Income Tax Appellate Tribunal - Mumbai
Dcit 12(3)(2), Mumbai vs Marico Ltd, Mumbai on 1 March, 2019
Aayakr ApIlaIya AiQakrNa " J " nyaayapIz maM u b a[- mao .
IN THE INCOME TAX APPELLATE TRIBUNAL " J" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
Aayakr ApIla saM . / ITA No.1702/Mum/2015
(inaQa- a rNa baYa- / Assessment Year 2008-2009)
M/s Marico Ltd., The Dy. Commissioner of
7 t h floor, Grande Palladium, Income Tax,
175, CST Road, Kalina, Vs. W ard 12(3)(1),
Santacruz(E), Mumbai Aayakar Bhavan, M.K.Road,
Mumbai
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
PAN No. AAACM 7493 G
Aayakr ApIla saM . / ITA No.1869/Mum/2015
(inaQa- a rNa baYa- / Assessment Year 2008-2009)
The Dy. Commissioner of M/s Marico Ltd.,7 t h floor,
Income Tax, Grande Palladium, 175,
W ard 12(3)(1), Vs. CST Road, Kalina,
Aayakar Bhavan, M.K.Road, Santacruz)E), Mumbai
Mumbai
(ApIlaaqaI- / Appellant) .. (p`%yaqaaI- / Respondent)
PAN No. AAACM 7493 G
Revenue by : Ms Amrita Ranjan, DR
Assessee by : S/shri P.J. Paridwala &
Nitesh Joshi, ARs
Date of hearing: 05.12.2018 Date of pronouncement : 01 --03-2019
2
ITA No.1702 / Mum/2015
ITA No,1869/ Mum/2015
Assessment Year 2008-09
AadoSa / O R D E R
PER MAHAVIR SINGH, JM:
These cross appeals by the assessee and the revenue are arising out of the order of Commissioner of Income Tax (Appeals)-57, Mumbai [in short CIT(A)], in appeal No. CIT(A)-57/Curr.130/14-15 dated 08.01.2015. The Assessment was framed by the Dy. Commissioner of Income Tax, Range-9(2) (AO) for the A.Y. 2008-09 vide order dated 03.02.2012 under section 143(3) of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The first issue in this appeal of assessee is as regards to the order of the CIT(A) upholding/restricting the addition made by the Assessing Officer on account of transfer pricing adjustment in respect of interest charged on loans given to AEs @ 17.26% based on rates prevailing in Indians bonds market. For this, the assessee has raised the following grounds:
"The CIT(A) has erred in confirming the transfer pricing adjustment of ₹5,28,31,72/- based on computation of arm's length (ALP) in respect of interest charged on loan given to M/s. Sundari LLC (SL) Marico Middle East (MME) and Marico South Africa Consumer Car Pvt Ltd. (MSACC)_ at 17.26% p.a. as against interest charged by the appellant at:
(a) monthly LIBOR + 150 bps for loan of US$ 3,00,000/- given to SL in FY 2005-
06 and 6% P.A. on other loan given to SL interest on these loans were charged for 3 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 the period from 1.4.2007 to 22.10.2007 and thereafter no interest charged on these loan to SL.
(b) 9.5% p.a. to MME and
(c) 6 months LIBOR plus 230 bps to MSACC On the facts and circumstances of the case and in law, the interest charged by the appellant on the said loans ought to be accepted as ALP and the adjustment made amounting to ₹5,28,31,272/- ought to be deleted."
3. Briefly stated the facts are that the assessee is in the business of manufacturing and marketing of fast moving consumer goods, such as edible oils, skin care products, personal care products processed foods, etc. During the year under consideration, the assessee has set up a wholly owned subsidiary, namely Marico South Africa Consumer Care Pvt Ltd. (MSACC) in South Africa on 06.09.2007 to act as an investment holding company. In terms of this, the assessee vide agreement dated 05.11.2007 with Standard Chartered Bank (SCB) has taken an external commercial borrowing loan of US$ 15 million at an interest of 3 months LIBOR + 150 bps and the assessee has invested loan of US$ 15 million taken from SCB fully in subsidiary MSACC. SCB has charged interest @ 3 months LIBOR + 150 bps (effective rate is around 6.45%) on the loan provided to the assessee whereas the assessee has charged interest @ 6 months LIBOR + 230 bps (effective rate around 7.20%) on the loan provided to MSACC. The assessee has considered the comparable uncontrolled price method (CUP) for this transfer pricing study as the most appropriate method to benchmark the ALP of the interest received from 4 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 MSACC. For applying the CUP method, the assessee contended that the amount received from SCB was provided to MSACC as loan in back to back transaction and the arrangement entered into by the assessee and SCB has considered internal CUP method for the purpose of ALP of the interest received from MSACC as most appropriate method. It was explained before the lower authorities that interest charged by the assessee on loans to MSACC was higher than the interest paid on loan taken from SCB; the transaction was concluded as ALP. The Transfer Pricing Officer (TPO) has not accepted the CUP method adopted by the assessee i.e. internal CUP on the ground that under CUP method, the interest rate would be prevalent only when the interest could have been earned by the assessee by advancing the loan to an unrelated party in India with the same weak financial health as that of the assessee's AE. On this basis, the TPO concluded that the information relied on by the assessee for the above conclusion on the information for credit rating of the debt instruments i.e. (corporate bonds) provided by CRISIL Ltd., a credit rated agency. The TPO observed that the loan given by the assessee to MSACC has been rated as 'BB' and, accordingly, yield at 17.26% p.a. Thus, the TPO/AO adopted interest rate @ 17.26% p.a. and made adjustment of ₹1,07,54,727/- for benchmarking the Arms Length Price. Aggrieved, the assessee preferred appeal before the CIT(A).
