TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 341
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....fited 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 the fact that AMP expenses were incurred 'wholly and exclusively' for purpose of business of ....
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....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 prays that the AO be directed to allow the set off of unabsorbed depreciation of Rs. 4,62,00,217. Ground No.5: 5.1 On the facts and in the circumstances of the case and in law, the learned AO erred in initiating penalty proceedings u....
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....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 not constitute international transactions. Hence, these would not require determination of ALP on the part of Ld. TPO. 3.3 However, Ld. TPO opined that assessee's AE was actively planning, supporting, intervening, guiding, directing the assessee as to strategy of market development, bra....
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....val 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 not come within the purview of international transaction. Further, the assessee has also submitted that since there is no arrangement/agreement between the assessee and the AE for incurring such expenditure to promote the brand of the AE, it cannot be said that there is an international transaction relat....
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....ics 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, learned DRP in direction dated 28th December 2015, have deleted the adjustment made by the Transfer Pricing Officer on account of AMP expenditure by recording a factual finding that the Transfer Pricing Officer has failed to demonstrate that there is an agreement/arrangement between the assessee and the AE for incurr....
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.... 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 common facilities. Under the terms of development agreement, in consideration for payment of Rs. 820 Lacs (as assessee's contribution), the Developer agreed to develop certain common infrastructure facilities such as (i) Roads (ii) Water supply systems, pipeline, pumping stations (iii) Drainage, sewerage lines, sewerage treatment plants (....
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....eriod 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 utilise the plot of land for business activities. Such an expenditure would be the responsibility of the lessor and therefore, the aforesaid payment had direct connection to the obtaining of lease and essentially in the nature of upfront lease charges. Therefore, the expenditure should be amortized over the period of lease. Aggrieved aforesaid, the....
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....nderance. 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 cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may breakdown. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the ....
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....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. DRP, relying upon predecessor DRP's direction in AY 2009-10, confirmed the stand of Ld.AO. Aggrieved, the assessee is in further appeal before us. 7.2 We find that this issue, following the orders for AYs 2007-08 & 2008-09, has been restored back by the Tribunal in AY 2009-10, ITA Nos. 2866 & 2888/Mum/2014 order dated 19/07/2019 by observing as under: - 47. We have....
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....tributed 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 directions have been given for AYs 2011-12 & 2012-13. Therefore, facts being pari-materia the same, the issue stand restored back to the file of Ld. AO on similar lines. This ground stand allowed for statistical purposes. Ground No.4: Set-off of brough forward unabsorbed depreciation 8.1 It transpired that the assessee claimed set-off of depreciation of Rs. 462 Lacs pertaining to AY 1997-98. The said adjus....