M/s. Adidas India Marketing (P) Ltd., Gurgaon V. ITO, New Delhi

ITA 1431/DEL/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7177 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 10-08-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 12-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Capital asset; Business income; Transfer pricing; Business expenditure; Principle of natural justice; International transaction; Deemed to accrue or arise in india; Set aside
• Section: 92C; 143(3); 133A; 234B; 32; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I - 1 , NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO .1431 /DEL/ 2015 ASSESSMENT YEAR: 2010 - 11 M/S. ADIDAS INDIA MARKETING (P.) LTD., 5 TH FLOOR, UNITECH COMMERCIAL TOWER - II, SECTOR - 45, BLOCK - B, GREENWOODS CITY, GURGAON VS. INCOME TAX OFFICER, WARD - 1(3), NEW DELHI PAN : AAACA5313P (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AJAY VOHRA, SR. ADV; MS. SHAILY GUPTA, CA; AND MR. RAMIT KATYAL, CA RESPONDENT BY SHRI SANJAY I. BARA, CIT(DR) ORDER PER O.P. KANT, A.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 02/02/2015 PASSED BY THE INCOME TAX O FFICER, WARD 1(3), RANGE - 1, NEW DELHI (HEREINAFTER WILL BE REFERRED AS THE ASSESSING OFFICER ) IN COMPLIANCE TO THE DIRECTIONS ISSUED BY THE LEARNED DISPUTE RESOLUTION P ANEL ( IN SHORT THE DRP ). THE GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL ARE REPRODUCED AS UNDER: DATE OF HEARING 02.07.2019 DATE OF PRONOUNCEMENT 29.07.2019 2 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. GENERAL: 1. THE IMPUGNED ORDER OF ASSESSMENT FRAMED BY THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS DRP ) UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME - TAX ACT, 1961 ( ACT ), IS BAD IN L AW, VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE AND VOID AB - INITIO. 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME - TAX ACT, 1961 ( THE ACT ) AT TOTAL INCOME OF RS.1,10,22,13,698, BEFORE SET - OFF OF BROUGHT FORWARD LOSSES, AS AGAINST LOSS OF RS. 12,61,25,995 RETURNED BY THE APPELLANT. TRANSFER PRICING ADJUSTMENT ON AMP EXPENSES: 2. THAT THE ASSESSING OFFICER ERRED ON F ACTS AND IN LAW IN MAKING ADDITION OF RS. 31,90,82,215 ON ACCOUNT OF ALLEGED DIFFERENCE IN THE ARM S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS RESULTING FROM THE ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENSES (HEREINAFTER REFERRED TO AS THE AMP EX PENSES ) INCURRED BY THE APPELLANT ON THE BASIS OF THE ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT. 2.1 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT EXPENDITURE ON ADVERTISEMENT AND BRAND PROMOTION, UNILATERALLY INCURRE D BY THE APPELLANT, COULD NOT BE REGARDED AS A TRANSACTION IN THE ABSENCE OF ANY UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE. 2.2 THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AMP EXPENSES, ETC., UNILATERALLY INCURRED BY THE APPELLANT IN INDIA COULD NOT BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AS PER SECTION 92B, IN THE ABSENCE OF ANY PROVED UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE, SO AS TO INVOKE THE PROVISIONS OF SECTION 92 OF THE ACT. 2.3 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT IN THE ABSENCE OF ANY UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE, THE ASSOCIATED ENTERPRISE WAS UNDER NO OBL IGATION TO REIMBURSE THE AMP EXPENSES INCURRED BY THE APPELLANT FOR SALE OF ITS PRODUCTS. 2.4 THE DRPTTPO ERRED ON FACTS AND IN LAW IN HOLDING THAT EXPENDITURE INCURRED BY THE APPELLANT WHICH INCIDENTALLY RESULTED IN BRAND BUILDING FOR THE FOREIGN AE, WAS A TRANSACTION OF CREATING AND IMPROVING MARKETING INTANGIBLES FOR AND ON BEHALF OF ITS FOREIGN AE AND FURTHER THAT SUCH A TRANSACTION WAS IN THE NATURE OF PROVISION OF A SERVICE BY THE APPELLANT TO THE AE. 3 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 2.5 THAT THE DRP ERRED ON FACTS AND IN LAW IN OB SERVING THAT THE ENTIRE IP RELATING TO MARKETING, I.E., CUSTOMER LIST, CONCEPTS, DESIGNS, CREATIVE THINKING, MUSIC, GRAPHICS, TV SPOTS, FILMS, ETC. ARE OWNED BY THE ASSOCIATED ENTERPRISE. 2.6 THAT THE DRP ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE EX PENDITURE ON AMP CREATES ADVERTISEMENT, WHICH CREATES LONG TERM ASSET, THE OWNERSHIP OF WHICH VESTS WITH THE TAXPAYER AND, THEREFORE, THE CONTENTION OF THE APPELLANT THAT SUCH AMP EXPENSES WERE INCURRED ON ITS OWN ACCOUNT, IS CONTRADICTED BY FACT. 2.7 THA T THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE APPELLANT WAS PERFORMING THE KEY PEOPLE/CRITICAL DECISION MAKING FUNCTIONS WITH REGARD TO ADVERTISEMENT AND MARKETING ACTIVITY, THE RISK RELATED TO SUCH ACTIVITY OUGHT TO HAVE BEEN BORNE BY THE APPLICANT. 2.8 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT IN THE TRANSACTIONS BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE, IT IS THE ASSOCIATED ENTERPRISE WHICH IS OPERATING AS AN ENTREPRENEUR. 2.9 THAT THE TPO ERRED ON F ACTS AND IN LAW IN RE - CHARACTERIZING THE APPELLANT AS A DISTRIBUTOR AND NOT AS A MANUFACTURER. 2.10 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT ADIDAS SALOMON GROUP OF AES ARE INTRICATELY ASSOCIATED WITH THE MANUFACTURING FUNCTION AND GOODS HAV E BEEN PURCHASED BY THE APPELLANT FROM CONTRACT MANUFACTURER AS PER THE SPECIFICATION PROVIDED BY THE AE AND HENCE THE APPELLANT COULD NOT BE REGARDED AS AN INDEPENDENT MANUFACTURER. 2.11 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT BETWEEN APPE LLANT AND THE ASSOCIATED ENTERPRISE, THE LATTER IS THE ENTREPRENEUR AND THE VITAL FUNCTION OF THE MARKETING SHOULD ACTUALLY BE CARRIED OUT BY THE ASSOCIATED ENTERPRISE, BEING THE ENTREPRENEUR, WHICH FUNCTION HAS BEEN ASSIGNED TO THE APPELLANT. 2.12 THAT T HE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT ADJUSTMENT ON ACCOUNT OF ALLEGEDLY EXCESS AMP EXPENSES IS UNWARRANTED IN THE CASE OF THE APPELLANT, A FULL RISK BEARING ENTREPRENEUR. 2.13 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN RE - CHARA CTERIZING THE APPELLANT, A FULL RISK BEARING ENTREPRENEUR, AS A LIMITED RISK SERVICE PROVIDER ENTITLED TO COST PLUS REMUNERATION FOR ITS MARKETING EFFORTS. 4 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 2.14 THAT TPO / DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SUCH A TRANSFER PRICING ADJU STMENT COULD NOT AT ALL BE MADE IN RESPECT OF AMP EXPENSES WHICH WERE FOUND TO CONSTITUTE LEGITIMATE, BONAFIDE AND DEDUCTIBLE BUSINESS EXPENDITURE AND THE APPELLANT WAS THE ECONOMIC OWNER OF THE BENEFIT OF SUCH EXPENSES. 2.15 THAT THE DRP ERRED ON FACTS A ND IN LAW IN HOLDING THAT THE MARKETING INTELLECTUAL PROPERTY SUCH AS CUSTOMER LIST ETC. IS OWNED BY THE ASSOCIATED ENTERPRISE, NOT APPRECIATING THAT BY VIRTUE OF AGREEMENTS ENTERED INTO WITH INDIAN DISTRIBUTORS, THE APPELLANT OWNS THE DISTRIBUTION NETWORK IN INDIA. 2.16 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE TPO HAS BROUGHT SUFFICIENT MATERIAL ON RECORD TO JUSTIFY THAT THE TAXPAYER HAD ENTERED INTO THE EXERCISE OF DEVELOPMENT OF MARKETING INTANGIBLES FOR ITS AE BY INCURRING OF EXPENDI TURE AS WELL AS BY APPLICATION OF SERVICES WITHOUT BEING SUITABLY COMPENSATED . 2.17 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT FALL IN THE GROSS PROFIT MARGIN OF THE APPELLANT SHOWS THAT THE AMP EXPENDITURE IS INCURRED FOR THE BENEFIT OF THE ASSOCIATED ENTERPRISE AND NOT THE APPELLANT. 2.18 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE HUGE AMP EXPENDITURE INCURRED BY THE TAXPAYER IS NOT BENEFITTING IT IN TERMS OF GP OR NP AND IS FOR THE BENEFIT OF THE AES. 2.19 THAT THE DRP ERR ED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT IS NOT OPERATING AS AN INDEPENDENT MANUFACTURER. 2.20 THAT THE DRP ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE AE OF THE APPELLANT WAS INVOLVED IN FORMULATION OF AMP POLICY BY WAY OF ITS ASSOCIATION AT EVERY STAGE OF FORMULATION OF MARKETING STRATEGY AND THE AVERMENT OF THE APPELLANT THAT MARKETING EXERCISE CARRIED OUT BY IT IS INDEPENDENT OF THE AE, WAS INCORRECT. 2.21 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSOCIATED ENTERPRISE IS INVOLVED IN FORMULATION OF AMP POLICY OF THE APPELLANT, NOT APPRECIATING THAT SUCH INVOLVEMENT OF THE ASSOCIATED ENTERPRISE IS ONLY IN THE NATURE OF ASSISTANCE PROVIDED BY THE ASSOCIATED ENTERPRISE AND THE ULTIMATE DISCRETION RESTS WITH THE APPELLANT. 2.22 THAT THE DRP ERRED ON FACTS AND IN LAW IN REFERRING TO THE LICENSE AGREEMENT AND INFERRING THAT THE APPELLANT IS CARRYING THE MARKETING ACTIVITY AT THE BEHEST OF THE ASSOCIATED ENTERPRISE, NOT APPRECIATING THAT THE TERMS OF THE LICENSE AGREEMENT WERE COMPARABLE WITH THIRD PARTY AGREEMENTS ENTERED INTO BY THE ASSOCIATED ENTERPRISE. 5 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 2.23 THAT THE DRP ERRED ON FACTS AND IN LAW IN DRAWING UNWARRANTED INFERENCES FROM THE LOSS INCURRED BY THE APPELLANT WITHOUT SUBSTANTIATING AS TO HOW SUCH LOSSES RESULTED IN BENEFIT TO THE ASSOCIATED ENTERPRISE. 2.24 THAT THE DRP ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADJUSTMENT MADE BY THE TPO WITH REGARD TO THE AMP EXPENSES HOLDING THAT (I) NO INDEPENDENT PERSON, WOULD FOREGO THE COMPENSATION FOR THE ADDITIONAL MARK ETING ACTIVITIES UNDERTAKEN BY THE APPELLANT, (II) THE AE NEEDS TO COMPENSATE THE APPELLANT AS IT HAD BEEN FOUND THAT THE APPELLANT HAD INCURRED EXCESSIVE AMP EXPENSES, AND DEVELOPMENT AND PROMOTION OF A BRAND IN INDIA DIRECTLY BENEFITTED THE AE ALSO. 2.2 5 THAT THE ASSESSING OFFICER/ TPO ERRED ON FACTS AND IN LAW IN REJECTING THE TRANSACTION BY TRANSACTION ANALYSIS UNDERTAKEN BY THE APPELLANT WHEREIN CLOSELY LINKED TRANSACTIONS WERE BENCHMARKED TOGETHER AND INSTEAD SEGREGATING CLOSELY LINKED TRANSACTIONS F OR THE PURPOSE OF BENCHMARKING. 2.26 WITHOUT PREJUDICE THAT THE DRP/TPO ERRED ON FACTS AND IN LAW, IN NOT APPRECIATING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT WAS APPROPRIATELY ESTABLISHED TO BE AT ARM S LENGTH APPLYING TNMM. 2.27 THAT THE TPO/DR P ERRED ON FACTS AND IN LAW IN HOLDING THAT AT THE TIME OF INTRODUCTION IN THE INDIAN MARKET, THE ADIDAS BRAND HAD NO VALUE IN INDIA. 2.28 THAT THE ASSESSING OFFICER / TPO ERRED ON FACTS AND IN LAW IN MAKING TRANSFER PRICING ADJUSTMENT IN RESPECT OF AMP E XPENSES WITHOUT APPLYING ANY OF THE METHOD PRESCRIBED UNDER SECTION 92C OF THE ACT. 2.29 THE DISPUTE RESOLUTION PANEL (DRP)/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ONLY TRANSFER PRICING ADJUSTMENT PERMITTED BY CHAPTER X OF THE ACT WAS I N RESPECT OF THE DIFFERENCE BETWEEN THE ARM S LENGTH PRICE (ALP) AND THE CONTRACT OR DECLARED PRICE, BUT THE SAID PROVISION COULD NOT BE INVOKED TO DETERMINE THE QUANTUM / EXTENT OF BUSINESS EXPENDITURE. 2.30 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE POWER OF THE TPO IS RESTRICTED TO THE DETERMINATION OF ARM S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS BY APPLYING ONE OF THE PRESCRIBED METHOD AS THE MOST APPROPRIATE METHOD AND NOT TO MAKE DISALLOWANCE OF BUSINESS EXPENSES INCURRED BY THE APPELLANT. 6 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 2.31 THE DRP/TPO ERRED ON FACTS AND IN LAW IN APPLYING BRIGHT LINE TEST ( BLT ) FOR COMPUTING ADJUSTMENT ON ACCOUNT OF EXPENDITURE ON ADVERTISEMENT AND BRAND PROMOTION EXPENSES, WITHOUT APPRECIATING THAT IN ABSENCE OF SPECIFIC PROVISION IN THE TRANSFER PRICING STATUTORY PROVISIONS IN INDIA, ADJUSTMENT ON ACCOUNT OF THE ARM S LENGTH PRICE OF THE ADVERTISEMENT AND BRAND PROMOTION EXPENSES COULD NOT BE MADE. 2.32 WITHOUT PREJUDICE, THAT THE TPO/DRP ERRED ON FACTS AND IN LAW IN REJECTING THE ANALYSIS UNDERTAKEN BY THE APPELLANT BY APPLYING THE COMPARABLE UNCONTROLLED PRICE ( CUP ) METHOD . 2.33 THAT THE DRP/TPO ERRED ON FACTS AND IN HOLDING THAT CUP ANALYSIS CANNOT BE RELIED UPON IN VIEW OF DIFFERENCE IN MARKETS WITHOUT PL ACING ON RECORD ANY EVIDENCE TO SUBSTANTIATE THAT DIFFERENCE IN MARKETS HAS AN INFLUENCE ON THE AMP/SALES RATIO . 2.34 THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN DISREGARDING THE CUP ANALYSIS CONDUCTED BY THE APPELLANT ON THE BASIS OF THIRD PARTY LICENS E AGREEMENTS, HOLDING THAT THE APPELLANT HAS NOT PROVIDED THE DATA WITH RESPECT TO PRICE AT WHICH GOODS ARE PURCHASED FROM THE AES WITHOUT APPRECIATING THAT SUCH TRANSACTION WAS ACCEPTED TO BE AT ARM S LENGTH BY THE TRANSFER PRICING OFFICER. 2. 35 WITHOUT PREJUDICE, THAT THE DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE COMPENSATION WITH RESPECT TO THE MARKETING FUNCTION WAS BUILT IN THE LOWER PRICE AT WHICH THE GOODS WERE PURCHASED BY THE APPELLANT FROM THE ASSOCIATED ENTERPRISE. 2.36 THAT TH E DRP / TPO ERRED ON FACTS AND IN LAW IN NOT EXCLUDING THE DISCOUNTS AND SELLING EXPENSES AGGREGATING TO RS. 200,507,000 FROM THE QUANTUM OF AMP EXPENDITURE, ALLEGEDLY HOLDING THAT THE QUESTION BEING INVESTIGATED IS MARKETING INTANGIBLE AND NOT JUST BR AND PROMOTION ALONE IN THE INSTANT CASE. 2.37 WITHOUT PREJUDICE THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT CONSIDERING APPROPRIATE SET OF COMPARABLES FOR UNDERTAKING BENCHMARKING ANALYSIS OF THE ALLEGED INTERNATIONAL TRANSACTION ARISING OUT OF AMP EXPENDITURE INCURRED BY THE APPELLANT. 2. 38 WITHOUT PREJUDICE THAT THE TPO ERRED ON FACTS AND IN LAW IN REJECTING THE FOLLOWING COMPANIES FROM THE COMPARABLE SET IDENTIFIED BY THE APPELLANT HOLDING THAT THE APPELLANT HAS NOT PROVIDED THE SEARCH CRITERIA: 7 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. COMPANY NAMES AMP/SALES CANTABAIL RETAIL INDIA LTD 21.30% COLOR PLUS FASHIONS LTD 18.32% COTTON COUNTY RETAIL LTD 11.77% DOLLAR INDUSTRIES LTD 20.66% GLOBUS STORES 4.88% KEWAL KIRAN CLOTHING LTD 16.11% KOUTONS RETAIL INDIA LTD 18.73% LIBERTY SHOES LIMITED 7.69% LUX INDUSTRIES LTD 15.59% MADURA GARMENTS 5.99% RAYMOND APPAREL LTD 13.26% RELAXO FOOTWEARS LIMITED. 10.42% RUPA & COMPANY LTD 11.37% SHOPPERS STOP LTD 3.39% TRENT LIMITED 15.87% AVERAGE 13.02% 2.39 THAT THE DRP ERRED IN FACTS AND IN LAW IN CARRYING OUT FRESH SEARCH OF COMPARABLE COMPANIES FOR BENCHMARKING THE AMP EXPENSES. 2.40 WITHOUT PREJUDICE, THAT THE DRP ERRED ON FACTS AND IN LAW IN INCLUDING FOLLOWING COMPANIES IN THE COMPARABLE SET WHICH ARE NOT OWNING/EXPLOITING ANY DOMESTIC BRAND NAME: COMPANY NAME AMP/SALES ADDI INDUSTRIES LTD 12.76% CANTABAL RETAIL INDIA LTD 21.30% KOUTONS RETAIL INDIA LTD 18.73% LUX INDUSTRIES LTD 15.59% ZODIAC CLOTHING CO. LTD 13.48% KEWAL KIRAN CLOTHING LTD 16.11% RAYMOND APPAREL LTD 13.26% COMPANY NAME AMP/SALES COLOR PLUS FASHIONS LTD 18.32% COTTON COUNTY RETAIL LTD 11.77% DOLLAR INDUSTRIES LTD 20.66% RUPA & COMPANY LTD 11.37% 8 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. RELAXO FOOTWEARS LIMITED. 10.42% LAKHANI INDIA LTD 3.37% LIBERTY SHOES LIMITED 7.69% SANSPAREILS GREENLAND PVT. LTD 4.25% ARITHMETIC MEAN 13.27% 2.41 THAT THE TPO/DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT HAS RENDERED SERVICE TO THE AES BY INCURRING THE AMP EXPENSE AND BY HOLDING THAT MARKUP HAS TO BE EARNED BY THE APPELLANT IN RESPECT OF THE AMP EXPENSES, ALLEGED TO HAVE INCURRED FOR AND ON BEHALF OF THE AE. 2.42 WITHOUT PREJUDICE, THE TPO/DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT MARKUP, IF AT ALL, HAD TO BE RESTRICTED TO THE VALUE ADDED EXPENSES INC URRED BY THE APPELLANT FOR PROVIDING THE ALLEGED SERVICE IN THE NATURE OF BRAND PROMOTION. 2.43 THAT THE /TPO ERRED ON FACTS AND IN LAW IN APPLYING A MARKUP OF 14.88% ON THE ALLEGED EXCESS AMP EXPENDITURE INCURRED BY THE APPELLANT, WHILE COMPUTING THE VAL UE OF COMPENSATION TO BE RECEIVED BY THE APPELLANT ON ACCOUNT OF PROMOTION OF ADIDAS BRAND. 2.44 WITHOUT PREJUDICE, THAT THE TPO ERRED ON FACTS AND IN LAW IN NOT RESTRICTING THE MARK UP TO PRIME LENDING RATE ( PLR ) OF STATE BANK OF INDIA ( SBI ) PLUS A MARGIN OF 150 BASIS POINTS, DESPITE THE DIRECTION OF DRP TO THIS EFFECT. 2.45 WITHOUT PREJUDICE, THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT MARKUP, IF AT ALL, HAD TO BE RESTRICTED TO THE VALUE ADDED EXPENSES INCURRED BY THE APPELLANT FOR PROVIDING THE ALLEGED SERVICE IN THE NATURE OF BRAND PROMOTION. 2. 46 WITHOUT PREJUDICE, THAT THE TPO /DRP ERRED IN NOT APPRECIATING THAT THE ASSOCIATED ENTERPRISE HAS ALREADY COMPENSATED THE APPELLANT BY ALLOWING A ROYALTY FREE USE OF B RAND ADIDAS AND BY PROVIDING LOANS AT CONCESSIONAL RATES. CORPORATE TAX ADDITION: 3. THAT THE ASSESSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS.90,92,57,478 TO TOTAL INCOME, ON ACCOUNT OF INSURANCE COMPENSATION RECEIVED BY ADIDAS AG, THE ULTIMATE PARENT/HOLDING COMPANY OF THE APPELLANT, TOWARDS EROSION OF FINANCIAL INTEREST HELD IN THE APPELLANT, DUE TO LOSS OF APPELLANT S STAKE IN FIRE AT APPELLANT S PREMISE S IN INDIA, ALLEGING THE SAME TO BE INCOME OF THE APPELLANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 9 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 3.1 THAT THE ASSESSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE AMOUNT OF INSURANCE COMPENSATION RECEIVED BY ADIDAS AG UNDER AN IND EPENDENT INSURANCE POLICY TAKEN BY THAT COMPANY WITH A FOREIGN INSURANCE COMPANY, VIZ., ZURICH INSURANCE WAS INCOME OF THE APPELLANT, SINCE THE AMOUNT OF INSURANCE WAS COMPUTED WITH REFERENCE TO THE LOSS OF BUSINESS ASSETS SUFFERED BY THE APPELLANT IN INDI A IN FIRE. 3.2 T HAT THE ASSESSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN HOLDING MAT IF THE AFORESAID AMOUNT OF COMPENSATION WAS REFLECTED AS INCOME OF THE APPELLANT AND CONSEQUENTLY CREDITED TO ITS PROFIT AND LOSS ACCOUNT, THERE WOULD HAVE BEEN NO REDUCTION IN THE VALUE OF FINANCIAL MEREST HELD BY ADIDAS AG IN THE APPELLANT, WARRANTING PAYMENT DEPENDENT COMPENSATION OUTSIDE INDIA. 3.3 THAT THE ASSESSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT SINCE THE IMPUGNED AMOUNT OF INSURANCE MONEY BECAME DUE ON ACCOUNT OF LOSS OF STOCK LYING WITH THE APPELLANT IN INDIA, WHICH CONSTITUTES A BUSINESS CONNECTION OR PROPERTY OR ASSET OR SOURCE OF INCOME IN INDIA, SUCH INCOME WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA IN THE HANDS OF THE APPELLAN T UNDER SECTION 5 READ WITH SECTION 9(1 )(I) OF THE ACT. 3.4 THAT THE ASSESSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN RELYING UPON AND MISCONSTRUING CERTAIN E - MAILS EXCHANGED BETWEEN APPELLANT S AND ADIDAS AG PERSONNEL AND COMMUNICATION OF INDEPEND ENT CONSULTANT(S), TO HOLD THAT THE INSURANCE CLAIM RECEIVED BY ADIDAS AG BELONGED TO THE APPELLANT AND WAS TAXABLE IN INDIA. 3.5 THAT THE ASSESSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE IMPUGNED TRANSACTION/INSURANCE CONTRACT ENTERE D BETWEEN ADIDAS AG AND AN INDEPENDENT FOREIGN INSURANCE COMPANY, TO COVER THE LOSS OF FINANCIAL INTEREST HELD BY ADIDAS AG IN THE APPELLANT COMPANY AND RECEIVING THE INSURANCE MONEY ABROAD WAS A COLOURABLE DEVICE ADOPTED TO EVADE TAXES IN INDIA. 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234B AND SECTION 234C OF THE ACT. 2. T HE ASSESSEE ALSO FILED ADDITIONAL GROUNDS OF APPEAL ON 22/11/2018 ALONGWITH DATE CHART FROM FILING OF INCOME TAX RETURN TO THE DATE O F PASSING THE FINAL ASSESSMENT ORDER AS UNDER: 10 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER IS BARRED BY LIMITATION AND THEREFORE, IS LIABLE TO BE QUASHED. 3. HOWEVER, BEFORE US, THE ADDITIONAL GROUND WAS NOT PRESSED BY THE LD. COUNSEL OF THE ASSESSEE AND THEREFORE , SAME IS DISMISSED AS INFRUCTUOUS. 4. THE BRIEF FACTS OF THE CASE ARE THAT : ( I ) T HE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SOURCING, DISTRIBUTION AND MARKETING OF PRODUCTS OF BRAND - NAME ADIDAS IN INDIA. THE ASSESSEE COMPANY WAS INCORPORA TED IN THE YEAR 1995 UNDER THE COMPANIES A CT, 1956 WITH 98.99 PERCENTILE SHARES OF THE ASSESSEE COMPANY HELD BY T HE ADIDAS INDIA PRIVATE LIMITED, WHICH IS IN TURN IS A SUBSIDIARY OF M/S. ADIDAS AG, GERMANY. ( II ) THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 15/ 10/2010 DECLARING A LOSS OF RS.12,61,27, 241/ - . THE RETURN OF INCOME WAS REVISED ON 27/03/2012 DECLARI NG LOSS OF RS.12,61,25, 995 / - . THE CASE WAS SELECTED FOR SCRU TINY AND A N OTICE UNDE R SECTION 143(2) OF THE INCOME - TAX A CT, 1961 (IN SHORT THE A CT ) WAS ISSUED AND COMPLIED WITH. ( III ) DURING THE COURSE OF ASSESSMENT PROCEEDING , THE LD. ASSESSING OFFICER OBSERVED FOLLOWING INTERNATIONAL TRANSACTIONS CARRIE D OUT BY THE AS SESSEE WITH ITS A SSOCIATED E NTERPRISES (AES): INTERNATIONAL TRANSACTIONS METHOD VALUE (RS.) RECEIPT OF COMMISSION BY ADIDAS INTERNATIONAL TRADING ABV CUP 2,56,55,345 RECEIPT OF COMMISSION BY ADIDAS CUP 6,96,807 11 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. INTERNATIONAL TRADING SAMPLE PURCHASE IMPORT OF FINISHED PRODUCTS FOR RESALE IN INDIA (TRADED GOODS BY ADIDAS INTERNATIONAL TRADING) CUP 40,02,92,546 OTHER THAN ADIDAS INTERNATIONAL TRADING BV 7,31,18,713 PURCHASE OF OTHER PRODUCTS NO BENCH - MARKING REQUIRED 10,70,552/ - REIMBURSEMENT OF EXPENSES BY ASSOCIATED ENTERPRISES NO BENCH 41,24,636 ( IV ) THE LD. ASSESSING OFFICER REFERRED THE MATTER OF DETERMINATION OF A RM S LENGTH P RICE (ALP) OF THOSE INTERNATIONAL TRANSACTION S TO THE LEARNED T RANSFER PRICING O FFICER (TPO). THE LEARNED TPO AFTER TAKING INTO CONSIDERATION SUBMISSION OF THE ASSESSEE, WAS OF THE VIEW THAT THE ASSESSEE WAS ENGAGED IN BRAND BUILDING AND MARKETING OF ADIDAS PRODUCTS IN INDIA AND THUS INCURRED A COST IN CONNECTION WITH THE BENEFIT AND THE SERVICES PROVIDED T O THE AE S UNDER A MUTUAL AGREEMENT WITH THE INDIAN ENTITY I.E. ADIDAS INDIA PRIVATE LIMITED, BUT THE SAME BEING MERELY A SHELL ENTITY, THE BENEFIT OF THE EXPENDITURE INCURRED ON ADVERTISING, MARKETING AND PROMOTION (AMP) IS FLOWING TO ADIDAS GERMANY. T HE AMP EXPENDITURE INCURRED BY THE ASSESSEE WAS HELD BY THE LEARNED TPO /AO TO BE AN INTERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B(1) OF THE ACT ALONGWITH E XPLANATI ON (I)(B) INTRODUCED BY WAY OF F INANCE A CT 2012. ACC ORDING TO THE ASSESSING OFFICER , THE ASSESSEE WHO IS IN THE BUSINESS OF DISTRIBUTION OF GOODS MANUFACTURED BY ITS FOREIGN CONTROLLING PARENT, WITHOUT OWNING ANY TRADEMARK OR BRAND, HAS PERFORMED SIGNIFICANT FUNCTIONS LIKE BRAND 12 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. DEVELOPMENT, MARKET DEVELOPMENT, MARKETING CUSTOMER SUPPORT, TECHNICAL AND ADMINISTRA TIVE SUPPORT ON BEHALF OF ITS AE S IN INDIA BEARING COST, INVESTING HUGE SUM, AND USING ITS SKILLED MANPOWER AND TIME, WHICH HAS CLEARLY DEVELOPED MARKE TING INTANGIBLE FOR ADIDAS BRAND AND GOODS MANUFACTURED BY ITS FOREIGN AES AND THUS THE ASSESSEE WAS ENTITLED TO GET REIMBURSEMENT OF THE COST INCURRED BY IT, WHICH WAS IN EXCESS OF ROUTINE DISTRIBUTOR AND IS ENTITLED TO RETAIN INTANGIBLE INCOME IN INDIA. THE LEARNED TPO OBSERVED THAT THE ASSESSEE BY WAY OF EXPENDITURE ON PR OMOTING ADIDAS BRAND , DEVELOPING AND MAINTAINING NETWORK OF SUB DISTRIBUTOR, DEALERS, RETAILERS ETC . , DEVELOPING EFFICIENT AFTER SALE SERVICE NETWORK IN CREATING CUSTOMER AWARENESS AND LOYALTY BY ADVERTISEMENT, ORGANIZING EVENTS, EDUCATION, TRADE SH OWS ETC HAS DEVELOPED LOCAL MARKETING INTANGIBLE FOR ITS AE. THE LEARNED TPO ISSUED SHOW - CAUSE THE ASSESSEE AS WHY T HE EXPENDITURE OVER AND ABOVE ( BRIGHT LINE T EST) THE ROUTINE MARKETING PROMOTION AND ADVERTISEMENT EXPENDITURE SHOULD NOT BE HELD AS THE SER VICES RENDERED TO THE AE FOR DEVE LOPMENT OF MARKETING INTANGIBLE . T HE INTERNAL CUP PROPOSED BY THE ASSESSEE TO BENCHMARK THE AMP EXPENDITURE INCURRED BY IT, WAS ANALYZED BY THE LEARNED TPO AND REJECTED. BEFORE THE TPO, THE ASSESSEE FURNISHED A SET OF 30 CO MPARABLES, OUT OF WHICH 15 WERE REJECTED BY THE LEARNED TPO FOR THE REASON THAT THOSE COMPANIES WERE ENGAGED IN BRAND DEVELOPMENT ALSO. OUT OF THE BALANCE 15 COMPARABLES, THE LEARNED TPO REJECTED 3 13 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. COMPANIES FOR THE REASON THAT THE BUSINESS OF THOSE COMPAN IES WAS MAINLY INTO EXPORT MARKET, HAVING THE EXPORT TO TOTAL SALES EXCEEDING 75% AND RETAIN ED THE 12 COMPANIES AS COMPARABLES . THE LEARNED TPO CONSIDERED AN EXPENDITURE OF RS. 23.006 CRORES AS A ROUTINE AMP EXPENDIT URE AND EXPENDITURE OVER AND ABOVE , I . E. ( 48.55 - 23.006= 25.54 CRORES) , WAS HELD TO BE THE EXPENDITURE FOR DEVELOPMENT OF MARKETING INTANGIBLES FOR THE AE. OVER THIS, THE LEARNED TPO APPLIED A MARKUP OF 14.88%, WHICH WAS ON ACCOUNT OF OPPORTUNITY COST OF TI ME AND MONEY USED ( PRIME LENDING RATE O F SBI+3%). ACCORDINGLY , THE LEARNED TPO APPLYING THE BRIGHT LINE T EST PROPOSED ADJUSTMENT OF RS.25,54,99, 511/ - ON ACCOUNT OF INTERNATIONAL TRANSACTION OF ADVERTISING, MARKETING AND PROMOTION (AMP) EXPENDITURE INCURRED FOR AES. ( V ) DURING ASSESSMENT PROCEEDIN G, THE ASSESSING OFFICER ALSO PROPOSED AN ADDITION OF RS. 90,92,57,478/ - ON ACCOUNT OF INSURANCE COMPENSATION PERTAINING TO LOSS DUE TO FIRE , RECEIVED BY THE ADIDAS AG, GERMANY. ( VI ) THE ASSESSING OFFICER ISSUED DRAFT ASSESSMENT ORDER , W HEREIN HE INCLUDED THE ADDITIONS PROPOSED FOR TRANSFER PRICING ADJUSTMENT OF AMP EXPENDITURE AS WELL AS REIMBURSEMENT OF INSURANCE AMOUNT RECEIVED BY THE AE. ( VII ) AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTION BEFORE THE LD. DISPUTE RESOLUTION P ANEL (DRP). BEFO RE THE LEARNED DRP, THE ASSESSEE CONTENDED THAT THE AMP EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE 14 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. AND IN ABSENCE OF ANY SPECIFIC PROVISION DETERMINATION OF SUFFICIENCY/EXCESSIVENESS OF THE AMP EXPENDITU RE WOULD BE ARBITRARY AND PREJUDICIAL TO THE ASSESSEE. IN VIEW OF THE SUBMISSION OF THE ASSESSEE, THE LEARNED DRP HELD THAT IN VIEW OF SECTION 92F(V) THE TRANSACTION INCLUDE AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT , WHETHER OR NOT SUCH ARRANGEMEN T, UNDERSTANDING OR ACTION IS FORMAL OR IN WRITING, THE EXPENDITURE INCURRED ON AMP FOR BENEFITING THE AE BRAND IS AN INTERNATIONAL TRANSACTION. AS FAR AS SELECTION OF THE COMPARABLES FOR BENCHMARKING THE ROUTINE AMP EXPENDITURE IN THE LINE OF THE BUSINESS OF THE ASSESSEE, THE LEARNED DRP CARRIED OUT SEARCH OF FEW NEW COMPARABLE COMPANIES AND DIRECTED THE ASSESSEE TO VERIFY THE RESU LT OF THE SAID SEARCH FROM THE ANNUAL R EPORTS OF THOSE COMPARABLE COMPANIES AND PROVIDE THE SAME TO THE LEARNED TPO FOR VERIFICATION. THE TPO WAS DIRECTED TO EXCLUDE THE COMPANIES WHICH WERE PROMOTING FOREIGN BRANDS. THE LEARNED DRP ALSO AP PROVED THE BRIGHT LINE TEST FOR DETERMINATION OF ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS OF AMP. THE LEARNED DRP, ACCORDINGLY UPHELD THE AMP ADJUSTMENT PROPOSED BY THE LEARNED TPO. THE LEARNED DRP ALSO UPHELD THE AMOUNT OF INSURANCE RECEIVED BY THE AE AS INCOME OF THE ASSESSEE. THE LEARNED DRP ACCORDINGLY ISSUED DIRECTIONS IN THE ORDER DATED 30/12/2014. ( VIII ) THE LD. ASSESS ING OFFICER IN COMPLIANCE TO THE ORDER OF THE LEARNED DRP PASSED THE FINAL ASSESSMENT ORDER ON 02/02/201 5 INCORPORATING ADDITION OF RS.29,35,17, 838/ - 15 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AND ADDITION OF R S.90,92,57, 478/ - ON ACCOUNT OF INSURANCE COMPENS ATION PERTAINING TO LOSS DUE TO FIRE RECEIVED BY THE M/S. ADIDAS AG, GERMANY. ( IX ) AGGRIEVED WITH THE ADDITION S MADE BY THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORD ER, THE ASSESSEE IS BEFORE THE T RIBUNAL RAISING THE GRO UNDS A S REPRODUCED ABOVE. 5. THE LEA RNED SENI OR C OUNSEL OF THE ASSESSEE SH. AJAY VOHRA, SUBMITTED THAT GROUND NO. 1 TO 1.1 ARE GENERAL IN NATURE AND NOT REQUIRED TO BE ADJUDICATED SPECIFICALLY, ACCORDINGLY SAME WERE DISMISSED AS INFRUCTUOUS. 6. IN RESPECT OF GROUND NO. 2 TO 2.46, THE LD. SR. COUNSEL SUBMITTED THAT ALL THESE GROUNDS ARE IN RESPECT OF TRANSFER PRICING ADJUSTMENT FOR AMP EXPENDITURE. THE LEARNED COUNSEL SUBMITTED THAT IDENTICAL ISSUE OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPEN DITURE HAS BEEN DELETED BY THE C O ORDINA TE BENCH OF THE T RIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 IN IT NO. 3727/DEL/2014. ACCORDINGLY , HE SUBMITTED THAT ISSUE IN DISPUTE IN THE YEAR UNDER CONSIDERATION BEING IDENTICAL, THE AMP ADJUSTMENT DURING THE YEAR MIGHT ALSO BE DELE TED. 6.1 THE LD. DR, ON THE OTHER HAND , SUBMITTED THAT THE INTERNATIONAL TRANSACTION OF AMP EXISTS IN THE CASE OF THE ASSESSEE AND WHICH MAY BE BENCHMARKED EITHER IN THE AGGREGATE D OR SEGREGATED MANNER, IF THE BRIGHT LINE T EST IS REJECTED. HE ACCORDINGLY S UBMITTED THAT ISSUE IN DISPUTE MAY BE RESTORED TO THE FILE OF THE LEARNED AO/TPO FOR BENCHMARKING THE TRANSACTION OF AMP IN VIEW OF THE DECISION OF THE HON BLE DELHI HIGH COURT IN 16 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. THE CASE OF SONY ERICSSON VS. DY.CIT, ITA NO. 638/2015, DATED 28.01.2016 6.2 WE HAVE HEARD THE RIVAL SUBMISSION OF THE PARTIES ON THE ISSUE IN DISPUTE. WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL (SUPRA) IN THE CASE OF THE ASSESSEE ITSELF HAS DISCUSSED THE ISSUE OF TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE AN D ITS BENCHMARKIN G. THE RELEVANT FINDING OF THE T RIBUNAL IS REPRODUCED AS UNDER: 8.1.2. WE DON T DENY THAT THERE WOULD BE INCIDENTAL BENEFIT TO FOREIGN AE, BEING, ADIDAS - SALOMAN AG, WHICH IS ULTIMATE PARENT OF ASSESSEE. HOWEVER, EXPENDITURE TOWARDS ADVERTISEMENT AND MARKETING INCURRED BY ASSESSEE IN INDIA IS MAINLY FOR ITS OWN BENEFIT TO MARKET PRODUCTS MANUFACTURED BY IT IN INDIA. MAIN PURPOSE OF INCURRING OF SUCH HUGE AMP EXPEN SES HAS LARGELY BENEFITED ASSESSEE IN INDIA, WITH AN INCIDENTAL BENEFIT ARISING TO FOREIGN AE. UNLESS LD.TPO CAN ESTABLISH DIRECT BENEFIT ACCRUING TO FOREIGN AE, IT IS VERY DIFFICULT TO ACCEPT EXISTENCE OF INTERNATIONAL TRANSACTION, UNDER PRESENT FACTS OF THE CASE. WE RELY UPON DECISION OF HON BLE DELHI HIGH COURT IN CASE OF SONY ERICSON MOBILE COMMUNICATION INDIA PVT. LTD (SUPRA) IN SUPPORT OF AFORE - STATED OBSERVATIONS. 8.2. FURTHER IT HAS BEEN SUBMITTED BY BOTH SIDES THAT FACTS AND CIRCUMSTANCES IN PRES ENT APPEAL ARE NO MANNER DIFFERENT WITH THAT OF MARUTI SUZUKI INDIA LTD. REPORTED IN 381 ITR 117; AND SONEY ERICSON MOBILE COMMUNICATIONS (SUPRA), WHEREIN HON BLE HIGH COURT HAS HELD THAT EXISTENCE OF INTERNATIONAL TRANSACTION MUST BE ESTABLISHED DE HORS T HE BRIGHT LINE TEST BEFORE UNDERTAKING BENCH MARKING OF AMP EXPENSES. WE THEREFORE RESPECTFULLY FOLLOW THE VIEW TAKEN BY THIS HON BLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (SUPRA), AND DELETE ADJUSTMENT MADE IN RESPECT OF AMP EXPENSES. 8 .3. HOWEVER, WE APPRECIATE THE CONCERN RAISED BY LD. SR.DR THAT DECISION OF HON BLE SUPREME COURT WILL BE BINDING UP ON ASSESSEE AS WELL AS REVENUE. '19. AFTER CONSIDERING THE LEGAL POSITION AS DISCUSSED IN THE PRECEDING PARAGRAPHS, WE ARE OF THE CONSIDERED OPINION THAT THE ALP OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES, THE ADJUSTMENT MADE BY THE TPO/DRP/AO IS NOT SUSTAINABLE IN THE EYES OF LAW. AT THE SAME TIME, WE CANNOT IGNORE THE SUBMISSION OF THE 17 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. LEARNED DR THAT THE MATTER IS PENDING BEFORE HON'BLE APEX COURT AND THE DECISION OF HON'BLE APEX COURT WOULD BE BINDING UPON ALL THE AUTHORITIES. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. WE HOLD THAT AS PER THE FA CTS OF THE CASE AND THE LEGAL POSITION AS OF NOW AND DISCUSSED ABOVE IN THIS ORDER, THE ADJUSTMENT MADE BY THE TPO/DRP/AO IN RESPECT OF AMP EXPENSES IS NOT SUSTAINABLE. HOWEVER, IF THE ABOVE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COURT WHICH IS UNDER CON SIDERATION BEFORE THE HON'BLE APEX COURT IS MODIFIED OR REVERSED BY THE HON'BLE APEX COURT, THEN THE ASSESSING OFFICER WOULD PASS THE ORDER AFRESH CONSIDERING THE DECISION OF HON'BLE APEX COURT. IN THOSE CIRCUMSTANCES, HE WILL ALSO ALLOW OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE.' ACCORDINGLY GROUNDS 2 TO 2.24 STAND ALLOWED FOR STATISTICAL PURPOSES. 6.3 THE ISSUE IN DISPUTE INVOLVED IN PRESENT APPEAL BEFORE US BEING IDENTIC AL TO THE ISSUE DECIDED BY THE TRIBUNAL, WE, RESPECTFULLY FOLLOWING THE SAID DECISION OF THE T RIBUNAL, SE T ASIDE THE ORDERS OF THE A UTHORITIES BELOW AND RESTORE THE MATTER TO THE FILE OF THE AO/TPO TO TAKE ACTION IN THE INSTANT YEAR FOLLOWING THE DIRECTION OF THE T RIBUNAL (SUPRA) IN PARA 8.3 FOR ASSE SSMENT YEAR 2006 - 07. THE GROUNDS OF APPEAL FROM 2 TO 2.46 ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7. IN GROUND NO S . 3 TO 3.5, THE ASSESSEE HAS RAISED ISSUE OF ADDITION OF RS.90,92,57,478/ - MADE BY THE AO IN RESPECT OF AMOUNT OF INSURANCE COMPENSA TION PERTAINING TO FIRE, RECEIVED BY THE ADIDAS AG. 7.1 THE BRIEF FACTS IN RESPECT OF THE ISSUE IN DISPUTE ARE THAT A SURVEY AC TION UNDER SECTION 133A OF THE A CT WAS CARRIED OUT BY THE I NVESTIGATION WING OF INCOME T AX DEPARTMENT, NEW DELHI ON 20/12/2010 AT THE PREMISE OF ASSESSEE S COMPANY LOCATED AT PLOT 18 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. NO. 93, S ECTOR 32 , I NSTITUTIONAL A REA, GURGAON. IN THE SURVEY , IT WAS OBSERVED THAT IN A FIRE ACCIDENT IN ONE OF THE GO - DOWN OF THE ASSESSEE ON 22/06/2009, THE ASSESSEE LOST STOCK COSTING RS.72 CRORES AP PROXIMATELY, BESIDES FIXED ASSETS SUCH AS RACKS, COMPUTERS ETC. THE ASSESSEE WAS HAVING FIRE INSURANCE POLICY WITH M/S BAJAJ ALLIANZ GEN ERAL I NSURANCE (IN SHORT BAJAJ ALLIANZ ) HAVING COVERAGE OF RS. 50 CRORES FOR STOCK - IN - TRADE AND RS. 24 CRORES FOR ALL FI XED ASSETS LYING IN THE WAREHOUSE ETC. BAJAJ ALLIANZ SETTLED THE CLAIM OF THE ASSESSEE AT APPROXIMATELY RS. 47 CRORE FOR STOC - IN - TRADE AND RS. 1.25 CRORES FOR THE FIX ED ASSETS. DURING THE SURVEY, IT WAS ALSO OBSERVED THAT THE ADI DAS AG, GERMANY , THE ULTIMATE HOLDING COMPANY OF THE ASSESSEE, WAS HAVING A GLOBAL INSURANCE P OLICY (GIP) WITH M/S ZURICH I NSURANCE. TOTAL CLAIM OF EURO 2,08,91,604/ - W AS SANCTIONED TO M/S ADIDAS AG, OUT OF WHICH EURO 1, 37,52,599/ - (APPROXIMATELY RS. 91 CRORE) WAS RECEIVED BY M/S ADIDAS AG AFTER SUBTRACTING THE CLAIM OF EURO 71,39, 005 ( APPROXIMATELY RS. 47 CRORE) BY THE ASSESSEE IN INDIA FROM THE INDIAN INSURER (I.E. BAJAJ ALLIANZ). 7.2 ACCORDING TO THE ASSESSING OFFICER, THIS OVERSEAS POLICY (GIP) WAS ALSO IN RESPECT OF THE STOCK OF THE ASSESSEE. IT HAS BEEN MENTIONED BY THE ASSESSING OFFICER THAT INSURANCE IN INDIA IN RESPECT OF THE STOCK WAS ON COST, WHEREAS THE INSURANCE TAKEN BY THE ADIDAS AG WITH THE OVERSEAS INSURER ON THE STOCK OF THE ASSESSEE WAS AT THE SELLING PRICE. HOW EVER , THIS FACT HAS BEEN DISPUTED BY THE ASSESSEE AND ACCORDING TO THE ASSESSEE, THIS POLICY WAS TO COVER LOSS OF FINANCIAL INTEREST DUE TO EROSION OF ECONOMIC VALUES OF SUBSIDIARIES AND THUS THE CLAIM RECEIVED BY 19 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. THE ASSESSEE AND THE OVERSEAS ENTITY WERE FOR DIFFERENT INTEREST INSURED. 7.3 THE LEARNED ASSESSING OFFICER ALSO REFERRED TO DOCUMENTS FOUND DURING THE COURSE OF SURVEY INDICATING EXCHANGE OF EMAILS BETWEEN THE OFFICIALS OF THE OVERSEAS INSURER AND THE OFFICIALS OF ADIDAS AG. THE LD. ASSESSING OFF ICER HAS REFERRED TO EMAIL DATED 21/04/2010 FROM MR. SCHMITT DIETER TO MR. FELIX WITH CC TO MR. ANDR EAS GELINER AND MR. MARCUS REICHEL , WHEREIN IT IS WRITTEN THAT FROM THE INSURANCE PROSPECTIVE ALL PAYMENTS RELATING TO PHYSICAL LOSS, BUSINESS INTERRUPTION AND MITIGATION COST BELONG S TO ADIDAS INDIA ( I.E. T HE ASSE SSEE) . AN A NOTHER EMAIL WRITTEN BY MR. SON JA DACHACHER TO MR. ANDREAS GELLNER , MD OF THE ASSESSEE COMPANY HAS BEEN REF ERR ED BY THE ASSESSING OFFICER, WHICH CONTAINED AN ATTACHMENT MENTIONING THAT THE ENTIRE CLAIM EXCLUDING THE TAX LEVIED NEEDS TO BE REFLECTED IN A DIDAS INDIA (I.E., THE ASSESSEE). THERE IS ANOTHER EMAIL FROM MR. GAURAV MEHNDIRATTA, PARTNER IN KPMG TO MR. ANDR EAS GELLNER, MD OF THE ASSESSEE COMPANY, ACCORDING TO WHICH THE ADIDAS AG WANTED TO TRANSFER THE COMPENSATION AMOUNT IN QUESTION TO THE ASSESSEE AND WAS LOOKING FOR THE POSSIBLE OPTION FOR INFUSING THOSE FUNDS IN INDIAN SUBSIDIARY. IN VIEW OF THESE EMAILS, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE MONEY RECEIVED IN INSURANCE CLAIM ABROAD BY THE ADIDAS AG WAS THE MONEY OF THE ASSESSEE AS THIS WAS THE COMPENSATION FOR LOSS SUFFERED BY THE ASSESSEE. ACC ORDING TO THE ASSESSING OFFICER, THERE IS A DIRECT BU SINESS RELATIONSHIP OF THE OVERSEAS COMPENSATION RECEIVED WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE IN INDIA AND THE INSURANCE CLAIM RECEIVED ABROAD SHOULD HAVE BEEN OFFERED FOR TAXATION BY THE ASSESSEE IN INDIA. 20 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. THE SUBMISSION S FILED BY THE ASSESSEE IN THIS RESPECT WERE REJECTED BY THE ASSESSING OFFICER WITH DETAILED REASONING GIVEN IN HIS ORDER. THOSE REASONS ARE SUMMARIZED AS UNDER: 1 . A CCORDING TO THE EMAIL CORRESPONDENCE FOUND DURING THE COURSE OF THE SURVEY, THE COMPENSATION RECEIVED AS INSURANCE CLA IM IS THE MONEY BELONGING TO THE ASSESSEE BEING COMPENSATION FOR LOSS OF THE GOODS OF THE ASSESSEE. 2 . ANY COMPENSATION RECEIVED FROM THE INSURER IN RESPECT OF THE STOCK OF THE ASSESSEE DESTROYED IN FIRE SHOULD BE ADDED TO THE INCOME OF THE ASSESSEE. 3 . THE SEP ARATE INSURANCE POLICY WAS TAKEN BY THE PARENT COMPANY TO AVOID ANY TAX INCIDENCE IN INDIA ON THE PORTION RECEIVED ABROAD. 4 . THE COMPENSATION RECEIVED BY ADIDAS AG HAS ITS GENESIS IN INDIA. 5 . ACCORDING TO SECTION 5 OF THE A CT, TOTAL INCOME OF TAX RESIDENT, INC LUDING THE INCOME ACCRUE OR ARISE OUTSIDE INDIA IS REQUIRED TO CONSIDERED FOR TAXABILITY IN INDIA AND MERE FACT THAT ASSESSEE COULD NOT RECEIVE ULTIMATELY THE MONEY IN INDIA DUE TO SOME INTERNAL DISCUSSION OR ISSUES THAT MAY COME UP, WOULD NOT BE A GROUND AGAINST INCOME BEING ACCESSIBLE IN INDIA. 7.4 BE FORE THE LD. DRP, THE ASSESSEE MADE DETAILED SUBMISSIONS CONTESTING THAT INSURABLE INTEREST INTO TWO POLICIES, ONE TAKEN BY THE ASSESSEE AND ANOTHER TAKEN BY ADIDAS AG ARE DIFFERENT. IT 21 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. WAS CONTENDED THAT THE ASSESSEE HAD NEVER BEEN A CONTRACTING PARTY TO THE GIP AND THEREFORE , DUE TO PRIVITY OF CONTRACT BETWEEN TWO FOREIGN PARTIES, NO CONTRACTUAL LEGAL RIGHT INURES TO THE ASSESSEE COMPANY. IT WAS ALSO SUBMITTED THAT NO INTER - COMPANY CHARGES OR COST ALLOCAT ION WAS MADE BY THE ADIDAS AG TOWARDS THE ASSESSEE AND THE ADIDAS AG HAD BORNE THE ENTIRE COST OF GIP WHILE THE ASSESSEE HAS BORN COST OF THE LOCAL INSURANCE WITH BAJAJ ALLIANZ. IT WAS FURTHER SUBMITTED THAT COMPENSATION RECEIVED BY THE ADIDAS AG OUTSIDE I NDIA HAS BEEN INCLUDED IN THE TAXABLE INCOME OF THE ADIDAS AG IN GERMANY. THE ASSESSEE SUBMITTED THAT THE EXPRESSION ACCRUE MEANS TO BECOME A PRESENT AN D ENFORCEABLE RIGHT AND TO BECOME PRESENT RIGHT OF DEMAND. ACCORDING TO THE ASSESSEE INCOME ACCRUES ON LY WHEN THE TAXPAYER ACQUIRES THE RIGHT TO RECEIVE IT AND IN THE PRESENT CASE THERE IS NO ACTUAL OR CONSTRUCTIVE RECEIPT OF INCOME IN THE HANDS OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT EMAIL CORRESPONDENCE CANNOT JUSTIFY TAXABILITY OF THE COMPENSATION AND THE TAX LIABILITY IS BASED ON ACCRUAL AND ARISING OF INCOME AND RECEIPT IS NOT THE ONLY TEST TO TAX AN INCO ME. RELYING ON THE DECISION OF SUTRON CORPORATION VS D IRECTOR OF I NCOME T AX (2004) 268 IT R 156 (DEL) , THE ASSESSEE SUBMITTED THAT PLACE OF ACCRUA L DEPENDS ON THE PLACE OF FORMATION OF THE CONTRACT AND THE PLACE WHERE CONTRACT IS CARRIED OUT. FURTHER, RELYING ON THE DECISION IN THE CASE OF CG KRISHNASWAMI NAIDU VS . CIT (1968) 62 ITR 686 ( MAD.) , IT WAS SUBMITTED THAT INCOME ACCRUES AT A PLACE WHERE RIGHT TO RECEIVE THE SAME ARISES. IN VIEW OF THE DECISIONS RELIED, THE ASSESSEE SUBMITTED THAT THERE IS NO RIGHT TO RECEIVE INCOME IN THE HANDS OF THE ASSESSEE AND INCOME IF ANY HAS BEEN RECEIVED, EARNED, 22 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. ACCRUED AND TAXED IN THE HANDS OF THE ADIDAS AG IN GERMANY AND THE ASSESSEE DID NOT HAVE ANY RIGHT TO RECEIVE THE COMPENSATION FROM THE SAME IN INDIA AND THE SAID COMPENSATION CANNOT BY ANY STRETCH OF IMAGINATION BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE IN THE GARB OF SECTION 5(1)(C) OF THE A CT. 7.5 TH E LD. DRP EXAMINED THE OWNERSHIP STRUCTURE OF THE ASSESSEE AND ACTIVITIES CARRIED OUT BY THE ASSESSEE AS WELL AS THE GROUP COMPANIES. THE LD. DRP ALSO ANALYZED THE CLAIM OF INSURANCE RECEIVED BY THE ADIDAS AG. THE LD. DRP OBSERVED TH AT ZURICH I NSURANCE H AS ACCEPTED THE CLAIM BASED UPON THE VALUE OF THE ASSET DESTROYED IN THE FIRE. THE LD. DRP FURTHER OBSERVED THAT TAXABILITY OF COMPENSATION FOR LOST PROFIT OR INC OME RECEIPT IS BASED UPON THE SURROGATUM P RINCIPAL , WHICH PROVIDES THAT THE CHARACTER OF REC EIPT OR AN AWARD OF DAMAGES OR AN AMOUNT RECEIVED IN SETTLEMENT OF A CLAIM AS A CAPITAL OR INCOME RECEIPT IS DEPENDS ON WHAT THE AMOUNT WAS INTENDED TO REPLACE, SO THAT IF THE REPLACED AMOUNT WOULD HAVE BEEN TAXABLE IN THE RECIPIENT HANDS, THE AWARD SETTLE MENT AMOUNT WILL ALSO BE TAXABLE. THE LD. DRP ACCORDINGLY CONCLUDED THAT AMOUNT RECEIVED AGAINST INSURANCE POLICY IS CHARGEABLE TO TAX UNDER THE A CT AS INCOME, AS IT IS INSEPARABLY CONNECTED WITH THE CONDUCT OF THE BUSINESS, THE ASSETS EMPLOYED THEREIN AND THE COMPENSATION FOR THE LOSS OF THE PROFIT FROM THE BUSINESS. THE LD. DRP RE FERRED TO SECTION 5(1)(C) OF THE A CT AND SECTION 9(1), WHICH PRESCRIBED THE INCOME WHICH SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. THE LEARNED DRP OBSERVED THAT THE INCOME ACC RUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR 23 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. SOURCE OF INCOME IN INDIA, OR THROUGH THE TRANSFER OF THE CAPITAL ASSET SITUATED I N INDIA, IS WOULD DEEM TO ACCRUE OR ARISE IN INDIA . T HE LEARNED DRP HELD THAT COMPENSATION WAS THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA BECAUSE THE IMPUGNED INCOME HAS BEEN DUE TO THE LOSS SUSTAINED ON THE FIRE OF THE STOCK, PROFIT WHICH COULD HAVE BEEN EARNED ON SUCH A STOCK WHEN SOLD, THE LOSS SUFFERED ON OTHER ASSET S AND OTHER INCIDENTALS. ACCORDING TO THE LEARNED DRP, THE PROPERTY IN ORDINARY SENSE INCLUDE S BOTH MOVABLE AND IMMOVABLE AND THUS THE INCOME OF COMPENSATION WAS ALSO THROUGH OR FROM A NY PROPERTY IN INDIA. THE LEARNED DRP ALSO HELD THAT THE INCOME WAS THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA DUE TO THE REASON THAT LOSS SUSTAINED ON FIRE OF THE STOCK, PROFIT WHICH COULD HAVE BEEN EARNED ON SUCH A STOCK WHEN SOLD, THE LOSS S UFFERED ON OTHER ASSETS AND OTHER INCIDENTALS, WHICH ARE PART AND PARCEL OF THE BUSINESS CARRIED ON BY THE ASSESSEE IN INDIA. THE LEARNED DRP ACCORDINGLY CONCLUDED IN PARA 5.5.9 ON THE TAXABILITY OF INCOME IN THE HANDS OF THE ASSESSEE AS UNDER: 5.5.9 FR OM THE , DISCUSSION MADE ABOVE, IT IS EVIDENT THAT THE IMPUGNED RECEIPTS ARE CLEARLY COVERED UNDER SECTION 5(1 )(I) OF THE ACT AND WHEN READ IN ASSOCIATION WITH SECTION 5(1)(B) OF THE ACT, THE IMPUGNED RECEIPT WILL BE A PART OF THE TOTAL INCOME CHARGEABLE TO TAX IN THE HANDS OF THE TAXPAYER . THE OBLIGATION TO PAY SUCH AMOUNT BY THE INSURANCE COMPANY HAS ARISEN WITH THE VERY SOURCE OF INCOME, NAMELY, THE STOCK IN GOODS HELD BY AIMPL (AND NOT BY ADIDAS AG') AND THEREFORE , THE AMOUNT PAID CONSTITUTES INCOME OF AIMPL. MOREOVER, IN THE E - MAIL FROM SCHMITT DIETER TO FELIX WITH CC TO ANDREAS GELLNER AND MARCUS REICHEL DATED 21.4.2010, IT HAS BEEN CL EARLY MENTIONED BY SCHMITT DIETER THAT: FROM THE INSURANCE PERSPECTIVE, ALL PAYMENTS RELATING TO THE PHYSICAL LOSS, BUSINESS INTERRUPTION AND MITIGATION COST BELONG TO ADIDAS INDIA.' 24 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. IT IS RELEVANT TO MENTION THAT MR. ANDREAS GELLNER IS THE MANAGING DIRECTOR OF THE TAXPAYER COMPANY WHEREAS MR. SCH MITT DIETER IS AN EXECUTIVE IN THE GLOBAL INSURANCE DEPARTMENT OF ADIDAS GROUP BASED IN GERMANY. THE PANEL HOLDS THAT WHEN MR. SCHMITT DIETER HAS BEEN NARRATING AND INTIMATING THAT FROM THE INSURANCE PERSPECTIVE SUCH PAYMENTS BELONG TO ADIDAS INDIA/ AIMPL, THE VIEW OF THE TAXPAYER THAT THESE BELONG TO' ADIDAS AG' IS NOT CORRECT. UNDER THESE FACTS THE PANEL HOLDS THAT THE RELIANCE PLACED BY THE TAXPAYER OR DECISION OF THE CANADIAN SUPREME COURT AND ON THE' - INSURANCE LAW (REFERRED IN PARA 5.3.1 ABOVE) HAS NO SIGNIFICANCE IN SO FAR AS THE FACTS AND CIRCUMSTANCES OF THE CASE ARE CONCERNED. 7.6 THE LEARNED DRP REJECTED THE CONTENTION OF THE A SSESSEE THAT SECTION 25 OF THE G ENERAL I NSURANCE B USINESS A CT, 1972, PROHIBITS INSURANCE OF PROPERTIES IN INDIA BY AN IN SURER, LOCATED OUTSIDE INDIA. ACCORDING TO THE LEARNED DRP WITH PRIOR PERMISSION FROM THE GOVERNMENT, THE FOREIGN INSURER CAN ALSO INSURE PROPERTIES IN INDIA. THE LEARNED DRP EMPHASIZ ED THAT THIS FACT COULD NOT BE DECISIVE FACTOR FOR CONCLUSION THAT THE CONSIDERATION RECEIVED COULD NOT BE TAXABLE IN INDIA IN THE HANDS OF THE ENTITY WHICH IS ACTUALLY CARRYING OUT THE RELEVANT BUSINESS. THE LEARNED DRP BROUGHT ON RECORD THAT THE COMPENSATION WAS COMPUTED WITH REFERENCE TO THE ACTUAL LOSS SUSTAINED AND NOT WITH REFERENCE TO THE REDUCTION IN VALUES OF INVESTMENT OF ADIDAS AG. THE LD. DRP IS ALSO OF THE VIEW THAT THE FINANCIAL INTEREST OF ADIDAS AG OR THE VALUE OF THE SHARES OF THE ASSESSEE WOULD HA VE BEEN PROTECTED IF THE AMOUNT OF COMPENSATION HAD BEEN TRANSFERRED TO THE ASSESSEE. THE LEARNED DRP IS IN AGREEMENT WITH THE FINDING OF THE AO THAT THE ASSESSEE DEVISE D A MECHANISM OF TAX EVASION. IN VIEW OF THE ABOVE DISCUSSION, THE LEARNED DRP UPHELD T HE FINDING OF THE ASSESSING OFFICER. 7.7 BEFORE US, THE LEARNED S ENIOR C OUNSEL OF THE ASSESSEE FILED A PAPER - BOOK CONTAINING PAGES 1 TO 717 AND REITERATED THE FACTS 25 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. RELATED TO THE ISSUE IN DISPUTE. THE LEARNED SENIOR COUNSEL REFERRED TO A COPY OF GENERAL INSURANCE P OLICY TAKEN BY THE ASSESSEE WITH M/S BAJAJ ALLIANZ , WHICH IS AVAILABLE ON PAGE S 559 - 588 O F THE PAPER BOOK. HE ALSO REFERRED TO THE INSURANCE CLAIM RECEIVED OF RS. 47 CRORES TOWARDS LOSS OF STOCK AND RS. 1.25 CRORES RECEIVED TOWARDS LOSS OF FIXED ASSET FROM BAJAJ ALLIANZ (BA). THE LD. SENIOR C OUNSEL ALSO REFERRED TO A COPY OF GLOBAL INSURANCE POLICY (GIP) COVERING LOSS OF FINANCIAL INTEREST DUE TO EROSION OF ECONOMIC VALUE OF ITS INVESTMENT IN SUBSIDIARY COMPANIES ACROSS THE GLOBE INCLUDING THE AS SESSEE WITH AN OVERSEAS INSURANCE COMPANY , I.E, M/S. ZURICH INSURANCE, WHICH IS AVAILABLE ON PAGE 272 TO 556 OF APB - II. T HE LEARNED S ENIOR C OUNSEL ALSO REFERRED TO DETAILS OF INSURANCE CLAIM RECEIVED BY ADIDAS AG UNDE R THE GIP OF EURO 1,37,52,599 (APPROXIM ATELY RS.91 C RORES) FROM ZURICH INSURANCE, AVAILABLE ON PAGE S 592 TO 606 OF THE APB - II. THE LEARNED SR. COUNSEL ALSO FILED A WRITTEN SYNOPSIS IN THE CASE. 7.8 T HE LEARNED SR. COUNSEL SUBMITTED BEFORE US THAT TWO INSURANCE POLICIES , I.E. , THE POLICY TAKEN BY THE ASSESSEE AND THE POLICY TAKEN BY THE ADIDAS AG ARE IN RESPECT OF TWO DIFFERENT INTEREST INSURED . ACCORDING TO THE LEARNED COUNSEL, THE GIP COVERED FINANCIAL INTEREST OF THE ADIDAS AG IN SUBSIDIARY AND NOT THE ASSETS OWNED BY THE SU BSIDIARY. THE LEARNED COUNSEL REFERRED TO VARIOUS FEATURES OF THE GIP. HE SUBMITTED THAT AS PER GERMANY LAW: A SUBSIDIARY SITUATED IN A COUNTRY WHICH DOES NOT PERMIT ZURICH TO BE A CO INSURER WILL HAVE TO TAKE AN INDEPENDENT LOCAL POLICY WITH A DOMESTIC INSURER. IN SUCH A CASE, THE GIP DOES NOT COVER THE ASSETS OWNED BY A SUBSIDIARY BUT THE FINANCIAL INTEREST 26 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. OF ADIDAS AG IN SUCH A SUBSIDIARY. THE EXTENT OF OBLIGATION FOR PAYMENT OF COM PENSATION, UNDER GIP, IN SUCH A CASE IS COMPUTED AFTER EXCLUDING THE VALUE OF RISK COVERED UNDER THE LOCAL POLICY FROM THE TOTAL VALUE OF EROSION OF FINANCIAL INTEREST OF ADIDAS AG IN SUBSIDIARY. 7.9 REGARDING THE INSURANCE POLICY TAKEN BY THE ASSESSEE , TH E LEARNED COUNSEL SUBMITTED THAT IT WAS EXCLUSIVELY TO COVER THE RISK ARISING OUT OF LOSS OF STOCK AND FIX ED ASSETS OWNED BY IT. ACCORDING TO HIM, P REMIUM FOR THE LOCAL INSURA NCE POLICY IS BORNE AND PAYABLE/ PAID BY THE ASSESSEE TO BA IN INDIAN RUPEES WITHI N INDIA. BA'S O BLIGATION IS ONLY TO COMPENSATE THE ASSESSEE FOR COST OF STOCKS DESTROYED AND NOT FOR 'LOSS OF PROFITS' OR LOSS ON ACCOUNT OF DISRUPTION OF BUSINESS. FURTHER, THE SAID INSURANCE POLICY IN PLACE IS SUBJECT TO MAXIMUM COVER OF RS. 50 CRORES EV EN IF THE COST OF GOODS DESTROYED IN FIRE EXCEEDS THE LIMIT OF RS. 50 CRORES. COMPENSATION WA S PAYABLE BY BA EXCLUSIVELY TO THE ASSESSEE IN IND IAN RUPEES ONLY AND ADIDAS AG WAS NOT A PARTY TO THE CONTRACT BETWEEN BA AND THE ASSESSEE AND NO RIGHT OR LIABILI TY ACCRUES TO IT. ADIDAS AG DOES NOT HAVE ANY RIGHT TO RECEIVE ANY PART OF COMPENSATION EITHER FROM THE ASSESSEE OR FROM BA. BA HAS NO OBLIGATION TO COMPENSATE ANY DIMINUTION IN THE VALUE OF INSURABLE INTEREST OF ADIDAS AG. 7.10 T HE LEARNED COUNSEL SUBMITTED THAT THE ADIDAS AG HAD OVER THE YEARS MADE SUBSTANTIAL FINANCIAL INVESTMENT IN THE ASSESSEE, WHICH AS ON 31/03/2010 STOOD OF EQUITY ( THROUGH THE SUBSIDIARIES) OF RS. 54.96 CRORES AND INTEREST - F REE LOAN (ECB) OF RS. 29 CRORES . IN ADDITIO N, THE ADIDAS AG HAD ALSO PROVIDED 27 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. GUARANTEED TO INDIAN BANKS FOR GRANTING OVERDRAFT/WORKING CAPITAL LOAN TO THE ASSESSEE OF RS. 293 CRORES. 7.11 I T WAS SUBMITTED THAT THE INSURABLE INTEREST OF THE ASSESSEE AND ADIDAS AG UNDER TWO SEPARATE AND DISTRICT C ONTRACTS OF INSURANCE WITH INDEPENDENT UNRELATED THIRD - PARTY INSURERS, FOR WHICH PREMIUM WAS SEPARATELY PAID BY EACH OF THE TWO ENTITIES, WAS DISTINCT AND SEPARATE. IT WAS SUBMITTED THAT ANY BUSINESS LOSS SUFFERED BY THE ASSESSEE HAD A DIRECT IMPACT ON THE VARIOUS INVESTMENT MADE BY THE ADIDAS AG IN THE ASSESSEE, INCLUDING LOANS AND GUARANTEES AND IT WAS THE AFORESAID LOSS IN ECONOMIC VALUE OF THE FINANCIAL INTEREST, CONSIDERING INSURABLE INTEREST IN THE CASE OF ADIDAS AG, WHICH WAS COMPUTED WITH REFERENCE TO LOSS OF STOCK BY FIRE IN THE HANDS OF THE ASSESSEE. 7.12 ON THE ISSUE THAT LOSS OF STOCK OF THE ASSESSEE WAS NOT COVERED UNDER THE INSURANCE POLICY OF ZURICH INSURANCE IS DUE TO REGULATORY PROHIBITIONS, THE LD. SENIOR COUNSEL SUBMITTED AS UNDER: THE GIP SPECIFICALLY STIPULATES THAT ZURICH DOES NOT COVER ADIDAS GROUP ENTITIES, WHICH ARE RESIDENTS IN COUNTRIES WHERE THERE IS A STRICT PROHIBITION ON THE DOMESTIC INSURANCE LAWS FOR A GERMAN/FOREIGN INSURER TO OPERATE. IT NEEDS TO BE BORNE IN MIND THAT IN TERMS OF PROVISIONS OF SECTION 25 OF THE GENERAL INSURANCE BUSINESS (NATIONALIZATION) ACT, 1972 IT WAS NOT POSSIBLE FOR THE APPELLANT TO TAKE OUT FIRE INSURANCE POLICY WITH ZURICH INSURANCE FOR THE GOODS LYING IN STOCK IN THE INDIAN WAREHOUSE. THE SAME WAS ALSO NOT PERMITTED IN TERMS OF FOREIGN EXCHANGE MANAGEMENT (INSURANCE) REGULATIONS, 2000 NOTIFIED VIDE NOTIFICATION NO. FEMA 12/2000 - RB DATED 3RD MAY, 2000. CONSEQUENTLY, ZURICH IS NOT PERMITTED TO, AND THEREFORE, COULD NOT, COVER THE GOODS OWNED BY APPELLANT IN INDIA DUE TO THE PROVISIONS OF THE GENERAL BUSINESS (NATIONALIZATION ACT), 1972 AND FOREIGN EXCHANGE MANAGEMENT (INSURANCE) REGULATIONS, 2000. I T WOULD HAVE BEEN ILLEGAL FOR IT TO DO SO BECAUSE IT WOULD HAVE BEEN IN CONTRAVENTION OF THE INDIAN LAWS. THE APPELLANT, THEREFORE, WAS NOT COVERED UNDER THE GIP AND IS NOT ENTITLED TO ANY BENEFITS THEREFROM. THIS IS CLEARLY MENTIONED IN 28 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. CLAUSE D.1 & D.1.1 ON PAGE 202 OF THE ENGLISH TRANSLATION OF THE GIP. THE SAID CLAUSE READS AS UNDER: D MASTER COVER FOR GROUP COMPANIES OUTSIDE GERMANY (SEE HOWEVER SPECIAL REGULATION FOR USA/CANADA AND FRANCE) D. 1 OBJECT OF INSURANCE CO - INSURED ARE D. 1.1 ALL FOREIGN YOURS SINCERELY, OF THE ADIDAS GROUP NO CO - INSURED ARE ALL SUBSIDIARY COMPANIES, WHICH HAVE THEIR HEADQUARTERS IN COUNTIES, WHICH PROHIBIT THE OPERATING OF THE INSURANCE BUSINESS THROUGH AN INSURER NOT PERMITTED THERE (PERMIT RESERVATION). SO F AR DUE TO THIS REASON A CO - INSURANCE COVER OVER THIS GIP IS NOT ALLOWED, THE INSURANCE COVER EXISTS IN FAVOUR OF THE INSURANT ACCORDING TO THE CONDITIONS FOR INSURANCE OF FINANCIAL INTEREST ACCORDING TO PAT IV. IT WAS, THUS, NOT POSSIBLE FOR ADIDAS AG TO INSURE GOODS THAT IT DID NOT OWN DIRECTLY. THIS WAS BECAUSE THE GERMAN COMPANY HAD NO INSURABLE INTEREST IN THOSE GOODS UNDER GERMAN LAW. ADIDAS AG CANNOT PROCURE A POLICY THAT DIRECTLY COVERS LOSS OF PROPERTY OWNED BY ANOTHER COMPANY, EVEN ITS SUBSIDIA RIES. HOWEVER, ADIDAS AG HAD AN INSURABLE INTEREST IN ITS OWN CAPACITY FOR THE VALUE OF ITS FINANCIAL INTEREST IN AIMPL. IT THEREFORE OBTAINED FINANCIAL LOSS INSURANCE IN THE FORM OF LIABILITY INSURANCE THAT COVERS ADIDAS AG S FINANCIAL INTEREST IN AIPL. ACCORDINGLY, IT CANNOT BE HELD THAT THE GIP WAS A CONTRACT TAKEN OUT BY ADIDAS AG WITH ZURICH INSURANCE (FOR WHICH PREMIUM WAS UNDISPUTEDLY PAID BY ADIDAS AG), FOR AND ON BEHALF OF THE APPELLANT, IN VIOLATION OF INDIAN REGULATIONS. 7.12 REGARDING THE S UBSTANTIAL FINANCIAL INTEREST OF ADIDAS AG IN ASSESSEE, WHICH WAS INSURABLE INTEREST AS PER INSURANCE LAW IN GERMANY, THE LEARNED COUNSEL SUBMITTED AS UNDER: THE SIP SPECIFICALLY STIPULATES IN PART IV OF GIP THAT THE INSURED IS SOLELY ADIDAS AG. ZURICH PROVIDES COVER TO ADIDAS AG IN THE EVENT ITS FINANCIAL INTEREST IN AN OVERSEAS SUBSIDIARY IS ADVERSELY AFFECTED. THE COMPENSATION SETTLED UNDER THE GIP IS FOR DIMINUTION IN THE 29 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. FINANCIAL INTEREST OF ADIDAS AG IN AIM PL AFTER ADJUSTING THE LOSS COMPENSATED BY BA. IT IS IN ACCORDANCE WITH THE GERMAN LAW. FURTHERMORE, THE GIP STIPULATES A MEASUREMENT APPROACH OF ADIDAS AG S FINANCIAL LOSS BY REFERENCE TO AIMPL S LOSS. THIS AGREED VALUE APPROACH, IN WHICH ZURICH AND ADIDAS AG AGREE, IN ADVANCE, ON THE VALUE OF ADIDAS AG S FINANCIAL INTEREST IN AIMPL, IS LEGALLY ENFORCEABLE IN GERMANY. IN VIEW OF THE ABOVE, IT IS CLEAR THAT ADIDAS AG HAD SUBSTANTIAL FINANCIAL INTERESTS IN THE APPELLANT, WHICH WAS INSURABLE INTEREST AS PER INSURANCE LAWS IN GERMANY, THE DIMINUTION IN WHICH COULD HAVE BEEN INSURED BY ADIDAS AG IN ITS OWN RIGHT WITH AN INSURER IN GERMANY. 7.13 THE LD. COUNSEL IN SUPPORT OF HIS CONTENTION RELIED ON THE DECISION OF THE COURT OF APPEAL FOR ONTARIO, CANADA IN THE CASE OF KOSSMOPOULOS VS, CONSTITUTION INSURANCE COMPANY (1987) 1 SCR 2 AND DECISION OF A UTHORITY FOR ADVANCE R ULING IN THE CASE OF AKER CONTRACTING FP ASA , IN RE . 381 ITR 489. 7.14 ACCORDING TO THE LEARNED COUNSEL, THE GIP WAS ENTERED BETWEEN ADID AS AG AND ZURICH INSURANCE, AND THE PREVIEW OF CONTRACT WAS BETWEEN THE SAID TWO PARTIES, WITHOUT ASSESSEE BEING A PARTY AT THE 1 ST PLACE, NOT HAVING ANY RIGHT OR OBLIGATION UNDER THAT INSURANCE POLICY. THE LEARNED COUNSEL SUBMITTED THAT IT WAS ADIDAS AG, WHO WAS RESPONSIBLE FOR PAYING THE PREMIUM IN RESPECT OF ZURICH I NSURANCE POLICY WHICH WAS RENEWED FROM YEAR - TO - YEAR. 7.15 THE LD. COUNSEL RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ED SAS SOON & CO. LTD VS CIT 26 ITR 27 (SC) SUBMITTED THAT AN INCOME CAN BE SAID TO HAVE ACCRUED TO AN ASSESSEE ONLY WHEN THAT IS VESTED IN THE RECIPIENT UNCONDITIONAL AN ED ABSOLUTE RIGHT TO RECEIVE SUCH INCOME FROM THE PERSON LIABLE TO MAKE THE PAYMENT. THE LEAR NED COUNSEL 30 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. SUBMITTED THAT APPLYING THE AFORESAID PRINCIPLE OF ACCRUAL OF INCOME, IN THE PRESENT CASE SINCE THE GIP WAS BETWEEN THE ADIDAS AG AND ZURICH INSURANCE COMPANY, THE ASSESSEE HAD NOT ACQUIRED ANY RIGHT TO RECEIVE CLAIM OF COMPENSATION IN THE GIP AND THUS QUESTION OF ACCRUAL OF INCOME IN THE HANDS OF THE ASSESSEE DOES NOT ARISE. 7.16 THE LEARNED COUNSEL FURTHER ARGUED THAT THE ASSESSEE WAS NOT ENTITLED TO RECEIVE MORE THAN THE SUM INSURED AND SUBMITTED AS UNDER: FURTHER, IT IS SETTLED THAT THE C ONTRACT OF INSURANCE CANNOT BE A SOURCE OF PROFIT, I.E., THE INSURED CANNOT BE COMPENSATED IN EXCESS OF THE LOSS SUFFERED. IT IS FOR THAT REASON THAT THE INSURER IS SUBROGATED TO THE RIGHTS AND REMEDIES OF THE INSURED, ONCE THE CLAIM IS SETTLED BY THE INSU RER. THE AFORESAID PROPOSITION HAS BEEN LUCIDLY LAID DOWN BY THE CONSTITUTION BENCH OF THE APEX COURT IN ECONOMIC TRANSPORT ORGANIZATION, DELHI VS. CHARAN SPINNING MILLS PRIVATE LIMITED AND ANOTHER : (2010) 4 SCC 114 @ PAGE 132 OF THE JUDGMENT , THE HON BLE SUPREME COURT OBSERVED AS UNDER: 15. A CONTRACT OF INSURANCE IS A CONTRACT OF INDEMNITY. THE LOSS/DAMAGE TO THE GOODS COVERED BY A POLICY OF INSURANCE, MAY BE CAUSED EITHER DUE TO AN ACT FOR WHICH THE OWNER (ASSURED) MAY NOT HAVE A REMEDY AGAINST ANY TH IRD PARTY (AS FOR EXAMPLE WHEN THE LOSS IS ON ACCOUNT OF AN ACT OF GOD) OR DUE TO A WRONGFUL ACT OF A THIRD PARTY, FOR WHICH HE MAY HAVE A REMEDY AGAINST SUCH THIRD PARTY (AS FOR EXAMPLE WHERE THE LOSS IS ON ACCOUNT OF NEGLIGENCE OF THE THIRD PARTY). IN BO TH CASES, THE ASSURED CAN OBTAIN REIMBURSEMENT OF THE LOSS, FROM THE INSURER. IN THE FIRST CASE, NEITHER THE ASSURED, NOR THE INSURER CAN MAKE ANY CLAIM AGAINST ANY THIRD PARTY. BUT WHERE THE DAMAGE IS ON ACCOUNT OF NEGLIGENCE OF A THIRD PARTY, THE ASSURED WILL HAVE THE RIGHT TO SUE THE WRONGDOER FOR DAMAGES; AND WHERE THE ASSURED HAS OBTAINED THE VALUE OF THE GOODS LOST FROM THE INSURER IN PURSUANCE OF THE CONTRACT OF INSURANCE, THE LAW OF INSURANCE RECOGNIZES AS AN EQUITABLE COROLLARY OF THE PRINCIPLE OF INDEMNITY THAT THE RIGHTS AND REMEDIES OF THE ASSURED AGAINST THE WRONGDOER STAND TRANSFERRED TO AND VESTED IN THE INSURER. 16. THE EQUITABLE ASSIGNMENT OF THE RIGHTS AND REMEDIES OF THE ASSURED IN FAVOUR OF THE INSURER, IMPLIED IN A CONTRACT OF 31 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. INDEMNITY , KNOWN AS SUBROGATION , IS BASED ON TWO BASIC PRINCIPLES OF EQUITY: (A) NO TORTFEASOR SHOULD ESCAPE LIABILITY FOR HIS WRONG; (B) NO UNJUST ENRICHMENT FOR THE INJURED, BY RECOVERY OF COMPENSATION FOR THE SAME LOSS, FROM MORE THAN ONE SOURCE. THE DOCT RINE OF SUBROGATION WILL THUS ENABLE THE INSURER, TO STEP INTO THE SHOES OF THE ASSURED, AND ENFORCE THE RIGHTS AND REMEDIES AVAILABLE TO THE ASSURED. 17. THE TERM SUBROGATION IN THE CONTEXT OF INSURANCE, HAS BEEN DEFINED IN BLACK'S LAW DICTIONARY THUS: THE PRINCIPLE UNDER WHICH AN INSURER THAT HAS PAID A LOSS UNDER AN INSURANCE POLICY IS ENTITLED TO ALL THE RIGHTS AND REMEDIES BELONGING TO THE INSURED AGAINST A THIRD PARTY WITH RESPECT TO ANY LOSS COVERED BY THE POLICY. .. 26. SUBROGATION, AS AN EQUITABLE ASSIGNMENT, IS INHERENT, INCIDENTAL AND COLLATERAL TO A CONTRACT OF INDEMNITY, WHICH OCCURS AUTOMATICALLY, WHEN THE INSURER SETTLES THE CLAIM UNDER THE POLICY, BY REIMBURSING THE ENTIRE LOSS SUFFERED BY THE ASSURED. IT NEED NOT BE EVIDENCED BY ANY WRITING. BUT WHERE THE INSURER DOES NOT SETTLE THE CLAIM OF THE ASSURED FULLY, BY REIMBURSING THE ENTIRE LOSS, THERE WILL BE NO EQUITABLE ASSIGNMENT OF THE CLAIM ENABLING THE INSURER TO STAND IN THE SHOES OF THE ASSURED, BUT ONLY A RIGHT TO RECOVER FR OM THE ASSURED, ANY AMOUNT REMAINING OUT OF THE COMPENSATION RECOVERED BY THE ASSURED FROM THE WRONGDOER, AFTER THE ASSURED FULLY RECOVERS HIS LOSS. TO AVOID ANY DISPUTE WITH THE ASSURED AS TO THE RIGHT OF SUBROGATION AND EXTENT OF ITS RIGHTS, THE INSURERS USUALLY REDUCE THE TERMS OF SUBROGATION INTO WRITING IN THE FORM OF A LETTER OF SUBROGATION WHICH ENABLES AND AUTHORISES THE INSURER TO RECOVER THE AMOUNT SETTLED AND PAID BY THE INSURER, FROM THE THIRD - PARTY WRONGDOER AS A SUBROGEE - CUM - ATTORNEY. DRAWI NG SUPPORT FROM THE AFORESAID JUDGMENT, IT WOULD BE APPRECIATED THAT THE APPELLANT COULD NOT HAVE RECOVERED THE SUM OF RS.47 CRORES FROM BAJAJ ALLIANZ GENERAL INSURANCE (INDIAN INSURER) AND ALSO RS.90.92 CRORES FROM ZURICH INSURANCE FOR THE LOSS OF STOCK D UE TO FIRE - THE SAME WOULD AMOUNT TO UNJUST ENRICHMENT TO THE INSURED BY RECOVERY OF COMPENSATION IN EXCESS OF THE LOSS SUSTAINED (FOR THE SAME LOSS) FROM MORE THAN ONE SOURCE. IT IS FURTHER PERTINENT TO POINT OUT THAT THE APPELLANT HAD INSURED ITS STOCK FOR A VALUE OF RS.50 CRORES. THE CLAIM FROM THE INSURANCE COMPANY FOR LOSS OF SUCH STOCK COULD, AT THE HIGHEST, BE IN THE 32 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. AMOUNT OF RS.50 CRORES. THE APPELLANT COULD NOT HAVE EXPECTED TO RECEIVE ANYTHING MORE AND ABOVE THE AMOUNT OF RS.50 CRORES FOR SUCH LOSS SUSTAINED. IN THAT VIEW OF THE MATTER, TOO, RECEIPT OF RS. 90.92 CRORES RECEIVED BY ADIDAS AG FROM ZURICH INSURANCE WHICH IS SOUGHT TO BE IMPUTED AS BELONGING TO THE APPELLANT (ALLEGED TO BE RECEIVED BY ADIDAS AG ON BEHALF OF THE APPELLANT) WOULD BE I MPERMISSIBLE IN TERMS OF THE INSURANCE TAKEN OUT BY THE APPELLANT. 7.17 ON THE ISSUE OF EMAILS CORRESPONDENCE IMPOUNDED DURING THE SURVEY FROM THE PREMISES OF THE ASSESSEE , THE LD. SENIOR C OUNSEL SUBMITTED AS UNDER: THE FIRST E - MAIL DATED 21.4.2010 WHICH I S WRITTEN BY MR. DIETER SCHMITT/ MARCUS REICHEL, BEING THE EXECUTIVES OF INSURANCE DEPARTMENT OF ADIDAS AG TO THE APPELLANT. THE AFORESAID E - MAIL WAS WRITTEN BY INSURANCE DEPARTMENT OF ADIDAS AG TO THE EXECUTIVES OF THE APPELLANT, IN RELATION TO THE SETTLEMENT OF INSURANCE CLAIM OF ADIDAS AG UNDER GIP, AFTER THE SETTLEMENT OF INSURANCE CLAIM OF THE APPELLANT WITH BA. ACCORDINGLY, THE AFORESAID CORRESPONDENCES WERE EXCHANGED WITH REFERENCE TO THE CLAIM UNDER GIP TO BE SETTLED BY ZURICH INSURANCE CO. I N FAVOUR OF ADIDAS AG IN RESPECT OF INSURABLE INTEREST OF ADIDAS AG, I.E., FINANCIAL EXPOSURE IN APPELLANT. SINCE THE AMOUNT OF COMPENSATION UNDER THE GIP WAS THE LOSS OF PROFIT REMAINING AFTER COMPENSATION RECEIVED BY THE APPELLANT IN INDIA, WHICH COMPENS ATION COULD HAVE BEEN DETERMINED ONLY AFTER THE EXACT FIGURE OF COMPENSATION PAYABLE BY BA WAS FINALLY KNOWN REFERENCES TO COMPENSATION PAID BY BA TO THE APPELLANT HAVE BEEN MADE IN THE CORRESPONDENCES. IT WAS IN THE AFORESAID CONTEXT, I.E., TO DETERMINE AMOUNT PAYABLE IN GERMANY AFTER REDUCING THE AMOUNT PAID IN INDIA OUT OF THE TOTAL LOSS THAT THE E - MAIL WAS WRITTEN. THE REFERENCE MADE TO THE ACCRUAL OF INCOME IN INDIA OR GERMANY OR TAX LIABILITY WERE OUT OF CONTEXT AND WERE IN ANY CASE NOT DETERMINATIV E OF THE ACCRUAL OF INCOME AND TAX LIABILITY THEREON AS PER LAWS OF GERMANY AND INDIA. AS POINTED ABOVE, THE E - MAIL WAS WRITTEN BY OFFICERS OF ADIDAS AG, WHO MAY BE EXPERT IN INSURANCE LAWS BUT NOT EXPERT IN TAXATION LAWS, MUCH LESS INDIAN TAX LAWS. THE S UPREME COURT IN SARASWATI INDUSTRIAL SYNDICATE: 237 ITR 1 HELD THAT OPINION OF A PERSON WHO IS AN EXPERT ON THE SUBJECT CAN ALONE BE RELIED ON. THEREFORE, THE 'UNDERSTANDING' OF THE EXECUTIVES OF ADIDAS RISK GMBH THAT 'THE ENTIRE CLAIM EXCLUDING THE TAX LI ABILITY 33 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. NEEDS TO BE REFLECTED IN ADIDAS INDIA P&L IS MERELY AN UNDERSTANDING OR OPINION OF PERSONS WHO ARE NOT EXPERTS IN TAX LAWS MUCH LESS OF INDIAN TAX LAWS. THEREFORE, THE AFORESAID CONTENTS OF THE E - MAIL HAS NO EVIDENTIARY VALUE. THE NEXT E - MAIL IS AN EMAIL WRITTEN BY MR. GAURAV MENDIRATTA OF KPMG, ATTACHED AT PG. 629 - 631 OF PAPER BOOK. THE AFORESAID EMAIL, IT IS SUBMITTED, WAS ADVICE RENDERED IN THE EVENT ADIDAS AG WERE TO PASS ON THE AMOUNT OF INSURANCE CLAIM, AFTER PAYMENT OF TAXES IN GERMANY, AS FINANCIAL AID TO THE APPELLANT. THIS WOULD BE CLEARLY A CASE OF APPLICATION OF INCOME. THIS, HOWEVER, DOES NOT MEAN THAT THE APPELLANT HAD ACQUIRED A RIGHT TO RECEIVE COMPENSATION EITHER FROM ZURICH OR FROM ADIDAS AG. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE ASSESSING OFFICER HAS ERRONEOUSLY DRAWN ADVERSE INFERENCE FROM THE AFORESAID COMMUNICATIONS AND IT CANNOT, BE ALLEGED, ON THE BASIS OF SUCH COMMUNICATION THAT THE IMPUGNED AMOUNT OF INSURANCE COMPENSATION ADMITTEDLY RECEIVED BY ADIDAS AG FROM ZUR ICH INSURANCE IN TERMS OF THE GIP TAKEN OUT BY ADIDAS AG AND OF WHICH PREMIUM WAS PAID BY ADIDAS AG, WAS, IN LAW, INCOME OF THE APPELLANT LIABLE TO TAX IN INDIA. 8. O N THE ISSUE , WHETHER THERE IS DEEMED ACCRUAL OF INCOME IN INDIA IN ACCORDANCE WITH SECT ION 9(1)(I), THE LEARNED COUNSEL SUBMITTED THAT SAID SECTION HAS NO APPLICATION INSOFAR AS ASSESSEE IS CONCERNED , WHO IS RESIDENT IN INDIA. 8.1 AS REGARD TO ALLEGATION OF THE ASSESSING OFFICER THAT GIP WAS A SCHEME FOR TAX EVASION, THE LEARNED COUNSEL SUB MITTED THAT GIP WAS TAKEN OUT BY THE ADIDAS AG A S A GLOBAL POLICY WITH ZURICH INSURANCE COMPANY , WHICH IS A LEGAL AND VALID CONTRACT UNDER THE GERMAN LAW. HE SUBMITTED THAT T HIS POLICY WAS TAKEN BY THE ADIDAS AG NOT ONLY FOR PROTECTING THE RIGHTS IN ITS SUBSIDIARY IN INDIA, IN PARTICULAR, BUT FOR INVESTMENTS IN SUBSIDIARIES COMPANIES ANYWHERE IN THE GLOBE. EVEN PRIOR TO THE FORMATION OF THE ASSESSEE, THE ADIDAS AG HAD BEEN TAK ING GIP FOR A PURPOSE OF ENSURING ITS GLOBAL FINANCIAL INTEREST IN GROUP COMPANIES AND BY WAY OF THIS POLICY THE ADIDAS AG IS COVERING ITS RISK IN INVESTMENT 34 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. IN MORE THAN HUNDRED SUBSIDIARIES ACROSS THE WORD. FURTHER THE LEARNED COUNSEL SUBMITTED THAT THE INTENT BEHIND THE DECISION TO TAKE INSURANCE POLICY CAN NEVER BE TO EVADE TAXES. THE INSURANCE POLICIES TAKEN BY WAY OF PAYING HUGE PREMIUMS TO COVER THE CONTINGENT LOSSES THAT MAY OR MAY NOT ARISE IN FUTURE. THE INSURABLE EVENT MAY OR MAY NOT ARISE IN ANY COUNTRY. THE LEARNED COUNSEL FURTHER REFERRED TO THE DECISION OF THE HON BL E SUPREME COURT IN THE CASE OF U NION OF INDIA VS. AZADI BACHAO ANDOLAN (2003) 263 ITR 706. 8.2 IN VIEW OF THE ARGUMENTS , THE LEARNED COUNSEL SUBMITTED THAT THE ACTION OF THE ASSE SSING OFFICER IN TAXING THE RECEIPT OF INSURANCE CLAIMS BY THE ADIDAS AG UNDER THE GIP TAKEN OUT BY THE ADIDAS AG IS CONTRARY TO THE FACTS OF THE CASE . 8.3 THE LEARNED DR , ON THE OTHER HAND , RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE LEARNED DRP HAS GIVEN DETAILED FINDING ON THE ISSUE THAT IN VIEW OF THE INCOME HAVING BUSINESS CONNECTION IN INDIA , IT WAS DEEMED TO ACCRUE IN INDIA IN VIEW OF THE SECTION 9(1)(I) OF THE A CT. 8.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELE VANT MATERIAL ON RECORD INCLUDING THE PAPER - BOOK FILED BY THE ASSESSEE. AS FAR AS FACTUAL MATRIX OF THE CASE ARE CONCERNED, THERE IS NO DISPUTE BETWEEN THE PARTIES. THE DISPUTE IS IN RESPECT OF APPLICATION OF PROVISIONS OF LAW OVER THOSE FACTS. THE DISPUTE WHETHER IN THE FACTS OF THE CASE, THE CLAIM OF INSURANCE RECEIVED BY THE ADIDAS AG UNDER GIP IS INCOME ACCRUED IN THE HANDS OF THE ASSESSEE OR NOT ? WE PROCEED TO DECIDE THE CONTROVERSY IN VIEW OF RECORDS AND ARGUMENT OF THE PARTIES AS UNDER: 35 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 8.5 THE VARIOUS CLAUSES OF THE GLOBAL INSURANCE P OLICY (GIP), AVAILABLE ON PAGE 272 - 556 , MAKES IT CLEAR THAT UNDER THE POLICY FINANCIAL INTEREST OF THE ADIDAS AG WAS INSURED. THE RELEVANT PART OF THE INSURANCE POLICY (TRANSLATED VERSION) AVAILABLE ON PAGE 279 O F APB IS REPRODUCED AS UNDER: PART 1 GENERAL PROVISIONS, APPLICABLE FOR ALL TYPES: 1 2 3. ADDITIONAL INSURED BUSINESS/ADDITIONAL BUSINESS VENTURE: - ALL BUSINESS VENTURE THAT ARE INCLUDED IN THE LAST ANNUAL REPORT ARE INSURED INCLUDED BY ADIDAS AG. ALL OTHER AND NEWLY ADDED BUSINESS VENTURES ARE ALSO INSURED, IF THEY ARE LEGITIMATELY LED BY THE POLICYHOLDER OR ADDITIONALLY INSURED BUSINESS OR DEFECT OR CONTROLLED (DIRECT OR INDIRECT INTEREST) OR IF THEY ARE ENTREPRENEURIAL. THESE BUSINESS VENTURE HEREINAFTER REFERRED TO A SUBSIDIARY .. 8.6 FURTHER, ON PAGE 548 OF THE PAPER - BOOK , THE SUBJECT MATTER OF THE INSURANCE, EVENT COVERED BY THE INSURANCE AND INSURANCE BENEFIT HAS BEEN MENTIONED AS UNDER: 2. SUBJECT MATTER OF THE INSURANCE THE ADIDAS AG HAS INVESTMENTS IN THE SUBSIDIARY COMPANIES WITH HEADQUARTERS IN THOSE COUNTRIES, WHICH PROHIBIT THE OPERATING OF THE INSURANCE BUSINESS THROUGH IN AN INSURER NOT PERMITTED THERE (COUNTRIES WITH PERMIT RESERVATION) OBJECT OF THIS INSURANCE IS THE INTEREST OF ADIDAS AG, TO SUSTAIN THE ECONOMICAL VALUE OF ITS INVESTMENT IN SUCH SUBSIDIARY COMPANIES IN CASE OF A PROPERTY/BU, LIABILITY - OR 36 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. TRANSPORT DAMAGES AND BE PROTECTED FROM THE TH US RESULTING, OWN FINANCIAL LOSSES. THE INSURANCE THEREFORE EXCLUSIVELY REFERS TO THE PURELY FINANCIAL INTERESTS OF ADIDAS AG. INSURED INVESTMENTS ARE IN SUBSIDIARY COMPANIES, WHICH FU LFILL THE PRE - REQUISITES OF THE ADDITIONAL INSURED COMPANIES IN THE SE NSE OF A MASTER CONTRACT AND WHICH HAVE THEIR HEADQUARTERS IN COUNTRIES WITH PERMIT RESERVATION; IN SUBSIDIARY COMPANIES, WHICH ARE NEWLY FORMED OR ACQUIRED IN THE SENSE OF AN INSURANCE CONTRACT AS WELL AS WERE INADVERTENTLY NOT ANNOUNCED AND HAVE THEIR HEADQUARTERS IN COUNTRIES WITH PERMIT RESERVATION. ON THE INCLUSION OF SUCH COMPANIES IN THE INSURANCE PROTECTION, THE REGULATIONS OF THIS INSURANCE CONTRACT ARE CORRESPONDINGLY VALID IN THE FRAMEWORK OF THIS PART OF THE CONTRACT. FOR THE SUBSIDIARY COMPA NY OF ADIDAS AG THERE EXIST RISK ADEQUATE LOCAL POLICIES COORDINATED WITH THE INSURANCE PROGRAMME OR INTEGRATED IN THE GIP. THE SUBSIDIARY COMPANIES ARE NEITHER ENTITLED NOR OBLIGATED BY THIS PART OF THE CONTRACT AND ARE NOT ADDITIONALLY INSURED COMPANIES. 3. EVENT COVERED BY INSURANCE THE CLAIM IS PRESENT, IF THE VALUE OF INVESTMENT IS REDUCED IN CASE OF A LOSS OR DAMAGE. - THE CLAIM IS NOT INTEGRATED IN THE GIP OR IS NOT OR NOT SUFFICIENTLY COVERED WITH THIS COORDINATED LOCAL POLICY, - THE CLAIM WHICH WOULD FULFILL THE PREREQUISITES FOR A COVERED PROPERTY/BU - LIABILITY OR TRAN SPORT DAMAGES IN THE SENSE OF A GIP. - AND THUS FOR THE ADIDAS AG, THERE EXISTS THE COMMERCIAL NEED, FOR BALANCING THE REDUCTION OF VALUE FROM ITS OWN FINANCES, TO NEGOTIATE THE E XPENDITURES IN FAVOUR OF THE SUBSIDIARY COMPANIES. IRRELEVANT IS WHETHER THE ADIDAS 37 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. AG NEGOTIATES THE ACTUAL EXPENDITURES FOR THE SUBSIDIARY COMPANIES. THE EVENT COVERED BY INSURANCE IS VALID AS OCCURRING AT THAT POINT OF TIME, AT WHICH AFTER THE ASCERTAINMENTS OF THE MASTER COVER, THE OCCURRENCE OF THE EVENT OF LOSS OR DAMAGE WOULD BE TAKEN INTO ACCOUNT FOR THE SUBSIDIARY COMPANY. 4. INSURANCE BENEFIT (TAXES) THE INSURER PROVIDES THE ADIDAS AG A COMPENSATION FOR THE VALUE REDUCTION OF THE INVESTMENT. AS REDUCED VALUE, THAT AMOUNT IS VALID, WHICH WOULD BE REPLACED BY THE INSURER, IF THE COVERAGE DIFFERENCE INSURANCE OF THE MASTER CONTRACT COULD HAVE BEEN EFFECTIVELY COMBINED TO THE LOCAL POLICIES OF THE SUBSIDIARY COMPANIES INTEGRATED IN THE INSURANCE P ROGRAMME OR COORDINATED WITH THEM. FOR THE MEASUREMENT OF THE INSURANCE BENEFIT IT IS IRRELEVANT, IF THE ADIDAS AG HOLDS LESS THAN 100% OF THE SHARES IN THE SUBSIDIARY COMPANY. AS FAR AS THE LOCAL LIABILITY INSURANCE OF THE CONCERNED SUBSIDIARY COMPANY GUARANTEES NONE OR NO EXTENSIVE INSURANCE PROTECTION FOR LEGAL DEFENSE COSTS (DEFENSE COVERING), THE ADIDAS AG HAS TO TAKE CARE IN THE FRAMEWORK OF ITS INFLUENCES FOR AN APPROPRIATE DEFENSE OR LEGAL REPRESENTATION FOR CHECKING OF THE ISSUE OF LIABILITY A ND FOR DEFENSE/CLEARANCE OF UNJUSTIFIED CLAIMS. IN THIS CASE THE ADIDAS AG IS COMPENSATED FOR THE COSTS REQUIRED FOR THE LEGAL DEFENSE. 8.7 AFTER CONSIDERING ARGUMENTS OF THE PARTIES AND AVAILABLE RECORDS, THE FACTUAL POSITION IN OUR VIEW IS THAT THE POLICY OF INSURANCE AGAINST LOSS OF STOCK BY FIRE TAKEN BY THE ASSESSEE FROM BAJAJ ALLIANZ (BA) WAS TO SECURE STOCK IN T RADE, WHICH IS A TANGIBLE ASSET, W HEREAS THE GLOBAL INSURANCE P OLICY (GIP) , TAKEN BY THE 38 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. ADIDAS AG FROM ZURICH INSURANCE WAS FO R SECURING INVESTMENT MADE IN SUBSIDIARIES OR SAY FINANCIAL INTEREST, WHICH IS AN INTANGIBLE ASSET. 8. 8 THUS , THE INTEREST INSURED BY THE ASSESSEE AND THE INTEREST INSURED BY THE ADIDAS AG ARE TWO DIFFERENT INTEREST, THE LATER ONE IS LARGER THAN THE EARLI ER ONE. AFTER CONSIDERING THE SUBMISSION OF THE PARTIES, WE ARE OF THE FIRM VIEW THAT LOSS IN ECONOMIC VALUE OF THE FINANCIAL INTEREST, CONSTITUTING INSURABLE INTEREST IN THE CASE OF ADIDAS AG, WHICH THOUGH HAS BEEN COMPUTED WITH REFERENCE TO LOSS OF STOCK BY THE FIRE IN THE HANDS OF THE ASSESSEE, IT IS DISTINCT AND SEPARATE FROM THE INSURANCE CLAIMED BY THE ASSESSEE FROM THE BAJAJ ALLIANZ . THE ADIDAS AG HAS PAID PREMIUM SEPARATELY FOR THE GLOBAL INSURANCE POLICY AND NO PART OF THE SAME HAS BEEN ALLOCATED T O THE ASSESSEE OR REIMBURSED BY THE ASSESSEE. UNDER THE GLOBAL INSURANCE POLICY, WHICH WAS ENTERED BETWEEN ADIDAS AG AND ZURICH INSURANCE, PRIVITY OF CONTRACT WAS BETWEEN THE SAID TWO PARTIES, WITHOUT ASSESSEE BEING A PARTY. WE AGREE WITH CONTENTION OF THE LEARNED COUNSEL THAT THE ASSESSEE WAS NOT HAVING ANY RIGHT OR OBLIGATION UNDER THE SAID GIP. THE ADIDAS AG, HAS SHOWN THE SAID COMPENSATION RECEIVED UNDER THE GIP FROM THE ZURICH INSURANCE AS ITS INCOME AND P AID TAXES ACCORDINGLY. WE MAY LIKE TO EMPHASIZ E HERE THAT THE COM PENSATION SETTLED UNDER THE GIP IS FOR DIMINUTION IN THE FINANCIAL INTEREST OF ADIDAS AG AFTER ADJUSTING THE LOSS COMPENSATED BY BAJAJ ALLIANZ, WHICH IS IN ACCORDANCE WITH GERMAN LAW IN EXISTENCE WHICH PROHIBIT THE ADIDAS AG TO DIRECTLY INSURE ASSETS OF SUBSIDIARY IN INDIA. IN VIEW OF NO RIGHT OR 39 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. OB LIGATION OF THE ASSESSE E IN THE GIP, PRIMA FACIE SAID INCOME CANNOT BE ASSESSED IN THE HAND OF THE ASSESSEE. 9. THE ANOTHER ISSUE OF CONTENTION IS WHETHER THE COMPENSATION RECEIVED BY THE ADIDAS AG HAS ACCRUED UNDER SECTION 5 OF THE I NCOME TAX A CT AND DEEMED TO ACCRUE AS PER SE CTION 9(1)(I) OF THE A CT. FOR READY REFERENCE, THE SECTION 5 (1) OF THE A CT IS REPRODUCED AS UNDER : SCOPE OF TOTAL INCOME. 5. (1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR ; OR (C) ACCRUES OR A RISES TO HIM OUTSIDE INDIA DURING SUCH YEAR : PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARILY RESIDENT IN INDIA WITHIN THE MEANING OF SUB - SECTION (6) OF SECTION 6 , THE INCOME WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN INDIA . 9.1 APPARENTLY THE CLAUSE 5(1)(A) IS NOT APPLICABLE OVER THE ASSESSEE AS THE AMOUNT I N QUESTION WAS NOT RECEIVED BY THE ASSESSEE. THE SECOND CLAUSE 5(1)(B) SAYS THAT INCOME WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE ARISE IN INDIA DURING SUCH YEAR TO THE SAID RESIDENT IS INCLUDED IN THE TOTAL INCOME. THE THIRD CLAUSE 5(1)(C) INCLUDES T HE INCOME UNDER THE TOTAL INCOME, WHICH ACCRUES OR ARISE TO AN RESIDENT ASSESSEE OUTSIDE INDIA DURING SUCH YEAR. THUS , HERE THE MAIN ISSUE ARISES IS WHETHER THE INCOME ACCRUED OR ARISES TO THE ASSESSEE. IN THIS RESPECT, WE MAY LIKE TO REFER TO THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF ED SASSOON & CO LTD (SUPRA) AS UNDER: 40 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 48 . WHAT HAS, HOWEVER, GOT TO BE DETERMINED IS WHETHER THE INCOME, PROFITS OR GAINS ACCRUED TO THE ASSESSEE AND IN ORDER THAT THE SAME MAY ACCRUE TO HIM IT IS NECESSARY THAT HE MUST HAVE ACQUIRED A RIGHT TO RECEIVE THE SAME OR THAT A RIGHT TO THE INCOME, PROFITS OR GAINS HAS BECOME VESTED IN HIM THOUGH ITS VALUATION MAY BE POSTPONED OR THOUGH IT S MATERIALISATION MAY DEPEND ON THE CONTINGENCY THAT THE MAKING UP OF THE ACCOUNTS WOULD SHOW INCOME, PROFITS OR GAINS. THE ARGUMENT THAT THE INCOME, PROFITS OR GAINS ARE EMBEDDED IN THE SALE PROCEEDS AS AND WHEN RECEIVED BY THE COMPANY ALSO DOES NOT HELP THE TRANSFEREES, BECAUSE THE MANAGING AGENTS HAVE NO SHARE OR INTEREST IN THE SALE PROCEEDS RECEIVED AS SUCH. THEY ARE NOT CO - SHARERS WITH THE COMPANY AND NO PART OF THE SALE PROCEEDS BELONGS TO THEM. NOR IS THERE ANY GROUND FOR SAYING THAT THE COMPANY ARE THE TRUSTEES FOR THE BUSINESS OR ANY OF THE ASSETS FOR THE MANAGING AGENTS. THE MANAGING AGENTS CANNOT, THEREFORE, BE SAID TO HAVE ACQUIRED A RIGHT TO RECEIVE ANY COMMISSION UNLESS AND UNTIL THE ACCOUNTS ARE MADE UP AT THE END OF THE YEAR, THE NET PROFITS ASCERTAINED AND THE AMOUNT OF THE COMMISSION DUE BY THE COMPANY TO THE MANAGING AGENTS THUS DETERMINED [SEE IRC VS. LEBUS (1946) 1 ALL E.R. 476 : 27 TAX CAS. 136]. (EMPHASIS SUPPLIED EXTERNALLY BY US) 9.2 THUS, FOR TO ACCRUE OR ARISE INCOME IN THE HANDS OF AN ASSESSEE, HE MUST ACQUIRE RIGHT TO RECEIVE THAT INCOME OR THAT INCOME MUST VEST IN HIM. IN PRESENT CASE, THE ZURICH INSURANCE HAS ALLOWED THE CLAIM OF INSURANCE UNDER GIP INSURED BY M/S ADIDAS AG. THE INSURED INTEREST UNDER THE GENERAL INSURANCE POLICY IS FINANCIAL INTEREST IN INVESTMENT MADE WORLDWIDE BY THE ADIDAS AG . AS THE PREMIUM FOR THE INSURANCE POLICY WAS INCURRED BY ADIDAS AG, THE SAID ENTITY WAS ONLY HAVING RIGHT TO RECEIVE THE CLAIM OF INSURANCE AND THE ASSESSEE NOT BEING PARTY TO THE SAID INSURANCE POLICY IN ANY MANNER, THE ASSESSEE WAS NOT HAVING ANY RIGHT TO RECEIVE THE SAID CLAIM OF INSURANCE ON OR THE SAID CLAIM WAS NOT VESTED IN THE ASSESSEE. THUS , THE CONT ENTION OF THE LOWER AUTHORITIES THAT THE INCOME BY WAY OF THE CLAIM OF GIP ACCRUED IN FAVOUR OF THE ASSESSEE IS DEVOID OF ANY MERIT. 41 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 9.3 FURTHER, IT IS CONTENDED BY THE LOWER AUTHORITIES, THAT THE INCOME WAS DEEMED TO ACCRUE OR ARISE IN VIEW OF PROVIS IONS OF SECTION 9(1)(I) OF THE A CT. IT IS CONTENDED THAT IMPUGN ED INCOME WAS DUE TO LOSS SUSTAINED IN THE FIRE OF THE STOCK, PROFIT WHICH COULD HAVE BEEN EARNED ON SUCH STOCK WHEN SOLD AND THE LOSS SUFFERED ON O THER ASSETS AND OTHER INCIDENTALS AND , THEREFORE , IT WAS THROUGH OR FROM ANY BUSINESS CONNEC TION IN INDIA. IN OUR OPINION, THIS CONCLUSION OF THE LOWER AUTHORITIES IS NOT CORRECT. THE CLAIM OF GIP WAS IN RESPECT OF INSURED FINANCIAL INTEREST OF THE ADIDAS AG IN ITS SUBSIDIARIES AND COMPENSATION WAS ALSO SETTLED FOR DIMINUTION IN FINANCIAL INTERESTS OF C OMPUTING OF THE CLAIM WITH REFERENCE TO LOSS ON FIRE OF THE STOCK OR PROFIT WHICH COULD HAVE BEEN EARNED IF SUCH STOCK WAS SOLD ETC IN ANY MANNER CANNOT LEAD TO CONCLUSION THAT THE CLAIM WAS IN RESPECT OF L OSS OF TANGIBLE PROPERTY IN THE FORM OF STOCK OF THE ASSESSEE. THE CLAIM WAS CERTAINLY IN RESPECT OF THE INTANGIBLE ASSET IN THE FORM OF FINANCIAL INTEREST OF THE ADIDAS AG AND THUS THE CLAIM OF INSURANCE CANNOT BE SAID TO HAVE ANY BUSINESS CONNECTION IN I NDIA. SIMILARLY , THE INSURED INTEREST OF ADIDAS AG IN ITS SUBSIDIARIES CANNOT BE SAID TO HAVE THROUGH OR FROM ANY PROPERTY IN INDIA OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA. THE ADIDAS AG HAS ENTERED INTO CONTACT IN GERMANY FOR INSURING TH E INTANGIBLE ASSET IN THE FORM OF FINANCIAL INTEREST IN ITS SUBSIDIARIES, WHICH IS QUITE D ISTINCT FROM THE PHYSICAL STOCK - IN - TRADE OF THE ASSESSEE, WHICH LOST IN FIRE. THUS, THE CLAIM RECEIVED BY ADIDAS AG CANNOT BE TREATED AS INCOME DEEMED TO ACCRUE OR ARISE IN THE HANDS OF THE ASSESSEE IN INDIA. 42 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 9.4 WE ALSO DO NOT FIND ANY SUBSTANCE IN THE FINDING OF THE LOWER AUTHORITIES THAT IN EMAIL CORRESPOND ENCE BETWEEN EMPLOYEES OF ADIDAS AG AND ZURICH INSURANCE INDICATED AS CLAIM OF GIP BELONGS TO THE ASSESSEE. THE ASSESSING OFFICER IN DRAFT ASSE SSMENT ORDER HAS REPRODUCED GIST OF CORRESPO NDENCE MADE THROUGH EMAILS. ON PERUSAL OF THE SAID CORRESPONDENCE, WE FIND THAT SAM E IS RELATED MORE TO EXPLORE MODE OF TRANSFER OF MONEY FROM THE ADIDAS AG TO THE ASSESSEE, BECAUSE THE ADIDAS AG WAS INTERESTED IN RESTORING THE LOSS IN ITS FINANCIAL INTEREST IN INDIAN SUBSIDIARY I.E. ASSESSEE. THUS , CORRESPONDENCE IN EMAILS WAS RELATED TO APPLICATION OF THE INCOME AND NOT AS UNDER WHOSE HAND IT WOULD BE TAXABLE. FURTHER, THE ISSUE AS TO WHETHER THE INCOME BY WAY OF CLAIM UNDER GIP FROM ZURICH INSURANCE IS LIABLE TO BE TAX ED IN THE HANDS OF THE ASSESSEE, CANNOT BE DECIDED BY EITHER THE EMPLOYEES OF THE ADIDAS AG OR ZURICH INSURANCE. MERELY , EXPRESSING SOME ADVICE OR OPINION BY THEM A S HOW THIS AMOUNT OF CLAIM RECEIVED CAN BE TRANSFERRED TO THE ASSESSEE, SHOULD NOT BE TREATED AS ADMISSION BY THE ASSESSEE OF CLAIM MONEY TAXABLE IN ITS HAND. FURTHER , WE AGREE WITH THE CONTENTION OF THE LD . COUNSEL OF THE ASSESSEE THAT INSURING THE FINANCIAL INTEREST IN THE SUBSIDIARY BY M/S ADIDAS AG IS NOT A TAX AVOIDANCE SCHEME AND THE POLICY WAS TAKEN TO COVER THE CONTINGENT LOSSES THAT MAY OR MAY NOT ARISE IN FUTURE. WE FIND THAT M/S ADIDAS AG HAS PAID PREMIUM IN RESPECT OF THE POLICY FROM TIME TO TIME AND ALSO PAID TAX IN GERMANY IN RELATION TO THE AMOUNT IN QUESTION OF INSURANCE CLAIM. WE REJECT THE OBSERVATION OF THE LOWER AUTHORITIES ALLEGI NG THAT COLOURABLE DEVICE WAS ADOPTED BY THE ASSESSEE FOR EVADING TAXES IN INDIA. 43 ITA NO .1431/DEL/2015 ADIDAS INDIA MARKETING (P) LTD. 9.5 IN VIEW OF ABOVE DISCUSSION, WE ARE OF THE OPINION THAT CLAIM OF INSURANCE RECEIVED BY M/S ADIDAS AG IS NOT TAXABLE IN THE HANDS OF THE ASSESSEE EITHER UNDER SECTION 5 O R UNDER SECTION 9(1)(I) OF THE A CT. THE GROUNDS OF THE APPEAL RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 10. THE GROUND NO. 4 RAISED BY THE ASSESSEE IS CONSEQUENTIAL IN NATURE AND ACCORDINGLY , WE ARE NOT REQUIRED TO ADJUDICATE. THE GROUND IS ACCORDIN GLY DISMISSED AS INFRUCTUOUS. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 9 T H JULY , 2019. S D / - S D / - [ AMIT SHUKLA ] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 9 T H JULY , 2019. RK/ - [D.T.D.S] COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI