M/s. Whirlpool of India Ltd, Gurgaon V. DCIT, New Delhi

ITA 1254/DEL/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1717 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Next Hearing Date: 12-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 05-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Transfer pricing; Business expenditure; Principle of natural justice; International transaction
• Section: 92C; 143(3); 92B; 92F; 234B; 37; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE HONBLE VICE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1254/DEL./2014 (ASSESSMENT YEAR : 2009-10) M/S. WHIRLPOOL OF INDIA LTD., VS. DCIT, PLOT NO.40, SECTOR 44, LARGE TAX PAYER UNIT, GURGAON 100 002. NEW DELHI. (PAN : AAACW1336L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SENIOR ADVOCATE SHRI NEERAJ JAIN, ADVOCATE SHRI RAMIT KATYAL, CA REVENUE BY : SHRI SANJAY I. BARA, CIT DR DATE OF HEARING : 14.11.2018 DATE OF ORDER : 26.11.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. WHIRLPOOL OF INDIA LTD. (HEREIN AFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.12.2013 PASSE D BY THE AO IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TP O UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE INCOM E-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2009- 10 ON THE GROUNDS INTER ALIA THAT :- ITA NO.1254/DEL/2014 2 1. THAT THE IMPUGNED ORDER OF ASSESSMENT FRAMED B Y THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO A S 'DRP') UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME- TAX ACT, 1961 ('ACT'), IS BAD IN LAW, VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE AND VOID AB-INITIO. 1.1 THAT THE ASSESSING OFFICER ('AO') ERRED ON FACT S AND IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C/ 143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT') AT AN INCOM E OF RS.87,90,03,320 AS AGAINST THE INCOME OF RS. NIL RE TURNED BY THE APPELLANT. 2. THAT THE DRPITPO ERRED ON FACTS AND IN LAW IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.1,29,44,62,939 IN RELATION TO THE ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENSES (HEREINAFTER REFERRED TO AS 'THE AMP EXPENSES') INCURRED BY THE APPELLANT. 2.1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN LAW IN UPHOLDING, IN PRINCIP LE, TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING O FFICER / TPO IN RESPECT OF EXPENDITURE INCURRED ON ADVERTISI NG, MARKETING AND PUBLICITY ('AMP EXPENSES'). 2.2 THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ONLY TRANSFER PRICING ADJUSTM ENT PERMITTED BY CHAPTER X OF THE ACT WAS IN RESPECT OF THE DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE (ALP) AND THE CONTRACT OR DECLARED PRICE BUT IT CANNOT DETERMINE THE 'QUANTUM' OF THE INTERNATIONAL TRANSACTION OR EXTEN T OF BUSINESS EXPENDITURE. 