Vildirect: IncomeTax-caselaws-2013-VIL-986-ITAT-DEL

2013-VIL-986-ITAT-DEL

Income Tax Appellate Tribunal DELHI

ITA No. 5237/Del/2011

Date: 02.08.2013

MARUTI SUZUKI INDIA LTD.

ADDITIONAL COMMISSIONER OF INCOME TAX

For the Petitioner : Sh. S. Ganesh, Sr. Advocate Sh. Neeraj Jain, Advocate Sh. Ramit Katyal, CA
For the Respondent : Sh. Peeyush Jain, C.I.T.(D.R.)(TP)

BENCH

Shri R. P. Tolani And Shri Shamim Yahya,JJ.

JUDGMENT

Per Shamim Yahya: AM.

This appeal by the Assessee is directed against the order of the Assessing Officer passed u/s. 143(3)/144C of the I.T. Act for the assessment year 2005-06.

2. The grounds raised read as under:-

1. That the impugned order of assessment framed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as 'DRP') un Section 143(3) read with Section 144C of the Income-tax Act, 1961 ( 'Act'), is bad in law, violative of principles of natural justice and void ab-initio.

2. That the assessing officer erred on facts and in law in making addition to the income of the appellant to the extent of Rs. 248,37,80,296 on account of the alleged difference in the arm's length price of international transactions.

3. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs. 154,12,00,000 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as, 'the AMP expenses') incurred by the appellant.

3.1 That the assessing officer erred on facts and in law in not appreciating that since the appellant is the sole beneficiary of the AMP expenditure incurred by it, its conduct in incurring and bearing the cost of such expenditure was consistent with the arm's length principle.

3.2 That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer justifies the conduct of the appellant in incurring and bearing the cost of AMP expenditure.

3.3 That the assessing officer erred on facts and in law in not appreciating that expenditure on advertisement and brand promotion, unilaterally incurred by the appellant, could not be regarded as a 'transaction' in the absence of any understanding/ arrangement between the appellant and the associated enterprise.

3.4 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses, etc., incurred by the appellant in India cannot be characterized as an international transaction as per section 92B, so as to invoke the provisions of section 92 of the Act.

3.5 That the assessing officer erred on facts and in law in not appreciating that in the absence of any understanding / arrangement between the appellant and the associated enterprise, the associated. enterprise was under no obligation to reimburse the AMP expenses incurred by the appellant for sale of its products to the dealers.

3.6 That the assessing officer erred on facts and in law in not appreciating that advertisement and marketing expense incurred by the appellant is not on behalf of or for the benefit of the AE, any benefit to the AE being only incidental.

3.7 failing to appreciate that AE (SMC) does not have any right to use/sell products under the joint trademark "Maruti-Suzuki"

3.8 failing to appreciate the A&M expenses incurred by the Assessee were towards the products manufactured and owned by the Assessee and not towards the brand, per se;

3.9 Without prejudice to the all other grounds, AO failed to appreciate that full disallowance of excessive A&M expenditure is not appropriate as the excessive expenditure will lead to Brand building of both Maruti and Suzuki.

3.10 That the assessing officer erred on facts and in law in holding that the appellant incurred extra-ordinary / non routine expenses of promotion and development of Suzuki brand and, therefore, helped in creation of marketing intangible in India.

3.11 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses incurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE.

3.12 That the assessing officer erred on facts and in law in not appreciating that the power of the TPO is restricted to the determination of arm's length price of international transactions by applying any of the prescribed method and not to make disallowance of business expenses incurred by the appellant.

3.13 That the assessing officer erred on facts and in law in applying Bright Line Test ("BLT") for computing adjustment on account of expenditure on advertisement and brand promotion expenses without appreciating that in absence of specific provision under the Transfer Pricing Regulations in India., adjustment on account of the arm's length price of the advertisement and brand promotion expenses could not be made.

3 .14 That the assessing officer erred on facts and in law in ignoring that "bright line limit" is not a prescribed method under the purview of section 92C of the Act.

3.15 Without prejudice that the assessing officer erred on facts and in law in not appreciating that even applying developer assister rule as contained in US Transfer Pricing regulations, viz., REG. 1.482-4, the appellant would be characterized as developer of the marketing intangibles and hence it would not be required to seek reimbursement / compensation for such expenditure from the associated enterprise.

3.16 That the assessing officer erred on facts and in law in applying paras 6.36, 6.37 and 6.38 of the OECD Guidelines which are applicable only to distributors and not to manufacturers such as the appellant.

3.17 That the assessing officer erred on facts and in law in failing to appreciate that the comparable companies as identified in the Transfer Pricing study are not right comparables for applying the bright line test (BLT) due to difference in product profile, product range and target markets of these companies.

3.18 That the assessing officer erred on facts and in law in considering the AMP expenditure of Hindustan Motors as NIL and not appreciating that the company with the no AMP expenditure cannot be used as a comparable to the appellant for the purpose of applying the BLT.

3.19 That the assessing officer erred on facts and in law in failing to appreciate that the appellant has long-term rights to use the trademark! licensed intangibles and reaps all the benefits of the said A&M expenses and is thus the economic owner of any related marketing intangible.

3.20 not appreciating the computational errors highlighted by the Assessee while determining the markup to be added to the advertisement expenses for reimbursement to be made by AE.

3.21 That the assessing officer erred on facts and in law in failing to appreciate that all the key decisions with respect to advertising, marketing, selling and distribution of the products manufactured by the appellant for sale in designated territories are taken by the appellant and consequently, the appellant is responsible / eligible for the related risks and reward.

3.22 That the assessing officer erred on facts and in law in holding that the appellant should have earned a mark-up in respect of the AMP expenses, alleged to have incurred for and on behalf of the associated enterprise.

3.23 That the assessing officer erred on facts and in law in adopting an inconsistent approach for computing the AMP expenses incurred by the appellant and by the comparable companies.

3.24 Without prejudice, the assessing officer erred on facts and in law by considering sales promotion expenses of appellant as contributory to the alleged brand building exercise.

3.25 Without prejudice that, the assessing officer erred on facts and in law in holding the AMP expenses incurred by the appellant to be "excessive" on the basis of a "bright line limit" arrived at by considering inappropriate comparables, not having similar product! brand profile as the appellant.

3.26 Without prejudice that the assessing officer erred on facts and in law in not considering the following alternate set of comparable companies in passenger automobile industry identified by the appellant for benchmarking of advertisement and brand promotion expenses:

Company	Net sales	AMP expenses	AMP/Sales
General Motors India Pvt. Ltd.	1413.89	81.32	5.75%
Ford India Pvt. Ltd.	1345.1	77.09	5.73%
Hyndai Motor India Ltd.	6245.09	198.13	3.17%
Honda Siel Cars India Ltd.	2142.3	17.21	0.80%
MEAN			3.86
Maruti Suzuki	India Ltd. 10910.8	204.4	1.87%

3.27 Without prejudice that the assessing officer erred on facts and in law in not appreciating that, for the purpose of undertaking benchmarking analysis of AMP expenditure of the aforesaid company in passenger automobile segment and the same could not be disregarded on the ground of related party transaction.

3.28 That the assessing officer erred on facts and in law m individually examining the international transactions entered into by the appellant, not appreciating that such transactions being closely linked, ought to have been benchmarked on an aggregate basis.

3.29 Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses.

3.30 Without prejudice that the assessing officer erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying Transactional Net Margin Method (TNMM).

4. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs. 92,25,80,296/- in 29relation to the international transaction of payment of royalty entered into by the appellant.

4.1 That the assessing officer erred on facts and in law, in not appreciating that the international transaction of payment of royalty entered into by the appellant was appropriately established to be at arm's length applying Transactional Net Margin Method (TNMM).

4.2 Single/In severable agreement and License to Manufacture & Sell.

4.2.1 That the assessing officer erred on facts and in law in artificially splitting the single and in-severable license agreement entered into by the applicant into two separate agreements for use of technology and for use of brand name.

4.2.2 failing to appreciate that the License Agreement constituted a single/ in severable indivisible contract/ package, which provided appellant the exclusive right and license to manufacture and sell licensed product in India using SMC technology, all others right vested in the license agreement are linked to the core right to manufacture and s licensed products.

4.3 Failed to appreciate that the methods used by the TPO to compute the arm's length royalty is not a method prescribed in TP regulations under Income Tax Act, 1961, therefore, the addition made by TPO is void-ab-inito.

4.4 That the assessing officer erred on facts and in law in failing to appreciate that the decision to obtain the licensed trademark was taken solely/ exclusively by the appellant for its business purposes since its inception [as against being imposed on it by SMC Motor Corporation ('AE' or 'SMC')].

4.5 That the assessing officer erred on facts and in law in Failing to appreciate that the (i.e. SMC) was signed in 1982 when the Assessee was a wholly owned government company and thus the license agreement was entered into between two unrelated enterprises thereby complying with the arm's length standard as per the Comparable Uncontrolled Price (CUP) method.

4.6 failing to appreciate that by the time when Assessee started using the co-branded trademark "Maruti- Suzuki", Maruti brand was totally new brand whereas "Suzuki" brand had internationalpresence and therefore there cannot be any question of impairment of the Maruti Brand and reinforcement of Suzuki Brand.

4.7 That the assessing officer erred on facts and in law in failing to appreciate that the License Agreement was entered into by the appellant with the, approval of the Secretariat of Industrial Assistance, Ministry of Commerce and Industry, along with the approval from the Reserve Bank of India.

4.8 That the assessing officer erred on facts and in law in holding that co-branding of "Maruti-Suzuki" has resulted in the reinforcement of value of "Suzuki" brand and simultaneous impairment of "Maruti" trademark.

4.9 failing to appreciate that such concept of "reinforcement" cannot be considered to be an "international transaction" as defined in section 92B of the Act which consists of purchase, sale or lease of tangible or intangible property;

4.10 That the assessing officer erred on facts and in law in holding, on the basis of conjectures and surmises that, the associated enterprises has charged separate royalty for the use of technology and for use of brand name in the proportion in which it incurs expenditure on R & D and Brand promotion.

4.11 Without prejudice, the assessing officer erred in considering the consolidated financial of the associated enterprise for the purpose of segregating the payment of royalty for the use of technology and for the use of brand name.

4.12 That the assessing officer erred on facts and in law in failing to appreciate stature of the associated enterprise and the brand recognition enjoyed by it globally.

4.13 That the assessing officer erred on facts and in law in ignoring the search for third party independent technology agreements conducted by the appellant.

4.14 Failing to appreciate the permissible limits of RBI for the payment of the brand royalty i.e. 5% on domestic sales and 8% on exports for composite royalty (both brand and technology) and 1 % and 2% if only for brand resulting is a maximum 20-25% of royalty attribution towards brand as against the 49.42% computed by the TPO.

5. Without prejudice, the assessing officer erred on facts and in law in not appreciating that if compensation for AMP expenses was to be received by the assessee from its AE, it will effectively transfer the economic ownership of the brand to the associated enterprise, and in which case it would be grossly unjustified to disallow the payment of royalty for use of brand name.

6. That the assessing officer erred on facts and in law in making various statements/ averments merely based on conjectures/ surmises and unsound presumptions, which were not in accordance with the facts of the case, thereby making a high pitched assessment.

7. That the assessing officer erred on facts and in law in in initiating penalty under section 271(1)(c) of the Act mechanically and without recording any satisfaction for its initiation.

8. That the assessing officer erred on facts and in law in charging interest under sections 234B, 234C and 234D of the Act.

9. That the Assessing Officer erred on facts and in law in charging interest u/s 234C on assessed Income instead of returned Income as per the provisions of Act.

The appellant prays leave to add, amend, alter, delete or forego any of the grounds either before or during the course of hearing."

3. M/s Maruti Suzuki India Limited (Assessee or MSIL or the Company) was incorporated in February, 1981 and is engaged in the manufacture of passenger cars in India. MSIL is the subsidiary of its overseas group Company, Suzuki Motor Corporation (SMC). As on 31.3.2005, SMC held 54.21% share in MSIL and approx. 18.30% was held by the Government of India and the balance was held by Indian public and others.

4. The following international transactions had been undertaken by the assessee during the F.Y. 2004-05.

4.1 For benchmarking of the international transactions, the assessee has selected TNMM as the most appropriate method. OP/Sales had been identified as the profit level indicator in the case of assessee. Furthermore, it was stated that OP/sales of the assessee was 11.19%. The margin of the comparables had been computed using OP/Sales at 4.04%. The assessee has selected three comparables for the purpose of bench marking viz. Hindustan Motors, Tata Motors and Mahindra & Mahindra. On the basis of above economic analysis it was concluded by the assessee that the international transaction undertaken during the financial year 2004- 05 are at arms length price.

