ARMSTRONG INTERNATIONAL PRIVATE LIMITED,CHENGALPUT vs. DCIT, CHENNAI

आदेश / O R D E R

PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER 1.0 These cross appeals are filed by the Revenue and the assessee for the AY 2010-11. The revenue has filed appeal against the directions of DRP order dated 19/12/2014 and the assessee has filed the appeal against the DRP/TPO Assessment Order passed u/s143(3) r.w.s. 143(3) of Income Tax Act dated 21.01.2014.

2.0 Revenue in challenged the order of the DRP on the following grounds:

3.0 In the assessee challenged the order of the DRP/TPO/AO on the following grounds:

1. The order of the Deputy Commissioner of Income tax, corporate circle 1(1), Chennai (Assessing Officer or the AO) passed pursuant to the order of the Learned Deputy Commissioner of Income-tax (Transfer Pricing Officer or TPO) and the directions issued by the Hon’ble Dispute Resolution Panel, Chennai (DRP) to the extent prejudicial to the Appellant, is erroneous, bad in law and contrary to the facts and circumstances of the case.

, :- 3 -: 782/Mds/2016 & 924/Mds/2015

2. Improper Transfer Pricing (TP) analysis: The Learned TPO/ AO and the Hon’ble DRP have erred, in law and in facts by not giving due consideration to provisions contained in the Income tax Rules, 1962 (the Rules) which provides for making adjustments to the transfer prices of the comparable companies in order to arrive at proper comparability.

3. Incorrect TP adjustment: The Learned TPO/AO and the Hon’ble DRP have erred in law and facts by adjusting the Appellant’s international transactions without appreciating the facts and circumstances of the case, and without providing any cogent reasons.

4. First year of full-fledged operations of the Appellant: The Learned TPO/AO and the Hon’ble DRP have grossly erred in not appreciating the fact that while the subject AY is the Appellant’s first full-fledged year of operations and the companies chosen for comparability are well established players in the Indian market, thereby requiring suitable economic adjustments to be made.

5. Idle capacity adjustment not provided: The Learned TPO/AO and the Hon’ble DRP have erred in law and facts by not providing idle capacity adjustments (to account for differences in capacities utilized by the Appellant and the comparable companies) as prescribed under Rule 10B(3)(ii) of the Income tax Rules, 1962 for equitable and reliable comparability analysis.

6. Working capital adjustment not provided: The Learned TPO/AO and the Hon’ble DRP have grossly erred, in law and facts, by not providing working capital adjustments (i.e. to account for differences between the working capital cycle of the Appellant and the comparable companies) as provided under Rule 10B(3)(ii) for equitable and reliable comparability analysis.

7. Exclusion of valid comparable: The Learned TPO/AO and the Hon’ble DRP have erred in facts by excluding Hawa Engineers Limited, a functionally comparable company as selected by the Appellant in the TP documentation without providing any cogent reasoning for the same.

8. Use of single year data instead of multiple year data provided in the Income Tax Rules: The Learned TPO/AO and the Hon’ble DRP have grossly erred in law and in facts, by rejecting the use financial data of the prior two years i.e. FY 2008-09, FY 2007-08, which is permitted under proviso Rule 10B(4) of the Income tax Rules without providing any cogent reasons for the same.

9. TP adjustment not restricted to the value of international transactions: Without prejudice to the above, The Learned TPO/AO and the Hon’ble DRP have grossly erred in law and in facts by not restricting the transfer pricing adjustment to the value of international transactions, but making the adjustment on the entire cost base of the Appellant which also includes third party costs.

The issues involved in both the appeals are transfer pricing adjustment relating to Brand Promotion/Advertising/Marketing.

Since the issues are common both the appeals are taken up , :- 4 -: 782/Mds/2016 & 924/Mds/2015 together, heard, disposed off in common order for the sake of convenience.

4.0 M/s. Armstrong International Pvt. Ltd.(AIPL) (earlier M/s.Armstrong Utilities Solutions Pvt. Ltd.,) (hereinafter referred to as assessee) incorporated in November, 2007 is part of Armstrong International Group). The group has been pioneered in various energy saving developments in the generation and distribution of steam compressed air and hard water in terms of its products, service and engineering offerings.

During the assessment proceedings, the AO found that the assessee has entered into international transactions of export services, import of materials, export of finished goods, import of services Loan received, loan paid, payment of interest thereon, import of capital goods, allotment of shares, receipt of share application money and reimbursement of expenses aggregating to Rs.25,25,17,687/- and reference has been made to TPO to determine the Arms Length Price(ALP) of international transaction.

4.1 In transfer pricing proceedings, the assessee explained its functions, assets and risks “FAR” analysis. The functions of the assessee includes import of materials, export of finished goods, import of services, import of capital goods, post sale support service as well as marketing and administrative services. The assessee had highlighted the role of its AE in almost all the above functions. With regard to the assets, assessee , :- 5 -: 782/Mds/2016 & 924/Mds/2015 allowed the usage of land, office, routine business, plant and equipment, delivery of vehicles, forklifts, motor cycles etc. in India to the AE. The AE was stated to have facilitated for ongoing supply of technical assistance, new patents, copy right material, intellectual property utilized in India on going supply of technical assistance, confidential information or formal or other technical information. In addition to this, both the entities have also reciprocated in providing skills of their employees to each other.

4.2 For the assessment year 2010-11, the TPO has noticed that the company has incurred Rs.17.30 Cr. as expenditure against the sale and service income of Rs.10.73 Cr. As per transfer pricing documents page No.39 submitted by the assessee company, it was noticed by the TPO that while computing the margin, a part of expenditure amounting to Rs.7,26,74,144/- was segregated as expenditure towards the market development/Brand promotion expenses.

4.3 The assessee company claimed Rs.8.60 Cr. as operating cost and admitted the operating income of Rs.9.43 Cr. resulting in operating profit of Rs.82,56,878/- which was worked out to 8.80% and the operating cost was worked out to 9.60%. The assessee company selected 8 companies as comparables and worked out the arithmetic mean of 5.82 as margin.

The TPO has excluded the four companies named Hawa Engineers for RPT more than 32%, Bellis India Ltd, M/s.Batra Associates and Apollo Industrial products for non availability of data in public domain from the , :- 6 -: 782/Mds/2016 & 924/Mds/2015 comparables of the assessee company and worked out the average margin at 9.08% and issued show cause notice to the assessee as to why the market Development/Brand promotion should not be part of operating cost and requested to furnish the note. In reply, the assessee submitted a letter dated 21.11.2003 stating that the company has incorporated in November, 2007 established its full-fledged manufacturing facility during the FY 2009-10 (A.Y 2010-11). Until the FY 2009-10, the company was primarily engaged in trading of components manufactured by others or a sourced from Associated Enterprises. The FY 2008-09 being the initial year of operation in India, the company had incurred significant expenses towards market development for its products. Hence, it has classified the expenses under the head market development expenses. The market development expenses in its true sense represents the expenses incurred by the company for market development and other over heads which were not directly linked to the turnover level. Further, the assessee stated before the TPO that the company affected sales which were not adequate to reach the breakeven level. Owing to the fact that it could operate approximately at 30% at the installed capacity and hence, the fixed over heads incurred were predominantly production and administrative over heads and hence such over heads which were above the level of capacity utilized were categorized under operating capacity adjustments. The general nature of expenses incurred was rent, travel, profession, communication and rates and taxes. The assessee further stated that it has incurred sales promotion and marketing expenses during the year , :- 7 -: 782/Mds/2016 & 924/Mds/2015 aggregating to Rs.81,42,424/- only. The expenses categorized under market development expenses were incurred over and above the operating capacity utilized are claimed as capacity adjustments. The company has manufactured 15702 units against the installed capacity of 50000 units which translates to capacity utilization approximately 30%.

Further, the assessee explained that the work Armstrong and its logo were global trade marks having universal applicability regardless as it quoted under implied understanding with AE for development of its market for products and services under the patronage of global trade market. As per the assessee, the expenditure predominantly incurred relates to the regular business expenditure which was wholly incurred for the purpose of carrying on business and no market development brand expenditure was incurred on behalf of the AE. The marketing expenditure incurred was only Rs.81,42,424/-.

