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Facts
The assessee, Tupperware India Private Limited, is in appeal against the assessment order for AY 2020-21. The appeal concerns additions made by the Assessing Officer (AO) and challenges initiated by the Transfer Pricing Officer (TPO) concerning distributor expenses, AMP expenses, management fees, and interest on receivables.
Held
The Tribunal held that the disallowance of distributor expenses was unjustified as they were incurred for business purposes. Regarding AMP expenses, the Tribunal followed previous decisions and found no international transaction, hence no adjustment was warranted. The issue of management fees was set aside for re-examination. Similarly, the issue of interest on receivables was remitted to the AO/TPO for fresh consideration.
Key Issues
Whether the disallowance of distributor expenses and the transfer pricing adjustments for AMP expenses, management fees, and interest on receivables were justified.
Sections Cited
143(3), 144C(13), 144B, 37, 92B, 92C, 10B, 270A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL
Tupperware India Private Limited, Vs National Faceless Assessment 204-206, Tolstoy House, Centre, 15 Tolstoy Marg, New Delhi. through Connaught Place, DCIT, Circle 25(1), New Delhi-110001. New Delhi. PAN: AAACT3770 D (Appellant) (Respondent) Assessee represented by : Shri Rohit Tiwari, Adv.; Ms. Shivani, Advocate & Shri Shobhit Tiwari, Advocate Department represented by : Shri S.K. Jadhav, CIT-DR Date of hearing : 21.08.2025 Date of pronouncement : 15.10.2025 O R D E R
PER ANUBHAV SHARMA, JM:
The assessee has come in appeal against the assessment orderpassed by the Dy. Commissioner of Income Tax, Circle 25(1), Delhi, under Section 143(3) r.w.s. 144C(13)r.w.s. 144B of the income-tax Act, 1961 pertaining to the assessment year 2020-21 in pursuance to directions of learned Dispute Resolution Panel (DRP).
The appeal of assesse raised following grounds ; “General Grounds:
1. On the facts and circumstances of the case, the assessment order passed by the Learned Assessment Unit (hereinafter referred to as ‘Learned Assessing officer’ or ‘Ld. AO’) under section 143(3) r.w.s. 1440(13) r.w.s 144B of the Income-tax Act, 1961 (‘the Act’) after following directions of the Dispute Resolution Panel -I (‘Ld. DRP’) is bad in law and barred by limitation.
2. On the facts and circumstances of the case and in law, the Ld. AO has erred in determining the total income of the Appellant at INR 29,357,707 as against the returned loss of INR 211,001,542 claimed by the Appellant in its return of income, thereby making additions/disallowances of INR 235,001,701 in the final assessment order. Corporate Tax Grounds:
3. On the facts and circumstances of the case, and in law, while computing assessed income of the Appellant, the Ld. AO erred in considering income of INR (-)205,643,994 as computed under section I43(1) of the Act instead of INR (-)211,001,542 as reported in the return of income filed for the year under consideration.
4. On the facts and circumstances of the case, and in law, the Ld. AO erred in disallowing amount of INR 15,22,95,235 towards distributor expenses claimed by the Assessee alleging expenditure does not satisfy the conditions laid down in section 37 of the Act. Transfer Pricing Grounds:
5. That on the facts and circumstances of the case and in law, the Ld. AO/ Learned Transfer Pricing Officer (‘Ld. TPO’) [in pursuance to the directions of the Ld. DRP] have erred in undertaking adjustment on account of Advertising, Marketing and Promotion (“AMP”) expenses by INR 5,35,18,215. In doing so, the Ld. AO / Ld. TPO erred in: 5.1. not appreciating the fact that AMP expenses incurred by Appellant is not an international transaction in terms of the Section 92B of the Act, thereby violating the principles laid down by the jurisdictional High Court;
5.2. not providing any reason/documentary evidence to demonstrate that the AMP expenses incurred by the Appellant constitute an international transaction; 5.3. not appreciating the characterization of the Appellant, that it functions in the capacity of a licensed manufacturer and is entitled to the residual profit/loss arising in the business; 5.4. not appreciating that in the case of an entrepreneurial entity, if the payment of royalty as well as import of raw material is demonstrated to be at arm's length and the residual profit/loss reside in India, having regard to the functional, asset and risk analysis of the Appellant, the question of any adjustment , on account of AMP expenses does not arise; 5.5. not appreciating that the Appellant is the economic owner of any marketing intangibles commensurate with the functions performed in India; 5.6. not appreciating that the Appellant incurs such expenses on its own account for selling its products in India and derives adequate risks / rewards thereof; 5.7. applying Residual Profit Split Method (‘RPSM’) using Bright Line Test (BLT) approach and by following erroneous, incorrect methodology based on fallacious assumptions and not in accordance with the provision of section 92C of the Act read with Rule 10B(i)(d) of the Income-tax Rules, 1962 (‘the Rules’); 5.8. determining the weightage of split for application of RPSM on an adhoc basis, thus violating the fundamental principle of transfer pricing; 5.9. computing the amount of adjustment through the application of RPSM by excluding total AMP expenditure and not non-routine expenditure. 5.10. applying BLT to undertake transfer pricing adjustment amounting on protective basis by arbitrarily applying a mark-up of 18.84% on the alleged AMP expenses, without appreciating that BLT has been expressly rejected by the several judicial pronouncements of Hon'ble Delhi High Court including in Appellant’s own case for AY 2013-14.
5.11. determining AMP adjustment on protective basis using BLT amounting to INR 68,27,177, not appreciating that such, adjustment has no statutory mandate. 5.12. including sales and distribution expenses as part of AMP expenditure and ignoring several judicial pronouncements and Ld. DRP’s directions pronounced in Appellant’s own case for AY 2013-14.
6. On the facts and circumstances of the case and in law, the Ld. AO/Ld. TPO erred in undertaking an adjustment on account of payment of management services. In doing so, the Ld. AO/Ld. TPO erred in rejecting the transfer pricing documentation maintained by the Appellant in respect of payment of management service fees and arbitrarily determining aim's length price as 'Nil' by applying Comparable Uncontrolled Price Method (“CUP”) Method in contravention of the provisions of Rule 10B of the Rules, thereby resulting in an adjustment of INR 2,91,45,590. The Ld. AO/Ld. TPO erred by challenging the commercial/ business wisdom of the Appellant in relation to payment of management services.
7. On the facts and circumstances of the case and in law, the Ld. AO/Ld. TPO erred in enhancing the income of the Appellant by INR 42,661 by imputing interest on receivables from the AEs. In doing so, Ld. TPO erred in: 7.1. re-characterization of overdue receivable amount as a deemed loan and treating it as a separate international transaction; and . 7.2. not appreciating the fact that arm’s length price determination for outstanding receivables is subsumed within the arm’s length price determination of the principal international transaction itself. 8, On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act. The above grounds of appeals are independent of, and without prejudice to each other. The Appellant craves leave to add, alter, amend, rescind, modify or withdraw any ground(s) herein above or produce further documents either before or at the time of hearing of this appeal.”
Heard and perused the records. The assessee is a subsidiary of Tupperware Asia Pacific Holdings Private Limited, Mauritius which is a subsidiary of Tupper Brands Corporation, USA, the ultimate holding company. The Company was incorporated in India on May 1, 1996 and is engaged in the business of manufacturing and trading of Molded Plastic Kitchenware.The Company has filed its ITR declaring business loss of INR 21,10,01,542/- and case of assessee was selected for scrutiny assessment.
During the course of assessment proceedings, the Ld. AO sought details and allowability of distributor expenses claimed by it. Tupperware India undertook the various international transactions with its associated enterprises ("AEs”) in the financial year ("FY”) 2019-20 thus the Ld. TPO issued a show cause notice dated wherein the Assessee was asked to show cause as to why certain adjustments (inter alia payment of alleged AMP expenses and payment of royalty, payment of management service fees and interest on outstanding receivables) should not be undertaken by the Ld. TPO.
During the year under consideration, the Assessee was engaged in manufacturing and distribution of molded plastic kitchenware products, carrying out manufacturing activities from its plant located at Dehradun in addition to the manufacturing carried out by Indian contract manufacturers. Tupperware India also operates 8 warehousing locations across India, head office in Gurgaon and six regional offices across India. Tupperware India’s product mix comprises a wide array of dry storage, food preparation, food serving, microwave, water bottles, refrigeration and freezer range products.The Assessee submitted till Financial Year (FY) 2019-20, the Company's main distribution/sales channel was through the distributors appointed by the Company typically known as ‘Direct Selling System’. Under the said arrangement, the distributor sells and promote Company’s products in the ‘distribution area’ allocated to it by the Company.The Assessee had claimed deduction of INR 152,295,235 under section 37 of the Act while computing its taxable income on account of distributor expenses during the year. In relation to same, the Assessee submitted that the amount of INR 152,295,235, represents one time compensation paid by the Company to its distributors as the Company changed its business approach from '‘Direct Selling System” to “Omni Channel”. Such expense being in the nature business expense, does not warrant any disallowance in the computation of Income. Ld. AR has reasserted these contentions and argued that the distributor expenses was incurred wholly and exclusively for the purpose of business of the Company, in accordance with section 37 of the Act, the same have been claimed as allowable expenditure in the computation of income.
The Ld. TPO proceeded to undertake adjustments in the TP order dated July 31,2023, on account of the following: S.No. Particulars Amount (INR) 1. Adjustment on account of Advertising, 5,35,18,215 Marketing and Promotion (AMP) [Substantive basis] 2. Management service fee paid to AE 2,91,45,590 3. Interest on outstanding receivables 2,66,196 Total 8,29,30,001
Now with regard to TP adjustments ld. AR has submitted that the issues are now covered and as such ld. DR was not able to distinguish any fact or cite any law to the contrary.
In regard ground no. 4, arising out of the disallowance of compensation paid to distributors by way of one time payment, we find that the Company has been operating in India for over two decades, conducting its business of selling goods through the Direct Selling Model. Throughout this period, it has entered into distribution agreements with various parties. Under this model, the company did not use retail stores or E-tail platforms for sale of its goods before the year under consideration.The appellant appoints distributors on a non-exclusive basis to distribute, sell, and promote its products within designated territory. To facilitate the above arrangement, the appellant entered into agreements with distributors. A sample copy of one such Distributor Agreement wasfiled at time of hearing. The same shows that as pet the terms of the agreement, distributors are authorized to purchase goods directly from the Company at a discounted rate of 15 to 25% off the MRP. These goods are then sold and distributed to sub-distributors or direct customers. Distributors have the exclusive right to operate independently or through their sub-distributors within their designated territory. Additionally, the Company reserves the right to cancel, terminate, or modify the distributor agreement, in which case the existing distributor is entitled to compensation as per Clause 29 of the Agreement.
On directions of this bench to justify the compensation quantification, ld. AR provided the sales figures for the periods prior to the year in the following table: Particulars AY 2017-18 AY 2018-19 AY 2019-20 Net revenue from operation as per the 3,826,073,499 2,888,586,686 2,209,350,994 audited financial statements 10. The above trend indicates a significant decline in the appellant's sales due to the rise of E-trade and the emergence of new competitors in the form of retail outlets in recent years. Thus there appears a justification in the claim of company that to explore new market opportunities, particularly in 'E-tail' and 'Retail stores' for direct consumer sales, the Company has adopted an 'Omni Channel' business approach, which includes the following:
• Sale through distributors • Direct Sale through Retail stores Direct Sale through E-tail platforms 11. Certainly this new arrangement results in changes to the existing distributor agreements with various distributors and affects their sales, as the ultimate customers now have the option to purchase the appellant's goods directly from retail stores and e-tail platforms. The case of assesse is that to compensate for the loss of sales likely to be experienced by the distributors, the companydeveloped a compensation package, which included a one-time payment of INR 15,22,95,235 to the existing distributors. Ld. AR submitted that following methodology was adopted by the Appellant to calculate this compensation: “Amount is accrued for each distributor as 3 weeks sale. Such sales have been computed by covering the period between week 25, 2018 i.e., April 2018 to week 24,2019 i.e., March 2019 with week 25 and 26,2019 being the cooling off period - (Page 1 of Goodwill Policyletter).” (refer Annexure - 2) 12. It was also submitted that theterm'Goodwill'used in the aforementioned document is definedin the Distribution Agreement under Clause 19. According to this clause, the existing distributor has the right to seek compensation from the incoming distributor within their distribution territory. This term 'Goodwill' in the aforesaid letter is not be understood the as “Goodwill” referred and commonly understood under the Income Tax Act, rather, it represents compensation for the sharing or sale of distribution rights in the designated territory by the existing distributor to the incoming distributor. In the similar way, the compensation paid in the present arrangement being on account of variance in the existing distributor agreement and not for acquiring of any ‘Goodwill’
On the basis of aforesaid it comes up that to account for the loss of sales likely to be experienced by the distributors in the future period, the compensation amount was calculated based on three weeks sales of the respective distributors. This benchmark represents approximately 5 to 7% of the anticipated sales loss due to the introduction of 'E-tail' and 'Retail stores' in the future.
It is submitted by ld.AR that under the previous arrangement, distributors were authorized to sell products at their discretion. However, with the adoption of the Omni Channel business approach, the Company is now directly engaging in retail and e-tail business. This change constitutes a variance or breach of the distributor agreement, thereby obligating the Company to compensate the distributors. The relevant paragraph from Page 26 of the old agreement is reproduced below: 29. Breach by the Company Should the Company commit a breach of any provision of this Agreement and fail to remedy such breach, the Distributor shall not be entitled to cancel this Agreement as a consequence of any breach by the Company unless:
29.1 the breach is a material breach and such breach is incapable of being remedied by payment of compensation or appropriate action by the Company; or ……”
Now to examine if these expenses were incurred wholly and exclusively for business purposes and not to be considered as capital expenditures, we find that as there was loss of business by direct selling model assesse changed its selling model to include E-tail and Retail thereby increasing its sales. Additionally, the appellant retained its existing distribution network under the 'direct selling model,' which contributed to all sales prior to the year under consideration and continued to generate significant sales during the year in question and subsequent years. The details of the sales made by the appellant in future years were provided and same is reproducedhere below:
Category AY 2020-21 AY 2021-22 AY 2022-23 AY 2023-24 AY 2024-25 Direct 1,375,492,533 1,316,416,147 1,181,927,030 1,422,150,278 1,297,894,936 Selling B2B 71,792,687 41,671,697 98,905,506 97,560,128 107,641,510 Outlet 28,593,037 122,825,579 146,684,204 214,266,696 205,799,635 E-tail 54,825,620 119,059,968 63,341,158 24,208,593 2,226,254 Total 1,530,703,877 1,599,973,391 1,490,857,898 1,758,185,693 1,613,562,335
On considering the aforesaid it is evident that the appellant has increased its sales and expand its customer base, after change of model which was only possible if existing distributors had not scuttled the attempt of assesse to expand its market by choosing to enter other modes of selling the products. Certainly with so many e- Commerce sites providing sales avenues were being missed out by assesse due to previous model of depending on distributors alone. Additionally, the appellant has saved a significant amount on discounts previously given to distributors under the 'Direct Selling Model,' which ranged from 15 to 25% on sales made in subsequent years, thereby supporting the business objectives of ‘E-tail' and 'Retail stores.’
Thus the contention that these payments to existing distributors do not constitute the acquisition of any capital asset, whether tangible or intangible, has substance and could have been ignored by the ld. Tax authorities. Instead, these payments have enabled the appellant to conduct its business more efficiently and effectively. This justifies contention that these payments, being in the nature of compensation to the distributors over and above the discount given on the MRP, were made to ensure their continued role as distributors for the company.
Ld. Tax authorities have merely questioned the compensation on the basis that the same is not by virtue of any penalty or compensation clauses in the agreement or that there was no legal obligation to compensate. We are of considered view that the justification of any expense should be viewed on scales of business prudence, and same should always prevail over any deficiency or ambiguity found by the tax authorities in the contractual obligations. The penalty or compensation clauses in the agreement may specifically quantify any liquidated damages or compensation, but, the enforceability of contractual obligations can always be followed by events of unliquidated damages or compensation. If the later, is avoided by any mutual settlement, then, the absence of penalty or compensation clauses in the agreement becomes insignificant and the burden on the Revenue is to establish that quantum arrived by mutual settlement was otherwise not at arm’s length, if the parties are associated or related and in other cases, if the same cannot be considered to be justified within the ambit of section 37 of the Act. In the case in hand, the aforesaid discussion leads us to give a conclusive finding that the compensation granted was justified and out of business exigency and prudence.Thus the same should not have been doubted and disallowed. Accordingly, we allow the ground No.4.
Ground No.5 with its sub-grounds is the issue of justification of AMP expenses and it is sufficiently established that same is completely covered in favour of the assessee by a decision of the coordinate Bench in and in by order dated 12.03.2025. ABench, on which the judicial member was also in quorum, has sustained the issue in favour of the assessee and there are no distinguishing facts. We follow the same and allow the grounds. As for completeness, paras No.26 to 32 of decision dated 12.03.2025 (supra) are reproduced below:-
“26. Thus we find substance in the contention of ld. AR that in the absence of any ‘understanding’, ‘arrangement’ or ‘action in concert’, the AMP expense cannot be held as an international transaction as per Section 92B read with Section 92F(v) of the Act. Reliance in this regard is rightly placed by him on the decision of Hon’ble Delhi High Court in the case of Maruti Suzuki (supra), wherein the Hon’ble Delhi High Court held that even if the word ‘transaction’ is given its widest connotation, it is still incumbent on the Revenue to show the existence of an ‘understanding’ or an ‘arrangement’ or ‘action in concert’ as regards AMP spend for brand promotion. The relevant extract is provided below for ready reference. “59. Nevertheless, there is no specific mention of AMP expenses as one of the items of expenditure which can be deemed to be an international transaction. For this purpose, Section 92B(i) read with Section 92(1) becomes significant. Under Section 92B(1) an 'international transaction' means- (a) a transaction between two or more AEs, 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 AEs 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. …… 61. The submission of the Revenue in this regard is: "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." 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 AMP 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.”
Thereafter, the Hon’ble High Court went on to hold that in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provisions of Chapter X of the Act are applicable to the transfer pricing exercise. Thus, the inevitable conclusion is that Chapter X as a whole does not permit such an adjustment. The relevant extract is reproduced below:- “76. As explained by the Supreme Court in CIT v. B.C SrinivasaSetty (1979) 128 ITR 294 (SC) and PNB Finance Ltd vs. CIT (2008) 307 ITR 75 (SC) in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise.”
Further, the reliance placed by the Ld. TPO on the judgment of Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT ([2015] 55 taxmann.com 240 (Delhi) while benchmarking the AMP expenses as a separate international transaction seems erroneous. As in a subsequent judgment of the Hon’ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra), the existence of an international transaction was discussed in light of judgement of Sony Ericsson (supra) wherein it was held as under:- “47. As regards the submission regarding the BLT having been rejected in the decision in Sony Ericsson is concerned, the Court notes that the decision in Sony Ericsson Mobile Communications India (P.) Ltd. (supra) expressly negatived the use of the BLT both as forming the base and determining if there is an international transaction and secondly for the purpose of determining the ALP. Once BLT is negatived, there is no basis on which it can be said in the present case that there is an international transaction as a result of the AMP expenses incurred by MSIL. Although the Revenue seems to contend that the BLT was used only to arrive at the quantum of the TP adjustment, the order of the TPO in the present case proceeds on the basis that an international transaction can be inferred only because the AMP expenses incurred were significantly higher that what was being spent by comparable entities and it was also used for quantifying the amount of the TP adjustment. Consequently, the Court does not agree with the submission of the learned Special counsel for the Revenue that de hors the BLT, which has been rejected in the Sony Ericsson Mobile Communications India(P.) Ltd. (supra) judgment, the existence of an international transaction on account of the incurring of the AMP expenses can be established. ……….
The result of the above discussion is that in the considered view of the Court the Revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson Mobile Communications India(P.) Ltd. case (supra) holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the issue as far as the present Assessee MSIL is concerned since finding in Sony Ericsson to the above effect is in the context of those Assessees whose cases have been disposed of by that judgment and who did not dispute the existence of an international transaction regarding AMP expenses.”
Further, the reliance of ld. AR on the decision of Hon’ble Delhi High Court’s in the case of Bausch & Lomb Eyecare (India) Pvt. Ltd. (ITA 643/2014) is also relevant wherein the Hon’ble High Court distinguished between a ‘function’ and a ‘transaction’ and held that AMP expenditure is not an international transaction. The relevant extracts are reproduced below for ready reference:- “61. There is merit in the contention of the Appellant 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 re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Appellant or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT v. EKL Appliances Ltd. (supra) which required a TPO "to examine the ‘international transaction’ as he actually finds the same.”
In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions in CIT v. B.C. SrinivasaSetty (1981) 128 ITR 294 (SC) 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 TP adjustment exercise.”
It is also pertinent to add that subsequent to the decision in the case of Maruti Suzuki India Ltd. (supra) which is a manufacturer, the Hon’ble jurisdictional High Court has passed judgment specific to Distributor as well. Reliance in this regard is placed on the decision of Moet Hennessy India (P.) Ltd. (2023) 146 taxmann.com 551 (Delhi) wherein it was held as under:- “13. We are also unable to agree with submission of the learned counsel for the Revenue that in the judgment of Maruti Suzuki India Ltd. (supra) and Bausch & Lomb Eyecare (India) (P.) Ltd. (supra), the findings of this Court with respect to absence of international transaction emanated from the fact that the assessee therein were a manufacturer in addition to being a seller.
14. The issue with respect to deletion of transfer pricing adjustment on account of AMP expenses, determined on BLT method, by the ITAT is squarely covered by t he decisions of this Court in the case of Maruti Suzuki (supra) and Bausch & Lomb Eyecare (India) (P.) Ltd. (supra). We are, therefore, not inclined to frame any substantial question of law on this issue. The facts and law have been correctly assessed by the ITAT and we therefore, do not find any merits in the appeal and the accordingly, the same are dismissed” 31. Then we find that DRP has specifically mentioned that the issue of AMP adjustment is pending before the Hon'ble Supreme Court for final decision. DRP observed “According to Taxsutra/Taxmann, the Hon'ble
Supreme Court has admitted the Department's SLP in several cases involving AMP, in respect of a distributor as also a manufacturer- distributor, where the Hon'ble Delhi High Court has decided the issue against the Revenue.” However, now, Hon’ble Supreme Court has dismissed the Revenue's SLP finding no international transaction involving AMP expenses in case of Whirlpool India. The issue there in also have in its background the claim of Revenue department that excess AMP expenses incurred by an Indian associated enterprise lead to creation of “marketing intangibles”, adds to the brand value and expands brand identity and image for the foreign associated enterprise so the same amounts to a transaction where a service is being performed by the Whirlpool India for its AE. Hence Revenue claimed that Indian AE should then be compensated for this on an arm’s-length basis, given that such expenses come under the ambit of “international transactions” subject to transfer pricing. However, Whirlpool India argued that such costs are incurred wholly to build the business in India and part of its independent functions so shouldn’t be subject to transfer pricing. The decision of the Hon’ble Supreme Court in Whirlpool India Case (SLP(C) 29270/2016 order dated 20/11/2024 has recognised the cardinal principles covering this issue that there should be concrete evidence to establish international transactions. The Hon'ble Delhi High Court in case of Whirlpool of India Ltd vs DCIT 381 ITR 154 has held that there should be some tangible evidence on record to demonstrate that there exists an international transaction in relation with incurring of AMP expenses for development of brand owned by the AE. In our considered opinion, in the absence of such demonstration, there is no question of undertaking any benchmarking of AMP expenses. The relevant findings of the Hon'ble High Court in the case of Whirlpool of India Ltd [supra] read as under:- "32. Under Sections 92B to 92F, the pre-requisite for commencing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price.
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The TP adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceed to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred for the AE.
It is for the above reason that the BLT has been rejected as a valid method for either determining the existence of international transaction or for the determination of ALP of such transaction. Although, under Section 92B read with Section 92F (v), an international transaction could include an arrangement, understanding or action in concert, this cannot be a matter of inference. There has to be some tangible evidence on record to show that two parties have "acted in concert".
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37. 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 AMP 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 AMP expenses.
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It is in this context that it is submitted, and rightly, by the Assessee that there must be a machinery provision in the Act to bring an international transaction involving AMP expense under the tax radar. In the absence of any clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, should be ascertained and further how the ALP of such a transaction should be ascertained, it cannot be left entirely to surmises and conjectures of the TPO. XXX XXX XXX 47. For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP expenses between WOIL and Whirlpool USA. In the absence of that first step, the question of determining the ALP of such a transaction does not arise. In any event, in the absence of a machinery provision it would be hazardous for any TPO to proceed to determine the ALP of such a transaction since BLT has been negatived by this Court as a valid method of determining the existence of an international transaction and thereafter its ALP."
Thus we are of the considered view that on the basis of AMP expenditure quantum alone assessee cannot be said to have benefitted the AEs’ brand. Brands are not product or services centric, but, more of customer centric. In exercise of brand building or enhancement, it is essential to establish as to how the AMP expenses generated awareness of the brand which was more useful to the foreign AE than to help the assessee in procuring its share of market. The AO was, thus, required to establish that the AMP expenses were not for tearing into the local market alone, but, were made at the instance of foreign AE for enhancement and creating a brand value beyond the local market. In the absence of any such facts coming out of a concerted action of the assessee with its foreign AE, or in absence of independent inquiry on the basis of nature of product, services or retail brands catered by the assessee the AO cannot draw any presumption on the basis of AMP expenses quantum or sales that the expenses must have resulted into any benefit to the AE. Therefore, we are inclined to accept the case of assessee that in the given facts and circumstances, the ld. Tax authorities were unable to demonstrate that AMP expenses incurred by the assessee were in any way beneficial to the brand of foreign AE requiring TP adjustment. Thus this issue is decided in favour of the assessee and as a consequence of same the grounds no. 5 and 6 are decided in favour of assessee.”
19.1 Accordingly, the ground No.5 is allowed.
Ground No.6: This ground arises out of the adjustment on account of payment of Management Fees. The ld. Counsel has submitted that the AO has erred in rejecting the transfer pricing documentation maintained by the assessee in respect of payment of Management Services Fee and has arbitrarily determined the Arm’s Length Price as ‘nil.’ By applying the CUP Method in contravention of the provisions of Rule 10B of the Rules. He relied the decision in case of assessee in AY 2013-14 where issue is remitted back to ld. Tax authorities blow. It was submitted that the tax authorities erred by challenging the commercial and business prudence of the assessee in relation to payment of management services. As with regard to this ground, we are of the considered view that as there is no change in facts as compared to AY 2013-14, the matter requires to be set aside to the files of the AO/TPO, for following directions given para 19 of decision dated 1.8.2022 in 7580/Del/2017 for AY 2013-14. Accordingly ground is allowed for statistical purposes.
In regard to Ground No.7 arising out of enhancement of income of the assessee by imputing interest on receivables from the AE by re-characterisation of the overdue receivable amount as a deemed loan and treating it as a separate international transaction while not appreciating the fact that Arm’s Length Price determination for outstanding receivables is subsumed within the Arm’s Length Price determination of the principal international transaction itself. The ld. counsel has apprised that the issue has been considered in ITA No.No.9727/Del/2019 and in by order dated 12.03.2025 (supra) and there is no change of facts. As for completeness, we reproduce paras 36 and 37below, of the decision and remit the issue back to the files of AO/TPO to examine the issue afresh as per the aforesaid directions issued vide order dated 12.03.2025 (supra):-
“36. Now, coming to ground No.10 arising out of the issue of interest on outstanding receivable, the ld. TPO has imputed adjustments on account of interest on delayed receivables. The ld. AR has submitted that the ld. TPO has ignored the fact that the post undertaking working capital adjustment of comparable companies selected in TP documentation, the margins earned by appellant are more than that of comparable companies. In this context, the ld. counsel has taken us through the summary of economic analysis available at page 266 of the paper book. The ld. counsel has also submitted that the aggregated TNMM approach has not been disregarded by the TPO while passing its TP order. Reliance was placed on the tribunal judgement of the in the case of Kusum Healthcare Pvt. Ltd., as affirmed by the Hon’ble Delhi High court in ITA 6765/2016.
In this regard, we find that there is no case of the ld. AO that the AE was charging any interest on account of trade payables from the assessee. We find that the DRP has dealt with this issue observing that the assessee has merely put legal arguments and no submissions on facts and the computation made by the TPO has been presented and, thus, relying the Hon’ble Delhi High Court judgement in the case of Cotton Naturals, upheld the enhancement done by the ld. TPO. Since the case of assessee is that post undertaking working capital adjustment of comparable companies selected in TP documentation, the margins earned by appellant are more than that of comparable companies. We consider it appropriate to remit the issue with the ld. AO/TPO to examine the issue afresh on the basis if post undertaking working capital adjustment the assessee selected the comparable companies and ratio of judgment in the case of Kusum