IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "I-2" : DELHI
BEFORE SHRI BHAVNESH SAINI, J.M. AND SHRI L.P. SAHU, A.M.
ITA.No.1536/Del./2016
Assessment Year 2011-2012
Wrigley India Pvt. Ltd., The DCIT,
206, Okhla Industrial Circle-27(2),
Estate, Phase-III, vs. C.R. Building,
New Delhi.PAN New Delhi.
AAACW1789P
(Appellant) (Respondent)
ITA.No.1596/Del./2016
Assessment Year 2011-2012
The ACIT, Circle-27(2), Wrigley India Pvt. Ltd.,
Room No.408, 4th Floor, D- 206, Okhla Industrial
Block, Civic Centre, New vs. Estate, Phase-III, New
Delhi. Delhi.
PAN AAACW1789P
(Appellant) (Respondent)
Shri C.S. Agarwal,
For Assessee : Sr. Advocate
Shri H.K. Choudhary, CIT-DR
For Revenue : Ms. Nimita Pandey, SR. D.R.
Date of Hearing : 08.01.2019
Date of Pronouncement : 10.01.2019
ORDER
PER BHAVNESH SAINI, J.M.
ITA.No.1536/Del./2016 by the assessee has been
filed against the Order of the DCIT, Circle-27(2), New Delhi,
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Wrigley India Private Limited, New Delhi.
Dated 28.01.2016, for the A.Y. 2011-2012 under section
143(3) r.w.s. 144C(4) of the I.T. Act, 1961, on the following
grounds :
1. That on the facts and in the circumstances of the
case and in law, the order passed by the Learned
Assessing Officer (`Ld. AO') under section 143(3) read
with section 144C of the Act is bad in law.
2. On the in law, and in the circumstances of the case,
the Ld. AO/Transfer Pricing Officer (`Ld. TPO') and
the Dispute Resolution Panel (`Ld. Panel') erred in
making an addition of INR 18,02,86,000/- by
allegedly assuming the expenditure on account of
Advertisement, Marketing and Promotional ("AMP")
incurred by the Appellant results in international
transaction and consequently benchmarked the same
separately in the present case.
3. On the facts, in law and in the circumstances of the
case, the Ld. AO/ Ld. TPO and Ld. Panel erred in
alleging that the Appellant is rendering a service to
its Associated Enterprise (`AE') for creation of
marketing intangibles in India and proceeded to
make an adjustment completely disregarding the
binding decisions of the Jurisdictional High Court in
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Wrigley India Private Limited, New Delhi.
the case of Maruti Suzuki India Ltd. v. CIT [(2016)
237 Taxmann 256 (Delhi), thereby not following the
judicial discipline as mandated by law.
4. On the facts, in law and in the circumstances of the
case, the Ld. AO/ Ld. TPO and Ld. Panel erred in not
appreciating the characterisation of Wrigley India
and in not appreciating that;
4.1. key decisions making functions with respect to
Marketing function are performed by the
Appellant;
4.2. by testing each of the "international transactions"
(including import of raw materials and sale of
finished goods) separately, it has been clearly
demonstrated that the residual/entrepreneurial
profits, inter-alia relating to AMP functions, are
lying in the hands of Appellant in India and thus,
the AE should not reimburse the AMP expenses
incurred by the appellant;
4.3. all expenses with respect to the aforesaid activities
and the related risks and reward consistent with
the Appellant's characterisation, are to be borne by
the Appellant;
5. On the facts, in law, and in the circumstances of
the case, the Ld. AO/Ld. TPO and the Ld. Panel
erred in not appreciating the AMP expenses could
not be regarded as a 'international transaction',
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Wrigley India Private Limited, New Delhi.
under section 92B read with Section 92F(v) of the
Income Tax Act, 1961 ("the Act"), in the absence of
any understanding / arrangement / agreement
between the Appellant and its associated
enterprises ('AEs').
6. The Ld. AO/Ld. TPO and the Ld. Panel erred in not
appreciating that the AMP expenses incurred by
the Appellant represents transactions undertaken
with third parties, which under the amended law
(Finance Act 2012) were also outside the purview
of section 92BA of the Act and hence no
adjustment could be made in respect of the same.
7. On the facts and in the circumstances of the case,
the Ld. AO/Ld. TPO and the Ld. Panel, has erred
in failing to appreciate that it was commercially
expedient for the Appellant to incur the
expenditure on advertisement & sales promotion in
order to measure its revenue and market share.
8. That the Ld. AO/Ld. TPO and the Ld. Panel erred
in inappropriate application of the concept of
economic ownership vs legal ownership ignoring
the fact that economic ownership of the brand lies
in India only, therefore no cost can be attributed
for the brand building for the benefit of foreign
company.
