Readers Digest Book and Home Entertainment India (P) Ltd., New Delhi V. DCIT, New Delhi

ITA 1080/DEL/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9279 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 12-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 01-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SREENIVASA RAO
• Keywords: Transfer pricing; International transaction; Bad and doubtful debts
• Section: 143(3); 92B; 234B

Judgement Text

1 ITA NOS. 1080 & 1621/DEL/2016 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 1080/DEL/2 016 (A.Y 2011-12) READERS DIGEST BOOK AND HOME ENTERTAINMENT INDIA (P) LTD. C-227, PARYAVARAN COMPLEX NEW DELHI AADCR0848P (APPELLANT) VS DCIT CIRCLE 21(1) NEW DELHI (RESPONDENT) I.T.A .NO. 1621/DEL/ 2016 (A.Y 2011-12) DCIT CIRCLE 21(1) NEW DELHI (APPELLANT) VS READERS DIGEST BOOK AND HOME ENTERTAINMENT INDIA (P) LTD. C-227, PARYAVARAN COMPLEX NEW DELHI AADCR0848P (RESPONDENT) APPELLANT BY SH. PERCY PARDIWALA, SR. ADV RESPONDENT BY SH. A. SREENIVASA RAO, SR. DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AND TH E REVENUE AGAINST THE ASSESSMENT ORDER DATED 29/01/2006 PASSED U/S 143(3) /144C/92CA (4) OF THE INCOME TAX ACT, FOR ASSESSMENT YEAR 2011-12. DATE OF HEARING 16.10.2018 DATE OF PRONOUNCEMENT 20.12.2018 2 ITA NOS. 1080 & 1621/DEL/2016 2. THE GROUNDS OF APPEAL ARE AS UNDER:- I.T.A .NO. 1080/DEL/2016 BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT RESPECTFULLY CRAVES LEAVE TO PREFER AN AP PEAL AGAINST THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX - 2 1(1) [AO], UNDER SECTION 143(3) R.W.S 144C(13) OF THE INCOME-TAX ACT, 1961 ( ACT) (ASSESSMENT ORDER), IN PURSUANCE OF THE DIRECTIONS ISSUED BY DISPUTE RE SOLUTION PANEL - 2, NEW DELHI (HONBLE DRP), ON THE FOLLOWING GROUNDS. EA CH OF THE BELOW GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO AND INDEPENDENT OF O NE ANOTHER. THE LEARNED AO/DRP HAVE ERRED IN LAW AND FACTS: 1. IN MAKING A REFERENCE OF THE APPELLANTS CASE T O THE LEARNED TPO, WHICH IS NOT IN ACCORDANCE WITH SECTION 92CA, AND THEN MAKIN G A TRANSFER PRICING ADJUSTMENT OF RS 15,92,54,270 TO THE TOTAL INCOME O F THE APPELLANT FOR AY 2011-12; 2. IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS 1 5,92,54,270 UNDER SECTION 92C(4) OF THE ACT TO THE TOTAL INCOME OF THE APPELL ANT ON THE PREMISE THAT THERE EXISTS AN INTERNATIONAL TRANSACTION UNDER SECTION 9 2B OF THE ACT BETWEEN THE APPELLANT AND ITS ASSOCIATED ENTERPRISE (AE) ON A CCOUNT OF ALLEGED ADVERTISEMENT, MARKETING AND PROMOTION (AMP) EXPE NSES INCURRED BY THE APPELLANT; 3. IN FAILING TO APPRECIATE THAT THERE ARE NO MACH INERY PROVISIONS UNDER THE ACT TO DETERMINE AMP AS INTERNATIONAL TRANSACTION; 4. IN HOLDING THAT THE ALLEGED AMP EXPENSES IS AN I NTERNATIONAL TRANSACTION WITHOUT BRINGING ANYTHING ON RECORD TO PROVE THAT T HERE IS AN UNDERSTANDING/ ARRANGEMENT/ OR AN ACTION IN CONCERT BETWEEN THE AP PELLANT AND THE AE FOR THE PROMOTION OF BRAND/ TRADEMARK NAME OWNED BY THE AE; 5. IN FAILING TO APPRECIATE THAT THE EXISTENCE OF A MP BEING AN INTERNATIONAL TRANSACTION HAS TO BE PROVEN DEHORS OF BRIGHT LINE TEST (BLT) WHICH HAS NOT 3 ITA NOS. 1080 & 1621/DEL/2016 BEEN OTHERWISE SUBSTANTIATED; 6. IN FAILING TO UNDERSTAND THAT THE COMPONENTS OF THE APPELLANTS ADVERTISING AND SALES PROMOTION AND POSTAGE EXPENSES ARE DIFFER ENT FROM WHAT IS ORDINARILY UNDERSTOOD AS ADVERTISEMENT, MARKETING A ND PROMOTION (AMP) EXPENSES AND THEREFORE THE SAME CANNOT IN ANY CIRCU MSTANCES BE ALLEGED TO LEAD TO CREATION OF MARKETING INTANGIBLE FOR THE AE ; 7. IN CONSIDERING EXPENSES INCURRED IN CONNECTION WITH SALES AS AMP EXPENDITURE INCURRED TOWARD BRAND PROMOTION; 8. IN CONSIDERING POSTAGE EXPENSES AMOUNTING TO RS. 4,07,65,295 AS PART OF THE ALLEGED AMP EXPENDITURE, WHICH IS ABSURD SINCE POSTAGE EXPENSES CANNOT CONTRIBUTE TO BRAND BUILDING; 9. IN DISREGARDING THE EXPERT OPINION OF MR RANJAN KAPUR, WHICH GIVES CREDENCE TO THE FACT THAT SELLING AND DISTRIBUTION EXPENDITURE INCURRED BY THE APPELLANT HAS NOT LEAD TO BRAND CREATION/ PROMOTION ; 10. IN NOT APPRECIATING THAT THE CONCEPT OF MARKETI NG INTANGIBLE IS NOT APPLICABLE TO THE APPELLANTS CASE; 11. IN FAILING TO UNDERSTAND THAT THE ALLEGED AMP E XPENSES WERE INCURRED BY THE APPELLANT WHOLLY AND EXCLUSIVELY ON ITS OWN ACCOUNT AND FOR ITS OWN BUSINESS AND ANY BENEFIT TO THE AE CAN ONLY BE INCIDENTAL; 12. IN CHARACTERIZING THE APPELLANT AS A LIMITED RI SK DISTRIBUTOR FROM AN ENTREPRENEURIAL ENTITY 13. IN TREATING APPELLANTS OWN SELLING AND DISTRIB UTION EXPENSES AS HAVING BEEN INCURRED FOR AND ON BEHALF OF ITS AE AN D ACCORDINGLY HOLDING THAT THE APPELLANT SHOULD HAVE RECOVERED THE SAME FROM T HE AE; 14. IN ARBITRARILY HOLDING THAT THE ALLEGED AMP EXP ENSES INCURRED BY THE APPELLANT CONSTITUTES A SEPARATE INTERNATIONAL TRAN SACTION WITH ITS AE UNDER 4 ITA NOS. 1080 & 1621/DEL/2016 SECTION 92B(1) OF THE ACT AND SUBJECTING THE SAME T O TRANSFER PRICING PROVISIONS; 15. WITHOUT PREJUDICE TO ABOVE, IN FAILING TO APPRE CIATE THAT A BUNDLED APPROACH SHOULD BE ADOPTED FOR DETERMINING THE ARM S LENGTH PRICE OF ITS ALLEGED AMP EXPENSES SINCE THE SAME IS INTRINSICALL Y LINKED TO THE DISTRIBUTION FUNCTION. 16. IN FAILING TO APPRECIATE THAT BRIGHT LINE METH OD SUFFERS FROM VARIOUS FALLACIES AND DEFICIENCIES; AND IS NOT A PRESCRIBED METHOD UNDER THE INDIAN TP REGULATIONS 17. IN MAKING AN ADJUSTMENT ON ACCOUNT OF THE ALLEG ED AMP EXPENSES INCURRED BY THE APPELLANT ALTHOUGH IN THE VERY SAME ORDER, IT HAS BEEN HELD THAT THE PROFITS EARNED BY THE APPELLANT IN ITS DIS TRIBUTION ACTIVITY, WHICH WAS COMPUTED AFTER TAKING INTO ACCOUNT THESE ALLEGED AM P EXPENSES, MEETS THE