Samsung India Electronics Pvt. Ltd., Gurgaon V. DCIT Circle-22(2), New Delhi

ITA 9481/DEL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7495 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Assessment Year: 2014-2015
• Appeal Filed On: 10-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Permanent establishment; Wholly owned subsidiary; Bad and doubtful debts; Onus to prove; Set aside
• Section: 271(1)(c); 92C; 92D; 92B; 92F; 234B; 37(1); 10B; 192; 64; 73; 13; 22; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) (THROUGH VIDEO CONFERENCE) SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.9481/DEL./2019 (ASSESSMENT YEAR : 2014-15) M/S. SAMSUNG INDIA ELECTRONICS PVT.LTD. VS. DCIT, C IRCLE 22(2), 20 TH 24 TH FLOOR, DLF TWO HORIZON CENTRE, NEW DELHI. SECTOR 43, GURGAON 122 002 (HARYANA). (PAN : AAACS5123K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIMANSHU SINHA, ADVOCATE SHRI BHUWAN DHOOPER, ADVOCATE MS. VRINDA TULSIAN, ADVOCATE REVENUE BY : SHRI ANUPAM KANT GARG, CIT DR DATE OF HEARING : 25.08.2020 DATE OF ORDER : 31.08.2020 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. SAMSUNG INDIA ELECTRONICS PVT. LTD . (HEREINAFTER REFERRED TO AS THE TAXPAYER) BY FILI NG THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 11.11.2019 PASSED BY THE AO IN CONSONANCE WITH THE ORDERS PASS ED BY THE LD. DRP/TPO UNDER SECTION 143 (3) READ WITH SECTION 144 C OF THE ITA NO.9481/DEL./2019 2 INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) QUA THE ASSESSMENT YEAR 2014-15 ON THE GROUNDS INTER ALIA THAT :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN ASSESSING THE TOTAL IN COME OF THE APPELLANT AT RS.56,44,23,32,210/- AS AGAINST THE RE TURNED INCOME OF RS.40,66,96,11,000/-. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DISPUTE RESOLUTION PANEL ('DRP')/AO/TR ANSFER PRICING OFFICER ('TPO') ERRED IN MAKING A TRANSFER PRICING ADJUSTMENT OF RS.1409,51,89,261/- ON ACCOUNT OF (I) ADVERTISING, MARKETING, PROMOTION ('AMP') EXPENSES OF RS.802,61, 48,069/- AND (II) INTERNATIONAL TRANSACTIONS PERTAINING TO T RADING SEGMENT OF RS.606,90,41,192/- ALLEGING THE SAME TO BE NOT A T ARM'S LENGTH IN TERMS OF THE PROVISIONS OF SECTION 92C OF THE AC T READ WITH RULE 10B OF THE INCOME TAX RULES, 1962 ('THE RULES' ). 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO ERRED IN MAKING AN ADDITION OF RS.167,75,31,950 ON ACCOUNT OF DISALLOWANCE OF SALA RY EXPENDITURE INCURRED IN RELATION TO EXPATRIATE EMPL OYEES UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961. GROUNDS AGAINST SUBSTANTIVE ADJUSTMENT MADE IN RELATION TO AMP EXPENSES 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN MAKING SUBSTA NTIVE ADJUSTMENT OF RS.802,61,48,069 ON ACCOUNT OF AMP WH ICH COMPRISED OF RS.680,19,00,772 FOR THE TRADING SEGME NT (NON- IT) AND RS.122,42,47,297 FOR NETWORKING SEGMENT (NO N-IT). 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN HOLDING THAT THE AMP EXPENDITURE INCURRED BY THE APPELLANT IN INDIA IS A N 'INTERNATIONAL TRANSACTION' AS PER THE PROVISIONS O F THE ACT. 6. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO ERRED OM: A. NOT DEMONSTRATING THE EXISTENCE OF AN 'UNDERSTAN DING' OR AN 'ARRANGEMENT OR 'ACTION IN CONCERT' BETWEEN THE APPELLANT AND ITS ASSOCIATED ENTERPRISES (AES) W.R. T. THE AMP SPEND; AND B. NOT APPRECIATING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT ARE WHOLLY AND EXCLUSIVELY FOCUSED ON ITA NO.9481/DEL./2019 3 GENERATING DOMESTIC SALES FOR ITS OWN BUSINESS OPER ATIONS (AND ALIGNED WITH THE RISK PROFILE OF THE APPELLANT ) AND THE BENEFIT ARISING FROM THE INCURRENCE OF THE AMP EXPENSES BY THE APPELLANT HAS BEEN RECEIVED BY THE APPELLANT AND THE BENEFIT, IF ANY, RESULTING TO ITS AES IS MERELY INCIDENTAL. 7. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO ERRED IN HOLDING THAT THE A MP EXPENSES INCURRED BY APPELLANT HAS LED TO THE CREAT ION OF MARKETING INTANGIBLES AND RESULTED IN PROMOTION OF' SAMSUNG BRAND' FOR WHICH THE APPELLANT SHOULD BE COMPENSATE D BY THE LEGAL OWNER OF THE BRAND. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/ AO/ TPO HAVE ERRED IN ADOPTING IN TENSITY- BASED APPROACH WHICH IS NOT A PRESCRIBED METHOD UND ER THE INCOME-TAX RULES, 1962. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO ERRED IN APPLYING MARK-UP O N THE ALLEGED INCURRED EXCESSIVE AMP EXPENDITURE BY SELEC TING COMPANIES PROVIDING MARKET SUPPORT FUNCTIONS IN ORD ER TO DETERMINE THE MARK-UP TO BE IMPUTED ON AMP ADJUSTME NT. 10. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRPI AO/TPO HAVE ERRED IN ARTIFICIALLY MAKING A DUPLICATIVE ADJUSTMENT AS THE ALLEGED AMP EXPENSES AND AMP ACTIVITIES ARE ALREADY INCLUDED IN THE ARM'S LENGTH DETERMINATION OF THE TRADING SEGMENT. 11. THAT ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN NOT APPRECIAT ING THAT AFTER APPLICATION OF TRANSACTIONAL NET MARGIN METHO D (TNMM) AS THE MOST APPROPRIATE METHOD ('MAM') FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS, NO SEP ARATE ARM'S LENGTH ANALYSIS WAS REQUIRED IN RESPECT OF THE INDI VIDUAL ELEMENTS OF COST (AMP EXPENDITURE) AS IT IS INCONSISTENT WIT H THE TENETS OF APPLICATIONS OF TNMM AS PER RULE 10B(L)(E) OF THE R ULES. 12. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN MAKING TRANSF ER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE IN NETWORK ING SEGMENT IGNORING THE FACT THAT UNDER NETWORKING SEG MENT, THE APPELLANT OPERATES UNDER A BUSINESS-TO-BUSINESS ('B 2B') MODEL WHEREIN THE IT CATERS TO A SINGLE CUSTOMER AND DOES NOT UNDERTAKE ANY ACTIVITY PERTAINING TO AMP. 13. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN CONSIDERING A LL 'VALUE ITA NO.9481/DEL./2019 4 ADDED EXPENSES' (EXCLUDING EMPLOYEE COSTS) AS PART OF THE AMP EXPENDITURE ON THE PREMISE THAT ALL VALUE-ADDED EXP ENSES LEAD TO PROMOTION OF THE BRAND 'SAMSUNG' DISREGARDING THE F ACT THAT MANY OF SUCH EXPENSES ARE PURELY OPERATIONAL IN NAT URE. 14. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN NOT ALLOWING THE EXCLUSION OF SALES RELATED EXPENSES FROM THE AMBIT OF AMP DISREGARDING THE FACT THAT EXCLUSION OF SUCH EXPENS ES HAS BEEN ALLOWED IN APPELLANT'S OWN CASE BY DRP IN PRIOR YEA RS. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO ERRED IN MODIFYING THE COMP ARABLE SET, IN CONTRAVENTION OF SECTION 92C(3) OF THE ACT READ WITH RULE 10B(2) OF THE RULES, BY INCLUDING/SELECTING COMPANI ES THAT ARE NOT COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIO NS PERFORMED, ASSETS EMPLOYED, RISKS ASSUMED AND REJECTING COMPAN IES SELECTED BY THE APPELLANT. 16. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO ERRED IN INCORRECTLY COMPUT ING MARGIN OF THE APPELLANT AND THE COMPARABLES. GROUNDS AGAINST PROTECTIVE ADJUSTMENT MADE IN RELATION TO AMP EXPENSES UNDER BRIGHT LINE TEST METHOD 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN MAKING PROTEC TIVE ADJUSTMENT OF RS.18,29,02,10,040/- ON ACCOUNT OF AM P WHICH COMPRISED OF RS.11,73,56,19,026/- FOR MANUFACTURING SEGMENT AND RS.6,55,45,91,014/- FOR TRADING SEGMENT WHICH, IS IMPERMISSIBLE UNDER LAW. 18. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN MAKING PROTEC TIVE ADJUSTMENT WHEN SUBSTANTIVE ADJUSTMENT HAS ALREADY BEEN DONE IN THE HANDS OF THE SAME ASSESSEE FOR SAME ASSESSME NT YEAR WHICH IS IMPERMISSIBLE UNDER LAW. 19. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED APPLYING THE 'BR IGHT LINE' TEST AS A TOOL TO IDENTIFY AND BENCHMARK THE ALLEGE D AMP TRANSACTION WHICH HAS NO STATUTORY MANDATE UNDER TH E ACT AS LAID DOWN BY THE HON'BLE DELHI HC IN THE CASE OF SONY ER ICSON MOBILE COMMUNICATIONS INDIA PVT. LTD. [2015] 374 IT R 118 (DELHI). 20. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN LEVYING A FUR THER MARK ITA NO.9481/DEL./2019 5 UP ON THE ALLEGED AMP EXPENSES INCURRED OVER AND AB OVE THE SO- CALLED 'BRIGHT-LINE' LIMIT, STATING THAT IT TANTAMO UNT TO SERVICES BEING PROVIDED BY APPELLANT TO ITS AES. GROUNDS AGAINST SUBSTANTIVE ADJUSTMENT MADE IN TRADING SEGMENT 21. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN MAKING AN ADJ USTMENT OF RS.606,90,41,192/- IN TRADING SEGMENT BY REJECTI NG RESALE PRICE METHOD APPLIED BY THE ASSESSEE AND INSTEAD AP PLYING TNMM AS THE MAM AND BY INCLUDING COMPANIES THAT ARE NOT COMPARABLE TO THE ASSESSEE IN TERMS OF FUNCTIONS PE RFORMED, ASSETS EMPLOYED, RISKS ASSUMED, AND REJECTING COMPA RABLE COMPANIES SELECTED BY THE ASSESSEE. 22. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN INCORRECTLY C OMPUTING THE MARGIN OF THE ASSESSEE AND THE COMPARABLES. 23. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO ERRED IN CONSIDERING THE FO REIGN EXCHANGE GAIN AS NON-OPERATING IN NATURE FOR THE PU RPOSE OF COMPUTATION OF MARGINS OF THE APPELLANT AS WELL AS OF THE COMPARABLES. 24. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/AO/TPO HAVE ERRED IN DENYING WORKI NG CAPITAL ADJUSTMENT UNDER RULE10B(1)(E) FOR THE PURPOSE OF DETERMINATION OF ALP TO ACCOUNT FOR THE DIFFERENCE IN WORKING CAPITAL EMPLOYED BY THE ASSESSEE VIS-A-VIS THE COMP ARABLE COMPANIES BY IGNORING THE FACT THAT WORKING CAPITAL ADJUSTMENT WAS ALLOWED BY THE LD. TPO IN AY 2005-06, 2006-07, A Y 2010- 11 AND 2011-12 AND BY HON'BLE DRP IN AY 2013-14. 25. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP/TPO/AO ERRED IN WRONGFULLY COMPUTI NG PROPORTIONATE ADJUSTMENT. GROUNDS AGAINST CORPORATE TAX ADJUSTMENT 26. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. DRP /AO ERRED IN DISALLOWING THE SALAR Y EXPENDITURE OF INR 1,677,531,950 INCURRED IN RELATION TO EXPATR IATE EMPLOYEES UNDER SECTION 37(1) OF THE ACT IGNORING T HE FACT THAT THIS HON'BLE TRIBUNAL HAS DECIDED THE' ISSUE IN FAV OUR OF THE APPELLANT IN THE CASE OF SAMSUNG ELECTRONICS CO. LT D V DCIT: [2018] 92 TAXMANN.COM 171 (DELHI - TRIB.). ITA NO.9481/DEL./2019 6 27. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. DRP IAO IN HOLDING THAT THERE WAS NO EM PLOYER- EMPLOYEE RELATIONSHIP BETWEEN EXPATRIATE EMPLOYEES AND THE APPELLANT AND THE EXPATRIATE EMPLOYEES WERE THE EMP LOYEES OF THE PARENT COMPANY, I.E., SAMSUNG ELECTRONICS CO. LIMIT ED. 28. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. DRP /AO ERRED IN HOLDING THAT EXPATRIAT E EMPLOYEES WERE NOT WORKING WHOLLY AND EXCLUSIVELY FOR THE BUS INESS OF THE ASSESSEE AND ACCORDINGLY, THEIR SALARY EXPENDITURE IS DISALLOWABLE UNDER SECTION 37(1) OF THE ACT. 29. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO HAS ERRED IN CHARGING INTEREST UNDER SE CTIONS 234B AND 234C OF THE ACT. 30. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) AND SECTION 271BA AND SECTION 271AA OF TH E ACT FOR FURNISHING OF INACCURATE PARTICULARS AND CONCEALMEN T OF INCOME. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : SAMSUNG INDIA ELECTRONICS PVT. LTD. (SIEL), THE TAXPAYER IS A WHOLLY OWNED SUBSIDIARY OF SAMSUNG EL ECTRONICS CO. LTD., KOREA (SEC, KOREA) AND IS INTO THE BUSINESS O F MANUFACTURING AND TRADING OF CONSUMER ELECTRONICS, HOME APPLIANCE S, MOBILE PHONES AND IT PRODUCTS. IT IS ALSO INTO CONTRACT S OFTWARE DEVELOPMENT ACTIVITIES FOR SEC, KOREA AND HAS ALSO STARTED IMPORT OF TELECOMMUNICATION EQUIPMENTS AND IMPORT OF MEDIC AL EQUIPMENTS FOR RESALE. 3. THE TAXPAYERS BUSINESS IS DIVIDED INTO FOUR SEG MENTS WHICH ARE AS UNDER :- ITA NO.9481/DEL./2019 7 (I) LICENSED MANUFACTURING OF PRODUCTS SUCH AS CONSUMER ELECTRONICS, HOME APPLIANCES AND MOBILE PHONES (LICENSED MANUFACTURING SEGMENT) (II) TRADING OF PRODUCTS SUCH AS CONSUMER ELECTRONI CS, HOME APPLIANCES, MOBILE PHONES, IT PRODUCTS (TRADING/DISTRIBUTION SEGMENT) (III) PROVISION OF CONTRACT SOFTWARE DEVELOPMENT SE RVICES (CONTRACT SOFTWARE DEVELOPMENT SEGMENTS) AND (IV) OPERATIONS INVOLVING BUY-SELL OF TELECOMMUNICA TION EQUIPMENT FROM SAMSUNG KOREA TO THIRD PARTY CUSTOMERS IN INDIA (NETWORK SEGMENT) 4. OUT OF THE AFORESAID SEGMENTS, LD. TPO MADE ADJU STMENT IN TRADING AND DISTRIBUTION SEGMENT ONLY. LD. TPO MAD E TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF ADVERTISEMENT, MAR KETING AND PROMOTION (AMP) EXPENDITURE INCURRED BY THE TAXPAYE R DURING ASSESSMENT YEAR BY APPLYING INTENSITY APPROACH FO R TRADING SEGMENT AS WELL AS NETWORK SEGMENT. LD. TPO ALSO P ROCEEDED TO MAKE PROTECTIVE ADJUSTMENT BY APPLYING A BRIGHTLINE TEST (BLT) IN CASE OF LICENCING MANUFACTURER SEGMENT AS WELL AS T RADING SEGMENT. 5. IN CASE OF TRADING SEGMENT, THE TAXPAYER IN ITS TP STUDY CHOSEN 19 COMPARABLES BY APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERATING PROFIT/OPERATING COST (OP/OC) AS THE PROFIT LEVEL INDICATOR (PLI) AND COMPUTED TH E MARGIN OF COMPARABLES AT 10.61% AS AGAINST MARGIN OF THE TAXP AYER AT 14.98% AND FOUND ITS INTERNATIONAL TRANSACTIONS QUA TRADING SEGMENT AT ARMS LENGTH. HOWEVER, LD. TPO IN ITS T P ANALYSIS REJECTED 14 COMPARABLES OUT OF THE 19 COMPARABLES A ND INTRODUCED ITA NO.9481/DEL./2019 8 3 NEW COMPARABLES WITH OP/OR AS THE PLI AND COMPUTE D THE MARGIN AT 5.10% OF THE COMPARABLES. LD. TPO ALSO R ECOMPUTED THE COMPARABLES MARGIN OF TAXPAYER AT (-) 5.57% AS AGAI NST MARGIN GIVEN BY THE TAXPAYER DURING ASSESSMENT PROCEEDINGS OF (-) 2.66%. LD. TPO ALSO DENIED THE WORKING CAPITAL AND RISK AD JUSTMENT TO THE TAXPAYER AND THEREBY MADE UPWARD ADJUSTMENT OF RS.775,43,37,415/- IN THE TRADING SEGMENT. AO ALSO DISALLOWED SALARY EXPENDITURE OF RS.167,75,31,950/- PAID TO TH E EXPATRIATE EMPLOYEE OF SEC, KOREA U/S 37(1) OF THE ACT. 6. ASSESSEE CARRIED THE MATTER BEFORE THE LD. DISPU TES RESOLUTION PANEL (DRP) BY WAY OF FILING OBJECTIONS WHICH WERE PARTLY ALLOWED. FEELING AGGRIEVED, THE TAXPAYER HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1, 2 & 3 8. GROUNDS NO.1, 2 & 3 ARE GENERAL IN NATURE HENCE NEED NO SPECIFIC ADJUDICATION. ITA NO.9481/DEL./2019 9 GROUNDS NO.4 TO 20 9. THE AFORESAID GROUNDS RAISED BY THE TAXPAYER PER TAINED TO ADJUSTMENT MADE BY THE LD. TPO/DRP/AO ON ACCOUNT OF AMP EXPENDITURE INCURRED BY THE TAXPAYER IN A TRADING S EGMENT AS WELL AS NETWORK SEGMENT. LD. TPO USED THE INTENSITY AP PROACH BY COMPARING THE VAE (VALUE ADDED EXPENDITURE)/SALES R ATIO OF EACH COMPARABLE WITH THAT OF THE TAXPAYER. LD. TPO HAS ALSO MADE PROTECTIVE ADJUSTMENT BY APPLYING BLT IN LICENSED M ANUFACTURING SEGMENT AND TRADING SEGMENT. 10. AT THE VERY OUTSET, LD. AR FOR THE TAXPAYER BRO UGHT TO THE NOTICE OF THE BENCH THAT THIS ISSUE HAS ALREADY BEE N DECIDED IN FAVOUR OF THE TAXPAYER IN TAXPAYERS OWN CASE VIDE ORDER DATED 04.10.2019 IN A CONSOLIDATED ORDER FOR AYS 2005-06 TO 2011-12 AND ORDER PASSED IN AY 2012-13 ORDER DATED 07.01.20 20 , AVAILABLE AT PAGES 1 TO 225 OF THE PAPER BOOK. 11. HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVE NUE CONTENDED THAT SINCE, IN CASE OF AMP ISSUE, SPECIAL LEAVE PETITION (SLP) FILED BY THE REVENUE HAS ALREADY BEEN ADMITTE D BY THE HONBLE SUPREME COURT AND THE ISSUE IS ALIVE BUT HA S FAIRLY CONCEDED THAT THERE IS NO CHANGE IN THE FACTS AND C IRCUMSTANCES OF THE CASE AT HAND VIS--VIS FACTS OF AYS 2005-06 TO 2012-13. ITA NO.9481/DEL./2019 10 12. UNDISPUTEDLY, THERE IS A MARKETING DEVELOPMENT FUND (MDF) AGREEMENT BETWEEN THE TAXPAYER AND ITS ASSOCI ATED ENTERPRISES (AE) VIDE WHICH PART REIMBURSEMENT QUA ALP EXPENSES INCURRED BY THE TAXPAYER HAS BEEN REIMBURS ED BY THE AE. IT IS ALSO NOT IN DISPUTE THAT THE TAXPAYER HAS ITS ELF TREATED THE TRANSACTION QUA AMP EXPENSES AS INTERNATIONAL TRANS ACTIONS IN FORM 3CEB. SO, THE LD. TPO NOTICED THAT THE TAXPAY ER HAS INCURRED SIGNIFICANT AMOUNT OF AMP EXPENSES DURING THE YEAR UNDER ASSESSMENT TO PROMOTE THE BRAND NOT OWNED BY IT. C ONSEQUENTLY, LD. TPO REACHED THE CONCLUSION THAT SIGNIFICANT NON-ROUTINE AMP EXPENDITURE INCURRED BY THE TAXPAYER IS AN INTERNAT IONAL TRANSACTION WHICH LED TO CREATING MARKETING INTANGIBLES AND AS SUCH, AE HAS TO COMPENSATE THE TAXPAYER FOR SIGNIFI CANT FUNCTIONS PERFORMED, ASSETS UTILIZED AND FOR CREATING ECONOMI C VALUE FOR THE AES BRAND BY ENHANCING, MAINTAINING AND PROMOTING T HE BRAND. LD. TPO BY USING BLT APPROACH PROPOSED PROTECTIVE A DJUSTMENT OF RS.16,83,57,78,332/- AND THEREAFTER PROCEEDED TO MAKE ALTERNATIVE BENCHMARKING OF INTERNATIONAL TRANSACTI ONS UNDER TNMM BY APPLYING INTENSITY APPROACH. TPO BY ADOPTI NG THE INTENSITY APPROACH MADE ADJUSTMENT AND ALSO RECHARA CTERIZED THE TRANSACTION OF THE TAXPAYER. ITA NO.9481/DEL./2019 11 13. BARE PERUSAL OF THE ORDER UNDER CHALLENGE PASSE D BY THE LD. TPO MORE PARTICULARLY PARAS 38, 39 & 40 OF THE ORDE R GOES TO PROVE THAT ENTIRE ADJUSTMENT QUA AMP EXPENSES ON PROTECTI VE BASIS HAS BEEN MADE BY THE LD. TPO ON THE BASIS OF BLT METHOD AND NO MATERIAL WHATSOEVER HAS BEEN BROUGHT ON RECORD TO S HOW IF THE TAXPAYER AND AE HAS ACTED IN CONCERT. SO, MERE EXI STENCE OF MARKETING DEVELOPMENT FUND AGREEMENT AND REIMBURSEM ENT THEREUNDER TO THE TAXPAYER BY THE AE CANNOT LEAD TO THE CONCLUSION THAT THERE WAS AN ARRANGEMENT/UNDERSTANDING/ACTION IN CONCERT BETWEEN THE TAXPAYER AND AE FOR ANY EXCESS AMOUNT I NCURRED BY THE TAXPAYER. MOREOVER, BLT APPROACH ADOPTED BY TH E LD. TPO IS NOT TENABLE IN LAW. 14. 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 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. SO, IN THESE CIRCUMSTANCES, THE ORDE R OF TPO PASSED BY MAKING BLT AS BASIS OF THE ALP ADJUSTMENT IS NOT SUSTAINABLE IN THE EYES OF LAW. ITA NO.9481/DEL./2019 12 15. FURTHERMORE, HONBLE DELHI HIGH COURT IN SUBSEQ UENT DECISIONS VIZ. BAUSCH & LOMB EYE CARE (INDIA) PVT. LTD. V. ADDITIONAL CIT (2016) 381 ITR 227 (DEL.) AND HONDA SIEL POWER PRODUCTS LTD. V. DY. CIT (2016) 237 TAXMAN 304 HELD THAT IT IS FOR THE REVENUE TO FIRSTLY DISCHARGE THE ONUS TO PROVE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION BETWEEN THE TAXPAYER A ND ITS AE AND ONLY THEREAFTER ALP OF INTERNATIONAL TRANSACTIONS I NVOLVING AMP CAN BE COMPUTED. 16. IT IS FURTHER CONTENDED BY THE LD. AR FOR THE T AXPAYER THAT QUANTITATIVE ADJUSTMENT MADE BY THE TPO ON ACCOUNT OF AMP EXPENSES IS NOT PERMISSIBLE WITHIN THE FRAMEWORK OF CHAPTER-X AS HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. V. CIT ITA NO.110/2014 & 710/2015) . HONBLE HIGH COURT HAS CATEGORICALLY HELD THAT NONE OF THE SUBST ANTIVE OR PROCEDURAL PROVISIONS OF CHAPTER-X PERMITS ADJUSTME NT ON ACCOUNT OF AMP EXPENSES. 17. THIS ISSUE HAS ALREADY BEEN DECIDED BY THE COOR DINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE TAXPAYER IN ITS OW N CASE FOR AYS 2005-06 TO 2011-12 (SUPRA). OPERATIVE PART THEREOF IS EXTRACTED FOR READY PERUSAL AS UNDER :- 36. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS MA TERIAL REFERRED TO BEFORE US IN RESPECT OF TRANSFER PRICIN G ISSUE ITA NO.9481/DEL./2019 13 PERTAINING TO AMP ADJUSTMENT MADE BY THE TPO. WE HA VE ALREADY DISCUSSED IN DETAIL, THE BRIEF FACTS AND BA CKGROUND OF THE CASES IN THE LIGHT OF THE MATERIAL ON RECORD AND AS CAPTURED IN THE ARGUMENTS PLACED BY THE PARTIES. FROM THE DISCUSSIO N MADE ABOVE, WE WILL DEAL WITH VARIOUS ISSUES RELATING TO AMP ADJUSTMENT. THE FIRST ISSUE FOR OUR CONSIDERATION I S:- WHETHER AMP EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEAR IS AN INTERNATIONAL TRANSACTION? IN THE PRESENT CONTEXT CAN THE VALUE OF THE AMP TRANSACTIO N BE EXTENDED OR EXPANDED BEYOND THE AMOUNT RECEIVED AS REIMBURSEMENT UNDER THE MDF AGREEMENT? 39. IT IS ALSO PERTINENT THAT THE HONBLE COURT FU RTHER HELD THAT AS PER THE PRINCIPLES LAID DOWN BY THE APEX CO URT IN CIT V. B.C. SRINIVASA SETTY [1981] 128 ITR 294 (SC) AND PN B FINANCE LTD. V. CIT [2008] 307 ITR 75 (SC), IN THE ABSENCE OF A MACHINERY PROVISION, BRINGING AN IMAGINED TRANSACTI ON TO TAX IS NOT POSSIBLE. IF SUCH A TRANSACTION WITH AN ASCERT AINABLE PRICE IS NOT SHOWN TO EXIST, CHAPTER X CANNOT BE INVOKED. TH E AFOREMENTIONED PRINCIPLES HAVE ALSO BEEN APPLIED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF VALVOLINE CUMMINS P RIVATE LTD. (ITA 158/2016) WHEREIN THE COURT OBSERVED AS BELOW: 17. THE MERE FACT THAT THE ASSESSEE WAS PERMITTE D TO USE THE BRAND NAME VALVOLINE WILL NOT AUTOMATICAL LY LEAD TO AN INFERENCE THAT ANY EXPENSE THAT THE ASSE SSEE INCURRED TOWARDS AMP WAS ONLY TO ENHANCE THE BRAND VALVOLINE. THE ONUS WAS ON THE REVENUE TO SHOW TH E EXISTENCE OF ANY ARRANGEMENT OR AGREEMENT ON THE BA SIS OF WHICH IT COULD BE INFERRED THAT THE AMP EXPENSE INCURRED BY THE ASSESSEE WAS NOT FOR ITS OWN BENEFI T BUT FOR THE BENEFIT OF ITS AE. THAT FACTUAL FOUNDATION HAS BEEN UNABLE TO BE LAID BY THE REVENUE IN THE PRESENT CAS E. ON THE BASIS OF THE EXISTING RECORD, THE TPO HAS FOUND NO BASIS OTHER THAN BY APPLYING THE BLT, TO DISCERN TH E EXISTENCE OF INTERNATIONAL TRANSACTION. THEREFORE, NO PURPOSE WILL BE SERVED IF THE MATTER IS REMANDED TO THE TPO, OR EVEN THE ITAT, FOR THIS PURPOSE. 40. THEREFORE, THE ARGUMENT ADVANCED BY THE LD. CI T (DR) THAT THE MDF AGREEMENT SHOULD BE VIEWED AS AN EVIDE NCE TO DEMONSTRATE THE EXISTENCE OF AN UNDERSTANDING AND A RRANGEMENT TO CARRY OUT AMP IN INDIA AT THE BEHEST OF THE AE N EEDS TO BE EXAMINED IN LIGHT OF THE ABOVE PRINCIPLES LAID DOWN BY THE DELHI HIGH COURT. IN THE PRESENT FACTS, WE FIND THAT THIS TRANSACTION OF HAVING RECEIVED ASSISTANCE /REIMBURSEMENT HAS ALREA DY BEEN SHOWN BY THE ASSESSEE IN ITS FORM 3CEB AS AN INTERN ATIONAL TRANSACTION. IT HAS BEEN CONTENDED BY THE REVENUE T HAT BY VIRTUE ITA NO.9481/DEL./2019 14 OF THIS AGREEMENT, THE ENTIRE AMP EXPENDITURE INCUR RED BY THE ASSESSEE SHOULD BE TREATED AS AN INTERNATIONAL TRAN SACTION AND SUBJECT TO THE PROVISIONS OF CHAPTER X OF THE ACT. 41. WE FIND THAT THE APPELLANT-ASSESSEE HAS ENTERED INTO AN UNDERSTANDING WITH ITS AE IN RESPECT OF A PORTION O F THE AMP EXPENDITURE BY WAY OF THE MDF AGREEMENT. UNDER THIS AGREEMENT, THE AE OF THE ASSESSEE GIVES ASSISTANCE TO THE ASSESSEE FOR CARRYING OUT CERTAIN ADVERTISING AND MARKETING ACTIVITIES IN INDIA. VARYING AMOUNTS HAVE BEEN RECEIVED BY THE AS SESSEE FROM ITS AE UNDER THIS AGREEMENT AS REIMBURSEMENTS IN AL L THE ASSESSMENT YEARS IMPUGNED BEFORE US. THE AMOUNTS RE CEIVED AS ASSISTANCE UNDER THIS AGREEMENT IN ALL THESE YEARS HAVE ALSO BEEN INDISPUTABLY DISCLOSED AND EXPLAINED IN THE FORM 3C EB AND IN THE TP STUDY. THE QUESTION THAT REQUIRES OUR ADJUDI CATION IS WHETHER BY VIRTUE OF THIS AGREEMENT, THE SO-CALLED EXCESSIVE AMP EXPENDITURE OF THE ASSESSEE (WHICH IS MUCH HIGH ER THAN THE ASSISTANCE RECEIVED UNDER THE MDF AGREEMENT) CAN BE TREATED AS AN INTERNATIONAL TRANSACTION U/S 92B. FOR THIS WE N EED TO ADVERT TO THE TERMS OF THE MDF AGREEMENT. RELEVANT CLAUSES OF THE MDF AGREEMENT APPLICABLE FOR A.Y. 2005-06 (THE AGRE EMENTS PERTAINING TO OTHER YEARS ARE MATERIALLY SIMILAR) A RE EXTRACTED AS BELOW: MARKETING FUND AGREEMENT THIS AGREEMENT MADE AND ENTERED INTO THIS 1ST DAY O F JANUARY, 2004 BY AND BETWEEN SAMSUNG ELECTRONICS CO ., LTD., A CORPORATION DULY ORGANIZED AND EXISTING UNDER THE L AWS OF THE REPUBLIC OF KOREA, HAVING ITS HEAD OFFICE AT SAMSUN G MAIN BLDG, 250-2KA TAEPYUNG-RO, CHUNG-GU, SEOUL, KOREA (HEREIN AFTER REFERRED TO AS SEC) AND SAMSUNG INDIA ELECTRONICS A CORPORATION DULY ORGANIZED AND EXISTING UNDER THE L AWS OF INDIA, HAVING ITS PRINCIPAL OFFICE AT 3RD, IFCI TOW ER, NEHRU PLACE, NEW DELHI, INDIA (HEREINAFTER REFERRED TO AS DISTRIBUTOR) ARTICLE 1. PURPOSE 1.1 THE OBJECTIVES OF THIS AGREEMENT ARE TO PROVID E FOR TERMS AND CONDITIONS OF THE MARKETING FUND ACTIVITIES AS SET FORTH IN ARTICLE 4.3 WHICH SHALL BE CARRIED OUT BY DISTRIBUT OR ON BEHALF OF SEC IN THE TERRITORY TO FURTHER ENHANCE S AMSUNG CORPORATE AND BRAND IMAGES THEREIN. 1.2 THE MARKETING FUND SHALL MEAN A STRATEGIC FUND SPECIFICALLY RESERVED BY SEC TO SUPPORT ACTIVITIES FOR UPGRADING CORPORATE AND BRAND IMAGES IN THE TARGET MARKETS AN D DEVELOPING NEW OPPORTUNITIES TO PROMOTE THE SALES OF THE TARGE T PRODUCTS THEREIN. ITA NO.9481/DEL./2019 15 ARTICLE 4. SCOPE OF REIMBURSEMENT 4.1 THE AMOUNT OF REIMBURSEMENT SHALL BE THE ACTUA L MARKETING FUND RELATED EXPENSES DISTRIBUTOR INCURS TO CARRY OUT THE PERTINENT ACTIVITIES AS SPECIFIED IN ARTICLE 3 AND 4.3 FOR THE TERM OF THIS AGREEMENT AND THE YEARLY TOTAL AMOUNT OF SUCH REIMBURSEMENT SHALL BE LIMITED TO USD 30,000,0 00 ASSIGNED BY SEC. 4.2 DISTRIBUTOR SHALL SUBMIT TO SEC A DETAILED IMPLEMENTATION PLAN PURSUANT TO THE ANNUAL MARKETIN G FUND SCHEDULE IN WRITING AT LEAST TWO WEEKS IN ADVANCE O F THE PROPOSED IMPLEMENTATION DATE FOR APPROVAL OF SAID ACTIVITIES . DISTRIBUTOR SHALL BE ENTITLED TO CLAIM A REIMBURSEM ENT FOR THE EXPENSES HEREOF ONLY WHEN EXECUTION OF SUCH ACT IVITIES ARE PRE-APPROVED BY SEC IN A MANNER STATED HEREIN. 4.3 THE EXTENT OF THE MARKETING FUND RELATED ACTIV ITIES TO BE REIMBURSED SHALL BE LIMITED TO THE FOLLOWING: CATEGORY ACTIVITIES ADVERTISING BROADCAST MEDIA, PRINT MEDIA, OUTDOOR AD. SPONSOR, INTENT AND PR MARKETING INFRASTRUCTURE MARKET RESEARCH, CONSULTING, MARKET DATA SUBSCRIPTION DATABASE OTHER MARKETING INFRASTRUCTURE ACTIVITIES PROMOTION SALES PROMOTION ACTIVITIES DEALER SUPPORT ACTIVITIES (DEALER CONVENTION, PRODUCT TRAINING, INCENTIVE TOUR) EXHIBITION, TRADE, ROADSHOW SALES KIT AND POP MATERIALS SHOP DISPLAY SAMSUNG SHOP CORNER RACK & SHOP LIGHT BOX OTHER STORE DISPLAY ACTIVITIES A PERUSAL OF THE AFORESAID TERMS OF THE MDF AGREEME NT SHOWS THAT THE REIMBURSEMENT OF A PORTION OF THE ADVERTIS ING AND MARKETING EXPENDITURE INCURRED BY THE ASSESSEE BY I TS AE IS ON A PREAPPROVAL BASIS AND UNDER AN ANNUAL BUDGET DECIDE D SOLELY BY THE AE. THE NATURE OF REIMBURSEMENT RECEIVED IS A F ORM OF ASSISTANCE OR SUBSIDY AND DOES NOT ARISE ON ACCOUNT OF ANY SERVICE RENDERED BY THE ASSESSEE. THERE IS NO OBLIG ATION ON THE AE TO APPROVE ANY PARTICULAR ITEM OF EXPENDITURE. I T IS SOLELY ON ITS OWN VOLITION THAT THE AE DETERMINES THE ACTIVIT Y IT WANTS TO FINANCE/REIMBURSE/ASSIST. THEREFORE, IT IS NOT POSS IBLE TO INFER THE EXISTENCE OF AN INTERNATIONAL TRANSACTION BEYOND WH AT HAS BEEN REIMBURSED. ITA NO.9481/DEL./2019 16 42. IN A SIMILAR SITUATION, COORDINATE BENCH OF THI S TRIBUNAL HAS EXAMINED THE ISSUE OF EXISTENCE OF AN INTERNATIONA L TRANSACTION IN THE CASE OF PEPSICO INDIA HOLDINGS PVT. LTD. V. ADDL. CIT (I.T.AS. NO. 1334/CHANDI/2010, 1203/ CHANDI /2011, 2511/DEL/2013, 1044/DEL/2014 & 4516/DEL/2016) WHERE THE ASSESSEE, AN INDIAN COMPANY HAD REIMBURSED A PORTIO N OF THE SPONSORSHIP EXPENDITURE (FOR INTERNATIONAL CRICKET EVENTS) INCURRED BY THE AE FOR THE BENEFIT OF CERTAIN GROUP COMPANIES INCLUDING THE ASSESSEE. THE REVENUE HAD CONTENDED T HAT BY VIRTUE OF THIS REIMBURSEMENT THE ENTIRE AMP EXPENDITURE OF THE ASSESSEE SHOULD BE TREATED AS AN INTERNATIONAL TRAN SACTION AND SUBJECT TO DETERMINATION OF ARMS LENGTH PRICE UNDE R CHAPTER X OF THE ACT. THIS VIEW WAS CATEGORICALLY REPELLED BY THE COORDINATE BENCH BY OBSERVING AS BELOW: 52. IN ANY CASE, IF AT ALL, ALP WAS TO BE DETERM INED THEN IT SHOULD HAVE BEEN STRICTLY CIRCUMSCRIBED TO THE REIMBURSEMENT OF THE COST AGGREGATING TO RS.33,60,15,501/-. FURTHER, THE TRANSACTION OF REIMBURSEMENT OF EXPENDITURE OF RS.33,60,15,501/- CANNOT BE EXPANDED TO THE ENTIRE EXPENDITURE OF AMP OF RS.202.34 CRORES. THE REASON BEING, THE AMOUNT OF RS.202.34 CRORES HAVE BEEN INCURRED BY THE ASSESSEE ON ITS OWN VOLITION AND BUSINESS REQUIREMENT TO BE IN COMPETITION WITH OTHER BIG PLAYERS IN THE FIELD OF AERATED AND NON-AERATED BEVERAGES AND FOOD PRODUCTS. IT IS ACCLAIMED FACT THAT INDUSTRY IN WHICH ASSESSEE COMP ANY IS OPERATING HAS TO FACE STIFF COMPETITION NOT ONLY FR OM THE INDIAN COMPANIES BUT ALSO FROM MANY MULTINATIONAL COMPANIES; AND TO REMAIN IN THE COMPETITION AS A LE AD BRAND IT HAS TO AGGRESSIVELY PROMOTE ITS PRODUCT UN DER THE BRAND TO REMAIN IN THE COMPETITION AND TO AUGMENT I TS SALE. ALL THE NECESSARY FUNCTIONS OF STRATEGIZING, ADVERTISING AND MARKETING ACTIVITIES, ITS IMPLEMENT ATION FOR MARKET PENETRATION IN INDIA IS SOLELY CARRIED O UT BY THE ASSESSEE AND THERE IS NO MATERIAL ON RECORD TO INFE R THAT THERE IS ANY ARRANGEMENT OR AGREEMENT WITH THE AE A T ANY POINT OF TIME THAT ASSESSEE IS REQUIRED TO SPEN T ON AMP OR IT HAS BEEN DONE AT THE BEHEST OF THE AE. TH E REASON ADOPTED BY THE REVENUE TO CONCLUDE THAT THE INCURRENCE OF AMP EXPENDITURE BY THE ASSESSEE FOR PROMOTING THE BRANDS WHICH IS OWNED BY ITS AE CONSTITUTING A SEPARATE INTERNATIONAL TRANSACTION F OR THE PURPOSE OF SECTION 92B WHICH REQUIRES SEPARATE BENC H MARKING, DOES NOT HAS ANY LEGS TO STAND, BECAUSE TH E REVENUE HAS FAILED TO SHOW THE EXISTENCE OF ANY AGREEMENT, UNDERSTANDING OR ARRANGEMENT BETWEEN THE ASSESSEE COMPANY AND AE REGARDING THE QUANTUM OF AMP SPENT OR IT WAS SPENT ON BEHEST OF AE. THE TPO HAS ITA NO.9481/DEL./2019 17 NOT RECORDED OR IDENTIFIED ANY SUCH SEPARATE ARRANG EMENT OR AGREEMENT THAT AMP EXPENSES INCURRED BY THE ASSE SSEE COMPANY ARE IN PURSUANCE OF ANY AGREEMENT OR ARRANGEMENT. IT IS ALSO NOT THE CASE OF THE DEPARTM ENT THAT THE EXPENSES WHICH HAS BEEN INCURRED BY THE AS SESSEE COMPANY DURING THE COURSE OF ITS BUSINESS HAVE ANY BEARING WHATSOEVER ON ANY OTHER INTERNATIONAL TRANSACTION WITH THE AE, OTHER THAN REIMBURSEMENT O F EXPENDITURE OF RS.33.60 CRORES AS DISCUSSED ABOVE. 53. SECTION 92B DEFINES THE INTERNATIONAL TRANSACTI ON IN THE FOLLOWING MANNER: - (1) FOR THE PURPOSES OF TH IS SECTION AND SECTIONS 92, 92C, 92D AND 92E, INTERNA TIONAL TRANSACTION MEANS A TRANSACTION BETWEEN TWO OR MOR E ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON- RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVISION OF SE RVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSACTIO N HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AND SHALL INCLUDE A MUTUAL AGRE EMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR F ACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUC H ENTERPRISES. FROM THE PLAIN READING OF THE AFORESAID SECTION, IT IS QUITE CLEAR THAT: (I) THE TRANSACTION HAS TO BE BETWEEN T WO OR MORE ASSOCIATED ENTERPRISES EITHER OR BOTH OF WHOM ARE NON-RESIDENT; (II) THE TRANSACTION IS IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE P ROPERTY OR PROVISION OF SERVICES OR LENDING OR BORROWING MO NEY; (III) OR ANY OTHER TRANSACTION HAVING BEARING ON TH E PROFITS, INCOME, LOSS OR ASSETS OF SUCH ENTERPRISES ; (IV) ALL SUCH NATURE OF TRANSACTION DESCRIBED IN THE SECTION WILL ALSO INCLUDE MUTUAL AGREEMENT AND THE ARRANGEMENT BETWEEN THE PARTIES FOR ALLOCATION OR APPORTIONMENT OR ANY CONTRIBUTION TO ANY COST OR EXPENSES INCURRED O R TO BE INCURRED IN CONNECTION WITH BENEFIT, SERVICES AND F ACILITY PROVIDED TO ANY OF SUCH PARTIES. RELEVANT EXPLANATI ON TO SECTION 92B AS INSERTED BY THE FINANCE ACT, 2012 RE ADS AS UNDER: - I. THE EXPRESSION 'INTERNATIONAL TRANSACT ION' SHALL INCLUDE (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF INTANGIBLE PROPERTY , INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISIO N OF USE OF RIGHTS REGARDING LAND USE, COPYRIGHTS, PATEN TS, TRADEMARKS, LICENCES, FRANCHISES, CUSTOMER LIST, MA RKETING CHANNEL, BRAND, COMMERCIAL SECRET, KNOW-HOW, INDUST RIAL PROPERTY RIGHT, EXTERIOR DESIGN OR PRACTICAL AND NE W DESIGN ITA NO.9481/DEL./2019 18 OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE; CLAUSE (II) OF THE SAID EXPLANATION READS AS FOLLOW S II. THE EXPRESSION 'INTANGIBLE PROPERTY' SHALL INCLUDE (A) MARKETING RELATED INTANGIBLE ASSETS, S UCH AS, TRADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS;.. THUS, UNDER THE EXPANDED DEFINITION OF THE TERM INTERNATIONAL TRANSACTION INTANGIBLE PROPERTY HAS BEEN DEFINED TO INCLUDE MARKETING RELATED INTANGIBLE ASS ETS SUCH AS TRADEMARK, TRADE NAME, BRAND NAME AND LOGOS , ETC. THIS INTER ALIA MEANS THAT WHERE TWO AES ENGAG ED IN THE TRANSACTION WHICH INVOLVED, PURCHASE, SALE, TRA NSFER, LEASE OR USE OF INTANGIBLES RIGHTS THEN THE SAME SH ALL BE CLASSIFIED AS INTERNATIONAL TRANSACTION. FROM THE A BOVE, DEFINITION, APART FROM TRANSACTION RELATING TO PURC HASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, S ERVICES LENDING OR BORROWING MONEY, ETC. FUNCTIONS HAVING BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS IS RECKONED AS INTERNATIONAL TRANSACTION. BESIDES THIS , IF SUCH A TRANSACTION IS BASED ON ANY MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN THE AES FOR ALLOCATION OR ANY CONTRIBUTION TO ANY COST OR EXPENDITURE INCURRED OR TO BE INCURRED FOR THE BENEFIT, SERVICE OR FACILITY, THEN ALSO SUCH AN AGREEMENT OR ARRANGEMENT IS TREATED AS INTERNATI ONAL TRANSACTION. CLAUSE (V) OF SECTION 92F READS AS UNDER: 92F (V). TRANSACTION INCLUDES AN ARRANGEMENT, UNDERSTANDIN G OR ACTION IN CONCERT, - (A) WHETHER OR NOT SUCH ARRANG EMENT, UNDERSTANDING OR ACTION IS FORMAL OR IN WRITING; OR (B) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCE EDINGS. THIS DEFINITION OF TRANSACTION HAS TO BE READ IN CONJUNCTION WITH THE DEFINITION GIVEN IN SECTION 92 B, WHICH MEANS THAT THE TRANSACTION HAS TO BE FIRST IN THE NATURE GIVEN IN SECTION 92B (1); AND THEN WHEN SUCH TRANSACTION INCLUDES ANY KIND OF ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT AMONGST THE PART IES, WHETHER IN WRITING OR FORMAL, THEN TOO IT IS TREATE D AS INTERNATIONAL TRANSACTION. HERE THE CONJOINT READIN G OF BOTH THE SECTIONS LEAD TO AN INFERENCE THAT IN ORDE R TO CHARACTERIZED AS INTERNATIONAL TRANSACTION, IT HAS TO BE DEMONSTRATED THAT TRANSACTION AROSE IN PURSUANT TO AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT. SU CH AN ARRANGEMENT HAS TO BE BETWEEN THE TWO PARTIES AN D NOT ANY UNILATERAL ACTION BY ONE OF THE PARTIES WITHOUT ANY BINDING OBLIGATION ON THE OTHER OR WITHOUT ANY MUTU AL ITA NO.9481/DEL./2019 19 UNDERSTANDING OR CONTRACT. IF ONE OF THE PARTY BY I TS OWN VOLITION IS ENTERING ANY EXPENDITURE FOR ITS OWN BU SINESS PURPOSE, THEN WITHOUT THERE BEING ANY CORRESPONDING BINDING OBLIGATION ON THE OTHER OR ANY SUCH KIND OF AN ARRANGEMENT ACTUALLY EXISTING IN WRING OR ORAL OR OTHERWISE, IT CANNOT BE CHARACTERIZED AS INTERNATIO NAL TRANSACTION WITHIN THE SCOPE AND DEFINITION OF SECT ION 92B (1). HERE, IN THIS CASE, IT HAS BEEN VEHEMENTLY ARGUED F ROM THE SIDE OF THE ASSESSEE THAT ASSESSEE-COMPANY HAD INCU RRED EXPENDITURE ON AMP TO CATER TO THE NEEDS OF THE CUSTOMERS IN THE LOCAL MARKET AND SUCH AN EXPENDITU RE WAS NEITHER INCURRED AT THE INSTANCE OR BEHEST OF O VERSEAS AE NOR THERE WAS ANY MUTUAL UNDERSTANDING OR ARRANGEMENT OR ALLOCATION OR CONTRIBUTION BY THE AE TOWARDS REIMBURSEMENT OF ANY PART OF AMP EXPENDITUR E INCURRED BY IT FOR THE PURPOSE OF ITS BUSINESS. IF NO SUCH UNDERSTANDING OR ARRANGEMENT EXISTS, THEN NO TRANSA CTION OR INTERNATIONAL TRANSACTION COULD BE SAID TO BE IN VOLVED BETWEEN THE AE AND THE ASSESSEE WHICH CAN BE RECKON ED TO BE COVERED WITHIN THE PROVISION OF TRANSFER PRIC ING REGULATION. THE INCURRING OF EXPENDITURE BY THE ASS ESSEE IS IN FACT PURELY A DOMESTIC TRANSACTION BY A DOMES TIC ENTERPRISE WITH A THIRD PARTY IN INDIA FOR ITS OWN BUSINESS PURPOSE. EVEN THE REIMBURSEMENT, AS DISCUSSED ABOVE , BY THE ASSESSEE TO ITS AE WAS IN LIEU OF SPONSORSHIP F EE PAID TO ICC WHICH AGAIN WAS WHOLLY AND EXCLUSIVELY FOR T HE ASSESSEES OWN BUSINESS AND WAS NOT AT THE BEHEST O R MANDATE OF AE. THIS CONTENTION OF THE LEARNED COUNS EL ON THE FACE OF RECORD IS LIABLE TO BE ACCEPTED AND IN ABSENCE OF ANY MATERIAL OR ANY KIND OF ARRANGEMENT DISCOVER ED OR BROUGHT ON RECORD BY THE REVENUE, REMAINS UNREBUTTE D. THE ONUS IS ON THE REVENUE TO SHOW THAT THE TWIN REQUIREMENT OF SECTION 92B EXISTS, THAT IS, FIRSTLY , THE TRANSACTION INVOLVED WAS BETWEEN THE AE, ONE OF WHI CH IS RESIDENT AND OTHER A NON-RESIDENT WAS INVOLVED; AND SECONDLY, THE TRANSACTION OF AMP EXPENSES HAS TAKEN PLACE BETWEEN THE TWO AES (EXCEPT FOR REIMBURSEMENT OF RS.33.60 CRORE). NOW IT HAS BEEN WELL SETTLED BY TH E HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MA RUTI SUZUKI INDIA PVT. LTD. (SUPRA) THAT ONUS IS UPON TH E REVENUE TO DEMONSTRATE THAT THERE EXISTED AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AE UNDER WHICH ASSESSEE WAS OBLIGED TO INCUR EXCESS AMOUNT O F AMP EXPENSES TO PROMOTE THE BRANDS OWNED BY THE AE. THE RELEVANT OBSERVATION AND THE FINDING OF THE HON 'BLE HIGH COURT IN PARAGRAPH 60 READS AS UNDER: ITA NO.9481/DEL./2019 20 60EVEN IF THE RESORT IS HAD TO THE RESIDUARY PAR T OF CLAUSE (B) TO CONTEND THAT THE AMP SPEND OF MSIL IS ANY OTHER TRANSACTION HAVING A BEARING ON ITS PROFITS , INCOME OR LOSSES FOR A TRANSACTION THERE HAS TO BE TWO PARTIES. THEREFORE, FOR THE PURPOSES OF THE MEANS PART OF CLAUSE (B) AND THE INCLUDES PART OF CLAUSE (C,) T HE REVENUE HAS TO SHOW THAT THERE EXISTS AN AGREEMENT OR ARRANGEMENT OR UNDERSTANDING BETWEEN MSIL AND SMC WHEREBY MSIL IS OBLIGED TO SPEND EXCESSIVELY ON AMP IN ORDER TO PROMOTE THE BRAND SMC 61EVEN IF THE WORD TRANSACTION TO INCLUDE ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCER T, WHETHER FORMAL OR IN WRITING, IT STILL INCUMBENT ON THE REVENUE TO SHOW THE EXISTENCE OF AN UNDERSTANDING OR AN ARRANGEMENT OR ACTION IN CONCERT BETWEEN MSIL A ND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. IN OTHER WORDS, FOR BOTH THE MEANS PART AND THE INC LUDES PART OF SECTION 92B (1) WHAT HAS TO BE DEFINITELY S HOWN IS THE EXISTENCE OF TRANSACTION WHEREBY MSIL HAS BEEN OBLIGED TO INCUR AMP OF A CERTAIN LEVEL FOR SMC FOR THE PURPOSES OF PROMOTING THE BRAND OF SMC. SAME PROPOSITION HAS BEEN UPHELD BY THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF WHIRLPOOL OF INDIA LTD. V S. DCIT, BAUSCH & LOMB EYECARE INDIA PVT. LTD. VS. ACI T (SUPRA) AND HONDA SIEL POWER PRODUCTS LTD. VS. DCIT (SUPRA) 43. IN THE PRESENT CASE WE FIND THAT THE REVENUE H AS NOT BEEN ABLE TO PLACE ANY MATERIAL TO RECORD TO SHOW OR SUG GEST THAT THE APPELLANTS AMP ACTIVITY WAS CARRIED OUT AT THE BEH EST OF ITS AE, BEYOND WHAT WAS APPROVED AND REIMBURSED UNDER THE M DF AGREEMENT. NO UNDERSTANDING OR ARRANGEMENT OR ACTI ON IN CONCERT CAN BE INFERRED FROM THE TERMS OF THE MDF AGREEMENT OR THE CONDUCT OF THE ASSESSEE TO SHOW THAT EXCESS IVE AMP EXPENDITURE HAS BEEN INCURRED AT THE BEHEST OF THE BRAND-OWNING AE. THE APPELLANT BEING ONE OF THE MAJOR PLAYERS IN THE INDIAN MARKET HAS CARRIED OUT ITS AMP ACTIVITY AND FUNCTIO N BASED ON ITS OWN JUDGEMENT AND COMMERCIAL REALITIES. REVENUE HAS NOT PLACED ANY MATERIAL OR EVIDENCE TO SHOW THAT THERE EXISTED AN UNDERSTANDING TO INCUR EXCESSIVE AMP EXPENDITURE. THE ARRANGEMENT AND UNDERSTANDING WERE LIMITED TO THE A MOUNTS AGREED TO BE PAID AS ASSISTANCE UNDER THE MDF AGREE MENT. THE AMOUNTS INCURRED AS AMP EXPENDITURE BY THE APPELLAN T UNDER THE MDF AGREEMENT HAVE ALREADY BEEN RECEIVED AS REIMBURSEMENT/ASSISTANCE AND HAVE INDISPUTABLY BEEN DISCLOSED AS AN INTERNATIONAL TRANSACTION IN FORM 3CEB AND FO RM PART OF THE TRANSFER PRICING STUDY CONDUCTED UNDER RULE 10D . THE AMP EXPENDITURE WHICH IS OUTSIDE THE AMBIT OF REIMBURSE MENT RECEIVED UNDER THE MDF AGREEMENT, HAS BEEN INCURRED BY THE ITA NO.9481/DEL./2019 21 APPELLANT ON ITS OWN VOLITION AS PER ITS OWN REQUIR EMENTS AND WITHOUT ANY INTERFERENCE OF THE AE AND HAVE BEEN PA ID TO THIRD PARTIES. 44. IN VIEW OF THE ABOVE, WE HOLD THAT THE SCOPE A ND VALUE OF INTERNATIONAL TRANSACTION CANNOT BE EXPANDED BEYOND THE REIMBURSEMENTS RECEIVED UNDER MDF AGREEMENT TO COVE R THE ENTIRE GAMUT OF AMP EXPENDITURE INCURRED BY THE ASS ESSEE DURING THE YEAR. 18. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, W E ARE OF THE CONSIDERED VIEW THAT MERELY BY APPLYING THE BLT MET HOD WHICH HAS NO LEGAL EXISTENCE AND MERELY ON THE BASIS OF M DF AGREEMENT VIDE WHICH TAXPAYER HAS RECEIVED PART REIMBURSEMENT OF THE AMP EXPENSES INCURRED BY IT DULY DISCLOSED THIS EXPENDI TURE IN FORM 3CEB AND IN TP STUDY, SO CALLED EXCESSIVE AMP EXPEN DITURE OF THE TAXPAYER CANNOT BE TREATED AS INTERNATIONAL TRANSAC TIONS U/S 92B OF THE ACT. SO, WE CANNOT INFER THE EXISTENCE OF INTE RNATIONAL TRANSACTIONS QUA AMP EXPENSES BETWEEN TAXPAYER AND AE BEYOND THE REIMBURSEMENT ALREADY MADE BY THE AE UNDER MDF AGREEMENT. 19. COORDINATE BENCH OF THE TRIBUNAL HAS ALSO EXAMI NED THE ISSUE IF THE CONCEPT OF BRAND PROMOTION IS BEING FO R THE BENEFIT OF AE AND FOUND IT NOT APPLICABLE IN CASE OF LICENSED MANUFACTURER SUCH AS THE TAXPAYER BY RETURNING FOLLOWING FINDING S :- 50. IN VIEW OF THE ABOVE, WE HOLD THAT IN CASE OF LICENSED MANUFACTURERS LIKE THE APPELLANT WHO BEAR THE FULL RISKS AND REWARDS OF MANUFACTURING AND SELLING THEIR GOODS IN THE INDIAN MARKET, THE CONCEPT OF BRAND PROMOTION BEING FOR TH E BENEFIT OF THE AE HAS NO APPLICATION AT ALL. AS REGARDS BRAND BUILDING ITA NO.9481/DEL./2019 22 EXPENSES INCURRED BY A DISTRIBUTOR WHO DOES NOT OWN THE BRAND, THE SAME NEEDS TO BE EXAMINED FROM A LONG-TERM PERS PECTIVE WHEREBY THE ABILITY OF THE DISTRIBUTOR TO RECOVER T HE ADVERTISING COSTS BY WAY OF INCREASED SALES FOR A REASONABLE PE RIOD OF TIME IS TO BE JUDGED. ONCE A DISTRIBUTOR ARRANGEMENT IN PLA CE FOR A FAIRLY LONG PERIOD OF TIME (AS IN THE PRESENT SITUATION WH ERE THE ASSESSEE IS THE DISTRIBUTOR OF SAMSUNG PRODUCTS IN INDIA), EXPENSES ON ADVERTISING CANNOT BE SUBJECTED TO A STAND-ALONE AN ALYSIS AS A SERVICE TO ITS AE ON A YEAR TO YEAR BASIS. THIS Q UESTION OF COMPENSATING AN INDIAN DISTRIBUTOR WOULD ARISE ONLY IF THE PARTIES PREMATURELY TERMINATE THE DISTRIBUTOR ARRAN GEMENT. IN SUCH AN EVENT, IF THE INDIAN DISTRIBUTOR HAS BEEN D EPRIVED OF THE OPPORTUNITY OF RECOVERING ITS INVESTMENT IN AMP, IT COULD BE A VALID REASON FOR A TRANSFER PRICING ADJUSTMENT BECA USE THIRD PARTIES WOULD NOT AGREE TO A PREMATURE TERMINATION OF THIS KIND WITHOUT DEMANDING COMPENSATION. THEREFORE, THE QUES TION OF COMPENSATING THE TAXPAYER FOR ANY LOSS SUFFERED DUE TO EXCESS AMP SPEND WOULD ARISE ONLY AT THE TIME OF SUCH PREM ATURE TERMINATION AND NOT DURING THE PENDENCY OF THE DIST RIBUTORSHIP ARRANGEMENT. THUS, IN CASE OF A ROUTINE DISTRIBUTOR , DISALLOWANCE/ADJUSTMENT ON ACCOUNT OF AMP SPEND ON THE MERE ASSUMPTION THAT THE SUPPLIER MAY TERMINATE THE AGRE EMENT IN THE FUTURE IS NOT SUSTAINABLE. A TAXPAYER CANNOT BE PEN ALIZED ON THE PRESUMPTION OF A FUTURE EVENT (WHICH MAY NOT EVEN O CCUR) WHILE IGNORING THE PRESENT FACTS AND CIRCUMSTANCES. IT IS ALSO WORTHWHILE TO NOTE THAT IN THE PRESENT CASE, THE AS SESSEE HAS NOT PAID ANY TRADE-MARK OR BRAND ROYALTY TO ITS AE FOR HAVING USED ITS BRAND. 20. COORDINATE BENCH OF THE TRIBUNAL ALSO HELD THAT THE CONCEPT OF PROTECTIVE ADJUSTMENT HAS NO PLACE IN THE LAW AN D AS SUCH CANNOT BE APPLIED BY RETURNING FOLLOWING FINDINGS :- IT IS SETTLED LAW THAT PROTECTIVE ADDITION ALONG W ITH SUBSTANTIVE ADDITION OF AN ITEM OF INCOME CAN BE MADE ONLY WHEN THE IDENTITY OF THE REAL OWNER OF THE INCOME IS UNCLEAR. THE FOL LOWING OBSERVATIONS MADE BY THE COORDINATE BENCH IN MSD PHARMACEUTICALS PVT. LTD. (SUPRA) MAKE THIS AMPLY C LEAR: THE VERY CONCEPT OF PROTECTIVE ADDITION IS RELEVA NT ONLY WHEN AN INCOME IS TO BE ADDED IN THE HANDS OF MORE THAN ONE TAXPAYER, IN A SITUATION IN WHICH THERE IS AN E LEMENT OF AMBIGUITY AS TO IN WHOSE HANDS THE SAID INCOME C AN BE RIGHTLY BROUGHT TO TAX. THAT'S NOT THE CASE BEFORE US. IN OUR HUMBLE UNDERSTANDING, THEREFORE, THE CONCEPT OF 'PROTECTIVE ASSESSMENT', AS IS KNOWN TO THE INCOME TAX LAW, HAS NO APPLICATION IN THE CASES LIKE THE ONE BEFORE US. ITA NO.9481/DEL./2019 23 52. THE LAST ISSUE BEFORE US IS: IF AMP EXPENDITURE INCURRED BY THE APPELLANT IS HEL D TO BE AN INTERNATIONAL TRANSACTION, CAN IT INCLUDE SEL LING COSTS WITHIN ITS AMBIT? FURTHER, WOULD THE APPELLAN T BE ELIGIBLE TO RECEIVE A MARK-UP ON THE AMP EXPENDITUR E TO CAPTURE THE ARMS RETURN ON THE COST? SINCE WE HAVE HELD THAT THERE IS NO INTERNATIONAL T RANSACTION IN THE NATURE OF AMP EXPENDITURE WHICH NEEDS TO BE SUB JECTED TO CHAPTER X ANALYSIS, THESE ISSUES ARE RENDERED INFRU CTUOUS AND ACADEMIC. 53. THUS, IN VIEW OF OUR FINDING GIVEN ABOVE WE HO LD THAT, NO ADJUSTMENT CAN BE MADE IN THE CASE OF THE APPELLANT ON ACCOUNT OF AMP EXPENSES AND SAME IS DIRECTED TO BE DELETED. 21. LD. AR FOR THE TAXPAYER CHALLENGING THE INTENSI TY APPROACH ADOPTED BY THE LD. TPO RELIED UPON THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF CASIO INDIA CO. PVT. LTD. VS. DCIT (2019) 107 TAXMANN.COM 307 (DELHI-TRI B) AND WIDEX INDIA (P.) LTD. VS. ACIT (2019) 108 TAXMANN.C OM 125 (CHANDIGARH TRIB.) . 22. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF CASIO INDIA CO. PVT. LTD. VS. DCIT (SUPRA) ALSO DISCARDED THE INTENSITY APPROACH IN MAKING ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE BY DETERMINING FOLLOWING FINDINGS :- 28. OTHERWISE ALSO, IT WOULD BE VERY DIFFICULT TO DETERMINE THE IMPACT OF INCREASE INTENSITY OF ADVERTISEMENT FUNCT ION ON PROFIT MARGIN, THE IMPACT OF ADVERTISEMENT ON SALE CANNOT BE DETERMINED OR QUANTIFIED IN A PARTICULAR YEAR, AND THEREFORE, EVEN IF AMP EXPENDITURE IS TO BE COMPARED WITH OTHER COM PARABLES BY APPLYING ANY METHOD, IT WOULD BE VERY DIFFICULT TO MAKE REASONABLY ACCURATE ADJUSTMENT TO THE PROFIT MARGIN S OF THE ITA NO.9481/DEL./2019 24 COMPARABLES COMPANIES. THUS, IT WOULD BE VERY DIFFI CULT TO TREAT AMP AS SEPARATE INTERNATIONAL TRANSACTION AND ANY A TTEMPT TO BENCHMARK SUCH A PRESUME TRANSACTION IN ANY MANNER WOULD BE A VERY DIFFICULT EXERCISE. 23. COORDINATE BENCH OF THE TRIBUNAL IN CASE OF WIDEX INDIA (P.) LTD. VS. ACIT (2019) (SUPRA) DISCARDED THE INTENSITY APPROACH AS A METHOD ON THE SAME LINE AS A BRIGHT LINE TEST BY RETURNING FOLLOWING FINDINGS :- 18.2 ..WHEN WE CONSIDER HOW 'INTENSITY APPROACH ' AS A METHOD WHICH HAS BEEN CARVED OUT BY THE DRP WHICH WE HAVE REFERRED TO IN THE EARLIER PART OF THIS ORDER WHILE ADVERTING TO THE OBJECTIONS POSED BY THE TAXPAYER, WE FIND OURSELVES IN AGREEMENT TO THE OBJECTIONS POSED AND WE HAVE NO HESITATION I N HOLDING THAT WHAT APPLIES TO BRIGHT LINE TEST FULLY APPLIES TO T HE INTENSITY APPROACH AS WORKED OUT IN THE FACTS OF THE PRESENT CASE AS IT IS A REVERSE OF BRIGHT LINE TEST AS ITS MIRROR IMAGE. TH E SAID MENTAL ACROBATICS AND ATHLETICS DO NOT HAVE ANY JUDICIAL S ANCTION AND CANNOT BE APPROVED. 24. LD. TPO BY ADOPTING THE INTENSITY APPROACH QUA TRADING SEGMENT AND NETWORK SEGMENT PROCEEDED TO MAKE ALTER NATIVE BENCHMARKING AS A SUBSTANTIVE ADJUSTMENT. IN AY 20 12-13, SIMILAR ADJUSTMENT WAS MADE BY THE LD. TPO BY ADOPTING THE INTENSITY APPROACH WHICH WAS HELD NOT TO BE SUSTAINABLE BY TH E COORDINATE BENCH OF THE TRIBUNAL IN ITA NO.6813/DEL/2017 FOR A Y 2012-13 ORDER DATED 07.01.2020 IN TAXPAYERS OWN CASE BY FOLLOWING THE ORDER PASSED BY THE COORDINATE BENCH OF THE TRIBUNA L IN TAXPAYERS OWN CASE IN EARLIER YEARS. ITA NO.9481/DEL./2019 25 25. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE AN D BY FOLLOWING THE AFORESAID ORDER PASSED BY THE COORDIN ATE BENCH OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT SC OPE AND VALUE OF THE INTERNATIONAL TRANSACTIONS CANNOT BE EXTENDED T O THE SO-CALLED EXCESSIVE EXPENDITURE INCURRED BY THE TAXPAYER ON A CCOUNT OF NON- ROUTINE AMP BEYOND THE REIMBURSEMENT ALREADY RECEIV ED BY THE TAXPAYER UNDER MDF AGREEMENT AND AS SUCH, ADJUSTMEN T MADE BY THE TPO ON ACCOUNT OF AMP EXPENSES IS NOT SUSTAINAB LE IN THE EYES OF LAW, HENCE ORDERED TO BE DELETED. GROUND NO.21 26. GROUND NO.21 IS NOT PRESSED, HENCE NEEDS NO ADJ UDICATION. GROUNDS NO.21 TO 25 EXCLUSION AND INCLUSION OF COMPARABLES SOUGHT FOR BY THE TAXPAYER 27. IN CASE OF TRADING SEGMENT, THE TAXPAYER IN ITS TP STUDY CHOSEN 19 COMPARABLES BY APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) WITH OPERATING PROFIT/OPERATING COST (OP/OC) AS THE PROFIT LEVEL INDICATOR (PLI) AND COMPUTED TH E MARGIN OF COMPARABLES AT 10.61% AS AGAINST MARGIN OF THE TAXP AYER AT 14.98% AND FOUND ITS INTERNATIONAL TRANSACTIONS QUA TRADING SEGMENT AT ARMS LENGTH. HOWEVER, LD. TPO IN ITS T P ANALYSIS ITA NO.9481/DEL./2019 26 REJECTED 14 COMPARABLES OUT OF THE 19 COMPARABLES A ND INTRODUCED 3 NEW COMPARABLES WITH OP/OR AS THE PLI AND COMPUTE D THE MARGIN AT 5.10% OF THE COMPARABLES. LD. TPO ALSO R ECOMPUTED THE COMPARABLES MARGIN OF TAXPAYER AT (-) 5.57% AS AGAI NST MARGIN GIVEN BY THE TAXPAYER DURING ASSESSMENT PROCEEDINGS OF (-) 2.66%. LD. TPO ALSO DENIED THE WORKING CAPITAL AND RISK AD JUSTMENT TO THE TAXPAYER AND THEREBY MADE UPWARD ADJUSTMENT OF RS.775,43,37,415/- IN THE TRADING SEGMENT. 28. LD. TPO GRANTED PROPORTIONATE ADJUSTMENT OF 74. 14%, HOWEVER DENIED THE WORKING CAPITAL AND RISK ADJUSTM ENT UNDER RULE 10B(1)(E) FOR THE PURPOSE OF DETERMINING THE ALP TO ACCOUNT FOR DIFFERENCE IN WORKING CAPITAL EMPLOYED AND RISK UND ERTAKEN BY THE APPLICANT VIS--VIS COMPARABLE COMPANY. 29. LD. DRP HOWEVER PARTLY ALLOWED THE OBJECTIONS R AISED BY THE TAXPAYER BY INCLUDING TWO COMPARABLES CHOSEN BY THE TAXPAYER, NAMELY, REDINGTON INDIA LTD. AND INGRAM MICRO INDIA LTD.. LD.DRP EXCLUDED THREE COMPARABLES, NAMELY, CELCOM I MPEX PVT. LTD., UNITED TELELINKS (BANGALORE) PVT. LTD. AND MI CROMAX INFORMATICS PVT. LTD. AND RESULTANTLY, FROM THE FIN AL SET OF 7 COMPARABLES, THE OP/OR OF THE COMPARABLE WAS REDUCE D TO 2.78%. ITA NO.9481/DEL./2019 27 30. SO, AFTER DRP ORDER, FINAL LIST OF COMPARABLES USED FOR DETERMINING THE ALP OF THE TRADING SEGMENT UNDER TN MM IS AS UNDER :- COMPANY NAME OP/OR PRIYA LTD. 2.75% INGRAM MICRO INDIA PVT. LTD. 2.68% IRIS COMPUTERS LTD. 2.95% SATAYTEJ COMMERCIAL CO. LTD. 6.28% OPTIEMUS INFRACOM LTD. 3.73% REDINGTON INDIA 3.66% OTS E-SOLUTIONS PVT. LTD. 4.52% AVERAGE 3.79% 31. AT THIS STAGE, SINCE THERE IS NO DISPUTE IN THE METHOD APPLIED BY THE LD. TPO/ DRP, THE LD. AR FOR THE TAXPAYER CO MPRESSED THE CONTROVERSY BY SEEKING EXCLUSION OF TWO COMPARABLES , NAMELY, OTS E-SOLUTIONS PRIVATE LTD. & SATAYTEJ COMMERCIAL CO. LTD. AND INCLUSION OF SPICE MOBILITY LIMITED. WE WOULD DISC USS SUITABILITY OF AFORESAID COMPARABLES FOR THE PURPOSE OF BENCHMA RKING THE INTERNATIONAL TRANSACTIONS QUA TRADING SEGMENT ONE BY ONE. EXCLUSION OF COMPARABLES SOUGHT FOR BY THE TAXPAYER OTS E-SOLUTIONS PRIVATE LTD. (OTSE) 32. THE TAXPAYER SOUGHT EXCLUSION OF OTS E-SOLUTION S PRIVATE LTD. (OTSE) ON GROUND OF FUNCTIONAL DISSIMILARITY V IS--VIS THE TAXPAYER AND RELIED UPON THE FINANCIAL STATEMENT OF OTSE FOR ITA NO.9481/DEL./2019 28 AY 2014-15, AVAILABLE AT PAGES 426 TO 495 OF THE PA PER BOOK. PERUSAL OF THE DISCLOSURE OF CHANGE IN ACCOUNTING P OLICIES AND CHANGES IN ESTIMATES EXPLANATORY (TEST BLOCK) NOTE 22-SIGNIFICANT ACCOUNTING POLICIES SHOW UNDER THE HEAD CORPORATIO N INFORMATION/ OVERVIEW THAT OTSE IS ENGAGED IN ONLINE MARKETING OF GOODS . OTSE IS ENGAGED IN TRADING OF ELECTRONICS THROUGH ITS WEBSITE WWW.GAGDETSGURU.COM AND OTHER CORPORATE CLIENTS AND IN THE CURRENT YEAR, IT HAS ALSO STARTE D SELLING GOODS THROUGH AMAZON AND SNAPDEAL.COM. ON THE OTHER HAND , THE TAXPAYER IS A SOLE SELLING AGENT OF SAMSUNG BRANDS IN INDIA. 33. LD. DR FOR THE REVENUE DREW OUR ATTENTION TOWAR DS PAGE 73 AND CONTENDED THAT TPO DID NOT HAVE AN OPPORTUNITY TO DISCUSS THE BUSINESS PROFILE OF OTSE AND AS SUCH, THIS COMPARAB LE BE REMANDED BACK TO TPO TO EXAMINE AFRESH. WE ARE OF THE CONSIDERED VIEW THAT SINCE LD. TPO WAS HAVING BENEF IT OF THE ANNUAL REPORT REFERRED TO IN THE DISCUSSION MADE AT PAGE 73 AND HAS RETAINED THIS COMPARABLE BY MERELY REFERRING TO PRO FIT & LOSS STATEMENT, NO PURPOSE WOULD BE SERVED BY REMITTING THE ISSUE BACK TO THE TPO. MOREOVER, LD. DRP WAS ALSO HAVING AN O PPORTUNITY TO EXAMINE THE FACTUAL POSITION AS TO THE FUNCTIONAL D ISSIMILARITY BETWEEN THE OTSE VIS--VIS THE TAXPAYER. ITA NO.9481/DEL./2019 29 34. SO, KEEPING IN VIEW THE FACT THAT OTSE IS A ROU TINE DISTRIBUTOR/SUPPLY CHAIN SHOWS THAT THE FUNCTIONS P ERFORMED, RISK ASSUMED AND EXPECTED REWARD IS NOT COMPARABLE TO TH E TAXPAYER. THE TAXPAYER IS ALSO PERFORMING CRITICAL FUNCTIONS SUCH AS QUALITY CONTROL AND POST SALE/WARRANTY SUPPORT AS A ROUTINE DISTRIBUTOR WHEREAS OTSE BEING AN AGGREGATOR PROVIDES A PLATFOR M FOR SALE OF ELECTRONIC PRODUCTS OF MULTIPLE BRANDS AND AS SUCH HAVING A DIFFERENT BUSINESS MODEL VIS--VIS TAXPAYER HAVING ROUTINE BUY-SELL MODEL. SO, IN THESE CIRCUMSTANCES, WE ARE OF THE C ONSIDERED VIEW THAT OTSE IS NOT A SUITABLE COMPARABLE VIS--VIS TH E TAXPAYER HENCE ORDERED TO BE EXCLUDED. SATAYTEJ COMMERCIAL CO. LTD. (SATAYTEJ) 35. THIS IS TAXPAYERS COMPARABLE. THE TAXPAYER SO UGHT EXCLUSION OF SATAYTEJ AS A COMPARABLE ON GROUND OF DIFFERENT BUSINESS PROFILE AS WELL AS ON THE GROUND THAT THE TPO HAS RESORTED TO CHERRY PICKING BY USING SATAYTEJ AND AT THE SAME TIME, REJECTED OTHER COMPARABLES, NAMELY, ADS DIAGNOSTICS LTD., AD VANCED MICRONIC DEVICES LTD. AND FRONTLINE ELECTRO MEDICAL LTD. ON THE SAME REASONING THAT THESE COMPARABLES ARE ENGAGED I N SALE OF MEDICAL EQUIPMENTS. NO DOUBT, THIS IS TAXPAYERS O WN COMPARABLE BUT SINCE THERE IS NO ESTOPPEL AGAINST STATUTE AND ANY CLAIM WRONGLY MADE CAN BE WITHDRAWN AT ANY STAGE AND AS SUCH, CON TENTIONS ITA NO.9481/DEL./2019 30 RAISED BY THE LD. DR THAT THE TAXPAYER CANNOT BE AL LOWED TO REPROBATE AND APPROBATE QUA THIS COMPARABLE IS NOT SUSTAINABLE. 36. PERUSAL OF PAGES 66 & 67 OF THE ANNUAL REPORT FOR FY 2013-14 GOES TO PROVE THAT SATAYTEJ IS INTO THE SAL E OF SURGICAL AND MEDICAL EQUIPMENT WHICH IS NOT COMPARABLE TO TAXPAY ER. EVEN OTHERWISE, WHEN THE TAXPAYER HAS HIMSELF REJECTED O THER 3 COMPARABLES ON THE GROUND THAT THOSE COMPARABLES AR E ENGAGED IN SALE OF MEDICAL EQUIPMENTS WHICH IS NOT COMPARABLE TO THE BUSINESS OF THE TAXPAYER, HE IS REQUIRED TO ADOPT T HE PRINCIPLE OF CONSISTENCY. HOWEVER, SINCE IT IS A FACTUAL ISSUE THE SAME MUST BE REEXAMINED BY THE TPO. SO, THIS COMPARABLE IS REMI TTED BACK TO THE TPO TO EXAMINE AFRESH AFTER PROVIDING AN OPPORT UNITY OF BEING HEARD TO THE TAXPAYER. INCLUSION OF COMPARBALE SOUGHT FOR BY THE TAXPAYER SPICE MOBILITY LTD. (SPICE) 37. THE TAXPAYER SOUGHT INCLUSION OF SPICE TO BENCH MARK THE INTERNATIONAL TRANSACTIONS QUA TRADING SEGMENT ON T HE GROUND THAT THE COORDINATE BENCH OF THE TRIBUNAL VIDE ITS ORDER DATED 04.10.2019 FOR AYS 2005-06 TO 2011-12 DIRECTED TO INCLUDE THIS COMPARABLE IN THE FINAL SET OF COMPARABLES IF QUART ERLY RESULTS ARE AVAILABLE AND INFORMATION CAN BE EXTRAPOLATED. ITA NO.9481/DEL./2019 31 38. LD. TPO / DRP HAVE REJECTED THIS COMPARABLE ON THE GROUND THAT IT FAILS DIFFERENT FINANCIAL YEAR ENDED FILTER . WE ARE OF THE CONSIDERED VIEW THAT NO COMPARABLE CAN BE REJECTED MERELY ON THE GROUND THAT ITS FINANCIAL YEAR IS DIFFERENT PARTICU LARLY WHEN RESULT CAN BE EXTRAPOLATED USING QUARTERLY RESULTS. THIS POSITION OF LAW HAS NOT BEEN DISPUTED BY THE LD. DR FOR THE REVENUE . SO, IN THESE CIRCUMSTANCES, THIS COMPARABLE IS ALSO REMITTED BAC K TO THE LD. TPO TO DECIDE AFRESH BY PROVING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER AND SHALL PROVIDE NECESSARY DATA TO EXTRAP OLATE THE RESULTS BY USING QUARTERLY RESULTS. INCORRECT MARGIN COMPUTATION BY THE TAXPAYER OF THE COMPARBALES 39. THE TAXPAYER CHALLENGED THE MARGIN COMPUTED BY THE LD. TPO OF THE TAXPAYER AS WELL AS COMPARABLES BEING IN CORRECT. IT IS THE CASE OF THE TAXPAYER THAT OP/OR OF THE TAXPAYER IS (-) 2.66% WHEREAS LD. TPO COMPUTED AT (-) 5.57% BY TREATING O THER INCOME AS NON-OPERATING AND ALSO USED IN OPERATING COST WITHO UT ANY BASIS. 40. THE LD. TPO HAS ALLOCATED THE DIRECT COST TO CO MPUTE THE MARGIN WHICH CANNOT BE. THE TAXPAYER HAS GIVEN COMP ARATIVE ANALYSIS AS PER TAXPAYER AND LD. TPO WHICH IS EXTRA CTED FOR READY PERUSAL AS UNDER :- ITA NO.9481/DEL./2019 32 MARGIN COMPUTATION OF APPELLANT (TRADING SEGMENT) PARTICULARS AS PER ASSESSEE AS PER TP ORDER INCOME NET SALES 98,054,150,814 98,054,150,814 OTHER INCOME 388,895,918 NON-OPERATING OPERATING INCOME (A) 98,443,046,732 98,05,41,50,814 EXPENDITURE DETAILED COMPUTATION NOT SHARED RAW MATERIALS, SPARES CONSUMED AND COST OF GOODS SOLD 86,906,341,287 PERSONNEL EXPENSES 1,952,658,059 LOGISTIC EXPENSES 578,603,705 ADVERTISING, MARKETING & PROMOTION EXPENSES (NET) 5,717,454,983 AFTER SALES SERVICE EXPENSES (NET) 2,452,913,942 IT CONSULTANCY CHARGES 294,004,504 RENT & INSURANCE 319,292,339 DEPRECIATION 88,601,947 PROVISION FOR DOUBTFUL ADVANCES 252,163,674 MISCELLANEOUS EXPENSES 2,331,706,283 LOSS/(GAIN) ON EXCHANGE FLUCTUATION (NET) 92,686,326 PROVISION FOR DOUBTFUL DEBTS 72,958,332 TOTAL EXPENDITURE 101,059,385,383 OPERATING COST (B) 101,059,385,383 103,512,299,323 OPERATING PROFIT A-B) (2,616,338,651) (5,458,148,509) OP/OR -2.66% -5.57% 41. SINCE THIS IS A FACTUAL ASPECT AND TAXPAYERS C OMPUTATION STATED TO BE CONSISTENT THROUGHOUT IN THE EARLIER Y EARS AND ACCEPTED BY THE LD. TPO, THE ISSUE IS REMITTED BACK TO THE T PO TO DECIDE ITA NO.9481/DEL./2019 33 AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEAR D TO THE TAXPAYER. TAXPAYER SOUGHT WORKING CAPITAL ADJUSTMENT 42. LD. TPO DENIED THE WORKING CAPITAL ADJUSTMENT S OUGHT BY THE TAXPAYER ON THE GROUND THAT, SINCE THE WORKING CAPITAL INDICES SUCH AS DEBTORS, CREDITORS AND INVENTORY CANN OT BE OBTAINED FOR EACH OF THE APPELLANTS SEGMENT, WORKING CAPITA L ADJUSTMENT CANNOT BE COMPUTED. 43. HOWEVER, LD. DRP ALLOWED THE WORKING CAPITAL AD JUSTMENT TO THE TAXPAYER BUT TPO AT THE TIME OF GIVING EFFECT T O THE LD. DRP ORDER HAS FAILED TO GRANT THE WORKING CAPITAL ADJUS TMENT. THE TAXPAYER HAS ALREADY GIVEN THE DETAILED WORKING CAP ITAL CALCULATION BEFORE THE TPO AS WELL AS DRP, AS IS EVIDENT FORM P AGES 840 TO 858 OF THE PAPER BOOK, DURING THE TP AS WELL AS DRP PROCEEDINGS. WORKING CAPITAL ADJUSTMENT WAS ALSO GRANTED TO THE TAXPAYER CONSISTENTLY FROM AYS 2005-06 TO 2011-12. SO, IN T HESE CIRCUMSTANCES, TPO IS DIRECTED TO GRANT THE WORKING CAPITAL ADJUSTMENT TO THE TAXPAYER AFTER DUE VERIFICATION. ITA NO.9481/DEL./2019 34 INCORRECT COMPUTATION OF PROPORTIONATE ADJUSTMENT BY THE TPO FOR TRADING SEGMENT 44. THE TAXPAYER CHALLENGED THE ADJUSTMENT MADE TO THE PROPORTION OF INTERNATIONAL TRANSACTIONS WITH AE MA DE BY THE LD. TPO INCORRECTLY WITHOUT PROVIDING ANY CALCULATION A S TO HOW THE PROPORTION WAS MADE. THE TAXPAYER GIVEN COMPARABLE ANALYSIS AS UNDER :- INTERNATIONAL TRANSACTION AMOUNT (IN INR) TOTAL VALUE OF INTERNATIONAL TRANSACTIONS AS PER FORM 3CEB A 72,924,168,988 TOTAL OPERATING INCOME (AS PER TP REPORT) B 98,443,046,732 TOTAL OPERATING EXPENDITURE (AS PER TP REPORT) C 101,059,385,383 SUM OF TOTAL OPERATING INCOME & TOTAL OPERATING EXPENDITURE D=B+C 199,502,432,115 TOTAL VALUE OF INTERNATIONAL TRANSACTION AS A PERCENTAGE OF SUM OF TOTAL OPERATING INCOME & TOTAL OPERATING EXPENDITURE E=A/D % 36.55% CORRESPONDING PROPORTION CONSIDERED BY TPO 74.13% 45. SINCE THIS IS A FACTUAL ISSUE NOT CONTROVERTED BY THE LD. DR FOR THE REVENUE THE ISSUE IS REMITTED BACK TO THE T PO TO MAKE CORRECT COMPUTATION OF PROPORTIONATE ADJUSTMENT OF INTERNATIONAL TRANSACTIONS OF THE TAXPAYER WITH ITS AE AFTER PROV IDING AN OPPORTUNITY OF BEING HEARD TO THE TAXPAYER. ITA NO.9481/DEL./2019 35 GROUNDS NO.26 TO 28 46. AO DISALLOWED SALARY EXPENDITURE OF RS.167,75,3 1,950/- PAID TO THE EXPATRIATE EMPLOYEE OF SEC, KOREA U/S 3 7(1) OF THE ACT. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF TH E TAXPAYER BY THE COORDINATE BENCH OF THE TRIBUNAL IN CASE OF TAXPAYERS PARENT COMPANY, SEC, KOREA, IN ITA NO.65 TO 70/DEL/2013 FO R AYS 2004-05 TO 2009-10, ITA NO.315/DEL/2016 FOR AY 2011 -12 AND ITA NOS.4705 & 4706/DEL/2017 FOR AYS 2012-13 & 2014 -15, COPY OF ORDER IS AVAILABLE AT PAGES 226 TO 2465 OF THE C ASE LAW COMPILATION. 47. HOWEVER, LD. DRP PASSED A CONDITIONAL ORDER THA T IN CASE APPEAL AGAINST THE ORDER PASSED BY THE TRIBUNAL HAS NOT BEEN FILED BEFORE THE HONBLE HIGH COURT, AO HAS TO DELETE THE DISALLOWANCE. UNDISPUTEDLY, ORDER PASSED BY THE TRIBUNAL IN AYS 2 005-06 TO 2011-12 (SUPRA) HAS BEEN CHALLENGED BEFORE THE HON BLE HIGH COURT. BUT WE ARE OF THE CONSIDERED VIEW THAT MERE PENDENCY OF THE APPEAL BEFORE THE HONBLE HIGH COURT UNLESS OPE RATION OF THE IMPUGNED ORDER HAS NOT BEEN STAYED IS NOT A GROUND FOR THE AO TO DECLINE THE RELIEF TO THE TAXPAYER. 48. LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF T HE AO BY CONTENDING THAT SINCE THERE IS NO TERMINATION CLAUS E IN THE ITA NO.9481/DEL./2019 36 EMPLOYMENT CONTRACT OF THE EXPATRIATE EMPLOYEE, THE SAME HAS BEEN RIGHTLY DISALLOWED. HOWEVER, WE ARE OF THE CO NSIDERED VIEW THAT SINCE DRP AFTER EXAMINING THE ISSUE HAS DIRECT ED THE AO TO DELETE THE DISALLOWANCE BUT SUBJECT TO A CONDITION THAT TRIBUNALS ORDER IS NOT CHALLENGED BEFORE THE HONBLE HIGH COU RT, THE CONTENTIONS RAISED BY THE LD. DR FOR THE REVENUE IS NOT SUSTAINABLE. 49. LD. AR FOR THE TAXPAYER CONTENDED THAT EXPATRIA TE EMPLOYEE WAS ENGAGED ON THE BASIS OF LOCAL EMPLOYMENT CONTRA CT AND PLACED ON RECORD THEIR EMPLOYMENT LETTERS, AVAILABLE AT PA GES 865 TO 872 OF THE PAPER BOOK. PERUSAL OF THE EMPLOYMENT LETTERS SHOW THAT THE TAXPAYER IS THE EMPLOYER OF EXPATRIATE EMPLOYEES EN GAGED FOR CARRYING OUT THE DAY-TO-DAY BUSINESS EFFICIENTLY AN D THAT THEY WERE GOVERNED BY THE CONDITIONS OF THE EMPLOYMENT. MORE OVER, SALARY TO THE EXPATRIATE EMPLOYEES HAVE BEEN PAID IN INDIA AFTER DEDUCTING TAX U/S 192 OF THE ACT. MOREOVER, WHEN SEC, KOREA /AE IS HAVING NO PERMANENT ESTABLISHMENT IN INDIA THE EXPATRIATE EMPLOYEES WERE WORKING UNDER THE CONTROL OF TAXPAYER TO CARRY OUT ITS BUSINESS. 50. HOWEVER, THIS ISSUE IS COVERED IN CASE OF TAXPAYERS PARENT COMPANY, SEC, KOREA, VIDE ORDER DATED 22.03.2018 RE PORTED IN (2018) 64 ITR (T) 99 (DELHI-TRIB) . IN THESE CIRCUMSTANCES, ITA NO.9481/DEL./2019 37 DISALLOWANCE MADE BY THE AO AND ACCEPTED BY THE LD. CIT (A) IS ORDERED TO BE DELETED. GROUNDS NO.29 & 30 51. GROUNDS NO.29 & 30 BEING CONSEQUENTIAL IN NATU RE NEED NO SPECIFIC FINDINGS. 52. RESULTANTLY, THE APPEAL OF THE TAXPAYER IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF AUGUST , 2020. SD/- SD/- (N.K. BILLAIYA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 31 ST DAY OF AUGUST, 2020 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A) 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.