Yakult Danone India Pvt. Ltd v. DCIT
The assessee deals in manufacturing and sale of probiotic milk and is the sole manufacturer of “Yakult” in India. The international transactions were benchmarked adopting Transactional Net Margin Method (TNMM) as the Most Appropriate Method adopting Profit Level Indicator of Operating Profit By Operating Income. Thus, international transactions were stated to be at arm‟s-length. Assessee has incurred advertisement and sales promotion expenditure and is also paying royalty. The only dispute in this appeal is the adjustment on account of the arm‟s-length price of the AMP expenditure incurred by the assessee.
TPO adopted primary approach of bright line test and alternative approach of TNMM for benchmarking the AMP expenditure. The ld. DRP held that applying the bright line test shall be made on protective basis whereas the alternative approach of the assessee adopting the TNMM should be upheld. Perusing the order of the coordinate bench in assessee‟s own case for AY 2011 – 12, Delhi ITAT also holds that for determining ALP of international transaction incurring higher AMP expenditure cannot be benchmarked either on Bright line test bases or on transactional net margin method unless first it is established that there existed an international transaction.