HP India Sales Private Limited, Bangalore V. Assistant Commissioner Of Income Tax, Circle-3(1)(1), Bangalore

ITTPA 773/BANG/2022

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The case involves M/s. HP India Sales Private Ltd., which appealed against the final assessment order passed by the Assistant Commissioner of Income-tax, Circle 3(1)(1) Bangalore, concerning the assessment year 2018-2019. The primary contention was regarding the Transfer Pricing adjustment related to AMP expenses, which the assessee argued were legitimate business expenditures not constituting an international transaction. The Tribunal's decision relied heavily on previous judgments that rejected the application of the Bright Line Test for determining the arm's length nature of AMP expenses. The Tribunal also addressed corporate tax issues related to deductions for leave encashment and TDS credits, directing the Assessing Officer to verify and act accordingly.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 115253 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 06-12-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 05-12-2022
• Assessment Year: 2018-2019
• Appeal Filed On: 05-09-2022
• Other Referred Cases: Maruti Suzuki India Ltd. v. CIT, Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT, Hewlett Packard (India) Software Operation Pvt. Ltd. v. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Business expenditure; International transaction; TDS
• Section: 37; 92C; 43B; 92B; 92F; 234B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “C”, BANGALORE Before Shri George George K, JM & Shri Laxmi Prasad Sahu, AM IT(TP)A No.773/Bang/2022 : Asst.Year 2018-2019 M/s.HP India Sales Private Ltd. No.24, Salarpuria Arena Hosur Main Road Adugodi Bengaluru – 560 030. PAN : AAACC9862F. v. The Assistant Commissioner of Income-tax, Circle 3(1)(1) Bangalore. (Appellant) (Respondent) Appellant by : Sri.Ajay Vohra, Advocate Respondent by : Sri.Arun Kumar, CIT(TP)-2-DR Date of Hearing : 06.12.2022 Date of Pronouncement : 07.12.2022 O R D E R Per George George K, JM : This appeal at the instance of the assessee is directed against final assessment order dated 28.07.2022 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2018-2019. 2. The assessee has raised 10 grounds and various sub- grounds. Grounds 1 and its sub-grounds are general in nature and no adjudication is called for, hence, the same are dismissed. Ground 10.1 is with reference to levy of interest u/s 234B of the I.T.Act. The levy of interest u/s 234B of the I.T.Act is consequential, hence, ground 10.1 is dismissed. Ground 10.2 is with reference to initiation of penalty proceedings u/s 270A of the I.T.Act. The ground 10.2 is IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 2 premature and the same is dismissed. The surviving ground, namely, grounds 2 to 9 reads as follows:- “TP adjustment on account of Advertisement, Marketing and promotion ("AMP") expense Ground no. 2: TP adjustment of INR 1,25,18,85,488 on account of alleged excess AMP expenditure pertaining to trading segment AMP expenditure not an international transaction: 2.1 The learned DRP / AO/ TPO has erred in law and on facts by alleging that the unilateral AMP expenditure, being payments made to third parties, is an "international transaction" as per the provisions of Section 92B of the Act. 2.2 The learned DRP / AO/ TPO has erred in law and on facts in not appreciating that there was no agreement, understanding or arrangement between the Appellant and the AE with respect to the alleged AMP expenditure. 2.3 The learned DRP / AO/ TPO has erred in law and on facts by not appreciating that no transfer pricing adjustment can be made in respect of AMP expenses, where the expenses are legitimate, bonafide and deductible business expenditure. 2.4 The learned DRP / AO/ TPO has erred in law and on facts by disregarding various judicial an specific jurisdictional pronouncements in making a TP adjustment for AMP for the Appellant who is engaged in distribution. 2.5 The learned DRP / AO/ TPO has erred in law and on facts in presuming that an international transaction of brand promotion for the AE has taken place without bringing on record any tangible and reliable evidence on the benefits derived by the AE. 2.6 Without prejudice to the above, the learned DRP / AO / TPO erred in recognizing that even if a mark-up is to be applied on AMP, the same could have been charged only on the value added expenses incurred by the Appellant and not on the entire quantum. 