Fujitsu India Pvt. Ltd., Gurgaon V. ITO, New Delhi

ITA 1982/DEL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7248 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 03-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K M GUPTA SHRI ANUBHAV RASTOGI
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Wholly owned subsidiary
• Section: 143(3); 244A; 92B; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.1674/DEL./2016 (ASSESSMENT YEAR : 2011-12) ITA NO.1982/DEL./2017 (ASSESSMENT YEAR : 2012-13) ITA NO.7088/DEL./2017 (ASSESSMENT YEAR : 2013-14) M/S. FUJITSU INDIA PRIVATE LTD., VS. ACIT, CIRCLE 9 (2), 3 RD FLOOR, BUILDING NO.9B, NEW DELHI. DLF CYBER CITY PHASE III, GURGAON 122 002 (HARYANA). (PAN : AAACF4170D) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.M. GUPTA, ADVOCATE SHRI ANUBHAV RASTOGI, ADVOCATE REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR DATE OF HEARING : 07.05.2018 DATE OF ORDER : 03.07.2018 O R D E R PER BENCH : SINCE FACTS AND ISSUES INVOLVED IN ALL THE AFORESAI D APPEALS QUA ASSESSMENT YEARS 2011-12, 2012-13 & 2013-14 ARE IDENTICAL, THE SAME ARE BEING DISPOSED OF BY WAY OF CONSOLIDAT ED ORDER FOR THE SAKE OF BREVITY AND TO AVOID REPETITION OF DISC USSION. ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 2 2. APPELLANT, M/S. FUJITSU INDIA PRIVATE LTD.. (FOR SHORT THE TAXPAYER), BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 30.01.2016, 30.01.2017 & 30.10 .2017 PASSED BY THE AO UNDER SECTION 144C READ WITH SECTI ON 143 (3) OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEARS 2011-12, 2012-13 & 2013-14 RESPECTIVELY IN CO NSONANCE WITH THE ORDERS PASSED BY THE LD. CIT (A)/TPO ON TH E GROUNDS INTER ALIA THAT :- ITA NO.1674/DEL./2016 (AY : 2011-12) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFI CER (LD. AO') UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT, IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HONORABLE DISPUTE RESOLUTION PANEL (HON. DRP'), IS BAD IN LAW TO THE EXTENT OF ADJUSTMENT OF INR 59,552,876 MADE IN THE IMPUGNED A SSESSMENT ORDER. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TRANSFER PRICING OFFICER (TPO') FOL LOWING THE DIRECTIONS OF HON'BLE DRP, ERRED IN ASSESSING THE T OTAL INCOME OF THE APPELLANT OF INR 7,96,25,548 AT INR 13,91,78,42 4. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP ERRED IN DISREGAR DING MULTIPLE YEAR/ PRIOR YEARS' DATA AS USED BY THE APP ELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E . FY 2010- 11) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DE SPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TRANSFER PRICING ('TP' ) DOCUMENTATION. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP GROSSLY ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY INR 58,724,008 ON AC COUNT OF REJECTING RESALE PRICE METHOD CRPM') AS THE MOST AP PROPRIATE METHOD AND SUBSTITUTING THE SAME WITH TRANSACTIONAL NET MARGIN METHOD (TNMM) AND CORRESPONDINGLY REJECTING GROSS P ROFIT/ ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 3 SALES (GP /SALES) AS THE RELEVANT PROFIT LEVEL INDI CATOR (PLI') AND SUBSTITUTING THE SAME WITH OPERATING PROFIT/ SA LES (OP /SALES) TO ASCERTAIN THE ARM'S LENGTH PRICE IN THE APPELLANT'S CASE BASED ON SEVERAL SUBJECTIVE PRESUMPTIONS. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP GROSSLY ERRED IN DISREGARDING THE PRINCIPLE OF CONSISTENCY AND NOT F OLLOWING THE SIMILAR BENCHMARKING APPROACH I.E. RPM AS THE MOST APPROPRIATE METHOD WHICH HAD BEEN ACCEPTED IN PREVI OUS ASSESSMENT YEARS VIZ. FOR ASSESSMENT YEAR CAY') 200 8-09 TO AY 2010-11 WITHOUT GIVING ANY COGENT REASONS OF CHANGI NG THE BENCHMARKING APPROACH IN THE CAPTIONED ASSESSMENT Y EAR AS COMPARED TO PREVIOUS YEARS. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP GROSSLY ERRED IN NOT APPRECIATING THE FUNCTIONAL PROFILE OF THE APPELLAN T AND INCORRECTLY CHARACTERIZING THE APPELLANT TO BE AKIN TO A SUPER NORMAL! HIGH RISK DISTRIBUTOR. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP ERRED IN ARBITRAR ILY REJECTING ACI INFOCOM LIMITED TO BE A COMPARABLE COMPANY IN T HE FINAL COMPARABLE SET/BENCHMARKING ANALYSIS. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/ HONBLE DRP ERRED IN ALLEGING THAT THE APPEL1ANT IS RENDERING A SERVICE TO ITS ASSOCIATED ENTERPRISE CAE') FOR CREATION OF MARKETING INTANGIBLES IN INDI A. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/ HON'BLE DRP ERRED IN ALLEGING THAT THE ADVERTISING, MARKETING AND PROMOTION (,AMP') EXPENS ES INCURRED BY THE APPELLANT RESULTS IN INTERNATIONAL TRANSACTION AND CONSEQUENTLY BENCHMARKED THE SAME SEPARATELY. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/ HON'BLE DRP GROSSLY ERRED IN E NHANCING THE INCOME OF THE APPELLANT BY INR 828,868 ON ACCOU NT OF NON- RECEIPT OF THE REIMBURSEMENT FOR 'ALLEGEDLY EXCESSI VE' AMP EXPENSES INCURRED BY THE APPELLANT AND IN DOING SO HAVE GROSSLY ERRED IN: 10.1. DISREGARDING THE NATURE OF AMP EXPENSES INCUR RED BY THE APPELLANT AND INCORRECTLY HOLDING THAT SUCH EXPENSES RESULTS IN DEVELOPING MARKETING INTANGIBLE S FOR THE AES; ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 4 10.2. DISREGARDING THE FACT THAT THE GROSS PROFIT E ARNED BY THE APPELLANT MORE THAN COMPENSATE THE ALLEGEDLY EXCESSIVE AMP SPENDS, IF ANY, INCURRED BY IT; 10.3. ALLEGING THAT THE AMP EXPENSES INCURRED BY TH E APPELLANT NEED TO BE REIMBURSED BY THE AES ALONG WI TH A MARK-UP ON THE SAME BY IMPLICATING THE SAME AS A SE RVICE RENDERED BY THE APPELLANT TO ITS AE FOR WHICH IT HA S NOT BEEN COMPENSATED AND IN DOING SO GROSSLY ERRED IN; 10.3.1. APPLYING THE CONCEPT OF 'INTRA-GROUP SERVICES' WITHOUT A DUE UNDERSTANDING THEREOF AND WITHOUT DEMONSTRATING THAT SERVICES HAS BEEN RENDERED FOR THE BENEFIT OF THE AES OR ANY TANGIBLE BENEFITS HAVE BEEN RECEIVED BY THE AES FOR WHICH A RETURN NEEDS TO EARNED BY THE APPELLANT; 10.3.2. APPLYING A MARK-UP OF 6.55% IN RESPECT OF THE APPELLANT'S 'ALLEGED EXCESSIVE' AMP EXPENSES, WHICH IS COMPLETELY UNTENABLE AND BASED ON MERE SURMISES AND CONJECTURES; AND 10.3.3. WRONGLY COMPUTING THE ADJUSTMENT ON ACCOUNT OF AMP. 11. NOT PROVIDING ANY OPPORTUNITY OF BEING HEARD TO THE APPELLANT BEFORE MAKING THE ADJUSTMENT ON ACCOUNT O F NON- RECEIPT OF THE REIMBURSEMENT FOR 'ALLEGEDLY EXCESSI VE' AMP EXPENSES INCURRED BY THE APPELLANT THEREBY VIOLATIN G THE RULE OF NATURAL JUSTICE. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO ERRED IN INITIATING PENALTY PROCEED INGS UNDER SECTION 271(1)(C) OF THE ACT WITHOUT ASSIGNING COGE NT REASONS FOR THE SAME. 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. AO ERRED IN NOT GIVING TDS CREDIT O F INR 9,712,074 AND PROPOSING TO WITHDRAW INTEREST PAID U NDER SECTION 244A AND ITA NO.1982/DEL./2017 (AY : 2012-13) 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE LEARNED ASSESSING OFFI CER ('LD. AO') ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 5 UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT, IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE HONORABLE DISPUTE RESOLUTION PANEL (HON. DRP'), IS BAD IN LAW TO THE EXTENT OF ADJUSTMENT OF INR 14,99,41,509 MADE IN THE IMPUGNED ASSESSMENT ORDER. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TRANSFER PRICING OFFICER ('TPO') FO LLOWING THE DIRECTIONS OF HON'BLE DRP, ERRED IN ASSESSING THE T OTAL INCOME OF THE APPELLANT OF INR 11,92,767 AT INR 15,11,34,276. TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 8,20,0 7,004 TO THE DISTRIBUTION SEGMENT OF THE APPELLANT 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP ERRED IN DISREGAR DING MULTIPLE YEAR/ PRIOR YEARS' DATA AS USED BY THE APP ELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E . FY 2011- 12) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DE SPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TRANSFER PRICING ('TP' ) DOCUMENTATION. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP GROSSLY ERRED IN NOT APPRECIATING THE FUNCTIONAL PROFILE OF THE APPELLAN T AND INCORRECTLY CHARACTERIZING THE APPELLANT TO BE AKIN TO A SUPER NORMAL / HIGH RISK DISTRIBUTOR. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP GROSSLY ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY INR 8,20,07,004 BY R EJECTING RESALE PRICE METHOD ('RPM') AS THE MOST APPROPRIATE METHOD AND SUBSTITUTING THE SAME WITH TRANSACTIONAL NET MA RGIN METHOD ('TNMM') AND CORRESPONDINGLY REJECTING GROSS PROFIT/ SALES (GP /SALES) AS THE RELEVANT PROFIT LEVEL INDI CATOR (,PLI') AND SUBSTITUTING THE SAME WITH OPERATING PROFIT/ SA LES (OP /SALES) TO ASCERTAIN THE ARM'S LENGTH PRICE IN THE APPELLANT'S CASE BASED ON SEVERAL SUBJECTIVE PRESUMPTIONS. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO ERRED IN ENHANCING THE INCOME OF THE APPELLANT FROM INR 7,92,43,871 TO INR 8,20,07,004 W ITH RESPECT TO THE DISTRIBUTION SEGMENT OF THE APPELLANT ON ACC OUNT OF WORKING CAPITAL ADJUSTMENT WITHOUT PROVIDING BACK U P CALCULATIONS FOR THE SAME. ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 6 TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 3,96,8 2,107 ON ACCOUNT OF ADVERTISEMENT, MARKETING & PROMOTION ('A MP') EXPENSES INCURRED BY THE APPELLANT 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/ HON'BLE DRP ERRED IN ALLEGING THAT THE APPELLANT IS RENDERING A SERVICE TO ITS ASSOCIATED ENTERPRISE CAE') FOR CREATION OF MARKETING INTANGIBLES IN INDI A. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO (ON THE DIRECTIONS OF THE DRP) ERRED IN ALLEGING THAT THE AMP EXPENSES INCURRED BY THE APPE LLANT RESULTS IN AN INTERNATIONAL TRANSACTION AND CONSEQUENTLY BE NCHMARKED THE SAME SEPARATELY. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/ HON'BLE DRP GROSSLY ERRED IN E NHANCING THE INCOME OF THE APPELLANT BY INR 3,96,82,107 ON S UBSTANTIVE BASIS (INR 8,28,54,784 ON PROTECTIVE BASIS) ON ACCO UNT OF NON- RECEIPT OF THE REIMBURSEMENT FOR ALLEGED EXCESSIVE AMP EXPENSES INCURRED BY THE APPELLANT AND IN DOING SO HAVE GROS SLY ERRED IN: 9.1. ASSUMING JURISDICTION IN RESPECT OF THE AMP EXPENDITURE WHEN SUCH EXPENDITURE DID NOT SATISFY T HE REQUISITES OF BEING AN INTERNATIONAL TRANSACTION UN DER SECTION 92B READ WITH SECTION 92F(V) OF THE ACT 9.2. DISREGARDING THE NATURE OF AMP EXPENSES INCUR RED BY THE APPELLANT AND INCORRECTLY HOLDING THAT SUCH EXPENSES RESULTS IN DEVELOPING MARKETING INTANGIBLE S FOR THE AES; 9.3. DISREGARDING THE FACT THAT THE GROSS PROFIT E ARNED BY THE APPELLANT