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TMI Blog2012 (10) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of enduring nature and thus is capital in nature and cannot be allowed as deduction under section 37(1) of the Income Tax Act, 1961 . 3. The relevant facts are that the assessee company is in the business of manufacturing and trading in cosmetic products. For the assessment year under consideration assessee has incurred an expenditure of ₹ 2,02,86,576/- in respect of advertisement expenses under the head Media-Technical. AO disallowed the amount on the contention that the said expenditure (production cost of film etc) resulted in creating a benefit of an enduring nature and those are capital in nature and cannot be allowed as deduction under section 37(1) of the Income Tax Act. Before the CIT (A) it was contended that ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the expenditure is capital or revenue in nature would depend on the facts of a particular case. It was held that even the idea of 'once for all' payment and enduring benefit are not to be treated as something akin to statutory conditions; nor are the notions of capital or revenue a judicial fetish. It was held that what is relevant is the purpose of the outlay and its intended object and effect and to consider in a commonsense way having regard to business realities. In a given case, the test of enduring benefit might break down. However, the similar issue has been considered by Hon'ble Jurisdictional High Court in the case of Geoffrey Manners Co. Ltd.(supra), which has been considered by Id CIT(A). In the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is dismissed. 4. Ground No.2 is as under: 2. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that the Resale Price Method (RPM) was the most appropriate method for determinging the Arms Length Prices of assessee s international transaction in respect of imports of finished goods . 5. Briefly stated assessee is a part of L OREAL group which is one of the leading cosmetic company in the world and is a 100% subsidiary company of L Oreal SA France. During the year assessee has entered into following international transactions with its associate enterprise: International Transaction Amount (Rs.) Method adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was made because the gross margins of assessee in the said segment were commensurate with the gross margins of the comparable companies. The comparable companies selected by assessee were engaged in the business of manufacturing detergents, soaps, cosmetics etc and the same have been accepted. No adjustments were made on other transactions. The TPO has made an addition of ₹ 4,55,34,000 to the total income of assessee. Assessee has on its distribution segment applied Resale Price Method wherein it earned a gross margin of 48.69% on sales as against 24.27% on sales earned by comparable companies. TPO however, rejected the RPM and applied TNMM on the following grounds: a) Assessee is consistently incurring losses in India and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire addition made by the TPO/AO for ₹ 45,53,34,000/-. The Revenue is aggrieved. 9. At the outset both Counsels agreed that this issue is also decided in favour of assessee and against the Revenue by the ITAT in assessment year 2003-04 (supra) (ITA No.5423/Mum/2009) wherein vide Para 17, 18 19 this issue was considered as under: 17. We have carefully considered the submissions of the representatives of the parties, orders of the authorities below as well as TPO's order in assessee's own case for the preceding assessment year, viz., A.Y. 2002-03 as well as succeeding assessment years to the assessment year under consideration, referred hereinabove and also the ITAT order dated 28.1.2011 (supra). 18. The only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also stat~ that RPM could be an appropriate method only when there is no value addition undertaken by the distributor. The TPO considered the selling and distribution expenses in marketing and stated that there is a value addition by the assessee and thus TNMM is the most appropriate method. The TPO did not accept the adjustment given by the assessee and, accordingly, made this addition. 19. During the course of hearing, ld D.R. also supported the method considered by TPO and referred to Para 2.29 of OECD Price Guidelines 2010 as stated hereinabove. On the other hand, Id A.R. justified the RPM method adopted by it and also referred to order of TPO in the preceding assessment years as well as succeeding assessment years to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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