Income Tax Appellate Tribunal - Chandigarh
M/S Glaxosmithkline Consumer ... vs Acit, Chandigarh on 17 November, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'A', CHANDIGARH
BEFORE MS.DIVA SINGH, JUDICIAL MEMBER
AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.105/Chd/2016
(Assessment Year : 2011-12)
M/s GlaxoSmithKline Consumer Vs. The A.C.I.T.,
Healthcare Ltd., 24-25 Floor, Circle 4(1),
One Horizon Centre, Chandigarh.
Golf Course Road, DLF Phase-5,
Gurgaon (Haryana).
P A N : AACCS0144E
ITA No.257/Chd/2016
(Assessment Year : 2011-12)
The A.C.I.T., Vs. M/s GlaxoSmithKline Consumer
Circle 4(1), Healthcare Ltd., 24-25 Floor,
Chandigarh. One Horizon Centre,
Golf Course Road, DLF Phase-5,
Gurgaon (Haryana).
P A N : AACCS0144E
And
ITA No.346/Chd/2017
(Assessment Year : 2012-13)
M/s GlaxoSmithKline Consumer Vs. The A.C.I.T.,
Healthcare Ltd., 24-25 Floor, Circle 4(1),
One Horizon Centre, Chandigarh.
Golf Course Road, DLF Phase-5,
Gurgaon (Haryana).
P A N : AACCS0144E
(Appellant) (Respondent)
Appellant by : S/Shri Neeraj Jain
& Abhishek Aggarwal
Respondent by : Shri J.S. Kahlon, DR
Date of hearing : 20.09.2017
Date of Pronouncement : 17.11.2017
ORDER
PER ANNAPURNA GUPTA, A.M.:
Th e appeals in I TA N o . 1 05/ C h d / 2 0 1 6 a nd I TA N o . 2 5 7 / C hd / 2 0 16 h a v e b e e n p r e fe r r e d b y t he a s se s s e e a nd 2 t h e R e ve n u e a ga i n s t th e or d e r p a s s e d b y t h e A s s e s si n g Officer u/s 1 43 ( 3 ) r.w.s 1 4 4C of the Act relating to a s s e s s m e nt y ea r 2 0 1 1 -1 2 . Th e appeal in I TA N o . 3 4 6 / C hd / 2 0 17 has been p re f e r r e d by the assessee a g a i n s t th e o r der o f t h e A s s e ss i n g O f f i ce r u / s 14 3 ( 3 ) r . w. s 1 4 4 C o f t h e A c t r e l a t i n g t o a s s e ss m e n t ye a r 20 1 2- 1 3 . S i n c e common issues were involved in the appeals of both the y e a r s , t h e y w e re h e a r d t o g e t h e r a n d a r e b e i n g d i s p o s e d o f f b y w a y o f t h i s c om m o n o r d er .
W e s h a l l f i r s t b e t a k i n g u p t he a p p e a l f i l ed b y t h e a s s e s s e e i n I TA N o . 1 0 5 / C hd / 2 0 17 .
I T A N o . 1 05 / C h d/ 2 0 1 7 ( a s se s s e e 's A p p e a l )( A . Y 201 1 - 1 2 ) :
2. G r o u n d N o. 1 r a i se d b y t h e a s s e sse e r e a d s a s u n der :
"1. That the assessing officer erred on facts and in law in completing assessment under section 143(3) read with section 144C of the Income Tax Act ("the Act) at an income of Rs.778,82,25,462 as against the returned income of Rs.495,71,00,175."
Th e a b o v e g r o u nd r a i s e d b y t he a s s e s s e e b e i n g ge n e r a l i n n a t u re n e ed s n o a dj u d i c at i on a n d h e n c e i s t r e a t ed a s d i s m i s s e d.
3. Ground N o .2 - 2 .4 raised by t he assessee re ad s as under:
Transfer Pricing Issues.
2. That the assessing officer erred on facts and in law in making addition of Rs. 255,00,90,173 on account of arm's length price of alleged international transactions resulting from advertisement, marketing and sales promotion expenses ('AMP expenses') incurred by the appellant on the basis of the .order passed by the TPO under section 92CA(3) of the Act.3
2.1 The DRP/ TPO erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of any proved understanding/arrangementL OO between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act.
2.2 The DRP/ TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length price (ALP) and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure.
2.3 The DRP/ TPO erred on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE.
2.5 Without prejudice that the DRP/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm's length applying TNMM.
2.4 Without prejudice, the TPO/DRP erred on facts and in law in not appreciating that markup, if at all, had to be restricted to the value added expenses incurred by the appellant for providing the alleged service in the nature of brand promotion.
4. A l l t h e a b o ve g ro u n d s r a i se d a re a g a i n s t t he a dd i t i o n o f R s . 2 55 , 0 0 , 9 0,1 7 3 / - o n a c c o unt o f be n c h m ar ki n g o f t h e A r m s L e n gt h P r i c e ( A L P ) of i n t er na t i o n a l tr a n s a ct i o n r e l a t i n g t o A d v e r ti s e m e nt, m a r k e ti n g a n d s a l e s p r om o t i o n ( A M P ) .
5. B r i e f fa c t s r e l e va n t t o t h e i s s u e a r e th a t th e a ss e s s ee i s e n g a g e d i n t he b u s i n e s s o f ma n u f a c t u ri n g a nd s e l l i n g o f malted n u t r i t i on a l food p r o d uc t s and drinks under the b r a n d n a m e s, Ho r l i c k s , Ma l t o v a, V i v a a n d B o os t a n d i s a part of GlaxoSmithKline group re p r e s en t e d by 4 G l a x o S m i th K l i n e Plc., UK ( G SK Plc.) h av i n g w o r l d w i de presence in p h a r m a c e ut i c a l s and n ut r i t i on a l f o o ds products. 43 % o f t h e e q u i t y s ha r e h o l d i ng o f t he a s s e ss ee c o m p a n y i s h el d b y H o r l i c ks L t d . U K , s u b s i d i a r y co m p a n y o f G S K P l c . , U K an d b a l a n c e s h a re s a r e h e l d b y p u b l i c a n d f i n a n c i a l i n s t i t u ti o n s . I n t h e i mpu g n e d a s se s s m en t y e a r , t h e a s s e s s e e e nt e r e d i n t o i n t e r na t i on a l t r a n s a ct i o n s o f e x p o rt and import of g o o d s / s e rv i c es with the a s s o c i a t ed e n t e r p r i se s w h i ch w e r e b e n c h m ar k e d a p p l y i n g TN M M a s t h e m o s t a p p r o p ri a t e m e t h o d a n d a c ce p t e d b y t h e TP O t o b e a t a r m s ' l e n gt h p ri c e . H o w e ve r , t h e TP O u n d e r to o k b e n c h m a r k i n g a n a l y s i s o f t h e a d v e r t i s em e n t , m a r k e ti n g a n d s a l e s p r o m o t i o n ( A M P ) e x p e n s e s i n cu r re d b y t h e a s s e sse e f o r t h e products h a vi ng brand name 'Horlicks' a ggr e g a t i n g to R s . 2 1 , 8 3 7. 7 2 l acs w h i c h i n c l u d ed t h e u n d er :
i) A d v e r t i s em e n t e xp e n s e s R s . 2 1 , 5 0 5. 2 3 l acs
ii) S a l e s p r om o t i o n Rs. 3 3 2 . 4 9 l ac s To t a l : Rs. 21,837.72 lacs For the b e n c hm a r k i n g a n a l y si s he co n s i d e red ten companies as a p p r o p r i at e c om p a r a b l e c o m pa n i e s with a v e r a g e A M P e xp e n s e s as a p e rc e n t a g e o f sa l e s a t 1 .8 4 % .
