BAUSCH & LOMB EYECARE (INDIA) PVT. LTD. Vs. ADDITIONAL COMMISSIONER
LAWS(IT)-2014-5-65
INCOME TAX APPELLATE TRIBUNAL
Decided on May 23,2014

Bausch And Lomb Eyecare (India) Pvt. Ltd. Appellant
VERSUS
ADDITIONAL COMMISSIONER Respondents

JUDGEMENT

R.P.TOLANI,JM. - (1.) THIS is a set of 4 appeals by the assessee filed against the respective assessment orders of AO, passed under the directions of Dispute Resolution Panel (DRP) u/s 144C, pertaining to assessment years 2006 -07 to 2009 -10. Various grounds are raised involving TP and corporate issues. For the sake of convenience the grounds are tabulated in following abridged form: S.No. AY ITA No. Filed by Issues involved 1. 2006 -07 3861/Del/2010 Appellant Transfer pricing - Adjustment on account of AMP expenditure. 2. 2007 -08 4924/Del/2011 Appellant Transfer pricing - (i) Adjustment on account of AMP expenditure. (ii) Disallowance on account of intra - group Support services. (iii) Corporate tax issues. 3. 2008 -09 6382/Del/2012 Appellant Transfer pricing - Adjustment on account of AMP expenditure (ii) (ii) Disallowance on account of intra -group Support services 4. 2009 -10 6580/Del/2013 Appellant Transfer pricing - Adjustment on account of AMP expenditure. (ii) Adjustment in relation notional interest on outstanding receivables.
(2.) A perusal of above reveals that one common issue in all the years pertains to adjustment on account of Advertising, Marketing and Promotion ("AMP") Expenditure incurred by the Appellant for AY 2006 -07, 2007 -08, 2008 -09 and 2009 -10. Brief Facts in this behalf are: 2.1. The Appellant is a wholly owned subsidiary of Bausch and Lomb South Asia Inc., USA, primarily engaged in the business of (i) manufacturing and distribution/trading of vision care products such as soft contact lenses, toric lenses, infra -ocular lenses, eye care solution and protein removing enzyme tablets ("vision care segment"). (ii) distribution/trading of surgical equipment such as excimer laser system, cataract machines and intra - ocular lenses ("surgical equipment segment"). 2.2. For each of these segments, the Appellant acts an independent manufacturer and distributor/ trader which involves undertaking normal risks thereto including market risks, price risks and other incidental risk factors. All costs of expanding and maintaining the market for B&L India's vision care products and surgical equipments are attributable to the assessee. Thus, the assessee is to be characterized as a manufacturer and distributor/ trader i.e. one that utilizes routine assets and undertakes normal business and economic risks. 2.3 The Appellant's marketing efforts in this behalf are focused towards expanding and maintaining the sales of its products in India since market penetration of contact lenses in India is lower than other developed economies. It is to be appreciated that assessee is engaged in the sale of technology related products wherein the primary customers are doctors, who are not influenced by the brand of a product but by the product utility. To promote this segment, the Appellant's marketing efforts are focused towards participating in technical seminars, conferences and educating the doctors about features of its products. Thus, these expenses are predominantly selling in nature rather than related to advertisement. 2.4. During the impugned assessment years, the Appellant entered into various international transactions with B&L group companies from time to time including agreement dated December 16, 2002 placed on PB Pg. 157 -163 of PB for AY 2006 -07) with its Associated Enterprises ("AE") for its own manufacturing operations and distribution of product manufactured by its group companies i.e., the AE and other subsidiaries. They do not pertain to trademark or brand enhancement activities. 2.5. This expenditure being purely sales related incurred wholly and exclusively for assesses business in India was claimed as routine revenue expenditure and accordingly the assessee's TP report is prepared keeping this view in mind. 2.6. Apropos TPO's objections thereon, they have been duly replied by the assessee, however, they have not been considered objectively, as TPO was determined to some how consider them as brand building expenses and make consequent TP adjustments, which are as under: Approach adopted by the Transfer Pricing Officer ("TPO"): 2.7. Ld. TPO held assessee's AMP expenditure to be excessive and benchmarked the same by comparing it with that of the his chosen comparables. Post determination of ALP qua AMP, a transfer pricing adjustment was carried out on this account in these years holding that the Appellant should have been compensated by AE for the alleged brand promotion services alleged to be rendered by the assessee. Besides ld. TPO further added a mark -up on rendition of such services. 