Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “J” MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI OM PRAKASH KANT
PER OM PRAKASH KANT, PER OM PRAKASH KANT, AM
This appeal by the Revenue and cross by the Revenue and cross-objection by the objection by the assessee are directed against order dated 08.10.2021 passed by the assessee are directed against order dated 08.10.2021 passed by the assessee are directed against order dated 08.10.2021 passed by the Ld. Commissioner of Income Ld. Commissioner of Income-tax (Appeals)-57, Mumbai [in short 57, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2012 ‘the Ld. CIT(A)’] for assessment year 2012-13.
The grounds raised by the Revenue The grounds raised by the Revenue in its appeal in its appeal are reproduced as under: reproduced as under:
i. 'Whether on the facts and circumstances of the case and 1. i. 'Whether on the facts and circumstances of the case and 1. i. 'Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in admitting and accepting in law, the Ld. CIT(A) was justified in admitting and accepting in law, the Ld. CIT(A) was justified in admitting and accepting new evidence on the basis of different PLI of Operating new evidence on the basis of different PLI of Operating new evidence on the basis of different PLI of Operating Profit/Operating Income, which was not remanded to the rofit/Operating Income, which was not remanded to the rofit/Operating Income, which was not remanded to the TPO/AO for his report, in contravention to Rule 46A of the TPO/AO for his report, in contravention to Rule 46A of the TPO/AO for his report, in contravention to Rule 46A of the Income Tax Rules, 1962? Income Tax Rules, 1962? ii. Whether on the facts and circumstances of the case and in ii. Whether on the facts and circumstances of the case and in ii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified accepting the contentio law, the Ld. CIT(A) was justified accepting the contentio law, the Ld. CIT(A) was justified accepting the contention of the assessee based on incorrect factual data? the assessee based on incorrect factual data? iii. Whether on the facts and circumstances of the case and in iii. Whether on the facts and circumstances of the case and in iii. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in rejecting the benchmarking law, the Ld. CIT(A) was justified in rejecting the benchmarking law, the Ld. CIT(A) was justified in rejecting the benchmarking done by TPO on the basis of PLI of AMP expenses/Sales, done by TPO on the basis of PLI of AMP expenses/Sales, done by TPO on the basis of PLI of AMP expenses/Sales, without assigning any c without assigning any cogent reason and adopting and ogent reason and adopting and
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 3 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
accepting accepting accepting an an an entirely entirely entirely different different different PL PL PL of of of Operating Operating Operating Profit/Operating Income? Profit/Operating Income?
The learned CIT(A)'s order is contrary in law and deserves 2. The learned CIT(A)'s order is contrary in law and deserves 2. The learned CIT(A)'s order is contrary in law and deserves to be set aside. to be set aside.
The appellant prays that the order of the CIT(A) on the 3. The appellant prays that the order of the CIT(A) on the 3. The appellant prays that the order of the CIT(A) on the above grounds b above grounds be set aside and that of the AO be restored. e set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or The appellant craves leave to amend or alter any ground or The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of add a new ground which may be necessary at the time of add a new ground which may be necessary at the time of hearing.
The grounds raised cross The grounds raised cross-objection of the assessee are objection of the assessee are reproduced as under: reproduced as under:
Transfer Pricing grounds: Transfer Pricing grounds:
1.1 On the facts and circumstances of the case and in law, the 1.1 On the facts and circumstances of the case and in law, the 1.1 On the facts and circumstances of the case and in law, the learned Commissioner of Income learned Commissioner of Income-tax (Appeals) ["CIT(A)"] erred tax (Appeals) ["CIT(A)"] erred in rejecting the Respondent's contention that expenditure on in rejecting the Respondent's contention that expenditure on in rejecting the Respondent's contention that expenditure on Advertising, Marketing and Promotion ("AMP") Advertising, Marketing and Promotion ("AMP") Advertising, Marketing and Promotion ("AMP") is not an international transaction. international transaction.
1.2 The Respondent submits that expenditure on AMP is not 1.2 The Respondent submits that expenditure on AMP is not 1.2 The Respondent submits that expenditure on AMP is not an international transaction as held by the Hon'ble Tribunal in an international transaction as held by the Hon'ble Tribunal in an international transaction as held by the Hon'ble Tribunal in its own case vide Order(s) dated 8 July 2016 and 10 its own case vide Order(s) dated 8 July 2016 and 10 its own case vide Order(s) dated 8 July 2016 and 10 September September September 2020 2020 2020 in in in ITA ITA ITA Nos Nos Nos 4415/M/2014, 4415/M/2014, 4415/M/2014, CO CO CO No. No No 33/M/2015 and CO No. 152/M/2019 for AY 2008 33/M/2015 and CO No. 152/M/2019 for AY 2008 33/M/2015 and CO No. 152/M/2019 for AY 2008-09, 2009- 10 and 2010 10 and 2010-11 respectively.
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 4 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
Briefly stated facts of the case are that the assessee Briefly stated facts of the case are that the assessee Briefly stated facts of the case are that the assessee company is incorporated in India. It is an indirectly wholly owned subsidiary is incorporated in India. It is an indirectly wholly owned subsidiary is incorporated in India. It is an indirectly wholly owned subsidiary of Mattel Inc., USA and is engaged i of Mattel Inc., USA and is engaged in manufacturing and sales of n manufacturing and sales of ‘toys’ products of Mattel ground in India. For the year under ‘toys’ products of Mattel ground in India. For the year under ‘toys’ products of Mattel ground in India. For the year under consideration, the asessee consideration, the asessee filed return of income on 29.11.2012 filed return of income on 29.11.2012 declaring total income of declaring total income of ₹9,59,73,110/-. The return of income filed . The return of income filed by the assessee was selected for by the assessee was selected for scrutiny and statutory notices scrutiny and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and complied with. In the assessment order passed u/s 143(3) r.w.s. complied with. In the assessment order passed u/s 143(3) r.w.s. complied with. In the assessment order passed u/s 143(3) r.w.s. 144C(3) of the Act, the Assessing Officer made addition for transfer 144C(3) of the Act, the Assessing Officer made addition for transfer 144C(3) of the Act, the Assessing Officer made addition for transfer pricing adjustment of a pricing adjustment of advertising marketing and promotion (AMP) dvertising marketing and promotion (AMP) expenses of ₹4,80,31,291/ 4,80,31,291/- along with disallowance of depreciation along with disallowance of depreciation on unused plant and machinery of ₹1,73,829/- on unused plant and machinery of -. Further, the Assessing Officer vide order u/s 154 dated 30.03.2017 rectified the Assessing Officer vide order u/s 154 dated 30.03.2017 rectified the Assessing Officer vide order u/s 154 dated 30.03.2017 rectified the stment and added further sum of ₹36,86,308/- transfer pricing adjustment and added further sum of stment and added further sum of making the transfer pricing adjustment to ₹5,20,17,599/ making the transfer pricing adjustment to 5,20,17,599/-.
On further appeal, the Ld. CIT(A) deleted the transfer pricing On further appeal, the Ld. CIT(A) deleted the transfer pricing On further appeal, the Ld. CIT(A) deleted the transfer pricing adjustment following the finding of his predecessor on the issue-in- adjustment following the finding of his predecessor on the issue adjustment following the finding of his predecessor on the issue
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 5 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
dispute. Aggrieved the Revenue is in appeal before the Tribunal and the Revenue is in appeal before the Tribunal and the Revenue is in appeal before the Tribunal and the assessee is by way of cross the assessee is by way of cross-objection as reproduced above. objection as reproduced above.