A c c o r d i n gl y , t he a r m s ' l e ng t h o f A M P e x p e n se s i nc u r r e d b y t h e a s s e s se e w as d e t e r m i ne d a t R s . 3 5 2 , 5 34 , 6 1 6/ - a p p l y i ng 1 . 8 4 % t o t h e t ot a l r e v e n u e o f th e a s s e s s e e f or " H o r l i c k s "
a n d r e d uc i n g t he s a m e f r o m t h e a c t u a l e x p en s es i n c u rr e d on AMP of Rs . 2 , 1 8 3 , 77 2 , 0 0 0/ - , a r r i v ed at e x p e n s es incurred on creation of marketing i n t an g i b l e s at R s . 1 , 8 3 1 ,2 3 7 , 3 84 / - . A p p l y i n g t he r e t o a m a r k - up o f 1 0 . 8 4 %.5
t h e TP O a r r i v e d a t t h e a dj u s t m e nt t o b e m ad e o n a c c o u n t of A M P e x p e n se s at R s . 2 , 0 2 9, 7 4 3 ,5 1 6 . Th e a s s e ss e e r a i s e d o b j e c t i o ns a g a i ns t t h e s a m e b ef or e t h e D R P , w ho v i d e their d i r e c t i o ns d a t ed 1 3 . 1 1 . 2 0 15 g a v e t h e f o l l o w i n g d i re c t i o n s :
1) I n cu r r i n g of AM P e x p e n s e s by t h e a s s e s s ee c o n s t i t u te d i n te rn a t i o n a l t r a n s act i o n s .
2) BLT was not an a p p r o p ri a t e m e t h o d f or th e p u r p o s e o f b e nc h m a r k i n g t h e t r a n s a ct i o n s of A M P e x p e ns e s .
3) S e l l i n g a n d i s tr i b u t i o n e x p en se s w e r e t o b e e x c l u d e d f ro m th e a m b i t o f A MP e x p e n s e s a ft er v e r i f i c at i o n of s uc h e x p e n se s b y th e TP O .
4) Th e m a r k - u p e qu i v a l e n t to O P /O C r a t i o o f t h e a s s e s s e e s h o ul d b e a p p l i e d o n t h e e n t i r e A M P e x p e n s e s i n c u r red b y t h e a s s e s see .
A c c o r d i n gl y , t h e TP O a f t e r g i v i n g e f f e c t t o th e d i r e c t i o ns o f t he D R P r e c o m p u te d t h e a d j u s t m en t t o R s . 2 5 5 , 0 0, 9 0 , 1 73 / - a s a g a i ns t R s . 2 0 2 , 9 7 ,4 3, 5 1 6 / - p r o p o s e d b y t h e A s s e s s i n g O f f i ce r a s u n d e r:
Particulars Amount in INR
AMP expense incurred by the assessee 218,37,72,000
Less: expenditure incurred-on selling 3,32,49,000
Advertisement expenditure, incurred on 215,05,23,000
creation of marketing intangibles
Mark up at 18.58% 39,95,67,173
Revised Adjustment 255,00,90,173
6. B e f o r e u s, t h e Ld . c o u n s el f o r as s e s s e e co n t e s ted t h e a d d i t i o n m a d e on s e v e r al g r ou nd s . Br i e f s y n o ps i s o f t h e a r g u m e n t s o n th e i s s u e w e r e fi l e d b ef o r e u s i n w r i t i n g . R e l y i n g u p o n t he s a m e t h e L d . co u n s e l f o r a s s ess e e a r g u e d t h a t t h e a d d i ti on m a d e w a s u n su s t a i n a b l e f o r t he f o l l o w i n g reasons:
Th e L d . c o u n s e l f o r a s s e s se e c on t e n d e d t h at i n o r d e r to c o n s t i t ut e an international t r a n s a c t i on in terms of s e c t i o n 9 2 B o f th e A c t , a n a rr an g e m e n t , u n d e r st a n d i n g o r 6 action in c o nc er t must be sh o w n to exist between the a s s e s s e e a n d i t s A E , w h i c h h a s n o t b e e n e s t a b l i s h e d i n t he p r e s e n t c a se . Th e L d . c o u n s el fo r a s s e s s e e c o n te n d e d t h a t AMP e x p en s e s had been i n cur r e d u ni l a t e ra l l y by th e a s s e s s e e o n i t s o w n d i s c r e t i o n t h r o u g h u n r e l at e d I nd i an p a r t i e s fo r t h e pu r p o s e o f i t s o wn b u s i n e ss i n ord e r t o c at e r t o l o c al m a rk e t n e e d s a nd s ai d e x p e n s e w a s no t i n c u r r e d at t h e i n s t a n c e o f AE . R e l i a n c e i n t h i s r e g a r d w a s pl a c e d o n a n u m b e r o f d e c i si o n s a s u nd e r :
1) Moser Baer India Ltd. v. Addl. CIT [2009] 316 ITR 1
2) M a r u t i S uz u k i I nd i a L t d . V s . CI T, I TA N o . 1 10 / 2 0 1 4 & I TA N o . 7 1 0 / 20 1 5
3) C I T V s . W h i r l p ool o f I n di a L t d. , I TA N o . 6 1 0 /2 0 1 4
4) H o n d a S i el P o w er P r o d u c ts L t d . Vs . D CI T, I TA N o . 3 46 / 2 0 1 5
5) B a u s c h & L o m b E y e c a r e ( I n d i a ) Vs . A d d l .CI T, I TA N o . 5 43 / 2 0 1 4
6) P r . CI T V s . G o o dye a r I n d i a L i m i t e d I TA N o .77/2017
a n d v a ri o u s o th e r c a se l a ws a s r e p ro d u c e d i n the s y n o p s i s f i l e d b ef o r e u s .
7. Th e L d . c o u n s el f o r a s se s s e e f ur t h e r c on t e n d e d t h a t r e l i a n c e p l a c e d b y t h e TP O / D R P o n t h e ob s e r v ati o n s m a d e i n t h e c a s e o f So n y E r i cs s i o n Mo b i l e Co m m u n i ca t i o n s I n d i a P v t . L t d . fo r i nf e r r i n g t he e x pe n s e s a s a n i nt e r n a t i o na l t r a n s a c t i o n i n t h e c a s e o f t h e a s s e s s e e w a s m i s p l ac e d s i n ce t h e o b s e r va t i o n m a d e i n t he sa i d c a s e wa s on l y f o r t a x payers e n g a g ed in the business of d i s t r i b ut i o n and m a r k e t i n g w h i l e t h e a s se s s e e wa s a m a nu f a c t ure r . It was a l s o c o nt e n d e d t h a t t h e A M P e x p e n s e s i n c u r red b y t he a s s e s s e e w e re n o t c o n t r o l l ed o r i n f l u e n c ed b y t he A E . Th e L d . c o u n se l f o r a s s e s s e e c o n t en d e d t h a t t h e a d j u s t m e nt 7 made on a c c o un t of AMP e x pe n s e s w as a qu a n t i t a t i v e a d j u s t m e nt w h e re i n a q u a nt u m o f A M P e x pe n s es i n c u r r e d by the a s s e s s ee was sought to be compared with t he quantum of AM P expenses incurred by co m p a r a b l e c o m p a n i e s a nd ad j u s t m e n t ma d e w i t h r e g a r d t o th e a l l e g e d e x c e s s qu a n t u m o f s u c h e x p e ns e s i n c u r r ed b y t h e a s s e s s ee . Th e Ld. c o u n se l for as s e s s ee s u b m i t te d th a t s u ch q u a n t i t a ti v e ad j us t m e n t ha s b ee n h e l d t o b e no t p er m i s s i b l e w i t h i n t h e f r a me w o r k o f C h a p te r - X b y t h e H o n' b l e D el hi H i g h C ou r t i n the c a s e o f M a r u ti S u z u k i I n di a L td . ( s u pr a ) . Th e L d . c o u n s e l f o r a s s es s e e fu r t h e r s ub m i t t ed t h a t t he a s s e s s e e h a d g ai n e d e c o n o m i c o w n e r s h i p o f t h e t r a d e m a r k o f H o r l i c k s a n d i n v i e w o f t h e d ec i s i o n o f t he H on ' b l e De l h i H i g h C o ur t i n t he c a s e of S o n y Er i c s s o n C o m m u ni c a t i o n n o t r a n s f e r p r i c i n g a d j u s t me n t i n r e s p e c t o f A MP e x p e n se s could be made where the a s se s s e e had s u ch economic o w n e r s h i p o f t h e t r a d e m ar k . I t wa s a l s o c o n t e nd ed t h a t t h e m e t h o d o l og y a do p t e d fo r b en c hm a r k i n g o f AM P e x p e n s e s w a s n o t b a s e d o n a n y o f t h e m e t h o d s p r es c r i b e d i n t h e t r a n s f e r p r i c i ng r e g u l a r l y . Th e L d . c o u n se l f or a s s e s s ee c o n t e n d e d t h a t t h e A M P e x p e nse s w a s a n e ce ss a r y c o st i n c u r r e d t o p r om o t e s a l e o f p ro d u c t s o f t h e as s e s s e e and was closely i n te r l i n k e d w i th its entire sales. Th e Ld. c o u n s e l f o r a s s es s e e c o n t e nd e d t h a t b e n c h ma r k i n g o f A M P e x p e n s e s c o ul d , t h e r e f o r e , b e ap p r o p r i a te l y d e te r m i n e d by a p p l y i n g TN M M m e t h o d as t h e m o s t a p pr o p r i ate m e t h o d. R e l i a n c e w a s p l a c e d o n t h e d e ci s i o n of t h e H on ' b l e D el h i H i g h C o u r t i n th e c a s e o f S o n i E r i c s s o n V s . CI T, 3 7 4 I TR 8 1 1 8 a n d d ec i s i on o f t h e Ho n ' b l e P u n j a b & H a r y a n a H i g h C o u r t i n t h e c a se o f K n o r r B r e ms e P v t . L t d . V s . A CI T, 3 8 0 I TR 3 0 7 .
8. Th e L d . D R , o n th e o t h e r h a nd , co n t e n d e d t ha t i n the various de c i s i on s relied upon by the L d. co u n s e l f or assessee, no distinction had be e n brought o ut between t h o s e r e l a t i n g to d i s t r i b ut o r s a nd t h o s e t o m a nu f a c t u r e rs . Th e L d . D R f u r th e r r e q ue s t e d th a t t h e i s s u e be r e s t o r ed b a c k t o t h e TP O t o b e d e c i d ed a f r e s h i n ac c o r da n c e w i t h law. Th e L d . c o u n s e l f o r a s s e ss e e d i d n o t o b je c t t o t h e same.
9. I n v i e w o f t h e a b o v e w e c o n s i d er i t f i t t o r e s t o r e t h e i s s u e ba c k t o the f i l e o f t h e A O/ TP O f o r d ec i d i ng i t a f r e s h i n a c c o r d an c e w i t h l a w . W e m a y a d d t h a t th e a ss e s s e e be g i v e n d u e o p p o rtu n i t y o f h e a r i ng i n t h i s r e g a r d .
G r o u n d o f a p pe al N o . 2 - 2 . 4 th e r e fo r e s t a n d s al l o we d f o r s t a t i s t i c a l p u rp os e s .
10. G r o u n d o f a p p e al N o . 3 r ai s e d b y th e a s s e s se e r e ads a s under:
"Corporate Tax Issues:
3. That the assessing officer erred on facts and in law in disallowing consumer market research expenses of Rs.17,50,77,000 under section 37(1) of the Act, alleging the same to be capital in nature."
11. Briefly s ta t e d the Assessing Officer p r op o s ed to d i s a l l o w c l a i m o f " M a r k e t R e s e ar ch E x p e n s es " a m ou n t i n g to R s . 1 7 , 5 0 ,7 7 , 0 0 0/ - i n c u rr e d by t h e a s s es s e e o n C o n s u m er P r o d u c t R e se a r ch , D a t a a n al y s i s o f c o m p e t i t i v e c o m p a n i e s 9 a n d p r o d u c t s, Pr o d u c t D e s i g n i ng , e t c . a s d e t a i l e d i n t h e a s s e s s m e nt o r d er a t p a r a 8 , p a g e 6 0 , t r e a t i n g th e m t o b e c a p i t a l i n na t u re . Th e a s s e s s ee ' s o b j e c ti o n t o t h e s a m e b e f o r e t h e D RP w a s r e je c t e d h o l d i n g i t t o b e a l e g a c y i ss u e and following its order f or the p r e ce d i n g year,i.e. a s s e s s m e nt y e ar 2 0 1 0 - 1 1, t he d i s a l l o w a n ce p r op os e d b y t h e A s s e s s i n g O f fi c er w a s d i r e c t e d t o b e m a d e b y t h e D R P . F o l l o w i n g t h e di r e c t i o n s o f t he D R P t h e di s a l l o w a n c e o f "Market R e se a r c h E xp e ns e s " a m ou n ti n g to R s . 1 7 , 5 0 ,7 7 , 0 0 0/ - w a s c o nf i r m e d b y t h e A ss e s s i ng O f f i c e r.
12. B e f o r e u s, t h e Ld . c o u n s el f o r as s e s s e e at t h e ou t s e t p o i n t e d o ut t h a t i d e n t i c a l i s s u e h a d b e e n d e ci d ed a l l a l o n g i n f a v o u r of t h e a s s e s s e e by t h e I . T. A . T. i n p r e c ed i n g y e a r s right fr o m as se s s m e n t year 19 9 8 - 9 9 to 2 0 10 - 1 1 . In a d d i t i o n , a b r i e f s y n o p s i s o f i t s ar g u m e n t s w e r e als o f i l e d.
13. Th e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r o f t h e A ss e s s i ng O f f i c e r a s w e l l a s D R P .
14. Having h e ar d th e Ld. R e p re s en t a t i v e s of b o th the parties and h av i n g gone t h r ou g h the o r d e rs of t he a u t h o r i t i e s be l o w a s w e l l a s t h e o r d e r s o f th e I . T. A . T. i n t h e c a s e o f t h e a ss es s e e f o r p r ec e d i n g y e a r s , w e fi n d m e r i t i n t h e c o n te n t i o n o f t h e L d . c o u n se l f o r a s s es s e e . Th e I . T. A . T. h e l d t h e s e e x p en s e s t o b e R e v en u e i n n a t ur e i n i t s o r d er p a s s e d f or a s s ess m e n t y e ar 2 0 0 7- 0 8 , f o l l o w i n g t he d e c i s i o n o f t h e S p e ci a l Be n c h o f t h e Tr i b u n a l i n t he c as e o f L . G . E l e c t r o n i c s ( P ) Lt d . V s . A CI T, w hi c h h e l d t h at e xp e n s e s i n c o n n e c t i on w i t h s a l e s d o n o t l e ad t o B r an d P r omo t i o n . Th e 10 r e l e v a n t f i nd i n gs o f t h e I . T. A . T. a t p a r a s 2 6 t o 2 9 o f t h e o r d e r a r e a s u nde r :
"26. The next set of grounds of appeal are ground N o s . 2 . 1 4 t o 2 . 1 6 wh e r e i n t h e a s s e s s e e h a s r a i s e d the issue that the expenditure relating to market research service charges paid to selling agents and discount on sales are to be excluded f rom the alleged AMP expenditure as being not relatable to advertisement and marketing expenditure. The claim of the learned A.R. f or the assessee is that the said issue is also covered by the decision of S p e c i a l B e n c h o f t h e T r i b u n a l ( m a j o r i t y v i e w) i n M / s L . G . E l e c t r o n i c s I n d i a ( P ) L t d . V s . A C IT (supra) vide paras 18.5 and 18.6 of the decision.
The relevant paras are as under:
18.5. We do not find any force in the contention of the learned DR made in this regard. The logic in the exercise of finding out the AMP expenses towards creation of marketing intangibles for the foreign AE starts with the expenses which are otherwise in the nature of advertisement, marketing and promotion. If an expenditure itself is not in the nature of advertising, marketing or promotion, that ought to be excluded at the very outset. We, therefore, reject this contention raised by the learned DR.
