M/s. Moet Hennessy India Pvt. Ltd., Mumbai V. ACIT, New Delhi

ITA 1906/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3133 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 20-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VATSALA JHA RESPOND
• Assessee Lawyers: SUMIT MANGAL; RASHMI GUPTA
• Keywords: Gift; Business income; Transfer pricing; Business expenditure; International transaction; Capital expenditure
• Section: 143(3); 37(1)

Judgement Text

ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-2 BENCH, NEW DELHI [CORAM: PRAMOD KUMAR AM AND SUDHANSHU SRIVASTAVA JM ] ITA NO. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 MOET HENNESSY INDIA PVT LTD ..APPELLANT UNIT NO. 1903, TOWER 2, 19 TH FLOOR INDIABULLS FINANCIAL CENTRE, SENAPATI BAPAT MARG MUMBAI 400 013 [PAN: AACCM4079L] VS ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 5(1), NEW DELHI .............RESPON DENT APPEARANCES BY SUMIT MANGAL AND RASHMI GUPTA FOR THE APPELLANT SANJAY KUMAR YADAV AND VATSALA JHA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : MAY 24, 2018 DATE OF PRONOUNCEMENT : AUGUST 23, 2018 O R D E R PER PRAMOD KUMAR, AM: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF THE ORDER DATED 29 TH JANUARY 2014 PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2 009-10. 2. GRIEVANCES OF THE ASSESSEE, IN SUBSTANCE, IS DIR ECTED AGAINST THE ARMS LENGTH PRICE ADJUSTMENT OF RS 6,64,70,841 IN RESPECT OF ALLEGED INTERNATIONAL TRANSACTION ON ACCOUNT OF ADVERTISEMENT, PROMOTION AND MARKETING EXPENSES SAI D TO HAVE BEEN INCURRED ON BEHALF OF ITS PARENT COMPANY. TO ARTICULATE THIS GRIEVANCES, ASSE SSEE HAS RAISED FOLLOWING RATHER ELABORATE GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ASSISTANT COMMISSIONER OF INCOME-TAX - CIRCLE 5(1) ('AO')/THE TRANSFER PRICING OFFICER (TPO')/ DISPUTE RESOLUTION PANEL ('DRP') ERRED IN CONFIRMING THE ADJUSTMENT OF RS 6,64,70,841/- BY HOLDING THAT THE APPELLANT OUGH T TO HAVE RECEIVED REIMBURSEMENT FOR 'ALLEGED EXCESSIVE' ADVERTISING, MARKETING AND PROMOTION ('AMP') EXPENSES FROM ITS ASSOCIATED ENTERPRISES (' AES'). ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 2 OF 9 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE AO/TPO/DRP ERRED IN: A) NOT FOLLOWING THE BINDING DECISION OF JURISDICTI ONAL TRIBUNAL IN THE CASE OF BMW INDIA PVT. LTD. VS. ADDL. CIT [TS-230-ITAT-2013 (DEL)-TP] ('BMW INDIA'); B) DISREGARDING THE FACT THAT THE PREMIUM PROFITS E ARNED BY THE APPELLANT COMPENSATED FOR THE ALLEGEDLY EXCESSIVE AMP EXPENSE S, IF ANY, INCURRED BY IT; C) DISREGARDING THE TRANSFER PRICING POLICY OF THE MOET GROUP WHEREIN MOET INDIA IS PROVIDED WITH AN AGREED CONTRIBUTION MARGI N WHICH CLEARLY INDICATES THAT MOET GROUP FUNDS THE AMP EXPENSES OF MOET INDI A THROUGH THE IMPORT PRICE; D) MISINTERPRETING OR PLACING INCORRECT RELIANCE ON THE INTERNATIONAL GUIDANCE IN RELATION TO THE 'MARKETING INTANGIBLES' AND 'BRIGHT LINE TEST' FROM ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOP MENT ('OECD'), US TP REGULATIONS AND AUSTRALIAN TAX OFFICE ('ATO') AND R ELYING ON SEVERAL ERRONEOUS/FACTUALLY INCORRECT AND CONTRADICTORY STA TEMENTS/OBSERVATIONS IN THE TP ORDER, WHICH ARE NOT RELEVANT TO THE INSTANT CAS E, ONLY IN ORDER TO JUSTIFY AN OTHERWISE INAPPROPRIATE AND UNWARRANTED TP ADJUSTME NT; E) INCORRECTLY HOLDING THE AMP EXPENSES INCURRED BY THE APPELLANT TO BE 'EXCESSIVE' ON THE BASIS OF A 'BRIGHT LINE LIMIT' A RRIVED AT BY DERIVING A DISTORTED AND INCORRECT SET OF COMPARABLE COMPANIES; F) BY HOLDING THAT A MARK-UP OF 15% OUGHT TO BE EA RNED BY THE APPELLANT IN RESPECT OF THE 'ALLEGED EXCESSIVE' AMP EXPENSES, WI THOUT ANY BASIS; G) IN FOLLOWING THE DECISION OF THE HON'BLE SPECIA L BENCH IN THE CASE OF LG ELECTRONICS (152 TTJ 273) (DEL) (SB) WITHOUT APPREC IATING THE FACT THAT THE SAID DECISION WAS RENDERED IN THE CONTEXT OF LICENSED MA NUFACTURER AND HENCE NOT APPLICABLE TO THE DISTRIBUTOR. THE LEGAL PROPOSITIO N CANVASSED BY THE APPELLANT HAS BEEN UPHELD BY THE HON'BLE DELHI TRIBUNAL IN TH E CASE OF BMW INDIA. THE APPELLANT THEREFORE PRAYS THAT THE AFORESAID AD JUSTMENT BE DELETED. 3. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE AO/TPO/DRP ERRED IN CONSID ERING EXPENSES SUCH AS DISCOUNTS, REBATES, COMMISSION, TRADE COMPONENT COS T, TRADE INCENTIVES, ETC. FOR COMPUTING THE AMP SPEND RATIO OF THE APPELLANT. 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE COMPANY IS A SUBSIDIARY OF CHAMPAGNE MOET & CHANDON FRANCE (CMC), ONE OF THE LEADING PRO DUCERS OF CHAMPAGNE, WHICH HOLDS 99% EQUITY IN THE ASSESSEE COMPANY. THE OTHER 1% SH AREHOLDING IN THE ASSESSEE COMPANY IS HELD BY ANOTHER FRENCH COMPANY BY THE NAME OF JAS H ENNESSY & CO (JSC) WHICH IS A LEADING PRODUCER OF ANOTHER ALCOHOLIC BEVERAGE, I.E. COGNAC . THE ASSESSEE IS ENGAGED IN THE BUSINESS ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 3 OF 9 OF IMPORTING AND DISTRIBUTION OF THE DIFFERENT CATE GORIES OF WINES AND SPIRITS. AS NOTED BY THE TPO, IT IS ASSISTED BY ITS ASSOCIATED ENTERPRISES IN CARRYING OUT THIS FUNCTION AND THAT THE ASSESSEE IMPORTS ADVERTISING AND PROMOTIONAL MATER IAL FROM ITS ASSOCIATED ENTERPRISES SUCH AS WINE GLASSES, MENU HOLDERS ETC TO BE GIVEN AS CO MPLIMENTARY PRODUCTS TO ITS ESTEEMED CUSTOMERS. ON THESE FACTS, THE TPO, INTER ALIA, O BSERVED AS FOLLOWS: IT IS SEEN THAT THE ASSESSEE HAS INCURRED AN EXTREM ELY HIGH LEVEL OF ADVERTISING AND MARKET PROMOTION EXPENDITURE. IN SUCH CASES, TH ERE IS A POSSIBILITY THATV OBJECTIVE OF THE HEIGHTENED LEVEL OF AMP EXPENDITUR E IS TO EXPAND THE REACH OF THE AES BRAND IN INDIA. THE AE IS THE LEGAL OWNER OF THE BRAND. THEREFORE THE BENEFICIARY OF THE EFFORTS OF THE ASSESSEE IS THE A E AS THE BRAND VALUE INCREASES SIGNIFICANTLY GIVEN THE EFFORTS OF THE ASSESSEE. TH E ASSESSEE IS THEREBY CREATING MARKETING INTANGIBLES IN FAVOUR OF THE ASSESSEE. 4. THE TPO THEN, AFTER A LONG DISCUSSION ON THE TRA NSFER PRICING IMPLICATIONS OF TRANSFER PRICING INTANGIBLES, NOTED THAT THE TOTAL ADVERTISI NG AND MARKET PROMOTION EXPENSES OF THE ASSESSEE ARE AS HIGH AS RS 7,93,95,060 WHICH CONSTI TUTE 26.94% OF THE VALUE OF GROSS SALES, AS AGAINST THE AVERAGE NORM, IN RESPECT OF INDIAN COMP ARABLES, AT 1.31% OF THE VALUE OF GROSS SALES. APPLYING THE BRIGHT LINE TEST, AND TAKING 15 % MARK ON EXPENSES TAKEN AS INCURRED ON BEHALF OF THE AE, THE TPO PROPOSED AN ALP ADJUSTM ENT OF RS 6,64,70,841. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN GRIEVANCE BEFORE THE DISPUTE RESOLUTION PANEL BUT WITHOUT ANY SUCCESS. FOLLOWING THE SPECIAL BENCH DECISION OF TH IS TRIBUNAL, IN THE CASE OF LG ELECTRONICS INDIA PVT LTD VS ACIT [(2013) 140 ITD 41 (DEL)], TH E DRP CONFIRMED THE STAND AT THE ASSESSMENT STAGE. THE ASSESSING OFFICER THUS PROCEE DED TO MAKE THE IMPUGNED ADJUSTMENT OF RS 6,64,70,841, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 5. LEARNED COUNSELS BASIC THRUST OF ARGUMENTS IS T HAT THERE IS NO MATERIAL WHATSOEVER ON RECORD TO SUGGEST THAT THERE WAS AN INTERNATIONAL T RANSACTION ON THE FACTS OF THE PRESENT CASE, AND THE IMPUGNED ADJUSTMENT HAS BEEN MADE SIMPLY BE CAUSE, WHAT HAS BEEN TERMED AS, AMP EXPENSES ARE EXCESSIVE, AND BY APPLYING BRIGHT LINE TEST. LEARNED COUNSEL SUBMITS THAT THIS APPROACH HAS BEEN SPECIFICALLY REJECTED BY HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS VS CIT [2015) 374 IT R 118 (DEL)]. IT IS SUBMITTED THAT THE VERY FOUNDATION OF THE IMPUGNED THUS CEASES TO HOLD GOOD IN LAW. HE THEN CONTENDS THAT THERE HAS TO BE EXPLICIT AGREEMENT OR UNDERSTANDING FOR P ROMOTION OF BRAND OF THE FOREIGN AE IN INDIA AND EXISTENCE OF AN INTERNATIONAL TRANSACTION CANNOT BE A MATTER OF INFERENCE OR DEDUCTION. IN SUPPORT OF THIS PROPOSITION, HE RELIE S UPON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF MARUTI SU ZUKI INDIA LTD VS CIT [(2016) 381 ITR 117 (DEL)], CIT VS WHIRLPOOL OF INDIA LTD [(2016) 3 81 ITR 154 (DEL)] AND BAUSCH AND LAMB EYECARE INDIA PVT LTD VS ACIT [(2016) 65 TAXMANN.CO M 141 (DELHI)]. IN SUPPORT OF THE PROPOSITION THAT THE TRIBUNAL SHOULD DETERMINE EXIS TENCE OF INTERNATIONAL TRANSACTION WHEN ALL THE MATERIAL FACTS ARE ON RECORD, THE CASE SHOULD N OT BE REMITTED BACK TO THE TPO FOR THAT PURPOSE, LEARNED COUNSEL FOR THE ASSESSEE RELIES UP ON HONBLE JURISDICTIONAL HIGH COURTS JUDGMENTS IN THE CASES OF DAINKIN AIR CONDITIONING INDIA PVT LTD VS ACIT (ITA NO. 269/2016; JUDGMENT DATED 27.7.2016), LE PASSAGE TO INDIA TOURS AND TRAVELS VS DCIT [(2017) 391 ITR 207 (DEL)] AND BACARDI INDIA LTD VS DCIT (ITA NO. 417/2017; JUDGMENT DATED 24.5.2017). IT IS ALSO POINTED OUT THAT IN T HE SUBSEQUENT ASSESSMENT YEARS FROM 2011-12 TO 2015-16, THERE IS NO SUCH ALP ADJUSTMENT AT ALL, THOUGH THE ASSESSING OFFICER HAS DISALLOWED THE ENTIRE AMP EXPENSES ON THE GROUND TH AT (I) THE AMP EXPENSES IS IN ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 4 OF 9 CONTRAVENTION OF LAW AND HENCE INADMISSIBLE DEDUCTI ON UNDER SECTION 37(1) SO FAR AS ASSESSMENT YEAR 2011-12 IS CONCERNED; (II) THE AMP EXPENSES IS CAPITAL EXPENDITURE AS IT RESULTS IN ENDURING BENEFIT. LEARNED COUNSEL HAS FI LED COPIES OF THE ASSESSMENT ORDERS IN SUPPORT OF THIS FACTUAL CONTENTION. HE SUBMITS THAT ONCE THE ASSESSING OFFICER HIMSELF ACCEPTS THAT THERE IS NO ALP ADJUSTMENT REQUIRED IN RESPECT OF THESE EXPENSES IN THE ASSESSMENT YEARS STARTING WITH ASSESSMENT YEAR 2011-12 ONWARDS, AND THERE IS NO INTERNATIONAL TRANSACTION AS SUCH, IT CANNOT BE OPEN TO THE REVENUE AUTHORITIES TO CONTEND THAT, ON THE SAME SET OF FACTS, THERE WAS AN INTERNATIONAL TRANSACTION IN THE ASSES SMENT YEARS 2009-10 AND 2010-11. ON THE STRENGTH OF THESE SUBMISSIONS, LEARNED COUNSEL URGE S US TO DELETE THE IMPUGNED ALP ADJUSTMENT AND HOLD THAT THERE IS NO LEGALLY SUSTAI NABLE FOUNDATION FOR HOLDING THAT THERE WAS AN INTERNATIONAL TRANSACTIONS, IN TERMS OF THE PROV ISIONS OF SECTION 92B, ON THE FACTS OF THIS CASE. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITS THAT THE HONBLE DELHI HIGH COURTS JUDGMENT IN THE CASE OF SONY ERI CSON (SUPRA) HAS NOT ATTAINED FINALITY AND THE MATTER IS PENDING BEFORE HONBLE SUPREME COURT. SHE SUGGESTS THAT THE MATTER MAY BE REMITTED TO THE FILE OF THE TPO FOR EXAMINING WHETH ER OR NOT THERE IS AN INTERNATIONAL TRANSACTION, IN THE LIGHT OF THE JUDICIAL PRECEDENT S AVAILABLE NOW. IN HER LETTER DATED 24 TH MAY 2018, LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUMME D UP HER ARGUMENT BY SUBMITTING AS FOLLOWS: 1. DURING THE COURSE OF HEARING TODAY I.E. 24.05.2 018, IT WAS ARGUED BY THE UNDERSIGNED THAT THE ISSUE OF AMP IS SUB-JUDICE BEF ORE THE HON'BLE SUPREME COURT IN SEVERAL CASES FOR EXAMPLE MARUTI SUZUKI LT D., SONY INDIA, CANON AND OTHERS. AT THE OUTSET, THE RELIANCE PLACED BY THE L D.AR OF THE ASSESSEE ON AMP JUDGMENTS IN THE CASES OF M/S MARUTI SUZUKI LTD. AN D M/S WHIRLPOOL INDIA LTD. IS MISPLACED AS THE FACTS IN THESE CASES ARE THAT O F A 'MANUFACTURER' WHICH IS DIFFERENT FROM THE ASSESSEE, WHO IS A 'DISTRIBUTOR' . 2. IN THE CASE UNDER CONSIDERATION, THE ORDER OF THE TPO WAS MUCH BEFORE THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF M/S SONY ERICSSON MOBILE COMMUNICATIONS PVT. LTD. (374 ITR 118-DEL) W HEREIN THE HON'BLE COURT HAS HELD THE AMP EXPENSES TO BE AN INTERNATIONAL TR ANSACTION AND MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED TO THE T PO. 3. IT IS SUBMITTED THAT, COORDINATE BENCHES OF TH E TRIBUNAL IN DIFFERENT CASES LIKE M/S SWAROVSKI INDIA PRIVATE LIMITED (ITA NO.4080/DE L/2015), M/S FUJIFILM CORPORATION INDIA (ITA NO.5826/DEL/2011 & 195), M/S LOUIS VUITTON INDIA RETAIL PRIVATE LIMITED (ITA NO. 980/DEL/2017), M/S HAIER APPLIANCES INDIA LTD. (2016), M/S PERFETTI VAN MELLE INDIA PVT. LTD. (201 6), AND THE HON'BLE DELHI HIGH COURT IN RECENT JUDGEMENTS IN THE CASES OF M/S RAYB AN SUN OPTICS INDIA LTD. (2016), M/S TOSHIBA INDIA PVT. LTD. (2016), M/S BOS E CORPORATION INDIA PVT. LTD. (2016), IN ALL OF WHICH SIMILAR ISSUE OF AMP ADJUST MENT WAS CONSIDERED, HAS BEEN RESTORED TO THE TPO FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN M/S SONY ERICSSON MOBILE COMMUNICATIONS PVT. LTD . AS THE TPO DID NOT HAVE THE BENEFIT OF THE JUDICIAL PRECEDENTS NOW AVAILABL E FOR CONSIDERATION. COPIES OF THE STATED ORDERS ARE ENCLOSED HEREWITH FOR YOUR RE FERENCE. 4. IT IS THUS PRAYED THAT THE HON'BLE BENCH MAY C ONSIDER THE ABOVE DECISIONS AND REMAND THE AMP MATTER TO THE AO/TPO IN THE LIGH T OF DECISION OF HON'BLE ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 5 OF 9 DELHI HIGH COURT IN THE CASE OF M/S SONY ERICSSON M OBILE COMMUNICATIONS PVT. LTD. (SUPRA) 6. LEARNED COUNSEL FOR THE ASSESSEE, IN HIS BRIEF R EJOINDER, SUBMITS THAT THE QUESTION OF REMITTING BACK THE MATTER TO THE FILE OF THE TPO WO ULD ARISE ONLY WHEN THERE IS A CATEGORICAL FINDING ABOUT THE EXISTENCE OF INTERNATIONAL TRANSA CTION. IN THE PRESENT CASE, THE INTERNATIONAL TRANSACTION HAS BEEN INFERRED ON THE BASIS OF EXCES SIVE EXPENDITURE ON AMP AND APPLICATION OF BRIGHT LINE TEST. THAT APPROACH, IN THE LIGHT OF THE LEGAL POSITION PREVAILING ON THE BASIS OF BINDING JUDICIAL PRECEDENTS, IS NO LONGER PERMISSIB LE. HE ONCE AGAIN POINTS OUT THAT IN THE SUBSEQUENT YEAR, THE REVENUE AUTHORITIES HAVE ABAND ONED THE CASE FOR EXISTENCE OF AMP. WE ARE THUS URGED TO UPHOLD THE PLEA OF THE ASSESSEE. 7. WE FIND THAT OUT OF TOTAL ADVERTISEMENT, MARKETI NG AND PROMOTION EXPENSES OF RS 7,93,95,060 IDENTIFIED BY THE TRANSFER PRICING OFFI CER, THE EXPENDITURE OF RS 1,75,57,511 WAS INCURRED ON ACCOUNT OF WAREHOUSING CHARGES, CUSTOM DUTY, CLEARING AND FORWARDING EXPENSES AND TRANSPORTATION CHARGES ETC WHICH IS, AS RIGHTLY POINTED OUT BY THE LEARNED COUNSEL, IS IN THE NATURE OF DISTRIBUTION EXPENSES RATHER THAN AMP EXP ENSES. THAT AMOUNT OF RS 1,75,57,511 HAS TO BE ESSENTIALLY TAKEN OUT OF THE EXPENSES IN THE NATURE OF ADVERTISEMENT, MARKETING AND PROMOTION EXPENSES. AS FOR THE REMAINING AMOUNT OF RS 6,18,37,549, WHICH WORKS OUT TO 20.99% OF SALES. IN THE IMMEDIATELY FOLLOWING SUBSE QUENT ASSESSMENT YEAR, THE AMP EXPENDITURE WAS WORKED OUT BY THE TPO WAS 18.14% BU T WHEN DISTRIBUTION EXPENSES ARE EXCLUDED, THIS COMES DOWN TO 13.34%. YET, THE TPO WAS OF THE VIEW THAT INCURRING OF THIS EXPENDITURE RESULTED IN AN INTERNATIONAL TRANSACTIO N THE ONLY BASIS FOR COMING TO THE CONCLUSION THAT THERE WAS AN INTERNATIONAL TRANSACT ION WAS THE FOLLOWING OBSERVATION MADE BY THE TPO IN HIS LETTER DATED 17 TH JANUARY 2013: 2. IT IS SEEN FROM AUDITED FINANCIAL OF THE ASSESS EE COMPANY THAT A SUM OF RS.6,18,37,549/- HAS BEEN INCURRED BY IT ON ADVERTI SEMENT AND SALES PROMOTION (AMP) WHICH AMOUNTS TO 26.94% OF THE TOTAL SALES OF THE ASSESSEE COMPANY. IT IS PROPOSED THAT THE AMP EXPENDITURE INCURRED BY THE A SSESSEE SHOULD BE CONSIDERED AS AN INTERNATIONAL TRANSACTION FOR WHIC H REIMBURSEMENT SHOULD HAVE BEEN RECEIVED BY THE ASSESSEE AS IT LEADS TO CREATI ON OF MARKETING INTANGIBLE FOR THE AES AND NOT FOR THE BUSINESS PURPOSES OF THE AS SESSEE. 2.1 IT HAS BEEN MENTIONED PARA 4.3.3 OF THE TRANSF ER PRICING REPORT THAT MHIPL DOES NOT OWN ANY SIGNIFICANT INTANGIBLE AND DOES NO T UNDERTAKE ANY SIGNIFICANT RESEARCH AND DEVELOPMENT ON ITS ACCOUNT THAT LEADS TO THE DEVELOPMENT OF NON- ROUTINE INTANGIBLES. MHIPL USES THE TRADEMARK, KNOW -HOW, TECHNICAL DATA SOFTWARE, QUALITY STANDARD ETC., DEVELOPED/OWNED BY CMC. ALL COMPANIES OF THE GROUP LEVERAGE FROM THESE INTANGIBLES FOR CONTINUED GROWTH IN REVENUES AND PROFITS. ACCORDINGLY, MHIPL DOES NOT OWN ANY SIGNI FICANT NON-ROUTINE INTANGIBLES. 2.2 FROM THE QUANTUM OF THE ADVERTISEMENT AND SAL ES PROMOTION EXPENSE INCURRED BY THE ASSESSEE IT IS APPARENT THAT THE AS SESSEE IS INVOLVED IN THE PROMOTION OF A BRAND WHICH IS NOT OWNED BY IT. IT IS DOING IT FOR THE BENEFIT OF THE BRAND OWNER I.E. THE FOREIGN AE CMC, FRANCE, HE NCE, IT SHOULD HAVE BEEN ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 6 OF 9 PAID FOR THE SERVICES BEING PROVIDED BY IT. HOWEVE R, NO AGREEMENT BETWEEN THE ASSESSEE AND THE AE FOR THE PROMOTION OF THE BRAND HAS BEEN FILED. THE TRANSFER PRICING REGULATIONS REQUIRE THAT IT IS NOT THE FOR M BUT THE OVERALL ARRANGEMENT/SUBSTANCE OF THE TRANSACTIONS THAT MUST BE KEPT IN MIND. SECTION 92F(V) OF THE INCOME-TAX ACT STATES: TRANSACTION INCLUDES AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT, WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTAN DING OR ACTION IS FORMAL OR IN WRITING; SIMILARLY, RULE 10B(2)(C) STATES: THE CONTRACTUAL TERMS (WHETHER OR NOT SUCH TERMS A RE FORMAL OR IN WRITING) OF THE TRANSACTIONS WHICH LAY DOWN EXPLICI TLY OR IMPLICITLY HOW THE RESPONSIBILITIES, RISKS AND BENEFITS ARE TO BE DIVIDED BETWEEN THE RESPECTIVE PARTIES TO THE TRANSACTIONS; 2.3 ABOVE PROVISIONS READ WITH THE WELL ESTAB LISHED DOCTRINE OF SUBSTANCE OVER FORM (APPLIED BY THE COURTS IN NUMEROUS JUDIC IAL DECISIONS) INDICATE THAT TRANSFER PRICING REGULATIONS ARE TO BE APPLIED KEEP ING IN MIND THE OVERALL SCHEME OF THE TAXPAYERS BUSINESS ARRANGEMENT. 2.4 IN VIEW OF THE DISCUSSIONS IN THE FOREGOI NG PARAGRAPHS I AM OF THE CONSIDERED VIEW THAT THE EXPENDITURE INCURRED ON AM P BY THE ASSESSEE AND THEREBY PROMOTING THE BRAND/TRADE NAME OWNED BY CMC , FRANCE, THE AE IS AN INTERNATIONAL TRANSACTION AND THE SAME HAS NEITHER BEEN REPORTED IN FORM 3CEB NOR HAS BEEN BENCHMARKED IN TRANSFER PRICING STUDY, I AM OF THE CONSIDERED VIEW THAT THE ONUS WHICH WAS ON THE ASSESSEE TO BENCHMAR K THE INTERNATIONAL TRANSACTION RELATING TO THE EXPENDITURE INCURRED ON AMP HAS NOT BEEN DISCHARGED. I THEREFORE PROPOSE TO BENCHMARK THE TR ANSACTIONS RELATING TO AMP. 2.5 IT HAS ALREADY BEEN STATED IN THE FOREGOI NG PARAGRAPHS THAT THE EXPENDITURE ON AMP HAS BEEN INCURRED TO PROMOTE THE BRAND/TRADE NAME OWNED BY CMC, FRANCE, THE AE AND SUCH EXPENDITURE HAS RES ULTED INTO BRAND BUILDING AND INCREASED AWARENESS OF THE PRODUCTS BEARING SUC H BRANDS/TRADE NAMES. I AM OF THE CONSIDERED VIEW THAT THE EXPENDITURE INCURRE D BY THE ASSESSEE COMPANY IS FOR THE ADVANTAGE OF ITS AE, SINCE THE BRAND/TRADE NAME IS OWNED BY THE AE. IN SUCH A SITUATION THE ASSESSEE COMPANY SHOULD HAVE B EEN SUITABLY COMPENSATED BY THE AE. HOWEVER THE ASSESSEE HAS NOT RECEIVED ANY PAYMENT IN THIS REGARD FROM THE AE. THEREFORE IT IS CLEAR THAT THE ASSESSEE HA S NOT BEEN SUITABLY COMPENSATED BY THE AE IN RESPECT OF THE EXPENDITURE INCURRED BY IT (THE ASSESSEE) ON ADVERTISING AND SALES PROMOTION EXPENSES (AMP) TO P ENETRATE THE MARKET AND TO INCREASE THE SALES BY PROMOTING THE BRAND NAME. 8. WHAT THE ASSESSING OFFICER CONSIDERS SHOULD HAVE BEEN RECOVERED FROM THE AE, THE ASSESSING OFFICER DOES NOT CONSIDER RECOVERABLE FRO M THE ASSESSMENT YEAR 2011-12 ONWARDS ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 7 OF 9 EVEN THOUGH ADMITTEDLY THERE IS NO CHANGE IN THE FA CTS AND CIRCUMSTANCES OF THE CASE. THE INFERENCE ABOUT THE INTERNATIONAL TRANSACTION HAS T HUS NOT FOUND FAVOUR WITH THE REVENUE AUTHORITIES IN THE SUBSEQUENT ASSESSMENT YEARS. WHI LE NO ALP ADJUSTMENT HAS BEEN MADE IN THESE YEARS, THE ENTIRE EXPENDITURE HAS BEEN DISALL OWED, FIRSTLY AS ILLEGAL EXPENDITURE INADMISSIBLE FOR DEDUCTION UNDER SECTION 37(1), AN D, THEREAFTER, AS CAPITAL EXPENDITURE. AS FOR THE STAND OF THE REVENUE AUTHORITIES THAT THE A MP EXPENDITURE INCURRED BY THE ASSESSEE WAS EXCESSIVE, WE HAVE NOTED THAT EVEN AFTER ASSESS EES POINTING OUT, VIDE LETTER DATED 23 RD JANUARY 2013, THAT COMPARABLE EXPENSES, FOR THE SAM E PERIOD, IN RESPECT OF OTHER SIMILAR COMPANIES DEALING WITH ALCOHOLIC PRODUCTS, IS AS HI GH AS 17.41% IN THE CASE OF UNITED BREWERIES LIMITED (AND 11.18% IN THE CASE OF JAGIT INDUSTRIES LIMITED, 7.32% IN THE CASE OF RADIO KHAITAN LIMITED, 12.31% IN THE CASE OF SKOL B REWERIES LIMITED AND 8.27% IN THE CASE OF TILAKNAGAR INDUSTRIES LIMITED) , THE TPO DID NOT EVEN DEAL WITH THAT ASPECT OF THE MATTER. IN ANY CASE, A HIGHER AMP EXPENSES PER SE CANNOT BE REASON ENOUGH TO INFER THAT THERE WAS AN INTERNATIONAL TRANSACTION. THERE HAS TO BE SOMETHIN G MORE THAN THE MERE QUANTUM OF EXPENDITURE TO INDICATE, EVEN IF NOT ESTABLISH, THA T THE SAID EXPENDITURE WAS INCURRED ON BEHALF OF THE AE. THAT IS NOT THE CASE HERE AND THE AO AND TPO THEMSELVES HAVE ABANDONED THIS STAND IN THE LATER ASSESSMENT YEARS. NOT ONLY THE L EVEL OF EXPENDITURE INCURRED BY THE ASSESSEE IS SO EXORBITANTLY HIGH THAT THIS EXPENDITURE HAS T O BE ESSENTIALLY FOR THE PURPOSES OTHER THAN THE PURPOSES OF THE BUSINESS OF THE ASSESSEE, THE N ATURE OF THE EXPENSES IS ALSO NOT SUCH THAT IT REFLECTS THAT THE EXPENDITURE IS INCURRED ON BEHALF OF THE AE. THE NATURE OF THE EXPENSES, AS SET OUT IN PAGE 279 OF THE PAPERBOOK, WHICH IS A CO PY OF ANNEXURE TO THE LETTER DATED 23 RD JANUARY 2013 TO THE TPO, IS AS FOLLOWS: DURING FY 2008-09, MOET INDIA HAS SPENT AN AMOUNT O F INR 6,18,37,549. THE NATURE OF THIS EXPENDITURE IS AS UNDER: 1. EXPENSES INCURRED FOR EVENTS: THE ASSESSEE HAS TIED UP WITH FEW OUTLETS WHERE IN IT CONDUCTS EVENTS AND WOULD INCUR FOR SUCH EVEN TS LIKE GUEST LIST MANAGER, DECOR, INVITE PRINTING, COURIER CHARGES FOR SENDING THE INVITE, FOOD, BAR TENDER, BOTTLES, PHOTOGRAPHER, DJ ETC. 2. GIFT: THE ASSESSES HAS GIFTED BOTTLES TO HIGH P ROFILE PEOPLE. 3. DISPLAY & VISIBILITY: THE, ASSESSES HAS ENTERED INTO CONTRACTS WITH FEW OUTLETS, WINE SHOPS FOR DISPLAYING BOTTLES FOR WHICH THE ASS ESSEE PAYS RENT LO THEM. 4. PURCHASE OF POINT OF SALES MATERIAL ('POSM'): TH E ASSESSEE PURCHASES POSM MATERIAL. 5. WAREHOUSE RENT OF POSM GODOWN, CUSTOM DUTY ETC; WAREHOUSE RENT OF POSM WAREHOUSE AND CUSTOM DUTY, C&F CHARGES ETC ON POSM. 6. PR AGENCY: THE ASSESSEE HAS HIRED A PR AGENCY O N RETAINERSHIP BASIS. 7. EVENT MANAGEMENT CO: THE ASSESSES HAS HIRED AN EVENT MANAGEMENT COMPANY ON RETAINERSHIP BASIS. ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 8 OF 9 8. TRAINING & TESTING EXPENSES: THE ASSESSEE HAS H IRED A TRAINER FOR PROVIDING TRAINING. 9. RETAIL SCHEMES : THE ASSESSEE OFFERS SCHEMES L IKE A DOLLAR OFF AT DUTY FEE SHOPS. 10. MARKET VISIT EXPENSES OF MARKETING PERSONNEL PL US GUESTS LIKE ACCOMMODATION, CONVEYANCE, FOOD ETC. 11. SALARY: STAFF INCENTIVE, BRAND MANAGER SALARY A T DUTY FREE SHOP, SALARY OF SUPPORT STAFF. 9. ON A CAREFUL CONSIDERATION OF ALL THESE FACTORS, INCLUDING THE INCONSISTENCY IN THE APPROACH OF THE AO/TPO WITH RESPECT TO THE AMP EXPE NDITURE BEING IN THE NATURE OF AN INTERNATIONAL TRANSACTION AS EXPENDITURE INCURRED O N BEHALF OF THE ASSESSEE, INCLUDING THE QUANTUM AND NATURE OF EXPENDITURE AND INCLUDING LA CK OF ANY MATERIAL TO SUGGEST THAT THERE WAS AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CON CERT WITH RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE AND INCLUDING THE FACT THA T, IN OUR CONSIDERED VIEW, THE EXPENDITURE INCURRED BY THE ASSESSEE WAS IN NATURE OF BONAFIDE BUSINESS EXPENDITURE IN FURTHERANCE OF ITS LEGITIMATE BUSINESS INTERESTS, WE ARE OF THE CONSID ERED VIEW THAT THERE IS NO LEGALLY SUSTAINABLE BASIS FOR THE TPO COMING TO THE CONCLUSION THAT THE RE WAS AN INTERNATIONAL TRANSACTION, UNDER SECTION 92B, ON THE FACTS OF THIS CASE. IT WAS ONLY ON THE BASIS OF BRIGHT LINE TEST THAT THE IMPUGNED ALP ADJUSTMENT WAS MADE BUT THAT APPROACH HAS ALREADY BEEN NEGATIVED BY HONBLE COURTS ABOVE. WE SEE NO REASONS TO REMIT THE MATTER TO THE FILE O F THE TPO, AS IS PRAYED FOR BY THE LEARNED DEPARTMENTAL REPRESENTATI VE. A REMAND TO THE ASSESSMENT STAGE CANNOT BE A MATTER OF ROUTINE; IT HAS TO BE SO DONE ONLY WHEN THERE IS ANYTHING IN THE FACTS AND CIRCUMSTANCES TO SO WARRANT OR JUSTIFY. IN ANY CASE , THERE ARE DIRECT JUDICIAL PRECEDENTS FROM HONBLE JURISDICTIONAL HIGH COURT WHICH CLEARLY SUG GEST THAT THE MATTER REGARDING EXISTENCE OF INTERNATIONAL TRANSACTION UNDER SECTION 92B, AS FAR AS POSSIBLE, SHOULD BE DECIDED AT THE LEVEL OF TRIBUNAL ITSELF. IN THE CASE OF BACARDI IN DIA (SUPRA), THEIR LORDSHIPS, INTER ALIA, HAVE OBSERVED AS FOLLOWS: 5. HAVING HEARD LEARNED COUNSEL FOR THE PARTIES, TH E COURT FINDS THAT THE CASE BEFORE THE ITAT WAS ARGUED AT LENGTH AND THE VIEWS OF THE TPO AS WELL AS THE DISPUTE RESOLUTION PANEL ('DRP') WERE ALREADY AVAIL ABLE TO THE ITAT. ARGUMENTS WERE ADVANCED ON THE STRENGTH OF JUDGMENT S OF THIS COURT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. COMMISSIONER OF INCOME TAX (2015) 374 ITR 118 (DEL.) AS WELL AS A STRING O F SUBSEQUENT JUDGMENTS BEGINNING WITH MARUTI SUZUKI INDIA LTD V. CIT, (201 6) 381 ITR 117. 6. NEVERTHELESS, THE MAIN REASON THAT WEIGHED WITH THE ITAT TO REMAND THE MATTER TO THE TPO WAS THAT THE TPO DID NOT HAVE THE BENEFIT OF THE ABOVE DECISIONS OF THIS COURT WHEN THE ORDER WAS INITIALL Y PASSED BY THE TPO. THAT CAN HARDLY BE A GROUND FOR REMANDING THE ENTIRE MATTER TO THE TPO. IN FACT, THIS WAS ANTICIPATED BY THIS COURT IN SONY ERICSSON MOBILE C OMMUNICATIONS INDIA PVT. LTD.(SUPRA). IN PARA 193 OF THAT JUDGMENT, IT CAUTI ONED THAT THE ITAT SHOULD NOT ITA NOS. 1906/DEL/2014 ASSESSMENT YEARS 2009-10 PAGE 9 OF 9 SIMPLY REMAND THE MATTER TO THE TPO BUT EXAMINE IT ITSELF, PARTICULARLY WHEN THE FACTS HAVE ALREADY BEEN ANALYSED AND CONSIDERED AND NO NEW FACTS HAVE EMERGED IN THE MEANWHILE. 7. IN THE PRESENT CASE, ALL THE FACTS NECESSARY FOR THE ITAT TO FORM AN OPINION ON THE ISSUES BEFORE IT CONCERNING THE AMP EXPENDITURE WERE ALREADY BEFORE IT. IN THE CIRCUMSTANCES, THE REMAND TO THE TPO OF THE ENT IRE MATTER FOR A DECISION AFRESH APPEARS TO BE UNWARRANTED. THE ASSESSEE THU S SUCCEEDS IN THIS APPEAL. 10. IN THE PRESENT CASE, NO NEW FACTS HAVE EMERGED AND ALL THE FACTS BROUGHT TO RECORD, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, DO NOT INDICATE LEGALLY SUSTAINABLE BASIS FOR COMING TO THE CONCLUSION THAT THERE WAS AN INTERNAL TRANSACTION IN RESPECT OF AMP EXPENSES INCURRED BY THE ASSESSEE. WE ARE, THEREFORE, OF THE CONSIDERED VIEW THAT THE PLEA OF THE ASSESSEE, ON THE PECULIAR FACTS OF THIS CASE, DOES INDEED DESERVE TO BE UPHELD THAT THERE IS NO MATERIAL ON RECORD TO HOLD THAT THERE WAS AN INTERN ATIONAL TRANSACTIONS, IN TERMS OF THE PROVISIONS OF SECTION 92B, NOR ANY MATERIAL HAS BEE N BROUGHT ON RECORD TO EVEN REMOTELY SUGGEST SO AND, THEREFORE, THAT THERE IS NO GOOD RE ASON TO REMIT THE MATTER TO THE ASSESSMENT STAGE FOR BUILDING A CASE AFRESH. RESPECTFULLY FOLL OWING THE BINDING JUDICIAL PRECEDENTS, WE DELETE THE IMPUGNED ALP ADJUSTMENT WHICH WAS MADE S OLELY ON THE BASIS OF BRIGHT LINE TEST. THE PLEA OF THE LEARNED COUNSEL WAS INDEED WELL TAK EN AND MERITS ACCEPTANCE. THE IMPUGNED ALP ADJUSTMENT OF RS 6,64,70,841, ACCORDINGLY, STAN DS DELETED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. PRONOUNCED IN THE OPEN COURT TODAY ON THE 23 RD DAY OF AUGUST, 2018. SD/XX SD/XX SUDHANSHU SRIVASTAVA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NEW DELHI, DATED THE 23 RD DAY OF AUGUST, 2018 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI