AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 994
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....red by orders of Tribunal in assessee's own case for various Assessment Years and there is no change in material facts and therefore, similar view may be taken in the matter. Both the representatives broadly converge on this point. For ease of reference, the decisions rendered by Tribunal for various years could be tabulated in the following manner: - No. Citation Assessment Year 1. ITA No. 7408/Mum/2010 order dated 13/11/2013 (Cross-Appeals) 2002-03 2. ITA No. 3510/Mum/2011 order dated 13/05/2015 (Cross-Appeals) 2003-04 & 2004-05 3. ITA No. 5470/Mum/2011 order dated 18/05/2016 (Cross-Appeals) 2005-06 4. ITA No. 1512/Mum/2013 order dated 28/11/2018 (Cross-Appeals) 2006-07 5. ITA No. 4225/Mum/2014 order dated 04/07/2019 (Assessee's Appeal) 2007-08 The decision for AY 2006-07 as tabulated at serial no. 6 has been delivered by this very bench vide order dated 28/11/2018. 1.4 The grounds of appeal, in revised form, read as under: - "Based on the facts and circumstances of the case and in law, Mondelez India Foods Private Limited (hereinafter referred to as the 'Appellant') craves leave to prefer an appeal against the order passed by the Additio....
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....ited 6. Erred on the facts and circumstances of the case and in law, in completely disallowing the service fees of Rs. 107,314,992 paid to Cadbury Schweppes Asia Pacific Pte Limited, Singapore on the ground that the Appellant has failed to establish that the services have been rendered at requisite amount. 7. Erred on the facts and circumstances of the case and in law, in not accepting the economic analysis undertaken by the Appellant using the TNMM method, in accordance with the provisions of the Act read with the Rules, for the determination of the arm's length price in connection with the international transaction of payment of service fees to Cadbury Schweppes Asia Pacific Pte Limited, Singapore. 8. Erred on the facts and circumstances of the case and in law, in determining the value of the services received from Cadbury Schweppes Asia Pacific Pte Limited, Singapore at NIL, without undertaking any comparability analysis for the same under one of the five prescribed methods. Service fees to Cadbury Holdings Limited 9. Erred on the facts and circumstances of the case and in law, in disallowing the service fees of Rs. 20,702,500 paid to Cadbury Holdings Limited stati....
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.... disallowances / adjustments as against returned income of Rs. 85.49 Crores e-filed by the assessee on 30/09/2008. As evident from grounds of appeal, the following quantum additions made in final assessment order are the subject matter of present appeal before us: - No. Nature of Addition Amount (Rs.) (A) Transfer Pricing Adjustments 1. Trademark Royalty paid to Cadbury Schweppes Overseas Limited Rs. 1300.22 Lacs 2. Technology Royalty paid to Cadbury Adams USA LLC Rs. 87.61 Lacs 3. Technology Royalty paid to Cadbury Enterprises Pte Limited Rs. 142.51 Lacs 4. Service Fees paid to Cadbury Schweppes Asia Pacific Pte Limited, Singapore Rs. 1073.14 Lacs 5. Service fees paid to Cadbury Holdings Limited Rs. 207.02 Lacs (B) Corporate Tax Adjustments 6. Depreciation on Marketing Know how Rs. 12.79 Lacs 7. Disallowance u/s 14A Rs. 233.04 Lacs 8. Reduction in deduction u/s 80-IC by reallocating expenditure of Baddi Unit Rs. 2400.40 Lacs (A) Transfer Pricing Adjustment 3.1 Certain international Transactions carried out by the assessee during the year and as reported in Form No. 3CEB were referred to Ld. Transfer Pricing Offic....
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.... However, in the year under consideration, the assessee paid aggregate royalty of 2.25%. Forming an opinion that royalty for technical know-how subsumes royalty for trademark and therefore, the separate royalty for trademark paid at 1% would not be allowable to the assessee. 3.3.2 It is admitted position that the issue stood squarely covered in assessee's favor by the decision of this very bench in assessee's own case for AY 2006-07 wherein the matter has been concluded in the following manner: - 7. We have considered rival submissions and perused materials on record. As could be seen from the order of the Transfer Pricing Officer, he has determined the arm's length price of royalty payment on trademark to SCOL at zero. In other words, he has disallowed royalty payment on trademark at 1% while allowing royalty payment on technical knowhow at 1.25% of net sales. The reasoning on which the Assessing Officer has denied royalty payment on trademark are basically that as per the terms of earlier agreement approved by the Government, the assessee can pay royalty for technical knowhow at the maximum rate of 2%, whereas, the assessee has paid royalty both for technical knowhow and ....
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....s also relevant to note, identical dispute relating to payment of royalty for trademark at 1% over and above royalty paid for technical knowhow at 1.25% and its allowability came up for consideration before the Tribunal in assessee's own case for assessment year 2002-03 to 2005-06. While deciding the issue in the aforesaid assessment years, the Tribunal held that the payment of royalty on trademark to CSOL at 1% of sales is allowable and at arm's length. In fact, decision of the Tribunal has also been accepted by the Revenue. In this context, we may refer to the relevant observations of the Tribunal while deciding identical issue in assessee's own case for assessment year 2005-06, in ITA no.5470/Mum/2012, dated 18th May 2016, which is as under: - "2.3. We have heard the rival submissions and perused the material before us. We find that while deciding the appeal for AY 2002-03(supra) the Tribunal has decided the issue as under:- "37. We have heard the detailed arguments from both the sides. The basic issue is the correctness of ALP on the royalty payments made by the assessee company to its parent AE on account of technical knowhow and trademark usage. 38.From the argume....
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....bsequent AY.s we decide the Ground of Appeal No.1 in favour of the assessee." 8. There being no difference in factual position in the impugned assessment year, respectfully following the consistent view of the Tribunal on identical issue in assessee's own case as referred to above, we hold that the royalty payment on trade mark to SCOL @ 1% of net sales is at arm's length, hence, no further adjustment is required. Accordingly, we delete the disallowance made by the Assessing Officer. Ground raised is allowed. Respectfully following the aforesaid view of Tribunal in assessee's own case, we delete the impugned adjustment of Rs. 1300.22 Lacs as made by Ld. AO in the final assessment order. Nothing has been shown to us that the aforesaid ruling is not applicable to the year under consideration. Ground No.3 stand allowed. Technology Royalty paid to Cadbury Adams USA LLC (CAUSA) 3.4.1 The Ld. TPO noted that as per trademark license agreement dated 01/06/2006, CAUSA was authorized to sub-license the rights of the trademark only and there was no reference to presume that the same included the right to sub-license the technology and know-how. Since the maximum rate of trademark r....
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....y technical knowhow/knowledge it would have been possible for the assessee to manufacture the aforesaid products? In our view, the answer would be-No. Further, the assessee and CAUSA have entered into one more agreement on 24th December 2007, amending the terms of the original agreement. As per the aforesaid agreement, certain terms of the original agreement was amended to include licensing / sub-licensing of technology. It is the contention of the learned Sr. Counsel for the assessee that the amendment agreement executed on 24th December 2007, shall operate retrospectively from 1st January 2006, to emphasize this fact, the learned Sr. Counsel for the assessee has sought to produce letter dated 26th April 2016, issued by Mondelez International as additional evidence. From a perusal of the aforesaid letter, it appears that it has been issued to clarify that as per the original agreement executed on 1st June 2006, effective from 1st January 2006, the parties to the agreement intended to transfer and avail technical knowhow / knowledge relating to the licensed product along with trademark. Considering the submissions of the learned Sr. Counsel for the assessee that in subsequent asses....
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....nce facts as well as reasoning of lower authorities are quite similar as in the case of royalty payment made by assessee to CAUSA, applying the same analogy, we delete the impugned addition. One more reason to delete the adjustment is that the assessee has entered into two separate agreement for payment of Trademark Royalty & Technical royalty and therefore, the matter would stand on a better footing. Hence, Ground No. 5 stand allowed. Service Fees paid to Cadbury Schweppes Asia Pacific Pte Limited, Singapore (CSAPL) 3.6.1 Ground Nos. 6 to 8 are related with Transfer Pricing (TP) adjustment on account of service fees paid to another AE viz. CSAPL. The assessee is stated to have entered into service agreement with the said entity on 21/10/2005 valid w.e.f. 01/04/2005 to avail certain services in the areas of Business Strategy, Value Based Management, financial planning and accounting, supply chain coordination & planning, Human Resources, Legal, Marketing etc. The consideration under the agreement was fixed fee of SGD of 3.6 million per annum chargeable on quarterly basis. The assessee benchmarked the same using entity level TNMM, the assessee being the tested party. The assessee ....
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....vices. It was further submitted that basis of cost allocation along with justification thereof was not provided by the assessee. 3.6.3 Upon careful consideration, it is noted that this transaction has not been separately benchmarked by the assessee rather entity level TNMM method has been used to determine the ALP of all the international transactions. We are of the considered opinion that the initial onus was on assessee to furnish the requisite details viz. nature of services availed, cost allocation keys, justification of costs and establish that the services were actually availed by the assessee. Thereafter, the onus would be on revenue to dislodge assessee's claim by bringing on record evidences to establish that the said payment, under normal circumstances between unrelated parties, would not have been exchanged between the respective entities. Therefore, with a view to enable the revenue to take consistent stand in the matter, we would be inclined to follow the directions given in AY 2006-07, which could be extracted in following manner: - 27. We have considered rival submissions and perused materials on record. The dispute is with regard to payment of Rs. 13.02 crore to....