ARMS LENGTH TEST; WITHOUT PREJUDICE TO THE ABOVE, ERRED IN NOT DETERMINING THE EXCESSIVE ALLEGED AMP SPEND AND MARKING THE TRANS FER PRICING ON THE ENTIRE ALLEGED AMP SPEND INCURRED BY THE APPELLANT; 18. IN CONCLUDING THAT THE ALLEGED AMP EXPENSES LEA D TO BRAND BUILDING WITHOUT APPRECIATING THE APPELLANTS FACTS AND IN P ARTICULAR THE NATURE OF EXPENSES INCURRED; 19. IN ERRONEOUSLY USING AN INCORRECT COST BASE FOR THE PURPOSE OF MAKING THE ADJUSTMENT IN RESPECT OF ALLEGED AMP EXP ENDITURE; 20. IN ERRONEOUSLY NOT GIVING EFFECT TO THE DIRECTI ONS OF THE HONBLE DRP THAT HAS ALLOWED THIS OBJECTION RAISED BY THE APPEL LANT IN THE DRP DIRECTIONS IN THE FAVOUR OF THE APPELLANT. 21. IN FAILING TO CONSIDER THE FACT THAT WHERE THE ALLEGED AMP EXPENSES ARE CONSIDERED TO BE A SEPARATE INTERNATIONAL TRANS ACTIONS, THE SAME OUGHT TO 5 ITA NOS. 1080 & 1621/DEL/2016 BE REDUCED FROM THE TOTAL EXPENSES FOR COMPUTATION OF THE APPELLANTS MARGIN FROM ITS DISTRIBUTION BUSINESS, IN WHICH CASE, THE SUBSTANTIALLY HIGH MARGINS WOULD SHOW AN ABSURD RESULT; 22. IN ARBITRARILY LEVYING A MARK-UP OF 25.8 8% BY USING GROSS PROFIT TO COST OF GOODS SOLD OF COMPARABLES (IDENTIFIED BY THE LEA RNED TPO) ON THE ALLEGED AMP EXPENSES INCURRED WITHOUT PROVIDING ANY REASONA BLE BASIS FOR ARRIVING AT THE SAME; 23. IN NOT APPRECIATING THAT THE COMPARABLES SELE CTED BY THE LEARNED TPO TO BENCHMARK THE ALLEGED INTERNATIONAL TRANSACTION ARE NOT COMPARABLE; 24. IN GRANTING SHORT CREDIT OF TAXES DEDUCTED A T SOURCE OF RS. 5,867 WHILE COMPUTING THE TAX LIABILITY FOR THE YEAR; 25. IN LEVYING INTEREST OF RS 8,02,908 UNDER SE CTION 234A OF THE ACT WITHOUT APPRECIATING THAT THE APPELLANT HAS FILED ITS RETUR N OF INCOME BEFORE THE DUE DATE; 26. IN LEVYING INTEREST OF RS 2,32,84,332 UNDER SECTION 234B OF THE ACT; 27. IN NOT APPRECIATING THAT THE ENTIRE ADDITIO N HAS BEEN MADE DUE TO TRANSFER PRICING ADJUSTMENT AND HENCE, COULD NOT HA VE BEEN ENVISAGED, WHILE PAYING ADVANCE TAX; 28. IN LEVYING INTEREST OF RS. 28,22,518 UNDER SECT ION 234D OF THE ACT; 29. IN INITIATING PENALTY PROCEEDINGS U/S 271 (1 )( C) OF THE ACT. I.T.A .NO. 1621/DEL/2016 1. WHETHER UNDER THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW THE HONBLE DRP WAS CORRECT IN HOLDING THAT PLR CANNOT BE THE BASIS FOR 6 ITA NOS. 1080 & 1621/DEL/2016 COMPUTING MARKUP ON AMP EXPENSES WITHOUT APPRECIATI NG THE REVENUES CASE WHEREIN THE PLR OF BANK HAS BEEN USED AS AN UNCONTR OLLED COMPARABLE TO BENCHMARK THE OPPORTUNITY COST OF MONEY INVOLVED AN D LOCKED UP IN AMP EXPENSE? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW , THE HONBLE DRP-2 WAS JUSTIFIED IN STATING THAT ROUTINE SELLING AND DISTRIBUTION EXPENSES WOULD NOT FORM PART OF AMP EXPENSES (DISRE GARDING THE FACT THAT THESE EXPENSES CONTRIBUTE TO CREATION OF MARKETING INTANGIBLE) EVEN WHILE THE SAME IS A FACTOR FOR COMPARABILITY ANALYSIS AS DIFF ERENT ENTITIES ACCOUNT FOR SUCH EXPENDITURE UNDER DIFFERENT HEADS?. 3. THE ASSESSEE COMPANYS MAIN BUSINESS IS TO SALE HIGH QUALITY INFORMATION AND EDUCATION BOOKS AND MUSIC AND VIDEO PRODUCTS OF THE READERS DIGEST BRAND. RETURN DECLARING NIL INCOME AND CLAI MING CARRY FORWARD LOSSES AT RS.19,72,993/- WAS FILED ON 15/11/2011. THE CA SE WAS SELECTED FOR SECURITY. THE AUDITED BALANCE SHEET, PROFIT AND LO SS ACCOUNT AND SUPPORTED ANNEXURE WERE FILED BY THE ASSESSEE BEFORE THE ASSE SSING OFFICER. IN RESPONSE, TO NOTICES U/S 143(2)/142(1) FOLLOWED BY THE QUESTI ONNAIRE, CHARTERED ACCOUNTANT/AUTHORIZED REPRESENTATIVE OF THE ASSESSE E COMPANY ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED REQUISI TE DETAILS. REFERENCE TO THE TRANSFER PRICING OFFICER WAS MADE TO DETERMINE ARMS LENGTH PRICE U/S 92CA(3) OF THE INCOME TAX ACT AFTER OBTAINING PRIOR APPROVA L OF THE COMMISSIONER OF INCOME TAX-V, NEW DELHI. THE TRANSFER PRICING OFFI CER PASSED ORDER U/S 92CA (3) OF THE INCOME TAX ACT, ON 30/1/2015, AFTER CONS IDERING THE OBJECTIONS FILED BEFORE HIM. THE TRANSFER PRICING OFFICER MADE AN A DDITION OF RS.16,62,47,629/- IN LIGHT OF DETAILED DISCUSSIONS MADE IN THE ORDER PASSED U/S 92CA (3) OF THE INCOME TAX ACT, 1961 DATED 30/1 /2015. THE UPWARD ADJUSTMENT ARMS LENGTH PRICE OF INTERNATIONAL TRANS ACTIONS WAS MADE AT RS. 16,62,47,629/- AND ACCORDINGLY AN ADDITION OF THIS AMOUNT WAS PROPOSE TO BE 7 ITA NOS. 1080 & 1621/DEL/2016 MADE TO THE INCOME OF THE ASSESSEE. THEREAFTER, DR AFT ORDER PROPOSING THE SAID ADDITION WAS PASSED ON 26/3/2015 AND DULY SERVED UP ON THE ASSESSEE. 4. THE ASSESSEE FILED OBJECTIONS BEFORE DRP. THE D RP WHILE ITS DIRECTIONS DATED 23/12/2015 DIRECTED THE TPO TO RE-COMPUTE THE ALP OF INTERNATIONAL TRANSACTIONS. THE TPO CARRIED OUT THE DIRECTIONS O F DRP BY HOLDING AS UNDER:- ' 4. IN VIEW OF THE ABOVE DIRECTIONS, THE ALLEGED A MP SPEND/INCURRED BY THE ASSESSEE AFTER EXCLUSION OF BILLING MATERIAL , PERSONALIZATION, LIST RENTALS AND PROMOTIONS AND BAD DEBTS IS TABULATED A S UNDER: S NO. PARTICULARS AS PER TP ORDER AS PER DRP DIRECTIONS 1 BILLING MATERIALS 11,17,612 EXCLUDED 2 PROMOTION FREIGHT 32,68,074 32,68,074 3 PERSONALIZATION 79,85,056 EXCLUDED 4 LIST RENTALS AND OTHER PROMOTIONS 31,53,009 EXCLUDED 5 PREMIUMS 2,43,81,740 2,43,81,740 6 SWEEPTAKES JUDGING 33,40,985 33,40,985 7 PAPER AND PRINTING OF BROUCHERS 5,47,56,672 5,47,56,672 8 BAD DEBTS 1,83,79,127 EXCLUDED 9 POSTAGE 4,07,65,295 4,07,65,295 TOTAL 15,71,47,570 12,65,12,766 ACCORDINGLY, THE FOLLOWING EXPENSES SHOULD BE CONSI DERED PART OF AMP: PARTICULARS AMOUNT (IN INR) AMOUNT (IN INR) 8 ITA NOS. 1080 & 1621/DEL/2016 F.Y 2010-11 AS PER TP ORDER F.Y 2010-11 CONSIDERED AS AMP ON THE DIRECTIONS OF DRP ADVERTISEMENT 15,71,47,571 12,65,12,766 5. FOR THE PURPOSE OF DETERMINATION OF THE MARKUP ON T HE AMP COST, IT IS DIRECTED BY THE PANEL THAT THE CP RATIO OF THE COMP ARABLES SHOULD BE CONSIDERED. THE AVERAGE GP/COGS RATIO OF THE COMPARABLES IS SHO WN AS BELOW: S. NO. NAME GP/COGS 1 CROSSWORD BOOKSTORES LTD. 38.03% 2 INDIA BOOK DISTRIBUTORS (BOMBAY) LTD. 13.72% AVERAGE 25.88% 8. THE ADJUSTMENT ON ACCOUNT OF AMP, AS PER THE DIR ECTIONS OF THE HONBLE DRP IS THEREFORE CALCULATED AS BELOW:- EXCESS AMP(A) 12,65,12,766 MARK UP (B) @ 25.88% 3,27,41,504 AMP ADJUSTMENT (C=A=B) 15,92,54,270 3.6 ACCORDINGLY, IN THIS CASE, THE AMP ADJUSTMENT R EQUIRED TO BE CARRIED OUT COMES TO RS. 15,92,54,270/- AFTER THE DIRECTIONS OF THE DRP AS AGAINST RS.16,62,47,629/- PROPOSED IN THE ORDER PASSED U/S. 92CA(3) OF THE INCOME TAX ACT, 1961. CONSEQUENT UPON THE DIRECTIONS OF DRP-II, THE TPO-3 (2)(2), HAS RECOMPUTED THE ALP AT RS. 15,92,54,270/-, AND COMMUNICATED TO THIS OFFICE VIDE LETTER F.NO. TPO- 3(2)(2)/DRP EFFECT/2015-16/198 DT. 13.01.2016. THER EFORE, THE ADJUSTMENT ON ACCOUNT OF ALP OF INTERNATIONAL TRANSACTIONS ENTERE D INTO BY THE ASSESSEE IS BEING MADE AT RS. 15,92,54,270/-.FOR THE REASONS MENTIONE D ABOVE, AS THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME, PENALTY PROCEEDINGS UNDER 9 ITA NOS. 1080 & 1621/DEL/2016 SECTION 271(L)(C) OF THE INCOME TAX ACT ARE INITIAT ED AGAINST THE ASSESSEE FOR WHICH NOTICE UNDER SECTION 274 OF THE ACT IS BEING ISSUED SEPARATELY . 5. THE LD. AR SUBMITTED THAT THE ASSESSEE IS DISPUT ING THE VERY EXISTENCE OF INTERNATIONAL TRANSACTION OF ALLEGED AMP EXPENSES. THE LD. AR SUBMITTED THAT THERE IS NO MECHANICAL PROVISION UNDER THE ACT TO D ETERMINE AMP AS INTERNATIONAL TRANSACTIONS. THE TPO/DRP DID NOT BRI NG ANYTHING ON RECORD TO PROVE THAT THERE IS AN UNDERSTANDING/ARRANGEMENT / OR AN ACTION BETWEEN THE ASSESSEE COMPANY AND THE A.E FOR THE PROMOTION OF B RAND/TRADEMARK NAME OWNED BY A.E. THE LD. AR RELIED UPON THE DECISION OF THE DELHI TRIBUNAL IN CASE OF SONY MOBILE COMMUNICATIONS (INDIA) (P.) LTD . VS. ADDL. CIT (2018) 96 TAXMANN.COM 312 AS WELL AS THE DECISION OF THE HON BLE DELHI HIGH COURT IN CASE OF MARUTI SUZUKI INDIA LTD. VS. CIT (2016) 282 CTR 1 (DEL.). THE LD. AR FURTHER SUBMITTED THAT THE EXISTENCE OF AMP BEING A N INTERNATIONAL TRANSACTION HAS TO BE PROVED DEHORS OF BRIGHT LINE METHOD WHICH HAS NOT BEEN OTHERWISE SUBSTANTIATED BY THE TPO/A.O. THE LD. AR RELIED UPO N THE DECISION OF THE DELHI TRIBUNAL IN CASE OF CENGAGE LEARNING INDIA PVT. LTD . VS. ACIT (ITA NO. 19/DEL/2016 A.Y. 2011-12 ORDER DATED 13.02.2018) AS WELL AS THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF PR. CIT VS. MARY KAY COSMETIC PVT. LTD. (ITA 1010/2018 ORDER DATED 18.09.2018). THE LD. AR FURTHER SUBMITTED THAT THE TPO/DRP FAILED TO UNDERSTAND THAT THE COMPONENT S OF THE ASSESSEES ADVERTISING AND SALES PROMOTION AND POSTAL EXPENSES ARE DIFFERENT FROM WHAT IS ORDINARILY UNDERSTOOD AS AN ADVERTISEMENT, MARKETIN G AND PROMOTION (AMP) EXPENSES. AND, THEREFORE, THE SAME CANNOT IN ANY C IRCUMSTANCES BE ALLEGED TO LEAD TO CREATION OF MARKET INTELLIGENCE FOR THE A.E . THE TPO/DRP HAS NOT BROUGHT ON RECORD ANYTHING TO THE CONTRARY, WHILE C ONSIDERING EXPENSES INCURRED IN CONNECTION WITH SALES AS AMP EXPENDITUR E INCURRED TOWARDS BRAND PROMOTION. THE TPO/DRP FAILED TO CONSIDER THAT POS TAGE EXPENSES TO RS.4,07,65,295/- ARE NOT THE PART OF AMP EXPENDITUR E AS IT IS AN ABSURD PROPOSITION SINCE POSTAGE EXPENSES CANNOT CONTRIBU TE TO BRAND BUILDING. IN- FACT, THE TPO/DRP IGNORED THE EXPERT OPINION OF MR. RANJAN KAPOOR WHICH 10 ITA NOS. 1080 & 1621/DEL/2016 GIVES CREDENCE TO THE FACT THAT SELLING AND DISTRIB UTION EXPENDITURE INCURRED BY THE ASSESSEE COMPANY HAS NOT LED TO BRAND CREATION/ PROMOTION. THE TPO/DRP DID NOT APPRECIATE THAT THE CONCEPT OF MARK ETING INTANGIBLE IS NOT APPLICABLE TO THE ASSESSEES CASE. THE LD. AR FUR THER SUBMITTED THAT THE TPO/DRP FAILED TO UNDERSTAND THAT THE ALLEGED AMP E XPENSES IS NOT AN INTERNATIONAL TRANSACTION AND THESE EXPENSES INCURR ED BY THE ASSESSEE COMPANY WHOLLY AND EXCLUSIVELY ON ITS OWN ACCOUNT A ND FOR ITS OWN BUSINESS AND ANY BENEFIT TO A.E IS ONLY INCIDENTALLY. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE IS AN ENTREPRENEUR ENTITY AND CANNOT B E CATEGORIZED AS A LIMITED RISK DISTRIBUTOR. THE LD. AR FURTHER SUBMITTED THAT THE TPO WAS INCORRECT IN TREATING THE ASSESSEES OWN SELLING AND DISTRIBUTIO N EXPENSES AS HAVING BEEN INCURRED FOR ON BEHALF OF ITS A.E AND ACCORDINGLY HOLDING THAT THE ASSESSEE SHOULD HAVE RECOVERED THE SAME FROM THE A.E, IS CON TRARY FROM THE RECORDS. THE LD. AR FURTHER SUBMITTED THAT THE TPO/DRP ARBIT RARILY HELD THAT THE ALLEGED AMP EXPENSES INCURRED BY THE ASSESSEE IN A SEPARATE INTERNATIONAL TRANSACTION WITH ITS A.E U/S 92B (1) OF THE ACT AN D SUBJECTED THE SAME TO THE TRANSFER PRICING PROVISIONS. WITHOUT PREJUDICE TO THESE SUBMISSIONS THE LD. AR FURTHER SUBMITTED THAT THE TPO/AO ABOVE THAT FAILED TO APPRECIATE THAT THE WARRANTED APPROACH SHOULD BE ADOPTED FOR DETERMININ G THE ARMS LENGTH PRICE OF ITS ALLEGED AMP EXPENSES SINCE THE SAME IS NOT L INKED TO THE DISTRIBUTION FUNCTION. THE LD. AR FURTHER SUBMITTED THAT THE TP O FAILED TO APPRECIATE THAT BRIGHT LINE METHOD SUFFERS FROM VARIOUS SHORT COMIN GS AND IS NOT PRESCRIBED METHOD UNDER THE TP REGULATIONS IN MAKING AN ADJUST MENT ON ACCOUNT OF THE ALLEGED AMP EXPENSES INCURRED BY THE ASSESSEE COMPA NY. ALTHOUGH IN THE VERY SAME ORDER, IT WAS HELD THAT THE PROFITS EARNE D BY THE ASSESSEE COMPANY IN ITS DISTRIBUTION ACTIVITY WHICH WAS COMPUTED AFTER TAKING INTO ACCOUNT, THESE ALLEGED AMP EXPENSES MEETS THE ARMS LENGTH TEST. WI THOUT PREJUDICE TO THESE SUBMISSIONS, THE LD. AR FURTHER SUBMITTED THAT THE TPO ERRED IN NOT DETERMINING THE EXCESSIVE ALLEGED AMP EXPENSES AND THE MARKETING TRANSFER PRICING ON THE ENTIRE ALLEGED AMP EXPENDITURE INCUR RED BY THE ASSESSEE COMPANY. THE LD. AR FURTHER SUBMITTED THAT THE TPO WHILE CONCLUDING THAT 11 ITA NOS. 1080 & 1621/DEL/2016 THE ALLEGED AMP EXPENDITURE WERE FOR BRAND BUILDING WITHOUT APPRECIATING THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE. THE L D. AR FURTHER SUBMITTED THAT THE TPO USED AN INCORRECT COST BASED FOR THE P URPOSE OF MAKING THE ADJUSTMENT IN RESPECT OF ALLEGED AMP EXPENDITURE. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NOT GIVEN EFFECT TO THE DIRECTIONS OF THE DRP THAT HAS ALLOWED THE OBJECTIONS RAISED BY THE A SSESSEE IN FAVOUR OF THE ASSESSEE. THE TPO FAILED TO CONSIDER THE FACT THAT WHERE THE ALLEGED AMP EXPENDITURE INCURRED THE SAME OUGHT TO BE REDUCED F ROM THE TOTAL EXPENSES FOR COMPUTATION OF THE ASSESSEE COMPANYS MARGIN FROM I TS DISTRIBUTION BUSINESS IN WHICH CASE SUBSTANTIALLY HIGH MARGINS WOULD SHOW AND AN EASIER RESULTS. THE TPO ARBITRARILY LEVIED A MARKUP OF 25.88% OF CO MPARABLES (IDENTIFIED BY THE TPO ON THE ALLEGED AMP EXPENSES INCURRED WITHOU T PROVIDING ANY BASIS FOR ARRIVING AT THE SAME. THE TPO DID NOT APPRECIATE T HAT THE COMPARABLES SELECTED BY THE ASSESSEE TO BENCH MARK THE ALLEGED INTERNATIONAL TRANSITIONS ARE NOT COMPARABLES. THE LD. AR ALSO RELIED UPON T HE DECISIONS OF M/S SENNHEISR ELECTRONICS INDIA LTD. ACIT BEING ITA NO. 7574/DEL/2017 A.Y. 2013-14 ORDER DATED 19/9/2018 DELHI TRIBUNAL. THE L D. AR ALSO RELIED UPON THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008- 09, 2009-10 & 2010-11 BEING ITA NOS. 655/DEL/2015, 1160 & 1161/DEL/2014 O RDER DATED 14/10/2016 WHEREIN THE SAID ISSUE HAS BEEN REMANDED BACK. 6. THE LD. DR RELIED UPON THE ORDER OF THE TPO/ DR P. THE LD. DR FURTHER SUBMITTED THAT THE DECISIONS CITED BY THE LD. AR AR E NOT APPLICABLE IN THE PRESENT CASE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE COMPONENTS OF THE ASSESSEES ADVERTISI NG AND SALES PROMOTION AND POSTAL EXPENSES ARE DIFFERENT FROM WHAT IS ORDINARI LY UNDERSTOOD AS AN ADVERTISEMENT, MARKETING AND PROMOTION (AMP) EXPENS ES. THE COMPONENTS OF THESE EXPENSES ARE THAT OF BILLING MATERIAL, PERSON ALIZATION, PROMOTION FREIGHT, LIST RENTALS AND OTHER PROMOTIONS, PREMIUMS, SWEEPT AKES JUDGING, PAPER AND 12 ITA NOS. 1080 & 1621/DEL/2016 PRINTING OF BROUCHERS AND ALSO POSTAGE. THEREFORE, THE SAME CANNOT IN ANY CIRCUMSTANCES LEAD TO CREATION OF AMP EXPENSES FOR THE A.E. THUS, THESE EXPENSES CANNOT IN ANY CIRCUMSTANCES BE CATEGORIZED FOR CREATION OF MAKING INTANGIBLE FOR THE AE. THESE EXPENSES WERE INCURRE D BY THE ASSESSEE WHOLLY AND EXCLUSIVELY ON ACCOUNT OF ITS OWN BUSINESS AND ANY BENEFIT TO THE AE WAS ONLY INCIDENTAL. FROM THE RECORDS, IT CAN BE SEEN THAT THE ASSESSEE IS INCURRING ITS OWN SELLING AND DISTRIBUTION EXPENSES. THERE W AS NO ADVERTISEMENT IN MEDIA NOR THE PRODUCTS ARE AVAILABLE IN THE SHOP. IT IS MADE AVAILABLE ONLY THROUGH ORDER PLACED. THERE EXIST A DISTINCTION BE TWEEN PRODUCT PROMOTION AND BRAND PROMOTION. THE MECHANISM USED BY THE ASS ESSEE COMPANY IS ALTOGETHER DIFFERENT FOR ITS PRODUCT PROMOTION. FR OM THE RECORDS, IT CAN BE SEEN THAT THERE IS ONLY A MAIL ORDER MARKETING USE AS PR OMOTION FOR PRODUCTS SALES. THE LD. AR HAS APTLY RELIED ON THE VARIOUS DECISION S REGARDING INVOLVEMENT OF AMP EXPENSES BUT IN THE PRESENT CASE, THE FACTS ARE ALTOGETHER DIFFERENT AS HERE THE METHOD FOR USING PRODUCT SALES AND PROMOTION AR E TOTALLY DIFFERENT. THE ASSESSEE COMPANYS PRODUCTS ARE NOT AVAILABLE IN MA RKET AS SUCH IN GENERAL. THEREFORE, THE TPO/DRP IGNORED THESE BASIC DIFFEREN CES WHILE HOLDING THAT THESE EXPENSES ARE INTERNATIONAL TRANSACTION ITSELF . BESIDES THAT BOTH THE REVENUE AUTHORITIES FAILED TO BRING ON RECORD AS TO HOW THE SAID ACTIVITY OF THE ASSESSEE COMPANY IS HAVING AN ELEMENT OF INTERNATIO NAL TRANSACTION ITSELF. THESE FACTORS WERE NOT AT ALL VERIFIED BY THE REVEN UE AUTHORITIES. THE ISSUE OF BRIGHT LINE TEST METHOD IS NOW SETTLED BY THE JUDIC IAL PRECEDENCE IN CASE OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF PR. CIT VS. MARY KAY COSMETIC PVT. LTD. THUS, THIS ALSO SHOULD BE LOOKED INTO BY THE AO/TPO. THEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK TH IS ENTIRE ISSUE TO THE FILE OF THE AO/TPO FOR FRESH ADJUDICATION AS ALSO DONE IN T HE EARLIER ASSESSMENT YEARS I.E. 2008-09 TO 2010-11. NEEDLESS TO SAY THAT THE A SSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTI CE. THUS, GROUND NO. 1 TO 23 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. AS REGA RDS TO GROUND NO. 24, THE SAME ALSO NEEDS TO BE VERIFIED AND HENCE IS REMANDE D BACK TO THE FILE OF THE AO. AS REGARDS TO GROUND NOS. 24 TO 29 ARE CONSEQUE NTIAL IN NATURE HENCE THE 13 ITA NOS. 1080 & 1621/DEL/2016 SAME ARE NOT ADJUDICATED AT THIS JUNCTURE. AS REGAR DS TO REVENUES APPEAL THE SAME IS ALSO PARTLY ALLOWED AS PER THE FINDINGS GIV EN IN THE ASSESSEES APPEAL HEREINABOVE. 8. IN RESULT, APPEALS OF THE ASSESSEE AND REVENUE A RE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2018 . SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 20/12/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 14 ITA NOS. 1080 & 1621/DEL/2016 DATE OF DICTATION 16 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 22 .10.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P S/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 20.12.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT 20.12.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20.12.2018 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER