TaxTMI 
TaxTMI 
2012 (4) TMI 279
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....6,75,735 as against the returned income of Rs. 1,88,22,37,820. 2.0 That the Assessing Officer/Transfer Pricing Officer ("AO/TPO") erred on facts and in law in making addition to the income of the appellant to the extent of Rs. 1,19,45,81,713 on account of the alleged difference in the arm's length price of reimbursement of advertisement, marketing and brand promotion expenses (AMP expenses). 2.1 That on the fact and circumstances of the case benchmarking of the international transaction of reimbursement of Advertisement and Promotion (AMP) Expenses as well as Royalty Expenses by the TPO in absence of a reference by the AO is unlawful and beyond jurisdiction. 2.2 That the AO/TPO erred on facts and in law in holding that AMP expenses amounting to Rs. 1,40,29,07,000, comprising of (i) advertisement and sale promotion expenses of Rs. 12,316.81 lacs; (ii) development and scientific research expenses of Rs. 97.41 lacs; (iii) services charges paid to selling agents of Rs. 11.49 lacs; (iv) market research expenses of Rs. 790.14 lacs; (v) Selling and Distribution expenses of Rs. 372.17 lacs and (vi) discount on sales of Rs. 441.05 lacs resulted in promotion of....
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....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. 2.11 That the assessing officer erred on facts and in law in relying upon the decision of the case of DHL Incorporated and Subsidiaries vs. Commissioner of Internal Revenue Tax Court, TCD 1998-461, aff'd in part, rev'd in part 285F.3d.1285. 89AFTR2d 2002-1978 (CA-9,2002); and Glaxo Smith Kline Holding (Americas) Inc. v. Commissioner, T.C. No.5750-04 and T.C. No.6959-05, which were rendered in the context of specific provision under the Transfer Pricing Regulations of United States of America. 2.12 That the AO/TPO erred on facts and in law in holding that the expenses incurred by the appellant on advertisement and brand promotion are required to be benchmarked, vis-à-vis, the comparable companies incurring similar advertisement and brand promotion expenses. 2.13 That the assessing officer erred on facts and in law in holding that advertisement and promotion expenses incurred by the appellant ought to be restricted to 2.02% of the sale as against 1....
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.... the payment of royalty to GlaxoSmithKline Asia Pvt. Ltd. is a domestic transaction and not an international transaction within the meaning of Indian transfer pricing regulations. 4. That the Assessing Officer erred on facts and in law in not allowing deduction for incremental balance amounting to Rs. 25,23,710 lying in PLA under section 43B of the Income Tax Act, 1961 ('the Act'). 5. That the Assessing Officer erred on facts and in law in disallowing Consumer Product Research expenses of Rs. 6,23,17,381 under section 37(1) of the Act alleging the same to be capital in nature. 5.1 Without prejudice, that the Assessing Officer failed to appreciate that the market research expenses of Rs. 7,90,13,961 which comprised of the impugned expenses amounting to Rs. 6,23,17,381 were already disallowed by the Assessing Officer while calculating arms length price, resulting in a double disallowance. 6. That the Assessing Officer erred on facts and in law in levying interest under section 234B and 234D of the Act." 3. The present appeal was fixed for hearing on various dates starting from 14.2.2011 and the matter was adjourned from date to date. On ....
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....in respect of export of malted food, biscuits, export of packing material, provision of I.T. services, reimbursement of expenses (receipts) and reimbursement of expenses (payments) as enlisted under para 2.1 of the order of TPO. Thereafter another reference was made by the Addl. CIT vide letter dated 11.9.2009 in respect of the international transactions under section 92CA(1) of the Act, to the TPO, as enlisted under para 2.2 of the order of TPO. 8. The TPO was of the view that the assessee company is incorporated under the Laws of India and is 40% owned by Horlicks Ltd., U.K., which is part of GSK Group. The TPO vide para 5 thus held that it is an associated enterprise within the meaning of Section 92A(2)(a) of the Income-tax Act. The TPO vide para 6 of his order acknowledged the assessee to have adopted Transaction Net Margin Method (TNMM) for transfer pricing analysis with operating profit/total cost ratio as profit level indicator. Similar method was used by the assessee in the preceding years. The TPO thereafter analyzed the transfer pricing approach of the assessee and show caused the assessee to explain why the data of the relevant financial year only should not be used, ....
