TaxTMI 
TaxTMI 
2021 (8) TMI 1423
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....61 ('the Act') at an income of Rs. 186,18,12,440 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 prece....
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....actions of payment of trademark fee entered into by the assessee with its Associated Enterprise ("AE"), the Goodyear Tire & 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.....
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....the tyres which have been highly successful and renowned throughout the world, and for providing all the I.P. rights and technology necessary 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: ....
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....h Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd vs. CIT (ITA No 16/2014) reported at 374 ITR 118, wherein, the Court has upheld clubbing of closely linked transactions 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 ro....
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....a comparison of the assessee's net profit margin from international transactions with its AEs has necessarily to be made with that of the net profit margin realized by the same enterprise or an unrelated enterprise from 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 compa....
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....y prior to financial year 2006-07 was due to the losses incurred by the assessee and prior to year 2000, no Indian companies were allowed to pay trademark fees under automatic route. Nevertheless, the Mumbai Bench of Tribunal 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 considera....
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....eing 30% of the total expenditure of Rs. 11,74,46,510/- incurred by the assessee on advertisement and publicity. 11. Facts giving rise to the present case are that the Assessing Officer observed during the assessment proceedings that during Financial Year 2015- 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 ....
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.... of the products of the AE in India since the advertisement and the publicity would certainly have impact. He therefore, strongly supported the orders of the authorities below. 16. We have heard the rival contentions and perused the material available on record. We find that the similar issues arose in earlier years as well and the Tribunal was pleased to decide the issue in favour of the assessee. 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 o....
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.... "It was submitted that in a fast growing and very tough competitive business environment, the appellant had to spend a good amount on advertisement and marketing activities to show its presence in the market and sustain in business. Also, for the initiative of Branded Retail Stores, the appellant had spent nearly Rs. 2,27,35,000 during the year and an amount of Rs. 1,93,08,000 was spent towards launching and introducing the new product range 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 who....