The Income Tax Appellate Tribunal (ITAT), New Delhi Bench held that outward freight in India except import freight should not be considered for adjustment as it does not operate from a transaction perspective.
The assessee, M/s. Michelin India Pvt. Ltd. is into import and resale or trading of tyres for passenger cars, trucks and buses under the brand name ‘Michelin’.
The TPO noticed that the taxpayer has incurred huge Advertisement, Marketing, and Promotional (AMP) expenses to expand the reach of the AE’s brand in India.
The taxpayer has also created marketing intangible in favour of its AE and called upon the taxpayer to explain as to why the huge AMP expenses should not be subjected to benchmarking as an international transaction.
The Revenue raised the Grounds challenging the order of CIT(A) in applying the Resale Price Method (RPM) as RPM was not the Most Appropriate Method (MAM) to determine arm’s length price (ALP) of AMP expenditure i.e. marketing intangibles. Revenue has also challenged the rejection of Bright line Test (BLT) in benchmarking the AMP expenditure without.
The CIT(A) passed the order following the decision rendered by Delhi High Court in the case of Soni Ericssion Mobile Pvt. Ltd. wherein it is held that gross profit margin should be computed after including AMP expenditure and RPM is considered as the most appropriate method for import segment for resale.
The Coram consisting of Anil Chaturvedi and Kuldip Singh opined that there is no scope to interfere in the finding returned by CIT(A) by following the decision rendered by Jurisdictional High Court in case of Soni Ericsson Mobile Pvt. Ltd.
However, the ITAT while dismissing the appeal of the revenue held that outward freight in India except the freight for import of material distributed be not considered for adjustment as it is not operating from a transaction perspective.
Subscribe Taxscan Premium to view the Judgment