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....versy as to whether assessee has produced the evidences or not, we are of the opinion that evidences brought on record, as contained in the paper books filed before us, deserve to be examined on their own merit before deciding the issue one way or the other. More so, when as per assessee's claim in the subsequent assessment years the Transfer Pricing Officer himself has allowed a part of the service charges paid by the assessee to CSAPL, though, the quantum is in dispute. If in the subsequent assessment years the Transfer Pricing Officer has accepted the fact that the assessee has availed services from CSAPL under the very same agreement, there is no reason to dispute assessee's claim of availing services in the impugned assessment year if the assessee can demonstrate such fact by furnishing proper documentary evidences. In that event, the Transfer Pricing Officer certainly cannot determine the arm's length price at nil by applying the benefit test. Therefore, on overall consideration of facts and circumstances of the case, we are inclined to restore the issue to the Assessing Officer for de novo adjudication after due opportunity of being heard to the Assessing Officer. The As....
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....egorized as an asset eligible for depreciation u/s 32 and therefore, upheld the stand of Ld. AO. We find that Tribunal, in AY 2003-04, at para-17 allowed depreciation claim applying the ratio of decision of Hon'ble Supreme Court rendered in M/s Smifs Securities Ltd. [2012 348 ITR 302]. Similar view has been taken in subsequent years. Therefore, respectfully following the consistent view of the Tribunal on this issue in assessee's own case, we allow assessee's claim of depreciation. Ground No. 13 stands allowed. Disallowance u/s 14A 5.1 During assessment proceedings, it transpired that the assessee earned exempt income of Rs. 16.18 Crores which mainly comprised-off of dividend on mutual funds. The assessee, inter-alia, submitted that Rule 8D was not applicable to year under consideration. It was also submitted that assessee's surplus funds were invested in Liquid Mutual Fund and the same were withdrawn as per business requirements. The attention was also drawn to the fact there were two persons in the Treasury department to manage mutual funds investment on regular basis and the total salary paid to them was Rs. 9.20 Lacs therefore, a part of the same could be disallowed. The argu....
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.... opinion that there was no particular method of recording satisfaction in the quantum assessment order and therefore, unable to accept this specific plea of Ld. Sr. Counsel. However, keeping in view the factual matrix as well as submissions made before us, we deem it fit to restore the matter of direct / indirect expense disallowance to the file of Ld. AO for re-adjudication in the light of suo-moto disallowance offered by the assessee. As held earlier, no interest disallowance would be justified, keeping in view the assessee's financial parameters. Ground No. 14 stand partly allowed. Reduction in deduction u/s 80-IC by reallocating expenditure of Baddi Unit 6.1 It transpired that the assessee claimed deduction u/s 80-IC for Rs. 78.67 Crores in respect of manufacturing unit situated at Baddi, Himachal Pardesh. It was the observation of Ld.AO that expenses claimed against sale of Baddi Unit in comparison to the expenses claimed against sale of remaining units was disproportionate. The said observation was sought to be fortified by the fact that net profit of Baddi worked out to be 23.13% as against net profit of 8.74% for remaining units. On comparison of sale and expenses in res....
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.... and remaining units which reduced the profits of Baddi Unit to Rs. 57.55 Crores and the same after adjustment of depreciation, expenses disallowed u/s 40(a)(ia), Donations, cess on royalty us 43B, expenses disallowed in earlier years etc. got further reduced to Rs. 54.67 Crores. In other words, the reallocation of expenditure by Ld. AO resulted into reduction of 80-IC deduction from Rs. 78.67 Crores to Rs. 54.67 Crores. The same, upon confirmation by Ld. DRP, is under challenge before us. 6.2 Upon careful consideration, we find that identical issue of expense allocation arose in assessee's own case for AY 2007-08, wherein the matter was concluded in the following manner: - 30. Learned Counsel of the assessee submitted that the Assessing Officer has allocated following items to Baddi unit on the basis of sales ratio as under: - (i) Interest (ii) Operation and Establishment expenses (iii)Voluntary retirement expenses (iv) Decrease in stock 31. As regards decrease in stock, learned Counsel of the assessee submitted that this is actually change in inventory at Baddi unit and it is submitted that there is no question of any allocation of sales ratio. As regards voluntary r....
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.... * Excise exemption is available to Baddi unit under excise law. Accordingly, the sale price at Baddi Unit is total sale price while in other factories, sale price is sale price minus excise duty and thereby, the ratio of cost on sale is lower at the Baddi factory. Due to the excise exemption, the net profit at Baddi unit is greater by approximately 10-12% than other units (after considering the CENVAT credit which is available only to other units). * The cost of packing materials of chocolates is higher than packing materials for Bournvita since different types of wrappers are required for chocolates. * The operation and establishment expenses are lesser at Baddi as compared to Warna due to the following reasons :- i) The Baddi factories are situated in backward areas and operation and establishment cost are comparatively lower as compared to Warna. ii) The factories located at other units are old. Hence, the operation and establishment expenses increase on year on year basis. iii) Further, Baddi unit enjoys a scale benefit since the production of Bournvita at Baddi unit is much higher than production of Bournvita in Warna. Therefore the unit fixed cost at Baddi is mow....