M/s. Olympus Medical Systems India Private Limited vs Assessment Unit, Income-tax Department, National Faceless Assessment Centre

“TRANSFER PRICING ADJUSTMENT FOR THE EXCESSIVE ALLEGED AMP EXPENDITURE - METHODOLOGY

1.

That the Ld. AO/TPO/DRP erred in law and on facts by making inappropriate adjustments based on Bright Line Test in the garb of intensity adjusted TNMM in the third round of appeal.

TRANSFER PRICING ADJUSTMENT FOR THE EXCESSIVE ALLEGED AMP

EXPENDITURE - BENCHMARKING

2.

Without prejudice, the Ld. AO/TPO/DRP erred in disregarding the fact that the AMP expenditure had already been benchmarked under the company-wide TNMM analysis conducted by the Appellant in its transfer pricing report.

3.

Without prejudice to any other ground, that on the facts and circumstances of the case and in law, AMP transaction may be benchmarked using the adjusted Resale Price Method ('RPM').

4.

Without prejudice to any other ground, that on facts and circumstances of the case and in law, the computation of AMP to sales ratio of comparables undertaken by Ld. AO/TPO/DRP is erroneous and the same does not reconcile with the annual reports of these comparables as well as the computation undertaken by the AO/TPO/DRP in the carlier rounds of assessment.

5.

Without prejudice to any other ground, that on facts and circumstances of the case and in law, Ld. AO/TPO/DRP erred in treating certain items of income as non-operating while computing the Appellant's profit level indicator.

6.

Without prejudice to any other ground, that on facts and circumstances of the case and in law, Ld. AO/TPO/DRP erred in considering routine selling expenses incurred by the Appellant both as (i) non-routine expenditure and (ii) towards brand promotion in complete disregard to the commercial realities of Appellant's business.

7.

Without prejudice to any other ground, that on facts and circumstances of the case and in law, the Ld. AO/TPO/DRP has failed to make appropriate adjustments to account for working capital employed by the Appellant vis-à-vis the comparables.

8.

Without prejudice to any other ground, that on facts and circumstances of the case and in law, the Ld. AO/TPO/DRP have erred in not computing the net profit margin of the Appellant as arising from the international transaction, in accordance with Rule 10B(1)(e) of Income Tax Rules, 1962 by not allowing adjustments for unabsorbed and extra-ordinary costs.

9.

Without prejudice to any other ground, the Ld. AO/TPO/DRP has erred, both in fact and in law, by not providing a proportionate adjustment for the Advertising, Marketing, and Promotion (AMP) expenses.

10.

The Ld. AO/TPO/DRP has erred in law and on the facts and circumstances of the case in charging interest under section 234B of the Act on account of additions made to the total income of the Appellant.”

"11.

That on the facts and in the circumstances of the case and in law, the rectified directions issued by the Ld. DRP on 31.05.2025 are invalid and liable to be quashed, having been passed on a reference by the Ld. CIT(DR), who is not an authority empowered to move a rectification application under Rule 13 of the Income Tax (Dispute Resolution Panel) Rules, 2009."

12.

That on the facts and in the circumstances of the case and in law, the Ld. DRP has exceeded its jurisdiction in passing the rectified order dated 31.05.2025 by changing its opinion on the appropriate benchmarking methodology, which amounts to a review of its earlier directions and is beyond the limited scope of rectifying an "error apparent from the record" under Rule 13."

13.

That on the facts and in the circumstances of the case and in law, the Ld. AO/TPO violated the mandatory provisions of Section 144C(10) of the Act by making a protective addition of INR 7,26,43,754/- in the rectified final assessment order dated 25.11.2025, in direct contravention of the Ld. DRP's binding directions dated 30.11.2024, which had categorically directed the deletion of the said protective adjustment."

“The transfer pricing adjustment on AMP expenses has already gone through two rounds of litigation before the present third round. In the first round, the Ld. TPO's order dated 28.01.2016 treated AMP expenditure as an international transaction and made both substantive and protective adjustments; these were upheld by the DRP on 22.12.2016 and carried into the final assessment order dated 31.01.2017. On further appeal, the ITAT by order dated 12.07.2017 set aside the issue of whether AMP constituted an international transaction to the Ld. AO/Ld. TPO for fresh examination and directed exclusion of selling and distribution expenses from AMP.

8.

In the second round the 14. TPO again trested AMP as an international transaction in the order dated RPSM along with a protective adjustment under BLT: the Ld. DRP upheld this approach on 27.08.2020 and the 29.10.2019. this time excluding selling and distribution expenses and making a substantive adjustment under final assessment order followed on 30.04.2021. In appeal, the Hon'ble ITAT by order dated 20.04.2022 held that w AMP was an international transaction, but remanded the matter to the Ld. TPO for fresh benchmarking using the most appropriate method, without giving any finding on the BLT approach.

9.

In the present third round, the Ld. TPO, by order dated 29.01.2024, once again treated AMP expenditure as an international transaction and proposed a substantive adjustment by applying intensity-adjusted TNMM while also computing a protective adjustment under the BLT. The Ld. DRP, however, in its original directions dated the TPO passed an order dated 20.12.2024 and the AO issued the final assessment order dated 27 17:2024 30.11.2024. directed benchmarking on the basis of the comparable AMP/sales ratio of 1.45%, pursuant to which the TPO passed an order dated 20.12.2025 and the AO issued the final assessment order dated 27.12.2024.

10.

Aggrieved by the final assessment order dated 27.12.2024, the Appellant has filed the present appeal before this Hon'ble Tribunal on 28.02 2025. The matter was first listed for hearing on 19.05.2025 but the LCIT/DR) sought an adjournment in the matter.

11.

The Ld. CIT(DR) then moved an application before the Ld. DRP under Rule 13 of Income Tax (Dispute Resolution Panel) Rules, 2009 for rectification of the DRP directions dated 30.11.2024. The Ld. CIT(DR) concedes in his application that Ld. DRP while considering the grounds against application of TNMM intensity method, had directed the TPO to follow the steps of BLT method for determining AMP. This fact is recorded in Ld. DRP's rectified directions dated 31.05.2025.

12.

Ld. DRP vide its order dated 31.05.2025 reviewed its earlier directions and restored the TNMM intensity-based method as was originally applied by the Ld. TPO. This order was termed as a rectification order.

13.

Pursuant to the DRP directions, Ld. AO passed the order dated 25.11.2025 in which the TNMM intensity method based addition made in the TP order was reinstated and the additions were revised to INR 11,73,03,438/- (as opposed to addition of INR 11,76,01,024 made in original TP order). The income of the Appellant was recomputed at INR 9,93,75,468/-, Since the Ld. DRP has rectified its directions subsequent to the filing of the appeal, the submissions against the rectified directions are also being dealt with in the present appeal.

SUBMISSIONS ON THE GROUNDS RAISED IN THE APPEAL

Ground Nos. 11-13 (raised by way of the additional ground application taken on record on 09 February 2026):

Submissions against the rectified DRP directions dated 31.05.2025 (3d round of proceedings)

14.

The Ld. DRP's rectified directions are being assailed on three grounds which will be elaborated in the subsequent paragraphs:

I. Rectified directions issued by Ld. DRP, based on a reference by Ld. CIT(DR) under Rule 13 of DRP Rules, 2009 is not permissible in law and hence, are liable to be quashed

15.

Under Rule 13 of DRP Rules, 2009, the DRP is empowered to rectify its directions in the following situations:

i)

Suo motu, upon discovering an error apparent from the record; or

ii) Upon an application made either by the eligible assessee under Section 144C of the Income-tax Act, 1961 or by the Assessing Officer.

16.

Rule 13 of DRP Rules, 2009 is reproduced below for ready reference:

"Rectification of mistake or error.

13.

After the issue of directions under rule 10, if any mistake or error is apparent in such direction, the panel may, suo motu, or on an application from the eligible assessee or the Assessing Officer, rectify such mistake or error, and also direct the Assessing Officer to modify the assessment order accordingly."

17.

In the present case, the application was filed by the Ld. CIT(DR), who is neither the Assessing Officer nor the eligible assessee and therefore, any rectification based on such an application is invalid and liable to be quashed. This is so because the rule neither confers any power upon the Ld. CIT(DR) to move an application for rectification nor confers any power upon the Ld. DRP to entertain an application from a party other than the eligible assessee or the assessing officer. Therefore, the power under Rule 13 can only be exercised either upon suo moto discovering any error or upon receiving an application from persons mentioned in the rule. This follows from the legal principle that "if a statute provides that a thing should be done in a particular manner, it must be done in that manner or not at all". This principle was laid down in an English case law, Taylor v. Taylor [1875] 1 Ch. D 426 and has been endorsed by the Hon'ble Supreme Court in India in several cases.

18.

This issue is covered in the Appellant' favour by the following decisions:

-Shapoorji Pallonji Bumi Armada (P.) Ltd. vs. Assistant Commissioner of Income-tax [2022] 139 taxmann.com 572 (Mumbai - Trib.) [27-06-2022) (refer para 8 of the decision);

-SP Armada Oil Exploration Ltd. v. ACIT [2022] 140 taxmann.com 517 (Mumbai - Trib.)

19.

Following the ratio of the above cited decisions, it is respectfully submitted that the rectified order passed by the Ld. DRP on the basis of an application by the Ld. CIT(DR), which is not envisaged under Rule 13, is invalid and liable to be quashed.

II. The Ld. DRP has exceeded its scope in passing the rectified order, which is permissible only for rectifying an error apparent on the face of the record, whereas the present rectification amounts to a change of opinion.

20.

It is submitted that even if the application were deemed maintainable, the alleged rectification itself amounts to an impermissible review of its directions by the Ld. DRP.

21.

The scope of the expression 'mistake/error apparent from the record' is well settled now. The Hon'ble Supreme Court, while examining the scope of Section 154 of the Act in T.S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC), shed light on what 'mistake apparent from the record' means. The findings are reproduced below,

"A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions"

22.

Similar observations have been made by the Hon'ble Supreme Court in Assistant Commissioner of Income-tax, Rajkot v. Saurashtra Kutch Stock Exchange Ltd. [2008] 173 taxman 322 (SC) - Para 37 and Hon'ble High Court of Calcutta in CIT v. Suman Tea & Plywood Industries (P.) Ltd. [1997] 94 taxman 305 (Calcutta) - Para 15.

23.

DRP's Original Directions dated 30.11.2024 (3rd round): In its original directions, Ld. DRP has in so many words explicitly directed to adopt the BLT method (refer paras 7(iii) to 7(v) of DRP directions at page 387 of Orders Compilation. Also, while while dealing with other objections, Ld. DRP has reiterated its stand where it accepts the methodology of adopting the AMP/sales %age of the comparable companies as the arm's length AMP for the Appellant. [refer paras 8 & 10 of DRP directions at page 387-388 of Orders Compilation]

24.

DRP's Rectified Directions dated 31.05.2025 (3rd round): Ld. DRP has reversed its earlier stand, stating that its original direction was an "apparent error" and restored the TNMM intensity adjustment method as proposed by the Ld. TPO.

25.

Ld. DRP itself acknowledged "definite differences in computation metiendeodog in the two cases" (BLT ve TNMM intensity adjustment) and even disagreed with the vestir hmid TPO of adding further margin to the arm's length AMP expenses. In light of the above, the shift from difecting a computation (1.45% of sales) akin to BLT method to restoring the TNMM intensity adjustment method for AMP expenses represents a fundamental change in the benchmarking methodology acceptable to Ld. DRP. This is not the correction of a clerical of arithmetical error but a substantive review of the original directions. The choice of the most appropriate method can under no circumstances be considered as a self-evident error and the Ld. DRP cannot be allowed to switch methods under the settled narrow scope of rectification proceedings.

26.

Therefore, the rectified order dated 31.05.2025 is invalid both due to the application being moved by a party not authorised under Rule 13 and because the DRP's rectification amounts to a review on dehatable transfer pricing methodology, exceeding its limited power to rectify only errors apparent from the record.

III. Without prejudice, Ld. DRP's rectified directions dated 31.05.2025 (3rd round) amounts to review of its original directions dated 30.11.2024 (3rd round), intensity method is completely contrary to its original directions dated 30.11.2024 (3d round) as well aggregated benchmarking using TNMM as Ld. DRP's rectified directions dated 24.03.2017 (1" round)

27.

It is submitted that the principle of segregating AMP expenses to avoid double taxation was conclusively settled by the Ld. DRP itself in the first round of proceedings. In its rectified directions dated 24.03.2017, the Ld. DRP explicitly mandated the exclusion of AMP expenses from the operating costs of the Appellant and the comparables before conducting the aggregated TNMM benchmarking for the 'import of finished goods transaction (para 1.1 on pg. 3-4 of PB Part 2). This direction was issued precisely because the AMP expenses were already subject to a separate benchmarking exercise, and the Ld. DRP correctly recognized that including them again in the aggregated analysis would invariably lead to double taxation.

28.

This judicially settled position remained consistent throughout the first and second rounds of proceedings. However, the Ld. TPO unilaterally disturbed this consistent approach in the third round by introducing a 'TNMM intensity approach to benchmark the AMP expenses. This was in direct contradiction to the principle settled by the Ld. DRP. By applying this intensity-adjusted TNMM, the Ld. TPO aggregated the AMP transaction with the distribution function and considered the Appellant's entire operating cost to compute a purported shortfall in operating profit. Since the import transaction was already benchmarked separately at arm's length, making a further adjustment under the TNMM intensity method, which effectively subsumes both the 'import of finished goods' and AMP transactions, resulted in a clear double adjustment.

29.

It is further submitted that the Ld. DRP, in its original directions for the third round of proceedings dated 30.11.2024, was fully conscious of the necessity to segregate and separately benchmark AMP expenses. The Ld. DRP had ordered accordingly in its original directions dated 30.11.2024 (refer to page 385 of Orders compilation). Its directions demonstrated an adherence to the consistent position established in its own rectified order of 24.03.2017, which had directed the Ld. TPO to carve out AMP expenses from the aggregated TNMM analysis of the 'import of finished goods' transaction for separate benchmarking.

30.

Therefore, the net effect of the Ld. DRP's original directions dated 30.11.2024 was the restoration of the foundational ratio decidendi of its own rectified directions from 24.03.2017. This reaffirmed the principle that AMP expenses must be benchmarked separately from the primary import transaction to prevent double addition.

31.

However, in a complete and unexplained reversal, the Ld. DRP, acting upon a rectification application filed by the Ld. CIT(DR), passed new rectified directions on 31.05.2025. This order represents a stark departure from the benchmarking framework established by its own order dated 24.03.2017 and reaffirmed in its original directions of 30.11.2024. By mandating that AMP expenses must be benchmarked under the TNMM intensity-based method, the Ld. DRP has contradicted a position that was settled through multiple rounds of proceedings. Such an abrupt reversal, cannot be cloaked as rectification of mistake apparent from the record as the same clearly amounts to review of its original directions.

IV. The Ld. TPO/AO have violated Section 144C(10) of the Act by making protective addition of INIR 7,26,43,753/- using BLT in the rectified final assessment order dated 25.11.2025 when the DRP in its directions dated 30.11.2024 has categorically directed for deletion of the protective adjustment

32.

It is submitted that the Ld. DRP in its original directions dated 30.11.2024 had directed for deletion of protective adjustment (refer para 14 on internal page 18-19 of DRP directions/page 50-51 of appeal set). There was no change of position qua protective adjustment in the rectified DRP directions. Despite the DRP directions, the Ld. AO/TPO have made a protective adjustment of INR 7,26,43,754/- using BLT in the rectified assessment order dated 25.11.2025 (refer internal page 3 of rectified final assessment order dated 25.11.2025). This is in clear violation of Section 144C(10) of the Act which provides that the directions of the L.d. DRP are binding on the L.d. AO. Therefore, the protective addition made using BLT is liable to be set aside.

Ground No. 1:

Submissions against the final assessment order dated 27.12.2024 passed in pursuance of original DRP directions dated 30.11.2024 (3 round of proceedings)

I. BLT is untenable in law

33.

It is submitted that the application of BLT has been categorically rejected by the Hon'ble High Court of Delhi and this Hon'ble ITAT in various judgments/orders:

i)

Pr.CIT v. Samsung India Electronics Pvt. Lad. (ITA 453/2024, ITA 455/2024, ITA 419/2024, ITA 425/2024]

ii) Whirlpool of India Ltd. v. DCIT (2015) 64 taxmann.com 324, against which SLP has been dismissed by the Hon'ble Supreme Court in SLP (C) No. 29270/2016

iii) Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT [2015] 55 taxmann.com 240 (Delhi)

(iv)

Pr.CIT v. Casio India Company (P) Ltd. [2025] 170 taxmann.com 374 (Delhi)

v)

Pr.CIT v. Pepsico India Holding (P) Ltd. [2024] 162 taxmann.com 724 (Delhi)

vi) Pr.CIT v. Toshiba India (P.) Ltd. [2022] 145 taxmann.com 661 (Delhi)

34.

It is further submitted that this Hon'ble ITAT in AY 2014-15 in Appellant's own case [ITA No. 7414/Del/2018]. has rejected the application of BLT method for benchmarking of AMP expenses. (refer to para 7 of the order).

35.

Therefore, the entire adjustment made by applying BLT method is liable to be deleted.

II. Without prejudice, if DRP's rectification order dated 31.05.2025 (3rd round) is considered, TNMM intensity approach has also been held to be untenable by this Hon'ble ITAT

36.

The Ld. TPO in the TP order made substantive adjustment in the Appellant's trading segment by applying TNMM intensity-based approach. The alleged excessive nature of AMP expenditure, in Ld. TPO's view, results in much higher intensity of functions reflected in the higher levels of operating expenditure vis-a-vis the companies that are taken to be comparable under TNMM and hence requires economic adjustment. This adjustment has been carried out by increasing the profit margins of the comparables.

37.

It is submitted that the steps adopted to adjust for the higher intensity of marketing function are nothing but a disguised form of Bright Line Test. The following table demonstrates how BLT is a mirror method of intensity approach. The only distinction between BLT and TNMM intensity approach is that of form and not substance. Under BLT, the arithmetic mean of AMP/Sales %age of the comparables is used to determine excessive AMP expenditure of the assessee and a mark-up is added to the assessee's excessive costs, while under TNMM intensity, assessee's AMP expenses are replicated in the financials of the comparables and the mark-up is indirectly forced into the assessee's margins by changing the comparables' margins.

38.

It is submitted that there is no economic or logical justification in first increasing the cost base and then applying an artificial profit margin of marketing and advertising companies on the artificially enhanced cost base. Such a method has not basis in rules.

39.

It is further submitted that it is not possible to determine the impact of increased intensity of advertising function on profit margin, because the impact of advertising on sales cannot be determined and quantified. In the absence of a quantifiable measurement, it is not possible to make a "reasonably accurate" adjustment to the profit margins of the comparable companies as mandated under law. In view of the above, it was submitted that it would be erroneous to treat AMP as a separate international transaction and any attempt to benchmark such an imaginary transaction in any manner would be an exercise in futility.

40.

The coordinate bench of this Hon'ble Tribunal has held in the following decisions that TNMM intensity approach is not sustainable.

i)

Sony India (P.) Ltd. v. ACIT [2025] 177 taxmann.com 325 (Delhi - Trib.) (Para 7-9)

Reliance is also placed on the observations of the Hon'ble Tribunal qua intensity approach in the following

ii) Casio India Co. Pvt. Ltd. V. Dy. CIT [2019] 107 taxmann.com 307 (Delhi-Trib.) (Para 28)

iii) Widex India (P.) Ltd. v. ACIT [2019] 108 taxmann.com 125 (Chandigarh -Trib.) (Para 18.2)

Ground No. 2-9: These grounds will become academic if Ground No. 1,11-13 are decided in the Appellant's favour. It is, however, submitted that all these grounds are expressly kept open, and the Appellant craves leave to advance submissions thereon, in the event this Hon'ble Tribunal does not accept the Appellant's contentions on Ground No. 1,11-13.

Ground No. 10: Consequential.”

9.5 The additional Ground Nos. 11-13

ITA No. 3887/Del./2024 for Assessment Year 2020-21

ITA No. 5396/Del/2024 for Assessment Year 2021-22