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TMI Blog2013 (6) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... olo or having other arrangements. There was a remote possibility of FMC giving the knowhow to any other company or person in India and they could also market products carrying "Ford" logo through any other person in India. Thus, there was an international transaction for creating and improving the marketing intangible comprised in the logo "Ford" by the assessee for and on behalf of FMC. FMC was a non-resident and such transaction was of the nature of "provision of service" as held in the case of L.G. Electronic's case (2013 (6) TMI 217 - ITAT DELHI). Thus no fault of revenue for treating the transaction of brand building as an international transaction - in favour of Revenue. Suo motu cognizance of a transaction for ALP analysis by TPO - Held that:- Once there was no reporting of an international transaction by the assessee, as held in L.G. Electronics India Pvt. Ltd. (2013 (6) TMI 217 - ITAT DELHI) it was well within the power of the TPO to consider such transaction also, whether or not it was referred by Assessing Officer to him, under sub-section (1) of Section 92CA - in favour of the Revenue. Whether Bright Line test applied for determination of ALP of AMP fit into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s FMC. Assessee had an economic advantage derived out of such product development expenditure. Therefore, it cannot be said that the expenditure was incurred solely for the benefit of FMC. As long as FMC and assessee were separate legal entities having separate legal existence, it cannot be said that expenditure incurred by the latter was wholly for the benefit of former, when specific economic advantage was derived by the assessee as well. Thus 50% of the advantage derived on account of product development spendings ensued to the assessee and the balance 50% to FMC - partly in favour of assessee. Provision made for bad and doubtful debts disallowed - Held that:- Facts apropos are that assessee had made a provision towards doubtful advances and claimed it stating that such money could not be recovered from its suppliers, since it represented value of rejected parts. However, nothing was shown before us to prove that there was any actual write-off. A mere provision in the account will not be equivalent to a write-off. At the best be considered as a provision for unascertained liability. Nothing was brought on record to show that correspondingly debtors accounts were reduced. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irection of Dispute Resolution Panel (DRP), grounds have been raised both against transfer price adjustments carried out by the Assessing Officer as also on issues not relatable to transfer pricing. 2. Those grounds, which relate to transfer pricing are taken up first for adjudication. These grounds numbered as No.1 to 10, read as follows:- "The learned Transfer Pricing Officer (TPO) and the learned Assessing Officer (A.O.) under the directions issued by Hon'ble Dispute Resolution Panel (DRP): 1. Erred on facts and in the circumstances of the case and in law by confirming the proposed addition of Rs. 1,629,435,321 [i.e. Rs. 1,062,376,522 based on the provisions of Chapter X of the Income-tax Act (the Act) and Rs. 567,058,799 based on the other provisions of the Act] to the Appellant's total income. 2. Erred in law by upholding / confirming the action of the TPO in not satisfying any of the conditions prescribed under Section 92C(3) of the Act before making an adjustment to the income of the Appellant. 3. Erred on facts and in the circumstances of the case and in law in taking cognizance suo moto of the alleged international transaction which had not been speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirming the action of the TPO in making transfer pricing adjustments without considering suitable adjustments to account for the differences in functional profile and economic circumstances with the comparable companies selected by the TPO in applying the BLT. 7.4 Erred in law by drawing parallels with and placing reliance on the conclusions drawn by the Hon'ble High Court of Delhi in Maruti's case on marketing intangibles and excess AMP expenditure, even though the Hon'ble Supreme Court had set aside the applicability of those conclusions. The DRP further erred in law in ignoring the submissions of the Appellant highlighting the difference in its facts as compared to those of Maruti Suzuki. 7.5 Erred on facts and in the circumstances of the case and in law in upholding / confirming the action of the TPO, in considering the action of the TPO in considering even those expenses which are not in the nature of AMP expenses to compute the transfer pricing adjustment in relation to the AMP expenses. 8. Erred on facts in upholding / confirming the action of the TPO in concluding that Appellant performed brand building activity for its Associate Enterprise ("AE") by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e "Ford" Logo on its motor vehicles. In the opinion of TPO, through this, M/s FMC ensured that its brand name was being developed in India over a period of time. Assessee was popularizing the "Ford" brand, whereas, FMC was enjoying the benefits. Relying on the decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. v. ACIT [2010] 328 ITR 210 (Del.), TPO put the assessee on notice as to why the licensor was not compensating it and why an addition for arm's length price, commensurate with the circumstances should not be made. In such notice, TPO brought to the attention of the assessee that it had incurred advertising and sales promotion expenditure of Rs. 125.92 Crores. As per the TPO, the intangible benefits obtained by the foreign entity on account of compulsory use of its trademark, through such advertisements, stood exposed by the excess expenditure on advertisement, marketing and promotion (AMP) expenses incurred by the assessee, when compared with other entities having no foreign brand obligations. Making a comparison with three companies identified for this purpose, namely, Tata Motors Limited, Mahindra and Mahindra Ltd. and Hindustan Motors Ltd., TPO cam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd discounts given for various schemes of sales promotion. According to assessee, such amount could not be included in the AMP expenses. Assessee was of the opinion that there was no gain for the FMC, which required any compensation to be paid by it to the assessee for the use of "Ford" logo. In any case, as per assessee, M/s Hindustan Motors, M/s Mahindra Mahindra Ltd. and M/s Tata Motors Ltd. were not ideal candidates for a comparability analysis since first one of them was a seller of cars only to Government, whereas, the second and third ones were predominantly engaged in manufacture and sale of vehicles other than passenger cars. 8. Vis- -vis product development expenses, reply of the assessee was that such expenditure was incurred with the intention of offering its customers best possible product. These included engineering expenses, travel, testing charges, expenditure for homologation and ongoing developments of its existing models. Such expenditure only benefitted the assessee in India and presumption of the TPO that some assets were created by such expenditure in the nature of product intangibles to M/s FMC, was not correct. 9. However, the TPO was not impressed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndred years, by promoting their brand in India at the expense of the assessee. As per TPO, if the assessee had benefited from the use of brand name "Ford", FMC had also immensely benefitted through heightened brand awareness of "Ford" in India. TPO also disagreed with the contention of the assessee that sales discounts and remuneration paid to sales consultants should be excluded from AMP expenses. As per TPO, such incentives were finally passed on to ultimate customers and were nothing but part of the AMP expenses. She thus reached an opinion that assessee had incurred the AMP expenses of 5.75% on sales which was excessive when compared to similar expenditure incurred by the other three candidate companies which averaged only to 2.58%. 11. As for objection against selection of candidate companies, TPO observed that Hindustan Motors Ltd. was producing cars though such cars were not having mass appeal. Hence, as per the ld. TPO, they would have spent considerably more amount of money for promoting their products. As for the other two companies, viz. Mahindra and Mahindra Limited and Tata Motors Ltd., TPO noted that both were involved in car manufacturing and were aggressively prom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decline in sales of "Ford" vehicles in all the regions and countries, was to a great extent compensated by increase of sales in China and India. The value of trade name, which was shown by M/s FMC as a marketing intangible in its accounts had increased from US$ 435 million in the last quarter of financial year 2005-06 to US$ 490 million in the last quarter of financial year 2006-07. Considering all these, as per DRP, the determination of Rs. 21,91,79,122/- as the quantum of compensation payable by FMC to assessee, for brand promotion undertaken in India was very conservative. Further, as per DRP, by making it obligatory for the assessee to use the trademark of FMC, assessee was deprived from developing a brand name and logo of its own. The efforts of the assessee resulted in benefitting the build up of brand "Ford". 14. On the expenditure incurred by the assessee and benefits being enjoyed by its holding company, DRP was of the view that of various values a customer received by paying for a product, functional and economic values were achieved through advertisement, whereas, psychological and social values were achieved through brand name. Expenditure of advertisement and sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in India and there was no strategic or other controls or inputs of FMC on such expenditure. According to the learned A.R., "Ford" brand by itself having not been advertised, decision in the case of LG Electronics India Pvt. Ltd. (supra), had no applicability. Just because assessee had spent a higher amount on AMP, as compared to similarly placed independent entities, would not be a reason to infer that some part of such expenditure were incurred for brand promotion of FMC. Further, as per the learned A.R., in the case of LG Electronics India Pvt. Ltd. (supra), it was clearly held that it was left to the wisdom of an assessee to choose the amount he wanted to spend for advertisement. Here, the assessee had incurred expenditure on advertisement for selling products, which were having assessee's own car name, and therefore, TPO should not have indulged in a transfer pricing analysis on such spends. 19. Continuing in the same vein, learned A.R. submitted that "Ford" had never piggybacked on the assessee. Henry Ford invented the 'car' as such. To say that, an international brand like "Ford", which had an aging in excess of hundred years before coming to India, derived any benefit by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MC or manufactured by FMC. According to him, the presumption that there was an international transaction relating to brand building itself was wrong. There was no such agreement between assessee and FMC. The use of "Ford" logo or trademark was not mandatory, but was only a consent given by FMC to the assessee. Arguing further, learned A.R. submitted that in L.G. Electronics case (supra) advertisement of LG India was for the umbrella brand 'LG' and not for any specific products. In the said case, it was demonstrated by the Revenue that there were advertisements in which LG brand alone was mentioned without referring to any specific products. In assessee's case, according to learned A.R., there was no such stand alone advertisement of Ford brand or Ford logo. There was no implied agreement between assessee and FMC for promoting the brand "Ford" in India. LG was manufacturing different types of products, whereas, assessee was manufacturing only passenger cars and the name of "Ford" was also associated only with passenger cars. In 21 I.T.A. No. 2089/Mds/11 other words, as per learned A.R., there was no primary obligation for the assessee to market "Ford" products in India, whereas, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that brand royalty when demanded by LG Korea needs to be paid by LG India after obtaining approval from Government of India. There is no such agreement with AE and no brand royalty is paid. 6 Whether the payment made as royalty to the foreign AE is comparable with what other domestic entities pay to independent foreign parties in a similar situation? No brand royalty paid for that year Not applicable as no brand royalty is paid 7 Where the Indian AE has got a manufacturing license from the foreign AE, is it also using any technology or technical input or technical knowhow acquired from its foreign AE for the purposes of manufacturing such goods? Yes. Yes. 8 Where the Indian AE is using technical knowhow received from the foreign AE and is paying any amount to the foreign AE, whether the payment is only towards fees for technical services or includes royalty part for the use of brand name or brand logo also? Royalty payment is only towards the technical license, but the agreement also allows use of brand. The parent company has a right to demand for Brand royalty later. Royalty payment is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ki India Ltd. ought have been considered. If these were considered, average AMP spends on sales would be 4.63% and this favourably compared with assessee's spending of 4.42%. 23. In any case, learned A.R. submitted that there was a double adjustment carried out by the lower authorities. First on a hypothetical brand fee adjustment and second on excess AMP expenditure. As per learned A.R., lower authorities fell in gross error when they first considered 1% of total sales of assessee as intangible value of brand promotion enjoyed by the FMC and then making a further addition for excess AMP spends, based on the Bright Line test. This resulted in double addition, according to him. 24. Vis- -vis DRP observation that assessee had significantly contributed to the enhancement of trademark value of FMC, learned A.R. submitted that comparison between the two quarters ending 31st March, 2006 and 31st March, 2007, would clearly show that increase in value of trademark was only US$ 550 lakhs. Assessee's percentage of sales to the total sales of Ford all over the world was only 0.415% and if this percentage was applied on absolute terms, contribution of the assessee for brand enhancement, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting considerable royalty on each and every vehicle sold by the assessee. Parent company had a free ride by getting their brand promoted in India without incurring any cost. Learned D.R. submitted that Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. v. Addl. CIT/TPO (supra) had clearly observed that when there was compulsory use of a foreign trademark on products sold in India, benefit was derived by the owner of such foreign trademark. 28. Giving an exposition of brand valuation and enhancement done by assessee for M/s FMC, learned D.R. submitted that marketing intangibles, generated through market development, consisted of three ingredients. Two were generated through market targeting and third was through product targeting. They were separately considered and valued and according to him, it was not a case of double addition. Further, as per learned D.R., international transactions in Ford Group were not transparent and its business strategies in all countries were remote controlled by the foreign parent. A wholly owned subsidiary will always to endeavour to maximize the profit its parent company. What was built by the excessive AMP spending in India was promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n brand, but for its parent FMC, since assessee was a 100% subsidiary and transfer pricing policy of "Ford" as a group was non-transparent. (ii) Shareholder interest of the parent company was maximized through both tangible dividends as well as intangibles. International Accounting Standard 38 clearly recognized generation of international intangibles by a subsidiary for its parent company. (iii) Royalty rate of 1% adopted by the TPO was based on data derived from recognized organisations like Royaltysource, Royaltystat, Knowledge Express, Royalty Rate Finder, etc. and as such, comprehensive information were considered before considering 1% as the applicable rate. (iv) Brand was one of the most important assets of an organization and valuation thereof was an essential element in taxation. Royalty relief approach considered by the Revenue was one of the accepted methods for such valuation. (v) Judgment of Hon'ble Delhi High Court in Maruti Suzuki's case (supra) which held that Mahindra and Mahindra Limited, Tata Motors Limited and Hindustan Motors Ltd. might not be appropriate comparables, would not militate against fundamental aspect of existence of marketing intangibles. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created by higher than normal AMP expenses? (4) Is use of BLT for finding the comparable AMP expenditure a method allowed under Section 92C(1) of Rule 10B? (5) Is it required to exclude selling expenses from AMP, while making a comparable study? (6) Are the comparable candidate-companies selected by TPO appropriate ones or those selected by the assessee had to be considered as appropriate? (7) Can the decision of Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra) have any applicability, in view of the Hon'ble Supreme Court's direction to TPO in the said case? (8) Is the disallowances of Rs. 14.8 Crores incurred by the assessee on product development justified? 34. We are making a sincere effort to answer each of the questions raised above, and through this resolve the disputes between the parties. 35. First, question is whether there was any international transaction coming within purview of Chapter X of the Act and whether assessee's case is distinguishable on facts with that in the case of L.G. Electronics Pvt. Ltd. (supra) decided by the Special Bench. Contention of the Revenue is that this stands answered by the decision of Special Bench in the case of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, minus the cost of standard bought-out components and the landed cost of imported components, including ocean freight, insurance, and customs duties. For purposes of this calculation, standard bought out components means all items of machinery, equipment or components which are vendor items and which are not exclusively deigned or manufactured for use in the project or product. The aforesaid royalty shall be paid for each model of the Motor Vehicles, as defined in Section 1.9 during the period of the Agreement as defined in Section 13.1." Thus, assessee had to pay a royalty of 5% on sale price of all licensed products. 37. Now coming to the second agreement, which is "Name License Agreement", what has been bestowed on the assessee through this agreement, is only a license to use the word "Ford" as its corporate name. Except for the license to use "Ford" as part of its corporate name, there is nothing in this agreement which enabled the assessee to use the word "Ford" in any of the products manufactured or marketed by it. 38. The litmus test for deciding whether an international transaction can be discerned out of an arrangement through which an assessee in India was manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The A.O./TPO can satisfy himself by verifying if the advertisement expenses are confined to advertising the products to be so sold in India along with the assessee's own name. If it is so, the matter ends. The A.O. will have to allow deduction for the entire AMP expenses whether or not these are proportionately higher. But if it is found that apart from advertising the products and the assessee's name, it has also simultaneously or independently advertised the brand or logo of the foreign AE, then the initial doubt gets converted into a direct inference about some tacit understanding between the assessee and the foreign AE on this score. As in the case of an express agreement, the incurring of AMP expenses for brand building draws strength from such express agreement; in the like manner, the incurring of proportionately more AMP expenses coupled with the advertisement of brand or logo of the foreign AE, gives strength to the inference of some informal or implied agreement in this regard." 39. As mentioned by us, here the assessee had simultaneously advertised the logo "Ford" along with the model name of its own cars. May be it is true that assessee was not legally constrained t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment, provision of direction on market strategy / expansion and definition of common practices, quality and security standards across countries." When seen along with the total ownership and control exercised by FMC over the assessee, it can be clearly inferred that AMP expenses incurred were based on a corporate plan of FMC and not through any independent decision taken by the assessee in India, without the inputs and direction of M/s FMC. This also, in our opinion, clearly implies that there was a transaction between assessee and FMC for promotion of the brand "Ford" in India. 42. We do appreciate the submission of learned A.R. that Mr. Henry Ford had manufactured the first car and "Ford" as a brand was developed over hundred years and had a substantial value even prior to their entry in India. But this cannot be so interpreted to mean that every Indian knew "Ford" before assessee sold the cars in India. Ford might have been known among middle class and upper middle class strata, but, without doubt, there would be a substantial number of persons in India, who would have become aware about the brand "Ford" through the advertisements placed by the assessee and its marketing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Agreement between assessee and FMC, as already mentioned by us, was not exclusive, in that it did not preclude either party from going solo or having other arrangements. There was a remote possibility of FMC giving the knowhow to any other company or person in India and they could also market products carrying "Ford" logo through any other person in India. Had it done so, can we say that there was no intangible benefit derived by it, by virtue of the earlier AMP expenses incurred by the assessee which promoted the "Ford" logo? The answer is obviously "No". Thus, there was an international transaction for creating and improving the marketing intangible comprised in the logo "Ford" by the assessee for and on behalf of FMC. FMC was a non-resident and such transaction was of the nature of "provision of service" as held by Special Bench in the case of L.G. Electronic's case (supra). In the facts and circumstances of the case, we cannot, therefore, fault the revenue authorities for treating the transaction of brand building as an international transaction. We do not find anything substantial or material enough to depart from the view taken by the Special Bench in this regard. Thus both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he advertisement, marketing, publicity (AMP) expenses, which he considered excessive when compared to similar expenses incurred by similarly placed companies not doing any brand building for an Associate Enterprise. As per the TPO, the average AMP expenses incurred by three such candidate companies, namely, Tata Motors Ltd., Mahindra Mahindra Ltd. and Hindustan Motors Ltd., came to 2.58% of sales against which assessee had incurred AMP expenses of 5.75% of sales. Therefore, as per TPO, there was excess expenditure of 3.17% on sales for AMP, and that was incurred for and on behalf of M/s FMC for promoting the "Ford" brand in India. In other words, as per the TPO, such excess amount was incurred by the assessee for and on behalf of M/s FMC, and it would not have normally incurred such excess if it was developing its own brand in India. Applying 3.17% on the sales of the assessee, she arrived such excess AMP at Rs. 69,47,97,400/-. In other words, the marketing intangible in the nature of brand promotion of M/s FMC done by the assessee was fixed at Rs. 91,39,76,522/-. 47. Written submission given by the Department before us and the arguments of the learned D.R. does show that Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t vice versa. Here, admittedly, FMC was not charging any royalty on the assessee for use of its logo on the cars. Therefore, in our opinion, the artificial split attempted by the lower authorities on the marketing intangible in the nature of brand building was unwarranted and not based on any objective criteria. 48. In our opinion, the only objective criteria that could be applied is the excess AMP expenditure incurred by the assessee when compared to its competitors not having a foreign brand or logo. Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra) had clearly held that Bright Line test was nothing but a method falling within the scheme of Section 92C, since what was determined by applying such test was only cost/ value of international transaction. Bright Line is only the line drawn within an overall amount of AMP expenditure. The amount on one side of Bright Line, was the amount on AMP expenditure incurred on normal business of the assessee, whereas the balance amount represented expenses incurred for and on behalf of FMC for creating and maintaining its marketing intangible which was the "Ford" logo. When both expenses were inter-built, some mechanism ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned under Rule 10B(1)(c) provides for a normal gross profit mark-up to the costs before making a comparison. It is required to determine the normal rate of gross profit mark-up as arising from uncontrolled transaction of an unrelated enterprise in a similar situation. In the present case, though effectively TPO had applied Cost Plus method for working out ALP of the AMP expenditure for determining the brand development cost incurred by the assessee on behalf of its AE, second and third steps involving determination of gross profit mark-up and applying it to the results, was not done. But, this lacuna, in our opinion, will not be sufficient to hold that the method applied by the TPO suffered from such a serious flaw which could invalidate the determination of ALP as a whole. As held by the Special Bench, steps mentioned in Rule 10B(1)(c) have necessarily to be followed while working out arm's length price. There is, therefore, a deficiency in the modality of working out ALP of AMP expenditure and determining the brand development cost. Even if the authorities below did not mention any recognized method, or mentioned a different method than one used, the orders cannot be decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables. Thus before deciding on this issue, it is necessary for us to answer the last question, i.e. whether the decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) can be considered since Hon'ble Apex Court had directed the TPO in the said case to proceed with the ALP determination without considered the views expressed by Hon'ble Delhi High Court. In our opinion, this issue is also answered by Special Bench in the case of L.G. Electronics India Pvt. Ltd. (supra) It was held by the Special Bench at paras 29.9 to 29.16 of its order dated 23rd January, 2013, as under:- "29.9 The judgment of the Hon'ble Apex Court is a short one, which is reproduced in entirety, as under:- 'Order Leave granted. By consent, the matter is taken up for hearing. In this case, the High Court has remitted the matter to the Transfer Pricing Officer ("the TPO" for short) with liberty to issue fresh show-cause notice. The High Court has further directed Transfer Pricing Officer to decide the matter in accordance with law. Further, on going through the impugned judgment of the High Court dated July 1, 2010, we find that the High Court has not merely set aside the ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Maruti Suzuki India Ltd. (supra) has been overruled by the Hon'ble Supreme Court is wholly devoid of merits. There is a marked difference in a situation where the judgment of a lower court is a considered and overturned by a superior court and a situation where it is considered but not commented upon. Such difference in the two situations can be better understood with the help of an example. Suppose an authority intends to complete some proceedings. First can be a case where such authority is directed to exercise option A and not options B or C for completing the proceedings. In the second case, the higher authority directs the lower authority to complete the proceedings by exercising any of the options at his command. In such a case the lower authority gets choice to exercise any of the options A, B or C. It cannot be said by such later direction of the higher authority, exercising option A has been debarred. The change is only to the extent that the otherwise mandatory option A in the first situation has been substituted with the direction of the authority to choose any option. If the authority still chooses A option, his action will not become void for this reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the lower authority ceases to exist independently. Unless there are decisions by both the authorities, the question of such merger cannot arise. 29.16 Coming back to the Maruti's case it is crystal clear that the above discussed Ist and IInd Parts of the judgment of the Hon'ble jurisdictional High Court laying down the principles of law have not at all been considered and decided by the Hon'ble Supreme Court. As such it cannot be said that there is a merger of the judgment. In our considered opinion it is absolutely erroneous to argue on behalf of the assessee that the judgment of the Hon'ble jurisdictional High Court has become non-existent as having been overruled or fully merging with that of the Hon'ble Supreme Court. If, for a moment, the contention of the ld. AR that the judgment of the Hon'ble Delhi High Court has completely merged with that of the Hon'ble Supreme Court is presumed to be correct, which we really do not accept as correct, it would mean that only the judgment of the Hon'ble Supreme Court in the case of Maruti Suzuki India Ltd. (supra) is existing. The relevant part of this judgment is that: "In the circumstances, ...., we hereby direct the Transfer Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were having uncontrolled comparable transactions. In other words, the selected entities should not be doing any piggybacking on or of a foreign brand owned by an Associate Enterprise abroad. Thus, while holding that comparables selected by the TPO might not have been appropriate, we also reject the comparables selected by the assessee. A.O./TPO has to identify a different set of comparables and they can even consider the same entities selected earlier with proper adjustments carried out on the figures for making good the deficiencies noted in such comparables by Hon'ble Delhi High Court in the case of Maruti Suzuki's case (supra). Questions raised in this regard are answered accordingly. 53. Coming to the last question which is the disallowance of product design expenditure of Rs. 14.84 Crores, finding of the TPO is that ownership of the developed product vested with FMC and therefore, expenditure incurred in development of the product had to be attributed to FMC. On the other hand, as per assessee, it was only improving on various models of the cars manufactured and sold in India and economic ownership of the product improvement was with it, though legal owner was FMC. We are of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .7.2 is allowed for statistical purposes, Ground No.7.3 is allowed for statistical purposes, Ground No.7.4 is dismissed, Ground No.7.5 is allowed, Ground No.8 is dismissed, Ground No.9 is partly allowed, Ground No.10 is dismissed. 55. To summarise, we are setting aside the orders of authorities below and remitting the issue regarding determination of ALP of brand building activity undertaken by the assessee, back to the file of A.O./TPO for consideration afresh, in accordance with the direction given by us at paras 33 to 52 above. 56. Now we are taking up grounds raised by the assessee other than on transfer pricing. 57. Vide its ground No.11, grievance raised by the assessee is that provision made for bad and doubtful debts were disallowed. 58. Facts apropos are that assessee had made a provision of Rs. 2,04,66,701/- towards doubtful advances and claimed it stating that such money could not be recovered from its suppliers, since it represented value of rejected parts. However, nothing was shown before us to prove that there was any actual write-off. A mere provision in the account will not be equivalent to a write-off. At the best be considered as a provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to become a part of the running stock of the assessee. Such compensation, in our opinion, was only in revenue field. A.O. himself has admitted in the assessment order that the compensation was paid for not fulfilling the obligation given by the assessee for purchase of raw material. Therefore, in our opinion, the disallowance was not called for. Such disallowance is deleted. 67. Ground Nos.13 and 14 are allowed. 68. Ground No.15 of the assessee is on disallowance of depreciation claimed on UPS. 69. Learned A.R. submitted that he was not pressing this ground. 70. Ground No.15 is dismissed as not pressed. 71. Vide ground No.16, grievance raised by the assessee is that a subsidy of Rs. 1 Crore received by it was considered as revenue receipt. 72. Facts apropos are that assessee had received subsidy of Rs. 1 Crore under Mega Projects Scheme of Tamil Nadu Government. A.O. was of the opinion that it was an incentive given to industrial entrepreneurs for starting big projects and could only be considered as revenue receipts. He proposed an addition of Rs. 1 Crore. This was confirmed by DRP. 73. Now before us, learned A.R., strongly assailing the orders of authorities below, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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