The TPO observed that the assessee selling the products with the name and logo of Armstrong. For the assessment year 2010-11, the assessee company has exported Rs.2.93 Cr. of value of goods to AE out of total sale of Rs.7.13 Cr. and company has imported materials from its AE to the tune of Rs.4.39 Cr. against total purchase of Rs.6.29 Cr. and the AE of the assessee’s company influenced in both import and export of materials. The AO found that out of the total expenditure of Rs.17,30,85,325/-, the assessee has incurred the amount of , :- 8 -: 782/Mds/2016 & 924/Mds/2015 Rs.7,26,74,144/- towards market development and brand promotion of AE.

The TPO went through the explanation and observed that the AE owned the brand name and logo and the assessee has provided brand development services. The TPO, further, noticed that during the previous year relevant to the assessment year 2010-11, the assessee has made in- house manufacturing of 3101 units and sourced through sub-vendor 9106 units for the aggregate sales of 12207 units. The percentage of goods manufactured through the in-house manufacturing facility compared to the actual sale of 12000 units stated in the financial statement is less than 25%. The assessee’s total income was Rs.10.73 Cr. and total expenses were Rs.17.30 Cr., thereby incurring excess expenditure of Rs.7.26 Cr. for the sale of brands of Armstrong and the use of Logo of Armstrong. The assessee has not developed its own brand and the parent company has not permitted the assessee to own the brand name of Armstrong.

Therefore the TPO rejected the assessee’s contention as under: i. The assessee company has stated that it is engaged only, in manufacturing activity and not in trading activity. However, in the financial statement of the assessee vide Para 19 of Schedule 18 it is clearly mentioned that the company is having income of Rs.3.14 Cr from trading activity. Moreover, in functional analysis given by the assessee company in the TP document, it is nowhere discussed that the company is engaged in the manufacturing activity. From the above, it is clear that the assessee is contradicting its own argument as the company is carrying full-fledged manufacturing activity. ii. Further, in page 40 of the TP document, the assessee company had bifurcated the income and expenses based on its activity as Manufacturing & servicing activity and market development / brand promotion activity. iii. Segmentation of trading & market development / brand promotion has been done by the assessee company itself and not by the TPO. iv. In Para 2 of reply to show cause, the assessee has stated that the development / brand promotion is only a nomenclature and no such activity , :- 9 -: 782/Mds/2016 & 924/Mds/2015 has been carried out. The argument of the assessee is an afterthought, as a separate department of the assessee is doing a market development activity which in turn develops the brand promotion. Even out of Rs.3.77 Crore incurred towards staff cost, 50% of it incurred towards marketing department which amounts to Rs.1.80 Cr. The finance cost and loss on sale of fixed assets are included under the head market development / brand promotion which ‘clearly shows that a separate marketing department is operating to do brand development.

The argument of the assessee that the salary paid to personnel working in marketing and sales department not only results in brand promotion and performing other activities such as tendering, order booking, order negotiation and follow up activity has no base. The quantum of the expenditure incurred towards the sales department is 545% more than the cost of salary engaged in manufacturing activity. It clearly shows that the activities mentioned by the assessee are indeed incidental activities and the main activity is the market development/ brand promotion only. The product of the assessee is a heavy engineering item and the market development / brand promotion can be done only by the way of putting more personnel to do market development and which is not the case as brand promotion by the way of advertisement is applicable to consumer goods. v. In Para No 5 of reply to show cause, the assessee itself agreed that the brand of AE was used by Armstrong India under an implied agreement and without payment of any royalty. The payment of royalty is not an important and decisive factor to decide whether the assessee company is doing market development / brand promotion of ‘Armstrong’ as the ultimate benefit goes to Armstrong, USA by the way of brand development of assessee. The Armstrong, USA may direct to pay the royalty for using the brand ‘Armstrong’ if the brand name is used by Armstrong India without performing brand development activity which is not the case so. vi. During the financial year 2009-10 the company exported Rs.2.93 Cr. value of goods to its AE out of the total sale of Rs.7.13 Cr and the company has imported the materials from its AE to the tune of Rs.4.39 Cr against total purchase of Rs.6.29 Cr which shows that the AE of the assessee company has influenced both importing and exporting of materials. In these circumstances, the expenditure incurred for brand promotion should be borne by the associated enterprises of the assessee company only, since the associated enterprise is the ultimate beneficiary. vii. The assessee stated that the sale of products has increased to Rs.7.13 cr, Rs.9.79 cr and Rs.23.11 cr during the FY 2009-10, 2010-11 & 2011-12 respectively. However, during the FY 2009-10, the assessee company has incurred expenditure towards the market development / brand promotion to the tune of Rs.7.26 Cr. against Rs.6.82 Cr. incurred during the FY 2008-09 which shows that the sales has not increased proportionately to the expenditure incurred towards market development / brand promotion. During FY 2009-19 the assessee company has exported the goods to the tune of Rs.2.93 Cr to its AE out of the total sale of Rs.7.13 Cr and imported Rs.4.39 Cr of goods from its AE against the total purchase of Rs.9.26 Cr. It shows that the expenditure incurred towards market development or brand promotion benefits its AE only.

, :- 10 -: 782/Mds/2016 & 924/Mds/2015 viii. The brand name Armstrong is already existing across the globe and owned by the group Company. It is clear from the legal notice issued by M/s.Armstrong international, Inc. and the respective para is reproduced as follows:

“All content on this Site, such as text, graphics, logos, button icons, images, audio clips, digital downloads, data compilations and software, is the property of Armstrong or its content suppliers and is protected by the U.S. and international copyright laws This website contains and uses intellectual property that is owned by, or licensed to Armstrong, and which shall remain the intellectual property of Armstrong and/or its licensors without limiting the generality of the foregoing, “ARMSTRONG,” “ARMSTRONG INTERNATIONAL, ”ARMSTRONG SERVICE” and other trademarks, trade names, graphics, logos, page headers, button icons, scripts, product names and numbers, and service names are trademarks, registered trademarks, or trade dress of Armstrong in the U.S. and/or other countries Armstrong’s trademarks and trade dress may not be used in connection with any product or service that is not Armstrong’s, in any manner that is likely to cause confusion among customers, or in any manner that disparages or discredits Armstrong”. In this circumstances, the assessee company cannot use the brand name “Armstrong” without the consent of the parent company as stated by the assessee company. ix. The brand Armstrong is new in India and hence promotional efforts were undertaken by the assessee. The marketing expenditure. incurred by the assessee might have been effective or in effective but that does not take away/the fact that admittedly the expenditure was incurred on brand promotion. The assessee does not have any documentary evidence to show that Armstrong brand in India is owned by it or the AE has allowed some concession to the assessee to exploit the brand in India against the promotional efforts. The increase in the assessee’s is primarily a distributor of AEs goods in India, and thus assessee’s increased turnover means more business for the AE. Even the assessee’s manufacturing activity mostly consists of buying raw material from the AE and selling the finished goods to the AE. This type of activity does not require brand promotion of its own. Thus the brand promotion is essentially helpful in selling the AEs goods in India. Now, it was for the assessee to show that this type of brand promotion expenditure is routine in this line of business with the help of comparables. This has not been done. x. An independent distributor or contract manufacturer would claim that the distributor is a service provider, that it should recharge all of the promotional expenditure and earn a basic reward for the other activities it undertakes. Frequently independent distributors who have to promote their products may oblige the licensor to contribute towards brand promotion and maintenance. xi. The assessee’s turnover in this year is only a part of the expenditure incurred on brand development. Now it is clear that if the assessee had not been a part of the Armstrong group it would not have incurred such heavy brand promotion expenditure. No independent distributor in its first year of business would undertake such heavy expenditure on brand promotion. It is claimed that the assessee wanted to start manufacturing on its own in future and therefore the expenditure is justified. However, the facts do not support the assessee’s claim. There is nothing on the record to show that the assessee has been guaranteed free use of Armstrong brand in India for its manufacturing activities in future. The Armstrong brand continued to be owned by the AE. There is no agreement that if the assessee incurs brand promotion expenditure it would be compensated in any other form.