We have heard rival submission of the parties on the issue We have heard rival submission of the parties on the issue We have heard rival submission of the parties on the issue-in- dispute and perused the relevant material on record. The issue-in- dispute and perused the relevant material on record. The issue dispute and perused the relevant material on record. The issue dispute is with regard to transfer pricing adjustment of AMP ith regard to transfer pricing adjustment of AMP ith regard to transfer pricing adjustment of AMP expenses. According to the Assessing Officer/Transfer Pricing expenses. According to the Assessing Officer/Transfer Pricing expenses. According to the Assessing Officer/Transfer Pricing Officer, the AMP expenses incurred by the assessee for its own the AMP expenses incurred by the assessee for its own the AMP expenses incurred by the assessee for its own business made to promotion of the brand owned by the Associated business made to promotion of the brand owned by the business made to promotion of the brand owned by the Enterprises, thereby creating marketing intangible and resultant by creating marketing intangible and resultant by creating marketing intangible and resultant benefit to the Associated Enterprises, to the Associated Enterprises, which being an international ng an international transaction, the arm’s length price was required to be computed by he arm’s length price was required to be computed by he arm’s length price was required to be computed by the assessee. The assessee however, contested that AMP expenses the assessee. The assessee however, contested that AMP expenses the assessee. The assessee however, contested that AMP expenses were not incurred by the assessee on behalf or for the benefit of the incurred by the assessee on behalf or for the benefit of the incurred by the assessee on behalf or for the benefit of the Associated Enterprises Associated Enterprises and if any it was incidental. The Ld. TPO and if any it was incidental. The Ld. TPO applied bright line test (BLT) for making adjustment in respect of applied bright line test (BLT) for making adjustment in respect of applied bright line test (BLT) for making adjustment in respect of excess AMP expenditure. The Ld. CIT(A) following the finding of his excess AMP expenditure. The Ld. CIT(A) following the finding of excess AMP expenditure. The Ld. CIT(A) following the finding of predecessor, deleted the addition deleted the addition, observing as under: observing as under:
“My predecessor has deleted the addition on the ground that My predecessor has deleted the addition on the ground that My predecessor has deleted the addition on the ground that the appellant has higher operating profit t the comparables the appellant has higher operating profit t the comparables the appellant has higher operating profit t the comparables
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 6 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
even after considering AMP expenses and therefore no even after considering AMP expenses and therefore no even after considering AMP expenses and therefore no separate adjustment can separate adjustment can be r in respect AMP expenditure. In be r in respect AMP expenditure. In the current year the assessee submitted that the operating the current year the assessee submitted that the operating the current year the assessee submitted that the operating profit of assessee is 15.80% as against 3.34% of the profit of assessee is 15.80% as against 3.34% of the profit of assessee is 15.80% as against 3.34% of the comparables. The details are as under. comparables. The details are as under.
Sr. Company Name Operating Operating Operating Operating Operating No. Income Expenses Profit Profit Ratio 1. Arihant Arihant Industrial Industrial 62,61,85,975/- 58,07,38,704 4,54,47,271 4,54,47,271 7.26% Corpn. Ltd. 2. Cravatex Ltd. 1,56,57,98,218 1,45,15,45,560 11,42,52,658 11,42,52,658 7.30% 3. Funskool (India) Ltd. NA NA NA NA 4. Kokuyo Camlin Ltd. 3,83,90,35,000 3,77,22,77,000 6,67,58,000 6,67,58,000 1.74% 5. OK Play India Ltd. 41,58,59,525 44,95,52,125 -3,36,92,601 3,36,92,601 -8.10% 6. Sanspareils Greenlands Sanspareils Greenlands 91,20,16,886 83,44,66,681 7,75,50,206 7,75,50,206 8.50% Pvt. Ltd. Average of comparable Average of comparable 3.34% selected by TPO Mattel India 1,03,92,80,542 43,75,63,542 16,41,93,07 6 16,41,93,07 6 15.80% Considering the above the facts of the current year are almost Considering the above the facts of the current year are almost Considering the above the facts of the current year are almost identical to AY 2010 identical to AY 2010-11. Following my predecessor order it is 11. Following my predecessor order it is held that no separate adjustment can be made in respect of held that no separate adjustment can be made in respect of held that no separate adjustment can be made in respect of AMP expenses. AMP expenses.
In view of the above no separate finding has been given with of the above no separate finding has been given with of the above no separate finding has been given with respect to other arguments taken by the appellant. respect to other arguments taken by the appellant. respect to other arguments taken by the appellant.”
6.1 We find that the Tribunal in ITA No. 3903/M/2016 along with We find that the Tribunal in ITA No. 3903/M/2016 along with We find that the Tribunal in ITA No. 3903/M/2016 along with
CO No. 152/M/2019 for assessment year 2010 CO No. 152/M/2019 for assessment year 2010-11 has allowed the 11 has allowed the
cross-objection of the as objection of the assessee. In the cross-objection, the assessee objection, the assessee
had raised that the AMP expenditure would not fall within the raised that the AMP expenditure would not fall within the raised that the AMP expenditure would not fall within the
ambit of an international transaction and no ambit of an international transaction and no adjustment to arm’s adjustment to arm’s
length price need to be made thereof. Since, this being a legal issue length price need to be made thereof. Since, this being a legal issue length price need to be made thereof. Since, this being a legal issue
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 7 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
and challenging the route of the addition made by the Ld. TPO/AO. and challenging the route of the addition made by the Ld. TPO/AO. and challenging the route of the addition made by the Ld. TPO/AO. Therefore, firstly, we may like to address the cross we may like to address the cross- -objection of the assessee. AS per the definition of international transactions u/s AS per the definition of international transactions u/s AS per the definition of international transactions u/s 92B of the Act means a transaction between two or more associated 92B of the Act means a transaction between two or more 92B of the Act means a transaction between two or more enterprises, either on both of whom are non enterprises, either on both of whom are non-residents, in the residents, in the nature of purchase, sale, etc. or other transactions having bearing nature of purchase, sale, etc. or other transactions having bearing nature of purchase, sale, etc. or other transactions having bearing on profit, income or loss of such enterprises. The international on profit, income or loss of such enterprises. The international on profit, income or loss of such enterprises. The international transaction also include a mutual agreement or arrangement for transaction also include a mutual agreement or ar transaction also include a mutual agreement or ar allocation or apportionment or any contribution to, any cost or allocation or apportionment or any contribution to, any cost or allocation or apportionment or any contribution to, any cost or expenses incurred or to be incurred in connection with a benefit, expenses incurred or to be incurred in connection with a benefit, expenses incurred or to be incurred in connection with a benefit, service or facility provided or to be provided by any one or more of service or facility provided or to be provided by any one or more of service or facility provided or to be provided by any one or more of such enterprises. Further as such enterprises. Further as per section 92B(2) of the Act the B(2) of the Act the transaction entered into between t nsaction entered into between two associated enterprises shall associated enterprises shall be deemed to be an international transaction if there exists a prior be deemed to be an international transaction if there exists a prior be deemed to be an international transaction if there exists a prior agreement in relation to the relevant transaction between such agreement in relation to the relevant transaction between such agreement in relation to the relevant transaction between such other person and the associated enterp other person and the associated enterprises. In the case under rises. In the case under consideration, the AO/TPO consideration, the AO/TPO did not bring on record on record exists of any formal or informal agreement formal or informal agreement between the assessee between the assessee and AE to share/reimburse AMP expenses incurred by the assessee in India. AMP expenses incurred by the assessee in India. AMP expenses incurred by the assessee in India.
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 8 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
In absence on any such agreement, the first such agreement, the first and primary condition and primary condition of holding the transaction in question as an international of holding the transaction in question as an international of holding the transaction in question as an international transaction remains to be fulfilled. As the assessee cannot be held transaction remains to be fulfilled. As the assessee cannot be held transaction remains to be fulfilled. As the assessee cannot be held liable for expenses incurred on advertising marketing and liable for expenses incurred on advertising marketing and liable for expenses incurred on advertising marketing and promotion as an international transaction of AMP nternational transaction of AMP, the consequent benchmarking by the Ld. TPO is also not justified. The ITAT in benchmarking by the Ld. TPO is also not justified. The ITAT in benchmarking by the Ld. TPO is also not justified. The ITAT in assessment year 2010 assessment year 2010-11(supra) has allowed the cross 11(supra) has allowed the cross-objection of the assessee observing as under: the assessee observing as under:
“5. We find that this Tribunal in assessee’s own case for the 5. We find that this Tribunal in assessee’s own case for the 5. We find that this Tribunal in assessee’s own case for the A.Yrs.2008-09 09 and a 2009-10 10 in in ITA ITA No.4350 No.4350 and and 4415/Mum/2014 and ITA No.84/Mum/2015 and Cross 4415/Mum/2014 and ITA No.84/Mum/2015 and Cross 4415/Mum/2014 and ITA No.84/Mum/2015 and Cross Objection No.33/Mum/2015 for A.Yrs 2008 Objection No.33/Mum/2015 for A.Yrs 2008- 09 and 2009 09 and 2009-10 respectively vide order dated 08/07/2016 already held that respectively vide order dated 08/07/2016 already held that respectively vide order dated 08/07/2016 already held that AMP expenditure is not an international transaction and AMP expenditure is not an international transaction and AMP expenditure is not an international transaction and hence, no ALP adjustment could be made thereon. This o ALP adjustment could be made thereon. This o ALP adjustment could be made thereon. This Tribunal had also placed reliance on the decision of the Tribunal had also placed reliance on the decision of the Tribunal had also placed reliance on the decision of the Hon’ble Delhi High Court in the case of Maruti Suzuki India Hon’ble Delhi High Court in the case of Maruti Suzuki India Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd vs CIT reported in 64 taxmann.com 150 (Delhi HC). The Ltd vs CIT reported in 64 taxmann.com 150 (Delhi HC). The Ltd vs CIT reported in 64 taxmann.com 150 (Delhi HC). The relevant operative portion of the sa relevant operative portion of the said tribunal order is id tribunal order is reproduced as under: reproduced as under:-
“7.We have heard the rival submissions and perused “7.We have heard the rival submissions and perused “7.We have heard the rival submissions and perused the material before us. Before proceeding further, it the material before us. Before proceeding further, it the material before us. Before proceeding further, it would be useful to understand the philosophy of the TP would be useful to understand the philosophy of the TP would be useful to understand the philosophy of the TP provisions. It is said that the purpose and object of provisions. It is said that the purpose and object o provisions. It is said that the purpose and object o
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 9 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
introduction of the provisions contained in Chapter X is introduction of the provisions contained in Chapter X is introduction of the provisions contained in Chapter X is to prevent an assessee from avoiding payment of tax by to prevent an assessee from avoiding payment of tax by to prevent an assessee from avoiding payment of tax by transferring income yielding assets to non-residents transferring income yielding assets to non transferring income yielding assets to non even while retaining the power to enjoy the fruits of even while retaining the power to enjoy the fruits of even while retaining the power to enjoy the fruits of such transactions i.e. the income s such transactions i.e. the income so generated. The o generated. The present provisions were been incorporated vide Finance present provisions were been incorporated vide Finance present provisions were been incorporated vide Finance Act, 2001.Same were further amended vide Finance Act, 2001.Same were further amended vide Finance Act, 2001.Same were further amended vide Finance Act,2002 and are being amended from time to time to Act,2002 and are being amended from time to time to Act,2002 and are being amended from time to time to meet the new challenges thrown up by the dynamism of meet the new challenges thrown up by the dynamism of meet the new challenges thrown up by the dynamism of the current commercial and bus the current commercial and business realities. Having iness realities. Having regard to the object for which provisions have been regard to the object for which provisions have been regard to the object for which provisions have been enacted, applicability of the said provisions has to be enacted, applicability of the said provisions has to be enacted, applicability of the said provisions has to be limited to situations where there is diversion of profits limited to situations where there is diversion of profits limited to situations where there is diversion of profits out of India or where there may be erosion of tax out of India or where there may be erosion of tax out of India or where there may be erosion of tax revenue in intra revenue in intra group transaction. So, intra group transaction. So, intra-group transaction is the first pre transaction is the first pre-condition for invoking the TP condition for invoking the TP provisions. Calculation of ALP is the next and logical provisions. Calculation of ALP is the next and logical provisions. Calculation of ALP is the next and logical step. But,if the first step itself is missing, the AO cannot step. But,if the first step itself is missing, the AO cannot step. But,if the first step itself is missing, the AO cannot go to the second stage. Here, we would also like to go to the second stage. Here, we would also l go to the second stage. Here, we would also l mention that there exists a fundamental and basic mention that there exists a fundamental and basic mention that there exists a fundamental and basic distinction between the provisions of section 37 and distinction between the provisions of section 37 and distinction between the provisions of section 37 and section 92 of the Act section 92 of the Act-as the first is expense oriented and as the first is expense oriented and the second is pricing oriented. The TPO and the FAA the second is pricing oriented. The TPO and the FAA the second is pricing oriented. The TPO and the FAA have tried to incorporate the ingre have tried to incorporate the ingredients of Section 37 dients of Section 37 while dealing with the TP adjustments, when they while dealing with the TP adjustments, when they while dealing with the TP adjustments, when they talked of the 'higher expenditure'. In our opinion, the talked of the 'higher expenditure'. In our opinion, the talked of the 'higher expenditure'. In our opinion, the approach of both the authorities were not in accordance approach of both the authorities were not in accordance approach of both the authorities were not in accordance with the basic philosophy of the TP provisions. In our with the basic philosophy of the TP provisions. In our with the basic philosophy of the TP provisions. In our opinion, it is the opinion, it is the assessee who has to decide how much assessee who has to decide how much
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 10 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
to spend for earning his income. The tax authorities are to spend for earning his income. The tax authorities are to spend for earning his income. The tax authorities are prevented from entering into the proverbial shoes of the prevented from entering into the proverbial shoes of the prevented from entering into the proverbial shoes of the assessee to decide the justification of the expenditure. assessee to decide the justification of the expenditure. assessee to decide the justification of the expenditure. The Act stipulates that in certain conditions only the so- The Act stipulates that in certain conditions onl The Act stipulates that in certain conditions onl called higher expenditure can be questioned. The FAA called higher expenditure can be questioned. The FAA called higher expenditure can be questioned. The FAA had not proved that the expenditure incurred by the had not proved that the expenditure incurred by the had not proved that the expenditure incurred by the assessee for advertisement etc .was covered by those assessee for advertisement etc .was covered by those assessee for advertisement etc .was covered by those sections .If it was the case then the transaction would sections .If it was the case then the transaction would sections .If it was the case then the transaction would not fall under section 92 of the not fall under section 92 of the Act. So, in our opinion Act. So, in our opinion the FAA had adopted a totally incorrect approach, while the FAA had adopted a totally incorrect approach, while the FAA had adopted a totally incorrect approach, while dealing the allowability of AMP expenditure. We further dealing the allowability of AMP expenditure. We further dealing the allowability of AMP expenditure. We further hold that there is no evidence to prove that the claim hold that there is no evidence to prove that the claim hold that there is no evidence to prove that the claim made by the assessee that it had incurred the AMP made by the assessee that it had incurred the AMP made by the assessee that it had incurred the AMP expenditure for expenditure for catering its own business needs. catering its own business needs.
7.1.We hold that there exists a fine but very important 7.1.We hold that there exists a fine but very important 7.1.We hold that there exists a fine but very important distinction between products promoted and nurtured by distinction between products promoted and nurtured by distinction between products promoted and nurtured by an assessee and the brand owned and supported by its an assessee and the brand owned and supported by its an assessee and the brand owned and supported by its AE. In the modern world both exist and play different AE. In the modern world both exist and play different AE. In the modern world both exist and play different and specified roles. Therefore, until and unless some specified roles. Therefore, until and unless some specified roles. Therefore, until and unless some - thing positive is brought on record about sharing/ thing positive is brought on record about sharing/ thing positive is brought on record about sharing/ incurring AMP expenditure under the head by an incurring AMP expenditure under the head by an incurring AMP expenditure under the head by an assessee on behalf of its AE, it cannot be held that it assessee on behalf of its AE, it cannot be held that it assessee on behalf of its AE, it cannot be held that it should have recovered some amount from the AE as the should have recovered some amount from the AE as th should have recovered some amount from the AE as th expenditure by it indirectly helped in augmenting the expenditure by it indirectly helped in augmenting the expenditure by it indirectly helped in augmenting the brand value owned by its overseas AE .If the AMP brand value owned by its overseas AE .If the AMP brand value owned by its overseas AE .If the AMP expenditure incurred by an assessee benefits the AE expenditure incurred by an assessee benefits the AE expenditure incurred by an assessee benefits the AE indirectly it would not mean that it was an IT. The basic indirectly it would not mean that it was an IT. The basic indirectly it would not mean that it was an IT. The basic purpose of introducing the various provis purpose of introducing the various provisions of chapter ions of chapter
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 11 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
X, as stated earlier, was to prevent tax evasion in the X, as stated earlier, was to prevent tax evasion in the X, as stated earlier, was to prevent tax evasion in the transactions undertaken between an Indian entity and transactions undertaken between an Indian entity and transactions undertaken between an Indian entity and its overseas AE. In our opinion, a perceived/notional its overseas AE. In our opinion, a perceived/notional its overseas AE. In our opinion, a perceived/notional indirect benefit to the AE, due to incurring of certain indirect benefit to the AE, due to incurring of certain indirect benefit to the AE, due to incurring of certain expenditure by an ass expenditure by an assessee in India, is not covered by essee in India, is not covered by the TP provisions. It is a fact that the payment under the the TP provisions. It is a fact that the payment under the the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and head AMP expenditure was made to third parties and head AMP expenditure was made to third parties and that those parties were located in India. that those parties were located in India.
7.2.In the cases of Bausch & Lomb Eyecare(India) Pvt. 7.2.In the cases of Bausch & Lomb Eyecare(India) Pvt. 7.2.In the cases of Bausch & Lomb Eyecare(India) Pvt. Ltd(supra),the Ltd(supra),the issue of AMP expenses had been issue of AMP expenses had been deliberated upon extensively and each and every deliberated upon extensively and each and every deliberated upon extensively and each and every argument raised by the departmental authorities have argument raised by the departmental authorities have argument raised by the departmental authorities have been analysed thread bare. We would like to reproduce been analysed thread bare. We would like to reproduce been analysed thread bare. We would like to reproduce relevant portion of the said judgment and same reads relevant portion of the said judgment and same reads relevant portion of the said judgment and same reads as under: as under:
"53.Ar "53.Areading of the heading of Chapter X['Computation eading of the heading of Chapter X['Computation of income from international transactions having regard of income from international transactions having regard of income from international transactions having regard to arm's length price"]and Section 92 (1) which states to arm's length price"]and Section 92 (1) which states to arm's length price"]and Section 92 (1) which states that that that any any any income income income arising arising arising from from from an an an international international international transaction shall be computed having regard to the ALP transaction shall be computed having regard to the transaction shall be computed having regard to the and Section 92C (1) which sets out the different and Section 92C (1) which sets out the different and Section 92C (1) which sets out the different methods of determining the ALP, makes it clear that the methods of determining the ALP, makes it clear that the methods of determining the ALP, makes it clear that the transfer pricing adjustment is made by substituting the transfer pricing adjustment is made by substituting the transfer pricing adjustment is made by substituting the ALP for the price of the transaction. To begin with there ALP for the price of the transaction. To begin with there ALP for the price of the transaction. To begin with there has to be an international transa has to be an international transaction with a certain ction with a certain disclosed disclosed disclosed price. price. price. The The The transfer transfer transfer pricing pricing pricing adjustment adjustment adjustment envisages the substitution of the price of such envisages the substitution of the price of such envisages the substitution of the price of such international transaction with the ALP. international transaction with the ALP.
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 12 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
Under Sections 92B to 92F, the pre 54. Under Sections 92B to 92F, the pre- -requisite for commencing the TP exercise is to show the existence of commencing the TP exercise is to show the exi commencing the TP exercise is to show the exi an international transaction. The next step is to an international transaction. The next step is to an international transaction. The next step is to determine the price of such transaction. The third step determine the price of such transaction. The third step determine the price of such transaction. The third step would be to determine the ALP by applying one of the would be to determine the ALP by applying one of the would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. five price discovery methods specified in Section 92C. five price discovery methods specified in Section 92C. The fourth step would be to comp The fourth step would be to compare the price of the are the price of the transaction that is shown to exist with that of the ALP transaction that is shown to exist with that of the ALP transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for and make the TP adjustment by substituting the ALP for and make the TP adjustment by substituting the ALP for the contract price. the contract price.
Section 928 defines 'international transaction' as 55. Section 928 defines 'international transaction' as 55. Section 928 defines 'international transaction' as under: "Meaning of international transaction. 928.(1) For under: "Meaning of international transaction. 928.(1) For under: "Meaning of international transaction. 928.(1) For the purposes of this section and sections 92,92C,92D the purposes of this section and sections 92,92C,92D the purposes of this section and sections 92,92C,92D and and and 92E 92E 92E ,"international ,"international ,"international transaction" transaction" transaction" means means means a a a transaction transaction transaction between between between two two two or or or more more more associated associated associated enterprises, either or both of whom are non terprises, either or both of whom are non terprises, either or both of whom are non- residents; in the nature of purchase, sale or lease of tangible or in the nature of purchase, sale or lease of tangible or in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending intangible property, or provision of services, or lending intangible property, or provision of services, or lending or borrowing money, or any other transaction having a or borrowing money, or any other transaction having a or borrowing money, or any other transaction having a bearing on the profits, income, lo bearing on the profits, income, losses or assets of such sses or assets of such enterprises, and shall include a mutual agreement or enterprises, and shall include a mutual agreement or enterprises, and shall include a mutual agreement or arrangement arrangement arrangement between between between two two two or or or more more more associated associated associated enterprises for the allocation or apportionment of, or any enterprises for the allocation or apportionment of, or any enterprises for the allocation or apportionment of, or any contribution to, any cost. or expense incurred or to be contribution to, any cost. or expense incurred or to be contribution to, any cost. or expense incurred or to be incurred in connection incurred in connection with a benefit, service or facility with a benefit, service or facility provided or to be provided to anyone or more of such provided or to be provided to anyone or more of such provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprises. (2) A transaction entered into by an enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise with a person other than an associated enterprise with a person other than an associated
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 13 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
enterprise shall, for the purposes 'of subsection (1), be enterprise shall, for the purposes 'of subsection (1), be enterprise shall, for the purposes 'of subsection (1), be deemed t deemed to be a transaction entered into between two o be a transaction entered into between two associated enterprises, if there exists a prior agreement associated enterprises, if there exists a prior agreement associated enterprises, if there exists a prior agreement in relation to' the relevant transaction between such in relation to' the relevant transaction between such in relation to' the relevant transaction between such other person and the associated enterprise, or the terms other person and the associated enterprise, or the terms other person and the associated enterprise, or the terms of the relevant transaction are determined in substance of the relevant transaction are determined of the relevant transaction are determined between such other person and the associated between such other person between such other person and the associated and the associated enterprise." enterprise."
