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2019 (1) TMI 848
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....DRP erred in computing and sustaining a Transfer Pricing Adjustment on account of AMP Expenses to the tune of INR 3,34,06,17,000/-. 4. The AO/TPO/DRP grossly erred in assuming jurisdiction under Section 92CA of the Act, in respect of transactions which did not partake the character of "international transactions" within the meaning of the term as defined in Section 92B read with Section 92F(v) of the Act. 5. The AO/TPO/DRP have failed to discharge the preliminary onus placed upon them to establish the existence of any "arrangement", whereby the AE being the owner of the intellectual property had directed any level of AMP expenditure to be incurred by the Appellant. 6. That the AO/TPO/DRP erred in sustaining the adjustment in respect of AMP expenses incurred by the Appellant on the ground that the existing intensity of AMP function performed by the Appellant resulted in the creation of marketing intangibles in respect of the brands owned by the AE. 7. That the AO/TPO/DRP failed to appreciate that review of advertisement material by the AE was only to ensure that such material confirmed to the broad guardrails of the advertisement policy of the AE ....
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....PO/DRP erred in ignoring various decisions of the jurisdictional High Court/Tribunal, which clearly state that no AMP adjustment can be made in the case of a licensed manufacturer until and unless the Revenue shows that there exists an explicit agreement/arrangement between the Appellant and its AE for the purposes of incurring AMP expenses. 17. That the AO/TPO/DRP erred in concluding that the expenses incurred by the Appellant resulted in the enhanced brand value of the brands owned by the AE. Without prejudice 18. That the AO/TPO/DRP erred in not appreciating that the AMP expenditure already formed part of the benchmarking analysis of the manufacturing segment of the Appellant, and therefore, having determined the profitability of manufacturing segment to be at arm's length, it was not open for the TPO to benchmark AMP expenditure separately. 19. That the AO/TPO/DRP erred in not appreciating that there was no shifting of profit outside India that warranted any transfer pricing adjustment. 20. That the AO/TPO/DRP erred in adopting the "Other Method", as prescribed under Rule 10AB of the Income-tax Rules, 1962 ("Rules"), as the most appr....
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....he DRP has decided the same following the Order in the case of the assessee for the A.Ys. 2010-2011 and 2011-2012 and A.Y. 2013-2014. The DRP reproduced their order for A.Y. 2013-2014 on this issue and directed the TPO to recompute the AMP adjustment accordingly. Learned Counsel for the Assessee submitted that the appeals of the assessee for A.Ys. 2006-2007 to 2010-2011 and 2011-2012 to 2013-2014 have been decided by ITAT, I-2 Bench, Delhi, vide Order dated 19.11.2018 in ITA.No.1334/Del./2010 etc., and the same issue have been dealt in paras 48 to 68 of the Order and similar addition have been deleted by holding that AMP adjustment made by the TPO/A.O. cannot be sustained. The Order of the Tribunal above is reproduced as under : 48. "We have heard the rival submissions, perused the relevant findings given in the impugned orders as well as material referred to before us in respect of transfer pricing issue pertaining to AMP adjustment made by the TPO. We have already 'discussed in detail, the brief facts and background of the cases in the light of the material on record and as captured in the arguments placed by the parties. As stated in the earlier part of the order, a....
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....e assessee is a subsidiary of US entity, PepsiCo Inc, which is mainly involved in the manufacturing of Soft- drink/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 assessee was granted a non-transferrable, royalty free license for the use of trademarks in its territory. The assessee is exclusive user of the trademarks in India in respect of syrups and concentrate but was granted non-exclusive right for the beverages manufactured by it. The manufacture of concentrate is done exclusively by the assessee, whereas the bottling activity is done by the group entities as well as independent bottlers spread across the country for the smooth operation and reach to every corners of India and neighbouring countries. As discussed above, it is ....
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....f 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-fledged manufacturer, the assessee company has been assuming all the risks for promoting its sales and thereby the entire profitability is subject to tax in India and no residual profits are enjoyed by the AE and neither any kind of royalty is also paid. Looking to the nature of business in which assessee is involved, it has incurred huge advertising, marketi....
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....e, 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 entities including that of the assessee company. Accordingly, the assessee has paid its proportionate share of reimbursement on cost to cost basis after requisite approvals from the Governmental authorities. Based on this transaction alone, TPO has deduced that: - * firstly, since AE is recovering the AMP expenditure incurred byɨ....
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....MP 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. 53. Section 92B defines the international transaction in the following manner: - "(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 ....
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.... 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) Whether or not such arrangement, understanding or action is formal or in writing; or (B) Whether or not such arrangement....
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....he 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 clause (b) to contend that the AMP spend of MSIL is "any other transaction having a bearin....
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....had to be managed locally as per the ethos, customs and preferences/choices 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 fullfledged 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 licens....
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....nt flavour and spices which is suitable for local consumption on which advertising and marketing 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....
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....een applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and (b) to make a quantitative '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 per....
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....LP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed '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 b....
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....eemed international transactions listed under the Explanation to Section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to 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....
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....on of brand building. Such a broadbrush universal approach is unwarranted and would amount to judicial legislation. During the course of arguments, it was accepted by the Revenue that the TPOs/Assessing Officers have universally 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 hav....
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....he Rules to hold that it is obligatory that the AMP expenses must and necessarily should be subjected to 'bright line test' and the nonroutine AMP expenses as a separate transaction to be computed in the manner as stipulated." 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 evide....
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....al Khenger Shah v. Khorshedbann Dabida Boatwala, to describe "goodwill", can be adopted to describe a brand as an intangible asset being the whole advantage of the reputation and connections formed with the customer together with circumstances which make the connection durable. The definition given by Lord 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 ....
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....n geographically described by locality. It has been historically explained as growing and crystallising traditions in the business. It has been described in terms of a magnet as the 'attracting force'. In terms of comparative dynamics, goodwill has been described as the 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. 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 mar....
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.... as an asset, if and only if, it is probable that future economic benefits attributable to the said asset will flow to the enterprise and the cost of the asset can be measured reliably. The estimate would represent the set off of economic conditions that will exist over the useful life of the intangible asset. At the initial stage, intangible asset should be measured at cost. The above proposition would not apply to internally generated 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 us....
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....penditure incurred or made for creating an intangible capital asset. Appropriate in this regard would be to reproduce the observations in CTT v. Monto Motors Ltd. [2012] 206 Taxman 43 (Delhi), which read: "4. . . . Advertisement expenses when incurred to increase sales of products are usually treated as a revenue expenditure, since the memory of purchasers or customers is short. Advertisement are issued from time to time and the expenditure 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 cas....
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....ia through the subsidiary associated enterprises, who are assessees before us. It cannot be denied that the reputed and established brands had value and goodwill. But a new brand/trade mark/trade-name would be relatively unknown. We have referred to the said position not to make a comparison between different brands but to highlight that these are relevant factors and could affect the function undertaken which must be duly taken into consideration in selection of the 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....
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....dy reference is quoted hereinbelow: "6.40. The legal owner will be considered to be the owner of the intangible for transfer pricing purposes. If no legal owner of the intangible is identified under applicable law or governing contracts, then the member of the MNE group that, based on the facts and circumstances, controls decisions concerning the exploitation of the intangible and has the practical capacity to restrict others from using the intangible will be considered the legal owner 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....
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....e PepsiCo Inc which is legal owner of the trademark license to the assessee has not performed any relevant function or used any assets or assumed any risk albeit has acted only as a title holder. It is not even entitled to any return for holding such title and in such circumstances, there seems to be no reason as to why it should compensate its subsidiary in India for the marketing activities while operating in India as a fullfledged manufacturer who alone is reaping the profit from the operation in India. It has been clearly demonstrated 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 expendi....
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....E in India. Further it needs to be seen, whether marketing activities relating to DEMPE functions reflected in any such expenditure incurred by the resident tax payer company and the non-resident AE in India are in conformity with the functions and risk profiles and the benefit derived by the tax payer company and the AE. It is also very relevant to examine, whether the AE is assuming any kind of risk in the Indian market or is benefitting from India in one way or the other. Thus, FAR analysis is the key which needs to be seen what kind of functions is being carried out by the AE in 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 ....
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....n as per (ii) and (iii) above, and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise is to be taken to be the net profit arising to that enterprise from the international transaction." The OECD Transfer Pricing Guidelines, 2010 provides that PSM first requires the identification of the profits which is to be split among the AEs, from the controlled transactions in which the AEs were engaged (the combined profit). Thereafter, the combined profit between the AEs is required to be split on an economically valid basis that approximates the 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 th....
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....eafter, he has compared the AMP spent by the AE with that of the assessee company and multiplied that ratio with the global net profit of the US parent AE arising from marketing activities to compute the Transfer Pricing Adjustment on account of AMP expenses. Such an approach of the learned TPO at the threshold is wholly erroneous, because PSM is applicable mainly in international transaction involving transfer of unique intangibles or in multiple international transactions which are interrelated and interconnected that they cannot be evaluated separately for the purpose of determining the Arm's Length Price of any one transaction. Here in this case this is not in dispute that no transfer 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....
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....nothing but a distorted version of the BLT. 67. In view of the above discussion, we hold that in none of the years impugned before us, the AMP adjustment made by the TPO/Assessing Officer can be sustained and accordingly, same is directed to be deleted. 68. In result thereof, Grounds No. 4 to 4.14 in I.T.A. No. 1334/CHANDI/2010 pertaining to AY 2006-07; Grounds No. 4 to 4.10 in I.T.A. 1203/CHANDI/2011 pertaining to AY 2007-08; Grounds No. 5 to 5.30 in I.T.A. 2511/DEL/2013 pertaining to AY 2008-09; Grounds No. 4 to 6.22 in I.T.A. 1044/CHANDI/2014 pertaining to AY 2009-10; Grounds No. 3 to 26 in ITA 4516/DEL/2016 pertaining to AY 2010-11; Grounds No. 3 to 26 in ITA 4517/DEL/2016 pertaining to AY 2010- 11; Grounds No. 3 to 26 in ITA 4518/DEL/2016 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." 5.1. He has, therefore, submitted that issue is covered in favour of the assessee by the above Order of the Tribunal. 6. The Ld. D.R. did not dispute the same. ....
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....that the subsidy received from Government of West Bengal was given to the assessee for business promotion and not specifically related to any capital expenditure. The Object of the West Bengal Incentive Scheme 2004 has already been incorporated above and from the perusal of the same it is seen that the same was to promote setting up and expansion of projects/industries and was not available to the existing industries unless they undertook substantial 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 incenti....