4. The CIT(A) confirmed the action of the Assessing Officer vide para 4.3 and the CIT (A) noted that the risk factor is to be considered for loan advanced to AE of the assessee and the fixed deposit rate has been considered to be one of the method for benchmarking international transactions relating to interest receivable. The CIT(A) also rejected the contention of the assessee that this is not international transaction as the investment of the AE in the nature of quasi equity as the loan was not provided with an intention to earn interest. Further, the CIT(A) also 5 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 rejected the assessee's contention of commercial expediency. The CIT(A) after discussing the case laws of Mumbai Tribunal in the case of Aurionpro Solutions Ltd in ITA No.7872/Mum/2011 considered the issue. The relevant para of the observation of the CIT(A) is as under:
"In view of the above observations it may be noted that FD rate has been considered to be one of the methods for benchmarking international transactions relating to interest receivable. Further risk factor has to be considered looking to the fact that the fixed deposits are very secure being with banks as compared to loan advanced to parties like AE of the appellant. Since there is risk associated with the unsecured loan, one has to take into account the risk while deciding ALP. Taking into consideration all the kinds of Risk associated with such transaction like Forex risk, Country risk, Entity risk, and circumstances further mark up may be added. Similar observations were made by Hon'ble ITAT Mumbai vide their order dt 16.11.2012 in the case of Wipro Ltd. vs. DCIT 33 taxmann.com 263. Considering all these facts the rate of 17.26% for charging interest is held to be reasonable and consequently adjustment made by the TPO/AO is upheld.
The appellant contended that the investment of the AE in the nature of quasi equity as the loan was not provided with the intention to earn interest. In this regard it is mentioned that 6 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 intention of the appellant cannot be a criteria for non charging of interest under transfer pricing provision. Further against such money advanced, there is no equity issued to it. Under such circumstances, appellant's argument regarding such advances basing long term strategic quasi equity investment is not found to be factually correct. Also such argument in any case is not acceptable for Transfer Pricing purposes. The contention of the appellant is therefore not acceptable.
The appellant contended that the AE was continuously having losses and hence as per commercial expediency it was not prudent to charge any interest, hi this regard it is mentioned that the Hon'ble Mumbai Tribunal in case of M/s WF Ltd. Vs. DCIT (ITA No. 673 Mum/06(Mum.) and Hon'ble Delhi Tribunal in the case of M/s Perot Systems TSI (India) Ltd. Vs. DCIT (2010) 37 OT 358 (Del.) have explicitly highlighted that NIL cost of funds to the tax payer and commercial expediency are not relevant factors for extending interest free loan from a transfer pricing perspective. Accordingly, this contention of the appellant is not acceptable.
v. The appellant has relied upon the order of the CIT(A) in the preceding year. However, in that order itself the CIT(A) has held that no internal 7 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 CUP was available, the contention of the appellant is therefore not acceptable.
vi. In view of the facts and legal position as discussed, the adjustment made by the TPO.AO is upheld."
Aggrieved, the assessee came in appeal before the Tribunal.
5. Before us, Shri P.J.Paridwalla & Shri Nitesh Joshi argued on behalf of the assessee. Ld Counsels stated the facts that the assessee's AE MSACCL has taken ECB loan from SCB at three months LIBOR + 130 bps with effective rate being 6.45% and advanced the loan to its associates at six months LIBOR + 230 bps being 7.20%. The assessee had charged interest at 9.5% to MMEL, whereas the said MMEL had borrowed funds from ICICI Bank in Bahrain at months LIBOR + 60 to 100 bps being interest ranging from 5.76% to 6.16%. The assessee has charged interest to Sundari LLC (SL) at LIBOR+150 bps on loans given prior to 09.06.2005 and at 6% on loans given from 10.06.2005 whereas the SL had borrowed funds from HSBC Bank at LIBOR +100 bps, the effective interest @ 6%. Ld counsels stated that the interest at 6% is higher than the prevailing LIBOR and no interest has been charged from the said company from 23.10.2007 in view of its deteriorating financial position. Ld Counsel stated that the Tribunal in assessee's own case in the immediately preceding assessment year i.e. 2007-08 has accepted the interest to be charged on loans given by the assessee to its AEs and should be benchmarked on the basis of LIBOR in ITANo.8858/Mum/2011 for A.Y. 2007-08 order dated 18.5.2016. Ld Counsel for this referred to para 6 and 6.1 of the Tribunal's order, wherein, it is held that the TPO was not justified in making adjustment under the head interest to be charged 8 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 as the rate of interest was higher than LIBOR. Following is the findings of Tribunal in para 6.6.1 of the order as under: -
"6. We have heard the rival submissions and perused the material before us. We find that the assessee had received payments towards brand royalty from two of its AEs, that one was located in Bangladesh and the other was in UAE, that the agreement with the Bangladesh AE was in respect of Parachute, that with the UAE the assessee had entered into agreement in respect to TMs of Parachute as well as of GGN, that MBL would sell pure edible coconut oil as per the agreement, that the UAE-AE was allowed to sell hair creams, hair gels hair oil etc., that as per the agreement it would use brand GGN,that there was issue relating to use of controlled transaction for the purpose of comparability, that there was geographical difference that there was also difference in respect of brands as well as products that on the same terms and conditions the brand royalty charged by it to MBL had been accepted by the TPO till the AY.2006-07,that during the year there had been increase in the rate of royalty charged to MBL, that it had been increased from 0.5% to 1% w.e.f. 1.10.2006, that the TPO had not specifically rejected assessee's benchmarking ,that overall profitability of the assessee was much higher than the arithmetic mean of the 9 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 comparables. Considering the above facts, the FAA had held that TP adjustment proposed/ made by the TPO/ AO were liable to be deleted. We do not find any infirmity in the order of the FAA. The AO/TPO had failed to bring anything on record to prove that there was material change in the facts as compared to earlier years. If facts were identical, then justification for deviating from the conclusions of previous year had to be highlighted.
