Casio India Company Private Limited, New Delhi V. ACIT, Circle-5(2), New Delhi

ITA 9312/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0294 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2015-2016
• Appeal Filed On: 03-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Transfer pricing; International transaction; Application of stay; Wholly owned subsidiary; Onus to prove; Set aside
• Section: 143(3); 92B; 92F; 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-1 : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NOS.9312/DEL./2019 (ASSESSMENT YEAR : 2015-16) AND STAY NO.1092/DEL/2019 (IN ITA NOS.9312/DEL./2019) (ASSESSMENT YEAR : 2015-16) CASIO INDIA COMPANY PVT. LTD., VS. ACIT, CIRCLE 5 (2), A 41, 1 ST FLOOR, NEW DELHI. MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI 110 044. (PAN : AAACC3448H) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NAGESHWAR RAO, ADVOCATE SHRI S. CHAKARBORTY, ADVOCATE REVENUE BY : SHRI SURENDER PAL, CIT DR MS. SHASHI KAJLE, SENIOR DR DATE OF HEARING : 04.03.2020 DATE OF ORDER : 18.05.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, CASIO INDIA COMPANY PVT. LTD. (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILING THE PRESEN T APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 31.10.2019 PASSE D BY THE AO IN ITA NO.9312/DEL./2019 2 CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TP O UNDER SECTION 143 (3) R/W SECTION 144C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2015-16 O N THE GROUNDS INTER ALIA THAT :- GENERAL GROUNDS: 1. THAT THE LEARNED TPO (LD. TPO')/ LEARNED ASSESSI NG OFFICER (LD. AO')/ HON'BLE DISPUTE RESOLUTION PANEL (,HON'BLE DRP') HAS ERRED ON THE FACTS AND CIRCUMSTANCES OF T HE CASE AND IN LAW IN MAKING ADJUSTMENT OF INR 11,49,17,092 (SU BSTANTIVE) AND INR 21,25,04,111 (PROTECTIVE) ON ACCOUNT OF AMP EXPENSES INCURRED BY THE APPELLANT. 2. THAT THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED IN ASSESSING THE' INCOME OF THE APPELLANT AT INR 53,44 ,80,710 AS AGAINST THE RETURNED INCOME OF INR 20,70,59,510/- U NDER THE PROVISIONS OF THE ACT. GROUNDS RELATED TO VALIDITY OF PROCEEDINGS : 3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER PASSED BY LD. AO/LD. TPO CO MPUTING THE TOTAL INCOME AT INR 53,44,80,710 IS BLATANTLY E RRONEOUS SINCE ADJUSTMENT BASED ON A PROTECTIVE ASSESSMENT HAS BEE N ADDED BY THE LD AO IN COMPUTING THE TOTAL INCOME OF THE APPE LLANT. WHILE DOING SO, THE LD. AO HAS NOT FOLLOWED THE DIRECTION S OF HON'BLE DRP MENTIONING THAT NO DEMAND TO BE COMPUTED ON PRO TECTIVE ADJUSTMENT. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE FINAL ASSESSMENT ORDER PASSED UNDER SECTIO N 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 ('THE ACT') BY THE LD. AO IS BAD IN LAW AS THE SAME IS NOT IN ACCORDAN CE WITH THE PROVISIONS OF THE ACT. GROUNDS IN RELATION TO TREATMENT OF AMP AS AN INTER NATIONAL TRANSACTION: 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED IN HOLDING THE AMP EXPENDITURE INCURRED BY THE APPELLANT, AS AN 'INTER NATIONAL TRANSACTION' U/S 92B OF THE ACT, DISREGARDING THE D ISREGARDING THE FINDINGS OF THE HON'BLE HIGH COURT! TRIBUNALS IN NU MBER OF CASES AND APPELLANT'S OWN CASE FOR AY 2010-11. ITA NO.9312/DEL./2019 3 6. THAT, ON FACTS AND IN LAW, THE LD. AO/ LD. TPO/ HON'BLE DRP ERRED IN TREATING / UPHOLDING THE AMP EXPENSES AS AN 'INTERNATIONAL TRANSACTION', MISINTERPRETING THE DE CISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSS ON MOBILE COMMUNICATIONS INDIA PVT. LTD; WITHOUT APPRECIATING THE BUSINESS MODEL AND FUNCTIONAL PROFILE OF THE APPELL ANT. 6.1 THAT THE LD. AO/ LD. TPO/ HON'BLE DRP RESORTED TO THE PROVISIONS OF SECTION 92F (V) OF THE ACT AND FAILED TO SHOW THE EXISTENCE OF AN UNDERSTANDING OR AN ARRANGEMENT OR ACTION IN CONCERT' BETWEEN THE APPELLANT AND ITS AES WITH REGARD TO AMP SPEND BY THE APPELLANT IN INDIA. 6.2 THAT, ON FACTS AND IN LAW. THE LD. AO/ LD. TPO / HON'BLE DRP HAS FAILED TO APPRECIATE THE FACT THAT ANY BENE FIT TO AE FROM AMP EXPENDITURE IN INDIA IS PURELY INCIDENTAL IN NA TURE AND DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION, DISREG ARDING THE FINDINGS OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF WHIRLPOOL OF INDIA LTD. 6.3 THAT, ON FACTS AND IN LAW, THE LD. AOI LD. TPO / HON'BLE DRP HAVE ERRED IN ATTRIBUTING ADDITIONAL REVENUES T O THE ASSESSEE FROM THE 'EXPLOITATION' OF THE INTANGIBLES (WITHOUT PREJUDICE TO APPELLANT'S CONTENTION THAT EXPENDITURE ON AMP DOES NOT CREATE ANY NON-ROUTINE INTANGIBLES), WITHOUT APPRECIATING THE FACT THAT ALL THE REVENUES FROM EXPLOITATION OF THE INTANGIBL ES (SALES IN INDIA) ARE EARNED BY THE ASSESSEE ONLY, AND THAT TH ERE IS NO FURTHER REVENUE FROM THE INTANGIBLES, WHICH COULD B E ATTRIBUTED TO THE ASSESSEE. 7. THAT THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED IN RE-CHARACTERIZATION OF AMP EXPENDITURE INCURRED BY APPELLANT AS RENDITION OF ADVERTISEMENT AND BRAND PROMOTION SERV ICES TO ITS OVERSEAS ASSOCIATED ENTERPRISES AND WITHOUT SATISFY ING THE CRITERIA OF RE-CHARACTERIZATION AS LAID OUT IN VARIOUS JUDIC IAL PRECEDENTS. 8. THAT TILE LD. AO/ LD. TPO/ HON'BLE DRP DISREGARD ING THE FINDINGS OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF MARUTI SUZUKI INDIA LTD AND SONY ERICSSON MOBILE COMMUNICA TIONS INDIA PVT. LTD., FAILED TO APPRECIATE THAT ONCE THE APPELLANT HAS SATISFIED ARM'S LENGTH BASIS USING TRANSACTIONAL NE T MARGIN METHOD ('TNMM') I.E. OPERATING MARGIN OF THE APPELL ANT IS MORE THAN THE OPERATING MARGIN OF COMPARABLE COMPAN IES, NO FURTHER SEPARATE ADJUSTMENT FOR AMP EXPENDITURE IS WARRANTED. GROUNDS IN RELATION TO PROTECTIVE ADJUSTMENT USING BRIGHT LINE APPROACH 9. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE GROSSLY ER RED IN APPLYING BRIGHT LINE TEST ('BLT') FOR COMPUTING ADJ USTMENT ON ITA NO.9312/DEL./2019 4 PROTECTIVE BASIS ON ACCOUNT OF AMP, DISREGARDING TH E PRINCIPLES LAID BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD AND SUBSEQUENTLY FOLLOWED IN CASE OF MARUTI SUZUKI INDI A LTD., WHICH REJECTED THE APPLICATION OF BLT. 10. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED BY NOT PROVIDING SET-OFF AGAINST APPELLANT'S DISTRIBUTION MARGINS WHILE USING THE DE-BUNDLED APPROACH TO BENCHMARK AMP EXPE NDITURE, AS DIRECTED BY THE HON'BLE HIGH COURT IN THE CASE O F SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. 11. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED IN QUANTIFYING AMP EXPENSES BY CONSIDERING CERTAIN SEL LING AND DISTRIBUTION EXPENSES WHILE PERFORMING ARM'S LENGTH ANALYSIS WITHOUT GIVING COGENT REASONS FOR THE PURPOSE OF BE NCHMARKING ALLEGED AMP EXPENDITURE, DISREGARDING THE PRINCIPLE S AND FINDINGS LAID DOWN BY THE HON'BLE HIGH COURT IN THE CASE OF APPELLANT. 12. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED IN REJECTION OF COMPARABLE COMPANIES SELECTED BY THE A PPELLANT IN THE TRANSFER PRICING DOCUMENTATION FOR THE PURPOSE OF COMPUTING THE ADJUSTMENT. 13. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED IN LEVYING A FURTHER MARK-UP OF SERVICE PROVIDERS ON AMP EXPEN SES FOR DETERMINATION OF THE ARM'S LENGTH PRICE OF THE ALLE GED BRAND- PROMOTION SERVICES RENDERED BY THE APPELLANT TO ITS AES AND HON'BLE DRP ERRONEOUSLY UPHELD THE APPROACH OF THE LD. TPO/ LD. AO. 14. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED IN MAKING INAPPROPRIATE SELECTION OF COMPARABLE COMPAN IES FOR THE MARK-UP ON ALLEGED AMP EXPENDITURE WHILE COMPUTING ADJUSTMENT IN PROTECTIVE ASSESSMENT AND HON'BLE DRP ERRONEOUSLY UPHELD THE APPROACH OF THE LD. TPO/AO. GROUNDS IN RELATION TO SUBSTANTIVE ADJUSTMENT USING RESIDUAL PROFIT SPLIT METHOD APPROACH 15. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN HOLDING RESIDUAL PROFIT SPLIT METHOD ('RPSM') AS THE MAM FOR BENCHMA RKING AMP SPEND. 16. THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE BY CONSIDERING RPSM A S THE MOST APPROPRIATE METHOD (UMAM') GIVEN MULTIPLE FALLACIES IN APPLICATION OF THE METHOD. ITA NO.9312/DEL./2019 5 16.1 THE LD. AO/ LD. TPO/ HON'BLE DRP HAVE ERRED I N CONSIDERING THE APPELLANT'S OWN PROFITABILITY FOR U NDERTAKING A PROFIT SPLIT INSTEAD OF THE COMBINED PROFITS OF THE GROUP AS REQUIRED FOR APPLICATION OF PSM. IN THE ABSENCE OF RELIABLE INFORMATION TO APPLY PSM, PSM CANNOT BE APPLIED. 16.2 THE FIRST STEP FOR COMPUTATION OF NON-ROUTINE AMP EXPENSES TO ARRIVE CT PROFIT SPLIT FOR SUBSTANTIVE ADJUSTMENT USING PSM IS BLT. THUS, THE IMPUGNED ORDER ERRS IN RETAIN ING PSM BASED ON THE BLT EVEN THOUGH THE SAME HAS BEEN HELD TO BE UNLAWFUL BY THE HON'BLE DELHI HIGH COURT IN MULTIPL E CASES AND STRUCK DOWN BY HON'BLE ITAT IN APPELLANT'S OWN CASE FOR AY 2014-15. 16.3 THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, LD. AO/ TPO/ DRP HAVE GROSSLY ERRED IN ASSESSM ENT OF FUNCTIONAL AND RISK PROFILE OF THE APPELLANT/AE WHI LE APPLYING IF OTHER GROUNDS 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. AO ERRED IN LAW AND IN FACT BY INITIATING PENALTY P ROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT.' 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : CASIO INDIA COMPANY PVT. LTD., THE TAXPAYER, A WHOLLY OWNED SUBSIDIARY OF CASIO JAPAN, IS A DIST RIBUTOR OF CASIO PRODUCTS IN INDIA MANUFACTURED BY ITS PARENT COMPAN Y. THE TAXPAYER HAS BEEN OPERATING IN INDIA SINCE 1996 AND HAS ESTA BLISHED THE DISTRIBUTION CHANNEL IN INDIA FOR THE PRODUCTS LIKE WATCHES, ELECTRONIC DIARIES, CALCULATOR IN INDIA. THE TAXPAYER IMPORTS FINISHED GOODS AND SPARES FOR FURTHER DISTRIBUTION IN INDIAN MARKET WH ICH ARE IN THE NATURE OF OFFICE AUTOMATION PRODUCTS, SUCH AS, HANDHELD CALCU LATORS, DESKTOP CALCULATORS, SCIENTIFIC CALCULATORS, PRINTING CALCU LATORS, DATA BANKS, DIGITAL DIARIES, LABEL PRINTERS, PDA, WRIST WATCHES, DIGITA L CLOCKS, DIGITAL CAMERAS, ELECTRONIC CASH REGISTERS, PROJECTORS AND ELECTRONIC MUSICAL ITA NO.9312/DEL./2019 6 INSTRUMENTS. FOR THIS PURPOSE, THE TAXPAYER PLACES THE ORDER DIRECTLY WITH ASSOCIATED ENTERPRISES (AE) WHICH UNDERTAKES T HE RESPONSIBILITY OF SUPPLYING THE SAID PRODUCTS. 3. DURING THE YEAR UNDER ASSESSMENT, THE TAXPAYER R EPORTED INTERNATIONAL TRANSACTIONS WITH ITS AE AS PER FORM 3CEB AS UNDER :- ADVERTISEMENT EXPENSES 7,44,26,674 SALES PROMOTION EXPENSES 9,16,751 DISTRIBUTOR AND DEALER INCENTIVES 2,01,69,900 DISCOUNTS AND REBATES 2,69,68,436 DISTRIBUTOR EXPENSES 2,46,54,663 EVENT PARTICIPATION EXPENSES 44,69,345 PRODUCT ASSOCIATION CHARGES 1,45,36,481 SPONSORSHIP FEES 20,43,221 VISUAL DISPLAY CHARGES 6,90,41,616 SPACE HIRE CHARGES 2,30,21,849 PRINTING EXPENSES 37,57,163 TOTAL 26,40,06,099 4. DURING THE TP PROCEEDINGS, THE TPO NOTICED THAT THE TAXPAYER HAS INCURRED ADVERTISEMENT, MARKETING & PU BLICITY (AMP) EXPENSES TO THE TUNE OF RS.26,40,06,099/- WHI CH HAS NOT BEEN SEPARATELY BENCHMARKED. CONSEQUENTLY, THE TPO PROCEEDED TO USE BRIGHT LINE TEST (BLT) AND COMPUTED THE RATI O OF AMP/SALES IN CASE OF TESTED PARTY AS UNDER :- EXPENDITURE ON AMP 26,40,06,099 VALUE OF GROSS SALES 4,11,33,74,971 AMP/SALES 6.42% 5. THE LD. TPO USED THE BLT TO DETERMINE THE BRIGHT LINE LIMIT I.E. ROUTINE ADVERTISEMENT, MARKETING AND PROMOTION AL EXPENDITURE INCLUDING TRADE DISCOUNT AND VOLUME REBATE, WHICH I S NO RISK ITA NO.9312/DEL./2019 7 BEARING DISTRIBUTOR AS IT IS NOT OWNER OF BRAND NAM E INTANGIBLES AND AS SUCH, NOT EXPECTED TO SPEND TO EXPLOIT THE ITEMS OF INTANGIBLE PROPERTY TO WHICH IT IS PROVIDED. SO, IN ORDER TO BENCHMARK THE INTERNATIONAL TRANSACTIONS QUA AMP EXPENDITURE FINA LLY SELECTED TWO COMPARABLES WITH AVERAGE AMP/SALES RATIO OF 2.8 4% WHICH IS AS UNDER :- S.NO. COMPANY NAME AMP/SALES (%) 1 ETHOS LTD. 1.92% 2 KDDL LTD. 3.46% AVERAGE 2.84% 6. LD. TPO AFTER TAKING THE RATIO OF THE EXPENDITUR E INCURRED OF AMP/SALES OF COMPARABLES AS BRIGHT LINE LIMIT AND C OMPUTED THE AMOUNT WHICH SHOULD HAVE BEEN COMPENSATED TO THE TA XPAYER BY ITS AE AS UNDER :- VALUE OF GROSS SALES 4,11,33,74,971 AMP/SALES OF THE COMPARABLES 2.84% AMOUNT THAT REPRESENTS BRIGHT LINE 11,68,19,849 EXPENDITURE ON AMP BY ASSESSEE 26,40,06,099 EXPENDITURE IN EXCESS OF BRIGHT LINE 14,71,86,249 PLR 15.62% MARKUP 2,30,06,113 CUMULATIVE ADDITION 17,02,92,370 7. LD. TPO PROCEEDED TO HOLD THAT SINCE THE AMOUNT OF RS.14,72,86,256/- WAS SPENT BY THE TAXPAYER OVER AN D ABOVE THE BRIGHT LINE LIMIT FOR PROVISION OF SERVICES RELATED TO AMP PURELY FOR THE AE, AN INDEPENDENT ENTITY UNDER SIMILAR CIRCUMS TANCES SHOULD ITA NO.9312/DEL./2019 8 HAVE CHARGED A MARK UP ON THIS AMOUNT FOR THE MONEY SPENT AND FOR THE SERVICE ELEMENT AND CONSEQUENTLY IDENTIFIED THE AVERAGE PROFIT MARGIN RETURNED BY THE ENTITIES PROVIDING MARKET SU PPORT FUNCTIONS WITH AVERAGE OPERATING PROFIT/OPERATING COST (OP/OC ) AT 15.62% OF 12 COMPARABLE COMPANIES AND THEREBY PROCEEDED TO HOLD THAT THE TAXPAYER COMPANY SHOULD HAVE BEEN COMPENSATED B Y THE AE AT RS.14,72,86,256/- PLUS MARK-UP AT 15.62% FOR UNDERT AKING AMP ACTIVITIES PURELY FOR AES FOR WHICH IT WAS CREATING MARKETING INTANGIBLES AND COMPUTED THE NET ADJUSTMENT AT RS.1 7,02,92,370/- AND PROPOSED THE ADJUSTMENT THEREOF ON PROTECTIVE B ASIS. LD. TPO ADOPTED SEGREGATED APPROACH TREATING THE AMP EXPENS ES AS A SEPARATE INTERNATIONAL TRANSACTION TO DETERMINE THE ALP. 8. LD. TPO THEN PROCEEDED TO RESIDUAL PROFIT SPLIT METHOD (RPSM) AS THE TAXPAYER HAS INCURRED AMP EXPENDITURE TO THE TUNE OF 6.42% VIS--VIS 3.58% AS COMPARABLE COMPANIES FO R WHICH AE HAS NOT REIMBURSED THE TAXPAYER FOR THE EXCESS AMP EXPENDITURE INCURRED BY IT. LD. TPO IN ORDER TO COMPUTE THE AL P OP/OI ON ACCOUNT OF TWO COMPANIES AS COMPARABLES WITH AVERAG E OP/OR AT 7.19% COMPUTED AS UNDER :- S.NO. COMPANY NAME AMP/SALES (%) 1 ETHOS LTD. 3.29% 2 KDDL LTD. 11.08% AVERAGE 7.19% ITA NO.9312/DEL./2019 9 AS AGAINST ADJUSTED OP/OI E/A AT 6.95% WHICH IS AS UNDER :- PARTICULARS AMOUNT OPERATING INCOME (A) 4,15,69,69,211 OPERATING COST (B) 4,01,67,16,997 LESS : AMP EXPENSES (C) 14,88,19,498 ADJUSTED OPERATING COST (D) = B-C 3,86,78,97,499 ADJUSTED OPERATING PROFIT (E) = A-D 28,90,71,712 ADJUSTED OP/OR E/A 6.95% 9. SINCE THE OP/OI MARGIN EARNED BY COMPARABLE IS M ORE THAN THE OP/OR EARNED BY THE TAXPAYER, LD. TPO MADE AN A DJUSTMENT OF RS.26,40,06,099/- BEING THE AMP EXPENSES INCURRED B Y THE TAXPAYER ON AMP ISSUE. 10. THE TAXPAYER CARRIED THE MATTER BEFORE THE LD. DRP BY FILING THE OBJECTIONS WHO HAS DISPOSED OFF THE OBJECTIONS QUA ADJUSTMENT ON ACCOUNT OF AMP EXPENSES BY PRIMARILY RELYING ON THE FACT THAT THE REVENUE HAS FILED SLP QUA THIS ISSUE IN THE HON BLE SUPREME COURT. HOWEVER, LD. DRP NOTED THAT THE AMP EXPENDI TURE OF RS.26.40 CRORES HAS BEEN CONSIDERED BY THE LD. TPO FOR ADJUSTMENT WITHOUT ANY DISCUSSION AND RATIONALE WHICH IS ABSUR D AND THE ADJUSTMENT UNDER RPSM CANNOT EXCEED IN ANY CASE THE EXCESS NON- ROUTINE AMP EXPENDITURE OF RS.14,72,256/- COMPUTED BY THE LD. TPO UNDER BRIGHT LINE METHOD. ITA NO.9312/DEL./2019 10 11. LD. TPO AFTER GIVING EFFECT TO THE LD. DRP ORDE R COMPUTED THE ADJUSTMENT ON ACCOUNT OF AMP EXPENSES AS UNDER :- PARTICULARS AMOUNT TOTAL OPERATING INCOME (A) 4,156,969,211 TOTAL OPERATING COST (G) 4,016,716,997 LESS : NON-ROUTINE AMP EXPENSES (F) 173,923,187 OPERATING COST LESS NON-ROUTINE EXPENSES (H=G-F) 3,842,793,810 OPERATING PROFIT EXCLUDING NON-ROUTINE AMP (I=A-H) 314,175,401 OPERATING PROFIT (J=A-G) 140,252,214 OP/OR ADJUSTED (K=I/A)% 7.56% OP/OR UNADJUSTED (L=J/A)% 3.37% OP/OR OF COMPARABLES (M)(FOR ETHOS) 1.88% RESIDUAL PROFIT MARGIN OVER SALES (N=K- M)% 5.68% PROFIT SPLIT TO BE CONFERRED TO AE (O) 25.00% 12. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEF ORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 13. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE S OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 14. NOW, IT IS BROUGHT TO OUR NOTICE BY THE LD. AR FOR THE TAXPAYER THAT PROTECTIVE ADJUSTMENT USING BRIGHT LI NE APPROACH ON ACCOUNT OF AMP EXPENSES BY THE REVENUE HAS BEEN HEL D TO BE NOT SUSTAINABLE BY THE COORDINATE BENCH OF THE TRIBUNAL IN TAXPAYERS OWN CASE IN ITA NO.8060/DEL/2018 FOR AY 2014-15 VID E ORDER DATED 24.01.2019 . ITA NO.9312/DEL./2019 11 15. UNDISPUTEDLY, THIS IS A CASE OF AMP ADJUSTMENT IN CASE OF PURE DISTRIBUTOR. IT IS ALSO NOT IN DISPUTE THAT I N CASE OF THE TAXPAYER, AMP ADJUSTMENT HAS BEEN A LEGACY ISSUE AN D THE LD. DRP DECIDED THE SAME ON THE BASIS OF EARLIER YEAR ORDER BY TAKING DEFENCE THAT REVENUE HAS ALREADY FILED THE SPECIAL LEAVE PETITION BEFORE THE HONBLE SUPREME COURT. IT IS ALSO NOT I N DISPUTE THAT THE LD. DRP MENTIONED IN PARA 3 OF ITS ORDER THAT DURIN G AY 2014-15, THE MATTER AS TO WHETHER ROUTINE AMP SPENT IS AN I NTERNATIONAL TRANSACTION IS PENDING BEFORE THE HONBLE SUPREME COURT FOR FINAL DECISION AND THEREBY UPHELD AMP ADJUSTMENT MADE BY THE AO. 16. WE HAVE PERUSED THE AFORESAID ORDER DATED 24.02 .2019 PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL HAVI NG IDENTICAL ISSUE, WHICH THE LD. DR FOR THE REVENUE HAS OPPOSED ON THE SOLE GROUND THAT THE ENFORCEMENT OF PROTECTIVE ADJUSTMEN T WOULD DEPEND ON FINAL OUTCOME OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS. SONY ERICSSON MOBIL COMMUNICATION INDIA LTD. REPORTED IN (2015) 55 TAXMAN.COM 240 DECIDED BY THE HONBLE DELHI HIGH COURT VIDE WHICH BRIGHT LINE APP ROACH HAS BEEN DISCARDED. 17. HONBLE DELHI HIGH COURT IN SONY ERICSSON INDIA PVT. LTD. V. CIT (2015) 374 ITR 118 (DEL.) AND SUBSEQUENTLY IN MARUTI SUZUKI INDIA LTD. V. CIT (2016) 328 ITR 210 (DEL.) HAS ITA NO.9312/DEL./2019 12 CATEGORICALLY HELD THAT BLT IS NOT A VALID BASIS FO R DETERMINING THE EXISTENCE OF INTERNATIONAL TRANSACTION OR FOR THAT MATTER FOR COMPUTING THE ALP OF SUCH INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES, THE ORDER OF TPO PASSED BY MAKING BLT AS BASIS OF THE ALP ADJUSTMENT IS NOT SUSTAINABLE IN THE EYE S OF LAW. 18. THE TAXPAYER HAS SPECIFICALLY COME UP WITH THE PROPOSITION THAT THERE IS NO SEPARATE INTERNATIONAL TRANSACTION S BETWEEN IT AND ITS AE QUA AMP EXPENDITURE AND REVENUE HAS FAILED TO BR ING ON RECORD ANY MATERIAL WHATSOEVER IF THERE IS ANY EXPL ICIT ARRANGEMENT BETWEEN THE TAXPAYER AND ITS AE BY INCURRING AMP EX PENSES. SO, IN THESE CIRCUMSTANCES, INCURRING OF AMP EXPENSES C ANNOT BE CONSIDERED AS INTERNATIONAL TRANSACTION. MOREOVER, THERE IS NO MATERIAL ON THE FILE IF THERE IS ANY ARRANGEMENT BE TWEEN THE TAXPAYER AND ITS AE TO UNDERTAKE BRAND BUILDING ACT IVITIES ON BEHALF OF THE AE. RATHER AMP EXPENSES STATED TO HA VE BEEN INCURRED BY THE TAXPAYER IN WHICH FOR PROMOTING THE SALES OF ITS PRODUCT IN INDIA AND NOT TO BENEFIT IN ANY MANNER I TS AE I.E. CASIO JAPAN. 19. HONBLE DELHI HIGH COURT IN SUBSEQUENT DECISION S VIZ. BAUSCH & LOMB EYE CARE (INDIA) PVT. LTD. V. ADDITIO NAL CIT (2016) 381 ITR 227 (DEL.) AND HONDA SIEL POWER PRODUCTS LTD. V. DY. CIT (2016) 237 TAXMAN 304 HELD THAT IT IS FOR THE REVENUE TO ITA NO.9312/DEL./2019 13 FIRSTLY DISCHARGE THE ONUS TO PROVE THE EXISTENCE O F AN INTERNATIONAL TRANSACTION BETWEEN THE TAXPAYER AND ITS AE AND ONL Y THEREAFTER ALP OF INTERNATIONAL TRANSACTIONS INVOLVING AMP CAN BE COMPUTED. 20. IN THE INSTANT CASE, THERE IS NOT AN IOTA OF MA TERIAL ON THE FILE APART FROM APPLYING THE BLT AND BY TAKING THE VIEW THAT THE TAXPAYER HAS INCURRED HUGE AMP/SALES EXPENSES TO TH E TUNE OF 6.42%, NO COGENT MATERIAL IS THERE TO TREAT THE INC URRING OF AMP EXPENSES AS INTERNATIONAL TRANSACTION MORE PARTICUL ARLY WHEN BASIS FOR TREATING THE AMP EXPENSES AS INTERNATIONAL TRAN SACTION I.E. BLT IS NOT A LEGALLY SUSTAINABLE METHOD. 21. UNDISPUTEDLY, THERE IS NO CHANGE IN THE FAR OF THE TAXPAYER COMPANY SINCE AY 2010-11 AND THE TAXPAYER IS PERFOR MING SAME FUNCTIONS. IN AY 2010-11, THE COORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 22.04.2019 PASSED IN ITA NO.1764/DEL/2015 , AVAILABLE AT PAGE 484 OF THE PAPER BOOK, HELD THAT THE REVENUE HAS FAILED TO PROVE THAT AMP EXPENDITURE BY THE TAXPAYE R IS A SEPARATE INTERNATIONAL TRANSACTION BY RETURNING FOLLOWING FI NDINGS :- 29. THE ENTIRE FINDING AND APPROACH OF THE TPO AN D DRP HAS BEEN PURELY BASED ON HYPOTHESIS AND ONE OF THE AGREEMENT ENTERED IN THE EARLIER YEAR FOR A LIMITED PERIOD OF SIX MONTHS AND THIS HAS BEEN STATED TO BE A MATERIAL SO AS TO DETE RMINE THAT THERE WAS AN INTERNATIONAL TRANSACTION QUA AMP EXPENDITUR E IN THIS YEAR. SUCH A PRESUMPTION BASED ON SAID AGREEMENT CA NNOT BE INFERRED IN THIS YEAR AT ALL AS, FIRSTLY, IT WAS FO R A VERY LIMITED PERIOD IN ONE OF THE EARLIER YEAR AS STATED ABOVE; AND SECONDLY, EACH YEAR HAS TO BE SEEN INDEPENDENTLY AND IF NO SU CH MATERIAL ACT IS PERMEATING THEN PRESUMPTION CANNOT BE DRAWN FOR ITA NO.9312/DEL./2019 14 PERPETUITY. THUS, REVENUE HAS FAILED TO BRING ON RE CORD ANY MATERIAL OR ANY KIND OF ARRANGEMENT EXISTING BETWEE N THE AE AND ASSESSEE COMPANY THAT THERE WAS SEPARATE INTERN ATIONAL TRANSACTION WITH REGARD TO AMP EXPENDITURE. THUS, O N THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT AMP EXP ENDITURE CANNOT BE TREATED AS SEPARATE INTERNATIONAL TRANSAC TION WHICH NEEDS SEPARATE BENCHMARKING AND ACCORDINGLY WE DELE TE THE ENTIRE AMP ADJUSTMENT MADE BY THE ASSESSING OFFICER . 22. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AN D FOLLOWING THE ORDER PASSED BY THE TRIBUNAL IN TAXPAYERS OWN CASE IN AY 2010-11, WHEN THERE IS NO INTERNATIONAL TRANSACTION NO SEPARATE BENCHMARKING QUA AMP EXPENDITURE CAN BE MADE, HENCE LIABLE TO BE DELETED. 23. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE A PPEAL FILED BY THE TAXPAYER IS ALLOWED. 24. IN VIEW OF THE FACT THAT APPEAL BEARING ITA NO.9312/DEL/2019, IN WHICH THE PRESENT STAY APPLICA TION (STAY NO.1092/DEL/2019) WAS FILED, HAS SINCE BEEN DISPOSE D OFF VIDE THIS COMPOSITE ORDER, THE PRESENT STAY APPLICATION IS HE REBY DISMISSED HAVING BEEN BECOME INFRUCTUOUS. ORDER PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF MAY, 2020. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 18 TH DAY OF MAY, 2020. TS ITA NO.9312/DEL./2019 15 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A). 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.