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2023 (9) TMI 741 - AT - Income TaxTP adjustment - Adjustment on account of Advertisement, Marketing and Promotion ( AMP ) expenses - HELD THAT - As relying on in assessee s own case for A.Y.2009-10 2021 (2) TMI 1358 - ITAT MUMBAI there exists a fine but very important distinction between products promoted and nurtured by an assessee and the brand owned and supported by its AE. In the modern world both exist and play different and specified roles. Therefore, until and unless some -thing positive is brought on record about sharing/incurring AMP expenditure under the head by an assessee on behalf of its AE, it cannot be held that it should have recovered some amount from the AE as the expenditure by it indirectly helped in augmenting the brand value owned by its overseas AE. In the case under consideration, the assessee was incurring expenditure for its products whereas the AE was looking after the ground at global level. If the AMP expenditure incurred by them benefited indirectly in the local/ international market it would not mean that it was an IT. The basic purpose of introducing the various provisions of chapter X, as stated earlier, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas AE. In our opinion, a perceived/notional indirect benefit to the AE, due to incurring of certain expenditure by an assessee in India, is not covered by the TP provisions. It is a fact that the payment under the head AMP expenditure was made to third parties and that those parties were located in India. Thus we hold that the decisions made by the TPO / AO towards transfer pricing adjustment on account of AMP expenditure be deleted. Accordingly, these grounds raised by the assessee are allowed. Disallowance of payment of royalty on technology paid - HELD THAT - Payment of royalty towards trademark for the year under consideration is based on the same agreement, which is considered by the co-ordinate bench for the assessment year 2009-10 2021 (2) TMI 1358 - ITAT MUMBAI Therefore we are of the view that the issue is covered by the above decision for the year under consideration also. Accordingly, we delete the TP adjustment made by the TPO towards payment of royalty on technology paid to Cadbury Adams USA LLC, and Cadbury Enterprises Pte Ltd. These grounds are allowed in favour of the assessee. Disallowance of regional service fees paid - assessee has entered into service agreement with Cadbury Enterprises Pte Ltd for availing certain services such as business strategy, financial planning and accounting supply chain, co-ordination and planning human resources legally and marketing, etc - One of the grounds on which the TP adjustment is contested by the assessee is that the TPO has computed the ALP based on an adhoc estimation of salary and the number of man hours - AR submitted that the TPO has not followed the CUP method but has arrived at the ALP on some estimation - HELD THAT - We notice that the TPO while arriving at the ALP has used the estimated salary and also used earlier years man hours to determine the current year man hours spent. In the above decision, the coordinate bench has considered the issue of determination of ALP by the TPO and has held that the TP adjustment is not tenable by relying on the decision in the case of Kodak India Pvt. Ltd 2013 (11) TMI 667 - ITAT MUMBAI - Thus we delete the TP adjustment. Disallowance of Global Service Fee paid - assessee has entered into service agreement for availing services from its AE Cadbury Holding Ltd (CHL) where the services rendered are in the nature of business and commercial strategy and support, executive development, programme development and delivery, internal management, etc. - HELD THAT - We have already held in the earlier part of this order that the determination of ALP without applying any methods as prescribed under section 92C(1) by the TPO is not tenable. We notice that the TPO has computed the TP adjustment towards global services rendered by Cadbury Holdings Limited also in the same way by applying adhoc estimation of salary cost and man hours. Therefore our decision with respect regional service fee paid to Cadbury Enterprises Pte Ltd., is equally applicable to the current issue under consideration also. Therefore considering the decisions of the coordinate bench in assessee's own case for AY 2009-10 and in the case of Kodak India Private Ltd., 2013 (11) TMI 667 - ITAT MUMBAI we hold that the TP adjustment towards global services rendered by Cadbury Holdings Limited be deleted. Disallowance u/s 14A - assessee computed a suo motu disallowance - assessee submitted before the Assessing Officer that the investments are made out of surplus funds available with the assessee and that the assessee did not borrow any funds in order to make investments - HELD THAT - It is now a settled position that when the own funds are available, no disallowance is warranted under section 14A read with rule 8D. For the year under consideration, the reserves and surplus of the company as on 31/03/2011 is at Rs. 89, 988.09 lakhs and the investments made stands at Rs. 12, 881.07 lakhs, therefore, we see merit in the contention of the Ld.AR that no disallowance is warranted u/s 14A - Thus no disallowance towards interest is warranted under section 14A r.w.r.8D of the Act. With regard to the contention that the suo motu disallowance we notice that the Assessing Officer in the OGE passed for AY 2009-10 has deleted the disallowance made under section 14A and therefore we see merit in the submission of the ld AR that the suo moto disallowance based on the salary of employees in treasury department is being accepted by the revenue. We therefore remit the issue of verification of direct / indirect expense disallowance to the file of Ld. AO for re-adjudication in the light of suo-moto disallowance offered by the assessee. Treatment of forex loss on cancellation of contracts as speculative - assessee submitted that the loss on cancellation of forward contract is arising out of the normal course of business activity and not out of intention to earn more profits and accordingly the same should be allowed as business expenditure - HELD THAT - As relying on assessee s own case has considered a similar issue for A.Y. 2009-10 2021 (2) TMI 1358 - ITAT MUMBAI we hold that the loss arising from cancellation of forward contracts is arising in the normal course of business and accordingly, should be allowed as a deduction. The disallowance made in this regard is deleted. Deduction u/s 80IC - Allocation of expenditure at Baddi Unit-I II - disallowance is arising out of the allocation of finance cost and the Operating Establishment expenses (O E) which the assessee allocated based on the revenue ratio as compared to the total revenue of the assessee - HELD THAT - We notice that the coordinate bench in assessee's own case for AY 2009-10 accepted the claim towards finance cost and remitted the issue back to the Assessing Officer only with respect to the verification of allocation of O E expenses. We further notice that in the OGE the AO has allowed the O E expenses as claimed in the return of income for the purpose of deduction u/s 80IC thereby accepting the method of allocation followed by the assessee for allocating O E expenses. As noticed that there is no change in the method of allocation followed by the assessee for AY 2011-12 also - thus we delete the disallowance made by the AO and hold that the assessee be allowed the deduction u/s 80IC as claimed in the return of income. Addition on account of Annual Information Report - aggregate income was appearing in AIR information which had not been reconciled by the assessee with respect to books of account - HELD THAT - As decided in case Reliance Apex Networks Ltd 2015 (5) TMI 990 - ITAT MUMBAI and also on Zee Media Corporation Ltd. 2018 (4) TMI 932 - ITAT MUMBAI the addition cannot be made solely based on the information in the AIR. Thus keeping in view the amount involved, vis- -vis the total turnover, we see no reason to sustain the addition, we delete the addition made in this regard. Non grant of MAT - AR submitted that the MAT credit is carried forward from A.Y. 2010-11 and the credit was modified due to additions made in the assessment order for A.Y. 2010-11 - HELD THAT - We are of the view that this issue needs to be factually examined for the purpose of allowing the credit towards carried for MAT credit from AY 2010-11. Therefore, we remit the issue back to the Assessing Officer to examine the status of the assessment order passed for AY. 2010-11 and accordingly give credit for the carried forward MAT for the year under consideration. Levy of interest u/s 234A - HELD THAT - We notice that the AO has recorded in the assessment order that the assessee has filed the return of income on 30/11/2011. Therefore, as per the provisions of section 234A, no interest is leviable in assessee s case. Accordingly, the interest levied is deleted. Levy of Interest u/s 234C - As submitted by AO has levied interest u/s 234C on the assessed income whereas the provisions of section 234C talks about levy of interest on income returned - HELD THAT - We accordingly remit the issue back to the Assessing Officer with a direction to examine the records and re-compute the interest under section 234C as per the provisions of the said section.
Issues Involved:
1. Adjustment on account of Advertisement, Marketing, and Promotion (AMP) expenses. 2. Disallowance of payment of royalty on technology paid to Cadbury Adams USA LLC. 3. Disallowance of payment of royalty on technology paid to Cadbury Enterprises Pte Ltd. 4. Disallowance of regional service fees paid to Cadbury Enterprises Pte Ltd. Singapore. 5. Disallowance of global service fees paid to Cadbury Holdings Limited. 6. Disallowance under section 14A of the Act read with Rule 8D. 7. Treating foreign exchange loss on cancellation of contracts as speculative. 8. Allocation of expenditure at Baddi Unit-I & II. 9. Addition on account of Annual Information Report. 10. Non-grant of MAT credit. 11. Levy of interest under section 234A of the Act. 12. Levy of interest under section 234C of the Act. Summary of Judgment: 1. Adjustment on account of Advertisement, Marketing, and Promotion (AMP) expenses: The Tribunal followed its previous decisions in the assessee's own case for AY 2005-06, 2006-07, and 2009-10, holding that AMP expenses incurred by the assessee were not international transactions as defined under section 92B of the Act. The Tribunal deleted the TP adjustment made by the TPO/AO towards AMP expenses. 2. Disallowance of payment of royalty on technology paid to Cadbury Adams USA LLC: The Tribunal noted that the issue of royalty payment was consistently decided in favor of the assessee in earlier years. It held that the payment of royalty to Cadbury Adams USA LLC, and Cadbury Enterprises Pte Ltd was at arm's length and deleted the TP adjustment. 3. Disallowance of payment of royalty on technology paid to Cadbury Enterprises Pte Ltd: Similar to the above, the Tribunal followed its earlier decisions and deleted the TP adjustment, holding that the payment of royalty was at arm's length. 4. Disallowance of regional service fees paid to Cadbury Enterprises Pte Ltd. Singapore: The Tribunal found that the TPO's computation of ALP was based on adhoc estimation and not on any prescribed method under section 92C(1). It deleted the TP adjustment, following the decision in Kodak India Pvt. Ltd. 5. Disallowance of global service fees paid to Cadbury Holdings Limited: The Tribunal applied the same reasoning as for the regional service fees and deleted the TP adjustment, noting that the TPO's method was not tenable. 6. Disallowance under section 14A of the Act read with Rule 8D: The Tribunal held that no disallowance was warranted as the investments were made out of the assessee's own funds. It remitted the issue of verification of direct/indirect expense disallowance to the AO for re-adjudication. 7. Treating foreign exchange loss on cancellation of contracts as speculative: The Tribunal followed its earlier decision in the assessee's own case for AY 2009-10, holding that the loss arising from the cancellation of forward contracts was in the normal course of business and should be allowed as a deduction. 8. Allocation of expenditure at Baddi Unit-I & II: The Tribunal upheld the method of allocation of expenses as followed by the assessee and deleted the disallowance made by the AO, allowing the deduction under section 80IC as claimed in the return of income. 9. Addition on account of Annual Information Report: The Tribunal deleted the addition made solely based on AIR information, following the decisions in Reliance Apex Networks Ltd and Zee Media Corporation Ltd. 10. Non-grant of MAT credit: The Tribunal remitted the issue back to the AO to examine the status of the assessment order passed for AY 2010-11 and accordingly give credit for the carried forward MAT for the year under consideration. 11. Levy of interest under section 234A of the Act: The Tribunal deleted the interest levied under section 234A, noting that the assessee had filed the return of income before the due date. 12. Levy of interest under section 234C of the Act: The Tribunal remitted the issue back to the AO to re-compute the interest under section 234C as per the provisions of the said section. Conclusion: The appeals for AY 2011-12 and AY 2012-13 were allowed in favor of the assessee.
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