4.2 However, the TPO was not in agreement with the above. The TPO made the transfer pricing adjustment amounting to Rs. 154,12,00,000/- in relation to advertisement, marketing and sales promotion expenses (AMP expenses) incurred by the assessee. Furthermore, TPO proposed adjustment on account of payment of royalty for use of brand name amounting to Rs. 98,14,06,624/-. Assessee filed objections before the DRP. However, the DRP subject to minor adjustment affirmed the action of the TPO. In pursuance of the DRP directions following Transfer Pricing Adjustment were made:-

I) On account of royalty for brand name Rs. 981,406,624/-.

II) On account of AMP Rs. 1,541,200,000/-.

5. Against the above order the Assessee is in appeal before us.

6. Apropos issue of Transfer Pricing Adjustment on account of international transactions of payment of royalty.

6.1 The TPO noted that the assessee is a license manufacturer in India. For license assessee has paid lumpsum royalty as well as running royalty to its associated enterprises viz. SMC. That apart from this assessee had paid technical fee to the AE also. That the lumpsum royalty includes payment for knowhow trade name and trade mark also. The TPO further noted that it is interesting that assessee has paid a substantial amount of royalty and at the same time it has also incurred substantial expenditure for research and development and marketing / brand promotion. The TPO observed that the basic purpose of payment of royalty was to recover the fixed cost, running cost/ maintenance cost of technology and the brand name developed alongwith the margin to licensor.

6.2 TPO noted that the license agreement vide para 2.01 to 2.03 of the Article 2 brings out the scope and use of technology information and license trade mark. That the scope of the license governs the use of technical assistance in the form of license information and use of license trade mark for the technological development and sales of products and parts within the territory and outside the territory. That however, bifurcation of payment for technical assistance and license trade mark was not done by the assessee.

6.3 Therefore, the TPO was asked to bifurcate the royalty paid for technology for use of brand name. Assessee submitted as under:-

"1.1 An analysis of License Agreement shows that payment of royalty is a consideration for use of "technical assistance and license". It is important to note that, therefore, royalty is for use of technical assistance and also for the license which, as per Clause 2-01 of License Agreement is for the use of technical information and, for the use of license trademark of Suzuki.

1.2 This makes it clear that the royalty payment is inseverably towards both for use of technical assistance and information and for the use of the Suzuki Brand name / logo/ trade mark. The License Agreement is a single package, for which the consideration, is inserverable.

1.3 Consequently, no part of royalty payment can be sp[lit and determined for the use of Suzuki's licensed trademarks as such."

6.4 However, the TPO was not satisfied with the above. He observed that the assessee's plea that it was a package deal, does not seem to be convincing as no independent entity would be so eager to make payment and enter into an agreement of this nature without ascertaining the individual split towards technical assistance and brand.

6.5 Hence, the TPO noted that since the assessee has not quantified the payment made by it for use of brand name. The TPO himself embarked upon to find the same. The TPO referred to the financials of the SMC. The TPO observed that it can be logically inferred that SMC has charged royalty for use of technology and for use of brand name in the same proportion in which they are incurring the expenditure on Research and Development and brand promotion. TPO further observed that it can be seen that the amount spent on the Research and Development and brand building is in the proportionate of 34% and 66%. On this basis the TPO made the following computations:-

Total amount of royalty	Rs. 198,57,42,097/-
Amount attributable to use of Technology being Amount of royalty 34% of the	Rs. 67,51,52,312/-
Amount attributable to use of Brand name being 66% of the Amount of royalty.	Rs. 131,05,89,784/-

6.6 The TPO in this regard issued the following show cause notice to the assessee:-

"As discussed above, the amount of royalty attributable to the use of brand name works out to Rs. 131,05,89,784/-. Having determined the amount of royalty attributable to use of brand name, the arm's length price of the same is required to be determined. It is a matter of record that the assessee has been using a cobranded trade mark "Maruti Suzuki" and the assessee has paid royalty for use of "Suzuki" logo. The assessee has not been reimbursed for promoting the Suzuki brand name in India. On the contrary the assessee has paid royalty for use of brand name to SMC. The Cobranding of 'Maruti-Suzuki' has resulted in reinforcement of value of 'Suzuki' brand and simultaneous impairement of 'Maruti' trademark for which it had received no compensation. In fact the assessee had incurred huge expenditure of several hundred crores to develop 'Maruti' or 'M' as super brand. The assessee has agreed to pay brand royalty for use of 'Suzuki' trade mark as part of cobranded trade mark. No independent entity would agree to such terms and allow impairement of its brand in favour of other brand without any compensation. However, the assessee company has not received any compensation for such an act and on the contrary the assessee has paid a sum of Rs. 131 crores for the use of brand name 'Suzuki' which is a lesser known brand in India. In view of these facts, I propose to determine the arm's length price of the payment of royalty attributable to use of brand name at Rs. NIL in place of Rs. 131,05,89,784/-."

6.7 The assessee submitted before the Assessing Officer that the agreement was entered into in the year 1982, it was in the nature of third party and the same agreement have continued even after acquisition of 50% share by SMC Japan in the year 1982. It was further submitted that it was not feasible for the assessee to stop using the co-branded name for the sales of its products. The TPO opined that at the time of incorporation of the assessee company in 1982 neither the brand name Maruti nor of Suzuki was established in India. That however, due to continued efforts of the assessee company, the brand Maruti became the household name and the brand Suzuki also developed alongwith. The TPO wondered that in such a situation, whether the assessee should have paid the royalty at all for brand to SMC or receive a reasonable portion of itself?

6.8 The TPO further observed that assessee has alleged that TPO has contended that brand Suzuki has zero brand value. In this regard, TPO observed that it was not so. He opined that the point required to be understood is that in 1982 Suzuki has no brand recognition in India. In 10 long years Suzuki was gradually made aware in the Indian territory by the efforts of the Maruti. The TPO observed that the trade mark Maruti with which the launch of vehicle started in the year 1982 was slowly and gradually replaced by the trade mark 'S'.

6.9 The TPO did not accept the assessee's submission that the agreement was a composite agreement and the same cannot be split between the technology and use of brand. He opined that under uncontrolled circumstances, no independent entity would be willing to part with an amount of any composite format without ascertaining the individual charges embedded into it.

6.10 The TPO noted that the assessee has pointed out that during the course of original audit proceedings in the year 2008, the assessee had furnished the independent search for royalty rates (7.25%) prevailing in the automobile industry. The Assessing Officer observed that he had examined the search carried out by the assessee, that the assessee has not compared on one to one basis the products or process technology. That assessee has not submitted whether the royalty was for the process or product.

Hence, the TPO held that it will be only fair to infer that the royalty has been made good only for transfer of comprehensive technology for passenger cars. He observed that none of the comparables selected by the assessee falls within this bracket for comparison.

6.11 The TPO noted that assessee has also identified that TATA Motors had paid running royalty of 5% to Hybridtronics Inc. for manufacture of hybrid fuel technology buses. TPO did not accept this proposition. He observed that there is no agreement in existence which flows from the assessee's submissions. He observed that the executive summary of hybridtronics Inc. which has been submitted by the assessee clearly shows that there is a possibility of such technology transfer arrangements only in the year 2007. During the currency of the executive summary the only thing that has been happening is the testing part on TATA buses. Therefore, the TPO observed that there is no transaction as such which can be compared with the royalty transaction of the assessee.

6.12 The TPO observed that the royalty for brand was paid to SMC, Japan, assessee itself was promoting the brand of Suzuki which was a lesser known brand. That since the Suzuki brand was undoubtedly lesser known brand in India and has piggybacked the brand name Maruti which was an established brand there was no case for the assessee to have paid any brand royalty to SMC Japan.

6.13 TPO further noted that assessee has relied upon the Press Note 9 of 2000 issued by the Reserve Bank of India (RBI) according to which payment of royalty upto 2% for exports and 1% for domestic sales is allowed under the automatic route for use of trademarks and brand name. However, as per Press Note/ Master Circular of RBI for financial year 2005-06 payment of royalty upto 8% on exports and 5% on domestic sales was allowed under automatic route. However, the TPO was not in agreement with the above submissions. He observed that setting of norms of payment of royalty by RBI was not part of transfer pricing regulations and therefore, cannot be entertained.

6.14 The TPO also rejected the assessee's objections the basis of split. However, he noted that the contention of the assessee to not include the sales promotion and sales incentive expenses was correct. Therefore, the TPO observed that split shall not include these expenses. Accordingly, he revised the split of royalty for the technology and for use of brand name in the ratio of 50.58% and 49.42%. On these basis, the location of royalty between the payment of technology and brand name was worked as under:-

Total amount of royalty	Rs. 198,57,42,097/-
Amount attributable to use of	Rs. 100,43,88,352/-
Technology being of the Amount of royalty	50.58%
Amount attributable to use of	Rs. 98,13,53,745/-
Brand name being Amount of royalty of the.	49.42%

6.15 The TPO observed that the brand Suzuki has developed in India only by association and efforts of M/s Maruti which was a better known brand in Indian Territory. The TPO observed that there was no dispute regarding the payment of royalty for technology. It is only the payment for royalty for brand promotion which is in dispute and the arm's length price of the same was to be determined. TPO further observed that the brand valuation of Suzuki was not a matter of dispute. That the moot question is that the development of the brand in the Indian territory has been the outcome of efforts of the assessee which was a known brand in India. That to entrench itself in the Indian territory, Suzuki had to strategize with the assessee for an entry into the Indian market.

6.16 In view of the above discussion, the TPO held that it is evident that from the finding recorded in the preceding paragraphs that both the processes of piggybacking of 'Maruti' trade mark by the 'Suzuki' trade mark and co-branding has resulted in impairement of 'Maruti' brand value and establishment of 'Suzuki' brand of the AE in a big way from financial year 2003-04. TPO further referred to the extracted interview of the General Manager Marketing of the assessee company which shows that the assessee company got a brand asset evaluation done and it was found that 'Maruti' is a stronger brand and Suzuki is slightly less strong. Hence, the TPO observed that the payment of Rs. 98,13,53,745/- made by the assessee to the SMC for use of Suzuki Brand name was not required.

The assessee filed objections before the DRP. But the DRP affirmed the action of TPO with certain minor adjustment.

7. In this regard, assessee's submissions are as under:-

(a) Independent decision of MSIL to use Co- Co-branded Trademark "Maruti-"Maruti- Suzuki"

Maruti Suzuki India Limited ('Appellant' or 'MSIL' or 'the Company') was incorporated in February 1981 and is engaged in the manufacture of passenger cars in India. The appellant is the subsidiary of its overseas group Company, Suzuki Motor Corporation ('SMC'). As on March 31, 2005, SMC held 54.21% share in MSIL and approx. 18.30% was held by the Government of India and the balance was held by Indian public and others.

Appellant started its business in 1982 as a 100% Government of India (GOI) owned Company. SMC was selected as the business partner independently by MSIL in 1982.The Co-branded Trade Mark "Maruti-Suzuki" is being used since inception of the company.

The appellant entered into its first license agreement with SMC in Oct 1982 for its models -M 800, Omni and Gypsy where in it was decided to use the Co-Co-branded trade mark "Maruti-Maruti-Suzuki" on the vehicles. The appellant used the co-branded logo "Maruti- Suzuki" even on the cars manufactured by it in 1982.

At the time of entering this agreement the appellant was an independent 100% GOI owned entity. The same decision is carried forward in the subsequent License Agreements including the 1992 License Agreements (refer page no 548 of the paper book II). The royalty royalty paid by the appellant was agreed in 1982 when it was a third party. Since the agreement entered into between the appellant and SMC was between two third parties, the said license agreement can be considered to be uncontrolled license agreement and can be used as a Comparable Uncontrolled Price (CUP) to benchmark the royalty rate.

The decision to continue the joint trade mark was taken in the company's business interest. Prior to 1992 and thereafter, several other agreements were entered into between the appellant and Suzuki for the manufacture of other car models/variants. These agreements also had the same terms or conditions regarding use of the co- brand name/logo of the appellant and Suzuki.

The appellant has entered into license agreement for manufacture of the various models of motor cars on the same terms and conditions as that of first license agreement entered into in 1982 for 'Maruti 800, Omni & Gypsy'. The license agreement granting right to the appellant for manufacture for newer models of cars in India was entered into on the various dates as under:-

Sl	Model Name	Date of Agreement	Sales during the relevant P/Yr (Qty)	ITAT appeal Paper Book for AY 2005-06	Page Nos.
1	Versa model	09.01.2001	4,642	PB-II	706- 736
2	Swift model	04.01.2005	-	PB-II	361- 396
3	Alto and Wagon-R models	15.12.1998	2,05,935	PB-II	565- 600
4	Baleno model	03.08.1999	7,788	PB-II	601- 632
5	M800, Omni and Gypsy Models	02.10.1982	1,81,843	PB-II	326- 360

It would be noted that only license agreement for manufacture of 'Swift' was entered into during the financial year 2004-05, while license agreements for all other models of motor cars were entered into in the past and royalty paid under those licenses have not been disputed and have been accepted as at arm's length. It would also be noted that the license agreement for manufacture of the various models of cars are the foundation of the business of the appellant in India, without which the appellant could not have manufactured these models of motor cars in India.

Further, the license agreement entered into between Government of India and SMC specifically provided for the use of the co-branded trade-name/logo of the Assessee and Suzuki. The brand Maruti had no existence at all while Suzuki was an established reputed international brand. The decision to use co-brand Maruti Suzuki was in the commercial and best interests of the company. The agreement provided for the payment of an inseverable amount of royalty for the exclusive right to use the Licensed Information and Licensed Trademarks for the engineering, design and development, manufacture, testing quality control, sale and after-sales service of PRODUCTS and PARTS in India. However, it was only in 2003 that SMC acquired a controlling (54%) interest in the share capital of the appellant company and could be said in a position to influence the appellant's decision. This fact, which is of crucial importance, has been specifically noted by the TPO in his order. However, the TPO has completely disregarded the very important factual as well as legal implications of that undisputed position. .In 1992, it was not feasible for the appellant to stop using the said co-branded name for the sale of its products, as it would have resulted in a devastating loss of commercial goodwill. The continued use of the said co-branded name/logo cannot, therefore, be attributed to the dictation of Suzuki from 1992 onwards to the appellant company.

In any case, the Suzuki name was always being used on the cars since 1982. Such association enabled the appellant to compete with the global brands entering into the Indian market. This is evident from the fact that the appellant has been able to maintain its leadership position in the automobile industry despite the increased competition.

In view of the aforesaid it is submitted that the said decision, which was taken way back in 1993, 12 years before the year under consideration, could never have been influenced by the need to manipulate (and thereby erode) the Indian tax base. The said decision was driven only by a genuine business/ commercial reality/ rationale and was backed by sound/ prudent business/ commercial logic.

Since the same terms of agreement are in place during the FY 2004-05, the license agreements can be said to be at arm's length.

Reliance is also placed in this regard on the recent decision of Hon'ble Mumbai Tribunal in the case of SC Enviro Agro India Ltd vs DCIT (ITA No 704/Mum/2012), wherein it was held that "Facts this year in which royalty has been paid based on the same agreement as in earlier are identical. Therefore, respectfully following the decision of the Tribunal in assessee's own case in assessment years 2003-04 and 2004-05 (supra), we set aside the order of CIT(A) and delete the addition made".

In view of the aforesaid, the action of the TPO in holding the payment of royalty by the appellant as unjustified is unlawful and not sustainable.

(b) None of the prescribed methods applied by the TPO

The Transfer Pricing regulation in India provides for five methods, out of which one of the methods is to be applied as the most appropriate method to determine the arm's length price of the international transaction.

Under the Transfer Pricing regulations contained in sections 92 to 92F of the Act, the mandate of the TPO is to determine the arm's length price of the international transaction.

Section 92C(1) of the Income-tax Act provides five methods for determination of arm's length price of an 'international transaction'. The mandate of the TPO, it is respectfully submitted, is limited to application of any of the five prescribed methods as the most appropriate method.

The aforesaid has been clarified by the CBDT in Instruction No. 3 of 2003 dated 20-05-2003. Reliance is also placed on the following decisions of the Hon'ble Benches of the Tribunal wherein it has been held that the mandate of the TPO is to determine the arm's length price of the International transaction applying one of the prescribed methods:

• CIT vs. EKL Appliances Ltd (ITA Nos.1068 & 1070/2011( (Delhi High Court)

• LG Electronics India Pvt Ltd, vs. ACIT (ITA No.5140/Del/2011)

• CA Computer Associates Pvt. Ltd. vs. DCIT (ITA Nos. 5420 and 5421/Mum/2006), (Affirmed by the Hon'ble Mumbai High Court)

• Nimbus Communications Ltd vs ACIT (ITA No 2361/Mum/2007

• Dresser Rand India Pvt Ltd vs Addl. CIT (ITA No 8753/Mum/2010)

• Hero Motocorp Ltd vs Addl CIT (ITA No 5130/Del/2010)

• Kodak India Pvt Ltd vs ACIT (ITA No 7349/Mum/2012)

• AWB India Pvt Ltd vs Addl CIT (ITA No 4454/Del/2012)

In view of the aforesaid, it is respectfully submitted that the adjustment on account of payment of royalty, made by the TPO, is unlawful, not sustainable and is liable to be deleted.

An analysis of License Agreement shows that payment of royalty is a consideration for use of "technical assistance and license". The license agreement confers upon the appellant the right to manufacture specific models of Suzuki cars, and for the use of all of SMC's I.P. rights in respect thereof. The appellant's entire manufacturing activities and business is based and founded on these license agreements. The TPO and DRP have completely overlooked this crucial factor which goes to the root of the entire case. Further, the said agreements enable the appellant to produce the world renowned car models, viz., Alto, Swift, WagonR, etc., and not merely the use of name / trade mark "Suzuki". This is an extremely valuable right, which fact is fully reflected in the appellant's rapidly and continuously increasing sales of these models year on year. SMC is only protecting its I.P. rights in respect of the car models by providing for the word "Suzuki" being used along with "Maruti" on these car models.

The nature and purpose for which the royalty has been paid to SMC is the use of licensed information for the engineering, design and development, manufacture, testing, quality control, sale and after sales service of products and parts. Royalty is paid by the applicant (also referred to as `MSIL' hereinafter) to SMC constituted a single/ in severable/ indivisible contract/ package, which provided applicant the exclusive right and license to manufacture and sell the licensed product for a specified limited duration., all others rights vested in the license agreement including technology, technical know how and Trade Mark are linked to the core right to manufacture and sell licensed products.

The relevant extracts of the agreement entered into between the appellant and SMC are as under (Pages 362 - 364 of paper book II):

"1.01 PRODUCTS

"Products" shall mean the model of Suzuki four- wheel motor vehicles listed in Exhibit A attached hereto and such models of Suzuki four-wheel motor vehicles as may be added to the said Exhibit A upon mutual agreement between the parties hereto 1.04 Licensed Information

"Licensed Information" shall mean any and all technical information whether patented or not, including know-how, trade secrets and other data (including all drawings, prints, machine and material specifications, engineering data and other information, knowledge and advice) which SUZUKI now has, or which may come into its possession and control as minor modifications or changes to the technical information originally supplied by SUZUKI to MARUTI hereunder in regard to the respective Model(s) of PRODUCTS and PARTS, during the term of this Agreement relating to the engineering, design and development, manufacture, quality control, testing , sale and after sales service of PRODUCTS and PARTS and which may be supplied by SUZUKI to MARUTI on or after the Effective Date pursuant to this Agreement as well as before the Effective Date.

ARTICLE – 2 LICENSE AND SUZUKI'S OWNERSHIP

(a) SUZUKI has agreed to provide technical assistance and license necessary for the engineering, design, development, manufacture, testing quality control, sale and after-sales service of PRODUCTS and PARTS, in accordance with the terms and conditions contained in this Agreement.

(b) Suzuki hereby grants to MARUTI during the term of this Agreement, in strict accordance with the terms and subject to the conditions herein set forth, (i) the exclusive right (within the meaning as provided for in Article 5.02 of this Agreement) to use the Licensed Information and Licensed Trademarks for the engineering, design and development, manufacture, testing quality control, sale and after-sales service of PRODUCTS and PARTS within the Territory and (ii) the non-exclusive right to use the same for the sale of PRODUCTS and PARTS in such other countries and in such manners of export and sale as may be approved in writing by Suzuki pursuant to Article 5.05."

The main object of the license agreement is to provide the appellant exclusive right and license to manufacture and sell the licensed product for a specified limited duration., all others rights vested in the license agreement including technology, technical know how and Trade Mark are linked to the core right to manufacture and sell licensed products. Further, the appellant enters into separate license agreement for each model of motor car. Thus the dominant object of payment of royalty being consideration for allowing use of technical know how for manufacture of the various models of motor cars which constituted the foundation of the appellant's business.

From the aforesaid extract of the agreement it would also be appreciated that the License Agreement is a single package, for which the consideration in the form of royalty is inseverable. Consequently, no part of the royalty can be split and determined for the use of Suzuki's licensed trademarks. The split done by the TPO is arbitrary and wholly without basis.

The primary intent of the license is transfer of technology and not trademark usage,. Technology is the key driver in the industry in which MSIL operates. The technology transfer from SMC has allowed the appellant to manufacture certain critical components required for manufacturing these cars and has allowed us to internalize and generate these models locally which is evident from the fact the 80% of the material consumed as a percentage of total consumption is indigenized.

Reliance in this regard is also placed on the decision of the Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. vs UOI (Civil appeal no. 733of 2012) wherein the Hon'ble Court held that it is not open to revenue authorities to split an agreement when the parties to the agreement themselves have not contemplated a split up in the agreement and have considered the agreement as an entire package. The Hon'ble court held as under:

"88 ..................... VIH has rightly contended that the transaction in question should be looked at as an entire package. The items mentioned hereinabove, like, control premium, non-compete agreement, consultancy support, customer base, brand licences, operating licences etc. were all an integral part of the Holding Subsidiary Structure which existed for almost 13 years, generating huge revenues, as indicated above. Merely because at the time of exit capital gains tax becomes not payable or exigible to tax would not make the entire "share sale" (investment) a sham or a tax avoidant. The High Court has failed to appreciate that the payment of US$ 11.08 bn was for purchase of the entire investment made by HTIL in India. The payment was for the entire package. The parties to the transaction have not agreed upon a separate price for the CGP share and for what the High Court calls as "other rights and entitlements" (including options, right to non-compete, control premium, customer base etc.). Thus, it was not open to the Revenue to split the payment and consider a part of such payments for each of the above items. The essential character of the transaction as an alienation cannot be altered by the form of the consideration, the payment of the consideration in instalments or on the basis that the payment is related to a contingency ('options', in this case), particularly when the transaction does not contemplate such a split up.

It is further submitted that for the purpose of computing the ALP, the TPO has re-written the agreements/transaction undertaken by the assessee by artificially segregating the single transaction of payment of royalty into two transactions of payment of royalty for use of brand name and for use of technology. It is respectfully submitted that not only such re-writing of transactions undertaken by the appellant is inconsistent with the factual reality of the case but is also contrary to various judicial pronouncements

Reliance is placed on the following observation of the Hon'ble Delhi bench of the Tribunal in the case of Sony India (P) Ltd vs DCIT (ITA no 1189/Del/2005):

"(i) Under Fiscal Laws, actual transaction, as entered into between the parties, is to be considered. Authorities have no right to re-write the transaction unless it is held that it is sham or bogus or entered into by the parties in bad faith to avoid and evade taxes. That is not the case here and, there is no allegation that transaction had any other purpose then one reflected and shown by the parties in the transaction."

Further reliance in this regard is placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs EKL Appliances (ITA No 1068/2011 & 1070/2011) wherein the Hon'ble High Court held that barring exceptional cases, the revenue authorities cannot restructure/re- characterize the legitimate. The Hon'ble High Court held as under:

"17. The significance of the aforesaid guidelines lies in the fact that they recognise that barring exceptional cases, the tax administration should not disregard the actual transaction or substitute other transactions for them and the examination of a controlled transaction should ordinarily be based on the transaction as it has been actually undertaken and structured by the associated enterprises. It is of further significance that the guidelines discourage re-structuring of legitimate business transactions. The reason for characterisation of such re- structuring as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured."

In the case of the appellant too, it is respectfully submitted that the payment of royalty is made under an indivisible agreement for the license to manufacture models of motor cars and the same cannot arbitrarily divided into only two components vis a vis license to use technology and the license to use the trademark only. Further the TPO has disregarded the integral part of the license agreement i.e license to manufacture products .The entire business model of the appellant is based on the license from SMC, Japan for which the royalty payment has been made. Without such technology supply the appellant's business will cease to exist and its entire operations would come to a halt.

In view thereof, it is respectfully submitted that the determination of arm's length of international transaction of payment of royalty in a combined manner is consistent with the arm's length principle.

It is further submitted that a brand is a notion through which the customers relate the technology and certain other characteristics with a specific product. Apart from other factors, the technology and quality of a product plays a critical role in development of a brand. Globally, the brand "Suzuki", apart from other characteristics, is known for the technology behind its products. Since, the brand "Suzuki" and the technology which that brand represents are interlinked and interdependent, it would be inappropriate to separately evaluate the royalty paid for use of technology and for use of brand name.

It is pertinent to highlight here that it is almost impossible to bifurcate the royalty payment in right to use technology and right to use trademark as both of them are very closely inter-linked. Considering this and as directed by the Central government in its approval for Royalty payment ,appellant has been paying R& D cess (payable for import of technology) on the entire royalty paid. Relevant extracts of the RBI approval are reproduced below:

"All payment under the collaboration Agreement would be liable for levy of cess under the Research and Development Cess Act, 1986.The 1986 Cess has to be deposited with bank of India or State Bank of India along with a Challan prescribed under Central Government Account (Receipt and Payments ) Rules,1983 . Should you require any clarification any of the provisions of the Act idbi ,you may approach the Secretary, Govt. of INDIA, Technology Development Board, Department of Science & Technology, Ministry of Science & Technology, Technology Bhawan, New Mehrauli Road, New Delhi - 110016." (Emphasis Supplied)

In view of the aforesaid, it is respectfully submitted that the TPO has arbitrarily divided the license agreement of the appellant without appreciating that all the license agreement is a single in severable agreement.

(d) Erroneous conclusion by Ld TPO that 'Suzuki' brand was weak/ worthless:

The TPO has also erred in failing to appreciate SMC's stature, standing and reputation in the small car segment of the motor car industry not only in Japan but all over the world, including, in particular, sophisticated markets in Europe and USA and the fact that SMC's brand/ logo/Trademark has a well established value in the small car segment. The fundamental error committed by the TPO is to completely disregard the crucial fact that the said license agreement entitled the appellant to manufacture and sell the world renowned car models,viz. Alto, Swift, WagonR, etc., an extremely valuable right, which is the very foundation of the appellant's entire business. The said license agreements also conferred on the appellant the extremely valuable right to produce world renowned car models viz., Alto, Swift, WagonR, etc., using the name "Maruti". The department's allegation of Suzuki reinforcing on the Maruti brand completely disregards this crucial factor.

The association of the "Suzuki" trademark with that of the appellant not only brought an international flavour to the "Maruti" brand but also helped the appellant in projecting itself as a company which is associated with a global automotive giant.

As the decision to use Suzuki name/brand was taken by the appellant in order to advance its own commercial interests, no question arises of the appellant company having conferred any benefit on Suzuki Motor Corporation Japan by using its name in conjunction with Maruti nor of any Transfer Pricing adjustment on this basis. Further, it would be absurd to allege that the Government of India chose a JV partner which had zero brand value, which is the allegation made by the TPO. Similarly, the inferences made by Ld. TPO about impairment of 'Maruti' brand and reinforcement of Suzuki brand are totally against commercial facts, realities and are more inferences and presumptuous. The aforesaid averments of the appellant are also supported by the brand ranking and brand value of "Suzuki".

The fact that Suzuki Brand is an internationally renowned Global Brand can be substantiated by the report of The TOP 500 Brands available on Internet. The Brand Finance (third party) (http://brandirectory.com/) has issued a report of TOP 500 Global Brand, where it has ranked all top 500 brands across the globe. 'Suzuki' brand is at the rank of 236 in that rank list. The Brand Finance (third party) (http://brandirectory.com/) has issued a report of TOP 500 Global Brand (attached as Annexure -1). A brand which has a place in top 500 brands across the globe cannot said to be having a Nil value in India. .The Suzuki Brand has been valued as under year on year:-

S.No	Year Value	(In MillionDollars)
1	2011	4320
2	2010	3211
3	2009	2060
4	2008	3428

Source:- http://brandirectory.com/profile/suzuki

In addition to this as per the Global ranking list of the Automobile Industry "Suzuki is ranking 19 ,full list attached as Annexure- 2

It is respectfully submitted that a successful brand is not created solely on the basis of advertising and marketing expenditure. Successful brands are created as a result of credibility of a trade name, strong research and development capabilities, quality of goods and quality control procedures etc.

it is respectfully submitted that the quality standards prescribed by the associated enterprises and its credibility in the global markets have been a critical factor behind the development of brand 'Suzuki' in India and therefore, the associated enterprise was justified in charging a royalty for use of brand name by the appellant in India.

In view of the above, it would be clearly inappropriate to conclude that the Suzuki brand has a NIL value in India.

It is further respectfully submitted that as long as an item of expenditure has been incurred wholly and exclusively for the purpose of business of the applicant, whether or not such expenditure actually benefits the applicant is an irrelevant consideration for the purpose of determination of ALP.

Reliance in this regard is placed on the decision of the Hon'ble Delhi High Court in the case of CIT vs Ekla Appliances Ltd (ITA No. 1070/2011) wherein the Hon'ble High Court, while adjudicating upon the transfer pricing adjustment made by the TPO, held that as long as an expense is incurred wholly and exclusively for the purpose of business, it is irrelevant as to whether such expenditure actually results in profit or not. The Hon'ble High Court held as under:

"21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above.

XXX

So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised."

In the case of Dresser Rand India Pvt Ltd vs Addl. CIT (ITA No 8753/Mum/2010), the Hon'ble Mumbai Bench of the Tribunal held as under

It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what is not.

XXXX

This analysis is also completely irrelevant, because whether a particular expense on services received actually benefits an assessee in monetary terms or not even a consideration for its being allowed as a deduction in computation of income, and, by no stretch of logic, it can have any role in determining arm's length price of that service. When evaluating the arm's length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same.

Further, in the case of LG Polymers India Pvt Ltd vs Addl. CIT (ITA No 524/Vizag/2010), the Hon'ble Visakhapatnam Bench of the Tribunal held as under.

"13. We agree with the views of the Learned A.R on this Issue. As submitted by him, it is the prerogative of the assessee to regulate its business affairs and it is not open for the department to question the same. Similar views have been expressed by the Hon'ble Supreme Court in the case of Dhanrajgiriji Raja Narasingirji, referred (Supra)'

The Hon'ble Tribunal recently in the case of M/s. Ericsson India Pvt. Ltd. vs. DCIT (ITA No. 5141/Del/2011), too, following the law laid down by the Hon'ble jurisdictional High Court, held that "................. it would be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee.........................."

Further, recently in the case of SC Enviro Agro India Ltd vs DCIT (ITA No 2057 & 2058/Mum/2009) the Hon'ble Mumbai Bench of the Tribunal held that "The TPO has to examine whether the price paid or amount paid was at arms length or not under the provisions of Transfer Pricing and its rules. The rule does not authorize the TPO to disallow any expenditure on the ground that it was not necessary or prudent for assessee to have incurred the same."

The decision of the Hon'ble Mumbai Bench of the Tribunal in the case of Deloitte Consulting replied upon by the Ld. DR is distinguishable on the facts of the appellant's case. In that case, the assessee had not determined the arm's length price of the international transactions. Further in that case, the payment was being made by the assessee, a contract service provider, for marketing support services to associated enterprise. However, the entire revenue from third party customers was also retained by the associated enterprise. In such circumstances, payment for marketing support services was without any consideration and was not justified. Also, in that case, the assessee failed to demonstrate that any benefit was derived from the payment made to associated enterprise.

Re: Burdon on TPO to placed evidence / material on record to justify TP adjustment:

See section 92C(3) of the Act and also the judgment of Delhi High Court in the case of Moser Baer (316 ITR 1). The TPO has not placed any empirical evidence or material on record to show either that there has been any impairment of the Maruti brand or that there has been benefit accruing to Suzuki from the use of Suzuki's name conjointly with that of Maruti in India on the appellant's product. This is especially important because Suzuki has no four wheeler sales in India at all and has no right to use the joined name Maruti-Suzuki anywhere in the world.

Re: Basic and irreconcilable inconsistency in TPO's order regarding AMP expenses and royalty:

The TPO has imputed a very large T.P. adjustment in respect of AMP expenses on the basis or ground that the said expenses incurred by the appellant year after year since 1982 have resulted in a significant increase in Suzuki's brand value. Assuming (without conceding) that this is correct, then Suzuki cannot be considered to be a weak brand which is only reinforcing on Maruti's brand and taking away value from it. In fact, Suzuki has extended a favour by permitting use of their established brand names / models by the appellant. Further, consistant with the known commercial practice, in order to protect these valuable brand name, Suzuki, was within its right to provide for use of the brand name Suzuki on the motor vehicles and in fact, use of the brand name Maruti along with Suzuki is a concession and a favour extended by Suzuki.

(e) Effective rate of royalty - in any case, far lower than permissible and thus heavily subsidized

In order to substantiate that the royalty rate paid by the appellant is not excessive, the appellant conducted a search to identify comparable license agreements entered into by independent parties for grant of the right to use technical know-how, patent rights and copyrights to determine the income/return which an IP developer would earn/expect to earn in an arm's length situation. On the basis of the said search, it was determined that an IP/technology developer would earn at least 7.25% on sales for its efforts/functions of IP development and assumption of corresponding business risks and IP ownership.

The royalty rate paid by the appellant during the FY 2004-05 is 1.82% which is significantly lower than the 7.25% arm's length royalty rate identified by the appellant. This provides evidence that the royalty paid by the appellant is not excessive and the appellant has in fact received a concession.

Further, The appellant also undertook a search to identify information related to independent license agreements with respect to other manufacturers of passenger cars in India.

As per the search conducted over the internet, the appellant identified the following independent royalty agreement.

Name of the Licensee	Royalty Rate	Name of the Licensor	Purpose of License agreement
Tata Motors Ltd.	5% running royalty	Hybridtronics Inc	Manufacture of Hybrid fuel technology buses
Tata Autocomp Systems Ltd	5% running royalty	Yazaki Corporation, Japan	Manufacture and sale of automotive wire harnesses and components

It is respectfully submitted that the royalty paid by the MSIL of 1.82% is less than the royalty rate paid by the above identified company. Accordingly, the royalty paid by the appellant is at arm's length.

We have been also given to understand the Hindustan Motors Ltd (HML). is also paying Royalty to M/s Mitsubishi ,Japan @ 5% for its Lancer Model. HM being only the independent comparable in passenger car for MSIL.

Therefore the royalty rate of MSIL 1.82% which is less than 5% is with in the arm's length range of the royalty payments, therefore no adjustment at all is warranted on royalty.

The Ministry of Commerce and Industry has, through its FDI policy and vide Press Note No 18 (1997) permitted an automatic permission for amount not exceeding 5 percent of domestic sales and 8 percent of exports towards payment of royalty outside India.. Similar approval has also been accorded by the RBI under the Current Account Regulations of the Foreign Exchange Management Laws. In view of the permissible rates in the FDI policy (5 percent and 8 percent), the appellant's effective royalty rate of 1.82% percent establishes the fact that the appellant received a huge 'subsidy' in the royalty paid to SMC. Such concession/ subsidy is also evident from the fact that the appellant has earned an operating margin of 11.19% which is significantly higher than the margin earned by the comparables used by the TPO in its TP order. Further, no additional benefit is passed on to SMC by the appellant even though it is using SMC's SMC's trademark/ brand/ logo.

(f) No four-wheeler business of Suzuki in India - hence question of promoting the 'Suzuki' brand at the expense of destroying successful 'Maruti' brand does not arise at all

Suzuki does not have any four wheeler sales or business whatsoever in India. Consequently, no question arises at all, of any attempt ever being made by the appellant to dilute or destroy the Maruti brand and to promote the Suzuki brand in India. It would be nothing short of insanity on the part of the management of the appellant and Suzuki Motor Corporation, Japan to take any action with the object of destroying the Maruti brand which has now over the years become a highly successful and valuable brand, and that too with the object of promoting the Suzuki brand, when Suzuki has no four wheeler business whatsoever in India.

