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TMI Blog2019 (8) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of Kellogg, USA, and operates as a licensed manufacturer in India by utilizing the technology and marketing intangibles of Kellogg, USA. During the year under consideration, the assessee entered into various international transactions with its Associated Enterprise (AE).After making a detailed analysis of international transactions with the AE in the transfer pricing study report, the assessee found them to be at arm's length price. The Transfer Pricing Officer after examining the transfer pricing study report as well as other materials on record issued a show cause notice to the assessee to explain why the arm's length price of the AMP expenditure should not be determined by applying Bright Line Test (BLT) method. In response to the show cause notice, the assessee filed its reply stating that the AMP expenditure incurred by the assessee, since, is in respect of products manufactured and sold in India and the payment towards such expenditure having been made to third parties in India, it cannot be treated as international transaction under section 92B of the Act. Further, it was submitted by the assessee, since there is no agreement/arrangement with the AE for incurring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on the reason that the AMP expenditure incurred is significantly higher than that of the comparables on application of BLT. He submitted, the Transfer Pricing Officer has not brought any tangible evidence to demonstrate that the assessee was obliged to promote the brand of AE and thereby has incurred the AMP expenditure. He submitted, now it is well settled that determination of arm's length price of AMP expenditure by applying BLT is not valid. Further, he submitted, unless the Revenue demonstrates through cogent evidence that there is an arrangement between the assessee and the AE to incur AMP expenditure for promoting the brand of the AE, the AMP expenditure incurred in India cannot be brought within the purview of international transaction. The learned Authorised Representative submitted, while examining identical issue in assessee's own case in assessment year 2011-12 the DRP has deleted the adjustment after recording a categorical finding that there is neither any understanding nor arrangement / agreement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE. The learned Authorised Representative submitted, now it is well sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making payments to third parties in India. Therefore, the basic issue which arises for consideration is, whether the AMP expenditure incurred by the assessee in India can come within the purview of international transaction as defined under section 92B of the Act. In this regard, the contention of the assessee before the Transfer Pricing Officer was, since the assessee has incurred the AMP expenditure for products manufactured and sold by it in India, it does not come within the purview of international transaction. Further, the assessee has also submitted that since there is no arrangement/agreement between the assessee and the AE for incurring such expenditure to promote the brand of the AE, it cannot be said that there is an international transaction relating to AMP expenditure. It is worth mentioning, the Transfer Pricing Officer has also agreed with the assessee that the AMP expenditure was incurred with the third parties in India, hence, do not constitute international transaction. Having held so, the Transfer Pricing Officer has still proceeded to determine the arm's length price of the AMP expenditure on the reasoning that the compensation required in the arrangement be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement/agreement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE, AMP expenditure incurred by making payment to third parties for promoting and marketing the product manufactured by the assessee, does not come within the purview of international transaction. 8. At this stage, it is relevant to observe, while deciding identical nature of dispute in assessee's own case for the assessment year 2011-12, learned DRP in direction dated 28th December 2015, have deleted the adjustment made by the Transfer Pricing Officer on account of AMP expenditure by recording a factual finding that the Transfer Pricing Officer has failed to demonstrate that there is an agreement/arrangement between the assessee and the AE for incurring AMP expenditure. While doing so, learned DRP has relied upon the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra). Thus, viewed in the light of the ratio laid down in the decisions cited by the learned Authorised Representative, including the decision of the Hon'ble Delhi High Court in Martuti Suzuki India Ltd. (supra), it has to be concluded that the AMP expenditure incurred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is using the technology, the brand and intangibles of the AE, it has to pay royalty to continue its manufacturing activities. He submitted, the payment of royalty in all other assessment years, except, the impugned assessment year has been accepted by the Transfer Pricing Officer to be at arm's length. Thus, he submitted, by applying the rule of consistency no adjustment can be made to the arm's length price of royalty payment. The learned Authorised Representative submitted, though the Transfer Pricing Officer has pointed out certain flaws in the benchmarking of the assessee but he himself has not come up with proper benchmarking and has simply determined the arm's length price at nil without applying any prescribed method. He submitted, such approach of the Transfer Pricing Officer is unacceptable. In support of such contention, he relied upon the decision of the Hon'ble Andhra Pradesh High Court in PCIT v/s R.A.K. Ceramics India Pvt. Ltd., 246 taxmann.com 85 (AP). 13. The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP. 14. We have considered the rival submissions and perused material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is following exclusive method of accounting for valuation of stock called upon the assessee to explain why the unutilized CENVAT credit amounting to Rs. 45,43,850, as on 31st March 2009, should not be included in the cost of inventory as per section 145A of the Act. Though, the assessee objected to the proposed addition, however, the Assessing Officer rejecting the objections of the assessee added back the amount of Rs. 45,43,850, to the income of the assessee. The assessee objected to the aforesaid addition before learned DRP. After considering the submissions of the assessee, learned DRP enhanced the addition under section 145A of the Act to Rs. 84,60,697. 17. The learned Authorised Representative submitted, if following the provision of section 145A of the Act, unutilized MODVAT credit is added to the opening stock,It should also be added to closing stock and purchases as provided in the said provision. He submitted, while deciding identical issue in assessee's own case in the preceding assessment year, the Tribunal has also held that unutilized MODVAT credit is added to closing stock, similar adjustment is also to be made to the purchases and sales and opening sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -01. When called upon for explaining the above, the assessee submitted that since the assessee had not actually claimed the depreciation in those years, it has claimed depreciation on the opening WDV as on 1st April 1997. The Assessing Officer, however, did not accept the contention of the assessee and allowed assessee's claim of depreciation after reducing the depreciation allowable for the assessment years 1997-98 to 2000-01 from the opening WDV. The assessee challenged the aforesaid decision of the A.O. before learned DRP. Learned DRP directed the Assessing Officer to compute depreciation after reducing from the WDV the depreciation actually allowed in the preceding assessment years. 23. The learned Authorised Representative submitted, though the assessee has not claimed depreciation in the return of income filed for the assessment years 1998-99 to 2001-02, however, he submitted, while completing the assessment for the A.Y. 1999-2000, the Assessing Officer computed depreciation. He submitted, though the assessee contested the computation of depreciation by the Assessing Officer in assessment year 1999-2000, however, ultimately, assessee's claim was rejected by the Hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Thus, ground is allowed for statistical purpose. 26. In ground no.9, the assessee has challenged the disallowance of product development expenditure of Rs. 2,01,18,607. 27. Brief facts are, in the course of the assessment proceedings the Assessing Officer while examining assessee's claim of deduction on account of product development expenditure noticed that similar expenditure claimed by the assessee in the preceding assessment years were disallowed by treating them as capital in nature. Thus, following the past assessment orders, the Assessing Officer disallowed the product development expenditure by treating it as capital in nature. 28. The learned DRP also upheld the aforesaid decision of the Assessing Officer. 29. The learned Authorised Representative submitted, while deciding identical dispute in the preceding assessment years, the Tribunal has held that the product development expenditure is revenue in nature and accordingly allowed assessee's claim. He submitted, even the Revenue's appeal against the decision of the Tribunal in the assessment year 2004-05 has been dismissed by the Hon'ble Jurisdictional High Court. Further, he submitted, following the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer, however, he directed the Assessing Officer to allow depreciation. 35. The learned Authorised Representative submitted, while deciding identical issue in the assessment year 2008-09, the Tribunal has allowed assessee's claim. He submitted, in the assessment years2005-06, 2006-07 and 2007-08, the learned Commissioner (Appeals) has allowed similar claim which has been accepted by the Revenue. 36. The learned Departmental Representative relied upon the observations of the Assessing Officer and learned DRP. 37. We have considered rival submissions and perused material on record. Undisputedly, relying upon the past assessment orders the Assessing Officer has disallowed the payment made to Strategic Systems Pvt. Ltd., by treating it as capital in nature. However, while considering the issue relating to similar disallowance made towards payment made to the very same party in the assessment year 2008-09, the Tribunal in ITA no.6276/Mum./2011, dated 22nd December 2016, has allowed assessee's claim by treating it as revenue in nature. Facts being identical, respectfully following the aforesaid decision of the Tribunal, we delete the addition. This ground is allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(6A) of the Act have been fulfilled, no disallowance under section 40(a)(i) of the Act can be made, as held by the Tribunal in the assessment year 2007-08 (supra). This ground is allowed subject to verification. 43. In ground no.12, the assessee has challenged the decision of the Departmental Authorities in treating the interest income of Rs. 74,61,945, as income from other sources. 44. Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has offered the interest income of Rs. 1,68,31,706, as business income. When called upon to explanation, the assessee justified its stand of offering the interest income as income from business. However, the Assessing Officer was not convinced with the submissions of the assessee and treated the interest income as income from other sources. While considering the objections raised by the assessee, learned DRP upheld the decision of the Assessing Officer. 45. The learned Authorised Representative submitted, while deciding the issue in assessee's own case in assessment years 2007-08 and 2008-09, the Tribunal has restored them to the Assessing Officer with certain directions. Thus, he submitted, sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e specific request being made by the bench due to which we are unable to ascertain the fact that whether these deposits have direct nexus with the business of the assessee, The Ld. AR has attributed the parking of funds to general credit float enjoyed by the assessee without brining anything on record to substantiate the same. Hence, we deem it fit to restore the matter back to the file of AO to examine the nature of Bank FDR particularly the tenure of the deposit and also verify the fact of 'credit float' enjoyed by the assessee and decide the issue afresh in accordance with law. The assessee is directed to cooperate with the lower authorities forthwith to substantiate his submissions. The ground of revenue's appeal is allowed for statistical purposes." 48. Facts being identical, respectfully following the aforesaid decision of the Co-ordinate Bench, we restore the issue to the Assessing Officer. Ground is allowed for statistical purposes. 49. In ground no.13, the assessee has claimed set-off of brought forward business loss before setting-off unabsorbed depreciation. 50. As it appears, this issue was not raised by the assessee before learned DRP. When a query to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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