In a recent case, the Calcutta High Court (HC) upheld the order of the Income Tax Appellate Tribunal ( ITAT ) deleting the addition made the upward adjustment on account of ALP of marketing intangible created by the assessee for associate enterprises in absence of evidence to prove the assessee as the distribution company.
The revenue under Section 260A of the Income Tax Act, 1961 (the ‘Act’ )challenged the order dated 12th October 2018 passed by the Income Tax Appellate Tribunal, “C” Bench, Kolkata (the Tribunal) for the assessment years 2012-13 and 2013-14 in favour of M/s. Organon (India) Pvt. Ltd, the respondent-assessee.
It was argued by the revenue that the ITAT erred in deleting the addition of Rs.7,07,55,565/- of AY 2012-13 and Rs.15,60,70,670/- for AY 2013-14 made upward adjustment on account of ALP of marketing intangible created by the assessee for the associate enterprises.
The Dispute Resolution Panel (DRP) had affirmed the decision taken by the Transfer Pricing Officer (TPO) in determining the arm’s length price for Advertisement, Marketing and Promotions (AMP) expenditure treating the same as an international transaction and the directions were issued under Section 144C(5) of the Income Tax Act, 1961 dated 8th December 2016.
Even before the DRP, the appellant had taken a preliminary objection stating that the transaction was not an international transaction and the question of determination of arm’s length price on AMP expenditure does not arise.
The Tribunal found that the assessee company outsources its entire production requirements to toll manufacturers/contract manufacturers on a licence basis. The assessee procures the raw materials and gets them converted from third-party toll manufacturers. Further, the Tribunal found that from the financial statements of the assessee, it was seen that the products manufactured by the assessee are either of its own or through contract manufacturers and they are subjected to levy of Central Excise Duty which has been collected from the assessee company.
The Tribunal held that the revenue has taken an incorrect stand that the assessee is not a manufacturer at all and only a distributor simplicity. Further held that mere usage of the foreign word does not make it automatic to fall within the ambit of an international transaction.
It was evident that the revenue had only assumed that the assessee had promoted the brand of the AE by incurring AMP expenditure in India thereby warranting any compensation. It was found that the assessee had not paid any royalty or trade-mark fee to its Associated Enterprises and had benefited from the excess premium return in the same price of goods.
Justice T S Sivagnanam and Justice Hiranmay Bhattacharyyay upheld the order of the ITAT in the absence of any perversity in the order and absence of evidence to prove that the assesseewas not a manufacturer.
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