COMPENSATES THE EXCESSIVE AMP EXPENSES AS ALLEGED BY THE TPO, IF ANY, INCURRED BY IT; 9.4. CONSIDERING THE EXPENDITURE INCURRED IN THE N ATURE OF NORMAL BUSINESS FUNCTION AS A SERVICE AND ERRONE OUSLY BIFURCATING THE EXPENDITURE INTO ROUTINE AND NON-RO UTINE EXPENDITURE 9.5. WITHOUT PREJUDICE, EVEN IF THE EXPENDITURE ON AMP WERE TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTI ON, THE LD. AO/TPO/ HON'BLE DRP ERRED IN NOT CONSIDERING TH E SAME TO BE INTERLINKED AND INTER-CONNECTED TO THE DISTRIBUTION BUSINESS OF THE APPELLANT AND DISREGAR DING THAT IT DOES NOT WARRANT A SEPARATE BENCHMARKING AN D HENCE DISREGARDING THE JUDICIAL PRECEDENCE IN THIS REGARD ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 7 9.6. ALLEGING THAT THE AMP EXPENSES INCURRED BY TH E APPELLANT NEED TO BE REIMBURSED BY THE AES ALONG WI TH A MARK-UP ON THE SAME BY CONSIDERING THE SAME AS A SE RVICE RENDERED BY THE APPELLANT TO ITS AE FOR WHICH IT HA S NOT BEEN COMPENSATED AND IN DOING SO GROSSLY ERRED IN; 9.6.1. APPLYING THE CONCEPT OF INTRA-GROUP SERVICES WITHOUT DUE UNDERSTANDING THEREOF AND WITHOUT DEMONSTRATING THAT SERVICES HAVE NOT BEEN RENDERED FOR THE BENEFIT OF THE AES OR ANY TANGIBLE BENEFITS HAVE NOT BEEN RECEIVED BY THE AES FOR WHICH A RETURN NEEDS TO EARNED BY THE APPELLANT; 9.6.2. APPLYING A MARK-UP OF 9% TO THE APPELLANTS ALLEGED EXCESSIVE AMP EXPENSES, BASED ON MERE SURMISES AND CONJECTURES; AND 9.7. MAKING AN ADJUSTMENT ON AMP EXPENSES WHICH HAS LED TO DOUBLE TAXATION IN THE HANDS OF THE ASSESSEE. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/HON'BLE DRP ERRED IN COMPUTING THE AMP ADJUSTMENT BY CONSIDERING THE AMP EXPENDITURE IN TO TAL, IRRESPECTIVE OF THE FACT THAT THE APPELLANT HAS MUL TIPLE SEGMENTS INCLUDING THE AE & NON AE SEGMENTS. THEREFORE, CONS IDERING THE ENTIRE AMP EXPENDITURE FOR THE COMPUTATION OF A DJUSTMENT IS ERRONEOUS. 11. THE HON'BLE DRP ERRED IN LAW AND FACT BY MAKING A SUO MOTO TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 3 ,96,82,107 ON ACCOUNT OF AMP EXPENSES INCURRED BY THE APPELLAN T AND IN DOING SO, COMPLETELY OVERLOOKED THE FACT THAT SUCH ADDITION DID NOT ARISE OUT OF THE DRAFT ORDER/TP ORDER AND WAS N OT A GROUND OF OBJECTION RAISED BEFORE THE HON'BLE DRP. 12. THE HON'BLE DRP ERRED IN LAW AND FACT BY NOT GI VING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT ON THE ISSUE OF AMP (AS RAISED IN GROUND NO. N)(SUPRA) THEREBY VIOLATIN G THE RULE OF NATURAL JUSTICE. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN INITIATING PENALTY PROCEED INGS UNDER SECTION 271(1)(C) OF THE ACT WITHOUT ASSIGNING COGE NT REASONS FOR THE SAME. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN CHARGING INTEREST U/S 234A , 234B & 234C OF THE ACT WITHOUT ASSIGNING COGENT REASONS FO R THE SAME. ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 8 CORPORATE TAX GROUND 15. ON THE FACTS, IN LAW AND IN CIRCUMSTANCES OF TH E CASE, THE LD. AO ERRED IN REJECTING THE CLAIM OF BROUGHT FORW ARD LOSSES MADE BY THE ASSESSEE, WHILE COMPUTING THE ASSESSED INCOME. ITA NO.7088/DEL./2017 (AY : 2013-14) 1. THAN ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 9(2), NEW DELHI ('LD. AO') UNDER SECTION 143 (3) READ WITH SECTION 144C OF THE ACT, IN PURSUANCE OF THE DIRECT IONS ISSUED BY THE HONORABLE DISPUTE RESOLUTION PANEL (HON. DRP') , IS BAD IN LAW TO THE EXTENT OF ADJUSTMENT OF INR 889,841,699 (INR 417,429,552 ON ACCOUNT OF TRANSACTIONS RELATING TO DISTRIBUTION OF GOODS, INR 423,363,864 ON COUNT OF ADVERTISEMENT, M ARKETING & PROMOTION CAMP') EXPENSES ON SUBSTANTIVE BASIS AND INR 49,048,283 ON ACCOUNT OF PROTECTIVE BASIS) MADE IN THE IMPUGNED ASSESSMENT ORDER. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TRANSFER PRICING OFFICER ('TPO') FO LLOWING THE DIRECTIONS OF HON'BLE DRP, ERRED IN ASSESSING THE O F LOSS OF INR 90,669,840 AT AN INCOME OF INR 799,171,859. TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 417,42 9,552 TO THE DISTRIBUTION SEGMENT OF THE APPELLANT 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP ERRED IN DISREGAR DING MULTIPLE YEAR/ PRIOR YEARS' DATA AS USED BY THE APP ELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR (I.E . FY 2012- 13) DATA FOR COMPARABLE COMPANIES SHOULD BE USED DE SPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TRANSFER PRICING ('TP' ) DOCUMENTATION. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP GROSSLY ERRED IN NOT APPRECIATING THE FUNCTIONAL PROFILE OF THE APPELLAN T AND INCORRECTLY CHARACTERIZING THE APPELLANT TO BE AKIN TO A SUPER NORMAL/ HIGH RISK DISTRIBUTOR. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/ TPO/ HON'BLE DRP GROSSLY ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY INR 417,429,552 BY R EJECTING RESALE PRICE METHOD RPM') AS THE MOST APPROPRIATE METHOD ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 9 AND SUBSTITUTING THE SAME WITH TRANSACTIONAL NET MA RGIN METHOD ('TNMM') AND CORRESPONDINGLY REJECTING GROSS PROFIT/ SALES (GP /SALES) AS THE RELEVANT PROFIT LEVEL INDI CATOR CPLI') AND SUBSTITUTING THE SAME WITH OPERATING PROFIT/ SA LES (OP /SALES) TO ASCERTAIN THE ARM'S LENGTH PRICE IN THE APPELLANT'S CASE BASED ON SEVERAL SUBJECTIVE PRESUMPTIONS. TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 472,41 2,147 ON ACCOUNT OF AMP EXPENSES INCURRED BY THE APPELLANT 6. THE LD. AO/TPO/HON'BLE DRP ERRED IN TREATING A P ORTION OF THE APPELLANT'S AMP EXPENSES AS BEING EXCESSIVE. FURTHERMORE, LD. AO/TPO/HON'BLE DRP ERRED IN TREATI NG THE ALLEGED EXCESSIVE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE ACT. IN DOING SO, THE LD. AO/TPO/HON'BLE DRP HAVE GROSSLY ERRED IN: 6.1. ASSUMING JURISDICTION IN RESPECT OF THE AMP EXPENDITURE WHEN SUCH EXPENDITURE DID NOT SATISFY T HE REQUISITES OF BEING INTERNATIONAL TRANSACTION UNDER SECTION 92B READ WITH SECTION 92F(V) OF THE ACT; 6.2. NOT CONSIDERING THAT THERE ARE NO MACHINERY PROVISIONS IN CHAPTER X OF THE ACT WHICH ARE APPLIC ABLE TO DETERMINE THE QUANTUM OF TRANSFER PRICING ADJUSTMEN T MADE ON ACCOUNT OF AMP EXPENSES. 6.3. ALLEGING THAT THE APPELLANT IS RENDERING A SER VICE TO ITS AES FOR CREATION OF MARKETING INTANGIBLES IN IN DIA. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO/TPO/ HON'BLE DRP GROSSLY ERRED IN E NHANCING THE INCOME OF THE APPELLANT BY INR 423,363,864 ON S UBSTANTIVE BASIS ON ACCOUNT OF NON-RECEIPT OF THE REIMBURSEMEN T FOR ALLEGED EXCESSIVE AMP EXPENSES INCURRED BY THE APPELLANT AN D IN DOING SO HAVE GROSSLY ERRED IN: 8.1. DISREGARDING THE NATURE OF AMP EXPENSES INCURR ED BY THE APPELLANT AND INCORRECTLY HOLDING THAT SUCH EXPENSE S RESULTS IN DEVELOPING MARKETING INTANGIBLES FOR THE AES; 8.2. DISREGARDING THE FACT THAT THE GROSS PROFIT EA RNED BY THE APPELLANT COMPENSATES THE EXCESSIVE AMP EXPENSES AS ALLEGED BY THE LD. TPO, IF ANY, INCURRED BY IT; 8.3. CONSIDERING THE EXPENDITURE INCURRED IN THE NA TURE OF NORMAL BUSINESS FUNCTION AS A SERVICE AND ERRONEOUSLY BIFU RCATING THE EXPENDITURE INTO ROUTINE AND NON-ROUTINE EXPENDITUR E; ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 10 8.4. WITHOUT PREJUDICE, EVEN IF THE EXPENDITURE ON AMP WERE TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION, THE LD. AO/TPO/ HON'BLE DRP ERRED IN NOT CONSIDERING THE SAME TO BE INTERLINKED AND INTER-CONNECTED TO THE DISTRIBUTION BUSINESS OF THE APPELLANT AND DISREGARDING THAT IT DOES NOT WARRANT A SEPARAT E BENCHMARKING AND HENCE DISREGARDING THE JUDICIAL PR ECEDENCE IN THIS REGARD; 8.5. ALLEGING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT NEED TO BE REIMBURSED BY THE AES ALONG WITH A MARK- UP ON THE SAME BY CONSIDERING THE SAME AS A SERVICE RENDERED BY THE APPELLANT TO ITS AES FOR WHICH IT HAS NOT BEEN COMP ENSATED AND IN DOING SO GROSSLY ERRED IN; 8.5.1. APPLYING THE CONCEPT OF 'INTRA-GROUP SERVIC ES' WITHOUT DUE UNDERSTANDING THEREOF AND WITHOUT DEMONSTRATING THAT SERVICES HAVE NOT BEEN RENDERED FOR THE BENEFIT OF THE AES OR ANY TANGIBLE BENEFITS HAV E NOT BEEN RECEIVED BY THE AES FOR WHICH A RETURN NEEDS T O EARNED BY THE APPELLANT; 8.5.2. UNDERTAKING COMPARABILITY ADJUSTMENT BY APP LYING TNMM AND INCLUDING THE ALLEGED EXCESSIVE AMP EXPENSES IN OPERATING COST AND OPERATING REVENUE AL ONG WITH A MARK-UP; AND 8.5.3. ARBITRARILY DETERMINING THE MARK-UP TO BE EA RNED FOR PERFORMING AMP SERVICES; 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO/TPO/ HON'BLE DRP ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY INR 49,048,283 ON A PROTECTIVE BASIS AND IN DOING SO, HAVE GROSSLY ERRED IN: 9.1. HOLDING THE AMP EXPENSES INCURRED BY THE APPELLANT TO BE 'EXCESSIVE' ON THE BASIS OF A 'BRIG HT LINE TEST'; 9.2. APPLYING A MARK-UP OF 12.18% IN RESPECT OF THE APPELLANT'S 'ALLEGED EXCESSIVE' AMP EXPENSES; 9.3. DISREGARDING THE FACT THAT BRIGHT LINE TEST H AS NO STATUTORY MANDATE AND IT IS NOT OBLIGATORY TO SUBJE CT AMP EXPENSES TO A BRIGHT LINE TEST 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. LD. AO/TPO/ HON'BLE DRP HAS GROSSLY ER RED IN MAKING BOTH SUBSTANTIVE AND PROTECTIVE ADJUSTMENT. ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 11 11. THE HON'BLE DRP ERRED IN LAW AND FACT BY SUO MO TA DIRECTING AMP ADJUSTMENT BASED ON THE ADDITION OF P REVIOUS YEAR AND NOT GIVING AN OPPORTUNITY OF BEING HEARD TO THE APPELLANT ON THE ISSUE OF AMP THEREBY VIOLATING THE RULE OF NATU RAL JUSTICE. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. LD. AO/TPO HAS GROSSLY ERRED IN COMPUT ING ADJUSTMENT BOTH ON ACCOUNT OF CHANGE IN METHOD FROM RPM TO TNMM TO THE DISTRIBUTION SEGMENT OF THE APPELLANT A ND AMP ADJUSTMENT ON SUBSTANTIVE BASIS, WHICH HAS LED TO C OMPARABILITY ADJUSTMENTS BEING MADE TWICE TO THE INCOME OF THE A PPELLANT LEADING TO DOUBLE TAXATION IN THE HANDS OF THE APPE LLANT; 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN INITIATING PENALTY PROCEED INGS UNDER SECTION 271(1)(C) OF THE ACT WITHOUT ASSIGNING COGE NT REASONS FOR THE SAME. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN CHARGING INTEREST U/ S 234 A, 234B & 234C OF THE ACT WITHOUT ASSIGNING COGENT REASONS FO R THE SAME. BRIEF FACTS OF ITA NO.1674/DEL./2016 (AY : 2011-12) 3. BRIEFLY STATED THE FACTS NECESSARY TO ADJUDICATE THE ISSUES IN CONTROVERSY ARE : M/S. FUJITSU INDIA PRIVATE LIMIT ED, THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY OF FUJITSU TECHNOLOGY SOLUTIONS, HOLDING, B.V., NETHERLANDS, INCORPORATED IN 1997, E NGAGED IN TRADING OF IT SOLUTIONS AND SERVICES IN INDIA. POR TFOLIO OF THE TAXPAYER ALSO INCLUDES SERVERS, STORAGE SYSTEMS, WO RKSTATIONS, NOTEBOOKS, DESKTOPS & DISPLAYS. THE TAXPAYER IS AL SO ENGAGED IN IT PRODUCT MAINTENANCE AND SUPPORT SERVICES. DURIN G THE YEARS UNDER ASSESSMENT, THE TAXPAYER ENTERED INTO INTERNA TIONAL ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 12 TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) A S PER FORM NO.3CEB WHICH ARE EXTRACTED AS UNDER :- S.NO. INTERNATIONAL TRANSACTION METHOD APPLIED AMOUNT 1. TRADING OF GOODS RPM 7,66,67,772 2. IT SERVICES TNMM 11,59,01,055 3. BUSINESS SUPPORT SERVICES TNMM 14,22,58,233 4. PURCHASE OF FIXED ASSETS CUP 10,01,83,952 5. REIMBURSEMENT OF EXPENSES N.A 75,02,235 6. RECOVERY OF EXPENSES N.A 74,44,340 BRIEF FACTS OF ITA NO.1982/DEL./2017 (AY : 2012-13) 4. INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE T AXPAYER WITH ITS AE DURING AY 2012-13 ARE EXTRACTED AS UNDER :- S.NO. INTERNATIONAL TRANSACTION METHOD APPLIED AMOUNT 1. PURCHASE OF GOODS FOR TRADING RPM 247,623,420 2. PURCHASE OF SPARE PARTS RPM 31,242,767 3. RECEIPT OF IT SERVICES TNMM 20,639,907 2. PROVISION OF IT SERVICES TNMM 28,499,837 3. BUSINESS SUPPORT SERVICES TNMM 62,781,183 4. PURCHASE OF FIXED ASSETS TNMM 29,684,974 5. REIMBURSEMENT OF EXPENSES CUP 28,853,246 6. RECOVERY OF EXPENSES CUP 15,297,246 BRIEF FACTS OF ITA NO.7088/DEL./2017 (AY : 2013-14) 4. INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE T AXPAYER WITH ITS AE DURING AY 2013-14 ARE EXTRACTED AS UNDER :- ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 13 S.NO. INTERNATIONAL TRANSACTION AMOUNT 1. PURCHASE OF FINISHED GOODS 645,655,926 2. PURCHASE OF SPARE PARTS 73,570,891 3. AVAILING OF IT SERVICES 8,226,076 4. AVAILING OF MAINTENANCE SUPPORT SERVICES 7,050,209 4. PROVISION OF IT SERVICES 29,180,273 5. PROVISION OF BUSINESS SUPPORT SERVICES 281,034,456 6. PROVISION OF FIXED ASSETS 10,426,407 7. REIMBURSEMENT OF EXPENSES 63,758,725 8. RECOVERY OF EXPENSES 13,570,867 TOTAL 1,132,473,830 5. COMMON/IDENTICAL ISSUE INVOLVED IN ALL THE AFORE SAID APPEALS IS THAT THE TAXPAYER IN ITS TP ANALYSIS HAS SELECTE D RESALE PRICE METHOD (RPM) AS THE MOST APPROPRIATE METHOD (MAM) W ITH GROSS PROFIT / SALES (GP/SALES) AS THE PROFIT LEVEL INDICATOR (PLI), SELECTED 16 COMPARABLES IN AY 2011-12 WITH GP/SALES MARGIN AT 5.51% AS AGAINST TAXPAYERS GP/SALES MARGIN AT 6.55 % AND FOUND ITS INTERNATIONAL TRANSACTIONS QUA AYS 2011-12, 201 2-13 AND 2013- 14 WITH REGARD TO TRADING OF GOODS AT ARMS LENGTH. 6. TPO IN ALL THE YEARS VIZ. AY 2011-12, 2012-13 & 2013-14 REJECTED RPM AS THE MAM APPLIED BY THE TAXPAYER FOR BENCHMARKING ITS INTERNATIONAL TRANSACTIONS FOR TRA DING FUJITSU PRODUCTS IN INDIA I.E. PURCHASE OF GOODS AND SPARES FOR TRADING IN INDIA, HOWEVER APPLIED TRANSACTIONAL NET MARGIN MET HOD ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 14 (TNMM) AS MAM ADOPTED SAME COMPARABLES AS SELECTED BY THE TAXPAYER IN TP STUDY BY APPLYING RPM METHOD AND PRO POSED THE TP ADJUSTMENT OF RS.58,724,008, RS.79,243,871 & RS. 4,49,492,709 FOR AYS 2011-12, 2012-13 & 2013-14 RESPECTIVELY. 7. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. C IT (A) BY RAISING OBJECTIONS WHO HAS APPROVED THE FINDINGS RE TURNED BY THE TPO QUA PROPOSED TP ADJUSTMENT IN ALL THE THREE YEA RS INVOLVED. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BY WAY OF FILING APPEALS CHALLENGING THE IMPUGNED ORDERS PASSED BY T HE AO/TPO/DRP. 8. 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. GROUNDS NO.1 & 2 IN ITA NO.1674/DEL./2016 (AY : 2011-12) ITA NO.1982/DEL./2017 (AY : 2012-13) ITA NO.7088/DEL./2017 (AY : 2013-14) 9. GROUNDS NO.1 & 2 IN ITA NO.1674/DEL./2016 (AY : 2011- 12), ITA NO.1982/DEL./2017 (AY : 2012-13) AND ITA ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 15 NO.7088/DEL./2017 (AY : 2013-14) ARE GENERAL IN NAT URE, HENCE DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. GROUND NO.3 IN ITA NO.1674/DEL./2016 (AY : 2011-12) ITA NO.1982/DEL./2017 (AY : 2012-13) 10. GROUND NO.3 IN 1674/DEL./2016 (AY : 2011-12) AN D ITA NO.1982/DEL./2017 (AY : 2012-13) IS DISMISSED HAVI NG NOT BEEN PRESSED DURING THE COURSE OF ARGUMENTS. GROUNDS NO.4, 5 & 6 IN ITA NO.1674/DEL./2016 (AY : 2011-12) ITA NO.1982/DEL./2017 (AY : 2012-13) GROUNDS NO.3, 4 & 5 IN ITA NO.7088/DEL./2017 (AY : 2013-14) 11. IT IS ALSO NOT IN DISPUTE THAT THE TAXPAYER IS TRADING IN SERVERS, LAPTOPS, NOTEPADS, ETC. WHICH ARE HARDWARE EQUIPMEN TS OF IT SEGMENTS. IT IS THE CASE OF THE TPO THAT DURING TP PROCEEDINGS, THE TAXPAYER ACCEPTED THAT PURCHASE OF TRADING GOODS IN CLUDES GOODS FOR COMPONENTS OF IT SUPPORT SERVICES. SO, THESE T WO TYPES OF GOODS BEING INTRINSICALLY INTER-CONNECTED, IT IS NO T CORRECT TO BENCHMARK TRADING AT GROSS LEVEL AND OTHER PARTS AT NET LEVEL BECAUSE AT THE GROSS LEVEL THERE IS A POSITIVE INCO ME AND AT THE NET ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 16 LEVEL, THERE IS A LOSS OF 75%. IT IS ALSO NOT IN D ISPUTE THAT THE TPO HAS NOT PROPOSED TP ADJUSTMENT ON ACCOUNT OF ADVERT ISEMENT, MARKETING AND PROMOTION (AMP) EXPENSES. HOWEVER, T HE AMP ADJUSTMENTS HAVE BEEN MADE BY LD. DRP. 12. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRC UMSTANCES OF THE CASE, THE SOLE QUESTION ARISES FOR DETERMINATIO N IN THIS CASE IS :- AS TO WHETHER TPO/DRP HAVE ERRED IN SUBSTITUTING RPM AS THE MAM WITH TNMM BY REJECTING THE GROSS PROFIT/SALES (GP/SALES) AS THE PROFIT LEVEL INDICAT OR (PLI) BY SUBSTITUTING THE SAME WITH OP/SALES TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BETWEEN THE TAXPAYER AND ITS ASSOCIATED ENTERPRISES (AE) DURING THE YEARS UNDER ASSESSMENT? 13. LD. AR FOR THE TAXPAYER CONTENDED INTER ALIA TH AT THE TAXPAYER IS TO BE TREATED AS A NORMAL DISTRIBUTOR E VEN IF THERE ARE MULTIPLE TRANSACTIONS; THAT THE TAXPAYER IS SELLING SERVERS, LAPTOPS AND NOTEPADS WITHOUT ANY VALUE ADDITION; THAT THE T AXPAYER IS INCURRING A ROUTINE NORMAL ADVERTISING EXPENSES WHI CH CANNOT INCREASE THE VALUE OF THE PRODUCT BUT WILL CERTAINL Y INCREASE THE SALES. 14. HOWEVER, ON THE OTHER HAND, TO REPEL THE ARGUME NTS OF THE LD. AR FOR THE TAXPAYER, THE LD. DR FOR THE REVENUE CON TENDED THAT IN THE GROSS MARGIN LEVEL, THE TAXPAYER HAS NOT CONSID ERED ALL THE ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 17 RELEVANT COST BECAUSE THE TAXPAYER HAS POSITIVE GRO SS PROFIT IN TRADING SEGMENT BUT AT THE NET LEVEL, THERE IS A LO SS OF 75.26%; THAT THE TAXPAYER IS PERFORMING MULTIPLE FUNCTIONS INCLU DING PURCHASE ORDER, WAREHOUSING INVENTORY CONTROL, QUALITY CONTR OL, BUDGETS AND FOR CASTING, PRICING AND MARKETING AND SALES, THERE FORE, THE TAXPAYER IS NOT MERELY A DISTRIBUTOR I.E. SALE AND PURCHASE OF GOODS, BUT ALSO PERFORMED HOST OF FUNCTIONS SUCH AS MARKETING INCLU DING BRAND BUILDING. 15. TPO HAS BASED HIS ENTIRE FINDINGS ON THE SOLE G ROUND THAT THE TAXPAYER IS NOT A NORMAL DISTRIBUTOR AS HE HAS BEEN PERFORMING HOST OF FUNCTIONS INCLUDING PURCHASE ORDER, WAREHOUSING AND INVENTORY CONTROL, QUALITY CONTROL, BUDGETING AND FORECASTING , PRICING AND MARKETING AND SALES WHICH THE TAXPAYER NEEDS TO CAR RY OUT WITHIN ITS DISTRIBUTION FUNCTION TO ENSURE THAT ITS GOODS REACHED THE MARKET AND READY FOR ACTUAL RESALE. IT IS ALSO THE CASE O F THE TPO THAT UNLESS THE TAXPAYER HAS MADE PROPER WAREHOUSING ARR ANGEMENT OR HAS PROPER INVENTORY CONTROL, ITS GOODS WILL NOT MO VE TO THE POINT OF SALE WHICH CAN BE SAID OF THE MARKETING EFFORTS OF THE TAXPAYER. 16. TPO ALSO PROCEEDED TO CHANGE THE METHOD ON THE PREMISES THAT THE TAXPAYER HAS INCURRED AMP EXPENSES OF RS.1 5,425,168/- AGAINST THE TRADING REVENUE OF RS.81,738,810 WHICH IS 18.87% ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 18 WHICH IS DEFINITELY MUCH HIGHER THAN THE EXPENSES O F A ROUTINE DISTRIBUTOR. TPO ALSO NOT ENTERTAINED THE ARGUMENT S OF THE TAXPAYER THAT THE NET LEVEL LOSS THE TAXPAYER HAS SUFFERED I S DUE TO FAILURE OF THE BUSINESS/ PROJECT PLANS FOR THE FINANCIAL YEARS ON THE GROUND THAT AE OUGHT TO HAVE BEEN SUPPORTED THE TAXPAYER EITHER BY REIMBURSEMENT OF COST OR SOME PRICE SUPPORT IN THE INTERNATIONAL TRANSACTION OF PURCHASE OF FINISHED GOODS BY THE TA XPAYER. SO, THE TPO PROCEEDED TO BELIEVE THAT THE NET LOSS OF THE T AXPAYER IS LINKED TO THE TRANSFER PRICE THAT THE TAXPAYER HAS AGREED WITH ITS AE AND IN THESE CIRCUMSTANCES, TNMM IS THE MOST APPROPRIATE M ETHOD. 17. HOWEVER, WHEN WE EXAMINE THE ARGUMENTS ADDRESSE D BY BOTH THE LD. REPRESENTATIVE FOR THE PARTIES TO THE APPEAL IN THE LIGHT OF THE UNDISPUTED FACTS, IT GOES TO PROVE THAT THE TAXPAYER HAS PURCHASED FINISHED GOODS READY FOR SALE IN THE MARK ET FROM ITS AE WITHOUT MAKING ANY VALUE ADDITION TO THE SAME. THE FUNCTION PERFORMED BY THE TAXPAYER FOR ISSUANCE OF THE PURCH ASE ORDER, BUDGET CONTROL, QUALITY CHECKS, ETC. WOULD NOT CHAN GE THE ROLE OF THE TAXPAYER OTHER THAN A NORMAL DISTRIBUTOR. 18. NOW, THE QUESTION ARISES FOR DETERMINATION IN T HIS CASE IS AS TO WHETHER FUNCTIONS PERFORMED BY THE TAXPAYER WITH REGARD TO ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 19 QUALITY CONTROL, WAREHOUSING, SALES AND MARKETING E TC. ARE REQUIRED TO BE CAPTURED IN THE RESALE PRICE MARGIN. 19. UNDISPUTEDLY, THESE COSTS ARE QUA UNRELATED PAR TIES AND TO OUR MIND, THESE ACTIVITIES ARE NOT LINKED TO THE IN TERNATIONAL TRANSACTIONS ENTERED INTO BETWEEN THE TAXPAYER AND THE AES AS THE AES DO NOT HAVE ANY CONTROL ON SUCH ACTIVITIES AND THE ANSWER TO THE QUESTION IS TO BE FOUND IN CASE LAW RELIED UPON BY THE TAXPAYER AS UNDER. 20. COORDINATE BENCH OF THE TRIBUNAL IN HORIBA INDIA (P.) LTD. VS. DCIT (2017) 81 TAXMANN.COM 209 (DELHI-TRIB.) WHILE DECIDING THE IDENTICAL ISSUE AS TO WHETHER RPM OR T NMM IS THE MOST APPROPRIATE METHOD TO DETERMINE ALP OF INTERNA TIONAL TRANSACTIONS IN CASE OF DISTRIBUTION OF MARKETING A CTIVITIES BY RELIED UPON THE DECISION RENDERED BY HONBLE MUMBAI HIGH C OURT IN LOREAL INDIA PVT. LTD. IN ITA NO.1046 OF 2012 , DECISIONS OF THE TRIBUNAL IN NOKIA INDIA (P) LTD. (2015) 167 TTJ 243 (DEL.) AN D MATTEL TOYS (I.)(P.) LTD. VS. DCIT (2013) 34 TAXM ANN.COM 203 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY RETURNING FOLLOWING FINDINGS :- 14. FROM THE AFORESAID DECISION IT IS QUITE OSTEN SIBLE THAT IN CASE OF A DISTRIBUTOR, WHEREIN THE GOODS ARE PURCHA SED FROM AE AND RESOLD TO OTHER INDEPENDENT ENTITIES WITHOUT AN Y VALUE ADDITION, THEN RESALE PRICE METHOD SHOULD BE RECKON ED AS MAM. ONE OF THE MAIN REASON GIVEN BY THE TPO AS WELL AS THE DRP IS ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 20 THAT THE ASSESSEE IS A FULL-FLEDGED/FULL RISK DISTR IBUTOR AND PERFORMING HOST OF FUNCTIONS, THEREFORE, RPM SHOULD NOT BE TAKEN US THE MAM, BECAUSE ALL THESE FUNCTIONS REQUI RED HUGE COST WHICH MAY NOT REPRESENT CORRECT GROSS PROFIT M ARGIN. WE ARE UNABLE TO APPRECIATE SUCH PROPOSITION, BECAUSE IN A COMPARABLE UNCONTROLLED TRANSACTIONS SCENARIO, A NORMAL DISTRI BUTOR WILL UNDERTAKE ALL KIND OF FUNCTIONS WHICH ARE RELATED T O SALES OF THE PRODUCT. THE FUNCTIONS LIKE MARKET RESEARCH, SALES AND MARKETING, WARE-HOUSING, INVENTORY CONTROL, QUALITY CONTROL ETC. AND ALSO RISK LIKE MARKET RISK, INVENTORY RISK, CRE DIT RISK ETC ALL ARE UNDERTAKEN BY ANY DISTRIBUTOR FOR SALE OF PRODU CTS. NO COMPARABLE INSTANCES HAVE BEEN BROUGHT EITHER BY TH E TPO OR BY THE LD. DRP THAT THE OTHER DISTRIBUTORS ARE NOT PER FORMING SUCH FUNCTIONS. WHAT IS IMPORTANT IS TO SEE IS, WHETHER THERE IS ANY VALUE ADDITION OR NOT ON THE GOODS PURCHASED FOR RE SALE? IF THERE IS NO VALUE ADDITION AND IF THE FINISHED GOODS WHIC H ARE PURCHASED FROM AE ARE RESOLD IN THE MARKET AS IT IS , THEN GROSS PROFIT MARGIN EARNED ON SUCH TRANSACTION BECOMES TH E DETERMINATIVE FACTOR TO ANALYSE THE GROSS COMPENSAT ION AFTER THE COST OF SALES. THUS, WE HOLD THAT UNDER THE FACTS O F THE PRESENT CASE, RPM SHOULD BE HELD AS MAM. 21. COORDINATE BENCH OF THE TRIBUNAL IN ACIT VS. KOBELCO CONSTRUCTION EQUIPMENT INDIA LTD. 186 TTJ 790 ALSO DECIDED THE IDENTICAL ISSUE BY RELYING UPON MATTEL TOYS (I.)(P.) LTD. VS. DCIT (SUPRA) AND LOREAL INDIA P. LTD. - (2012) 24 TAXMANN.COM 192, IN FAVOUR OF THE ASSESSEE BY RETURNING FOLLOWING FI NDINGS :- 13. THE AFORESAID DECISION CLEARLY CLINCHES THE I SSUE THAT UNDER THE RPM, THE FOCUS IS MORE ON SAME OR SIMILAR NATURE OF PROPERTIES OR SERVICES RATHER THAN SIMILARITY OF PRODUCTS AND FUNCTIONAL ATTRIBUTE IS A PRIMARY FACTOR WHILE UNDERTAKING THE COMPARABILITY ANALYSIS UNDER RPM. FURTHER, RPM IS MOSTLY APPLIED IN THE CASE OF A DIS TRIBUTOR WHERE RESELLER PURCHASES TANGIBLE PROPERTY AND OBTA INS SERVICES FROM THE AE AND WITHOUT MAKING ANY VALUE ADDITION, RESELLS THE SAME TO THIRD PARTIES. UNDER THESE CIRCUMSTANCES AND LOOKING TO THE FACT THAT FUNCTION S PERFORMED BY THE ASSESSEE IS OF DISTRIBUTOR ONLY, T HEREFORE, RPM SHOULD BE RECKONED AS THE MOST APPROPRIATE METH OD AND ACCORDINGLY, WE AGREE WITH THE LEARNED CIT(A) T HAT ON ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 21 THE FACTS OF THE PRESENT CASE, RPM SHOULD BE THE AD OPTED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING ASSESS EE'S INTERNATIONAL TRANSACTIONS. SO FAR AS THE TWO COMPA RABLES CHOSEN BY THE TPO APART FROM ASSESSEE'S COMPARABLES ARE CONCERNED, WE FIND THAT, T & I GLOBAL LIMITED HAS R IGHTLY BEEN REJECTED BY LEARNED CIT(A), BECAUSE THIS COMPA NY WAS MANUFACTURING MACHINERY, THEREFORE, SAME CANNOT BE COMPARED 15 ITA-6401/DEL/2012 WITH THE ASSESSEE WHI CH IS PURELY PERFORMING THE DISTRIBUTION FUNCTION. THUS, THE FINAL LIST OF COMPARABLES, I.E., THREE CHOSEN BY THE ASSE SSEE AND ACCEPTED BY THE TPO AND ONE AS SELECTED BY THE TPO AND UPHELD BY THE LEARNED CIT(A), IS SUSTAINED FOR COMP ARING THE MARGINS UNDER RPM. AS A CONSEQUENCE, WE HOLD TH AT THE TP ADJUSTMENT MADE BY THE LEARNED TPO HAS RIGHT LY BEEN DELETED BY LD CIT(A). ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 22. KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE DECISIONS RENDERED BY THE HONBLE MUM BAI HIGH COURT IN LOREAL INDIA PVT. LTD. IN ITA NO.1046 OF 2012 (SUPRA) AND THE DECISIONS OF THE COORDINATE BENCH OF THE TR IBUNAL IN HORIBA INDIA (P.) LTD. VS. DCIT , NOKIA INDIA (P) LTD., MATTEL TOYS (I.)(P.) LTD. VS. DCIT, AND ACIT VS. KOBELCO C ONSTRUCTION EQUIPMENT INDIA LTD (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT IN CASE FINISHED GOODS ARE PURCHASED BY THE TAXPAYER F ROM ITS AE READY TO BE SOLD IN THE MARKET WITHOUT ANY VALUE AD DITION THEN RESALE PRICE METHOD (RPM) IS THE MAM TO BENCHMARK T HE INTERNATIONAL TRANSACTIONS. 23. SO, FINDINGS RETURNED BY TPO/DRP THAT THE TAXPA YER BEING A FULL-FLEDGED RISK BEARING DISTRIBUTOR PERFORMING NU MEROUS ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 22 FUNCTIONS, RPM IS NOT THE MAM, IS NOT SUSTAINABLE F OR THE REASON THAT IN A COMPARABLE UNCONTROLLED TRANSACTION, NORM ALLY DISTRIBUTOR REQUIRES TO CARRY OUT ALL THE FUNCTIONS NECESSARY T O ENHANCE THE SALES LIKE MARKET RESEARCH, INVENTORY RISK, CREDIT RISK ETC.. IN SUCH CIRCUMSTANCES, NO COMPARABLE INSTANCES HAVE BEEN BR OUGHT ON RECORD BY THE TPO/DRP. SO, WHEN FINISHED GOODS PUR CHASED BY THE TAXPAYER ARE RESOLD IN THE MARKET WITHOUT ANY V ALUE ADDITION, THEN GROSS MARGIN EARNED ON SUCH TRANSACTION IS THE ONLY DETERMINATIVE FACTOR TO ANALYSE GROSS COMPENSATION AFTER THE COST OF SALE. SO, WE ARE OF THE CONSIDERED VIEW THAT RPM I N THIS CASE IS THE MAM TO BENCH MARK THE INTERNATIONAL TRANSACTIONS. IN THESE CIRCUMSTANCES, ADDITION MADE BY THE TPO/AO MERELY B Y DISPUTING THE METHOD APPLIED BY THE TAXPAYER IS NOT SUSTAINAB LE IN THE EYES OF LAW. METHOD FOR BENCHMARKING THE INTERNATIONAL TRA NSACTION CANNOT BE CHANGED MERELY BECAUSE OF THE FACT THAT THE TAXP AYER HAS SUFFERED LOSS AT THE NET LEVEL BUT HAS POSITIVE GRO SS PROFIT IN TRADING SEGMENT AS IT DEPENDS ON HOST OF CIRCUMSTANCES. SO , GROUNDS NO.4, 5 & 6 IN ITA NO.1674/DEL./2016 (AY : 2011-12) & ITA NO.1982/DEL./2017 (AY : 2012-13) AND GROUNDS NO.3, 4 & 5 IN ITA NO.7088/DEL./2017 (AY : 2013-14) ARE DETERMINED IN FAVOUR OF THE TAXPAYER. ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 23 GROUND NO.7 IN ITA NO.1674/DEL./2016 (AY : 2011-12) 24. GROUND NO.7 IN ITA NO.1674/DEL/2016 FOR AY 2011 -12 IS DISMISSED HAVING NOT BEEN PRESSED DURING THE COURSE OF ARGUMENTS. GROUNDS NO.8, 9, 10 & 11 IN ITA NO.1674/DEL./2016 (AY : 2011-12) GROUNDS NO.7, 8, 9, 10, 11 & 12 IN ITA NO.1982/DEL./2017 (AY : 2012-13) GROUNDS NO.7, 8, 9, 10, 11 & 12 IN ITA NO.7088/DEL./2017 (AY : 2013-14) 25. UNDISPUTEDLY, THE TPO HAS NOT MADE ANY ADJUSTME NT ON ACCOUNT OF ADVERTISEMENT, MARKETING & PROMOTION (AM P) EXPENSES. THE LD. DRP DIRECTED THE TPO TO MAKE ADJ USTMENT ON ACCOUNT OF AMP EXPENSES BY TREATING THE SAME AS SEP ARATE INTERNATIONAL TRANSACTIONS. IT IS THE CASE OF THE TAXPAYER THAT SINCE THE AMP EXPENSES INCURRED BY THE TAXPAYER IS NOT IN TERNATIONAL TRANSACTIONS AND BRIGHT LINE TEST CANNOT BE ACCEPTE D TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF AMP, THE ADDITION IS NOT SUSTAINABLE AND RELIED UPON THE DECISION OF MARUTI SUZUKI INDIA LTD. VS. CIT ITA NO.110 OF 2014 & 710 OF 2015, YU M RESTAURANTS (INDIA) PVT. LTD. VS. ITO ITA NO.349 OF 2015, CIT ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 24 VS. WHIRLPOOL OF INDIA LTD. ITA NO.610/2014 AND B AUSCH & LOMB EYECARE (INDIA) (P.) LTD. VS. ACIT ITA NO.64 3, 675 TO 677 OF 2014, 165, 166 & 950 OF 2015 . 26. HOWEVER, ON THE OTHER HAND, TO REPEL THE ARGUME NTS OF THE LD. AR FOR THE TAXPAYER, THE LD. DR FOR THE REVENUE CON TENDED THAT SINCE THE TAXPAYER IS A DISTRIBUTOR, IT IS COVERED BY THE DECISION OF HONBLE HIGH COURT IN CASE OF SONY ERICSON ITA NO.16 OF 2014 . 27. HOWEVER, WITHOUT GOING INTO THE MERITS OF THE C ASE, WHEN WE EXAMINE LETTER DATED DECEMBER 29, 2015 WRITTEN BY T HE TAXPAYER TO THE LD. DRP, NO OPPORTUNITY OF BEING HEARD HAS BEEN GIVEN TO THE TAXPAYER BEFORE MAKING ALP ADJUSTMENT ON ACCOUNT OF AMP EXPENSES. FOR READY PERUSAL, OPERATIVE PART OF THE LETTER (SUPRA) IS EXTRACTED AS UNDER :- THE HON'BLE PANEL HAS ASKED FURNISH CERTAIN INFORMATION. IN THIS REGARD, THE ASSESSEE SUBMITS A S FOLLOWS: EXPLAIN AS TO WHY RATIO OF GP/SALES (GROSS PROFIT/ OPERATING REVENUE) SHALL NOT BE USED INSTEAD PLR FO R BENCHMARKING THE INTERNATIONAL TRANSACTION OF ADVERTISEMENT, MARKETING AND PROMOTIONAL ('AMP') IN THE ASSESSEE'S CASE AND EXPLAIN AS TO WHY THE ADVERTISEMENT EXPENSES EXCLUDED BY APPLYING BRIGHT- LINE SHOULD NOT BE TAKEN AS PART OF AMP EXPENSES. IN THIS REGARD, AT THE OUTSET, THE ASSESSEE WOULD L IKE TO SUBMIT THAT THE LEARNED TRANSFER PRICING OFFICER (' LD. TPO) IN ITS ORDER DATED JANUARY 07, 2015 PASSED U/S 92CA OF THE INCOME-TAX ACT, 1961 ('THE ACT'), HAS N OT ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 25 MADE ANY ADJUSTMENT ON ACCOUNT OF EXCESSIVE SPEND B Y THE ASSESSEE ON AMP. FURTHER, THIS ISSUE WAS ALSO N OT DISCUSSED ELUTING THE HEARING HELD BEFORE THE HON'B LE PANEL ON DECEMBER 14, 2015. HOWEVER, IN CASE THE HON'BLE PANEL WISHES TO ANALYS E THE MARKETING INTANGIBLE/AMP ISSUE AT THIS STAGE, T HE ASSESSEE SEEKS A REASONABLE OPPORTUNITY TO PRESENT ITS CASE IN LINE WITH THE PRINCIPLE OF NATURAL JUSTICE. IN CASE YOUR HONOUR'S REQUIRE ANY OTHER INFORMATION/CLARIFICATIONS, THE ASSESSEE WOULD APPROPRIATELY RESPOND AT THE EARLIEST. 28. BARE PERUSAL OF THE AFORESAID LETTER DATED 29.1 2.2015, UNDISPUTEDLY RECEIVED BY THE LD. DRP, GOES TO PROVE THAT WHEN LETTER (SUPRA) ISSUED BY THE TAXPAYER SEEKING OPPOR TUNITY TO EXPLAIN THE QUERY RAISED BY THE LD. DRP BUT THE LD. DRP WIT HOUT AFFORDING ANY OPPORTUNITY OF BEING HEARD, LD. DRP HAS PASSED THE IMPUGNED ORDER ON 30.12.2015. SO, LD. DRP BEING A QUASI-JUD ICIAL AUTHORITY IS UNDER LEGAL OBLIGATION TO AFFORD AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER BEFORE PASSING ANY ORDER. IN THESE CI RCUMSTANCES, TP ADJUSTMENT MADE BY THE LD. DRP/TPO/AO ON ACCOUNT OF AMP EXPENSES IS NOT SUSTAINABLE, HENCE THE ISSUE IS REM ITTED BACK TO THE TPO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 26 GROUNDS NO.12 & 13 IN ITA NO.1674/DEL./2016 (AY : 2011-12) GROUNDS NO.13, 14 & 15 IN ITA NO.1982/DEL./2017 (AY : 2012-13) GROUNDS NO.13 & 14 IN ITA NO.7088/DEL./2017 (AY : 2013-14) 26. GROUNDS NO.12 & 13 IN ITA NO.1674/DEL./2016 (AY : 2011- 12), GROUNDS NO.13, 14 & 15 IN ITA NO.1982/DEL./201 7 (AY : 2012-13) AND GROUNDS NO.13 & 14 IN ITA NO.7088/DEL. /2017 (AY : 2013-14) ARE PREMATURE AND CONSEQUENTIAL IN NATUR E, HENCE DO NOT NEED ANY SPECIFICATION ADJUDICATION. 27. RESULTANTLY, ALL THE APPEALS, ITA NO.1674/DEL./ 2016 (AY : 2011-12), ITA NO.1982/DEL./2017 (AY : 2012-13) AND ITA NO.7088/DEL./2017 (AY : 2013-14) ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 3 RD DAY OF JULY, 2018. SD/- SD/- (CHANDRA POOJARI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 3 RD DAY OF JULY, 2018 TS ITA NO.1674/DEL./2016 ITA NO.1982/DEL./2017 ITA NO.7088/DEL./2017 27 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.