9911796707
TMI Blog2012 (4) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,88,22,37,820. 2.0 That the Assessing Officer/Transfer Pricing Officer ("AO/TPO") erred on facts and in law in making addition to the income of the appellant to the extent of Rs. 1,19,45,81,713 on account of the alleged difference in the arm's length price of reimbursement of advertisement, marketing and brand promotion expenses (AMP expenses). 2.1 That on the fact and circumstances of the case benchmarking of the international transaction of reimbursement of Advertisement and Promotion (AMP) Expenses as well as Royalty Expenses by the TPO in absence of a reference by the AO is unlawful and beyond jurisdiction. 2.2 That the AO/TPO erred on facts and in law in holding that AMP expenses amounting to Rs. 1,40,29,07,000, comprising of (i) advertisement and sale promotion expenses of Rs. 12,316.81 lacs; (ii) development and scientific research expenses of Rs. 97.41 lacs; (iii) services charges paid to selling agents of Rs. 11.49 lacs; (iv) market research expenses of Rs. 790.14 lacs; (v) Selling and Distribution expenses of Rs. 372.17 lacs and (vi) discount on sales of Rs. 441.05 lacs resulted in promotion of brand owned by the associated enterprise, thereby ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngibles and hence it would not be required to seek reimbursement compensation for such expenditure from the associated enterprise. 2.11 That the assessing officer erred on facts and in law in relying upon the decision of the case of DHL Incorporated and Subsidiaries vs. Commissioner of Internal Revenue Tax Court, TCD 1998-461, aff'd in part, rev'd in part 285F.3d.1285. 89AFTR2d 2002-1978 (CA-9,2002); and Glaxo Smith Kline Holding (Americas) Inc. v. Commissioner, T.C. No.5750-04 and T.C. No.6959-05, which were rendered in the context of specific provision under the Transfer Pricing Regulations of United States of America. 2.12 That the AO/TPO erred on facts and in law in holding that the expenses incurred by the appellant on advertisement and brand promotion are required to be benchmarked, vis-à-vis, the comparable companies incurring similar advertisement and brand promotion expenses. 2.13 That the assessing officer erred on facts and in law in holding that advertisement and promotion expenses incurred by the appellant ought to be restricted to 2.02% of the sale as against 13.60% incurred by the appellant. 2.14 That the assessing officer e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r pricing regulations. 4. That the Assessing Officer erred on facts and in law in not allowing deduction for incremental balance amounting to Rs. 25,23,710 lying in PLA under section 43B of the Income Tax Act, 1961 ('the Act'). 5. That the Assessing Officer erred on facts and in law in disallowing Consumer Product Research expenses of Rs. 6,23,17,381 under section 37(1) of the Act alleging the same to be capital in nature. 5.1 Without prejudice, that the Assessing Officer failed to appreciate that the market research expenses of Rs. 7,90,13,961 which comprised of the impugned expenses amounting to Rs. 6,23,17,381 were already disallowed by the Assessing Officer while calculating arms length price, resulting in a double disallowance. 6. That the Assessing Officer erred on facts and in law in levying interest under section 234B and 234D of the Act." 3. The present appeal was fixed for hearing on various dates starting from 14.2.2011 and the matter was adjourned from date to date. On several dates of hearing the matter was adjourned at the request of the learned D.R. for the Revenue. The appeal was fixed for hearing on 3.10.2011, on which date an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents) as enlisted under para 2.1 of the order of TPO. Thereafter another reference was made by the Addl. CIT vide letter dated 11.9.2009 in respect of the international transactions under section 92CA(1) of the Act, to the TPO, as enlisted under para 2.2 of the order of TPO. 8. The TPO was of the view that the assessee company is incorporated under the Laws of India and is 40% owned by Horlicks Ltd., U.K., which is part of GSK Group. The TPO vide para 5 thus held that it is an associated enterprise within the meaning of Section 92A(2)(a) of the Income-tax Act. The TPO vide para 6 of his order acknowledged the assessee to have adopted Transaction Net Margin Method (TNMM) for transfer pricing analysis with operating profit/total cost ratio as profit level indicator. Similar method was used by the assessee in the preceding years. The TPO thereafter analyzed the transfer pricing approach of the assessee and show caused the assessee to explain why the data of the relevant financial year only should not be used, as against three years data adopted by the assessee. The questionnaire issued by the TPO and the explanation of the assessee are incorporated under paras 7.1 to 7.4 at pages 5 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advertisement expenditure by the AE. Accordingly, I have examined all the advertisement marketing and sale promotion expenditure (in short AMP expenditure) incurred by the assessee in India." 10. The assessee was thus show caused as to why it should not be inferred that it had incurred both routine and non-routine advertisement and marketing expenses on brand promotion and development of marketing intangibles for the associated enterprises (in short 'AE'). The questionnaire issued by the TPO is reproduced at page 13 and part at page 14 of the order of TPO. The submission of the assessee in reply is reproduced under para 17.10 at pages 14 to 26 of the order of TPO. The main plea of the assessee was that the expenses on advertisement and brand promotion are not incurred at the instance or direction of the AE nor the AE is to benefit from such expenditure incurred by the assessee in India. Further, it will be appreciated that in absence of any transaction which results in transfer of the benefit of advertisement and brand promotion expenses which otherwise belong to and is exploited by the assessee company to the associated enterprise, the question of transfer of the intangib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that on one hand, the assessee was making royalty payment to its AE for the use of trademark and on the other hand, it had incurred expenditure of Rs. 140.29 crores on AMP (excluding royalty). The TPO thus observed that during the year the assessee had created marketing intangibles by incurring expenditure of Rs. 140.29 crores on AMP of AE brand and products, however, the AE had not compensated the assessee for this cost pertaining to the brand promotion of the AE in India. The TPO was of the view that in order to examine the arm's length price it is necessary to compare total expenditure incurred by the assessee on behalf of the AE in India and amount paid by the assessee to India as contribution for advertisement expenditure by the AE. Accordingly, I have examined all the advertisement marketing and sale promotion expenditure (in short AMP expenditure) incurred by the assessee in India. In light of these facts, it is incorrect to say that AMP expenditure is not an international transaction. The TPO vide para 8.2.2 further observed as under : 8.2.2 The assessee has claimed that the TPO has no jurisdiction over the examination of this issue as he has no powers to make dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it has incurred expenditure of Rs. 1,40,29,07,000 on advertisement, marketing and promotion of the 'Glaxo & Horlicks' brand and to develop market for the product of the AEs in India. Since AMP expenditure has resulted in increased in the value of "Glaxo & Horlicks" brand in India and helped penetration of Glaxo & Horlicks products in India. It is held that benefit of AMP expenditure was enjoyed by the AE who is legal owner of the brand. However, it is noted that the assessee has not been compensated for incurring cost and assuming risk of promoting brand of the AE in India and developing marketing intangible for the AE. Since, the assessee is manufacturer-cum-distributor of products in India, it is required to incur certain routine AMP expenditure as limited risk distributor but it is noted that the assessee has incurred certain non-routine expenditure for the AE." 13. The contention of the assessee that the advertisements in print media, press or otherwise was in relation to products aimed to benefit only the products sold by the assessee in India and any benefit accruing to AEs being incidental, was rejected by the TPO, as the thrust of AMP expenditure was to populariz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution Panel. Directions under section 144C of the Act were issued by the Dispute Resolution Panel, New Delhi vide its order dated 9.9.2010. The explanation of the assessee before the Dispute Resolution Panel was that the TPO had erred in observing that the assessee had developed marketing intangible for AE in India by developing of functions and by incurring of economical cost and risk. The Dispute Resolution Panel held that only such comparables which were engaged in the distributions business and were incurring routine AMP expenditure were to be selected. The said concept was observed by the Dispute Resolution Panel to be very scientific and acceptable in many developed countries including USA. The contention of the assessee that the concept of bright line test should not be applied to its case, was found to be not tenable by the Dispute Resolution Panel, observing that TPO had simply applied a well devised, scientific, already in use and a sound taxation concept. The Panel further observed that while working out the excess payment to its associated enterprise, the TPO had already given set off of Rs. 20.83 crores, which in fact are the expenditure relating to AMP. Further obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laborate submissions were made by the learned A.R. for the assessee in respect of each of the aforesaid propositions including relevant case laws, which shall be referred to in paras hereinbelow. The learned A.R. for the assessee has filed written submissions in respect of several propositions advanced by him and complete reliance was placed by the learned A.R. for the assessee on the said written submissions. 