M/s. Kontoor Brands India Private Limited, Bangalore V. Deputy Commissioner Of Income Tax, Circle- 4(1)(1), Bangalore

ITA 2491/BANG/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 4284 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-01-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 05-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Set aside
• Section: 32; 147; 271(1)(c); 2; 143(3); 234B; 143(1); 144C; 13; 92CA

Judgement Text

IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER IT(TP)A NO.2491/BANG/2019 ASSESSMENT YEAR : 2015-16 M/S. KONTOOR BRANDS INDIA PVT. LTD. BAGMANE LAUREL BLOCK B, LEVEL-9 8 TH FLOOR, BGMANE TECH PARK C.V. RAMAN NAGAR BANGALORE-560 093 PAN NO :AACCV2727L VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-4(1)(1) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI NAGESWAR RAO, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 21.01.2021 DATE OF PRONOUNCEMENT : 16.02.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 30.10.2019 PASSED BY THE A.O. FOR ASSESSMENT YEAR 2 015-16 U/S 143(3) R.W.S. 92CA R.W.S. 144C OF THE INCOME-TAX AC T,1961 ['THE ACT' FOR SHORT] IN PURSUANCE OF DIRECTIONS GIVEN BY LD. DISPUTE RESOLUTION PANEL (DRP). 2. THE GROUNDS URGED BY THE ASSESSEE ARE EXTRACTED BELOW:- BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, KONTOOR BRANDS INDIA PRIVATE LIMITED [FORMERLY KNOWN AS VF BRANDS INDIA PRIVATE LIMITED] ('KONTOOR INDIA' OR 'ASSESSEE' OR 'APPELLANT') - RESPECTFULLY CRAVES LEAVE TO IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 2 OF 13 PREFER AN APPEAL AGAINST THE ORDER ISSUED BY THE DE PUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(1). BANGALORE ('LD. AO'), D ATED 30 OCTOBER 2019 (SERVED ON THE APPELLANT ON 4 NOVEMBER 2019), UNDER SECTION 143(3) READ WITH SECTION 92CA READ WITH SECTION 144C OF THE INC OME TAX ACT 1961('THE ACT') IN PURSUANCE OF THE DIRECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL ('DRP'), BANGALORE DATED 23 AUGUST 2019 (RECEIVED B Y THE APPELLANT ON 31 AUGUST 2019) UNDER SECTION 144C(5) OF THE ACTON THE FOLLOWING GROUNDS: EACH OF THE FOLLOWING GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER: 1 THE ASSESSMENT ORDER ISSUED UNDER SECTION 143(3) RE AD WITH SECTION 92CA READ WITH SECTION 144C OF THE ACT DATED 30 OCT OBER 2019 (SERVED ON THE APPELLANT ON 04 NOVEMBER 2019) BY THE LD. AO PURSUANT TO DRP DIRECTIONS IS BASED ON INCORRECT FACTS AND WRON G INTERPRETATION OF LAW AND IS THEREFORE, BAD IN LAW 2 THE LD. AO HAS ERRED IN ASSESSING THE TOTAL INCOM E AT INR 113,66,49,356 AS AGAINST THE RETURNED INCOME OF INR 88,13,25,460 COMPUTED BY THE APPELLANT IN ITS RETURN OF INCOME FOR AY 2015-16. GROUNDS RELATING TO TRANSFER PRICING MATTERS: 3. LD. DRP/ AO/ TPO HAVE ERRED IN APPLYING INVALID BRI GHT LINE TEST (BLT) FOR PURPORTED DETERMINATION OF NON - ROUTINE AMP EX PENDITURE AND FURTHER IN LABELLING THE SAME AS INTERNATIONAL TRANSACTION RELATING TO MARKETING INTANGIBLES CONTRARY TO GUIDELINES LAID DOWN BY HON 'BLE COURTS. 4. LD. DRP/ AO/ TPO HAVE ERRED DISAPPROVING APPELLANTS CONTENTION THAT AMP EXPENDITURE INCURRED ROUTINELY AND VOLUNTARILY BY APPELLANT FOR ITS BUSINESS DOES NOT AMOUNT TO CARRYING OUT HIGH INTEN SITY AMP EXPENSES OR LEAD TO CREATION OF MARKETING INTANGIBLES FOR AS SOCIATED ENTERPRISES (AE[S]). 5. IMPUGNED ORDER COMPLETELY FAILED TO ESTABLIS H EXISTENCE OF INTERNATIONAL TRANSACTION AND FURTHER ERRED IN IMAGINING ROUTINE AMP EXPENDITURE INCURRED BY APPELLANT AS 'EXCESSIVE', AS CONSTITUTI NG SEPARATE INTERNATIONAL TRANSACTION WITH AE[S] AND IN THE GUI SE OF APPLYING RESIDUAL PROFIT SPLIT METHOD BENCHMARKED IT SEPARAT ELY BY ADOPTING ARBITRARY PROCESS NOT KNOWN TO LAW. WITHOUT PREJUDI CE TO FAILURE OF LD. TPO/AO/DRP IN DISCHARGING PRIMARY ONUS OF ESTABLISH ING INTERNATIONAL TRANSACTION, IMPUGNED ORDER IS ALSO D IRECTLY CONTRARY TO LAW LAID DOWN BYCOURTS THAT IN THE ABSENCE OF ANY C OMPUTATION MECHANISM BEING PRESCRIBED UNDER THE ACT OR THE RUL ES MADE THEREUNDER, SUCH DETERMINATION IS UNLAWFUL. 6. LD. DRP/AO/TPO ERRED IN MAKING TRANSFER PRICING ADJUSTMENT BY REFERENCE TO IMAGINARY INTERNATIONAL TRANSACTION (I NCURRENCE OF NON- ROUTINE AMP EXPENSE) BY ADOPTING A PROCESS NOT IN A CCORDANCE WITH LAW. 7. IMPUGNED ORDER ERRED IN MISINTERPRETING CLAUS ES OF ROYALTY AGREEMENT TO JUSTIFY PRECONCEIVED NOTION OF INCURRENCE OF IMAGIN ARY EXCESS/NON- ROUTINE AMP EXPENDITURE BY APPELLANT TO ENHANCE VAL UE OF AES' BRAND. 8. LD. DRP/ AO/ TPO ERRED IN REJECTING THAT APPELLANT IS SOLE BENEFICIARY OF SALES PROMOTION EXPENSES INCURRED BY IT AND FAILED TO APPRECIATE THAT BENEFIT. IF ANY. TO AE WAS MERELY INCIDENTAL. IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 3 OF 13 9. LD. DRP/ AO/ TPO HAVE ERRED IN QUESTIONING COMMERCI AL WISDOM FOR INCURRENCE OF AMP EXPENDITURE. AS ALSO QUESTIONING THE QUANTUM OF SUCH SPEND. 10. CONTRARY TO DECISION OF HON'BLE COURTS/ TRIBUNALS, LD. DRP/ AO/ TPO ERRED IN NOT SEPARATING ROUTINE SELLING EXPENSES FR OM AMP EXPENSES, FOR THE PURPOSE OF DETERMINING SO CALLED EXCESSIVE AMP EXPENDITURE. 11. WITHOUT PREJUDICE LD. AO/TPO HAVE ERRED IN ADOPTING INCONSISTENT APPROACH BY NOT INCLUDING SELLING EXPENSES WHILE CO MPUTING AMP TO SALES RATIO OF COMPARABLE COMPANIES WHILE INCLUDING THE S AME FOR DETERMINING AMP TO SALES RATIO OF THE APPELLANT. 12. LD. DRP/ AO/ TPO ERRED IN REJECTING BENCHMARKING OF INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY AS CARRIED OUT BY APPELLANT ON MISTAKEN AND FACTUALLY INCORRECT PRESUMPTION THAT A LL PARTIES CHOSEN AS COMPARABLE COMPANIES ARE SITUATED OUTSIDE INDIA AND FAILED TO APPRECIATE THAT APPELLANT'S ROYALTY TRANSACTION IS IN FACT AT ARM'S LENGTH BY APPLYING PRESCRIBED METHOD AS PER LAW. 13. LD. DRP / AO/TPO GROSSLY ERRED BY AGGREGATING ROYAL TY PAID TO AE WITH NOTIONAL/ IMAGINARY TRANSACTION OF AMP BY ARBI TRARILY SEGREGATING EXPENSES INTO ROUTINE AND NON -ROUTINE BY APPLICATION OF SUBJECTIVE PROCESS AND FURTHER ERRED IN THRUSTING R ESIDUAL PROFIT SPLIT METHOD (PSM) AS MOST APPROPRIATE METHOD. 14. LD. DRP/ AO/ TPO HAVE ERRED IN LAW AND IN FACT BY A DOPTING AN INCORRECT SUBJECTIVE MECHANISM NOT IN ACCORDANCE WITH LAW FOR COMPUTATION OF PROFIT SPLIT BETWEEN APPELLANT AND AES A) INCORRECT REASONING APPLIED BY ID. AO/TPO IN SUPPOR T OF SEGREGATION OF AMP EXPENSES FIRSTLY INTO 'ROUTINE' AND 'NON-ROUTINE' AND SUBSEQ UENTLY 'NON- ROUTINE' PORTION INTO 'BRAND BENEFIT TO LICENSEE' A ND 'BRAND BENEFIT TO OWNER' B) ATTRIBUTION OF HIGHER PROFIT MARGINS ONLY TO EXISTE NCE OF INTANGIBLES C) EXCLUSION OF ROYALTY AND NON-ROUTINE AMP EXPENSES F OR COMPUTATION OF PROFIT TO BE SPLIT D) ARBITRARILY ALLOTTING WEIGHTS TO CONTRIBUTING ACTIV ITY/FACTORS OF THE AE/APPELLANT FOR COMPUTING THE PROFIT SPLIT RATIO TO ALLOCATE RESIDUAL PROFITS WHILE APPLYING PSM. E) LD. AO/ TPO HAVE ERRED IN SELECTION OF COMPARABLES AND IN NOT PROVIDING THE DETAILED IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 4 OF 13 SEARCH PROCESS TO APPELLANT. WITHOUT PREJUDICE, LD. AO/TPO ERRED IN NOT CONSIDERING SEGMENTAL WHILE COMPUTING THE PROFIT MARGIN (BATA INDIA LTD AND SSIPL RETAIL LTD) 15. WITHOUT PREJUDICE TO ABOVE IMPUGNED ORDER IS EX FAC IE CONTRADICTORY AS EVEN WHILE STATING THAT COMPANIES THAT OWN VALUABLE BRAND CANNOT BE COMPARABLE, LD. DRP/AO/TPO PROCEEDED TO CHOOSE/ UPH OLD FOLLOWING COMPANIES AS COMPARABLE EVEN THOUGH THE SAME ARE AS SOCIATED WITH WELL-ESTABLISHED BRANDS IN THE INDIAN MARKET A) BATA INDIA LTD. B) METRO SHOES LTD, C) SREELEATHER LTD. D) KHADIM INDIA LTD 16. LD. DRP/ AO/ TPO HAVE ERRED IN LAW AND IN FACT BY C ONSIDERING ONLY SINGLE YEAR DATA WHILE CALCULATING THE MARGINS OF C OMPANIES SELECTED AS COMPARABLES BY LD. TPO. 17. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. DRP/ AO/ TPO ERRED IN NOT APPRECIATING THE FACT THAT THE PAYMENT HAS BEEN MADE BY THE ASSESSEE TOWARDS AMP EXPENSES TO THIRD PARTIES IN INDIA AND SUCH PAYMENTS ARE SUBJECT TO TAX IN INDIA, THER EBY LEADING TO DOUBLE TAXATION OF AMP SPEND. 18. LD. DRP/ AO/ TPO HAVE ERRED, IN LAW AND IN FACTS. B Y NOT APPRECIATING THAT EVEN IF THE INCURRENCE OF EXCESS AMP EXPENDITURE IS CONSIDERED AS COST, THE NET MAR IN OF THE ASSESSEE AT 14.01% COMPUTED BY THE TPO BASED ON TNMM IS HIGHER THAN THE NET MARGIN EARNED BY COMPAR ABLE COMPANIES AT 7.76% AND MEANING THEREBY THAT ASSESSE E HAS ALREADY BEEN ADEQUATELY REMUNERATED/ COMPENSATED FOR AMP AL SO. 19. IMPUGNED ORDER PROCEEDS ON UNSUBSTANTIATED PRESUMPTIONS, CONJECTURES AND IMAGINARY FACTSTO REACH WRONG CONCLUSIONS AND THE E NTIRE DECISION-MAKING PROCESS IS VITIATED, THEREFORE THE ADJUSTMENTS MADE DESERVE TO BE DELETED IN TOTO. 20. FOLLOWING ERRONEOUS INFERENCES MADE BY LD. DRP CONTRARY TO SUBMISSIONS ON RECORD AND DIRECTIONS UPHOLDING THE ACTIONS OF T HE LD. TPO, DESERVE TO BE DELETED AND MAY BE DELETED: A) LD. DRP HAS IGNORED THE FACT THAT ONE OF THE COMPAR ABLES SELECTED BY ASSESSEE FOR BENCHMARKING ROYALTY TRANS ACTION IS RESIDENT IN INDIA IS A GOOD CUP. B) LD. DRP IN ITS DIRECTIONS, STATED THAT ASSESSEE HAS NOT CHALLENGED THE COMPARABLES SELECTED BY LD.TPO. HOWEVER, THE SA ME WERE CONTESTED IN DETAILED OBJECTIONS FILED BEFORE THE DRP. C) LD. DRP IN ITS DIRECTIONS, STATED THAT ASSESSEE HAS NOT PLACED ON RECORD ANY DIFFERENT VIEW FROM THE TPO FOR COMPUTING THE PROFIT SPLIT RATIO T O ALLOCATE RESIDUAL PROFITS WHILE APPLYING IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 5 OF 13 PSM. HOWEVER, CONTRARY TO THIS OBSERVATION, THE ASS ESSEE HAD PLACED ITS ARGUMENTS ON RECORD BY WAY OF A SUBMISSI ON BEFORE THE DRP DURING THE PROCEEDINGS. D) LD. DRP IN ITS DIRECTIONS, STATED THAT MULTIPLE YEA R DATA IS ALLOWED ONLY IF RESALE PRICE METHOD ('RPM'), COST PLUS METH OD ('CPM') OR TRANSACTIONAL NET MARGIN METHOD ('TNMM') HAVE BEEN USED AS THE MOST APPROPRIATE METHOD. HOWE VER, LD. DRP FAILED TO APPRECIATE THE FACT THAT TPO HAS APPL IED TNMM TO COMPARE THE PROFIT EARNED BY KONTOOR WITH THAT OF THE COMPARABLES, IN ORDER TO DETERMINE THE EXCESS T HAT THE ASSESSEE IS EARNING ON ACCOUNT OF THE AES' BRAND. GROUNDS RELATING TO CORPORATE TAX MATTERS: 21. LD. AO/ DRP HAS ERRED IN LAW AND IN FACT, IN HO LDING THAT DESIGN & TECHNICAL KNOW-HOW, VENDOR NETWORK RELATIONSHIP ('VR') AND CUSTOMER NETWORK RELATIONSHIP ('CR') ACQUIRED A S A PART OF SLUMP SALE ARE NOT ENTITLED TO DEPRECIATION UNDER S ECTION 32(1)(II) OF THE ACT 22. LD. AO/DRP HAS ERRED IN DISALLOWING DEPRECIATIO N UNDER SECTION 32 AMOUNTING TO RS. 3,59,24,143/-DESPITE THE SAME BEIN G ALLOWED BY THE HON'BLE ITAT IN THE CASE OF THE ASSESSEE IN THE EAR LIER YEARS AND THERE BEING NO CHANGE IN THE FACTS OF THE CASE. 23. LD. AO/ DRP HAS ERRED IN UPHOLDING THE DISALLOW ANCE OF DEPRECIATION ON TECHNICAL DESIGN AND KNOW HOW ON THE GROUND THAT THE SAME IS NOT PATENTED AND IS THEREFORE A PAPER TRANSACTION, WITH OUT APPRECIATING THAT THE ASSESSEE HAD PAID CONSIDERATION TO ACQUIRE THE PROCEDURE/ PROCESS, WHICH WOULD ASSIST THE COMPANY IN CARRYING OUT COMM ERCIAL PRODUCTION OF ITS PRODUCTS. 24. LD. AO/ DRP HAS ERRED IN UPHOLDING THE DISALLOW ANCE MADE IN RESPECT OF DEPRECIATION ON VENDOR RELATIONSHIP AND COSTUMER RELATIONSHIP ON THE GROUND THAT THERE WAS NO AGREEMENT WHICH BINDS THE VENDORS/ CUSTOMERS TO HAVE DEALINGS WITH THE APPELLANT, WITH OUT APPRECIATING THAT SUCH DISTRIBUTION NETWORK IS ONE OF THE MOST I MPORTANT PILLARS OF THE APPAREL, INDUSTRY, AND THEREFORE IS IN THE NATURE O F 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE' I.E. AN INTA NGIBLE ASSET UNDER SECTION 32(1)(II) OF THE ACT 25. WITHOUT PREJUDICE TO THE ABOVE, LD. AO/ DRP HAS ERRED IN NOT APPRECIATING THAT IF CONSIDERATION PAID BY THE APPELLANT FOR DES IGN & TECHNICAL KNOW- HOW, VR AND CR IS NOT FOUND TO BE INCLUDED WITHIN T HE TERMS SPECIFIED UNDER SECTION 32(1)(II) OF THE ACT, THE SAME WOULD BE TREATED AS GOODWILL AND THEREFORE, ELIGIBLE FOR DEPRECIATION 26. THE LD. AO HAS ERRED IN DISALLOWING THE DEPRECI ATION ON GOODWILL CLAIMED BY THE APPELLANT WHEN THE SAME HAS BEEN ALLOWED BY THE HON'BLE DRP VIDE ITS DIRECTIONS DATED 23 AUGUST 2019. THE LD. AO HAS ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE HON'BLE DRP AND NOT ALLOWING THE DEPRECIATION ON GOODWILL OF RS. 1,17 4 4.071/-. THOUGH THE SAME HAS BEEN ALLOWED BY THE HON'BLE DRP 27. THE LD. AO /DRP HAS ERRED IN DISALLOWING THE DEPRECIATION UNDER SECTION 32 OF THE ACT ON DESIGN AND TECHNICAL KNOW- HOW, VENDOR IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 6 OF 13 RELATIONSHIP AND COSTUMER RELATIONSHIP WITHOUT APPR ECIATING THAT ONCE THE ASSET FORMS PART OF THE BLOCK OF THE ASSET S, THE DEPRECIATION THEREON CANNOT BE QUESTIONED UNLESS THE PRESCRIBED CONDITIONS ARE SATISFIED. 28. LD. AO/ DRP HAS ERRED IN DISREGARDING THAT DEPRECIATION UNDER SECTION 32 IS MANDATORY AND HAS TO BE ALLOWED TO THE ASSESSEE AS PER EXPLANATION 5 TO SECTION 32 OF THE ACT GENERAL GROUNDS 29. LD. AO/ DRP HAS ERRED IN LAW AND IN FACTS, BY COMPUTING TAX LIABILITY OF INR 15,95,48,386/- AND CONSEQUENTIAL INTEREST OF IN R 9.17,41,499 UNDER SECTION 234B OF THE ACT 30. LD. AO/DRP HAS ERRED IN LAW AND IN FACTS BY C ONSIDERING A LOWER ADVANCE TAX CREDIT OF RS.20,69,00,000, WHEN THE ACT UAL ADVANCE TAX DEPOSITED FOR THE SUBJECT AY IS RS. 22,55,73,541. 31. LD. AO/DRP HAS ERRED IN LAW AND IN FACTS BY NOT ALLOWING THE MAT CREDIT OF RS. RS. 5,71,90,201 CLAIMED BY THE APPLICANT IN THE RETURN OF INCOME FOR AY 2015-16 32. LD. AO HAS ERRED, IN LAW AND IN FACTS IN INI TIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, VA RY, OMIT. OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE, OR AT THE TIME OF HEARING OF THE APPEAL, SO AS TO ENABLE THE HON'BLE TRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 3. THE ABOVE GROUNDS GIVE RISE TO THE FOLLOWING TWO ISSUES:- A) TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF AMP EXPENDITURE. B) REJECTION OF DEPRECIATION CLAIMED ON INTANGIBLE ASS ETS. 4. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF READYMADE GARMENTS. 5. WE SHALL FIRST TAKE UP THE SECOND ISSUE URGED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF RS.2,41,80,072/- ON INTANGIBLE ASSETS AS DETAILED B ELOW: IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 7 OF 13 PARTICULARS WDV AS ON 1APRIL 2014 DEPRECIATION FOR FY 2014-15 DESIGN & TECHNICAL KNOW HOW 4,03,72,735 1,00,93,184 TOTAL-A 1,00,93,184 VENDOR NETWORK RELATIONSHIP 3,21,10,217 80,27,554 CUSTOMER NETWORK RELATIONSHIP 2,42,37,337 60,59,334 TOTAL-B 1,40,86,888 TOTAL DEPRECIATION (A+B) 2,41,80,072 THE A.O. NOTICED THAT THE ASSESSEE HAD CLAIMED DEPR ECIATION ON THE ABOVE SAID INTANGIBLE ASSETS IN THE PAST YEARS ALSO AND THE SAME WAS DISALLOWED IN THOSE YEARS BY THE AO. ACCO RDINGLY, THE A.O. DISALLOWED THE ABOVE SAID CLAIM OF DEPRECIATIO N IN THIS YEAR ALSO, AFTER DISCUSSING IN DETAIL ABOUT THE MERITS O F CLAIM. THE LD. DRP CONFIRMED THE DISALLOWANCE BY FOLLOWING ITS DEC ISION RENDERED FOR ASSESSMENT YEAR 2012-13. 6. THE LD. A.R. SUBMITTED THAT AN IDENTICAL ISSUE W AS CONSIDERED BY THE COORDINATE BANGALORE BENCH OF TRI BUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 (IT A NO.42/BANG/2017 DATED 28.6.2019). AT THAT TIME THE NAME OF THE ASSESSEE WAS VF BRANDS INDIA PVT. LTD. AND EARLIER TO THAT THE ASSESSEE WAS KNOWN AS VF ARVIND BRANDS PVT. LTD. IDENTICAL ISSUE WAS CONSIDERED IN ASSESSMENT YEAR 2008-09 BY AHMEDABAD BENCH OF TRIBUNAL IN THE HANDS OF VF ARVIND BRANDS PVT. LTD. (ITA NO.1904/AHD/2013 AND CO 204/AHD/2013 DATED 1.1.2019 ). THE LD. A.R. SUBMITTED THAT THE DISALLOWANCE OF DEP RECIATION MADE IN RESPECT OF ABOVE SAID INTANGIBLE ASSETS HAS BEEN DELETED BY THE TRIBUNAL IN BOTH THE YEARS REFERRED ABOVE. IN AY 2011-12 THE TRIBUNAL FOLLOWED THE DECISION RENDERED IN AY 2 008-09. IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 8 OF 13 7. WE HEARD LD. D.R. AND PERUSED THE RECORD. WE NO TICE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED IN THE ASSES SEES OWN CASE BY THE COORDINATE BENCH IN AY 2011-12 (REFERRED SUP RA) WHEN THE NAME OF THE ASSESSEE WAS M/S. VF BRANDS INDIA PVT. LTD. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OPERATIVE PORTION OF THE ORDER OF THE TRIBUNAL IN RESPECT OF THIS ISSUE. 5. NOW THE ISSUE ON MERIT IS REGARDING ALLOWABILIT Y OF DEPRECIATION ON INTANGIBLE ASSETS. ON THIS ASPECT, THE ISSUE IS COVERED BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. V.F. ARVIND BRANDS PVT. LTD . (SUPRA). PARA NOS. 12 TO 12.5 OF THIS TRIBUNAL ORDER ARE RELEVANT IN THIS REGARD AND HENC E, THE SAME ARE REPRODUCED HEREINBELOW. '12. THE NEXT QUESTION ARISES ABOUT THE ALLOWABILIT Y OF THE COST INCURRED BY THE ASSESSEE IN CONNECTION WITH THE BUSINESS. IN OU R VIEW, SUCH DEDUCTIONS CANNOT BE DISALLOWED ON A TECHNICAL BASIS. SUPPOSIN G THE ASSESSEE DOES NOT ALLOCATE THE EXPENSES UNDER THE HEAD DESIGN AND TEC HNICAL KNOW-HOW AND IT PREFERS TO ALLOCATE THE SAME UNDER THE HEAD GOODWIL L. THERE IS NO DISPUTE FOR THE DEPRECIATION ON THE GOODWILL AS HELD BY THE HONOURABLE SUPREME COURT IN THE CASE OF SEMIFS SECURITIES LTD. REPORTE D IN 348 ITR 302 WHEREIN IT WAS HELD AS UNDER: 4. EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' SHALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGH TS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE. A READING THE WORDS 'ANY OTHER BUSI NESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRES SION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRE TING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). 5. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 'G OODWILL' IS AN ASSET ITA NO. 42/BANG/2017 UNDER EXPLANATION 3(B) T O SECTION 32(1) OF THE ACT. 6. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. IN THE PRESENT CASE, THE ASSESSING OFFICER, AS A MATTER OF FACT, CAME TO THE CONCLUSION THAT NO AMOUNT WAS ACTUALLY PAID ON ACCOUNT OF GOODWILL. THIS IS A FACTUAL FINDING. THE COMMISSIONER OF INCOME TAX (AP PEALS) ['CIT(A)', FOR SHORT] HAS COME TO THE CONCLUSION TH AT THE AUTHORISED REPRESENTATIVES HAD FILED COPIES OF THE ORDERS OF T HE HIGH COURT ORDERING AMALGAMATION OF THE ABOVE TWO COMPANIES; T HAT THE ASSETS AND LIABILITIES OF M/S. YSN SHARES AND SECURITIES P RIVATE LIMITED IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 9 OF 13 WERE TRANSFERRED TO THE ASSESSEE FOR A CONSIDERATIO N; THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMO UNT PAID CONSTITUTED GOODWILL AND THAT THE ASSESSEE-COMPANY IN THE PROCESS OF AMALGAMATION HAD ACQUIRED A CAPITAL RIGHT IN THE FORM OF GOODWILL BECAUSE OF WHICH THE MARKET WORTH OF THE A SSESSEE- COMPANY STOOD INCREASED. THIS FINDING HAS ALSO BEEN UPHELD BY INCOME TAX APPELLATE TRIBUNAL ['ITAT', FOR SHORT]. WE SEE NO REASON TO INTERFERE WITH THE FACTUAL FINDING. 7. ONE MORE ASPECT WHICH NEEDS TO BE MENTIONED IS T HAT, AGAINST THE DECISION OF ITAT, THE REVENUE HAD PREFERRED AN APPE AL TO THE HIGH COURT IN WHICH IT HAD RAISED ONLY THE QUESTION AS T O WHETHER GOODWILL IS AN ASSET UNDER SECTION 32 OF THE ACT. IN THE CIRCUMSTANCES, BEFORE THE HIGH COURT, THE REVENUE D ID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREINABO VE. 8. FOR THE AFORE-STATED REASONS, WE ANSWER QUESTION NO.[B] ALSO IN FAVOUR OF THE ASSESSEE. 12.1 THUS IN OUR CONSIDERED VIEW THERE COULD NOT HA VE BEEN ANY DISPUTE REGARDING THE CLAIM OF DEPRECIATION ON THE GOODWILL AS DISCUSSED ABOVE. THEREFORE, IN OUR CONSIDERED VIEW, THE EXPENSES INC URRED BY THE ASSESSEE IN CONNECTION WITH THE BUSINESS CANNOT BE DISALLOWED M ERELY ON THE GROUND THAT THESE HAVE BEEN CLAIMED UNDER DIFFERENT NOMENC LATURAL. THUS, WE HOLD THAT THE EXPENSES HAVE BEEN INCURRED FOR THE BUSINE SS THEN THE DEDUCTION HAS TO BE ALLOWED TO THE ASSESSEE UNDER THE PROVISI ONS OF THE ACT. 12.2 WE ALSO NOTE THAT THE ASSESSEE HAS CLAIMED DEP RECIATION ON THE SAME INTANGIBLE ASSETS IN THE IMMEDIATELY PRECEDING YEAR IN ITS INCOME TAX RETURN WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THUS, IT IS CLEAR THAT THERE WAS WRITTEN DOWN VALUE OF THESE INTANGIBLE AS SETS WHICH WERE BROUGHT FORWARD IN THE YEAR UNDER CONSIDERATION. THUS, IN O UR CONSIDERED VIEW THE OPENING WRITTEN DOWN VALUE IN THE YEAR CANNOT BE DI SPUTED. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF H ON'BLE HIGH COURT OF BOMBAY IN CASE OF HSBC ASSET MANAGEMENT INDIA PVT. LTD. REPORTED IN 47 TAXMANN.COM 286 WHEREIN IT WAS HELD AS UNDER: 'HAVING PERUSED THIS APPEAL MEMO INCLUDING THE IMPU GNED ORDERS, ITA NO. 42/BANG/2017 WE ARE OF THE OPINION THAT THE DELHI HIGH COURT JUDGMENT HAS BEEN DELIVERED ON 5TH NOVEMBER 2 012 AND THE IMPUGNED ORDER WAS PASSED ON 15TH JUNE 2011. THE TR IBUNAL HAS ESSENTIALLY BASED ITS CONCLUSION ON THE CONSISTENT STAND OF THE ASSESSEE AND THAT OF THE ASSESSING OFFICER. IN DEAL ING WITH THE SHIFT IN STAND FOR THE SUBJECT ASSESSMENT YEAR, THE TRIBU NAL FOUND THAT THIS CLAIM OF DEPRECIATION WAS RAISED IN THE ASSESSMENT YEAR 2003-2004. THE ASSESSEE CLAIMED THAT IT IS ALLOWABLE AS PER TH E PROVISIONS OF INCOME TAX ACT ON BLOCK OF ASSETS UNDER THE HEAD 'INTANGIBLE ASSETS'. THE ASSESSING OFFICER ALLOWED THE CLAIM FO R THAT ASSESSMENT IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 10 OF 13 YEAR BY AN ORDER UNDER SECTION 143(3) DATED 28.03.2006. THE TRIBUNAL THEN, PROCEEDS TO HOLD THAT WHEN THE ASSES SING OFFICER HAD TO ALLOW DEPRECIATION ON THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS, THEN, IT CANNOT IN THE PRESENT ASSESSMENT Y EAR DISPUTE THE OPENING WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS N OR CAN HE EXAMINE THE CORRECTNESS OR OTHERWISE OF THE OPENING WRITTEN DOWN VALUE BROUGHT FORWARD FROM THE EARLIER YEAR. THE OR DER UNDER SECTION 143(3) FOR THE ASSESSMENT YEAR 20032004 CONTINUES TO OPERATE AND NO PROCEEDINGS UNDER THE ACT WERE INITI ATED TO DISTURB THE SAME.' 12.3 WE ALSO NOTE THAT THE LD. DR HAVE NOT BROUGHT ANYTHING ON RECORDS SUGGESTING THAT ANY ACTION AGAINST THE ASSESSEE WAS TAKEN UNDER SECTION 147 OF THE ACT ON ACCOUNT OF ESCAPEMENT OF INCOME. 12.4 IN VIEW OF ABOVE THERE REMAINS NO AMBIGUITY TH AT THE ASSESSEE IS ELIGIBLE FOR THE DEPRECIATION IN RESPECT OF THE INT ANGIBLE ASSETS AS DISCUSSED ABOVE. ACCORDINGLY, WE DO NOT FIND ANY REASON TO IN TERFERE IN THE ORDER OF LD. CIT(A). 12.5. THUS, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED.' IN AY 2011-12, THE LD CIT(A) HAD DELETED THE DISALL OWANCE OF DEPRECIATION ON INTANGIBLE ASSETS AND HENCE THE REV ENUE WAS IN APPEAL BEFORE THE TRIBUNAL. THE COORDINATE BENCH, FOLLOWING THE DECISION RENDERED IN 2008-09, CONFIRMED THE ORDER O F LD. CIT(A) IN DELETING THE DISALLOWANCE IN AY 2011-12. 8. WE NOTICE THAT THE CO-ORDINATE BENCHES ARE TAKIN G A CONSISTENT VIEW ON THIS MATTER. ACCORDINGLY, FOLLOW ING THE ABOVE SAID DECISION OF COORDINATE BENCH, WE DIRECT THE AS SESSING OFFICER TO DELETE THE DISALLOWANCE OF DEPRECIATION ON INTAN GIBLE ASSETS. 9. WE SHALL NOW TAKE UP THE FIRST ISSUE RELATING TO THE TRANSFER PRICING ADJUSTMENT MADE IN RESPECT OF AMP EXPENDITU RE. IN ITS TRANSFER PRICING REPORT, THE ASSESSEE DID NOT DISCL OSE AMP EXPENSES AS AN ITEM OF INTERNATIONAL TRANSACTION. THE ASSESSEE HAD PAID ROYALTY OF RS.31.67 CRORES TO ITS AE AND T HE ASSESSEE HAD FOLLOWED CUP METHOD TO BENCH MARK THE SAME. IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 11 OF 13 10. THE TPO TOOK THE VIEW THAT THE AMP EXPENSES INCURRED BY THE ASSESSEE IS ON THE HIGHER SIDE AND HENCE, BY AP PLYING BRIGHT LINE TEST, SPLIT THE AMP EXPENSES INTO ROUTINE EXPE NSES AND NON- ROUTINE EXPENSES. THE TPO CHOSE TO ADOPT PROFIT S PLIT METHOD TO BENCH MARK BOTH ROYALTY AND AMP EXPENSES. FOR THIS PURPOSE, THE TPO RE-WORKED THE PROFIT MARGIN OF THE ASSESSEE BY CONSIDERING ONLY ROUTINE AMP EXPENSES AND THE SAME WORKED OUT TO 21.58%. THE TPO WORKED OUT THE PROFIT MARGIN OF COMPARABLE COMPANIES WITHOUT INCLUDING BRAND EXPENSES AND THE AVERAGE PROFIT MARGIN WORKED OUT TO 7.76%. ACCORDINGLY, TH E TPO HELD THAT THE DIFFERENCE BETWEEN 21.58% AND 7.76%, I.E., 13.82% IS THE NON-ROUTINE PROFIT. HE HELD THAT THIS PROFIT SHOUL D BE SHARED BETWEEN THE ASSESSEE AND ITS AE. THE TPO DETERMINE D THE AES SHARE TO BE 25% AND ACCORDINGLY WORKED OUT AES SHA RE IN NON- ROUTINE PROFIT AT RS.18.41 CRORES. THE AGGREGATE A MOUNT OF ROYALTY PAYMENT AND NON-ROUTINE AMP EXPENSES WAS RS.40.25 C RORES. THE TPO ACCORDINGLY HELD THAT THE DIFFERENCE BETWEE N THE ABOVE SAID AMOUNT OF RS.40.25 CRORES AND RS.18.41 CRORES IS LIABLE TO BE ADJUSTED. ACCORDINGLY, HE ADJUSTED RS.21.94 CRORES AS TRANSFER PRICING ADJUSTMENT. THE LD DISPUTE RESOLUTION PANE L (DRP) ALSO CONFIRMED THE SAME. 11. WE HEARD THE PARTIES ON THIS ISSUE AND PERU SED THE RECORD. BEFORE US, THE LD A.R PLACED HIS RELIANCE ON THE DE CISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERI CSSON (374 ITR 118) AND SUBMITTED THAT RESIDUAL PROFIT SPLIT METH OD IS NOT APPROPRIATE METHOD TO BENCH MARK AMP TRANSACTIONS. HE FURTHER SUBMITTED THAT THE TPO WAS NOT JUSTIFIED IN CONSIDE RING ROYALTY PAYMENTS ALONG WITH AMP EXPENSES. THE LD D.R, HOWE VER, SUPPORTED THE ORDER PASSED BY TAX AUTHORITIES. IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 12 OF 13 12. THE QUESTION OF BENCH MARKING THE AMP EXPE NSES HAS BEEN EXAMINED AND DECIDED BY HONBLE DELHI HIGH COU RT IN THE CASE OF SONY ERICSSON (SUPRA) AND MARUTI SUZUKI LTD (381 ITR 117). THE BRIGHT LINE TEST ADOPTED BY THE TPO HAS BEEN SPECIFICALLY REJECTED IN THE CASE OF SONY ERICSSON (SUPRA). THE HONBLE DELHI HIGH COURT HAS HELD IN THE CASE OF MA RUTI SUZUKI LTD (SUPRA) THAT THE REVENUE NEEDS TO ESTABLISH THE EXISTENCE OF INTERNATIONAL TRANSACTION BEFORE UNDERTAKING BENCHM ARKING OF AMP EXPENSES. HENCE, THE APPROACH OF THE TPO CANNO T BE UPHELD. SINCE THE TPO HAS COMBINED ROYALTY PAYMENT S ALSO ALONG WITH AMP EXPENSES WHILE MAKING TRANSFER PRICI NG ADJUSTMENTS BY ADOPTING RESIDUAL PROFIT SPLIT METHO D, SINCE THE EXISTENCE OF INTERNATIONAL TRANSACTIONS IN AMP EXPE NSES IS REQUIRED TO BE SHOWN SEPARATELY, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF AO/TPO. A CCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE AO ON AMP EXPE NSES AND RESTORE THE SAME TO THE FILE OF AO/TPO FOR EXAMININ G IT AFRESH. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD , THE AO/TPO MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LA W. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEB, 2021. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 16 TH FEB, 2021. VG/SPS IT(TP)A NO.2491/BANG/2019 M/S. KONTOOR BRANDS INDIA PVT. LTD., BANGALORE PAGE 13 OF 13 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.