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Wrigley India Private Limited, New Delhi.
9. On the facts and in the circumstances of the case,
the Ld. AO/Ld. TPO and the Ld. Panel, has erred
in considering the expenditure incurred in the
nature of normal business function as a service
and erroneously bifurcating the expenditure into
routine and non-routine expenditure.
10. On the facts and in the circumstances of the case,
the Ld. AO/Ld. TPO and the Ld. Panel erred in
misunderstanding the facts that the Appellant
company was "promoting" Wrigley brand and
creating marketing intangibles for the parent
company instead of appreciating that the
Appellant company was only carrying out its
business by using the well-established brand
name. In doing so the Ld. AO/Ld. TPO and the Ld.
Panel has misunderstood the use of brand in the
form of trademark i.e. brand exploitation as brand
development.
11. On the facts and in the circumstances of the case, the Ld.
AO/Ld. TPO and the Ld. Panel erred in considering that the
primary benefit of incurring AMP expense is to Wrigley
India's account and not appreciating that incidental
benefit, if any does not warrant a reimbursement.
12. The Ld. AO/Ld. TPO and Ld. Panel erred in not
appreciating the fact that the AMP expenses
cannot be considered as a controlled transaction
undertaken by the Appellant. However the same
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Wrigley India Private Limited, New Delhi.
should be constituted as a function performed by
the Appellant and not a transaction undertaken by
the Appellant.
13. On the facts, in law, and in the circumstances of
the case, the Ld. AO/Ld. TPO and the Ld. Panel
erred in applying AMP/Gross Profit ratio, a
modified form of Bright Line Test ("BLT"), for
establishing the existence of international
transaction and computing the value of adjustment
on account AMP expenditure without appreciating
that in absence of specific provision under the
Transfer Pricing Regulations in India such an
adjustment could not be made.
14. On the facts, in law and in the circumstances of
the case, the Ld. AO/Ld. TPO and Ld. Panel
grossly erred on facts and in law in concluding
that the overseas AE, being the legal owner of the
brands, should have compensated the Appellant
for alleged excess AMP expense as the AE derives
benefit from such expenses through the creation of
marketing intangible. While holding so, the Ld.
AO/ Ld. TPO;
14.1 grossly failed to appreciate that the Appellant had
incurred the AMP expense as a licensed marketer
for the purpose of its own business and incidental
benefit arising to AE, if any, was unintentional and
incidental;
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Wrigley India Private Limited, New Delhi.
14.2 . grossly erred in law in departing from the settled
principle of law that an incidental benefit to AE
would not warrant any adjustment to the income of
the Appellant;
14.3 . grossly erred on facts in concluding that benefit
arose to the AE from the AMP spend of the
Appellant without actually demonstrating/
quantifying the same;
15. That without prejudice to the contentions above, the
Ld. AO/ Ld. TPO and the Ld. Panel on the facts, in
law and in the circumstances of the case, has
erred in;
15.1 incorrectly computing the AMP intensity (AMP /
Gross Profit ratio) of the Appellant by including
trade advertising expenses, consumer promotion
expenses, point of sale material, display stands,
print costs etc. which are incurred in connection
with the sale as against the advertisement
activities;
15.2 not appreciating that the gross margin earned by
the Appellant is higher than that of the comparable
companies and accordingly is sufficient to cover
the AMP expenses;
15.3 performing the analysis based on incorrect factual
understanding of the functional profile of the
Appellant and incorrectly characterizing the
Appellant as a distributor of finished goods;
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Wrigley India Private Limited, New Delhi.
15.4 using inappropriate comparables by not adhering to
principles of comparability to determine arm's
length AMP/ Gross Profit Ratio;
15.5 . in rejecting certain comparables and decreased
the purported threshold limit by giving incorrect
arguments.
15.6 . holding that, Appellant has rendered brand
building service to the AEs by incurring the AMP
expense and by holding that an arbitrary/
abnormal mark-up of Gross Profit/Cost of goods
sold ("GP/COGS") of the comparables of 69.05
percent, has to be earned by the Appellant in
respect of the "alleged excessive" AMP expenses,
which is completely untenable and based on mere
surmises and conjectures; and
15.7 computing the adjustment on account of AMP
wrongly.
16. That the Ld. AO erred on facts and in law in levying
interest under sections 234A, 234B, 234C and
234D of the Act.
17. That on facts and in laws, the Ld.AO/Ld. Panel
erred in holding that the Appellant has furnished
inaccurate particulars of income in respect of each
item of disallowance/ additions and in initiating
penalty proceedings under section 271 (1) (c) of the
Act.
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Wrigley India Private Limited, New Delhi.
That the above grounds of appeal are independent
and without prejudice to each other."
2. ITA.No.1596/Del./2016 by the Revenue has been
directed against the Order of the DRP-2, New Delhi, Dated
10.12.2015, for the A.Y. 2011-2012 under section 144C(5)
of the I.T. Act on the following grounds :
1. "On the facts and in the circumstances of the case, the
DRP-2 erred in directing AO to complete the assessment
as per observations made by DRP in the order which
resulting in reducing the addition to Rs. 18,02,86,000/-
in place of original recommended ALP of
Rs.20,94,17,158/- for the International transactions
undertaken the assessee company with its associate/
parent enterprise.
2. Whether the DRP was justified in not appreciating the
fact that bright line is a mere step [of the most
appropriate method for benchmarking the AMP services]
carried out to estimate and bifurcate expenditure
pertaining to the taxpayer for its own routine
distribution function and the expenditure incurred on
AMP service provided to the AE in a situation where the
assessee has not reported the international transaction
pertaining to marketing function.
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Wrigley India Private Limited, New Delhi.
3. Whether under the facts and circumstances of the case
and in law the Hon'ble DRP was correct in holding that
PLR cannot be the basis for computing markup on AMP
expenses without appreciating the Revenue's case
wherein the PLR of banks has been used as an
uncontrolled comparable to benchmark the opportunity
cost of money involved and locked up in AMP expense?
4. Whether in the facts and circumstance of the case and
in law the Hon'ble DRP was justified in stating that
routine selling and distribution expenses would not form
part of AMP expenses) disregarding that fact that these
expenses contribute to creation of marketing intangible)
even while the same is a factor for comparability
analysis as different entities account for such
expenditure under different heads ?
3. Briefly the facts of the case are that original
return of income was filed on 28.11.2011 declaring loss of
Rs.10.77 crores which was processed under section 143(1)
of the I.T. Act. Further, revised return of income was filed on
30.03.2013 declaring loss of Rs.10.67 crores. The case was
selected for scrutiny. During the year under consideration
the assessee was engaged inter alia in the manufacture and
sale of confectionary products i.e., chewing gums, bubble
gums, lolly pops, toffees etc.
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Wrigley India Private Limited, New Delhi.
3.1. From the records it was found that assessee has
entered into international transaction with Associated
Enterprises during the year. During the course of
assessment proceedings, a reference under section 92CE
made to the TPO for determining the Arms Length Price
("ALP") of international transactions entered by the assessee
with its associate concerns. The TPO deliberated upon the
value of international transactions as shown by the
assessee in respect of creation of marketing intangibles.
After due deliberation, the TPO found the transfer pricing
report furnished by the assessee to be erroneous. The TPO
after discussion vide Order dated 29.01.2015 determined
the ALP of the international transaction relating to
marketing intangibles at Rs.23,26,06,386/-. The TPO has
directed that the A.O. shall enhance the assessee's income
by the aforesaid amount on account of creation of marketing
intangibles. The opinion of the TPO is based on a scientific
and lawful interpretation of the relevant valuation
provisions of ALP. The assessee filed an application under
section 154 before TPO. In its application, assessee has
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Wrigley India Private Limited, New Delhi.
referred to computation of upward T.P. adjustment
amounting to Rs.23,26,06,386/-. In the said computation
"total sales made by you" figure has been taken as
Rs.297.35 crores instead of Rs.318.87 crores as reported in
the audited financial statements of the assessee. After
considering the above facts, it was noted that there was
indeed an advertant mistake apparent from record in taking
an incorrect figure for total sales. Accordingly, adjustment
of Rs.23,26,06,386 made in the original order was reduced
to Rs.20,94,17,158. The assessee filed objections to the
draft assessment order before DRP. The DRP vide Order
dated 10.12.2015 directed the TPO to exclude certain
comparables i.e., routine selling and distribution expenses
and to consider GP/AMP ratios of the comparables as per
the Hon'ble Delhi High Court Order in the case of M/s. Sony
Ericson Mobile Communications India Pvt. Ltd. Accordingly,
the ALP of the international transaction was re-calculated
as per the directions of DRP by the TPO and communicated
to the A.O. to arrive at the adjustment of Rs.18,02,86,000
instead of Rs.20,94,17,158 proposed in the order.
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Wrigley India Private Limited, New Delhi.
Consequently, an adjustment of Rs.18,02,86,000/- as per
TPO's Order under section 92CA(3) of the Act was made to
the returned income and income was computed at
Rs.7,35,30,410/- vide impugned assessment order dated
28.01.2016.
3.2. The assessee is in appeal on the above grounds
claiming therein that AMP expenses could not be regarded
as an "international transaction" under section 92B r.w.s.
92F(v) of the I.T. Act, 1961.
3.3. The Revenue is in appeal challenging the Order of
DRP in reducing the addition to Rs.18.02 crores instead of
original recommended ALP at Rs.20.94 crores.
4. We have heard the Learned Representatives of
both the parties.
5. Learned Counsel for the Assessee submitted that
in earlier years in the case of assessee the Tribunal has held
that AMP expenses incurred by assessee cannot be
categorized as international transaction under section 92B
of the I.T. Act. Therefore, the issue is covered in favour of
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Wrigley India Private Limited, New Delhi.
the assessee. He has referred to Order of the Tribunal dated
31.01.2017 in the case of assessee in A.Ys. 2007-2008,
2008-2009 and 2009-2010 in ITA.No.4346/Del./2011,
6475/Del./2012 and ITA.No.826/Del./2014 in which the
Tribunal held that AMP expenses incurred by assessee
cannot be treated and categorized as an international
transaction under section 92B of the I.T. Act. He has
submitted that this order has been followed by the Tribunal
in subsequent A.Y. 2010-2011 in the case of assessee in
ITA.No.656/Del./2016 dated 25.09.2018, appeal of assessee
have been allowed. Learned Counsel for the Assessee,
therefore, submitted that since the Tribunal in its orders for
the preceding four years above have already held that no
adjustment is permissible to be made in respect of such
expenditure incurred, in view of the circumstances of the
case, therefore, departmental appeal has become
infructuous.
6. On the other hand, Ld. D.R. relied upon the
Orders of the A.O./DRP.
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Wrigley India Private Limited, New Delhi.
7. After considering the submissions of the parties,
we are of the view that the issue is covered in favour of the
assessee by Order of ITAT, Delhi Bench in the case of
assessee in four years above vide Order dated 31.01.2017
and 25.09.2018 whereby the Tribunal has held that AMP
expenses incurred by assessee cannot be treated and
categorized as an international transaction under section
92B of the I.T. Act. The Tribunal in its Order dated
25.09.2018 has followed the Order of the Tribunal dated
31.01.2017. This Order dated 25.09.2018 in paras 9 to 15
is reproduced as under :
9. "With respect to the grounds No. 2 to 111 of appeal,
it was stated by the learned authorized
representative that addition on the same ground was
made by the Learned Assessing Officer for the A Y
200708, 2008 09 and 200910 and the coordinate
bench vide order dated 31 January 2017 , has
allowed the appeal of the assessee deleting the
above additions holding that AMP expenditure
incurred by the assessee cannot be treated and
categorised as an international transactions under
section 92B of The Income Tax Act. It was stated
that the principal ground in the appeal filed by the
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Wrigley India Private Limited, New Delhi.
assessee for the assessment year 2010 11 is
therefore covered in favour of the assessee by the
order of the coordinate bench for the above three
years.
10. On the merits of the adjustment, The learned
authorized representative submitted as under:-
"1. The appellant, a private limited company, is
engaged in the manufacture and sale of confectionary
products i.e. chewing gums, bubble gums, lollipops
and toffees. The aforesaid company came into
existence in October, 1993.
2. It is a wholly owned subsidiary of M/s Wm
Wrigley Jr. Co., Chicago USA which had been
established in April, 1891.
3. For the AY 2010-11, on 24.09.2010, the appellant
filed a return disclosing aggregate loss of Rs.
42,93,17,566/-.
4. Since the appellant had undertaken eleven
international transactions with its associated enterprise
("AE"), the learned AO made a reference u/s 92CA(1)
of the Act to the learned TPO.
5. The Report from the Accountant in Form 3CEB
did not report the expenditure on AMP as an
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Wrigley India Private Limited, New Delhi.
International Transaction since the expenditure
incurred represented business expenditure allowable
u/s 37(1) of the I.T. Act and not an international
transaction under section 92B of the I.T. Act.
6. On 16.01.2014, the learned TPO however made
an order u/s 92CA(3) of the Act proposing to make an
adjustment of Rs. 73,23,49.876/- in respect of the
advertising and marketing expenditure incurred of Rs.
65,09,77,688/- by the appellant by applying BLT. The
aforesaid adjustment was made on the basis that total
sales of the appellant was Rs. 274,94,32,230/- and as
per BLT, expenditure incurred @ 4.66% of sales would
be arm's length price ("ALP") i.e. Rs. 12,81,23,541/-
and since the appellant has incurred an expenses of Rs.
77,91,01,209/- , a sum of Rs. 65,09,77,668/- was held to
have been incurred for 'creation marketing intangibles'
and hence appellant ought to have been compensated
by its AE in respect of the same and for that purpose a
markup of 12.50% was applied and ALP of the
aforesaid transaction was computed at Rs.
73,23,49,876/-.
7. Special provision relating to ALP came into force
from April, 2002. For assessment years upto the
assessment year 2006-07 the Assessing Officer accepted
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Wrigley India Private Limited, New Delhi.
the expenditure incurred on AMP as business
expenditure u/s 37(1) of the Act, and not as
expenditure incurred for the purposes of `Brand
building' of the AE. It is further submitted that for the
AY 2005-06 and 2006- 07, in orders made u/s 92CA(3)
the learned TPO made adjustment by using Cost Plus
Method, against the Transactional Net Margin Method
chosen by the appellant, in respect of international
transaction of export of finished goods. It is thus
evident that the expenditure incurred in the AY 2006-
07 on AMP which was of Rs. 30,94,79,033/- was
accepted as an expenditure incurred u/s 37(1) of the
Act and that it does not represent an international
transaction.
8. It is further clarified that for the AY 2006-07 the
expenditure incurred on AMP was of Rs.
30,94,79,033/- which has not been disputed by the
learned TPO when he accepted that the said
expenditure incurred does not represent an
international transaction. In other words, the
contention of the assessee as is reflected in its TP report
was accepted when it had not been disputed that the
said expenditure incurred did not warrant any
interference so to be regarded as an international
transaction. It is submitted that the assessee is
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Wrigley India Private Limited, New Delhi.
incurring the expenditure for its own business for
making advertisement, publicity and marketing its
products.
9. However, for the AYs 2007-08, 2008-09 and 2009-
10 the learned TPO had held expenditure on AMP to
be an international transaction. In doing so the learned
TPO, did not have the benefit of the judgment of Delhi
High Court in the case of Maruti Suzuki India Ltd. vs.
CIT which had been rendered on 11.12.2015 . The
perusal of the judgment of the High Court of Delhi at
page 143 in para 57 specifically examined the issue as
to whether AMP expenditure incurred bv the licensed
manufacturer could be regarded as an international
transaction. It held in para 87 that "the issue of arm's
length price per se does not arise when deduction
under section 37(1) is claimed". It is submitted that the
situation is identical i.e. the expenditure incurred on
AMP has been claimed as business expenditure
allowable u/s 37(1) of the Act and there is no basis for
the TPO to regard the same as an international
transaction. It is undisputed fact that the assessee is a
manufacturer and not a distributor as has been
observed by the learned TPO in his order which it is
submitted is manifestly erroneous. It appears that the
learned TPO in order to justify the adjustment, has
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Wrigley India Private Limited, New Delhi.
held the assessee to be a distributor and that too,
without any basis.
10. It is submitted that the expenditure incurred on
AMP is not an international transaction and represents
business expenditure. The learned TPO has thus
without any justification treated the same to be an
international transaction and to regard the same by
applying BLT method, which was in applicable in the
case of the appellant.
11. The appellant has been incurring expenditure on
AMP purely and wholly to promote the products
manufactured by it. The issue stands covered in favour
of the appellant by the order of the Hon'ble Tribunal
for immediately preceding three years and there has
been no change in the facts and circumstances of the
case, it is submitted the adjustment made by the
learned TPO and sustained by the Dispute Resolution
Panel is entirely unsustainable.
12. Without prejudice to the aforesaid it is submitted
that even the comparable cases selected have no
application and the bright line test, approach adopted
is also untenable. In the cases cited in paragraph 18 it
has been held by the Courts of India that BLT is
inapplicable.
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Wrigley India Private Limited, New Delhi.
13. The Ld. TPO has stated that though the appellant
is a manufacturer, yet it is a distributor also. The TPO
has erred in ignoring that every manufacturer has to
sell the goods it produces and this does not make it a
distributor.
14. Without prejudice, it is stated that the Ld. TPO
has held that the AMP expenditure incurred by the
appellant is highly excessive and should have been in
line with the expenditure being incurred by
comparable companies (i.e 4.66% of sales). However,
the comparable cases selected by the Ld. TPO are
incomparable. A statement showing the goods
manufactured by the companies cited by the TPO as
comparable cases is Annexed.
15. The contention of the appellant is that by
incurring expenses on AMP, it has not provided any
services to its AE or incurred any expenses for the
benefit of the AE.
16. The learned TPO in his order however on the
basis of ratio of LG Electronics India Pvt. Ltd. (special
bench) has held that the AMP expenditure incurred
represents international transaction. On the aforesaid
basis he held that the bright line test identifies the
expenditure attributable to the requirement of
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Wrigley India Private Limited, New Delhi.
domestic sale and those expenditure which are over
and above the requirement. Reliance by the TPO on
clause (f) in rule 1 OB (1) of the Income-tax Rules does
not advance the contention of the Income-tax
Authorities. The said clause (f) provides another
method for determining the arm's length price,
namely, "any other method as provided in rule 10AB".
The method for determination of arm's length price in
10AB is "any method which takes into account the
price which has been charged or paid, or would have
been charged or paid, for the same or similar
uncontrolled transaction, with or between non-
associated enterprises, under similar circumstances,
considering all the relevant facts". The TPO has
ignored the fact that the aforesaid clause (f) of rule
10B(1) and rule 10AB were inserted by the Income-tax
(Sixth amendment) Rules, 2012 with effect from 1
April, 2012. Therefore, these rules have no application
for the assessment year 2010-11. Even if these rules
were in force, they would have no application to the
case of the appellant because the expenditure of AMP
cannot be regarded as an international transaction.
17. However the fundamental question involved
here is that the appellant is a manufacturer and AMP
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Wrigley India Private Limited, New Delhi.
expenses have been incurred for the promotion of its
sales, the benefit of which expenses accrues solely to it.
18. The issue stands covered in favour of the
appellant by the following:
a. Maruti Suzuki Ltd. Reported in 381 ITR 117 at page 153
has specifically held in para 29 that AMP expenditure
incurred by licensed manufacturer is not an
international transaction;
b. Order passed by the Hon'ble Tribunal in the appellant's
own case for the Assessment Year 2007-08, AY 2008-09
and AY 2009-10; and
c. Order passed by the Commissioner of Income Tax
(Appeals) in the appellant's own case for AY 2012-13.
d. The appellant seeks to rely on the following judgments
where it has been held that Bright Line Test has no
application:
i. Sony Ericsson Mobile Communications India (P.)
Ltd. vs. CLI [2015] 374 ITR 118 (Delhi)
Where comparables adopted by assessee, with or
without making adjustments as a bundled transaction
had been accepted by TPO, it would be illogical and
improper to treat AMP expenses as a separate
transaction using bright line test; bright line test has no
statutory mandate and in all cases costs or
compensation paid for AMP expenses cannot be 'NIL'.
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Wrigley India Private Limited, New Delhi.
ii. Honda Siel Power Products Ltd. vs DCIT [2016]
237 Taxman 304 (Delhi)
Bright Line Test (BLT) is not a valid method for either
determining existence of international transaction or for
determination of ALP of such transaction.
iii. CIT vs. Whirlpool of India Ltd. [2016] 381 ITR 154
(Delhi)
Where revenue has been unable to demonstrate by
some tangible material that there is an international
transaction involving AMP expenses between Indian
subsidiary and foreign parent, revenue cannot proceed
to determine ALP of AMP expenses by inferring
existence of an international transaction based on bright
line test.
iv. Valvoline Cummins (P.) Ltd. vs DCIT [2017] 298
CTR 349 (Delhi)
17. Once the BLT has been declared by this Court in
Sony Ericsson Mobile Communications India (P.)
Ltd.{supra) to no longer be a valid basis for determining
the existence of or the ALP of an international
transaction involving AMP expenses, the order of the
TPO was unsustainable in law. The mere fact that the
Assessee was permitted to use the brand name
'Valvoline' will not automatically lead to an inference
that any expense that the Assessee incurred towards
AMP was only to enhance the brand 'Valvoline'. The
onus was on the Revenue to show the existence of any
arrangement or agreement on the basis of which it
25
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
could be inferred that the AMP expense incurred by the
Assessee was not for its own benefit but for the benefit
of its AE. That factual foundation has been unable to be
laid by the Revenue in the present case. On the basis of
the existing record, the TPO has found no basis other
than by applying the BLT, to discern the 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.
18. This Court has in similar circumstances in a series
of decisions including Maruti Suzuki Ltd. (supra);
Bausch & Lomb Eyecare (India) (P.) Ltd. v. Addl. CIT
[20161 381 ITR 227/237 Taxman 24/65 taxmann.com
141 (Delhi)and Honda Siel Power Products Ltd. v. Dy.
CIT [20161 237 Taxman 304/[20151 64 taxmann.com
328 (Delhikmphasized the importance of the Revenue
having to first discharge the initial burden upon it with
regard to showing the existence of an international
transaction between the Assessee and the AE.
v. LE Passage To India Tour & Travels (P.) Ltd. vs.
DCIT [2017] 391 ITR 207 (Delhi)
4. This Court is of the view that whilst L.G.
Electronics India (P.) Ltd. {supra) indicated that AMPs
were or did constitute the basis for an inquiry into the
international transaction and indicated a "bright line"
test for it, Sony Ericsson Mobile Communications India
(P.) Ltd. {supra) overruled that decision. This per se
does not mean that every endeavour will be to conclude
that all transactions reporting AMPs are to be treated as
26
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
international transactions, the facts of each case would
have to be examined for some deliberations. Whilst the
TPO and the DRP undoubtedly held that the
international transactions existed - that understanding
apparently was passed upon the pre- existing regime,
propounded in Z.G. Electronics India (P.) Ltd. {supra)
with greater clarity on account of this Court's decision in
Sony Ericsson Mobile Communications India (P.) Ltd.
{supra). The I.T.A.T. in our opinion, should have first
decided whether in the circumstances of this case, the
nature of the AMP reported, could lead to the conclusion
that there was an international transaction. When doing
so, it should have remitted the matter back for
examination to the A.O. in this case. Accordingly,
following the decision of Sony Ericsson Mobile
Communications India (P.) Ltd. {supra) and a
subsequent decision in Daikin Air conditioning India (P.)
Ltd. v. Asstt. CIT in ITA 269/2016, decided on
27.07.2016, this Court hereby remits the matter for a
comprehensive decision by the I.T.A.T. In other words,
the I.T.A.T. will decide whether the reporting of the AMP
in regard to the outbound business constitutes an
international transaction for which ALP determination
was necessary and if so, the effect thereof. The parties
are directed to appear before the I.T.A.T. on
01.02.2017. The appeal is partly allowed in the above
terms.
vi. Bausch & Lomb Eyecare (India) (P.) Ltd. vs.
Additional Commisssioner of Income-tax [2016]
381 ITR 227 (Delhi)
27
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
vii. Denso India Ltd. vs. Commissioner of Income-tax
[2016] 388 ITR 324 (Delhi)
viii. Expenditure had been incurred on account of
commercial expediency:
Knorr-Bremse India (P.) Ltd. vs. Asst. CIT 2016] 380
ITR 307 (Punjab & "
11. He further referred to the various documents
submitted in the paper book to support his claim,
such as the annual accounts of the assessee and the
methodology adopted by the assessee for
determination of ALP of the international
transactions contained therein. He further referred to
the various submissions made by the assessee
before the learned transfer pricing officer. In the end,
his submission was that the addition made by the
learned transfer pricing officer of adjustment towards
the arms length price of the international transactions
stated to be on account of advertisement, marketing
and promotion expenditure incurred by the assessee
is not sustainable.
12. The learned departmental representative
vehemently supported the order of the learned
transfer-pricing officer and the learned dispute
resolution panel 2, New Delhi. He further stated
that that the order of the coordinate bench in the case
of the assessee for earlier years has not dealt with
28
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
the whole gamut of the issues involved in the above
appeals and therefore same may not be followed.
13. We have carefully considered the rival contention
and perused the orders of the lower authorities. We
have also perused the order of the coordinate bench
in ITA number 4346, 6475 and 826 for assessment
year 2007 08, 2008 09 and 2009 10 in order
dated 31/1/2017, wherein the coordinate bench,
while dealing the ground number 5 to 15 has dealt
with the issue of advertisement, marketing and
promotion expenses expenditure incurred by the
assessee and considered by the learned transfer
pricing officer and the learned dispute resolution
panel as international transaction. The above issue
has been discussed by the coordinate bench in para
number 7 onwards of its order and relying on the
decision of the Hon'ble Delhi High Court in case of
Maruti Suzuki India Ltd, held that AMP expenditure
incurred by the appellant cannot be treated and
categorized as an international transactions u/s
92B of the act. The coordinate bench therefore held
that the learned transfer pricing officer was not
justified in making any transfer pricing adjustment in
respect of such transactions under chapter X of the
act.
29
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
14. The coordinate bench in case of the assessee for
AY 2007-08 to 2009-10 has dealt with this issue as
under :-
"7. In ground Nos. 5 to 15 has been raised the issue
of advertising, marketing and promotion expenses (in
short, AMP) The Assessing Officer was of the view that
the associated enterprise (AE) being the legal owner of
the brand should have compensated the assessee for
AMP expenses as AE derives benefit from such
expenses incurred by the assessee and the creation of
resulting marketing intangible. The assessee is a
wholly owned subsidiary of Wm. Wrigley Jr.
Co., USA (WWJC). It is engaged in the
manufacturing and sale of confectionary products like
chewing gum, bubble gums, toffees, etc. In the year
under reference it had international transactions with
its associated enterprise (AE) amounting to Rs 48.26
crores which were in the form of import of raw
materials, sale of finished goods, purchase of fixed"
assets and SAP Software,payment of royalty, receipt of
services, interest on ECB loan and cost recharge.
The TPO accepted the aforementioned international
transactions at arm's length. However, she examined
the taxpayer's advertising, marketing and promotion
(AMP) expenses mainly for the purposes of examining
30
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
as to whether the taxpayer was creating marketing
intangible for the brand name "Wingley" which was
owned by its AE. The TPO found that the taxpayer had
incurred these expenses which were much above the
average expenses incurred by the comparable
companies. According to her while the taxpayer's AMP
expenses were 16.93% of its sales similar expenses of
the comparables were only 4.32%. Applying the "bright
line" test, the TPO held that AMP expenses in excess of
4.32% of the taxpayer's sales amounted to international
transaction and the same should have been reimbursed
by the AE, Such excess expenditure was computed by
her at Rs.28.60 crores. The TPO applied a mark up of
13.04% on the aforesaid excess expenditure on the
ground that in arm's length condition an independent
enterprise would not be satisfied merely with the
reimbursement of the cost but will also expect mark-up
thereon She thus selected six comparables engaged in
provision of advertisement, publicity and allied
services and determined a mark-up of 13.04% on the
aforesaid excess AMP expenditure. The same was
computed at Rs.3.73 crores. Thus, total adjustment of
Rs. 32.33 crores was proposed to the income of the
taxpayer. The ld AR submitted that the issue raised is
fully covered in favour of the assessee by the decision
31
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
of the Hon'ble Jurisdictional High Court of Delhi in the
case of Maruti Suzuki India Ltd Vs. CIT Vide judgment
dated 11.12.2015 in ITA. 110/2014 & another. He
submitted that the assessee being a licensed
manufacturer for its domestic segment for which AMP
expenses were incurred, the benefit from these
expenses accrued solely to it and any benefit arising to
the AE was purely indirect and incidental.
8. The Id. CIT [DE|, on the other hand, placed
reliance on the orders of the authorities below.
9. Having gone through the cited decision of
Hon'ble jurisdictional High Court of Delhi in the case
of Maruti Suzuki India Ltd. (supra) we find that an
identical issue was raised before the Hon'ble High
Court. The Hon'ble High Court after discussing the
issue in detail has come to the conclusion that AMP
expenses incurred by the appellant therein, cannot be
treated and categorized as an international transaction
under section 92B of the Act. Thus, the issue has been
decided in favour of the assessee. The Hon'ble Court in
view of the above decision held further that the
question of TPO making any transfer pricing
adjustment in respect of such transaction under
Chapter X does not arise. The Hon'ble High Court has
32
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
followed its earlier decision in the case of Sony
Ericcsion Mobile Communication India P. Ltd. Vs. CIT
(2015) 374 ITR 118 (Del). Respectfully following the
ratio laid down in the cited decision of Hon'ble High
Court in the case of Maruti Suzuki India Ltd. (supra)
we hold that AMP expenses incurred by the assessee
cannot be treated and categorized as an international
transaction under section 92B of the Act and in view of
this finding, the TPO was not justified in making any
transfer pricing adjustment in respect of such
transaction under Chapter X of the Act. The ground
Nos. 5 to 14 are thus allowed in favour of the assessee.
The ground No. 15 is alternative ground with this
contention that the Id. Assessing Officer/TPO has
erred by not adhering to the principles of
comparability and in using inappropriate comparables
io determine the bright line limit. In view of the finding
on the issue raised in ground Nos. 5 to 14, the
alternative issue raised in ground No. 15 does not
stand. This ground is accordingly disposed off. "
15. The ld DR urged to not to follow the decision of
coordinate bench but could not show us any reasons
that why above order should not be followed while
deciding this appeal. The judicial discipline also
demands that, in case there is no change in the facts
33
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
and circumstances of the case, the issue decided by
the coordinate bench in assessee's own case for
earlier years on identical facts and circumstances,
should be followed by the coordinate bench while
deciding the similar issue for later years. Therefore,
respectfully following the decision of the coordinate
bench in assessee's own case, we also hold that the
transfer pricing adjustment made by the ld TPO of
Rs.73,23,49,876/- on account of arm's length price of
alleged international transaction of AMP expenditure
is unsustainable. Accordingly, ground No. 2 to ground
No. 11 of the appeal of the assessee are allowed
accordingly."
7.1. Since the issue have already been decided in
favour of the assessee by the above Orders of the Tribunal,
therefore, following the same reasoning, we hold that AMP
expenses incurred by assessee cannot be treated as an
international transaction under section 92B of the I.T. Act.
We, accordingly, set aside the Orders of the authorities
below and delete the entire addition. The Departmental
Appeal has thus become infructuous and the same is
accordingly dismissed.
34
ITA.No.1536/Del./2016 & ITA.No.1596/Del./2016
Wrigley India Private Limited, New Delhi.
8. In the result, appeal of Assessee is allowed and
appeal of Department is dismissed.
Order pronounced in the open Court.
Sd/- Sd/-
(L.P. SAHU) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 10th January, 2019
VBP/-
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT `I-2' Bench, Delhi
6. Guard File.
// BY Order //
Assistant Registrar : ITAT Delhi Benches :
Delhi.
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