Appeal details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 3054 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
26-05-2017
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
I1
Next Hearing Date
23-05-2017
Assessment Year
2010-2011
Appeal Filed On
25-02-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.1492/DEL/2015 ASSESSMENT YEAR : 2010-11 ITA NO.1205/DEL/2016 ASSESSMENT YEAR : 2011-12 ITA NO.344/DEL/2017 ASSESSMENT YEAR : 2012-13 LUXOTTICA INDIA EYEWEAR PVT. LTD., 7 TH FLOOR, DLF BUILDING NO.9, TOWER-B, PHASE III, DLF CYBER CITY, GURGAON. PAN: AABCL3871C VS. ACIT, CIRCLE-15(2), NEW DELHI. ITA NO.1117/DEL/2015 ASSESSMENT YEAR : 2010-11 ACIT, CIRCLE-15(2), NEW DELHI. VS. LUXOTTICA INDIA EYEWEAR PVT. LTD., 7 TH FLOOR, DLF BUILDING NO.9, TOWER-B, PHASE III, DLF CYBER CITY, GURGAON. PAN: AABCL3871C (APPELLANT) (RESPONDENT) ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 2 ASSESSEE BY : SHRI NAGESWAR RAO, ADVOCATE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR & SHRI NEERAJ KUMAR, SR. DR DATE OF HEARING : 23.05.2017 DATE OF PRONOUNCEMENT : 26.05.2017 ORDER PER R.S. SYAL, VP: THIS BATCH OF FOUR APPEALS CONSISTING OF THREE APP EALS BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2010-11, 2011-12 AND 2012-13 AND ONE CROSS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 2010-11 ARE DIRECTED AGAINST THE FINAL ASSESSMENT ORDERS PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) READ WITH SECTION 144C OF T HE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT). SINCE SO ME OF THE ISSUES RAISED IN THESE APPEALS ARE COMMON, WE ARE, THEREFORE, PRO CEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ASSESSMENT YEARS 2010-11 & 2011-12 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IN ITS APPEALS FOR THESE TWO YEARS IS AGAINST THE ADDITION ON ACCOUNT OF TRANSFE R PRICING ADJUSTMENT IN ADVERTISEMENT, MARKETING AND PROMOTION (AMP) EXPENS ES. THE REVENUE ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 3 IN ITS APPEAL FOR THE A.Y. 2010-11 IS ALSO AGGRIEVE D AGAINST CERTAIN ASPECTS IMPACTING ONLY THE AMP ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PART OF LUXOTTICA GROUP WHICH IS A LEADER IN DESIGN, MANUFA CTURE AND DISTRIBUTION OF SUN GLASSES AND PRESCRIPTION FRAMES IN MID AND PREMIUM PRICE CATEGORIES. THE ASSESSEE WAS INCORPORATED IN INDIA ON 15.11.2007 AND COMMENCED ITS ACTUAL OPERATIONS FROM FEBRUARY, 2008. THE ASSESSEE REPORTED FOUR INTERNATIONAL TRANSACTIONS, NAMELY, P URCHASE OF FINISHED GOODS AND ADVERTISING MATERIAL AND ALSO REIMBURSEME NT OF EXPENSES TO AND FROM AES FOR THE A.Y. 2010-11; AND THREE INTERN ATIONAL TRANSACTIONS, NAMELY, IMPORT OF FINISHED GOODS AND REIMBURSEMENT OF EXPENSES TO AND FROM AES FOR THE A.Y. 2011-12. ON A REFERENCE MADE BY THE AO TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS, THE TPO NO TICED THAT THE ASSESSEE INCURRED AMP EXPENSES AMOUNTING TO RS.19,3 1,44,379/- FOR THE A.Y. 2011-12. APPLYING THE BRIGHT LINE TEST, HE PR OPOSED TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.13,40,31,274/- F OR THE A.Y. 2011- ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 4 12. TRANSFER PRICING ADJUSTMENT WAS MADE IN THE SAM E WAY FOR THE A.Y. 2010-11. THE DISPUTE RESOLUTION PANEL (DRP) LARGEL Y APPROVED THE ACTION OF THE ASSESSING OFFICER/TPO BUT SUBJECT TO CERTAIN MODIFICATIONS. THE ASSESSING OFFICER, IN HIS FINAL ORDERS, MADE T RANSFER PRICING ADDITIONS ON ACCOUNT OF AMP EXPENSES AMOUNTING TO R S.3,13,20,369 FOR THE A.Y. 2010-11 AND RS.13,40,31,274 FOR THE A.Y.2 011-12. THE ASSESSEE IS AGGRIEVED AGAINST THESE ADDITIONS FOR B OTH THE YEARS. THE REVENUE IN ITS CROSS APPEAL FOR THE A.Y. 2010-11 HA S AGITATED CERTAIN ASPECTS OF DETERMINATION OF ALP OF AMP EXPENSES. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR INITIALLY CONTENDED THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AT ALL AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRICE OF THIS TRANSACTION OR MAKING ANY ADDITION THEREON. HE REL IED ON THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 129 DTR 25 (DEL) AND CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 DEL-HC TO CONTEND THAT THE AMP EXPENSES COULD ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 5 NOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. IT WAS SUBMITTED THAT THERE WAS NO INTERNATIONAL TRANSACTION OF AMP EXPEN SES ON THE BASIS OF THE PRINCIPLES LAID DOWN IN THESE JUDGMENTS AND, HE NCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, EX CONSEQUENTI , MAKING THE TRANSFER PRICING ADJUSTMENT, BE SET ASIDE. 5. IN THE OPPUGNATION, THE LD. DR, RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN HELD TO BE AN INTERNATIONAL TRAN SACTION AND THE MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. HE A LSO RELIED ON A LATER JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSE IS AN INTERNATIONAL TRANSACTION HAS BEEN RESTORED FOR A FRESH DETERMINA TION. IT WAS ARGUED, THAT THE JUDGMENT IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON (FOR ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 6 AY 2010-11) DELIVERED IN JANUARY, 2016 IS LATER IN POINT OF TI ME TO THE EARLIER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL, ETC. AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FRESH DE TERMINATION. IT WAS FURTHER SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS A NON-INTERNATIONAL TRANSACTION. HE STATED THAT THE HONBLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PROPERLY WEIGHED FOR ASCERTAINING IF AN INTERNATION AL TRANSACTION OF AMP EXPENSE, EXISTS. IT WAS ARGUED THAT THE TRIBUNAL I N SEVERAL CASES, INCLUDING THE ASSESSEES OWN CASE FOR THE PRECEDING YEAR, HAS RESTORED THIS ISSUE TO THE FILE OF TPO TO BE DECIDED AFRESH IN THE LIGHT OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL). HE ALSO RELIED ON ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WH ETHER AMP EXPENSE IS AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMINATION. HE STILL FURTHER REFERRED TO THREE L ATER JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 7 (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DET ERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . THE LD. DR ARGUED THAT THE HONBLE DELHI HIGH COU RT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION. IT WAS ARGUED THE MA TTER SHOULD BE RESTORED FOR A FRESH DETERMINATION. 6. WE FIND THAT WHEN THE TPO HELD AMP EXPENSE TO B E AN INTERNATIONAL TRANSACTION, HE DID NOT HAVE ANY OCCA SION TO CONSIDER THE RATIO LAID DOWN IN SEVERAL JUDGMENTS OF THE HONBLE JURI SDICTIONAL HIGH COURT, WHICH IS NOW AVAILABLE FOR CONSIDERATION. TH IS HAS BEEN CANDIDLY ACCEPTED BY BOTH THE SIDES. IT IS FURTHER OBSERVED THAT SIMILAR ISSUE WAS RAISED BEFORE THE TRIBUNAL FOR THE IMMEDIATELY PREC EDING ASSESSMENT YEAR 2009-10. VIDE ORDER DATED 05.11.2014, THE TRI BUNAL RESTORED THE MATTER TO THE ASSESSING OFFICER/TPO FOR A FRESH ADJ UDICATION. THE ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 8 ASSESSEE CHALLENGED THE SAID ORDER BEFORE THE HON'B LE HIGH COURT. VIDE JUDGMENT DATED 06.11.2015, THE HON'BLE HIGH COURT R EMITTED THE MATTER TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION IN T HE LIGHT OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (2015) 374 I TR 118 (DEL). IN THE SECOND ROUND, THE TRIBUNAL HAS DEALT WITH THE I SSUE, VIDE ITS ORDER DATED 06.06.2016, HOLDING AS UNDER:- 7. IN VIEW OF THE ABOVE DEVELOPMENTS, WE FIND THAT THE ONLY ISSUE PENDING ADJUDICATION BEFORE US IN THE ABOVE CROSS A PPEALS IS IN RESPECT OF AMP EXPENSES. WE THUS RESPECTFULLY FOLLOWING THE A BOVE ORDER DATED 20.5.2015 OF THE HON'BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE APPEAL PREFERRED BY THE ASSESSEE (ITA NO.336/2015), WHILE SETTING ASIDE THE MATTER