Unicharm India Private Limited Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) decided cross appeals filed by the assessee and the Revenue for Assessment Years 2010-11, 2011-12, and 2012-13 arising from assessments completed under Sections 143(3) read with 144C(3) of the Income Tax Act, 1961. The principal dispute concerned transfer pricing adjustments relating to Advertisement, Marketing and Promotion (AMP) expenditure and the determination of the arm’s length price of international transactions.
The assessee, a wholly owned subsidiary of Unicharm Corporation, Japan, was engaged in the business of personal hygiene products in India. For AY 2010-11, the Assessing Officer referred the international transactions to the Transfer Pricing Officer (TPO) under Section 92C. The TPO concluded that AMP expenditure incurred by the assessee promoted the foreign associated enterprise’s brand and computed an arm’s length price adjustment using the Bright Line Test (BLT). The Assessing Officer incorporated the recommended adjustment in the assessment order.
In appeal, the Commissioner of Income Tax (Appeals) rejected the TPO’s application of the Bright Line Test and directed the TPO to recompute the arm’s length price by adopting a “functional intensity” approach based on the methodology applied in AY 2012-13. The CIT(A) also directed the use of TNMM with OP/Sales as the Profit Level Indicator, modified the comparable set by excluding Cyber Media Research Ltd., retained Gufic Biosciences Ltd., rejected inclusion of several additional comparables proposed by the assessee, and directed grant of the benefit under the second proviso to Section 92C(2). The assessee and the Revenue both challenged different parts of the CIT(A)’s order before the Tribunal.
