Swarovski India Private Ltd., New Delhi V. DCIT, New Delhi

ITA 4080/DEL/2013

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5525 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 25-07-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 02-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Rectification of order; Opportunity of being heard; Principle of natural justice; International transaction; Revenue expenditure; Capital expenditure
• Section: 143(3); 244A; 142(1); 234B; 37(1); 10B; 154; 92

Judgement Text

IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 4080/DEL/2 013 (A.Y 2006-07) I.T.A .NO. 1287/DEL/2 015 (A.Y 2010-11) SWAROVSKI INDIA PVT. LTD. 1A-1D, VANDHANA BUILDING, 11, TOLSTOY MARG, NEW DELHI AAGCS4052D (APPELLANT) VS ACIT CIRCLE-22(2) NEW DELHI (RESPONDENT) APPELLANT BY SH. S. K. AGARWAL, CA, SH. NITIN BANSAL, CA, SH. NITISH GUPTA, CA, SH. MANOJ PARDARSHI, CA, SH. RAGHAVENDER PRABHAKAR, CA RESPONDENT BY SH. SANJAY I BARA, CIT DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE FOR A.Y . 2006-07 AGAINST THE CIT(A)-X ORDER DATED 23.04.2013 AND FOR A.Y. 2010-1 1 AGAINST THE ASSESSMENT ORDER DATED 24/12/2014 PASSED BY ACIT CIRCLE 22(2 ), NEW DELHI U/S 143(3) R/W SECTION 144C OF INCOME TAX ACT, 1961. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- I.T.A .NO. 4080/DEL/2013 (A.Y 2006-07) 1. THAT ON FACTS AND IN LAW THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) - X, NEW DELHI [ LD. CIT(APPEALS)] HAS E RRED IN CONFIRMING THE DATE OF HEARING 13.02.2018 DATE OF PRONOUNCEMENT 02.04.2018 DISALLOWANCES MADE BY DEPUTY COMMISSIONER OF INCOME -TAX, CIRCLE 7(1), NEW DELHI (LD AO) AND THAT THE ORDER SO PASSED BY THE LD. CIT(APPEALS) IS BAD IN LAW. 2. 2.I. THAT THE LD CIT(APPEALS) HAS ERRED IN BOTH LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED ON MANAGEMENT SERVICE FEES AMOUNTING TO RS. 18,38,562, ON THE GROUND THAT THE SAME IS A CAPITAL EXPENDITURE AND IN NOT ACCEPTING THE APPELLANTS CL AIM THAT IT IS IN THE NATURE OF REVENUE EXPENDITURE. II. THE LD CIT(APPEALS) HAS GROSSLY ERRED IN DOIN G SO, AS THIS AMOUNT HAS BEEN CONSISTENTLY ALLOWED AS A REVENUE EXPENDITURE IN ALL THE PRECEDING YEARS; 3. 3.1. THAT THE LD CIT(APPEALS) HAS ERRED IN B OTH LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED ON SOFTWARE AND EDP CHARGES AMOUNTING TO RS. 10,46,963 PAID TO SWAROVSK I HONG KONG LTD. ON THE GROUND THAT THE SAME IS A CAPITAL EXPENDITURE AND I N NOT ACCEPTING THE APPELLANT'S CLAIM THAT IT IS IN THE NATURE OF REVEN UE EXPENDITURE. II. THE LD CIT(APPEALS) HAS GROSSLY ERRED IN DOING SO, AS THIS AMOUNT HAS BEEN CONSISTENTLY ALLOWED AS A REVENUE EXPENDITURE IN ALL THE PRECEDING YEARS. 4. THAT THE LD CIT(APPEALS) HAS ERRED IN BOTH LAW AND ON FACTS IN DISALLOWING TWO THIRD OF EXPENDITURE INCURRED ON ADVERTISEMENT AND PUBLICITY EXPENSES (INCURRED ON VARIOUS ITEMS SUCH AS SPONSORSHIPS OF EVENTS, NEWSPAPERS / MAGAZINES / ELECTRONIC MEDIA ADVERTISEMENT, BANNER WALL PAINTINGS AND HOARDINGS) AMOUNTING TO RS. 2,49,15,519, ON THE GRO UND THAT BENEFIT WILL ACCRUE OVER A PERIOD OF THREE YEARS. 5. WITHOUT PREJUDICE TO THE APPELLATES CONTENTION THAT THE ADVERTISEMENT AND PUBLICITY EXPENSES ARE REVENUE IN NATURE, THE LD CI T(APPEALS) HAS ERRED IN NOT ALLOWING THE PROPORTIONATE REDUCTION IN RESPECT OF ADVERTISEMENT AND PUBLICITY EXPENSES AS DISALLOWED IN PROCEEDINGS FOR AY 2004-0 5 AND AY 2005-06. 6. WITHOUT PREJUDICE TO ABOVE GROUNDS, THE LD AO HA S ERRED, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IN ADJUSTING THE BROUGHT FORWARD LOSSES OF PRIOR YEARS TO THE EXTENT OF THE ASSESSED INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT. 7. THAT THE LD CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. 8. THAT THE LD CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE LEVY OF INTEREST UNDER SECTION 234D OF THE ACT AND FURTHER IN WITHDRAWING THE INTEREST UNDER SECTION 244A OF THE ACT. 9. THAT THE LD CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN NOT WITHDRAWING THE PENALTY PROCEEDINGS INITIATED BY THE LD AO UNDE R SECTION 271(1 )(C) OF THE ACT AGAINST THE APPELLANT FOR EACH OF THE ADDITIONS MADE IN THE ASSESSMENT ORDER. ALL THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 2006-07 3. SWAROSKI INDIA PVT. LTD. (THE ASSESSEE) WAS INCO RPORATED ON 11.10.1996 UNDER THE COMPANIES ACT, 1956. DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF SEL LING HIGH-END CRYSTAL COMPONENTS FOR JEWELLERY, FASHION ACCESSORIES, HOME DECORATION ETC. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2006-0 7 DECLARING LOSS OF RS.90,82,195/- ON 30.11.2006. THE RETURN WAS PROCES SED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961. NOTICE U/S 143(2) DATE D 09.10.2007 WAS ISSUED AND DULY SERVED UPON THE ASSESSEE. THE CASE WAS REF ERRED TO TRANSFER PRICING OFFICER. THE TRANSFER PRICING OFFICER PASSED ORDER DATED 30.10.2009 WHEREBY THE TPO ACCEPTED THE TRANSFER PRICING ADOPTED BY TH E ASSESSEE COMPANY IN RESPECT OF THE INTERNATIONAL TRANSACTIONS ENTERED D URING THE PERIOD UNDER CONSIDERATION AND A FRESH NOTICE U/S 142(1) DATED 0 3.11.2009 WAS ISSUED AND SERVED UPON THE ASSESSEE. IN RESPONSE TO THESE NOTI CES, THE CA AND AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME T O TIME AND FILED NECESSARY DETAILS AND OTHER RELATED DOCUMENTS/EVIDENCES WHICH WERE PLACED ON RECORD BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MADE T OTAL ADDITION OF RS.1,87,12,849/- TOWARDS DISALLOWANCE OF MANAGEMENT SERVICE FEE, SOFTWARE & EDP CHARGES AND ADVERTISEMENT & PUBLICITY EXPENSES. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THERE IS NO TRANSFER P RICING ISSUE IN THE PRESENT APPEAL. AS RELATES TO GROUND NO. 2, THE LD. AR SUBMITTED THAT THIS YEAR IS THE FIRST YEAR OF DISPUTE. IN EARLIER YEARS AND SUBSEQUENT YEARS, THE EXPENDITURE INCURRED ON MANAGEMENT SERVICE FEES WAS ACCEPTED BY THE REVENUE DEPARTMENT. THE LD. AR SUBMITTED THAT IN SUBSEQUENT YEARS, THE CIT(A) VIDE ORDER DATED 28.01.2017 HELD IN PARA 6.1.3.3 THAT IN MY CONSIDERED OPINION, FROM THE ABOVE IT CAN BE CONSTRUED THAT THE UNDERLY ING PURPOSE OF THE APPELLANT IN INCURRENCE OF MANAGEMENT FEE EXPENDITURE IS TO A CQUIRE THE MANAGERIAL SUPPORT SERVICES FOR THE DAY-TO-DAY OPERATIONS OF T HE APPELLANTS BUSINESS ON AN ON-GOING BASIS, FOR WHICH QUARTERLY PAYMENTS WERE M ADE. ACCORDINGLY, BY VIRTUE OF THE ABOVE EXPENSE, THE APPELLANT ACQUIRES NO END URING BENEFIT, NOR DOES THE UNDERLYING NATURE OF SERVICES OBTAINED BY THE APPEL LANT INVOLVE TRANSFER OF AY TECHNOLOGY OR ASSET OR TECHNICAL INFORMATION / KNOW -HOW IN ANY MANNER. FOLLOWING THE ABOVE CITED JUDGMENTS, THE SAME SHOUL D BE CONSIDERED AS REVENUE IN NATURE. 6. AS RELATES TO GROUND NO. 3, THE LD. AR SUBMITTED THAT THE EXPENDITURE INCURRED ON SOFTWARE AND EDP CHARGES AMOUNTING TO R S.10,46,963 PAID TO SWAROVSKI HONG KONG LTD. ARE BUSINESS EXPENDITURE AND THE SAME SHOULD NOT HAVE BEEN TREATED AS CAPITAL EXPENDITURE. IN FACT, THE ASSESSEE HAS FILED ALL THE INVOICES TO THAT EXTENT. THERE WAS NO ASSETS ACQUIR ED BY THE ASSESSEE, IT IS A PERIOD COST. THEREFORE, THE SAME ARE REVENUE EXPEND ITURE. 7. AS RELATES TO GROUND NO. 4, THE LD. AR SUBMITTED THAT THE TRIBUNAL IN A.YS. 2004-05 AND 2005-06 (ITA NOS. 5621 & 5496/DEL /2014 AND ITA NOS.5622 & 5497/DEL/2014 ORDERS DATED 10.02.2017) A LLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE EXTRACTS OF BOTH THE DE CISION IS AS FOLLOWS: ITA NOS.5621 & 5496/DEL/2014 14.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS NO M ORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N CIT VS. CITI FINANCIAL CONSUMER FIN. LTD. (2011) 335 ITR 29 (DEL) IN WHICH IT HAS BEEN HELD THAT THE ENTIRE EXPENDITURE ON PUBLICITY AND ADVERTISEMENT I S ALLOWABLE FULLY IN THE YEAR IN WHICH IT IS INCURRED. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2002-03. IT IS HOWEVER, MADE CLEAR TH AT NO FURTHER DEDUCTION FOR THE REMAINING 2/3 RD OF THE TOTAL EXPENDITURE, DIRECTED TO BE ALLOWED B Y THE AO IN SUBSEQUENT TWO YEARS, BE GRANTED AS THE SAME WIL L LEAD TO DOUBLE DEDUCTION. IF SUCH A DEDUCTION HAS BEEN ALLOWED, TH EN THE SAME BE ACCORDINGLY REVERSED PRO TANTO. THIS GROUND OF THE REVENUE IS NOT ALLOWED. ITA NOS.5622 & 5497/DEL/2014 6.2 BOTH THE SIDES ARE IN AGREEMENT THAT THE FA CTS AND CIRCUMSTANCES OF THIS GROUND ARE, MUTATIS MUTANDIS, SIMILAR TO TH OSE FOR THE A.Y. 2004-05. FOLLOWING THE VIEW TAKEN IN OUR ORDER FOR THE A.Y. 2004-05, WE HOLD THAT THE ENTIRE AMOUNT OF ADVERTISEMENT AND PUBLICITY EXPENS ES SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR OF INCURRING ITSELF. IT IS HO WEVER, MADE CLEAR NO FURTHER DEDUCTION FOR 2/3 RD OF THE TOTAL EXPENDITURE FOR THE EARLIER YEARS BE GRANTED AS THE SAME WILL LEAD TO DOUBLE DEDUCTION. IF SUCH A DEDUCTION HAS ALREADY BEEN ALLOWED, THEN THE SAME SHOULD BE REVERSED TO THAT E XTENT. THIS GROUND OF THE REVENUE IS NOT ALLOWED. 8. AS RELATES TO GROUND NO. 5, 7, 8, AND 9, THE LD. AR SUBMITTED THAT THE SAME ARE CONSEQUENTIAL. 9. AS RELATES TO GROUND NO. 6 THE SAME IS NOT PRESS ED BY THE LD. AR. 10. THE LD. DR SUBMITTED THAT GROUND NO. 2, NATURE OF SERVICES IS VAGUE. THE LD. DR RELIED UPON THE ORDERS OF THE CIT(A) AND ASS ESSING OFFICER. AS RELATES TO GROUND NO. 3, THE LD. DR SUBMITTED THAT COMPUTER PE RIPHERALS ARE CAPITAL EXPENDITURE AND RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. AS RELATES TO GROUND NO. 4, THE LD. DR RELIED UPON THE ORDER OF T HE ASSESSING OFFICER AND THE CIT(A). 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RECORD. AS RELATES TO GROUND NO. 1, THE SAME IS GENERAL AND THEREFORE NOT ADJUDICATED HEREIN. GROUND NO. 2 IS RELATING TO DISALLOWANCE OF EXPENDI TURE INCURRED ON MANAGEMENT SERVICE FEES AMOUNTING TO RS.18,38,562/- . THE CIT (A) TREATED THE SAID EXPENDITURE AS CAPITAL EXPENDITURE AND NOT ACC EPTED THE CLAIM OF THE ASSESSEE THAT IT IS IN THE NATURE OF THE REVENUE EX PENDITURE. THE LD. AR SUBMITTED THAT IN SUBSEQUENT YEARS AND IN EARLIER Y EARS, THE REVENUE HAS ACCEPTED THIS EXPENDITURE AS REVENUE EXPENDITURE AN D ONLY IN THIS PARTICULAR YEAR, THE SAME HAS BEEN TREATED AS CAPITAL EXPENDIT URE. AFTER GOING THROUGH THE ORDER OF SUBSEQUENT YEAR PASSED BY THE CIT (A) VIDE ORDER DATED 21/08/2017. THERE IS A CLEAR FINDING THAT INCURREN CE OF MANAGEMENT FEE EXPENDITURE IS TO ACQUIRE THE MANAGERIAL SUPPORT SE RVICES FOR THE DAY TO DAY OPERATIONS OF THE ASSESSEES BUSINESS AND ONGOING B ASIS FOR WHICH QUARTERLY PAYMENTS WERE MADE THERE WAS NO ENDEAVOR BENEFIT OR ANY UNDERLINE NATURE OF SERVICE OBTAIN BY THE ASSESSEE WHICH INVOLVES TRANS FER OF TECHNOLOGY OR ASSET OR TECHNICAL INFORMATION/KNOWHOW IN ANY MANNER. IT IS PERTINENT TO NOTE THAT THE REVENUE IN PARTICULAR YEARS HAS ACCEPTED THIS EXPEN DITURE AS REVENUE EXPENDITURE AND SEGREGATED THIS PARTICULAR YEAR BY DISALLOWING IT AS CAPITAL EXPENDITURE BUT WHILE DOING SO, THE REVENUE HAS NOT GIVEN ANY FINDING TO THE EXTENT THAT AS TO WHY THESE ARE CAPITAL EXPENDITURE . 12. AS RELATES TO GROUND NO. 3, REGARDING DISALLOWA NCE OF EXPENDITURE INCURRED ON SOFTWARE EDP CHARGES AMOUNTING TO RS.10 ,46,963/- PAID TO SWAROVSKI HONG KONG LTD ON THE GROUND THAT THE SAME IS A CAPITAL NATURE. THE SAID CHARGES ARE BUSINESS EXPENDITURE AND CANNOT BE TREATED AS CAPITAL EXPENDITURE. THE ASSESSEE HAS FIELD ALL THE INVOIC ED TO THAT EFFECT. THERE WAS NO ASSETS ACQUIRED BY THE ASSESSEE AND IT IS A PERI OD COST BUT FROM THE ORDER OF THE ASSESSING OFFICER IT CAN BE SEEN THAT THE SAID DETAILS AS CONTEMPLATED BY THE ASSESSEE WAS NOT BEFORE THE ASSESSING OFFICER . THEREFORE, THIS ASPECT HAS TO BE VERIFIED AT THE LEVEL OF. THEREFORE, THIS IS SUE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO SEE THESE EXPENSES ACCO RDING TO THE EVIDENCE PRODUCED BY THE ASSESSEE. NEEDLESS TO SAY, THE ASS ESSEE BE GIVEN OPPORTUNITY OF HEARING AS PER PRINCIPALS OF NATURAL JUSTICE. G ROUND NO. 3 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 13. GROUND NO. 4 IS RELATED TO DISALLOWANCE OF 2/3 RD EXPENDITURE INCURRED ON AN ADVERTISEMENT AND CAPACITY EXPENSES AMOUNTING T O RS.2,49,15,519/- ON THE GROUND THAT BENEFIT WILL ACCRUE OVER A PERIOD O F 3 YEARS. THE LD. AR SUBMITTED THAT THIS ISSUE HAS BEEN ALLOWED IN FAVOU R OF THE ASSESSEE IN A.Y. 2005-06 AND 2004-05 WHICH IS QUOTED HEREINUNDER: ITA NOS.5621 & 5496/DEL/2014 14.2 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS NO M ORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N CIT VS. CITI FINANCIAL CONSUMER FIN. LTD. (2011) 335 ITR 29 (DEL) IN WHICH IT HAS BEEN HELD THAT THE ENTIRE EXPENDITURE ON PUBLICITY AND ADVERTISEMENT I S ALLOWABLE FULLY IN THE YEAR IN WHICH IT IS INCURRED. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS SCORE. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2002-03. IT IS HOWEVER, MADE CLEAR TH AT NO FURTHER DEDUCTION FOR THE REMAINING 2/3 RD OF THE TOTAL EXPENDITURE, DIRECTED TO BE ALLOWED B Y THE AO IN SUBSEQUENT TWO YEARS, BE GRANTED AS THE SAME WIL L LEAD TO DOUBLE DEDUCTION. IF SUCH A DEDUCTION HAS BEEN ALLOWED, TH EN THE SAME BE ACCORDINGLY REVERSED PRO TANTO. THIS GROUND OF THE REVENUE IS NOT ALLOWED. ITA NOS.5622 & 5497/DEL/2014 6.2 BOTH THE SIDES ARE IN AGREEMENT THAT THE FA CTS AND CIRCUMSTANCES OF THIS GROUND ARE, MUTATIS MUTANDIS, SIMILAR TO TH OSE FOR THE A.Y. 2004-05. FOLLOWING THE VIEW TAKEN IN OUR ORDER FOR THE A.Y. 2004-05, WE HOLD THAT THE ENTIRE AMOUNT OF ADVERTISEMENT AND PUBLICITY EXPENS ES SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR OF INCURRING ITSELF. IT IS HO WEVER, MADE CLEAR NO FURTHER DEDUCTION FOR 2/3 RD OF THE TOTAL EXPENDITURE FOR THE EARLIER YEARS BE GRANTED AS THE SAME WILL LEAD TO DOUBLE DEDUCTION. IF SUCH A DEDUCTION HAS ALREADY BEEN ALLOWED, THEN THE SAME SHOULD BE REVERSED TO THAT E XTENT. THIS GROUND OF THE REVENUE IS NOT ALLOWED. THUS, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE. 14. GROUND NO. 4 IS ALLOWED IN FAVOUR OF THE ASSESS EE. 15. GROUND NO. 5, 7, 8 & 9 ARE CONSEQUENTIAL. GROU ND NO. 6 IS NOT PRESSED, HENCE DISMISSED. 16. IN RESULT, ITA NO. 4080/DEL/2013 FILED BY THE A SSESSEE IS PARTLY ALLOWED. NOW WE ARE TAKING UP THE APPEAL FOR A.Y. 2010-11 AN D GROUNDS FOR THE SAME ARE AS UNDER: I.T.A .NO. 1287/DEL/2015 (A.Y 2010-11) 1. ON FACTS AND IN LAW, THE LEARNED JOINT DIRECTOR OF INCOME TAX, TRANSFER PRICING OFFICER - LL(2) LD. TPO) AND LEARNED ASSI STANT COMMISSIONER OF INCOME TAX, CIRCLE 22(2), NEW DELHI / LEARNED ASSES SING OFFICER (LD. AO) ERRED IN DETERMINING, AND LEARNED DISPUTE RESOLUTIO N PANEL - III, NEW DELHI (LD. DRP) ERRED IN CONFIRMING AN ADDITION OF RS 8 4,461,391 TO THE INCOME OF THE APPELLANT, ON ACCOUNT OF THE DIFFERENCE IN THE ARMS LENGTH PRICE OF THE ALLEGED INTERNATIONAL TRANSACTION OF CREATION OF MA RKETING INTANGIBLE THROUGH INCURRING ADVERTISEMENT, MARKETING AND PROMOTION EX PENSES (AMP EXPENSES). 2. ON WITHOUT PREJUDICE BASIS TO OTHER GROUNDS AND ON FACTS, THE LD. AO ERRED IN IGNORING, AND THE LD. DRP ERRED IN CONFIRMING TH E ACTION OF LD. AO IN IGNORING THE RECTIFICATION ORDER ISSUED BY THE LD. TPO UNDER SECTION 154 READ WITH SECTION 92 CA(5) OF THE ACT, THEREBY CONSIDERI NG THE ERRONEOUS FIGURE OF RS 84,461,391 AS THE ADDITION INSTEAD OF RS 81,784, 027. 3. ON FACTS AND IN LAW, THE LD. AOAND LD. TPO ERRED IN ALLEGING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF LD. AO/ LD. T PO IN ALLEGING THAT THE PURPORTED AMP EXPENSES INCURRED BY THE APPELLANT CO NSTITUTED AN INTERNATIONAL TRANSACTION BETWEEN THE APPELLANT AND ITS OVERSEAS ASSOCIATED ENTERPRISE (AE). 4. ON FACTS AND IN LAW, THE LD. ASSESSING OFFICER AND LD.TPO ERRED IN INVOKING,AND THE LD. DRP ERRED IN CONFIRMING THE AC TION OF LD. AO / LD. TPO IN INVOKING THE PROVISIONS OF SECTION 92F(V) OF THE ACT IN RELATION TO THE AMP EXPENSES INCURRED BY THE APPELLANT BY CONSTRUING TH AT THE APPELLANT AND ITS OVERSEAS AE HAD AN ARRANGEMENT, UNDERSTANDING OR AC TED IN CONCERT. 5. ON FACTS AND IN LAW, THE LD. AO AND THE LD. TPO ERRED IN HOLDING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF LD. AO / LD. TPO IN HOLDING THAT BY INCURRING EXCESSIVE AMP EXPENSES, THE APPELLANT LED TO CREATION OF A MARKETING INTANGIBLE IN INDIA (THE LEGAL OWNERSHIP OF WHICH VESTED WITH THE OVERSEAS AE), AND THAT A DIRECT BENEFIT AROSE TO TH E OVERSEAS AE ON ACCOUNT OF THE SAME, FOR WHICH AN APPROPRIATE COMPENSATION TO THE APPELLANT FROM OVERSEAS AE WAS NECESSARY. 6. ON FACTS AND IN LAW, THE LD. AO AND LD. TPO ERRE D IN FAILING TO APPLY, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF LD. A O / LD. TPO IN FAILING TO APPLY ANY OF THE METHODS PRESCRIBED UNDER SECTION 9 2C(1) OF THE ACT AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE ALLE GED INTERNATIONAL TRANSACTION OF AMP EXPENSES INCURRED BY THE APPELLA NT. 7. ON FACTS AND IN LAW, THE LD. TPO ERRED IN APPLYI NG THE BRIGHT LINE LIMIT AS A STATISTICAL TOOL FOR DETERMINING ROUTINE AND NON-RO UTINE EXPENDITURE IN RESPECT OF THE ALLEGED AMP EXPENDITURE, THEREBY CONTRAVENIN G THE PROVISIONS OF CHAPTER X OF THE ACT. 8. ON FACTS AND IN LAW, THE LD. AO AND THE LD. T PO ERRED IN DISREGARDING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF L D. AO / LD. TPO OF DISREGARDING THE FACT THAT SIGNIFICANTLY HIGHER TOT AL PROFITS EARNED BY THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES ALREAD Y INCLUDE (I) THE ARMS LENGTH RETURN FOR DISTRIBUTION BUSINESS, AS WELL AS (II) ANY ALLEGED ACTIVITIES REPRESENTED BY ALLEGED EXCESSIVE AMP EXPENSES, IF A NY DURING THE YEAR AND AMPLY OFFSET ANY RETURN WHICH SHOULD HAVE BEEN EARN ED BY THE APPELLANT IN RELATION TO THE ALLEGEDLY EXCESSIVE AMP EXPENSES IN CURRED BY IT. 9. ON FACTS AND IN LAW, THE LD. AO AND LD. TPO ERRE D IN VIOLATING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF LD. AO / LD. TPO OF VIOLATING THE FUNDAMENTAL MATCHING PRINCIPLE OF ACCOUNTING, IN SO FAR AS COSTS INCURRED IN THE FORM OF ALLEGED EXCESSIVE AMP EXPENSES WERE IMP UTED (USING BRIGHT LINE METHODOLOGY) TO DETERMINE THE CORRESPONDING REQUIRE D AMP REVENUE, HOWEVER, THE SAID COSTS WERE CONTINUED TO BE (DOUBL E) COUNTED FOR THE ONGOING DISTRIBUTION BUSINESS, INSTEAD OF BEING DEDUCTED AG AINST THE ALLEGED AMP REVENUE. 10. ON FACTS AND IN LAW, THE LD. AO AND LD. TPO ERR ED IN NOT APPRECIATING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF L D. AO / LD. TPO OF NOT APPRECIATING THAT AS PER THE PURCHASE & SUPPLY AGRE EMENT (2009) ENTERED INTO WITH THE OVERSEAS AE, THE APPELLANT WAS PROVID ED A LICENSE TO DISTRIBUTE SWAROVSKI BRANDED PRODUCTS IN INDIA FOR AN INDEFINI TE TERM, AND THEREFORE APPROPRIATE COMPANIES FOR COMPARISON OF AMP EXPENSE S WOULD HAVE BEEN SIMILAR LONG TERM LICENSED DISTRIBUTORS OF FOREIGN BRANDS, AND NOT ROUTINE DISTRIBUTORS UNDERTAKING NIL BRAND PROMOTION, AS ER RONEOUSLY CONSIDERED BY THE LD. TPO, LD. AO AND LD. DRP. 11. ON FACTS AND IN LAW, THE LD. AO AND LD. TPO E RRED IN REJECTING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF LD. AO / LD. TPO OF REJECTING 2 COMPARABLE COMPANIES I.E. DDAMAS JEWELLERY (INDIA) PRIVATE LIMITED AND GITANJALI GEMS RETAIL LIMITED, FOR THE PURPOSE OF T HE COMPUTATION OF THE BRIGHT LINE LIMIT, THEREBY DISREGARDING THE PROVISIONS OF RULE 10B(2) OF THE RULES. 12. ON FACTS AND IN LAW, THE LD. AO AND LD. TPO ERRED IN CONSIDERING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF LD. A O / LD. TPO OF CONSIDERING CERTAIN SELLING RELATED EXPENSES (AS PROVIDED IN TA BLE BELOW) UNDER THE AMBIT OF AMP EXPENSES ALLEGEDLY LEADING TO CREATION OF MA RKETING INTANGIBLE: NATURE OF EXPENSES AMOUNT (IN RS.) COMMISSION ON SALES 25,342,705/- DISCOUNTS (OTHER THAN CASH DISCOUNTS) 13,577,321 POINT OF PURCHASE MATERIALS 11,591,693 CATALOGUE/NEWSPAPER/CALENDAR/BILL 8,394,607 BOARD/HOARDING/SIGNAGE/VISUALS/GRAPHICS DISTRIBUTION EXPENSES 2,573,983 MISCELLANEOUS EXPENSES (PRINTING EXPENSES, TRAVELLING/BOARDING/LODGING EXPENSES, SAMPLING EXPENSES, MARKET RESEARCH EXPENSES, COURIER EXPENSES ETC.) 1,803,745 TOTAL 63,284,054 13. ON FACTS AND IN LAW, THE LD. AO AND LD. TPO E RRED IN IMPUTING, AND THE LD. DRP ERRED IN CONFIRMING THE ACTION OF LD. AO / LD. TPO OF IMPUTING (IN AN ARBITRARY AND ADHOC MANNER), A PROFIT MARK-UP OF 12 .25% ON THE ALLEGEDLY EXCESSIVE AMP EXPENSES INCURRED BY THE APPELLANT, T HEREBY DISREGARDING THE PROVISIONS OF RULE 10B OF THE RULES. CORPORATE TAX ADJUSTMENT 14. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 22(2) , NEW DELHI (AO) UNDER DIRECTIONS ISSUED BY THE HONBLE DISPUTE RESOLUTION PANEL- II (DRP) HAS ERRED IN DISALLOWING EXPENDITURE INCURRED ON SOFTWARE AND EDP CHARGES ADVERTISEMENT AND PUBLICITY EXPENSES, AND INTEREST ON LATE DEPOSIT OF SERVICE TAX TO THE APPELLANTS TOTAL INCOME. 15. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE AO HAS ERRED IN PROPOSING AND THE DRP HAS FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS SOFTWA RE AND EDP CHARGES AMOUNTING TO RS. 67,79,613 ON THE PREMISE THAT THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE INCURRED FOR THE ACQUISITION OF CAPITAL ASSET BEING COMPUTER AND SOFTWARE. 16. THE AO HAS ERRED AND DRP HAS FURTHER ERRED IN PROPOSING / CONFIRMING THE DISALLOWANCE OF EXPENDITURE ON SOFTWARE AND EDP CHARGES BY MERELY RELYING ON THE DECISION OF THE PREDECESSORS OF THE AO AND HOLDING SUCH EXPENDITURE TO BE CAPITAL IN NATURE WITHOUT ASSIGNI NG ANY SPECIFIC REASON TO THIS EFFECT. 17. WITHOUT PREJUDICE TO THE ABOVE THE AO / DRP HA S ERRED IN NOT ALLOWING CONSEQUENT DEPRECIATION ON SOFTWARE AND EDP CHARGES WHICH WAS DISALLOWED AS DEPRECIABLE CAPITAL EXPENSE IN EARLIER YEARS I.E . AY 2006-07 THROUGH 09-10. 18. THAT THE AO HAS ERRED IN PROPOSING AND THE DRP HAS FURTHER ERRED IN CONFIRMING THE ACTION OF THE AO BY DISALLOWING ADVE RTISEMENT AND PUBLICITY EXPENSES OF RS. 2,67,75,393 AND IN HOLDING THAT ADV ERTISEMENT AND PUBLICITY EXPENSES INCURRED BY THE ASSESSEE ARE TOWARDS CREAT ION OF INTANGIBLES, ELIGIBLE FOR DEPRECIATION @ 25%. 18.1 THAT THE AO HAS ERRED AND THE DRP HAS FURTHE R ERRED IN CONFIRMING THE STAND OF THE AO THAT ADVERTISEMENT AND PUBLICITY EX PENSES GIVE RISE TO ADVANTAGE OF ENDURING NATURE TO THE APPELLANT, LEAD ING TO CREATION OF INTANGIBLE ASSETS BEING GOODWILL, REPUTATION AND CR EDITABILITY AND HENCE CAPITAL IN NATURE. 18.2 THAT THE AO HAS ERRED IN HOLDING AND THE DRP HAS FURTHER ERRED IN CONFIRMING THAT ADVERTISEMENT AND PUBLICITY EXPENSE S INCURRED BY THE APPELLANT RESULT IN THE CREATION OF AN INTANGIBLE A SSET IN THE FORM OF BRAND WHICH IS OF SIMILAR NATURE AS CAPITAL ASSETS AS MEN TIONED IN SECTION 32(1 )(II) OF THE INCOME-TAX ACT, 1961 (THE ACT). 19. WITHOUT PREJUDICE TO THE ABOVE, THE AO HAS ERR ED AND THE DRP HAS FURTHER ERRED IN HOLDING THAT THE EXPENDITURE INCURRED BY T HE APPELLANT ON ADVERTISEMENT AND PUBLICITY WILL BENEFIT THE ENTIRE RANGE OF SWAROVSKI PRODUCTS I.E. THE HOLDING COMPANY BASED IN AUSTRIA. 20. THE AO / DRP HAS ERRED IN LAW AND IN FACTS BY R EFERRING TO JUDGMENTS PRONOUNCED BY THE HONBLE COURTS IN VARIOUS CASES W ITHOUT APPRECIATING THEIR APPLICABILITY TO THE FACTS OF THE CASE. 21. WITHOUT PREJUDICE TO THE ABOVE THAT ADVERTISEM ENT AND PUBLICITY EXPENSES SHALL NOT BE DISALLOWED, THE AO / DRP HAS ERRED IN NOT ALLOWING THE CONSEQUENTIAL DEDUCTION OR DEPRECIATION ON ADVERTIS EMENT AND PUBLICITY EXPENSES WHICH WAS DISALLOWED IN EARLIER YEARS 22. THE AO HAS ERRED IN PROPOSING AND THE DRP HAS F URTHER ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST PAID ON LAT E DEPOSIT OF SERVICE TAX OF RS. 9,601 UNDER SECTION 37(1) AND 40(A) OF THE ACT. 23. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. AO HAS ERRED IN INITIATING PENALTY PROCEEDINGS UNDER S ECTION 271(1)(C) OF THE ACT AS PER THE IMPUGNED ORDER CONSEQUENTIAL TO THE ABOV E DISALLOWANCES. 24. ON THE FACTS AND IN LAW, THE LD. AO ERRED IN LEVYING AN INTEREST OF RS 4,1781,114 UNDER SECTION 234B OF THE ACT. 25. ON THE FACTS AND IN LAW, THE LD. AO ERRED IN LE VYING AN INTEREST OF RS 193,257 UNDER SECTION 234D OF THE ACT. 2010-11 17. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS RELATING TO IMPORT, MANUFACTURE, SA LE AND EXPORT OF ALL KIND OF HIGH END CRYSTAL COMPONENTS FOR JEWELLERY, FASHION ACCESSORIES AND HOME DECORATION, ETC. THE ASSESSEE FILED A RETURN DECLAR ING AN INCOME OF RS, 10,23,55,073/- (BEFORE SETTING OFF LOSSES) ON 27.09 .2011, THROUGH E-FILING ACKNOWLEDGMENT NO. 161380911270910. THE CASE WAS SE LECTED UNDER SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED AND SERVED UPON TH E ASSESSEE WITHIN THE STATUTORY LIMIT. FURTHER NOTICE UNDER SECTION 142(1 ) ALONG WITH SPECIFIC QUESTIONNAIRE WAS ISSUED AND HEARING OF THE CASE TO OK PLACE FROM TIME TO TIME. IN RESPONSE TO THE STATUTORY NOTICES CHARTERED ACCO UNTANT AND AUTHORIZED REPRESENTATIVE ATTENDED THE PROCEEDINGS FORM TIME T O TIME AND CASE WAS DISCUSSED WITH THEM. A DRAFT ASSESSMENT ORDER U/S 1 44C DATED 18/02/2014 WAS PASSED BY ERSTWHILE DCIT, CIRCLE-7(1), NEW DELH I AND SENT TO THE ASSESSEE BY SPEED POST. DURING THE COURSE OF ASSESSMENT PROC EEDING, THE CASE WAS REFERRED TO TPO U/S 92CA FOR COMPUTATION OF ARMS LE NGTH PRICE (ALP). A TPO VIDE ORDER DATED 29.01.2014 PROPOSED TO MAKE AN ADJ USTMENT OF RS. 84,461,391/- TO THE TAXABLE INCOME OF THE ASSESSEE. THE ASSESSEE PREFERRED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL-III, NEW DELHI. THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL U/S 145C(5) OF THE INC OME TAX ACT, 1961 PASSED VIDE ORDER DATED 14/11/2014 WAS RECEIVED BY THE ASS ESSING OFFICER ON 03/12/2014. THE FINAL ASSESSMENT ORDER IS ACCORDING LY PASSED BY THIS OFFICE AFTER INCORPORATING THE DIRECTIONS OF THE DISPUTE R ESOLUTION PANEL MENTIONED ABOVE. AN ADDITION OF RS.8,44,61,391/- TO THE TOTAL INCOME OF THE ASSESSEE WAS MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE PAID CERTAIN AMOUNT OF S OFTWARE & EDP CHARGES TO ITS GROUP ENTITY M/S D. SWAROVSKI & CO. FOR PROVIDI NG OPERATIONAL IT SERVICES AND FOR INDIVIDUAL BUSINESS APPLICATION DEVELOPMENT SERVICES. VIDE ORDER SHEET ENTRY DATED 11.10.2013 & 08.11.2013 THE ASSESSEE AS KED TO SUBMIT THE DETAIL OF EXPENSE AND EXPLANATION AS TO WHY SOFTWARE & EDP CHARGES SHOULD NOT BE TREATED AS CAPITAL EXPENSE. VIDE REPLY DATED 05.12. 2013, THE ASSESSEE SUBMITTED THAT AN AMOUNT OF RS. 1,69,49,032/- WAS P AID TO M/S D. SWAROVSKI & CO. FOR PROVIDING OPERATIONAL IT SERVICES AND FOR INDIVIDUAL BUSINESS APPLICATION DEVELOPMENT SERVICES. THE ASSESSEE FURN ISHED THE REASONS FOR TREATING SUCH EXPENDITURE AS REVENUE IN NATURE. THE ASSESSEE SUBMITTED THAT UNDER THE RESPECTIVE AGREEMENT, D. SWAROVSKI & CO. PROVIDED SERVICES RELATED TO INTERNET BROWSING SERVICES, PROVIDING VPN ACCESS INCLUDING SECURITY AUTHENTICATION, DOCUMENTATION AND DATA MANAGEMENT, ANTIVIRUS MANAGEMENT AND SECURITY CHECKS ETC. TO THE ASSESSEE WHICH ARE OF THE SIMILAR NATURE AS PROVIDED BY D. SWAROVSKI & CO. IN THE LAST YEAR AS WELL. THE ASSESSEE CONTENDED THAT SUCH EXPENSES SHOULD BE ALLOWED AS B USINESS EXPENDITURE UNDER SECTION 37(1) SINCE THE ABOVE EXPENSE IS INCU RRED TOWARDS CARRYING OUT BUSINESS OPERATIONS OF THE ASSESSEE MORE EFFICIENTL Y AND THERE IS NO CAPITAL ASSET OR BENEFIT OF ENDURING NATURE WHICH IS ACQUIR ED BY THE COMPANY. THE ASSESSING OFFICER HELD THAT THESE EXPENSES ARE SQUA RELY COVERED UNDER CAPITAL ASSET AS COMPUTER AND SOFTWARE. IN THIS CASE RELIAN CE WAS PLACED ON THE DECISION OF CIT VS. ARAWALI CONSTRUCTION CO. PVT. L TD. 259 ITR 30 WHEREIN HON'BLE RAJASTHAN HIGH COURT HELD THAT THE EXPENDIT URE ON ACQUIRING COMPUTER SOFTWARE IS AN EXPENDITURE OF CAPITAL IN N ATURE AND HAS UPHELD THE DECISION OF AO TO ALLOW THE DEPRECIATION THEREON. T HUS, THE ASSESSING OFFICER DISALLOWED RS. 1,69,49,032, AS REVENUE EXPENDITURE AND ALLOWED DEPRECIATION @60% ON IT. CONSEQUENTLY, AN ADDITION OF RS. 67,79, 613 WAS MADE TO THE INCOME OF THE ASSESSEE. 18. THE ASSESSING OFFICER ALSO DISALLOWED AN AMOUN T OF RS.3,57,00,524/- TOWARDS ADVERTISEMENT AND PUBLICITY CHARGES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE DETAIL OF EXPENSE AND EXPLAN ATION AS TO WHY ADVERTISEMENT & PUBLICITY CHARGES SHOULD NOT BE TRE ATED AS CAPITAL EXPENSE. VIDE REPLY DATED 05.12,2013, THE ASSESSEE FURNISHED NATURE OF EXPENSES INCLUDED IN SUCH ADVERTISEMENT AND PUBLICITY EXPENS ES AND ALSO FURNISHED JUSTIFICATION ON WHY IT SHOULD BE ALLOWED AS A DEDU CTION TO THE ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE INCURR ED EXPENSES TOWARDS MEDIA ADVERTISEMENTS, PR AGENCY FEES, COMMUNICATION MATER IALS AND OTHERS WHICH ARE CLASSIFIED UNDER THE HEAD OF ADVERTISEMENT AND PUBLICITY EXPENSES AND CLAIMED AS AN EXPENSE IN THE CURRENT YEAR. IN THE S UBMISSIONS FURNISHED BY THE AR OF THE ASSESSEE, IT WAS MENTIONED THAT THE ADVER TISEMENT AND PUBLICITY EXPENSES WAS INCURRED TO ATTRACT CUSTOMERS IN A HIG HLY COMPETITIVE AND DYNAMIC ENVIRONMENT AND IT WAS REQUIRED ON A CONSIS TENT BASIS YEAR AFTER YEAR. THE ASSESSEE HOWEVER CLAIMED THAT THE SAME SHOULD B E ALLOWED AS A REVENUE EXPENSE. THE SUBMISSION OF THE ASSESSEE WAS REJECTE D BY THE ASSESSING OFFICER. THE ASSESSING OFFICER OBSERVED THAT BESIDES SUCH AG GRESSIVE ADVERTISEMENT AND BUSINESS PROMOTION IN THE NATURE OF BLITZKRIEG ALSO CREATE AN ENDURING ADVANTAGE TO THE COMPANY' AS THE IMAGE GETS IMPRINT ED IN THE MINDS OF THE CUSTOMERS WHICH IS NOT VERY EASY TO DISLODGE. SINCE AN EXACT APPORTIONMENT OF THE PROFITS ACCRUING TO THE PARENT COMPANY AS ALSO THE COMPONENT OF ENDURING ADVANTAGE ACCRUING TO THE ASSESSEE COMPANY ON ACCOU NT OF ADVERTISEMENT AND BUSINESS PROMOTION EXPENSES WAS NOT FEASIBLE TO WOR K OUT THEREFORE THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. IN THE CASE OF ADVERTISEMENT THE QUESTION OF BRAND BUILDIN G DOES NOT ARISE. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEE'S TRADING OPERATIONS OF ENABLING THE MANAGEMENT AND CONDUCT OF ASSESSEE'S B USINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING T HE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN T HOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE PERIOD. THERE MAY BE CASE S WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BEN EFIT, MAY, NONETHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN A SSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. T HE ASSESSEE SPENT SUBSTANTIAL AMOUNT OUT OF ITS OWN RESOURCES FOR INCREASING POPU LARITY, AWARENESS AND VISIBILITY OF THE SWAROVSKI BRAND THOUGH VARIOUS WA YS AND MEANS BOTH WITHIN INDIA. THE REPRESENTATIVES OF THE ASSESSEE CONTENDE D THAT THE EFFORTS LEADING TO INCREASED AWARENESS AND VISIBILITY OF SWAROVSKI BRA ND WILL BENEFIT THE ASSESSEE COMPANY IN THE FORM OF INCREASED SALES AND TURNOVER AND THEREBY THE EXPENDITURE JUSTIFIABLE. IN THE DETAILED SUBMISSION ON THE ISSUE THE ASSESSEE BASICALLY CONTENDED THAT THE EXPENDITURE WAS INCURR ED ON VISUAL MEDIUM LIKE LIFESTYLE MAGAZINES, CATALOGUES, MAILERS, PUBLIC RE LATION EXERCISE, ETC AS IN THE EARLIER YEARS. THE SUBMISSION MADE BY THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER AND INCLINED TO ACCEPT THE POSITI ON TAKEN BY EARLIER ASSESSING OFFICER IN THE PRECEDING YEARS WHEREIN IT WAS UPHEL D THAT THE ABOVE ADVERTISEMENT AND PUBLICITY EXPENSES WILL BENEFIT T HE ENTIRE PRODUCT RANGE OF SWAROVSKI PRODUCTS I.E. THE HOLDING COMPANY BASED I N AUSTRIA. THERE ARE SEVERAL CRYSTAL ITEMS APART FROM THE MAIN PRODUCTS LIKE ACCESSORIES AND DECORATIVE ITEMS UNDER THE SAME BRAND SWAROVSKI, WH ICH IS NOT BEING EITHER, MARKETED OR SOLD BY THE ASSESSEE COMPANY IN INDIA. THE DETAILS OF THESE EXPENDITURE SHOWS THAT THE EXPENDITURE IS INCURRED ON SPONSORSHIP OF THE EVENTS, NEWSPAPERS / MAGAZINES / ELECTRONIC MEDIA A DVERTISEMENT, BANNERS WALL PAINTING AND HOARDINGS WHICH ARE NOTHING BUT C APITAL IN NATURE AND WERE INCURRED TO PROMOTE THEIR BRANDS AND PRODUCTS, THE BENEFIT OF WHICH IS ENDURING IN NATURE WHICH GOES BEYOND THE PREVIOUS Y EAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THERE IS NO DI SPUTE OR DOUBT THAT INCREASES IN THE AWARENESS, POPULARITY AND THE VISI BILITY OF THE BRAND IN INDIA MARKET WILL LEAD TO BETTER SALES AND TURNOVER AND T HEREFORE, INCREASED PROFIT AND REVENUES FOR THE ASSESSEE. BUT THIS WILL ALSO BENEF IT THE ENTIRE PRODUCT RANGE OF THE ASSESSEE GROUP PRODUCTS. THEREFORE, THE BENEFIT OF ADVERTISEMENT AND PUBLICITY ARE OF ENDURING NATURE AVAILABLE OVER A M UCH LONGER PERIOD OF TIME THAN THE ACCOUNTING PERIOD RELEVANT FOR AY UNDER CO NSIDERATION ALONE. IN VIEW OF THIS, THE PART OF EXPENDITURE ON ADVERTISEMENT A ND PUBLICITY BECOMES CAPITAL IN NATURE AS IT IS LEADING TO THE CREATION OF THE I NTANGIBLE ASSETS BEING GOODWILL, REPUTATION AND CREDITABILITY. IT WAS HELD BY VARIOU S COURTS IN VARIOUS DECISIONS THAT WHEN EXPENDITURE IS MADE WITH A VIEW TO BRINGI NG INTO AN ASSET OR ADVANTAGE FOR THE ENDURING BENEFIT OF THE BUSINESS, SUCH EXPENDITURE IS NOT REVENUE BUT A CAPITAL EXPENDITURE. THE AMOUNT SPENT ON ADVERTISEMENT AND SALE PROMOTION WAS HELD TO BE CAPITAL IN NATURE BY THE ASSESSING OFFICER AND CREATING OF INTANGIBLE ASSET IN FORM OF 'BRAND' WHI CH IS OF SIMILAR NATURE OF CAPITAL ASSETS AS MENTIONED IN SECTION 32(L)(II) OF THE IT ACT. THEREFORE, AMOUNT CLAIMED AS ADVERTISEMENT & SALES PROMOTION EXPENSE OF RS. 35700524/- WAS DISALLOWED AS REVENUE EXPENDITURE, HOWEVER, ASSESSE E WAS ALLOWED TO CLAIM DEPRECIATION @25% ON SUCH AMOUNT. THEREFORE, AN AMO UNT OF RS.2,67,75,393/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSES SEE. 19. THE ASSESSING OFFICER WHILE DEALING WITH DISALL OWANCE OF INTEREST ON LATE DEPOSIT OF TDS & SERVICE TAX OBSERVED THAT THE ASSE SSEE CLAIMED RATE & TAXES. VIDE QUESTIONNAIRE DATED 09.01.2014 ASSESSEE WAS AS KED TO SUBMIT THE DETAIL OF RATE & TAXES JUSTIFY THE CLAIM IN THE PREVIEW OF PROVISION OF INCOME TAX ACT. VIDE REPLY DATED 05,02.2014 ASSESSEE SUBMITTED THE DETAIL OF THE ABOVE EXPENSES AND THE ASSESSING OFFICER OBSERVED THAT AS SESSEE PAID INTEREST OF RS.28070/- ON LATE PAYMENTS OF SERVICE TAX, WCT AND TDS. THE SUBMISSION OF THE ASSESSEE WERE DULY CONSIDERED BUT THE ASSESSING OFFICER DID NOT FIND THE SAME AS SATISFACTORY. THE ASSESSING OFFICER HELD TH AT IN THE CASE OF BHARAT COMMERCE & INDUSTRIES V. CIT (1998) 230 ITR 733 (SC ) THE HON'BLE SUPREME COURT HELD THAT INTEREST ON LATE PAYMENT OF TDS OR ANY TAX IS AS GOOD AS PAYMENT OF TAXES. ACCORDINGLY, INTEREST ON TAX CANN OT BE TAKEN OUT OF PREVIEW OF TAX. THIS DECISION WAS ALSO FOLLOWED BY THE AHMEDAB AD BENCH OF ITAT IN THE CASE OF INCOME TAX OFFICER V. ROYAL PACKAGING WHICH HAS HELD THAT INTEREST FOR LATE PAYMENT OF DIRECT TAXES IS NOT DEDUCTIBLE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE DRP VIDE ORDER DATED 14/11/2014 O BSERVED THAT RS. 18,469 BEING INTEREST ON DELAY IN DEPOSITION OF TDS WAS AL READY ADDED TO THE COMPUTATION OF INCOME BY THE ASSESSEE, THE REMAININ G RS. 9,601 WAS UPHELD. THEREFORE, FOLLOWING THE DIRECTION OF DRP, SUM OF R S. 9,601/- WAS DISALLOWED U/S 37(1) AND 40(A) OF THE INCOME TAX ACT, 1961 AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 20. THE LD. AR SUBMITTED THAT THE AMP ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE TPO/AO AS HELD IN THE EARLIER YEAR BY THE TRIBU NAL. THE RELEVANT EXTRACTS OF THE SAME ARE AS UNDER: ITA NOS.5621 & 5496/DEL/2014 8.3 ON PERUSAL OF THE ORDER OF THE LD. CIT(A), IT EMERGES THAT WHILE HOLDING AMP EXPENSES AS AN INTERNATIONAL TRANSACTION, HE DI D NOT HAVE THE BENEFIT OF THE JUDICIAL PRECEDENTS NOW AVAILABLE FOR CONSIDERA TION, IN SOME OF WHICH THE TRANSACTION OF AMP EXPENSES HAS BEEN HELD AS AN INT ERNATIONAL TRANSACTION, IN OTHERS AS NOT AN INTERNATIONAL TRANSACTIONS, WHILE STILL IN SOME OTHERS, THE MATTER HAS BEEN RESTORED FOR FRESH CONSIDERATION IN THE LIGHT OF THE JUDGMENT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD . VS. CIT (2015) 374 ITR 118 (DEL), IN WHICH THE AMP EXPENSES AS AN INTERNAT IONAL TRANSACTION HAS BEEN ACCEPTED. IN ANOTHER JUDGMENT DATED 28.01.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (I NDIA) PVT. LTD. (FOR THE AY 2010-11), THE QUESTION AS TO WHETHER AMP EXPENSES I S AN INTERNATIONAL TRANSACTION, HAS BEEN RESTORED FOR A FRESH DETERMIN ATION. THERE ARE THREE RECENT JUDGMENTS OF THE HONBLE DELHI HIGH COURT, V IZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT.14.09.2016), PR. CIT VS. TOS HIBA INDIA PVT. LTD. (DT. 16.08.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA ) PVT. LTD. (DT. 23.08.2019) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBI LE COMMUNICATIONS INDIA PVT. LTD. (SUPRA). RESPECTFULLY FOLLOWING THE PREDO MINANT VIEW OF THE HONBLE HIGH COURT, WE ARE OF THE CONSIDERED OPINION THAT I T WOULD BE IN THE FITNESS OF THINGS IF THE IMPUGNED ORDER IS SET ASIDE AND THE M ATTER IS RESTORED TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES. IF TH E EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, THE MATTER WOULD END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADDITION. IF, ON TH E OTHER HAND, THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO W ILL DETERMINE THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IN THE LIGHT OF T HE RELEVANT JUDGMENTS OF THE HONBLE HIGH COURT, AFTER ALLOWING A REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. THE LD. AR ALSO RELIED UPON THE DECISION OF NIKON I NDIA PVT. LTD. VS. DCIT [ITA NO. 6314/DEL/2015, A.Y 2011-12,] WHEREIN THE TRIBUN AL HELD AS UNDER: 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT MATERIAL ON RECORD. THE LD. AR TRIED TO HARP ON CER TAIN AGREEMENTS AND OTHER DOCUMENTS TO BUTTRESS HIS POINT THAT THERE WA S NO INTERNATIONAL TRANSACTION ON ACCOUNT OF AMP EXPENSES IN TERMS OF THE JUDGMENT IN THE CASE OF WHIRLPOOL (SUPRA). ON PERUSAL OF THE ORDER OF THE TPO, IT EMERGES THAT THERE IS NO DISCUSSION ABOUT ANY OF THESE DOCU MENTS. SINCE THE TPO HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSA CTION, HE DID NOT HAVE ANY OCCASION TO CONSIDER THESE DOCUMENTS IN TH E LIGHT OF THE JUDICIAL VIEW NOW AVAILABLE FOR CONSIDERATION. RESP ECTFULLY FOLLOWING THE TRIBUNAL ORDERS OF CO-ORDINATE BENCHES, PLACED ON R ECORD BY THE LD. DR, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE I N THE FITNESS OF THINGS IL THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER I S RESTORED TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF THE QUESTION AS TO WHETHER THERE EXISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES . IF THE EXISTENCE OF SUCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, TH E MATTER WILL END THERE AND THEN, CALLING FOR NO TRANSFER PRICING ADD ITION. IF, ON THE OTHER HAND, THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO WILL DETERMINE THE ALP OF SUCH AN INTERNATIONAL TRA NSACTION IN THE LIGHT OF THE RELEVANT JUDGMENTS OF THE HONBLE HIGH COURT , AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. IN DOING SO, THE SELLING EXPENSES DIRECTLY INCURRED IN CONNECTION WI TH SALES NOT LEADING TO BRAND PROMOTION, SHOULD NOT BE BROUGHT WITHIN T HE AMBIT OF AMP EXPENSES. THIS VIEW TAKEN BY THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF LG ELECTRONICS INDIA PVT. LTD. VS. AC1T (20 13) 152 TTJ (DEL) 273 (SB) HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL. THE CONTENTION OF THE LD. DR THAT SLP HAS BEE N ADMITTED AGAINST THE EXCLUSION OF SELLING EXPENSES FROM THE AMBIT OF AMP EXPENSES IN THE CASE OF AMADUS INDIA LTD., DOES NOT ALTER THE LEGAL POSITION PREVAILING AS ON TODAY. AS RELATES TO GROUND NO. 3 AND 4, THE SAME ARE AS P ER EARLIER A.Y.2006-07. GROUND NO. 15, 16, 17 AND 21, 23, 24, 25 ARE CONSEQ UENTIAL. GROUND NO. 22 IS ALLOWABLE EXPENDITURE. 21. THE LD. DR RELIED UPON THE ORDER OF THE TPO, AS SESSMENT ORDER AND DRP DIRECTIONS. THE LD. DR SUBMITTED THAT THE SUBMISSIO NS OF A.Y.2006-07 WHEREIN COMMON ISSUES ARE INVOLVED BE TAKEN AS SUBMISSIONS IN THIS ASSESSMENT YEAR. 22. WE HAVE HEARD BOTH THE PARTIES. AS RELATES TO G ROUND NO. 1 TO 13 FOR AMP, IN LIGHT OF DECISIONS IN ASSESSEES OWN CASE T HE SAME IS REMANDED BACK TO THE FILE OF THE TPO/AO FOR FURTHER VERIFICATION. NE EDLESS TO SAY THAT THE ASSESSEE BE GIVEN FULL OPPORTUNITY OF HEARING BY FOLLOWING P RINCIPLES OF NATURAL JUSTICE. THUS, GROUND NO. 1 TO 13 ARE ALLOWED FOR STATISTICA L PURPOSE. GROUND NO. 14, 15, 16, 17 ARE SIMILAR TO THAT OF A.Y. 2006-07 AS R ELATES TO GROUND NO. 3 THEREIN, THIS ISSUE IS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO SEE THESE EXPENSES ACCORDING TO THE EVIDENCE PRODUCED B Y THE ASSESSEE. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARIN G AS PER PRINCIPALS OF NATURAL JUSTICE. GROUND NOS. 14, 15, 16, 17 ARE ALLOWED FO R STATISTICAL PURPOSE. AS RELATES TO GROUND NO. 18, 19, 20 ARE SIMILAR TO GRO UND NO. 4 OF THE A.Y. 2006- 07, THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE . GROUND NO. 22 IS ALLOWABLE EXPENDITURE IN LIGHT OF THE SUBMISSIONS OF THE LD. AR WHICH WAS NOT DENIED BY THE LD. DR, THEREFORE, GROUND NO. 22 IS ALLOWED. GR OUND NOS. 21, 23, 24, 25 ARE CONSEQUENTIAL SO IN LIGHT OF DIRECTIONS IN THE MERIT OF THE CASE HEREINABOVE, THE TPO/AO HAS TO DECIDE THE SAME ACCORDINGLY. 23. IN RESULT, ITA NO.1287/DEL/2015 IS PARTLY ALLOW ED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 2ND APRIL, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 02/04/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON PS 2. DRAFT PLACED BEFORE AUTHOR PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 02.04.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 02.04.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.