It is worth noting here that as per the License Agreement of MSIL with SMC, Japan, MSIL has exclusive right to manufacture and sale vehicle in India.

(g) License agreements approved by Government

The license agreement has received the approval of the Secretariat of Industrial Approvals, Ministry of Industry and also of the Reserve Bank of India (Foreign Exchange Department) .Hence, if the approval is granted by the government authorities, it is made sure that there is apposite check on the inflow of foreign funds and that valuable foreign exchange does not out-flow from the country. In these circumstances, it is not appropriate for another Department of same Central Government to contend that the royalty paid by the appellant is for a worthless or useless brand which need not be used by the appellant at all, or that by use of Suzuki brand on Maruti vehicles it is actually Suzuki which has been benefited, or that the appellant is bound to recover consideration for the same.

Further, Clause (d) of sub-rule (2) of Rule 10B of the Income-tax Rules provides that for the purpose of establishing arm's length price, comparability of an international transaction with an uncontrolled transaction shall be judged with reference to, inter alia, the laws, government orders in force. In view of the Central Government approval for payment of royalty, no third party comparable is otherwise necessary to establish the arm's length price.

Royalty is paid on the basis of the approval by Central Government, which imply that such payments are as per industry norms and are comparable to payment of model fee by other industries in the segment. In view of the Central Government approval for payment of royalty no third party comparable was otherwise considered necessary to establish the arm's length price.

In a recent case of Sona Okegawa Precision Forgings Ltd (ITA no.4781(Delhi) of 2010, the hon'ble Delhi ITAT up-held the deletion of Transfer-pricing adjustment made by the CIT(A), observing as under:

The assessee has placed on record a copy of the letter dated 30.04.1993 written by the Reserve Bank of India, Exchange Control Department, to Sona Steering Systems Ltd., in which payment of royalty @ 3% on domestic sales was allowed to be paid for a period of five years. There are similar other correspondences which have been placed on record. The assessee has also placed on record a press note issued by the Government of India, Ministry of Commerce and Industries, Department of Industrial Policy & Promotion, issued in 2003, under which royalty payment @ 8% on export sales and 5% on domestic sales have been referred to be reasonable for the purpose of processing approval of payments. On the other hand, the AO failed to bring any material on record that payment of royalty @ 3% was not at arm's length. Therefore, the payment stands justified under the CUP method.

Further, in the case of Hero Motocorp Limited vs Addl CIT (ITA No 5130/Del/2010), the Hon'ble Delhi Bench of the Tribunal, relying upon the approval granted by the central government, deleted the addition made by the TPO on account of payment of royalty.

Further, the appellant has also demonstrated the significant benefits derived from payment of royalty to the AE.

Even otherwise, since the concerned Ministry of the Government has scrutinized the payment of royalty and granted approval, the payment cannot be regarded as non bonafide.

Taking into consideration the aforesaid, the transaction of payment of royalty is to be considered to have been conducted at arm's length price.

(h) Without prejudice - Split based on the advertisement and marketing expenditure and Research and development expenditure incurred by SMC is fundamentally erroneous

It is respectfully submitted that the approach adopted by the TPO to split the royalty charged to the Appellant in the ratio of cost of R&D and business promotion cost of SMC is arbitrarily and bad in law. TPO is of the view that SMC would have charged royalty for the use of technology and for use of brand name in the same proportion in which it is incurring expenditure on R&D and brand promotion.

Without prejudice to the contention that royalty paid is an inseverable payment, it is respectfully submitted that the apportionment conducted by the TPO is fundamentally erroneous and flawed and such an analysis has not been undertaken taking into consideration the economic/business realities.

The TPO, for the purpose of bifurcation of royalty payment, has considered the figures of the consolidated financials of SMC, which includes the data of all the subsidiaries of SMC (including the appellant). Taking the consolidated figures of SMC distorts the comparison as it includes the AMP expenses of all the subsidiaries (including the appellant) on the one hand and while on the other hand R&D expenditure will be majorly of SMC alone, since the major role in the R&D function is performed by SMC for all the group companies.

Without prejudice to all the contentions stated above, it is humbly prayed that if the bifurcation of royalty is to be done based on SMC's financials it should be done taking into account the standalone data of SMC and not the consolidated data of SMC.

The appellant submits hereinunder the standalone financial data of SMC with respect to its Advertising Expenses and R&D expenses for the past 3 years,:-

Particulars	(Unit: Million Yen)				Ratio
Particulars	31/03/2005	313/2004	31/03/2003	Total	Ratio
Advertising Expenses	19,192	30,131	29,529	78,852	26%
Research & Development Expenses	84,865	74,573	59,530	218,968	74%
				297820

Further, the TPO has sought to attribute the royalty charged by SMC purely on the basis of the ratio in which expenses have been incurred by SMC. It may be noted that SMC, in the course of its business operations, is engaged in more than just one segment. SMC, during the year, had a diversified portfolio, and was engaged in manufacture of Commercial vehicles, Motorcycles, outboard motors, generators, general purpose engines, marine and power products and various other products. Further, SMC sells not only in Japan and India, but has a global presence, manufacturing at its 22 locations across the globe and selling across its network of 187 countries which entail significant expenditure on R&D and Brand promotion, which would, be attributable across multiple geographies, and across product lines. Further, the advertisement and marketing expenditures of SMC in these 187 countries would be very different and would depend upon the business dynamics prevailing in these various countries.

Accordingly, the split based on total A&M and R&D expenses as conducted by the TPO is incorrect and has not taken into consideration the diverse functions performed by SMC.

Further, press note 9 of 2000 issued by the DIPP provides for payment of royalty @ 5% for use of technology and @ 1% for use of brand name under the automatic route. Therefore, even in terms of the ceilings prescribed by the Govt of India, the royalty component towards use of trademark constitutes 20% of the royalty towards use of technology."

8. The submissions of the Ld. Departmental Representative are as under:-

"(a) Bench Marking of payment of royalty applying TNMM

Counter Submissions

The assessee has reported 8 different International Transactions. Payment of royalty for technology/ trademark at Rs. 198.58 Crore is less than 2% of its Revenue of Rs. 11,255 Crores. The assessee has claimed that since its operating margin (OP / Sales ) at 11.19% is higher than the benchmark margin, all its international transactions are at Arms length.

Law stipulates that each and every international transaction has to be separately benchmarked, using the Most Appropriate Method.

The assessee's plea is contrary to law, as is elaborated hereinafter.

The assess claimed that its transactions are at Arm's Length Price and since its profit margin is more than the benchmark margin, no adjustment (akin to addition/disallowance) could be made. This methodology of assessee is incorrect, and does not have sanction of law. Law stipulates that each international transaction has to be separately bench marked for purpose of Arm's Length analysis.

Rule 10B(1) (e) reads as follows:-

10B. (1) for the purpose of sub-section (2) of section 92C, the arms length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:-

(e) Transactional net margins method, by which,

(i) The net profit margin realized by the enterprise from an international transaction entered into with and associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base.

(ii) The net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base.

(iii) The net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market.

(iv) The net profit realized by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in subclause (iii).

(v) The net profit margins thus established is then taken into account to arrive at an arms length price in relation to the international transaction.

Thus each international transaction needs to be separately benchmarked. The stress is on the word an international transaction.

This proposition that each international transaction mandatory requires separate and individual benchmarking, finds support from the following rulings:-

1. UCB India (P) Ltd v ACIT(0009)30 SOT 95/121 ITD 131/124 TTJ 289, paras 68 till 71A [Pease See Annexure 1]

2. Addl. CIT v. Tej Diamond (2010) 37 SOT 421/133 ITJ 570 3

3. Dy. CIT v. Starlite (2010) 40 SOT 421/133 TTJ 425

4. Global Vantedge (P) Ltd. V. Dy. CIT CIT (2010) 37 SOT 1 (Delhi- Trib.) CIT(A)

5. Dy. ClT v. S. Narendra (2010) 41 ST 1

6. Dy. ClT v. Sterlite (2010) 40 SOT 421 (Mum.)

7. Asstt. CIT v. Twinkle Diamond (2011) 45 SOT 115(Mum.) (URO)

8. Dy. CIT v. Ankit Dianmonds (2011) 43 COT 523 (Mum)

9. ACIT v. Golawala Diamonds (2011 9 taxmann.com 29 (Mum-ITAT)

10. Benetton India Pvt. Ltd. V. ITO-2012-134lTD 229 Delhi Tribunal

11. DCIT v Startex Net Work India P. Ltd 2010 133 TTJ 3651 42 sot 395 Del

Further, in the case of M/s KNORR BREMSE India P. Ltd. v. ACIT- 2012 27 Taxmann. com 16/2012 56 SOT 349(Delhi -Trib.), [Pease See Annexure 2] the Hon'ble Delhi Tribunal held that the aggregation of separate, distinct and distinguishable transactions is not permitted as per Indian TP legislation. Under TNMM, each international transaction entered into with an AR, is to benchmarked separately. The element of "Cross subsidization" is not permitted under Indian Income Tax Legislation. The assessee cannot take a plea of set off of the higher price paid (over and above ALP) in one international transaction with lower price paid (below the ALP) in another identical transaction, and vice versa. Relying on Star India (P.) Ltd. v. Asstt. CIT [LT. Appeal No. 3585(Mum.) of 2006,] (Mum.) and UCB India (P.) Ltd. v. Asstt. ClT[2009] 121lTD 131/30 SOT 95 (Mum.-Trib.) the Tribunal held that each transaction has to be benchmarked separately.

It was therefore, requisite that each international transaction be benchmarked distinctly, using the Most Appropriate Method.

Rule 10C, of LT. Rules 1962, specifies Most Appropriate Method as follows:-

10C(1) for the purpose of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction and which provides the most reliable measure of an arm's length price in relation to the international transaction.

(2) In selecting the most appropriate method as specified in sub-rule (1) the following factors shall be taken into account namely:-

(a) The nature and class of the international transaction.

(b) The class or classes of associated enterprise entering into the transaction and the function or to be employed and risks assumed by such enterprises.

(d) The degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions.

(e) The extent to which reliable and accurate adjustments can be made to account for differences if any between the international transactions or between the enterprises entering into such transactions.

(f) The nature, extent and reliability of assumptions required to be made in application of a method.

A transaction such as rate of interest on loan has to be benchmarked using the market rates available which would mean that comparable uncontrolled Price Method (CUP), is the Most Appropriate Method,. The rate of interest on loan cannot be benchmarked relying upon profitability margin. Thus, transactional Net Margin Method (TNMM), being a method relying upon profit margin is manifestly inappropriate. Similarly, an international transaction such as export of gold by a jeweler has to be compared (benchmarked) with gold prices prevailing in the market. The same cannot be benchmarked using profits margin of the business as a whole, which may consist of several international transactions or streams of business such as manufacture of jewelers and pawning of gold ornaments. In fact, in the judgement of M/s. Nestle, 337 ITR 103 Delhi it has been held that royalty cannot be benchmarked to profitability.

So, payment of royalty as an international transaction needed to be separately bench marked using CUP method as the Most Appropriate Method. The same was done by the TPO.

The assessee did not discharge its burden which is proved as the assess did not carry out a separate detailed FAR analysis (Functions Assets Risk Analysis) in its TP study report. Separate FAR analysis for each transaction or class of transactions is a requirement of Law.

In view of the above facts it is seen that the assessee failed to discharge its burden of proof. In the scheme of transfer pricing provisions of the Income Tax Act 1961, the burden has been specifically cast upon the assessee, wherein it failed. Support is found from the following case laws.

1. Aztec Software & Technology Service Ltd. v. Asstt. CIT (207) 107 ITD 141 (Bang.) (SB)

2. UCB India (P) Ltd. Asstt. CIT (2009) 30 C0l95/121 ITD 131/124 ITJ 289 (Mum.)

3. Moser Baear India Ltd. Add\. CIT (2009) 176 Taxmann 473 Delhi, 316 ITR 1 Delhi.

(b) Independent decision of MSIL to use co- branded Trademark Maruti Suzuki.

Counter Submissions

The assess has pleaded that at the time of entering the licensing Agreements (In 1982 and 1992) with M/s SMC (Japan), the entities - MSIL and SMC (Japan) were unrelated and therefore, the transactions are at Arm's length.

The assessee's argument is not correct. Even in 1982 and 1992, there existed a relationship of control (or Association) between MSIL and SMC (Japan).

Further, the transactions have to be evaluated every year. There is a direct ruling of Hon'ble Mumbai Tribunal:-

Old Agreement with third party was entered earlier cannot be considered as external comparable Dy. DCIT v. CMA CGM Global India P. Ltd. [2012] 28 taxmann.com 165/ [2013]55 SOT 20 (Mum. Trib) [Pease See Annexure 3]

In this case the assessee which was a subsidiary of CMA CGM, France, was acting as its shipping agent under an Agency agreement dated 17th Sep, 2003. Prior to the new agreement, same services were provided by a 3rd Party i.e. Container Maritime Agency Pvt. Ltd. (CMAPL) under a similar agency agreement dated 20th Oct, 1999 which had expired in Aug, 2003. The Tribunal held that it would not be appropriate, for making any comparison in the relevant year, the earlier agency agreement with the third party CMP AL that had expired prior to Sep, 2003 as the rates were applicable in the earlier years. The earlier party could not be considered as an external CUP. Thus, the rates of the earlier agreement will not be appropriate parameter for determining the ALP, in the current A Y.

Res judicata

There is a plethora of jurisprudence on this issue, wherein it has been held that resjudicata is not applicable to taxation cases.

In fact, the Hon'ble Accountant Member, relying upon M/s Distributors Baroda Pvt. Ltd. ; in the case of M/s Sumitoms Corporation India P. Ltd. v. DCIT- 2013, 32 Taxmann.com 85 Delhi has held that" to perpetuate an error is no heroism".

Counter Submissions

The TPO has relied on CUP.

In the cases of M/s Deloitte Consulting India (P) Ltd. v. DCIT- 30/03/2012, 579/Mumbai/2011, 137 ITD 21, it was held that where ALP had to be NIL, than no method was required. [Pease See Annexure 4]

(d) Single/ in severable license for manufacture and sale of products.

Counter Submissions

As in counter to (a) above, each transaction needs to be separately evaluated. The burden is on the assessee. The logic of money received on interest as in counter to (a) above should be considered here also. Money goes into entire business operation. Yet the loan transaction has to be separately evaluated. If assesses logic is accepted than interest paid at the rate of 24% should be accepted as ALP, if the profit of the entity is higher than the Benchmark Margin.

A transaction such as rate of interest on loan has to be benchmarked using the market rates available, which would mean that Comparable Uncontrolled Price Method (CUP), is the Most Appropriate Method. The rate of interest on loan cannot be benchmarked, relying upon profitability margin. Thus, transactional Net Margin Method (TNMM) being a method relying upon profit margin is manifestly inappropriate even for transaction of royalty.

It is pointed out that whatever be the profit margin, the rate of interest on loan transaction @ 24% per annum will be considered to be above the Aims Length Price, upon evaluation using the Most Appropriate Method. Similarly, an international transaction such as export of gold by a Jeweller has to be compared (benchmarked ) with gold prices prevailing in the market. The same cannot be benchmarked using profit margin of the business as a whole, which may consist of several international transactions and streams of business, such as manufacture of jewellery and pawning of gold ornaments or a transaction of borrowing money on interest. In fact, in the judgment of M/s. Nestle 337 ITRI03 Del), it has been held by the Hon'ble Delhi High Court that royalty cannot be bench marked to profitability. [Pease See Annexure 5]

So, payment of royalty as an international transaction needed to be separately benchmarked.

(e) Erroneous conclusion by Ltd. TPO that Suzuki brand was weak! worthless.

Counter Submissions.

The TPO has not held so. The assessee's assertion is incorrect. Please see para 6.49 (page 30) of TPO's order Dated 21.02.2012

Further, Commercial Expediency is not being challenged. Even the Hon'ble Delhi High Court in the case of Mis. CIT v. Ekla Appliances, have not ruled out the determination of reasonableness of expenditure. This has been elaborated by the Hon'ble Delhi ITAT in the case of Mis Ericsson India P. Ltd. v. ACIT- (ITA No. 514/Del/2011) dated 11.05.2012, of Sh. G.D. Aggarwal and Sh. I. P. Bansal. Paragraph 30, thereof, which being relevant, is being reproduced. [Pease See Annexure 6] Incidentally, the assessee has only selectively quoted this order. The relevant portion is -

30. Keeping in view the aforementioned decision of Hon 'ble Delhi High Court, we are of the opinion that it will be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee. At the same time it has also to be seen that whether the price paid by the assessee is at arm's length. The term 'arm's length price' has been defined in section 92F which means a price which is applied or proposed to be applied in the transactions between the persons other then Associate Enterprises in uncontrolled conditions. It is only because of that their Lordships in the aforementioned decision have observed that "the quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. " Earlier to this they have observed that Revenue cannot disallow any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerative. Looking into observations of their Lordships, it has to be held that reasonableness of expenditure has not been excluded from determination. Here it can be mentioned that the formula, which was placed before the Assessing Officer, TPO, and DRP, was different from the formula according to which the impugned amounts have been calculated. For the first time it is brought to our notice that an amended formula has been adopted to calculate the impugned amount. Though it is the case of the learned AR that this formula is more logical and reasonable but at the same time this formula has not been examined by the authorities below. Though on the face of it the arguments of learned AR appear to have force but unless the new formula is also confronted to the Assessing Officer, it will be wholly unjustified to uphold the correctness & reasonable of this formula which has been placed before us for the first time. Therefore, we consider it just and proper to restore the issue regarding determination of arm's length price with regard to' the impugned transaction to the file of the Assessing Officer redetermine the same in the light of the aforementioned observations. Needless to observe that assessee should be given reasonable and sufficient opportunity of hearing for presenting its case.

That Commercial Expediency does not preclude examination by TPO has also been approved in the case of Perot Systems v. DCIT, 5 ITR (Trib) 106-Delhi 30/10/2009. Para 9 & 10, of Delhi ITAT, by Sh. Shamim Yahya and Sh. A.D. Jain [Pease See Annexure 7]

Also in the case of M/s Deloitte Consulting India (P) Ltd. v. DCIT, 30/03/2012, 137 ITD 21, Mumbai, Para 35, it has been held that it is the duty of the TPO to determine ALP irrespective of the fact whether payment is made for the purpose of business etc. The paragraph 35, is being reproduced here:-

35. "The first proposition is that, the assessee has a legal obligation to make the payment and that legal obligation arises from the joint venture agreements, which is a pre- incorporation agreement which is binding. This argument is to be rejected as "ALP" has to be determined irrespective of any contractual obligation undertaken by the parties. If is held that the TP provisions do not apply whenever there is a legal obligation to pay, then the entire objective of the provisions will be defeated. The issue which the TPO requires to adjudicate is not whether the assessee has a legal obligation to pay and whether the payment made is for the purpose of business etc, but only to determine the ALP of the transaction i.e., to examine as to whether the transactions are at arm's length. If the transactions are, in the opinion of the TPO, not at arm's length, the required adjustment has to be made, as provided in the Act, irrespective of the fact that the expenditure is allowable under other provisions of the Act. "

(f) Effective rate of royalty in any case is far lower than permissible and thus heavily subsidized.

Counter Submissions.

The assessee has brought in some new facts, based on internet search. Further the assessee has relied upon RBIIFDI norms.

It is pointed out that, as per report in Business standard, dated 23/10/2012. M/s Maruti paid royalty @ 64% of Pre Tax profit and 88% of Post Tax profit.

Further, RBI/FDI norms/approval are not relevant for ALP or TP purpose this issue has been elaborated in detail in favour of Revenue, in case of MIs SKOL Breweries Ltd. v. ACIT, IT.A No. 6175/Ml2011, dtd. 18/01/2013, Para 24 thereof. [Pease See Annexure 8] Here they have relied upon of Hon'ble Delhi High Court in the case of MIs Nestle 337 ITR 103, Delhi. [Pease See Annexure 5]

Reliance is also placed Hon'ble Punjab & Haryana High Court in the case of MIs Coca Cola (309 ITR 194) [Pease See Annexure 9]

(g) No four whealer business of Sujuki in India - hence question of promoting the Suzuki brand at the expense of destroying successful Maruti Brand does not arise at all.

Counter Submissions.

This is merely an assertion of the assessee. The TPO has dealt with this issue in detail.

(h) License agreements approve by Government.

Counter Submissions.

PI. see counter arguments in (t) above. The order of ITAT, Mumbai, in case of SKOL Breweries is in detail and in favour of Revenue. Even Jurisdictional High Court in case of M/s Nestle, 237 ITR 103, [Pease See Annexure 5] Delhi, is in favour of Revenue. Moreover, reliance is placed on the order of Delhi ITA T in the case of Perrot Systems (an order by Hon'ble Accountant Member), 5 ITR Trib 106-Delhi, dated 30/10/2009,Para 9 thereof [Pease See Annexure 7]. It has also been similarly held so in the case of M/s Coca Cola, by Hon'ble Punjab & Haryana HC. 309 ITR 194 (P&H), [Pease See Annexure 9]

This issue is also decided in favour of Revenue, by the Mumbai ITA T in case of M/s Serdia Pharmaceuticals India (P) Ltd. v. ACIT. 31/1012010, 50 DTR/98, 136TTJ129, Mumbai, Para 95 thereof. [Pease See Annexure 10].

Reliance is also placed on the order of Hon'ble Mumbai ITAT in case of ACIT v. Genom Biotech P. Ltd., 16/0512012, Para 7.2 and Para 10.8. ITA No. 5272/M/2007. [Pease See Annexure 11]

(i) Without prejudice-Split based on the advertisement and marketing expenditure and R & D expenditure by SMC is fundamentally erroneous.

Counter Submissions.

The issue has been dealt in detail by the TPO.

Further the order of LG (Sp. Bench) has decided this issue.

It is also pointed out that in connection with above the detailed discussion on Maruti Sujuki case in the LG Special Bench Case (ITA No. 5140/D/2011) of Jan.2013, Para 29.1 till 29.16 (Para VIII) of the order is relevant."

9. We have carefully considered the submissions and perused the records. We find that assessee in this case is a license manufacturer of cars in India of its Associated Enterprise SMC. In terms of the license assessee has paid lumpsum royalty as well as running royalty SMC. TPO was of the opinion that the royalty paid should be split towards technical assistance and brand. For making the above bifurcation. TPO referred to financials of SMC. The TPO referred to the figures of advertisement and research and development expenditure of SMC for the past 5 years. he compiled the respective totals of these two items. He further computed the ratio between them. He opined the percentage of expenditure of research and development can represent amount attributable to use of technology and the percentage of advertisement expenditure can represent amount attributable to use of brand. He split the royalty as under:-

Total amount of royalty	Rs. 198,57,42,097/-
Amount attributable to use of Technology being 50.58% of the Amount of royalty	Rs. 100,43,88,352/-
Amount attributable to use of Brand name being 49.42% of the Amount of royalty.	Rs. 98,13,53,745/-

9.1 The TPO observed that there was no dispute regarding the royalty for technology. However, the TPO was of the opinion that no royalty was payable which was attributable to use of brand name. TPO held that both the process of piggybacking of Maruti trade mark by the Suzuki trade mark and co-branding has resulted in impairement of Maruti brand value and establishment of Suzuki brand of the Associated Enterprise in a big way from financial year 2003-04. Hence the TPO opined that Maruti was stronger brand and Suzuki was less strong. Hence, the TPO held that the payment of Rs. 981353745/- made by the assessee to SMC for use of brand name was not required.

9.2 Now in this regard the first submission of the assessee is that it was an independent decision of MSIL to use co-brand trade mark 'Maruti-Suzuki'. We find considerable cogency in the submission of the assessee in this regard. The assessee started its business in 1982 (as 100% Govt. of India owned Company). SMC was selected as business partner by MSIL in 1982. The co-brand trade mark Maruti-Suzuki is being used since inception of the company. At the time of entering into this agreement assessee was an independent 100% Govt. of India owned entity. The same decision is carried forward in the subsequent license agreement including the 1992 license agreement. The decision to continue the joint trade mark was taken in the Company's business interest. It is further noted that only license agreement for manufacture of 'Swift' was entered into during the financial year 2004-05, for all the other models of motor cars were entered into the past. It is noted that royalty paid under all these licenses have never been disputed and have been accepted as at arm's length. The license agreement entered into between the Govt. of India and SMC specifically provided for the use of co-brand trade name/ logo of the assessee and Suzuki. It was only in 2003 SMC acquired a controlling (54%) interest in the share capital of the assessee company and could be said in a position to influence the assessee's decision. The continued use of the said co- branded name/logo cannot, therefore, be attributed to the dictation of Suzuki from 1992 onwards to the assessee company. Thus, the decision was taken in way back 1993, 12 years before the year under consideration, could not have been influenced by the need to manipulate and thereby erode the Indian tax base. Hence, the same terms and conditions of agreement are in place during the Financial Year 2004-05, the license agreements can be said to be at arm's length.

9.3 In this regard, we place reliance upon the decision of the Mumbai Tribunal the case of SC Enviro Agro India Ltd vs DCIT (ITA No 704/Mum/2012), wherein it was held that "Facts this year in which royalty has been paid based on the same agreement as in earlier are identical. Therefore, respectfully following the decision of the Tribunal in assessee's own case in assessment years 2003-04 and 2004-05 (supra), we set aside the order of CIT(A) and delete the addition made."

9.4 Hence, in light of the aforesaid, we agree with the contention of the assessee that the action of the TPO in holding that the payment of royalty by the assessee was unjustified is not sustainable.

9.5 In this regard, Ld. Departmental Representative has submitted that even in 1982 and 1992, there existed a relationship of control (or association) between MSIL and SMC, Japan. He has further submitted that transaction have to be evaluated every year.

9.6 Ld. Departmental Representative has further submitted that there is a plethora of jurisprudence on the issue of resjudicata is not applicable to taxation cases.

9.7 We have considered the above. We find that we are not in agreement with the Ld. Departmental Representative that even in 1982 and 1992 SMC was in a position of control MSIL. Further when there is no change in facts and circumstances of different year, in our considered opinion different view cannot be taken.

10. Another aspect of the assessee's submissions is that TPO's action of bifurcating the royalty paid for technology and for use of brand name is unjustified. The analysis of the license agreement shows that payment of royalty is a consideration for use of 'technical assistance and license'. The license agreement confers upon the assessee right to manufacture of specific models of Suzuki cars and for the use of all of SMC's IP rights in respect thereof. We agree that the assessee's entire manufacturing activity and business is based and founded on these license agreement.

11. The another purpose for which the royalty has been paid to the SMC is the use of license information for the engineering, design and development, manufacture, testing quality control, sale and after sales service of products and parts. Thus, we agree with the submission of the ld. Counsel of the assessee that royalty thus paid by the assessee to SMC constitute a single / inserverable/ indivisible contract/ package which provided assessee the exclusive right and license to manufacture and to sell the licensed product for a specified limited duration. All others rights vested in the license agreement including technology, technical know how and trade mark are linked to the core right to manufacture and sell licensed products.

12. Thus we agree with the submissions of the assessee that primary intent of the license is transfer of technology and not trademark usage. Technology is the key driver in the industry in which MSIL operates. The Technology transfer from SMC has allowed the assessee to manufacture certain critical components required for manufacturing these cars.

13. In this regard, we place reliance upon the decision of the Hon'ble Apex Court in the case of Vodafone International Holdings B.V. vs. UOI (Civil Appeal No. 733 of 2012) wherein the Hon'ble Court held that it is not open to revenue authorities to split an agreement when the parties to the agreement themselves have not contemplated a split up in the agreement and have considered the agreement as an entire package. The relevant citations in this regard has been brought out in detail in the assessee's submission above. Thus, we find that for the purpose of computing the arms length price, the TPO has re-written the agreement / transaction undertaken by the assessee by artificially segregating the single transaction of payment of royalty into two transactions of payment of royalty for use of brand name and for use of technology. We agree with such re-writing of transaction undertaken by the assessee is inconsistent with the factual realities of the case and is also contrary to the various judicial pronouncements. In this regard, the following case laws referred by the assessee's counsel are germane and supports the case of the assessee.

i) Hon'ble Delhi High Court decision in the case of Sony India (P) Ltd. DCIT (I.T.A. No. 1189/Del/2005)

ii) Hon'ble Delhi High Court decision in the case of C.I.T. vs. EKL Appliances (I.T.A. No. 1068/2011 and 1070/2011).

13.1 Thus, we agree with the submission of the assessee's counsel that the entire business model of the assessee is based on license from SMC, Japan for which royalty has been paid. Without such technology supply the assessee's business will cease to exist and its entire operations would come to a halt. Thus, we agree with the assessee's submission TPO has arbitrarily divided the license agreement of the assessee without appreciating that all the license agreement is a single in severable agreement.

14. Another aspect of the assessee's submissions in this regard is that the TPO has erroneously concluded that Suzuki brand was weak/worthless. In this regard, assessee has submitted that TPO has erred in failing to appreciate SMC's stature, standing and reputation in the small care segment of the motor car industry not only in Japan, but all over the world. The SMC's brand/logo/trade mark has a well established value in the small car segment. The license agreements in this regard have entitled the assessee to manufacture and sell the world renowned car models. The association of the Suzuki trade mark with that of the assessee not only brought an international flavor to the Maruti brand but also helped the assessee in projecting itself as a company which is associated with a global automotive giant. We agree with the assessee's submission that the decision to use Suzuki name / brand was taken by the assessee in order to advance its own commercial interest. No question arises of the assessee company having conferred any benefit on Suzuki Motor Corporation Japan by using its name in conjunction with Maruti nor of any Transfer Pricing adjustment on this basis. We agree with assessee's submission of the assessee that Suzuki brand is an international renowned global brand. This can be substantiated by the Report of top 500 brands available on internet.

15. Another realm of the assessee's submission is that as long as an item of expenditure has been incurred wholly and exclusively for the purpose of business of the assessee whether or not such expenditure actually benefits the assessee is an irrelevant consideration for the purpose of determination of ALP. In this regard, the case laws referred above by the assessee in its submission are germane and supports the case of the assessee.

i) Hon'ble Delhi High Court decision in the case of C.I.T. vs. Ekla Applicances Ltd. (I.T.A. No. 1070/2011)

ii) Mumbai Tribunal decision in the case of Dresser Rand India Pvt. Ltd. vs. Addl. C.I.T. (I.T.A. No. 8753/Mum/2010)

iii) Decision of Vishakhapatnam Bench of the Tribunal in the case of LG Polymers India Pvt. Ltd. vs. Addl. C.I.T. (I.T.A. No. 524/Vizag/2010).

iv) Decision of the Tribunal in the case of M/s Ericsson India Pvt. Ltd. vs. DCIT (I.T.A. No. 5141/Del/2011).

v) Decision of the Mumbai Tribunal in the case of SC Enviro Agro India Ltd. vs. DCIT in (I.T.A. No. 2057 & 2058/Mum/2009).

16. We further find that TPO has imputed a very large T.P. adjustment in respect of AMP expenses on the basis that the said expenses incurred by the assessee year after year since 1982 have resulted in a significant increase in Suzuki's brand value. If this be so then Suzuki cannot be considered to be a weak brand which is only reinforcing on Maruti's brand and taking away value from it.

17. On the basis of above said discussion and precedents, we are of the opinion that TPO was not justified in making adjustment of Rs. 98,13,53,745/-. Thus we hold that TPO's conclusion that the payment of above sum as royalty to SMC was attributable to use of brand name is not sustainable. Further, TPO's conclusion that payment of above sum was not required is liable to be set aside. Hence, we hold that no disallowance is required in payment of royalty by MSIL and SMC.

18. Since we have decided the issue in favour of the assessee on the basis of above discussion, other arguments advanced by the Ld. Counsel of the assessee in favour of assessee and their counter submission by the Ld. Departmental Representative do not need adjudication as they are of academic interest now.

19. Apropos Transfer Pricing Adjustment on account of AMP The TPO made the transfer pricing adjustment amounting to Rs. 1,54,12,00,000/- in relation to advertisement, marketing and sales promotion expenses (AMP expenses) incurred by the assessee. The DRP affirmed the above action of TPO.

20. Against the above order the assessee is in appeal before us.

21. We have heard the rival contentions in light of the material produced and precedents relied upon. We find that the Special Bench of the Tribunal was constituted in the case of LG Electronics India Ltd. vs. ACIT bearing I.T.A. No. 5140/Del/2011 to decide as to whether the Assessing Officer /TPO was justified in transfer pricing adjustment in relation to advertisement, marketing and promotion expenses incurred by the assessee. The Special Bench pronounced its order dated 15.1.2013. The Special Bench in principle held that bench-marking of AMP expenses being international transaction was permissible under the TP Regulations. The matter was sent back to the TPO to readjudicate the ALP, in light of the factors enumerated in the order.

22. We have heard both the counsel and perused the records. We find that this Tribunal in I.T.A. No. 4602/Del/2010 & Ors. in the case of Canon India Pvt. Ltd. vs. DCIT vide order dated 03.05.2013 has considered the impact of aforesaid Special Bench decision and held as under:-

"7. We have heard rival contentions made on behalf of the parties and gone through the relevant material available on record.

7.1. First of all we will take up the legal issues as raised in the grounds of appeal regarding the retrospective applicability of sec. 92CA(2B) to the years in question in the case of the assessee as also the powers of assessing officer to make such reference and the powers of TPO to furnish report in this behalf and all other related issues. The Special Bench in the case of LG Electronics India (supra) adjudicated such issues as is evident in para 6 of the order:

"6. Though both the questions referred to this special bench are inter-linked, still we are taking up question no. 1 first. The ld. Counsel for the assessee ahs assailed the impugned order on various legal and factual issues. In so far as the first question is concerned, we have divided such submissions into seven broader parts for the sake of convenience, which will be dealt with one by one.

I. JURISDICTION OF TPO

II. RULE 29

III. TRANSACTION

IV. INTERNATIONAL TRANSACTION

V. COST/ VALUE OF TRANSACTION

VI. METHODS FOR DETERMINATION OF ALO OF INTERNATIONAL TRANSACTION

VII. MARUTI SUZUKI'S CASE"

7.2. In the wake of these criterias the Special Bench proceeded to decide various issues by a very lengthy order, which is conveniently reproduced for the sake of brevity. The issue of retrospective application, jurisdiction, AO/TPO's powers etc. etc. have been decided in favour of revenue and against the assessee in L.G. Electronics India Pvt. Ltd. by following observations:

"7.19. Here it is relevant to note that the Finance Act, 2012 introduced sub-sec. (2C) along with sub- sec. (2B) of section 92CA. Whereas sub-section (2B) has been made retrospectively applicable from 1.6.2002, sub-section (2C) has been given effect from 1-7-2012. The reason is obvious when we see the contents of both the provisions. Under sub- section (2C), the power of the AO to make assessment or reassessment U/S 147 or pass order U/S 154 to enhance the assessment completed before 1-7-2012, has been curtailed to the extent the subject matter is covered by sub-section (2B). It shows that abundant caution has been taken by the legislature in not disturbing the finality of the assessment due to retrospective operation of sub- section (2B) in cases set out in sub-section (2C). The acceptance of the contention of the ld. AR to consider sub-section (2B) as prospective, would not only make sub-section (2B) but sub-section (2C) also as dormant and non-existent. Obviously an interpretation which makes a valid piece of legislation as redundant, does not merit acceptance. The purpose intended to be achieved in validating the jurisdiction of the TPO on the earlier transactions not referred to him by the AO on one hand and also not disturbing the finality of assessments already. completed on the other, has been properly achieved by the respective dates from which sub-sections (2A), (2B) and (2C) have been given effect to.

7.20. The Id. counsel for the appellant also contended that if sub- section (2B) is considered as retrospective in operation, then all other sub-sections of sec. ·92CA will loose the worth of their existence. This argument was developed to contend that if the TPO is to be permitted to determine ALP in respect of any transaction, then sub- sec. (1) requiring reference to him by the AO, will be rendered useless. In our considered opinion, this contention misses the wood from the tree. The jurisdiction of the TPO is activate only when the AO makes reference to him under sub- section (1) for determining ALP in respect of certain transactions. Sub-sees, (2A) and (2B) come into play only when sub-sec. (1) has already been set into motion. Thus, it is only when the AO makes a reference to the TPO in terms of sub-sec. (1) for determination of ALP in respect of the referred international .transactions, that the TPO gets power under sub-sections (2A) and (2B) to determine ALP in respect of non-referred international transactions as well. In the absence of any such reference under sub-section (1), the TPO cannot suo motu undertake the determination of ALP in respect of other international transactions not referred to him. It is a different matter that the reference by the AO may be for one international transaction and the TPO while determining . ALP in respect of that one international transaction, also comes across certain. other international transactions requiring determination of ALP. Thus, reference by the AO to the TPO for at least one international transaction is a necessary stipulation to assume power for determining ALP in respect of other transactions.

7.21. Another point urged by the ld. counsel for the appellant was that sub-sec. (I) requires making a reference by the AO with the previous approval of the Commissioner. It was contended that insofar as suo motu exercise of power by the TPO on other international transactions is concerned, the requirement of seeking approval from the CIT will be lacking, rendering the assumption of jurisdiction by the TPO over such other international transactions as invalid. Here again we find ourselves in respectful disagreement with the submission. What sub-sec. (1) requires is that the AO should seek previous approval of the Commissioner in respect of the transactions for which he is making reference to the TPO. There is no requirement of previous approval of the Commissioner in respect of the international transactions which come to the notice of the TPO during the course of proceedings before him. The prerequisite of seeking approval of the Commissioner is incorporated in sub-sec. (1) alone and the same cannot be read into sub-secs. (2A) and (2B) by the doctrine of incorporation. Our view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Pawan Kumar Laddha [(2010) 324ITR 324 (SC)).

7.22. Now we take up the contention raised by the Id. counsel for some of the interveners on harmoniously interpreting sub-section (2B) by limiting its scope only to such transactions which the assessee perceives as international transactions but fails to report. We are not convinced with such interpretation. A line of distinction sought to be drawn by. the ld. counsel between two types of international transactions for which the assessee has not furnished audit report, viz., which is an international transaction as. per assessee's version and which is not so, has no statutory sanction. There is no such cue, even remotely, in the language of sub-sec. (2B). The reference to international transaction in sub- sec. (2B), for which the assessee has not furnished report u/s 92E is unqualified. If we interpret sub-sec. (2B) in the way suggested by the Id. AR, it would amount to doing violence to the unambiguous language of the provision by importing certain words in it, which is obviously impermissible; The primary rule is that of strict or literal interpretation, as per which a provision should be read as it is unless manifestly absurd results follow from such interpretation.

7.23. We are equally conscious of the rule of harmonious construction as reiterated in Sultana Begum (supra). Principle 3 in para 15 of the judgment is that "it is to be borne in mind by all the courts all the times that when there are two conflicting provisions in an Act which cannot be reconciled with each other, it should be interpreted as if possible, effect should be given to both". In our considered opinion, the rule of harmonious construction can be applied instantly by excluding the cases in which the assessee has not furnished report in respect of international transactions, whether or not it is an international transaction as per the assessee's view point, from the ambit of sub-sec. (2A) and including them in sub-section (2B) of section 92CA. It is relevant to note that sub-sec. (2A) is a general provision on the issue of the TPO suo motu taking up an international transaction not referred by the AO, whereas sub-sec. (2B) is a special provision limited in its scope only to such international transactions in respect of which the assessee did not furnish report u/s 92E. We have thoroughly discussed elsewhere in this order that when there is special provision governing a particular types of cases, then such cases stand excluded from the general provision governing all the cases. As such we are of the considered opinion that the scope of sub-sec. (2B) covers all types of international transactions in respect of which the assessee has not furnished report, whether or not these are international transactions as per the assessee's version. The contention of the ld. counsel in this regard is thus sans merits and is hereby rejected. We want to clarify that the above discussion has been made only to deal with the contention raised on behalf of some of the interveners. But for that, it is only academic in so far as we are concerned with the present appeal involving the A.Y. 2007-08, which is a period anterior to A.Y. 2012-13. The extant case is fully and directly covered under sub- section (2B) of section 92CA. In that view of the matter, it becomes evident that no fault can be found with the jurisdiction of the TPO to process the transaction under reference."

..........

14.21. Thus it is palpable that all the three necessary ingredients as culled out from a bare reading of section 92B are fully satisfied in the present case. There is a transaction of creating and improving marketing intangibles by the assessee for and on behalf of its foreign AE; the foreign AE is non-resident; such transaction is in the nature of provision of service. Resultantly, we hold that the Revenue authorities were fully justified in treating the transaction of brand building an international transaction in the facts and circumstances of the present case."

7.3. Since it is a very lengthy order, it will not be desirable to reproduce extensively as the order can be referred to independently. The glimpses of the observations and conclusion of Special Bench may be found at various other places also, but we have tried to summarize the gist of the conclusion as best possible as above.

7.4. After hearing both the parties on the legal issues, respectfully following the Special Bench judgment in the case of L.G. Electronics India (supra), we decide these legal grounds against the assessee as a consequence thereof, the relevant grounds raised in the memo of appeal, touching these legal aspects stand dismissed.

7.5. Now we proceed to decide the issue about nature and scope of AMP expenses as elucidated by the Special Bench. The quantification thereof and the bench marking of the AMP expenses which is to be subjected to TP adjustments applying the ALP methodology by the TPO and DRP.

7.6. We have heard rival contentions. It has not been disputed that assessee submitted all relevant details about the aggregate expenditure relatable to trade discount, volume rebates, cash discount, commission and the amount of subsidy received from Singapore to meet the AMP expenses. No dispute or adverse comments have been offered by any of the lower authorities i.e. AO/ TPO & DRP. The details thereof are given in para 4.23 hereinabove. The assessee's contention is to the effect that the figures mentioned at placitum 'E' i.e. Rs. 9,70,90,073 for AY 2006-07; Rs. 15,40,05,865/- for AY 2007-08; and Rs. 25,47,70,503/- for AY 2008-09 shall only be reconsidered by assessing officer for the purpose of ALP by applying suitable comparables afresh to decide the TP adjustments in this behalf in accordance with law. Per contra ld. CIT(DR) contends that the entire issue of expenditure shall be set aside, restored back to the file of assessing officer. The assessee counters the CIT(DR)'s contention that all the details are on record and were produced before every lower authorities. In the absence of any objection or adverse comment it will amount to harassment of the assessee to face second round of proceedings for no fault of it. Ld. CIT(DR) also could not offer any adverse comment on the segregation and details of sales related expenses i.e. trade discount, volume rebate, cash discount, commission etc. So also, no adverse comments were offered in respect of subsidy received from Singapore to meet the AMP expenses. While dictating this order, we came across the ITAT Chandigarh Bench decision in the case of M/s Glaxo Smitkline Consumer Healthcare Ltd. for A.Y. 2007-08, which came across nearly similar type of situation, where such type of selling expense were excluded from the AMP expenses at the ITAT level itself. The relevant extract is as under:

"27. The plea of the assessee before us was that expenses aggregating Rs. 5500.86 lacs are expense incurred in connection with sale and do not lead to brand promotion as held by the Special Bench. After excluding the aforesaid selling expenses aggregating to Rs. 5500.86 lacs, the remaining expense of Rs. 8679.75 lacs (consisting of 6.87% of the total sales) only is required to be considered for the purpose of benchmarking analysis as undertaken by the TPO. The learned DR for the Revenue placed reliance on the orders of the authorities below.

28. We have heard the rival contentions and perused the records. The claim of the assessee is that the total AMP expenditure considered by the TPO while determining the ALP included certain expense which are in relation to the sales made by the assessee and are not related to the brand promotion. The claim of the assessee is with regard to the expenses totaling Rs. 5500.86 lacs as tabulated below:

S. No.	Name of expenses	Amount (Rs. Lacs)
1.	Discount-sales	60.52
2.	Market Research	664.24
3.	Sales Promotion	3939.90
4.	Selling and distribution	826.17
5.	Service charges paid to selling agent	10.03
	Total	5500.86

29. We find that the Special Bench of the Tribunal (majority view) in M/s L.G. Electronics India (P) Ltd. Vs. ACIT (supra) held that the expenses in connection with the sales do not lead to brand promotion and thus cannot be brought within the ambit of advertisement, marketing and promotion expenses for determining the cost/value of the international transaction. In view thereof, we direct the Assessing officer to exclude the expenses incurred by the assessee in connection with the sales totaling Rs. 5500.86 lacs as the same do not fall within the ambit of AMP expenses and hence not to be considered for computing the cost/ value of international transaction. The assessee vide ground no. 4 had raised the issue against disallowance of consumer market research expenses of Rs. 567.49 lacs. In view of our decisions in allowing the claim of the assessee being relatable to sales promotion expenses, this ground of appeal is thus allowed."

7.7. In these facts, circumstances and arguments, we find merit in the argument of ld. counsel for the assessee. There being no objection or adverse comment in respect thereof coming from any of the lower authorities i.e. AO/ TPO, DRP and also ld. CIT(DR), there is no justification in setting aside these expenses for verification again to AO/TPO. Our view is supported by the Chandigarh Bench judgment in the case of M/s Glaxo Smitkline Consumer Healthcare Ltd. (supra). Consequently, the figures mentioned at Placitum 'E' of the table, reproduced in para 4.23 above, are set aside back to the file of AO/TPO to decide the issue of AMP expenses by applying the proper comparables after hearing the assessee and keeping in view the Special Bench directions in this behalf. Thus, the grounds about TP adjustments in respect of AMP expenses are partly allowed for statistical purposes."

23. Respectfully following the Special Bench decision the legal grounds were decided against the assessee and as a consequence thereof the relevant ground raised in the memo of appeal, touching the legal grounds were dismissed. Following the same ratio, we also dismiss the legal grounds raised by the assessee in the memo of appeal.

24. We further note that Ld. Counsel of the assessee has submitted that the assessee has filed an application for admission of additional evidence and also an application for admission of additional ground, which the Tribunal was pleased to admit. The additional grounds and the additional evidences are as under:- "The applicant seeks to raise the following additional grounds of appeals:

1. The TPO erred in proceeding on the footing that Hindustan Motors has incurred no advertisement expenditure whatsoever in the accounting year ended 31.3.2005 and in determining the transfer pricing adjustment made to the applicant's assessable income on that erroneous basis.

2. The TPO failed to appreciate that the advertisement expenditure incurred by Hindustan Motors was not shown separately in their audited accounts, but was included in the accounting head "selling expenses, service charges and claims (net)".

3. The TPO completely misunderstood the factual position regarding the advertisement, marketing and publicity expenditure incurred by the applicant during the year ended 31.3.2005 and, consequently, wrongly applied the bright line test in the applicant's case.

The applicant seeks to place on record the following by way of additional evidence:

a) Specimen copies of advertisements released by Hindustan Motors Ltd. in the media (Annexure-I)

b) Copy of the letter datd 14.1.2013 by the Hindustan Motors, Ltd. to Additional Commissioner of Income Tax, TPO-1(1), New Delhi (TPO) in response to notice issued under section 133(6) of the Income Tax Act, 1961 ("The Act"), enclosing details of selling expenses and service charges, claims, etc., appearing in schedule 19 as other expenses in the audited financials for financial year 2008-09, relevant to assessment year 2009-10 (Annexure-II).

c) Copy of order dated 21.1.2013 passed by the TPO under section 92CA(3) of the Act for assessment year 2009-10 (Annexure-III).

25. In this connection, ld. Counsel of the assessee submitted that appropriate directions may be issued to the Assessing Officer /TPO to call for information relating to advertisement expenses of Hindustan Motors by issuing notice under section 133(6) of the Act. It has further been submitted that Assessing Officer /TPO may be directed to undertake the benchmarking analysis considering only the advertisement expenses of the assessee as well as the comparable companies and not to consider the selling / sale promotion expenses.

26. Ld. Departmental Representative in this connection agreed that the Special Bench decision in the case of LG Electronics India Pvt. Ltd. has to be applied.

27. We have carefully considered the submissions and perused the records. We find that in view of the precedents as above, expenditure in connection with sales cannot be brought within the ambit of advertisement, marketing and promotion expenses for determining the cost/value of international transaction. The TPO has to decide the rate of AMP expenses by applying the proper comparables after hearing the assessee, in view of the Special Bench directions in this behalf. Accordingly, we remit the issue with regard to the transfer pricing adjustment in respect of AMP expenses to the file of the TPO. The Assessing Officer shall consider the same, in light of the Special Bench directions as well as the additional grounds and additional evidences as admitted by us hereinabove. Thus, the issue pertaining to transfer pricing adjustment in respect of AMP expenses stand remitted to the file of the TPO.

28. In the result, the appeal filed by the Assessee stands partly allowed for statistical purposes.

Order pronounced in the open court on 02/8/2013.

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