Discovery Communications India, New Delhi V. DCIT, New Delhi

ITA 2931/DEL/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98025 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 02-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 12-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMRENDRA KUMAR
• Assessee Lawyers: S K AGARWAL; MANOJ PARDASANI
• Keywords: Transfer pricing; International transaction
• Section: 92B; 10B; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SHRI KULDIP SINGH, JM ITA NO.2931/DEL/2015 ASSESSMENT YEAR : 2010-11 DISCOVERY COMMUNICATIONS INDIA, 125-B, SOM DATT CHAMBER-1, 15, BHIKAJI CAMA PLACE, NEW DELHI. PAN: AAACD4746K VS. DCIT, CIRCLE-7(2), CR BUILDING, IP ESTATE, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MANOJ PARDASANI, CA & SHRI S.K. AGARWAL, ADVOCATE DEPARTMENT BY : SHRI AMRENDRA KUMAR, CIT, DR DATE OF HEARING : 02.12.2015 DATE OF PRONOUNCEMENT : 04.12.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER (AO) ON 27.2. 2015 U/S 143 (3) ITA NO.2931/DEL/2015 2 READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEA R 2010-11. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE ADDITION OF RS.20,33,78,769/- MADE ON ACCOUNT OF TRANSFER PRICI NG ADJUSTMENT DUE TO DIFFERENCE IN THE ARMS LENGTH PRICE OF THE INTERNA TIONAL TRANSACTION OF INCURRING OF ADVERTISEMENT, MARKETING AND PROMOTION (AMP) EXPENSES RELATING TO CREATION OF MARKETING INTANGIBLES. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A SUBSIDIARY OF DISCOVERY CHANNEL (MAURITIUS) PVT. LT D. WITH DISCOVERY COMMUNICATION INC., USA AS THE PARENT COMPANY OF TH IS GROUP. THE ASSESSEE IS ENGAGED IN THE DISTRIBUTION OF DISCOVER Y CHANNEL, DISCOVERY TRAVEL AND LIVING CHANNEL AND ANIMAL PLANET CHANNEL IN INDIA REGION AND ALSO SALE OF ADVERTISEMENT INVENTORY ON THE CHA NNELS. THE ASSESSEE REPORTED SIX INTERNATIONAL TRANSACTIONS WHICH HAVE BEEN ENLISTED ON PAGE 2 OF THE ORDER PASSED BY THE TRANSFER PRICING OFFIC ER (TPO). THE ASSESSEE EMPLOYED TRANSACTIONAL NET MARGIN METHOD ( TNMM) AS THE MOST APPROPRIATE METHOD FOR DEMONSTRATING THAT ITS FIRST THREE ITA NO.2931/DEL/2015 3 INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH PRI CE (ALP). THE REMAINING THREE WERE `AT COST ONLY. ON A REFERENC E MADE BY THE AO FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO NS, THE TPO ACCEPTED THE REPORTED INTERNATIONAL TRANSACTIONS AT ALP. HE , HOWEVER, OBSERVED THAT THE ASSESSEE INCURRED AMP EXPENSES TO THE TUNE OF RS.29,60,08,795/- WHICH WAS NOT REPORTED. FOR DETE RMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF AMP EXPENSES, HE C HOSE CERTAIN COMPANIES AS COMPARABLES. BY APPLYING THE BRIGHT LI NE TEST, HE WORKED OUT NON-ROUTINE EXPENSES INCURRED FOR DEVELOPING IN TANGIBLES IN EXCESS OF BRIGHT LINE AT RS.22,85,49,990/-. ADDING THE MA RK UP OF 14.48%, HE WORKED OUT A TRANSFER PRICING ADJUSTMENT OF RS.26,2 5,58,229/-. IN ADDITION TO THAT HE NOTICED THAT THE ASSESSEE HAD N OT CHARGED ANY `INTEREST ON RECEIVABLES FROM ITS AE. AFTER ENTERTAINING OBJ ECTIONS FROM THE ASSESSEE, THE TPO WORKED OUT TP ADJUSTMENT OF INTER EST ON RECEIVABLE TO THE TUNE OF RS.1,16,33,235/-, THEREBY PROPOSING TOT AL TP ADJUSTMENTS AMOUNTING TO RS.27,41,91,464/-. THE AO, INTER ALI A, MADE THESE TWO ADDITIONS ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT S. THE ASSESSEE CHALLENGED THE ADDITIONS SO PROPOSED IN THE DRAFT O RDER AMOUNTING TO ITA NO.2931/DEL/2015 4 RS.27.41 CRORE AND ODD BEFORE THE DRP. VIDE ITS DIR ECTION DATED 15.12.2014, THE DRP GAVE SOME DIRECTIONS ON THE COM PUTATION OF ALP OF AMP EXPENSES. HOWEVER, THE TP ADJUSTMENT OF `INT EREST ON RECEIVABLES WAS NOT ALTERED. THE TPO PASSED CONSEQ UENTIAL ORDER IN CONFORMITY WITH THE DIRECTION OF THE DRP ON 26.2.20 15 REVISING THE AMOUNT OF TOTAL ADJUSTMENT TO RS.21,50,12,004 INSTE AD OF THE ORDER AMOUNT OF RS.27,41,91,464 INCLUSIVE OF ADJUSTMENT O N ACCOUNT OF INTEREST ON RECEIVABLES. IN THE FINAL ORDER PASSE D, THE AO MADE ADDITION FOR A SUM OF RS.21.50 CRORE AND ODD, COMPRISING OF RS.20,33,78,769/- TOWARDS AMP AND RS.1,16,33,235/- TOWARDS INTEREST O N RECEIVABLES. NO ARGUMENT HAS BEEN ADVANCED BEFORE US ON ACCOUNT OF ADDITION ON ACCOUNT OF TP ADJUSTMENT OF `INTEREST ON RECEIVABLE . THE ASSESSMENT ORDER TO THAT EXTENT IS, THEREFORE, APPROVED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD QUA THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF AMP EXPENSES. IN THIS REGARD, IT IS IMPERATIVE TO NOTE THAT SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LG ELECTRONICS INDIA PVT. ITA NO.2931/DEL/2015 5 LTD. VS. ACIT (2013) 152 TTJ (DEL) 273 (SB), BY ITS MAJORITY DECISION HELD, INTER ALIA , THAT AMP IS A TRANSACTION AND ALSO AN INTERNATIO NAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF TH E ACT AND THAT THE TPO HAS JURISDICTION TO COMPUTE THE ALP OF THIS INT ERNATIONAL TRANSACTION DESPITE THE SAME NOT HAVING BEEN SPECIF ICALLY REFERRED TO BY THE AO. ON THE QUESTION OF DETERMINATION OF THE AL P OF THIS INTERNATIONAL TRANSACTION, THE SPECIAL BENCH APPROV ED THE APPLICATION OF BRIGHT LINE TEST FOR WORKING OUT THE AMOUNT OF NON- ROUTINE AMP EXPENSES AND HELD THAT THE ALP OF AMP EXPENSES SHOU LD BE DETERMINED ON COST PLUS METHOD BY TREATING AMP TRANSACTION AS A SEPARATE AND DISTINCT FROM OTHER INTERNATIONAL TRANSACTIONS. IT WAS FURTHER HELD THAT THE SELLING EXPENSES DIRECTLY INCURRED IN CONNECTION WI TH THE SALES DO NOT LEAD TO BRAND PROMOTION AND HENCE SHOULD NOT BE BRO UGHT WITHIN THE AMBIT OF AMP EXPENSES. THE SPECIAL BENCH LAID DOWN CERTAIN PARAMETERS TO BE TAKEN INTO CONSIDERATION FOR DETER MINING THE ALP OF AMP EXPENSES. IN THE ULTIMATE ANALYSIS, THE MATTER WAS SENT BACK TO THE TPO FOR UNDERTAKING THE EXERCISE AFRESH IN THE LIGH T OF ITS DIRECTIONS. ITA NO.2931/DEL/2015 6 5. FOLLOWING THE SAID ORDER, BENCHES OF THE TRI BUNAL DECIDED SEVERAL CASES INVOLVING AMP EXPENSES, RESTORING THE MATTER TO THE FILE OF AO/TPO FOR DECIDING THIS ISSUE IN CONFORMITY WITH T HE DIRECTIONS GIVEN BY THE SPECIAL BENCH IN LG ELECTRONICS (SUPRA) . SEVERAL ASSESSEES AS WELL AS THE REVENUE PREFERRED THEIR RESPECTIVE APPE ALS BEFORE THE HONBLE HIGH COURTS AGAINST THE TRIBUNAL ORDERS FOL LOWING THE SPECIAL BENCH ORDER. A BATCH OF SUCH APPEALS, ALSO INCLUDI NG THE CASE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION, LED BY SONY ERICSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS BEEN DISPOSED OF BY THEIR LORDSHIPS OF THE HONBLE DELHI HIGH COURT, UPHOLDING THE MAJORITY VIEW OF SPECIAL BENCH IN LG ELECTRONICS (SUPRA) TREATING AMP AS AN INTERNATIONAL TRANSACTION AND AL SO CONFERRING JURISDICTION IN THE TPO TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION OF AMP EXPENSES. THE HONBLE HIGH COURT HAS HELD, INTER ALIA , THAT THE INTERNATIONAL TRANSACTION OF AMP EXPENS ES SHOULD BE BUNDLED OR AGGREGATED WITH OTHER INTERNATIONAL TRAN SACTION CARRIED OUT BY THE ASSESSEE AS A DISTRIBUTOR, WHO EITHER SIMPLY AC TS AN AGENT OF MANUFACTURER OR PURCHASES GOODS FROM THE MANUFACTUR ER FOR RESALE AT HIS ITA NO.2931/DEL/2015 7 OWN ACCOUNT. HOWEVER, IN THE CASE OF A MANUFACTURE R, THE IMPORT OF RAW MATERIAL HAS BEEN HELD TO BE AN INDEPENDENT TRANSAC TION OF MARKETING AND DISTRIBUTION. IN THE CASE OF A DISTRIBUTOR, THE HO NBLE HIGH COURT HELD THAT WHERE TNMM HAS BEEN APPLIED AS THE MOST APPROP RIATE METHOD, WHICH METHOD HAS NOT BEEN DISTURBED BY THE TPO, THE N, THE INTERNATIONAL TRANSACTIONS OF AMP AND DISTRIBUTION ACTIVITIES SHO ULD BE CLUBBED. IT FURTHER HELD THAT FOR DETERMINING THE ALP OF SUCH T RANSACTIONS UNDER A COMBINED APPROACH, ONLY SUCH COMPARABLES SHOULD BE CHOSEN WHICH CONFORM TO THE AMP FUNCTIONS AND OTHER DISTRIBUTION FUNCTIONS CONDUCTED BY THE ASSESSEE. IF THERE IS SOME DIFFER ENCE IN THE FUNCTIONS UNDER THESE INTERNATIONAL TRANSACTIONS, INCLUDING T HAT OF AMP, BETWEEN THE ASSESSEE AND THE COMPARABLES, THEN, SUITABLE AD JUSTMENT SHOULD BE MADE TO BRING BOTH THE TRANSACTIONS AT PAR. IF PROB ABLE COMPARABLES ARE NOT PERFORMING SIMILAR FUNCTIONS AS DONE BY THE ASS ESSEE AND NO ADJUSTMENT IS POSSIBLE FOR BRINGING THE INTERNATION AL TRANSACTIONS OF THE ASSESSEE IN AN AGGREGATE MANNER AT PAR WITH THOSE U NDERTAKEN BY THE COMPARABLES, THEN, SEGREGATION SHOULD BE DONE AND T HE INTERNATIONAL TRANSACTION OF AMP SPEND SHOULD BE SEPARATELY PROCE SSED UNDER THE ITA NO.2931/DEL/2015 8 TRANSFER PRICING PROVISIONS FOR THE PURPOSES OF DET ERMINING ITS ALP SEPARATELY. IN SUCH DETERMINATION OF ALP OF AMP EX PENSES IN A SEGREGATED MANNER, PROPER SET OFF ON ACCOUNT OF EXC ESS PURCHASE PRICE ADJUSTMENT SHOULD BE ALLOWED. THE VIEW TAKEN BY TH E TRIBUNAL IN SEGREGATING ROUTINE AND NON-ROUTINE EXPENSES ON THE BASIS OF BRIGHT LINE TEST HAS BEEN SET ASIDE BY THE HONBLE HIGH COURT. THE VIEW TAKEN BY THE SPECIAL BENCH THAT THE EXPENSES CONCERNED WITH THE SALES, SUCH AS, REBATES AND DISCOUNTS ETC., SHOULD BE EXCLUDED FROM THE AMBIT OF AMP EXPENSES, HAS BEEN UPHELD. 6. WE CAN SUMMARIZE THE RELEVANT POSITION EMANA TING FROM THE JUDGMENT OF THE HONBLE HIGH COURT, AS UNDER : - AMP EXPENSE IS AN INTERNATIONAL TRANSACTION [PARAS 52 & 53 OF THE JUDGMENT] ; THE TPO HAS JURISDICTION TO DETERMINE THE ALP OF TH E INTERNATIONAL TRANSACTION OF AMP EXPENSES [PARA 50 OF THE JUDGMENT]; ITA NO.2931/DEL/2015 9 INTER-CONNECTED INTERNATIONAL TRANSACTIONS CAN BE A GGREGATED AND SECTION 92(3) DOES NOT PROHIBIT THE SET-OFF [PARAS 80 & 81]; AMP IS A SEPARATE FUNCTION. AN EXTERNAL COMPARABLE SHOULD PERFORM SIMILAR AMP FUNCTIONS. [PARAS 165 &166] ; BRIGHT LINE TEST CANNOT BE APPLIED TO WORK OUT NON- ROUTINE AMP EXPENSES FOR BENCHMARKING [PARA 194(X)]; ALP OF AMP EXPENSES SHOULD BE DETERMINED PREFERABLY IN A BUNDLED MANNER WITH THE DISTRIBUTION ACTIVITY [PARA S 91, 121 & OTHERS] ; FOR DETERMINING THE ALP OF THESE TRANSACTIONS IN A BUNDLED MANNER, SUITABLE COMPARABLES HAVING UNDERTAKEN SIMI LAR ACTIVITIES OF DISTRIBUTION OF THE PRODUCTS AND ALSO INCURRING OF AMP EXPENSES, SHOULD BE CHOSEN [PARAS 194(I), (II), (VI II) & OTHERS]; THE CHOICE OF COMPARABLES CANNOT BE RESTRICTED ONLY TO DOMESTIC COMPANIES USING ANY FOREIGN BRAND [PARA 120] ; IF NO COMPARABLES HAVING PERFORMED BOTH THE FUNCTI ONS IN A SIMILAR MANNER ARE AVAILABLE, THEN, SUITABLE ADJU STMENT SHOULD BE ITA NO.2931/DEL/2015 10 MADE TO BRING INTERNATIONAL TRANSACTIONS AND COMPAR ABLE TRANSACTIONS AT PAR [PARA 194 (III)] ; IF ADJUSTMENT IS NOT POSSIBLE OR COMPARABLE IS NOT AVAILABLE, THEN, THE TNMM ON ENTITY LEVEL SHOULD NOT BE APPLIED [P ARAS 100, 121, 194(III) & (VI)] ; IN THE ABOVE EVENTUALITY, INTERNATIONAL TRANSACTION OF AMP SHOULD BE VIEWED IN A DE-BUNDLED MANNER OR SEPARATELY [PAR AS 121& 194(XI)] ; IN SEPARATELY DETERMINING THE ALP OF AMP EXPENSES, THE TPO IS FREE TO CHOOSE ANY OTHER SUITABLE METHOD INCLUDING COST PLUS METHOD [PARA 194(XIII)]; IN SO MAKING A TP ADJUSTMENT ON ACCOUNT OF AMP EXPE NSES, A PROPER SET OFF/PURCHASE PRICE ADJUSTMENT SHOULD BE ALLOWED FROM THE OTHER TRANSACTION OF DISTRIBUTION OF THE PRODUC TS [PARA 93] ; SELLING EXPENSES CANNOT BE CONSIDERED AS PART OF AM P EXPENSES [PARAS 175 & 176 OF THE JUDGMENT]. ITA NO.2931/DEL/2015 11 7. WITH THE ABOVE BACKGROUND OF THE RATIO DECIDENDI OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, LET US EX AMINE THE CONTENTION PUT FORTH BY THE LD. AR IN SUPPORT OF THE DELETION OF ADDITION. 8. THE LD. AR INITIALLY CONTENDED THAT THE ASSESSEE IS A SERVICE COMPANY AND HENCE CANNOT BE CONSIDERED EITHER AS A DISTRIBUTOR OR A MANUFACTURER. IT WAS HOWEVER ADMITTED THAT CONSIDE RING THE TOTALITY OF THE NATURE OF BUSINESS, THE ASSESSEE IS MORE AKIN T O THAT OF A DISTRIBUTOR RATHER THAN A MANUFACTURER. THE HONBLE HIGH COURT HAS DEALT WITH THE CASE OF THE ASSESSEE IN A GROUP OF CASES WHO ARE EI THER DISTRIBUTORS OR MANUFACTURERS. THERE IS NO SEPARATE DISCUSSION QUA THE ASSESSEE IN THE JUDGMENT ON THE DETERMINATION OF THE ALP OF AMP EXP ENSES. THIS SHOWS THAT THE ASSESSEE HAS NOT BEEN CONSIDERED BY THE HONBLE HIGH COURT AS BELONGING TO A SEPARATE CLASS OTHER THAN A DISTRIBUTOR OR A MANUFACTURER. SINCE THE LD. AR HAS ADMITTED THAT O UT OF THESE TWO OPTIONS, IT IS MORE CLOSE TO A `DISTRIBUTOR, WE AR E PROCEEDING ACCORDINGLY BY CLASSIFYING IT AS A DISTRIBUTOR. ITA NO.2931/DEL/2015 12 9. THE LD. AR SUBMITTED THAT THE ASSESSEE APPLIED TNMM AS THE MOST APPROPRIATE METHOD. SINCE THE PROFIT MARGIN DECLAR ED BY THE ASSESSEE WAS FAVOURABLY COMPARABLE WITH THE AVERAGE MARGIN O F THE COMPARABLES, WHICH FACT HAS NOT BEEN DISPUTED BY THE TPO, THEN, NO ADJUSTMENT SHOULD BE MADE ON ACCOUNT OF AMP EXPENSES BECAUSE SUCH EXP ENSES STAND SUBSUMED IN THE OVERALL OPERATING PROFIT. THIS WAS COUNTERED BY THE LD. DR WITH REFERENCE TO CERTAIN PARAS OF THE JUDGMENT IN SONY ERICSSON (SUPRA) NOT PERMITTING THE ACCEPTANCE OF SUCH A WIDE PROPO SITION. 10. WE ARE UNABLE TO ACCEPT THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE FOR DELETION OF THE ADDITION TOWARDS AMP E XPENSES ON THE PLAIN LOGIC OF THE ASSESSEES PROFIT MARGIN MATCHING WITH THOSE OF COMPARABLES. THERE IS A BASIC FALLACY IN THE ARGUM ENT OF THE LD. AR. IT IS PERTINENT TO NOTE THAT THE TPO EXAMINED AND GOT SATISFIED WITH THE ASSESSEES PROFIT MARGIN VIS--VIS THE COMPARABLES ONLY QUA THE INTERNATIONAL TRANSACTIONS OF DISTRIBUTION FUNCTION . HE INITIALLY DETERMINED THE ALP OF AMP EXPENSES BY APPLYING BRIG HT LINE TEST, WHICH MECHANISM WAS ALTERED DUE TO THE DIRECTIONS G IVEN BY THE DRP ITA NO.2931/DEL/2015 13 AND IN DOING SO, HE SIMPLY COMPARED THE QUANTITATIV E FIGURES OF AMP EXPENSES INCURRED BY THE ASSESSEE AND COMPARABLES F OR WORKING OUT THE NON-ROUTINE EXPENSES. HE DID NOT EXAMINE THE AMP FU NCTIONS CARRIED OUT BY THE ASSESSEE AND THE COMPARABLES. AS THE BRI GHT LINE TEST AND THE METHOD SUGGESTED BY THE DRP PRIMARILY CONCENTRATE O N THE QUANTITATIVE ASPECTS OF THE AMP EXPENSES ALONE, IT OVERLOOKS THE EXAMINATION OF THE AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE ON ONE HAND AND THE COMPARABLES ON THE OTHER. NOW, THE HONBLE HIGH CO URT IN SONY ERICSON MOBILE (SUPRA) HAS HELD THAT AMP EXPENSE IS A SEPARATE INTERNATIONAL TRANSACTION AND ALSO BRIGHT LINE TEST IS NOT APPLICABLE FOR DETERMINING THE ALP OF AMP EXPENSES. THE MANNER FOR THE DETERMINATION OF THE ALP OF THE DISTRIBUTION ACTIVI TY AND AMP ACTIVITY HAS ALSO BEEN SET OUT BY THE HONBLE HIGH COURT TO BE CONDUCTED, FIRSTLY, IN A BUNDLED MANNER BY CONSIDERING THE DISTRIBUTION AND AMP FUNCTIONS PERFORMED BY THE ASSESSEE AS WELL AS THE PROBABLE C OMPARABLES, AND IF PROBABLE COMPARABLES HAVING PERFORMED BOTH THE FUNC TIONS ARE NOT AVAILABLE, THEN TO DETERMINE THE ALP OF AMP EXPENSE S IN A SEGREGATED MANNER. AS SUCH, IT BECOMES IMMENSELY IMPORTANT TO SEPARATELY EXAMINE ITA NO.2931/DEL/2015 14 THE DISTRIBUTION AND AMP FUNCTIONS UNDERTAKEN BY THE ASSESSEE AS WELL AS PROBABLE COMPARABLES. IT IS VITAL TO HIGHLIGHT T HE DIFFERENCE BETWEEN THE AMP EXPENSES AND AMP FUNCTIONS. WHEREAS THE AMP FUNCTIONS ARE THE MEANS BY WHICH THE AMP ACTIVITY IS PERFORMED, T HE AMP EXPENSES ARE THE AMOUNT SPENT ON THE PERFORMANCE OF SUCH MEA NS (FUNCTIONS). TO PUT IT SIMPLY, AN EXAMINATION OF AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE AND THE PROBABLE COMPARABLES IS SINE QUA NON IN THE PROCESS OF DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANS ACTION OF AMP SPEND, EITHER IN A SEGREGATE OR AN AGGREGATE MANNER. WHAT THEIR LORDSHIPS HAVE HELD IS TO BUNDLE THE DISTRIBUTION ACTIVITY WITH TH E AMP ACTIVITY, BEING TWO SEPARATE BUT CONNECTED INTERNATIONAL TRANSACTIO NS, FOR THE PURPOSES OF DETERMINATION OF THE ALP OF BOTH THESE INTERNATIONA L TRANSACTIONS IN A COMBINED MANNER. THE ARGUMENT OF THE LD. AR, IF TA KEN TO A LOGICAL CONCLUSION, WILL MAKE THE AMP SPEND AS A NON-INTERN ATIONAL TRANSACTION, WHICH, IN OUR CONSIDERED OPINION, IS NOT APPROPRIAT E. ONCE AMP EXPENSE HAS BEEN HELD TO BE AN INTERNATIONAL TRANSA CTION, IT IS, BUT, NATURAL THAT THE FUNCTIONS PERFORMED BY THE ASSESSE E UNDER SUCH A TRANSACTION NEED TO BE COMPARED WITH SIMILAR FUNCTI ONS PERFORMED BY A ITA NO.2931/DEL/2015 15 COMPARABLE CASE. IF AMP FUNCTIONS PERFORMED BY THE ASSESSEE TURN OUT TO BE DIFFERENT FROM THOSE PERFORMED BY A PROBABLE COMPARABLE COMPANY, THEN, AN ADJUSTMENT IS REQUIRED TO BE MADE SO AS TO BRING THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE AS WELL AS THE COMPARABLE, AT THE SAME PEDESTAL. IF WE CONCUR WITH THE CONTENTIO N OF THE LD. AR THAT THE ADDITION ON ACCOUNT TRANSFER PRICING ADJUSTMENT OF AMP EXPENSES BE DELETED WITHOUT ANY EXAMINATION OF THE AMP FUNCTION S CARRIED OUT BY THE ASSESSEE AS WELL AS COMPARABLES, THIS WILL AMOU NT TO SNATCHING AWAY THE TAG OF INTERNATIONAL TRANSACTION FROM AMP EXPE NSES, ASSIGNED BY THE HONBLE HIGH COURT. WHAT THEIR LORDSHIPS HAVE HELD IN THE JUDGMENT IS THAT THE DISTRIBUTION ACTIVITY AND AMP EXPENSES ARE TWO SEPARATE BUT RELATED INTERNATIONAL TRANSACTIONS. IT IS ONLY FOR THE PURPOSES OF DETERMINING THEIR ALP THAT THESE TWO SHOULD BE AGGR EGATED. THE PROCESS OF SUCH AGGREGATION DOES NOT TAKE AWAY THE SEPARATE CHARACTER OF THE AMP TRANSACTION, ALBEIT RELATED. AN ANALYSIS AND EXAMINATION OF THE DISTRIBUTION AND AMP FUNCTIONS CARRIED OUT BY THE A SSESSEE MUST BE NECESSARILY DONE IN THE FIRST INSTANCE, WHICH SHOUL D BE THEN COMPARED WITH SIMILAR FUNCTIONS PERFORMED BY SOME PROBABLE COMPARABLES. IF THE ITA NO.2931/DEL/2015 16 DISTRIBUTION AND AMP FUNCTIONS PERFORMED BY THE ASS ESSEE TURN OUT TO BE DIFFERENT FROM THOSE PERFORMED BY PROBABLE COMPARAB LES, THEN, A SUITABLE ADJUSTMENT SHOULD BE MADE TO THE PROFITS OF THE COM PARABLE SO AS TO BALANCE THE EFFECT OF SUCH DIFFERENCES. IF HOWEVER DIFFERENCES EXIST IN SUCH FUNCTIONS, BUT NO ADJUSTMENT CAN BE MADE, THEN , SUCH PROBABLE COMPARABLE SHOULD BE DROPPED FROM THE LIST OF COMPA RABLES. IF, IN DOING THIS EXERCISE, THERE REMAINS NO COMPANY DOING COMPA RABLE DISTRIBUTION AND AMP FUNCTIONS, THEN, BOTH THE INTERNATIONAL TRA NSACTIONS ARE REQUIRED TO BE SEGREGATED AND THEN EXAMINED ON INDIVIDUAL BA SIS BY FINDING OUT PROBABLE COMPARABLES DOING SUCH SEPARATE FUNCTIONS SIMILARLY. FOR THE INTERNATIONAL TRANSACTION OF AMP SPEND, THIS CAN BE DONE BY, FIRSTLY, SEEING THE AMP FUNCTIONS ACTUALLY PERFORMED BY THE ASSESSEE AND THEN COMPARING IT WITH THE AMP FUNCTIONS PERFORMED BY A PROBABLE COMPARABLE. IF BOTH ARE FOUND OUT TO BE SIMILAR, T HEN THE MATTER ENDS AND A COMPARABLE IS FOUND AND ONE CAN GO AHEAD WITH DET ERMINING THE ALP OF SUCH A TRANSACTION. IF THE AMP FUNCTIONS PERFORM ED BY THE TWO ENTITIES ARE FOUND TO BE DIFFERENT, THEN ADJUSTMENT IS REQUIRED TO BE MADE IN THE CASE OF A PROBABLE COMPARABLE, SO AS TO MAKE IT UNIFORM WITH THE ITA NO.2931/DEL/2015 17 ASSESSEE. THE ASSESSEE MAY HAVE POSSIBLY DONE, SAY, FOUR DIFFERENT AMP FUNCTIONS AS AGAINST THE PROBABLE COMPARABLE HAVING DONE, SAY, ONLY THREE. IN SUCH A SCENARIO, AGAIN THE ADJUSTMENT WIL L BE WARRANTED. IN ANOTHER SITUATION, THE AMP FUNCTIONS PERFORMED BY T HE ASSESSEE AND PROBABLE COMPARABLE MAY BE SIMILAR BUT WITH VARYING STANDARDS, WHICH WILL ALSO CALL FOR AN ADJUSTMENT. CRUX OF THE MATT ER IS THAT THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE MUST BE SIMILAR TO THOSE DONE BY THE COMPARABLE, IN THE SAME MANNER AS SUCH FUNCTIONS AR E COMPARED IN ANY OTHER INTERNATIONAL TRANSACTION. HOWEVER, IN COMPUT ING ALP OF AMP SPEND, THE ADJUSTMENT OR SET OFF, IF ANY, AVAILABLE FROM THE DISTRIBUTION FUNCTION, SHOULD BE MADE. THE ESSENCE OF THE JUDGMENT IN THE CASE OF SONY ERICSON MOBILE (SUPRA) IS THAT THE TWO INTERNATIONAL TRANSACTIONS OF DISTRIBUTION AND AMP SHOULD BE EXAMINED ON THE TOUC HSTONE OF TRANSFER PRICING PROVISIONS, BUT ON AN AGGREGATE BASIS. DETE RMINING THE ALP OF TWO TRANSACTIONS IN AN AGGREGATE MANNER POSTULATES MAKING A COMPARISON OF BOTH THE FUNCTIONS OF DISTRIBUTION AND AMP CARRI ED OUT BY THE ASSESSEE WITH THE COMPARABLES, SO THAT SURPLUS FROM THE DISTRIBUTION ACTIVITY COULD BE ADJUSTED AGAINST THE DEFICIT IN T HE AMP ACTIVITY. THE ITA NO.2931/DEL/2015 18 HONBLE HIGH COURT HAS NO WHERE LAID DOWN THAT THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE SHOULD NOT BE COMPARED WI TH THOSE PERFORMED BY THE COMPARABLE PARTIES. ON THE CONTRARY, IT TUR NED DOWN THE CONTENTION RAISED BY THE LD. AR URGING FOR NOT TREA TING AMP AS A SEPARATE FUNCTION, WHICH IS APPARENT FROM THE EXTRA CTION FROM PARA 165 OF THE JUDGMENT : `ON BEHALF OF THE ASSESSEE, IT WA S INITIALLY ARGUED THAT THE TPO CANNOT ACCOUNT FOR OR TREAT AMP AS A FUNCTI ON. THIS ARGUMENT ON BEHALF OF THE ASSESSEE IS FLAWED AND FALLACIOUS FOR SEVERAL REASONS. THERE ARE INHERENT FLAWS IN THE SAID ARGUMENT. IT HELD VIDE PARA 165 OF THE JUDGMENT THAT : ` AN EXTERNAL COMPARABLE SHOULD PERFORM SIMILAR AMP FUNCTIONS. THUS IT IS MANIFEST THAT COMPARISON OF AMP FUNCTI ONS IS VITAL WHICH CANNOT BE DISPENSED WITH. LET US WE GO A STEP FURTHER WITH THE ALTERNATIVE PRESCRIPTION OF THE JUDGMENT THAT I F ALP OF BOTH THE TRANSACTIONS OF DISTRIBUTION AND AMP CANNOT BE DET ERMINED IN A COMBINED MANNER, THEN THE ALP OF AMP FUNCTION SHOUL D BE SEPARATELY DONE. THE SUBMISSION ADVANCED BY THE ASSESSEE OF C ONSIDERING THE PROFIT ON AN ENTITY LEVEL WITHOUT MAKING COMPARISON OF AMP FUNCTIONS DONE BY THE ASSESSEE AS WELL AS THE COMPARABLE, WIL L RENDER THIS ITA NO.2931/DEL/2015 19 ALTERNATIVE APPROACH INCAPABLE OF COMPLIANCE. CANV ASSING SUCH A VIEW AMOUNTS TO TREATING AMP SPEND AS A NON-INTERNATIONA L TRANSACTION, WHICH IS PATENTLY INCAPABLE OF ACCEPTANCE. 11. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE TPO ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD AND DI D NOT MAKE ANY TP ADJUSTMENT ON ACCOUNT OF THE REPORTED INTERNATIO NAL TRANSACTIONS CARRIED OUT BY THE ASSESSEE DURING THE COURSE OF IT S BUSINESS. HE, HOWEVER, ESPOUSED THE AMP EXPENSE AS A SEPARATE AND DISTINCT ITEM APART FROM `INTEREST ON RECEIVABLES, WHICH IS NOT IN DISPUTE. TREATING THE AMP SPEND AS A SEPARATE INTERNATIONAL TRANSACTION A ND AFTER GIVING EFFECT TO THE DIRECTION OF THE DRP, HE APPLIED THE COST PL US METHOD AND PROPOSED THE EXTANT ADJUSTMENT. IT IS OBVIOUS THAT IN THE ENTIRE EXERCISE CARRIED OUT BY THE TPO, HE PROCEEDED ON AN ALTOGETH ER DIFFERENT LINE IN EXAMINING THE QUANTUM OF AMP EXPENSE FOR DETERMINING THE VALUE OF THE INTERNATIONAL TRANSACTION OF AMP, WITHOUT LOOKI NG AT THE AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE AND THE COMPARABLES. D ISTINCT EXAMINATION OF AMP FUNCTIONS DOES NOT FIND PLACE IN THIS METHOD OF ITA NO.2931/DEL/2015 20 COMPUTING THE VALUE OR THE ALP OF AMP SPEND. NOW, WHEN WE LOOK AT THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT , IT BECOMES CRYSTAL CLEAR THAT THE APPROACH ADOPTED BY THE TPO FOR DETERMINING ALP OF AMP EXPENSES HAS BEEN RENDERED INCORRECT. HOWEV ER, THE FACT REMAINS THAT AS PER THE VERDICT OF THE HONBLE HIGH COURT, THE AMP SPEND IS AN INTERNATIONAL TRANSACTION, WHICH IS RE QUIRED TO BE PROCESSED UNDER CHAPTER X OF THE ACT BY TAKING INTO ACCOUNT T HE AMP FUNCTIONS PERFORMED BY THE ASSESSEE AND THEN COMPARING SUCH F UNCTIONS WITH THOSE PERFORMED BY COMPARABLE ENTITIES, THOUGH, FIRSTLY I N A COMBINED MANNER WITH THE DISTRIBUTION FUNCTIONS. WE FIND NO REFEREN CE TO THE AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE IN THE ORDER OF THE TPO. AS SUCH, THERE CAN BE NO QUESTION OF MAKING ANY COMPARISON O F THE ASSESSEES AMP FUNCTIONS WITH THOSE OF THE COMPARABLES. GOING BY THE RATIO IN THE CASE OF SONY ERICSON MOBILE (SUPRA), IT IS MANDATORY TO MAKE A COMPARISON OF THE AMP FUNCTIONS PERFORMED BY THE AS SESSEE AND COMPARABLES AND THEN MAKING AN ADJUSTMENT, IF ANY, DUE TO DIFFERENCES BETWEEN THE TWO, SO THAT THE AMP FUNCTIONS PERFORME D BY THE ASSESSEE ITA NO.2931/DEL/2015 21 AND COMPARABLE ARE BROUGHT TO A SIMILAR PLATFORM. IN FACT, THIS IS ALSO THE PRESCRIPTION OF RULE 10B(1)(E), WHICH PROVIDES AS U NDER :- ` (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPRIS E FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSO CIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR SALES EFF ECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAV ING REGARD TO ANY OTHER RELEVANT BASE ; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGA RD TO THE SAME BASE ; (III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAU SE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS , OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERI ALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET ; (IV) THE NET PROFIT MARGIN REALISED BY THE ENTERPRI SE AND REFERRED TO IN SUB-CLAUSE (I) IS ESTABLISHED TO BE THE SAME AS THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAUSE (III) ; (V) THE NET PROFIT MARGIN THUS ESTABLISHED IS THEN TAKEN INTO ACCOUNT TO ARRIVE AT AN ARMS LENGTH PRICE IN RELAT ION TO THE INTERNATIONAL TRANSACTION. 12. A PERUSAL OF THE SUB-CLAUSE (III) OF THIS RU LE DIVULGES THAT NET PROFIT MARGIN UNDER A COMPARABLE UNCONTROLLED TRANSACTION AS DETERMINED UNDER SUB-CLAUSE (II) SHOULD BE: ADJUSTED TO TAKE INTO ACCOUNT THE ITA NO.2931/DEL/2015 22 DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRAN SACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS. IT IS ONLY SUCH ADJUSTED NET PROFIT MARGIN IN SUB-CLAUSE (III) OF RULE 10B(1)(E) WHICH IS COMPARED WITH THE NET PROFIT MARGIN REALIZED BY THE ASSESSEE AS PER THE MANDATE OF SUB-CLAUSE (IV) OF RULE 10B(1)(E). 13. SUB-RULE (2) OF RULE 10B PROVIDES THAT FOR THE PURPOSES OF SUB- RULE (1), THE COMPARABILITY OF AN INTERNATIONAL TR ANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFER ENCE TO THE FOLLOWING, NAMELY (A) THE SPECIFIC CHARACTERISTICS OF THE PR OPERTY TRANSFERRED OR SERVICES PROVIDED IN EITHER TRANSACTION ; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR T O BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS ; (C) THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS AR E FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICI TLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS ; (D) CONDI TIONS PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRAN SACTIONS OPERATE, ITA NO.2931/DEL/2015 23 INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAP ITAL IN THE MARKETS, OVERALL ECONOMIC DEVELOPMENT AND LEVEL OF COMPETITI ON AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. SUB-RULE (3) OF R ULE 10B STIPULATES THAT AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY , BETWEEN THE TRANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPR ISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT T HE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSA CTIONS IN THE OPEN MARKET ; OR (II) REASONABLY ACCURATE ADJUSTMENTS CA N BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. 14. ON A COMPARATIVE READING OF SUB-RULES (1), (2) AND (3) OF RULE 10B, IT BECOMES PALPABLE THAT THE INTERNATIONAL TRA NSACTION AND THE UNCONTROLLED TRANSACTION WITH WHICH COMPARISON IS S OUGHT TO BE MADE FOR DETERMINING THE ALP, IN THE FIRST INSTANCE, MUST H AVE OVERALL SIMILAR CHARACTERISTICS. IT IS VIVID THAT IF THE GOODS/SE RVICES ARE DIFFERENT, THEN NO EFFECTIVE COMPARISON CAN BE MADE. ONCE THE GOODS /SERVICES UNDER ITA NO.2931/DEL/2015 24 BOTH THE TRANSACTIONS ARE BROADLY SIMILAR BUT THERE IS A DIFFERENCE IN THEM BECAUSE OF CERTAIN SPECIFIC CHARACTERISTICS; AND/O R THE PRODUCTS/SERVICES IN BOTH THE TRANSACTIONS ARE IDENTICAL, BUT STILL T HERE ARE CERTAIN DIFFERENCES DUE TO THE CONTRACTUAL TERMS OR THE GEO GRAPHICAL LOCATION, ETC., THEN, A REASONABLY ACCURATE ADJUSTMENT SHOUL D BE MADE FOR ELIMINATING THE MATERIAL EFFECTS OF SUCH DIFFERENCE S SO AS TO BRING THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTION ON THE SAME PODIUM. IF DUE TO ONE REASON OR THE OTHER, NO REASONABLE ACCURATE ADJUSTMENT CAN BE MADE DUE TO SUCH DIFFERE NCES, THEN, SUCH UNCONTROLLED TRANSACTION SHOULD NOT BE CONSIDERED A S A COMPARABLE TRANSACTION. 15. IT IS DISCERNIBLE THAT THE PRESCRIPTION OF RULE 10B IS IN COMPLETE HARMONY WITH THE RATIO OF THE JUDGMENT IN THE CASE OF SONY ERICSON MOBILE (SUPRA) , TO THE EFFECT THAT THE AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE ARE REQUIRED TO BE NECESSARILY COMPARED WI TH THE AMP FUNCTIONS CARRIED OUT BY A COMPARABLE ENTITY IN DET ERMINING THE AMP OF ALP EXPENSES. DIFFERENCE BETWEEN THE FUNCTIONS, IF CAPABLE OF ITA NO.2931/DEL/2015 25 ADJUSTMENT, SHOULD BE GIVEN EFFECT TO IN THE PROFIT RATE OF THE COMPARABLE AND IF SUCH DIFFERENCE CANNOT BE GIVEN EFFECT TO, T HEN, THE PROBABLE COMPARABLE SHOULD BE ELIMINATED FROM THE LIST OF CO MPARABLES. GOING FURTHER, IF NO PROPER COMPARABLE SURVIVES, THEN THE TNMM SHOULD BE DISCARDED AND AN ALTERNATIVE METHOD, MAY BE, COST PLUS OR ANY OTHER SUITABLE METHOD BE APPLIED FOR DETERMINING THE ALP OF AMP EXPENSES. 16. AT THE COST OF REPETITION, WE SUMMARIZE THAT T HE DISTRIBUTION AND AMP FUNCTIONS ARE TWO SEPARATE INTERNATIONAL ACTIVI TIES, WHICH NEED TO BE COMPARED WITH UNCONTROLLED TRANSACTIONS. BECAUS E OF THEIR INTER- TWINNING, IT IS ONLY FOR THE PURPOSE OF DETERMINING THEIR ALP THAT BOTH THESE TRANSACTIONS CAN BE AGGREGATED IN THE FIRST I NSTANCE, SO THAT THE SURPLUS FROM ONE COULD BE ADJUSTED AGAINST THE DEFI CIT FROM THE OTHER IN AN OVERALL APPROACH. IT DOES NOT MEAN THAT BECAUSE OF AGGREGATION, THE AMP EXPENSE TRANSACTION SHEDS ITS CHARACTER OF A SE PARATE INTERNATIONAL TRANSACTION AND HENCE THE AMP FUNCTIONS SHOULD NOT BE MATCHED WITH THE AMP FUNCTIONS CARRIED OUT BY PROBABLE COMPARABL ES. IF SUITABLE COMPARABLES CAN BE FOUND HAVING PERFORMED BOTH DIST RIBUTION AND AMP ITA NO.2931/DEL/2015 26 FUNCTIONS, THEN, THEIR ALP SHOULD BE DETERMINED ON AGGREGATE BASIS. IF, HOWEVER, THERE IS SOME DIFFERENCE IN THE DISTRIBUTI ON OR AMP FUNCTIONS PERFORMED BY THE ASSESSEE VIS--VIS THE PROBABLE COMPARABLES, THEN AN ATTEMPT SHOULD FIRST BE MADE TO IRON OUT SUCH DIFFE RENCE BY MAKING A SUITABLE ADJUSTMENT TO THE PROFIT MARGIN OF COMPARA BLES. IF SUCH AN ADJUSTMENT IS NOT POSSIBLE, THEN SUCH PROBABLE COMP ARABLE SHOULD BE ELIMINATED. IF, BY MAKING A COMPARATIVE ANALYSIS O F THE DISTRIBUTION AND AMP FUNCTIONS JOINTLY, THERE REMAINS NO COMPARABLE CASE PERFORMING SUCH DISTRIBUTION AND AMP FUNCTIONS, THEN, THE INTE RNATIONAL TRANSACTION OF AMP SHOULD BE SEGREGATED AND ITS ALP BE DETERMIN ED SEPARATELY BY APPLYING A SUITABLE METHOD. HOWEVER, IN SO DETERMI NING THE ALP OF SUCH AN INTERNATIONAL TRANSACTION OF AMP EXPENSES O N SEPARATE BASIS, A PROPER SET OFF, IF ANY, AVAILABLE FROM THE DISTRIBU TION ACTIVITY, SHOULD BE ALLOWED. 17. COMING BACK TO THE FACTS OF THE INSTANT CASE, W E FIND THAT NO DETAIL OF THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE IS A VAILABLE ON RECORD. SIMILARLY, THERE IS NO REFERENCE IN THE ORDER OF TH E TPO TO ANY AMP ITA NO.2931/DEL/2015 27 FUNCTIONS PERFORMED BY COMPARABLES. IN FACT, NO SU CH ANALYSIS OR COMPARISON HAS BEEN UNDERTAKEN BY THE TPO FOR DETER MINING THE VALUE OF THE INTERNATIONAL TRANSACTION OF AMP EXPENSE AND THEN APPLYING THE COST PLUS METHOD FOR DETERMINING ITS ALP. THE LD. A R ALSO FAILED TO DRAW OUR ATTENTION TOWARDS ANY MATERIAL DIVULGING THE AM P FUNCTIONS PERFORMED BY THE ASSESSEE AS WELL AS COMPARABLES. A S SUCH, WE ARE HANDICAPPED TO DETERMINE THE ALP OF AMP EXPENSES AT OUR END, EITHER IN A COMBINED OR A SEPARATE APPROACH. THE LD. AR HA S ALSO DISPUTED THE BASE OF TOTAL AMP EXPENSES TAKEN BY THE TPO. HE ARG UED THAT SOME OF EXPENSES, WHICH ARE IN THE NATURE OF SELLING EXPENS ES DIRECTLY INCURRED IN CONNECTION WITH SALES NOT LEADING TO BRAND PROMOTIO N IN ANY MANNER, SHOULD BE EXCLUDED. IN PRINCIPLE, WE AGREE WITH THE CONTENTION OF THE LD. AR THAT SELLING EXPENSES INCURRED FOR MAKING SALES ARE DISTINCT FROM AMP EXPENSES AND, HENCE, SHOULD NOT BE INCLUDED IN THE BASE AMOUNT FOR CONSIDERATION. THE HONBLE JURISDICTIONAL HIGH COURT IN SONY ERICSON MOBILE COMMUNICATION INDIA (P) LTD . (SUPRA) HAS ALSO HELD SO. AS THERE IS INAPPROPRIATE DISCUSSION ABOUT THE PREC ISE NATURE OF EXPENSES WHICH HAVE BEEN ASSAILED BEFORE US, WE CONSIDER IT EXPEDIENT TO DIRECT ITA NO.2931/DEL/2015 28 THE AO TO FIRST ASCERTAIN THE CORRECT NATURE OF SUC H EXPENSES. IF THESE EXPENSES ARE FOUND TO BE IN THE NATURE OF SELLING E XPENSES DIRECTLY IN CONNECTION WITH SALES, THEN, THEY SHOULD BE REMOVED FROM THE BASE AMOUNT FOR COMPUTING THE ALP OF AMP EXPENSES. IN TH E OTHERWISE SCENARIO, THE AMP EXPENSES, WHICH ARE NOT IN THE NA TURE OF SELLING EXPENSES INCURRED DIRECTLY FOR SALES, SHOULD CONTIN UE TO INCLUDE IN THE BASE AMOUNT. UNDER SUCH CIRCUMSTANCES, WE SET ASID E THE IMPUGNED ORDER AND SEND THE MATTER BACK TO THE FILE OF THE T PO/AO FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N OF AMP SPEND AFRESH IN ACCORDANCE WITH THE MANNER LAID DOWN BY T HE HONBLE HIGH COURT IN SONY ERICSON MOBILE (SUPRA). 18. ANOTHER CORPORATE TAX ISSUE RAISED IN THIS APPE AL IS AGAINST THE DISALLOWANCE OF PROPORTIONATE ADVERTISEMENT EXPENSE S OF RS.3,17,71,475/- OUT OF TOTAL ADVERTISEMENT EXPENSE S AMOUNTING TO RS.8,51,90,351/- INCURRED BY THE ASSESSEE. THE FAC TS APROPOS THIS ISSUE ARE THAT THE ASSESSEE SHOWED `ADVERTISING SALE COMM ISSION @ 20% OF TOTAL ADVERTISEMENT INCOME RECEIVED ON BEHALF OF IT S AE. REMAINING ITA NO.2931/DEL/2015 29 80% WAS TRANSFERRED TO THE PARENT COMPANY WITH WHOM THE ASSESSEE ENTERED INTO ADVERTISING SALE AGREEMENT. THE AO SE GREGATED TOTAL ADVERTISEMENT EXPENSES AS PER PROFIT & LOSS ACCOUNT TO THE TUNE OF RS.8,51,90,351/- INTO TWO PARTS, VIZ, ADVERTISEMENT EXPENSES ALLOCABLE TO TOTAL INCOME FROM ADVERTISEMENT SALES COMMISSION; A ND ADVERTISEMENT EXPENSES ALLOCABLE TO ADVERTISEMENT REVENUES NOT OF FERED TO TAX. THE LATER AMOUNT OF RS.3,17,71,475/- WAS ADDED TO THE TOTAL INCOME, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. 19. AT THE OUTSET, THE LD. AR SUBMITTED THAT THIS I SSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR FOR THE AYS 20 02-03, 2003-04 AND 2004-05 AND THE VIEW TAKEN BY THE TRIBUNAL HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT. A COPY OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT DATED 24.11.2014 AND THE TRIBUNAL ORDERS FOR THE ABOVE REFERRED THREE YEARS WERE PLACED ON RECORD. THE LD . DR RESISTED THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE BY SUBM ITTING THAT THE VIEW TAKEN BY THE TRIBUNAL FOR THE AYS 2002-03 TO 2004-0 5, AS AFFIRMED BY THE HONBLE DELHI HIGH COURT, CANNOT BE DIRECTLY AN D BLINDLY APPLIED TO ITA NO.2931/DEL/2015 30 THE FACTS OF THE INSTANT CASE INASMUCH AS NO AMP EX PENSES WERE INCURRED FOR PROMOTING MARKETING INTANGIBLES OF THE ASSESSEES AE IN SUCH EARLIER YEARS, IN CONTRAST TO SUCH EXPENSES HA VING BEEN ACTUALLY INCURRED FOR THE YEAR UNDER CONSIDERATION FOR WHICH TP ADJUSTMENT OF AMP EXPENSES HAS BEEN MADE AND IS SUBJECT MATTER OF THIS APPEAL. IT WAS SUBMITTED THAT THERE IS A COMMON POOL OF AMP EX PENSES INCURRED BOTH FOR THE BUSINESS OF THE ASSESSEE AND THE PROMO TION OF THE BRAND OF ITS AE. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED FROM THE JUDGME NT OF THE HONBLE DELHI HIGH COURT RENDERED IN ASSESSEES OWN CASE FO R THE AYS 2002-03 TO 2004-05 THAT IT WAS ENGAGED IN THE BUSINESS OF D ISTRIBUTION OF TELEVISION CHANNELS AND UNDER THE AGREEMENT, THERE WAS OBLIGATION AND THE DUTY OF THE ASSESSEE TO ADVERTISE AND PROMOTE T HE CHANNELS OF ITS AES IN LIEU OF 15% OF GROSS RECEIPTS AS COMMISSION. THE HONBLE HIGH COURT FOUND EXPENDITURE INCURRED ON ADVERTISEMENT ON PROM OTING CHANNELS AS CLEARLY RELATABLE AND LAID OUT FOR THE PURPOSE OF B USINESS OF THE ASSESSEE ITA NO.2931/DEL/2015 31 AND, HENCE, DEDUCTIBLE IN FULL. THAT IS HOW, THE AD DITION WAS DELETED. ON A SPECIFIC QUERY FROM THE BENCH, THE LD. AR STATED THAT IN THE CURRENT YEAR, THE ASSESSEE RECEIVED 20% OF THE TOTAL SUBSCR IPTION FEES IN LIEU OF ADVERTISING AND PROMOTING THE CHANNELS OF ITS AES A ND CANDIDLY ADMITTED THAT THE EXPENSES INCURRED ON ADVERTISEMENT AND PRO MOTION OF CHANNELS ARE COMMON AND FORM PART OF TOTAL AMP EXPENSES CONS IDERED BY THE TPO FOR RECOMMENDING TP ADJUSTMENT TOWARDS PROMOTIO N OF MARKETING INTANGIBLES. AS THE TOTAL AMP EXPENSES INCURRED BY THE ASSESSEE ARE ON ACCOUNT OF ITS OWN BUSINESS AND ALSO RELATABLE TO T HE CREATION OF MARKETING INTANGIBLES FOR ITS AE, THE ENTIRE EXPEND ITURE, WHICH ALSO INCLUDES ADVERTISEMENT EXPENSES FOR PROMOTION OF CH ANNELS OF ITS AES, FOR WHICH THE ASSESSEE RECEIVED 20% OF GROSS RECEIP TS, CANNOT BE CONSIDERED AS EXCLUSIVELY RELATABLE TO ADVERTISEMEN T OF CHANNELS OF ITS AES AND HENCE DEDUCTIBLE IN FULL. THE FACTS OF THE CURRENT YEAR ARE THUS CLEARLY DISTINGUISHABLE FROM THOSE OF THE A.YS. 200 2-03 ONWARDS BECAUSE IN SUCH YEARS THE ENTIRE AMOUNT OF ADVERTIS EMENT EXPENSES WAS FOR EARNING INCOME AND NO PART WAS ATTRIBUTABLE TO THE CREATION OR PROMOTION OF THE BRAND OF ITS AE. THE HONBLE HIGH COURT IN ASSESSEES ITA NO.2931/DEL/2015 32 OWN CASE FOR THE A.Y. 2008-09 HAS RESTORED THE COM PUTATION OF THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPEN SES FOR MARKETING INTANGIBLES TO THE TRIBUNAL, WHICH HAS BEEN DEALT W ITH BY US IN A SEPARATE ORDER. IN DISPOSING OF THE APPEAL OF THE ASSESSEE A GAINST THE TRANSFER PRICING ADJUSTMENT TOWARDS AMP EXPENSES FOR THE SAI D A.Y. 2008-09, WE HAVE RESTORED THE MATTER TO THE FILE OF TPO/AO F OR DECIDING IT IN CONFORMITY WITH OUR DIRECTIONS AS DEDUCED FROM THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATION INDIA (P) LTD. (SUPRA). AS ADMITTEDLY THE AMP EXPENSES ARE ONE COMPOSITE AMOUNT AND THERE IS NO S EPARATELY IDENTIFIABLE ADVERTISEMENT EXPENSES RELATABLE TO PR OMOTION OF TV CHANNELS OF ITS AES, THE ACCEPTANCE OF THE VIEW POI NT OF THE LD. AR IN TREATING THE ENTIRE AMOUNT OF AMP EXPENSES AS DEDUC TIBLE U/S 37(1), WOULD AMOUNT TO CONSIDERING THE ENTIRE AMP SPEND FO R BUSINESS PURPOSE, THEREBY LEAVING NOTHING FOR THE PROMOTION OF BRAND OF ITS AE, WHICH WILL BE CONTRARY TO THE JUDGMENT OF THE HONB LE HIGH COURT IN ASSESSEES OWN CASE FOR THE A.Y. 2008-09. UNDER S UCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE ALSO AND SEND IT TO THE FILE ITA NO.2931/DEL/2015 33 OF AO/TPO FOR DECIDING IT AFRESH AFTER HEARING THE ASSESSEE. NEEDLESS TO SAY, THE AO, WHILE DISPOSING OF THIS ISSUE, WILL KE EP INTO CONSIDERATION THE CONTEXT AND THE RATIO OF THE DECISION RENDERED BY THE HONBLE HIGH COURT IN THE ASSESSEES OWN CASE FOR AYS 2002-03 TO 2004-05. 21. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 04.12.201 5. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 04 TH DECEMBER, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.