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31-10-2019, Motorola Solutions India, Section 144C, 92CA(1), 92D, Tribunal Delhi

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1 week 3 days ago #11303 by amit
Section - 144C, 92CA(1), 92D, 10A, 133(6), 92D
Order Date - 31-10.2019
Favouring - Assessee Partly allowed for statistical purpose
Court - Tribunal Delhi
Appellant - Motorola Solutions India Pvt. Ltd.
Respondent - DCIT
Justice - N.K. BILLAIYA AM & SUCHITRA KAMBLE JM
Citation - 1119Taxpundit46
Appeal No. - ITA No.5797/DEL/2012
Asstt. Year - 2008-09

Order

PER : SUCHITRA KAMBLE

This appeal is filed by the assessee against the order of the DCITCircle-II, Gurgaon, dated 08/11/2012 u/s 143(3) read with Section 144C of the Income Tax Act, 1961 for Assessment Year 2008-09.

2. Grounds of appeal are as under:-

1. That on the facts and circumstances of the case, the assessment order passed by the Ld. Assessing Officer ("AO") is bad in law.

2. That on the facts and circumstances of the case and in law, the Ld AO and Ld TPO have erred in re-determining the arm’s length price (“ALP”) of the international transactions of the appellant

3. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was “expedient and necessary” to refer the matter to the Ld. Transfer Pricing Officer (“TPO”) for computation of the arm’s length price, as is required under section 92CA(1) of the Income Tax Act, 1961 (“Act”).

4. That on the facts and circumstances of the case and in law, the Ld. AO/ Ld. TPO and Ld. DRP erred in enhancing the income of the appellant by Rs. 2,17,04,89,288 as the compensation for its Advertisement Marketing and Promotion (‘AMP’) Services by holding that the appellant incurs ‘excessive’ AMP expenses in relation to its distribution activities thereby qualifying as ‘services’ as per the arm’s length principle envisaged under the Act, and in doing so have grossly erred in:

4.1 disregarding that the AMP expenses incurred by the appellant represent purely domestic transaction(s) undertaken towards third parties, not covered under the purview of Section 92 of the Act and that the analysis of “domestic” transactions undertaken with third parties, in respect of which no TP reference has been made by the Ld. AO to the Ld. TPO. is bevond the powers vested with the TPO under Section 92CA of the Act;

4.2. incorrectly applying the "bright line’- concept to the appellant's manufacturing segment/ operations;

4.3. ignoring the fact that once the appellant’s international transactions are accepted to be at arm’s length after application of Transactional Net Margin Method ("TNMM") as the most appropriate method, challenging/' analysing individual elements of costs (like the AMP expenses) is inconsistent with the tenets of the application of TNMM;

4.4. completely disregarding the business and pricing model of the appellant in relation to its distribution activities which compensates the appellant for the a leged ‘excess’ AMP expenses, if any;

4.4.1 ignoring the fact that the AMP expenses incurred by the appellant were in respect of its own business requirements considerations/ purposes and that all and any benefit resulting from -nich expenditure are to its own account (in the form of increased sales and market share i and benefit, if anv. to the overseas AKs. was purely incidental:

4.5. in incorrectly computing the AMP expenses sales

4.6. incorrectly holding the .AMP expenses incurred bv the appellant to be "excessive” on the basis of a "bright line limit” arrived at bv considering inappropriate comparables- which do not operate on the same level on the business value chain as the appellant and are not comparable to the level of advertisement and marketing activities undertaken and costs incurred by the appellant:

4.6.1 in rejecting the comparables provided as a result of fresh search carried out by the appellant to identify such companies which are comparable to it in terms of the value chain and position of the Brand / brand profile;

4.6.2 in rejecting comparable companies, viz., Spice Mobiles Ltd.. Bharti Teletech Ltd and General Sales Ltd. from the comparable set used to determine the "bright line limit” in the appellant’s case based on erroneous/ inappropriate reasoning;

4.7. erroneously holding that the appellant has rendered services to the AEs by incurring ‘excessive’ AMP expenses and by holding that a mark-up has tobe earned by the appellant in respect of the "alleged excessive" AMP expenses;

4.8. in applying a mark-up of 15% on the "alleged excessive” AMP expenses, for determining the compensation/ service fee towards "alleged AMP service" by the appellant to its AHs:

4.9 That the Ld. AO and Ld. TPO, on the facts and circumstances of the case and in law have erred in not following the binding direction issued by the Ld. DRP regarding the inclusion of M/s Spice Mobility Ltd., M/s General Sales Ltd as comparables of the appellant for the purpose of computing the arm’s length price of the alleged international transaction of "excessive” AMP expenses.

5. That on the facts and the circumstances of the case and in law, the Ld TPO/ Ld AO and Ld DRP erred in enhancing the income of the appellant by Rs. 1,01,18.80,848 while recomputing the arm’s length price of the international transactions pertaining to its contract software development (‘CSD’) services and in doing so have grossly erred in:

5.1 disregarding the ALP as determined by the appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules') as well as fresh search; and in particular modifying/ rejecting the filters applied by the appellant;

5.2 rejecting the TP documentation maintained by the Appellant under section 92D of the Act and Rule 10D of the Rules and disregarding the ALP as determined by the Appellant in the TP documentation; disregarding multiple year/ prior years’ data as used by the appellant in the TP documentation and holding that current year (i.e. FY 2007-08) data for comparable companies should be used despite the fact that the same was not necessarily available to the appellant at the time of preparing its TP documentation;

5.4 ignoring the fact that the appellant is entitled to tax holiday under section 10A /10B of the Act on part of its profits from CSD services and therefore would not have any untoward motive of deriving a tax advantage by manipulating transfer prices of its international transactions;

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