M/s. Sony India (P) Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 4978/DEL/2011

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9269 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 03-01-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI E BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA , ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE , JUDICIAL MEMBER ITA NO. 4978 /DEL/201 1 [A.Y 20 0 7 - 0 8 ] M/S SONY INDIA PVT LTD VS. THE ADDL. C.I.T A 31, MOHAN CO - OPERATIVE RANGE - 9 INDUSTRIAL ESTATE NEW DELHI MATHURA ROAD, NEW DELHI PAN : AABCS 1571 Q [APPELLANT] [RESPONDENT] DATE OF HEARING : 1 2 . 1 2 .201 8 DATE OF PRONOUNCEMENT : 2 1 . 1 2 .2018 ASSESSEE BY : SHRI NAGESHWAR RAO, A DV. SHRI SANDEEP KARHAIL, ADV REVENUE BY : SHRI H.K. CHAUDHARY, CIT - DR SMT. NAMITA PANDEY, SR. DR ORDER PER N.K. BILLAIYA , ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS HEARD PURSUANT TO THE DIRECTIONS OF THE HON'BLE HIGH COURT OF DELHI. 2 2. THE HON'BLE HIGH COURT, VIDE ORDER DATED 23.07.2018 IN ITA NOS. 508 & 509 /2013 AND 148 & 149/2014 HAS REMITTED THE FOLLOWING ISSUES FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE HON'BLE HIGH COURT IN THE CASE OF SON Y ERICSON MOBILE COMMUNICATION OF INDIA PRIVATE LIMITED 374 ITR 118 : WHETHER THE ADVERTISEMENT AND MARKETING EXPENDITURE INCURRED BY THE APPELLANT ASSESSEE CAN BE TREATED AS INTERNATIONAL TRANSACTION AND MADE SUBJECT MATTER OF ADJUSTMENT IN ARMS LENGTH PRICING? 3. THE RELEVANT FINDINGS OF THE HON'BLE HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATION INDIA P. LTD READ AS UNDER: WE WOULD NOT LIKE TO GO INTO SEVERAL FACTUAL ASPECTS FOR THE FIRST TIME, FOR THE FACTUAL MATRIX HAS NOT BEEN EXAMINED AND ASCERTAINED BY THE TRIBUNAL. MOREOVER, IN TERMS WITH OUR LEGAL FINDING, FACTUAL FINDINGS WILL HAVE TO BE EXAMINED. AN ORDER OF REMAND FOR DE NOVO CONSIDERATION TO THE TRIBUNAL WOULD BE APPROPRIATE BECAUSE THE LEGAL STANDARDS OR RATIO ACCEPTED AND APPLIED BY THE TRIBUNAL WAS ERRONEOUS. ON THE BASIS OF THE LEGAL RATIO EXPOUNDED IN THIS DECISION, FACTS HAVE TO BE ASCERTAINED AND APPLIED. IF REQUIRED AND NECESSARY, THE ASSESSED AND THE REVENUE SHOULD BE ASKED TO FURNISH DETAILS OR TABLES. THE TRIBUNAL, AT THE FIRST INSTANCE, WOULD TRY AND 3 DISPOSE OF THE APPEALS, RATHER THAN PASSING AN ORDER OF REMAND TO THE ASSESSING OFFICER/TPO. THE ENDEAVOU R SHO ULD BE T O ASCERTAIN AND SATISFY WHETHER THE GROSS/NET PROFIT MARGIN WOULD DULY ACCOUNT FOR AMP EXPENSES. WHEN FIGURES AND CALCULATIONS AS PER THE TNM OR RP METHOD ADOPTED AND APPLIED SHOW THAT THE NET/GROSS MARGINS ARE ADEQUATE AND ACCEPTABLE, THE APP EAL OF THE ASSESSED SHOULD BE ACCEPTED. WHERE THERE IS A DOUBT OR THE OTHER VIEW IS PLAUSIBLE, AN ORDER OF REMAND FOR RE EXAMINATION BY THE ASSESSING OFFICER/TPO WOULD BE JUSTIFIED. A PRACTICAL APPROACH IS REQUIRED AND THE TRIBUNAL HAS SUFFICIENT DISCRETIO N AND FLEXIBILITY TO REACH A FAIR AND J UST CONCLUSION ON THE ARMS LENGTH PRICE. 4 . PURSUANT TO THE ORDER OF THE HON'BLE HIGH COURT DATED 23.07.2018 AND IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATI ON INDIA PRIVATE LIMITED [SUPRA], WE HEARD THE RIVAL REPRESENTATIVE AT LENGTH AND HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW QUA THE ISSUE AND THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE LIGHT OF RULE 18(6) OF THE ITAT RULES . 5 . WHILE DELIVERING THE JUDGEMENT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATION INDIA PRIVATE LIMITED [SUPRA], THE HON'BLE HIGH COURT HAS ENLISTED ITS FINDINGS AS UNDER: 4 (I) IN CASE OF A DISTRIBUTOR AND MARKETING AE, THE FIRST STEP IN TRANSFER PRICING IS TO ASCERTAIN AND CONDUCT DETAILED FUNCTIONAL ANALYSIS, WHICH WOULD INCLUDE AMP FUNCTION/EXPENSES. (II) THE SECOND STEP MANDATES ASCERTAINMENT OF COMPARABLES OR COMPARABLE ANALYSIS. THIS WOULD HAVE REFERENCE TO THE METHOD ADOPTED WHICH MATCHES TH E FUNCTIONS AND OBLIGATIONS PERFORMED BY THE TESTED PARTY INCLUDING AMP EXPENSES. (III) A COMPARABLE IS ACCEPTABLE, IF BASED UPON COMPARISON OF CONDITIONS A CONTROLLED TRANSACTION IS SIMILAR WITH THE CONDITIONS IN THE TRANSACTIONS BETWEEN INDEPENDENT ENTER PRISES. IN OTHER WORDS, THE ECONOMICALLY RELEVANT CHARACTERISTICS OF THE TWO TRANSACTIONS BEING COMPARED MUST BE SUFFICIENTLY COMPARABLE. THIS ENTAILS AND IMPLIES THAT DIFFERENCE, IF ANY, BETWEEN CONTROLLED AND UNCONTROLLED TRANSACTION, SHOULD NOT MATERIAL LY AFFECT THE CONDITIONS BEING EXAMINED GIVEN THE METHODOLOGY BEING ADOPTED FOR DETERMINING THE PRICE OR THE MARGIN. WHEN THIS IS NOT POSSIBLE, IT SHOULD BE ASCERTAINED WHETHER REASONABLY ACCURATE ADJUSTMENTS CAN BE MADE TO ELIMINATE THE EFFECT OF SUCH DIF FERENCES ON THE PRICE OR MARGIN. THUS, IDENTIFICATION OF THE POTENTIAL COMPARABLES IS THE KEY TO THE TRANSFER PRICING ANALYSIS. AS A SEQUITUR, IT FOLLOWS THAT THE CHOICE OF THE MOST APPROPRIATE METHOD WOULD BE DEPENDENT UPON 5 AVAILABILITY OF POTENTIAL COMPA RABLE KEEPING IN MIND THE COMPARABILITY ANALYSIS INCLUDING BEFITTING ADJUSTMENTS WHICH MAY BE REQUIRED. AS THE DEGREE OF THE COMPARABILITY INCREASES, EXTENT OF POTENTIAL DIFFERENCES WHICH WOULD RENDER THE ANALYSIS INACCURATE NECESSARILY DECREASES. (IV) THE ASSESSED, I.E. THE DOMESTIC AE MUST BE COMPENSATED FOR THE AMP EXPENSES BY THE FOREIGN AE. SUCH COMPENSATION MAY BE INCLUDED OR SUBSUMED IN LOW PURCHASE PRICE OR BY NOT CHARGING OR CHARGING LOWER ROYALTY. DIRECT COMPENSATION CAN ALSO BE PAID. THE METHOD S ELECTED AND COMPARABILITY ANALYSIS SHOULD BE APPROPRIATED AND RELIABLE SO AS TO INCLUDE THE AMP FUNCTIONS AND COSTS. (V) WHERE THE ASSESSING OFFICER/TPO ACCEPTS THE COMPARABLES ADOPTED BY THE ASSESSED, WITH OR WITHOUT MAKING ADJUSTMENTS, AS A BUNDLED TRANS ACTION, IT WOULD BE ILLOGICAL AND IMPROPER TO TREAT AMP EXPENSES AS A SEPARATE INTERNATIONAL TRANSACTION, FOR THE SIMPLE REASON THAT IF THE FUNCTIONS PERFORMED BY THE TESTED PARTIES AND THE COMPARABLES MATCH, WITH OR WITHOUT ADJUSTMENTS, AMP EXPENSES ARE D ULY ACCOUNTED FOR. IT WOULD BE INCONGRUOUS TO ACCEPT THE COMPARABLES AND DETERMINE OR ACCEPT THE TRANSFER PRICE AND STILL SEGREGATE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION. 6 (VI) THE ASSESSING OFFICER/TPO CAN REJECT A METHOD SELECTED BY THE ASSESSED FO R SEVERAL REASONS INCLUDING WANT OF RELIABILITY IN THE FACTUAL MATRIX OR LACK / NON - AVAILABILITY OF COMPARABLES. (SEE SECTION 92C(3) OF THE ACT). (VII) WHEN THE ASSESSING OFFICER/TPO REJECTS THE METHOD ADOPTED BY THE ASSESSED, HE IS ENTITLED TO SELECT THE MOST APPROPRIATE METHOD, AND UNDERTAKE COMPARABILITY ANALYSIS. SELECTION OF THE METHOD AND COMPARABLES SHOULD BE AS PER THE COMMAND AND DIRECTIVE OF THE ACT AND RULES AND JUSTIFIED BY GIVING REASONS. (VIII) DISTRIBUTION AND MARKETING ARE INTER - CONNECTED AN D INTERTWINED FUNCTIONS. BUNCHING OF INTER - CONNECTED AND CONTINUOUS TRANSACTIONS IS PERMISSIBLE, PROVIDED THE SAID TRANSACTIONS CAN BE EVALUATED AND ADEQUATELY COMPARED ON AGGREGATE BASIS. THIS WOULD DEPEND ON THE METHOD ADOPTED AND COMPARABILITY ANALYSIS AND THE MOST RELIABLE MEANS OF DETERMINING ARMS LENGTH PRICE. (IX) TO ASSERT AND PROFESS THAT BRAND BUILDING AS EQUIVALENT OR SUBSTANTIAL ATTRIBUTE OF ADVERTISEMENT AND SALE PROMOTION WOULD BE LARGELY INCORRECT. IT REPRESENTS A COORDINATED SYNERGETIC IMPA CT CREATED BY ASSORTMENT LARGELY REPRESENTING REPUTATION AND QUALITY. BRAND HAS REFERENCE TO A NAME, TRADEMARK OR TRADE NAME AND LIKE GOODWILL IS A VALUE OF 7 ATTRACTION TO CUSTOMERS ARISING FROM NAME AND A REPUTATION FOR SKILL, INTEGRITY, EFFICIENT BUSI NESS MANAGEMENT OR EFFICIENT SERVICE. BRAND CREATION AND VALUE, THEREFORE, DEPENDS UPON A GREAT NUMBER OF FACTS RELEVANT FOR A PARTICULAR BUSINESS. IT REFLECTS THE REPUTATION WHICH THE PROPRIETOR OF THE BRAND HAS GATHERED OVER A PASSAGE OR PERIOD OF TIME I N THE FORM OF WIDESPREAD POPULARITY AND UNIVERSAL APPROVAL AND ACCEPTANCE IN THE EYES OF THE CUSTOMER. BRAND VALUE DEPENDS UPON THE NATURE AND QUALITY OF GOODS AND SERVICES SOLD OR DEALT WITH. QUALITY CONTROL BEING THE MOST IMPORTANT ELEMENT, WHICH CAN MAR OR ENHANCE THE VALUE. (X) PARAMETERS SPECIFIED IN PARAGRAPH 17.4 OF THE ORDER DATED 23RD JANUARY, 2013 IN THE CASE OF L.G. ELECTRONICS INDIA PVT LTD (SUPRA) ARE NOT BINDING ON THE ASSESSED OR THE REVENUE. THE BRIGHT LINE TEST HAS NO STATUTORY MANDATE AN D A BROAD - BRUSH APPROACH IS NOT MANDATED OR PRESCRIBED. WE DISAGREE WITH THE REVENUE AND DO NOT ACCEPT THE OVERBEARING AND OROTUND SUBMISSION THAT THE EXERCISE TO SEPARATE ROUTINE AND NON - ROUTINE AMP OR BRAND BUILDING EXERCISE BY APPLYING BRIGHT LINE TEST OF NON - COMPARABLES SHOULD BE SANCTIONED AND IN ALL CASES, COSTS OR COMPENSATION PAID FOR AMP EXPENSES WOULD BE NIL, OR AT BEST WOULD MEAN THE AMOUNT OR COMPENSATION EXPRESSLY PAID FOR AMP EXPENSES. IT WOULD BE CONSPICUOUSLY WRONG AND INCORRECT TO T REAT THE SEGREGATED TRANSACTIONAL VALUE AS NIL WHEN IN FACT THE TWO AES HAD 8 TREATED THE INTERNATIONAL TRANSACTIONS AS A PACKAGE OR A SINGLE ONE AND CONTRIBUTION IS ATTRIBUTED TO THE AGGREGATE PACKAGE. UNHESITATINGLY, WE ADD THAT IN A SPECIFIC CASE THIS C RITERIA AND EVEN ZERO ATTRIBUTION COULD BE POSSIBLE, BUT FACTS SHOULD SO REVEAL AND REQUIRE. TO THIS EXTENT, WE WOULD DISAGREE WITH THE MAJORITY DECISION IN L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA). THIS WOULD BE NECESSARY WHEN THE ARMS LENGTH PRICE OF TH E CONTROLLED TRANSACTION CANNOT BE ADEQUATELY OR RELIABLY DETERMINED WITHOUT SEGMENTATION OF AMP EXPENSES. (XI) THE ASSESSING OFFICER/TPO FOR GOOD AND SUFFICIENT REASONS CAN DE - BUNDLE INTERCONNECTED TRANSACTIONS, I.E. SEGREGATE DISTRIBUTION, MARKETING OR A MP TRANSACTIONS. THIS MAY BE NECESSARY WHEN BUNDLED TRANSACTIONS CANNOT BE ADEQUATELY COMPARED ON AGGREGATE BASIS. (XII) WHEN SEGMENTATION OR SEGREGATION OF A BUNDLED TRANSACTION IS REQUIRED, THE QUESTION OF SET OFF AND APPORTIONMENT MUST BE EXAMINED REALI STICALLY AND WITH A PRAGMATIC APPROACH. TRANSFER PRICING IS AN INCOME ALLOCATING EXERCISE TO PREVENT ARTIFICIAL SHIFTING OF NET INCOMES OF CONTROLLED TAXPAYERS AND TO PLACE THEM ON PARITY WITH UNCONTROLLED, UNRELATED TAXPAYERS. THE EXERCISE UNDERTAKEN SHOU LD NOT RESULT IN OVER OR DOUBLE TAXATION. THUS, THE ASSESSING OFFICER/TPO CAN SEGREGATE AMP EXPENSES AS AN INDEPENDENT INTERNATIONAL TRANSACTION, BUT ONLY AFTER 9 ELUCIDATING GROUNDS AND REASONS FOR NOT ACCEPTING THE BUNCHING ADOPTED BY THE ASSESSED, AND EXA MINING AND GIVING BENEFIT OF SET OFF. SECTION 92(3) DOES NOT BAR OR PROHIBIT SET OFF. (XIII) CP METHOD IS A RECOGNISED AND ACCEPTED METHOD UNDER INDIAN TRANSFER PRICING REGULATION. IT CAN BE APPLIED BY THE ASSESSING OFFICER/TPO IN CASE AMP EXPENSES ARE TRE ATED AS A SEPARATE INTERNATIONAL TRANSACTION, PROVIDED CP METHOD IS THE MOST APPROPRIATE AND RELIABLE METHOD. ADOPTION OF CP METHOD AND COMPUTATION OF COST AND GROSS PROFIT MARGIN COMPARABLE MUST BE JUSTIFIED. (XIV) THE OBJECT AND PURPOSE OF TRANSFER PRICI NG ADJUSTMENT IS TO ENSURE THAT THE CONTROLLED TAXPAYERS ARE GIVEN TAX PARITY WITH UNCONTROLLED TAXPAYERS BY DETERMINING THEIR TRUE TAXABLE INCOME. COSTS OR EXPENSES INCURRED FOR SERVICES PROVIDED OR IN RESPECT OF PROPERTY TRANSFERRED, WHEN MADE SUBJECT MA TTER OF ARMS LENGTH PRICE BY APPLYING CP METHOD, CANNOT BE AGAIN FACTORED OR INCLUDED AS A PART OF INTER - CONNECTED INTERNATIONAL TRANSACTION AND SUBJECTED TO ARMS LENGTH PRICING 6 . THE FIRST POINT IS TO ASCERTAIN AND CONDUCT DETAILED FUNCTIONAL ANALYSIS WHICH WOULD INCLUDE AMP EXPENSES. THE TRANSFER PRICING OFFICER HAS MENTIONED THE COPY OF ADVERTISEMENT AGREEMENT WHICH 10 WAS ENTERED INTO ON 0 1. 0 4. 20 05 BUT THERE IS NO REFERENCE TO ANY ADVERTISEMENT AGREEMENT RELEVANT TO A.Y 2007 - 08 WHICH IS THE YEAR UNDER APPEAL. THE LD. AR STATED THAT THERE IS NO AGREEMENT FOR THE YEAR UNDER CONSIDERATION TO WHICH THE DR STATED THAT IN THE ABSENCE OF ANY AGREEMENT, IT WOULD NOT BE POSS IBLE TO DETERMINE THE MARKETING FUNCTION OF THE ASSESSEE AND, THEREFORE, FRESH COMPARABL E S HAVE TO BE CONSIDERED. 7 . THE BUSINESS PROFILE OF THE ASSESSEE SHOWS THAT IT HAS DISTRIBUTION NET WORK COMPRISING OF OVER 7 , 000 CHA NNEL PARTNERS, 215 SONY WORLD AND SONY EXCLUSIVE OUTLETS AND 21 DIRECT BRANCH LOCATIONS. THE ASSESSEE HAS STRONG SERVICE PRESENCE ACROSS TH E COUNTRY WITH 21 COMPANY OWNED AND 172 AUTHORISED SERVICE CENT ERS. WE FURTHER FIND THAT THE ASSESSEE HAS SHUT DOWN THE BUSINESS OPERATIONS RELATING TO MANUFACTURING OPERATIONS AS ON 01.07.2004. THEREFORE, AS ON DATE, THE ASSESSEE FROM BEING A MANUFACTURER AND DISTRIBUTOR OF GOODS, HAS CHANGED ITS MODEL AND HAS BECOME FULL - FLEDGED DISTRIBUTOR OF GOODS. 11 8 . THUS, IT CAN BE SAFELY CONCLUDED THAT THE CORE BUSINESS OF THE ASSESSEE IS DISTRIBUTION OF GOODS AND IN FURTHERANCE OF THIS CORE BUS INESS ACTIVITY, THE ASSESSEE IS ALSO DOING MARKETING. 9 . THE ASSESSEE DOES NOT OWN ANY INTANGIBLES IN THE NATURE OF BRAND NAME OR MARKETING INTA N GI B LES. THE ASSESSEE HAS INCURRED THE FOLLOWING EXPENSES RELATING TO AMP: ADVERTISEMENT EXPENSES - RS. 38, 62,51,002/ - SALES PROMOTION EXPENSES - RS. 77,54,79,113/ - SELLING EXPENSES - RS. 2,64,50,161/ - REIMBURSEMENT OF EXPENSES - RS. 72,63,324/ - 10 . SINCE THE ASSESSEE HAS NOT BENCH MARKED THE INTERNATIONAL TRANSACTION OF REIMBURSEMENT RECEIVED FROM ITS AE, THE TPO WAS OF THE OPINION THAT THE SAME HAS NOT BEEN SHOWN BY THE ASSESSEE IN THE T.P. REPORT AS TO WHETHER THE ASSESSEE HAS BEEN SUITABLY COMPENSATED BY THE AE IN THIS RESPECT OR NOT. 12 1 1 . THE TPO OBSERVED THAT THE ASSESSEE HAS DEVELOPED MARKETING I NTANGIBLES BY INCURRING EXPENDITURE OF RS. 1,19,54,43,600/ - ON ADVERTISEMENT, MARKETING AND PROMOTION. THE TPO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS NOT BEEN COMPENSATED BY ITS AE FULLY FOR THE COST INCURRED BY THE ASSESSEE FOR BRAND PROMOTION AND DEVELOPMENT OF MARKET FOR THE PRODUCTS OF THE AE IN INDIA. THE TPO FURTHER OBSERVED THAT OWNERSHIP OF BRAND WAS WITH AE AND THE ASSESSEE WAS INCURRING EXPENDITURE TO PROMOTE THE BRAND OF AE AND AS A CONSEQUENCE, WAS CREATING MARKETING INTANGIBLE IN INDIA WHICH IMPLIES THAT MARKETING INTANGIBLE IS WITH THE ASSESSEE AND ITS LEGAL OWNERSHIP IS WITH AE. 1 2 . IT IS THE SAY OF THE LD. AR THAT AS A SOLE DISTRIBUTOR OF SONY S PRODUCTS IN INDIA, ANY BENEFIT ARISING FROM ADVERTISEMEN T ACTIVITIES INCLUDING RESULTANT INCREMENT TO THE VALUE OF BRAND IN INDIA IS AVAILABLE TO THE ASSESSEE ONLY. THE LD. AR FURTHER POINTED OUT THAT THE ASSESSEES MANAGEMENT IS INDEPENDENTLY RESPONSIBLE FOR UNDERTAKING ALL STRATEGIC DECISIONS, SUCH AS, INTRODUCTION OF NEW PRODUCTS , DECIDING THE MAR KET ING INITIATIVES, BUSINESS DEVELOPMENT, SALES STRATEGIES ETC. SUCH DECISIONS ARE UNDERTAKEN BY THE ASSESSEE BASED ON THE ASSESSMENT OF THE MARKET CONDITION, NATURE OF COMPETITION PREVAILING IN THE 13 MARKET AND COMPETITORS STRATEGIES. THE LD. AR C ONCLUDED BY SAYING THAT THE ASSESSEE IS SOLE BENEFICIARY OF AMP EXPENDITURE CARRIED OUT BY THE COMPANY. 1 3 . IN OUR CONSIDERED OPINION, BY VIRTUE OF INCURRING EXPENDITURE OF AMP, T HE ASSESSEE CANNOT ACQUIRE OWNERSHIP OF INTANGIBLES WHICH BELONGS TO THE AE. IN OUR CONSIDERED O PINION, THE AMP EXPENDITURE WAS NOT INCURRED FOR THE AE. THE ASSESSEE EXPLOITS THE INTANGIBLES CREATED BY ITS AE IN INDIA THOUGH NO BRAND ROYALTY PAYMENT IS MADE BY THE ASSESSEE AND IT CANNOT BE DENIED THAT BRAND NAME SON Y IS GLOBAL B RAND ACROSS THE GLOBE . THEREFORE , IT CANNOT BE SAID THAT SON Y BRAND HAS BECOME POPULAR ONLY A S A RE S ULT OF E FFORTS OF THE ASSESSEE COMPANY. 1 4 . ASSUMING THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE HAS RESULTED IN CREATION OF SONY BRAND IN INDIA AND THAT THE ASSESSEE IS THE ECONOMIC OWNER OF SUCH BRAND IN THE LIGHT OF THE DECISION OF THE HON'BLE HIGH COURT [SUPRA], ALL THAT HAS TO BE SEEN IS WHETHER THE ASSESSEE HAS EARNED RETURNS SIMILAR TO THE RETURNS EARNED BY OTHER COMPANIES OW N ING THE BRANDS, N O FURTHER AMOUNT WOULD BE ATTRIBUTABLE TOWARDS SUCH BRAND ACTIVITIES . 14 1 5 . WE FIND THAT THE TPO HAS BENCH MARKED THE INTERNATIONAL TRANSACTION RELATING TO AMP EXPENDITURE BY APPLYING BRIGHT LINE TEST [BLT]. 1 6 . THE HON'BLE HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATION INDIA PRIVATE LIMITED [SUPRA] HAS DISCARDED BLT. THE RELEVANT FINDING OF THE HON'BLE HIGH COURT READS AS UNDER: 27. WE AGREE AND ACCEPT THE POSITION IN THE PORTION REPRODUCED ABOVE IN BOLD AND ITALICS. THE OBJECT AND PURPOSE OF TRANSFER PRICING ADJUSTMENT IS TO ENSURE THAT THE CONTROLLED TAXPAYERS ARE GIVEN TAX PARITY WITH UNCONTROLLED TAXPAYERS BY DETERMINING THEIR TRUE TAXABLE INCOME. THERE SHOULD BE ADEQUATE AND PROPER COMPENSATIO N FOR THE FUNCTIONS PERFORMED INCLUDING AMP EXPENSES. THUS, WE DISAGREE WITH THE REVENUE AND DO NOT ACCEPT THE OVERBEARING AND OROTUND SUBMISSION THAT THE EXERCISE TO SEPARATE ROUTINE AND NON - ROUTINE AMP OR BRAND BUILDING EXERCISE BY APPLYING BRIGHT L INE TEST OF NON - COMPARABLES AND IN ALL CASE, COSTS OR COMPENSATION PAID FOR AMP EXPENSES WOULD BE NIL, OR AT BEST WOULD MEAN THE AMOUNT OR COMPENSATION EXPRESSLY PAID FOR AMP EXPENSES. UNHESITATINGLY, WE ADD THAT IN A SPECIFIC CASE THIS CRITERIA AND EVE N ZERO ATTRIBUTION COULD BE POSSIBLE BUT FACTS SHOULD SO REVEAL AND REQUIRE. TO THIS EXTENT, WE 15 WOULD DISAGREE WITH THE MAJORITY DECISION IN L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA). 1 7 . THE COMPARABLES USED BY THE ASSESSEE ARE AS UNDER: NAME OF THE COMPANY FY 2006 - 07 BAJAJ ELECTRONICS LIMITED 5.21% BLUE STAR LIMITED 1.69% USHA INTERNATIONAL LIMITED 4.54% VOLTAS LIMITED - 3.07% ARITHMETIC MEAN 2.09% 1 8 . THE TPO HAS ALSO USED THE SAME COMPARABLES FOR APPLYING BLT: SL NO NAME OF THE COMPANY ADVERTISING, MARKETING AND PROMOTIONAL EXPENSE (A) SALES (B) ADV T , MARKETING AND PROMOTION EXPENSE/ SALES (A/B) (IN %) 1. ALLIED PHOTO GRAPHICS INDIA LTD 8,74,164 37,48,48,199 0.23% 2 . BAJAJ ELECTRONICS L TD 47,61,14,000 10,83,16,54,000 4 . 39 % 3 . BLUE STAR LIMITED 345.812,000 16,07,40,69,000 2 . 15 % 4 . USHA INTERNATIONAL L TD 677,37,000 124,49,72,000 5.4 4% 5 . VOLTAS LIMITED 30,53,84,000 24,00,55,16,000 1.2 7% ARITHMETIC MEAN 2.69% 1 9 . THE ASSESSEES OPERATING MARGIN IS AT 3.29% OF OPERATING REVENUE FROM ITS CONSUMER ELECTRONIC DIVISION AND ARITHMETIC MEAN OF OPERATING MARGIN OF COMPAN IES OWNER OF SAME BRAND IS 2. 0 9% AS MENTIONED AT 16 THE ABOVE CHART. AS PER THE OBSERVATION OF THE HON'BLE HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATION INDIA PRIVATE LIMITED [SUPRA], IF THE RETURN EARNED BY THE ASSESSEE IS SIMILAR OR MORE THAN THAT THE RETURN EARNED BY THE OWNER OF THE BRAND, NO FURTHER AMOUNT SHOULD BE CONTRIBUTED TOWARDS SUCH BRAND ACTIVITI ES. ANY AMOUNT THAT WOULD BE ATTRIBUTABLE TO THE ASSESSEE FROM THE CREATION OF SUCH MARKETING INTANGIBLE HAS ALREADY BEEN RECEIVED BY THE ASSESSEE IN TERMS OF HIGHER PROFITABILITY FOR THE PRODUCT SOLD. 20 . BEFORE US, THE LD. DR VEHEMENTLY STATED THAT SIN CE THE TPO HAS PROCEEDED BY APPLYING BLT WHICH WAS PREVALENT AT THE TIME OF TRANSFER PRICING ASSESSMENT PROCEEDINGS AND SINCE THE HON'BLE HIGH COURT HAS DISCARDED THE BLT, THEN THE TPO SHOULD BE GIVEN AN OPPORTUNITY TO DEBUNDLE THE TRANSACTION VIS A VIS TH E COMPARABLES AND DETERMINE THE ISSUE AFRESH. 2 1 . WE DO NOT FIND MERIT IN THIS CONTENTION OF THE LD. DR. FIRSTLY, THE TPO HAS USED THE SAME COMPARABLES AS THAT OF THE ASSESSEE AND THE TPO CHOSE TO EXAMINE THE INTERNATIONAL TRANSACTION, I F ANY, BY APPLYIN G BLT , KNOWING FULLY WELL THAT THE OPERATING MARGIN OF THE ASSESSEE IS 17 BETTER THAN THOSE OF THE COMPARABLES. IT WOULD NOT BE PROPER TO AS K THE TPO TO REWORK THE AMP EXPENSES INTO THAT WHICH WAS INCURRED FOR BUILDING THE BRAND VALUE OF THE FOREIGN AE AND T HAT THE SAME WAS INCURRED WHO L LY OR EXCLUSIVELY OF THE BENEFIT OF THE BRAND BUILDING OF THE AE. MOREOVER, IN OUR CONSIDERED OPINION, MULTIPLE OPPORTUNITIES ARE NOT PERMISSIBLE TO ANY AUTHORITY TO EXPERIMENT IN SETTING UP CASE AS HELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF RAJESH BABUBHAI DAMANIA 251 ITR 541. 2 2 . IT WOULD NOT BE OUT OF P LACE TO REFER TO THE CLARIFICATION GIVEN BY THE HON'BLE HIGH COURT OF DELH I IN THE CASE OF CASIO INDIA PVT LTD IN ITA NO. 814/2017 AND CM 34273/2017 AND THE SAME R EAD S AS UNDER: LEARNED COUNSEL FOR THE APPELLANT STATES THAT CLARIFICATION IS REQUIRED THAT THE DIRECTIONS GIVEN IN PARAGRAPH 8 OF THE IMPUGNED ORDER SHOULD NOT BE CONSTRUED AS IF THE ASSESSING OFFICER/TRANSFER PRICING OFFICER (TPO) WOULD EXAMINE ADVERTISEMENT MARKETING AND SALES PROMOTION (AMP) EXPENSES AS A SEPARATE INTERNATIONAL TRANSACTION. AMP EXPENSES WERE PART AND PARCEL OF THE EXPENSES INCURRED OF THE DISTRIBUTION. WHILE DETERMINING ARMS LENGTH PRICE, THE SAID ASPECT WOULD BE TAKEN INTO CONSIDERATION BY THE ASSESSING /OFFICER/TPO. 18 2 3 . THE BENEFIT, IF ANY, GONE TO THE AE CAN ONLY BE TERMED AS INCIDENTAL BENEFIT. MERELY BECAUSE THERE IS A N INCIDENTAL BENEFIT TO AE, SONY COMPANY, IT CANNOT BE STATED THAT THE AMP EXPENSES INCURRED BY THE ASSESSEE WAS FOR PROMOTING THE BRAND SON Y JAPAN. 2 4 . AS MENTIONED ELSEWHERE, SINCE THE OP E R A TING PROFIT MARGIN OF THE APPELLANT COMPANY IS BETTER T HA N THOSE OF THE COMPARABLES, IT CAN BE SAFELY CONCLUDED THAT THE ASSESSEE HAS BEEN SUITABLY REMUNERATED AND NO FURTHER ADJUSTMENT IS REQUIRED TO BEN C H MARK THE AMP EXPENSES. FOLLOWING THE GUIDELINES LISTE D BY THE HON'BLE HIGH COURT IN THE CA S E OF SONY ERICSON MOBILE COMMUNICATION INDIA PRIVATE LIMITED [SUPRA], THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 25 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 4978 /DEL/2011 IS ALLOWED. THE ORDER IS PRON OUNCED IN THE OPEN COURT ON 2 1 . 1 2 .2018. S D / - S D / - [ SUCHITRA KAMBLE ] [ N.K. BILLAIYA ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 1 S T DEC EMBER , 2018 VL/ 19 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER