AMADEUS INDIA PVT. LTD.,NEW DELHI vs. ACIT, CIRCLE 2(2), NEW DELHI

ORDER

PER ANIL CHATURVEDI, AM:

3. Assessee is a Company which is stated to be engaged in the business of providing data processing/ IT enable services/ software services and call centre services. It has stated to be responsible for providing software connectivity to the subscribers to access Amadeus Computer Reservation Systems within the Indian sub-continent. Assessee filed its return of income for A.Y. 2015-16 on 27.11.2015 declaring taxable income of Rs.85,69,74,660/-. The case was selected for scrutiny and first notice u/s 143(2) dated 30.09.2016 was issued and served on the assessee. It was noticed that assessee had undertaken international transactions amounting to Rs.152 crore with Associated Enterprises (AE) and thereafter in accordance with the provision of Section 92CA of the I.T. Act, the international transaction and specified domestic transactions entered by the assessee to its AE was referred to TPO to determine the Arm’s length price (ALP). The TPO vide order passed u/s 92CA-(3) dated 29.03.2018 suggested following adjustments: Nature of Adjustment u/s International 92CA suggested Transaction by TPO AMP Services Rs.12,16,92,066/- On protective basis AMP Services Rs.12,71,08,610/- On substantive Basis

4. The AO thereafter in the draft assessment order u/s 144C of the Act dated 22.12.2018, after considering the additions proposed by TPO, proposed to assess the total income of the assessee at Rs.111,98,84,050/-.

1. That on facts and in law the orders passed by the Assessing officer [hereinafter referred to as the “AO”]/ Dispute Resolution Panel [hereinafter referred to as the “DRP]/Transfer Pricing Officer [hereinafter referred to as the “TPO ] are bad in law and void ab-initio.

2. That on facts and in law the TPO/DRP erred in not appreciating that in absence of a “transaction” as envisaged under section 92F of the Act between appellant and its AE for brand promotion or for establishing a marketing intangible, the TPO had no jurisdiction to propose an adjustment on account of AMP expense.

3. That the Transfer Pricing Adjustment on account of Advertisement, Marketing and Promotion (AMP) expenses as under is bad in law, illegal and uncalled for both on facts and in law. Protective Adjustment Rs. 12,16,92,066/- i. ii. Substantive Adjustment Rs. 13,77,80,249/- 3.1 That on facts and in Law the TPO/DRP erred in ignoring and not following the orders of Hon’ble ITAT and High Court in the appellants own case for the AYs 2007-08, 2008-09, 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 duly placed on records. 3.2 That on facts and in law the TPO/DRP erred in disproving the benchmarking analysis adopted by the appellant without following the methodology and approach recognized under section 92C(3) of the Act.

4. That on facts and in Law the TPO erred in holding and the DRP inter alia erred in upholding/observing that:

(i) Appellant had incurred AMP expenditure of Rs.11,91,66,450/- on promotion of proprietary marks and for development of marketing intangible for the benefit of AE. (ii) AMP expenditure of Rs.11,91,66,450/- incurred by the assessee is an “International Transaction” u/s 92B of the Act. (iii) Expenditure of Rs.10,99,36,525/- incurred by the assessee on payment of incentives to subscribers is in the nature of AMP. (iv) By incurring excess/ extraordinary AMP expense the appellant had rendered intra group services to its AE. (v) AE is directly benefitted by any expenditure incurred by assessee on AMP. (vi) AE directs the AMP strategy and the expenditure incurred by appellant in India. (vii) Legal ownership of the marketing intangible would get transferred to the AE without any consideration on termination of the distribution agreement; (viii) Appellant has failed to furnish any material to demonstrate that it enjoyed economic ownership of brand.

(ix) Appellant has failed to show that for excessive AMP expenditure it was compensated by the AE through a set-off.

5. Without prejudice, that on facts and in law the AO/TPO/DRP erred in not appreciating that the alleged transaction of AMP was “closely linked” with the main activity carried on by the appellant and hence it cannot be segregated and benchmarked on a stand-alone basis. 5.1 That on facts and in law the AO/TPO/DRP erred in holding that there is no suitable comparable available for benchmarking the alleged “international Transaction” of incurring excessive AMP expense by applying the aggregated approach.

6. That on facts and in law DRP erred in holding that appellant has not been able to substantiate benchmarking of alleged AMP “transaction” following an aggregate approach.

7. That on facts and in law the AO/TPO/DRP erred in making/ upholding Protective TP Adjustment on account of AMP expenses invoking “Bright Line Method”.

8. That on facts and in law the AO/TPO/DRP erred in making/ upholding Substantive TP Adjustment on account of AMP expenses invoking “cost plus method”.

9. That without prejudice, while benchmarking alleged AMP as a separate “transaction” the TPO has erred in applying a mark-up of 15.62% while computing adjustment on protective and substantive basis.

10. That on facts and in law the AO erred in levying interest u/s 234B of the Act.

That the appellant prays for leave to add, alter, amend, and/or vary the ground(s) of appeal at or before the time of hearing.”

11. We have heard the Learned DR and perused the material available on record. The issue in the present ground is with respect to the TP Adjustment on account of AMP Expenses. We find that identical issue arose in assessee’s own case in earlier years and while deciding the issue in A.Y. 2014-15, the Co- ordinate Bench of Tribunal vide order dated 8th March, 2021 in observed as under: “18. We have given thoughtful consideration to the orders of the authorities below and have carefully considered the decision of the Hon'ble High Court and the Tribunal. We find force in the contention of the ld. counsel for the assessee. Similar quarrel was there before the Tribunal in ITA No. 1811 and 7691/DEL/2017 A.Y 2012-13 and 2013-14. We find that the Tribunal had the benefit of considering all the agreements relied upon by the TPO in his order. Relevant findings read as under: “2.5 The assessee entered into an agreement with M/s Amadeus Spain on 1st October, 2004. The main activity of the assessee is to provide connectivity to the subscribers in India to the host the CRS system by creation/ modification/up-gradation of computer programmes online. The assessee has a data processing centre, which provides the above services to the deemed AE. In the Transfer Pricing (TP) Study, the assessee has declared the following international transactions with its deemed AE: Nature of Transaction Method Value (Rs) Provision of Information TNMM 231,71,32,514 Technology Enabled Services (ITeS) Receipt of Data Processing Services 9,40,17,116 2.6 In the Transfer Pricing study, the assessee had followed the Transaction Net Margin Method (TNMM) to substantiate the Arm’s Length Price (ALP) of above disclosed international transaction/s pertaining to provision of ITES Services with its deemed AE and accordingly it compared the net operating profit/total cost (OP/TC) earned by it with the mean OP/TC of the comparable companies selected by it and concluded that since the OP/TC of the assessee is higher than the mean OP/TC of comparable companies, the disclosed international transaction are at Arms’ Length Price. In order to verify this, the AO made a reference to the Transfer Pricing Officer (TPO). The TPO has accepted the benchmarking of the above declared international transactions. In this regard after a detailed benchmarking of the disclosed international transaction/s, the TPO has, at page 69 of order dated 20th January, 2015, held that “from above it can be seen that the international transaction of taxpayer in respect of ITES is within + / - 5% of arms length price”. 2.7 The TPO, however, observed that the assessee had incurred more than normal AMP expenses to build “Amadeus” brand in India which is legally owned by M/s Amadeus Spain. The TPO held that the assessee should have been reimbursed with appropriate mark-up on such excessive AMP expenditure identified by him by applying the Bright Line Test (BLT). In his order, the TPO has identified the said abnormal AMP expenses by applying the bright line method i.e., by comparing the AMP as a percentage to sales of the assessee with average AMP as a percentage of the comparable companies finally selected by him for benchmarking the main functions of the assessee. Thereafter, by applying a mark-up of 11.69%, the TPO has computed the final adjustment for the alleged transaction of brand promotion as under:-

TPO Order dated TPO order dated 20-01-2015 28.02.2016 giving effect to DRP Value of Gross Sales Rs 231,73,07,014 Rs 231,73,07,014 AMP/Sales of the Comparables 1.48% 1.48% Amount that represent bright line Rs 3,42,96,144 Rs 3,42,96,144 Expenditure on AMP by assessee Rs 94,31,24,844 Rs 94,31,24,844 Expenditure in excess of bright line Rs 90,88,28,700 Rs 90,88,28,700 PLI 11.69 % 26.42% Markup Rs 10,62,42,075 Rs 24,01,12,542 Cumulative addition Rs 101,50,70,775 Rs 114,89,41,243 2.8 Being aggrieved by the above proposed transfer pricing adjustment, the assessee filed detailed objections before the Ld. DRP. The Ld. DRP, while referring to decision of the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications reported in 374 ITR 118(Del), has examined the contentions put forth by the assessee before it as under:- Sub Grounds of Appeal summarized Sony Ericsson High Court order as per issue from Form 35A dt.16March, 2015 Re-characterization of expenses Upheld at Para 64 page 48 of 142 incurred for own business as a service para 147, page 111 to AE is not justified The burden is on the assessed to select and justify the method adopted and the arm’s length price declared under sub-section (3) to section 92C, the Assessing Officer can proceed to determine the arm’s length price in accordance with Section 92C(1) and (2) on the basis of material, Information or documents in his possession, if any of the circumstances mentioned in clauses (a) to (d) are satisfied - The AMP expenses incurred by the AMP expense is an international assessee, qua independent parties, transaction. (Paras 52 & 53 of the are domestic transaction and not judgment) international transaction as defined in section 92B of the Act. The TPO has jurisdiction to determine the ALP of the international transaction of AMP expenses (para 50 of the judgment); Discussion under the heading C para 51-57, the substantial question of law answered in favor of Revenue. AO/TPO can segregate AMP expenses as an independent international transaction, but only after elucidating the grounds and reasons for not accepting the bunching adopted by the assessed and examining and giving benefit of set off under 92(3). Assessee is already remunerated for Owner of the marketing intangible the activities performed by it. should adequately compensate the domestic AE incurring costs towards marketing activities by Revenue reimbursement of expenses or by sufficient and appropriate return. Bright Line Test, applied by the Para 194, sno X, page 139 Ld. TPO/LD. AO, is not permitted by the Bright Line Test has no statutory transfer pricing regulations mandate. Bright Line test cannot be applied to work out non-routine AMP expenses for benchmarking [Para 194 (x)]; The AMP expenses incurred by the Page 140 assessee already benchmarked by AO for good and sufficient applying TNMM so separate benchmarking reasons can de-bundle interconnected not required transactions, is segregated distribution, marketing or AMP transactions when bundled transactions cannot be adequately compared on an aggregate basis. ALP of AMP expenses should be determined preferably in a bundled manner with the distribution activity (Paras 91,121 & others); Value of alleged international Page. 137 transaction has been determined The assessed, i.e., the domestic AE incorrectly must be compensated for the AMP expenses by the foreign AE. Such compensation may be included or subsumed in low purchase price or by not charging or charging lower royalty. Direct compensation can also be paid. The method selected and comparability analysis should be appropriate and reliable so as to include the AMP functions and costs. The Ld.AO/Ld.TPO has selected AMP is a separate function. An inappropriate comparables external comparable should perform similar AMP functions. [Paras 165 & 166]; For determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses, should be chosen (Paras 194(i), (ii), (viii) & others); The AO/TPO can reject a method selected by the assessed for several reasons including want of reliability in the factual matrix or lack / nonavailability of comparables (see Section 92C(3) of the Act). Page 138 When the AO/TPO rejects method adopted by assessed, he is entitled to select MAM, and undertake comparability analysis. Selection of method and comparables should be as per the command and directive of the Act and Rules and justified by giving reasons. The choice of comparables cannot be restricted only to domestic companies using any foreign brand (para 120);If no comparables having performed both the functions in a similar manner are available, then, suitable adjustment should be made to bring international transactions and comparable transactions at par [para] 194(iii)]; If adjustment is not possible or comparable is not available, then, the TNMM on entity level should not be applied [Paras 100, 121, 194(iii) & (vi)] For determining the ALP of these transactions in a bundled manner, suitable comparables having undertaken similar activities of distribution of the products and also incurring of AMP expenses, should be chosen [Paras 194(i), (ii), (viii) & others]; The choice of comparables cannot be restricted only to domestic companies using any foreign brand [Para 120]; Arbitrary Mark up PLR cannot be the basis for computing markup on AMP expenses as an international transaction. Mark-up as per sub- clause (ii) to rule 10B(1)© would be comparable gross profit on the cost or expenses incurred as AMP. The mark-up has to be benchmarked with comparable uncontrolled transactions or transactions for providing similar service/product. The Revenue’s stand in some cases applying the prime lending rate fixed by the Reserve Bank of India with a further mark-up, is mistaken and unfounded. Interest rate mark-up would apply to international transactions granting/availing loans, advances, etc.

19. The Tribunal adjudicated as under: “5.0 We have carefully considered the submissions made by both the sides and have also perused the material available on record. It is seen that the issue in dispute has been decided in favour of the assessee by the coordinate Bench of this Court in earlier assessment years and the order passed by the coordinate Bench for A.Y.2009-10 has also been upheld by the Hon’ble Jurisdictional High Court. In earlier years the issue in dispute has been decided in favour of the assessee by the coordinate Bench by taking into consideration the following decisions of the Hon’ble Jurisdictional High Court:- (i) Maruti Suzuki India Ltd. vs. CIT reported in 381 ITR 117 (Delhi); (ii) CIT vs. Whirlpool of India Ltd. reported in 381 ITR 154 (Delhi); (iii) Honda Siel Power Products Ltd. vs. Dy. CIT reported in 237 Taxman 304 (Delhi); (iv) Bausch and Lomb Eyecare (India) Pvt. Ltd. v. Addl. reported in CIT 381 ITR 227 (Delhi); 5.1 In the year under consideration there is no change in the facts and circumstances of the case as compared to A.Y. 2009-10 and even the agreements between assessee and the AE continue to be operational for the year under consideration. We, therefore, concur with the reasoning given by the coordinate Bench for A.Y. 2009- 10,wherein, it is held as under:- “8. We have considered the submissions made by the parties and have also perused the material available on record. Undisputedly, the main data processing and subsidiary distribution activities of the appellant have been held to be at the arm's length price applying the transactional net margin method. Provision of the information technology enabled services to associated enterprise under the agreement has been thoroughly benchmarked by the Transfer Pricing Officer. Most appropriate method being the transactional net margin method has not been doubted and after an in-depth analysis of comparable companies selected by the appellant and by tinkering with the same the learned Transfer Pricing Officer has given a finding that OP/OC of the assessee is 20.27 per cent and OP/OC of revised comparable set is 23.94 per cent. No adjustment made on this account has been made as the difference is within + five per cent range. The learned Transfer Pricing Officer, however, has segregated the advertisement, marketing and promotion expenses and held that being an independent transaction it requires to be benchmarked independently. In these circumstances, in our opinion, the fundamental question to be answered is to decide as to whether in the absence of any agreement, arrangement or understanding for either incurring the advertisement, marketing and promotion expenses on behalf or for the benefit of the associated enterprise or for payment of the advertisement, marketing and promotion expenses by the associated enterprise can it be held that there was an "international transaction" only on the basis that the advertisement, marketing and promotion expenditure, incurred by the appellant, would have benefited the associated enterprise, who owned the brands used by the appellant. The learned authorized representative has rightly submitted that this is a jurisdictional issue, which requires a foremost adjudication and only if the answer to this issue is against the appellant that the matter then required a de novo adjudication in the light of the jurisdictional High Court decision in the case of Sony Ericsson Mobile Communications (supra). The above line of adjudication is also supported by the decision of the honourable jurisdictional High Court in the case of Diakin Airconditioning India (P.) Ltd. (supra) wherein it is held as under: "Accordingly, the court directs as under: (a) The impugned order dated October 8, 2015, passed by the Income-tax Appellate Tribunal in I. T. A. No. 5090/DEL/2010 for the assessment year 2006-07 is set aside and the said appeal is restored to the file of the Income-tax Appellate Tribunal ; (b) The Income-tax Appellate Tribunal will first decide the question regarding the existence of an international transaction involving AMP expenses between the assessee and its associated enterprise. This question will not be remanded by the Income-tax Appellate Tribunal to any other authority for decision. If the said question is answered in favour of the assessee, then no other question would arise. If answered against the assessee, then the Income-tax Appellate Tribunal will decide the further issues that arise in the appeal in accordance with law." 8.1 The case records further show that both the lower authorities have categorically given a finding that there existed a "transaction" for brand promotion between appellant and its associated enterprise. This is also under challenge before us. Hence, it cannot be said that necessary facts are not on record. With regard to the submissions of the learned Departmental representative that the issue of advertisement, marketing and promotion expenses be restored back to the file of the learned Transfer Pricing Officer, we would like to state that since facts necessary to determination are on record the law laid down by the honourable jurisdictional High Court has to be given effect to. It is not even the argument of the learned Commissioner of Income-tax (Departmental representative) that any fresh fact is required for such a determination. Under the circumstances, a direction for remand is not called for. The honourable jurisdictional High Court in various cases have highlighted the tests to be applied for ascertaining whether there exists a transaction for brand promotion in a particular case. The learned authorised representative has impartially summarised the relevant propositions from these decisions in his note, which we have reproduced above. We find that in the cases of Maruti Suzuki India Ltd. v. CIT [2015] 64 taxmann.com 150/[2016] 237 Taxman 256/381 ITR 117, CIT v. Whirlpool of India Ltd. [2015] 64 taxmann.com 324/[2016] 237 Taxman 49/381 ITR 154 (Delhi), Bausch & Lomb Eyecare (India) (P.) Ltd. [2016] 65 taxmann.com 141/237 Taxman 24/381 ITR 227 (Delhi) the honourable High Court on the issue of the advertisement, marketing and promotion expenses has deliberated upon extensively on each and every argument raised by the Transfer Pricing Officer/Dispute Resolution Panel and has analysed the same threadbare. We would like to reproduce the relevant portion of the judgment of Bausch & Lomb Eyecare (India) (P.) Ltd.'s case (supra) as under (page 251): "A reading of the heading of Chapter X ('Special provisions relating to avoidance of tax') and section 92(1) which states that any income arising from an international transaction shall be computed having regard to the arm's length price and section 92C(1) which sets out the different methods of determining the arm's length price, makes it clear that the transfer pricing adjustment is made by substituting the arm's length price for the price of the transaction. To begin with there has to be an international transaction with a certain disclosed price. The transfer pricing adjustment envisages the substitution of the price of such international transaction with the arm's length price. Under sections 92B to 92F, the pre-requisite for commencing the transfer pricing exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the arm's length price by applying one of the five price discovery methods specified in section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the arm's length price and make the transfer pricing adjustment by substituting the arm's length price for the contract price. Section 92B defines 'international transaction' as under: '92B. Meaning of international transaction.—(1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit service or facility provided or to be provided to anyone or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise; or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.' Thus, under section 92B (1) an 'international transaction' means— '(a) a transaction between two or more associated enterprises, either or both of whom are non-resident, (b) the transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more associated enterprises for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection with the benefit, service or facility provided or to be provided to one or more of such enterprises.' Clauses (b) and (c) above cannot be read disjunctively. Even if resort is had to the residuary part of clause (b) to contend that the AMP spend of BLI is 'any other transaction having a bearing' on its 'profits, incomes or losses', for a 'transaction' there has to be two parties. Therefore, for the purposes of the 'means' part of clause (b) and the 'includes' part, of clause (c), the Revenue has to show that there exists an 'agreement' or 'arrangement' or 'understanding' between BLI and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i)(a) to (e) to section 92B are described as an 'international transaction'. This might be only an illustrative list, but significantly it does not list advertisement, marketing and promotion spending as one such transaction. In Maruti Suzuki India Ltd. [2016] 381 ITR 117 (Delhi), one of the submissions of the Revenue was (page 144) : 'The mere fact that the service or benefit has been provided by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit'. This was negatived by the court by pointing out (page 144): 'Even if the word "transaction" is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to section 92F(v), which defines "transaction" to include "arrangement", "understanding" or "action in concert", "whether formal or in writing", it is still incumbent on the Revenue to show the existence of an "understanding" or an "arrangement" or "action in concert" between MSIL and SMC as regards advertisement, marketing and promotion spend for brand promotion. In other words, for both the "means", part and the "includes" part of section 92B(1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC.' In Whirlpool of India Ltd. [2016] 381 ITR 154 (Delhi), the court interpreted the expression 'acted in concert' and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Co. Ltd. v. Jayaram Chigurupati [2010] 157 Comp Cas 380 (SC) ; [2010] 6 MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy group. The question that was examined was whether at the relevant time the appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy' were 'acting in concert' within the meaning of regulation 20(4)(b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In paragraph 44, it was observed as under (page 408 of 157 Comp Cas): 'The other limb of the concept requires two or more persons joining together with the shared common objective and purpose of substantial acquisition of shares, etc., of a certain target company. There can be no "persons acting in concert" unless there is a shared common objective or purpose between two or more persons of substantial acquisition of shares, etc., of the target company. For, dehors the element of the shared common objective or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of acquisition of substantial acquisition of shares, etc., of the target company. It is another matter that the common objective or purpose may be in pursuance of an agreement or an understanding, formal or informal ; the acquisition of shares, etc., may be direct or indirect or the persons acting in concert may co-operate in actual acquisition of shares, etc., or they may agree to co-operate in such acquisition. Nonetheless, the element of the shared common objective or purpose is the sine qua non for the relationship of "persons acting in concert" to come into being.' The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the assessee and the advertisement, marketing and promotion expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such advertisement, marketing and promotion expenditure incurred, for the associated enterprise. In any event, after the decision in Sony Ericsson [2015] 374 ITR 118 (Delhi), the question of applying the bright line test to determine the existence of an international transaction involving the advertisement, marketing and promotion expenditure does not arise. There is merit in the contention of the assessee that a distinction is required to be drawn between a 'function' and a 'transaction' and that every expenditure forming part of the function, cannot be construed as a 'transaction'. Further, the Revenue's attempt at recharacterising the advertisement, marketing and promotion expenditure incurred as a transaction by itself when it has neither been identified as such by the assessee or legislatively recognised in the Explanation to section 92B runs counter to the legal position explained in CIT v. EKL Appliances Ltd. [2012] 345 ITR 241 (Delhi) which required a Transfer Pricing Officer 'to examine the "international transaction" as he actually finds the same'. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc. holds 99.9 per cent. of the share of the assessee will not ipso facto lead to the conclusion that the mere increasing of the advertisement, marketing and promotion expenditure by the assessee involves an international transaction in that regard with B&L, USA. A similar contention by the Revenue, namely that even if there is no explicit arrangement, the fact that the benefit of such advertisement, marketing and promotion expenses would also enure to the associated enterprise is itself sufficient to infer the existence of an international transaction has been negatived by the court in Maruti Suzuki India Ltd. [2016]381 ITR 117(Delhi) as under (page 146): 'The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a "mirage".

First of all, there has to be a clear statutory mandate for such an exercise. The court is unable to find one. To the question whether there is any "machinery" provision for determining the existence of an international transaction involving advertisement, marketing and promotion expenses, Mr. Srivastava only referred to section 92F(ii) which defines arm's length price to mean a price "which is applied or proposed to be applied in a transaction between persons other than associated enterprise in uncontrolled conditions". Since the reference is to "price" and to "uncontrolled conditions" it implicitly brings into play the bright line test. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the arm's length price. The court does not see this as a machinery provision particularly in light of the fact that the bright line test has been expressly negatived by the court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established dehors the bright line test. . . . What is clear is that it is the "price" of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an arm's length price, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed "price" of such transaction and thereafter ask whether it is an arm's length price. If the answer to that is in the negative the transfer pricing adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the associated enterprises involved may seek to shift from one jurisdiction to another. An "assumed" price cannot form the reason for making an arm's length price adjustment. Since a quantitative adjustment is not permissible for the purposes of a transfer pricing adjustment under Chapter X, equally it cannot be permitted in respect of advertisement, marketing and promotion expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the advertisement, marketing and promotion spend of the assessee on application of the bright line test, is excessive, thereby evidencing the existence of an international transaction involving the associated enterprise. The quantitative determination forms the very basis for the entire transfer pricing exercise in the present case. . . . The problem with the Revenue's approach is that it wants every instance of an advertisement, marketing and promotion spend by an Indian entity which happens to use the brand of a foreign associated enterprise to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to section 92B of the Act. The problem does not stop here. Even if a transaction involving an advertisement, marketing and promotion spend for a foreign associated enterprise is able to be located in some agreement, written, (for e.g., the sample agreements produced before the court by the Revenue) or otherwise, how should a Transfer Pricing Officer proceed to benchmark the portion of such, advertisement, marketing and promotion spend that the Indian entity should be compensated for?' Further, in Maruti Suzuki India Ltd. [2016] 381 ITR 117 (Delhi) the court further explained the absence of a machinery provision qua the advertisement, marketing and promotion expenses by the following analogy (page 149): 'As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to section 40A(2)(a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the Assessing Officer "is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods". In such event, "so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction". The Assessing Officer in such an instance deploys the "best judgment" assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding "machinery" provision in Chapter X which enables an Assessing Officer to determine what should be the fair an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance.' In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) ; [2002-TIOL-587-SC-IT-LB] and PNB Finance Ltd. v. CIT [2008] 307 ITR 75 (SC) make this position explicit. Therefore, where the existence of an international transaction involving AMP expense with an ascertainable price is unable to be shown to exist, even if such price is nil, Chapter X provisions cannot be invoked to undertake a transfer pricing adjustment exercise. As already mentioned, merely because there is an incidental benefit to the foreign associated enterprise, it cannot be said that the advertisement, marketing and promotion expenses incurred by the Indian entity was for promoting the brand of the foreign associated enterprise. As mentioned in Sassoon J. David [1979] 118 ITR 261, 276 (SC) 'the fact that somebody other than the assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under section 10(2)(xv) of the Act (Indian Income-tax Act, 1922) if it satisfies otherwise the tests laid down by the law'.

8.2 On a careful consideration of the facts on record we are of the opinion that there is nothing on record to show that the appellant by incurring the advertisement, marketing and promotion expenses wanted to promote its associated enterprise. The learned Transfer Pricing Officer has failed to prove that the appellant by incurring the advertisement, marketing and promotion expenses wanted to benefit the associated enterprise and not to promote its own business. The submission of the learned Transfer Pricing Officer that clauses 10.02, 10.05, 11.01 and article XVI of the agreement indicate the existence of a "transaction" for brand promotion is not supported by contents of those clauses. The appellant's objections before the learned Dispute Resolution Panel, which we have quoted above, are acceptable. These clauses nowhere provide that the appellant will be incurring brand promotion expenses for and on behalf of its associated enterprise or solely for its business purposes and interests. The agreement dated October 1, 2004, between the appellant and its associated enterprise is based upon the revenue sharing model in which 46 per cent revenue is being shared by Amadeus Spain with the appellant and, hence, it is difficult to visualise that the appellant will not be incurring routine advertisement expenses in its entrepreneur capacity. Excluding the payment of incentives, which in the earlier years have been held, to be pure selling expenses the ratio of the AMP/sales of the appellant is mere 2.29 per cent. The learned authorised representative is also right in relying upon the decision of the honourable jurisdictional High Court in the case of Sony Ericsson Mobile Communications (supra) for submitting that events which would transpire on termination of distribution require a transfer pricing adjustment at that stage but the same will be immaterial to presume the existence of an agreement, arrangement or understanding in the year under consideration. In this regard the honourable High Court at paragraph 153 of its reported judgment has been pleased to be hold as under (page 217): "Economic ownership of a brand is an intangible asset, just as legal ownership. Undifferentiated, economic ownership brand valuation is not done from moment to moment but would be mandated and required if the assessed is deprived, denied or transfers economic ownership. This can happen upon termination of the distribution-cum-marketing agreement or when economic ownership gets transferred to a third party. Transfer pricing valuation, therefore, would be mandated at that time. The international transaction could then be made a subject matter of transfer pricing and subjected to tax." 8.3 As held above, the appellant has raised objections before the learned Dispute Resolution Panel that none of the above clauses of the agreement make it mandatory for the appellant to incur the brand promotion expenses for and on behalf of the associated enterprise. The learned Dispute Resolution Panel has not disturbed these objections but has upheld the case of the learned Transfer Pricing Officer on some other grounds, i.e., (i) by relying upon the Special Bench decision in the case of L. G. Electronics India (P.) Ltd. v. Asstt. CIT [2013] 29 taxmann.com 300/140 ITD 41 (Delhi - Trib.) [SB] ; (ii) by holding that since the appellant is a dependent agency permanent establishment of its associated enterprise hence all the expenses on advertisement, marketing and promotion are being incurred by it for the benefit of the associated enterprise, and (iii) by relying upon the amended provisions of section 92B. We do not find any substance in the above approach of the learned Dispute Resolution Panel. The decision of the Special Bench in L.G. Electronics (P.) Ltd. (Supra) is no more good law post above decisions of the jurisdictional High Court. We have already reproduced the above findings of the jurisdictional High Court in the case of Bausch & Lomb Eyecare (India) (P.) Ltd. (supra) wherein it is held that (page 253) ". . . As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i)(a) to (e) to section 92B are described as an 'international transaction'. This might be only an illustrative list but significantly it does not list advertisement, marketing and promotion spending as one such transaction . . ." hence the amendments to section 92B by the Finance Act, 2012, also do not support the case of the Revenue lastly on the observations made by the learned Dispute Resolution Panel that since the appellant is a dependent agency permanent establishment of its associated enterprise, hence, all its expenses on advertisement, marketing and promotion are being incurred by it for the benefit of associated enterprise we would like to state that this is also entirely irrelevant. While alleging as the above the learned Dispute Resolution Panel has not appreciated that the appellant has been held to be a dependent agent permanent establishment of Amadeus Spain for determination of Amadeus Spain's income, which is taxable in India. Moreover, we may refer here the decision of the honourable jurisdictional High Court in the case of Whirlpool of India Ltd. (supra) wherein it is held by the honourable High Court as under (pages 175, 179 of 381 ITR): The provisions under Chapter X do envisage a 'separate entity concept'. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that the advertisement, marketing and promotion expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning the advertisement, marketing and promotion expenses . . . .

As already mentioned, merely because there is an incidental benefit to Whirlpool, USA, it cannot be said that the advertisement, marketing and promotion expenses incurred by WOIL was for promoting the brand of Whirlpool, USA. As mentioned in Sassoon J. David [1979] 118 ITR 261 (SC) 'the fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under section 10(2)(xv) of the Act (Indian Income-tax Act, 1922) if it satisfies otherwise the tests laid down by the law." 8.4 Considering the material facts like the absence of an agreement, arrangement or understanding between the appellant and its associated enterprise for sharing the advertisement, marketing and promotion expenses or for incurring the advertisement, marketing and promotion expenses for the sole benefit of the associated enterprise, payments made by the appellant under the head "advertisement, marketing and promotion" to the domestic parties cannot be termed as an "international transaction" specifically when the learned Transfer Pricing Officer has not been able to prove that the expenses incurred were not for the business carried out by the appellant in India. We are thus of the opinion that the Transfer Pricing Officer had wrongly invoked the provisions of Chapter X of the Act for the said advertisement, marketing and promotion spent. The addition of Rs. 75,40,09,515 is, therefore, directed to be deleted. Ground Nos. 4 to 4.4 are therefore allowed. Considering our conclusions above ground Nos. 5 and 5.1 do not require any adjudication.” 5.2 The order passed by the coordinate Bench for A.Y. 2009-10 has also been followed by the Tribunal vide order dated 23rd October, 2017 in for A.Y. 2010-11. Moreover, the decision of the coordinate Bench for A.Y.2010-11 has also been upheld by the Hon’ble Jurisdictional High Court in ITA No. 154/2017 vide order dated 26th April, 2017 as under:- “3. The first issue concerns the deletion of the transfer pricing adjustment of Rs.75,40,09,515/- on account of Advertising, Marketing and Sales Promotion Expenses (AMP Expenses) relying upon the decisions of this Court including the decision in Bausch & Lomb Eyecare (India) Pvt. Ltd. vs. Additional Commissioner of Income Tax (2016) 381 ITR 227 (Del).

4. As far as the above issue is concerned, it is covered by the earlier decisions of this Court against the Revenue. This Court is not inclined to frame any substantial question of law on this issue.” 5.3 Respectfully following the above binding precedents, it is concluded that the TPO has wrongly invoked the provisions of Chapter X of the Act. The addition of Rs.114.89 crores, is therefore, directed to be deleted. Ground Nos. 3 & 3.1 are, therefore, allowed. Considering our conclusions, other grounds challenging various other facets of the impugned addition do not require any adjudication as having become in fructuous.”

It has also relied upon the order of this Court in ITA 154/2017 dated 22.05.2017 which has upheld the findings of the Tribunal for the assessment year 2009-10. Mr. Hossain learned senior standing counsel for the Appellant fairly states that so far as these issues are concerned, they stand concluded by this Court.”