, :- 11 -: 782/Mds/2016 & 924/Mds/2015 xii. Without prejudice to the above argument as per matching concept, the assessee has to claim the expenditures related to the income in the books of account. In the present case, the assessee has claimed all the expenditure incurred towards market development / brand promotion as revenue in nature. Hence, the same has been considered as operating cost and margin has to be calculated after taking into the account the expenditure incurred towards the market development / brand promotion. xiii. The assessee has not produced any uncontrolled comparable to show that this type of brand promotion expenditure is routine in the industry. It may be reiterated here that the brand promotion expenditure incurred by the assessee exceeds the assessee’s turnover. xiv. It is settled law that the idle capacity adjustment should be considered while computing the ALP to nullify the differences of unabsorbed fixed overhead cost between the assessee and comparable companies. However, the assessee company has not been demonstrated the, quantum of the unabsorbed fixed overhead cost. Moreover, the assessee is also engaged in trading & service activity along with brand promotion. In Para No.10 of reply to the show cause, the assessee stated that out of total production of 12,207 numbers, 3,101 were manufactured in-house and 9,106 was manufactured through sub- vendors. It clearly shows that the assessee has not doing all the manufacturing activity in-house only. In these circumstances, the quantum of unabsorbed fixed overhead cost towards manufacturing activity cannot be quantified. Hence, the adjustment towards unutilized capacity cannot be warranted. This stand was upheld by Hon’ble ITAT, Mumbai in the case of M/s.Royal Star Jewellery Pvt. Ltd.

Accordingly, the TPO held that the expenditure incurred towards Brand promotion/market development is a separate transaction and the same has to be reimbursed by its AE and it was calculated Rs.7,26,74,144/- as an international transaction u/s.92B of Income Tax Act reimbursable by AE to the assessee company.

4.4 The TPO also calculated the ALP of the services rendered by the assessee company at 13% of margin of the value of Rs.7,26,74,144/- which worked out Rs.94,47,638/- as mark up. For the purpose of finding out of ALP in respect of the services rendered, the TPO selected 12 comparable companies on the basis of search criteria and the filters , :- 12 -: 782/Mds/2016 & 924/Mds/2015 mentioned in the TPO order. Thus, the ALP of international transaction as

per section 1 & 2 of 92(c) of the Income Tax Act was determined at Rs.7,26,74,144/- Brand promotion/market development and mark up of Rs.94,47,638/- towards services rendered.

5.0. The AO issued Draft Assessment Order proposing the said adjustment of international transactions and additionally proposed to treat the Brand promotion/market development expenditure of Rs.7,26,74,144/- as capital expenditure and allow depreciation @25%. In response to the Draft Assessment Order the assessee went to DRP and raised eight objections on substantive grounds i.e. brand promotion could not be treated as international transaction, the relevant FY, the second year of operation and it has established its full-fledged manufacturing activity and required to spent on marketing and market development expenditure, no benefit to brand of AE, erroneous comparability analysis by TPO, entire expenditure under marketing head including direct selling expenditure incorrectly considered, idle capacity adjustment and marketing expenditure incorrectly classified as capital in nature. The DRP has considered the objections raised by the assessee and observed as under:

6.7.1 Assessee was basically the distributor of AE Products in FY 2008-9. It continued to be basically a distributor of AE’s products even in FY 2009-10 as it was only in only last three months manufacturing activity has been carried on. Even in respect to small manufacturing activity which the assessee has carried on it involved manufacturing on job work basis. Though the assessee has raised the issue of unutilized capacity, but based on assessee’s own submissions and other facts available on record it cannot be concluded that loss in this case was due to low , :- 13 -: 782/Mds/2016 & 924/Mds/2015 sales Revenue not taking care of heavy expenditure on fixed overheads. Therefore, the plea of the asséssee for capacity adjustment is rejected by this panel.

6.7.2 AE is the legal owner of the trade-mark and trade-name. The AE has made the assessee to acknowledge the fact that AE is the legal owner of the marketing intangibles and it would like the assessee to ensure that they may not be used in connection with any product or service that is not Armstrong’s, in any manner that is likely to cause confusion among customers, or in any manner that disparages or discredits Armstrong.

6.7.2 The assessee has incurred expenditure on AMP in this year as it incurred last year. This year the assessee has given details of AMP expenditure in TP documents at Rs.7,26,74,144/-. AMP expenditure disclosed by the assessee last year was Rs.6,82,52,534/-. If the expenditure excluded by the assessee from operating expenditure is not excluded and considered as part of operating expenditure then in last year as well as this year the expenditure exceeds the revenue receipts and therefore, the assessee incurred net loss.

6.7.3 No independent distributor would incur huge expenditure on market promotion and brand promotion and in this process find itself landing in loss, knowing well that trade name and trademarks belong to the AE. The assessee has confirmed this fact that it has not simultaneously developed its own brand. Armstrong as a brand name may be famous in other territories but in India market promotion is taking place due to heavy expenditure incurred by the assessee using the brand name legally owned by the AE. Therefore, this panel considers it proper in this case that the excess expenditure incurred by the assessee should be found out using transfer pricing methods. This Panel does not agree that the mark up which the TPO has computed of Rs.94,47,638/- is required in this case. There is nothing on record that indicates that market promotion and brand development has been carried on by the assessee way of service to the AE. The assessee is not into market promotion and brand development business. This panel holds the view that assessee has incurred excessive expenditure which is beyond the limit to which independent companies incur the expenditure. This is excessive expenditure as it has led to loss to the assessee whereas it gives benefits of economic ownership of marketing intangibles and increased exports by the AE to the assessee.

The DRP directed the AO to compute the arm’s length price of compensation on account of be reimbursed by the AE to the assessee at 46.68% of the cost Rs.17,30,85,325/-. It is calculated at Rs.8,07,96,229/- on the basis of difference in the operating margins (OP/OC) of uncontrolled comparables at 8.73 % and the assessee at (-) 37.95%) computed in which was computed at 46.68 % [(8.73%) -(-37.95)]. The DRP turned down the proposal of separate mark up of Rs.94,47,638/- services rendered and the AO’s proposal for holding it as capital , :- 14 -: 782/Mds/2016 & 924/Mds/2015 expenditure and consequent depreciation thereon. Accordingly the A.O passed the assessment order u/s.143(3) r.w.s.144C on 26/02/2015 assessing total loss of Rs.971797/- by making transfer pricing adjustment.

6.0 Appearing for the Revenue Mr.Arun Bharat, Ld.CIT/DR argued that for the assessment year 2009-10, he DRP confirmed the order of the TPO and held that the expenditure incurred was Brand promotion expenditure and for the year under consideration there was a change in the directions of the DRP which are inconsistent. According to the Ld.DR, the DRP should have confirmed the action of the TPO in holding that the reimbursement of brand promotion and market development expenditure to the extent of Rs.7,26,74,144/- and ALP of the services rendered by the assessee company to the extent of Rs.94,47,638/-. The Ld.DR also relied on the decision of ITAT “C” Bench in in the assessee’s own case for the A.Y2009-10. The Ld.DR argued that the Ld.DRP has not considered the decision of Hon’ble ITAT cited supra. The Ld.DR also relied on the decision of LG Electronics India Pvt. Ltd., 2013(29-Taxman.com 300 Delhi Special Bench).

On the other hand, the Ld.AR argued that the expenditure categorized under marketing development and brand promotion is a wrong nomenclature and in fact, the entire expenditure represented the genuine business expenditure which was incurred routinely. The TPO has made incorrect TP adjustments without understanding the factual circumstances of the case. The assessee is in the first full-fledged year of , :- 15 -: 782/Mds/2016 & 924/Mds/2015 operation and the DRP as well as TPO has chosen comparables of well established companies in the Indian market and it requires suitable economic adjustments. Against the installed capacity of 50000 units, the utilized capacity was only 12500 units and suitable ideal capacity adjustment required to be made as prescribed under Rule 10B(3)(ii) being first year of manufacturing, the company has substantial under utilization of capacity. The A.R also stated that as per the orders of the ITAT ’C’ Bench in assessee’s case, the TPO passed the order for the AY 2009-10 in respect of Brand promotion/marketing expenditure which worked out to Rs.30.92 lakhs and further proceedings (DRP & Assessment) are pending.

According to the AR, the expenditure incurred was not Brand Promotion/marketing expenditure and it was business expenditure.

7.0 We have considered the rival submissions and perused the material placed before us. In the assessee’s own case for the A.Y.2009-10 on same facts ITAT “C” Bench in for the assessment year remitted the matter back to the AO for computing the International transaction under the head marketing/brand promotion expenses on the basis of factors devised by the Hon’ble Special Bench in the case of LG Electronics India Pvt. Ltd. with the following directions:

Special Bench has devised following factors for determining cost/value of international transactions of brand/logo promotion:

“1. Whether the Indian AE is simply a distributor or is holding a manufacturing licence from its foreign AE?

14. How the brand will be dealt with after the termination of agreement between AEs?” From the case file, it is evident that these relevant factors have no where been considered by the lower authorities.

, :- 17 -: 782/Mds/2016 & 924/Mds/2015 In these circumstances, we deem it appropriate that the matter requires reexamination in detail. Thus, we remit the issue back to the file of the ‘TPO’ for decision afresh in accordance with law. Needless to say, the assessee would be entitled to place on record further material, if any, and also at liberty to raise all alternative contentions. From the perusal of the case records we observe that neither the AO/TPO nor the DRP have gone through the above issues. Therefore, we remit the matter back to the file of AO to consider the decision of Hon’ble Special Bench and the orders of this tribunal cited (supra) in the assessee’s own case for the earlier year and decide the matter afresh. It is needless to say that the assessee would be entitled to raise all the issues before the AO and the AO is directed to give opportunity of hearing.

8.0 In the result, the appeal of the Revenue and the assessee for the AY 2010-11 are allowed for statistical purposes. for the AY 2011-12 9.0 On the similar issue of advertising, marketing and brand development for the AY 2011-12, the TPO determined the ALP towards reimbursement of expenditure of Rs.7,88,93,161/- and mark up towards services rendered on account brand development promotion at Rs.72,18,750/-. The DRP in their Order dated 07.12.2015 directed the TPO to determine the reimbursement of expenses by AE at Rs.7.98 Cr. at the margin of 39.19% on cost of Rs.20.36 Cr. The DRP rejected the capacity utilization, data of earlier years and also the mark up for the services rendered following its earlier order for the AY 2010-11. However, the AO has made adjustment of Rs.1.60 lakhs in the final Assessment , :- 18 -: 782/Mds/2016 & 924/Mds/2015 Order as ALP adjustment of transfer pricing without any discussion. For query from the bench, neither the AR nor the DR could explain method of working at ALP at Rs.1.60 Cr. against the DRP direction of Rs.7.98 Cr.

However, in Page No.3 of Assessment Order, the AO referred to the TPO’s letter F.No.B-A-419/TPO 1(1)/2011-12 dated 14.01.2016. The TPO’s letter was not placed on record. As per Sec.144(c) of Income Tax Act, there is no provision to set aside the file back to the TPO or to the AO to arrive the quantum of addition. The DRP alone has to quantify the amount of adjustment after making necessary workings. In the instant case, the AO has not made any discussion towards the adjustment of Rs.1.60 lakhs against the direction of DRP at Rs.7.98 Cr. on account of advertising, marketing and brand development promotion. The issue involved in the AY is also brand promotion/advertising and marketing expenditure and the facts are identical to the AY 2010-11. The appeal for the AY 2010-11 is remitted back to the AO for de novo consideration.

Therefore, we set aside the order of the AO for the A.Y 2011-12 also and remit the matter back to the file of AO for fresh consideration, in the light of the discussion made in appeal for the AY 2010-11. All the issues are kept open before the AO and AO should give reasonable opportunity of being heard to the assessee. , :- 19 -: 782/Mds/2016 & 924/Mds/2015 10.0 In the result, the appeal of the assessee for the A.Y 2011-12 is allowed for statistical purposes.

Order pronounced in the open court on 23rd December, 2016, at Chennai.