Income Tax Appellate Tribunal - Kolkata
Reckitt Benckiser (India) Pvt ... vs Dcit, Circle-12(1), Kolkata, Kolkata on 18 March, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH KOLKATA
BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER &
SHRI SONJOY SARMA, JUDICIAL MEMBER
ITA Nos.78/Kol/2018
Assessment Year: 2013-14
&
ITA Nos.2681/Kol/2018
Assessment Year: 2014-15
&
ITA Nos.2631/Kol/2019
Assessment Year: 2015-16
&
ITA Nos.1801/Kol/2024
Assessment Year: 2020-21
&
ITA Nos.2319/Kol/2024
Assessment Year: 2021-22
Reckitt Benckiser (India) DCIT, Circle-12(1), Kolkata.
Pvt. Ltd.
Diamond Prestige, 3rd
Vs.
Floor, Suit No. 313-315,
41A, AJC Bose Road,
Kolkata-700017.
(PAN: AABCR2655Q)
(Appellant) (Respondent)
Present for:
Appellant by : Shri Deepak Chopra, AR & Shri Rohan Khare, AR
Respondent by : Shri Guru Bhashyam, CIT, DR
Date of conclusion of Hearing : 23.01.2025
Date of Pronouncement : 18.03.2025
ORDER
Per Sonjoy Sarma, Judicial Member:
These appeals have been preferred by the assessee against the separate orders dated 30-10-2017, 29.10.2018, 30.10.2019, 26.07.2024 and 23.10.2024 of the DCIT, Circle-12(1), Kolkata [hereinafter referred to as 'AO'], passed u/s. 143(3) read with section 144C(13) of the Income-tax Act, 1961 hereinafter referred to as 'the Act') passed against the directions of the Dispute Resolution Panel u/s. 144C(5) of the Act 2 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 for the AYs 2013-14, 2014-15, 2015-16, 2020-21 and 2021-22 respectively.
2. Since grounds are common, facts are identical in all the appeals, hence, these appeals have been heard together and are being disposed of the same by this consolidated order for the sake of convenience. We take ITA No.78/Kol/2018 for the Assessment Year 2013-14 as the lead case and the result of which will apply mutatis mutandis to all the other appeals.
3. Grounds of appeal raised by the assessee in ITA No. 78/Kol/2018 read as under:
"1. That, on the facts and in the circumstances of the case, impugned order of assessment under section 143(3) read with section 144C( 13) of the Act, is contrary to law laid down by courts, based on extraneous consideration, unsubstantiated presumptions, ignoring to consider all relevant facts and relevant law, bad in law and violative of principles of natural justice.
2. That, on the facts and in the circumstances of the case, the AO erred on facts and in law in computing the total income of the appellant at Rs 2,070,635,140 against the returned total income of Rs.547,399,361.
3(a). That, on the facts and in the circumstances of the case, Transfer Pricing Officer ('TPO')/ DRP/ AO erred in relying on extraneous consideration, unsubstantiated presumptions in holding that expenditure towards advertisement, marketing and promotion ('AMP'), unilaterally incurred by the appellant, results in a separate international transaction.
3(b) That, on the facts and in the circumstances of the case and in law, TPO/ DRP/ AO have erred in not appreciating that RBIL has incurred the AMP expenses wholly and exclusively for the purpose of its business and the same does not fulfill any condition of being an 'international transaction' under section 92B of the Act.
3(c) That, on the facts and in the circumstances of the case and in law, the TPO/DRP/ AO have erred in placing reliance on the decision of the Hon'ble Delhi High Court decision in Sony Ericson Mobile Co Pvt Ltd (ITA No. 16.2014) in concluding that the incurrence of expenses related to AMP is an 'International Transaction', without correctly appreciating the subsequent decision of Maruti Suzuki India Ltd. vs. CIT (ITA No. 110/2014).
3(d) That, on the facts and in the circumstances of the case, the TPO/ DRP have erred in holding that AMP expenses incurred by the appellant resulted in 3 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 'promotion' of brand name owned by the Associated Enterprises ('AEs') and not 'use' of brand name.
3(e)That, on the facts and in the circumstances of the case, the TPO/ DRP have erred in not appreciating the fact that the appellant is the sole beneficiary of the AMP expenditure incurred by it and the benefit to the AEs, if any, is only incidental. Hence, bearing the cost of such expenditure was consistent with the arm's length principle and not on behalf off for the benefit of the AEs.
3(f) That, on the facts and in the circumstances of the case, the TPO/ DRP have holding that the assessee is not subjected to related risk of a brand owner producer and failed to appreciate that the appellant being a full-fledged manufacturer undertaking all the functions and bearing all the risks, is justified in incurring and bearing the cost of AMP expenditure.
3(g) That, on the facts and in the circumstances of the case, the TPO/ DRP have erred in not appreciating that application of "bright line test" which is not a prescribed method within the purview of section 92C of the Act read with Rule 10B of the Income Tax Rules, 1962 cannot be applied in the garb of 'Cost Plus Method' as done by the TPQ.
3(h) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the AQ/ TPO have erred in not following the directions of the DRP which is binding as per the provisions of section 144C(10) of the Act by not reducing expenses in connection with sales promotion.
3(i) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the AO/ TPO/ DRP have erred in not excluding the reversal of the advertisement expenses credited by the appellant under the head 'Other Income' for A Y 2013-14 in computing the alleged AMP expenditure.
3(j) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the AO/ TPO/ DRP have erred in ignoring reasons furnished by the appellant with respect to selection of appropriate set of comparable companies in light of detailed analysis of comparability factors and matching FAR profile. Further, the DRP has erred in upholding certain comparable companies selected by the TPO for benchmarking the alleged AMP expenditure.
3(k) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the AO/ DRP have erred in upholding the action of the TPO that the assessee has rendered brand promotion services to its AEs and it should charge a mark-up on cost incurred in rendering such services thereby making an adjustment of Rs. 938,214,885 towards alleged AMP transaction.
3(1) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the Assessing Officer/TPO erred in not following directions of the DRP pursuant to which no adjustment on account of AMP is required in the case of the appellant.
3(m) Without prejudice to above grounds of appeal, on the facts and in the circumstances of the case, the DRP has erred in not giving any specific direction 4 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 on the intensity adjustment filed before him and on the subsequent remand report of the TPO.
4(a) Whether on the facts and in the circumstances of the case, the DRP erred in not adjudicating the specific objection raised by the appellant with respect to applicability of Comparable Uncontrolled Price ('CUP') method instead of Transactional Net Margin Method ('TNMM') for benchmarking payment of royalty transactions, and further erred in ignoring the fact that the same method was duly accepted by the TPO for A Y 2010-11.
4(b) Whether on the facts and in the circumstances of the case, the DRP has erred in upholding the disallowance of Royalty Expenses made by Assessing Officer/ TPO by applying Comparable Uncontrolled Price method as the most appropriate method for certain brands instead of Transactional Net Margin Method as adopted by RBIL at entity level, and restricting the Arm's Length Price of royalty at 2% on the basis of alleged comparable agreements in FMCG Industry.
4(c) Whether on the facts and in the circumstances of the case, the DRP has erred in upholding the order of TPO in treating the payment of royalty for know- how as NIL on certain brands (Robinson Barley, Brasso Liquid, Cherry Handishine, Cherry Liquid Polish, Cherry Wax, Clearsil Cream, Clearsil facewash, Disprin, Fybogel, Lizol Disinfectants, Mansion Cream, Min Cream, Robin Fabric Stain Remover, Robin Liquid, Robin Powder, Silvo, Sweetex Liquid, Sweetex Tablet, Teepol) on the contention that no benefit has been received with respect to the said brands and therefore, the TPO erred in applying the 'benefit test' 4(d) Whether on the facts and in the circumstances of the case, the DRP/ TPO erred in not considering the submission of the assessee with respect to manner in which support/ benefit has been received with respect to the said brands from the AEs.
4(e) Whether on the facts and in the circumstances of the case, the DRP/ TPO erred in making an adjustment of Rs. 26,851,761 by treating the royalty paid by the assessee with respect to sale of imported goods as NIL.
5(a) That, on the facts and in the circumstances of the case, TPO/ DRP/ AO erred in making an adjustment of Rs. 13,413,665 with respect to Research & Development ('R&D') services.
5(b) That, on the facts and in the circumstances of the case, DRP has erred in stating that TPO has provided reasons in respect of the comparable selected by him.
5(c) Whether on the facts and in the circumstances of the case, TPO/ DRP/ AO erred in not appreciating the specific objections raised by the appellant against the set of comparable companies chosen by the TPO.
5(d) Whether on the facts and in the circumstances of the case, DRP has erred in upholding the order of the TPO in rejecting companies selected by the Assessee 5 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 for the purpose of benchmarking the transaction of provision of Research & Development services.
5(e) Without prejudice to the grounds mentioned above, the TPO has incorrectly computed the operating margin of certain comparable companies and has erred in not following directions of the DRP in the context of R&D services w.r.t. certain com parables.
5(f) Whether on the facts and in the circumstances of the case, the DRP/ TPO have erred in rejecting the use of multiple year data for analysis and determining the arm's length margin.
6(a) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in making an adjustment of Rs 23,640,014 with respect to IT Support Services by the appellant.
6(b) That, on the facts and in the circumstances of the case, the DRP has erred in upholding certain comparable companies selected by the TPO and in not appreciating the specific objections raised by the appellant against the same.
6(c) Whether on the facts and in the circumstances of the case, DRP has erred in upholding the order of the TPO in rejecting companies selected by the Assessee for the purpose of benchmarking the transaction of IT Support Services and erred in not considering the fact that TPO has not provided any reasons for rejection of the same.
6(d) Without prejudice to above grounds of appeal, AO/ TPO erred in not following directions of the DRP in the context of IT Support Services w.r.t. certain com parables.
6(e) Whether on the facts and in the circumstances of the case, the DRP/ TPO have erred in rejecting the use of multiple year data for analysis and determining the arm's length margin.
7(a) That, on the facts and in the circumstances of the case, the TPO/ AO erred in making an adjustment on account of transaction of import of finished goods of Rs. 121,078,342.
7(b) That, on the facts and in the circumstances of the case, the DRP erred in not giving any direction in its order W.r.t. the transaction of import of raw materials and finished goods.
7(c) That, on the facts and in the circumstances of the case, the TPO/ DRP/ AO erred in not appreciating the specific objection raised by the appellant against the set of comparable chosen by TPO with respect to difference in the products imported by the appellant in FY 2010-11 as compared to the products imported in FY 2012-13.
7(d) That, on the facts and in the circumstances of the case, the TPO/ AO erred in applying Resale Price Method ('RPM') and holding that closer product comparability is not essential.6
ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 7(e) Whether on the facts and in the circumstances of the case, the TPO have erred in selecting companies engaged in import of products with different profile from the products imported by the assessee.
7(f) Whether on the facts and in the circumstances of the case, the DRP/ TPO have erred in rejecting the use of multiple year data for analysis and determining the arm's length margin.
8(a) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in making an adjustment of Rs 9,279,769 on account of chargeback at cost, of expenses incurred by the appellant on behalf of its AEs and treating the same as 'market support services'.