2.8. The TPO thus calculated the adjustments as under: Particulars AY 2006 -07 AY 2007 -08 AY 2008 -09 AY 2009 -10 (INR) (INR) (INR) (INR) AMP of appellant 20,90,47,349 25,67,02,198 17,60,95,512 12,95,73,460 including trade discount/ commission Less Arm's Length 3,08,74,221 3,16,33,605 5,84,81,920 4,36,18,644 AMP expenditure (as computed by (ALP=2.77%) (ALP=3.61%) (ALP=5.62%) (ALP=3.71%) TPO) Expenditure 17,81,73,129 22,50,68,593 11,76,13,592 8,59,54,816 incurred for developing intangibles Add: Mark -up 1,78,17,312 3,36,02,740 1,76,42,039 1,31,25,300 (@10%) (@14.93%) (@15%) (@15.27%) Adjustment on 19,59,90,441 25,86,71333 13,52,55,631 9,90,80,116 account of transfer pricing 2.9. Against the proposed adjustments assessee approached the ld. Dispute Resolution Panel ("DRP"), again without giving cogent reasons on detailed objections filed by the assessee ld. DRP upheld the TP adjustments made in this behalf and the final assessment order was passed by AO in accordance with such DRP directions. 2.10. Aggrieved on the consequent orders passed by ld AO in all the impugned years, appellant has filed these appeals before this Tribunal.
(3.) LD counsel for the Assessee Shri Mukesh Butani addressed this issue based on categorical augments in following manner: Effect of Special Bench order in the case of LG Electronics India Ltd: 3.1. The AMP related issues are influenced by ITAT Special bench judgment in LG Electronics India Ltd vs. ACIT case (ITA NO. 5140/Del/2011). The Appellant was one of the intervener. Following two main propositions are adjudicated by the Special Bench: "1. Whether, on the facts and in circumstances of the case, the Assessing Officer was justified in making transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee? 2. Whether the Assessing Officer was justified in holding that the assessee should have earned a mark up from the Associated Enterprise in respect of AMP expenses alleged to have been incurred for and on behalf of the AE? " 3.2. The Special Bench vide order dated January 23, 2013 laid down broad parameters in relation to the TP adjustment on account of AMP. The key principles emerging from the Hon'ble Special Bench Ruling may be categorized into three categories as under: Category 1 - Treatment of selling expenses such as trade discount, volume rebates etc, and; receipt of subsidy from the parent company in respect of AMP which have been decided by the Hon'ble Special Bench in favour of the tax payers. Category 2 - Criteria/ factors to be considered by the TPO while benchmarking AMP, such as business model, contractual arrangements, product life cycles, choice of comparables, etc. Category 3 - Legal issues before the Special Bench, such as validity of TPO jurisdiction, qualification as transaction/ international transaction, use of bright line approach, etc. 3.3. That Special Bench has decided them in following manner: Category 1 - Selling Expenses such as Trade/ Channel Discounts, Commission are not part of AMP. In assessee's case however, they have been held to be AMP expenses, which is against the Special Bench judgment, relevant grounds are raised in respective grounds of appeal as under: AY 2006 -07 - Ground no. 11 and 12 AY 2007 -08 - Ground no. 9 AY 2008 -09 - Ground no. 8 and 8.1 AY 2009 -10 - Ground no. 6 a) It is submitted that the Appellant provided certain channel discounts to its dealers depending on the sales volumes achieved. These discounts are essentially in the nature of trade discounts provided to incentivize dealers to increase the sales volume of the Appellant. The Appellant also incurred commission expenses which were in the nature of normal dealer commission paid to distributors/ channel partners depending upon approved commission percentage. In addition to the above, the Appellant also incurred expenses directly related to sales such as (i) point of sale related expenses like booking stalls, erecting stalls, dispensers, etc; (ii) conference related expenses like costs incurred for participation in various conferences organized by leading ophthalmic associations wherein various trends and technologies are discussed by leading doctors; (iii) Market research; (iv) free trial of contact lenses related expenses, (v) freebies provided to promote sales, etc. These expenses are purely sales related and have no bearing whatsoever to the brand of the AEs. b) In the case of the Appellant, while benchmarking AMP, the TPO included the amount relating to trade/channel discount (for AY 2006 -07, 2007 -08 and 2008 -09), commission (for AY 2008 -09 and 2009 -10) and other selling expenses relating to point of sale, conferences, market research, free trial, freebies, etc (for AY 2006 -07 to 2009 -10) as part of AMP and such AMP was then compared with the AMP spent of the comparables while determining the arm's length price of AMP and eventually leading to a higher TP adjustment. c) The Special Bench in its judgment (Para 18.3, 18.4, 18.5 and 18.6) have categorically expressed that the expenditure in connection with the sales has to be distinguished from the expenditure for promotion of sales and as such expenditure in connection with the sales cannot be covered within the expression of AMP. Reference is also made to the provisions of erstwhile section 37(3B) of the Act and the legal precedents in this regard to elucidate the scope of 'advertisement, publicity and sales promotion' [an expression used in the erstwhile section 37(3B)], which is pari materia to AMP as is used in the present context. d) The Special Bench has categorically laid down a divider to distinguish expenses incurred with respect to promotion of sales and expenses incurred in connection with the sales. It has been elaborately appreciated by the Special Bench that the expenses in connection with sales are incurred post occurrence of sales and such expenses reduces the cost of goods sold and are directly linked to sales. Therefore, the same cannot be categorized as sales promotion expenses and by any parameter can not be held for helping in building brand. e) It is submitted that the principles enunciated by the Special Bench have been followed by ITAT Delhi Bench as in various cases including Canon India Ltd. (ITA No. 4602/Del/2010, 5593/Del/2011 and 6086/Del/2012), Whirlpool of India Ltd. (ITA No. 426/Del -2013) (Para 6,7 and 8) and Sony India Pvt. Ltd. (ITA No. 4978/Del/2011 and 6389/Del/2012) and Chandigarh Bench in the case of M/s Glaxo Smithkline Consumer Healthcare Ltd. (ITA No. 1148/Chd/2011). f) Thus ld. TPO has summarily held that it has incurred excessive expenditure in the form of AMP which leads to brand building for its foreign AE in India. Thus, the lower authorities have purposely avoided going into the actual expenditure and the fact that they were sales related as against alleged brand building. g) It is submitted that following earlier pattern of accounts heading even if the appellant included trade/channel discount, commission, other selling expenses, etc under the nomenclature AMP and has claimed the same as revenue expenditure as against reducing the same directly from sales. The expenditure cannot be classified as AMP expenditure, merely on the basis of entries in the books of account. The entries in the books of accounts are not determinative of deductibility of an item of expenditure for the purposes of computation of taxable income under the provisions of the Act. Reliance, in this regard, is placed on Kedarnath Jute Mfg. Co. Ltd. vs CIT: 82 ITR 363 (SC). As such expenses go to reduce the cost of goods sold and have a live nexus to the sales made during the year(s). The Special Bench of the Tribunal appreciating the same, therefore, held that such expenditure should be excluded from the AMP before benchmarking. h) Thus applying principles enunciated in LG India Special Bench decision, expenses having direct correlation with sales cannot, be brought within the ambit of AMP for determining the cost/ value of the international transaction. i) Schedule 14 of the Audited Financial Statements categorically classifies the expenses under the heads of 'advertisement', 'channel discount' and 'commission'. The inconsistency in the approach adopted by the TPO while benchmarking AMP Expenditure incurred by the Appellant is as follows: In AY 2006 -07 and 2007 -08, the TPO has included the amount of trade discount and not included commission. In AY 2008 -09, the TPO has included both channel discounts as well as commission In AY 2009 -10, the TPO has included commission and not trade discounts j) Without prejudice to above contentions, the computation of net AMP expenditure post reduction of trade/ channel discounts and commission has been tabulated as under: Particulars AY 2006 -07 AY 2007 -08 AY 2008 -09 AY 2009 -10 (INR) (INR) (INR) (INR) AMP including trade 20,90,47,349 25,67,02,188 17,60,95,512 12,95,73,460 discount/ commission Less: Trade Discount 12,52,63,219 16,20,44,325 12,08,47,641 - Less: Commission - - 10,11,787 14,47,646 Less: Other selling 3,76,92,008 3,49,56,215 3,49,17,733 4,65,70,351 expenses relating to point of sale conferences, trial general, market research, freebies etc. Total AMP incurred by 4,60,92,122 5,97,01,658 1,93,18,351 8,15,55,463 appellant k) Ld. TPO further noted that the total AMP tabulated above (after deletion of trade discount/ commission/ Other selling expenses relating to point of sale, conferences, trial generation, market research, freebies etc) may still include certain expenses in the nature of selling expenses and dealer incentives. l) Assessee has provided all the relevant details in this behalf which have not been controverted by TPO in any manner. In this situation, the assumption that the details may still contain some element towards brand building is purely a guess work bereft of any cogent reasoning and not form a basis for further interference. It is pleaded that the AO/ TPO may be directed to grant relief with regard to the expenditure relating to trade discount, commission and any other selling expenses incurred by the Appellant, and the same shall be excluded from AMP at the threshold itself before even initiating the benchmarking exercise. 3.4. Category 2 - Key factors enumerated by Special Bench to be considered by TPO during benchmarking exercise 3.5. The Special Bench of the Tribunal (Para 17.4) has categorically suggested factors for determination of cost/ value of international transaction. The factors enumerated by Hon'ble Special Bench along with Appellant's facts have been reproduced below: Criteria's/ Factors Appellant's facts Suggested by SpecialBench (para 17.4) FAR of the tax payer The TPO has grossly erred on fats of the business model of the appellant in assuming (i) the entire AMP expenditure was incurred for the distribution activity of (ii) the appellant is a limited risk distributor. In this regard it is submitted that the appellant is engaged in both distribution and manufacturing activities as mentioned in the TP Documentation and, accordingly, the appellant is a routine manufacturer and distributor - marketer that utilizes routine assets and undertakes normal business and economic risks. Terms of The appellant entered into agreement with its AE for its arrangement/ own manufacturing operations and distribution of product agreements between manufactured by its group companies i.e. the AE and other tax payer and AE subsidiaries and the same have been placed on record. Use and existence of There is no explicit arrangement or agreement entered into brand name by the appellant with its AEs for exclusive use of brand. All marketing strategy is India Specific although brand identity is global. The brand names are owned by the AEs. These brands have been in existence from much before the appellant started its operation in India. 3.6 In view of the above, It is pleaded that appropriate orders/ directions may be given to the AO/TPO to identify comparables for computation of the ALP of B&L India in light of the factors suggested by the Special Bench for determination of cost/value of international transactions. 3.7 Category 3 - Appellant's submission against interpretation of legal issues The legal issues have been decided by the Special Bench in favour of the revenue and against the assessees. The Appellant reserves its right to challenge the same before Hon'ble High Court in appeal under section 260A of the Act, submissions in regard to such findings of the Hon'ble Special Bench are pleaded as under: S.No. Issues LG's decision Appellant's remarks/ facts 1. Jurisdiction of TPO Upholds retrospective The appellant emphatically application of Sec. 92CA(2B) claims that provisions of Sec. enhancing TPO's powers - 92CA(2B) are not applicable Subsection (2B) of section retrospectively. The settled 92CA covers all types of law in this behalf propounds that such international transactions in laws which create respect of which the assessee unanticipated liability can be has not furnished report, brought into force with whether or not these are prospective effect. international transactions as Retrospectivity cannot be per the assessee's version. assumed by implications. 2. Transaction Incurrence of high AMP and It will be appreciated that the use of foreign brand entails questions referred to Special understanding and Bench were actually fact constitutes transaction - specific i.e. they were (para 9.11, 9.12 (last 4 lines) required to be answered by and 12.1 to 13) the Special Bench in light o facts and circumstances of the principal applicant i.e. LG India. Thus, to a great extent, the observations of the Special Bench were restricted in the context of the facts of the principal applicant and did not consider the facts in the case of interveners. Therefore, a judgment cannot in our respectful submissions, be applied uniformly to the instant case de hors appreciation of the relevant facts involved herein. Further, it is submitted that the TPO himself had accepted that the AMP expenses are payments to unrelated entities and has not, anywhere, incurred in relation to the business of the entity. The same should be included as operating expense while computing the margin of Appellant under TNMM. Without prejudice, if such AMP is considered as an international transaction, then the benchmarking should have been aggregated with the principal transaction of appellant i.e. import of finished products for distribution. 3. Cost/ value of Bright line considered as a Section 92C of the Act transaction tool to determine cost of provides that arm's length international transaction. price in relation to an (paras 15.7 and 15.10) international transaction shall be determined by any of the prescribed methods, being the most appropriate method, having regard to the nature or class of transaction or class of the associated enterprise or functions performed by the entities participating in the transactions. Bright line is not a method as prescribed under the Indian Regulations. 4. Methods for AMP is a transaction distinct The Bench though on specific determination of from other transactions, facts of LG's case has upheld ALP of having independent effect on the cost plus method for international the overall net profit of the determining the mark up on transaction Indian AE. Thus, required to such brand building services. be separately bench marked However, the Bench ahs also as per the TP provisions and held at para 22.11 that the the methods prescribed AMP expenditure has to be under the Act. bench marked as per the methods prescribed under the Act. (Refer Rule 10.) Arguments relating to application of mark -up a) On specific facts of LG's case, Special Bench upheld that a markup is to be applied and ruled that the DRP has erred in arbitrarily determining a mark -up without showing what are the FAR parameters of the independent comparable entity would have earned from a similar international transaction. The Special Bench on this issue restored the matter back to the file of TPO for determination of correct mark -up. b) In the wake of these findings it is contended that if no service has been rendered then there should not be any question of mark -up thereon. Further, the AMP expenses have been benchmarked using TNMM. Thus, if the transaction is already at arm's length then an additional mark up should not be further charged thereon. c) In the case of the Appellant, the TPO / DRP followed an inconsistent approach to determine the mark - up on following counts: For AY 2006 -07 and 2007 -08, the TPO applied mark -up of 10 percent and 14.93 percent respectively wherein TPO has not undertaken any meaningful search for selection of appropriate comparables. Further, the TPO did not ever provide an opportunity to the Appellant to respond to the comparables as finally disclosed in the transfer pricing order. The comparables used by the TPO / DRP to compute the arm's length mark -up are not comparable to the alleged marketing services rendered by the Appellant. The specific objections of the Appellant pertaining to the use of the comparables are placed at Pgs 61 -62 of PB for AY 2006 -07 and Pgs. 87 -89 of PB for AY 2007 -08. For AY 2008 -09 and 2009 -10, the TPO applied mark -up of Prime Lending Rate ("PLR") plus an associated service charge and arrived at a mark -up of 15 percent (PLR of 12.5 percent plus 2.5 percent mark -up) and 15.27 percent (PLR of 12.77 percent plus 2.5 percent mark -up) respectively. It is respectfully submitted that the applicationof PLR to compute the mark -up is erroneous. The specific objections of the Appellant are placed at Pgs. 130 -132 of PB for AY 2008 -09 and Pgs. 158 -159 of PB for AY 2009 -10. d) Without prejudice to other contentions, it is submitted that the TPO/AO be directed to follow a consistent approach in light of the decision of the Hon'ble Special Bench. Disallowance on account of payment made for availing Intra -groupSupport Services for AY 2007 -08 & 2008 -09 4.1 During AY 2007 -08 and AY 2008 -09, the Appellant entered into a support services agreement dated April 1, 2006 with B&L Hong Kong Ltd. ("B&L HK") . Thereafter, during AY 2008 -09, the Appellant entered into similar agreements dated April 1, 2007 with B&L Incorporated, USA ("B&L Inc") and Bausch and Lomb (Singapore) Private Limited ("B&L Sing") . As per the terms of the agreements, the Appellant paid a cost plus 5 percent in lieu of certain support services received. 4.2 Details of the services received by Appellant are placed at Pg. 94 -100 of PB for AY 2007 -08 and Pg. 137 -140 of PB for AY 2008 -09. Key services provided by the AEs are as follows: B&L HK B&L Inc. B&L Sing Consulting Legal Surgical Marketing Manufacturing Corporate IT Clinical Applications Credit and Asset Corporate Tax Sales Support Mgt. Advisory Services Corporate Treasury Technical Vision Care Global Product Supply Chain Marketing Category Professional Training Regulatory Sales Support Global Sourcing Insurance Lean Manufacturing IT Safety R&D IT Global Operations and Engineering Executive Quality 4.3. Thus, the Appellant paid INR 3,75,90,391 for AY 2007 -08 and INR 9,69,30,610 for AY 2008 -09 to its AEs for availing support services. While conducting the benchmarking, the foreign AE was considered as the tested party using TNMM as the most appropriate method. The Appellant's international transaction relating to receipt of support services was concluded to be at arm's length since the average margin earned by the comparables was higher than the 5% mark -up over total costs charged by the foreign AEs. 4.4. The TPO made an adjustment alleging that no service has actually passed to the Appellant and, further, no independent party shall pay for availing the services similar to those received by the Appellant from its AEs. In other words, the TPO, while rejecting the TNMM as benchmarking methodology stated that TNMM should be applied at transactional level and not entity level. Accordingly, the TPO applied CUP method for determining the ALP as 'Nil' and not acknowledging the fact that the services were actually received by the Appellant and the same have benefitted the Appellant. 4.5. It is submitted that services availed from the AEs are utilized by the Appellant in its operations and serve as a business maintaining tool for the Appellant. Such services assist with strategic planning, management and monitoring of the Appellant's operations and provide material benefits to the Appellant in terms of revenue growth, cost savings, operational efficiency and sustainability. By incurring these expenses, the Appellant has access to network, expertise, skills, knowledge, information, etc., that is available within the B&L Group. Further, the Appellant has not procured / purchased similar services from unrelated parties during these years and the respective jurisdiction from where the Appellant's AEs are operating earn an arm's -length markup on its service activities. 4.6. It is submitted that the industry in which Bausch and Lomb operates i.e. the vision care industry has its inherent risks as the products closely relate with health and the high sensitivity of human eyes. Consequently the risk of quality event is naturally higher than other industries. Accordingly, support in terms of manufacturing support, advisory support, consulting etc. is essential for the Indian company. Besides, the Appellant provided economic justifications as well as a cost benefit analysis for the payment of support service fee to its AEs along with sample documentation to substantiate the same. The detailed submissions in this regard containing emails, agreements, cost allocation sheet, cost benefit analysis, TP documentation of the overseas AE are placed at Pgs 282 -366 of PB for AY 2008 -09. 4.7. Ld. TPO has proposed an adjustment on account of reimbursement of support services by stating that Appellant had neither provided evidence of receipt of such services from AEs nor submitted what was the benefit received / derived from such services. In this regard, it is submitted that the "benefit test" is not a method prescribed under the realm of the Act and in specific under the transfer pricing provisions. Reliance is placed on the following judicial precedents copies whereof are placed on the case laws paper book: CIT vs. EKL Appliances Ltd. (2012) 345 ITR 241 (Del) Hive Communications Pvt. Ltd. vs. CIT (ITA No. 306 of 2011) Lumax Industries Limited (ITA No. 5252/Del/2011) - The ITAT has laid down the principle that benefit test is not a method. Dresser Rand vs. Addl. CIT (2011) 47 SOT 423 (Mum) - ITAT held that benefits derived by the assessee is not relevant criteria for determination of ALP of an expenditure incurred by the assessee. Air Liquide Engineering India P. Ltd. vs. DCIT (ITA No. 1040/Hyd/2011) Ericsson India Pvt. Ltd. vs. DCIT (2012 -TII -48 -ITAT -Del -TP) - It has been held that the domain of the TPO is only to examine as to whether the payment based on the agreement adheres to the arm's length principle or not. SC Enviro Agro India Ltd. vs. DCIT (ITA No. 2057 and 2058/Mum/2009) - The TPO is not authorized to disallow any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same and, therefore, the TPO exceeded the jurisdiction in examining the arms length price on a transaction. 4.8. Incorrect application of CUP: CUP cannot be considered as the most appropriate method since, CUP method compares the price charged for property or services transferred in a controlled transaction to the price charged for property or services transferred in a comparable uncontrolled transaction in comparable circumstances. However, no such data is available for comparability purposes. The TPO while proposing such an adjustment did not identify any unrelated comparable transactions for application of CUP and arbitrarily considered the ALP as Nil, thereby, proposing an adjustment amounting to the total value of reimbursements. It is respectfully submitted that the TPO erred in adopting such an arbitrary approach for making an adjustment per se which is not the intent of Chapter -X. Reliance is placed on the recent judgment of theHon'ble Delhi of Bench of the Tribunal in the case of Hero MotoCorp Limited (2013)156 TTJ 139 (Del) wherein, the applicant had paid model development fee and the TPO applied CUP for determining the ALP to be Nil. The DRP arbitrarily used 25 percent as the CUP. The Tribunal rejected the approach of the DRP/ TPO stating that it is TPO's responsibility to compute the appropriate ALP and the same cannot be determined as NIL or a randomly assigned percentage. 4.9. Reliance can also be placed on the Delhi Tribunal ruling in the case of Abhishek Auto Industries Ltd (ITA No. 1433/Del/2009) wherein the Tribunal has emphasized that legally binding agreements cannot be disregarded without assigning any cogent reasons. The above case is directly applicable to the case of the Appellant, wherein, there is an inter -company service agreement that stipulate that the Appellant will pay a portion of its AEs total costs in a given year. Since it is not possible to individually identify each of the services rendered by the Appellant's AEs and to directly establish the corresponding costs, the appropriate allocation keys and template have been prepared. 4.10. The Appellant paid for support services with a sole intention of improving its operations and align them with B&L Group's global standards. It is clearly a business decision which is to be considered from the point of view of a normal prudent businessman. The reasonableness of the payment with reference to these factors has to be judged not on any subjective standard of the assessing authority but from the objective point of view of commercial expediency principle. The objective behind the sections stipulated under law is to prevent evasion of tax and not to clothe the role of business man on the tax collector. 4.11 It is well -established principle laid down by the courts that the Revenue cannot sit in the arm chair of the assessee for determining business expediency of the expenditure incurred. By disputing the benefit arising out of the expenditure and the method of allocating the costs, the TPO has exceeded his powers which is in clear violation of such principles. Reliance is placed on following judicial pronouncements: SA Builders Ltd. vs CIT: [2007] 288 ITR 1 (SC) CIT vs Walchand and Co Ltd: [1967] 65 ITR 381 (SC) CIT vs B. Dalmia Cement Ltd.: [2002] 254 ITR 377 (Del) CIT vs Oracle India (P) Ltd.: [2011] 199 TAXMAN 181 (Delhi) McCann Erickson India Private Limited vs ACIT (ITA No. 5871/Del/2011) 4.12. It is vehemently contended that in the immediately successive year i.e. AY 2009 -10, no transfer pricing adjustments have been made by the TPO/AO in this behalf i.e. on account on receipt of support services. 4.13. In view of the above contentions Shri Butani pleads that ld. TPO has erred in: (a) not appreciating the benefits received by the Appellant from the services rendered by AEs. (b) determining the ALP of the transaction as Nil. Accordingly, the said adjustment is not sustainable. ;


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