TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 277
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....nce, the main issues raised in all the years by the assessee are reproduced hereunder: - A. I.T.As. No. 1203/CHANDI/2011 & 2511/DEL/2013: (AY 2007-08), In this appeal the assessee company (PFL) has raised the following issues in its grounds of appeal: (i) Grounds No. 1 to 3 are general in nature. (ii) In Grounds No. 4 to 4.10, the assessee has challenged the AMP adjustment computed by the TPO using BLT. The facts pertaining to this issue are identical to facts in ITA 1334/CHANDI/2010 for AY 2006-07 (discussed above). (iii) In Grounds No. 5 to 5.5, the assessee has challenged the addition made by the AO on account of Price Support given to Bottlers amount to INR 6,00,52,116/-. This issue, the assessee has submitted, is squarely covered in favour of the assessee by the decision of the coordinate bench dated 05.10.2016 passed in ITA 1334/CHANDI/2010 as affirmed by the Hon'ble High Court of Delhi vide order dated 13.11.2017 passed in ITA No. 474/2017. (iv) In Ground No. 6, the assessee has challenged the addition on account of un-utilized MODVAT credit. The assessee has not pressed this ground and therefore the same is not adjudicated. (v) Grounds No. 7 to 7.1 pertain to initia....
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....ourt of Delhi vide order dated 13.11.2017 passed in ITA No. 474/2017. D. I.T.A. No. 4516/DEL/2016 pertaining to AY 2010-11, the assessee company has raised the following issues in its grounds of appeal: (i) Grounds No. 1 to 2 are general in nature. (ii) In Grounds No. 3 to 26, the assessee has challenged the AMP adjustment computed by the TPO vide order dated 30.06.2015 and incorporated in the final assessment order dated 28.07.2016 passed by the AO. (iii) In Ground No. 27, the assessee has challenged the wrongful levy of interest under section 234A of the Act computed by the AO. (iv) In Grounds No. 28 and 29, the assessee has challenged the levy of interest under section 234B and 234D of the Act computed by the AO and are consequential in nature. (v) Ground No. 30 pertains to initiation of penalty proceedings under section 271(1)(c) of the Act and is consequential in nature. E. I.T.A. No. 4517/DEL/2016 pertaining to AY 2010-11, the assessee company (PepsiCo India Holdings Pvt. Ltd.) has raised the following issues in its grounds of appeal: (i) Grounds No. 1 to 2 are general in nature. (ii) In Grounds No. 3 to 26, the assessee has challenged the AMP adjustment computed by ....
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...., the assessee has challenged the disallowance of INR 24,36,362/- computed by the AO as per the provisions of section 14A of the Act. (v) In Grounds No. 37 to 39, the assessee has challenged the addition of INR 2,95,10,993/- on account of Industrial Promotion Assistance (IPA) Subsidy received by the assessee under the West Bengal Incentive Scheme, 2004. (vi) In Ground No. 40, the assessee has challenged the levy of interest under section 234B of the Act and as such is consequential in nature. (vii) Ground No. 41 pertains to initiation of penalty proceedings under section 271(1)(c) of the Act and is consequential in nature. (viii) Ground No. 42 is an additional ground raised by the assessee and is directed against the withdrawal of the benefit of brought forward losses and unabsorbed depreciation vide rectification order dated 08.12.2017 passed by the AO, earlier granted to the assessee vide final assessment order dated 22.11.2016. H. I.T.A. No. 6582/DEL/2017 pertaining to AY 2013-14, the assessee company has raised the following issues in its grounds of appeal: (i) Grounds No. 1 to 2 are general in nature. (ii) In Grounds No. 3 to 28, the assessee has challenged the AMP adju....
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....epsiCo Inc. held 99.98% of PFL. With effect from April 01, 2010, PFL was merged with PepsiCo India Holdings Pvt. Ltd., the assessee company, which in turn was also set up in India as subsidiary of PepsiCo Inc. The assessee has been inter alia involved in the manufacturing of soft drink/juice based concentrates and other agro products and has been supplying concentrates for aerated and non- aerated soft drinks to its deemed associated enterprises (AEs) in Bangladesh, Nepal, Bhutan and Sri Lanka, in addition to its local sales in India to its franchisee bottlers. By way of Trademark and Licence Agreement dated 09.11.1989, the assessee had procured a license from PepsiCo Inc. U.S.A. for the technology to manufacture the concentrates and to use and exploit the brands owned by PepsiCo Inc. U.S.A. As per the terms of the said agreement, the license to use the trademark was non-transferable and royalty free. Furthermore, it has been agreed in the said agreement that the assessee was granted an exclusive right to use the trademark in respect of syrups and concentrates and a non-exclusive right vis-àvis beverages. It was explained during the course of the hearing by Sri Deepak Chopr....
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....ugned before us, the TPO has made AMP adjustments, by treating the AMP expenses as international transaction and then after applying various methods, like, BLT in the A.Y.s 2006-07 to 2009-10; PSM in the A.Y.s 2010-11 to 2012- 13; and the 'Other Method' in A.Y 2013-14 and on different reasons. The amount of adjustments made and the method applied for making the adjustments in the various years are as under: A.Y. ADJUSTMENT AS COMPUTED BY TPO METHOD APPLIED BY TPO ADJUSTMENT AS COMPUTED BY DRP METHOD APPLIED BY DRP 2006-07 174,39,58,880/- BLT 174,39,58,880/- BLT 2007-08 215,09,88,807/- BLT 215,09,88,807/- BLT 2008-09 255,12,79,469/- BLT 255,12,79,469/- BLT 2009-10 316,66,11,827/- BLT 316,66,11,827/- BLT 2010-11 290,20,73,215/- PSM 290,20,73,215/- PSM 2010-11 134,46,25,674/- PSM 134,46,25,674/- PSM 2011-12 561,32,18,691/- PSM 561,32,18,691/- PSM 2012-13 601,59,21,918/- PSM 601,59,21,918/- PSM 2013-14 578,21,11,120/- PSM 334,06,17,000/- BLT/ OTHER METHOD Thus, in these appeals, the issue of Transfer Pricing Adjustment on account of AMP can be segregated into three separate categories o....
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....ing expenses of Rs. 202,34,16,000/- on sales turnover of Rs. 303,19,65,000/-. Having observed so, the TPO concluded that the assessee company had created marketing intangible by incurring expenditure of Rs. 202,80,54,000/- on advertisement, marketing and promotion of the AE brand and products, without receiving any compensation for the same. He was of the view that the assessee company had incurred huge AMP expenditure to promote a trademark owned by its AE and develop marketing intangibles for the product of the AE. He further observed that the AEs of the assessee company had received benefit in form of enhanced brand value in India. Further, referring to provisions of section 92B (1) that arrangement between two AEs for allocation or apportionment of or any contribution to any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises was an international transaction. He held that here in this case the assessee company had incurred the cost in connection with a benefit and services provided to the AE under a mutual agreement which was, although, not in writing, but such arrangement....
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....icer (AO) referred it to the TPO, who made adjustments based upon the prevailing understanding as to the applicability of the Bright Line Test, holding that the AMP expenses were subject to adjustment. The Dispute Resolution Panel (DRP) affirmed this view. In the meanwhile, the Special Bench had in LG Electronics v. ACIT (2013) 22 ITR 1 (SB) enunciated and affirmed the Bright Line Test rule. That view was subsequently overruled by this Court in Sony Ericsson Mobile Communications India Pvt. Ltd. v. CIT (2015) 374 ITR 118. The ITAT in this case has remitted the entire matter for reconsideration to the TPO. This Court has heard learned counsel for the parties. In Le Passage to India Tour & Travels (P) Ltd. v. DCIT [ITA 368/2016 & connected matter, decided on 12.01.2017], this Court stated as follows: "4. This Court is of the view that whilst L.G. Electronics India Pvt. Ltd. (supra) indicated that AMPs were or did constitute the basis for an inquiry into the international transaction and indicated a "bright line" test for it, Sony Ericsson Mobile Communications India Pvt. Ltd.(supra) overruled that decision. This per se does not mean that every endeavour will be to conclude that....
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....pany did not fall within the ambit and definition of "international transaction" within the meaning of Section 92B. The assessee company manufacturer of soft drink/ juice based concentrates and other agro products and was exposed to normal risks associated with carrying on such business. He submitted that the assessee company did not own any significant intangibles and neither does it undertake research and development on its account that could lead to the development of non-routine intangibles. The assessee company had obtained a license from its US parent AE, viz. M/s PepsiCo Inc., USA for the technology to manufacture the concentrates and to use and exploit the brands owned by PepsiCo Inc., in the regions allocated to the assessee company. Under the aforesaid agreement, the assessee company had been granted a non-transferable, royalty free license for the use of the trademarks in its territory. The assessee company has been the exclusive user of the trademarks in India in respect of syrups and concentrates but has been granted non-exclusive rights for beverages. It was explained that the reason for the same was that the manufacture of concentrate was done exclusively by the asse....
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....of expenses by the assessee company to its AE was for purely commercial reasons and was not at the behest of the AE. The assessee company is in the industry where it faces stiff competition and the products sold by the assessee company do not fall in the category of daily need products and therefore, the assessee company is required to market its products aggressively, in order to boost / promote its sales. 13. The learned counsel further submitted that, India being a cricket loving nation, Assessee Company strategically promotes its products by advertising at cricketing events. Keeping the aforesaid in view, one of Pepsi's AE, namely, PCIC, Ireland, on behalf of all group entities located in cricketing nations, entered into a Global Partnership Agreement dated 28.10.2004 with Global Cricket Corporation PTE Limited (GCC) for obtaining sponsorship rights of various ICC cricketing events worldwide. The said agreement was placed on record and pointed out that PCIC, Ireland, had entered into the aforesaid agreement with GCC only with the consent of the group companies from whom reimbursement was sought. Thereafter, PCIC had entered into an agreement dated 9.09.2005 with the assessee ....
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....of the TPO in treating incurrence of AMP expenses as a separate international transaction requiring separate benchmarking under section 92B of the Act, was not in accordance with the settled legal position in law and therefore, deserved to be quashed. It was submitted by him that the AMP expenditure incurred did not result in a separate international transaction as per Section 92B read with Section 92F (v) of the Act, which together define an 'international transaction'. He stressed on the point that these do not apply in the absence of any arrangement/ understanding/action in concert between the two AEs. In the present case he submitted that, AMP expenses incurred by the assessee company would rather fall under the category of domestic transaction as it was undertaken with the third parties which are not covered under the definition of international transaction within the purview of Section 92 of the Act. Any kind of analysis of such domestic transactions undertaken with the third parties was also beyond the purview of Section 92CA of the Act. Further, these transactions purely represented the expenses incurred by the assessee company for the purpose of its own business and had ....
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....red by the assessee company for the purpose of its business. In absence of any understanding, arrangement, etc., it was submitted that no 'transaction' or 'international transaction' could be said to be involved with respect to such AMP expenditure incurred by the domestic enterprise, which may be covered within the provisions of Transfer Pricing regulations. Further it was reiterated that payment for advertisement, marketing and sales promotion was made by the assessee company (which is a tax resident of India) to other Indian third parties. The reimbursement made by the assessee to its AE in lieu of sponsorship fees paid to ICC was wholly and exclusively for assessee company's business and was not at the behest of the AE. He submitted that the twin requirements of section 92B did not exist in the present case, i.e., the transaction involved was between Indian parties and no foreign party was involved and the transaction of AMP expenses did not take place between two AEs. 17. Mr. Chopra further invited our attention towards the decisions of the Hon'ble High Court of Delhi in this regard and submitted that the Hon'ble High Court had held that the onus was upon the Revenue to demo....
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....nternational transaction. He strongly pressed the point that the mere review of the advertising material by the AE did not indicate existence of any international transaction in terms of the aforesaid decision. There is no obligation on the assessee company to incur AMP expenses to promote the brand of the AE and no such obligation has been brought out by the TPO on the facts of the present case and therefore there arose no question of existence of any transaction let alone an international transaction on the facts of the present case. 19. The learned counsel for the assessee, thereafter, referred to clause 13 of the agreement dated 09.11.1989 to contend that the risk and rewards of incurring the AMP expenditure lied with the assessee company only as the foreign AE was completely insulated from such risks and rewards arising from the manufacturing activity carried on by the assessee company in India. He submitted that the assessee company has been operating as a licensed manufacturer of concentrates in India, which have been used in the manufacturing of soft drinks. For this purpose, the assessee company had obtained the license from its US parent AE for the technology to manufact....
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....ce, it were not widely sold outside India, no benefit could have been said to have accrued to the AE on account of promotion of these brands. Further, it was submitted that in cases where such brands were sold outside India, it used different flavours and spices suitable for local consumption on which the advertising and marketing was carried by the local entity present in those jurisdictions. It was because of the fact that, the AE had not charged the assessee any royalty for use of its trademarks in India; hence it was unfair on part of the TPO to allege that the assessee should have been compensated for brands conceptualized and developed by it. The allegation of the TPO that the assessee company merely duplicated the advertisements of PepsiCo Inc., USA is also not correct since there were various advertisements which had been independently conceptualized by the assessee company in India. Thereafter, he pressed on the point that it was an admitted position that the US parent AE was the legal owner of the brand/trademarks/ intellectual property which had been licensed to the assessee for the use in Indian market. However, the assessee happened to be the economic owner of the bra....
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....ed on the above, the learned counsel submitted that the TPO in his order had not recorded / identified any such separate arrangement or agreement and hence the domestic transactions entered by the assessee with the uncontrolled third parties in the local market, fell outside the scope of section 92B(2) of the Act. He further stressed on the point that no evidence had been brought on record to establish the manner in which the AEs of the assessee had influenced the price paid by the assessee to independent third parties (AMP vendors) in India, so as to bring the transaction within the fold of sub-section (2) of Section 92B of the Act. It was submitted that the TPO proceeded to aver that the assessee was contributing to global profits and therefore, AMP expenses assumed the characteristics of an international transaction based on misconstrued facts and complete disregard of the assessee's business model. Hence, there was invalid assumption of jurisdiction on the part of the TPO. 23. The learned counsel also pointed towards the explanation to Section 92B. The explanation to Section 92B as inserted by the Finance Act 2012. From the said provisions he submitted that it was clear that u....
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....he decisions of the coordinate benches of this Tribunal in M/s Essilor India Pvt Ltd vs. DCIT: IT(TP)A No. 29/Bang/2014, M/s Heinz India Private Limited vs. ACIT: ITA No. 7732/Mum/2010, L'oreal India Private Limited vs. DCIT : ITA No. 7714/Mum/2012 and Goodyear India Ltd (supra) and Honda Siel Power Products Ltd vs. DCIT: ITA No. 551/Del/2014. 27. Mr. Chopra, thereafter directed our attention towards the benchmarking yardstick used by the TPO over the years to compute the transfer pricing adjustment pertaining to AMP expenses. He submitted that for the AYs 2006-07 to 2009-10, the TPO used Bright Line Test, not only to benchmark the alleged international transaction but also for concluding that there existed an international transaction in the first place. He stressed heavily that the transfer pricing adjustment pertaining to AMP expenses computed using BLT has specifically been time and again deleted/ remanded back by the Hon'ble High Court of Delhi in various decisions starting with Sony Ericsson Mobile Communications Pvt. Ltd. (supra). He again drew our attention towards the relevant passage in para 121 & 122 from the decision of the Hon'ble Delhi High Court in Sony Ericsson Mob....
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....Administrations 2010 (TP Guidelines), which has also been relied upon by the TPO. He submitted that under the said guidance and as per the Rules, the TPO was required to determine the combined profit arising from the impugned "international transaction" of incurring AMP expenses. Thereafter, the TPO was required to split the combined profit in the proportion of the relative contribution of the assessee and the AE. However, the TPO did not apply PSM correctly and did not analyse the contribution made by both the entities, i.e., the assessee company and the US Parent AE, on the relative value of the FAR of each of the entities. He also pointed out various other inconsistencies in the TPO's application of PSM for benchmarking the alleged international transaction of AMP expenses. 31. It was pointed out by him that the TPO in its order for the AYs 2010-11 to 2012-13, had applied the PSM method by taking the financials of the US Parent AE into account. He has determined a rate of 35% allocable towards marketing activities by relying upon the decision of the coordinate bench of this Tribunal in Rolls Royce PLC vs. DDIT [TIOL-408-ITAT-DEL] and had applied the same to the global net pro....
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....justment by comparing the AMP/sales ratio of the US Parent AE with that of the assessee company. Thereafter, the DRP considered the excessive AMP spent by the assessee company to be transfer pricing adjustment on account of AMP expenses for AY 2013-14. The only difference between the approach adopted by the DRP with that of the Department was that Department compares the AMP/sales of the tested party with that of third parties and in the instant case, the AMP/Sales of the assessee company has been compared with that of its parent AE. He submitted that even in AY 2013-14, the "other method" has been incorrectly applied. He also drew our attention to Rule 10AB and pointed out that erroneous interpretation of this Rule has been made by the DRP by comparing the AMP / Sales ratio of the assessee with the Global AMP/ sales of Pepsi Group on a worldwide basis. He submitted that Rule 10AB provided that "Other Method" takes into account the price which had been charged or paid for the same or similar uncontrolled transaction with or between nonassociated enterprises under similar circumstances. Comparison of the AMP over sales ratio of the assessee with the AMP ratio of Pepsi Co Group on a ....
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.... engaged in the manufacture of concentrate, which is an intermediate product and is sold only to licensed bottlers who complete the product which is sold in the market to the consumer. He submitted that the concentrate as such was not a marketable commodity. To distinguish its case from the decision of the Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (supra), he pointed out that the Sony decision involved distributors and the said distinction has also been recognized in the subsequent decision of the Hon'ble Delhi High Court in Maruti Suzuki India Pvt. Ltd. (supra), which was a case of manufacturer. Thus, the assessee's case was squarely covered by the Maruti decision. For this reason, Special Bench of this Tribunal in LG Electronics India (P.) Ltd. vs. Asstt. CIT 140 ITD 41 (Delhi) (SB) held that all selling and manufacturing expenses were to be excluded for the purposes of determining any the transfer pricing adjustment on account of AMP expenses. Such a finding has been upheld by the Hon'ble Delhi High Court Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (supra). 37. He further contended that the entire AMP e....
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....cessiveness or otherwise. 39. Thereafter, the learned counsel brought our attention towards the Final Report of Action 8-10 of the Base Erosion and Profit Shifting Project (BEPS) of the OECD titled as "Aligning Transfer Pricing Outcomes with Value Creation". He submitted that even under this latest development in international tax, there has been no adjustment suggested on account of AMP expenditure incurred by a full-fledged manufacturer. He took us through the examples provided in the report to contend that none of the examples therein pertained to a manufacturer, thereby indicating a consistent logic that AMP expenditure incurred by a manufacturer could not be subjected to transfer pricing adjustment. 40. He thus, contended that in assessee's case the legal owner of the trademarks licensed to the assessee has performed no relevant functions, used no relevant assets, and assumed no relevant risks, but for solely acting as the title holder and therefore, it is actually not entitled to any return for holding such title. When the legal owner being the US Parent AE is not entitled to any return, then there was no reason why it compensates its subsidiary in India, i.e., the assessee....
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....P)A No. 29/Rang/2014 (Bangalore ITAT); (ix) M/s Heinz India Private Ltd. vs. ACIT (supra); (x) L'oreal India Private Limited vs. DICT: ITA/7714/Mum/2012 (Mumbai Tribunal); (xi) Thomas Cook (India) Ltd. vs. DCIT: [2016] 70 taXmann.com 322 (Mumbai Trib.); (xii) Diageo India Private Limited vs. DCIT: I.T.A./7545/Mum/2012 (Mumbai Trib.); (xiii) Mondelez India Foods (P) Ltd. Vs. ACIT: [2016] 70 taXmann.com 112 (Mumbai-Trib.); (xiv) DCIT vs. Mattel Toys (India) Pvt Ltd: ITA No. 4415/Mum/2014 (Mumbai Tribunal); (xv) WideX India Pvt. Ltd. vs. ACIT: 117/Chandi/2016 (Chandigarh Tribunal); (xvi) Nippon Paint India Pvt. Ltd vs. ACIT: ITA No.779/Mds/2016 (Chennai Tribunal); (xvii) Nikon India Pvt. Ltd. vs. DCIT: ITA No. 4574/Del/2017 (Delhi ITAT). Contention raised by the Ld. CIT-DR: 42. The learned CIT DR in support of TPO's order submitted that, it is an undisputed position that the 'Pepsi' brand for soft drinks and other brands, on which the assessee incurred AMP expenditure, belonged to the US Parent AE. It was submitted that the assessee did not own and develop its own brand and that the AMP spent was purely towards brand building and not sales promotion expenses. Through the A....
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.... manufacturing business itself was processing of essence with sugar etc. to make drink concentrates; therefore, these activities can at the best be called processing and not manufacturing where normally huge mechanical processes are required. The entire sale was based on advertisement of brand owned by the AE. Hence, the assessee was providing services to the AE by way of strengthening the brands and creation of brands for the AE. 44. The learned DR further submitted that the benefit for the assessee by way of increase in sale was incidental and the main purpose of the AMP was the creation of market intangible namely brand owned by the AE. The assessee mainly existed and carried out the activity for the creation and strengthening of brands owned by the AE. Accordingly, it was submitted that the assessee was providing a service to the AE for creation of marketing intangible by incurring AMP expenses, which was an 'international transaction' and required benchmarking. He submitted that the reliance placed by the assessee on the decision of the Hon'ble High Court of Delhi in Maruti Suzuki India Pvt. Ltd. (supra) was not tenable, since Maruti Suzuki was a manufacturer and that there w....
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....ned DR were never raised earlier by the authorities below and hence the same were not permissible at this stage. Further, he placed reliance on the financials of the assessee company from AY 2006-07 to 2013-14 to contend that the expenditure incurred by the assessee on AMP activities fell from 67% when compared to sales in AY 2006-07 to less than 10% when compared to sales in AY 2013-14. He submitted that the quantum of expenditure in the earlier years was high given the issue raised by the food inspector in Kerala in 2006 which had affected the goodwill of the company substantially and hence there was a commercial rationale for the assessee company to incur such huge expenditure to sustain in the highly competitive Indian market. Therefore, he submitted that the argument of the learned DR that the assessee company was primary engaged in development of brand of the AE was completely misplaced and deserved to be ignored. The learned counsel for the assessee also relied upon the said figures to contend that despite the fall of AMP/ sales ratio of the assessee company from 67% in AY 2006-07 to below 10% in AY 2013-14, the Revenue had been computing transfer pricing adjustment based on....
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....rst of all we have to see, whether at all by incurring of higher AMP expenses, a conclusion can be reached that it is an international transaction which warrants determination of Arm's Length Price. Ergo, if it is held that there is no international transaction, then ostensibly there is no requirement of any kind of AMP adjustment. Accordingly, we would like to first dwell upon whether the incurring of expenditure on account of AMP amounts to international transaction or not. In a succinct manner we would like to analyze function and the profile of the assessee company. The assessee is a subsidiary of US entity, PepsiCo Inc, which is mainly involved in the manufacturing of Softdrink/ juice based concentrate and other agro products; and supply concentrated for aerated and non-aerated soft-drinks in India as well as to its AEs in Bangladesh, Nepal, Bhutan and Sri Lanka. It has obtained a license from its US parent AE for the technology to manufacture the concentrate and to use and exploit the brands owned by the said AE in the regions designated to the assessee company. The relevant clauses of Trademark, Licensing Agreement dated 09.11.1989 has already been referred above whereby the....
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....assessee company and the third parties can be summarized in the following manner: - Particulars AEs PFL PIH/ Third Parties Functions performed Legal ownership of trademark Yes Nil Nil Registration/ protection of trademark Yes Nil Nil Supply of keys and essences for manufacturing of concentrates Yes Nil Nil Manufacturing of concentrate Nil Yes Nil Bottling of final beverage Nil Nil Yes Advertisement and marketing of products in India Nil Yes (FOBO - limited) Determination of advertisement and marketing budget Nil Yes Yes Deciding concept and content of advertising Nil Yes Yes Deciding the choice of media Nil Yes Yes Dealing with advertisement and marketing agencies Nil Yes Yes Selling and distribution in India of bottled beverage Nil Nil Yes Pricing of final product Nil Yes Nil All the necessary functions of strategizing, advertising and marketing activities, its implementation and controlling across the country is conducted by the assessee company alone for market penetration in India. Thus, in a way assessee is the economic owner of the brand though not a legal owner. As a full-fledg....
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....nt of Rs. 174,39,58,880/-. 52. First of all, in so far as the reimbursement of cost of expenditure incurred by Ireland (AE), it has been brought on record that the said AE has entered into a global partnership agreement dated 28.10.2004 with Global Cricket Corporation PTE Ltd. for the sponsorship right of Cricketing event world-wide. Since, assesseecompany is mainly based in India where game of cricket is immensely popular, therefore, it was agreed amongst the group companies that the expenditure incurred for sponsoring the ICC cricketing events, all the group companies which had benefitted from the cricketing events in the form of advertisement will reimburse the cost. The said cost was purely for promoting assessee's own business and nowhere it has been brought on record that such a reimbursement of the cost was subject to any markup or any functions have been provided from where any income has been derived by the AE. The assessee on the basis of joint decision taken by Pepsi entities located in various cricketing jurisdiction had decided to reimburse the cost incurred by Ireland (AE) for sponsorship and advertisement as it will help the promotion of the business of such entitie....
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....nd there is no material on record to infer that there is any arrangement or agreement with the AE at any point of time that assessee is required to spent on AMP or it has been done at the behest of the AE. The reason adopted by the Revenue to conclude that the incurrence of AMP expenditure by the assessee for promoting the brands which is owned by its AE constituting a separate international transaction for the purpose of Section 92B which requires separate bench marking, does not has any legs to stand, because the Revenue has failed to show the existence of any agreement, understanding or arrangement between the assessee company and AE regarding the quantum of AMP spent or it was spent on behest of AE. The TPO has not recorded or identified any such separate arrangement or agreement that AMP expenses incurred by the assessee company are in pursuance of any agreement or arrangement. It is also not the case of the Department that the expenses which has been incurred by the assessee company during the course of its business have any bearing whatsoever on any other international transaction with the AE, other than reimbursement of expenditure of Rs. 33.60 crores as discussed above. 5....
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.... trade names, brand names, logos;...................." Thus, under the expanded definition of the term 'international transaction' intangible property has been defined to include marketing related intangible assets such as trademark, trade name, brand name and logos, etc. This inter alia means that where two AEs engaged in the transaction which involved, purchase, sale, transfer, lease or use of intangibles rights then the same shall be classified as international transaction. From the above, definition, apart from transaction relating to purchase, sale or lease of tangible or intangible property, services lending or borrowing money, etc. functions having bearing on the profits, income, losses or assets is reckoned as international transaction. Besides this, if such a transaction is based on any mutual agreement or arrangement between the AEs for allocation or any contribution to any cost or expenditure incurred or to be incurred for the benefit, service or facility, then also such an agreement or arrangement is treated as international transaction. Clause (v) of Section 92F reads as under: "92F (v). "transaction' includes an arrangement, understanding or action in concert, - (A....
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....fee paid to ICC which again was wholly and exclusively for the assessee's own business and was not at the behest or mandate of AE. This contention of the learned counsel on the face of record is liable to be accepted and in absence of any material or any kind of arrangement discovered or brought on record by the Revenue, remains unrebutted. The onus is on the Revenue to show that the twin requirement of Section 92B exists, that is, firstly, the transaction involved was between the AE, one of which is resident and other a non-resident was involved; and secondly, the transaction of AMP expenses has taken place between the two AEs (except for reimbursement of Rs. 33.60 crore). Now it has been well settled by the Hon'ble Jurisdictional High Court in the case of Maruti Suzuki India Pvt. Ltd. (supra) that onus is upon the Revenue to demonstrate that there existed an arrangement between the assessee and its AE under which assessee was obliged to incur excess amount of AMP expenses to promote the brands owned by the AE. The relevant observation and the finding of the Hon'ble High Court in paragraph 60 reads as under: "60......Even if the resort is had to the residuary part of clau....
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....ces of the local population and neither the content nor the quantum can be remotely managed by a non-resident AE. It has been brought on record that the assessee company had a full-fledged marketing team in India who with the help of local marketing agency and consultant managed the marketing function across the country. Further, mere review of marketing material by the AE does not indicate that there is existence of any international transaction, because here in this case there was no obligation on the assessee company to incur AMP expenditure to promote the brand of the AE and no such obligation too has been brought out by the TPO in the impugned order. It is also evident from clause (xiii) of the Agreement that the risk and reward of incurring the AMP expenditure lied entirely with the assessee company and the foreign AE was completely insulated from such risk and rewards arising from the manufacturing activity carried on by the assessee company in India. Assessee has been operating as a licensed manufacturer of concentrates in India which is used in manufacturing of soft drinks and it had obtained the license from its parent AE for the technology to manufacture concentrate and ....
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....ng was carried out by the local entity in those jurisdiction. Such an argument has a strong basis for the reason that, firstly, AE had not charged any royalty for use of trademark in India from the assessee, and therefore to allege that assessee should have been compensated for the brand conceptualized and developed by it, is too farfetched and; secondly, the brand developed in India which are to be exclusively sold in India will only help in promotion of sales in India and not in the jurisdiction of the other AEs. Since assessee happened to be the economic owner of the brand in India, therefore, it was entitled to all such economic benefits arising out of intangible benefit. Because, assessee bore of the risk associated with the AMP spending and has ultimately benefited from such expenses which will result increase sales. It is also not the case of the TPO that the residual profits from exploitation of brand were flowing out of India to the AE in any way and in no manner the income of the AE was increasing from where it could fund the reimbursement of advertising and marketing expenses to the assessee in India. 57. The TPO has also referred to the decision of Hon'ble Delhi Hi....
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....antitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Ericsson Mobile Communications India (P.) Ltd. (supra) having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses, the very basis of the Revenue's case is negated." "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wildgoose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions". Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly br....
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....ed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. 71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on application of the BLT, is excessive, thereby evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. 72. As rightly pointed out by the Assessee, while such quantitative adjustment involved in respect of AMP expenses may be contemplated in the taxing statutes of certain foreign countries like U.S.A., Austral....
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....be located in some agreement, written (for e.g., the ample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40A(2)(a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO "is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, "so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found that there is an international transaction in that rega....
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....lly applied 'bright line test' to decipher and compute value of international transaction and thereafter applied 'Cost Plus Method' or 'Cost Method' to compute the arm's length price. The said approach is not mandated and stipulated in the Act or the Rules. The list of parameters for ascertaining the comparables for applying bright line test in paragraph 17.4 and, thereafter, the assertion in paragraph 17.6 that comparison can be only made by choosing comparable of domestic cases not using any foreign brand, is contrary to the Rules. It amounts to writing and prescribing a mandatory procedure or test which is not stipulated in the Act or the Rules. This is beyond what the statute in Chapter X postulates. Rules also do not so stipulate. The argument and reasoning in paragraph 17.6 in a way loses focus on the main issue and controversy; whether the arm's length price fixed between the two AEs is adequate and justified and would have been paid if the transaction was between two independent enterprises. The two independent enterprises must be two unrelated parties having no connection. It does not matter whether the comparables are domestic enterprises o....
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....." 58. Thus, form the plain reading of the aforesaid principles laid down by the Hon'ble Jurisdictional High Court, the key sequitur is that: (i) International transaction cannot be identified or held to be existing simply because excess AMP expenditure has been incurred by the Indian entity. (ii) International transactions cannot be found to exist after applying the BLT to decipher and compute value of international transaction. (iii) There is no provision either in the Act or in the Rules to justify the application of BLT for computing the Arm's Length Price and there is nothing in the Act which indicate how in the absence of BLT one can discern the existence of an international transaction as far as AMP expenditure is concerned. (iv) Revenue cannot resort to a quantify the adjustment by determining the AMP expenses spent by the assessee after applying BLT to hold it to be excessive and thereby evidencing the existence of the international transaction involving the AE. 59. Here in this case also, the TPO has tried to prove the international transaction, vis-à-vis, AMP after applying the BLT which now in view of settled law by the Hon'ble Jurisdictional High C....
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.... MacNaghten in Commissioner of Inland Revenue v. Midler and Co. Margarine Ltd. [1901] AC 217 (223) can also be applied with marginal changes to understand the concept of brand. In the context of "goodwill" it was observed: "It is very difficult, as it seems to me, to say that goodwill is not property. Goodwill is bought and sold every day. It may be acquired. I think, in any of the different ways in which property is usually acquired. When a man has got it he may keep it as his own. He may vindicate his exclusive right to it if necessary by process of law. He may dispose of it if he will-of course, under the conditions attaching to property of that nature ... What is goodwill? It is a thing very easy to describe very difficult to define. It is the benefit and advantage of the good name, reputation, and: connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old established business from a new business at its first start. The goodwill of a business must emanate from a particular centre or source. However, widely extended or diffused its influence may be, goodwill is worth nothing unless it has power of attraction su....
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....Physically and psychologically, it is a 'habit and sociologically it is a 'custom'. Biologically, it has been described by Lord Macnaghten in Trego v. Hunt [1896] AC 7 as the 'sap and life' of the business." There is a line of demarcation between development and exploitation. Development of a trade mark or goodwill takes place over a passage of time and is a slow ongoing process. In cases of well recognised or known trade marks, the said trade mark is already recognised. Expenditures incurred for promoting product(s) with a trade mark is for exploitation of the trade mark rather than development of its value. A trade mark is a market place device by which the consumers identify the goods arid services and their source. In the context of trade mark, the said mark symbolises the goodwill or the likelihood that the consumers will make future purchases of the same goods or services. Value of the brand also would depend upon and is attributable to intangibles other than trade mark. It refers to infra-structure, know-how, ability to compete with the established market leaders. Brand value, therefore, does not represent trade mark as a standalone asset and is difficu....
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....ed goodwill or brand. Paragraph 35 specifically elucidates that internally generated goodwill should not be recognised as an asset. In some cases expenditure is incurred to generate future economic benefits but it may not insult in creation of an intangible asset in the form of goodwill or brand, which meets the recognition criteria under AS-26. Internally generated goodwill or brand is not treated as an asset in AS-26 because it is not an identifiable resource controlled by an enterprise, which can be reliably measured at cost. Its value can change due to a range of factors. Such uncertain and unpredictable differences, which would occur in future, are indeterminate. In subsequent paragraphs, AS-26 records that expenditure on materials and services used or consumed, salary, wages and employment related costs, overheads, etc., contribute in generating internal intangible asset. Thus, it is possible to compute good- will or brand equity/value at a point of time but its future valuation would be perilous and an iffy exercise. In paragraph 44 of AS-26, it is stated that intangible asset arising from development will be recognised only and only if amongst several factors, can demonstr....
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.... is incurred periodically, so that the customers remain attracted and do not forget the product and its qualities. The advertisements published/displayed may not be of relevance or significance after lapse of time in a highly competitive market, wherein the products of different companies compete and are available in abundance. Advertisements and sales promotion are conducted to increase sale and their impact is limited and felt for a short duration. No permanent character or advantage is achieved and is palpable, unless special or specific factors are brought on record. Expenses for advertising consumer products generally are a part of the process of profit earning and not in the nature of capital outlay. The expenses in the present case were not incurred once and for all, but were a periodical expenses which had to be incurred continuously in view of the nature of the business. It was an on-going expense. Given the factual matrix, it is difficult to hold that the expenses were incurred for setting the profit earning machinery in motion or not for earning profits.". (Also see, CIT v. Spice Distribution Ltd., I. T. A. No. 597 of 2014, decided by the Delhi High Court on September ....
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....comparables or when making subjective adjustment and, thus, for computing the arm's length price. The aforesaid discussion substantially negates and rejects the Revenue's case. But there are aspects and contentions in favour of the Revenue which requires elucidation." 60. Thus, the Hon'ble High Court after describing the concept of the "brand" had made a clear cut demarcation between development and exploitation of brand which is either in the form of trademark or goodwill which takes place over a passage of time by which its value depends upon and is attributable to intangibles other than trademark like, infrastructure, knowhow, ability to compete in the established market, lease, etc. Brand value does not represent trademark as asset and it is quite difficult to determine and segregate its value. Brand value largely depends upon the nature of goods and services sold, after sales services, robust distributorship, quality control, customer satisfaction and catena of other factors. The advertisement is more telling about the brand story, penetrating the mind of the customers and constantly reminding about the brand, but it is not enough to create brand, because market ....
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....r of the intangible for transfer pricing purposes. 6.41 In identifying the legal owner of intangibles, an intangible and any licence relating to that intangible are considered to be different intangibles for transfer pricing purposes, each having a different owner. See paragraph 6.26. For example, Company A, the legal owner of a trademark, may provide an exclusive licence to Company B to manufacture, market, and sell goods using the trademark. One intangible, the trademark, is legally owned by Company A. Another intangible, the licence to use the trademark in connection with manufacturing, marketing and distribution of trademarked products, is legally owned by Company B. Depending on the facts and circumstances, marketing activities undertaken by Company B pursuant to its licence may potentially affect the value of the underlying intangible legally owned by Company A, the value of Company B's licence, or both. 6.42 While determining legal ownership and contractual arrangements is an important first step in the analysis, these determinations are separate and distinct from the question of remuneration under the arm's length principle. For transfer pricing purposes, legal ownership ....
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....trated by the assessee that the risk with respect to its manufacturing operation in India was undertaken wholly by the assessee and not by the US parent AE. This is even evident from the various clauses of the agreement also. 62. Before us, learned CIT-DR submitted that the stand of the Revenue is that, the expenditure incurred by the Indian subsidiary of an MNE group on market function amounts to incurring of such expenses for and on behalf of the parent company outside India because; * Firstly, such kind of expenses promote the brand/trademarks that are legally owned by the foreign parent AE; * Secondly, these expenditures create or develop marketing intangibles in the form of brands, trademarks, customer list dealer/distribution channels, etc. even though Indian company may not be the owner or have any right in these intangibles, but development of such intangibles deserves compensation for computing the value of compensation and the required adjustment. A comparison of the average of AMP spent by the comparables in a similar line of business has to be made to determine the routine amount spent on AMP for the product sale and any such expenditure over and above is purely fo....
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....India, the nature of assets which have been deployed and the risk which have been assumed. If there is no risk of such attributes which is being carried out by the non-resident AE in India then there is no question of AE compensating to its subsidiary in India for any marketing expenses. Here, we have already stated at several places that parent AE of the assessee-company has not carried out any function in India and had not assumed any risk in India and even for the license for use of trademark, no royalty has been paid. Hence, no benefit whatsoever has accrued to the parent AE. Accordingly, we are of the opinion that under these facts and circumstances of the case it is very difficult to attribute any kind of Arm's Length compensation which is supposed to be made by the AE to the assessee company. 64. Thus, in view of discussion made above, we hold that, firstly, there is no international transaction in the form of any agreement or arrangement on AMP expenditure incurred by the assessee company; and secondly, under FAR analysis also, no such benefit from the AMP expenditure having any kind of bearing on the profits, income, losses or assets as accrued to the AE or any kind of b....
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....division of profits that would have been anticipated and reflected in an agreement made at arm's length. The combined profit to be split should only be those arising from the controlled transaction. In determining those profits, it is essential to first identify the relevant transaction to be covered under PSM. Where a taxpayer has controlled transactions with more than one AE, it is also necessary to identify the parties in relation to that transaction. Comparable data is relevant in the profit split analysis to support the division of profits that would have been achieved between independent parties in comparable circumstances. However, where comparable data is not available, the allocation of profits may be based on division of functions (taking account of the assets used and risks assumed) between the AEs. Further, the TP Guidelines also suggest two approaches in the effective application of PSM, which are: - (i) Contribution analysis: Under the contribution analysis, the combined profits, which are the total profits from the controlled transactions under examination, would be divided between the associated enterprises based upon a reasonable approximation of the division o....
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....fer of any unique intangibles has been made accept for license to use trademark which too was royalty free. According to the Rule, under the PSM, combined net profit of the AEs arising from the international transaction has to be determined and thereafter, if incurrence of AMP expenses is to be considered from the value of such international transaction then the combined profit has to be determined from the value of such international transaction. No FAR analysis of AE has been carried out or even demonstrated that any kind of profit has been derived by the AE from the AMP expenses incurred in India. Otherwise also, the profit earned on account of AMP expenses incurred by the assessee by way of economic exploitation of the trademark/brand in India already stands captured in the profit and loss account for the assessee company and the same has duly offered to tax and hence there was no logic to compute or make any Transfer Pricing Adjustment on this score. 66. The TPO has followed the same reasoning in the Assessment Year 2013-14 also, but the DRP did not find any substance in the TPO's approach and directed the application of 'Other Method' as prescribed under Rules as against the....
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....pertaining to AY 2011-12; Grounds No. 7 to 32 in ITA 6537/DEL/2016 pertaining to AY 2012-13; and Grounds No. 3 to 28 in I.T.A. No. 6582/DEL/2017 pertaining to AY 2013-14 are decided in favour of the assessee and accordingly these grounds are allowed. Transfer Pricing Adjustment amounting to INR 49,71,908/- pertaining to the IT support services segment [Ground Nos. 29 to 34 in ITA No. 6582/Del/2017 pertaining to AY 2013-14] 69. The AO/TPO have made a Transfer Pricing Adjustment of INR 49,71,908/- in the IT Support Services Segment by recharacterizing the assessee, who is back-end service provider, as a software developer. Mr. Chopra, submitted that the said issue has been rendered academic since the entire amount of adjustment has been deleted in the final assessment order dated 27.09.2017 after the grant of working capital adjustment as directed by the DRP vide order dated 21.08.2017. 70. In view of the above, grounds pertaining to incorrect characterization of the functional profile of the assessee, do not require adjudication at this stage, hence same is dismissed. Accordingly, Grounds No. 29 to 34 in I.T.A. No. 6582/DEL/2017 for AY 2013-14 are dismissed as being academic. R....
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....Commercial Borrowings (ECBs) amounting to INR 705 crores from its AE. The said ECB was disclosed in Note 5 to the Profit & Loss A/c of assessee for AY 2013-14 and reads as under: - It was further pointed out by Mr. Chopra, that for A.Y. 2013-14, total receivables outstanding for period exceeding six months from the date they became due for payments had been disclosed in Note 16 to the Profit & Loss A/c of the assessee for AY 2013-14, which revealed that: - (i) Receivables due from AEs - INR 17 crores. (ii) Receivables due from Non - AEs - INR 320 crores. On the basis of these documents, the learned counsel argued that, since it was not charging any interest from its unrelated parties, it was not fair for the TPO to allege that the assessee was trying to confer a benefit upon its AEs by not charging interest on its outstanding receivables. He further submitted that TPO's allegations are not tenable in view of the fact that even assessee's AEs were also not charging interest from the assessee. Ld. Counsel strongly relied upon two recent decisions in the case of B.C. Management Services (P) Ltd vs. DCIT [IT APPEAL NOS. 5829, 6134 (DELHI) OF 2015, 6572 (DELHI) OF 2016 dated 25.05.2....
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....the TPO, no further adjustment on account of notional interest is warranted. In this regard, the learned counsel for the assessee placed reliance on the decision of the Hon'ble High Court of Delhi in Sony Ericsson Mobile Communication India (P.) Ltd. (supra), wherein the Hon'ble High Court explained the theory of 'bundled transaction approach' as follows: "In case the tested party is engaged in single line of business, there is no bar or prohibition from applying the TNM Method on entity level basis. The focus of this method is on net profit amount in proportion to the appropriate base or the PLI. In fact, when transactions are inter-connected, combined consideration may be the most reliable means of determining the arm's length price. There are often situations where closely linked and connected transactions cannot be evaluated adequately on separate basis... Where the Assessing Officer/TPO accepts the comparables adopted by the assessed, with or without making adjustments, as a bundled transaction, it would be illogical and improper to treat AMP expenses as a separate international transaction, for the simple reason that if the functions performed by the tested parties and ....
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....' under section 92B, then the expression 'any other transaction' used in the later part of this provision will exclude all the items separately covered. In this view of the matter, it becomes manifest that there can be no separate international transaction of interest income which is part of the transaction of sale. Once ALP is determined in respect of the sale transaction, it would be deemed to be covering all the elements and consequences of the transaction of sale. Having determined ALP in a sale transaction, it cannot be accepted that separate adjustment de hors such determination is required in respect of interest." The said ruling of the Tribunal has been affirmed by the Hon'ble Bombay High Court in CIT vs. Indo American Jewellery Ltd. [2014] 223 Taxman 8 (Bombay)(MAG). 76. Thereafter, the learned counsel for the assessee placed reliance on the decision of the decision of a coordinate bench of this Tribunal in Kusum Healthcare (P.) Ltd. vs. ACIT [2015] 42 ITR(T) 77, wherein it was observed that the approach of the assessee in aggregating the international transactions pertaining to sale of goods to AE and receivables arising from such transactions which are undo....
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.... interest is warranted. 78. In the result, Ground No.3 pertaining to Assessment Year 2013-14 are allowed. Jurisdictional issue. 79. In Ground No. 4 to 6 in I.T.A. No. 6537/DEL/2016 for AY 2012-13, the assessee has challenged the final assessment order dated 22.11.2016 passed by the AO as being barred by limitation. The assessee has not pressed this ground and therefore, the same is decided against the assessee and in favour of the revenue. Corporate Tax issues: Re: Disallowance of Price Support given to Bottlers: 80. In Grounds No. 5 to 5.5 in I.T.A. No. 1203/CHANDI/2011 for AY 2007-08, Grounds No. 6 to 6.4 in I.T.A. No. 2511/DEL/2013 for AY 2008-09 and Grounds No. 8 to 8.5 in I.T.A. No. 1044/DEL/2014 for AY 2009-10, the assessee has challenged the addition made by the AO on account of Price Support given to Bottlers. The Price Support given by the assessee, to its bottlers, for the year under consideration, is as under: - AMOUNTS IN RS. S.NO. AY AMOUNT OF PRICE SUPPORT GIVEN TO BOTTLERS 1. 2007-08 6,00,52,116/- 2. 2008-09 14,23,72,674/- 3. 2009-10 10,49,82,000/- 81. The learned counsel for the assessee placed on record order dated 05.10.2016 passed i....
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....ils of Price support given to unrelated parties which stood at Rs. 28.49 crore that there was a debit of provision totaling Rs. 17.87 crore and there was a credit of provision in this account to the tune of Rs. 7.20 crore. The differential amount of Rs. 10,67,15,568/- which, in the opinion of the AO, was a provision and not actual expenditure of price support to non-related parties, was held to be not allowable. The assessee, again, remained unsuccessful before the DRP, which resulted in making the addition of Rs. 10.67 crore. The assessee is aggrieved before us against these two additions. 11. We have heard the rival submissions and perused the relevant material on record. It is observed that the assessee gave incentive to its related and non-related bottlers in terms of volume discount. Such amount of price support to the tune of Rs. 50.95 crore was claimed as deduction. From a perusal of the first chart drawn above, it can be seen that the Price support has been allowed to three related parties mentioned at Sl. nos.1, 10 and 16 and the percentage of such price support to sales is 12.42% in the case of party at Sl. no.1, 0% in the case of party at Sl. no.10 and 13.67% in the cas....
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.... the sales made to them during the respective month. Subsequently, such provision is reduced or enhanced with the actual amount of discount. To illustrate, if the sales made during a month to a bottler is Rs. 100/-, on which discount allowable is Rs. 15/-, the assessee will create a provision at the end of the month for Rs. 15/- and debit this amount to the Price support account with a parallel credit to the account of the concerned party. Subsequently, when the actual amount is paid, respective account of the party is credited without routing it through the Price support account. Sometimes, the actual amount of Price support is enhanced or reduced from the amount of provision made at the end of the respective month, depending upon the negotiations between the parties and the market conditions. If in the above illustration, the assessee actually pays Price support of Rs. 14/-, it will reverse the provision of Price support with Re. 1 by crediting this account. If on the other hand, volume discount is actually paid at Rs. 16, the assessee will further debit Re.1 to the Price support account. Thus, it is manifest that the debit and credit of provision in the Price support account is ....
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.... Assessing Officer was of the opinion that on analysis of the inter - price support on record - provided to whole all the purchasers - the average expenditure that could be reasonably claimed was 11.79%. In this, the A.O. concededly adopted a method of averaging out the entire expenditure after taking into account the total sum. 4. The Assessee attempted to have this determination rectified before the DRP - against the TPO's determination -but was unsuccessful and the amount was added back in assessment. It, therefore, approached the ITAT, which after considering the submissions of the parties, directed that the sum should be reversed. 5. The Revenue's counsel urges that the Tribunal fell into error in interfering with the Assessing Officer's reasoned determination. He relied upon the observations in the Assessing Officer's order and the TPO's order as well as the DRP to suggest that when the Assessee did not furnish the requisite information and the rationale given, high rate of price support even upto 49% in one case disclosed, was completely lacking and in these circumstances, the averaging exercise carried out was a reasonable and legitimate. 6. The ITAT, in its impugned or....
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....profits. 86. In Ground No. 8 in I.T.A. No. 2511/DEL/2013 for AY 2008-09, the assessee has challenged the adjustment made to book profit amounting to INR 70,30,540 (provisions for bad and doubtful debts) under section 115JB of the Act. Again, the assessee is not pursuing this ground and therefore, this ground is dismissed as not pressed. Re: Disallowance of INR 3,85,15,497/- being sponsorship fees paid to ICC 87. In Grounds No. 7 to 7.3 in I.T.A. No. 1044/DEL/2014 for AY 2009-10, the assessee has challenged the disallowance of INR 3,85,15,497/- being sponsorship fees paid by the assessee to ICC. Our attention was drawn to paras 4 to 4.3 of the final assessment order wherein the said issue has been discussed by the AO. It has been submitted that during the relevant previous year the assessee entered into an agreement dated 20.08.2008 with ICC Development (International) Limited (ICC) for obtaining sponsorship rights in respect of various ICC cricketing events around the world. The assessee paid an amount of Rs. 3,85,15,497/- for sponsoring cricketing events held during 2008 to ICC. The said amount was proposed to be disallowed by the AO in the Draft Assessment Order, for the foll....
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....l expediency of an expenditure incurred by it. 90. On the other hand, the learned DR relied upon the order of the AO and the DRP in support of his contentions. 91. After considering the rival submissions and on perusal of the impugned orders, we find that, here the disallowance of Rs. 3,85,15,497/- has been made on account of sponsorship fee by the assessee to the ICC on the ground that similar expenditure was disallowed in the earlier years as part of Transfer Pricing Adjustment on account of AMP expenses; and secondly, assessee has been bearing substantial portion of the fees to the ICC for acquiring the sponsorship rights even though benefit of the same is derived by either entity of the world. The contention raised by the learned counsel that since major viewer of cricket is an Indian subcontinent looking to its mass popularity in India, the assessee company has been consistently promoting its range of products using cricket as an advertisement platform. The said payment has been made after obtaining the approval of Ministry of Health Affairs and Sports and after deducting TDS u/s.195. Once the expenditure has been incurred wholly and exclusively for the purpose of business w....
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....R AT THE END OF THE YEAR Equity shares Pearl Group 1,64,84,000/- 1,64,84,000/- Varun Beverages Ltd. 2,86,00,000/- 2,86,00,000/- Preference shares Pearl Group 56,88,14,000/- 56,88,14,000/- Varun Beverages Ltd. 77,37,64,000/- 77,37,64,000/- TOTAL 138,76,62,000/- 138,76,62,000/- NAME OF THE INVESTEE INVESTMENTS YIELDING EXEMPT INCOME FOR AY 2011-12 AT THE BEGINNING OF THE YEAR AT THE END OF THE YEAR Equity shares Pearl Group 1,64,84,000/- 14,84,000/- Varun Beverages Ltd. 2,86,00,000/- (Refer Schedule 5) 2,86,00,000/- Preference shares Pearl Group 56,88,14,000/- 9,76,38,000/- Varun Beverages Ltd. 77,37,64,000/- (Refer Schedule 5) 0 TOTAL 138,76,62,000/- 12,77,22,000/- NAME OF THE INVESTEE INVESTMENTS YIELDING EXEMPT INCOME FOR AY 2012-13 AT THE BEGINNING OF THE YEAR AT THE END OF THE YEAR Equity shares Varun Beverages Ltd. 2,86,00,000/- (Refer Note 12) 2,86,00,000/- TOTAL 2,86,00,000/- 2,86,00,000/- AY NAME OF THE INVESTEE EXEMPT INCOME EARNED 2010-11 Pearl Group 16,89,58,788/- Varun Beverages Limited 37,56,54,058/- 2011-12 Pearl Group 8,00,00,000/- Varun ....
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.... income or not. He also placed reliance on the decision of the Hon'ble Supreme Court in CIT vs. Walfort Share & Stock Brokers (P.) Ltd. [2010] 326 ITR 1 (SC) wherein it was observed that there should be a proximate relationship between the expenditure incurred and the exempt income. It was also observed therein that if the assessee had prima facie demonstrated that no expenditure had been incurred for earning of exempt income, then, in the absence of any contrary finding by the AO, provisions of section 14A could not be invoked. Thereafter, he placed reliance on the decision of the Hon'ble High Court of Delhi in H.T. Media Ltd. vs. PCIT [2017] 85 taxmann.com 113 (Delhi) to contend that there was a failure on the part of the AO to comply with the mandatory requirement of section 14A (2) read with Rule 8D(1) and the same was clearly evident from the draft assessment order placed on record for all these years. Therefore, he submitted that the question of applying Rule 8D(2)(iii) did not arise. He submitted that it was a settled legal position in terms of the decision of the Hon'ble High Court of Delhi in Eicher Motors Ltd. vs. CIT [2017] 86 taxmann.com 49 (Delhi) that the AO had to r....
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....ed no disallowance is called for, hence onus cast upon by the assessee had not been discharged. Thus, disallowance made under Rule 8D(2)(iii) is justified. 98. After considering the rival submission and on perusal of the impugned orders, it is seen that the Assessing Officer has made the disallowance under Rule 8D2(iii) which is 0.5% of the average investment. One of the contentions raised by the learned counsel before us is that the learned Assessing Officer having regard to the accounts maintained by the assessee and on the facts and circumstances of the case has not been recorded any 'satisfaction' in terms of section 14A (2) before invoking the disallowance under Rule 8D (2). Secondly, for the purpose of computing the average value of investment under Rule 8D(2)(iii) only those investments are to be considered have yielded exempt income and no other investment which has not yielded any exempt income. In so far as second contention raised by the learned counsel is concern, we find that the same finds support from the judgment of Hon'ble Delhi High Court in the case of ACB India vs. CIT, reported in (2015) 374 ITR 108, wherein it has been held that instead of taking into acc....
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....ears involved, the assessee received subsidy from Government of Bengal for WBIDC Plant and Government of Maharashtra for Paithan Plant. The said subsidy was credited in the profit and loss account and had accordingly been reduced while computing the taxable income for the years under consideration claiming the same to be in the nature of capital receipt. Subsidy from the Government of West Bengal was received for setting up a new project in West Bengal under the West Bengal Incentive Scheme, 2000 read with West Bengal Incentive Scheme, 2004. The said schemes were introduced by the State Government of West Bengal to promote the establishment of industries in the State. The aforesaid subsidy inter-alia consists of the following: (i) State Capital Investment Subsidy (SCIS): SCIS is computed at the rate of 15 percent of fixed capital investment, subject to a limit of INR 1.5 crores. (ii) IPA: this is computed by way of refund of 75 percent of sales tax paid in the previous year on sale of finished goods for a period of 15 years, subject to a maximum of the fixed capital investment made in the new project. The AO during both the relevant years, allowed the claim of subsidy received f....
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....ee has placed reliance on the judgment of the jurisdictional High Court in case of the Rasoi Ltd (2011) 335 ITR 438 (Cal HC) in support of its contention that subsidy received on account of Sales tax deferment/ remission and Industrial Promotion Assistance' are capital receipts not chargeable to tax. The judgment is not applicable in case of the assessee as the facts in case of the assessee are quite different from the case cited. The ratio of this citation outlines different factual matrix in case of the assessee and does not help the case of the assessee. Similar issue was also examined by the Hon'ble Delhi ITAT in case of Jindal Power & Steel [reported in [2013] 38 taxmann.com (Delhi-Trib.)] wherein the case of Rasoi Limited, apart from other relevant judgment was also considered. The ITAT Delhi has, in their detailed order in this case held such subsidy to be revenue in nature. The present case is also squarely covered by the ratio of decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. reported in [1997] 228 ITR 253/94 Taxman 368 (SC). The nature of subsidy has to be based on case specific facts. Therefore, in each case one has to examine the natu....
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.... legal help available to it. Considering the facts and submissions of the assessee and in light of the above jurisprudence, the receipts on account of subsidy by the assessee are clearly Revenue in nature. The action of the AO is, accordingly, upheld by the panel." 103. The directions of the DRP culminated in the final assessment order of the AO for AY 2012-13 and 2013-14. Aggrieved by the said directions, the assessee is in appeal before us. 104. The learned counsel for the assessee placed before us the text of the West Bengal Incentive Scheme, 2004 and referred to the following passage from the scheme to contend that the object of the said scheme was to promote setting up/ expansion of projects in the concerned area: "4. Applicability of the 2004 scheme: 4.1 the 2004 scheme shall generally be applicable to all large / small scale projects and tourism units in large / small scale sector to be set up and also expansion project of existing units on or after 1st April, 2004, the units may be in the private sector, co-operative sector, joint sector as also companies / undertakings owned or managed by the State Government." Thereafter, he submitted that it was clear that the inte....
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....med part of the public funds of the State and if the assessee as per the scheme was to be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacity in backward area, the entire subsidy was to treated as a capital receipt in the hands of the assessee. He placed reliance on the Hon'ble Supreme Court's decision in CIT vs Chaphalkar Brothers [2017] 88 taxmann.com 178 (SC) wherein it was observed that where object of respective subsidy schemes of State Governments was to encourage development of Multiple Theatre Complexes, incentives was to be held to be capital in nature and not revenue receipts even though the incentive was in form of exemption from payment of entertainment duty for a period of 3 years from the date of commencement of commercial operations. He also placed heavy reliance on the decision of the Hon'ble Supreme Court in CIT vs. Ponni Sugars and Chemicals Ltd [2008] 306 ITR 392 (SC) and submitted that the Hon'ble Court had observed that the character of the receipt in the hands of the assessee had to be determined with respect to the purpose ....
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....sons of the aforesaid scheme, it was clear that the Government had decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which had the manufacturing units in West Bengal and which were in need of financial assistance for expansion of their capacities, modernization and improving their marketing capabilities and thus, the subsidy was held to be capital in nature. The Hon'ble Court had observed therein that merely because the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary did not imply that the same was for operational purposes. Lastly, he placed reliance on the decision of the Hon'ble High Court of Jammu and Kashmir in Shree Balaji Alloys vs. CIT [2011] 333 ITR 335 (J&K) and pointed out that the same had now been affirmed by the Hon'ble Supreme Court. He placed reliance on the following passage from the decision of the Hon'ble High Court: "Mere making of additional provision in the Scheme that incentives would become available to the industrial units from the date of commencement of the commercial production, and that these were not required for ....
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....tial expansion. The Hon'ble Supreme Court in the case of CIT vs. Ponni Sugar and Commercial Ltd. (supra) observed that character of the receivables in the hands of the assessee had to be determined with respect to the purpose for which subsidy was given. The purpose for which subsidy is given assumes more significance rather than the manner in which it has been given. Here in this case also the subsidy was given by the Government of West Bengal for the purpose of industrialization of the State which was available only to new units or to existing units which were initiating substantial expansion. Under the Scheme IPA was made available @75% of the sales tax in the previous year for which the claim was made and the total value of incentive was not to exceed the fixed capital investment. Thus, Subsidy was based upon fixed capital investment made and only the mode of disbursement was in the form of re-payment of sales tax paid. The Hon'ble Supreme Court in the case of CIT vs. Chaphalkar Brothers (supra) held that subsidiary scheme of the State Government to encourage development of multiple theatre complexes is capital in nature and not revenue's receipts there also subsidy wa....
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.... per law. 112. In Ground No. 35 in I.T.A. No. 4518/DEL/2016 pertaining to AY 2011-12, the assessee has challenged the credit of tax deduction at source (TDS), advance tax and self-assessment tax amounting to INR 84,90,70,726/- not given by the AO. 113. The learned counsel submitted that the said tax credit comprised of taxes deposited by the assessee and its group concerns namely PFL and Aradhana Soft Drinks Company. These group companies were amalgamated with the assessee vide amalgamation order dated 01.12.2011 of the Hon'ble Punjab and Haryana High Court with retrospective effect from 01.04.2010. Since the amalgamation application was pending in the Hon'ble Punjab and Haryana High Court at the time of due date of filing the return of income, group companies, in order to comply with the Act, filed its tax returns. Once the approval was received from the Hon'ble High Court, the assessee had prepared its financial statements and filed a revised consolidated return of income offering the income of the group companies to tax. Accordingly, the taxes paid by the group concerns were also claimed by the assessee in its return of income. Now as a result of the amalgamation order by the....