TO THE FILE OF THE LEARNED TPO DIRECT HIM TO DECIDE THE ISSUE OF ADJUSTMENT MADE ON ACCOUNT OF AMP EXPENSES APPLYING THE RATIOS OF DECISION IN THE CASE OF SONY ERICSSON MOBILE COMMUN ICATION INDIA PVT. LTD. VS. CIT (SUPRA) AFTER CONSIDERING MERITS OF TH E MATTER INCLUDING COMPREHENSION OF THE ASSESSEE THAT AMP DETERMINATIO N ITSELF, BY TAKING INTO CONSIDERATION THAT THE AMP EXPENSES IS NOT WAR RANTED IN THE CIRCUMSTANCES. IT IS NEEDLESS TO MENTION OVER HERE THAT WHILE DECIDING THE ISSUE AFRESH AS DIRECTED ABOVE, THE LEARNED TPO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE AP PEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. IT IS CLEAR FROM THE ORDER PASSED BY THE TRIB UNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THAT THE MATTER HAS BEEN SENT BACK TO THE A.O./TPO FOR DECIDING IT AFRE SH IN THE LIGHT OF THE ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 9 JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. 8. THE LD. AR CONTENDED THAT THE TPO FOR THE A. Y. 2012-13 IN ASSESSES OWN CASE HAS NOT MADE ANY TRANSFER PRICIN G ADJUSTMENT ON ACCOUNT OF AMP EXPENSES BUT HAS FACTORED IN THE AMP INTENSITY ADJUSTMENT IN THE PROFIT MARGIN OF THE COMPARABLES AND MADE TRANSFER PRICING ADDITION ON ACCOUNT OF THE INTERNATIONAL TR ANSACTION OF `IMPORT OF FINISHED GOODS. IT WAS URGED THAT INSTEAD OF RESTO RING THE MATTER TO THE A.O./TPO FOR DECIDING THE EXISTENCE OF AN INTERNATI ONAL TRANSACTION AND DETERMINING THE ALP OF THIS TRANSACTION, IF ANY, TH E MATTER SHOULD BE RESTORED WITH A DIRECTION TO CARRY OUT AMP INTENSIT Y ADJUSTMENT IN CONFORMITY WITH THE VIEW TAKEN BY THE TPO FOR THE A .Y. 2012-13. THIS WAS OBJECTED TO BY THE LD. DR. 9. WE ARE NOT CONVINCED WITH THE PROPOSITION PU T FORTH ON BEHALF OF THE ASSESSEE BECAUSE THE ENTIRE PROCEEDINGS BEFORE THE TPO/DRP/AO HAVE PROCEEDED ON THE BASIS OF A SEPARATE INTERNATI ONAL TRANSACTION OF AMP AND ITS INDEPENDENT BENCHMARKING. THERE IS NOT EVEN A WHISPER IN ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 10 THE ORDERS ABOUT CARRYING OUT AMP INTENSITY ADJUSTM ENT INSTEAD OF TREATING AMP AS AN INTERNATIONAL TRANSACTION. IF T HE CONTENTION OF THE LD. AR IS ACCEPTED, IT WILL CHANGE THE ENTIRE COMPLEXIO N OF THE CASE AND WOULD AMOUNT TO TRAVELLING BEYOND THE IMPUGNED ORDE R. AS THE TPO HAS CONSIDERED AMP AS A SEPARATE INTERNATIONAL TRANSACT ION AND DETERMINED ITS ALP; AND FURTHER THAT THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE IMMEDIATELY PRECEDING A.Y. 2009-10, FOLLOWING THE J UDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT RENDERED IN ITS O WN CASE FOR THE SAME YEAR, HAS DEALT WITH THE DETERMINATION OF THE AMP A S A SEPARATE INTERNATIONAL TRANSACTION, WE CANNOT NOW CONCUR WIT H THE REQUEST OF THE ASSESSEE IN ALLOWING THE SETTING UP OF AN ALTOGETHE R DIFFERENT CASE. THIS CONTENTION, ERGO, FAILS. 10. THE LD. DR CANDIDLY SUBMITTED THAT IF THE MAT TER IS RESTORED FOR A FRESH ADJUDICATION IN THE LIGHT OF THE ORDER PASSED BY THE TRIBUNAL FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THEN THERE W ILL BE NO NEED FOR A SEPARATE ADJUDICATION OF THE GROUNDS TAKEN IN ITS A PPEAL AS THE SAME ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 11 RELATE TO SOME ASPECTS OF THE DETERMINATION OF ALP OF AMP EXPENSES. WE ACCEPT THIS CONTENTION. 11. TO SUM UP, SINCE THE FACTS AND CIRCUMSTANCES OF THE INSTANT APPEALS ARE MUTATIS MUTANDIS SIMILAR TO THE IMMEDIATELY PRECEDING YEAR, RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER AND SEND THE MATTER BACK TO THE A.O./TPO FOR DECIDI NG THIS ISSUE AFRESH IN LIGHT OF THE FOREGOING DISCUSSION AND THE DIREC TIONS GIVEN BY THE TRIBUNAL IN ITS ORDER FOR THE IMMEDIATELY PRECEDING YEAR IN THE SECOND ROUND. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWE D A REASONABLE OPPORTUNITY OF HEARING IN THE RESULTING FRESH PROCE EDINGS. 12. IN THE RESULT, ALL THE THREE APPEALS ARE ALLO WED FOR STATISTICAL PURPOSES. ASSESSMENT YEAR 2012-13 13. ALL THE GROUNDS TAKEN BY THE ASSESSEE IN ITS APPEAL ASSAIL THE TRANSFER PRICING ADJUSTMENT OF AMP EXPENSES. GROUN D NO. 1 IS GENERAL. GROUND NO. 2 IS THE MAIN GROUND, WITH SEVERAL SUB-G ROUNDS. SUCH MAIN ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 12 GROUND HAS BEEN CAPTIONED AS :`TRANSFER PRICING AD JUSTMENT IN RESPECT OF AMP EXPENSES. THE SUB-GROUNDS ARE: `NO TRANSACTION MUCH LESS THAN AN INTERNATIONAL TRANSACTION; `NO ARRANGEMENT/ AGREEM ENT/ UNDERSTANDING/ CONTRACT WITH AES; `ERRONEOUS APPROACH FOR DETERMI NING THE ALP OF ALLEGED AMP EXPENSES; ETC. ETC. THOUGH ALL THE GRO UNDS ARE AIMED AT CHALLENGING THE ADDITION OF TRANSFER PRICING ADJUST MENT ON AMP TRANSACTION TREATED AS AN INTERNATIONAL TRANSACTION , WE NOTICE THAT THE TPO HAS NOT MADE ANY SEPARATE TRANSFER PRICING ADJU STMENT FOR AMP EXPENSES. IN FACT, THE TRANSFER PRICING ADJUSTMENT IS ONLY FOR THE INTERNATIONAL TRANSACTION OF `IMPORT OF FINISHED G OODS, ALBEIT, FACTORING IN THE AMP INTENSITY ADJUSTMENT IN THE PROFIT RATES OF COMPARABLES. THE LD. AR FAIRLY ACCEPTED THIS POSITION AND REQUESTED FOR PROCEEDING WITH THE ISSUE ACTUALLY ARISING FROM THE IMPUGNED ORDER. THE LD. DR DID NOT RAISE ANY SERIOUS OBJECTION TO IT. WE ARE, THEREFOR E, ESPOUSING THE ISSUE IN THE APPEAL DE HORS THE LANGUAGE OF SEPARATE GROUNDS TAKEN IN THE MEMORANDUM OF APPEAL. ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 13 14. SUCCINCTLY, THE FACTS FOR THE YEAR UNDER CON SIDERATION ARE THAT THE ASSESSEE REPORTED THREE INTERNATIONAL TRANSACTIONS, VIZ., `IMPORT OF FINISHED GOODS AMOUNTING TO RS.81,78,20,743 AND T WO OTHER TRANSACTIONS OF REIMBURSEMENT TO AND BY AES. THE A SSESSING OFFICER REFERRED THE DETERMINATION OF ALP OF THE INTERNATIO NAL TRANSACTIONS TO THE TPO, WHO OBSERVED THAT THE ASSESSEE BENCHMARKED ITS INTERNATIONAL TRANSACTION OF `IMPORT OF FINISHED GOODS WITH THE RESALE PRICE METHOD (RPM) AS THE MOST APPROPRIATE METHOD. THE ASSESSEE CLAIMED THAT THE IMPORT OF FINISHED GOODS BY THE ASSESSEE WAS AT ALP . THE TPO NOTICED THAT THE ASSESSEE INCURRED SIGNIFICANT AMOUNT OF AM P EXPENSES AND OPINED THAT THE AE OF THE ASSESSEE WAS THE ULTIMATE BENEFICIARY OF SUCH AMP EXPENSES, AS THE VALUE OF THE BRAND OWNED BY TH E LATTER WAS INCREASING DUE TO THE MARKETING EFFORTS OF THE ASES SEE. THE SAME WAS CONSIDERED AS THE DISCHARGE OF MARKETING FUNCTIONS BY THE ASSESSEE. IT WAS THUS HELD THAT THE ASSESSEE WAS CREATING MARKET ING INTANGIBLES IN FAVOUR OF THE AE BY CARRYING OUT AMP EFFORTS IN THE INDIAN SUB- CONTINENT. IN THIS BACKDROP, THE TPO OPINED THAT F OR THE PURPOSE OF BENCHMARKING, THE COMPARABLES SHOULD ALSO HAVE EQU AL INTENSITIES OF THE ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 14 EXPENSES INCURRED FOR SALES AND MARKETING. OUT OF F OUR COMPARABLE COMPANIES CHOSEN BY THE ASSESSEE TO BENCHMARK ITS I NTERNATIONAL TRANSACTION OF IMPORT OF FINISHED GOODS, THE TPO AC CEPTED THREE, NAMELY, DEEP DIAMONDS INDIA LTD., EMSONS CHAIN LTD. AND MIN AL INDUSTRIES LTD. ON GOING THROUGH THE FINANCIALS OF THE ABOVE THREE COMPARABLE COMPANIES, THE TPO NOTICED THAT THEY WERE CARRYING OUT LOW OR NEGLIGIBLE MARKETING FUNCTIONS. SINCE THE COMPARAB LES IDENTIFIED WERE HAVING LOW INTENSITY OF MARKETING FUNCTIONS, THE TP O HELD THAT A COMPARABILITY ADJUSTMENT WAS REQUIRED TO BE MADE TO THE PROFITS OF THE COMPARABLES BEFORE COMPARING THEIR PLIS WITH THE AS SESSEE FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N. HE, THEREFORE, MADE THE AMP INTENSITY ADJUSTMENT IN THE MARGINS OF THE COMPARABLES BY IDENTIFYING THE EXCESS INTENSITY OF EXPENDITURE INCURRED BY THE ASSESSEE ON ITS AMP FUNCTION VIS--VIS SUCH COMPARABLES. CONSCIOUS OF THE FACT THAT THE HON'BLE DELHI HIGH COURT HAS REJE CTED THE CONTENTION OF THE REVENUE ON THE APPLICABILITY OF THE BRIGHT LINE TEST AND THE CONSEQUENT DETERMINATION OF SEPARATE ALP OF THE AMP EXPENSES, THE ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 15 TPO ADOPTED THIS ALTERNATIVE APPROACH IN THIS YEAR, WHICH HAS BEEN OUTLINED ON PAGE 42 OF HIS ORDER AS UNDER:- THE TAXPAYERS SELLING, MARKETING AND PROMOTION EX PENSES WERE DETERMINED AS A PERCENTAGE OF SALES INTENSITY OF EXPENSES INCURRED BY TAXPAYER. COMPANIES WHICH WERE COMPARABLE WITH THE TAXPAYER W ERE IDENTIFIED. SELLING, MARKETING AND PROMOTION EXPENSES AS A PERC ENTAGE OF SALE OF SUCH COMPARABLE COMPANIES WERE DETERMINED INTE NSITY OF EXPENSES INCURRED BY COMPARABLE COMPANIES THE INTENSITY OF EXPENSES OF TAXPAYER WAS COMPARED WITH THE INTENSITY OF EXPENSES OF COMPARABLE. THE EXCESS INTENSITY OF EXPENSES IN TAXPAYERS EXPE NSES AS COMPARED TO THE INTENSITY OF COMPARABLE WAS CONSIDE RED AS EXCESSIVE AMP EXPENDITURE CONSIDERED BY THE TAXPAYE R. 15. THE ASSESSEE CLAIMED BEFORE THE TPO THAT OUT O F TOTAL AMP EXPENSES INCURRED BY IT TO THE TUNE OF RS.13.01 CRO RE, ONLY THE AMP ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 16 EXPENDITURE INCURRED ON IN-HOUSE BRANDS OF LUXOTTIC A GROUP I.E. RS.11.55 CRORE, SHOULD BE CONSIDERED FOR THE PURPOS ES OF BENCHMARKING. THIS CONTENTION WAS ACCEPTED AND THE TPO CARRIED OU T THE EXCESS AMP INTENSITY ADJUSTMENT IN THE PROFIT MARGINS OF THE C OMPARABLES AND COMPUTED THEIR AVERAGE RESELLING MARGIN AT 6.03%. B Y APPLYING SUCH AVERAGE ADJUSTED MARGIN, THE TPO PROPOSED TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.4,25,51,845/-. THE ASSESSEES CONTE NTION FOR ALLOWING (+)/(-) 5% WAS ACCEPTED IN PRINCIPLE, BUT, FOUND, O N THE FACTUAL APPLICATION, TO BE NOT SENDING THE CASE OUT OF THE TRANSFER PRICING ADDITION. THE ASSESSEE UNSUCCESSFULLY CHALLENGED TH E TPOS ORDER BEFORE THE DRP. IN THE FINAL ORDER PASSED BY THE ASSESSIN G OFFICER ON 13.12.2006, A TRANSFER PRICING ADDITION OF RS.4.25 CRORE AND ODD WAS MADE. THE ASSESSEE IS AGGRIEVED AGAINST THE ADDITI ON. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THERE IS A SIGNIFICANT DEPARTURE FROM THE COURSE OF ACTION ADOPTED BY THE TPO IN THIS YEA R VIS--VIS THE EARLIER YEARS. WHEREAS UP TO THE ASSESSMENT YEAR 2011-12, THE TPO WAS ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 17 TREATING AMP EXPENSE AS A SEPARATE INTERNATIONAL TR ANSACTION AND DETERMINING ITS ALP INDEPENDENTLY, IN THIS YEAR, SU CH A LINE OF ACTION HAS BEEN DISPENSED WITH. TREATING THE MARKETING ACTIVIT Y AS A FUNCTION PERFORMED BY THE ASSESSEE AS A PART OF ITS ROLE AND RESPONSIBILITY AS A DISTRIBUTOR, THE TPO HAS NOT TREATED AMP EXPENSE AS A SEPARATE INTERNATIONAL TRANSACTION. INSTEAD, HE MADE AMP IN TENSITY ADJUSTMENT TO THE PROFIT RATES OF THE COMPARABLES FOR BRINGING TH E INTENSITY OF AMP FUNCTIONS OF THE ASSESSEE AT PAR WITH THEIRS IN COM PUTING THE ALP OF THE INTERNATIONAL TRANSACTION OF IMPORT OF GOODS. THIS VIEW OF TREATING AMP AS A FUNCTION HAS BEEN TAKEN BY CONSIDERING THE JUD GMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BAUSCH & LOMB EYECARE INDIA PVT. LTD. AND ORS. VS. ADDL.CIT AND ORS. (2016) 381 ITR 227 (DEL ) IN WHICH IT HAS BEEN HELD: THAT A DISTINCTION IS REQU IRED TO BE DRAWN BETWEEN A FUNCTION AND A TRANSACTION AND THAT E VERY EXPENDITURE FORMING PART OF THE FUNCTION CANNOT BE CONSTRUED AS A TRANSACTION. WE ARE SATISFIED WITH THE VIEW TAKEN BY THE TPO IN THI S REGARD, WHICH IS ALSO SUPPORTED BY THE JUDGMENT IN SONY ERICSSON (2015) 374 ITR 118 (DEL) IN WHICH IT HAS BEEN OBSERVED IN PARA 166 THAT : `ON BEHALF OF THE ASSESSEE, ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 18 IT WAS INITIALLY ARGUED THAT THE TPO CANNOT ACCOUNT FOR OR TREAT AMP AS A FUNCTION. THIS ARGUMENT ON BEHALF OF THE ASSESSEE I S FLAWED AND FALLACIOUS FOR SEVERAL REASONS. THERE ARE INHERENT FLAWS IN THE SAID ARGUMENT . THEN, IT HAS BEEN HELD IN PARA 165 THAT : ` AN EXTERNAL COMPARABLE SHOULD PERFORM SIMILAR AMP FUNCTIONS. C OMPARABLE ANALYSIS OF THE TESTED PARTY AND THE COMPARABLE WOU LD INCLUDE REFERENCE TO AMP EXPENSES. THE LD. AR HAS NOT RAISED ANY OBJECTION, AND RIGHTL Y SO, TO THE CARRYING OUT OF THE AMP INTENSITY ADJUST MENT TO THE PROFIT RATES OF THE COMPARABLES, AS THE SAME IS IN ACCORDANCE WI TH THE VIEW OF THE HONBLE JURISDICTIONAL HIGH COURT. IT WILL BE SEEN INFRA THAT HIS OBJECTION IS CONFINED ONLY TO THE COMPUTATION OF THE AMOUNT O F TRANSFER PRICING ADJUSTING BY USING THE RATIO FOR APPORTIONMENT OF T HE EXCESS COST INCURRED BY THE ASSESSEE OVER AND ABOVE THE ARMS LENGTH COS T. COMING BACK, THE TPO CARRIED OUT THE AMP INTENSITY ADJUSTMENT IN THE PROFIT RATES OF THE COMPARABLES AS UNDER :- ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 19 TABLE-A NAME OF THE COMPANY DDEEP DIAMOND ININDIA LIMITED EMSONS CHAIN LIMITED MINAL INDUSTRIES LIMITED LUXOTTICA INDIA EYEWEAR PRIVATE LIMITED D TOTAL OPERATING REVENUE REVENUE A 3,22,16,619 1,19,85,019 1,01,41,00,364 2,14,01,47,987.00 COST OF MATERIALS CONSUMED B 2,81,30,612 56,88,354 PURCHASE OF STOCK IN TRADE C 58,89,612 17,74,997 1,31,76,42,609 1,67,00,45,000 ADD .CHANGE INVENTORY D (1,10,93,726) (34,03,12,253) (5,91,20.985) DIRECT COST E=B+C+D 2,29,26,498 74,63,351 97,73,30,356 1,61,09,24,015 GROSS PROFIT F=A-E 92,90,121 45,2 1,668 3,67,70,008 52, 92,23,972 EMPLOYEE EXPENSES G 9,57,087 22,49,316 6,04,703 10,48,67,204 AMP COST H - - 73,395 13,01,81,750 OTHER EXPENSES I 52,05,279 18,25,730 68,71,888 24,88,49,373 TOTAL INDIRECT COST J = G+H+I 61,62,366 40,75,046 75,49,986 48,38,98,327 TOTAL OPERATING COST K=E+J 2,90,88,864 11 5,38,397 98,48,80,342 2 09,48,22,342 NET PROFIT L=A-K 31,27,755 4,46,622 2,92,20,022 4, 53,25,645 GP/SALES M=F/A 28.84% 37.73% 3.63% 24.73% % NP/SALES N=L/A 9.71% 3.73% 2.88% 2.12% AMP FOR IN-HOUSE BRANDS =115,516,314/ A 5.40% AMP/SALES O=H/A 0.00% 0.00% 0.01% 5.40% DIFFERENCE IN INTENSITY OF AMP P=5.40%-O 5.40% 5.40% 5.39% DIFFERENCE IN COST Q=P*A 17,38,920 6,46,902 5,46,63,538 ADJUSTED COST R=K+Q 3,08,27,784 1,21,85,299 1,03,95,43,880 ADJUSTMENT IN SALES S=1.L817*Q 20,54,881 7,64,444 6,45,95,902 ADJUSTED SALES T=A+S 3,42,71,500 1,27,49,463 1,07,86,96,266 ADJUSTED PROFIT U=T-R 34,43,717 5,64,164 3,91,52,387 ADJUSTED OP/OR V=U/T 10.05% 4.43% 3.63% AVERAGE MARGIN 6.03% - ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 20 17. IT CAN BE SEEN FROM THE ABOVE TABLE THAT THE TPO HAS CARRIED OUT AMP INTENSITY ADJUSTMENT IN THE PROFIT MARGINS OF T HE COMPARABLES AND THAT IS HOW THE ADJUSTED AVERAGE MARGIN OF THE COMP ARABLES HAS BEEN COMPUTED AT 6.03%. THIS EXERCISE DONE BY THE TPO H AS NOT BEEN DISPUTED BY THE ASSESSEE. THE LD. AR CHALLENGED THE COMPUTATION OF ALP OF THE INTERNATIONAL TRANSACTION OF IMPORT OF FINIS HED GOODS DETERMINED BY THE TPO AS UNDER:- TABLE-B COMPUTATION OF ARMS LENGTH PRICE (IN INR) TOTAL REVENUE 2,14,01,47,987 ARMS LENGTH MARGIN (OP/OR) 6.03% ARMS LENGTH COST 2,01,10,04,721 ACTUAL COST INCURRED 2,09,48,22,342 DIFFERENCE IN COST 8,38,17,621 INTERNATIONAL TRANSACTION 81,78,20,743 PURCHASE OF TRADED GOODS AND CHANGE IN INVENTORIES 1,61,09,24,015 PROPORTIONATE 50.77% PROPOSED ADJUSTMENT 4,25,51,845 18. THE ABOVE COMPUTATION OF ALP SHOWS THAT THE TOTAL REVENUE OF THE ASSESSEE IS RS.214.01 CRORE. ARMS LENGTH MARGIN O F 6.03% HAS BEEN APPLIED ON THIS FIGURE OF THE REVENUE FOR COMPUTING THE ARMS LENGTH COST AT ENTITY LEVEL, IN BACKWARD MANNER, AT RS.201.10 C RORE. AS AGAINST SUCH ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 21 ARMS LENGTH COST, THE ASSESSEE ACTUALLY INCURRED C OST OF RS.209.48 CRORE, LEADING TO THE PAYMENT OF EXCESS DIFFERENTIAL COST TO THE TUNE OF RS.8.38 CRORE ON ENTITY LEVEL. WE CAN FIND FROM THE LAST C OLUMN OF THE TABLE A THAT THE TOTAL DIRECT COST OF MATERIAL (FINISHED GO ODS) INCURRED BY THE ASSESSEE AT THE ENTITY LEVEL IS RS.161.09 CRORE. T HIS DIRECT COST OF MATERIAL COMPRISES OF TWO FIGURES, VIZ., THE PURCHA SE OF STOCK-IN-TRADE FROM AES AND NON-AES AS ADJUSTED DUE TO OPENING AND CLOSING INVENTORY. PURCHASE OF MATERIAL FROM THE AE, BEING THE INTERNATIONAL TRANSACTION, STANDS AT RS.81.78 CRORE. THUS, IT I S CLEAR THAT OUT OF TOTAL DIRECT COST OF MATERIAL INCURRED BY THE ASSESSEE TO THE TUNE OF RS.161.09 CRORE, THE VALUE OF INTERNATIONAL TRANSACTION OF PU RCHASE OF MATERIAL IS RS.81.78 CRORE. THE TPO APPORTIONED THE ENTITY LEVE L EXCESS COST INCURRED BY THE ASSESSEE OVER AND ABOVE THE ARMS L ENGTH COST, TO THE INTERNATIONAL TRANSACTION BY MULTIPLYING IT WITH TH E COST OF MATERIAL PURCHASED FROM AE AND DIVIDING IT WITH THE TOTAL CO ST OF MATERIAL CONSUMED, PURCHASED FROM AES AND NON-AES. THAT IS H OW, HE PROPOSED TRANSFER PRICING ADJUSTMENT OF RS.4.25 CRORE BY MUL TIPLYING THE ENTITY LEVEL COST OVER AND ABOVE THE ARMS LENGTH COST (RS .8.38 CRORE) WITH THE ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 22 VALUE OF INTERNATIONAL TRANSACTION OF PURCHASE OF M ATERIAL (RS.81.78 CRORE) AND DIVIDING IT WITH THE TOTAL COST OF MATER IAL CONSUMED, NAMELY, PURCHASED FROM AES AND NON-AES (RS.161.09 CRORE). THE LD. AR HAS OBJECTED ONLY TO THE USE OF DENOMINATOR AS THE TOTA L COST OF MATERIAL CONSUMED (RS.161.09 CRORE). HE CONTENDED THAT, INST EAD, THE DENOMINATOR SHOULD HAVE BEEN TOTAL OPERATING COSTS (RS.209.48 CRORE) WHICH, APART FROM THE COST OF MATERIAL ALSO INCLUDE EMPLOYEES COST, AMP COST AND OTHER INDIRECT COSTS. THIS ARGUMENT I S FALLACIOUS INASMUCH AS IT SEEKS TO DO APPORTIONMENT BY TAKING ONLY THE PURCHASE COST OF MATERIAL FROM AE (TO THE EXCLUSION OF THE P ROPORTIONATE INDIRECT COSTS) AS NUMERATOR AND TOTAL PURCHASE COST OF MATE RIAL CONSUMED FROM AES AND NON-AES (INCLUDING ALL THE INDIRECT COSTS) AS DENOMINATOR. SUCH A BASIS IS TOTALLY ILLOGICAL. COMPONENTS OF THE NUM ERATOR AND DENOMINATOR HAVE TO REMAIN SAME. THERE CANNOT BE IT EM-WISE DIFFERENCE IN THE COMPOSITION OF THE TWO. IF THE NUMERATOR HAS ONLY THE PURCHASE COST OF MATERIAL FROM AES, THEN THE DENOMINATOR S HOULD ALSO HAVE ONLY THE PURCHASE COST OF MATERIAL CONSUMED FROM AES AND NON-AES. AS THE NUMERATOR IN THE INSTANT CASE IS THE PURCHASE COST OF MATERIAL FROM THE ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 23 AE, WHICH IS NOT DISPUTED BY THE ASSESSEE, THEN AS A NATURAL COROLLARY, THE DENOMINATOR CANNOT BE ANY FIGURE OTHER THAN THE PURCHASE COST OF MATERIAL CONSUMED PURCHASED FROM AES AND NON-AES. I F WE ACCEPT THE VIEW BUTTRESSED BY THE LD. AR AND PROCEED WITH REST RICTING THE NUMERATOR AS THE PURCHASE COST OF MATERIAL FROM THE AES AND E XTEND THE DENOMINATOR ALSO TO OTHER INDIRECT COSTS, THE RESUL T WILL OBVIOUSLY BE DISTORTED. SUCH A CONTENTION ADVANCED ON BEHALF O F THE ASSESSEE IS AIMED AT EXPANDING THE DENOMINATOR TO THE MAXIMUM P OSSIBLE EXTENT SO THAT THE AMOUNT OF THE RESULTING TRANSFER PRICING A DDITION, FROM THE TOTAL EXCESS COST OVER THE ARMS LENGTH COST ATTRIBUTABLE TO INTERNATIONAL TRANSACTION OF PURCHASE OF MATERIAL, COULD BE REDUC ED. WE CANNOT COUNTENANCE IT. AS SUCH, WE HOLD THAT THE TPO HAS TAKEN AN UNIMPEACHABLE VIEW IN MAKING APPORTIONMENT OF THE E XCESS COST INCURRED ON ENTITY LEVEL TO THE INTERNATIONAL TRANS ACTION. 19. THE LD. AR NEXT CONTENDED THAT THE ASSESSEE A PPLIED RESALE PRICE METHOD (RPM) AS THE MOST APPROPRIATE METHOD IN ITS TRANSFER PRICING STUDY REPORT AND THE TPO USED THE TRANSACTIONAL NET MARGIN METHOD ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 24 (TNMM) AS THE MOST APPROPRIATE METHOD FOR MAKING TH E TRANSFER PRICING ADJUSTMENT. THE LD. AR ARGUED THAT THE TRIBUNAL IN ITS ORDER FOR THE ASSESSMENT YEAR 2009-10 HAS APPROVED THE RPM AS THE MOST APPROPRIATE METHOD AND THE HON'BLE HIGH COURT HAS NOT INTERFERE D WITH THE TRIBUNAL ORDER ON THIS ISSUE. THIS WAS OPPOSED BY THE LD. D R WHO SUBMITTED THAT THE HON'BLE HIGH COURT HAS SIMPLY CHOSEN NOT TO INT ERFERE IN THE TRIBUNAL ORDER WITHOUT GIVING ANY SEPARATE REASONS AND, HENCE, IT CANNOT BE SAID THAT THE TRIBUNAL ORDER ON THIS ISSUE HAS B EEN AFFIRMED BY THE HON'BLE HIGH COURT. 20. WE FIND THAT THE TPO IN THE INSTANT CASE, T HOUGH NOTED IN PARA 2 OF ITS ORDER, THAT THE ASSESSEE APPLIED RPM AS THE MOST APPROPRIATE METHOD, BUT GAVE NO REASONS FOR REJECTING THE SAME AND WENT ON TO COMPUTE TRANSFER PRICING ADJUSTMENT UNDER THE TNMM. IT IS A MATTER OF FACT THAT THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 -10 ADOPTED TNMM AS THE MOST APPROPRIATE METHOD TO DEMONSTRATE THAT ITS INTERNATIONAL TRANSACTION OF PURCHASE OF MATERIAL WAS AT ALP. SU CH DETERMINATION WAS SOUGHT TO BE CORROBORATED BY ALSO APPLYING RPM. THE TPO FOR THAT YEAR ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 25 INITIALLY CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY THE RPM BE NOT APPLIED AS THE MOST APPROPRIATE METHOD. LATER ON, THE TPO WENT WITH THE TNMM AS THE MOST APPROPRIATE METHOD. THE T RIBUNAL NOTICED THAT THE MAIN BUSINESS OF THE ASSESSEE WAS TO CARRY ON TRADING OF SUNGLASSES AND FRAMES. THE GOODS PURCHASED WERE SOL D WITHOUT MAKING ANY VALUE ADDITION. IT WAS, THEREFORE, HELD THAT RP M WAS THE MOST APPROPRIATE METHOD IN PREFERENCE OVER THE TNMM. TH E HON'BLE HIGH COURT DID NOT INTERFERE WITH THE VIEW TAKEN BY THE TRIBUNAL. IT IS, THEREFORE, MANIFEST THAT THE APPLICATION OF THE RPM AS THE MOST APPROPRIATE METHOD HAS BEEN FINALLY APPROVED FOR TH E A.Y. 2009-10. HOWEVER, A SIGNIFICANT FACTOR WHICH CANNOT BE LOST SIGHT OF FOR THE A.Y. 2009-10 IS THAT INSTEAD OF MAKING ANY AMP INTENSITY ADJUSTMENT IN THE PROFIT RATE OF COMPARABLES, THE TPO CONSIDERED AMP EXPENDITURE AS A SEPARATE INTERNATIONAL TRANSACTION AND DETERMINED I TS ALP INDEPENDENT OF THE ALP OF THE INTERNATIONAL TRANSACTION OF PURCHAS E OF MATERIAL FROM ITS AE. AS SUCH THERE WAS NO NEED TO SUBSUME THE AMP FU NCTION IN THE DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANS ACTION OF PURCHASE OF MATERIAL. BUT IN SO FAR AS THE FACTS FOR THE EXTANT YEAR ARE CONCERNED, IT IS ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 26 PATENT THAT THE AMP FUNCTION HAS BEEN EMBEDDED BY T HE TPO IN THE INTERNATIONAL TRANSACTION OF PURCHASE OF MATERIAL F ROM THE AE AND THE TRANSFER PRICING ADJUSTMENT HAS BEEN MADE FOR SUCH AN INTERNATIONAL TRANSACTION ALONE, THOUGH BY FACTORING IN THE EFFEC T OF HIGHER INTENSITY AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE. RESPECT FULLY FOLLOWING THE DECISION TAKEN FOR THE A.Y. 2009-10, WE HOLD THAT, FIRSTLY, THE RPM SHOULD BE APPLIED AS THE MOST APPROPRIATE METHOD FO R DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF PURCHASE OF MATERIAL FROM THE AE, BUT, BY CARRYING OUT THE AMP INTENSITY ADJUSTME NT IN THE PROFIT RATE OF COMPARABLES. IF, HOWEVER, IT TURNS OUT THAT SUC H AN ADJUSTMENT CANNOT BE DONE DUE TO ONE REASON OR THE OTHER, THEN THE RP M SHOULD BE DISCARDED AND ANOTHER SUITABLE METHOD BE ADOPTED, W HICH ENCOMPASSES THE EFFECT OF AMP INTENSITY ADJUSTMENT. OUR VIEW I S FORTIFIED BY THE JUDGMENT IN THE CASE OF SONY ERICSSON (SUPRA) , IN WHICH IT HAS BEEN HELD IN PARA 165 THAT : `COMPARABLE ANALYSIS OF THE TESTED PARTY AND THE COMPARABLE WOULD INCLUDE REFERENCE TO AMP EXPENSES. IN CASE OF A MISMATCH, ADJUSTMENT COULD BE MADE WHEN THE RESULT WOULD BE RELIABLE AND ACCURATE. OTHERWISE, RP METHOD SHOULD NOT BE AD OPTED . ITA NOS.1492/DEL/2015, 1205/DE/2016 344/DEL/2017 & 1117/DEL/2015 27 21. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER/TPO FOR RE-DETERMININ G THE ALP OF THE INTERNATIONAL TRANSACTION OF IMPORT OF FINISHED GO ODS IN THE MANNER DELINEATED ABOVE. THE ASSESSEE SHOULD BE GIVEN AN A DEQUATE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.05.201 7. SD/- SD/- [SUDHANSHU SRIVASTAVA] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 26 TH MAY, 2017. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.
