TaxTMI 
TaxTMI 
2021 (4) TMI 159
X X X X Extracts X X X X
X X X X Extracts X X X X
....raise many of the identical substantive grounds. These appeals are taken up together therefore for the sake of convenience and brevity. We treat A.Y. 2010-11 involving ITA No. 140/Hyd/2015 as the lead assessment year containing the following substantive grounds: "1. On the facts and in the circumstances of the case and in law, the Assessment Order ('Order') passed by the Learned Assessing Officer ('Ld. AO') under the directions of Ld. Panel as per section 143(3) read with section 144C of the Income Tax Act, 1961 ('Act') is bad in law. 2. On the facts and in the circumstances of the case and in law, the Ld. AO erred in rejecting the Transfer Pricing ('TP') documentation maintained by the Assessee by invoking provisions of sub-section 3 of section 92C of the Act and contending that the information or data used in the computation of the arm's length price is not reliable or correct. 3. On the facts and in the circumstances of the case and in law, the Ld. AO erred in arbitrarily determining the arm's length price of Royalty paid to the AE as NIL instead of Rs. 9,537,451, in respect of the 'Trademark' availed by the Appellant from it....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act. 5. The Revenue, on the other hand, has vehemently opposed the assessee's petition moved at this belated stage and that too, without explaining its act and conduct in not having agitated the very issue before the lower authorities. 6. We have given our thoughtful consideration to the foregoing rival arguments qua admission of the assessee's additional substantive ground No. 10 that its education cess amount of Rs. 32,49,207/- ought to have been treated as an allowable deduction. Hon'ble apex court's landmark decision in National Thermal Power Co. Ltd., Vs., CIT [229 ITR 383] (SC) as considered the All Cargo Global Logistics Ltd., Vs. DCIT (2012) [137 ITD 217] (SB) (Mumbai) holds that this tribunal can very well entertain such legal ground so as to determine correct tax liability of an assessee subject to the condition that all the relevant facts form part of the records. We make it clear that the disallowance of education cess has nowhere been contested at the Revenue's behest on facts. We thus accept the assessee's foregoing petition dt. 25-09-2020 seeking to rase the impugned additional ground in all these assessment years. 7. We now come to the is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication was provided. Therefore the taxpayer was requested to provide and satisfy the benefit test vide this office letter dated 08-07-2013. In its reply filed on 19-08-2013, he taxpayer stated that the company is in the business of edible oils and foods. In order to have a wide and recognizable presence in the foods market, the company entered the pop corn market and for this purpose company entered into an agreement with ConAgra Inc., selling pop corn under the brand name 'ACT II'. The tangible benefit that the company derived is that it has been able to add approximately Rs. 61 crores to its turnover. The taxpayer has also compared the payment of royalty with a report from Business Standard. As per the report during FY 10, the royalty paid by some of the top brands ranged from 0.15 to 4.44 of the net sales. The lowest of 0.19% is that of the taxpayer itself. The contention of the taxpayer has been considered. As per the Agreement between ConAgra Foods lnc., and Agro Tech Foods Ltd., dated 01-04-2008, the Licensor has minority ownership interest in Licensee with about 48.1% of voting shares. The Licensor has granted an exclusive right and license to use of 'ACT II L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d mustard oil under the Sudham brand. Health World Dried Green Peas brings to the consumer healthy, fresh green peas. Snack Pack is the only shelf stable pudding in the country; Swiss Miss is the only Hot Cocoa Mix available to Indian consumers. Sourcing and Institutional Business - The sourcing and Institutional Business (SIB) division in ATFL started off as a Commodity Trading Team for the main purpose of sourcing edible oils for the Brand Edible Oils Groups. Its profile kept Widening with sourcing of other Agri commodities like rice, wheat, soya DOC & Mustard covering both Trading & Export. Food Services - The food service business of the taxpayer in India supplying food products such as Lamb Weston, oils, popcorn to the hotels, restaurants and catering establishments. The food service business also deals in large packs of Sundrop oils, Cristal brand of oil, ACT " Popcorn, tomato products and others snack items. Thus, the taxpayer is having presence in Indian markets since 1986 and has over the years developed a robust marketing and distribution networks. The main activity of the taxpayer is from other branded item in oils. The sale of popcorn forms part of food services....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... d) Total R&D expenditure as percentage of turnover Rs.Millions 0.91 22.04 22.95 0.35% In subsequent para of the annual report, the company has reported its strategy as regards the popcorn as under: 7.1.3. In the Snacks Category your company continued its focus on Act II popcorn, through sustained national media presence for the brand, significant increase in retail distribution and increasing awareness of the category. In view of the above discussion, it is clear that it is the which has benefited from the presence of the taxpayer in Indian market since long and which has already developed a brand name itself. The AE has used the robust marketing and distribution channel already available with the taxpayer. The AE is also enjoying the benefits of the R&D on popcorn by the taxpayer. What AE sells is bland popcorns and it is what the taxpayer does is to make it suitable for the Indian tastes. Thus, this is the right case where the taxpayer's contribution to license which benefits IT value or brand value of the AE needs to be recognized and should be taken into account while determining Arm's Length Price of royalty. One method could be that AE makes payment to lic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld be prepared to pay for it. If no benefit has been provided (or was expected to be provided), the service cannot be charged for. d. Whether the services are actually rendered. If yes please quantify such services in terms of actual expenditure incurred and commensurate benefits derived there from. e. The determination of an arm's length charge must take into consideration the amount that an arm's length entity is prepared to pay for such a service in comparable circumstances. f. The taxpayer's level of documentation and evidence to show that the services are actually rendered by the AEs to the taxpayer. If the services are actually rendered, the level of documentation and also evidence to show that a tangible and direct benefit is derived by the taxpayer in paying the above amounts to the AEs. g. The allocation key based on which your AE has charged the amount to you. As also whether the AE has provided the same services to all other group concerns. In response to the above show cause notice, the taxpayer filed a detailed reply on 19.08.2013. It is stated therein that the company paid an amount of INR 2,13,94,873/- towards professional fee for audit and cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fessional charges : Rs. NIL Price paid : Rs. 2,13,94,873/- Adjustment (downward) : Rs. 2,13,94,873/- Thus the arm's length price of the payment of professional charges is Rs. NIL and the excess payment of Rs. 2,13,94,873/- is treated as adjustment u/s. 92CA of IT. Act and the total income of the taxpayer will be enhanced accordingly u/s. 92CA(3) of the I.T. Act". Suffice to say these adjustments on the twin counts of royalty as well as professional services stand upheld upto the Dispute Resolution Panel's (DRP) directions, finally culminating in the impugned addition. 9. Both parties reiterate their respective vehement stands against and in support of the twin 'ALP' adjustments. It is very much apparent from the TPO's detailed discussion in the preceding paras that he has applied 'benefit test' to hold that it is not the assessee, having very much a robust market presence but its overseas AE(s) who actually stood gained and therefore, cost of the twin heads of royalty as well as technical services deserve to be taken as NIL only. The first and foremost question that arises for our apt adjudication in this factual backdrop is that is as to whether....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... these twin heads adjustments; respectively are accepted in assessee's favour in foregoing terms since not involving any distinction on facts. 13. We stay back in A.Y. 2010-11. The assessee's sixth and 7th substantive grounds seek to reverse the lower authorities' action disallowing its advertisement and sales promotion expenditure of Rs. 8,66,71,253/- u/s. 37(1) of the Act for the sole reason that the same need to be amortized u/s. 35D of the Act. The Revenue's stand herein supports the impugned disallowance that all these expenses have been correctly amortized u/s. 35D of the Act being capital in nature thereby enabling the taxpayer to derive business advantage(s) in sales and marketing for the specified number of years. We find no reason to agree with the Revenue's foregoing stand. We make it clear that learner lower authorities themselves have been fair enough in not rebutting the impugned expenditure claim on facts since they have merely directed the assessee to amortise its advertisement and sales promotion expenses u/s. 35D of the Act. This statutory provision comes into play in case an assessee's expenditure claim is in connection with a new or exte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant 10th substantive ground in A.Y. 2010-11. Same order to follow in its corresponding substantive grounds No. 12 in A.Ys. 2011-12 & 2012-13, 6th substantive ground in A.Y. 2013-14 and 12th substantive ground in A.Y. 2014-15; respectively. The assessee's lead appeal 140/Hyd/2015 is partly allowed in above terms. 16. We next move on to A.Y. 2011-12. The assessee's first to 7th, 11th and 12th substantive grounds already stand adjudicated in preceding paragraphs. Coming to 8th and 9th substantive grounds raising the issue of Section 14A disallowance along with consequential MAT provisions u/s. 115JB of the Act involving a sum of Rs. 86,127/-, learned counsel is more than fair in not pressing for the same keeping in mind the smallness of the amount. 17. Coming to 10th substantive ground involving the issue of short credit of TDS deducted to the tune of Rs. 9,25,955/-, both the learned representative are ad idem that the same be restored back to the Assessing Officer for his afresh factual verification. We order accordingly and restore this 10th substantive ground back to the Assessing Officer for examining the issue of short credit of TDS deducted at source. This assessee&#....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Assessing Officer to delete the impugned addition on the two counts of refund and interest after necessary factual verification. This ground is taken as accepted for statistical purposes. This appeal ITA No. 487/Hyd/2017 is partly allowed. 21. Now comes assessee's appeal 2170/Hyd/2017. It transpires at the outset that all of its six substantive grounds i.e., transfer pricing adjustment on royalty (1 to 3) reimbursement of expenses (4), deduction of capital expenditure viz-a-viz depreciation (5) and education cess and secondary education cess (additional ground) already stand adjudicated in preceding paragraphs. We thus partly accept the instant appeal ITA No. 2170/Hyd/2017 as well in the same terms. 22. Lastly comes the assessee's appeal ITA No. 1361/Hyd/2018 for A.Y. 2014-15. Its first to three substantive grounds touch upon the issue of royalties payments, 9th substantive ground of short credit of TDS deducted, Section 234A interest (10th) and additional ground No. 12 of education and secondary education cess which already stand adjudicated in our discussion in preceding paragraphs. Learned counsel is fair enough in not pressing for 4 to 6 substantive grounds raising t....