Casio India Company Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4726/DEL/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3626 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 04-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 28-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T M SHIVAKUMAR
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment; Question of law; Wholly owned subsidiary; Tangible material
• Section: 92C; 92D; 92B; 92F; 37(1); 10B; 92

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 : NEW DELHI BEFORE SHRI C. M . GARG , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 4726 /DEL/2010 (ASSESSMENT YEAR: 2006 - 07 ) CASIO INDIA COMPANY PVT. LTD, 210, OKHLA INDUSTRIAL ESTATE (FIRST FLOOR), OK H LA PHASE - III, NEW DELHI PAN: AAACC3448H VS. DCIT, CIRCLE - 3(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESWAR RAO, ADV REVENUE BY: SH. TM SHIVAKUMAR, CIT DR DATE OF HEARING 04/01/ 2017 DATE OF PRONOUNCEMENT 03 / 04 / 2017 O R D E R PER PRASHANT MAHARISHI, A. M. ITA NO 4726/DEL/ 2010 A Y 2006 - 07 1. BRIEF FACTS OF THE CASE IS THAT ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF CASIO COMPUTER COMPANY LIMITED, JAPAN ENGAGED IN THE BUSINESS OF DISTRIBUTION OF WATCHES AND SOME OTHER INFORMATION PRODUCTS AND OTHER RELATED PRODUCTS OF JAPANESE ENTITY, CASIO . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. ASSESSING OFFICER REFERRED THE MATTER TO THE LD. TRANSFER PRICING OFFICER WITH RESPECT T O DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS . THE LD. TRANSFER PRICING OFFICER PROPOSED TRANSFER PRICING ADJUSTMENT OF RS. 17994337/ - ON ACCOUNT OF ADVERTISEMENT, MARKETING AND PROMOTION (AMP) EXPENSES . ON FILING OBJECTIONS BEFORE T HE LD. DISPUTE RESOLUTION PANEL, THE ABOVE OBJECTION WAS REJECTED WITH RESPECT TO ADVERTISEMENT, MARKETING AND PROMOTIONAL EXPENSES . THEREFORE, IN THE FINAL ASSESSMENT ORDER TP ADJUSTMENT OF RS. 17994337/ WAS MADE BECAUSE OF AMP EXPENSES . ASSESSEE CHALL ENGED THE ORDER OF THE LD. ASSESSING OFFICER BEFORE THE COORDINATE BENCH LISTED AS ITA NO. 4726/DEL/2010 [ 2015 - TII - 268 - ITAT - DEL - TP] . THE COORDINATE BENCH V IDE ITS ORDER DATED 26/06/2015 HELD AS UNDER: - PAGE 2 OF 26 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF LG ELECTRONICS INDIA PVT. LTD. VS. ACIT (2013) 152 TTJ (DEL) 273 (SB) = 2013 - TII - 15 - ITAT - DEL - SB - TP , BY ITS MAJORITY DECISION HELD, INTER ALIA, THAT AMP IS A TRANSACTION AND ALSO AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF THE ACT AND THAT THE TPO HAS JURISDIC TION TO COMPUTE THE ALP OF THIS INTERNATIONAL TRANSACTION DESPITE THE SAME NOT HAVING BEEN SPECIFICALLY REFERRED TO BY THE AO. ON THE QUESTION OF DETERMINATION OF THE ALP OF THIS INTERNATIONAL TRANSACTION, THE SPECIAL BENCH APPROVED THE APPLICATION OF BRIG HT LINE TEST FOR WORKING OUT THE AMOUNT OF NON - ROUTINE AMP EXPENSES AND HELD THAT THE ALP OF AMP EXPENSES SHOULD 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 WITH THE SALES DO NOT LEAD TO BRAND PROMOTION AND HENCE SHOULD NOT BE BROUGHT WITHIN THE AMBIT OF AMP EXPENSES. THE SPECIAL BENCH LAID DOWN CERTAIN PARAMETERS TO BE TAKEN INTO CONSIDERATION FOR DETERMINING THE ALP OF AMP EXPENSES. IN THE ULTIMATE ANALYSIS, THE MATTER WAS SENT BACK TO THE TPO FOR UNDERTAKING THE EXERCISE AFRESH IN THE LIGHT OF ITS DIRECTIONS. 5. FOLLOWING THE SAID ORDER, VARIOUS BENCHES OF THE TRIBUNAL DECIDED SEVERAL CASES INVOL VING AMP EXPENSES, RESTORING THE MATTER TO THE FILE OF AO/TPO FOR DECIDING THIS ISSUE IN CONFORMITY WITH THE DIRECTIONS GIVEN BY THE SPECIAL BENCH IN LG ELECTRONICS. SEVERAL ASSESSEES AS WELL AS THE REVENUE PREFERRED THEIR RESPECTIVE APPEALS BEFORE THE HON BLE HIGH COURTS AGAINST THE TRIBUNAL ORDERS FOLLOWING THE SPECIAL BENCH ORDER. A BATCH OF SUCH APPEALS LED BY SONY ERICSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT = 2015 - TII - 06 - HC - DEL - TP HAS BEEN DISPOSED OF BY THEIR LORDSHIPS OF THE HONBLE DELHI HIGH COURT, DELIVERING JUDGMENT ON 16TH MARCH, 2015, UPHOLDING THE MAJORITY VIEW OF SPECIAL BENCH IN LG ELECTRONICS (SUPRA) TREATING AMP AS AN INTERNATIONAL TRANSACTION AND ALSO 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 EXPENSES SHOULD BE BUNDLED OR AGGREGATED WITH OTHER INTERNATIONAL TRANSACTION CARRIED OUT BY THE ASSESSEE AS A DISTRIBUTOR, WHO EITHER SIMPLY ACTS AN AGENT OF MANUFACTURER OR PURCHASES GOODS FROM THE MANUFACTURER FOR RESALE AT HIS OWN ACCOUNT. HOWEVER, IN THE CASE OF A MANUFACTURER, THE IMPORT OF RAW MATERIAL HAS BEEN HELD TO BE AN INDEPENDENT TRANSACTION OF MARKETING AND DISTRIBUTION. IN THE CASE OF A DISTRIBUTOR, THE HONBLE HIGH COURT HELD THAT WHERE TNMM HAS BEEN APPLIED AS THE MOST APPROPRIATE METHOD, WHICH METHOD HAS NOT BEEN DISTURBED BY TH E TPO, THEN, THE INTERNATIONAL TRANSACTIONS OF AMP AND DISTRIBUTION ACTIVITIES SHOULD BE CLUBBED. IT FURTHER HELD THAT FOR DETERMINING THE ALP OF SUCH TRANSACTIONS UNDER A COMBINED APPROACH, ONLY SUCH COMPARABLES SHOULD BE CHOSEN WHICH CONFORM TO THE AMP F UNCTIONS AND OTHER DISTRIBUTION FUNCTIONS CONDUCTED BY THE ASSESSEE. IF THERE IS SOME DIFFERENCE IN THE FUNCTIONS UNDER THESE INTERNATIONAL TRANSACTIONS, INCLUDING THAT OF AMP, BETWEEN THE ASSESSEE AND THE COMPARABLES, THEN, SUITABLE ADJUSTMENT SHOULD BE M ADE TO BRING BOTH THE TRANSACTIONS AT PAR. IF PROBABLE COMPARABLES ARE NOT PERFORMING SIMILAR FUNCTIONS AS DONE BY THE ASSESSEE AND NO ADJUSTMENT IS POSSIBLE FOR BRINGING THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE IN AN AGGREGATE MANNER AT PAR WITH THO SE UNDERTAKEN BY THE COMPARABLES, THEN, SEGREGATION SHOULD BE DONE AND THE PAGE 3 OF 26 INTERNATIONAL TRANSACTION OF AMP SPEND SHOULD BE SEPARATELY PROCESSED UNDER THE TRANSFER PRICING PROVISIONS FOR THE PURPOSES OF DETERMINING ITS ALP SEPARATELY. IN SUCH DETERMINATION OF ALP OF AMP EXPENSES IN A SEGREGATED MANNER, PROPER SET OFF ON ACCOUNT OF EXCESS PURCHASE PRICE ADJUSTMENT SHOULD BE ALLOWED. THE VIEW TAKEN BY THE TRIBUNAL IN SEGREGATING ROUTINE AND NON - ROUTINE EXPENSES ON THE BASIS OF BRIGHT LINE TEST HAS BEEN SET AS IDE 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 POSITIO N EMANATING 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 THE INTERNATIONAL TRANSACTION OF AMP EXPENSES [PARA 50 O F THE JUDGMENT]; - INTER - CONNECTED INTERNATIONAL TRANSACTIONS CAN BE AGGREGATED 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 [PARAS 91, 121 & OTHERS]; - FOR DETERMINING THE ALP OF THESE TRANSACTIONS IN A BUNDLED MANNER, SUITABLE COMPARABLES HAVING UNDERTAKEN SIMILAR ACTIVITIES OF DISTRIBUTION OF THE PRODUCTS AND ALSO INCURRING OF AMP EXPENSES, SHOULD BE CHOSEN [PARAS 194(I), (II), (VIII) & OTHERS]; - THE CHOICE OF COMPARABLE S CANNOT BE RESTRICTED ONLY TO DOMESTIC COMPANIES USING ANY FOREIGN BRAND [PARA 120]; - IF NO COMPARABLES HAVING PERFORMED BOTH THE FUNCTIONS IN A SIMILAR MANNER ARE AVAILABLE, THEN, SUITABLE ADJUSTMENT SHOULD BE MADE TO BRING INTERNATIONAL TRANSACTIONS AN D COMPARABLE 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 [PARAS 100, 121, 194(III) & (VI)]; - IN THE ABOVE EVENTUALITY, INTERNATIONAL TRANSACTION OF AMP SHOULD BE VIEWED IN A DE - BUNDLED MANNER OR SEPARATELY [PARAS 121& 194(XI)]; PAGE 4 OF 26 - 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 AD JUSTMENT ON ACCOUNT OF AMP EXPENSES, A PROPER SET OFF/PURCHASE PRICE ADJUSTMENT SHOULD BE ALLOWED FROM THE OTHER TRANSACTION OF DISTRIBUTION OF THE PRODUCTS [PARA 93]; - SELLING EXPENSES CANNOT BE CONSIDERED AS PART OF AMP EXPENSES [PARAS 175 & 176 OF THE JUDGMENT]. 7. WITH THE ABOVE BACKGROUND OF THE RATIO DECIDENDI OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, LET US EXAMINE THE CONTENTION PUT FORTH BY THE LD. AR IN SUPPORT OF THE DELETION OF ADDITION. HE SUBMITTED THAT THE ASSESSEE APPLIED TNMM AS THE MOST APPROPRIATE METHOD. SINCE THE PROFIT MARGIN DECLARED BY THE ASSESSEE WAS FAVOURABLY COMPARABLE WITH THE AVERAGE MARGIN OF THE COMPARABLES, WHICH FACT HAS NOT BEEN DISPUTED BY THE TPO, THEN, NO ADJUSTMENT SHOULD BE MADE ON ACCOUNT OF AMP EX PENSES BECAUSE SUCH EXPENSES 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 PROPOSITION. 8. WE ARE UNABL E TO ACCEPT THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE FOR DELETION OF THE ADDITION TOWARDS AMP EXPENSES ON THE PLAIN LOGIC OF THE ASSESSEES PROFIT MARGIN MATCHING WITH THOSE OF COMPARABLES. THERE IS A BASIC FALLACY IN THE ARGUMENT 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 DETERMINED THE ALP OF AMP EXPENSES BY APPLYING BRIGHT LINE TEST AN D IN THIS PROCESS SIMPLY COMPARED THE QUANTITATIVE FIGURES OF AMP EXPENSES INCURRED BY THE ASSESSEE AND COMPARABLES FOR WORKING OUT THE NON - ROUTINE EXPENSES. HE DID NOT EXAMINE THE AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE AND THE COMPARABLES. AS THE BRIGH T LINE TEST PRIMARILY CONCENTRATES ON 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 COURT IN SONY ERICSO N 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 ACTIVITY AND AMP ACTIVIT Y 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 COMPARABLES, AND IF PROBABLE COMPARABLES HAVING PERFORMED BO TH THE FUNCTIONS ARE NOT AVAILABLE, THEN TO DETERMINE THE ALP OF AMP EXPENSES IN A SEGREGATED MANNER. AS SUCH, IT BECOMES IMMENSELY IMPORTANT TO SEPARATELY EXAMINE THE DISTRIBUTION AND AMP FUNCTIONS UNDERTAKEN BY THE ASSESSEE AS WELL AS PROBABLE COMPARABLE S. IT IS VITAL TO HIGHLIGHT THE DIFFERENCE BETWEEN THE AMP EXPENSES AND AMP FUNCTIONS. WHEREAS THE AMP FUNCTIONS ARE THE MEANS BY WHICH THE AMP ACTIVITY IS PERFORMED, THE AMP EXPENSES ARE THE AMOUNT SPENT ON THE PERFORMANCE OF SUCH MEANS (FUNCTIONS). TO PU T IT PAGE 5 OF 26 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 TRANSACTION OF AMP SPEND, EITHER IN A SEGREGATE OR AN AGGREGATE MANNER. WH AT THEIR LORDSHIPS HAVE HELD IS TO BUNDLE THE DISTRIBUTION ACTIVITY WITH THE AMP ACTIVITY, BEING TWO SEPARATE BUT CONNECTED INTERNATIONAL TRANSACTIONS, FOR THE PURPOSES OF DETERMINATION OF THE ALP OF BOTH THESE INTERNATIONAL TRANSACTIONS IN A COMBINED MANN ER. THE ARGUMENT OF THE LD. AR, IF TAKEN TO A LOGICAL CONCLUSION, WILL MAKE THE AMP SPEND AS A NON - INTERNATIONAL TRANSACTION, WHICH, IN OUR CONSIDERED OPINION, IS NOT APPROPRIATE. ONCE AMP EXPENSE HAS BEEN HELD TO BE AN INTERNATIONAL TRANSACTION, IT IS, BU T, NATURAL THAT THE FUNCTIONS PERFORMED BY THE ASSESSEE UNDER SUCH A TRANSACTION NEED TO BE COMPARED WITH SIMILAR FUNCTIONS PERFORMED BY A COMPARABLE CASE. IF AMP FUNCTIONS PERFORMED BY THE ASSESSEE TURN OUT TO BE DIFFERENT FROM THOSE PERFORMED BY A PROBAB LE 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 CONTENTION OF THE LD. AR THAT THE ADDITION ON ACCOUNT TRANSF ER PRICING ADJUSTMENT OF AMP EXPENSES BE DELETED WITHOUT ANY EXAMINATION OF THE AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE AS WELL AS COMPARABLES, THIS WILL AMOUNT TO SNATCHING AWAY THE TAG OF INTERNATIONAL TRANSACTION FROM AMP EXPENSES, ASSIGNED BY THE HON BLE 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 AGGREG ATED. 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 ASSESSEE MUST BE NECESSARILY DONE IN THE FIRST INST ANCE, WHICH SHOULD BE THEN COMPARED WITH SIMILAR FUNCTIONS PERFORMED BY SOME PROBABLE COMPARABLES. IF THE DISTRIBUTION AND AMP FUNCTIONS PERFORMED BY THE ASSESSEE TURN OUT TO BE DIFFERENT FROM THOSE PERFORMED BY PROBABLE COMPARABLES, THEN, A SUITABLE ADJUS TMENT SHOULD BE MADE TO THE PROFITS OF THE COMPARABLE SO AS TO COUNTERBALANCE 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 C OMPARABLES. IF, IN DOING THIS EXERCISE, THERE REMAINS NO COMPANY DOING COMPARABLE DISTRIBUTION AND AMP FUNCTIONS, THEN, BOTH THE INTERNATIONAL TRANSACTIONS ARE REQUIRED TO BE SEGREGATED AND THEN EXAMINED ON INDIVIDUAL BASIS BY FINDING OUT PROBABLE COMPARAB LES 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 COMP ARABLE. IF BOTH ARE FOUND OUT TO BE SIMILAR, THEN THE MATTER ENDS AND A COMPARABLE IS FOUND AND ONE CAN GO AHEAD WITH DETERMINING THE ALP OF SUCH A TRANSACTION. IF THE AMP FUNCTIONS PERFORMED BY THE TWO ENTITIES ARE FOUND TO BE DIFFERENT, THEN ADJUSTMENT I S REQUIRED TO BE MADE IN THE CASE OF A PROBABLE COMPARABLE, SO AS TO MAKE IT UNIFORM WITH THE 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 SCENAR IO, AGAIN THE ADJUSTMENT WILL BE WARRANTED. IN ANOTHER SITUATION, THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE AND PROBABLE COMPARABLE MAY BE SIMILAR BUT WITH VARYING STANDARDS, WHICH WILL ALSO CALL FOR AN ADJUSTMENT. CRUX OF THE MATTER IS PAGE 6 OF 26 THAT THE AMP FUNC TIONS PERFORMED BY THE ASSESSEE MUST BE SIMILAR TO THOSE DONE BY THE COMPARABLE, IN THE SAME MANNER AS SUCH FUNCTIONS ARE COMPARED IN ANY OTHER INTERNATIONAL TRANSACTION. HOWEVER, IN COMPUTING 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 TOUCHSTONE OF TRANSFER PRICING PROVISIONS, B UT ON AN AGGREGATE BASIS. DETERMINING THE ALP OF TWO TRANSACTIONS IN AN AGGREGATE MANNER POSTULATES MAKING A COMPARISON OF BOTH THE FUNCTIONS OF DISTRIBUTION AND AMP CARRIED OUT BY THE ASSESSEE WITH THE COMPARABLES, SO THAT SURPLUS FROM THE DISTRIBUTION AC TIVITY COULD BE ADJUSTED AGAINST THE DEFICIT IN THE AMP ACTIVITY. THE HONBLE HIGH COURT HAS NO WHERE LAID DOWN THAT THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE SHOULD NOT BE COMPARED WITH THOSE PERFORMED BY THE COMPARABLE PARTIES. ON THE CONTRARY, IT TURN ED DOWN THE CONTENTION RAISED BY THE LD. AR URGING FOR NOT TREATING AMP AS A SEPARATE FUNCTION, WHICH IS APPARENT FROM THE EXTRACTION FROM PARA 165 OF THE JUDGMENT : `ON BEHALF OF THE ASSESSEE, IT WAS INITIALLY ARGUED THAT THE TPO CANNOT ACCOUNT FOR OR TRE AT AMP AS A FUNCTION. 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 FUNC TIONS. THUS IT IS MANIFEST THAT COMPARISON OF AMP FUNCTIONS IS VITAL WHICH CANNOT BE DISPENSED WITH. LET US WE GO A STEP FURTHER WITH THE ALTERNATIVE PRESCRIPTION OF THE JUDGMENT THAT IF ALP OF BOTH THE TRANSACTIONS OF DISTRIBUTION AND AMP CANNOT BE DETER MINED IN A COMBINED MANNER, THEN THE ALP OF AMP FUNCTION SHOULD BE SEPARATELY DONE. THE SUBMISSION ADVANCED BY THE ASSESSEE OF CONSIDERING THE PROFIT ON AN ENTITY LEVEL WITHOUT MAKING COMPARISON OF AMP FUNCTIONS DONE BY THE ASSESSEE AS WELL AS THE COMPARAB LE, WILL RENDER THIS ALTERNATIVE APPROACH INCAPABLE OF COMPLIANCE. CANVASSING SUCH A VIEW AMOUNTS TO TREATING AMP SPEND AS A NON - INTERNATIONAL TRANSACTION, WHICH IS PATENTLY INCAPABLE OF ACCEPTANCE. 9. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND TH AT THE TPO ACCEPTED TNMM AS THE MOST APPROPRIATE METHOD AND DID NOT MAKE ANY TP ADJUSTMENT ON ACCOUNT OF THE DISTRIBUTION ACTIVITY CARRIED OUT BY THE ASSESSEE. HE, HOWEVER, ESPOUSED THE AMP EXPENSE AS A SEPARATE AND DISTINCT. TREATING THE AMP SPEND AS A SE PARATE INTERNATIONAL TRANSACTION, HE APPLIED THE COST PLUS METHOD AND PROPOSED THE EXTANT ADJUSTMENT. IN DOING SO, HE SEGREGATED ROUTINE AMP EXPENSES INCURRED BY THE ASSESSEE FOR HIS BUSINESS FROM THE NON - ROUTINE AMP EXPENSES BY TREATING SUCH NON - ROUTINE A MP EXPENSES LEADING TO THE CREATION OF MARKETING INTANGIBLE FOR ITS AE. THIS BIFURCATION OF TOTAL AMP EXPENSES WAS DONE BY APPLYING BRIGHT LINE TEST. IT IS OBVIOUS THAT IN THE ENTIRE EXERCISE CARRIED OUT BY THE TPO, HE PROCEEDED ON AN ALTOGETHER DIFFERENT LINE IN EXAMINING THE QUANTUM OF AMP EXPENSE FOR DETERMINING THE VALUE OF THE INTERNATIONAL TRANSACTION OF AMP, WITHOUT LOOKING AT THE AMP FUNCTIONS CARRIED OUT BY THE ASSESSEE AND THE COMPARABLES. DISTINCT EXAMINATION OF AMP FUNCTIONS DOES NOT FIND PLACE IN THIS METHOD OF 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 REN DERED INCORRECT. HOWEVER, THE FACT REMAINS THAT AS PER THE VERDICT OF THE HONBLE HIGH COURT, AMP PAGE 7 OF 26 SPEND IS AN INTERNATIONAL TRANSACTION, WHICH IS REQUIRED TO BE PROCESSED UNDER CHAPTER X OF THE ACT BY TAKING INTO ACCOUNT THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE AND THEN COMPARING SUCH FUNCTIONS WITH THOSE PERFORMED BY COMPARABLE ENTITIES, THOUGH, FIRSTLY IN A COMBINED MANNER WITH THE DISTRIBUTION FUNCTIONS. WE FIND NO REFERENCE 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 OF 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 ASSESSEE AND COMPARABLES AND THEN MAKING AN ADJUSTMENT, IF ANY, DUE TO DIFFERENCES BETWEEN THE TWO, SO THAT THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE AND COMPARABLE ARE BROUGHT TO A SIMILAR PLATFORM. IN FACT, THIS IS ALSO THE PRESCRIPTION OF RULE 10B(1) (E), WHICH PROVIDES AS UNDER : - (E) TRANSACTIONAL NET MARGIN METHOD, BY WHICH, - (I) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE FROM AN INTERNATIONAL TRANSACTION ENTERED INTO WITH AN ASSOCIATED ENTERPRISE IS COMPUTED IN RELATION TO COSTS INCURRED OR S ALES EFFECTED OR ASSETS EMPLOYED OR TO BE EMPLOYED BY THE ENTERPRISE OR HAVING REGARD TO ANY OTHER RELEVANT BASE; (II) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE OR BY AN UNRELATED ENTERPRISE FROM A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS COMPUTED HAVING REGARD TO THE SAME BASE; (III) THE NET PROFIT MARGIN REFERRED TO IN SUB - CLAUSE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE INTERNATIONAL TRA NSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARGIN IN THE OPEN MARKET; (IV) THE NET PROFIT MARGIN REALISED BY THE ENTERPRISE AND R EFERRED 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 RELATION TO THE INTERNATIONAL T RANSACTION. 10. A PERUSAL OF THE SUB - CLAUSE (III) OF THIS RULE DIVULGES THAT NET PROFIT MARGIN UNDER A COMPARABLE UNCONTROLLED TRANSACTION AS DETERMINED UNDER SUB - CLAUSE (II) SHOULD BE: ADJUSTED TO TAKE INTO ACCOUNT THE DIFFERENCES, IF ANY, BETWEEN THE I NTERNATIONAL TRANSACTION 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). 11. SUB - RULE (2) OF RULE 10B PROVIDES THAT FOR THE PURPOSES OF SUBRULE (1), THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRANSACTION SHALL BE JUDGED WITH REFERENCE TO THE FOLLOWING, NAMELY - (A) THE SPECI FIC CHARACTERISTICS OF THE PROPERTY TRANSFERRED OR SERVICES PROVIDED IN PAGE 8 OF 26 EITHER TRANSACTION; (B) THE FUNCTIONS PERFORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED OR TO BE EMPLOYED AND THE RISKS ASSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS; (C) THE CON TRACTUAL TERMS (WHETHER OR NOT SUCH TERMS ARE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICITLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; (D) CONDITION S PREVAILING IN THE MARKETS IN WHICH THE RESPECTIVE PARTIES TO THE TRANSACTIONS OPERATE, INCLUDING THE GEOGRAPHICAL LOCATION AND SIZE OF THE MARKETS, THE LAWS AND GOVERNMENT ORDERS IN FORCE, COSTS OF LABOUR AND CAPITAL IN THE MARKETS, OVERALL ECONOMIC DEVE LOPMENT AND LEVEL OF COMPETITION AND WHETHER THE MARKETS ARE WHOLESALE OR RETAIL. SUB - RULE (3) OF RULE 10B STIPULATES THAT AN UNCONTROLLED TRANSACTION SHALL BE COMPARABLE TO AN INTERNATIONAL TRANSACTION IF (I) NONE OF THE DIFFERENCES, IF ANY, BETWEEN THE T RANSACTIONS BEING COMPARED, OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS ARE LIKELY TO MATERIALLY AFFECT THE PRICE OR COST CHARGED OR PAID IN, OR THE PROFIT ARISING FROM, SUCH TRANSACTIONS IN THE OPEN MARKET; OR (II) REASONABLY ACCURATE ADJUS TMENTS CAN BE MADE TO ELIMINATE THE MATERIAL EFFECTS OF SUCH DIFFERENCES. 12. ON A COMPARATIVE READING OF SUB - RULES (1), (2) AND (3) OF RULE 10B, IT BECOMES PALPABLE THAT THE INTERNATIONAL TRANSACTION AND THE UNCONTROLLED TRANSACTION WITH WHICH COMPARISON IS SOUGHT TO BE MADE FOR DETERMINING THE ALP, IN THE FIRST INSTANCE, MUST HAVE OVERALL SIMILAR CHARACTERISTICS. IT IS VIVID THAT IF THE GOODS/SERVICES ARE DIFFERENT, THEN NO EFFECTIVE COMPARISON CAN BE MADE. ONCE THE GOODS/SERVICES UNDER BOTH THE TRANSACTI ONS ARE BROADLY SIMILAR BUT THERE IS A DIFFERENCE IN THEM BECAUSE OF CERTAIN SPECIFIC CHARACTERISTICS; AND/OR THE PRODUCTS/SERVICES IN BOTH THE TRANSACTIONS ARE IDENTICAL, BUT STILL THERE ARE CERTAIN DIFFERENCES DUE TO THE CONTRACTUAL TERMS OR THE GEOGRAPH ICAL LOCATION, ETC., THEN, A REASONABLY ACCURATE ADJUSTMENT SHOULD BE MADE FOR ELIMINATING THE MATERIAL EFFECTS OF SUCH DIFFERENCES SO AS TO BRING THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTION ON THE SAME PODIUM. IF DUE TO ONE R EASON OR THE OTHER, NO REASONABLE ACCURATE ADJUSTMENT CAN BE MADE DUE TO SUCH DIFFERENCES, THEN, SUCH UNCONTROLLED TRANSACTION SHOULD NOT BE CONSIDERED AS A COMPARABLE TRANSACTION. 13. IT IS DISCERNIBLE THAT THE PRESCRIPTION OF RULE 10B IS IN COMPLETE HARM ONY 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 WITH THE AMP FUNCTIONS CARRIED OUT BY A COMPARABLE ENTITY IN DETERMINING THE AMP OF ALP EXPENSES. DIFFERENCE BETWEEN THE FUNCTIONS, IF CAPABLE OF ADJUSTMENT, SHOULD BE GIVEN EFFECT TO IN THE PROFIT RATE OF THE COMPARABLE AND IF SUCH DIFFERENCE CANNOT BE GIVEN EFFECT TO, THEN, THE PROBABLE COMPARABLE SHOULD BE ELIMINATED FROM T HE LIST OF COMPARABLES. 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. 14. AT THE COST OF REPE TITION, WE SUMMARIZE THAT THE DISTRIBUTION AND AMP FUNCTIONS ARE TWO SEPARATE INTERNATIONAL ACTIVITIES, WHICH NEED TO BE COMPARED WITH UNCONTROLLED TRANSACTIONS. BECAUSE OF THEIR INTERTWINNING, IT IS ONLY FOR THE PURPOSES OF DETERMINING THEIR ALP THAT BOTH THESE PAGE 9 OF 26 TRANSACTIONS CAN BE AGGREGATED IN THE FIRST INSTANCE, SO THAT THE SURPLUS FROM ONE COULD BE ADJUSTED AGAINST THE DEFICIT FROM THE OTHER IN AN OVERALL APPROACH. IT DOES NOT MEAN THAT BECAUSE OF AGGREGATION, THE AMP EXPENSE TRANSACTION SHEDS ITS CHARA CTER OF A SEPARATE INTERNATIONAL TRANSACTION AND HENCE THE AMP FUNCTIONS SHOULD NOT BE MATCHED WITH THE AMP FUNCTIONS CARRIED OUT BY PROBABLE COMPARABLES. IF SUITABLE COMPARABLES CAN BE FOUND HAVING PERFORMED BOTH DISTRIBUTION AND AMP FUNCTIONS, THEN, THEI R ALP SHOULD BE DETERMINED ON AGGREGATE BASIS. IF, HOWEVER, THERE IS SOME DIFFERENCE IN THE DISTRIBUTION OR AMP FUNCTIONS PERFORMED BY THE ASSESSEE VIS - - VIS THE PROBABLE COMPARABLES, THEN AN ATTEMPT SHOULD FIRST BE MADE TO IRON OUT SUCH DIFFERENCE BY MAKI NG A SUITABLE ADJUSTMENT TO THE PROFIT MARGIN OF COMPARABLES. IF SUCH AN ADJUSTMENT IS NOT POSSIBLE, THEN SUCH PROBABLE COMPARABLE SHOULD BE ELIMINATED. IF, BY MAKING A COMPARATIVE ANALYSIS OF THE DISTRIBUTION AND AMP FUNCTIONS JOINTLY, THERE REMAINS NO CO MPARABLE CASE PERFORMING SUCH DISTRIBUTION AND AMP FUNCTIONS, THEN, THE INTERNATIONAL TRANSACTION OF AMP SHOULD BE SEGREGATED AND ITS ALP BE DETERMINED SEPARATELY BY APPLYING A SUITABLE METHOD. HOWEVER, IN SO DETERMINING THE ALP OF SUCH AN INTERNATIONAL TR ANSACTION OF AMP EXPENSES ON SEPARATE BASIS, A PROPER SET OFF, IF ANY, AVAILABLE FROM THE DISTRIBUTION ACTIVITY, SHOULD BE ALLOWED. 15. COMING BACK TO THE FACTS OF THE INSTANT CASE, WE 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 THE TPO TO ANY AMP FUNCTIONS PERFORMED BY COMPARABLES. IN FACT, NO SUCH ANALYSIS OR COMPARISON HAS BEEN UNDERTAKEN BY THE TPO BECAUSE OF HIS APPLYING THE BRIGHT LINE TEST FOR DETERMINING THE VALUE OF THE INTERNATIONAL TRANSACTION OF AMP EXPENSE AND THEN APPLYING THE COST PLUS METHOD FOR DETERMINING ITS ALP. THE LD. AR ALSO FAILED TO DRAW OUR ATTENTION TOWARDS ANY MATERIAL DIVULGING THE AMP FUNCTIONS PERFORMED BY THE ASSESSEE AS WELL AS COM PARABLES. AS SUCH, WE ARE HANDICAPPED TO DETERMINE THE ALP OF AMP EXPENSES AT OUR END, EITHER IN A COMBINED OR A SEPARATE APPROACH. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND SEND THE MATTER BACK TO THE FILE OF THE TPO/AO FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION OF AMP SPEND AFRESH IN ACCORDANCE WITH THE MANNER LAID DOWN BY THE HONBLE HIGH COURT IN SONY ERICSON MOBILE (SUPRA). IT IS, HOWEVER, MADE CLEAR THAT THE TPO/AO, WHILE COMPUTING ADJUSTMENT, IF ANY, ON ACCOUNT OF AM P EXPENSES WILL NOT INCLUDE SELLING EXPENSES DIRECTLY INCURRED IN CONNECTION WITH SALES IN THE OVERALL BASE OF AMP EXPENSES. 16. ANOTHER ISSUE HAS BEEN ARGUED BY THE LD. AR ABOUT THE COMPUTATION OF THE BASE OF AMP EXPENSES. IT WAS ARGUED THAT THE ASSESSEE GOT SUBSIDY FROM ITS AES ON ACCOUNT OF AMP EXPENSES. IT WAS ERGO, URGED THAT SUCH AMOUNT OF SUBSIDY SHOULD BE REDUCED FROM TOTAL AMP EXPENSES INCURRED BEFORE THE DETERMINATION OF THE ALP OF AMP EXPENSES. 17. WE ARE NOT CONVINCED WITH THE SUBMISSION ADVANCE D ON BEHALF OF THE ASSESSEE. WHAT THE ASSESSEE IS SEEKING IS THE REDUCTION IN THE AMOUNT OF AMP EXPENSES INCURRED FOR BRAND BUILDING WITH THE AMOUNT OF SUBSIDY OR REIMBURSEMENT RECEIVED FROM THE AES. THIS TYPE OF REDUCTION AT THE STAGE OF COMPUTATION OF TH E ALP OF AN INTERNATIONAL TRANSACTION IS NOT CONTEMPLATED UNDER THE TRANSFER PRICING LEGISLATION. ON THE CONTRARY, SUCH SUBSIDY OR REIMBURSEMENT GOES TO REDUCE THE ALP NECESSITATING THE PAGE 10 OF 26 REDUCTION IN THE AMOUNT OF ADDITION TO BE MADE. WHAT THE LAW MANDATES IS TO DETERMINE THE ALP OF AN INTERNATIONAL TRANSACTION, WHICH IN THE EXTANT CASE IS AMP EXPENSES. INCURRING OF AMP EXPENSES BY THE ASSESSEE FOR ITS AE IS IN THE NATURE OF SERVICE RENDERED FOR BRAND BUILDING ON BEHALF OF THE AE. SUCH RENDERING OF SERVICE E NTAILS THE INCURRING OF COSTS BY THE ASSESSEE. THE COSTS SO INCURRED WITH NORMAL GROSS PROFIT MARK UP REPRESENTS THE AMOUNT WHICH OUGHT TO HAVE BEEN RECOVERED BY THE ASSESSEE FROM ITS AE. IF NO AMOUNT IS RECEIVED FROM THE AE, THEN THE ENTIRE AMOUNT INCURRE D WITH THE NORMAL GROSS PROFIT MARK - UP, DEPICTING THE ALP OF THIS INTERNATIONAL TRANSACTION, CALLS FOR ADDITION. IF HOWEVER SOME AMOUNT IS RECEIVED BY THE ASSESSEE FROM ITS AE, THEN THE ALP AS REDUCED BY SUCH AMOUNT RECEIVED, BY WHATEVER NAME CALLED AS SUB SIDY OR REIMBURSEMENT, GIVES THE AMOUNT OF ADDITION OT BE MADE. THE CONTENTION OF THE LD. AR FOR REDUCING THE AMOUNT OF SUBSIDY AT THE THRESHOLD BEFORE DETERMINING THE ALP WOULD MEAN THAT TO THAT EXTENT, THE ASSESSEE HAD NOT RENDERED ANY SERVICE OF BRAND B UILDING TO ITS AE, WHICH POSITION RUNS CONTRARY TO THE REALITY. THE FACT THAT THE ASSESSEE ACTUALLY RENDERED SERVICE BY INCURRING THE GROSS AMOUNT CANNOT BE LOST SIGHT OF. IT IS THIS GROSS AMOUNT WHICH REQUIRES TO BE SUITABLY COMPENSATED TO THE ASSESSEE WI TH THE NORMAL PROFIT MARK - UP. THE CONTENTION RAISED BY THE LD. AR, THEREFORE, FAILS. 18. WITH THE ABOVE OBSERVATIONS, WE SEND THE MATTER BACK TO THE TPO/AO FOR REDETERMINATION OF THE ALP OF AMP EXPENSES IN ACCORDANCE WITH THE ABOVE GUIDELINES. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A FRESH OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. EX CONSEQUENTI, THE ISSUE RAISED ABOUT THE TPO HAVING NO JURISDICTION TO DETERMINE THE ALP OF AMP EXPENSES, IS DISMISSED FOLLOWING THE JUDGMENT IN THE CASE OF SONY ERICSSON MOBILE (SUPRA). 2. THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE COORDINATE BENCH PREFERRED APPEAL BEFORE THE HONBLE DELHI HIGH COURT WHEREIN THE SHORT QUESTION THAT WAS CONSIDERED BY THE HONBLE HIGH COURT IS WHETHER THE ITAT OUGHT TO HAVE ADDRESSE D THE ISSUE RAISED BY THE ASSESSEE THAT THERE WAS IN FACT, NO INTERNATIONAL TRANSACTION ENTERED INTO BY IT WITH ITS ASSOCIATED ENTERPRISE (AE) CONCERNING ADVERTISING, MARKETING AND PROMOTION (AMP) EXPENSES WHICH REQUIRED DETERMINATION OF A RMS LENGTH PRICE (ALP) FOR THE PURPOSES OF TRANSFER PRICING (TP) ADJUSTMENT. HONBLE HIGH COURT IN ITA NO 309/2016 DATED 10/5/2016 [ 2016 - TII - 26 - HC - DEL - TP] WAS PLEASED TO ORDER AS UNDER: - 4. THE SHORT QUESTION THAT ARISES FOR CONSIDERATION IN THIS APPEAL BY THE ASSESSE E AGAINST THE ORDER DATED 26TH JUNE, 2015 = 2015 - TII - 268 - ITAT - DEL - TP PASSED BY THE INCOME TAX APPELLATE TRIBUNAL (ITAT) IN ITA NO. 4726 /DEL/2010 FOR THE ASSESSMENT YEAR ('AY') 2006 - 07 IS WHETHER THE ITAT OUGHT TO HAVE ADDRESSED THE ISSUE RAISED BY THE ASSESSEE THAT THERE WAS IN FACT NO INTERNATIONAL TRANSACTION ENTERED INTO BY IT WITH ITS ASSOCIATED ENTERPRISE (AE) CONCERNING ADVERTISING MARKETING AND PROMOTION (AMP) EXPENSES WHICH REQUIRED DETERMINATION OF ARMS LENGTH PRICE (ALP) FOR THE PURPOSES OF TRANSFER PRICING (TP) ADJUSTMENT. PAGE 11 OF 26 5. IT IS FAIRLY STATED THAT FOR THE AY 2007 - 08 AND 2008 - 09, THE ASSESSEES CASE WAS PART OF THE BATCH OF M ATTERS WHICH WAS CONSIDERED BY THIS COURT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. V. DEPUTY COMMISSIONER OF INCOME TAX (2015) 374 ITR 118 (DEL.) = 2015 - TII - 06 - HC - DEL - TP . IT IS CONTENDED THAT NOTWITHSTANDING THAT IN PARA 2 OF THE SAID JUDGMENT THERE IS A TABULAR COLUMN WHICH MENTIONS THE TWO APPEALS FILED BY THE ASSESSEE THE FACTS OF THE SAID APPEALS WERE NOT DISCUSSED. IT IS ALSO STATED THAT FINDING IN PA RA 52 OF THE SAID JUDGMENT REGARDING EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE ASSESSEES AE, IS BEING CONTESTED BY THE ASSESSEE IN THE APPEAL FILED BY IT AGAINST THE SAID JUDGMENT BEFORE THE SUPREME COURT. 6. THE PRESENT CASE CONCERNS IN RE LATION TO AY 2006 - 07. THE SPECIFIC PLEA OF THE ASSESSEE BEFORE THE ITAT THAT THERE WAS NO INTERNATIONAL TRANSACTION INVOLVING THE AE FOR AMP EXPENSES WAS NOT DECIDED BY THE ITAT IN THE IMPUGNED ORDER. HOWEVER, IN TERMS OF THE DECISION OF THIS COURT IN SONY ERICSSON (SUPRA) THE ITAT HAS REMANDED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR THE PURPOSES OF DETERMINATION OF THE ALP OF THE SAID TRANSACTION. 7. IN SIMILAR CIRCUMSTANCES, IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD I TSELF, THIS COURT BY AN ORDER DATED 28TH JANUARY, 2016 = 2016 - TII - 05 - HC - DEL - TP REMANDED THE MATTERS TO THE ITAT FOR EXAMINING THE QUESTION REGARDING EXISTENCE OF AN INT ERNATIONAL TRANSACTION INVOLVING THE SAID ASSESSEE AND ITS AE FOR AY 2010 - 11. 8. IN THE PRESENT CASE, THE COURT IS OF THE VIEW THAT IT WAS INCUMBENT UPON THE ITAT TO HAVE ADDRESSED THE ABOVE ISSUE SINCE IT WAS SPECIFICALLY RAISED BEFORE IT BY THE ASSESSEE . ONLY AFTER SATISFYING ITSELF THAT THERE WAS AN INTERNATIONAL TRANSACTION WITH THE AE CONCERNING AMP EXPENSES, SHOULD A FURTHER INQUIRY HAVE BEEN ORDERED FOR DETERMINATION OF THE ALP OF SUCH INTERNATIONAL TRANSACTION. 9. CONSEQUENTLY, THE IMPUGNED ORDER DATED 26TH JUNE 2015 OF THE ITAT IS SET ASIDE. THE ASSESSEES APPEAL ITA NO. 4726 /DEL/2010 IS RESTORED TO FILE AND WILL BE LISTED BEFORE THE ITAT ON 18TH JULY, 2016 FOR FIRST EXAMINING THE QUESTION WHETHER THERE WAS AN INTERNATIONAL TRANSACTION INVOLVING T HE ASSESSEE AND ITS AE CONCERNING AMP EXPENSES FOR THE AY IN QUESTION. DEPENDING ON ITS DECISION ON THAT ISSUE, THE ITAT WILL DECIDE THE FURTHER CONSEQUENTIAL ISSUES. THE PRESENT APPEAL AND APPLICATION ARE DISPOSED OF IN THE ABOVE TERMS. 3. THEREFORE, THE H ONBLE HIGH COURT RESTORED APPEAL OF THE ASSESSEE IN ITA NO. 4726/DEL/2010 FOR FIRST EXAMINING THE QUESTION WHETHER THERE WAS AN INTERNATIONAL TRANSACTION INVOLVING THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE CONCERNING AMP EXPENSES FOR THE ASSESSMENT YEAR IN QUESTION AND CONSEQUENTLY DECIDES ALL OTHER ISSUES ARISING THERE FROM . THUS, THE ISSUE BEF ORE US IS WHETHER THERE WAS AN INTERNATIONAL TRANSACTION INVOLVING THE ASSESSEE WITH RESPECT TO AMP EXPENSES. PAGE 12 OF 26 4. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED HIS ARGUMENTS AS UNDER: - A. HE REFERRED TO THE ORDER OF THE LD. TRANSFER PRICING OFFICER, CITING PARA NO. 2 SHOWING THAT ASSESSEE IS A DISTRIBUTOR AND FURTHER HE REFERRED TO THE ORDER OF THE LD. CIT (A) FOR ASSESSMENT YEAR 2007 08 WHEREIN IN PARA NUMBER 6.2.13 . IT IS HELD THAT THE ASSESSEE IS NOT A LIMITED RISK DISTRIBUTOR . HE FURTHER REFERRED TO THE TRANSFER PRICING STUDY REPORT OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 07 SHOW THAT ASSESSEE IS NOT A LIMITED RISK DISTRIBUTOR AND THEREFORE INCURRING ALL THE EXPENDITURE ON ADVERTISEMENT MARKETING AND PROMOTION FOR ITS OWN BUSINESS. B. HE FURTHER SUPPORTE D HIS CONTENTION BY CITING THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF ITA 643/2014 B AUSCH & LOMB E YECARE (I NDIA ) P VT. LTD. VT LTD VS T HE ADDITIONAL CIT [2015 - TII - 65 - HC - DEL - TP] AND SUBMITTING THAT MARKETING OR BRAND ENHANCEMENT IS JUST ONE OF THE INCIDENTAL ACTIVITIES AND NOT A SEPARATE LINE OF SERVICE . MARKETING COULD, AT BEST, BE A 'FUNCTION' BUT NOT A 'TRANSACTION' FOR THE PURPOSES OF SECTION 92B OF THE ACT . THE PROMOTION OF SERVICES, ACCORDING TO HIM, COULD BE A 'TRANSACTION'; BUT AMP EXP ENSES FOR THIS PURPOSE CAN ONLY BE A 'FUNCTION' AND NOT A 'TRANSACTION' . UNDER CHAPTER X, WHAT WERE REQUIRED TO BE BENCHMARKED WERE AN 'INTERNATIONAL TRANSACTION' AND NOT A 'FUNCTION' OF SUCH TRANSACTION . HE FURTHER ELABORATED THAT NOT EVERY EXPENDITURE FORMING PART OF THE FUNCTION CAN BE CONSTRUED AS A 'TRANSACTION' . HE FURTHER SUBMITTED THAT, THE ONUS WAS ON THE REVENUE TO DEMONSTRATE THROUGH SOME TANGIBLE MATERIAL, THE EXISTENCE OF AN 'ARRANGEMENT' OR 'UNDERSTANDING' BETWEEN THE ASSESSEE AND ITS AE TH AT THE ASSESSEE WOULD INCUR EXTRAORDINARY AMP EXPENSE IN ORDER TO DEVELOP MARKETING INTANGIBLES FOR THE AE . HE FURTHER SUBMITTED THAT EXISTENCE OF AN INTERNATIONAL TRANSACTION REGARDING AMP EXPENSES REQUIRES THE INTERPRETATION OF PROVISIONS OF CHAPTER X O F THE ACT, AND TO DETERMINE WHETHER THE REVENUE HAS BEEN ABLE TO SHOW PRIMA FACIE THE EXISTENCE OF INTERNATIONAL TRANSACTION INVOLVING AMP BETWEEN THE ASSESSEE AND ITS AE . ACCORDING TO HIM, REVENUE COULD NOT . HE FURTHER SUBMITTED THAT READING OF THE HEAD ING OF CHAPTER X ['COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO ARM'S LENGTH PRICE'] AND SECTION 92 (1) WHICH STATES THAT ANY INCOME ARISING FROM AN PAGE 13 OF 26 INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP AND SECTIO N 92C (1) WHICH SETS OUT THE DIFFERENT METHODS OF DETERMINING THE ALP, MAKES IT CLEAR THAT THE TRANSFER PRICING ADJUSTMENT IS MADE BY SUBSTITUTING THE ALP FOR THE PRICE OF THE TRANSACTION AND NOT OF THE FUNCTION. TO BEGIN WITH THERE HAS TO BE AN INTERN ATIONAL TRANSACTION WITH A CERTAIN DISCLOSED PRICE . THE TRANSFER PRICING ADJUSTMENT ENVISAGES THE SUBSTITUTION OF THE PRICE OF SUCH INTERNATIONAL TRANSACTION WITH THE ALP AND NOT THE FUNCTION. C. HE FURTHER REFERRED TO THE DECISION OF THE COORDINATE BENCH IN CASE OF L O REAL INDIA PRIVATE LIMITED VERSUS DCIT 6 (3) MUMBAI IN ITA NO. 7714/MUM/2012 FOR ASSESSMENT YEAR 2008 - 2009 AND SUBMITTED THAT THERE IS NO SCOPE FOR RESTORING OF THE MATTER TO THE FILE OF T HE LD. ASSESSING OFFICER . HE FURTHER SUBMITTED THAT NON - AVAILABILITY OF A PARTICULAR DECISION OF THE HIGHER FORUM CANNOT JUSTIFY THE RESTORING OF ISSUE TO THE FILE OF THE AO IN EACH AND EVERY CASE . HE FURTHER STRESSED UPON PAGE NO. 17 OF THAT DECISION AND SUBMITTED THAT THE COORDINA TE BENCH HAS HELD THAT AFTER THE JUDGMENTS OF MARUTI SUZUKI AND BAUSCH AND LOMB (SUPRA) T HERE IS NO SCOPE FOR ANY OTHER INTERPRETATION ABOUT THE AMP EXPENDITURE . HE REFERRED THAT IN THAT PARTICULAR CASE ALSO, THE AO/TPO HAS NOT BROUGHT ANYTHING ON RECORD THAT THERE EXISTED AN AGREEMENT, FORMAL OR INFORMAL, BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISE TO SHARE/REIMBURSE AMP EXPENDITURE INCURRED BY THE ASSESSEE IN INDIA . THEREFORE IN ABSENCE OF SUCH AN AGREEMENT , WHICH IS 1 ST AND PRIMARY PRECONDITI ON THAT TRANSACTION IN QUESTION I S AN INTERNATIONAL TRANSACTIONS REMAINS UNFULFILLED . HE FURTHER REFERRED THAT IN THE PRESENT CASE ALSO, THE REVENUE COULD NOT BRING ANYTHING TO SUPPORT ITS CONTENTION THAT THERE IS AN AGREEMENT, FORMAL OR INFORMAL . THERE FORE, ACCORDING TO HIM THERE IS NO INTERNATIONAL TRANSACTION WITH RESPECT TO AMP EXPENDITURE. D. HE FURTHER REFERRED TO THE DECISION OF THE COORDINATE BENCH IN BACARDI INDIA PRIVATE LIMITED VERSUS DEPUTY COMMISSIONER OF INCOME TAX (ITA NO. 1197/DEL/2016) ( ASSESSMENT YEAR 2011 12) TO SUBMIT THAT IT IS NOT THAT EACH AND EVERY CASE WITH RESPECT TO AMP EXPENSES IS REQUIRED TO BE RESTORED TO THE FILE OF THE LD. ASSESSING OFFICER . ACCORDING TO THE SUBMISSION ONLY THOSE CASES WHERE THERE IS AN ACCEPTANCE ON BEH ALF PAGE 14 OF 26 OF THE ASSESSEE REGARDING THE AMP EXPENSES BEING AN INTERNATIONAL TRANSACTION ARE REQUIRED TO BE SET - ASIDE . HE SUBMITTED THAT IN PRESENT CASE THERE IS NO SUCH EVIDENCE AVAILABLE WITH THE REVENUE OR BROUGHT BY THE REVENUE, WHICH EVEN REMOTELY SUGGESTS THAT THERE IS AN AGREEMENT, WHICH EXISTED BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE FOR INCURRING SUCH EXPENDITURE. E. HE FURTHER SUBMITTED CHART SHOWING DETAILS FOR 3 YEARS , AMOUNT OF SALES OF THE GROUP, AMP EXPENSES OF THE GROUP AND DEMONSTRATED THAT RATIO OF SUCH EXPENSES TO OVER ALL SALES OF THE GROUP I S 22.66%, 21.79%, AND 22.33% FOR 2004, 2005, AND 2006 RESPECTIVELY . HE FURTHER STATED THAT THAT PERCENTAGE OF SALES OF INDIAN ENTITY TO GLOBAL SALE OF GROUP I S 0.14%, 0.14%, AND 0.18% FOR THES E RESPECTIVE 3 YEARS . THE CHART FURTHER DEMONSTRATES THAT THE PERCENTAGE OF AMP EXPENDITURE INCURRED BY THE INDIAN ENTITY COMPARED TO GLOBAL EXPENSES OF THE GROUP IS 0.15%, 0.14%, AND 0.19% FOR RESPECTIVE 3 YEARS . IT ALSO STATES THAT PERCENTAGE OF AMP EXPENDITURE OF INDIAN EN TITY GLOBAL SALES OF THE GROUP I S JUST 0.03%, 0.03%, AND 0.04% RESPECTIVELY . HE THEREFORE SUBMITTED THAT THIS BELIES THE POSSIBILITY OF ANY ARRANGEMENT OR UNDERSTANDING BETWEEN ASSESSEE AND ITS ASSOCIATED ENTITY WHERE ASSESSEE IS OBLIGED TO INCUR THE AMP EXPE NDITURE FOR AND ON BEHALF OF ITS FOREIGN AE. 5. IN RESPONSE TO THIS LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED AS UNDER: - A. HE SUBMITTED THAT ASSESSEE IS A DISTRIBUTOR AND THEREFORE THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SONY ERICSSON MOBILE COMMUNICATIONS INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF INCOME TAX IN ITA NO. 16 2014 DATED 16/03/2015 OF HONBLE DELHI HIGH COURT WHEREIN THE HONBLE HIGH COURT LISTED SUBSTANTIAL QUESTION OF LAW WHICH ARE DEALT WITH WHEREIN AT SERIAL NUMBER 2 TO THE SPECIFIC QUESTION RAISED BEFORE THE HONBLE HIGH COURT WAS WHETHER AMP EXPENSES INCURRED BY THE ASSESSEE IN INDIA CAN BE T REATED AND CATEGORIZED AS AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE INCOME TAX ACT, 1961. HE FURTHER REFERRED THAT ASSESSEE WAS ALSO ONE OF THE PARTY IN THAT PARTICULAR DECISION AND THEREFORE NOW THE ISSUE IS NO MORE RES - INTEGRA AS THE ISSUE IS SQUARELY COVERED BY THE THAT DECISION WHEREIN IT IS HELD THAT AMP EXPENSES IS AN INTERNATIONAL PAGE 15 OF 26 TRANSACTION . HE THEREFORE SUBMITTED THAT AS THERE WAS A SPECIFIC GROUND AND THEREFORE THE CLAIM OF THE ASSESSEE FOR THAT YEAR , IT WAS PRESUMED THAT T HERE WAS AN INTERNATIONAL TRANSACTION AND THEREFORE IT DOES NOT APPLY TO THE PRESENT CASE IS AN INCORRECT PRESUMPTION . HE FURTHER SUBMITTED THAT ABOVE DECISION HAS NOT BEEN REVERSED AND THEREFORE IT IS TO BE FOLLOWED . H E ALSO REFERRED TO PAGE NO. 136 OF 142 OF THAT DECISION WHEREIN WH ILE ANSWERING QUESTION NO. 2 THAT WHETHER THE AMP EXPENSES INCURRED BY THE ASSESSEE IN INDIA CAN BE TREATED AND CATEGORIZED AS AN INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE I NCOME T AX A CT, 1961 . THE HONBLE HIGH COURT HAS HELD THAT THE ISSUE IN TERMS OF AND SUBJECT TO DISCUSSION UNDER THE HEADING C, PARAGRAPH NO. 51 TO 57 . THIS QUESTION WAS ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. B. WITH RESPECT TO THE RELIANCE OF THE ASSESSEE ON THE DECISION OF BAUSCH AND LOMB , IT WAS SUBMITTED THAT IT DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE AS IN THAT CASE, THE CONCERNED ASSESSEE WAS A MANUFACTURER AND DISTRIBUTOR AND IN THE PRESENT CASE THE ASSESSEE IS MERELY A DISTRIBUTOR . THEREFORE, RELIANCE PLACED BY THE ASSESSEE IS INCORRECT. C. HE FURTHER SUBMITTED CHART GIVING LIST OF 46 CASES WHERE IN SIMILAR CIRCUMSTANCES , WHERE COORDINATE BENCHES HAVE RESTORED ISSUE BACK TO THE FILE OF THE LD. A SSESSING OFFICER TO RE - EXAMINE THE WHOLE ISSUE AS THIS ISSUE WAS NOT THERE FOR THE LD. ASSESSING OFFICER/LD. TPO/LD. DRP AS WELL AS BEFORE THE ITAT. D. HE FURTHER REFERRED TO THE DECISION OF CHENNAI BENCH IN CASE OF M./S TVS M OTOR CO. LTD VERSUS ASSISTANT C OMMISSIONER OF INCOME TAX ITA NO. 1153/MDS/2016 ASSESSMENT YEAR 2011 12 WHEREIN IN ABSENCE OF AGREEMENT THE COORDINATE BENCH HAS HELD THAT INCURRING OF ADVERTISEMENT MARKETING AND PROMOTION EXPENDITURE BY THE INDIAN ENTITY IN INDONESIA IS AN INTERNATIONA L TRANSACTION . HE EXTENSIVELY READ PARA NO. 8 OF THE ORDER. E. HE FURTHER REFERRED TO THE DECISION OF THE COORDINATE BENCH IN CASE OF PEPSI FOODS PRIVATE LIMITED VERSUS ADDITIONAL CIT IN ITA NO. 1334/CHANDI /2010 DATED 05/10/2016 TO SUPPORT ITS CONTENTION THAT PAGE 16 OF 26 THE MATTER MUST BE RESTORED TO THE FILE OF ASSESSING OFFIC ER, AS NECESSARY INFORMATION IS NOT AVAILABLE. F. HE FURTHER REFERRED TO THE PROVISIONS OF SECTION 92F (V) WHICH DEFINES THE TRANSACTION WHICH INCLUDES AN ARRANGEMENT, UNDERSTANDING AND ACTION IN CONCERT WHETHER IT IS FORMAL OR IN WRITING OR WHETHER IT IS E NFORCEABLE OR NOT . HE REBUTTED THE ALLEGATION THAT REVENUE HAS FAILED TO PROVE THAT THERE IS AN ACTION IN CONCERT . FOR THIS, HE REFERRED TO THE ORDER OF THE LD. TRANSFER PRICING OFFICER AT PAGE NO. 5 WHEN THERE IS A REFERENCE TO SPECIAL SUBSIDY AGREEMENT BETWEEN THE PARTIES . THEREFORE, ACCORDING TO HIM THAT SHOWS THAT THE PARTIES ARE ACTING IN CONCERT . HENCE, ACCORDING TO HIM THE ONUS ON REVENUE HAS BEEN PROVED BEYOND DOUBT THAT THERE IS A TRANSACTION, BECAUSE THE PARTIES ARE ACTING IN CONCERT. G. HE FURT HER REFERRED THAT IN THE PRESENT CASE FOR ASSESSMENT YEAR 2006 07 . THE ORIGINAL ORDER OF THE COORDINATE BENCHES DATED 26/06/2015, WHEREAS IN THE CASE OF THE ASSESSEE FOR SUBSEQUENT YEARS FOR ASSESSMENT YEAR 2007 08 AND 2008 09, THE HONBLE DELHI HIGH COURT HAS ALREADY DECIDED THE ISSUE OF EXISTENCE OF INTERNATIONAL TRANSACTION IN FAVOUR OF THE REVENUE . THEREFORE THERE IS NO REASON TO SAY THAT THERE IS NO INTERNATIONAL TRANSACTION ON THE SAME AGREEMENT IN ASSESSMENT YEAR 2006 07, WHEN BASED ON T HE EXACTLY SAME TERMS AND CONDITIONS AND FACTS PREVAILING IN ASSESSMENT YEAR 2007 - 08 AND 2008 09, THE HONBLE HIGH COURT HAS ALREADY DECIDED THIS ISSUE . HE EXTENSIVELY REFERRED TO THE DECISION OF THE HONBLE HIGH COURT AND REFERRED THAT TO SUBSTANTIAT E THAT ONLY COMPUTATION MECHANISMS IS REQUIRED TO BE DETERMINED AND THE ISSUE OF EXISTENCE OF INTERNATIONAL TRANSACTION IS NO MORE AN ISSUE WHICH REQUIRES A DECISION . H. HE FURTHER SUBMITTED THAT FOR ASSESSMENT YEAR 2006 07, THERE WERE NO GROUND EITHER BEF ORE THE LD. TRANSFER PRICING OFFICER/THE LD. DISPUTE RESOLUTION PANEL/AND THE COORDINATE BENCH THAT IT IS NOT AN INTERNATIONAL TRANSACTION AND NO SUCH ARGUMENTS HAVE BEEN ADVANCED BEFORE THE LOWER AUTHORITIES . THEREFORE DECIDING AN ISSUE WITHOUT GIVING AN OPPORTUNITY TO THE LOWER AUTHORITIES AND TO DECIDE AT THIS STAGE THAT WHETHER THERE EXISTS AN INTERNATIONAL TRANSACTION OR NOT PREJUDICES THE INTEREST OF THE REVENUE. PAGE 17 OF 26 I. FURTHER REFERRING TO THE FACTS OF THE CASE , H E SUBMITTED THAT THAT WHEN PART OF THE EXPE NDITURE HAVE BEEN REIMBURSED BY THE ASSOCIATED ENTERPRISE AND PART OF THE EXPENDITURE HAVE BEEN SHOWN BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT , IT ITSELF SHOWS THAT THERE IS AN UNWRITTEN AGREEMENT BETWEEN THE PARTIES AND THEY ARE ACTING IN CONCE RT WHICH RESULTED INTO INTERNATIONAL TRANSACTION . THEREFORE, THE EXISTENCE OF INTERNATIONAL TRANSACTION HA S BEEN PROVED BY THE BOOKS OF ACCOUNTS OF THE ASSESSEE ITSELF . THUS, EXISTENCE OF INTERNATIONAL TRANSACTIONS IS ESTABLISHED BY THE ASSESSEE HIMSELF AND THERE IS NO FURTHER NEED FOR THE REVENUE TO SHOW ANYTHING MORE. J. HE FURTHER REFERRED TO PA GE NO. 9 OF THE LD. TRANSFER PRICING OFFICERS ORDER WHEREIN IN PARA NO. 1.4 THE ASSESSEE STATED THAT IT IS A NO RISK DISTRIB UTOR WHO IS NOT THE OWNER OF THE BRAND AND THEREFORE IT CANNOT BE SAID THAT HE DOES NOT HAVE ANY OTHER RISK THEREFORE IS A FULL - FLEDGED IS DISTRIBUTOR OR TRADER AND THEREFORE HE BEARS FULL RISK . THEREFORE, THE CONTENTION OF THE ASSESSEE THAT IT HAS A LIMI TED RISK IS DEVOID OF ANY MERIT. K. REVERTING TO THE FINANCIAL STATEMENTS OF THE ASSESSEE . HE VEHEMENTLY STATED THAT THAT THERE IS AN ARTIFICIAL BIFURCATIONS OF EXPENSES . REGARDING SHOWING THE AMOUNT IS NOT REIMBURSEMENT BUT A SUBSIDY AND WHATEVER IS NOT RE IMBURSEMENT IS DEBITED TO THE PROFIT AND LOSS ACCOUNT . THUS, IT IS AN AGREEMENT, WHICH SHOWS THAT THE FOREIGN AE IS REQUIRED TO REIMBURSE THE ADVERTISEMENT MARKETING AND PROMOTION EXPENSES AND HENCE, THERE EXISTS AN INTERNATIONAL TRANSACTION . HE FURTHER REFERRED THAT OUT OF THE TOTAL EXPENSES OF RS. 4 CRORES, 40% OF SUCH EXPENSES ARE REIMBURSED BY THE ASSOCIATED ENTERPRISE THEREFORE THERE IS NO INCIDENTAL BENEFIT BUT TANGIBLE AND QUANTIFIABLE BENEFIT WHICH IS SUBSTANTIALLY NATURE RECEIVED BY THE FOREIGN A E. L. HE FURTHER REFERRED TO THE ORDER OF THE LD. TRANSFER PRICING OFFICER WHICH SHOWS THAT THERE ARE O THER AGREEMENTS THE ASSESSEE HAS ENTERED INTO AND ONLY ONE AGREEMENT IS EXTRACTED AND THEREFORE COMPLETE EXAMINATION OF THESE AGREEMENTS ARE REQUIRED TO DE TERMINE WHETHER THERE IS ANY TRANSACTION OR NOT OVER AND ABOVE WHAT IS STATED TO DETERMINE THE EXISTENCE OF INTERNATIONAL TRANSACTION. PAGE 18 OF 26 M. ON COMPUTATION MECHANISMS OF IMPUGNED FUNCTION AND ON THE ARGUMENT OF THE LD. AUTHORIZED REPRESENTATIVE THAT AMP HAS BEEN FUNCTION AND THEREFORE IT SHOULD NOT BE SEPARATELY BENCHMARKED HE REFERRED TO THE PARA NO. 8 OF THE ORDER OF THE COORDINATE BENCH WHERE DETAILED REASONINGS ARE GIVEN F OR BENCHMARKING THE AMP EXPENSES . HE THEREFORE SUBMITTED THAT THIS ARGUMENT OF THE L D. AUTHORIZED REPRESENTATIVE IS NOT CORRECT. 6. IN REJOINDER, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED AS UNDER: - A. HE SUBMITTED THAT THE RELEVANCE OF THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006 07 IS MISPLACED AS IT HAS ALREADY BEEN SET ASIDE BY THE HONBLE HIGH COURT AND THEREFORE WHATEVER IS STATED IN THAT PARTICULAR ORDER DOES NOT APPLY NOW , I N VIEW OF THE ORDER OF THE HONBLE HIGH COURT. B. REGARDING THE BIFURCATIONS OF THE EXPENDITURE WHATEVER IS REIMBURSE D BY THE ASSOCIATED ENTERPRISE AND WHAT IS DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT, HE SUBMITTED THAT NOW REVENUE CANNOT ARGUE THAT BIFURCATIONS IS NOT PROPER . FOR THIS CONTENTION HE REFERRED TO THE DECISION OF THE SPECIAL BENCH IN CASE OF MAHI NDRA AND MAHINDRA LTD VERSUS DEPUTY COMMISSIONER OF INCOME TAX (2009) 313 ITR (AT) 263 (SB) , WHEREIN IT HAS BEEN HELD THAT THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO JURISDICTION TO GO BEYOND THE ORDER PASSED BY THE ASSESSING OFFICER AND HE CANNOT RAISE A NY POINT DIFFERENT FROM THAT CONSIDERED BY THE A SSESSING OFFICER OR THE COMMISSIONER OF I NCOME T AX ( A PPEALS). C. HE FURTHER SUBMITTED THAT 40% OF THE TOTAL REIMBURSEMENT IS NOT THE ISSUE BEFORE THE BENCH, AS IT WAS ONLY SUPPORT TO THE DISTRIBUTOR WHICH DO ES NOT HAVE ANY RELATIONSHIP WITH THE AMP EXPENDITURE INCURRED BY THE ASSESSEE. D. HE FURTHER REFERRED TO THE PARA NO. 41 TO 4 5 AT PAGE NO. 24 OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN M A RUTI SUZUKI ( SUPRA) WHEREIN HONBLE HIGH COURT HAS CONSIDERE D THE DECISION OF THE SONY ERICSSON IN DETAIL, THEREFORE, HIS SUBMISSION WAS THAT SUBSEQUENT DECISION H AS ALREADY BEEN EXPLAINED THE EARLIER DECISION , HENCE , RELIANCE ON THE EARLIER DECISION NOW IS NOT PROPER. PAGE 19 OF 26 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS . IN SHORT, IN THE PRESENT APPEAL THE ISSUE RES TORED BY THE HONBLE HIGH COURT IS TO EXAMINE WHETHER THERE WAS AN INTERNATIONAL TRANSACTION INVOLVING THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE CONCERNING AMP EXPENSES OR NOT . WE ARE CONSCIOUS OF OVER DUTY THAT IN CASE IF COMPLETE INFORMATION IS AVAILABLE BEFORE US AND IF THIS BENCH CAN REACH TO A CONCLUSION ON APPRECIATION OF THOSE AVAILABLE INFORMATION WHICH HAVE BEEN DEALT WITH BY THE LOWER AUTHORITIES AND ON THE BASIS OF THE ARGUMENTS ADVAN CED AND FURTHER EVIDENCES PLACED , IF ANY , BEFORE US, THE ISSUE OF THE TERMINATION OF EXISTENCE OF INTERNATIONAL TRANSACTION CANNOT BE RESTORED TO THE FILE OF LOWER AUTHORITIES . HOWEVER IN CASE IF WE FIND THAT THE FACTS AVAILABLE BEFORE US REQUIRES FURTH ER EXAMINATION, WE WOULD BE DUTY - BOUND TO RESTORE THE MATTER TO THE FILE OF THE LOWER AUTHORITIES IN THE INTEREST OF JUSTICE, TO PROVIDE A REASONABLE OPPORTUNITY OF PUTTING FORTH THEIR CLAIM TO BOTH THE PARTIES . IN VIEW OF ABOVE WE PROCEED TO DECIDE THE I SSUE IS UNDER: - A. MEANING OF INTERNATIONAL TRANSACTION IS PROVIDED UNDER THE PROVISIONS OF SECTION 92B OF THE INCOME TAX ACT . ACCORDING TO THAT PROVISION THE INTERNATIONAL TRANSACTION MEANS TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NONRESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEA RING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES, AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISE FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COSTS OR EXPENSES INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES . FU RTHER, AN EXPLANATION WAS ADDED BY THE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 01/04/2012 WHICH INCLUDED IN THE AMBIT OF INTERNATIONAL TRANSACTION 5 TYPES OF TRANSACTIONS AND FURTHER EXPANDED THE SCOPE OF EXPRESSION INTANGIBLE PROPERTY . FURTHER, THE PROVISIONS OF SECTION 92F (V) DEFINES TRANSACTION WHICH INCLUDES AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CO NCERT IRRESPECTIVE OF IT BEING FORMAL OR IN WRITING OR ITS ENFORCEABILITY . THEREFORE, IT IS IMPERATIVE TO LOOK INTO THE FACT WHETHER THERE IS ANY PAGE 20 OF 26 TRANSACTION ENTERED INTO BY THE ASSESSEE FOR PROVISION OF ANY SERVICES AND/OR ANY EXPENSES INCURRED WHICH IS IN CONNECTION WITH A BENEFIT TO BE PROVIDED TO ITS ASSOCIATED ENTERPRISE . IT IS INTERESTING TO NOTE THAT A T PAGE NO. 156 OF THE PAPER BOOK, AN AGREEMENT WAS ENTERED ON 13/05/2005 BETWEEN ITS ASSOCIATED ENTERPRISE AND THE APPELLANT TITLED AS CASIO WATCHES/ OUTSOURCE OF ADVERTISEMENT AND THE ARTICLE 1 OF THAT AGREEMENT PROVIDES THAT STRICTLY FOR INCREASED SALES AND ENHANCEMENT OF THE BRAND IMAGE AND REPUTATION OF CASIO WATCH AND CLOCK IN INDIA, CASIO INDIA (THE APPELLANT) CARRIES OUT LOCAL PROMOTION ON BEHA LF OF CASIO (AE) . THE APPELLANT SHALL MAKE ADVANCE PLANNING FOR SUCH LOCAL PROMOTIONAL ACTIVITIES AND FURNISH CASIO WITH THE SCHEDULE AND ITS RELEVANT ESTIMATED QUOTATION BEFORE EXECUTION FOR POSSIBLE COMMENTS, SUGGESTIONS AND ALTERATIONS AND FINAL APPROV AL BY AE . FURTHER, THE APPELLANT HAS INDEMNIFIED THE FOREIGN ENTITY AGAINST ANY CLAIM OR DAMAGES ON ALLEGED INFRINGEMENT OF THIRD PARTY . ACCORDING TO ARTICLE, THREE OF THAT AGREEMENT THE AE SHALL PAY TO APPELLANT EXPENSES ONLY AFTER AE RECEIVES THE EVI DENCE, AND SUCH REIMBURSEMENT SHALL NOT EXCEED 7 MILLION JAPANESE YEN . THE PERIOD OF SUCH AGREEMENT IS UP TO 30/09/2005 . AN IDENTICALLY WORDED AGREEMENT WAS FURTHER ENTERED INTO BETWEEN THE PARTIES ON 20/12/2005 EXTENDING THE PERIOD UP TO 31 ST DAY OF MARCH 2006 . FURTHER, IN JUNE 2005 A SPECIAL PROMOTION SUBSIDIARY AGREEMENT WAS ENTERED INTO BETWEEN THE PARTIES FOR CALCULATORS AND DIGITAL DIARIES WHERE THE MAXIMUM AMOUNT SPECIFIED WAS 3.5 MILLION JAPANESE YEN. THERE WAS SEVERAL SUCH AGREEMENT WHICH ARE ENTERED INTO BY THE APPELLANT WITH ITS AE FOR SUBSIDY OF ADVERTISEMENT WHICH ARE TABLED AT SERIAL NO. 8 TO 11 OF THE PAPER BOOK FROM PAGE NO. 156 TO 177 . IN PARA NO. 4.2 AT PAGE NO. 5 OF THE ORDER OF THE LD. TRANSFER PRICING OFFICER . HE HAS NE ARLY ANALYZED ONLY ONE SUCH AGREEMENT TO SET OUT THE TERMS AND CONDITIONS OF SUCH AGREEMENT . HOWEVER, THERE IS NO FINDING IN THE ORDER OF THE LD. TRANSFER PRICING OFFICER WITH RESPECT TO THE EXAMINATION OF THE ACTUAL EXPENDITURE INCURRED . THE ASSESSEE HA S PLACED ITS ANNUAL ACCOUNTS FOR THE YEAR ENDED ON 31 ST OF MARCH 2006 AT PAGE NO. 13 TO 23 OF THE PAPER BOOK NO. 1 WHEREIN AT PAGE NO. 25 IN THE SCHEDULE OF OTHER EXPENSES . IT IS MENTIONED THAT ADVERTISEMENT AND SALES PROMOTION PAGE 21 OF 26 EXPENSES DEBITED TO THE PRO FIT AND LOSS ACCOUNT ARE ONLY RS. 19490013/ - WHEREAS AS PER NOTE NO. 9 TO SEDUCE 16 OF SUCH ANNUAL ACCOUNTS, IT IS MENTIONED THAT THAT APPELLANT HAS DURING THE YEAR RECEIVED RS. 18816511 / - AS SALES PROMOTION SUPPORT FROM THE HOLDING COMPANY . THIS AMOUNT HA S BEEN ADJUSTED AGAINST THE EXPENDITURE INCURRED ON ADVERTISEMENT AND SALES PROMOTION EXPENSES . THE COMPANY HAS RECEIVED RS. 271542 / - TOWARDS DEVELOPMENT OF SOFTWARE FOR AFTER SALES SERVICE ADVERTISEMENT AND TRAINING EXPENSES AND FOR PROCUREMENT OF CAPITA L ASSETS . THEREFORE IT IS APPARENT THAT ASSESSEE HAS RECEIVED RS. 18816511/ - FROM ITS PARENT HOLDING COMPANY ON ACCOUNT OF ADVERTISEMENT AND SALES PROMOTION EXPENDITURE WHICH ARE COVERED BY THE AGREEMENT STATED ABOVE . THEREFORE, THE LD. TRANSFER PRICING OFFICER HAS COMPUTED THE TOTAL EXPENDITURE ON ADVERTISEMENT MARKETING AND PROMOTION INCURRED BY THE ASSESSEE OF RS. 41021945/ . ON READING OF ALL THESE AGREEMENTS AND ITS RECONCILIATION WITH THE BOOKS OF ACCOUNTS . IT IS NOT APPARENT THAT WHAT IS THE AMO UNT OF EXPENDITURE THAT IS PERTAINING TO THOSE AGREEMENTS AND WHAT ARE THE OTHER EXPENDITURE WHICH ARE OWNED BY THE ASSESSEE AS ITS OWN EXPENDITURE DEBITED INTO THE PROFIT AND LOSS ACCOUNT. B. C LAIM OF THE ASSESSEE BEFORE THE LD. TRANSFER PRICING OFFICER WAS THAT THAT THE ADVERTISEMENT MARKETING AND PROMOTION EXPENDITURE WERE INCURRED BY THE ASSESSEE IN ORDER TO PROMOTE ITS PRODUCT ACCORDINGLY AND THEREFORE, THE LD. ASSESSING OFFICER IS INCORRECT IN HOLDING THAT EXPENDITURE WAS INCURRED B Y THE ASSESSEE FOR THE BENEFIT OF ASSOCIATED ENTERPRISE . LOOKING AT THE RISK ASSUMED BY THE ASSESSEE , IN ITS TRADING FUNCTION IT CARRIED THE RISK OF INVENTORY FULLY , W ITH RESPECT TO CUSTOMER CREDIT RISK , I T DOES NOT BEAR ANY RISK , W ITH RESPECT TO THE OTH ER MARKET RISK , AS IT PURCHASES THE GOODS ON ITS OWN ACCOUNT FROM CASIO, JAPAN IT OWNS THE COMPLETE MARKET RISK . IT ALSO ASSUMES FOREIGN EXCHANGE FLUCTUATION RISK BORNE BY THE APPELLANT . THE ASSETS EMPLOYED BY THE ASSESSEE ARE NORMAL ASSETS WHICH ARE NEC ESSARY TO PERFORM THE IMPORTING, WAREHOUSING, ADMINISTRATION AND DISTRIBUTION FUNCTIONS FOR CARRYING OUT ITS BUSINESS IN INDIA . AS REGARDING THE ASSETS EMPLOYED OF INTANGIBLE NATURE, IT HAS ONLY DISTRIBUTION NETWORK, CUSTOMER LIST AND SALES SYSTEMS AND PR OCEDURES . WHEREAS THE PAGE 22 OF 26 ASSOCIATED ENTERPRISE OWNS TRADEMARK AND BRAND EQUITY AS WELL AS THE PRODUCT DESIGN, ETC, WHICH GENERALLY AND NORMALLY EFFECTIVE OWNS . AGAINST THIS, THE LD. TRANSFER PRICING OFFICER HAS HELD IN PARA NO. 7.10 OF HIS ORDER THAT ASSESS EE WAS NOT SELLING ITS OWN PRODUCTS, BUT IT WAS LIMITED RISK DISTRIBUTOR WHO WAS SELLING PRODUCTS MANUFACTURED BY ITS ASSOCIATED ENTERPRISE AND IT IS FOR THIS REASON THAT IT ENTERED INTO AN AGREEMENT FOR REIMBURSEMENT OF AMP EXPENDITURE INCURRED BY IT BY ITS ASSOCIATED ENTERPRISE . FURTHER HE HELD THAT IT IS A MATTER OF RECORD THAT THE ASSOCIATED ENTERPRISE OF THE ASSESSEE AND ITS PARENT COMPANY HAD ACKNOWLEDGED INCREASE IN ITS SALES DUE TO THE MARKETING AFFORDS OF THE ASSESSEE IN INDIA . FURTHER HE HELD THAT DESPITE AGGRESSIVE MARKETING IN INDIA WHICH IS CONTRIBUTED TO THE INCREASE IN THE WORLDWIDE SALES OF THE PRODUCT OF THE GROUP THE PROFITABILITY OF THE ASSESSEE HAS REGISTERED A DECREE IS WHERE ASSESSEE HAS INCURRED NET OPERATING LOSS AND THIS LOSS IS BECAUSE OF NON - REIMBURSEMENT OF AMP EXPENDITURE . AGAINST THIS THE CLAIM OF THE ASSESSEE IS THAT THE PROPORTION OF NET SALES OF INDIAN ENTITY TO GLOBAL SALES OF THE GROUP IS LESS THAN 0.2% FOR 3 YEARS STATED ABOVE AND FURTHER THE TOTAL AMP EXPENSES SPENT B Y INDIAN ENTITY COMPARED TO THE GLOBAL SPENDING ON AMP EXPENDITURE IS ALSO LESS THAN 0.2% AND WHEREAS THE EXPENSES INCURRED BY THE INDIAN ENTITY TO GLOBAL SALES OF THE GROUP IS LESS THAN 0.05% . THEREFORE IT NEEDS TO BE EXAMINED IN DETAIL WHETHER THE SERVI CES RENDERED BY THE APPELLANT OF INCURRING EXPENDITURE INCURRED BY THE ASSESSEE HAS REALLY RESULTED INTO ANY BENEFIT TO THE FOREIGN AE AS THE FIGURES PROVIDED BY THE LD. A R SHOWS THAT THEY ARE MINISCULE COMPARED TO THE GLOBAL FIGURES OF THE GROUP, WHE REAS THE LD. ASSESSING OFFICER HAS CONTESTED THAT INCREASE IN THE SALES OF THE GLOBAL ENTITY IS ON ACCOUNT OF ADVERTISEMENT AND MARKETING AND PROMOTION EXPENDITURE INCURRED BY THE ASSESSEE. C. HONBLE DELHI HIGH COURT IN ITA NO. 498/2014, 618/2014, 5 1 2/2014 AND 513/2014 FOR ASSESSMENT YEAR 2007 08 AND 2008 09, IN CROSS APPEAL BY THE PARTIES, VIDE ITS ORDER DATED 16/03/2015 AT PAGE NO. 136 OF 142 OF THAT DECISION, HAS HELD THAT AMP EXPENSES INCURRED BY THE ASSESSEE IN INDIA CAN BE TREATED AND CATE GORIZED AS INTERNATIONAL TRANSACTION UNDER SECTION 92B OF THE INCOME TAX ACT, PAGE 23 OF 26 1961 . THE HONBLE HIGH COURT AT PARA NO. 51 TO 57 OF THAT DECISION HAS DEALT WITH THESE ISSUE AS UNDER : - TRANSACTION AND INTERNATIONAL TRANSACTION; DIFFERENCE BETWEEN SECTION 37(1) AND CHAPTER X OF THE ACT 51 . THE TERM 'INTERNATIONAL TRANSACTION' HAS BEEN DEFINED IN SECTION 92B . THE SECTION ALSO HAD RETROSPECTIVE AMENDMENT WHICH WAS INSERTED BY THE FINANCE ACT, 2012 W.R.E.F. 1 APRIL 2002 . SECTION 92B(1) READS AS UNDER: '92B M EANING OF INTERNATIONAL TRANSACTION . (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, 'INTERNATIONAL TRANSACTION' MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON - RESIDENTS, IN THE NAT URE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AND SHALL INCLUDE A MUTUAL AG REEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES.' 52 . THE CONTENTION THAT AMP EXPENSES ARE NOT INTERNATIONAL TRANSACTIONS HAS TO BE REJECTED. THERE SEEMS TO BE AN INCONGRUITY IN THE SUBMISSION OF THE ASSESSEE ON THE SAID ASPECT FOR THE SIMPLE REASON THAT IN MOST CASE S THE ASSESSED HAVE SUBMITTED THAT THE INTERNATIONAL TRANSACTIONS BETWEEN THEM AND THE AE, RESIDENT ABROAD INCLUDED THE COST/VALUE OF THE AMP EXPENSES, WHICH THE ASSESSEE HAD INCURRED IN INDIA. IN OTHER WORDS, WHEN THE ASSESSED RAISE THE AFORESAID ARGUMENT , THEY ACCEPT THAT THE DECLARED PRICE OF THE INTERNATIONAL TRANSACTION INCLUDED THE SAID ELEMENT OR FUNCTION OF AMP EXPENSES, FOR WHICH THEY STAND DULY COMPENSATED IN THEIR MARGINS OR THE ARM'S LENGTH PRICE AS COMPUTED. 53 . WE ALSO FAIL TO UNDERSTAND THE C ONTENTION OR ARGUMENT THAT THERE IS NO INTERNATIONAL TRANSACTION, FOR 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 DOMESTIC AE. THE DISPUTE PERTAINS TO ADEQUACY OF COMPENSATION FOR INCURRING AND PERFORMING MARKETING AND 'NON - ROUTINE' AMP EXPENSES IN INDIA BY THE AE. THE EXPENSES INCURRED OR THE QUANTUM OF EXPENDITURE PAID BY THE INDIAN ASSESSEE TO THIRD PARTIES IN INDIA, FOR INCURRING PAGE 24 OF 26 THE AMP EXPENSES IS NOT IN DISPUTE OR UNDER CHALLENGE. THIS IS NOT A SUBJECT MATTER OF ARM'S LENGTH PRICING OR DETERMINATIO N. 54 . THE FACT THAT THIS EXPENDITURE WAS INCURRED AND HAS TO BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT HAS NOT BEEN CHALLENGED BY THE REVENUE. REVENUE IN THEIR WRITTEN SUBMISSION ACCEPTS AND HAS RIGHTLY STATED THAT THE TEST OF ALLOWABILITY OF EXPENDITURE UNDER SECTION 37(1) IS WHETHER THE SAID EXPENDITURE IS INCURRED WHOLLY OR EXCLUSIVELY FOR THE BUSINESS CONSIDERATION. SO LONG AS THE EXPENDITURE IS FOR BUSINESS CONSIDERATION, THE ASSESSING OFFICER CANNOT QUESTION THE QUANTUM OR THE WISDOM OF THE ASSESSEE IN INCURRING THE EXPENSE. ISSUE OF ARM'S LENGTH PRICE, PER SE DOES NOT ARISE, WHEN DEDUCTION UNDER SECTION 37(1) IS CLAIMED. EXPENDITURE AND DECISION OF THE ASSESSEE, WHETHER OR NOT TO INCUR THE SAID EXPENDITURE; THE QUANTUM THEREOF, CANNOT BE A SUBJECT MATTER OF CHALLENGE OR DISALLOWANCE BY THE ASSESSING OFFICER, ONCE IT IS ACCEPTED THAT THE EXPENDITURE WAS WHOLLY, I.E. THE QUANTUM OF EXPENDITURE INCURRED WAS FULLY, AND EXCLUSIVELY FOR BUSINESS PURPOSE. IN SASSOON J. DAVIT & CO. (P.) LTD. V. CIT [1979] 118 ITR 261/1 TAXMAN 485 (SC) , IT HAS BEEN HELD THAT AN ASSESSEE CAN CLAIM DEDUCTION FOR EXPENDITURE INCURRED FOR BUSINESS PURPOSES AND NO ONE ELSE HAS AUTHORITY TO DECIDE WHETHER OR NOT THE ASSESSEE SHOULD HAVE INCURRED THE SAID EXPENDITURE. THE EXPENDITURE CANNOT BE DISALLOWED WHOLLY OR PARTLY BECAUSE IT WOULD INCIDENTALLY BENEFIT A THIRD PERSON ONCE THE REQUIREMENTS OF SECTION 37(1) WERE SATISFIED. REFERENCE CA N BE ALSO MADE TO THE DECISION OF DELHI HIGH COURT IN CIT V. NESTLE INDIA LTD. [2011] 337 ITR 103/199 TAXMAN 321/11 TAXMANN.COM 106 , HOLDING THAT THE QUESTION OF REASONABLE NESS OR MEASURE OF EXPENSES TO BE ALLOWED CANNOT BE A SUBJECT MATTER OF ADJUSTMENT OR DISALLOWANCE UNDER SECTION 37(1) OF THE ACT. 55 . SECTION 40A(2) CLAUSE (B) IS A PROVISION FOR COMPUTING ARM'S LENGTH PRICE IN CASE OF TWO RELATED PARTIES AS DEFINED AND APPLIES EVEN WHEN THE CONDITIONS STIPULATED IN SECTION 37(1) OF THE ACT ARE SATISFIED. THE SAID PROVISION RELATES TO REASONABILITY OF THE QUANTUM. SIMILARLY, CHAPTER X OF THE ACT RELATES TO ARM'S LENGTH PRICING ADJUSTMENT. CHAPTER X IS NOT CONCERNED WITH D ISALLOWANCE OF EXPENDITURE BUT RELATES TO DETERMINATION OF ARM'S LENGTH PRICE/COST OF AN INTERNATIONAL TRANSACTION BETWEEN THE TWO AES. IT RELATES TO INCOME OR RECEIPTS, AND ALSO EXPENSES AND INTEREST BUT IN A DIFFERENT CONTEXT. THUS, SECTION 37(1) AND CHA PTER X PROVISIONS PERTAIN TO DIFFERENT FIELDS. 56 . CHAPTER X OF THE ACT BEING A SPECIFIC STATUTORY PROVISION HAS TO BE GIVEN EFFECT TO AND IN VIEW OF THE SAID PROVISIONS ARM'S LENGTH PRICE CAN BE DETERMINED. THE ARM'S LENGTH PROCEDURE PRESCRIBED IN CHAPTER X, ONCE APPLICABLE HAS TO BE GIVEN FULL APPLICATION. IMPACT OF CHAPTER X OF THE ACT CANNOT BE PAGE 25 OF 26 CONTROLLED OR CURTAILED BY REFERENCE TO THE ALLOWABILITY OF EXPENDITURE UNDER SECTION 37(1) OF THE ACT. AS NOTICED ABOVE AND SUBSEQUENTLY, PROVISIONS OF CHAPTER X ARE APPLICABLE TO INTERNATIONAL TRANSACTIONS BETWEEN TWO RELATED ENTERPRISES. THE PURPOSE OF DETERMINATION OF ARM'S LENGTH PRICE IS TO FIND OUT THE FAIR AND TRUE MARKET VALUE OF THE TRANSACTION AND ACCORDINGLY THE ADJUSTMENT, IF REQUIRED, IS MADE. THE SA ID EXERCISE HAS ITS OWN OBJECT AND PURPOSE. 57 . IN TERMS OF THE AFORESAID DISCUSSION, QUESTION NO.2 HAS TO BE ANSWERED AGAINST THE ASSESSED AND IN FAVOUR OF THE REVENUE. AS IN THE PREVIOUS YEAR HONBLE HIGH COURT IN THE ASSESSEES OWN CASE HAS HELD THAT I NCURRING OF THE ALLEGED AMP EXPENSES ARE INTERNATIONAL TRANSACTION AND FURTHER WHETHER THE FUNCTIONS PERFORMED BY THE ASSESSEE WERE PROPERLY COMPENSATED OR NOT BY THE AE, NO EVIDENCES WERE SUBMITTED BEFORE US BY THE ASSESSEE WHICH SUGGEST THAT THE FACTS AS HAS BEEN DECIDED BY THE HONBLE HIGH COURT ARE DIFFERENT IN THIS YEAR. FURTHER MORE HONBLE HIGH COURT IN THE MARUTI SUZUKI INDIA LIMITED VERSUS COMMISSIONER OF INCOME TAX (SUPRA) IN PARA AMBER 6 0 AT PAGE NO. 32 OF 45, HAS HELD THAT THE REVENUE HAS TO S HOW THAT THERE EXISTS AN AGREEMENT OR ARRANGEMENT OR UNDERSTANDING WHERE THE ASSESSEE IS OBLIGED TO SPEND EXCESSIVELY ON ADVERTISEMENT MARKETING AND PROMOTION IN ORDER TO PROMOTE THE BRAND OF AE DE HORS BRIGHT LINE TEST THAT PROVISIONS OF SECTION 92B AR E SATISFIED. BEFORE US BOTH THE PARTIES HAVE ARGUED AT LENGTH ON THE BASIS OF SEVERAL JUDICIAL PRECEDENTS BUT HAS NOT ADDUCED THE RELEVANT FACTS SUPPORTED WITH RELEVANT DETAILS OR TABLES. 8. IN VIEW OF OUR DISCUSSION ABOVE AND SINCE THE LD. TPO HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION, HE DID NOT HAVE ANY OCCASION TO CONSIDER THESE DOCUMENTS IN THE LIGHT OF THE JUDICIAL VIEW NOW AVAILABLE FOR CONSIDERATION. RESPECTFULLY FOLLOWING THE TRIBUNAL ORDERS OF CO - ORDINATE BENCHES, PLACED ON RECORD BY THE LD. DR, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES. IF THE EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, THE MATTER WILL END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADDITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTING, PAGE 26 OF 26 THEN THE TPO WILL DETERMINE THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF THE RELEVANT JUDGMENTS OF THE HON'BLE HIGH COURT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 9. ACCORDINGLY APPEAL OF THE ASSESS EE FOR ASSESSMENT YEAR 2006 - 2007 IN ITA NO. 4726/ DEL/ 2010 RESTORED BY THE HONBLE HIGH COU RT IS DISPOSED OFF. THE ORDER IS PRONOUNCED ON 0 3 / 0 4 / 2 0 1 7 . - S D / - - S D / - (C.M.GARG) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 3 / 0 4 /2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI