9911796707
TMI Blog2021 (11) TMI 647X X X X Extracts X X X X X X X X Extracts X X X X ..... e was any kind of understanding or arrangement with the AE which can be lead to inference that AMP expenditure incurred by the assessee is an international transaction nor there is any iota of material that there was any action in concert. Accordingly, we hold that there is no international transaction of incurring any AMP expenditure. If we go by the alternative arguments placed by the ld. Counsel, Mr. Deepak Chopra that if intensity approach is to be applied to determine the assessee s profitability, then assessee has earned a profit margin 15.70% as against PLI of the comparable determination by the TPO 4.36% and therefore, at the entity level profitability assessee s margin was far excess of the comparables and accordingly no adjustment on such transaction can be made. As regards the substantive AMP adjustment of applying residual profits split methods, it is incumbent upon the TPO firstly to combine profit from the so called international transaction of incurring of AMP expenses and then split the combined profit in proportion to the relative contribution made by both the entities. The manner in which RSPM has been applied by the TPO cannot be held as same is consistent with R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for allocation of common expenses. Having allocated the common expenses if there resulted in any consequential allocation of expenses to the eligible unit then the reduction of the 80IC claim would be limited to 30% of such expenses - We find force in this contention of the assessee given that this was the ninth year of such claim by the assessee in respect of such unit. As per the applicable provision of Section 80IC the deduction is 100% of the eligible profits for the first five years and 30% of the eligible profits for the balance five years. Thus if at all any reduction of the claim had to be made by the AO it has to be limited to 30% of such allocable expenses and no more. Seeking allowability of the education cess paid - HELD THAT:- Ergo, if cess is considered as part of surcharge, i.e., the additional surcharge on tax, then if income tax payable under the Act is not reckoned as allowable expenditure u/s.37. Ostensibly by this logic, the cess also cannot be held to be allowable business expenditure, because the cess is always calculated and paid on percentage of income tax payable and not actually incurred for the business or profession of assessee. In the context of 115JB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st disallowance of loss owing to floods. (j). Ground No's. 48 and 49 - Relating to applicability of interest under sections 234B/234C of the Act and initiation of penalty proceedings under section 271(1)(c) of the Act. 3. That apart, the assessee has also moved an application raising an additional ground regarding the allowability of education cess vide letter dated 23.07.2021. 4. However, the principle issue which arises in this appeal for consideration is the transfer pricing adjustment on account of AMP expenses. There are two other corporate tax issues, which would be addressed and dealt with separately. We propose to address the transfer pricing grounds first. Brief Facts and Background: 5. Briefly stated, the facts relevant to the issue under consideration are that the assessee is a subsidiary of PVM, Netherlands and started it operations in India in 1994. It is engaged in manufacturing and selling of variety of confectionary products from its factories in Tamil Nadu, Haryana and Uttarakhand. The assessee's products include Big Babool, Alpenliebe, Centre Fresh, Centre Fruit, Chloromint, Fruitella, Cofitos, Happydent white, Mentos, etc. These brands are owned by the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal emanates out of the said final assessment order. 11. The first issue raised in this appeal is the addition on account of transfer pricing adjustment of ₹ 135,52,80,000/- made by the Assessing Officer on account of AMP expenses. The principle issue raised in the appeal is that the incurring of AMP expenses by the assessee was not an international transaction within the meaning of section 92B of the Act. Various other grounds have also been raised in the appeal relating to this issue. However, whether there existed an international transaction is the core issue. 12. Mr. Deepak Chopra, Ld. Counsel for the assessee submitted that the issue of making transfer pricing adjustments in the assessee's case is a legacy issue and the assessee has been facing additions on this count since AY 2008-09. He submitted that the appeals of the assessee for the earlier years have been repeatedly restored to the file of the Assessing Officer/ TPO for re- examination of the issue in light of the available judicial precedence available at that point of time. The issue pertaining to incurrence of excessive AMP expenses for the promotion of the brand owned by the AE was raked up for the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier years and the revenue towing the same line for making the AMP adjustment, with minor variations, we deem fit that, in the interest of justice and to bring a finality to the issue, the present appeal should be decided on merits of the matter rather than simply remanding the matter back to the TPO for a fresh consideration in light of the available judicial precedence's on the subject matter. Decision on merits would be both in the interest of the assessee as well as the revenue and would prevent precious judicial time. It has been informed that inspite of repeated remands nothing much has been achieved except the same issue being raised in the remand orders and the matter travelling back to the Tribunal in the same or a minor altered form. 14. In support of this contention that matter in this case should not be remanded back, the Ld. Counsel cited various decisions and also filed a case-law compilation. Primary reliance was placed upon the decision of the Delhi High Court in the case of PepsiCo India Holding Pvt. Ltd: ITA No. 100/2017. In that case too, the issue regarding AMP adjustment had been restored back to the file of the Transfer Pricing Officer for re-examinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that para 3 of the agreement provides for extensive support in marketing activity by the AE through its specialized brand teams. The TPO then referred to Para 10 of the Agreement and concluded that the assessee was found to be entitled for compensation in lieu of advertising expenses, but, not upon the termination of the agreement. The TPO alleged that the assessee company had 11 incurred huge amount of AMP expenses in respect of the brands manufactured by it, however, these brands were entirely owned by the AE. The TPO further observed that under the agreement, the assessee had been mandated "to actively advertise and sell in the territory the products manufactured by them" which showed that the AMP activities were actively supervised and dictated by the AE. Control and supervision over marketing activities was also alleged basis the fact that all the group companies were availing services from the same Advertisement agency, viz., Mcann and Ogilvy and Mather, across various jurisdictions. The TPO further alleged that in para 11 of the Trademark agreement, the AE itself recognized that due to AMP functions and activities being performed by the assessee, there was a generation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted an adjustment applying the BLT, the TPO did not stop there and proceeded to work out the transfer pricing adjustment towards AMP expenses on a substantive basis by using the Residual Profit Split Method (RPSM). He drew our attention to para 6 of the TPO's order where the so called substantive adjustment has been made. He further submitted that in para 6.7, the TPO laid bare his understanding and noted "that since the legal and economic ownership of the brand and the marketing intangibles lied with the AE, the non-routine AMP expenses had been incurred only for the benefit of the parent AE. However, super normal profits that are being earned in India on this account are being retained by the Assessee. 18. He submitted that the underlying tone even while making the substantive adjustment was to determine the non-routine AMP expenses which are evidenced by the methodology adopted by him in para 6.9, 6.10 and 6.11 of his order. The Ld. Counsel specifically drew our attention to the computation drawn up in para 10.4.8 of the TPO's order, where the TPO first determined a comparable operating margin at 4.36%. Thereafter, he calculated the non-routine AMP expenses at ₹ 173.70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional transaction' could be said to be involved with respect to such AMP expenditure incurred by the domestic enterprise, which may be covered within the provisions of Transfer Pricing regulations. Further it was reiterated that payment for advertisement, marketing and sales promotion was made by the assessee company (which is a tax resident of India) to other Indian third parties. 21. The Ld. Counsel for the assessee submitted that the twin requirements of section 92B did not exist in the present case i.e. the transaction involved was between Indian parties and no foreign party was involved and the transaction of AMP expenses did not take place between two AEs. 22. Thereafter, Mr. Chopra invited our attention towards the decisions of the Hon'ble High Court of Delhi in this regard. He submitted that the Hon'ble High Court had held that the onus was upon the Revenue to demonstrate that there existed an arrangement between the assessee and its AE under which assessee was obliged to incur excess of amount of AMP expenses to promote the brands owned by AE. He submitted that the TPO had heavily relied upon clause 9 in the Trademark, Technology & Know-how License Agreement dated 1.4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motion. In other words, for both the 'means' part and the 'includes' part of Section 92B (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." 24. The Ld. Counsel also placed reliance on few other decision of the Hon'ble High Court of Delhi that have upheld the same proposition: Whirlpool of India Ltd vs. DCIT [2016] 381 ITR 154; Bausch & Lomb Eyecare (India) Pvt Ltd vs. ACIT [2016] 381 ITR 227; Honda Siel Power Products Ltd vs. DCIT [2016] 283 CTR 322. 25. The Ld. Counsel also referred to the Transfer Pricing Study report and catena of other decisions in support of his argument that incurring of AMP expenses by the assessee company did not fall within the ambit and definition of "international transaction" within the meaning of section 92B of the Act. He submitted that the AMP expenditure was incurred by the Assessee to promote the sales of its products in India. He also stated that the Assessee is a full-fledged risk bearing manufacturer and is solely responsible for its functions /activities and related returns. He explained that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on regular basis. The marketing team at Perfetti India decides the mix to be used for promotional activities. Perfetti India offers discounts and rebates to third party distributors to promote the products. The costs for offering such schemes/offers to distributors are borne by the Company. Perfetti India earns the benefits from enhanced sales arising from the exploitation of intangibles. Perfetti India does not incur "excessive" AMP expenditure at the behest of the brand-owning AEs. It also assumes all the business risks. As can be seen from Perfetti India's financial performance, its return has not been that of a distributor. The fluctuation in its income over the years demonstrates that it bore the risk as an entrepreneur. It also demonstrates that it earned the residual income over the years. Moreover, Perfetti India's international transactions with AEs are relatively small as compared to its turnover and the imports for the year under consideration, i.e., AY 2016-17, is only 2.73% of its turnover. This also indicates that its risk could not have been reduced by the AEs through transfer pricing. 