56.Thus, 56.Thus, 56.Thus, under under under Section Section Section 92B(1) 92B(1) 92B(1) an an an 'international 'international 'international transaction' means transaction' means- (a) a transaction between two or (a) a transaction between two or more AEs, either or both of whom are non-resident (b) more AEs, either or both of whom are non more AEs, either or both of whom are non the transaction is in the nat the transaction is in the nature of purchase, sale or ure of purchase, sale or lease of tangible or intangible property or provision of lease of tangible or intangible property or provision of lease of tangible or intangible property or provision of service or lending or borrowing money or any other service or lending or borrowing money or any other service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or transaction having a bearing on the profits, incomes or transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a losses of such enterprises, and (c) shall include a losses of such enterprises, and (c) shall include a mutual agreemen mutual agreement or arrangement between two or more t or arrangement between two or more AEs for allocation or apportionment or contribution to AEs for allocation or apportionment or contribution to AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in the any cost or expenses incurred or to be incurred in the any cost or expenses incurred or to be incurred in connection connection- with the - benefit, service or facility provided benefit, service or facility provided or to be provided to one or more of such enterprises. or to be provided to one or more of such enterpr or to be provided to one or more of such enterpr
Clauses (b) and (c) above cannot be read 57. Clauses (b) and (c) above cannot be read 57. Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part disjunctively. Even if resort is had to the residuary part disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is of clause (b) to contend that the AMP spend of BLI is of clause (b) to contend that the AMP spend of BLI is "any other transaction having a bearing" on its "profits, "any other transaction having a bearing" on its "profits, "any other transaction having a bearing" on its "profits, incomes or losses", for a 'transa incomes or losses", for a 'transaction' there has to be ction' there has to be two parties. Therefore for the purposes of the 'means' two parties. Therefore for the purposes of the 'means' two parties. Therefore for the purposes of the 'means' part of clause part of clause
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 14 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
(b) and the 'includes' part. of clause (c), the Revenue has (b) and the 'includes' part. of clause (c), the Revenue has (b) and the 'includes' part. of clause (c), the Revenue has to to to show show show that that that there there there exists exists exists an an an 'agreement' 'agreement' 'agreement' or or or 'arrangement' or' 'understanding' between BLI -and 'arrangement' or' 'understanding' between BLI 'arrangement' or' 'understanding' between BLI B&L, USA B&L, USA whereby BLI is obliged to spend excessively whereby BLI is obliged to spend excessively on AMP in order to on AMP in order to promote the brand of B&L, USA. As promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that far as the legislative intent is concerned, it is seen that far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under certain transactions listed in the Explanation under certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as an clauses (i) (a) to (e) to Section 92B are des clauses (i) (a) to (e) to Section 92B are des 'International transaction'. This might be only an 'International transaction'. This might be only an 'International transaction'. This might be only an illustrative list, but significantly' it does not list AMP illustrative list, but significantly' it does not list AMP illustrative list, but significantly' it does not list AMP spending as one such transaction. spending as one such transaction.
In Maruti Suzuki India Ltd. (supra), one of the 58. In Maruti Suzuki India Ltd. (supra), one of the 58. In Maruti Suzuki India Ltd. (supra), one of the submissions of the Revenue was: "The mere fact that submissions of the Revenue was: "The mere fact submissions of the Revenue was: "The mere fact the service or benefit has been provided by one party to the service or benefit has been provided by one party to the service or benefit has been provided by one party to the other would by itself constitute a transaction the other would by itself constitute a transaction the other would by itself constitute a transaction irrespective of whether the consideration for the same irrespective of whether the consideration for the same irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual has been paid or remains payable or there is a mutual has been paid or remains payable or there is a mutual agreement to not charge any compe agreement to not charge any compensation for the nsation for the service or benefit. "This was negatived by the Court by service or benefit. "This was negatived by the Court by service or benefit. "This was negatived by the Court by pointing out; "Even if the word 'transaction' is given its pointing out; "Even if the word 'transaction' is given its pointing out; "Even if the word 'transaction' is given its widest connotation, and need not involve any transfer widest connotation, and need not involve any transfer widest connotation, and need not involve any transfer of money or a written agreement as suggested by the of money or a written agreement as suggested by the of money or a written agreement as suggested by the Revenue, and even i Revenue, and even if resort is had to Section 92F (v), f resort is had to Section 92F (v), which defines 'transaction' to include 'arrangement', which defines 'transaction' to include 'arrangement', which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or 'understanding' or 'action in concert', 'whether formal or 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show in writing', it is still incumbent on the Revenue to show in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' the existence of an 'understanding' or an 'arrang the existence of an 'understanding' or an 'arrang or 'action in concert' between MSIL and SMC as regards or 'action in concert' between MSIL and SMC as regards or 'action in concert' between MSIL and SMC as regards
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 15 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
AMP spend for brand promotion. In other words, for AMP spend for brand promotion. In other words, for AMP spend for brand promotion. In other words, for both the 'means', part and the 'includes' part of Section both the 'means', part and the 'includes' part of Section both the 'means', part and the 'includes' part of Section 928 (1) what has to be definitely shown is the existence 928 (1) what has to be definitely shown is the existence 928 (1) what has to be definitely shown is the existence of transaction whereby MSIL of transaction whereby MSIL has been obliged to incur has been obliged to incur AMP of a certain level for SMC for the purposes of AMP of a certain level for SMC for the purposes of AMP of a certain level for SMC for the purposes of promoting the brand of SMC." promoting the brand of SMC."
