JOHNSON & JOHNSON PVT. LTD, Mumbai V. DY.COMM OF INCOME TAX-LTU-1, MU

ITA 1998/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6635 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2009-2010
• Appeal Filed On: 02-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M P LO HIA SHRI PRANAY GANDHI
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Fair market value; TDS; Set aside
• Section: 92C; 143(3); 92B; 92F; 92E; 234B; 115JB; 37; 2; 92

Judgement Text

1 ITA 1998/MUM/2018 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI SHRI G MANJUNATHA (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO. 1998/MUM/2018 (ASSESSMENT YEAR : 2009-10 ) JOHNSON & JOHNSON PRIVATE LIMITED, 501, AREA SPACE, OFF JVLR, OPP. MAJAS BUS DEPOT, JOGESHWARI (E), MUMBAI-400 060 PAN : AAACJ0866E VS DEPUTY COMMISSIONER OF INCOME-TAX- LTU-1, MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI MP LOHIA / SHRI PRANAY GANDHI RESPONDENT BY SHRI RAJNEESH YADAV DATE OF HEARING 03-12-2018 DATE OF PRONOUNCEMENT 27-02-2019 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE AO PASSED US 143(3) R.W.S. 254 R.W.S. 144C(13) OF THE I.T. ACT, 1961 DATED 30-01- 2018 FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, JOHNSON & JOHNSON PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE 'APPELLANT') CRAVES LEAVE TO PREFER AN APPEAL AGAINST THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-T AX, LARGE TAXPAYER UNIT-L, MUMBAI [HEREINAFTER REFERRED TO AS THE 'LEARNED AO'] UNDER SECTION 143(3) READ WITH SECTION 254 2 ITA 1998/MUM/2018 READ WITH SECTION 144C(13) OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS THE 'ACT'}, IN PURSUANCE TO THE DIRECTIONS ISSUED BY TH E HON'BLE DISPUTE RESOLUTION PANEL-L, (HEREINAFTER REFERRED TO AS THE 'HON'BLE DRP') ON T HE FOLLOWING GROUNDS, EACH OF WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HON'BLE DRP, THE LEARNED AO AND DEPUTY COMMISSIONER OF INCOME-TAX (T RANSFER PRICING) - 2(3)(1) (TPO 1 ) HAVE ERRED IN: GENERAL 1. ASSESSING THE TOTAL INCOME AT RS. 253.30 CR ORES AS AGAINST RETURNED INCOME OF RS. 185.64 CRORES COMPUTED BY THE APPELLANT TRANSFER PRICING ADJUSTMENTS ADJUSTMENT ON ACCOUNT OF ADVERTISING, MARKETING AND PROMOTION {'AMP') EXPENDITURE AMOUNTING TO RS.100.36 CRORES 2. NOT FOLLOWING THE DIRECTIONS GIVEN BY THE H ON'BLE MUMBAI INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEE'S CASE IN FIRST ROUND OF L ITIGATION TO FOLLOW THE PRINCIPLES LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN CASE OF MARUTI S UZUKI INDIA LIMITED AND SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD.; 3. MAKING AN ADJUSTMENT IN RESPECT OF AMP EXPE NDITURE OF RS. 100.36 CRORES ALLEGING THAT THE AMP EXPENSE INCURRED BY THE APPELLANT IS A N INTERNATIONAL TRANSACTION UNDER SECTION 92B; 4. IGNORING THAT THE ALLEGED AMP EXPENSES INCU RRED BY THE APPELLANT REPRESENTS ONLY DOMESTIC TRANSACTIONS UNDERTAKEN WITH THIRD PARTIES AND ARE OUTSIDE THE PURVIEW OF SECTION 92B OF THE ACT AND IS THUS IN EXCESS OF HIS JURISDICTION; 5. NOT CONSIDERING THE ARGUMENT THAT AMP EXPEN SES PURELY REPRESENT THE EXPENSES INCURRED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUS INESS AND HAVE NO BEARING ON ANY INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SES ('AES') AND HENCE, IT IS NOT AN INTERNATIONAL TRANSACTION; 6. HOLDING THAT THERE IS AN ARRANGEMENT BETWEE N THE APPELLANT AND J&J US WHEREIN THE APPELLANT IS INCURRING HUGE AMP EXPENDITURE WHI CH IMPROVES THE VALUE OF THE BRAND 'JOHNSON & JOHNSON' OWNED BY THE AES, WITHOUT PRODU CING ANY EVIDENCE OR BRINGING ANY MATERIAL ON RECORD; 7. HOLDING THAT THE APPELLANT WAS 'PROMOTING' 'JOHNSON & JOHNSON' BRAND INSTEAD OF APPRECIATING THAT THE APPELLANT WAS ONLY CARRYIN G OUT ITS BUSINESS OF SELLING PRODUCTS IN INDIA WHICH WERE MANUFACTURED OR PURCHA SED FROM THIRD PARTIES/ AES BY USING THE WELL-ESTABLISHED BRAND NAME OF 'JOHNSON & JOHNSON' AND ANY BENEFITS DERIVED BY THE AES ARE PURELY INCIDENTAL; 8. NOT APPRECIATING THAT ONCE THE INTERNATIONA L TRANSACTIONS ENTERED BY THE APPELLANT, IS ACCEPTED AT ARM'S LENGTH ON THE BASIS OF TRANSACTION NET MARGIN METHOD (TNMM') AS THE MOST APPROPRIATE METHOD, SEPARATE AN ALYSIS IS NOT REQUIRED FOR BENCHMARKING THE INDIVIDUAL ELEMENT OF AMP COST, WH ICH IS INCONSISTENT WITH THE TENETS OF APPLICATION OF TNMM; 9. MAKING AN ADJUSTMENT IN RESPECT OF AMP EXPE NDITURE WITHOUT APPRECIATING THE FACT THAT J&J INDIA HAS RETAINED ALL THE PROFITS IN INDIA AFTER PAYING AN ARM'S LENGTH RETURN TO AES FOR INTER-COMPANY TRANSACTIONS AND TH EREBY NO ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE IS REQUIRED IN THE PRESENT CASE; 10. APPLYING THE BRIGHT LINE TEST AND RECOINING THE SAME AS ROUTINE ALP LEVEL DETERMINATION METHOD TO DETERMINE THE ARM'S LENGTH PRICE OF THE AMP EXPENSES INCURRED BY THE APPELLANT, WITHOUT APPRECIATING THA T NO SUCH METHOD HAS BEEN PRESCRIBED UNDER THE ACT AND THE RULES; 11. REJECTING THE BENCHMARKING ANALYSIS SUBMIT TED BY THE APPELLANT AND NOT ADOPTING A SCIENTIFIC SEARCH PROCESS TO IDENTIFY CO MPANIES COMPARABLE TO THE APPELLANT'S MANUFACTURING AND TRADING SEGMENT FOR B ENCHMARKING OF THE AMP EXPENSES AND CONSIDERING INAPPROPRIATE COMPARABLES, NOT HAVING SIMILAR PRODUCT/ BRAND PROFILE AS THE APPELLANT; 12. WITHOUT PREJUDICE TO THE ABOVE, HOLDING THAT THE APPELLANT SHOULD HAVE EARNED A MARKUP OF 13.6% ON THE ALLEGED EXCESSIVE AMP EXPENS ES TO BE REIMBURSED TO THE APPELLANT; 3 ITA 1998/MUM/2018 13. WITHOUT PREJUDICE TO THE ABOVE, NOT ADOPTING A SCIENTIFIC SEARCH PROCESS TO IDENTIFY COMPANIES COMPARABLE TO THE APPELLANT, FOR COMPUTING THE MARK-UP TO BE APPLIED TO THE ALLEGED EXCESSIVE AMP EXPENSES AND C ONSIDERING INAPPROPRIATE COMPARABLES; 14. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN HOLDING THAT ITEMS OF SELLING EXPENDITURE SUCH AS EXHIBITION, WINDOW DISPLAY AND POINT OF SAL ES EXPENSES SHOULD BE CONSIDERED FOR MAKING AN ADJUSTMENT TO THE TRADING SEGMENT AS WELL WITHOUT APPRECIATING THE FACT THAT NONE OF THESE EXPENSES CAN IN ANY WAY BE CONSI DERED AS INCURRED FROM BRAND PROMOTION BUT THESE ARE FOR EFFECTING SALES. SHORT GRANT OF CREDIT FOR TAX DEDUCTED AT SOURCE (' IDS') 15. ERRED IN GRANTING CREDIT OF TDS OF RS.2,35,3 2,027 AS AGAINST THE CREDIT OF TOTAL TDS CREDIT CLAIMED BY THE APPELLANT OF RS.2,35,39,4 55; LEVY OF INTEREST AMOUNTING TO RS.7.39 CRORES UNDER SECTION 234B OF THE ACT. 16. LEVYING INTEREST AMOUNTING TO RS.7.39 CRORES UN DER SECTION 234B OF THE ACT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS A SUBSIDIARY OF M/S JOHNSON & JOHNSON, USA, IS ENGAGED IN THE BU SINESS OF MANUFACTURING AND MARKETING VARIOUS CONSUMER CARE, HEALTHCARE AND DIAGNOSTIC PRODUCTS AS WELL AS SURGICAL EQUIPMENTS, ETC. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR AY 2009-10 ON 30-09-2009 DECLARING TOTAL INCOME AT RS.120,59,69,093 UNDER NORMAL PROVISIONS AND BOOK PROFITS U/S 115JB OF RS. 240,65,09,239. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD ENTERED INTO INTER NATIONAL TRANSACTIONS RELATING TO ASSOCIATED ENTERPRISE (AE, HEREINAFTER) AND ACCORDINGLY A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS. THE TPO, VIDE HIS ORDER U/S 92CA(3) DATED 29-01-2013 SUGGESTED TRANSFER PRICIN G ADJUSTMENTS OF RS.1,33,01,90,380 ON ACCOUNT OF REIMBURSEMENT OF BR AND PROMOTION AND MARKETING INTANGIBLE AND ALSO A SUM OF RS.57,35,03, 000 ON ACCOUNT OF ROYALTY 4 ITA 1998/MUM/2018 PAYMENT TO ITS AE. ON BEING IN APPEAL BEFORE THE D ISPUTE RESOLUTION PANEL (DRP), THE LD.DRP CONFIRMED THE ADJUSTMENT AS WELL AS THE APPLICABILITY OF THE BRIGHTLINE TEST(BLT), VIDE ITS ORDER DATED 26-12-20 13. THE ASSESSEE CARRIED THE MATTER IN FURTHER APPEAL BEFORE THE ITAT. THE TRIB UNAL, VIDE ITS ORDER IN ITA NO.829/MUM/2014 DATED 07-01-2016 SET ASIDE THE ISSU E TO THE FILE OF THE A O TO DETERMINE ALP OF INTERNATIONAL TRANSACTIONS BEIN G AMP EXPENDITURE INCURRED BY THE ASSESSEE IN THE LIGHT OF DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD VS CIT IN ITA N O.110 OF 2014 AND ALSO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA PVT LTD. PURSUANT TO THE DIREC TIONS OF THE ITAT, THE TPO HAS TAKEN THE FRESH PROCEEDINGS U/S 92CA OF THE INC OME-TAX ACT, 1961 AND ACCORDINGLY ISSUED A SHOW CAUSE NOTICE DATED 09-08- 2016 TO THE ASSESSEE TO FURNISH THE DETAILS IN RESPECT OF AMP TRANSACTIONS. DURING SECOND ROUND OF LITIGATION, THE AO HAS CONSIDERED AUDIT PROCEEDINGS FOR AY 2013-14, AS PER WHICH, THE TPO IN HIS PROCEEDINGS FOR AY 2013-14 HA S CONSIDERED DEMPE FUNCTIONS CARRIED OUT BY THE ASSESSEE IN LIGHT OF A RRANGEMENT BETWEEN JOHNSON & JOHNSONS, SINGAPORE AND THE ASSESSEE FOR CARRYING OUT CERTAIN ACTIVITIES INCLUDING KEY BRAND STRATEGIES, IDENTIFICATION OF N EW SUPPLIERS AND OTHER SERVICES TO ITS AE AND ACCORDINGLY AMP EXPENDITURE INCURRED BY THE ASSESSEE IS HELPING TO PROMOTE BRAND OWNED BY ITS PARENT OR PAR ENT COMPANY, M/S 5 ITA 1998/MUM/2018 JOHNSON & JOHNSON, USA. THE TPO, AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO ON ANALYSIS OF THE DECISION O F HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD VS CIT (SUPRA) CAME TO THE CONCLUSION THAT THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE F ROM THE CASE CONSIDERED BY THE HONBLE DELHI HIGH COURT AND ACCORDINGLY DETERM INED ALP OF AMP EXPENSS OF RS.133,01,90,387. 3. AGGRIEVED BY THE TPOS ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE DRP- 1, MUMBAI. THE ASSESSEE HAS FILED ELABORATE WRITTE N SUBMISSIONS ON THE ISSUE WHICH HAVE BEEN REPRODUCED BY THE LD.DRP IN ITS ORD ER AT PARA 6.1 ON PAGES 8 TO 20. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE A SSESSEE BEFORE THE DRP WERE THAT ITS CASE IS SIMILAR TO THE FACTS OF MARUT I SUZUKI INDIA LTD VS CIT (SUPRA), WHERE THE HONBLE DELHI HIGH COURT DEALT W ITH THE ISSUE OF AMP EXPENSES IN THE CASE OF A MANUFACTURER. THE ASSESS EE BEING A MANUFACTURER, INCURRED AMP EXPENSES TO PROMOTE ITS OWN BUSINESS. THEREFORE, IT IS INCORRECT TO SAY THAT AMP EXPENDITURE INCURRED BY THE ASSESSE E HELPS TO PROMOTE THE BRAND OWNED BY ITS PARENT COMPANY, JOHNSON & JOHNSO N, USA. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS INCURRED AMP EXPENDIT URE AND SUCH EXPENDITURE HAD BEEN PAID TO A THIRD PARTY. WHEN THERE IS NO A RRANGEMENT BETWEEN THE PARTIES AND ALSO PAYMENT OF AMP EXPENDITURE IS MADE TO THIRD PARTIES IN INDIA, THE QUESTION OF TREATING SAID TRANSACTION AS AN INT ERNATIONAL TRANSACTION WITHIN 6 ITA 1998/MUM/2018 THE DEFINITION OF INTERNATIONAL TRANSACTIONS U/S 92B OF THE INCOME-TAX ACT, IS INCORRECT. 4. THE LD.DRP, AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE AND ALSO ON ANALYSIS OF THE JUDGEMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD VS CIT (SUPRA) AND ALSO THE DECISION IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA PVT LTD (SUPRA) , HELD THAT THE CLAIM OF THE ASSESSEE THAT THE AMP EXPENSES ARE MADE FOR ITS OWN SALES AND WHATEVER AND ANY BENEFIT TO THE AE IS INCIDENTAL, IS NOT FOU ND TO BE SUPPORTED BY ANY FACTS. THE PRODUCTS SOLD BY THE ASSESSEE REPRESENT S COSMETIC PRODUCTS, WHICH ARE HIGHLY SENSITIVE TO BRAND AND THEIR ENTIRE MARK ET VALUE DEPENDS ON THE MARKET VALUE OF THE BRAND. AS SUCH, DIRECT ADVERTI SEMENT WITH RESPECT TO THESE PRODUCTS WILL NOT BE EFFECTIVE, UNLESS ACCOMPANIED WITH BRAND. HENCE, IN CASE OF THE ASSESSEE, THE BRAND DEVELOPED IS THE PRIME O BJECT WITH INCIDENTAL BENEFIT TO THE ASSESSEE IN FORM OF HIGHER SALES. T HE DRP FURTHER OBSERVED THAT THE TPO HAS BROUGHT OUT CLEAR FACTS IN THE LIGHT OF ARRANGEMENT MADE BY THE ASSESSEE AND JOHNSON & JOHNSON, SINGAPORE FOR DEMPE SERVICES RENDERED BY IT THROUGH PRICING OF THE PURCHASES OR ANY OTHER MEANS . THE ONUS WAS ON THE ASSESSEE TO DEMONSTRATE THAT IT HAS BEEN COMPENSATE D SUFFICIENTLY FOR THE SAID SERVICE, BUT SUCH OFFER HAS NOT BEEN MADE BY THE AS SESSEE. IN THE ABSENCE OF ANY SUCH EVIDENCE, WE HAVE NO REASON TO REJECT THE METHOD ADOPTED BY THE 7 ITA 1998/MUM/2018 TPO FOR BENCHMARKING THE TRANSACTION OF AMP EXPENDI TURE. THE DRP ALSO CONSIDERED OBJECTIONS OF THE ASSESSEE FOR SELECTIO N OF VARIOUS COMPARABLES BY THE TPO WHILE DETERMINING THE ROUTINE LEVEL OF AMP EXPENSES. AFTER CONSIDERING OBJECTIONS OF THE ASSESSEE AND ALSO FAC TS OF ASSESSEES CASE, THE DRP CAME TO THE CONCLUSION THAT COMPARABLE SELECTED BY THE TPO WAS BEING REASONABLY SIMILAR AND HAS NO REASON TO REJECT ANY OF THE COMPARABLES; HOWEVER, THE DRP ACCEPTED THE ARGUMENT OF THE ASSES SEE IN RESPECT OF EXCLUSION OF CERTAIN EXPENSES WHICH ARE IN THE NATU RE OF SALES PROMOTION BEING FREE ITEM SUPPLIED WITH SALES. ACCORDINGLY, DIRECT ED THE AO TO EXCLUDE AMOUNT INVOLVED IN AMP EXPENSES BEING BONUS MERCHANDISE OF RS.28.38 CRORES AND IN- HOME / HOME CAMPAIGN OF RS.0.34 CRORES. THE RELEVA NT OBSERVATIONS OF THE DRP ARE AS UNDER:- DISCUSSION AND DIRECTIONS OF DRP 7. THE SUBMISSION MADE BY THE ASSESSEE HAVE BEEN C ONSIDERED AND THE VARIOUS ISSUES DEALT WITH BY THE ASSESSEE ARE EXAMINED SUBS EQUENTLY. 7.1. ON THE ISSUE OF THE CLAIM THAT THE HON'BLE DRP HAS RULED IN FAVOUR OF THE ASSESSEE COMPANY IN AY 201JM2 IS CONCERNED, IT IS S EEN THAT SUBSEQUENT TO THIS ORDER, THE SAME DRP HAS RULED AGAINST THE ASSESSEE WHILE PASSING THEIR ORDER FOR AY 2008-09, 2012-13 AND 2013-14. HENCE, IT IS SEEN THA T IN SUBSEQUENT YEARS, THE DECISIONS OF THE DRP ARE AGAINST THE ASESSEE. 7.2. THE ASSESSEE HAS CLAIMED THAT ITS CASE IS SIMI LAR TO THE FACTS GFSUZUKIJNDIA PVT LTD Q81 ITR 117) WHERE THE DELHI HIGH COURT DEALT W ITH THE ISSUE OF AMP EXPENSES IN THE CASE OF A MANUFACTURER. WE ARE NOT CONVINCED BY THIS ARGUMENT. IT IS SEEN THAT THIS WAS A CASE WHERE THE BRAND INVOLVED WAS 'MARUT I SUZUKI' AND USE OF WORD 'S'. THE HON'BLE COURT TOOK COGNIZANCE OF THE FACT THAT THE BRAND 'MARUTI' WAS A VERY WELL DEVELOPED IN INDIA BEFORE SUZUKI TOOK OVER THE COMP ANY AND THIS BRAND COULD NOT BE USED BY SUZUKI ANYWHERE ELSE IN THE WORLD EXCEPT IN INDIA. FURTHER, THE CASE REPRESENTED A CASE OF PURE MANUFACTURER. THE FACTS ARE TOTALLY DIFFERENT IN THE PRESENT CASE. THE COMPANY IS INVOLVED IN DISTRIBUTORSHIP IN A SIGNIFICANT WAY AND CONSIDERABLE PORTION OF ITS TURNOVER IS OUT OF ITS TRADING ACTIV ITY. FURTHER, THE BRAND IS AN INTERNATIONAL BRAND NOT OWNED OR DEVELOPED IN INDIA . HENCE, WE ARE NOT IN AGREEMENT THAT THE CASE OF THE ASSESSEE IS YERED BY THE CASE OF MARUTI SUZUKI CASE. 7.3 THE CLAIM OF THE ASSESSEE THAT THE TRANSACTION DOES NOT REPRESENT AN INTERNATIONAL TRANSACTION HAS BEEN EXAMINED IN DETA IL. IN THE CASE OF SONY ERICSON, 8 ITA 1998/MUM/2018 THE RATIO OF THE DECISION WAS THAT THE TPO CANNOT U SE A BRIGHT LINE TEST (BIT) TO INFER PRESENCE OF AN INTERNATIONAL TRANSACTION AND THAT H E NEEDS TO GO FURTHER AND DEMONSTRATE THAT THE EXPENSES INDICATED A CONSCIOUS EFFORT AT BRAND BUILDING TO BENEFIT THE AE. 7.4. THE ASSESSEE OPERATES IN AN AREA WHICH IS HIGH LY BRAND SENSITIVE. THE ASSESSEE ITSELF ADMITS THAT THE ASSESSEE OPERATES IN AN AREA WHICH IS HIGHLY COMPETITIVE. IT IS ALSO ADMITTED THAT THE MARKETING /ADVERTISING FUNCT ION INCLUDES DETERMINING MARKETING STRATEGY WHICH INCLUDE BRAND PROMOTION. THERE IS NO EVIDENCE TO SHOW THAT THE TPSR DISCUSSES THE ROLE PLAYED BY THE MANUFACTURER OR TH E BRAND OWNER IN THIS TERRITORY TOWARDS SALE OF PRODUCT OR PRODUCT/BRAND AWARENESS. IT IS ALSO NOT CLARIFIED AS TO WHO WORKS TOWARDS BRAND AWARENESS, BRAND INFRINGEMENT O R ENSURING REGULATORY COMPLIANCES (IF ANY). IN ABSENCE OF ANY ROLE PLAYED BY THE MANUFACTURER/BRAND OWNER DIRECTLY IN INDIA, IT IS TO BE INFERRED THAT THE AS SESSEE IS OPERATING AT THE INSTANCE OF THE BRAND OWNER IN THIS REGARD. COSMETIC SEGMENT IS HIGHLY SENSITIVE TO NEGATIVE PUBLICITY. HENCE, BRAND DEVELOPMENT AND BRAND MAINT ENANCE, IN THE SEGMENT IN WHICH THE ASSESSEE OPERATES, BECOME INTEGRAL AND NE CESSARY, PARTICULARLY AS THE ASSESSEE CANNOT ADVERTISE SEPARATELY FOR ITS PRODUC TS. 7.5. THE ASSESSEE HAS ALSO NOT SHOWN BEFORE US THAT THE TPSR HAS FACTORED THE INTENSITY OF AMP EXPENDITURE WHILE SELECTING ITS CO MPARABLES. 7.6. WE FIND IT DIFFICULT TO ACCEPT THAT THE ADVERT ISING CONDUCTED BY THE ASSESSEE IS NOT IN COORDINATION WITH THE BRAND OWNER AND IS BEING D ONE ONLY WITH A VIEW TO EFFICIENT DISTRIBUTION/ROUTINE MARKETING AND HAS NO RELATIONS HIP WITH THE DEMPE FUNCTIONS. IN HIS ORDER, THE TPO HAS BROUGHT OUT IN DETAIL THE AR RANGEMENT BETWEEN J&J SINGAPORE AND THE ASSESSEE COMPANY WITH RESPECT TO SIGNIFICAN T MARKETING ACTIVITIES. 7.7. THE INTERNATIONAL TRANSACTION NOTED BY THE ASS ESSEE AND REPRODUCED IN THE TPO'S ORDER RELATES TO PURCHASE OF RAW MATERIALS AN D PURCHASE OF FINISHED GOODS. THERE IS NO EVIDENCE OF ANY FILTER USED BY THE ASSE SSEE TO SELECT COMPARABLES WHICH ARE SIMILAR TO THE ASSESSEE WITH RESPECT TO INTENSI TY OF AMP EXPENSES. AS SUCH, THE CLAIM OF THE ASSESSEE THAT THE AO CANNOT BENCHMARK THE AMP TRANSACTIONS ONCE HE HAS ACCEPTED THE .BENCHMARKING CARRIED OUT BY THE A SSESSEE IS NOT FOUND TENABLE. 7.8 SINCE THE ASSESSEE HAS UNDERPLAYED ITS ROLE AS AN ENTITY WHICH IS RENDERING SIGNIFICANT DEMPE SERVICES, THE SUBSEQUENT TP STUDY CONDUCTED BY THE ASSESSEE AND SELECTION OF COMPARABLES CANNOT BE TAKEN TO BE A RELIABLE STUDY. FURTHER, ONCE THIS FUNCTION HAS NOT BEEN ACKNOWLEDGED BY THE ASSE SSEE IN ITS FAR ANALYSIS, CLEARLY, THE COMPARABLES SELECTED BY THE ASSESSEE DO NOT PER FORM THIS FUNCTION AND HENCE, CANNOT BE TAKEN AS PROPER COMPARABLES WHILE BENCHMA RKING BY ADOPTING AGGREGATING APPROACH. 7.9. IN THE CASE OF SONY ERICSON (SUPRA), THE HON'B LE HIGH COURT, AT PARA 52, HAS REJECTED THE ASSESSEE'S CONTENTION THAT THE AMP TRA NSACTIONS ARE NOT INTERNATIONAL TRANSACTIONS IN ALL SUCH CASES WHEREIN THE VALUE OF AMP SERVICES HAVE BEEN FACTORED WHILE DECIDING THE TRANSACTION PRICE OF OTHER TRANS ACTIONS. THE COURT, IN THE SUBSEQUENT PARA, HAS DECLINED TO ACCEPT THE ASSESSE E'S VIEW THAT SINCE THE EXPENSES ARE INCURRED IN INDIA WITH UNRELATED PARTI ES, THEY DO NOT REPRESENT INTERNATIONAL TRANSACTIONS. 7.10. HOWEVER, THE COURT HAS HELD THAT THERE COULD BE A CASE WHERE SUCH TRANSACTION IS INTEGRALLY CONNECTED WITH OTHER TRANSACTIONS LIK E PURCHASE OF MATERIAL AND THE EXCESS AMOUNT SPENT BY THE TESTED PARTY HAS BEEN SU ITABLY COMPENSATED IN FORM OF LOWER COST OF MATERIAL OR SUBVENTION OR ANY OTHER M ODE. !N SUCH CASES, THE COURT OPINED THAT IF THE ASSESSEE HAS SELECTED COMPARABLE S WHICH HAVE SIMILAR FUNCTIONAL PROFILE WITH SIMILAR EXPENSES OR IF IT HAS BEEN POS SIBLE TO MAKE SUITABLE ADJUSTMENTS, THE AGGREGATED TRANSACTION CAN BE BENCHMARKED TOGET HER. THE HIGH COURT ALSO HELD THAT IN ABSENCE OF SUCH COMPARABLE, THE TPO IS FREE EITHER TO REJECT THE MOST APPROPRIATE METHOD. 7.11. THE VARIOUS OBSERVATIONS OF THE HON'BLE HIGH COURT IN THIS REGARD ARE REPRODUCED BELOW: 9 ITA 1998/MUM/2018 119. A PURE DISTRIBUTION COMPANY WOULD BE A COMPARA TIVELY LOW RISK COMPANY AS COMPARED TO A MARKETING AND DISTRIBUTION COMPANY. 77?E PROFITS AND EARNINGS OR ARM'S LENGTH PRICE WOULD ACCORDINGLY VARY. THE ARM'S LENGTH PRICE IN C ASE OF A PURE DISTRIBUTION COMPANY WOULD ENURE LOWER PRICE/PROFIT AS COMPARED TO A COMPANY E NGAGED IN DISTRIBUTION AND MARKETING. IN MOST OF THE CASES, DISTRIBUTION AND MARKETING OPERA TIONS WOULD GO HAND IN HAND. MARKETING ITSELF IS A TERM OF WIDE IMPORT AND CONNOTATION, WH ICH INCLUDES DEVELOPMENT OF MARKETING STRATEGY WHICH MAY HAVE CERTAIN COMMON WORLDWIDE EL EMENTS AND WOULD NORMALLY BE THE CREATION AND PREMISED BY THE PARENT FOREIGN AE BUT THE INDIAN ASSESSEE ENGAGED IN MARKETING OPERATIONS COULD DEVISE ITS OWN MARKETING STRATEGIE S, DETERMINE AS TO THE NATURE AND TYPE OF ADVERTISEMENTS, MEDIA SELECTION, TIMINGS, {EN THE C HOICE OF PRODUCTS COULD DEPEND UPON LOCAL/NATIONAL CONDITIONS. WHILE IG THE ARM'S LENGT H PRICE, THE ISSUE WOULD BE WHETHER OR NOT THE INDIAN ASSESSEE IS ADEQUATELY COMPENSATED BY THE FOREIGN AE. TIIE INDI AN ASSESSES ALSO BENEFITS FROM THE INCREASED SALES WHICH RESULTS IN HIGHER PROFITS AND MORE TAXABLE INCOME IN INDIA. AMP, I.E. ADVERTISEMENTS, MARKETING AND S ALE PROMOTIONS, THEREFORE, BENEFIT BOTH THE INDIAN AE, I.E. THE ASSESSEE AND THE FOREIGN AE RESIDENT ABROAD. SAME IS TRUE AND CORRECT POSITION EVEN IN CASE OF A DISTRIBUTION COM PANY, THOUGH IN THE SAID CASE SALES WOULD INCREASE AND THERE WOULD NOT BE ANY ELEMENT O F AMP. THE FACT THAT INCREASED SALES BENEFIT THE FOREIGN MANUFACTURER IS THE REASON WHY SERVICES OF INDIAN ASSESSEES HAVE BEEN ENGAGED BY THE AES RESIDENT ABROAD. THIS ARGUMENT I TSELF DOES NO! SHOW THAI BRAND BUILDING IS BEING INDEPENDENTLY UNDERTAKEN AND, THE REFORE, SHOULD BE TREATED AS A SEPARATE INTERNATIONAL TRANSACTION. HOWEVER, THE AR M'S LENGTH COMPUTATION MADE BOTH BY THE ASSESSEE AS WELL AS THE TPO MUST TAKE INTO ACCO UNT THE AMP EXPENSES. 121. DURING THE COURSE OF HEARING BEFORE ITS. COUNSEL FO R THE REVENUE HAD SUBMITTED THAI PARAGRAPH 17.4 SHOULD BE TREATED AS ILLUSTRATIONS A ND NOT AS BINDING COMPATIBLES. WE WOULD PREFER TO OBSERVE, THAT AN ASSESSING OFFICER/ TPO CAN GO AND MUST EXAMINE (HE QUESTION WHETHER THE ASSESSEE IS PERFORMING FUNCTIO NS OF A PURE DISTRIBUTOR OR PERFORMING DISTRIBUTION AND MARKETING FUNCTIONS, IN THE LATTER CASE, LIE MUST EXAMINE AND ASCERTAIN WHETHER THE TRANSFER PRICE TAKES INTO CONSIDERATION THE MARKETING FUNCTION, WHICH WOULD INCLUDE AMP FUNCTIONS. THIS WOULD ENSURE ADEQUATE T RANSACTION PRICE AND HENCE ASSURE NO LOSS OF REVENUE. WLIEN THE DISTRIBUTION AND MARK ETING FUNCTIONS ARE INTER-CONNECTED AND RELIABLE COMPATIBLES ARE AVAILABLE, ARM'S LENGT H PRICE COULD BE COMPUTED AS A PACKAGE, IF REQUIRED AND NECESSARY BY MAKING ADEQUA TE ADJUSTMENTS. WHEN THE ASSESSING OFFICER/TPO COMES TO THE CONCLUSION THAT IT IS NOT POSSIBLE TO COMPUTE ARM'S LENGTH PRICE WITHOUT SEGREGATING AND DIVIDING DISTRIBUTION AND M ARKETING OR AMP FUNCTIONS, HE CAN SO PROCEED AFTER GIVING JUSTIFICATION AND ADEQUATE REA SONS. AT THAT STAGE, HE WOULD HAVE APPORTIONED THE PRICE RECEIVED OR THE COMPENSATION PAID BY THE FOREIGN AE TOWARDS DISTRIBUTION AND MARKETING OR AMP FUNCTIONS. THE TP O CAN THEN APPLY AN APPROPRIATE METHOD AND COMPUTE THE ARM'S LENGTH PRICE OF THE T\ VO INDEPENDENTLY AND EVEN BY APPLYING SEPARATE METHODS.................. THERE IS A DIFFERENCE BETWEEN A PURE AND A SIMPLE I NDEPENDENT DISTRIBUTOR AND A WITH MARKETING RIGHTS. AN INDEPENDENT DISTRIBUTOR WITH A FULL MARKETING RIGHT IS OR AN ENTITY LEGALLY INDEPENDENT OF THE MANUFACTURER, WHO PURCHA SES GOODS FROM THE MANUFACTURER FOR RE-SALE ON ITS OWN ACCOUNTS. THE TRANSACTION BETWEE N THE T\VO IS A STRAIGHT FONVARD SALE IN WHICH THE DISTRIBUTOR TAKES ALL ECONOMIC RISK OF PR ODUCT DISTRIBUTION AND ULTIMATELY GAINS OR MAKES LOSS DEPENDING UPON MARKET AND OTHER CONDITIO NS. THE MANUFACTURER IS NOT CONCERNED. IN CASE OF A LOW OR NO RISK DISTRIBUTOR AND HE VIRT UALLY ACTS AS AN AGENT FOR THE LOSS AND GAIN IS THAT OF THE MANUFACTURER. THERE IS NO ECONOMIC RISK ON DISTRIBUTION OF PROFITS. HE IS, THEREFORE, ENTITLED TO FIXED REMUNERATION FOR THE SELF EFFORTS , I.E., RELATING TO THE TASK OR FUNCTION OF DISTRIBUTION. SIMILAR WILL BE THE POSITION OF A LOW RISK DISTRIBUTOR WITH MARKETING FUNCTIONS, EXCEPT THAI THE SAID DISTRIBUTOR SHOULD BE COMPENSA TED FOR THE MARKETING, INCLUDING AMP FUNCTION. A DISTRIBUTOR WITH MARKETING FUNCTION CAN BE NORMAL OR A HIGH RISK DISTRIBUTOR. SUCH DISTRIBUTORS SHOULD BE COMPENSATED BUT THE QUANTUM OF COMPENSATION WOULD BE HIGHER. SUCH CASES HAVE TO BE DISTINGUISHED FROM CASES OF A TRUE DISTRIBUTOR, WHO IS IN AN INDEPENDENT BUSINESS, USES HIS OWN MONEY FOR PURCHASING AT A LO W PRICE AND SELLING AT A HIGH PRICE AND 10 ITA 1998/MUM/2018 ACCORDINGLY SHOULDERS THE BURDEN IN CASE OF A BAD J UDGMENT. PROFITS OR LOSSES, THEREFORE, CORRESPOND TO THE RISK AND MARKET CONSIDERATION. TH ERE IS ALSO FUNCTIONAL INCOMPATIBILITY BETWEEN A DISTRIBUTOR AND A RETAILER. RETAILERS CAN NOT BE COMPARED WITH DISTRIBUTOR ALSO PERFORMING MARKETING FUNCTIONS. FOREIGN GLOBAL ENTE RPRISES FREQUENTLY ADOPT A SUBSIDIARY MODEL, I.E. THE PRODUCTS ARE DISTRIBUTED AND MARKET ED IN A TARGETED COUNTRY THROUGH A WHOLLY OWNED SUBSIDIARY OR A SALES SUBSIDIARY. A COMPARABL E WOULD BE AN UNRELATED IDENTITY WITH SIMILAR DISTRIBUTION AND MARKETING FUNCTIONS....... .. 7.12.CLEARLY, THE TP STUDY CONDUCTED BY THE ASSESSE E WOULD HAVE BEEN ACCEPTABLE ONLY IF IT HAD BEEN CONDUCTED IN LINE WITH THE RATI O OF THE ABOVE DECISION. WE DO NOT FIND ANY EVIDENCE OF THE ASSESSEE HAVING DONE SO. I N ABSENCE OF SELECTION OF COMPARABLES IN LINE WITH THE ABOVE METHODOLOGY, THE TPO IS FOUND TO BE CORRECT IN REJECTING THE AGGREGATION METHOD ADOPTED BY THE ASS ESSEE. 7.13.ALTHOUGH THE ASSESSEE HAS CLAIMED IN ALL ITS S UBMISSIONS THAT ITS AMP TRANSACTIONS ARE SUBSUMED WITH THE OTHER TRANSACTIO NS IN THE AGGREGATED APPROACH THAT IT HAS FOLLOWED, WE FIND THAT THE ASSESSEE'S A PPROACH, AT NO PLACE, INDICATES THAT IT SUBSUMES THE 'AMP EXPENSES' WHILE CONDUCTING THE TNMM. SUCH AGGREGATION CAN BE ACCEPTED ONLY IF THE ISO HAVE A SIMILAR INTENSI TY OF AMP EXPENSES. THE ASSESSEE HAS NOT BROUGHT EVIDENCE THAT THE AMP EXPENSES HAVE BEEN DISCUSSED IN THE TPSR AND THE ELECTED ACCORDINGLY. HENCE, WE FIND NO EVID ENCE THAT THE AMP EXPENSES %AV<*F>EE|I*AGFLREGATED WITH OTHER TRANSACTIONS WHI LE CONDUCTING THE TNMM ANALYSIS. 7.14.LN ABSENCE OF SUCH AN EFFORT, THE DECISION OF THE HIGH COURT IN SONY ERICSSON CASE CATEGORICAL THAT THE TPO IS COMPETENT TO REJEC T THE AGGREGATED APPROACH AND PROCEED TO A SEGREGATED APPROACH. THE COURT HAS OBS ERVED THAT; 165. AN EXTERNAL COMPARABLE SHOULD PERFORM SIMILAR AMP FUNCTIONS. SIMILARLY (HE COMPARABLE SHOULD NOT BE THE LEGAL OWNER OF THE BRA ND NAME, TRADE MARK ETC. IN CASE A COMPARABLE DOES NOT PERFORM AMP FUNCTIONS IN THE MA RKETING OPERATIONS, A FUNCTION WHICH IS PERFORMED BY (HE TESTED PARTY, THE COMPARABLE MAY H AVE TO BE DISCARDED. COMPARABLE ANALYSIS OF THE TESTED PARTY AND THE COMPARABLE WOU LD INCLUDE REFERENCE TO AMP EXPENSES. IN CASE OF A MISMATCH, ADJUSTMENT COULD BE MADE WHEN T HE RESULT WOULD BE RELIABLE AND ACCURATE. OTHERWISE, RP METHOD SHOULD NOT BE ADOPTE D. IF ON COMPARABLE ANALYSIS, INCLUDING AMP EXPENSES, GROSS PROFIT MARGINS MATCH OR ARE WIT HIN THE SPECIFIED RANGE, NO TRANSFER PRICING ADJUSTMENT IS REQUIRED. IN SUCH CASES, THE GROSS PROFIT MARGIN WOULD INCLUDE THE MARGIN OR COMPENSATION FOR THE AMP EXPENSES INCURRE D. ROUTINE OR NON-ROUTINE AMP EXPENSES WOULD NOT MATERIALLY AND SUBSTANTIALLY AFF ECT THE GROSS PROFIT MARGINS WHEN THE TESTED PARTY AND THE COMPARABLE UNDERTAKE SIMILAR A MP FUNCTIONS. 166. ON BEHALF OF THE ASSESSEE, IT WAS INITIALLY AR GUED THAT THE TPO CANNOT ACCOUNT FOR OR TREAT AMP AS A FUNCTION. THIS ARGUMENT ON BEHALF OF THE ASSESSEE IS FLAWED AND FALLACIOUS FOR SEVERAL REASONS, THERE ARE INHERENT FLAWS IN THE SA ID ARGUMENT. MOREOVER, THE CONTENTION OF THE ASSESSED IN THESE APPEALS WOULD MANDATE REJECTI ON OF THE RP METHOD, AS AN APPROPRIATE OR MOST APPROPRIATE METHOD. COMPARISON OR COMPARATI VE ANALYSIS IS UNDERTAKEN AT STAGE (II). ADJUSTMENTS ARE PERMISSIBLE AND UNDERTAKEN AT STAGE (IV). UNDER CLAUSE (HI), I. E. AT STAGE (HI), FROM THE PRICE ASCERTAINED AT STAGE (II), EXP ENSES INCURRED BY THE ENTERPRISE IN CONNECTION WITH THE PURCHASE OF PROPERTY OR OBTAINI NG OF SERVICES IS REDUCED. UNDER CLAUSE (IV), ADJUSTMENTS HAVE TO BE MADE ON ACCOUNT OF FUN CTIONAL DIFFERENCE WHICH WOULD INCLUDE ASSETS USED AND RISK ASSUMED. IT IS AT STAGE (IV) O F THE RP METHOD THAT THE ASSESSING OFFICER/TPO CAN MAKE ADJUSTMENTS IF HE FINDS THAT A N ASSESSEE HAS INCURRED SUBSTANTIAL AMP EXPENSES IN COMPARISON TO THE COMPARABLES. ONCE ADJ USTMENTS ARE MADE, THEN THE APPROPRIATE ARM'S LENGTH PRICE CAN BE DETERMINED. I N CASE, IT IS NOT POSSIBLE TO MAKE ADJUSTMENTS, THEN RP METHOD MAY NOT BE THE MOST APP ROPRIATE AND BEST METHOD TO BE ADOPTED. 7.15 ALTHOUGH THE ASSESSEE CLAIMS THAT IT HAS ADOPT ED AN AGGREGATING APPROACH AND HENCE, TRANSACTIONS SHOULD BE TREATED AS HAVIN G BEEN AGGREGATED WITH OTHER TRANSACTIONS WHILE CONDUCTING THE TNMM ANALYSIS, NO EVIDENCE OF SUCH AGGREGATION HAS BEEN PROVIDED. JUST BECAUSE THE AMP EXPENSES FO RM A PART OF THE EXPENDITURE WHITE CONDUCTING THE TNMM, IT CANNOT BE HELD THAT T HE TNMM INCLUDES AMP 11 ITA 1998/MUM/2018 TRANSACTIONS. IN BENCHMARKING THE PURCHASE TRANSACT IONS, THE ASSESSEE HAS CHOSEN THE FOREIGN PARTY AS TESTED PARTY AND HENCE, TESTED THEM ONLY AS CONTRACT MANUFACTURER. HENCE, THE EXPENSES INCURRED AND SERV ICE RENDERED TOWARDS DEVELOPMENT OF INTANGIBLES FOR THE BRAND OWNER HAVE REMAINED UNTESTED. HENCE, THE CLAIM OF THE ASSESSEE THAT THE AMP TRANSACTIONS STA ND AGGREGATED WITH OTHER TRANSACTIONS IN ITS TNMM STUDY CANNOT BE ACCEPTED. THE AMP EXPENSES HAVE NOT BEEN BENCHMARKED BY THE ASSESSEE AT ALL AND HENCE, THEY NEED TO BE IDENTIFIED AS A SEPARATE TRANSACTION FOR THE PURPOSE OF THEIR BENCH MARKING. WE, THEREFORE, FIND THE ACTION OF THE TPO IN SEGREGATING THE AMP EXPENSES A S CORRECT AND IN ACCORDANCE WITH LAW. 7.16.WITH RESPECT TO THE CONTENTION THAT THE TRANSA CTION BETWEEN TWO INDEPENDENT ENTITIES CANNOT BE TREATED AS INTERNATIONAL TRANSAC TIONS, THE ISSUE HAS BEEN DEALT WITH ELABORATELY BY THE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON AND IT HAS BEEN HELD THAT THERE IS NO DISPUTE THAT THE EXPENDITURE INCUR RED BY THE ASSESSEE IS WITH THIRD PARTY. BUT THE TRANSACTION BEING INVESTIGATED IS NO T THE TRANSACTION OF EXPENDITURE BETWEEN THE TWO INDIAN PARTIESDUTTNEFACTUM OF CORPF LEJTSATION REQUIRED TO BE RECEIVED BY THE INDIAN PARTY ON ACCOUNT OF THE DEMPE SERVICE S RENDERED ON BEHALF OF THE AE. AT PARA 53 OF THE ORDER, THE COURT HAS OBSERVED THAT; 53. WE ALSO FAIL TO UNDERSTAND THE CONTENTION OR ARGUME NT THAT THERE IS NO INTERNATIONAL TRANSACTION, FAR THE AMP EXPENSES WERE INCURRED BY THE ASSESSED IN INDIA. THE QUESTION IS NOT WHETHER THE ASSESSED HAD INCURRED THE AMP EXPENSES IN INDIA. THIS IS AN UNDISPUTED POSITION. THE ARM'S LENGTH DETERMINATION PERTAINS TO ADEQUATE COMPENSATION TO THE INDIAN AE FOR INCURRING AND PERFORMING THE FUNCTIONS BY THE DOMES TIC AE. THE DISPUTE PERTAINS TO ADEQUACY OF COMPENSATION FOR INCURRING AND PERFORMING MARKET ING AND 'NON-ROUTINE' AMP EXPENSES IN INDIA BY THE AE. THE EXPENSES INCURRED OR THE QUANT UM OF EXPENDITURE PAID BY THE INDIAN ASSESSEE TO THIRD PARTIES IN INDIA, FOR INCURRING T HE AMP EXPENSES IS NOT IN DISPUTE OR UNDER CHALLENGE. THIS IS NOT A SUBJECT MATTER OF ARM'S LE NGTH PRICING OR DETERMINATION. 7.17 IN LIGHT OF THE CLEAR FINDING OF THE COURT ON THIS ISSUE, IT IS HELD THAT THE TRANSACTION IS IN OF INTERNATIONAL TRANSACTION REQU IRED TO BE BENCHMARKED. 7.18.THE CLAIM OF THE APPELLANT THAT THE AMP EXPENS ES ARE MEANT FOR ITS OWN SALES EFFORT AND ANY BENEFIT TO THE AE IS INCIDENTAL IS N OT FOUND TO BE SUPPORTED BY FACTS OF THE CASE. AS HAS BEEN ELABORATED WHITE DEALING WITH THE EARLIER GROUNDS, THE PRODUCTS SOLD BY THE ASSESSEE REPRESENT COSMETIC PRODUCTS WH ICH ARE HIGHLY SENSITIVE TO BRAND AND THEIR ENTIRE MARKET VALUE CFEPENDS~ON THE 'MARK ET VALUE OF THE BRAND. AS SUCH, DIRECT ADVERTISEMENTS WITH RESPECT TO THESE PRODUCT S WTTL NOT BE EFFECTIVE UNLESS ACCOMPANIED WITH BRAND. HENCE, IN CASE OF THE ASSES SEE, THE BRAND DEVELOPMENT IS THE PRIME OBJECT WITH INCIDENTAL BENEFIT TO THE ASS ESSEE COMPANY IN FORM OF HIGHER SALES. 7.19.LT IS ALSO NOT CORRECT TO OBSERVE THAT THE ENT IRE MARGIN ON SALE IS RETAINED IN INDIA AND ONLY A MEAGRE MARGIN IS GIVEN TO THE ENTITY IN SINGAPORE. THE SINGAPORE ENTITY IS MERELY A TRADING ENTITY AND THE ACTUAL MARGIN IS RE TAINED BY THE MANUFACTURING ENTITY WHICH IS ALSO A GROUP COMPANY. THE ASSESSEE HAS NOT DIVULGED THE PROFIT MARGIN OF THE MANUFACTURING GROUP CONCERN. A CERTIFICATE TO T HE EFFECT THAT THE SINGAPORE ENTITY RETAINS ONLY 0% OR 5% MARGIN DOES NOT CARRY ANY WEI GHTAGE UNLESS THE ASSESSEE IS ABLE TO DEMONSTRATE THAT THE MANUFACTURING ENTITY / BRAND OWNING ENTITY ALSO DOES NOT RETAIN NON-ROUTINE MARGINS. 7.20.THE ASSESSEE HAS A HUGE MARKETING STAFF WHICH IS HIGHLY TRAINED, LOOKING AT THE NATURE OF PRODUCT HANDLED BY THEM. IT IS ALSO NOTIC ED THAT THE ENTIRE SPECTRUM OF ACTIVITY IS BEING CARRIED OUT IN COORDINATION WITH J&J SINGAPORE WHILE THE ENTIRE GROUND WORK IN INDIA IS HANDLED BY THE ASSESSEE ITSELF. IT IS ALSO NOTICED THAT THE FUNCTIONS PERFORMED ARE IN THE NATURE OF DEMPE SERVICES IN LI GHT OF THE NATURE OF ASSESSEE'S PRODUCTS. IT IS ALSO NOTICED THAT THE DIRECTION AND CONTROL OVER SUCH ACTIVITIES IS IN THE FORM OF AN AGREEMENT WITH J&J SINGAPORE WHICH RETAI NS A CONTROL OVER THE METHODOLOGY OF ADVERTISING AND BRAND PROMOTION. THE AGREEMENT HAS BEEN 12 ITA 1998/MUM/2018 REPRODUCED BY THE TPO IN DETAIL AND WE FIND THAT TH E AGREEMENT CARVES OUT A SIGNIFICANT ROLE FOR THE SINGAPORE ENTITY IN THE MARKETING OPERATIONS OF THE ASSESSEE COMPANY. HENCE, THE CLAIM OF THE ASSESSEE THAT THER E WAS NO MUTUAL ARRANGEMENT BETWEEN THE GROUP AND THE ASSESSEE FOR RENDERING OF DEMPE FUNCTIONS IS NOT FOUND TENABLE. 7.21 IN SONY ERICSSON CASE, THE HIGH COURT HAS ALLO WED SEGREGATION IF THE ASSESSEE'S ATTEMPT CTING TP STUDY BY AGGREGATING TH E TRANSACTIONS IS NOT FOUND TO BE IN ACCORDANCE REVISIONS OF THE ACT. THE COURT HAS H ELD THAT; 144, QUESTION OF SET OFF WOULD ONLY ARISE IN CASE T WO TRANSACTIONS ARE SEPARATE AND ARM 'A LENGTH PRICE SHOULD BE COMPUTED SEPARATELY. IT WOUL D NOT ARISE FOR CONSIDERATION IN CASES WHERE THERE ARE CLOSELY LINKED OR CONTINUOUS INTERN ATIONAL TRANSACTIONS. YET, THERE MAY BE A THIRD CATEGORY OF CASES, WHERE THE ASSESSEE PERCEIV ES AND FILES HIS REPORT INFORM 92E TREATING THE INTERNATIONAL TRANSACTION AS ONE OR AS CONTINUO US OR AN INTERCONNECTED PACKAGE, BUT THE REVENUE PERCEIVES AND BELIEVES THAT THE TRANSACTION IS NOT ONE, BUI SHOULD BE SEGREGATED FOR THE PURPOSE OF COMPUTATION OF ARM'S LENGTH PRICE. F OR THE PRESENT REASONING, WE WILL ASSUME AND ACCEPT THAT THE POSITION OF THE REVENUE IS CORR ECT AND THE 'AGGREGATION' MADE BY THE ASSESSEE IS WRONG. IN SUCH CASES, IT WOULD BE GROSS LY UNFAIR AND INEQUITABLE NOT TO APPORTION OR SEGREGATE THE TRANSACTIONS AS DECLARED IN A REAS ONABLE AND LOGICAL MANNER. IT WOULD BE CONSPICUOUSLY WRONG AND INCORRECT TO TREAT THE SEGR EGATED TRANSACTIONAL VALUE AS 'NIL' WHEN IN FACT THE TWO AES HAD TREATED THE INTERNATIONAL T RANSACTIONS AS A PACKAGE OR A SINGLE ONE AND CONTRIBUTION IS ATTRIBUTED TO THE AGGREGATE PAC KAGE. 146. WHETHER HIGHER NET PROFIT RATE WOULD INDICATE LOWER OR REDUCED PURCHASE PRICE, WE OBSERVE IS A QUESTION OF FACT AND NOT LAW. SUBSIDY PAID COULD ACCOUNT FOR THE BUNDLED TRANSACTION, INCLUDING THE ENTIRE SET OF TRANSACTIO NS INCLUDED. THE FINAL FINDING SHOULD BE REASONED AND ANALYTICAL. // SHOULD BE SOUND AS PER MATHEMATICAL AND ACCOUNTANCY PRINCIPLES. IN CASE OF A PACKAGE OR BUNCHED TRANSACTION, THIS W OULD REQUIRE FORTHRIGHT AND RIGOROUS EXAMINATION. IF BIFURCATION IS LEGITIMATE AND MANDA TED, APPORTIONMENT SHOULD PROCEED ON ACCURATE AND PUNCTILIOUS MANNER WHICH IS FAIR AND R EASONABLE. WHEN THE ASSESSING OFFICER/THE TPO BIFURCATES OR SEGREGATES THE PACKAG ED TRANSACTION AS DECLARED BY THE ASSESSED, HE MUST CONDUCT THE EXERCISE, RATIONALLY AND OBJECTIVELY 7.22. HENCE, THE KEY ISSUE TO BE DETERMINED IS WHE THER THERE HAS BEEN ANY OFFSET IN THE RAW MATERIAL PRICE OR COMPENSATION TO THE INDIAN PARTY IN ANY OTHER FORM. IF SUCH IS THE CASE, THEN THE TPO IS BOUND TO TAKE THE SAME IN CONSIDERATION WHITE DECIDING THE LEVEL OF ADJUSTMENT. SETTING OFF OF COMPENSATION THROUGH DIFFERENT MEANS HAS BEEN UPHELD BY THE HON'BLE COUR T. THE COURT HAS ALSO INDICATED THAT THE ARM'S LENGTH PRICE EXPENDITURE C ANNOT BE TAKEN AS NIL IN EACH AND EVERY CASE WHILE ALSO LAT THERE MAY BE CIRCUMST ANCES WHERE SUCH PRICE IS INDEED NIL. HOWEVER, SUCH INFERENCE WILL HAVE TO BE DRAWN IN EACH AND EV ERY CASE BASED ON FACTS OF THESE CASES. 7.23.THE ONUS WAS ON THE ASSESSEE TO DEMONSTRATE TH AT IT HAS BEEN COMPENSATED SUFFICIENTLY FOR THE MARKETING (DEMPE) SERVICES REN DERED BY IT THROUGH PRICING OF THE PURCHASES OR ANY OTHER MEANS. SUCH EFFORT HAS NOT B EEN MADE BY THE ASSESSEE BEFORE US. IN ABSENCE OF ANY SUCH EVIDENCE, WE HAVE NO REASON TO REJECT THE METHOD ADOPTED BY THE TPO FOR BENCHMARKING THE TRANSACTION OF AMP EXPENDITURE. 7.24.WITH RESPECT TO THE OBJECTION OF THE ASSESSEE WITH RESPECT TO LEVY OF A MARKUP ON THE AMOUNT OF AMP EXPENDITURE, IT IS HELD THAT T HE ASSESSEE ITSELF HAS NOT RECOGNISED THE AMOUNT AS A SERVICE RENDERED TO THE AE. THE AMOUNT HAS NOT BEEN BENCHMARKED WHITE BENCHMARKING THE PURCHASE TRANSAC TIONS WHEREIN THE MARGIN OF THE AES HAVE BEEN TESTED MERELY AS CONTRACT MANUFAC TURERS. IN OUR EARLIER DISCUSSION, WE HAVE HELD THE AMOUNT TO BE IN THE NA TURE OF DEMPE SERVICES. ONCE THE SERVICES HAVE BEEN RENDERED TO THE AE, THE ASSE SSEE IS REQUIRED TO CHARGE A FAIR MARGIN ON THIS AMOUNT. IN THIS REGARD, SELECTION OF COMPARABLES WITH RESPECT TO MARGIN ON SUCH SERVICES RENDERED BY THE ASSESSEE HA S BEEN UPHELD IN PRECEDING PARA. AS SUCH, WE DO NOT FIND THE CLAIM OF THE ASSE SSEE RAISED AT OBJECTION NO. 11 TO BE TENABLE AND REJECT THE OBJECTION. 13 ITA 1998/MUM/2018 7.25.THE ASSESSEE HAS OBJECTED TO SELECTION OF VARI OUS COMPARABLES BY THE TPO WHILE DETERMINING THE ROUTINE LEVEL OF AMP EXPENSES . THE TPO HAS SELECTED FOLLOWING COMPARABLES FOR BOTH MANUFACTURING AND TR ADING SEGMENTS. MANUFACTURING SEGMENT AMP RATIO TRADING SEGMENT AMP RATIO DABUR INDIA LIMITED 11.89% HENKEL INDIA LIMITED 7.59% EMAMI LIMITED 14.75% J LMORISON (INDIA) LIMITED 0.56% GODREJ CONSUMER PRODUCTS LIMITED 8.58% JYOTI LABORATORIES LIMITED 5.04% MARICO LIMITED 11.13% WF LIMITED 1.84% ARITHMETIC MEAN 8.87% . 4.95% 7.26.THE ASSESSEE HAS OBJECTED TO THE INCLUSION OF DABUR INDIA LIMITED, JYOTI LABORATORIES LIMITED, MARICO LIMITED AND VVF LIMITE D. THE MAIN OBJECTION OF THE ASSESSEE IS THAT THESE COMPANIES ARE DEALING WITH P RODUCTS WHICH ARE NOT SIMILAR TO THE ASSESSEE'S PRODUCTS AND HENCE, THEY CANNOT B E TAKEN AS PROPER COMPARABLE. THE OBJECTION OF THE ASSESSEE IS EXAMIN ED. IT IS SEEN THAT THE COMPARABLES HAVE BEEN SELECTED WITH RESPECT TO THE TARGET GROUP FOR DETERMINING ROUTINE LEVEL OF AMP EXPENSES AND HENCE, IN OUR VIE W, IF THE TARGET GROUP IS SIMILAR, MERE PRODUCT DISSIMILARITY WOULD NOT RESUL T IN REJECTION OF THE COMPARABLES. ALL THE ABOVE COMPARABLES ARE OPERATIN G IN CONSUMER MARKET SEGMENT IN WHICH THE ASSESSEE COMPANY OPERATES. IT IS NOTICED THAT THE COMPARABLES SELECTED BY THE TPO REPRESENT FUNCTIONA LLY MUCH SIMILAR COMPARABLES AS COMPARED TO THOSE SELECTED BY THE AS SESSEE WHILE BENCHMARKING THE MARGIN OF ITS AES WHEREIN COMPANIE S ENGAGED IN MANUFACTURE OF PROTECTIVE MATERIALS, SALE OF DECORATIVE RIBBONS , CLEANING AND MAINTENANCE CHEMICALS, PRECISION CONTRACT METAL MACHINING HAVE ALSO BEEN SELECTED. WE FIND THE COMPARABLES SELECTED BY THE TPO AS BEING REASON ABLY SIMILAR AND HAVE NO REASON TO REJECT ANY OF THE ABOVE COMPARABLES. 7.27.THE ASSESSEE HAS ALSO OBJECTED TO THE SELECTIO N OF COMPARABLES FOR ARRIVING AT A MARKUP ON BRAND PROMOTION SERVICES RENDERED BY THE ASSESSEE- THE COMPARABTES SELECTED BY THE TPO ARE MARKETING CONSU LTANTS & AGENCIES LIMITED, BEST MULYANKAN CONSULTANTS LTD, CYBER MEDI A RESEARCH LIMITED, HCCA BUSINESS SERVICES PRIVATE LIMITED AND CRYSTAL HUES LIMITED, WE HAVE GONE THROUGH THE FUNCTIONAL PROFILE OF THESE COMPANIES. WE FIND THAT THE COMPANIES ARE ENGAGED IN RENDERING OF CONSULTANCY SERVICES OR SER VICES RELATED TO ADVERTISING. HENCE, IN OUR VIEW, THE COMPANIES ARE COMPARABLE TO THE ASSESSEE COMPANY 14 ITA 1998/MUM/2018 WITH RESPECT TO RENDERING OF DEMPE SERVICES OR AMP SERVICES. WE DO NOT FIND ANY REASON TO REJECT THE COMPARABLES SELECTED BY TH E TPO. 7.28.THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE H AD INCURRED WINDOW DISPLAY AND POINT OF SALE ('WPS') EXPENSES TO PROMO TE ITS VARIOUS PRODUCTS AND ATTRACT THE CONSUMERS VISITING THE OUTLETS. SUCH WP S COMMUNICATION OF THE PRODUCTS SERVES AS A REMINDER TO THE CONSUMERS ABOU T J&J INDIA'S PRODUCTS AND HELPS PROMOTION OF SPECIAL SCHEMES LIKE DISCOUNTS, SATES, AND OFFERS AND TO HIGHLIGHT THE PRODUCT FEATURES TO THE NEW CONSUMERS . 7.29 WE ARE NOT CONVINCED BY THE ABOVE SUBMISSION. FIRST, ANY WINDOW DISPLAY RESULTS IN TION AND NOT SALES PROMOTION. FURTHER, S UCH ITEMS ARE DIFFICULT TO SEGREGATE F COMPARABLES AS SUCH ITEMS ARE TREATED A S AN ITEM OF ADVERTISEMENT. HENCE, IN ORDER TO ENSURE COMPARABILITY AS WELL AS ON MERITS, THE CLAIM OF THE ASSESSEE IS NOT FOUND TENABLE. 7.30.THE ASSESSEE'S CONTENTION AT OBJECTION NO. 13 THAT A MARKUP CANNOT BE APPLIED ON THE QUANTUM OF PAYMENT CATEGORISED AS AMP EXPEND ITURE IS ALSO NOT FOUND TENABLE. ONCE IT HAS BEEN HELD THAT THE EXPENDITURE REPRESENTS A SERVICE RENDERED FOR THE AE, A MARKUP FOR THE EFFORT, FINANCIAL BURDEN A ND ASSOCIATED FUNCTIONS PERFORMED BY THE ASSESSEE NEED TO BE APPLIED. WE HAVE ALREADY HELD THAT THE TPO'S COMPARABLES FOR DETERMINING AN ARM'S LENGTH REMUNER ATION FOR THESE SERVICES ARE PROPER AND NEED NOT BE DISTURBED. IN LIGHT OF THESE FINDINGS, WE FIND NO REASON TO DISTURB THE WORKING CARRIED OUT BY THE TPO. 7.31.THE ASSESSEE HAS SUBMITTED THAT SOME OF THE EX PENSES INCLUDED BY THE TPO IN AMP EXPENSES ARE EXPENSES IN THE NATURE OF SALES PR OMOTION AND INCLUDE FREE ITEMS SUPPLIED WITH SALES. SUCH ITEMS ARE KNOWN AS PROMOT IONAL EXPENSES. THE PROMOTION EXPENDITURE OF RS 28.66 CRORES AS PER THE SEGMENTAL FINANCIAL PROVIDED TO THE LEARNED TPO INCLUDED THE FOLLOWING: BONUS MERCHANDISE OF RS 28,32 CRORES WHICH ARE EXPENSES INCURRED ON PROVIDING PRODUCTS FREE OF COST UNDER VARIOUS BONUS SCHEMES T O PROMOTE THE SALES OF THE PRODUCTS. SOME OF SUCH SCHEMES OF THE ASSESSE ARE: - SAVLON SOAP 75GM - TWIN PACK OFFER - SACHETS WITH JOHNSON BABY SOAP 75GM - SOAP DISH WITH JOHNSON BABY SOAP 100GM - 50GM BLOSSOM SOAP WITH JOHNSON BABY SOAP 150G M - 4% SCHEME ON ULTRA WITH OVERNIGHTS IN DRY MAX CAT EGORY IN HOME/ SHOP CAMPAIGN EXPENSES OF RS 0.34 CRO RES WHICH ARE EXPENSES INCURRED ON PRODUCTS DISTRIBUTED TO END USERS FREE OF COST U NDER VARIOUS CAMPAIGNS. THE ASSESSEE HAS CLAIMED THAT SUCH EXPENSES ARE INC URRED BY ALL THE MANUFACTURERS FURTHER SUBMITTED THAT ON PERUSAL OF THE ANNUAL REP ORT OF DABUR INDIA LIMITED IT IS OBSERVED THAT SCHEDULE N AS SHOWN IN THE PROF IT AND LOSS ACCOUNT CONTAINS ONLY I ING AND MARKETING EXPENSES BUT DOES NOT INCLUDE THE PROMOTION EXPENSES 7.32.IN LIGHT OF THE FACT THAT THE ASSESSEE IS ALSO A MANUFACTURER I N RESPECT OF PART OF ITS TURNOVER, THE ABOVE DISTRIBUTION OF BONUS ME RCHANDISE IS DIRECTLY LINKED TO SALES AND CANNOT BE HELD TO BE IN THE NATURE OF BRA ND PROMOTION ACTIVITY. THE CONTENTION OF THE ASSESSEE IS FOUND TO BE CORRECT. THE TPO IS DIRECTED TO EXCLUDE THIS AMOUNT WHILE COMPUTING THE LEVEL OF AMP EXPENS ES IN ITS MANUFACTURING SEGMENT. 7.33.THE ASSESSEE HAS FURTHER SUBMITTED THAT THE HO N'BLE DELHI HIGH COURT IN CASE OF SONY INDIA (ITA NO. 16/2014) HAS CONCURRED THE VIEW AND OBSERVED THAT THE MARKETING OR SELLING EXPENSES LIKE TRADE DISCOU NTS, VOLUME DISCOUNTS, ETC. OFFERED TO SUB-DISTRIBUTORS OR RETAILERS ARE NOT IN THE NATURE AND CHARACTER OF BRAND PROMOTION. 7.34.WE ARE IN AGREEMENT WITH THE ABOVE SUBMISSION. AS HELD BY HON'BLE DELHI HIGH COURT, THE TPO IS DIRECTED TO EXCLUDE TRADE AN D VOLUME DISCOUNTS WHILE COMPUTING AMP EXPENSES. 15 ITA 1998/MUM/2018 5. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG, SUBMITTED THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL IS SQUARELY CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH K IN ASSESSEES OWN CASE FOR AY 2008-09 IN ITA NO.6142/MUM/2017, WHERE UNDER IDE NTICAL SET OF FACTS, THE ITAT HELD THAT AMP EXPENDITURE INCURRED BY THE ASSE SSEE CANNOT BE CONSIDERED AS INTERNATIONAL TRANSACTIONS U/S 92B OF THE I.T. ACT, 1961. THE LD.AR FURTHER SUBMITTED THAT THE TRIBUNAL HAS ANALY SED THE FACTS OF ASSESSEES CASE IN THE LIGHT OF DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD VS CIT (SUPRA) BEFORE COMING TO TH E CONCLUSION THAT NO ADJUSTMENT FOR DETERMINATION OF ARMS LENGTH PRICE WITH REGARD TO THE AMP EXPENDITURE COULD BE MADE BY RESORTING TO BRIGHT LI NE TEST OR ANY OTHER SIMILAR METHOD WHICH IS NOT PROVIDED IN THE STATUE. THE LD .AR FURTHER SUBMITTED THAT LIKE IN MARUTI SUZUKI INDIA LTD VS CIT (SUPRA)S CA SE, THE ASSESSEE IS INVOLVED IN MANUFACTURING ACTIVITY AND HENCE, THE AMP EXPENDITU RE INCURRED IN INDIA BY MAKING PAYMENT TO THIRD PARTIES CERTAINLY IS CONNEC TED WITH SUCH MANUFACTURING ACTIVITIES. THEREFORE, THE TPO AS WE LL AS THE DRP WAS ERRED IN ATTRIBUTING AMP EXPENDITURE INCURRED BY THE ASSESSE E TO ITS AE FOR BRAND PROMOTION. THE LD.AR FURTHER SUBMITTED THAT FOR TH E YEAR UNDER CONSIDERATION, EXCEPT FOR THE LIMITED NEW FACTS BROUGHT OUT BY THE TPO IN HIS ORDER WITH 16 ITA 1998/MUM/2018 REGARD TO THE DEMPE SERVICES PROVIDED BY THE ASSESS EE TO ITS AE, JOHNSON & JOHNSON, SINGAPORE NO OTHER NEW FACTS HAS BEEN BROU GHT ON RECORD TO DISTINGUISH THE FINDINGS OF FACTS RECORDED BY THE I TAT TO COME TO THE CONCLUSION THAT AMP EXPENDITURE INCURRED BY THE ASSESSEE IS NO T AN INTERNATIONAL TRANSACTION WHICH BENEFITED THE AE FOR ITS BRAND PR OMOTION. THE LD.AR FURTHER SUBMITTED THAT ALTHOUGH THE ASSESSEE IS HAVING AN A GREEMENT WITH JOHNSON & JOHNSON, SINGAPORE FOR DEMPE SERVICE, BUT PAYMENT R ELATED TO SUCH SERVICES IS NOT PART OF AMP EXPENSES, THEREFORE, THERE IS NO RE ASON TO TAKE A DIFFERENT VIEW FROM THE ONE ARRIVED AT BY THE ITAT FOR THE IM MEDIATELY PRECEDING YEAR. ACCORDINGLY, HE SUBMITTED THAT THE ADJUSTMENT MADE BY THE TPO AND AFFIRMED BY THE DROP SHOULD BE DELETED. 6. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTIN G THE ORDER OF THE DRP SUBMITTED THAT TRIBUNAL WHILE REMITTING THE ISSUE, DIRECTED THE TPO TO DECIDE THE ISSUE OF BENCHMARKING ALL AMP EXPENDITURE KEEPI NG IN VIEW THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA PVT LTD (SUPRA). ACCORDINGLY, THE TPO HAS DETERMINED ALP ADJUSTMENTS TO AMP EXPENDITURE BY DISTINGUISHIN G THE DECISION RELIED UPON BY THE ASSESSEE IN THE CASE OF MARUTI SUZUKI I NDIA LTD VS CIT (SUPRA). THE LD.DR FURTHER SUBMITTED THAT THE FACTS OF THE PRESE NT CASE ARE ENTIRELY DIFFERENT FROM THE FACT OF MARUTI SUZUKI INDIA LTD VS CIT (SU PRA) WHERE ASSESSEE IS A 17 ITA 1998/MUM/2018 MANUFACTURER IN INDIA WITH ITS BRAND AND HENCE, UND ER THOSE FACTS, THE HONBLE DELHI HIGH COURT CAME TO THE CONCLUSION THAT WITHOU T ANY ARRANGEMENT BETWEEN THE PARTIES, AMP EXPENDITURE CANNOT BE ATTR IBUTABLE TO AES BRAND PROMOTION IN INDIA, MORE PARTICULARLY, WHEN THE EXP ENDITURE HAS BEEN DIRECTLY PAID TO THIRD PARTIES. IN THIS CASE, THE MAJOR POR TION OF THE REVENUE OF THE ASSESSEE IS FROM TRADING SEGMENT. THEREFORE, THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD VS CIT (SUPRA) IS NOT APPLICABLE TO THE ASSESSEES CASE AND ACCORDINGLY, THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE TPO AS WELL AS LD.DRP IN B ENCHMARKING AMP EXPENSES U/S 92C OF THE I.T. ACT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATER IAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE CASE LAWS RE LIED UPON BY BOTH PARTIES. WE FIND THAT THE ISSUE OF DETERMINATION OF ALP IN R ESPECT OF AMP EXPENDITURE IS NO LONGER RES INTEGRA IN THE CASE OF THE ASSESSE E. THE CO-ORDINATE BENCH OF ITAT, MUMBAI BENCH K IN ASSESSEES OWN CASE FOR A Y2008-09 IN ITA NO.6142/MUM/2017 HAS CONSIDERED IDENTICAL ISSUE IN THE LIGHT OF TWO DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI S UZUKI INDIA LTD VS CIT (SUPRA) AND SONY ERICSSON MOBILE COMMUNICATION INDIA PVT LT D (SUPRA) AND HELD THAT IN THE ABSENCE OF ANY ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE, AMP EXPENDITURE CANNOT BE CONSIDERED AS INTERNATIONAL T RANSACTIONS TO DETERMINE 18 ITA 1998/MUM/2018 ARMS LENGTH PRICE BY RESORTING TO BRIGHTLINE TEST OR ANY OTHER SIMILAR METHOD WHICH IS NOT PROVIDED IN THE STATUTE. THE TRIBUNAL FURTHER HELD THAT LIKE IN MARUTI SUZUKI INDIA LTD VS CIT (SUPRA), THE ASSESSE E BEFORE US IS INVOLVD IN MANUFACTURING ACTIVITY AND HENCE, THE AMP EXPENDITU RE INCURRED IN INDIA BY MAKING PAYMENT TO THIRD PARTIES IN INDIA CERTAINLY IS CONNECTED WITH SUCH MANUFACTURING ACTIVITIES. THE BENCH, FURTHER OBSER VED THAT THE DEPARTMENT HAS FAILED TO ESTABLISH ON RECORD THAT THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE FOR INCURRING AMP EXPENDITURE. THEREFORE, CAME TO THE CONCLUSION THAT THE AO WAS ERRED IN BENCHMARKING AM P EXPENDITURE U/S 92C OF THE INCOME-TAX ACT, 1961. THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH ARE AS UNDER:- 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED MATERIALS ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DEC ISIONS RELIED UPON BY BOTH THE PARTIES. THE PRELIMINARY ISSUE WHI CH NEEDS TO BE DECIDED AT THE VERY OUTSET IS, WHETHER THE AMP EXPE NDITURE INCURRED BY THE ASSESSEE CAN BE CONSIDERED TO BE AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. IT IS TH E CONTENTION OF THE ASSESSEE FROM THE STAGE OF THE PROCEEDINGS BEFO RE THE TRANSFER PRICING OFFICER THAT THE PAYMENT MADE TO TH IRD PARTIES IN INDIA BY THE ASSESSEE TOWARDS AMP EXPENDITURES IS P URELY IN CONNECTION WITH THE PRODUCTS MANUFACTURED BY IT AND HAS NO BEARING ON THE INTERNATIONAL TRANSACTIONS WITH THE AE. IT IS THE PLEA OF THE ASSESSEE THAT AS PER THE TERMS OF THE AGREEM ENT WITH THE AE THE ASSESSEE IS NOT OBLIGED TO INCUR ANY AMP EXP ENDITURE FOR THE AE. THUS, IT HAS BEEN SUBMITTED THAT IN THE ABSE NCE OF ANY ARRANGEMENT WITH THE AE FOR INCURRING OF AMP EXPEND ITURE AND THE EXPENDITURE HAVING BEEN INCURRED FOR PAYMENT TO THI RD PARTIES IN INDIA CANNOT BE TERMED AS INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF THE ACT. ON A PERUSAL OF THE AGREEMENT BETWEEN THE ASSESSEE AND ITS AE, A COPY OF WHICH IS AT PAGE-790 19 ITA 1998/MUM/2018 OF THE PAPER BOOK, IT IS NOTICED THAT THERE IS NO O BLIGATION ON THE PART OF THE ASSESSEE TO INCUR ANY EXPENDITURE ON BE HALF OF ITS AE TOWARDS AMP. IN FACT, WHILE DEALING WITH IDENTICAL DISPUTE IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2011-12, TH E DRP AFTER VERIFYING THE TERMS OF AGREEMENT HAS CATEGORICALLY OBSERVED THAT THE AGREEMENT DOES NOT REVEAL ANY A RRANGEMENT BETWEEN THE ASSESSEE AND ITS AE FOR AMP EXPENDITURE . THUS, AFTER FOLLOWING THE DECISION OF THE HON'BLE DELHI H IGH COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA), THE ORP HEL D THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE CANNOT FAL L WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION AS PER SECT ION 92B OF THE ACT. KEEPING IN VIEW THE AFORESAID FACTS, WE NEED TO DEC IDE THE ISSUE AT HAND. IT IS EVIDENT THAT THE TRANSFER PRICING OF FICER RELYING UPON THE SPECIAL BENCH DECISION OF THE TRIBUNAL, DELHI BE NCH, IN L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA) HAS HELD THAT A MP EXPENDITURE INCURRED BY THE ASSESSEE COMES WITHIN THE PURVIEW O F INTERNATIONAL TRANSACTION. FURTHER, APPLYING THE SAI D DECISION, HE HAS ALSO DETERMINED THE ARM'S LENGTH PRICE OF THE A MP EXPENDITURE BY ADOPTING BRIGHT LINE TEST (TERMED AS ROUTINE ARM'S LENGTH PRICE BY THE TRANSFER PRICING OFFICER). IN CA SE OF MARUTI SUZUKI INDIA LTD. (SUPRA) THE HON'BLE DELHI HIGH CO URT AFTER TAKING NOTE OF ITS OWN DECISION IN SONY ERICSON MOBILE COM MUNICATIONS (SUPRA) HAS HELD THAT IN THE ABSENCE OF ANY ARRANGE MENT BETWEEN THE ASSESSEE AND THE AE, AMP EXPENDITURE CANNOT BE TERMED AS INTERNATIONAL TRANSACTION. THE HON'BLE DELHI HIGH CO URT WHILE DECIDING THE CASE OF MARUTI SUZUKI INDIA LTD. (SUPR A) HAS CAREFULLY ANALYZED THE DECISION RENDERED IN CASE OF SONY ERIC SON MOBILE COMMUNICATIONS (SUPRA) INSOFAR AS IT RELATES TO THE ISSUE WHETHER AMP EXPENDITURE CAN BE TERMED TO BE AN INTERNATIONA L TRANSACTION. THE HON'BLE COURT HAS OBSERVED, WHILE D ECIDING THE CASE OF SONY ERICSON MOBILE COMMUNICATIONS (SUPRA) AND THREE OTHER ASSESSEES THE COURT WAS DEALING WITH ASSESSEE S WHO ARE DISTRIBUTORS OF PRODUCTS MANUFACTURED BY FOREIGN AE S AND THEY THEMSELVES WERE NOT THE MANUFACTURER. FURTHER, NONE OF THOSE ASSESSEES HAVE SPECIFICALLY QUESTIONED THE EXISTENC E OF THE INTERNATIONAL TRANSACTIONS INVOLVING THE FOREIGN AE WITH REGARD TO AMP EXPENSES. THEREFORE, ON THE BASIS OF THESE FACTS , THE COURT WHILE DECIDING THE CASE OF SONY ERICSON MOBILE COMM UNICATIONS (SUPRA) HELD THAT AMP EXPENDITURE INCURRED BY THOSE ASSESSEES CAN BE CONSIDERED TO BE A PART OF INTERNATIONAL TRA NSACTIONS WITH THE AES. THE SPECIFIC OBSERVATIONS OF THE HON'BLE D ELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA) IN THIS REGARD AS SUCCINCTLY 20 ITA 1998/MUM/2018 EXPLAINED IN PARA-51 OF THE JUDGMENT IS EXTRACTED H EREUNDER FOR CONVENIENCE:- '51. THE RESULT OF THE ABOVE DISCUSSION IS THAT IN THE CONSIDERED VIEW OF THE COURT THE REVENUE HAS FAILED TO DEMONSTRATE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION ONLY ON ACCOUNT OF THE QUANTUM OF AMP EXPENDITURE BY MS//.. SECONDLY, THE COURT IS OF THE VIEW THAT THE DECISION IN SONY ERICSSON HOLDING THAT THERE IS AN INTERNATIONAL TRANSACTION AS A RESULT OF THE AMP EXPENSES CANNOT BE HELD TO HAVE ANSWERED THE ISSUE AS FAR AS THE PRESENT ASSESSEE M SIL IS CONCERNED SINCE FINDING IN SONY ERICSSON TO THE ABO VE EFFECT IS IN THE CONTEXT OF THOSE ASSESSEES WHOSE CASES HAVE BEEN DI SPOSED OF BY THAT JUDGMENT AND WHO DID NOT DISPUTE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION REGARDING AMP EXPENSES. ' 14. PROCEEDING FURTHER, THE HON'BLE COURT WHILE DECIDING THE CASE OF MARUTI SUZUKI INDIA LTD. (SUPRA) HAS HELD A S UNDER:- '59. NEVERTHELESS, THERE IS NO SPECIFIC MENTION OF AMP E XPENSES AS ONE OF THE ITEMS OF EXPENDITURE WHICH CAN BE DEEMED TO BE AN INTERNATIONAL TRANSACTION. FOR THIS PURPOSE, SECTIO N 92B(1) READ WITH SECTION 92(1) BECOMES SIGNIFICANT. UNDER SECTION 92 B(1) AN 'INTERNATIONAL TRANSACTION' MEANS- (A) A TRANSACTION BETWEEN TWO OR MORE AES, EITHER O R BOTH OF WHOM ARE NONRESIDENT; (B) THE TRANSACTION IS IN THE NATURE OF PURCHASE, S ALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SER VICE OR LENDING OR BORROWING MONEY OR ANY OTHER TRANSACTION HAVING A B EARING ON THE PROFITS, INCOMES OR LOSSES OF SUCH ENTERPRISES, AND (C) SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE AES FOR ALLOCATION OR APPORTIONMENT OR CONTRIB UTION TO THE ANY COST OR EXPENSES INCURRED OR TO BE INCURRED IN CONN ECTION WITH THE BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROV IDED TO ONE OR MORE OF SUCH ENTERPRISES. 60. AS FAR AS CLAUSE (A) IS CO NCERNED, SMC IS A NON-RESIDENT. IT HAS, SINCE 2002, A SUBSTANTIAL SHA RE HOLDING IN MSIL AND CAN, THEREFORE, BE CONSTRUED TO BE A NON-RESIDE NT AE OF MSIL WHILE IT DOES HAVE A NUMBER OF 'TRANSACTIONS' WITH MSIL ON THE ISSUE OF LICENSING OF IPRS, SUPPLY OF RAW MATERIALS, ETC. THE QUESTION REMAINS WHETHER IT HAS ANY 'TRANSACTION' CONCERNING THE AMP EXPENDITURE. THAT BRINGS US TO CLAUSES (B) AND (C). THEY CANNOT BE READ DISJUNCTIVELY. EVEN IF RESORT IS HAD TO THE RE SIDUARY PART OF CLAUSE (B) TO CONTEND THAT THE AMP SPEND OF MSIL IS 'ANY O THER TRANSACTION HAVING A BEARING' ON ITS 'PROFITS, INCOMES OR LOSSE S', FOR A 'TRANSACTION' THERE HAS TO BE TWO PARTIES. THEREFOR E FOR THE PURPOSES OF THE 'MEANS' PART OF CLAUSE (B) AND THE 'INCLUDES ' PART OF CLAUSE (C), THE REVENUE HAS TO SHOW THAT THERE EXISTS AN 'AGREE MENT 1 OR 'ARRANGEMENT' OR 'UNDERSTANDING' BETWEEN MSIL AND S MC WHEREBY MSIL IS OBLIGED TO SPEND EXCESSIVELY ON AMP IN ORDE R TO PROMOTE THE BRAND OF SMC. AS FAR AS THE LEGISLATIVE INTENT IS C ONCERNED, IT IS SEEN THAT CERTAIN TRANSACTIONS LISTED IN THE EXPLANATION UNDER CLAUSES (I) (A) TO (E) TO SECTION 92B ARE DESCRIBED AS 'INTERNATION AL TRANSACTION'. THIS 21 ITA 1998/MUM/2018 MIGHT BE ONLY AN ILLUSTRATIVE LIST, BUT SIGNIFICANT LY IT DOES NOT LIST AMP SPENDING AS ONE SUCH TRANSACTION. 61. THE SUBMISSION OF THE REVENUE IN THIS REGARD IS : 'THE MERE FACT THAT THE SERVICE OR BENEFIT HAS BEEN PROVIDED BY ON E PARTY TO THE OTHER WOULD BY ITSELF CONSTITUTE A TRANSACTION IRRE SPECTIVE OF WHETHER THE CONSIDERATION FOR THE SAME HAS BEEN PAID OR REM AINS PAYABLE OR THERE IS A MUTUAL AGREEMENT TO NOT CHARGE ANY COMPE NSATION FOR THE SERVICE OR BENEFIT.' EVEN IF THE WORD 'TRANSACTION' IS GIVEN ITS WIDEST CONNOTATION, AND NEED NOT INVOLVE ANY TRANSFER OF M ONEY OR A WRITTEN AGREEMENT AS SUGGESTED BY THE REVENUE, AND EVEN IF RESORT IS HAD TO SECTION 92F (V) WHICH DEFINES 'TRANSACTION' TO INCL UDE 'ARRANGEMENT', 'UNDERSTANDING' OR 'ACTION IN CONCERT', 'WHETHER FO RMAL OR IN WRITING', IT IS STILL INCUMBENT ON THE REVENUE TO SHOW THE EXIST ENCE OF AN 'UNDERSTANDING' OR AN 'ARRANGEMENT' OR 'ACTION IN C ONCERT' BETWEEN MSIL AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTI ON. IN OTHER WORDS, FOR BOTH THE 'MEANS' PART AND THE 'INCLUDES' PART OF SECTION 92B (1) WHAT HAS TO BE DEFINITELY SHOWN IS THE EXISTENC E OF TRANSACTION WHEREBY MSIL HAS BEEN OBLIGED TO INCUR AMP OF A CER TAIN LEVEL FOR SMC FOR THE PURPOSES OF PROMOTING THE BRAND OF SMC. 62. IF A STEP BY STEP ANALYSIS IS UNDERTAKEN OF SEC TIONS 92B TO 92F, THE SINE QUA NON FOR COMMENCING THE TRANSFER PRICIN G EXERCISE IS TO SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION. THE NEXT STEP IS TO DETERMINE THE PRICE OF SUCH TRANSACTION. THE THIRD STEP WOULD BE TO DETERMINE THE ALP BY APPLYING ONE OF THE FIVE PRICE DISCOVERY METHODS SPECIFIED IN SECTION 92C. THE FOURTH STEP W OULD BE TO COMPARE THE PRICE OF THE TRANSACTION THAT IS TC , ARRANGEMENT OR THE ENTIRE AMP ACTIVITY OF THE INDIAN ENTITY IS UNILATE RAL AND ONLY FOR ITS OWN BENEFIT. ACCORDING TO THE REVENUE, 'THE ONLY CR EDIBLE TEST IN THE CONTEXT OF TP PROVISIONS TO DETERMINE WHETHER THE I NDIAN SUBSIDIARY IS INCURRING AMP EXPENSES UNILATERALLY ON ITS OWN O R AT THE INSTANCE OF THE AE IS TO FIND OUT WHETHER AN INDEPENDENT PAR TY WOULD HAVE ALSO DONE THE SAME.' IT IS ASSERTED: 'AN INDEPENDEN T PARTY WITH A SHORT TERM AGREEMENT WITH THE MNC WILL NOT INCUR CO STS WHICH GIVE LONG TERM BENEFITS OF BRAND & MARKET DEVELOPMENT TO THE OTHER ENTITY. AN INDEPENDENT PARTY WILL, IN SUCH CIRCUMSTANCES, C ARRY OUT THE FUNCTION OF DEVELOPMENT OF MARKETS ONLY WHEN IT IS ADEQUATELY REMUNERATED FOR THE SAME.' 67. REFERENCE IS MADE BY MR. SHVASTAVA TO SOME SAMP LE AGREEMENTS BETWEEN REEBOK (UK) AND REEBOK (SOUTH AF RICA) AND 1C ISSACS & CO AND BHPC MARKETING TO URGE THAT THE LEVEL OF AMP SPEND IS A MATTER OF NEGOTIATION BETWEEN THE PARTIE S TOGETHER WITH THE RATE OF ROYALTY. IT IS FURTHER SUGGESTED THAT IT MI GHT BE NECESSARY TO EXAMINE WHETHER IN OTHER JURISDICTIONS THE FOREIGN AE I.E., SMC IS ENGAGED IN AMP/BRAND PROMOTION THROUGH INDEPENDENT ENTITIES OR THEIR SUBSIDIARIES WITHOUT ANY COMPENSATION TO THEM EITHER DIRECTLY OR THROUGH AN ADJUSTMENT OF ROYALTY PAYMENTS. ABSENCE OF A MACHINERY PROVISION. 68. THE ABOVE SUBMISSIONS PROCEED PURELY ON SURMISE S AND CONJECTURES AND IF ACCEPTED AS SUCH WILL LEAD TO SE NDING THE TAX 22 ITA 1998/MUM/2018 AUTHORITIES THEMSELVES ON A WILD-GOOSE CHASE OF WHA T CAN AT BEST BE DESCRIBED AS A 'MIRAGE'. FIRST OF ALL, THERE HAS TO BE A CLEAR STATUTORY MANDATE FOR SUCH AN EXERCISE. THE COURT IS UNABLE T O FIND ONE. TO THE QUESTION WHETHER THERE IS ANY 'MACHINERY' PROVI SION FOR DETERMINING THE EXISTENCE OF AN INTERNATIONAL TRANS ACTION INVOLVING AMP EXPENSES, MR. SHVASTAVA ONLY REFERRED TO SECTIO N 92F (II) WHICH DEFINES ALP TO MEAN A PRICE 'WHICH IS APPLIED OR PR OPOSED TO BE APPLIED IN A TRANSACTION BETWEEN PERSONS OTHER THAN AES IN UNCONTROLLED CONDITIONS'. SINCE THE REFERENCE IS TO 'PRICE' AND TO 'UNCONTROLLED CONDITIONS' IT IMPLICITLY BRINGS INTO PLAY THE BLT. IN OTHER WORDS, IT EMPHASISES THAT WHERE THE PRICE IS SOMETH ING OTHER THAN WHAT WOULD BE PAID OR CHARGED BY ONE ENTITY FROM AN OTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DOES NOT SEE THIS AS A MACHINERY PROVISION PARTICULARLY IN LIGHT OF THE FACT THAT THE BLT HAS BEEN EXPRESSLY NEGATIVED BY THE CO URT IN SONY ERICSSON. THEREFORE, THE EXISTENCE OF AN INTERNATIO NAL TRANSACTION WILL HAVE TO BE ESTABLISHED DE HORS THE BLT. 69. THERE IS NOTHING IN THE ACT WHICH INDICATES HOW, IN THE ABSENCE OF THE BLT, ONE CAN DISCERN THE EXISTENCE OF AN INTERN ATIONAL TRANSACTION AS FAR AS AMP EXPENDITURE IS CONCERNED. THE COURT F INDS CONSIDERABLE MERIT IN THE CONTENTION OF THE ASSESSE E THAT THE ONLY TP ADJUSTMENT AUTHORISED AND PERMITTED BY CHAPTER X IS THE SUBSTITUTION OF THE ALP FOR THE TRANSACTION PRICE OR THE CONTRAC T PRICE. IT BEARS REPETITION THAT EACH OF THE METHODS SPECIFIED IN S. 92C (1) IS A PRICE DISCOVERY METHOD. S.92C (1) THUS IS EXPLICIT THAT T HE ONLY MANNER OF EFFECTING A TP ADJUSTMENT IS TO SUBSTITUTE THE TRAN SACTION PRICE WITH THE ALP SO DETERMINED. THE SECOND PROVISO TO SECTIO N 92C (2) PROVIDES A 'GATEWAY' BY STIPULATING THAT IF THE VAR IATION BETWEEN THE ALP AND THE TRANSACTION PRICE DOES NOT EXCEED THE S PECIFIED PERCENTAGE, NO TP ADJUSTMENT CAN AT ALL BE MADE. BO TH SECTION 92CA, WHICH PROVIDES FOR MAKING A REFERENCE TO THE TPO FOR COMPUTATION OF THE ALP AND THE MANNER OF THE DETERM INATION OF THE ALP BY THE TPO, AND SECTION 92CB WHICH PROVIDES FOR THE 'SAFE HARBOUR' RULES FOR DETERMINATION OF THE ALP, CAN BE APPLIED ONLY IF THE TP ADJUSTMENT INVOLVES SUBSTITUTION OF THE TRANSACT ION PRICE WITH THE ALP. RULES 10B, 10C AND THE NEW RULE 10AB ONLY DEAL WITH THE DETERMINATION OF THE ALP. THUS FOR THE PURPOSES OF CHAPTER X OF THE ACT, WHAT IS ENVISAGED IS NOT A QUANTITATIVE ADJUST MENT BUT ONLY A SUBSTITUTION OF THE TRANSACTION PRICE WITH THE ALP. 70. WHAT IS CLEAR IS THAT IT IS THE 'PRICE' OF AN I NTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE ADJUSTED. THE VERY EXISTENC E OF AN INTERNATIONAL TRANSACTION CANNOT BE PRESUMED BY ASS IGNING SOME PRICE TO IT AND THEN DEDUCING THAT SINCE IT IS NOT AN ALP, AN 'ADJUSTMENT' HAS TO BE MADE. THE BURDEN IS ON THE R EVENUE TO FIRST SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION. NEXT, TO ASCERTAIN THE DISCLOSED 'PRICE' OF SUCH TRANSACTION AND THERE AFTER ASK WHETHER IT IS AN ALP. IF THE ANSWER TO THAT IS IN THE NEGATIVE THE TP ADJUSTMENT SHOULD FOLLOW. THE OBJECTIVE OF CHAPTER X IS TO MAK E ADJUSTMENTS TO THE PRICE OF AN INTERNATIONAL TRANSACTION WHICH THE AES INVOLVED MAY 23 ITA 1998/MUM/2018 SEEK TO SHIFT FROM ONE JURISDICTION TO ANOTHER. AN 'ASSUMED' PRICE CANNOT FORM THE REASON FOR MAKING AN ALP ADJUSTMENT . 71. SINCE A QUANTITATIVE ADJUSTMENT IS NOT PERMISSI BLE FOR THE PURPOSES OF A TP ADJUSTMENT UNDER CHAPTER X, EQUALL Y IT CANNOT BE PERMITTED IN RESPECT OF AMP EXPENSES EITHER. AS ALR EADY NOTICED HEREINBEFORE, WHAT THE REVENUE HAS SOUGHT TO DO IN THE PRESENT CASE IS TO RESORT TO A QUANTITATIVE ADJUSTMENT BY FIRST DETERMINING WHETHER THE AMP SPEND OF THE ASSESSEE ON APPLICATION OF THE BLT, IS EXCESSIVE, THEREBY EVIDENCING THE EXISTENCE OF AN I NTERNATIONAL TRANSACTION INVOLVING THE AE. THE QUANTITATIVE DETE RMINATION FORMS THE VERY BASIS FOR THE ENTIRE TP EXERCISE IN THE PR ESENT CASE. 72. AS RIGHTLY POINTED OUT BY THE ASSESSEE, WHILE S UCH QUANTITATIVE ADJUSTMENT INVOLVED IN RESPECT OF AMP EXPENSES MAY BE CONTEMPLATED IN THE TAXING STATUTES OF CERTAIN FORE IGN COUNTRIES LIKE U.S.A., AUSTRALIA AND NEW ZEALAND, NO PROVISION IN CHAPTER X OF THE ACT CONTEMPLATES SUCH AN ADJUSTMENT. AN AMP TP ADJU STMENT TO WHICH NONE OF THE SUBSTANTIVE OR PROCEDURAL PROVISI ONS OF CHAPTER X OF THE ACT APPLY, CANNOT BE HELD TO BE PERMITTED BY CHAPTER X. IN OTHER WORDS, WITH NEITHER THE SUBSTANTIVE NOR THE M ACHINERY PROVISIONS OF CHAPTER X OF THE ACT BEING APPLICABLE TO AN AMP TP ADJUSTMENT, THE INEVITABLE CONCLUSION IS THAT CHAPT ER X AS A WHOLE, DOES NOT PERMIT SUCH AN ADJUSTMENT. 73. IT BEARS REPETITION THAT THE SUBJECT MATTER OF THE ATTEMPTED PRICE ADJUSTMENT IS NOT THE TRANSACTION INVOLVING THE IND IAN ENTITY AND THE AGENCIES TO WHOM IT IS MAKING PAYMENTS FOR THE AMP EXPENSES. THE REVENUE IS NOT JOINING ISSUE, THE COURT WAS TOLD, T HAT THE INDIAN ENTITY WOULD BE ENTITLED TO CLAIM SUCH EXPENSES AS REVENUE EXPENSE IN TERMS OF SECTION 37 OF THE ACT. IT IS NOT FOR THE R EVENUE TO DICTATE TO AN ENTITY HOW MUCH IT SHOULD SPEND ON AMP. THAT WOU LD BE A BUSINESS DECISION OF SUCH ENTITY KEEPING IN VIEW IT S EXIGENCIES AND ITS PERCEPTION OF WHAT IS BEST NEEDED TO PROMOTE ITS PR ODUCTS. THE ARGUMENT OF THE REVENUE, HOWEVER, IS THAT WHILE SUC H AMP EXPENSE MAY BE WHOLLY AND EXCLUSIVELY FOR THE BENEFIT OF TH E INDIAN ENTITY, IT ALSO ENURES TO BUILDING THE BRAND OF THE FOREIGN AE FOR WHICH THE FOREIGN AE IS OBLIGED TO COMPENSATE THE INDIAN ENTI TY. THE BURDEN OF THE REVENUE'S SONG IS THIS: AN INDIAN ENTITY, WHOSE AMP EXPENSE IS EXTRAORDINARY (OR 'NON-ROUTINE') OUGHT TO BE COMPEN SATED BY THE FOREIGN AE TO WHOSE BENEFIT ALSO SUCH EXPENSE ENURE S. THE 'NONROUTINE' AMP SPEND IS TAKEN TO HAVE 'SUBSUMED' THE PORTION CONSTITUTING THE 'COMPENSATION' OWED TO THE INDIAN ENTITY BY THE FOREIGN AE. IN SUCH A SCENARIO WHAT WILL BE REQUIRE D TO BE BENCHMARKED IS NOT THE AMP EXPENSE ITSELF BUT TO WH AT EXTENT THE INDIAN ENTITY MUST BE COMPENSATED. THAT IS NOT WITH IN THE REALM OF THE PROVISIONS OF CHAPTER X. 74. THE PROBLEM WITH THE REVENUE'S APPROACH IS THAT IT WANTS EVERY INSTANCE OF AN AMP SPEND BY AN INDIAN ENTITY WHICH HAPPENS TO USE THE BRAND OF A FOREIGN AE TO BE PRESUMED TO INVOLVE AN INTERNATIONAL TRANSACTION. AND THIS, NOTWITHSTANDING THAT THIS IS NOT ONE OF THE DEEMED INTERNATIONAL TRANSACTIONS LISTED UNDER THE EXPLANATION TO 24 ITA 1998/MUM/2018 SECTION 926 OF THE ACT. THE PROBLEM DOES NOT STOP HERE. EVEN IF A TRANSACTION INVOLVING AN AMP SPEND FOR A FOREIGN AE IS ABLE TO BE LOCATED IN SOME AGREEMENT, WRITTEN (FOR E.G., THE S AMPLE AGREEMENTS PRODUCED BEFORE THE COURT BY THE REVENUE) OR OTHERW ISE, HOW SHOULD A TPO PROCEED TO BENCHMARK THE PORTION OF SUCH AMP SPEND THAT THE INDIAN ENTITY SHOULD BE COMPENSATED FOR? 75. AS AN ANALOGY, AND FOR NO OTHER PURPOSE, IN THE CONTEXT OF A DOMESTIC TRANSACTION INVOLVING TWO OR MORE RELATED PARTIES, REFERENCE MAY BE MADE TO SECTION 40 A (2) (A) UNDER WHICH CER TAIN TYPES OF EXPENDITURE INCURRED BY WAY OF PAYMENT TO RELATED P ARTIES IS NOT DEDUCTIBLE WHERE THE AO 'IS OF THE OPINION THAT SUC H EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS.' IN SUCH EVENT, 'SO MUCH OF THE EXPENDIT URE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE S HALL NOT BE ALLOWED AS A DEDUCTION.' THE AO IN SUCH AN INSTANCE DEPLOYS THE 'BEST JUDGMENT' ASSESSMENT AS A DEVICE TO DISALLOW WHAT HE CONSIDERS TO BE AN EXCESSIVE EXPENDITURE. THERE IS NO CORRESPONDING 'MACHINERY 1 PROVISION IN CHAPTER X WHICH ENABLES AN AO TO DETERMINE WHAT SHOULD BE THE FAIR 'COMPENSATION' AN INDIAN ENTITY WOULD BE ENTITLED TO IF IT IS FOUND THAT THERE IS A N INTERNATIONAL TRANSACTION IN THAT REGARD. IN PRACTICAL TERMS, ABS ENT A CLEAR STATUTORY GUIDANCE, THIS MAY ENCOUNTER FURTHER DIFFICULTIES. THE STRENGTH OF A BRAND, WHICH COULD BE PRODUCT SPECIFIC, MAY BE IMPA CTED BY NUMEROUS OTHER IMPONDERABLES NOT LIMITED TO THE NAT URE OF THE INDUSTRY, THE GEOGRAPHICAL PECULIARITIES, ECONOMIC TRENDS BOTH INTERNATIONAL AND DOMESTIC, THE CONSUMPTION PATTERN S, MARKET BEHAVIOUR AND SO ON. A SIMPLISTIC APPROACH USING ON E OF THE MODES SIMILAR TO THE ONES CONTEMPLATED BY SECTION 92C MAY NOT ONLY BE LEGALLY IMPERMISSIBLE BUT WILL LEND ITSELF TO ARBIT RARINESS. WHAT IS THEN NEEDED IS A CLEAR STATUTORY SCHEME ENCAPSULATING TH E LEGISLATIVE POLICY AND MANDATE WHICH PROVIDES THE NECESSARY CHE CKS AGAINST ARBITRARINESS WHILE AT THE SAME TIME ADDRESSING THE APPREHENSION OF TAX AVOIDANCE.' 15. THUS, IT IS TO BE UNDERSTOOD FROM THE DECISION O F THE HON'BLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA ), UNLESS, THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE F OR INCURRING AMP EXPENDITURE, IT CANNOT BE CONSIDERED AS INTERNA TIONAL TRANSACTION UNDER SECTION 92B OF THE ACT. FURTHER, T HE HON'BLE COURT HAS HELD THAT NO ADJUSTMENT FOR DETERMINATION OF ARM'S LENGTH PRICE WITH REGARD TO AMP EXPENDITURE CAN BE MADE BY RESORTING TO BRIGHT LINE TEST OR ANY OTHER SIMILAR METHOD WHICH IS NOT PROVIDED IN THE STATUTE. UNDISPUTEDLY, THE DECI SION IN MARUTI SUZUKI INDIA LTD. (SUPRA) WAS DELIVERED BY THE HON' BLE DELHI HIGH COURT AT A LATER POINT OF TIME AND AFTER TAKING NOT E OF ITS OWN DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (SUP RA). THEREFORE, THE RATIO LAID DOWN IN MARUTI SUZ UKI INDIA LTD. (SUPRA) WOULD PREVAIL. MOREOVER, THE RATIO LAID DOW N IN MARUTI 25 ITA 1998/MUM/2018 SUZUKRLNC|IA LTD.(SUPRA) WOULD BE APPLICABLE TO THE PRESENT APPEAL SINCE FACTS ARE MORE OR LESS SIMILAR. LIKE IN MARUT I SUZUKI INDIA LTD. (SUPRA), THE ASSESSEE BEFORE US IS INVOL VED IN MANUFACTURING ACTIVITY, HENCE, THE AMP EXPEN DITURE INCURRED IN INDIA BY MAKING PAYMENT TO THIRD PARTIES IN INDI A CERTAINLY IS CONNECTED WITH SUCH MANUFACTURING ACTIVITIE S. MOREOVER, THE DEPARTMENT HAS FAILED TO ESTABLISH ON RECORD THAT T HERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE FOR INC URRING AMP EXPENDITURE. IN ANY CASE OF THE MATTER, QUANTIFICATION OF AMP EXPENDITURE BY APPLYING THE BRIGHT LINE TEST OR ANY SUCH SIMILAR METHOD HAS NOT ONLY BEEN DISAPPROVED BY THE HON'BLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATI ONS (SUPRA) BUT ALSO IN MARUTI SUZUKI INDIA LTD. (SUPRA). IN OU R CONSIDERED VIEW, THE TRANSFER PRICING OFFICER WAS TOTALLY WRONG IN NOT APPLYING THE PRINCIPLE LAID DOWN IN THE DECISION OF THE MAR UTI SUZUKI INDIA LTD. (SUPRA) BY TAKING THE ALIBI THAT THE DECISIO N IS OF A NON- JURISDICTIONAL HIGH COURT. FURTHER, THE TRANSFER PRIC ING OFFICER WAS TOTALLY WRONG IN DETERMINING THE ARM'S LENGTH PRICE EXPENDITURE BY APPLYING THE BRIGHT LINE TEST OR ROUTINE ARM'S LENG TH PRICE SIMPLY RELYING UPON THE SPECIAL BENCH DECISION OF THE TRIB UNAL, DELHI BENCH, CONVENIENTLY IGNORING THE FACT THAT THE BRIG HT LINE TEST METHOD ADOPTED IN CASE OF L.G. ELECTRONICS INDIA PV T. LTD. (SUPRA) WAS DISAPPROVED BY THE HON'BLE DELHI HIGH COURT NOT ONLY IN CASE OF SONY ERICSON MOBILE COMMUNICATIONS (SUPRA) BUT A LSO IN CASE OF MARUTI SUZUKI INDIA LTD. (SUPRA). THUS, THE REAS ONING OF THE ASSESSING OFFICER IN NOT FOLLOWING THE DECISION OF MARUTI SUZUKI INDIA LTD (SUPRA) IS TOTALLY UNACCEPTABLE. WE MUST PUT IT ON RECORD, THE DECISION OF THE HON'BLE DELHI HIGH COURT IN MAR UTJGUZUKI INDIA LTD, (SUPRA) HAS SUBSEQUENTLY BEEN FOLLOWED NOT ONL Y BY THE SAME HIGH COURT IN A NUMBER OF OTHER CASES BUT ALSO BY D IFFERENT BENCHES OF TRIBUNAL, INCLUDING MUMBAI BENCHES, INSO FAR IT RELATES TO THE ISSUE WHETHER AMP EXPENDITURE INCURRED IN IN DIA GIVES RISE TO INTERNATIONAL TRANSACTION WITH THE AES. IT IS R ELEVANT TO OBSERVE, THE DRP HAS UPHELD THE ADJUSTMENT MADE BY THE TRANSF ER PRICING OFFICER SIMPLY FOR THE REASON THAT THE DEPARTMENT H AS NO REMEDY AVAILABLE AGAINST AN ORDER OF THE DRP FAVOURABLE TO THE ASSESSEE. AS REGARDS THE DECISIONS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AS NOTED HEREIN BEFORE, ON A CAREFUL ANALYSIS OF EACH ONE OF THESE DECISIONS WE ARE OF THE CONSIDERE D OPINION THAT THEY WILL NOT BE OF ANY HELP TO THE DEPARTMENT, SIN CE, THEY WERE RENDERED PRIOR TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA) AND ALL OF THEM PROCEEDED ON THE BASIS OF THE DECISION RENDERED IN SONY ERICS ON MOBILE 26 ITA 1998/MUM/2018 COMMUNICATIONS (SUPRA). IN VIEW OF THE AFORESAID, W E HOLD THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE NOT BEING AN INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTION 92B OF THE ACT, NO TRANSFER PRICING ADJUSTMENT COULD HAVE BEEN MAD E BY THE TRANSFER PRICING OFFICER. MORE SO, WHEN THE METHOD A DOPTED BY THE TRANSFER PRICING OFFICER FOR MAKING SUCH ADJUST MENT IS NOT PROVIDED UNDER THE STATUTE. BEFORE PARTING, WE M UST OBSERVE THAT ALL OTHER INTERNATIONAL TRANSACTIONS ENTERED INTO B ETWEEN THE ASSESSEE AND ITS AE WERE FOUND TO BE AT ARM'S LENG TH. IT IS ALSO NOT DISPUTED, IF THE INTERNATIONAL TRANSACTIONS ARE CONSIDERED AS A WHOLE, THE MARGIN SHOWN BY THE ASSESSEE IS MORE THA N THE MARGIN SHOWN BY THE COMPARABLES SELECTED BY THE TRANSFER PR ICING OFFICER. GROUNDS RAISED ARE ALLOWED. 8. COMING TO THE NEW FACTS BROUGHT OUT BY THE TPO I N HIS ORDER FOR THE YEAR UNDER CONSIDERATION. THE TPO HAS TAKEN SUPPORT FRO M THE ORDER OF THE TPO FOR AY 2013-14 TO DISTINGUISH THE FACTS OF THE PRESENT CASE FROM THAT OF THE FACTS BEFORE THE ITAT FOR THE ASSESSMENT YEAR 2009-10, AS PER WHICH, THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND JOHNSON & JOHN SON PVT LTD, SINGAPORE FOR PROVIDING DEMPE SERVICES. AS PER THE TPO, SERV ICE AGREEMENT DATED 08-09- 2006 BETWEEN THE ASSESSEE AND JOHNSON & JOHNSON PVT LTD, SINGAPORE SHOWS THAT THE AE WAS PROVIDING SERVICE IN THE AREA OF CU STOMER DEVELOPMENT, MARKET RESEARCH AND DEVELOPMENT AND SUPPLY CHAIN, E TC . FROM THE ABOVE, IT IS VERY CLEAR THAT AE IS ACTIVELY INVOLVED IN AMP FUNC TION CARRIED OUT BY THE ASSESSEE. THUS, AMP EXPENDITURE INCURRED BY THE AS SESSEE CONSTITUTES, INTERNATIONAL TRANSACTIONS WHICH NEEDS TO BE BENCHM ARKED. WE FIND THAT THE NEW FACTS BROUGHT OUT BY THE TPO IN HIS PROCEEDINGS ARE NO WAY CONNECTED TO THE AMP EXPENDITURE INCURRED BY THE ASSESSEE TO LIN K THE SERVICE AGREEMENT 27 ITA 1998/MUM/2018 BETWEEN THE PARTIES FOR PROVIDING DEMPE SERVICES. IN OUR VIEW, THE ASSESSEE HAS SEPARATELY PAID FOR SUCH SERVICE WHICH IS NOT I NCLUDED IN THE AMP EXPENDITURE INCURRED BY THE ASSESSEE. THIS IS EVID ENT FROM THE FACT THAT AS PER THE DETAILS FILED BY THE ASSESSEE, TOTAL AMP EXPEND ITURE INCURRED BY THE ASSESSEE IN INDIA IS PAID TO THIRD PARTIES. THEREF ORE, WE ARE OF THE CONSIDERED VIEW THAT THE NEW FACTS BROUGHT OUT BY THE TPO FOR THE YEAR UNDER CONSIDERATION IN NO WAY CAN CHANGE THE FACTS CONSID ERED BY THE ITAT FOR THE EARLIER YEAR AND ACCORDINGLY, WE ARE OF THE CONSIDE RED VIEW THAT THERE IS NO NEED TO DEVIATE FROM THE FINDINGS RECORDED BY THE T RIBUNAL TO HOLD THAT AMP EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE CONS IDERED AS INTERNATIONAL TRANSACTIONS WHICH NEEDS TO BE BENCHMARKED U/S 92C OF THE I.T. ACT. 9. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH T HE VIEW TAKEN BY THE CO- ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2008-0 9, WE ARE OF THE CONSIDERED VIEW THAT NO ADJUSTMENT FOR DETERMINATIO N OF ALP WITH REGARD TO THE AMP EXPENDITURE CAN BE MADE BY RESORTING TO BRI GHTLINE TEST OR ANY OTHER SIMILAR METHOD WHICH IS NOT PROVIDED IN THE STATUTE . HENCE, WE DIRECT THE AO TO DELETE ADJUSTMENT MADE TOWARDS AMP EXPENDITURE U /S 92CA OF THE INCOME- TAX ACT, 1961. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. 28 ITA 1998/MUM/2018 ORDER PRONOUNCED IN THE OPEN COURT ON 27-02-20 19. SD/- SD/- (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 27 TH FEBRUARY, 2019 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI