TaxTMI 
TaxTMI 
2019 (10) TMI 994
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....that most of the issues, under appeal, are covered 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 'Appell....
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....e technology was not obtained directly from the licensor but from a sub-licensor. Service fees to Cadbury Schweppes Asia Pacific Pte Limited 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 Cadbur....
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.... being resident corporate assessee is stated to be engaged in the business of manufacturing and marketing of malted foods, drinks and chocolates. The assessment was framed on 18/10/2012 pursuant to the directions of Ld. DRP determining the income at Rs. 139.98 Crores, after certain additions / 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. ....
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.... Cadbury Schweppes Overseas Limited, London, UK (CSOL) 3.3.1 The Ld. TPO disallowed royalty payment on trademark paid by the assessee to SCOL @1% while allowing the royalty payment on technical knowhow at 1.25% of net sales on the reasoning that as per earlier agreement approved by Government, the assessee could pay royalty for technical knowhow at the maximum rate of 2%. 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....
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....June 2003, has permitted royalty payment up to 8% on export sales and 5% on domestic sales. It is also relevant to note, the fact that the royalty paid by the assessee @ 2.25% both for technical knowhow and trademark is lesser than the royalty paid by other comparables and even group companies has not been disputed either by the Transfer Pricing Officer or by the learned Commissioner (Appeals). It is 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 riva....
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....he assessee and taken note of by the TPO and the CIT(A). 42.We are also not referring to the case of Maruti Suzuki Ltd. as we find that in so far as the instant case is concerned, there is really no relevance. 43.On the basis of the above observations, we are of the opinion that the royalty payment on trademark usage is within the arms‟ length and does not call for any adjustment." Respectfully, following the above order, and the order for subsequent 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. ....
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....as a whole and more particularly, Clause-7(b) of the said agreement, it becomes clear the licensee (the assessee) shall manufacture licensed product using any technology of the licensor provided to the licensee in accordance with all specifications and instructions provided by the licensor from time to time. It is not the case of the Revenue that in the relevant previous year assessee has neither manufactured nor sold 'Halls' brand products in India. Thus, it is necessary to ponder whether in absence of necessary 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 ....
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....Adams. As per agreement, the assessee paid Technical royalty @4% and Trademark Royalty @1%. Applying the same reasoning, it was held that CEPT 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 related to the products, an adjustment of Rs. 142.51 Lacs was proposed by Ld. TPO. The Ld. DRP, finding the adjustment quite similar to as made for royalty payment to CAUSA, endorsed Ld. TPO's action. 3.5.2 Since 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 as....
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....s remitted back for want of requisite documentary evidences and in view of the fact that additional evidences were submitted during appellate proceedings. The Ld. Sr. Counsel contested the determination of ALP as Nil by submitting that no fault has been found in assessee's methodology and Ld. TPO could not question the benefit test. However, Ld. CIT-DR submitted that the view taken in earlier years should be followed since OECD guidelines mandate assessee to demonstrate that benefits accrued to the assessee by availing intra-group services. 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 dislo....
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....ditional evidences has not been examined either by the Transfer Pricing Officer or the learned Commissioner (Appeals), in our view, it would be fair and reasonable to allow an opportunity to the Assessing Officer to consider the additional evidence and decide the issue. Moreover, there is also allegation and counter allegation with regard to production of evidences. While the departmental authorities have alleged that relevant documentary evidences were not produced, the assessee claims that all evidences were produced. Without entering into the controversy 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 agreem....
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....respective parent company). As a part of sale consideration, the assessee allocated certain amount to marketing know-how and claimed depreciation on the same, treating the same to be intangibles. The allocation was based on valuation report of an independent valuer. However, the claim was not accepted by the department in AY 2003-04 and accordingly, following the same, similar depreciation of Rs. 12.79 Lacs claimed during the year was disallowed. The Ld. DRP, observing that the issue under earlier years was being contested before Tribunal, the asset could not be categorized 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 inc....
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....ance of direct / indirect expenses is concerned, we are of the view that since Rule 8D was applicable to this AY, the findings given in earlier orders of Tribunal would not apply to this year and the disallowance has to be worked out in terms of the Rule 8D. The Ld. AO, in draft assessment order, at para 6.4, has noted that the submissions made by assessee in defense of suo-moto disallowance could not be accepted as against the submissions of the Ld. Sr. Counsel that the requisite satisfaction was not recorded by Ld. AO before proceeding to apply Rule 8D. We are of the considered 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 ded....
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....t Baddi unit was stated to be in the proportion of 62:38. In the similar manner, the assessee justified lower costs under other heads which favored Baddi unit and hence, more profitability for Baddi unit. However, the aforesaid method of allocation could not find favor with Ld. AO who formed an opinion that apportionment need to be based on uniform and reasonable principles which were fair and transparent and enable the determination of true profits of each individual unit. Therefore, the indirect expenses of Rs. 451.54 Crores were uniformly allocated in the ratio of sale of Baddi units 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....
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....e materials for manufacturing chocolates. In Bournvita, the materials used are malt extract, dairy fat, skimmed milk powder, liquid glucose, sugar, cocoa powder etc. while in chocolates the materials used are crumb (which is an extract of cocoa, milk and sugar of which is higher) cocoa, sugar, dry fruits, wafers etc. depending on the quality of chocolate. * The employee cost in Baddi factory is lesser than other units since Baddi factory is situated in backward area and therefore, labour cost is cheaper. Further, new staff and labour are appointed in Baddi while in other units, old staff and labour are working since long and have proportionately higher salary. * 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 chocola....