18. The learned D.R. for the Revenue has filed comments of TPO in respect of various grounds of appeal raised by the assessee and has in turn relied upon on the order of the TPO. The written submissions of the learned A.R. for the assessee and comments of TPO while arguing the present appeal shall be referred to by us at the appropriate juncture. 19. We have heard the rival contentions and perused the record. The issue raised vide ground Nos. 2.0 to 2.19 is in respect of adjustment made on account of arm's length price in view of the provisions of Chapter-X of the Income Tax Act. 20. The assessee is engaged in the manufacturing and selling of malted food products and drinks under the brand names of Horlicks, Boost, Maltova and Viva. The assessee claimed that during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 GSK, Negeria 2,02,415 2,02,415 GSK Australia 5,65,728 5,65,728 Sterling Durg Malaya Sdn Bhd. Malasia 18,43,191 18,43,191 SB Ltd., Sri Lanka 47,50,970 47,50,970 GSK Pte Ltd., Singapore 4,27,460 4,27,460 GSK CH. Korea 18,048 18,048 GSK Ltd., Hong Kong 1,04,80,046 1,04,80,046 GSK K.K. Japan 15,000 15,000 GSK Export Ltd., UK 9,37,574 9,37,574 4. Reimbursement of expenses (payment) GSK Services Unlimited, UK 20,41,532 20,41,532 -- SB Crop. CB, USA 1,80,090 1,80,090 22. Subsequently vide letter No. Addl.CIT/R-IV/CHD/2009-10/1182 dated 11.09.2009, the Addl. CIT, Range IV, Chandigarh had referred the following 'International Transactions' under section 92CA(1) of the IT Act. Name of Associated Enterprises : M/s GSK Asia Pvt. Ltd. S. No. Description of the transaction Amount (in Rupees) 1 Net Consignment sales 12,062.86 2 Rendering of services (cross charges recovered) 2,403.53 3 Reimbursement of expenses (received/receivable) 413.90 4 Selling commission income 80.30 5 Rent paid 129.58 6 Rent received 0.66 7 Royalty paid/payable 4,323.43 8 Interest received 17.32 9 Loan advanced&nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only 2.02% of sales: S. No. Name of the comparable companies Industrial sales Selling & distribution expenses Selling & distribution expenses as % age of sale 1 Kwality Dairy (India) Ltd. 95.44 0.21 0.22 2 Milk Food Ltd. 204.14 3.99 1.95 3 Modern Dairies Ltd. 92.16 0.61 0.66 4 Ravalgon Sugar Farm Ltd. 48.59 1.18 2.43 5 Mahaan Foods Ltd. 52.15 1.67 3.20 6 Anik Industries Ltd. 123.35 3.94 3.19 7 Milk Specialities Ltd. 64.09 1.18 1.84 8 Hatsun Agro Products Ltd. 544.82 14.75 2.70 Average 2.02 25. The TPO held that as the ratio of selling and distribution expenses as a percentage of sales at 13.06% was higher than 2.02% incurred by the comparable companies, the assessee having incurred routine and non-routine AMP expenses, resulted in creation of marketing intangibles on account of promotion and development of brand, viz., 'Horlicks' owned by the associated enterprise. The TPO, applying Bright Line test, computed an adjustment of Rs. 1,19,45,81,713/-, being the alleged difference on account of development and sales promotion expenses incurred by the assessee, for which, according to the TPO subsidy ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or contribution by the associated enterprise towards reimbursement of any part of AMP expenditure incurred by the domestic enterprise for the purpose of its business. In absence of any understanding, arrangement, etc., no 'transaction' or 'international transaction' could be said to be involved with respect to such AMP expenditure incurred by the domestic enterprise, which may be covered within the ken of Transfer Pricing regulations. 31. The learned A.R. for the assessee further submitted that the payment for advertisement and sale promotion was made by the assessee to other Indian parties and the twin requirements under section 92B of the Act were non-existing in the present case. In the absence of any understanding between the associated enterprises, no international transaction was entered into by the assessee. As per the learned A.R. for the assessee the alleged benefit from the expenditure on advertisement and brand promotion can, at best, be said to unilaterally flow from the action of the assessee and could not, therefore, be characterized as an 'international transaction' so as to invoke the provisions of section 92 of the Act. Reliance was plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise." 34. For computing the arm's length price, resort is to be made to section 92C of the Act which reads as under: "Computation of arm's length price. 92C. (1) The arm's length price in relation to an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable with him: Provided that an opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the arm's length price should not be so determined on the basis of material or information or document in the possession of the Assessing Officer. (4) Where an arm's length price is determined by the Assessing Officer under sub-section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm's length price so determined : Provided that no deduction under section 10A [or section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section : Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm's length price paid to another associated enterprise from which tax has been deducted 88[or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (1). The provisions of section 92CA of the Act reads as under: "Reference to Transfer Pricing Officer. 92CA. (1) Where any person, being the assessee, has entered into an international transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to the said international transaction under section 92C to the Transfer Pricing Officer. (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm's length price in relation to the international transaction referred to in sub-section (1). [(2A) Where any other international transaction [other than an international transaction referred under sub-section (1)], comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A]. Explanation.- For the purposes of this section, "Transfer Pricing Officer" means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons.] " 36. From the combined reading of provisions of Chapter-X of the Act it is clear that it is the duty of the Assessing Officer to compute any income arising from an international transaction having regard to the arm's length price. The Assessing Officer may determine the arm's length price of an international transaction on its own or where the Assessing Officer considers it necessary, subject to the approval of the Commissioner, he may refer the said computation of arm's length price in relation of international transaction under section 92CA of the Act to the TPO. In view of the relevant provisions of the Act the Assessing Officer is to determine whether the transaction involved is an international transaction and he may either determine the arm's length price of the said transaction on its own or where necessary, subject to approval of the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he international transactions which have been referred to by the Assessing Officer after taking the approval of the Commissioner, can be looked into by the TPO. In the absence of the reference being made by the Assessing Officer to the TPO, the suo moto action taken by the TPO in working out the arm's length price of a particular international transaction, not referred to him by the Assessing Officer, is not warranted under the provisions of section 92CA of the Act. 39. The aforesaid position in law has also been clarified by the CBDT vide Instruction No. 3 of 2003, dated 20-05-2003, which read as under: "Subject : Computation of income from international transaction having regard to arm's length price - section 92 of the Income tax Act - Reference to Transfer Pricing Officer and his role -Regarding. The provisions relating to transfer price contained in sections 92 to 92F of the Income Tax Act have come into force with effect from assessment year 2002-03. In terms of the provisions, income from an international transaction is to be computed having regard to arm's length price between the associated enterprises. Further, in terms of section 92CA, a Transfer Pricing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant's report. The Assessing Officer can arrive a prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the Assessing Officer should not embark upon scrutinishing the correctness or otherwise of the price of the international transaction at this stage. In the initial years of implementation of these provisions and pending development of adequate date base, it would be appropriate if a small number of cases are selected for scrutiny of transfer price and these are dealt with effectively. The Central Board of Direct Taxes, therefore, have decided that wherever the aggregate value of international transaction exceed Rs. 5 crores, the case should be pricked up for scrutiny and reference under section 92CA be made to the TPO. If there are more than one transaction with an associated enterprise or there are transactions with more than one associated enterprise the aggregate value of which exceeds Rs. 5 crores. t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and pass a speaking order after obtaining the approval of the DIT(TP). The order should contain details of the data used, reasons for arriving at a certain price and the applicability of methods. It may be emphasized that the application of method including the application of the most appropriate method, the data used, factors governing the applicability of respective methods, computation of price under a given method will all be subjected to judicial scrutiny. It is, therefore, necessary that the order that of the TPO contains adequate reasons on all these counts. Copies of the documents or the relevant data used in arriving at the arm's length price should be made available to the Assessing Officer for his records and use at subsequent stages of appellate or panel or proceedings." 40. The learned A.R. for the assessee in this regard had placed reliance on the undermentioned case laws: (1) Amadeus India (P.) Ltd. v. Asstt. CIT [2011] 10 taxmann.com 88 (Delhi). (2) Infotech Ltd. v. Dy. CIT [2011] 129 ITD 422/10 taxmann.com 86 (Mum.) (3) Diageo India (P.) Ltd. v. Dy. CIT [2011] 47 SOT 252/13 taxmann.com 62 (Mum.) 41. The Tribunal in Amadeus India (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction entered into by an assessee with its associate enterprises which were sent to him for computation of the arm's length price by the Assessing Officer. Suo moto, he cannot take cognizance of any international transaction for suggesting adjustment in arm's length price." 42. The Mumbai Bench of the Tribunal in Diageo India (P.) Ltd. (supra), in turn relying on the ratio laid down by Coordinate benche of the Tribunal in 3i Infotech Ltd. (supra) vide paras 23 and 24 held as under : 23. As far as this adjustment is concerned, it is an undisputed position that the Assessing Officer had not made any reference to the Transfer Pricing Officer for ascertaining ALP in respect of advertising, marketing and promotion expenses alleged to have been incurred for brand strengthening of the brands owned by the AE. The question whether TPO can make adjustments in such a situation is squarely covered by a decision of the Coordinate Bench in the case of 3i Infotech Ltd. v. Dy. CIT [2010] 136 TTJ 641 /[2011] 129 ITD 422 (Mum.) wherein Coordinate Bench has, inter alia, observed as follows: 38. ...... Under the provisions of section 92E, an assessee who has entered into an internation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the international transaction referred to in sub-section (1). (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the TPO may require on any specified points and after taking into account all relevant materials which he has gathered, the TPO shall, by order in writing, determine the ALP in relation to the international transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee." In the present case, the Assessing Officer referred to the TPO for determination of ALP the transactions set out in Form No. 3CEB by his letter dated 29-9-2003. The details of these transactions have already been set out above in the earlier paras. The transaction by which the assessee deputed three of its employees to ICICI Infotech, USA, was not considered as an international transaction to be set out in Form No. 3CEB by the assessee. The Assessing Officer therefore never referred the computation of ALP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a TPO order cannot be legally sustained. We, therefore, direct the Assessing Officer to delete the impugned addition of Rs. 31.54 crores in respect of, what the authorities below have termed as, building brand of the AE. However, as we have deleted the impugned addition on this short ground of jurisdiction, we see no need to deal with the matter on merits." 43. We further find that the Hon'ble Delhi High Court in CIT v. Amadeus India (P.) Ltd., [2011] 203 Taxman 602/16 taxmann.com 43 vide judgment delivered on 28.11.2011 had dismissed the appeal of the Revenue upholding the order of Tribunal, holding as under: 17. A plain reading of Section 92CA makes it clear that the Assessing Officer, if he considers it necessary or expedient so to do, may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to an international transaction under Section 92C to the Transfer Pricing Officer. At this juncture, we may reiterate that it is primarily the duty of the Assessing Officer to compute any income arising from an international transaction having regard to the arm's length price. He may determine the arm's length price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen a reference is made by an Assessing Officer to the Transfer Pricing Officer, the reference includes the entire gamut of transactions between the assessee and its associated enterprise. The Assessing Officer is the person who has been entrusted with the duty to determine as to whether a transaction is an international transaction or not. Then, if it is an international transaction of the nature specified in Section 92B of the said Act, the Assessing Officer has to determine the income of the assessee having regard to the arm's length price by following the method prescribed in Section 92C. If, for some reason, the Assessing Officer feels that it is necessary or expedient so to do, he may refer the computation of the arm's length price of specific international transactions, after obtaining the prior approval of the Commissioner of Income-tax, to the Transfer Pricing Officer. It is quite possible that in the case of a particular assessee, there may be several international transactions and the Assessing Officer may only wish to refer some of those international transactions for the purposes of computing the arm's length price while in respect of others, he may compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, in respect of the AMP expenditure, the assumption of jurisdiction by the TPO in working out arm's length price in respect of the aforesaid AMP expenditure, is not justified and the order of the TPO in this regard is non-est. We have decided the present issue on applicability of the provisions of section 92CA of the Act without adjudicating the first proposition raised by the assessee that the transaction in question is not an international transaction. The Assessing Officer is, therefore, directed to delete the impugned addition of Rs. 11945.81 lacs. The assessee is also in appeal in respect of the computation made by the TPO by holding several expenses as AMP expenditure and manner of computation and also the comparables picked up by the TPO. The assessee has raised several grounds of appeal against the same and both the authorized representatives had made elaborate submissions on the said issues. However, in view of our decision in holding the order of TPO to be non est, we are not addressing the said issues. The grounds of appeal Nos. 2.0 to 2.19 raised by the assessee are thus partly allowed. 46. The issue in ground No.3 raised by the assessee is in relation to royalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of the expenditure incurred by the assessee which has been placed in the paper-book at page 42. The details of expenditure incurred by the assessee are as follows: Particulars Amount (Rs.) A. Promotional and Trade Marketing Expenses Boost badminton rackets 5319600 Boost cricket bat 5040000 Tennis Balls for Boost 2146001 Everfresh containers for packing Horliks GP for Nepal 980724 Printing for stickers 8710 Purchase of Horliks Baskets 88000 Hix glow sign board 648050 Outdoor Publicity 98022 GP Packaging material 140000 RSO-North Trade Mktg. 26703 RSO-West Trade Mktg. 21059 Souvenir Advertising 636993 15781862 B. Product Development Expenses Development Exp. for Nutribar chocolate 1441589 Nutribar Stock written off 1043028 Nutribar Trials 112216 Lotus Nutribar Expenses 1297430 Nutribar research expenses 2923870 Development exp. for Ribena softdrink 158938 Development exp. for Ribena 4225539 Horlicks 3-in-1 packaging expenses For free samples 700620 Market research & consumer analysis for new produces - viz. 1567281 Development exp. Existing products (Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature and import of the expensed in question in a commercial sense. In this case although we are of the view that the said expenditure does not result in any enduring benefit to the assessee yet even if one is to concede to this argument of the revenue, still it is not possible to deduce that the expenditure is capital in nature. This is for the reason that such enduring benefit is not in the capital field but is in the revenue field, thereby imbibing the said expenditure with character of a revenue expenditure. We may refer to the following observations of the Hon'ble Supreme Court in the Case of Empire Jute Co. (Supra) "There may be cases where expenditure even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is nature of the principle laid down in this test. What is material to consider is nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advantage in the revenue filed or not. In our humble opinion the expenditure in question has merely enabled the assessee to remain competitive in the market and retain the customer preferences and loyalty towards its brand of products. The said advantage certainly is not limited to the period under consideration but spills over to the future also. So however this is not conclusive to hold that the expenditure in question is a capital expenditure. The parity of reasoning laid down by the apex court in the case of Empire Jute Co. Ltd. (Supra) discussed by us in the earlier paragraph is squarely applicable with respect to such expenditure also. 11. We may mention here the stand of revenue that the development and introduction of new products create a new line of business for the assessee and thus expenditure related thereof is to be treated as capital expenditure. On this aspect we are unable to appreciate as to how can it be said that mere development and introduction of new varieties of products result in creation of a new line of business. Factually speaking, prior to the development and introduction of the impugned new products the assessee was in the business of manufacturing a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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