TaxTMI 
TaxTMI 
2019 (3) TMI 1636
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....nufacture and sale of alcoholic beverages in India. Furthermore, the appellant also has a distribution agreement with PR Group and is engaged in the distribution activity of Bottled in Origin [BOI] products imported from PR Group into India. Brands that are imported by the appellant are Chivasa Regal, Marteli, Royal Salute, Absolult, Jacobs Creek etc while the brands bottled in India primarily include Blenders Pride, Imperial Blue, Royal Stag, etc. Primarily the appellant is organized in two business segments in India viz. Manufacturing [Class I] and Distribution [Class II]. 6. Under Class I - Manufacturing, the appellant is manufacturer of alcoholic beverages and bears normal risks associated with its operation. The appellant is characterised as 'manufacturer of alcoholic beverages' under Class I. Under the distribution segment, the appellant entered into a Distributor Agreement with PR Group and is engaged in the business activity of distribution of BIO products imported from PR Group into India. The appellant has been characterised as 'limited risk distributor' for BIO products. 7. The international transactions undertaken by the assessee company with its Associated Enterp....
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.....24 3.55 Khemani Distiliehes Pvt. Ltd. 93.35 1.93 2.07 Khoday India Ltd 159.29 4.17 2.62 Lords Distillery Ltd 190.45 1.73 0.91 Mohan Rocky Sprngwater Breweries Ltd 75.64 0.12 0.16 Pioneer Distiliehes Ltd 53.33 0.06 0.11 Radico Khaitan Ltd. 977.68 84.79 8.67 Rangar Brewehes Ltd. 34.22 1.98 5.79 Ravikumar Distiliehes Ltd. 64.99 2.23 3.43 Shaw Wallace & Co. Ltd. (Merged] 249.15 0.10 0.04 Shiva Distiliehes Ltd. 735.89 0.11 0.01 Southern Aghfurane Inds. Ltd. 370.84 20.43 5.51 Tilaknagar Industries Ltd. 112.43 18.41 16.37 United Spihts Ltd. 4678.74 398.69 8.52 Vindhyachal Distilleries Pvt. Ltd. 25 0.11 0.44 Average 3.97 11. According to the Assessing Officer, the mean of the expenditure incurred on AMP/sales of such comparable companies is Brightline and any expenditure in excess of the Brightline is for the development of the marketing intangible that needs to be suitably compensated by the AE. 12. AMP/sales ratio in the case of the assessee is computed as under: Advertising, Sales Pr....
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....of the comparable companies. DR13 directs the TPO to re-compute the margin of the comparables based on the annual financial statement of the comparables. The assessee is directed to produce the annual financial statement as well as the calculation before the TPO who will verify> the same and recompute the AMP/ Sales margin of the comparables. " 3.3 In view of the same, Ld. TPO initially recalculated the AMP adjustment on the basis of the directions of the DRP which was intimated to this office vide letter dated 30.12.2014, which was subsequently revised on 06.01.2015 recalculating the transfer pricing adjustment to be made. The same is reproduced below:- SI. No Company Name Revised AMP/Sales 1 Amber Distilleries Ltd. 0.24% 2 Bhagat Industrial Corpn. Ltd. 3.61 3 Jagatjit Industries Ltd. 9.85 4 John Distilleries Pvt. Ltd. 3.59 5 Globus Spirits Ltd. 0.46 6 Khoday India Ltd. 2.62 7 Mohan Rocky Spring water Breweries Ltd. 0.16 8 Radico Khaitan Ltd. 9.50 9 Shaw Wallace & Co. Ltd. [Merged] 0 10 Southern Agrifurane Inds. 5.51 11 Tilak Nagar Industries Ltd. 24.06 12 Uni....
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....o the orders of the authorities below qua the issue. The co-ordinate bench in the case of L.G. Electronics India Pvt. Ltd ITA No. 6253/DEL/2012 has held as under: "10. At the outset, we have to state that the Hon'ble High Court of Delhi in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT 374 ITR 118 has discarded the BLT. The Hon'ble High Court, at para 120 held as under: "120. Notwithstanding the above position, the argument of the Revenue goes beyond adequate and fair compensation and the ratio of the majority decision mandates that in each case where an Indian subsidiary of a foreign AE incurs AMP expenditure should be subjected to the bright line test on the basis of comparables mentioned in paragraph 17.4. Any excess expenditure beyond the bright line should be regarded as a separate international transaction of brand building. Such a broad-brush 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 Co....
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....ent, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed out that the BLT has been 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 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. XXX 51. The result of the above discussion is that in the considered view of the Court the Revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the issue as far as the present Assessee MSIL is concerned since finding in Sony Ericsson to the above effect is in the context of those Assessees who....
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....' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means' part and the 'includes' part of Section 92B (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC. XXX 68....................In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT." 14. In the light of the aforesaid finding of the Hon'ble High Court, before embarking upon a benchmarking analysis, the Revenue needs to demonstrate on the basis of tangible material or evidence that there exists an international transaction between the assessee and the AE. Needless to mention, that the existence of such a t....
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....IL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses. XXX 39. It is in this context that it is submitted, and rightly, by the Assessee that there must be a machinery provision in the Act to bring an international transaction involving AMP expense under the tax radar. In the absence of any clear statutory provision giving guidance as to how the existence of an international transaction involving AMP expense, in the absence of an express agreement in that behalf, should be ascertained and further how the ALP of such a transaction should be ascertained, it cannot be left entirely to surmises and conjectures of the TPO. XXX 47. For the aforementioned reasons, the Court is of the view that as far as the present appeals are concerned, the Revenue has been unable to demonstrate by some tangible material that there is an international transaction involving AMP expenses between W....
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.... attributed to the AE without there being an 'agreement' or 'arrangement' for incurring such AMP expenses. 22. The aforesaid view that existence of an international transaction is a sine qua non for invoking the transfer pricing provisions contained in Chapter X of the Act, can be further supported by analysis of section 92(1) of the Act, which seeks to benchmark income / expenditure arising from an international transaction, having regard to the arm's length price. The income / expenditure must arise qua an international transaction, meaning thereby that the (i) income has accrued to the Indian tax payer under an international transaction entered into with an associated enterprise; or (ii) expenditure payable by the Indian enterprise has accrued / arisen under an international transaction with the foreign AE. The scheme of Chapter X of the Act is not to benchmark transactions between the Indian enterprise and unrelated third parties in India, where there is no income arising to the Indian enterprise from the foreign payee or there is no payment of expense by the Indian enterprise to the associated enterprise. Conversely, transfer pricing provisions enshrined in Chapter X of the....
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.... be impermissible." 21. In light of the aforementioned discussion, we find that the TPO has considered this at length and has submitted a report dated 26.2.2019. The said report can be summarised in the following chart: S.no Asst Year Assessee Comparables Operating margins including ail operating expenses Operating margins excluding AMP expenses Operating margins excluding AMP & Selling and distribution expenses Operating margins including all operating expenses Operating margins excluding AMP expenses Operating margins excluding AMP & Selling and Distribution expenses 1 2007-08 7.04% 27.04% 28.03% 5.11% 6.63% 10.60 2 2008-09 23.56% 42.08% 42.90% 5.83% 9.64% 12.75 3 2009-10 19.31% 34.05% 34.04% 3.65% 5.86% 8.10 4 2010-11 17.57% 23.50% 31.23% 6.73% 8.40% 11.49 5 2011-12 15.08% 20.37% 28.14% 3.31% 5.60% 8.19 22. The aforesaid chart clearly decides the quarrel in favour of the assessee and against the revenue. It can be seen that the operating margin excluding AMP and selling and distribution expenses ....
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....39;ble jurisdictional High Court of Delhi and the Tribunal in earlier assessment years. 27. Per contra, the ld. DR could not bring any distinguishing decision in favour of the revenue. 28. We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. We find force in the contention of the ld. counsel for the assessee. The Hon'ble High Court in ITA No. 885/2016 was, inter alia, seized with the following substantial question of law: "Whether advertisement and promotion expenses incurred by the assessee have an enduring benefit to the assessee as it creates tangible asset being goodwill, reputation and credibility and if yes, whether it s be treated as capital expenditure." 29. The Hon'ble High Court answered as under: "So far as Question No. 3 - Advertising and Promotion Expenditure is concerned, the issue has been concluded in an identical case in the case in the matter of another group company in Principal CIT vs. M/s Seagram Distilleries Pvt Ltd ITA Nos. 224-225/2016 decided on 6.4.2016. Therefore, question No. 3 does not arise for consideration." 30. The Tribunal in assessee's ow....
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....rnational (308 ITR 199) (Del.), CIT v. Casio India Ltd. (335 ITR 196) (Del) and CIT v. Adidas India Marketing Ltd. (195 Taxman 256) (Del.) to support his contentions. 8.3 The Ld. CIT (DR) supported the order of the Ld. TPO/AO. 8.4 We have heard the rival contentions and perused the orders of the jurisdictional High Court and that of the co-ordinate benches. We find force in the arguments of the Ld. Counsel that the issue is squarely covered in favour of the assessee as there is a clear finding that such expenditure does not result in any enduring benefit. Hence, these grounds of the revenue are dismissed and the order of the Ld. CIT (A) is confirmed." 31. Respectfully following the findings of the Hon'ble High Court and the co-ordinate bench, we direct for deletion of addition of Rs. 8,21,29,536/-. 32. Ground No. 10 to 10.4 relates to disallowance of Rs. 1,12,16,288/- made on account of provision for transit breakages. 33. During the course of scrutiny assessment proceedings, the A.O found that the assessee has claimed deduction on account of provision for transit breakages amounting to Rs. 1,12,16,288/-. 34. At the very outset, the ld. counsel for....
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....uctions of the assessee company with a view to promote its sales. 42. After considering the submissions of the assessee, the Assessing Officer found that in assessment year 2006-07, his predecessor has treated the same as commission and since the assessee has not deducted tax at source, applying the provisions of section 40(A)(ia) of the Act, the Assessing Officer made the disallowance. 43. The assessee raised objections before the DRP but without any success. 44. Before us, the ld. counsel for the assessee stated that in assessee's sister concern Seagram Distilleries [supra] for assessment year 2005-06 to 2009-10, the first appellate authority has allowed the ground on principle basis that withholding tax obligations do not arise in the case of pure reimbursements and the matter was set aside to the Assessing Officer to verify whether the payments made by the assessee were in the nature of reimbursements and while giving effect to the order of the first appellate authority and after verification, the Assessing Officer was convinced that the impugned disbursement were in the nature of reimbursements and allowed the entire amount claimed by the assessee. 45. In our consi....
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....ing decision in favour of the revenue. 53. We have carefully perused the order of the authorities below and have considered the decision of the Tribunal and the same reads as under: "10. Similarly, as per the details filed by the assessee, we find the addition of Rs. 14,70,300/- made u/s 14A, addition of Rs. 1,31,54,527/- on account of disallowance of Brand Registration Expenses u/s 37(1) and addition of Rs. 2,83,63,949/- on account of disallowance of reimbursement of Trade Scheme to Promoters are not based on any incriminating material found during the course of search. So far as addition of Rs. 10,80,000/- on account of Payment to ITA Nos.3847 & 3848/Del/2017 Officials is concerned, the same was made by the Assessing Officer on the ground that the expenses of Rs. 15,000/- per month were paid to Excise Officials for getting the licence and fee of Rs. 75,000/- per month needed to be paid. It is the submission of the ld. counsel for the assessee that the sheet of paper which were recovered during the course of search conducted on 15.02.2011 pertained to assessment year 2002-03 and, therefore, the same is outside the purview of section 153A proceedings for the impugned as....
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....rticulars AMOUNT in Rs.: AMOUNT IN RS. ' 1 Delivery Charges 12.00 14.60 2 Unloading charges 0.50 0.70 3 EXCISE EXPENSES Inspection 23300.00 30000.00 Guard 6000.00 10000.00 Office 10000.00 10000.00 Miscellaneous 10000-00 10000.00 Four departments 10000.00 Total -5 46030.00 70000.00 4 Rent 160000.03- 175000.00 5 OFFICE OVERHEAD Telephone 20000.00 30000.00; Electricity/Generator 20000.00 30000.00 Stationery 20000.00 25030.00 Staff Welfare 6000.00 6030.00 Misc Office expenses 0.00 39500.00 Total - 5 6500.00 129500.00 6 Salaries 289000.00 570500.00 59. A perusal of the same shows that it is nothing but a dumb document which requires no consideration....
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....nsidered opinion, such payments do not attract the provisions of section 40A(3) of the Act. Moreover, the assessee has also furnished the ledger account of M/s Sky View in the books of the assessee for the period 01.04.2007 to 31.03.2011. It appears that the Assessing Officer has not examined the details from correct perspective. In the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to verify from the ledger account of Sky View and verify whether payments have been made by A/c payee cheques/RTGS and after satisfying himself, no addition need be made u/s 40A(3) of the Act. Ground No. 15 with all its sub grounds is treated as allowed for statistical purposes. 66. Ground No. 16 relates to disallowance of Rs. 7,16,79,359/- u/s 37(1) of the Act for want of verification /non-production in respect of payments made to certain parties. 67. During the course of investigation proceedings, some parties were identified with whom the assessee had transactions during the year. The name of the parties are as under: (a) M/s Classic Alcobev Pvt. Ltd (b) M/s Classic Distributor Company. ....
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..... 2,01,084 b) Non-Trade Scheme BTB Advertising NIL M/s S.S. Enterprises NIL M/s Concern Event Promotions Pvt. Ltd. Marketing and Sales promotion expenses - Rs. 20,74,305 M/s Studio Print Art NIL M/s Excel Advertising Agency Marketing and Sales promotion expenses - Rs. 14,310 M/s Dilip Print House Marketing and Sales promotion expenses - Rs. 5,12,505 Total 7,16,79,359 71. The ld. counsel for the assessee further stated that the assessee has provided the PAN details and updated addresses of parties as available with the assessee. It was further pointed out by the ld. counsel for the assessee that when some of the parties to whom notices were sent u/s 133(6) of the Act, no transactions were entered into by the assessee. It is the say of the ld. counsel for the assessee that vide submissions dated 28.02.2014, the assessee has furnished additional documents being agreement entered into with the parties, details of transaction entered into with these parties, copies of ledger account, invoices and CST registration certificates. The ld. counsel for the assessee concluded by saying that in spite of the direct....