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TMI Blog2019 (12) TMI 1621X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 ("the Act"), pursuant to the directions of the Hon'ble Dispute Resolution Panel ("Hon'ble DRP") dated November 16, 2015, is bad in law and on the facts and circumstances of the case. 2. The Ld. AO and the Hon'ble DRP have erred in disallowing advertisement expenses of Rs.6,64,24,161 incurred by the appellant, under Section 37(1) of the Act. 3. The Ld. AO has committed certain errors while computing the tax demand of Rs.5,08,83,820 against the appellant, and in the computation of interest under Section 234B and Section 234C of the Act." 2. The Appellant, DCIT, Circle 17 (1), New Delhi (hereinafter referred to as 'the Revenue') by filing the present appeal sought to set aside the impugned order dated 30.12.2015 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Act qua the assessment year 2011-12 on the grounds inter alia that :- "1. Whether in the facts and circumstances of the case and in law the Ld DRP was right in rejecting comparables accepted by TPO of 'IFB Agro Industry Ltd.' ignoring the fact that it is a good comparable being a part of wine and spirit industry which fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action Method used by assessee Amount MHIPL's Operating Margin/Sales Method PLI 1 Import of finished goods TNMM OP/Sales 30,04,27,894 12.77% 2 Sale of finished goods 1,47,87,279 3 Reimbursement of expenses (paid) CUP 1,04,40,381 - 4 Recovery of expenses (Received) CUP 26,19,766 5 Purchases of assets 3,50,419 Total 32,86,25,739 4, TPO noticed that the taxpayer has incurred huge Advertising, Marketing and Promotion (AMP) expenditure with objective of expanding the reach of the AE brand in India as AE is the legal owner of the brand. TPO also noticed that the AE has thereby created marketing intangibles in favour of the AE. 5. TPO in the backdrop of aforesaid facts and circumstances proceeded to issue a show-cause notice proposing to determine the arm's length price of international transaction of promoting the brand name by the taxpayer by using the Bright Line Test (BLT). TPO compared the AMP expenditure of the taxpayer vis-à-vis AMP expenditure of the comparable companies engaged in the distribution business using AMP to sales ratio in order to benchmark the said transaction. 6. TPO in order to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture incurred by the taxpayer was also decided in favour of the taxpayer vide order dated 24.04.2019 in ITA Nos.5003/Del/2017 & 5004/Del/2017. It is also not in dispute that though the ld. DRP has discarded the BLT in determining the AMP expenses incurred by the taxpayer qua AMP expenditure but proceeded to confirm the addition entirely on the new ground that these expenses are to be disallowed u/s 37 (1) of the Act. 10. In the backdrop of the aforesaid facts and circumstances of the case, now the sole question arises for determination in this case is :- "as to whether ld. DRP have erred in disallowing the AMP expenses of Rs.6,64,24,161/- incurred by the taxpayer u/s 37(1) of the Act as it has no power to take up the new issue which has never been agitated/decided by the ld. TPO/AO?" 11. The ld. AR for the taxpayer further contended that the ld. DRP was not empowered to take up new issue for adjudication which has not been taken up by the AO in draft assessment order nor any objection has been filed by the taxpayer and relied upon section 144C(8) of the Act. For facility of reference, section 144C(8) is extracted as under :- "144C. (1) The Assessing Officer shall, notwithstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exploration (Norway) AS) vs. Addl. Director of Income-tax (2014) 50 taxmann.com 392 (Delhi-Trib.) held that, "DRP has no authority either to direct the AO/TPO to make further enquiry and to decide the matter and at the best, the DRP can call for the remand report from the Income-tax authority." 15. Similarly, coordinate Bench of the Tribunal in PGS Geophysical (supra) observed that, "in terms of section 144C (8), DRP does not have power to set aside any proposed variation or issue for further enquiry to the AO". 16. So, we are of the considered view that disallowance made by the AO u/s 37(1) of the Act pursuant to the directions issued by the DRP is not sustainable in the eyes of law. So, question framed is answered in affirmative. 17. Even on merit, it is the case of the taxpayer that AMP expenses having been incurred by the taxpayer in order to boost its sale/business in India were divided into two categories : (i) selling and distribution of expenses amounting to Rs.3,55,02,256 which includes expenses in the nature of distribution of Point of sales Material (POSM), free samples, gifts to dealers and retails, trade discounts, custom duty charged on POSM, warehousing charges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/displayed may not be of relevance or significance after lapse of time in a highly competitive market, wherein the products of different companies compete and are available in abundance. Advertisements and sales promotion are conducted to increase sale and their impact is limited and felt for a short duration. No permanent character or advantage is achieved and is palpable, unless special or specific factors are brought on record. Expenses for advertising consumer products generally are a part of the process of profit earning and not in the nature of capital outlay. The expenses in the present case were not incurred once and for all, but were a periodical expenses which had to be incurred continuously in view of the nature of the business. It was an on-going expense. Given the factual matrix, it is difficult to hold that the expenses were incurred for setting the profit earning machinery in motion or not for earning profits." 15. Similarly, again Hon'ble High Court of Delhi in case of Jubliant Foodworks (P.) Ltd. (supra) decided the identical issue in favour of the assessee by following the decision of Monto Motors Ltd. (supra). 16. When we examine the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case." 18. Hon'ble Gujarat High Court in case cited as DCIT vs. Core Healthcare Ltd. (2009) 308 ITR 263 (Gujarat) has held that, "even brand promotion expenses are revenue in nature, hence deductible u/s 37 (1) of the Act because such expenditure do not create any intangible interest and merely because of the fact that expenditure may bring some benefit of enduring nature to the assessee, that factor alone is not sufficient to treat the expenditure as capital expenditure. So, the advertisement expenses even to create the brand image is allowable as a revenue expenditure." 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no finding of facts by the AO/DRP as to how the Cable TV Act has been violated. Furthermore, when we examine ASCI code it is not a profit company u/s 25 of the Companies Act working as a self-regulatory body for protection of the interest of consumers and is not empowered to exercise any legislative powers under central or state statutes, so the violation of ASCI code, if any, is not prohibited by law. Moreover, AO/DRP have not brought on record to show as to how the taxpayer has violated ASCI code, rather proceeded on the basis of general observations. 22. Furthermore, there is not an iota of evidence on file to prove that the taxpayer has incurred expenditure to advertise its products on television or use minors to conduct its marketing activities and thus, the question of violating Cable Rules or ASCI Code does not arise, as is evident from the detail of expenditure given by the taxpayer at page 220 of the paper book. 23. Moreover, it is undisputed fact on record that the taxpayer has never availed of the services of cable networking and ASCI for incurring AMP expenses and this fact has been brought to the notice of ld. DRP vide letter dated 16.11.2015, available at pages ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in taxpayer's own case vide order dated 23.08.2018 in ITA No.1906/Del/2014 in AY 2009-10 by returning following findings :- "10. In the present case, no new facts have emerged and all the facts brought to record, during the course of the assessment proceedings, do not indicate legally sustainable basis for coming to the conclusion that there was an internal transaction in respect of AMP expenses incurred by the assessee. We are, therefore, of the considered view that the plea of the assessee, on the peculiar facts of this case, does indeed deserve to be upheld that there is no material on record to hold that there was an international transactions, in terms of the provisions of Section 92B, nor any material has been brought on record to even remotely suggest so and, therefore, that there is no good reason to remit the matter to the assessment stage for building a case afresh. Respectfully following the binding judicial precedents, we delete the impugned ALP adjustment which was made solely on the basis of bright line test. The plea of the learned counsel was indeed well taken and merits acceptance. The impugned ALP adjustment of Rs 6,64,70,841, accordingly, stands ..... X X X X Extracts X X X X X X X X Extracts X X X X
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