Suzuki Motorcycles (I) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 476/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1715 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP KUMAR MISHRA SENIOR
• Keywords: Transfer pricing; Business expenditure; International transaction; Tangible material; Commercial expediency; Onus to prove
• Section: 92C; 144; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE HONBLE VICE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.476/DEL./2015 (ASSESSMENT YEAR : 2010-11) M/S. SUZUKI MOTORCYCLES (I) PVT. LTD., VS. DCIT, IIND FLOOR, PLOT NO.1, CIRCLE 24 (2), NELSON MANDELA ROAD, VASANT KUNJ, NEW DELHI 110 070. (PAN : AAACI5832P) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, SENIOR ADVOCATE SHRI NEERAJ JAIN, ADVOCATE SHRI RAMIT KATYAL, CA REVENUE BY : SHRI SANDEEP KUMAR MISHRA, SENIOR DR DATE OF HEARING : 13.11.2018 DATE OF ORDER : 26.11.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. SUZUKI MOTORCYCLES (I) PVT. LTD . (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 25.11.2014 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE ITA NO.476/DEL/2015 2 INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN COMPLETING THE ASSESSMENT UNDER SECTION 144C READ W ITH SECTION143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT ') AT A LOSS OF RS. 30,74,97,320 AS AGAINST THE LOSS OF RS 35,48,65,950 RETURNED BY THE APPELLANT. ADJUSTMENT ON ACCOUNT OF ADVERTISEMENT, MARKETING A ND PROMOTION EXPENSES INCURRED BY THE APPELLANT RS.4,73,64,582 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING TRANSFER PRICING ADJUSTMENT OF RS.4,73,64,58 2 IN RELATION TO THE ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENSES (HEREINAFTER REFERRED TO AS 'THE AMP EXPENSES') INCURRED BY THE APPELLANT. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS.4,73,64,582 ON ACCOUNT OF THE ARM'S LENGTH PRICE OF THE ALLEGED INTERNATIONAL TRA NSACTION OF AMP EXPENSES, HOLDING THAT THE APPELLANT WAS PRO MOTING THE BRAND OF THE ASSOCIATED ENTERPRISE AND THE APPE LLANT SHOULD HAVE RECEIVED A COMPENSATION FOR CREATING AN D DEVELOPING MARKETING INTANGIBLES IN INDIA. 4. THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AMP EXPENSES, ETC., UNILATERA LLY INCURRED BY THE APPELLANT IN INDIA COULD NOT BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AS PE R SECTION 928, IN THE ABSENCE OF ANY PROVED UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATE D ENTERPRISE (HEREINAFTER REFERRED TO AS 'AE'), SO AS TO INVOKE THE PROVISIONS OF SECTION 92 OF THE ACT. 5. THAT THE ASSESSING OFFICER /TPO ERRED ON FACTS A ND IN LAW IN NOT APPRECIATING THAT UNILATERALLY INCURRING OF AMP EXPENSES BY THE APPELLANT DOES NOT RESULT IN AN INT ERNATIONAL TRANSACTION IN TERMS OF SECTION 928 OF THE ACT, EVE N AFTER ITS AMENDMENT BY THE FINANCE ACT, 2012. 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT, 'THERE IS AN INTERNATIONAL TRANSACTIO N BETWEEN ITA NO.476/DEL/2015 3 THE APPELLANT AND THE FOREIGN AE UNDER WHICH THE AP PELLANT INCURRED AMP EXPENSES TOWARDS PROMOTION OF BRAND WH ICH IS LEGALLY OWNED BY THE FOREIGN AE'. 7. THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT MERELY BECAUSE THE INDIAN COMPANY HAD INCURRED EXPENDITURE ON PRODUCT ADVERTISEMENTS INCL UDING THE FOREIGN BRAND AND THE AMP EXPENSES INCURRED BY THE APPELLANT, WERE PROPORTIONATELY HIGHER THAN THOSE I NCURRED BY COMPARABLE CASES TAKEN BY THE TPO, THE SAME DID NOT LEAD TO THE INFERENCE OF 'TRANSACTION' BETWEEN THE APPELLANT AND THE FOREIGN AE FOR CREATING MARKETING INTANGIBL ES ON BEHALF OF THE LATER. 8. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE APPELLANT WAS PERFO RMING THE KEY PEOPLE/CRITICAL DECISION MAKING FUNCTIONS WITH REGARD TO ADVERTISEMENT AND MARKETING ACTIVITY AND WAS ALSO E NTITLED TO THE PROFIT ATTRIBUTABLE TO SUCH ACTIVITIES, THE APPELLANT WAS JUSTIFIED IN BEARING THE COST ASSOCIATED WITH SUCH ADVERTISEMENT AND MARKETING FUNCTION 9. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ONLY TRANSFER PRICING ADJ USTMENT PERMITTED BY CHAPTER X OF THE ACT WAS IN RESPECT OF THE DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE (ALP) AND THE CONTRACT OR DECLARED PRICE, BUT THE SAID PROVISION COULD NOT BE INVOKED TO DETERMINE THE 'QUANTUM' / EXTENT OF B USINESS EXPENDITURE. 10. THAT ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN NOT APPRECIATING THAT THE TRANSFER PRICING ADJUSTME NT MADE BY THE TPO IN THE PRESENT CASE WAS A MERE QUANTITAT IVE ADJUSTMENT, ON THE FOOTING THAT THE APPELLANT HAD I NCURRED EXCESSIVE AMOUNT OF AMP EXPENDITURE AND CONSEQUENTL Y THAT SUCH TRANSFER PRICING ADJUSTMENT WAS NOT AT AL L PERMITTED OR AUTHORIZED BY CHAPTER X OF THE ACT. 11. THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT EXPENDITURE INCURRED BY THE APPELLANT WHICH INCIDENTALLY RESULTED IN BRAND BUILDING FOR THE FOR EIGN AE, WAS A TRANSACTION OF CREATING AND IMPROVING MARKETI NG INTANGIBLES FOR AND ON BEHALF OF ITS FOREIGN AE AND FURTHER THAT SUCH A TRANSACTION WAS IN THE NATURE OF PROVIS ION OF A SERVICE BY THE APPELLANT TO THE AE. ITA NO.476/DEL/2015 4 12. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN HOLDING THAT AMP EXPENSES INCURRED BY THE APPELLANT RESULTED IN PROMOTION OF BRAND OWNED BY THE ASSOCIA TED ENTERPRISE, THEREBY CREATING MARKETING INTANGIBLES WHOSE ULTIMATE BENEFIT INURED TO THE ASSOCIATED ENTERPRIS E 13. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW BY QUESTIONING THE COMMERCIAL EXPEDIENCY OF AMP EXPENDITURE INCURRED BY THE APPELLANT AND ASSUMING THAT BENEFIT HAS ACCRUED TO AE ON ACCOUNT OF AMP EXPENSE S INCURRED BY THE APPELLANT IN INDIA. 14. THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ADVERTISEMENT AND MARKETING E XPENSES WERE INCURRED BY THE APPELLANT WHOLLY AND EXCLUSIVE LY FOR PURPOSES OF ITS BUSINESS AND NOT ON BEHALF OF OR F OR THE BENEFIT OF THE AE; ANY BENEFIT TO THE AE BEING ONLY INCIDENTAL. 15. THAT THE ASSESSING OFFICER / TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE CHARACTERIZATION O F THE APPELLANT BEING THAT OF A FULL FLEDGED MANUFACTURER AND / OR DISTRIBUTOR PERFORMING ALL FUNCTIONS AND BEARING AL L RISKS, IS THE SOLE BENEFICIARY OF THE AMP EXPENDITURE INCURRE D BY IT, JUSTIFIED THE CONDUCT OF THE ASSESSEE IN INCURRING AND BEARING THE COST OF AMP EXPENDITURE. 16. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT EVEN IF M ARKETING INTANGIBLE HAS BEEN CREATED THEN THE APPELLANT IS T HE ECONOMIC OWNER OF THE BENEFIT OF SUCH INTANGIBLE. 17. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN NOT APPRECIATING THAT NO ADJUSTMENT ON ACCOUNT OF A LLEGEDLY EXCESS AMP EXPENDITURE IS WARRANTED IN THE CASE OF THE APPELLANT AS SUCH EXPENSE HAVE BEEN FOUND TO CONSTI TUTE BONAFIDE AND DEDUCTIBLE BUSINESS EXPENDITURE. 18. THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN APPLYING BRIGHT LINE TEST NOT APPRECIATING THAT IN ABSENCE OF SPECIFIC PROVISION IN THE TRANSFER PRICING STATU TORY PROVISIONS IN INDIA, ADJUSTMENT ON ACCOUNT OF THE A RM'S LENGTH PRICE OF THE ADVERTISEMENT AND BRAND PROMOTI ON EXPENSES COULD NOT BE MADE. ITA NO.476/DEL/2015 5 19. THE ASSESSING OFFICER! TPO ERRED ON FACTS AND I N LAW IN NOT APPRECIATING THAT SUCH A TRANSFER PRICING AD JUSTMENT CANNOT AT ALL BE MADE IN LAW WITHOUT DETERMINING TH E ARM'S LENGTH PRICE ('ALP') BY APPLYING ONE OF THE METHODS SPECIFIED IN SECTION 92C OF THE ACT. 20. WITHOUT PREJUDICE THAT THE ASSESSING OFFICER/TP O ERRED ON FACTS AND IN LAW, IN NOT APPRECIATING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT WAS APPROPRIATEL Y ESTABLISHED TO BE AT ARM'S LENGTH APPLYING TNMM. 21. WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ER RED ON FACTS AND IN LAW IN CONSIDERING REBATE AND DISCOUNT S AND OTHER SELLING EXPENSES FOR THE PURPOSE OF CALCULATI NG ALLEGED AMP EXPENDITURE OF THE ASSESSEE. 22. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW CONSIDERING COMPANIES HAVING DIFFE RENT PRODUCT PROFILE THAN THE APPELLANT AS COMPARABLE CO MPANIES FOR THE PURPOSE OF BENCHMARKING THE ALLEGED INTERNA TIONAL TRANSACTION OF AMP EXPENDITURE INCURRED BY THE APPE LLANT. 23. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN REJECTING COMPARABLE COMPANIES HAVING DOMESTIC BRAND FOR THE PURPOSE OF BENCHMARKING THE ALLEGED INTERNATIONAL TRANSACTION OF AMP EXPENDITURE INCURR ED BY THE APPELLANT. 24. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN APPLYING A MARKUP OF 12.25% ON THE ALLEGED EXCESS AMP EXPENDITURE INCURRED BY THE APPE LLANT, WHILE COMPUTING THE VALUE OF COMPENSATION TO BE REC EIVED BY THE APPELLANT ON ACCOUNT OF CREATION OF MARKETIN G INTANGIBLE OF 'SUZUKI' BRAND. ADDITION ON ACCOUNT OF DIFFERENCE IN TDS CREDIT - R S.4,048/- 25. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING AN ADDITION OF RS.4,048/- MERELY ON THE BASI S OF STATEMENT IN FORM 26AS. 26. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN NOT APPRECIATING THAT THE INCOME REFLECTED IN THE A FORESAID STATEMENT DID NOT PERTAIN TO THE APPELLANT. ITA NO.476/DEL/2015 6 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : M/S. SUZUKI MOTORCYCLES (I) PVT. LTD., THE TAXPAYER IS A SUBSIDIARY OF M/S. SUZUKI MOTORCY CLES COMPANY, JAPAN (SMC JAPAN) HOLDING 99.99% EQUITY SHARE CAPIT AL OF THE TAXPAYER. SMC JAPAN IS OWNING SIGNIFICANT INTANGIB LES LIKE PATENTS, TRADEMARKS, MANUFACTURING KNOW-HOW, ETC.. THE TAXPAYER BEING IN TECHNICAL COLLABORATION WITH SMC JAPAN IS INTO MANUFACTURING OF MOTORCYCLES IN THE EXECUTIVE SEGME NTS WITH 125CC ENGINE CAPACITY AND THE YEAR UNDER ASSESSMENT IS THE FOURTH YEAR OF OPERATION OF THE TAXPAYER. 3. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER I S ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AE) FOR CARRYING OUT ITS MANUFACTURING ACTIVITIES AS UN DER :- S.NO. NATURE OF INTERNATIONAL TRANSACTION AMOUNT IN INR METHOD USED BY ASSESSEE 1. IMPORT OF COMPONENTS 287,670,307 TNMM 2. PURCHASE OF MANUFACTURING MACHINES, TOOLS AND EQUIPMENTS 205,719,624 TNMM 3. EXPORT OF MOTORCYCLE 806,842 TNMM 4. RECOVERY OF MISCELLANEOUS EXPENSES 379,004,510 TNMM 5. PURCHASE OF MOTORCYCLE FOR RESALE 43,460,744 TNMM 6. REFUND OF CUSTOM DUTY 7,481,545 - ITA NO.476/DEL/2015 7 4. THE TAXPAYER IN ITS TP STUDY RECORDED THAT SMC J APAN IS RESPONSIBLE FOR CORE GLOBAL MARKETING AND AS PER LI CENCE AGREEMENT, SMC JAPAN ALSO GRANTS THE RIGHT TO USE ITS TRADEMAR KS AND BRAND TO THE TAXPAYER. THE TAXPAYER IN ITS TP STUDY BENCHMA RKED ITS INTERNATIONAL TRANSACTIONS AT NET LEVEL BY USING TN MM AND ITS TOTAL MARKETING EXPENDITURE CAME TO RS.33,91,55,186/-. T PO IN ORDER TO BENCHMARK THE AMP EXPENSES USED BRIGHT LINE TEST (B LT) IN ORDER TO WORK OUT THE LIMIT OF THE ROUTINE AMP EXPE NDITURE INCLUDING TRADE DISCOUNTS, COMMISSIONS AND REBATES. TPO RESORTED TO COMPARE THE AMP EXPENDITURE OF THE TAXPAYER WITH AMP EXPENDITURE OF OTHER COMPARABLE COMPANIES IN SIMILA R BUSINESS USING AMP EXPENDITURE TO SALES RATIO. BY USING BRI GHT LINE LIMIT, THE TPO DETERMINED THE AVERAGE RATIO OF AMP EXPENDI TURE TO SALES OF COMPARABLES AT 1.76% AS AGAINST 6.56% OF THE TAX PAYER AND HELD THAT EXCESS EXPENDITURE OF RS.38,73,80,613/-, WHICH EXCEEDS THE BRIGHT LINE LIMIT REQUIRED TO BE COMPENSATED BY THE AE. IT IS ALSO THE CASE OF THE TPO THAT AMP EXPENDITURE HAS BEEN M ADE BY THE TAXPAYER IN ORDER TO CREATE MARKET INTANGIBLES OWNE D BY THE AE. THE TPO CONSEQUENTLY PROPOSED THE TP ADJUSTMENT AT RS.4,73,64,582/- (RS.38,65,19,768/- MINUS RS.33,91, 55,186/- ALREADY REIMBURSED BY THE AE = RS.4,73,64,582/-). ITA NO.476/DEL/2015 8 5. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. D RP BY FILING OBJECTIONS WHO HAS DISPOSED OF THE OBJECTIONS. FEE LING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTEDLY, THE TAXPAYER IS A MANUFACTURING EN TITY AND THE AMP/SALES RATIO IN TAXPAYERS CASE IS 6.56%. IT IS ALSO NOT IN DISPUTE THAT THE AE HAS COMPENSATED THE TAXPAYER WI TH AN AMOUNT OF RS.33,91,55,186/- ON ACCOUNT OF EXPENDITURE INCU RRED BY IT. TPO HAS ALSO APPLIED MARK-UP OF 12.50% OF AMP EXPEN SES BY USING BRIGHT LINE LIMIT OVER AND ABOVE THE AMP EXPE NSES COMPUTED ON THE BASIS OF COMPARABILITY ANALYSIS. TPO, BY US ING THE BRIGHT LINE TEST, CAME TO THE CONCLUSION THAT THE TAXPAYER HAS EXPENDED HUGE AMOUNT IN EXCESS OF THE BRIGHT LINE LIMIT IN O RDER TO PROMOTE THE BRAND/TRADE NAME OF ITS AE WHICH IS REQUIRED TO BE COMPENSATED. TPO ON THE BASIS OF HIS TP ANALYSIS H AS TAKEN 3 COMPARABLE COMPANIES SHOWING AVERAGE RATIO OF AMP/ SALES EXPENDITURE AT 1.76% AS AGAINST 6.56%, WHICH ARE AS UNDER :- ITA NO.476/DEL/2015 9 20. BENCHMARKING OF INTERNATIONAL TRANSATION CALCULATION OF ARMS LENGTH PRICE OF AMP EXPENSES 20.1 IN VIEW OF THE FOREGOING DISCUSSION, THE FOLLO WING COMPANIES SHALL BE TAKEN AS COMPARABLES : (AMOUNT IN RS.CRORES) S.NO. NAME OF THE COMPANY SALES AMP AMP/ SALES (%) 1 ATUL AUTO LTD. 130.44 2.03 1.56 3 SOORAJ AUTOMOBILES LTD. 8.71 0.08 0.92 4 KRANTI AUTOMOBILES LTD. 27.2 0.44 2.79** AVERAGE 1.76 (**AS PER PAGE 12/AR, SALES AND MARKETING COSTS WER E 2.79% OF REVENUE) 20.2 THUS IN VIEW OF THE ABOVE DISCUSSION, THE AMP EXPENDITURE INCURRED BY THE ASSESSEE IS COMPUTED HE REUNDER : AMOUNT IN RS.CRORES) ADVERTISEMENT AND SALES PROMOTION EXPENSES AS DEBITED IN THE P&L ACCOUNT 115,696,037 DISCOUNT PAID 15,731,087 REIMBURSEMENT OF AMP EXPENSES AS DISCUSSED IN PARA 3.2 ABOVE 339,155,186 TOTAL AMP EXPENSES 470,582,310 SALES 7,172,953,830 AMP/SALES 6.56% 20.3 THE AMOUNT WHICH REPRESENTS THE BRIGHT LINE AN D THE AMOUNT THAT SHOULD HAVE BEEN COMPENSATED TO THE ASS ESSEE COMPANY ARE COMPUTED AS FOLLOWS : PARTICULARS AMOUNT IN RS. VALUE OF SALES 7,17,29,53,830 BRIGHT LINE (%) 1.76% AMOUNT THAT REPRESENT BRIGHT LINE 12,62,43,987 EXPENDITURE ON AMP BY ASSESSEE 47,05,82,310 EXPENDITURE IN EXCESS OF BRIGHT LINE 34,43,38,323 REIMBURSEMENT THAT SHOULD HAVE BEEN RECEIVED ALONG WITH A MARK-UP OF 12.25% FOR PROVIDING SERVICES 38,65,19,768 REIMBURSEMENT RECEIVED BY THE ASSESSEE FROM THE AES 33,91,55,186 ADJUSTMENT PROPOSED TO BE MADE 4,73,64,582 ITA NO.476/DEL/2015 10 8. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCU MSTANCES OF THE CASE, THE SOLE QUESTION ARISES FOR DETERMINATIO N IN THIS CASE IS :- AS TO WHETHER BLT APPLIED BY TPO/DRP IN THIS CASE IS AN APPROPRIATE METHOD FOR DETERMINING THE INTERNATIONAL TRANSACTIONS AND IN RETURN TO FURTHER CALCULATE THE ALP OF SUCH INTERNATIONAL TRANSACTION S ? 9. UNDISPUTEDLY, TPO/DRP BY FOLLOWING THE LG ELECTRONICS INDIA PVT. LTD. (SUPRA) DECIDED BY SPECIAL BENCH OF THE TRIBUNAL APPLIED BLT IN ORDER TO DECIDE THE ISSUE IF AMP EXP ENDITURE BY THE TAXPAYER IS AN INTERNATIONAL TRANSACTION LEADING TO THE BRAND BUILDING OF ITS AE. HONBLE DELHI HIGH COURT HAS S INCE OVERRULED THE LG ELECTRONICS INDIA PVT. LTD. (SUPRA) DECISION. 10. HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. V. CIT (2016) 381 ITR 117 (DEL.) HAS DECIDED THE IDENTICAL ISSUE OF AMP EXPENSES IN CASE OF MANUFACTURING ENTITY IN FAV OUR OF THE ASSESSEE BY DISTINGUISHING SONY ERICSSON INDIA PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL.) CASE WHEREIN THE ASSESSEE HAS NOT DISPUTED THE EXISTENCE OF INTERNATIONAL TRANSACTION QUA ITS AMP EXPENSES. SO, IN CASE OF ASSESSEE, BEING A MANUFAC TURING ENTITY, ITA NO.476/DEL/2015 11 RATIO OF SONY ERICSSON INDIA PVT. LTD. (SUPRA) CANNOT BE APPLIED. AT THE SAME TIME, IN SONY ERICSSON INDIA PVT. LTD. (SUPRA), HONBLE HIGH COURT HAS HELD THAT BLT HAS NO STATUTO RY MANDATE AND CONSIDERING THE EXCESS EXPENDITURE BEYOND THE B RIGHT LINE AS AN INTERNATIONAL TRANSACTION WAS UNWARRANTED. 11. HONBLE DELHI HIGH COURT IN SERIES OF DECISIONS INTER ALIA MARUTI SUZUKI INDIA LTD.; BAUSCH & LOMB EYECARE (IN DIA) PVT. LTD. V. ADDITIONAL CIT (2016) 381 ITR 227 (DEL) AND HONDA SIEL POWER PRODUCTS LTD. V. DY.CIT (2016) 237 TAXMAN 304 HELD THAT THE REVENUE IS TO DISCHARGE FIRST THE ONUS OF PROVI NG THE EXISTENCE OF AN INTERNATIONAL TRANSACTION BETWEEN ASSESSEE AN D THE AE AND SUCH TRANSACTIONS CANNOT BE INFERRED MERELY ON THE BASIS OF BRIGHT LINE TEST. REVENUE HAS TO DISCHARGE THE INITIAL ON US BY BRINGING ON RECORD SOME TANGIBLE MATERIAL THAT THE TAXPAYER AND ITS AE HAVE ACTED IN CONCERT AND FURTHER THAT THERE WAS AN AGRE EMENT TO ENTER INTO INTERNATIONAL TRANSACTIONS CONCERNING AMP EXPE NSES. 12. IN THE INSTANT CASE, THERE IS NOT AN IOTA OF MA TERIAL ON THE FILE APART FROM APPLYING THE BLT AND BY TAKING THE VIEW THAT THE TAXPAYER HAS INCURRED HUGE AMP/SALES EXPENSES TO TH E EXTENT OF 10.26%, NO COGENT MATERIAL IS THERE TO TREAT THE IN CURRING OF AMP ITA NO.476/DEL/2015 12 EXPENSES AS INTERNATIONAL TRANSACTION MORE PARTICUL ARLY WHEN BASIS FOR TREATING THE AMP EXPENSES AS INTERNATIONAL TRAN SACTION I.E. BLT IS NOT A LEGALLY SUSTAINABLE METHOD. 13. SO, WE ARE OF THE CONSIDERED VIEW THAT MERELY B Y APPLYING THE BLT, THE EXISTENCE OF INTERNATIONAL TRANSACTION S CANNOT BE PROVED AND AS SUCH THE ADJUSTMENT MADE BY THE TPO/D RP/AO ON THIS ACCOUNT IS NOT SUSTAINABLE IN THE EYES OF LAW. WE ARE FURTHER OF THE CONSIDERED VIEW THAT ALP EXPENSES INCURRED BY T HE TAXPAYER WERE NOT FOR THE BENEFIT OF AE BUT ONLY TO ENHANCE SALES OF THE TAXPAYER. 14. TPO ON THE BASIS OF HIS TP ANALYSIS OBSERVED TH AT INCURRING OF HUGE AMP EXPENDITURE BY THE TAXPAYER HAVE BENEFI TED ITS AE TO PROMOTE SUZUKI A TRADEMARK OWNED BY ITS AE ON ITS PRODUCT RANGE AND TO CREATE MARKET INTANGIBLES FOR THE SALE OF PRODUCT WITH BRAND NAME OF THE AE IN INDIA. HOWEVER, THESE OBSE RVATIONS OF THE TPO HAVE BEEN NEGATED BY HONBLE DELHI HIGH COURT IN VALVOLINE CUMMINS PRIVATE LTD. VS. DCIT IN ITA 158/ 2016 ORDER DATED 31.07.2016 BY HOLDING THAT THE MERE FACT THAT THE ASSESSEE WAS PERMITTED TO USE THE BRAND NAME WILL NOT AUTOMA TICALLY LEAD TO THE INFERENCE THAT ANY EXPENSES THAT THE ASSESSEE I NCURRED TOWARDS ITA NO.476/DEL/2015 13 AMP IS ONLY TO ENHANCE THE BRAND/TRADEMARK VALVOLIN E. SO, IN THE ABSENCE OF ANY ARRANGEMENT OR AGREEMENT, IT IS DIFFICULT TO INFER THAT THE AMP EXPENSES INCURRED BY ASSESSEE ARE NOT FOR ITS OWN BENEFIT BUT FOR THE BENEFIT OF ITS AE. SO, WHEN TH E FACTUAL FOUNDATION I.E. BLT METHOD TO DETERMINE THE EXISTEN CE OF OR THE ALP OF INTERNATIONAL TRANSACTIONS INVOLVING AMP EXP ENSES IS HELD TO BE NOT SUSTAINABLE, THE ENTIRE ADJUSTMENT MADE B Y TPO/DRP/AO IS NOT SUSTAINABLE. 15. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE AR E OF THE CONSIDERED VIEW THAT FOLLOWING THE SERIES OF DECISI ONS RENDERED BY HONBLE DELHI HIGH COURT DISCUSSED IN PRECEDING PAR AS, WHEN THE TAXPAYER HAS DISPUTED THE EXISTENCE OF INTERNATIONA L TRANSACTION QUA ITS AMP EXPENSES THE REVENUE HAS FAILED TO DISCHARG E ITS INITIAL ONUS TO PROVE ON THE BASIS OF TANGIBLE MATERIAL THA T THERE EXISTS AN INTERNATIONAL TRANSACTION QUA INCURRING OF AMP EXPE NSES BETWEEN THE TAXPAYER AND ITS AE OR THAT THE TAXPAYER AND IT S AE HAVE ACTED IN CONCERT BY WAY OF ANY AGREEMENT AS TO INCURRING OF INTERNATIONAL TRANSACTIONS QUA AMP EXPENSES. 16. SO, WHEN THE BLT METHOD ADOPTED BY THE TPO INCU RRING THE AMP EXPENSES BY FOLLOWING THE RATIO OF LG ELECTRONICS INDIA PVT. ITA NO.476/DEL/2015 14 LTD. (SUPRA) DECIDED BY SPECIAL BENCH OF THE TRIBUNAL, HAS BEEN HELD TO BE NOT LEGALLY SUSTAINABLE BY THE HONBLE D ELHI HIGH COURT IN SERIES OF JUDGMENTS DISCUSSED IN PRECEDING PARAS , THE ENTIRE EXERCISE OF DETERMINING AMP EXPENSES AS INTERNATION AL TRANSACTION BY THE TPO IS WITHOUT ANY BASIS, HENCE NOT SUSTAINA BLE. 17. LEARNED DR FOR THE REVENUE, ALTHOUGH ADMITTED T HE LEGAL POSITION ENUNCIATED IN THE PRECEDING PARAGRAPHS, BU T HE CONTENDED THAT SINCE ALL THE AFORESAID DECISIONS ARE LYING CH ALLENGED BEFORE THE HON'BLE APEX COURT, THE MATTER MAY BE KEPT PENDING TILL THE DECISION BY HON'BLE APEX COURT. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT SINCE IT IS A STAY GRANTED MAT TER AND THE PROCEEDINGS BEFORE THE SECOND APPELLATE AUTHORITY H AVE NOT BEEN STAYED BY ANY HIGHER FORUM, THE SAME CANNOT BE KEPT PENDING. 18. AFTER CONSIDERING THE LEGAL POSITION AS DISCUSS ED IN THE PRECEDING PARAGRAPHS, WE ARE OF THE CONSIDERED OPIN ION THAT THE ALP OF AN INTERNATIONAL TRANSACTION INVOLVING AMP E XPENSES, THE ADJUSTMENT MADE BY THE TPO/DRP/AO IS NOT SUSTAINABL E IN THE EYES OF LAW. AT THE SAME TIME, WE CANNOT IGNORE THE SUBMISSION OF THE LEARNED DR THAT THE MATTER IS PENDING BEFORE HO N'BLE APEX COURT AND THE DECISION OF HON'BLE APEX COURT WOULD BE BINDING ITA NO.476/DEL/2015 15 UPON ALL THE AUTHORITIES. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. WE HOLD THAT AS PER THE FACTS OF THE CASE AND THE LEGAL POSITION AS OF NOW AND DISCUSSED ABOVE IN THI S ORDER, THE ADJUSTMENT MADE BY THE TPO/DRP/AO IN RESPECT OF AMP EXPENSES IS NOT SUSTAINABLE. HOWEVER, IF THE ABOVE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT WHICH IS UNDER CONSIDERAT ION BEFORE THE HON'BLE APEX COURT IS MODIFIED OR REVERSED BY THE H ON'BLE APEX COURT, THEN THE ASSESSING OFFICER WOULD PASS THE OR DER AFRESH CONSIDERING THE DECISION OF HON'BLE APEX COURT. IN THOSE CIRCUMSTANCES, HE WILL ALSO ALLOW OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE. 19. RESULTANTLY, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED PRO TANTO. ORDER PRONOUNCED IN OPEN COURT ON THIS 26 TH DAY OF NOVEMBER, 2018. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) VICE PRESIDENT JUDICIAL MEMBER DATED THE 26 TH DAY OF NOVEMBER, 2018 TS ITA NO.476/DEL/2015 16 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.