2.3 THE DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE TRANSFER PRICING ADJUSTMENT S OUGHT TO BE MADE BY THE TPO IN THE PRESENT CASE WAS A MERE QUANTITATIVE ADJUSTMENT, ON THE FOOTING THAT THE AP PELLANT HAD INCURRED AN EXCESSIVE AMOUNT OF AMP EXPENDITURE , AND NOT ON THE FOOTING THAT THERE WAS A DIFFERENCE BETW EEN THE ALP AND THE CONTRACT OR DECLARED PRICE, AND THAT A TRANSFER PRICING ADJUSTMENT WAS NOT AT ALL PERMITTED OR AUTH ORIZED BY CHAPTER X OF THE ACT. 2.4 THE DRP/TPO ERRED ON FACTS AND IN LAW IN HOLDI NG THAT EXPENDITURE INCURRED BY THE APPELLANT WHICH ITA NO.1254/DEL/2014 3 INCIDENTALLY RESULTED IN BRAND BUILDING FOR THE FOR EIGN AE, WAS A TRANSACTION OF CREATING AND IMPROVING MARKETI NG INTANGIBLES FOR AND ON BEHALF OF ITS FOREIGN AE AND FURTHER THAT SUCH A TRANSACTION WAS IN THE NATURE OF PROVIS ION OF A SERVICE BY THE APPELLANT TO THE AE. 2.5 THE DRP/TPO ERRED ON FACTS .AND IN LAW IN NOT APPRECIATING THAT THE AMP EXPENSES, ETC., UNILATERA LLY INCURRED BY THE APPELLANT IN INDIA COULD NOT BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AS PE R SECTION 92B,IN THE ABSENCE OF ANY PROVED UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATE D ENTERPRISE, SO AS TO INVOKE THE PROVISIONS OF SECTI ON 92 OF THE ACT. 2.6 THE DRP/ TPO ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT MERELY BECAUSE THE INDIAN COMPANY HAS INCURRED EXPENDITURE ON PRODUCT ADVERTISEMENTS INCL UDING THE FOREIGN BRAND AND THE AMP EXPENSES INCURRED BY THE TAXPAYER, WHICH ARE PROPORTIONATELY HIGHER THAN THO SE INCURRED BY COMPARABLE CASES, IT DOES NOT LEAD TO T HE INFERENCE OF 'TRANSACTION' BETWEEN THE TAXPAYER AND THE FOREIGN AE FOR CREATING MARKETING INTANGIBLES ON BE HALF OF THE LATER. 2.7 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT AMP EXPENSES INCURRED BY THE APPELLANT RESULTED IN PROMOTION OF BRAND OWNED BY THE ASSOCIA TED ENTERPRISE, THEREBY CREATING MARKETING INTANGIBLES WHOSE ULTIMATE BENEFIT INURED TO THE ASSOCIATED ENTERPRIS E. 2.8 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE CHARACTERIZATION OF THE APPEL LANT BEING THAT OF A FULL FLEDGED MANUFACTURER AND THE SOLE BE NEFICIARY OF THE AMP EXPENDITURE INCURRED BY IT, JUSTIFIES TH E CONDUCT OF THE APPELLANT IN INCURRING AND BEARING THE COST OF AMP EXPENDITURE. 2.9 THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ADVERTISEMENT AND MARKETING E XPENSES WERE INCURRED BY THE APPELLANT WHOLLY AND EXCLUSIVE LY FOR PURPOSES OF ITS BUSINESS AND NOT ON BEHALF OF OR FO R THE BENEFIT OF THE AE; ANY BENEFIT TO THE AE BEING ONLY INCIDENTAL. ITA NO.1254/DEL/2014 4 2.10 THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT IN ABSENCE OF ANY UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATE D ENTERPRISE, THE ASSOCIATED ENTERPRISE WAS UNDER NO OBLIGATION TO REIMBURSE AMP EXPENSES INCURRED BY TH E APPELLANT FOR SALE OF ITS PRODUCTS IN INDIA. 2.11 WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT, SINCE T HE APPELLANT EARNS RETURN COMMENSURATE WITH OTHER BRAND OWNERS, THE APPELLANT IS ADEQUATELY COMPENSATED FOR ITS FUNCTIO NS AND AMP EXPENSES. 