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2020 (9) TMI 341
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....Appellant under the presumption that the Appellant has benefited the Associated Enterprises (AEs) by incurring the said expenses. In doing so the learned DRP / TPO has grossly erred in: a) considering that AMP expenses of Kellogg India, which is incurred by way of payments to third parties for its domestic business operations, within the realm of international transaction based on his conjectures and surmises, violating section 926 and section 92(1) of the Income-tax Act, 1961 (the Act); b) disregarding that the issue of marketing intangibles is not relevant for licensed manufacturers as in the case of the Appellant, as the entire marketing spend is undertaken solely for the benefit of the Appellant; c) not appreciating that the Appellant is an entrepreneur and is solely responsible for its business operations / results and is entitled to residual business profits/ losses; d) presuming, without any direct or indirect evidence that the Appellant was performing Development, Enhancement, Maintenance, Protection and Exploitation (DEMPE) functions and that the AMP incurred by the Appellant benefited the AEs; e) failing to appreciate ....
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....evelopment at Sri City as an upfront lease charge and thereby, allowing the same as deductible business expenditure over the period of lease. 2.2 The Appellant prays that the learned AO be directed to treat payment of Rs. 8,20,00,000 towards the cost of infrastructure development as revenue expenditure. Ground No.3: Interest income 3.1 On the facts and in the circumstances of the case and in law, the learned AO, under the directions issued by the Hon'ble DRP, erred in classifying interest income of Rs. 2,72,84,483 under the head 'Income from Other Sources' without appreciating the fact that interest income earned is inextricably linked to the business. 3.2 The Appellant prays that the Learned AO be directed to classify the interest income of Rs. 2,72,84,483 under the head 'Profits and Gains from Business and Profession'. Ground No.4: Set off of brought forward unabsorbed depreciation 4.1 On the facts and in the circumstances of the case and in law, the learned AO erred in not allowing set off of brought forward unabsorbed depreciation of Rs. 4,62,00,217 pertaining to AY 1997-98. 4.2 The Appellant pra....
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....d Enterprises (AE) which were subject matter of determination of Arm's Length price (ALP) before Ld. Transfer pricing Officer (TPO) vide order u/s 92CA (3) dated 28/10/2016. These transactions have already been enumerated in para-6 of Ld. TPO's order. During proceedings before Ld. TPO, the perusal of assessee's financial statements revealed that assessee incurred certain Advertisement, Marketing & Promotional (AMP) expenditure aggregating to Rs. 11537.80 Lacs during the year under consideration. The turnover, net profit, selling expenses, AMP expenses and royalty payment data for 5 years has been tabulated in para-7 of Ld. TPO's order. The AMP expenditure was on account of Television Advertising, Agency fees, Radio, Newspaper, outdoor advertising production, expenditure, freebies, school promotions etc. Accordingly, the assessee was show caused as to why the adjustment should not be made on account of excess expenditure incurred for Development, Enhancement, Maintenance, Protection and Exploitation (DEMPE) functions in India, on behalf of its AE. The assessee, inter-alia, pleaded that the aforesaid payment was made to third parties in India and therefore these transactions would....
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....avor by the order of coordinate bench of this Tribunal in assessee's own case for AY 2009-10 (lead case on the issue), Cross appeals ITA Nos. 2866 & 2888/Mum/2014 common order dated 19/07/2019 wherein the issue has been decided in assessee's favor by observing as under: - 6. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Undisputed facts are, the assessee is not merely a distributor of the products manufactured by the AE but the assessee itself manufactures its own products in India under license from the AE. It is also a fact that for marketing and promotion of its manufactured products in India, assessee has incurred AMP expenditure by making payments to third parties in India. Therefore, the basic issue which arises for consideration is, whether the AMP expenditure incurred by the assessee in India can come within the purview of international transaction as defined under section 92B of the Act. In this regard, the contention of the assessee before the Transfer Pricing Officer was, since the assessee has incurred the AMP expenditure for products manufactured and sold by it in India, it does....
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.... Tribunal, in LG Electronics India Pvt. Ltd. (supra). Now, it is fairly well established that determination of arm's length price of AMP expenditure by applying BLT method is not valid. In a catena of decisions, the Hon'ble Delhi High Court while disapproving the decision of the Tribunal in L.G. Electronics India Pvt. Ltd. (supra) have held that BLT method is invalid as it is not prescribed in the statute. In this context, we may refer to the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra). Following the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra) and various other decisions, different Benches of the Tribunal have also held that in absence of an express arrangement/agreement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE, AMP expenditure incurred by making payment to third parties for promoting and marketing the product manufactured by the assessee, does not come within the purview of international transaction. 8. At this stage, it is relevant to observe, while deciding identical nature of dispute in assessee's own case for the assessment year 2011-12....
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....re to promote the brand of the AE and therefore, the said transactions would not constitute international transaction relating to AMP expenditure. It was also observed that BLT method as adopted by Ld. TPO was not a valid method to benchmark the transactions. The technical collaboration agreement as referred to by Ld. TPO did not envisage any such express arrangement / agreement between the assessee and its AE and therefore, the same could not support the case of the revenue. Therefore, facts being pari-materia the same, respectfully following the aforesaid decisions of Tribunal in assessee's own case, we delete the impugned TP adjustment against AMP expenditure and allow ground no.1 of the appeal. Ground No.2: Disallowance of cost of infrastructure development 5.1 Facts to the issue are that during the year under consideration, the assessee obtained lease of a plot of land for a period of 99 years from Sri City Private Limited ('Lessor'/ 'Developer' / SCPL) for setting up a manufacturing facility. Further, the assessee also entered into an Infrastructure Development agreement on 06/06/2012 for the purpose of availing certain services to be provided by the Developer as com....
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....ons) in support of submission that the expenditure would be revenue in nature particularly when the expenditure did not result into any advantage to the assessee in capital field but which merely enabled the assessee to carry on business operations more efficiently. As an alternative, the assessee pleaded for allowance of the same over the period of agreement. 5.4 The Ld. DRP agreed that ownership of such rights belonged to the developer only and the assessee would not be entitled for depreciation on the same. Further, the expenditure would not become capital expenditure since no new asset was acquired by the assessee. The infrastructural facility only enabled the assessee to run its business properly and efficiently. 5.5 However, as per the SEZ / DTZ policy of the government, the aforesaid development activities would be the responsibility of SEZ / DTZ developer and the assessee as a lessee would not be normally required to spend huge amounts for infrastructural support. Another observation was that the assessee obtained lease for 20 years which was long term in nature. The infrastructure development would be essential and bare minimum to ensure that the assessee could utili....
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.... under this agreement as well as under lease agreement. 6.2 Upon perusal of the terms of the agreement, it is quite discernible that the payment made by the assessee was not towards acquisition of any asset but towards provision of infrastructure facilities which would enable the assessee to run its business operations more efficiently and without any hinderance. The benefit may be enduring in nature and the same would have benefitted the assessee over several years but nevertheless, the nature of expenditure was revenue in nature as is evident from the terms of the agreement. To rechristened the same as upfront lease payments as done by Ld. DRP was beyond the scope of terms of the agreement and the said conclusion was bereft of any material evidence on record. Quite clearly, the facilities were obtained on plot of land under lease and the assessee was not the owner of said infrastructural facilities. In such a scenario, the expenditure being incurred wholly and exclusively for the purpose of business and being revenue in nature, was allowable as deduction u/s 37(1). 6.3 The Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. V/s CIT (3 taxman 69) held that there may be....
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....ssee chooses to claim the same at one go. The said proposition stem from another decision of Hon'ble Apex Court in Taparia Tools Limited V/s JCIT 372 ITR 605. 6.5 Viewing from any angle, we are of the considered opinion that the aforesaid expenditure, being revenue in nature would be an allowable expenditure in its entirety during this year. Accordingly, the ground raised stand allowed. Ground No.3: Treatment of interest income 7.1 During assessment proceedings, it transpired that the assessee earned interest income of Rs. 272.84 Lacs and offered the same as business income. The reasoning adduced was that the assessee received favorable credit period from the vendors of raw material and packaging material. The surplus funds generated out of income received from sale to distributors and not immediately required in the business were invested in short terms deposits with the Bank. Since interest income had immediate nexus with the business of the company, the same was to be treated as business income. However, Ld. AO opined that earning of interest was not the business of the assessee and therefore, the interest income was to be taxed as income from other sources. The Ld. ....
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.... days. Reliance has been placed on the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Lok Holdings 308 ITR 356. It is also observed that no details of bank deposits could be provided by AR despite specific request being made by the bench due to which we are unable to ascertain the fact that whether these deposits have direct nexus with the business of the assessee, The Ld. AR has attributed the parking of funds to general credit float enjoyed by the assessee without brining anything on record to substantiate the same. Hence, we deem it fit to restore the matter back to the file of AO to examine the nature of Bank FDR particularly the tenure of the deposit and also verify the fact of 'credit float' enjoyed by the assessee and decide the issue afresh in accordance with law. The assessee is directed to cooperate with the lower authorities forthwith to substantiate his submissions. The ground of revenue's appeal is allowed for statistical purposes." 48. Facts being identical, respectfully following the aforesaid decision of the Co- ordinate Bench, we restore the issue to the Assessing Officer. Ground is allowed for statistical purposes. Similar....