2.7 The learned DRP / AO/ TPO has failed to consider that the alleged AMP expenses were incurred exclusively in relation to the Appellant's business, which is also evident from the fact that the expenditure have been allowed by the IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 3 learned AO under section 37 of the Act. Notwithstanding and without prejudice to the above grounds that the AMP expenditure incurred by the Appellant does not constitute an international transaction under Chapter X of the Act, the Appellant craves to raise following grounds on merits: Ground No.3: Selling expenses in the nature of sales promotions costs cannot be considered as part of the brand promotion / AMP expense 3.1 The learned DRP / AO/ TPO has erred in law and on facts in considering expenses in the nature of sales promotion as expenses leading to brand promotion as a part of the alleged AMP / brand promotion expenses without due consideration to the Appellant's submissions. 3.2 The learned DRP / AO/ TPO has erred in law and on facts in not considering the several judicial precedents, stating that selling expenses are not in the nature of AMP. Ground No.4: Alleged DEMPE functions undertaken by the Appellant 4.1 The learned DRP / AO/ TPO have erred in law and on facts in concluding that the Appellant contributes to the development, enhancement, maintenance, protection, and exploitation ("DEMPE") of the alleged marketing intangible generated by the Appellant as a result of incurring AMP expenditure. 4.2 The learned DRP / AO/ TPO have erred in law and on facts in concluding that the distribution and AMP are two distinctive functions and failed to appreciate the aggregation approach adopted by the Appellant. 4.3 Notwithstanding and without prejudice to the above, the learned DRP / AO/ TPO erred in not appreciating the fact that even after including mark-up element in the operating cost base of the distribution segment, the adjusted net margin earned from the trading activity by the Appellant is still at arm's length. 4.4 The learned DRP / AO/ TPO have erred in applying the Bright Line Test as a rnethodology to quantify the AMP service alleged to have been rendered by the Appellant to its AE despite the fact that BLT is not legally recognized under various legal jurisprudence. IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 4 Ground No.5: Benchmarking the alleged international transaction of brand promotion service by Appellant to its AE 5.1 The learned AO / TPO has erred in laws and facts by not appreciating that no separate TP adjustment for alleged AMP expenses is warranted as the net operating profit margin earned by the Assessee with respect to trading segment is within the arm's length range of net operating profit margin earned by comparable companies as affirmed by the Ld. TPO in the TP order. 5.2 The learned AO / TPO has erred in law in not considering the detailed submissions of the Assessee that even after performing an AMP expense intensity adjustment to the comparable companies, the adjusted net margin earned from the trading activity by the Assessee is at arm's length. 5.3 The learned AO / TPO has erred in law and on facts by characterizing the incurrence of AMP expenses as a provision of brand promotion services by the Assessee to its AE requiring a mark-up. Ground No.6: Benchmarking analysis undertaken in determining the mark-up to be charged on the alleged brand promotion services 6.1 Without prejudice to the legal arguments on AMP, the learned DRP / AO/ TPO has erred in carrying out a search for identifying comparable companies in order to determine the mark-up that the Appellant should have recovered from the AE in relation to the alleged AMP expenses considered to be in the nature of brand promotion service. 6.2 The learned DRP / AO/ TPO has erred in determining the mark-up for the alleged international transaction of brand promotion services by not rejecting following companies since they fail to qualify the comparability criteria of the learned TPO. a) Majestic Research Services & Solutions Ltd Ground No.7: Companies sought for inclusion by the Appellant during the course of assessment proceedings for TNMM analysis 7.1 The learned DRP / AO/ TPO has erred in law and on facts in not accepting the following company as comparable to the Appellant despite the same passing the comparability criteria of the TPO: IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 5 a) Best IT World (India) India Private Limited, b) SPS International Limited, c) Computronix Infotech Private Limited; and d) Intex Technologies (India) Limited. Ground No.8: Other TP related grounds 8.1 The learned DRP / AO/ TPO has erred by not carrying out the determination of arm's length price as required under Section 92C of the Act read with Rule 10D of the Rules. 8.2 The learned DRP / AO/ TPO has failed to appreciate the Appellant's commercial judgment about the application of arm's length principle which is tied to the business realities. 8.3 The learned DRP / AO/ TPO has erred in law and on facts, in making several observations and findings, which are based on incorrect interpretation of law and contrary to facts of the case. Ground No.9: Corporate tax grounds 9.1 The learned DRP / AO has erred in not granting the deduction of INR 1,55,96,001 towards payments for leave encashment made during the year. 9.2 The Learned NFAC, having noted the correctness of the claim made towards brought forward TDS amounting to INR 23,39,15,241 in page 59 of the final assessment order, has erred in not grating the TDS credit on account of technical issues in the ITBA system, while passing the final assessment order, along with computation enclosed to the same.” We shall adjudicate the above grounds as under: Grounds 2 to 8 (TP Adjustment of AMP expenses) 3. The assessee is a company engaged in import of computer peripherals from its Associate Enterprises (AEs) for the sale in India. The assessee also renders certain support services to its AE’s. During the relevant previous year, the assessee had entered into various international transactions with its AEs, which are listed at page 5 of the Transfer Pricing Officer’s (TPO) order IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 6 passed u/s 92CA(3) of the I.T.Act (order dated 30.07.2022). Since the operating margin of the assessee and the margin of the comparable was within arm’s length, the international transaction of import of resale of computer and peripherals was considered to be at arm’s length. During the course of transfer pricing proceedings, the TPO did not dispute the bench mark analysis of international transaction undertaken by the assessee and accepted the same to be at arm’s length. The TPO, however, proceeded to make an adjustment of Rs.1,25,18,85,488 pertaining to advertisement, marketing and promotion (AMP) expenses. 4. Aggrieved, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide its directions dated 08.06.2022 rejected the assessee’s objections and confirmed the TP adjustment proposed by the TPO. 5. Aggrieved by the directions of the DRP, the assessee has raised this issue before the Tribunal. The learned Senior Counsel Sri.Ajay Vohra, submitted that the issue in question is squarely covered by the order of the Tribunal in assessee’s own case for assessment year 2012-2013 in ITA No.524/Bang/2013 (order dated 18.08.2022). 6. The learned Departmental Representative supported the orders of the TPO and the DRP. IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 7 7. We have heard rival submissions and perused the material on record. We find an identical issue raised in grounds 6 to 8 and its sub-grounds were considered by the Tribunal in assessee’s own case for assessment year 2012- 2013 (supra). The Tribunal in assessee’s own case followed the dictum laid down by the Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd. v. CIT reported in (2016) 381 ITR 117 (Delhi), the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT reported in (2015) 374 ITR 118 (Delhi) and directed the A.O. to delete the AMP TP adjustment and the mark up thereon. The relevant finding of the Bangalore Bench of the Tribunal in assessee’s own case for assessment year 2012-2013, reads as follows:- “8. We have heard rival submissions and perused the material on record. The issue as to whether AMP expenditure is an international transaction or not was considered by the Delhi High Court in Maruti Suzuki India Ltd. 381 ITR 117 and it was held as under:- “Step wise analysis of statutory provisions 62. If a step by step analysis is undertaken of Sections 92B to 92F, the sine qua non for commencing the transfer pricing exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with the ALP and make the transfer pricing adjustment by substituting the ALP for the contract price. 63. A reading of the heading of Chapter X ["Computation of income from international transactions having regard to arm's length price"] and Section 92 (1) which states that any income arising from an international transaction shall be computed having regard to the ALP, Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 8 price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the ALP. 64. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE. And, yet, that is what appears to have been done by the Revenue in the present case. It first arrived at the 'bright line' by comparing the AMP expenses incurred by MSIL with the average percentage of the AMP expenses incurred by the comparable entities. Since on applying the BLT, the AMP spend of MSIL was found 'excessive' the Revenue deduced the existence of an international transaction. It then added back the excess expenditure as the transfer pricing 'adjustment'. This runs counter to legal position explained in CIT v. EKL Appliances Ltd. (2012) 345 ITR 241 (Del), which required a TPO "to examine the 'international transaction' as he actually finds the same." In other words the very existence of an international transaction cannot be a matter for inference or surmise. 65. As already noticed, the decision in Sony Ericsson has done away with the BLT as means for determining the ALP of an international transaction involving AMP expenses. Revenue's contentions 66. It is contended by the Revenue that the mere fact that the Indian entity is engaged in the activity of creation, promotion or maintenance of certain brands of its foreign AE or for the creation/promotion of new/existing markets for the AE, is by itself enough to demonstrate that there is an arrangement with the parent company for this activity. It is urged that merely because MSIL and SMC do not have an explicit arrangement/agreement on this aspect cannot lead to the inference that there is no such arrangement or the entire AMP activity of the Indian entity is unilateral and only for its own benefit. According to the Revenue, "the only credible test in the context of TP provisions to determine whether the Indian subsidiary is incurring AMP expenses unilaterally on its own or at the instance of the AE is to find out whether an independent party would have also done the same." It is asserted: "An independent party with a short term agreement with the MNC will not incur costs which give long term benefits of brand & market development to the other entity. An independent party will, in such circumstances, carry out the function of development of markets only when it is adequately remunerated for the same." 67. Reference is made by Mr. Srivastava to some sample agreements between Reebok (UK) and Reebok (South Africa) and IC Issacs & Co and BHPC Marketing to urge that the level of AMP spend is a matter of negotiation between the parties together with the rate of royalty. It is further suggested that it might be necessary to examine whether in other jurisdictions the foreign AE i.e., SMC is engaged in AMP/brand promotion through independent entities or their subsidiaries without any compensation to them either directly or through an adjustment of royalty payments. Absence of a machinery provision IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 9 68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild- goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions". Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT. 69. There is nothing in the Act which indicates how, in the absence of the BLT, one can discern the existence of an international transaction as far as AMP expenditure is concerned. The Court finds considerable merit in the contention of the Assessee that the only TP adjustment authorised and permitted by Chapter X is the substitution of the ALP for the transaction price or the contract price. It bears repetition that each of the methods specified in S.92C (1) is a price discovery method. S.92C (1) thus is explicit that the only manner of effecting a TP adjustment is to substitute the transaction price with the ALP so determined. The second proviso to Section 92C (2) provides a 'gateway' by stipulating that if the variation between the ALP and the transaction price does not exceed the specified percentage, no TP adjustment can at all be made. Both Section 92CA, which provides for making a reference to the TPO for computation of the ALP and the manner of the determination of the ALP by the TPO, and Section 92CB which provides for the "safe harbour" rules for determination of the ALP, can be applied only if the TP adjustment involves substitution of the transaction price with the ALP. Rules 10B, 10C and the new Rule 10AB only deal with the determination of the ALP. Thus for the purposes of Chapter X of the Act, what is envisaged is not a quantitative adjustment but only a substitution of the transaction price with the ALP. 70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. 71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on application of the BLT, is IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 10 excessive, thereby evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. 72. As rightly pointed out by the Assessee, while such quantitative adjustment involved in respect of AMP expenses may be contemplated in the taxing statutes of certain foreign countries like U.S.A., Australia and New Zealand, no provision in Chapter X of the Act contemplates such an adjustment. An AMP TP adjustment to which none of the substantive or procedural provisions of Chapter X of the Act apply, cannot be held to be permitted by Chapter X. In other words, with neither the substantive nor the machinery provisions of Chapter X of the Act being applicable to an AMP TP adjustment, the inevitable conclusion is that Chapter X as a whole, does not permit such an adjustment. 73. It bears repetition that the subject matter of the attempted price adjustment is not the transaction involving the Indian entity and the agencies to whom it is making payments for the AMP expenses. The Revenue is not joining issue, the Court was told, that the Indian entity would be entitled to claim such expenses as revenue expense in terms of Section 37 of the Act. It is not for the Revenue to dictate to an entity how much it should spend on AMP. That would be a business decision of such entity keeping in view its exigencies and its perception of what is best needed to promote its products. The argument of the Revenue, however, is that while such AMP expense may be wholly and exclusively for the benefit of the Indian entity, it also enures to building the brand of the foreign AE for which the foreign AE is obliged to compensate the Indian entity. The burden of the Revenue's song is this: an Indian entity, whose AMP expense is extraordinary (or 'non-routine') ought to be compensated by the foreign AE to whose benefit also such expense enures. The 'non- routine' AMP spend is taken to have 'subsumed' the portion constituting the 'compensation' owed to the Indian entity by the foreign AE. In such a scenario what will be required to be benchmarked is not the AMP expense itself but to what extent the Indian entity must be compensated. That is not within the realm of the provisions of Chapter X. 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40 A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO "is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, "so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables an AO to IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 11 determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance. 76. As explained by the Supreme Court in CIT v. B.C. Srinivasa Setty (1979) 128 ITR 294 (SC) and PNB Finance Ltd. vs. CIT (2008) 307 ITR 75 (SC) in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise.” 9. The decision of the Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 374 ITR 118 was followed and it was held that the bright line test followed by the Revenue in making the AMP TP adjustment cannot be accepted. In the present case also, no material is brought on record by the TPO to establish the existence of an arrangement, understanding or action in concert with the AE for incurring the AMP expenses for the benefit of the AE. Merely because the AE has a financial interest, it cannot be presumed that AMP expenses incurred by the assessee are at the instance or on behalf of the associated enterprise. In the absence of any international transaction relating to AMP expenses, the impugned TP adjustment cannot be sustained. Moreover, the TPO having accepted the ALP of other international transactions at the entity level, proceeded to make a separate TP adjustment for the AMP expenses. At para 4.2 of the TPOs order, the TPO has given a finding that the net margins earned by the taxpayer from the product segment is 3.82% and that at the entity level is 7.29%. The margin earned by the taxpayer at the entity level as calculated by the TPO is 2.50%. Hence, no adverse inference drawn by the TPO in respect of the distribution segment results. Thus, the TPO has accepted the entity level margins earned by the assessee but proceeded to make TP adjustment on AMP expenses. The Hon’ble Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 374 ITR 118 held that once the revenue accepts the entity level margins as per the most appropriate method, it would be inappropriate to treat a particular expenditure as a separate international transaction. It was held that such an exercise would lead to unusual and absurd results. Relevant observations from the above decision in this context are as under:- IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 12 “101. However, once the Assessing Officer/TPO accepts and adopts TNM Method, but then chooses to treat a particular expenditure like AMP as a separate international transaction without bifurcation/segregation, it would as noticed above. lead to unusual and incongruous results as AMP expenses is the cost or expense and is not diverse. It is factored in the net profit of the inter- linked transaction. This would be also in consonance with Rule 10B(J)(e), which mandates only arriving at the net profit margin by comparing {he profits and loss account of the tested party with the comparable. The TN/v! Method proceeds on the assumption that functions, assets and risk being broadly similar and once suitable adjustments have been made, all things get taken into account and stand reconciled when computing the net profit margin. Once the comparables pass the functional analysis test and adjustments have been made, then the profit margin as declared when matches with the com parables would result in affirmation of the transfer price as the arm's length price. Then to make a comparison of a horizontal item without segregation would be impermissible. 10. Similarly, in the case of Maruti Suzuki India Ltd v CIT [2016] 381 ITR 117 at para 86 of the judgment, the Hon’ble Delhi High Court held as under:- "MSIL's higher operating margins 86. In Sony Ericsson Mobile Communications India (P.) Ltd. (supra) it .was held that if an Indian entity has satisfied the TNMM i.e. the operating margins of the Indian enterprise are much higher than the operating margins of the comparable companies, no further separate adjustment for AMP expenditure was warranted. This is also in consonance with Rule 10B which mandates only arriving at the net profit by comparing the profit and loss account of the tested party with the comparable. As far as MSIL is concerned. its operating profit margin is 11.19% which is higher than that of the comparable companies whose profit margin is 4.04%. Therefore, applying the TNMM method it must be stated that there is no question of TP adjustment on account of AMP expenditure.” IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 13 11. Respectfully following the above judgment of the Hon’ble Delhi High Court, we delete the AMP TP adjustment of Rs. 25,09,60,200 and the mark up thereon amounting to Rs. 3,93,75,655.” 8. The facts of the instant case being identical to the facts considered by the Tribunal in assessee’s own case for assessment year 2012-2013, we delete the TP adjustment made on AMP expenses. It is ordered accordingly. 9. Since we have deleted the TP adjustment on account of AMP expenses, the specific grounds regarding the comparables and other TP related grounds, namely, grounds 3 to 8 and its sub-grounds have become infructuous and the same are not adjudicated. Ground No.9.1 (Corporate Tax Issue) 10. In the above ground, the assessee submits that a sum of Rs.1,55,96,001 is to be allowed as deduction on payment basis u/s 43B(f) of the I.T.Act. In this context, the learned AR relied on the order of the Bangalore Bench of the Tribunal in the case of M/s. Hewlett Packard (India) Software Operation Pvt. Ltd. v. ACIT in IT(TP)A No.2866/Bang/2017 (order dated 10.03.2021). The learned DR was duly heard. 11. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of M/s. Hewlett Packard (India) Software Operation Pvt. Ltd. v. ACIT (supra) had categorically held that deduction to the extent of leave encashment, which has been actually IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 14 paid should be allowed as deduction u/s 43B of the I.T.Act. The Tribunal in assessee’s own case for assessment year 2012-2013 (supra) has also taken a similar view. The relevant finding of the Tribunal in assessee’s own case, in this regard, reads as follows:- “13. We have heard rival submissions and perused the material on record. The Calcutta High Court in Exide Industries Ltd v UOI 292 ITR 470 struck down the provisions of section 43B(f). However, the Supreme Court in UOI v Exide Industries Ltd [2020] 425 ITR 1 held that clause (f) of section 43B is constitutionally valid and operative for all purposes. Thus, the provision for leave encashment of Rs.10,68,47,430 was righty disallowed by the AO and we confirm the same. The assessee has taken an alternate plea that AO be directed to grant relief in respect of payment made towards provision for leave encashment in subsequent years. The direction to allow deduction for subsequent years is not pertaining to the year under consideration and hence we refrain from giving such directions. However, we direct the AO to verify the actual payments made during the previous year relevant to the assessment year under consideration towards leave encashment and allow the same as deduction under section 43B(f). The AO shall also ensure that the assessee does not get double deduction on provision basis and payment basis.” 12. In the light of the above orders of the Tribunal, we restore the issue raised in ground 9.1 to the files of the A.O. with the direction to allow deduction u/s 43B(f) of the I.T.Act with regard to leave encashment on actual payment basis. It is ordered accordingly. 13. In the result, ground 9.1 is allowed for statistical purposes. IT(TP)A No.773/Bang/2022. M/s.HP India Sales Private Limited 15 Ground 9.2 (Corporate Tax Issue) 14. In the above ground, it is claimed that the A.O. has not allowed appropriate credit for TDS as claimed by the assessee. The issue raised in ground 9.2 is restored to the files of the A.O. to examine the matter and grant TDS credit in accordance with law. It is ordered accordingly. 15. In the result, ground 9.2 is allowed for statistical purposes. 16. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on this 07 th day of December, 2022. Sd/- (Laxmi Prasad Sahu) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 07 th December, 2022. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The DRP-1, Bangalore. 4. The Pr.CIT-3, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore