TaxTMI 
TaxTMI 
TaxTMI 
2021 (8) TMI 1423
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....as against the income of Rs. 1,72,57,98,490 determined by the appellant in its income tax return. 2. That the assessing officer erred on facts and in law in making an addition of Rs. 10,07,80,000 allegedly on account of difference in arm's length price of international transactions of payment of trademark fee entered into by the appellant with its associated enterprise, the Goodyear Tire & Rubber Company, USA on the basis of order passed by the Transfer Pricing Officer ('TPO') and sustained by the Dispute Resolution Panel ('DRP'). 2.1. That the DRP/TPO erred on facts and in law in holding the arm's length price of the international transaction of payment of trademark fee of Rs. 10,07,80,000 at Nil allegedly holding that no recognizable benefit has been passed on to the appellant and therefore there was no rationale for paying this trademark fees to the AE. 2.2. That the DRP erred on facts and in law in sustaining the transfer pricing adjustment made by the TPO, holding the arm's length price of international transaction of payment of royalty as NIL, following its orders for preceding assessment years, i.e. assessment year 2007 -08 to 2014- 15. 2.3. That ....
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....Rubber Company, USA. 4. The facts giving rise to this ground are that the assessee company is engaged in the business of manufacturing and trading of automotive tyres, tubes, flaps and other industrial rubber products. During the year under consideration, the assessee company had undertaken certain international transactions. A reference was made to the Transfer Pricing Officer ("TPO") for determining the Arm's Length Price. The DCIT-Transfer Pricing Officer-(2)(1)(2), New Delhi recommended the upward adjustment vide order dated 10.10.2019 thereby, the TPO concluded that the assessee had been mandatorily using the Goodyear trademark/logo in India since 1922. Over the years, the assessee made efforts by way of expenditure and human effort to develop the brand in India. It continued to do so to replenish the brand value. The entire marketing effort in India was admittedly driven, planned and executed by the assessee. By these efforts, the brand had grown in value and significant economic substance had been added to it by the company making decent profits. The correct Arm's Length Price for the transaction related to payment of trademark fee to AE was held to be NIL instead o....
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.... for the same, for which the royalty payment has been made. Without which, the appellant's business will cease to exist and its entire operations would come to a halt. Accordingly, since the entire operation of the appellant is based on rights and licenses to manufacture the automobile tyres and tubes, for which royalty is being paid, the royalty payments cannot be separately evaluated. In the case of the appellant, it is nobody's case that the company has entered into diverse activities. The international transactions of the appellant primarily relate to its business of manufacturing of tyres and such international transactions are closely interlinked or inter-twined. It would also not be possible to determine separately profit from the international transactions of payment of trademark fees. Reliance in this regard is placed by the Ld. Assessee counsel on the decision of Hon'ble coordinate Bench of Tribunal, in a similar case of Maruti Suzuki India Limited vs. ACIT (ITA No. 5237/Del/2011), for assessment year 2005-06, too, held as under: "13.1 Thus, we agree with the submission of the appellant's counsel that the entire business model of the appellant is based on license from S....
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....ansactions for undertaking benchmarking analysis applying entity wise TNMM. In fact, in the case of CIT vs. Reebok India Co Ltd (ITA no 213/2014), being part of the decision of Hon'ble High Court in the case of Sony Erickson, the Court has held as under: "185. Royalty payable for availing the right to use would depend upon corresponding price, which would have been paid by an independent or unrelated enterprise. This is judged by applying comparables. TPO has not rejected the quantum of royalty on the said principle. The reasoning given by the TPO is not only erroneous for the reasons stated above, but is also contrary to the Rules. Depending upon the method selected, net profit or gross profit of the assessed has to be compared with profit margins of related enterprise. The formula prescribed under the Rules does not accept the ratiocination adopted and applied by the TPO." 12. Another contention of the TPO that the Goodyear Brand was weak and therefore does not require payment of royalty, is not brought out from the records. The AR of the assessee has made elaborate submission and placed evidence on record to show that 'Goodyear' brand is considered to be one of the top most ....
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....m a comparable but definitely uncontrolled transaction, i.e., a transaction between non-associated enterprises. There is no statutory sanction for roping in a comparable controlled transaction for the purposes of benchmarking. When it has been clearly mandated in all the relevant methods for determining ALP that the comparison has to be made by the enterprise's international transaction with comparable uncontrolled transaction, by no sheer logic a comparable controlled transaction can be employed for the purposes of making comparison. There is no warrant for diluting the prescription given by the statute or rules when such prescription itself serves the ends of justice properly and is infallible. If the view of the Revenue that a controlled transaction should not be shunted out for the purposes of benchmarking, is accepted, then all the relevant provisions contained in Chapter X in this regard, will become otiose. If such a contention of making comparison with a comparable controlled transaction is taken to its logical conclusion, then there will never arise any need to take up any case for transfer pricing scrutiny. The reason is obvious. ALP is determined for application in respe....
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.... has, in the case of Dresser- Rand India Pvt Ltd vs. ACIT (ITA No. 8753/Mum/2010 held that whether the services given by the AE to the assessee, without charging consideration, on gratuitous basis in the preceding year, cannot de bar the AE from charging fee for the same services subsequently. The observations are: "8......When evaluating the arm's length price of a service, it is wholly irrelevant as to whether the assessee benefits from it or not; the real question which is to be determined in such cases is whether the price of this service is what an independent enterprise would have paid for the same. Similarly, whether the AE gave the same services to the assessee in the preceding years without any consideration or not is also irrelevant. The AE may have given the same service on gratuitous basis in the earlier period, but that does not mean that arm's length price of these services is 'nil'. The authorities below have been swayed by the considerations which are not at all relevant in the context of determining the arm's length price of the costs incurred by the assessee in cost contribution arrangement. 16. In light of the above, we conclude that there exists a direct nex....
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....15- 16, the assessee company had incurred a total sum of Rs. 11,74,46,510/- towards advertisement, publicity and sales promotion. The assessee was show-caused as to why the expenditure incurred on advertisement should not be disallowed being in nature of brand building activity. In response thereto, the assessee filed a detailed reply stating that the assessee company is engaged in the manufacturing/trading of tyres and related products. It had incurred these expenses for promoting its sale and to beat its competitor companies as its competitors were also expending on advertisements of their products. It was stated that benefit of such expenditure was derived entirely by the assessee company and not by an affiliate company. In support of this, the assessee had relied upon the following case laws:- (i) CIT vs Walchand & Co. 65 ITR 381. (ii) J.K. Woolen Manufacturers vs CIT 72 ITR 612. (iii) Aluminum Corporation of India Ltd. vs CIT 86 ITR 11. (iv) CIT vs Panipat Woollen & General Mills Co.Ltd. 103 ITR 666. (v) Sassoon J David and Co.P. Ltd. vs CIT 118 ITR 261 (SC). (vi) CIT vs Chandulal Keshavlal & Co. 38 ITR 601 (SC). (vii) SA Builders Limited vs CIT 288 ITR 1 (SC). ....
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.... The Tribunal in ITA No.8806/Del/8006/Del/2018 pertaining to Assessment Year 2014-15 has observed as under:- 12. "We have heard the rival submissions and perused the orders of the lower authorities and materials available on the record. The undisputed facts of the case are that during the financial year 2014-15, the assessee company incurred a sum of Rs. 12,69,00,000/- towards advertising and sales promotion. The AO required the assessee to show cause as to why the expenditure incurred on advertisement should not be disallowed being in the nature of brand building activity. In reply to the show cause notice, the assessee submitted that any disallowance on account of advertisement and sales promotion expenses holding the same to be incurred for brand building for the entities owing brand shall not be sustainable in law. It was further submitted that the expenses were incurred for advertisement/marketing support activities etc. and are incidental to carrying on the business and were incurred by the assessee regularly for promotion/quality control and its product. The expenses incurred are to enable and increase efficiency in business and therefore, was revenue in nature and deducti....
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....ge called "Excellence" for passenger cars. This two expenses alone totaled to Rs. 4,20,43,000 out of total increase in expenditure of Rs. 4,87,14,000. Further, it was submitted that with the increase in advertisement and sales promotion expense, the company has demonstrated sales growth of nearly 28% as compared to financial year 2005-06. The gross sale in year 2005-06 was Rs. 751.74 crores, which has grown to Rs. 958.11 crores in 2006-07. It would be appreciated that despite having low spending on advertisement and marketing expenditure, the appellant has maintained substantial growth in terms of sales and sustained in this competitive business. In terms of section 37(1) of the Act, deduction is admissible for expenditure incurred wholly and exclusively for purposes of business. Expenditure justified by business considerations and incurred out of commercial expediency is allowable deduction. It was also submitted that since the aforesaid expenditure of advertisement and brand promotion has undergone a benchmarking analysis under the Transfer Pricing regulations and an arm's length price thereof has been determined, there could not be any further disallowance of the said paym....