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....and promotion of the AE in India. In order to examine the arm's length price it is necessary to compare total expenditure incurred by the assessee on behalf of the AE in India and amount paid by the assessee to India as contribution for advertisement expenditure by the AE. Accordingly, I have examined all the advertisement marketing and sale promotion expenditure (in short AMP expenditure) incurred by the assessee in India." 10. The assessee was thus show caused as to why it should not be inferred that it had incurred both routine and non-routine advertisement and marketing expenses on brand promotion and development of marketing intangibles for the associated enterprises (in short 'AE'). The questionnaire issued by the TPO is reproduced at page 13 and part at page 14 of the order of TPO. The submission of the assessee in reply is reproduced under para 17.10 at pages 14 to 26 of the order of TPO. The main plea of the assessee was that the expenses on advertisement and brand promotion are not incurred at the instance or direction of the AE nor the AE is to benefit from such expenditure incurred by the assessee in India. Further, it will be appreciated that in absence ....
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.....79 lacs by the assessee on payment of royalty to its AE, which was an international transaction, as per the TPO. However, the assessee had not determined the arm's length price of the said transaction, as observed by the TPO. He was of the view that on one hand, the assessee was making royalty payment to its AE for the use of trademark and on the other hand, it had incurred expenditure of Rs. 140.29 crores on AMP (excluding royalty). The TPO thus observed that during the year the assessee had created marketing intangibles by incurring expenditure of Rs. 140.29 crores on AMP of AE brand and products, however, the AE had not compensated the assessee for this cost pertaining to the brand promotion of the AE in India. The TPO was of the view that in order to examine the arm's length price it is necessary to compare total expenditure incurred by the assessee on behalf of the AE in India and amount paid by the assessee to India as contribution for advertisement expenditure by the AE. Accordingly, I have examined all the advertisement marketing and sale promotion expenditure (in short AMP expenditure) incurred by the assessee in India. In light of these facts, it is incorrect to ....
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.... this by itself has established that the assessee had incurred huge non-routine expenditure to develop marketing tangible for the AE. The TPO vide para 8.5.3 further held as under : "8.5.3 From the audited financials of the assessee, it is seen that it has incurred expenditure of Rs. 1,40,29,07,000 on advertisement, marketing and promotion of the 'Glaxo & Horlicks' brand and to develop market for the product of the AEs in India. Since AMP expenditure has resulted in increased in the value of "Glaxo & Horlicks" brand in India and helped penetration of Glaxo & Horlicks products in India. It is held that benefit of AMP expenditure was enjoyed by the AE who is legal owner of the brand. However, it is noted that the assessee has not been compensated for incurring cost and assuming risk of promoting brand of the AE in India and developing marketing intangible for the AE. Since, the assessee is manufacturer-cum-distributor of products in India, it is required to incur certain routine AMP expenditure as limited risk distributor but it is noted that the assessee has incurred certain non-routine expenditure for the AE." 13. The contention of the assessee that the advertisements....
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....assessee was held not to be entitled for deduction under section 10A, 10AA, 10B or under Chapter VIA in respect of the amount of income which has been enhanced. 14. The assessee filed its objections dated 27.1.2010 in form No. 35A before the Dispute Resolution Panel. Directions under section 144C of the Act were issued by the Dispute Resolution Panel, New Delhi vide its order dated 9.9.2010. The explanation of the assessee before the Dispute Resolution Panel was that the TPO had erred in observing that the assessee had developed marketing intangible for AE in India by developing of functions and by incurring of economical cost and risk. The Dispute Resolution Panel held that only such comparables which were engaged in the distributions business and were incurring routine AMP expenditure were to be selected. The said concept was observed by the Dispute Resolution Panel to be very scientific and acceptable in many developed countries including USA. The contention of the assessee that the concept of bright line test should not be applied to its case, was found to be not tenable by the Dispute Resolution Panel, observing that TPO had simply applied a well devised, scientific, alread....
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....t arm's length apply entity wide basis. 10. Adjustment, even otherwise, not sustainable, not being based on any of the methods prescribed in Transfer Pricing regulations. 11. Without prejudice, no adjustment for AMP expenses for Viva Maltova and Boost. 17. Elaborate submissions were made by the learned A.R. for the assessee in respect of each of the aforesaid propositions including relevant case laws, which shall be referred to in paras hereinbelow. The learned A.R. for the assessee has filed written submissions in respect of several propositions advanced by him and complete reliance was placed by the learned A.R. for the assessee on the said written submissions. 18. The learned D.R. for the Revenue has filed comments of TPO in respect of various grounds of appeal raised by the assessee and has in turn relied upon on the order of the TPO. The written submissions of the learned A.R. for the assessee and comments of TPO while arguing the present appeal shall be referred to by us at the appropriate juncture. 19. We have heard the rival contentions and perused the record. The issue raised vide ground Nos. 2.0 to 2.19 is in respect of adjustment made on ac....
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.... USA 15,82,384 15,82,384 Tianjin SKF, China 2,53,281 2,53,281 SB Research Ltd., Philippines 2,14,181 2,14,181 GSK China Investment Co. Ltd., China 99,965 99,965 3. Reimbursement of expenses (receipts) GSK Financial Services, UK 32,66,181 32,66,181 GSK CH LP, USA 14,22,227 14,22,227 -- GSK Sdn Bhd. Malasia 8,50,000 8,50,000 GSK, Negeria 2,02,415 2,02,415 GSK Australia 5,65,728 5,65,728 Sterling Durg Malaya Sdn Bhd. Malasia 18,43,191 18,43,191 SB Ltd., Sri Lanka 47,50,970 47,50,970 GSK Pte Ltd., Singapore 4,27,460 4,27,460 GSK CH. Korea 18,048 18,048 GSK Ltd., Hong Kong 1,04,80,046 1,04,80,046 GSK K.K. Japan 15,000 15,000 GSK Export Ltd., UK 9,37,574 9,37,574 4. Reimbursement of expenses (payment) GSK Services Unlimited, UK 20,41,532 20,41,532 -- SB Crop. CB, USA 1,80,090 1,80,090 22. Subsequently vide letter No. Addl.CIT/R-IV/CHD/2009-10/1182 dated 11.09.2009, the Addl. CIT, Range IV, Chandigarh had referred the following....
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....lling agent 11.49 6. Discount - sales 441.05 7. Development & Scientific research 97.41 8. Royalty 4115.79 9. Total 18144.86 24. The TPO had accepted the plea of the assessee in respect of royalty expenses of Rs. 4115.79 lacs and had not made any adjustment on account thereof. However, in respect of AMP expenses aggregating to Rs. 14029.07 lacs, the TPO noted that the same was at the ratio of 13.60% of the sales. For undertaking the bench marking analysis of AMP expenditure incurred by the assessee, the TPO observed that the average selling and distribution expense incurred by the following comparable companies was only 2.02% of sales: S. No. Name of the comparable companies Industrial sales Selling & distribution expenses Selling & distribution expenses as % age of sale 1 Kwality Dairy (India) Ltd. 95.44 0.21 0.22 2 Milk Food Ltd. 204.14 3.99 1.95 3 Modern Dairies Ltd. 92.16 0.61 0.66 4 Ravalgon Sugar Farm Ltd. 48.59 1.18 2.43 5 Mahaan Foods Ltd. 52.15 1.67 3.20 6 Anik Industries Ltd. 123.35 3.94 3.19 7 Mil....
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....ing on profits, income, losses or assets of such enterprises. Therefore, in order to be characterized as an 'international transaction', it would to be demonstrated that the same arises pursuant to an arrangement, understanding or action in concert." 29. Thereafter meaning of term "arrangement", "understanding" of "action in concert", as provided in the dictionary/court rulings were referred by the leaned A.R. for the assessee. 30. Further contention of the learned A.R. for the assessee was that the Indian company had incurred expenditure on advertisement, marketing and publicity to cater to local market needs. Such AMP expenditure was neither incurred at the instance of overseas associated enterprise, nor was there any mutual agreement or understanding or arrangement as to allocation or contribution by the associated enterprise towards reimbursement of any part of AMP expenditure incurred by the domestic enterprise for the purpose of its business. In absence of any understanding, arrangement, etc., no 'transaction' or 'international transaction' could be said to be involved with respect to such AMP expenditure incurred by the domestic enterprise, whic....
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....ion under section 92(1) of the Act, allowance for any expenses or interest arising from an international transaction shall also be determined having regard to the arm's length price. Section 92A of the Act defines the term 'associated enterprise' for the purpose of sections 92, 92B, 92C, 92D, 92E and 92F of the Income Tax Act. Section 92B of the Act defines the term of 'international transactions' for the purpose of sections 92, 92C, 92D and 92E and the said section reads as under: "Meaning of international transaction. 92B. (1) For the purposes of this section and sections 92, 92C, 92D and 92E, "international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be in....
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....een determined in accordance with sub-sections (1) and (2); or (b) any information and document relating to an international transaction have not been kept and maintained by the assessee in accordance with the provisions contained in sub-section (1) of section 92D and the rules made in this behalf; or (c) the information or data used in computation of the arm's length price is not reliable or correct; or (d) the assessee has failed to furnish, within the specified time, any information or document which he was required to furnish by a notice issued under sub-section (3) of section 92D, the Assessing Officer may proceed to determine the arm's length price in relation to the said international transaction in accordance with sub-sections (1) and (2), on the basis of such material or information or document available with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm's length price should not be so determined on the basis of material or information or document in the possession of the Assessin....
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....ngth price in relation to the international transaction to the Transfer Pricing Officer, as per the provision of section 92CA(1) of the Act. Sub-section (2) to 92CA entails where reference is made under sub-section (1), the TPO shall serve a notice to the assessee requiring him to produce evidence in support of the computation made by him of arm's length price in relation to the international transactions referred to in sub-section (1) to section 92CA. Sub-section (2A) to section 92CA of the Act has been inserted by the Finance Act, 2011 w.e.f. 1.6.2011, under which it is provided that where any international transaction other than the one referred to by the Assessing Officer, comes to the notice of the TPO, the provisions of Chapter shall apply to such other international transactions as to an international transaction referred to him under sub-section (1). The provisions of section 92CA of the Act reads as under: "Reference to Transfer Pricing Officer. 92CA. (1) Where any person, being the assessee, has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approva....
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....ction 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer.] (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly. (6) Where any amendment is made by the Transfer Pricing Officer under sub-section (5), he shall send a copy of his order to the Assessing Officer who shall thereafter proceed to amend the order of assessment in conformity with such order of the Transfer Pricing Officer. (7) The Transfer Pricing Officer may, for the purposes of determining the arm's length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133 [or section 133A]. Explanation.- For the purposes of this section, "Transfer Pricing Officer" means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of....
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....he Act flows where the Assessing Officer, with the previous approval of the Commissioner, refers, the computation of arm's length price, in relation to the international transactions, to the TPO. The provision of sub-section (1) of section 92CA of the Act provides that reference by the Assessing Officer, which in turn is subject to previous approval of the Commissioner, is in relation to an international transaction and where there are several international transactions vis-à-vis same entity, the duty of the Assessing Officer is to refer each such international transactions to the TPO. In other words, the reference by the Assessing Officer under section 92CA(1) of the Act is transaction based and not entity based. There may be several international transactions with the same entity, but the reference made by the Assessing Officer is each transaction specific i.e. only the international transactions which have been referred to by the Assessing Officer after taking the approval of the Commissioner, can be looked into by the TPO. In the absence of the reference being made by the Assessing Officer to the TPO, the suo moto action taken by the TPO in working out the arm's ....
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..... Thus, whereas the determination of the arm's length price, wherever reference is made to him, is required to be done by the TPO under sub-section (3) of section 92CA read with sub-section (3) of section 92C, the computation of total income having regard to the arm's length price so determined by the TPO is required to be done by the Assessing Officer under sub-section (4) of section 92C read with sub-section (4) of section 92CA. In order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information regarding international transaction can be fathered is Form No. 2CEB filed with the return which is in the nature of an accountants report containing basic details of an international transaction entered into by transaction is entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant's report. The Assessing Officer can arrive a prima facie belief on the basis of these details whethe....
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.... Officer so that a fresh reference is received with regard to such transactions. It may be noted that the reference to the TPO is transaction and enterprise specific. The transfer price has to be determined by the TPO in terms of section 92C. The price has to be determined by any one of the method stipulated in subsection (1) of section (2) thereof. There may be occasi9ons where application of the most appropriate method provides results which are deferent but equally reliable. In all such cases, further scrutiny may be necessary to evaluate the appropriateness of the method, the correctness of the data, weight given to various factors and so on. The selection of the most appropriate method will depend upon the facts of the case and the factors mentioned in rules contained in rule 10C. The TPO after taking into account all relevant facts and data available to him shall determine arm's length price and pass a speaking order after obtaining the approval of the DIT(TP). The order should contain details of the data used, reasons for arriving at a certain price and the applicability of methods. It may be emphasized that the application of method including the application of the m....
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....l of the assessee at page no.331 of the PB. The relevant part of the instructions read as under:- "Role of Transfer Pricing Officer : The role of the TPO begins after a reference is received from the Assessing Officer. In terms of section 92CA this role is limited to the determination of arm's length price in relation to the international transaction(s) referred to him by the Assessing Officer. If during the course of proceedings before him it is found that there are certain other transactions which have not been referred to him by the Assessing Officer, he will have to take up the matter with the Assessing Officer so that a fresh reference is received with regard to such transactions. It may be noted that the reference to the TPO is transaction and enterprise specific" "12. In view of the above discussion, we are of the view that as per Section 92CA(1), the TPO can suggest adjustment on the international transaction entered into by an assessee with its associate enterprises which were sent to him for computation of the arm's length price by the Assessing Officer. Suo moto, he cannot take cognizance of any international transaction for suggesting adjustment in arm&....
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....date and time to be specified in the notice, why the ALP should not be so determined on the basis of material or information or document in the possession of the Assessing Officer." Section 92CA(1) to (3) empowers the Assessing Officer to make a reference to the TPO and it reads as follows: "92CA. Reference to TPO.-(1) Where any person, being the assessee, has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the CIT, refer the computation of the ALP in relation to the said international transaction under section 92C to the TPO. (2) Where a reference is made under sub-section (1), the TPO shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the ALP in relation to the international transaction referred to in sub-section (1). (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any inform....
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....s therefore non est to that extent and cannot form the basis for making an addition to the total income. The Assessing Officer therefore could not have made the impugned addition on the basis of the order of the TPO. Since the impugned addition has been made by the Assessing Officer only by placing reliance on the report of the TPO, the addition cannot be sustained. 24. We are in respectful agreement with the views so expressed by the Coordinate Bench. It is only elementary that as the reference to the TPO is transaction specific and not enterprise specific, the Transfer Pricing Officer has no powers to go into a matter which has not been referred to him by the Assessing Officer, and even the instructions issued by the Central Board of Direct Taxes, which are binding on all field authorities, make that position very clear and unambiguous. To that extent, TPO's order is to be treated as non est, and any ALP adjustments made on the basis of such a TPO order cannot be legally sustained. We, therefore, direct the Assessing Officer to delete the impugned addition of Rs. 31.54 crores in respect of, what the authorities below have termed as, building brand of the AE. However, as we....
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....n, which has come to his notice, but which has not been referred to him, is or is not an international transaction and then to go on and determine the arm's length price thereof. That, we feel is in the exclusive jurisdiction of the Assessing Officer. It ought to be pointed out that these views are on the basis of the provisions of Section 92 CA, as applicable to the assessment year 2006-07, that is, prior to the introduction of sub-section (2A) of Section 92CA by virtue of the Finance Act, 2011 with effect from 1.6.2011. Insofar as the present appeal is concerned, Section 92CA would have to be read without sub-section 2A. We agree with Mr Syali that sub-section (2A) cannot have retrospective effect inasmuch as it deals with the jurisdiction of the Transfer Pricing Officer and, therefore, sub-section (2A) cannot be regarded as being a mere procedural provision. 24. We do not agree with the submission made by the learned counsel for the revenue that when a reference is made by an Assessing Officer to the Transfer Pricing Officer, the reference includes the entire gamut of transactions between the assessee and its associated enterprise. The Assessing Officer is the person who ....
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....pointed out that references were made by the Assessing Officer in respect of certain transactions but the international transaction of payment of royalty was not disclosed by the assessee as the international transaction with AE. It was further pointed out by the learned D.R. for the Revenue that in view of the expenditure incurred by the assessee on behalf of the AE in India for brand promotion of the brands of AE in India, it could not be presumed that the TPO suo moto assumed jurisdiction. We find no merit in the proposition forwarded by the TPO in view of the ratio laid down by the Coordinate Benches of the Tribunal and also the judgment in the case of Amadeus India (P.) Ltd. (supra). We are in agreement with the ratio laid down by the Coordinate Benches of the Tribunal, which in the case of Amadeus India Pvt. Ltd. has been upheld by Hon'ble Delhi High Court. In the absence of any reference being made by the Assessing Officer under section 92CA(1) of the Act, in respect of the AMP expenditure, the assumption of jurisdiction by the TPO in working out arm's length price in respect of the aforesaid AMP expenditure, is not justified and the order of the TPO in this regard i....
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....g Officer to allow the claim of the assessee in respect of incremental balance amounting to Rs. 25,23,710/- lying in PLA Account, under section 43B of the Act. The ground No.4 is allowed. 50. The issue raised vide ground No.5 is in relation to deduction of Consumer Product Research Expenses amounting to Rs. 623,17,381/- 51. The learned A.R. for the assessee pointed out that similar expenditure has been allowed in the hands of the assessee by the Tribunal in appeals relating to assessment years 1998-99 to 2002-03. 52. The learned D.R. for the Revenue has failed to controvert the same. 53. We find that similar issue of deduction of Consumer Product Research Expenses arose before the Tribunal in assessee's appeal in ITA No.379/Chd/2004 relating to assessment year 1998-99. The Tribunal vide order dated 21.3.2007 allowed the claim vide paras 7 to 13 of the said order holding as under: 7. We have considered the submissions carefully. First of all we may refer to the details of the expenditure incurred by the assessee which has been placed in the paper-book at page 42. The details of expenditure incurred by the assessee are as follows: Particulars Amo....
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....ad 'Promotional and Trade Marketing Expenses'. Such expenditure has been incurred on existing products of the assessee and include cost of presentation items, gifts, etc. given to the customers on the sale of the product, expenditure on advertisement material etc. The expenditure can be viewed as in actuality discount-in-kind allowed to the customers and expenditure on advertisement of the existing products of the assessee. Clearly the expenses incurred are of revenue nature. The expenses in question have merely facilitated the carrying on the business of the assessee more fruitfully. The argument of the revenue that such expenditure result in enduring benefit in as much as the expenditure results in enhancing of the brand, in our view, cannot be taken to mean that the expenditure is capital in nature. As we have noted earlier, it is not each and every enduring benefit which is to be concluded as a capital outgoing. At this point it is pertinent to refer to the decision of the Hon'ble Apex Court in the case of Empire Jute Co. Ltd. (Supra). According to the Hon'ble Apex Court what has to be seen is the nature and import of the expensed in question in a commercial sen....
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..... The assessee is engaged in the business of manufacture and sale of food and health care products under a well known brand. The expenses include development expenses for new products namely nutirbar chocolate, Ribena soft drink, Horlicks re-launch expenses. Certainly such expenditure has the potential to improve the profitability of the assessee. However the issue to be considered is whether the expenditure seeks to enlarge the profit yielding capacity or it increases the efficiency of the business. This aspect, in our considered opinion, is to be decided in the light of the business realities under which the assessee is operating. The assessee is engaged in the business of manufacturing of fast moving consumer goods. The business of the assessee is subjected to volatility in consumer preferences, tastes and wants. The assessee is therefore required to perennially study the market and launch new varieties in its products line and meet the competition in the market. It is in this background one has to examine as to whether the impugned expenditure incurred on development, introduction and launching of newer products is an advantage in the revenue filed or not. In our humble opinion....