26. Mr. Chopra also elaborately referred to the Trademarks Technology and Knowhow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sement and promotion of the products and in solving any technological or commercial problem that may arise during the manufacturing and sales of the products. 28. He again referred to clause 9 of the said Agreement which provides that in connection to the products, the licensee undertook to use only raw material, labels, packaging materials and advertising materials specifically approved in the writing by PVM Blx and PVM Holding or as generally approved by PVM Blx or PVM Holding. He submitted that this clause has been misconstrued by the Revenue since in terms of the best practices and to confirm to the brand guardrails of the owners of the trademark and technology, the advertising materials and packing etc. have to be approved. This he submitted does not lead to any inference that there was any "arrangement" between the parties so as to constitute an international transaction in term of Section 92B of the Act. 29. Mr. Chopra then referred to clause 10 of the Agreement where it has been provided that the licensee will actively advertise and sell in the territory the products manufactured by them. The clause further provides that no compensation would be provided to the licensee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Perfetti Bangladesh and Perfetti Sri Lanka respectively and not by the assessee. The advertisement content across all jurisdictions has to confirm to the brand guardrails set by the brand owning entity and the slogan might have been similar as the content developed by assessee had met the brand guardrails. In any case, the assessee company has already reaped the benefits of the advertisement expenditure incurred by it during the year as it had earned super-normal profits during the year. 32. At this juncture he referred to a coordinate Bench decision in the case of Pepsi Foods Pvt. Ltd. v. ACIT (ITA No. 1334/Chd/2010) (judgment dated 19.11.2018) where in Para 55 of the said judgement, the Tribunal considered and adjudicated on a similar aspect of the matter where the advertising campaign and the materials were subjected to approval by the parent AE. There the Tribunal while following another coordinate Bench decision in the case of Goodyear (supra) held that a review of the advertising material by the AE to confirm to the broad advertising guard rails does not constitute an arrangement or a direction by the AE to incur AMP expenses on its behalf. 33. That apart, as regard the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el (DRP). He drew our attention to the directions issued by the DRP dated 27.1.2021 in this regard. He also drew our attention to para's 3.1.3.5 and 3.1.3.6 (on page 7 of such directions) where the DRP, without any basis had classified the assessee as a "distributor". The DRP specifically notes that "the assessee is in the business of distributing as well as marketing the products of its parent company". Further, the DRP also erroneously notes that the "contention of the assessee that it is a mere distributor of the product of the AE without any value addition is not acceptable as the assessee is not distributor or reseller of products". The Ld. Counsel submitted that the conclusions of the DRP were wholly flawed and apparently it seems that the findings have been copy pasted from some other matter. He also submitted that apart from this callous approach, the DRP also failed to appreciate that the assessee was a full risk bearing manufacturer, which fact was not even denied by the TPO. In fact, in the TPO's order dated 28.10.2019, in para 2 itself it is noted that the assessee is engaged in the business of manufacturing and selling of confectionary products. He submitted that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the approach of the TPO in applying the profit spit method is completely inconsistent with Rule 10B of the Rules. 39. The Ld. CIT DR, Ms. Meera Shrivastava, in opposition and to counter the submissions made on behalf of the assessee, relied on the order of the TPO and DRP and specifically referred to Paras 4.1, 2.2, 2.4 to 2.15 of TPO's order to allege an arrangement between the assessee and its AE's. 40. The ld. DR also relied on the judgment of the Hon'ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del) in which AMP expenses have been held to be an international transaction and the matter of determination of its ALP has been restored. It was submitted that there is no blanket rule of the AMP expenses as a noninternational transaction. She further stated that the Hon'ble High Court in Whirlpool (supra) has made certain observations, which should be properly weighed for ascertaining if an international transaction of AMP expenses exists. It was argued that the Tribunal in the preceding years has restored the issue to the file of TPO to be decided afresh in the light of the judgment of the Hon'ble Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the order of the TPO to substantiate her argument that there existed an arrangement between the assessee and its AEs. She also referred to clause 10 of the said Agreement and the conclusion of the TPO that the assessee was entitled to compensation in respect of the AMP expenses. 42. That apart, the DR also submitted that the primary approach of the TPO was BLT and since the Revenue was in appeal on the applicability of BLT, before the Supreme Court, such approach should be upheld by the Tribunal in view of the Special Bench decision in the case of LG Electronics. 43. In his rejoinder, the Ld. Counsel for the assessee briefly reiterated her contentions and opposed a remand given that inspite of multiple remands by the Tribunal, the basic approach of the Revenue is still centred in the applicability of the BLT. He further submitted that given the judgement of the Delhi High Court in the case of Sony Mobile (Supra) the Special Bench decision to that extent stands overruled. He also submitted that there was no stay of the decision of operation of the decision of the Delhi High Court on this issue. Thus, he prayed that the decision of Pepsi Foods be followed and the transfer pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed out that the BLT has been applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and (b) to make a quantitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Ericsson Mobile Communications India (P.) Ltd. (supra) having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses, the very basis of the Revenue's case is negated." 45. In view of the above passage, the Ld. Counsel for the assessee submitted that Sony Ericsson Mobile Communication India Pvt. Ltd. (supra) was specifically a case of distributor and there was no dispute as far as existence of international transaction was concerned. However, in the present case, it was submitted that the very issue of existence of international transaction pertaining to incurring of AMP expenses was in dispute and hence reliance on Sony Ericsson on this count was completely misplaced by the Ld. DR. He also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the market penetration of these brands which needs to be compensated to the assessee for the same by the AE. The manner in which he has made the adjustment, we have already discussed in detail in the foregoing paragraphs as highlighted by both the parties. 47. Coming to the issue whether the incurrring of AMP expenses in the present case can be reckoned as 'international transaction', as defined in Section 92B of the Act. The relevant Section for the sake of ready reference is reproduced as under: "Section 92B - Meaning of international transaction: "(1) For the purposes 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so explained by the ld. Counsel that the entire expenditure of AMP was only to cater to the needs of the customer in the local market of India. It was neither incurred at the instance or behest of overseas AE, nor was there any mutual agreement or understanding or arrangement to the allocation or contribution by the AE towards remuneration of any part of AMP expenditure incurred by the assessee-company for the purpose of its business in India. The entire risk of profit and loss from sales or for incurring of AMP expenses solely lied upon the assessee-company. At the threshold we do not find that there was any such understanding or arrangement or action in concert, etc, which can be inferred that AMP expense would tantamount to international transaction in the present case. The AMP expense was made by the assesseecompany which is a tax resident of India to other third parties in India and no foreign party was involved and neither AMP expenses has taken place between two AEs. It is well settled law that, onus is upon the Revenue to demonstrate that their existed an arrangement between assessee and its AE wherein assessee was obliged to incur excess amount of AMP expenses and to promo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is developed by the assessee in India only after the study of market and survey etc. any profit or loss on a launch of any product or increase or dip in sale is owned by the Indian entity. 53. Further, nowhere from the agreement or any arrangement it can be inferred that assessee is incurring any expenditure to promote the Perfetti brand or product which are not sold in India. In this aspect, the detail submission made by the ld. Counsel ss incorporated above in the foregoing paragraph which is unrebutted. This explains that there is no correlation of incurring of AMP expenditure of any kind, for which any benefit is being derived by the AE by incurring such of expenditure by Assessee Company. In case of full risk bearing entrepreneur the entire responsibility of sales and profitability or loss is on the Indian entity. 54. In so far as reference made by the TPO to the 'Trademarks Technology License and Knowhow Agreement', it has been already discussed in detail in the argument of the ld. Counsel in the foregoing paragraphs that; the clause (1), clause (3) and clause (4) of the agreement referred to providing certain kind of support relating to trademark, design, etc; using ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or direction by the AE for incurring the AMP expenses on its behalf. 56. Another reasoning given by the ld. TPO to justify that AMP expenditure and international transaction is that at least two brand developments as discussed by him in paragraphs 6.1 to 6.6. This issue has been discussed by the Hon'ble Jurisdictional High Court in detail in the case of Sony Ericsson Mobile Communication vs. CIT (supra) which for the sake of ready reference is reproduced hereunder: - "Brand and brand building 102. We begin our discussion with reference to elucidation on the concept of brand and brand building in the minority decision in the case of L. G. Electronics India Pvt Ltd. (supra). The term "brand", it holds, refers to name, term, design, symbol or any other feature that identifies one seller's goods or services as distinct from those of others. The word "brand" is derived from the word "brand" of Old Norse language and represented an identification mark on the products by burning a part. Brand has been described as a duster of functional and emotional 103 It is a matter of perception and reputation as it reflects customers' experience and faith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t up into its component parts, to pare it down as the Commissioners desire to do until nothing is left but a dry residuum ingrained in the actual place where the business is carried on while everything else is in the all, seems to me to be as useful for practical purposes as it would be to resolve the human body into the various substances of which it is said to be composed. The goodwill of a business is one whole, and in a case like this it must be dealt with as such. For my part, I think that if there is one attribute common to all cases of goodwill it is the attribute of locality. For goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again ..." 104 "Brand" has reference to a name, trade mark or trade name. A brand like "goodwill", therefore, is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rand building as equivalent or substantial attribute of advertisement and' sale promotion would be largely incorrect. It represents a coordinated synergetic impact created by assort- merit largely representing reputation and quality. There are a good number of examples where brands have been built without incurring substantial advertisement or promotion expenses and also cases where in spite of extensive and large scale advertisements, brand values have not been created. Therefore, it would be erroneous and fallacious to treat brand building as counterpart or to commensurate brand with advertisement expenses. Brand building or creation is a vexed and complexed issue, surely not just related to advertisement. Advertisements may be the quickest and effective way to tell a brand story to a large audience but just that is not enough to create or build a brand. Market value of a brand would depend upon how many customers you have, which has reference to brand goodwill, compared to a baseline of an unknown brand. It is in this manner that the value of the brand or brand equity is calculated. Such calculations would be relevant when there is an attempt to sell or transfer the brand na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion finds recognition and was accepted in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC); [1981] 2 SCC 460, a relating transfer to goodwill. Goodwill, it was held, was a capital asset and denotes benefits arising from connection and reputation. A variety of elements go into its making and the composition varies in different trades, different businesses in the same trade, as one element may pre-dominate one business, another element may dominate in another business. It remains substantial in form and nebulous in character. In progressing business, brand value or goodwill will show progressive increase but in falling business, it may vain. Thus, its value fluctuates from one moment to another, depending upon reputation and everything else relating to business, personality, business rectitude of the owners, impact of contemporary market reputation, etc. Importantly, there can be no account in value of the factors producing it and it is impossible to predicate the moment of its birth for it comes silently into the world unheralded and unproclaimed. Its benefit and impact need not be visibly felt for some time. Imperceptible at birth, it exits unwrapped in a concept, growing or fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial AMP expenses would lead to difficulty and unforeseen tax implications and complications. Tata, Hero, Mahindra, TVS, Baja], Godrej, Videocon group and several others are both manufacturers and owners of intangible property in the form of brand names. They incur substantial AMP expenditure. If we apply the "bright line test" with reference to indicators mentioned in paragraph 17.4 as well as the ratio expounded by the majority judgment in L. G. Electronics India Pvt Ltd.'s case (supra) in paragraph 17.6 to bifurcate and segregate the AMP expenses towards brand building and creation, the results would be startling and unacceptable. The same is the situation in case we apply the parameters and the "bright line test" in terms of paragraph 17.4 or as per the contention of the Revenue, i.e., AMP expenses incurred by a distributor who does not have any right in the intangible brand value and the product being marketed by him. This would be unrealistic and impracticable, if not delusive and misleading (aforesaid reputed Indian companies, it is patent, are not to be treated as comparables with the assessee, i.e., the tested parties in these appeals, for the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to only increase the sale and thereby earning greater profits. It is also not the case here that foreign AE is in the business of sale/transfer of brands. Their Lordships have also referred to Accounting Standard 26 which provides for computation of goodwill and brand equal value at a point of time but not its future valuation or how such an intangible asset will generate probable future benefit. Because, the value of Brand fluctuates from time to time depending upon reputation and other factors. Reputation of a brand only enhances the sale and profitability and here in this case is only benefitting the assessee company when marketing its products using the trade mark and the brand of AE. Even otherwise also, the value of the brand which has been created in India by the assessee company will only be relevant when at some point of time the foreign AE decides to sell the brand, and then perhaps that would be the time when brand value will have some significance and relevance. But to make any transfer pricing adjustment simply on the ground that assessee has spent advertisement, marketing expenditure which is benefitting the brand/trademark of the AE would not be correct approach. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red. In case, the brand was manufactured by both the eligible as well non-eligible unit, the expense was allocated on the basis of individual brand sales ratio, i.e., ratio of "unit wise sales value of brand or product upon total sales value of brand". Common expenses, which were not directly identifiable with any of the brand /unit were allocated between the eligible unit and non-eligible unit on the basis of turnover ratio, i.e., ratio of "total sales of eligible unit upon total sales of PVM India". The said ratio, for the year under consideration, was worked out to be 51.26: 48.74 and all the common expenses which were not directly identifiable with any of the brand / unit were allocated to the eligible unit in this ratio. The Assessing Officer, however, rejected the allocation of expenses carried out by the assessee whilst following the ratio laid down in the CIT(A)'s order for AY 2009-10. In that year, the CIT (A) had re-computed the turnover ratio after excluding excise duty from sales of non-eligible units. Following the findings given by the CIT(A) in AY 2009-10, the AO recomputed the turnover ratio for the year under consideration at 52.97 : 47.03 and accordingly, disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from other expenses. Excise duty arises as a consequence of manufacture of excisable goods irrespective of the manner of use/disposal of goods thereafter, e.g., sale, destruction and captive consumption. It does not cease to be a levy merely because the same may be remitted by appropriate authority in case of destruction or exempted in case goods are used for further manufacture of excisable goods in the factory. Tax (other than a tax on income or sale) payable by a manufacturer is as much a cost of manufacture as any other expenditure incurred by him and it does not cease to be an expenditure merely because it is an exaction or a levy or because it is unavoidable. In fact, in a wider context, any expenditure is an imposition which a manufacturer would like to minimise." 66. In view thereof, the Ld. AR submitted that the excise duty paid is an expense against the sale value and hence, should not be reduced from sales to arrive at correct allocation ratio. In addition thereto, it was also pointed out by the Ld. AR, that in assessee's own case for AY 2011-12, the AO had accepted the deduction claimed by the assessee and had not objected to the inclusion of excise duty in the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses between the eligible and non-eligible units was accordingly, worked out as under:- S.No. Advertising Expenses Total Expenses Eligible Unit Non-Eligible Unit Advertising Expenses directly identifiable to Eligible Unit 4,99,08,629 4,99,08,629 - Advertising Expenses directly identifiable to Non- Eligible Unit 58,00,96,923 - 58,00,96,923 Advertising Expenses specifically identifiable (A) 63,00,05,552 4,99,08,629 58,00,96,923 Advertising Expenses allocated on the basis of individual brand sales ratio 35,68,39,196 31,13,61,383 4,54,77,813 Advertising Expenses allocated on the basis of turnover ratio 16,87,25,668 8,64,95,701 8,22,29,967 Common allocable advertising expenses (B) 52,55,64,865 Total (A+B) 115,55,70,416 44,77,65,713 70,78,04,703 68. Basis the aforesaid working, it was contended by the Ld. AR that instead of ₹ 110,56,61,711/-, an amount of ₹ 52,55,64,865/- should have been considered as the common unallocable advertisement expenses. 69. Without prejudice to above, he also submitted that the AO has erred in making 100% disallowance of common overhead expenses allocated to the non-eligible unit without considering the fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses have been allocated in "Chart B" on a brand wise basis. What is noteworthy that while allocating these expenses brand wise between the eligible and noneligible units based on the actual manufacture in these units, the advertising expenses have been allocated by the assessee. This methodology was brought to the attention of AO by way of its letter dated 28.11.2019 which is annexed at pages 511 to 520 of the paper book. This has not been disputed by the AO. We find that after these actual allocations only an amount of ₹ 52,55,64,865/- are left to be allocated between the eligible and non-eligible units, which brings us to the second issue. 74. The second issue which required our consideration is whether the lower authorities were correct in reducing the element of excise duty from the total sales turnover of the ineligible unit so as to determine the ratio of allocation between the eligible and non-eligible units. The assessee while allocating the un allocable common expenses, which were not identifiable to any brand or unit, allocated such expenses on the basis of turnover ratios, i.e. ratios of total sales of eligible unit upon total sales of PVM India. The said ratio fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a case relating to the deduction under section 80HHC and the issue involved was regarding the computation of the eligible profits. The issue which was considered by the Supreme Court was regarding the interpretation of the term "total turnover" in the formulae contained in Section 80HHC(3) and whether excise duty and sales tax could form part of the total turnover being the denominator in the said formulae. It was in that context the Supreme Court observed that for the purposes of computing deduction under section 80HHC, excise duty and sales tax should not be considered as part of the total turnover since they have no bearing on the activity of exports and would make the formulae unworkable. Thus, in our view, respectfully this decision has no bearing on the matter. 77. We find support in the order of the coordinate Bench in the case of Indica Industries Pvt. Ltd. v. ACIT, (2018 53 CCH 0516(Delhi)), where it has been held that where the assessee adopted a reasonable basis for allocation of expenses, there was no warrant for interference to change such basis. Another coordinate Bench in the case of Mahle Filter System Pvt. Ltd. v. ACIT, (2019 56 CCH 0226(Delhi)) has also acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional ground before us seeking allowability of the education cess paid by it, for the captioned assessment year. It was argued that being a legal ground can be taken up at any time before the higher authorities. The Ld. AR relied on the judgment of the Hon'ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT : (1998) 229 ITR 383. Admission of additional ground has been opposed in principle by the Ld. DR. 82. Before us, ld. Counsel has relied upon the decision of Coordinate Bench in the case of M/s. Expeditors International (India) Pvt. Ltd vs. DCIT, in ITA No. 2242/Del/2015 vide order dated 30.07.2021 wherein similar additional ground was admitted and matter was decided in favour of the assessee. 83. Since it is purely a legal ground, therefore, same is being admitted hereinafter. 84. The claim of the assessee is that education cess is an allowable business expenditure and it is not hit by the Section 40(a)(ii) which for the sake of ready reference is reproduced hereunder: "Amounts not deductible, - Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head 'P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 2 of the Finance (No. 2) Bill, 2004 and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the "Education Cess on Income-tax" so as to fulfil the commitment of Government to provide and finance universalised quality basic education, calculated at the rate of two per cent, of such income-tax and surcharge. The Education Cess on Income-tax shall be payable during the previous year beginning on 1st April, 2004." 87. The memorandum explaining the provisions of the Finance Bill provides as Under:- II. Rates for deduction of income-tax at source during the financial year 2004-05 from income other than "Salaries" An additional surcharge, to be called the Education Cess to finance the Government's commitment to universalise quality basic education, is proposed to be levied at the rate of two per cent on the amount of tax deducted or advance tax paid, inclusive of surcharge. III. Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-tax in sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, way back the Hon'ble Supreme Court in the year 1967 in the case of Shinde Brothers, (AIR 1967 SC 1512) held that it is a tax only. The relevant observation of the Hon'ble Apex court is as under: "the word 'cess' is used in Ireland and is still in use in the India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which it is an increment." 90. The aforesaid principle of the Hon'ble Supreme Court has been referred in India Cement India Ltd. Vs. State of Tamil Nadu (1990) 1 SCC 12; wherein the Hon'ble Supreme Court after referring to the judgment in the case of Shinde Brothers (supra) held that ordinarily a cess is also a tax, but is a special kind of a tax. Further, in Union of India v. Mohit Mineral (P) Ltd. [TS512-SC-2018-NT], the Supreme Court held that the expression "cess" means a tax levied for some special purpose, which may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , income tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (including provisions for the levy of additional income tax) of, this Act] in respect the total income of the previous year of every person." Section 4 is the charging section fixes "rate of tax" for a previous year and enacts various amendments, omissions and insertions in the Income tax Act. Without the Finance Act there cannot be any taxation of income in a prescribed manner and imposition of tax. Section 294 of the Act provides that if on April 1, in any year, the new Finance Bill has yet not been placed on the statute book, the provision in force in the preceding year or the provision proposed in the Bill, then before the Parliament, whichever is more favourable to the assessee, shall apply until the new provision becomes effective. This clearly indicates that Income tax Act is part of the Finance Act and cannot operate in isolation of the Finance Act. The Finance Act provides the "rate of tax" according to which income-tax is levied on the total income of any previous year. Chapter II, section 2 of the Finance Act which provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, it was held that surcharge and education cess is nothing other than income tax. 95. However, the above CBDT Circular of 1967 has been referred and relied upon by the Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. vs. JCIT, as reported in 107 taxmann.com 484 (Raj) and held that in view of the said CBDT circular, the cess is not disallowable u/s. 40(a)(ii) and hence the assessee's claim that education cess is an allowable expenditure was upheld. Subsequently, in a very detailed judgment of Hon'ble Bombay High Court in the case of Sesa Goa Ltd. Vs. JCIT, reported in 423 ITR 426 has dealt this issue as under: "Therefore, the substantial questions of law Nos.(i) and (ii) framed in Tax Appeal No. 17 of 2013 are hereby answered in favour of the Appellant - Assessee and against the Respondent-Revenue. To that extent, the view taken by the ITAT in its impugned judgment and order dated 17th May, 2013 is ordered to be modified. 15. The substantial question of law No. (iii) in Tax Appeal No. 17 of 2013 and the only substantial question of law in Tax Appeal No. 18 of 2013 is one and the same namely, 'whether Education Cess and Higher and Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se matters, is to read the words through and see if the rule is clearly stated. If the language employed gives the rule in words of sufficient clarity and precision, nothing more requires to be done. Indeed, in such a case the task of interpretation can hardly be said to arise : Absoluta sententia expositore non indiget. The language used by the Legislature best declares its intention and must be accepted as decisive of it. 19. Besides, when it comes to interpretation of the IT Act, it is well established that no tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden on him. The subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit of the law cannot be availed of by the department. [See CIT v. Motors & General Stores [1967] 66 ITR 692 (SC)]. 20. In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, into the provisions which has not been provided by the legislature [See CIT v. Radhe Developers [2012] 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains" 25. However, when the matter came up before the Select Committee of the Parliament, it was decided to omit the word "cess" from the aforesaid clause from the Income-tax Bill, 1961. The effect of the omission of the word "cess" is that only any rate or tax levied on the profits or gains of any business or profession are to be deducted in computing the income chargeable under the head "profits and gains of business or profession". Since the deletion of expression "cess" from the Income-tax Bill, 1961. was deliberate, there is no question of reintroducing this expression in Section 40(a)(ii) of IT Act and that too, under the guise of interpretation of taxing statute. 26. In fact, in the aforesaid precise regard, reference can usefully be made to the Circular No. F. No. 91/58/66-ITJ(19), dated 18th May, 1967 issued by the CBDT which reads as follows :- "Interpretation of provision of Section 40(a)(ii) of IT Act, 1961 - Clarification regarding.- "Recently a case has come to the notice of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to business, is allowable as deductable expenditure. 29. In Kanga and Palkhivala's "The Law and Practice of Income Tax" (Tenth Edition), several decisions have been analyzed in the context of provisions of Section 40(a)(z7) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT v. Gurupada Dutta [1946] 14 ITR 100 (PC), where a union rate was imposed under a Village Self Government Act upon the assessee as the owner or occupier of business premises, and the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd. v. CIT 1971 [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section could not be disallowed under this sub-cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, has reasoned that since "cess" is collected as a part of the income tax and fringe benefit tax, therefore, such "cess" is to be construed as "tax". According to us, there is no scope for such implications, when construing a taxing statute. Even, though, "cess" may be collected as a part of income tax, that does not render such "cess", either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(//) of the IT Act. The mode of collection, is really not determinative in such matters. 34. Ms. Linhares, has relied upon Unicorn Industries v. Union of India [2019] 112 taxmann.com 127 (SC) in support of her contention that "cess" is nothing but "tax" and therefore, there is no question of deduction of amounts paid towards "cess" when it comes to computation of income chargeable under the head profits or gains of any business or profession. 35. The issue involved in Unicorn Industries {supra) was not in the context of provisions in Section 40(a)(i7) of the IT Act. Rather, the issue involved was whether the 'education cess, higher education cess and National Calamity Contingent D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant - Assessee file any revised return of income, according to us, this was no bar to the Commissioner (Appeals) or the ITAT to consider and allow such deductions to the Appellant - Assessee in the facts and circumstances of the present case. The record bears out that such deduction was clearly claimed by the Appellant - Assessee, both before the Commissioner (Appeals) as well as the ITAT. 39. In CIT v. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 349 1TR 336/208 Taxman 498/23 taxmann.com 23 (Bom), one of the questions of law which came to be framed was whether on the facts and circumstances of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze {supra) and urged that the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze {supra) had no power, proceeded to hold that the Appellate Authority under the IT Act had sufficient powers to permit such a deduction. In taking this view, the Division Bench relied ..... 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