18.6. As we are presently considering the term `advertisement marketing and promotion expenses', which is analogous to, if not lesser in scope than the term `advertisement, publicity and sales promotion' as employed in the erstwhile sub-sec. (3B) of sec. 37, all the judgments rendered in the context of sub-sec. (3A) & (3B) of sec. 37 will squarely apply to the interpretation of the scope of AMP expenses. We, therefore, hold that the expenses in connection with the sales which do not lead to brand promotion cannot be brought within the ambit of ―advertisement, marketing and promotion expenses‖ for determining the cost/value of the international transaction.
27. T h e p l e a o f t h e a s s e s s e e b e f o r e u s wa s t h a t expenses aggregating Rs.5500.86 lacs are expenses incurred in connection with sale and do n o t l e a d t o b r a n d p r o mo t i o n a s h e l d b y t h e Special Bench. A f t e r e x c l u d i n g t h e af o r e s a i d selling expenses aggregating to Rs.5500.86 lacs, the remaining expenses of Rs.8679.75 lacs (constituting 6.87% of the total sales) only is required to be considered f or the purpose of benchmarking analysis as undertaken by the TPO. The learned D.R. f or the Revenue placed r e l i a n c e o n t h e o r d e r s o f t h e a u t h o r i t i e s b e l o w. 11
28. We have heard the rival contentions and perused the records. The claim of the assessee is that the total AMP expenditure considered by t h e T P O wh i l e d e t e r m i n i n g t h e A L P i n c l u d e d c e r t a i n e x p e n s e s wh i c h a r e i n r e l a t i o n t o t h e sales made by the assessee and are not related t o t h e b r a n d p r o mo t i o n . The claim of the a s s e s s e e i s wi t h r e g a r d t o t h e e x p e n s e s t o t a l i n g R s . 5 5 0 0 . 8 6 l a c s a s t a b u l a t e d b e l o w:
S.No. Name of Expenses Amount
(Rs.Lacs)
1. Discount - sales 60.52
2. Market Research 664.24
3. Sales Promotion 3939.90
4. Selling and distribution 826.17
5. Service charges paid to selling agent 10.03
Total 5500.86
29. We f ind that the Special Bench of the T r i b u n a l ( m a j o r i t y v i e w) i n M / s L . G . E l e c t r o n i c s I n d i a ( P ) L t d . V s . A C IT ( s u p r a ) h e l d t h a t t h e e x p e n s e s i n c o n n e c t i o n wi t h t h e s a l e s d o n o t l e a d t o b r a n d p r o mo t i o n a n d t h u s c a n n o t b e b r o u g h t w i t h i n t h e a mb i t o f a d v e r t i s e me n t , m a r k e t i n g a n d p r o mo t i o n expenses for determining the cost/value of the international transaction. In v i e w t h e r e o f , we d i r e c t t h e A s s e s s i n g O f f i c e r t o exclude the expenses incurred by the assessee in c o n n e c t i o n wi t h t h e s a l e s t o t a l i n g R s . 5 5 0 0 . 8 6 l a c s a s t h e s a m e d o n o t f a l l wi t h i n t h e a m b i t o f AMP expenses and hence not to be considered f or co mputing the cost/value of international transaction. The assessee vide ground No.4 had raised the issue against d i s a l l o wa n c e of c o n s u me r m a r k e t r e s e a r c h e x p e n s e s o f R s . 5 6 7 . 4 9 lacs. I n v i e w o f o u r d e c i s i o n i n a l l o wi n g t h e claim of the assessee being relatable to sales p r o mo t i o n e x p e n s e s , t h i s g r o u n d o f a p p e a l i s t h u s a l l o we d . The ground Nos.2.14 to 2.16 and g r o u n d N o . 4 a r e t h u s a l l o we d . "
15. Th e s a i d d e c i si on w a s fo l l o w ed i n s u b s eq u e n t ye a r s a l s o i . e . as s e s sm e n t y e a r s 2 0 0 8- 0 9 , 2 0 0 9 -1 0 a nd 2 0 1 0 - 1 1 .
N o d i s t i n g u i s h i ng f a c t s ha v e b een b r o u g h t t o o ur n o t i c e n o r any s u b s eq u e n t decision of th e Hon,ble High C o u rt r e v e r s i n g t h e o r de r o f t h e I TA T br o u g h t t o o ur n ot i c e b y t he L d . D R . Th e i s su e , w e f i n d , t he r e f o r e , s t a n d s d e c i d e d i n 12 f a v o u r o f t h e a ss e s s e e b y t h e e ar l i e r o r d e rs o f th e I . T. A . T. Th e d i s a l l o w anc e t h e re f o r e ma d e of M a r k et R e s e a rc h e x p e n s e s a m o u n ti n g t o R s. 1 7 , 5 0, 77 , 0 0 0 / - i s d e l et ed .
Ground of a ppe a l No.3 r ai s ed by the a s s es s e e , t h e r e f o r e, s t a nd s a l l o w e d.
16. G r o u n d No . 4 to 4 . 1 ra i s e d b y th e a s s e ss e e re ad s a s under:
"4. That the assessing officer erred on facts and in law in making disallowance of Rs.4,51,84,000, claimed in respect of liability for post retirement medical benefits to the employees, holding the same to be an unascertained liability.
4.1 That the assessing officer erred on facts and in law in observing that the provision has been made by debiting the general reserves, without appreciating that the said provision was made by debiting the profit and loss account."
17. Th e f a c t s r el a t i ng t o th e i ss u e ar e t h a t t h e A s s es s i ng Officer h ad p r op o s e d d i s a l l o w an c e of claim of M e d i c al R e i m b u r s em e n t l i a b i l i t y o f e x - em p l o y e e s o f t h e a s s e s se e c o m p a n y a m o unt i n g t o R s . 4 5 1 .8 4 l a c s , which had been m a d e b y th e a s se s s e e o n t h e b asi s o f a ct u a r i a l v al u a t i o n , i n c o n s o n a n ce w i th Accounting St a n d a r d - 15 i s s ue d by the I n st i t u t e o f C h a rt e r e d Ac c o u n ta n ts o f I n d i a , h o l d i n g i t t o b e a n u n a s ce r t a i ned l i a b i l i t y . Th e a s s e s s ee o b je c te d t o t h e s a m e b ef o r e t h e D R P , w ho i n r e tu r n , r e j e c t e d t h e a s s e s se e 's claim fo l l o w i n g its d i r e c t i on in p r ec e d i n g year i.e. a s s e s s m e nt y e a r 2 0 1 0 - 1 1 . Th e A s s e s s i n g Of f i c e r, t h e r e f o r e, p r o c e e d e d t o m ak e t h e d i s a l l o w an c e i n c o m p l i a n ce w i t h t he d i r e c t i o ns o f t h e D R P .
13
18. B e f o r e u s , t h e L d . c o un s e l f o r a s s e s se e po i n te d o ut t h a t t h e i s s u e h a s a l r e a d y b e en d e c i d e d i n f av o u r o f t h e a s s e s s e e i n e a rl i e r y e a r s i . e . a s se s s m e n t y e a rs 2 0 0 7 - 0 8 to a s s e s s m e nt y e ar 2 0 1 0 - 1 1. F ur t h e r a br i e f gi s t o f t h e s u b m i s s i on s o n t h e i s s u e w a s al s o f i l ed i n wr i ti n g b e f or e us.
19. Th e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r o f t h e A ss e s s i ng O f f i c e r /D R P .
20. W e h a v e h e a rd c o n t e n t i on s of bo t h t h e p a rt i e s . We h a v e a l s o g on e t h r o u g h t h e de c i s i o n o f th e Tr i b u n a l i n p r e c e d i n g y e a r s i n t h e c as e o f th e a s s e s se e a n d f i n d t h at the issue was dealt with at length by the Tribunal in a s s e s s m e nt y e a r 2 0 0 7 - 0 8 , w h e re i n a f t e r d e a l i ng w i t h t h e revised A cc o u n ti n g S t a n d ar d i ss u e d by the I ns t i t u t e of Chartered A c c ou n t a n t s for a cc o u n t i n g the e m p l o y e e s' m e d i c a l b e n e f i t p o s t r e ti r e m e nt , A S - 1 5 , t h e Tr i bu n a l f o u nd that the a s s es se e had o b t a i ned an a ct u a r i al v a l u a t io n c e r t i f i ca t e i n p u rs u a n c e t o A S - 1 5 , c e r t i f y i n g t h e v al u a t i o n of p o s t r e t i r e m e n t m e d i c a l as s i s t anc e a s a t t h e e nd o f t h e y ea r a n d b a s ed o n i t h a d ma d e p rov i s i o n of t h e i nc r e m e n t a l amount du r i n g the ye a r . Thereafter, rel yi ng upon the deci si on of the Hon'bl e Ape x Court i n Bharat Earth Movers vs. CI T and Bokaro Po wer Suppl y Co. P. Ltd. Vs. DCI T, whi ch hel d that provi si on made for meeti ng l i abi l i t y of leave encashment and post reti rement medi cal benefi ts on scheme i s al l o wabl e, al lo wed the assessee's appeal . Thi s deci si on was fol l o wed i n assessment ye ars 2008-09, 20 09-10 and 14 2010-11 al so. No di sti ngui shi ng facts have been brought to our noti ce. No subsequent deci si on of the Ho n'bl e Hi gh Court reversi ng the deci si on of th e I TAT was al so brought to our noti ce by th e Ld.DR. We, th erefore, have no hesi tati on i n al l o wi ng thi s ground of appe al rai sed by the assessee, fol l o wi ng the deci si on of the Tri bunal i n the case of the assessee i n earl i er years.
Ground of appeal No.4 therefore stands al l o wed
21. Ground of appeal Nos.5, 5.1 & 5.2 rai sed by the assessee read as under:
"5. That the assessing officer erred on facts and in law in disallowing interest of Rs.8,62,81,000 as capital expenditure in terms of proviso to section 36(1)(iii) of the Act alleging the same to have been incurred for investment made in capital work in progress ('CWIP').
5.1 That the assessing officer erred on facts and in law in proceeding on a factually incorrect premise that the appellant had borrowed funds which had been utilized for making investment in CWIP, without appreciating that the appellant had no borrowed funds at all.
5.2 Without prejudice, that the assessing officer erred on facts and in law in not allowing depreciation (in the year of capitalization of the CWIP) on interest expenses of Rs. 8,62,81,000 held to be capital in nature."
22. Bri efl y stated the Assessi ng Offi cer proposed di sal l o wance of i nterest e xpenses, hol di ng the same to be i n rel ati on to the capi tal work in progress sho wn by the assessee, whi ch had i ncreased from Rs.3563.39 l acs as at the begi nni ng of the year to Rs.10,816.86 l acs at the end of the year. The Assessi ng Offi cer proposed di sal l o wance of i nterest @ 12 % of the average CWI P, whi ch worked out to Rs.863.81 l acs. The assessee objected t o t h e s a m e b e f o r e 15 the DRP, who in turn, r e j ec t e d the a s s e ss e e ' s claim f o l l o w i ng i t s d i re c t i o n i n p r e c ed i n g y e a r i . e . as s e s s m e n t y e a r 2 0 1 0 - 1 1. Th e A s s e s s i n g Of f i c e r , t h er e f o r e, p r o c e e d e d t o m a k e t h e d i s al l o w a n c e i n c o mp l i a n c e w i t h t h e d i r e c ti o ns o f t h e D RP .
23. B e f o r e u s , L d . c o u n s e l f o r t h e a s s e s se e po i n te d o ut t h a t t h e i s su e h a d a l r e a d y be en d e c i d e d b y the I TA T i n f a v o u r of t h e a ss e s s e e i n e a r l i e r y e a r s i . e . as s e ss m e n t y ea r 2 0 0 8 - 0 9 t o as s es s m e n t y e a r 2 0 10 - 1 1 . F u rt h e r a b r i e f g i s t o f i t s s ub m i s s i on s o n t h e i s s u e w a s a l s o f i l e d b ef o r e u s in writing.
24. Th e L d . D R , o n t h e o t h e r h a n d , r e l i e d u p o n t h e o r d e r o f t h e A ss e s s i ng O f f i c e r /D R P .
25. W e h a v e h e ar d th e c o n te n t i o ns of b o t h t h e p a r ti es . We h a v e a l s o g o n e th r o u g h t h e d e ci si o n o f t h e Tr i b u n a l i n the c a s e o f t h e a s ses s e e f o r a s s es s me n t y e a r 2 0 0 8- 09 , w h e r e i n identical i s su e of d i s a l l o wa nc e of i n t e r es t e x p e n s es p e r t a i n i ng t o C WI P w a s r a i s e d a nd t h e Tr i b u n al on p e r u s i n g t h e d e t a i l s b e f or e i t , f o u n d t h at n o b o r r o w i n g s h a d b e e n m a d e b y t he a ss e s s e e f or t h e p u r p o s e o f i n v es t m e n t i n C WI P , wh i c h i s a p r er e q u i si t e f o r di s a l l o w i n g i t a s p e r p r o v i s o t o s ec t i on 3 6 ( 1 ) ( i i i ) o f t he A c t . Th e Tr i b u n a l f o u nd that the as s e s se e had paid interest on d e po s i t s f r om d e a l e r s / wh o l e s al e r s , w h i ch w a s ou t o f b u s i n e s s co m p u l s i o n a n d h a d n o t hi n g t o d o w i t h i nv es t m e n t i n CWI P . Further t h e Tr i b u n a l f o un d t h a t t h e a ss es s e e h a d p a i d i n t e r e s t o n c h e q u e d i s c o u n t i n g w h i c h fu n d s i t h e l d c o ul d n o t b e s a i d to 16 p a r k e d i n C WI P . I t w a s a l s o f ou n d t h a t t h e a ss e s s e e h ad earned i n te r e s t income e x c eed i n g e x p e n di t u re and on totality of the aforesaid facts deleted t he d i sa l l o w a n c e made.
26. The facts i n the present case ar e i denti cal to th at i n assessment year 2008-09, the assessee havi ng pai d i nterest on bi l l di scoun ti ng, deposi ts of whol esal ers/deal ers and others. No di sti ngui shi ng facts h avi ng been brou ght to our noti ce by the Ld. DR. Therefore th e deci si on of the I . T.A. T. i n earl i er year wi l l appl y i n the present case al so, fol l o wi ng whi ch we del ete the di sal l o wance made.
Ground of appeal No.5, 5.1 & 5.2 rai sed by the assessee, therefore, stand al l o wed.
27. Ground Nos.6 & 6.1 rai sed by the assessee read as under:
"6. T hat the assess i ng of f icer erred on f ac ts and in law in mak ing d is al l o wan ce of Rs. 1, 99, 68, 000, cl ai me d in res pec t of prov is ion to war d s l ong ter m inc en tive pl an hol d ing the s ame to be an u n ascer tained l iab il i ty.
6. 1 T hat the assess i ng of f icer erred on f ac ts and in l a w in observ i ng th at the af ores aid l i ab il i ty h as no t been co mpu ted on a sc ien tif ic b as is. "
28. The above gro unds chal l enge the acti on of the Assessi ng Offi cer/DRP in di sal l o wi ng an amount of Rs.199.68 l acs, bei ng provi si on f or l ong term i nc enti ve pl an for empl o yees. A s per the scheme of the assessee, provi si on had been created for proporti onate l i abi l i t y of the rel evant year i n respect of amount pa yabl e to the empl o yees rel atabl e 17 to servi ces rendered by them unti l the end of the year, though the amount was actual l y pa yabl e on the date of e xerci se of the opti on granted to the empl o y ee. The Assessi ng Offi cer found the provi si on so created a s a total l y unascertai ned l i abi l i t y and, therefore, proposed disal l o wance of the same. Th e assessee chal l e nged the same before the DRP, who confi r med the Assessi ng Offi cer's orde r fol l o wi ng thei r deci si on i n the assessee's case for assess ment year 2010-11.
29. Before us, the Ld. counsel f or assessee dre w our attenti on to the fact that thi s i ssue has al ready been deci ded by the I . T.A. T. i n favour of the assessee i n precedi ng years i .e. assessment year 2009-10 and 2010-11. Further a gi st of i ts submi ssi ons on the i ssue was al so fi l ed i n wri ti ng before us. The Ld. DR on the other hand rel i ed on the order of the Assessi ng Offi cer/DRP.
30. We have heard b oth the parti es. We have al so pe rused the order of the I . T.A. T. i n the case of the assessee for assessment years 2009-10 and 2010-11, and fi nd that i denti cal i ssue was rai sed before i t i n ground No.9 of the assessee's appeal in I TA No.2 90/Chd/2014, whi ch the I . T.A. T. adjudi ca ted i n favour of the assessee findi ng the scheme to be an "ESOP Scheme" and fol l o wi ng the deci si on of the Speci al B ench of the I . T. A. T. i n the case of Bi ocon Li mi ted Vs. DCI T, 155 TTJ 649( S B) . The rel evant findi ng at paras 59 and 60 of the order i s as under:
18
"59. We have heard the learned representatives of both the parties, perused the f indings of the authorities below and considered the material available on record. This is an undisputed f act that the assessee has created liability in respect of long term incentives plan of Rs.158.96 lacs during the year. It is also a f act that the a s s e s s e e h a s a d o p t e d a s t a n d a r d me t h o d t o v a l u e t h e s a i d p r o v i s i o n y e a r a f te r y e a r . The only contention of the Assessing Off icer to make t h e d i s a l l o wa n c e s e e ms t h e f a c t t h a t t h e r e i s n o certainty of the payment on account of this i n c e n t i v e p l a n , wh i c h wa s d e p e n d e n t o n a n u mb e r o f u n f o r e s e e a b l e c o n d i t i o n s . The existence of variables def initely made the quan tif ication of the incentive claim uncertain. In vie w of the same, the only issue to be decided b y u s i s wh e t h e r t h e p r o v i s i o n f o r i n v e s t me n t plan made by the assessee during the year is a l l o wa b l e i n t h i s y e a r o r n o t . We have to see wh e t h e r t h e s a i d p r o v i s i o n c o me u n d e r t h e a mb i t of deductible expenditure under section 37(1) of the Act or not. The contention of the Assessing O f f i c e r s e e ms t h a t h e i s c o n s i d e r i n g t h e s a i d liability to be contingent as at various places in h i s o r d e r , h e h a s me n t i o n e d t h a t t h e r e i s uncertainty as to the quantum of expenses to be i n c u r r e d i n a n y p a r t i c u l a r y e a r . I t i s a k n o wn f a c t t h a t i n t h i s t y p e o f i n c e n t i v e s c h e me , o p t i o n s are reversed due to non-exercise or under vested o ption th at get c ancelled due to leav ing of off ice b y a n y o f t h e e m p l o y e e s . T h i s f a c t we i g h e d v e r y h e a v i l y i n t h e m i n d o f t h e A s s e s s i n g O f f i c e r wh i l e m a k i n g t h i s d i s a l l o wa n c e . N o w t h e i s s u e a r i s e s wh e t h e r t h e l i a b i l i t y i n q u e s t i o n i s c o n t i n g e n t liability or an unascertained liability. It is a t r i t e l a w t h a t t h e l i a b i l i t y wh i c h i s a s c e r t a i n e d d u r i n g t h e y e a r i s a n a l l o wa b l e e x p e n d i t u r e , wh i l e c o n t i n g e n t l i a b i l i t y i s n o t . It is also a settled law that an unascertained liability has to b e a l l o we d e v e n i f t h e s a me i s q u a n t i f i e d o n a f u t u r e d a t e . T h e i n c e n t i v e p l a n s o f o r mu l a t e d b y t h e a s s e s s e e i s a v e r y c o m mo n f o r m o f s c h e me f o r me d b y m a n y o f t h e c o m p a n i e s p o p u l a r l y k n o wn a s ' E S O P ' s c h e me . T h e t e r ms a n d conditions of the investment plan of the assessee a r e s a me a s i n a n y g e n e r a l s c h e me o f E S O P . The question of liability of this type of provision c a me b e f o r e t h e B a n g a l o r e B e n c h o f t h e T r i b u n a l in the case of Biocon Limited (supra). The basic q u e s t i o n i n t h a t c a s e a l s o wa s wh e t h e r t h e provision made for ESOP during the year is an ascertained liability under section 37(1) of the Act. T h e S p e c i a l B e n c h d e a l i n g wi t h t h e i s s u e held that the discount in relation to options 19 lapsing during the year cannot be held as contingent liability and such expenditure is on a c c o u n t o f a n a s c e r t a i n e d l i a b i l i t y i n f o l l o wi n g t e r ms :
"As regards the contention of the revenue about the contingent liability arising on account of the options lapsing during the vesting period or the employees not choosing to exercise the option, it was found that normally it was provided in the schemes of ESOP that the vested options that lapse due to non-exercise and/or unvested options that get cancelled due to resignation of the employees or otherwise, would be available for grant at a future date or would be available for being re- granted at a future date. If it is considered at micro level qua each individual employee, it may sound contingent, but if it is viewed at macro level qua the group of employees as a whole, it loses the tag of 'contingent' because such lapsing options are up for grabs to the other eligible employees. In any case, if some of the options remain unvested or are not exercised, the discount hitherto claimed as deduction is required to be reversed and offered for taxation in such later year. Therefore, the discount in relation to options vesting during the year cannot be held as a contingent liability. Provisions to section 115WB contemplates that the discount on premium under ESOP as a benefit provided by the employer to its employees during the course of service. It was held that if the legislature considers such discounted premium to the employees as a fringe benefit or 'any consideration for employment', it was not open to argue contrary. Once it was held as a consideration for employment, the natural corollary which follows is that such discount is an expenditure; such expenditure is on account of an ascertained (not contingent) liability and it cannot be treated as a short capital receipt. In view of the forgoing discussion, it was held that discount on shares under the ESOP is an allowable deduction."
6 0 . S i n c e r e l i a n c e w a s p l a c e d o n t h i s j u d g me n t and other judgments of various Benches of the T r i b u n a l , wh o h a d i n t u r n r e l i e d u p o n t h e S p e c i a l Bench, during the course of hearing and no d i s t i n g u i s h i n g f a c t s we r e b r o u g h t t o o u r n o t i c e b y t h e l e a r n e d D . R . , r e s p e c t f u l l y f o l l o wi n g t h e o r d e r o f t h e S p e c i a l B e n c h , we a l s o h o l d t h a t t h e provision on account of incentive plan made by the assessee during the year is an ascertained liability. F u r t h e r , we s e e t h a t t h e A s s e s s i n g O f f i c e r h a s n o wh e r e o b j e c t e d t o t h e m e t h o d o f quan tif ying the said provision by the assessee. The ground of appeal No.9 raised by the assessee i s a l l o we d . "
20
31. The i ssue, we f i nd i n the present case i s i denti cal , rel ati ng to provi si on for l i abi l i t y on account of long term i ncenti ve pl an. The reason for the di sal l o wance made by the Assessi ng Offi cer i s al so i denti cal , si nce he found i t to be i n the nature of an unascertai ned conti ngent l i abi l i t y. No di sti ngui shi ng facts were brought to our noti ce, nor any deci si on of hi gher authori t y brought to our noti ce passed agai nst the assessee. We, therefore, hol d that the i ssue i s squarel y covered by the deci si on of the I TAT i n the assessees o wn case for A.Y 2009-10 & 2010-11 fol l o wi ng whi ch we del ete the di sal l o wance made on account of provi si on to wards l ong term i ncenti ve pl an amounti ng to Rs.1,99,68,000/-. Ground Nos.6 and 6.1, theref ore, stand al l o wed.
32. Ground Nos.7 and 7.1 rai sed by the assessee read as under:
"7. That the assessing officer erred on facts and in law in levying interest under sections 234A, 234B and 234D of the Act.
7.1 That the assessing officer erred on facts and in law in computing interest under section 234A of the Act even though the return of income was filed within the due date as per the provisions of section 139(1) of the Act."
33. The above groun ds rai sed are co nsequenti al i n n ature and need no adjudi cati on.
The appeal of th e assessee i s, therefore, stands al l o wed for stati sti cal purposes.
21ITA No.257/Chd/2016 Revenue's Appeal)(A.Y. 2011-12) :
34. Ground No.1 rai sed by the Revenue reads as under:
"1. On the facts and in the circumstances of the case and in law, the order of the Dispute Resolution Panel is perverse in deleting addition of Rs.1,46,798/- made by the A.O. in respect of advance payment, of excise duty with the Excise Authorities by rightly invoking the provisions of section 43B of the I.T. Act, 1961.
35. Bri efl y stated, the Assessi ng Offi cer di sal l o wed the assessee's cl ai m of deducti on o f Rs.1,46,798/- bei ng the i ncremental di fference bet ween th e e xci se deposi t wi th e xci se department as at the cl ose of the year and the be ginni ng of the year. The D RP i n turn deci ded the i ssue i n favour of the assessee fol l o wi ng the deci si on of the Speci al Ben ch of the Tri bunal i n asses see's o wn case for assessment year 2001-02 and the deci si on of the Tri bunal in l ater years from assessment years 1998-99 to 2000-01 and assessment years 2002-03 to 2008-09.
36. Before us, the Ld. DR though fai rl y admi tted that the i ssue was covere d i n favour of th e assessee by th e deci si on of the Tri bunal in precedi ng year, yet rel i ed upon the fi ndi ngs of the Assessi ng Officer whi l e proposi ng the di sal l o wance.
37. The Ld. counsel for assessee, on the other hand, rel i ed upon the order of the Assessi ng Offi cer/DRP.
38. We fi nd no meri t in the present ground rai sed. Admi ttedl y, the i ssue i s covered i n favour of the assessee by repeated deci si ons of the Tri bu nal and even the Speci al 22 Bench of the Tri bunal i n precedi ng years i n the case of the assessee. No di sti ngui shi ng facts were brought to our noti ce by the Ld. DR. In vi e w of the same, we uphol d the di recti ons of the DRP del eti ng the di sal l owance of Rs.1,46,798/- on account of i ncremental bal ance i n PLA . Ground of appeal No.1 rai sed by the Revenue, therefore, stands di smissed.
39. Ground No.2 rai sed by the Revenue reads as under:
"2. On the facts and in the circumstances of the case and in law, the Dispute Resolution Panel has erred in allowing the payment made as royalty at certain percentage of sales as revenue expenditure without appreciating the order of the Hon'ble Apex Court in the case of Swaraj Engine Ltd."
40. Bri efl y stated, the assessee had pai d ro yal t y to the tune of Rs.8319.48 l acs to M/s Gl a xoSmi thkl i ne Asi a Pvt. Ltd. for use of tradema rk "Horl i cks" a nd cl ai med the same as revenue e xpendi ture. The A ssessi ng Offi cer proposed hol di ng the same as capi tal i n nature agai nst whi ch the assessee fi l ed ob jecti ons to the D RP. The DRP aft er rel yi ng on the deci si o n of the ape x court i n Al embi c Chemical Works Co. Ltd. Vs. CI T 177 I TR 377 & the decisi on of the Hon'bl e Del hi Hi gh Court in the case of CI T Vs. J.K. Syntheti cs Ltd. 309 I TR 371 he l d that the ro yal t y pai d i s revenue i n nature and di rected the Assessi ng Offi cer to al l o w the same.
41. Before us, the Ld. counsel for assessee at the outset poi nted out that the Tri bunal h ad i n assessee's o wn case deci ded i denti cal i ssue in favour of the assessee in assessment years 2008-09, 2009- 10 and 2010-11. Fur ther a 23 gi st of submi ssi on on the i ssue was al so fi l ed before us and rel i ed upon by the Ld. counsel for assessee.
42. The Ld. DR though fai rl y admi tted that the i ssue was deci ded i n favou r of the assessee i n earl i er years, yet rel i ed upon the draft order of the Assessi ng Offi cer proposi ng the di sal l o wance.
43. Havi ng heard bo th the parti es w e fi nd no meri t i n the present ground rai sed. Admi ttedl y, i denti cal i ssue has al ready been adjudi cated upon by the Tri bunal i n earl i er assessment years i .e. assessmen t years 2008-09 , 2009-10 and 2010-11, deci di ng the i ssue i n favour of the assessee. No di sti ngui shi ng facts have been brought to our noti ce by the Ld. DR. We, therefore, see no reason to i nterfere i n the order of the DRP del eti ng he di sal l o wance of ro yal ty e xpenses. Ground of appeal No.2 rai sed by the Revenue, therefore, stands di smi ssed.
44. Ground No.3 rai sed by the Revenue reads as under:
"3. On the facts and in the circumstances of the case and in law, the Dispute Resolution Panel has erred in directing the TPO to exclude the selling expenses incurred by the assessee from the ambit of AMP expenses and to take the balance expenditure towards the taxpayers provision of service of creation of marketing intangible for the AE."
45. The present g round rel ates to transfer pri ci ng adjustment made by the TPO on AMP e xpen ses and i s agai nst the di recti on of the DRP of e xcl udi ng sel l ing e xpenses from the AMP e xpenses. Si nce the TP i ssue has al ready been deal t wi th by us i n ground No.2 rai sed i n assessee's appeal i n I TA No.105/Chd/2016 above, whe rei n 24 the matter has been restored to the fi l e of the Assessi ng Offi cer/ TPO for deci di ng afresh, the present gro und rai sed stands covered by our aforesai d deci si on. Gr ound No.3 rai sed by the assessee ther efore stands a l l o wed for stati sti cal purposes.
ITA No.346/Chd/2017 (Assessee' Appeal)(A.Y. 2012-13):
46. Ground No.1 rai sed by the assessee reads as under:
"1. That the assessing officer erred on facts and in law in completing assessment under section 143(3) read with section 144C of the Income Tax Act ("the Act) at an income of Rs.11,54,47,32,420 as against the returned income of Rs.6,16,07,58,340."
47. Th e a b o v e g r o u nd r a i s e d b y t he a s s e s s e e b e i n g ge n e r a l i n n a t u re n e ed s n o a dj u d i c at i on a n d h e n c e i s t r e a t ed a s d i s m i s s e d.
48. G r o u n d N o s . 2 to 5 r a i s e d b y t h e a s s e s s e e r e ad a s under:
"2. That the assessing officer erred on facts and in law in making addition of Rs.4,21,87,05,375 on account of arm's length price of alleged international transactions resulting from advertisement, marketing and brand promotion expenses incurred by the appellant on the basis of the order passed by the TPO under section 92CA(3) of the Act.
2.1 That the Dispute Resolution Panel ('DRP')/ Transfer Pricing Officer (TPO') erred on facts and in law in making the addition of Rs.322,20,15,000 on substantive basis applying Cost Plus Method and Rs.99,66,90,375 on protective basis applying Bright Line Test on account of the alleged Transfer Pricing adjustment in respect of advertisement, marketing and brand promotion expenses ('AMP expenses'), incurred by the appellant.
2.2 The DRP/ TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm's length 25 price (ALP) and the contract or declared price, but the said provision could not be invoked to determine the 'quantum' / extent of business expenditure 2.3 The DRP/ TPO erred on facts and in law in not appreciating that in the absence of any proved understanding/arrangement between the appellant and the associated enterprise the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as defined in section 92B, so as to invoke the provisions of section 92 of the Act."
"3. That the DRP erred on facts and in law in considering AMP expense of the appellant as an international transaction allegedly observing that:
(i) The appellant has failed to furnish complete details and failed to discharge its burden of proof and has not been able to substantiate its claim that the AMP expense incurred by it in India is at the behest of the AE.
(ii) The appellant has not been able to demonstrate that it has been adequately compensated for AMP functions, apart from the compensation it has received for its routine functions.
(iii) The appellant failed to controvert the finding of the TPO that it has rendered intra-group services which were required to be separately benchmarked.
3.1 That the DRP erred on facts and in law in not appreciating that the voluminous evidences / documents (as were required in the course of the hearing) were submitted in support of the claim of the appellant that the advertisement expenditure was independently incurred by the appellant without any understanding/ arrangement or any other influence from the associated enterprise.
3.2 That the DRP / TPO erred on facts and in law in not discharging the onus bringing on record any tangible material to demonstrate, existence of the international transaction in relation to the advertisement, marketing and brand promotion expenses unilaterally incurred by the appellant, so as to establish that the same constituted an international transaction. 3.3 That the DRP erred on facts and in law in allegedly holding that the appellant has failed to furnish any material to demonstrate that it enjoyed economic ownership over the brand and that the appellant has failed to discharge its onus of proof and has failed to substantiate the claim."
"4. Without prejudice, that the DRP/TPO erred on facts and in law in not appreciating that even otherwise all the international transactions including the alleged international transaction on account of AMP expenses 26 applying Transactional Net Margin Method (TNMM1) as the most appropriate method.
4.1. Without prejudice, that the DRP erred on facts and in law in rejecting benchmarking of AMP expense by applying TNMM, allegedly holding that the assessee has failed to show that the transactions are 'closely linked' in terms of Rule 10A(d) and that it has not been able to discharge its burden of proof and substantiate its claim that only entity level margin can be seen in such circumstances."
"5. Without prejudice, the DRP erred on facts and in law in sustaining inclusion of selling expenses within the ambit of AMP expenses, allegedly on the basis that the revenue is in appeal before the Supreme Court, against the decision of Delhi High Court in case of Sony Erickson, wherein, the TPO was directed to exclude selling expenses from the ambit of AMP expense. 5.1. Without prejudice, the TPO/DRP erred on facts and in law in not appreciating that markup, if at all, had to be restricted to the value added expenses incurred by the appellant for providing the alleged service in the nature of brand promotion."
49. It was common ground between the parties that the issue raised in these grounds is identical to that raised in ground Nos.2 to 2.4 of the assessee's appeal in ITA No. 105/Chd/2016 dealt with us above. The findings given therein at para 9 of our order above shall apply to this case also mutatis mutandis and applying which Ground Nos.2 to 5 raised by the assessee stand allowed for statistical purposes, the issue being restored to the Assessing Officer/TPO for fresh adjudication in accordance with law.
56. G r o u n d N o. 6 r ai s e d b y t he a s s ess e e r e a d s a s u nde r :
"6. That the assessing officer/DRP erred on facts and in law in not allowing deduction towards the closing balance of excise duty lying in PLA amounting to Rs.52,25,915 claimed under section 43B of the Act. 6.1 That the assessing officer/DRP erred on facts and in law in law making net addition of Rs.26,69,526, without appreciating that the appellant had claimed deduction of the closing balance lying in PLA amounting to Rs.52,25,915 and added back the opening balance lying in PLA amounting to Rs.25,56,389 (claimed as deduction u/s 43B by the 27 appellant in the return of the immediately preceding assessment year)."
50. It was common ground between the parties that the issue raised in this ground is identical to the issue raised in ground No.1 of the Revenue's appeal in ITA No. 257/Chd/2016 dealt with us above. The findings given therein at para 38 of our order above shall therefore apply to this ground also with equal force. Ground No.6 raised by the assessee is therefore allowed.
51. G r o u n d N o. 7 r a i se d b y t h e a s s e sse e r e a d s a s u n der :
"7. That the assessing officer/DRP erred on facts and in law in disallowing consumer market research expenses of Rs.29,92,87,000 under section 37(1) of the Act, alleging the same to be capital in nature."
52. It was common ground between the parties that the issue in this ground is identical to the issue raised by the assessee in ground No.3 of its appeal in ITA No. 105/Chd/2016 and the findings given therein at paras 14 & 15 of our order above shall apply to this ground mutatis mutandis. Ground No.7 raised by the assessee therefore stands allowed.
53. G r o u n d N o. 8 r a i se d b y t h e a s s e sse e r e a d s a s u n der :
"8. That the assessing officer/DRP erred on facts and in law in making disallowance of Rs.1,04,65,000, claimed in respect of liability for post-retirement medical benefits to the employees, holding the same to be an unascertained liability.
8.1 That the assessing officer/DRP erred on facts and in law in observing that the provision has been made by debiting the general reserves, without appreciating that the said provision was made by debiting the profit and loss account."28
54. It was common ground between the parties that the issue in this ground is similar to the issue raised in ground No.4 by the assessee in its appeal in ITA No. 105/Chd/2016 above and the findings given therein at para 20 of our order above shall apply to this ground also with equal force. Ground No.8 raised by the assessee therefore stands allowed.
55. G r o u n d N o. 9 r a i se d b y t h e a s s e sse e r e a d s a s u n der :
"9. That the assessing officer/DRP erred on facts and in law in disallowing expenditure aggregating to Rs.96,24,14,000, incurred by the appellant during the relevant previous year on account of royalty, holding the same to be capital in nature."
56. It was common ground between the parties that the issue in this ground is similar to the issue raised in ground No.2 by the Revenue in its appeal in I TA No.257/Chd/2016 dealt with us above. The findings given in ITA No.257/Chd/2016 at para 43 of our order above shall therefore apply to this ground also mutatis mutandis. Ground No.9 raised by the assessee therefore stands allowed.
57. G r o u n d N o. 1 0 r ai s e d b y th e a s se ss e e r e a d s a s u nde r :
"10. That the assessing officer/DRP erred on facts and in law in disallowing interest amounting to Rs.13,76,52,000 holding it as capital expenditure in terms of proviso to section 36(1)(iii) alleging the same to have been incurred for investment made in capital work in progress ('CWIP').
10.1 That the assessing officer/DRP erred on facts and in law in proceeding on a factually incorrect premise that the appellant had borrowed funds which had been utilized for making investment in CWIP, without 29 appreciating that the assessee had no borrowed funds at all.
10.2 Without prejudice, the assessing officer erred on facts and in law in not allowing depreciation (in the year of capitalization of the CWIP) on interest expense of Rs.13,76,52,000 held to be capital in nature."
58. It was common ground between the parties that the issue in this ground is similar to the issue in ground No.5 raised by the assessee in its appeal in ITA No. 105/Chd/2016.The findings given therein at paras 25 & 26 of our order above shall apply to this ground also with equal force. Ground No.10 raised by the assessee therefore stands allowed.
59. G r o u n d N o. 1 1 r ai s e d b y th e a s se ss e e r e a d s a s u nde r :
"11. That the assessing officer/DRP erred on facts and in law in making disallowance of Rs.6,97,41,000, claimed in respect of provision towards long term incentive plan holding the same to be an unascertained liability.
11.1 That the assessing officer erred on facts and in law in observing that the aforesaid liability has not been computed on a scientific basis.
11.2 Without prejudice, the assessing officer erred on facts and in law in not allowing deduction of Rs.388.57 lacs (net of reversals of Rs.68.60 lacs),b ein g t he a m o un t ac tu all y p ai d d ur in g t h e rel e va nt a s s es s m en t y ea r towards long term incentive plan."
60. It was common ground between the parties that the issue in this ground is similar to the issue in ground No.6 raised by the assessee in its appeal in ITA No. 105/Chd/2016 dealt with us above. The findings given therein at paras 30 & 31 of our order above shall apply to this ground also mutatis mutandis. Ground No.11 raised by the assessee therefore stands allowed.
61. G r o u n d N o. 1 2 r ai s e d b y th e a s se ss e e r e a d s a s u nde r : 30
"12. That the assessing officer erred on facts and in law in levying interest under sections 234B and 234C of the Act."
62. Since the above ground is consequential in nature, hence it needs no adjudication.
The appeal of the assessee, therefore, stands allowed for statistical purposes.
63. In the result, all the appeals of the assessee are allowed for statistical purposes while the appeal of Revenue is partly allowed for statistical purposes.
O r d e r p r on o u n c ed i n t h e o p e n cou r t .
Sd/- Sd/-
(DIVA SINGH) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 17 t h November, 2017
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh