ACIT (LTU), New Delhi V. M/s. Nestle India Ltd, Gurgaon

ITA 4477/DEL/2010

• Counselvise Citation: 447720114 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 08-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RA J TANDON
• Assessee Lawyers: DINESH JAIN RUPESH JAIN; RAMIT KATYAL
• Keywords: Transfer pricing; Double taxation relief; International transaction; Fair market value; Onus to prove
• Section: 92; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI A.D. JAIN AND SHRI K.G. BANSAL ITA NO. 4477(DEL)/2010 ASSESSMENT YEAR: 2006-07 DEPUTY COMMISSIONER OF INCOME M/S NE STLE INDIA LTD., TAX (LTU), NBCC PLAZA, VS. M-B LOCK, NESTLE HOUSE, PUSHP VIHAR, NEW DELHI. DLF CITY, PHASE-II, JACARANDA MARG, GURGAON. PAN: AAACN0757G (APPELLANT) (RESPON DENT) APPELLANT BY : SHRI RAJ TANDON, CIT, DR RESPONDENT BY: S/ SHRI DINESH JAIN, RUPESH JAIN, ADV. AND RAMIT KATYAL, C.A. DATE OF HEARING : 08.11.2011 DATE OF PRONOUNCEMENT: 18 .11.2011. ORDER PER K.G. BANSAL : AM THE REVENUE HAS TAKEN UP ONLY ONE SUBSTANTIVE GR OUND IN THIS APPEAL THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS. 33.82 CRO RE, BEING 40% OF THE LICENCE FEE PAID BY THE ASSESSEE TO ITS PARENT C OMPANY. ITA NO. 4477(DEL)/2010 2 2. THE ADMITTED POSITION IS THAT THE ISSUE STAND S COVERED BY VARIOUS ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R ASSESSMENT YEARS 1997- 98 TO 2005-06, COPIES OF WHICH HAVE BEEN PLACED I N THE PAPER BOOK OF THE ASSESSEE. HOWEVER, THE LD. CIT, DR WAS OF THE V IEW THAT THE MATTER REQUIRES FRESH EXAMINATION BECAUSE OF SUBSEQUENT DEVELOPMENTS IN LAW. IN VIEW OF HIS INSISTENCE, WE BRIEFLY TOUCH UP ON THE SUBMISSIONS MADE BY HIM. 2.1 IT IS SUBMITTED THAT THE BRAND NAME NESTLE BELONGS TO A FOREIGN- ASSOCIATED COMPANY. FOR THE USE OF THIS BRAND NAME, THE ASSESSEE HAS BEEN PAYING LICENCE FEE COMPUTED @ 1% OF THE SALES. IT IS ALSO INCURRING HEAVY EXPENSES ON ADVERTISEMENT PROMO TING THE BRAND NAME. THE EXPENDITURE ON ADVERTISEMENT IS OBVIOUSLY IN TENDED TO INCREASE SALES. ONCE SALES INCREASE ON ACCOUNT OF ADVERTISEMENT, THE LICENCE FEE PAYABLE TO THE FOREIGN COMPANY ALSO GETS INCREASED. TH E EXPENDITURE ON ADVERTISEMENT LEADS TO BENEFIT TO THE FOREIGN COM PANY ALSO AS ITS BRAND NAME GETS PROMOTED. NO REIMBURSEMENT IS MADE BY THE FOREIGN COMPANY TO THE ASSESSEE IN RESPECT OF ADVERTISEMENT EXPEN SES. THUS, IT IS A CASE DOUBLE JEOPARDY IN SO FAR AS THE ASSESSEE IS C ONCERNED. ITA NO. 4477(DEL)/2010 3 2.2 TO SUPPORT HIS CASE, RELIANCE IS PLACED ON TH E DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI I NDIA LTD. VS. ADDITIONAL CIT, (2011) 328 ITR 210. THE MAJOR FINDING IS T HAT IN ORDER TO ASCERTAIN FAIR MARKET VALUE OF THE EXPENSES INCURRED BY A DOMESTIC COMPANY FOR USE OF BRAND NAME, TRADE-MARK OR LOGO, SIMILARL Y SITUATED COMPARABLES SHOULD BE ASCERTAINED. THUS, IN CASE THE DOMES TIC COMPANY INCURS HEAVY EXPENDITURE ON ADVERTISEMENT OF BRAND NAME, TRA DE-MARK OR LOGO, FOR WHICH SUITABLE COMPENSATION IS NOT RECEIVED FRO M THE FOREIGN COMPANY FOR THE BENEFIT ACCRUING TO IT, COMPARABLE CASES SHOULD BE SELECTED IN WHICH SIMILAR POSITION REGARDING ADVERTISEMENT EXPENSES IS OBTAINED. THE CASE OF THE LD. DR ON THE BASIS OF THIS D ECISION IS THAT THE TPO HAD MENTIONED ABOUT THE FACT THAT HEAVY EXPENDITUR E IS BEING INCURRED ON PROMOTING THE BRAND NAME OF THE FOREIGN ASSOCIATE D ENTERPRISE. THIS MATTER MAY BE KEPT IN MIND BY THE AO WHILE DECIDIN G THE ISSUE OF ARMS LENGTH PRICE OF THE PAYMENT MADE @ 1% OF THE SAL ES AS LICENCE FEE. THE LD. CIT, DR ALSO RELIED ON THE DECISION IN THE FOLLOWING CASES:- (I) L.G. POLYMERS INDIA PVT. LTD. VS. ADDITIONAL CIT, 2011-TII-97- ITAT-VIZAG-TP; ITA NO. 4477(DEL)/2010 4 (II) ADDITIONAL CIT VS. NESTLE INDIA LTD., (2005) 147 TAXMAN 20 (DEL) (MAG.); (III) CIT VS. NESTLE INDIA LTD., (2011) 337 ITR 103 (DE L). 3. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE D REW OUR ATTENTION TO VARIOUS ORDERS AND DECISIONS OF THE TRIBUNAL, HIGH COURT AND SUPREME COURT PLACED IN THE PAPER BOOK. IT IS NOT NECESS ARY FOR US TO DEAL WITH ALL THESE CASES AS THAT WOULD AMOUNT TO MERE REPETITI ON. THE ISSUE CAME UP FOR THE FIRST TIME BEFORE D BENCH OF DELHI TRIBUNAL FOR ASSESSMENT YEARS 1997-98 AND 1998-99, 94 TTJ 53. THE MAIN QUESTI ON IN THESE APPEALS WAS REGARDING THE CLAIM FOR DEDUCTION OF THE SUM PAID AS ROYALTY FOR TECHNICAL ASSISTANCE. THE MAIN POINT MADE BY THE LOWER AUTHORITIES WAS THAT THE ASSESSEE SO ARRANGED ITS COURSE OF BUSINESS THAT IT WAS LEFT WITH LESS THAN ORDINARY PROFIT EXPECTED IN THE LINE OF BUSINESS OF THE ASSESSEE. THE TRIBUNAL RETURNED THE FINDING THAT NO ONE H AS TAKEN CARE TO SPECIFY AS TO HOW MUCH THE ORDINARY PROFIT WAS SUPPOSED T O BE AND ON WHAT BASIS SUCH ORDINARY PROFIT SHOULD BE DETERMINED. THUS, THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE. THIS DECISION WAS F OLLOWED BY F BENCH OF ITA NO. 4477(DEL)/2010 5 THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASS ESSMENT YEAR 1999-00 IN ITA NO. 2755(DEL)/2003 DATED 30.04.2007. IN TH IS DECISION, A REFERENCE WAS MADE TO PARAGRAPHS 89 TO 96 OF THE ORDER MENTI ONED EARLIER, DEALING WITH THE ISSUE. THESE PARAGRAPHS ARE REPRODUCED B ELOW:- 89. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE SEE CONSIDERABLE FORCE IN THE CONT ENTION OF THE LD. CIT, DR THAT THE APPEAL IN RELATION TO ASSESSMENT YEAR 1997-98 IS BY AND LARGE ACADEMIC BECAUSE THERE IS NO DISPUTE BETWEEN THE ASSESSEE AN D REVENUE AS TO THE QUANTUM OF THE ASSESSED TAX LIABI LITY FOR ASSESSMENT YEAR 1997-98. HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEA R 1997-98, THE LD. ASSESSING OFFICER HAS EXAMINED THE QUESTION OF ALLOWABILITY OF THE ASSESSEES PAYMENTS TO SPN AT CONSIDERABLE LENGTH. THE LD. ASSESSING OFFI CER HAS GIVEN A HARSH FINDING THAT THE PAYMENTS WERE PA RT OF A DEVICE FOLLOWED BY THE PARTY TO SIPHON AWAY THE P ROFITS OF THE ASSESSEE COMPANY IN THE DISGUISE OF ROYALTY PAYMENT AND THEREBY REDUCING, AMONG OTHER THINGS, T HE ASSESSEE COMPANYS TAX INCIDENCE IN INDIA. WE FIND THAT WHILE COMPLETING THE ASSESSMENT FOR ASSESSMENT YEAR 1998-99, THE ASSESSING OFFICER HAS MERELY ADOPTED T HE ARGUMENT, REASONING AND BASIS OF DISALLOWANCE AS GI VEN IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1997-98 . IN SPITE OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1 997- 98, NOT FINDING FAVOUR WITH THE LD. CIT(A), THE SUC CEEDING LD CIT(A) HAS FOR ASSESSMENT YEAR 1998-99 SOUGHT T O DIFFER FROM HIS PREDECESSOR MAINLY ON THE BASIS OF THE FINDINGS AND REASONING OF THE ASSESSING OFFICER FOR ASSESSMENT YEAR 1997-98. THE LD. CIT(A) ENTERTAINE D, IN ADDITION TO THE REPORT OF THE ASSESSING OFFICER, A REPORT ALSO FROM THE PREVIOUS INCUMBENT WHO WAS THEN WORKI NG AS ADDL. DIT (INV.) ON THE GROUND THAT HE WAS THE O FFICER WHO HAD FRAMED THE ASSESSMENT ORDER FOR ASSESSMENT ITA NO. 4477(DEL)/2010 6 YEAR 1997-98. WE ARE, THEREFORE, OF THE VIEW THAT ACADEMIC OR NON ACADEMIC THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1997-98 HAS TO BE KEPT IN VIEW WHIL E DECIDING THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 1998- 99. HENCE, NOW THE MATTER FOR ASSESSMENT YEAR 1997 -98 HAS TRAVELLED UNTO US WE MAY AS WELL DEAL WITH REVE NUES APPEAL FOR ASSESSMENT YEAR 1997-98, FOR WHATEVER IMPACT, OUR ORDER IN RELATION TO THAT ASSESSMENT YE AR MAY HAVE. 90. ON PERUSAL OF THE ASSESSMENT ORDER FOR ASSESS MENT YEAR 1997-98 THAT HAS FORMED THE BEDROCK OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1998-99, WE FI ND THAT THE LD. ASSESSING OFFICER HAS MADE PART DISALL OWANCE OF THE ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF AGREEMENTS WITH SPN ON THE FOLLOWING GROUNDS:- A) THE ASSESSEE REFRAINED FROM FURNISHING TO THE ASSES SING OFFICER THE FULL DETAILS AS ASKED FOR AND THUS NOT ALLOWING THE ASSESSING OFFICER TO EXAMINE IN DEPTH THE CORRE CTNESS OR OTHERWISE OF THE ASSESSEES CLAIM OF DEDUCTION. B) THE ASSESSEE NOT FURNISHING THE MATERIAL/EVIDENCE I N RELATION TO TECHNICAL ASSISTANCE ACTUALLY RECEIVED SO AS TO JUSTIFY THE HUGE PAYMENT OF RS.47 CRORES FOR ASSESS MENT YEAR 1997-98. C) THE ASSESSEE NOT EXPLAINING AS TO ON WHAT BASIS THE SCALE OF REMUNERATION WAS AGREED UPON IN THE AGREEMENTS I N QUESTION AND WHETHER ANY EVALUATION AND ANALYSIS OF THIS TECHNICAL ASSISTANCE WAS BEING MADE. D) PRIMA FACIE, THE QUANTUM OF ROYALTY PAID WAS EXCESS IVE AND UNREASONABLE HAVING REGARD TO THE AMOUNT OF THE ASSESSEES BUSINESS PROFIT. E) THE ASSESSEE WAS ALREADY WELL ESTABLISHED IN THE BUSINESS, PARTICULARLY COFFEE BUSINESS, AND THEREFO RE NEED NOT HAVE MADE SUCH LARGE PAYMENT FOR TECHNICAL ASSISTANCE. ON THIS BASIS, THE LD ASSESSING OFFICER FOR ASSESSM ENT YEAR 1997-98, CONTENDED THAT THE PAYMENTS IN QUESTI ON WERE ONLY PART OF A DEVICE TO SIPHON AWAY THE PROFI TS OF ITA NO. 4477(DEL)/2010 7 THE INDIAN COMPANY THEREBY REDUCING THE PROFIT DISTRIBUTABLE IN INDIA AND INCIDENCE OF TAX THEREON . THE LD. CIT(A) FOR ASSESSMENT YEAR 1998-99 HAS ALSO DRA WN THE SAME CONCLUSION THAT THE PAYMENTS IN QUESTION W ERE A COLOURABLE DEVICE ON THE PART OF THE ASSESSEE AND, THEREFORE, HIT BY THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD. VS. CTO, 154 ITR 148 (SC). HOWEVER, WE FIND THAT IN THE ORDER O F THE LD. CIT(A) FOR ASSESSMENT YEAR 197-98, THE EMPHASIS IS UPON HIS INFERENCE THAT THE PAYMENTS IN QUESTION WE RE DISPROPORTIONATELY HIGH LOOKING AT THE PROFITS EARN ED BY THE ASSESSEE AND THE ASSESSEE HAS NOT BEEN ACCUSED OF HIDING FROM EXAMINATION OR NOT FURNISHING THE INFORMATION REGARDING TECHNICAL ASSISTANCE ACTUALLY RECEIVED. 91. AS TO THE CASE OF THE ASSESSING OFFICER THAT TH E ASSESSEE FAILED TO ESTABLISH THE COMMERCIAL EXPEDIE NCY OF PAYMENTS IN QUESTION BY PRODUCTION OF RELIABLE INFORMATION AND EVIDENCE, ON CAREFUL PERUSAL OF THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1997-98, WE FI ND THAT THE LD ASSESSING OFFICER HAS MAINLY ALLEGED NO N COMPLIANCE TO VARIOUS REQUISITIONS MADE BY WAY OF O RDER SHEET NOTINGS IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. SO MUCH SO THAT IN THE ASSESSMENT ORD ER FOR ASSESSMENT YEAR 1997-98, WHILE THE LD. ASSESSING O FFICER HAS REPRODUCED VERBATIM HIS LETTER DATED 17 TH JUNE, 1999 AN ORDER SHEET NOTINGS DATED 20 TH SEPT, 99, 6 TH OCTO, 1999 AND 29 TH NOVEMBER, 1999, THE LETTER DATED 10H DECEMBER, 1999 AND ORDER SHEET NOTING DATED 27 TH DECEMBER, 1999 , HE HAS SUMMARIZED THE ASSESSEES REPLY AND THE SUBMISSIONS IN ONE SINGLE PARAGRAPH 10 OF THE ASSESSMENT ORDER. THE LD. ASSESSING OFFICER HAS CH ARGED THE ASSESSEE ALSO FOR NOT ESTABLISHING THE COMMERCI AL EXPEDIENCY. DURING THE COURSE OF HEARING BEFORE US , WHILE THE LD. CIT-DR STOUTLY EMPHASIZED THIS ALLEGA TION, THE LD. COUNSEL FOR THE ASSESSEE, WITH EQUAL VEHEME NCE, RELIED UPON THE VOLUMINOUS EVIDENCE, MATERIAL AND RECORD FILED/PRODUCED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR ITA NO. 4477(DEL)/2010 8 ASSESSMENT YEAR 1997-98. WE FIND THAT IN THE ASSES SMENT ORDER FOR THE ASSESSMENT YEAR 1997-98, THE LD. ASSE SSING OFFICER HAS SPELT OUT IN PARA 22, VARIOUS QUERIES THAT ACCORDING TO HIM WERE NOT COMPLIED WITH BY THE ASSE SSEE. WE HAVE REPRODUCED THE SAME IN PARA 6 OF THIS ORDER . THE LD. COUNSEL FOR THE ASSESEE HAS PAINSTAKINGLY T AKEN US THROUGH THE LETTERS FROM THE ASSESSEE AND OTHER EVIDENCE, MATERIAL AND RECORD PRODUCED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEA RS 1997-98 AND 1998-99 AND THE SAME HAVE BEEN ENUMERATED BY US FROM PARAS 37 TO 65 OF THIS ORDER. ON CONSIDERATION, WE FIND THAT BY AND LARGE THE ASSESS EE FURNISHED ALMOST ENTIRE INFORMATION, MATERIAL AND EVIDENCE AS WAS ASKED FOR BY THE ASSESSING OFFICER. IN ADDITION, THE ASSESSEE ALSO FURNISHED PLENTY OF MAT ERIAL GIVING THE ASSESSING OFFICER FOR ASSESSMENT YEARS 1 997- 98 AND 1998-99 A FAIR VIEW OF THE KIND, QUALITY AND SIGNIFICANCE OF TECHNICAL ASSISTANCE RECEIVED AND B EING RECEIVED BY THE ASSESSEE BY VIRTUE OF THE AGREEMENT S IN QUESTION. THE ASSESSEE INFORMED THE LD. ASSESSING OFFICER THAT IT COULD COMPLY WITH HIS REQUISITIONS AND SUBSTANTIATE ITS CLAIM OF DEDUCTION BY MAKING A FUL L AND COMPREHENSIVE PRESENTATION OF TECHNICAL ASSISTANCE MORE CONVENIENTLY AT THE ASSESSEES OWN PREMISES WHERE T HE RELEVANT RECORD WAS LOCATED. DURING THE COURSE OF APPEAL BEFORE THE LD CIT(A) FOR ASSESSMENT YEAR 199 8-99 ALSO, THE ASSESSEE OFFERED THAT HE MAY VISIT THE AS SESSEES OFFICE PREMISES AND FACTORIES. HOWEVER, THESE REQU ESTS WERE NOT ACCEDED TO. WE HAVE, THEREFORE, TO SEE TH E MATERIAL AND EVIDENCE PRODUCED BY THE ASSESSEE KEEP ING IN VIEW THAT THE ASSESSEE WAS NOT GRANTED THE ADVAN TAGE OF FIRST HAND DEMONSTRATION AT THE ASSESSEES OWN PREMISES WHERE TECHNICAL ASSISTANCE WAS SUPPOSED TO BE RENDERED. WE, THEREFORE HOLD THAT THE LD ASSESSIN G OFFICER HAS BEEN LESS THAN FAIR IN HIS OBSERVATIONS THAT THE REQUISITE DETAILS AND SUPPORTING MATERIAL, EVID ENCE AND INFORMATION WERE NOT FURNISHED BY THE ASSESSEE. WE SEE FORCE IN THE CONTENTION OF THE ASSESSEE THAT W HILE MAKING SUCH OBSERVATION, THE LD. ASSESSING OFFICER IGNORED AND OMITTED TO MAKE A REFERENCE TO VOLUMINO US ITA NO. 4477(DEL)/2010 9 MATERIAL PLACED BEFORE HIM BY THE ASSESSEE. IT IS TRUE THAT SOME OF THE INFORMATION ASKED FOR WAS NOT FURNISHED . THE LD. COUNSEL FOR THE ASSESSEE HAS INFORMED US THAT T HE SAME WAS EITHER NOT IN THE POSSESSION OF THE ASSESSEE OR DID NOT EXIST. THE ASSESSEE HAD CERTAIN RESERVATION ABOUT FURNISHING THE SENSITIVE INFORMATION REGARDING THE PRODUCT WISE PROFITABILITY AS THE ASSESSEE WAS IN H IGHLY COMPETITIVE MARKET OF FAST MOVING CONSUMER GOODS. HOWEVER, EVENTUALLY, THE ASSESSEE FURNISHED EVEN TH E DATA PERTAINING TO PRODUCT-WISE PROFITABILITY. THE ASSESSEE DID NOT FURNISH THE PARTICULARS OF PROFIT AND BALANCE SHEET, ETC. OF NESTEC, SPN, NESTLE SA OF SWITZERLAND BECAUSE THE SAME FELL OUTSIDE THE ASSES SEES OBLIGATION TO SUPPLY. IRONICALLY, ACCORDING TO THE ASSESSEE, ALL THIS EMPHASIS ON WORKING ON PROFIT OF THE ASSESSEE AND SERVICE PROVIDERS WAS IRRELEVANT BECAU SE THE QUANTUM OF REMUNERATION COULD NEITHER BE FIXED NOR ADJUDGED ON THE YARDSTICK OF PROFIT. 92. DURING THE COURSE OF HEARING BEFORE US, CONSIDERABLE ARGUMENTS WERE MADE IN RELATION TO THE APPLICABILITY OR OTHERWISE OF THE PROVISIONS OF SEC TION 40A(2)(B)/SECTION 92/ARTICLE 9 OF DTAA, ETC. FOR T HE PURPOSE OF HIS ORDER, WE DO NOT WISH TO GO INTO THE FINER TECHNICAL POINTS RELATING TO THESE LEGAL PROVISIONS . IN OUR VIEW, IN THE ABSENCE OF ANY SPECIFIC MATERIAL, EVID ENCE OR INFORMATION, THE ENTIRE EXERCISE UNDERTAKEN BY THE ASSESSING OFFICER COULD HAVE BEEN TEMPERED IF DUE IMPORTANCE WAS ATTACHED BY HIM TO THE FACT THAT THE RBI APPROVALS HAD BEEN GRANTED IN RESPECT OF EACH ONE O F THE NINE AGREEMENTS. WE SEE AMPLE AUTHORITY FOR THE SUBMISSIONS MADE BY THE ASSESSEES COUNSEL IN THIS RESPECT AS ENUMERATED BY US IN PARA 67 OF THIS ORD ER. AFTER CONSIDERATION, WE REJECT THE CONTENTION THAT THE ADVERSE INFERENCE WAS CORRECTLY DRAWN AGAINST THE ASSESSEE ON ACCOUNT OF ALLEGED NON-COMPLIANCE TO VARIOUS REQUISITIONS OF THE ASSESSING OFFICER DURIN G THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 1997-98. ITA NO. 4477(DEL)/2010 10 93. WE NOW ADDRESS OURSELVES TO THE QUESTION WHE THER THE ASSESSEE HAS DISCHARGED THE INITIAL ONUS THAT L AY UPON HIM TO SUBSTANTIATE ITS CLAIM OF DEDUCTION. WE MAY STATE THAT IRRESPECTIVE OF THE QUESTION WHETHER THE PROVI SIONS OF SECTION 40A(2)(B) OR SECTION 92 OR ARTICLE 9 OF DTA A COULD BE INVOKED OR NOT IN THIS CASE, IT IS QUITE C LEAR THAT THE BURDEN TO PROVE UNDER THOSE SPECIAL PROVISIONS IS CAST ON THE ASSESSING OFFICER AND NOT UPON THE ASSESSEE. AT THE SAME TIME UNDER THE PROVISIONS OF SECTION 37(1) , THE PRIMARY BURDEN TO SUBSTANTIATE A CLAIM OF DEDUCTION OF EXPENDITURE IS ON THE ASSESSEE. ACCORDING TO THE L D. COUNSEL FOR THE ASSESSEE, LD. ASSESSING OFFICER/LD CIT(A), IF THEY ENTERTAINED ANY DOUBT, SHOULD HAVE ACCEPTED THE ASSESSEES OFFER TO VISIT THE ASSESSEES FACTORY AN D OFFICE PREMISES. WE DO NOT UNDERSTAND AS TO WHY THE REQUE ST OF THE ASSESSEE COULD NOT BE ACCEPTED. IN OUR OPINION , THIS REQUEST ON THE PART OF THE ASSESSEE AS QUITE REASON ABLE ON THE ACTS AND IN THE CIRCUMSTANCES OF THE CASE. BE THAT AS IT MAY, FROM THE DETAILED SUBMISSIONS OF THE LD. CO UNSEL FOR THE ASSESSEE IN THIS BEHALF DURING THE COURSE O F A NUMBER OF SITTINGS ON VARIOUS DATES WHICH WE HAVE ATTEMPTED TO SUMMARISE FROM PARAS 41 TO 64 OF THIS ORDER, WE ARE SATISFIED THAT THE ASSESSEE HAD SUCCE SSFULLY DISCHARGED THE BURDEN OF PROOF WHICH LAY UPON HIM U NDER THE PROVISIONS OF SECTION 37(1) OF THE ACT. WE FIN D THAT THE ASSESSEES CASE IS WELL ARMED IN THIS RESPECT O N ACCOUNT OF APPROVAL ALSO GRANTED BY THE RBI TO THE AGREEMENTS IN QUESTION. AT ANY RATE FROM THE FACTS STATED AND THE EVIDENCE/MATERIAL PRODUCED IN THE ASSESSEE S PAPER BOOK, WE ARE OF THE VIEW THAT THE TECHNICAL ASSISTANCE AGREEMENTS IN QUESTION WERE ESSENTIAL FO R THE PURPOSE OF THE BUSINESS OF THE ASSESSEE DURING THE ASSESSMENT YEARS BEFORE US. THE ASSESSEE APPEARS T O HAVE BEEN HIGHLY BENEFITED BOTH IN RESPECT OF PROFI TABILITY AS WELL AS GROWTH OF ITS BUSINESS ON ACCOUNT OF CLO SE ASSOCIATION AND SUPPORT FROM NESTLE SA, SWITZERLAND , INTERNATIONALLY RENOWNED AND LEADING FOOD PROCESSIN G COMPANY. ITA NO. 4477(DEL)/2010 11 94. WE NOW COME TO THE QUESTION AS TO WHETHER T HE QUANTUM OF REMUNERATION AS AGREED UPON IN THE AGREEMENTS IN QUESTION AND ACTUALLY PAID DURING THE COURSE OF THE ASSESSMENT YEARS BEFORE US IS JUSTIFI ED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. IN OTHER WORDS, WHETHER BOTH THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 1997-98 AND TH E LD CIT(A) IN THE APPELLATE ORDER FOR ASSESSMENT YEAR 1 998- 99 ARE JUSTIFIED IN THEIR CONCLUSION THAT THE ASSES SEE IN COLLUSION WITH PARENT COMPANY IN SWITZERLAND ADOPT ED A COLOURABLE DEVICE WHEREBY THE PROFITS OF INDIAN COM PANY WERE SIPHONED AWAY TO BE AGGRANDIZED BY THE SWISS COMPANY. THE LD ASSESSING OFFICER HAS ARGUED IN TH E ASSESSMENT ORDER FOR ASSESSMENT YEAR 1997-98 THAT FROM THE VERY FACT THAT NO EVALUATION AND ANALYSIS OF TE CHNICAL ASSISTANCE HAD BEEN MADE AT THE TIME OF ENTERING IN TO AGREEMENTS AND SUBSEQUENTLY TO DETERMINE THE IMPACT OF TECHNICAL ASSISTANCE ON THE BUSINESS OF THE COMPANY , IT WAS CLEAR THAT THESE AGREEMENTS HAD BEEN ENTERED IN TO WITH THE SOLE OBJECT OF DIVERTING PROFIT OF THE ASS ESSEE COMPANY. IN THIS CONTEXT, THE LD. ASSESSING OFFICER EVEN ASKED THE ASSESSEE TO PRODUCE A CERTIFICATE FROM AN INDEPENDENT TECHNICAL AGENCY THAT THE PAYMENTS WERE COMMENSURATE TO ACTUAL SERVICES RECEIVED. BESIDES, BOTH THE LD. ASSESSING OFFICER IN THE ASSESSMENT PROCEED INGS FOR THE ASSESSMENT YEAR 1997-98 AND HT LD. CIT(A) IN THE ORDER FOR THE ASSESSMENT YEAR 1998-99 EMPHASISED TH AT THE ASSESSEE WAS ALREADY WELL ESTABLISHED AND WELL VERSED IN THE BUSINESS OF PRODUCTS IN QUESTION, AND WAS NOT NEW TO THE BUSINESS OF MANUFACTURE AND SALE OF THOSE PRODUCTS AND, THEREFORE, THE ASSESSEE COULD NOT BY ANY STRETCH OF IMAGINATION BE CONSIDERED TO NEED FURTHE R TECHNICAL ASSISTANCE OF THE MAGNITUDE SO AS TO PART WITH A SUBSTANTIAL CHUNK OF ITS BUSINESS PROFIT. 95. THE AUTHORITIES BELOW IN THEIR ORDERS AND THE L D. CIT-DR IN HIS ARGUMENTS BEFORE US HAVE RELIED UPON CERTAIN CHARTS INDICATING 78.37% AND 49.95% OF THE PROFIT HAD BEEN PAID OF BY HE ASSESSEE COMPANY UNDE R THE AGREEMENTS IN RELATION TO THE ASSESSMENT YEARS 199 7-98 ITA NO. 4477(DEL)/2010 12 AND 1998-99 RESPECTIVELY. DURING THE COURSE OF HEAR ING BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS AT TACKED THE VERY RATIONALE OF THE EXERCISED DONE IN THESE C HARTS BY THE INCOME TAX AUTHORITIES. ACCORDING TO HIM, THE QUANTUM OF REMUNERATION COULD NOT, IN ANY CASE, BE LINKED WITH THE PROFIT. THE PROFIT AS A DERIVATIVE FIGURE DEPENDING ON VARIOUS FACTORS OUTSIDE THE DIRECT AND REASONABLE CONTROL OF THE TECHNICAL ASSISTANCE PROV IDERS. CONTRACTING FOR A FIXED AMOUNT OF ROYALTY COULD BE DISASTROUS IF THE PRODUCT DID NOT CLICK IN THE MARK ET. IN THE SALE-LINKED AGREEMENT, THE TECHNICAL ASSISTANCE PROVIDERS INTEREST IN THE SUCCESS OF THE PRODUCT WA S HIGHEST AND ENSURED MAXIMUM ASSISTANCE WAS RECEIVED . MOREOVER, INTANGIBLE BENEFIT OF TECHNICAL ASSISTANC E COULD NOT BE GAUGED BY THE PERFORMANCE OF THE SAME YEAR IN WHICH THE INVESTMENT IN TECHNOLOGY WAS MADE. TH E BENEFIT COULD BE GAUGED ONLY OVER SUFFICIENTLY LONG TERM ALLOWING THE TECHNICAL INITIATIVE TO BEAR FRUITS. THAT PART, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT T HE WORKING DONE BY THE DEPARTMENT WAS HIGHLY UNREASONABLE INASMUCH AS THE PAYMENTS WERE COMPARED WITH THE PRIOR OF THE COMPANY AFTER PAYMENT OF REMUNERATION IN QUESTION. THE LD. COUNSEL, THEREFO RE, FURNISHED A SEPARATE CHART TO SHOW THAT EVEN ON IMP ERFECT AND IRRATIONAL BASIS OF COMPARISON WITH THE PROFIT ADOPTED BY THE ASSESSING AUTHORITY, THE PAYMENTS IN QUESTION CONSTITUTED ONLY 34.89% AND 26.59% OF THE PROFITS FOR ASSESSMENT YEARS 1997-98 AND 198-99 RESPECTIVELY. THE LD. COUNSEL FURTHER ARGUED THAT THE PERCENTAGE WAS HIGHER DURING ASSESSMENT YEARS 1997- 98 AND 1998-99 BECAUSE THE NET PROFIT AS PERCENTAGE OF TURNOVER ITSELF WAS LOWER IN THOSE ASSESSMENT YEAR S. AS TO THE QUESTION THAT NO INDEPENDENT EVALUATION OF T HE VALUE AND UTILITY OF TECHNICAL SERVICES WERE CARRIE D OUT, THE LD. COUNSEL ARGUED THAT SUCH WAS NEVER A PRACTI CE IN A CASE WHERE HIGHLY SPECIALIZED AND RESTRICTED TECH NOLOGY WAS IMPARTED. TECHNOLOGY PROVIDED TO THE ASSESSEE BY THE PARENT COMPANY AND ITS SUBSIDIARY HAD ALWAYS BE EN AND WAS INTENDED TO ALWAYS REMAIN THE PROPERTY OF T HE PARENT COMPANY AND ITS SUBSIDIARIES. THE ASSESSEE HAD ITA NO. 4477(DEL)/2010 13 BEEN GIVEN A RIGHT TO USE ONLY THAT TECHNOLOGY FOR MANUFACTURE AND SALE OF PRODUCTS UNDER THE PARENT COMPANYS BRAND NAME. THE TECHNOLOGY WAS HIGHLY SENSITIVE AND CONFIDENTIAL AND, THEREFORE, IN EVERY AGREEMENT, THE ASSESSEE WAS BOUND BY CONFIDENTIALIT Y CLAUSE. IN SUCH CIRCUMSTANCES, TO INVITE AN INDEPE NDENT AGENCY FOR EVALUATION AND CERTIFICATION AS DESIRED BY THE ASSESSING OFFICER WAS UNTHINKABLE. AS TO THE BASIS ON WHICH THE QUANTUM OF REMUNERATION FOR TECHNOLOGY ASSISTANCE WAS FIXED, THE LD. COUNSEL ARGUED THAT A T THE TIME OF ENTERING INTO THE AGREEMENT, IT WAS NOT POS SIBLE TO PREDICT ACCURATELY THE AMOUNT OF REMUNERATION TO BE PAID TO TECHNICAL ASSISTANCE PROVIDERS. THAT DEPENDED ON THE SUCCESS OF THE PRODUCT LAUNCHED AND ACTUAL WORKING OF THE PROJECT IN INDIA AND SUBJECT TO SEVERAL IMPONDE RABLES. IT WAS FOR THAT REASON THAT THERE WAS NO SPECIFIC W ORKING MADE AT THE TIME OF ENTERING INTO AGREEMENTS IN QUE STION AND INSISTENCE OF THE LD. ASSESSING OFFICER ON PROD UCTION OF THE SAME WAS NOT JUSTIFIED. THE ASSESSEE AS WEL L AS THE TECHNICAL ASSISTANCE PROVIDERS WERE IN THE LINE OF BUSINESS AND HAD EXPERIENCE FOR A LONG TIME AND BAS ED ON THEIR EXPERIENCE AND PERCEPTION, BY MUTUAL DISCU SSION, THE RATE OF REMUNERATION WAS FIXED. IT WAS NOT POSS IBLE TO PHYSICALLY DEMONSTRATE THAT INTANGIBLE EXERCISES. THE FACT OF THE MATTER WAS THAT THE REMUNERATION WAS FI XED AT A VERY REASONABLE RATE IN SPITE OF THE GOVERNMENT REGULATIONS HAVING PERMITTED PAYMENT OF REMUNERATIO N AT MUCH HIGHER RATE. THE JUSTIFICATION OF REMUNERATIO N PAID WAS TO BE SEEN IN THE VOLUMINOUS MATERIAL AND EVIDE NCE FILED BY THE ASSESSEE DURING THE COURSE OF THE ASSE SSMENT PROCEEDINGS AND THE PROCEEDINGS BEFORE US. IT WAS TOTALLY INAPPROPRIATE TO TEST THE REASONABLENESS OF THE REMUNERATION ON THE YARDSTICK OF PROFIT OF THE YEAR IN WHICH THE PAYMENT WAS MADE. THIS ISSUE REQUIRED A LONG-TERM VIEW TO BE TAKEN. ON CAREFUL CONSIDERATIO N OF THE DETAILED SUBMISSIONS MADE BY THE ASSESSEE IN TH IS BEHALF AND BRIEFLY ENUMERATED BY US IN PARAS 37 TO 65 OF THIS ORDER, WE FIND OURSELVES IN SUBSTANTIAL AGREEM ENT WITH THE ASSESSEE. IN THE FIRST INSTANCE, THE ASSE SSEE ONLY HAD LICENSE TO USE THE TECHNOLOGY AND, THEREFORE, T HE ITA NO. 4477(DEL)/2010 14 ASSESSEE COULD NOT HAVE CONTINUED THE MANUFACTURE O F ANY NESTLE BRAND PRODUCT WITHOUT THE CONSENT OF THE PARENT COMPANY WE DO NOT SUBSCRIBE TO THE ARGUMENT OF THE LD. CIT DR THAT AS INTELLECTUAL PROPERTY RIGHTS WERE NOT RECOGNIZED IN INDIA, THE ASSESSEE COULD HAVE SN APPED TILES WITH THE FOREIGN COMPANY AND CARRY ON ITS BUS INESS AS BEFORE. WE ALSO FIND THAT THE TECHNICAL ASSISTA NCE PROVIDED BY THE PARENT COMPANY WAS ALL PERVASIVE IN THE OPERATIONS OF THE ASSESSEE COMPANY AND PERMEATED IN TO ALMOST EVERY DETAIL. THE ASSESSEE COMPANY IN INDIA WAS REAPING HARVEST OF FINE PRODUCTION TECHNOLOGY EVOLV ED BY THE PARENT COMPANY OVER 125 YEARS BY VIRTUE OF PRES ENCE IN MORE THAN 70 COUNTRIES. FOR CONTINUING TO ARRES T THE BENEFIT, IT WAS ESSENTIAL FOR THE ASSESSEE TO HAVE A PERENNIAL SOURCE OF SUPPLY OF ALL THE TECHNOLOGICAL INNOVATION, ADVANCEMENT AND UPGRADE. IT WOULD NOT B E AN EXAGGERATION TO SAY THAT IN MODERN TIME, NO BUSI NESS MAN CAN AFFORD TO BE OBLIVIOUS OF THE FAST MOVING TECHNOLOGY RELATED TO HIS BUSINESS ON THE GROUND OF CONTENTMENT WITH THE KNOWLEDGE AND EXPERIENCE ALREA DY GATHERED. THE ASSESSEE DID NOT CONTRIBUTE A SINGLE PENNY TO R&D COST OF NESTLE SA STATED TO BE OVER RS.2000 CRORES PER YEAR. NESTLE INDIA RECEIVED TESTED TECH NOLOGY AND, THEREFORE, DID NOT HAVE TO SUFFER LOSS OF AN F AILED TECHNOLOGY OR PROJECT. THE ASSESSEE HAD ACCESS TO ALL THE REQUIRED TECHNOLOGY AVAILABLE WITH THE PARENT COMPA NY NOT ONLY IN RESPECT OF MANUFACTURING BUT ALSO IN VA RIOUS OTHER FIELDS LIKE QUALITY CONTROL, PERSONNEL, STAFF MANAGEMENT, MARKETING, STORAGE AND SO ON. THE KIND OF TECHNICAL ASSISTANCE RECEIVED BY THE ASSESSEE WAS O F SUCH NATURE AS TO SUSTAIN ITS POSITION AS NUMBER ONE MANUFACTURER IN INDIA IN RESPECT OF THE PRODUCTS BE ING MANUFACTURED BY IT. DURING THE COURSE OF HEARING B EFORE US THE LD. COUNSEL FOR THE ASSESSEE HAS GIVEN SEVER AL EXAMPLES OF MAJOR TECHNOLOGICAL ADVANCEMENTS THAT H AD TAKEN PLACE IN THE AREA OF THE ASSESSEES PRODUCTS. HE EXPLAINED TO US IN DETAIL THE MAJOR CHANGES THAT TO OK LACE IN THE FIELD OF COFFEE MANUFACTURING AND STATE OF A RT TECHNOLOGY THAT ALLOWED TO CAPTURE THE AROMA OF FRE SH COFFEE IN THE PRODUCTS OF THE ASSESSEE. THE LD. CO UNSEL ITA NO. 4477(DEL)/2010 15 DWELT AT LENGTH ON THE UNIQUE TECHNOLOGY IN RELATIO N TO EXTRACTION PROCESS CALLED MUCH PROCESS RESULTING IN TO BETTER FINISHED PRODUCT FROM THE SAME COFFEE BEANS. HE MADE REFERENCE TO THE CHANGES IN THE MANUFACTURING PROCESS OF WEANING FOODS THAT ENSURED BIO AVAILABIL ITY OF CARBOHYDRATES THROUGH THE PROCESS OF ENZYMATION TO PROVIDE HIGHER NUTRITION IN MEALS AND ENHANCED DIGESTIBILITY. THESE WERE JUST A FEW EXAMPLES FROM OUT OF THE MANY ADVANCEMENTS AND CHANGES TAKING PLACE EVER Y YEAR. THE LD. COUNSEL POINTED OUT THAT DURING THE P ERIOD UNDER CONSIDERATION, MORE PRODUCES WERE LAUNCHED BY NESTLE THAN IN THE IMMEDIATELY PRECEDING TWO DECADE S. HE ALSO EMPHASIZED WITH CONSIDERABLE JUSTIFICATION THAT SEVERAL THOUSAND INDIAN SHAREHOLDERS OF THE ASSESSE E COMPANY TREMENDOUSLY BENEFITED AN INVESTOR WHO PURCHASED 100 SHARES IN 1970 HAD GROWN INTO SHAREHOLDING OF 3700 SHARES OF THE MARKET VALUE OF RS.19 LAKHS AFTER HAVING RECEIVED THE DIVIDEND TOTALLING TO RS.2,66,653/-. THE LD. COUNSEL ARGUED THAT THESE A SPECTS WERE REQUIRED TO BE APPRECIATED RATHER THAN MERELY SUSPECTING THAT THE REMUNERATION FOR TECHNICAL ASSI STANCE WAS NOTHING BUT A CAMOUFLAGE TO SIPHON AWAY AND REPATRIATE THE PROFITS OF INDIAN OPERATIONS. ON CA REFUL CONSIDERATION, WE SEE CONSIDERABLE FORCE AND JUSTIF ICATION IN THESE ARGUMENTS OF THE ASSESSEE. 96. THERE IS ONE MORE IMPORTANT ASPECT OF THE CASE. AFTER ALL WHAT IS THE MATERIAL AGAINST THE ASSESSEE IN THE ORDERS OF THE AUTHORITIES BELOW. APART FROM PREPAR ING SAME CHARTS, NO MATERIAL OR EVIDENCE HAS BEEN BROUG HT ON RECORD BY THE AUTHORITIES BELOW TO SUBSTANTIATE THEIR ALLEGATIONS AGAINST THE ASSESSEE. AS WE HAVE POINT ED OUT THAT THE ASSESSEE ONLY HAD INITIAL ONUS TO SUBSTANT IATE ITS CLAIM OF DEDUCTION OF EXPENDITURE AS LAID DOWN UNDE R SECTION 37(1). THE BURDEN TO PROVE THAT THE CLAIM OF EXPENDITURE WAS A COLOURABLE DEVICE OR A CAMOUFLAGE FOR DIVERSION OF PROFITS RESTED UPON THE REVENUE. IN T HE ORDER OF THE AUTHORITIES BELOW, NO MATERIAL HAS BEEN BROU GHT ON RECORD EXCEPT DISBELIEVING THE ASSESSEES EXPLANATI ON AND THEIR SUBJECTIVE OPINIONS. THE BURDEN OF THEIR ORDE R IS ITA NO. 4477(DEL)/2010 16 THAT THE ASSESSEE SO ARRANGED ITS COURSE OF BUSINES S THAT IT WAS LEFT WITH A LESS THAN ORDINARY PROFIT EXPECT ED IN THE ASSESSEES LINE OF BUSINESS. NO ONE, HOWEVER, HAS TAKEN CARE TO SPECIFY AS TO HOW MUCH THAT ORDINARY PROFIT WAS SUPPOSED TO BE AND ON WHAT BASIS THE SAME COULD BE DETERMINED. IT APPEARS TO US THAT THE ASSESSMENT O RDER FOR ASSESSMENT YEA 1997-98 AND THE LD. ASSESSING OF FICER AS WELL AS THE CIT(A) FOR THE ASSESSMENT YEAR 1998- 99 HAVE ARGUED WITHOUT ADEQUATE MATERIAL THAT THE ASSE SSEE MIGHT HAVE TAKEN THE ADVANTAGE OF LIBERALIZATION O F INDUSTRIAL POLICY FROM THE YEAR 1991 IN JUDICIAL PROCEEDINGS, SUSPICION HOWSOEVER STRONG CANNOT TAKE PLACE OF MATERIAL/EVIDENCE. WE, THEREFORE, HOLD TH AT THE DISALLOWANCE OF THE ASSESSEES CLAIM OF DEDUCTION O N ACCOUNT OF REMUNERATION PAID FOR TECHNICAL ASSISTAN CE IS NOT CALLED FOR IN BOTH THE ASSESSMENT YEARS 1997-98 AND 1998-99. WE DIRECT ACCORDINGLY. THE MATTER WAS AGITATED IN APPEAL AND THE HONBLE HIGH COURT CONSIDERED THE FOLLOWING QUESTIONS OF LAW:- (I) WHETHER THE ITAT WAS CORRECT IN LAW IN DELETING T HE ADDITION OF RS. 37.82 CRORES MADE BY THE AO ON ACCOUNT OF AL LEGED REMUNERATION/ROYALTY PAID BY THE ASSESSEE TO 100% SUBSIDIARIES OF THE ASSESSEES HOLDING COMPANIES BY RELYING UPON SECTION 40A(2)(B) AND SECTION 92 OF THE ACT, 1961 AND ART ICLE 9 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT. (II) WHETHER THE ITAT WAS CORRECT IN LAW IN HOLDING TH AT THE AO COULD NOT HAVE EXAMINED REASONABLENESS AND GEN UINENESS OF THE ALLEGED EXPENSES/PAYMENTS MADE BY THE ASSESS EE TO 100% SUBSIDIARIES OF THE ASSESSEES HOLDING COMPANIES I N VIEW OF THE PERMISSION GIVEN BY THE RESERVE BANK OF INDIA? ITA NO. 4477(DEL)/2010 17 THE MATTER WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE HIGH COURT. HOWEVER, THE REVENUE MOVED SPECIAL LEAVE P ETITION, WHICH WAS DISMISSED ON 02.04.2009 WITH THE FOLLOWING ORDER: - DELAY CONDONED. DISMISSED. 3.1 THE CASE OF THE LD. CIT, DR IS THAT THE HO NBLE SUPREME COURT DID NOT REALLY GO INTO THE MERITS OF THE CASE. EVEN IF THIS IS ASSUMED TO BE CORRECT, THE CONCLUSION WOULD BE THAT THE JURISDI CTIONAL HIGH COURT DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE AND SUCH DE CISION HOLDS THE FIELD. 3.2 WE MAY NOT GO INTO THE ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2000-01, 2002-03, 2003-04 AND 2004-05 FOR THE SAK E OF BREVITY, AND PROCEED TO THE ORDER FOR ASSESSMENT YEAR 2005-0 6 IN ITA NO. 319(DEL)/2010 DATED 22.03.2010. THIS APPEAL WAS AGAINST THE ACTION OF THE LD. CIT(APPEALS), IN WHICH ADDITION OF RS. 30,11,50,000/- WAS MADE BY THE AO REPRESENTING 40% OF THE LICENCE FEE PAID BY THE ASSESSEE- COMPANY TO ITS PARENT COMPANY. RELYING ON THE EAR LIER ORDER, THE APPEAL OF THE REVENUE WAS DISMISSED WITH THE FOLLOWING RE MARKS:- 5. AS THE FACTS AND CIRCUMSTANCES DURING THE YE AR UNDER CONSIDERATION ARE IN PARI-MATERIA AND A VIEW HA S ALREADY ITA NO. 4477(DEL)/2010 18 BEEN TAKEN BY THE COORDINATE BENCH IN THIS MATTER, WHOSE ORDER IS HAVING BINDING PRECEDENT, RESPECTFULLY F OLLOWING THE SAME, THIS GROUND OF REVENUES APPEAL STANDS DI SMISSED. 3.3 THIS ORDER ALONG WITH OTHERS WAS CARRIED TO HONBLE DELHI HIGH COURT IN APPEAL BEARING ITA NOS. 662 OF 2005, 288 OF 2011, 294 OF 2008, 96 OF 2008 AND 1202 OF 2005, (337 ITR 103). APPE AL BEARING ITA 288 OF 2011 PERTAINS TO ASSESSMENT YEAR 2005-06. THE H ONBLE COURT MENTIONED THAT THE TRIBUNAL HAD HELD THAT THE ASSESSEE HA VING DISCHARGED THE INITIAL ONUS, BURDEN SHIFTED TO THE REVENUE TO SHOW THAT THE PAYMENT OF ROYALTY WAS EXCESSIVE OR UNREASONABLE HAVING REGARD TO LEGIT IMATE NEEDS OF THE BUSINESS OR THAT THE ASSESSEE HAD MADE LESS THAN ORDINARY PROFITS AND THE REVENUE HAS NOT DISCHARGED THE SAID ONUS. IT I S RECORDED THAT (I) NO MATERIAL OR EVIDENCE HAS BEEN BROUGHT ON RECORD B Y REVENUE TO SUBSTANTIATE APPLICABILITY OF ABOVE PROVISION; AND (II) THE R EVENUE HAS NOT SPECIFIED AS TO HOW MUCH ORDINARY PROFIT WAS SUPPOSED TO BE ON THE BASIS OF ITS DETERMINATION, BEFORE TREATING ROYALTY PAYMENT A S EXCESSIVE OR UNREASONABLE. THE CBDT HAS CLARIFIED IN CIRCULAR NO. 14 DATED 27.11.2001 THAT SECTION 92 OF THE ACT DOES NOT AP PLY IN RESPECT OF PAYMENT OF ROYALTY ETC., WHICH ARE PART OF THE REGULAR BUSINESS CARRIED ON BETWEEN A RESIDENT AND NON-RESIDENT. FINALLY, THE COURT AGREED WITH THE REASONING GIVEN BY THE TRIBUNAL. ITA NO. 4477(DEL)/2010 19 3.4 THE LD. COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT THE DECISION OF HONBLE SUPREME COURT HAS BEEN RECEIVED IN TH E CASE OF MARUTI SUZUKI INDIA LTD. VS. ADDITIONAL CIT, (2011) 335 ITR 121. IN THIS DECISION, IT IS MENTIONED THAT THE HIGH COURT HAS NOT MERELY SET ASIDE THE ORIGINAL SHOW-CAUSE NOTICE BUT IT HAS MADE CERTAIN OBSERVA TIONS ON MERITS AND HAS GIVEN DIRECTIONS TO THE TRANSFER PRICING OFFICE R, WHICH VIRTUALLY CONCLUDE THE MATTER. IN THE CIRCUMSTANCES, ON THAT LIMITE D ISSUE, THE COURT DIRECTED THE TRANSFER PRICING OFFICER, WHO HAS ALREADY IS SUED A SHOW-CAUSE NOTICE ON 16.09.2010, TO PROCEED WITH THE MATTER IN ACCORDANCE WITH LAW UNINFLUENCED BY DIRECTIONS AND OBSERVATIONS OF TH E HIGH COURT. THEREFORE, THE DECISION OF THE HIGH COURT, RELIED UPON BY THE LD. DR DOES NOT SURVIVE AND THIS DECISION CANNOT BE MADE A BASIS FOR DECIDING THIS APPEAL. IT IS ALSO SUBMITTED THAT THE QUESTION OF DEDUCT ION OF ADVERTISEMENT EXPENSES IS ENTIRELY DIFFERENT FROM THE DETERMIN ATION OF ARMS LENGTH VALUE OF LICENCE FEE PAID BY THE ASSESSEE. THE FORMER QUESTION HAS TO BE DECIDED IN THE LIGHT OF THE PROVISION CONTAINED I N SECTION 37(1) THAT THE EXPENDITURE IS INCURRED WHOLLY AND EXCLUSIVELY FO R THE PURPOSE OF THE BUSINESS. THE ASSESSEE DOES NOT HAVE TO PROVE THE NECESSITY OF INCURRING THE EXPENDITURE AND INCIDENTAL BENEFIT ACCRUING TO ASSOCIATED ENTERPRISES ITA NO. 4477(DEL)/2010 20 IS OF NO CONSEQUENCE, AS HELD IN S.A. BUILDERS LTD. VS. CIT(APPEALS) & ANOTHER, (2007) 288 ITR 1 (SC). THE LATTER QU ESTION HAS TO BE DECIDED IN THE LIGHT OF PROVISIONS CONTAINED IN CHAPTER-X REGARDING COMPUTATION OF INCOME FROM INTERNATIONAL TRANSACTION HAVING R EGARD TO ARMS LENGTH PRICE AND RULES MADE THEREIN. IN THIS CASE, TH E TRANSFER PRICING OFFICER HAS FOUND THE PRICE PAID BY THE ASSESSEE TO BE THE SAME AS ARMS LENGTH VALUE. THEREFORE, THE ISSUE IS SQUARELY COVERED BY EARLIER DECISIONS AND THIS APPEAL MAY ALSO BE DECIDED IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IT IS AN ADMITTED FACT THAT THE QUES TION POSED BY THE REVENUE STANDS SQUARELY COVERED BY EARLIER DECISIONS OF TH E TRIBUNAL AND THE HIGH COURT. HOWEVER, AT THE INSISTENCE OF THE LD. CI T, DR THAT THE MATTER REQUIRES FRESH LOOK IN VIEW OF FURTHER DEVELOPM ENTS IN LAW, WE HAVE TRACED THE DETAILED HISTORY AND MENTIONED THE CASES RELIED UPON BY HIM. WE FIND THAT THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LTD. (SUPRA) DOES NOT ADVAN CE THE CASE OF THE REVENUE AS IT HAS BEEN BROUGHT TO A NAUGHT BY TH E DECISION OF THE HONBLE SUPREME COURT, WHICH HAS DIRECTED THE TRANSFE R PRICING OFFICER TO ITA NO. 4477(DEL)/2010 21 INDEPENDENTLY MAKE THE VALUATION WITHOUT BEING INF LUENCED BY THE DECISION OF THE HIGH COURT. LOOKING TO THE EARLIER DECI SIONS IN THIS CASE, WHICH WE ARE BOUND TO FOLLOW, IT IS HELD THAT THE LD. CIT(APPEALS) RIGHTLY DELETED THE ADDITION OF RS. 33.82 CRORE BY RELY ING ON EARLIER ORDERS OF THE TRIBUNAL. 5. IN THE RESULT, THE APPEAL IS DISMISSED. SD/- SD/- (A.D. JAIN) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER SP SATIA COPY OF THE ORDER FORWARDED TO:- 1. NESTLE INDIA LTD., GURGAON. 2. DCIT, LARGE TAX PAYER UNIT, NEW DELHI. 3. CIT 4. CIT(A) 5. THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.