8(b) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in not appreciating that charging of mark-up of 9.23% is not required since the expenses are incurred on behalf of AEs for merely facilitation purpose and the same cannot be treated as rendering of 'market support services'.
8(c) That, on the facts and in the circumstances of the case, without prejudice to other grounds, the TPO/ DRP erred in not appreciating that out of total recovery of Rs.100,539,206 received from Reckitt Benckiser Corporate Services Ltd, UK (,RBCSL'), only some portion pertains to reimbursement received towards Project Bedrock and Legal expenses of TTK and it also includes third party costs over which a mark-up is not warranted.
8(d) That, on the facts and in the circumstances of the case, without prejudice to other grounds, the TPO/ DRP erred in considering entire reimbursement of Rs.100,539,206 received from RBCSL for imposing a mark-up instead of considering only reimbursement received towards Project Bedrock and Legal expenses of TTK.
8(e) That, on the facts and in the circumstances of the case, without prejudice to other grounds, the TPO/ DRP erred in rejecting the objections raised by the appellant in respect to factors of incomparability in the set of comparable chosen by the TPO.
9(a) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in making an adjustment of Rs. 17,334,721 by treating the expenses allocated to the appellant as NIL and applying the 'benefit test'.
9(b) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in not appreciating that the expenses allocated to the appellant cannot be treated akin to rendering of intra-group 'stewardship services'.
9(c) That, on the facts and in the circumstances of the case, the TPO/ DRP erred in treating the expenses of Rs 17,334,721 as NIL by applying Comparable Uncontrolled Price Method, without appreciating that the costs have been scientifically allocated to all group companies.
10(a) That, on the facts and in the circumstances of the case, the DRP/ AO grossly erred in reducing the claim for deduction under sections 80-IB and 80-IC of the Act by Rs 250,200,000.7
ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 10(b) That on the facts and circumstances of the case, the DRP/ AO erred in allocating the residual cost among the eligible and non-eligible units in the ratio of sales and rejecting the basis adopted by the appellant.
10(c) That on the facts and in the circumstances of the case, the DRP/ AO erred in not appreciating the fact that the basis of allocation of residual cost as adopted by the assessee in computing the profits eligible for deduction under sections 80-IB and 80-IC of the Act has been accepted by the Learned Commissioner of Income Tax (Appeals) in AYs 2005-06, 2008-09 & 2009-10 and by the Hon'ble DRP itself in AYs 2010-11, 2011-12 and 2012-13.
11(a) That, on the facts and in the circumstances of the case, the DRP/ AO erred in holding that scrap sales of Rs 79,053 earned by the Appellant and allocated to eligible undertaking(s) is not eligible for deduction under sections 80-IB and 80- IC of the Act on the ground that the same is not 'derived from' the eligible undertaking(s).
11 (b) That, on the facts and in the circumstances of the case, the DRP/ AO erred in not appreciating the fact that scrap generated has direct nexus with the manufacture of the final product in the units and sale of such scrap reduces the cost of production and hence, has direct nexus with the business income of the eligible undertaking(s).
11(c) That on the facts and circumstances of the case, the DRP/ AO erred in not appreciating the fact that the deduction claimed by the Appellant under section 80-IB and 80-IC of the Act are supported by the Auditor's Certificate in Form 10CCB.
11(d) That on the facts and circumstances of the case, the DRP/ AO AO has erred in not appreciating the fact that Learned Commissioner of Income Tax (Appeals) in assessee's own case for A Ys 2008-09 & 2009-10, Hon'ble DRP in assessee's own case for AYs 2010-11, 2011-12 & 2012-13 and the Hon'ble Kolkata Income Tax Appellate Tribunal and Kolkata High Court in assessee's own case for AY 2007 -08 has held that income from scrap sales earned by the assessee and allocated to eligible undertaking(s) is eligible for deduction under sections 80-IB and 80-IC of the Act and the same is 'derived from' the eligible undertaking(s).
12. On the facts and circumstances of the case and in law, the AO has erred in initiating penalty proceedings under sections 271(1)(c) of the Act.
13. The above grounds are independent and without prejudice to each other. The appellant craves leave to add, amend, modify, alter, withdraw or vary any grounds of appeal either before or at the time of hearing of appeal proceedings."
4. Facts of the case as stated in the order of Ld. Transfer Pricing Officer (TPO) are as under:
8ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 4.1. Reckitt Benckiser (India) Limited or 'RBIL' or 'the company' is a subsidiary of Reckitt Benckiser Plc., UK. RBIL is engaged in the business of manufacturing and trading of FMCG products. RBIL manufactures and distributes various brands of household products, and over the counter pharmaceutical products. Some of the key products are Dettol Soap, Dispirin, Robin Blue, Cherry Blossom shoe polish, Harpic toilet cleaner, Mortein Insecticide, Colin, etc. RBI is registered in India under the Companies Act, 1956.
4.2. RBIL has entered into a License Agreement with Reckitt Benckiser N. V. and Reckitt & Colman Limited for the transfer of Intellectual Property Rights for the production, sale, distribution and marketing of Reckitt Benckiser "products"
domestically and internationally. These include all IPR(s) owned by the AEs such as trademarks, design and model rights, know-how, and all current and future copyrights and rights to databases relating to design, distribution, marketing and sale of licensed products in the licensed territory.
4.3. In the course of transfer pricing assessment, Ld. Transfer Pricing Officer (TPO) dealt with various transactions between the assessee and its Associated Enterprises (AEs) and made adjustments, resulting into increase of the total income assessed. Assessee raised its objection before the Ld. DRP who had given its directions which were incorporated in the assessment completed by the Ld. AO for which the assessee is in appeal before the Tribunal. We will deal with the grounds seriatim.
9ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22
5. Ground nos.1 and 2 are general in nature as submitted by the Ld. Counsel for the assessee. Accordingly, they are not adjudicated upon and are dismissed.
6. Ground no.3(a) to 3(m) are in respect of upward adjustment made for advertisement, marketing and publicity expenses (AMP) of Rs.98,82,14,885/-.
6.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the immediately preceding two years i.e. AY 2010-11 and 2011-12 in ITA Nos.
404/Kol/2015 and 625/Kol/2016 dated 17.06.2020, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue holding in favour of the assessee that AMP expenses is not an International Transaction. The relevant extract on the finding given by the Coordinate Bench in this respect is reproduced as under:
" 25.We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld DRP and other materials brought on record. Learned Counsel for the assessee submitted before us that the facts of the case of the Special Bench ruling in LG Electronics (supra) is different from the facts of the present case of the assessee. Assessee Company is engaged in only product promotion and not brand promotion and hence benefit of AMP accrues to the assessee and not to its AE(s).The Bright Line Test ('BLT') is not one of the prescribed methods under the Act and hence cannot be applied in the assessee`s case under consideration. The various expenses in the nature of sales promotion expenses, business promotion expenses (including free gifts/freebie/bonus packs etc.) market research expenses has to be excluded from the computation of AMP expenditure. Ld Counsel also pointed out that addition of any profit mark-up over the costs of AMP is unwarranted from the facts of the assessee`s case.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the TPO/Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. We note that issue before us relates to TPO's action in applying provision of Section 92of the Act in respect of advertisement marketing and promotion (AMP) expenses treating them as international transaction covered under the purview of section 92of the Act. The assessee had entered into license agreement with its AE Reckitt Benckiser NV and Reckitt Colman Ltd for transfer and 10 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 intellectual property right for provision of sale, distribution and marketing of Reckitt Benckiser products. It was manufacturing and distributing various brands of such products and had incurred substantial marketing and promotion expenses in respect of same amounting to Rs. 3,02,43,43,377/-.Such expenses were related to the promotion of the brand owned by the AE of the assessee which were prominently displayed in the advertisement. The TPO further observed that AMP expenses were substantially higher than the comparables selected by the assessee. The excess of such expenses was considered by him to be for brand promotion done for the AE. The TPO, placing reliance upon the decision of Special Bench of ITAT, Delhi in the case of LG Electronics India Pvt .Ltd Vs ACIT, Cir-3, Noida ITA No.5140/Del/2011,held that such brand promotion was to be treated as international transaction u/s 92B of the Act. The TPO applied Bright Line test (BLT) and after applying mark up of 12.27%, based on margin of entities carrying out marketing and advertising activities, made ALP adjustment of Rs.104,43,39,401/-.We note that in the case of LG Electronics (supra), the Indian company was acting on behalf of/for the benefit of Korean company and had 'no autonomy' in decisions Relating to expenditure incurred on marketing and promotion. In the assessee`s case, the assessee company was not under any obligation to incur AMP expenses and also its parent company had no control over such decisions of RBIL. The activities of brand promotion were a global marketing and sales promotion strategy of the parent called "Blue Ocean Strategy", which is not the fact in the case of RBIL. There is no transaction/undertaking/agreement between RBIL and its AE, as different from that which was existed in LG Electronics case(supra). Therefore, assessee company`s case cannot be compared with LG Electronics case(supra).
26. We note that incurrence of the AMP expenses, being a domestic transaction cannot be touted as an instance of profit-sharing exercise. We note that the TPO failed to appreciate that, though a 'transaction' under section 92F(v) includes arrangement or understanding; it per se involves a bilateral arrangement or contract between the parties. A unilateral action by one party in absence of any understanding or contract or binding obligation could not be termed as 'transaction'. In the assessee`s case, RBIL has incurred AMP expenditure in respect of its business operations in India and in order to boost its sales in India. Thus, no 'transaction ' could be said to exist in respect of such AMP expenditure incurred by the assessee.
At the cost of repetition we state that there is no term or condition or provision in either of the Licensing Agreements to the effect which create any sort of obligation on RBIL to carry out marketing and promotional activities in order to promote the brands and related IPRs. Neither there is an undertaking between RBIL and any of its Associated Enterprise) ['AE(s)] including the brand owners to incur such expenses for brand promotion as per any global or nation specific strategy, unlike in LG Electronics (supra) case. The RBIL has complete autonomy to incur expenses relating to marketing and promotion of its products for enhancing better sales and marketing and is under no obligation from any of its AE(s). In the light of above facts we note that arm`s length price adjustment (ALP) made by TPO and confirmed by DRP is not justified for that we rely on the judgment of Hon`ble Delhi High Court in the case of Maruti Suzuki India Ltd V.CIT [2016] 381 ITR 117 (Del-HC), wherein it was held as follows:
"66. It is contended by the Revenue that the mere fact that the Indian entity is engaged in the activity of creation, promotion or maintenance of certain brands of its foreign AE or for the creation/promotion of new/existing markets for the 11 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 AE, is by itself enough to demonstrate that there is an arrangement with the parent company for this activity. It is urged that merely because MSIL and SMC do not have an explicit arrangement/agreement on this aspect cannot lead to the inference that there is no such arrangement or the entire AMP activity of the Indian entity is unilateral and only for its own benefit. According to the Revenue, "the only credible test in the context of TP provisions to determine whether the Indian subsidiary is incurring AMP expenses unilaterally on its own or at the instance of the AE is to find out whether an independent party would have also done the same." It is asserted: "An independent party with a short term agreement with the MNC will not incur costs which give long term benefits of brand & market development to the other entity. An independent party will, in such circumstances, carry out the function of development of markets only when it is adequately remunerated for the same."
67. Reference is made by Mr. Srivastava to some sample agreements between Reebok (UK) and Reebok (South Africa) and IC Issacs & Co and BHPC Marketing to urge that the level of AMP spend is a matter of negotiation between the parties together with the rate of royalty. It is further suggested that it might be necessary to examine whether in other jurisdictions the foreign AE i.e., SMC is engaged in AMP/brand promotion through independent entities or their subsidiaries without any compensation to them either directly or through an adjustment of royalty payments.
Absence of a machinery provision
68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild- goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involving AMP expenses, Mr. Srivastava only referred to Section 92F (ii) which defines ALP to mean a price "which is applied or proposed to be applied in a transaction between persons other than AEs in uncontrolled conditions". Since the reference is to 'price' and to 'uncontrolled conditions' it implicitly brings into play the BLT. In other words, it emphasises that where the price is something other than what would be paid or charged by one entity from another in uncontrolled situations then that would be the ALP. The Court does not see this as a machinery provision particularly in light of the fact that the BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT.
69. There is nothing in the Act which indicates how, in the absence of the BLT, one can discern the existence of an international transaction as far as AMP expenditure is concerned. The Court finds considerable merit in the contention of the Assessee that the only TP adjustment authorised and permitted by Chapter X is the substitution of the ALP for the transaction price or the contract price. It bears repetition that each of the methods specified in S.92C (1) is a price discovery method. S.92C (1) thus is explicit that the only manner of effecting a TP adjustment is to substitute the transaction price with the ALP so determined.
12ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 The second proviso to Section 92C (2) provides a 'gateway' by stipulating that if the variation between the ALP and the transaction price does not exceed the specified percentage, no TP adjustment can at all be made. Both Section 92CA, which provides for making a reference to the TPO for computation of the ALP and the manner of the determination of the ALP by the TPO, and Section 92CB which provides for the "safe harbour" rules for determination of the ALP, can be applied only if the TP adjustment involves substitution of the transaction price with the ALP. Rules 10B, 10C and the new Rule 10AB only deal with the determination of the ALP. Thus for the purposes of Chapter X of the Act, what is envisaged is not a quantitative adjustment but only a substitution of the transaction price with the ALP.
70. What is clear is that it is the 'price' of an international transaction which is required to be adjusted. The very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not an ALP, an 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment.
71. Since a quantitative adjustment is not permissible for the purposes of a TP adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, what the Revenue has sought to do in the present case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on application of the BLT, is excessive, thereby evidencing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case.
72. As rightly pointed out by the Assessee, while such quantitative adjustment involved in respect of AMP expenses may be contemplated in the taxing statutes of certain foreign countries like U.S.A., Australia and New Zealand, no provision in Chapter X of the Act contemplates such an adjustment. An AMP TP adjustment to which none of the substantive or procedural provisions of Chapter X of the Act apply, cannot be held to be permitted by Chapter X. In other words, with neither the substantive nor the machinery provisions of Chapter X of the Act being applicable to an AMP TP adjustment, the inevitable conclusion is that Chapter X as a whole, does not permit such an adjustment.
73. It bears repetition that the subject matter of the attempted price adjustment is not the transaction involving the Indian entity and the agencies to whom it is making payments for the AMP expenses. The Revenue is not joining issue, the Court was told, that the Indian entity would be entitled to claim such expenses as revenue expense in terms of Section 37 of the Act. It is not for the Revenue to dictate to an entity how much it should spend on AMP. That would be a business decision of such entity keeping in view its exigencies and its perception of what 13 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 is best needed to promote its products. The argument of the Revenue, however, is that while such AMP expense may be wholly and exclusively for the benefit of the Indian entity, it also ensures to building the brand of the foreign AE for which the foreign AE is obliged to compensate the Indian entity. The burden of the Revenue's song is this: an Indian entity, whose AMP expense is extraordinary (or 'non-routine') ought to be compensated by the foreign AE to whose benefit also such expense enures. The 'non-routine' AMP spend is taken to have 'subsumed' the portion constituting the 'compensation' owed to the Indian entity by the foreign AE. In such a scenario what will be required to be benchmarked is not the AMP expense itself but to what extent the Indian entity must be compensated. That is not within the realm of the provisions of Chapter X.
74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 92B of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for?
75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40A (2) (a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO "is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods." In such event, "so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction." The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables an AO to determine what should be the fair 'compensation' an Indian entity would be entitled to if it is found that there is an international transaction in that regard. In practical terms, absent a clear statutory guidance, this may encounter further difficulties. The strength of a brand, which could be product specific, may be impacted by numerous other imponderables not limited to the nature of the industry, the geographical peculiarities, economic trends both international and domestic, the consumption patterns, market behaviour and so on. A simplistic approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance.
76. As explained by the Supreme Court in CIT v. B.C. Srinivasa Setty (1979) 128 ITR 294 (SC) and PNB Finance Ltd. vs. CIT (2008) 307 ITR 75 (SC) in the absence of any machinery provision, bringing an imagined international 14 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise"
27. Our view is also fortified by the decision of the Coordinate Bench of ITAT Kolkata in the case of M/s Philips India Ltd ,ITA No.2489/Kol/2017, order dated 04.04.2018 wherein it was held as follows:
"11. We have heard the rival submissions. At the outset, we find that the ld TPO, ld AO and the ld DRP had categorically accepted the basic fact that the assessee is a manufacturer and also engaged in distribution of products. While this is so, we are not able to comprehend the argument advanced by the ld DR that assessee is only a distributor and thereby the decision of Sony Ericsson would apply to the case. We find that since the assessee is a manufacturer cum distributor as accepted by the lower authorities, the decision rendered in Maruti Suzuki supra would be applicable to the assessee's case, since the contention of the ld DR that assessee is only distributor, is not emanating from the records of the lower authorities. We find that the issue under dispute before us is squarely addressed by this tribunal in assessee's own case for the Asst Year 2011-12 supra wherein it was held :-
"43. We have heard the rival submissions and perused the materials available on record. The preliminary issue here arises whether the AMP expenses constitute the international transactions so as to attract the provisions of transfer pricing of the Income Tax Act, 1961. The claim of the Ld. AR is that the AMP transaction does not represent the international transaction between the AE's therefore no question of determining the ALP of AMP transactions. We find force in the argument of the ld. AR in the given facts and circumstances. Therefore, in our considered view the AMP cannot be regarded as international transaction. In holding so we find the support & guidance from the judgment of Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited vs. CIT reported in 381 ITR 117 wherein it was held as under:
51. The result of the above discussion is that in the considered view of the court the Revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson Mobile Communications India (P) Ltd. case (supra) holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the issue as far as the present Assessee MSIL is concerned since finding in Sony Ericsson to the above effect is in the context of those Assessees whose cases have been disposed of by that judgment and who did not dispute the existence of an international transaction regarding AMP expenses."
In view of we note that the facts of the above cases are identical to the present issue, thus, the principle laid down by the Hon'ble Delhi High 15 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 Court in the case of Maruti Suzuki India Limited (supra) are applicable to the instant case. Respectfully following the same we dismiss the ground of appeal filed by the Revenue."
28.We note that the AMP transaction does not represent the international transaction between the assessee and its AE's as the revenue failed to bring on record any contract or arrangement between assessee and its AE for making AMP expenses for promotion of brand of its AE.In the assessee`s case, the assessee company was not under any obligation to incur AMP expenses and also its parent company had no control over such decisions of RBIL. These are routine advertisement expenses. Therefore, in assessee`s case the AMP cannot be regarded as international transaction as held by the Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited Vs. CIT reported in 381 ITR 117 (supra). Therefore, we allow the appeal of the assessee and dismiss the appeal of the revenue and delete the ALP adjustment made by TPO Rs.104,43,39,401/- for A.Y.2010-11 and Rs.331,09,56,767/- for A.Y. 2011-12."
6.2. Before us, ld. Counsel submitted that there is no material change in the facts of the present case vis-à-vis the earlier two preceding years as well as in the applicable law and, therefore, this issue is squarely covered in favour of the assessee by the said decision.
6.3 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case for the preceding two years as extracted above, we are in agreement that AMP is not an International Transaction and thus, delete the ALP adjustment made in this respect of Rs.93,82,14,885/-. Accordingly, these grounds taken by the assessee in this respect are allowed.
7. Ground Nos.4(a) to 4(e) are relating to ALP adjustment of Rs.14,99,95,332/- made on account of payment of royalty.
7.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue holding in favour of the assessee. The relevant 16 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"9. In respec t of grounds 4( a) and 4(b) rel ating to ALP adjus tment of Rs.2,65,52,926/- m ade on account of paymen t of royal ty, Ld. AO/TPO observed th at many of the br ands on wh ic h r oy al ty f or kno w-ho w and br and were paid are very old for which no paten t exis ts. Assessee was show c aused as to wh y no t roy al ty paid f or kno w-ho w on the br ands be cons idered as jun k and only the royal ty on br and be allowed on the basis of compar able agre emen t. Assesse e submitted the details of royal ty paymen ts. In response to the sho w c ause notice, assessee submitted th at i t h as en tered in to royal ty agreement wi th its AE s viz., Recki tt & Colem an (Overse as) Ltd., UK ( RCO) and Reckitt Benc kiser, N.V., Neitherl ands (RBNV) f or produc tion, s ales, dis tr ibu tion and m ar keting of produc ts. As per the l icens ing agree men ts en tered in to by the asses see wi th the se AEs, royal ty is paid by the assessee f or the r igh t to use the In tellec tu al Proper ty Rights ( IPR) which includes tr adem ark, patent, design an d model righ ts, kno w-ho w and all current and future copy rig hts and r igh ts to database rel ating to th e design, produc tion, dis tr ibu tion, m arketing and s ale of the products. Assesse e f ur the r submitte d th at there h ave bee n on going improvemen ts /developments in the produc ts wi th the suppor t of licensors. Submiss ions of the assessee were found no t te n able and an u pward adjus tmen t was computed by taking 3% of the s ales charge able to royal ty, amoun ting to Rs.10,65,24, 001/ -. 9.1. Fur ther, it was no ted that assessee h ad paid roy al ty f or goods which h ave been impor ted by it. Quan tum of royal ty in this respe ct is Rs.2,65, 52,926/-. In respect of th is componen t, asse ssee submi tted that ap ar t f rom the use of br and, tr ade m ark, kno w-how e tc. assessee h as also been given the right to m arke t, dis tr ibute and sell its produc ts in Ind ia by i ts AE s, thus assessee is p ay ing royal ty for the impor t of goods from its AEs in accord ance wi th the commerci al arr angemen t.
9.2. It was subm itted that in the in iti al ye ars, demand f or these produc ts which are impor ted are low and, therefore, company h as adop ted a model whereby it ob taine d license f or thes e products from the br and o wning en ti ty ( i.e. AEs) to m anuf ac tu re, m arke t, dis tr ibute and sell in In dia ag ainst paymen t of royal ty. Asse ssee provides specif ic ation to its AE s f or these im por ted pro ducts and par t wi th onl y nominal profi t m argin. Gr adu ally, manuf ac tur ing of these produc ts by the assessee locally gro ws, by s e tting up m anuf actur ing f acil ities . Assessee submi tted th at impor ted produc ts are m arketed and sold by the assessee locall y on wh ich it pays roy al ty to the licensors. Further, i t was submitte d that produc ts m an uf actured loc ally by th e assessee on the bas is of kno w-ho w f rom th e AEs and also expor ted to the oth er group enti ties depending upon their demands. On expor t s ale of i ts produc ts whic h ar e manuf ac tured locally in Ind i a, as s essee does no t pay any royal ty to the licensors under the licens ing 17 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 agreements. Assessee thus co ntended that from the impo r t of finished go ods, it is able to earn over all gross m argin of 17.31% and is th us creati ng loc al dem ands for these pro duc ts and at the s ame time is able to e arn be tter m ar gins inspi te of pay ing roy al ty fo r the use of its AEs IPRs.
9.3. AO/TPO did no t accept the submission of the ass essee and took i t as Nil by applying Comp ar able Uncon trolled P rice (C UP) me thod by holding th at wi th the impor ted goods, the payment of royal ty is embedded and th us, an u pward adjus tmen t of royal ty was m ade on two componen ts of Rs. 10,65,24, 001/- and Rs.2,65,52,926/ -, to tall ing Rs.13,30, 76,927/ -. On the o bjec tions r aise d by the ass essee bef ore the Ld. DRP on the above ALP adjus tmen t, i t direc ted to delete the adj us tment m ade of Rs.10,65,24,001 /- ag ains t which the Depar tmen t is no t in appe al. Thus, the onl y issue before us is in respec t of royal ty paymen t on impor te d goods by the assessee from i ts AEs, amounting to Rs. 2,65,52,926/-.
9.4. Observ ation s of Ld. AO/TPO while m aking this upwar d adjus tmen t are noted as under:
"With the impor ted goods the paymen t of royal ty is embed ded As per ag reement f or sales of goods outs ide Ind ia the assessee should pay Royal ty to A.E at the 8%. Thus when any goods th at are m anuf ac tu red whe ther sold Ind ia or outs ide India royal ty is paid.
As per Agreemen t th e royal ty payment is on ne t S ales whil e the ne t sales h as bee n lef t undefined wh ich shall be in accord ance wi th l aw for the time being in f orce.
As per the major ity of agreement ne t s ales me an goods sold in India m inus excise du ty, packing m ate r ial, brough t ou t goods, ex -fac tory value of the sales etc. The undersigned is not pr ivy to pr ic in g policy of the A. E f rom whic h the assessee h as pur ch ased imp or ted goods."
9.5. The moo t poin t before us in respe ct of th is ALP adj us tme n t on accoun t of royal ty p aymen t is to consider whe the r ro yal ty is embedded in the impor t pr ice paid by the assessee to its AEs , on the goods impor te d by it. In th is r espec t, assessee has alre ady expl ained the bus iness model c arr ied by i t as s tated above. Fur ther, Ld. Coun sel for the assessee referred to the licensing agreement en tered in to between it an d the AE (RCO L), pl aced in the paper book at p ag e 2332. The said licence agreement is d ated 15.07.2005. He specif ically ref erred to Ar ticle 6. 1 wh ich l ays do wn the terms f or the payment of royal ty equivalent to 5% of ne t s ales of products in In dia and 7% of expor ts from Ind ia. He also referred to Ar ticle 7 wh ich lays down the terms f or cal cul ation and p aymen t of said royal ty. The two ar ticles are reproduced as under:
18ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 "6.1. In consider ation of the rights and In tellec tu al Proper ty Righ ts gr an ted b y the Licensor under this Agreement, the Licens ee shall pay the Licensor:
(i) Roy al ty eq uivalen t to 5% of ne t s ale s of Produc t(s) in In dia or su ch o ther percentage as m ay be perm i tted by the l aws for the time being in force in Ind ia.
(ii) Roy al ty eq uivalen t to 8% on expor ts from Ind ia or such other percentage as may be permi tted by the l aws f or th e time being in force in Ind ia.
Any cos ts ei ther direc tly or ind irec tly paid by the Licens ee f or any and all cos ts includ ing leg al services in rel ati on to an y In tellec tu al Pro pe r ty Righ ts owned by an RB group e nti ty includ ing wi tho u t l imi tation f or advise, regis tr y rel ate d wor k, litig ation (bo th civil and cr im inal cou nterfeit actio ns and r aid, adm inistr ative ac tion, m ay be deducted from the royal ty pr ovided th at the Lic ensee supplies evidence of such paymen ts to the Licensor. The cl aims f or the royal ty shall ar ise at the time of Produc ts sold leave the prem ises of the Lice nsee.
6.2. Ne t sales sh all be in ac cordance wi th l aw f or the time be ing in f orce in India.
Ar ticle 7 P aymen t 7.1. A c alcul ation of the amount of roy al tie s due accord ing to ar ticle 6 above shall be made at th e end of e ach c alendar half ye ar. The Licensee sh al l send a comple te s tatemen t by the 2 0 t h of the mon th f ol lo wing a c alend ar h alf year and sh al l tr ansfer the corr esponding amoun t wi th in the s ame period. The s tatem ent shall se t for th the ne t s ales of the produc ts, the amoun t of any p aymen t due an d all o ther inform ation ne cess ar y to sho w the grounds on which such p aymen t has been compu ted.
7.2. The Licensor and th e Licensee m ay jointly de cide to adjus t the royal ty at the end of e ach calendar ye ar in connec tion wi th m ar ket cir cumstan ce s wh ich jus tify an adjus tmen t.
7.3. All amounts due h ereunder sh all be tr ansf erred af ter deduc tion of any taxes and cesses includ ing but no t lim ited to Researc h & Developmen t Cess due and in loc al currenc y at a bank ac coun t to be no tif ied f rom time to time by the Lice nsor. The cos ts of payment sh all be bo rne by the Licens ee."
19ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 9.6. On perusal of the said Ar ticles of the licen ce agree ment, it is observed th at these are pure commerc ial terms and there is no leg al bar f or hav ing such commercial arr angemen t. Ld. Counsel further submi tted that th ere is no bas is for holding that roy al ty is embedded in the impor t pr ice of the goods impor te d by the assessee. No thing posi tive is brough t on record by the L d. AO/TPO to demons tr ate as to how this conclu sion h as been arr ived at. H e fur ther conte nded that i t is the pr erogative of the assessee to decide in a par ticu l ar, if royal ty is payable or no t and L d. AO/TPO c anno t s te p in to the shoes of the assessee f or such commerci al arr angemen ts whic h is adequ ate ly documen ted and verif iable f rom the records. It is a mere presumption at the end of the Ld. AO/TPO to concl ude th at roy al ty is embedded in the impor t pr ice which is based on no th ing bu t surm ises and conjec tures, cl aime d the Ld. Counsel. He also referred to the Sc hedule f orming par t of the licence agreement wherein br and an d the produ c ts are lis ted whic h are subje c ted to p ayment of royal ty when im por ted by the assess ee from the concerned AEs. This schedul e is pl aced at p age 2344 of the paper book. From the perusal of this schedule, l d. Counsel poin ted ou t spe c if ic produc ts which have been impor ted during the ye ar under cons ider atio n and royal ty h as been paid by the assessee on im por t of these specif ic produc ts in ter ms of th is license agreemen t.
9.7. Ld. Counsel further submitted th at p ayment of roy al ty on impor t of goods is not a one of f tr ans ac tion and assessee h as been paying the s aid r oyal ty in e arl ier ye ars which h as never been challeng ed and h as al ways been all owed in the prece ding ye ars. Ld. Counsel thus cl aimed for appl ic ati on of principle of cons is tency fo r wh ich he pl ac ed reliance on the decision of Hon'ble Supreme Cour t in the case of Radh asoam i S atsang Vs. C IT [1992] 193 ITR 321 (SC). In th is respec t, he submitted that this pr inciple h as been appreciate d an d up held by the Coordinate Bench in asse ssee's own c ase f or the preceding two assessment ye ars (supr a). 9.8. Ld. Counsel also con tended th at i t is no t wi th in the jurisd ic tion of the Ld. TPO to tes t the commercial expediency of an in ter national tr ansac tion by applying the benefi t tes t and tak ing the tr ans ac tion val ue at nil. On this conten tio n, he again pl aced reliance on the decis ion of Coordinate Bench in as sessee's own c ase f or the preceding two assessment ye ars (supr a). 9.9. Ld. Counsel re iter ated to ac cep t the business model in re spect of paymen t of roy al ty on the impor t of f inished goods by subm itting th at as per terms of the l icense agreement be tween the assess ee and i ts AE , asses see enjoys the r ight to man uf ac tur e (in o wn f ac tor y) the l icensed goods or get the s ame m anuf ac tured f rom o ther con tr ac tors. Accordingly, the r igh ts gr an ted by the licensor to assessee in respect of all licensed goods are identic al. H owever, in respe ct of cer tain goods for which the demand in its l icensed terr i tory is no t adequ ate or attained a size able scale, asse ssee chooses to im por t these goods f rom other Reck i tt Benckis er en ti ties ("AE") and sell in th e local m arket. It m ay also be no ted that f or 20 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 such go ods impor te d from group enti ti es, asses see p ays cos t plus a fixed m ark-up of 5 percen t to such group entities for goods m anuf actured by such enti ties f or the assessee. Accord ingly, it m ay be appreciated th at no amou nt of "Royal ty" is embedded in the impor t pr ice p aid by the assessee to its AE. Fur th ermore, it may also be no ted th at likewise when an AE sources goods f rom the assessee for sale in their respec tive m ar ke t, assessee is paid on cos t plus a f ixed m ar k-up on such c ost, and no royal ty is paid to the assessee on such rel ated p ar ty expor ts. In such cases, where the AE sources the g oods f rom assessee, the AE oper ating in the respe ctive local cou n try pays 'the Royal ty for use of IPR. 9.10. On this subm iss ion, a s pec ific query was r aised by the Bench on the Ld. Counsel as to whe ther the busines s model so expl ained has be en acce pted by an y Governmen t Au thor ity in any f ur ther proceeding s. To th is eff ect, Ld. Counsel pl aced on record a copy of order dated 29.0 6.2015 passed by Deputy Comm issioner of Cus toms, Spe cial V alu ation Br anch, Ne w Cus tom House, Ne w Delhi in the assessee's own case wherein v alu ation of impor ts made by the assessee from its AEs was ref erred to Special V alu ation Br anch under the Customs V aluation (Determin ation of Val ue of impor ted goods) Rules, 2007. While de al ing with the v aluatio n issue in respe ct of im por t of g oods done by the assessee the Cus toms Author i ty held that royal ty is no t incl uded in the invo ic e v alue of the goods impor ted by the impor ter f rom the foreign suppliers. The relev ant ex tr ac ts of the f indings given by the Cus toms A uthor ity in the s aid orde r are r eproduced for ease of reference:
" 19. From the provisions of the above agreements it is no tic ed th at the Licensor has gr an ted the Impor ter the r ight to us e the In tellec tu al Prope r ty Righ ts in conne ction wi th the de sign, produc tion, dis tr ibutio n, m ar ke ting and s ale of the pro ducts. The Licensor also granted to the Im por ter the righ t to sublicense the r igh ts gr an ted herein to the L icensee to third P ar ties for the pur pose of manuf ac tu re, packaging, s ale and dis tr ibution of products. In consider atio n of the righ ts and In tellec tu al Proper ty Rights gr an ted by the L ice nsor under this Agreemen t, the Im por ter is requir ed to p ay royal ty to the Licens or on the bas is of Net s ales of products sol d in In dia/expor ted from India.
20.1 Guidel ines to m ake addi tion of royal ty to the assess abl e v alue of impor ted goods are enshr ined in Rule 10(1)( c) of the Valuation Rules, 2007. The said Rule prov ides th at in de term in ing the tr ansac tion value, royal ties and license f ees rel ated to the im por ted goods th at the buyer is requir ed to p ay, direc tly or in direc tly, as a condition of the s ale o f the goods being valued , to the exten t th at such roy al ties and f ees are no t inclu ded in the pr ice actu ally paid or p ay able; shall be added to the price ac tu ally paid or p ayable f or the impor te d goods.
Expl anation:- Whe re the royal ty, l icense fee or any o ther p ayment for a pr ocess, whe ther pate n ted or o ther wis e, is 21 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 includ ible referred to in cl auses (c) and (e), such charges shall be added to th e pr ice ac tually p aid or payable for the impor te d goods, notwi ths tan ding the f ac t th at such goods m ay be subjec ted to the said process af ter impor tation of such goods.
In ter pre tative No tes- to Rule 10(1) (c) provide th at the roy al tie s and l icense fees referred to in Rule 10(1) (c) may include among o ther th ings, paymen ts in res pec t to p ate nts, tr adem arks and c opyr ights. H owever, the Ch arges f or th e right to reproduce the im por ted goods in the co untr y of impor tation sh all no t be added to the price ac tually p ai d or p ay able for the im por ted goods in de term in ing the c ustom s v alue.
20.2 From these pr ovisions of the V al u ation Rules it is cle ar th at f or addi tion of an y amoun t un der Rule 10(1)(c) of the Valuation Rules the following cond ition s need to be fulfilled:-
(i) such amou nt is no t Included in the price actu ally pai d or p ay able
(ii) the amoun t should be paid as a condi tio n o f the s ale of the goods being valued and
(iii) the amoun t is ac tuall y paid or payable f or the impor ted goods 20.3 Sin ce in this case roya lt y is t o be paid on Net Sales of product s sold in Ind ia or expor ted from Ind ia, i t is clear that the said amount of roya lty is n ot includ ed in the invoice values of t he g ood s I m ported by the I mporter from the fore ign Suppliers."
[emphasis supplied by us ] 9.11. Per co ntr a, Ld. CIT, DR ref erred to th e wr itte n subm ission pl aced on record wherein conten tions r aised are in respec t of challeng ing the co mmercial expediency of a tr ans ac tio n and the benef its der ived by the assessee from the alleg ed royal ty paymen t.
10. We have heard the rival conten tions and perused the m aterial av ail able on record. In this respect, we find f orce in the submiss ions made by the Ld. Counsel vis-à-v is application of princ iple of cons is tency as well as ju risd ic tio n of the L d. TPO to tes t the commercial exped ien cy of an internatio nal tr ans ac tion while applying the benef it tes t f or which we pl ace our relian ce on the decis ion of the Coordinate Bench in assessee's own c ase for the preceding two years (supr a). In th is re spec t, we ex tr ac t the find ing s given by the Coordin ate Benc h wh ic h is as unde r:
" 16. We note th at the assessee is a m an uf ac turer and dis tr ibutor of a l arge num ber of produc ts/br ands. These 22 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 br ands are o wned by its AE s. The as sessee has been paying roy al ty to its AE s f or a n umber of ye ars which has been allo wed in the assessment of e arl ier ye ars . This ye ar there is no ch ange in f acts and l aw so f ar ass essee comp any an d i ts Associ ate En terpr is es (AEs) are concer ne d.
It is a well se ttled legal posi tion th at f ac tual matte rs which pe rme ate throug h more th an one as sessment ye ar, if the Revenue has accepted a par ticul ar v ie w or propos ition in the p as t, i t is not open for the Revenue to take an entirel y contr ary or diff erent stand in a l ater ye ar on the s ame issue, involv ing iden tic al fac ts unless and until a cogent c ase is m ade ou t by the TPO/ Assessing Of ficer on the bas is of chang e in f acts. Fo r th at we rely on the order of the Hon'ble Supreme Cour t in Radh aso am i Sats ang vs . C IT 193 ITR 321 (SC).
We are of the vie w th at the above cite d precedent on pr in ciple of consis tency is squarely appl icable to the assessee u nder consider ation. In the fac ts of the assessee's case, the Ld. TPO has no t po in ted ou t the ch ange in f acts or any provis io n of l aw wh ich led him to take a view contr ary to the v ie w taken by h is predeces sors in previous years. We no te th at the assessee h as been paying royal ty to i ts Asso ci ate Enter pr ises(AEs) for a num ber of ye ars which has been allo wed in the assessment of earl ie r ye ars. Therefore, the TPO c anno t take a con tr ary vie w and dis turb the se ttled f ac ts unless there is a change in l aw or f ac ts. Theref ore, the arm 's leng th pr ice adjustmen t m ade by TPO is no t sus tain able in l aw.
17. We no te th at TPO has allo wed r oyal ty in respec t of al l except two produc ts v iz. Mincream and Robinson Burle y, the TPO h as held th at no benefit was d erived by the assessee from its AE. It is not den ied th at the tr ade - m ar ks f or the two produc ts v iz. Mincr eam and Robinson Burley were re gis tered and the s aid br an ds were o wned by the AEs. The royal ties are paid no t only in respec t of patent but f or a bas ke t of services . It is a common occurrence that a person us ing a br and name pays cer tain br and royal ty to the o wner of br and . It is no t the c ase of the TPO, th at the roy al ty paid in respec t of these produc ts was wi thou t an y use of the s aid b r and names. The assessee has in its TP study incl uded payme n t of roy al ty and ac cording to it the royal ti es are at arm's leng th. Consider ing these f acts the proposed dis allo wan ce of royal ty in respec t of Mincr e am and Robinson Burley does no t appe ar to be jus tif ied and proper."
10.1. Fur ther, we obse rv e that paymen t of roy al ty on the impor t of goods by the assessee from its AEs is gove rned by the licen ce agreement wh ich is ef fective since the ye ar 2005. We no te th at there is no leg al bar on the commercial terms arr ange by the 23 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 assessee in respe c t of paymen t of royal ty of the ne t s ales as referred in Ar ticle 6 extr ac ted abov e. Also, Cus toms Author ities have duly ex am ined the issue in respec t of roy al ty if embedded wi thin the im por t price in respec t of goods impor ted by the assessee f rom its rel ated par ties i.e. AE s. The Special V alu ation Br anch of the Cus toms Au thor ities h as given a catego r ic al find ing th at ro yal ty is not included in the invoice v alue of the goods impor te d by the assessee. We also observe th at while ar riv ing at a conclus ion, ld. TPO has no where recorded and referr ed to any m ateri al which could demonstr ate that royal ty p ayme n t by the assessee is embedded in the process of the im por ted goods. To our unders tanding, i t is merely a presumption which c anno t be upheld af ter looking into the f acts of the case and corrobor ativ e m ater ial pl aced on record. Accord ingly, considering the subm iss ions m ade by the Ld. Counsel and in ref erence to the dis cussion m ade above, we dele te the u pward adjus tmen t in respec t of paymen t of royal ty of Rs.2,65,52,956/-. Thus, grounds 4(a) and 4( b) are allowed."
7.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.619/Kol/2017 for the Assessment Year 2012-13 as extracted above, we are in agreement that we delete the upward adjustment in respect of payment of royalty of Rs.14,99,95,332/-. Accordingly, grounds 4(a) to 4(e) are allowed.
8. Ground nos.5(a) to 5(f) are in respect of upward adjustment of Rs.1,34,13,665/- for R&D services.
8.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue has remanded back to the file of Ld. TPO. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
24ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 "11. Ground no. 5( a) to 5(c) is in respec t o f up ward adjus tme n t of Rs.1,12,45,571/ - f or R&D services. In the Tr ansf er pric ing assessment, ld. TPO rejec ted cer tain compar ables selec te d by the assessee owing to dif ference in func tions, as se ts, risk (FAR analys is). As sessee r aised the objec tions and subm itte d th at compar ables taken by the Ld. TPO are f unc tion all y no t comp ar able.
Ld. TPO rejec ted th e objec tions r ai sed by the asses se e. Ld. Counsel referred to the comp ar abil ity anal ys is m ade f or the compar ables selec ted by the assessee by taking into account the correc t functional i ty of the compar abl es for which de tail ed char ts are pl aced on record. By referring to these ch ar ts, Ld . Counsel submi tted that fo r making a correct compar abil i ty an alysis, i t is impor tan t to c ap tu re the correc t function al ity of the co mp ar ables and, therefore, he submi tted that the m atter c an go back to the Ld. TPO to under take f resh compar abil ity tes t b ased o n the ch ar ts submi tted on record. According to him, it is impor tan t th at proper functional profile including the FAR an alys is as well as economic analys is mus t be under taken to arrive at the correc t benc h- m ar king .
11.1. In this respec t, he submi tted th at assessee provides fo llowing service to its AEs wh ich m ust be ke pt in the perspective while under tak ing f resh se arch of th e compar ab le s, the s ame is reproduced as under:
"• Provide services in rel ation to prep ar ation of s am ple s f or consumer rese arch.
• Prov ide assistan ce in under taking m arke t res e arc h, including ex am ining co nsumer tas tes and preferences, produc t pac k ag ing and other specif ic attr ibu tes as may be prescribed by the Recipien t and/or are ac ce ptable cons ide ring the bro ad guidel ine s l aid out by the Gr o up.
• Assis tance in providing research repor ts on the v arious ac tiv ities such as sensory evaluati on, shelf-lif e s tu dies, s tor age stab il ity s tudies and o ther pr oduct tes ting and trials to verify whe ther the s ame adhere to the in tern atio nall y accep table s tandar ds of qual i ty and inter nal guidel ines and po lic ies of the Group.
11.2. He also ref erred to FAR analysis and econom ic an alysis pl aced on re cord in the paper book whic h ought to be considered f or the purpose of under taking co mpar abil i ty tes t b as ed o n correct functional ity of the compar ables. Consider ing the f ac ts on record and the subm issions made as s tated above, we f ind it proper to remit the m atte r back to the f il e of Ld. TPO to under take compar ab il i ty tes t based on correc t fu nction al i ty of the c omp ar ables by cons ider ing the m ater i al on re cord and arr iv e at the benchm arking in ac cordance wi th the provisions of l aw. Asses see is at l iber ty to f urn ish an y fur ther de tai ls in th is respec t to jus tify i ts benchm arking of ALP of the tr ans ac ti on. Accord ingly, ground nos. 5( a) to 5( c) are allowed f or statis tic al purposes. "25
ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 8.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.619/Kol/2017 for the Assessment Year 2012-13 as extracted above, we find it proper to remit the matter back to the file of Ld. TPO. Accordingly, ground nos. 5(a) to 5(f) are allowed for statistical purposes.
9. Ground nos. 6(a) to 6(e) are in respect of adjustment made towards IT support services, amounting to Rs.2,36,40,014/-.
9.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue has remanded back to the file of Ld. TPO. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"12. Ground no. 6(a) to 6(d) is in respect of adj us tmen t m ade towar ds IT sup por t services, amoun ti ng to Rs .5,04,0 0,7 31/-. This is also the issue simil ar to the ground r aise d in 5( a) to 5(c). On this issue, Ld. AO h as considered the service as KP O Services whic h are in f ac t BPO f unc tion. De tails of IT suppor t services provided by the assessee to its AEs are as under:
"• Appl ic ation Mon itor ing to ensure all the appl ic atio ns are running as per expec tations and to de tec t and r aise any anom al ies in the appl ic ation perf ormance or us age. • Take pre-emptive ac tion to fix anom al ies, if any de tected and /or escal ates to the respec tive thir d par ty vendor. • Prov ide data s er vices to load d ata in to appl icatio ns as per business requiremen t. These in clude - perio dic upd ates of an appl ication 's database, taking adequate d ata bac kups bef ore an appl ic ation is ref reshed/ reboo ted e tc.
• Provide user m an agemen t services wh ich include invoking and removing the access of users, as is prescr ibed in the s tand ard oper ating procedures provided by the Rec ipien t.26
ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 • Provide inc ident resolution to re solve any issues us ers encounter in the system wi th respe c t to d ata accur acy. • Implement m inor appl ic ation configur atio ns to res olve issues on d ata ac cur acy or to c ater to chang ing bus iness requiremen t.
• Deploy ch anges to production environment fo r any new enhancemen t or bug fixes to the appl icatio n.
• Gener ate and cir cul ate m an agement inf orm ation repor ts in rel ation to org an iz ation al processes, fr ame wor k e tc. as may be required by the Rec ipien ts f rom tim e-to- time."
12.1. In this respec t also, Ld. Counsel referred to char ts prepared fo r taking the corr ect comp ar ables based on the f unc ti on al prof ile arr ived at af ter un der taking F AR analysis and econom ic analys is, de tails of which ar e pl aced in the paper book. On this issue , Ld. Counsel cand idly submi tted th at af ter c ap tur ing the correc t functional prof ile of the compar ables based on m ater i al f urnished by the assessee, the m atter may be r emitte d b ack to the f ile of Ld. TPO to under tak e a f resh compar ability tes t to arr ive at corre c t bench-marking. Consider ing the submiss ions made, f ac ts of the c ase and m ate r ial pl aced on record, we f ind i t proper to remit this issue also to the file of Ld. TPO to under take af re sh compar ab il ity tes t by cap tur ing the correct functio nal i ty as the ass essee has described the IT su ppor t services whic h it has provided to its AEs. Assesse e is at l ibe r ty to f urnish an y f ur ther de tails in this respec t to jus tify its bench m ar king of ALP of the tr ans ac tio n. Ac cordingly, grounds 6( a) to 6(d) are allo wed for s tatis tic al purposes."
9.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.619/Kol/2017 for the Assessment Year 2012-13 as extracted above, we find it proper to remit the issue back to the file of Ld. TPO. Accordingly, ground nos. 6(a) to 6(e) are allowed for statistical purposes.
10. Ground nos. 7(a) to 7(f) are in respect of import purchases of finished goods from the AEs for which an upward adjustment of Rs.12,10,78,342/- has been made.
27ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 10.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue has remanded back to the file of Ld. TPO. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"14. Ground nos. 8( a) to 8(e) are in respec t of impor t purc has es of finished goods from the AEs f or which an up ward adj us tment of Rs.7,99,56,607/ - h as been m ade.
14.1. In this respect, assessee has bench-m ar ked the purchase of finished goods impor ted f rom AEs am ounting to Rs.40,11,48,074/- by us ing res ale pr ice me thod. Ld. TPO f ound functio nal diffe rence in the compar able s and recompu ted the g ross prof i t m argin of 37.06% to arr ive at the ALP of impor ted goods. In th is re spect, Ld. DRP had obse rve d th at product compar abili ty mus t be simil ar, it is no t e ssenti al to have closer compar abil i ty of the produc ts. The bro ad b aske t of th e produc ts of compar ables should be sim il ar to the tes ted p ar ty p roduc ts. Thus, Ld. TPO was d irecte d to f ollow this cr i ter ia to ex amine the compar ab les by verifying their product compar ab il i ty. In th is respect, ld. Counsel for the asse ssee submi tted that no finding h as been given by the Ld. TPO on this direc tio n of the Ld. DRP. He fur ther subm itted that e ach compar able considered f or the pur pose of bench-m ar king has to be seen on its o wn set of f ac ts by tak ing in to account the functional ity. It was con tended that the compar ab les considered by the Ld. T PO h ave function al diff erences and, ther efore, the entire bench-m ark ing exercise has to be revisited by keeping in mind sim il ari ty f or the func tional i ty of the compar ables. H e again referred to the fun ctional prof ile of th e assessee includ ing the FAR analys is and the economic an alysis and the c har ts whic h have been furnished and pl aced on record describ ing the func ti o nal i ty of e ach of the com par ables to be considered for the purpose of bench- m ar king .
14.2. Cons idering the f acts on recor d and the subm iss ions m ade as well as the peru s al of the char ts f urnished on record, we f ind it proper to rem it the m atter back to the file of Ld. TPO to revisi t the bench-marking ex ercise by taking into ac coun t the f unc tio n al prof ile of the compar ables and th at of the as sessee to arr ive at jus tif iable ALP. As sessee is at l iber ty to fu rnish any f ur ther de tails to subs tan ti ate its cl aim. Ac cord ingly, ground nos. 8(a) to 8(e) are allo wed f or s tatis ti cal purpo ses.28
ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 10.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.619/Kol/2017 for the Assessment Year 2012-13 as extracted above, we find it proper to remit the issue back to the file of Ld. TPO. Accordingly, ground nos. 7(a) to 7(f) are allowed for statistical purposes.
11. Ground nos.8(a) to 8(e) are in respect of adjustment made for mark-up of recovery and expenses amounting to Rs.92,79,769/-.
11.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue has remanded back to the file of Ld. TPO. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"15. Ground nos. 9( a) to 9(d) is in respect of adjus tmen t m ad e f or m ar k-u p of recov ery and expenses am oun ting to Rs.3, 08, 33, 644/ -. 15.1. In this respect, Ld. TPO observed th at ass esse e has reco vered expenses f rom its AEs whic h are in the nature of services provided in helping the AEs in the legal aff airs and arr anging f or the tr ained m anpower. H e thus, treated this as suppor t service and benc h-m ar k by us ing the compar able companies to arr ive at Prof it Le vel Indic ator (PL I) of 18.17%. Assessee h ad f urnished de tails of expens es along wi th debit notes suppor ting invo ices expl aining the n ature of expenses. However, accord ing to the assessee, withou t apprec iating true nature of expenses, ld. TPO had presumed these expenses in th e nature of suppo r t serv ices "legal service and m an po wer m anage ment" wh ich are el ig ible for a m ar k-u p. Ld. TPO th us, selec ted the comp ar ables engaged in m ar ke ting suppor t services and appl ied a m ark-up of 18. 17% on the reco very expenses amounting to Rs.16,96,95,346/ -. Ld. DRP upheld the ac tion of the Ld. TPO.
15.2. Before us, ld. Counsel f or the assessee s ubmitted that there is no adjudic ation by the Ld. TPO or Ld. DR P as to wh at services 29 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 were rendered. According to him, expenses in ques tion were in respe ct o f system upgr ade of the assessee for which cos ts were reimbursed to the assessee by the AEs. It was co ntended th at there were no elemen t of any services th at the assessee rendered to the AEs. Ld. Counsel f ur ther submi tted that th ere is no adjudication on the evidence which were furnished in the course of assessment befo re the Ld. TPO and th e Ld. DRP so as to es tabl ish th at these were c ost to cos t re imbu rsement. Accord ing to him, since there is no in come element, ther e was no ques tion of invoking the tr ansfer pr ic in g adjus tmen t on this tr ans ac tion. Fur ther, he alle ged that no me thod has been appl ied by the Ld. TPO or Ld. DRP to bench-m ark the se tr ansac tions. Accord ing to the L d. Counsel, this issue was re manded back to the Ld. TPO in the asse ssee's own c ase f or AY 2010- 11 and 20 11-12 (supr a) and subm itte d th at this ground m ay also be remitted bac k to the f ile of Ld. TPO. 15.3. Cons idering the f acts on recor d and the subm iss ions m ade before us as well as perusing the order of Coordinate B ench in the assessee's own case fo r the preceding two ye ars (supr a), we re mit this issue b ac k to th e file of Ld. TPO to adju dicate u po n this issue by taking into con sider ation the evid ence pl aced on rec ord by the assessee. Assessee is at l iber ty to furnish any fur ther de tails to subs tan ti ate i ts cl aim. Accordingly, ground nos. 8( a) to 9(d) are allo wed f or s tatis ti cal purpo ses."
11.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.619/Kol/2017 for the Assessment Year 2012-13 as extracted above, we find it proper to remit the issue back to the file of Ld. TPO. Accordingly, Ground nos. 8(a) to 8(e) are allowed for statistical purposes.
12. Ground nos.9(a) to 9(c) refer to upward adjustment of Rs.1,73,34,721/- towards allocation of expenses.
12.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue has remanded back to the file of Ld. TPO. The 30 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"16. Ground nos. 10( a) to 10(d) ref er to up ward adjus tmen t of Rs.4,64,94,723/ - to wards alloc ation of expenses. 16.1. In this respe c t, Ld. TPO held that these cos ts are on account of ste war dship ac tiv ity an d appl ied CUP me thod by taking tr ans ac tional value at n il. Ld. DRP upheld the upward adjus tment by tak ing in to account the benefit test. While m aking the afores aid upward adjus tment, ld. TPO found the subm is sions m ade by the assessee is not tenable by observing the follo win g:
" In the absen ce of any m ater ial on rec ord regard ing as to how the cos t h as been allocated.
It is also kno wn whe ther the assessee h as reques ted for such services .
The assessee h as not able to produce any agreemen t in respe ct of such allocation of cost.
From the de tails of the charge i t is seen some o f mos t of the charges are rel ated to Br and pro mo tion. Those br an promo tio n are not the iden tif ied needs of the assessee as the assessee itself is spending a hef ty amount on br and promo tio n in India.
12.4. thus no th ir d par ty will pay such amou nt f or such ac tiv ity which is in the n atu re of ste wardship ac tivi ty. H ence amoun t alloc ate d to the assessee by its AE taken as nil under the CUP me thod. "
16.2. In this respec t, ld. Counsel ref erred to the de tailed e vidence includ ing deb it no te s, invoices, natu re of expenses which were submi tted in the co urs e of assessmen t proceed ing as well as bef ore the Ld. DRP wh ich have not been co nsidered. Fur ther, Ld. Counsel submi tted th at ther e is no income element in the s aid tr ans ac tions whic h are on cost to cost basis reimbursements. He also con tended th at Ld. TPO h as lim ited jur isdic tion to de term ine the ALP of an in ter national tr ansac tion and questioning the commerci al expedienc y is no t in his dom ain.
16.3. We h av e considered the subm issions m ade before us and in the in teres t of jus tice and f air pl ay, we f ind i t proper to remit this issue b ac k to the file of Ld. TPO to adjudic ate upon the s ame by taking into ac coun t the details and evidence pl aced on record by the assessee. Assessee is at l iber ty to f ile any fur ther docume nts and subm iss ions as deem fit and proper. Accordingly, ground no s. 10( a) to 10(d) are allowed for statis tic al purposes."
12.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate 31 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 bench in assessee's own case in ITA No.619/Kol/2017 for the Assessment Year 2012-13 as extracted above, we find it proper to remit the issue back to the file of Ld. TPO. Accordingly, Ground nos.9(a) to 9(c) are allowed for statistical purposes.
13. Ground nos.10(a) to 10(c) are relating to disallowance of deduction u/s 80IB and 80IC of the Income Tax Act, 1961 amounting to Rs.25,02,00,000/-.
13.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case in ITA No.404/Kol/2015 & ITA No.625/Kol/2016 for Assessment Years 2010-11 to 2011-12 order dated 17/06/2020, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"Grounds relating to Corporate Tax issue
38. Summarized ground No. 1 of corporate tax issue reads as follows:
"1.Apportionment of expenses between fiscal units, non-fiscal units and head office of Rs. 261,160,962/-.
This ground covers ground No.8 of revenue`s appeal in ITA No.529/Kol/2015 for A.Y. 2010-11 and ground nos. 1 and 2 of revenue`s appeal in ITA No.518/Kol/2016 for A.Y.2011-12."
39.When this issue was called out for hearing, the ld. Counsel for the assessee invited our attention to the order dated 20.04.2018, passed by the Tribunal in assessee's own case in I.T.A. Nos. 2138/Kol/2009, for assessment year 2005-06, whereby the issue of apportionment of expenses between fiscal units have been discussed and adjudicated in favour of the assessee. The ld. Counsel for the assessee submitted that the present issue is squarely covered by the above said order of the Tribunal, a copy of which is also placed before the Bench.
40. The ld. DR relied upon the orders of the authorities below.
41. We see no reason to take any other view of the matter then the view so taken by the division bench of this Tribunal in assessee's own case vide order dated 20.04.2018. In this order, the Tribunal has inter alia observed as under:
"4. As far as Ground No.3 raised by the revenue is concerned, it is seen that the details of the bad debts written off, given at Page No.128 and 129 of the assessee's Paper Book read with Page 145 of the Paper Book. The details of bad debts written off, as given in Page 145 of the P.B is as follows:32
ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 The deduction claimed by the assessee was in respect of Unit 1,2,3 & 4. The Unit 1 commercial operation commenced only on 02.02.2004 which is evidenced by the audit report in Form 10CCB which is placed at Page 90 of the assessee's Paper Book. The Unit No.2 commenced commercial operation only w.e.f. 03.04.2004 which is evidenced by Form No.10CCB, placed at Page 79 of the assessee's Paper Book. The Unit No.3 commenced commercial operation only on 08.12.2004 as it is evidenced by the Form No.10CCB, copy of the Page 101 of the assessee's Paper Book. The Unit No.4 commenced commercial operation w.e.f, 02.02.2005 which is evidence by Form No.10CCB from placed at Paper Book page 68. It can thus perusal of the bad debts written off would show that all the debts pertained to assessment year 2002-03 and earlier Financial Years. The units for which deduction u/s 80-IB and 80-IC were claimed by the assessee, came into existence only in F.Y. 2004-05. Thus, it is clear that the bad debts written off which was claimed as deduction did not pertain to any of the units for which the assessee claimed deduction u/s 80-IB and 80-IC of the Act. Therefore, apportionment of bad debt written off to the eligible units and registering profit of those eligible units for the purpose of allowing deduction u/s 80-IB and 80-IC, as done by the revenue authorities is unsustainable. The apportionment is directed to be deleted. Ground No.3 raised by the assessee is allowed.
5.As far as Ground No.2 raised by the revenue is concerned, this issue again pertains to apportionment of residual cost of Rs.40.43 crores. The total cost as per the Profit & Loss A/c of the assessee is a sum of Rs.717.26 crores. The details of the other expenses isgiven in Schedule 16 to the Profit & Loss A/c. As far as residual cost is concerned, the assessee allocated residual cost amount tothe eligible and non-eligible units in the ratio of number of employees at the corporate office who are directly involved in the management of these eligible units like production, procurement, quality, logistics etc. to the total number of employees at the corporate office. According to the assessee these expenses primarily relates to the corporate office of the company. The benefit of which is derived by the whole organization including the eligible units, the allocation of cost incurred on account of residual cost among eligible and non-eligible units should have to be done in the ratio of eligible workers of eligible undertakings to the total 33 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 number of workers across all the manufacturing units. The Assessing Officer, however, was of the following views:
"Regarding the issue of bifurcation of residual cost as has been discussed in detail in the earlier part of the order, the assessee has not applied the provisions of section 80IB of the Act properly especially sub-section (5) thereof which dearly states that the profit of the eligible unit has to be determined as if this is the only source of income of the assessee.
The profit of the eligible unit has to be calculated in such a way as if this is the only source of income of the assessee. The relevant portion of the Section is reproduced as under-
"(5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made. (emphasis supplied)".
As per Section 80IA(5) r/w Section 80IB(13) and 80IC(7), for the purposes of computing the quantum of allowable deduction u/s 80IB, the profits and gains of the eligible unit of the assessee has to be computed as if such eligible business were the only source of income of the assessee during the year.
The above expenses, even though booked centrally in the head office books, have been incurred for all the units of the assessee company. Hence; in order to arrive at the true and correct value of the profits & gains derived from the eligible units, these expenses are required to be allocated to all the units in the proper manner. The best way to divide these expenses would be to allocate among eligible and non-eligible units in the ratio of workers of eligible undertakings to the total number of workers across all the manufacturing locations from where the assessee has sourced its requirements, instead of in the ratio of number of executives at the corporate office who are directly involved in the management of these eligible units to the total number of executives at the corporate office as has been done by the assessee company. This is because the expenditure incurred by the assessee company on the residual functions have also been used and benefited the whole company including the eligible units hence it has to be bifurcated in the ratio of total workforce of the eligible units with total number of workers of the company to arrive at the correct and true profit. This is also supported by the fact that on an average all the expenditures which has either been bifurcated in the ratio of sales or on the basis of actuals are in the percentage of almost average of 22% whereas the percentage of these particular expenditures are around 5.69%. This itself proves beyond doubt that this expenditure has not been bifurcated properly by the assessee company.
Moreover, the assessee's arguments that the accounts of the company are audited does not have a bearing on the deduction being claimed u/s 80IB/IC of the Act. The income- tax Act specifically provides that the profits of these undertakings is required to be computed in the manner as if these are independent and only source of income of the assessee company. This effect has probably not been given by the auditor who has filed the accountants report along with claim of deduction. This is also proved by the fact that this has not been mentioned by the auditor who has submitted the accountants report as per the provisions of section 80IB/IC as to the procedure for bifurcating the 34 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 expenditure for the eligible units. In view of this, there is no force in the assessee's arguments and the same are rejected.
The assessee was asked to furnish the revised working after allocating the residual cost in the manner as detailed above which was submitted by the a vide letter dated April 11, 2008 and made part of this order as Annexure A of this order."
6. On appeal by the assessee, the CIT(A) accepted the basis of apportionment of the residual cost as made by the assessee with the following observations:
"7.3.3. With regard to change in the basis of allocation of residual cost by the AO. I find merit in the appellant's argument that the residual costs pertain to those cost which could not be allocated or identified with single function or unit due to the general utility to all the functions and units of the company. The basis of allocation of this cost is the number of executive. These costs include the residuary costs of all the support functions which have not been allocated to the Cost of Goods Sold. As per the appellant, at corporate office level there were 101 persons during the FY 2004-05 out of which, persons were working in supply function which is directly linked to factory operation. This worked out to 21.78%. The ratio of sale of fiscal units to overall sales was 26.10%. The effective percentage of residual cost thus worked out to 5.68% (21.78% * 26.10%), which the appellant applied for allocating the residual cost to the eligible units. For allocation expenses, the appellant has taken into consideration number of person as well as sales of the eligible units. The AO has allocated the residual costs of the corporate office on the basis of the number of workers. Hence, I find more logic on the basis of allocation of expenses adopted by the appellant as the appellant has also taken turnover of the eligible units into consideration."
7.We have heard the rival submissions, the ld. DR reiterated the stand of the Assessing Officer as reflected in the order of the assessment. The ld. Counsel for the assessee relied on the order of the ld. CIT(A). We have given a careful consideration to the rival submissions, we note that the basis of allocation of residual cost to the eligible units has been done by the Assessing Officer is as follows:
35ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 It can be seen from the above Chart that the allocation done by the assessee on the basis of number of employees who are directly linked with the factory operation is more logical. The residual cost is incurred at the head office and is not capable of being identified with any of the units which are running by the assessee. It is only because of this difficulty that the Assessing Officer and the assessee resorted to allocation of residual cost. When it comes to allocation of residual cost, it cannot be done arbitrarily. The allocation should have due regard to the efforts put at the head office level to be eligible. That can be done only by allocation on the basis of number of employees linked to factory operation divided by total number of employees into corporate office into sales of the eligible units divided by total sales. This allocation of residual cost done by the assessee was logical and we find no infirmity in the action of the CIT(A) in accepting this basis of allocation. We, therefore, do not find any merit in Ground No.2 raised by the revenue and the same is dismissed. In the result, the Ground No.3 raised by the assessee is allowed and the Ground No.2 raised by the revenue is dismissed."
42. As the issue is squarely covered in favour of the assessee by the decision of Co-ordinate Bench in assessee's own case (supra) in I.T.A. No. 2138/Kol/2009 for A.Y 2005-06, and there is no change in facts and law and the Revenue is unable to produce any material to controvert the above said findings of the Co-ordinate Bench(supra). Therefore, respectfully following the decision of Co-ordinate Bench we dismiss the appeals of Revenue for A.Y. 2010-11 and A.Y. 2011-12."
13.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.404/Kol/2015 & ITA No.625/Kol/2016 for the Assessment Years 2010-11 to 2011-
12, wherein, the Tribunal has dismissed these grounds taken by the revenue as extracted above, we therefore allow these grounds of appeal of the assessee. Accordingly, Ground nos.10(a) to 10(c) are allowed.
14. Ground nos.11(a) to 11(d) are relating to disallowance of scrap sale u/s 80IB and 80IC of the Income Tax Act, 1961 amounting to Rs.79,053/-.
14.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case in ITA No.404/Kol/2015 & ITA No.625/Kol/2016 for Assessment Years 2010-11 to 2011-12 order dated 17/06/2020, the Coordinate Kolkata Bench of ITAT 36 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 has dealt with this identical issue. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"43. Summarized ground No. 2 of corporate tax issue reads as follows:
"2.Eligibility of income from sale of scraps whilst calculating deduction u/s 80IC of the Act of Rs. 20,723,924/-.
This ground covers ground no. 9 raised by the revenue in ITA No. 529/Kol/2015 for A.Y. 2010- 11 and Ground no. 3 raised by the revenue in ITA No. 518/Kol/2016 for A.Y. 2011-12."
44.When this issue was called out for hearing, the ld. Counsel for the assessee invited our attention to the order dated 23.12.2014, passed by the Hon'ble Calcutta High Court in assessee's own case in GA No. 1420 of 2014, ITAT No. 41 of 2014, whereby the issue of eligibility of income from sale of scraps have been discussed and adjudicated in favour of the assessee. The ld. Counsel for the assessee submitted that the present issue is squarely covered by the above said order of the, Hon'ble Calcutta High Court, a copy of which is also placed before the Bench.
45. The ld. DR relied upon the orders of the authorities below.
46. We see no reason to take any other view of the matter then the view so taken by the decision of Hon'ble Calcutta High Court in assessee's own case vide order dated 23.12.2014. In this order, the Hon'ble Calcutta High Court has inter alia observed as under:
"On the question raised by the revenue in its appeal,- we 2 decision thereon by the High. Court of Madras in Fenner (India) Ltd. (supra) relied on by- the revenue in urging its case regarding the question formulated in the assessee's appeal. In paragraph 13 of the said decision the High Court, of Madras held as follows "13. As already stated, in the Industrial undertaking in the manufacture of V-Belts, oil seals, 0-Rings and rubber- moulded products, certain scrap materials resulted in, which has saleable Value. To say that the scrap materials has no direct link or nexus with the industrial undertaking cannot be at all be expected or commend acceptance, especially, on the facts and in the circumstances of the case. For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture- of certain products such as V-Belts, oil seals, 0-Rings: and certain rubber moulded products- etc. In this view of the matter, we are of the view that profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under section 80IC, inasmuch as such gains or profits' are derived from the industrial undertaking and includible in, the gross total income of the assessee and the question relatable to the profit on the sale of scrap is thus answered in favour of the assessee"
We are persuaded by the reasoning of the said Court and answer the question accordingly. The question in the revenue's appeal is answered in the negative, in favour, of the assesses and against the revenue. Accordingly, both the applications being GA No.1420 of 2014 and GA No.1735 of 2014 are disposed of and the appeals being ITAT No.,41 of 2014 and ITAT No, 59 of 2014 are dismissed."
47. As the issue is squarely covered in favour of the assessee by the decision of Hon'ble Calcutta High court in assessee's own case (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the above said findings of the Co- ordinate Bench. Therefore, respectfully following the decision of Co-ordinate Bench we allow grounds of appeal raised by the assessee."
37ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 14.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.404/Kol/2015 & ITA No.625/Kol/2016 for the Assessment Years 2010-11 to 2011- 12, we allow these grounds of appeal of the assessee. Accordingly, Ground nos.11(a) to 11(d) are allowed.
15. Ground nos.13.1 to 13.4 refer to additional ground of the assessee relating to non-granting of benefit of Double Tax Avoidance Agreement (DTAA) between India-UK and India- Spain respectively, qua the right of tax towards payment of dividend.
15.1 At the outset, Ld. Counsel for the assessee submitted that in the assessee's own case for the Assessment Year 2012-13 in ITA No.619/Kol/2017 dated 20.07.2023, the Coordinate Bench of ITAT, Kolkata has dealt with this identical issue has remanded back to the file of Ld. TPO. The relevant extract on the finding given by the Coordinate Bench in this issue is reproduced as under:
"18. On the f irst addi tional ground rel ating to non-gr antin g of benef it of Double Tax Avoidance Agreemen t (DT AA) be tween Ind ia- UK and Ind ia-Sp ain respe c tively, qu a the r igh t of tax to wards paymen t of dividen d to the sh areholders, assessee has r aised this addi tional g round to cl aim that wh ile distr ibuting d iv id end to the non-re s ident sh areholders, the benef ic ial r igh t of tax as per the appl icable In di a- UK and Ind ia-Spai n DTAA should h ave been appl icable. Assessee dr aws f orce on it con ten tion by pl ac ing reliance on the decis ion of Coordinate Bench of ITAT D elhi in the c ase of Gieseckc & Devrien t ( Indi a) Pvt. Ltd. Vs. AC IT [ 2020] 120 tax m ann.com 338 (Del. Trib.). Ld. Counsel for the asse ssee submi tted that in th e immediately pr eceding ye ar this issue h as been remande d bac k to the Ld. AO f or f resh examination in ITA No. 404 & 529/Kol/20 15 (supr a). Ld. Counsel appr ised th e bench of subsequen t developments and subm itted th at o wing to dissenting vie w on the same issue by ano ther Coordin ate Ben ch of ITAT, Mumbai in the c ase of DCIT Vs. Total Oil Ind ia Pv t. Ltd. [ 2021] 190 ITR 312 (Mum. Tr ib.) a Special Bench was cons ti tu ted. The H on'ble 38 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 Spec ial Bench so c ons ti tu ted in the c ase of DCIT Vs . To tal Oil Ind ia Pv t. L td. (supr a) h as dec ided the issue ag ains t the ass essee vide its order repor ted in [2023] 149 taxm ann. Com 332 (Mum. Trib.)(SB). In th is respec t, ld counsel submitted that assessee is no t a par ty to the decision of Hon'ble Speci al Bench and there are cer tain dis ting uish ing f ac tors in the c ase of the as sessee whic h have no t been con sidered in the decision of the Hon'ble Spe ci al bench and, therefore, pr ayed that this m atte r m ay be se t as ide to the file of ld. AO fo r f resh consider ation and assessee b e given an oppor tuni ty to dis ti nguish the l aw l aid down by the Hon'ble Spe cial Bench. He submitted that this will enable the assess ee to br ing on reco rd all f ac tu al and legal subm iss ion in suppor t of its c l aim. 18.1.We have g one through the submissions made by the Ld. Counsel in this respec t and f ind i t ap propr iate to remi t the m atter back to the f ile of Ld. AO f or fresh consider ation by giving the assessee an oppor tuni ty to make i ts subm ission on the f ac tual and legal aspec t in suppor t of the cl aim m ade bef ore us. Ac cordingly, this ad ditional ground is allo wed f or statistic al purposes ."
15.2 Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee's own case in ITA No.619/Kol/2017 for the Assessment Year 2012-13 as extracted above, we find it proper to remit the issue back to the file of Ld. AO for fresh adjudication after giving an opportunity to the assessee to make its submission on the factual and legal aspects in support of the claim made before us. Accordingly, these additional grounds i.e Ground nos.13.1 to 13.4 are allowed for statistical purposes.
16. Since all the above grounds raised by the assessee are common and the facts are identical, therefore, the decisions rendered in ITA No.78/Kol/2018 for Assessment Year 2013-14 will apply mutatis mutandis to all the remaining appeals except Ground No.8 in ITA No. 2631/Kol/2019 for the Assessment Year 2015-16. Hence, we proceed to adjudicate the Ground No.8 in ITA No. 2631/Kol/2019.
17. ITA No. 2631/Kol/2019 - Ground No.8 - The issue raised by the assessee is relating to disallowance of Rs.5,43,74,993/- made u/s 14A 39 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 r.w.r 8D whilst computing the book profits u/s 115JB of the Act, was not proper.
17.1 On this context, the Learned. AR stated that This issue is no longer res-integra and has been decided in the favour of the Assessee by High Court of Delhi [PCIT v. Moon Star Securities Trading & Finance Co. Pvt. Ltd., [2024] 469 ITR 15 (Delhi HC)] as well as Karnataka [Sobha Developers Ltd. v. DCIT, [2021] 434 ITR 266 (Karnataka HC) and by jurisdictional Tribunal in the case of DCIT v. Century Plyboards (L) Ltd., [2021] 123 taxmann.com 256 (Kolkata-Trib). The Coordinate Kolkata Bench of the Tribunal in the case of DCIT vs. Century Plyboards (L) Ltd. has held as under:
"8. With regard to disallowance u/s 14A of the Act read with rule 8D while computing the book profits u/s115JB of the Act, we note that there is no enabling provision in clause (f) of Explanation 1 to section 115JBfor making any adjustment in respect of expenditure disallowed as per rule 8D. It is noted that clause (f) of the said Explanation 1 requires adjustment of 'the amount of expenditure relatable to any income to which section10 (other than the provisions contained in clause (38) thereof) section 11 or section 12 apply'. The aforesaid expression is similar to the expression used in section 14A(1) of the Act. Section 115JB however being deeming provision, the clauses contained therein has to be strictly construed. Accordingly, it is only the provisions of section 14A(1) that can be imported into clause (f) of section 115JB of the Act. The scope of clause (f) cannot be enlarged in order to bring within its ambit the provisions of sub-section (2) & (3) of section 14A of the Act and therefore the disallowance made by applying rule 8D cannot also be imported. The special Bench of this Tribunal in the case of Asstt. CIT v. Vireet Investment (P.) Ltd. [2017] 82 taxmann.com415/165 ITD 27 (Delhi - Trib.) has held that the computation mechanism provided under rule 8D of the Rules cannot be applied for computing addition in terms of clause (f) of Explanation 1,for arriving at the book profit/s 115JB of the Act. Identical view has also been expressed by the coordinate Benches of this Tribunal in the following cases:
- Britannia Industries Ltd. v. Dy. CIT [2019] 107 taxmann.com 138 (Kol. - Trib.)
- Bata India Ltd. v. Dy. CIT [2019] 111 taxmann.com 453/180 ITD 464 (Kal. - Trib.)
9. Respectfully following the same, we are of the view that the ld. CIT(A) has rightly deleted the addition of Rs. 34,29,000/- by the AO u/s 14A read with rule 8D, while computing book profit u/s 115JB of the Act, therefore, for the reasons as aforesaid, we therefore do not find any reason to interfere with the order of 40 ITA No.78, 2681/Kol/2018 & ITA Nos.2631/Kol/2019& ITA No. 1801&2319/Kol/2024 Reckitt Benckiser (I) P. Ltd., AYs 2013-14 to 2015-16, 2020-21 & 2021-22 the ld.CIT(A) and, we confirm the same and dismiss Ground Nos. 1 to 4 raised by the Revenue."
17.2 Respectfully following the decision of the Coordinate Kolkata Bench of the Tribunal in the case of DCIT vs. Century Plyboards (L) Ltd. (supra), we hold that the disallowance of Rs.5,43,74,993/- made by the AO under section 14A read with Rule 8D of the Rules could not be added back whilst computing book profits under section 115JB, since the same does not fall within the purview of explanation section 115JB of the Act. Hence, the addition Rs.5,43,74,993/- made by the AO is hereby deleted. Therefore, Ground No.8 of the assessee's appeal in ITA No.2631/Kol/2019 is allowed.
18. In the result, the appeals of the assessee are partly allowed for statistical purposes.
Order pronounced on 18 t h March, 2025.
Sd/- Sd/-
(Rajesh Kumar) (Sonjoy Sarma)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Kolkata, Dated: 18.03.2025
RS
Copy to:
1. The Appellant:
2. The Respondent:
3. AO
4. DRP
5. The DR, ITAT, Kolkata Bench, Kolkata.
//True Copy// [
By Order
Assistant Registrar,
ITAT, Kolkata.