In Whirlpool of India Ltd. (supra), the Court 59. In Whirlpool of India Ltd. (supra), the Court 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that interpreted the expression "acted in concert" and in that interpreted the expression "acted in concert" and in that context referred to the decision of the S context referred to the decision of the Supreme Court in upreme Court in Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the 2010(6)MANU/SC/0454/2010, which arose in the 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory context of acquisition of shares of Zenotech Laboratory context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was Ltd. by the Ranbaxy Group. The question that was Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the examined was whether at the relevant t examined was whether at the relevant t Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of were "acting in concert" within the meaning of were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Regulation 20(4) (b) of the Securities and Exchange Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Board of India (Substantial Acquisition of Shares and Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In. para 44, it was Takeovers) Regulations, 1997. In. para 44, Takeovers) Regulations, 1997. In. para 44, observed as under: observed as under:
"The other limb of the concept requires two or more "The other limb of the concept requires two or more "The other limb of the concept requires two or more persons joining together with the shared common persons joining together with the shared common persons joining together with the shared common objective and purpose of substantial acquisition of objective and purpose of substantial acquisition of objective and purpose of substantial acquisition of shares etc. of a shares etc. of a- certain target company, There can be certain target company, There can be no "persons acting in no "persons acting in concert" unless there is a shared concert" unless there is a shared common objective or purpose between two or more common objective or purpose between two or more common objective or purpose between two or more persons of substantial acquisition of shares etc. of the persons of substantial acquisition of shares etc. of the persons of substantial acquisition of shares etc. of the target company, For, de hors the element of the shared target company, For, de hors the element of the shared target company, For, de hors the element of the shared
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 16 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
common Objective' or purpose the idea of "person acting common Objective' or purpose the idea of "person acting common Objective' or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy ncert" is as meaningless as criminal conspiracy ncert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. without any agreement to commit a criminal offence. without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a The idea of "persons acting in concert" is not about a The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident fortuitous relationship coming into existence by accident fortuitous relationship coming into existence by accident or chance. The relationship' can come into or chance. The relationship' can come into being only by being only by design, by meeting of minds between two or more design, by meeting of minds between two or more design, by meeting of minds between two or more persons leading to the shared common objective or persons leading to the shared common objective or persons leading to the shared common objective or purpose of acquisition of substantial acquisition of purpose of acquisition of substantial acquisition of purpose of acquisition of substantial acquisition of shares etc. of the target company. It is another matter shares etc. of the target company. It is another matter shares etc. of the target company. It is another matter that the common objective or purpos that the common objective or purpose may be in pursuance of an agreement' or an understanding, pursuance of an agreement' or an understanding, pursuance of an agreement' or an understanding, formal or informal; 'the acquisition of shares etc. may be formal or informal; 'the acquisition of shares etc. may be formal or informal; 'the acquisition of shares etc. may be direct or indirect or the persons acting in concert may direct or indirect or the persons acting in concert may direct or indirect or the persons acting in concert may cooperate in actual acquisition of shares etc. or they cooperate in actual acquisition of shares etc. or they cooperate in actual acquisition of shares etc. or they may may agree agree to, to, cooperate cooperate in in such such acquisition. acquisition. Nonetheless, the element of the shared common Nonetheless, the element of the shared common Nonetheless, the element of the shared common objective or purpose is the sine qua non for the objective or purpose is the sine qua non for the objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into relationship of "persons acting in concert" to come into relationship of "persons acting in concert" to come into being. " being. "
The transfer pricing adjustment is not expected to be 60. The transfer pricing adjustment is not expected to be 60. The transfer pricing adjustment is not expected to be made by deducing made by deducing from the difference between the from the difference between the 'excessive' AMP expenditure incurred by the Assessee 'excessive' AMP expenditure incurred by the Assessee 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an and the AMP expenditure of a comparable entity that an and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to international transaction exists and then proceeding to international transaction exists and then proceeding to make the adjustment of the difference in order to make the adjustment of the difference in order to make the adjustment of the difference in order to determine determine the value of such AMP expenditure incurred , the value of such AMP expenditure incurred , for the AE. In any event, after the decision in Sony for the AE. In any event, after the decision in Sony for the AE. In any event, after the decision in Sony
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 17 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
Ericsson (supre), Ericsson (supre), -- the question of applying the BLT to the question of applying the BLT to determine the existence determine the existence-of an-international transaction international transaction involving AMP expenditure does not arise. involving AMP expenditure does not arise.
There is merit in the contention of the Assessee that . There is merit in the contention of the Assessee that . There is merit in the contention of the Assessee that a distinction is required to be drawn between a a distinction is required to be drawn between a a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure 'function' and a 'transaction' and that every expenditure 'function' and a 'transaction' and that every expenditure forming part of the function, cannot be construed as a forming part of the function, cannot be construed as a forming part of the function, cannot be construed as a 'transaction'. Further, the 'transaction'. Further, the- Revenue's attempt at re attempt at re- characterising the AMP expenditure incurred as a characterising the AMP expenditure incurred as a characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified transaction by itself when it has neither been identified transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in as such by the Assessee or legislatively recognised in as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal the Explanation to Section 92 B runs counter to legal the Explanation to Section 92 B runs counter to legal position explained in CIT position explained in CIT vs. EKL Appliances Ltd. vs. EKL Appliances Ltd. (supra) (supra) (supra) which required a TPO "to examine the which required a TPO "to examine the which required a TPO "to examine the 'international transaction' as he actually finds the 'international transaction' as he actually finds the 'international transaction' as he actually finds the same." same."
In the present case, the mere fact that B&L, USA 62. In the present case, the mere fact that B&L, USA 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99.9% of the share through B&L, South Asia, Inc holds 99.9% of the share through B&L, South Asia, Inc holds 99.9% of the share of the Assessee wil of the Assessee will not ipso facto lead to the conclusion l not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the that the mere increasing of AMP expenditure by the that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that Assessee involves an international transaction in that Assessee involves an international transaction in that regard with B&L, USA. A similar contention by the regard with B&L, USA. A similar contention by the regard with B&L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit Revenue, namely the fact that even if there is no explicit Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP rrangement, the fact that the benefit of such AMP rrangement, the fact that the benefit of such AMP expenses would also ensure to the AE is itself self expenses would also ensure to the AE is itself self expenses would also ensure to the AE is itself self sufficient to infer the existence of an international sufficient to infer the existence of an international sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti transaction has been negatived by the Court in Maruti transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: Suzuki India Ltd. (supra) as under:
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 18 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
"68. The "68. The above submissions proceed purely on surmises above submissions proceed purely on surmises and conjectures and if accepted as such will lead to and conjectures and if accepted as such will lead to and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wildgoose sending the tax authorities themselves on a wildgoose sending the tax authorities themselves on a wildgoose chase of what can at best be described as a 'mirage'. chase of what can at best be described as a 'mirage'. chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for First of all, there has to be a clear statutory ma First of all, there has to be a clear statutory ma such an· exercise. The Court is unable to find one. To such an· exercise. The Court is unable to find one. To such an· exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision the question whether there is any 'machinery' provision the question whether there is any 'machinery' provision for determining the existence of an international for determining the existence of an international for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava transaction involving AMP expenses, Mr. Srivastava transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) only referred to Section 92F (ii) which defines ALP to which defines ALP to mean a price "which is applied or proposed to be mean a price "which is applied or proposed to be mean a price "which is applied or proposed to be applied in a transaction between persons other than applied in a transaction between persons other than applied in a transaction between persons other than AEs in uncontrolled conditions",Since the reference is to AEs in uncontrolled conditions",Since the reference is to AEs in uncontrolled conditions",Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings 'price' and to 'uncontrolled conditions' it implicitly brings 'price' and to 'uncontrolled conditions' it implicitly brings into play the into play the BLT. In other words, it emphasises that BLT. In other words, it emphasises that where the price is something other than what would be where the price is something other than what would be where the price is something other than what would be paid or charged by one entity from another in paid or charged by one entity from another in paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The uncontrolled situations then that would be the ALP. The uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision Court does not see this as a machinery provision Court does not see this as a machinery provision particularl particularly -in-light of the fact that -the-BLT has been BLT has been expressly negatived by the Court in Sony Ericsson. expressly negatived by the Court in Sony Ericsson. expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction Therefore, the existence of an international transaction Therefore, the existence of an international transaction will have to be established de hors the BLT, will have to be established de hors the BLT, will have to be established de hors the BLT,
What is clear is that it. is the 'price' of an 70. What is clear is that it. is the 'price' of an 70. What is clear is that it. is the 'price' of an international transaction which is required to be rnational transaction which is required to be rnational transaction which is required to be adjusted: The very existence of an international adjusted: The very existence of an international adjusted: The very existence of an international transaction cannot be presumed by assigning some transaction cannot be presumed by assigning some transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, price to it and then deducing that since it is not an ALP, price to it and then deducing that since it is not an ALP,
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 19 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
an adjustment had to be made. The an adjustment had to be made. The -burden is on the burden is on the Revenue to first show the existence of an international evenue to first show the existence of an international evenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of transaction. Next, to ascertain the disclosed 'price' of transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an such transaction and thereafter ask whether it is an such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP ALP. If the answer to that is in the negative the TP ALP. If the answer to that is in the negative the TP adjustment should follow.The objective adjustment should follow.The objective of Chapter X is of Chapter X is to make adjustments to the price of an international to make adjustments to the price of an international to make adjustments to the price of an international transaction which the AEs involved may seek to shift transaction which the AEs involved may seek to shift transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price from one jurisdiction to another. An 'assumed' price from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. " cannot form the reason for making an ALP adjustment. " cannot form the reason for making an ALP adjustment. "
71- Since a quantitative Since a quantitative adjustment is not permissible adjustment is not permissible for the purposes of a TP adjustment under Chapter X, for the purposes of a TP adjustment under Chapter X, for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP equally it cannot be permitted in respect of AMP equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbetore, what expenses either. As already noticed hereinbetore, what expenses either. As already noticed hereinbetore, what the Revenue has sought to do in the present. case is to the Revenue has sought to do in the present. case is to the Revenue has sought to do in the present. case is to resort to a resort to a quantitative adjustment by first determining quantitative adjustment by first determining whether the AMP spend of the Assessee on- application whether the AMP spend of the Assessee on whether the AMP spend of the Assessee on of the BLT, is excessive ,thereby evidencing the of the BLT, is excessive ,thereby evidencing the of the BLT, is excessive ,thereby evidencing the existence of an international transaction involving the existence of an international transaction involving the existence of an international transaction involving the AE. The quantitative determination forms the very basis AE. The quantitative determination forms the very ba AE. The quantitative determination forms the very ba for the entire TP exercise in the present case. for the entire TP exercise in the present case. for the entire TP exercise in the present case.
74.The problem with the Revenue's approach is that it 74.The problem with the Revenue's approach is that it 74.The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian wants every instance of an AMP spend by an Indian wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE entity which happens to use the brand of a foreign AE entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. to be presumed to involve an international tr to be presumed to involve an international tr And this, notwithstanding that this is not one of the And this, notwithstanding that this is not one of the And this, notwithstanding that this is not one of the deemed international transactions listed under the deemed international transactions listed under the deemed international transactions listed under the Explanation to Section 928 of the Act. The problem does Explanation to Section 928 of the Act. The problem does Explanation to Section 928 of the Act. The problem does
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 20 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
not stop here. Even if a transaction involving an AMP not stop here. Even if a transaction involving an AMP not stop here. Even if a transaction involving an AMP spend for a foreign AE is able spend for a foreign AE is able to be located in some to be located in some agreement, written (for e.g., the sample agreements agreement, written (for e.g., the sample agreements agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, produced before the Court by the Revenue) or otherwise, produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of how should a TPO proceed to benchmark the portion of how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be such AMP spend that the Indian entity should be such AMP spend that the Indian entity should be compensated for? compensated for?
Further, in Maruti Suzuki India Ltd. '(supra) the Further, in Maruti Suzuki India Ltd. '(supra) the Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery Court further explained the absence of a 'machinery Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: provision qua AMP expenses by the following analogy: provision qua AMP expenses by the following analogy: "75. As an analogy; and for "75. As an analogy; and for-no other purpose; in the no other purpose; in the- context of a domestic transaction involving two or more context of a domestic transaction involving two context of a domestic transaction involving two related parties, reference may' be made to Section 40 A related parties, reference may' be made to Section 40 A related parties, reference may' be made to Section 40 A (2) (a) under which certain types of expenditure incurred (2) (a) under which certain types of expenditure incurred (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible by way of payment to related parties is not deductible by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is where the AO is of the opinion that such expenditure is where the AO is of the opinion that such expenditure is excessive or unreasona excessive or unreasonable having regard to the fair ble having regard to the fair market value of the goods." In such event, so much of market value of the goods." In such event, so much of market value of the goods." In such event, so much of the expenditure as is so considered by him to be the expenditure as is so considered by him to be the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a excessive or unreasonable shall not be allowed as a excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the deduction." The AO in such an instance deploys the deduction." The AO in such an instance deploys the 'best judgment' 'best judgment' assessment as a device to disallow ssment as a device to disallow what he considers to be an excessive expenditure. what he considers to be an excessive expenditure. what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in There is no corresponding 'machinery' provision in There is no corresponding 'machinery' provision in Chapter X which enables' an AO to determine what Chapter X which enables' an AO to determine what Chapter X which enables' an AO to determine what should be the fair 'compensation' an Indian entity would should be the fair 'compensation' an Indian entity would should be the fair 'compensation' an Indian entity would be entitled to if be entitled to if it is found' that there is an International it is found' that there is an International transaction in that regard. In practical terms, absent a transaction in that regard. In practical terms, absent a transaction in that regard. In practical terms, absent a
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 21 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
clear statutory guidance, this may encounter further clear statutory guidance, this may encounter further clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be difficulties. The strength of a brand, which could be difficulties. The strength of a brand, which could be product specific, may be "impacted by numerous other product specific, may be "impacted by numerous o product specific, may be "impacted by numerous o imponderables not limited to the nature of the industry, imponderables not limited to the nature of the industry, imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both the geographical peculiarities, economic trends both the geographical peculiarities, economic trends both international and domestic, the consumption patterns, international and domestic, the consumption patterns, international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach market behaviour and so on. A simplistic approach market behaviour and so on. A simplistic approach using one of the modes similar to the using one of the modes similar to the ones contemplated ones contemplated by Section 92C may not only be legally impermissible by Section 92C may not only be legally impermissible by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed but will lend itself to arbitrariness. What is then needed but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative is a clear statutory scheme encapsulating the legislative is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary policy and mandate which provides the necessary policy and mandate which provides the necessary checks against arbi checks against arbitrariness while at the same time trariness while at the same time addressing the apprehension of tax avoidance." addressing the apprehension of tax avoidance." addressing the apprehension of tax avoidance."
In the absence of any machinery provision, bringing 64. In the absence of any machinery provision, bringing 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The an imagined transaction to tax is not possible. The an imagined transaction to tax is not possible. The decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR decisions in CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC) an 294 (SC) and PNB Finance Ltd. v, CIT (2008) 307 ITR 75 d PNB Finance Ltd. v, CIT (2008) 307 ITR 75 (SC) make this position explicit. Therefore, where the (SC) make this position explicit. Therefore, where the (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP existence of an international transaction involving AMP existence of an international transaction involving AMP expense with an ascertainable price is expense with an ascertainable price is- unable to be unable to be shown to exist, even if such price is nil, Chapter X shown to exist, even if such price is nil, Chapt shown to exist, even if such price is nil, Chapt provisions cannot be invoked to undertake a TP provisions cannot be invoked to undertake a TP provisions cannot be invoked to undertake a TP adjustment exercise. adjustment exercise.
As already mentioned, merely because there is an 65. As already mentioned, merely because there is an 65. As already mentioned, merely because there is an incidental benefit to the foreign AE, it cannot be said incidental benefit to the foreign AE, it cannot be said incidental benefit to the foreign AE, it cannot be said that the AMP expenses incurred by the Indian entity that the AMP expenses incurred by the Indian entity that the AMP expenses incurred by the Indian entity was for promoting the was for promoting the brand of the foreign AE. As brand of the foreign AE. As
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 22 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
mentioned mentioned-in- Sassoon -J David-(supra)- "the "the--fact that- somebody other than the Assessee is also benefitted by somebody other than the Assessee is also benefitted by somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an the expenditure should not come in the way of an the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under expenditure being 'allowed by way of a deduction under expenditure being 'allowed by way of a deduction under Section 10 Section 10 (2) (xv) of the Act (Indian Income Tax Act, (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the 1922) if it satisfies otherwise the tests laid down by the 1922) if it satisfies otherwise the tests laid down by the law".
7.3.With regard to the submissions of the AR that the 7.3.With regard to the submissions of the AR that the 7.3.With regard to the submissions of the AR that the issue of AMP should be restored back to the file of the issue of AMP should be restored back to the file of the issue of AMP should be restored back to the file of the AO, we want to mention that law as a concept is AO, we want to mention that law as a AO, we want to mention that law as a supposed to evolve with passage of time supposed to evolve with passage of time- -it cannot be static always. Nonavailability of a particular decision of static always. Nonavailability of a particular decision of static always. Nonavailability of a particular decision of the higher forum cannot justify the restoration of the higher forum cannot justify the restoration of the higher forum cannot justify the restoration of issue/cases to the file of AO in each and every case. issue/cases to the file of AO in each and every case. issue/cases to the file of AO in each and every case. Unnecessary litigation has Unnecessary litigation has to be avoided and issues to be avoided and issues have to be settled for once and all. We are of the opinion have to be settled for once and all. We are of the opinion have to be settled for once and all. We are of the opinion that after the judgments of Maruti Suzuki and Bausch & that after the judgments of Maruti Suzuki and Bausch & that after the judgments of Maruti Suzuki and Bausch & Lomb Lomb Lomb (supra)there (supra)there (supra)there is is is no no no scope scope scope of of of any any any other other other interpretation about the AMP expenditure. In the case interpretation about the AMP expenditure. In the case interpretation about the AMP expenditure. In the case under consideration, under consideration, the AO/TPO has not brought the AO/TPO has not brought anything on record that there existed and agreement, anything on record that there existed and agreement, anything on record that there existed and agreement, formal or informal between the assessee and the AE to formal or informal between the assessee and the AE to formal or informal between the assessee and the AE to share/reimburse the AMP expenses incurred by the share/reimburse the AMP expenses incurred by the share/reimburse the AMP expenses incurred by the assessee in India. In absence of such an agreement the assessee in India. In absence of such an agreement the assessee in India. In absence of such an agreement the first first and and primary primary precondition precondition of of treating treating the the transaction transaction-in-question question an an IT IT remains remains unfulfilled. unfulfilled. Conducting FAR analysis or adopting an appropriate Conducting FAR analysis or adopting an appropriate Conducting FAR analysis or adopting an appropriate method is the second stage of TP adjustments. The first method is the second stage of TP adjustments. The first method is the second stage of TP adjustments. The first
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 23 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
thing is to find out whether the thing is to find out whether the disputed transaction in disputed transaction in is IT or no is IT or not. Without crossing the first threshold second t. Without crossing the first threshold second cannot be approached, as stated earlier. In the case cannot be approached, as stated earlier. In the case cannot be approached, as stated earlier. In the case under consideration, we are of the opinion that AMP under consideration, we are of the opinion that AMP under consideration, we are of the opinion that AMP expenditure is not an IT and therefore we are not expenditure is not an IT and therefore we are not expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. inclined to restore back the issue to the file of the inclined to restore back the issue to the file of the Considering the facts and circumstances of the case Considering the facts and circumstances of the case Considering the facts and circumstances of the case under consideration, we are of the opinion that the FAA under consideration, we are of the opinion that the FAA under consideration, we are of the opinion that the FAA was not justified in upholding the order of the TPO. was not justified in upholding the order of the TPO. was not justified in upholding the order of the TPO. Therefore, reversing his order, we decide second ground Therefore, reversing his order, we decide second ground Therefore, reversing his order, we decide second ground in favour of the assessee.” in favour of the assessee.”
5.1. Respectfully following the aforesaid decision of this espectfully following the aforesaid decision of this espectfully following the aforesaid decision of this Tribunal in assessee’s own case referred to supra, we hold Tribunal in assessee’s own case referred to supra, we hold Tribunal in assessee’s own case referred to supra, we hold that the AMP expenditure is not an international transaction that the AMP expenditure is not an international transaction that the AMP expenditure is not an international transaction and hence no adjustment to ALP need to be made thereon. and hence no adjustment to ALP need to be made thereon. and hence no adjustment to ALP need to be made thereon. Accordingly, the grounds ra Accordingly, the grounds raised by the assessee in its cross ised by the assessee in its cross objections are allowed. Since the issue is adjudicated in objections are allowed. Since the issue is adjudicated in objections are allowed. Since the issue is adjudicated in favour of the assessee on technical ground, we refrain to give favour of the assessee on technical ground, we refrain to give favour of the assessee on technical ground, we refrain to give our opinion on the ground raised in the revenue appeal in this our opinion on the ground raised in the revenue appeal in this our opinion on the ground raised in the revenue appeal in this regard on merits as the adjudication o regard on merits as the adjudication of the same would f the same would become infructuous. become infructuous.”
6.2 Respectfully, following the above, we uphold the finding of the following the above, we uphold the finding of the following the above, we uphold the finding of the Ld. CIT(A) that AMP expenditure is not an international transaction. Ld. CIT(A) that AMP expenditure is not an international transaction. Ld. CIT(A) that AMP expenditure is not an international transaction. The grounds of the cross The grounds of the cross-objection of the assessee are accordingly objection of the assessee are accordingly allowed.
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 24 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
6.3 Since, we have already held that AMP expenditure ince, we have already held that AMP expenditure ince, we have already held that AMP expenditure is not an international transaction therefore, international transaction therefore, adjustment to said transaction adjustment to said transaction for arm’s length price is rendered infructuous and no adjustment arm’s length price is rendered infructuous and no adjustment arm’s length price is rendered infructuous and no adjustment could have been made. The ground of appeal of the Revenue is been made. The ground of appeal of the Revenue is been made. The ground of appeal of the Revenue is accordingly dismissed. rdingly dismissed.
6.4 Further, we note that in the ground raised, the Revenue has Further, we note that in the ground raised, the Revenue has Further, we note that in the ground raised, the Revenue has referred the issue of accepting new evidence on the basis of the referred the issue of accepting new evidence on the basis of the referred the issue of accepting new evidence on the basis of the different PLI operating profit different PLI operating profit/operating income, however, perusal of operating income, however, perusal of the order of the Ld. CIT(A), we do not the order of the Ld. CIT(A), we do not find any reference of find any reference of admission of any additional evidence admission of any additional evidence. Nothing in this regard . Nothing in this regard brought before us by the Ld. DR. brought before us by the Ld. DR. Therefore, other grounds raised by herefore, other grounds raised by the Revenue are also dismissed. the Revenue are also dismissed.
In the result, the appeal of the Revenue is dismissed, whereas, In the result, the appeal of the Revenue is dismissed, whereas, In the result, the appeal of the Revenue is dismissed, whereas, the cross-objection of the assessee is allowed. objection of the assessee is allowed.
Order pronounced in the open Court/under Rule 34(4 Order pronounced in the open Court/under Rule 34(4 Order pronounced in the open Court/under Rule 34(4) of the ITAT Rules, 1963 on the ITAT Rules, 1963 on 29/12/2022. Sd/- Sd/- - (VIKAS AWASTHY VIKAS AWASTHY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER
M/s Mattel Toys (India) Pvt. Ltd. M/s Mattel Toys (India) Pvt. Ltd. 25 ITA No. 2304/M/2021 & CO No. 124/M/2022 ITA No. 2304/M/2021 & CO No. 124/M/2022
Mumbai; Dated: 29/12/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
BY ORDER, BY ORDER, //True Copy// (Sr. Private Secretary) (Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai