Case Law Details

Case Name : M/s Nikon India (Pvt) Ltd. Vs DCIT (ITAT Delhi)
Appeal Number : ITA No. 789/Del./2015
Date of Judgement/Order : 28/09/2015
Related Assessment Year : 2010-11
Courts : All ITAT (5510) ITAT Delhi (1250)

Appeal is raised by the assessee against the addition of Rs. 40,64,33,832/- made by Assessing Officer (A.O.) in its order issued u/s 143(3) read with section 144C of the Income Tax Act , 1961 (herein after refer as “the Act”) in relation to A.Yr. 2010-11.

Brief of the Case

In the case M/s Nikon India (Pvt) Ltd. Vs. DCIT, ITAT held that the AMP (Advertising, Marketing & Promotion) is an international transaction and bright line test cannot be applied on it. Considering the Rule 10 B & relying on the judgment of Honable High Court in Sony Ericsson Mobile Communication Private Limited, Transfer pricing officer is directed to make fresh assessment of Arm Length Price of AMP transaction in accordance with the rules generated in the judgment. Matter resorted back to the file of A.O., as T.P.O in the light of “Bright Line Test”, didn’t make any detailed working of comparables and ITAT, in the absence of documentation, not able to make decision on the ALP of AMP Expense.

Facts of the case

a. The assessee is wholly owned subsidiary of Nikon Corporation, Japan and it is handling the distribution and marketing services for Nikon products in India.

b. The assessee filed a return claiming a loss of Rs. 22,93,287/- and during the assessment proceedings, assessing officer refers certain transaction to TPO U/s 92CA of the Act. While assessing the international transaction, TPO comes to know that assessee company had incurred a very huge amount on business promotion and advertisement amounting Rs. 37,62,75,469 against the net sale of Rs. 203,87,33,264/.

c. TPO held that such excessive expenditure incurred by assessee company was to create an intangible asset i.e penetration of brand for the associate enterprise and take it under the preview of International Transfer Pricing. TPO shortlist certain comparables of assessee and applied CUP method for the determination of ALP. Further, he also added a markup of opportunity cost lost on the blockage of fund with respect to this expenditure.


Total Sales

Rs. 2038733264/-
Arm Length level of AMP Expense (0.69% of Sales) Rs.     14067260/-
AMP Expenses actually incurred Rs.   376275469/-
AMP Expenses which should have been reimbursed Rs.   362208209/-
Mark up @ 18.36% Rs.     66501427/-
Adjustment u/s 92CA Rs.   428709637/-

d. On Draft Order, Assessee made no. of objection in front of DRP, but all were set aside but assessee objection with regard to markup rate was duly acknowledged by assessing officer and after considering the impact of it, A.O. issued a final order stating the addition of Rs. 406433832/- against the loss claimed by the assessee.


Total Sales

Rs. 2038733264/-
Arm Length level of AMP Expense (0.69% of Sales) Rs.     14067260/-
AMP Expenses actually incurred Rs.   376275469/-
AMP Expenses which should have been reimbursed Rs.   362208209/-
Mark up @ 12.21% Rs.     44225622/-
Adjustment u/s 92CA Rs.   406433832/-

Contention of Assessee

a. TPO is not having jurisdiction on the expenditure incurred on the business promotion and advertisement as A.O. didn’t make any reference in this regard.

b. For Advertisement and business promotion expenditures payments were made to third party and not to Associates enterprise hence it is not covered under the preview of section 92 B of the Act.

c. Usage of bright line test is not permissible under TP regulation place in India.

d. All transaction are at fixed at ARM Length price using TNMM (Transaction Net Margin Method) on entity wide basis, therefore AMP cannot be said as excessive.

e. Certain quantitative adjustments were not made on comparables, while determining ALP.

f. Further markup should be applied on the value addition and not on the Full amount of the expenditure.

Contention of Revenue

a. AMP is an international Transactional and it comes under the preview of TPO despite the fact that same has not be referred by the Assessing officer as the same is being held under the Special Bench case of LG Electronics India Pvt Ltd. Vs. Asstt. CIT [ 2013] 140 ITD 41/29 300 (Delhi – Trib.)

a). It was also held that Bright line test can be applied for non routine expense.

b). Cost Plus method should be applied for determining ALP of AMP as separate and distinct transaction.

c). Selling expense directly incurred in relation to the sale of product does not lead to brand promotion.

b. Further reliance is made on the Judgement Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communication Private Limited Vs CIT [2015] 231 Taxman 113/55 240 (Delhi) and on Rule 10 B :-

Extract of Judgment :-

a. AMP is an International Transaction and TPO is having Jurisdiction on it without any reference in this regard.

b. Bright line test cannot be applied on AMP Expenses.

c. While determining ALP of AMP expenses, distribution activities undertaken should be considered and while selecting comparable, following rules are to be kept in mind :-

i. First find the comparable on the basis of aggregation of AMP expense and Distribution activity. Comparable must have similar activities and suitable adjustment can be made to bring them at par.

ii. If no adjustment is possible, then instead of applying TNMM at entity level, segregate the transaction and search for suitable comparable and/or can make adjustment to bring them at par.

iii. In determining ALP TPO is free to choose any other method or CUP Method.

iv. Selling expense cannot be held as part of AMP Expense.

This Judgment is relied on by various other cases and matter was restored to A.O & TPO to make Fresh assessment on the rules generated therein.

59 148 (Del) Perfetti Van Melle India Pvt Ltd. Vs. DCIT

58 375 (Del) Casio India Co. (P.) Ltd. Vs. DCIT

ITA Nos. 5120/Del/2010 dated 24.08.2015 Maruti Suzuki India Ltd. Vs. Addl. CIT

Held by the Tribunal

In the light of various case laws & on bare reading of the provision prescribed in Act: ITAT held that as AMP is an international Transaction and TPO is having jurisdiction over it even without any reference is made by A.O. in this regard. Here, TPO applies bright line test and fails to produce the documentation with respect to the determination of ALP of the AMP Expense as guided in Sony Ericsson case. Hence, we cannot conclude the matter. Therefore matter resorted back to the file A.O./TPO to make fresh assessment as guided in the judgment of Sony Ericsson case.

Download Judgment/Order

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