ORDER

PER KULDIP SINGH, JUDICIAL MEMBER :

The Appellant, M/s. Moet Hennessy India Private Ltd. (hereinafter referred to as ‘the taxpayer’) by filing the present appeal sought to set aside the impugned order dated 13.11.2014 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2010-11 on the grounds inter alia that :-

“1. On the facts and in the circumstances of the case and in law, the Assistant Commissioner of Income-tax - Circle 5(1) ('AO')/ Transfer Pricing Officer (TPO')/ Dispute Resolution Panel ('DRP') erred in confirming the adjustment of Rs.7,12,19,145 by holding that the Appellant ought to have received reimbursement for "alleged excessive" Advertising, Marketing and Promotion (‘AMP') expenses from its Associated Enterprises. ('AEs').

2. On the facts and circumstances of the case and in law, the AO / TPO/ DRP erred in:

a) disregarding the fact that the premium profits earned by the Appellant compensated for the allegedly excessive AMP expenses, if any, incurred by it;

b) disregarding the transfer pricing policy of the Moet Group wherein Moet India is provided with an agreed contribution margin which clearly indicates that Moet Group funds the AMP expenses of Moet India;

c) misinterpreting or placing incorrect reliance on the international guidance in relation to the 'marketing intangibles' from Organisation for Economic Co-operation and Development ('OECD'), US TP Regulations and Australian Tax Office ('ATO') and relying on several erroneous/ factually incorrect and contradictory statements/ observations in the Transfer Pricing (TP') order, which are not relevant to the instant case, only in order to justify an otherwise inappropriate and unwarranted TP adjustment;

d) incorrectly holding the AMP expenses incurred by the Appellant to be "excessive" on the basis of a "bright line limit" arrived at by deriving a distorted and incorrect set of comparable companies;

e) by holding that a mark-up of 15% ought to be earned by the Appellant in respect of the "alleged excessive" AMP expenses, without any basis;

f) in following the decision of the Hon'ble Special Bench in the case of LG Electronics (152 TTJ 273) (Del) (5B) without appreciating the fact that the said decision was rendered in the context of licensed manufacturer and hence not applicable to the distributor.

The Appellant therefore prays that the aforesaid adjustment be deleted.

3. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the AO / TPO/ DRP erred in considering expenses such as discounts, rebates, commission, trade component cost, trade incentives, etc. for computing the AMP spend ratio of the Appellant.”

2. Briefly stated the facts necessary for adjudication of the controversy at hand are : Moet India, the taxpayer held 99% by Champagne Moet & Chandon, France (‘CMC’) and 1% by Jas Hannessy & Co., France (‘JHC’). CMC is one of the leading producers of Champagne, which is a sparkling wine manufactured in the Champagne region of France. JHC is a leading producer of Cognac (spirits).

3. The taxpayer is into the business of importing and distributing different kinds of wines and spirits and executing (ex-bonded) warehouse sales in India. The taxpayer undertakes marketing and sales promotion of products in its trading portfolio and is assisted by its Associated Enterprises (AE) in carrying out this function. The taxpayer imports advertising and promotional material from its AE such as wine glasses, menu holders etc. to be given as complimentary products to its customers.

4. During the year under assessment, the taxpayer entered into international transactions with its AE as under :-