KELLOGG INDIA P.LTD, MUMBAI V. DCIT 10(3), MUMBAI

ITA 2866/MUM/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7887 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 07-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 25-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; Rule of consistency; Wholly owned subsidiary; Unabsorbed depreciation
• Section: 143(3); 92B; 195; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHR I N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 2866 / MUM . /2014 ( ASSESSMENT YEAR : 20 09 10 ) KELLOGG INDIA PVT. LTD. 501, DELPHI, B WING HIRNANDANI BUSINESS PARK POWAI, MUMBAI 400 076 PAN AAACK1748A . APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CIRCLE 10 ( 3 ), MUMBAI . RESPONDENT ITA NO. 2888 /MUM. /2014 ( ASSESSMENT YEAR : 20 09 10 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 10 ( 3 ), MUMBAI . APPELLANT V/S KELLOGG INDIA PVT. LTD. 501, DELPHI, B WING HIRNANDANI BUSINESS PARK POWAI, MUMBAI 400 076 PAN AAACK1748A . RESPONDENT ASSESSEE BY : SHRI DHANESH BAFNA A/W MS. HIRALI DESAI REVENUE BY : SHRI RAJNEESH YADAV DATE OF HEARING 30.04.2019 DATE OF ORDER 19.07.2019 2 KELLOGG INDIA PVT. LTD. O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED CROSS APPEAL S ARISE OUT OF ORDER DATED 26 TH FEBRUARY 201 4 , PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ), FOR THE ASSESSMENT YEAR 2009 10 , IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 1, MUMBAI. ITA NO. 2866/MUM./2014 ASSESSEES APPEAL 2 . IN GROUNDS NO.1, 2 AND 3, THE ASSESSEE HAS CHALLENGED THE ADDITION OF ` 17,68,29,302, ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT RELATING TO ADVERTISING, MARKETING AND SALES PROMOTION (AMP) EXPENDITURE. 3 . BRIEF FACTS ARE, THE ASSESSEE , AN INDIAN COMPANY , WAS INCORPORATED IN THE YEAR 1990AND IS ENGAGED IN THE MANUFACTURING AND SALE OF READY TO EAT CEREAL PRODUCTS IN INDIA. IT IS A WHOLLY OWNED SUBSIDIARY OF KELLOGG, USA, AND OPERATES AS A LICENSED MANUFACTURER IN INDIA BY UTILIZING THE TECHNOLOGY AND MARKETING INTANGIBLES OF KELLOGG, USA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO VARIOUS INTERNATIONAL T RANSACTIONS WITH ITS ASSOCIATED ENTERPRISE ( AE ).A FTER MAKING A DETAILED ANALYSIS OF INTERNATIONAL T RANSACTIONS WITH THE AE IN THE TRANSFER P RICING STUDY REPORT , THE ASSESSEE FOUND THEM TO 3 KELLOGG INDIA PVT. LTD. BE AT ARM'S LENGTH PRICE. THE TRANSFER PRICING OFFICER AFTER EXAMINING THE TRANSFER PRICING STUDY REPORT AS WELL AS OTHER MATERIALS ON RECORD ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY THE ARM' S LENGTH PRICE OF THE AMP EXPENDITURE SHOULD NOT BE DETERMINED BY APPLYING BRIGHT LINE TEST (BLT) METHOD. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE FILED ITS REPLY STATING THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE , SINCE , IS IN RESPECT OF PRODUCTS MANUFACTURED AND SOLD IN INDIA AND THE PAYMENT TOWARDS SUCH EXPENDITURE HAVING BEEN MADE TO THIRD PARTIES IN INDIA, IT CANNOT BE TREATED AS INTERNATIONAL T RANSACTION UNDER SECTION 92B OF THE ACT. FURTHER, IT WAS SUBMITTED BY THE ASSESSEE , SINCE THERE IS NO AGREEMENT/ARRANGEMENT WITH THE AE FOR INCURRING AMP EXPENDITURE FOR PROMOTION OF THE BRAND OF THE AE , IT CANNOT FORM PART OF INTERNATIONAL T RANSACTION . FURTHER, IT WAS SUBMITTED BY THE ASSESSEE , THE ARM'S LENGTH PRICE OF SUCH TR ANSACTION CANNOT BE DETERMINED BY APPLYING BLT AS IT IS NOT A PRESCRIBED METHOD IN TH E STATUTE. IN SUPPORT OF SUCH CONTENTION, THE ASSESSEE RELIED UPON VARIOUS DECISIONS ALSO. HOWEVER, THE TRANSFER PRICING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS MADE BY THE ASSESSEE AND PROCEEDED TO DETERMINE THE ARM'S LENGTH PRICE OF THE AMP EXPENDITURE BY APPLYING BLT METHOD. WHILE DOING SO, HE COMPLETELY RELIED UPON THE SPECIAL BENCH DECISION OF THE TRIBUNAL, DELHI BENCH, IN L G ELECTRONICS INDIA PVT. LTD. V/S ACIT, [ 2013] 140 ITD 41 (DEL.) (SB). IN THE PROCESS, HE CONSIDERED THE ARITHMETI C MEAN OF 4 KELLOGG INDIA PVT. LTD. TWO COMPARABLES VIZ. DABUR INDIA LTD. AND MARICO LTD. WORKED OUT AT 11.51% AS BLT FOR AMP EXPENDITURE AND DETERMINED THE ARM'S LENGTH PRICE OF AMP EXPENDITURE AT ` 22,71,47,960, AND ULTIMATELY MADE AN ADJUSTMENT OF ` 17,68,29,302. THE ADJUSTMENT SUGGESTED BY THE TRANSFER PRICING OFFICER WAS ADDED BACK TO THE INCOME OF THE ASSESSEE WHILE FRAMING THE DRAFT ASSESSMENT ORDER. THOUGH , THE ASSESSEE RAISED OBJECTIONS AGAIN ST THE DRAFT ASSESSMENT ORDER BEFORE LEARNED DRP, HOWEVER, THE ADJUSTMENT MADE BY THE T PO WAS UPHELD . 4 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE AMP EXPENDITURE INCURRED BY THE ASSESSEE DOES NOT COME WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTI ON AS DEFINED UNDER SECTION 92B OF THE ACT . HE SUBMITTED, NOT ONLY THE AMP EXPENDITURE WAS PAID TO THIRD PARTIES IN INDIA BUT IT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PRODUCTS MANUFACTURED AND MARKETED BY THE ASSESSEE IN INDIA. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THOUGH , THE TRANSFER PRICING OFFICER HAS INFERR ED EXISTENCE OF INTERNATIONAL T RANSACTION WITH REGARD TO AMP EXPENDITURE BY STATING THAT THERE WAS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE FOR PROMOTION OF THE BRAND OF THE AE, HOWEVER, HE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DEMONSTRATE EXISTE NCE OF SUCH AN ARRANGEMENT. HE SUBMITTED , ALL RISK AND REWARDS OF MANUFACTURING SALE OF THE PRODUCTS IN INDIAN MARKET IS THAT OF THE ASSESSEE AND THE ASSESSEE INCURS THE AMP EXPENDITURE TO MARKET AND PROMOTE ITS OWN PRODUCTS. HE SUBMITTED , THE TRANSFER 5 KELLOGG INDIA PVT. LTD. PRI CING OFFICER HAS ARRIVED AT THE VALUE OF THE AMP EXPENDITURE BY APPLYING BLT METHOD AND ONLY ON THE REASON THAT THE AMP EXPENDITURE INCURRED IS SIGNIFICANTLY HIGHER THAN THAT OF THE COMPARABLES ON APPLICATION OF BLT. HE SUBMITTED , THE TRANSFER PRICING OFFI CER HAS NOT BROUGHT ANY TANGIBLE EVIDENCE TO DEMONSTRATE THAT THE ASSESSEE WAS OBLIGED TO PROMOTE THE BRAND OF AE AND THEREBY HAS INCURRED THE AMP EXPENDITURE. HE SUBMITTED , NOW IT IS WELL SETTLED THAT DETERMINATION OF ARM'S LENGTH PRICE OF AMP EXPENDITURE BY APPLYING BLT IS NOT VALID . FURTHER, HE SUBMITTED , UNLESS THE REVENUE DEMONSTRATE S THROUGH COGENT EVIDENCE THAT THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE TO INCUR AMP EXPENDITURE FOR PROMOTING THE BRAND OF THE AE, THE AMP EXPENDITURE INCUR RED IN INDIA CANNOT BE BROUGHT WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTION . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , WHILE EXAMINING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2011 12 THE DRP HAS DELETED THE ADJUSTMENT AFTER RECO R DING A CATEGORICAL FINDING THAT THERE IS NEITHER ANY UNDERSTANDING N OR ARRANGEMENT / AGREEMENT BETWEEN THE ASSESSEE AND THE AE FOR INCURRING AMP EXPENDITURE TO PROMOTE THE BRAND OF THE AE. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , NOW IT IS WELL SE TTLED THAT UNLESS THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE FOR INCURRING AMP EXPENDITURE , IT CANNOT COME WITHIN THE PURVIEW OF THE INTERNATIONAL T RANSACTION . FURTHER, HE SUBMITTED , THE SPECIAL BENCH DECISION OF THE TRIBUNAL, IN CASE OF L G 6 KELLOGG INDIA PVT. LTD. ELECTRONICS INDIA PVT. LTD. (SUPRA) APPROVING BLT METHOD IS NO MORE A GOOD LAW IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. V/S CIT, [2015] 381 ITR 117 (DEL.) . FURTHER, HE RELIED UPON THE FOLLOWING DECISIONS: I ) MARUTI SUZUKI INDIA LTD. V/S CIT, ITA NO.110 OF 2014 (DEL. HC); II ) JOHNSON & HOHNSON PVT. LTD. V/S ACIT, ITA NO.6142/ MUM./2017, (MUM. TRIB.); III ) MONDELEZ INDIA FOODS PVT. LTD. V/S ACIT, ITA NO.5470/ MUM./2012 (MUM. TRIB.); IV ) NIVEA INDIA PVT. LTD. V/S ACIT, ITA NO.7744/MUM./2012 (MUM. TRIB.); V ) YAKULT DANONE INDIA PVT. LTD. V/S DCIT, ITA NO.996/ DEL./2016 (DEL. TRIB.); AND VI ) L.G. ELECTRONICS INDIA PVT. LTD. V/S ACIT, ITA NO.6253/ DEL./20012 (DEL. TRIB.) . 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE , THOUGH , RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP, HOWEVER, HE SUBMITTED THAT IN SUBSEQUENT DECISIONS, THE HON'BLE DELHI HIGH COURT HAS NOT APPROVED OF THE SPECIAL BENCH DECISION OF THE TRIBUNAL, IN L G ELECTRONICS INDIA PVT. LTD . (SUPRA) AND THE APPLICATION OF BLT METHOD. HE SUBMITTED , SINCE THE ISSUE IS NOW PENDING BEFORE THE HON'BLE SUPREME COURT, THE MAT T ER MAY BE RESTORED BACK TO THE ASSESSING OFFICER FOR DECIDING THE ISSUE KEEPING IN VIEW THE DECISION OF THE HON'BLE SUPREME COURT. IN SUPPORT OF SUCH CONTENTION, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: 7 KELLOGG INDIA PVT. LTD. I ) NIKON INDIA PVT. LTD. V/S DCIT, [2017] 81 TAXMANN.COM 300 (DEL.); II ) SUZUKI MOTORCYCLES INDIA PVT. LTD. V/S DCIT, ITA NO.467/DEL./ 2015, DATED 26.11.2015; AND III ) SENNHEISER ELECTRONICS INDIA PVT. LTD. V/S ACIT, ITA NO.269/ DEL./2017, DATED 19.11.2018; AND 6 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. UNDISPUTED FACTS ARE, THE ASSESSEE IS NOT MERELY A DISTRIBUTOR OF THE PRODUCTS MANUFACTURED BY THE AE BUT THE ASSESSEE ITSELF MANUFACTURE S ITS OWN PRODUCTS IN INDIA UNDER LICENSE FROM THE AE. IT IS ALSO A FACT THAT FOR MARKETING AND PROMOTION OF ITS MANUF ACTURED PRODUCTS IN INDIA, ASSESSEE HAS INCURRED AMP EXPENDITURE BY MAKING PAYMENTS TO THIRD PARTIES IN INDIA. THEREFORE, THE BASIC ISSUE WHICH ARISES FOR CONSIDERATION IS , WHETHER THE AMP EXPENDITURE INCURRED BY THE ASSESSEE IN INDIA CAN COME WITHIN THE P URVIEW OF INTERNATIONAL T RANSACTION AS DEFINED UNDER SECTION 92B OF THE ACT. IN THIS REGARD, THE CONTENTION OF THE ASSESSEE BEFORE THE TRANSFER PRICING OFFICER WAS, SINCE THE ASSESSEE HAS INCURRED THE AMP EXPENDITURE FOR PRODUCTS MANUFACTURED AND SOLD BY IT IN INDIA , IT DOES NOT COME WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTION . FURTHER, THE ASSESSEE HAS ALSO SUBMITTED THAT SINCE THERE IS NO ARRANGEMENT/AGREEMENT BETWEEN THE ASSESSEE AND THE AE FOR INCURRING SUCH EXPENDITURE TO PROMOTE THE BRAND OF THE AE, IT CANNOT BE SAID THAT THERE IS AN INTERNATIONAL 8 KELLOGG INDIA PVT. LTD. T RANSACTION RELATING TO AMP EXPENDITURE. IT IS WORTH MENTIONING , THE TRANSFER PRICING OFFICER HAS ALSO AGREED WITH THE ASSESSEE THAT THE AMP EXPENDITURE WAS INCURRED WITH THE THIRD PARTIES I N INDIA, HENCE, DO NOT CONSTITUTE INTERNATIONAL T RANSACTION . HAVING HELD SO, THE TRANSFER PRICING OFFICER HAS STILL PROCEEDED TO DETERMINE THE ARM'S LENGTH PRICE OF THE AMP EXPENDITURE ON THE REASONING THAT THE COMPENSATION REQUIRED IN THE ARRANGEMENT BETW EEN THE ASSESSEE AND THE AE FOR IMPROVING THE BRAND INTANGIBLE OF THE OWNER HAS TO BE DETERMINED. FURTHER, HE HAS OBSERVED THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE NOT ONLY BENEFITS THE ASSESSEE BUT ALSO THE AE IN TERMS OF INCREASE IN THE BRAND VA LUE OF KELLOGG. THUS, THE TRANSFER PRICING OFFICER HAS INFERRED THAT THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE WITH REGARD TO PROMOTION OF THE BRAND OF THE AE BY INCURRING AMP EXPENDITURE. HOWEVER, HE HAS NOT PROVIDED ANY FACTUAL BASIS ON WHI CH HE HAS DRAWN SUCH INFERENCE. BY MERELY STATING THAT THERE IS AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE, THE TRANSFER PRICING OFFICER CANNOT BRING THE AMP EXPENDITURE WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTION. IF THE TRANSFER PRICING OFFICER A LLEGES THAT THE AMP EXPENDITURE COMES WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTION BY VIRTUE OF AN ARRANGEMENT BETWEEN THE RELATED PARTIES, THE BURDEN IS ENTIRELY UPON THE TRANSFER PRICING OFFICER TO DEMONSTRATE THE EXISTENCE OF SUCH ARRANGEMENT . A CARE FUL READING OF THE IMPUGNED ORDER OF THE TRANSFER PRICING OFFICER DOES NOT REVEAL 9 KELLOGG INDIA PVT. LTD. ANY SUCH FACTUAL BASIS WHICH CAN DEMONSTRATE THE EXISTENCE OF AN ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE FOR INCURRING AMP EXPENDITURE TO PROMOTE THE BRAND OF THE AE. THA T BEING THE CASE, THE ENTIRE APPROACH OF THE TRANSFER PRICING OFFICER IN DETERMINING THE ARM'S LENGTH PRICE OF AMP EXPENDITURE IS FALLACIOUS. 7 . MOREOVER, THERE IS NO DOUBT THAT THE TRANSFER PRICING OFFICER HAS DETERMINED THE ARM'S LENGTH PRICE OF AMP EXPEN DITURE BY APPLYING BLT METHOD. WHILE DOING SO, HE HAS HEAVILY RELIED UPON THE SPECIAL BENCH DECISION OF THE TRIBUNAL, IN L G ELECTRONICS INDIA PVT. LTD. (SUPRA). NOW, IT IS FAIRLY WELL ESTABLISHED THAT DETERMINATION OF ARM'S LENGTH PRICE OF AMP EXPENDITURE BY APPLYING BLT METHOD IS NOT VALID .I N A CATENA OF DECISIONS , THE HON'BLE DELHI HIGH COURT WHILE DISAPPROVING THE DECISION OF THE TRIBUNAL IN L . G . ELECTRONICS INDIA PVT. LTD. (SUPRA) HAVE HELD THAT BLT METHOD IS INVALID AS IT IS NOT PRESCRIBED IN THE STATUTE. IN THIS CONTEXT, WE MAY REFER TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA). FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA) AND VARIOUS OTHER DECISIONS, DIFFERENT BENCHES OF THE TRIBUNAL HAVE ALSO HELD THAT IN ABSENCE OF AN EXPRESS ARRANGEMENT/AGREEMENT BETWEEN THE ASSESSEE AND THE AE FOR INCURRING AMP EXPENDITURE TO PROMOTE THE BRAND OF THE AE, AMP EXPENDITURE INCURRED BY MAKING PAYMENT TO THIRD PARTIES FOR PROMOTING AND MARKETING THE PRODUCT MANUFACTURED BY THE 10 KELLOGG INDIA PVT. LTD. ASSESSEE , DOES NOT COME WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTION . 8 . AT THIS STAGE, IT IS RELEVANT TO OBSERVE , WHILE DECIDING IDENTICAL NATURE OF DISPUTE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011 12, LEARNED DRP IN DIRECTION DATED 2 8 TH DEC EMBER 2015, HAVE DELETED THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER ON ACCOUNT OF AMP EXPENDITURE BY RECORDING A FACTUAL FIN DING THAT THE TRANSFER PRICING OFFICER HAS FAILED TO DEMONSTRATE THAT THERE IS AN AGREEMENT/ARRANGEMENT BETWEEN THE ASSESSEE AND THE AE FOR INCURRING AMP EXPENDITURE. WHILE DOING SO, LEARNED DRP HAS RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. (SUPRA). THUS, VIEWED IN THE LIGHT OF THE RATIO LAID DOWN IN THE DECISIONS CITED BY THE LEARNED AUTHORISED REPRESENTATIVE , INCLUDING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN MARTUTI SUZUKI INDIA LTD. (SUPRA) , IT HAS TO BE CONCLUDED THAT THE AMP EXPENDITURE INCURRED BY THE ASSESSEE IN INDIA CANNOT COME WITHIN THE PURVIEW OF THE INTERNATIONAL T RANSACTION. H ENCE, THE TRANSFER PRICING OFFICER HAS NO JURISDICTION TO DETERMINE THE ARM'S LENGTH PRICE OF AMP EXPENDITURE. 9 . HAVING H ELD SO, IT IS NOW NECESSARY TO DEAL WITH THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR KEEPING IT PENDING TILL THE ISSUE IS SETTLED BY THE HON'BLE SUPREME COURT. IN OUR VIEW, THE AFORESAID CONTE NTION OF THE 11 KELLOGG INDIA PVT. LTD. LEARNED DEPARTMENTAL REPRESENTATIVE IS NOT ACCEPTABLE. AS PER THE PREVAILING LEGAL POSITION, THE AMP EXPENDITURE INCURRED BY THE ASSESSEE IN INDIA CANNOT COME WITHIN THE PURVIEW OF INTERNATIONAL T RANSACTION. THAT BEING THE CASE, THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER CANNOT SURVIVE. THEREFORE, WE DO NOT FIND ANY NECESSITY TO RESTORE THE ISSUE TO THE ASSESSING OFFICER. GROUNDS ARE ALLOWED. 10 . IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE ON ACCOUNT OF ADJUSTMENT TO THE ARM'S LENGTH PRICE OF ROYALTY PAID TO THE A . E. 11 . BRIEF FACTS ARE, IN COURSE OF PROCEEDINGS BEFORE HIM, THE TRANSFER PRICING OFFICER FOUND THAT DURING THE YEAR THE ASSESSEE HAS PAID ROYALTY TO ITS AE WHICH HAS BEEN B ENCHMARKED BY USING C OMPARABLE UNCONTROLL ED P RICE (CUP) METHOD. AS OBSERVED BY THE TRANSFER PRICING OFFICER, THE ASSESSEE COULD NOT FURNISH ANY COMPARABLE ROYALTY AGREEMENT TO DEMONSTRATE THAT ROYALTY PAYMENT WAS AT ARM'S LENGTH. FUR T H ER, HE OBSERVED , THE ROYALTY AGREEMENT OF THE ASSESSEE IS FOR MORE THAN 10 YEARS AND THE COMPARABLE AGREEMENTS PRODUCED BEFORE HIM WERE OF SHORT DURATION OF TWO TO THREE YEARS. FURTHER, SUCH AGREEMENTS WERE NEITHER CONTEMPORANEOUS NOR FROM THE SAME SECTOR. THUS, HE HELD THAT THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT IS NOT AT ARM'S LENGTH AND DETERMINED THE SAME AT NIL. HOWEVER, SINCE HE HAS ALREADY MADE ADJUSTMENT ON ACCOUNT OF AMP EXPENDITURE, HE DID NOT 12 KELLOGG INDIA PVT. LTD. MAKE ANY SEPARATE ADJUSTMENT ON ACCOUNT OF ROYALTY PAYMENT. LEARNED DR P ALSO UPHELD THE AFORESAID DECISION OF THE T PO . 12 . THE LEARNED AUTHORISED REPRESENTATIVE DRAWING OUR ATTENTION TO THE ROYALTY AGREEMENT PLACED IN THE PAPER BOOK SUBMITTED , THE AGREEMENT IS CONTINUING FOR PAST SEVERAL YEARS. HE SUBMITTED , AS PER THE TERMS OF THE AGREEMENT, ASSESSEE FROM THE VERY INCE PTION PAYS ROYALTY TO THE AE @ 5% ON DOMESTIC TRANSACTION AND AT 8% ON EXPORT TRANSACTION. HE SUBMITTED , SINCE THE ASSESSEE IS USING THE TECHNOLOGY , THE BRAND AND INTANGIBLES OF THE AE, IT HAS TO PAY ROYALTY TO CONTINUE ITS MANUFACTURING ACTIVITIES. HE SUB MITTED , THE PAYMENT OF ROYALTY IN ALL OTHER ASSESSMENT YEARS , EXCEPT , THE IMPUGNED ASSESSMENT YEAR HAS BEEN ACCEPTED BY THE TRANSFER PRICING OFFICER TO BE AT ARM'S LENGTH. THUS, HE SUBMITTED , BY APPLYING THE RULE OF CONSISTENCY NO ADJUSTMENT CAN BE MADE TO THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THOUGH THE TRANSFER PRICING OFFICER HAS POINTED OUT CERTAIN FLAW S IN THE BENCHMARKING OF THE ASSESSEE BUT HE HIMSELF HAS NOT COME UP WITH PROPER BENCHMARKING AND H AS SIMPLY DETERMINED THE ARM'S LENGTH PRICE AT NIL WITHOUT APPLYING ANY PRESCRIBED METHOD. HE SUBMITTED , SUCH APPROACH OF THE TRANSFER PRICING OFFICER IS UNACCEPTABLE. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN PCIT V/S R.A . K. CERAMICS INDIA PVT. LTD., 246 TAXMANN.COM 85 (AP). 13 KELLOGG INDIA PVT. LTD. 13 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP. 14 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. ON 18 TH JULY 1994, THE ASSESSEE HAD ENTERED INTO A FINANCIAL AND TECHNICAL COLLABORATION AGREEMENT WITH KELLOGG, USA , FOR AVAILING TECHNICAL KNOWHOW / DATA FOR MANUFACTUR ING LICENSED PRODUCT S IN INDIA. AS PER THE TERMS OF AGREEMENT, THE ASSESSEE IS REQUIRED TO PAY ROYALTY @ 5% O N THE DOMESTIC SALES AND 8% ON EXPORT SALES. THUS, IN PURSUANCE TO THE TERMS OF THE AFORESAID AGREEMENT, THE ASSESSEE UTILISES TECHNICAL / FINANCIAL DATA OF KELLOGG, USA , ON PAYMENT O F ROYALTY. THE PAYMENT OF ROYALTY IN THE PAST ASSESSMENT YEAR S WAS FOUND TO BE AT ARM'S LENGTH BY THE TRANSFER PRICING OFFICER. EVEN , IN THE SUBSEQUENT ASSESSMENT YEARS ALSO THE TRANSFER PRICING OFFICER HAS FOUND THE PAYMENT OF ROYALTY TO THE AE TO BE AT ARM'S LENGTH. UNDISPUTEDLY, IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS BENCHMARKED THE ROYALTY PAYMENT BY APPLYING CUP METHOD. IT IS OBSERVED , THE TRANSFER PRICING OFFICER HAS REJECTED THE BENCHMARKING OF THE ASSESSEE WITH SOME GENERAL OBSERVATIONS. IF THE BENCHMARKING DONE BY THE ASSESSEE IS NOT ACCEPTABLE TO THE TRANSFER PRICING OFFICER, HE MUST PROVIDE THE BASIS/REASONING ON WHICH HE FOUND IT UNACCEPTABLE. EVEN ASSUMING THAT THE BENCHMARKING DONE BY THE ASSESSEE WAS NOT CORRECT, THE TRANSFER PRICIN G OFFICER SHOULD HAVE BENCHMARKED THE ROYALTY PAYMENT BY APPLYING ANY OF THE PRESCRIBED 14 KELLOGG INDIA PVT. LTD. METHODS . H OWEVER, WITHOUT APPLYING ANY PRESCRIBED METHOD HE HAS SIMPLY DETERMINED THE ARM'S LENGTH PRICE OF ROYALTY PAYMENT AT NIL. THE AFORESAID APPROACH OF THE TRANSF ER PRICING OFFICER IS NOT IN ACCORDANCE WITH STATUTORY PROVISIONS, HENCE, UNSUSTAINABLE. IN ANY CASE OF THE MATTER, EXCEPT THE IMPUGNED ASSESSMENT YEAR THE PAYMENT OF ROYALTY IN ALL OTHER ASSESSMENT YEARS HAS BEEN ACCEPTED BY THE TRANSFER PRICING OFFICER T O BE AT ARM'S LENGTH. THEREFORE, APPLYING THE RULE OF CONSISTENCY ALSO, THE PAYMENT OF ROYALTY @ 5 % , AS WAS PAID IN THE EARLIER AND SUBSEQUENT ASSESSMENT YEARS , HAS TO BE ACCEPTED. MORE SO, WHEN THE RELEVANT FACTS RELATING TO ROYALTY PAYMENT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS REMAIN UNCHANGED. IN VIEW OF THE AFORESAID, WE HOLD THAT ROYALTY PAID TO THE ASSESSEE BY THE AE HAS TO BE ACCEPTED. THE GROUND R AISED IS ALLOWED. 15 . IN GROUNDS NO.5 AND 6, THE ASSESSEE HAS CHALLENGED ON ACCOUNT OF UNUTILIZED MODVAT/CENVAT CREDIT. 16 . BRIEF FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF AC COUNTING FOR VALUATION OF STOCK CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE UNUTILIZED CENVAT CREDIT AMOUNTING TO ` 45,43,850, AS ON 31 ST MARCH 2009, SHOULD NOT BE INCLUDED IN THE COST OF INVENTORY AS PER SECTION 145A OF THE ACT. THOUGH , THE ASSESSEE OBJEC TED TO THE PROPOSED ADDITION, HOWEVER, THE ASSESSING OFFICER REJECTING THE 15 KELLOGG INDIA PVT. LTD. OBJECTIONS OF THE ASSESSEE ADDED BACK THE AMOUNT OF ` 45,43,850, TO THE INCOME OF THE ASSESSEE. THE ASSESSEE OBJECTED TO THE AFORESAID ADDITION BEFORE LEARNED DRP. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LEARNED DRP ENHANCED THE ADDITION UNDER SECTION 145A OF THE ACT TO ` 84,60,697. 17 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , IF FOLLOWING THE PROVISION OF SECTION 145A OF THE ACT, UNUTILIZED MODVAT CREDIT IS ADDED TO THE OPENING STOCK , IT SHOULD ALSO BE ADDED TO CLOSING STOCK AND PURCHASES AS PROVIDED IN THE SAID PROVISION. HE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEAR, THE TRIBUNAL HAS ALSO HELD THAT UNUTILIZED MOD VAT CREDIT IS ADDED TO CLOSING STOCK, SIMILAR ADJUSTMENT IS ALSO TO BE MADE TO THE PURCHASES AND SALES AND OPENING STOCK AS WELL. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE DECISIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR S 2004 05, 2005 06, 2006 07, 2007 0 8 AND 2008 09. DRAWING OUR ATTENTION TO THE TAX AUDIT REPORT, HE SUBMITTED , PROFIT CHARGEABLE TO TAX REMAINS THE SAME IRRESPECTIVE OF THE FACT WHETHER MODVAT CREDIT IS INCLUDED OR EXCLUDED FROM THE OPENING AND CLOSING STOCK AS WELL AS SALES AND PURCHASES. THUS, HE SUBMITTED , IT IS REVENUE NEUTRAL. 18 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED DRP. 16 KELLOGG INDIA PVT. LTD. 19 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. UNDISPUTEDLY, THE UNUT ILIZED MODVAT CREDIT HAS BEEN ADDED ONLY TO THE CLOSING STOCK BY THE DEPARTMENTAL AUTHORITIES BY INVOKING THE PROVISION OF SECTION 145A OF THE ACT. HOWEVER, NOW IT IS FAIRLY WELL SETTLED THAT ADJUSTMENT, IF ANY, UNDER SECTION 145 A OF THE ACT HAS TO BE MADE BOTH TO THE OPENING STOCK AND CLOSING STOCK AS WELL AS PURCHASES AND SALES. IN FACT, IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004 05, THE TRIBUNAL IN ITA NO.7186/MUM./2008, DATED 20 TH MAY 2011, HAS HELD THAT ADJUSTMENT ON ACCOUNT OF MODVAT CREDIT H AS TO BE MADE BOTH IN RESPECT OF CLOSING STOCK, OPENING STOCK, PURCHASES AND SALES. THE SAME VIEW HAS BEEN EXPRESSED BY THE TRIBUNAL WHILE DECIDING ASS ESSEES APPEAL FOR THE ASSESSMENT YEARS 2006 07, 2007 08 AND 2008 09, VIDE ORDER DATED 22 ND DECEMBER 2016, PASSED IN ITA NO.6274/MUM./2011 &ORS. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE EARLIER DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, AS REFERRED TO ABOVE, WE DIRECT THE ASSESSEE TO MAKE NECESSARY ADJUSTMENT TO THE OPENING STOCK, CLOSING STOCK, SALES AND PURCHASES ON ACCOUNT OF MODVAT CREDIT. THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 20 . GROUND NO.7 IS NOT PRESSED, HENCE, DISMISSED. 21 . IN G ROUND NO.8, THE ASSESSEE HAS CHALLENGED RE COMPUTATION OF DEPRECIATION BY REDUCING FROM WRITTEN DOWN VALUE (WDV) THE AMOUNT 17 KELLOGG INDIA PVT. LTD. OF DEPRECIATION WHICH WAS NOT ACTUALLY ALLOWED TO THE ASSESSEE IN THE ASSESSMENT YEAR S 1998 99, 2000 01 AND 2001 02. 22 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER WHILE EXAMINING ASSESSEES CL AIM OF DEPRECIATION, NOTICED THAT SUCH DEPRECIATION HAS BEEN CLAIMED BY THE ASSESSEE ON THE OPENING WDV AS ON 1 ST APRIL 1997, WITHOUT REDU CING THE DEPRECIATION ALLOWABLE FOR THE ASSESSMENT YEAR S 1997 98 TO 2000 01. WHEN CALLED UPON FOR EXPLAINING THE ABOVE , THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAD NOT ACTUALLY CLAIMED THE DEPRECIATION IN THOSE YEARS , IT HAS CLAIMED DEPRECIATION ON THE OPENING WDV AS ON 1 ST APRIL 1997. THE ASSESSING OFFICER, HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AN D ALLOWED ASSESSEES CLAIM OF DEPRECIATION AFTER REDUCING THE DEPRECIATION ALLOWABLE FOR THE ASSESSMENT YEAR S 1997 98 TO 2000 01 FROM THE OPENING WDV. THE ASSESSEE CHALLENGED THE AFORESAID DECISION OF THE A .O. BEFORE LEARNED DRP. LEARNED DRP DIRECTED THE ASSESSING OFFICER TO COMPUTE DEPRECIATION AFTER REDUCING FROM THE WDV THE DEPRECIATION ACTUALLY ALLOWED IN THE PRECEDING ASSESSMENT YEARS. 23 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THOUGH THE ASSESSEE HAS NOT CLAIMED DEPRECIATION IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR S 1998 99 TO 2001 02, HOWEVER, HE SUBMITTED , WHILE COMPLETING THE ASSESSMENT FOR THE A.Y. 1999 2000, THE ASSESSING OFFICER COMPUTED DEPRECIATION. HE SUBMITTED , THOUGH THE 18 KELLOGG INDIA PVT. LTD. ASSESSEE CONTESTED THE COMPUTATI ON OF DEPRECIATION BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 1999 2000, HOWEVER, ULTIMATELY, ASSESSEES CLAIM WAS REJECTED BY THE HON'BLE SUPREME COURT. HE SUBMITTED , SINCE ASSESSEES CASE WAS NOT SELECTED FOR SCRUTINY FOR THE ASSESSMENT YEAR S 1998 99, 2 000 01, 2001 02, THE ASSESSING OFFICER DID NOT COMPUTE DEPRECIATION IN THESE YEARS. THUS, IT WAS CLAIMED BY THE ASSESSEE THAT THE OPENING WDV AS ON 1 ST APRIL 2001, SHOULD BE WORKED OUT AFTER REDUCING THE DEPRECIATION ALLOWED TO THE ASSESSEE FOR THE ASSESSM ENT YEAR 1999 2000 ONLY. HE SUBMITTED , THE AFORESAID CLAIM OF THE ASSESSEE WAS ALLOWED BY THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR 2002 03 IN ITA NO.4648/ MUM./2008, DATED 20 TH JANUARY 2010. THUS, HE SUBMITTED , ASSESSEES CLAIM OF DEP RECIATION IN THE IMPUGNED ASSESSMENT YEAR SHOULD BE COMPUTED KEEPING IN VIEW THE AFORESAID ORDER OF THE TRIBUNAL. 24 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , NECESSARY DIRECTION MAY BE GIVEN TO THE ASSESSING OFFICER. 25 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. IT IS EVIDENT FROM THE FACTS ON RECORD , IN THE RETURN OF INCOME FILED FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE OPENING WDV AS ON 1 ST APRIL 1997. HOWEVER, IT IS A FACT ON RECORD THAT WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR 1999 2000, THE ASSESSING OFFICER HAD COMPUTED 19 KELLOGG INDIA PVT. LTD. DEPRECIATION THOUGH IT WAS NOT CLAIMED BY THE ASSESSEE. THEREFORE, EXCEPT ASSESSMENT YEAR 199 9 2000 , IN NO OTHER ASSESSMENT YEAR DEPRECIATI ON WAS ACTUALLY ALLOWED. CONSIDERING THE AFORESAID FACT, THE TRIBUNAL, WHILE DECIDING ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2002 03 (SUPRA) HAD APPROVED THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN HOLDING THAT DEPRECATION FOR THE YEAR 1997 98 , 1998 99, 2000 01 AND 2001 02, CANNOT BE FORCED UPON THE ASSESSEE FOR THE PURPOSE OF COMPUTING DEPRECIATION OF THE CURRENT YEAR . IN FACT, LEARNED DRP WHILE CONSIDERING THE OBJECTIONS OF THE ASSESSEE HAS ALSO DIRECTED THE ASSESSING OFFICER TO COMPUTE DEPRE CATION ON THE BASIS OF WDV AS ON 1 ST APRIL 200 2 , AFTER REDUCING THE DEPRECATION ACTUALLY ALLOWED IN THE PRECEDING ASSESSMENT YEARS. AS IT APPEARS, THE ASSESSING OFFICER HAS NOT CARRIED OUT THE AFORESAID DIRECTION OF LEARNED DRP. IN OUR VIEW, THE AFORESAID PROPOSITION ALSO APPLIES TO THE ASSESSEES CLAIM OF DEPRECIATION IN THE IMPUGNED ASSESSMENT YEAR. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO COMPUTE DEPRECIATION KEEPING IN VIEW THE DECISION OF THE TRIBUNAL IN THE ASSESSMEN T YEAR 2002 03. THUS, GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 26 . IN GROUND NO.9, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENDITURE OF ` 2,01,18,607. 20 KELLOGG INDIA PVT. LTD. 27 . BRIEF FACTS ARE, IN THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER WHILE EXAMINING ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF PRODUCT DEVELOPMENT EXPENDITURE NOTICED THAT SIMILAR EXPENDITURE CLAIMED BY THE ASSESSEE IN THE PRECEDING ASSESSMENT YEAR S WERE DISALLOWED BY TREATING THEM AS CAPITAL IN NATURE. THUS, FOLL OWING THE PAST ASSESSMENT ORDERS , THE ASSESSING OFFICER DISALLOWED THE PRODUCT DEVELOPMENT EXPENDITURE BY TREATING IT AS CAPITAL IN NATURE. 28 . THE LEARNED D RP ALSO UPHELD THE AFORESAID DECISION OF THE ASSESSING OFFICER. 29 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , WHILE DECIDING IDENTICAL DISPUTE IN THE PRECEDING ASSESSMENT YEAR S , THE TRIBUNAL HAS HELD THAT THE PRODUCT DEVELOPMENT EXPENDITURE IS REVENUE IN NATURE AND ACCORDINGLY ALLOWED ASSESSEES CLAIM. HE SUBMITTED , EVEN THE REVENUES APPEAL AGAINST TH E DECISION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2004 05 HAS BEEN DISMISSED BY THE HON'BLE JURISDICTIONAL HIGH COURT. FURTHER, HE SUBMITTED , FOLLOWING THE DECISION OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR S , THE FIRST APPELLATE AUTHORITY HAS ALLOWE D ASSESSEES CLAIM IN THE ASSESSMENT YEAR 2003 04, 2006 07 AND 2007 08 AGAINST WHICH THE REVENUE HAS NOT PREFERRED ANY APPEAL. THUS, HE SUBMITTED , THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE. 21 KELLOGG INDIA PVT. LTD. 30 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED DRP. 31 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. IT IS EVIDENT , THE ASSESSING OFFICER FOLLOWING SIMILAR DISALLOWANCE MADE IN THE EARLIER ASSESSMENT YEARS HAS MADE DISALLOWANCE IN T HE IMPUGNED ASSESSMENT YEAR BY TREATING THE PRODUCT DEVELOPMENT EXPENDITURE AS CAPITAL IN NATURE. HOWEVER, WHILE DECIDING ASSESSEES APPEAL ON IDENTICAL ISSUE IN ASSESSMENT YEAR 2002 03, VIDE ITA NO.4335/MUM./2008, DATED 20 TH JANUARY 2010, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM OF DEDUCTION BY TREATING THE EXPENDITURE AS REVENUE IN NATURE. THE SAME VIEW WAS EXPRESSED BY THE TRIBUNAL WHILE DECIDING THE APPEALS FOR THE ASSESSMENT YEAR S 2004 05, 2005 06 AND 2008 09. IN FACT, WHILE DECIDING REVENUES APPEAL AGAINST THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2004 05, THE HON'BLE JURISDICTIONAL HIGH COURT IN ITA NO.40 OF 2012, DATED 18 TH JUNE 2014, HAS UPHELD THE DECISION OF THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL AND THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT ON THE DISPUTED ISSUE, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER . THIS GROUND IS ALLOWED. 32 . IN GROUND NO.10, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF ` 17.70 LAKH. 22 KELLOGG INDIA PVT. LTD. 33 . BRIEF FACTS ARE, DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PAID AN AMOUNT OF ` 17.70 LAKH TO STRATEGIC SYSTEMS PVT. LTD., WHICH WAS DEBITED TO THE PROFIT & LOSS ACCOUNT TOWARDS LEGAL AND PROFESSIONAL FEES. AFTER CALLING FOR NECESSARY DETAILS THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH EXPENDITURE PERTAINS TO ACQUISITION OF SOFTWARE AND NOT UPGRADATION OF SOFTWARE. FURTHER, HE OBSERVED , WHILE COMPLETING THE ASSESSMENT FOR THE ASSESSMENT YEAR S 2005 06, 2006 07, 2007 08 AND 2008 09, SIMILAR EXPENDITURE CLAIMED BY THE ASSESSEE WAS CAPITALIZED. THUS, FOLLOWING THE PAST ASSESSMENT ORDERS, THE ASSESSING OFFICER DISALLOWED ASSESSEES CLAIM OF EXPENDI TURE BY TREATING IT AS CAPITAL IN NATURE. 34 . THE LEARNED D RP, THOUGH , UPHELD THE DECISION OF THE ASSESSING OFFICER, HOWEVER, HE DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION. 35 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN THE ASSESSMENT YEAR 2008 09, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM. HE SUBMITTED , IN THE ASSESSMENT YEAR S 2005 06, 2006 07 AND 2007 08, THE LEARNED COMMISSIONER (APPEALS) HAS ALLOWED SIMILAR CLAIM WHICH HAS BEEN ACCEPT ED BY THE REVENUE. 36 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED DRP. 23 KELLOGG INDIA PVT. LTD. 37 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. UNDISPUTEDLY, RELYING UPON THE PAST ASSESSMENT ORDERS T HE ASSESSING OFFICER HAS DISALLOWED THE PAYMENT MADE TO STRATEGIC SYSTEMS PVT. LTD., BY TREATING IT AS CAPITAL IN NATURE. HOWEVER, WHILE CONSIDERING THE ISSUE RELATING TO SIMILAR DISALLOWANCE MADE TOWARDS PAYMENT MADE TO THE VERY SAME PARTY IN THE ASSESSME NT YEAR 2008 09, THE TRIBUNAL IN ITA NO.6276/MUM./2011, DATED 22 ND DECEMBER 2016, HAS ALLOWED ASSESSEES CLAIM BY TREATING IT AS REVENUE IN NATURE. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE DELETE THE ADDITION . THIS GROUND IS ALLOWED. 38 . IN GROUND NO.11, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 1,85,73,320, UNDER SECTION 40 (A) (I) OF THE ACT. 39 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HA S PAID AN AMOUNT OF ` 10,52,48,814, TO KELL OGG, USA. AFTER VERIFYING THE DETAILS OF TAX DEDUCTED AT SOURCE UNDER SECTION 195 OF THE ACT, THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON ROYALTY PAYMENT OF ` 1,85,73,320. AC CORDINGLY, HE DISALLOWED THE SAME UNDER SECTION 40 (A) (I) OF THE ACT. 40 . LEARNED DRP AFTER TAKING NOTE OF THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) FOR THE ASSESSMENT YEAR 2008 09 DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER THE ASSESSEE FULFILLS THE CONDITIONS 24 KELLOGG INDIA PVT. LTD. MENTIONED IN SECTION 10(6A) OF THE ACT AND ALLOWING RELIEF TO THE ASSESSEE. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 08, IN ITA NO.431/MUM./2011, DAT ED 22 ND DECEMBER 2016, THE TRIBUNAL HAS HELD THAT SINCE THE ISSUE FULFILLS ALL THE CONDITIONS OF SECTION 10(6A) OF THE ACT, THE ROYALTY PAYMENT CANNOT BE GROSSED UP UNDER SECTION 195A OF THE ACT. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSER VATIONS OF THE TRIBUNAL. THUS, HE SUBMITTED , FACTS BEING IDENTICAL, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE DELETED. 41 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF LEARNED DRP. 42 . WE HAVE CONSIDERED RIVAL SUBMISSION S AND PERUSED MATERIAL ON RECORD. AS COULD BE SEEN FROM THE ORDER PASSED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007 08 (SUPRA) , THE DISALLOWANCE MADE UNDER SECTION 40 (A) (I) OF THE ACT WAS DELETED SINCE THE ASSESSEE HAD FULFILLED THE CONDITIONS OF SECTION 10(6A) OF THE ACT. IN FACT, IN THE IMPUGNED ASSESSMENT YEAR ALSO, LEARNED DRP HAS DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER CONDITIONS OF SECTION 10(6A) OF THE ACT HAVE BEEN FULFILLED AND THEREAFTER ALLOW RELIEF TO THE ASSESSEE. IT IS THE CONTENTIO N OF THE LEARNED AUTHORISED REPRESENTATIVE BEFORE US THAT IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS FULFILLED THE CONDITIONS OF 25 KELLOGG INDIA PVT. LTD. SECTION 10(6A) OF THE ACT. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE AFORESAID CLAIM OF THE ASSESSEE AND IF ASSESSEES CLAIM IS FOUND TO BE CORRECT, IN THE SENSE THAT ALL THE CONDITIONS OF SECTION 10(6A) OF THE ACT HAVE BEEN FULFILLED, NO DISALLOWANCE UNDER SECTION 40 (A) (I) OF THE ACT CAN BE MADE , AS HELD BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2 007 08 (SUPRA). THIS GROUND IS ALLOWED SUBJECT TO VERIFICATION. 43 . IN GROUND NO.12, THE ASSESSEE HAS CHALLENGED THE DECISION OF THE DEPARTMENTAL AUTHORITIES IN TREATING THE INTEREST INCOME OF ` 74,61,945, AS INCOME FROM OTHER SOURCES. 44 . BRIEF FACTS ARE, DURIN G THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS OFFERED THE INTEREST INCOME OF ` 1,68,31,706, AS BUSINESS INCOME. WHEN CALLED UPON T O EXPLANATION, THE ASSESSEE JUSTIFIED ITS STAND OF OFFERING THE INTEREST INCOME AS INCOME FROM BUSINESS. HOWEVER, THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE AND TREATED THE INTEREST INCOME AS INCOME FROM OTHER SOURCES . WHIL E CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSEE, LEARNED DRP UPHELD THE DECISION OF THE ASSESSING OFFICER. 45 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , WHILE DECIDING THE ISSUE IN ASSESSEES OWN CASE IN ASSESSMENT YEAR S 2007 08 AND 2008 09, THE TRIBUNAL HAS RESTORED THEM TO THE ASSESSING OFFICER WITH 26 KELLOGG INDIA PVT. LTD. CERTAIN DIRECTIONS. THUS, HE SUBMITTED , SIMILAR DIRECTION MAY BE ISSUED IN THE IMPUGNED ASSESSMENT YEAR. 46 . THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NO OBJECTION FOR RESTOR ATION OF THE ISSUE TO THE ASSESSING OFFICER. 47 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. IT IS OBSERVED THAT WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 08 AND 2008 09 (SUPRA), THE TRIBUNAL H AS HELD AS UNDER: 6.2 AO NOTED THAT THE IMPUGNED INTEREST INCOME WAS EARNED BY THE ASSESSEE AND CONSIDERING THE NATURE OF ASSESSEE'S BUSINESS, THE SAME WAS ASSESSABLE UNDER THE HEAD 'INCOME FROM OTHER SOURCES AGAINST WHICH SET - OFF OF BROUGHT FORWARD BUSI NESS LOSSES WAS NOT PERMISSIBLE. THE ASSESSEE ATTRIBUTED THE SAME TO THE 'CREDIT FLOAT' ENJOYED BY THE ASSESSEE. THE SURPLUS FUNDS OUT OF BUSINESS OPERATIONS WERE INVESTED IN SHORT TERM DEPOSITS WITH THE BANK. RELIANCE WAS PLACED ON THE JUDGMENT OF BOMBAY HIGH COURT IN LOK HOLDINGS 309 I TR 356. HOWEVER, THE SAME GOT REJECTED BY AU ON THE PREMISE THAT SUCH INTEREST INCOME WAS NOT DERIVED FROM THE BUSINESS ACTIVITY OF THE ASSESSEE. CIT(A) ALLOWED THE ISSUE IN FAVOUR OF ASSESSEE BY RELYING UPON VARIOUS JUDICIAL PRONOUNCEMENTS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. AR HAS CONTENDED THAT THERE IS COMPLETE NEXUS OF INTEREST INCOME WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND THE SAME HAS ACCRUED ONLY DUE TO PARKING OF SURPLUS FUNDS IN NORMAL COUR SE OF BUSINESS IN SHORT TERM BANK DEPOSITS. PER QUERY FROM THE BENCH, THE LD. AR PLACED A NOTE ON INTEREST INCOME QUA ITS NEXUS WITH BUSINESS ACTIVITY OF THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF READY TO EA T CEREALS. IT PROCURES RAW MATERIAL AND NECESSARY INGREDIENTS FROM VENDORS AND SELLS MANUFACTURED PRODUCTS TO DISTRIBUTORS. THE AR HAS CONTENDED THAT THE ASSESSEE COLLECTS SALES PROCEEDS WITHIN A WEEK'S TIME WHEREAS IT ENJOYS CREDIT PERIOD OF MORE THAN 45 DAYS FROM ITS VENDORS. IT ENJOYS A LONGER CREDIT PERIOD FROM ITS VENDORS AS AGAINST SHORTER CREDIT PERIOD GIVEN TO ITS CUSTOMERS. THE RESULTANT FLOAT IS PARKED IN SHORT TERM BANK DEPOSITS. THE PERIOD OF THESE DEPOSITS RANGES FROM 30 TO 90 DAYS. RELIANCE HA S BEEN PLACED ON THE JUDGMENT OF H ON'BLE BOMBAY HIGH COURT 27 KELLOGG INDIA PVT. LTD. IN THE CASE OF CIT VS. LOK HOLDINGS 308 ITR 356. IT IS ALSO OBSERVED THAT NO DETAILS OF BANK DEPOSITS COULD BE PROVIDED BY AR DESPITE SPECIFIC REQUEST BEING MADE BY THE BENCH DUE TO WHICH WE ARE UN ABLE TO ASCERTAIN THE FACT THAT WHETHER THESE DEPOSITS HAVE DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE, THE LD. AR HAS ATTRIBUTED THE PARKING OF FUNDS TO GENERAL CREDIT FLOAT ENJOYED BY THE ASSESSEE WITHOUT BRINING ANYTHING ON RECORD TO SUBSTANTIATE TH E SAME. HENCE, WE DEEM IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF AO TO EXAMINE THE NATURE OF BANK FDR PARTICULARLY THE TENURE OF THE DEPOSIT AND ALSO VERIFY THE FACT OF 'CREDIT FLOAT' ENJOYED BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. THE ASSESSEE IS DIRECTED TO COOPERATE WITH THE LOWER AUTHORITIES FORTHWITH TO SUBSTANTIATE HIS SUBMISSIONS. THE GROUND OF REVENUE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 48 . FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE AFORESAID DECISI ON OF THE CO ORDINATE BENCH, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER. GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 49 . IN GROUND NO.13, THE ASSESSEE HAS CLAIMED SET OFF OF BROUGHT FORWARD BUSINESS LOSS BEFORE SETTING OFF UNABSORBED DEPRECIATION. 50 . AS IT A PPEARS, THIS ISSUE WAS NOT RAISED BY THE ASSESSEE BEFORE LEARNED DRP. WHEN A QUERY TO THIS EFFECT WAS RAISED TO THE LEARNED AUTHORISED REPRESENTATIVE, HE CONCEDED THAT THE ISSUE WAS NOT RAISED BEFORE LEARNED DRP AND FURTHER SUBMITTED THAT THE ASSESSEE WOULD FILE A RECTIFICATION PETITION BEFORE THE ASSESSING OFFICER IN RESPECT OF THE SAID ISSUE. IN VIEW OF THE AFORESAID SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE, T HIS GROUND IS DISMISSED. 51 . IN GROUND NO.14, THE ASSESSEE HAS CLAIMED SET OFF OF BROUGHT FORWARD BUSINESS LOSS AGAINST THE INTEREST INCOME WHICH WAS TREATED AS INCOME FROM OTHER SOURCE BY THE ASSESSING OFFICER. 28 KELLOGG INDIA PVT. LTD. 52 . WHILE DECIDING GROUND NO.12 RELATING TO CHARACTERIZATION OF INTEREST INCOME AS INC OME FROM OTHER SOURCES, WE HAVE RESTORED THE ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. TH US , THE ISSUE RAISED IN THIS GROUND IS CONSEQUENTIAL TO THE DECISION TO BE TAKEN BY THE ASSESSING OFFICER ON THE CHARACTERIZATION OF INTEREST INCOME. THER EFORE, THIS ISSUE IS ALSO REQUIRE S TO BE RESTORED BACK TO THE ASSESSING OFFICER. IT IS RELEVANT TO OBSERVE , IN THE COURSE OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE MADE A WITHOUT PREJUDICE SUBMISSION THAT IRRESPECTIVE OF THE HEAD UNDER WHICH THE IN TEREST INCOME IS ASSESSED, THE CHARACTER AND E SSENCE OF THE INTEREST INCOME IS IN THE NATURE OF BUSINESS INCOME, HENCE, THE BROUGHT FORWARD BUSINESS LOSS HAS TO BE SET OFF AGAINST SUCH INCOME. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE DECISION OF T HE HON'BLE JURISDICTIONAL HIGH COURT IN SHAM PROGRETT I S.P.A. V/S ACIT, 132 ITR 70 (DEL.). IN OUR VIEW, IN COURSE OF PROCEEDINGS BEFORE THE ASSESSING OFFICER THE ASSESSEE CAN RAISE SUCH CONTENTION AND IF SUCH CONTENTION IS RAISED BY THE ASSESSEE, THE ASSES SING OFFICER HAS TO CONSIDER THE SAME ON MERIT. WITH THE AFORESAID DIRECTION, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 53 . IN GROUND NO.15, THE ASSESSEE HAS RAISED THE ISSUE OF SET OFF OF UNABSORBED DEPRECIATION AGAINST THE INTEREST INCOME ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. 29 KELLOGG INDIA PVT. LTD. 54 . IT IS OBSERVED , WHILE DECIDING THE OBJECTION OF THE ASSESSEE ON THE AFORESAID ISSUE, LEARNED DRP IN PARA 12.5 OF ITS DIRECTIONS HAS HELD THAT UNABSORBED DEPRECIATION BEING PART OF CURRENT YEARS DEPRECIATION IS EL IGIBLE FOR SET OFF AGAINST INCOME UNDER ANY OTHER HEAD INCLUDING INCOME FROM OTHER SOURCES. ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTED TO ALLOW SET OFF OF UNABSORBED DEPRECIATION. HOWEVER, AS IT APPEARS, THE ASSESSING OFFICER HAS NOT IMPLEMENTED THE A FORESAID DIRECTION OF LEARNED DRP WHICH, IN OUR VIEW, IS UNACCEPTABLE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO IMPLEMENT THE DIRECTION OF LEARNED DRP ON THE ISSUE AND ALLOW SET OFF OF UNABSORBED DEPRECIATION. THIS GROUND IS ALLOWED. 55 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ITA NO. 2888/MUM./2014 REVENUES APPEAL 56 . THE EFFECTIVE GROUNDS RAISED BY THE REVENUE ARE ON THE DIRECTIONS OF THE DRP ON THE DISALLOWANCE MADE OF ` 1,85,73,320 UNDER SECTION 40 (A) ( I ) OF THE ACT. 57 . IN VIEW OF OUR DECISION IN GROUND NO.11 RAISED BY THE ASSESSEE IN ITS APPEAL BEING ITA NO.2866/MUM./2014 IN EARLIER PART OF THE ORDER, THESE GROUNDS HAVE BECOME INFRUCTUOUS, HENCE, DISMISSED. 30 KELLOGG INDIA PVT. LTD. 58 . I N THE RESULT, REVENUES APPEAL IS DISMISSED. 59 . TO SUM UP, ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON 19.07.2019 SD/ - N.K. PRADHAN ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 19.07.2019 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 ASSISTANT REGISTRAR ITAT, MUMBAI