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TMI Blog2017 (4) TMI 1521X X X X Extracts X X X X X X X X Extracts X X X X ..... iven for the same. In our opinion the estimate made by the TPO for the rate of royalty was highly excessive. CIT(A) was not justified in directing the AO to charge the royalty from Dabur International UAE @ 2%. Particularly when, the assessee was not using the technical know-how or R D support from the assessee, in our opinion it will be fair and reasonable to charge the royalty @ 0.75% by considering this fact that in the year under consideration the assessee had incurred huge expenses on marketing, advertisement brand building etc. and that in the preceding year the royalty was although charged @ 1% on the products manufactured without R D support and technical know-how from the assessee but the aforesaid expenses were comparability less. Royalty charged from M/s Dabur Nepal Ltd. - contention of the assessee that 80% of the products manufactured by M/s Dabur Nepal Pvt. Ltd. were purchased by the assessee has not been rebutted. It is also not in dispute that the royalty was payable earlier on the sales, therefore, it is unbelievable that the assessee charged the royalty on the purchases made by it from M/s Dabur Nepal Pvt. Ltd. to increase the cost of purchases. In the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture years. In the instant case, it is not pointed out as to how and in what manner the average growth figure taken by the assessee at 19% for succeeding years, on the basis of valuation report of an independent valuer was wrong. Therefore, we are of the view that the ld. CIT(A) was not justified in adopting the figure of average growth at 25% instead of 19% adopted by the assessee. Accordingly, we modify the order of the ld. CIT(A) to this extent that the AO for the valuation of shares of M/s Dabur Overseas Ltd., shall adopt the figure of projected growth by taking average of growth figure at 19% instead of 25% directed by the ld. CIT(A). Accordingly, this issue is decided in favour of the assessee and against the department. Addition u/s 43B r.w.s 36(1)(va) - staff welfare expenses by observing that deposits to the statutory fund was beyond the due date - HELD THAT:- In the present case, the ld. CIT(A) categorically stated that all the payment had been made by the assessee before due date of filing the return of income u/s 139(1) of the Act. Therefore, such payments could not be disallowed as per the provisions contained in first proviso to Section 43B of the Act. The view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the assessee - ITA No. 3257/Del/2013, ITA No. 3492/Del/2013 - - - Dated:- 12-4-2017 - Sh. N. K. Saini, AM And Sh. Sudhanshu Srivastava, JM For the Assessee : Sh. M. P. Rastogi, Adv. Sh. Chandan Aggarwal, CA For the Revenue : Sh. Amrendra Kumar, CIT DR, Sh. Subhakant Sahu, Sr. DR ORDER Per N. K. Saini, AM: These cross appeals by the assessee and the department are directed against the order dated 28.03.2013 of ld. CIT(A)-XXIX, New Delhi 2. Since the appeals pertained to the same assessee having common issues involved, were heard together, so, these are being disposed off by this consolidated order for the sake of convenience and brevity. 3. In the assessee s appeal following ground have been raised: 1) That there are no international transaction as contemplated u/s 92B of the Income-tax Act, 1961 (the Act) in respect of the alleged royalty chargeable from two Associated Enterprises (AEs) as contemplated u/s 92A of the Act and consequently the order of the CIT (Appeals) upholding the chargeability of royalty from two AEs, as alleged by TPO, is arbitrary, unjust and bad in law. 2) That the CIT (Appeals) has erred on fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the determination of Arm length Price, the alleged royalty sustained by CIT (Appeal) @ 2% on eligible sales in case of Dabur International and Dabur Nepal Pvt. Ltd is arbitrary, unjust and at any rate very excessive. 8) That in the absence of any method prescribed for valuation of shares, the TPO and the CIT (Appeals) ought to have accepted the valuation of shares as determined by the independent valuers based on the guidelines issued by RBI and acceptable to the FEMA authorities and consequently the arms length price as partly sustained by CIT (Appeals) in respect of shares of Dabur Egypt is arbitrary, unjust and at any rate very excessive. 9) That the CIT (Appeals) and the TPO having accepted that none of the method prescribed u/s 92(1) of the Act is appropriate and then having accepted that the discounted cash flow method as used by independent valuer for valuation of shares is proper, then no upward adjustment ought to have been sustained by CIT (Appeals) and consequently an upward adjustment by adopting 25% projected growth rate instead of 19% growth rate as adopted by the assessee in respect of Dabur Egypt is arbitrary, unjust and at any rate very excessive. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming deduction u/s 80IB and 80IC of the Income Tax Act, 1961 (hereinafter referred to as the Act) amounting to ₹ 177,52,98,444/- and deduction u/s 80G of the Act of ₹ 1,59,88,250/-. The adjusted book profit u/s 115JB of the Act had been declared at ₹ 211,42,99,386/-. The said return was processed u/s 143(1) of the Act at the returned book profit u/s 115JB of the Act. Later on, the case was selected for scrutiny. The AO made the reference to the TPO u/s 92CA of the Act for computation of arm s length price being the international transactions with the AE s of the assessee. The TPO passed an order u/s 92CA(3) of the Act dated 26.10.2009. The TPO noticed that the assessee had received a sum of ₹ 26.79 lacs as royalty which comprised of ₹ 5.34 lacs from Dabur Nepal Ltd. and ₹ 21.02 lacs from Asian Consumer Care Pvt. Ltd., Bangladesh. He also noticed that in the immediately preceding year, the assessee apart from the above two concerns received royalty from Dabur International UAE. He asked the assessee to furnish the reasons for receipt of low/no royalty from the AEs. It was explained by the assessee that the royalty had been accounted for on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred for promoting the Dabur's brands in the overseas market. Dabur international Ltd. has refused to bear the additional advertisement expenditure incurred by them in this respect. Since the advertisement expenditure incurred being in relation to the brand owned by Dabur India Ltd, and the value of Dabur brand will increase post heavy brand building exercise undertaken by Dabur international Ltd. the assessee had given up its right to receive the royalty. Thus accordingly no royalty was payable during the year under reference by Dabur international Ltd. to the assessee company A letter to the effect dated 7lh April, 2005 that no royalty is payable to the assessee company, as confirmed by Dabur international Ltd. is enclosed herewith. 8. The above submissions were not accepted by the TPO for the following reasons: (a) the assessee did not furnish any evidence in the form of agreement of the termination of above royalty agreement as stipulated in clause 5(a) of the royalty agreement. No other corroborative evidence like nonuse of Dabur trade mark or non use of technical know-how by the AE was filed during the course of proceeding before me. In absence of any cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly asked the assessee to explain the reasons for the same. In response the assessee submitted as under: b) Royalty from Dabur Nepal Pvt, Ltd. The aforesaid reasonings as mentioned above in the case of Dabur international Ltd. is applicable in the case of Dabur Nepal Pvt. Ltd. also. Moreover, overall cost of operation and profitability had gone down during the year under consideration. Moreover, Dabur Nepal Pvt. Ltd. had no obligation to pay any royalty. The intimation of Dabur Nepal Pvt. Ltd. to the assessee company to this effect that no royalty is payable as per letter is enclosed. The same was accepted by the assessee company . 11. The TPO did not find merit in the submissions of the assessee for the following reasons: (a) the claim of the assessee that AE was under no obligation to pay royalty is based on Xerox copy of an undated letter of May, 2005 alledgly issued by the AE. In the letter the AE has claimed that due to increase in expenditure no royalty is payable to the assessee. It is pertinent to mention here that above extracted terms and conditions of the agreement between AE and the assessee do not stipulate nonpayment of the royalty on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show cause notice to the assessee which reads as under: In terms of the agreement for receipt of royalty with Dabur International Limited and Dabur Nepal Limited, payment of royalty was received from these two companies till FY 2004-05. However during the year no payment of royalty has been received from these two companies. During the course of proceedings a computation of royalty was furnished amounting to ₹ 1.74 Crores which could have been received from these two companies. You are required to show cause as to why the arm's length value of the arrangement between the assessee company with Dabur International Limited and Dabur Nepal Limited not be computed at ₹ 1.74 Crores keeping in view the fact that there is no change in the business model of the assessee company during the year. 14. In response to the above show cause notice, the assessee submitted as under: In view of the brand building exercise undertaken by Dabur International Limited the assessee is not entitled to any royalty, hence the same cannot be considered since there is neither any liability to pay by them nor any right to receive by the assessee is applicable. 15. The TPO di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd party without any consideration. The TPO was of the view that the AEs had used the trade name/brand name owned by the assessee without any compensation. Therefore, the transaction of receipt of royalty was not at arm s length and that the computation of the royalty, furnished by the assessee was computed incorrectly for the following reasons: (a) the assessee has computed royalty of ₹ 99.59 Lakh on net FOB sale of ₹ 3319.5 Lakhs by Dabur Nepal (P) Ltd in the year under consideration whereas as per clause 3 of the agreement the royalty was payable @ 7.5% of net sales and the correct amount of the royalty payable to the assessee in this year is at ₹ 248.96 Lakh. Since the assessee has wrongly computed the royalty, the correct arm's length price of the royalty is computed at ₹ 248.96 Lakh. (b) in the case of Dabur international UAE the assessee has computed royalty payable at ₹ 75.27 Lakh as against royalty of ₹ 301.07 Lakh payable to the assessee in the year under consideration as per clause 4 of the royalty agreement which stipulates for payment of the royalty @ 4% of net FOB sales. 17. The TPO computed the arm s length pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the conditions for the eligibility of deduction u/s 80IC of the Act. The AO observed that the TPO after taking into consideration all the submissions of the assessee had determined the arm s length price of transaction relating to sale of investment at ₹ 4150.11 lacs as against declared at ₹ 2185.35 lacs and worked out the difference at ₹ 1964.76 lacs and that the TPO had determined the arm s length price of the transaction relating to royalty from Dabur Nepal and Dabur International UAE at ₹ 550.03 lacs as against declared at ₹ 5.34 lacs. The AO asked the assessee to explain as to why an addition of ₹ 2509.45 lacs (₹ 1964.76 lacs + 544.69 lacs) should not be made to the total income on account of aggregate difference in arm s length price of the transaction relating to sale of investments and receipt of royalty from Dabur Nepal and Dabur International UAE. The assessee vide reply dated 07.12.2009 submitted as under: With regards to justification regarding transfer price of international transactions it is submitted that the action of TPO in assuming the role of verification officer and considering royalty payment which have never a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the submissions made were similar to one made before the TPO and had already been considered in order u/s 92CA(3) of the Act dated 26.10.2009. The AO accordingly made an addition of ₹ 544.69 lacs on account of transaction relating to royalty from Dabur Nepal and Dabur International UAE. 22. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: 8.1 The factual matrix of the case is that Dabur India Limited is the legal owner of brand 'Dabur' and other sub category brands such as 'Vatika', 'Hajmola , and others. Dabur India's overseas subsidiaries Dabur Nepal and Dabur UAE are using the Dabur India's trademarks and trade names and are not paying any royalties to Dabur India w.e.f. FY 2005-06. This has been the bone of contention and that the AO/ TPO opting to levy royalty for the said usage of brand by overseas AEs on a premise that no third party would ever allow any third person usage of its own brand without any consideration and accordingly the said transaction is violative of TP principles. Another crucial fact that was considered by the Ld AO/TPO is that Dabur India was charging royalties from i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in the hooks shown as royalty on TDS for previous year was latter on reversed in immediately following the previous year. Since, it was an unilateral entry it cannot be termed as 'international transaction' The said Form 3CEB for the relevant assessment year was filed with the Ld. AO within the prescribed time. On the basis of the details filed by the appellant, the Ld. AO referred the matter relating to arm's length determination u/s 92(1) to the Ld. TPO. 8.4 Once the matter is referred to the Ld. TPO, the Ld. TPO per section 92CA(2) is duty bound to determine arm's length price in relation to the international transactions referred to in subsection (1). It is emphasized that the Ld. TPO has jurisdiction only of those 'international transactions' which are referred to him by the Ld. AO u/s 92CA(1). From the perusal of Form 3CEB, it is evident that there was no 'international transaction' pertaining to royalty with Dabur International Ltd, and that royalty transaction with Dabur Nepal was inadvertently reported at ₹ 5.34 lakhs . As there was no royalty transaction entered by the appellant during the relevant assessment year, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of others, he may compute the arm's length price himself. Thus, the jurisdiction of the Transfer Pricing Officer is limited and restricted to computing arm's length price of only those transactions which have been specifically referred to him by the Assessing Officer. We once again clarify that this is position prior to introduction of sub-section (2A) of the said Act which we have held to be prospective in operation. Similar view has been taken in case of Infotech Ltd v DCIT 136 TTJ 641 (Mum) wherein it has been held as below: 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 to the TPO the transaction of deputation of three of its employees by the assessee to ICICI Infotech, USA. The jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section(l). With the amendment in section 92CA w.e.f. 1-62011, now it is possible for TPOs to exercise jurisdiction also on those international transactions that has not been referred to him by the AO u/s 92CA(1). The only question that needs to be answered here is whether sub section 2A would apply retrospectively or prospectively. Hon'ble Delhi High Court in case of Amadeus (supra) had the occasion to examine this issue and was of view that sub section (2) cannot have retrospective effect inasmuch as it deals with the jurisdiction of the Transfer Pricing Officer and , therefore sub-section (2A) cannot be regarded as being a mere procedural provision. At Para 20 of the Amadeus Ruling, the Hon' Delhi High Court stated that: Similarly, in the case before us, we find that there is nothing in the statute to indicate that sub-section (2A) was introduced in a manner so as to operate with retrospective effect. Subsection (2A) expands the jurisdiction of the TPO by empowering h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pre-approve the agreement before the payment can be made by it to the appellant. The agreement with DNPL had expired and was not renewed by the parties and to effect the termination of the agreement, letter dated May 2005 was given by Dabur Nepal to the appellant stating its desire not to pay the royalty. This letter was accepted by the appellant and thereafter no royalty legally was payable by Dabur Nepal to the appellant. 8.12 Similarly, with Dabur International, the agreement had expired and not renewed by the parties and to effect the termination of the agreement, letter dated 7 April 2005 was given by Dabur International to the appellant stating its desire not to pay the royalty. This letter was accepted by the appellant and thereafter no royalty was payable by Dabur International to the appellant. 8.13 Given that there is no contractual obligation between the parties, no royalty can as such be enforced by the appellant from its associated enterprises. In the absence of contractual obligation, the right to use the Trademarks/logo etc was discretionary upon the associated enterprises due to which the appellant could not have compelled its associated enterprises to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without incurring any cost. Marketing spent of Foreign AEs 8.16 The AEs of the appellant are into nascent stage of operations and were looking to stand on their own. An understanding was reached with the overseas AEs that the overseas AEs will not pay any royalty to the appellant and at the same time and the overseas AEs will themselves be responsible for the marketing and promotion of the Dabur Products. The appellant, been a FMCG player was aware of the fact that marketing and promotion of a product is a huge task and that brand building takes years. Given this, a commercial understanding was put in place. That the overseas AEs are incurring substantial marketing and promotion cost it is worthwhile to look into the marketing spent incurred by Dabur International and Dabur Nepal over the years. Dabur International Ltd S.No FY Sales Turnover Rs in Lakhs AD spent- Rs in Lakhs % of AD spent on Sales 1 2004-05 (1st Year of operation) 5,427.15 631.01 12% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the same. Given that, as such there is no distinct advantage on using the 'Dabur' Brand in the foreign jurisdiction, because the usage of Brand as such would mean a) reduced marketing spent by AEs b) the appellant is incurring marketing and sales promotion expense to promote sales of its AEs c) any other benefit is conferred on AEs. Accordingly, from perspective of the AEs, there is no economic justification why AEs should pay royalty to the appellant and at the same time incur significant expenditure of marketing and publicity of the products. Given this, the appellant was not charging any royalty from its AEs. Overseas Brand Building by the Appellant 8.19 With prejudice to aforesaid paras, the appellant submits that even assuming the foreign AEs were to pay royalty at the arm's length rate, the Company would then had to reimburse the substantial marketing and publicity costs of the AEs. This expenditure in view of the Company would have exceeded the royalty income if any. A chart below shows that marketing costs incurred by Dabur Nepal and Dabur International against the proposed royalty addition by the Ld. TPO: Name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Yes No 3. Who decides what products to be launched in overseas market No Yes 4. Who forms marketing strategy for brand promotion in overseas market No Yes 5. Who decides on sales strategy No Yes From the above table it can be inferred that Dabur India has no role in brand building of its products and the task of brand building is completely the decision of the overseas AEs. Given this fact, there is an irrefutable fact that the overseas AEs are performing a crucial function of building Dabur India's products/ brand in a relatively unknown territory. 8.23 Going by the FAR analysis of royalty and the contribution of each parties, the conclusion that Dabur India despite been legal owner has rightfully surrendered its right to charge to royalty, as both Dabur UAE and Dabur Nepal was actively promoting the Dabur brand in their respective geography much beyond what an independent party would have done. The fact that both Dabur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43.34 5.34 Dabur International Ltd., UAE 164.41 NIL Asian Consumer Care P. Ltd., Bangladesh 46.87 21.02 The case of the appellant is that the agreements under which royalty was received in earlier period were no longer in existence. Moreover, the overseas AE's are incurring substantial expenses for brand promotion in their respective territories and therefore there is no payment of royalty. In order u/s 92CA(3), the TPO computed arm's length price of royalty as under: Name of AE FOB sales Rate of royalty Royalty Royalty shown in books Difference Dabur Nepal (P) Ltd., Nepal 3319.50 7.5% 248.96 5.34 243.62 Dabur International Ltd., UAE 7526.84 4.0% 301.07 - 301.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s length price of royalty received from Dabur UAE, the case is covered by provisions contained in sub-section 2B of section 92CA as inserted by Finance Act, 2012 w.e.f. 01.06.2002. This sub-section is reproduced as here-under:- Where in respect of an international transaction, the assessee has not furnished the report u/s 92 E and such transaction comes to notice of the TPO during course of proceeding before him, the provisions of this chapter shall apply as if such transaction is an international transaction referred to him under subsection (I). In view of specific provisions of 92CA(2B) which are operative w.e.f. 01.06.2002, the contention of the appellant cannot be accepted. Therefore, this argument of the appellant fails. 9.4 Another argument of the appellant is that there are no operative contractual agreements with Dabur Nepal and Dabur UAE which can be enforced to get royalty payment from overseas AE's. TPO has worked out arm's length price of the royalty by resorting to old agreements which had expired during period under consideration. According to appellant, it is settled law that notional income cannot be brought to tax. This contention of the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nology is involved in manufacturing process of products involved. These contentions of the appellant have been duly considered. Firstly, it cannot be said that value of brand 'Dabur' is Nil as no royalty has been accounted for by the appellant. There must be some value of the brand for which royalty income has to be determined having regards to arm's length price. Secondly, the appellant has not established that AE in Nepal and UAE are incurring abnormal AMP expenses which exceed 'Bright Line Test'. Rather perusal of chart of AMP expense on AEs as reproduced in para 8.16 supra shows that %age of such expense to sales shows decreasing trend over subsequent years and in no way such expense can be labeled as abnormally high. The appellant has not established its view by giving figures of AMP in case of comparables operating in respective geographical locations. The appellant has not established that tax authorities of Nepal and UAE have held such AMP expenses as exceeding bright line. Upto AY 2005-06, the appellant has been receiving royalty income from its AEs. The appellant could not establish that after AY 2005-06, its AMP expenses have decreased and AMP expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducts which are manufactured using Dabur's know How and 1% of FOB sales of Dabur branded products manufactured without using technical and R D support from Dabur. Based on this, the TPO has computed royalty chargeable from Dabur International Ltd. @ 4% of sales while the appellant has not declared any royalty income. The appellant has contended that w.e.f. 01.04.2005, this agreement has been terminated and has furnished letters dated 07.04.2005 and 01.02.2013. The appellant has further contended that Dabur International was not sourcing any technical know-how from Dabur India for its products manufactured in UAE and has furnished letters dated 18.07.2011 and 20.07.2011 which state that products manufactured by Dabur International Ltd. in UAE are different from those manufactured in India and no technical support from Dabur India is being taken for the purpose. 9.8 The AO was required to submit remand report u/r 46A as these new evidences were not produced during assessment stage. The remand report has been received from the AO vide letter dated 04.02.2013. The appellant has also filed its rejoinder vide letter dated 04.03.2013. In its remand report, the AO has stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h technical and R D support from Dabur and which are manufactured in accordance with technical specifications detailed by Dabur (b) 1% of FOB sales (net of taxes and sales return) of Redrock of Dabur branded products which are developed by Redrock from any other party without any technical and R D support from Dabur. The appellant has argued that since Dabur International had not sourced any technical support from Dabur India, clause (a) above shall not apply. This contention of the appellant cannot be brushed aside completely in view of letters furnished by the appellant mentioned supra. Even, this was also the stand of the appellant before TPO when appellant furnished working of royalty at ₹ 75.27 lakhs on FOB sales of ₹ 7526.84 lakhs ie. @ 1%. This fact has been mentioned in para 7.9 and 7.16 of TPO's order. Rejecting this computation of the appellant, TPO has worked out royalty @ 4% of FOB sales. This approach of TPO is faulty because even if it is assumed that Dabur International has manufactured all its products by using technical know-how of Dabur India, royalty shall be payable @ 3% as per clause 4(a) above and in that case, sub-clause(b) shall no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same. 9.11 As discussed supra in para 9.4, since income arising from international transaction has to be determined having regards to arm's length price, existence of agreement or otherwise is not relevant. Therefore, argument of the appellant that agreement was not in operation during period under consideration is not relevant as price of international transaction is to be determined by TP regulations. The undisputed fact is that Dabur Nepal has been permitted to use Dabur brand name and the appellant had been receiving royalty income for the same upto preceding AY. The TPO has treated said agreement dated 05.11.1992 as basis for arm's length price in the absence of any comparable provided by the appellant. Now the issue is whether TPO is correct in adopting 7.5% rate of royalty chargeable from Dabur Nepal. The approach of TPO in relying upon agreement dated 05.11.1992 and not considering amended agreement dated 01.04.2004 is fallacious as contemporaneous material/document should have been considered instead of document which is remote in time. Accordingly, TPO is not correct in applying rate of 7.5% and ignoring rate of 3% as mentioned in amended agreement. When sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lished subsidiary in Nepal as a joint venture with others and also acquired M/s Redrock Ltd. in UAE, which was in the business of production and manufacture of FMCG products and later on, the name of the company also changed to Dabur International Ltd. who after acquisition, became 100% subsidiary of the assessee. It was submitted that as far as M/s Dabur Nepal Pvt. Ltd. was concerned, the assessee for the purpose of manufacturing of the products had entered into an agreement on 5th November 1992 for providing the technical know-how, marketing, financial and managerial support for the manufacture of hair oil, Lal Dant Manjan, Dant Mukta, tooth power/tooth paste and herbal candies etc. A reference was made to page no. 111 of the assessee s paper book. It was further submitted that as per the said agreement M/s Dabur Nepal Pvt. Ltd. was entitled to use trademark of Dabur for the sale of its products and in turn the assessee was entitled for royalty @ 7.5% of net sales. It was agreed that the entire marketing expenses including salaries and allowances of sale personnel would be borne by Dabur Nepal Pvt. Ltd. and that the agreement shall become effective only after the approval by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent expenditure incurred by them and no contribution by the assessee in brand building exercise, the royalty agreement ceased to exist w.e.f. 1st April, 2005 onwards and the assessee agreed for the same, a reference was made to page no. 122 of the assessee s paper book. It was stated that the AO for the purpose of determination of arm s length price of royalty chargeable from Dabur International Ltd., UAE and Dabur Nepal Pvt. Ltd., referred the matter to the TPO before whom the assessee contended that in the absence of any contractual agreement between the assessee and the respective AEs, the assessee was not eligible to receive any royalty from Dabur International Ltd. as well as Dabur Nepal Pvt. Ltd. but the TPO was of the view that as per transfer pricing provisions contained in Section 92C of the Act, it was necessary that there should be an agreement between the parties in writing but it may be an oral understanding also. The ld. Counsel for the assessee pointed out that the assessee in respect of Dabur International Ltd., submitted before the TPO as under: (i) The assessee is mainly in the business of Ayurvedic medicines and herbal products, and in FMCG business it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the products by TATA Group. (ix) In earlier years, the said Rodrock had paid the royalty @ 1% because no product has been manufactured by Rodrock with the help and support of assessee in accordance with terms and conditions of agreement. However, the TPO, after taking into account the royalty agreement as entered by the assessee-company with Rodrock in earlier years, computed the royalty chargeable from Dabur International @ 4%. While working out such royalty rates, the TPO had clubbed the rates of royalty 3% being the royalty payable on the items manufactured with the support of assessee-company while using the technical know-how provided by the assessee and 1% on the products manufactured without the aid and support of assessee-company but marketed by using Dabur name. The ld. Counsel for the assessee, in respect of M/s Dabur Nepal Ltd., submitted as under: (a) During the year under consideration, in absence of any written contract, no royalty is chargeable. (b) In spite of the agreement, as existed in earlier years, the assessee-company had to bear the cost of marketing expenses, but the assessee failed to contribute anything. (c) All the efforts inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bour and capital in the market, overall economic development and level of competition and whether the markets are wholesale or retail. 27. It was submitted that as per the provisions contained in Section 92C of the Act read with Rules 10B and 10C of the IT Rules, 1962, it is clear that under the Transfer Pricing regulation for the purpose of making adjournment, the ALP has to be determined by finding out the receipt of royalty payment received by similarly situated and comparable independent entities, but in the absence of any comparable, no upward addition can be made. The reliance was placed on the following case laws: CIT Vs Patni Computer Systems Ltd. in (2013) 33 Taxmann.com 3 (Bom) Sony Ericsson Vs CIT 374 ITR 118 (Del) It was further submitted that as per paragraph 6.38 of OECD Transfer Pricing Guidelines, if the AE has undertaken all the market development activities and incurred extraordinary marketing expenditure, the AE is required to be adequately compensated either by lower purchase price or reduction in royalty rate as the case may be. 28. It was contended that there was no agreement in force to charge royalty and in FMCG, Dabur India was bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot only to secure the investment made by the assessee but also to enhance the value of Dabur mark. 29. It was emphasized that the ld. CIT(A) admitted that M/s Dabur International Ltd., UAE had not manufactured any product with the technical know-how and R D support of the assessee but has manufactured on its own, in accordance with the requirement and local taste of the local public and had verified that in earlier years, the said Dabur International Ltd. had paid the royalty @ 1% only. Therefore, the action of the ld. CIT(A) in directing the AO to calculate the royalty @ 2% instead of 4% levied by TPO was without any basis and reasons and at any rate was very excessive because the ld. CIT(A) had neither given the benefit of geographical area, where Dabur was very little known nor any FAR analysis had been done which was a condition precedent for working out arm s length price. 30. It was further stated that in the case of M/s Dabur Nepal Pvt. Ltd., once the ld. CIT(A) accepted that as per the agreement, the assessee was under obligation to bear the marketing costs which included the advertisement and remuneration to sales personnel and that the assessee has not borne s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss of money and market failure as well as the quality. It was further stated that the assessee neither had made any efforts in establishing the trade name nor had made any contribution whatsoever, therefore, keeping into consideration the said factors, M/s Dabur International Ltd. had not renewed the royalty agreement because the assessee was not willing to undertake any risk/obligation/responsibility. However, neither the AO/TPO nor ld. CIT(A) had made any adjustment based on FAR analysis as contemplated under Rule 10C of the Income Tax Rules, 1962 nor had given any benefit of geographical condition and size of the market as well as the risk assumed by M/s Dabur International Ltd. 31. As regards to the case of M/s Dabur Nepal Pvt. Ltd., the ld. Counsel for the assessee submitted that the Revenue department had not brought on record any comparable case and the additions had been made by the AO/TPO based on the earlier agreements which had already expired. It was further submitted that the AO/TPO as well as the ld. CIT(A) failed to consider the contractual obligation on the part of the assessee for bearing the marketing cost and had not given any adjustment on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the TPO and set aside the impugned order passed by the ld. CIT(A). 33. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee had not shown any receipt on account of royalty from M/s Dabur International Ltd., UAE and had shown royalty of ₹ 5.34 lacs from M/s Dabur Nepal Pvt. Ltd. on the FOB sales of ₹ 7526.84 lacs and ₹ 3319.50 lacs respectively. The TPO worked out the royalty @ 4% of the sales in the case of Dabur International Ltd. and @ 7.5% of the sale in the case of Dabur Nepal Pvt. Ltd. The ld. CIT(A) reduced the royalty @ 2% of FOB sales. In the instant case, it is noticed that the assessee earlier entered into an agreement with M/s Redrock Ltd. who was registered in the Channel Island, U.K with its principal office at 54-58, Althol Street, Doughlas, Isle of Man, U.K. and had been manufacturing and producing various products for sale after utilizing technical information provided to it by the assessee in terms of agreements executed from time to time and lastly on 2nd day of April 2001 which had expired on 31st day of March 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial used in India. In the present case, nothing is brought on record to substantiate that the products manufactured in UAE were with the help of technical know-how and R D support of the assessee. On perusal of the provisions contained in Section 92 of the Act it would be clear that the income arising from an international transaction shall be computed having regard to the arm s length price which shall be determined by any of the 5 methods prescribed in Sub-Section (1) of Section 92 of the Act which are following: (a) Comparable and controlled price method; (b) Resale price method; (c) Cost plus method; (d) Profit split method; (e) Transactional net margin method; or such other method as may be prescribed by the Board. 34. It is also not in dispute that for determination of the arm s length price, the provisions contained in Sub-Section (2) of Section 92C of the Act shall be applied. The various methods has been prescribed under Rule 10B of the Income Tax Rules, 1962 to determine the arm s length price u/s 92C of the Act and Rule 10C of Income Tax Rules, 1962 further states that in selecting the most appropriate method, following factors shall be taken into c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee but had manufactured on its own, in accordance with the requirement and local taste of the local public, however, he directed the AO to calculate the royalty @ 2% but without any basis. In the present case, it is an admitted fact that the TPO/AO had not applied any transfer pricing method as prescribed under the Act and simply made the adjustment in respect of royalty based on the earlier agreements which had already expired and there was no new agreement between the assessee and its AEs. The earlier agreement was entered by M/s Redrock Ltd. on 1st April 2003, at that point of time, the said company was manufacturing the products with the technical know-how and R D support of the assessee in respect of Aurvedic/Herbal products. But later on, when the said company found that the Aurvedic products were not acceptable in UAE as in the said country Unani system of medicines was acceptable as per the local trend and custom. The said AE in UAE had abandoned the manufacturing of the Ayurvedic/herbal products and then entered into the business of FMCG products which were earlier manufactured by the Redrock Ltd. with its own technology as per the requirement and taste of a local publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As regards to the royalty charged from M/s Dabur Nepal Ltd. is concerned, it is not in dispute that earlier the royalty received was @ 7.5% as the assessee was bearing the cost of marketing expenses but later on M/s Dabur Nepal Pvt. Ltd. incurred lot of expenditure in order to penetrate the market and the agreement was amended w.e.f. 1st April, 2004 vide which the royalty had been reduced from 7.5% to 3% (copy of the same is placed at page no. 113 of the assessee s paper book). In the preceding year, on the basis of the said amended agreement, the royalty was charged @ 3%. Therefore, the TPO was not justified in working out the royalty @ 7.5% as provided in the original agreement dated 05.11.1992 (copy of which is placed at page nos. 111 112 of the assessee s paper book). For the year under consideration, M/s Dabur Nepal Pvt. Ltd. has not paid any royalty to the assessee for the reasons that it had to incur the expenses to penetrate the market. In this regard, vide letter written in May 2005, it was informed to the assessee that no royalty will be payable from Financial Year 2005-06. It was also claimed that as per the Clause 7 of the original agreement dated 05.11.1992, the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee claimed the transactions at arm s length price by stating as under: Further, as regards the intra-group transaction of sale of investments, during the current financial year, the shares held by DIL in DNPL and in Dabur Overseas Ltd., were sold to Dabur International Ltd., UAE. For this purpose, a share valuation exercise was undertaken by an independent third party valuer, for both the sale transactions. The price arrived at in each case, by the independent third party valuer represents a comparable uncontrolled price for the price at which DIL sold the shares in DNPL and in Dabur Overseas Ltd., respectively, to Dabur International Ltd., UAE, and both of these were the same, i.e., DIL s sale price was as per the valuation report of the independent third party valuer in both cases. 39. The TPO pointed out that the assessee was holding 79.96% of the shares of M/s Dabur Nepal Pvt. Ltd. which were sold to M/s Dabur International Ltd. for an amount of ₹ 17.16 crores and as a consequence to these transactions, the assessee ceased to be the holding company and M/s Dabur International Ltd. became 97.46% owner of M/s Dabur Nepal Ltd. He also observed that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28152.69 26745.06 25407.80 24137.41 22930.54 10% 1% 4310.15 3864.07 3074.02 EBIDTA 2919.43 2773.46 2634.79 2503.05 2377.90 15% 14% 10% EBIDTA/Sales 10% 10% 10% 10% 10% 3210.8 2781.7 2044.61 EBIT 1864.61 1792.05 17 18.55 1644.68 1570.92 1976.44 1841.53 1381.21 PBT 1294.32 1379.32 1466.57 1557.16 1570.00 1521.86 1445.6 1116.68 PAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18.10% 1.8.10% 18.10% 18% Discount factor 0.82 0.67 0.54 0.44 0.36 9076.95 Present value of free cash flows 2015.86 1581.65 1015.01 776.95 594.64 3351.89 Total Net Present Value 5984.11 Present value of perpetuity 3351.89 Total Business Value 9336.00 Less Debt 5843.00 V Shareholder value 3493.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PAT 185328.99 233091.50 195954.844 240135.864 292323.678 Shareholder valuation of Dabur Egypt based on Discounted Cash How Model in USD lakhs 2006 2007 2008 2009 2010 Perpetuity 12 12 12 12 12 12 Revenues (Please enter wine) 24.45 29.10 34.63 41.20 49.03 52.96 YOY growth 19% 19% 19% 19% 19% 6% Operating profit margin 9% 9% 9% 9% 9% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious presumptions for the purpose of valuation of shares. The assessee furnished a note of valuation and assumption which read as under: NOTE ON VALUATION AND ASSUMPTIONS: 1. The assessee company has during the year disposed of its holding in Dabur Overseas Ltd. and Dabur Nepal Pvt. Ltd. 2. Dabur Overseas Ltd. - Dabur Overseas Ltd. is an investment company. - It has no sales. - It is continuing incurring loss. - It hold 76% of investment in Dabur Egypt Ltd. - Dabur Overseas shares were valued at Net Assets Value Method. - The Valuation report -was obtained from Aggarwal Ahluwalia, Chartered Accounts after considering the following recognized method of valuation: Market Price method Discounted Cash Flow Value method Net Assets value method. - Market value method cannot be adopted since; Dabur Overseas Ltd. s shares are unquoted shares. - Discounted value method-was adopted since there is no net cash outflow. - However, the value of its Dabur Overseas Holding in Dabur Egypt was valued at discounted value method after considering various methods of valuation namely; i) Market Price Method ii) Net Assets Value met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been net cash flow of Dabur Nepal Pvt. Ltd operations. - Valuation report was obtained and duly submitted to RBI under FEMA regulations. - The valuations report obtained from Aggarwal Ahluwalia, Chartered Accountants after considering the following recognized method of valuation, i) market Price method ii) Net Assets Value Method iii) Discounted cash Flow method - Market value method cannot be adopted since Dabur Nepal Pvt. Ltd. s shares are unquoted shares. - Discounted cash flow value method was adopted since the assessee company reduced dependence on its Nepal subsidiary and having alternate facilities available in Siliguri, W.B. and Newai at Rajasthan. - Thus according to the estimate, the sales value were estimated to come down in view of alternative supply available to assessee company. - The valuation report obtained after duly considering various factors as per accepted methods of valuation by Aggrawal Ahluwalia, Chartered Accountants. Dabur Nepal Pvt. Ltd sales had been projected keeping in view less dependence in future years by the assessee company. Growth in sales for F.Y. 2005-06. 42. The TPO after considering the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited, It is seen from the details furnished in Form 3CEB and Transfer Pricing Study Report that the transaction has been benchmarked using CUP. The details of transaction as furnished during the course of proceedings have been examined. It is seen that in order to furnish the CUP data, valuation reports prepared by Agarwal and Ahluwalia Chartered Accountants have been filed. During the course of proceedings Mr. Sanjay Agarwal, CA also appeared and attained the method of valuation. A detailed note was also filed in this respect by the AR on 07.10.2009. (ii) On the basis of various information filed, it is seen that the valuation report of Dabur Overseas Limited, Dabur Egypt Limited and Dabur Nepal Limited has been prepared using following methods: 1. Dabur Overseas Limited Net Asset Value Method 2. Dabur Egypt Limited Discounted Cash Flow Method 3. Dabur Nepal Limited Discounted Cash Flow Method (iii) The valuation reports have used the actual data for financial years 2002-03, 2003-04 and 2004-05 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1163.76 Total 2185.35 4150.11 1964.76 45. The calculations for the above changes has been given by the TPO at page nos. 11 12 of his order dated 26.10.2009, for the cost of repetition, the same were not reproduced herein. The assessee in response to the show cause notice furnished the submissions and raised objections to the proposed changed in the valuation as under: a. In case of Dabur Egypt Limited the year on year growth of 89% is highly exorbitant as against the growth of 19% considered for the valuation of shares. b. In the proposed valuation, increased cost on account of interest paid, capex expenditure, incremental cost of working and increased tax outflow has been ignored. c. The valuation has been duly accepted by the Exchange Control Authority on the basis of valuation report of Agarwal and Ahluwalia Chartered Accountants. d. Fresh Valuation reports were submitted by the assessee prepared by Agarwal and Ahluwalia Chartered Accountants using the figures of actual audited figures for the period from 2006 to 2009. e. It has been pointed out by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument of the assessee that the valuation of the assessee was accepted by the exchange Control Authority, the TPO observed that the said valuation did not have any bearing on the determination of arm s length price and that the approval of Exchange Control Authority was for the purpose of transactions in the foreign exchange whereas the proceeding before him was to examine and determine the arm s length price of the transaction. As regards to the submissions of the assessee that that shares of M/s Dabur Nepal Ltd. had been transacted between M/s Dabur Nepal Ltd. and the unrelated parties at almost the same rate. The TPO observed that only certificate had been filed by the assessee which was issued by M/s Dabur International Ltd. and that buying a small stake in any company and buying the whole company through managing stakes were two different issues which would carry two different prices i.e. purchase price of quoted shares for the purpose of having controlling right in a company would be different from purchase prices of small investment and there was difference in strategic investment and routine investment. Thereafter, the assessee furnished fresh valuation reports of the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 175653.37 1991723.98 429572.42 56170.00 -58563.00 79908.00 PAT 220472.26 749564.42 149770.75 1538720.77 292109.25 Shareholder valuation of Dabur Egypt based on Discounted Cash Flow Model In USD lakhs Period ending March 31 2006 2007 2008 2009 2010 Perpetuity Number of Months 12 12 12 12 12 Basis Actual Actual Actual Actual Forecast Forecast Revenues 30.31 48.08 71.89 143.31 49.03 52.96 YOY gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue 12.45 Less Debt as on 31.03.2009 5.54 Shareholder value 6.91 Dabur Nepal Limited 2002-03 2003-04 2004-05 Income statement 2005-06 2006-07 2007-08 200849 2009-10 12 months 12 months 12 months Nrs In Lakhs 12 months 12 months 12 months 12 months 12 months 31st March 31st March 31st March 31st March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Forecast Revenues 31040.46 35181.33 39159.92 43519.23 22930.54 22939.54 YOY growth 4.74% 13.34% 11.31% 11.13% 0% Operating profit margin 9% 9% 8% 5% 10% 10% EBIT 1593.26 1695.81 1632.78 674.62 1570.00 1570.00 Add Depreciation 1197.70 1332.69 1362.448 1557.66 806.98 806.98 Less interest paid 648.88 609.57 726 646.59 0.00 0.00 Less Capex 2650.16 1401.01 3866.06 1270.08 400.00 400.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e projected sale for the year ending March 2010 is almost 34% of the actual sales of March 2009 in the case of Dabur Egypt Limited. It cannot be believed that the sales would go down to such an extent in the year 2009-10. Even otherwise any projection without any basis is a pure guess work and such pure guess work cannot determine the price of shares. c. Various other figures for the Capex and incremental working capital have been changed for the purpose of fresh report. 49. The TPO was of the view that it would not be prudent to use the actual data (for financial year) to compute the value of M/s Dabur Nepal Pvt. Ltd. and M/s Dabur Egypt. For the aforesaid view, he mentioned that the provisions of Section 92(1) of the Act provides that any income arising from an international transaction shall be computed having regard to the arm s length price. 50. According to the TPO, the assessee was required to ensure its international transactions with the AEs were at prices which were comparable to an existing price that had either been applied or was proposed to be applied between persons in uncontrolled conditions and it could not be contended that the Rules required to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale of shares and the price at which the international transactions had taken place. Thereafter, the AO passed the assessment order and made the aforesaid addition to the declared sale consideration of immovable assets. 52. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that the share valuation arrived by the TPO by just altering the projected figures (corresponding figures of expense side were not altered) was totally without any basis because the actual audited results for the financial year 2005-06 were not available and accordingly estimated figures were used, since the sales of shares of Dabur Nepal Pvt. Ltd. and Dabur Overseas Ltd. had happened in financial year 2005-06. The assessee provided a brief history of background and past financial results of the entities as under: 11.5 Dabur Nepal Pvt. Ltd., Nepal Dabur Nepal is owned by Dabur India wherein Dabur India holds 79.96% and balance is held by Dabur International Ltd and Mr. SS Rana with stake of 17.50% and 2.54% respectively. The share holding pattern of Dabur Nepal Pvt. Ltd. is provided below. FY 2005-06 FY 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FY Sales (Rs In Lakhs) Profit (Rs In Lakhs) % on sales 2004-05 17,370.15 650.24 3.74% 2003-04 16,591.46 841.77 5.07% 2002-03 16,953.33 919.51 5.42% 2001-02 15,249.05 1,007.60 6.61% It can be seen from above, that Dabur Nepal is earning a nominal return. Dabur Nepal holds no intangibles and accordingly, the return would also be nominal. Dabur India, the appellant decided to sell its total stake in Dabur Nepal in 2005 for which a valuer was appointed to evaluate the shares of Dabur Nepal. As per the valuation report, the value of 79.96% of stake was arrived at ₹ 17.16crores. The appellant took that valuation as the basis of arriving at the sale consideration. This report was also submitted to the authorized banker per the FEMA guidelines. The copy of the valuation report is submitted. As stated, this valuation report was consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and this method is recognized by RBI as well for the purpose of unlisted equity share valuation. - The appellant had paid capital gains tax on the capital gains made by Dabur India. In light of the above, the appellant submits that the valuation arrived by the TPO by altering the projected sales figure at +5% and keeping other items of expense constant is contrary to the facts and prevailing market conditions and is notional and adhoc and thus should be rejected. Thus, the addition on account of Dabur Nepal of ₹ 11.64 crores should be deleted. 11.6 Dabur Overseas Ltd /Dabur Egypt Ltd. Dabur Overseas Ltd. is an Investment Company in which Dabur India is holding 100% stake. Dabur India is intending to sale its 100% stake in Dabur Overseas to Dabur International Dabur Overseas Ltd in turn was holding 76% stake in Dabur Egypt In order to arrive at correct valuation of Dabur Overseas, valuation of Dabur Egypt was also undertaken simultaneously. Similar to Dabur Nepal, Dabur Egypt also operated as a low risk / limited manufacturer with no intangibles and is in business of manufacture of hair care oil, vinegar, rose water, glucose etc. The financial detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI as well for the purpose of unlisted equity share valuation. In light of the above, the appellant submits that the valuation arrived by the TPO by altering the projected sales figure at +89% and keeping other items of expense constant is contrary to the facts and prevailing market conditions and is notional and adhoc and thus should be rejected. Thus, the addition on account of Dabur Overseas/ Dabur Egypt of ₹ 8.01 crores should be deleted. 53. The assessee further submitted that the valuation arrived at by the valuer was almost sacrosanct and could not have been substituted with any other amount for computing the capital gains. The reliance was placed on the following case laws: CIT v Gillanders Arbuthnot Co (1973) 87 ITR 407 (SC) KP Verghese 131 ITR 597 (SC) CIT v Shivakami Co Ltd 159 ITR 71 (SC) CIT v George Henderson and Co Ltd 66 ITR 622 (SC) ITO v Balaji Textile Mills Pvt Ltd - ITA No 3197/Mum 2010 54. It was further submitted that the assessee during the course of assessment proceedings provided working of share valuation wherein comparison between projected and actual numbers were made as per following details: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stic and untenable and requires to be quashed down. Perpetuity Valuation The appellant had determined the perpetuity valuation of present values of free cash flow of Dabur Nepal at N₹ 3351 Lakhs and USD 12.91 lakhs for Dabur Egypt. The TPO has accepted this method of valuation of the appellant The Ld TPO has accepted the perpetuity valuation but disturbed the sale factor for period 2006-2010 implying that his idea was just to make some additions without any basis Dabur Nepal s Valuation, wrongly done by TPO 1) The appellant has determined the free cash flow after reducing tax on EBIT 2) Secondly the Discount factor to determine PV of cash flows has been arrived by a formula 1) TPO did not deduct tax on EBIT to arrive at free cash flow. 2) The Discount factor has been wrongly used by the TPO The arithmetical error by not reducing tax and wrong application of discount factor has inflated the valuation of Dabur Nepal Valuation based on actual numbers for 2006 to 2009 in favour of appellant The TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant The appellant has obtained independent valuer's report for the purpose of ascertaining arm's length value of the shares and has paid capital gains taxes accordingly. The TPO has accepted the report of independent valuer in principle but adopted higher projected growth rates than that adopted by independent valuer, and has worked out arm's length price on higher side thereby has proposed upward, adjustment Position in respect of two companies whose shares have been sold is being discussed in subsequent paragraphs. 12.2 Dabur Nepal Pvt. Ltd.: It is seen that the appellant has sold 6,38,520 shares of Dabur Nepal to Dabur International (AE) on 15.06.2005. Since the shares were unquoted, the appellant obtained a report dated 07.06.2005 from independent valuer, wherein value of shares has been determined at Rs. (Nepalese) 3433.59 lacs (INR 17.16 crows) as on 31.05.2005 by following discounted cash flow (DCF) method. This value has been adopted by the appellant as ALP. At the time of sales, actual figures of financials of Dabur Nepal were available upto FY 2004-05 and for subsequent years, projected sales growth of (-)5% was taken in the said valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate. Even TPO has accepted this position and has relied upon discounted cash flow method as used by independent valuer. The position being so, now question arises what should be correct projected growth rate. The independent valuer has used -5% whereas TPO has used +5%. From financials of Dabur Nepal, it is clear that actual growth rate in FY 2002-03, 2003-04 and 2004-05 is 10%, 1% and 5% respectively. This indicates wide variation in growth rate which is result of unstable political atmosphere in Nepal state. Therefore, TPO's approach of using +5% projected growth for future years does not seem to be rational. TPO's approach is faulty on other accounts also when he has taken figures of profit by adopting +5% projected growth whereas he has not enhanced outgoings/expenses correspondingly. Further, subsequent independent valuer report which is based on actual financial figures clearly supports the valuation done with -5% projected growth in original report of independent valuer. 12.4 Moreover, it is seen that two independent parties have also sold shares of Dabur Nepal to Dabur International about three month before the sale of shares by the appellant. The sale price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to FY 2004-05 and for subsequent years, projected sales growth of 19% was taken in the said valuation report. The TPO has not accepted projected sales growth of 19% for FY 2005-06 onwards and has taken 89% figure of projected growth based on actual figure of FY 2004-05. By taking 89% projected growth rate, TPO has worked out valuation of shares sold at ₹ 12.71 crores, thereby proposing upward adjustment of ₹ 8.01 crores. 12.7 The appellant has vehemently argued that since the shares of Dabur Nepal were unquoted, report of independent valuer was obtained to determine the value of shares at time of sale. Independent valuer worked out the value of shares by following discounted cash flow method which is an accepted norm in this regard. The TPO also followed the report of independent valuer except that TPO adopted 89% projected growth whereas independent valuer adopted 19% projected growth. Further, valuation study is based on projected figures when actual figures were not available. During assessment stage, appellant furnished fresh valuation report from same independent valuer in which actual figures were used and this report shows, valuation of shares at a tower fig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated that the two other shares holders namely, M/s Lunar Trading Co. and M/s Bibuti Pvt. Ltd. had also sold the shares of M/s Dabur International Ltd. on 28.03.2005 i.e. about three months before the assessee s transaction almost on the same price and this constitutes CUP. It was pointed out that at the time of scrutiny assessment, the actual data of the subsequent years were available and the valuers prepared another valuation report on the basis of actual data available for the period 2005-06 to 2008-09 (copy of which have been reproduced by the TPO at page no. 7 of his order). It was also pointed out that on the basis of actual data available for the subsequent years, the shares value was worked out in a figure of (-) ₹ 2601 lakhs against the earlier projected shareholders value at ₹ 3493 lakhs. Therefore, no upward adjustment was called for. It was further submitted that no comparable had been brought on record by the TPO and as per the provisions contained in Rule 10D of the Income Tax Rules, 1962, the information for document has to be maintained up to the date upto which the information or document has to be maintained by the assessee but the Rule 10D does not pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of actual data available for future years which has been reproduced by the TPO on page no. 16 of his order. It was stated that from the said report prepared on the basis of actual data, it was very much clear that growth rate in the subsequent year was not constant and it fluctuated, so much so even the operating profit margin had also fluctuated. It was pointed out that on the basis of actual data, the shareholder s value was worked out at ₹ 6.91 crores against the original value worked out at 12.91 crores. In other words, the shareholder s value had been worked out less than the transacted value, on the basis of actual data. It was stated that the ld. CIT(A) held that the growth rate of 89% as adopted by the TPO for the purpose of valuation of shares of M/s Dabur Egypt was an astronomical figure, not based on any reason and it was highly improbable in the commercial world and that the assessee also could not explain why the figure of 19% had been choosen as projected growth and then thereafter the ld. CIT(A) held that it would be more realistic to adopt figure of projected growth by taking average of growth figure available for three preceding years which came to 25%. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties was comparable, so there was no reason to discard the sale transaction by third parties as CUP (comparable uncontrolled price), particularly when the sale transaction by those independent parties and that of the assessee were broadly comparable, the only difference was in the quantity of the shares sold which was lesser in the case of two independent parties. Therefore, those parties were in a better position to have a better bargain than the assessee. We, therefore, considering the totality of the facts are of the confirmed view that the ld. CIT(A) was fully justified in holding that arm s length value of shares as determined by the independent valuer in the case of M/s Dabur Nepal Pvt. Ltd. need not be disturbed. We do not see any valid ground to interfere with the findings given by the ld. CIT(A). 63. As regards to the valuation of the shares of M/s Dabur Overseas Ltd., It is noticed that the assessee had 100% stake in M/s Dabur Overseas Ltd., an investment company which in turn had 76% stake in M/s Dabur Egypt Ltd. The remaining 24% of stake in M/s Dabur Egypt Ltd. was held by M/s Dabur International Ltd. The assessee sold its 100% stake i.e. 50,000 shares in M/s D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ground No. 4, the grievance of the department relates to the deletion of addition of ₹ 2,10,674/- made by the AO u/s 43B r.w.s 36(1)(va) of the Act. 65. The facts related to this issue in brief are that the AO disallowed a sum of ₹ 2,10,764/- u/s 43B of the Act out of the staff welfare expenses by observing that deposits to the statutory fund was beyond the due date as per the explanation given below, the Section 36(1)(va) of the Act. 66. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted that an amendment was introduced by Finance Act 2003 whereby 2nd proviso to Section 43B was omitted and no disallowance could have been made in respect of any sum payable by the employer by way of contribution to PF or another fund for the welfare of employees if the sums are actually paid before the due date of filing the return u/s 139(1) of the Act. The reliance was placed on the following case laws: Allied Motors Vs CIT (2002) TIOL 558 (SC) CIT Vs Alom Extrusions Ltd. (2009) TIOL 125 (SC) 67. The ld. CIT(A) after considering the submissions of the assessee deleted the addition by observing in para 15 of the impugned order as und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1995-96 and the department had not preferred any appeal against the said order. Therefore, the disallowance made by the AO may be deleted. 71. The ld. CIT(A) after considering the submissions of the assessee observed that nature of expenses disallowed represented entrance fee and subscription for various club which had been obtained by the assessee and that the similar expenses were allowed by the then ld. CIT(A) for the assessment year 2005-06, by following the earlier appellate order for the assessment year 1995-96 which was not challenged by the department in further appeal. 72. Now the department is in appeal. 73. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the similar disallowance were made in the preceding year wherein the ld. CIT(A) allowed the claim of the assessee by following the earlier order of the then ld. CIT(A) for the assessment year 1995-96 which was not challenged by the department. Therefore, on the principle of consistency also the ld. CIT(A) was justified in deleting the impugned amount, particularly when nothing was brought on record to subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so there was a close proximity with the running of the undertaking and that the assessee had received a token sum which at best can be termed as recovery of maintenance cost of premises or upwell of the property which goes to reduce the maintenance cost of the property. It was also stated that such a recovery was not a rental income of the assessee but was in the nature of reducing its maintenance cost of the factory premises. Therefore, it was eligible for deduction for computation u/s 80IB/80IC of the Act. 79. The ld. CIT(A) after considering the submissions of the assessee directed the AO to allow the claim for deduction u/s 80IB/80IC of the Act by observing in paras 21.1 and 21.2 of the impugned order which read as under: 21.1 I have carefully gone through various contentions of the appellant. 1 have seen that similar issues were there for AY 2005-06, wherein the then CIT(A) has adjudicated them as under: 6.1 The issue to be decided in above grounds of appeal is whether disallowances u/s 40(a)(ia) and 43B as well as income from sale of scrap and rental income (which is as a result of recovery of maintenance cost from factory workers who are allowed to stay in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT(A) allowed the claim of the assessee by following the reasoning given by his predecessor for the assessment year 2005-06. It is not brought on record that the said reasoning given by the ld. CIT(A) for the preceding assessment year had been reversed by the higher firm. We, therefore, by keeping in view the principal of consistency, do not see any merit in this appeal of the department on this issue, particularly when the facts for the year under consideration and preceding year are identical. 83. In the present case, the assessee also raised an additional ground which read as under: That the ESOP expenses of ₹ 6,85,99,352/- debited in the Profit Loss Account ought to have been allowed as deduction in computing the income under the head Profit and Gains of Business . 84. It was stated that this ground is purely a legal ground based on the following decisions: Biocon Ltd. Vs DCIT reported at 155 TTJ 649 (Bang. SB) Lemon Tree Hotels Ltd. Vs Addl. CIT in ITA No. 4588/Del/2013 order dated 23.06.2014 (Del. ITAT) CIT Vs Lemon Tree Hotels Ltd. in ITA No. 107/2015 order dated 18.08.2015 (Del. H.C.) CIT Vs PVP Ventures Ltd. 90 DTR 340 (Mad. ..... 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