION ARE UNDER CHALLENGE AS A CLARIFICATION HAS BEEN SOUGHT FROM THE HON BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSON (CITED SUPRA) WHEREIN THE ASSESSEE I.T.A .NO. - 1053/DEL/2014 PAGE 4 OF 10 WAS ALSO A PARTY. IT WAS SUBMITTED THAT EVEN OTHERWISE THE DIRECTIONS GIVEN IN THE SAID DEC ISION WOULD NOT APPLY AS THE FACTS ARE ENTIRELY DISTINGUISHABLE. IN VIEW OF THESE SUBMISSIONS WHILE REQUEST ING A REMAND AS FACTS WERE NOT O N RECORD IT WAS HER SUBMISSION THAT THE TPO MAY BE DIRECTED THAT WHILE DECIDING THE ISSUE THE DIRECTIONS GIVEN BY THE CO - ORDINATE BENCH IN ASSESSEE S CASE MAY NOT BE CONSIDERED WHILE PASSING THE ORDER IN THE PRESENT APPEAL. 4. THE LD. CIT DR AND SR. DR ON THE OTHER HAND ALSO ARGUED THAT FOR WANT OF NECESSARY DETAILS THE ISSUE HAS TO GO BACK HOWEVER IT WAS SUBMITTED T HAT DIRECTIONS RESTRAINING THE TPO FROM CONSIDERING THE ISSUE IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE ITAT IN 2010 - 11 ASSESSMENT YEAR MAY NOT BE GIVEN. IT WAS SUBMITTED W HETHER THOSE DIRECTIONS ARE APPLICABLE OR NOT THE TPO SHOULD BE LEFT FREE TO CON SIDER AND IF ON THE ISSUE CLARIFICATION HAS BEEN SOUGHT FROM THE HON BLE HIGH COURT THEN THE TPO SHALL BE BOUND BY THE ANSWER GIVEN BY THE HON BLE HIGH COURT THUS IT WAS REQUESTED THAT NO LIMITS MAY BE PLACED BY THE BENCH ON THE TPO. IT WAS FURTHER SUBMI TTED THAT IF THE ASSESSEE CANVASSES THAT THE FACTS ARE DISTINGUISH ABLE IN THE YEAR UNDER CONSIDERATION THEN THE TPO SHOULD BE FREE TO CONSIDER THE CLAIM. THE LD. SR. DR SUPPLEMENTING THE ARGUMENTS OF THE LD.CIT DR INVITING ATTENTION TO THE OECD/G - 20 BASE EROSION AND PROFIT SHIFTING PROJECT GUIDANCE ON TRANSFER PRICING ASPECTS OF INTANGIBLES SUBMITTED THAT THE CLAIM OF THE ASSESSEE IN THE FACTS OF THE PRESENT CASE THAT IT WAS LOW END DISTRIBUTOR IS STRONGLY OPPOSED TO BY THE REVENUE AS ON A READING OF L IST OF INTANGIBLES WHICH ARE OWNED BY THE ASSESSEE THE POSITION IS OPPOSED BY THE REVENUE. FOR THE SPECIFIC PURPOSE ATTENTION WAS INVITED TO PAGE 5 PARA 3.3 OF THE TPO WHEREIN THE ASSESSEE HAS MADE A REFERENCE TO CLAUSE - 6 OF THE E XCLUSIVE DISTRIBUTION A GREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE ON 21.09.2007 WHICH WOULD IMPACT AND INFACT ADDRESS THE ISSUE. THUS IT WAS HER SUBMISSION THAT THE TPO MAY BE MANDATED TO CONSIDER THE ISSUE TAKING INTO CONSIDERATION THE POSITION OF LAW AS PER THE LEG AL JURISPRUDENCE THEN AVAILABLE IN THE PUBLIC DOMAIN WHICH WOULD ALSO ADDRESS THE ASSESSEE S CONCERNS NAMELY THAT THE ISSUE IS PENDING CLARIFICATION BEFORE THE HON BLE HIGH COURT. I.T.A .NO. - 1053/DEL/2014 PAGE 5 OF 10 5. THE LD.AR SUBMITTED THAT THE HON BLE HIGH COURT HAS ALREADY TAKEN INTO CONSIDERATION LATEST OECD GUIDELINES IN THE DECISION OF THE SONY ERICSON CASE , T HUS THE LD. SR. DR S CONCERNS ON THE ISSUE WERE STATED TO BE NOT RELEVANT. THE LD. SR.DR CLARIFIED THAT THE OECD GUIDELINES TAKEN INTO CONSIDERATION BY THE HON BLE HIGH COURT IS THE OECD GUIDELINES - 2013 WHEREAS SHE IS REFERRING TO THE OECD GUIDELINES WHICH ADDRESS THE LATEST POSITION AS FAR AS THE DEVELOPED WORLD IS CONCERNED AS BROUGHT OUT IN G - 20 BASE EROSION AND PROFIT SHIFTING PROJECT. IT WAS ALSO THE STAND OF THE LD. SR. DR THAT THE RELEVANT FACTS FOR DECIDING THE ISSUE AS PER THE MANDATE OF THE HON BLE HIGH COURT ARE NOT AVAILABLE ON RECORD AND THE ISSUE IS REQUIRED TO BE RESTORED HOWEVER WITHOUT THE LIMITATION CANVASSED BY THE LD.AR. 6. THE LD. AR IN REPLY SUBMITTED T HAT THE ISSUE IN THE PRESENT PROCEEDINGS WERE DECIDED BASED ON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF L.G. ELECTRONICS. THE LD. AR SUBMITTED THAT THEREAFTER AS A RESULT OF THE DECISION OF THE HON BLE HIGH COURT IN THE CASE OF SONY ERICSON THE E NTIRE EXERCISE QUA THE CHARACTERIZATION OF THE ASSESSEE AND THE SELECTION OF COMPARABLES ETC HAS TO BE DONE ALL OVER AGAIN AND IN THE CASE AT HAND THE FACTS IN 2009 - 10 AND 2010 - 11 ASSESSMENT YEARS ARE DISTINGUISHABLE AND FOR THIS REASON IT WAS REQUESTED T HAT THE DIRECTIONS GIVEN IN THE REMAND IN 2010 - 11 MAY NOT BE FOLLOWED. IT WAS SUBMITTED THAT THE TPO MAY BE DIRECTED TO CONSIDER PARAS 80, 82, 93, 101, 1009, 120, 121 & 144 OF THE DECISION OF THE HON BLE HIGH COURT IN SONY ERICSON CASE AND ON THE ISSUE OF CLOSELY LINKED INTERNATIONAL TRANSACTION UNDER TNMM AND THE BUNDLE OF SERVICES THE SPECIFIC PARAS RELIED UPON IN PARAS 91, 96, 100, 101, 117, 119, 121, 124, 127, 163 - 165. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECOR D INCLUDING THE DIRECTIONS OF THE HON BLE HIGH COURT IN THE REMAND AND THE SUBMISSIONS OF THE PARTIES BEFORE THE BENCH THEREON. ACCORDINGLY IN THE LIGHT OF THE AFORESAID FACTS AND SUBMISSIONS ON RECORD, WE FIND OURSELVES IN AGREEMENT WITH THE PARTIES BEFO RE THE BENCH AND HOLD THAT THE ISSUE NEED S TO BE CONSIDERED AFRESH AS RELEVANT FACTS IN THE LIGHT OF THE DIRECTIONS OF THE DECISION OF THE HON BLE HIGH COURT IN SONY ERICSON CASE NEED TO BE CULLED OUT AFRESH. BEFORE WE ADDRESS THE DECISION, IT IS NECESSA RY I.T.A .NO. - 1053/DEL/2014 PAGE 6 OF 10 TO BRING THE FACTS THAT TOSHIBA IS A WHOLLY OWNED SUBSIDIARY OF TOSHIBA CORPORATION, JAPAN AND HAS COMMENCED TRADING OPERATIONS IN CONSUMER DURABLES; AND IT PRODUCTS DURING THE F.Y. 2006 - 07 AND 2007 - 08 RESPECTIVELY. APART FROM THAT AS PER THE TP DOCUME NTATION THE ASSESSEE IS ALSO PROVIDING REPRESENTATION AND MARKETING SUPPORT SERVICES TO TOSHIBA CORPORATION GROUP COMPANIES WORLDWIDE. TOSHIBA CORPORATION IS A JAPANESE TECHNOLOGY COMPANY SPECIALIZED IN ADVANCE ELECTRONICS. IT IS ENGAGED IN MANUFACTURING AND MARKETING INFORMATION AND COMMUNICATION SYSTEM, ELECTRONICS COMPONENT, HEAVY ELECTRICAL, CONSUMER PRODUCTS, MEDICAL DIAGNOSTICS EQUIPMENT ETC. THE ASSESSEE RETURNED AN INCOME OF RS.16,08,68,450/ - AND THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AE WERE DISCLOSED BY THE ASSESSEE IN ITS FORM NO. - 3CEB: - 2. PROFILE OF THE ASSESSEE AND THE GROUP AND FAR ANALYSIS: - 2.1. TOSHIBA INDIA PRIVATE LIMITED, THE TAX PAYER COMPANY IS WHOLLY OWNED SUBSIDIARY OF TOSHIBA CORPORATION,, JAPAN, AS PER TRANSFER PRICING DOCUMENTATION, TOSHIBA CORPORATION SPECIALIZES IN ADVANCED ELECTRONICS AND IS ENGAGED IN MANUFACTURING AND MARKETING OF INFORMATION AND COMMUNICATION SYSTEMS, ELECTRONIC COMPONENTS, HEAVY ELECTRICAL APPARATUS, CONSUMER PRODUCTS, MEDICAL DIAGNOSTIC IMAGING EQUIPMENT ETC. TOSHIBA INDIA PRIVATE LIMITED, THE TAX PAYER COMPANY IS ENGAGED IN TRADING CONSUMER DURABLES, IT PRODUCTS AND IS ALSO PROVIDING REPRESENTATIVE AND MARKETING SUPPORT SERVICES TO TOSHIBA CORPORATION GROUP COMPANIES WORLDWIDE. S.NO. NA TURE OF TRANSACTION VALUE OF INTERNATIONAL TRANSACTION IN INR 1. IMPORT OF CONSUMER DURABLE PRODUCTS, LCD AND SPARE PARTS TOSHIBA HOME APPLIANCES CORPORATION, TOSHIBA CONSUMER PRODUCTS, TOSHIBA SINGAPORE PTE LIMITED, TOSHIBA CORPORATION, JAPAN 135,203,521 2. IMPORT AND EXPORT OF IT PRODUCTS AND ACCESSORIES TOSHIBA CORPORATION, JAPAN, TOSHIBA AMERICA INFORMATION SYSTEMS INC., TOSHIBA EUROPE GMBH, TOSHIBA SINGAPORE PTE. LTD. (IMPORT OF PC AND ITS SPARE PARTS), TOSHIBA SINGAPORE PTE. LTD. (SALE OF PC & SPARE PARTS) 635,578,977 3. PROVISION OF WARRANTY SERVICES TOSHIBA AMERICA INFORMATION SYSTEM INC., TOSHIBA (AUSTRALIA) PTE. LTD., TOSHIBA EUROPE GMBH, TOSHIBA OF CANADA LTD, TOSHIBA PERSONAL COMPUTER & NETWORK (SHANGHAI) CO. LTD., TOSHIBA 40,719,692 I.T.A .NO. - 1053/DEL/2014 PAGE 7 OF 10 CORPORATI ON, JAPAN (PROVISION OF GLOBAL WARRANTY SERVICES), TOSHIBA SINGAPORE PTE. LIMITED (PROVISION OF GLOBAL WARRANTY SERVICES), TOSHIBA SINGAPORE PTE LIMITED (PROVISION OF WARRANTY SUPPORT SERVICES), TOSHIBA CORPORATION, JAPAN (COMPUTER REPAIR AND MAINTENANCE), TOSHIBA PERSONAL COMPUTER & NETWORK (SHANGHAI) CO. LTD. 4. PROVISION OF REPRESENTATION AND MARKETING SUPPORT SERVICES TOSHIBA CORPORATION, JAPAN, TOSHIBA ELECTRONICS ASIA SINGAPORE PTE. LTD., TOSHIBA SINGAPORE PTE. LTD. 110,334,113 5. REIMBURSEMENT OF EXPENSES TOSHIBA ASIA PACIFIC PTE. LTD. 181,764 6. RECEIPT OF CONSULTANCY CHARGES TOSHIBA ASIA PACIFIC PTE. LTD. 395,153 TOTAL 922,413,220 7.1. THE RECORD SHOWS THAT THE ASSESSEE HAD MADE ITSELF THE TESTED PARTY FOR COMPARABILITY PURPOSES. CONSIDERING THE TRANSFER PRICING REPORT AND THE DOCUMENTS FURNISHED THE TPO OBSERVED THAT INTERNATIONAL TRANSACTIONS RELATING TO EXPENSES CONCERNING ADVERTISEMENT AND MARKETING AND DISC OUNT AND REBATES AMOUNTING TO RS. 17,46,81,702/ - HAD NOT BEEN BENCH - MARKED. ACCORDINGLY AFTER SHOW - CAUSING THE ASSESSEE AND CONSIDERING THE 09 COMPARABLES OFFERED BY THE ASSESSEE ONE COMPARABLE WAS RETAINED AND APPLYING BRIGHT LINE TEST AND AN ADJUSTMENT OF RS.18,67,20,212/ - WAS PROPOSED . THE SAID PROPOSAL WAS CHALLENGED UNSUCCESSFULLY IN APPEAL BEFORE THE DRP ON VARIOUS GROUNDS INCLUDING THE FOLLOWING GROUNDS WHICH IS RELATABLE TO THE ISSUE AT HAND NAMELY OBJECTION NO. - 6 . FOR READY - REFERENCE THE RELEV ANT EXTRACT FROM THE DECISION IS REPRODUCED HEREUNDER: - 6. THE NEXT OBJECTION IS ON THE ISSUE OF EXPENSES RELATED TO AMP. FOURTEENTH GROUND OF OBJECTION - WITHOUT PREJUDICE TO ALL OTHER GROUNDS, THE QUANTIFICATION OF THE AMP EXPENSE BY THE LEARNED TPO FOR THE PURPOSE OF THE ALLEGED ADJUSTMENT IS NOT APPROPRIATE. THE SAME INCLUDES EXPENSES WHICH ARE ESSENTIALLY IN CONNECTION WITH THE SALES SUCH AS SELLING EXPENSES AND TRADE & CHANNEL DISCOUNTS WHICH CANNOT BE ATTRIBUTED TO BRAND PROMOTION. I.T.A .NO. - 1053/DEL/2014 PAGE 8 OF 10 6.1. DRP HA S CONSIDERED THE OBJECTION OF THE ASSESSEE. MARKETING INTANGIBLES INCLUDE TRADEMARKS, TRADE NAMES, CUSTOMER'S LIST AND DISTRIBUTION CHANNELS, ETC. THE TPO HAS ANALYZED THE FAR OF THE ASSESSEE. DECISION OF HON'BLE HIGH COURT OF DELHI IN W.P. (C) 6876/2008 M ARUTI SUZUKI INDIA PVT. LTD. VS. ADDL. CIT (TPO) IS RELEVANT IN THIS CASE. THE SUBMISSION OF THE ASSESSEE IS CAREFULLY EXAMINED. 'MARKETING INTANGIBLE' IS A BROADER TERM. THE BRAND LOYALTY TO BE GENERATED AIMS AT ALL LEVELS OF THE CHAIN OF TRANSACTIONS. TH E MIDDLE MEN IN THE CHAIN ARE DISTRIBUTORS/ COMMISSION AGENTS. THEY ARE THE REAL FOOT SOLDIERS PUSHING THE GOODS OF THE ASSESSEE AS AGAINST THE GOODS OF THE COMPETITOR. COMMISSION ON SALES OR SALES DISCOUNTS REBATES ETC. HELP THE COMPANY TO CREATE A LOYALT Y AMONG THE DISTRIBUTORS OR THE MIDDLE MEN BETWEEN THE ASSESSEE AND THE ULTIMATE CONSUMERS. THEREFORE, IT IS UNSCIENTIFIC TO SAY THAT THESE EXPENSES SHOULD BE EXCLUDED WHILE DETERMINING THE ALP OF THE MARKETING INTANGIBLES CREATED DUE TO AMP EXPENDITURE. 6.2. IN VIEW OF THIS, THE FOCUS AND THE QUESTION BEING INVESTIGATED IS 'MARKETING INTANGIBLES' AND NOT JUST 'BRAND PROMOTION' ALONE IN THE INSTANT CASE. THEREFORE, WHILE IDENTIFYING THE ITEMS OF EXPENDITURE, CARE SHOULD BE TAKEN TO CORRECTLY CLASSIFY THE EXPENDITURE. IN LG CASE IT WAS ONLY 'BRAND BUILDING' EXPENDITURE WHAT WAS RELEVANT SINCE THE QUESTION WAS NOT ON THE CREATION OF MARKETING INTANGIBLES, BUT ON BUILDING OF 'BRAND L.G . THEREFORE, IN THIS CASE, THE ITEMS OF EXPENDITURE WHICH GOES INTO CRE ATING MARKET NETWORK THROUGH DEALERS AND CUSTOMERS ARE ALSO TREATED AS PART OF THE COST BASE. 6.3. THE ROUTINE EXPENDITURE REQUIRED FOR CONDUCTING NORMAL DISTRIBUTION ACTIVITY WILL BE IN THE SAME PROPORTION TO THE EXPENDITURE INCURRED THE COMPARABLE COMP ANY TO THE SALES. THEREFORE, THERE IS NO MERIT THE ARGUMENT OF THE APPELLANT THAT ALL THE EXPENDITURE GOES INTO ONLY FOR SALES. AS THE ARM'S LENGTH PRICE OR THE AMP EXPENDITURE IS DETERMINED AT 1.26% (SEE EARLIER PARA 5.6.3), THIS COVERS THE ROUTINE EXPEND ITURE REQUIRED TO BE MADE FOR SELLING AND DISTRIBUTION PURPOSES. IN VIEW THIS, NO DIRECTION NEEDS TO BE ISSUED TO THE TPO ON THIS OBJECTION. 7.2. IT IS SEEN THAT THE SAID ISSUE ON QUANTIFICATION WAS NOT ADDRESSED BY THE DRP AS ON FIRST PRINCIPLES ITSELF THE STAND WAS REJECTED. BEFORE THE ITAT ALSO IN THE FIRST ROUND AS IS EVIDENCED FROM THE EXTRACT IN PARA 2 OF THIS ORDER THE ISSUE WAS NOT EXAMINED. THUS THE ISSUE NECESSARILY HAS TO BE REMANDED BACK TO THE TPO AS IT NEEDS TO BE ADDRESSED ON FACTS . T HE ASSESSEE IS NECESSARILY REQUIRED TO PLACE ITS CLAIM OF DISTRIBUTOR EXPENSES BACKED BY RELEVANT DOCUMENTS AND EVIDENCES WHOSE CORRECTNESS THEN NEEDS TO BE VERIFIED BY THE TPO. THUS SINCE NECESSARY FACTS EVIDENTLY ARE NOT ON RECORD THE ISSUE I S RESTORED BA CK TO THE TPO TO DO THE EXERCISE AFRESH AND DECIDE I.T.A .NO. - 1053/DEL/2014 PAGE 9 OF 10 THE ISSUE IN ACCORDANCE WITH LAW BY WAY OF A SPEAKING ORDER AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD . 7.3. WHILE SO HOLDING, WE CLARIFY THAT THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE THEN THE TPO SHOULD NOT TAKE INTO CONSIDERATION THE DIRECTIONS OF THE CO - ORDINATE BENCH CONTAINED IN THE ORDER DATED 25.05.2015 ARE NOT AGREED TO. THERE IS NOTHING ON RECORD TO SHOW THAT THE SA ID ORDER HAS BEEN VARIED BY THE CO - ORDINATE BENCH BY WAY OF AN ORDER U/S 254(2). IT IS FURTHER PLEADED THAT A CLARIFICATION HAS BEEN SOUGHT FROM THE HON BLE HIGH COURT IN SUPPORT OF THE DIRECTION TO THE TPO. WE FIND THAT EVEN IN THOSE CIRCUMSTANCES A DIRECTION NEED NOT BE GIVEN TO THE TPO AS THERE IS NO RE ASON TO PRESUME THAT THE CLARIFICATION IF ANSWERED BY THE HON BLE HIGH COURT WOULD NOT BE FOLLOWED BY THE TPO AS HE IS BOUND TO FOLLOW IT. FURTHER THE DIRECTIONS GIVEN IN THE PRESENT PROCEEDINGS TO THE TPO TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW PRE SUME S THAT THE CLARIFICATION OF THE HON BLE HIGH COURT WOULD NECESSARILY BE FOLLOWED. 7.4 . SIMILARLY WHERE THE ORDER BY THE CO - ORDINATE BENCH I N ASSESSEE S OWN CASE IS AVAILABLE IN THE PUBLIC DOMAIN THEN THE OCCASION TO HOLD THAT IT IS ON DIFFERENT FACTS I N THE PRESENT PROCEEDINGS AT THIS STAGE DOES NOT ARISE. THERE IS NO REASON WHY THE ASSESSEE IF SO CONSIDERS APPROPRIATE CANNOT TAKE TH E PLEA BEFORE THE TPO WHO IS DUT Y BOUND TO CONSIDER THE PLEA IF SO MADE ON FACTS AND DEAL WITH THE ARGUMENTS MADE BY WAY OF A SPEAKING ORDER IN ACCORDANCE WITH LAW. 8 . IN THE RESULT, THE APPE AL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 3 0 T H OF OCTOBER, 2015. S D / - S D / - (T.S.KAPOOR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 0 /10 /2015 * AMIT KUMAR * I.T.A .NO. - 1053/DEL/2014 PAGE 10 OF 10 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI