M/s PepsiCo India Holdings Pvt. Ltd., Gurgaon V. ACIT, New Delhi

ITA 4516/DEL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0851 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 06-07-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 23-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: H K CHAUDHARY
• Assessee Lawyers: RASHI KHANNA; Deepak Chopra
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Residential status; Rectification of order; International transaction; Earning of tax free income; Retrospective amendment; Question of law; Cost of acquisition; Initiation of penalty proceedings; Fair market value; Bad and doubtful debts; Notional interest; Capital receipt; Commercial expediency; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 271(1)(c); 92C; 92; 92D; 92B; 92F; 234B; 14A; 260A; 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.AS. NO. 1334/CHANDI/2010, 1203/ CHANDI /2011, 2511/DEL/2013, 1044/DEL/2014 & 4516/DEL/2016 ASSESSMENT YEARS: 2006-07 TO 2010-11 M/S PEPSICO INDIA HOLDINGS PVT LTD, (ERSTWHILE M/S PEPSI FOODS PVT. LTD.), LEVEL 3-6, PIONEER SQUARE, SECTOR- 62, NEAR GOLF COURSE EXTENSION ROAD, GURUGRAM, HARYANA - 122101 VS. ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 1, CHANDIGARH TAN/PAN: AAACP 1272G (APPELLANT) (RESPONDENT) I.T.AS. NO. 4517/DEL/2016, 4518/DEL/2016, 6537/DEL/ 2016, 6582/DEL/2017 ASSESSMENT YEARS: 2011-12 TO 2013-14 M/S PEPSICO INDIA HOLDINGS PVT LTD, LEVEL 3-6, PIONEER SQUARE, SECTOR- 62, NEAR GOLF COURSE EXTENSION ROAD, GURUGRAM, HARYANA - 122101 VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 7, NEW DELHI TAN/PAN: AAACP 1272G (APPELLANT) (RESPONDENT) APPELLANT(S) BY: MR. DEEPAK CHOPRA, ADV. MS. RASHI KHANNA, ADV. MR. ANMOL ANAND, ADV. RESPONDENT BY: MR. H.K. CHAUDHARY, CIT-DR DATE OF HEARING: 20 08 2018 DATE OF PRONOUNCEMENT: 19 11 2018 O R D E R 2 PER AMIT SHUKLA, J.M.: THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESSEE COMPANY AND PEPSI FOODS PVT. LTD. (PFL), NOW MERGED W ITH THE PEPSICO INDIA HOLDINGS PVT. LTD. (PIH), (HEREINAFTER COLLECTIVELY REFERRED TO AS THE ASSESSEE) AGAINST SEPARATE IMPUGNED ORDERS FOR THE ASSESSMENT YEARS 2006-07 TO 2013-14. SINCE THE ISS UES INVOLVED IN ALL THE APPEALS ARE BY AND LARGE COMMON ARISING OUT OF IDENTICAL SET OF FACTS, THEREFORE, THEY WERE HEARD TOGETHE R AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. FOR SAKE OF READ REFERENCE, THE MAIN ISSUES RAISED IN ALL THE YEARS BY THE ASSESSEE ARE REPRODUCED HEREUNDER: - A. I.T.AS. NO. 1203/CHANDI/2011 & 2511/DEL/2013: (AY 2007-08) , IN THIS APPEAL THE ASSESSEE COMPANY (PFL) HAS RAISED THE FOLLOWING ISSUES IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 3 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 4 TO 4.10, THE ASSESSEE HAS CHALLENGE D THE AMP ADJUSTMENT COMPUTED BY THE TPO USING BLT. THE FACTS PERTAINING TO THIS ISSUE ARE IDENTICAL TO FACT S IN ITA 1334/CHANDI/2010 FOR AY 2006-07 (DISCUSSED ABOVE). (III) IN GROUNDS NO. 5 TO 5.5, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO ON ACCOUNT OF PRICE SUPPORT GIVEN TO BOTTLERS AMOUNT TO INR 6,00,52,116/-. THIS ISSUE, THE ASSESSEE HAS SUBMITTED, IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDIN ATE BENCH DATED 05.10.2016 PASSED IN ITA 1334/CHANDI/2010 AS AFFIRMED BY THE HONBLE HIGH 3 COURT OF DELHI VIDE ORDER DATED 13.11.2017 PASSED IN ITA NO. 474/2017. (IV) IN GROUND NO. 6, THE ASSESSEE HAS CHALLENGED THE ADDITION ON ACCOUNT OF UN-UTILIZED MODVAT CREDIT. THE ASSESSEE HAS NOT PRESSED THIS GROUND AND THEREFORE THE SAME IS NOT ADJUDICATED. (V) GROUNDS NO. 7 TO 7.1 PERTAIN TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND IS CONSEQUENTIAL IN NATURE. B. IN I.T.A. NO. 2511/DEL/2013 PERTAINING TO AY 2 008- 09, THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING ISSUE S IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 5 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 5 TO 5.30, THE ASSESSEE HAS CHALLENGE D THE AMP ADJUSTMENT COMPUTED BY THE TPO USING BLT. THE FACTS PERTAINING TO THIS ISSUE ARE IDENTICAL TO FACT S IN ITA 1334/CHANDI/2010 FOR AY 2006-07. (III) IN GROUNDS NO. 6 TO 6.4, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO ON ACCOUNT OF PRICE SUPPORT GIVEN TO BOTTLERS AMOUNT TO INR 14,23,72,674/-. THIS ISSUE, THE ASSESSEE HAS SUBMITTED, IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDIN ATE BENCH DATED 05.10.2016 PASSED IN ITA 1334/CHANDI/2010 AS AFFIRMED BY THE HONBLE HIGH COURT OF DELHI VIDE ORDER DATED 13.11.2017 PASSED IN ITA NO. 474/2017. (IV) IN GROUND NO. 7, THE ASSESSEE HAS CHALLENGED THE ADDITION ON ACCOUNT OF UN-UTILIZED CENVAT CREDIT UNDE R 4 SECTION 145A OF THE ACT. THE ASSESSEE HAS NOT PRESSED THIS GROUND AND THEREFORE THE SAME IS NOT ADJUDICATED. (V) IN GROUND NO. 8, THE ASSESSEE HAS CHALLENGED THE ADJUSTMENT MADE TO BOOK PROFIT AMOUNTING TO INR 70,30,540 (PROVISIONS FOR BAD AND DOUBTFUL DEBTS) UND ER SECTION 115JB OF THE ACT. THE ASSESSEE HAS NOT PRESSE D THIS GROUND AS THE SAME IS ACADEMIC IN NATURE AND THEREFORE THE SAME IS NOT ADJUDICATED. (VI) GROUNDS NO. 9 TO 9.1 PERTAIN TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND IS CONSEQUENTIAL IN NATURE. C. I.T.A. NO. 1044/DEL/2014 PERTAINING TO AY 2009- 10 , THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING ISSUES IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 3 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 4 TO 6.22, THE ASSESSEE HAS CHALLENGE D THE AMP ADJUSTMENT COMPUTED BY THE TPO USING BLT. (III) IN GROUNDS NO. 7 TO 7.3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INR 3,85,15,497/- BEING SPONSORSHIP FEES PAID BY THE ASSESSEE TO ICC. (IV) IN GROUNDS NO. 8 TO 8.5, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO ON ACCOUNT OF PRICE SUPPORT GIVEN TO BOTTLERS AMOUNT TO INR 10,49,82,000/-. THIS ISSUE, THE ASSESSEE HAS SUBMITTED, IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDIN ATE BENCH DATED 05.10.2016 PASSED IN ITA 1334/CHANDI/2010 AS AFFIRMED BY THE HONBLE HIGH COURT OF DELHI VIDE ORDER DATED 13.11.2017 PASSED IN ITA NO. 474/2017. 5 D. I.T.A. NO. 4516/DEL/2016 PERTAINING TO AY 2010-1 1 , THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING ISSUES IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 2 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 3 TO 26, THE ASSESSEE HAS CHALLENGED THE AMP ADJUSTMENT COMPUTED BY THE TPO VIDE ORDER DATED 30.06.2015 AND INCORPORATED IN THE FINAL ASSESSMENT ORDER DATED 28.07.2016 PASSED BY THE AO. (III) IN GROUND NO. 27, THE ASSESSEE HAS CHALLENGED THE WRONGFUL LEVY OF INTEREST UNDER SECTION 234A OF THE AC T COMPUTED BY THE AO. (IV) IN GROUNDS NO. 28 AND 29, THE ASSESSEE HAS CHALLENG ED THE LEVY OF INTEREST UNDER SECTION 234B AND 234D OF THE ACT COMPUTED BY THE AO AND ARE CONSEQUENTIAL IN NATURE. (V) GROUND NO. 30 PERTAINS TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND IS CONSEQUENTIAL IN NATURE. E. I.T.A. NO. 4517/DEL/2016 PERTAINING TO AY 2010-1 1 , THE ASSESSEE COMPANY (PEPSICO INDIA HOLDINGS PVT. LTD. ) HAS RAISED THE FOLLOWING ISSUES IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 2 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 3 TO 26, THE ASSESSEE HAS CHALLENGED THE AMP ADJUSTMENT COMPUTED BY THE TPO VIDE ORDER DATED 30.06.2015 AND INCORPORATED IN THE FINAL ASSESSMENT ORDER DATED 28.07.2016 PASSED BY THE AO. 6 (III) IN GROUNDS NO. 27 TO 31, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INR 1,18,82,315/- COMPUTED BY THE AO AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. (IV) GROUND NO. 32 PERTAINS TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND IS CONSEQUENTIAL IN NATURE. F. I.T.A. NO. 4518/DEL/2016 PERTAINING TO AY 2011-1 2 , THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING ISSUES IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 2 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 3 TO 26, THE ASSESSEE HAS CHALLENGED THE AMP ADJUSTMENT COMPUTED BY THE TPO VIDE ORDER DATED 30.06.2015 AND INCORPORATED IN THE FINAL ASSESSMENT ORDER DATED 28.07.2016 PASSED BY THE AO. (III) IN GROUNDS NO. 27 TO 31, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INR 69,84,350/- COMPUTED BY THE AO AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. (IV) IN GROUNDS NO. 32 TO 33, THE ASSESSEE HAS CHALLENGED THE WRONGFUL LEVY OF INTEREST UNDER SECTION 234A/ 234B OF THE ACT. (V) IN GROUND NO. 34, THE ASSESSEE HAS CHALLENGED THE SURCHARGED LEVIED AT A HIGHER RATE OF 10% INSTEAD OF 7.5%. HOWEVER, THE ASSESSEE HAS SUBMITTED THAT THE AO VIDE RECTIFICATION ORDER DATED 19.01.2017, HAS RECTIFI ED THE SAID ERROR AND HENCE THE SAID ISSUE HAS NOT BEEN PRESSED. THEREFORE, THE SAME IS NOT ADJUDICATED. (VI) IN GROUND NO. 35, THE ASSESSEE HAS CHALLENGED THE CRE DIT OF TAX DEDUCTION AT SOURCE (TDS), ADVANCE TAX AND SELF- 7 ASSESSMENT TAX AMOUNTING TO INR 84,90,70,726/- NOT GIVEN BY THE AO. (VII) GROUND NO. 36 PERTAINS TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND IS CONSEQUENTIAL IN NATURE. G. I.T.A. NO. 6537/DEL/2016 PERTAINING TO AY 2012- 13, THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING ISSUES IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 3 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 4 TO 6, THE ASSESSEE HAS CHALLENGED TH E FINAL ASSESSMENT ORDER DATED 22.11.2016 PASSED BY THE AO ON THE GROUND OF LIMITATION. HOWEVER, THE SAME HAS NOT BEEN PRESSED BY THE ASSESSEE AND THEREFORE THE SA ME IS NOT ADJUDICATED. (III) IN GROUNDS NO. 7 TO 32, THE ASSESSEE HAS CHALLENGED THE AMP ADJUSTMENT COMPUTED BY THE TPO VIDE ORDER DATED 29.01.2016 AND INCORPORATED IN THE FINAL ASSESSMENT ORDER DATED 22.11.2016 PASSED BY THE AO. (IV) IN GROUNDS NO. 33 TO 36, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INR 24,36,362/- COMPUTED BY THE AO AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. (V) IN GROUNDS NO. 37 TO 39, THE ASSESSEE HAS CHALLENGED THE ADDITION OF INR 2,95,10,993/- ON ACCOUNT OF INDUSTRIAL PROMOTION ASSISTANCE (IPA) SUBSIDY RECEIVE D BY THE ASSESSEE UNDER THE WEST BENGAL INCENTIVE SCHEME, 2004. (VI) IN GROUND NO. 40, THE ASSESSEE HAS CHALLENGED THE LEV Y OF INTEREST UNDER SECTION 234B OF THE ACT AND AS SUCH I S CONSEQUENTIAL IN NATURE. 8 (VII) GROUND NO. 41 PERTAINS TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND IS CONSEQUENTIAL IN NATURE. (VIII) GROUND NO. 42 IS AN ADDITIONAL GROUND RAISED BY THE ASSESSEE AND IS DIRECTED AGAINST THE WITHDRAWAL OF THE BENEFIT OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION VIDE RECTIFICATION ORDER DATED 08.12.2017 PASSED BY THE AO, EARLIER GRANTED TO THE ASSESSEE VIDE FINAL ASSESSMENT ORDER DATED 22.11.2016. H. I.T.A. NO. 6582/DEL/2017 PERTAINING TO AY 2013-1 4 , THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING ISSUES IN ITS GROUNDS OF APPEAL: (I) GROUNDS NO. 1 TO 2 ARE GENERAL IN NATURE. (II) IN GROUNDS NO. 3 TO 28, THE ASSESSEE HAS CHALLENGED THE AMP ADJUSTMENT COMPUTED BY THE TPO VIDE ORDER DATED 26.10.2016 AND INCORPORATED IN THE FINAL ASSESSMENT ORDER DATED 27.09.2017 PASSED BY THE AO. (III) IN GROUNDS NO. 29 TO 34, THE ASSESSEE CHALLENGED THE TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 49,71,908/- ON ACCOUNT OF PROVISION OF INFORMATION TECHNOLOGY (IT) SUPPORT SERVICES SEGMENT COMPUTED BY THE TPO. HOWEVER, THE ASSESSEE HAS SUBMITTED THAT THE SAME HAS BEEN RENDERED ACADEMIC SINCE THE ENTIRE AMOUNT OF ADJUSTMENT HAS BEEN DELETED IN THE FINAL ASSESSMENT ORDER AFTER THE GRANT OF WORKING CAPITAL ADJUSTMENT AS DIRECTED BY THE DISPUTE RESOLUTION PANEL VIDE ORDER DATED 21.08.2017. THEREFORE, THE SAME IS NOT ADJUDICATED. 9 (IV) IN GROUNDS NO. 35 TO 41, THE ASSESSEE CHALLENGED THE TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 10,42,067/- ON ACCOUNT OF RECEIVABLES COMPUTED BY THE TPO AND INCORPORATED IN THE FINAL ASSESSMENT ORDER BY THE AO. (V) IN GROUNDS NO. 42 TO 44, THE ASSESSEE HAS CHALLENGED THE ADDITION OF INR 3,93,52,756/- ON ACCOUNT OF IPA SUBSIDY RECEIVED BY THE ASSESSEE UNDER THE WEST BENGAL INCENTIVE SCHEME, 2004. (VI) IN GROUND NO. 45, THE ASSESSEE HAS CHALLENGED THE ERRONEOUS COMPUTATION OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION BY THE IN THE FINAL ASSESSMEN T ORDER. (VII) IN GROUND NO. 46, THE ASSESSEE HAS CHALLENGED THE LEV Y OF INTEREST UNDER SECTION 234B OF THE ACT AND AS SUCH I S CONSEQUENTIAL IN NATURE. (VIII) GROUND NO. 47 PERTAINS TO INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AND IS CONSEQUENTIAL IN NATURE. 2. ONE OF THE KEY ISSUE PERMEATING IN ALL THE YEARS R ELATES TO TRANSFER PRICING ADJUSTMENT OF ADVERTISEMENT, MARKETIN G AND PROMOTION EXPENSES (HEREINAFTER REFERRED TO AS AMP EXPENSES), WHICH THOUGH HAS BEEN MADE ON DIFFERENT REASONS AND B Y APPLYING DIFFERENT METHODS, LIKE BLT, PSM OR OTHER METHOD BY THE TPO/ASSESSING OFFICER IN VARIOUS YEARS TO JUSTIFY THE AMP ADJUSTMENTS. BEFORE PROCEEDING TO DECIDE THE ISSUES AS CHALLENGED IN VARIOUS APPEALS BEFORE US, IT WOULD BE VERY RELEV ANT TO CAPTURE THE BRIEF BACKGROUND AND FACTS OF THE CASE. 10 BRIEF FACTS AND BACKGROUND: 3. PEPSI FOODS PVT. LTD. (PFL) WAS INCORPORATED IN IND IA ON 24.02.1989 AS A PRIVATE LIMITED COMPANY JOINTLY PROMO TED BY PEPSICO INC. USA, PUNJAB AGRO INDUSTRIES CORPORATION AND VOLTAS LIMITED. THEREAFTER, IN 1993, PEPSICO INC. BOUGHT OV ER THE SHAREHOLDING OF VOLTAS IN PFL. IN THAT MANNER, PEPSIC O INC. HELD 99.98% OF PFL. WITH EFFECT FROM APRIL 01, 2010, PFL W AS MERGED WITH PEPSICO INDIA HOLDINGS PVT. LTD., THE ASSESSEE CO MPANY, WHICH IN TURN WAS ALSO SET UP IN INDIA AS SUBSIDIARY OF PE PSICO INC. THE ASSESSEE HAS BEEN INTER ALIA INVOLVED IN THE MANUFACTURING OF SOFT DRINK/JUICE BASED CONCENTRATES AND OTHER AGRO PRODUCTS AND HAS BEEN SUPPLYING CONCENTRATES FOR AERATED AND NON- AER ATED SOFT DRINKS TO ITS DEEMED ASSOCIATED ENTERPRISES (AES) IN BA NGLADESH, NEPAL, BHUTAN AND SRI LANKA, IN ADDITION TO ITS LOCAL S ALES IN INDIA TO ITS FRANCHISEE BOTTLERS. BY WAY OF TRADEMARK AND L ICENCE AGREEMENT DATED 09.11.1989, THE ASSESSEE HAD PROCURED A LICENSE FROM PEPSICO INC. U.S.A. FOR THE TECHNOLOGY TO MANUF ACTURE THE CONCENTRATES AND TO USE AND EXPLOIT THE BRANDS OWNED BY PEPSICO INC. U.S.A. AS PER THE TERMS OF THE SAID AGREEMENT, THE LICENSE TO USE THE TRADEMARK WAS NON-TRANSFERABLE AND ROYALTY FRE E. FURTHERMORE, IT HAS BEEN AGREED IN THE SAID AGREEMENT TH AT THE ASSESSEE WAS GRANTED AN EXCLUSIVE RIGHT TO USE THE TRA DEMARK IN RESPECT OF SYRUPS AND CONCENTRATES AND A NON-EXCLUSIV E RIGHT VIS-- VIS BEVERAGES. IT WAS EXPLAINED DURING THE COURSE OF THE HEARING BY SRI DEEPAK CHOPRA, LEARNED COUNSEL FOR THE ASSESSEE THAT THE MANUFACTURE OF CONCENTRATE WAS EXCLUSIVELY CARRIED O UT BY THE ASSESSEE, WHEREAS WITH RESPECT TO BEVERAGES CERTAIN IN DEPENDENT BOTTLERS WERE INVOLVED FOR THE BOTTLING FUNCTION AND HE NCE THE LICENSE TO USE THE TRADEMARK IN RESPECT OF BEVERAGES WAS NON-EX CLUSIVE WITH 11 THE ASSESSEE. THE ASSESSEE IN TERMS OF THE AFORESAID A GREEMENT HAS BEEN IMPORTING KEYS AND ESSENCES FOR THE PRODUCTION O F CONCENTRATE FROM AES. THE SAID IMPORT TRANSACTION HAS BEEN DULY R EPORTED BY THE ASSESSEE IN FORM 3CEB REPORT, WHICH HAS BEEN STATE D BEFORE US THAT NO ADVERSE INFERENCE WAS DRAWN BY THE TPO IN THE E ARLIER YEARS. AS PER CLAUSE 11 OF THE AFORESAID AGREEMENT, ASSESSEE WAS REQUIRED TO EMPLOY ITS BEST EFFORTS TO PROMOTE THE GOODWILL ASSOCI ATED WITH THE TRADEMARKS AND THE SALE OF GOODS. AS PER CLAUSE 12 OF THE AFORESAID AGREEMENT, PEPSICO INC. WAS RESPONSIBLE FOR THE PROTE CTION OF ITS TRADEMARKS IN INDIA AND ASSESSEE WAS OBLIGATED TO FUL LY CO-OPERATE WITH PEPSICO INC. ON THAT. AS PER CLAUSE 8 OF THE AFO RESAID AGREEMENT, ASSESSEE WAS TO USE THE TRADEMARKS OF PEPSI CO INC. IN CONNECTION WITH SALE OF GOODS IN INDIA AND IN THE MA NNER AS MAY BE DIRECTED OR APPROVED BY PEPSICO INC. OR ITS REPRESEN TATIVE. FURTHERMORE, AS PER THE SAID CLAUSE, THE ASSESSEE WAS TO USE THE TRADEMARKS OF PEPSICO INC. ON THE LABELS, CONTAINERS , PACKAGING, PAMPHLETS AND ADVERTISEMENTS IN CONNECTION WITH SALE OF GOODS IN INDIA AS MAY HAVE BEEN APPROVED OR DIRECTED BY PEPS ICO INC. IN THE AFORESAID AGREEMENT, THE ASSESSEE WAS GRANTED NON TRANS FERRABLE, ROYALTY FREE LICENSE FOR THE USE OF TRADEMARK IN ITS TE RRITORY AND THE ASSESSEE WAS EXCLUSIVE USER OF THE TRADEMARKS IN INDI A IN RESPECT OF SYRUP AND CONCENTRATE AND WAS GRANTED NON-EXCLUSIVE R IGHTS FOR BEVERAGES AND THE REASON ASSIGNED WAS THAT THE MANUF ACTURING OF THE CONCENTRATE IS DONE EXCLUSIVELY BY THE ASSESSEE, WHEREAS THE BOTTLING ACTIVITY WAS DONE BY THE GROUP ENTITIES AS WEL L AS BY THE INDEPENDENT BOTTLERS SPREAD ACROSS THE COUNTRY. IT HAS BEEN STATED AS A MATTER OF RECORD THAT THE ASSESSEE DID NOT PAY ANY TRADEMARK ROYALTY TO ITS PARENT AE WHICH HAS BEEN CERTIFIED BY TH E AE BEFORE THE TPO ALSO. ALL THE NECESSARY FUNCTIONS OF STRATEGIZIN G, ADVERTISEMENT AND MARKET ACTIVITIES, ITS IMPLEMENTATION A ND 12 CONTROLLING ACROSS THE COUNTRY WERE PERFORMED BY THE AS SESSEE FOR MARKET PENETRATION IN INDIA. 4. IN ALL THE YEARS IMPUGNED BEFORE US, THE TP O HAS MADE AMP ADJUSTMENTS, BY TREATING THE AMP EXPENSES AS INTERNATIONA L TRANSACTION AND THEN AFTER APPLYING VARIOUS METHODS, LI KE, BLT IN THE A.Y.S 2006-07 TO 2009-10; PSM IN THE A.Y.S 2010-11 TO 2012- 13; AND THE OTHER METHOD IN A.Y 2013-14 AND ON DIFFE RENT REASONS. THE AMOUNT OF ADJUSTMENTS MADE AND THE METHOD APPLIED FO R MAKING THE ADJUSTMENTS IN THE VARIOUS YEARS ARE AS UND ER: A MOUNT IN R S . A.Y. A DJUSTMENT AS COMPUTED BY TPO M ETHOD A PPLIED BY TPO A DJUSTMENT AS COMPUTED BY DRP M ETHOD A PPLIED BY DRP 2006-07 174,39,58,880/- BLT 174,39,58,880/- BLT 2007-08 215,09,88,807/- BLT 215,09,88,807/- BLT 2008-09 255,12,79,469/- BLT 255,12,79,469/- BLT 2009-10 316,66,11,827/- BLT 316,66,11,827/- BLT 2010-11 290,20,73,215/- PSM 290,20,73,215/- PSM 2010-11 134,46,25,674/- PSM 134,46,25,674/- PSM 2011-12 561,32,18,691/- PSM 561,32,18,691/- PSM 2012-13 601,59,21,918/- PSM 601,59,21,918/- PSM 13 THUS, IN THESE APPEALS, THE ISSUE OF TRANSFER PRICIN G ADJUSTMENT ON ACCOUNT OF AMP CAN BE SEGREGATED INTO THR EE SEPARATE CATEGORIES ON THE BASIS OF METHODOLOGY APPL IED BY THE TPO FOR COMPUTING THE AMP ADJUSTMENT: - A) APPEALS FOR A.Y. 2006-07 TO 2009-10 WHEREIN THE LD. TPO HAS COMPUTED THE ADJUSTMENT BY APPLYING BRIGHT LINE (B LT); B) APPEALS FOR A.Y. 2010-11 TO 2012-13, WHEREIN THE LD. TPO HAS COMPUTED THE ADJUSTMENT BY APPLYING PROFIT SPLIT METHO D (PSM); AND C) APPEALS FOR A.Y. 2013-14, WHEREIN THE LD. TPO HAD COMPUTED THE ADJUSTMENT BY APPLYING PSM, HOWEVER, THE HON'BLE DRP REJECTED PSM AND INSTEAD APPLIED BLT UNDE R THE GARB OF OTHER METHOD. 5. WE WILL FIRST TAKE UP THE APPEAL FOR THE ASSESSME NT YEAR 2006-07 AND OUR OBSERVATIONS AND FINDING GIVEN HEREI N WILL APPLY MUTATIS MUTANDIS IN ALL THE YEARS, EXCEPT FOR THE APPLICABILITY OF DIFFERENT METHODS APPLIED BY THE TPO FOR MAKING THE AD JUSTMENTS. THIS APPEAL HAS BEEN REMANDED BACK BY THE HON'BLE HI GH COURT VIDE JUDGMENT AND ORDER DATED 08.02.2017 IN ITA NO.1 00 OF 2017 TO THIS TRIBUNAL FOR DECIDING THE TRANSFER PRICING ISSU E RELATING TO AMP EXPENSES IN THE LIGHT OF PREVAILING JURISPRUDENCE. 2013-14 578,21,11,120/- PSM 334,06,17,000/- BLT/ O THER M ETHOD 14 6. AS STATED ABOVE, THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOFT DRINK/ JUICE BASED CONCENTRATES, PROCESSING OF POTATO AND GRAIN FOOD PRODUCTS AND OTHER AGRO BASED FOOD PRODUCTS. THE TPO OBSERVED THAT THE ASSESSEE COM PANY HAD CARRIED OUT ANALYSIS FOR THE IMPORT OF COMMODITIES USIN G THE TRANSACTIONAL NET MARGIN METHOD (TNMM); EXPORT OF CONCE NTRATES USING THE TNMM METHOD; EXPORT OF ROSEMARY USING THE COM PARABLE UNCONTROLLED PRICE (CUP) METHOD; AND AVAILING OF SERV ICES USING TNMM METHOD. TPO INSTEAD OF ANALYSING ANY OF THE SAID INTERNATIONAL TRANSACTIONS, PROCEEDED TO ANALYZE THE DETE RMINATION OF ARMS LENGTH PRICE OF REIMBURSEMENT OF ADVERTISEMEN T EXPENDITURE. DURING THIS YEAR, THE ASSESSEE COMPANY H AD ALSO DISCLOSED AN INTERNATIONAL TRANSACTION OF REIMBURSEMEN T OF EXPENDITURE OF RS. 33,60,15,501/- TO M/S PEPSI COLA I NTERNATIONAL IRELAND, ITS AE. THE SAID REIMBURSEMENT WAS ON ACCOUN T OF ADVERTISEMENT EXPENDITURE INCURRED BY THE AE WHICH WAS CLAIMED TO BE REIMBURSED BY THE ASSESSEE ON COST. THEREAFTER, THE TPO PROCEEDED TO EXAMINE THE TOTAL ADVERTISEMENT EXPENDITURE I NCURRED BY THE ASSESSEE COMPANY DURING THE YEAR. FOR THAT THE TPO REFERRED TO THE FINANCIALS OF THE ASSESSEE COMPANY AND OBSERVE D THAT THE ASSESSEE COMPANY HAD INCURRED SELLING AND DISTRIBUTIO N EXPENSES OF RS. 46,38,000/- AND ADVERTISING & MARKETING EXPENSES OF RS. 202,34,16,000/- ON SALES TURNOVER OF RS. 303,19,65,0 00/-. HAVING OBSERVED SO, THE TPO CONCLUDED THAT THE ASSESSEE COMPAN Y HAD CREATED MARKETING INTANGIBLE BY INCURRING EXPENDITURE OF RS. 202,80,54,000/- ON ADVERTISEMENT, MARKETING AND PROMOTI ON OF THE AE BRAND AND PRODUCTS, WITHOUT RECEIVING ANY COMPENS ATION FOR THE SAME. HE WAS OF THE VIEW THAT THE ASSESSEE COMPANY HAD INCURRED HUGE AMP EXPENDITURE TO PROMOTE A TRADEMARK OWNED BY I TS AE AND DEVELOP MARKETING INTANGIBLES FOR THE PRODUCT OF THE AE. HE FURTHER 15 OBSERVED THAT THE AES OF THE ASSESSEE COMPANY HAD RECEI VED BENEFIT IN FORM OF ENHANCED BRAND VALUE IN INDIA. FURTHER, R EFERRING TO PROVISIONS OF SECTION 92B (1) THAT ARRANGEMENT BETWEE N TWO AES FOR ALLOCATION OR APPORTIONMENT OF OR ANY CONTRIBUTION TO AN Y COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES WAS AN INTERNATIONAL TRANSACTION. HE H ELD THAT HERE IN THIS CASE THE ASSESSEE COMPANY HAD INCURRED THE COS T IN CONNECTION WITH A BENEFIT AND SERVICES PROVIDED TO THE AE UNDER A MUTUAL AGREEMENT WHICH WAS, ALTHOUGH, NOT IN WRITING, BUT SUCH ARRANGEMENTS COULD BE PROVED FROM THE CONDUCT OF THE A SSESSEE COMPANY AND ACCORDINGLY, THE AMP EXPENDITURE OF INR 202,80,54,000/- WAS AN INTERNATIONAL TRANSACTION UNDER SECTION 92B(1) READ WITH 92F(V). 7. THEREAFTER, THE TPO HELD THAT THE AMP EXPENDITURE INC URRED BY THE ASSESSEE COMPANY WAS 66.89% OF THE TOTAL REVENUE OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION AND THE SAME WAS IN THE NATURE OF INTRA-GROUP-SERVICE PROVIDED TO TH E AE, WHICH REQUIRES COMPENSATION ON AN ARMS LENGTH BASIS. IN OR DER TO ARRIVE AT THE ARMS LENGTH PRICE OF SUCH TRANSACTION, THE TPO A PPLIED THE BRIGHT LINE TEST (BLT). AFTER APPLYING BLT, HE ARRIVED AT AN ADJUSTMENT OF RS. 174,39,58,880/- IN THE HANDS OF THE ASSESSEE COMPANY. 8. THE ASSESSING OFFICER (AO) INCORPORATED THE SAID TRANSFER PRICING ADJUSTMENT IN HIS DRAFT ASSESSMENT ORDER. ON OB JECTIONS RAISED BY THE ASSESSEE COMPANY AGAINST THE SAID DRAFT ASSESSMENT ORDER, THE DRP CONFIRMED THE TRANSFER PRICING ADJUSTME NT OF RS. 16 174,39,58,880/- AS COMPUTED BY THE TPO. THE SAME THERE AFTER, CULMINATED INTO A FINAL ASSESSMENT ORDER DATED 28.10.2 010. 9. IN THE FIRST ROUND THE TRIBUNAL VIDE ORDER DATED 05 .10.2016 REMANDED THE ISSUE OF TRANSFER PRICING ADJUSTMENT PERTA INING TO AMP EXPENSES BACK TO THE FILE OF THE TPO HOLDING THAT TH E TPO DID NOT HAD THE BENEFIT OF JUDICIAL VIEW WHICH ARE NOW AVA ILABLE FOR CONSIDERATION WHEREIN IN SOME OF THE CASES THE TRANSACTI ON OF AMP HAS BEEN HELD TO BE INTERNATIONAL TRANSACTION AND OTHER S NOT. ACCORDINGLY, THE MATTER WAS RESTORED BACK TO THE FILE OF THE TPO TO DECIDE, WHETHER THERE EXIST ANY INTERNATIONAL TRANSACTIO N OF AMP EXPENSES AND IF THERE IS NO SUCH INTERNATIONAL TRANSACTI ON IS PROVED THEN THERE WOULD BE NO TP ADJUSTMENT. THIS DECISION OF THE TRIBUNAL WAS CHALLENGED BEFORE THE HON'BLE HIGH COURT (ITA 10 0/2017), WHEREIN THE MATTER HAS BEEN REMANDED BACK TO THIS TRIB UNAL VIDE JUDGEMENT DATED 08.02.2017 IN THE FOLLOWING MANNER: THE QUESTION OF LAW WHICH WAS UNDER CONSIDERA TION BEFORE THEIR LORDSHIPS WAS AS UNDER: WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE INCOME TAX APPELLATE TRIBUNAL (ITAT) FELL INTO ERRO R IN REMITTING THE MATTER FOR EXAMINATION BY THE TRANSFER PRICING OFFICER (TPO) FOR AY 2006-07 IN RESPECT OF THE AMP EXPENSES? THE RELEVANT OBSERVATIONS AND FINDINGS BY THEIR LORDSHIPS WERE AS UNDER: - THE ASSESSEE HAD FILED ITS TRANSFER PRICING REPORT ; THE ASSESSING OFFICER (AO) REFERRED IT TO THE TPO, WHO MADE ADJUS TMENTS BASED UPON THE PREVAILING UNDERSTANDING AS TO THE APPLICA BILITY OF THE BRIGHT LINE TEST, HOLDING THAT THE AMP EXPENSES WER E SUBJECT TO 17 ADJUSTMENT. THE DISPUTE RESOLUTION PANEL (DRP) AFFI RMED THIS VIEW. IN THE MEANWHILE, THE SPECIAL BENCH HAD IN LG ELECT RONICS V. ACIT (2013) 22 ITR 1 (SB) ENUNCIATED AND AFFIRMED THE BR IGHT LINE TEST RULE. THAT VIEW WAS SUBSEQUENTLY OVERRULED BY THIS COURT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. V. C IT (2015) 374 ITR 118. THE ITAT IN THIS CASE HAS REMITTED THE ENT IRE MATTER FOR RECONSIDERATION TO THE TPO. THIS COURT HAS HEARD LEARNED COUNSEL FOR THE PARTIE S. IN LE PASSAGE TO INDIA TOUR & TRAVELS (P) LTD. V. DCIT [I TA 368/2016 & CONNECTED MATTER, DECIDED ON 12.01.2017], THIS COUR T STATED AS FOLLOWS: 4. THIS COURT IS OF THE VIEW THAT WHILST L.G. ELEC TRONICS INDIA PVT. LTD. (SUPRA) INDICATED THAT AMPS WERE OR DID C ONSTITUTE THE BASIS FOR AN INQUIRY INTO THE INTERNATIONAL TRANSAC TION AND INDICATED A BRIGHT LINE TEST FOR IT, SONY ERICSSO N MOBILE COMMUNICATIONS INDIA PVT. LTD.(SUPRA) OVERRULED THA T DECISION. THIS PER SE DOES NOT MEAN THAT EVERY ENDEAVOUR WILL BE TO CONCLUDE THAT ALL TRANSACTIONS REPORTING AMPS ARE T O BE TREATED AS INTERNATIONAL TRANSACTIONS, THE FACTS OF EACH CA SE WOULD HAVE TO BE EXAMINED FOR SOME DELIBERATIONS. WHILST THE T PO AND THE DRP UNDOUBTEDLY HELD THAT THE INTERNATIONAL TRANSAC TIONS EXISTED - THAT UNDERSTANDING APPARENTLY WAS PASSED UPON THE PRE-EXISTING REGIME, PROPOUNDED IN L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA) WITH GREATER CLARITY ON ACCOUNT OF THI S COURTS DECISION IN SONY ERICSSON MOBILE COMMUNICATIONS IND IA PVT. LTD.(SUPRA). THE I.T.A.T. IN OUR OPINION, SHOULD HA VE FIRST DECIDED WHETHER IN THE CIRCUMSTANCES OF THIS CASE, THE NATU RE OF THE AMP REPORTED, COULD LEAD TO THE CONCLUSION THAT THERE W AS AN 18 INTERNATIONAL TRANSACTION. WHEN DOING SO, IT SHOULD HAVE REMITTED THE MATTER BACK FOR EXAMINATION TO THE A.O . IN THIS CASE. ACCORDINGLY, FOLLOWING THE DECISION OF SONY E RICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD.(SUPRA) AND A SUBSEQUENT DECISION IN DAIKIN AIR-CONDITIONING INDIA PVT. LIMI TED V. ASSISTANT COMMISSIONER OF INCOME TAX IN ITA 269/201 6, DECIDED ON 27.07.2016, THIS COURT HEREBY REMITS THE MATTER FOR A COMPREHENSIVE DECISION BY THE I.T.A.T. IN OTHER W ORDS, THE I.T.A.T. WILL DECIDE WHETHER THE REPORTING OF THE A MP IN REGARD TO THE OUTBOUND BUSINESS CONSTITUTES AN INTERNATIONAL TRANSACTION FOR WHICH ALP DETERMINATION WAS NECESSARY AND IF SO , THE EFFECT THEREOF. THE PARTIES ARE DIRECTED TO APPEAR BEFORE THE I.T.A.T. ON 01.02.2017. THE APPEAL IS PARTLY ALLOWED IN THE ABO VE TERMS. IN VIEW OF THE ABOVE ORDER, AND GIVEN THAT ONLY CON TROVERSY INVOLVED IN THE PRESENT CASE IS WITH RESPECT TO AMP EXPENSES, WE ARE OF THE OPINION THAT THE ITAT ITSELF SHOULD CONS IDER THE MATTER AS TO THE APPLICABILITY OR OTHERWISE OF THE RULE EN UNCIATED IN SONY ERICSSON (SUPRA) AND RENDER ITS DECISION ON MERITS AFTER APPLYING THE CORRECT TEST AS TO WHETHER THE EXPENSES IN THE PRESENT CASE SHOULD BE SUBJECTED TO ADJUSTMENTS. THE PARTIES SHA LL BE PRESENT BEFORE THE ITAT FOR THIS PURPOSE ON 24.04.2017. 10. NOW IN WAKE OF AFORESAID DIRECTIONS THE MATTER O F AMP ADJUSTMENT IS TO BE ADJUDICATED BY THIS TRIBUNAL. CONTENTION RAISED BY THE LD. COUNSEL OF THE ASSESSEE ON THE AMP ISSUE IN ALL THE YEARS: 11. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE, MR . DEEPAK CHOPRA, FIRST OF ALL REFERRED TO TRANSFER PRICING STU DY REPORT AND CATENA OF OTHER DOCUMENTS IN SUPPORT OF HIS ARGUMENT THAT 19 INCURRING OF AMP EXPENSES BY THE ASSESSEE COMPANY DI D NOT FALL WITHIN THE AMBIT AND DEFINITION OF INTERNATIONAL TRANSA CTION WITHIN THE MEANING OF SECTION 92B. THE ASSESSEE COMPANY MANU FACTURER OF SOFT DRINK/ JUICE BASED CONCENTRATES AND OTHER AGRO PR ODUCTS AND WAS EXPOSED TO NORMAL RISKS ASSOCIATED WITH CARRYING O N SUCH BUSINESS. HE SUBMITTED THAT THE ASSESSEE COMPANY DID NO T OWN ANY SIGNIFICANT INTANGIBLES AND NEITHER DOES IT UNDERTAKE RE SEARCH AND DEVELOPMENT ON ITS ACCOUNT THAT COULD LEAD TO THE DEVELO PMENT OF NON-ROUTINE INTANGIBLES. THE ASSESSEE COMPANY HAD OB TAINED A LICENSE FROM ITS US PARENT AE, VIZ. M/S PEPSICO INC., USA FOR THE TECHNOLOGY TO MANUFACTURE THE CONCENTRATES AND TO USE AN D EXPLOIT THE BRANDS OWNED BY PEPSICO INC., IN THE REGIONS ALLO CATED TO THE ASSESSEE COMPANY. UNDER THE AFORESAID AGREEMENT, THE ASSESSEE COMPANY HAD BEEN GRANTED A NON-TRANSFERABLE, ROYALTY FREE LICENSE FOR THE USE OF THE TRADEMARKS IN ITS TERRITORY. THE ASSE SSEE COMPANY HAS BEEN THE EXCLUSIVE USER OF THE TRADEMARKS IN INDIA IN RESPECT OF SYRUPS AND CONCENTRATES BUT HAS BEEN GRANTED NON-EXCLU SIVE RIGHTS FOR BEVERAGES. IT WAS EXPLAINED THAT THE REASON FOR THE SAME WAS THAT THE MANUFACTURE OF CONCENTRATE WAS DONE EXCLUSIVELY BY THE ASSESSEE COMPANY WHEREAS THE BOTTLING ACTIVITY WAS DON E BY GROUP ENTITIES AS WELL AS INDEPENDENT BOTTLERS SPREAD ACROSS T HE COUNTRY. A LETTER DATED 11.06.2015 ISSUED BY PEPSICO INC. ADDRE SSED TO JCIT, TRANSFER PRICING OFFICER 3(3), NEW DELHI, WAS ALS O PLACED ON RECORD ACKNOWLEDGING THEREIN THAT THE ASSESSEE COMPANY HAD NOT PAID ANY TRADEMARK ROYALTY TO IT OVER THE YEARS. HE FURTHER SUBMI TTED THAT ALL THE NECESSARY FUNCTIONS OF STRATEGIZING, ADVERTISING AND MARKETING ACTIVITIES, THEIR IMPLEMENTATION AND CONTROLLING ACROSS I NDIA WERE TO BE PERFORMED BY THE ASSESSEE FOR MARKET PENETRATION IN INDIA, WHEREAS PEPSICO INC. WAS TO PLAY THE LIMITED ROLE OF K EEPING A QUALITY CHECK ON THE STANDARDS CONCEPTUALIZED BY THE AS SESSEE IN 20 LINE WITH ITS GLOBAL ADVERTISING POLICY. IN SUPPORT HE ALSO PLACED ON RECORD A LETTER DATED 11.06.2015 ISSUED BY PEPSICO I NC. AND ADDRESSED TO THE TPO, ACKNOWLEDGING THEREIN THE ECONOM IC OWNERSHIP OF THE ASSESSEE IN INDIA WITH RESPECT TO THE B RANDS, LEGALLY OWNED BY IT; AND NO DIVIDEND WAS PAID BY TH E ASSESSEE COMPANY TO PEPSICO INC. DURING THE ASSESSMENT YEARS 20 06-07 TO 2013-14. 12. MR. CHOPRA FURTHER PLACED ON RECORD A CHART COMPA RING THE VALUE OF IMPORT WITH THE TURNOVER OF THE ASSESSEE COMP ANY OVER THE YEARS, TO DEMONSTRATE THAT THE IMPORT OF THE KEYS AND ESSE NCES FROM THE AES WAS MINISCULE AS COMPARED TO THE SALES/ TURNOVE R OF THE ASSESSEE COMPANY. BY PLACING THE AFORESAID LETTERS AN D CHARTS, HE TRIED TO DEMONSTRATE THAT NO BENEFIT WHATSOEVER WAS BEING DERIVED BY THE US PARENT ENTITY I.E. PEPSICO INC. FROM INDIA A ND IN FACT HE SUBMITTED THAT PEPSICO INC. WAS PAYING TAXES IN ITS HOME JURISDICTION ON THE IMPUTED ROYALTY THAT IT OUGHT TO HAVE RECEIVED FROM THE ASSESSEE COMPANY FOR THE GRANT OF TRADEMARK LI CENSE. THIS FACT IS ALSO BORNE OUT OF THE LETTER DATED 11.06.2015 I SSUED BY PEPSICO INC. ADDRESSED TO JCIT, TRANSFER PRICING OFF ICER 3(3), NEW DELHI, WHICH HAS BEEN PLACED ON RECORD. HE SUBMITTED THAT THE TPO HAS INFERRED THAT THERE EXISTED AN INTERNATIONAL TRANSAC TION ON THE INCURRING OF AMP EXPENSES MAINLY FOR THE REASON THAT THERE WAS AN INTERNATIONAL TRANSACTION OF EXPENSES REIMBURSED BY THE ASSESSEE TO ITS AE, WHICH WERE INCURRED BY THE AE ON BEHALF OF THE ASSESSEE COMPANY IN CONNECTION WITH THE SPONSORSHIP OF ICC EVEN TS; AND ON THE GROUND OF EXCESSIVENESS OF THE AMP EXPENDITURE. LD . COUNSEL TRIED TO CLARIFY THAT THE REIMBURSEMENT OF EXPENSES BY TH E ASSESSEE COMPANY TO ITS AE WAS FOR PURELY COMMERCIAL REASONS AND WAS NOT AT THE BEHEST OF THE AE. THE ASSESSEE COMPANY IS IN THE INDUSTRY 21 WHERE IT FACES STIFF COMPETITION AND THE PRODUCTS SOLD BY THE ASSESSEE COMPANY DO NOT FALL IN THE CATEGORY OF DAILY NEED PRODUCTS AND THEREFORE, THE ASSESSEE COMPANY IS REQUIRED TO MAR KET ITS PRODUCTS AGGRESSIVELY, IN ORDER TO BOOST / PROMOTE ITS S ALES. 13. THE LEARNED COUNSEL FURTHER SUBMITTED THAT, INDIA BE ING A CRICKET LOVING NATION, ASSESSEE COMPANY STRATEGICALLY PROMOTES ITS PRODUCTS BY ADVERTISING AT CRICKETING EVENTS. KEEPING TH E AFORESAID IN VIEW, ONE OF PEPSIS AE, NAMELY, PCIC, IRELAND, ON BEHALF OF ALL GROUP ENTITIES LOCATED IN CRICKETING NATIONS, ENTERED I NTO A GLOBAL PARTNERSHIP AGREEMENT DATED 28.10.2004 WITH GLOBAL CRIC KET CORPORATION PTE LIMITED (GCC) FOR OBTAINING SPONSORSHI P RIGHTS OF VARIOUS ICC CRICKETING EVENTS WORLDWIDE. THE SAID AGR EEMENT WAS PLACED ON RECORD AND POINTED OUT THAT PCIC, IRELAND, HAD ENTERED INTO THE AFORESAID AGREEMENT WITH GCC ONLY WITH THE CO NSENT OF THE GROUP COMPANIES FROM WHOM REIMBURSEMENT WAS SOUGHT. THEREAFTER, PCIC HAD ENTERED INTO AN AGREEMENT DATED 9 .09.2005 WITH THE ASSESSEE COMPANY, WHEREIN THE ASSESSEE COMPA NY ADMITTED THAT IT RECOGNIZES THE SUBSTANTIAL POPULARITY OF T HE SPORT IN INDIA AND HAS CONSISTENTLY PROMOTED ITS RANGE OF PR ODUCTS USING THE CRICKET PLATFORM EITHER THROUGH PROMOTION OF THE EV ENTS ITSELF BE THEY DOMESTIC OR INTERNATIONAL OR THROUGH ENDORSEMENTS O F CRICKETING PERSONALITIES . IN VIEW OF THESE FACTS, THE ASSESSEE COMPANY FOR PROMOTING ITS OWN BUSINESS, DECIDED TO REIMBURSE A PO RTION OF THE TOTAL SPONSORSHIP FEES PAID TO GCC. THE PAYMENT UNDER TH E SAID AGREEMENT DATED 9.09.2005 WAS MADE BY THE ASSESSEE CO MPANY ON THE BASIS OF JOINT DECISION TAKEN BY ALL PEPSI ENTITIES LOCATED IN CRICKETING JURISDICTIONS AS THESE ENTITIES WERE PROMOTIN G ITS PRODUCTS USING THE CRICKET PLATFORM AND THEREFORE, THE ALLEGATION OF THE TPO THAT REIMBURSEMENT OF EXPENSES WAS ENFORCED UPON THE A SSESSEE 22 COMPANY BY PCIC WAS COMPLETELY MISPLACED. HE SUBMITTE D THAT 60% OF THE TOTAL CRICKETING VIEWERSHIP IS IN THE INDIAN SUB- CONTINENT, I.E., INDIA, SRI LANKA, BANGLADESH AND PAK ISTAN AND THEREFORE, SUCH A HUGE VIEWERSHIP WAS ONLY TO BENEFI T THE ASSESSEE IN ITS BUSINESS PROMOTION AND SALES. SINCE THE ASSESS EE COMPANY HAS BEEN SUPPLYING CONCENTRATE, NOT ONLY TO THE BOTTLER S IN INDIA BUT ALSO TO THE ONES LOCATED IN SRI LANKA, BANGLADESH AND BHUTAN AND THEREFORE, IN ORDER TO PROMOTE ITS SALES IN NEIGHBORING COUNTRIES, IT HAS BEEN UNDERTAKING AMP ACTIVITIES IN THOSE JURISDIC TIONS ALSO. IN VIEW OF THE AFORESAID, PROPORTIONATE REIMBURSEMENT, I .E., ON COST TO COST BASIS WAS MADE BY THE ASSESSEE COMPANY TO ITS AE. THE SAID AMOUNT WAS DISBURSED ONLY AFTER OBTAINING REQUISITE APP ROVALS FROM THE MINISTRY OF SPORTS & YOUTH AFFAIRS. THE APPROVAL LE TTERS ISSUED BY THE MINISTRY OF SPORTS & YOUTH AFFAIRS TO CORROBORAT E THE SAID AVERMENT WAS ALSO PLACED ON RECORD. THE ASSESSEE SO LELY AND INDEPENDENTLY TOOK DECISION REGARDING THE AMP ACTIVITI ES UNDERTAKEN BY IT IN THE INDIAN SUB-CONTINENT AND NO DIR ECTIVES WERE RECEIVED BY IT, IN THIS REGARD, FROM ITS AE. TO JUSTIFY THIS AVERMENT, THE LEARNED COUNSEL PLACED ON RECORD A GLOBAL PARTNER SHIP AGREEMENT DATED 20.08.2008 ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND ICC DEVELOPMENT INTERNATIONAL LIMITED. ALL THESE CONTENTIONS PLACED BY THE LD. COUNSEL WERE TO COUNTER THE VIEW OF THE TPO AND DRP THAT AMP ACTIVITIES OF THE ASSESSEE COMP ANY WERE CONTROLLED BY ITS AE. 14. THEREAFTER, MR. CHOPRA SUBMITTED THAT THE ACTION OF TH E TPO IN TREATING INCURRENCE OF AMP EXPENSES AS A SEPARATE INTE RNATIONAL TRANSACTION REQUIRING SEPARATE BENCHMARKING UNDER SEC TION 92B OF THE ACT, WAS NOT IN ACCORDANCE WITH THE SETTLED LEGAL POSI TION IN LAW AND THEREFORE, DESERVED TO BE QUASHED. IT WAS SUBMITTED BY HIM THAT 23 THE AMP EXPENDITURE INCURRED DID NOT RESULT IN A SEPARA TE INTERNATIONAL TRANSACTION AS PER SECTION 92B READ WITH S ECTION 92F (V) OF THE ACT, WHICH TOGETHER DEFINE AN INTERNATIONAL TRANSACTION. HE STRESSED ON THE POINT THAT THESE DO NOT APPLY IN TH E ABSENCE OF ANY ARRANGEMENT/ UNDERSTANDING/ACTION IN CONCERT BETWE EN THE TWO AES. IN THE PRESENT CASE HE SUBMITTED THAT, AMP EXPENSES INCURRED BY THE ASSESSEE COMPANY WOULD RATHER FALL UNDER THE C ATEGORY OF DOMESTIC TRANSACTION AS IT WAS UNDERTAKEN WITH THE THIRD P ARTIES WHICH ARE NOT COVERED UNDER THE DEFINITION OF INTERNATIO NAL TRANSACTION WITHIN THE PURVIEW OF SECTION 92 OF THE ACT. ANY KIND OF ANALYSIS OF SUCH DOMESTIC TRANSACTIONS UNDERTAKEN WITH TH E THIRD PARTIES WAS ALSO BEYOND THE PURVIEW OF SECTION 92CA OF THE ACT. FURTHER, THESE TRANSACTIONS PURELY REPRESENTED THE EXPEN SES INCURRED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS OWN BUSINESS AND HAD NO BEARING WHATSOEVER ON ANY INTERNA TIONAL TRANSACTIONS THAT THE ASSESSEE COMPANY HAD WITH ITS AES. THEREAFTER, HE DREW OUR ATTENTION TOWARDS SECTION 92 OF THE ACT THAT PROVIDES FOR COMPUTATION OF INCOME ARISING FROM AN INTERNATIONAL TRANSACTION HAVING REGARD TO THE ARMS LENGTH PRICE AN D INTERNATIONAL TRANSACTION HAS BEEN DEFINED IN SECTION 92B OF THE ACT, AS TRANSACTION BETWEEN TWO OR MORE 'ASSOCIATED EN TERPRISES', EITHER OF WHOM IS A NON-RESIDENT; AND ALSO TO CLAUSE (V) OF SECTION 92F OF THE ACT HE SUBMITTED THAT SECTION 92F ONLY PROVIDE D DEFINITIONS OF CERTAIN TERMS RELEVANT TO COMPUTATION OF ARMS LENGTH PRICE AND HAD TO BE READ IN CONJUNCTION WITH SECTION 92B OF THE ACT. THE SAID SECTION COULD NOT BE CONSIDERED/ READ IN ISO LATION TO COVER ANY AND EVERY TRANSACTION THAT A COMPANY ENTERS INTO W ITH ANY UNRELATED PARTY THAT TOO DOMESTICALLY. HE SUBMITTED THAT FR OM THE CONJOINT READING OF THE PROVISIONS OF CLAUSE (V) OF S ECTION 92F AND SUB-SECTION (1) OF SECTION 92B OF THE ACT, IT COULD BE I NFERRED THAT 24 TRANSFER PRICING REGULATIONS WOULD BE APPLICABLE TO A NY TRANSACTION, BEING AN ARRANGEMENT, UNDERSTANDING OR A CTION IN CONCERT, INTER ALIA , IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR ANY OTHER TRANSACTION HAVING BEARING ON PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES. 15. IN VIEW THEREOF, IT WAS SUBMITTED THAT IN ORDER TO BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION, IT WOUL D HAVE TO BE DEMONSTRATED THAT THE TRANSACTION AROSE IN PURSUANT TO AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT. A TRAN SACTION, PER SE INVOLVES A BILATERAL ARRANGEMENT OR CONTRACT BETWEEN TH E PARTIES. UNILATERAL ACTION BY ONE OF THE PARTIES, WITHOUT ANY BINDING OBLIGATION, IN ABSENCE OF A MUTUAL UNDERSTANDING OR CONTRACT, COULD NOT BE TERMED AS A TRANSACTION. A UNILATERAL ACTION, T HEREFORE, COULD NOT BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION INVOKING THE PROVISIONS OF SECTION 92 OF THE ACT. 16. THEREAFTER, THE LEARNED COUNSEL SUBMITTED THAT THE AS SESSEE COMPANY HAD INCURRED EXPENDITURE ON AMP TO CATER TO THE NEEDS OF THE CUSTOMERS IN THE LOCAL MARKET. SUCH AMP EXPENDITUR E WAS NEITHER INCURRED AT THE INSTANCE/ BEHEST OF OVERSEAS AES , NOR WAS THERE ANY MUTUAL AGREEMENT OR UNDERSTANDING OR ARRANGE MENT AS TO ALLOCATION OR CONTRIBUTION BY THE AE TOWARDS REIMBURSE MENT OF ANY PART OF AMP EXPENDITURE INCURRED BY THE ASSESSEE COMP ANY FOR THE PURPOSE OF ITS BUSINESS. IN ABSENCE OF ANY UNDERSTAND ING, ARRANGEMENT, ETC., IT WAS SUBMITTED THAT NO TRANSACTION OR INTERNATIONAL TRANSACTION COULD BE SAID TO BE INVOLVED WITH RESPECT TO SUCH AMP EXPENDITURE INCURRED BY THE DOMESTIC ENTERP RISE, WHICH MAY BE COVERED WITHIN THE PROVISIONS OF TRANSF ER PRICING REGULATIONS. FURTHER IT WAS REITERATED THAT PAYMENT FOR 25 ADVERTISEMENT, MARKETING AND SALES PROMOTION WAS MADE B Y THE ASSESSEE COMPANY (WHICH IS A TAX RESIDENT OF INDIA) TO OTHER INDIAN THIRD PARTIES. THE REIMBURSEMENT MADE BY THE ASSESSEE TO ITS AE IN LIEU OF SPONSORSHIP FEES PAID TO ICC WAS WHOLLY AND EXCLUSIVELY FOR ASSESSEE COMPANYS BUSINESS AND WAS NOT AT THE BEHEST OF THE AE. HE SUBMITTED THAT THE TWIN REQUIREMENTS OF SECTION 92B DI D NOT EXIST IN THE PRESENT CASE, I.E., THE TRANSACTION INVOLV ED WAS BETWEEN INDIAN PARTIES AND NO FOREIGN PARTY WAS INVOLVED AND THE TRANSACTION OF AMP EXPENSES DID NOT TAKE PLACE BETWEEN TWO AES. 17. MR. CHOPRA FURTHER INVITED OUR ATTENTION TOWARDS T HE DECISIONS OF THE HONBLE HIGH COURT OF DELHI IN THIS REGARD AND SUBMITTED THAT THE HONBLE HIGH COURT HAD HELD THAT THE ONUS WAS UPON TH E REVENUE TO DEMONSTRATE THAT THERE EXISTED AN ARRANGEMENT B ETWEEN THE ASSESSEE AND ITS AE UNDER WHICH ASSESSEE WAS OBLI GED TO INCUR EXCESS OF AMOUNT OF AMP EXPENSES TO PROMOTE THE BRANDS OWNED BY AE. THE TPO HAD HEAVILY RELIED UPON CLAUSE 8 IN THE TRADEMARK LICENSE AGREEMENT, WHICH EMPOWERED PEPSICO. INC TO A PPROVE AND REVIEW THE ADVERTISEMENT PROPOSED TO BE TELECASTED IN I NDIA BUT HE FAILED TO APPRECIATE THAT IT WAS ONLY THE ADVERTISEMENT CON TENT AND NOT THE QUANTUM OF THE AMP EXPENDITURE, WHICH WAS SENT TO THE AE FOR ALIGNMENT. HE SUBMITTED THAT THE ALIGNMENT FROM PARENT WAS ONLY TO ENSURE THAT THE APPLICABLE BRAND GUARDRAILS ARE BEING FOLLOWED BY AES ACROSS THE WORLD AND IT IS NOT AT AL L DIRECTED TO CONTROL THE MARKETING FUNCTIONS IN VARIOUS GEOGRAPHIES. HE SUBMITTED THAT IT MUST BE APPRECIATED THAT MARKETING FOR IM PULSE PRODUCTS LIKE BEVERAGES HAD TO BE MANAGED LOCALLY AS PER THE ETHOS; CULTURE AND ASPIRATIONS OF THE LOCAL POPULATION AND IT COULD NOT BE REMOTELY MANAGED. HE STRESSED ON THE POINT THAT THE ASSE SSEE COMPANY HAD A FULL-BLOWN MARKETING TEAM IN INDIA WHO WITH THE 26 HELP OF LOCAL MARKETING AGENCIES AND CONSULTANTS MANA GED THE MARKETING FUNCTION ACROSS THE COUNTRY. 18. MR. CHOPRA FURTHER PLACED HEAVY RELIANCE ON THE D ECISION OF THE HONBLE HIGH COURT OF DELHI IN MARUTI SUZUKI INDIA PVT. LTD. V. CIT [2016] 381 ITR 117 (DELHI) , TO BUTTRESS THE AVERMENT THAT THE ONUS WAS CAST UPON THE REVENUE TO PROVE THE EXISTENCE O F INTERNATIONAL TRANSACTION VIS--VIS INCURRENCE OF AMP E XPENSES, WHICH WAS NOT DISCHARGED BY THE TPO IN THE PRESENT CAS E. HE ALSO PLACED RELIANCE ON FEW OTHER DECISIONS OF THE HONBL E HIGH COURT OF DELHI THAT HAVE UPHELD THE SAME PROPOSITION: WHIRLPOOL OF INDIA LTD VS. DCIT [2016] 381 ITR 154; BAUSCH & LOMB EYEC ARE (INDIA) PVT LTD VS. ACIT [2016] 381 ITR 227; HONDA SIEL POWER PRODUCTS LTD VS. DCIT [2016] 283 CTR 322 . THEREAFTER, THE HE BROUGHT OUR ATTENTION TOWARDS A DECISION OF COORDINATE B ENCH OF THIS TRIBUNAL PASSED IN THE CASE OF GOODYEAR INDIA LTD VS. DCIT [ITA NO. 5650/DEL/2011] . HE SUBMITTED THAT THE REVENUE IN THIS CASE AS WELL HAD RELIED UPON THE CLAUSE IN THE TRADEMARK AND LICENSE AGREEMENT, UNDER WHICH THE ASSESSEE WAS REQUIRED TO S UBMIT ITS ADVERTISEMENTS FOR REVIEW AND APPROVAL TO ITS AE, TO A LLEGE THAT THIS GOES TO SHOW THAT AE WAS ACTIVELY CONTROLLING AND SUP ERVISING THE AMP EXPENSE OF THE ASSESSEE AND HENCE, THERE EXISTED A N INTERNATIONAL TRANSACTION. HE STRONGLY PRESSED THE POINT TH AT THE MERE REVIEW OF THE ADVERTISING MATERIAL BY THE AE DID NOT INDICATE EXISTENCE OF ANY INTERNATIONAL TRANSACTION IN TERMS OF THE AFORESAID DECISION. THERE IS NO OBLIGATION ON THE ASSESSEE COM PANY TO INCUR AMP EXPENSES TO PROMOTE THE BRAND OF THE AE AND NO SUCH OBLIGATION HAS BEEN BROUGHT OUT BY THE TPO ON THE FACTS OF THE PRESENT CASE AND THEREFORE THERE AROSE NO QUESTION OF E XISTENCE OF 27 ANY TRANSACTION LET ALONE AN INTERNATIONAL TRANSACTION O N THE FACTS OF THE PRESENT CASE. 19. THE LEARNED COUNSEL FOR THE ASSESSEE, THEREAFTER, REFERRED TO CLAUSE 13 OF THE AGREEMENT DATED 09.11.1989 TO CONTEND THAT THE RISK AND REWARDS OF INCURRING THE AMP EXPENDITURE LI ED WITH THE ASSESSEE COMPANY ONLY AS THE FOREIGN AE WAS COMPLETEL Y INSULATED FROM SUCH RISKS AND REWARDS ARISING FROM THE MANUFA CTURING ACTIVITY CARRIED ON BY THE ASSESSEE COMPANY IN INDIA. HE SUBMITTED THAT THE ASSESSEE COMPANY HAS BEEN OPERATING AS A LICE NSED MANUFACTURER OF CONCENTRATES IN INDIA, WHICH HAVE BE EN USED IN THE MANUFACTURING OF SOFT DRINKS. FOR THIS PURPOSE, THE A SSESSEE COMPANY HAD OBTAINED THE LICENSE FROM ITS US PARENT AE FOR THE TECHNOLOGY TO MANUFACTURE CONCENTRATES AND TO EXPLOIT THE BRANDS OWNED BY THE US PARENT AE. IT WAS SUBMITTED THAT THE ASSES SEE COMPANY HAS BEEN MAINTAINING ADVERTISING AND MARKETIN G TEAM OF ITS OWN WHICH HAS BEEN STRATEGIZING FOR THE MARKETING AND PROMOTION OF ITS PRODUCTS. AS A PART OF THE LICENSE AG REEMENT FOR THE USE OF TRADEMARKS OWN BY THE US AE, THE ASSESSEE COMPA NY IS ENTITLED TO PROMOTE ITS PRODUCTS IN INDIA USING THE TRADEM ARK. THE ASSESSEE COMPANY HAS BEEN PERFORMING THE FUNCTION OF PROCUREMENT OF RAW MATERIAL, MANUFACTURING OF CONCENTRATES, DEVEL OPMENT OF ADVERTISING AND MARKETING STRATEGY, DETERMINATION OF THE ADVERTISEMENT AND MARKETING BUDGET, DECIDING THE CONCEPT AND CONTENT OF ADVERTISING, DECIDING THE CHOICE OF MEDIA WH ERE ADVERTISING NEEDS TO BE RELEASED, DEALING WITH ADVERTI SEMENT AND MARKETING AGENCIES, PRICING OF CONCENTRATES AND SALE O F CONCENTRATES TO RETAILERS AND DISTRIBUTORS. HENCE, IT WAS SUBMITTED TH AT THE ASSESSEE COMPANY IS SOLELY ENTITLED TO ENJOY THE RETURN ASSOCIATED WITH THE COMMERCIAL EXPLOITATION OF THE BRAND. AND TH EREFORE, IT WAS 28 LOGICAL THAT THE EXPENSES ON ACCOUNT OF AMP SHOULD HAVE BEEN BORNE BY THE ASSESSEE COMPANY AND NOT BY ITS PARENT AE. HE FURTHER SUBMITTED THAT THE ARGUMENT OF THE TPO IN RESPECT TO EXISTENC E OF A DIRECT BENEFIT BEING PASSED TO THE PARENT AE WAS ERRONEO US SINCE THE ASSESSEE COMPANY HAD NOT PAID ANY ROYALTY TO ITS US P ARENT AE FOR THE USAGE OF BRANDS AND TECHNOLOGY AND HAD PAID A MIN USCULE AMOUNT FOR THE IMPORT OF KEYS AND ESSENCES. 20. AS REGARDS, THE ALLEGATION OF THE TPO THAT THE ASSE SSEE DID NOT HAVE EXCLUSIVE RIGHT TO MANUFACTURE THE BEVERAGE IN IN DIA AND HENCE IT COULD NOT BE SAID THAT AMP EXPENSES INCURRED BY IT WA S SOLELY FOR ITS BENEFIT, MR. CHOPRA SUBMITTED THAT THE ASSESSEE HAD THE EXCLUSIVE RIGHT TO MANUFACTURE CONCENTRATES IN INDIA AN D ONLY BOTTLING OF THE BEVERAGE WAS ALLOCATED TO THIRD PARTIE S. THIS WAS BECAUSE, BOTTLING OF BEVERAGES WAS A SEPARATE FUNCTION AND FOR STRATEGIC REASONS THIS HAD TO BE GIVEN TO THIRD PARTY BOTTLERS FOR PART OF THE COUNTRY KEEPING IN MIND OPERATING EFFICIENCY OF OPERATIONS. 21. AS REGARDS, THE ALLEGATION OF TPO THAT CERTAIN B RANDS SUCH AS KURKURE (1999), ALIVA AND NIMBOOZ WERE CONCEPTUALIZE D AND DEVELOPED IN INDIA BUT THE TRADEMARK IN RESPECT OF THES E BRANDS WAS OWNED THE FOREIGN AE, IT WAS SUBMITTED BY HIM THAT THE SAL ES OF THESE BRANDS WERE LARGELY LIMITED TO INDIA AND SINCE, IT WERE NOT WIDELY SOLD OUTSIDE INDIA, NO BENEFIT COULD HAVE BEE N SAID TO HAVE ACCRUED TO THE AE ON ACCOUNT OF PROMOTION OF THESE BRAN DS. FURTHER, IT WAS SUBMITTED THAT IN CASES WHERE SUCH BRAND S WERE SOLD OUTSIDE INDIA, IT USED DIFFERENT FLAVOURS AND SP ICES SUITABLE FOR LOCAL CONSUMPTION ON WHICH THE ADVERTISING AND MARKE TING WAS CARRIED BY THE LOCAL ENTITY PRESENT IN THOSE JURISDICTI ONS. IT WAS BECAUSE OF THE FACT THAT, THE AE HAD NOT CHARGED THE AS SESSEE ANY 29 ROYALTY FOR USE OF ITS TRADEMARKS IN INDIA; HENCE IT W AS UNFAIR ON PART OF THE TPO TO ALLEGE THAT THE ASSESSEE SHOULD HAVE B EEN COMPENSATED FOR BRANDS CONCEPTUALIZED AND DEVELOPED B Y IT. THE ALLEGATION OF THE TPO THAT THE ASSESSEE COMPANY MERELY DUPLICATED THE ADVERTISEMENTS OF PEPSICO INC., USA IS ALSO NOT CO RRECT SINCE THERE WERE VARIOUS ADVERTISEMENTS WHICH HAD BEEN INDEP ENDENTLY CONCEPTUALIZED BY THE ASSESSEE COMPANY IN INDIA. THER EAFTER, HE PRESSED ON THE POINT THAT IT WAS AN ADMITTED POSITION THAT THE US PARENT AE WAS THE LEGAL OWNER OF THE BRAND/TRADEMARKS/ INTELLECTUAL PROPERTY WHICH HAD BEEN LICENSED TO THE AS SESSEE FOR THE USE IN INDIAN MARKET. HOWEVER, THE ASSESSEE HAPPENED TO BE THE ECONOMIC OWNER OF THE BRAND IN INDIA AND THEREFORE, W AS ENTITLED TO ALL THE ECONOMIC BENEFITS ARISING OUT OF THE INTANGIBLE PROPERTY. IT WAS SUBMITTED THAT THE ASSESSEE BORE ALL THE RISKS ASSOCI ATED WITH THE AMP SPENDING, AS IT WAS THE ASSESSEE WHO WAS EARN ING THE ULTIMATE BENEFIT FROM THOSE EXPENSES IN THE FORM OF INC REASE IN SALES. SINCE NO RESIDUAL PROFITS WERE FLOWING OUT OF INDIA TO THE AE, THERE WAS NO WAY INCOME OF THE AE WAS INCREASING FROM WHERE IT COULD FUND THE REIMBURSEMENT OF ADVERTISING AND MARKETI NG EXPENSE TO THE ASSESSEE IN INDIA. FURTHERMORE, HE SUBMITTED THAT THERE WAS NO TANGIBLE EVIDENCE TO SHOW THAT PEPSICO INC. HAD ACTUA LLY BEEN BENEFITED ON ACCOUNT OF THE AMP EXPENDITURE INCURRED B Y THE ASSESSEE; RATHER IT SUFFERED AN ADJUSTMENT ON ACCOUNT O F ROYALTY NOT CHARGED FROM INDIA. IN VIEW THEREOF, IT WAS SUBMITTED THAT IN CASE ANY BENEFIT OF ENHANCEMENT, MAINTENANCE, DEVELOPMENT OF MARKETING INTANGIBLES WAS ACCRUING TO THE AE IN US THEN IT WAS PURELY INCIDENTAL. IT WAS SUBMITTED THEREAFTER THAT IN V IEW OF THE RECENT HIGH COURT DECISIONS CITED, IT WAS A SETTLED POSITI ON OF LAW, THAT INCIDENTAL BENEFIT TO THE AE ON ACCOUNT OF AMP ACTIV ITIES CARRIED 30 ON BY THE ASSESSEE WOULD NOT WARRANT ANY TRANSFER PRICI NG ADJUSTMENT IN THE HANDS OF THE ASSESSEE COMPANY. 22. THE LEARNED COUNSEL FOR THE ASSESSEE, THERE AFTER DREW OUR ATTENTION TO THE SCOPE OF SECTION 92B (2) AS EXPLAINED B Y THE CENTRAL BOARD OF DIRECT TAXES IN THEIR CIRCULAR NO. 14 OF 2001 . THE RELEVANT PORTION OF THE SAID CIRCULAR STATES AS FOLLOW S: 55.8 SUB-SECTION (2) OF SECTION 92B EXTENDS THE SCOPE OF THE DEFINITION OF INTERNATIONAL TRANSACTION BY PROVIDING THAT A TRANSACTION ENTERED INTO WITH AN UNRELATED PERSON SHALL BE DEEMED TO BE A TRANSACTION WITH AN ASSOCIATED ENTERPRIS E, IF THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE TRANSACTI ON BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRI SE OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINED BY THE ASSOCIATED ENTERPRISE. AN ILLUSTRATION OF SUCH A TRANSA CTION COULD BE WHERE THE ASSESSEE, BEING AN ENTERPRISE RES IDENT IN INDIA EXPORTS GOODS TO AN UNRELATED PERSON ABROAD, AN D THERE IS A SEPARATE ARRANGEMENT OR AGREEMENT BETWEEN THE UNR ELATED PERSON AND AN ASSOCIATED ENTERPRISE WHICH INFLUENCES THE PRICE AT WHICH THE GOODS ARE EXPORTED. IN SUCH A CAS E THE TRANSACTION WITH THE UNRELATED ENTERPRISE WILL ALSO B E SUBJECT TO TRANSFER PRICING REGULATIONS. BASED ON THE ABOVE, THE LEARNED COUNSEL SUBMITTED THAT TH E TPO IN HIS ORDER HAD NOT RECORDED / IDENTIFIED ANY SUCH SEPA RATE ARRANGEMENT OR AGREEMENT AND HENCE THE DOMESTIC TRANSAC TIONS ENTERED BY THE ASSESSEE WITH THE UNCONTROLLED THIRD PARTI ES IN THE LOCAL MARKET, FELL OUTSIDE THE SCOPE OF SECTION 92B(2) OF THE ACT. HE FURTHER STRESSED ON THE POINT THAT NO EVIDENCE HAD BEEN BROUGHT ON RECORD TO ESTABLISH THE MANNER IN WHICH THE AES OF THE ASSESSEE HAD 31 INFLUENCED THE PRICE PAID BY THE ASSESSEE TO INDEPENDE NT THIRD PARTIES (AMP VENDORS) IN INDIA, SO AS TO BRING THE TRAN SACTION WITHIN THE FOLD OF SUB-SECTION (2) OF SECTION 92B OF THE ACT. I T WAS SUBMITTED THAT THE TPO PROCEEDED TO AVER THAT THE ASSESSEE W AS CONTRIBUTING TO GLOBAL PROFITS AND THEREFORE, AMP EXPEN SES ASSUMED THE CHARACTERISTICS OF AN INTERNATIONAL TRANSACTION BASED ON MISCONSTRUED FACTS AND COMPLETE DISREGARD OF THE ASSE SSEES BUSINESS MODEL. HENCE, THERE WAS INVALID ASSUMPTION OF JURISDICTION ON THE PART OF THE TPO. 23. THE LEARNED COUNSEL ALSO POINTED TOWARDS THE EXPLANATION TO SECTION 92B. THE EXPLANATION TO SECTION 92B AS INSER TED BY THE FINANCE ACT 2012. FROM THE SAID PROVISIONS HE SUBMITTE D THAT IT WAS CLEAR THAT UNDER THE EXPANDED DEFINITION OF THE TER M INTERNATIONAL TRANSACTION THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF INTANGIBLE PROPERTY HAD BEEN CLASSIFIED AS AN INTE RNATIONAL TRANSACTION. INTANGIBLE PROPERTY HAD BEEN DEFINED TO IN CLUDE MARKETING RELATED INTANGIBLE ASSETS SUCH AS TRADE-MARKS , TRADE NAMES, BRAND NAMES AND LOGOS ETC. THUS, IT WAS SUBMITTE D THAT WHERE TWO AES ENGAGED IN A TRANSACTION, WHICH INVOLV ED THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF INTANGIBLE PROPERTY, THE SAME SHALL BE CLASSIFIED AS AN INTERNATIONAL TRANSACTI ON. 24. THEREAFTER, THE LEARNED COUNSEL FOR THE ASSES SEE DREW OUR ATTENTION TOWARDS THE DECISION THE HONBLE DELHI HIGH COU RT IN MARUTI SUZUKI INDIA PVT. LTD (SUPRA) , WHEREIN IT WAS HELD THAT AMP TRANSACTION DID NOT FALL WITHIN THE AMBIT OF EXPLANATION I TO SECTION 92B AND THAT THE ONUS OF PROVING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION WAS ON THE DEPARTMENT. AT THIS P OINT, THE HE SUBMITTED THAT THE RELIANCE PLACED BY THE TPO ON THE DE CISION OF 32 THE HONBLE HIGH COURT IN SONY ERICSSON MOBILE COMMUN ICATION INDIA PVT. LTD. (SUPRA) WAS COMPLETELY MISPLACED. THE TPO HAD RELIED UPON THE SAID DECISION OF THE HONBLE HIGH COU RT TO CONTEND THAT MERE INCURRENCE OF AMP EXPENDITURE IN RESPECT OF BRANDS NOT OWNED BY THE ASSESSEE HAD TO BE TREATED AS AN INTERNATIO NAL TRANSACTION UNDER THE PROVISIONS OF THE ACT. BY WAY OF REBUTTAL, OUR ATTENTION WAS DRAWN TOWARDS THE RELEVANT PASSAGE GIVEN IN PARA 41 TO 44 OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA PVT. LTD (SUPRA). 25. HE SUBMITTED THAT SONY ERICSSON MOBILE COMMUNI CATION INDIA PVT. LTD. (SUPRA) WAS SPECIFICALLY A CASE OF DI STRIBUTOR AND THERE WAS NO DISPUTE AS FAR AS EXISTENCE OF INTERNATION AL TRANSACTION WAS CONCERNED. HOWEVER, IN THE PRESENT CASE, IT WAS SU BMITTED THAT THE VERY ISSUE OF EXISTENCE OF INTERNATIONAL TRANSACTION PERTAINING TO INCURRING OF AMP EXPENSES WAS IN DISPUTE AND HENCE R ELIANCE ON SONY ERICSSON ON THIS COUNT WAS COMPLETELY MISPLACED BY THE TPO. 26. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO S UBMITTED THAT THE RELIANCE OF THE TPO ON THE DECISION OF TOSHIBA INDIA PVT LTD (SUPRA) WAS ALSO MISPLACED SINCE THE SAME STOOD OVERRULED BY THE DECISIONS OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDI A PVT. LTD (SUPRA), WHIRLPOOL OF INDIA LTD (SUPRA), BAUSCH & LO MB EYECARE (INDIA) PVT LTD (SUPRA), HONDA SIEL POWER PRODUCTS LTD (SUPRA) AND THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUN AL IN M/S ESSILOR INDIA PVT LTD VS. DCIT: IT(TP)A NO. 29/BANG/2 014, M/S HEINZ INDIA PRIVATE LIMITED VS. ACIT: ITA NO. 7732/ MUM/2010, LOREAL INDIA PRIVATE LIMITED VS. DCIT : ITA NO. 771 4/MUM/2012 AND GOODYEAR INDIA LTD (SUPRA) AND HONDA SIEL POWER PRODUCTS LTD VS. DCIT: ITA NO. 551/DEL/2014. 33 27. MR. CHOPRA, THEREAFTER DIRECTED OUR ATTENTION TOWA RDS THE BENCHMARKING YARDSTICK USED BY THE TPO OVER THE YEARS TO COMPUTE THE TRANSFER PRICING ADJUSTMENT PERTAINING TO AMP EXPEN SES. HE SUBMITTED THAT FOR THE AYS 2006-07 TO 2009-10, THE TPO US ED BRIGHT LINE TEST, NOT ONLY TO BENCHMARK THE ALLEGED I NTERNATIONAL TRANSACTION BUT ALSO FOR CONCLUDING THAT THERE EXISTED AN INTERNATIONAL TRANSACTION IN THE FIRST PLACE. HE STRESSED HEAVILY THAT THE TRANSFER PRICING ADJUSTMENT PERTAINING TO AMP EXPENS ES COMPUTED USING BLT HAS SPECIFICALLY BEEN TIME AND AGA IN DELETED/ REMANDED BACK BY THE HONBLE HIGH COURT OF DELHI IN V ARIOUS DECISIONS STARTING WITH SONY ERICSSON MOBILE COMMUNI CATIONS PVT. LTD. (SUPRA). HE AGAIN DREW OUR ATTENTION TOWARDS THE RE LEVANT PASSAGE IN PARA 121 & 122 FROM THE DECISION OF THE HO NBLE DELHI HIGH COURT IN SONY ERICSSON MOBILE COMMUNICATIONS PVT. LTD. (SUPRA) THEREAFTER, HE RE-DIRECTED OUR ATTENTION TOWAR DS THE PARA 68 TO 76 FROM THE DECISION OF THE HONBLE DELHI HIGH COUR T IN MARUTI SUZUKI INDIA PVT. LTD (SUPRA). RELYING ON THE JUDGEME NT HE SUBMITTED THAT IN THE ABSENCE OF ANY MACHINERY PROVISIO N AS WELL AS A SUBSTANTIVE PROVISION TO BRING AMP SPENDING WITHIN THE PURVIEW OF CHAPTER X, THERE COULD NOT BE ANY TRANSFER PRICING ADJ USTMENT EXERCISE. HE FURTHER SUBMITTED THAT IT WAS A SETTLED POSITIO N OF LAW IN THE JURISDICTION IN WHICH THE ASSESSEE OPERATES THAT IN CURRING OF AMP EXPENSES WAS NOT AN INTERNATIONAL TRANSACTION. EVE N OTHERWISE, THE VERY EXISTENCE OF INTERNATIONAL TRANSACTION VIS--VIS AMP EXPENSES HAD TO BE ESTABLISHED BY THE DEPARTMENT DE HORS BLT. THEREFORE, ON BOTH THE COUNTS, THE TPO FELL IN ERROR. 28. THEREAFTER, HE DREW OUR ATTENTION TOWARDS THE TP O ORDER FOR THE AYS 2010-11 TO 2012-13, WHEREIN, THE TPO REACHED TO A 34 CONCLUSION THAT THERE EXISTED AN INTERNATIONAL TRANSACTI ON VIS--VIS AMP EXPENSES DUE TO THE EXCESSIVENESS OF THE SAID EXP ENDITURE. HE POINTED OUT THAT THE SAID EXERCISE ITSELF WAS AGAINST THE MANDATE OF THE HONBLE DELHI HIGH COURT AND ALSO POINTED OUR ATTENTI ON TOWARDS THE FACT THAT THE TPO DECLINED TO FOLLOW THE DECISION OF TH E HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA PVT. LTD (SUPRA) BY QUOTING THAT THE DEPARTMENT HAD PREFERRED A SPECIAL LEA VE PETITION (SLP) BEFORE THE HONBLE SUPREME COURT OF INDIA AGAI NST THE SAID JUDGMENT OF THE HONBLE DELHI HIGH COURT. 29. HE FURTHER, POINTED OUT THAT THE METHOD APPLIED BY THE TPO TO BENCHMARK THE ALLEGED INTERNATIONAL TRANSACTION PERTAININ G TO AMP EXPENSES IN AY 2010-11 TO 2012-13, WHEREIN TPO HAD APPLIED THE PSM METHOD INCORRECTLY AS PER RULE 10B(1)(D) OF THE I NCOME TAX RULES, 1962 (RULES). HE DREW OUR ATTENTION TO RULE 10 B(1)(D) PSM WAS TO BE APPLIED VIS--VIS AN INTERNATIONAL TRANSACTIO N INVOLVING UNIQUE INTANGIBLES AND CONTENTED THAT HERE NEITHER THE COM BINED PROFIT CAN BE WORKED OUT NOR THERE IS ANY INVOLVEMENT OF TRANSFER OF ANY IN TANGIBLES. IN FACT NO PROFIT HAS DERIVED BY THE AE IN INDIA AND WHEN NO FAR IS BEING CARRIED OUT BY THE AE IN INDIA A ND HENCE NO ALP IS REQUIRED TO BE DETERMINED UNDER PSM.THERE IS 30. MR. CHOPRA ALSO REFERRED TO THE ORGANISATION F OR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD) TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS 20 10 (TP GUIDELINES), WHICH HAS ALSO BEEN RELIED UPON BY THE TPO. HE SUBMITTED THAT UNDER THE SAID GUIDANCE AND AS PER THE RU LES, THE TPO WAS REQUIRED TO DETERMINE THE COMBINED PROFIT ARIS ING FROM THE IMPUGNED INTERNATIONAL TRANSACTION OF INCURRING AMP E XPENSES. THEREAFTER, THE TPO WAS REQUIRED TO SPLIT THE COMBINED PROFIT IN THE PROPORTION OF THE RELATIVE CONTRIBUTION OF THE ASSESSEE AND THE AE. 35 HOWEVER, THE TPO DID NOT APPLY PSM CORRECTLY AND DID N OT ANALYSE THE CONTRIBUTION MADE BY BOTH THE ENTITIES, I.E., THE ASSE SSEE COMPANY AND THE US PARENT AE, ON THE RELATIVE VALUE OF THE FAR OF EACH OF THE ENTITIES. HE ALSO POINTED OUT VARIOUS OTHER INCONSISTENCIES IN THE TPOS APPLICATION OF PSM FOR B ENCHMARKING THE ALLEGED INTERNATIONAL TRANSACTION OF AMP EXPENSES. 31. IT WAS POINTED OUT BY HIM THAT THE TPO IN ITS ORD ER FOR THE AYS 2010-11 TO 2012-13, HAD APPLIED THE PSM METHOD BY TAKIN G THE FINANCIALS OF THE US PARENT AE INTO ACCOUNT. HE HAS DE TERMINED A RATE OF 35% ALLOCABLE TOWARDS MARKETING ACTIVITIES BY RELYING UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N ROLLS ROYCE PLC VS. DDIT [TIOL-408-ITAT-DEL] AND HAD APPLIED THE SAME TO THE GLOBAL NET PROFIT OF THE US PARENT AE TO ARISE AT THE G LOBAL PROFIT OF THE US PARENT AE FROM MARKETING ACTIVITIES. THEREAFT ER, THE TPO HAD COMPARED THE AMP SPENT BY THE US PARENT AE WITH THAT OF THE ASSESSEE COMPANY AND MULTIPLIED THAT RATIO WITH THE GLOB AL NET PROFIT OF THE US PARENT AE ARISING FROM THE MARKETING A CTIVITIES TO COMPUTE THE SUBJECT TRANSFER PRICING ADJUSTMENT ON ACCOUN T OF AMP EXPENSES. HE SUBMITTED THAT PSM IS APPLICABLE MAINLY IN INTERNATIONAL TRANSACTIONS INVOLVING TRANSFER OF UNIQUE INTANGIBLES OR IN MULTIPLE INTERNATIONAL TRANSACTIONS WHICH ARE SO INTE RRELATED THAT THEY CANNOT BE EVALUATED SEPARATELY FOR THE PURPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF ANY ONE TRANSACTION. IT WAS F URTHER SUBMITTED THAT THE IN THE CASE OF THE ASSESSEE COMPANY, THE RE WAS NO TRANSFER OF ANY UNIQUE INTANGIBLES BUT FOR THE LICEN SE TO USE TRADEMARK WHICH WAS ALSO ROYALTY FREE. ACCORDING TO T HE RULES FOR APPLICABILITY OF PSM, THE COMBINED NET PROFIT OF THE AE S ARISING FROM THE INTERNATIONAL TRANSACTION HAS TO BE DETERMINED AN D THEREFORE, IF INCURRENCE OF AMP EXPENSES WAS TO BE CONSIDERED AS TH E 36 INTERNATIONAL TRANSACTION, THEN THE COMBINED PROFIT WA S TO BE DETERMINED FROM THE VALUE OF SUCH INTERNATIONAL TRANSAC TION. THUS, THE APPROACH OF THE TPO TO SPLIT GLOBAL NET PROFIT WA S COMPLETELY OUT OF PLACE. 31. THE LEARNED COUNSEL FURTHER SUBMITTED THAT EVEN O THERWISE ALSO, THE PROFIT EARNED ON ACCOUNT OF THE AMP EXPENSES INCURRED BY THE ASSESSEE OR THE ECONOMIC EXPLOITATION OF THE TRADEMA RKS/ BRANDS IN INDIA WAS ALREADY CAPTURED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY ITSELF AND THE SAME HAD DULY BEEN OFFERED TO TAX IN THE INCOME TAX RETURN AND THUS, THERE WAS NO LOG IC TO COMPUTE A TRANSFER PRICING ADJUSTMENT ON THIS SCORE AT AL L. THE ASSESSEE COMPANY HAD PLACED SIMILAR ARGUMENTS BEFORE THE DRP FOR ALL THE YEARS, HOWEVER, FOR AY 2013-14 ONLY, THE DRP FOUND REASON WITH SUCH ARGUMENT AND HAD DIRECTED THE APPLICATION OF OTHER METHOD AS PRESCRIBED UNDER THE RULES AS AGAINST THE AP PLICATION OF PSM FOR THE SUBJECT TRANSFER PRICING ADJUSTMENT. 33. MR. CHOPRA, THEN BROUGHT OUR ATTENTION TOWARDS THE APPLICATION OF THE OTHER METHOD AS EMPLOYED BY THE DR P FOR AY 2013-14 AND SUBMITTED THAT THE SAME WAS A DISGUISED BLT METHOD INSTEAD. HE SUBMITTED THAT THE DRP FOR AY 2013-14, HAD DI RECTED THE APPLICATION OF OTHER METHOD AS PER THE RULES AND H AD COMPUTED THE ADJUSTMENT BY COMPARING THE AMP/SALES RATIO OF THE US PARENT AE WITH THAT OF THE ASSESSEE COMPANY. THEREAF TER, THE DRP CONSIDERED THE EXCESSIVE AMP SPENT BY THE ASSESSEE COMPANY TO BE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPE NSES FOR AY 2013-14. THE ONLY DIFFERENCE BETWEEN THE APPROACH ADOPTED BY THE DRP WITH THAT OF THE DEPARTMENT WAS THAT DEPARTMENT COMPARES THE AMP/SALES OF THE TESTED PARTY WITH THAT OF THIRD 37 PARTIES AND IN THE INSTANT CASE, THE AMP/SALES OF THE AS SESSEE COMPANY HAS BEEN COMPARED WITH THAT OF ITS PARENT AE. H E SUBMITTED THAT EVEN IN AY 2013-14, THE OTHER METHOD HAS BEEN INCORRECTLY APPLIED. HE ALSO DREW OUR ATTENTION TO RUL E 10AB AND POINTED OUT THAT ERRONEOUS INTERPRETATION OF THIS RULE HAS BEEN MADE BY THE DRP BY COMPARING THE AMP / SALES RATIO OF THE ASSESSEE WITH THE GLOBAL AMP/ SALES OF PEPSI GROUP ON A WORLDWIDE BASIS. HE SUBMITTED THAT RULE 10AB PROVIDED THAT OTHER ME THOD TAKES INTO ACCOUNT THE PRICE WHICH HAD BEEN CHARGED OR PAID FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTION WITH OR BETWEE N NON- ASSOCIATED ENTERPRISES UNDER SIMILAR CIRCUMSTANCES. C OMPARISON OF THE AMP OVER SALES RATIO OF THE ASSESSEE WITH THE AMP RA TIO OF PEPSI CO GROUP ON A WORLDWIDE BASIS WAS NOTHING BUT A DIST ORTED VERSION OF THE BLT. 34. WITHOUT PREJUDICE, LD. COUNSEL SUBMITTED THAT EVE N IF THERE WAS AN INTERNATIONAL TRANSACTION PERTAINING TO INCURRENC E OF AMP EXPENSES, THEN ALSO THE APPLICATION OF BLT FOR BENCHMA RKING WOULD RENDER NO TRANSFER PRICING ADJUSTMENT IN VIEW OF SETTLE D LAW BY THE JURISDICTIONAL HIGH COURT IN SEVERAL CASES, AS A RES ULT WOULD BE LIABLE TO BE SET ASIDE. HE PLACED HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN VALVOLINE CUMMINS PRIVATE LTD. VS. DCIT [ITA NO. 158/2017, JUDGMENT DATED 31.07.2017] , WHEREIN THE HONBLE HIGH COURT HAS HELD THAT ONCE BLT HAD BEEN DECLARED BY THE HONBLE HIGH COURT OF DELHI IN SONY ERICSSON I NDIA PVT. LTD. V. CIT (SUPRA) TO BE NO LONGER A VALID BASIS FOR DET ERMINING THE EXISTENCE OF OR THE ARMS LENGTH PRICE (ALP) OF AN I NTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES, THE ORDER OF THE T PO COULD NOT BE SUSTAINED IN LAW. 38 35. AGAIN WITHOUT PREJUDICE TO HIS EARLIER AVERME NTS, HE SUBMITTED THAT EVEN IF INCURRENCE OF AMP EXPENDITURE WAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION AND BLT W AS TO BE CONSIDERED AS THE MOST APPROPRIATE METHOD, THEN THE SAME MAY BE COMPARED TO THE SALES OF THE FINAL PRODUCT THAT WILL INC LUDE THE SALES MADE BY THE BOTTLERS. HE SUBMITTED A CHART TO DEMONSTRATE THA T IF THE SALES OF THE FINAL PRODUCT ARE CONSIDERED AND NOT JUST THE SALES OF THE CONCENTRATE MADE BY THE ASSESSEE TO THE BOTTLERS, TH E SAID RATIO WOULD FALL WITHIN THE RANGE AS COMPUTED BY THE TPO FOR THE COMPARABLES USING BLT. AS AN ILLUSTRATION, IT WAS SUB MITTED THAT DURING AY 2006-07, IF THE SALES MADE BY THE BOTTLERS I .E. 1764,13,14,226/- IS CONSIDERED FOR BLT TO APPLY AS C OMPARED TO THE TOTAL AMP EXPENSES INCURRED BY THE ASSESSEE AS WELL AS BOTTLERS, I.E., RS. 259,57,71,988/- (INCLUDING AMP EXPENSES WORTH R S. 202,34,16,000 AS INCURRED BY THE ASSESSEE ALONE), THE N THE AMP/ SALES RATIO FALLS DOWN TO 14.71%. IT WAS SUBMITTED THAT THE SAID RATIO WAS WITHIN THE RANGE AS COMPUTED BY THE TPO FOR COMPA RABLES USING BLT. 36. HE SUBMITTED THAT THE DISPUTE WITH RESPECT TO THE APP LICABILITY OF METHOD FOR BENCHMARKING WAS SECONDARY AND THE REA L OR THE PRIMARY DISPUTE WAS WITH RESPECT TO THE EXISTENCE OF ANY INTERNATIONAL TRANSACTION QUA AMP EXPENDITURE INCURRED BY THE ASSESSEE IN ITS COMMERCIAL WISDOM AND EXPERTISE. AS PER ASSESSEES BUSINESS MODEL, ASSESSEE HAS BEEN ENGAGED IN THE MAN UFACTURE OF CONCENTRATE, WHICH IS AN INTERMEDIATE PRODUCT AND IS SOLD ONLY TO LICENSED BOTTLERS WHO COMPLETE THE PRODUCT WHICH IS SOL D IN THE MARKET TO THE CONSUMER. HE SUBMITTED THAT THE CONCENTRATE A S SUCH WAS NOT A MARKETABLE COMMODITY. TO DISTINGUISH ITS C ASE FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN SONY ERIC SON MOBILE 39 COMMUNICATIONS (INDIA) PVT. LTD. (SUPRA), HE POINTED OUT THAT THE SONY DECISION INVOLVED DISTRIBUTORS AND THE SAID DIST INCTION HAS ALSO BEEN RECOGNIZED IN THE SUBSEQUENT DECISION OF THE HON BLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA PVT. LTD. (SUPRA), WH ICH WAS A CASE OF MANUFACTURER. THUS, THE ASSESSEES CASE WAS S QUARELY COVERED BY THE MARUTI DECISION. FOR THIS REASON, SPECI AL BENCH OF THIS TRIBUNAL IN LG ELECTRONICS INDIA (P.) LTD. VS. ASSTT. CIT 140 ITD 41 (DELHI) (SB) HELD THAT ALL SELLING AND MANUFACTURING EXPENSES WERE TO BE EXCLUDED FOR THE PURPOSES OF DETE RMINING ANY THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENS ES. SUCH A FINDING HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATION S (INDIA) PVT. LTD. (SUPRA). 37. HE FURTHER CONTENDED THAT THE ENTIRE AMP EXPENDITU RE INCURRED BY THE ASSESSEE FORMED PART OF THE ASSESSAB LE VALUE UNDER THE EXCISE LAWS AND ON WHICH THE ASSESSEE HAD PAID E XCISE DUTY. TO DEMONSTRATE THE SAME, HE PLACED RELIANCE ON THE DECISIO N OF THE HONBLE SUPREME COURT IN ASSESSEES OWN CASE REPORTE D AS COLLECTOR OF CENTRAL EXCISE, CHANDIGARH VS. PEPSI FO ODS LTD. 1997 (91) ELT 544 (SC) AND SUBMITTED THAT SUCH AN AMOUNT ALSO INCLUDED THE REIMBURSEMENTS MADE TO THE AE FOR ICC CRI CKETING SPONSORSHIP. HENCE, IT THE ENTIRE AMP EXPENDITURE FORME D PART OF THE COST OF MANUFACTURE FOR THE ASSESSEE AND GIVEN THE M ANDATE OF THE SPECIAL BENCH THAT ALL SELLING AND MANUFACTURING E XPENSES COULD NOT BE INCLUDED FOR THE PURPOSES OF DETERMININ G ANY EXCESSIVE AMP EXPENDITURE, THE ENTIRE ADJUSTMENT DESERVES TO BE SE T ASIDE. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF COCA COLA INDIA PVT. LTD. VS. THE COMMISSIONER OF CENTRAL EXCISE (CENTRAL EXCISE APPEA L NO. 118 40 OF 2007) TO DEMONSTRATE THE ENTIRE BUSINESS MODEL AND STRUCTURE O F BUSINESS OPERATIONS OF A COMPANY WHICH OPERATES IN TH E SAME INDUSTRY AS THE ASSESSEE. THE ASSESSEE COMPANY WAS A N INTERVENER BEFORE THE HONBLE BOMBAY HIGH COURT IN THIS CASE AND THE ISSUE BEFORE THE HONBLE COURT WAS, WHETHER THE ASSESSEE WERE ENTITLED TO AVAIL OF INPUT SERVICE TAX CREDIT IN RESPECT OF THE ADVE RTISING AND MARKETING EXPENDITURE. THE HONBLE COURT HAD ALSO EXAM INED WHETHER THE ADVERTISING DONE BY THE ASSESSEE WAS INTEGRA LLY CONNECTED WITH THE FINAL PRODUCT WITH THE MANUFACTURE O F CONCENTRATE SINCE CONCENTRATE WAS NOT OPENLY SOLD IN TH E MARKET. THE HONBLE COURT, AFTER EXAMINING THE FACTS OF THE C ASE, ACCEPTED THAT THE ADVERTISING DONE BY THE ASSESSEE WAS INTEGRALLY CONNECTED WITH THE SALE OF THE FINAL PRODUCT AND CONSEQUENTIAL RE LATED AND INTEGRAL TO THE MANUFACTURE AND SALE OF CONCENTRATE. TH E BUSINESS EXIGENCY/NECESSITY OF THE ASSESSEE IN TERMS OF INCUR RING SUCH EXPENDITURE WAS ALSO APPROVED BY THE COURT AND IT WAS H ELD THAT THE ASSESSEE WOULD BE ENTITLED TO AVAIL OF THE INPUT SERVICE CREDIT IN RESPECT OF SERVICE TAX PAID BY THE ASSESSEE ON ADVERTI SING AND MARKETING SERVICES AVAILED OFF. 38. IN LIGHT OF THE ABOVE, IT WAS SUBMITTED THAT IT IS ESTABLISHED BEYOND DOUBT THAT THE AMP EXPENDITURE FORMED PART OF TH E COST OF MANUFACTURE FOR THE ASSESSEE AND COULD NOT BE CONSID ERED FOR ANY ADJUSTMENT BY THE TPO WHETHER ON THE GROUNDS OF EXCESS IVENESS OR OTHERWISE. 39. THEREAFTER, THE LEARNED COUNSEL BROUGHT OUR ATTEN TION TOWARDS THE FINAL REPORT OF ACTION 8-10 OF THE BASE EROSION AND PROFIT SHIFTING PROJECT (BEPS) OF THE OECD TITLED AS ALIGNING TRANSFER PRICING OUTCOMES WITH VALUE CREATION. HE SUBMITTED THA T EVEN 41 UNDER THIS LATEST DEVELOPMENT IN INTERNATIONAL TAX, THERE HAS BEEN NO ADJUSTMENT SUGGESTED ON ACCOUNT OF AMP EXPENDITURE I NCURRED BY A FULL-FLEDGED MANUFACTURER. HE TOOK US THROUGH TH E EXAMPLES PROVIDED IN THE REPORT TO CONTEND THAT NONE OF THE EXAMP LES THEREIN PERTAINED TO A MANUFACTURER, THEREBY INDICATING A CONS ISTENT LOGIC THAT AMP EXPENDITURE INCURRED BY A MANUFACTURER COULD NOT BE SUBJECTED TO TRANSFER PRICING ADJUSTMENT. 40. HE THUS, CONTENDED THAT IN ASSESSEES CASE THE LE GAL OWNER OF THE TRADEMARKS LICENSED TO THE ASSESSEE HAS PERFORMED N O RELEVANT FUNCTIONS, USED NO RELEVANT ASSETS, AND ASSUMED NO RE LEVANT RISKS, BUT FOR SOLELY ACTING AS THE TITLE HOLDER AND THEREFORE, IT IS ACTUALLY NOT ENTITLED TO ANY RETURN FOR HOLDING SUCH TITLE. WHEN TH E LEGAL OWNER BEING THE US PARENT AE IS NOT ENTITLED TO ANY RETURN , THEN THERE WAS NO REASON WHY IT COMPENSATES ITS SUBSIDIARY IN INDIA, I.E., THE ASSESSEE COMPANY FOR MARKETING ACTIVITIES WHILE OP ERATING IN INDIA AS A FULL-FLEDGED MANUFACTURER AND REAPING ALL PROFITS FROM ITS OPERATIONS IN INDIA. TO SUPPORT HIS AVERMENTS, LEARNED COUNSEL ALSO DEMONSTRATED THAT THE RISK WITH RESPECT TO ITS MANUFACTURIN G OPERATIONS IN INDIA WAS UNDERTAKEN TOTALLY BY THE ASSESS EE AND NOT BY THE US PARENT AE. HE REFERRED TO VARIOUS CLAUSES IN THE AGREEMENT DATED 09.11.1989 THAT INDICATED THAT THE ASSESSE E WAS TO UNDERTAKE ALL RISKS WITH THE MANUFACTURING ACTIVITY IN INDIA AND SUBMITTED THAT IN 2006, THERE WAS AN INVESTIGATION LAUNCHE D BY THE FOOD INSPECTOR OF MOBILE VIGILANCE AGAINST THE ASSESS EE COMPANY SINCE A VERY SMALL AMOUNT OF PESTICIDE RESIDUE CAR BOFURAN WAS FOUND IN THE SAMPLE OF THE BEVERAGE MANUFACTURED BY THE ASSESSEE THAT WAS COLLECTED BY THE FOOD INSPECTOR. IT WAS THE ASSE SSEE WHO TOOK THE HIT AS FAR AS MARKET SHARE IN RESPECT OF BEVERA GE INDUSTRY IN INDIA WAS CONCERNED AND NO AMOUNT WAS REIMBURSED BY THE US 42 PARENT AE FOR THE LOSS OF GOODWILL THAT THE ASSESSEE S UFFERED. HE FURTHER SUBMITTED THAT SUCH ISSUE WAS FOUGHT BY THE ASSESS EE IN ITS OWN NAME UP TILL THE HONBLE APEX COURT, WHERE THE AS SESSEE COMPANY WON, HOWEVER THERE WAS NO INTERVENTION BY THE US PARENT AE WHO WAS THE LEGAL OWNER OF THE BRAND AND NO PART OF THE COST ASSOCIATED WITH THE SAID LITIGATION WAS REIMBURSED TO THE ASSESSEE BY THE US PARENT AE EITHER. HE SUBMITTED THAT THE ORDER PAS SED BY THE HONBLE SUPREME COURT IN THAT MATTER IS REPORTED AS PEPSICO INDIA HOLDINGS PVT. LTD. VS. FOOD INSPECTOR & ANR ( CRL. APPEAL NO. 836 OF 2010, JUDGMENT DATED 18.11.2010) . THE SAID LITIGATION DEMONSTRATED THAT THE ASSESSEE COMPANY WAS THE ECONOMIC O WNER OF THE CONCERNED BRANDS IN INDIA AND THEREFORE WAS R EQUIRED TO UNDERTAKE AMP ACTIVITIES IN INDIA FOR THE SALE OF ITS MA NUFACTURED PRODUCTS IN INDIA. 41. LASTLY, THE LEARNED COUNSEL SUBMITTED THAT ASSESS EES CASE WAS COVERED BY VARIOUS DECISIONS INCLUDING THE FOLLOWING DECISIONS: (I) MARUTI SUZUKI INDIA LTD. VS. CIT (SUPRA); (II) WHIRLPOOL OF INDIA LTD. VS. DCIT (SUPRA); (III) BAUSCH & LOMB EYECARE (INDIA) PVT. LTD. VS. ACIT (SUPRA); (IV) HONDA SIEL POWER PRODUCTS LTD. VS. DICT (SUPRA); (V) VALVOLINE CUMMINS PVT. LTD. VS. DCIT (SUPRA); (VI) GOODYEAR INDIA LTD. VS. DICT (SUPRA); (VII) HONDA SIEL POWER PRODUCT LTD. VS. DICT: ITA NO. 551/ DEL/ 2014 (DELHI ITAT); (VIII) M/S ESSILOR INDIA PVT. LTD. VS. DCIT: IT(TP)A NO. 29/RANG/2014 (BANGALORE ITAT); (IX) M/S HEINZ INDIA PRIVATE LTD. VS. ACIT (SUPRA); 43 (X) LOREAL INDIA PRIVATE LIMITED VS. DICT: ITA/7714/MUM/2012 (MUMBAI TRIBUNAL); (XI) THOMAS COOK (INDIA) LTD. VS. DCIT: [2016] 70 TAXMANN.COM 322 (MUMBAI TRIB.); (XII) DIAGEO INDIA PRIVATE LIMITED VS. DCIT: I.T.A./7545/MUM/2012 (MUMBAI TRIB.); (XIII) MONDELEZ INDIA FOODS (P) LTD. VS. ACIT: [2016] 70 TAXMANN.COM 112 (MUMBAI-TRIB.); (XIV) DCIT VS. MATTEL TOYS (INDIA) PVT LTD: ITA NO. 4415/MUM/2014 (MUMBAI TRIBUNAL); (XV) WIDEX INDIA PVT. LTD. VS. ACIT: 117/CHANDI/2016 (CHANDIGARH TRIBUNAL); (XVI) NIPPON PAINT INDIA PVT. LTD VS. ACIT: ITA NO.779/MDS/2016 (CHENNAI TRIBUNAL); (XVII) NIKON INDIA PVT. LTD. VS. DCIT: ITA NO. 4574/DEL/2017 (DELHI ITAT). CONTENTION RAISED BY THE LD. CIT-DR: 42. THE LEARNED CIT DR IN SUPPORT OF TPOS ORDER SUBMITTED THAT, IT IS AN UNDISPUTED POSITION THAT THE PEPSI BRAND FO R SOFT DRINKS AND OTHER BRANDS, ON WHICH THE ASSESSEE INCURRED AM P EXPENDITURE, BELONGED TO THE US PARENT AE. IT WAS SUBMITTED THAT THE ASSE SSEE DID NOT OWN AND DEVELOP ITS OWN BRAND AND THAT THE AMP SPENT WAS PURELY TOWARDS BRAND BUILDING AND NOT SALES PROMOTION EXPENSES. THROUGH THE AMP SPEND OF THE ASSESSEE, NEW BRANDS WER E DEVELOPED SUCH AS NIMBOOZ AND KURKURE, WHICH WERE ALTHOUGH CONCEPTUALIZED IN INDIA, BUT BELONGED TO THE US PARENT AE. HE RELIED UPON THE TPOS ORDER FOR AY 2010-11 TO 2013-14 AND SUBMITTED THAT THE THEMES/ SLOGANS USED IN ADVERTISEMENTS IN INDIA BY THE 44 ASSESSEE WERE IDENTICAL TO THOSE USED ABROAD BY THE US PARENT AE. HE SUBMITTED THAT SUCH AN EXERCISE REVEALED THAT THE ASSES SEE WAS SEEKING APPROVAL FOR THE CONTENT OF THE ADVERTISEMENT TO BE IN LINES WITH GLOBAL POLICIES OF THE PEPSI GROUP TO STRENGTHEN A ND CREATE INTELLECTUAL PROPERTY BRANDS OWNED BY THE US PARENT AE . HE PLACED FURTHER RELIANCE ON TPOS ORDER TO SUBMIT THAT THE ON THE BASIS OF THE BRAND DEVELOPED IN INDIA, PEPSI GROUP LAUNCHED P EPSI KARKEDEH IN EGYPT. SIMILARLY, IT WAS SUBMITTED THAT THE ASSESSEE H AD DEVELOPED OTHER PRODUCTS THROUGH AMP SPEND NAMELY SLIC E MANGOES DRINK, MANTANA MANGO ETC. SINCE THE SAID BRANDS WERE ALSO REGISTERED IN THE NAME OF THE US PARENT AE, THE SAME PRO VED THAT THE ASSESSEE WAS HELPING ITS AE IN CREATION OF MARKETIN G INTANGIBLES. 43. THE LEARNED DR FURTHER SUBMITTED THAT THE VERY FA CT THAT PEPSI COLA (IRELAND) HAD ENTERED INTO AGREEMENT WITH GLOBAL C RICKET CORPORATION LTD. FOR ADVERTISING THE PEPSI BRAND IN CR ICKETING EVENTS SHOWED THAT THE ADVERTISEMENT POLICY OF THE ASSESSEE WAS GUIDED, APPROVED AND PLANNED BY ITS AES. HE POINTED OUT THAT AS SESSEE BORE 72.5% OF THE TOTAL PAYMENT MADE BY THE SAID AE UNDER T HE AFORESAID AGREEMENT ON THE CLAIM OF VIEWERSHIP EVEN FOR MATCHES PLAYED OUTSIDE INDIA. THEREAFTER, HE PLACED RELIANCE ON THE PROFIT AND LOSS ACCOUNT FOR AY 2006-07 TO SUBMIT THAT THE TOTAL RAW MATER IAL CONSUMPTION COST WAS INR 35 CRORES, WHEREAS THE ADVER TISEMENT COST WAS INR 202 CRORES. HE HIGHLIGHTED THAT THE SAID FI GURES INDICATED THAT THE ADVERTISEMENT EXPENSE CONSTITUTED MORE TH AN TWO THIRD OF THE ENTIRE COST FOR THE ASSESSEE. THEREFORE , THE REAL QUESTION WAS WHETHER THE ASSESSEES MAIN BUSINESS WAS MANUFACTURE OF CONCENTRATES OF WHETHER IT WAS DEVELOPM ENT OF BRAND THROUGH AMP EXPENDITURE. HE SUBMITTED THAT IN LIGHT OF THE FACT THAT AMP EXPENSE WAS HUGE IN COMPARISON TO OTHER D IRECT AND 45 INDIRECT EXPENSES, IT WAS CLEAR THAT THE ASSESSEE COMPAN Y WAS DEVELOPING MARKET AND CREATING MARKETING INTANGIBLE AND HENCE THE AMP FUNCTION DOMINATED THE MANUFACTURING FUNCTION. HE FU RTHER SUBMITTED THAT THE ASSESSEES ALLEGED MANUFACTURING BUSI NESS ITSELF WAS PROCESSING OF ESSENCE WITH SUGAR ETC. TO MAKE DRIN K CONCENTRATES; THEREFORE, THESE ACTIVITIES CAN AT THE BES T BE CALLED PROCESSING AND NOT MANUFACTURING WHERE NORMALLY HUG E MECHANICAL PROCESSES ARE REQUIRED. THE ENTIRE SALE WAS BASED ON ADVERTISEMENT OF BRAND OWNED BY THE AE. HENCE, THE ASSESSEE WAS PR OVIDING SERVICES TO THE AE BY WAY OF STRENGTHENING THE BRANDS AND CREATION OF BRANDS FOR THE AE. 44. THE LEARNED DR FURTHER SUBMITTED THAT THE BENEFIT F OR THE ASSESSEE BY WAY OF INCREASE IN SALE WAS INCIDENTAL A ND THE MAIN PURPOSE OF THE AMP WAS THE CREATION OF MARKET INTANGIBL E NAMELY BRAND OWNED BY THE AE. THE ASSESSEE MAINLY EXISTED AN D CARRIED OUT THE ACTIVITY FOR THE CREATION AND STRENGTHENING OF BRA NDS OWNED BY THE AE. ACCORDINGLY, IT WAS SUBMITTED THAT THE ASSESSEE WAS PROVIDING A SERVICE TO THE AE FOR CREATION OF MARKETIN G INTANGIBLE BY INCURRING AMP EXPENSES, WHICH WAS AN INTERNATIONAL TR ANSACTION AND REQUIRED BENCHMARKING. HE SUBMITTED THAT THE RELIANC E PLACED BY THE ASSESSEE ON THE DECISION OF THE HONBLE HIGH C OURT OF DELHI IN MARUTI SUZUKI INDIA PVT. LTD. (SUPRA) WAS NOT TENABLE, SINCE MARUTI SUZUKI WAS A MANUFACTURER AND THAT THERE WAS HARDLY AN Y MANUFACTURING ACTIVITY UNDERTAKEN BY THE ASSESSEE. FUR THERMORE, IN THE SAID DECISION, THE BRAND THAT WAS PROMOTED WAS MARU TI SUZUKI WHICH WAS CO-OWNED BY MARUTI & SUZUKI. HE SUBMITTED THAT SAID BRAND WAS NOT EXCLUSIVELY OWNED BY THE AE, NAMELY S UZUKI LTD. HE FURTHER SUBMITTED THAT THAT HONBLE HIGH COURT HAD APPRECI ATED THEREIN THAT MARUTI BRAND HAD ALREADY BUILT A HUGE REPUTA TION AND 46 THEREFORE, THE AMP EXPENDITURE HAD SUBSTANTIALLY BENEFI TED MSIL. HOWEVER, IN THE PRESENT CASE, THE BRAND PEPSI WAS OW NED BY THE AE. HE POINTED OUT THAT FOR AY 2006-07 MORE THAN 60% OF THE ENTIRE EXPENDITURE WAS TOWARDS AMP SPEND, HENCE, THE MAIN BUS INESS ACTIVITY OF THE ASSESSEE WAS CREATION OF MARKETING INTAN GIBLES. THEREFORE, THE FACTS OF THE PRESENT CASE WERE DISTINGUIS HABLE FROM THE DECISION OF HONBLE HIGH COURT OF DELHI IN MARUTI SUZUKI INDIA PVT. LTD. (SUPRA). SIMILARLY, OTHER DECISIONS OF THE H ONBLE HIGH COURT WERE ALSO DISTINGUISHABLE. 45. THE LEARNED DR SUBMITTED THAT THE RELIANCE PLACED BY THE LEARNED COUNSEL OF THE ASSESSEE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COCA COLA INDIA PVT. LTD. (SUPRA) WAS MISPLACED, BECAUSE, WHETHER OR NOT THE INPUT CREDI T FOR AMP EXPENSES WAS TO BE ALLOWED, THE SAME HAD NO BEARING O N WHETHER THE ASSESSEE IN THE PRESENT CASE WAS PROVIDING A SERVI CE TO ITS AE THROUGH AMP SPEND. SIMILARLY, THE DECISION OF THE HON BLE SUPREME COURT IN PEPSICO INDIA HOLDINGS PVT. LTD. (SUPRA) ON W HICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE TO DEMONSTRATE THAT THE ASSESSEE UNDERTOOK ALL THE RISKS ASSOCIATED WI TH ITS OPERATIONS, WAS MISPLACED SINCE THE SAME ALSO HAD NO BEARING ON WHETHER THE ASSESSEE IN THE PRESENT CASE WAS PROVIDING A SERVICE TO ITS AE THROUGH AMP SPEND. FURTHER, HE CONTENDED THAT THE Q UANTUM OF SALES MADE BY THE BOTTLERS OF THE FINAL PRODUCT WAS N OT VERIFIABLE AND SAME MAY NOT BE CONSIDERED FOR BENCHMARKING PURP OSES. 46. THE LEARNED DR, THEREAFTER SUBMITTED THAT, SINCE THE ASSESSEE WAS PROVIDING SERVICES TO THE AE BY WAY OF AMP SPEND, THERE WAS AN ACTION IN CONCERT BETWEEN THE ASSESSEE AND ITS AE WHICH CONSTITUTED AN INTERNATIONAL TRANSACTION FOR THE PURPOSES SECTION 92F(V). ON 47 PSM, HE STRONGLY RELIED UPON THE ORDER OF THE TPO A ND CONTENDED THAT THE SAME MAY BE UPHELD. 47. IN HIS REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AVERMENTS MADE BY THE LEARNED DR WERE NEVER RAISED EARLIER BY THE AUTHORITIES BELOW AND HENCE T HE SAME WERE NOT PERMISSIBLE AT THIS STAGE. FURTHER, HE PLACED R ELIANCE ON THE FINANCIALS OF THE ASSESSEE COMPANY FROM AY 2006-07 TO 2013-14 TO CONTEND THAT THE EXPENDITURE INCURRED BY THE ASS ESSEE ON AMP ACTIVITIES FELL FROM 67% WHEN COMPARED TO SALES IN AY 2006-07 TO LESS THAN 10% WHEN COMPARED TO SALES IN AY 2013-14. HE SUBMITTED THAT THE QUANTUM OF EXPENDITURE IN THE EA RLIER YEARS WAS HIGH GIVEN THE ISSUE RAISED BY THE FOOD INSPECT OR IN KERALA IN 2006 WHICH HAD AFFECTED THE GOODWILL OF THE COMPANY SUBSTANTIALLY AND HENCE THERE WAS A COMMERCIAL RATI ONALE FOR THE ASSESSEE COMPANY TO INCUR SUCH HUGE EXPENDITURE TO SUSTAIN IN THE HIGHLY COMPETITIVE INDIAN MARKET. THEREFORE, HE SUBMITTED THAT THE ARGUMENT OF THE LEARNED DR THAT THE ASSESS EE COMPANY WAS PRIMARY ENGAGED IN DEVELOPMENT OF BRAND OF THE AE WAS COMPLETELY MISPLACED AND DESERVED TO BE IGNORED. T HE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE SAID FIGURES TO CONTEND THAT DESPITE THE FALL OF AMP/ SALES RATIO O F THE ASSESSEE COMPANY FROM 67% IN AY 2006-07 TO BELOW 10% IN AY 2 013-14, THE REVENUE HAD BEEN COMPUTING TRANSFER PRICING ADJ USTMENT BASED ON THE EXCESSIVENESS OF THE EXPENDITURE INCUR RED, WHICH DEMONSTRATED LACK OF APPLICATION OF MIND AND HENCE DESERVED TO BE SET ASIDE. 48 DECISION 48. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSE D THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS MA TERIAL REFERRED TO BEFORE US IN RESPECT OF TRANSFER PRICING ISSUE PERTAIN ING TO AMP ADJUSTMENT MADE BY THE TPO. WE HAVE ALREADY DISCUSSED IN DETAIL, THE BRIEF FACTS AND BACKGROUND OF THE CASES IN THE LIGH T OF THE MATERIAL ON RECORD AND AS CAPTURED IN THE ARGUMENTS P LACED BY THE PARTIES. AS STATED IN THE EARLIER PART OF THE ORDER, AD JUSTMENT HAS BEEN MADE ON ACCOUNT OF AMP EXPENSES BY THE TPO IN DI FFERENT YEARS ON DIFFERENT REASONS BY APPLYING DIFFERENT METHO DS. FOR INSTANCE, IN THE APPEALS FOR THE ASSESSMENT YEARS 2006- 07 TO 2009- 10, THE TPO HAS COMPUTED THE ADJUSTMENT BY APPLYING BRI GHT LINE TEST; IN THE APPEALS FOR THE ASSESSMENT YEARS 2011-12 TO 2012-13 ADJUSTMENT HAS BEEN COMPLETED BY APPLYING PROFIT SPLI T METHOD AND FOR THE ASSESSMENT YEAR 2013-14 FROM THE STAGE OF THE DRP, OTHER METHOD HAS BEEN APPLIED. IN ALL THE YEARS, THE TPO HAS HELD THAT INCURRING OF EXCESS AMP EXPENSES AMOUNTS TO INTER NATIONAL TRANSACTIONS AS DEFINED IN SECTION 92B OF THE ACT. HE HAS COMPARED THE ADVERTISEMENT AND MARKETING EXPENSES WITH THE SALES TU RNOVER AND THEREAFTER CONCLUDED THAT THE ASSESSEE COMPANY HAS CREATED MARKETING INTANGIBLES FOR PROMOTION OF PEPSICO INC (A E) WITHOUT RECEIVING ANY COMPENSATION FOR THE SAME. THE ENTIRE EX PENDITURE IS TO PROMOTE TRADE MARK OWNED BY ITS AE AND DEVELOPING THE MARKETING INTANGIBLES FOR THE PRODUCT OF THE AE, AND THE REFORE, AE HAS BENEFITTED FROM SUCH AMP EXPENSES AND HENCE IT HA S TO BE RECKONED AS INTERNATIONAL TRANSACTION. IN THE ASSESSM ENT YEAR, 2006-07, THE HON'BLE HIGH COURT HAS REMANDED THE ISSU E BACK TO THIS TRIBUNAL TO DECIDE THE ISSUE OF AMP ADJUSTMENT AFR ESH ON MERITS. THEIR LORDSHIPS REFERRING TO THE JUDGMENT OF I TS OWN COURT, IN LE PASSAGE TO INDIA POWER AND TRAVELS PVT. LTD. (SUP RA), WHEREIN IT 49 HAS BEEN OBSERVED THAT BRIGHT LINE TEST HAS BEEN OVERR ULED BY THE JUDGMENT OF SONY ERICSSON MOBILE COMMUNICATION INDIA PVT. LTD AND ENDEAVOUR SHOULD NOT BE MADE TO CONCLUDE THAT ALL TR ANSACTION RELATING AMPS ARE TO BE TREATED AS INTERNATIONAL TRANSACT ION AND THE FACT OF EACH CASE NEEDS TO BE EXAMINED AFTER DELIBERA TION. 49. THUS, IN LIGHT OF THE AFORESAID DIRECTION, FIR ST OF ALL WE HAVE TO SEE, WHETHER AT ALL BY INCURRING OF HIGHER AMP EXPENS ES, A CONCLUSION CAN BE REACHED THAT IT IS AN INTERNATIONAL TRA NSACTION WHICH WARRANTS DETERMINATION OF ARMS LENGTH PRICE. ER GO, IF IT IS HELD THAT THERE IS NO INTERNATIONAL TRANSACTION, THEN OSTE NSIBLY THERE IS NO REQUIREMENT OF ANY KIND OF AMP ADJUSTMENT. ACCOR DINGLY, WE WOULD LIKE TO FIRST DWELL UPON WHETHER THE INCURRING OF EXPENDITURE ON ACCOUNT OF AMP AMOUNTS TO INTERNATIONAL TRANSACTION OR NOT. IN A SUCCINCT MANNER WE WOULD LIKE TO ANALYZE FUNCTION AN D THE PROFILE OF THE ASSESSEE COMPANY. THE ASSESSEE IS A SUBSIDIARY O F US ENTITY, PEPSICO INC, WHICH IS MAINLY INVOLVED IN THE MANUFAC TURING OF SOFT- DRINK/JUICE BASED CONCENTRATE AND OTHER AGRO PRODUCT S; AND SUPPLY CONCENTRATED FOR AERATED AND NON-AERATED SOFT-DRINK S IN INDIA AS WELL AS TO ITS AES IN BANGLADESH, NEPAL, BHUTAN AND SR I LANKA. IT HAS OBTAINED A LICENSE FROM ITS US PARENT AE FOR THE TE CHNOLOGY TO MANUFACTURE THE CONCENTRATE AND TO USE AND EXPLOIT THE BRANDS OWNED BY THE SAID AE IN THE REGIONS DESIGNATED TO THE AS SESSEE COMPANY. THE RELEVANT CLAUSES OF TRADEMARK, LICENSIN G AGREEMENT DATED 09.11.1989 HAS ALREADY BEEN REFERRED ABOVE WHE REBY THE ASSESSEE WAS GRANTED A NON-TRANSFERRABLE, ROYALTY FR EE LICENSE FOR THE USE OF TRADEMARKS IN ITS TERRITORY. THE ASSESSEE IS EXC LUSIVE USER OF THE TRADEMARKS IN INDIA IN RESPECT OF SYRUPS AND CONCE NTRATE BUT WAS GRANTED NON-EXCLUSIVE RIGHT FOR THE BEVERAGES MAN UFACTURED BY IT. THE MANUFACTURE OF CONCENTRATE IS DONE EXCLUSIVELY BY THE ASSESSEE, WHEREAS THE BOTTLING ACTIVITY IS DONE BY THE GROUP ENTITIES 50 AS WELL AS INDEPENDENT BOTTLERS SPREAD ACROSS THE COUNTR Y FOR THE SMOOTH OPERATION AND REACH TO EVERY CORNERS OF INDIA A ND NEIGHBOURING COUNTRIES. AS DISCUSSED ABOVE, IT IS AN UNDISPUTED FACT THAT ASSESSEE IS NOT PAYING ANY TRADEMARK ROYALTY TO IT S PARENT AE. THUS, ASSESSEE HAS CHARACTERIZE ITSELF AS A FULL-FLED GED MANUFACTURER EXPOSED TO ALL KIND OF RISKS ASSOCIATED WITH CARRYING OUT SUCH BUSINESS. IT DOES NOT OWN ANY SIGNIFICANT INTANGIBLES AND NEITHER DOES IT UNDERTAKE THE RESEARCH AND DEVELOPMENT ON ITS A CCOUNT. THE ASSESSEE HAS BEEN IMPORTING ONLY KEYS AND ESSENCES FOR THE PRODUCTION OF THE CONCENTRATE FROM ITS AE AND SAID IMPO RT TRANSACTION HAS BEEN DULY REPORTED IN THE FORM 3CEB AN D ALSO FILED TRANSFER PRICING DOCUMENTATION ON WHICH NO ADVERSE INF ERENCE HAS BEEN DRAWN BY THE DEPARTMENT. BEFORE US, LEARNED COUN SEL FOR THE ASSESSEE HAS POINTED OUT FROM THE RECORDS THAT THE VALUE OF IMPORT FROM THE AE IN RATIO TO TOTAL SALES TURNOVER IS ONLY 0.1 8%. THE CHART WAS FILED BEFORE US GIVING DETAILS OF TURNOVER, TOTAL E XPENDITURE, NET PROFIT, AMOUNTS SPENT ON AMP, RATIO OF AMP INCURRED UP ON TURNOVER AND THE VALUE OF IMPORT. SUCH A CHART FOR THE SAKE OF R EADY REFERENCE IS REPRODUCED HEREUNDER: - A.Y. TURNOVER (NET) (IN INR) (A) TOTAL EXPENDITURE (IN INR) (B) NET PROFIT (BEFORE TAX) (IN INR) (C) PROFIT-- ABILITY (%) D=C/B) X 100 AMP SPENT (IN INR) (E) AMP/ TURNOVER (%) F=(E/A) X 100 VALUE OF IMPORT (IN INR) (G) VALUE OF IMPORT/ TURNOVER (%) H=(G/A) X 100 2006- 07 303,19,65,000 312,07,86,000 11,00,72,000 3.53% 202, 80,54,000 66.74% 53,80,272 0.18% 2007- 08 353,35,63,000 354,73,89,000 28,88,96,000 8.14% 222, 20,62,000 62.78% 77,08,654 0.22% 2008- 09 447,44,79,000 375,50,58,00 101,50,22,000 27.03% 237,88,52,000 53.16% 56,57,871 0.13% 2009- 10 591,76,85,000 498,54,32,000 124,29,00,000 24.93% 306,50,13,000 51.79% 77,13,883 0.13% 51 50. THE FAR ANALYSIS OF THE VARIOUS FUNCTIONS PERF ORMED, ASSETS AND RISKS INVOLVED OF THE PARENT AE, ASSESSEE COMPANY AND THE THIRD PARTIES CAN BE SUMMARIZED IN THE FOLLOWING MANNER: - PARTICULARS AES PFL PIH/ THIRD PARTIES FUNCTIONS PERFORMED LEGAL OWNERSHIP OF TRADEMARK YES NIL NIL REGISTRATION/ PROTECTION OF TRADEMARK YES NIL NIL SUPPLY OF KEYS AND ESSENCES FOR MANUFACTURING OF CONCENTRATES YES NIL NIL MANUFACTURING OF CONCENTRATE NIL YES NIL BOTTLING OF FINAL BEVERAGE NIL NIL YES ADVERTISEMENT AND MARKETING OF PRODUCTS IN INDIA NIL YES (FOBO - LIMITED) DETERMINATION OF ADVERTISEMENT AND MARKETING BUDGET NIL YES YES DECIDING CONCEPT AND CONTENT OF ADVERTISING NIL YES YES DECIDING THE CHOICE OF MEDIA NIL YES YES DEALING WITH ADVERTISEMENT AND MARKETING AGENCIES NIL YES YES SELLING AND DISTRIBUTION IN INDIA OF BOTTLED BEVERAGE NIL NIL YES PRICING OF FINAL PRODUCT NIL YES NIL ALL THE NECESSARY FUNCTIONS OF STRATEGIZING, ADVERTISIN G AND MARKETING ACTIVITIES, ITS IMPLEMENTATION AND CONTROLLING ACROSS THE COUNTRY IS CONDUCTED BY THE ASSESSEE COMPANY ALONE FO R MARKET PENETRATION IN INDIA. THUS, IN A WAY ASSESSEE IS THE ECONOMIC OWNER 52 OF THE BRAND THOUGH NOT A LEGAL OWNER. AS A FULL-FLEDG ED MANUFACTURER, THE ASSESSEE COMPANY HAS BEEN ASSUMING ALL THE RISKS FOR PROMOTING ITS SALES AND THEREBY THE ENTIRE PRO FITABILITY IS SUBJECT TO TAX IN INDIA AND NO RESIDUAL PROFITS ARE ENJ OYED BY THE AE AND NEITHER ANY KIND OF ROYALTY IS ALSO PAID. LOOKIN G TO THE NATURE OF BUSINESS IN WHICH ASSESSEE IS INVOLVED, IT HAS INCUR RED HUGE ADVERTISING, MARKETING AND PROMOTIONAL EXPENSES WHICH IS EVIDENT FROM THE FACT THAT DURING THE ASSESSMENT YEAR 2006-07 AL ONE, THE RATIO OF AMP UPON SALES WAS 66.89%. NOW SUCH A HUGE INCURRENCE OF AMP EXPENSES HAS LED TO AMP ADJUSTMENT BY THE REVENU E HOLDING THAT INCURRING OF SUCH A HUGE AMP HAS ALSO BENEFITED THE AE IN THE NATURE OF PROMOTION OF ITS BRAND AND TRADEMARK. 51. THE TPO DURING THE COURSE OF THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2006-07 HAD NOTED THAT ASSESSEE HAD DIS CLOSED AN INTERNATIONAL TRANSACTION OF REIMBURSEMENT OF EXPENDITURE OF RS.33,60,15,501/- TO M/S. PEPSI COLA IRELAND (AE) WH ICH WAS INCURRED BY THE SAID AE AND CLAIMED TO BE REIMBURSED BY THE ASSESSEE ON COST. BASED ON THIS TRANSACTION, THE TPO PR OCEEDED TO EXAMINE THE TOTAL ADVERTISEMENT EXPENDITURE INCURRED BY TH E ASSESSEE DURING THE YEAR. LOOKING TO THE MAGNITUDE OF AMP EXPENSES, HE CONCLUDED THAT ASSESSEE HAS CREATED MARK ETING INTANGIBLES ONLY FOR THE PROMOTION OF BRAND AND PRODUC TS OF THE AE. SINCE AES RECOVERING SOME PART OF THE AMP EXPENDITURE INCURRED BY IT FROM THE ASSESSEE THIS GOES TO SHOW THAT AE IS CONTROLL ING THE AMP ACTIVITY OF THE ASSESSEE AND ALSO INDICATE THAT THERE WAS SOME ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AE REGARDING INCURRING OF AMP EXPENDITURE. AS PER THE PROVISION OF SECTION 92B(1 ) SUCH AN ARRANGEMENT BETWEEN TWO AES FOR ALLOCATION OR APPORTIO NMENT OR ANY CONTRIBUTION TO ANY COST OR EXPENDITURE INCURRED OR TO BE 53 INCURRED IN CONNECTION WITH THE BENEFIT IS AN INTERNATIO NAL TRANSACTION AND IF THE ASSESSEE COMPANY HAD INCURRED TH E COST IN CONNECTION WITH BENEFIT AND SERVICES PROVIDED TO THE AE UNDER A MUTUAL AGREEMENT THOUGH NOT IN WRITING BUT IF IT CAN BE P ROVED FROM THE CONDUCT THEN IT AMOUNTS TO AN INTERNATIONAL TRANSACTION U/S.92B(1) R.W.S. 92F(V). ACCORDINGLY, HE HELD THAT S UCH AN AMP EXPENDITURE WAS IN THE NATURE OF INTRA-GROUP SERVICES P ROVIDED TO THE AE WHICH REQUIRED COMPENSATION ON AN ARMS LENGTH BASIS AND IN ORDER TO ARRIVE SUCH ALP, HE APPLIED BRIGHT LINE T EST AND AFTER APPLYING SUCH METHOD, HE MADE AN ADJUSTMENT OF RS.174,39,58,880/-. 52. FIRST OF ALL, IN SO FAR AS THE REIMBURSEMENT OF COST OF EXPENDITURE INCURRED BY IRELAND (AE), IT HAS BEEN BRO UGHT ON RECORD THAT THE SAID AE HAS ENTERED INTO A GLOBAL PARTNERSHIP AGREEMENT DATED 28.10.2004 WITH GLOBAL CRICKET CORPORATION PTE LTD. FOR THE SPONSORSHIP RIGHT OF CRICKETING EVENT WORLD-WIDE. SI NCE, ASSESSEE- COMPANY IS MAINLY BASED IN INDIA WHERE GAME OF CRIC KET IS IMMENSELY POPULAR, THEREFORE, IT WAS AGREED AMONGST TH E GROUP COMPANIES THAT THE EXPENDITURE INCURRED FOR SPONSORING THE ICC CRICKETING EVENTS, ALL THE GROUP COMPANIES WHICH HAD BENEFITTED FROM THE CRICKETING EVENTS IN THE FORM OF ADVERTISEMENT W ILL REIMBURSE THE COST. THE SAID COST WAS PURELY FOR PROMO TING ASSESSEES OWN BUSINESS AND NOWHERE IT HAS BEEN BROU GHT ON RECORD THAT SUCH A REIMBURSEMENT OF THE COST WAS SUBJECT TO ANY MARKUP OR ANY FUNCTIONS HAVE BEEN PROVIDED FROM WHERE ANY INCOME HAS BEEN DERIVED BY THE AE. THE ASSESSEE ON THE BASIS OF JOINT DECISION TAKEN BY PEPSI ENTITIES LOCATED IN VARIOUS CRICKETING JU RISDICTION HAD DECIDED TO REIMBURSE THE COST INCURRED BY IRELAND (AE) FOR SPONSORSHIP AND ADVERTISEMENT AS IT WILL HELP THE PROMO TION OF THE 54 BUSINESS OF SUCH ENTITIES INCLUDING THAT OF THE ASSESSEE COMPANY. ACCORDINGLY, THE ASSESSEE HAS PAID ITS PROPORTIONATE SHARE OF REIMBURSEMENT ON COST TO COST BASIS AFTER REQUISITE APP ROVALS FROM THE GOVERNMENTAL AUTHORITIES. BASED ON THIS TRANSACTION ALONE, TPO HAS DEDUCED THAT: - FIRSTLY , SINCE AE IS RECOVERING THE AMP EXPENDITURE INCURRED BY IT FROM THE ASSESSEE WHICH GOES TO PROVE THAT AE IS CONT ROLLING THE AMP ACTIVITIES OF THE ASSESSEE; SECONDLY , IT ALSO INDICATES THAT THERE IS SOME KIND OF ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AE REGARDING THE INCURRENCE ON AMP EXPENDITURE, AND; LASTLY , INCURRING OF HUGE EXPENDITURE OF AMP INDICATES THAT SUCH KIND OF EXPENDITURE MUST HAVE BEEN INCURRED AT THE BEHEST OF AE FOR PROMOTING THE BRAND OWNED BY ITS AE. FROM THE PERUSAL OF AGREEMENT DATED 09.09.2005 ENTERED BY THE IRELAND AE WITH THE ASSESSEE, NOWHERE IT IS BORNE OUT THAT SUCH EXPENDITURE INCURRED BY THE AE WAS FOR EITHER FOR ITS O WN BUSINESS PROMOTION OR THERE WAS ANY DIRECTION BY THE AE TO THE AS SESSEE THAT IT HAD TO INCUR THE EXPENDITURE OR ASSESSEE HAD NO OPTIO N BUT TO REIMBURSED THE COST. IF SUCH A REIMBURSEMENT OF COST WAS PURELY FOR BUSINESS PROMOTION OF THE ASSESSEE COMPANY, THEN IT CAN NOT BE HELD THAT SUCH A TRANSACTION THOUGH AMOUNTS TO INTERNATIONAL TRANSACTION UNDER THE ACT, REQUIRES DETERMINATION OF ALP . IN ANY CASE, IF AT ALL, ALP WAS TO BE DETERMINED THEN IT SHOUL D HAVE BEEN STRICTLY CIRCUMSCRIBED TO THE REIMBURSEMENT OF THE COST AGGREGATING TO RS.33,60,15,501/-. FURTHER, THE TRANSACTION OF REIM BURSEMENT OF EXPENDITURE OF RS.33,60,15,501/- CANNOT BE EXPANDED TO THE ENTIRE EXPENDITURE OF AMP OF RS.202.34 CRORES. THE REASON B EING, THE 55 AMOUNT OF RS.202.34 CRORES HAVE BEEN INCURRED BY THE ASSESSEE ON ITS OWN VOLITION AND BUSINESS REQUIREMENT TO BE IN COM PETITION WITH OTHER BIG PLAYERS IN THE FIELD OF AERATED AND NON-AER ATED BEVERAGES AND FOOD PRODUCTS. IT IS ACCLAIMED FACT THAT INDUSTRY I N WHICH ASSESSEE COMPANY IS OPERATING HAS TO FACE STIFF COMPE TITION NOT ONLY FROM THE INDIAN COMPANIES BUT ALSO FROM MANY MULTINAT IONAL COMPANIES; AND TO REMAIN IN THE COMPETITION AS A LEAD BRAND IT HAS TO AGGRESSIVELY PROMOTE ITS PRODUCT UNDER THE BRAND TO R EMAIN IN THE COMPETITION AND TO AUGMENT ITS SALE. ALL THE NECESSAR Y FUNCTIONS OF STRATEGIZING, ADVERTISING AND MARKETING ACTIVITIES, ITS IMPLEMENTATION FOR MARKET PENETRATION IN INDIA IS SOLELY CARRIED OUT BY THE ASSESSEE AND THERE IS NO MATERIAL ON RECORD TO I NFER THAT THERE IS ANY ARRANGEMENT OR AGREEMENT WITH THE AE AT ANY POINT OF TIME THAT ASSESSEE IS REQUIRED TO SPENT ON AMP OR IT HAS BEEN DONE AT THE BEHEST OF THE AE. THE REASON ADOPTED BY THE REVENUE TO C ONCLUDE THAT THE INCURRENCE OF AMP EXPENDITURE BY THE ASSESSEE F OR PROMOTING THE BRANDS WHICH IS OWNED BY ITS AE CONSTITU TING A SEPARATE INTERNATIONAL TRANSACTION FOR THE PURPOSE OF SE CTION 92B WHICH REQUIRES SEPARATE BENCH MARKING, DOES NOT HAS ANY LEGS TO STAND, BECAUSE THE REVENUE HAS FAILED TO SHOW THE EXIST ENCE OF ANY AGREEMENT, UNDERSTANDING OR ARRANGEMENT BETWEEN THE AS SESSEE COMPANY AND AE REGARDING THE QUANTUM OF AMP SPENT OR IT WAS SPENT ON BEHEST OF AE. THE TPO HAS NOT RECORDED OR ID ENTIFIED ANY SUCH SEPARATE ARRANGEMENT OR AGREEMENT THAT AMP EXPENS ES INCURRED BY THE ASSESSEE COMPANY ARE IN PURSUANCE OF ANY AGREEMENT OR ARRANGEMENT. IT IS ALSO NOT THE CASE OF THE DEPARTMENT THAT THE EXPENSES WHICH HAS BEEN INCURRED BY THE ASSE SSEE COMPANY DURING THE COURSE OF ITS BUSINESS HAVE ANY B EARING WHATSOEVER ON ANY OTHER INTERNATIONAL TRANSACTION WITH THE AE, 56 OTHER THAN REIMBURSEMENT OF EXPENDITURE OF RS.33.60 CR ORES AS DISCUSSED ABOVE. 53. SECTION 92B DEFINES THE INTERNATIONAL TRANSACTION IN THE FOLLOWING MANNER: - (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 9 2, 92C, 92D AND 92E, INTERNATIONAL TRANSACTION MEANS A TRANSA CTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY, OR PROVIS ION OF SERVICES, OR LENDING OR BORROWING MONEY, OR ANY OTHER TRANSAC TION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OF SUCH ENTERPRISES AND SHALL INCLUDE A MUTUAL AGREEMENT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBU TION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNE CTION WITH A BENEFIT, SERVICE OR FACILITY PROVIDED OR TO BE PROV IDED TO ANYONE OR MORE OF SUCH ENTERPRISES. FROM THE PLAIN READING OF THE AFORESAID SECTI ON, IT IS QUITE CLEAR THAT: (I) THE TRANSACTION HAS TO BE BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES EITHER OR BOTH OF WHOM ARE NON- RESIDENT; (II) THE TRANSACTION IS IN THE NATURE OF PURCHASE, SALE OR LE ASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SE RVICES OR LENDING OR BORROWING MONEY; (III) OR ANY OTHER TRANSACTION HAVING BEARING ON THE PROFITS , INCOME, LOSS OR ASSETS OF SUCH ENTERPRISES; (IV) ALL SUCH NATURE OF TRANSACTION DESCRIBED IN THE SECTION WILL ALSO INCLUDE MUTUAL AGREEMENT AND THE ARRANGEMEN T 57 BETWEEN THE PARTIES FOR ALLOCATION OR APPORTIONMENT OR ANY CONTRIBUTION TO ANY COST OR EXPENSES INCURRED OR T O BE INCURRED IN CONNECTION WITH BENEFIT, SERVICES AND FACILITY PROVIDED TO ANY OF SUCH PARTIES. RELEVANT EXPLANATION TO SECTION 92B AS INSERTED BY THE FINANCE ACT, 2012 READS AS UNDER: - I. THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHAL L INCLUDE (B) THE PURCHASE, SALE, TRANSFER, LEASE OR USE OF I NTANGIBLE PROPERTY, INCLUDING THE TRANSFER OF OWNERSHIP OR TH E PROVISION OF USE OF RIGHTS REGARDING LAND USE, COPYRIGHTS, PATEN TS, TRADEMARKS, LICENCES, FRANCHISES, CUSTOMER LIST, MA RKETING CHANNEL, BRAND, COMMERCIAL SECRET, KNOW-HOW, INDUST RIAL PROPERTY RIGHT, EXTERIOR DESIGN OR PRACTICAL AND NE W DESIGN OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE; CLAUSE (II) OF THE SAID EXPLANATION READS AS FOLLOW S- II. THE EXPRESSION 'INTANGIBLE PROPERTY' SHALL INC LUDE (A) MARKETING RELATED INTANGIBLE ASSETS, SUCH AS, T RADEMARKS, TRADE NAMES, BRAND NAMES, LOGOS;.. THUS, UNDER THE EXPANDED DEFINITION OF THE TERM INTER NATIONAL TRANSACTION INTANGIBLE PROPERTY HAS BEEN DEFINED TO IN CLUDE MARKETING RELATED INTANGIBLE ASSETS SUCH AS TRADEMARK, TRADE NAME, BRAND NAME AND LOGOS, ETC. THIS INTER ALIA MEANS THAT WHERE TWO AES ENGAGED IN THE TRANSACTION WHICH INVOLVED, PURCHA SE, SALE, TRANSFER, LEASE OR USE OF INTANGIBLES RIGHTS THEN THE S AME SHALL BE CLASSIFIED AS INTERNATIONAL TRANSACTION. FROM THE ABOVE , DEFINITION, 58 APART FROM TRANSACTION RELATING TO PURCHASE, SALE OR LE ASE OF TANGIBLE OR INTANGIBLE PROPERTY, SERVICES LENDING OR BORROWIN G MONEY, ETC. FUNCTIONS HAVING BEARING ON THE PROFITS, INCOME, LOS SES OR ASSETS IS RECKONED AS INTERNATIONAL TRANSACTION. BESIDES THIS, I F SUCH A TRANSACTION IS BASED ON ANY MUTUAL AGREEMENT OR ARRANG EMENT BETWEEN THE AES FOR ALLOCATION OR ANY CONTRIBUTION TO A NY COST OR EXPENDITURE INCURRED OR TO BE INCURRED FOR THE BENEFIT , SERVICE OR FACILITY, THEN ALSO SUCH AN AGREEMENT OR ARRANGEMENT I S TREATED AS INTERNATIONAL TRANSACTION. CLAUSE (V) OF SECTION 92F REA DS AS UNDER: 92F (V). TRANSACTION INCLUDES AN ARRANGEMENT, UN DERSTANDING OR ACTION IN CONCERT, - (A) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR A CTION IS FORMAL OR IN WRITING; OR (B) WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR A CTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDINGS. THIS DEFINITION OF TRANSACTION HAS TO BE READ IN CONJ UNCTION WITH THE DEFINITION GIVEN IN SECTION 92B, WHICH MEANS THAT THE TRA NSACTION HAS TO BE FIRST IN THE NATURE GIVEN IN SECTION 92B (1) ; AND THEN WHEN SUCH TRANSACTION INCLUDES ANY KIND OF ARRANGEMENT, UND ERSTANDING OR ACTION IN CONCERT AMONGST THE PARTIES, WHETHER IN W RITING OR FORMAL, THEN TOO IT IS TREATED AS INTERNATIONAL TRANSACTI ON. HERE THE CONJOINT READING OF BOTH THE SECTIONS LEAD TO AN INFEREN CE THAT IN ORDER TO CHARACTERIZED AS INTERNATIONAL TRANSACTION, IT HAS TO BE DEMONSTRATED THAT TRANSACTION AROSE IN PURSUANT TO AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT. SUCH A N ARRANGEMENT HAS TO BE BETWEEN THE TWO PARTIES AND NOT AN Y UNILATERAL ACTION BY ONE OF THE PARTIES WITHOUT ANY BIND ING OBLIGATION ON THE OTHER OR WITHOUT ANY MUTUAL UNDERSTAND ING OR CONTRACT. IF ONE OF THE PARTY BY ITS OWN VOLITION IS EN TERING ANY 59 EXPENDITURE FOR ITS OWN BUSINESS PURPOSE, THEN WITHOUT THERE BEING ANY CORRESPONDING BINDING OBLIGATION ON THE OTHER OR A NY SUCH KIND OF AN ARRANGEMENT ACTUALLY EXISTING IN WRING OR ORAL OR OTHERWISE, IT CANNOT BE CHARACTERIZED AS INTERNATIONAL TRANSACTION WI THIN THE SCOPE AND DEFINITION OF SECTION 92B (1). 54. HERE, IN THIS CASE, IT HAS BEEN VEHEMENTLY ARG UED FROM THE SIDE OF THE ASSESSEE THAT ASSESSEE-COMPANY HAD INCURRE D EXPENDITURE ON AMP TO CATER TO THE NEEDS OF THE CUSTOMER S IN THE LOCAL MARKET AND SUCH AN EXPENDITURE WAS NEITHER INCUR RED AT THE INSTANCE OR BEHEST OF OVERSEAS AE NOR THERE WAS ANY M UTUAL UNDERSTANDING OR ARRANGEMENT OR ALLOCATION OR CONTRIBU TION BY THE AE TOWARDS REIMBURSEMENT OF ANY PART OF AMP EXPENDITUR E INCURRED BY IT FOR THE PURPOSE OF ITS BUSINESS. IF NO SUCH UNDE RSTANDING OR ARRANGEMENT EXISTS, THEN NO TRANSACTION OR INTERNATIONAL TRANSACTION COULD BE SAID TO BE INVOLVED BETWEEN THE AE AND THE A SSESSEE WHICH CAN BE RECKONED TO BE COVERED WITHIN THE PROVISION OF TRANSFER PRICING REGULATION. THE INCURRING OF EXPENDITURE BY TH E ASSESSEE IS IN FACT PURELY A DOMESTIC TRANSACTION BY A DOMESTIC ENTE RPRISE WITH A THIRD PARTY IN INDIA FOR ITS OWN BUSINESS PURPOSE. EVEN THE REIMBURSEMENT, AS DISCUSSED ABOVE, BY THE ASSESSEE TO ITS AE WAS IN LIEU OF SPONSORSHIP FEE PAID TO ICC WHICH AGAIN W AS WHOLLY AND EXCLUSIVELY FOR THE ASSESSEES OWN BUSINESS AND WAS NOT AT THE BEHEST OR MANDATE OF AE. THIS CONTENTION OF THE LEARNED COUNSEL ON THE FACE OF RECORD IS LIABLE TO BE ACCEPTED AND IN AB SENCE OF ANY MATERIAL OR ANY KIND OF ARRANGEMENT DISCOVERED OR BR OUGHT ON RECORD BY THE REVENUE, REMAINS UNREBUTTED. THE ONUS IS ON THE REVENUE TO SHOW THAT THE TWIN REQUIREMENT OF SECTION 92B EXISTS, THAT IS, FIRSTLY , THE TRANSACTION INVOLVED WAS BETWEEN THE AE, ONE OF WHICH IS RESIDENT AND OTHER A NON-RESIDENT WAS INVOL VED; AND 60 SECONDLY , THE TRANSACTION OF AMP EXPENSES HAS TAKEN PLACE BETW EEN THE TWO AES (EXCEPT FOR REIMBURSEMENT OF RS.33.60 CROR E). NOW IT HAS BEEN WELL SETTLED BY THE HON'BLE JURISDICTIONAL HI GH COURT IN THE CASE OF MARUTI SUZUKI INDIA PVT. LTD. (SUPRA) THAT ONUS IS UPON THE REVENUE TO DEMONSTRATE THAT THERE EXISTED AN ARRANGEMENT BE TWEEN THE ASSESSEE AND ITS AE UNDER WHICH ASSESSEE WAS OBLI GED TO INCUR EXCESS AMOUNT OF AMP EXPENSES TO PROMOTE THE BRANDS OWN ED BY THE AE. THE RELEVANT OBSERVATION AND THE FINDING OF THE HON'BLE HIGH COURT IN PARAGRAPH 60 READS AS UNDER: 60EVEN IF THE RESORT IS HAD TO THE RESIDUARY PAR T OF CLAUSE (B) TO CONTEND THAT THE AMP SPEND OF MSIL IS ANY O THER TRANSACTION HAVING A BEARING ON ITS PROFITS, INCO ME OR LOSSES FOR A TRANSACTION THERE HAS TO BE TWO PARTIES. TH EREFORE, FOR THE PURPOSES OF THE MEANS PART OF CLAUSE (B) AND THE INCLUDES PART OF CLAUSE (C,) THE REVENUE HAS TO SHOW THAT THERE EXISTS AN AGREEMENT OR ARRANGEMENT OR UNDERSTANDING BET WEEN MSIL AND SMC WHEREBY MSIL IS OBLIGED TO SPEND EXCESSIVELY ON AMP IN ORDER TO PROMOTE THE BRAND SMC 61EVEN IF THE WORD TRANSACTION TO INCLUDE ARRA NGEMENT, UNDERSTANDING OR ACTION IN CONCERT, WHETHER FO RMAL OR IN WRITING, IT STILL INCUMBENT ON THE REVENUE TO SHOW THE EXISTENCE OF AN UNDERSTANDING OR AN ARRANGEMENT OR ACTIO N IN CONCERT BETWEEN MSIL AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. IN OTHER WORDS, FOR BOTH THE MEANS PAR T AND THE INCLUDES PART OF SECTION 92B (1) WHAT HAS TO BE D EFINITELY SHOWN IS THE EXISTENCE OF TRANSACTION WHEREBY MSIL HAS BEEN OBLIGED TO INCUR AMP OF A CERTAIN LEVEL FOR SMC FOR THE PURPOSES OF PROMOTING THE BRAND OF SMC. 61 SAME PROPOSITION HAS BEEN UPHELD BY THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF WHIRLPOOL OF INDIA LTD. VS. DCIT, BAUSCH & LOMB EYECARE INDIA PVT. LTD. VS. ACIT (SUPRA) AND HON DA SIEL POWER PRODUCTS LTD. VS. DCIT (SUPRA). 55. THE TPO IN HIS ORDER HAS RELIED UPON CLAUS E (VIII) OF THE TRADE MARK LICENSE AGREEMENT WHICH EMPOWERED THE P EPSICO INC TO APPROVE AND REVIEW THE ADVERTISEMENT PROPOSED TO BE T ELECASTED IN INDIA. IT HAS BEEN CLARIFIED BY MR. CHOPRA BEFORE US THAT, IT WAS ONLY FOR THE PURPOSE OF ADVERTISEMENT CONTENT AND NOT F OR THE QUANTUM OF THE AMP EXPENDITURE. THE MANDATE OF THE AE WAS TO ONLY ENSURE THAT SAME BRAND GUARDRAILS ARE BEING FOLL OWED BY THE AES ALL ACROSS THE WORLD, I.E., THE LOGO OF THE PEPSI OR ANY OTHER BRAND OR TRADEMARK OWNED BY THE AE SHOULD BE PRESENTE D IN THE SAME MANNER ALL ACROSS THE WORLD. THE AE DOES NOT HA VE ANY DIRECT CONTROL OF THE MARKETING FUNCTIONS OF ANY AE IN VARIOU S GEOGRAPHY. THIS CONTENTION OF THE LEARNED COUNSEL IS ALSO BORNE O UT FROM THE MATERIAL ON RECORD AND NOTHING HAS BEEN BROUGHT BY THE TPO TO REBUT THAT THE AES HAD ANY DIRECT CONTROL OVER THE MARKETI NG FUNCTIONS OR HAS ANY SAY IN THE QUANTUM OF EXPENDITURE TO BE SPENT. MARKETING OF SUCH AN IMPULSE PRODUCT LIKE BEVERAGES HAD TO BE MANAGED LOCALLY AS PER THE ETHOS, CUSTOMS AND PREFEREN CES/CHOICES OF THE LOCAL POPULATION AND NEITHER THE CONTENT NOR THE Q UANTUM CAN BE REMOTELY MANAGED BY A NON-RESIDENT AE. IT HAS BEE N BROUGHT ON RECORD THAT THE ASSESSEE COMPANY HAD A FULL-FLEDGED M ARKETING TEAM IN INDIA WHO WITH THE HELP OF LOCAL MARKETING AGENCY AND CONSULTANT MANAGED THE MARKETING FUNCTION ACROSS THE COUNTRY. FURTH ER, MERE REVIEW OF MARKETING MATERIAL BY THE AE DOES NOT INDICAT E THAT THERE IS EXISTENCE OF ANY INTERNATIONAL TRANSACTION, BECAUSE HERE IN THIS 62 CASE THERE WAS NO OBLIGATION ON THE ASSESSEE COMPANY TO INCUR AMP EXPENDITURE TO PROMOTE THE BRAND OF THE AE AND NO SUCH O BLIGATION TOO HAS BEEN BROUGHT OUT BY THE TPO IN THE IMPUGNED OR DER. IT IS ALSO EVIDENT FROM CLAUSE (XIII) OF THE AGREEMENT THAT TH E RISK AND REWARD OF INCURRING THE AMP EXPENDITURE LIED ENTIREL Y WITH THE ASSESSEE COMPANY AND THE FOREIGN AE WAS COMPLETELY I NSULATED FROM SUCH RISK AND REWARDS ARISING FROM THE MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE COMPANY IN INDIA. ASSESS EE HAS BEEN OPERATING AS A LICENSED MANUFACTURER OF CONCENTRATES I N INDIA WHICH IS USED IN MANUFACTURING OF SOFT DRINKS AND IT HAD OBTA INED THE LICENSE FROM ITS PARENT AE FOR THE TECHNOLOGY TO MANU FACTURE CONCENTRATE AND TO EXPLOIT THE BRAND OWNED BY THE US AE FOR THE PROMOTION OF BUSINESS OF ASSESSEE COMPANY IN THE TE RRITORIES IN INDIA. THE ASSESSEE HAS BEEN INDEPENDENTLY PERFORMIN G THE FUNCTION OF PROCUREMENT OF RAW MATERIAL, MANUFACTURING OF CONC ENTRATES, DEVELOPMENT OF ADVERTISING AND MARKETING STRATEGY, DETER MINATION OF THE MARKETING BUDGET, DESIGN CONCEPT AND CONTENT OF ADVER TISEMENT, CHOICE OF MEDIA, PRICING OF THE CONCENTRATE AND THE S ALES OF CONCENTRATES TO RETAILERS AND DISTRIBUTORS. ALL THE REWA RDS FOR SUCH FUNCTIONS AND THE RETURNS ASSOCIATED WITH THE COMMERCIA L EXPLOITATION OF THE BRAND IS COMPLETELY ENJOYED BY THE ASSESSEE COMPANY. HENCE, IN SUCH A SITUATION, THE ASSESSEE WAS FREE TO DECIDE ITS OWN AMP EXPENSE WHICH HAS BEEN BORNE BY I T AND THEREFORE, TO HOLD OR PRESUME THAT PARENT AE SHOULD HAV E REIMBURSED SOME OR PART OF THE EXPENDITURE WOULD NOT B E CORRECT. HERE, IN THIS CASE, THERE IS NO EXISTENCE OF ANY DIREC T BENEFIT PASSED ON TO THE PARENT AE, BECAUSE AS DISCUSSED ABOVE, NO ROYALTY HAS BEEN PAID TO PARENT US AE FOR THE USAGE OF BRAND AND TE CHNOLOGY AND ASSESSEE HAD PAID A VERY MINISCULE AMOUNT FOR TH E IMPORT OF KEYS AND ESSENCES. 63 56. ONE OF THE OTHER ALLEGATIONS OF THE TPO HAS BEE N THAT ASSESSEE DO NOT HAVE EXCLUSIVE RIGHT TO MANUFACTURE THE BEVERAGE IN INDIA AND HENCE IT COULD NOT BE SAID THAT AMP EXPENDITUR E INCURRED WAS SOLELY FOR ITS BENEFIT. HOWEVER, SUCH AN ALLEGATI ON DOES NOT HOLD GROUND, BECAUSE ASSESSEE HAD EXCLUSIVE RIGHT TO MANU FACTURE CONCENTRATE IN INDIA AND ONLY BOTTLING OF THE BEVERAGE WAS LOCATED TO THIRD PARTIES WHICH WAS A SEPARATE FUNCTION AND FOR S TRATEGIC REASON IT HAS BEEN GIVEN TO THIRD PARTY BOTTLERS ALSO FOR THE EFFICIENCY OF THE OPERATION. ANOTHER ALLEGATION MADE IN SUBSEQUENT YEARS BY THE TPO CERTAIN BRANDS SUCH AS KURKURE, NIMBUS, ETC. THOU GH WERE CONCEPTUALIZED AND DEVELOPED IN INDIA BUT THE TRADE MAR K IN RESPECT OF THESE BRANDS WERE OWNED BY THE FOREIGN AE. IT HAS B EEN STATED BY THE LEARNED COUNSEL THAT THESE BRANDS WERE LARGELY SOLD IN INDIA AND NO BENEFIT COULD HAVE BEEN SAID TO ACCRUE TO THE AE IN OTHER TERRITORY ON ACCOUNT OF PROMOTION OF THESE BRANDS IN DI FFERENT TERRITORY AND GEOGRAPHICAL LOCATION BECAUSE SUCH KIN D OF DIFFERENT BRANDS ARE PECULIAR TO A NATIVE CHOICE AND ARE SOLD I N THEIR RESPECTIVE TERRITORY WITH DIFFERENT FLAVOUR AND SPICES WHICH IS SUITABLE FOR LOCAL CONSUMPTION ON WHICH ADVERTISING A ND MARKETING WAS CARRIED OUT BY THE LOCAL ENTITY IN THOSE JURISDICTI ON. SUCH AN ARGUMENT HAS A STRONG BASIS FOR THE REASON THAT, FIRSTLY , AE HAD NOT CHARGED ANY ROYALTY FOR USE OF TRADEMARK IN INDIA FR OM THE ASSESSEE, AND THEREFORE TO ALLEGE THAT ASSESSEE SHOULD HAVE BEEN COMPENSATED FOR THE BRAND CONCEPTUALIZED AND DEVELOPED BY IT, IS TOO FARFETCHED AND; SECONDLY , THE BRAND DEVELOPED IN INDIA WHICH ARE TO BE EXCLUSIVELY SOLD IN INDIA WILL ONLY HELP IN PROMOTI ON OF SALES IN INDIA AND NOT IN THE JURISDICTION OF THE OTHER AES. SINCE ASSE SSEE HAPPENED TO BE THE ECONOMIC OWNER OF THE BRAND IN INDI A, THEREFORE, IT WAS ENTITLED TO ALL SUCH ECONOMIC BENEFITS ARISING OU T OF INTANGIBLE 64 BENEFIT. BECAUSE, ASSESSEE BORE OF THE RISK ASSOCIATE D WITH THE AMP SPENDING AND HAS ULTIMATELY BENEFITED FROM SUCH EXPEN SES WHICH WILL RESULT INCREASE SALES. IT IS ALSO NOT THE CASE OF THE TPO THAT THE RESIDUAL PROFITS FROM EXPLOITATION OF BRAND WERE FLO WING OUT OF INDIA TO THE AE IN ANY WAY AND IN NO MANNER THE INCOME OF THE AE WAS INCREASING FROM WHERE IT COULD FUND THE REIMBURSEMEN T OF ADVERTISING AND MARKETING EXPENSES TO THE ASSESSEE IN INDIA. 57. THE TPO HAS ALSO REFERRED TO THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMU NICATION INDIA PVT. LTD. TO CONTEND THAT MERE INCURRENCE OF AMP EXPENDITURE IN RESPECT OF BRAND NOT OWNED BY THE ASSESSEE HAS TO BE TREATED AS INTERNATIONAL TRANSACTION. SUCH AN INFERENCE BY THE LEAR NED TPO IS NOT TENABLE IN VIEW OF THE HON'BLE DELHI HIGH COURT IN THE JUDGMENT IN THE CASE OF MARUTI SUZUKI INDIA PVT. LTD. WHEREIN THE RATIO OF SONY ERICSSON JUDGEMENT HAS BEEN EXPLAINED IN THE FOL LOWING MANNER: - 41. HAVING CONSIDERED THE ABOVE SUBMISSIONS, THE C OURT PROCEEDS TO ANALYSE THE DECISION IN SONY ERICSSON M OBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) TO DETERMINE IF IT CONCLUSIVELY ANSWERS THE ISSUE CONCERNING THE EXIST ENCE OF AN INTERNATIONAL TRANSACTION AS A RESULT OF INCURRING OF AMP EXPENDITURES BY AN ASSESSEE. 42. AS ALREADY NOTICED, THE JUDGMENT IN SONY ERICSS ON MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) DOES NOT SEE K TO COVER ALL THE CASES WHICH MAY HAVE BEEN ARGUED BEFORE THE DIV ISION BENCH. IN PARTICULAR, AS FAR AS THE PRESENT APPEAL ITA NO. 110 OF 2014 IS CONCERNED, ALTHOUGH IT WAS HEARD ALONG WITH THE BATCH OF APPEALS, INCLUDING THOSE DISPOSED OF BY THE SONY ERICSSON 65 MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) JUDGM ENT, AT ONE STAGE OF THE PROCEEDINGS ON 30TH OCTOBER 2014 THE A PPEAL WAS DELINKED TO BE HEARD SEPARATELY. 43. SECONDLY, THE CASES WHICH WERE DISPOSED OF BY THE SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) JUDGMENT, I.E. OF THE THREE ASSESSEES CANON, REEBOK AND SONY ERICSSON WERE ALL OF DISTRIBUTORS OF PRODUCTS MANUFACTURED BY FOREIGN AES. THE SAID ASSESSEES WERE THEMSELVES NOT MANUFACTURERS. IN ANY EVENT, NONE OF THEM APPEARED TO HAVE QUESTIONED THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE CONCERNED FOREIGN AE. IT WAS ALSO NOT DISPUTED THAT T HE SAID INTERNATIONAL TRANSACTION OF INCURRING OF AMP EXPENSES COULD BE MADE SUBJECT MATTER OF TRANSFER PR ICING ADJUSTMENT IN TERMS OF SECTION 92 OF THE ACT . 44. HOWEVER, IN THE PRESENT APPEALS, THE VERY EXIST ENCE OF AN INTERNATIONAL TRANSACTION IS IN ISSUE. THE SPECIFIC CASE OF MSIL IS THAT THE REVENUE HAS FAILED TO SHOW THE EXISTENCE O F ANY AGREEMENT, UNDERSTANDING OR ARRANGEMENT BETWEEN MSI L AND SMC REGARDING THE AMP SPEND OF MSIL. IT IS POINTED OUT THAT THE BLT HAS BEEN APPLIED TO THE AMP SPEND BY MSIL TO (A ) DEDUCE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOL VING SMC AND (B) TO MAKE A QUANTITATIVE 'ADJUSTMENT' TO THE ALP TO THE EXTENT THAT THE EXPENDITURE EXCEEDS THE EXPENDITURE BY COM PARABLE ENTITIES. IT IS SUBMITTED THAT WITH THE DECISION IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) HAVIN G DISAPPROVED OF BLT AS A LEGITIMATE MEANS OF DETERMI NING THE 66 ALP OF AN INTERNATIONAL TRANSACTION INVOLVING AMP E XPENSES, THE VERY BASIS OF THE REVENUE'S CASE IS NEGATED. 68. THE ABOVE SUBMISSIONS PROCEED PURELY ON SURMIS ES AND CONJECTURES AND IF ACCEPTED AS SUCH WILL LEAD TO SE NDING THE TAX AUTHORITIES THEMSELVES ON A WILDGOOSE CHASE OF WHAT CAN AT BEST BE DESCRIBED AS A 'MIRAGE'. FIRST OF ALL, THER E HAS TO BE A CLEAR STATUTORY MANDATE FOR SUCH AN EXERCISE. THE C OURT IS UNABLE TO FIND ONE. TO THE QUESTION WHETHER THERE I S ANY 'MACHINERY' PROVISION FOR DETERMINING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING AMP EXPENSES, M R. SRIVASTAVA ONLY REFERRED TO SECTION 92F (II) WHICH DEFINES ALP TO MEAN A PRICE 'WHICH IS APPLIED OR PROPOSED TO BE AP PLIED IN A TRANSACTION BETWEEN PERSONS OTHER THAN AES IN UNCON TROLLED CONDITIONS'. SINCE THE REFERENCE IS TO 'PRICE' AND TO 'UNCONTROLLED CONDITIONS' IT IMPLICITLY BRINGS INTO PLAY THE BLT. IN OTHER WORDS, IT EMPHASIZES THAT WHERE THE PRICE IS SOMETHING OTH ER THAN WHAT WOULD BE PAID OR CHARGED BY ONE ENTITY FROM ANOTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DOES NOT SEE THIS AS A MACHINERY PROVISION PARTICULARLY IN LIGHT OF THE FACT THAT THE BLT HAS BEEN EXPRESSLY NEGATIVED BY THE COURT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA). THEREFORE, THE EXISTENCE OF AN INTERNATIONAL TRANSACTION WILL HAVE TO B E ESTABLISHED DE HORS THE BLT. 69. THERE IS NOTHING IN THE ACT WHICH INDICATES HOW, IN THE ABSENCE OF THE BLT, ONE CAN DISCERN THE EXISTENCE OF AN INTERNATIONAL TRANSACTION AS FAR AS AMP EXPENDITURE IS CONCERNED . THE COURT FINDS CONSIDERABLE MERIT IN THE CONTENT ION 67 OF THE ASSESSEE THAT THE ONLY TP ADJUSTMENT AUTHORI SED AND PERMITTED BY CHAPTER X IS THE SUBSTITUTION OF THE A LP FOR THE TRANSACTION PRICE OR THE CONTRACT PRICE. IT BEARS R EPETITION THAT EACH OF THE METHODS SPECIFIED IN S.92C (1) IS A PRI CE DISCOVERY METHOD. S.92C (1) THUS IS EXPLICIT THAT THE ONLY MA NNER OF EFFECTING A TP ADJUSTMENT IS TO SUBSTITUTE THE TRAN SACTION PRICE WITH THE ALP SO DETERMINED. THE SECOND PROVISO TO S ECTION 92C (2) PROVIDES A 'GATEWAY' BY STIPULATING THAT IF THE VARIATION BETWEEN THE ALP AND THE TRANSACTION PRICE DOES NOT EXCEED THE SPECIFIED PERCENTAGE, NO TP ADJUSTMENT CAN AT ALL B E MADE. BOTH SECTION 92CA, WHICH PROVIDES FOR MAKING A REFERENCE TO THE TPO FOR COMPUTATION OF THE ALP AND THE MANNER OF THE DE TERMINATION OF THE ALP BY THE TPO, AND SECTION 92CB WHICH PROVI DES FOR THE 'SAFE HARBOUR' RULES FOR DETERMINATION OF THE ALP, CAN BE APPLIED ONLY IF THE TP ADJUSTMENT INVOLVES SUBSTITUTION OF THE TRANSACTION PRICE WITH THE ALP. RULES 10B, 10C AND THE NEW RULE 10AB ONLY DEAL WITH THE DETERMINATION OF THE ALP. THUS, FOR THE PURPOSES OF CHAPTER X OF THE ACT, WHAT IS ENVISAGED IS NOT A QUANTITATIVE ADJUSTMENT BUT ONLY A SUBSTITUTION OF THE TRANSACTION PRICE WITH THE ALP. 70. WHAT IS CLEAR IS THAT IT IS THE 'PRICE' OF AN I NTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE ADJUSTED. THE V ERY EXISTENCE OF AN INTERNATIONAL TRANSACTION CANNOT BE PRESUMED BY ASSIGNING SOME PRICE TO IT AND THEN DEDUCING THAT S INCE IT IS NOT AN ALP, AN 'ADJUSTMENT' HAS TO BE MADE. THE BURDEN IS ON THE REVENUE TO FIRST SHOW THE EXISTENCE OF AN INTERNATI ONAL TRANSACTION. NEXT, TO ASCERTAIN THE DISCLOSED 'PRIC E' OF SUCH TRANSACTION AND THEREAFTER ASK WHETHER IT IS AN ALP . IF THE ANSWER TO THAT IS IN THE NEGATIVE THE TP ADJUSTMENT SHOULD 68 FOLLOW. THE OBJECTIVE OF CHAPTER X IS TO MAKE ADJUS TMENTS TO THE PRICE OF AN INTERNATIONAL TRANSACTION WHICH THE AES INVOLVED MAY SEEK TO SHIFT FROM ONE JURISDICTION TO ANOTHER. AN 'ASSUMED' PRICE CANNOT FORM THE REASON FOR MAKING AN ALP ADJU STMENT. 71. SINCE A QUANTITATIVE ADJUSTMENT IS NOT PERMISSIBLE FOR THE PURPOSES OF A TP ADJUSTMENT UNDER CHAPTER X, EQ UALLY IT CANNOT BE PERMITTED IN RESPECT OF AMP EXPENSES EITHE R. AS ALREADY NOTICED HEREINBEFORE, WHAT THE REVENUE HAS SOUGHT TO DO IN THE PRESENT CASE IS TO RESORT TO A QUANTITATIVE ADJUSTMENT BY FIRST DETERMINING WHETHER THE AMP SPEND OF THE ASSESSEE ON APPLICATION OF THE BLT, IS EXCESSIVE, THEREBY EVIDENCING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE AE. THE QUANTITATIVE DETERMINATION FORMS THE VERY BASIS FOR THE ENTIRE TP EXERCISE IN THE PRESENT CASE . 72. AS RIGHTLY POINTED OUT BY THE ASSESSEE, WHILE S UCH QUANTITATIVE ADJUSTMENT INVOLVED IN RESPECT OF AMP EXPENSES MAY BE CONTEMPLATED IN THE TAXING STATUTES OF CERTA IN FOREIGN COUNTRIES LIKE U.S.A., AUSTRALIA AND NEW ZEALAND, N O PROVISION IN CHAPTER X OF THE ACT CONTEMPLATES SUCH AN ADJUST MENT. AN AMP TP ADJUSTMENT TO WHICH NONE OF THE SUBSTANTIVE OR PROCEDURAL PROVISIONS OF CHAPTER X OF THE ACT APPLY, CANNOT BE HELD TO BE PERMITTED BY CHAPTER X. IN OTHER WORDS, WITH NEITHER THE SUBSTANTIVE NOR THE MACHINERY PROVISIONS OF CHAPTER X OF THE ACT BEING APPLICABLE TO AN AMP TP ADJUSTMENT, THE INEVITABLE CONCLUSION IS THAT CHAPTER X AS A WHOLE, DOES NOT PERMIT SUCH AN ADJUSTMENT . 69 73. IT BEARS REPETITION THAT THE SUBJECT MATTER OF THE ATTEMPTED PRICE ADJUSTMENT IS NOT THE TRANSACTION INVOLVING T HE INDIAN ENTITY AND THE AGENCIES TO WHOM IT IS MAKING PAYMEN TS FOR THE AMP EXPENSES. THE REVENUE IS NOT JOINING ISSUE, THE COURT WAS TOLD, THAT THE INDIAN ENTITY WOULD BE ENTITLED TO C LAIM SUCH EXPENSES AS REVENUE EXPENSE IN TERMS OF SECTION 37 OF THE ACT. IT IS NOT FOR THE REVENUE TO DICTATE TO AN ENTITY H OW MUCH IT SHOULD SPEND ON AMP. THAT WOULD BE A BUSINESS DECIS ION OF SUCH ENTITY KEEPING IN VIEW ITS EXIGENCIES AND ITS PERCEPTION OF WHAT IS BEST NEEDED TO PROMOTE ITS PRODUCTS. THE AR GUMENT OF THE REVENUE, HOWEVER, IS THAT WHILE SUCH AMP EXPENS E MAY BE WHOLLY AND EXCLUSIVELY FOR THE BENEFIT OF THE INDIA N ENTITY, IT ALSO ENSURES TO BUILDING THE BRAND OF THE FOREIGN AE FOR WHICH THE FOREIGN AE IS OBLIGED TO COMPENSATE THE INDIAN ENTI TY. THE BURDEN OF THE REVENUE'S SONG IS THIS: AN INDIAN ENT ITY, WHOSE AMP EXPENSE IS EXTRAORDINARY (OR 'NONROUTINE') OUGH T TO BE COMPENSATED BY THE FOREIGN AE TO WHOSE BENEFIT ALSO SUCH EXPENSE ENURES. THE 'NONROUTINE' AMP SPEND IS TAKEN TO HAVE 'SUBSUMED' THE PORTION CONSTITUTING THE 'COMPENSATI ON' OWED TO THE INDIAN ENTITY BY THE FOREIGN AE. IN SUCH A SCEN ARIO WHAT WILL BE REQUIRED TO BE BENCHMARKED IS NOT THE AMP EXPENS E ITSELF BUT TO WHAT EXTENT THE INDIAN ENTITY MUST BE COMPENSATE D. THAT IS NOT WITHIN THE REALM OF THE PROVISIONS OF CHAPTER X . 74. THE PROBLEM WITH THE REVENUE'S APPROACH IS THAT IT WANTS EVERY INSTANCE OF AN AMP SPEND BY AN INDIAN ENTITY WHICH HAPPENS TO USE THE BRAND OF A FOREIGN AE TO BE PRES UMED TO INVOLVE AN INTERNATIONAL TRANSACTION. AND THIS, NOT WITHSTANDING THAT THIS IS NOT ONE OF THE DEEMED INTERNATIONAL TR ANSACTIONS 70 LISTED UNDER THE EXPLANATION TO SECTION 92B OF THE ACT. THE PROBLEM DOES NOT STOP HERE. EVEN IF A TRANSACTION I NVOLVING AN AMP SPEND FOR A FOREIGN AE IS ABLE TO BE LOCATED IN SOME AGREEMENT, WRITTEN (FOR E.G., THE AMPLE AGREEMENTS PRODUCED BEFORE THE COURT BY THE REVENUE) OR OTHERWISE, HOW SHOULD A TPO PROCEED TO BENCHMARK THE PORTION OF SUCH AMP SP END THAT THE INDIAN ENTITY SHOULD BE COMPENSATED FOR? 75. AS AN ANALOGY, AND FOR NO OTHER PURPOSE, IN THE CONTEXT OF A DOMESTIC TRANSACTION INVOLVING TWO OR MORE RELATED PARTIES, REFERENCE MAY BE MADE TO SECTION 40A(2)(A) UNDER WH ICH CERTAIN TYPES OF EXPENDITURE INCURRED BY WAY OF PAYMENT TO RELATED PARTIES IS NOT DEDUCTIBLE WHERE THE AO 'IS OF THE O PINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVIN G REGARD TO THE FAIR MARKET VALUE OF THE GOODS.' IN SUCH EVENT, 'SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EX CESSIVE OR UNREASONABLE SHALL NOT BE ALLOWED AS A DEDUCTION.' THE AO IN SUCH AN INSTANCE DEPLOYS THE 'BEST JUDGMENT' ASSESS MENT AS A DEVICE TO DISALLOW WHAT HE CONSIDERS TO BE AN EXCES SIVE EXPENDITURE. THERE IS NO CORRESPONDING 'MACHINERY' PROVISION IN CHAPTER X WHICH ENABLES AN AO TO DETERMINE WHAT SHO ULD BE THE FAIR 'COMPENSATION' AN INDIAN ENTITY WOULD BE E NTITLED TO IF IT IS FOUND THAT THERE IS AN INTERNATIONAL TRANSACTION IN THAT REGARD. IN PRACTICAL TERMS, ABSENT A CLEAR STATUTORY GUIDAN CE, THIS MAY ENCOUNTER FURTHER DIFFICULTIES. THE STRENGTH OF A B RAND, WHICH COULD BE PRODUCT SPECIFIC, MAY BE IMPACTED BY NUMER OUS OTHER IMPONDERABLES NOT LIMITED TO THE NATURE OF THE INDU STRY, THE GEOGRAPHICAL PECULIARITIES, ECONOMIC TRENDS BOTH IN TERNATIONAL AND DOMESTIC, THE CONSUMPTION PATTERNS, MARKET BEHA VIOUR AND SO ON. A SIMPLISTIC APPROACH USING ONE OF THE MODES SIMILAR TO 71 THE ONES CONTEMPLATED BY SECTION 92C MAY NOT ONLY B E LEGALLY IMPERMISSIBLE BUT WILL LEND ITSELF TO ARBITRARINESS . WHAT IS THEN NEEDED IS A CLEAR STATUTORY SCHEME ENCAPSULATING TH E LEGISLATIVE POLICY AND MANDATE WHICH PROVIDES THE NECESSARY CHE CKS AGAINST ARBITRARINESS WHILE AT THE SAME TIME ADDRES SING THE APPREHENSION OF TAX AVOIDANCE. 76. AS EXPLAINED BY THE SUPREME COURT IN CIT V. B.C . SRINIVASA SETTY [1981] 128 ITR 294 AND PNB FINANCE LTD. V. CI T [2008] 307 ITR 75 IN THE ABSENCE OF ANY MACHINERY PROVISIO N, BRINGING AN IMAGINED INTERNATIONAL TRANSACTION TO TAX IS FRA UGHT WITH THE DANGER OF INVALIDATION. IN THE PRESENT CASE, IN THE ABSENCE OF THERE BEING AN INTERNATIONAL TRANSACTION INVOLVING AMP SPEND WITH AN ASCERTAINABLE PRICE, NEITHER THE SUBSTANTIV E NOR THE MACHINERY PROVISION OF CHAPTER X ARE APPLICABLE TO THE TRANSFER PRICING ADJUSTMENT EXERCISE. FURTHER IN THE JUDGMENT OF SONY ERICSSON MOBILE COMMUN ICATION PVT. LTD. (SUPRA), THE HIGH COURT ITSELF HAS DISTINGUIS HED THE CASES BEFORE IT WHEREIN THERE WERE CASES WHICH ALREADY THEMS ELVES HAD ACCEPTED THAT THERE EXISTS INTERNATIONAL TRANSACTION AND THE RE WERE OTHER SET OF CASES WHERE THE ASSESSEE HAS DISPUTED THE I NTERNATIONAL TRANSACTION. THIS IS CLEAR FROM THE FOLLOWING PASSAGE OF THE JUDGMENT: - 120. NOTWITHSTANDING THE ABOVE POSITION, THE ARGUM ENT OF THE REVENUE GOES BEYOND ADEQUATE AND FAIR COMPENSATION AND THE RATIO OF THE MAJORITY DECISION MANDATES THAT IN EAC H CASE WHERE AN INDIAN SUBSIDIARY OF A FOREIGN AE INCURS AMP EXP ENDITURE SHOULD BE SUBJECTED TO THE 'BRIGHT LINE TEST' ON TH E BASIS OF 72 COMPARABLES MENTIONED IN PARAGRAPH 17.4. ANY EXCESS EXPENDITURE BEYOND THE BRIGHT LINE SHOULD BE REGARD ED AS A SEPARATE INTERNATIONAL TRANSACTION OF BRAND BUILDIN G. SUCH A BROADBRUSH UNIVERSAL APPROACH IS UNWARRANTED AND WOULD AMOUNT TO JUDICIAL LEGISLATION . DURING THE COURSE OF ARGUMENTS, IT WAS ACCEPTED BY THE REVENUE THAT THE TPOS/ASSESSING OFFICERS HAVE UNIVERSALLY APPLIED 'BRIGH T LINE TEST' TO DECIPHER AND COMPUTE VALUE OF INTERNATION AL TRANSACTION AND THEREAFTER APPLIED 'COST PLUS METHOD' OR 'COST METHOD' TO COMPUTE THE ARM'S LENGTH PRICE. THE SAID APPROACH IS NOT MANDATED AND STIPULATED IN THE ACT O R THE RULES . THE LIST OF PARAMETERS FOR ASCERTAINING THE COMPARABLES FOR APPLYING BRIGHT LINE TEST IN PARAGRAPH 17.4 AND, THEREAFTER, THE ASSERTION IN PARAGRAPH 17. 6 THAT COMPARISON CAN BE ONLY MADE BY CHOOSING COMPARABLE OF DOMESTIC CASES NOT USING ANY FOREIGN BRAND, IS CONTRARY TO THE RULES. IT AMOUNTS TO WRITING A ND PRESCRIBING A MANDATORY PROCEDURE OR TEST WHICH IS NO T STIPULATED IN THE ACT OR THE RULES. THIS IS BEYOND WHA T THE STATUTE IN CHAPTER X POSTULATES. RULES ALSO DO N OT SO STIPULATE. THE ARGUMENT AND REASONING IN PARAGRAPH 17.6 IN A WAY LOSES FOCUS ON THE MAIN ISSUE AND CONTROVERSY; WHETHER THE ARM'S LENGTH PRICE FIXED B ETWEEN THE TWO AES IS ADEQUATE AND JUSTIFIED AND WOULD HAVE BEEN PAID IF THE TRANSACTION WAS BETWEEN TWO INDEPENDENT ENTERPRISES. THE TWO INDEPENDENT ENTERPRISES MUST BE TWO UNRELATED PARTIES HAVING NO CONNECTION . IT DOES NOT MATTER WHETHER THE COMPARABLES ARE DOMESTIC ENTERPRISES OR NOT. HOWEVER, AND IT IS MAN IFEST THAT THE 73 COMPARABLE SHOULD HAVE SIMILAR RIGHTS, IF ANY, AS T HE TESTED PARTY IN THE BRAND NAME, TRADEMARK, ETC. 121. DURING THE COURSE OF HEARING BEFORE US, COUNSE L FOR THE REVENUE HAD SUBMITTED THAT PARAGRAPH 17.4 SHOULD BE TREATED AS ILLUSTRATIONS AND NOT AS BINDING COMPARABLES. WE WOULD PREFER TO OBSERVE, THAT AN ASSESSING OFFICER/ TPO C AN GO AND MUST EXAMINE THE QUESTION WHETHER THE ASSESSEE IS P ERFORMING FUNCTIONS OF A PURE DISTRIBUTOR OR PERFORMING DISTR IBUTION AND MARKETING FUNCTIONS, IN THE LATTER CASE, HE MUST EX AMINE AND ASCERTAIN WHETHER THE TRANSFER PRICE TAKES INTO CON SIDERATION THE MARKETING FUNCTION, WHICH WOULD INCLUDE AMP FUNCTIO NS. THIS WOULD ENSURE ADEQUATE TRANSACTION PRICE AND HENCE A SSURE NO LOSS OF REVENUE. WHEN THE DISTRIBUTION AND MARKETIN G FUNCTIONS ARE INTERCONNECTED AND RELIABLE COMPARABLES ARE AVA ILABLE, ARM'S LENGTH PRICE COULD BE COMPUTED AS A PACKAGE, IF REQUIRED AND NECESSARY BY MAKING ADEQUATE ADJUSTMENTS. WHEN THE ASSESSING OFFICER/TPO COMES TO THE CONCLUSION THAT IT IS NOT POSSIBLE TO COMPUTE ARM'S LENGTH PRICE WITHOUT SEGR EGATING AND DIVIDING DISTRIBUTION AND MARKETING OR AMP FUNCTION S, HE CAN SO PROCEED AFTER GIVING JUSTIFICATION AND ADEQUATE REA SONS. AT THAT STAGE, HE WOULD HAVE APPORTIONED THE PRICE RECEIVED OR THE COMPENSATION PAID BY THE FOREIGN AE TOWARDS DISTRIB UTION AND MARKETING OR AMP FUNCTIONS. THE TPO CAN THEN APPLY AN APPROPRIATE METHOD AND COMPUTE THE ARM'S LENGTH PRI CE OF THE TWO INDEPENDENTLY AND EVEN BY APPLYING SEPARATE MET HODS. THIS WILL BE IN TERMS OF THE PROVISIONS OF THE ACT AND THE RULES AND ALSO AS PER THE GENERAL PRINCIPLES OF INTERNATI ONAL TAXATION ACCEPTED AND APPLIED UNIVERSALLY. ON THE OTHER HAND, AS RECORDED BY US ABOVE, APPLYING 'BRIGHT LINE TEST' ON TH E 74 BASIS OF PARAMETERS PRESCRIBED IN PARAGRAPHS 17.4 AN D 17.6 WOULD BE ADDING AND WRITING WORDS IN THE STATUTE AND THE RULES AND INTRODUCING A NEW CONCEPT WHICH HAS NOT BEEN RECOGNISED AND ACCEPTED IN ANY OF THE INTERNATIONAL COMMENTARIES OR AS PER THE GENERAL PRINCIPLES OF INTERNATIONAL TAXATION ACCEPTED AND APPLIE D UNIVERSALLY. THERE IS NOTHING IN THE ACT OR THE RULES TO HOLD THAT IT IS OBLIGATORY THAT THE AMP EXPENSES MUST A ND NECESSARILY SHOULD BE SUBJECTED TO 'BRIGHT LINE TEST' AN D THE NONROUTINE AMP EXPENSES AS A SEPARATE TRANSACTION TO BE COMPUTED IN THE MANNER AS STIPULATED . 58. THUS, FORM THE PLAIN READING OF THE AFORESAID PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT, THE KEY SEQUITUR IS THAT: (I) INTERNATIONAL TRANSACTION CANNOT BE IDENTIFIED OR H ELD TO BE EXISTING SIMPLY BECAUSE EXCESS AMP EXPENDITURE HAS BE EN INCURRED BY THE INDIAN ENTITY. (II) INTERNATIONAL TRANSACTIONS CANNOT BE FOUND TO EXI ST AFTER APPLYING THE BLT TO DECIPHER AND COMPUTE VALUE OF INTERNATIONAL TRANSACTION. (III) THERE IS NO PROVISION EITHER IN THE ACT OR IN THE RULES TO JUSTIFY THE APPLICATION OF BLT FOR COMPUTING THE ARMS LENGTH PRICE AND THERE IS NOTHING IN THE ACT WHICH INDIC ATE HOW IN THE ABSENCE OF BLT ONE CAN DISCERN THE EXISTEN CE OF AN INTERNATIONAL TRANSACTION AS FAR AS AMP EXPENDITURE IS CONCERNED. (IV) REVENUE CANNOT RESORT TO A QUANTIFY THE ADJUSTMENT BY DETERMINING THE AMP EXPENSES SPENT BY THE ASSESSEE A FTER 75 APPLYING BLT TO HOLD IT TO BE EXCESSIVE AND THEREBY EVIDENCING THE EXISTENCE OF THE INTERNATIONAL TRANSACTION INVOLVING THE AE. 59. HERE IN THIS CASE ALSO, THE TPO HAS TRIED TO PR OVE THE INTERNATIONAL TRANSACTION, VIS--VIS, AMP AFTER APPLYING THE BLT WHICH NOW IN VIEW OF SETTLED LAW BY THE HON'BLE JURIS DICTIONAL HIGH COURT, SUCH AN APPROACH HAS TO BE REJECTED. HENCE A T THE VERY THRESHOLD THE SPENDING OF AMP EXPENDITURE BY THE ASSES SEE CANNOT BE HELD TO BE AN INTERNATIONAL TRANSACTION BETWEEN THE A SSESSEE AND ITS AE. 60. ANOTHER POINT WHICH HAS BEEN RAISED BY THE REVE NUE IS THAT, HUGE SPENDING OF AMP EXPENSES AMOUNTS TO BRAND BUILDI NG AND TRADE MARK OF THE AE, AND THEREFORE, SUCH A SPENDING G IVES A BENEFIT TO THE AE BY ENHANCING ITS BRAND VALUE WHICH HELPS THE AE IN ACHIEVING SALES IN OTHER TERRITORIES OR OTHERWISE. TH IS CONCEPT OF BRAND BUILDING AND WHETHER SUCH A BRAND BUILDING CAN BE ATTRIBUTED TO ADVERTISEMENT AND SALE PROMOTIONS AND THEREBY BENEFITTING THE AE, HAS BEEN DISCUSSED IN DETAIL BY THE HON'BLE HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION VS. CIT (SUPRA) WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER: - BRAND AND BRAND BUILDING 102. WE BEGIN OUR DISCUSSION WITH REFERENCE TO EL UCIDATION ON THE CONCEPT OF BRAND AND BRAND BUILDING IN THE MINO RITY DECISION IN THE CASE OF L. G. ELECTRONICS INDIA PVT LTD. (SU PRA). THE TERM 'BRAND', IT HOLDS, REFERS TO NAME, TERM, DESIGN, SY MBOL OR ANY OTHER FEATURE THAT IDENTIFIES ONE SELLER'S GOODS OR SERVICES AS 76 DISTINCT FROM THOSE OF OTHERS. THE WORD 'BRAND' IS DERIVED FROM THE WORD 'BRAND' OF OLD NORSE LANGUAGE AND REPRESEN TED AN IDENTIFICATION MARK ON THE PRODUCTS BY BURNING A PA RT. BRAND HAS BEEN DESCRIBED AS A DUSTER OF FUNCTIONAL AND EM OTIONAL 103 IT IS A MATTER OF PERCEPTION AND REPUTATION AS IT R EFLECTS CUSTOMERS' EXPERIENCE AND FAITH. BRAND VALUE IS NOT GENERATED OVERNIGHT BUT IS CREATED EVER A PERIOD OF TIME, WHE N THERE IS RECOGNITION THAT THE LOGO OR THE NAME GUARANTEES A CONSISTENT LEVEL OF QUALITY AND EXPERTISE. LESLIE DE CHEMATONY AND MCDONALD HAVE DESCRIBED 'A SUCCESSFUL BRAND IS AN I DENTIFIABLE PRODUCT, SERVICE, PERSON OR PLACE, AUGMENTED IN SUC H A WAY THAT THE BUYER OR USER PERCEIVES RELEVANT, UNIQUE, SUSTA INABLE ADDED VALUES WHICH MATCH THEIR NEEDS MOST CLOSELY'. THE W ORDS OF THE SUPREME COURT IN CIVIL APPEAL NO. 1201 OF 1966 DECI DED ON FEBRUARY 12, 1970, IN KHUSHAL KHENGER SHAH V. KHORS HEDBANN DABIDA BOATWALA, TO DESCRIBE 'GOODWILL', CAN BE ADO PTED TO DESCRIBE A BRAND AS AN INTANGIBLE ASSET BEING THE W HOLE ADVANTAGE OF THE REPUTATION AND CONNECTIONS FORMED WITH THE CUSTOMER TOGETHER WITH CIRCUMSTANCES WHICH MAKE THE CONNECTION DURABLE. THE DEFINITION GIVEN BY LORD MA CNAGHTEN IN COMMISSIONER OF INLAND REVENUE V. MIDLER AND CO. MA RGARINE LTD. [1901] AC 217 (223) CAN ALSO BE APPLIED WITH M ARGINAL CHANGES TO UNDERSTAND THE CONCEPT OF BRAND. IN THE CONTEXT OF 'GOODWILL' IT WAS OBSERVED: 'IT IS VERY DIFFICULT, AS IT SEEMS TO ME, TO SAY T HAT GOODWILL IS NOT PROPERTY. GOODWILL IS BOUGHT AND SOLD EVERY DAY . IT MAY BE ACQUIRED. I THINK, IN ANY OF THE DIFFERENT WAYS IN WHICH PRO PERTY IS USUALLY ACQUIRED. WHEN A MAN HAS GOT IT HE MAY KEEP IT AS HIS OWN. HE MAY VINDICATE HIS EXCLUSIVE RIGHT TO IT IF NECESSARY BY 77 PROCESS OF LAW. HE MAY DISPOSE OF IT IF HE WILLOF COURSE, UNDER THE CONDITIONS ATTACHING TO PROPERTY OF THAT NATURE ... WHAT IS GOODWILL? IT IS A THING VERY EASY TO DESCRI BE VERY DIFFICULT TO DEFINE. IT IS THE BENEFIT AND ADVANTAG E OF THE GOOD NAME, REPUTATION, AND: CONNECTION OF A BUSINESS. IT IS THE ATTRACTIVE FORCE WHICH BRINGS IN CUSTOM. IT IS THE ONE THING WHICH DISTINGUISHES AN OLD ESTABLISHED BUSINESS FRO M A NEW BUSINESS AT ITS FIRST START. THE GOODWILL OF A BUSI NESS MUST EMANATE FROM A PARTICULAR CENTRE OR SOURCE. HOWEVER , WIDELY EXTENDED OR DIFFUSED ITS INFLUENCE MAY BE, GOODWILL IS WORTH NOTHING UNLESS IT HAS POWER OF ATTRACTION SUFFICIEN T TO BRING CUSTOMERS HOME TO THE SOURCE FROM WHICH IT EMANATES . GOODWILL IS COMPOSED OF A VARIETY OF ELEMENTS. IT D IFFERS IN ITS COMPOSITION IN DIFFERENT TRADES AND IN DIFFERENT BU SINESSES IN THE SAME TRADE. ONE ELEMENT MAY PREPONDERATE HERE A ND ANOTHER ELEMENT THERE. TO ANALYSE GOODWILL AND SPLI T IT UP INTO ITS COMPONENT PARTS, TO PARE IT DOWN AS THE COMMISS IONERS DESIRE TO DO UNTIL NOTHING IS LEFT BUT A DRY RESIDU UM INGRAINED IN THE ACTUAL PLACE WHERE THE BUSINESS IS CARRIED O N WHILE EVERYTHING ELSE IS IN THE ALL, SEEMS TO ME TO BE AS USEFUL FOR PRACTICAL PURPOSES AS IT WOULD BE TO RESOLVE THE HU MAN BODY INTO THE VARIOUS SUBSTANCES OF WHICH IT IS SAID TO BE COMPOSED. THE GOODWILL OF A BUSINESS IS ONE WHOLE, AND IN A C ASE LIKE THIS IT MUST BE DEALT WITH AS SUCH. FOR MY PART, I THINK THAT IF THERE IS ONE ATTRIBUTE COMMON TO ALL CASES OF GOODWILL IT IS THE ATTRIBUTE OF LOCALITY. FOR GOODWILL HAS NO INDEPEND ENT EXISTENCE. IT CANNOT SUBSIST BY ITSELF. IT MUST BE ATTACHED TO A BUSINESS. DESTROY THE BUSINESS, AND THE GOODWILL PERISHES WIT H IT, THOUGH ELEMENTS REMAIN WHICH MAY PERHAPS BE GATHERED UP AN D BE REVIVED AGAIN ...' 78 104 'BRAND' HAS REFERENCE TO A NAME, TRADE MARK OR TRADE NAME. A BRAND LIKE 'GOODWILL', THEREFORE, IS A VALU E OF ATTRACTION TO CUSTOMERS ARISING FROM NAME AND A REPUTATION FOR SKILL, INTEGRITY, EFFICIENT BUSINESS MANAGEMENT OR EFFICIE NT SERVICE. BRAND CREATION AND VALUE, THEREFORE, DEPENDS UPON A GREAT NUMBER OF FACTS RELEVANT FOR A PARTICULAR BUSINESS. IT REFLECTS THE REPUTATION WHICH THE PROPRIETOR OF THE BRAND HAS GA THERED OVER A PASSAGE OR PERIOD OF TIME IN THE FORM OF WIDESPRE AD POPULARITY AND UNIVERSAL APPROVAL AND ACCEPTANCE IN THE EYES O F THE CUSTOMER. TO USE WORDS FROM CTT V. CHUNILAL PRABHUD AS AND CO. [1970] 76 ITR 566 (CAL) ; AIR 1971 CAL 70, IT W OULD MEAN : 'IT HAS BEEN HORTICULTURALLY AND BOTANICALLY VIEWE D AS 'A SEED SPROUTING' OR AN 'ACORN GROWING INTO THE MIGHTY OAK OF GOODWILL'. IT HAS BEEN GEOGRAPHICALLY DESCRIBED BY LOCALITY. I T HAS BEEN HISTORICALLY EXPLAINED AS GROWING AND CRYSTALLISING TRADITIONS IN THE BUSINESS. IT HAS BEEN DESCRIBED IN TERMS OF A M AGNET AS THE 'ATTRACTING FORCE'. IN TERMS OF COMPARATIVE DYN AMICS, GOODWILL HAS BEEN DESCRIBED AS THE 'DIFFERENTIAL RE TURN OF PROFIT'. PHILOSOPHICALLY IT HAS BEEN HELD TO BE INT ANGIBLE. THOUGH IMMATERIAL, IT IS MATERIALLY VALUED. PHYSICALLY AND PSYCHOLOGICALLY, IT IS A 'HABIT AND SOCIOLOGICALLY IT IS A 'CUSTOM'. BIOLOGICALLY, IT HAS BEEN DESCRIBED BY LORD MACNAGH TEN IN TREGO V. HUNT [1896] AC 7 AS THE 'SAP AND LIFE' OF THE BUSINESS.' THERE IS A LINE OF DEMARCATION BETWEEN DEVELOPMENT AND EXPLOITATION. DEVELOPMENT OF A TRADE MARK OR GOODWI LL TAKES PLACE OVER A PASSAGE OF TIME AND IS A SLOW ONGOING PROCESS. IN CASES OF WELL RECOGNISED OR KNOWN TRADE MARKS, THE SAID TRADE MARK IS ALREADY RECOGNISED. EXPENDITURES INCURRED F OR PROMOTING PRODUCT(S) WITH A TRADE MARK IS FOR EXPLO ITATION OF THE 79 TRADE MARK RATHER THAN DEVELOPMENT OF ITS VALUE. A TRADE MARK IS A MARKET PLACE DEVICE BY WHICH THE CONSUMERS IDE NTIFY THE GOODS ARID SERVICES AND THEIR SOURCE. IN THE CONTEX T OF TRADE MARK, THE SAID MARK SYMBOLISES THE GOODWILL OR THE LIKELIHOOD THAT THE CONSUMERS WILL MAKE FUTURE PURCHASES OF TH E SAME GOODS OR SERVICES. VALUE OF THE BRAND ALSO WOULD DE PEND UPON AND IS ATTRIBUTABLE TO INTANGIBLES OTHER THAN TRADE MARK. IT REFERS TO INFRA-STRUCTURE, KNOW-HOW, ABILITY TO COMPETE WI TH THE ESTABLISHED MARKET LEADERS. BRAND VALUE, THEREFORE, DOES NOT REPRESENT TRADE MARK AS A STANDALONE ASSET AND IS D IFFICULT AND COMPLEX TO DETERMINE AND SEGREGATE ITS VALUE. BRAND VALUE DEPENDS UPON THE NATURE AND QUALITY OF GOODS AND SE RVICES SOLD OR DEALT WITH'. QUALITY CONTROL BEING THE MOST IMPO RTANT ELEMENT, WHICH CAN MAR OR ENHANCE THE VALUE. THEREFORE, TO ASSERT AND PROFESS THAT BRAND BUILDI NG AS EQUIVALENT OR SUBSTANTIAL ATTRIBUTE OF ADVERTISEMEN T AND' SALE PROMOTION WOULD BE LARGELY INCORRECT. IT REPRESENTS A COORDINATED SYNERGETIC IMPACT CREATED BY ASSORT- ME RIT LARGELY REPRESENTING REPUTATION AND QUALITY. THERE ARE A GO OD NUMBER OF EXAMPLES WHERE BRANDS HAVE BEEN BUILT WITHOUT INCUR RING SUBSTANTIAL ADVERTISEMENT OR PROMOTION EXPENSES AND ALSO CASES WHERE IN SPITE OF EXTENSIVE AND LARGE SCALE ADVERTISEMENTS, BRAND VALUES HAVE NOT BEEN CREATED. THEREFORE, IT WOULD BE ERRONEOUS AND FALLACIOUS TO TREAT BRAND BUILDING AS COUNTERPART OR TO COMMENSURATE BRAND WITH ADVERTISE MENT EXPENSES. BRAND BUILDING OR CREATION IS A VEXED AND COMPLEXED ISSUE, SURELY NOT JUST RELATED TO ADVERTISEMENT. AD VERTISEMENTS MAY BE THE QUICKEST AND EFFECTIVE WAY TO TELL A BRA ND STORY TO A LARGE AUDIENCE BUT JUST THAT IS NOT ENOUGH TO CREAT E OR BUILD A BRAND. MARKET VALUE OF A BRAND WOULD DEPEND UPON HO W MANY 80 CUSTOMERS YOU HAVE, WHICH HAS REFERENCE TO BRAND GO ODWILL, COMPARED TO A BASELINE OF AN UNKNOWN BRAND. IT IS I N THIS MANNER THAT THE VALUE OF THE BRAND OR BRAND EQUITY IS CALCULATED. SUCH CALCULATIONS WOULD BE RELEVANT WHE N THERE IS AN ATTEMPT TO SELL OR TRANSFER THE BRAND NAME. REPU TED BRANDS DO NOT GO IN FOR ADVERTISEMENT WITH THE INTENTION T O INCREASE THE BRAND VALUE BUT TO INCREASE THE SALES AND THEREBY E ARN LARGER AND GREATER PROFITS. IT IS NOT THE CASE OF THE REVE NUE THAT THE FOREIGN ASSOCIATED ENTERPRISES ARE IN THE BUSINESS OF SALE/TRANSFER OF BRANDS. ACCOUNTING STANDARD 26 EXEMPLIFIES DISTINCTION BET WEEN EXPENDITURE HJ7 INCURRED TO DEVELOP OR ACQUIRE AN I NTANGIBLE ASSET AND INTERNALLY GENERATED GOODWILL. AN INTANGI BLE ASSET SHOULD BE RECOGNISED AS AN ASSET, IF AND ONLY IF, I T IS PROBABLE THAT FUTURE ECONOMIC BENEFITS ATTRIBUTABLE TO THE S AID ASSET WILL FLOW TO THE ENTERPRISE AND THE COST OF THE ASSET CA N BE MEASURED RELIABLY. THE ESTIMATE WOULD REPRESENT THE SET OFF OF ECONOMIC CONDITIONS THAT WILL EXIST OVER THE USEFUL LIFE OF THE INTANGIBLE ASSET. AT THE INITIAL STAGE, INTANGIBLE ASSET SHOUL D BE MEASURED AT COST. THE ABOVE PROPOSITION WOULD NOT APPLY TO I NTERNALLY GENERATED GOODWILL OR BRAND. PARAGRAPH 35 SPECIFICA LLY ELUCIDATES THAT INTERNALLY GENERATED GOODWILL SHOUL D NOT BE RECOGNISED AS AN ASSET. IN SOME CASES EXPENDITURE I S INCURRED TO GENERATE FUTURE ECONOMIC BENEFITS BUT IT MAY NOT INSULT IN CREATION OF AN INTANGIBLE ASSET IN THE FORM OF GOODWILL OR BRAND, WHICH MEETS THE RECOGNITION CRITERIA UNDER AS-26. I NTERNALLY GENERATED GOODWILL OR BRAND IS NOT TREATED AS AN AS SET IN AS-26 BECAUSE IT IS NOT AN IDENTIFIABLE RESOURCE CONTROLL ED BY AN ENTERPRISE, WHICH CAN BE RELIABLY MEASURED AT COST. ITS VALUE 81 CAN CHANGE DUE TO A RANGE OF FACTORS. SUCH UNCERTAI N AND UNPREDICTABLE DIFFERENCES, WHICH WOULD OCCUR IN FUT URE, ARE INDETERMINATE. IN SUBSEQUENT PARAGRAPHS, AS-26 RECO RDS THAT EXPENDITURE ON MATERIALS AND SERVICES USED OR CONSU MED, SALARY, WAGES AND EMPLOYMENT RELATED COSTS, OVERHEA DS, ETC., CONTRIBUTE IN GENERATING INTERNAL INTANGIBLE ASSET. THUS, IT IS POSSIBLE TO COMPUTE GOOD- WILL OR BRAND EQUITY/VALU E AT A POINT OF TIME BUT ITS FUTURE VALUATION WOULD BE PERILOUS AND AN IFFY EXERCISE. IN PARAGRAPH 44 OF AS-26, IT IS STATED THAT INTANG IBLE ASSET ARISING FROM DEVELOPMENT WILL BE RECOGNISED ONLY AN D ONLY IF AMONGST SEVERAL FACTORS, CAN DEMONSTRATE A TECHNICA L FEASIBILITY OF COMPLETING THE INTANGIBLE ASSET: THAT IT WILL BE AVAILABLE FOR USE OR SALE AND THE INTENTION IS TO COMPLETE THE IN TANGIBLE ASSET FOR USE OR SALE IS SHOWN OR HOW THE INTANGIBLE ASSE T GENERATE PROBABLE FUTURE BENEFITS, ETC. THE AFORESAID POSITI ON FINDS RECOGNITION AND WAS ACCEPTED IN CIT V. B. C. SRINIV ASA SETTY [1981] 128 ITR 294 (SC); [1981] 2 SCC 460, A RELATI NG TRANSFER TO GOODWILL. GOODWILL, IT WAS HELD, WAS A CAPITAL A SSET AND DENOTES BENEFITS ARISING FROM CONNECTION AND REPUTA TION. A VARIETY OF ELEMENTS GO INTO ITS MAKING AND THE COMP OSITION VARIES IN DIFFERENT TRADES, DIFFERENT BUSINESSES IN THE SAME TRADE, AS ONE ELEMENT MAY PRE-DOMINATE ONE BUSINESS , ANOTHER ELEMENT MAY DOMINATE IN ANOTHER BUSINESS. IT REMAIN S SUBSTANTIAL IN FORM AND NEBULOUS IN CHARACTER. IN P ROGRESSING BUSINESS, BRAND VALUE OR GOODWILL WILL SHOW PROGRES SIVE INCREASE BUT IN FALLING BUSINESS, IT MAY VAIN. THUS , ITS VALUE FLUCTUATES FROM ONE MOMENT TO ANOTHER, DEPENDING UP ON REPUTATION AND EVERYTHING ELSE RELATING TO BUSINESS , PERSONALITY, 82 BUSINESS RECTITUDE OF THE OWNERS, IMPACT OF CONTEMP ORARY MARKET REPUTATION, ETC. IMPORTANTLY, THERE CAN BE N O ACCOUNT IN VALUE OF THE FACTORS PRODUCING IT AND IT IS IMPOSSI BLE TO PREDICATE THE MOMENT OF ITS BIRTH FOR IT COMES SILENTLY INTO THE WORLD UNHERALDED AND UNPROCLAIMED. ITS BENEFIT AND IMPACT NEED NOT BE VISIBLY FELT FOR SOME TIME. IMPERCEPTIBLE AT BIR TH, IT EXITS UNWRAPPED IN A CONCEPT, GROWING OR FLUCTUATING WITH NUMEROUS IMPONDERABLES POURING INTO AND AFFECTING THE BUSINE SS. THUS, THE DATE OF ACQUISITION OR THE DATE ON WHICH IT COM ES INTO EXISTENCE IS NOT POSSIBLE TO DETERMINE AND IT IS IM POSSIBLE TO SAY WHAT WAS THE COST OF ACQUISITION. THE AFORESAID OBS ERVATIONS ARE RELEVANT AND ARE EQUALLY APPLICABLE TO THE PRES ENT CONTROVERSY. IT HAS BEEN REPEATEDLY HELD BY THE DELHI HIGH COURT THAT ADVERTISEMENT 110 EXPENDITURE GENERALLY IS NOT AND SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE INCURRED OR M ADE FOR CREATING AN INTANGIBLE CAPITAL ASSET. APPROPRIATE I N THIS REGARD WOULD BE TO REPRODUCE THE OBSERVATIONS IN CTT V. MO NTO MOTORS LTD. [2012] 206 TAXMAN 43 (DELHI), WHICH READ: '4. . . . ADVERTISEMENT EXPENSES WHEN INCURRED TO INCREASE SALES OF PRODUCTS ARE USUALLY TREATED AS A REVENUE EXPENDITURE, SINCE THE MEMORY OF PURCHASERS OR CUST OMERS IS SHORT. ADVERTISEMENT ARE ISSUED FROM TIME TO TIME A ND THE EXPENDITURE IS INCURRED PERIODICALLY, SO THAT THE C USTOMERS REMAIN ATTRACTED AND DO NOT FORGET THE PRODUCT AND ITS QUALITIES. THE ADVERTISEMENTS PUBLISHED/DISPLAYED M AY NOT BE OF RELEVANCE OR SIGNIFICANCE AFTER LAPSE OF TIME IN A HIGHLY COMPETITIVE MARKET, WHEREIN THE PRODUCTS OF DIFFERE NT COMPANIES COMPETE AND ARE AVAILABLE IN ABUNDANCE. ADVERTISEMENTS AND SALES PROMOTION ARE CONDUCTED TO INCREASE 83 SALE AND THEIR IMPACT IS LIMITED AND FELT FOR A SHO RT DURATION. NO PERMANENT CHARACTER OR ADVANTAGE IS ACHIEVED AND IS PALPABLE, UNLESS SPECIAL OR SPECIFIC FACTORS ARE BR OUGHT ON RECORD. EXPENSES FOR ADVERTISING CONSUMER PRODUCTS GENERALLY ARE A PART OF THE PROCESS OF PROFIT EARNING AND NOT IN THE NATURE OF CAPITAL OUTLAY. THE EXPENSES IN THE PRESENT CASE WERE NOT INCURRED ONCE AND FOR ALL, BUT WERE A PERIODICAL EX PENSES WHICH HAD TO BE INCURRED CONTINUOUSLY IN VIEW OF TH E NATURE OF THE BUSINESS. IT WAS AN ON-GOING EXPENSE. GIVEN THE FACTUAL MATRIX, IT IS DIFFICULT TO HOLD THAT THE EXPENSES W ERE INCURRED FOR SETTING THE PROFIT EARNING MACHINERY IN MOTION OR N OT FOR EARNING PROFITS.'. (ALSO SEE, CIT V. SPICE DISTRIBUTION LTD., I. T. A . NO. 597 OF 2014, DECIDED BY THE DELHI HIGH COURT ON SEPTEMBER 19, 2014 [2015] 374 ITR 30 (DELHI) AND CTT V. SALORA INTERNA TIONAL LTD. [2009] 308 ITR 199 (DELHI). ACCEPTING THE PARAMETERS OF THE 'BRIGHT LINE TEST' AND IF THE SAID PARA METERS AND TESTS ARE APPLIED TO INDIAN COMPANI ES WITH REPUTED BRANDS AND SUBSTANTIAL AMP EXPENSES WOULD L EAD TO DIFFICULTY AND UNFORESEEN TAX IMPLICATIONS AND COMP LICATIONS. TATA, HERO, MAHINDRA, TVS, BAJA], GODREJ, VIDEOCON GROUP AND SEVERAL OTHERS ARE BOTH MANUFACTURERS AND OWNERS OF INTANGIBLE PROPERTY IN THE FORM OF BRAND NAMES. THEY INCUR SUB STANTIAL AMP EXPENDITURE. IF WE APPLY THE 'BRIGHT LINE TEST' WITH REFERENCE TO INDICATORS MENTIONED IN PARAGRAPH 17.4 AS WELL AS THE RATIO EXPOUNDED BY THE MAJORITY JUDGMENT IN L. G. ELECTRONICS INDIA PVT LTD.'S CASE (SUPRA) IN PARAGR APH 17.6 TO BIFURCATE AND SEGREGATE THE AMP EXPENSES TOWARDS BR AND 84 BUILDING AND CREATION, THE RESULTS WOULD BE STARTLI NG AND UNACCEPTABLE. THE SAME IS THE SITUATION IN CASE WE APPLY THE PARAMETERS AND THE 'BRIGHT LINE TEST' IN TERMS OF P ARAGRAPH 17.4 OR AS PER THE CONTENTION OF THE REVENUE, I.E., AMP EXPENSES INCURRED BY A DISTRIBUTOR WHO DOES NOT HAVE ANY RIG HT IN THE INTANGIBLE BRAND VALUE AND THE PRODUCT BEING MARKET ED BY HIM. THIS WOULD BE UNREALISTIC AND IMPRACTICABLE, IF NOT DELUSIVE AND MISLEADING (AFORESAID REPUTED INDIAN COMPANIES, IT IS PATENT, ARE NOT TO BE TREATED AS COMPARABLES WITH THE ASSES SEE, I.E., THE TESTED PARTIES IN THESE APPEALS, FOR THE LATTER ARE NOT THE LEGAL OWNERS OF THE BRAND NAME/TRADE MARK). 112. BRANDED PRODUCTS AND BRAND IMAGE IS A RESULT OF CONSUMERISM AND A COMMERCIAL REALITY, AS BRANDED PRODUCTS 'OWN' AND HAVE A REPUTATION OF INTRINSIC BELIEVABILITY AND ACCEPTA NCE WHICH RESULTS IN HIGHER PRICE AND MARGINS. TRANS-BORDER B RAND REPUTATION IS RECOGNISED JUDICIALLY AND IN THE COMM ERCIAL WORLD. WELL KNOWN AND RENOWNED BRANDS HAD EXTENSIVE GOODWI LL AND IMAGE, EVEN BEFORE THEY BECAME FREELY AND READILY A VAILABLE IN INDIA THROUGH THE SUBSIDIARY ASSOCIATED ENTERPRISES , WHO ARE ASSESSEES BEFORE US. IT CANNOT BE DENIED THAT THE R EPUTED AND ESTABLISHED BRANDS HAD VALUE AND GOODWILL. BUT A NE W BRAND/TRADE MARK/TRADE-NAME WOULD BE RELATIVELY UNK NOWN. WE HAVE REFERRED TO THE SAID POSITION NOT TO MAKE A COMPARISON BETWEEN DIFFERENT BRANDS BUT TO HIGHLIGHT THAT THES E ARE RELEVANT FACTORS AND COULD AFFECT THE FUNCTION UNDERTAKEN WH ICH MUST BE DULY TAKEN INTO CONSIDERATION IN SELECTION OF THE C OMPARABLES OR WHEN MAKING SUBJECTIVE ADJUSTMENT AND, THUS, FOR CO MPUTING THE ARM'S LENGTH PRICE. THE AFORESAID DISCUSSION SU BSTANTIALLY NEGATES AND REJECTS THE REVENUE'S CASE. BUT THERE A RE ASPECTS 85 AND CONTENTIONS IN FAVOUR OF THE REVENUE WHICH REQU IRES ELUCIDATION. 60. THUS, THE HON'BLE HIGH COURT AFTER DESCRIBING THE CONCEPT OF THE BRAND HAD MADE A CLEAR CUT DEMARCATION BETWEEN D EVELOPMENT AND EXPLOITATION OF BRAND WHICH IS EITHER IN THE FORM O F TRADEMARK OR GOODWILL WHICH TAKES PLACE OVER A PASSAGE OF TIME BY WHICH ITS VALUE DEPENDS UPON AND IS ATTRIBUTABLE TO INTANGIBLES OTHER THAN TRADEMARK LIKE, INFRASTRUCTURE, KNOWHOW, ABILITY TO CO MPETE IN THE ESTABLISHED MARKET, LEASE, ETC. BRAND VALUE DOES NOT R EPRESENT TRADEMARK AS ASSET AND IT IS QUITE DIFFICULT TO DETERMIN E AND SEGREGATE ITS VALUE. BRAND VALUE LARGELY DEPENDS UP ON THE NATURE OF GOODS AND SERVICES SOLD, AFTER SALES SERVICES, ROBUS T DISTRIBUTORSHIP, QUALITY CONTROL, CUSTOMER SATISFACTION AND CATENA OF OTHE R FACTORS. THE ADVERTISEMENT IS MORE TELLING ABOUT THE BRAND STORY, PENETRATING THE MIND OF THE CUSTOMERS AND CONSTANTLY REMINDING ABOUT THE BRAND, BUT IT IS NOT ENOUGH TO CREATE BRAND, BECAUS E MARKET VALUE OF A BRAND WOULD DEPEND UPON HOW MANY CUSTOMERS YOU HAV E, WHICH HAS REFERENCE TO A BRAND GOODWILL. THERE ARE INSTANCE S WHERE REPUTED BRAND DOES NOT GO FOR ADVERTISEMENT WITH THE IN TENTION TO INCREASE THE BRAND VALUE BUT TO ONLY INCREASE THE SALE AND THEREBY EARNING GREATER PROFITS. IT IS ALSO NOT THE CASE HERE THAT FOREIGN AE IS IN THE BUSINESS OF SALE/TRANSFER OF BRANDS. THEIR LO RDSHIPS HAVE ALSO REFERRED TO ACCOUNTING STANDARD 26 WHICH PROVIDES FOR COMPUTATION OF GOODWILL AND BRAND EQUAL VALUE AT A POINT OF TIME B UT NOT ITS FUTURE VALUATION OR HOW SUCH AN INTANGIBLE ASSET WILL G ENERATE PROBABLE FUTURE BENEFIT. BECAUSE, THE VALUE FLUCTUATE S FROM ONE MOMENT TO OTHER DEPENDING UPON REPUTATION AND OTHER FACTOR S. REPUTATION OF A BRAND ONLY ENHANCES THE SALE AND PROFI TABILITY AND HERE IN THIS CASE IS ONLY BENEFITTING THE ASSESSEE COMP ANY WHEN 86 MARKETING ITS PRODUCTS USING THE TRADE MARK AND THE BR AND OF AE. EVEN OTHERWISE ALSO, THE VALUE OF THE BRAND WHICH HAS BEEN CREATED IN INDIA BY THE ASSESSEE COMPANY WILL ONLY BE RELEVA NT WHEN AT SOME POINT OF TIME THE FOREIGN AE DECIDES TO SELL THE BRAND, THEN PERHAPS THAT WOULD BE THE TIME WHEN BRAND VALUE WILL HAVE SOME SIGNIFICANCE AND RELEVANCE. BUT TO MAKE ANY TRANSFER P RICING ADJUSTMENT SIMPLY ON THE GROUND THAT ASSESSEE HAS SPENT ADVERTISEMENT, MARKETING EXPENDITURE WHICH IS BENEFITTIN G THE BRAND/TRADEMARK OF THE AE WOULD NOT BE CORRECT APPROAC H. THUS, THIS LINE OF REASONING GIVEN BY THE TPO IS REJECTED. 61. FURTHER IN THE FINAL REPORT OF ACTION 8-10 OF BASE EROSION AND PROFIT SHIFTING PROJECT (BEPS) OF OECD TITLED AS ALIGNING TRANSFER PRICING OUTCOMES WITH VALUE CREATION. IT HAS BEEN SUGGESTED THAT NO ADJUSTMENT IS REQUIRED ON AMP EXPENDI TURE INCURRED BY FULL-FLEDGED MANUFACTURERS. THE REPORT CO NTAINS VARIOUS EXAMPLES PERTAINING TO MANUFACTURER. THE FOLLOWING P ASSAGE FROM THE REPORT IS QUITE RELEVANT WHICH FOR THE SAKE OF READY REFERENCE IS QUOTED HEREINBELOW: 6.40 THE LEGAL OWNER WILL BE CONSIDERED TO BE THE OW NER OF THE INTANGIBLE FOR TRANSFER PRICING PURPOSES. IF NO LEGAL OWNER OF THE INTANGIBLE IS IDENTIFIED UNDER APPLICABLE LAW OR G OVERNING CONTRACTS, THEN THE MEMBER OF THE MNE GROUP THAT, BASED O N THE FACTS AND CIRCUMSTANCES, CONTROLS DECISIONS CONCERN ING THE EXPLOITATION OF THE INTANGIBLE AND HAS THE PRACTICAL CAPA CITY TO RESTRICT OTHERS FROM USING THE INTANGIBLE WILL BE CONSI DERED THE LEGAL OWNER OF THE INTANGIBLE FOR TRANSFER PRICING PUR POSES. 6.41 IN IDENTIFYING THE LEGAL OWNER OF INTANGIBLES, AN INTANGIBLE AND ANY LICENCE RELATING TO THAT INTANGIBLE ARE CONSID ERED TO BE 87 DIFFERENT INTANGIBLES FOR TRANSFER PRICING PURPOSES, E ACH HAVING A DIFFERENT OWNER. SEE PARAGRAPH 6.26. FOR EXAMPLE, COMPANY A, THE LEGAL OWNER OF A TRADEMARK, MAY PROVIDE AN EXC LUSIVE LICENCE TO COMPANY B TO MANUFACTURE, MARKET, AND SELL G OODS USING THE TRADEMARK. ONE INTANGIBLE, THE TRADEMARK, IS LEGALLY OWNED BY COMPANY A. ANOTHER INTANGIBLE, THE LICENCE TO USE THE TRADEMARK IN CONNECTION WITH MANUFACTURING, MARKETIN G AND DISTRIBUTION OF TRADEMARKED PRODUCTS, IS LEGALLY O WNED BY COMPANY B. DEPENDING ON THE FACTS AND CIRCUMSTANCES, MARKETING ACTIVITIES UNDERTAKEN BY COMPANY B PURSUANT TO ITS LICENCE MAY POTENTIALLY AFFECT THE VALUE OF THE UNDERLYI NG INTANGIBLE LEGALLY OWNED BY COMPANY A, THE VALUE OF C OMPANY BS LICENCE, OR BOTH. 6.42 WHILE DETERMINING LEGAL OWNERSHIP AND CONTRACTUA L ARRANGEMENTS IS AN IMPORTANT FIRST STEP IN THE ANALYSIS, THESE DETERMINATIONS ARE SEPARATE AND DISTINCT FROM THE QUES TION OF REMUNERATION UNDER THE ARMS LENGTH PRINCIPLE. FOR TRANSFER PRICING PURPOSES, LEGAL OWNERSHIP OF INTANGIBLES, BY ITSELF, DOES NOT CONFER ANY RIGHT ULTIMATELY TO RETAIN RETUR NS DERIVED BY THE MNE GROUP FROM EXPLOITING THE INTANGI BLE, EVEN THOUGH SUCH RETURNS MAY INITIALLY ACCRUE TO TH E LEGAL OWNER AS A RESULT OF ITS LEGAL OR CONTRACTUAL RIGHT TO EXPLOIT THE INTANGIBLE . THE RETURN ULTIMATELY RETAINED BY OR ATTRIBUTED TO THE LEGAL OWNER DEPENDS UPON THE FUNC TIONS IT PERFORMS, THE ASSETS IT USES, AND THE RISKS IT AS SUMES, AND UPON THE CONTRIBUTIONS MADE BY OTHER MNE GROUP MEMBERS THROUGH THEIR FUNCTIONS PERFORMED, ASSETS USE D, AND RISKS ASSUMED . FOR EXAMPLE, IN THE CASE OF AN INTERNALLY DEVELOPED INTANGIBLE, IF THE LEGAL OWNER PERFORMS NO RELEVANT 88 FUNCTIONS, USES NO RELEVANT ASSETS, AND ASSUMES NO RE LEVANT RISKS, BUT ACTS SOLELY AS A TITLE HOLDING ENTITY, THE LEG AL OWNER WILL NOT ULTIMATELY BE ENTITLED TO ANY PORTION OF THE RETU RN DERIVED BY THE MNE GROUP FROM THE EXPLOITATION OF THE INTANGIBLE OTHER THAN ARMS LENGTH COMPENSATION, IF ANY , FOR HOLDING TITLE. FROM THE ABOVE QUOTED PASSAGE, IT CAN BE SEEN THAT THE G UIDELINES CLEARLY ENVISAGE THAT LEGAL OWNERSHIP OF INTANGIBLES, BY ITSELF, DOES NOT CONFER ANY RIGHT ULTIMATELY TO RETAIN RETURNS DERIVED BY MNE GROUP FROM EXPLOITING THE INTANGIBLES, EVEN THOUGH SUC H RETURNS IS INITIALLY ACCRUING TO THE LEGAL OWNER AS A RESULT OF ITS LEGAL/CONTRACTUAL RIGHT TO EXPLOIT THE INTANGIBLE. THE RE TURN DEPENDS UPON THE FUNCTIONS PERFORMED BY THE LEGAL OWNER, ASSE TS IT USES, AND THE RISKS ASSUMED; AND IF THE LEGAL OWNER DOES NOT PER FORM ANY RELEVANT FUNCTION, USES NO RELEVANT ASSETS, AND ASSUME S NO RELEVANT RISKS, BUT ACTS SOLELY AS A TITLE HOLDING ENTITY, THEN THE LEGAL OWNER OF THE INTANGIBLE WILL NOT BE ENTITLED TO ANY PORTION OF THE RETURN DERIVED BY THE MNE GROUP FROM THE EXPLOITATION OF THE INTANGIBLE OTHER THAN THE ARMS LENGTH COMPENSATION IF ANY FOR HOLD ING THE TITLE. HERE ALSO THE PEPSICO INC WHICH IS LEGAL OWNER OF THE TRADEMARK LICENSE TO THE ASSESSEE HAS NOT PERFORMED ANY RELEVANT FUNCTION OR USED ANY ASSETS OR ASSUMED ANY RISK ALBEIT HAS ACTED ONLY AS A TITLE HOLDER. IT IS NOT EVEN ENTITLED TO ANY RE TURN FOR HOLDING SUCH TITLE AND IN SUCH CIRCUMSTANCES, THERE SEEMS TO B E NO REASON AS TO WHY IT SHOULD COMPENSATE ITS SUBSIDIARY IN INDIA FOR THE MARKETING ACTIVITIES WHILE OPERATING IN INDIA AS A FUL L-FLEDGED MANUFACTURER WHO ALONE IS REAPING THE PROFIT FROM THE OPERATION IN INDIA. IT HAS BEEN CLEARLY DEMONSTRATED BY THE ASSESSE E THAT THE RISK WITH RESPECT TO ITS MANUFACTURING OPERATION IN INDIA WA S UNDERTAKEN 89 WHOLLY BY THE ASSESSEE AND NOT BY THE US PARENT AE. TH IS IS EVEN EVIDENT FROM THE VARIOUS CLAUSES OF THE AGREEMENT ALSO. 62. BEFORE US, LEARNED CIT-DR SUBMITTED THAT THE STAN D OF THE REVENUE IS THAT, THE EXPENDITURE INCURRED BY THE INDI AN SUBSIDIARY OF AN MNE GROUP ON MARKET FUNCTION AMOUNTS TO INCURRI NG OF SUCH EXPENSES FOR AND ON BEHALF OF THE PARENT COMPANY OUTSI DE INDIA BECAUSE; FIRSTLY , SUCH KIND OF EXPENSES PROMOTE THE BRAND/TRADEMARKS THAT ARE LEGALLY OWNED BY THE FOREIGN PARENT AE; SECONDLY , THESE EXPENDITURES CREATE OR DEVELOP MARKETING INTANGIBLES IN THE FORM OF BRANDS, TRADEMARKS, CUSTOM ER LIST DEALER/DISTRIBUTION CHANNELS, ETC. EVEN THOUGH INDIAN COMPANY MAY NOT BE THE OWNER OR HAVE ANY RIGHT IN THES E INTANGIBLES, BUT DEVELOPMENT OF SUCH INTANGIBLES DESERV ES COMPENSATION FOR COMPUTING THE VALUE OF COMPENSATION A ND THE REQUIRED ADJUSTMENT. A COMPARISON OF THE AVERAGE O F AMP SPENT BY THE COMPARABLES IN A SIMILAR LINE OF BUSINE SS HAS TO BE MADE TO DETERMINE THE ROUTINE AMOUNT SPENT ON AMP FOR THE PRODUCT SALE AND ANY SUCH EXPENDITURE OVER AND AB OVE IS PURELY FOR DEVELOPING THE BRAND VALUE OR OTHER MARK ETING INTANGIBLES FOR THE BENEFIT OF THE AE; AND IT IS IN THE FORM OF THE SERVICE TO THE AE WHICH REQUIRES ADJUSTMENT ALONG WITH TH E MARKUP OF THE SERVICE CHARGE ON THE SAME WORK OUT ON T HE COST PLUS BASIS. LASTLY, THE FUNCTIONS RELATING TO DEMPE (DEVELOPMENT, ENHANCEMENT, MAINTENANCE, PROTECTION AND EXPLOITATION) RESULTS INTO MANY DIRECT AND INDIRECT BENEFITS, WHICH AR E BY WAY OF INCREASE REVENUE FROM THE TERRITORY ON ACCOUNT OF SALE/ROYALTY/FTS ETC. AND IN SOME CASES IT MAY MAKE R EVENUE 90 ENHANCEMENT IN THE OTHER PARTS OF THE WORLD. THE DIRECT B ENEFIT IS BY WAY OF OBTAINING AN ADVANTAGE IN THE TERMS OF THE DEVELOPMENT OF MARKET FOR THEMSELVES AND ALSO LEADS TO ENHANCEMENT OF THE EXIT VALUE. 63. BEFORE EXAMINING AS TO WHETHER ANY TRANSFER PRIC ING ADJUSTMENT ON AMP IS REQUIRED OR NOT FOR THE REASON S TATED ABOVE, THE FIRST AND FOREMOST CONDITION IS THAT, EXISTENCE OF A N INTERNATIONAL TRANSACTION IN RELATION TO ANY SERVICE OF BENEFIT HAS T O BE ESTABLISHED BEFORE THE TRANSFER PRICING PROVISION CAN BE TRIGGERED SO AS TO PLACE VALUE ON SERVICE OF BENEFIT FOR THE PURPOSE OF DETERM INING THE COMPENSATION. MERE FACT OF EXCESSIVE AMP EXPENDITURE CANNOT ESTABLISH THE EXISTENCE OF SUCH A TRANSACTION. IT IS ON LY WHEN SUCH A TRANSACTION IS ESTABLISHED THEN PERHAPS IT MAY BE POSSIB LE TO BENCH MARK IT SEPARATELY. UNDER THE INDIAN TRANSFER PRICING PROVISIONS, IT HAS BEEN WELL ESTABLISHED OVER THE PERIOD OF TIME THAT D ETAILED FAR ANALYSIS HAS TO BE CARRIED OUT TO IDENTIFY ALL THE FU NCTIONS OF RESIDENT TAX PAYER COMPANY AND THE NON-RESIDENT AES PERTAINING TO ALL THE INTERNATIONAL TRANSACTIONS LIKE PURCHASE OF RAW MATERIA L, PAYMENT OF ROYALTY, PURCHASE OF FINISHED GOODS, EXPORT OF FINIS HED GOODS, SUPPORT SERVICES OR WHETHER THERE IS ANY DIRECT SALES B Y AE IN INDIA. FURTHER IT NEEDS TO BE SEEN, WHETHER MARKETING ACTIVITIES RELATING TO DEMPE FUNCTIONS REFLECTED IN ANY SUCH EXPENDITURE IN CURRED BY THE RESIDENT TAX PAYER COMPANY AND THE NON-RESIDENT AE IN INDIA ARE IN CONFORMITY WITH THE FUNCTIONS AND RISK PROFILES AND THE BENEFIT DERIVED BY THE TAX PAYER COMPANY AND THE AE. IT IS ALS O VERY RELEVANT TO EXAMINE, WHETHER THE AE IS ASSUMING ANY KIN D OF RISK IN THE INDIAN MARKET OR IS BENEFITTING FROM INDIA IN ONE WAY OR THE OTHER. THUS, FAR ANALYSIS IS THE KEY WHICH NEEDS TO B E SEEN WHAT KIND OF FUNCTIONS IS BEING CARRIED OUT BY THE AE IN INDIA, THE NATURE 91 OF ASSETS WHICH HAVE BEEN DEPLOYED AND THE RISK WHICH HAVE BEEN ASSUMED. IF THERE IS NO RISK OF SUCH ATTRIBUTES WHICH I S BEING CARRIED OUT BY THE NON-RESIDENT AE IN INDIA THEN THERE IS NO Q UESTION OF AE COMPENSATING TO ITS SUBSIDIARY IN INDIA FOR ANY MARK ETING EXPENSES. HERE, WE HAVE ALREADY STATED AT SEVERAL PLACES THAT PAR ENT AE OF THE ASSESSEE-COMPANY HAS NOT CARRIED OUT ANY FUNCTION IN I NDIA AND HAD NOT ASSUMED ANY RISK IN INDIA AND EVEN FOR THE LI CENSE FOR USE OF TRADEMARK, NO ROYALTY HAS BEEN PAID. HENCE, NO BE NEFIT WHATSOEVER HAS ACCRUED TO THE PARENT AE. ACCORDINGLY, W E ARE OF THE OPINION THAT UNDER THESE FACTS AND CIRCUMSTANCES OF THE C ASE IT IS VERY DIFFICULT TO ATTRIBUTE ANY KIND OF ARMS LENGTH COM PENSATION WHICH IS SUPPOSED TO BE MADE BY THE AE TO THE ASSESSEE COMPANY. 64. THUS, IN VIEW OF DISCUSSION MADE ABOVE, WE H OLD THAT, FIRSTLY , THERE IS NO INTERNATIONAL TRANSACTION IN THE FORM OF ANY AGREEMENT OR ARRANGEMENT ON AMP EXPENDITURE INCURRED BY THE ASSESSE E COMPANY; AND SECONDLY , UNDER FAR ANALYSIS ALSO, NO SUCH BENEFIT FROM THE AMP EXPENDITURE HAVING ANY KIND OF BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS AS ACCRUED TO THE AE OR ANY KIND OF BENEFIT HAS ARISEN TO THE AE. 65. AS STATED ABOVE, FROM THE ASSESSMENT YEARS 2006- 07 TO ASSESSMENT YEAR 2008-09, THE TPO HAS APPLIED BLT NOT ONLY FOR IDENTIFYING THE INTERNATIONAL TRANSACTION BUT ALSO FOR MAK ING THE ADJUSTMENT. FROM THE ASSESSMENT YEARS 2010-11 TO 2012-13 TPO HAS CHANGED HIS STAND AND ADJUSTMENT HAS BEEN MADE BY APPLYING PROFIT SPLIT METHOD . AS PER RULE 10B(1)(D) PSM HAS TO BE APPLIED, VIS--VIS THE INTERNATIONAL TRANSACTION INVOLVING UNIQU E INTANGIBLES IN THE FOLLOWING MANNER: - 92 (I) THE COMBINED NET PROFIT OF THE ASSOCIATED ENTERPR ISES (AES) ARISING FROM THE INTERNATIONAL TRANSACTION IN WHICH THEY ARE ENGAGED IS TO BE DETERMINED FIRST; (II) THE RELATIVE CONTRIBUTION MADE BY EACH OF THE AES TO THE EARNING OF SUCH COMBINED NET PROFIT IS TO BE EVALUATE D THEREAFTER ON THE BASIS OF FUNCTIONS PERFORMED, ASSET S EMPLOYED AND RISKS ASSUMED BY EACH ENTERPRISE (FAR) AND ON THE BASIS OF RELIABLE EXTERNAL MARKET DATA VIS -- VIS INDEPENDENT PARTIES; (III) THE COMBINED NET PROFIT IS TO BE THEN SPLIT AMONGST THE AES IN PROPORTION TO THEIR RELATIVE CONTRIBUTIONS; (IV) THE PROFIT THUS APPORTIONED TO THE ASSESSEE IS TO BE TAKEN INTO ACCOUNT TO ARRIVE AT AN ARM'S LENGTH PRICE (ALP) IN RELATION TO THE INTERNATIONAL TRANSACTION. (V) ALTERNATIVELY, THE COMBINED NET PROFIT MAY BE INITIALLY P ARTIALLY ALLOCATED TO EACH ENTERPRISE SO AS TO PROVIDE IT WITH A BASIC RETURN APPROPRIATE FOR THE TYPE OF INTERNATIONAL TRANSACT ION, IN WHICH IT WAS ENGAGED, WITH REFERENCE TO MARKET RETUR NS ACHIEVED FOR SIMILAR TYPES OF TRANSACTIONS BY INDEPEN DENT ENTERPRISES, AND THEREAFTER, THE RESIDUAL PROFIT REM AINING AFTER SUCH ALLOCATION MAY BE SPLIT AMONGST THE ENTERPRI SES IN PROPORTION TO THEIR RELATIVE CONTRIBUTION AS PER (II) AND (III) ABOVE, AND IN SUCH A CASE THE AGGREGATE OF THE NET PRO FIT ALLOCATED TO THE ENTERPRISE IN THE FIRST INSTANCE TOGETHE R WITH THE RESIDUAL NET PROFIT APPORTIONED TO THAT ENTERPRISE IS TO BE TAKEN TO BE THE NET PROFIT ARISING TO THAT ENTERPRISE F ROM THE INTERNATIONAL TRANSACTION. THE OECD TRANSFER PRICING GUIDELINES, 2010 PROVIDES THAT PSM FIRST REQUIRES THE IDENTIFICATION OF THE PROFITS WHICH IS TO BE SPLIT AMONG 93 THE AES, FROM THE CONTROLLED TRANSACTIONS IN WHICH THE A ES WERE ENGAGED (THE COMBINED PROFIT). THEREAFTER, THE COMBINE D PROFIT BETWEEN THE AES IS REQUIRED TO BE SPLIT ON AN ECONOMI CALLY VALID BASIS THAT APPROXIMATES THE DIVISION OF PROFITS THAT WO ULD HAVE BEEN ANTICIPATED AND REFLECTED IN AN AGREEMENT MADE AT ARMS LENGTH. THE COMBINED PROFIT TO BE SPLIT SHOULD ONLY BE THOSE AR ISING FROM THE CONTROLLED TRANSACTION. IN DETERMINING THOSE PROFITS, IT IS ESSENTIAL TO FIRST IDENTIFY THE RELEVANT TRANSACTION TO BE COVERED UND ER PSM. WHERE A TAXPAYER HAS CONTROLLED TRANSACTIONS WITH MORE THAN ONE AE, IT IS ALSO NECESSARY TO IDENTIFY THE PARTIES IN REL ATION TO THAT TRANSACTION. COMPARABLE DATA IS RELEVANT IN THE PROFIT S PLIT ANALYSIS TO SUPPORT THE DIVISION OF PROFITS THAT WOULD HAVE BEEN ACHIEVED BETWEEN INDEPENDENT PARTIES IN COMPARABLE CIRCUMSTANCE S. HOWEVER, WHERE COMPARABLE DATA IS NOT AVAILABLE, THE ALLOCATION OF PROFITS MAY BE BASED ON DIVISION OF FUNCTIONS (TAKING ACCOUNT OF THE ASSETS USED AND RISKS ASSUMED) BETWEEN THE AES. FURTHE R, THE TP GUIDELINES ALSO SUGGEST TWO APPROACHES IN THE EFFECTIV E APPLICATION OF PSM, WHICH ARE: - (I) CONTRIBUTION ANALYSIS : UNDER THE CONTRIBUTION ANALYSIS, THE COMBINED PROFITS, WHICH ARE THE TOTAL PROFITS FROM TH E CONTROLLED TRANSACTIONS UNDER EXAMINATION, WOULD BE DIVIDED BETWEEN THE ASSOCIATED ENTERPRISES BASED UPON A REASONABLE APPROXIMATION OF THE DIVISION OF PROFITS T HAT INDEPENDENT ENTERPRISES WOULD HAVE EXPECTED TO REALIZ E FROM ENGAGING IN COMPARABLE TRANSACTIONS. (II) RESIDUAL ANALYSIS: UNDER THE RESIDUAL ANALYSIS, THE COMBINED PROFITS FROM THE CONTROLLED TRANSACTIONS UNDER EXAMINATION IS DONE IN TWO STAGES; IN THE FIRST STAGE, 94 EACH PARTICIPANT IS ALLOCATED AN ARMS LENGTH REMUNERATION FOR ITS NON-UNIQUE CONTRIBUTIONS IN RELATION TO THE CONTROLLED TRANSACTIONS IN WHICH IT IS ENGAGED; AND IN THE SECOND STAGE, ANY RESIDUAL PROFIT (OR LOSS) REMAINING AFTER THE FIRST STAGE DIVISION WOULD B E ALLOCATED AMONG THE PARTIES BASED ON AN ANALYSIS OF T HE FACTS AND CIRCUMSTANCES. AS PER THE AFORESAID GUIDELINES WHICH HAS ALSO BEEN REFERRED BY THE TPO IN HIS ORDER AND THE RELEVANT RULES, WE ARE OF THE OPINION THAT, FIRST OF ALL, TPO IS REQUIRED TO DETERMINE THE COMBINE D PROFIT ARISEN FROM INTERNATIONAL TRANSACTION OF INCURRING AMP EXPENSE S AND THEN HE IS REQUIRED TO SPLIT THE COMBINED PROFIT IN PROPORTI ONATE TO THE RELATIVE CONTRIBUTION OF THE ASSESSEE AND THE AE. HERE, THE TPO HAS NEITHER APPLIED PSM CORRECTLY NOR HAS HE ANALYSED THE CONTRIBUTION MADE BY BOTH ENTITIES ON THE RELATIVE VALUE OF FAR OF EA CH OF THE ENTITY. HE HAS ALSO NOT PROVIDED ANY RELIABLE EXTERNA L DATA BASED ON WHICH THE RELATIVE CONTRIBUTION OF THE ENTITIES INVOLVED IN THE TRANSACTION COULD HAVE BEEN EVALUATED EITHER. HE HAS AP PLIED PSM BY TAKING THE FINANCE OF THE US PART AE AND HAS DETERMI NED THE RATE OF 35% ALLOCABLE TOWARDS MARKETING ACTIVITIES BY RELYI NG UPON JUDGMENT OF THE TRIBUNAL IN ROLL ROYCE PLC VS. DDIT ( SUPRA) AND HAS APPLIED THE SAME TO THE GLOBAL NET PROFIT OF THE US P ARENT AE TO ARRIVE AT THE GLOBAL PROFIT OF US PARENT AE FROM MARKETI NG ACTIVITIES. THEREAFTER, HE HAS COMPARED THE AMP SPENT BY THE AE WI TH THAT OF THE ASSESSEE COMPANY AND MULTIPLIED THAT RATIO WITH THE GLOBAL NET PROFIT OF THE US PARENT AE ARISING FROM MARKETING ACTIV ITIES TO COMPUTE THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF A MP EXPENSES. SUCH AN APPROACH OF THE LEARNED TPO AT THE THRESHOLD IS WHOLLY ERRONEOUS, BECAUSE PSM IS APPLICABLE MAINLY IN INTERNATIONAL 95 TRANSACTION INVOLVING TRANSFER OF UNIQUE INTANGIBLES O R IN MULTIPLE INTERNATIONAL TRANSACTIONS WHICH ARE INTERRELATED AND IN TERCONNECTED THAT THEY CANNOT BE EVALUATED SEPARATELY FOR THE PURPO SE OF DETERMINING THE ARMS LENGTH PRICE OF ANY ONE TRANSAC TION. HERE IN THIS CASE THIS IS NOT IN DISPUTE THAT NO TRANSFER OF ANY UNIQUE INTANGIBLES HAS BEEN MADE ACCEPT FOR LICENSE TO USE TR ADEMARK WHICH TOO WAS ROYALTY FREE. ACCORDING TO THE RULE, U NDER THE PSM, COMBINED NET PROFIT OF THE AES ARISING FROM THE INTERN ATIONAL TRANSACTION HAS TO BE DETERMINED AND THEREAFTER, IF IN CURRENCE OF AMP EXPENSES IS TO BE CONSIDERED FROM THE VALUE OF SU CH INTERNATIONAL TRANSACTION THEN THE COMBINED PROFIT HAS TO BE DETERMINED FROM THE VALUE OF SUCH INTERNATIONAL TRANSAC TION. NO FAR ANALYSIS OF AE HAS BEEN CARRIED OUT OR EVEN DEMO NSTRATED THAT ANY KIND OF PROFIT HAS BEEN DERIVED BY THE AE FROM THE AMP EXPENSES INCURRED IN INDIA. OTHERWISE ALSO, THE PROFI T EARNED ON ACCOUNT OF AMP EXPENSES INCURRED BY THE ASSESSEE BY W AY OF ECONOMIC EXPLOITATION OF THE TRADEMARK/BRAND IN INDIA ALREADY STANDS CAPTURED IN THE PROFIT AND LOSS ACCOUNT FOR THE AS SESSEE COMPANY AND THE SAME HAS DULY OFFERED TO TAX AND HENC E THERE WAS NO LOGIC TO COMPUTE OR MAKE ANY TRANSFER PRICING AD JUSTMENT ON THIS SCORE. 66. THE TPO HAS FOLLOWED THE SAME REASONING IN THE ASSESSMENT YEAR 2013-14 ALSO, BUT THE DRP DID NOT FIND ANY SUBSTAN CE IN THE TPOS APPROACH AND DIRECTED THE APPLICATION OF OTHER METHOD AS PRESCRIBED UNDER RULES AS AGAINST THE APPLICATION OF PSM. BY APPLYING OTHER METHOD, ADJUSTMENT HAD BEEN MADE BY CO MPARING THE AMP/SALES RATIO OF THE US PARENT AE WITH THAT OF THE ASSESSEE COMPANY AND THEREAFTER THE DRP HAS CONSIDERED THE EXC ESSIVE AMP SPENT BY THE ASSESSEE COMPANY AS A TRANSFER PRICING A DJUSTMENT. 96 THE ONLY DIFFERENCE BETWEEN THE EARLIER APPROACH OF THE TPO AND THE APPROACH ADOPTED BY THE DRP IS THAT, EARLIER TPO COMP ARED THE AMP/SALES OF THE PARTY, I.E., THE ASSESSEE WITH THAT OF THE THIRD PARTY AND NOW THE DRP COMPARES THE AMP/SALES OF THE ASSESSE E COMPANY WITH THAT OF THE PARENT AE. IN OUR OPINION, EVEN THE O THER METHOD HAS BEEN INCORRECTLY IMPLIED FOR THE SAKE OF READY RE FERENCE RULE 10AB READS AS UNDER: - OTHER METHOD OF DETERMINATION OF ARM'S LENGTH PRIC E. 10AB. FOR THE PURPOSES OF CLAUSE (F) OF SUB-SECTION (1) OF SECTION 92C, THE OTHER METHOD FOR DETERMINATION OF THE ARM' S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION [OR A S PECIFIED DOMESTIC TRANSACTION] SHALL BE ANY METHOD WHICH TAKES INTO A CCOUNT THE PRICE WHICH HAS BEEN CHARGED OR PAID, OR WOULD HAVE BEEN CHARGED OR PAID, FOR THE SAME OR SIMILAR UNCONTROLL ED TRANSACTION, WITH OR BETWEEN NON-ASSOCIATED ENTERPRISES, UNDER S IMILAR CIRCUMSTANCES, CONSIDERING ALL THE RELEVANT FACTS. THE AFORESAID RULE PROVIDES THAT THAT OTHER METHOD SHA LL BE ANY METHOD WHICH TAKES INTO ACCOUNT THE PRICE WHICH HAD BEE N CHARGED OR PAID FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTIO N WITH OR BETWEEN NON-ASSOCIATED ENTERPRISES UNDER SIMILAR CIR CUMSTANCES. COMPARISON OF THE AMP OVER SALES RATIO OF THE ASSESSEE WITH THE AMP RATIO OF PEPSI CO GROUP ON A WORLDWIDE BASIS WAS NOTHING BUT A DISTORTED VERSION OF THE BLT. 67. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT I N NONE OF THE YEARS IMPUGNED BEFORE US, THE AMP ADJUSTMENT MADE BY TH E TPO/ASSESSING OFFICER CAN BE SUSTAINED AND ACCORDING LY, SAME IS DIRECTED TO BE DELETED. 97 68. IN RESULT THEREOF, GROUNDS NO. 4 TO 4.14 IN I.T. A. NO. 1334/CHANDI/2010 PERTAINING TO AY 2006-07; GROUNDS NO . 4 TO 4.10 IN I.T.A. 1203/CHANDI/2011 PERTAINING TO AY 200 7-08; GROUNDS NO. 5 TO 5.30 IN I.T.A. 2511/DEL/2013 PERTA INING TO AY 2008-09; GROUNDS NO. 4 TO 6.22 IN I.T.A. 1044/CHAND I/2014 PERTAINING TO AY 2009-10; GROUNDS NO. 3 TO 26 IN ITA 4516/DEL/2016 PERTAINING TO AY 2010-11; GROUNDS NO. 3 TO 26 IN ITA 4517/DEL/2016 PERTAINING TO AY 2010-11; GROUNDS N O. 3 TO 26 IN ITA 4518/DEL/2016 PERTAINING TO AY 2011-12; GROUN DS NO. 7 TO 32 IN ITA 6537/DEL/2016 PERTAINING TO AY 2012-13; AND GROUNDS NO. 3 TO 28 IN I.T.A. NO. 6582/DEL/2017 PERTAINING TO AY 2013-14 ARE DECIDED IN FAVOUR OF THE ASSESSEE AND ACCORDINGL Y THESE GROUNDS ARE ALLOWED. TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 49,71,9 08/- PERTAINING TO THE IT SUPPORT SERVICES SEGMENT [GROU ND NOS. 29 TO 34 IN ITA NO. 6582/DEL/2017 PERTAINING TO AY 201 3-14] 69. THE AO/TPO HAVE MADE A TRANSFER PRICING ADJ USTMENT OF INR 49,71,908/- IN THE IT SUPPORT SERVICES SEGMENT BY RE- CHARACTERIZING THE ASSESSEE, WHO IS BACK-END SERVICE PROVIDER, AS A SOFTWARE DEVELOPER. MR. CHOPRA, SUBMITTED THAT THE SAID ISSUE HAS BEEN RENDERED ACADEMIC SINCE THE ENTIRE AMOUNT OF ADJU STMENT HAS BEEN DELETED IN THE FINAL ASSESSMENT ORDER DATED 27.0 9.2017 AFTER THE GRANT OF WORKING CAPITAL ADJUSTMENT AS DIRECTED BY TH E DRP VIDE ORDER DATED 21.08.2017. 70. IN VIEW OF THE ABOVE, GROUNDS PERTAINING TO IN CORRECT CHARACTERIZATION OF THE FUNCTIONAL PROFILE OF THE ASSESS EE, DO NOT REQUIRE ADJUDICATION AT THIS STAGE, HENCE SAME IS DISMI SSED. 98 ACCORDINGLY, GROUNDS NO. 29 TO 34 IN I.T.A. NO. 658 2/DEL/2017 FOR AY 2013-14 ARE DISMISSED AS BEING ACADEMIC. RE: TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 10, 42,067/- ON ACCOUNT OF RECEIVABLES [GROUND NOS. 35 TO 41 IN ITA NO. 6582/DEL/2017 PERTAINING TO AY 2013-14] 71. DURING AY 2013-14, THE TPO HAS MADE A TRANSFER PRICING ADJUSTMENT AMOUNTING TO INR 10,42,067/- ON ACCOUNT OF R E- CHARACTERIZATION OF THE OUTSTANDING RECEIVABLES FROM OVE RSEAS AES AS LOAN FACILITY AND THEREBY IMPUTING INTEREST AT THE RATE EQUAL TO RATE OF 6 MONTHS LIBOR PLUS 400 BASIS POINTS I.E. AN INTER EST RATE OF 4.45690% PER ANNUM, AS THE MOST APPROPRIATE CUP, ON RE CEIVABLES OUTSTANDING IN THE BOOKS OF THE ASSESSEE BEYOND 30 DAY S. THE TPO ON THE PERUSAL OF THE BALANCE-SHEET NOTED THAT THERE WERE RECEIVABLES FROM WHICH HE POINTED OUT THAT THE PAYMENT FOR THE INVOICES RAISED BY THE ASSESSEE WERE NOT RECEIVED WITH IN THE STIPULATED TIME. THE TPO OPINED THAT IN SUCH CIRCUMSTANC ES THE DELAYED PAYMENT HAD TO BE TREATED AS UNSECURED LOANS ADVANCED TO THE AES ON WHICH HE PROPOSED TO CHARGE A NORMAL RATE O F INTEREST FOR THE PERIOD OF DELAY IN RECEIPT OF THE PAYMENT BEYOND THE TIME STIPULATED IN THE SERVICES AGREEMENT. THE ASSESSEE IN R ESPONSE TO THE SHOW-CAUSE NOTICE SUBMITTED THAT THE BENCHMARKING OF RECEIVABLES COULD NOT HAVE BEEN DONE AS IT WAS NOT A N INTERNATIONAL TRANSACTION WHICH WARRANTED ANY KIND OF BENCHMARKING. HOWEVER, THE TPO AFTER DETAILED DISCUSSIONS AND RELYING UPON TH E PROVISIONS OF SECTION 92B(1) READ WITH SECTION 92F(V), HELD THAT IT WAS AN INTERNATIONAL TRANSACTION AND AFTER DETAILED DISCUSSION, HELD THAT INTEREST RATE OF 4.45690% PER ANNUM BASED ON 6 MONTHS LIBOR PLUS 400 BASIS POINTS SHOULD BE APPLIED; AND ACCORDI NGLY, MADE THE 99 ADJUSTMENT AFTER DETAILED CALCULATION WHICH WORKED OUT TO INR 10,42,067/-. THE DRP CONFIRMED THE SAID ACTION OF THE TPO, WHICH CULMINATED IN THE FINAL ASSESSMENT ORDER DATED 27.09.2 017. 72. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESS EE, AT THE OUTSET, SUBMITTED THAT AS PER COMMERCIAL POLICY OF THE ASSESSEE, IT DOES NOT CHARGE INTEREST FROM AES AS WELL AS NON-AES AND THUS, THERE IS AN INTERNAL CUP FOR BENCHMARKING THE TRANSACTIONS, I.E., B OTH FOR THE CONTROLLED AND UNCONTROLLED TRANSACTIONS ASSESSEE HAD N OT BEEN CHARGING INTEREST, AND THEREFORE, NO ADJUSTMENT COULD BE MADE. IN SUPPORT, HE DREW OUR ATTENTION TO NOTE 21 TO THE PROFIT & LOSS A/C OF THE ASSESSEE FOR AY 2013-14. IT WAS ALSO BROUGHT TO OU R NOTICE THAT THE ASSESSEE HAD AVAILED INTEREST FREE EXTERNAL COMMER CIAL BORROWINGS (ECBS) AMOUNTING TO INR 705 CRORES FROM I TS AE. THE SAID ECB WAS DISCLOSED IN NOTE 5 TO THE PROFIT & LOSS A /C OF ASSESSEE FOR AY 2013-14 AND READS AS UNDER: - IT WAS FURTHER POINTED OUT BY MR. CHOPRA, THAT FOR A.Y. 2013-14, TOTAL RECEIVABLES OUTSTANDING FOR PERIOD EXCEEDING SIX MONTHS FROM THE DATE THEY BECAME DUE FOR PAYMENTS HAD BEEN DISCLOS ED IN NOTE 16 TO THE PROFIT & LOSS A/C OF THE ASSESSEE FOR AY 2013 -14, WHICH REVEALED THAT: - (I) RECEIVABLES DUE FROM AES INR 17 CRORES. (II) RECEIVABLES DUE FROM NON - AES INR 320 CRORES. 100 ON THE BASIS OF THESE DOCUMENTS, THE LEARNED COUNSEL A RGUED THAT, SINCE IT WAS NOT CHARGING ANY INTEREST FROM ITS UNRELATE D PARTIES, IT WAS NOT FAIR FOR THE TPO TO ALLEGE THAT THE ASSESSEE WAS TRYING TO CONFER A BENEFIT UPON ITS AES BY NOT CHARGING INTEREST ON ITS OUTSTANDING RECEIVABLES. HE FURTHER SUBMITTED THAT TPOS ALLEGATIONS ARE NOT TENABLE IN VIEW OF THE FACT THAT EVEN ASSESSEES AES WERE ALSO NOT CHARGING INTEREST FROM THE ASSESSEE. LD. COUNSEL STR ONGLY RELIED UPON TWO RECENT DECISIONS IN THE CASE OF B.C. MANAGEMENT SERVICES (P) LTD VS. DCIT [IT APPEAL NOS. 5829, 613 4 (DELHI) OF 2015, 6572 (DELHI) OF 2016 DATED 25.05.2017] AND AXIS RISK CONSULTING SERVICES (P.) LTD. VS. DCIT [IT APP EAL NO. 3693 (DELHI) OF 2014 DATED 22.02.2018] WHEREIN IT WAS HELD THAT WHERE ASSESSEE GAVE SIMILAR CREDIT PERIOD TO THIRD PARTIES AS WAS GIVEN TO AE, TP ADJUSTMENT MADE BY TPO BY IMPUTING INTEREST ON DELAY IN RECEIPT OF RECEIVABLES FROM AE WAS UNCALLE D FOR. 73. HE FURTHER SUBMITTED THAT IT WAS A SETTLED PRINCIPLE OF LAW THAT WHERE THERE WAS COMPLETE UNIFORMITY IN ACT OF AN ASSE SSEE IN NOT CHARGING INTEREST FROM BOTH AES AND NON-AES DEBTORS, FO R DELAY IN REALIZATION OF EXPORT PROCEEDS, IT WAS NOT OPEN TO THE TPO/AO TO MAKE ADDITION ON ACCOUNT NOTIONAL INTEREST ON DELAYED RE CEIVABLES TO ASSESSEES ALP. THE ASSESSEE, IN THIS REGARD, PLA CED RELIANCE ON THE DECISIONS OF A COORDINATE BENCH OF THIS TRIBUNAL I N MICRO INKS LTD. VS ACIT [2013] 144 ITD 610 (AHMEDABAD - TRIB.). FURTHER RELIANCE WAS PLACED ON THE DECISIONS OF; CIT VS. IND O-AMERICAN JEWELLERY LTD. (SUPRA), BARTRONICS INDIA LTD. VS. DCI T [2017] 86 TAXMANN.COM 254 (HYDERABAD - TRIB.), DEPUTY COMMISSI ONER OF INCOME-TAX, CIRCLE - 16(1), HYDERABAD VS. LANCO INFR ATECH LTD. [2017] 81 TAXMANN.COM 381 (HYDERABAD - TRIB.), DINUR JE JEWELLERY 101 (P.) LTD. VS. INCOME-TAX OFFICER, 5(1)(3), MUMBAI [20 14] 51 TAXMANN.COM 41 (MUMBAI - TRIB.) AND M/S LINTAS INDIA PVT. LTD. V. ACIT [TS-713-ITAT-2012 (MUM)-TP]. 74. THEREAFTER, HE CITED THE DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL IN BC MANAGEMENT SERVICES (P.) LTD. V. DCIT [2017] 83 TAXMANN.COM 346 (DELHI TRIB.) , WHEREIN IT WAS OBSERVED THAT WHEN A SIMILAR CREDIT PERIOD IS GIVEN TO BOTH AES AS WELL AS THIRD PARTIES, THEN, THERE CANNOT BE ANY ADJUSTMENT AS IN SUCH SITUATIO NS THERE IS A DIRECT COMPARABLE UNCONTROLLED PRICE TO ANALYZE. FUR THER, AS PER THE TERMS OF THE AGREEMENT, THERE WAS NO CREDIT PERIOD SPECIFIED FOR THE TRANSACTIONS TO WHICH THE RECEIVABLES PERTAINED AND AS PICKED UP BY THE TPO. IN THIS REGARD, OUR ATTENTION WAS DRAW N TO THE DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL GSS INFOTECH LIMITED VS. ACIT TS-298-ITAT-2016(HYD)-TP , WHEREIN, THE HONBLE TRIBUNAL DELETED THE INTEREST CHARGED ON RECEI VABLE OUTSTANDING BEYOND TWO MONTHS. IN ADDITION TO ABOVE, TH E LD. COUNSEL SUBMITTED THAT THE TPO AND THE DRP FELL IN ERROR AS IT IS SETTLED POSITION OF LAW THAT WHERE OUTSTANDING RECEIVABLE ARE INEXTRICABLY LINKED WITH THE MAIN INTERNATIONAL TRANSACTI ON, BENCHMARKING OF WHICH HAS BEEN ACCEPTED BY THE TPO, NO FURTHER ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST IS WARRANTED. I N THIS REGARD, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED R ELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN SONY ERICSSON MOBILE COMMUNICATION INDIA (P.) LTD. (SUPRA) , WHEREIN THE HONBLE HIGH COURT EXPLAINED THE THEORY OF BUNDLED TR ANSACTION APPROACH AS FOLLOWS: IN CASE THE TESTED PARTY IS ENGAGED IN SINGLE LINE OF BUSINESS, THERE IS NO BAR OR PROHIBITION FROM APPLYING THE TN M METHOD ON ENTITY LEVEL BASIS. THE FOCUS OF THIS METHOD IS ON NET PROFIT 102 AMOUNT IN PROPORTION TO THE APPROPRIATE BASE OR THE PLI. IN FACT, WHEN TRANSACTIONS ARE INTER-CONNECTED, COMBINED CON SIDERATION MAY BE THE MOST RELIABLE MEANS OF DETERMINING THE A RM'S LENGTH PRICE. THERE ARE OFTEN SITUATIONS WHERE CLOSELY LIN KED AND CONNECTED TRANSACTIONS CANNOT BE EVALUATED ADEQUATE LY ON SEPARATE BASIS... WHERE THE ASSESSING OFFICER/TPO ACCEPTS THE COMPARA BLES ADOPTED BY THE ASSESSED, WITH OR WITHOUT MAKING ADJ USTMENTS, AS A BUNDLED TRANSACTION, IT WOULD BE ILLOGICAL AND IMPROPER TO TREAT AMP EXPENSES AS A SEPARATE INTERNATIONAL TRAN SACTION, FOR THE SIMPLE REASON THAT IF THE FUNCTIONS PERFORMED B Y THE TESTED PARTIES AND THE COMPARABLES MATCH, WITH OR WITHOUT ADJUSTMENTS, AMP EXPENSES ARE DULY ACCOUNTED FOR. I T WOULD BE INCONGRUOUS TO ACCEPT THE COMPARABLES AND DETERMINE OR ACCEPT THE TRANSFER PRICE AND STILL SEGREGATE AMP EXPENSES AS AN INTERNATIONAL TRANSACTION 75. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO PLA CED RELIANCE ON THE DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL IN DCIT VS. INDO AMERICAN JEWELLERY LIMITED [2012] 50 SOT 528 (MUMBA I) , WHEREIN THE HONBLE BENCH HELD AS FOLLOWS: ON CLOSE READING OF SECTION 92B OF THE ACT, IT TRA NSPIRES THAT THE TRANSACTIONS OF 'SALE' AND 'LENDING MONEY' HAVE BEE N DISTINCTLY SET OUT. TRANSACTION OF 'SALE' RESULTS INTO PROFIT AND THAT OF 'LENDING MONEY' GIVES INTEREST INCOME. THUS, IT IS EVIDENT THAT INTEREST INCOME IS ASSOCIATED ONLY WITH THE LENDING OR BORROWING OF MONEY AND NOT WITH SALE. SO IF THE INTERNATIONAL TRANSACTION IS THAT OF 'SALE', THE ARM'S LENGTH PRICE IS DETERMINE D QUA THE 'SALE PRICE'. OF COURSE, WHILE DETERMINING THE ALP IN A S ALE TRANSACTION, ALL THE RELEVANT ASPECTS INCLUDING THE CREDIT PERIOD 103 ALLOWED ARE TAKEN INTO VIEW. ON THE OTHER HAND, IF THE INTERNATIONAL TRANSACTION IS THAT OF 'LENDING OR BO RROWING MONEY', THE ARM'S LENGTH PRICE IS GAUGED QUA THE 'INTEREST' . WHEN THE INTERNATIONAL TRANSACTION IS THAT OF 'SALE', THE IN TEREST ASPECT IS EMBEDDED IN IT. THERE CAN BE NO SEPARATE INTERNATIO NAL TRANSACTION OF 'INTEREST' IN THE INTERNATIONAL TRAN SACTION OF SALE. EARLY OR LATE REALIZATION OF SALE PROCEEDS IS ONLY INCIDENTAL TO THE TRANSACTION OF SALE, BUT NOT A SEPARATE TRANSACTION IN ITSELF. IF THE ALP IN RESPECT OF AN INTERNATIONAL TRANSACTION OF ' SALE' IS DETERMINED, THEN THERE CAN BE NO QUESTION OF TREATI NG THE NON- RECEIPT OF INTEREST IN SUCH SALE TRANSACTION AS A S EPARATE INTERNATIONAL TRANSACTION WARRANTING ANY FURTHER AD JUSTMENT. ONE MAY ALSO CONTEND THAT THE EXPRESSION 'ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME , LOSSES .' AS EMPLOYED IN SECTION 92B DEFINING INTERNATIONAL TRAN SACTION WOULD ENCOMPASS SUCH INTEREST FROM SALE AS THE NON- RECEIPT OF DUE INTEREST WOULD HAVE THE EFFECT ON PROFITS OR IN COME. THIS CONTENTION ALSO DOES NOT MERIT ACCEPTANCE BECAUSE W HEN 'SALE' AND 'LENDING MONEY' HAVE BEEN SPECIFICALLY INCLUDED IN DEFINITION OF 'INTERNATIONAL TRANSACTION' UNDER SECTION 92B, T HEN THE EXPRESSION 'ANY OTHER TRANSACTION' USED IN THE LATE R PART OF THIS PROVISION WILL EXCLUDE ALL THE ITEMS SEPARATELY COV ERED. IN THIS VIEW OF THE MATTER, IT BECOMES MANIFEST THAT THERE CAN BE NO SEPARATE INTERNATIONAL TRANSACTION OF INTEREST INCO ME WHICH IS PART OF THE TRANSACTION OF SALE. ONCE ALP IS DETERM INED IN RESPECT OF THE SALE TRANSACTION, IT WOULD BE DEEMED TO BE COVERING ALL THE ELEMENTS AND CONSEQUENCES OF THE T RANSACTION OF SALE. HAVING DETERMINED ALP IN A SALE TRANSACTION, IT CANNOT BE ACCEPTED THAT SEPARATE ADJUSTMENT DE HORS SUCH DETE RMINATION IS REQUIRED IN RESPECT OF INTEREST. 104 THE SAID RULING OF THE TRIBUNAL HAS BEEN AFFIRMED BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. INDO AMERICAN JEWELLERY LTD. [2014] 223 TAXMAN 8 (BOMBAY)(MAG) . 76. THEREAFTER, THE LEARNED COUNSEL FOR THE ASSESS EE PLACED RELIANCE ON THE DECISION OF THE DECISION OF A COORDI NATE BENCH OF THIS TRIBUNAL IN KUSUM HEALTHCARE (P.) LTD. VS. ACIT [2015] 42 ITR(T) 77 , WHEREIN IT WAS OBSERVED THAT THE APPROACH OF THE ASSESSEE IN AGGREGATING THE INTERNATIONAL TRANSACTIONS P ERTAINING TO SALE OF GOODS TO AE AND RECEIVABLES ARISING FROM SU CH TRANSACTIONS WHICH ARE UNDOUBTEDLY INEXTRICABLE CONNECTED IS IN A CCORDANCE WITH ESTABLISHED TRANSFER PRICING PRINCIPLES AS WELL AS RA TIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA (P.) LTD (SUPRA) . IT WAS SUBMITTED THAT THE SAID DECISION HAS BEEN AFFIRMED BY THE HONB LE HIGH COURT OF DELHI IN PCIT VS. KUSUM HEALTHCARE PVT. LTD. ITA 765/2016 (JUDGMENT DELIVERED ON 25.04.2017) . 76. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE TPO AND THE DRP IN SUPPORT OF HIS CONTENTIONS. 77. AFTER CONSIDERING THE RIVAL SUBMISSION AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE COMPANY AS A MATTER OF COMMERCIAL POLICY NEI THER CHARGED INTEREST ON AES NOR FROM THE NON-AES ON OUTSTANDING TRADI NG RECEIVABLES. IN THAT SCENARIO, THERE IS AN INTERNAL CUP FOR BENCH MARKING THE TRANSACTION, I.E., UNDER THE CONTROL AND UN CONTROL TRANSACTION, ASSESSEE HAS NOT BEEN CHARGING INTEREST. AS SESSEE HAS ALSO AVAILED EXTERNAL COMMERCIAL BORROWING AMOUNTING TO RS.705 105 CRORE WHICH HAS ALREADY BEEN INCORPORATED ABOVE AND FOR THE ASSESSMENT YEAR 2013-14 TOTAL RECEIVABLE OUTSTANDING FOR THE PERIOD EXCEEDING SIX MONTHS FROM THE DATE IT HAD BECOME DUE F OR PAYMENT HAD BEEN DISCLOSED IN THE P&L ACCOUNT WHICH REVEALS TH AT RECEIVABLE DUES FROM AES WERE RS.317 CRORE, WHEREAS FROM THE NO N-AES IT WAS RS.320 CRORE. ONCE, NO INTEREST HAS BEEN CHARGED ON R ECEIVABLES FROM UNRELATED PARTIES, THEN TO ALLEGE THAT ASSESSEE IS CONFORMING ANY BENEFIT TO ITS AE BY NOT CHARGING THE INTEREST ON ITS OUTSTANDING RECEIVABLE WOULD NOT BE CORRECT UNDER THE ARMS LENGTH SCENARIO, BECAUSE HERE IN THIS CASE IN A COMPARABILITY ANALYSI S OF BOTH CONTROL AND UNCONTROL TRANSACTION, NO BENEFIT HAS ARISEN FROM D ELAY IN TRADE RECEIVABLES FROM THE AE. NOW IT IS QUITE WELL SETTLED P ROPOSITION IN THE WAKE OF VARIOUS JUDICIAL PRONOUNCEMENTS AS HAS BE EN RELIED UPON BY THE LEARNED COUNSEL THAT, WHEN THERE IS A COMPL ETE UNIFORMITY IN THE ACT OF THE ASSESSEE IN NOT CHARGING INTEREST FROM BOTH AES AND NON AES DEBTORS FOR DELAY IN REALIZATION OF EXPORT PROCEEDS THEN ASSESSING OFFICER/TPO CANNOT MAKE ADDITI ON ON ACCOUNT OF NOTIONAL INTEREST ON DELAY RECEIVABLES, BEC AUSE SIMILAR CREDIT PERIOD OF GIVEN TO BOTH RELATED AND UNRELATED P ARTIES. HENCE, NO ADJUSTMENT SHOULD BE CALLED FOR. ACCORDINGLY, WE H OLD THAT NO ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST IS WARRANTED . 78. IN THE RESULT, GROUND NO.3 PERTAINING TO ASSESS MENT YEAR 2013-14 ARE ALLOWED. JURISDICTIONAL ISSUE. 79. IN GROUND NO. 4 TO 6 IN I.T.A. NO. 6537/DEL/2 016 FOR AY 2012-13, THE ASSESSEE HAS CHALLENGED THE FINAL ASSES SMENT ORDER DATED 22.11.2016 PASSED BY THE AO AS BEING BARRED BY LIMITATION. 106 THE ASSESSEE HAS NOT PRESSED THIS GROUND AND THEREFORE , THE SAME IS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVE NUE. CORPORATE TAX ISSUES: RE: DISALLOWANCE OF PRICE SUPPORT GIVEN TO BOTTLERS : 80. IN GROUNDS NO. 5 TO 5.5 IN I.T.A. NO. 1203/ CHANDI/2011 FOR AY 2007-08, GROUNDS NO. 6 TO 6.4 IN I.T.A. NO. 2511/ DEL/2013 FOR AY 2008-09 AND GROUNDS NO. 8 TO 8.5 IN I.T.A. NO. 10 44/DEL/2014 FOR AY 2009-10, THE ASSESSEE HAS CHALLENGED THE ADDI TION MADE BY THE AO ON ACCOUNT OF PRICE SUPPORT GIVEN TO BOTTLERS. T HE PRICE SUPPORT GIVEN BY THE ASSESSEE, TO ITS BOTTLERS, FOR THE Y EAR UNDER CONSIDERATION, IS AS UNDER: - A MOUNTS IN R S . S.N O . AY A MOUNT OF P RICE S UPPORT GIVEN TO B OTTLERS 1. 2007-08 6,00,52,116/- 2. 2008-09 14,23,72,674/- 3. 2009-10 10,49,82,000/- 81. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED ON RECORD ORDER DATED 05.10.2016 PASSED IN ASSESSEES OWN APPEAL BEA RING ITA 1334/CHANDI/2010 FOR AY 2006-07, WHEREIN THIS TRIBUN AL HAS DECIDED THE SAID ISSUE IN FAVOUR OF THE ASSESSEE IN TH E FOLLOWING MANNER: 6. GROUND NOS. 5 AND 6 ARE AGAINST THE ADDITION OF RS.12,04,92,210/- ON ACCOUNT OF PRICE SUPPORT EXPEN SES AND RS.10,67,15,568/- TOWARDS PROVISION FOR PRICE SUPPO RT EXPENSES TO NON-RELATED PARTIES. 107 7. SINCE THESE TWO GROUNDS ARE RELATED TO EACH OTHE R, WE HAVE CLUBBED THEM FOR DISPOSAL. BRIEFLY STATED, THE FACT S OF THESE GROUNDS ARE THAT THE ASSESSEE CLAIMED DEDUCTION FOR A SUM OF RS.50.95 CRORE TOWARDS PRICE SUPPORT EXPENSES IN ITS PROFIT & LOSS ACCOUNT ON A SALE TURNOVER OF RS.358.05 CRORE. THE AO OBSERVED THAT THIS EXPENDITURE AT 14.23% OF TOTAL S ALES WAS EXCESSIVE. THE ASSESSEE WAS CALLED UPON TO FURNISH THE DETAILS OF THE SCHEME OF PRICE SUPPORT TO THE BOTTLERS, WHE THER RELATED OR UNRELATED. THE ASSESSEE EXPLAINED VIDE ITS LETTER D ATED 11.8.2009 THAT VOLUME DISCOUNT/PRICE SUPPORT WAS AL LOWED TO BOTTLERS IN VIEW OF PREVAILING LOW PRICE OF AERATED AND NON- AERATED BEVERAGES PRODUCTS DUE TO COMPETITION PRESS URE ON THE BASIS OF VOLUME OF SALES UNDER DIFFERENT RATES/SCHE MES. THE ASSESSEE ALSO CONTENDED THAT THE PRICE SUPPORT/VOLU ME DISCOUNT ALLOWED IN THE INSTANT YEAR AT RS.50.95 CR ORE WAS LESS THAN THE PRECEDING YEARS FIGURE OF RS.62.52 CRORE. THE ASSESSEE FURTHER PROVIDED DETAILS OF PARTIES TO WHOM DOMESTI C SALES EXCEEDING RS.5 LAC WERE MADE DURING THE YEAR AND WH O WERE ALLOWED VOLUME DISCOUNT/PRICE SUPPORT. 8. THE AO NOTICED THAT THERE WAS A WIDE VARIATION I N THE PERCENTAGE OF PRICE SUPPORT GIVEN VIS--VIS THE SAL ES TURNOVER TO VARIOUS BOTTLERS, WHICH RANGED FROM AS LOW AS 0% TO MAXIMUM OF 32.9%. HE OBSERVED THAT TOTAL PRICE SUPPORT GIVE N TO THE BOTTLERS STOOD AT RS.43.72 CRORE ON THE SALES MADE TO THE TUNE OF RS.370.68 CRORE. AFTER EXCLUDING THE BOTTLERS, TO W HOM NO PRICE SUPPORT WAS PAID, THE AO WORKED OUT THE PERCENTAGE OF TOTAL PRICE SUPPORT TO TOTAL SALES AT 11.79%. THIS PERCEN TAGE WAS APPLIED AS A REASONABLE BASIS AND THE EXCESS AMOUNT OF PRICE SUPPORT WAS DISALLOWED BY MEANS OF TABULATION AS UN DER:- 108 . 9. THAT IS HOW, THE DISALLOWANCE OF RS.12,04,92,210 WAS MADE. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DISPU TE RESOLUTION PANEL (DRP). THIS LED TO THE MAKING OF T HE FIRST DISALLOWANCE OF RS.12.04 CRORE. 10. THE AO FURTHER OBSERVED FROM THE DETAILS OF PRI CE SUPPORT GIVEN TO UNRELATED PARTIES WHICH STOOD AT RS.28.49 CRORE THAT THERE WAS A DEBIT OF PROVISION TOTALING RS.17.87 CR ORE AND THERE WAS A CREDIT OF PROVISION IN THIS ACCOUNT TO THE TU NE OF RS.7.20 CRORE. THE DIFFERENTIAL AMOUNT OF RS.10,67,15,568/- WHICH, IN THE OPINION OF THE AO, WAS A PROVISION AND NOT ACTU AL EXPENDITURE OF PRICE SUPPORT TO NON-RELATED PARTIES , WAS HELD TO BE NOT ALLOWABLE. THE ASSESSEE, AGAIN, REMAINED UNS UCCESSFUL BEFORE THE DRP, WHICH RESULTED IN MAKING THE ADDITI ON OF RS.10.67 CRORE. THE ASSESSEE IS AGGRIEVED BEFORE US AGAINST THESE TWO ADDITIONS. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT TH E ASSESSEE GAVE INCENTIVE TO ITS RELATED AND NON-RELATED BOTTL ERS IN TERMS OF VOLUME DISCOUNT. SUCH AMOUNT OF PRICE SUPPORT TO TH E TUNE OF RS.50.95 CRORE WAS CLAIMED AS DEDUCTION. FROM A PER USAL OF THE FIRST CHART DRAWN ABOVE, IT CAN BE SEEN THAT THE PR ICE SUPPORT HAS BEEN ALLOWED TO THREE RELATED PARTIES MENTIONED AT SL. NOS.1, 10 AND 16 AND THE PERCENTAGE OF SUCH PRICE S UPPORT TO SALES IS 12.42% IN THE CASE OF PARTY AT SL. NO.1, 0 % IN THE CASE OF PARTY AT SL. NO.10 AND 13.67% IN THE CASE OF PAR TY AT SL. 109 NO.16. APART FROM THESE THREE RELATED PARTIES, THE ASSESSEE ALSO PAID PRICE SUPPORT TO 18 NON-RELATED PARTIES AND TH E PERCENTAGE OF SUCH VOLUME DISCOUNT RANGES FROM 0% TO 32.90%. T HE LD. AR CONTENDED THAT THE MAGNITUDE OF PRICE SUPPORT, BEIN G VOLUME DISCOUNT, DEPENDS ON NUMEROUS FACTORS, SUCH AS, THE LOCATION OF THE PARTY, ITS TERMS OF PAYMENT, THE COMPETITIVENES S IN THAT PARTICULAR AREA, ETC., ETC. IT IS APPARENT FROM THE CALCULATION OF PERCENTAGE OF PRICE SUPPORT TO SALES THAT OUT OF 21 PARTIES, THE ASSESSEE DID NOT PAY ANY PRICE SUPPORT TO 8 PARTIES INCLUDING ONE RELATED PARTY. SUCH VOLUME DISCOUNT TO REMAININ G 13 PARTIES VARIED FROM 3.72% TO 32.90%. WE FAIL TO APPRECIATE THE VIEW POINT OF THE AO IN PICKING UP ONLY THOSE 12 PARTIES TO WHOM PRICE SUPPORT WAS ALLOWED AND, THEN, AVERAGING THE PERCENTAGE OF PRICE SUPPORT TO TOTAL SALES AS A BENCHMARK FOR THE PURPOSES OF DISALLOWANCE. THIS COURSE OF ACTION HAS NO LEGAL SANCTITY AND IS UNFOUNDED. IF THE AO WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE FOR ALLOWING OF DISCOUNT AT V ARYING RATES, IT WAS OPEN TO HIM TO SPECIFICALLY EXAMINE EACH AND EVERY PARTY TO WHOM VOLUME DISCOUNT WAS ALLOWED FOR ASCERTAININ G WHETHER IT WAS GENUINELY PAID OR NOT AND FURTHER WHETHER IT WAS COMMENSURATE WITH THE BUSINESS REQUIREMENTS AND TRA DE PRACTICES. NOTHING OF THIS SORT HAS BEEN DONE BY TH E AO, WHO WENT BY A MATHEMATICAL EXERCISE IN MAKING DISALLOWA NCE OF RS.12.04 CRORE. SUCH A MECHANISM FOR MAKING DISALLO WANCE IN OUR CONSIDERED OPINION CANNOT BE SUSTAINED. WE, ERG O, OVERTURN THE IMPUGNED ORDER ON THIS SCORE AND ORDER FOR THE DELETION OF THIS ADDITION. 12. THE NEXT PART IS DISALLOWANCE OF RS.10.67 CRORE , WHICH AGAIN HAS BEEN MADE BY THE AO ON AN IMPROPER UNDERS TANDING 110 OF THE FACTS. WHEREAS THE ASSESSEE PAID TOTAL PRICE SUPPORT AMOUNTING TO RS.50.95 CRORE, THE AO PICKED UP CERTA IN ITEMS OF DEBITS AND CREDITS FROM THE SAME PRICE SUPPORT ACCO UNT WHICH WERE CATEGORIZED BY THE ASSESSEE AS PROVISION. THE DIFFERENCE BETWEEN TWO SUCH TOTALS OF DEBITS AND CREDITS WAS D ISALLOWED. THIS DISALLOWANCE WAS MADE ON THE PREMISE THAT THE PROVISION FOR PRICE SUPPORT COULD NOT BE ALLOWED AS DEDUCTION . ON THE CONTRARY, THE ASSESSEE IS PAYING PRICE SUPPORT IN T WO WAYS. WHILE TO SOME OF THE PARTIES, THE AMOUNT IS STRAIGH T AWAY PAID AND DIRECTLY DEBITED TO THIS ACCOUNT, TO OTHERS, A MONTHLY PROVISION IS MADE ON THE SALES MADE TO THEM DURING THE RESPECTIVE MONTH. SUBSEQUENTLY, SUCH PROVISION IS R EDUCED OR ENHANCED WITH THE ACTUAL AMOUNT OF DISCOUNT. TO ILL USTRATE, IF THE SALES MADE DURING A MONTH TO A BOTTLER IS RS.10 0/-, ON WHICH DISCOUNT ALLOWABLE IS RS.15/-, THE ASSESSEE W ILL CREATE A PROVISION AT THE END OF THE MONTH FOR RS.15/- AND D EBIT THIS AMOUNT TO THE PRICE SUPPORT ACCOUNT WITH A PARALLEL CREDIT TO THE ACCOUNT OF THE CONCERNED PARTY. SUBSEQUENTLY, WHEN THE ACTUAL AMOUNT IS PAID, RESPECTIVE ACCOUNT OF THE PARTY IS CREDITED WITHOUT ROUTING IT THROUGH THE PRICE SUPPORT ACCOUN T. SOMETIMES, THE ACTUAL AMOUNT OF PRICE SUPPORT IS ENHANCED OR R EDUCED FROM THE AMOUNT OF PROVISION MADE AT THE END OF THE RESP ECTIVE MONTH, DEPENDING UPON THE NEGOTIATIONS BETWEEN THE PARTIES AND THE MARKET CONDITIONS. IF IN THE ABOVE ILLUSTRA TION, THE ASSESSEE ACTUALLY PAYS PRICE SUPPORT OF RS.14/-, IT WILL REVERSE THE PROVISION OF PRICE SUPPORT WITH RE. 1 BY CREDIT ING THIS ACCOUNT. IF ON THE OTHER HAND, VOLUME DISCOUNT IS A CTUALLY PAID AT RS.16, THE ASSESSEE WILL FURTHER DEBIT RE.1 TO T HE PRICE SUPPORT ACCOUNT. THUS, IT IS MANIFEST THAT THE DEBI T AND CREDIT OF PROVISION IN THE PRICE SUPPORT ACCOUNT IS NOT A PRO VISION IN THE 111 REAL SENSE, BUT AN ACTUAL EXPENDITURE OR ITS ADJUST MENT. THE AMOUNT OF PROVISION OF RS.15 CREATED AT THE END OF EACH MONTH IS CREDITED TO THE RESPECTIVE BOTTLERS ACCOUNT AND THE PAYMENT MADE DOES NOT ENTER INTO THE PRICE SUPPORT ACCOUNT TO THE EXTENT OF THE PROVISION ALREADY DEBITED. THE AO HAS MISUND ERSTOOD THE PROVISION DEBITED AND CREDITED TO THE PRICE SUPPORT ACCOUNT AS A MERE PROVISION AND NOT AS AN ACTUAL EXPENSE. WHEN T HIS PROVISION IS A PART AND PARCEL OF THE TOTAL PRICE S UPPORT EXPENSE, SUCH PART OF PROVISION, WHICH ACTUALLY REPRESENTS T HE EXPENDITURE INCURRED, CANNOT BE DISALLOWED. 13. BE THAT AS IT MAY, IT IS SEEN THAT THE AMOUNT O F RS.10.67 CRORE DISALLOWED BY THE AO IS PART OF THE OVERALL E XPENDITURE OF RS.50.95 CRORE, OUT OF WHICH HE MADE THE FIRST ADDI TION OF RS.12.04 CRORE ON THE BASIS OF THE AVERAGE WORKED O UT AT 11.79%. WHEN THE AMOUNT OF RS.10.67 CRORE IS PART O F RS.50.95 CRORE, OUT OF WHICH THE AO PICKED UP RS.43.72 CRORE FOR MAKING DISALLOWANCE, THE FURTHER ADDITION OF RS.10.67 CROR E AMOUNTS TO DOUBLE ADDITION WHICH EVEN OTHERWISE CANNOT BE SUST AINED. WE, THEREFORE, ORDER FOR THE DELETION OF THESE TWO ADDI TIONS AMOUNTING TO RS.12.04 CRORE AND RS.10.67 CRORE. IT HAS BEEN POINTED OUT THAT THE SAID RULING HAS NOW BEE N AFFIRMED BY THE HONBLE HIGH COURT OF DELHI IN PCIT VS. PEPSI FOODS PVT. LTD. ITA NO. 474/2017 (JUDGMENT DELIVERED ON 13.11.2017). HE PLACED ON RECORD THE ORDER OF THE HONBLE HIGH COURT, WHEREIN THE HONBLE COURT OBSERVED AS UNDER: 1. THE REVENUES APPEAL, UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, COMPLAINS THAT THE INCOME TAX APPELL ATE TRIBUNAL (ITAT) FELL INTO ERROR IN DIRECTING THAT T HE SUM OF 112 RS.12,04,92,210/- BROUGHT TO TAX, ON THE GROUND OF EXCESSIVE PRICE SUPPORT PAID BY THE ASSESSEE, IS ERRONEOUS. 2. THE BUSINESS MODEL, WHICH THE ASSESSEE ADOPTS, I S PREMISED UPON SALES OF ITS PRODUCT I.E. BOTTLERS, ITS VARIOU S PARTS AND OTHER ARTICLES TO ITS DISTRIBUTORS IN VARIOUS PARTS OF TH E COUNTRY. 3. FOR ASSESSMENT YEAR 2006-2007, THE ASSESSEE CLAI MS DEDUCTION FOR RS.50.95 CRORES ON ACCOUNT OF PRICE S UPPORT EXPENSES; ITS PROFIT AND LOSS ACCOUNT REFLECTED SAL E TURNOVER OF RS.358.05 CRORES. THE PRICE SUPPORT WAS PROVIDED TO 21 PARTIES 18 OF THEM CONCEDEDLY WERE UNRELATED. THE OTHER T HREE WERE RELATED PARTIES, OF WHICH THE TRANSACTION IN QUESTI ON IS CONCERNED WITH TWO PARTIES. THE ASSESSING OFFICER W AS OF THE OPINION THAT ON ANALYSIS OF THE INTER - PRICE SUPPO RT ON RECORD PROVIDED TO WHOLE ALL THE PURCHASERS THE AVERAGE EXPENDITURE THAT COULD BE REASONABLY CLAIMED WAS 11.79%. IN THI S, THE A.O. CONCEDEDLY ADOPTED A METHOD OF AVERAGING OUT THE EN TIRE EXPENDITURE AFTER TAKING INTO ACCOUNT THE TOTAL SUM . 4. THE ASSESSEE ATTEMPTED TO HAVE THIS DETERMINATIO N RECTIFIED BEFORE THE DRP AGAINST THE TPOS DETERMINATION B UT WAS UNSUCCESSFUL AND THE AMOUNT WAS ADDED BACK IN ASSES SMENT. IT, THEREFORE, APPROACHED THE ITAT, WHICH AFTER CON SIDERING THE SUBMISSIONS OF THE PARTIES, DIRECTED THAT THE SUM S HOULD BE REVERSED. 5. THE REVENUES COUNSEL URGES THAT THE TRIBUNAL FE LL INTO ERROR IN INTERFERING WITH THE ASSESSING OFFICERS REASONE D DETERMINATION. HE RELIED UPON THE OBSERVATIONS IN T HE ASSESSING OFFICERS ORDER AND THE TPOS ORDER AS WELL AS THE DRP TO SUGGEST THAT WHEN THE ASSESSEE DID NOT FURNISH THE REQUISITE INFORMATION AND THE RATIONALE GIVEN, HIGH RATE OF P RICE SUPPORT 113 EVEN UPTO 49% IN ONE CASE DISCLOSED, WAS COMPLETELY LACKING AND IN THESE CIRCUMSTANCES, THE AVERAGING EXERCISE CARRIED OUT WAS A REASONABLE AND LEGITIMATE. 6. THE ITAT, IN ITS IMPUGNED ORDER, TOOK INTO ACCOU NT ALL THE FACTS INCLUDING THE PARTIES THAT WERE AFFORDED THE PRICE SUPPORT, THE EXTENT THEREOF AND ALSO THE SO - CALLED TRANSAC TIONS WHICH ACCORDING TO THE ASSESSING OFFICER, INVOLVED EXCES S PRICE SUPPORT. THE TRIBUNAL THEREAFTER RECORDED ITS FIND INGS IN THE FOLLOWING TERMS:- . 7. THIS COURT IS OF THE OPINION THAT THE REASONING OF THE ITAT, CANNOT BE FAULTED. THE ASSESSING OFFICER CONCEDEDLY ADOPTED THE SAME CHARACTERISTIC TO ALL PARTIES RELATED AND UNRELATED AS TO THE PREVAILING AND LOCAL MARKET CONDITIONS. THERE M AY BE SEVERAL REASONS WHY AN ASSESSEE OR A COMMERCIAL VEN TURE MIGHT BE COMPELLED TO PROVIDE DISCOUNTS/PRICE SUPPO RT ETC. FOR ENSURING THE MARKETABILITY OF ITS PRODUCT AT THE PR ICE THAT THEY PROPOSES. 8. HAVING REGARD TO THESE, THE METHOD OF AVERAGING, TO SAY THE LEAST, IS ILLEGAL, THIS COURT, THEREFORE, IS OF THE OPINION THAT NO QUESTION OF LAW ARISES ON THIS ASPECT.. FOR THE ABOVE REASONS, THE APPEAL IS DISMISSED. 82. THUS, RESPECTFULLY FOLLOWING THE BINDING PR ECEDENCE ON THE SAME ISSUE RENDERED IN THE EARLIER YEARS IN ASSESSEE S OWN CASE WHICH HAS BEEN UPHELD BY THE HON'BLE DELHI HIGH COUR T ALSO AS INCORPORATED ABOVE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 114 83. ACCORDINGLY, GROUNDS NO. 5 TO 5.5 IN I.T.A. N O. 1203/CHANDI/2011 FOR AY 2007-08, GROUNDS NO. 6 TO 6. 4 IN I.T.A. NO. 2511/DEL/2013 FOR AY 2008-09 AND GROUNDS NO. 8 TO 8.5 IN I.T.A. NO. 1044/DEL/2014 FOR AY 2009-10 ARE DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THAT MANNER, TH E APPEALS OF THE ASSESSEE ARE ALLOWED TO SUCH EXTENT. RE: ADDITION OF INR 11,35,700/- ON ACCOUNT OF UN-UT ILIZED MODVAT CREDIT. 84. IN GROUND NO. 6 IN I.T.A. NO. 1203/CHANDI/2 011 FOR AY 2007-08, THE ASSESSEE HAS CHALLENGED THE ADDITION ON ACCOUNT OF UN-UTILIZED MODVAT CREDIT. THE LD. COUNSEL INFORMED THAT ASSESSEE IS NOT PURSUING THIS GROUND AND THEREFORE, TH IS GROUND IS DISMISSED AS NOT PRESSED. RE: ADDITION OF INR 73,57,892/- ON ACCOUNT OF UN-UT ILIZED CENVAT CREDIT 85. IN GROUND NO. 7 IN I.T.A. NO. 2511/DEL/2013 FOR AY 2008- 09, THE ASSESSEE HAS CHALLENGED THE ADDITION ON ACCOUN T OF UN- UTILIZED CENVAT CREDIT UNDER SECTION 145A OF THE ACT. T HE LD. COUNSEL INFORMED THAT ASSESSEE IS NOT PURSUING THIS GRO UND AND HENCE, THIS GROUND IS DISMISSED AS BEING NOT PRESSED. RE: ADDITION OF INR 70,30,540/- BEING PROVISION FOR BAD AND DOUBTFUL DEBTS TO BOOK PROFITS . 86. IN GROUND NO. 8 IN I.T.A. NO. 2511/DEL/2013 FOR AY 2008- 09, THE ASSESSEE HAS CHALLENGED THE ADJUSTMENT MADE TO BOOK PROFIT 115 AMOUNTING TO INR 70,30,540 (PROVISIONS FOR BAD AND DO UBTFUL DEBTS) UNDER SECTION 115JB OF THE ACT. AGAIN, THE ASSESSEE IS NOT PURSUING THIS GROUND AND THEREFORE, THIS GROUND IS DISMISSED AS NOT PRESSED. RE: DISALLOWANCE OF INR 3,85,15,497/- BEING SPONSORS HIP FEES PAID TO ICC 87. IN GROUNDS NO. 7 TO 7.3 IN I.T.A. NO. 1044/ DEL/2014 FOR AY 2009-10, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF INR 3,85,15,497/- BEING SPONSORSHIP FEES PAID BY THE AS SESSEE TO ICC. OUR ATTENTION WAS DRAWN TO PARAS 4 TO 4.3 OF THE FINAL ASSESSMENT ORDER WHEREIN THE SAID ISSUE HAS BEEN DISCUSSED BY TH E AO. IT HAS BEEN SUBMITTED THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 20.08.2008 WITH ICC D EVELOPMENT (INTERNATIONAL) LIMITED (ICC) FOR OBTAINING SPONSORSHIP RIGHTS IN RESPECT OF VARIOUS ICC CRICKETING EVENTS AROUND THE WOR LD. THE ASSESSEE PAID AN AMOUNT OF RS. 3,85,15,497/- FOR SPO NSORING CRICKETING EVENTS HELD DURING 2008 TO ICC. THE SAID AM OUNT WAS PROPOSED TO BE DISALLOWED BY THE AO IN THE DRAFT ASSESS MENT ORDER, FOR THE FOLLOWING REASONS: - (I) SIMILAR EXPENSE HAS BEEN DISALLOWED IN THE EARLIER Y EARS AS PART OF THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES. (II) ASSESSEE HAS BEEN BEARING SUBSTANTIAL PORTION OF THE FEES PAID TO ICC FOR ACQUIRING SPONSORSHIP RIGHTS EVEN THO UGH BENEFIT OF THE SAME IS DERIVED BY THE OTHER ENTITIES OF TH E WORLD. 88. AGGRIEVED BY THE ADDITION PROPOSED BY THE AO, TH E ASSESSEE HAD FILED OBJECTIONS BEFORE THE DRP. THE DRP VIDE DIR ECTIONS DATED 116 20.12.2013 UPHELD THE ACTION OF THE AO, ON THE GROUND, THAT THE EXPENDITURE WAS BENEFITTING ALL THE ENTITIES ACROSS THE GL OBE AND HENCE, IT COULD NOT BE SAID TO HAVE BEEN INCURRED WHOL LY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE. 89. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAID DISALLOWANCE WAS UNWARRANTED SINCE THE SAID EXPENSE W AS INCURRED IN VIEW OF THE FACT THAT MAJOR VIEWERSHIP OF CRICKET IS IN THE INDIAN SUBCONTINENT. HE ALSO REFERRED TO VARIOUS NEWSPAPERS R EPORTS WHICH DEMONSTRATED THE POPULARITY OF THE SPORT IN INDIA TO SUP PORT THE AFORESAID CONTENTIONS. IT WAS ALSO SUBMITTED THAT THE ASSES SEE COMPANY HAS CONSISTENTLY PROMOTED ITS RANGE OF PRODUCTS USING CRICKET AS AN ADVERTISING PLATFORM. IT WAS ALSO TO OUR N OTICE THAT PAYMENT OF SPONSORSHIP FEES TO ICC WAS REMITTED BY THE ASSESSEE AFTER DEDUCTION OF TAX AT SOURCE AS INSTRUCTED BY THE INC OME TAX DEPARTMENT. FURTHER, THE ASSESSEE HAD OBTAINED THE APP ROVAL OF THE MINISTRY OF YOUTH AFFAIRS AND SPORTS FOR SPONSORING THE EVENTS COVERED UNDER THE AGREEMENT. COPY OF THE ORDER UNDER S ECTION 195 OF THE ACT AND THE APPROVAL RECEIVED FROM THE MINISTRY OF YOUTH AFFAIRS AND SPORTS HAS BEEN ENCLOSED AT PAGES 247 TO 249 AND 224 OF THE PAPER-BOOK RESPECTIVELY. HE FURTHER SUBMITTED THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE BUSINE SS OF THE ASSESSEE COMPANY AND HAD NOT BEEN DISPUTED BY THE REVE NUE. ANY INCIDENTAL BENEFIT THAT MAY ARISE TO ANY OTHER PERSON OR ENTITY CANNOT BE A BAR FOR ALLOWANCE OF EXPENDITURE UNDER S ECTION 37 OF THE ACT, AS PER THE SETTLED POSITION OF LAW. REFERENCE IN THIS REGARD WAS MADE TO THE DECISIONS OF THE HONBLE SUPREME COURT OF INDIA IN CIT VS. CHANDULAL KESHAVLAL & CO. [1960] 38 ITR 601 (SC ), SASSON J. DAVID AND CO. P. LTD VS. CIT 118 ITR 261(SC) AND SA BUILDERS LTD. VS. CIT 288 ITR 1(SC. HE FURTHER SUBMITTED THAT THE REVENUE 117 CANNOT STEP INTO THE SHOES OF AN ASSESSEE TO DETERMINE TH E COMMERCIAL EXPEDIENCY OF AN EXPENDITURE INCURRED BY IT. 90. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND THE DRP IN SUPPORT OF HIS CONTENTIONS. 91. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND O N PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT, HERE THE DISALLOWANCE O F RS.3,85,15,497/- HAS BEEN MADE ON ACCOUNT OF SPONSOR SHIP FEE BY THE ASSESSEE TO THE ICC ON THE GROUND THAT SIMILAR EXPEN DITURE WAS DISALLOWED IN THE EARLIER YEARS AS PART OF TRANSFER P RICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES; AND SECONDLY, ASSESSEE HAS BEEN BEARING SUBSTANTIAL PORTION OF THE FEES TO THE ICC FOR ACQUIRING THE SPONSORSHIP RIGHTS EVEN THOUGH BENEFIT OF THE SAME IS DERIVED BY EITHER ENTITY OF THE WORLD. THE CONTENTION RA ISED BY THE LEARNED COUNSEL THAT SINCE MAJOR VIEWER OF CRICKET IS AN INDIAN SUB- CONTINENT LOOKING TO ITS MASS POPULARITY IN INDIA, THE ASSESSEE COMPANY HAS BEEN CONSISTENTLY PROMOTING ITS RANGE OF PR ODUCTS USING CRICKET AS AN ADVERTISEMENT PLATFORM. THE SAID PA YMENT HAS BEEN MADE AFTER OBTAINING THE APPROVAL OF MINISTRY OF HEALTH AFFAIRS AND SPORTS AND AFTER DEDUCTING TDS U/S.195. ONCE THE EX PENDITURE HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PU RPOSE OF BUSINESS WHICH FACT HAS NOT BEEN DISPUTED BY THE DEPARTM ENT, THEN EVEN IF SOME INCIDENTAL BENEFIT WHICH MAY ARISE TO ANY OTHER ENTITY CANNOT BE A BAR FOR ALLOWANCE OF EXPENDITURE U/S. 37. UNDER THE PRINCIPLE OF COMMERCIAL EXPEDIENCY SUCH AN EXPENDITU RE HAS TO BE SEEN FROM THE ANGLE, WHETHER THE DECISION TAKEN BY THE ASSESSEE FOR PAYING SPONSORSHIP FEES WAS FOR THE PURPOSE OF BUSIN ESS OR NOT. HERE IN THIS CASE, THE COMMERCIAL EXPEDIENCY HAS NOT B EEN DOUBTED BUT RATHER IT HAS BEEN HELD BY THE AO THAT IN ALL THE YEA RS TRANSFER PRICING ADJUSTMENTS HAS BEEN MADE ON THIS SCORE AND BE NEFIT IS 118 ARISING TO THE OTHER AES ALSO. WHAT IS RELEVANT FOR AN EXPENSE TO BE ALLOWABLE AS REVENUE EXPENSE IS THAT, WHETHER IT HAS BE EN INCURRED DURING THE COURSE OF BUSINESS AND IS FOR THE PURPOSE OF BUSINESS. BENEFIT FACTOR TO OTHER RELATED PARTIES IS RELEVANT UNDE R TRANSFER PRICING PROVISION AND NOT WHILE ALLOWABILITY OF BUSI NESS EXPENSE U/S 37(1). IT IS WELL KNOWN FACT THAT COMPANIES USE SPORTS E VENT AS A PLATFORM TO ADVERTISE THEIR RANGE OF PRODUCTS AS IT HAS A VERY HIGH VIEWERSHIP. ANY SUCH INCURRING OF EXPENDITURE IS OST ENSIBLY FOR PROMOTION OF BUSINESS ONLY AND HENCE, NO DISALLOWAN CE IS CALLED FOR. ACCORDINGLY, GROUNDS NO.7 TO 7.3 IN ITA NO.1044/DEL /2014 PERTAINING TO A.Y. 2009-10 ARE ALLOWED. RE: DISALLOWANCE UNDER SECTION 14A OF THE ACT. 92. IN GROUNDS NO. 27 TO 31 IN I.T.A. NO. 4517/DE L/2016 PERTAINING TO AY 2010-11, GROUNDS NO. 27 TO 31 IN I. T.A. NO. 4518/DEL/2016 PERTAINING TO AY 2011-12 AND GROUNDS N O. 33 TO 36 IN I.T.A. NO. 6537/DEL/2016 PERTAINING TO AY 2012 -13, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE COMPUTED BY THE AO AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. D ETAILS OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE COMPANY AND TH E CONSEQUENTIAL DISALLOWANCE COMPUTED BY THE AO, IS AS U NDER: - A MOUNTS IN R S . S L . N O . AY E XEMPT INCOME EARNED BY A SSESSEE DURING THE YEAR D ISALLOWANCE MADE BY AO 1. 2010-11 54,46,12,846/- 1,18,82,315/- 2. 2011-12 35,33,15,430/- 69,84,350/- 3. 2012-13 6,81,75,880/- 24,36,362/- 119 FURTHER, DURING THE COURSE OF THE HEARING AND ALSO VID E SUBMISSIONS DATED 13.03.2018, DETAILS OF THE INVESTMENT WHICH HAD FE TCHED EXEMPT INCOME DURING THE YEAR(S) UNDER CONSIDERATION W AS FURNISHED AND THE SAME IS AS UNDER: - A LL AMOUNT IN R S . N AME OF THE INVESTEE I NVESTMENTS YIELDING EXEMPT INCOME FOR AY 2010-11 A T THE BEGINNING OF THE YEAR A T THE END OF THE YEAR EQUITY SHARES PEARL GROUP 1,64,84,000/- 1,64,84,000/- VARUN BEVERAGES LTD. 2,86,00,000/- 2,86,00,000/- PREFERENCE SHARES PEARL GROUP 56,88,14,000/- 56,88,14,000/- VARUN BEVERAGES LTD. 77,37,64,000/- 77,37,64,000/- T OTAL 138,76,62,000/- 138,76,62,000/- N AME OF THE INVESTEE I NVESTMENTS YIELDING EXEMPT INCOME FOR AY 2011-12 A T THE BEGINNING OF THE YEAR A T THE END OF THE YEAR EQUITY SHARES PEARL GROUP 1,64,84,000/- 14,84,000/- VARUN BEVERAGES LTD. 2,86,00,000/- (REFER SCHEDULE 5) 2,86,00,000/- PREFERENCE SHARES PEARL GROUP 56,88,14,000/- 9,76,38,000/- VARUN BEVERAGES LTD. 77,37,64,000/- (REFER SCHEDULE 5) 0 T OTAL 138,76,62,000/- 12,77,22,000/- 120 N AME OF THE INVESTEE I NVESTMENTS YIELDING EXEMPT INCOME FOR AY 2012-13 A T THE BEGINNING OF THE YEAR A T THE END OF THE YEAR EQUITY SHARES VARUN BEVERAGES LTD. 2,86,00,000/- (REFER NOTE 12) 2,86,00,000/- T OTAL 2,86,00,000/- 2,86,00,000/- AY N AME OF THE INVESTEE E XEMPT INCOME EARNED 2010-11 PEARL GROUP 16,89,58,788/- VARUN BEVERAGES LIMITED 37,56,54,058/- 2011-12 PEARL GROUP 8,00,00,000/- VARUN BEVERAGES LTD. 27,33,15,430/- 2012-13 VARUN BEVERAGES LTD. 6,81,75,880/- 93. THE AFORESAID INCOME WAS CLAIMED BY THE ASSESS EE AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE AO IN HIS DRAFT A SSESSMENT ORDER, HELD THAT SINCE THE ASSESSEE HAD EARNED EXEMPT I NCOME DURING THE RELEVANT PREVIOUS YEAR, DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE RULES HAD TO BE MANDATORILY CO MPUTED AND ACCORDINGLY, DISALLOWED CERTAIN EXPENSES AS BEING CO NNECTED WITH THE EARNING OF SUCH DIVIDEND INCOME. AGGRIEVED WITH T HE SAID DISALLOWANCE, THE ASSESSEE COMPANY HAD FILED OBJECTIO NS BEFORE THE DRP. THE DRP IN ALL THE RELEVANT YEARS IN QUESTION, H AD DIRECTED THE AO TO COMPUTE THE DISALLOWANCE IN ACCORDANCE WITH THE R ATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF 121 CHEMINVEST LTD VS. CIT [2015] 378 ITR 33 (DELHI HIG H COURT) AND CIT VS. HOLCIM INDIA (P) LTD 272 CTR 282 (DEL) . 94. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE HONBLE DELHI HIGH COURT IN THESE CASES HAD HELD THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS WARRANTE D WHERE INVESTMENTS WERE MADE WITH THE OBJECTIVE OF ACQUIRING C ONTROLLING INTEREST IN THE COMPANY AND NOT FOR THE PURPOSES OF EAR NING EXEMPT INCOME. THE AO, HOWEVER, DID NOT DELETE THE ENTIRE DIS ALLOWANCE MADE UNDER THE DRAFT ASSESSMENT ORDER. HE RESTRICTED THE DISALLOWANCE TO 0.5% OF THE AVERAGE INVESTMENTS AS UNDE R RULE 8D(2)(III). THE ASSESSEE, BEFORE US, IS AGGRIEVED B Y SUCH DISALLOWANCE. 95. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE FINANCIAL STATEMENTS OF THE ASSESSEE FOR AY 2010-11 TO 2012-13 AND DEMONSTRATED THAT ALL THE INVESTMENTS HELD BY THE ASSESSE E WERE STRATEGIC INVESTMENTS/INVESTMENTS IN GROUP COMPANIES. HOW EVER, HE FAIRLY ADMITTED THAT THE SAME HAD NO RELEVANCE AFTER THE DECISION OF THE HONBLE SUPREME COURT IN MAXOPP INVESTMENTS LTD. VS . CIT (CIVIL APPEAL NOS. 104-109 OF 2015, JUDGMENT DATED 12.02.2018) . HOWEVER, THE AO HAD COMPUTED THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, WITHOUT ESTABLISHING ANY NEXUS BETWEEN THE EXPENDITURE INCURRED AND EXEMPT INCOME EA RNED DURING THE RELEVANT PREVIOUS YEAR. HE SUBMITTED THAT THE STATUTE DID NOT ENVISAGE THAT WHEREVER THERE IS AN EXEMPT, EXPENDITURE HAD TO BE DISALLOWED UNDER SECTION 14A OF THE ACT. HE FURTHER SU BMITTED THAT IT HAD TO BE SEEN AS TO WHETHER ANY EXPENDITURE HAD BE EN INCURRED BY ASSESSEE IN RELATION TO EARNING OF EXEMPT INCOME O R NOT. HE ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREM E COURT IN CIT 122 VS. WALFORT SHARE & STOCK BROKERS (P.) LTD. [2010] 3 26 ITR 1 (SC) WHEREIN IT WAS OBSERVED THAT THERE SHOULD BE A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE INCURRED AND THE E XEMPT INCOME. IT WAS ALSO OBSERVED THEREIN THAT IF THE ASSESS EE HAD PRIMA FACIE DEMONSTRATED THAT NO EXPENDITURE HAD BEEN INCURRE D FOR EARNING OF EXEMPT INCOME, THEN, IN THE ABSENCE OF ANY CONTRARY FINDING BY THE AO, PROVISIONS OF SECTION 14A COULD NO T BE INVOKED. THEREAFTER, HE PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN H.T. MEDIA LTD. VS. PCIT [2017] 85 TAXMANN.COM 113 (DELHI) TO CONTEND THAT THERE WAS A FAILURE ON THE PART OF THE AO TO COMPLY WITH THE MANDATORY REQUIREMEN T OF SECTION 14A (2) READ WITH RULE 8D(1) AND THE SAME WAS CLEARLY EVIDENT FROM THE DRAFT ASSESSMENT ORDER PLACED ON RECOR D FOR ALL THESE YEARS. THEREFORE, HE SUBMITTED THAT THE QUESTION OF APPLYING RULE 8D(2)(III) DID NOT ARISE. HE SUBMITTED THAT IT WAS A SETTLED LEGAL POSITION IN TERMS OF THE DECISION OF THE HONBLE HIGH C OURT OF DELHI IN EICHER MOTORS LTD. VS. CIT [2017] 86 TAXMANN.COM 49 (DELHI) THAT THE AO HAD TO RECORD REASONS FOR DISAGREEING WITH THE SUBMISSION OF THE ASSESSEE THAT IT HAD INCURRED NO EXPE NDITURE FOR EARNING SUCH EXEMPT INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO RELIED UPON THE DECISION OF THE COORDINATE BENCH ES IN LEENA KASBEKAR VS. ACIT [2017] 166 ITD 440 (MUM-TRIB), JU STICE SAM P. BHARUCHA VS. ACIT [2012] 53 SOT 192 (MUM) (URO) AND ACIT VS. SIL INVESTMENTS LTD [2012] 54 SOT 54 (DELHI-TRI B) TO FURTHER SUPPORT THE SAID AVERMENT. HE FURTHER SUBMITTED THAT INVOC ATION OF SECTION 14A WAS IN THIS CASE WAS NOT CALLED FOR AS I NVESTMENTS WHICH HAD YIELDED EXEMPT INCOME DURING THE YEARS UND ER CONSIDERATION, WERE MADE FROM ITS OWN FUNDS AND NO PA RT OF THE BORROWED FUNDS WERE UTILIZED. NO FRESH INVESTMENTS WE RE MADE DURING THE YEARS UNDER CONSIDERATION, IN THE COMPANIE S FROM WHOM 123 DIVIDEND INCOME WAS RECEIVED. IN VIEW OF THESE FACTS, HE SUBMITTED THAT THE ALLEGATION OF THE AO THAT EXPENDITURE WAS INCURR ED FOR MAINTAINING THESE INVESTMENTS WAS UNSUSTAINABLE. 96. THEREAFTER, THE LEARNED COUNSEL FOR THE ASSESS EE INVITED OUR ATTENTION TO A RECENT DECISION OF A SPECIAL BENCH OF THIS TRIBUNAL IN ACIT VS. VIREET INVESTMENT (P.) LTD. [2017] 82 TAXM ANN.COM 415 (DELHI - TRIB.) (SB), WHEREIN IT WAS OBSERVED THAT FOR THE PURPOSES OF COMPUTING AVERAGE VALUE OF INVESTMENT UNDER RULE 8D(2) (III), ONLY THOSE INVESTMENTS WERE TO BE CONSIDERED WHICH HAVE YIEL DED EXEMPT INCOME DURING THE YEAR. HE REFERRED TO FOLLOWING PA RAGRAPH FROM THE SAID DECISION: - 11.16 THEREFORE, IN OUR CONSIDERED OPINION, NO CON TRARY VIEW CAN BE TAKEN UNDER THESE CIRCUMSTANCES. WE, ACCORDI NGLY, HOLD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FO R COMPUTING AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT IN COME DURING THE YEAR. IN VIEW OF THE AFORESAID SUBMISSIONS THE LEARNED COUN SEL SUBMITTED THAT, SINCE THERE WAS NO NEXUS ESTABLISHED BY THE AO B ETWEEN THE EXPENDITURE THAT HE SOUGHT TO DISALLOW AND THE EXEMPT INC OME THAT THE ASSESSEE EARNED, COUPLED WITH AFOREMENTIONED DECIS ION OF THE HONBLE SPECIAL BENCH, THE DISALLOWANCE MADE UNDER S ECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES DESERVES TO BE QUASHED. 97. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND THE DRP AND FURTHER SUBMITTED THAT ASSESSEE HAS NOT OFFERED ANY DISALLOWANCE AND HAD ALSO NOT DEMONSTRATED BEFORE THE AUTHORITIES BELOW THAT HAVING REGARD TO THE ACCOUNTS A ND NATURE OF EXPENSES DEBITED NO DISALLOWANCE IS CALLED FOR, HEN CE ONUS CAST 124 UPON BY THE ASSESSEE HAD NOT BEEN DISCHARGED. THUS, D ISALLOWANCE MADE UNDER RULE 8D(2)(III) IS JUSTIFIED. 98. AFTER CONSIDERING THE RIVAL SUBMISSION AND ON PERUSAL OF THE IMPUGNED ORDERS, IT IS SEEN THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE UNDER RULE 8D2(III) WHICH IS 0.5% OF TH E AVERAGE INVESTMENT. ONE OF THE CONTENTIONS RAISED BY THE LEARNED COUNSEL BEFORE US IS THAT THE LEARNED ASSESSING OFFICER HAVI NG REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE HAS NOT BEEN RECORDED ANY SATISFACTION IN TERMS OF SECTION 14A (2) BEFORE INVOKING THE DISALLO WANCE UNDER RULE 8D (2). SECONDLY, FOR THE PURPOSE OF COMPUTING THE AVE RAGE VALUE OF INVESTMENT UNDER RULE 8D(2)(III) ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED HAVE YIELDED EXEMPT INCOME AND NO OTHER I NVESTMENT WHICH HAS NOT YIELDED ANY EXEMPT INCOME. IN SO FAR AS SECOND CONTENTION RAISED BY THE LEARNED COUNSEL IS CONCERN, W E FIND THAT THE SAME FINDS SUPPORT FROM THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF ACB INDIA VS. CIT, REPORTED IN (2015) 374 ITR 108, WHEREIN IT HAS BEEN HELD THAT INSTEAD OF TAKING INTO ACC OUNT TOTAL INVESTMENT ATTRIBUTABLE TO DIVIDEND WAS REQUIRED TO BE ADO PTED AND THEREAFTER, DISALLOWANCE HAS TO BE ARRIVED. SAME VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH IN THE CASE OF ACIT VS. VIR EET INVESTMENT PVT. LTD. IN (2017) 165 ITD 27 (DEL. TRI.) (SB). ACCO RDINGLY, WE HOLD THAT ASSESSING OFFICER FOLLOWING THE JUDICIAL PRECEDEN CE SHOULD REMOVE THOSE INVESTMENTS FROM THE WORKING OF AVERAGE VA LUE WHICH HAVE NOT YIELDED EXEMPT INCOME. 99. IN SO FAR AS FIRST CONTENTION IS CONCERNED, WE FIND THAT ASSESSEE HAS NOT MADE ANY DISALLOWANCE NOR HAS BEEN ABLE TO SUBSTANTIATE BEFORE THE AO AS TO WHY NO EXPENDITURE CAN BE SAID TO 125 BE ATTRIBUTABLE AT LEAST LOOKING TO THE NATURE OF INDIRECT EXPENDITURES DEBITED TO THE P&L ACCOUNT LOOKING TO THE F ACT THAT HUGE EXEMPT INCOME HAS BEEN EARNED IN THE FORM OF DIV IDEND INCOME. ASSESSEES MAIN CONTENTION HAS BEEN THAT THE INV ESTMENTS MADE WERE FOR STRATEGIC INVESTMENTS, WHICH NOW IN WAKE OF THE JUDGEMENT OF HONBLE APEX COURT IN CASE OF MAXOPP INV ESTMENTS LTD. IS NOT ACCEPTABLE. IT IS ONLY WHEN THE ASSESSEE IS ABLE TO SUBSTANTIATE ITS CLAIM FROM THE NATURE OF EXEMPT INCOME FROM THE INVESTMENTS MADE AND HAVING REGARD TO ACCOUNTS MAINTAIN ED AND THE NATURE OF EXPENDITURE DEBITED THAT NOTHING IS ATTRIBUTA BLE FOR THE EARNING OF EXEMPT INCOME, THE ONUS STANDS DISCHARGED. IF ASSESSEE IS ABLE TO DEMONSTRATE ITS CLAIM, THEN ONUS SHIFTS UPON THE ASSESSING OFFICER, WHO HAS TO THEN EXAMINE THE NATURE OF ACCOUNTS AND HAVING REGARD TO SUCH ACCOUNTS MAINTAINED, HE HAS TO RECORD HIS SATISFACTION THAT ASSESSEES CLAIM IS NOT CORRECT BE FORE PROCEEDING TO MAKE THE DISALLOWANCE U/S.14A. THUS, CO NTENTION OF THE LEARNED COUNSEL CANNOT BE ACCEPTED UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, ASSESSING OFF ICER IS DIRECTED TO COMPUTE THE DISALLOWANCE IN VIEW OF THE AFORESAID DI RECTION. RE: INDUSTRIAL PROMOTION ASSISTANCE (IPA) SUBSIDY 100. IN GROUNDS NO. 37 TO 39 IN I.T.A. NO. 6537/DE L/2016 PERTAINING TO AY 2012-13 AND GROUNDS NO. 42 TO 44 IN I.T.A. NO. 6582/DEL/2017 PERTAINING TO AY 2013-14, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO ON ACCOUNT OF IP A SUBSIDY RECEIVED BY THE ASSESSEE UNDER THE WEST BENGAL INCENTIV E SCHEME, 2004, DETAILS OF WHICH ARE AS UNDER: - 126 A MOUNT IN R S . S. N O . A SSESSMENT Y EAR A MOUNT OF D ISALLOWANCE MADE BY AO 1. 2012-13 2,95,10,993/- 2. 2013-14 3,93,52,756/- 101. IN THE RELEVANT YEARS INVOLVED, THE ASSESSEE RE CEIVED SUBSIDY FROM GOVERNMENT OF BENGAL FOR WBIDC PLANT AND GOVERNM ENT OF MAHARASHTRA FOR PAITHAN PLANT. THE SAID SUBSIDY WAS CR EDITED IN THE PROFIT AND LOSS ACCOUNT AND HAD ACCORDINGLY BEEN REDU CED WHILE COMPUTING THE TAXABLE INCOME FOR THE YEARS UNDER CONSI DERATION CLAIMING THE SAME TO BE IN THE NATURE OF CAPITAL RECEIP T. SUBSIDY FROM THE GOVERNMENT OF WEST BENGAL WAS RECEIVED FOR SE TTING UP A NEW PROJECT IN WEST BENGAL UNDER THE WEST BENGAL INCENTIVE SCHEME, 2000 READ WITH WEST BENGAL INCENTIVE SCHEME, 2004 . THE SAID SCHEMES WERE INTRODUCED BY THE STATE GOVERNMENT OF WEST BENGAL TO PROMOTE THE ESTABLISHMENT OF INDUSTRIES IN THE STATE. THE AFORESAID SUBSIDY INTER-ALIA CONSISTS OF THE FOLLOWIN G: (I) STATE CAPITAL INVESTMENT SUBSIDY (SCIS): SCIS IS COMPUTED AT THE RATE OF 15 PERCENT OF FIXED CAPITAL INVESTMENT, SUBJECT TO A LIMIT OF INR 1.5 CRORES. (II) IPA: THIS IS COMPUTED BY WAY OF REFUND OF 75 PERCENT OF SALES TAX PAID IN THE PREVIOUS YEAR ON SALE OF FINISH ED GOODS FOR A PERIOD OF 15 YEARS, SUBJECT TO A MAXIMUM OF THE FIXED CAPITAL INVESTMENT MADE IN THE NEW PROJECT. THE AO DURING BOTH THE RELEVANT YEARS, ALLOWED THE CLA IM OF SUBSIDY RECEIVED FROM GOVERNMENT OF MAHARASHTRA AS BEING CAPI TAL IN NATURE. FURTHER, HE ALSO ALLOWED THE CLAIM OF THE ASSES SEE VIS--VIS 127 SCIS, HOWEVER, HE DISALLOWED THE CLAIM OF THE ASSESS EE VIS--VIS IPA RECEIVED FROM GOVERNMENT OF WEST BENGAL. THE AO WAS O F THE VIEW THAT IPA RECEIVED FROM THE GOVERNMENT OF WEST BENGAL WAS GIVEN AS ASSISTANCE TO THE ASSESSEE FOR BUSINESS PROMOTION AND WAS NOT SPECIFICALLY RELATED TO ANY CAPITAL EXPENDITURE. HE HE LD THAT THE RELIANCE PLACED BY THE ASSESSEE ON THE DECISION OF CIT VS. RASOI LTD: [2011] 335 ITR 438 (CALCUTTA), WAS MISPLACED RASOI LTD. (SUPRA) PERTAINED TO THE WEST BENGAL INCENTIVE SCHEME OF 2000 WHEREAS IN THE INSTANT CASE, THE SCHEME OF 2004 WAS INV OLVED. THE AO HELD THAT BOTH THE SCHEMES HAD DIFFERENT OBJECTIVES A ND THEREFORE, THE DECISION IN THE CASE OF RASOI LTD. (SUPR A) DID NOT, IN ANY WHICH WAY, SUPPORT THE CASE OF THE ASSESSEE. IN TH AT MANNER, THE AO HELD THE IPA RECEIVED TO BE IN THE NATURE OF REVE NUE RECEIPT AND SOUGHT TO TAX THE SAME. 102. THE DRP FOR BOTH THE RELEVANT YEARS, UPHELD THE ACTION OF THE AO IN THE FOLLOWING MANNER: THE LD. AR ARGUED AT LENGTH AND PLACED RELIANCE ON VARIOUS CASE LAWS ALSO WHICH HAVE BEEN CONSIDERED BY THE PANEL. IT HAS BEEN SUBMITTED THAT IS THE PURPOSE OF SUBSIDY AND NOT TH E TIME, MODE AND MANNER OF SUBSIDY WHICH CONCLUSIVELY DETERMINES THE NATURE REVENUE OR CAPITAL AND ACCORDINGLY, THE LD AR SUB MITTED THAT THE SUBSIDY WAS CAPITAL IN NATURE. IT IS SEEN FROM THE MATERIAL PLACED BEFORE THIS PANEL THAT THE SUBSIDY WAS GIVEN TO ASS ESSEE IN FORM OF REIMBURSEMENT OF SALES TAX @ 75% ON OPERATIONS O F THE ASSESSEE AND IT IS DIRECTLY RELATABLE TO THE OPERAT IONS AS MORE THE OPERATIONS, MORE WOULD BE THE SUBSIDY. ULTIMAT ELY, THE STATE SUBSIDIZES THE PRIVATE ENTERPRISE TO HELP IN EXPANS ION OF THE INDUSTRIAL ENTERPRISE TO ENHANCE THE ECONOMY OF THE AREA. IN THE INSTANT MATTER, THE STATE IS DOING THIS BY FACILITA TING THE ASSESSEE 128 GROWTH IN TERMS OF INCREASED TURNOVER AND VOLUMES. THE CERTIFICATE ISSUED BY WBIDC FOR INCENTIVES UNDER WB IS 2004, THE ASSESSEE WAS DECLARED ELIGIBLE FOR THE FOLLOWING IN CENTIVES: - STATE CAPITAL INVESTMENT SUBSIDY - INDUSTRIAL PROMOTION ASSISTANCE (IPA) THE AO HAS ALLOWED CERTAIN COMPONENTS OF THE SUBSID Y TO THE ASSESSEE AS CAPITAL IN NATURE AND UPON EXAMINATION OF THE DETAILS HAS TREATED ONLY ONE PART OF SUCH SUBSIDY AS REVENU E IN NATURE. THE ASSESSEE HAS PLACED RELIANCE ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN CASE OF THE RASOI LTD (2011) 335 ITR 438 (CAL HC) IN SUPPORT OF ITS CONTENTION THAT SUBS IDY RECEIVED ON ACCOUNT OF SALES TAX DEFERMENT/ REMISSION AND INDUS TRIAL PROMOTION ASSISTANCE ARE CAPITAL RECEIPTS NOT CHAR GEABLE TO TAX. THE JUDGMENT IS NOT APPLICABLE IN CASE OF THE ASSES SEE AS THE FACTS IN CASE OF THE ASSESSEE ARE QUITE DIFFERENT FROM TH E CASE CITED. THE RATIO OF THIS CITATION OUTLINES DIFFERENT FACTUAL M ATRIX IN CASE OF THE ASSESSEE AND DOES NOT HELP THE CASE OF THE ASSESSEE . SIMILAR ISSUE WAS ALSO EXAMINED BY THE HONBLE DELHI ITAT I N CASE OF JINDAL POWER & STEEL [REPORTED IN [2013] 38 TAXMANN .COM (DELHI- TRIB.)] WHEREIN THE CASE OF RASOI LIMITED, APART FR OM OTHER RELEVANT JUDGMENT WAS ALSO CONSIDERED. THE ITAT DELHI HAS, I N THEIR DETAILED ORDER IN THIS CASE HELD SUCH SUBSIDY TO BE REVENUE IN NATURE. THE PRESENT CASE IS ALSO SQUARELY COVERED BY THE RATIO OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF SA HNEY STEEL & PRESS WORKS LTD. REPORTED IN [1997] 228 ITR 253/94 TAXMAN 368 (SC). THE NATURE OF SUBSIDY HAS TO BE BASED ON CASE SPECIFIC FACTS. THEREFORE, IN EACH CASE ONE HAS TO EXAMINE THE NATU RE OF SUBSIDY. HONBLE SUPREME COURT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LTD. HAD OBSERVED THAT THESE SUBSIDIES WERE GIVEN T O ENCOURAGE 129 THE SETTING UP OF INDUSTRY IN THE STATE OF ANDHRA P RADESH BY MAKING THE BUSINESS OF PRODUCTION AND SALES OF GOOD S IN THE STATE MORE PROFITABLE. THIS JUDGMENT HAS LAID DOWN THE BA SIC TESTS TO BE APPLIED FOR JUDGING THE CHARACTER OF SUBSIDY AND TH AT TEST IS THAT THE CHARACTER OF RECEIPT IN THE HANDS OF THE ASSESS EE HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH TH E SUBSIDY IS GIVEN. THE ASSESSEE WAS FREE TO USE THE AMOUNT OF SUBSIDY IN ITS BUSINESS AS PER ITS DISCRETION. IN PONNI SUGARS & C HEMICALS LTD. [2008] 306 ITR 392/ 17 TAXMAN 87 (SC) (PARA 21), TH E HONBLE SUPREME COURT HAD HELD THAT THE AMOUNT OF SUBSIDY I S OF CAPITAL NATURE ONLY BECAUSE (WHEN) THE SUBSIDY WAS MEAN FOR REPAYMENT OF TERM LOANS WHICH WERE TAKEN BY THE ASSESSEE FOR SETTING UP OF NEW UNIT AND SUCH REPAYMENT OF TERM LOANS WAS ON CA PITAL ACCOUNT WHEREAS IN THE PRESENT CASE THE SUBSIDY IS IN THE FORM OF SALES TAX EXEMPTION, ELECTRICITY DUTY EXEMPTION ETC . WHICH WERE REVENUE IN NATURE. HONBLE SUPREME COURT AFTER NOTI NG SIMILAR SCHEME WHERE THE HONBLE HIGH COURT OF MADHYA PRADE SH HAD HELD THAT THE SUBSIDY TO BE OF CAPITAL NATURE IN TH E CASE OF DUSAD INDUSTRIES (SUPRA) HAD HELD AS UNDER:- THE MADHYA PRADESH HIGH COURT, HOWEVER, FAILED TO NOTICE THE SIGNIFICANCE FACT THAT UNDER THE SCHEME FRAMED BY T HE GOVT. NO SUBSIDY WAS GIVEN UNTIL THE TIME PRODUCTION WAS ACT UALLY COMMENCED. MERE SETTING UP OF THE INDUSTRY DID NOT QUALIFY FOR INDUSTRIALIZATION FOR GETTING ANY SUBSIDY. THE SUB SIDY WAS GIVEN AS HELP NOT FOR SETTING UP OF THE INDUSTRY WH ICH WAS ALREADY THERE BUT IS AN ASSISTANCE AFTER THE INDUST RY COMMENCED ITS PRODUCTION. THE VIEW TAKEN BY THE HO NBLE MADHYA PRADESH HIGH COURT IS ERRONEOUS. 130 THE ABOVE OBSERVATIONS OF HONBLE SUPREME COURT PUT THE WHOLE GAMUT OF GRANT OF SUBSIDY FOR SETTING UP OF THE ENT ERPRISES IN PROPER PERSPECTIVE. THE CONTEXTUAL CLARIFICATION HE RE ABOVE HELPS US SEE THE MATTER IN CORRECT PERSPECTIVE TO DETERMI NE INCOME TAXABLE AS PER PROVISIONS OF THE INCOME TAX ACT 196 1. IT WOULD ALSO BE IMPORTANT TO OBSERVE HERE THAT THE ASSESSEE HAS NEVER MADE SIMILAR CLAIM IN THE EARLIER ASSESSMENT CYCLES FOR THE PRIOR PERIODS INDICATING CLEARLY THAT THE ASSESSEE ITSE LF WAS NOT SEEKING THE SUBSIDY AS CAPITAL RECEIPT WITH THE BES T LEGAL HELP AVAILABLE TO IT. CONSIDERING THE FACTS AND SUBMISSI ONS OF THE ASSESSEE AND IN LIGHT OF THE ABOVE JURISPRUDENCE, T HE RECEIPTS ON ACCOUNT OF SUBSIDY BY THE ASSESSEE ARE CLEARLY REVE NUE IN NATURE. THE ACTION OF THE AO IS, ACCORDINGLY, UPHELD BY THE PANEL. 103. THE DIRECTIONS OF THE DRP CULMINATED IN THE F INAL ASSESSMENT ORDER OF THE AO FOR AY 2012-13 AND 2013-14. AGGRIEVE D BY THE SAID DIRECTIONS, THE ASSESSEE IS IN APPEAL BEFORE US. 104. THE LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US THE TEXT OF THE WEST BENGAL INCENTIVE SCHEME, 2004 AND REF ERRED TO THE FOLLOWING PASSAGE FROM THE SCHEME TO CONTEND THAT THE OBJ ECT OF THE SAID SCHEME WAS TO PROMOTE SETTING UP/ EXPANSION OF PRO JECTS IN THE CONCERNED AREA: 4. APPLICABILITY OF THE 2004 SCHEME: 4.1 THE 2004 SCHEME SHALL GENERALLY BE APPLICABLE TO ALL LARGE / SMALL SCALE PROJECTS AND TOURISM UNITS IN LARGE / SMA LL SCALE SECTOR TO BE SET UP AND ALSO EXPANSION PROJECT OF EXISTI NG UNITS ON OR AFTER 1ST APRIL, 2004, THE UNITS MAY BE IN THE P RIVATE SECTOR, CO-OPERATIVE SECTOR, JOINT SECTOR AS ALSO COMPAN IES / UNDERTAKINGS OWNED OR MANAGED BY THE STATE GOVERNMENT. 131 THEREAFTER, HE SUBMITTED THAT IT WAS CLEAR THAT THE INTENT A ND OBJECT BEHIND THE INTRODUCTION OF THE WEST BENGAL INCENTIVE SCH EME OF 2004 WAS TO PROMOTE SETTING UP AND EXPANSION OF INDUSTRI ES AND HENCE, THE SUBSIDY WAS NOT MADE AVAILABLE TO THE EXISTIN G INDUSTRIES UNLESS THEY UNDERTOOK SUBSTANTIAL EXPANSION. THIS FACT, ALONE SHOWED THAT THE SUBSIDY WAS NOT ADVANCED FOR SUSTAINING THE BUSINESS OF THE ASSESSEE AS ALLEGED BY THE AO AND THE DRP, BUT WAS FOR THE PURPOSES OF INCENTIVIZING EXPANSION OF INDUSTR IES. THUS, THE SUBSIDY WAS CLEARLY CAPITAL IN NATURE. HE FURTHER SUB MITTED THAT THE MEGA PROJECTS ELIGIBLE UNDER THE SCHEME OF 2004 WER E NOT ELIGIBLE FOR THE INTEREST SUBSIDY AND IN LIEU THEREOF, IPA WAS M ADE AVAILABLE TO THEM AT THE RATE OF 75% OF THE SALES TAX IN THE YEAR PR EVIOUS TO THE YEAR FOR WHICH THE CLAIM WAS TO BE MADE. AS PER THE SCHEME THE UNIT WAS TO BE ELIGIBLE FOR IPA AND OTHER SUBSIDIES O NLY AFTER: (I) TOTAL INVESTMENT CROSSED THE LIMIT OF INR 25 CRORES; AND (II) ON COMMENCEMENT OF COMMERCIAL PRODUCTION. HE SUBMITTED THAT THE IN THE SAID SCHEME, IT WAS STATED THAT THE TOTAL VALUE OF INCENTIVE WAS TO NOT EXCEED 100% OF THE FI XED CAPITAL INVESTMENT IN ANY CASE. THEREFORE, IT WAS PATENTLY CLEAR THAT THE SUBSIDY WAS BASED UPON THE FIXED CAPITAL INVESTMENT MA DE BY AN ENTERPRISE AND ONLY THE MODE OF DISBURSEMENT WAS IN TH E FORM OF RE- PAYMENT OF SALES TAX PAID. IT IS A SETTLED LAW THAT THE OB JECTIVE OF THE SCHEME HAD TO BE CONSIDERED FOR THE PURPOSES OF DETER MINING THE NATURE OF SUBSIDY GIVEN AND NOT THE MODE AND MANNER O F PAYMENT. HE ALSO DREW OUR ATTENTION TOWARDS VARIOUS DECISIONS, WHEREIN, COURTS HAVE HELD THAT THE CHARACTER OF SUBSIDY IN THE HANDS OF THE RECIPIENT, WHETHER CAPITAL OR REVENUE, WAS TO BE DETERM INED AFTER HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY WA S GIVEN. HE 132 PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPRE ME COURT IN SAWHNEY STEEL AND PRESS WORKS LTD VS CIT [1997] 228 I TR 253 (SC) WHEREIN IT WAS OBSERVED THAT THE IT WAS NOT THE SOURCE FRO M WHICH THE AMOUNT WAS PAID TO THE ASSESSEE WHICH WAS DETERMINA TIVE OF THE QUESTION WHETHER THE SUBSIDY PAYMENTS WERE OF REVENUE OR CAPITAL NATURE. THE COURT FURTHER OBSERVED THAT IF PAYMENTS IN TH E NATURE OF SUBSIDY FROM PUBLIC FUNDS WERE MADE TO THE ASSESSEE TO ASSIST HIM IN CARRYING ON HIS TRADE OR BUSINESS, THEY WERE TO BE TREATED AS TRADE RECEIPTS. THE HONBLE SUPREME COURT HAD ALSO OBSERVED THAT THE SALES TAX UPON COLLECTION FORMED PART OF THE PUBLIC FUN DS OF THE STATE AND IF THE ASSESSEE AS PER THE SCHEME WAS TO BE GIVEN REFUND OF SALES TAX ON PURCHASE OF MACHINERY AS WELL AS ON RAW MATERIALS TO ENABLE THE ASSESSEE TO ACQUIRE NEW PLANTS AND MACHINER Y FOR FURTHER EXPANSION OF ITS MANUFACTURING CAPACITY IN BACKWARD AREA, THE ENTIRE SUBSIDY WAS TO TREATED AS A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. HE PLACED RELIANCE ON THE HONBLE SUPREME COURTS DECISION IN CIT VS CHAPHALKAR BROTHERS [2017] 88 TAXMANN.COM 178 (SC) WHEREIN IT WAS OBSERVED THAT WHERE OBJECT OF RESPECTIV E SUBSIDY SCHEMES OF STATE GOVERNMENTS WAS TO ENCOURAGE DEVELOPMENT OF MULTIPLE THEATRE COMPLEXES, INCENTIVES WAS TO BE HELD TO BE CAPITAL IN NATURE AND NOT REVENUE RECEIPTS EVEN THOUGH THE INCENTIVE WAS IN FORM OF EXEMPTION FROM PAYMENT OF ENTERTAINMENT DUTY FOR A PERIOD OF 3 YEARS FROM THE D ATE OF COMMENCEMENT OF COMMERCIAL OPERATIONS. HE ALSO PLACED HEAVY RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN CIT VS. PONNI SUGARS AND CHEMICALS LTD [2008] 306 ITR 392 ( SC) AND SUBMITTED THAT THE HONBLE COURT HAD OBSERVED THAT THE CHARA CTER OF THE RECEIPT IN THE HANDS OF THE ASSESSEE HAD TO BE DETER MINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY WAS GIVEN. THE SAID TEST WAS THE CALLED THE 'PURPOSE TEST' AND THAT THE POINT OF TIME WHEN 133 THE SUBSIDY WAS PAID WAS NOT RELEVANT AND SO WAS SO SO URCE OF SUBSIDY. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN CIT VS. TALBROS ENGINEERING LTD. [2016] 386 ITR 154 (P&H) WHEREIN IT WAS HELD THAT SALES TAX SUBSIDY GIVEN BY THE STATE GOVERNMENT FOR ENCOURAGING INDUSTRIES FOR SETTING UP UNITS IN REMOTE OR RURAL AREAS WAS TO BE TREATED AS CAPITAL RECEIPT. FURTHER IN THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN CIT VS. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTR E (P) LTD: [2015] 55 TAXMANN.COM 26 (DEL HC) . 105. THEREAFTER, THE LEARNED COUNSEL SUBMITTED THAT IN THE INSTANT CASE ALSO THE SUBSIDY WAS GIVEN BY THE GOVERNMENT OF WEST BENGAL FOR THE PURPOSE OF INDUSTRIALIZATION OF THE STATE AND H ENCE, THE SUBSIDY WAS AVAILABLE ONLY TO NEW UNITS OR TO EXISTING UNITS WHO WERE UNDERTAKING EXPANSION. MERELY THE QUANTIFICATION O F SUBSIDY WAS BASED UPON REIMBURSEMENT OF SALES TAX. IN VIEW OF THE SAID OBJECT OF THE SCHEME OF 2004, THE ASSESSEE TREATED THE I PA RECEIPT AS A CAPITAL RECEIPT. HE SUBMITTED THAT THE AO AND DRP ERR ONEOUSLY TREATED THE SUBSIDY AS A REVENUE RECEIPT BY LOOKING AT THE MODE OF PAYMENT, WHICH WAS BY WAY OF REIMBURSEMENT OF SALES TAX, AND THAT THE BENEFIT WAS TO BE GIVEN ONLY AFTER THE COMMENCEMENT OF COMMERCIAL PRODUCTION. HE THEREAFTER SUBMITTED VARIOUS DECISIONS WHEREIN ON THE BASIS OF SIMILAR FACTS THAT IS (A) WHER E SUBSIDY WAS GIVEN IN FORM OF REIMBURSEMENT OF TAXES PAID ON PROD UCTION / SALES; AND (B) SUBSIDY WAS AVAILABLE ONLY AFTER THE COMMENC EMENT OF PRODUCTION / COMMERCIAL OPERATIONS; AND (C) SUBSIDY W AS NOT LINKED TO ANY SPECIFIC FIXED ASSETS; AND (D) THERE WAS NO ST IPULATION IN THE SCHEME OF SUBSIDY REGARDING THE MANNER IN WHICH THE SUBSIDY AMOUNT WAS TO BE UTILIZED BY THE ASSESSEE, STILL, SOLELY ON THE BASIS OF OBJECT OF THE SCHEME, SUBSIDY WAS HELD TO BE CAPITAL IN NATURE. 134 EXPLAINING THE DECISION OF THE HONBLE HIGH COURT OF C ALCUTTA IN CIT VS. RASOI LTD. [2011] 335 ITR 438 (CALCUTTA) , HE SUBMITTED THAT THEREIN, THE SCHEME IN QUESTION WAS GIVEN EFFECT TO FRO M 1-4-1994 AND INITIALLY, WAS IN FORCE ONLY FOR ONE YEAR FROM TH AT DATE AND, THUS, THE BENEFIT WAS THEN AVAILABLE TO THE ASSESSEE ONLY FOR THAT YEAR WHICH WAS THE RELEVANT ASSESSMENT YEAR. FROM THE OBJEC TS AND REASONS OF THE AFORESAID SCHEME, IT WAS CLEAR THAT THE G OVERNMENT HAD DECIDED TO GRANT THE SUBSIDY BY WAY OF FINANCIAL A SSISTANCE TO TIDE OVER THE PERIOD OF CRISIS FOR PROMOTION OF THE I NDUSTRIES MENTIONED IN THE SCHEME WHICH HAD THE MANUFACTURING UNI TS IN WEST BENGAL AND WHICH WERE IN NEED OF FINANCIAL ASSI STANCE FOR EXPANSION OF THEIR CAPACITIES, MODERNIZATION AND IMPRO VING THEIR MARKETING CAPABILITIES AND THUS, THE SUBSIDY WAS HELD TO BE CAPITAL IN NATURE. THE HONBLE COURT HAD OBSERVED THEREIN THAT MERELY BECAUSE THE AMOUNT OF SUBSIDY WAS EQUIVALENT TO 90 PER CENT OF THE SALES TAX PAID BY THE BENEFICIARY DID NOT IMPLY THAT T HE SAME WAS FOR OPERATIONAL PURPOSES. LASTLY, HE PLACED RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF JAMMU AND KASHMIR IN SHREE BALAJI ALLOYS VS. CIT [2011] 333 ITR 335 (J&K) AND POINTED OUT THAT THE SAME HAD NOW BEEN AFFIRMED BY THE HONBLE SUPREME CO URT. HE PLACED RELIANCE ON THE FOLLOWING PASSAGE FROM THE DEC ISION OF THE HONBLE HIGH COURT: MERE MAKING OF ADDITIONAL PROVISION IN THE SCHEME THAT INCENTIVES WOULD BECOME AVAILABLE TO THE INDUSTRIAL UNITS FROM THE DATE OF COMMENCEMENT OF THE COMMERCIAL PRODUCTI ON, AND THAT THESE WERE NOT REQUIRED FOR CREATION OF NEW AS SETS CANNOT BE VIEWED IN ISOLATION, TO TREAT THE INCENTIVES AS PRODUCTION INCENTIVES, AS HELD BY THE TRIBUNAL, FOR THE MEASUR E SO TAKEN, APPEARS TO HAVE BEEN INTENDED TO ENSURE THAT THE IN CENTIVES 135 WERE MADE AVAILABLE ONLY TO THE BONA FIDE INDUSTRIA L UNITS SO THAT LARGER PUBLIC INTEREST OF DEALING WITH UNEMPLO YMENT IN THE STATE, AS INTENDED, IN TERMS OF THE OFFICE MEMORAND UM, WAS ACHIEVED. THE OTHER FACTORS, WHICH HAD WEIGHED WITH THE TRIBUNAL IN DETERMINING THE INCENTIVES AS PRODUCTIO N INCENTIVES MAY NOT BE DECISIVE TO DETERMINE THE CHARACTER OF T HE INCENTIVE SUBSIDIES, WHEN IT IS FOUND, AS DEMONSTRATED IN THE OFFICE MEMORANDUM, AMENDMENT INTRODUCED THERETO AND THE ST ATUTORY NOTIFICATION TOO THAT THE INCENTIVES WERE PROVIDED WITH THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT, TO ER ADICATE THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCE LERATED INDUSTRIAL DEVELOPMENT. 106. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND THE DRP. 107. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS. THE A SSESSEE HAS RECEIVED SUBSIDIARY FROM GOVERNMENT OF WEST BENGAL F OR WBIDC PLANT AND GOVERNMENT OF MAHARASHTRA FOR PAITHON PLANT. T HE SUBSIDY FROM THE GOVERNMENT OF WEST BENGAL WAS RECEIV ED FOR SETTING UP FOR A NEW PROJECT IN WEST BENGAL UNDER THE WE ST BENGAL INCENTIVE SCHEME 2000 AND 2004 WHICH WAS TO PROMOTE THE ESTABLISHMENT OF THE INDUSTRIES IN THE STATE. THE NATURE OF SUBSIDY HAS ALREADY BEEN DESCRIBED ABOVE. THE ASSESSING OFF ICER HAS ALLOWED THE CLAIM OF SUBSIDY FROM GOVERNMENT OF MAHARASHTRA AN D ALSO THE STATE CAPITAL INVESTMENT SUBSIDY BY THE WEST BENGAL GOVT. AS IT WAS COMPUTED ON 15% OF FIXED CAPITAL INVESTMENT WHICH HAS B EEN TREATED AS CAPITAL IN NATURE AND ALLOWED THE CLAIM OF ASSESSEE. HOWEVER, AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE ON THE IPA 136 SUBSIDY RECEIVED FROM GOVERNMENT OF WEST BENGAL ON THE GROUND THAT THE SUBSIDY RECEIVED FROM GOVERNMENT OF WEST BENGA L WAS GIVEN TO THE ASSESSEE FOR BUSINESS PROMOTION AND NOT S PECIFICALLY RELATED TO ANY CAPITAL EXPENDITURE. THE OBJECT OF THE WE ST BENGAL INCENTIVE SCHEME 2004 HAS ALREADY BEEN INCORPORATED A BOVE AND FROM THE PERUSAL OF THE SAME IT IS SEEN THAT THE SAME WAS TO PROMOTE SETTING UP AND EXPANSION OF PROJECTS/INDUSTRIES AND WAS NOT AVAILABLE TO THE EXISTING INDUSTRIES UNLESS THEY UND ERTOOK SUBSTANTIAL EXPANSION. THE HON'BLE SUPREME COURT IN TH E CASE OF CIT VS. PONNI SUGAR AND COMMERCIAL LTD. (SUPRA) OBSERVED THAT CHARACTER OF THE RECEIVABLES IN THE HANDS OF THE ASSE SSEE HAD TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH SUBSID Y WAS GIVEN. THE PURPOSE FOR WHICH SUBSIDY IS GIVEN ASSUMES MORE SIGNIFICANCE RATHER THAN THE MANNER IN WHICH IT HAS BEEN GIVEN. HERE IN THIS CASE ALSO THE SUBSIDY WAS GIVEN BY THE GOVERNMENT OF WEST B ENGAL FOR THE PURPOSE OF INDUSTRIALIZATION OF THE STATE WHICH WAS AVAILABLE ONLY TO NEW UNITS OR TO EXISTING UNITS WHICH WERE INITI ATING SUBSTANTIAL EXPANSION. UNDER THE SCHEME IPA WAS MADE AVAILABLE @75% OF THE SALES TAX IN THE PREVIOUS YEAR FOR WHICH THE CLAIM WAS MADE AND THE TOTAL VALUE OF INCENTIVE WAS NOT TO EXCEE D THE FIXED CAPITAL INVESTMENT. THUS, SUBSIDY WAS BASED UPON FIXE D CAPITAL INVESTMENT MADE AND ONLY THE MODE OF DISBURSEMENT WAS IN THE FORM OF RE-PAYMENT OF SALES TAX PAID. THE HON'BLE SUP REME COURT IN THE CASE OF CIT VS. CHAPHALKAR BROTHERS (SUPRA) HELD THAT SUBSIDIARY SCHEME OF THE STATE GOVERNMENT TO ENCOURAGE DEVELOPMENT OF MULTIPLE THEATRE COMPLEXES IS CAPITAL I N NATURE AND NOT REVENUES RECEIPTS THERE ALSO SUBSIDY WAS IN THE FORM OF EXEMPTION FROM PAYMENT OF ENTERTAINMENT DUE FOR THE PERIO D OF THREE YEARS. MERELY BECAUSE HERE IN THIS CASE THE QUAN TIFICATION OF SUBSIDY WAS BASED ON REIMBURSEMENT OF SALES TAX, IT DOES NOT MEANT 137 THAT IT IS A REVENUE RECEIPT. THIS VIEW NOW IS WELL SU PPORTED BY THE VARIOUS DECISIONS AS NOTED ABOVE THAT CHARACTER OF SUBS IDY IN THE HANDS OF THE ASSESSEE IS THE DETERMINATIVE FACTOR HAVI NG REGARD TO THE PURPOSE FOR WHICH SUBSIDY WAS GIVEN. ACCORDINGLY , WE HOLD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE FROM THE SUBSIDY RECEIVED UNDER THE WEST BENGAL INCENTIVE SCHEME OF 2004 IS CAPI TAL IN NATURE AND CANNOT BE TAXED AS REVENUE RECEIPTS. THUS, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 108. IN RESULT THEREOF, GROUNDS NO. 27 TO 31 IN I.T.A . NO. 4517/DEL/2016 PERTAINING TO AY 2010-11, GROUNDS NO. 27 TO 31 IN I.T.A. NO. 4518/DEL/2016 PERTAINING TO AY 2011-12 AND GROUNDS NO. 33 TO 36 IN I.T.A. NO. 6537/DEL/2016 PERTAINING T O AY 2012-13 ARE ALLOWED. 109. IN GROUNDS NO. 32 TO 33 IN I.T.A. NO. 4518/DEL/2016 PERTAINING TO AY 2011-12, THE ASSESSEE HAS CHALLENGED THE WRONGFUL LEVY OF INTEREST UNDER SECTION 234A AND 234B OF THE ACT. 110. THE LEARNED COUNSEL POINTED OUT THAT THE ASSES SEE HAD FILED ITS RETURN OF INCOME WITHIN THE DUE DATE PRESCRIBED UND ER SECTION 139(1) OF THE ACT, I.E. ON 26.09.2011. SINCE, THE RETUR N OF INCOME HAD BEEN FILED WITHIN THE DUE DATE, NO INTEREST UNDER SECTION 234A COULD HAVE BEEN LEVIED. AS REGARDS INTEREST UNDER SEC TION 234B OF HE POINTED OUT THAT AS PER THE PROVISION, NO INTEREST LIA BILITY CAN ARISE IF THE AMOUNT OF ADVANCE TAX PAID EXCEEDS 90% O F THE ASSESSED TAX. IN THE INSTANT CASE, THE ASSESSEE HAD DEPOSITED ADVA NCE TAX AMOUNTING TO RS. 64,20,00,000/-. THE ASSESSEE HAD FI LED AN APPLICATION BEFORE THE AO FOR RECTIFICATION OF MISTAKES APPARENT FROM HIS ORDER AND PURSUANT TO HIS ORDER ON SUCH, THE AMO UNT OF 138 ASSESSED TAX STOOD AT INR 70,97,80,046. SINCE, THE AMO UNT OF ADVANCE TAX DEPOSITED WAS GREATER THAN 90% OF THE ASSE SSED TAX, NO INTEREST UNDER SECTION 234B OF THE ACT COULD HAVE BEEN L EVIED. HE FURTHER SUBMITTED THAT A SIMILAR ISSUE HAD BEEN RAISED I N GROUNDS NO. 27 TO 29 IN I.T.A. NO. 4516/DEL/2016 PERTAINING TO AY 2010- 11. 111. IN VIEW OF THE AFORESAID FACTS SUBMITTED BY THE ASSESSEE, WE DIRECT THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND R E-COMPUTE THE INTEREST LEVIABLE UNDER SECTION 234A/ 234B OF THE ACT IN AS PER LAW. 112. IN GROUND NO. 35 IN I.T.A. NO. 4518/DEL/20 16 PERTAINING TO AY 2011-12, THE ASSESSEE HAS CHALLENGED THE CREDIT OF TAX DEDUCTION AT SOURCE (TDS), ADVANCE TAX AND SELF-ASSES SMENT TAX AMOUNTING TO INR 84,90,70,726/- NOT GIVEN BY THE AO. 113. THE LEARNED COUNSEL SUBMITTED THAT THE SAID TAX C REDIT COMPRISED OF TAXES DEPOSITED BY THE ASSESSEE AND ITS GR OUP CONCERNS NAMELY PFL AND ARADHANA SOFT DRINKS COMPANY. THESE G ROUP COMPANIES WERE AMALGAMATED WITH THE ASSESSEE VIDE AMAL GAMATION ORDER DATED 01.12.2011 OF THE HONBLE PUNJAB AND HAR YANA HIGH COURT WITH RETROSPECTIVE EFFECT FROM 01.04.2010. SINCE THE AMALGAMATION APPLICATION WAS PENDING IN THE HONBLE P UNJAB AND HARYANA HIGH COURT AT THE TIME OF DUE DATE OF FILING TH E RETURN OF INCOME, GROUP COMPANIES, IN ORDER TO COMPLY WITH THE A CT, FILED ITS TAX RETURNS. ONCE THE APPROVAL WAS RECEIVED FROM THE HO NBLE HIGH COURT, THE ASSESSEE HAD PREPARED ITS FINANCIAL STATEMENTS AND FILED A REVISED CONSOLIDATED RETURN OF INCOME OFFERING THE INCOME OF THE GROUP COMPANIES TO TAX. ACCORDINGLY, THE TAXES PAID BY THE GROUP CONCERNS WERE ALSO CLAIMED BY THE ASSESSEE IN ITS R ETURN OF INCOME. 139 NOW AS A RESULT OF THE AMALGAMATION ORDER BY THE HONBL E HIGH COURT, THE GROUP COMPANIES CEASED TO EXIST FROM 01.04.2 010 ONWARDS AND COULD NOT BE REGARDED AS A LEGAL ENTITY F OR F.Y. 2010- 11 AND ONWARDS. THUS, IT WAS SUBMITTED THAT THE RETURN FILED BY THE GROUP COMPANIES AUTOMATICALLY BECAME VOID-AB-INITIO. IN SUCH A SCENARIO, ANY SUBSEQUENT PROCEEDING SUCH AS PROCESSI NG OF RETURN OF INCOME UNDER SECTION 143(1) OF THE ACT WAS ALSO INV ALID. IT WAS FURTHER SUBMITTED THAT THE RETURN OF INCOME FILED BY PFL F OR A.Y. 2011-12 HAD BEEN REJECTED BY CPC, BANGALORE AND ASS ESSMENT OF THE AMALGAMATED ENTITY WAS DONE BY THE AO. RELIANCE W AS PLACED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN TORRENT (P.) LTD. V. CIT [2013] 35 TAXMANN.COM 300 (GUJARAT) WHEREIN IT WAS HELD THAT THE TRANSACTION PURSUANT TO THE EFFECTIVE DATE OF AMALG AMATION COULD NOT BE TREATED AS A VALID TRANSACTION. HE ALSO PLA CED RELIANCE ON THE DECISIONS OF THE HONBLE HIGH COURT OF BOMBAY I N MAFATLAL GANGALBHAI AND CO. PVT. LTD. V. CIT [1979] 193 ITR 18 8 AND NEW SHORROCK SPG & MFG CO LTD V. CIT [1994] 208 ITR 765. 114. IN VIEW OF THE FACTS SUBMITTED BY THE ASSESSEE, W E DIRECT THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW THE CREDIT OF TAXES IN ACCORDANCE WITH THE DIRECTIONS CONTAINED HEREIN AND AS PER LAW. 115. THERE ARE CERTAIN OTHER GROUNDS RAISED BY THE ASSESSEE IN ITS APPEALS THAT PERTAIN TO THE LEVY OF INTEREST AS WELL AS INITIATION OF PENALTY PROCEEDINGS AND AS SUCH ARE CONSEQUENTIAL IN NATURE. THEREFORE, THE SAME ARE PRE-MATURE AT THIS STAGE AND HEN CE ARE BEING DISMISSED. OTHER GROUNDS ARE EITHER GENERAL OR NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WHICH ARE ALSO HEREBY DISMISSED. 140 116. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER, 2018. SD/ - SD/ - [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 TH NOVEMBER, 2018 PKK