2.12 WITHOUT PREJUDICE THAT THE DRP/TPO ERRED ON F ACTS AND IN LAW, IN NOT APPRECIATING THAT THE AMP EXPENS ES INCURRED BY THE APPELLANT WAS APPROPRIATELY ESTABLI SHED TO BE AT ARM'S LENGTH APPLYING TNMM. 2.13 THE DRP/TPO ERRED ON FACTS AND IN LAW IN APPL YING BRIGHT LINE TEST ('BLT') FOR COMPUTING ADJUSTMENT O N ACCOUNT OF EXPENDITURE ON ADVERTISEMENT AND BRAND PROMOTION EXPENSES, WITHOUT APPRECIATING THAT IN AB SENCE OF SPECIFIC PROVISION IN THE TRANSFER PRICING STATUTOR Y PROVISIONS IN INDIA., ADJUSTMENT ON ACCOUNT OF THE ARM'S LENGTH PRICE OF THE ADVERTISEMENT AND BRAND PROMOTI ON EXPENSES COULD NOT BE MADE. 2.14 THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SUCH A TRANSFER PRICING ADJUSTMEN T CANNOT AT ALL BE MADE IN LAW WITHOUT DETERMINING TH E ARM'S LENGTH PRICE ('ALP') BY APPLYING ONE OF THE METHODS SPECIFIED IN SECTION 92C OF TL E ACT. 3. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING THE BENCHMARKING ANALYSIS UNDERTAKEN BY T HE APPELLANT BY CONSIDERING CLOSELY LINKED TRANSACTION S TOGETHER AND INSTEAD BENCHMARKING SUCH INTERNATIONAL TRANSAC TIONS SEPARATELY. 3.1 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN ACCEPTING TRANSACTIONAL NET MARGIN METHOD (TNMM') A S THE MOST APPROPRIATE METHOD ON ONE HAND, AND YET SE EKING TO QUESTION APPROPRIATENESS OF INDIVIDUAL ELEMENTS OF OPERATING COST ON THE OTHER. ITA NO.1254/DEL/2014 5 3.2 WITHOUT PREJUDICE THAT THE DRP/TPO ERRED ON FA CTS AND IN LAW IN CONSIDERING A SUM OF RS.1,33,06,66,90 9 UNDER SUB HEAD PRICING ADJUSTMENTS BEING THE INCENTIVES, REBATES AND DISCOUNTS GIVEN TO THE DISTRIBUTORS AND DEALERS OF THE APPELLANT FOR EFFECTING SALES IN THE DETERMINATION OF THE TOTAL AMP EXPENSES OF THE APPELLANT. 3.3 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN REJECTING THE COMPARABLE COMPANIES BY CONCLUDING TH AT THEY ARE BRAND OWNERS AND NOT ROUTINE DISTRIBUTORS. 3.4 WITHOUT PREJUDICE THAT THE ASSESSING OFFICER E RRED ON FACTS AND IN LAW IN NOT CONSIDERING THE FOLLOWING A LTERNATE SET OF COMPARABLE COMPANIES IN WHITE GOODS ELECTRON ICS SEGMENT IDENTIFIED BY THE APPELLANT FOR BENCHMARKIN G OF ADVERTISEMENT AND BRAND PROMOTION EXPENSES: S.NO. NAME OF THE COMPARABLE COMPANIES (AMP)/ SALES 1 . KHAITAN ELECTRICALS LTD 10.21% 2. ION EXCHANGE (INDIA) PVT LTD 2.44% 3. SALORA INTERNATIONAL LTD 1.19% 4. BAJAJ ELECTRICALS LTD 3.56% 5. BHARTI TELETECH 2.07% 6 . SALORA INTERNATIONAL LTD (INFOCOM DIVISION) 1.19% 7 . SPICE MOBILE LTD 12.03% 8. USHA INTERNATIONAL LTD 13.83% AVERAGE 5.82% 3.5 WITHOUT PREJUDICE THAT THE DRP/TPO ERRED ON FA CTS AND IN LAW IN NOT CONSIDERING APPROPRIATE SET OF CO M PARABLES FOR UNDERTAKING BENCHMARKING ANALYSIS OF T HE ALLEGED INTERNATIONAL TRANSACTION ARISING OUT OF AM P EXPENDITURE INCURRED BY THE APPELLANT. 3.6 WITHOUT PREJUDICE, THAT THE DRP/TPO ERRED ON F ACTS AND IN LAW IN HOLDING THAT THE APPELLANT HAD RENDER ED SERVICE TO THE AES BY INCURRING AMP EXPENSE AND BY HOLDING THAT MARKUP HAD TO BE EARNED BY THE APPELLA NT IN RESPECT OF THE AMP EXPENSES, ALLEGED TO HAVE INCURR ED FOR AND ON BEHALF OF THE AE. 3.7 WITHOUT PREJUDICE, THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT MARKUP, IF AT ALL, HAD TO BE ITA NO.1254/DEL/2014 6 RESTRICTED TO THE VALUE ADDED EXPENSES INCURRED BY THE APPELLANT FOR PROVIDING THE ALLEGED SERVICE IN THE NATURE OF BRAND PROMOTION. 4. THAT WITHOUT PREJUDICE TO THE TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF AMP EXPENSES, THE ASS ESSING OFFICER ERRED ON FACTS AND IN LAW IN ALTERNATIVELY DISALLOWING RS. 1,29,44,62,939 UNDER SECTION 37 OF THE ACT, ALL EGING THAT THE AMOUNT SPENT BY THE ASSESSEE WAS NOT INCURRED F OR THE PURPOSE OF BUSINESS CONDUCTED BY THE ASSESSEE. 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 2348 AND SECTION 234 C OF THE ACT. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ARE : M/S. WHIRLPOOL OF I NDIA LIMITED, THE TAXPAYER IS A SUBSIDIARY OF WHIRLPOOL CORPORATION, USA, IS INTO MANUFACTURING, SELLING AND DISTRIBUTION OF HOME APP LIANCES. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER ENTE RED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES (AES) AS UNDER :- NATURE OF INTERNATIONAL TRANSACTIONS METHOD AMOUNT (IN RS.) PURCHASE OF RAW MATERIALS, COMPONENTS & SPARES TNMM 111,466,016 SALE OF SPARES TNMM 29,913,546 PURCHASE RETURN TNMM 602,585 SALES RETURN TNMM 154,337 PURCHASE OF FINISHED GOODS & SPARES TNMM 64,181,708 SALE OF FINISHED GOODS TNMM 1,131,647,402 SERVICES INCOME TNMM 541,674,104 TECHNICAL AND BRAND ASSISTANCE FEE TNMM 219,904,577 COST RECHARGES PAID TNMM 77,358,123 COST RECHARGES RECEIVED CUP 183,034,999 ITA NO.1254/DEL/2014 7 3. THE LD. TPO NOTICED THAT THE TAXPAYER HAS BEEN I NCURRING HUGE EXPENSES ON ADVERTISING, MARKETING AND PROMOTI ON (AMP) WITH A MOTIVE TO EXPAND THE AES BRAND IN INDIA. S O, TPO OBSERVED THAT THE TAXPAYER IS CREATING MARKETING IN TANGIBLES IN FAVOUR OF ITS AE. THE TAXPAYERS SALES FOR THE YEA R UNDER ASSESSMENT WAS AT RS.17,19,21,70,000/- WITH AMP/SAL ES RATIO OF 7.45%. THE TAXPAYER IN ITS TP STUDY SELECTED 7 COM PARABLES. 4. THE TPO CHOSEN 4 MORE COMPARABLES TO COMPUTE THE AVERAGE AMP EXPENSES/SALES AT 3.69%. FOR COMPUTATI ON OF PERCENTAGE AMP TO SALES, THE LD. TPO USED BRIGHT L INE LIMIT AND THEREBY COMPUTED THE AMP/SALES OF THE TAXPAYER AT 9 .23% AND ULTIMATELY CAME TO THE CONCLUSION THAT SINCE THE TA XPAYER HAS INCURRED AMP EXPENDITURE TO THE TUNE OF 9.23% OF SA LES AS COMPARED TO AMP EXPENDITURE TO SALES RATIO OF 3.69% FOR THE COMPARABLES CHOSEN, IT IS PROVED THAT THE TAXPAYER HAS INCURRED HUGE NON-ROUTINE EXPENDITURE TO DEVELOP MARKETING I NTANGIBLES FOR ITS AE WHICH IS IN EXCESS OF THE BRIGHT LINE TEST ( BLT) I.E. MORE THAN ROUTINE MARKETING EXPENDITURE OF THE DISTRIBUT OR. TPO ALSO APPLIED THE MARK-UP OF 15.46% (9.46% AMP/SALES RATI O + 6% AS OPPORTUNITY COST OF FUNDS INCURRED). LD. TPO PROPO SED UPWARD ADJUSTMENT OF RS.1,29,44,62,939/- ON ACCOUNT OF AR MS LENGTH PRICE (ALP) OF REIMBURSEMENT OF AMP EXPENSES. ITA NO.1254/DEL/2014 8 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY FILING OBJECTIONS WHO HAS DISPOSED OF THE OBJECTIONS. FEE LING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO.1 7. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY ADJUDICATION. GROUNDS NO.2 TO 2.14 & 3 TO 3.7 8. UNDISPUTEDLY, THE LD. TPO IN ORDER TO MAKE UPWAR D TP ADJUSTMENT ON ACCOUNT OF ALP OF REIMBURSEMENT OF AM P PRICES APPLIED BLT. IT IS ALSO NOT IN DISPUTE THAT WHIRLP OOL CORPORATION, USA, AN OVERSEAS ENTITY IS THE OWNER OF BRAND WHIR LPOOL. IT IS ALSO NOT IN DISPUTE THAT BLT METHOD APPLIED BY THE TPO FOR REIMBURSEMENT ON ACCOUNT OF AMP EXPENSES INCURRED B Y THE TAXPAYER HAS BEEN DISCARDED BY HONBLE DELHI HIGH C OURT IN A NUMBER OF CASES. IT IS ALSO NOT IN DISPUTE THAT TH E TAXPAYER IS A MANUFACTURER AND DISTRIBUTOR OF HOUSEHOLD PRODUCTS UNDER ITA NO.1254/DEL/2014 9 TRADEMARK WHIRLPOOL AND THAT A TRADEMARK AND TRAD E NAME LICENSE AGREEMENT IS IN EXISTENCE BETWEEN THE TAXPA YER AND ITS AE FOR THE YEAR UNDER CONSIDERATION. IT IS ALSO NOT I N DISPUTE THAT THE DECISION RENDERED BY SPECIAL BENCH OF THE ITAT IN LG ELECTRONICS INDIA PVT. LTD. (ITA NO.5140/DEL/2011) RELIED UPON BY THE TPO/DRP MAKING BLT AS THE BASIS TO DETERMINE THE EXISTENCE OF INTERNATIONAL TRANSACTION HAS ALSO BEE N OVERRULED BY THE HONBLE DELHI HIGH COURT. 9. IN THE BACKDROP OF THE AFORESAID FACTS & CIRCUMS TANCES OF THE CASE AND GROUNDS RAISED BY THE TAXPAYER IN THE PRES ENT APPEAL, THE FIRST ISSUE REQUIRED TO BE DETERMINED IS :- AS TO WHETHER BLT APPLIED BY TPO/DRP IN THIS CASE IS AN APPROPRIATE METHOD FOR DETERMINING THE INTERNATIONAL TRANSACTIONS AND IN RETURN TO FURTHER CALCULATE THE ALP OF SUCH INTERNATIONAL TRANSACTION S ? 10. THE LD. TPO AS WELL AS DRP HAVE TREATED THE TRA NSACTION OF INCURRING OF AMP EXPENSES BY THE TAXPAYER AS INTERN ATIONAL TRANSACTION BY APPLYING RATIO OF LG ELECTRONICS INDIA PVT. LTD. (SUPRA) RENDERED BY SPECIAL BENCH OF THE TRIBUNAL A ND APPLIED THE BLT ON AMP EXPENDITURE TO DETERMINE THE ROUTINE AND NON-ROUTINE EXPENSES. UNDISPUTEDLY, THE DECISION OF LG ELECTRONICS INDIA PVT. LTD. (SUPRA) HAS BEEN OVERRULED BY THE HONBLE DELHI HI GH COURT. ITA NO.1254/DEL/2014 10 11. HONBLE HIGH COURT OF DELHI IN SONY ERICSSON INDIA PVT. LTD. V. CIT (2015) 374 ITR 118 (DEL.) HAS CATEGORICALLY HELD THAT BLT IS NOT AN APPROPRIATE YARDSTICK FOR DETERMINING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION FOR CALCULATING THE ALP OF SUCH TRANSACTION. 12. WHEN WE EXAMINE THE ORDER PASSED BY LD. TPO/DRP THEY HAVE PROCEEDED TO CONCLUDE BY APPLYING THE BLT THAT THE TAXPAYER HAD INCURRED HUGE NON-ROUTINE EXPENDITURE TO DEVELO P MARKETING INTANGIBLES FOR ITS AE AND THAT THE AMP EXPENDITURE INCURRED BY THE TAXPAYER WAS IN EXCESS OF THE BLT. WHEN BLT AD OPTED BY TPO/DRP TO TREAT THE TRANSACTIONS INCURRING AMP EXP ENSES BY THE TAXPAYER HAS BEEN HELD TO BE NOT SUSTAINABLE FOR CA LCULATING THE ALP OF AMP TRANSACTION, THE ORDER PASSED BY THE TPO /DRP IS NOT SUSTAINABLE. 13. HONBLE DELHI HIGH COURT IN AN APPEAL FILED BY THE TAXPAYER FOR AY 2008-09 DECIDED VIDE ORDER DATED 22.12.2015 HAD FRAMED THE QUESTIONS TO BE DETERMINED AS UNDER :- (I) WAS THERE AN INTERNATIONAL TRANSACTION BETWEEN WOIL AND ITS AE INVOLVING THE AMP EXPENSES WITHIN THE MEANING OF SECTION 92B OF THE ACT READ WITH SEC TION 92F(V) OF THE ACT? (II) IF THE ANSWER TO THE ABOVE QUESTION IS IN AFFIRMATIVE, WAS THE ITAT JUSTIFIED IN REMANDING TH E MATTER TO THE AO/TPO FOR SEGREGATING THE AMP EXPENSES INCURRED INTO THE EXTENT ATTRIBUTABLE TO ITA NO.1254/DEL/2014 11 PROMOTE THE BRAND OF THE AE, AND THAT THAT WAS WHOL LY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES OF THE ASSESSEE, ALLOWABLE UNDER SECTION 37 OF THE ACT? 14. HONBLE DELHI HIGH COURT, AFTER EXAMINING THE P ROVISIONS CONTAINED IN TRADEMARK AND TRADE NAME LICENSE AGREE MENT AND AFTER EXAMINING THE PROVISIONS UNDER SECTION 92B TO 92F O F THE ACT AND BY FOLLOWING THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN IN MARUTI SUZUKI INDIA LTD. V. CIT (2016) 328 ITR 210 (DEL.) AND DECISION RENDERED BY HONBLE SUPREME COURT IN CASE CITED AS CIT VS. B.C. SRINIVASA SETTY (1981) 128 ITR 294 (SC) AND PNB FINANCE LTD. VS. CIT (2008) 307 ITR 75 (SC) , RETURNED THE FOLLOWING FINDINGS :- 47. FOR THE AFOREMENTIONED REASONS, THE COURT IS O F THE VIEW THAT AS FAR AS THE PRESENT APPEALS ARE CONCERNED, T HE REVENUE HAS BEEN UNABLE TO DEMONSTRATE BY SOME TANGIBLE MATERIA L THAT THERE IS AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPE NSES BETWEEN WOIL AND WHIRLPOOL USA. IN THE ABSENCE OF THAT FIR ST STEP, THE QUESTION OF DETERMINING THE ALP OF SUCH A TRANSACTI ON DOES NOT ARISE. IN ANY EVENT, IN THE ABSENCE OF A MACHINERY PROVISION IT WOULD BE HAZARDOUS FOR ANY TPO TO PROCEED TO DETERM INE THE ALP OF SUCH A TRANSACTION SINCE BLT HAS BEEN NEGATI VED BY THIS COURT AS A VALID METHOD OF DETERMINING THE EXISTENC E OF AN INTERNATIONAL TRANSACTION AND THEREAFTER ITS ALP. 48. QUESTION (I) IN THE ASSESSEE'S APPEAL VIZ., 'W AS THERE AN INTERNATIONAL TRANSACTION BETWEEN WOIL AND ITS AE I NVOLVING THE AMP EXPENSES WITHIN THE MEANING OF SECTION 92B OF T HE ACT READ WITH SECTION 92F(V) OF THE ACT?' IS ANSWERED IN THE NEGATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. CONSEQUENTLY QUESTION (II) IN THE ASSESSEE'S APPEAL IS NOT REQUI RED TO BE ANSWERED. FURTHER, THE ONLY QUESTION FRAMED IN THE REVENUES APPEAL VIZ., 'WHETHER THE ITAT ERRED IN DELETING TH E ADDITION OF RS.180,73,10,769 MADE BY THE AO/TPO ON ACCOUNT OF A MP EXPENSES UNDER SECTION 37 OF THE ACT?' IS ANSWERED IN THE NEGATIVE, I.E. IN FAVOUR OF THE ASSESSEE AND AGAINS T THE REVENUE. ITA NO.1254/DEL/2014 12 49. THE IMPUGNED ORDER OF THE ITAT AND THE CORRESP ONDING ORDERS OF THE DRP AND THE TPO, ON THE ABOVE ISSUES ARE HEREBY SET ASIDE. THE APPEAL OF THE ASSESSEE, ITA NO. 228 OF 2015IS ALLOWED AND THE APPEAL OF THE REVENUE, ITA NO. 610 OF 2014 IS DISMISSED IN THE ABOVE TERMS, BUT IN THE CIRCUMSTAN CES WITH NO ORDERS AS TO COSTS. 15. TP ANALYSIS MADE BY THE TAXPAYER AS WELL AS THE TPO GOES TO PROVE THAT THERE IS NOT AN IOTA OF MATERIAL TO DEMO NSTRATE THAT THERE IS AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPEN SES BETWEEN THE TAXPAYER AND ITS AE. THE ENTIRE EXERCISE OF DE TERMINING THE ALP TO AMP EXPENSES IS BASED UPON BLT METHOD APPLIE D BY LD. TPO/DRP, WHICH METHOD HAS ALREADY BEEN DISCARDED BY THE HONBLE JURISDICTIONAL HIGH COURT IN A SERIES OF CA SES. FURTHER, IT IS THE CASE OF THE TPO THAT AMP EXPENDITURE INCURRED B Y THE TAXPAYER ARE EXCESSIVE OR UNREASONABLE VIS--VIS COMPARABLE COMPANIES AND HAS ALSO PROCEEDED TO ADD A MARK-UP OF 15.46% ON TH E AMP SERVICES PROVIDED BY THE TAXPAYER BY INVOKING THE P ROVISIONS CONTAINED UNDER RULE 10B(1)(C)(III) AND THEREBY MAD E AN UPWARD ADJUSTMENT OF RS.1,29,44,62,939/- ON ACCOUNT OF ALP OF AMP EXPENSES. 16. THE LD. DR FOR THE REVENUE THOUGH ADMITTED FACT UAL AND LEGAL POSITION DISCUSSED IN THE PRECEDING PARAS THA T BY APPLYING THE BLT, INTERNATIONAL TRANSACTIONS CANNOT BE INVALID I NVOLVING AMP EXPENSES INCURRED BY THE TAXPAYER THOUGH BENEFITED FOR BRAND ITA NO.1254/DEL/2014 13 BUILDING OF ITS AE, BUT CONTENDED THAT ALL DECISION S RENDERED BY HONBLE DELHI HIGH COURT VIZ. SONY ERICSSON INDIA PVT. LTD. V. CIT (SUPRA), BAUSCH & LOMB EYE CARE (INDIA) PVT. LTD. V. ADDITIONAL CIT (2016) 381 ITR 227 (DEL.) AND HONDA SIEL POWER PRODUCTS LTD. V. DY. CIT (2016) 237 TAXMAN 304 ARE LYING CHALLENGED BEFORE THE HONBLE APEX COURT, HENCE THI S APPEAL BE KEPT PENDING TILL THE DECISION OF HONBLE APEX COUR T. 17. AFTER CONSIDERING THE LEGAL POSITION AS DISCUSS ED IN THE PRECEDING PARAGRAPHS AND FOLLOWING THE DECISION REN DERED BY HONBLE DELHI HIGH COURT IN TAXPAYERS OWN CASE FOR AY 2008-09, WE ARE OF THE CONSIDERED VIEW THAT TP ADJUSTMENT OF RS.1,29,44,62,939/- INVOLVING AMP EXPENSES IS NOT S USTAINABLE IN THE EYES OF LAW, WE ARE OF THE CONSIDERED OPINION T HAT THE ALP OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES , THE ADJUSTMENT MADE BY THE TPO/DRP/AO IS NOT SUSTAINABL E IN THE EYES OF LAW, HENCE GROUNDS NO.2 TO 2.14 & 3 TO 3.7 ARE DETERMINED IN FAVOUR OF THE TAXPAYER. 18. AT THE SAME TIME, WE CANNOT IGNORE THE SUBMISSI ON OF THE LEARNED DR THAT THE MATTER IS PENDING BEFORE HON'BL E APEX COURT AND THE DECISION OF HON'BLE APEX COURT WOULD BE BIN DING UPON ALL THE AUTHORITIES. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MATTER TO THE FIL E OF THE ASSESSING ITA NO.1254/DEL/2014 14 OFFICER. WE HOLD THAT AS PER THE FACTS OF THE CASE AND THE LEGAL POSITION AS OF NOW AND DISCUSSED ABOVE IN THIS ORDE R, THE ADJUSTMENT MADE BY THE TPO/DRP/AO IN RESPECT OF AMP EXPENSES IS NOT SUSTAINABLE. HOWEVER, IF THE ABOVE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT WHICH IS UNDER CONSIDERAT ION BEFORE THE HON'BLE APEX COURT IS MODIFIED OR REVERSED BY THE H ON'BLE APEX COURT, THEN THE ASSESSING OFFICER WOULD PASS THE OR DER AFRESH CONSIDERING THE DECISION OF HON'BLE APEX COURT. IN THOSE CIRCUMSTANCES, HE WILL ALSO ALLOW OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. GROUND NO.4 19. APART FROM TRANSFER PRICING ADJUSTMENT MADE INV OLVING THE AMP EXPENSES, THE AO HAS ALTERNATIVELY DISALLOWED A N AMOUNT OF RS.1,29,44,62,939/- U/S 37 OF THE ACT ON THE GROUND THAT THIS LARGE AMOUNT INCURRED BY THE TAXPAYER WAS NOT FOR THE PUR POSE OF BUSINESS OF THE TAXPAYER. FOR THE SAKE OF BREVITY, THE BRIEF FACTS ARE NECESSARY TO BRING ON RECORD TO DEAL WITH THIS GROU ND THAT THE TPO HAS MADE TP ADJUSTMENT OF RS.1,29,44,62,939/- INVOL VING AMP EXPENDITURE BY APPLYING THE MARK-UP OF 15.46% ON TH E GROUND THAT THE TAXPAYER HAS INCURRED EXCESSIVE OR UNREASONABLE EXPENSES ON ITA NO.1254/DEL/2014 15 AMP WHICH HAS BENEFITED ITS AE BY CREATING MARKETIN G INTANGIBLES. 20. HOWEVER, AO HAS TAKEN THE VIEW THAT WITHOUT PRE JUDICE TO THE AMP ADJUSTMENT MADE BY THE TPO, THE AMOUNT OF RS.1,29,44,62,939/- IS NOT ALLOWABLE U/S 37 OF THE ACT AS THE SAME WAN NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE TA XPAYERS BUSINESS AS IT RESULTED IN EXPANDING THE REACH OF T HE BRAND OF THE PARENT COMPANY. THE TAXPAYER HAS CHALLENGED THE DI SALLOWANCE OF RS.1,29,44,62,939/- U/S 37 OF THE ACT IN THE ALTERN ATIVE BY THE AO. 21. IDENTICAL ISSUE HAS ALREADY BEEN DEALT WITH AND DECIDED IN FAVOUR OF THE TAXPAYER BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE FOR AY 2008-09 , SUBSEQUENTLY AFFIRMED BY HONBLE DELHI HIGH COURT. SO, FOLLOWING THE DECISI ON RENDERED BY THE COORDINATE BENCH OF THE TRIBUNAL AND AFFIRMED B Y HONBLE DELHI HIGH COURT, WE ARE OF THE CONSIDERED VIEW THA T WHEN THE ISSUE AS TO ALP ADJUSTMENT OF AMP EXPENSES HAS ALRE ADY BEEN DEALT WITH AND DECIDED IN FAVOUR OF THE TAXPAYER IN VIEW OF THE SERIES OF DECISIONS RENDERED BY HONBLE DELHI HIGH COURT U/S 92 OF THE ACT, THE SAME AMP EXPENSES CANNOT BE DEALT WITH U/S 37 OF THE ACT WHICH WOULD AMOUNT TO DOUBLE ADDITION IF THE AD DITION MADE U/S 92 OF THE ACT FOUND TO BE SUSTAINABLE. SO, WHE N ALP ADJUSTMENT OF AMP EXPENSES IS FOUND TO BE NOT SUSTA INABLE FOR LACK ITA NO.1254/DEL/2014 16 OF EXISTENCE OF ANY INTERNATIONAL TRANSACTION BETWE EN TAXPAYER AND AE, THE SAME ALSO CANNOT BE BROUGHT TO TAX IN THE A LTERNATIVE U/S 37 OF THE ACT. CONSEQUENTLY, GROUND NO.4 IS DETERMINE D IN FAVOUR OF THE TAXPAYER. GROUND NO.5 22. GROUND NO.5 QUA LEVY OF INTEREST U/S 234B AND 2 34C OF THE ACT NEEDS NO SPECIFIC FINDING BEING CONSEQUENTIAL I N NATURE. 23. RESULTANTLY, THE APPEAL FILED BY THE TAXPAYER I S ALLOWED PRO TANTO . ORDER PRONOUNCED IN OPEN COURT ON THIS 26 TH DAY OF NOVEMBER, 2018. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) VICE PRESIDENT JUDICIAL MEMBER DATED THE 26 TH DAY OF NOVEMBER, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.