L'OREAL INDIA P.LTD, MUMBAI V. ADDL CIT RG 6(3), MUMBAI

ITA 7714/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3900 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 24-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JASMIN AMALSADUALA
• Keywords: Depreciation; Transfer pricing; International transaction; Wholly owned subsidiary; Fair market value; Unabsorbed depreciation
• Section: 92C; 92B; 92F; 92E; 32; 92

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C.N. PRASAD,JUDICIAL MEMBER ./I.T.A./7714/MUM/2012, /ASSESSMENT YEAR: 2008-09 LREAL INDIA PRIVATE LIMITED A-WING, 8 TH FLOOR, MARATHON FUTUREX, N.M. JOSHI MARG, LOWER PAREL,MUMBAI-400 013. PAN: AAACL 0738 K VS. DCIT-6(3) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 001. ./I.T.A./1119 /MUM/2014, /ASSESSMENT YEAR: 2009-10 LREAL INDIA PRIVATE LIMITED MUMBAI-400 013. VS. DCIT-6(3)AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 001. ./I.T.A. 976/MUM/2014, /ASSESSMENT YEAR: 2009-10 DCIT-6(3)AAYAKAR BHAVAN, M.K. ROAD MUMBAI-4000 01. VS. LREAL INDIA PRIVATE LIMITED MUMBAI-400 013. . /ITA/.NO.518 /MUM/2015, /ASSESSMENT YEAR: 2010-11 LREAL INDIA PRIVATE LIMITED MUMBAI-400 013. VS. DCIT-6(3)AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 001. ./I.T.A. 335/MUM/2015, /ASSESSMENT YEAR: 2010-11 DCIT-6(3)AAYAKAR BHAVAN, M.K. ROAD MUMBAI-4000 01. VS. LREAL INDIA PRIVATE LIMITED MUMBAI-400 013. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI N.K. CHAND-CIT ASSESSEE BY: SHRI NISHANT THAKKAR AND MS. JASMIN AMALSADUALA / DATE OF HEARING: 21.04.2016 / DATE OF PRONOUNCEMENT: 04.05.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS OF THE ASSESSING OFFICERS/DI SPUTE RESOLUTION PANEL (DRP)THE ASSESSEE AND THE ASSESSING OFFICERS(AO.S)H AVE FILED THE APPEALS RAISING VARIOUS GROUNDS FOR THE ABOVE MENTIONED YEA RS.AS THE ISSUES INVOLVED IN ALL THE CASES ARE SIMILAR,SO,WE ARE ADJUDICATING AL L THE APPEALS BY A SINGLE ORDER FOR THE SAKE OF CONVENIENCE.THE DETAILS OF THE DATE S OF FILING OF RETURN, DATE OF ORDER OF DRP AND ASSESSED INCOME ETC.CAN BE SUMMARI ZED AS UNDER : A.Y. ROI FILED ON RETURNED INCOME(RS.) ASSESSMENT DT. ASSESSED INCOME(RS.) DRP DIRECTIONS 7714-LOREAL GROUP 2 2008-09 30/09/2008 50,83,74,502/- 30/10/2012 23,40,90,670/- 03/09/2012 2009-10 30/09/2009 26,70,63,290/- 16.12.2013 142,23,48,170/- 30/10/2013 2010-11 15/10/2010 33,28,54,912/- 14/11/2014 164,35,54,912/- 28/10/2014 ITA/7714/MUM/2012,AY.2008-09: 2. ASSESSEE-COMPANY WAS INCORPORATED IN INDIA IN THE Y EAR 1991.IT IS A WHOLLY OWNED SUBSIDIARY OF LOREAL SA FRANCE.IT IS ENGAGED IN MANUFACTURING AND DISTRIBUTION OF COSMETICS. 2.1. FIRST GROUND OF APPEAL IS ABOUT TRANSFER PRICING (T P) ADJUSTMENT ON ACCOUNT OF ADVERTISEMENT,MARKETING AND SALES PROMOTION EXPE NSES(AMP EXPENSES), INCLUDING MARK-UP OF RS. 41.74 CRORES.DURING THE AS SESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO INTERNA TIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES(AES).FOR DETERMINING THE ARM S LENGTH PRICE (ALP) OF SUCH TRANSACTIONS,HE MADE A REFERENCE TO THE TRANSF ER PRICING OFFICER (TPO),AS PER THE PROVISIONS OF SECTION 92 OF THE ACT. DURING THE TP PROCEEDINGS, THE TPO ACCEPTED ALL THE INTERNATIONAL TRANSACTIONS TO BE AT ALP EXCEPT ONE AND THAT WAS THE AMP EXPENS ES.HE HELD THAT THE EXPENDITURE WAS ON THE HIGHER SIDE.HE APPLIED PROFI TS SPLIT METHOD (PSM)TO ARRIVE AT ALP.THE TPO HELD THAT THE CONSOLIDATED PR OFITS OF THE GROUP COULD BE ATTRIBUTED TO 3 MAJOR ACTIVITIES I.E.MANUFACTURING( 50%)RESEARCH AND DEVELOP - MENT(15%) AND AMP(35%).CONSIDERING THE ABOVE FACTS, HE COMPUTED 35% OF GLOBAL PROFITS FOR DETERMINING THE ALP.AS THE AMP E XPENDITURE INCURRED BY THE ASSESSEE WAS 0.63% OF THE TOTAL AMP EXPENDITURE OF THE GROUP,SO,HE APPLIED 0.63% ON THE GLOBAL PROFIT AND COMPUTED RS.348.44CR ORES ATTRIBUTABLE TO THE ASSESSEE.THE ASSESSEE HAD CLAIMED AMP EXPENDITURE O F RS.186.05 CRORES FOR THE YEAR UNDER CONSIDERATION AND HAD DECLARED PROFIT AT RS. 42.90 CRORES.THE TPO 7714-LOREAL GROUP 3 DEDUCTED 35% OF THE SAID PROFITS FROM THE SUM COMPU TED BY HIM AND ARRIVED AT AMP ADJUSTMENT OF RS. 333.43CRORES.HE DEDUCTED RS. 15.01 CRORES FROM THE TOTAL SUM I.E. RS. 348.44 CRORES. THE TPO WAS OF THE OPINION THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE HAD RESULTED IN CREATION OF MARKETING INTANGIBLES F OR ITS AE,THAT IT SHOULD HAVE BEEN COMPENSATED BY ITS AES TO THE EXTENT OF EXCESS AMP INCURRED VIS A VIS COMPARABLE COMPANIES.ACCORDINGLY,HE APPLIED BRIGHT LINE TEST(BLT) TO DETERMINE THE ALP OF THE AMP EXPENSES. THE TPO CONS IDERED THE FACT THAT THE SALES RATIO OF THE MANUFACTURING SEGMENT(MS)AND DIS TRIBUTION SEGMENT (DS) WAS AT 33.15% AND 39.59% RESPECTIVELY,THAT IN THE M ANUFACTURING SEGMENT THE ASSESSEE HAD SELECTED COMPARABLES NAMELY ADOR MULTI PRODUCTS LTD.,COLGATE PALMOLIVE (INDIA) LTD., FEM CARE PHARMA LTD., HENKE L INDIA LTD. AND RECKITT BENCKISER (INDIA) LTD. HOWEVER,THE TPO REJECTED ALL THE COMPARABLES CHOSEN BY THE ASSESSEE-EXCEPT ONE.HE INTRODUCED FIVE NEW COMP ARABLES NAMELY DABUR INDIA LTD,EMAMI LTD.,GODREJ CONSUMER PRODUCTS LTD., JYOTHI LABORATORIES LTD., PROCTER & GAMBLE HYGIENE & HEALTHCARE LTD. AND PROC TER & GAMBLE HOME PRODUCTS LTD.THE AMP TO SALES RATIO OF THE COMPARAB LES WAS 12.53%. HOWEVER, HE MENTIONED THAT THE SIX COMPARABLES CONSIDERED BY HIM WOULD INCUR AMP EXPENDITURE FOR BRANDS OWNED BY THEM AND NOT FOR TH E BRANDS OWNED BY THE FOREIGN ENTITIES.THEREFORE,TO DETERMINE THE COMPARA BLE TO THAT OF THE ASSESSEE THE ARITHMETIC MEAN OF THE AMP EXPENDITURE OF THE C OMPARABLE WAS REDUCED TO 8%. IN THE DS,THE TPO ACCEPTED TWO OUT OF THE FOUR COMP ARABLES SELECTED BY T HE ASSESSEE,HAVING AVERAGE APL TO SALES RATIO OF 4. 08%. HE ARRIVED AT THE MARKUP OF 8.92%(MS)ON THE EXCESSIVE AMP EXPENSES AG AIN BASED ON SET OF COMPARABLE COMPANIES SELECTED BY HIM FOR CALCULATIN G THE ALP IN RESPECT OF THE 7714-LOREAL GROUP 4 SERVICES OF BRAND BUILDING TO THE AE. BASED ON THE ABOVE THE TPO MADE FOLLOWING AMP ADJUSTMENTS PARTICULARS PAGE REF IN TP ORDER MANUFACTURING (AMOUNT IN RS.) PAGE REF IN TP ORDER DISTRIBUTION (AMOUNT IN RS.) NET SALES OF THE TAXPAYER PARA 7.7 ON PAGE 22-26 OF THE TP ORDER 4,47,84,37,000/- PARA 7.7 ON PAGE 26-28 OF THE TP ORDER 113,33,68,000/- ARMS LENGTH % OF AMP EXPENDITURE 8% 4.08% ARMS LENGTH AMP EXPENDITURE 35,82,74,960/- 4,62,41,414/- EXPENDITURE INCURRED BY THE TAX PAYER ON AMP 1,46,48,41,000/- 44,87,17,000/- EXCESSIVE EXPENDITURE INCURRED FOR DEVELOPING THE INTANGIBLES 90,36,92,844/- 40,24,75,586/- MARK UP @ 8.92% 8,06,09,402/- 3,59,00,822/- ARMS LENGTH VALUE OF AMP ACTIVITY 98,43,02,246/- 43,83,76,408/- VALUE RECEIVED BY THE TAXPAYER NIL NIL DIFFERENCE-TP ADJUSTMENT 98,43,02,246/- 43,83,76,408/- AFTER RECEIVING THE ORDER OF THE TPO,THE AO SENT A DRAFT ASSESSMENT ORDER TO THE ASSESSEE PROPOSING THE ADJUSTMENT MADE BY THE TPO. 2.2. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILE D OBJECTIONS BEFORE THE DRP.IT WAS STATED THAT AMP EXPENDITURE INCURRED BY IT WAS NOT AN INTERNATIONAL TRANSACTION AT ALL, THAT THE PAYMENT FOR AMP EXPENS ES WERE MADE TO THIRD PARTIES IN INDIA, THAT THERE WAS NO AGREEMENT BETWEEN THE A SSESSEE AND THE AES IN RESPECT OF BRAND BUILDING/AMP EXPENSES,THAT SUCH EX PENSES WERE INCURRED IN THE COURSE OF CARRYING ON ITS BUSINESS IN INDIA, TH AT THE AMP EXPENDITURE WAS NOT INCURRED AT THE INSTANCE OF THE AE.S,THAT THERE WAS NO AGREEMENT/ UNDERSTANDING/ARRANGEMENT AS TO ALLOCATE/CONTRIBUTE TOWARDS REIMBURSEMENT OF ANY PART OF AMP EXPENDITURE INCURRED BY THE ASSESSE E FOR ITS BUSINESS, THAT THE TPO HAD NOT BROUGHT ANY EVIDENCE ON RECORD TO PROVE THE THERE WAS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE, THAT I T HAD FURNISHED A CERTIFICATE FROM AE SHOWING THAT THERE WAS NO ARRANGEMENT BETWE EN THE PARENT COMPANY 7714-LOREAL GROUP 5 AND THE ASSESSEE,THAT THE BENEFITS OF AMP EXPENDITU RE WERE SOLELY DERIVED BY THE ASSESSEE AND NO BENEFIT WAS DERIVED FROM THE A E, THAT THE ADVERTISEMENTS BY THE ASSESSEE WERE FOR PRODUCTS OF THE ASSESSEE AND NOT FOR BRAND OF THE GROUP, THAT CERTAIN PRODUCTS WERE DEVELOPED SPECIFI CALLY FOR THE INDIAN MARKETS AS PER THE REQUIREMENTS/ PREFERENCES OF INDIAN PEOP LE, THAT NONE OF THE AE.S OF THE GROUP WOULD BE BENEFITED AT ANY TIME IN FUTURE BY THE ADVERTISEMENT/ MARKETING/PROMOTION OF THE PRODUCTS OF THE ASSESSEE , THAT THE ASSESSEE WAS INDEPENDENT RISK BEARING ENTITY, THAT IT ALONE ENJO YED THE INCREASED SALES OF THE PRODUCT AS A RESULT OF AMP EXPENDITURE,THAT EVEN IF SOME BENEFITS WERE DERIVED FROM THE AE.S SAME WERE INCIDENTAL AND ANCILLARY, T HAT THE PURPOSE OF AMP EXPENSES WAS ESSENTIALLY TO CREATE PRODUCT AWARENES S AMONG THE INDIAN CUSTOMERS,THAT THE AMP EXPENSES WERE INCURRED FOR C OMMERCIAL CONSIDERATIONS, THAT SAME COULD NOT BE ANYWAY LINKED TO THE DEVELOP MENT OF BRANDS OWNED BY THE AE,THAT RESIDUAL PSM APPLIED BY THE TPO WAS IN FACT THE GLOBAL FORMULARY APPORTIONMENT APPROACH ,THAT IT SHOULD NOT BE ADOPT ED TO DETERMINE THE ALP,THAT PSM WAS NOT THE MOST APPROPRIATE METHOD AN D WAS NOT APPLICABLE IN THE INSTANT CASE,THAT THE FACTS OF THE CASE OF ROLL S ROYCE WERE TOTALLY DIFFERENT FROM THE FACTS OF THE CASE UNDER CONSIDERATION,THAT THE TPO HAD WRONGLY APPLIED BLT, THAT THE TPO HAD CHERRY-PICKED THE COMPARABLES ,THAT THE BRANDS/PRODUCTS SELECTED BY TPO WERE NOT COMPARABLE TO THOSE OF ASS ESSEE,THAT THE ASSESSEE HAD SELECTED SIX COMPARABLES FOR MS AND FOUR COMPARABLE S FOR DS, THAT THE TPO HAD REJECTED THE COMPARABLES IN MS WITHOUT GIVING ADEQU ATE REASONS,THAT IT HAD REQUESTED THE TPO TO PROVIDE THE SYSTEMATIC SEARCH PROCESS FOR IDENTIFICATION OF THE COMPARABLES,THAT NO SUCH SEARCH PROCESS WAS PRO VIDED BY THE TPO TO THE ASSESSEE,THAT THE AMP EXPENSES INCLUDED MERCHANDISI NG EXPENSES AS WELL AS SALES PROMOTION EXPENSES,THAT THE SAME DID NOT LEAD TO BRAND BUILDING, THAT AFTER EXCLUDING SUCH EXPENSES THE ACTUAL AMP EXPENDITURE OF THE ASSESSEE WAS ONLY RS.21.80% ON SALES,THAT SAME WAS IN LINE WITH OTHER COMPANIES IN THE INDUSTRY,THAT THE MARK UP OF 8.92% ON AMP COST WAS BASED ON CHERRY PICKING OF 7714-LOREAL GROUP 6 THE COMPARABLES,THAT THE COMPARABLES WERE INAPPROPR IATE AND FUNCTIONALLY DISSIMILAR,THAT THE APPROACH OF THE TPO IN ARRIVING AT TWO ALTERNATE ALPS BY ADOPTING TWO DIFFERENT METHOD WAS INAPPROPRIATE AND BAD IN LAW. 2.3. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) CONTENDED THAT AMP EXPENSES WAS NOT AN INTERNATIONA L TRANSACTION AS PER THE PROVISIONS OF SECTION 92B OF THE ACT, THAT THERE WA S NO EXPRESS PROVISION IN THE ACT DEEMING THE AMP EXPENDITURE TO BE AN INTERNATIO NAL TRANSACTION, THAT THE TPO HAD NOT SHOWN ANY EXISTENCE OF AN AGREEMENT/ARR ANGEMENT/UNDERSTANDING BETWEEN THE ASSESSEE AND ITS AES WHEREBY THE ASSES SEE WAS OBLIGED TO INCUR AMP EXPENDITURE IN EXCESS OF THE BONA FIDE REQUIREM ENTS OF ITS OWN BUSINESS, THAT THE TPO HAD CONSIDERED BLT FOR DETERMINING EXI STENCE OF INTERNATIONAL TRANSACTIONS AND HELD THAT THE ASSESSEE HAD PROVIDE D BRAND PROMOTION SERVICES TO ITS AES, THAT THE ASSESSEE WAS RISK BEARING ENTITY, THAT IT HAD TOTAL TURNOVER OF RS. 561.17CRORES DURING THE YEAR UNDER CONSIDERATION,TH AT THE MANUFACTURING TURNOVER WAS OF RUPEES FOR 47.84 CRORES AND THAT IT HAD DISTRIBUTION TURNOVER OF RS.113.33 CRORES,THAT THE EXPENDITURE WAS INCURRED TO PROMOTE ITS OWN PRODUCTS, THAT IT HAD NOT ADVERTISE THE BRAND OWNED BY ITS AE S. HE RELIED UPON THE CASES OF MARUTI SUZUKI INDIA LTD.(64 TAXMANN.COM 150), HONDA CIEL POWER PRODUCTS (64TAXMANN.COM328),WHIRLPOOL OF INDIA LTD.(64 TAXMA NN.COM 324), DELIVERED BY THE HONBLE DELHI HIGH COURT.REFERRING TO THE CA SE OF SONY ERICSSON MOBILE COMMUNICATION INDIA PRIVATE LIMITED(231 TAXMANN 113 ),HE STATED THAT MATTER SHOULD NOT BE REMANDED BACK TO THE FILE OF THE TPO IN VIEW OF THE SAID DECISION. THE DEPARTMENTAL REPRESENTATIVE (DR)STATED THAT IN THE CASE OF LG ELECTRONICS (140ITD41)THE SPECIAL BENCH OF THE TRIBUNAL HAD HEL D THAT AMP WAS A SEPARATE INTERNATIONAL TRANSACTION,THAT IT HAD APPROVED THE BLT FOR THE PURPOSES OF DETERMINATION OF ALP OF INTERNATIONAL TRANSACTION O F AMP,THAT SUBSEQUENTLY HONBLE HIGH COURT OF DELHI IN THE CASE OF SONY ERI CSSON MOBILE COMMUNICA - TION(SUPRA)HELD AMP TO BE AN INTERNATIONAL TRANSACT ION,THAT BLT WAS NOT 7714-LOREAL GROUP 7 APPROVED BY THE COURT,THAT THE HONBLE COURT HAD LA ID DOWN CERTAIN IMPORTANT PRINCIPLES OF TP, THAT THE COURT HAD LAID EMPHASIS ON CONDUCTING DETAILED FUNCTIONAL ANALYSIS THAT WOULD INCLUDE AMP FUNCTION S/ EXPENSES,THAT THE COURT HAD OBSERVED THAT SELECTION OF COMPARABLES ALSO REQ UIRED TO BE MATCHED WITH THE FUNCTIONS AND OBLIGATIONS PERFORMED BY TESTED PARTI ES INCLUDING AMP EXPENSES, THAT BUNDLED TRANSACTION APPROACH HAD TO BE FOLLOWE D IN SUCH CASES AND THAT DETAILED FUNCTIONAL ANALYSIS HAD TO BE CONDUCTED. H E REFERRED TO EIGHT CASES, DECIDED BY THE DELHI TRIBUNAL,WHEREIN THE ISSUE OF AMP EXPENDITURE WAS RESTORED BACK TO THE FILE OF THE AO IN LIGHT OF THE JUDGMENT OF SONY ERICSSON. WITH REGARD TO THE DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF MARUTI SUZUKI,THE DR STATED THAT UP TO THE DATE OF DECISIO N I.E.11/12/2015,THE DEPARTMENTAL AUTHORITIES DID NOT HAVE THE BENEFIT O F THE DECISION,THAT THEY WERE FOLLOWING THE ORDER OF THE LG ELECTRONICS (SUPRA)US ING BLT, THAT IN SOME CASES BLT HAD BEEN FOLLOWED AND THE EXPENDITURE ON AMP HA D BEEN SLICED INTO TWO PORTIONS,THAT THE NON ROUTINE EXPENDITURE IN EXCESS OF BLT WAS CONSIDERED SEPARATELY AS INTERNATIONAL TRANSACTION AND BENCHMA RKED ACCORDINGLY FOR THE PURPOSE OF ALP,THAT NON-ROUTINE EXCESS EXPENDITURE TAKEN OUT FOR BENCHMARKING OF AMP WOULD BE REQUIRED TO BE CONSIDERED AS THE PA RT OF COST BASE/EXPENDITURE RELATING TO DISTRIBUTION SEGMENT/ MANUFACTURING SEG MENT AS THE CASE MAY BE. HE REFERRED TO THE CASES OF TOSHIBA INDIA PRIVATE LIMI TED, INDIA MEDTRONICS PRIVATE LIMITED, JOHNSON & JOHNSON INDIA LTD,ESSILOR INDIA PRIVATE LIMITED AND MOLSON COORS INDIA LTD.AND STATED THAT THE TRIBUNAL HAD RESTORED BACK THE ISSUE OF AMP EXPENSES TO THE FILE OF THE AO IN ALL THE CA SES,THAT THE CASE UNDER CONSIDERATION SHOULD ALSO BE SENT BACK TO THE FILE OF THE AO. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD BENCH MARKED THE INTERN ATIONAL TRANSACTIONS IN TWO DIFFERENT SEGMENTS I.E.MANUFACTURING SEGMENT(MS ) AND DISTRIBUTION SEGMENT (DS ) ,THAT THE FINANCIAL OF MS HAD NET SALES OF RS.447.8 4 CRORES AND THE DS HAD 7714-LOREAL GROUP 8 NET SALES OF RS.113.33 CRORES,THAT FOR THE MS THE A SSESSEE HAD ADOPTED COST PLUS METHOD(CPM) AS THE MOST APPROPRIATE METHOD,THAT GRO SS MARGIN OF THE ASSESSEE WAS BENCH MARKED AGAINST THE GROSS MARGINS OF COMPA RABLE MANUFACTURING COMPANIES,THAT THE ARITHMETIC MEAN OF THE COMPARABL ES WAS TAKEN @83.69% ON INPUT-COST,AS AGAINST 146.71% ON INPUT-COST OF THE ASSESSEE, THAT THE IT HAD CLAIMED THAT TRANSACTION IN THE MS WERE AT ARMS-LE NGTH,THAT FOR DS IT HAD ADOPTED RPM,THAT THE GROSS MARGIN IN THE DS WAS BEN CH MARKED AGAINST THE GROSS MARGIN OF THE COMPARABLE DISTRIBUTION COMPANI ES,THAT THE ARITHMETIC MEAN OF THE COMPARABLES WAS 33.37% ON SALES AS AGAINST 6 1.01% ON SALES OF THE COMPARABLES,THAT IT HAD ALSO BENCH MARKED THE TRANS ACTIONS USING TNMM,THAT THE OPERATING EXPENSES(OTHER THAN THE DIRECT EXPENS ES) WERE ALLOCATED BETWEEN THE TWO SEGMENTS ON THE BASIS OF TURNOVER, THAT THE OPERATING MARGIN IN MS WAS 7.46% ON SALES AS AGAINST THAT OF THE COMPARABLES O F 9.12%, THAT THE ASSESSEE HAS USED THE LATEST AVAILABLE YEARS DATA,THAT THE OPERATING MARGIN OF THE ASSESSEE IN DS WAS 8.37% ON SALES AS AGAINST THE 8.03% OF TH E COMPARABLES,THAT THE TPO HAD HELD THAT NONE OF THE ABOVE METHODOLOGIES HAD G IVEN RELIABLE RESULTS,THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE OF RS. 186 CRO RES ON AMP ON NET SALES OF RS.561 CRORES,THAT THE EXPENDITURE WAS 33.15% OF TH E NET SALES,THAT HE FURTHER OBSERVED THAT THE ASSESSEE WAS DEVELOPING AND PROMO TING THE BRANDS THAT WERE NOT OWNED BY IT THOUGH SAME WERE MANUFACTURED AND D ISTRIBUTED BY IT,THAT HE HAD ALSO HELD THAT THE ASSESSEE HAD INCURRED HUGE E XPENSES FOR PROMOTING THE BRANDS OWNED BY ITS AES AND THAT IT WAS A DEEMED IN TERNATIONAL TRANSACTION, THAT HE FURTHER OBSERVED THAT THE TRANSACTIONS INVOLVED SIGNIFICANT INTANGIBLES AND THAT THE PSM WAS THE MOST APPROPRIATE METHOD.WE FIN D THAT HE HAD RELIED UPON THE DECISION OF THE ITAT, DELHI BENCH IN THE CASE O F ROLLS ROYCE PLC(1310/DEL/2015; A.Y 2010-11 DT.03/ 12/2015)AND H AD COMPUTED 35% OF GLOBAL PROFIT OF THE GROUP AT RS. 55308. 91 CRORES FOR ARRIVING AT THE FIGURE OF RS.333.43 CRORES AS THE COMPENSATION RECEIVABLE BY THE ASSESSEE FOR PROMOTING AND ENHANCING THE BRANDS OWNED BY THE AES.ALTERNATI VELY,HE MADE THE 7714-LOREAL GROUP 9 COMPUTATION OF COMPENSATION RECEIVABLE ON ACCOUNT O F AMP EXPENDITURE,USING THE BRIGHT LINE STANDARD (BLS).IN THE MS, HE HAD RE JECTED FIVE OUT OF THE SIX COMPARABLES SELECTED BY THE ASSESSEE AND IDENTIFIED FIVE OTHER COMPANIES THAT WERE ENGAGED IN MANUFACTURING COSMETICS AND WERE OF SIMILAR SIZE.THE ARITHMETIC MEAN OF THE AMP EXPENDITURE OF THE SIX C OMPARABLES (ON NET SALES) WAS COMPUTED @12.53%. CONSIDERING THE FACT THAT THE COMPANIES WOULD BE INCURRING AMP EXPENSES FOR THE PURPOSE OF BRAND OWN ED BY THEM,THE TPO HELD THAT BLS FOR THE ROUTINE AMP EXPENDITURE SHOULD BE TAKEN AT 8% OF THE NET SALES.IT IS FOUND THAT THE ASSESSEE HAD OBJECTED TO THE FIGURE OF 8% AND THAT THE TPO REJECTED THE FIVE OTHER COMPARABLES SUGGESTED B Y THE ASSESSEE. IT IS ALSO OBSERVED THAT HE HAD REJECTED TWO OF THE FOUR COMPARABLES SELECTED BY THE ASSESSEE IN DS AND HAD DETERMINED THE EXCESS AM P OF RS.40.25 CRORES FOR THE YEAR UNDER APPEAL,THAT AFTER APPLYING MARK-UP O F 8.92%,HE DETERMINED AN ADJUSTMENT OF RS.43.84 CRORES IN THE SECOND SEGMENT . WE ALSO FIND THAT THE SALES OF THE ASSESSEE HAD IN CREASED 19 TIME SINCE THE YEAR 1999,THAT THE AVERAGE ANNUAL GROWTH OF THE COSMETI C INDUSTRY IN INDIA WAS REPORTED TO BE ABOUT 15-20%, THAT THE TPO HAD NOT C OMPARED THE MARKET SHARE OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION.NO W,IF THE EXPENDITURE INCURRED BY THE ASSESSEE IS CONSIDERED IN THE BACK GROUND OF THE GROWTH ACHIEVED BY IT ONE HAS TO AGREE WITH THE ARGUMENT OF THE ASSESSEE THAT IT MADE RAPID PROGRESS IN THE INDIAN MARKET AND AMP PLAYED AN IMPORTANT ROLE IN IT.THE ASSESSEE WAS MANUFACTURER AND DISTRIBUTOR OF COSMETIC PRODUCTS.T HE VERY NATURE OF THE BUSINESS CARRIED OUT BY THE ASSESSEE WAS SUCH THAT TO ESTABLISH ITS PRODUCT IT HAD TO SPEND HUGE EXPENSES.THE TPO HAD IGNORED THE FACT THAT EXPENDITURE WAS INCURRED FOR PRODUCTS LAUNCHED ESPECIALLY FOR THE I NDIAN MARKET AND THAT THE BRAND OF THE AES WAS NOT PROMOTED.THE MANUFACTURING UNIT OF THE ASSESSEE HAD SHOWN A HUGE TURNOVER.THUS,WE DO NOT FIND FORCE IN THE ARGUMENTS OF THE TPO / DRP THAT AMP EXPENSES INCURRED BY THE ASSESSEE WERE PRIMARILY OR SECONDARILY AIMED TO BENEFIT THE AE.S.AND THAT IT WAS ENTITLED TO A REASONABLE COMPENSATION 7714-LOREAL GROUP 10 FOR SUCH AMP EXPENSES.SECONDLY,THE IMPORTANT ISSUE RAISED BY THE ASSESSEE THAT IT HAD HUGE AMOUNT ON ACCOUNT OF SALES PROMOTION HA D NOT BEEN DEALT WITH BY THE TPO/DRP.IN OUR OPINION,IT IS AN IMPORTANT FACTO R FOR DETERMINING THE ALP. WE FURTHER FIND THAT THE TPO HAS NOT BROUGHT ON REC ORD ANY EVIDENCE TO PROVE THAT THE ASSESSEE HAD RENDERED ANY SERVICES TO ITS AE.S UNDER THE HEAD AMP.ON THE CONTRARY,PAYMENT ON ACCOUNT OF ADVERTISEMENTS E TC.WAS MADE TO UNRELATED DOMESTIC THIRD PARTIES.IN OUR OPINION,THESE BASIC F ACTS COMPELLED THE TPO TO HOLD THAT IN THE CASE UNDER CONSIDERATION THE INTER NATIONAL TRANSACTION WAS NOT THE ACTUAL AMP EXPENDITURE,BUT THE REAL ISSUE WAS THE BENEFIT CONFERRED BY IT TO ITS AE.S IN FORM OF PROMOTION AND BRAND VALUE AUGME NTATION OF THE BRANDS OWNED BY THEM. IN THESE CIRCUMSTANCES,IN OUR OPINION,THE FUNDAMENT AL QUESTION TO BE ANSWERED IS TO DECIDE AS TO WHETHER IN ABSENCE OF ANY AGREEM ENT FOR PAYMENT OF AMP EXPENSES BY THE AE.S CAN IT BE HELD THAT THERE WAS AN INTERNATIONAL TRANSACTION ONLY ON THE BASIS THAT AMP EXPENDITURE,INCURRED BY THE ASSESSEE,WOULD HAVE BENEFITTED THE AE.S.,WHO OWNED THE BRANDS USED BY T HE ASSESSEE.IN OUR OPINION, THE ARGUMENTS SUFFERS FROM THE VERY BASIC FLAW THAT IT PRESUMES THAT THE ASSESSEES WOULD INCUR AMP NOT TO PROMOTE ITS OWN BU SINESS.IN OTHER WORDS,THE TPO HAS FAILED TO PROVE THAT THE REAL INTENTION OF THE ASSESSEE IN INCURRING ADVERTISEMENT AND MARKETING EXPENSES WERE TO BENEFI T THE AE.S.AND NOT TO PROMOTE ITS OWN BUSINESS.THE TURNOVER OF THE ASSESS EE PROVES THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD DONE A RE ASONABLY GOOD BUSINESS,AS STATE EARLIER.THE RESULTANT PROFIT WAS OFFERED FOR TAXATION IN INDIA.THEREFORE, TRANSFERRING OF PROFIT FROM INDIA,THE BASIC INGREDI ENT TO INVOKE THE PROVISIONS OF SECTION 92 OF THE ACT,REMAINS UNPROVED. WE FIND THAT IN THE CASES OF MARUTI SUZUKI(SUPRA)WH IRLPOOL INDIA(SUPRA), BAUSCH & LOMB EYECARE(INDIA) PVT.LTD(ITA 643 OF 201 4 OF HONBLE DELHI HC),THE ISSUE OF AMP EXPENSES HAD BEEN DELIBERATED UPON EXTENSIVELY AND EACH AND EVERY ARGUMENT RAISED BY THE TPO/DRP HAVE BEEN ANALYSED THREAD BARE.WE 7714-LOREAL GROUP 11 WOULD LIKE TO REPRODUCE RELEVANT PORTION OF THE JUD GMENT OF BAUSCH & LOMB EYECARE (INDIA) PVT.LTD.(SUPRA) AND SAME READS AS U NDER: 53.A READING OF THE HEADING OF CHAPTER X['COMPUTAT ION OF INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO ARM'S LENGTH PRICE']AND SECTION 92 (1) WHICH STATES THAT ANY INCOME ARISING FROM AN INTER NATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP AND SECTION 92C (1) WHICH SETS OUT THE DIFFERENT METHODS OF DETERMINING THE ALP, MAKES IT CLEAR THA T THE TRANSFER PRICING ADJUSTMENT IS MADE BY SUBSTITUTING THE ALP FOR THE PRICE OF T HE TRANSACTION. TO BEGIN WITH THERE HAS TO BE AN INTERNATIONAL TRANSACTION WITH A CERT AIN DISCLOSED PRICE.THE TRANSFER PRICING ADJUSTMENT ENVISAGES THE SUBSTITUTION OF TH E PRICE OF SUCH INTERNATIONAL TRANSACTION WITH THE ALP. 54. UNDER SECTIONS 92B TO 92F, THE PRE-REQUISITE FO R COMMENCING THE TP EXERCISE IS TO SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACT ION. THE NEXT STEP IS TO DETERMINE THE PRICE OF SUCH TRANSACTION. THE THIRD STEP WOULD BE TO DETERMINE THE ALP BY APPLYING ONE OF THE FIVE PRICE DISCOVERY METHODS S PECIFIED IN SECTION 92C. THE FOURTH STEP WOULD BE TO COMPARE THE PRICE OF THE TRANSACTI ON THAT IS SHOWN TO EXIST WITH THAT OF THE ALP AND MAKE THE TP ADJUSTMENT BY SUBSTITUT ING THE ALP FOR THE CONTRACT PRICE. 55. SECTION 928 DEFINES 'INTERNATIONAL TRANSACTION' AS UNDER: 'MEANING OF INTERNATIONAL TRANSACTION. 928.(1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92,92C,92D AND 92E ,'INTERNATIONAL TRANSA CTION MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- RESIDENTS; IN THE NATURE OF PURCHASE, SALE OR LEAS E 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 AGREEMENT OR ARRANGEMENT BE TWEEN 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 CONNECTIO N WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SU CH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WITH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES 'OF SUB-SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXIST S A PRIOR AGREEMENT IN RELATION TO' THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR 7714-LOREAL GROUP 12 THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMIN ED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE.' 56.THUS, UNDER SECTION 92B(1) AN 'INTERNATIONAL TR ANSACTION' MEANS- (A) A TRANSACTION BETWEEN TWO OR MORE AES, EITHER OR BOTH OF WHOM AR E NON-RESIDENT (B) THE TRANSACTION IS IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SERVICE OR LENDING OR BOR ROWING MONEY OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME S OR LOSSES OF SUCH ENTERPRISES, AND (C) SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANG EMENT BETWEEN TWO OR MORE AES FOR ALLOCATION OR APPORTIONMENT OR CONTRIBUTION TO THE ANY COST OR EXPENSES INCURRED OR TO BE INCURRED IN CONNECTION- WITH THE - BENEFI T, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ONE OR MORE OF SUCH ENTERPRISES. 57. CLAUSES (B) AND (C) ABOVE CANNOT BE READ DISJU NCTIVELY. EVEN IF RESORT IS HAD TO THE RESIDUARY PART OF CLAUSE (B) TO CONTEND THAT T HE AMP SPEND OF BLI IS 'ANY OTHER TRANSACTION HAVING A BEARING' ON ITS 'PROFITS, INCO MES OR LOSSES, FOR A 'TRANSACTION' THERE HAS TO BE TWO PARTIES. THEREFORE FOR THE PURP OSES OF THE 'MEANS' PART OF CLAUSE (B) AND THE 'INCLUDES' PART. OF CLAUSE (C), THE RE VENUE HAS TO SHOW THAT THERE EXISTS AN 'AGREEMENT' OR 'ARRANGEMENT' OR' 'UNDERSTANDING' B ETWEEN BLI -AND B&L, USA WHEREBY BLI IS OBLIGED TO SPEND EXCESSIVELY ON AMP IN ORDER TO PROMOTE THE BRAND OF B&L, USA. AS FAR AS THE LEGISLATIVE INTENT IS C ONCERNED, IT IS SEEN THAT CERTAIN TRANSACTIONS LISTED IN THE EXPLANATION UNDER CLAUS ES (I) (A) TO (E) TO SECTION 92B ARE DESCRIBED AS AN 'INTERNATIONAL TRANSACTION'. THIS M IGHT BE ONLY AN ILLUSTRATIVE LIST, BUT SIGNIFICANTLY' IT DOES NOT LIST AMP SPENDING AS ONE SUCH TRANSACTION. 58. IN MARUTI SUZUKI INDIA LTD. (SUPRA), ONE OF THE SUBMISSIONS OF THE REVENUE WAS: 'THE MERE FACT THAT THE SERVICE OR BENEFIT HAS BEEN PROVIDED BY ONE PARTY TO THE OTHER WOULD BY ITSELF CONSTITUTE A TRANSACTION IRRESPECTI VE OF WHETHER THE CONSIDERATION FOR THE SAME HAS BEEN PAID OR REMAINS PAYABLE OR THERE IS A MUTUAL AGREEMENT TO NOT CHARGE ANY COMPENSATION FOR THE SERVICE OR BENEFIT . THIS WAS NEGATIVED BY THE COURT BY POINTING OUT; 'EVEN IF THE WORD 'TRANSACTION' I S GIVEN ITS WIDEST CONNOTATION, AND NEED NOT INVOLVE ANY TRANSFER OF MONEY OR A WRITTE N AGREEMENT AS SUGGESTED BY THE REVENUE, AND EVEN IF RESORT IS HAD TO SECTION 92F ( V), WHICH DEFINES 'TRANSACTION' TO INCLUDE 'ARRANGEMENT', 'UNDERSTANDING' OR 'ACTION IN CONCERT', 'WHETHER FORMAL OR IN WRITING', IT IS STILL INCUMBENT ON THE REVENUE TO SHOW THE EXISTENCE OF AN 'UNDERSTANDING' OR AN 'ARRANGEMENT' OR 'ACTION IN CONCERT' BETWEEN MSIL AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. IN OTHER WORDS, FOR BOTH THE 'MEANS', 7714-LOREAL GROUP 13 PART AND THE 'INCLUDES' PART OF SECTION 928 (1) WH AT HAS TO BE DEFINITELY SHOWN IS THE EXISTENCE OF TRANSACTION WHEREBY MSIL HAS BEEN OBL IGED TO INCUR AMP OF A CERTAIN LEVEL FOR SMC FOR THE PURPOSES OF PROMOTING THE BR AND OF SMC.' 59. IN WHIRLPOOL OF INDIA LTD. (SUPRA), THE COURT INTERPRETED THE EXPRESSION 'ACTED IN CONCERT' AND IN THAT CONTEXT REFERRED TO THE DECISI ON OF THE SUPREME COURT IN DAIICHI SANKYO COMPANY LTD. V.. JAYARAM CHIGURUPATI 2010(6 )MANU/SC/0454/2010, WHICH AROSE IN THE CONTEXT OF ACQUISITION OF SHARES OF ZE NOTECH LABORATORY LTD. BY THE RANBAXY GROUP. THE QUESTION THAT WAS EXAMINED WAS WHETHER AT THE RELEVANT TIME THE APPELLANT, I.E., 'DAIICHI SANKYO COMPANY AND R ANBAXY WERE 'ACTING IN CONCERT' WITHIN THE MEANING OF REGULATION 20(4) (B) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOV ERS) REGULATIONS, 1997. IN. PARA 44, IT WAS OBSERVED AS UNDER: 'THE OTHER LIMB OF THE CONCEPT REQUIRES TWO OR MORE PERSONS JOINING TOGETHER WITH THE SHARED COMMON OBJECTIVE AND PURPOSE OF SUBSTAN TIAL ACQUISITION OF SHARES ETC. OF A- CERTAIN TARGET COMPANY, THERE CAN BE NO 'PERSON S ACTING IN CONCERT' UNLESS THERE IS A SHARED COMMON OBJECTIVE OR PURPOSE BETWEEN TWO O R MORE PERSONS OF SUBSTANTIAL ACQUISITION OF SHARES ETC. OF THE TARGET COMPANY, FOR, DE HORS THE ELEMENT OF THE SHARED COMMON OBJECTIVE' OR PURPOSE THE IDEA OF 'P ERSON ACTING IN CONCERT' IS AS MEANINGLESS AS CRIMINAL CONSPIRACY WITHOUT ANY AGR EEMENT TO COMMIT A CRIMINAL OFFENCE. THE IDEA OF 'PERSONS ACTING IN CONCERT' I S NOT ABOUT A FORTUITOUS RELATIONSHIP COMING INTO EXISTENCE BY ACCIDENT OR CHANCE. THE RE LATIONSHIP' CAN COME INTO BEING ONLY BY DESIGN, BY MEETING OF MINDS BETWEEN TWO OR MORE PERSONS LEADING TO THE SHARED COMMON OBJECTIVE OR PURPOSE OF ACQUISITION OF SUBSTANTIAL ACQUISITION OF SHARES ETC. OF THE TARGET COMPANY. IT IS ANOTHER M ATTER THAT THE COMMON OBJECTIVE OR PURPOSE MAY BE IN PURSUANCE OF AN AGREEMENT' OR AN UNDERSTANDING, FORMAL OR INFORMAL; 'THE ACQUISITION OF SHARES ETC. MAY BE D IRECT OR INDIRECT OR THE PERSONS ACTING IN CONCERT MAY COOPERATE IN ACTUAL ACQUISITI ON OF SHARES ETC. OR THEY MAY AGREE TO, COOPERATE IN SUCH ACQUISITION. NONETHELESS, TH E ELEMENT OF THE SHARED COMMON OBJECTIVE OR PURPOSE IS THE SINE QUA NON FOR THE R ELATIONSHIP OF 'PERSONS ACTING IN CONCERT' TO COME INTO BEING. ' 60. THE TRANSFER PRICING ADJUSTMENT IS NOT EXPECTED TO BE MADE BY DEDUCING FROM THE DIFFERENCE BETWEEN THE 'EXCESSIVE' AMP EXPENDITURE INCURRED BY THE ASSESSEE AND THE AMP EXPENDITURE OF A COMPARABLE ENTITY THAT AN INT ERNATIONAL TRANSACTION EXISTS AND THEN PROCEEDING TO MAKE THE ADJUSTMENT OF THE DIFF ERENCE IN ORDER TO DETERMINE THE 7714-LOREAL GROUP 14 VALUE OF SUCH AMP EXPENDITURE INCURRED , FOR THE AE. IN ANY EVENT, AFTER THE DECISION IN SONY ERICSSON (SUPRE), -- THE QUESTION OF APPLY ING THE BLT TO DETERMINE THE EXISTENCE-OF AN-INTERNATIONAL TRANSACTION INVOLVIN G AMP EXPENDITURE DOES NOT ARISE. 61. THERE IS MERIT IN THE CONTENTION OF THE ASSESSE E THAT A DISTINCTION IS REQUIRED TO BE DRAWN BETWEEN A 'FUNCTION' AND A 'TRANSACTION' AND THAT EVERY EXPENDITURE FORMING PART OF THE FUNCTION, CANNOT BE CONSTRUED AS A 'TR ANSACTION'. FURTHER, THE- REVENUE'S ATTEMPT AT RE-CHARACTERISING THE AMP EXPENDITURE INCURRED AS A TRANSACTION BY ITSELF WHEN IT HAS NEITHER BEEN IDENTIFIED AS SUCH BY THE ASSESSEE OR LEGISLATIVELY RECOGNISED IN THE EXPLANATION TO SECTION 92 B RUNS COUNTER TO LEGAL POSITION EXPLAINED IN CIT VS. EKL APPLIANCES LTD. (SUPRA) W HICH REQUIRED A TPO 'TO EXAMINE THE 'INTERNATIONAL TRANSACTION' AS HE ACTUALLY FIN DS THE SAME.' 62. IN THE PRESENT CASE, THE MERE FACT THAT B&L, US A THROUGH B&L, SOUTH ASIA, INC HOLDS 99.9% OF THE SHARE OF THE ASSESSEE WILL NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE MERE INCREASING OF AMP EXPENDITURE BY THE ASSESSEE INVOLVES AN INTERNATIONAL TRANSACTION IN THAT REGARD WITH B&L, USA. A SIMILAR CONTENTION BY THE REVENUE, NAMELY THE FACT THAT EVEN IF THERE IS NO E XPLICIT ARRANGEMENT, THE FACT THAT THE BENEFIT OF SUCH AMP EXPENSES WOULD ALSO ENCURE TO T HE AE IS ITSELF SELF SUFFICIENT TO INFER THE EXISTENCE OF AN INTERNATIONAL TRANSACTION HAS BEEN NEGATIVED BY THE COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA) AS UNDER: '68. THE ABOVE SUBMISSIONS PROCEED PURELY ON SURM ISES AND CONJECTURES AND IF ACCEPTED AS SUCH WILL LEAD TO SENDING THE TAX AUTH ORITIES THEMSELVES ON A WILD-GOOSE CHASE OF WHAT CAN AT BEST BE DESCRIBED AS A 'MIRAG E'. FIRST OF ALL, THERE HAS TO BE A CLEAR STATUTORY MANDATE FOR SUCH AN EXERCISE. THE COURT IS UNABLE TO FIND ONE. TO THE QUESTION WHETHER THERE IS ANY 'MACHINERY' PROVISIO N FOR DETERMINING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES , MR. SRIVASTAVA ONLY REFERRED TO SECTION 92F (II) WHICH DEFINES ALP TO MEAN A PRICE 'WHICH IS APPLIED OR PROPOSED TO BE APPLIED IN A TRANSACTION BETWEEN PERSONS OTHER T HAN AES IN UNCONTROLLED CONDITIONS', SINCE THE REFERENCE IS TO 'PRICE' AND TO 'UNCONTROLLED CONDITIONS' IT IMPLICITLY BRINGS INTO PLAY THE BLT. IN OTHER WORD S, IT EMPHASISES THAT WHERE THE PRICE IS SOMETHING OTHER THAN WHAT WOULD BE PAID O R CHARGED BY ONE ENTITY FROM ANOTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DOES NOT SEE THIS AS A MACHINERY PROVISION PARTICULARLY -IN -LIGHT OF THE FACT THAT -THE-BLT HAS BEEN EXPRESSLY NEGATIVED BY THE COURT IN SONY ERIC SSON. THEREFORE, THE EXISTENCE OF AN INTERNATIONAL TRANSACTION WILL HAVE TO BE ESTAB LISHED DE HORS THE BLT, 7714-LOREAL GROUP 15 70. WHAT IS CLEAR IS THAT IT. IS THE 'PRICE' OF AN INTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE ADJUSTED: THE VERY EXISTENCE OF AN INTERNATIONAL TRANSACTION CANNOT BE PRESUMED BY ASSIGNING SOME PRICE TO IT AND THEN DED UCING THAT SINCE IT IS NOT AN ALP, AN ADJUSTMENT HAD TO BE MADE. THE -BURDEN IS ON THE REVENUE TO FIRST SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION. NEXT, T O ASCERTAIN THE DISCLOSED 'PRICE' OF SUCH TRANSACTION AND THEREAFTER ASK WHETHER IT IS A N ALP. IF THE ANSWER TO THAT IS IN THE NEGATIVE THE TP ADJUSTMENT SHOULD FOLLOW. THE OBJECTIVE OF CHAPTER X IS TO MAKE ADJUSTMENTS TO THE PRICE OF AN INTERNATIONAL TRANSACTION WHICH THE AES INVOLVED MAY SEEK TO SHIFT FROM ONE JURISDICTION TO ANOTHE R. AN 'ASSUMED' PRICE CANNOT FORM THE REASON FOR MAKING AN ALP ADJUSTMENT. ' 71- SINCE A QUANTITATIVE ADJUSTMENT IS NOT PERMISSI BLE FOR THE PURPOSES OF A TP ADJUSTMENT UNDER CHAPTER X, EQUALLY IT CANNOT BE P ERMITTED IN RESPECT OF AMP EXPENSES EITHER. AS ALREADY NOTICED HEREINBETORE, W HAT THE REVENUE HAS SOUGHT TO DO IN THE PRESENT. CASE IS TO RESORT TO A QUANTITATIV E ADJUSTMENT BY FIRST DETERMINING WHETHER THE AMP SPEND OF THE ASSESSEE ON- APPLICATI ON OF THE. BL T, IS EXCESSIVE, THEREBY EVIDENCING THE EXISTENCE OF AN INTERNATIO NAL TRANSACTION INVOLVING THE AE. THE QUANTITATIVE DETERMINATION FORMS THE VERY BASIS FOR THE ENTIRE TP EXERCISE IN THE PRESENT CASE. 74. THE PROBLEM WITH THE REVENUE'S APPROACH IS THAT IT WANTS EVERY INSTANCE OF AN AMP SPEND BY AN INDIAN ENTITY WHICH HAPPENS TO USE THE BRAND OF A FOREIGN AE TO BE PRESUMED TO INVOLVE AN INTERNATIONAL TRANSACTION. AND THIS, NOTWITHSTANDING THAT THIS IS NOT ONE OF THE DEEMED INTERNATIONAL TRANSACTION S LISTED UNDER THE EXPLANATION TO SECTION 928 OF THE ACT. THE PROBLEM DOES NOT STOP HERE. EVEN IF A TRANSACTION INVOLVING AN AMP SPEND FOR A FOREIGN AE IS ABLE TO BE LOCATED IN SOME AGREEMENT, WRITTEN (FOR E.G., THE SAMPLE AGREEMENTS PRODUCED BEFORE THE COURT BY THE REVENUE) OR OTHERWISE, HOW SHOULD A TPO PROCEED TO BENCHMARK THE PORTION OF SUCH AMP SPEND THAT THE INDIAN ENTITY SHOULD BE COMPENSATED FOR? 63. FURTHER, IN MARUTI SUZUKI INDIA LTD. '(SUPRA) T HE COURT FURTHER EXPLAINED THE ABSENCE OF A 'MACHINERY PROVISION QUA AMP EXPENSES BY THE FOLLOWING ANALOGY: '75. AS AN ANALOGY; AND FOR-NO OTHER PURPOSE; IN TH E- CONTEXT OF A DOMESTIC TRANSACTION INVOLVING TWO OR MORE RELATED PARTIES, REFERENCE MAY' BE MADE TO SECTION 40 A (2) (A) UNDER WHICH CERTAIN TYPES OF EXPENDIT URE INCURRED BY WAY OF PAYMENT TO RELATED PARTIES IS NOT DEDUCTIBLE WHERE THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS.' IN 7714-LOREAL GROUP 16 SUCH EVENT, SO MUCH OF THE EXPENDITURE AS IS SO CON SIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION.' THE AO IN SUCH AN INSTANCE DEPLOYS THE 'BEST JUDGMENT' ASSESSMENT AS A DEVICE TO DISALLOW WHAT HE CONSIDERS TO BE AN EXCESSIVE EXPENDITURE. THERE IS NO CORRESPON DING 'MACHINERY' PROVISION IN CHAPTER X WHICH ENABLES' AN AO TO DETERMINE WHAT S HOULD BE THE FAIR 'COMPENSATION' AN INDIAN ENTITY WOULD BE ENTITLED TO IF IT IS FOU ND' THAT THERE IS AN INTERNATIONAL TRANSACTION IN THAT REGARD. IN PRACTICAL TERMS, AB SENT A CLEAR STATUTORY GUIDANCE, THIS MAY ENCOUNTER FURTHER DIFFICULTIES. THE STRENGTH O F A BRAND,WHICH COULD BE PRODUCT SPECIFIC, MAY BE 'IMPACTED BY NUMEROUS OTHER IMPOND ERABLES NOT LIMITED TO THE NATURE OF THE INDUSTRY, THE GEOGRAPHICAL PECULIARITIES, EC ONOMIC TRENDS BOTH INTERNATIONAL AND DOMESTIC, THE CONSUMPTION PATTERNS, MARKET BEHAVIOU R AND SO ON. A SIMPLISTIC APPROACH USING ONE OF THE MODES SIMILAR TO THE ONES CONTEMPLATED BY SECTION 92C MAY NOT ONLY BE LEGALLY IMPERMISSIBLE BUT WILL LEN D ITSELF TO ARBITRARINESS. WHAT IS THEN NEEDED IS A CLEAR STATUTORY SCHEME ENCAPSULATI NG THE LEGISLATIVE POLICY AND MANDATE WHICH PROVIDES THE NECESSARY CHECKS AGAINS T ARBITRARINESS WHILE AT THE SAME TIME ADDRESSING THE APPREHENSION OF TAX AVOIDANCE. 64. IN THE ABSENCE OF ANY MACHINERY PROVISION, BRI NGING AN IMAGINED TRANSACTION TO TAX IS NOT POSSIBLE. THE DECISIONS IN CIT V. B.C. S RINIVASA SETTY (1981) 128 ITR 294 (SC) AND PNB FINANCE LTD. V, CIT (2008) 307 ITR 75 (SC) MAKE THIS POSITION EXPLICIT. THEREFORE, WHERE THE EXISTENCE OF AN INT ERNATIONAL TRANSACTION INVOLVING AMP EXPENSE WITH AN ASCERTAINABLE PRICE IS- UNABLE TO BE SHOWN TO EXIST, EVEN IF SUCH PRICE IS NIL, CHAPTER X PROVISIONS CANNOT BE INVOK ED TO UNDERTAKE A TP ADJUSTMENT EXERCISE. 65. AS ALREADY MENTIONED, MERELY BECAUSE THERE IS A N INCIDENTAL BENEFIT TO THE FOREIGN AE, IT CANNOT BE SAID THAT THE AMP EXPENSES INCURR ED BY THE INDIAN ENTITY WAS FOR PROMOTING THE BRAND OF THE FOREIGN AE. AS MENTIONE D-IN- SASSOON -J DAVID-(SUPRA)- 'THE--FACT THAT- SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITTED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPEN DITURE BEING 'ALLOWED BY WAY OF A DEDUCTION UNDER SECTION 10 (2) (XV) OF THE ACT (IN DIAN INCOME TAX ACT, 1922) IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY THE LAW '. CONSIDERING THE FACTS-LIKE ABSENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND THE AE.S.FOR SHARING AMP EXPENSES,PAYMENT MADE BY T HE ASSESSEE UNDER THE HEAD AMP TO THE DOMESTIC PARTIES,FAILURE OF THE TPO PROVE THAT EXPENSES WERE 7714-LOREAL GROUP 17 NOT FOR THE BUSINESS CARRIED OUT BY THE ASSESSEE IN INDIA-AND FOLLOWING THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT DELIVERE D IN THE CASE OF BAUSCH AND LOMB(INDIA)PVT.LTD(SUPRA),WE ARE OF THE OPINION THA T THE TRANSACTION IN QUESTION WAS NOT AN INTERNATIONAL TRANSACTION AND THAT THE T PO HAD WRONGLY INVOKED THE PROVISIONS OF CHAPTER X OF THE ACT FOR THE SAID TRA NSACTION. WITH REGARD TO THE SUBMISSIONS OF THE AR THAT THE I SSUE OF AMP SHOULD BE RESTORED BACK TO THE FILE OF THE AO,WE WANT TO MENT ION THAT LAW AS A CONCEPT IS SUPPOSED TO EVOLVE WITH PASSAGE OF TIME-IT CANNOT B E STATIC ALWAYS.NON- AVAILABILITY OF A PARTICULAR DECISION OF THE HIGHER FORUM CANNOT JUSTIFY THE RESTORA -TION OF ISSUE/CASES TO THE FILE OF AO IN EACH AND EVERY CASE.UNNECESSARY LITIGATION HAS TO BE AVOIDED AND ISSUES HAVE TO BE SETTLED FOR ONCE AND ALL.WE ARE OF THE OPINION THAT AFTER THE JUDGMENTS OF MARUTI S UZUKI AND BAUSCH & LOMB (SUPRA)THERE IS NO SCOPE OF ANY OTHER INTERPRETATIO N ABOUT THE AMP EXPENDITURE. IN THE CASE UNDER CONSIDERATION,THE AO/TPO HAS NOT BROUGHT ANYTHING ON RECORD THAT THERE EXISTED AND AGREEMENT,FORMAL OR INFORMAL ,BETWEEN THE ASSESSEE AND THE AE TO SHARE/REIMBURSE THE AMP EXPENDITURE INCUR RED BY THE ASSESSEE IN INDIA.IN ABSENCE OF SUCH AN AGREEMENT THE FIRST AND PRIMARY PRECONDITION OF TREATING THE TRANSACTION IN QUESTION AN INTERNATION AL TRANSACTION REMAINS UN - FULFILLED.CONDUCTING FAR ANALYSIS OR ADOPTING AN AP PROPRIATE METHOD IS THE SECOND STAGE OF TRANSFER PRICING ADJUSTMENTS.THE FI RST THING IS TO FIND OUT WHETHER THE DISPUTED TRANSACTION IN IS INTERNATIONA L TRANSACTION OR NOT.WITHOUT CROSSING THE FIRST THRESHOLD SECOND CANNOT BE APPRO ACHED.IN THE CASE UNDER CONSIDERATION,WE ARE OF THE OPINION THAT AMP EXPEND ITURE IS NOT AN INTERNATIONAL TRANSACTION AND THEREFORE WE ARE NOT INCLINED TO RE STORE BACK THE ISSUE TO THE FILE OF THE AO. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,FIRST EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESS EE AND THE ADDITIONS MADE BY THE AO, INCLUDING THE MARK-UP ADJUSTMENTS,ARE DIREC TED TO BE DELETED. 7714-LOREAL GROUP 18 3. SECOND GROUND OF APPEAL IS ABOUT SET OF OFF UNABSOR BED DEPRECIATION, AMOUNTING TO RS.1.52 CRORES.WHILE FINALISING THE AS SESSMENT ORDER,THE AO DID NOT ALLOW SET OFF IN RELATION TO BROUGHT FORWARD UN ABSORBED DEPRECIATION,THOUGH IN THE DRAFT ASSESSMENT ORDER SAME WAS ALLOWED.RELY ING UPON THE DECISION OF THE MUMBAI SPECIAL BENCH IN THE CASE OF TIMES GUARA NTY LTD.(131 TTJ 257), THE AO MADE A DISALLOWANCE. AS THE AO HAD NOT DISAL LOWED THE BROUGHT FORWARD UNABSORBED DEPRECIATION IN THE DRAFT ASSESS MENT ORDER, AS STATED EARLIER, SO,THE ASSESSEE DID NOT AGITATE THE ISSUE BEFORE TH E DRP. 3.1. BEFORE US,THE AR CONTENDED THAT THE UNABSORBED DEPR ECIATION FROM AY. 1995-96 TO AY.1996-97 HAD BECOME PART OF THE UNABSO RBED DEPRECIATION FOR THE AY.1997-98, THAT THE UNABSORBED DEPRECIATION FROM T HAT YEAR UP TO AY.2001-02 GOT CARRIED FORWARD TO THE AY.2002-03 AS PER THE AM ENDED SECTION 32 (2) OF THE ACT, THAT IT WAS AVAILABLE FOR CARRYFORWARD AND SET OFF WITHOUT ANY LIMIT.HE REFERRED TO THE CASE OF GENERAL MOTORS INDIA PRIVAT E LIMITED(257CTR123), CONFIDENCE PETROLEUM INDIA LTD. (1937/ MUM/2012),AS SOCIATED CABLES PRIVATE LIMITED(ITA/5556/MUM/2012).THE DR SUPPORTED THE ORD ER OF THE AO. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE AO HAD MADE THE DISALLOWANCE FOLLOWIN G THE ORDER OF THE TRIBUNAL DELIVERED IN THE CASE OF TIMES GUARANTY LTD.(SUPRA) ,THAT THE HONBLE GUJARAT HIGH COURT HAD DISCUSSED THE ISSUE OF SET OFF OF BR OUGHT FORWARD DEPRECIATION AT LENGTH WHILE DELIVERING THE JUDGMENT IN THE CASE OF GENERAL MOTORS(SUPRA).WE FIND THAT IN THE CASES,RELIED UPON BY THE AR,THE TR IBUNAL HAD FOLLOWED THE SAID JUDGMENT.WE WOULD LIKE TO REPRODUCE THE RELEVANT PO RTION OF THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSOCIATED CABLES PRIVATE L IMITED (SUPRA) AND SAME READS AS UNDER: 5. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. REPRE SENTATIVES OF THE PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HOLD THAT THE ABOVE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE C ASE OF GENERAL MOTORS INDIA 7714-LOREAL GROUP 19 PVT.LTD (SUPRA) WHICH HAS BEEN FOLLOWED BY ITAT, MU MBAI BENCH IN THE CASE OF CONFIDENCE PETROLEUM INDIA LTD (SUPRA) TO WHICH BOT H OF US ARE THE PARTIES. FURTHER, SAID ISSUE WAS ALSO CONSIDERED BY ITAT MUMBAI IN TH E CASE OF ITO V/S GRAHAM FIRTH STEEL PRODUCTS (I) LTD (2008) 24 SOT 106(MUM). IN T HE SAID CASE THE UNABSORBED DEPRECIATION IN AYS 1997-98 TO 2001-2002 WAS ADDED TO THE AMOUNT TO THE ALLOWANCE OF DEPRECIATION FOR THE ASSESSMENT YEAR 2002-03 AND HE LD THAT BE DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THA T PREVIOUS YEAR I.E. ASSESSMENT YEAR 2002-03 BE DEEMED TO BE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEAR, WHICH MEANS UNABSORBED DE PRECIATION UP TO ASSESSMENT YEAR 2001-02 COULD BE CARRIED FORWARD FOR SET OFF FOR IN DEFINITE PERIOD. WE CONSIDER IT PRUDENT TO REPRODUCE PARA 8 OF THE SAID ORDER AS UN DER : 8. ON READING THE PROVISIONS OF SECTION 32(2) AS IT STOOD PRIOR TO THE AMENDMENT MADE BY THE FINANCE (NO. 2) ACT, 1996, I.E., OPERAT IVE UP TO AND INCLUDING ASSESSMENT YEAR 1996-97, IT IS SEEN THAT WHERE, IN THE ASSESSM ENT OF ASSESSEE, FULL EFFECT CANNOT BE GIVEN TO THE DEPRECIATION ALLOWANCE OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN SUBJECT TO THE PROVISIONS OF SUB-SE CTION (2) OF SECTION 72 AND SUB- SECTION (3) OF SECTION 73, THE ALLOWANCE OR THE PAR T OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIOUS YEAR AND DE EMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDIN G PREVIOUS YEARS. THE EFFECT OF THESE PROVISIONS IS THAT THE UNABSORBED DEPRECIATION FOR A PARTICULAR YEAR BECOMES, BY LEGAL FICTION, PART OF THE DEPRECIATION ALLOWANCE FOR THE SUCCEEDING YEAR AND SO ON WITHOUT ANY TIME LIMIT. WHAT SECTION 32(2) AS OPERATIVE UP TO AND INCLUDING ASSESSMENT YEAR 1996-97 CONTEMPLATES IS THAT CURRENT DEPRECIATION I S DEDUCTIBLE, IN THE FIRST PLACE, FROM THE INCOME OF THE BUSINESS TO WHICH IT RELATES; IF SUCH DEPRECIATION AMOUNT IS LARGER THAN THE AMOUNT OF THE PROFITS OF THAT BUSINESS, TH EN SUCH PROCESS IS DEDUCTIBLE FROM THE PROFITS OR GAINS OF ANY OTHER BUSINESS/ES, IF ANY, CARRIED ON BY THE ASSESSEE, AND IF A BALANCE IS LEFT EVEN THEREAFTER, THAT COMES FOR ABS ORPTION FROM THE INCOME FROM ANY SOURCE UNDER ANY OF THE OTHER HEADS OF INCOME DURIN G THAT YEAR; AND IN CASE THERE IS STILL A BALANCE LEFT OVER, IT IS TO BE TREATED AS U NABSORBED DEPRECIATION AND IT SHALL BE CARRIED FORWARD TO THE NEXT SUCCEEDING YEAR, AND WH ERE THERE IS CURRENT DEPRECIATION 7714-LOREAL GROUP 20 FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATI ON BROUGHT FORWARD FROM EARLIER YEAR IS ADDED TO THE CURRENT DEPRECIATION FOR SUCH, SUCCEEDING YEAR AND IS DEEMED, BY LEGAL FICTION, A PART THEREOF. IF, HOWEVER, THERE I S NO CURRENT DEPRECIATION FOR SUCH SUCCEEDING YEAR, THE UNABSORBED DEPRECIATION BECOME S THE DEPRECIATION ALLOWANCE FOR SUCCEEDING YEAR. IN THIS VIEW OF THE MATTER, SECTIO N 32(2) CONTAINED AN INDEPENDENT PROVISION FOR SETTING OFF UNABSORBED DEPRECIATION C ARRIED FORWARD FROM A PRECEDING YEAR. THE UNABSORBED DEPRECIATION CAN BE ALLOWED TO BE CARRIED FORWARD AND SET OFF AGAINST INCOME FROM OTHER SOURCES IN A SUBSEQUENT Y EAR NOTWITHSTANDING THE FACT THAT THE BUSINESS IN RESPECT OF WHICH IT AROSE CEASED TO EXIST IN THE YEAR OF SUCH SET OFF. HOWEVER, CERTAIN RESTRICTIONS HAVE BEEN PUT, FOR AN D FROM ASSESSMENT YEAR 1997-98 BY AN AMENDMENT MADE BY THE FINANCE (NO. 2) ACT, 1996, ON ALLOWANCE OF UNABSORBED DEPRECIATION AS THE OLD SECTION 32(2) OPERATIVE UP TO ASSESSMENT YEAR 1996-97 HAS BEEN SUBSTITUTED. ACCORDING TO SECTION 32(2), AS SUBSTIT UTED BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM 1-4-1997, THE UNABSORBED DEPRECIAT ION OF EARLIER YEARS CAN BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR AND CAN ON LY BE SET OFF AGAINST THE PROFIT AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIE D ON BY THE ASSESSEE AND ASSESSABLE FOR THAT ASSESSMENT YEAR AND FOLLOWING ASSESSMENT Y EAR NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSM ENT YEAR FOR WHICH THE AFORESAID ALLOWANCE WAS FIRST COMPUTED. HOWEVER, FOR AVAILING THE BENEFIT OF CARRIED FORWARD OF UNABSORBED DEPRECIATION, IT IS ESSENTIAL THAT THE B USINESS OR PROFESSION FOR WHICH THE ALLOWANCE WAS ORIGINALLY COMPUTED CONTINUED TO BE C ARRIED ON BY THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT FOR THAT ASSESSMENT YEAR AS STIPULATED IN THE 1ST PROVISO TO SECTION 32(2)(III) AS SUBSTITUTED WITH EFFECT FROM 1-4-1997. IN THIS CONTEXT, IT MAY BE OBSERVED THAT AMENDED SECTION 32(2) AS SUBSTITUTED BY THE FINANCE (NO. 2) ACT, 1996 (WITH EFFECT FROM 1-4-1997) HAS BEEN SUBSTITUTED BY THE FINANCE ACT, 2001, WITH EFFECT FROM 1-4-2002 AND STATUS QUO ANTE HAS BEEN RESTORED WITH EFFECT FROM ASSESSMENT YEAR 2002-03. THE NEW SUB-SECTION (2) OF SECTION 32 AS S UBSTITUTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1-4- 2002 HAS RESTORED THE SUB-SEC TION (2) OF SECTION 32 AS IT STOOD IN THE ASSESSMENT YEAR 1996-97. IN OTHER WORDS, THE RE STRICTIONS IMPOSED BY THE FINANCE (NO. 2) ACT, 1996 WITH EFFECT FROM 1-4-1997 IN THE MATTER OF SET-OFF OF UNABSORBED DEPRECIATION HAS BEEN DISPENSED WITH BY SUBSTITUTIN G THE SECTION 32(2) BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1-4-2002 AND STATUS QUO ANTE, I.E., STATUS QUO OF SECTION 32(2) AS EXISTED PRIOR TO THE AMENDMENT MADE BY FINANCE ( NO. 2) ACT, 1996 WITH EFFECT FROM 1-4-1997 HAS BEEN RESTORED. 7714-LOREAL GROUP 21 FURTHER, THE SAID ISSUE HAS ALSO BEEN CONSIDERED B Y ITAT, MUMBAI BENCH IN THE CASE OF M/S ARCH FINE CHEMICALS PVT.LTD. V/S ACIT IN ITA NOS.24 14 AND 2415/MUM/2012(AYS 2005-06 & 2006-07) ORDER DATED 9.10.2013 TO WHICH ONE OF US ( JM) IS ALSO PARTY. IN VIEW OF ABOVE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM SET OFF OF UNABSORBED DEPRECIATION PERTAINING TO ASSESSMENT YEARS 1997-98 TO 1999-2000 AGAINST BUSIN ESS INCOME OF THE ASSESSMENT YEARS UNDER CONSIDERATION. HENCE, GROUND OF APPEAL TAKEN BY ASS ESSEE IS ALLOWED BY REVERSING THE ORDERS OF AUTHORITIES BELOW. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,SECOND GROUN D OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. ITA/1119/MUM/2014,AY.2009-10: 4. EFFECTIVE GROUND OF APPEAL,FOR THE YEAR UNDER APPEA L,DEALS WITH ADDITIONS MADE BY THE AO ON ACCOUNT OF TP ADJUSTMENT UNDER TH E HEAD AMP EXPENSES, AMOUNTING TO RS.1,69,25,00,000(INCLUDING MARK-UP).F OLLOWING OUR ORDER FOR THE EARLIER AY.FOR THE IDENTICAL ISSUE,WE DECIDE THE EF FECTIVE GROUND IN FAVOUR OF THE ASSESSEE . ITA/976/MUM/2014,AY.2009-10: 5. IN HIS APPEAL,THE AO HAS CHALLENGED THE ORDER OF TH E DRP WHEREIN IT HAD DIRECTED THE AO NOT TO INCLUDED THE SELLING EXPENSE S FOR DETERMINING THE VALUE OF THE BRAND.THE SECOND ISSUE IS ABOUT THE DIRECTIO N GIVEN BY THE DRP ABOUT BRIGHT LINE METHOD. WHILE DECIDING THE APPEAL OF TH E ASSESSEE FOR THE EARLIER AY.,WE HAVE HELD THAT AMP EXPENDITURE IS NOT AN INT ERNATIONAL TRANSACTION. THEREFORE, THE ISSUE OF EXCLUDING OF CERTAIN ITEMS FOR MAKING ADJUSTMENTS BECOMES INFRUCTUOUS.THE SECOND ISSUE OF APPLICATION OF BRIGHT LINE METHOD HAS TO BE DECIDED AGAINST THE AO BECAUSE THE HONBLE DE LHI HIGH COURT HAS HELD THAT THE SAID METHOD CANNOT BE APPLIED TO DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTIONS. AS STATED EARLIER, THE ISSUE OF AMP E XPENDITURE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE,THEREFORE, THE SE COND GROUND HAS TO BE DECIDED AGAINST THE AO.IN SHORT, BOTH THE GROUNDS RAISED BY THE AO STAND DISMISSED. 7714-LOREAL GROUP 22 ITA/518/MUM/2015,AY.2010-11: 6. IN THE EFFECTIVE GROUND FOR THE YEAR UNDER CONSIDE RATION,THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO WITH REGARDI NG TO AMP EXPENSES OF RS.1,31,07,00,000/-.FOLLOWING OUR ORDERS FOR THE EA RLIER TWO YEARS,EFFECTIVE GROUND STANDS DECIDED IN FAVOUR OF THE ASSESSEE . ITA/335/MUM/2015,AY.2010-11: 7. THE AO HAS CHALLENGED THE ORDER OF THE DRP WITH REG ARD TO AMP EXPENSES AND SELECTION OF THE COMPARABLES. FOLLOWING OUR ORD ER FOR THE EARLIER YEARS, ALL THE GROUNDS RAISED BY THE AO ARE DECIDED AGAINST HI M, FOR THE YEAR UNDER CONSIDERATION. AS A RESULT APPEALS FILED BY THE ASSESSEE FOR ALL T HE THREE AY.S.STAND ALLOWED AND THE APPEALS OF THE AO FOR BOTH THE AY.S.ARE DIS MISSED. .. ..' # $. ORDER PRONOUNCED I N THE OPEN COURT ON 4 TH ,MAY, 2016. 4 , 2016 SD/- SD/- ( / C.N. PRASAD ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04.05.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.