6.1.It is found that during the year under appeal, the assessee had provided working capital loan to Sundari LLC,that it had charged LIBOR +150 bps on loans prior to AY.2006-07 and had charged interest @ 6% for the next year, that it had taken working capital loan from HSBC@ LIBOR+ 150bps,that later on HSBC reduced the rate ,that the assessee repaid the loan in the month of Feb. 2006,that the TPO adopted interest rate of 9.5% p.a. ,being the interest charged to MME as ALP, that he made an addition of Rs.70.87 lakhs, that referring to the ECB rates the FAA had given part relief to the assessee. We are of the opinion that the LIBOR rate has to be considered a valid base for determining ALP for foreign loans. If the loan taken and received are in foreign currency LIBOR would be the safest tool to justify or reject the claim of the AO/an assessee. In the 10 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 cases of Siva Industries & Holdings Ltd. (46 SOT 112);Cotton Naturals (I) Private Ltd.(5855/ Del/2012)the issue under appeal has been dealt in details. In both the cases the Tribunal has held that in case of foreign currency Loan, LIBOR rates should to be applied. The Hon'ble Bombay High Court in the case of Tata Autocomp Systems Ltd.(ITA No.1320 of 2012 dtd.03.02.2015) has deliberated upon the issue. Fact of the case have been narrated by the Hon'ble court as under:
"The respondent-assessee is engaged in the business of manufacturing of plastic parts and rendering engineering services. The respondent -assessee had advanced an amount of EURO 26.25 lakhs to its wholly owned subsidiary in Germany. The respondent-assessee charged no interest on the above loan. However ,during the course of examination of respondent- assessee's international transaction with its subsidiary company i.e .Associated Enterprises transfer pricing officer (TPO) determine the arm's length price (ALP) i.e. interest on the loan advanced by the respondent-assessee to its German subsidiary at 10.25%. The measure of interest was on the basis leading rate charged by the banks in India.The 11 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 Assessing Officer passed a draft assessment order in line with the order of the TPO. 4.Being aggrieved, the respondent-assessee carried the draft assessment order to Dispute Resolution Panel (DRP).The DRP enhanced ALP i.e. the interest on loan given by the respondent-assessee to its German Associate Enterprise to 12%. Consequent to the direction of DRP, the Assessing Officer by an assessment order dated 19.9.2011 charged interest of Rs. 1.76 crores on the above account as a part of the respondent assessee's income.
5.Being aggrieved, the respondent- assessee preferred an appeal to the Tribunal. The Tribunal by the impugned order held: (a) that the interests the loan extended by a company or its Associated Enterprise comes within the ambit of International Transaction and the issue to be examined in such a case would be the ALP of such an International Transaction; and (b) with regard to quantum of addition on account of interest by ALP the impugned order held that as the amounts were advanced Associate Enterprises in Germany, the rate of interest is to be determined on the EURIBOR rate of interest i.e. rates prevailing in 12 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 Europe.Thus partly allowed the respondent-assessee's appeal by applying the decision of the Tribunal in the case of "VVF Ltd Vs.DCIT (ITA No. 673/Mum/06)" and DCIT Vs.Tech Mahindra Ltd.(46 SOT141) by holding that the loan advanced to an Associated Enterprise situated abroad, the rate of interest to be applied is the rate prevailing in the country where the loan has been consumed." The Hon'ble Court has decided the matter as follows: "7.We find that the impugned order of the Tribunal inter alia has followed the decision of Bombay bench of Tribunal in the case of "V V F Ltd Vs,DCIT (supra) and DCIT Vs.Tech Mahindra Ltd.(supra) to reach the conclusion that ALP in the case of loan advanced Associate Enterprises would be determined on the basis of rate of interest being charged in the country were the loan is received/consumed. Mr.Suresh Kumar the learned Counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in PVF Ltd Vs. DCIT (supra)and DCIT Cs.Tech Mahindra Ltd.(supra)on the above issue. No reason has been shown to us as to why the revenue seeks to take a different view in 13 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 respect of the impugned order from that taken in "VVF Ltd Vs.DCIT (supra) and "DCIT Vs.Tech Mahindra Ltd.(supra)."
After considering the above orders of the Tribunal and judgment of the Hon'ble Court we are of the opinion that TPO was not justified in making adjustment under the head interest to be charged. The rate of interest was higher than LIBOR, so, we hold that the IT in question was at arm's length."
6. The Ld. counsel also stated that once LIBOR rate is charged for benchmarking of interest on loans granted by an Indian assessee to its overseas AEs, this issue is also covered by Hon'ble Bombay High Court in CIT vs. Aurionpro Solutions Ltd. in Income tax Appeal No.1869 of 2014 order dated 09.06.2017 held that no TP adjustment can be made in respect of interest on loans given to its AEs, once the LIBOR rate is applied by the assessee.
7. On the other hand, ld. CIT Departmental Representative has not disputed the facts that the assessee has applied LIBOR rate but argued that TP adjustment is to be made and for this he relied on the decision of Hon'ble P & H High Court in the case of C.R. Auluck and Sons (P) Ltd vs CIT 360 ITR 193 (P&H) and also the decision of Hon'ble Bombay High Court in the case of FGP Ltd vs. CIT 226 Taxman 153 (Bom).
8. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the case laws cited by ld Departmental Representative in the case of C.R. Auluck and Sons (P) Ltd (supra) is as regards to disallowance of interest under section 36(1)(iii) of the Act, wherein, two group concern stood guarantor to credit limits 14 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 advanced to sister concern and sister concern has gone into huge loss and its bank account was proposed to be declared as non-performing asset. The case laws in the case of FGP Ltd (supra) is of claim of business loss under section 28(i) of the Act and according to us, the case relied on by the CIT Departmental Representative in the facts are distinguishable. On the other hand, the case laws relied on by ld Counsel for the assessee of Hon'ble Bombay High Court in the case of Aurionpro Solutions Ltd., (supra) is directly on the point wherein, the LIBOR rate applied by the assessee can be considered for benchmarking of interest of loans granted by Indian assessee to its overseas AEs. This has been answered by Hon'ble Bombay High Court. Even the Tribunal in assessee's own case for the assessment year 2007-08 i.e. immediately preceding year, has considered this issue and as reproduced above, accepted the LIBOR rate adopted by the assessee for benchmarking the ALP. Hence, respectfully following the same, and also the decision of Hon'ble Bombay High Court in the case of FGP Ltd (supra), we delete the adjustment and allow this issue of the assessee.
9. The next issue in this appeal of the assessee is as regards to the order of the CIT(A) confirming the disallowance of 1/10th of other miscellaneous expenses of ₹76,58,765/- on adhoc basis. For this, the assessee has raised the following grounds:
"2. The Hon'ble CIT(A) has erred in confirming the disallowance of a sum of Rs.7,65,8777- being 1710th of other miscellaneous expenses of Rs.76,58,7657- made by the learned AO on ad-hoc basis. On the facts and circumstances of the case and in law, the disallowance made ought to be deleted."15 ITA No.1702 / Mum/2015
ITA No,1869/ Mum/2015 Assessment Year 2008-09
10. Briefly facts are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee has incurred expenditure for a sum of ₹4,65,18,138/- as miscellaneous expenses, which includes other misc, expenses of ₹76,58,765/-, which are on account of payment to hotels, payment of professional/consultancy charges, others (including purchase of stationary etc), various government payments and sales promotion expenses etc. The Assessing Officer doubted the other misc. expenses of ₹76,58,765/- and the assessee contended that these expenses are incurred in the normal course of business. However, the Assessing Officer disallowed 1/10th being adhoc expenses of other misc. expenses on the ground that his predecessor for the assessment year 2006-07 and 2007-08 has disallowed such expenses @ 1/10th on adhoc basis.
11. The CIT(A) also confirmed the same by observing that similar disallowance for the assessment year 2007-08 has been confirmed and the assessee's appeal is pending before the Tribunal. Aggrieved, the assessee is in appeal before us.
12. We have heard the rival contentions and gone through the facts and circumstances of the case. Before us ld Counsel for the assessee filed a copy of order of the Tribunal in assessee's own case for the assessment year 2007-08 in ITA No.8858/Mum/2011 dated 18.5.2016, wherein, the Tribunal has deleted other misc. Expenses disallowed by the Assessing Officer by applying 1/10th on adhoc basis in para 9.2 as under: -
"After hearing the rival sides, we are of the opinion that the AO/FAA had not given any plausible reasoning for making the ad hoc addition. The assessee had filed audited 16 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 accounts and the auditors had not qualified any item for disallowance out of the Miscellaneous Expenses. The AO had also not rejected the books of accounts of the assessee. It is also not clear from the order that as what was the basis for adopting 10% of the expenditure as not allowable. There is finding to show that the expenditure in question was not incurred wholly and exclusively for the business purposes. We find that the FAA had simply followed the order of his predecessor and had not met any of the arguments advanced by the assessee before him. Therefore, reversing his order, we decide ground no.2 in favour of the assessee. "
13. We find that there is no change in facts in this year and the assessee also contested that the miscellaneous expenses constitute merely 0.05% of the assessee's turnover of ₹1567 crores. Even otherwise also the neither the AO nor CIT(A) has given any finding that the assessee has not incurred these expenses for the purpose of business. Rather the AO had simply disallowed on mere adhoc basis. We find that this issue is squarely covered in favour of the assessee. Hence, we delete the disallowance of ₹7,65,877/- and allow this ground of appeal of the assessee.
14. The next issue in this appeal of the assessee is as regards to the order of the CIT(A) confirming the disallowance of market research expenses of ₹ 7,36,00,000/- as capital expenses on the ground that these expenses are incurred for brand building, which has enduring benefit in forthcoming years. Alternatively also, the assessee has challenged that 17 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 the CIT(A) has erred in not allowing depreciation @ 25% on the said amount. For this, the assessee has raised the following grounds:
"3. The Hon'ble CIT(A) has erred in confirming the disallowance of market research expenses of Rs.7,36,00,0007- as capital expenditure on the ground that these expenses are incurred for brand building which has enduring benefit in forthcoming years. On the facts and circumstances of the case and in law, the said market research expenses ought to be treated as revenue expenditure and the disallowance made be deleted.
4. Without prejudice to Ground 3 above, having confirmed the action of the learned AO that the market research expenditure of Rs.7,36,00,0007- is capital expenditure for creating an intangible asset, the Hon'ble CIT(A) has erred in not allowing depreciation @ 25% u/s.32 of the Act on the said amount on the basis that the appellant has not brought into existence any asset. In the event, the aforesaid sum is treated as capital expenditure, depreciation ought to be allowed thereon."
15. Briefly stated the facts are that the assessee has claimed a sum of ₹7.36 crores towards advertisement -market research expenses. The Assessing Officer during the course of assessment proceedings, required the assessee to explain as to why the expenditure incurred in market research be not treated as capital expenditure which is of enduring nature 18 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 instead of claim by the assessee as revenue expenditure. The Assessing Officer after considering the submission oi the assessee noted that the assessee has incurred expenditure on various items, which helped the assessee to assess how changing elements of marketing mix like product, price, distribution and promotion, impacts customer behaviors. He also noted that the usually marketing research takes places for the following purposes:
a) brand building
b) increasing brand awareness
c) identifying strategies for specific target
audience.
Accordingly, the Assessing Officer noted that it is apparent from these basic nature of the expenses that the expenses bring benefit to the assessee for the years to come. Hence, he treated this particular expenditure related to marketing research as capital in nature. Aggrieved, the assessee preferred appeal before the CIT(A).
16. The CIT(A) after considering the submissions of the assessee confirmed the action of the Assessing Officer by holding that expenses on account of marketing research is capital of nature and also not allowed the claim of depreciation. For this, the CIT(A) discussed the facts and observed as under:
"7.2 Appellant submitted that in the year under consideration, it has. incurred Rs. 7.36 crores towards Market Research expenses. The details break up of expenses incurred and their nature is tabulated as under: -19 ITA No.1702 / Mum/2015
ITA No,1869/ Mum/2015 Assessment Year 2008-09 Nature of expenses Amount Remarks Usage Study 1,54,92,316/- Expenses incurred to understand the consumers and their habits with respect to the categories i.e. hair care, skin care etc. Retail 1,52,67,045 Expenses incurred on Measurement reports/data on market Services reviews of various products.
There are fixed retail
outlets/distributors where
data are collected on
periodic basis and reports in
respect of data collected are
submitted to the company.
Household Panel 37,14,8657- Purchase of different product
categories and brands and
estimation of trial, repeat and
share of requirement of the
brands from a fixed panel of
households.
Product Test 1,45,80,7657- Getting consumer reaction
and feedback on the products.
Ad Pre-Test 40,27,0767- To get consumer reaction for
the new developed ad.
Post Launch 1,08,11,1427- How the launch of
Evaluation brand/variant has fared hi the
market
Logistic charges 96,69,2957- Logistics, hiring charges etc.
Hiring Charges etc. related to the above
expenses.
Total 7,35,62,5047-
ii. Appellant further submitted that AO has treated the entire market research expenses as capital expenditure on the premise that usually 20 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 market research is takes place for (a) brand building (b) increasing brand awareness (c) identifying strategies for specific target audience which will bring an enduring benefit to the appellant hi the coming years and therefore, are capital in nature.
iii. Appellant contended that the above expenditure are incurred in the normal course of the business of the assessee to understand consumers, consumer's habit, consumer's reaction & feedback on the products, consumer's reaction of the new ad-market reaction of brand/variant etc. The appellant has appointed various agencies in ' relation to various market research activities. The incurrence of such expenditure assist the appellant in improving marketing strategy and which ultimately results into higher sales and consequently higher profit of the business. Appellant is in the business of consumer care goods and is required to incur the above expenditure to remain in the business by understanding their consumer, consumer's habit, consumer's reaction & feedback on the products etc. These are the recurring expenses incurred throughout the year to improve sales of the appellant and to earn a better profit. They are incurred in the course of carrying out the business activities for achieving growth in 21 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 revenue, sustaining the market share in a highly competitive environment and improving the margins in the categories of goods manufactured by the appellant. These expenses have not been incurred to create a new asset capable 4ding any kind of enduring benefit.
iv. The appellant stated that it is in the business of consumer care goods since 1990 and war on year is incurring expenditure on market research and no adjustment has been made in order under section. 143(3) of the Act. Its business has already been set up and expenses are not incurred for the purpose of setting up of a business. As a part of its business it has to constantly keep on introducing new products/variants and discontinue products which do not do well.
Appellant further stated that if the expenditure on market research is treated as capital expenditure, depreciation @ 25% u/s 32(l)(ii) of the Act out to be allowed on the said amount.
"7.3 I have considered the facts of the case, written submission and oral arguments of the appellant as against the observations/findings of the AO in her orders 143(3) of the Act. The submission and contention of the appellant are being discussed and decided as under: -22 ITA No.1702 / Mum/2015
ITA No,1869/ Mum/2015 Assessment Year 2008-09 The appellant in its submissions has made an attempt to justify these expenses to be revenue in nature. However, on perusal of the details filed it is noted that these are in the nature of market study, data collection for future marketing strategy, purchase of different product category and brands, testing of product, launch of brand, logistical and hire charges. Thus the above description clearly shows that the benefit of this expenditure would not be limited to the year under consideration. only but will extent to several subsequent years as well. Thus the benefit is enduring in nature. Accordingly, nature of such expenses cannot be said to be revenue. The benefit of this expenditure will improve profit making apparatus of the appellant ' company and hence would be capital in nature. Reliance in this regard is placed on the judgement of Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. (Supra). Also in the case of Arvind Mills Ltd vs CIT 197 ITR 422, Hon'ble Supreme Court have held that capital expenditure would not become revenue simply by reason that it was incurred in connection with business activities which ultimately resulted in 23 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 efficiently carrying on day-to-day business. In view of the facts and legal position as discussed, it is held that the expenditure on account of market research is capital in nature and consequently disallowance made by AO is upheld.
The appellant has requested to grant depreciation on such expenditure. However, the appellant has not brought into existence any asset and hence depreciation would e allowable against such expenditure.
These grounds of appeal are therefore dismissed."
17. We have heard the rival contentions and gone through the facts and circumstances of the case. We have gone through the facts and noted that during the year under consideration the assessee has incurred marketing research expenses of ₹ 7.36 crores and the detailed break up of expenses incurred and there nature is tabulated as under:-
Nature Amount Remarks
of Expenses
Usage Study 1, 54,92,3 Expenses incurred to understand the
16/- consumers and their habits with respect to
the categories e.g. Hair Care, Skin care etc. Retail 1,52,67,045/- Expenses incurred on reports/data on Measurement market reviews of various products There Services are Fixed retail, outlets/distributors where data are collected on periodic basis and reports in respect of data collected are submitted to the company 24 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 Household Panel 37,14,865/- Purchase of different product categories and brands and estimation of trial, repeat and share of requirement of the brands from a fixed panel of households.
Product Test 1,45,80,765/- Gelling consumer reaction and feedback on the products Ad Pre-Test 40,27,076 To get consumer reaction for the new developed ad.
Post 1,08,11,142/- How the launch of brand/variant has fared Launch Evaluation in the market Logistic Charges, 96,69,295/- Logistics, hiring charges etc. related to the Hiring Charges etc. above expenses. Total 7,35,62,504/-
From the above and the assessment order it is noted that there is no dispute on the nature of above expenses and are incurred for the purpose of the business of the assessee. It is also a fact that the AO has accepted that the above expenditure has been incurred on various items which helps the assessee to how changing elements of marketing mix like product, price, distribution and promotion, all impacts customer behavior. It is also a fact that the above expenditure has been incurred in respect of existing product of the assessee. The AO has treated the entire market research expenses as capital expenditure on the premises that usually market research takes place for brand building, increasing brand awareness, identifying strategies for specific target audience which will bring an enduring benefit to the assessee in the coming years and hence, capital in nature. But we noted that the above expenditure is incurred in the normal course of business of the assessee to understand consumers, consumer's habits, consumer's reaction and feedback on the products, consumer's reaction on the new advertisement, market reaction of brand and variants etc. For this purpose, the assessee has appointed various agencies in relation to various market research activities and accordingly, incurred such expenditure to assist the assessee in improving marketing 25 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 strategy which ultimately results to higher sales and consequently higher profit of the business.
18. The assessee is in the business of consumer care goods since 1990 and year on year incurring expenditure on market research and no addition has been made even though assessments were completed under section 143(3) of the Act for earlier years. Assessee's business has already been set up and hence these expenses are not incurred for the purpose of setting up of business. As a part of its business, it has to constantly keep on introducing new product and variants and discontinue products which do not do well. For this detail market research is carried out and consequent market research expenses are incurred. The Revenue in AY 2001-02 to 2006-07 allowed the very same expenses as Revenue in nature while framing assessment under section 143(3) of the Act.
19. In view of the above discussion, now we will go through the case law cited by the assessee of Hon'ble Bombay High Court, which is almost similar in facts, of CIT vs. Glenmark Pharmaceuticals Ltd. 351 ITR 359 (Bom), wherein the question framed was as under: -
"(c) Whether on the facts and in the circumstances of the case, the ITAT is correct in law in upholding the CIT(A) order in deleting the addition of Rs. 10,00,00,000/- on account of marketing knowhow claimed by the Assessee?"
Hon'ble High Court answered the same as under:
Regarding Question (c) 26 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09
6. Mr. Suresh Kumar, Counsel for the revenue submits that expenditure incurred for marketing knowhow acquired by the respondent is not a revenue expenditure as the marketing knowhow acquired alongwith the brands is a benefit of enduring nature. Therefore, the expenditure is of a capital nature and the Tribunal ought not to have allowed it as a revenue expenditure. On the other hand, Mr. Jasani, Counsel for the respondent-assessee places reliance upon the reasons given by the Tribunal in the matter of USV Ltd. (Supra) which dealt with a similar agreement to that involved in this case. We find that on an examination of marketing knowhow agreement it is very clear that this agreement would lead to an improvement in its existing business resulting in higher sales and consequently higher profitability. This is so as the amounts spent on marketing knowhow would result in improving the profits of the business on the acquired brands as this knowledge would assist in improving the marketing strategy. The expenses incurred for acquiring this marketing knowhow if incurred by the respondent would be revenue and merely because it is outsourced it does not cease to be revenue expenditure. The expenditure incurred on marketing knowhow, according to the Tribunal would result in higher sales as well as lead to higher profit. Consequently, the amount 27 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 paid for marketing knowhow is revenue expenditure as correctly held by the Tribunal.
Therefore, the question would have to be answered in favour of the respondent-assessee and against the appellant-revenue.
In view of the above facts and the decision of Hon'ble Bombay High Court, we are of the view that the expenditure incurred by the assessee is in the nature of Revenue. Another aspect that the Revenue is consistently allowing this expenditure as Revenue from AY 2001-02 to 2006-07 consistently under section 143(3) of the Act. For the sake of consistency also, this issue has to be allowed in favour of assessee. Hence, we allow the claim of assessee on merits also. This issue of assessee's appeal is allowed.
20. The next issue in this appeal of the revenue is as regards to the order of the CIT(A) confirming the action of the AO in disallowing the following incomes as part of the profit of the respective undertaking while computing deduction under section.80IA & 80IC of the Act. The incomes are covered in the grounds of appeal as under:
"5. The Hon'ble CIT(A) has erred in confirming the action of the learned AO of not considering the following income as part of profits of the respective undertaking while computing deduction u/s 80IB/80IC of the Act on the ground that the said income cannot be said to be derived from the business of the appellant.
Undertaking Nature of Income Amount (Rs.) Pondicherry Misc Sale (by-products, scrap oil, etc) 9,55,08,697/-28 ITA No.1702 / Mum/2015
ITA No,1869/ Mum/2015 Assessment Year 2008-09 Misc income (lease rent Rs. 27,72,222/-, 29,54,497/- interest income Rs. 1,75,1 15/- and profit on sale of assets Rs.
7,382/-) Dehradun 1 Misc. Sale (by-product, scrap oil, etc.) 28,20,126/-
Dehradun 2 Misc Income (Lease rent) 13,56,000/-
Total Income 10,26,39,320 On the facts and circumstances of the case and in law, the above income amounting to Rs.10,26,39,3207- ought to be considered as income derived from the respective undertaking for the purpose of deduction u/s 80IB/80IC of the Act."
21. At the outset, the learned Counsel for the assessee stated that the issues are covered by the decision of the Tribunal in the immediately preceding assessment year i.e. 2007-08 in ITA No.8858/Mum/2011 and ITA No.8713/Mum/2011 order dated 18.5.2016, wherein, the Tribunal has considered the issue of misc. sales of bio-products, sale of scraps, etc, misc. income of lease rent, interest income and profit on sale of assets. We have considered this issue and noted that the Tribunal has dealt with the issue vide paras 12.3, 12.3(a) (b),(c)(d) and (e) and allowed the claim of the assessee except lease rent income from machine by observing as under:
"12.3. We have heard the rival submissions and perused the material before us. While dealing with ground related to deduction u/s.80IB/80IC of the Act, in the earlier part of the our order, we have mentioned that 29 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 the issue will be dealt later on as the assessee has also challenged the order of the FAA with regard to the said deduction. It is found that the AO had challenged the decision of the FAA about (i)rent and storage charges, (ii)exchange gain and money received from material return to the vendor, (iii) insurance claim. The assessee is aggrieved in respect of income shown under the heads (i)sale of by-products and scrap, (ii) lease rent income of blow moulding machine.
12.3.a.We find that the AO had allowed the claim of the assessee with regard to rent and storages in earlier years, that he had not brought on record any fact/(s)that could distinguish such facts from the facts of the current year, that the orders of the FAA for the earlier years were not challenged before the Tribunal is also a fact. Considering this if the FAA has allowed the appeal of the assessee, then his order had to be endorsed. Issue regarding rent and storage charges is decided against the AO.
12.3.b. In the matter of Raghunath Exports Pvt. Ltd.(330 ITR 57)it has been held that surplus realisation due to fluctuation in foreign exchange rates is part and parcel of the export turnover for the purposes of s. 80HHC.Paragraph 12 of the judgment reads as follow:30 ITA No.1702 / Mum/2015
ITA No,1869/ Mum/2015 Assessment Year 2008-09 "We have considered the contentions of the learned advocates for the parties and checked the records. It is not disputed that tea was exported and payment was received in foreign currency and it is also admitted that when realisation of the export was made there has been fluctuation of foreign currency, as such, there was a surplus realisation in terms of Indian currency. The question is whether the aforesaid surplus realisation of Rs. 10,61,326 can be treated to be a part of export turnover or not. In our view, going by the definition of the export turnover, the aforesaid amount was realised in connection with the export followed by payment of the price, by the foreign buyer. Unless there has been an export the aforesaid surplus would not have been realised. Hence, this surplus realisation is certainly relatable to the export. Therefore, we hold that this is an export turnover." Considering the above, we are of the opinion that gain on account of fluctuation in foreign exchange rate is entitled for deduction u/s.80IB of the Act. So, confirming the order of the FAA, issue is decided against the AO.31 ITA No.1702 / Mum/2015
ITA No,1869/ Mum/2015 Assessment Year 2008-09 12.3.c.In the matter of Pfizer Ltd.(330ITR62)the issue of insurance claim had been dealt as under:
"Submission that the insurance claim has no element of export turnover and that consequently it must sustain a reduction of ninety per cent under Expln. (baa) is not sustainable. It is necessary to note that Expln. (baa) in terms does not refer to export turnover.
Sub-s. (1) of s. 80HHC contemplates a deduction to the extent of profits derived by the assessee from the export of goods or merchandise to which the section applies. The basic issue therefore is to determine the extent of profits derived by the assessee from the export of such goods or merchandise. The formula in sub-s. (3) of s. 80HHC has been provided by the Parliament, for the purposes of sub-s. (1) to compute the profits derived from the export of goods. Clause (a) of sub-s. (3) specifies that where the export is of goods or merchandise manufactured or processed by the assessee the profits derived from the export shall be the amount which bears to the profits of business, the same proportion as the export turnover in respect of such goods bears to the total turnover of the business carried on by the assessee. In other words, in determining the profits derived from the export of goods or 32 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 merchandise the proportion of the export turnover to the total turnover of the business is applied to the profits of the business. The profits of the business in turn are defined in Expln. (baa) to s. 80HHC. Hence, the element of export turnover is a facet which has been taken care of by the legislature in the application of the formula which is referred to in subs. (3) of s. 80HHC.
The insurance claim for loss of stock-in-trade must stand on the same footing as the income that would have been realized by the assessee on the sale of the stock-in-trade. Insurance claim on account of the stock-in-trade does not constitute an independent income or a receipt of a nature similar to brokerage, commission, interest, rent or charges; hence, such a receipt would not be subject to a deduction of ninety per cent under cl. (1) of Expln. (baa)".
Considering the above, we are of the opinion that the order of the FAA does not suffer from any legal infirmity as far as claim with regard to insurance receipt is concerned. We are aware that the judgment is about section 80HHC of the Act. But, it is applicable to the provisions of section 80IB/80IC too. Confirming the order of the FAA, we decide this issue also against the AO.
33 ITA No.1702 / Mum/2015ITA No,1869/ Mum/2015 Assessment Year 2008-09 12.3.d. With regard to the eligibility of sale proceeds of by products and scrape for the 80IB/80IC deduction, we would like to refer to the case of Sadhu Forging (336 ITR444). In that matter the Hon'ble Delhi High Court has dealt with the issue of sale of scrap for claiming deduction u/s.80IB of the Act and has held as under:
13. Keeping in view the activities of the assessee in giving heat treatment for which it had earned labour charges and job work charges, it can thus be said that the appellant had done a process on the raw material which was nothing but a part and parcel of the manufacturing process of the industrial undertaking. These receipts cannot be said to be independent income of the manufacturing activities of the undertakings of the assessee and thus could not be excluded from the profits and gains derived from the industrial undertaking for the purpose of computing deduction under s. 80-IB.
These were gains derived from industrial undertakings and so entitled for the purpose of computing deduction under s.
80-IB. There cannot be any two opinions that manufacturing activity of the type of material being undertaken by the 34 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 assessee would also generate scrap in the process of manufacturing. The receipts of sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from industrial undertaking for the purpose of computing deduction under s. 80-IB."
Respectfully, following the above, we hold that the FAA was not justified in denying the 80IB/80IC deduction to the assessee on sale of scrap. Reversing his decision, we decide the issue in favour of the assessee.
12.3.e. Now we would like to take up the claim made by the assessee about lease rent income of blow moulding machine. It is a fact that the machine was not used by the assessee, that it was given to a contractor, that the contractor was performing certain activities that were related to the manufactured goods of the assessee .In our opinion for claiming deduction u/s.80IB/80IC there should be close nexus of the income and the business carried out by an industrial undertaking. Anything and everything indirectly linked to the business of the assessee cannot be held to an eligible activity for claiming deduction. Confirming the order of the FAA, we decide the issue before us, against the assessee."
35 ITA No.1702 / Mum/2015ITA No,1869/ Mum/2015 Assessment Year 2008-09
22. We find that this issue is covered in favour of the assessee partly and against the assessee partly. The Assessing Officer will consider the issue in terms of the Tribunal's decision for the assessment year 2007-08 and allow partly the claim of the assessee in the year under consideration.
23. The only issue in the appeal of the revenue is against the order of the CIT(A) in deleting the adjustment made by the TPO in respect of AEs royalty. For this, the revenue has raised the following ground:
"Whether on the facts and in circumstances of the case and in law, the CIT(A) is correct in allowing the appeal of the assessee in respect of the adjustments made by the TPO after considering various parameters mentioned in the TP order in respect of the following:
(a) Royalty
(b) fees charged."
24. Briefly stated the facts are that the Assessing Officer made reference under section. 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determination of Arms Length Price (ALP) of royalty charged to M/s. Marico Bangladesh Ltd (MBL) @ 2.5% of the sale price as against 1% of sale price charged by the assessee. The TPO during the course of proceedings noted that the assessee is the owner of trade mark, inter alia, 'Parachute' and 'Go Get Noticed". It was observed by the TPO that an agreement with MEL for licensing its trade mark in Bangladesh and with Marico Middle East FZE (MME) for licensing its trademarks 'Parachute' and 'Go Get Notice' in Middle East and African countries excluding Egypt. According to the TPO, the assessee would have received royalty on the goods sold in the regions for the respective trademarks @ 2.5% to MME 36 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 and 1% to MBL. The assessee adopted the transaction net margin method (TMM) to determine the ALP of royalty and net profit margin of the assessee is at 12.11% as against the arithmetical mean of seven comparables at 1.43% as per TP study report. The TPO rejected the net profit margin on the ground that the assessee has entered into similar transaction with other AEs, therefore, internal comparable uncontrolled price method (Internal CUP) is available to compute the ALP. Accordingly, the TPO has computed the ALP of royalty by applying 2.5% of sales as ALP as against 1% received by the assessee. Consequently, the TPO made addition of ₹1,53,57,577/- by making transfer pricing adjustment. Aggrieved, the assessee preferred appeal before the CIT(A).
25. The CIT(A) following the assessee's own case for the assessment year 2007-08 allowed the claim of the assessee vide para 3.4 as under:
"I have considered the facts of the case, written submission and oral arguments of the. appellant as against the observations/findings of the TPO/AO in their orders u/s. 92CA (3) /143(3) of the Act. The submission and contention of the appellant are being discussed and decided as under: -
i. An identical issue had arisen in appellant's own case for A.Y. 2007-08 wherein vide order dated 25.10.2011, my predecessor has decided the same observing as under: -
"i. In the facts of the case, the appellant has international transaction of receipt of 37 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 brand royalty from two its AEs, viz. MBL and MME.
ii. The MBL is located in Bangladesh where as MME is located in UAE, iii. It is the fact mentioned in the order of the TPO that the agreement of appellant with the MBL is in respect of trade mark 'Parachute' and that with MME is in respect of trademarks 'Parachute' and also for 'Go, Get Noticed'.
iv. It is further the facts mentioned in the order of the TPO that M/s MBL sells pure edible coconut oil under the brand 'Parachute' whereas M/s MME sells hair creams, hair gels, hair oils and pure edible coconut oil under the brands 'Parachute' and' Go, Get Noticed'.
v. Accordingly, it could be seen that not only there is issue relating to use of controlled transaction for the purposes of comparability, but the same have geographical difference, and also difference in respect of the brands as well as the product. Whereas the MBL is only selling 'parachute' brand of pure edible oil, the MME sells whole lot of hair and 38 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 personal care products, which, also includes pure edible coconut oil of 'parachute' brand. Accordingly for the obvious reasons the rate of royalty payable by the MME would be higher.
vi. The appellant has further submitted about the difference in market, ASP spent by it in the case of MME and ASP spent by MBL on its own and also the.
difference in respect of availability of factor relating to brand recall vii. It is also the fact submitted by the appellant that on the same terms and conditions, the brand royalty charged by it to MBL has been accepted by the department in the past i.e. till the A.Y. 2006-07. Further during the year, there has been increase in the rate of royalty charged to MBL, which has been increased from 0.5% to 1% w.e.f. 1.10.2006. Further the TPO has. not., specifically rejected the appellant's benchmarking under TNMM, where its' overall profitability is much higher compared to the arithmetic mean of the comparables.
viii. Considering all the above factors, the action of the TPO in benchmarking 39 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 the appellant's international transaction relating to receipt of royalty from MBL against the rate of royalty received by the appellant from MME is not found to be sustainable.
'ix. Accordingly, this ground of appeal is allowed".
ii. Since there is no change in facts, observations of the TPO/AO and submissions of the appellant, following the above findings of my Ld. Predecessor, the adjustment made by the TPO/AO is directed to be deleted.
iii. Accordingly this ground of appeal is allowed."
Aggrieved, the revenue is in appeal before the Tribunal.
26. At the outset, ld Counsel for the assessee before us filed copy of order of the Tribunal in assessee's own case for the assessment year 2007-08 in ITA No,8858/Mum/2011 & ITA No.8713/Mum/2011, wherein, the Tribunal has affirmed the action of the CIT(A) towards brand royalty from its AEs i.e. MBL for licensing its trade mark in Bangladesh @ 2.5% and with Marico Middle East FZE (MME) for licensing its trademarks 'Parachute' and 'Go Get Notice' in Middle East and African countries excluding Egypt @ 1% by observing as under:
"We have heard the rival submissions and perused the material before us. We find that the assessee had received payments towards brand royalty from two of its AEs .that one was located in Bangladesh and the other was in 40 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 UAE, that the agreement with the Bangladesh AE was in respect of Parachute .that with the UAE the assessee had entered into agreement in respect to TMs of Parachute as well as of GGN, that MBL would sell pure edible coconut oil as per the agreement, that the UAE-AE was allowed to sell hair creams, hair gels hair oil etc., that as per the agreement it would use brand GGN, that there was issue relating to use of controlled transaction for the purpose of comparability, that there was geographical difference, that there was also difference in respect of brands as well as products, that on the same terms and conditions the brand royalty charged by it to MBL had been accepted by the TPO till the AY.2006-07,that during the year there had been increase in the rate of royalty charged to MBL, that it had been increased from 0.5% to 1% w.e.f. 1.10.2006, that the TPO had not specifically rejected assessee's benchmarking, that overall profitability of the assessee was much higher than the arithmetic mean of the comparables. Considering the above facts, the FAA had held that TP adjustment proposed/ made by the TPO/ AO were liable to be deleted. We do not find any infirmity in the order of the FAA. The AO/TPO had failed to bring anything on record to prove that there was material change in the facts as compared to earlier years. If facts were 41 ITA No.1702 / Mum/2015 ITA No,1869/ Mum/2015 Assessment Year 2008-09 identical, then justification for deviating from the conclusions of previous year had to be highlighted."
27. When these facts were pointed out to ld CIT, D.R, she could not distinguish the facts of the present case of that assessment year because the transaction, the parties and the facts are identical. As the situation is same, this issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for the assessment year 2007-08 (supra). Hence, we confirm the findings of the CIT(A) and dismiss the ground of appeal of the revenue.
28. In the result, the appeal of the assessee is partly allowed and the appeal of the revenue is dismissed.
Order pronounced in the open court on 01.03.2019.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 01-03-2019
Bkp/sR.ps
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI