CADBURY INDIA LTD, MUMBAI V. ADDL CIT RG 5(1), MUMBAI

ITA 1512/MUM/2013

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0985 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 26-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-02-2013
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI M ANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO. 1512 / MUM/2013 ( ASSESSMENT YEAR : 20 06 07 ) MONDELEZ INDIA FOODS PVT. LTD. (FORMERLY KNOWN AS M/S. CADBURY INDIA LTD.), UNIT NO.2001 TOWER 3, (WING C) INDIA BULLS FINANCE CENTRE PAREL, MUMBAI 400 013 PAN AAACC0460H . APPELLANT V/S A DDL . COMMISSIONER OF INCOME TAX RANG E 5( 1 ), MUMBAI . RESPONDENT ITA NO. 1578/MUM/2013 ( ASSESSMENT YEAR : 2006 07 ) DY. COMMISSIONER OF INCOME TAX RANGE 5(1), MUMBAI . APPELLANT V/S MONDELEZ INDIA FOODS PVT. LTD. (FORMERLY KNOWN AS M/S. CADBURY INDIA LTD.), UNIT NO.2001 TOWER 3, (WING C) INDIA BULLS FINANCE CENTRE PAREL, MUMBAI 400 013 PAN AAACC0460H . RESPONDENT ASSESSEE BY : SHRI JEHANGIR D. MISTRY A/W SHRI HIREN CHANDE REVENUE BY : SHRI JAYANT KUMAR DATE OF HEARING 30 .0 8 .2018 DATE OF ORDER 28.11.2018 2 MONDELEZ INDIA FOODS PVT. LTD. O R D E R PER SAKTIJIT DEY, J.M. A FORESAID APPEALS ARISE OUT OF THE ORDER DATED 24 TH DECEMBER 2012, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 15, FOR THE ASSESSMENT YEAR 2006 07. ITA NO. 1512/MUM./2013 ASSESSEES APPEAL 2 . IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF ` 8,88,97,000, OUT OF THE ROYALTY PAID TO M/S. CADBURY SCHWEPPES OVERSEAS LTD., U.K. (CSOL). 3 . BRIEF FACTS RELATING TO THIS ISSUE ARE, THE ASSESSEE IS A SUBSIDIARY OF CSOL, U.K. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF MALTED FOOD AND DRINKS AS WELL AS CHOCOLATES. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH NOVEMBER 2006 DECLARING TOTAL INCOME OF ` 77,49,13,665. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAD E NTERED INTO INTERNATIONAL TRANSACTION S WITH THE OVERSEAS ASSOCIATED ENTERPRISES ( AE S) MADE A REFERENCE TO THE TRANSFER PRICING OFFICER TO DETERMINE THE ARM'S LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTION S . DURING THE PROCEEDINGS BEFORE HIM, THE TRAN SFER PRICING OFFICER NOTICED THAT THE ASSESSEE HAS BENCH MARKED THE ARM'S LENGTH 3 MONDELEZ INDIA FOODS PVT. LTD. PRICE IN RESPECT OF SOME OF THE INTERNATIONAL TRANSACTIONS WITH THE A.E. BY ADOPTING TRANSACTIONAL NET MARGIN METHOD (TNMM). ONE OF SUCH INTERNATIONAL TRANSACTION RELATED TO P AYMENT OF ROYALTY TO THE AE FOR TECHNICAL KNOWHOW AND TRADE MARK . AFTER CALLING FOR NECESSARY INFORMATION FROM THE ASSESSEE, HE FOUND THAT IT HAD ENTERED INTO A TECHNICAL ASSISTANCE AND ROYALTY AGREEMENT WITH CSOL FROM 9 TH MARCH 1993, FOR AVAILING THE BENE FIT OF TECHNICAL KNOWHOW DEVELOPED BY CSOL RELATING TO THE MANUFACTURING, PROCESSING, DISTRIBUTING AND MARKETING OF PRODUCT S AS WELL AS THE BENEFIT OF THE CONTINUING RESEARCH AND DEVELOPMENT UNDERTAKEN BY CSOL. SUCH AGREEMENT WAS EFFECTIVE FOR A PERIOD OF 10 YEARS FROM THE DATE OF THE AGREEMENT OR SEVEN YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION. HE ALSO NOTED THAT THE AGREEMENT WAS APPROVED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA, AND THE ASSESSEE HAS SOUGHT APPROVAL O F THE MIN ISTRY FOR EXTENSION OF AGREEMENT FOR A FURTHER PERIOD OF SEVEN YEARS. THE TRANSFER PRICING OFFICER NOTED THAT THE MINISTRY OF COMMERCE AND INDUSTRY VIDE LETTER DATED 14 TH SEPTEMBER 2000, HAD APPROVED THE EXTENSION OF THE EXISTING APPROVAL BY FIXING THE R ATE OF ROYALTY PAYMENT @ 1.25% FOR INTERNAL SALES AND EXPORT. THE PRODUCTS COVERED BY THE AGREEMENT AS APPROVED BY THE GOVERNMENT WERE CHOCOLATE, CONFECTIONARY, SUGAR, ETC. THE TRANSFER PRICING OFFICER NOTED THAT AFTER THE AFORESAID APPROVAL BY THE GOVERNM ENT, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH CSOL ON 20 TH DECEMBER 2000, 4 MONDELEZ INDIA FOODS PVT. LTD. PROVIDING FOR TRANSFER OF TECHNICAL KNOWHOW BY CSOL FOR WHICH THE ASSESSEE SHALL PAY ROYALTY OF 1.25% OF THE NET EX FACTORY SALE PRICE OF THE PRODUCT SOLD BY THE ASSESSEE AND WHIC H SHALL BE EXCLUSIVE OF EXCISE DUTY MINUS THE COST OF STANDARD BOUGHT OUT COMPONENT AND LANDED COST OF IMPORTED COMPONENT IRRESPECTIVE OF SOURCE OF PROCUREMENT INCLUDING OCEAN TRADE, INSURANCE, CUSTOM DUTIES, ETC. HE ALSO NOTED THAT THE AFORESAID PAYMENT O F ROYALTY WAS ALSO APPROVED BY THE GOVERNMENT. FURTHER, ON EXAMINING THE BOOKS OF ACCOUNT, THE TRANSFER PRICING OFFICER FOUND THAT APART FROM THE ROYALTY PAID TOWARDS TECHNICAL KNOWHOW, THE ASSESSEE PAID ROYALTY OF ` 8.89 CRORE FOR THE USE OF CADBURY TRADE MARK. ON A QUERY RAISED BY THE TRANSFER PRICING OFFICER, IT WAS SUBMITTED BY THE ASSESSEE THAT SUCH PAYMENTS WERE EARLIER PROHIBITED UNDER THE ERSTWHILE FOREIGN EXCHANGE REGULATION ACT. IT WAS SUBMITTED THAT THE BOARD IN ITS MEETING HELD ON 26 TH APRIL 200 1, PASSED A RESOLUTION AUTHORIZING PAYMENT OF ROYALTY TO CSOL FOR USE OF TRADE MARK AT 1% OF NET SALES VALUE. IT WAS ALSO RESOLVED , PENDING APPROVAL FROM THE RESERVE BANK OF INDIA, APPROPRIATE PROVISIONS SHOULD BE MADE IN THE BOOKS OF ACCOUNT TOWARDS PAYME NT OF ROYALTY FOR TRADE MARK. HE NOTED THAT AFTER RECEIPT OF APPROVAL FROM RESERVE BANK OF INDIA, A TRADEMARK LICENSE AGREEMENT WAS EXECUTED ON 12 TH FEBRUARY 2002, BETWEEN CADBURY LTD., TREBOR BASSETT LTD., CSOL AND THE ASSESSEE. AFTER PERUSING THE AGREEME NT AND OTHER MATERIAL ON RECORD, THE TRANSFER PRICING OFFICER ON 24 TH JANUARY 2008, ISSUED A 5 MONDELEZ INDIA FOODS PVT. LTD. SHOW CAUSE NOTICE, STATING THAT AS PER THE EARLIER AGREEMENT, THE ASSESSEE WAS REQUIRED TO PAY ROYALTY @ 2% OF THE SALES TOWARDS TECHNICAL KNOWHOW. HOWEVER, AS PER THE SUBSEQUENT AGREEMENT THOUGH THE RATE OF ROYALTY FOR TECHNICAL KNOWHOW WAS REDUCED TO 1.25% OF THE SALES, HOWEVER, THE ASSESSEE ENTERED INTO ANOTHER AGREEMENT FOR PAYMENT OF ROYALTY @ 1% ON ACCOUNT OF TRADEMARK. THUS, IN EFFECT, THE ASSESSEE WOULD PAY ROYALTY TO CSOL AT AN ENHANCED RATE OF 2.25% OF NET SALES. THUS, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE ROYALTY PAID OVER AND ABOVE 1.25% OF NET SALES SHOULD NOT BE ADJUSTED TOWARDS THE ARM'S LENGTH PRICE OF ROYALTY. THOUGH, THE ASSESSEE OBJECTED T O THE PROPOSED ADJUSTMENT TO THE ARM'S LENGTH PRICE, HOWEVER, THE TRANSFER PRICING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. REFERRING TO THE CLARIFICATION ISSUED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRIES, VIDE PR ESS NOTE NO.8(2)/2001 FC.I, DATED 3 RD JANUARY 2002, HE OBSERVED THAT AS PER THE SAID CIRCULAR, IN CASE OF TECHNOLOGY TRANSFER, PAYMENT OF ROYALTY FOR TECHNICAL KNOWHOW SUBSUMES THE PAYMENT OF ROYALTY FOR THE USE OF TRADEMARK AND BRAND NAME OF FOREIGN COLLABORATOR. HE OBSERVED , THE ASSESSEE HA S FAILED TO SUBSTANTIATE THE NECESSITY OR REQUIREMENT FOR PAYMENT OF HIGHER ROYALTY FROM FINANCIAL YEAR 2001 02 ONWARDS. THOUGH, THE ASSESSEE IN ITS SUBMISSIONS DATED 28 TH JANUARY 2008, CONTENDED THAT THE ROYALTY PAID @ 2.25% OF NET SALES IS LESSER THAN TH E ROYALTY RATE OF 3.5% PAID 6 MONDELEZ INDIA FOODS PVT. LTD. BY ITS MAIN COMPETITOR, HENCE, THE PAYMENT IS AT ARM'S LENGTH, HOWEVER, THE TRANSFER PRICING OFFICER REJECTED ALL CONTENTIONS OF THE ASSESSEE. HAVING DONE SO, THE TRANSFER PRICING OFFICER HELD THAT THE ARM'S LENGTH PRICE OF THE ROYALTY PAYMENT IS TO BE DETERMINED AT 1.25% OF THE NET SALES . A CCORDINGLY, HE WORKED OUT THE ARM'S LENGTH PRICE OF THE ROYALTY PAYMENT AT ` 7,74,55,000. INSOFAR AS ROYALTY PAYMENT FOR USE OF TRADEMARK, THE ASSESSING OFFICER HELD THAT SINCE THE ARM'S LENGT H PRICE OF ROYALTY FOR TRADE MARK IS SUBSUMED IN THE ROYALTY FOR TECHNICAL KNOWHOW PAYABLE @ 1.25% THE ARM'S LENGTH PRICE OF THE ROYALTY PAYMENT FOR TRADEMARK HAS TO BE COMPUTED AT NIL OR ZERO. ACCORDINGLY, HE DISALLOWED ROYALTY PAYMENT AMOUNTING TO ` 8,88 ,97,000. ON THE BASIS OF ORDER PASSED BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY ADDING BACK THE AMOUNT OF ` 8,88,97,000 TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED OF SUCH ADDITION, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIAL ON RECORD OBSERVED THAT WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2005 06, HE HAS UPHELD SIMILAR DISALLOWANCE MADE BY THE TRANSFER PRICING OFFICER ON ACCOUNT OF ROYALTY PAID FOR USE OF TRADEMARK. FOLLOWING THE SAID DECISION, HE UPHELD THE 7 MONDELEZ INDIA FOODS PVT. LTD. DISALLOWANCE MADE BY THE TRANSFER PRICING OFFICER IN THE IMPUGNED ASSESSMEN T YEAR AS WELL. 5 . SHRI J.D. MISTRY, LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO SEPARATE AGREEMENT S FOR PAYMENT OF ROYALTY FOR TECHNICAL KNOWHOW AND TRADEMARK FROM 1 ST APRIL 2000, @ 1.25% AND 1% RESPECTIVELY. HE SUBMITTED , SUCH PAYMENT OF ROYALTY TO CSOL AT THE AGGREGATE RATE OF 2.25% WAS ALSO APPROVED BY THE GOVERNMENT AS WELL AS RESERVE BANK OF INDIA. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE APPROVAL DATED 14 TH S EPTEMBER 2000 AND 25 TH JUNE 2001, APPROVING PAYMENT OF ROYALTY FOR TECHNICAL KNOWHOW @ 1.25% AND FOR TRADEMARK @ 1% RESPECTIVELY. HE ALSO DREW OUR ATTENTION TO THE COPY OF RELEVANT CIRCULARS PLACED AT PAGE 85 AND 119 OF THE PAPER BOOK. THE LEARNED SR. COUN SEL SUBMITTED , PRESS NOTE NO.1 (2002 SERIES) ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA, DOES NOT RESTRICT PAYMENT OF ROYALTY ON TRADEMARK TO THE PAYMENT OF ROYALTY FOR TECHNICAL KNOWHOW. HE SUBMITTED THAT THE TRANSFER PRICING OFF ICER HAS NOT DISPUTED THE TNMM AS THE MOST APPROPRIATE METHOD ADOPTED BY THE ASSESSEE. THEREFORE, HE SUBMITTED , DETERMINATION OF ARM'S LENGTH PRICE OF ROYALTY PAYMENT AT NIL IS NOT IN ACCORDANCE WITH TNMM. THE LEARNED SR. COUNSEL SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002 03 TO 2005 06, THE TRIBUNAL HAS ALLOWED ROYALTY PAYMENT 8 MONDELEZ INDIA FOODS PVT. LTD. ON TECHNICAL KNOWHOW AND TRADEMARK @ 2.25%. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT ORDERS OF THE TRIBUNAL PLACED IN THE PAPER BOOK. HE SUBMITTED , THE DECISION OF THE TRIBUNAL ON ROYALTY PAYMENT IN ASSESSMENT YEAR 2005 06 HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT AS NO SUBSTANTIAL QUESTION OF LAW HAS BEEN RAISED BY THE DEPARTMENT BEFORE THE HON'BLE HIGH COURT ON THAT ISSUE. H E SUBMITTED , IN SUBSEQUENT ASSESSMENT YEAR S THE TRANSFER PRICING OFFICER HIMSELF ACCEPTED ROYALTY PAYMENT ON TRADEMARK. THUS, HE SUBMITTED , ROYALTY PAID BY THE ASSESSEE ON USE OF TRADEMARK HAS TO BE ALLOWED IN VIEW OF THE ORDERS PASSED BY THE TRIBUNAL IN A SSESSEES OWN CASE FOR PRECEDING ASSESSMENT YEAR S . 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) AND THE TRANSFER PRICING OFFICER SUBMITTED THAT AS PER RULE 10B(2)(D) OF THE INCOME TAX RULES, 1 962, THE TRANSFER PRICING OFFICER CAN DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ON THE BASIS OF GOVERNMENT ORDERS IN FORCE. HE SUBMITTED THAT AS PER THE CLARIFICATION ISSUED BY THE GOVERNMENT, ANY ROYALTY TO BE PAID FOR USE OF TRADEMARK IS SUBSUMED IN THE ROYALTY PAID FOR TECHNICAL KNOWHOW. THUS, HE JUSTIFIED DETERMINATION OF ARM'S LENGTH PRICE OF ROYALTY PAYMENT FOR TRADEMARK AT NIL. 9 MONDELEZ INDIA FOODS PVT. LTD. 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. AS COULD BE SEEN FROM THE ORDER O F THE TRANSFER PRICING OFFICER, HE HAS DETERMINED THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT ON TRADEMARK TO SCOL AT ZERO. IN OTHER WORDS, HE HAS DISALLOWED ROYALTY PAYMENT ON TRADEMARK AT 1% WHILE ALLOWING ROYALTY PAYMENT ON TECHNICAL KNOWHOW AT 1.25% OF N ET SALES. THE REASONING ON WHICH THE ASSESSING OFFICER HAS DENIED ROYALTY PAYMENT ON TRADEMARK ARE BASICALLY THAT AS PER THE TERMS OF EARLIER AGREEMENT APPROVED BY THE GOVERNMENT, THE ASSESSEE CAN PAY ROYALTY FOR TECHNICAL KNOWHOW AT THE MAXIMUM RATE OF 2% , WHEREAS , THE ASSESSEE HAS PAID ROYALTY BOTH FOR TECHNICAL KNOWHOW AND TRADEMARK AGGREGATING TO 2.25%. HE HAS ALSO REFERRED TO THE PRESS NOTE ISSUED BY THE GOVERNMENT CLARIFYING THAT ROYALTY PAYMENT CANNOT EXCEED 2% AND FURTHER THE ROYALTY PAYMENT FOR TEC HNICAL KNOWHOW SUBSUMES ROYALTY PAYMENT FOR TRADEMARK. IN THIS CONTEXT, THE TRANSFER PRICING OFFICER HAS ALSO REFERRED TO SIMILAR DISPUTE ARISING IN THE PRECEDING ASSESSMENT YEARS. IT IS EVIDENT THAT THE LEARNED COMMISSIONER (APPEALS) HAS UPHELD THE DISALL OWANCE OF ROYALTY PAYMENT OF TRADEMARK SIMPLY RELYING UPON THE ORDER PASSED BY HIM IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 06. AS COULD BE SEEN FROM THE MATERIAL AVAILABLE ON RECORD, THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH ITS CURRENT COMPANY IN THE YEAR 1993, FOR AVAILING TECHNICAL KNOWHOW FOR WHICH IT WAS REQUIRED TO PAY ROYALTY @ 2%. SUBSEQUENTLY, THE ASSESSEE HAS ENTERED INTO FRESH 10 MONDELEZ INDIA FOODS PVT. LTD. AGREEMENTS WITH THE PARENT COMPANY FOR TRANSFER OF TECHNICAL KNOWHOW AS WELL AS USE OF TRADE MARK FOR WHICH AS SESSEE IS REQUIRED TO PAY ROYALTY @ 1.25% AND 1% OF THE NET SALES RESPECTIVELY. AS COULD BE SEEN FROM THE MATERIALS PLACED ON RECORD, THE PAYMENT OF ROYALTY FOR TECHNICAL KNOWHOW @ 1.25% HAS BEEN APPROVED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMEN T OF INDIA, VIDE LETTER DATED 14 TH SEPTEMBER 2000 (COPY IS PLACED AT PAGE 85 OF THE PAPER BOOK). SIMILARLY, PAYMENT OF ROYALTY FOR TRADEMARK @ 1% HAS BEEN APPROVED BY THE RESERVE BANK OF INDIA , VIDE LETTER DATED 25 TH JUNE 2001, COPY AT PAGE 119 OF THE PAPE R BOOK. THUS, AS COULD BE SEEN, PAYMENT OF ROYALTY FOR TRADEMARK AT 1% OVER AND ABOVE THE ROYALTY PAID AT 1.25% FOR TECHNICAL KNOWHOW HAS BEEN APPROVED BY THE RESERVE BANK OF INDIA. THOUGH, THE TRANSFER PRICING OFFICER HAS RELIED UPON PRESS NOTE DATED 3 RD JANUARY 2002, TO OBSERVE THAT IN CASE OF TECHNOLOGY TRANSFER PAYMENT OF ROYALTY SUBSUMES THE PAYMENT FOR ROYALTY FOR USE OF TRADEMARK, HOWEVER, IN A SUBSEQUENT PRESS NOTE ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA, VIDE NO.5(5)/20 03 FC, DATED 24 TH JUNE 2003, HAS PERMITTED ROYALTY PAYMENT UP TO 8% ON EXPORT SALES AND 5% ON DOMESTIC SALES. IT IS ALSO RELEVANT TO NOTE , THE FACT THAT THE ROYALTY PAID BY THE ASSESSEE @ 2.25% BOTH FOR TECHNICAL KNOWHOW AND TRADEMARK IS LESSER THAN THE ROYALTY PAID BY OTHER COMPARABLES AND EVEN GROUP COMPANIES HAS NOT BEEN DISPUTED EITHER BY THE TRANSFER PRICING OFFICER OR BY THE LEARNED 11 MONDELEZ INDIA FOODS PVT. LTD. COM MISSIONER (APPEALS). IT IS ALSO RELEVANT TO NOTE , IDENTICAL DISPUTE RELATING TO PAYMENT OF ROYALTY FOR TRADEMARK AT 1% OVER AND ABOVE ROYALTY PAID FOR TECHNICAL KNOWHOW AT 1.25% AND ITS ALLOWABILITY CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2002 03 TO 2005 06. WHILE DECIDING THE ISSUE IN THE AFORESAID ASSESSMENT YEARS, THE TRIBUNAL HELD THAT THE PAYMENT OF ROYALTY ON TRADEMARK TO CSOL AT 1% OF SALES IS ALLOWABLE AND AT ARM'S LENGTH. IN FACT DECISION OF THE TRIB UNAL HAS ALSO BEEN ACCEPTED BY THE REVENUE. IN THIS CONTEXT, WE MAY REFER TO THE RELEVANT OBSERVATIONS OF THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 06, IN ITA NO.5470/MUM./2012, DATED 18 TH MAY 2016, WHICH I S AS UNDER: 2.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL FOR AY 2002 - 03(SUPRA) THE TRIBUNAL HAS DECIDED THE ISSUE AS UNDER: - 37.WE HAVE HEARD THE DETAILED ARGUMENTS FROM BOTH THE SIDES. THE BASIC ISSUE IS THE CORRECTNESS OF ALP ON THE ROYALTY PAYMENTS MADE BY THE ASSESSEE COMPANY TO ITS PARENT AE ON ACCOUNT OF TECHNICAL KNOWHOW AND TRADEMARK USAGE. 38.FROM THE ARGUMENTS OF THE DR, MADE ON BEHALF OF THE TPO, THE AGREEMENT FOR PAYIN G ROYALTY ON TECHNICAL KNOW HOW AT 1.25% AND TRADEMARK USAGE AT 1.25%, WERE OVERLAPPING AND THUS, TNMM METHOD USED BY THE ASSESSEE WAS INCORRECT. ACCORDING TO THE TPO, THE BEST METHOD TO ASCERTAIN ALP IN THE INTEREST CASE WAS CUP, AS THE TRANSACTIONS WERE CONTROLLED. THIS WAS REASONABLE, AS NO DATA WAS AVAILABLE FROM INDEPENDENT SOURCE TO BENCHMARK THE TRANSACTIONS. 39.ON GOING THROUGH THE RECORDS AND THE ORDERS OF THE REVENUE AUTHORITIES, WE FIND THAT IN SO FAR AS THE PAYMENT OF ROYALTY ON TECHNICAL KNOWH OW CONCERNED, THE ASSESSEE HAS BEEN PAYING TO ITS 12 MONDELEZ INDIA FOODS PVT. LTD. PARENT AE RIGHT FROM 1993, AS, OTHER GROUP COMPANIES ARE PAYING ACROSS THE GLOBE. IT HAS BEEN ACCEPTED BY THE TPO THAT THE PAYMENT DOES NOT EFFECT THE PROFITABILITY OF THE ASSESSEE, IF WE ARE TO EXAMINE THE ISSUE FROM THAT ANGLE AS WELL. IN ANY CASE THE PAYMENT OF ROYALTY ON TECHNICAL KNOWHOW IS AT PAR WITH THE SIMILAR PAYMENTS FROM THE GROUP COMPANIES IN OTHER COUNTRIES & REGION. BESIDES THIS, THE PAYMENT IS MADE AS PER THE APPROVAL GIVEN BY THE RBI AND SIA , GOVERNMENT OF INDIA. HENCE THERE CANNOT BE ANY SCOPE OF DOUBT THAT THE ROYALTY PAYMENT ON TECHNICAL KNOWHOW IS NOT AT ARMS LENGTH. 40.COMING TO THE ISSUE OF ROYALTY PAYMENT ON TRADEMARK USAGE, WE FIND THAT THE ASSESSEE, IN FACT IS PAYING A LESSER AMOUN T, IF THE PAYMENTS ARE COMPARED WITH THE PAYMENTS TOWARDS TRADEMARK USAGE, BY THE OTHER GROUP COMPANIES USING THE BRAND CADBURY IN OTHER PARTS OF THE WORLD. ON THE OTHER HAND, IF WE EXAMINE THE ARGUMENT TAKEN BY THE TPO WITH REGARD TO OECD GUIDELINES. ON T HIS POINT THE ASSESSEES PAYMENT IS COMING TO A LESSER FIGURE, AS DISCUSSED IN DETAIL BY THE CIT(A). 41.WE ARE NOT GOING INTO THE ARGUMENTS ADVANCED BY THE DR/TPO ON GEOGRAPHICAL DIFFERENCES, AND PAYMENTS MADE TO HARSHEY, AS THESE ARGUMENTS GETS MERGED IN THE INTERPRETATION AND DETAILS AVAILABLE IN THE TABLE SUPPLIED BY THE ASSESSEE AND TAKEN NOTE OF BY THE TPO AND THE CIT(A). 42.WE ARE ALSO NOT REFERRING TO THE CASE OF MARUTI SUZUKI LTD. AS WE FIND THAT IN SO FAR AS THE INSTANT CASE IS CONCERNED, THERE I S REALLY NO RELEVANCE. 43.ON THE BASIS OF THE ABOVE OBSERVATIONS, WE ARE OF THE OPINION THAT THE ROYALTY PAYMENT ON TRADEMARK USAGE IS WITHIN THE ARMS LENGTH AND DOES NOT CALL FOR ANY ADJUSTMENT. RESPECTFULLY, FOLLOWING THE ABOVE ORDER, AND THE ORDER F OR SUBSEQUENT AY.S WE DECIDE THE GROUND OF APPEAL NO.1 IN FAVOUR OF THE ASSESSEE. 8 . THERE BEING NO DIFFERENCE IN FACTUAL POSITION IN THE IMPUGNED ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL ON IDENTICAL ISSUE IN ASSESSEES OWN CASE AS REFERRED TO ABOVE, WE HOLD THAT THE ROYALTY PAYMENT ON TRADE MARK TO SCOL @ 1% OF NET 13 MONDELEZ INDIA FOODS PVT. LTD. SALES IS AT ARM'S LENGTH, HENCE, NO FURTHER ADJUSTMENT IS REQUIRED . ACCORDINGLY, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. GROUND RAISED IS ALLOWED. 9 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 80,00 , 0 00 O N ACCOUNT OF PROPORTIONATE EXPENDITURE INCURRED ON BEHALF OF THE A.E. TOWARDS ADVERTISEMENT, MARKETING AND PROMOTION (AMP). 10 . BRIEF FACTS ARE, DURING THE PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 85.15 CRORE, TOWARDS AMP EXPENDITURE WHICH WORKS OUT TO 11.11% OF THE SALES RECORDED BY THE ASSESSEE DURING THE YEAR. THE TRANSFER PRICING OFFICER OBSERVED THAT THE INDUSTRY AVERAGE FOR AMP EXPENDITURE WORKS OUT TO 6.55% ONLY. ON THE BASIS OF AFORESAID INFORMATION, THE TRANSFER PRICING OFFICER CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF MARKETING AND ADVERTISEMENT EXPENSES, SALES MADE, ROYALTY PAID BY THE ASSESSEE FOR THE LAST TEN YEARS. AFTER ANALYSING THE DETAILS SUBMITTED BY THE AS SESSEE THE TRANSFER PRICING OFFICER OBSERVED THAT THE ASSESSEE IS PAYING HIGHER AND HIGHER ROYALTY TO THE OVERSEAS A.E. THE AMP EXPENDITURE AS WELL AS SALES RECORDED A STEADY GROWTH OVER THE YEAR S . IN VIEW OF THE ABOVE, HE CALLED UPON THE ASSESSEE TO EXPLA IN WHY ADJUSTMENT TO THE ARM'S LENGTH PRICE SHOULD NOT BE MADE ON ACCOUNT OF AMP EXPENDITURE INCURRED BY THE ASSESSEE , SINCE , ACCORDING 14 MONDELEZ INDIA FOODS PVT. LTD. TO THE TRANSFER PRICING OFFICER A BENEFIT HAS ACCRUED TO THE A.E. ON ACCOUNT OF SUCH EXPENDITURE. THOUGH, THROUGH ELABOR ATE WRITTEN SUBMISSIONS THE ASSESSEE OBJECTED TO THE PROPOSED ADJUSTMENT, HOWEVER, THE TRANSFER PRICING OFFICER REJECTING THE SUBMISSIONS OF THE ASSESSEE ULTIMATELY CONCLUDED THAT BENEFIT HAS ACCRUED TO THE A.E. ON ACCOUNT OF AMP EXPENDITURE INCURRED BY TH E ASSESSEE. ACCORDINGLY, HE QUANTIFIED SUCH BENEFIT ACCRUING TO THE A.E. ON ACCOUNT OF AMP EXPENDITURE AT 1.77% OF THE NET SALES WHICH WORKED OUT TO ` 1.70 CRORE. HOWEVER, OBSERVING THAT HE HAS ALREADY MADE DISALLOWANCE OF THE ROYALTY PAYMENT ON TRADEMARK HE RESTRICTED THE ADJUSTMENT TO BE MADE ON ACCOUNT OF AMP EXPENDITURE AT ` 80 LAKH. IN TERMS OF THE ORDERS PASSED BY THE TRANSFER PRICING OFFICER, THE ASSESSING OFFICER MADE ADDITION OF ` 80 LAKH TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED OF SUCH ADDITI ON, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 11 . HOWEVER, T HE LEARNED COMMISSIONER (APPEALS) UPHELD THE ADDITION / ADJUSTMENT MADE BY THE ASSESSING OFFICER / TRANSFER PRICING OFFICER. 12 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO AGREEMENT WITH THE A.E. FOR INCURRING AMP EXPENDITURE. HE SUBMITTED , WHATEVER EXPENDITURE INCURRED BY THE ASSESSEE WAS TOWARDS MARKETING OF ITS OWN PRODUCT IN INDIA AND PAYMENT FOR SUCH 15 MONDELEZ INDIA FOODS PVT. LTD. EXPENDITURE WAS MADE TO THE THIRD PART IES I N INDIA. THUS, HE SUBMITTED , THERE IS NO QUESTION OF ATTRIBUTING A PART OF AMP EXPENDITURE TO A.E. AS IT IS NOT AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT. FURTHER, THE LEARNED SR. COUNSEL SUBMITTED , THE TRANSFER PRICING OFFICER HAS DETERMI NED THE ARM'S LENGTH PRICE OF THE AMP EXPENDITURE BY APPLYING BRIGHT LINE TEST (BLT ) METHOD WHICH IS NOT ONE OF THE APPROVED METHODS P RESCRIBED UNDER THE STATUTE FOR DETERMINING THE ARM'S LENGTH PRICE. LASTLY, THE LEARNED SR. COUNSEL SUBMITTED , WHILE DECID ING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005 06, THE TRIBUNAL HAS DELETED THE ADDITION / DISALLOWANCE MADE ON ACCOUNT OF AMP EXPENDITURE. HE SUBMITTED , THE DEPARTMENT HAS ALSO ACCEPTED THE DECISION OF THE TRIBUNAL AS THE ONLY ISSUE R AISED BY THE DEPARTMENT IN THE APPEAL FILED BEFORE THE HON'BLE HIGH COURT IS , WHETHER IT COMES WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION. 13 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND THE LEARNED COMMISSIONER (APPEALS). 14 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, AS COULD BE SEEN FROM THE MATERIAL ON RECORD, IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE TRANSFER PRICING OFFICER THE ASSESSEE HAD SPECIFICALLY SUBMITTED THAT THERE IS NO 16 MONDELEZ INDIA FOODS PVT. LTD. ARRANGEMENT OR AGREEMENT WITH THE OVERSEAS A.E. FOR INCURRING AMP EXPENDITURE. IT IS ALSO APPARENT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY INCURRED FOR MARKETING ASSESSEES OWN PRODUCT S AND THE PAYMENT WAS MADE T O THIRD PARTIES IN INDIA. THEREFORE, IT IS OUTSIDE THE PURVIEW OF INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTION 92B OF THE ACT . AS COULD BE SEEN, THE TRANSFER PRICING OFFICER IGNORING THE SUBMISSIONS MADE BY THE ASSESSEE HAD ASSUMED THAT A BENEFIT HAS ACCRUED TO THE OVERSEAS A.E. ON ACCOUNT OF AMP EXPENDITURE INCURRED BY THE ASSESSEE. THE LEARNED COMMISSIONER (APPEALS) HAS UPHELD THE ADJUSTMENT / ADDITION PROPOSED BY THE TRANSFER PRICING OFFICER SIMPLY RELYING UPON HIS ORDER PASSED IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2005 06. NOTABLY, WHILE DECIDING ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005 06 THE TRIBUNAL VIDE ORDER PASSED IN ITA NO. 5470/MUM./2012, DATED 18 TH MAY 2016, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE HOLDING AS UNDER: 3.4.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. BEFORE PROCEEDING FURTHER,IT WOULD BE USEFUL TO UNDERSTAND THE PHILOSOPHY AND TO CONSIDER THE HISTORICAL BACKGROUND OF THE TP PROVISIONS.IT IS SAID THAT THE PURPOSE AND OBJECT OF INTRODU CTION OF THE PROVISIONS CONTAINED IN CHAPTER X IS TO PREVENT AN ASSESSEE FROM AVOIDING PAYMENT OF TAX BY TRANSFERRING INCOME YIELDING ASSETS TO NON - RESIDENTS EVEN WHILE RETAINING THE POWER TO ENJOY THE FRUITS OF SUCH TRANSACTIONS I.E. THE INCOME SO GENERAT ED.AS A CONCEPT,IT IS NOT TOTALLY A NEW IDEA.A REFERENCE TO THE PROVISIONS OF SECTION 42(2)TO THE INDIAN INCOME TAX ACT,1922,COULD BE MADE IN THIS REGARD - AS IT WAS A SOMEWHAT SIMILAR SECTION AND DEALT WITH THE TRANS - BORDER TRANSACTIONS.THE PROVISIONS OF TH E SAID SECTION BROADLY PROVIDED THAT WHERE A NON - RESIDENT CARRIED OUT BUSINESS WITH THE PERSON RESIDENT IN THE TAXABLE TERRITORY AND IT APPEARED TO THE AO THAT ON ACCOUNT OF A 17 MONDELEZ INDIA FOODS PVT. LTD. CLOSE CONNECTION BETWEEN SUCH PERSONS THE BUSINESS WAS SO ARRANGED THAT THE BUSI NESS CONDUCTED BY THE RESIDENT WITH THE NON - RESIDENT EITHER YIELDED NO PROFIT OR,LESS THAN ORDINARY PROFIT,WHICH MAY BE EXPECTED TO ARISE IN THAT BUSINESS THEN,THE AO WAS EMPOWERED TO TAX PROFITS WHICH WERE DERIVED OR WHICH MAY REASONABLY BE DEEMED TO BE D ERIVED FROM THE BUSINESS IN THE HANDS OF A PERSON RESIDENT IN THE TAXABLE TERRITORY.THUS,IT CAN SAFELY BE CONCLUDED THAT TP PROVISIONS WERE PART OF TAX ADMINISTRATION EVEN DURING THE 1922 ACT DAYSTHOUGH AT INFANCY STAGE.THE PRESENT PROVISIONS WERE BEEN INC ORPORATED VIDE FINANCE ACT,2001.SAME WERE FURTHER AMENDED VIDE FINANCE ACT,2002 AND ARE BEING AMENDED FROM TIME TO TIME TO MEET THE NEW CHALLENGES THROWN UP BY THE DYNAMISM OF THE CURRENT COMMERCIAL AND BUSINESS REALITIES.HAVING REGARD TO THE OBJECT FOR WH ICH PROVISIONS HAVE BEEN ENACTED,APPLICABILITY OF THE SAID PROVISIONS HAS TO BE LIMITED TO SITUATIONS WHERE THERE IS DIVERSION OF PROFITS OUT OF INDIA OR WHERE THERE MAY BE EROSION OF TAX REVENUE IN INTRA GROUP TRANSACTION. SO,INTRA - GROUP TRANSACTION IS TH E FIRST PRE - CONDITION FOR INVOKING THE TP PROVISIONS.CALCULATION OF ALP IS THE NEXT AND LOGICAL STEP.BUT,IF THE FIRST STEP ITSELF IS MISSING,THE AO CANNOT GO TO THE SECOND STAGE.IN OTHER WORDS,THE AOS CANNOT CLIMB THE SECOND STOREY OF A BUILDING WITHOUT RE ACHING TO THE FIRST STOREYIF THE EXISTENCE OF AN IT AND CALCULATION OF ALP CAN BE COMPARED WITH A DOUBLESTOREYED BUILDING. 3.4.1.WE FIND THAT THE ASSESSEE IS THE MARKET LEADER OF THE CHOCOLATE MARKET IN INDIA,THAT IT WAS COMMANDING 70% OF THE MARKET SHARE IN THE YEAR UNDER APPEAL,THAT IT HAD DEBITED AMP EXPENSES,AMOUNTING TO RS.85.15CRORES TO ITS P& L.A/C,THAT THE NET TURNOVER OF THE ASSESSEE WAS OF RS.766.21CRORES,THAT IT WAS 11.11% OF THE SALES RECORDED BY THE ASSESSEE DURING THE YEAR,THAT IT HAD ALSO PA ID ROYALTY AMOUNTING TO RS.13.56 CRORES FOR THE SAME PERIOD,THAT THE TPO COMPUTED RS.1.52 CRORES(1.78%) AS THE COST APPORTIONED/ALLOCABLE OUT OF THE A&M COST INCURRED BY THE ASSESSEE FOR THE BENEFIT ACCRUING TO THE AE,THAT HE RESTRICTED THE COST TO RS.71 L AKHS(BEING0.87% OF RS.85.15CRORES)IN VIEW OF THE DISALLOWANCE/ ADJUSTMENT IN INCOME MADE ON ACCOUNT OF ROYALTY FOR TRADE MARK,THAT THE AVERAGE AMP EXPENDITURE BY THE LEADING FMCG COMPANIES FOR THE PERIOD 2001 - 05 WAS 10.28%,THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE DURING THE SAME PERIOD WAS 10.45%,THAT THE ASSESSEE HAD CONTENDED THAT ITS PROFITABILITY(PBT TO SALES RATIO) @10.85%WAS MUCH HIGHER COMPARED TO THE AVERAGE PROFITABILITY OF THE COMPARABLES AT THE RATE OF 3.57%,THAT THE FAA HAD HELD THAT HI GHER RATE PROFITABILITY COULD NOT BE A JUSTIFICATION OF THIS PROPORTIONATE EXPENDITURE, THAT IN THE APPELLATE PROCEEDINGS THE FAA HAD PROPOSED FURTHER ADDITION,THAT FINALLY HE UPHELD THE ORDER OF THE TPO AND CONFIRMED THE ADDITION OF RS.71 LAKHS,THAT THERE WAS NO CONTRACTUAL 18 MONDELEZ INDIA FOODS PVT. LTD. OBLIGATION TO RECOVER MONEY FROM THE AE,THAT IT WAS SEPARATELY PAYING ROYALTY FOR USE OF BRAND AND TRADEMARK. THERE IS NO REASON FOR NOT HOLDING THAT THE INCREASED AMP EXPENDITURE LED TO ENHANCED SALES AND PROFITABILITY,THAT FOR THE PUR POSE OF ANALYSING THE AMP EXPENDITURE INCURRED BY AND THE COMPARABLES IT IS NECESSARY TO CONSIDER VARIOUS FACTORS.IF FACTORS LIKE GROWTH RATE, NATURE OF BUSINESS,NUMBER OF PRODUCTS LAUNCHED,TERRITORIES SERVICED AND TURNOVER/PROFITS ACHIEVED HAVE NECESSARIL Y TO BE CONSIDERED FOR DETERMINING THE AMP EXPENSES.THE ENTIRE EXPENDITURE WAS FOCUSED ON THE INDIAN CONSUMER AND IT IS EVIDENT FROM THE LOCAL FLAVOUR/ LANGUAGE/CONCEPTS.IT IS ALSO AN UNDENIABLE FACT THAT NEW PLAYERS WERE ENTERING INDIA AFTER LIBERALISATIO N - ERA STARTED.IF THE EXPENDITURE INCURRED BY THE ASSESSEE IS CONSIDERED IN THE BACK GROUND OF THE GROWTH ACHIEVED BY IT ONE HAS TO AGREE WITH THE ARGUMENT OF THE ASSESSEE THAT IT MADE RAPID PROGRESS IN THE INDIAN MARKET POST LIBERALISATION PERIOD AND AMP P LAYED AN IMPORTANT ROLE IN IT. HERE,WE WOULD ALSO LIKE TO MENTION THAT THERE EXISTS A FUNDAMENTAL AND BASIC DISTINCTION BETWEEN THE PROVISIONS OF SECTION 37 AND SECTION 92 OF THE ACT - AS THE FIRST IS EXPENSE ORIENTED AND THE SECOND IS PRICING ORIENTED.THE FAA TRIED TO INCORPORATE THE INGREDIENTS OF SECTION 37 WHILE DEALING WITH THE TP ADJUSTMENTS, WHEN HE TALKED OF THEHIGHER EXPENDITURE AND JUSTIFICATIONOF SUCH EXPENDITURE. IN OUR OPINION,THE APPROACH OF THE FAA WAS NOT IN ACCORDANCE WITH THE BASIC PHIL OSOPHY OF TP PROVISIONS.IN OUR OPINION,IT IS THE ASSESSEE WHO HAS TO DECIDE HOW MUCH TO SPEND FOR EARNING HIS INCOME.THE TAX AUTHORITIES ARE PREVENTED FROM ENTERING INTO THE PROVERBIAL SHOES OF THE ASSESSEE TO DECIDE THE JUSTIFICATION OF THE EXPENDITURE.TH E ACT STIPULATES THAT IN CERTAIN CONDITIONS ONLY THE SOCALLED HIGHER EXPENDITURE CAN BE QUESTIONED.THE FAA HAD NOT PROVED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR ADVERTISEMENT ETC.WAS COVERED BY THOSE SECTIONS.IF IT WAS THE CASE THEN THE TRANSACT ION WOULD NOT FALL UNDER SECTION 92 OF THE ACT.THEREFORE, IN OUR OPINION HE HAD ADOPTED A TOTALLY INCORRECT APPROACH, WHILE DEALING THE ALLOWABILITY OF AMP EXPENDITURE. 3.4.2.WE FURTHER HOLD THAT THE CLAIM OF THE ASSESSEE IS FACTUALLY CORRECT THAT IT HAD INCURRED THE AMP EXPENDITURE FOR CREATING PRODUCT AWARENESS AND TO RECALL THE VALUE OF EXISTING PRODUCTS AND THAT IT HAD A LOCAL MARKETING STRATEGY OF MAKING ADVERTISEMENT/SLOGANS IN THE LOCAL LANGUAGE.IN OUR OPINION,KUCH MEETHA HO JAY CAMPAIGN PROVES THE CLAIM MADE BY THE ASSESSEE.THE TPO HAD IGNORED THE FACT THAT FILMS/TV ADVERTISEMENTS OF THE ASSESSEE HAD THE LOCAL MESSAGING CONCEPT.SUCH LOCAL ADVERTISEMENT CAMPAIGNS CAN NEVER BE HELD TO BE DRIVEN TOWARDS SERVING THE INTERESTS OF THE AE.IT IS ALSO A FACT 19 MONDELEZ INDIA FOODS PVT. LTD. THAT NEW MULTINATIONAL PLAYERS IN THE INDUSTRY HAD ENTERED THE INDIAN MARKET.THE COMMERCIAL WISDOM OF ANY ASSESSEE,IN SUCH A SITUATION,WOULD COMPEL IT TO BE INNOVATIVE AND TO SPENT REASONABLE EXPENDITURE FOR MAINTAINING ITS POSITION IN THE MARKET.THE TPO/ FAA HAD NOT CONTROVERTED THE FACT THAT THE AE WAS THE OWNER OF INTELLECTUAL PROPERTY OF THE CADBURYBRAND AND THAT IT WAS RESPONSIBLE FOR PROMOTING THE BRAND ALL OVER THE GLOBE AND THAT THE BRAND RELATED EXERCISE AT THE COST OF THE AE FOR THE OVERALL BRAN D POSITIONING AND MANAGEMENT BENEFITED THE ASSESSEE ALSO IN AN INDIRECT MANNER.NOTHING HAS BEEN BROUGHT ON RECORD TO PROVE THAT THE ASSESSEE WAS DIRECTLY OR INDIRECTLY PROMOTING THE GLOBAL BRAND RATHER THAN PROMOTING ITS OWN PRODUCTS.IN OUR OPINION, THERE EXISTS A FINE BUT VERY IMPORTANT DISTINCTION BETWEEN PRODUCTS PROMOTED AND NURTURED BY AN ASSESSEE AND THE BRAND OWNED AND SUPPORTED BY ITS AE.IN THE MODERN WORLD BOTH EXIST AND PLAY DIFFERENT AND SPECIFIED ROLES.THEREFORE,UNTIL AND UNLESS SOME - THING POSI TIVE IS BROUGHT ON RECORD ABOUT SHARING/INCURRING AMP EXPENDITURE UNDER THE HEAD BY AN ASSESSEE ON BEHALF OF ITS AE,IT CANNOT BE HELD THAT IT SHOULD HAVE RECOVERED SOME AMOUNT FROM THE AE AS THE EXPENDITURE BY IT INDIRECTLY HELPED IN AUGMENTING THE BRAND V ALUE OWNED BY ITS OVERSEAS AE.IN THE CASE UNDER CONSIDERATION,THE ASSESSEE WAS INCURRING EXPENDITURE FOR ITS PRODUCTS WHEREAS THE AE WAS LOOKING AFTER THE GROUND AT GLOBAL LEVEL.IF THE AMP EXPENDITURE INCURRED BY THEM BENEFITED INDIRECTLY IN THE LOCAL/ INT ERNATIONAL MARKET IT WOULD NOT MEAN THAT IT WAS AN IT. THE BASIC PURPOSE OF INTRODUCING THE VARIOUS PROVISIONS OF CHAPTER X,AS STATED EARLIER,WAS TO PREVENT TAX EVASION IN THE TRANSACTIONS UNDERTAKEN BETWEEN AN INDIAN ENTITY AND ITS OVERSEAS AE.IN OUR OPIN ION,A PERCEIVED/NOTIONAL INDIRECT BENEFIT TO THE AE,DUE TO INCURRING OF CERTAIN EXPENDITURE BY AN ASSESSEE IN INDIA, IS NOT COVERED BY THE TP PROVISIONS. IT IS A FACT THAT THE PAYMENT UNDER THE HEAD AMP EXPENDITURE WAS MADE TO THIRD PARTIES AND THAT THOSE PARTIES WERE LOCATED IN INDIA. 3.4.3.WE FIND THAT IN THE CASES OF MARUTI SUZUKI(SUPRA),WHIRLPOOL INDIA(SUPRA), BAUSCH & LOMB EYECARE(INDIA)PVT.LTD(ITA 643 OF 2014 OF HONBLE DELHI HC), THE ISSUE OF AMP EXPENSES HAD BEEN DELIBERATED UPON EXTENSIVELY AND EA CH AND EVERY ARGUMENT RAISED BY THE TPO/DRP HAVE BEEN ANALYSED THREAD BARE.WE WOULD LIKE TO REPRODUCE RELEVANT PORTION OF THE JUDGMENT OF BAUSCH & LOMB EYECARE(INDIA) PVT.LTD.(SUPRA) AND SAME READS AS UNDER: 53.A READING OF THE HEADING OF CHAPTER X['COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO ARM'S LENGTH PRICE']AND SECTION 92 (1) WHICH STATES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP AND SECTION 92C (1) WHICH SETS OUT THE DIFFERENT METHODS OF DETERMINING THE ALP, MAKES IT CLEAR THAT THE TRANSFER 20 MONDELEZ INDIA FOODS PVT. LTD. PRICING ADJUSTMENT IS MADE BY SUBSTITUTING THE ALP FOR THE PRICE OF THE TRANSACTION. TO BEGIN WITH THERE HAS TO BE AN INTERNATIONAL TRANS ACTION WITH A CERTAIN DISCLOSED PRICE.THE TRANSFER PRICING ADJUSTMENT ENVISAGES THE SUBSTITUTION OF THE PRICE OF SUCH INTERNATIONAL TRANSACTION WITH THE ALP. 54. UNDER SECTIONS 92B TO 92F, THE PRE - REQUISITE FOR COMMENCING THE TP EXERCISE IS TO SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION. THE NEXT STEP IS TO DETERMINE THE PRICE OF SUCH TRANSACTION. THE THIRD STEP WOULD BE TO DETERMINE THE ALP BY APPLYING ONE OF THE FIVE PRICE DISCOVERY METHODS SPECIFIED IN SECTION 92C. THE FOURTH STEP WOULD BE TO C OMPARE THE PRICE OF THE TRANSACTION THAT IS SHOWN TO EXIST WITH THAT OF THE ALP AND MAKE THE TP ADJUSTMENT BY SUBSTITUTING THE ALP FOR THE CONTRACT PRICE. 55. SECTION 928 DEFINES 'INTERNATIONAL TRANSACTION' AS UNDER: 'MEANING OF INTERNATIONAL TRANSACTION . 928.(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 NONRESIDENTS; IN THE NATURE OF PURCHASE, SALE OR LEASE OF TAN GIBLE 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 O R MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST. OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANYONE OR MORE OF SUCH ENTERPRISES . (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WITH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES 'OF SUB - SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGREEMEN T IN RELATION TO' THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE, OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINED IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE.' 56.THUS, UNDER SECTION 92B(1 ) AN 'INTERNATIONAL TRANSACTION' MEANS - (A) A TRANSACTION BETWEEN TWO OR MORE AES, EITHER OR BOTH OF WHOM ARE NON - RESIDENT (B) THE TRANSACTION IS IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SERVICE OR LENDING OR BORROWING MONEY OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOMES OR LOSSES OF SUCH ENTERPRISES, AND (C) SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE AES FOR ALLOCATION OR APPORTIONMENT OR CONTRIBUTION TO THE ANY COST OR EXPENSES 21 MONDELEZ INDIA FOODS PVT. LTD. INCURRED OR TO BE INCURRED IN CONNECTION - WITH THE - BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ONE OR MORE OF SUCH ENTERPRISES. 57. CLAUSES (B) AND (C) ABOVE CANNOT BE READ DISJUNCTIVELY. EVEN IF RESORT IS HAD TO THE RES IDUARY PART OF CLAUSE (B) TO CONTEND THAT THE AMP SPEND OF BLI IS 'ANY OTHER TRANSACTION HAVING A BEARING' ON ITS 'PROFITS, INCOMES OR LOSSES, FOR A 'TRANSACTION' THERE HAS TO BE TWO PARTIES. THEREFORE FOR THE PURPOSES OF THE 'MEANS' PART OF CLAUSE (B) AN D THE 'INCLUDES' PART. OF CLAUSE (C), THE REVENUE HAS TO SHOW THAT THERE EXISTS AN 'AGREEMENT' OR 'ARRANGEMENT' OR' 'UNDERSTANDING' BETWEEN BLI - AND B&L, USA WHEREBY BLI IS OBLIGED TO SPEND EXCESSIVELY ON AMP IN ORDER TO PROMOTE THE BRAND OF B&L, USA. AS F AR AS THE LEGISLATIVE INTENT IS CONCERNED, IT IS SEEN THAT CERTAIN TRANSACTIONS LISTED IN THE EXPLANATION UNDER CLAUSES (I) (A) TO (E) TO SECTION 92B ARE DESCRIBED AS AN 'INTERNATIONAL TRANSACTION'. THIS MIGHT BE ONLY AN ILLUSTRATIVE LIST, BUT SIGNIFICANTL Y' IT DOES NOT LIST AMP SPENDING AS ONE SUCH TRANSACTION. 58. IN MARUTI SUZUKI INDIA LTD. (SUPRA), ONE OF THE SUBMISSIONS OF THE REVENUE WAS: 'THE MERE FACT THAT THE SERVICE OR BENEFIT HAS BEEN PROVIDED BY ONE PARTY TO THE OTHER WOULD BY ITSELF CONSTITUT E A TRANSACTION IRRESPECTIVE OF WHETHER THE CONSIDERATION FOR THE SAME HAS BEEN PAID OR REMAINS PAYABLE OR THERE IS A MUTUAL AGREEMENT TO NOT CHARGE ANY COMPENSATION FOR THE SERVICE OR BENEFIT. THIS WAS NEGATIVED BY THE COURT BY POINTING OUT; 'EVEN IF THE WORD 'TRANSACTION' IS GIVEN ITS WIDEST CONNOTATION, AND NEED NOT INVOLVE ANY TRANSFER OF MONEY OR A WRITTEN AGREEMENT AS SUGGESTED BY THE REVENUE, AND EVEN IF RESORT IS HAD TO SECTION 92F (V), WHICH DEFINES 'TRANSACTION' TO INCLUDE 'ARRANGEMENT', 'UNDERST ANDING' OR 'ACTION IN CONCERT', 'WHETHER FORMAL OR IN WRITING', IT IS STILL INCUMBENT ON THE REVENUE TO SHOW THE EXISTENCE OF AN 'UNDERSTANDING' OR AN 'ARRANGEMENT' OR 'ACTION IN CONCERT' BETWEEN MSIL AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. IN OT HER WORDS, FOR BOTH THE 'MEANS', PART AND THE 'INCLUDES' PART OF SECTION 928 (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 O F SMC.' 59. IN WHIRLPOOL OF INDIA LTD. (SUPRA), THE COURT INTERPRETED THE EXPRESSION 'ACTED IN CONCERT' AND IN THAT CONTEXT REFERRED TO THE DECISION OF THE SUPREME COURT IN DAIICHI SANKYO COMPANY LTD. V.. JAYARAM CHIGURUPATI 2010(6)MANU/SC/0454/2010, WHI CH AROSE IN THE CONTEXT OF ACQUISITION OF SHARES OF ZENOTECH LABORATORY LTD. BY THE RANBAXY GROUP. THE QUESTION THAT WAS EXAMINED WAS WHETHER AT THE RELEVANT TIME THE APPELLANT, I.E., 'DAIICHI SANKYO 22 MONDELEZ INDIA FOODS PVT. LTD. COMPANY AND RANBAXY WERE 'ACTING IN CONCERT' WITHIN THE MEANING OF REGULATION 20(4) (B) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997. IN. PARA 44, IT WAS OBSERVED AS UNDER: 'THE OTHER LIMB OF THE CONCEPT REQUIRES TWO OR MORE PERSONS JOINING TOGETHER WITH THE SHARED COMMON OBJECTIVE AND PURPOSE OF SUBSTANTIAL ACQUISITION OF SHARES ETC. OF A - CERTAIN TARGET COMPANY, THERE CAN BE NO 'PERSONS ACTING IN CONCERT' UNLESS THERE IS A SHARED COMMON OBJECTIVE OR PURPOSE BETWEEN TWO OR MORE PERSONS OF S UBSTANTIAL ACQUISITION OF SHARES ETC. OF THE TARGET COMPANY, FOR, DE HORS THE ELEMENT OF THE SHARED COMMON OBJECTIVE' OR PURPOSE THE IDEA OF 'PERSON ACTING IN CONCERT' IS AS MEANINGLESS AS CRIMINAL CONSPIRACY WITHOUT ANY AGREEMENT TO COMMIT A CRIMINAL OFFE NCE. THE IDEA OF 'PERSONS ACTING IN CONCERT' IS NOT ABOUT A FORTUITOUS RELATIONSHIP COMING INTO EXISTENCE BY ACCIDENT OR CHANCE. THE RELATIONSHIP' CAN COME INTO BEING ONLY BY DESIGN, BY MEETING OF MINDS BETWEEN TWO OR MORE PERSONS LEADING TO THE SHARED COM MON OBJECTIVE OR PURPOSE OF ACQUISITION OF SUBSTANTIAL ACQUISITION OF SHARES ETC. OF THE TARGET COMPANY. IT IS ANOTHER MATTER THAT THE COMMON OBJECTIVE OR PURPOSE MAY BE IN PURSUANCE OF AN AGREEMENT' OR AN UNDERSTANDING, FORMAL OR INFORMAL; 'THE ACQUISITIO N OF SHARES ETC. MAY BE DIRECT OR INDIRECT OR THE PERSONS ACTING IN CONCERT MAY COOPERATE IN ACTUAL ACQUISITION OF SHARES ETC. OR THEY MAY AGREE TO, COOPERATE IN SUCH ACQUISITION. NONETHELESS, THE ELEMENT OF THE SHARED COMMON OBJECTIVE OR PURPOSE IS THE SI NE QUA NON FOR THE RELATIONSHIP OF 'PERSONS ACTING IN CONCERT' TO COME INTO BEING. '60. THE TRANSFER PRICING ADJUSTMENT IS NOT EXPECTED TO BE MADE BY DEDUCING FROM THE DIFFERENCE BETWEEN THE 'EXCESSIVE' AMP EXPENDITURE INCURRED BY THE ASSESSEE AND THE AM P EXPENDITURE OF A COMPARABLE ENTITY THAT AN INTERNATIONAL TRANSACTION EXISTS AND THEN PROCEEDING TO MAKE THE ADJUSTMENT OF THE DIFFERENCE IN ORDER TO DETERMINE THE VALUE OF SUCH AMP EXPENDITURE INCURRED , FOR THE AE. IN ANY EVENT, AFTER THE DECISION IN SO NY ERICSSON (SUPRE), -- THE QUESTION OF APPLYING THE BLT TO DETERMINE THE EXISTENCE - OF AN - INTERNATIONAL TRANSACTION INVOLVING AMP EXPENDITURE DOES NOT ARISE. 61. THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE THAT A DISTINCTION IS REQUIRED TO BE DRAWN BETWEEN A 'FUNCTION' AND A 'TRANSACTION' AND THAT EVERY EXPENDITURE FORMING PART OF THE FUNCTION, CANNOT BE CONSTRUED AS A 'TRANSACTION'. FURTHER, THE - REVENUE'S ATTEMPT AT RE - CHARACTERISING THE AMP EXPENDITURE INCURRED AS A TRANSACTION BY ITSELF WHEN IT H AS NEITHER BEEN IDENTIFIED AS SUCH BY THE ASSESSEE OR LEGISLATIVELY RECOGNISED IN THE EXPLANATION TO SECTION 92 B RUNS COUNTER TO LEGAL POSITION 23 MONDELEZ INDIA FOODS PVT. LTD. EXPLAINED IN CIT VS. EKL APPLIANCES LTD. (SUPRA) WHICH REQUIRED A TPO 'TO EXAMINE THE 'INTERNATIONAL TRANSACTIO N' AS HE ACTUALLY FINDS THE SAME.' 62. IN THE PRESENT CASE, THE MERE FACT THAT B&L, USA THROUGH B&L, SOUTH ASIA, INC HOLDS 99.9% OF THE SHARE OF THE ASSESSEE WILL NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE MERE INCREASING OF AMP EXPENDITURE BY THE AS SESSEE INVOLVES AN INTERNATIONAL TRANSACTION IN THAT REGARD WITH B&L, USA. A SIMILAR CONTENTION BY THE REVENUE, NAMELY THE FACT THAT EVEN IF THERE IS NO EXPLICIT ARRANGEMENT, THE FACT THAT THE BENEFIT OF SUCH AMP EXPENSES WOULD ALSO ENCURE TO THE AE IS ITS ELF SELF SUFFICIENT TO INFER THE EXISTENCE OF AN INTERNATIONAL TRANSACTION HAS BEEN NEGATIVED BY THE COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA) AS UNDER: ' 68. THE ABOVE SUBMISSIONS PROCEED PURELY ON SURMISES AND CONJECTURES AND IF ACCEPTED AS SUCH WILL LE AD TO SENDING THE TAX AUTHORITIES THEMSELVES ON A WILD - GOOSE CHASE OF WHAT CAN AT BEST BE DESCRIBED AS A 'MIRAGE'. FIRST OF ALL, THERE HAS TO BE A CLEAR STATUTORY MANDATE FOR SUCH AN EXERCISE. THE COURT IS UNABLE TO FIND ONE. TO THE QUESTION WHETHER THERE IS ANY 'MACHINERY' PROVISION FOR DETERMINING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES, MR. SRIVASTAVA ONLY REFERRED TO SECTION 92F (II) WHICH DEFINES ALP TO MEAN A PRICE 'WHICH IS APPLIED OR PROPOSED TO BE APPLIED IN A TRANSACT ION BETWEEN PERSONS OTHER THAN AES IN UNCONTROLLED CONDITIONS',SINCE THE REFERENCE IS TO 'PRICE' AND TO 'UNCONTROLLED CONDITIONS' IT IMPLICITLY BRINGS INTO PLAY THE BLT. IN OTHER WORDS, IT EMPHASISES THAT WHERE THE PRICE IS SOMETHING OTHER THAN WHAT WOULD BE PAID OR CHARGED BY ONE ENTITY FROM ANOTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DOES NOT SEE THIS AS A MACHINERY PROVISION PARTICULARLY - IN - LIGHT OF THE FACT THAT - THE - BLT HAS BEEN EXPRESSLY NEGATIVED BY THE COURT IN SONY ERI CSSON. THEREFORE, THE EXISTENCE OF AN INTERNATIONAL TRANSACTION WILL HAVE TO BE ESTABLISHED DE HORS THE BLT. 70. WHAT IS CLEAR IS THAT IT. IS THE 'PRICE' OF AN INTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE ADJUSTED: THE VERY EXISTENCE OF AN INTERNATIO NAL TRANSACTION CANNOT BE PRESUMED BY ASSIGNING SOME PRICE TO IT AND THEN DEDUCING THAT SINCE IT IS NOT AN ALP, AN ADJUSTMENT HAD TO BE MADE. THE - BURDEN IS ON THE REVENUE TO FIRST SHOW THE EXISTENCE OF AN INTERNATIONAL TRANSACTION. NEXT, TO ASCERTAIN THE DISCLOSED 'PRICE' OF SUCH TRANSACTION AND THEREAFTER ASK WHETHER IT IS AN ALP. IF THE ANSWER TO THAT IS IN THE NEGATIVE THE TP ADJUSTMENT SHOULD FOLLOW.THE OBJECTIVE OF CHAPTER X IS TO MAKE ADJUSTMENTS TO THE PRICE OF AN INTERNATIONAL TRANSACTION WHICH THE AES INVOLVED MAY SEEK TO SHIFT FROM ONE JURISDICTION TO 24 MONDELEZ INDIA FOODS PVT. LTD. ANOTHER.AN 'ASSUMED' PRICE CANNOT FORM THE REASON FOR MAKING AN ALP ADJUSTMENT. ' 71 - SINCE A QUANTITATIVE ADJUSTMENT IS NOT PERMISSIBLE FOR THE PURPOSES OF A TP ADJUST - MENT UNDER CHAPTER X,EQUALLY IT CANNOT BE PERMITTED IN RESPECT OF AMP EXPENSES EITHER. AS ALREADY NOTICED HEREINBETORE,WHAT THE REVENUE HAS SOUGHT TO DO IN THE PRESENT . CASE IS TO RESORT TO A QUANTITATIVE ADJUSTMENT BY FIRST DETERMINING WHETHER THE AMP SPEND OF THE ASSESSEE ON - APPLICATION OF THE BLT,IS EXCESSIVE,THEREBY EVIDENC - ING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE AE. THE QUANTITATIVE DETER MINATION FORMS THE VERY BASIS FOR THE ENTIRE TP EXERCISE IN THE PRESENT CASE. 74.THE PROBLEM WITH THE REVENUE'S APPROACH IS THAT IT WANTS EVERY INSTANCE OF AN AMP SPEND BY AN INDIAN ENTITY WHICH HAPPENS TO USE THE BRAND OF A FOREIGN AE TO BE PRESUMED TO INVOLVE AN INTERNATIONAL TRANSACTION. AND THIS, NOTWITHSTANDING THAT THIS IS NOT ONE OF THE DEEMED INTERNATIONAL TRANSACTIONS LISTED UNDER THE EXPLANATION TO SECTION 928 OF THE ACT.THE PROBLEM DOES NOT STOP HERE.EVEN IF A TRANSACTION INVOLVING AN AMP SPEND FOR A FOREIGN AE IS ABLE TO BE LOCATED IN SOME AGREEMENT, WRITTEN (FOR E.G., THE SAMPLE AGREEMENTS PRODUCED BEFORE THE COURT BY THE REVENUE) OR OTHERWISE, HOW SHOULD A TPO PROCEED TO BENCHMARK THE PORTION OF SUCH AMP SPEND THAT THE INDIAN ENTITY SHOULD BE COMPENSATED FOR? 63. FURTHER, IN MARUTI SUZUKI INDIA LTD. '(SUPRA) THE COURT FURTHER EXPLAINED THE ABSENCE OF A 'MACHINERY PROVISION QUA AMP EXPENSES BY THE FOLLOWING ANALOGY: ' 75. AS AN ANALOGY; AND FOR - NO OTHER PURPOSE; IN THE - CONTEXT OF A DOMESTIC TRANSACTION INVOLVING TWO OR MORE RELATED PARTIES, REFERENCE MAY' BE MADE TO SECTION 40 A (2) (A) UNDER WHICH CERTAIN TYPES OF EXPENDITURE INCURRED BY WAY OF PAYMENT TO RELATED PARTIES IS NOT DEDUCTIBLE WHERE THE AO IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS.' IN SUCH EVENT, SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION.' THE AO IN SUCH AN INSTANCE DEPLOY S THE 'BEST JUDGMENT' ASSESSMENT AS A DEVICE TO DISALLOW WHAT HE CONSIDERS TO BE AN EXCESSIVE EXPENDITURE. THERE IS NO CORRESPONDING 'MACHINERY' PROVISION IN CHAPTER X WHICH ENABLES' AN AO TO DETERMINE WHAT SHOULD BE THE FAIR 'COMPENSATION' AN INDIAN ENTIT Y WOULD BE ENTITLED TO IF IT IS FOUND' THAT THERE IS AN INTERNATIONAL TRANSACTION IN THAT REGARD. IN PRACTICAL TERMS, ABSENT A CLEAR STATUTORY GUIDANCE, THIS MAY ENCOUNTER FURTHER DIFFICULTIES. THE STRENGTH OF A BRAND,WHICH COULD 25 MONDELEZ INDIA FOODS PVT. LTD. BE PRODUCT SPECIFIC, MAY B E 'IMPACTED BY NUMEROUS OTHER IMPONDERABLES NOT LIMITED TO THE NATURE OF THE INDUSTRY, THE GEOGRAPHICAL PECULIARITIES, ECONOMIC TRENDS BOTH INTERNATIONAL AND DOMESTIC, THE CONSUMPTION PATTERNS, MARKET BEHAVIOUR AND SO ON.A SIMPLISTIC APPROACH USING ONE OF THE MODES SIMILAR TO THE ONES CONTEMPLATED BY SECTION 92C MAY NOT ONLY BE LEGALLY IMPERMISSIBLE BUT WILL LEND ITSELF TO ARBITRARINESS. WHAT IS THEN NEEDED IS A CLEAR STATUTORY SCHEME ENCAPSULATING THE LEGISLATIVE POLICY AND MANDATE WHICH PROVIDES THE NECES SARY CHECKS AGAINST ARBITRARINESS WHILE AT THE SAME TIME ADDRESSING THE APPREHENSION OF TAX AVOIDANCE. 64. IN THE ABSENCE OF ANY MACHINERY PROVISION, BRINGING AN IMAGINED TRANSACTION TO TAX IS NOT POSSIBLE. THE DECISIONS IN CIT V. B.C. SRINIVASA SETTY ( 1981) 128 ITR 294 (SC) AND PNB FINANCE LTD. V, CIT (2008) 307 ITR 75 (SC) MAKE THIS POSITION EXPLICIT. THEREFORE, WHERE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSE WITH AN ASCERTAINABLE PRICE IS - UNABLE TO BE SHOWN TO EXIST, EVEN IF SUCH PRICE IS NIL, CHAPTER X PROVISIONS CANNOT BE INVOKED TO UNDERTAKE A TP ADJUSTMENT EXERCISE. 65. AS ALREADY MENTIONED, MERELY BECAUSE THERE IS AN INCIDENTAL BENEFIT TO THE FOREIGN AE, IT CANNOT BE SAID THAT THE AMP EXPENSES INCURRED BY THE INDIAN EN TITY WAS FOR PROMOTING THE BRAND OF THE FOREIGN AE. AS MENTIONED - IN - SASSOON - J DAVID - (SUPRA) - 'THE -- FACT THAT - SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITTED BY THE EXPENDITURE SHOULD NOT COME IN THE WAY OF AN EXPENDITURE BEING 'ALLOWED BY WAY OF A D EDUCTION UNDER SECTION 10 (2) (XV) OF THE ACT (INDIAN INCOME TAX ACT, 1922) IF IT SATISFIES OTHERWISE THE TESTS LAID DOWN BY THE LAW'. CONSIDERING THE FACTS - LIKE ABSENCE OF AN AGREEMENT BETWEEN THE ASSESSEE AND THE AE.S.FOR SHARING AMP EXPENSES,PAYMENT MA DE BY THE ASSESSEE UNDER THE HEAD AMP TO THE DOMESTIC PARTIES,FAILURE OF THE TPO PROVE THAT EXPENSES WERE NOT FOR THE BUSINESS CARRIED OUT BY THE ASSESSEE IN INDIA - AND FOLLOWING THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT DELIVERED IN THE CASE OF BAUSCH AND LOMB(INDIA)PVT.LTD(SUPRA),WE ARE OF THE OPINION THAT THE TRANSACTION - IN - QUESTION WAS NOT AN INTERNATIONAL TRANSACTION AND THAT THE TPO HAD WRONGLY INVOKED THE PROVISIONS OF CHAPTER X OF THE ACT FOR THE SAID TRANSACTION. 3.4.4.WITH REGARD TO THE SUBM ISSIONS OF THE AR THAT THE ISSUE OF AMP SHOULD BE RESTORED BACK TO THE FILE OF THE AO,WE WANT TO MENTION THAT LAW AS A CONCEPT IS SUPPOSED TO EVOLVE WITH PASSAGE OF TIME - IT CANNOT BE STATIC ALWAYS.NONAVAILABILITY OF A PARTICULAR DECISION OF THE HIGHER FORU M CANNOT JUSTIFY THE RESTORA - TION OF ISSUE/CASES TO THE FILE OF AO IN EACH AND EVERY CASE.UNNECESSARY 26 MONDELEZ INDIA FOODS PVT. LTD. LITIGATION HAS TO BE AVOIDED AND ISSUES HAVE TO BE SETTLED FOR ONCE AND ALL.WE ARE OF THE OPINION THAT AFTER THE JUDGMENTS OF MARUTI SUZUKI AND BAUSCH & LOMB (SUPRA)THERE IS NO SCOPE OF ANY OTHER INTERPRETATION ABOUT THE AMP EXPENDITURE. IN THE CASE UNDER CONSIDERATION,THE AO/TPO HAS NOT BROUGHT ANYTHING ON RECORD 5470 & ORS.CADBURY 21 THAT THERE EXISTED AND AGREEMENT,FORMAL OR INFORMAL,BETWEEN THE ASSESSE E AND THE AE TO SHARE/REIMBURSE THE AMP EXPENSES INCURRED BY THE ASSESSEE IN INDIA. IN ABSENCE OF SUCH AN AGREEMENT THE FIRST AND PRIMARY PRECONDITION OF TREATING THE TRANSACTION - IN - QUESTION AN IT REMAINS UNFULFILLED. CONDUCTING FAR ANALYSIS OR ADOPTING AN APPROPRIATE METHOD IS THE SECOND STAGE OF TP ADJUSTMENTS. THE FIRST THING IS TO FIND OUT WHETHER THE DISPUTED TRANSACTION IN IS IT OR NOT.WITHOUT CROSSING THE FIRST THRESHOLD SECOND CANNOT BE APPROACHED,AS STATED EARLIER.IN THE CASE UNDER CONSIDERATION,WE ARE OF THE OPINION THAT AMP EXPENDITURE IS NOT AN IT AND THEREFORE WE ARE NOT INCLINED TO RESTORE BACK THE ISSUE TO THE FILE OF THE AO.CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION,WE ARE OF THE OPINION THAT THE FAA WAS NOT JUSTI FIED IN UPHOLDING THE ORDER OF THE TPO.THEREFORE,REVERSING HIS ORDER,WE DECIDE SECOND GROUND IN FAVOUR OF THE ASSESSEE. 15 . FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE CO ORDINATE BENCH IN ASSESSEES OWN CASE, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER TOWARDS TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE. GROUND RAISED IS ALLOWED. 16 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF ` 20,41,065, TOWARDS ROYALTY PAYABLE TO CADBURY ADAMS, U.S.A. 17 . A S PER THE FACTS EMANATING FROM THE RECORD, IT IS NOTED THAT THE CADBURY GROUP ACQUIRED ADAMS CONFECTIONARY, U.S.A. (CAUSA) FROM PFIZER INC. IN THE YEAR 2003. ON SUCH ACQUISITION, CADBURY IRELAND LTD. (CIRL) BECAME OWNER OF TRADEMARK AND TECHNICAL KNOWHOW RELATING TO HALLS B RAND AND OTHER LICENSED PRODUCTS. CIRL GRANTED CAUSA THE 27 MONDELEZ INDIA FOODS PVT. LTD. EXCLUSIVE RIGHTS TO MANUFACTURE AND DISTRIBUT E THE PRODUCTS AND USE THE TRADEMARKS, TECHNICAL INFORMATION, ETC. THROUGHOUT THE TERRITORY AND/OR RECEIVE THE BENEFIT ACCRUING SUCH RIGHTS DIRECTLY OR INDIRECTLY THROUGH ITS A.ES. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH CAUSA ON 1 ST JUNE 2006 FOR TRAD EMARK LICENSE AGREEMENT RELATING TO HALLS, MAXAIR, VITA C. AS PER THE SAID AGREEMENT THE ASSESSEE AGREED TO PAY ROYALTY TO CAUSA @ 2.70% OF THE SALES. IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF PAYMENT OF ROYALTY TO CAUSA FOR AN AMOUNT OF ` 32,41,691. IN COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, HE CALLED UPON THE ASSESSEE TO PRODUCE THE RELEVANT DOCUMENTS RELATING TO PAYMENT OF ROYALTY AND ALSO JUSTIFY THE ARM'S LENGTH PRICE OF THE ROYALTY PAID. IN RESPONSE TO THE QUERY RAI SED BY THE TRANSFER PRICING OFFICER, THE ASSESSEE FURNISHED THE REQUIRED DOCUMENT AND ALSO SUBMITTED THAT THE ROYALTY PAYMENT TO CAUSA IS COVERED UNDER THE AUTOMATIC R OUTE , HENCE, NO APPROVAL EITHER FROM RBI OR ANY OTHER AUTHORITY IS REQUIRED. ON A QUERY R AISED BY THE TRANSFER PRICING OFFICER THAT ROYALTY PAYMENT FOR BRAND NAME CANNOT EXCEED 1% OF THE SALE UNDER AUTOMATIC R OUTE IN THE ABSENCE OF APPROVAL BY THE RELEVANT AUTHORITY, IT WAS SUBMITTED BY THE ASSESSEE THAT NO APPROVAL FROM RBI FOR PAYMENT OF ROY ALTY @ 2.7% OF SALES WAS OBTAINED. IT WAS SUBMITTED THAT THE ASSESSEE HAS EXECUTED A DEED OF AMENDMENT WITH CAUSA ON 19 TH DECEMBER 2007, WHEREBY THE ORIGINAL AGREEMENT DATED 28 MONDELEZ INDIA FOODS PVT. LTD. 1 ST JUNE 2006, WAS AMENDED TO INCORPORATE ROYALTY PAYMENT FOR TRANSFER OF KNOWHOW / TECHNOLOGY ALSO. THE TRANSFER PRICING OFFICER AFTER EXAMINING THE AGREEMENT DATED 1 ST JUNE 2006, HOWEVER, OBSERVED THAT CAUSA WAS ONLY A SUB LICENSOR OF THE TRADE MARK AND AS PER THE AGREEMENT WHAT CAUSA OWNED WAS ONLY THE TRADEMARK AND NOT THE TECHNICAL KNOWHOW AND TECHNOLOGY FOR THE LICENSED PRODUCT. THUS, HE WAS OF THE VIEW THAT CAUSA NOT BEING OWNER OF THE TECHNICAL KNOWHOW AND TECHNOLOGY CANNOT TRANSFER THE SAME TO THE ASSESSEE ON PAYMENT OF ROYALTY. HE OBSERVED THAT THE LICENSED PRODUCTS ARE OWNED B Y CIRL AND AS PER THE AGREEMENT DATED 31 ST MARCH 2003, NO TECHNOLOGY AND KNOWHOW OF THE LICENSED PRODUCT WAS AUTHORISED TO BE SUB LICENSED BY CAUSA. THE SUB LICENSING RIGHTS WERE CONFINED TO TRADEMARK ONLY. THUS, HE WAS OF THE VIEW THAT PAYMENT OF ROYALTY FOR TECHNICAL KNOWHOW CANNOT BE ALLOWED. ACCORDINGLY, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE ROYALTY PAID ON TECHNICAL KNOWHOW SHOULD NOT BE DISALLOWED. THOUGH, THE ASSESSEE STRONGLY OBJECTED TO THE PROPOSED DISALLOWANCE THROUGH WRITTEN SUBMISSIONS , HOWEVER, THE TRANSFER PRICING OFFICER REJECTING THE SUBMISSIONS OF THE ASSESSEE HELD THAT AS PER THE TRADEMARK LICENSE AGREEMENT DATED 1 ST JUNE 2006, CAUSA WAS ONLY AUTHORISED TO SUB LICENSE THE RIGHTS OF THE TRADEMARK AND NOT TECHNOLOGY AND KNOWHOW RELA TING TO THE LICENSED PRODUCT. HE OBSERVED , AS PER THE GOVERNMENT CIRCULAR AND GUIDELINES THE MAXIMUM RATE OF ROYALTY FOR USE OF TRADEMARK IS 1%. HE OBSERVE D, THE ASSESSEE 29 MONDELEZ INDIA FOODS PVT. LTD. FAILED TO BRING ON RECORD ANY EVIDENCE TO DEMONSTRATE THAT ROYALTY AT A RATE HIGHER T HAN THE PRESCRIBED NORMS HAVE BEEN ALLOWED BY THE COMPETENT AUTHORITY. HE OB S ERVED , FOR THE PRINCIPAL PRODUCT I.E., CADBURY BRAND NAME THE ASSESSEE IS PAYING ROYALTY OF 1% TO CSOL . WHEREAS, HALLS WHICH CONSTITUTES VERY INSIGNIFICANT PORTION OF THE BUSINESS OF THE ASSESSEE, THE ASSESSEE CANNOT PAY ROYALTY AT A MUCH HIGHER RATE. THUS, HE ULTIMATELY CONCLUDED THAT THE ARM'S LENGTH PRICE OF ROYALTY FOR TRADEMARK PAYABLE TO CAUSA HAS TO BE DETERMINED AT 1% OF THE SALES AS AGAINST 2.7% COMPUTED BY THE ASSESSEE. A CCORDINGLY, HE WORKED OUT THE ARM'S LENGTH PRICE OF TRADEMARK ROYALTY AT ` 12,00,626 . A S A RESULT , THE DIFFERENTIAL AMOUNT OF ` 20,41,065, WAS CONSIDERED AS TRANSFER PRICING ADJUSTMENT. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE HAS ADDED BACK THE ENTIRE ROYALTY PAYMENT IN THE COMPUTATION OF INCOME , THE TRANSFER PRICING OFFICER LEFT IT TO THE DISCRETION OF THE ASSESSING OFFIC ER TO TAKE APPROPRIATE VIEW WITH REGARD TO THE ADDITION OF THE AMOUNT. HOWEVER, THE ASSESSING OFFICER WHILE COMPLE TING THE ASSESSMENT MADE ADDITION OF THE ENTIRE TRANSFER PRICING ADJUSTMENT RECOMMENDED BY THE TRANSFER PRICING OFFICER INCLUDING THE ADJUSTME NT ON ACCOUNT OF ROYALTY PAYMENT TO CAUSA AMOUNTING TO ` 20,41,065. BEING AGGRIEVED OF SUCH ADDITION, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 30 MONDELEZ INDIA FOODS PVT. LTD. 18 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMIN ING THE MATERIAL ON RECORD NOTED THAT THE TRADEMARK LICENSE AGREEMENT BETWEEN THE ASSESSEE AND CAUSA WAS WITH EFFECT FROM 1 ST JANUARY 2006, AND WAS DUE TO EXPIRE ON 31 ST DECEMBER 2007. HE OBSERVED , AS PER THE GOVERNMENT GUIDELINE / REGULATION UND ER THE AUTOMATIC ROUT, BRAND / TRADEMARK ROYALTY IS PAYABLE TO THE EXTENT OF 1% OF THE DOMESTIC NET SALES AND 2% OF THE EXPORT NET SALES. WHEREAS, IN CASE OF MANUFACTURING / TECHNOLOGY ROYALTY, THE UPPER LIMIT IS FIXED AT 5% OF DOMESTIC NET SALES AND 8% OF EXPORT NET SALES. HE OBSERVED , THE AGREEMENT BETWEEN THE ASSESSEE AND CAUSA WAS ONLY FOR USE OF TRADEMARK AND DID NOT PROVIDE FOR TRANSFER OF ANY TECHNOLOGY OR KNOWHOW. HE OBSERVED , RELIANCE OF THE ASSESSEE ON A SUBSEQUENT AGREEMENT DATED 19 TH DECEMBER 20 07, WILL NOT HAVE MUCH RELEVANCE FIRSTLY BECAUSE THE ASSESSEE FAILED TO FURNISH ANY DOCUMENTARY / SUPPORTING EVIDENCE TO PROVE THAT CAUSA BY VIRTUE OF ANY AGREEMENT WITH CADBURY IRELAND WAS AUTHORISED TO EXPLOIT THE KNOWHOW / TECHNOLOGY RELATING TO THE LIC ENSED PRODUCT. FURTHER, HE OBSERVED THAT WHEN IN THE INTERIM PERIOD BETWEEN 1 ST JANUARY 2006 AND 19 TH DECEMBER 2007, THERE WAS NO AGREEMENT BETWEEN THE ASSESSEE AND THE CAUSA FOR PROVISION OF TECHNOLOGY / TECHNICAL KNOWHOW, THE ASSESSEE COULD NOT HAVE GOT BENEFIT OF SUCH TECHNOLOGY OR TECHNICAL KNOWHOW DURING THAT PERIOD. HE OBSERVED , THE AMENDMENT BROUGHT TO THE EARLIER AGREEMENT ON 19 TH 31 MONDELEZ INDIA FOODS PVT. LTD. DECEMBER 2007, IF AT ALL , WILL APPLY PROSPECTIVELY AND NOT FOR THE EARLIER PERIOD. HE OBSERVED , AS PER THE AGREEMENT BETWEEN CADBURY IRELAND AND CAUSA, THERE IS NO CONDITION PROVIDING FOR TRANSFER OF TECHNOLOGY OR TECHNICAL KNOWHOW TO CAUSA. HE ALSO OBSERVED THAT THE ASSESSEE HAS NOT OBTAINED ANY APPROVAL FROM THE COMPETENT AUTHORITY TO MAKE PAYMENT OF TRADEMARK ROYALTY AT A RATE HIGHER THAN THE RATE PRESCRIBED UNDER THE GOVERNMENT GUIDELINE. THUS, HE ULTIMATELY UPHELD THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT O N ACCOUNT OF ROYALTY PAID TO CAUSA. 19 . THE LEARNED SR. COUNSEL FOR THE AS SESSEE SUBMITTED , THE ORIGINAL AGREEMENT ENTERED BY THE ASSESSEE WITH CAUSA PROVIDED FOR LICENSE OF TRADEMARK AS WELL AS TECHNICAL KNOWHOW. HE SUBMITTED , CAUSA IS THE LICENSOR OF THE TECHNOLOGY AND HAS THE RIGHT TO SUB LICENSE THE SAME TO THE ASSESSEE. IN THIS CONTEXT, HE DREW OUR ATTENTION TO RELEVANT CLAUSES OF THE AGREEMENT A COPY OF WHICH IS PLACED AT PAGE 123 OF THE PAPER BOOK. HE SUBMITTED , DRAWING OUR ATTENTION TO THE RELEVANT CLAUSES OF THE AGREEMENT AND MORE PARTICULARLY CLAUSE 7(B), HE SUBMITTED T HAT THE SAID CLAUSE CLEARLY INDICATED SUB LICENSING OF THE TECHNOLOGY FOR LICENSED PRODUCT. THUS, HE SUBMITTED , IT CANNOT BE SAID THAT THE ORIGINAL AGREEMENT DID NOT PROVIDE FOR SUB LICENSING TECHNOLOGY / TECHNICAL KNOWHOW. THE LEARNED SR. COUNSEL SUBMITTE D , ONLY FOR REMOVING ANY AMBIGUITY AND FURTHER CLARIFICATION, THE ASSESSEE ENTERED 32 MONDELEZ INDIA FOODS PVT. LTD. INTO ANOTHER AGREEMENT WITH CAUSA ON 24TH DECEMBER 2007, AMENDING CERTAIN CLAUSES OF THE ORIGINAL AGREEMENT. HE SUBMITTED , AS PER THE AMENDED AGREEMENT WHICH IS EFFECTIVE FR OM 1 ST JANUARY 2006, I.E., THE EFFECTIVE DATE OF THE ORIGINAL AGREEMENT, A SPECIFIC CLAUSE WAS INCORPORATED FOR SUB LICENSING TECHNOLOGY / TECHNICAL KNOWHOW. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT CLAUSES OF AMENDED AGREEMENT A COPY OF WHIC H IS AT PAGE 132A OF THE PAPER BOOK. HE SUBMITTED , THE AMENDED AGREEMENT MAKES IT IMPLICIT THAT THE ASSESSEE HAS TO USE THE TECHNOLOGY FOR MANUFACTURING THE LICENSED PRODUCT. HE SUBMITTED , THE SCOPE AND AMBIT O F TRANSFER PRICING OFFICERS POWER IS ONLY TO DETERMINE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. HE CANNOT LOOK INTO THE ISSUE WHETHER THE COMPANY IS AUTHORISED TO TRANSFER TECHNOLOGY OR NOT. FOR THIS PROPOSITION, HE RELIED UPON THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN CIT V/S ARUN DUA, [1990] 186 ITR 494 (CAL.). HE SUBMITTED , IN ANY CASE OF THE MATTER, THE ASSESSEE ITSELF HAS DISALLOWED THE ENTIRE ROYALTY PAYMENT TO THE CAUSA ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE IN THE COMP UTATION OF INCOME. THUS, HE SUBMITTED , NO SEPARATE ADDITION CAN BE MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ON SUCH ROYALTY PAYMENT. THE LEARNED SR. COUNSEL SUBMITTED , THE TRANSFER PRICING OFFICER HAS NOT CLARIFIED BY APPLYING WHICH ONE OF THE PRESCR IBED METHODS HE HAS DETERMINED THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT AT 1%. TO STRESS UPON THE FACT THAT CAUSA WAS AUTHORISED TO 33 MONDELEZ INDIA FOODS PVT. LTD. SUBLICENSE TECHNOLOGY / TECHNICAL KNOWHOW RELATING TO THE LICENSED PRODUCTS TO THE ASSESSEE, HE DREW THE ATTENTION OF THE B ENCH TO THE LETTER DATED 26 TH APRIL 2016, ISSUED BY MONDELEZ INTERNATIONAL CERTIFYING THAT CAUSA LLC WAS AUTHORISED TO SUB LICENSE TECHNOLOGY / TECHNICAL KNOWHOW TO THE ASSESSEE AS PER AGREEMENT DATED 1 ST JUNE 2006, WHICH IS EFFECTIVE FROM 1 ST JANUARY 2006 . HE SOUGHT PERMISSION OF THE BENCH TO FURNISH THE AFORESAID LETTER AS AN ADDITIONAL EVIDENCE. IN CON CLUSION THE LEARNED SR. COUNSEL SUBMITTED , IN SUBSEQUENT ASSESSMENT YEAR S THOUGH THE ASSESSEE HAS PAID ROYALTY AT THE SAME RATE FOR BOTH TRADE MARK AND TECHNICAL KNOWHOW , N O DISALLOWANCE HAS BEEN MADE BY THE TRANSFER PRICING OFFICER. COUNTERING THE REASONING OF THE DEPARTMENT THAT UNDER THE AUTOMATIC ROUT E ROYALTY PAYMENT CANNO T EXCEED 1%, LEARNED SR. COUNSEL RELYING UPON PRESS NOTE NO.5(5)/ 2003 FC DATED 24 TH JUNE 2003, ISSUED BY THE MINISTRY OF COMMERCE AND INDUSTRY, GOVERNMENT OF INDIA, SUBMITTED THAT THE UPPER LIMIT FOR PAYMENT OF ROYALTY HAS BEEN ENHANCED TO 5% IN RESPECT O F DOMESTIC SALES. THE LEARNED SR. COUNSEL ALSO RELIED UPON THE DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN MAX INDIA LTD., [2016] 388 ITR 81 (P&H) TO SUBMIT THAT THE SERVICES PROVIDED UNDER THE AGREEMENT BETWEEN THE ASSESSEE AND THE A.E. WOULD N OT NECESSARILY BE RECORDED IN WRITING, ADVICE, INSTRUCTIONS, INFORMATION CAN VERY WELL BE COMMUNICATED ORALLY. THE POSSIBILITY OF THE AFORESAID 34 MONDELEZ INDIA FOODS PVT. LTD. PRACTICE BEING FOLLOWED IS MORE WHEN THE TRANSACTIONS ARE BETWEEN GROUP COMPANIES. 20 . T HE LEARNED DEPARTMENTAL REP RESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) AND THE TRANSFER PRICING OFFICER SUBMITTED , SINCE THE PAYMENT OF ROYALTY TO THE OVERSEAS A.E. COMES WITHIN THE PURVIEW OF INTERNATIONAL TRANSACTION AS DEFINED UNDER SE CTION 92B OF THE ACT, THE TRANSFER PRICING OFFICER IS EMPOWERED TO EXAMINE WHETHER SUCH TRANSACTION IS AT ARM'S LENGTH IRRESPECTIVE OF THE FACT WHETHER THE ASSESSEE HAS DISALLOWED THE EXPENDITURE IN THE COMPUTATION OF INCOME. THE LEARNED DEPARTMENTAL REPRE SENTATIVE DRAWING OUR ATTENTION TO THE AGREEMENT DATED 1 ST JUNE 2006, WITH CAUSA SUBMITTED THAT THE AGREEMENT CLEARLY SAYS THAT IT IS FOR LICENSING OF TRADEMARK. THEREFORE, THE RATE OF ROYALTY FIXED UNDER THE SAID AGREEMENT IS FOR TRADEMARK ALONE. HE SUBMI TTED , THOUGH AS PER THE TERMS OF THE SAID AGREEMENT, THERE IS NO TRANSFER OF TECHNOLOGY / KNOWHOW . E VEN ASSUMING THAT THERE IS SUCH A TRANSFER NO PRICE IS FIXED FOR SUCH TRANSFER. HE SUBMITTED , THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENTARY EVIDENCE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED COMMISSIONER (APPEALS) TO DEMONSTRATE TRANSFER OF TECHNOLOGY / KNOWHOW TO THE ASSESSEE. HE SUBMITTED , EVEN AS PER THE SUB LICENSE AGREEMENT BETWEEN CADBURY IRELAND AND CAUSA, CAUSA IS AUTHORIZED TO SUB LI CENSE ONLY TRADEMARK OF PRODUCTS . HE SUBMITTED , 35 MONDELEZ INDIA FOODS PVT. LTD. IN THESE CIRCUMSTANCES, THE CONTENTION OF THE ASSESSEE THAT THE ORIGINAL AGREEMENT BETWEEN THE ASSESSEE AND CAUSA PROVIDES FOR TRANSFER OF TECHNOLOGY / KNOWHOW IS CONTRARY TO FACTS ON RECORD. AS REGARDS THE AGREEMENT EXECUTED IN DECEMBER 2007, AMENDING THE ORIGINAL AGREEMENT BY INCORPORATING TECHNOLOGY TRANSFER, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SINCE THE AMENDED AGREEMENT IS AFTER THE END OF RELEVANT FINANCIAL YEAR, IT WILL NOT APPLY TO THE IMPUGNED ASSESSMENT YEAR. HE SUBMITTED , THE BENCH MARKING DONE BY THE ASSESSEE BY APPLYING ENTITY LEVEL TNMM IS INAPPROPRIATE AS ALL THE INTERNATIONAL TRANSACTION S CANNOT BE AGGREGATED AND HAVE TO BE SEPARATELY BENCH MARKED. IN SUPPORT OF SUCH CONTENTI ON, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: I ) GRUNER INDIA PVT. LTD. V/S DCIT, [2016] 70 TAXMANN.COM 240; II ) KNORR BREMSE INDIA PVT. LTD. V/S ACIT, [2015] 63 T AXMANN.COM 186; AND III ) KAYPEE ELECTRONICS AND ASSOCIATES PVT. LT D. V/S DCIT, IT(TP)A NO.159/BANG./2015 &ORS. DATED 21.04.2017. 21 . IN REJOINDER , THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , THE TRANSFER PRICING OFFICER WAS NOT JUSTIFIED IN SUBJECTING ONLY ONE ELEMENT OF INTERNATIONAL TRANSACTION TO AN ENTIRELY DIFFERENT METHOD WHICH IS DETRIMENTAL TO BOTH THE ASSESSEE AND THE REVENUE. HE SUBMITTED , IF AT ALL TNMM IS NOT APPLICABLE, THE TRANSFER PRICING OFFICER 36 MONDELEZ INDIA FOODS PVT. LTD. SHOULD HAVE FOLLOWED ONE OF THE PRESCRIBED METHODS FOR DETERMINING THE ARM'S LENGTH PRICE. 22 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, THE ASSESSEE HAS PAID ROYALTY TO CAUSA @ 2.7% OF NET SALES AS PER THE AGREEMENT EXECUTED ON 1 ST JUNE 2006. IT IS THE CLAIM OF THE ASSESSEE THAT THE PAYMENT OF ROYALTY IS FOR USE OF TRADEMARK AS WELL AS TECHNICAL KNOWHOW. HOWEVER, THE TRANSFER PRICING OFFICER AFTER EXAMINI NG THE AGREEMENT BETWEEN THE ASSESSEE AND CAUSA HAS OPINED THAT THE AGREEMENT ONLY PROVIDED FOR USE OF TRADEMARK AND IT DOES NOT PROVIDE FOR USE OF TECHNICAL KNOWHOW. IT IS THE SAY OF THE TRANSFER PRICING OFFICER THAT SINCE AS PER THE GOVERNMENT GUIDELINES , PAYMENT OF ROYALTY ON TRADE MARK UNDER THE AUTOMATIC ROUT E IS FIXED AT THE MAXIMUM RATE OF 1% . R OYALTY PAID FOR TRADEMARK AT 2.7% IS NOT AT ARM'S LENGTH. ACCORDINGLY, HE HAS ALLOWED PAYMENT OF ROYALTY FOR TRADEMARK AT 1%. WHILE DOING SO, THE TRANSFER PRI CING OFFICER HAS ALSO OBSERVED THAT THE AGREEMENT EXECUTED IN DECEMBER 2007, AMENDING THE TERMS OF THE ORIGINAL AGRE EMENT HAVING COME IN TO EXISTENCE AFTER EXPIRY OF RELEVANT FINANCIAL YEAR WOULD NOT BE APPLICABLE FOR A TRANSACTION UNDERTAKEN IN THE RELEVA NT FINANCIAL YEAR. THE LEARNED COMMISSIONER (APPEALS) HAS ALSO ENDORSED THE AFORESAID VIEW OF THE TRANSFER PRICING OFFICER. NO DOUBT, O N A PERUSAL OF THE AGREEMENT DATED 1 ST JUNE 2006 BETWEEN THE ASSESSEE AND CAUSA 37 MONDELEZ INDIA FOODS PVT. LTD. IT APPEARS THAT THE SAID AGREEMENT HAS BE EN TERMED AS TRADEMARK LICENSE AGREEMENT . HOWEVER , READING THE AGREEMENT AS A WHOLE AND MORE PARTICULARLY, CLAUSE 7(B) OF THE SAID AGREEMENT , IT BECOMES CLEAR THE LICENSEE (THE ASSESSEE) SHALL MANUFACTURE LICENSED PRODUCT USING ANY TECHNOLOGY OF THE LICENS OR PROVIDED TO THE LICENSEE IN ACCORDANCE WITH ALL SPECIFICATIONS AND INSTRUCTIONS PROVIDED BY THE LICENSOR FROM TIME TO TIME. IT IS NOT THE CASE OF THE REVENUE THAT IN THE RELEVANT PREVIOUS YEAR ASSESSEE HAS NEITHER MANUFACTURED NOR SOLD HALLS BRAND PRO DUCTS IN INDIA. THUS, IT IS NECESSARY TO PONDER WHETHER IN ABSENCE OF NECESSARY TECHNICAL KNOWHOW/KNOWLEDGE IT WOULD HAVE BEEN POSSIBLE FOR THE ASSESSEE TO MANUFACTURE THE AFORESAID PRODUCTS? IN OUR VIEW, THE ANSWER WOULD BE NO. FURTHER , THE ASSESSEE AND C AUSA HAVE ENTERED INTO ONE MORE AGREEMENT ON 24 TH DECEMBER 2007, AMENDING THE TERMS OF THE ORIGINAL AGREEMENT. AS PER THE AFORESAID AGREEMENT, CERTAIN TERMS OF THE ORIGINAL AGREEMENT WAS AMENDED TO INCLUDE LICENSING / SUB LICENSING OF TECHNOLOGY. IT IS THE CONTENTION OF THE LEARNED SR. COUNSEL FOR THE ASSESSEE THAT THE AMENDMENT AGREEMENT EXECUTED ON 24 TH DECEMBER 2007, SHALL OPERATE RETROSPECTIVELY FROM 1 ST JANUARY 2006, TO EMPHASIZE THIS FACT, THE LEARNED SR. COUNSEL FOR THE ASSESSEE HAS SOUGHT TO PRODUCE LETTER DATED 26 TH APRIL 2016, ISSUED BY MONDELEZ INTERNATIONAL AS ADDITIONAL EVIDENCE. FROM A PERUSAL OF THE AFORESAID LETTER, IT APPEARS THAT IT HAS BEEN ISSUED TO CLARIFY THAT AS PER THE ORIGINAL AGREEMENT EXECUTED ON 38 MONDELEZ INDIA FOODS PVT. LTD. 1 ST JUNE 2006, EFFECTIVE FROM 1 ST JANUARY 2006, THE PARTIES TO THE AGREEMENT INTENDED TO TRANSFER AND AVAIL TECHNICAL KNOWHOW / KNOWLEDGE RELATING TO THE LICENSED PRODUCT ALONG WITH TRADEMARK. CONSIDERING THE SUBMISSIONS OF THE LEARNED SR. COUNSEL FOR THE ASSESSEE THAT IN SUBSEQUENT ASSES SMENT YEARS ROYALTY PAID BY THE ASSESSEE @ 2.7% OF SALES WAS ACCEPTED BY THE TRANSFER PRICING OFFICER , THE LETTER DATED 26 TH APRIL 2016, SOUGHT TO BE PRODUCED BY THE ASSESSEE AS ADDITIONAL EVIDENCE, IN OUR VIEW, IS OF MUCH SIGNIFICANCE SINCE IT WILL HAVE A CRUCIAL BEARING IN DETERMINING WHETHER CAUSA HAS AUTHORISED THE ASSESSEE TO USE TECHNIC AL KNOWHOW ALONG WITH TRADEMARK, HENCE, IS ADMITTED AS ADDITIONAL EVIDENCE. EVEN, WITHOUT TAKING COGNIZANCE OF THE AFORESAID ADDITIONAL EVIDENCE, THE ORIGINAL AS WELL A S AMENDED AGREEMENT MAKE IT ABUNDANTLY CLEAR THAT ASSESSEE HAS ALSO AVAILED TECHNICAL KNOWHOW FROM CAUSA. FURTHER, THE DEPARTMENTAL AUTHORITIES DON DISPUTE THE GENUINENESS OR AUTHENTICITY OF THE AMENDED AGREEMENT. WHAT THEY ARE DISPUTING IS THE THE DATE FR OM WHICH THE AMENDED AGREEMENT IS EFFECTIVE. IF THE DEPARTMENTAL AUTHORITIES IN THE SUBSEQUENT ASSESSMENT YEARS HAVE ALLOWED PAYMENT OF ROYALTY BOTH FOR TRADEMARK AND TECHNICAL KNOWHOW, THERE IS NO REASON WHY IT SHOULD NOT BE ALLOWED IN THE IMPUGN ED ASSESS MENT YEAR, SINCE, IT CANNOT BE SAID THAT THE ASSESSEE WAS MANUFACTURING HALLS BRAND PRODUCTS WITHOUT OBTAINING THE REQUIRED TECHNICAL KNOWHOW. 39 MONDELEZ INDIA FOODS PVT. LTD. ACCORDINGLY, WE HOLD THAT PAYMENT OF ROYALTY TO CAUSA IS AT ARMS LENGTH. THE GROUND IS ALLOWED . 23 . IN GROUND NO .4, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ROYALTY PAID OF ` 13,02,22,800, TO M/S. CADBURY SCHWEPPS ASIA SPECIFIC TTE , SINGAPORE . 24 . BRIEF FACTS ARE, IN COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER HAVING NOTICED THAT THE ASSESSEE HAS PAID ROYALTY OF ` 13.02 CRORE TO M/S. CADBURY SCHWEPPS ASIA SPECIFIC TTE (CSAPL) CALLED UPON THE ASSESSEE TO FURNISH NECESSARY DETAILS. FROM THE DETAILS FURNISHED BY THE ASSESSEE, HE FOUND THAT THE ASSESSEE HAS ENTERED INTO A SERVICE AGREEMENT WITH CSAPL ON 21 ST OCTOBER 20 05, EFFECTIVE FROM 1 ST APRIL 2005, FOR PROVISION OF CERTAIN SERVICES TO THE ASSESSEE. AS PER THE TERMS OF THE SAID AGREEMENT, THE FEES PAYABLE BY THE ASSESSEE FOR SERVICES RENDERED WORKS OUT TO ` 13.02 CRORE PER ANNUM. AFTER EXAMINING THE NATURE OF SERVICE S PROVIDED UNDER THE AGREEMENT, THE TRANSFER PRICING OFFICER NOTICED THAT IN FORM NO.3CEB REPORT, THE ASSESSEE HAS STATED THAT THE FEES PAID OF ` 13.02 CRORE FOR SERVICES AVAILED IS AT ARM'S LENGTH UNDER TNMM. NOTICING THE ABOVE, THE TRANSFER PRICING OFFIC ER CALLED FOR FURTHER INFORMATION / DOCUMENT FROM THE ASSESSEE. AS OBSERVED BY THE TRANSFER PRICING OFFICER, THE ASSESSEE DID NOT FURNISH TRANSFER PRICING STUDY REPORT. HOWEVER, A NOTE ON THE TRANSFER PRICING STUDY WAS SUBMITTED. THE TRANSFER PRICING OFFIC ER ALSO 40 MONDELEZ INDIA FOODS PVT. LTD. ALLEGED THAT , THOUGH , IN THE SAID NOTE THE ASSESSEE HAD STATED THAT FURTHER DETAILS WILL BE SUBMITTED AFTER COMPILATION, HOWEVER, NO SUCH DETAILS WERE EVER PRODUCED BY THE ASSESSEE. THEREFORE, THE TRANSFER PRICING OFFICER CALLED UPON THE ASSESSEE T O JUSTIFY THAT THE PAYMENT MADE TO THE A.E. BY FURNISHING THE BASIS OF VALUATION OF VARIOUS SERVICES, HOW THE SERVICES HAVE HELPED THE BUSINESS OF THE ASSESSEE, THE ARM'S LENGTH NATURE OF THE TRANSACTIONS AMOUNTING TO ` 13.02 CRORE, BIFURCATION OF THE TRAN SACTION IN TERMS OF VARIOUS SERVICES SPECIFIED IN THE AGREEMENT, DE JURE AND DE FACTO BASIS OF THE TRANSACTION, ETC. AS ALLEGED BY THE TRANSFER PRICING OFFICER, THE ASSESSEE NEITHER FURNISHED THE REQUIRED DETAILS NOR ANY SATISFACTORY EXPLANATION JUSTIFYING THE PRICE PAID FOR THE TRANSACTION. FURTHER, THE TRANSFER PRICING OFFICER OBSERVED THAT THOUG H IN FORM NO.3CEB REPORT THE ASSESSEE HAS STATED TO HAVE BENCH MARKED THE TRANSACTION BY APPLYING ENTITY LEVEL TNMM, HOWEVER, IT HAS NOT OFFERED ANY SUBMISSION W ITH REGARD TO THE MOST APPROPRIATENESS OF THE METHOD FOLLOWED NOR IT HAS PROVIDED ANY COMPARABLE EVEN WHILE BENCH MARKING THE TRANSACTION UNDER TNMM. THUS, THE TRANSFER PRICING OFFICER ULTIMATELY CONCLUDED THAT THE ASSESSEE FAILED TO ESTABLISH WITH SUPPORT ING EVIDENCE WHETHER THE SERVICES AGREED TO BE RENDERED HAVE ACTUALLY BEEN RENDERED BY THE A.E. HE ALSO OBSERVED, T HE ASSESSEE FAILED TO ESTABLISH WHETHER THE METHOD SELECTED BY IT FOR VALUATION OF THE SERVICES WAS MOST APPROPRIATE, THE TRANSACTION IS AT A RM'S LENGTH . 41 MONDELEZ INDIA FOODS PVT. LTD. FURTHER, THE TRANSFER PRICING OFFICER OBSERVED , THE ASSESSEE FAILED TO FURNISH ANY EVIDENCE WITH REGARD TO THE COST INCLUDING MARK UP INCURRED BY THE A.E. THAT COULD BE ALLOCATED ON ACCOUNT OF THE ASSESSEE FOR RENDERING THE SAME TO OTHER ENTITIES OF THE GROUP IN THE REGION. THUS, ULTIMATELY, THE ASSESS ING OFFICER DETERMINED THE ARM'S LENGTH PRICE OF THE RELEVANT TRANSACTION AT NIL , THEREBY , TREATING THE PAYMENT MADE OF ` 13.01 CRORE AS THE TRANSFER PRICING ADJUSTMENT. ON THE BASIS OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER THE ASSESSING OFFICER MADE THE ADDITION IN THE ASSESSMENT ORDER. WHILE DECIDING ASSESSEES APPEAL CHA LLENGING THE AFORESAID ADDITION LEARNED COMMISSIONER (APPEALS) UPHELD THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 25 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBM ITTED , THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH THE A.E. ON 1 ST APRIL 2005, FOR AVAILING SERVICES RELATING TO BUSINESS STRATEGY, VALUE BASED MANAGEMENT, FINANCIAL PLANNING AND ACCOUNTING, SUPPLY CHAIN CO ORDINATION AND PLANNING, HUMAN RESOURCES, LEGAL, MARKETING, ETC. HE SUBMITTED , FOR AVAILING SUCH SERVICES, THE ASSESSEE HAS PAID THE AMOUNT OF ` 13.02 CRORE AND HAS BENCH MARKED SUCH TRANSACTION BY APPLYING TNMM AS MOST APPROPRIATE METHOD. HE SUBMITTED , THE ASSESSEE HAS CONSIDERED IT SELF AS TESTED PARTY SINCE IT DOES NOT OWN AN INTANGIBLE ASSET AND ITS PROFITABILITY CAN BE ASCERTAINED MOST RELIABLY . HE SUBMITTED , SINCE THE 42 MONDELEZ INDIA FOODS PVT. LTD. MARGIN EARNED BY THE ASSESSEE IS HIGHER THAN THE MARGIN EARNED BY THE COMPARABLE COMPANIES UNDER TNMM , THE TRANSACTION SHOULD BE CONSI DERED TO BE AT ARMS LENGTH. REFUTING THE ALLEGATION OF THE DEPARTMENTAL AUTHORITIES THAT THE ASSESSEE HAS NOT FURNISHED SUPPORTING EVIDENC E S, THE LEARNED SR. COUNSEL SUBMITTED , ALL NECESSARY AND RELEVANT EVIDENCES WERE PRODUCED BEFORE THE DEPARTMENTAL AUT HORITIES. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE DOCUMENTS SUBMITTED IN THE PAPER BOOK. HE SUBMITTED , THE ASSESSEE HAS AVAILED SERVICES FROM CSAPL ON COST PLUS 5% MARK UP BASIS . I N THIS CONTEXT , THE LEARNED SR. COUNSEL SOUGHT TO PRODUCE ADDITIONAL EVIDENCES AS ADDITIONAL EVIDENCE AN AFFIDAVIT OBTAINED FROM CSAPL STATING THAT SERVICES HAVE BEEN RENDERED BY CSAPL TO THE ASSESSEE ON A COST PLUS 5% MARK UP BASIS. THE LEARNED SR. COUNSEL SUBMITTED , THE TRANSFER PRICING OFFICER CANNOT DETERMINE THE ARM'S LENGTH PRICE AT NIL AS HE HAS TO DETERMINE THE ARM'S LENGTH PRICE BY APPLYING ANY ONE OF THE PRESCRIBED METHOD S . HE ALSO SUBMITTED THAT THE TRANSFER PRICING OFFICER CANNOT REJECT TNMM BY SEGREGATING A SINGLE TRANSACTION. THE LEARNED SR. COUNSEL SUBMITTED , THE EVIDENCES PRODUCED BY THE ASSESSEE BEFORE THE DEPARTMENTAL AUTHORITIES WERE NOT PROPERLY EXAMINED BEFORE REJECTING THE CLAIM OF THE ASSESSEE. THE LEARNED SR. COUNSEL SUBMITTED , IN THE SUBSEQUENT ASSESSMENT YEARS, BOTH THE TRANSFER PRICING OFFICER AND T HE LEARNED COMMISSIONER (APPEALS) THOUGH HAVE DISPUTED THE QUANTUM OF THE PAYMENT MADE TO CSAPL FOR THE SERVICES 43 MONDELEZ INDIA FOODS PVT. LTD. AVAILED, HOWEVER, THEY HAVE ACCEPTED THAT THE ASSESSEE HAS AVAILED SERVICES FROM CSAPL UNDER THE AGREEMENT. THUS, HE SUBMITTED , THE ADDITION MA DE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT SHOULD BE DELETED. 26 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) AND THE TRANSFER PRICING OFFICER SUBMITTED , THIS IS A COMPLETELY NEW INTER NATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR. HE SUBMITTED , THE ASSESSEE HAS TO DEMONSTRATE THAT IT HAS RECEIVED BENEFIT FROM THE SERVICES AVAILED FROM THE A.E. IN ECONOMIC AND COMMERCIAL TERMS. HE SUBMITTED , NEITHER BE FORE THE TRANSFER PRICING OFFICER NOR BEFORE THE LEARNED COMMISSIONER (APPEALS) THE ASSESSEE HAS FURNISHED ANY SUPPORTING EVIDENCE EITHER TO PROVE THE FACT THAT THE SERVICES ARE AVAILED FROM THE A.E. OR THE BENEFIT ACCRUED FROM SUCH SERVICES. HE SUBMITTED , EVEN THE ASSESSEE DID NOT FURNISH THE DETAILS OF COST INCURRED BY THE A.E. FOR THE SERVICES PROVIDED UNDER VARIOUS HEADS. HE SUBMITTED , SINCE THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE WITH REGARD TO AVAILING OF SERVICES AND JUSTIFY THE ARM'S LENGTH PRIC E OF THE PAYMENT MADE, THE TRANSFER PRICING OFFICER CORRECTLY DETERMINED THE ARM'S LENGTH PRICE AT NIL. HE SUBMITTED , THE CLAIM OF THE ASSESSEE THAT IN SUBSEQUENT ASSESSMENT YEARS THE TRANSFER PRICING OFFICER HAS ALLOWED A PART OF THE PAYMENT 44 MONDELEZ INDIA FOODS PVT. LTD. MADE TOWARDS SERVICES AVAILED, CANNOT BE APPLIED TO THE PRESENT YEAR SINCE AS PER THE FACTS INVOLVED IN THE PRESENT YEAR, THE ASSESSEE HAS FAILED TO FURNISH THE NECESSARY DETAILS. REFUTING THE CONTENTION OF THE LEARNED SR. COUNSEL THAT VARIOUS EVIDENCES WERE PRODUCED B EFORE THE DEPARTMENTAL AUTHORITIES THE LEARNED DEPARTMENTAL REPRESENTATIVE DR A WING OUR ATTENTION TO CERTAIN SPECIFIC DOCUMENTS FURNISHED IN THE PAPER BOOK SUBMITTED THAT THESE DOCUMENTS PERTAINED TO SUBSEQUENT FINANCIAL YEARS , HENCE, HAVE NO RELEVANCE FOR THE IMPUGNED ASSESSMENT YEAR. HE SUBMITTED , IF THE TRIBUNAL ADMITS THE ADDITIONAL EVIDENCE, THE ASSESSING OFFICER MUST BE GIVEN AN OPPORTUNITY TO EXAMINE SUCH EVIDENCE AND DECIDE THE ISSUE AFRESH. 27 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. THE DISPUTE IS WITH REGARD TO PAYMENT OF ` 13.02 CRORE TO ONE OF THE A.ES TOWARDS AVAILING OF VARIOUS SERVICES UNDER AN AGREEMENT EXECUTED WITH THE A.E . ON A PERUSAL OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER AND THE LEARNED COMMISSION ER (APPEALS) IT IS EVIDENT , ASSESSEES CLAIM THAT AFORESAID PAYMENT WAS MADE TO THE A.E. FOR SERVICES AVAILED WAS DISBELIEVED AND THE ARM'S LENGTH PRICE WAS DETERMINED AT NIL BASICALLY ON THE ALLEGATION THAT ASSESSEE FAILED TO FURNISH NECESSARY AND RELEVAN T DOCUMENTARY EVIDENCES TO PROVE THAT SERVICES WERE ACTUALLY RENDERED BY THE A.E. AND ANY BENEFIT IN ECONOMIC AND COMMERCIAL TERMS ACCRUED TO THE ASSESSEE AS A RESULT OF 45 MONDELEZ INDIA FOODS PVT. LTD. SUCH SERVICES. EVEN , THERE IS AN ALLEGATION BY THE TRANSFER PRICING OFFICER THAT THE ASSESSEE DID NOT JUSTIFY THE BENCH MARKING UNDER TNMM BY OFFERING COMPARABLES. OF COURSE, THE LEARNED SR. COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT VARIOUS DOCUMENTARY EVIDENCES W ERE FURNISHED BEFORE THE TRANSFER PRICING OFFICER AS WELL AS LEARNED COMMISSIONER (APPEALS) TO DEMONSTRATE THAT SERVICES WERE AVAILED FROM THE A.E. UNDER THE TERMS OF THE AGREEMENT. THE LEARNED SR. COUNSEL, HOWEVER, FAIRLY SUBMITTED THAT THE DETAILS OF COS T INCURRED BY THE A.E. WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER , SINCE , HE NEVER CALLED FOR IT. IT IS NECESSARY TO OBSERVE , IN THE COURSE OF HEARING BEFORE US THE LEARNED SR. COUNSEL HAS FILED AN AFFIDAVIT OBTAINED FROM CSAPL , THE A.E. , AS SERTING TH AT VARIOUS SERVICES WERE RENDERED TO THE ASSESSEE ON COST PLUS MARK UP BASIS. ADMITTEDLY, THE AFORESAID ADDITIONAL EVIDENCE WAS NOT BEFORE THE TRANSFER PRICING OFFICER OR THE LEARNED COMMISSIONER (APPEALS). CONSIDERING THE FACT THAT THE AFFIDAVIT PRODUCED BEFORE US MAY HAVE A CRUCIAL BEARING ON DECIDING THE ISSUE ONE WAY OR THE OTHER , THOUGH , WE ADMIT THE ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE, HOWEVER, SINCE THE AFORESAID ADDITIONAL EVIDENCES HAS NOT BEEN EXAMINED EITHER BY THE TRANSFER PRICING OFFIC ER OR THE LEARNED COMMISSIONER (APPEALS) , IN OUR VIEW, IT WOULD BE FAIR AND REASONABLE TO ALLOW AN OPPORTUNITY TO THE ASSESSING OFFICER TO CONSIDER THE ADDITIONAL EVIDENCE AND DECIDE THE ISSUE. MOREOVER, THERE IS ALSO ALLEGATION AND COUNTER ALLEGATION WITH REGARD TO PRODUCTION OF 46 MONDELEZ INDIA FOODS PVT. LTD. EVIDENCES. WHILE THE DEPARTMENTAL AUTHORITIES HAVE ALLEGED THAT RELEVANT DOCUMENTARY EVIDENCES WERE NOT PRODUCED, THE ASSESSEE CLAIMS THAT ALL EVIDENCES WERE PRODUCED. WITHOUT ENTERING INTO THE CONTROVERSY AS TO WHETHER ASSESSEE HA S PRODUCED THE EVIDENCES OR NOT, WE ARE OF THE OPINION THAT EVIDENCES BROUGHT ON RECORD, AS CONTAINED IN THE PAPER BOOKS FILED BEFORE US, DESERVE TO BE EXAMINED ON THEIR OWN MERIT BEFORE DECIDING THE ISSUE ONE WAY OR THE OTHER. MORE SO, WHEN AS PER ASSES SEES CLAIM IN THE SUBSEQUENT ASSESSMENT YEARS THE TRANSFER PRICING OFFICER HIMSELF HAS ALLOWED A PART OF THE SERVICE CHARGES PAID BY THE ASSESSEE TO CSAPL , THOUGH , THE QUANTUM IS IN DISPUTE. IF IN THE SUBSEQUENT ASSESSMENT YEARS THE TRANSFER PRICING OFFIC ER HAS ACCEPTED THE FACT THAT THE ASSESSEE HAS AVAILED SERVICES FROM CSAPL UNDER THE VERY SAME AGREEMENT , THERE IS NO REASON TO DISPUTE ASSESSEES CLAIM OF AVAILING SERVICES IN THE IMPUGNED ASSESSMENT YEAR IF THE ASSESSEE CAN DEMONSTRATE SUCH FACT BY FURNI SHING PROPER DOCUMENTARY EVIDENCES. IN THAT EVENT, THE TRANSFER PRICING OFFICER CERTAINLY CANNOT DETERMINE THE ARM'S LENGTH PRICE AT NIL BY APPLYING THE BENEFIT TEST. THEREFORE, ON OVERALL CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLIN ED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSING OFFICER. THE ASSESSING OFFICER / TRANSFER PRICING OFFICER MUST PASS A SPEAKING AND WELL 47 MONDELEZ INDIA FOODS PVT. LTD. REASONED ORDER DEALING WITH ALL THE SUBM ISSIONS OF THE ASSESSEE. ACCORDINGLY, THIS GROUND IS ALLO W ED FOR STATISTICAL PURPOSES. 28 . IN VIEW OF OUR DECISION IN GROUNDS NO.1, 2, 3 AND 4, THERE IS NO NEED FOR ADJUDICATION OF GROUND NO.5, INDEPENDENTLY. 29 . IN GROUND NO.6, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF DEPRECIATION OF ` 22,75,506, ON CAPITALIZATION OF MARKETING KNOWHOW RELATING TO NON CHOCOLATE CONFECTIONARY BUSINESS OF M/S. WARNER LAMBERT (I) PVT. LTD. 30 . BRIEF FACTS ARE, DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR 2002 03, THE ASSESSEE HAD ACQUIRED ON GOING NON CHOCOLATE CONFECTIONARY BUSINESS OF WARNER LAMBERT (I) PVT. LTD . OUT OF THE TOTAL CONSIDERATION PAID, THE ASSESSEE ALLOCATED CERTAIN AMOUNT TO MARKETING KNOWHOW AND CAPITALIZE D IN THE BOOKS OF ACCOUNT BY TREATING SUCH CAPITALIZED AMOUNT AS INTANGIBLE S. THE ASSESSEE CLAIMED DEPRECIATION FOR THE FIRST TIME ON SUCH INTANGIBLES IN ASSESSMENT YEAR 2003 04 . IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE CLAIMED DEPRECIATION ON THE OPENING WRITTEN DOWN VALUE OF THE INTANGIBLE FOLLOWING THE SAME PROCEDURE AS WAS FOLLOWED IN THE PRECEDING ASSESSMENT YEAR. HOWEVER, THE ASSESSING OFFICER TAKING NOTE OF THE FACT THAT IN ASSESSMENT YEAR 2003 04, ASSESSEES CLAIM OF DEPRECIATION ON CAPITALIZED VALUE OF MARKETING KNOWHOW WAS 48 MONDELEZ INDIA FOODS PVT. LTD. DISALLOWED , FOLLOWED THE SAME IN THE IMPUGNED ASSESSMENT YEAR AS WELL , THEREBY , DISALLOWING THE DEPRECIATION OF ` 22,75,506. BEING AGGRIEVED OF SUCH DISALLOWANCE, ASSESSEE PREFERRED APPEAL BEFO RE THE LEARNED COMMISSIONER (APPEALS), HOWEVER, HE ALSO SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 31 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR S CLAIM OF DEPRECIATION HAS B EEN ALLOWED BY THE TRIBUNAL . THUS , HE SUBMITTED THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR S . 32 . THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGREED WITH THE AFORESAID SUBMISSIONS OF THE ASSESSEE. 33 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. IT IS EVIDENT , THE ASSESSING OFFICER DISALLOWED ASSESSEES CLAIM ON CAPITALIZED VALUE OF MARKETING KNOWHOW SIMPLY RELYING UPON THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2003 04. HOWEVER IT IS A FACT ON RECORD, WHILE DECIDING SIMILAR ISSUE IN ASSESSMENT YEAR 2003 04 AND 2004 05 IN ITA NO.3510/MUM./2011 AND ITA NO.4205/ MUM./2011, DATED 13 TH MARCH 2015, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM OF DEPRECIATION. SAME VIEW WAS REITERATED BY THE TRIBU NAL WHILE DECIDING ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005 49 MONDELEZ INDIA FOODS PVT. LTD. 06 IN ITA NO.5470/MUM./2012, DATED 18 TH MAY 2016. THEREFORE , RESPECTFULLY FOLLOWING THE CONSIS TENT VIEW OF THE TRIBUNAL ON THIS ISSUE IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR S , WE ALLOW ASSESSEES CLAIM OF DEPRECIATION. 34 . IN GROUND NO.7, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT AMOUNTING TO ` 1,77,87,904. 35 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING T HAT IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND AND INTEREST ON TAX FREE BOND AMOUNTING TO ` 8,02,14,485, CALLED UPON THE ASSESSEE TO EXPLAIN WHY EXPENDITURE ATTRIBUTABLE TO SUCH INCOME SHOULD NOT BE DISALLOWED U NDER SECTION 14A OF THE ACT. IN RESPONSE, THE ASSESSEE FURNISHED A DETAILED EXPLANATION STATING THAT INVESTMENTS IN EXEMPT INCOME YIELDING FUND WERE MADE OUT OF SURPLUS FUND AVAILABLE WITH THE ASSESSEE, HENCE, NO INTEREST EXPENDITURE WAS INCURRED. FURTHER, FURNISHING THE DETAILS OF EXPENSES INCURRED UNDER VARIOUS HEADS, IT WAS SUBMITTED THAT ONLY THE SALARY RELATING TO TREASURY MANAGER AND HIS ASSISTANT WHO LOOK AFTER THE ENTIRE TREASURY AND BANKING RELATED FUNCTIONS AND TAKE DECISIONS FOR PUTTING THE MONEY S FROM TIME TO TIME IN MUTUAL FUND AND OTHE R INVESTMENT CAN BE ATTRIBUTED TOWARDS EARNING OF EXEMPT INCOME. ACCORDINGLY, HE WORKED OUT SUCH DISALLOWANCE AT ` 1,25,452. THE ASSESSING OFFICER, HOWEVER, DID NOT 50 MONDELEZ INDIA FOODS PVT. LTD. FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. O N PERUSING THE PROFIT & LOSS ACCOUNT HE NOTICED THAT THE NET PROFIT BEFORE TAXATION HAS BEEN SHOWN AT ` 98.28 CRORE AND TOTAL EXEMPT INCOME RECEIVED BY THE ASSESSEE IS ` 8.02 CRORE WHICH WORKS OUT TO 8.18% OF THE NET PROFIT. ACCORDINGLY, APPLYING THE SAME PERCENTAGE RATE TO THE EXPENDITURE INCURRED OF ` 24.05 CRORE, HE DISALLOWED AN AMOUNT OF ` 1.97 CRORE UNDER SECTION 14A OF THE ACT. 36 . T HOUGH, THE ASSESSEE CHALLENGED THE DISALLOWANCE IN APPEAL, HOWEVER, THE LEARNED COMMISSIONER (APPEALS) SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 37 . THE LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED, IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004 05 AND 2005 06 AND THE TRIBUNAL IN BOTH THE ASSES SMENT YEARS HAS RESTRICTED THE DISALLOWANCE TO 2% OF THE EXEMPT INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR. THUS, HE SUBMITTED , SIMILAR DIRECTIONS MAY ALSO BE GIVEN IN THE IMPUGNED ASSESSMENT YEAR. 38 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS). 39 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. AS COULD BE SEEN FROM THE FACTS ON RECORD, WHILE THE ASSESSEE 51 MONDELEZ INDIA FOODS PVT. LTD. HAD WORKED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT ON THE BAS IS OF SALARY COST INCURRED IN RESPECT OF TWO EMPLOYEES WORKING IN THE TREASURY DEPARTMENT, THE ASSESSING OFFICER HAS QUANTIFIED THE DISALLOWANCE ON PROPORTIONATE BASIS KEEPING IN VIEW THE RATIO BETWEEN THE NET PROFIT AND EXEMPT INCOME EARNED BY THE ASSESSE E. WHILE DOING SO, THE ASSESSING OFFICER HAS COMPLETELY IGNORED THE SUBMISSIONS OF THE ASSESSEE THAT INVESTMENTS MADE WERE OUT OF SURPLUS FUNDS AND ONLY THE SALARY COST RELATING TO TWO EMPLOYEES OF THE TREASURY DEPARTMENT IS ATTRIBUTABLE TOWARDS EARNING OF EXEMPT INCOME. NOTABLY, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004 05, THE TRIBUNAL IN ITA NO.4205/MUM./2011, DATED 13 TH MAY 2015, RESTRICTED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO 2% OF THE EXEMPT INCOME EARN ED DURING THE YEAR. THE SAME VIEW WAS REITERATED BY THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2005 06, IN ITA NO.5470/MUM./2012, DATED 18 TH MAY 2016. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL IN A SSESSEES OWN CASE AS REFERRED TO ABOVE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO 2% OF THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THIS GROUND IS PARTLY ALLOWED. 40 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. 52 MONDELEZ INDIA FOODS PVT. LTD. ITA NO.1578/MUM./2013 1 REVENUES APPEAL 41 . IN THIS APPEAL, THE MAIN GROUND RAISED BY THE REVENUE IS WITH REGARD TO DELETION OF PART DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 42 . IN VIEW OF OUR DECISION IN GROUND NO.7, OF ASSESS EES APPEAL HEREIN BEFORE, THIS GROUND HAS BECOME REDUNDANT, HENCE, NO SEPARATE ADJUDICATION IS REQUIRED. ACCORDINGLY, THIS GROUND IS DISMISSED. 43 . BESIDE THE AFORESAID MAIN GROUND, THE REVENUE HAS RAISED ADDITIONAL GROUND S CONCERNING THE AMP EXPENDITURE. 44 . IN VIEW OF OUR DECISION IN GROUND NO.2, OF ASSESSEES APPEAL HEREIN BEFORE, THESE GROUNDS HAVE BECOME REDUNDANT, HENCE, ARE DISMISSED. 45 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. 46 . TO SUM UP, ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.11.2018 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 28.11.2018 53 MONDELEZ INDIA FOODS PVT. LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI