M/s GlaxoSmithkline Consumer Healthcare Ltd., Gurgaon V. ACIT, Chandigarh

ITA 265/CHANDI/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0684 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2007-2008
• Appeal Filed On: 28-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S KEHLON
• Keywords: Transfer pricing; International transaction
• Section: 143(3); 92B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH , !' #! $ % , &' BEFORE: SHRI SANJAY GARG, JM & SMT.ANNAPURNA GUPTA, AM ./ ITA NO.265/CHD/2016 / ASSESSMENT YEAR : 2007-08 M/S GLAXOSMITHKLINE CONSUMER HEALTHCARE LTD., 24-25 FLOOR, ONE HORIZON CENTRE, GOLF COURSE ROAD, DLF PHASE-5, GURGAON. THE A.C.I.T., CIRCLEL 4(1), CHANDIGARH. ./PAN NO: AACCS0144E /APPELLANT /RESPONDENT /ASSESSEE BY : S/SHRI AJAY VOHRA, ADV. & SHRI NEERAJ JAIN, ADV. ! / REVENUE BY : SHRI J.S. KEHLON, ADDL. CIT(DR) '# $ /DATE OF HEARING : 15.10.2018 %&'(# /DATE OF PRONOUNCEMENT: 26.11.2018 &( /ORDER PER ANNAPURNA GUPTA, AM : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1), CHANDIGARH DATED 28.1.2016 PASSED U/S 143(3) R.W.S. 144C(5) OF THE INCOME TAX ACT, 1961 ( IN SHORT REFERRED TO AS ACT). 2. AT THE OUTSET IT WAS POINTED OUT THAT THIS WAS T HE SECOND ROUND OF APPEAL BEFORE THE I.T.A.T. DRAWING OUR ATTENTION TO THE FACTS OF THE CASE THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE ASSESSEE WAS A PUBLIC LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND ITA NO.132/CHD/2016 A.Y.2007-08 2 WAS ENGAGED IN THE BUSINESS OF MANUFACTURING & SELL ING OF MALTED FOOD PRODUCTS AND DRINKS UNDER THE BRAND NAM ES, HORLICKS, MALTOVA, VIVA AND BOOST AND THAT THE ASSE SSEE WAS A PART OF GLAXOSMITHKLINE PLC, UK (GSK PLC) AND THAT 43% OF THE EQUITY SHAREHOLDING OF THE ASSESSEE WAS HELD BY HORLICKS LTD., UK, A SUBSIDIARY COMPANY OF GSK PLC, UK AND THE BALANCE SHARES ARE HELD BY PUBLIC AND FINANCIAL INSTITUTIONS. IT WAS POINTED OUT THEREAFTER THAT IN THE TRANSFER PRICING ORDER FOR THE RELEVANT ASSESSMENT YEAR DATED 29.10.2010, THE TPO HAD UNDERTAKEN BENCHMARKI NG ANALYSIS ON ADVERTISEMENT, MARKETING AND PROMOTIONA L EXPENSES ( IN SHORT REFERRED TO AS AMP EXPENSE) I NCURRED BY THE ASSESSEE, APPLYING BRIGHT LINE TEST AND HOLD ING THEREAFTER THAT ANY EXPENDITURE IN EXCESS OF BRIGHT LINE WAS FOR THE PROMOTION OF THE BRAND/TRADE NAME WHICH WAS OWNED BY THE ASSOCIATED ENTERPRISES AND WHICH NEEDE D TO BE SUITABLY COMPENSATED BY THE AE. FOR THE PURPOSE OF UNDERTAKING THE BENCHMARKING OF AMP EXPENSES APPLYI NG THE BRIGHT LINE TEST THE TPO HAD CONSIDERED THE FOL LOWING AMP EXPENSES INCURRED BY THE ASSESSEE: S.NO. NAME OF EXPENSES AMOUNT (RS.LACS) 1. ADVERTISEMENT EXPENSES 8679.75 2. SELLING & DISTRIBUTION 826.17 3. MARKET RESEARCH 664.24 4. SALES PROMOTION 3939.9 0 5. SERVICE CHARGES PAID TO SELLING 10.03 6. DISCOUNT - SALES 60.52 FURTHER THE TPO COMPARED THE PERCENTAGE OF AMP EXPENDITURE TO THE TOTAL TURNOVER INCURRED BY THE A SSESSEE, ITA NO.132/CHD/2016 A.Y.2007-08 3 OF 11.21%, WITH THE AVERAGE AMP EXPENDITURE OF THE FOLLOWING COMPARABLE COMPANIES OF 0.95%: S.NO. NAME OF THE COMPARABLE COMPANIES INDUSTRIAL SALES (RS CR) AMP EXPENS E (RS CR) AMP EXPENSE AS % AGE OF SALE 1. NATIONAL CEREALS PRODUCTS LTD. 3.93 0.00 0.00 2. PUJA FOOD PRODUCTS 18.74 0.39 2.08 3. SHAH FOODS LTD. 1.84 0.014 0.76 AVERAGE 0.95% 3. ACCORDINGLY, THE TPO HELD THAT SINCE THE AMP EXP ENSE INCURRED BY THE ASSESSEE WAS MORE THAN THE COMPARAB LE COMPANIES, THE ASSESSEE HAD INCURRED EXPENSES ON BR AND PROMOTION AND DEVELOPMENT OF MARKETING INTANGIBLE F OR THE AE WHICH NEEDED TO BE SUITABLY COMPENSATED. ACCORDI NGLY AN ADJUSTMENT OF RS.102, 83,55. 523/- WAS PROPOSED ON ACCOUNT OF THE BRAND BUILDING ACTIVITY UNDERTAKEN BY THE AS SESSEE. THE SAID PROPOSED ADJUSTMENT WAS CHALLENGED BY THE ASSESSEE BEFORE THE DISPUTE RESOLUTION PANEL (IN SH ORT DRP) WHO SUSTAINED THE ORDER OF THE TPO. THE AO T HEREFORE MADE THE ADJUSTMENT TO THE AMP EXPENSE INCURRED BY THE ASSESSEE RESULTING IN ADDITION TO THE INCOME OF THE ASSESSEE TO THE SAID EXTENT. 4. AGGRIEVED BY THE SAID ORDER PASSED BY THE AO, U/ S 143(3) READ WITH SECTION 144C OF THE ACT, THE ASSES SEE FILED AN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE AFORE SAID ADDITION. THE TRIBUNAL, VIDE ITS ORDER DATED 02.04. 2013 IN ITA NO.1148/CHD/2011, SET ASIDE THE ISSUE OF DETERM INATION OF ALP OF AMP EXPENSES TO THE FILE OF THE TPO TO RE DETERMINE THE SAME IN ACCORDANCE WITH THE DIRECTIONS GIVEN BY THE ITA NO.132/CHD/2016 A.Y.2007-08 4 SPECIAL BENCH OF THE ITAT IN THE CASE OF LG ELECTRO NICS INDIA PVT. LTD. VS. ACIT IN ITA NO.5410/DEL/2011. IN PURS UANCE TO THE AFORESAID DIRECTIONS THE ARMS LENGTH PRICE WAS RECOMPUTED BY THE TPO AT RS.57,38,90,169/- IN HIS O RDER DATED 30-01-15, WHICH WAS OBJECTED TO BY THE AS SESSEE BEFORE THE DRP WHO IN TURN REJECTED THE BRIGHT LINE TEST METHOD ADOPTED BY THE TPO, FOLLOWING THE DECISION O F THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF SONI ERI CSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. VS. CIT, 374 ITR 118 AND DIRECTED THE TPO TO RECOMPUTE THE ADJUSTMENT O N THE AMP EXPENSES. ACCORDINGLY, THE TPO AFTER GIVING EFF ECT TO THE DIRECTIONS OF THE DRP RECOMPUTED THE ADJUSTMENT AT RS.75,04,28,786/- AS UNDER: PARTICULARS AMOUNT IN INR AMP EXPENSE INCURRED BY THE APPELLANT 65,77,74,000 LESS: EXPENDITURE INCURRED ON SELLING 2,49,28,000 ADVERTISEMENT EXPENDITURE INCURRED ON CREATION OF MARKETING INTANGIBLES 63,28,46,000 MARK UP AT 18.58% 11,75,82,786 REVISED ADJUSTMENT 75,04,28,786 5. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN THE PRESENT APPEAL BEFORE US. 6. AT THE OUTSET, THE LD. COUNSEL FOR ASSESSEE STAT ED THAT BOTH THE TPO AND THE DRP HAD NOT FOLLOWED THE DIRE CTIONS OF THE I.T.A.T WHILE COMPUTING THE ARMS LENGTH PRICE OF THE AMP SPENT. DRAWING OUR ATTENTION TO THE ORDER PASSE D BY THE I.T.A.T. IN THE FIRST ROUND, THE LD. COUNSEL FOR AS SESSEE POINTED OUT THAT THE ENTIRE ISSUE BEFORE THE I.T.A. T. ON THE DETERMINATION OF THE ARMS LENGTH PRICE OF THE AMP SPEND WAS DECIDED FOLLOWING THE DECISION OF THE SPECIAL B ENCH OF ITA NO.132/CHD/2016 A.Y.2007-08 5 THE I.T.A.T. IN THE CASE OF L.G. ELECTRONICS INDIA PVT. LTD.. REFERRING TO PARAS 21 AND 22 OF THE ORDER THE LD. C OUNSEL FOR ASSESSEE POINTED OUT THAT THE I.T.A.T., FOLLOWING T HE DECISION OF THE SPECIAL BENCH, HELD THE TRANSACTION IN QUEST ION TO BE AN INTERNATIONAL TRANSACTION LIABLE TO BE CONSIDERE D UNDER THE PROVISIONS OF SECTION 92B OF THE ACT AND UPHELD THE ACTION OF THE A.O. IN TREATING THE TRANSACTION OF B RAND BUILDING AS AN INTERNATIONAL TRANSACTION. THEREAFTE R OUR ATTENTION WAS DRAWN TO PARA 23 OF THE ORDER WHERE T HE I.T.A.T. HELD THAT DESPITE NO REFERENCE BEING MADE TO THE TPO FOR DETERMINATION OF ALP OF AMP SPEND, THE SAID DETERMINATION BY THE TPO WAS CORRECT. THEREAFTER OU R ATTENTION WAS DRAWN TO PARA 24 OF THE ORDER WHEREIN THE DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTE RNATIONAL TRANSACTION WAS DIRECTED TO BE COMPUTED IN ACCORDAN CE WITH THE DIRECTIONS GIVEN BY THE SPECIAL BENCH IN THIS R EGARD IN THE CASE OF L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA ). THE LD. COUNSEL FOR ASSESSEE THEREAFTER DREW OUR ATTENTION TO PARAS 26 TO 29 OF THE ORDER WHERE THE ISSUE OF EXCLUSION OF EXPENSES INCURRED ON SALE PROMOTION WAS DEALT WITH BY THE I.T.A.T. AND FOLLOWING THE DECISION IN THE CASE OF SPECIAL BENCH, THE CLAIM OF THE ASSESSEE FOR EXCLUSION OF S ALE PROMOTION EXPENSES TOTALING RS.5500.86 LACS AND MAR KETING RESEARCH EXPENSES OF RS.567.49 LACS, WAS ALLOWED. O UR ATTENTION THEREAFTER WAS DRAWN TO PARA 30 OF THE OR DER WHEREIN THE ISSUE OF CONSIDERATION OF COMPARABLE CO MPANIES FOR BENCHMARKING OF THE AMP EXPENSES WAS DEALT WITH . IT WAS POINTED OUT THAT THE ASSESSEE HAD RAISED A PLEA IN THIS ITA NO.132/CHD/2016 A.Y.2007-08 6 GROUND THAT ITS PERCENTAGE OF SPEND ON SALES OF FOR EIGN BRAND WAS LOWER THAN WHAT WAS INCURRED ON DOMESTIC PRODUC TS AND, THEREFORE, NO TRANSFER PRICING ADJUSTMENT WAS TO BE MADE. IT WAS POINTED OUT THAT THE I.T.A.T. HAD DIRECTED THIS ASPECT TO BE CONSIDERED WHILE DETERMINING THE VALUE OF ARMS LENGTH PRICE OF AMP SPENT OF THE ASSESSEE IN THE SET ASIDE PROCEEDINGS. SUMMING UP THE BRIEFLY THE ORDER PASSE D BY THE ITAT IN THE FIRST ROUND FOLLOWING THE DECISION OF T HE SPECIAL BENCH OF THE ITAT IN THE CASE OF LG ELECTRONICS (SU PRA). LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE TR ANSACTION OF BRAND BUILDING WAS HELD TO BE AN INTERNATIONAL T RANSACTION AND THE DETERMINATION OF THE ALP OF THE SAME BY THE TPO WITHOUT ANY REFERENCE MADE BY THE AO WAS ALSO UPHEL D. THE EXCLUSION OF SELLING EXPENSES FROM THE AMP SPEND WA S ALSO DIRECTED BY THE ITAT. BUT THE ISSUE OF DETERMINATIO N OF THE ALP WAS SET ASIDE TO THE TPO TO BE COMPUTED IN ACCO RDANCE WITH THE DIRECTION GIVEN IN THIS REGARD IN THE CASE OF L.G ELECTRONICS (SUPRA) AND THE TPO WAS ALSO DIRECTED T O TAKE INTO CONSIDERATION THE FACT THAT THE AMP SPEND ON DOMESTIC BRANDS BY THE ASSESSEE EXCEEDED THAT ON THE FOREIGN BRANDS, WHILE DETERMINING THE ALP OF THE AMP SPEND INCURRED BY THE ASSESSEE. 7. THE LD. COUNSEL FOR ASSESSEE THEREAFTER DREW OUR ATTENTION TO THE ORDER PASSED BY THE TPO IN THE SET ASIDE PROCEEDINGS. THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT THE ASSESSEE HAD RAISED OBJECTIONS TO THE METHOD AD OPTED BY THE TPO FOR DETERMINING THE ALP OF THE AMP EXPENSES AS NOT ITA NO.132/CHD/2016 A.Y.2007-08 7 BEING IN CONSONANCE WITH THE DIRECTIONS OF THE I.T. A.T., WHICH WERE BRUSHED ASIDE BY THE TPO AND WHO IN TURN PROCEEDED TO DETERMINE THE SAME NOT IN ACCORDANCE W ITH THE DIRECTIONS GIVEN BY THE SPECIAL BENCH IN THE CASE O F L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA) AS DIRECTED BY THE I.T.A.T. IN THE CASE OF THE ASSESSEE. OUR ATTENTION WAS DRAW N TO PARA 5 OF THE ORDER OF THE TPO WHEREIN THE OBJECTIONS OF THE ASSESSEE TO CONSIDER THE SELLING AND DISTRIBUTION A ND SALE PROMOTION EXPENSES IN THE AMP SPENT WAS DEALT WITH AND BRUSHED ASIDE BY THE TPO BY STATING THAT THE SAME I NCLUDED EXPENSES IN THE NATURE OF BRAND PROMOTION AND, THER EFORE, WERE INCLUDED FOR THE PURPOSE OF ALP OF AMP. THERE AFTER OUR ATTENTION WAS DRAWN TO PARA 6 OF THE ORDER WHEREIN THE ASSESSEE HAD OBJECTED TO THE USE OF THE SAME THREE COMPARABLE COMPANIES WHICH HAD BEEN USED IN THE ORI GINAL TP ORDER AS OPPOSED TO THE DIRECTIONS OF THE SPECIA L BENCH IN THE CASE OF L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA ) TO SELECT COMPARABLES WHICH WERE IN THE BUSINESS OF SALES PRO MOTION ONLY. IT WAS POINTED OUT THAT THE SAME WAS ALSO REJ ECTED BY THE TPO STATING THAT THE DECISION IN THE CASE OF L. G. ELECTRONICS INDIA PVT. LTD. (SUPRA) WAS NOT ACCEPTA BLE SINCE THE DEPARTMENT HAD GONE IN APPEAL AGAINST THE SAID CASE BEFORE THE HON'BLE HIGH COURT. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, CONTENDED THAT IT WAS CLEAR THAT THE TPO HAD DETERMINED THE ARMS LENGTH PRICE OF THE AMP SPEND AGAINST THE DIRECTIONS GIVEN BY THE I.T.A.T. IN THE FIRST R OUND BY NOT FOLLOWING THE RATIO AND PRINCIPLE LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF L.G. ELECTRONICS INDIA PVT. LT D. (SUPRA). ITA NO.132/CHD/2016 A.Y.2007-08 8 FURTHER THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTEN TION TO THE ORDER OF THE DRP WHO IN TURN HAD COMPLETELY REJ ECTED THE BRIGHT LINE TEST METHOD WHICH HAD BEEN APPROVED BY THE SPECIAL BENCH IN THE CASE OF L .G ELECTRONICS (SUPR A). IT WAS THUS CONTENDED THAT BOTH THE TPO AND DRP HAD NOT F OLLOWED THE DIRECTIONS OF THE I.T.A.T. IN THE FIRST ROUND A ND, THEREFORE, THE MATTER NEEDED TO BE RESTORED BACK FO R DETERMINING THE ARMS LENGTH PRICE IN ACCORDANCE WI TH THE DIRECTIONS GIVEN IN THE FIRST ROUND. 8. THE LD. DR FAIRLY CONCEDED THAT BOTH THE TPO AND DRP HAD NOT FOLLOWED THE DIRECTIONS OF THE I.T.A.T. AND AGREED THAT THE ISSUE NEEDED TO BE RESTORED BACK TO THE TP O. 9. IN VIEW OF THE ABOVE, WE RESTORE BACK THE ISSUE OF DETERMINATION OF ARMS LENGTH PRICE OF THE AMP SPEN D INCURRED BY THE ASSESSEE TO THE TPO, TO BE DETERMIN ED STRICTLY IN ACCORDANCE WITH DIRECTIONS GIVEN BY THE I.T.A.T. IN THE FIRST ROUND. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS, T HEREFORE, ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- ' $ #! % (SANJAY GARG ) (ANNAPURNA GUPTA) / JUDICIAL MEMBER &' / ACCOUNTANT MEMBER )' /DATED: 26 TH NOVEMBER, 2018 * ! * ITA NO.132/CHD/2016 A.Y.2007-08 9 &) *+,+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. - $ / CIT 4. - $ ( )/ THE CIT(A) 5. +./ 0 , #0 , 123/4 / DR, ITAT, CHANDIGARH 6. /35' / GUARD FILE &) $ / BY ORDER, 6 ! / ASSISTANT REGISTRAR