Case Law Details
Brief of the case:
ITAT held in Haier Appliances India Ltd Vs DCIT and Haier Appliances India Ltd Vs ACIT after relying on the case of Sony Ericsson Mobile Communications India Pvt Ltd reported in (2015) 374 ITR 118 (Delhi) that the above transaction of AMP( Advertisement, Marketing, Promotion) was an international transaction and the ALP of that international transaction should be calculated using the cost plus method. Comparing the gross profit of the assessee company with the comparable company as assessee had presented the Resale Price method for calculating the ALP before the ITAT was not tenable because if the gross profit of the comparable’s were compared then the AMP transactions would not remain an international transactions anymore which would be against the decision given in Sony Ericsson Mobile Communications India Pvt Ltd. So, the Resale Price Method adopted by the assessee was wrong. Cost plus method with comparable performing similar functions should be adopted. So the file was remanded back with the AO/TPO for calculating the ALP of AMP as per the decision given in Sony Ericsson Mobile Communications India Pvt Ltd.
Facts of the case:
The assessee company is a wholly owned subsidiary company of ‘Haier Electrical and Appliances Corporation Ltd.’, China and is engaged in the business of distribution of consumer durable products, for example Air Conditioner, Washing machine, refrigerator, television etc., purchased from foreign associated enterprise ( in short ‘AE).However, the intangible rights contained in brand name or trademark/ trade name in respect of goods so purchased and distributed were owned by the foreign AE only. In the year under appeal assessee had incurred advertising, marketing and promotion (AMP) expenses of Rs 74,04,23,369/- out of which it had received back only Rs 13,11,47,568/- as a capital grant towards such expenses. TPO held that the as the above expenses was for the advertisement, marketing, promotion of trademark/brand name which was in the name of AE so, it was an international transaction so transfer pricing should be applicable and the adjustment should be made of the balance amount not received by the assessee.
Contention of the assessee:
Assessee was of the view that by following the Resale Price Method the gross profit shown by the assessee company was coming higher than shown by the other comparable company even with the comparable company considered by the TPO. So as the gross profit rate and net profit rate shown by the assessee company was higher than other comparable company so no adjustment should be made to the income of the assessee.
Further assessee was of the view that the assessee was characterized as a reseller or distributor of goods, performing routine selling & distribution and other management functions and assuming normal risk associated with carrying on its business. On the basis of this assessee had selected the unrelated third parties and calculated the gross profit and net profit and according to which the gross profity margin and net profit margin shown by the assessee was higher than unrelated parties. So no adjustment should be made to the income of the assessee.
Contention of the revenue:
Revenue was of the view that the figures on the basis of which assessee had calculated the gross profit and comparing with the assessee company was not found on record. So, the gross profit and net profit ratio computed by the assessee was not verifiable.
Further, she submitted that AMP functions performed either by the third parties or the Associated Enterprises or other comparables were not available on record, in absence of which to compute the arm’s length price of international transaction of AMP following the ratio laid down by the Hon’ble Jurisdiction High Court in case supra, was not feasible at the level of the ITAT.
Held by ITAT:
ITAT held that for the company to be comparable with the assessee it should perform similar AMP functions but no such record was presented. Moreover even the TPO had not done the comparison with the comparables considering the similar AMP because TPO had made the addition applying the bright line test for determining the value of the international transaction of the AMP expense and then applying the cost plus method for determining its ALP.
Moreover even assessee failed to present the material on record which could justify the AMP functions performed by the assessee and comparable of the assessee was same.
So, ITAT would remit the matter back to the AO/TPO.
Appeal of the assessee was allowed for statistical purpose.
Funny, how Bright line test is not allowable, still poker facing it with CUP method.