Canon India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

ITA 832/DEL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3568 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 01-08-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 17-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: A NKIT SAHNI
• Keywords: Gross profit estimation; Gift; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Onus to prove; Unabsorbed depreciation
• Section: 92C; 143(3); 92B; 142(1); 92E; 234B; 10B

Judgement Text

1 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 1405/DEL/20 15 (A.Y 2010-11) CANON INDIA PVT. LTD. 7 TH & 8 TH FLOOR,, TOWER-B, BUILDING NO. 5, DLF CYBER TERRACES DLF PHASE-III GURGAON AAACC4175D (APPELLANT) VS DCIT CIRCLE-5(2) NEW DELHI (RESPONDENT) I.T.A .NO. 2275/DEL /2015 (A.Y 2010-11) DCIT CIRCLE-5(2) NEW DELHI (APPELLANT) VS CANON INDIA PVT. LTD. 7 TH & 8 TH FLOOR,, TOWER-B, BUILDING NO. 5, DLF CYBER TERRACES DLF PHASE-III GURGAON AAACC4175D (RESPONDENT) I.T.A .NO. 832/DEL/201 6 (A.Y 2011-12) CANON INDIA PVT. LTD. 7 TH & 8 TH FLOOR, TOWER-B, BUILDING NO. 5, DLF CYBER TERRACES DLF PHASE-III GURGAON AAACC4175D (APPELLANT) VS DCIT CIRCLE-5(2) NEW DELHI (RESPONDENT) 2 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA I.T.A .NO. 1052/DEL /2016 (A.Y 2011-12) DCIT CIRCLE-5(2), ROOM NO. G-22C, C. R. BUILDING, I. P. ESTATE NEW DELHI (APPELLANT) VS CANON INDIA PVT. LTD. 2 ND FLOOR, TOWER A & B, CYBER GREENS DLF PHASE-III GURGAON AAACC4175D (RESPONDENT) APPELLANT BY SH. VISHAL KALRA, ADV, SH. S. K. AGGARWAL, ADV & SH ANKIT SAHNI, ADV RESPONDENT BY SH. SANJAY. I. BARA CIT DR ORDER PER SUCHITRA KAMBLE, JM THESE FOUR APPEALS ARE FILED AGAINST THE SEPARATE A SSESSMENT ORDERS DATED 16/02/2015 AND 01.01.2016 PASSED BY DCIT, CIR CLE 5(2), NEW DELHI U/S 143(3) R/W SECTION 144C OF INCOME TAX ACT, 1961 BY THE ASSESSEE AND THE REVENUE. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- I.T.A .NO. 1405/DEL/2015 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CANON INDIA PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE APPELLANT'), RESPE CTFULLY SUBMITS IN RESPECT OF THE ORDER PASSED BY THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(2), NEW DELHI UNDER SECTION 143(3) / 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT) ON THE FOLLO WING GROUNDS: A. TRANSFER PRICING GROUNDS 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLAN T UNDER SECTION 143(3) R.W.S DATE OF HEARING 23.05.2018 DATE OF PRONOUNCEMENT 21.08.2018 3 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 144C(13) OF THE ACT FOR THE RELEVANT ASSESSMENT YEA R AT RS 147,41,69,894 AS AGAINST THE RETURNED INCOME OF RS 47,55,95,410. 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO/DRP /TPO ERRED IN MAKING AN ADJUSTMENT OF RS 77, 26,36,692 IN RESPECT OF ALLEGED INTERNATIONAL TRANSACTION PERTAINING TO EXCESS ADVERTISEMENT, MARKETING AND PROMOTION (AMP) EXPENDITURE, ALLEGI NG THAT THE SAME TO BE NOT AT ARMS LENGTH IN TERMS OF THE PROVISIONS OF SECTI ONS 92C(1) AND 92C(2) OF THE ACT READ WITH RULE 10D OF THE INCOME-TAX RULES,1962 (THE RULES). 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/AO HAVE ERRED IN NOT APPRECIATING THAT SUO MOTO ADJUST MENTS PROPOSED BY THE TPO IN RELATION TO ADVERTISEMENT, MARKETING AND PROMOTI ON (AMP') EXPENSES INCURRED BY THE APPELLANT, WITHOUT ANY REFERENCE FR OM THE AO, WAS BEYOND JURISDICTION AND BAD IN LAW. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LEARNED AO /DRP /TPO ERRED IN ALLEGING THAT AMP EXP ENSES PAID TO UNRELATED THIRD PARTIES IN INDIA ARE EXCESSIVE, NOT FOR THE P URPOSES OF ITS BUSINESS AND IS AN INTERNATIONAL TRANSACTION WITHIN THE MEANING O F SECTION 92B OF THE ACT. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO/DRP/TPO ERRED IN HOLDING THAT THE APPELL ANT BY INCURRING EXCESSIVE AMP EXPENDITURE HAS RESULTED IN CREATION OF MARKETING INTANGIBLE IN FAVOR OF AE, FOR WHICH IT SHOULD BE COMPENSATED ALO NG WITH A MARK-UP BY THE AE. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LEARNED AO /DRP /TPO HAVE ERRED IN HOLDING THAT INC URRENCE OF EXCESSIVE AMP EXPENDITURE WOULD CONSTITUTE A SEPARATE ACTIVITY OF RENDITION OF BRAND BUILDING SERVICES AND NEEDS TO BENCHMARKED SEPARATELY ALONG WITH MARK-UP. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN USING THE BRIGHT LINE TES T, WHICH IS NOT A PRESCRIBED METHOD UNDER THE TP REGULATIONS IN PLACE IN INDIA, AS A METHOD FOR BENCHMARKING THE AMP EXPENDITURE INCURRED BY THE AP PELLANT WITHOUT CORRECTLY APPLYING ANY OF THE METHODS IN THE MANNER PRESCRIBE D UNDER RULE 10B OF THE RULES. WITHOUT PREJUDICE TO THE ABOVE GROUNDS THAT THE AMP EXPENDITURE INCURRED IS NOT AMENABLE TO CHAPTER-X, THE APPELLAN T CRAVES TO RAISE 4 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA FOLLOWING GROUNDS OF APPEAL ON MERITS. 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED AO / DRP / TPO ERRED BY INCLUDING TRADE DIS COUNTS, VOLUME REBATES, COMMISSION, SUBSIDY AND OTHER SALES RELATED EXPENSE S AS PART OF AMP EXPENDITURE AND FURTHER ERRED IN NOT FOLLOWING THE DECISION OF THE TRIBUNAL IN APPELLANTS OWN CASE FOR ASSESSMENT YEARS 2006-07 T O 2008-09, WHEREIN SUCH EXPENSES HAVE BEEN HELD TO BE EXCLUDED BEFORE BENCH MARKING THE ALLEGED EXCESSIVE AMP EXPENDITURE. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/ TPO HAVE ERRED IN ARBITRARILY REJECTING AND SELECTING C OMPARABLE COMPANIES FOR BENCHMARKING THE AMP EXPENDITURE AND, FURTHER, ERRE D IN NOT CONSIDERING THE FUNCTIONALLY COMPARABLE COMPANIES FOR SUCH ALLEGED BRAND BUILDING SERVICES. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/ AO/ TPO HAVE ERRED IN NOT GRANTING THE BENEFIT OF Q UANTITATIVE ADJUSTMENTS (SUCH AS NON-PAYMENT OF ROYALTY / EXPENDITURE INCUR RED ON NEW PRODUCT LAUNCHES), WHILE COMPUTING THE ALLEGED EXCESSIVE AM P EXPENDITURE. 11. THAT THE AO / DRP/ TPO ERRED ON THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW IN NOT APPRECIATING THAT MARK-UP CO ULD NOT BE LEVIED ON THE AMP EXPENDITURES INCURRED BY THE APPELLANT. 11.1. WITHOUT PREJUDICE TO THE ABOVE AND NOT ADMI TTING, IF AT ALL A MARK-UP SHOULD HAVE BEEN CHARGED BY THE APPELLANT, ASSUMING IT TO BE A BRAND BUILDING SERVICE PROVIDER, THE SAID MARK-UP COULD HAVE BEEN CHARGED ONLY ON THE VALUE ADDITION EXPENSES INCURRED BY THE APPELLANT FOR SUC H ALLEGED BRAND PROMOTION SERVICE AND NOT THE ENTIRE AMOUNT INCURRED / PAID T O THIRD PARTY VENDORS. 12. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/DRP/TPO HAVE ERRED IN NOT PROVIDING THE APPELLAN T THE BENEFIT OF 5 PERCENT RANGE AS PROVIDED BY THE PROVISO OF SECTION 92C(2) OF THE ACT. 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED AO / DRP / TPO ERRED BY APPLYING COMPARABLE UNCONTROLLED PRICE METHOD IN A MANNER THAT IS NOT PRESCRIBED OR JUSTIF IED UNDER THE LAW. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED AO / DRP / TPO HAS ERRED BY NOT CARRYING OU T THE DETERMINATION OF ARMS LENGTH PRICE AS REQUIRED UNDER SECTION 92C OF THE ACT READ WITH RULE 10D OF INCOME TAX RULES, 1962. 5 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO /DRP/ TPO ERRED IN NOT APPRECIATING THAT ALL THE TR ANSACTIONS OF THE APPELLANT WERE ESTABLISHED TO BE AT ARMS LENGTH BY APPLYING THE RESALE PRICE METHOD, AND THEREAFTER THE AMP EXPENSES, SEPARATELY, CANNOT BE ALLEGED TO BE EXCESSIVE. 16. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED AO / DRP / TPO HAS ERRED BY IGNORING THE PR OVISIONS OF RULE 10B(3) OF THE RULES AND JUDICIAL PRONOUNCEMENTS, WHICH ADVOCA TE USAGE OF MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DET ERMINATION OF THE ARMS LENGTH PRICE; B. CORPORATE TAX GROUNDS B.1 ADDITION OF SUBSIDY RECEIVED FROM CANONSINGAPOR E PTE. LTD. BUT NOT UTILIZED WITHIN THE PREVIOUS YEAR - RS. 3,23,31 ,873/- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO AND THE HONBLE DRP HAVE ERRED IN MAKING THE ADDITI ON OF RS. 3,23,31,873/- TO THE TOTAL INCOME OF THE APPELLANT. 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO HAS ERRED IN PROPOSING AND THE HON'BLE DRP HAS FURTHER ERRED IN CONFIRMING THAT THE AMOUNT OF SUBSIDY RECEIVED IN ADVANCE FOR MEETING S PECIFIC ADVERTISEMENT AND SALES PROMOTION EXPENDITURE, BUT NOT UTILIZED WITHI N THE PREVIOUS YEAR, IS TAXABLE AS REVENUE RECEIPT. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED AO AND THE HON'BLE DRP HAVE ERRED IN NOT APPRECIATING THAT THE UNUTILIZED/ UNSPENT AMOUNT OF SUBSIDY IS TREATED AS CURRENT LIABILITY A ND NOT INCOME IN THE BOOKS OF ACCOUNT AND THE UNSPENT AMOUNT IS LIABLE TO BE REF UNDED IF NOT UTILIZED FOR THE SPECIFIED PURPOSE. 2. WITHOUT PREJUDICE TO ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DEDUCTION FOR THE UNSPENT SUBSIDY AMOUNT ADDED TO THE INCOME IN ASSESSMENT YEAR 2010-11 SHOULD BE ALLOWED IN THE AS SESSMENT YEAR 2011-12 WHERE SUCH SUM HAS BEEN UTILIZED FOR THE SPECIFIED PURPOSE AND INCLUDED IN INCOME FOR ASSESSMENT YEAR 2011-12. B.2 WITHOUT PREJUDICES TO THE ABOVE, THE LEARNED A.O HAS ERRED, IN LAW AND ON FACTS, IN NOT GRANTING THE CLAIM OF PREPAID TAXED AND FOREIGN TAX CREDIT CLAIMED BY THE APPELLANT. 6 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, AFTER HAVING COMPUTED A TAXABLE INCOME IN CASES OF APPELLANT, THE LD. A.O HAS ERRED IN NOT ALLOWING THE ENTIRE CREDIT OF PREPAID TAXES (TDS, ADVANCE TA X AND SELF ASSESSMENT TAXES) AMOUNTING TO RS.16,94,07,775/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, AFTER HAVING COMPUTED A TAXABLE INCOME IN CASES OF APPELLANT, THE LD. A.O HAS ERRED IN NOT ALLOWING APPROPRIATE CREDIT OF FOREIGN TAXES AMOUNTING TO RS .13,28,981/-. C. THE LD. A.O HAS ERRED, IN LAW AND ON FACTS, IN NOT ALLOWING AND GRANTING THE CREDIT OF SET OFF OF BROUGHT FORWARD OF LOSSES OF RS.19,32,08,420/- CLAIMED BY THE APPELLANT. D. THE LD. A.O HAS ERRED IN LAW AND ON FACTS, I N NOT ALLOWING THE DEDUCTION UNDER CHAPTER VI-1 OF THE ACT OF RS.3,97,500/- CLAI MED BY THE APPELLANT. E. THE LD. A.O HAS ERRED, IN LAW AND ON FACTS, IN C HARGING INTEREST UNDER SECTION 234B OF THE ACT. F. THE LD. A.O HAS ERRED, IN LAW AND ON FACTS, IN CHARGING INTEREST U/S 234D OF THE ACT. G. THE LD. A.O HAD ERRED IN MAKING COMPUTATIO NAL ERRORS WHILE DETERMINING THE NET AMOUNT PAYABLE BY THE APPELLANT. H. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. A.O HAS ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271 (1) (C) OF T HE ACT. I.T.A .NO. 2275/DEL/2015 THE ASSESSING OFFICER DCIT, CIRCLE - 5(2), NEW DELH I IS HEREBY DIRECTED TO FILE APPEAL IN THE ABOVE MENTIONED CASE BEFORE THE ITAT, NEW DELHI ON THE FOLLOWING GROUND OF APPEAL. I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE HONBLE DRP HAS ERRED IN DIRECTING THE AO TO ALLOW AN AMOUN T OF RS. 43,26,35,542/- FROM THE TOTAL AMOUNT OF SUBSIDY RECEIVED IN ADVANC E AMOUNTING TO RS. 46,49,73,415/- BY CONSIDERING THE SAME AS SPENT FOR PURPOSE OF ADVERTISEMENT IGNORING THE FACT THAT THE AMOUNT OF SUBSIDY RECEIV ED IN ADVANCE HAD NOT BEEN SPENT DURING THE PREVIOUS YEAR UNDER CONSIDERATION II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON'BLE DRP HAS 7 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA ERRED IN DELETING THE ADDITION MADE BY THE AO ON AC COUNT OF LOW GP BY IGNORING THE FACT THAT THE ASSESSEE HAD NOT OFFERED ANY EXPL ANATION/JUSTIFICATION WHATSOEVER REGARDING FALL IN GP. III) THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME B EFORE OR DURING THE HEARING OF THIS APPEAL. I.T.A .NO. 832/DEL/2016 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, CANON INDIA PRIVATE LIMITED (HEREINAFTER REFERRED TO AS THE APPELLANT), RESPE CTFULLY SUBMITS IN RESPECT OF THE ORDER PASSED BY THE LEARNED DEPUTY C OMMISSIONER OF INCOME TAX, CIRCLE 5(2), NEW DELHI UNDER SECTION 143(3) / 144C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT) THE FOL LOWING GROUNDS: A TRANSFER PRICING GROUNDS 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER (AO) HAS ERRED IN ASSESSING THE TOTAL INCOME OF THE APPELLANT UNDER SECTION 143(3) R.W.S 144C(13) OF TH E ACT FOR THE RELEVANT ASSESSMENT YEAR (AY) AT RS 150,12,20,810 AS AGAIN ST THE RETURNED INCOME OF RS 55,79,77,442. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDERS PASSED BY THE AO / TRANSFER PRICING OFFICER (TPO) WERE BAD IN LAW AS THE PRE- REQUISITE FOR APPLYING CHAPTER-X, IE, EXISTENCE OF AN INTERNATIONAL TRANSACTION BETWEEN TWO ASSOCIATED ENTERPRISES (AE) UNDER THE PROVISIONS OF SECTION 92B OF THE ACT, WAS NOT SATISFIED OR EXISTED IN THE PRE SENT CASE. 2.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ORDER PASSED BY THE TPO WAS ALSO BAD IN LAW FOR PROPOSING A SUO MOTO ADJUSTMENT IN RELATION TO ADVERTISEMENT, MARKETING AND PROMOTI ON (AMP) EXPENDITURE INCURRED BY THE APPELLANT. FURTHER, THE AO / DISPUT E RESOLUTION PANEL (DRP) ERRED IN NOT APPRECIATING THAT SUCH ADJUSTMENT WAS BEYOND JURISDICTION OF THE TPO, THEREFORE, ULTRA-VIRES, BAD IN LAW AND VOID AB -INITIO. 2.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN HOLDING THAT THE UNILATERAL ARRANGEMENT BETWEEN THE APPELLANT AND INDIAN THIRD PARTIES FOR ADVERTISEMEN T AND PROMOTION WOULD BE A TRANSACTION MUCH LESS AN INTERNATIONAL TRANSACTI ON WITHIN THE MEANING OF CHAPTER X OF THE ACT. 8 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO / DRP / TPO HAVE ERRED IN MAKING AN ADJUSTMENT OF RS. 74, 59,78,403 IN RESPECT OF ALLEGED INTERNATIONAL TRANSACTION PERTAINING TO EXC ESS AMP EXPENDITURE, ALLEGING THAT THE SAME TO BE NOT AT ARMS LENGTH IN TERMS OF THE PROVISIONS OF SECTIONS 92C(1) AND 92C(2) OF THE ACT READ WITH RUL E 10B OF THE INCOME-TAX RULES, 1962 (THE RULES). 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE AO / DRP / TPO ERRED IN ALLEGING THAT AMP EXPENSES PAI D TO UNRELATED THIRD PARTIES IN INDIA ARE EXCESSIVE AND FURTHER ERRED IN HOLDING THAT THE INCURRING OF EXCESSIVE AMP EXPENDITURE HAS RESULTED IN CREATION OF MARKETING INTANGIBLE IN FAVOR OF AE, FOR WHICH IT SHOULD BE COMPENSATED BY THE AE. WITHOUT PREJUDICE TO THE ABOVE GROUNDS THAT THE AMP EXPENDITURE INCURRED IS NOT AMENABLE TO CHAPTER-X, THE APPELLAN T CRAVES TO RAISE FOLLOWING GROUNDS OF APPEAL ON MERITS. 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO ERRED IN LAW AND ON FACTS, IN APPLYING PROFIT S PLIT METHOD (PSM') TO BENCHMARK THE ALLEGED INTERNATIONAL TRANSACTION OF INCURRING EXCESSIVE AMP EXPENDITURE WITHOUT ESTABLISHING AS TO HOW PSM WAS THE MOST APPROPRIATE METHOD IN TERMS OF SECTION 92C READ WITH RULE 10B O F THE RULES AND HAD APPLICABILITY TO THE FACTS OF THE INSTANT CASE. 5.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, DRP/ TPO ERRED IN RE- CHARACTERIZING THE FUNCTIONAL ANALYSIS OF THE APPEL LANT AND FURTHER ERRED IN ALLEGING THAT IN THE INSTANT CASE THE OVERSEAS ENTI TIES IS AN ENTREPRENEUR AND AE HAS ASSIGNED VITAL FUNCTION THAT OTHERWISE SHOUL D HAVE BEEN CARRIED OUT BY ITSELF. 5.2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE TPO/ DRP ERRED IN HOLDING THAT THE APPELLANT IS CON TRIBUTING TO THE INTANGIBLE OF THE AE AND THUS, CONTRIBUTING TO THE GLOBAL PROFIT AND THEREFORE, THE PSM IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE ALLEGED INTERNATIONAL TRANSACTION PERTAINING TO EXCESSIVE AMP SPENT. 5.3. WITHOUT PREJUDICE AND NOTWITHSTANDING TO ABOVE , THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN ARBITRARILY HOLDING TAXABILITY OF GLOBAL PROFITS PR OPORTIONATE TO AMP EXPENDITURE 9 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA INCURRED IN INDIA AND FURTHER ERRED IN ARBITRARILY ALLOCATING (1.8% OF 35% OF GLOBAL PROFITS) GLOBAL PROFITS USING PSM METHOD ALL EGING THAT THE APPELLANT IS CONTRIBUTING/ CREATING INTANGIBLE ON BEHALF OF THE AE AND GLOBAL PROFITS NEED TO BE APPORTIONED SINCE VARIOUS FACTORS ARE EFFECTING THE ACCRUAL OF INCOME. 6. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN NOT APPRECIATING THAT DISTRIBUTIO N AND MARKETING FUNCTIONS BEING INTERCONNECTED AND INTERTWINED SHOULD BE BENC HMARKED ON AN AGGREGATE BASIS AS WAS ESTABLISHED BY THE APPELLANT. 6.1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE AO / DRP HAVE ERRED IN ARBITRARILY REJECTING COMPARABLE COMP ANIES FOR THE AGGREGATE APPROACH FOR THE PURPOSE OF BENCHMARKING THE ALLEGE D EXCESSIVE AMP EXPENSES AND HOLDING THAT THERE ARE NO APPROPRIATE COMPARABL E COMPANIES AVAILABLE TO BENCHMARK ON AN AGGREGATE BASIS. 7. THE AO / DRP / TPO HAVE ERRED IN HOLDING THAT DI STRIBUTION & MARKETING (INCURRENCE OF AMP) SHOULD BE BENCHMARKED SEPARATEL Y APPLYING PSM METHOD AND FURTHER ERRED IN NOT APPRECIATING THAT THE SAME WOULD RESULT IN OVER TAXATION AND IS CONTRARY TO THE COMPUTATION MACHINE RY PROVIDED IN CHAPTER X. 7.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO / DRP/ TPO HAVE ERRED IN NOT ALLOWING THE SETOFF EXCE SS MARGIN EARNED BY THE APPELLANT FROM DISTRIBUTION FUNCTION AGAINST THE AD JUSTMENT MADE ON ACCOUNT OF AMP EXPENDITURE EVEN IF THE SAME WAS TO BE SEGREGAT ED AND BENCHMARKED SEPARATELY. 8. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN INCLUDING SUBSIDY FROM THE SCOPE OF AMP EXPENDITURE WHILE BENCHMARKING THE SAME ON SEGREGATED BASIS. 8.1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE AO / TPO HAVE ERRED IN NOT EXCLUDING SELLING / BUSINESS PROM OTION EXPENSES FROM THE SCOPE OF AMP EXPENDITURE AND FURTHER ERRED IN NOT F OLLOWING THE DIRECTIONS OF THE DRP TO EXCLUDE THE SELLING / BUSINESS PROMOTION EXPENSES AS PER THE DETAILS FILED AND THE DECISION OF THE TRIBUNAL IN APPELLANT S OWN CASE FOR ASSESSMENT YEARS 2006-07 TO 2008-09. 10 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN NOT GRANTING THE BENEFIT OF QUANTITATIVE / ECONOMIC ADJUSTMENTS (SUCH AS NON-PAYMENT OF ROYALTY / EXPEN DITURE INCURRED ON NEW PRODUCT LAUNCHES), WHILE COMPUTING THE ALLEGED EXCE SSIVE AMP EXPENDITURE. 10. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP / TPO HAVE ERRED IN NOT PROVIDING THE APPELLANT THE B ENEFIT OF 5 PERCENT RANGE AS PROVIDED BY THE PROVISO OF SECTION 92C(2) OF THE AC T. 11. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE AO / DRP / TPO HAS ERRED BY IGNORING THE PROVISIONS OF RULE 10B(3) OF THE RULES AND JUDICIAL PRONOUNCEMENTS, WHICH ADVOCATE USAGE O F MULTIPLE YEAR DATA OF COMPARABLE COMPANIES FOR THE PURPOSE OF DETERMINATI ON OF THE ARMS LENGTH PRICE. CORPORATE TAX GROUNDS B.1 ADDITION OF SUBSIDY RECEIVED FROM CANON SINGAPO RE PTE. LTD. BUT NOT UTILIZED WITHIN THE PREVIOUS YEAR - RS. 197,264 ,964/- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE AO / DRP HAVE ERRED IN MAKING THE ADDITION OF RS. 197, 264.964/- TO THE TOTAL INCOME OF THE APPELLANT. 1.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN MAKING AND THE DRP HAS FURTHER ERRED I N CONFIRMING THAT THE AMOUNT OF SUBSIDY RECEIVED IN ADVANCE FOR MEETING S PECIFIC ADVERTISEMENT AND SALES PROMOTION EXPENDITURE, BUT NOT UTILIZED WITHI N THE PREVIOUS YEAR, IS TAXABLE AS REVENUE RECEIPT. 1.2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO / DRP HAVE ERRED IN NOT APPRECIATING THAT THE UNUTI LIZED/ UNSPENT AMOUNT OF SUBSIDY IS TREATED AS CURRENT LIABILITY AND NOT INC OME IN THE BOOKS OF ACCOUNT AND THE UNSPENT AMOUNT IS LIABLE TO BE REFUNDED IF NOT UTILIZED FOR THE SPECIFIED PURPOSE. 1.3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER / DRP HAVE ERRED INNOT FOLLOWING THE HONBLE DELHI HIGH COURTS ORDER IN APPELLANTS OWN CASE. 11 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 2. WITHOUT PREJUDICE TO ABOVE, THAT ON THE FACTS AN D IN THE CIRCUMSTANCESOF THE CASE AND IN LAW, THE DEDUCTION FOR THE UNSPENT SUBSIDY AMOUNT ADDED TO THE INCOME IN AY 2011-12 SHOULD BE ALLOWED IN THE A Y 2012-13 WHERE SUCH SUM HAS BEEN UTILIZED FOR THE SPECIFIED PURPOSE AND INCLUDED IN INCOME FOR AY 2012-13. B.2 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO HAS ERRED, IN LAW AND ON FACTS, IN NOT GRANTING THE CLAIM OF PREPAID TAXES. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, AFTER HAVING COMPUTED A TAXABLE INCOME IN CASE OF APPELLA NT, THE LEARNED AO HAS ERRED IN NOT ALLOWING THE CREDIT OF TDS AMOUNTING T O RS.385,168/-. B.3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, IN NOT ALLOWING THE DEDUCTION UNDER CHAPTER VL-A OF THE AC T OF RS. 500,000/- CLAIMED BY THE APPELLANT. B.4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, IN CHARGING INTEREST UNDER SECTION 234B OF THE ACT. I.T.A .NO. 1052/DEL/2016 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, HONBLE DRP HAS ERRED IN RESTRICTING THE ALP FROM RS. 74,59 ,78,408/- TO RS. 53,21,45,194/- U/S 92CA(3) OF THE INCOME TAX ACT 19 61. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONBLE DRP-1 HAS IGNORED THE FACTS THAT SUCH EXPENSE I.E. SELLING EXPENSES ARE INCLUDED IN THE AMP EXPENSE OF THE AE, WHICH IS TAK EN AS A BASE FOR THE PROFIT SPLIT. IF SELLING AND DISTRIBUTION EXPENSES ARE TO BE EXCLUDED FROM THE ASSESSEES AMP EXPENSE, THE SAME SHOULD BE EXCLUDED FROM THE AMP EXPENSE F THE AE. HOWEVER, THAT INFORMATION IS NOT AVAILABLE IN PUBLIC DOMAIN. IF ONLY THE SELLING AND DISTRIBUTION EXPENSE OF THE ASSESSEE AR E REMOVED AND NOT OF THE AE, THE PSM (PROFIT SPLIT METHOD) CALCULATION WILL GO W RONG. 3. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, AD D OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING TH E HEARING OF THIS APPEAL. 3. WE ARE TAKING UP THE FACTUAL MATRIX FOR A.Y. 201 0-11. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF PH OTOCOPIERS, FAX MACHINES, 12 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA PRINTERS, SCANNERS, DIGITAL CAMERAS AND PROJECTORS, PRINTER CARTRIDGES, TONERS AND SOFTWARE DEVELOPMENT AND EXPORT. IN THIS CASE, THE ASSESSEE COMPANY FILED RETURN OF INCOME DECLARING INCOME OF 47,55,95,410/- AFTER SET OFF OF BROUGHT FORWARD LOSSES OF 19,32,08,420 ON 27.09.2010. THE RETURN WAS PROCESS UNDER SECTION 143 (1) OF THE INCOME TAX ACT , 1961. THE NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED FOR SELECTING THE CASE FOR SCRUTINY. NOTICE UNDER SECTION 142(1) OF ALONG WITH A DETAILED QUEST IONNAIRE WAS ISSUED FOR FURNISHING THE DETAILS. IN RESPONSE TO THE SAID NOT ICES CHARTERED ACCOUNTANTS AND AUTHORIZED REPRESENTATIVES OF THE ASSESSEE COMP ANY ATTENDED FROM TIME TO TIME AND FILED THE NECESSARY DETAILS. DURING THE YEAR, THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES. THE CASE WAS REFERRED TO TRANSFER PRICING OFFICER FOR DETERMINAT ION OF ARMS LENGTH PRICE UNDER SECTION 92CA(1) OF THE ACT IN RESPECT OF INTE RNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE DURING THE FINANCE YEA R 2009-10. THE TPO VIDE ORDER DATED 23.01.2014 DETERMINED THE ARMS LENGTH PRICE WITH RESPECT TO THE INTERNATIONAL TRANSACTION CARRIED OUT BY THE ASSESS EE AND DIRECTED THE ASSESSING OFFICER TO ADD A SUM OF 86,84,79,282 TO TAXABLE INCOME OF THE ASSESSEE. VIDE NOTICE UNDER SECTION 143(2) DATED 29 .01.2014, THE ASSESSEE WAS ASKED TO EXPLAIN WHY A SUM OF 86,84,79,282 SHOULD NOT BE ADDED TO THE TAXABLE INCOME OF THE ASSESSEE AS DIRECTED BY THE T PO. THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE PUT BEFORE THE T PO. AS PER THE DIRECTIONS OF THE TPO, THE ASSESSING OFFICER ADOPTED THE ARMS LENGTH PRICE DETERMINED BY THE TPO AND ACCORDINGLY AN AMOUNT OF 86,84,79,282 BEING THE DIFFERENCE IN THE ARMS LENGTH PRICE DETERMINED BY THE TPO WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. IN THIS REGARD A DRAFT OF T HE PROPOSED ORDER OF ASSESSMENT WAS PASSED AND SENT TO THE ASSESSEE. THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL CHAL LENGING THE VARIATION PROPOSED TO BE MADE IN THE DRAFT ORDER. THE DRP VID E ORDER DATED 24.12.2014 HAS RESTORED THE MATTER TO THE FILE OF THE TRANSFER PRICING OFFICER FOR VERIFICATION. THE TPO VIDE REPORT DATED 21.01.2015 REVISED THE VALUE OF 13 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA COMPOUND ADJUSTMENT TO 77,26,36,692/-INSTEAD OF 86,24,79,282/-AS PROPOSED IN THE DRAFT ASSESSMENT ORDER. IN COMPLIAN CE TO THE DIRECTIONS OF THE DRP AND THE ORDER OF TPO, THE ADDITION AMOUNTING TO 77,26,36,692/-WAS MADE ON ACCOUNT OF ALP. THE ASSESSING OFFICER ALSO MADE AN ADDITION OF 3,23,31,873 BEING SUBSIDY RECEIVED FROM CANON SINGA PORE PTE. LTD. BUT NOT UTILISED WITHIN THE PREVIOUS YEAR. DURING THE YEAR ASSESSEE CLAIMED SET-OFF OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION TO THE EXTENT OF 19,32,08,420/-. ON GOING THROUGH THE ASSESSMENT ORD ER FOR THE A.Y. 2009-10 IT IS SEEN THAT THERE IS NO LOSSES/UNABSORBED DEPRE CIATION CARRIED FORWARD FOR SET OFF. HENCE THE SET OFF CLAIMED BY THE ASSESSEE WAS NOT ALLOWED BY THE ASSESSING OFFICER. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE AS WELL AS THE REVENUE FILED APPEALS BEFORE US. 5. FIRSTLY WE ARE TAKING UP THE ASSESSEES APPEAL F OR A.Y. 2010-11. AS REGARDS GROUND NOS. 1 AND 2, THE SAME ARE GENERAL I N NATURE. HENCE GROUND NOS. 1 AND 2 ARE DISMISSED. 6. GROUND NO. 3 RELATING TO JURISDICTION OF THE TPO TO DETERMINE ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO RE-CHARACTERIZ E TRANSACTION AS AN INTERNATIONAL TRANSACTION. THE LD. AR SUBMITTED THA T THE TPO WHILE EXAMINING THIS ISSUE SUO MOTO, HELD THAT THERE EXIS TS AN INTERNATIONAL TRANSACTION BY INCURRING EXCESSIVE AMP EXPENDITURE. THE LD. AR SUBMITTED THAT THE PROVISIONS OF SECTION 92CA OF THE ACT, ENA BLES THE TPO ONLY TO COMPUTE THE ARMS LENGTH PRICE FOR TRANSACTION AND IT IS THE ASSESSING OFFICER WHO HAS TO ARRIVE AT A SATISFACTION THAT THERE EXIS TS AN INTERNATIONAL TRANSACTION. SUB-SECTION (2B) TO SECTION 92CA ONLY ENABLES THE TPO TO BENCHMARK AN INTERNATIONAL TRANSACTION WHICH HAS NO T BEEN REPORTED UNDER SECTION 92E OF THE ACT. HOWEVER, THE TPO DOES NOT H AVE JURISDICTION TO ADJUDICATE / DETERMINE THE CHARACTER OF TRANSACTION , THAT IS, WHETHER IT IS AN INTERNATIONAL TRANSACTION OR NOT. FURTHER SUB-SECTI ON (1) TO SECTION 92CA OF 14 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA THE ACT REQUIRES THAT ASSESSING OFFICER WITH THE PR IOR APPROVAL OF THE PRINCIPAL COMMISSIONER OR THE COMMISSIONER, TO REFER FOR THE COMPUTATION OF ALP OF AN INTERNATIONAL TRANSACTION TO THE TPO UNDER SECTION 92C OF THE ACT. THE LD. AR FURTHER SUBMITS THAT THE INTENT OF LEGISLATURE HAS BEEN CLARIFIED BY THE CBDT VIDE INSTRUCTION NO 3/2016. THE BOARD HAS CLARIFIED THAT ROLE OF THE TPO BEGINS ONLY AFTER A REFERENCE IS RECEIVED FROM THE ASSESSING OFFICER AND IS LIMITED TO DETERMINATION OF ALP IN RELATION TO THE INTERNATIONAL TRANSACTIONS REFERRED BY THE ASSESSING OFFICER. FURTHER THE SATI SFACTION TO BE ARRIVED AT BY THE ASSESSING OFFICER REGARDING THE EXISTENCE OF TH E INTERNATIONAL TRANSACTION FOR MAKING THE REFERENCE TO THE TPO. THE LD. AR REL IED ON THE DECISION OF THE HONBLE DELHI HIGH COURT CASE OF INDO- RAMA SYNTHET ICS (INDIA) PVT. LTD. VS. ACIT (2016) 386 ITR 665 (DEL) WHEREIN THE HONBLE H IGH COURT HAS REJECTED REVENUES CONTENTION THAT CBDT INSTRUCTION 3/2016 DA TED MARCH 10, 2016 WHICH WAS REPLACED BY INSTRUCTION 15/2015 SPECIFICA LLY LAYS DOWN PROCEDURE TO BE FOLLOWED BY ASSESSING OFFICER MAKING TPO REFE RENCE PROSPECTIVE. THE HONBLE HIGH COURT HAS HELD THAT THE INSTRUCTION CL ARIFIES THE CORRECT LEGAL POSITION AND CANNOT BE CONSTRUED AS NOT APPLYING TO THE FACTS ON HAND. BEING PROCEDURAL IT REQUIRES TO BE APPLIED EVEN THE CASE WHERE A REFERENCE WAS MADE BY THE ASSESSING OFFICER TO THE TPO PRIOR TO THE IS SUE IS OF THE CIRCULAR. THE LD. AR RELIED ON THE DECISION OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF SHRI VISHNU ETABLES (INDIA) LTD. VS. DC IT (2016) 387 ITR 385 AND HONBLE GUJARAT HIGH COURT IN THE CASE OF ALPHA NIP ON INNOVATIVES LTD. VS. DCIT (2016) 291 CTR 309. IN THE PRESENT CASE, THE T PO HAD FIRST CONSTRUCTED/DETERMINE THAT THE INFERENCE OF AMP EXP ENDITURE AS A DEEMED INTERNATIONAL TRANSACTION BASED UPON CONJECTURE AND SURMISES THOUGH NONE EXISTED ON FACTS AND LAW AND THEN ARBITRARILY DETER MINED THE ALP OF THE SAID INTERNATIONAL TRANSACTION. THE LD. AR SUBMITTED THA T THE PROVISIONS OF THE ACT PROVIDES THAT THE TPO CAN ONLY DETERMINE ALP OF AN INTERNATIONAL TRANSACTION HOWEVER JURISDICTION OF THE TPO INCLUDES ADJUDICATI ON OF CHARACTERIZATION OF TRANSACTION TO BE AN INTERNATIONAL TRANSACTION. THE LD. AR FURTHER SUBMITTED 15 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA THAT IF GROUND NO. 3 OF THE APPEAL OF THE ASSESSEE IS DECIDED IN FAVOUR OF THE ASSESSEE THEN ALL THE OTHER GROUNDS OF ASSESSEES A PPEAL PERTAINING TO TRANSFER PRICING ADDITION BECOMES ACADEMIC. 7. THE LD. DR RELIED UPON THE PROVISIONS OF SECTION 92CA OF THE ACT AND SUBMITTED THAT THE REFERENCE MADE TO THE TPO WAS RI GHTLY DONE AND THE TPO HAS THE POWER TO DECIDE THE ISSUES WHICH ARE HAVING DIRECT BEARING TO THE REFERENCE. THE LD. DR SUBMITTED THAT THE CBDT CIRCU LAR IS ALSO REITERATING THE PROVISIONS OF SECTION 92CA OF THE ACT. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RECORDS. AS REGARDS TO GROUND NO. 3 OF THE ASSESSEES APPEAL, IT IS PER TINENT TO NOTE HERE SUB- SECTION (2A) OF SECTION 92CA WHICH READS AS UNDER: 92CA. (1) WHERE ANY PERSON, BEING THE ASSESSEE, HA S ENTERED INTO AN INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TR ANSACTION] IN ANY PREVIOUS YEAR, AND THE ASSESSING OFFICER CONSIDERS IT NECESS ARY OR EXPEDIENT SO TO DO, HE MAY, WITH THE PREVIOUS APPROVAL OF THE 1 [PRINCI PAL COMMISSIONER OR] COMMISSIONER, REFER THE COMPUTATION OF THE ARM'S LE NGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTION [OR SPECIFIED DO MESTIC TRANSACTION] UNDER SECTION 92C TO THE TRANSFER PRICING OFFICER. (2) WHERE A REFERENCE IS MADE UNDER SUB-SECTION (1) , THE TRANSFER PRICING OFFICER SHALL SERVE A NOTICE ON THE ASSESSEE REQUIR ING HIM TO PRODUCE OR CAUSE TO BE PRODUCED ON A DATE TO BE SPECIFIED THER EIN, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE COMPU TATION MADE BY HIM OF THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATI ONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] REFERRED TO IN SUB-SECTION (1 ). (2A) WHERE ANY OTHER INTERNATIONAL TRANSACTION [OTH ER THAN AN INTERNATIONAL TRANSACTION REFERRED UNDER SUB-SECTION (1)], COMES TO THE NOTICE OF THE TRANSFER PRICING OFFICER DURING THE COURSE OF THE P ROCEEDINGS BEFORE HIM, THE PROVISIONS OF THIS CHAPTER SHALL APPLY AS IF SUCH O THER INTERNATIONAL 16 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA TRANSACTION IS AN INTERNATIONAL TRANSACTION REFERRE D TO HIM UNDER SUB-SECTION (1). IT IS CLEAR THAT ANY TRANSFER PRICING ISSUE CAN BE TAKEN UP BY THE TPO AS THE SAME IS REFERRED TO THE TPO BY THE ASSESSING OFFICE R AS PER SUB-SECTION 1 OF SECTION 92CA OF THE ACT. IN FACT, SUB-SECTION 2 OF SECTION 92CA ITSELF IS CLEAR IN THAT RESPECT THAT WHERE A REFERENCE IS MADE UNDE R SUB-SECTION (1), THE TRANSFER PRICING OFFICER SHALL SERVE A NOTICE ON TH E ASSESSEE REQUIRING HIM TO PRODUCE OR CAUSE TO BE PRODUCED ON A DATE TO BE SPE CIFIED THEREIN, ANY EVIDENCE ON WHICH THE ASSESSEE MAY RELY IN SUPPORT OF THE COMPUTATION MADE BY HIM OF THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION [OR SPECIFIED DOMESTIC TRANSACTION] REFERRED TO IN SUB- SECTION (1) OF THE ACT. THUS, GROUND NO. 3 IS DISMISSED. 9. GROUND NO. 4 IS RELATING TO NON-EXISTENCE OF INT ERNATIONAL TRANSACTION. GROUND NO. 5 IS RELATING TO NO CREATION OF MARKETIN G INTANGIBLE IN FAVOUR OF AE. GROUND NO. 6 IS RELATING TO NON RENDITION OF AN Y BRAND BUILDING SERVICES. FOR THESE THREE GROUNDS, THE LD. AR SUBMITTED THAT EXISTENCE OF AN INTERNATIONAL TRANSACTION IS SINE QUA NON TO INVOKE THE PROVISIONS OF TRANSFER PRICING. THE AMP EXPENDITURE INCURRED DOES NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION AND THEREFORE THE SAME WA S NOT REPORTED IN FORM 3CEB AS THE SAME EXPENDITURE WAS INCURRED IN RELATI ON TO THIRD-PARTY VENDORS IN INDIA. THE AMP EXPENDITURE BY ASSESSEE I S UNILATERAL ACTION. THE TP REGULATION WOULD BE APPLICABLE TO TRANSACTION BE GAN ARRANGEMENT UNDERSTANDING REACTION IN CONSORT IN RELATION TO PU RCHASE SALE OR LEASE/USE OF TANGIBLES/INTANGIBLE PROPERTY OR ANY OTHER TRANSACT ION HAVING BEARING ON PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRIS ES. IN OTHER WORDS TO BE AN INTERNATIONAL TRANSACTION IT SHOULD BE PURSUANT TO AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONSORT BETWEEN THE ASSE SSEE AND ITS AE TRANSACTION TO BE CLASSIFIED AS AN INTERNATIONAL TR ANSACTION UNDER CHAPTER X OF THE ACT PER SE INVOLVES A BILATERAL CONTRACT/UNDERS TANDING BETWEEN THE PARTIES 17 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA UNDER UNILATERAL ACTION WITHOUT ANY BINDING OBLIGAT ION CANNOT BE TERMED AS TRANSACTION. THE LD. AR FURTHER SUBMITTED THAT IN T HE PRESENT CASE THE FOLLOWING TABLE DEPICTS THE VARYING DEGREE OF AMP/S ALES RATIO. THE VARYING AMP/SALES PATTERN FOR THE ASSESSEE OVER THE YEARS S UGGESTED THAT THE ASSESSEE WAS UNDER NO OBLIGATION FROM ITS AE TO INC UR AMP EXPENDITURE, CONTRARY TO THE SITUATION WHERE AMP/SALES WOULD HAV E BEEN A FIXED PERCENTAGE ON ACCOUNT OF AN AGREEMENT: YEAR (A.Y) 2006-07 2007-08 2008-09 2009-10 2010-11 SALES (REFER TP STUDY) 292,09,04 1 389,42,11,23 1 516,54,36,62 8 668,00,97,48 1 920,22,02,00 7 AMP 9,70,90,07 3 15,40,05,865 25,47,70,,50 3 24,47,27,290 30,14,20,000 AMP/SALE S (IN %) 3.32 3.95 4.93 3.66 3.30 THE LD. AR FURTHER SUBMITTED THAT THE BENEFIT OF AM P EXPENDITURE IS CLEARLY EVIDENT FROM THE ENHANCED SALES OF THE ASSESSEE. IT IS APPARENT THAT THE MARKETING ACTIVITIES CONDUCTED BY THE ASSESSEE LED TO A GREATER PENETRATION OF THE ASSESSEE IN THE MARKET. THIS CAN BE SEEN FROM T HE TABLE DEMONSTRATING THE INCREASE OF SALES OF ASSESSEE. THE LD. AR FURTH ER SUBMITTED THAT THERE IS A RELATIONSHIP WITH AE THAT OF PRINCIPAL TO PRINCIPAL . THE ASSESSEE IS A DISTRIBUTOR OF CANON PRODUCTS IMPORTED FROM ITS AES AND THESE TRANSACTIONS ARE CARRIED OUT ON PRINCIPAL TO PRINCIPAL BASIS. TH E ASSESSEE IS ONLY RESPONSIBLE FOR IMPROVING ITS BUSINESS MARKET IN IN DIA AND INCREASING THE SALES OF PRODUCTS. THE ASSESSEE HAD INCURRED EXPEND ITURE ON AMP TO CATER TO LOCAL MARKET NEEDS. IT IS TO BE APPRECIATED THAT TH E AMP EXPENDITURE HAS BEEN INCURRED IN RELATION TO LOCAL PRODUCT ADVERTISEMENT S INTO DOMESTIC INDEPENDENT THIRD PARTIES, THUS THE DOMESTIC UNILAT ERAL EXPENDITURE INCURRED BY THE ASSESEE FOR THE PURPOSE OF ITS BUSINESS CANN OT BE CLASSIFIED AS INTENTIONAL INTERNATIONAL TRANSACTION UNDER SECTION 92B (2) OF THE ACT. THE LD. 18 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA AR FURTHER SUBMITTED THAT ONUS TO PROVE EXISTENCE O F INTERNATIONAL TRANSACTION HAS NOT BEEN DISCHARGED BY THE REVENUE. IT IS SETTLED LAW THAT THE ONUS TO PROVE THE EXISTENCE OF ARRANGEMENT REGARDIN G INCURRENCE OF UNILATERAL AMP EXPENDITURE BY THE TAXPAYER IS SOLELY FOR THE B RAND PROMOTION OF ITS FOREIGN AE IS ON THE REVENUE. EXISTENCE OF AN INTER NATIONAL TRANSACTION CANNOT BE A MATTER FOR INFERENCE OR SURMISE AND THE BURDEN TO PROVE THE EXISTENCE OF AN AGREEMENT/ARRANGEMENT PRIOR TO INCURRING OF THE AMP EXPENSES IS ON THE REVENUE. UNLESS REVENUE DEFINITELY SHOWS THAT THE A SSESSEE WAS OBLIGED TO INCUR AMP EXPENSES OF CERTAIN LEVEL FOR PROMOTING I TS AES BRAND, AN INTERNATIONAL TRANSACTION CANNOT BE INFERRED. THE L D. AR RELIED ON THE FOLLOWING DECISIONS: MARUTI SUZUKI INDIA LTD. VS. CIT (2016) 381 ITR 154 (DEL) CIT VS. WHIRLPOOL OF INDIA LTD. (2016) 381 ITR 154 (DEL) HONDA SIEL POWER PRODUCTS (2016) 283 CTR 322 (DEL) BAUSCH & LOMB EYECARE (INDIA) (P) LTD. VS. ACIT (20 16) 381 ITR 227 (DEL) WIDEX INDIA PVT. LTD. VS ACIT: [2017] 78 TAXMANN.CO M 348 (CHANDIGARH - TRIB.) NIPPON PAINT INDIA PVT VS ACIT: [2017] 79 TAXMANN.C OM 8 (CHENNAI - TRIB.) ESSILOR INDIA PRIVATE LIMITED VS DCIT: [2016] 178 T TJ 69 (BANGALORE - TRIB.) GOODYEAR INDIA LTD V DCIT: [2016] 70 TAXMANN.COM 67 (DELHI - TRIB.) LOREAL INDIA PRIVATE LIMITED V DCIT: [2016] 49 ITR( T) 473 (MUMBAI - TRIB.) HEINZ INDIA PRIVATE LIMITED: [TS-194-ITAT-20 16(MUM)-TP] THOMAS COOK (INDIA) LIMITED: 2016] 49 ITR(T) 178 (M UMBAI - TRIB.) MONDELEZ INDIA FOODS PVT LTD: [2016] 70 TAXMANN.COM 112 (MUMBAI - TRIB.) 19 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA INDIA MEDTRONIC PRIVATE LIMITED: [2016] 66 TAXMANN. COM 218 (MUMBAI - TRIB.) JOHNSON & JOHNSON LIMITED: [TS-19-ITAT-2016(MUM)-TP ] TOSHIBA INDIA PVT. LTD: ITA NO. 944/DEL/2016 (TS-15 9-ITAT- 2016(DEL)-TP) HONDA SIEL POWER PRODUCT LTD: TS-238-ITAT-2016(DEL) -TP FUJIFILM INDIA PVT. LTD: [TS-237-ITAT-2016(DEL)-TP] IN THE PRESENT CASE ALSO, THE ASSESSEE HAS CONTESTE D THE VERY EXISTENCE OF INTERNATIONAL TRANSACTION BETWEEN ITSELF AND ITS AE , CONCERNING AMP EXPENDITURE. AS A RESULT, THE QUESTION OF EXISTENCE OF THE ALLEGED INTERNATIONAL TRANSACTION HAS TO BE DECIDED IN ACCORDANCE WITH LA W. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS, WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT THE ISSUE OF EXISTENCE OF INTERNATIONAL TRANSACTION , HAS TO BE EXAMINED AFRESH FOR EACH ASSESSMENT YEAR, SEPARATELY: I. SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS DCIT: ITA 638/2015 & 648/2015 (DELHI HC) II. DAIKIN AIR CONDITIONING INDIA PVT. LTD. VS ACIT: IT A 269/2016 (DELHI HC) - THE LD. AR SUBMITTED THAT IF THE ABOVE GROUND NO. 4 , 5, 6 OF THE ASSESSEES APPEAL ARE DECIDED IN FAVOUR OF THE ASSESSEE THEN A LL OTHER GROUNDS OF ASSESSEES APPEAL AND DEPARTMENTAL APPEAL SHALL BE ACADEMIC. 10. THE LD. DR RELIED UPON THE ORDER OF THE TPO AND ASSESSMENT ORDER. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. THIS ISSUE IS NOT VERIFIED PROPERLY BY THE TPO AND THEREFORE, IT REQUIRES VERIFICATION AS THERE IS NO MENTION OF THE SPECIFIC AGREEMENTS TO T HE EFFECT OF THE AMP WHETHER IS A INTERNATIONAL TRANSACTION OR NOT. THER EFORE, WE DIRECT THE TPO/AO TO VERIFY THIS ISSUE IN LIGHT OF THE AGREEME NTS SIGNED BY THE ASSESSEE 20 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA WITH ITS AES AS WELL AS THE MAIN COMPANY. NEEDLESS TO SAY THE ASSESSEE BE GIVEN THE OPPORTUNITY OF HEARING BY FOLLOWING PRINC IPLES OF NATURAL JUSTICE. GROUND NO. 4, 5 AND 6 OF THE ASSESSEES APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 12. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PREJU DICE TO THE AFORESAID, AMP EXPENDITURE IS NOT AMENABLE TO CHAPTER X, THE ASSESSEES CONTENTIONS IN RELATION TO BENCHMARKING OF THE ALLEGED INTERNAT IONAL TRANSACTION ARE AS UNDER: GROUND NO. 7 IS RELATING TO WRONG APPLICATION OF BR IGHT LINE TEST BY THE AO/DRP/TPO. GROUND NO. 13 IS RELATING TO WRONG APPLICATION OF C UP METHOD IN A MANNER NOT PRESCRIBED UNDER LAW BY THE AO/DRP/TPO. GROUND NO. 14 IS RELATING TO WRONG DETERMINATION OF ALP OF THE ALLEGED INTERNATIONAL TRANSACTION AS PER SECTION 92C OF THE ACT, READ WITH, INCOME TAX RULES, 1962. 13. THE LD. AR SUBMITTED THAT THE AO/TPO/DRP DETERM INED TRANSFER PRICING ADJUSTMENTS RELATING TO THE AMP EXPENDITURE BY APPLYING THE BRIGHT LINE TEST WHICH IS NOT RECOGNIZED UNDER THE INDIAN TRANSFER PRICING REGULATIONS, AS A PRESCRIBED METHOD UNDER SECTION 9 2C OF THE ACT FOR BENCHMARKING OF THE ASSESSEES AMP EXPENDITURE. THE LD. AR RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF SONY ERICSSON MOBILE COMMUNICATION INDIA (P) LTD. VS. CIT (SUPRA), MARUT I SUZUKI (SUPRA) AND SEVERAL OTHER CASES, WHEREBY, THE HIGH COURT HAS HE LD THAT BRIGHT LINE TEST IS ULTRA-VIRES THE PROVISIONS OF THE ACT AND CANNOT BE APPLIED FOR COMPUTING THE ALP OR BENCHMARKING THE AMP EXPENDITURE. THE LD. AR ALSO RELIED UPON THE DECISION OF THE DELHI BENCHES OF ITAT IN CASE OF NI KON INDIA PRIVATE LTD. VS. DCIT (ITA NO. 4574/DEL/2017) AND VAN MELLE INDIA PV T. LTD. VS. DCIT (ITA NO. 1073/DEL/2017) WHEREIN IT IS HELD THAT TRANSFER PRICING ADJUSTMENT SHOULD NOT BE MADE BY APPLYING BRIGHT LINE TEST, EV EN ON PROTECTIVE BASIS, 21 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA BECAUSE THE HONBLE HIGH COURT HAS NOT APPROVED THE APPLICATION OF BRIGHT LINE TEST IN SEVERAL CASES. THUS, IN VIEW OF THE AF ORESAID, THE AO/TPO/DRP HAVE GROSSLY ERRED IN DETERMINING THE AMP ADJUSTMEN T, APPLYING THE BLT METHOD. 14. THE LD. DR RELIED UPON THE ORDERS OF THE AO, TP O AND DIRECTIONS OF THE DRP. 15. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND OF THE VIEW THAT SINCE THE MAIN ISSUE OF AMP IS REMANDED B ACK TO THE FILE OF THE TPO/AO IT WILL BE APPROPRIATE TO SEND THIS ISSUE TO THE FILE OF TPO/AO AS WELL. THUS, GROUND NO. 7, 13, 14 ARE PARTLY ALLOWED FOR S TATISTICAL PURPOSE. 16. AS REGARDS TO GROUND NO. 8 RELATING TO EXCLUSIO N OF DIRECT SELLING AND DISTRIBUTION EXPENSES ALONG WITH SUBSIDY FROM AMBIT OF AMP EXPENDITURE, THE LD. AR SUBMITTED THAT AMP EXPENDITURE IS NOT AN INT ERNATIONAL TRANSACTION. THE LD. AR FURTHER SUBMITS THAT THE AO/TPO/DRP HAVE NOT GIVEN DUE COGNIZANCE TO THE NATURE OF EXPENSES WHEN BENCHMARK ING AMP EXPENDITURE, INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONS IDERATION. THE LD. AR SUBMITTED THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE INCURRED EXPENDITURE IN RELATION TO SALES COMMISSION, TRADE DISCOUNTS, SELLING & ADMINISTRATION, ALONG WITH CERTAIN EXPENDITURE OUT OF SPECIAL PURPOSE SUBSIDY. HOWEVER, THE TPO CONSIDERED WHOLE OF THESE EXPENDITURES, INCLUDING SUBSIDY, AS PART OF THE AMP EXPENDITURE AS UNDER: PARTICULARS AMOUNT (INR) AMP SPENT OF ASSESSEE 30,14,21,790 TRADE DISCOUNT 30,44,59,945 COMMISSION 85,86,473 22 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA SELLING & ADMINISTRATIVE EXPENSES 19,66,32,788 SUBSIDY 46,49,73,415 TOTAL AMP CONSIDERED BY TPO 127,60,74,411 THE LD. AR SUBMITTED THAT THE TRADE DISCOUNT, COMMI SSION AND OTHER SALES RELATED EXPENSES ARE NOT IN THE NATURE OF BRAND PR OMOTION, I.E. THEY ARE NOT DIRECTLY OR IMMEDIATELY RELATED TO BRAND BUILDING , IN FACT, THESE EXPENDITURES HAVE LIVE LINK AND DIRECT CONNECT WITH INCREASE IN SALES OR TURNOVER. FURTHER, SELLING AND ADMINISTRATIVE EXPENSES PRIMARILY PERTA IN TO DIRECT SELLING ACTIVITIES BEING CONDUCTED BY THE ASSESSEE TO PUSH ITS SALES IN THE INDIAN MARKET AND ACCORDINGLY SHOULD BE EXCLUDED FOR THE P URPOSE OF AMP ANALYSIS OF ASSESSEE. THE LD. AR POINTED OUT THAT TPO ITSELF IN ITS ORDER DATED 01.01.2016, FOR SUBSEQUENT A.Y. 2011-12 HAS NOT INC LUDED TRADE DISCOUNT, COMMISSION AND OTHER SELLING AND ADMINISTRATIVE EXP ENDITURE IN THE AMBIT OF AMP EXPENDITURE FOR BENCHMARKING PURPOSES. THE LD. AR FURTHER POINTED OUT THAT THE TRIBUNAL VIDE ORDER DATED 03.05.2013 FOR A .Y. 2006-07 TO 2008-09 HELD THAT ALL SELLING EXPENDITURE INCLUDING TRADE D ISCOUNT AND COMMISSION ALONG WITH SUBSIDY SHOULD BE EXCLUDED FROM THE AMBI T OF AMP EXPENDITURE. THUS, THE SAME READ WITH THE SUBSEQUENT DIRECTIONS OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE I.E. JUDGMENT IN BATCH OF CASES OF SONY ERICSSON (SUPRA) CASE, THE TPO SHOULD BE DIRECTED TO EXCLUDE TRADE DISCOUNT, COMMISSION AND SPECIAL PURPOSE SUBSIDY FROM THE AMB IT OF THE AMP EXPENDITURE. THUS, FOLLOWING THE ORDER OF THE TRIBU NAL FOR A.Y. 2006-07 TO 2008-09 READ WITH THE SUBSEQUENT DIRECTIONS OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE, THE TPO SHOULD BE DIRECTED TO EXCLUDE TRADE DISCOUNT, COMMISSION, SELLING AND ADMINISTRATIVE EX PENSES AND SPECIAL PURPOSE SUBSIDY FROM THE AMBIT OF THE AMP EXPENDITU RE, TABULATED AS UNDER: PARTICULARS AMOUNT (INR) 23 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA TRADE DISCOUNT 30,44,59,945 COMMISSION 85,86,473 SELLING & ADMINISTRATIVE EXPENSES 19,66,32,788 SUBSIDY 46,49,73,415 TOTAL 97,46,52,621 IN ADDITION, THE LD. AR POINTED OUT THAT THE AMOU NT OF RS. 30,14,21,790 I.E. AMP SPENT OF ASSESSEE, FURTHER HAS CERTAIN SALES RE LATED EXPENSES INCLUDED IN IT, WHICH TPO IN A.Y. 2011-12 HAVE DELETED AND WHIC H ACCORDINGLY, WARRANTS REDUCTION. FOR WHICH A DETAILED BREAK UP WAS PLACED BY THE LD. AR AT PAGE NO. 967 OF THE PAPER BOOK 3. THE LD. AR ALSO RELIED ON THE FOLLOWING DECISIONS: PARTICULARS EXPENSES NOT FORMING PART OF AMP HAIER APPLIANCES INDIA P. LTD. VS. DCIT (204) 146 ITD 730 (DEL) DEALER GIFT IN-SHOP DEMONSTRATOR EXPENSES FREEBIES ITEMS/ FREE GIFTS GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. VS. ACIT (ITA NOS. 1148/CHD/2011 AND 290/CHD/2014) SALES PROMOTION SALES PROMOTION (OTHERS) A.W. FABER CASTELL (INDIA) PVT. LTD. VS. DCIT ITA NO. 577/MUM/201 FREEBIES ITEMS/ FREE GIFTS REEBOK INDIA CO. VS. ACIT (2014) 146 ITD 469 SCHEME OR INCENTIVE PANASONIC SALES & SERVICES INDIA PVT. LTD. VS. ACIT (2013) 157 TTJ 615 DEALER GIFT 24 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA (CHENNAI) LG ELECTRONICS INDIA PVT. LTD. VS. ACIT (2015) 153 ITD 591 (DEL) DEALER GIFT THUS, THE LD. AR SUBMITTED THAT THE TPO BE DIRECTED TO EXCLUDE SALES RELATED EXPENSES AND SUBSIDY FROM AMP EXPENDITURE WHILE BEN CH MARKING THE SAME. 17. THE LD. DR RELIED UPON THE ORDER OF THE AO/TPO AND DIRECTIONS OF THE DRP. 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TPO VIDE ORDER DATED 01.01 .2016, FOR SUBSEQUENT A.Y. 2011-12 HAS NOT INCLUDED TRADE DISCOUNT, COMMI SSION AND OTHER SELLING AND ADMINISTRATIVE EXPENDITURE IN THE AMBIT OF AMP EXPENDITURE FOR BENCHMARKING PURPOSES. THE TRIBUNAL VIDE ORDER DATE D 03.05.2013 FOR A.Y. 2006-07 TO 2008-09 HELD THAT ALL SELLING EXPENDITUR E INCLUDING TRADE DISCOUNT AND COMMISSION ALONG WITH SUBSIDY SHOULD BE EXCLUDE D FROM THE AMBIT OF AMP EXPENDITURE. THUS, THE SAME READ WITH THE SUBSE QUENT DIRECTIONS OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE I.E . JUDGMENT IN BATCH OF CASES OF SONY ERICSSON (SUPRA) CASE, THE TPO SHOULD BE DIRECTED TO EXCLUDE TRADE DISCOUNT, COMMISSION AND SPECIAL PURPOSE SUBS IDY FROM THE AMBIT OF THE AMP EXPENDITURE. THUS, FOLLOWING THE ORDER OF T HE TRIBUNAL FOR A.Y. 2006- 07 TO 2008-09 READ WITH THE SUBSEQUENT DIRECTIONS O F THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE, IT WILL BE APPROPRIAT E TO DIRECT THE TPO TO EXCLUDE TRADE DISCOUNT, COMMISSION, SELLING AND ADM INISTRATIVE EXPENSES AND SPECIAL PURPOSE SUBSIDY FROM THE AMBIT OF THE AMP E XPENDITURE, AS GIVEN IN THE TABULATED FORM HEREINABOVE AFTER VERIFYING THE SAME IN ACCORDANCE WITH THE RECORDS AVAILABLE WITH THE TPO/AO. THUS, THIS I SSUE IS REMANDED BACK TO THE FILE OF THE TPO/AO. NEEDLESS TO SAY, THE ASSESS EE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 8 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 25 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 19. GROUND NO. 9 IS RELATING TO FINAL COMPARABLES S ELECTED BY AO/TPO/DRP FOR BENCHMARKING AMP EXPENDITURE. GROUND NO. 10 IS RELATING TO QUANTITATIVE ADJUSTMENTS. GROUND NO. 11 AND 11.1 ARE RELATING TO MARK-UP. GROUND NO. 12 IS RELATING TO BENEFIT TO PROVISO OF SECTION 92C (2) OF THE ACT. GROUND NO. 16 IS RELATING TO MULTIPLE YEAR DATA. THE LD. AR SUBMI TTED THAT SINCE AO/TPO/DRP HAS APPLIED BRIGHT LINE TEST WHICH IS NO T A STATUTORY METHOD FOR BENCHMARKING AMP EXPENDITURE, THE AFORESAID GRO UNDS BECOME ACADEMIC AS AT THE OUTSET THE MAIN ISSUE IS COVERED AGAINST THE DEPARTMENT. THE LD. AR FURTHER SUBMITTED THAT WITHOUT PREJUDICE TO THE ABO VE, EVEN OTHERWISE, THE AO/TPO/DRP ERRED IN NOT APPRECIATING THAT THE ASSES SEE HAD NOT PROVIDED ANY VALUE ADDED / BRAND BUILDING SERVICES BY INCURR ING AMP EXPENDITURE, AND THEREFORE, NO MARK-UP CAN BE CHARGED. 20. THE LD. DR RELIED UPON THE ORDERS OF THE AO AND TPO AS WELL AS DIRECTIONS OF THE DRP. 21. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS. IT IS PERTINENT TO NOTE THAT THE ISSUE OF AMP HAS BEEN REMANDED BACK TO THE FILE OF THE TPO/AO. THEREFORE, THESE GROUNDS BECOME INFR UCTUOUS. HENCE GROUND NO. 9, 10, 11, 11.1, 12 AND 16 ARE DISMISSED. 22. AS REGARDS TO GROUND NO. 15, THE LD. AR SUBMITT ED THAT THE AO/ TPO/ DRP ERRED IN NOT APPRECIATING THAT WHEN ALL THE TRA NSACTIONS OF ASSESSEE WERE ESTABLISHED TO BE AT ARMS LENGTH, AMP EXPENDITURE, SEPARATELY, CANNOT BE ALLEGED TO BE EXCESSIVE. THE LD. AR SUBMITTED THAT THE ISSUE PERTAINING TO DETERMINATION OF ALP FOR THE AMP EXPENDITURE HAS BE EN ELABORATELY DEALT WITH BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION (SUPRA). THE HONBLE HIGH COURT WHILE LAYING DOWN THE PRINCIPLES FOR DETERMINATION OF ALP IN RELATION TO AMP EXPENDITURE, HAS PRESCRIBED THAT IN CASE THE MAIN TRANSACTION OF IMP ORT HAS BEEN BENCHMARKED FOLLOWING RESALE PRICE METHOD (RPM) THE N AT FIRST PLACE AGGREGATED APPROACH SHOULD BE ADOPTED, AND IF TAXPA YER IS ABLE TO 26 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA DEMONSTRATE THAT THE INTERNATIONAL TRANSACTION OF D ISTRIBUTION AND MARKETING IS AT ARMS LENGTH THERE SHOULD BE ANY ADJUSTMENT. THE LD. AR SUBMITTED THAT IN FACT, THE HONBLE DELHI HIGH COURT IN THE CASE O F DISTRIBUTOR HAS UPHELD THE USE OF RPM AS ONE OF THE MOST APPROPRIATE METHOD. F URTHER, THE COURT UNDER NO CIRCUMSTANCES PROPOUNDED THAT THE PSM IS ONE OF THE MOST APPROPRIATE METHOD TO BENCHMARK THE AMP EXPENSES. APPLYING THE SAID PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT, THE ASSESSEE HAS CO MPUTED THE ADJUSTED GROSS MARGIN OF THE COMPARABLE COMPANIES TO DEMONST RATE THAT THE ADJUSTED GROSS MARGIN OF THE ASSESSEE VIS--VIS THE COMPARAB LE COMPANIES IS BETTER AND THEREFORE, THE ALLEGED TRANSACTION / ATTRIBUTIO N OF MARKETING FUNCTION OF THE ASSESSEE (WHICH WAS AT PRINCIPLE TO PRINCIPLE B ASIS) IS AT ARMS LENGTH AND NO ADJUSTMENT IS REQUIRED FOR THE SAME. A TABULATIO N SHOWING THE AFORESAID ADJUSTED GROSS MARGINS WAS ANNEXED TO THE SYNOPSIS BY THE LD. AR. THE LD. AR SUBMITTED THAT FROM THE PERUSAL OF THE ADJUSTED GROSS MARGINS WOULD SHOW THAT THE ASSESSEES MARGINS WERE BETTER THAN T HAT OF THE COMPARABLE COMPANIES AND THEREFORE, NO ADJUSTMENT ON ACCOUNT O F AMP EXPENDITURE WAS REQUIRED TO BE MADE. THE ADJUSTMENT MADE BY THE AO/ TPO, IS THEREFORE, PRIMA FACIE UNTENABLE AND DESERVES TO BE DELETED. T HE LD. AR ALTERNATIVELY, SUBMITTED THAT COMPARABILITY ADJUSTMENT CAN BE CARR IED OUT IN LINE WITH PROVISIONS OF RULE 10B(3) OF THE RULES IN RESPECT O F THE INTENSITIES OF THE AMP EXPENDITURE INCURRED BY COMPARABLES VIS--VIS ASSES SEE. THE LD. AR FURTHER POINTED OUT THAT TPO FOR A.Y. 2014-15 HAS PROPOSED AND DONE THE BENCHMARKING OF ALLEGED INTERNATIONAL TRANSACTION F OLLOWING THE INTENSITY APPROACH, VIDE ORDER DATED 17.10.2017. 23. THE LD. DR RELIED UPON THE ORDERS OF THE AO, TP O AND DIRECTIONS OF THE DRP. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS. IT IS PERTINENT TO NOTE THAT THE ISSUE OF AMP HAS BEEN REMANDED BACK TO THE FILE 27 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA OF THE TPO/AO. THEREFORE, THESE GROUNDS BECOME INFR UCTUOUS. HENCE GROUND NO. 15 IS DISMISSED. 25. AS RELATES TO CORPORATE TAX ISSUES SPECIFICALLY GROUND NO. B, B.1, 1, 1.1, AND 1.2, THE LD. AR RELIED UPON THE ITAT DECIS ION IN ASSESSEES OWN CASE FOR A.YS. 2006-07, 2007-08 AND 2008-09 (ITA NOS. 46 02/DEL/2010, 5593/DEL/2011 & 6086/DEL/2012 ORDER DATED 03.05.201 3) WHEREIN THE UNUTILIZED SUBSIDY IS ALLOWED BY THE TRIBUNAL. THE SAID VIEW IS AFFIRMED BY THE HONBLE HIGH COURT VIDE ORDER DATED 03.08.2015 IN A SSESSEE'S OWN CASE . 26. THE LD. DR RELIED UPON THE ORDER OF THE AO AND TPO AS WELL AS DIRECTIONS OF THE DRP. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS AVAILABLE. IT IS PERTINENT TO NOTE THAT THIS ISSUE HAS BEEN ALLOWED BY THE TRIBUNAL IN EARLIER ASSESSMENT YEARS IN ASSESSEES FAVOUR. THE TRIBUNAL HELD AS UNDER: '14. APROPOS UNREALIZED SUBSIDY, IT IS A TRITE LAW THAT EVERY RECEIPT DOES NOT TANTAMOUNT TO INCOME, AS PER CHARGING SECTIONS 4 & 5 OF THE I.T. ACT. WHILE EXAMINING WHETHER THE RECEIPT IS CHARGEABLE AS INCO ME OR NOT, RELEVANT FACTS AND CIRCUMSTANCES ARE TO BE SEEN. FROM THE RECORD I T CLEARLY EMERGES THAT THE SUBSIDY PROVIDED BY CSPL IS IN LUMP SUM WITH SP ECIFIC DIRECTION THAT THIS AMOUNT IS TO BE SPENT ONLY FOR SPECIFIED PURPO SES AND THE UNSPENT AMOUNT IS TO BE HELD IN TRUST FOR AND ON BEHALF OF CSPL. THIS IS DULY CONFIRMED BY CSPL AND THIS FACT IS FURTHER CORROBOR ATED BY THE FACT THAT UNUTILIZED AMOUNT IS NOT CREDITED TO THE P&L A/C BU T TAKEN TO BALANCE-SHEET AS A CURRENT LIABILITY. ONCE IT IS ACKNOWLEDGED AS CURRENT LIABILITY ASSESSEE DOES NOT BECOME OWNER OF THIS AMOUNT AND THE RECEIP T OF UNSPENT AMOUNT DOES NOT CANON INDIA PVT. LTD. BECOME INCOME OF THE ASSESSEE. BESIDES, THIS METHOD OF ACCOUNTING HAS BEEN FOLLOWED BY THE ASSESSEE CONSISTENTLY. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT UNS PENT SUBSIDY BEING NOT 28 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA INCOME OF THE ASSESSEE BUT A LIABILITY TO BE SPENT FOR SPECIFIED PURPOSES AND RECOVERABLE FOR NON-UTILIZATION FOR SPECIFIC PURPOS ES CANNOT BE TREATED AS INCOME OF THE ASSESSEE. THEREFORE, THIS GROUND OF T HE ASSESSEE IS ALSO ALLOWED. SINCE WE HAVE ALLOWED THE MAIN GROUND, THE RE IS NO NEED TO GO INTO ALTERNATE ARGUMENTS.' 28. THE SAID VIEW TAKEN BY THE ITAT HAS BEEN AFFIRM ED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN ITA NOS. 137 & 138/201 4 VIDE ORDER DATED 03.08.2015 IN ASSESSEE'S OWN CASE AND RELEVANT FIND INGS HAVE BEEN GIVEN IN PARA 20 OF THE SAID ORDER WHICH READ AS UNDER: '20. WE ARE, THEREFORE, UNABLE TO ACCEPT THE REVENU E'S CONTENTION THAT THE UNUTILIZED SUBSIDY IS REQUIRED TO BE RECOGNIZED AS INCOME OF THE ASSESSEE IN THE YEAR OF ITS RECEIPT. THIS WOULD BE CONTRARY TO THE MATCHING CONCEPT, WHICH IS THE SUBSTRATAL PRINCIPLE FOR COMPUTING INC OME DURING A RELEVANT PERIOD. IT IS NECESSARY THAT INCOME BE RECOGNIZED A LONG WITH THE CORRESPONDING EXPENDITURE INCURRED FOR EARNING THE INCOME. THUS, WHERE AN ASSESSEE FOLLOWS THE ACCRUAL/MERCANTILE SYSTEM OF A CCOUNTING - AS IN THIS CASE - INCOME CAN BE RECOGNIZED ONLY WHEN THE MATCH ING EXPENDITURE IS ALSO ACCOUNTED FOR IRRESPECTIVE OF THE CASH OUTFLOWS/INF LOWS DURING THE YEAR. IT WOULD THUS, NOT BE CORRECT TO RECOGNIZE THE SUBSIDI ES RECEIVED FOR INCURRING SPECIFIC EXPENDITURE CANON INDIA PVT. LTD. AS INCOM E WITHOUT ACCOUNTING FOR THE CORRESPONDING EXPENDITURE.' THUS, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE. THEREFORE, GROUND NOS. B.1, 1, 1.1, 1.2 ARE ALLOWED. 29. AS RELATES TO GROUND NO. B.2, 1, 2 REGARDING NO T GRANTING THE CLAIM OF PREPAID TAXES AND FOREIGN TAX CREDIT CLAIMED BY THE ASSESSEE, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER HAS NOT ALLOWE D THE ENTIRE CREDIT OF PREPAID TAXES (TDS, ADVANCE TAX AND SELF ASSESSMENT TAXES) WHICH SHOULD HAVE BEEN DONE BY THE ASSESSING OFFICER. THEREFORE, THE LD. AR REQUESTED TO 29 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA REMAND BACK THIS MATTER TO VERIFY THE SAME BY THE A SSESSING OFFICER. THE LD. DR DID NOT OBJECT FOR THE SAME. 30. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS AVAILABLE BEFORE US. FROM THE RECORDS IT CAN BEEN S EEN THAT THE ASSESSING OFFICER HAS NOT ALLOWED CREDIT OF PRE-PAID TAXES TO THE ASSESSEE WHICH SHOULD HAVE BEEN TAKEN INTO CONSIDERATION. THEREFORE, IT W ILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THUS, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL JUSTICE. GROUND NO. B.2, 1, 2 OF THE ASSESSEES APP EAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 31. AS RELATES TO GROUND NOS. C, D, E REGARDING NOT ALLOWING AND GRANTING THE CREDIT OF SET OFF OF BROUGHT FORWARD OF LOSSES OF RS. 19,32,08,420/- CLAIMED BY THE ASSESSEE, NOT ALLOWING THE DEDUCTION UNDER C HAPTER VI-A OF THE ACT OF RS. 3,97,500 AND CHARGING INTEREST UNDER SECTION 23 4B OF THE ACT RESPECTIVELY, THE LD. AR SUBMITTED THAT THE SAME MA Y BE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND DECIDE THESE ISSUE A FRESH. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS AVAILABLE BEFORE US. THE ASSESSING OFFICER HAS NOT VERIFIED THESE CLAIMS OF THE ASSESSEE IN PROPER WAY GIVEN UNDER THE INCOME TAX A CT. THEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE O F THE ASSESSING OFFICER. THUS, THIS ISSUE IS REMANDED BACK TO THE FILE OF TH E ASSESSING OFFICER. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. C, D, E O F THE ASSESSEES APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 33. AS REGARDS TO GROUND NO. F, G, AND H THE SAME A RE CONSEQUENTIAL, HENCE DISMISSED. 30 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 34. IN RESULT, ASSESSEES APPEAL BEING ITA NO. 1405 /DEL/2015 FOR A.Y. 2010-11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 35. AS REGARDS REVENUES APPEAL, THE LD. AR SUBMITT ED THAT THE SAME SHOULD NOT BE ALLOWED AS PER THE SUBMISSIONS MADE I N THE APPEAL FILED BY THE ASSESSEE. THE LD. DR RELIED UPON THE DIRECTIONS OF THE DRP. 36. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS AVAILABLE BEFORE US. GROUND NO. I) OF THE REVENUES APPEAL IS ALREADY DECIDED IN FAVOUR OF THE ASSESSEE AS PER GROUND NOS. B, B.1 , 1, 1.1, 1.2. THEREFORE, GROUND NO. I) OF THE REVENUES APPEAL IS DISMISSED. AS RELATES TO GROUND NO. II) IS REGARDING DELETION OF THE ADDITION MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF LOW GP BY THE DRP BY IGNORING THE FACT T HAT THE ASSESSEE HAD NOT OFFERED ANY EXPLANATION/ JUSTIFICATION WHATSOEVER R EGARDING FALL IN GP. FROM THE RECORDS, THE ASSESSEE HAS GIVEN THE EXPLANATION REGARDING THE FALL IN GP RATES AND THE SAME WAS TOTALLY IGNORED BY THE ASSES SING OFFICER. THEREFORE, DRP RIGHTLY DELETED THIS ADDITION. GROUND NO. II) O F THE REVENUES APPEAL IS DISMISSED. GROUND NO. III) IS GENERAL IN NATURE, HE NCE DISMISSED. 37. IN RESULT, REVENUES APPEAL BEING ITA NO. 2275/ DEL/2015 FOR A.Y. 2010-11 IS DISMISSED. NOW WE ARE TAKING UP THE APPEAL FOR A.Y. 2011-12 38. THE LD. AR SUBMITTED THAT GROUNDS OF APPEAL NOS . 1 AND 3 ARE GENERAL. THEREFORE, GROUND NO. 1 AND 2 ARE DISMISSED. 39. AS REGARDS TO GROUND NO. 2.1 RELATING TO JURISD ICTION OF TPO LIMITED TO DETERMINATION OF ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO RE- CHARACTERIZE TRANSACTION AS AN INTERNATIONAL TRANSACTION, THE SAME ARE IDENTICAL WITH GROUND NO. 3 OF THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2010- 11. THEREFORE, THE OBSERVATIONS MADE IN THAT RESPEC T ARE APPLICABLE IN THE PRESENT APPEAL AS WELL. HENCE GROUND NO. 2.1 IS DIS MISSED. 31 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 40. AS REGARDS TO GROUND NO. 2 & 2.2 RELATING TO NO N-EXISTENCE OF INTERNATIONAL TRANSACTION AND GROUND NO. 4 RELATING TO NO CREATION OF MARKETING INTANGIBLE IN FAVOUR OF AE, THE SAME ARE IDENTICAL WITH GROUND NO. 4 & 5 OF THE APPEAL FILED BY THE ASSESSEE FOR A.Y. 2010-11. THEREFORE, THE OBSERVATIONS MADE IN THAT RESPECT ARE APPLICABLE IN THE PRESENT APPEAL AS WELL. THIS ISSUE IS NOT VERIFIED PROPERLY BY THE TP O AND THEREFORE, IT REQUIRES VERIFICATION AS THERE IS NO MENTION OF THE SPECIFIC AGREEMENTS TO THE EFFECT OF THE AMP WHETHER IS A INTERNATIONAL TRANSACTION OR N OT. THEREFORE, WE DIRECT THE TPO/AO TO VERIFY THIS ISSUE IN LIGHT OF THE AGR EEMENTS SIGNED BY THE ASSESSEE WITH ITS AES AS WELL AS THE MAIN COMPANY. NEEDLESS TO SAY THE ASSESSEE BE GIVEN THE OPPORTUNITY OF HEARING BY FOL LOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 2, 2.2 AND 4 OF THE ASSESSEES APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 41. GROUNDS OF APPEAL NOS. 5, 5.1, & 5.2 ARE RELATI NG TO INCORRECT APPROACH OF THE TPO TO BENCHMARK THE ALLEGED INTERNATIONAL T RANSACTION USING PROFIT SPLIT METHOD (PSM). THE LD. AR SUBMITTED THAT THE TPO MADE TP ADJUSTMENT OF INR 74,59,78,403 IN THE AY 2011-12 ON THE FOLLOWING BASIS: > TPO CONCLUDED THAT ASSESSEE IS INCURRING EXCESSIVE AMP EXPENDITURE IN INDIA BASIS HIGHER AMP EXPENDITURE O F ASSESSEE (AS A PERCENTAGE OF SALES) COMPARED TO CANON INC., AMP PE RCENTAGE TO SALES (AT CONSOLIDATED LEVEL) (REFER PARA 20 AT PAGE 96 OF PAPER-BOOK 1); > THEREAFTER, TPO OBSERVED THAT SUCH EXCESSIVE AMP EX PENDITURE: I. ADDS TO THE BRAND VALUE OF CANON GROUP, I.E., ASSES SEE IS CONTRIBUTING TO VALUABLE INTANGIBLE TO ITS AE; AND II. LEADS TO INCREASED GLOBAL PROFITS FOR CANON GROUP. 32 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA > ACCORDINGLY, TPO CONCLUDED THAT CANON INC. SHOULD C OMPENSATE ASSESSEE FOR EXCESSIVE AMP EXPENDITURE, BEING AN IN TERNATIONAL TRANSACTION FOR CREATION OF MARKETING INTANGIBLE IN INDIA. THE LD. AR POINTED THAT THE TPO UNDER THE GRAB OF P SM, HAS APPLIED BLT ONLY, BY COMPARING THE AMP EXPENDITURE TO SALES RAT IO OF THE ASSESSEE WITH THE AE. BY COMPARING THE AMP EXPENSES TO SALES RATI O OF THE ASSESSEE AND THE AE, IN A WAY THE TPO IS COMPARING TWO CONTROLLE D TRANSACTIONS, WHICH IS AGAINST THE VERY PREMISE OF TRANSFER PRICING, AS TH E INTEND OF THE LEGISLATURE UNDER TRANSFER PRICING IS, THAT CONTROLLED TRANSACT ION IS TO BE COMPARED WITH UNCONTROLLED TRANSACTION. THE LD. AR SUBMITTED THAT THE TPO PLACED RELIANCE ON THE DECISION OF THE ROLLS ROYCE PLC [2011] 339 I TR 147 (DELHI) FOR THE PURPOSE OF ATTRIBUTING GLOBAL PROFIT TO THE VARIOUS FUNCTIONS UNDERTAKEN BY CANON INC. THE TPO, ACCORDINGLY ATTRIBUTED THE GLOB AL PROFITS IN THE FOLLOWING RATIO: > MANUFACTURING - 50 PERCENT > RESEARCH AND DEVELOPMENT - 15 PERCENT > AMP - 35 PERCENT 42. IN VIEW OF THE ABOVE, THE LD. AR SUBMITTED THAT THE TPO INCORRECTLY APPLIED THE PSM METHOD AND COMPUTED THE ADJUSTMENT AS UNDER: - I. AS CANON INC. FOLLOWS CALENDAR YEAR, TPO ESTIMATED GLOBAL OPERATING PROFIT OF CANON GROUP FROM THE CONSOLIDATED FINANCI AL STATEMENTS OF CANON JAPAN AT OF 385,181 MILLION YEN, ARRIVED AT B Y ADOPTING A WEIGHTED AVERAGE APPROACH. (75 PERCENT FROM FINANCI ALS ENDED DECEMBER, 2010 AND 25 PERCENT FROM FINANCIALS ENDED 2011). II. ALLOCATED 35 PERCENT OF AFORESAID OPERATING PROFIT TO AMP FUNCTION. THE SAME RESULTED IN 134,813 MILLION YEN (EQUIVALEN T TO INR 7455,15,89,000) 33 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA III. THEREAFTER, COMPARED THE ASSESSEES AMP EXPENDITUR E TO GLOBAL AMP EXPENDITURE AND DETERMINED THE AVERAGE AMP RATI O 1.8%. IV. THE 1.8% COMPUTED ABOVE WAS MULTIPLIED WITH THE 35% PROFITS AMOUNTING TO INR 7455,15,89,000 FOR ARRIVING AT THE AMOUNT ATTRIBUTABLE TO INDIA (AS PER ROLLS ROYCE PLC DECIS ION) AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE AS A TRANSFER PR ICING ADJUSTMENT AMOUNTING TO INR 134,19,28,602. V. LASTLY, THE AMOUNT OF SUBSIDY BEING INR 48,06,63,74 9 AND 35% OF NET PROFIT EARNED BY THE ASSESSEE IN INDIA BEING IN R 11,52,86,450, WAS REDUCED FROM THE ABOVE AMOUNT CALCULATED AT S N O. (IV) ABOVE, AND THE FINAL ADJUSTMENT WAS COMPUTED AT INR 74,59, 78,403 . 43. THE LD. AR SUBMITTED THAT THE DRP UPHELD THE US E OF PSM BY TPO AS WELL AS THE COMPUTATION OF ADJUSTMENT, HOWEVER, DIR ECTED THE TPO TO EXAMINE THE NATURE OF ASSESSES AMP EXPENDITURE AND EXCLUDE SELLING EXPENSES . CONSEQUENTLY, THE TPO VIDE ORDER DATED JANUARY 28, 2016 GIVING EFFECT TO THE DRP DIRECTIONS RECOMPUTED THE ADJUSTMENT AFTER EXCL UDING SELLING EXPENSES FROM AMBIT OF AMP EXPENDITURE. THE SAME RESULTED IN TP ADJUSTMENT BEING REDUCED TO INR 53,21,45,104 AS AGAINST ADJUSTMENT OF INR 74,59,78,403. 44. THE LD. AR FURTHER SUBMITTED THAT THE LOWER AUT HORITIES HAVE ERRED IN APPLYING PSM AS A METHOD TO BENCHMARK THE ALLEGED I NTERNATIONAL TRANSACTION OF BRAND BUILDING SERVICES AND FURTHER THE SAME HAS ALSO BEEN APPLIED INCORRECTLY, DE-HORS CONDITIONS LAID DOWN IN RULE 10B(1)(D) OF THE INCOME-TAX RULES, 1962 (RULES). THE LD. AR SUBMIT TED THAT PSM IS APPLICABLE ONLY IN SITUATION CASES WHERE THERE IS A TRANSFER OF INTANGIBLE BETWEEN AES OR WHERE THERE ARE MULTIPLE INTER-RELAT ED INTERNATIONAL TRANSACTIONS WHICH CANNOT BE SEPARATELY BENCHMARKED . IN THIS REGARD, THE LD. AR POINTED OUT TABLE HEREIN UNDER, WHICH AS PER THE LD. AR CULLS OUT THE INTENT OF LEGISLATURE AS PROVIDED IN RULE 10B(1)(D) OF THE RULES FOR APPLYING 34 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA THE PSM METHOD: S. NO. RULE 10B(1) (D) OF THE RULES ASSESSEES SUBM ISSIONS PROFIT SPLIT METHOD, WHICH MAY BE APPLICABLE MAINLY IN INTERNATIONAL TRANSACTIONS [OR SPECIFIED DOMESTIC TRANSACTIONS ] INVOLVING TRANSFER OF UNIQUE INTANGIBLES OR IN MULTIPLE INTERNATIONAL TRANSACTIONS [OR SPECIFIED DOMESTIC TRANSACTIONS] WHICH ARE SO INTERRELATED THAT THEY CANNOT BE EVALUATED SEPARATELY FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF ANY ONE TRANSACTION, BY WHICH AS PER SUB-CLAUSE (D) OF RULE 10B(1) PSM IS APPLICABLE WHERE THE TRANSACTION INVOLVES TRANSFER OF UNIQUE INTANGIBLE OR MULTIPLE INTER RELATED INTERNATIONAL TRANSACTIONS FROM WHICH ARMS LENGTH PRICE CANNOT BE SEPARATELY DETERMINED. IN THE INSTANT CASE, THE ALLEGED TRANSACTION SOUGHT TO BE BENCHMARKED BY THE LOWER AUTHORITIES IS RENDITION OF BRAND BUILDING SERVICES TO THE AES. IN OTHER WORDS, IT IS TO BE APPRECIATED THAT (A) THERE IS NO ALLEGATION OF TRANSFER OF UNIQUE INTANGIBLES AND (B) THERE ARE NO INTER RELATED TRANSACTIONS BETWEEN THE AE AND THE ASSESSEE, FROM WHICH ARMS LENGTH PRICE CANNOT BE DETERMINED SEPARATELY, BECAUSE THE ALLEGATION IS THAT THE ASSESSEE IS RENDERING 35 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA BRAND BUILDING SERVICES AND NOT THAT THE ASSESSEE AND THE AE ARE JOINTLY RENDERING BRAND BUILDING SERVICES TO A THIRD PARTY. 2. (I) THE COMBINED NET PROFIT OF THE ASSOCIATED ENTERPRISES ARISING FROM THE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMESTIC TRANSACTION ] IN WHICH THEY ARE ENGAGED, IS DETERMINED; THE RELATIVE CONTRIBUTION MADE BY EACH OF THE ASSOCIATED ENTERPRISES TO THE EARNING OF SUCH COMBINED NET PROFIT, IS THEN EVALUATED ON THE BASIS OF THE FUNCTIONS PERFORMED, ASSETS EMPLOYED OR TO BE EMPLOYED AND RISKS ASSUMED BY EACH ENTERPRISE AND ON THE BASIS OF RELIABLE EXTERNAL MARKET DATA WHICH INDICATES HOW SUCH CONTRIBUTION WOULD BE EVALUATED BY UNRELATED ENTERPRISES PERFORMING COMPARABLE FUNCTIONS IN SIMILAR CIRCUMSTANCES; THE COMBINED NET PROFIT IS THEN SPLIT AMONGST THE ENTERPRISES IN PROPORTION TO THEIR RELATIVE AS PER THE SUB-RULES, THE COMBINED NET PROFIT OF THE AES (ASSESSEE AND THE AES) FROM THE INTERNATIONAL TRANSACTION IN WHICH THEY ARE ENGAGED IS TO BE DETERMINED / ATTRIBUTED. IN THE INSTANT CASE, THERE IS NO SUCH TRANSACTION THAT HAS BEEN ALLEGED BY THE LOWER AUTHORITIES FROM WHICH THE COMBINED NET PROFIT IS TO BE DETERMINED. IT IS THE RESPECTFUL SUBMISSION OF THE ASSESSEE THAT AS PER THIS SUB-RULE ONE WOULD APPRECIATE THAT THERE SHOULD BE A COMBINED TRANSACTIONS BY THE AES TO THIRD PARTY FROM WHICH THE PROFIT EARNED BY THE AES IS TO BE SEPARATELY DETERMINED / SPLIT. IT WILL BE APPRECIATED THAT THE COMBINED CONTRIBUTION AS WELL AS COMBINED EARNING OF PROFITS 36 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA CONTRIBUTIONS, AS EVALUATED UNDER SUB-CLAUSE (/'/); IS ABSENT IN THE ALLEGED TRANSACTION, BECAUSE THE TRANSACTION BEING ALLEGED HEREIN IS RENDITION OF BRAND BUILDING BY THE ASSESSEE TO THE A.E. GROUND NO. 3 IV) THE PROFIT THUS APPORTIONED TO THE ASSESSEE IS TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMESTIC TRANSACTION] : PROVIDED SUB-RULE (IV) CONTEMPLATES THAT THE PROFITS, THUS, APPORTIONED BY THE ABOVE STEPS SHOULD BE TAKEN INTO ACCOUNT TO ARRIVE AT THE ALP IN RELATION TO THE INTERNATIONAL TRANSACTION BY COMPARING THE SAME WITH THE UNCONTROLLED TRANSACTION. THE TPO IN THE INSTANT CASE HAS NOT BROUGHT ON RECORD ANY SUCH UNCONTROLLED TRANSACTION TO BENCHMARK THE ALLEGED PROFIT HELD TO BE ATTRIBUTABLE TO THE ASSESSEE FOR RENDITION OF BRAND BUILDING SERVICES. 45. THE LD. AR SUBMITTED THAT AMP EXPENDITURE IN IN DIA IS NOT FOR THE PURPOSE OF BRAND PROMOTION OF CANON. THE TPO ERRED IN STATING THAT THE ASSESSEE SHOULD BE COMPENSATED FOR ENHANCING THE VA LUE OF THE BRAND AND GLOBAL PROFITS OF CANON GROUP. THE LD. AR SUBMITTED THAT DELHI HIGH COURT IN THE ASSESSEES OWN CASE, I.E., DECISION IN SONY ERI CSSON (SUPRA) CASE, HELD 37 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA THAT AMP EXPENSES DO NOT NECESSARILY LEAD TO BRAND PROMOTION OF FOREIGN AE. PARAS 9.10 AND 106 OF THE ORDER OF HIGH COURT IS IN ASSESSEES OWN CASE (SUPRA). THE LD. AR POINTED OUT THAT THE HONBLE DE LHI HIGH COURT IN THE ASSESSEES OWN CASE (SUPRA) HAS NOT BLESSED PSM AS AN APPROPRIATE METHOD TO BENCHMARK THE TRANSACTION OF AMP FUNCTION. ON TH E CONTRARY, IT DIRECTED THAT THE AGGREGATE APPROACH IS TO BE ADOPTED AND IF TAXPAYER IS ABLE TO DEMONSTRATE THAT THE INTERNATIONAL TRANSACTION OF D ISTRIBUTION AND MARKETING IS AT ARMS LENGTH THERE SHOULD NOT BE ANY ADJUSTME NT [REFER PARAS 164 AND 165 OF THE SONY ERICSSON JUDGMENT (SUPRA)IN ASSESSE ES OWN CASE], 46. THUS, THE LD. AR SUBMITTED THAT RESALE PRICE ME THOD (RPM) HAS BEEN HELD TO BE ONE OF THE MOST APPROPRIATE METHODS FOR DISTRIBUTORS IN THE HIGH COURT RULING. ALSO, IN ASSESSEES OWN CASE THE TPO HAS NOT DISPUTED / QUESTIONED RPM FOR BENCHMARKING THE DISTRIBUTION FU NCTION. IN VIEW OF THE SAME, RPM SHOULD BE CONSIDERED AS THE MOST APPROPRI ATE METHOD FOR BENCHMARKING DISTRIBUTION AND MARKETING FUNCTION ON AN AGGREGATE BASIS. 47. THE LD. AR FURTHER SUBMITTED THAT CANON INC. IS FOLLOWING A DIFFERENT ACCOUNTING YEAR. THE TPO HAVE SIMPLY CONSIDERED 75% OF PROFITS FOR THE CALENDAR YEAR 2010 AND 25% OF PROFITS FOR THE CALEN DAR YEAR 2011 TO ARRIVE AT THE PROFIT OF CANON INC. FOR THE PERIOD CORRESPONDI NG TO APRIL 01, 2010 - MARCH 31, 2011. THUS TPO HAVE MADE AN ATTEMPT TO RE CONSTRUCT THE PROFIT AND LOSS ACCOUNT OF CANON INC ON AN ARBITRARY BASIS . SUCH AN APPROACH WOULD RESULT IN UNRELIABLE / ARBITRARY FINANCIAL RE SULTS FOR THE PERIOD UNDER CONSIDERATION. THE LD. AR FURTHER SUBMITTED THAT NO FUNCTION, ASSET AND RISK (FAR) ANALYSIS CARRIED OUT BY TPO. AS PER RULE 10B(1)(D) OF THE RULES, WHILE APPLYING PSM THE RELATIVE CONTRIBUTION MADE B Y EACH OF THE AES TO THE EARNING OF SUCH COMBINED NET PROFIT HE EVALUATED ON THE BASIS OF THE FAR. HOWEVER NO FAR ANALYSIS HAS BEEN UNDERTAKEN BY TPO. 48. THE LD. DR RELIED UPON THE ORDERS OF THE AO, TP O AS WELL AS THE DIRECTIONS OF THE DRP. 38 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA 49. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS AVAILABLE BEFORE US. SINCE THE MAIN ISSUE OF AMP IS REMANDED BACK TO THE FILE OF THE TPO/AO IT WILL BE APPROPRIATE TO SEND THIS I SSUE TO THE FILE OF TPO/AO AS WELL. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPP ORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THUS, GROU ND NO. 5, 5.1 AND 5.2 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 50. GROUND NO. 6, 6.1, 6.2 AND 7 IS RELATING TO NOT ADOPTING AGGREGATED APPROACH. THE LD. AR SUBMITTED THAT THE ISSUE PERTA INING TO DETERMINATION OF ALP FOR THE AMP EXPENDITURE HAS BEEN ELABORATELY DE ALT WITH BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBIL E COMMUNICATION (SUPRA). THE COURT WHILE LAYING DOWN THE PRINCIPLES FOR DETERMINATION OF ALP IN RELATION TO AMP EXPENDITURE HAS PRESCRIBED THAT IN CASE THE MAIN TRANSACTION OF IMPORT HAS BEEN BENCH MARK FOLLOWING RESALE PRICE METHOD (RPM) THEN AT FIRST PLACE AGGREGATE APPROACH SHOULD BE ADOPTED. 51. THE LD. DR RELIED UPON THE ORDERS OF THE AO AND TPO AS WELL AS DIRECTIONS OF THE DRP. 52. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORDS. THE SUBMISSIONS MADE FOR GROUND NO. 6, 6.1, 6.2 & 7 ARE SIMILAR TO THE SUBMISSIONS MADE FOR GROUND NO. 15 FOR AY 2010-11 B Y THE LD. AR. THEREFORE, THE SAME DIRECTIONS ARE GIVEN IN THE PRE SENT APPEAL AS WELL. IT IS PERTINENT TO NOTE THAT THE ISSUE OF AMP HAS BEEN RE MANDED BACK TO THE FILE OF THE TPO/AO. THEREFORE, THESE GROUNDS BECOME INFRUCT UOUS. HENCE GROUND NO. 6, 6.1, 6.2 & 7 ARE DISMISSED. 53. AS REGARDS TO GROUND NO. 8 & 8.1 RELATING TO EX CLUSION OF CERTAIN SELLING AND DISTRIBUTION EXPENDITURE AND SUBSIDY, THE SAME ARE IDENTICAL WITH GROUND NO. 8 OF THE APPEAL FILED BY THE ASSESSEE FO R A.Y. 2010-11. THEREFORE, THE OBSERVATIONS MADE IN THAT RESPECT ARE APPLICABL E IN THE PRESENT APPEAL AS WELL. THUS, FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y. 2006-07 TO 2008-09 39 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA READ WITH THE SUBSEQUENT DIRECTIONS OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE, IT WILL BE APPROPRIATE TO DIRE CT THE TPO TO EXCLUDE TRADE DISCOUNT, COMMISSION, SELLING AND ADMINISTRATIVE EX PENSES AND SPECIAL PURPOSE SUBSIDY FROM THE AMBIT OF THE AMP EXPENDITU RE, AS GIVEN IN THE TABULATED FORM BY THE LD. AR ALONG WITH THE SYNOPSI S AT THE TIME OF HEARING AFTER VERIFYING THE SAME IN ACCORDANCE WITH THE REC ORDS AVAILABLE WITH THE TPO/AO. THUS, THIS ISSUE IS REMANDED BACK TO THE FI LE OF THE TPO/AO. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. GROUND NO. 8 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 54. AS RELATES TO GROUND NO. 9 REGARDING NOT GRANTI NG QUANTITATIVE /ECONOMIC ADJUSTMENTS, THE LD. AR SUBMITTED THAT TH E SAME IS ACADEMIC. HENCE GROUND NO. 9 IS DISMISSED. 55. AS RELATES TO GROUND NO. 10 REGARDING 5% RANGE BENEFIT, THE SAME IS CONSEQUENTIAL. HENCE GROUND NO. 10 IS DISMISSED. 56. AS RELATES TO CORPORATE GROUNDS I.E. GROUND NOS . B.1, 1, 1.1, 1.2, 1.3 AND 2 REGARDING ADDITION OF SUBSIDY RECEIVED FROM C ANON SINGAPORE PTE. LTD. BUT NOT UTILIZED WITHIN THE PREVIOUS YEAR, THE SAME ARE IDENTICAL TO THAT OF THE EARLIER A.Y. 2010-11S GROUND NOS. B, B.1, 1, 1.1, AND 1.2. THE SAID ISSUE IS SQUARELY COVERED BY THE ITATS DECISION IN ASSESSEE S OWN CASE FOR A.YS. 2006- 07, 2007-08 AND 2008-09 (ITA NOS. 4602/DEL/2010, 55 93/DEL/2011 & 6086/DEL/2012 ORDER DATED 03.05.2013) WHEREIN THE U NUTILIZED SUBSIDY IS ALLOWED BY THE TRIBUNAL. THE SAID VIEW IS AFFIRMED BY THE HONBLE HIGH COURT VIDE ORDER DATED 03.08.2015 IN ASSESSEE'S OWN CASE. HENCE GROUND NOS. B.1, 1, 1.1, 1.2, 1.3 AND 2 ARE ALLOWED. 57. AS RELATES TO GROUND NO. B.2, 1, AND B.3 REGARD ING NOT GRANTING THE CLAIM OF PREPAID TAXES THAT OF CREDIT OF TDS AND DE DUCTION UNDER CHAPTER VI- A OF THE ACT, THE SAME ARE IDENTICAL TO THAT OF THE EARLIER A.Y. 2010-11 THAT OF 40 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA ASSESSEES APPEAL GROUND NOS. B.2, 1 AND D. BOTH THESE GROUNDS HAVE BEEN REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER IN A.Y. 2010-11. THE ASSESSING OFFICER HAS NOT VERIFIED THESE CLAIMS OF THE ASSESSEE IN PROPER WAY GIVEN UNDER THE INCOME TAX ACT. THEREFORE, IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICE R. THUS, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWI NG PRINCIPLES OF NATURAL JUSTICE. GROUND NO. B.2, 1 AND B.3 OF THE ASSESSEE S APPEAL ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 58. AS REGARDS TO GROUND NO. B.4 AND B.5 THE SAME A RE CONSEQUENTIAL, HENCE DISMISSED. 59. IN RESULT, ITA NO. 832/DEL/2016 I.E. ASSESSEES APPEAL FOR AY 2011-12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 60. AS REGARDS DEPARTMENT APPEAL, FOR AY 2011-12, T HE LD. DR SUBMITTED THAT GROUND NO. 1 AND 3 ARE GENERAL IN NATURE. HEN CE, GROUND NO. 1 & 3 OF REVENUES APPEAL IS DISMISSED. 61. AS REGARDS GROUND NO. 2, THE SAME IS RELATED TO QUANTUM OF AMP EXPENDITURE TO BE CONSIDERED FOR BENCH MARKING AMP, THE LD. DR RELIED UPON THE ORDER OF THE TPO AND SUBMITTED THAT THE DRP IGN ORED THE FACT THAT EXPENSES I.E SELLING EXPENSES ARE INCLUDED IN THE A MP EXPENSE OF THE AE WHICH IS TAKEN AS A BASE FOR THE PROFITS SPLIT. IF SELLING AND DISTRIBUTION EXPENSES ARE TO BE EXCLUDED FROM THE ASSESSEES AM P EXPENSE, THE SAME SHOULD BE EXCLUDED FROM THE AMP EXPENSES OF THE AE. IF ONLY THE SELLING AND DISTRIBUTION EXPENSE OF THE ASSESSEES ARE REMOVED AND NOT OF THE AE, THE PSM (PROFIT SPLIT METHOD) CALCULATION WILL GO WRONG . 62. THE LD. AR SUBMITTED THAT THE DRP HAS RIGHTLY D IRECTED TPO TO VERIFY THE EXPENDITURE AND EXCLUDE SELLING EXPENDITURE. T HE LD. AR RELIED UPON THE HONBLE DELHI HIGH COURT DECISION IN CASE OF SONY E RICSION (SUPRA) HAS ALSO 41 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA DIRECTED FOR THE EXCLUSION FOR SALES EXPENSES. THE DELHI BENCH IN ASSESSEES OWN CASE VIDE ORDER DATED 3/5/2013 FOR AY 2006-07 T O 2008-09 ALSO DIRECTED FOR EXCLUSION OF SALES RELATED EXPENSES. THE LD. A R FURTHER SUBMITTED THAT THE DEPARTMENT IS ADMITTING THAT PSM METHOD IS NOT WORK ABLE FOR DETERMINING THE ALP IN RELATION TO THE ALLEGED INTERNATIONAL TR ANSACTION PERTAINING TO RENDITION OF BRAND BUILDING SERVICES. THUS, THE LD. AR SUBMITTED THAT ON THIS ACCOUNT PSM DESERVED TO BE NEGATIVE. 63. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. SINCE, THE ISSUE OF AMP IS SE T ASIDE TO THE FILE OF THE AO/TPO, GROUND NO. 2 OF THE REVENUES APPEAL BECOME INFRUCTUOUS. HENCE, GROUND NO. 2 IS DISMISSED. 64. IN RESULT, ITA NO. 1052/DEL/2016 BEING REVENUE S APPEAL FOR AY 2011- 12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST AUGUST, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 21/08/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 42 ITA NO. 1405/DEL/2015 & 2275/DEL/2015 ITA DATE OF DICTATION 23.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23.07.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 23.07.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 21/08/2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 21/08/2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 21/08/2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 21/08/2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21/08.2018 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