Bausch & Lomb India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 471/DEL/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91250 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 29-04-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJIT KUMAR SINGH; JUDY JAMES STANDING C
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Commercial expediency
• Section: 143(3); 234B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI A.T. VARKEY: JUDICIAL MEMBER ITA NOS. 471/DEL/2015 A.Y. 2010-11 M/S BAUSCH & LOMB INDIA PVT. LTD., VS. DCIT, CIRC LE 4(1), 4 TH FLOOR, TOWER-B, UNITECH BUSINESS NEW DELHI. PARK, SOUTH CIRTY-1, GURGAON. PAN: AABCB 3877 E ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI NAGESWAR RAO ADV. RESPONDENT BY : SHRI AJIT KUMAR SINGH CIT(DR) & SHRI JUDY JAMES STANDING COUNSEL DR DATE OF HEARING : 29-04-2015 DATE OF ORDER : 19-06-2015. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL, PREFERRED BY THE ASSESSEE, IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 16-12-2014, PASSED BY THE DC IT, CIRCLE-4(1), NEW DELHI U/S 143(3) READ WITH SECTION 144C OF THE INCO ME-TAX ACT, 1961. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF BASUSCH & LOMB SOUTH ASIA INC. USA. IN THE RELEVANT ASSESSMENT YEAR THE ASSESSEE WAS ENGAGED IN THE MA NUFACTURING OF LENSE CARE SOLUTIONS AND TRADING OF CONTACT LENSES AND PR OTEIN REMOVAL ENZYME 2 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. TABLETS AS WELL AS TRADING OF OPHTHALMIC INTRA OCUL AR LENSES AND SURGICAL EQUIPMENTS. THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 25,54,48,727/- UNDER NORMAL PROVISIONS OF TH E I.T. ACT AND AT BOOK PROFIT OF RS. 23,18,78,159/-. THE AO NOTICED THAT A SSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SES (AES), AS DETAILED BELOW:- S.N. NATURE OF TRANSACTION METHOD USED BY ASSESSEE VALUE OF TRANSACTION 1. PURCHASE OF RAW MATERIAL TNMM OP/OR 65,467,751 2. SALE OF RAW MATERIAL TNMM OP/OR 1,333,743 3. IMPORT OF FINISHED GOODS TNMM OP/OR 2,76,784,829 4. FINISHED GOODS CAPITALIZED TNMM OP/OR 4,224,946 5. PROVISION OF SERVICES TNMM OP/OR 20,460,099 6. AVAILING OF SERVICES TNMM OP/OR 1,10,819,241 7. PAYMENT OF LICENSE FEES TNMM OP/OR 7,54,399 8. COST OF REIMBURSEMENT NO BENCH- MARKING 1,95,668 2.1. THE ASSESSEE IN ITS TRANSFER PRICING STUDY HAD DIVIDED THE ENTIRE BUSINESS IN TWO CATEGORIES WHICH WERE- (I) VISION CARE; (II) SURGICAL EQUIPMENT. 2.2. THE AO NOTED THAT FOR VISION CARE SEGMENT THE ASSESSEE HAD USED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOS T APPROPRIATE METHOD WITH ADJUSTED OPERATING PROFIT/ SALES AS THE PROFIT LEVEL INDICATOR. 3 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. 2.3. THE ASSESSEES CONTENTION WAS THAT FOR VISION CARE SEGMENT THE PLI BEING OPERATING PROFIT/ SALES OF COMPARABLE ON SING LE YEAR DATA BASIS WAS 6.19% AS COMPARED TO 21.23% OF ASSESSEE AND FOR SU RGICAL EQUIPMENT SEGMENT IT WAS 5.97% AS COMPARED TO 13.81% OF THE ASSESSEE. THE FILTERS USED BY THE ASSESSEE WERE AS UNDER:- (A) DATA OLDER THAN TWO YEARS WAS EXCLUDED (B) COMPANIES HAVING SALES FROM DISTRIBUTION ACTIV ITY/ NET SALES LESS THAN 25% WERE ELIMINATED. (C) COMPANIES WITH A NEGATIVE NET WORTH WERE ELIMI NATED FROM THE SET (D) PERSISTENT LOSS MAKING COMPANIES WERE ELIMINATE D (E) COMPANIES WITH SIGNIFICANT RELATED PARTY TRANSA CTIONS WERE REJECTED. 2.4. THEREFORE, IT WAS CONTENDED THAT INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH. 2.5. TPO HAD EXAMINED THE FILTERS APPLIED BY THE AS SESSEE AND AFTER CONSIDERING THE SAME PROPOSED FOLLOWING FILTERS: - COMPANIES WHOSE DATA IS NOT AVAILABLE FOR THE FY 20 09-10 SHOULD HAVE BEEN EXCLUDED - COMPANIES WHOSE TRADING INCOME < RS. 5 CR. SHOULD H AVE BEEN EXCLUDED. - COMPANIES WHOSE REVENUE FROM TRADING INCOME IS LESS THAN 75% OF THE TOTAL OPERATING REVENUES SHOULD HAVE BEEN EXCLU DED. - COMPANIES HAVING MORE THAN 25% RELATED PARTY TRANSA CTIONS (SALES AS WELL AS EXPENDITURE) OF THE SALES SHOULD HAVE BEEN EXCLUDED. - COMPANIES HAVING DIFFERENT FINANCIAL YEAR ENDING (I .E. NOT MARCH 31,2010) OR DATA OF THE COMPANY DOES NOT FALL WITHI N 12 MONTHS PERIOD I.E. 01-04-2009 TO 31-03-2010. 4 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. - COMPANIES THAT ARE FUNCTIONALLY DIFFERENT FROM THE TAXPAYERS ARE EXCLUDED. - COMPANIES WHO HAVE DIMINISHING REVENUES/ PERSISTENT LOSSES FOR THE LAST THREE YEARS UP TO AND INCLUDING FY 2009-10 HAV E BEEN EXCLUDED AND COMPANIES THAT ARE HAVING PECULIAR ECONOMIC CIR CUMSTANCES ARE EXCLUDED. - IT IS PERTINENT TO NOTE THAT FOR THE PURPOSE OF COM PUTING THE BRIGHT LINE AMP EXPENSES, COMPANIES WHICH ARE ENGAGED IN BRAND BUILDING EXERCISE AND CREATING MARKETING INTANGIBLES FOR THE IR OR GROUP COMPANIES BRANDS CANNOT BE TAKEN AS COMPARABLES. O NLY ROUTINE DISTRIBUTORS ARE TO BE TAKEN WHO ARE NOT ENGAGED IN ANY BRAND BUILDING EXERCISE. 2.6. THE COMPARABLES USED BY THE ASSESSEE FOR BENC HMARKING DISTRIBUTION SEGMENT OF VISION CARE PRODUCTS WERE AS UNDER, OUT OF WHICH ONLY TWO WERE ACCEPTED BY TPO AND REST WERE REJECTED FOR THE FOLL OWING REASONS: 1 ABBOTT INDIA LTD. NOT COMPARABLE IN FY 2009-10, H ENCE REJECTED 2. ADITYA MEDISALES LTD. ACCEPTED 3. BA & BROTHERS (EASTERN) LTD. DATA N/A, HENCE REJEC TED 4. COSME FARMA LABORATORIES LTD. COMPANY IS IN BRAND BUILDING PHASE AND HENCE 5. GUJARAT TERCE LABORATORIES LTD. COMPANY IS IN BRAND BUILDING PHASE AND HENCE 6. SOLUMIKS HERBACEUTICALS LTD. ACCEPTED 7. SERUM INTERNATIONAL LTD. DATA N/A HENCE REJECTED. 2.7. THUS, IN FINAL ANALYSIS TPO ACCEPTED ONLY TWO COMPARABLES FOR DISTRIBUTION SEGMENT VIZ. ADITYA MEDISALES LTD. AND ABBOTT INDI A LTD. NO NEW COMPARABLES WAS TAKEN BY TPO. THE TPO HAS NOT MADE ANY ADJUSTME NT IN THE PROFIT MARGIN OF THE TAXPAYER ARISING IN THE DISTRIBUTION SEGMENT. H OWEVER, THE LD. TPO AFTER CONSIDERING THE TP DOCUMENTATION, ALSO EXAMINED THE ADVERTISEMENT, MARKETING AND PROMOTIONAL EXPENSES INCURRED BY ASSESSEE AND O BSERVED THAT THE ASSESSEE BEING DISTRIBUTOR OF BAUSCH & LOMB PRODUCTS, MANUFA CTURED BY ITS GROUP COMPANIES I.E. THE AE AND OTHER SUBSIDIARIES, BY IN CURRING EXPENDITURE ON ADVERTISEMENT MARKETING AND PROMOTIONAL ACTIVITIES (AMP), WAS DEVELOPING 5 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. MARKETING INTANGIBLE FOR BAUSCH & LOMB PRODUCTS. TH E AO NOTED FROM THE P&L A/C, THAT DURING THE GIVEN YEAR THE ASSESSEE HAD UN DERTAKEN AMP EXPENDITURE TO THE TUNE OF RS. 10,98,24,331/-. HE NOTED THAT THE R ATIO OF AMP/ TOTAL REVENUE WAS 9.14%. HE FURTHER OBSERVED THAT AFTER INCLUDING THE EXPENDITURE LIKE COMMISSION ON SALE ETC., THE TOTAL EXPENDITURE WORKED OUT TO 1 1.84 CRORES. THE TPO CONSIDERED THE EXPENDITURE INCURRED BY COMPARABLES SELECTED BY HIM (AFTER CONSIDERING THE COMPARABLES OF THE ASSESSEE) FOR BENCHMARKING AMP A S THE ARMS LENGTH EXPENDITURE OF ROUTINE DISTRIBUTION FUNCTION CARRIE D BY HIM. AFTER CONSIDERING THE ASSESSEES REPLY, LD. TPO HELD AS UNDER: (I) AMP EXPENDITURE IS AN INTERNATIONAL TRANSACTION; (II) TPO DID NOT ACCEPT THE ASSESSEES CONTENTION THAT S INCE TNMM HAD BEEN USED TO BENCHMARK THE INTERNATIONAL TRANSACTION, TH EREFORE, THIS COULD NOT BE BENCHMARKED USING BRIGHT LINE ALSO. (III) THE LD. TPO APPLIED THE CUP METHOD FOR COMPUTING TH E ALP OF AMP EXPENSES. IN ORDER TO DETERMINE THE BRIGHT LINE LIM IT, HE CONSIDERED ONLY TWO COMPARABLES I.E. ADITYA MEDISALES LTD. AND ABBO TT INDIA LTD. THE AVERAGE OF AMP TO SALES 3.17% AS UNDER: COMPANY NAME (ADVERTISING + MARKETING)/ (SALES)*10 ADITYA MEDISALES LTD. 1.33 ABBOTT INDIA LIMITED 5.02 AVERAGE 3.17 2.8. ACCORDINGLY, HE COMPUTED THE AMP EXPENSES AFTE R APPLYING MARK UP OF 14.88% AS UNDER: PARTICULARS FORMULA AMOUNT (RS.) TOTAL REVENUE OF ASSESSEE A 1,201,267,391 ARMS LENGTH % OF AMP EXPENDITURE B 3.17% ARMS LENGTH AMP EXPENDITURE C=(A*B) 38080176 AMP EXPENSE INCURRED BY THE ASSESSEE D 118446390 EXPENDITURE INCURRED FOR DEVELOPING THE BRAND E=D-C 80366214 6 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. ADD MARKUP @ 14.88% F 176223 ARMS LENGTH RETURN FOR AMP EXPENDITURE G=E+F 9799 1036 2.9. THE AO, ACCORDINGLY, AFTER GIVING OPPORTUNITY TO THE ASSESSEE, PASSED THE DRAFT ASSESSMENT ORDER BY MAKING ADDITION OF RS. 9, 79,91,036/-. 2.10. THE ASSESSEE, INTER ALIA, FILED FOLLOWING OB JECTIONS BEFORE LD. DRP: - AMP COULD NOT BE REGARDED AS A SEPARATE INTERNAT IONAL TRANSACTION; - THE AMP EXPENSES INCURRED BY ASSESSEE WERE FOR TH E SOLE PURPOSE OF MAINTAINING AND INCREASING ITS MARKET SHARE IN INDI A; - AMP FUNCTION HAS BEEN SUITABLY BENCHMARKED UNDER TNMM ANALYSIS CARRIED OUT BY THE ASSESSEE. - WITHOUT PREJUDICE, EVEN IF IT WAS ASSUMED THAT T HE ASSESSEE INCURRED AMP EXPENSES ON BEHALF OF ITS AES, IT HAD BEEN DULY COMPENSATED FOR ITS AMP ACTIVITIES; - THE NATURE OF ASSESSEE INDUSTRY WARRANTS HEAVY EX PENDITURE ON AMP. - THE TPO IGNORED THE FACT THAT THE ASSESSEES AE H AD NOT CHARGED ANY ROYALTY FROM THE ASSESSEE. - THE TPO INCORRECTLY CONSIDERED SELLING AND DISTR IBUTION EXPENSES AND SALES PROMOTION EXPENSES INCURRED BY B&L INDIA AS P ART OF BRAND BUILDING EXPENSES WHILE BENCHMARKING THE AMP EXPENS ES. - THE TPO ERRED IN MAKING SELECTION OF INAPPROPRIAT E COMPANIES AS COMPARABLES FOR COMPUTATION OF THE BRIGHT LINE. - THE TPO ERRED IN CONCLUDING THAT THE ASSESSEE HAD RENDERED BRAND BUILDING SERVICES TO ITS AE AND IT SHOULD HAVE CHA RGED MARK UP ON COST INCURRED FOR RENDERING SUCH SERVICES. 2.11. LD. DRP, AFTER CONSIDERING THE ASSESSEES OBJ ECTIONS, CONCLUDED AS UNDER: 7 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. (I) AMP EXPENDITURE INCURRED BY THE TAXPAYER CAN BE REGARDED AS INTERNATIONAL TRANSACTION; (II) THE AES OF THE TAXPAYERS WERE THE GUIDING FAC TORS IN DECIDING THE STRATEGY OF AMP FUNCTION DISCHARGED BY THE TAXP AYER AND, THEREFORE, THE EXPENDITURE ON ADVERTISING AND MARKETING ACTIVI TY WAS NOT SOLELY FOR ASSESSEES OWN BUSINESS PURPOSES. (III) LD. DRP FURTHER HELD THAT THE TPO WAS JUSTIFIED IN INVOKING THE CONCEPT OF BRIGHT LINE FOR BENCHMARKING OF THE EXPENDITURE TO BE CONSIDERED EXCESSIVE AND, ACCORDINGLY, WAS JUSTIFIE D IN MAKING ADJUSTMENT. (IV) ON THE ISSUE OF COMPARABLES, LD. DRP DIRECTED THE TPO TO VERIFY THE RESULTS OF THE SEARCH FROM THE ANNUAL RE PORTS OF THE COMPARABLES FOR THE CALCULATION OF OPERATING MARGINS AND AMP B Y SALES RATIO AND COMPUTE THE ALP OF THE INTERNATIONAL TRANSACTION OF THE SERVICES FOR DEVELOPMENT OF MARKETING INTANGIBLE FOR THE AES. 2.12. FOLLOWING COMPANIES WERE CONSIDERED FOR BENC H MARKING THE AMP EXPENDITURE: S. NO. NATURE AMP/SALES(%) 1 ARTIFICIAL LIMBS MANUFACTURING CORP OF INDIA 0.85 2. CENTENIAL SURGICAL SUTURE LTD. 8.16 3. INOR MEDICAL PRODUCTS 9.03 4. INVICTA MEDITEX LTD. 2.66 5. SHREE PACETRONICS LIMITED 7.52 6. SOUTH INDIA SURGICAL COMPANY LIMITED. 3.47 AVERAGE 5.27 2.12.1. ACCORDINGLY, LD. TPO PASSED THE ORDER DATED 11-12-2014 WHICH WAS GIVEN EFFECT TO BY THE AO. 8 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. 2.13. THE AO FURTHER AS PER THE DIRECTIONS OF LD. D RP, APPLIED A MARK UP OF 13.25%, APPLYING INTEREST @ SBI BASE RATE AS ON 30 TH JUNE OF THE RELEVANT YEAR PLUS 150 BASIS POINTS. ACCORDINGLY, ADJUSTMENT ON ACCOUN T OF AMP EXPENSES WAS COMPUTED AS UNDER: PARTICULARS AMOUNT (INR) TOTAL REVENUE OF THE ASSESSEE (A) 1,20,12,67,391 ARMS LENGTH AMP EXPENDITURE (B) 5.27& ARMS LENGTH AMP EXPENDITURE (C=A*B/100) 6,33,06,792 AMP EXPENSES INCURRED BY THE ASSESSEE (D) 11,84,46 ,390 EXPENDITURE INCURRED FOR DEVELOPING THE BRAND (E=D-C) 5,51,39,598 ADD MARK-UP @ 13.25% F 73,05,997 ARMS LENGTH RETURN FOR AMP EXPENDITURE (G=E+F) 6, 23,45,595 2.14. BEING AGGRIEVED WITH THE ORDER OF AO, THE ASS ESSEE IS IN APPEAL BEFORE US AND HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. THE LD. DISPUTE RESOLUTION PANEL ('DRP') ERRED I N CONFIRMING/UPHOLDING ADJUSTMENT TO RETURNED INCOME, AS PROPOSED BY LEARNED TRANSFER PRICING OFFICER('TPO') , / AO OF INR 6,24,45,595/- CONTRARY TO PROVISIONS OF THE ACT AND INCOME-TAX RULES, 1962 ('THE RULES'). 2. IMPUGNED ORDER, TO THE EXTENT IT CONFIRMS ADJUST MENT UNDER TRANSFER PRICING REGULATIONS WITH REFERENCE T O IMAGINARY AND NON-EXISTENT INTERNATIONAL TRANSACTIONS, IS BAD IN LAW AS IT IS NOT IN ACCORDANCE WITH PROVISIONS OF LAW. FURTHER, WITHOUT PREJUDICE, THE DECISIONS OF HON'BLE COURTS (INCLUDI NG OF THIS HON'BLE TRIBUNAL) RELIED UPON ARE DISTINGUISHABLE A ND HAVE NO APPLICATION IN THE FACTS AND CIRCUMSTANCES OF APPEL LANT'S CASE. 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AN D IN LAW, LD. AO/DRP/TPO HAVE ERRED IN HOLDING THAT THE ADVER TISEMENT, MARKETING AND PROMOTION ('AMP') EXPENDITURE INCURRE D BY THE APPELLANT IN INDIA, BEING PAYMENTS MADE TO THIRD PA RTIES, CAN BE CHARACTERIZED AS AN 'INTEMATIONAL TRANSACTION' AS P ER THE PROVISIONS OF THE ACT, WITHOUT APPRECIATING THE FOL LOWING: 9 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. (A) THERE WAS NO UNDERSTANDING/ARRANGEMENT BETWEE N THE APPELLANT AND ITS ASSOCIATED ENTERPRISES ('AES' ) FOR INCURRENCE OF SUCH EXPENDITURE ON BEHALF OF THE AES ; (B) THE TRANSACTION IN QUESTION WAS UNDERTAKEN BY THE APPELLANT WITH UNRELATED DOMESTIC THIRD PARTIES; (C) SELECTIVE RELIANCE CANNOT BE PLACED ON PORTIO NS OF SUBMISSIONS AND INFORMATION PROVIDED TO PRESUME EXI STENCE OF INTERNATIONAL TRANSACTION (D) DEEMING FICTION CANNOT BE EXPANDED OUT OF CON TEXT PURELY BASED ON PRESUMPTIONS TO INCLUDE TRANSACTION S NOT EXPRESSLY COVERED IN LAW 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IMPUGNED ORDER ERRED IN RECHARACTERISING AMOUNT S PAID BY THE APPELLANT TO DOMESTIC THIRD-PARTIES, FOR AVAILI NG SERVICES REQUIRED FOR ITS BUSINESS, AS COST BASE FOR SERVICE S RENDERED TO AES. 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP ERRED IN UPHOLDING TPO'S ACTION, I SSUED MUCH BEYOND LEGITIMATE JURISDICTION, IN QUESTIONING THE REASONABLENESS, QUANTUM, AND COMMERCIAL EXPEDIENCY OF AMP EXPENDITURE INCURRED BY THE APPELLANT. 6. THE IMPUGNED ORDER FAILED IN NOT APPRECIATING TH AT THE APPELLANT IS A ROUTINE RISK- TAKING DISTRIBUTOR AND THE AMP EXPENSES INCURRED BY IT ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS OPERATIONS. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO HAVE ERRED IN FAILING TO AP PRECIATE THAT THE AMP FUNCTION IS ALSO WAS UNDERTAKEN BY THE APPELLANT AS A PART OF ITS FUNCTIONAL PROFILE AS A FULL-FLEDG ED DISTRIBUTOR AND FOR ITS OWN BUSINESS. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO HAVE ERRED IN ALLEGING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT IN INDIA, WERE N OT WHOLLY 10 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. AND EXCLUSIVELY FOR PURPOSES OF ITS BUSINESS AND RE SULTED IN CREATION OF MARKETING INTANGIBLES FOR THE AES. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO HAVE ERRED IN NOT APPRECIAT ING THAT THE BENEFIT ARISING FROM THE INCURRENCE OF AMP EXPE NSES BY THE APPELLANT HAS BEEN RECEIVED BY THE APPELLANT AND AN Y BENEFIT RESULTING TO THE AES IS MERELY INCIDENTAL. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO FAILED TO APPRECIATE THAT T HE NATURE OF INDUSTRY AND BUSINESS REALITIES OF THE APPELLANT REQUIRE AND DEMAND THE INCURRENCE OF SUCH AMP EXPENDITURE FOR MAINTAINING AND ENHANCING THE SALE OF ITS PRODUCTS IN THE RELEVANT MARKET. 11. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO FAILED TO APPRECIATE THAT T HE TRANSFER PRICING BENCH MARKING STUDY SUBMITTED BY APPELLANT CONSIDERS ALL THE FUNCTIONS, ASSETS AND RISKS AND THAT A SEPA RATE BENCHMARKING OF SOME OF THE VERY SAME FUNCTIONS IS UNJUSTIFIED AND NOT AS PER LAW. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO HAVE ERRED, IN NOT APPRECIA TING THAT THE APPELLANT HAD USED TRANSACTIONAL NET MARGIN MET HOD ('TNMM') TO BENCHMARK ITS INTERNATIONAL TRANSACTION S, AND THUS, NO SEPARATE ARM'S LENGTH ANALYSIS WAS REQUIRE D IN RESPECT OF THE ALLEGED INTERNATIONAL TRANSACTION RELATING T O AMP. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO HAVE ERRED, IN BENCHMAR KING PRESUMED INTERNATIONAL TRANSACTION OF THE APPELLANT RELATING TO AMP, WITHOUT CONSIDERING THAT THE APPELLANT HAS BEE N FULLY COMPENSATED FOR ITS MARKETING EFFORTS AS EVIDENT FR OM THE ARM'S LENGTH MARGIN EARNED BY IT. WITHOUT PREJUDICE, THE FURTHER DIRECTION TO VERIFY AND MODIFY THE ADJUSTMENT IS AL SO CONTRARY TO EXPRESS PROVISIONS OF LAW. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AOIDRP/TPO WERE NOT JUSTIFIED IN CONSI DERING 11 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. DISCOUNTS, SELLING AND PROMOTION EXPENSES, AND OTHE R SUCH EXPENDITURE WHILE CALCULATING THE AMP EXPENDITURE O F THE APPELLANT. WITHOUT PREJUDICE, THE CONCLUSIONS REACH ED ARE CONTRARY TO THE VERY SAME DECISIONS WHICH ARE RELIE D UPON BY THE TAX AUTHORITIES. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/TPO/DRP HAVE ERRED IN INCORRECTLY A PPLYING THE COMPARABLE UNCONTROLLED PRICE ('CUP') METHOD FO R DETERMINATION OF THE COST BASE WHILE BENCHMARKING T HE ALLEGED INTERNATIONAL TRANSACTIONS OF THE APPELLANT RELATIN G TO AMP. 16. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AOIDRP/TPO HAVE ERRED IN BENCHMARKING THE AMP EXPENDITURE INCURRED BY THE APPELLANT IN INDIA WITHOUT CORRECTLY APPLYING CUP IN THE MANNER PRESCRIBED UND ER RULE 10B OF THE RULES. 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO HAVE ERRED IN CONSIDERING T HE 'BRIGHT LINE' CONCEPT AS A TOOL WHILE APPLYING CUP METHOD. 18. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO HAVE ERRED, IN SELECTION OF INAPPROPRIATE COMPARABLES (WRONGLY REJECTING THE CO MPARABLES PROPOSED BY THE APPELLANT) FOR BENCHMARKING THE INT ERNATIONAL TRANSACTION OF THE APPELLANT RELATING TO AMP. 19. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/TPO/DRP HAVE ERRED IN LEVYING A FUR THER MARK-UP ON THE AMP EXPENSES INCURRED OVER AND ABOVE THE SO- CALLED 'BRIGHT-LINE' LIMIT, FOR DETERMINATION OF TH E ARM'S LENGTH PRICE OF THE ALLEGED BRAND-PROMOTION SERVICES RENDE RED BY THE APPELLANT TO ITS AES. 20. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED DRP HAS ERRED, IN ARBITRARILY DETERMIN ING A MARK- UP OF SBJ BASE RATE PLUS 150 BASIS POINTS (I.E. 13. 25%) ON SUCH ALLEGED AMP SERVICES. 12 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. 21. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED AO/DRP/TPO HAVE ERRED, BY NOT PROVIDIN G THE APPELLANT THE BENEFIT OF 5 PERCENT RANGE AS PROVID ED UNDER THE PROVISO OF SECTION 92C(2) OF THE ACT. 22. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED, IN CHARGING INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. 23. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) READ WITH SECTION 274 OF TH E ACT. 24. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO HAS ERRED IN INCORRECTLY ALLOWI NG CREDIT SHORTFALL OF TAXES DEDUCTED AT SOURCE TO THE APPELL ANT. 2.15. THE ASSESSEE HAS SUBSTITUTED GROUND NO. 18 VI DE LETTER DATED 29-4-2015 AS UNDER: 18. WITHOUT PREJUDICE TO OTHER CONTENTIONS THAT AP PELLANT MAY RAISE ON SEARCH PROCESS ADOPTED BY THE LEARNED AO/T PO/DRP IN ANY OTHER YEAR FOR WHICH APPELLANT RESERVES ITS RIG HT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED A O/DRP /TPO HAVE ERRED, IN SELECTION OF INAPPROPRIATE COMP ARABLES (BY WRONGLY APPLYING THE SEARCH PARAMETERS SET OUT BY T HEMSELVES) FOR BENCHMARKING THE INTERNATIONAL TRANSACTION OF T HE APPELLANT?' 4. LD. COUNSEL SUBMITTED THAT HONBLE HIGH COURT HA S HELD THAT AMP IS AN INTERNATIONAL TRANSACTION AND, THEREFORE, GROUND N OS. 2,3,4, 5 & 6 HAVE TO BE DISMISSED. ACCORDINGLY, THESE GROUNDS ARE DISMISSED . 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSE SSEE IS PRIMARILY A DISTRIBUTOR AND AT THE ENTITY LEVEL AVERAGE PROFIT EARNED WAS 1 8.45% FOR THE TWO BASIC SEGMENTS VIZ. VISION CARE; AND SURGICAL EQUIPMENT. 13 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. 5.1. LD. COUNSEL POINTED OUT THAT THE LD. DRP HAS G IVEN DIRECTION TO TPO TO VERIFY THE RESULTS OF THE SEARCH FROM THE ANNUAL REPORTS O F THE COMPARABLES FOR THE CALCULATION OF OPERATING MARGIN AND AMP OF SALES RA TIO. HOWEVER, THE TPO HAS NOT CORRECTLY APPLIED THE SAID FILTER AND, THEREFORE, T HE MATTER SHOULD BE RESTORED TO THE FILE OF TPO TO CORRECTLY APPLY THE TRADING FILTER. LD. TPO HAD APPLIED THE TRADING FILTER OF 75% OF REVENUE OF COMPARABLES FROM TRADIN G INCOME. HOWEVER, LD. RP APPLIED A FILTER OF 66.67% TO TOTAL SALES. 5.2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT I N THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (ITA NO. 16/2 014, DECISION DATED 16-3- 2015), THE HONBLE DELHI HIGH COURT HAS REJECTED TH E BRIGHT LINE TEST APPLIED BY THE SPL. BENCH OF ITAT IN THE CASE OF L.G. ELECTRONIC S INDIA PVT. LTD. IN THIS REGARD HE REFERRED TO PARAS 126, 127 AND 135 OF THE DECISI ON OF HONBLE HIGH COURT. LD. COUNSEL FURTHER REFERRED TO PARA 101 OF THE SAID DE CISION OF HONBLE HIGH COURT TO SUBMIT THAT SINCE TNMM METHOD HAS BEEN APPLIED BY A SSESSEE FOR BENCH MARKING THE VARIOUS INTERNATIONAL TRANSACTIONS, THEREFORE, SINCE AT THE ENTITY LEVEL THE PROFIT MARGIN OF THE ASSESSEE IS HIGHER COMPARED TO COMPA RABLE, THEREFORE, THE INTERNATIONAL TRANSACTION IN REGARD TO AMP IS NOT R EQUIRED TO BE SEPARATELY BENCH MARKED. IN THIS REGARD LD. COUNSEL FILED BEFORE US A DETAILED SEGMENT WISE MARGIN CHART AND SUBMITTED THAT THE SAME MAY BE RESTORED T O THE FILE OF TPO FOR VERIFICATION. 5.3. LD. COUNSEL FURTHER SUBMITTED THAT THE TPO CAN VERIFY WHETHER SELLING AND DISTRIBUTION EXPENSES HAVE BEEN CONSIDERED WHILE CO MPUTING THE MARGINS AT 21.23% IN THE CASE OF VISION CARE SEGMENT AND 13.81 % IN THE CASE OF SURGICAL SEGMENT. 5.4. LD. COUNSEL FURTHER REFERRED TO THE OBSERVATIO NS OF HONBLE DELHI HIGH COURT WITH REGARD TO AGGREGATION AND DISAGGREGATION OF T RANSACTIONS WHEN THE TNMM 14 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. METHOD IS SOUGHT TO BE APPLIED. THE SUBMISSION OF L D. COUNSEL IS THAT ALONG WITH OTHER INTERNATIONAL TRANSACTIONS. THE AMP HAS TO B E AGGREGATED AND THEN AT THE ENTITY LEVEL PLI IS TO BE COMPARED WITH THE PLI OF THE COMPARABLES. IN THIS REGARD HE REFERRED TO PARAS 137 TO 144 OF THE DECISION. 5.5. LD. COUNSEL FURTHER REFERRED TO PARA 193 OF TH E SAID DECISION TO SUBMIT THAT ENDEAVOUR ON THE PART OF THE TRIBUNAL SHOULD BE TO ASCERTAIN AND SATISFY WHETHER THE GROSS/ NET PROFIT MARGIN WOULD DULY ACCOUNT FOR AMP EXPENSES OR NOT. 5.6. HE FURTHER REFERRED TO THE CONCLUSION OF HONB LE DELHI HIGH COURT, WHICH IS, INTER ALIA, REPRODUCED HEREUNDER: (V) WHERE THE ASSESSING OFFICER/TPO ACCEPTS THE COMPARABLES ADOPTED BY THE ASSESSED, WITH OR WITHOU T MAKING ADJUSTMENTS, AS A BUNDLED TRANSACTION, IT WOULD BE ILLOGICAL AND IMPROPER TO TREAT AMP EXPENSES AS A SEPARATE INTERN ATIONAL TRANSACTION, FOR THE SIMPLE REASON THAT IF THE FUNC TIONS PERFORMED BY THE TESTED PARTIES AND THE COMPARABLES MATCH, WI TH OR WITHOUT ADJUSTMENTS, AMP EXPENSES ARE DULY ACCOUNTED FOR. I T WOULD BE INCONGRUOUS TO ACCEPT THE COMPARABLES AND DETERMINE OR ACCEPT THE TRANSFER PRICE AND STILL SEGREGATE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION. VIII) DISTRIBUTION AND MARKETING ARE INTER-CONNECTE D AND INTERTWINED FUNCTIONS. BUNCHING OF INTER-CONNECTED AND CONTINUOUS TRANSACTIONS IS PERMISSIBLE, PROVIDED TH E SAID TRANSACTIONS CAN BE EVALUATED AND ADEQUATELY COMPAR ED ON AGGREGATE BASIS. THIS WOULD DEPEND ON THE METHOD AD OPTED AND COMPARABILITY ANALYSIS AND THE MOST RELIABLE MEANS OF DETERMINING ARM'S LENGTH PRICE. . . (XII) WHEN SEGMENTATION OR SEGREGATION OF A BUNDLED TRANSACTION IS REQUIRED, THE QUESTION OF SET OFF AND APPORTION MENT MUST BE EXAMINED REALISTICALLY AND WITH A PRAGMATIC APPROAC H. TRANSFER PRICING IS AN INCOME ALLOCATING EXERCISE TO PREVENT ARTIFICIAL 15 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. SHIFTING OF NET INCOMES OF CONTROLLED TAXPAYERS AND TO PLACE THEM ON PARITY WITH UNCONTROLLED, UNRELATED TAXPAYE RS. THE EXERCISE UNDERTAKEN SHOULD NOT RESULT IN OVER OR DO UBLE TAXATION. THUS, THE ASSESSING OFFICER/TPO CAN SEGREGATE AL\1P EXPENSES AS AN INDEPENDENT INTERNATIONAL TRANSACTION, BUT ON LY AFTER ELUCIDATING GROUNDS AND REASONS FOR NOT ACCEPTING T HE BUNCHING ADOPTED BY THE ASSESSED, AND EXAMINING AND GIVING B ENEFIT OF SET OFF. SECTION 92(3) DOES NOT BAR OR PROHIBIT SET OFF. 3.7. LD. COUNSEL FURTHER SUBMITTED THAT BEFORE LD. TPO THE ASSESSEE HAD FURNISHED A LIST OF COMPARABLES FOR BENCH MARKING THE AMP EX PENDITURE BUT THE SAID COMPARABLES WERE REJECTED ON THE GROUND THAT THEY C OULD NOT BE CONSIDERED AS ROUTINE DISTRIBUTORS. HE SUBMITTED THAT LD. TPO ACC EPTED ADITYA MEDISALES LTD. AND ABBOTT INDIA LTD. FOR BENCH MARKING THE AMP EXPENDI TURE AND APPLIED THE BRIGHT LINE TEST WHILE CONSIDERING THE SAME. HOWEVER, LD. DRP SELECTED FRESH SET OF COMPARABLES OBSERVING THAT BOTH ASSESSEE AS WELL AS LD. TPO DID NOT SELECT CORRECT COMPARABLES. HE REFERRED TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MENTOR GRAPHICS INDIA LTD. (ITA NO. 11 14/2008 JUDGMENT DATED 4-4- 2013), (PARA B22), TO SUBMIT THAT IT IS NOT THE RIG HT APPROACH TO BE ADOPTED BY THE TRIBUNAL TO SELECT SOME OF THE COMPARABLES. THE TRI BUNAL SHOULD HAVE STOPPED AT THE POINT WHERE IT DECIDED ON FACTS THAT THE COMPA RABLES GIVEN BY THE ASSESSEE WERE TO BE ACCEPTED AND THOSE SEARCHED BY THE TPO W ERE TO BE REJECTED. THE TRIBUNAL IN SELECTING ONLY ONE PROFIT LEVEL INDICAT OR OUT OF A SET OF PROFIT LEVEL INDICATORS, HAD CLEARLY ERRED IN LAW. HE, THEREFO RE, SUBMITTED THAT ONCE THE TPO HAD ACCEPTED THE TWO COMPARABLES THEN NO FURTHER EX ERCISE WAS TO BE CARRIED OUT BY LD. DRP AND THE PLI AT ENTITY LEVEL SHOULD HAVE BEE N CONSIDERED. 3.8. WITHOUT PREJUDICE TO HIS AFOREMENTIONED ARGUME NTS, LD. COUNSEL FURTHER SUBMITTED THAT, IN ANY VIEW OF THE MATTER, WHILE DE TERMINING THE AMP EXPENDITURE, 16 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. THE COMPONENTS RELATING TO SELLING AND DISTRIBUTION EXPENSES HAVE TO BE EXCLUDED. IN VIEW OF DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERRICSON (SUPRA), LD. COUNSEL SUBMITTED THAT IN ORDER TO DE TERMINE THE AMP: FUNCTIONS PERFORMED BY ASSESSEE VIS A VIS COMPARABLES, THEN T HE MATTER SHOULD BE RESTORED BACK TO THE FILE OF LD. TPO WITH FOLLOWING THREE DI RECTIONS- (A) TRADING FILTER TO BE CORRECTLY APPLIED/ MISTAKE TO BE CORRECTED BY LD. TPO. IN THIS REGARD HE REFERRED TO PAGE 31 OF LD. DRP DIREC TIONS (PAGE 42 OF APPEAL SET). (B) SELLING AND DISTRIBUTION EXPENSES TO BE EXCLUDED AS HAS BEEN HELD BY HONBLE DELHI HIGH COURT IN SONI ERECTION CASE; AND (C) WHETHER AMP EXPENSES HAVE BEEN CONSIDERED BY ASSESS EE WHILE COMPUTING MARGINS OR NOT. 4. LD. CIT(DR) SUBMITTED THAT NO PROPOSITION AS SUC H HAS BEEN LAID DOWN BY HONBLE HIGH COURT THAT SELLING EXPENSES IN ALL CIR CUMSTANCES TO BE EXCLUDED. IN THIS REGARD HE REFERRED TO PAGE 127 OF THE SAID DEC ISION, WHEREIN ARGUMENTS OF REVENUE HAVE BEEN REPRODUCED BY HONBLE DELHI HIGH COURT. HE POINTED OUT THAT HONBLE HIGH COURT IN PARA 176 HAS GIVEN THE FINDIN GS WITH REGARD TO ASSESSEE WHICH WAS ENGAGED IN DISTRIBUTION AND MARKETING OF CONSUMER GOODS AND NOT IN CASE OF DISTRIBUTOR SIMPLICITER WHICH IS SIN THE PR ESENT CASE. 4.1. LD. CIT(DR) SUBMITTED THAT THE DISCOUNT AND IN CENTIVE THAT THE ASSESSEE IS PASSING ON TO THE DEALERS IS THE TOOL WHICH IT EMPL OYS TO CREATE A BRAND LOYALTY AMONG THEM AND, THEREFORE, THE COMMISSION AND SALES DISCOUNT FACILITATES THE COMPANY TO CREATE A LOYALTY AMONG THE CHAIN OF ORGA NIZATION AND PERSONNEL WHO ARE LINK BETWEEN THE ASESSEE OF THE AE AND THE ULTI MATE CONSUMERS. HE, THEREFORE, 17 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. SUBMITTED THAT SELLING AND DISTRIBUTION EXPENSES CA NNOT BE EXCLUDED WHILE COMPUTING AMP EXPENDITURE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE RECORD OF THE CASE. AS PER TRANSFER PRICING STUDY, THE ASSESSEE H AD IDENTIFIED VARIOUS INTERNATIONAL TRANSACTIONS WHICH HAVE BEEN REPRODUCED EARLIER BUT THE SAME DID NOT CONSIDER THE AMP EXPENDITURE AS AN INTERNATIONAL TRANSACTION. AD MITTEDLY, THE SAID TRANSACTIONS WERE BENCH MARKED ADOPTING TNM METHOD AND IT WAS DE MONSTRATED THAT THE PLI OF THE VISION CARE SEGMENT WAS 21.23% AS AGAINST 6.19% OF THE COMPARABLES AND IN THE CASE OF SURGICAL EQUIPMENT SEGMENT THE PLI OF T HE ASSESSEE WAS 13.81% AS AGAINST 5.97% OF THE COMPARABLES. THE TPO HAD, ACCO RDINGLY, NOT MADE ANY ADJUSTMENT IN REGARD TO THE COMPANIES, INTER ALIA, TRANSACTIONS REPORTED BY ASSESSEE. HOWEVER, KEEPING IN VIEW THE AMOUNT OF EXPENDITURE INCURRED BY ASSESSEE ON AMP, TPO WAS OF THE OPINION THAT THE ASSESSEE WAS PROMOTING THE BAUSCH & LOMB BRAND IN INDIA AND DEVELOPING MARKETING INTANG IBLE BAUSCH & LOMB IN INDIA BY INCURRING EXPENDITURE ON ADVERTISEMENT, MA RKETING AND PROMOTIONAL ACTIVITIES. HE HAD APPLIED BRIGHT LINE TEST FOR DET ERMINING THE ADJUSTMENT REQUIRED ON ACCOUNT OF EXCESSIVE AMP EXPENDITURE INCURRED F OR BRAND BUILDING OF BAUSCH & LOMB. WHEN THE SHOW CAUSE NOTICE WAS ISSUED TO T HE ASSESSEE IN REGARD TO BENCH MARKING OF AMP, THE ASSESSEE HAD FURNISHED NE W SET OF COMPARABLES WHICH LD. TPO REJECTED ON THE GROUND THAT THOSE COMPARABL ES COULD NOT BE CONSIDERED AS A ROUTINE DISTRIBUTOR. 5.1. LD. TPO HAD CONSIDERED THE COMPARABLES VIZ. AD ITYA MEDISALES LTD. AND ABBOTT INDIA LTD. OUT OF THE LIST OF COMPARABLES FU RNISHED BY ASSESSEE FOR BENCHMARKING VARIOUS INTERNATIONAL TRANSACTIONS, F OR BENCHMARKING THE AMP 18 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. EXPENDITURE. BUT HE DID NOT CONSIDER THE AMP FUNCT IONS PERFORMED BY THE SAID COMPARABLES VIS-A-VIS THE ASSESSEE. LD. DRP CARRIED OUT A FRESH SEARCH AND DETERMINED SIX COMPARABLES AS NOTED AT PAGE 31 OF H IS ORDER AND DIRECTED THE TPO TO VERIFY THE RESULTS OF THE SEARCH FROM THE ANNUAL REPORT OF THESE COMPARABLES. THE ASSESSEE IN ITS MODIFIED GROUND NO. 18 HAS ASSA ILED THE SEARCH PARAMETERS SET OUT BY LD. AO/DRP/TPO. THERE IS NO FINDING IN LD. DRPS ORDER REGARDING THE AMP FUNCTIONS PERFORMED BY COMPARABLES. 5.2. IN THE BACKDROP OF ABOVE FACTUAL POSITION, NOW WE PROCEED TO EXAMINE THE SUBMISSIONS OF LD. COUNSEL THAT SINCE PLI AT ENTIT Y LEVEL IS ACCEPTABLE TO LD. TPO WHICH INCLUDES THE AMP EXPENDITURE, THEREFORE, NO S EPARATE EXERCISE FOR BENCH MARKING THE AMP EXPENDITURE INDEPENDENTLY SHOULD BE UNDERTAKEN. ON THIS ASPECT LD. COUNSEL HAS RELIED ON THE DECISION OF HONBLOE DELHI HIGH COURT IN THE CASE OF SONI ERECTIONS CASE (SUPRA). 5.3. THE HONBLE DELHI HIGH COURT IN THE CASE OF SO NI ERECTIONS CASE (SUPRA) IN PARA 137 HAS OBSERVED THAT THE AGGREGATION AND DISA GGREGATION OF TRANSACTIONS IN THE TNM METHOD OR EVEN IN OTHER METHODS IS SOUGHT T O BE APPLIED, MUST HAVE REFERENCE TO THE STRENGTH AND WEAKNESS OF THE TNM M ETHOD OR THE APPLICABLE METHOD. IT WAS OBSERVED THAT AGGREGATION OF TRANSAC TIONS IS DESIRABLE AND NOT MERELY PERMISSIBLE, IF THE NATURE OF TRANSACTION(S) TAKEN AS A WHOLE IS SO INTER- RELATED THAT IT WILL BE MORE RELIABLE MEANS OF DETE RMINING THE ARMS LENGTH CONSIDERATION FOR THE CONTROLLED TRANSACTIONS. IT W AS FURTHER OBSERVED THAT THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTIONS ARE IN TER WINED AND LINKED OR ARE CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON SEPARATE BASIS. SECONDLY, THE CONTROLLED TRANSACTION SHOULD ORDINARILY BE BAS ED ON THE TRANSACTION ACTUALLY 19 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. UNDERTAKEN BY THE AES AS HAS BEEN STRUCK BY THEM. H ONBLE JURISDICTIONAL HIGH COURT CAUTIONED THAT IT WAS NOT ADVOCATING THE A BR OAD-BRUSH APPROACH BUT, A DETAILED SCRUTINIZED ASCERTAINMENT AND DETERMINATIO N WHETHER OR NOT THE AGGREGATION OR SEGREGATION OF TRANSACTIONS WOULD BE APPROPRIATE AND PROPER WHILE APPLYING THE PARTICULAR METHOD. 5.4. THUS, BEFORE THE PLI DETERMINED AT ENTITY LEVE L IS TO BE TAKEN AS THE DETERMINING FACTOR OF BENCH MARKING VARIOUS INTERN ATIONAL TRANSACTIONS ALONG WITH THE AMP EXPENDITURE, IT IS TO BE CLEARLY DEMONSTRAT ED HOW THE TRANSACTIONS OF THE ADVERTISEMENT EXPENDITURE IS CLOSELY LINKED TO THE OTHER TRANSACTIONS IN THE DISTRIBUTION SEGMENT. LD. TPO IN PARA 10.4 HAS OBSE RVED THAT ASSESSEE COMPANY HAS NOT BEEN ABLE TO DEMONSTRATE THAT THERE WAS ANY PRIOR UNDERSTANDING, DESIGN OR COMMERCIAL LOGIC OR RATIONAL FOR AGGREGATION OF TH E TRANSACTIONS. HE HAS OBSERVED THAT THE ASSESSEE COMPANY HAS NOT BEEN ABLE TO DEMO NSTRATE THAT THERE WAS ANY LOGIC OR RATIONALE FOR AGGREGATION OR THAT THE TRAN SACTIONS OF THE ADVERTISEMENT EXPENDITURE AND THE OTHER TRANSACTIONS IN THE DISTR IBUTION ACTIVITY ARE INTER- DEPENDENT. THEREFORE, THE CONTENTION OF LD. COUNSE L THAT SINCE PLI AT ENTITY LEVEL IS MUCH MORE THAN THAT OF THE COMPARABLES, THEREFORE, NO SEPARATE BENCH MARKING OF THE FUNCTIONS IS TO BE CARRIED OUT, IS DEVOID OF A NY MERIT. HOWEVER, AT THE SAME TIME WE FIND THAT HONBLE DELHI HIGH COURT IN THE C ASE OF SONI ERECTION HAS REJECTED THE APPLICABILITY OF BRIGHT LINE TEST AND AS NOTED EARLIER, LD. TPO AND LD. DRP HAVE NOT POINTED OUT THE AMP FUNCTIONS BEING CA RRIED OUT BY THE ASSESSEE, VIS A VIS THE COMPARABLES AND APPLIED THE BRIGHT LINE T EST. THEREFORE, IN VIEW OF THE OBSERVATIONS OF HONBLE DELHI HIGH COURT IN PARA 13 7, AS NOTED EARLIER, IT WOULD BE PROPER TO RESTORE THIS ISSUE TO THE FILE OF LD. TP O FOR BENCH MARKING THE AMP FUNCTIONS, KEEPING IN VIEW THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF 20 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. SONI ERECTIONS CASE. WE MAY POINT OUT THAT ASSESSE E WOULD BE FREE TO DEMONSTRATE ITS CLAIM REGARDING AGGREGATION OF AMP FUNCTIONS WI TH OTHER INTERNATIONAL TRANSACTIONS, PARTICULARLY IN VIEW OF THE OBSERVATI ONS OF HONBLE DELHI HIGH COURT IN PARA 101 OF THE ORDER. WE MAY FURTHER CLARIFY TH AT WHILE COMPUTING THE COMPONENTS OF AMP EXPENDITURE, DIRECT SELLING AND D ISTRIBUTION HAVE TO BE EXCLUDED IN VIEW OF THE DECISION IN THE CASE OF SON Y ERECTION (SUPRA). AS REGARDS THE OBJECTIONS OF LD. COUNSEL ON SELECTION OF COMPA RABLES, WE ARE OF THE OPINION THAT WHOLE EXERCISE HAS TO BE CARRIED OUT DE NOVO, PARTICULARLY IN VIEW OF FOLLOWING OBSERVATIONS OF LD. DRP:- THE TAXPAYER WAS REQUESTED TO SUBSTANTIATE THAT RIG HT COMPARABLE WERE CHOSEN BY IT FOR BENCHMARKING THE DISTRIBUTION FUNC TION I.E. THE ONES ENGAGED IN DEALING WITH THE KIND OF PRODUCTS IT IS DISTRIBUTING AND ALSO INCURRING AMP EXPENDITURE APPROXIMATELY TO THE TUNE OF 10% OF ITS REVENUE ( THE TAXPAYER IS INCURRING AMP EXPENDITURE OF 9.14% OF ITS REVENUE). IT WAS OBSERVED BY THIS PANEL THAT EVEN W HILE THE TAXPAYER WAS INTO THE DISTRIBUTION OF EYE-CARE AND VISION-CARE E QUIPMENTS ETC., IT HAD SELECTED PHARMA COMPANIES AS ITS COMPARABLES. THE T PO HAS ALSO NOT TAKEN ANY FRESH COMPARABLES AND HAS FINALLY DETERMI NED THE COMPARABLES FOR BENCHMARKING AFTER REJECTING CERTAIN COMPARABLE S BASED ON FILTERS AND FUNCTIONS WITH THE FOLLOWING OBSERVATIONS: COMPARABLES OF TAXPAYER WITH THE REMARKS OF THE TPO : 1 ABOTT INDIA LTD. NOT COMPARABLE IN FY 2009-10, HE NCE REJECTED 2 ADITYA MEDISALES LTD. ACCEPTED 3 BA & BROTHERS (EASTERN) LTD. DATA N/A, HENCE REJE CTED 4 COSME FARMA LABORATORIES LTD. COMPANY IS IN BRAND BUILDING PHASE AND HENCE REJECT ED 5 GUJARAT TERCE LABORATORIES LTD. COMPANY IS IN BRAND BUILDING PHASE AND HENCE REJECT ED 6 SOLUMIKS HERBACEUTICALS DATA N/A 7 SERUM INTERNATIONAL LTD. DATA N/A, HENCE REJECTED. 5.5. IN THE LIGHT OF ABOVE DISCUSSION WE SET ASIDE THE ASSESSMENT ORDER AND RESTORE THE MATTER TO THE FILE OF AO/TPO FOR FRESH CONSIDERATION. 21 ITA 471/DEL/2015 M/S BAUSCH & LOMB INDIA PVT. LTD. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN OPEN COURT ON 19-06-2015. SD/- SD/- (A.T. VARKEY ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: _______-06-2015. 0MP: C OPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR