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TMI Blog2018 (3) TMI 1665X X X X Extracts X X X X X X X X Extracts X X X X ..... es 14/09/12 2009-10 Rs.51.21 crores 06/01014 Rs.35.67 crores 31/12/13 2010-11 Rs.18.69 crores 30/01/15 Rs.14.90 crores 30/114 2011-12 (-) Rs. 78.76 lakhs 15/01/16 Rs.16.74 crores 14/12/15 2012-13 (-)Rs.19.39 crores 20/01/2017 Rs.27.63 crores 21/11/16 2.Vide its applications,dtd.11/01/2018,the assessee has requested to admit additional grounds for all the above five AY.s.During the course of hearing before us, the Authorised Representative (AR)stated that additional grounds,raised by the assessee,were pure legal grounds and did not require verification of facts.The Departmental Representative (DR) left the issue to the discretion of the Bench.We have gone through the additional grounds and find that they are true legal grounds and not require verification of facts.Therefore,we admit the same. 3.The assessee had also filed an application for admission of additional evidences,as per Rule 29 of the ITAT Rules 1963. It was stated that the evidences were crucial to decide Grounds No.23 and 30 for the AY.2008-09,that the AO had ignored the claim made by the assessee about deducting the tax at source.The DR left the issue to the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king material, purchase of finished goods and AMP expenses.The AO issued draft assessment orders to the assessee.Aggrieved by the orders, the assessee filed objections before the DRP.As per the directions of the DRP, the AO made following adjustments: Particulars AY.08-09 A.Y.09-10 A.Y.10-11 A.Y.-11-12 A.Y.12-13 Purchase of raw material 1,61,63,293 -- -- -- -- Purchase of finished goods -- 24,13,90,418/- NIL (23.38 crores) NIL (9.30 crores) NIL (29.59 crores) AMP i.Manufacturing 14,10,35,885/- -- -- -- -- ii.Distribution 12,01,75,610/- 62,33,52,350/- 33,88,08,293/- 17,53,09,450/- 47,03,00,000/- Total AMP adjustment 26,12,11,495/- 62,33,52,350/- 33,88,08,293/- 17,53,09,450/- 47,03,00,000/- Total Adjustment 27,73,74,788/- 86,47,42,768/- 33,88,08,293/- 17,53,09,450/- 47,03,00,000/- During the TP proceedings,the TPO observed that assessee was incurring large AMP expenses, that it was creating a valuable marketing intangible by incurring such expenses on NIVEA brands in India,that the assessee was not the legal owner of brands in India,that it was merely a user and beneficiary of bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14-13% 14.51% Mark up% - - 2.9683 4.1186 2.17 5-96 AMP Adjustment 14,10,35,885 12,01,75,610 6,23,32,350 33,60,07,620 17,53,09,450 47,03,00,000 4.2.Before us,the AR stated that AMP expenditure incurred by the assessee was not an IT,that there was no agreement/arrangement between it and the AE to prove that the assessee was obliged to incur AMP expenses on behalf of the AE,that the AMP expenses were incurred towards third parties to promote the sales of its products,that the TPO/DRP had not shown the existence of arrangement or an understanding, that the assessee was an entrepreneur licensee for Indian market who would sell the products in India, that the benefit arising from the AMP expenses was to the account of the assessee in the form of its market share and increased turnover,that any incidental benefit accrue to the AE/other party would not alter the character of the expenditure as not having been incurred wholly and exclusively for the purpose of assessee's business, that application of BLT as a tool to ascertain and alleged IT was not permissible under the Indian TP regulations,that the onus was on the AO to demonstrate that de horse BLT,AMP expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the understanding or transaction was subject to ALP determination, that para 8 of the LOU, further imposed the condition that once a license agreement entered into it was the licensee that would make the financial investment for developing and/or maintaining the trademarks and related brand equity within its territory,that and as a consequence,it was entitled to residual profits/loss generated by the trademarks exploitation in its territory after the licensor had been paid an arm's length royalty as remuneration,that para 10 of the LOU talked of compensation in the event of termination of the license arrangement between BDF and Nivea India,that quantum of the compensation depended on a fair assessment of whether any intangibles had been created by Nivea India,longevity of such intangibles,level of investment put by Nivea India under the assumption of long term rights of the licensee,that the financial investment made by the appellant in India towards development and/or to maintain the trademarks and related brand equity intangible within its territory was not at ALP and it had to be compensated by the BDF every year and not at the time of termination of license, 4.2.a.The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paid an arm's length royalty as remuneration,that para 10 of the LOU talked of compensation in the event of termination of the license arrangement between BDF and Nivea India,that quantum of the compensation depended on a fair assessment of whether any intangibles had been created by Nivea India, longevity of such intangibles, level of investment put by Nivea India under the assumption of long term rights of the licensee,that the financial investment made by the appellant in India towards development and/or to maintain the trademarks and related brand equity intangible within its territory was not at ALP and it had to be compensated by the BDF every year and not at the time of termination of license,,that the letter of understanding between the BDF and the appellant shows the existence of an 'agreement'or 'arrangement' or 'understanding' between BDF and Nivea India whereby Nivea India is obliged to spend on AMP of certain level in order to promote the brand of Nivea owned by the BDF,that the principle laid down by the Hon'ble Delhi High court in the cases of M/s. Maruti Suzuki India Ltd, M/s. Whirlpool of India Ltd, M/s.Bausch& Lomb Eyenre (India) Pvt Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could not be considered as simple low risk distributor,that the RPM could be MAM only for simple low risk distributor with nil value addition, that where incurring of high AMP expenses would result in value addition to the functions RPM could not be applied as MAM as such without any adjustment, that in case suitable adjustment was not possible to be made then TNMM had to adopted as applied by the TPO,that even under TNMM,the AMP was to be considered as a function and suitable adjust - ment had to be made to the PLI of the comparable companies, that under TNMM, the AMP expenses(considered as extra ordinary expenses by the assessee for some AY) incurred was to be considered as operating expenses to arrive PLI of the assessee via-vis comparables. He relied upon cases of M/s. Luxottica India Eyewear Pvt, Ltd (ITA/1492/Del/2015 AY. 2010- 11 to 2012-13),M/s.Mattel Toys(India) P Ltd(ITA/6391/M/2011 AY.2003-04 ; M/s. Abott Medical Optics Private Ltd.(ITA/1116/Bang/2011 AY.2007-08);M/s. Skoda Auto India Pvt.Ltd (30 SOT 319). With regard to the issue related to tested party,the DR argued that the assessee had submitted that the overseas AE.s had to be considered as tested party for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefitted indirectly because of the expenses incurred by the assessee,it has to be held that the transaction was not an IT.The logic behind the finding is very simple-the basic purpose for incurring expenses by the assessee was to expand its business in India and not to look after the interest of the AE.We have taken note of the fact that the assessee had started manufacturing activities in India and wanted to establish its foothold in the country.For that purpose,if it had incurred certain expenditure,it has to be accepted that it wanted to create awareness about its product in the Indian market.We would like to refer to the growth of the business of the assessee for some of the years: AY. Turnover/Revenue from Sales (Crores) Growth (%) taking AY 2007-08 as base 2007-08 44.3 2008-09 70.14 58.33% 2009-10 119.8 170.43% 2010-11 103.41 133-43% 2011-12 104.09 134.97% On the basis of the above chart,it can safely be said that expenses incurred by the assessee were wholly and exclusively for its own business and not an IT. 5.2.In the case under consideration,the TPO had made the adjustment by applying BLT.The sole basis on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT or not, has been deliberated upon in many a cases. In the case of Thomas Cook (India) Ltd.(supra) the Tribunal, after considering the available High Court judgments had held as under: "8.3.1.First of all, we would like to mention that as on today the legal position is as clear as crystal with regard to AMP expenses.The Hon'ble Delhi High Court has dealt the issue in depth and has arrived at the conclusion that in absence of any agreement for sharing AMP expenses it cannot be held that AMP expenditure was an IT. Probable incidental benefit to the AE would not make such a transaction an IT.The factors like payment under the head AMP expenditure to the third independent parties, promoting own business interest by way of AMP expenses take away the alleged 'internationality' of the transact -tion.In absence of any direct or direct evidence of incurring of AMP expenses by the assessee for the benefit of the AE or on behalf of the AE, it is has to be held that the transaction in dispute is not covered by the provisions of section 92B or 92B(1)of the Act and hence is not an IT.Once it goes out of the ambit of being an IT,FAR analysis of comparables or any other adjustment will and can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of this section and sections 92,92C,92D and 92E ,"international transaction" means a transaction between two or more associated enterprises, either or both of whom are non-residents; in the nature of purchase, sale or lease of tangible or 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 anyone 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means', part and the 'includes' part of Section 928 (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC." 59. In Whirlpool of India Ltd. (supra), the Court interpreted the expression "acted in concert" and in that context referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v.. Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i.e., 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cannot be construed as a 'transaction'. Further, the- Revenue's attempt at re-characterising the AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same." 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99.9% of the share of the Assessee will not ipso facto lead to the conclusion that the mere increasing of AMP expenditure by the Assessee involves an international transaction in that regard with B&L, USA. A similar contention by the Revenue, namely the fact that even if there is no explicit arrangement, the fact that the benefit of such AMP expenses would also encure to the AE is itself self sufficient to infer the existence of an international transaction has been negatived by the Court in Maruti Suzuki India Ltd. (supra) as under: "68. The above submissions proceed purely on surmises and conjectures and if accepted as such wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by evidenc -ing the existence of an international transaction involving the AE. The quantitative determination forms the very basis for the entire TP exercise in the present case. 74.The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed international transactions listed under the Explanation to Section 928 of the Act.The problem does not stop here.Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e.g., the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the Court further explained the absence of a 'machinery provision qua AMP expenses by the following analogy: "75. As an analogy; and for-no other purpose; in the- context of a domestic transaction involving two or more related parties, reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". With reference to the submissions of the DR,we would like mention that first of all the issue before us is not an assessee that is engaged in distribution and manufacturing of certain goods,so the question of slicing of expense in two portions would not arise.However,the other part of the argument that matter should be restored back to the file of the AO/TPO as they were following the order of LG and did not have benefit of later judgments of the Hon'ble High Court,we would like to mention that matter can be restored back in certain conditions only.Restoration of matters to the AO.s is not a tool to give one more opportunity of hearing to the litigants.It is not advisable to prolong the judicial proceedings in the name of fair play.It is not a case where new evidences have been placed on record by the assessee, that were not made available to the AO at the time of original assessment.It is not also a matter wherein som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al before us.We find that disallowance of TV cost/cost of production films has been deliberated upon by the jurisdictional High Court in the cases of Geoffrey Manners & Co. Ltd. (supra) and Procter & Gamble Home Products Ltd.(supra).In the case of Procter & Gamble,the Hon'ble Court has held as under: "5. In our opinion the correct test to be applied in such a case would be, that if the expenditure is in respect of an ongoing business of the assessee and there is no enduring benefit it can be treated as revenue expenditure. If, however, and if it is in respect of business which is yet to commence then the same cannot be treated as revenue expenditure as expenditure is on a product yet to be marketed. Considering the above, in our opinion the judgment in Patel International Film Ltd. (supra) is clearly distinguishable. The CIT(A)t and the Tribunal on the facts of the case were clearly within their jurisdiction in holding that the expenditure was by way of revenue expenditure as it was in respect promoting ongoing products of the assessee herein." We would also like to mention that the issue decided by the Hon'ble Court,in the matter of Patel International Film Ltd.(supra)was not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts through its .employees, who were referred to as Direct Sales Representatives(DSR.s)/Pilot Sales Representatives(PSR.s)/Beauty Advisors('BA.s),that the DSR .s/ PSR.s/BA.s,were on the payroll of the distributor and the assessee would reimburses the salary/incentives paid by the super stockists / distributors to the DSRs/PSRs/BAs on a cost to cost basis,that the super stockists /distributors did not earn any income out of such reimburse - ments/cost recoveries received from the assessee,that in the assessment proceedings for AY. 2011-12,the AO has not made any disallowance u/s.40(a)(ia) of the Act for the similar payments, hat tax had already been deducted at source,if applicable,by the super stockists / distributors and thereafter paid to the government in relation to the salary/incentives paid to DSR.s/ PSR.s/ BA.s., that the balance payments of Rs. 4.39 crore under marketing and sales distribution head essentially constituted 'reimbursements' made to various super stockists/ distributors,that same was the position of payment made for the AY.2010-11 (Rs. 3.32 crores).Gujarat Narmada Valley Fertilizers Co. Ltd.(ITA No.175/2014- SC),Gujarat Narmada Valley Fertilizers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or bad debts.Before us,it was argued that the AO had taxed the reversal of provision for bad debts of Rs. 20.74 lakhs,that the provision had been disallowed in the assessment order of AY .2009-10, that it resulted in taxing the same amount twice,that AO had not granted the deduction for reversal of provision while computing book profit u/s. 115JB. 12.1.We find that while dealing with the objections raised by the assessee, the DRP held that the objective of the Act was to tax any income once only. It directed the AO to verify as to whether the disallowance made in the earlier year at the time of creation of provision had been disallowed or not.It further observed that in the event the disallowance of the said sum in the earlier year had become final on account of non-filing of appeal by the assessee before the First Appellate Authority( FAA),the assessee was entitled not to offer tax for the said sum upon its reversal. The AO was finally directed not to tax the disputed amount for the year under consideration,if it was established that the disallowance had become final in 2009-10.The DR stated that matter could be decided on merits. 12.2.We find that the DRP had directed the AO no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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