Perfetti Van Melle India Pvt. Ltd., Gurgaon V. ACIT, Circle-3(1), Gurgaon

ITA 463/DEL/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5223 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Assessment Year: 2016-2017
• Appeal Filed On: 20-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MEERA SHRIVASTAVA
• Assessee Lawyers: Not Found
• Keywords: Capital asset; Business income; Transfer pricing; Business expenditure; Residential status; International transaction; Question of law; Cost of acquisition; Revised return; Capital expenditure
• Section: 131; 271(1)(c); 143(3); 92; 92D; 92B; 92F; 142(1); 80HHC; 115JB; 10B; 195; 201; 80IC; 143(2); 64; 80IC; 43; 48; 73; 72; 13; 22; 20

Judgement Text

1 BEFORE THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH I-2, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SH. B.R.R. KUMAR, ACCOUNTANT MEMBER I.T.A. NO. 463/DEL/2021 ASSESSMENT YEAR 2016-17 PERFETTI VAN MELLE INDIA PVT LTD 47 TH MILESTONE, DELHI JAIPUR HIGHWAY, MANESAR, GURGAON VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1), GURGAON PAN : AAACP2626A (APPELLANT) ( RESPONDENT) APPELLANT BY : MR. DEEPAK CHOPRA, ADV MS. RASHI KHANNA, ADV MS. PRATISHTHA SINGH, ADV DEPARTMENT BY : MS. MEERA SHRIVASTAVA, CIT (DR) DATE OF HEARING 27 07 2021 DATE OF PRONOUNCEMENT 22 09 2021 ORDER PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN FILED BY THE A SSESSEE COMPANY AGAINST THE FINAL ASSESSMENT ORDER PASSED BY NATION AL E- ASSESSMENT CENTRE, NEW DELHI ON 31.03.2021 UNDER SE CTION 143(3) READ WITH SECTIONS 143(3A) & 143(3B) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) PERTAINING TO ASSESSMENT YEAR 2016-17. 2. THE ASSESSEE HAS RAISED AS MANY AS 49 GROUNDS OF APPEAL. HOWEVER, FOR THE SAKE OF BREVITY, THE SAME CAN BE C ATEGORIZED AS UNDER- 2 ( A). GROUND NO. 1 AND 2 GENERAL IN NATURE. (B). GROUND NO. 3 TO 8 REGARDING THE TRANSFER PRIC ING ADDITION JURISDICTIONAL GROUNDS. (C). GROUND NOS. 9 TO 21 ON MERITS OF THE AMP ADJUS TMENT REGARDING ADVERTISING AND MARKETING EXPENSES (AMP ADJ USTMENT). (D). GROUND NOS. 22 TO 26 REGARDING THE ERRONEOUS FINDING GIVEN THE DISPUTE RESOLUTION PANEL (DRP) ON THE ISSUE OF AMP ADJUSTMENT. (E). GROUND NOS. 27 TO 35 REGARDING THE APPLICABIL ITY OF THE PROFIT SPLIT METHOD BY THE TPO. (F). GROUND NOS. 36 TO 39 REGARDING THE PROTECTIVE ADJUSTMENT MADE BY APPLYING THE BRIGHT LINE METHOD (BLT). (G). GROUND NOS. 40 TO 46 REGARDING THE REDUCTION OF DEDUCTION UNDER SECTION 80IC OF THE ACT ON ACCOUNT OF APPORTIONME NT OF EXPENSES BETWEEN THE ELIGIBLE AND NON-ELIGIBLE UNITS. (I). GROUND NO. 47 AGAINST DISALLOWANCE OF LOSS OW ING TO FLOODS. (J). GROUND NOS. 48 AND 49 RELATING TO APPLICABIL ITY OF INTEREST UNDER SECTIONS 234B/234C OF THE ACT AND INITIATION OF P ENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 3. THAT APART, THE ASSESSEE HAS ALSO MOVED AN APP LICATION RAISING AN ADDITIONAL GROUND REGARDING THE ALLOWABI LITY OF EDUCATION CESS VIDE LETTER DATED 23.07.2021. 4. HOWEVER, THE PRINCIPLE ISSUE WHICH ARISES IN T HIS APPEAL FOR CONSIDERATION IS THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES. THERE ARE TWO OTHER CORPORATE TAX IS SUES, WHICH 3 WOULD BE ADDRESSED AND DEALT WITH SEPARATELY. WE P ROPOSE TO ADDRESS THE TRANSFER PRICING GROUNDS FIRST. BRIEF FACTS AND BACKGROUND: 5. BRIEFLY STATED, THE FACTS RELEVANT TO THE ISS UE UNDER CONSIDERATION ARE THAT THE ASSESSEE IS A SUBSIDIARY OF PVM, NETHERLANDS AND STARTED IT OPERATIONS IN INDIA IN 1 994. IT IS ENGAGED IN MANUFACTURING AND SELLING OF VARIETY OF CONFECTIONARY PRODUCTS FROM ITS FACTORIES IN TAMIL NADU, HARYANA AND UTTARAKHAND. THE ASSESSEES PRODUCTS INCLUDE BIG BA BOOL, ALPENLIEBE, CENTRE FRESH, CENTRE FRUIT, CHLOROMINT, FRUITELLA, COFITOS, HAPPYDENT WHITE, MENTOS, ETC. THESE BRAND S ARE OWNED BY THE ASSOCIATED ENTERPRISES (AE) OF THE ASSESSEE AND ARE LICENSED TO IT. 6. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 29.11.2016 THEREB Y DECLARING AN INCOME OF RS. 19,41,49,790/-. THEREAFTER, THE ASSES SEE COMPANY REVISED ITS RETURN OF INCOME DECLARING AN INCOME OF RS. 17,94,93,210/- ON 3.08.2017. THE CASE OF THE ASSESS EE WAS SELECTED FOR SCRUTINY THROUGH CASS AND NOTICES UNDE R SECTION 143(2) READ WITH SECTION 142(1) OF THE ACT, WERE IS SUED. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE REPORTED CERTAIN INTERNATIONAL TRANSACTIONS IN FORM 3CEB. A REFERENC E WAS MADE BY THE AO TO THE TRANSFER PRICING OFFICER UNDER SEC TION 92CA(1) OF THE ACT FOR DETERMINATION OF THE ARMS LENGTH PRICE (ALP) OF THE 4 INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WITH ITS AES. 7. BY WAY OF AN ORDER DATED 28.10.2019 THE TPO P ASSED AN ORDER UNDER SECTION 92CA(3) OF THE ACT PROPOSING A SUBSTANTIVE ADJUSTMENT OF RS. 135.52 CRORES ON ACCOUNT OF AMP E XPENSES, WHILE ALSO RETAINING THE PROTECTIVE ADJUSTMENT OF R S. 144.92 CRORES. HOWEVER, IN THE COMPUTATION OF INCOME IN T HE FINAL ASSESSMENT ORDER DATED 31.3.2021, ONLY THE SUBSTANT IVE ADJUSTMENT OF RS. 135.52 CRORES HAS BEEN RETAINED. THE ASSESSEE HAS, NEVERTHELESS, IMPUGNED BOTH THE SUBSTANTIVE AN D PROTECTIVE ADJUSTMENTS MADE RELATING TO THE AMP EXPENSES. 8. ACCORDINGLY, DRAFT ASSESSMENT ORDER WAS PASSE D BY THE ASSESSING OFFICER ON 19.12.2019 AND THE INCOME OF T HE ASSESSEE WAS PROPOSED TO BE DETERMINED AT RS. 171,60,34,368/ - ON THE ACCOUNT OF THE FOLLOWING ADDITIONS / DISALLOWANCES: - S. NO. PARTICULARS AMOUNT (RS.) 1. TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPENSES 135,52,80,000/- 2. DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80-IC OF THE ACT 17,96,61,158/- 3. DISALLOWANCE OF LOSS ON ACCOUNT OF FLOODS IN CHENNAI 16,00,000/- 5 9. AGGRIEVED WITH THE ADDITIONS / DISALLOWANCES PROPOSED IN THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJE CTIONS BEFORE THE DISPUTE RESOLUTION PANEL (HEREIN REFERRED TO AS THE DRP). THE DRP DISPOSED OF THE OBJECTIONS PREFERRED BY THE ASSESSEE VIDE DIRECTIONS DATED 27.01.2021 AND CONFIRMED THE ADDIT IONS / DISALLOWANCES PROPOSED IN TOTO. 10. CONSEQUENTLY, THE FINAL ASSESSMENT ORDER DAT ED 31.3.2021 WAS PASSED BY THE NATIONAL E-ASSESSMENT CENTRE GIVI NG EFFECT TO THE DIRECTIONS ISSUED BY THE DRP. THE PRESENT APPE AL EMANATES OUT OF THE SAID FINAL ASSESSMENT ORDER. 11. THE FIRST ISSUE RAISED IN THIS APPEAL IS THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS. 135,52 ,80,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AMP EXP ENSES. THE PRINCIPLE ISSUE RAISED IN THE APPEAL IS THAT THE IN CURRING OF AMP EXPENSES BY THE ASSESSEE WAS NOT AN INTERNATIONAL T RANSACTION WITHIN THE MEANING OF SECTION 92B OF THE ACT. VARI OUS OTHER GROUNDS HAVE ALSO BEEN RAISED IN THE APPEAL RELATIN G TO THIS ISSUE. HOWEVER, WHETHER THERE EXISTED AN INTERNATIONAL TRA NSACTION IS THE CORE ISSUE. 12. MR. DEEPAK CHOPRA, LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ISSUE OF MAKING TRANSFER PRICING ADJUSTMEN TS IN THE ASSESSEES CASE IS A LEGACY ISSUE AND THE ASSESSEE HAS BEEN FACING ADDITIONS ON THIS COUNT SINCE AY 2008-09. HE SUBMIT TED THAT THE APPEALS OF THE ASSESSEE FOR THE EARLIER YEARS HAVE BEEN REPEATEDLY RESTORED TO THE FILE OF THE ASSESSING OFFICER/ TPO FOR RE- 6 EXAMINATION OF THE ISSUE IN LIGHT OF THE AVAILABLE JUDICIAL PRECEDENCE AVAILABLE AT THAT POINT OF TIME. THE ISS UE PERTAINING TO INCURRENCE OF EXCESSIVE AMP EXPENSES FOR THE PROMOT ION OF THE BRAND OWNED BY THE AE WAS RAKED UP FOR THE FIRST TI ME, AS MENTIONED ABOVE, IN AY 2008-09. THE ADJUSTMENT IN T HAT YEAR WAS COMPUTED BY APPLYING THE BRIGHTLINE METHOD (BLT ). WHEN THE ISSUE TRAVELLED BEFORE THE TRIBUNAL, THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-EX AMINATION OF THE ISSUE IN THE LIGHT OF THE RATIO LAID DOWN BY THE SP ECIAL BENCH OF ITAT IN THE CASE OF LG ELECTRONICS INDIA PVT. LTD. VS. ACIT : [2013] 140 ITD 41. WE ARE INFORMED THAT THE APPEAL FOR AY 2008-09 IS CURRENTLY PENDING ADJUDICATION BEFORE THE CIT (A). THE AMP DISPUTE, IN THE OTHER ASSESSMENT YEARS, HAS ALSO SU FFERED SIMILAR FATE. THE STATUS OF THE AMP APPEALS OF THE ASSESSE E IS BEING DEPICTED WITH THE HELP OF THE CHART FILED BY THE AS SESSEE BEFORE US:- S. NO. AY DATE OF ITAT ORDER OUTCOME OF AMP ISSUE PRESENT STATUS OF APPEALS 1. 2008 - 09 18.10.2013 REMANDED FOR RE - EXAMINATION OF ISSUE IN THE LIGHT OF RATIO LAID DOWN IN LG SPECIAL BENCH TWO ROUNDS OF LITIGATION NOW PENDING WITH CIT(A) AFTER SECOND ROUND. 2. 2009 - 10 15.04.2014 AND 16.05.2017 FIRST ROUND - REMANDED FOR RE- EXAMINATION OF ISSUE IN THE LIGHT THIRD ROUND OF LITIGATION. ASSESSEE IS IN THE PROCESS OF FILING AN APPEAL 7 OF RATIO LAID DOWN IN LG SPECIAL BENCH SECOND ROUND - REMANDED FOLLOWING THE DECISION PASSED IN ASSESSEES OWN CASE FOR AY 2011- 12. AGAINST THE FINAL ASSESSMENT ORDER BEFORE THE TRIBUNAL. 3. 2010 - 11 2.06.2015 REMANDED TO THE FILE OF THE TPO FOR RE-EXAMINATION OF THE ISSUE IN LIGHT OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD : 374 ITR 118 (DEL HC). TWO ROUNDS OF LITIGATION 4. 2011 - 12 28.04.2017 REMANDED TO THE FILE OF THE TPO FOR RE-EXAMINATION OF THE ISSUE IN THE LIGHT OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD : (SUPRA) T WO ROUNDS OF LITIGATION. ASSESSEE IS IN THE PROCESS OF FILING AN APPEAL AGAINST THE FINAL ASSESSMENT ORDER BEFORE THE TRIBUNAL. 5. 2012 - 13 24.05.2017 REMANDED TO THE FILE OF THE TPO FOR RE-EXAMINATION OF TWO ROUNDS OF LITIGATION. ASSESSEE IS IN THE PROCESS OF 8 THE ISSUE IN THE LIGHT OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD : (SUPRA) FILING AN APPEAL AGAINST THE FINAL ASSESSMENT ORDER BEFORE THE TRIBUNAL. 6. 2013 - 14 AND 2014-15 - - PENDING WITH CIT(A) 7. 2015 - 16 11.08.2020 - ASSESSMENT QUASHED. 8. 2016 - 17 - - YEAR UNDER CONSIDERATION - FIRST ROUND - APPEAL PENDING DISPOSAL BEFORE THE ITAT. 13. GIVEN THE REPEATED REMANDS BY THE TRIBUNAL I N THE EARLIER YEARS AND THE REVENUE TOWING THE SAME LINE FOR MAKI NG THE AMP ADJUSTMENT, WITH MINOR VARIATIONS, WE DEEM FIT THAT , IN THE INTEREST OF JUSTICE AND TO BRING A FINALITY TO THE I SSUE, THE PRESENT APPEAL SHOULD BE DECIDED ON MERITS OF THE MATTER RA THER THAN SIMPLY REMANDING THE MATTER BACK TO THE TPO FOR A F RESH CONSIDERATION IN LIGHT OF THE AVAILABLE JUDICIAL PR ECEDENCES ON THE SUBJECT MATTER. DECISION ON MERITS WOULD BE BOTH I N THE INTEREST OF THE ASSESSEE AS WELL AS THE REVENUE AND WOULD PR EVENT PRECIOUS JUDICIAL TIME. IT HAS BEEN INFORMED THAT I NSPITE OF REPEATED REMANDS NOTHING MUCH HAS BEEN ACHIEVED EXC EPT THE SAME ISSUE BEING RAISED IN THE REMAND ORDERS AND TH E MATTER 9 TRAVELLING BACK TO THE TRIBUNAL IN THE SAME OR A MI NOR ALTERED FORM. 14. IN SUPPORT OF THIS CONTENTION THAT MATTER IN THIS CASE SHOULD NOT BE REMANDED BACK, THE LD. COUNSEL CITED VARIOUS DECISIONS AND ALSO FILED A CASE-LAW COMPILATION. P RIMARY RELIANCE WAS PLACED UPON THE DECISION OF THE DELHI HIGH COUR T IN THE CASE OF PEPSICO INDIA HOLDING PVT. LTD: ITA NO. 100/2017 . IN THAT CASE TOO, THE ISSUE REGARDING AMP ADJUSTMENT HAD BEEN RE STORED BACK TO THE FILE OF THE TRANSFER PRICING OFFICER FOR RE- EXAMINATION IN THE LIGHT OF THE RATIO LAID DOWN IN THE CASE OF SONY ER ICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (374 ITR 118) (DEL). AGGRIEVED WITH THE REMAND, THE ASSESSEE CHALLENGED THE ITAT O RDER AND PREFERRED AN APPEAL BEFORE THE HIGH COURT. THE HON BLE DELHI HIGH COURT WHILST RELYING UPON THE DECISION IN THE CASE OF LE PASSAGE TO INDIA TOUR AND TRAVELS (P) LTD VS. DCIT (ITA 368/2016 DECIDED ON 12.01.2017) HELD THAT, THE ITAT ITSELF SHOULD CONSIDER THE MATTER AS TO THE APPLICABILITY OR OTHERWISE OF THE RULE ENUNCIATED IN SONY ERICSSON (SUPRA) AND RENDER ITS DECISION ON MERITS AFTER APPLYING THE CORRECT TEST AS TO WHETHE R THE EXPENSES IN THE PRESENT CASE SHOULD BE SUBJECTED TO ADJUSTMENTS . RELIANCE WAS ALSO PLACED UPON OTHER DECISIONS RENDERED BY TH E DELHI HIGH COURT IN THE CASE OF DAIKIN AIR CONDITIONING INDIA PVT LTD VS. ACIT : (2016) (96 CCH 0486); LE PASSAGE TO INDIA TO UR AND TRAVEL (P) LTD VS. DCIT (98 CCH 0009) AND ON THE BOMBAY HI GH COURT DECISIONS IN THE CASE OF SONY PICTURES NETWORKS IND IA PVT LTD VS. ITAT (W.P. 3508 OF 2018) AND COCA -COLA INDIA PRIVA TE LTD (2014) (90 CCH 0080). 10 15. AS STATED ABOVE, THE ASSESSEE-COMPANY IS CAR RYING OUT THE BUSINESS OF MANUFACTURING AND SALE OF VARIETY OF CO NFECTIONARY PRODUCTS FROM ITS VARIOUS FACTORIES IN INDIA. FROM THE PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT EVEN FOR THE ASSE SSMENT YEAR UNDER CONSIDERATION, THE GENESIS OF THE ENTIRE CASE OF THE REVENUE LAY IN THE APPLICATION OF BLT AND DETERMINATION OF EXCESSIVE AMP EXPENSES SO AS TO MAKE THE TP ADJUSTMENT. FURTHER F OR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE TPO WHILE MAKING THE TRANSFER PRICING ADJUSTMENT HAS MADE PROTECTIVE ADJ USTMENT USING BLT AND SIMULTANEOUSLY MADE A SUBSTANTIVE ADJ USTMENT BY APPLYING A CONCOCTIVE VERSION OF THE PROFIT SPLIT M ETHOD (PSM). IT IS FURTHER NOTICED THAT, EVEN WHILE APPLYING THE SO CALLED PSM, THE GENESIS WAS STILL THE BLT. FROM PERUSAL OF THE IMPU GNED ORDER, IT IS SEEN THAT ON A REFERENCE MADE BY THE ASSESSING O FFICER FOR THE DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THE IN TERNATIONAL TRANSACTIONS, THE TRANSFER PRICING OFFICER HAS STAT ED THAT THE ASSESSEE HAD INCURRED AMP EXPENSES AMOUNTING TO RS. 220,11,36,339/- AND HAD ALSO PAID ROYALTY OF RS. 25 ,39,25,025/- TO ITS AE AT VARYING RATES DEPENDING ON THE PRODUCT S. CONSIDERING THE TRADEMARK LICENSE AGREEMENT BETWE EN THE ASSESSEE AND ITS AE, THE TPO NOTICED THAT PARA 3 OF THE AGREEMENT PROVIDES FOR EXTENSIVE SUPPORT IN MARKETI NG ACTIVITY BY THE AE THROUGH ITS SPECIALIZED BRAND TEAMS. THE TP O THEN REFERRED TO PARA 10 OF THE AGREEMENT AND CONCLUDED THAT THE ASSESSEE WAS FOUND TO BE ENTITLED FOR COMPENSATION IN LIEU OF ADVERTISING EXPENSES, BUT, NOT UPON THE TERMINATION OF THE AGREEMENT. THE TPO ALLEGED THAT THE ASSESSEE COMPAN Y HAD 11 INCURRED HUGE AMOUNT OF AMP EXPENSES IN RESPECT OF THE BRANDS MANUFACTURED BY IT, HOWEVER, THESE BRANDS WERE ENTI RELY OWNED BY THE AE. THE TPO FURTHER OBSERVED THAT UNDER THE AGREEMENT, THE ASSESSEE HAD BEEN MANDATED TO ACTIVELY ADVERTI SE AND SELL IN THE TERRITORY THE PRODUCTS MANUFACTURED BY THEM WH ICH SHOWED THAT THE AMP ACTIVITIES WERE ACTIVELY SUPERVISED AN D DICTATED BY THE AE. CONTROL AND SUPERVISION OVER MARKETING ACTI VITIES WAS ALSO ALLEGED BASIS THE FACT THAT ALL THE GROUP COMP ANIES WERE AVAILING SERVICES FROM THE SAME ADVERTISEMENT AGENC Y, VIZ., MCANN AND OGILVY AND MATHER, ACROSS VARIOUS JURISDIC TIONS. THE TPO FURTHER ALLEGED THAT IN PARA 11 OF THE TRADEMAR K AGREEMENT, THE AE ITSELF RECOGNIZED THAT DUE TO AMP FUNCTIONS AND ACTIVITIES BEING PERFORMED BY THE ASSESSEE, THERE WAS A GENERA TION OF COPYRIGHTS AND OTHER INTANGIBLES AND THAT ALL SUCH INTANGIBLES CREATED AS A CONSEQUENCES THEREOF SHALL BE THE INTE LLECTUAL PROPERTY OF THE AE IN ALL CIRCUMSTANCES. EVEN THE TAGLINES CURATED BY THE ASSESSEE LOCALLY IN THE NATIVE LANGU AGES SUCH AS EKDUM BAJEDAR WERE REGISTERED AS COPYRIGHT IN THE NAME OF THE AE. NOT ONLY THAT, VERNACULAR VERSIONS OF THE BRAND SLOGANS DEVELOPED IN INDIA, SUCH AS, DIMAG KI BATTI JALA D E IS BEING USED ACROSS OTHER JURISDICTIONS LIKE SRI LANKA AND B ANGLADESH BY GROUP COMPANIES AND THE ASSESSEE DOES NOT RECEIVE A NY KIND OF COMPENSATION FOR THE SAME. FURTHER, ANY NEW PRODUCT OR FORMULATION DEVELOPED BY THE ASSESSEE IN INDIA, IS REGISTERED IN THE NAME OF AE AND IS THE PROPERTY OF THE AE. FOR I NSTANCE, ALPENLIEBE, MANGOFILLZ, A VARIANT OF ONE OF THE B RANDS OWNED BY THE AE THAT WAS DEVELOPED IN INDIA, IS REGISTERED A S A TRADEMARK IN THE NAME OF THE AE. THE TPO CAME TO THE CONCLUSI ON THAT THE 12 ASSESSEE INCURRED AMP EXPENSES FOR PROMOTING THE BR AND / TRADE NAME WHICH WAS OWNED BY THE AE AND HENCE, THE SAME CONSTITUTED AN INTERNATIONAL TRANSACTION. 16. BEFORE US, LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, MR. DEEPAK CHOPRA SUBMITTED THAT THE BRIGHT LINE AP PROACH WAS THE PRIMARY APPROACH OF THE TPO. HE DREW OUR ATTEN TION TO PARA 3.1 OF THE TPOS ORDER, WHERE THE TPO HAS NOTED THA T THE STAND OF THE REVENUE WAS THAT BLT SHOULD BE APPLIED AND ANY AMP EXPENDITURE INCURRED BY THE TAX PAYER IN EXCESS OF THE EXPENDITURE INCURRED BY THE COMPARABLES SHOULD BE C ONSIDERED AS THE EXPENDITURE INCURRED BY THE TAX PAYER FOR TH E BENEFIT OF THE PARENT AE AND THE CORRESPONDING ADJUSTMENT SHOULD B E MADE. THE TPO FURTHER GOES ON TO RECORD THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 ( DEL ) HAS REJECTED THE APPLICABILITY OF BLT, BUT SINCE THE DEPARTMENT HAS FILED AN SLP BEFORE THE HONBLE SUPREME COURT, THE PRIMARY C ONTENTION OF THE REVENUE CONTINUES TO BE BLT. THUS, BY APPLYING BLT, THE TPO DETERMINED THE AMOUNT OF ROUTINE AMP EXPENSE AN D PROPOSED TRANSFER PRICING ADJUSTMENT ON PROTECTIVE BASIS FOR A SUM OF RS. 201.16 CRORES. IN COMPUTING THE ABOVE AM OUNT OF TRANSFER PRICING ADJUSTMENT, THE TPO APPLIED A MARK- UP OF 15.81%, BEING WEIGHTED AVERAGE OF COMPARABLE COMPAN IES RENDERING MARKETING SUPPORT SERVICES. 17. THE LD. COUNSEL FURTHER SUBMITTED THAT HAVIN G COMPUTED AN ADJUSTMENT APPLYING THE BLT, THE TPO DID NOT STOP THERE AND 13 PROCEEDED TO WORK OUT THE TRANSFER PRICING ADJUSTMEN T TOWARDS AMP EXPENSES ON A SUBSTANTIVE BASIS BY USING THE RE SIDUAL PROFIT SPLIT METHOD (RPSM). HE DREW OUR ATTENTION TO PARA 6 OF THE TPOS ORDER WHERE THE SO CALLED SUBSTANTIVE ADJUSTME NT HAS BEEN MADE. HE FURTHER SUBMITTED THAT IN PARA 6.7, THE TP O LAID BARE HIS UNDERSTANDING AND NOTED THAT SINCE THE LEGAL A ND ECONOMIC OWNERSHIP OF THE BRAND AND THE MARKETING INTANGIBLE S LIED WITH THE AE, THE NON-ROUTINE AMP EXPENSES HAD BEEN INCUR RED ONLY FOR THE BENEFIT OF THE PARENT AE. HOWEVER, SUPER NO RMAL PROFITS THAT ARE BEING EARNED IN INDIA ON THIS ACCO UNT ARE BEING RETAINED BY THE ASSESSEE. 18. HE SUBMITTED THAT THE UNDERLYING TONE EVEN WH ILE MAKING THE SUBSTANTIVE ADJUSTMENT WAS TO DETERMINE THE NON -ROUTINE AMP EXPENSES WHICH ARE EVIDENCED BY THE METHODOLOGY ADOPTED BY HIM IN PARA 6.9, 6.10 AND 6.11 OF HIS ORDER. THE LD. COUNSEL SPECIFICALLY DREW OUR ATTENTION TO THE COMPUTATION DRAWN UP IN PARA 10.4.8 OF THE TPOS ORDER, WHERE THE TPO FIRST DETERMINED A COMPARABLE OPERATING MARGIN AT 4.36%. THEREAFTER, H E CALCULATED THE NON-ROUTINE AMP EXPENSES AT RS. 173.70 CRORES. AT THIS STAGE, THE LD. COUNSEL ALSO DREW OUR ATTENTION TO P ARA 5.1 WHERE BY APPLYING THE BLT METHOD, THE TPO HAD DETERMINED THE EXCESSIVE AMP EXPENDITURE AT RS. 173.70 CRORES. CO MING BACK TO THE METHODOLOGY APPLIED BY THE TPO ON PAGE 57 OF TH E ORDER, HE DREW OUR ATTENTION THAT THE TPO DETERMINED THE ASSE SSEES OPERATING PROFITABILITY AT 15.70% WHILE THE COMPARA BLES WERE AT 4.36%. THE TPO THEN CALCULATED THE RESIDUAL PROFIT AT 11.34%. 14 SINCE, HE HAD DETERMINED THAT THE PROFIT SPLIT TO B E CONFERRED TO THE AE WAS 20% (REFER TO PARA 6.9 OF THE TPOS ORDE R) THE TPO APPLIED THE 20% ON THE EXCESSIVE PROFIT ON THE 11.3 4%. HENCE, HE CALCULATED THE AES SHARE AT 2.27% AND APPLYING THE SAME ON THE GROSS SALES AND TAKING INTO CONSIDERATION THE EXCES SIVE AMP AT RS. 173.70 CRORES, DETERMINED THE TRANSFER PRICING ADJUSTMENT AT RS. 135.52 CRORES. 19. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ME THODOLOGY ADOPTED BY THE TPO IS INCONSISTENT WITH RULE 10B(1) (D) OF THE INCOME TAX RULES, 1962 AND IT WAS NOT OPEN FOR THE TPO TO APPLY HIS OWN CONCOCTED VERSION OF THIS METHOD. THAT APAR T, HE ALSO SUBMITTED THAT ON A BARE PERUSAL OF THE METHODOLOGY AND THE COMPUTATION DONE BY THE TPO WOULD REVEAL THAT THE A SSESSEE WAS EARNING A PROFIT OF 15.70% WHICH WAS FAR IN EXCESS OF THE OPERATING PROFITABILITY OF THE COMPARABLES AS DETER MINED BY THE TPO. HE SUBMITTED THAT ON THIS SHORT GROUND ALONE T HE TRANSFER PRICING ADJUSTMENT DESERVES TO BE DELETED. HE ALSO SUBMITTED THAT, AS CAN BE EVIDENCED FROM THIS COMPUTATION ALO NE WOULD SHOW THAT, THE ENTIRE CASE OF THE REVENUE HINGES ON THE APPLICABILITY OF THE BLT METHOD AND THE DETERMINATI ON OF NON- ROUTINE EXPENSES. THIS APPROACH, HE SUBMITTED IS IN CONSISTENT WITH THE APPLICABLE JUDICIAL PRECEDENTS AND THE WHOL E APPROACH OF THE REVENUE IS ERRONEOUS. 20. THEREAFTER, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSEE COMPANY HAD INCURRED EXPENDITURE ON AMP TO CATER TO THE NEEDS OF THE CUSTOMERS IN THE LOCAL MA RKET. SUCH 15 AMP EXPENDITURE WAS NEITHER INCURRED AT THE INSTANC E/ BEHEST OF OVERSEAS AE, NOR WAS THERE ANY MUTUAL AGREEMENT OR UNDERSTANDING OR ARRANGEMENT AS TO ALLOCATION OR CO NTRIBUTION BY THE AE TOWARDS REIMBURSEMENT OF ANY PART OF AMP EXP ENDITURE INCURRED BY THE ASSESSEE COMPANY FOR THE PURPOSE OF ITS BUSINESS. IN ABSENCE OF ANY UNDERSTANDING, ARRANGE MENT, ETC., IT WAS SUBMITTED, NO TRANSACTION OR INTERNATIONAL T RANSACTION COULD BE SAID TO BE INVOLVED WITH RESPECT TO SUCH A MP EXPENDITURE INCURRED BY THE DOMESTIC ENTERPRISE, WH ICH MAY BE COVERED WITHIN THE PROVISIONS OF TRANSFER PRICING R EGULATIONS. FURTHER IT WAS REITERATED THAT PAYMENT FOR ADVERTIS EMENT, MARKETING AND SALES PROMOTION WAS MADE BY THE ASSES SEE COMPANY (WHICH IS A TAX RESIDENT OF INDIA) TO OTHER INDIAN THIRD PARTIES. 21. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE TWIN REQUIREMENTS OF SECTION 92B DID NOT EXIST IN THE PR ESENT CASE I.E. THE TRANSACTION INVOLVED WAS BETWEEN INDIAN PARTIES AND NO FOREIGN PARTY WAS INVOLVED AND THE TRANSACTION OF A MP EXPENSES DID NOT TAKE PLACE BETWEEN TWO AES. 22. THEREAFTER, MR. CHOPRA INVITED OUR ATTENTION TOWARDS THE DECISIONS OF THE HONBLE HIGH COURT OF DELHI IN THI S REGARD. HE SUBMITTED THAT THE HONBLE HIGH COURT HAD HELD THAT THE ONUS WAS UPON THE REVENUE TO DEMONSTRATE THAT THERE EXIS TED AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AE UNDER W HICH ASSESSEE WAS OBLIGED TO INCUR EXCESS OF AMOUNT OF A MP EXPENSES TO PROMOTE THE BRANDS OWNED BY AE. HE SUBMITTED THA T THE TPO 16 HAD HEAVILY RELIED UPON CLAUSE 9 IN THE TRADEMARK, TECHNOLOGY & KNOW-HOW LICENSE AGREEMENT DATED 1.4.2010, WHICH EM POWERED THE FOREIGN AE TO APPROVE AND REVIEW THE MATERIAL L ABELS, PACKAGING MATERIALS, ADVERTISING MATERIALS BUT HE F AILED TO APPRECIATE THAT IT WAS ONLY THE ADVERTISEMENT CONTE NT AND NOT THE QUANTUM OF THE AMP EXPENDITURE, WHICH WAS SENT TO T HE AE FOR ALIGNMENT. IT HAS BEEN CLARIFIED BY THE LD. COUNSEL THAT THE ALIGNMENT FROM PARENT WAS ONLY TO ENSURE THAT THE A PPLICABLE BRAND GUARDRAILS ARE BEING FOLLOWED BY AES ACROS S THE WORLD AND IT IS NOT AT ALL DIRECTED TO CONTROL THE MARKET ING FUNCTIONS IN VARIOUS GEOGRAPHIES. HE SUBMITTED THAT IT MUST BE APPRECIATED THAT MARKETING FOR IMPULSE PRODUCTS LIKE CONFECTION ARY HAD TO BE MANAGED LOCALLY AS PER THE ETHOS, CULTURE AND ASPIR ATIONS OF THE LOCAL POPULATION AND IT COULD NOT BE REMOTELY MANAG ED. HE STRESSED ON THE POINT THAT THE ASSESSEE COMPANY HAD A FULL BLOWN MARKETING TEAM IN INDIA WHO WITH THE HELP OF LOCAL MARKETING AGENCIES AND CONSULTANTS MANAGED THE MARKETING FUNC TION ACROSS THE COUNTRY. 23. THE LD. COUNSEL FOR THE ASSESSEE PLACED HEAVY RELIANCE ON THE DECISION 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 REVENU E TO PROVE THE EXISTENCE OF INTERNATIONAL TRANSACTION VIS--VI S INCURRENCE OF AMP EXPENSES, WHICH WAS NOT DISCHARGED BY THE TPO I N THE PRESENT CASE. HE PLACED RELIANCE ON THE FOLLOWING PASSAGE FROM THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN MARUTI SUZUKI INDIA PVT. LTD. (SUPRA) : 17 60EVEN IF THE RESORT IS HAD TO THE RESIDUARY PAR T OF CLAUSE (B) TO CONTEND THAT THE AMP SPEND OF MSIL IS ANY OTHER TR ANSACTION HAVING A BEARING ON ITS PROFITS, INCOME OR LOSSES FOR A TRANSACTION THERE HAS TO BE TWO PARTIES. THEREFORE 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 UNDERSTA NDING BETWEEN MSIL AND SMC WHEREBY MSIL IS OBLIGED TO SPEND EXCESSIVEL Y 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 A N UNDERSTANDING OR AN ARRANGEMENT OR ACTION IN CONCERT BETWEEN MSI L AND SMC AS REGARDS AMP SPEND FOR BRAND PROMOTION. IN OTHER WORDS, FOR BOTH THE MEANS PART AND THE INCLUDES PART OF SECTION 92B (1) WHAT HAS TO BE DEFINITELY SHOWN IS THE EXISTENCE OF TRANSACTION WHEREBY MSIL HAS BE EN OBLIGED TO INCUR AMP OF A CERTAIN LEVEL FOR SMC FOR THE PURPOSES OF PROMOTING THE BRAND OF SMC. 24. THE LD. COUNSEL ALSO PLACED RELIANCE ON FEW OTHER DECISION OF THE HONBLE HIGH COURT OF DELHI THAT HAVE UPHELD THE SAME PROPOSITION: WHIRLPOOL OF INDIA LTD VS. DCIT [2016] 381 ITR 154; BAUSCH & LOMB EYECARE (INDIA) PVT LTD VS. ACIT [2016] 381 ITR 227; HONDA SIEL POWER PRODUCTS LTD VS. DCIT [2016] 283 CTR 322 . 25. THE LD. COUNSEL ALSO REFERRED TO THE TRANSFE R PRICING STUDY REPORT AND CATENA OF OTHER DECISIONS IN SUPPORT OF HIS ARGUMENT THAT INCURRING OF AMP EXPENSES BY THE ASSESSEE COMP ANY DID NOT FALL WITHIN THE AMBIT AND DEFINITION OF INTERNATIO NAL TRANSACTION 18 WITHIN THE MEANING OF SECTION 92B OF THE ACT. HE SU BMITTED THAT THE AMP EXPENDITURE WAS INCURRED BY THE ASSESSEE TO PROMOTE THE SALES OF ITS PRODUCTS IN INDIA. HE ALSO STATED THAT THE ASSESSEE IS A FULL-FLEDGED RISK BEARING MANUFACTURER AND IS SOLELY RESPONSIBLE FOR ITS FUNCTIONS /ACTIVITIES AND RELAT ED RETURNS. HE EXPLAINED THAT THE ASSESSEE HAS BEEN GRANTED A LONG TERM, EXCLUSIVE RIGHT TO USE THE TRADEMARK IN RESPECT OF MANUFACTURING AND SALE OF VARIOUS KINDS OF CONFECTIONARY PRODUCTS IN INDIA. IT PAYS ROYALTY ON ACCOUNT OF TECHNICAL COLLABORATION AND FOR USE OF THE TRADEMARKS OWNED BY THE LICENSORS. IT INCURS TH E MARKETING EXPENSE TO INCREASE ITS SALES AND PROFITS IN INDIA. IT IS NOT REQUIRED TO AGREE TO ANY MINIMUM AMP SPENDS AS A PA RT OF ITS LICENSEE OBLIGATIONS. IT ALSO MAKES THE IMPORTANT S TRATEGIC DECISIONS AROUND SALES AND MARKETING IN INDIA, INCL UDING ADVERTISEMENTS DEVELOPED ENTIRELY FOR INDIA. MOREOV ER, THE MARKETING TEAM AT PERFETTI INDIA IS RESPONSIBLE TO STUDY THE MARKET, FOR WHICH IT MAY PERFORM A MARKET RESEARCH OR SURVEY TO MONITOR THE MARKET DEMAND. ON THE BASIS OF RESULTS OF THE STUDY, THE TEAMS AT PERFETTI INDIA GENERALLY ASSESS AND DE CIDE WHETHER TO LAUNCH A NEW PRODUCT IN INDIA. THE PRODUCTS LAUNCHE D IN INDIA AND OWNERSHIP OF THE COST AND RISK AROUND THE LAUNC H IS BORNE BY PERFETTI INDIA. IN A CIRCUMSTANCE, WHEN THE PRODUC T THUS LAUNCHED BY PERFETTI INDIA FAILS OR IS UNSUCCESSFUL , THEN THE COSTS RELATED TO TAKE THE PRODUCT OFF-SHELF IS BORNE BY P ERFETTI INDIA. ON SIMILAR LINES, IF A PRODUCT SUCCEEDS BEYOND EXPECTA TIONS, PERFETTI INDIA REAPS THE BENEFITS AS WELL. THE ASSESSEE EMPL OYS VARIOUS PROMOTIONAL STRATEGIES INCLUDING TV COMMERCIALS, VI SUAL CLIP IN LOCAL CABLES, ADVERTISEMENT IN NEWSPAPERS, MAGAZINE ETC. PERFETTI 19 INDIA DOESNT INCUR ANY EXPENDITURE TO PROMOTE THE PERFETTI BRAND OR A PRODUCT NOT SOLD IN INDIA. PERFETTI INDIA DEVE LOPS ADVERTISEMENTS IN LOCAL INDIAN LANGUAGES; AS REQUIR ED. THE NATURE OF ADVERTISEMENT VARIES DEPENDING UPON FACTORS SUCH AS THE TARGET AUDIENCE, NATURE OF PRODUCT, ETC. DUE TO TH E HUGE COMPETITION IN THE MARKET, PERFETTI INDIA AIMS TO M AKE THE ADVERTISEMENTS APPEALING TO INDIAN CUSTOMERS ACROSS DIFFERENT AGE GROUPS AND SOCIO-ECONOMIC BACKGROUNDS THROUGH H UMOUR AND EMOTION WITH SOME STORY OR AN INDIAN FILM SHOOT ASSOCIATED WITH IT. THE COMPANY UNDERTAKES CAMPAIGNS TO PROMOT E NEW AND EXISTING PRODUCTS IN THE INDIAN MARKET VIA VISUAL A ND AUDIO MEDIA AND PRINT MEDIA TO GAIN COMPETITIVE ADVANTAGE . TV ADVERTISEMENTS/COMMERCIALS AND VIDEO CLIPS IN LOCAL CABLE NETWORKS AND ADVERTISEMENTS IN LOCAL RADIO NETWORKS ARE PRODUCED IN LOCAL LANGUAGES TO MAKE A DIFFERENCE IN THE MINDS OF THE CUSTOMER. THE COMPANY ALSO GIVES PRINT ADS IN N EWSPAPERS AND MAGAZINES ON REGULAR BASIS. THE MARKETING TEAM AT PERFETTI INDIA DECIDES THE MIX TO BE USED FOR PROMOTIONAL AC TIVITIES. PERFETTI INDIA OFFERS DISCOUNTS AND REBATES TO THIR D PARTY DISTRIBUTORS TO PROMOTE THE PRODUCTS. THE COSTS FO R OFFERING SUCH SCHEMES/OFFERS TO DISTRIBUTORS ARE BORNE BY THE COM PANY. PERFETTI INDIA EARNS THE BENEFITS FROM ENHANCED SALES ARISIN G FROM THE EXPLOITATION OF INTANGIBLES. PERFETTI INDIA DOES NO T INCUR EXCESSIVE AMP EXPENDITURE AT THE BEHEST OF THE BR AND-OWNING AES. IT ALSO ASSUMES ALL THE BUSINESS RISKS. AS CA N BE SEEN FROM PERFETTI INDIAS FINANCIAL PERFORMANCE, ITS RETURN HAS NOT BEEN THAT OF A DISTRIBUTOR. THE FLUCTUATION IN ITS INCOM E OVER THE YEARS DEMONSTRATES THAT IT BORE THE RISK AS AN ENTREPRENE UR. IT ALSO 20 DEMONSTRATES THAT IT EARNED THE RESIDUAL INCOME OVE R THE YEARS. MOREOVER, PERFETTI INDIAS INTERNATIONAL TRANSACTIO NS WITH AES ARE RELATIVELY SMALL AS COMPARED TO ITS TURNOVER AND TH E IMPORTS FOR THE YEAR UNDER CONSIDERATION, I.E., AY 2016-17, IS ONLY 2.73% OF ITS TURNOVER. THIS ALSO INDICATES THAT ITS RISK CO ULD NOT HAVE BEEN REDUCED BY THE AES THROUGH TRANSFER PRICING. 26. MR. CHOPRA ALSO ELABORATELY REFERRED TO THE TRADEMARKS TECHNOLOGY AND KNOWHOW LICENSE AGREEMENT DATED APRI L 1, 2010, WHICH IS ANNEXED AT PAGES 186 TO 195 OF THE P APER BOOK FILED BEFORE THE TRIBUNAL. REFERRING TO THE SAID A GREEMENT, HE SUBMITTED THAT THIS AGREEMENT WAS ENTERED INTO BETW EEN THREE PARTIES, I.E., PERFETTI VAN MELLE BENELUX BV ( WHIC H WAS THE OWNER OF THE TRADEMARKS, HEREINAFTER REFERRED TO AS PVM BLX), PERFETTI VAN MELLE HOLDING BV (WHICH WAS THE OWNER OF THE KN OWHOW, HEREINAFTER REFERRED TO AS PVM HOLDING) AND PERFE TTI VAN MELLE INDIA PV.T LTD.( WHICH WAS THE LICENSEE). HE SUBMIT TED THAT PVM BLX HELD THE TRADEMARKS USED FOR CONFECTIONARY PROD UCTS AND OTHER KINDS OF GOODS. PVM HOLDING ON THE OTHER HAN D HELD PROPRIETARY RIGHTS IN THE TECHNOLOGY APPLIED TO THE MANUFACTURING OF CONFECTIONARY PRODUCTS AND EXTENSIVE SOPHISTICAT ED KNOWHOW IN THE MANUFACTURING, SALES, ADVERTISING, PROMOTION , FOOD LAW, LEGAL ASSESSMENTS AND ANY OTHER FIELDS RELATED TO T HE BUSINESS ACTIVITY IN THE CONFECTIONARY FIELD. MR. CHOPRA SU BMITTED THAT A REFERENCE TO THE RELEVANT CLAUSE OF THIS AGREEMENT WAS ESSENTIAL TO DETERMINE WHETHER THE CONCLUSIONS DRAWN BY THE T PO AND HIS INTERPRETATION OF SUCH CLAUSES WERE INCORRECT OR NO T. HE FURTHER SUBMITTED THAT IN CLAUSE 3 OF THE PREAMBLE IT IS PR OVIDED THAT 21 PVM HOLDING COULD PROVIDE EXTENSIVE SUPPORT IN (A) MARKETING ACTIVITY THROUGH THE SUPPORT OF SPECIALIZED BRAND T EAMS, (B) R&D/ NEW PRODUCT DEVELOPMENT AND PROCESS ENGINEERING (C) FOOD LAW PRODUCTS ASSESSMENTS AND (D) LEGAL SUPPORT IN IP AN D OTHER LEGAL ISSUES RELATING TO TRADEMARK, DESIGN ETC. HE REFER RED TO CLAUSE 4 OF THE PREAMBLE WHERE IT IS PROVIDED THAT THE LICEN SEE (PERFETTI INDIA) EXPRESSES INTEREST IN USING THE SAID TRADEMA RKS, TECHNOLOGY AND KNOWHOW FOR THE MANUFACTURING AND SA LE OF CONFECTIONARY PRODUCTS IN INDIA. 27. HE THEREAFTER REFERRED TO CLAUSE 1 OF THE AG REEMENT WHICH PROVIDES THAT PVM BLX/HOLDING GRANTED TO THE LICENS EE, THE LICENSE TO MANUFACTURE AND SELL VARIOUS KINDS OF CO NFECTIONARIES. PVM BLX/HOLDING ALSO GRANTED TO THE LICENSEE, THE L ICENSE TO USE THEIR TECHNOLOGICAL, TECHNICAL, MARKETING AND COMME RCIAL KNOWHOW IN THE MANUFACTURING, SALES, ADVERTISEMENTS AND PROMOTION OF THE PRODUCTS. THE AGREEMENT ALSO PROV IDES THAT PVM BLX AND PVM HOLDING ALSO OFFERED TO THE LICENSE E THEIR TECHNICIANS, MARKETEERS, SALES MEN, IN HOUSE LEGAL COUNSEL AND ANY OTHER EXPERIENCED EMPLOYEES TO ASSIST THE LICEN SEE IN THE MANUFACTURING, SALES, ADVERTISEMENT AND PROMOTION O F THE PRODUCTS AND IN SOLVING ANY TECHNOLOGICAL OR COMMER CIAL PROBLEM THAT MAY ARISE DURING THE MANUFACTURING AND SALES O F THE PRODUCTS. 28. HE AGAIN REFERRED TO CLAUSE 9 OF THE SAID AGR EEMENT WHICH PROVIDES THAT IN CONNECTION TO THE PRODUCTS, THE LI CENSEE UNDERTOOK TO USE ONLY RAW MATERIAL, LABELS, PACKAGI NG MATERIALS 22 AND ADVERTISING MATERIALS SPECIFICALLY APPROVED IN THE WRITING BY PVM BLX AND PVM HOLDING OR AS GENERALLY APPROVED BY PVM BLX OR PVM HOLDING. HE SUBMITTED THAT THIS CLAUSE HAS BEEN MISCONSTRUED BY THE REVENUE SINCE IN TERMS OF THE B EST PRACTICES AND TO CONFIRM TO THE BRAND GUARDRAILS OF THE OWNER S OF THE TRADEMARK AND TECHNOLOGY, THE ADVERTISING MATERIALS AND PACKING ETC. HAVE TO BE APPROVED. THIS HE SUBMITTED DOES N OT LEAD TO ANY INFERENCE THAT THERE WAS ANY ARRANGEMENT BETWEEN THE PARTIES SO AS TO CONSTITUTE AN INTERNATIONAL TRANSACTION IN TERM OF SECTION 92B OF THE ACT. 29. MR. CHOPRA THEN REFERRED TO CLAUSE 10 OF TH E AGREEMENT WHERE IT HAS BEEN PROVIDED THAT THE LICENSEE WILL A CTIVELY ADVERTISE AND SELL IN THE TERRITORY THE PRODUCTS MANUFACTURED BY THEM. THE CLAUSE FURTHER PROVIDES THAT NO COMPENSATION WOULD BE PROVIDED TO THE LICENSEE REGARDING THE ADVERTISEMENT EXPENSE S IN THE EVENT OF TERMINATION OF THE TRADEMARK AND LICENSE AGREEME NT. THIS, HE SUBMITTED HAS BEEN MISCONSTRUED BY THE TPO IN PARA 4.1 OF HIS ORDER WHERE THE TPO HAS ERRONEOUSLY CONCLUDED ON A MISINTERPRETATION OF THIS CLAUSE THAT THE ASSESSEE WAS ENTITLED FOR A COMPENSATION OF THE ADVERTISING EXPENSES. THIS IN FERENCE HE SUBMITTED WAS PATENTLY INCORRECT AND WAS ALSO ON AN INCORRECT UNDERSTANDING OF THE ABOVE CLAUSE OF THE AGREEMENT. 30. AS REGARDS THE ALLEGATION OF THE TPO THAT CER TAIN BRANDS SUCH AS ALPENLIEBE MANGOFILLZ WERE CONCEPTUALIZED AND DEVELOPED IN INDIA BUT THE TRADEMARK IN RESPECT OF THESE BRANDS WAS OWNED BY THE FOREIGN AE, IT WAS SUBMITTED BY HI M THAT ONLY A 23 DIFFERENT FLAVOUR OF THE PRODUCT WAS DEVELOPED IN I NDIA AND NOT A SEPARATE PRODUCT AS SUCH HAD BEEN CREATED. ALPENLI EBE IS AND HAS BEEN A VERY OLD AND POPULAR BRAND SOLD BY THE P ERFETTI GROUP ACROSS THE GLOBE AND ONLY A DISTINCT MANGO FLAVOUR WAS ADDED TO SUIT THE PALATE AND TASTE OF THE CUSTOMERS IN INDIA . FURTHER, IT WAS SUBMITTED BY HIM THAT THE MANUFACTURE AND SALES OF THESE PRODUCT/BRAND WAS LARGELY LIMITED TO INDIA AND NO B ENEFIT, AS SUCH, COULD HAVE BEEN SAID TO HAVE ACCRUED TO THE A E ON ACCOUNT OF PROMOTION OF THESE BRANDS. MOREOVER, ROYALTY PAI D BY THE ASSESSEE, CONSTITUTED ONLY 1.56% OF ITS SALES DURIN G THE YEAR AND THEREFORE, IT COULD NOT BE ALLEGED THAT THE ASSESSE E WAS INCURRING THE COST OF DEVELOPING NEW BRANDS IN INDIA AND WAS SIMULTANEOUSLY ENRICHING ITS AE BY PAYING ROYALTIES . 31. HE FURTHER SUBMITTED THAT THE ALLEGATION OF T HE TPO THAT VERNACULAR VERSION OF THE BRAND SLOGANS DEVELOPED I N INDIA SUCH AS DIMAAG KI BATTI JALA DE AND EKDUM BAJEDAR WER E USED BY OTHER JURISDICTIONS, SUCH AS SRI LANKA AND BANGLADES H, WHICH EVIDENCES THAT THE ASSESSEES AMP ACTIVITIES WERE C ONTROLLED BY THE FOREIGN AE, WERE DEVOID OF ANY MERIT. FIRST OF ALL, USAGE OF COMMON BRAND SLOGANS DOES NOT, IN ANY MANNER, DEMON STRATE THAT THERE EXISTED AN ARRANGEMENT BETWEEN THE ASSES SEE AND ITS AE QUA AMP SPENT. SECONDLY, ADVERTISEMENT EXPENSES AND ACTIVITIES FOR LOCATIONS SUCH AS BANGLADESH AND SRI LANKA IS MANAGED AND BORNE BY PERFETTI ENTITIES NATIVE TO TH OSE JURISDICTIONS AND NOT BY THE ASSESSEE. THEREFORE, TH E QUESTION OF COMPENSATING THE ASSESSEE DOES NOT ARISE AS THE COS T OF DEVELOPING AND AIRING THE ADVERTISEMENT(S) IN SRI L ANKA AND 24 BANGLADESH WAS BORNE BY PERFETTI BANGLADESH AND PER FETTI SRI LANKA RESPECTIVELY AND NOT BY THE ASSESSEE. THE ADV ERTISEMENT CONTENT ACROSS ALL JURISDICTIONS HAS TO CONFIRM TO T HE BRAND GUARDRAILS SET BY THE BRAND OWNING ENTITY AND THE S LOGAN MIGHT HAVE BEEN SIMILAR AS THE CONTENT DEVELOPED BY ASSES SEE HAD MET THE BRAND GUARDRAILS. IN ANY CASE, THE ASSESSEE COM PANY HAS ALREADY REAPED THE BENEFITS OF THE ADVERTISEMENT EX PENDITURE INCURRED BY IT DURING THE YEAR AS IT HAD EARNED SUP ER-NORMAL PROFITS DURING THE YEAR. 32. AT THIS JUNCTURE HE REFERRED TO A COORDINATE BENCH DECISION IN THE CASE OF PEPSI FOODS PVT. LTD. V. ACIT (ITA NO. 1334/CHD/2010) (JUDGMENT DATED 19.11.2018) WHERE IN PARA 55 OF THE SAID JUDGEMENT, THE TRIBUNAL CONSIDERED AN D ADJUDICATED ON A SIMILAR ASPECT OF THE MATTER WHERE THE ADVERTISING CAMPAIGN AND THE MATERIALS WERE SUBJECT ED TO APPROVAL BY THE PARENT AE. THERE THE TRIBUNAL WHIL E FOLLOWING ANOTHER COORDINATE BENCH DECISION IN THE CASE OF GO ODYEAR (SUPRA) HELD THAT A REVIEW OF THE ADVERTISING MATER IAL BY THE AE TO CONFIRM TO THE BROAD ADVERTISING GUARD RAILS DOES N OT CONSTITUTE AN ARRANGEMENT OR A DIRECTION BY THE AE TO INCUR AM P EXPENSES ON ITS BEHALF. 33. THAT APART, AS REGARD THE CONSTRUCTION OF CL AUSE 10 OF THE AGREEMENT HE REFERRED TO THE FOLLOWING JUDGMENTS OF THE HONBLE SUPREME COURT IN SUPPORT OF THE CONTENTION THAT A C ONTRACT IS A COMMERCIAL DOCUMENT BETWEEN PARTIES AND IT MUST BE INTERPRETED IN SUCH A MANNER AS TO GIVE EFFICACY TO THE CONTRAC T RATHER THAN TO 25 INVALIDATE IT. BASED ON THE SAID DECISIONS HE ALSO CONTENDED THAT THE MEANING OF A CONTRACT MUST BE GATHERED BY ADOPT ING A COMMON SENSE APPROACH AND MUST NOT BE ALLOWED TO BE THWARTED BY A NARROW, PEDANTIC AND LEGALISTIC INTERPRETATION - BHOPAL SUGAR INDUSTRIES LIMITED VS. SALES TAX OFFIC ER, BHOPAL, (1977) 3 SCC 147 (HONBLE SUPREME COURT); NABHA POWER LIMITED VS. PUNJAB STATE CORPORATION LI MITED AND ANOTHER, (2018) 11 SCC 508 (HONBLE SUPREME COURT); SATYA JAIN (DEAD) THROUGH LRS. AND OTHERS VS. ANIS AHMED RUSHDIE (DEAD) THROUGH LRS. AND OTHERS, (2013) 8 SC C 131 (HONBLE SUPREME COURT; BANK OF INDIA AND ANOTHER VS. K. MOHANDAS AND OTHER S, (2009) 5 SCC 313 (HONBLE SUPREME COURT); M/S D.N. REVRI AND CO. AND OTHERS VS. UNION OF INDI A, (1976) 4 SCC 147 (HONBLE SUPREME COURT). 34. HE FURTHER SUBMITTED THAT IT IS NOT OPEN FOR THE REVENUE TO RECHARACTERIZE A COMMERCIAL ARRANGEMENT AND READ IN TO AN ARRANGEMENT SO AS TO GIVE AN INTERPRETATION WHICH I S INCONSISTENT TO THE INTENTION OF THE PARTIES. HE ALSO SUBMITTED THAT IT IS A MATTER OF RECORD THAT NO COMPENSATION WAS PROVIDED BY THE FOREIGN AES QUA THE AMP EXPENSES AND THIS CONCLUSI ON OF THE TPO WAS PATENTLY PERVERSE. 35. MR. CHOPRA THEN REFERRED TO THE VARIOUS JUDGM ENTS OF THE DELHI HIGH COURT WHICH HAVE BEEN FOLLOWED BY THE CO ORDINATE BENCH IN THE CASE OF PEPSI FOODS (SUPRA). HE SUBMIT TED THAT THE CRUX OF THE JUDGMENTS IS THAT MERELY ON THE BASIS OF DETERMINING 26 EXCESSIVE AMP EXPENDITURE, IT COULD NOT BE INFERRED THAT THERE EXISTED AN ARRANGEMENT OR THERE WAS A DIRECTION BY THE FOREIGN AE TO INCUR ADVERTISING EXPENSES IN INDIA. HE REFERRED TO THE FOLLOWING JUDGEMENTS OF THE DELHI HIGH COURT IN SUP PORT OF THE ABOVE CONTENTIONS- MARUTI SUZUKI INDIA PVT. LTD. V. CIT (381 ITR 117); CIT V. WHIRLPOOL INDIA LTD. (381 ITR 154); BAUSCH & LOMB EYECARE INDIA PVT. LTC. V. ACIT (381 ITR 227); HONDA SIEL POWER PRODUCTS LTD. V. DY. CIT (237 TAXM ANN 304). 36. THAT APART, HE ALSO SUBMITTED THAT THERE ARO SE PATENT ERRORS IN THE ORDER OF THE DISPUTE RESOLUTION PANEL (DRP). HE DREW OUR ATTENTION TO THE DIRECTIONS ISSUED BY THE DRP DATED 27.1.2021 IN THIS REGARD. HE ALSO DREW OUR ATTENTION TO PARAS 3.1.3.5 AND 3.1.3.6 (ON PAGE 7 OF SUCH DIRECTIONS) WHERE THE DR P, WITHOUT ANY BASIS HAD CLASSIFIED THE ASSESSEE AS A DISTRIBUTOR . THE DRP SPECIFICALLY NOTES THAT THE ASSESSEE IS IN THE BUS INESS OF DISTRIBUTING AS WELL AS MARKETING THE PRODUCTS OF I TS PARENT COMPANY. FURTHER, THE DRP ALSO ERRONEOUSLY NOTES THAT THE CONTENTION OF THE ASSESSEE THAT IT IS A MERE DISTR IBUTOR OF THE PRODUCT OF THE AE WITHOUT ANY VALUE ADDITION IS NOT ACCEPTABLE AS THE ASSESSEE IS NOT DISTRIBUTOR OR RESELLER OF PROD UCTS. THE LD. COUNSEL SUBMITTED THAT THE CONCLUSIONS OF THE DRP W ERE WHOLLY FLAWED AND APPARENTLY IT SEEMS THAT THE FINDINGS HA VE BEEN COPY PASTED FROM SOME OTHER MATTER. HE ALSO SUBMITTED T HAT APART FROM THIS CALLOUS APPROACH, THE DRP ALSO FAILED TO APPRECIATE THAT THE ASSESSEE WAS A FULL RISK BEARING MANUFACTURER, WHICH FACT WAS NOT EVEN DENIED BY THE TPO. IN FACT, IN THE TPOS O RDER DATED 27 28.10.2019, IN PARA 2 ITSELF IT IS NOTED THAT THE A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLIN G OF CONFECTIONARY PRODUCTS. HE SUBMITTED THAT THIS FUND AMENTAL FALLACY IN THE DRPS UNDERSTANDING HAS LED TO ERRON EOUS CONCLUSIONS BEING DRAWN. 37. MR. CHOPRA ALSO SUBMITTED, THAT WITHOUT PREJU DICE TO THE ABOVE CONTENTIONS, IN VIEW OF THE DEVELOPMENT IN TE RMS OF VARIOUS COORDINATE BENCH DECISION OF THE TRIBUNAL, THE INTE NSITY APPROACH COULD ALSO BE APPLIED TO DETERMINE WHETHER THE ASSE SSEES PROFITABILITY WAS IN EXCESS OF THE COMPARABLES. TH IS APPROACH WAS LAID DOWN BY THE DELHI HIGH COURT IN THE CASE O F SONY ERICSON MOBILE COMMUNICATION (SUPRA) CASE AND HAS B EEN FOLLOWED BY VARIOUS COORDINATE BENCHES OF THE TRIBU NAL. HE ALSO CITED THE JUDGMENTS RENDERED IN THE CASES OF M/S SEN NHEISER ELECTRONICS INDIA LTD. : ITA NO. 7574/DEL/2017 AND M/S PERNOD RICARD INDIA PVT. LTD VS. DCIT : ITA NO. 91/DEL/201 5 IN SUPPORT THEREOF. HE THEN REFERRED TO THE ORDER OF THE TPO, WHERE THE TPO HAS HIMSELF CONCLUDED THAT FOR THE YEAR UNDER CONSI DERATION THE ASSESSEE WAS EARNING A PROFIT MARGIN OF 15.70 % AS AGAINST THE PLI OF THE COMPARABLES DETERMINED BY THE TPO AT 4.3 6 %. THUS, HE SUBMITTED THAT WHERE THE ENTITY LEVEL PROFITABIL ITY OF THE ASSESSEE WAS FAR IN EXCESS OF THE COMPARABLES, THER E WAS NO QUESTION OF SHIFTING OF PROFITS OUTSIDE INDIA AND H ENCE NO ADJUSTMENT TO ANY TRANSACTION WAS WARRANTED. THERE FORE, IT WAS CONTENDED THAT THIS FACT WOULD LEAD TO THE IRREFUTA BLE CONCLUSION THAT THERE WAS NO ARRANGEMENT BETWEEN THE ASSESSEE AND THE FOREIGN AE FOR INCURRING OF THE AMP EXPENSES. HE A LSO SUBMITTED 28 THAT ALTHOUGH THE PROFITABILITY COULD VARY FROM YEA R TO YEAR OWING TO EXTERNAL FACTORS LIKE INCREASE IN PRICES OF SUGA R ETC. BUT OVERALL THE ASSESSEE HAS MAINTAINED A HEALTHY PROFITABILITY OVER THE COMPARABLES. 38. AS REGARD THE SUBSTANTIVE AMP ADJUSTMENT BY APPLYING THE RESIDUAL PROFIT SPLIT METHOD, HE SUBMITTED THAT THI S ISSUE WAS ALSO CONSIDERED BY THE COORDINATE BENCH IN THE CASE OF PEPSI FOODS(SUPRA) IN PARA 65 OF ITS ORDER. IT WAS HELD BY THE COORDINATE BENCH THAT IN A PROPER APPLICATION OF RS PM METHOD IT WAS INCUMBENT ON THE TPO TO DETERMINE THE COMBINED PROFIT FROM THE SO CALLED INTERNATIONAL TRANSACTION OF INCURRIN G OF AMP EXPENSES AND THEN THE TPO WAS REQUIRED TO SPLIT THE COMBINED PROFIT IN PROPORTION TO THE RELATIVE CONTRIBUTION M ADE BY BOTH ENTITIES. THE ORDER OF THE TPO REVEALS THAT HE HAS NOT FOLLOWED THIS METHODOLOGY AND AS PER HIS OWN ADMISSION, THE ASSESSEE WAS EARNING SUPER NORMAL PROFITS IN INDIA. THUS, HE SUB MITTED THAT THE APPROACH OF THE TPO IN APPLYING THE PROFIT SPIT METHOD IS COMPLETELY INCONSISTENT WITH RULE 10B OF THE RULES. 39. THE LD. CIT DR, MS. MEERA SHRIVASTAVA, IN OP POSITION AND TO COUNTER THE SUBMISSIONS MADE ON BEHALF OF THE AS SESSEE, RELIED ON THE ORDER OF THE TPO AND DRP AND SPECIFICALLY RE FERRED TO PARAS 4.1, 2.2, 2.4 TO 2.15 OF TPOS ORDER TO ALLEG E AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AES. 40. THE LD. DR ALSO RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (I NDIA) PVT. 29 LTD. VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN HELD TO BE AN INTERNATIONAL TRANSACTION A ND THE MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. IT WAS SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES A S A NON- INTERNATIONAL TRANSACTION. SHE FURTHER STATED THAT THE HONBLE HIGH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OB SERVATIONS, WHICH SHOULD BE PROPERLY WEIGHED FOR ASCERTAINING I F AN INTERNATIONAL TRANSACTION OF AMP EXPENSES EXISTS. I T WAS ARGUED THAT THE TRIBUNAL IN THE PRECEDING YEARS HAS RESTOR ED THE ISSUE TO THE FILE OF TPO TO BE DECIDED AFRESH IN THE LIGHT O F THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) AND OTHERS. SHE ALSO RELIED ON A LATER JUDGMENT OF T HE HONBLE JURISDICTIONAL HIGH COURT IN YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL), ALSO A MANUFACTURER, AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELH I HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WH ETHER AMP EXPENSES IS AN INTERNATIONAL TRANSACTION HAS BEEN R ESTORED FOR A FRESH DETERMINATION. THE LD. DR STILL FURTHER REFER RED TO THREE RECENT JUDGMENTS OF THE HONBLE DELHI HIGH COURT, VI Z., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), ALSO A MANUFACTURER, PR. CIT VS. TOSHIBA INDIA PVT. LTD. ( DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT I N SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUP RA). THE LD. DR ARGUED THAT THE HONBLE DELHI HIGH COURT IN ITS EARLIER 30 DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (IND IA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPEN SES TO BE AN INTERNATIONAL TRANSACTION. IT WAS ARGUED THAT THE JU DGMENTS IN THE CASES OF RAYBAN SUN OPTICS INDIA LTD. (SUPRA), TOSHIBA INDIA PVT. LTD. (SUPRA), BOSE CORPORATION (INDIA) (SUPRA) AND YUM RESTAURANTS AND SONY ERICSON (FOR AY 2010-11) (SUPR A) DELIVERED IN THE YEAR 2016 ARE POSTERIOR IN TIME TO THE EARLI ER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL, ETC., AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A FRESH DETERMINATION . SHE ALSO RELIED ON A HOST OF ORDERS PASSED BY THE TRIBUNAL R ESTORING THE MATTER TO THE FILE OF TPO FOR A FRESH DETERMINATION OF THE QUESTION OF THE EXISTENCE OR OTHERWISE OF THE INTERNATIONAL TRANSACTION OF AMP EXPENSES, POST THE ABOVE REFERRED THREE SETS OF JUDGMENTS BY THE HONBLE DELHI HIGH COURT - IN FAVOUR OF THE REV ENUE (SONY ERICSSON, THE EARLIER JUDGMENT); IN FAVOUR OF THE A SSESSEE (WHIRLPOOL AND MARUTI ETC.); AND RESTORING THE MATT ER FOR A FRESH DETERMINATION (RAYBAN SUN OPTICS INDIA LTD., TOSHIB A INDIA PVT. LTD., BOSE CORPORATION (INDIA), YUM RESTAURANT AND SONY ERICSSON, THE LATER JUDGMENT) 41. THEREAFTER, THE LD. DR ALSO TOOK US THROUGH THE TRADEMARK AND LICENSE AGREEMENT DATED APRIL 1, 2010 AND REFER RED TO VARIOUS CLAUSES CITED IN THE ORDER OF THE TPO TO SU BSTANTIATE HER ARGUMENT THAT THERE EXISTED AN ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AES. SHE ALSO REFERRED TO CLAUSE 10 OF THE SAID AGREEMENT AND THE CONCLUSION OF THE TPO THAT THE AS SESSEE WAS ENTITLED TO COMPENSATION IN RESPECT OF THE AMP EXPE NSES. 31 42. THAT APART, THE DR ALSO SUBMITTED THAT THE P RIMARY APPROACH OF THE TPO WAS BLT AND SINCE THE REVENUE W AS IN APPEAL ON THE APPLICABILITY OF BLT, BEFORE THE SUPR EME COURT, SUCH APPROACH SHOULD BE UPHELD BY THE TRIBUNAL IN V IEW OF THE SPECIAL BENCH DECISION IN THE CASE OF LG ELECTRONIC S. 43. IN HIS REJOINDER, THE LD. COUNSEL FOR THE A SSESSEE BRIEFLY REITERATED HER CONTENTIONS AND OPPOSED A REMAND GIV EN THAT INSPITE OF MULTIPLE REMANDS BY THE TRIBUNAL, THE BA SIC APPROACH OF THE REVENUE IS STILL CENTRED IN THE APPLICABILIT Y OF THE BLT. HE FURTHER SUBMITTED THAT GIVEN THE JUDGEMENT OF THE DE LHI HIGH COURT IN THE CASE OF SONY MOBILE (SUPRA) THE SPECIA L BENCH DECISION TO THAT EXTENT STANDS OVERRULED. HE ALSO SUBMITTED THAT THERE WAS NO STAY OF THE DECISION OF OPERATION OF T HE DECISION OF THE DELHI HIGH COURT ON THIS ISSUE. THUS, HE PRAYE D THAT THE DECISION OF PEPSI FOODS BE FOLLOWED AND THE TRANSFE R PRICING ADJUSTMENT ON AMP EXPENSES BE DELETED. 44. HE ALSO SUBMITTED THAT THE RELIANCE PLACED B Y THE DR ON THE DECISION OF THE HONBLE HIGH COURT IN SONY ERICSSON MOBILE COMMUNICATION INDIA PVT. LTD. (SUPRA) WAS COMPLETEL Y MISPLACED. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DR HAD RELIED UPON THE SAID DECISION OF THE HONBLE HIGH C OURT TO CONTEND THAT MERE INCURRENCE OF AMP EXPENDITURE IN RESPECT OF BRANDS NOT OWNED BY THE ASSESSEE HAD TO BE TREATED AS AN INTERNATIONAL TRANSACTION UNDER THE PROVISIONS OF T HE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE, THEREAFTER DIRECT ED OUR ATTENTION 32 TOWARDS THE FOLLOWING PASSAGE FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA PVT. LTD (S UPRA ) : 41 . HAVING CONSIDERED THE ABOVE SUBMISSIONS THE COURT P ROCEEDS TO ANALYSE THE DECISION IN SONY ERICSSON MOBILE COMMUN ICATIONS INDIA (P.) LTD. (SUPRA) TO DETERMINE IF IT CONCLUSIVELY ANSWER S THE ISSUE CONCERNING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION AS A RESULT OF INCURRING OF AMP EXPENDITURES BY AN ASSESSEE. 42. AS ALREADY NOTICED, THE JUDGMENT IN SONY ERICSSON M OBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) DOES NOT SEE K TO COVER ALL THE CASES WHICH MAY HAVE BEEN ARGUED BEFORE THE DIVISION BENC H. IN PARTICULAR, AS FAR AS THE PRESENT APPEAL ITA NO. 110 OF 2014 IS CO NCERNED, ALTHOUGH IT WAS HEARD ALONG WITH THE BATCH OF APPEALS, INCLUDIN G THOSE DISPOSED OF BY THE SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) JUDGMENT, AT ONE STAGE OF THE PROCEEDINGS ON 30TH OCTOBER 201 4 THE APPEAL WAS DELINKED TO BE HEARD SEPARATELY. 43. SECONDLY, THE CASES WHICH WERE DISPOSED OF BY T HE SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) JUDGM ENT, I.E. OF THE THREE ASSESSEES CANON, REEBOK AND SONY ERICSSON WERE ALL OF DISTRIBUTORS OF PRODUCTS MANUFACTURED BY FOREIGN AES. THE SAID ASSE SSEES WERE THEMSELVES NOT MANUFACTURERS. IN ANY EVENT, NONE OF THEM APPEARED TO HAVE QUESTIONED THE EXISTENCE OF AN INTERNATIONAL T RANSACTION INVOLVING THE CONCERNED FOREIGN AE. IT WAS ALSO NOT DISPUTED THAT THE SAID INTERNATIONAL TRANSACTION OF INCURRING OF AMP EXPENSES COULD BE M ADE SUBJECT MATTER OF TRANSFER PRICING ADJUSTMENT IN TERMS OF SECTION 92 OF THE ACT. 44. HOWEVER, IN THE PRESENT APPEALS, THE VERY EX ISTENCE OF AN INTERNATIONAL TRANSACTION IS IN ISSUE. THE SPECIFIC CASE OF MSIL IS THAT THE REVENUE HAS FAILED TO SHOW THE EXISTENCE OF ANY AGR EEMENT, UNDERSTANDING OR ARRANGEMENT BETWEEN MSIL AND SMC R EGARDING THE AMP SPEND OF MSIL. IT IS POINTED OUT THAT THE BLT HAS B EEN APPLIED TO THE AMP SPEND BY MSIL TO (A) DEDUCE THE EXISTENCE OF AN INT ERNATIONAL TRANSACTION 33 INVOLVING SMC AND (B) TO MAKE A QUANTITATIVE 'ADJUS TMENT' TO THE ALP TO THE EXTENT THAT THE EXPENDITURE EXCEEDS THE EXPENDITURE BY COMPARABLE ENTITIES. IT IS SUBMITTED THAT WITH THE DECISION IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. (SUPRA) HAVING DISAP PROVED OF BLT AS A LEGITIMATE MEANS OF DETERMINING THE ALP OF AN INTER NATIONAL TRANSACTION INVOLVING AMP EXPENSES, THE VERY BASIS OF THE REVEN UE'S CASE IS NEGATED. 45. IN VIEW OF THE ABOVE PASSAGE, THE LD. COUNSE L FOR THE ASSESSEE SUBMITTED THAT SONY ERICSSON MOBILE COMMUN ICATION INDIA PVT. LTD. (SUPRA) WAS SPECIFICALLY A CASE OF DISTRIBUTOR AND THERE WAS NO DISPUTE AS FAR AS EXISTENCE OF INTERNA TIONAL TRANSACTION WAS CONCERNED. HOWEVER, IN THE PRESENT CASE, IT WAS SUBMITTED THAT THE VERY ISSUE OF EXISTENCE OF INTER NATIONAL TRANSACTION PERTAINING TO INCURRING OF AMP EXPENSES WAS IN DISPUTE AND HENCE RELIANCE ON SONY ERICSSON ON THIS COUNT WAS COMPLETELY MISPLACED BY THE LD. DR. HE ALSO SUBMITT ED THAT THE RELIANCE OF THE LD. DR ON THE DECISION OF TOSHIBA I NDIA PVT LTD. (SUPRA) WAS ALSO MISPLACED SINCE THE SAME STOOD OVE RRULED BY THE DECISIONS OF THE HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA PVT. LTD (SUPRA), WHIRLPOOL OF INDIA LTD (SUPRA), B AUSCH & LOMB EYECARE (INDIA) PVT LTD (SUPRA), HONDA SIEL POWER P RODUCTS LTD (SUPRA) AND THE DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL IN M/S ESSILOR INDIA PVT LTD VS. DCIT: IT( TP)A NO. 29/BANG/2014, M/S HEINZ INDIA PRIVATE LIMITED VS. A CIT: ITA NO. 7732/MUM/2010, LOREAL INDIA PRIVATE LIMITED VS . DCIT : ITA NO. 7714/MUM/2012 AND GOODYEAR INDIA LTD (SUPRA) AN D HONDA SIEL POWER PRODUCTS LTD VS. DCIT: ITA NO. 551/DEL/2 014. TO CONCLUDE HE SUBMITTED THAT IF THE THRESHOLD OF LACK OF INTERNATIONAL TRANSACTION IS NOT CROSSED THEN THE O THER ISSUES 34 RAISED IN THE APPEAL QUA AMP ADJUSTMENT WOULD NOT RE QUIRE A SEPARATE ADJUDICATION. DECISION 46. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WE LL AS MATERIAL REFERRED TO BEFORE US. THE CORE ISSUE RAISED IN THE APPEAL QUA THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INCURRING OF AMP EXPENSES BY THE ASSESSEE IS, WHETHER ON THE FACTS A ND CIRCUMSTANCES OF THE CASE, CAN IT BE RECKONED AS IN TERNATIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92B OF TH E ACT; AND IF THAT IS SO THEN WHETHER ANY ADJUSTMENT IS JUSTIFIED ON THE FACTS OF THE CASE. THE ASSESSEE COMPANY UNDER THE LICENSE GR ANTED AND OWNED BY AE IS ENGAGED IN THE MANUFACTURING OF VARI ETY OF CONFECTIONARY PRODUCTS AND SELLING THEM AS AN INDEP ENDENT ENTITY IN INDIA. THOUGH, WE HAVE DISCUSSED THE VARIOUS OBS ERVATIONS AND FINDING OF THE LD. TPO, HOWEVER THE UNDERLINE G ENESIS IS APPLICATION OF BLT AND DETERMINATION OF EXCESSIVE A MP EXPENSES AND CONSEQUENTLY MAKING TRANSFER PRICING ADJUSTMENT. THOUGH THE TPO HAS MADE PROTECTIVE ASSESSMENT USING BLT, B UT AT THE SAME TIME HAS PROCEEDED TO MAKE SUBSTANTIVE ADJUSTM ENT IN HIS OWN VERSION OF PROFIT SPLIT METHOD (PSM). WHILE APP LYING HIS VERSION OF PSM, HE STILL WAS CIRCUMSCRIBED BY THE B LT METHOD WHILE MAKING THE ADJUSTMENT. THE CORE REASON OF THE LD. TPO WAS THAT, SINCE THE ECONOMIC OWNERSHIP OF THE BRAND AND MARKETING TANGIBLE LIES WITH AE, THEREFORE, ROUTINE EXPENSES HAS BEEN INCURRED ONLY FOR THE BENEFIT OF THE PARENT AE. NOT ONLY THAT, THE AMP EXPENSES ARE LEADING TO ENHANCEMENT OF THE BRAN D VALUE 35 AND THE MARKET PENETRATION OF THESE BRANDS WHICH NE EDS TO BE COMPENSATED TO THE ASSESSEE FOR THE SAME BY THE AE. THE MANNER IN WHICH HE HAS MADE THE ADJUSTMENT, WE HAVE ALREAD Y DISCUSSED IN DETAIL IN THE FOREGOING PARAGRAPHS AS HIGHLIGHTE D BY BOTH THE PARTIES. 47. COMING TO THE ISSUE WHETHER THE INCURRRING OF A MP EXPENSES IN THE PRESENT CASE CAN BE RECKONED AS IN TERNATIONAL TRANSACTION, AS DEFINED IN SECTION 92B OF THE ACT. THE RELEVANT SECTION FOR THE SAKE OF READY REFERENCE IS REPRODUC ED AS UNDER: SECTION 92B - MEANING OF INTERNATIONAL TRANSACTION : (1) FOR THE PURPOSES OF THIS SECTION AND SECTIONS 92, 92C, 92D AND 92E, INTERNATIONAL TRANSACTION MEANS A TRANSACTION BET WEEN TWO OR MORE ASSOCIATED ENTERPRISES, EITHER OR BOTH OF WHOM ARE NON-RESIDENTS, IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR IN TANGIBLE PROPERTY, OR PROVISION OF SERVICES, OR LENDING OR BORROWING MONE Y, OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME , LOSSES OR ASSETS OF SUCH ENTERPRISES AND SHALL INCLUDE A MUTUAL AGREEME NT OR ARRANGEMENT BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES FOR THE ALLOCATION OR APPORTIONMENT OF, OR ANY CONTRIBUTION TO, ANY COST OR EXPENSE INCURRED OR TO BE INCURRED IN CONNECTION WITH A BENEFIT, SERVICE O R FACILITY PROVIDED OR TO BE PROVIDED TO ANY ONE OR MORE OF SUCH ENTERPRISES. (2) A TRANSACTION ENTERED INTO BY AN ENTERPRISE WI TH A PERSON OTHER THAN AN ASSOCIATED ENTERPRISE SHALL, FOR THE PURPOSES OF SUB-SECTION (1), BE DEEMED TO BE A TRANSACTION ENTERED INTO BETWEEN TWO ASSOCIATED ENTERPRISES, IF THERE EXISTS A PRIOR AGREEMENT IN RELATION TO THE RELEVANT TRANSACTION BETWEEN SUCH OTHER PERSON AND THE ASSOC IATED ENTERPRISE; OR THE TERMS OF THE RELEVANT TRANSACTION ARE DETERMINE D IN SUBSTANCE BETWEEN SUCH OTHER PERSON AND THE ASSOCIATED ENTERPRISE. 36 48. FURTHER FROM PERUSAL OF CLAUSE (V) OF SECTION 92F OF THE ACT DEFINES THE TERM TRANSACTION TO INCLUDE AN ARRANG EMENT, UNDERSTANDING OR ACTION IN CONCERT WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR ACTION IS FORMAL OR I N WRITING; OR WHETHER OR NOT SUCH ARRANGEMENT, UNDERSTANDING OR A CTION IS INTENDED TO BE ENFORCEABLE BY LEGAL PROCEEDING. SEC TION 92F ONLY PROVIDES DEFINITIONS OF CERTAIN TERMS RELEVANT TO COMPUTATION OF ARMS LENGTH PRICE AND HAD TO BE READ IN CONJUNCTIO N WITH SECTION 92B OF THE ACT. THE SAID SECTION CANNOT BE CONSIDE RED/ READ IN ISOLATION TO COVER ANY AND EVERY TRANSACTION THAT A COMPANY ENTERS INTO WITH ANY UNRELATED PARTY THAT TOO DOMES TICALLY. FROM THE CONJOINT READING OF THE PROVISIONS OF CLAUSE (V ) OF SECTION 92F AND SUB-SECTION (1) OF SECTION 92B OF THE ACT, IT C OULD BE INFERRED THAT TRANSFER PRICING REGULATIONS WOULD BE APPLICAB LE TO ANY TRANSACTION, BEING AN ARRANGEMENT, UNDERSTANDING OR ACTION IN CONCERT, INTER ALIA , IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR ANY OTHER TRANSA CTION HAVING BEARING ON PROFITS, INCOME, LOSSES OR ASSETS OF SUC H ENTERPRISES. 49. THUS, IN ORDER TO BE CHARACTERIZED AS AN INTER NATIONAL TRANSACTION, IT WOULD HAVE TO BE DEMONSTRATED THAT THE TRANSACTION AROSE PURSUANT TO AN ARRANGEMENT, UNDER STANDING OR ACTION IN CONCERT. A TRANSACTION, PER SE INVOLVES A BILATERAL ARRANGEMENT OR CONTRACT BETWEEN THE PARTIES. UNILAT ERAL ACTION BY ONE OF THE PARTIES, WITHOUT ANY BINDING OBLIGATION, IN ABSENCE OF A MUTUAL UNDERSTANDING OR CONTRACT, COULD NOT BE TERM ED AS A TRANSACTION. A UNILATERAL ACTION, THEREFORE, COUL D NOT BE 37 CHARACTERIZED AS AN INTERNATIONAL TRANSACTION INV OKING THE PROVISIONS OF SECTION 92 OF THE ACT. 50. AS CULLED OUT FROM THE RECORDS AND ALSO EXPLAIN ED BY THE LD. COUNSEL THAT THE ENTIRE EXPENDITURE OF AMP WAS ONLY TO CATER TO THE NEEDS OF THE CUSTOMER IN THE LOCAL MARKET OF IN DIA. IT WAS NEITHER INCURRED AT THE INSTANCE OR BEHEST OF OVERS EAS AE, NOR WAS THERE ANY MUTUAL AGREEMENT OR UNDERSTANDING OR ARRANGEMENT TO THE ALLOCATION OR CONTRIBUTION BY TH E AE TOWARDS REMUNERATION OF ANY PART OF AMP EXPENDITURE INCURRE D BY THE ASSESSEE-COMPANY FOR THE PURPOSE OF ITS BUSINESS IN INDIA. THE ENTIRE RISK OF PROFIT AND LOSS FROM SALES OR FOR IN CURRING OF AMP EXPENSES SOLELY LIED UPON THE ASSESSEE-COMPANY. AT THE THRESHOLD WE DO NOT FIND THAT THERE WAS ANY SUCH UNDERSTANDIN G OR ARRANGEMENT OR ACTION IN CONCERT, ETC, WHICH CAN BE INFERRED THAT AMP EXPENSE WOULD TANTAMOUNT TO INTERNATIONAL TRANS ACTION IN THE PRESENT CASE. THE AMP EXPENSE WAS MADE BY THE A SSESSEE- COMPANY WHICH IS A TAX RESIDENT OF INDIA TO OTHER T HIRD PARTIES IN INDIA AND NO FOREIGN PARTY WAS INVOLVED AND NEITHER AMP EXPENSES HAS TAKEN PLACE BETWEEN TWO AES. IT IS WEL L SETTLED LAW THAT, ONUS IS UPON THE REVENUE TO DEMONSTRATE THAT THEIR EXISTED AN ARRANGEMENT BETWEEN ASSESSEE AND ITS AE WHEREIN ASSESSEE WAS OBLIGED TO INCUR EXCESS AMOUNT OF AMP EXPENSES AND TO PROMOTE THE BRANDS OWNED BY AE. IT HAS BEEN HELD SO BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA PVT. LTD. VS. CIT (SUPRA). THE RELEVANT OBSERVATION AND THE PRINCIPLES LAID DOWN IN THE SAID JUDGMENT ARE INCOR PORATED IN THE FOREGOING PARAGRAPH 23. 38 51. THE LD. TPO HAS MAINLY HARPED UPON CLAUSE (9) O F THE TRADE MARKET TECHNOLOGY AND KNOWHOW LICENSE AGREEMENT DA TED 04.09.2010 WHICH EMPOWERED THE FOREIGN AE TO APPROV E AND REVIEW THE LABEL MATERIALS, PACKAGING MATERIALS AND ADVERTISEMENT MATERIALS. NOWHERE THE AGREEMENT ENVI SAGES ABOUT QUANTUM OF AMP EXPENDITURE ALBEIT IT WAS ONLY TO MONITOR THE ADVERTISEMENT CONTENT. MONITORING AND REVIEWING THE ADVERTISEMENT CONTENT IS MERELY FOR THE ALIGNMENT T O ENSURE APPLICABLE BRAND GUARDRAILS ARE BEING FOLLOWED BY ALL THE AES ACROSS THE WORLD. IT DOES NOT LEAD TO ANY INFERENCE THAT THERE IS ANY DIRECT OR INDIRECT CONTROL THE MARKETING FUNCTI ONS IN VARIOUS GEOGRAPHIES. LOOKING TO THE NATURE OF THE CONFECTIO NARY PRODUCTS, THE MARKETING FOR SUCH IMPULSE PRODUCTS, THE SAME H AS TO BE DONE AS PER THE LOCAL ETHOS, CULTURE, TASTE AND ASP IRATION OF THE LOCAL POPULATION AND IT CANNOT BE GOVERNED BY THE A E SITTING OUTSTANDING INDIA. IT HAS BEEN STATED BEFORE US THA T THE ASSESSEE COMPANY HAD FULL-FLEDGED MARKETING TEAM WITH THE HE LP OF LOCAL MARKETING AGENCIES AND CONSULTANT USE TO MANAGE THE MARKETING FUNCTIONS AND ADVERTISEMENT ACROSS THE COUNTRY BASE D ON THE LOCAL REQUIREMENTS AND SALES. HERE, IN THIS CASE, I T IS TO BE KEPT IN MIND THAT THE ENTIRE AMP EXPENDITURE HAS BEEN INCUR RED BY THE ASSESSEE COMPANY TO PROMOTE THE SALE OF ITS PRODUCT IN INDIA AS A FULL-FLEDGED RISK BEARING MANUFACTURING AND SOLELY RESPONSIBLE FOR ITS FUNCTIONS OR ACTIVITIES AND RELATED RETURNS. 52. THE ROYALTY HAS BEEN PAID ON THE GROUND OF LON G TERM EXCLUSIVE RIGHT TO USE THE TRADEMARK IN RESPECT OF MANUFACTURING AND SALE OF VARIOUS KINDS OF CONFECTIONARY PRODUCTS IN INDIA. IT IS 39 PURELY TECHNICAL COLLABORATION AND USE OF THE TRADE MARK OWNED BY THE LICENSES. HOWEVER, IN SO FAR MARKETING EXPENSES ARE CONCERNED, THE SAME IS FOR INCREASING THE SALES AND PROFITS IN INDIA REAPED ONLY BY THE INDIAN ENTITY, I.E., ASSES SEE-COMPANY. THERE IS NO OBLIGATION OR A BINDING COVENANT TO AGR EE ANY MINIMUM AMP EXPENSES AS A PART OF ITS LICENSE OBLIG ATION. THE ENTIRE STRATEGIC DECISIONS FOR SALES AND MARKETING IN INDIA IS PURELY ON THE ASSESSEE-COMPANY WHICH IS DEVELOPED B Y THE ASSESSEE IN INDIA ONLY AFTER THE STUDY OF MARKET AN D SURVEY ETC. ANY PROFIT OR LOSS ON A LAUNCH OF ANY PRODUCT OR IN CREASE OR DIP IN SALE IS OWNED BY THE INDIAN ENTITY. 53. FURTHER, NOWHERE FROM THE AGREEMENT OR ANY ARRA NGEMENT IT CAN BE INFERRED THAT ASSESSEE IS INCURRING ANY EXPE NDITURE TO PROMOTE THE PERFETTI BRAND OR PRODUCT WHICH ARE NOT SOLD IN INDIA. IN THIS ASPECT, THE DETAIL SUBMISSION MADE BY THE L D. COUNSEL SS INCORPORATED ABOVE IN THE FOREGOING PARAGRAPH WHICH IS UNREBUTTED. THIS EXPLAINS THAT THERE IS NO CORRELAT ION OF INCURRING OF AMP EXPENDITURE OF ANY KIND, FOR WHICH ANY BENEF IT IS BEING DERIVED BY THE AE BY INCURRING SUCH OF EXPENDITURE BY ASSESSEE COMPANY. IN CASE OF FULL RISK BEARING ENTREPRENEUR THE ENTIRE RESPONSIBILITY OF SALES AND PROFITABILITY OR LOSS I S ON THE INDIAN ENTITY. 54. IN SO FAR AS REFERENCE MADE BY THE TPO TO THE TRADEMARKS TECHNOLOGY LICENSE AND KNOWHOW AGREEMENT, IT HAS B EEN ALREADY DISCUSSED IN DETAIL IN THE ARGUMENT OF THE LD. COUNSEL IN THE FOREGOING PARAGRAPHS THAT; THE CLAUSE (1), CLAU SE (3) AND CLAUSE (4) OF THE AGREEMENT REFERRED TO PROVIDING C ERTAIN KIND OF 40 SUPPORT RELATING TO TRADEMARK, DESIGN, ETC; USING O F TRADEMARK TECHNOLOGY AND KNOWHOW FOR THE MANUFACTURING AND SE LLING OF CONFECTIONARY PRODUCT IN INDIA; AND LICENSE TO MANU FACTURE AND SELL VARIOUS KINDS OF CONFECTIONARIES AND TO OFFER ANY EXPERIENCE EMPLOYEE TO ASSIST THE LICENSEE MANUFACTURING, SALE AND ADVERTISEMENT AND PROMOTION OF THE PRODUCTS AND ANY TECHNOLOGY AND PROBLEM DURING THE MANUFACTURING AND SALE OF TH E PRODUCTS. FROM THE READING OF THE SAID CLAUSE IT CAN BE DEDUC ED THAT AMP EXPENSES SHOULD BE INCURRED EITHER ON BEHEST OR ON BEHALF OF THE AES OR FOR THEIR BENEFIT. SIMILARLY, CLAUSE (9) OF THE AGREEMENT WAS PURELY FOR ASSERTING BEST PRACTICES TO CONFIRM THE BRAND OF THE OWNER AND THE TRADEMARK AND TECHNOLOGY AND ADVERTIS EMENT MATERIAL, ETC. ANOTHER IMPORTANT CLAUSE WHICH HAS B EEN REFERRED BY THE TPO IS CLAUSE (10), WHEREIN IT HAS BEEN PROV IDED THAT THE LICENSEE WILL ACTIVELY ADVERTISE AND SELL IN THE TE RRITORY TO THE PRODUCTS MANUFACTURED BY HIM BUT AT THE SAME TIME I T ALSO PROVIDES THAT NO COMPENSATION WOULD BE PROVIDED TO THE LICENSEE REGARDING ADVERTISEMENT EXPENSES IN THE EVENT OF TH E TERMINATION OF THE AGREEMENT. NOWHERE, IT HAS BEEN BROUGHT ON R ECORD BY THE TPO THAT BY VIRTUE OF THIS CLAUSE THE ASSESSEE WAS ENTITLED FOR COMPENSATION OF ADVERTISING EXPENSES. 55. IN SO FAR AS OTHER OBSERVATIONS AND ALLEGATION OF THE TPO THAT CERTAIN BRANDS WERE CONCEPTUALIZED AND DEVELOP ED IN INDIA WITH TRADEMARK WITH RESPECT OF THIS BRAND WITH THE FOREIGN AE IT HAS BEEN CLARIFIED BY THE LD. COUNSEL THAT IT WAS O NLY FOR CONCEPTUALISING AND MAKING A DIFFERENT VIEW OF THE PRODUCTS FOR LOOKING TO THE LOCAL TASTE AND NOT A SEPARATE PRODU CT WHICH HAS 41 BEEN CREATED IN INDIA. THE MANUFACTURE AND SALE OF THESE PRODUCTS WAS LARGELY LIMITED TO INDIA AND NO BENEFI T AS SUCH HAS BEEN ACCRUED TO THE AE ON ACCOUNT OF PROMOTIONS OF THESE BRANDS. MOREOVER, ONCE ROYALTY IS BEING PAID BY THE ASSESSEE ON ITS SALES, THEREFORE, IT CANNOT BE ALLEGED THAT THE ASSESSEE WAS INCURRING THE COST OF DEVELOPING NEW BRANDS IN INDI A AND SIMULTANEOUSLY IN REACHING ITS AE BY PAYING ROYALTY . THE RATIO OF THE CO-ORDINATE BENCH IN THE PEPSI FOOD VS. ACIT (SUPRA), WHEREIN ON THE SIMILAR ASPECT OF THE MATTER WHERE T HE ADVERTISING CAMPAIGN AND THE MATERIAL WERE SUBJECT TO APPROVAL BY THE PARENT AE, THIS TRIBUNAL HELD THAT REVIEWING OF ADV ERTISEMENT MATERIAL BY THE AE TO CONFIRM TO THE BROAD ADVERTIS ING GAD RAIL DOES NOT CONSTITUTE AN ARRANGEMENT OR DIRECTION BY THE AE FOR INCURRING THE AMP EXPENSES ON ITS BEHALF. 56. ANOTHER REASONING GIVEN BY THE LD. TPO TO JUSTIF Y THAT AMP EXPENDITURE AND INTERNATIONAL TRANSACTION IS THAT A T LEAST TWO BRAND DEVELOPMENTS AS DISCUSSED BY HIM IN PARAGRAPH S 6.1 TO 6.6. THIS ISSUE HAS BEEN DISCUSSED BY THE HONBLE J URISDICTIONAL HIGH COURT IN DETAIL 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 MINORITY DECISION IN THE CASE OF L. G. ELECTRONICS INDIA PVT LTD. (SUPRA ). THE TERM 'BRAND', IT HOLDS, REFERS TO NAME, TERM, DESIGN, SY MBOL OR ANY OTHER FEATURE THAT IDENTIFIES ONE SELLER'S GOODS OR SERVI CES AS DISTINCT 42 FROM THOSE OF OTHERS. THE WORD 'BRAND' IS DERIVED F ROM THE WORD 'BRAND' OF OLD NORSE LANGUAGE AND REPRESENTED AN ID ENTIFICATION MARK ON THE PRODUCTS BY BURNING A PART. BRAND HAS BEEN DESCRIBED AS A DUSTER OF FUNCTIONAL AND EMOTIONAL 1 03 IT IS A MATTER OF PERCEPTION AND REPUTATION AS IT REFLECTS CUSTOMERS' EXPERIENCE AND FAITH. BRAND VALUE IS NOT GENERATED OVERNIGHT BUT IS CREATED EVER A PERIOD OF TIME, WHEN THERE IS REC OGNITION THAT THE LOGO OR THE NAME GUARANTEES A CONSISTENT LEVEL OF Q UALITY AND EXPERTISE. LESLIE DE CHEMATONY AND MCDONALD HAVE DE SCRIBED 'A SUCCESSFUL BRAND IS AN IDENTIFIABLE PRODUCT, SERVIC E, PERSON OR PLACE, AUGMENTED IN SUCH A WAY THAT THE BUYER OR US ER PERCEIVES RELEVANT, UNIQUE, SUSTAINABLE ADDED VALUES WHICH MA TCH THEIR NEEDS MOST CLOSELY'. THE WORDS OF THE SUPREME COURT IN CIVIL APPEAL NO. 1201 OF 1966 DECIDED ON FEBRUARY 12, 197 0, IN KHUSHAL KHENGER SHAH V. KHORSHEDBANN DABIDA BOATWAL A, TO DESCRIBE 'GOODWILL', CAN BE ADOPTED TO DESCRIBE A B RAND AS AN INTANGIBLE ASSET BEING THE WHOLE ADVANTAGE OF THE R EPUTATION AND CONNECTIONS FORMED WITH THE CUSTOMER TOGETHER WITH CIRCUMSTANCES WHICH MAKE THE CONNECTION DURABLE. THE DEFINITION G IVEN BY LORD MACNAGHTEN IN COMMISSIONER OF INLAND REVENUE V. MID LER AND CO. MARGARINE LTD. [1901] AC 217 (223) CAN ALSO BE APPL IED WITH MARGINAL 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 H IS OWN. HE MAY VINDICATE HIS EXCLUSIVE RIGHT TO IT IF NECESSAR Y BY PROCESS OF LAW. HE MAY DISPOSE OF IT IF HE WILLOF COURSE, UND ER THE 43 CONDITIONS ATTACHING TO PROPERTY OF THAT NATURE ... WHAT IS GOODWILL? IT IS A THING VERY EASY TO DESCRIBE VERY DIFFICULT TO DEFINE. IT IS THE BENEFIT AND ADVANTAGE OF THE GOOD NAME, REPUTATION, AND: CONNECTION OF A BUSINESS. IT IS TH E ATTRACTIVE FORCE WHICH BRINGS IN CUSTOM. IT IS THE ONE THING WHICH D ISTINGUISHES AN OLD ESTABLISHED BUSINESS FROM A NEW BUSINESS AT ITS FIRST START. THE GOODWILL OF A BUSINESS MUST EMANATE FROM A PARTICULAR CENTRE OR SOURCE. HOWEVER, WIDELY EXTENDED OR DIFFU SED ITS INFLUENCE MAY BE, GOODWILL IS WORTH NOTHING UNLESS IT HAS POWER OF ATTRACTION SUFFICIENT TO BRING CUSTOMERS HOME TO THE SOURCE FROM WHICH IT EMANATES. GOODWILL IS COMPOSED OF A VARIET Y OF ELEMENTS. IT DIFFERS IN ITS COMPOSITION IN DIFFEREN T TRADES AND IN DIFFERENT BUSINESSES IN THE SAME TRADE. ONE ELEMENT MAY PREPONDERATE HERE AND ANOTHER ELEMENT THERE. TO ANA LYSE GOODWILL AND SPLIT IT UP INTO ITS COMPONENT PARTS, TO PARE IT DOWN AS THE COMMISSIONERS DESIRE TO DO UNTIL NOTHING IS LEFT BUT A DRY RESIDUUM INGRAINED IN THE ACTUAL PLACE WHERE THE BU SINESS IS CARRIED ON WHILE EVERYTHING ELSE IS IN THE ALL, SEE MS TO ME TO BE AS USEFUL FOR PRACTICAL PURPOSES AS IT WOULD BE TO RESOLVE THE HUMAN BODY INTO THE VARIOUS SUBSTANCES OF WHICH IT IS SAID TO BE COMPOSED. THE GOODWILL OF A BUSINESS IS ONE WHOLE, AND IN A CASE LIKE THIS IT MUST BE DEALT WITH AS SUCH. FOR M Y 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 INDE PENDENT EXISTENCE. IT CANNOT SUBSIST BY ITSELF. IT MUST BE ATTACHED TO A BUSINESS. DESTROY THE BUSINESS, AND THE GOODWILL PE RISHES WITH IT, THOUGH ELEMENTS REMAIN WHICH MAY PERHAPS BE GAT HERED UP AND BE REVIVED AGAIN ...' 104 'BRAND' HAS REFERENCE TO A NAME, TRADE MARK OR TRADE NAME. A BRAND LIKE 'GOODWILL', THEREFORE, IS A VALUE OF A TTRACTION TO 44 CUSTOMERS ARISING FROM NAME AND A REPUTATION FOR SK ILL, INTEGRITY, EFFICIENT BUSINESS MANAGEMENT OR EFFICIENT SERVICE. BRAND CREATION AND VALUE, THEREFORE, DEPENDS UPON A GREAT NUMBER O F FACTS RELEVANT FOR A PARTICULAR BUSINESS. IT REFLECTS THE REPUTATION WHICH THE PROPRIETOR OF THE BRAND HAS GATHERED OVER A PAS SAGE OR PERIOD OF TIME IN THE FORM OF WIDESPREAD POPULARITY AND UN IVERSAL APPROVAL AND ACCEPTANCE IN THE EYES OF THE CUSTOMER . TO USE WORDS FROM CTT V. CHUNILAL PRABHUDAS AND CO. [1970] 76 ITR 566 (CAL) ; AIR 1971 CAL 70, IT WOULD 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. IT H AS 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 DYNAMIC S, GOODWILL HAS BEEN DESCRIBED AS THE 'DIFFERENTIAL RETURN OF PROFI T'. PHILOSOPHICALLY IT HAS BEEN HELD TO BE INTANGIBLE. 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 BU SINESS.' 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 PROCES S. IN CASES OF WELL RECOGNISED OR KNOWN TRADE MARKS, THE SAID TRAD E MARK IS ALREADY RECOGNISED. EXPENDITURES INCURRED FOR PROMO TING PRODUCT(S) WITH A TRADE MARK IS FOR EXPLOITATION OF THE TRADE MARK RATHER THAN DEVELOPMENT OF ITS VALUE. A TRADE MARK IS A MARKET PLACE DEVICE BY WHICH THE CONSUMERS IDENTIFY THE GO ODS ARID 45 SERVICES AND THEIR SOURCE. IN THE CONTEXT OF TRADE MARK, THE SAID MARK SYMBOLISES THE GOODWILL OR THE LIKELIHOOD THAT THE CONSUMERS WILL MAKE FUTURE PURCHASES OF THE SAME GOODS OR SER VICES. VALUE OF THE BRAND ALSO WOULD DEPEND UPON AND IS ATTRIBUTABLE TO INTANGIBLES OTHER THAN TRADE MARK. IT REFERS TO INF RA-STRUCTURE, KNOW-HOW, ABILITY TO COMPETE WITH THE ESTABLISHED M ARKET LEADERS. BRAND VALUE, THEREFORE, DOES NOT REPRESENT TRADE MA RK AS A STANDALONE ASSET AND IS DIFFICULT AND COMPLEX TO DE TERMINE AND SEGREGATE ITS VALUE. BRAND VALUE DEPENDS UPON THE N ATURE AND QUALITY OF GOODS AND SERVICES SOLD OR DEALT WITH'. QUALITY CONTROL BEING THE MOST IMPORTANT ELEMENT, WHICH CAN MAR OR ENHANCE THE VALUE. THEREFORE, TO ASSERT AND PROFESS THAT BRAND BUILDI NG AS EQUIVALENT OR SUBSTANTIAL ATTRIBUTE OF ADVERTISEMENT AND' SALE PROMOTION WOULD BE LARGELY INCORRECT. IT REPRESENTS A COORDIN ATED SYNERGETIC IMPACT CREATED BY ASSORT- MERIT LARGELY REPRESENTIN G REPUTATION AND QUALITY. THERE ARE A GOOD NUMBER OF EXAMPLES WH ERE BRANDS HAVE BEEN BUILT WITHOUT INCURRING SUBSTANTIAL ADVER TISEMENT OR PROMOTION EXPENSES AND ALSO CASES WHERE IN SPITE OF EXTENSIVE AND LARGE SCALE ADVERTISEMENTS, BRAND VALUES HAVE N OT BEEN CREATED. THEREFORE, IT WOULD BE ERRONEOUS AND FALLA CIOUS TO TREAT BRAND BUILDING AS COUNTERPART OR TO COMMENSURATE BR AND WITH ADVERTISEMENT EXPENSES. BRAND BUILDING OR CREATION IS A VEXED AND COMPLEXED ISSUE, SURELY NOT JUST RELATED TO ADV ERTISEMENT. ADVERTISEMENTS MAY BE THE QUICKEST AND EFFECTIVE WA Y TO TELL A BRAND STORY TO A LARGE AUDIENCE BUT JUST THAT IS NO T ENOUGH TO CREATE OR BUILD A BRAND. MARKET VALUE OF A BRAND WO ULD DEPEND UPON HOW MANY CUSTOMERS YOU HAVE, WHICH HAS REFEREN CE TO BRAND GOODWILL, COMPARED TO A BASELINE OF AN UNKNOW N BRAND. IT IS IN THIS MANNER THAT THE VALUE OF THE BRAND OR BR AND EQUITY IS 46 CALCULATED. SUCH CALCULATIONS WOULD BE RELEVANT WHE N THERE IS AN ATTEMPT TO SELL OR TRANSFER THE BRAND NAME. REPUTED BRANDS DO NOT GO IN FOR ADVERTISEMENT WITH THE INTENTION TO INCRE ASE THE BRAND VALUE BUT TO INCREASE THE SALES AND THEREBY EARN LA RGER AND GREATER PROFITS. IT IS NOT THE CASE OF THE REVENUE 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 INTANGIBLE AS SET SHOULD BE RECOGNISED AS AN ASSET, IF AND ONLY IF, IT IS PROBA BLE THAT FUTURE ECONOMIC BENEFITS ATTRIBUTABLE TO THE SAID ASSET WI LL FLOW TO THE ENTERPRISE AND THE COST OF THE ASSET CAN BE MEASURE D RELIABLY. THE ESTIMATE WOULD REPRESENT THE SET OFF OF ECONOMIC CO NDITIONS THAT WILL EXIST OVER THE USEFUL LIFE OF THE INTANGIBLE A SSET. AT THE INITIAL STAGE, INTANGIBLE ASSET SHOULD BE MEASURED AT COST. THE ABOVE PROPOSITION WOULD NOT APPLY TO INTERNALLY GENERATED GOODWILL OR BRAND. PARAGRAPH 35 SPECIFICALLY ELUCIDATES THAT IN TERNALLY GENERATED GOODWILL SHOULD NOT BE RECOGNISED AS AN A SSET. IN SOME CASES EXPENDITURE IS INCURRED TO GENERATE FUTURE EC ONOMIC BENEFITS BUT IT MAY NOT INSULT IN CREATION OF AN INTANGIBLE ASSET IN THE FORM OF GOODWILL OR BRAND, WHICH MEETS THE RECOGNITION C RITERIA UNDER AS-26. INTERNALLY GENERATED GOODWILL OR BRAND IS NO T TREATED AS AN ASSET IN AS-26 BECAUSE IT IS NOT AN IDENTIFIABLE RE SOURCE CONTROLLED BY AN ENTERPRISE, WHICH CAN BE RELIABLY MEASURED AT COST. ITS VALUE 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, 47 WAGES AND EMPLOYMENT RELATED COSTS, OVERHEADS, ETC. , CONTRIBUTE IN GENERATING INTERNAL INTANGIBLE ASSET. THUS, IT I S POSSIBLE TO COMPUTE GOOD- WILL OR BRAND EQUITY/VALUE AT A POINT OF TIME BUT ITS FUTURE VALUATION WOULD BE PERILOUS AND AN IFFY EXER CISE. IN PARAGRAPH 44 OF AS-26, IT IS STATED THAT INTANG IBLE ASSET ARISING FROM DEVELOPMENT WILL BE RECOGNISED ONLY AND ONLY I F AMONGST SEVERAL FACTORS, CAN DEMONSTRATE A TECHNICAL FEASIB ILITY OF COMPLETING THE INTANGIBLE ASSET: THAT IT WILL BE AV AILABLE FOR USE OR SALE AND THE INTENTION IS TO COMPLETE THE INTANGIBL E ASSET FOR USE OR SALE IS SHOWN OR HOW THE INTANGIBLE ASSET GENERATE PROBABLE FUTURE BENEFITS, ETC. THE AFORESAID POSITION FINDS RECOGNITION AND WAS ACCEPTED IN CIT V. B. C. SRINIVASA SETTY [1981] 128 ITR 294 (SC); [1981] 2 SCC 460, A RELATING TRANSFER TO GOOD WILL. GOODWILL, IT WAS HELD, WAS A CAPITAL ASSET AND DENOTES BENEFITS ARISING FROM CONNECTION AND REPUTATION. A VARIETY OF ELEMENTS GO INTO ITS MAKING AND THE COMPOSITION VARIES IN DIFFERENT TRADES, DIF FERENT BUSINESSES IN THE SAME TRADE, AS ONE ELEMENT MAY PR E-DOMINATE ONE BUSINESS, ANOTHER ELEMENT MAY DOMINATE IN ANOTH ER BUSINESS. IT REMAINS SUBSTANTIAL IN FORM AND NEBULOUS IN CHAR ACTER. IN PROGRESSING BUSINESS, BRAND VALUE OR GOODWILL WILL SHOW PROGRESSIVE INCREASE BUT IN FALLING BUSINESS, IT MA Y VAIN. THUS, ITS VALUE FLUCTUATES FROM ONE MOMENT TO ANOTHER, DEPEND ING UPON REPUTATION AND EVERYTHING ELSE RELATING TO BUSINESS , PERSONALITY, BUSINESS RECTITUDE OF THE OWNERS, IMPACT OF CONTEMP ORARY MARKET REPUTATION, ETC. IMPORTANTLY, THERE CAN BE NO ACCOU NT IN VALUE OF THE FACTORS PRODUCING IT AND IT IS IMPOSSIBLE TO PR EDICATE THE MOMENT OF ITS BIRTH FOR IT COMES SILENTLY INTO THE WORLD UNHERALDED AND UNPROCLAIMED. ITS BENEFIT AND IMPACT NEED NOT B E VISIBLY FELT FOR SOME TIME. IMPERCEPTIBLE AT BIRTH, IT EXITS UNW RAPPED IN A 48 CONCEPT, GROWING OR FLUCTUATING WITH NUMEROUS IMPON DERABLES POURING INTO AND AFFECTING THE BUSINESS. THUS, THE DATE OF ACQUISITION OR THE DATE ON WHICH IT COMES INTO EXIS TENCE IS NOT POSSIBLE TO DETERMINE AND IT IS IMPOSSIBLE TO SAY W HAT WAS THE COST OF ACQUISITION. THE AFORESAID OBSERVATIONS ARE RELEVANT AND ARE EQUALLY APPLICABLE TO THE PRESENT CONTROVERSY. IT HAS BEEN REPEATEDLY HELD BY THE DELHI HIGH COURT THAT ADVERT ISEMENT 110 EXPENDITURE GENERALLY IS NOT AND SHOULD NOT BE TREA TED AS CAPITAL EXPENDITURE INCURRED OR MADE FOR CREATING AN INTANG IBLE CAPITAL ASSET. APPROPRIATE IN THIS REGARD WOULD BE TO REPRO DUCE THE OBSERVATIONS IN CTT V. MONTO 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 EXPEND ITURE, SINCE THE MEMORY OF PURCHASERS OR CUSTOMERS IS SHORT. ADV ERTISEMENT ARE ISSUED FROM TIME TO TIME AND THE EXPENDITURE IS INCURRED PERIODICALLY, SO THAT THE CUSTOMERS REMAIN ATTRACTE D AND DO NOT FORGET THE PRODUCT AND ITS QUALITIES. THE ADVERTISE MENTS PUBLISHED/DISPLAYED MAY NOT BE OF RELEVANCE OR SIGN IFICANCE AFTER LAPSE OF TIME IN A HIGHLY COMPETITIVE MARKET, WHEREIN THE PRODUCTS OF DIFFERENT COMPANIES COMPETE AND ARE AVA ILABLE IN ABUNDANCE. ADVERTISEMENTS AND SALES PROMOTION ARE C ONDUCTED TO INCREASE SALE AND THEIR IMPACT IS LIMITED AND FE LT FOR A SHORT DURATION. NO PERMANENT CHARACTER OR ADVANTAGE IS AC HIEVED AND IS PALPABLE, UNLESS SPECIAL OR SPECIFIC FACTORS ARE BROUGHT 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 WE RE NOT INCURRED ONCE AND FOR ALL, BUT WERE A PERIODICAL EX PENSES WHICH 49 HAD TO BE INCURRED CONTINUOUSLY IN VIEW OF THE NATU RE OF THE BUSINESS. IT WAS AN ON-GOING EXPENSE. GIVEN THE FAC TUAL MATRIX, IT IS DIFFICULT TO HOLD THAT THE EXPENSES WERE INCURRE D FOR SETTING THE PROFIT EARNING MACHINERY IN MOTION OR NOT FOR EARNI NG PROFITS.'. (ALSO SEE, CIT V. SPICE DISTRIBUTION LTD., I. T. A . NO. 597 OF 2014, DECIDED BY THE DELHI HIGH COURT ON SEPTEMBER 19, 20 14 [2015] 374 ITR 30 (DELHI) AND CTT V. SALORA INTERNATIONAL 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 INTANGI BLE PROPERTY IN THE FORM OF BRAND NAMES. THEY INCUR SUBSTANTIAL AMP EXPENDITURE. IF WE APPLY THE 'BRIGHT LINE TEST' WIT H REFERENCE TO INDICATORS MENTIONED IN PARAGRAPH 17.4 AS WELL AS T HE RATIO EXPOUNDED BY THE MAJORITY JUDGMENT IN L. G. ELECTRO NICS INDIA PVT LTD.'S CASE (SUPRA) IN PARAGRAPH 17.6 TO BIFURCATE AND SEGREGATE THE AMP EXPENSES TOWARDS BRAND BUILDING AND CREATIO N, THE RESULTS WOULD BE STARTLING AND UNACCEPTABLE. THE SA ME IS THE SITUATION IN CASE WE APPLY THE PARAMETERS AND THE ' BRIGHT LINE TEST' IN TERMS OF PARAGRAPH 17.4 OR AS PER THE CONT ENTION OF THE REVENUE, I.E., AMP EXPENSES INCURRED BY A DISTRIBUT OR WHO DOES NOT HAVE ANY RIGHT IN THE INTANGIBLE BRAND VALUE AN D THE PRODUCT BEING MARKETED BY HIM. THIS WOULD BE UNREALISTIC AN D IMPRACTICABLE, IF NOT DELUSIVE AND MISLEADING (AFOR ESAID REPUTED INDIAN COMPANIES, IT IS PATENT, ARE NOT TO BE TREAT ED AS COMPARABLES WITH THE ASSESSEE, I.E., THE TESTED PAR TIES IN THESE 50 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 ACCEPTANC E WHICH RESULTS IN HIGHER PRICE AND MARGINS. TRANS-BORDER BRAND REP UTATION IS RECOGNISED JUDICIALLY AND IN THE COMMERCIAL WORLD. WELL KNOWN AND RENOWNED BRANDS HAD EXTENSIVE GOODWILL AND IMAG E, EVEN BEFORE THEY BECAME FREELY AND READILY AVAILABLE IN INDIA THROUGH THE SUBSIDIARY ASSOCIATED ENTERPRISES, WHO ARE ASSE SSEES BEFORE US. IT CANNOT BE DENIED THAT THE REPUTED AND ESTABL ISHED BRANDS HAD VALUE AND GOODWILL. BUT A NEW BRAND/TRADE MARK/ TRADE- NAME WOULD BE RELATIVELY UNKNOWN. WE HAVE REFERRED TO THE SAID POSITION NOT TO MAKE A COMPARISON BETWEEN DIFFERENT BRANDS BUT TO HIGHLIGHT THAT THESE ARE RELEVANT FACTORS AND COULD AFFECT THE FUNCTION UNDERTAKEN WHICH MUST BE DULY TAKEN INTO C ONSIDERATION IN SELECTION OF THE COMPARABLES OR WHEN MAKING SUBJ ECTIVE ADJUSTMENT AND, THUS, FOR COMPUTING THE ARM'S LENGT H PRICE. THE AFORESAID DISCUSSION SUBSTANTIALLY NEGATES AND REJE CTS THE REVENUE'S CASE. BUT THERE ARE ASPECTS AND CONTENTIO NS IN FAVOUR OF THE REVENUE WHICH REQUIRES ELUCIDATION. 56.1 THUS, THE HON'BLE HIGH COURT AFTER DESCRIBING THE C ONCEPT OF THE BRAND HAD MADE A CLEAR CUT DEMARCATION BET WEEN DEVELOPMENT AND EXPLOITATION OF BRAND WHICH IS EITH ER IN THE FORM OF TRADEMARK OR GOODWILL WHICH TAKES PLACE OVER A P ASSAGE OF TIME BY WHICH ITS VALUE DEPENDS UPON AND IS ATTRIBUTABLE TO INTANGIBLES OTHER THAN TRADEMARK LIKE, INFRASTRUCTU RE, KNOWHOW, ABILITY TO COMPETE IN THE ESTABLISHED MARKET, LEASE , ETC. BRAND VALUE DOES NOT REPRESENT TRADEMARK AS ASSET AND IT IS QUITE 51 DIFFICULT TO DETERMINE AND SEGREGATE ITS VALUE. BRA ND VALUE LARGELY DEPENDS UPON THE NATURE OF GOODS AND SERVICES SOLD, AFTER SALES SERVICES, ROBUST DISTRIBUTORSHIP, QUALITY CONTROL, CUSTOMER SATISFACTION AND CATENA OF OTHER FACTORS. THE ADVER TISEMENT 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, BECAUSE MARKET VALUE OF A BRAND WOULD DEPEND UPON HOW MANY CUSTOMERS YOU HAVE, WHIC H HAS REFERENCE TO A BRAND GOODWILL. THERE ARE INSTANCES WHERE REPUTED BRAND DOES NOT GO FOR ADVERTISEMENT WITH THE INTENT ION TO INCREASE THE BRAND VALUE BUT TO ONLY INCREASE THE S ALE AND THEREBY EARNING GREATER PROFITS. IT IS ALSO NOT THE CASE HERE THAT FOREIGN AE IS IN THE BUSINESS OF SALE/TRANSFER OF B RANDS. THEIR LORDSHIPS HAVE ALSO REFERRED TO ACCOUNTING STANDARD 26 WHICH PROVIDES FOR COMPUTATION OF GOODWILL AND BRAND EQUA L VALUE AT A POINT OF TIME BUT NOT ITS FUTURE VALUATION OR HOW SUCH AN INTANGIBLE ASSET WILL GENERATE PROBABLE FUTURE BENEFIT. BECAUSE, THE VALUE OF BRAND FLUCTUATES FROM TIME TO TIME DEPENDING UPON R EPUTATION AND OTHER FACTORS. REPUTATION OF A BRAND ONLY ENHAN CES THE SALE AND PROFITABILITY AND HERE IN THIS CASE IS ONLY BEN EFITTING THE ASSESSEE COMPANY WHEN MARKETING ITS PRODUCTS USING THE TRADE MARK AND THE BRAND OF AE. EVEN OTHERWISE ALSO, THE VALUE OF THE BRAND WHICH HAS BEEN CREATED IN INDIA BY THE ASSESS EE COMPANY WILL ONLY BE RELEVANT WHEN AT SOME POINT OF TIME TH E FOREIGN AE DECIDES TO SELL THE BRAND, AND THEN PERHAPS THAT WO ULD BE THE TIME WHEN BRAND VALUE WILL HAVE SOME SIGNIFICANCE A ND RELEVANCE. BUT TO MAKE ANY TRANSFER PRICING ADJUSTMENT SIMPLY ON THE GROUND THAT ASSESSEE HAS SPENT ADVERTISEMENT, MARKE TING 52 EXPENDITURE WHICH IS BENEFITTING THE BRAND/TRADEMAR K OF THE AE WOULD NOT BE CORRECT APPROACH. THUS, THIS LINE OF R EASONING GIVEN BY THE TPO IS REJECTED. 57. THUS, ON THE FACTS OF THE PRESENT CASE, IT CA NNOT BE HELD THAT THERE WAS ANY KIND OF UNDERSTANDING OR ARRANGE MENT WITH THE AE WHICH CAN BE LEAD TO INFERENCE THAT AMP EXPE NDITURE INCURRED BY THE ASSESSEE IS AN INTERNATIONAL TRANSA CTION NOR THERE IS ANY IOTA OF MATERIAL THAT THERE WAS ANY ACTION I N CONCERT. ACCORDINGLY, WE HOLD THAT THERE IS NO INTERNATIONAL TRANSACTION OF INCURRING ANY AMP EXPENDITURE. 58. OTHERWISE ALSO, IF WE GO BY THE ALTERNATIVE ARGUMENTS PLACED BY THE LD. COUNSEL, MR. DEEPAK CHOPRA THAT I F INTENSITY APPROACH IS TO BE APPLIED TO DETERMINE THE ASSESSEE S PROFITABILITY, THEN ASSESSEE HAS EARNED A PROFIT MARGIN 15.70% AS AGAINST PLI OF THE COMPARABLE DETERMINATION BY THE TPO 4.36% AN D THEREFORE, AT THE ENTITY LEVEL PROFITABILITY ASSESSEES MARGIN WAS FAR EXCESS OF THE COMPARABLES AND ACCORDINGLY NO ADJUSTMENT ON SU CH TRANSACTION CAN BE MADE. 58. LASTLY, AS REGARDS THE SUBSTANTIVE AMP ADJUSTME NT OF APPLYING RESIDUAL PROFITS SPLIT METHODS, IT IS INCU MBENT UPON THE TPO FIRSTLY TO COMBINE PROFIT FROM THE SO CALLED IN TERNATIONAL TRANSACTION OF INCURRING OF AMP EXPENSES AND THEN S PLIT THE COMBINED PROFIT IN PROPORTION TO THE RELATIVE CONTR IBUTION MADE BY BOTH THE ENTITIES. THE MANNER IN WHICH RSPM HAS BEEN APPLIED BY THE TPO CANNOT BE HELD AS SAME IS CONSIS TENT WITH 53 RULE 10B OF THE INCOME TAX RULES. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED. CORPORATE TAX GROUNDS - DISALLOWANCE MADE UNDER SEC TION 80- IC 59. GROUND NOS. 40 TO 46 DEAL WITH DISALLOWANCE OF DEDUCTION UNDER SECTION 80-IC OF THE ACT. BRIEFLY STATED, TH E FACTS OF THIS GROUND ARE THAT THE ASSESSEE HAS THREE MANUFACTURIN G UNITS IN INDIA, VIZ., MANESAR - HARYANA, CHENNAI TAMIL NAD U AND RUDRAPUR UTTARAKHAND, VIZ THE ELIGIBLE UNIT. IN T HE YEAR UNDER CONSIDERATION, THE UNIT AT RUDRAPUR CLAIMED DEDUCTI ON UNDER SECTION 80-IC OF THE ACT, AMOUNTING TO RS. 43,62,65 ,693/-. THE DEDUCTION UNDER SECTION 80-IC WAS CLAIMED FOR THE F IRST TIME IN AY 2008-09 AND THIS WAS THE NINTH YEAR OF DEDUCTION AND CONSEQUENTIALLY, ONLY 30% OF THE PROFITS EARNED BY ELIGIBLE UNIT WERE CLAIMED AS A DEDUCTION. WE ARE GIVEN TO UNDER STAND THAT FOR THE PURPOSES OF COMPUTING THE DEDUCTION, SPECIFIC E XPENSES INCURRED ON A PARTICULAR BRAND WERE SHOWN SEPARATEL Y AGAINST THAT BRAND AND WERE CHARGED TO THE UNIT WHERE THE B RAND WAS MANUFACTURED. IN CASE, THE BRAND WAS MANUFACTURED BY BOTH THE ELIGIBLE AS WELL NON-ELIGIBLE UNIT, THE EXPENSE WAS ALLOCATED ON THE BASIS OF INDIVIDUAL BRAND SALES RATIO, I.E., RATIO OF UNIT WISE SALES VALUE OF BRAND OR PRODUCT UPON TOTAL SALES VALUE OF BRAND. COMMON EXPENSES, WHICH WERE NOT DIRECTLY IDENTIFIAB LE WITH ANY OF THE BRAND /UNIT WERE ALLOCATED BETWEEN THE ELIGI BLE UNIT AND NON-ELIGIBLE UNIT ON THE BASIS OF TURNOVER RATIO, I .E., RATIO OF TOTAL SALES OF ELIGIBLE UNIT UPON TOTAL SALES OF PVM INDI A. THE SAID RATIO, FOR THE YEAR UNDER CONSIDERATION, WAS WORKED OUT TO BE 54 51.26: 48.74 AND ALL THE COMMON EXPENSES WHICH WERE NOT DIRECTLY IDENTIFIABLE WITH ANY OF THE BRAND / UNIT WERE ALLOCATED TO THE ELIGIBLE UNIT IN THIS RATIO. THE ASSESSING OFFI CER, HOWEVER, REJECTED THE ALLOCATION OF EXPENSES CARRIED OUT BY THE ASSESSEE WHILST FOLLOWING THE RATIO LAID DOWN IN THE CIT(A) S ORDER FOR AY 2009-10. IN THAT YEAR, THE CIT (A) HAD RE-COMPUTED THE TURNOVER RATIO AFTER EXCLUDING EXCISE DUTY FROM SALES OF NON -ELIGIBLE UNITS. FOLLOWING THE FINDINGS GIVEN BY THE CIT(A) IN AY 20 09-10, THE AO RECOMPUTED THE TURNOVER RATIO FOR THE YEAR UNDER CO NSIDERATION AT 52.97 : 47.03 AND ACCORDINGLY, DISALLOWED DEDUCTION SO CLAIMED TO THE EXTENT OF RS. 17,96,61,158/-. AGGRIEVED, TH E ASSESSEE IS IN APPEAL BEFORE US. 60. THE LD. COUNSEL SUBMITTED THAT THE BESIDES THE ALLOCATION BEING PURELY ARBITRARY AND PATENTLY ILLEGAL, THE DI SALLOWANCE WORKED OUT BY THE AO SUFFERED FROM VARIOUS FLAWS. HE SUBMITTED THAT SECTION 145A OF THE ACT, WHICH DEALS WITH METH OD OF ACCOUNTING FOR INCOME TAX PURPOSES, SPECIFICALLY PR OVIDES THAT SALE OF GOODS SHOULD BE INCLUSIVE OF THE AMOUNT OF TAX, DUTY, CESS OR FEES ACTUALLY PAID OR INCURRED BY THE ASSESSEE. THUS, EXCLUSION OF EXCISE DUTY FOR THE PURPOSE OF CALCULATING TURNO VER IS CONTRARY TO THE MANDATE OF THE TAXING STATUTE. FURTHER, HE DREW OUR ATTENTION TO THE DEFINITION OF THE TERM TURNOVER UNDER VARIOUS STATUTES. 61. THE CENTRAL SALES TAX ACT, 1956 DEFINES TURNOV ER AS FOLLOWS: 55 TURNOVER USED IN RELATION TO ANY DEALER LIABLE TO TAX UNDER THIS ACT MEANS THE AGGREGATE OF THE SALE PRICES RECEIVED AND RECEIVABLE BY HIM IN RESPECT OF SALES OF ANY GOODS IN THE COURSE OF INTER-STATE TRADE OR COMMERCE MADE DURING ANY PR ESCRIBED PERIOD AND DETERMINED IN ACCORDANCE WITH THE PROVIS IONS OF THE ACT AND RULES MADE THERE UNDER. 62. FURTHER, SECTION 8A(1) OF THE SAID ACT, PROVIDE S THAT IN DETERMINING TURNOVER, DEDUCTION OF SALES TAX SHOULD BE MADE FROM THE AGGREGATE OF SALES PRICE. 63. THE TERM 'TURNOVER' HAS ALSO BEEN DEFINED UNDER SECTION 2(91) OF THE COMPANIES ACT, 2013 AS FOLLOWS: '2(91) TURNOVER MEANS THE AGGREGATE VALUE OF THE REALISATION OF AMOUNT MADE FROM THE SALE, SUPPLY OR DISTRIBUTION O F GOODS OR ON ACCOUNT OF SERVICES RENDERED, OR BOTH, BY THE COMPA NY DURING A FINANCIAL YEAR. 64. THUS, AS PER COMPANIES ACT, 2013, THE TERM TURN OVER MEANS THE SUM REALIZED BY SALE OF PRODUCTS WHICH IS INCLUSIVE OF EXCISE DUTY AND THUS, EXCLUDING THE SAME FOR THE PU RPOSE OF CALCULATING TURNOVER FOR ALLOCATION WILL LEAD TO AN IRRATIONAL ALLOCATION RATIO. 65. IN ADDITION THERETO, THE LD. COUNSEL SUBMITTED THAT EXCISE DUTY ARISES AS A CONSEQUENCE OF MANUFACTURE OF EXCI SABLE GOODS AND IS AS MUCH A COST FOR A COMPANY AS ANY OTHER EX PENDITURE. TO SUPPORT HIS ARGUMENT, HE REFERRED TO GUIDANCE N OTE ON ACCOUNTING TREATMENT FOR EXCISE DUTY ISSUED BY INS TITUTE OF CHARTERED ACCOUNTANT OF INDIA (ICAI), WHICH READ AS UNDER: 56 10. ADMITTEDLY, EXCISE DUTY IS AN INDIRECT TAX BUT IT CANNOT, FOR THAT REASON ALONE, BE TREATED DIFFERENTLY FROM OTHER EXPENSES. EXCISE DUTY ARISES AS A CONSEQUENCE OF MANUFACTURE OF EXCISABLE GOODS IRRESPECTIVE OF THE MANNER OF USE/DISPOSAL OF GOODS THEREAFTER, E.G., SALE, DESTR UCTION AND CAPTIVE CONSUMPTION. IT DOES NOT CEASE TO BE A LEVY MERELY BECAUSE THE SAME MAY BE REMITTED BY APPROPRIATE AUT HORITY IN CASE OF DESTRUCTION OR EXEMPTED IN CASE GOODS AR E USED FOR FURTHER MANUFACTURE OF EXCISABLE GOODS IN THE FACTO RY. TAX (OTHER THAN A TAX ON INCOME OR SALE) PAYABLE BY A MANUFACTURER IS AS MUCH A COST OF MANUFACTURE AS AN Y OTHER EXPENDITURE INCURRED BY HIM AND IT DOES NOT CEASE T O BE AN EXPENDITURE MERELY BECAUSE IT IS AN EXACTION OR A L EVY OR BECAUSE IT IS UNAVOIDABLE. IN FACT, IN A WIDER CONT EXT, ANY EXPENDITURE IS AN IMPOSITION WHICH A MANUFACTURER W OULD LIKE TO MINIMISE. 66. IN VIEW THEREOF, THE LD. AR SUBMITTED THAT THE EXCISE DUTY PAID IS AN EXPENSE AGAINST THE SALE VALUE AND HENCE , SHOULD NOT BE REDUCED FROM SALES TO ARRIVE AT CORRECT ALLOCATI ON RATIO. IN ADDITION THERETO, IT WAS ALSO POINTED OUT BY THE LD . AR, THAT IN ASSESSEES OWN CASE FOR AY 2011-12, THE AO HAD ACCE PTED THE DEDUCTION CLAIMED BY THE ASSESSEE AND HAD NOT OBJEC TED TO THE INCLUSION OF EXCISE DUTY IN THE TOTAL TURNOVER AND THEREFORE, IT WAS NOT OPEN TO THE AO TO ADOPT AN INCONSISTENT APPROAC H IN THE YEAR UNDER CONSIDERATION. 57 67. BESIDES THE ABOVE, IT WAS POINTED OUT THAT THE AO HAD ERRONEOUSLY ASSUMED THE TOTAL AMOUNT OF AMP EXPENSE S OF RS. 110,56,61,711/- AS THE COMMON UN-ALLOCABLE ADVERTIS ING EXPENSES AND HAD BIFURCATED THEM BASIS TURNOVER RAT IO. HE SUBMITTED THAT A LARGE PORTION OF ADVERTISING EXPEN SES WAS SPECIFICALLY IDENTIFIABLE TO EACH BRAND AND HAD BEE N ALLOCATED ON THAT BASIS ONLY. HE FILED A DETAILED CHART EXPLAIN ING THE ALLOCATION OF ADVERTISING EXPENSES. FROM A READING OF CHART A , IT WAS SHOWN THAT THE ASSESSEE HAD INCURRED TOTAL ADVERTISING EX PENSES OF RS. 115,55,70,416. FROM THE SAID FIGURE, AN AMOUNT OF R S. 4,99,08,629, BEING SPECIFICALLY ALLOCABLE TO THE EL IGIBLE UNIT, WAS REDUCED TO ARRIVE AT THE FIGURE OF RS. 110,56,61,78 7. THEREAFTER, THE ADVERTISING EXPENSES WERE BIFURCATED BASIS THE INDIVIDUAL BRAND WISE SALES RATIO. CHART B DEPICTS THE INDIVID UAL BRAND SALES WISE ALLOCATION OF EXPENSES TO THE ELIGIBLE UNIT. O N PERUSAL OF CHART B, IT CAN BE SEEN THAT BRANDS SUCH AS BIG BAB OOL, CENTRE FRESH, CENTRE FRUIT, CREAMFILLZ, ALPENLIEBE MANGOFI LLZ WERE MANUFACTURED AT THE ELIGIBLE UNIT AND THAT BIG BABO OL, CREAMFILLZ AND ALPENLIEBE MANGOFILLZ WAS EXCLUSIVELY MANUFACTU RED AT THE RUDRAPUR UNIT AND THEREFORE, THE ENTIRE ADVERTISING EXPENDITURE SPECIFICALLY IDENTIFIABLE TO THESE BRANDS WAS ALLOC ATED TO THE ELIGIBLE UNIT AT RUDRAPUR. FOR THE REST OF THE BRA NDS, SUCH AS CENTRE FRUIT AND CENTRE FRESH, EXPENSE WAS ALLOCATE D BASIS BRAND WISE SALES EFFECTED FROM THE ELIGIBLE UNIT. FOR E.G., 81.57% OF THE TOTAL SALES OF CENTRE FRESH BRAND WAS EFFE CTED FROM THE ELIGIBLE UNIT AND THEREFORE, 81.57% OF THE ADVERTIS EMENT EXPENDITURE INCURRED IN RELATION TO CENTRE FRESH BRAND WAS ALLOCATED / CHARGED TO THE ELIGIBLE UNIT. LIKEWISE 90.57% OF THE 58 TOTAL UNITS SOLD OF CENTRE FRUIT BRAND WAS PRODUC ED BY THE ELIGIBLE UNIT AND THEREFORE, 90.57% OF THE ADVERTIS EMENT EXPENDITURE INCURRED IN RELATION TO CENTRE FRUIT BRAND WAS ALLOCATED / CHARGED TO THE ELIGIBLE UNIT. THE REMAI NING EXPENSES THAT COULD NOT BE ALLOCATED BASIS ON THE BRAND WISE SALES RATIO WERE ALLOCATED ON THE BASIS OF TURNOVER RATIO. AS C AN BE SEEN FROM CHART B, EXPENSES UNDER THE GL CODE CORPORATE AND BRAND CODE HAVE BEEN ALLOCATED ON THE BASIS OF TURNOVER RATIO. THE ALLOCATION OF THE EXPENSES BETWEEN THE ELIGIBLE AND NON-ELIGIBLE UNITS WAS ACCORDINGLY, WORKED OUT AS UNDER:- S.NO. ADVERTISING EXPENSES TOTAL EXPENSES ELIGIBLE UNIT NON - ELIGIBLE UNIT ADVERTISING EXPENSES DIRECTLY IDENTIFIABLE TO ELIGIBLE UNIT 4,99,08,629 4,99,08,629 - ADVERTISIN G EXPENSES DIRECTLY IDENTIFIABLE TO NON- ELIGIBLE UNIT 58,00,96,923 - 58,00,96,923 ADVERTISING EXPENSES SPECIFICALLY IDENTIFIABLE (A) 63,00,05,552 4,99,08,629 58,00,96,923 ADVERTISING EXPENSES ALLOCATED ON THE BASIS OF 35,68 ,39,196 31,13,61,383 4,54,77,813 59 INDIVIDUAL BRAND SALES RATIO ADVERTISING EXPENSES ALLOCATED ON THE BASIS OF TURNOVER RATIO 16,87,25,668 8,64,95,701 8,22,29,967 COMMON ALLOCABLE ADVERTISING EXPENSES (B) 52,55,64,86 5 TOTAL (A+B) 115,55,70,416 44 , 77 ,65,713 70,78,04,703 68. BASIS THE AFORESAID WORKING, IT WAS CONTENDED B Y THE LD. AR THAT INSTEAD OF RS. 110,56,61,711/-, AN AMOUNT OF R S. 52,55,64,865/- SHOULD HAVE BEEN CONSIDERED AS THE C OMMON UN- ALLOCABLE ADVERTISEMENT EXPENSES. 69. WITHOUT PREJUDICE TO ABOVE, HE ALSO SUBMITTED T HAT THE AO HAS ERRED IN MAKING 100% DISALLOWANCE OF COMMON OVE RHEAD EXPENSES ALLOCATED TO THE NON-ELIGIBLE UNIT WITHOUT CONSIDERING THE FACT THAT AS THE ASSESSEE HAD CLAIMED DEDUCTION OF ONLY 30% OF THE PROFITS DERIVED FROM THE ELIGIBLE UNIT AS PE R SECTION 80- IC(2)(A) OF THE ACT, THEREFORE, DISALLOWANCE IF ANY SHOULD ALSO BE RESTRICTED TO 30% OF THE EXPENDITURE ALLOCATED TO N ON-ELIGIBLE UNIT. 70. ON THE OTHER HAND, THE LD. DR RELIED UPON THE F INDINGS GIVEN BY THE AO AND DRP. 60 DECISION 71. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS AS WELL AS MA TERIAL REFERRED TO BEFORE US IN RESPECT OF THE DISALLOWANCE MADE BY THE AO IN RESPECT OF THE DEDUCTION CLAIMED UNDER SECTION 80-I C OF THE ACT. 72. THE FOLLOWING ISSUES EMERGE FOR OUR CONSIDERATI ON- I. WHETHER GIVEN THE ACTUAL ALLOCATION OF EXPENSES DON E BY THE ASSESSEE COULD BE DISTURBED BY THE AO SO AS TO ATTRIBUTE SUCH EXPENSES ON THE BASIS OF THE SALES TURNOVERS O F THE ELIGIBLE AND NON-ELIGIBLE UNITS. II. ALTERNATIVELY EVEN IF THE UNALLOCATED EXPENSES HAD TO. BE ATTRIBUTED, COULD THE ASSESSING OFFICER HAVE REDUCE D THE SALES TURNOVERS BY THE ELEMENT OF EXCISE DUTY QUA THE INE LIGIBLE UNITS. III. WHETHER OWING TO THE ALLOCATION OF EXPENSES TO THE ELIGIBLE UNIT, THE CONSEQUENTIAL DISALLOWANCE WOULD BE RESTR ICTED TO 30% GIVEN THAT THIS WAS THE NINTH YEAR OF DEDUCTION CLAIMED BY THE 80IC UNIT AT RUDRAPUR AND WAS ELIGIBLE ONLY TO 30% DEDUCTION IN THAT YEAR 73. AS REGARDS THE FIRST ISSUE, THE ASSESSEE HAS SU BMITTED THREE CHARTS BEFORE US WHEREIN CHART A DEPICTS THE DETA ILS OF ADVERTISEMENT EXPENSES INCURRED ON COMMON BRANDS MANUFACTURED AT EACH UNITS FOR THE SUBJECT YEAR, C HART B DEPICTS THE TOTAL ADVERTISEMENT EXPENSES INCURRED O N VARIOUS BRANDS PRODUCT WISE, CHART C SHOWS DETAILS OF ALL OCATION OF 61 COMMON EXPENSE BETWEEN THE ELIGIBLE AND NON-ELIGIBL E UNITS. ONE MAJOR DISCREPANCY THAT HAS BEEN POINTED OUT BY THE L D. COUNSEL OF THE ASSESSEE IS QUA THE ALLOCATION OF ADVERTISIN G AND MARKETING EXPENSES TO THE TUNE OF RS. 110,56,61,711/-. HE POI NTED OUT THAT A LARGE PORTION OF THE ADVERTISING EXPENSES WERE SP ECIFICALLY IDENTIFIABLE TO EACH BRAND AND WAS ALLOCATED ON THA T BASIS. FROM A PERUSAL OF CHART A IT WAS SHOWN BY THE ASSESSEE THAT IT HAS INCURRED TOTAL ADVERTISING EXPENSES OF RS. 115,55,7 0,416/-. OUT OF THESE EXPENSES, THE EXPENSES OF RS. 4,99,08,629/ - WERE SPECIFICALLY ALLOCABLE TO THE ELIGIBLE UNIT WHICH L EFT THE BALANCE EXPENSES OF RS. 110,56,61,787/-. THESE BALANCE EXPE NSES HAVE BEEN ALLOCATED IN CHART B ON A BRAND WISE BASIS. WHAT IS NOTEWORTHY THAT WHILE ALLOCATING THESE EXPENSES BRA ND WISE BETWEEN THE ELIGIBLE AND NONELIGIBLE UNITS BASED ON THE ACTUAL MANUFACTURE IN THESE UNITS, THE ADVERTISING EXPENSE S HAVE BEEN ALLOCATED BY THE ASSESSEE. THIS METHODOLOGY WAS BR OUGHT TO THE ATTENTION OF AO BY WAY OF ITS LETTER DATED 28.11.20 19 WHICH IS ANNEXED AT PAGES 511 TO 520 OF THE PAPER BOOK. THI S HAS NOT BEEN DISPUTED BY THE AO. WE FIND THAT AFTER THESE ACTUAL ALLOCATIONS ONLY AN AMOUNT OF RS. 52,55,64,865/- AR E LEFT TO BE ALLOCATED BETWEEN THE ELIGIBLE AND NON-ELIGIBLE UNI TS, WHICH BRINGS US TO THE SECOND ISSUE. 74. THE SECOND ISSUE WHICH REQUIRED OUR CONSIDERATI ON IS WHETHER THE LOWER AUTHORITIES WERE CORRECT IN REDUC ING THE ELEMENT OF EXCISE DUTY FROM THE TOTAL SALES TURNOVE R OF THE INELIGIBLE UNIT SO AS TO DETERMINE THE RATIO OF ALL OCATION BETWEEN THE ELIGIBLE AND NON-ELIGIBLE UNITS. THE ASSESSEE WHILE ALLOCATING 62 THE UN ALLOCABLE COMMON EXPENSES, WHICH WERE NOT ID ENTIFIABLE TO ANY BRAND OR UNIT, ALLOCATED SUCH EXPENSES ON THE B ASIS OF TURNOVER RATIOS, I.E. RATIOS OF TOTAL SALES OF ELIG IBLE UNIT UPON TOTAL SALES OF PVM INDIA. THE SAID RATIO FOR THE YEAR UND ER CONSIDERATION WAS WORKED OUT TO BE 51.26: 48.74 AND ALL COMMON EXPENSES WERE ALLOCATED ON THIS BASIS. THE AO HOWEV ER REJECTED THIS BASIS OF ALLOCATION AND WHILE DETERMINING THE PERCENTAGE OF EXPENSES TO BE ALLOCATED SIMPLY REMOVED THE ELEMENT OF EXCISE DUTY FROM THE TURNOVER OF THE INELIGIBLE UNITS WHIC H CHANGED THE PERCENTAGE ADOPTED BY THE ASSESSEE AT 51.26 % TO 52 .97% WHICH RESULTED IN THE ADDITION OF RS. 17,96,61,158/- AND THE CONSEQUENTIAL DEDUCTION UNDER SECTION 80IC. WHILE DOING SO THE AO RELIED ON THE ORDER OF THE CIT (A) FOR AY 2009-1 0. 75. GIVEN THE ABSENCE OF ANY ERROR POINTED OUT BY T HE LOWER AUTHORITIES, WE FIND NO JUSTIFICATION IN THE REDUCTI ON OF THE TURNOVER OF THE INELIGIBLE UNITS BY THE EXCISE DUTY WHICH HAS DISTURBED THE OVERALL ALLOCABLE PERCENTAGES. WE FIN D FORCE IN THE CONTENTION OF THE ASSESSEE THAT EVEN FOR THE PURPOS ES OF SECTION 145A OF THE ACT WHICH DEALS WITH THE METHOD OF ACCO UNTING FOR INCOME TAX PURPOSES SPECIFICALLY PROVIDES THAT THE SALE OF GOODS SHOULD BE INCLUSIVE OF THE AMOUNT OF TAX, DUTY, CES S OR FEES ACTUALLY PAID OR INCURRED BY THE ASSESSEE. THE LD. COUNSEL ALSO PLACED RELIANCE ON THE DEFINITION OF THE TERM TURNO VER UNDER THE CENTRAL SALES TAX ACT AND THE COMPANIES ACT. 76. WE ALSO FIND THAT THE ASSESSEE HAS FILED A COPY OF THE ORDER OF THE CIT(A) FOR AY 2009-10 WHICH IS PLACED ON PAG ES 525 OF THE 63 PAPER BOOK. A PERUSAL OF THE SAID ORDER SHOWS THAT THE CIT(A) DISCARDED THE APPROACH OF THE ASSESSEE IN TERMS OF TAKING THE TURNOVER BASIS FOR ALLOCATING THE COMMON EXPENSES, WHICH FOR THE INELIGIBLE UNITS INCLUDED THE ELEMENT OF EXCISE DUT Y. HE DETERMINED SUCH ALLOCATION ON THE BASIS OF THE TONN AGE PRODUCTION BETWEEN THESE UNITS AND THUS, ARRIVED AT A DIFFERENT PERCENTAGE FOR ALLOCATION OF SUCH EXPENSES. THE CI T(A) ALSO RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS LTD. ((2007) 160 TAXMAN 4 04) TO SUPPORT HIS CONTENTION THAT EXCISE DUTY HAD NOTHING TO DO WITH THE COST OF PRODUCTION AND AS SUCH SHOULD NOT BE CO NSIDERED FOR COMPUTING THE TURNOVER. WE FIND THAT THE METHODOLO GY APPLIED BY THE CIT (A) IN AY 2009-10 CANNOT BE BLINDLY APPL IED IN EVERY YEAR BECAUSE THAT WAS BASED ON TOTAL PRODUCTION BET WEEN THE UNITS. WE ALSO FIND THAT THE CIT (A) HAS GROSSLY MI SAPPLIED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F LAKSHMI MACHINE WORKS (SUPRA). THAT WAS A CASE RELATING TO THE DEDUCTION UNDER SECTION 80HHC AND THE ISSUE INVOLVED WAS REGA RDING THE COMPUTATION OF THE ELIGIBLE PROFITS. THE ISSUE WHIC H WAS CONSIDERED BY THE SUPREME COURT WAS REGARDING THE INTERPRETATION OF THE TERM TOTAL TURNOVER IN THE FORMULAE CONTAINED IN SECTION 80HHC(3) AND WHETHER EXCISE DU TY AND SALES TAX COULD FORM PART OF THE TOTAL TURNOVER BEI NG THE DENOMINATOR IN THE SAID FORMULAE. IT WAS IN THAT C ONTEXT THE SUPREME COURT OBSERVED THAT FOR THE PURPOSES OF COM PUTING DEDUCTION UNDER SECTION 80HHC, EXCISE DUTY AND SALE S TAX SHOULD NOT BE CONSIDERED AS PART OF THE TOTAL TURNO VER SINCE THEY HAVE NO BEARING ON THE ACTIVITY OF EXPORTS AND WOUL D MAKE THE 64 FORMULAE UNWORKABLE. THUS, IN OUR VIEW, RESPECTFUL LY THIS DECISION HAS NO BEARING ON THE MATTER. 77. WE FIND SUPPORT IN THE ORDER OF THE COORDINATE BENCH IN THE CASE OF INDICA INDUSTRIES PVT. LTD. V. ACIT, (2018 53 CCH 0516(DELHI)), WHERE IT HAS BEEN HELD THAT WHERE THE ASSESSEE ADOPTED A REASONABLE BASIS FOR ALLOCATION OF EXPENS ES, THERE WAS NO WARRANT FOR INTERFERENCE TO CHANGE SUCH BASIS. ANOTHER COORDINATE BENCH IN THE CASE OF MAHLE FILTER SYSTEM PVT. LTD. V. ACIT, (2019 56 CCH 0226(DELHI)) HAS ALSO ACCEPTED T HE APPORTIONMENT OF EXPENSES ON THE BASIS OF SALES. W E ALSO FIND SUPPORT FROM THE DECISION OF THE DELHI TRIBUNAL IN HERO MOTOCORP LTD. V. DCIT, (2018 53 CCH 200(DELHI)), WHERE WHILE EXAMINING THE ISSUE OF THE COMPARISON OF PRICE BETWEEN GOODS PROCURED FROM THIRD PARTY VENDORS AND THE NON-ELIGIBLE UNITS, THE COORDINATE BENCH HELD THAT A DIFFERENT FORMULA CANNOT BE APPLI ED AND WHILE TAKING THE COST OF SUCH MATERIAL AND THE SAME YARDS TICK HAS TO BE APPLIED AND NO FURTHER SUBSTITUTION IS WARRANTED. THE TURNOVER BASIS HAS ALSO BEEN ACCEPTED AS A REASONABLE BASIS FOR ALLOCATION OF COMMON EXPENSES IN DR. REDDYS LABORATORIES LTD. VS. ACIT (2013) (37 CCH 532) (HYD.). 78. THUS, WE DO NOT FIND ANY BASIS FOR THE CHANGE O F ALLOCATION FROM THE TURNOVER BASIS TO THE PRODUCTION BASIS SIN CE THE PRODUCTION BASIS DOES NOT REFLECT ALL THE COSTS REL ATING TO THE MANUFACTURING. IN OUR VIEW, THE BASIS OF ALLOCATIO N DONE BY THE ASSESSEE BY TAKING THE ACTUAL TURNOVER OF THE ELIGI BLE AND NON- ELIGIBLE UNITS WAS A REASONABLE BASIS SINCE THE NON -ELIGIBLE UNITS 65 WERE SUBJECTED TO EXCISE DUTY AND THERE WAS NO REAS ON TO REDUCE THE ELEMENT OF EXCISE DUTY WHILE TAKING THE TURNOVE R OF THE NON- ELIGIBLE UNITS FOR ALLOCATION OF COMMON EXPENSES. 79. THE LAST ISSUE WHICH HAS BEEN RAISED BY THE ASS ESSEE IS THAT HAVING ALLOCATED THE COMMON EXPENSES IF THERE RESUL TED IN ANY CONSEQUENTIAL ALLOCATION OF EXPENSES TO THE ELIGIBL E UNIT THEN THE REDUCTION OF THE 80IC CLAIM WOULD BE LIMITED TO 30% OF SUCH EXPENSES. WE FIND FORCE IN THIS CONTENTION OF THE A SSESSEE GIVEN THAT THIS WAS THE NINTH YEAR OF SUCH CLAIM BY THE A SSESSEE IN RESPECT OF SUCH UNIT. AS PER THE APPLICABLE PROVISI ON OF SECTION 80IC THE DEDUCTION IS 100% OF THE ELIGIBLE PROFITS FOR THE FIRST FIVE YEARS AND 30% OF THE ELIGIBLE PROFITS FOR THE BALAN CE FIVE YEARS. THUS IF AT ALL ANY REDUCTION OF THE CLAIM HAD TO BE MADE BY THE AO IT HAS TO BE LIMITED TO 30% OF SUCH ALLOCABLE EX PENSES AND NO MORE. 80. IN RESULT THEREOF, GROUNDS NOS. 40 TO 46 ARE AL LOWED. 81. THERE ARE CERTAIN OTHER GROUNDS OF APPEAL BEING GROUND NOS. 48 AND 49 RAISED BY THE ASSESSEE IN ITS APPEA L WHICH PERTAIN TO THE LEVY OF INTEREST AS WELL AS INITIATION OF PE NALTY PROCEEDINGS AND AS SUCH ARE CONSEQUENTIAL IN NATURE. THEREFORE, THE SAME ARE PRE-MATURE AT THIS STAGE AND HENCE ARE BEING DISMIS SED. RE: ADDITIONAL GROUND EDUCATION CESS 82. THE ASSESSEE HAS FILED AN ADDITIONAL GROUND BEFORE US SEEKING ALLOWABILITY OF THE EDUCATION CESS PAID BY IT, FOR THE CAPTIONED ASSESSMENT YEAR. IT WAS ARGUED THAT BEING A LEGAL 66 GROUND CAN BE TAKEN UP AT ANY TIME BEFORE THE HIGHE R AUTHORITIES. THE LD. AR RELIED ON THE JUDGMENT OF THE HONBLE AP EX COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT : (1998) 229 ITR 383. ADMISSION OF ADDITIONAL GROUND HAS BEEN OP POSED IN PRINCIPLE BY THE LD. DR. 82. BEFORE US, LD. COUNSEL HAS RELIED UPON THE DECI SION OF CO- ORDINATE BENCH IN THE CASE OF M/S. EXPEDITORS INTER NATIONAL (INDIA) PVT. LTD VS. DCIT, IN ITA NO. 2242/DEL/2015 VIDE ORDER DATED 30.07.2021 WHEREIN SIMILAR ADDITIONAL GROUND WAS ADMITTED AND MATTER WAS DECIDED IN FAVOUR OF THE AS SESSEE. 83. SINCE IT IS PURELY A LEGAL GROUND, THEREFOR E, SAME IS BEING ADMITTED HEREINAFTER. 84. THE CLAIM OF THE ASSESSEE IS THAT EDUCATION CES S IS AN ALLOWABLE BUSINESS EXPENDITURE AND IT IS NOT HIT BY THE SECTION 40(A)(II) WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER: AMOUNTS NOT DEDUCTIBLE, - NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNT S SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD 'PROFITS & GAINS OF BUSINESS OR PROFESSION', - (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEV IED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE BASED ON, ANY SUCH PROFITS OR GAIN S.' THUS, AS PER THE PROVISIONS OF SECTION 40(A)(II) OF THE ACT, ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX SHALL BE DISALLO WED IN THE FOLLOWING TWO CASES: 67 A) WHERE THE SAID RATE OR TAX IS LEVIED ON THE PRO FITS OR GAINS OF ANY BUSINESS OR PROFESSION, OR B) WHERE THE AFORESAID RATE OR TAX IS ASSESSED AT A PROPORTION OF OR OTHERWISE BASED ON ANY SUCH PROFITS OR GAINS. 85. THE CONTENTION OF THE ASSESSEE IS THAT WHAT H AS BEEN ENVISAGED IN THE SECTION IS THAT, RATES AND TAXES L EVIED ON PROFITS AND GAINS OF BUSINESS IS NOT BE ALLOWED, AND SINCE CESS HAS NOT BEEN MENTIONED, THEREFORE IT IS NOT DISALLOWABLE AN D IN SUPPORT RELIANCE HAS BEEN PLACED ON CERTAIN DECISIONS WHICH WE SHALL DISCUSS HEREIN AFTER. 86. FIRST OF ALL WE HAVE TO EXAMINE WHETHER CESS IS PART OF TAX AND RATE OR SURCHARGE. AT PRESENT, ON INCOME TAX AN D SURCHARGE 2% EDUCATION CESS AND 1% SECONDARY AND HIGHER EDUCA TION CESS IS CHARGED ON THE AMOUNT OF INCOME TAX. IT WAS INTR ODUCED FOR THE FIRST TIME BY THE FINANCE BILL (2) OF 2004 AS UNDER :- CHAPTER VI EDUCATION CESS. 81. (1) WITHOUT PREJUDICE TO THE PROVISIONS OF SUB-SEC TION (11) OF SECTION 2, THERE SHALL BE LEVIED AND COLLEC TED, IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER AS SURCHARGE FOR PURPOSES OF THE UNION , A CESS TO BE CALLED THE EDUCATION CESS, TO FULFIL THE COMMITMENT OF THE GOV ERNMENT TO PROVIDE AND FINANCE UNIVERSALISED QUALITY BASIC EDUCATION. (2) THE CENTRAL GOVERNMENT MAY, AFTER DUE APPROPRIA TION MADE BY PARLIAMENT BY LAW IN THIS BEHALF, UTILISE, SUCH SUMS OF MONEY OF THE EDUCATION CESS LEVIED UNDER SUB-SEC TION (11) OF SECTION 2 AND THIS CHAPTER FOR THE PURPOSES SPECIFIED IN SUB-SECTION (1), AS IT MAY CONSIDER NECESSARY. 68 DEFINITION. 82. THE WORDS AND EXPRESSIONS USED IN THIS CHAPTER AND DEFINED IN THE CENTRAL EXCISE ACT, 1944 (1 OF 1944) , THE CUSTOMS ACT, 1962 (52 OF 1962) OR CHAPTER V OF THE FINANCE ACT, 1994 (32 OF 1994), SHALL HAVE THE MEANINGS RES PECTIVELY ASSIGNED TO THEM IN THOSE ACTS OR CHAPTER, AS THE C ASE MAY BE. NOTES ON CLAUSES OF THAT FINANCE BILL PROVIDED AS U NDER:- IT IS ALSO PROPOSED THAT THE AMOUNT OF INCOME-TAX AS SPECIFIED IN SUB-CLAUSES (4) TO (10) OF CLAUSE 2 OF THE FINANCE (NO. 2) BILL, 2004 AND AS INCREASED BY A SURCHARGE FOR PURPOSES OF THE UNION CALCULATED IN THE MANNER PROV IDED THEREIN, SHALL BE FURTHER INCREASED BY AN ADDITIONAL SURCHARGE FOR PURPOSES OF THE UNION, TO BE CALLED T HE 'EDUCATION CESS ON INCOME-TAX' SO AS TO FULFIL THE COMMITMENT OF GOVERNMENT TO PROVIDE AND FINANCE UNIVERSALISED QUALITY BASIC EDUCATION, CALCULATED A T THE RATE OF TWO PER CENT, OF SUCH INCOME-TAX AND SURCHARGE. THE EDUCATION CESS ON INCOME-TAX SHALL BE PAYABLE DURIN G THE PREVIOUS YEAR BEGINNING ON 1ST APRIL, 2004. 87. THE MEMORANDUM EXPLAINING THE PROVISIONS OF T HE FINANCE BILL PROVIDES AS UNDER:- II. RATES FOR DEDUCTION OF INCOME-TAX AT SOURCE DURING THE FINANCIAL YEAR 2004-05 FROM INCOME OTHER THAN 'SALARIES' AN ADDITIONAL SURCHARGE, TO BE CALLED THE EDUCATION CESS TO FINANCE THE GOVERNMENTS COMMITMENT TO UNIVERSA LISE 69 QUALITY BASIC EDUCATION, IS PROPOSED TO BE LEVIED A T THE RATE OF TWO PER CENT ON THE AMOUNT OF TAX DEDUCTED OR ADVAN CE TAX PAID, INCLUSIVE OF SURCHARGE. III. RATES FOR DEDUCTION OF INCOME-TAX AT SOURCE FROM 'SALARIES', COMPUTATION OF 'ADVANCE TAX' AND CHARGIN G OF INCOME-TAX IN SPECIAL CASES DURING THE FINANCIAL YEA R 2004- 2005. THE RATES FOR DEDUCTION OF INCOME-TAX AT SOURCE FRO M 'SALARIES' DURING THE FINANCIAL YEAR 2004-2005 AND ALSO FOR COM PUTATION OF 'ADVANCE TAX' PAYABLE DURING THAT YEAR IN THE CASE OF A LL CATEGORIES OF TAXPAYERS HAVE BEEN SPECIFIED IN PART 11 1 OF THE FIRST SCHEDULE TO THE BILL. THESE RATES ARE ALSO APPLI CABLE FOR CHARGING INCOME-TAX DURING THE FINANCIAL YEAR 2004- 2005 ON CURRENT INCOMES IN CASES WHERE ACCELERATED ASSESSMEN TS HAVE TO BE MADE, E.G., PROVISIONAL ASSESSMENT OF SHIPPING PR OFITS ARISING IN INDIA TO NON-RESIDENTS, ASSESSMENT OF PERSONS LEAV ING INDIA FOR GOOD DURING THAT FINANCIAL YEAR, ASSESSMENT OF PER SONS WHO ARE LIKELY TO TRANSFER PROPERTY TO AVOID TAX, OR ASSESS MENT OF BODIES FORMED FOR SHORT DURATION, ETC. AN ADDITIONAL SURCHARGE, TO BE CALLED THE EDUCATION CESS TO FINANCE THE GOVERNMENTS COMMITMENT TO UNIVERSALISE QUAL ITY BASIC EDUCATION, IS PROPOSED TO BE LEVIED AT THE RATE OF TWO PER CENT ON THE AMOUNT OF TAX DEDUCTED INCLUSIVE OF SURCHAR GE. 88. BUDGET SPEECH OF THE HONBLE FINANCE MINISTER W HILE PRESENTING BUDGET FOR THE YEAR 2004-05 BEFORE THE P ARLIAMENT. RELEVANT PORTION OF SAID BUDGET SPEECH IS REPRODUCE D BELOW: 70 EDUCATION 22. IN MY SCHEME OF THINGS, NO ISSUE ENJOYS A HIGHE R PRIORITY THAN PROVIDING BASIC EDUCATION TO ALL CHILDREN. THE NCMP MANDATES GOVERNMENT TO LEVY AN EDUCATION CESS. I PROPOSE TO LEVY A CESS OF 2 PER CENT. THE NEW CESS WILL YIELD ABOUT RS. 4000- 5000 CRORES IN A FULL YEAR. THE WHOLE OF THE AMOUNT COLLECTED AS C ESS WILL BE EARMARKED FOR EDUCATION, WHICH WILL NATURALLY INCLU DE PROVIDING A NUTRITIOUS COOKED MIDDAY MEAL. IF PRIMARY EDUCATION AND THE NUTRITIOUS COOKED MEALS SCHEME CAN WORK HAND-IN-HAN D, I BELIEVE THERE WILL BE A NEW DAWN FOR THE POOR CHILDREN OF I NDIA. 89. THUS, FROM THE ABOVE FINANCE BILL AND MEMORANDU M EXPLAINING THE PROVISION OF FINANCE BILL, IT IS CLE AR THAT EDUCATION CESS IS AN ADDITIONAL SURCHARGE ON THE TAX LEVIED . THE CONTROVERSY WHICH HAS BEEN RAISED IS, WHETHER THIS EDUCATION CESS IS ALLOWABLE TO THE ASSESSEE AS BUSINESS EXPEN DITURE WHILE CARRYING OUT BUSINESS AND PROFESSION AS EDUCATION F ROM HIS PROFITS AND GAINS AND BUSINESS OR INFORMATION. SECT ION 37 WHICH DEAL WITH ALLOWABILITY OF THE EXPENDITURE, WHICH IS INCURRED FOR THE PURPOSE OF THE BUSINESS. THOUGH THE WORD CESS HAS NOT BEEN DEFINED UNDER THE ACT, HOWEVER, WAY BACK THE H ONBLE SUPREME COURT IN THE YEAR 1967 IN THE CASE OF SHINDE BROTHERS, (AIR 1967 SC 1512) HELD THAT IT IS A TAX ONLY. THE RELEVANT OBSERVATION OF THE HONBLE APEX COURT IS AS UNDER: THE WORD 'CESS' IS USED IN IRELAND AND IS STILL IN USE IN THE INDIA ALTHOUGH THE WORD RATE HAS REPLACED IT IN ENG LAND. IT MEANS A TAX AND IS GENERALLY USED WHEN THE LEVY IS FOR SOME SPECIAL ADMINISTRATIVE EXPENSE WHICH THE NAME (HEALTH 71 CESS, EDUCATION CESS, ROAD CESS, ETC.) INDICATES. W HEN LEVIED AS AN INCREMENT TO AN EXISTING TAX, THE NAME MATTER S NOT FOR THE VALIDITY OF THE CESS MUST BE JUDGED OF IN THE S AME WAY AS THE VALIDITY OF THE TAX TO WHICH IT IS AN INCREMENT .' 90. THE AFORESAID PRINCIPLE OF THE HONBLE SUPREME COURT HAS BEEN REFERRED IN INDIA CEMENT INDIA LTD. VS. STATE OF TAMIL NADU (1990) 1 SCC 12; WHEREIN THE HONBLE SUPREME COURT AFTER REFERRING TO THE JUDGMENT IN THE CASE OF SHINDE BRO THERS (SUPRA) HELD THAT ORDINARILY A CESS IS ALSO A TAX, BUT IS A SPECIAL KIND OF A TAX. FURTHER, IN UNION OF INDIA V. MOHIT MINERAL (P) LTD. [TS- 512-SC-2018-NT], THE SUPREME COURT HELD THAT THE EXPRESSION CESS MEANS A TAX LEVIED FOR SOME SPECIAL PURPOSE, WHICH MAY BE LEVIED AS AN INCREMENT TO AN EXISTING TAX. 91. IN A LANDMARK JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. K SRINIVASAN IN 83 ITR 346 HAS HELD THAT, THE EXPRESSION INCOME TAX USED IN THE FINANCE ACT AND THE INCOME-TAX ACT INCLUDES SURCHARGE AND ADDITIONAL SURCHARGE WHEREVER PROVIDED IN THE ACT. THE SURCHAR GE, THE SPECIAL SURCHARGE AND THE ADDITIONAL SURCHARGE FORM PART OF THE INCOME-TAX AND SUPER TAX AND ARE NOT SEPARAT E TAXES BY THEMSELVES. 92. THUS, THERE WAS NEVER A CONTROVERSY THAT CESS IS NOT SURCHARGE OR PART OF TAX. HOWEVER, WAY BACK IN THE YEAR 1967, CBDT HAS ISSUED A CIRCULAR F.NO. 91/58/66-ITJ (19) DATED 18 TH OF MAY 1967 WHICH WAS IN THE CONTEXT OF DISALLOWANCE OF CESS U/S. 40(A)(II) OF THE ACT HAS CLARIFIED IN THE FOLLOWING MANNER: 72 1. RECENTLY A CASE HAS COME TO THE NOTICE OF THE B OARD WHERE THE INCOME-TAX OFFICER HAS DISALLOWED THE CESS PAID B Y THE ASSESSEE ON THE GROUND THAT THERE HAS BEEN NO MATERIAL CHANGE IN THE PROVISIONS OF SECTION 10(4) OF THE 1922 ACT AND SEC TION 40(A) (II) OF THE 1961 ACT. 2. THE VIEW OF THE INCOME-TAX OFFICER IS NOT CORRE CT. CLAUSE 40(A) (II) OF THE INCOME-TAX BILL, 1961, AS INTRODU CED IN THE PARLIAMENT, STOOD AS UNDER : (II) ANY AT A PROPORTION OF, OR OTHERWISE ON THE B ASIS OF ANY SUCH PROFITS OR GAINS. WHEN THE MATTER CAME UP BEFORE THE SELECT COMMITTEE , IT WAS DECIDED TO OMIT THE WORD CESS FROM THE CLAUSE. TH E EFFECT OF THE OMISSION OF THE WORD CESS IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENTS FOR THE YEARS 1962-63 ONWARDS. 3. THE BOARD DESIRE THAT THE CHANGED POSITION MAY P LEASE BE BROUGHT TO THE NOTICE OF ALL THE INCOME-TAX OFFICER S SO THAT FURTHER LITIGATION ON THIS ACCOUNT MAY BE AVOIDED. SUM PAI D ON ACCOUNT OF ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAIN S OF ANY BUSINESS OR PROFESSION OR ASSESSED. 93. WHETHER CESS IS AN ALLOWABLE EXPENDITURE OR NOT IN LIGHT OF THIS CBDT CIRCULAR HAD NEVER COME UP FOR INTERPRETA TION, BECAUSE PRIOR TO YEAR 2004 THERE WAS NO CESS LEVIED AS ADDITIONAL SURCHARGE OR SURCHARGE UNDER THE INCOME TAX ACT, BU T THERE WERE MANY OTHER KINDS OF CESS LEVIED UNDER OTHER TAXING STATUTES AND DIRECT TAXES. UNDER THE INCOME TAX ACT, OTHERWISE T HE CHARGE OF THE TAX HAS BEEN DEFINED IN SECTION 4(1) WHICH READ S AS UNDER: 73 4(1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOM E TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN AC CORDANCE WITH, AND [SUBJECT TO THE PROVISIONS (INCLUDING PROVISIONS FO R THE LEVY OF ADDITIONAL INCOME TAX) OF, THIS ACT] IN RESPECT THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON. SECTION 4 IS THE CHARGING SECTION FIXES 'RATE OF TA X' FOR A PREVIOUS YEAR AND ENACTS VARIOUS AMENDMENTS, OMISSIONS AND I NSERTIONS IN THE INCOME TAX ACT. WITHOUT THE FINANCE ACT THER E CANNOT BE ANY TAXATION OF INCOME IN A PRESCRIBED MANNER AND I MPOSITION OF TAX. SECTION 294 OF THE ACT PROVIDES THAT IF ON APR IL 1, IN ANY YEAR, THE NEW FINANCE BILL HAS YET NOT BEEN PLACED ON THE STATUTE BOOK, THE PROVISION IN FORCE IN THE PRECEDING YEAR OR THE PROVISION PROPOSED IN THE BILL, THEN BEFORE THE PARLIAMENT, W HICHEVER IS MORE FAVOURABLE TO THE ASSESSEE, SHALL APPLY UNTIL THE NEW PROVISION BECOMES EFFECTIVE. THIS CLEARLY INDICATES THAT INCOME TAX ACT IS PART OF THE FINANCE ACT AND CANNOT OPERATE I N ISOLATION OF THE FINANCE ACT. THE FINANCE ACT PROVIDES THE 'RATE OF TAX' ACCORDING TO WHICH INCOME-TAX IS LEVIED ON THE TOTAL INCOME OF ANY PREVIOUS YEAR. CHAPTER II, SECTION 2 OF THE FINANCE ACT WHICH PROVIDES FOR RATES OF INCOME-TAX, DEFINES 'INCOME-T AX' AS UNDER: INCOME-TAX '2. (1) SUBJECT TO THE PROVISIONS OF SUB-SECTIONS ( 2) AN (3), FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL 2018, INCOME-TAX SHALL BE CHARGED AT THE RATES SPECIFIED IN PART I OF THE FIRST SCHEDULE AND SUCH TAX SHALL BE INCREASED BY A SURCHARGE, 74 FOR THE PURPOSES OF THE UNION, CALCULATED IN EACH C ASE IN THE MANNER PROVIDED THEREIN.' 2(11) THE AMOUNT OF INCOME-TAX AS SPECIFIED IN SUB-SECTION S (1) TO (10) AND AS INCREASED BY THE APPLICABLE SURCHAR GE, FOR THE PURPOSES OF THE UNION, CALCULATED IN THE MANNER PROVIDED THEREIN, SHALL BE FURTHER INCREASED BY AN ADDITIONAL SURCHARGE, FOR THE PURPOSES OF THE UNION, TO BE CALLED THE EDUCATION CESS ON INCOME-TAX', CALCULATED AT THE RATE OF TWO PER CENT OF SUCH INCOME-TAX AND SUR CHARGE SO AS TO FULFIL THE COMMITMENT OF THE GOVERNMENT TO PROVIDE AND FINANCE UNIVERSALIZED QUALITY BASIC EDUCATION. 2(12) THE AMOUNT OF INCOME-TAX AS SPECIFIED IN SUB- SECTIONS (1) TO (10) AND AS INCREASED BY A SURCHARGE /'UNDERLINED W ORDS SUBSTITUTED BY THE APPLICABLE SURCHARGE - FROM FINA NCE ACT, 2009], FOR THE PURPOSES OF THE UNION, CALCULATED IN THE MA NNER PROVIDED THEREIN, SHALL ALSO BE INCREASED BY AN ADDITIONAL S URCHARGE, FOR THE PURPOSES OF THE UNION, TO BE CALLED THE 'SECOND ARY AND HIGHER EDUCATION CESS ON INCOME-TAX', CALCULATED AT THE RA TE OF ONE PER CENT OF SUCH INCOME-TAX AND SURCHARGE SO AS TO FULF IL THE COMMITMENT OF THE GOVERNMENT TO PROVIDE AND FINANCE SECONDARY AND HIGHER EDUCATION.' 94. ERGO, IF CESS IS CONSIDERED AS PART OF SURCHAR GE, I.E., THE ADDITIONAL SURCHARGE ON TAX, THEN IF INCOME TAX PAY ABLE UNDER THE ACT IS NOT RECKONED AS ALLOWABLE EXPENDITURE U/S.37 . OSTENSIBLY BY THIS LOGIC, THE CESS ALSO CANNOT BE HELD TO BE A LLOWABLE BUSINESS EXPENDITURE, BECAUSE THE CESS IS ALWAYS CA LCULATED AND PAID ON PERCENTAGE OF INCOME TAX PAYABLE AND NOT AC TUALLY INCURRED FOR THE BUSINESS OR PROFESSION OF ASSESSEE . IN THE CONTEXT 75 OF 115JB HONBLE CALCUTTA HIGH COURT IN THE CASE OF SREI INFRASTRUCTURE FINANCE LTD. AS REPORTED IN (2017) 3 95 ITR 291 (CAL) HELD THAT BOTH SURCHARGE AND EDUCATION CESS ARE PA RT OF THE INCOME TAX, THOUGH PAYABLE IN ADDITION TO THE I NCOME TAX. THE HONBLE COURT AFTER QUOTING PROVISION OF THE FI NANCE ACT OBSERVED THAT INCOME TAX BEING INCREASED BY THE AMO UNT OF SURCHARGE AND CESS. ACCORDINGLY, IT WAS HELD THAT S URCHARGE AND EDUCATION CESS IS NOTHING OTHER THAN INCOME TAX. 95. HOWEVER, THE ABOVE CBDT CIRCULAR OF 1967 HAS BEEN REFERRED AND RELIED UPON BY THE HONBLE RAJASTHAN HI GH COURT IN THE CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LTD. VS. JCIT, AS REPORTED IN 107 TAXMANN.COM 484 (RAJ) AND HELD THAT IN VIEW OF THE SAID CBDT CIRCULAR, THE CESS IS NOT DIS ALLOWABLE U/S. 40(A)(II) AND HENCE THE ASSESSEES CLAIM THAT EDUCA TION CESS IS AN ALLOWABLE EXPENDITURE WAS UPHELD. SUBSEQUENTLY, IN A VERY DETAILED JUDGMENT OF HONBLE BOMBAY HIGH COURT IN TH E CASE OF SESA GOA LTD. VS. JCIT, REPORTED IN 423 ITR 426 HAS DEALT THIS ISSUE AS UNDER: THEREFORE, THE SUBSTANTIAL QUESTIONS OF LAW NOS.(I ) AND (II) FRAMED IN TAX APPEAL NO. 17 OF 2013 ARE HEREBY ANSWERED IN FA VOUR OF THE APPELLANT - ASSESSEE AND AGAINST THE RESPONDENT-REV ENUE. TO THAT EXTENT, THE VIEW TAKEN BY THE ITAT IN ITS IMPUGNED JUDGMENT AND ORDER DATED 17TH MAY, 2013 IS ORDERED TO BE MODIFIE D. 15. THE SUBSTANTIAL QUESTION OF LAW NO. (III) IN TAX AP PEAL NO. 17 OF 2013 AND THE ONLY SUBSTANTIAL QUESTION OF LAW IN TA X APPEAL NO. 18 OF 2013 IS ONE AND THE SAME NAMELY, 'WHETHER EDUCAT ION CESS AND HIGHER AND SECONDARY EDUCATION CESS, COLLECTIVELY R EFERRED TO AS 76 'CESS' IS ALLOWABLE AS A DEDUCTION IN THE YEAR OF I TS PAYMENT ?'. 16. THE AFORESAID QUESTION ARISES IN THE CONTEXT OF PRO VISIONS OF SECTION 40(A)(II) WHICH INTER ALIA PROVIDES THAT NO TWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38 OF TH E IT ACT, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION', - (A) IN THE CASE OF ANY ASSESSEE - [.EXPLANATION 1.-FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT FOR THE PURPOSES OF THIS SUB-CLAUSE, ANY SUM PAID O N ACCOUNT OF ANY RATE OR TAX LEVIED INCLUDES AND SHALL BE DEEMED ALW AYS TO HAVE INCLUDED ANY SUM ELIGIBLE FOR RELIEF OF TAX UNDER S ECTION 90 OR, AS THE CASE MAY BE, DEDUCTION FROM THE INDIAN INCOME-TAX P AYABLE UNDER SECTION 91.] [EXPLANATION 2.-FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT FOR THE PURPOSES OF THIS SUB-CLAUSE, ANY SUM PAID O N ACCOUNT OF ANY RATE OR TAX LEVIED INCLUDES ANY SUM ELIGIBLE FOR RE LIEF OF TAX UNDER SECTION 90A;] 17. THEREFORE, THE QUESTION WHICH ARISES FOR DETERM INATION IS WHETHER THE EXPRESSION 'ANY RATE OR TAX LEVIED' AS IT APPEARS IN SECTION 40(A)(Z7) OF THE IT ACT INCLUDES 'CESS'. TH E APPELLANT - ASSESSEE CONTENDS THAT THE EXPRESSION DOES NOT INCL UDE 'CE' AND (I A ) (IB) (IC) (II) ANY SUM PAID ON ACCOUNT OF AN Y RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS. 77 THEREFORE, THE AMOUNTS PAID TOWARDS 'CESS' ARE LIAB LE TO BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD ' PROFITS AND GAINS OF BUSINESS OR PROFESSION'. HOWEVER, THE RESP ONDENT - REVENUE CONTENDS THAT 'CESS' IS ALSO INCLUDED IN TH E SCOPE AND IMPORT OF THE EXPRESSION 'ANY RATE OR TAX LEVIED' A ND CONSEQUENTLY, THE AMOUNTS PAID TOWARDS THE 'CESS' ARE NOT LIABLE FOR DEDUCTION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION'. 18. IN RELATION TO TAXING STATUTE, CERTAIN PRINCIPL ES OF INTERPRETATION ARE QUITE WELL SETTLED. IN NEW SHORR OCK SPINNING AND MFG. CO. LTD. V. RAVAL, [1959] 37 ITR 41 (BOM.), IT IS HELD THAT ONE SAFE AND INFALLIBLE PRINCIPLE, WHICH IS OF GUIDANCE IN THESE MATTERS, IS TO READ THE WORDS THROUGH AND SEE IF THE RULE IS CL EARLY STATED. IF THE LANGUAGE EMPLOYED GIVES THE RULE IN WORDS OF SUFFIC IENT CLARITY AND PRECISION, NOTHING MORE REQUIRES TO BE DONE. INDEED , IN SUCH A CASE THE TASK OF INTERPRETATION CAN HARDLY BE SAID TO AR ISE : ABSOLUTA SENTENTIA EXPOSITORE NON INDIGET. THE LANGUAGE USED BY THE LEGISLATURE BEST DECLARES ITS INTENTION AND MUST BE ACCEPTED AS DECISIVE OF IT. 19. BESIDES, WHEN IT COMES TO INTERPRETATION OF THE IT ACT, IT IS WELL ESTABLISHED THAT NO TAX CAN BE IMPOSED ON THE SUBJECT WITHOUT WORDS IN THE ACT CLEARLY SHOWING AN INTENTION TO LA Y A BURDEN ON HIM. THE SUBJECT CANNOT BE TAXED UNLESS HE COMES WI THIN THE LETTER OF THE LAW AND THE ARGUMENT THAT HE FALLS WITHIN THE S PIRIT OF THE LAW CANNOT BE AVAILED OF BY THE DEPARTMENT. [SEE CIT V. MOTORS & GENERAL STORES [1967] 66 ITR 692 (SC)]. 20. IN A TAXING ACT ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMENT. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMPTION AS TO A TAX. NOTHING IS TO BE READ IN, 78 NOTHING IS TO BE IMPLIED, INTO THE PROVISIONS WHICH HAS NOT BEEN PROVIDED BY THE LEGISLATURE [SEE CIT V. RADHE DEVEL OPERS [2012] 17 TAXMANN.COM 156/204 TAXMAN 543/341 ITR 403 (GUJ.). ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. NO TAX CAN B E IMPOSED BY INFERENCE OR ANALOGY. IT IS ALSO NOT PERMISSIBLE TO CONSTRUE A TAXING STATUTE BY MAKING ASSUMPTIONS AND PRESUMPTIONS [SEE GOODYEAR V. STATE OF HARYANA [1991] 188 ITR 402(SC)]. 21. THERE ARE SEVERAL DECISIONS WHICH LAY DOWN RULE THAT THE PROVISION FOR DEDUCTION, EXEMPTION OR RELIEF SHOULD BE INTERPRETED LIBERALLY, REASONABLY AND IN FAVOUR OF THE ASSESSEE AND IT SHOULD BE SO CONSTRUED AS TO EFFECTUATE THE OBJECT OF THE LEG ISLATURE AND NOT TO DEFEAT IT. FURTHER, THE INTERPRETATION CANNOT GO TO THE EXTENT OF READING SOMETHING THAT IS NOT STATED IN THE PROVISI ON [SEE AGS TIBER V. CIT [1998] 233 ITR 207/[1997] 92 TAXMAN 268 (MAD .)]. 22. APPLYING THE AFORESAID PRINCIPLES, WE FIND THAT THE LEGISLATURE, IN SECTION 40(A)(Z7) HAS PROVIDED THAT 'ANY RATE OR TAX LEVIED'' ON ''PROFITS AND GAINS OF BUSINESS OR PROF ESSION' SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THER E IS NO REFERENCE TO ANY 'CESS'. OBVIOUSLY THEREFORE, THERE IS NO SCOPE TO ACCEPT MS. LINHARES'S CONTENTION THAT 'CESS BEING IN THE NATU RE OF A 'TA X' IS EQUALLY NOT DEDUCTABLE IN COMPUTING THE INCOME CHAR GEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSI ON'. ACCEPTANCE OF SUCH A CONTENTION WILL AMOUNT TO READING SOMETHING IN THE TEXT OF THE PROVISION WHICH IS NOT TO BE FOUND IN THE TEXT OF T HE PROVISION IN SECTION 40(A)(II) OF THE IT ACT. 23. IF THE LEGISLATURE INTENDED TO PROHIBIT THE DED UCTION OF AMOUNTS PAID BY A ASSESSEE TOWARDS SAY, 'EDUCATION CESS' OR ANY OTHER 'CESS', THEN, THE LEGISLATURE COULD HAVE EASI LY INCLUDED 79 REFERENCE TO 'CESS' IN CLAUSE (II) OF SECTION 40(A) OF THE IT ACT. THE FACT THAT THE LEGISLATURE HAS NOT DONE SO MEANS THAT THE LEGISLATURE DID NOT INTEND TO PREVENT THE DEDUCTION OF AMOUNTS PAID BY A ASSESSEE TOWARDS THE 'CESS', WHEN IT COMES TO COMPUTING INCO ME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'. 24. THE LEGISLATIVE HISTORY BEARS OUT THAT THE INCO ME TAX BILL, 1961, AS INTRODUCED IN THE PARLIAMENT, HAD SECTION 40(A)(II) WHICH READ AS FOLLOWS : '(IF) ANY SUM PAID ON ACCOUNT OF ANY CESS RATE OR T AX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR A SSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SU CH PROFITS OR GAINS' 25. HOWEVER, WHEN THE MATTER CAME UP BEFORE THE SEL ECT COMMITTEE OF THE PARLIAMENT, IT WAS DECIDED TO OMIT THE WORD 'CESS FROM THE AFORESAID CLAUSE FROM THE INCOME-TAX BILL, 1961. THE EFFECT OF THE OMISSION OF THE WORD 'CESS IS THAT ONLY ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSI ON ARE TO BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. SINC E THE DELETION OF EXPRESSION 'CESS' FROM THE INCOME-TAX BILL, 1961. W AS DELIBERATE, THERE IS NO QUESTION OF REINTRODUCING THIS EXPRESSI ON IN SECTION 40(A)(II) OF IT ACT AND THAT TOO, UNDER THE GUISE O F INTERPRETATION OF TAXING STATUTE. 26. IN FACT, IN THE AFORESAID PRECISE REGARD, REFER ENCE CAN USEFULLY BE MADE TO THE CIRCULAR NO. F. NO. 91/58/6 6-ITJ(19), DATED 18TH MAY, 1967 ISSUED BY THE CBDT WHICH READS AS FO LLOWS : 'INTERPRETATION OF PROVISION OF SECTION 40(A)(II) O F IT ACT, 1961 - CLARIFICATION REGARDING.- 'RECENTLY A CASE HAS COME TO THE NOTICE OF THE BOARD WHERE THE INCOME-TAX OFFICER HAS DISALLOW ED THE 'CESS' 80 PAID BY THE ASSESSEE ON THE GROUND THAT THERE HAS B EEN NO MATERIAL CHANGE IN THE PROVISIONS OF SECTION 10(4) OF THE OL D ACT AND SECTION 40(A)(II) OF THE NEW ACT. 2. THE VIEW OF THE INCOME-TAX OFFICER IS NOT CORREC T. CLAUSE 40(A)(II) OF THE INCOME-TAX BILL, 1961 AS INTRODUCED IN THE PARL IAMENT STOOD AS UNDER:- '(II) ANY SUM PAID ON ACCOUNT OF ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR A SSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SU CH PROFITS OR GAINS'. WHEN THE MATTER CAME UP BEFORE THE SELECT COMMITTEE , IT WAS DECIDED TO OMIT THE WORD 'CESS' FROM THE CLAUSE. TH E EFFECT OF THE OMISSION OF THE WORD 'CESS' IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENTS FOR THE YEARS 1962-63 AND ONWARDS. 3. THE BOARD DESIRE THAT THE CHANGED POSITION MAY P LEASE BE BROUGHT TO THE NOTICE OF ALL THE INCOME-TAX OFFICER S SO THAT FURTHER LITIGATION ON THIS ACCOUNT MAY BE AVOIDED.[BOARD'S F. NO. 91/58/66- ITJ( 19), DATED 18-5-1967.] 27. THE CBDT CIRCULAR, IS BINDING UPON THE AUTHORIT IES UNDER THE IT ACT LIKE ASSESSING OFFICER AND THE APPELLATE AUT HORITY. THE CBDT CIRCULAR IS QUITE CONSISTENT WITH THE PRINCIPLES OF INTERPRETATION OF TAXING STATUTE. THIS, ACCORDING TO US, IS AN ADDITI ONAL REASON AS TO WHY THE EXPRESSION 'CESS' OUGHT NOT TO BE READ OR I NCLUDED IN THE EXPRESSION 'ANY RATE OR TAX LEVIED' AS APPEARING IN SECTION 40(A)(Z7) OF THE IT ACT. 28. IN THE INCOME-TAX ACT, 1922, SECTION 10(4) HAD BANNED ALLOWANCE OF ANY SUM PAID ON ACCOUNT OF 'ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSI ON'. IN THE CORRESPONDING SECTION 40(A)(Z7) OF THE IT ACT, 1961 THE EXPRESSION 81 'CESS' IS QUITE CONSPICUOUS BY ITS ABSENCE. IN FACT , LEGISLATIVE HISTORY BEARS OUT THAT THIS EXPRESSION WAS IN FACT TO BE FO UND IN THE INCOME- TAX BILL, 1961 WHICH WAS INTRODUCED IN THE PARLIAME NT. HOWEVER, THE SELECT COMMITTEE RECOMMENDED THE OMISSION OF EXPRES SION 'CESS' AND CONSEQUENTLY, THIS EXPRESSION FINDS NO PLACE IN THE FINAL TEXT OF THE PROVISION IN SECTION 40(A)(Z7) OF THE IT ACT, 1 961. THE EFFECT OF SUCH OMISSION IS THAT THE PROVISION IN SECTION 40(A )(Z7) DOES NOT INCLUDE, 'CESS' AND CONSEQUENTLY, 'CESS' WHENEVER P AID IN RELATION TO BUSINESS, IS ALLOWABLE AS DEDUCTABLE EXPENDITURE. 29. IN KANGA AND PALKHIVALA'S 'THE LAW AND PRACTICE OF INCOME TAX (TENTH EDITION), SEVERAL DECISIONS HAVE BEEN A NALYZED IN THE CONTEXT OF PROVISIONS OF SECTION 40(A)(Z7) OF THE I T ACT, 1961. THERE IS REFERENCE TO THE DECISION OF PRIVY COUNCIL IN CIT V . GURUPADA DUTTA [1946] 14 ITR 100 (PC), WHERE A UNION RATE WAS IMPO SED UNDER A VILLAGE SELF GOVERNMENT ACT UPON THE ASSESSEE AS TH E OWNER OR OCCUPIER OF BUSINESS PREMISES, AND THE QUANTUM OF T HE RATE WAS FIXED AFTER CONSIDERATION OF THE 'CIRCUMSTANCES' OF THE ASSESSEE, INCLUDING HIS BUSINESS INCOME. THE PRIVY COUNCIL HE LD THAT THE RATE WAS NOT 'ASSESSED ON THE BASIS OF PROFITS' AND WAS ALLOWABLE AS A BUSINESS EXPENSE. FOLLOWING THIS DECISION, THE SUPR EME COURT HELD IN JAIPURIA SAMLA AMALGAMATED COLLIERIES LTD. V. CI T 1971 [82 ITR 580] THAT THE EXPRESSION 'PROFITS OR GAINS OF ANY B USINESS OR PROFESSION' HAS REFERENCE ONLY TO PROFITS AND GAINS AS DETERMINED IN ACCORDANCE WITH SECTION 29 OF THIS ACT AND THAT ANY RATE OR TAX LEVIED UPON PROFITS CALCULATED IN A MANNER OTHER TH AN THAT PROVIDED BY THAT SECTION COULD NOT BE DISALLOWED UNDER THIS SUB-CLAUSE. SIMILARLY, THIS SUB-CLAUSE IS INAPPLICABLE, AND A D EDUCTION SHOULD BE ALLOWED, WHERE A TAX IS IMPOSED BY A DISTRICT BOARD ON BUSINESS WITH REFERENCE TO 'ESTIMATED INCOME' OR BY A MUNICIPALITY WITH 82 REFERENCE TO 'GROSS INCOME'. BESIDES, UNLIKE SECTION 10(4) OF THE 1922 ACT, THIS SUB-CLAUSE DOES NOT REFER TO 'CESS' AND THEREFORE, A 'CESS' EVEN IF LEVIED UPON OR CALCULATED ON THE BASIS OF B USINESS PROFITS MAY BE ALLOWED IN COMPUTING SUCH PROFITS UNDER THIS ACT . 30. THE DIVISION BENCH OF THE RAJASTHAN HIGH COURT (JAI PUR BENCH) IN INCOME-TAX APPEAL NO. 52/2018 DECIDED ON 31ST JULY, 2018 CHAMBAL FERTILISERS AND CHEMICALS LTD. V. CIT, BY REFERENCE TO THE AFORESAID CBDT CIRCULAR DATED 18TH MAY, 1967 HA S HELD THAT THE ITAT ERRED IN HOLDING THAT THE 'EDUCATION CESS ' IS A DISALLOWABLE EXPENDITURE UNDER SECTION 40(A)(Z7) OF THE IT ACT. MS. LINHARES WAS UNABLE TO STATE WHETHER THE REVENUE HAS APPEALED TH IS DECISION. MR. RAMANI, LEARNED SENIOR ADVOCATE SUBMITTED THAT HIS RESEARCH DID NOT SUGGEST THAT ANY APPEAL WAS INSTITUTED BY THE R EVENUE AGAINST THIS DECISION, WHICH IS DIRECTLY ON THE POINT AND F AVOURS THE ASSESSEE. 31. MR. RAMANI, IN FACT POINTED OUT THREE DECISIONS OF ITAT, IN WHICH, THE DECISION OF THE RAJASTHAN HIGH COURT IN CHAMBAL FERTILISERS AND CHEMICALS LTDFSUPRA) WAS FOLLOWED AND IT WAS HELD THAT THE AMOUNTS PAID BY THE ASSESSEE TOWARDS THE 'EDUCATION CESS' WERE LIABLE FOR DEDUCTION IN COMPUTING THE INCOME C HARGEABLE UNDER THE HEAD OF ' PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THEY ARE AS FOLLOWS : (I) DY.CIT V. PEERLESS GENERAL FINANCE AND INVESTMENT AND CO. LTD. [IT APPEAL NO. 1469 AND 1470/KOL/2019 DECIDED ON 5-12-2019 BY THE ITAT, CALCUTTA; (II) DY.CIT V. GRAPHITE INDIA LTD. [IT APPEAL NO.47 2 AND 474 CO. NO. 64 AND 66/KOL/2018 DATED ON 22-11 - 2019)BY THE ITAT, CALCUTTA; (III) DY.CIT V. BAJAJ ALLIANZ GENERAL INSURANCE [IT APPEAL NO. 1111 AND 1112/PUN/2017 DATED ON 25-7-2019) BY THE ITAT, PUNE. 83 32. AGAIN, MS. LINHARES, LEARNED STANDING COUNSEL FOR T HE REVENUE WAS UNABLE TO SAY WHETHER THE REVENUE HAD I NSTITUTED THE APPEALS IN THE AFORESAID MATTERS. MR. RAMANI, LEARN ED SENIOR ADVOCATE FOR THE APPELLANT SUBMITTED THAT TO THE BEST OF HIS RESEARCH, NO APPEALS WERE INSTITUTED BY THE REVENUE AGAINST T HE AFORESAID DECISIONS OF THE ITAT. 33. THE ITAT, IN THE IMPUGNED JUDGMENT AND ORDER, HAS REASONED THAT SINCE 'CESS IS COLLECTED AS A PART O F THE INCOME TAX AND FRINGE BENEFIT TAX, THEREFORE, SUCH 'CESS' IS T O BE CONSTRUED AS 'TAX'. ACCORDING TO US, THERE IS NO SCOPE FOR SUCH IMPLICATIONS, WHEN CONSTRUING A TAXING STATUTE. EVEN, THOUGH, 'CESS' M AY BE COLLECTED AS A PART OF INCOME TAX, THAT DOES NOT RENDER SUCH 'CE SS', EITHER RATE OR TAX, WHICH CANNOT BE DEDUCTED IN TERMS OF THE PROVI SIONS IN SECTION 40(A)(//) OF THE IT ACT. THE MODE OF COLLECTION, IS REALLY NOT DETERMINATIVE IN SUCH MATTERS. 34. MS. LINHARES, HAS RELIED UPON UNICORN INDUSTRIES V. UNION OF INDIA [2019] 112 TAXMANN.COM 127 (SC) IN SUPPORT OF HER CONTENTION THAT 'CESS' IS NOTHING BUT 'TAX' AND THEREFORE, THE RE IS NO QUESTION OF DEDUCTION OF AMOUNTS PAID TOWARDS 'CESS' WHEN IT CO MES TO COMPUTATION OF INCOME CHARGEABLE UNDER THE HEAD PRO FITS OR GAINS OF ANY BUSINESS OR PROFESSION. 35. THE ISSUE INVOLVED IN UNICORN INDUSTRIES {SUPRA ) WAS NOT IN THE CONTEXT OF PROVISIONS IN SECTION 40(A)(I7) OF T HE IT ACT. RATHER, THE ISSUE INVOLVED WAS WHETHER THE 'EDUCATION CESS, HIG HER EDUCATION CESS AND NATIONAL CALAMITY CONTINGENT DUTY {NCCD)' ON IT COULD BE CONSTRUED AS 'DUTY OF EXCISE WHICH WAS EXEMPTED IN TERMS OF NOTIFICATION DATED 9TH SEPTEMBER, 2003 IN RESPECT O F GOODS SPECIFIED IN THE NOTIFICATION AND CLEARED FROM A UNIT LOCATED IN THE INDUSTRIAL GROWTH CENTRE OR OTHER SPECIFIED AREAS WITH THE STA TE OF SIKKIM. THE 84 HIGH COURT HAD HELD THAT THE LEVY OF EDUCATION CESS , HIGHER EDUCATION CESS AND NCCD COULD NOT BE INCLUDED IN TH E EXPRESSION 'DUTY OF EXCISE' AND CONSEQUENTLY, THE AMOUNTS PAID TOWARDS SUCH CESS OR NCCD DID NOT QUALIFY FOR EXEMPTION UNDER TH E EXEMPTION NOTIFICATION. THIS VIEW OF THE HIGH COURT WAS UPHEL D BY THE APEX COURT IN UNICORN INDUSTRIES {SUPRA). 36. THE AFORESAID MEANS THAT THE SUPREME COURT REFU SED TO REGARD THE LEVY OF EDUCATION CESS, HIGHER EDUCATION CESS AND NCCD AS 'DUTY OF EXCISE' WHEN IT CAME TO CONSTRUING EXEM PTION NOTIFICATION. BASED UPON THIS, MR. RAMANI CONTENDS THAT SIMILARLY AMOUNTS PAID BY THE APPELLANT - ASSESSEE TOWARDS TH E 'CESS' CAN NEVER BE REGARDED AS THE AMOUNTS PAID TOWARDS THE ' TAX' SO AS TO ATTRACT PROVISIONS OF SECTION 40(A)(Z7) OF THE IT A CT. ALL THAT WE MAY OBSERVE IS THAT THE ISSUE INVOLVED IN UNICORN INDUS TRIES {SUPRA) WAS NOT AT ALL THE ISSUE INVOLVED IN THE PRESENT MATTER S AND THEREFORE, THE DECISION IN UNICORN INDUSTRIES {SUPRA) CAN BE OF NO ASSISTANCE TO THE RESPONDENT - REVENUE IN THE PRESENT MATTERS. 37. MS. LINHARES, LEARNED STANDING COUNSEL FOR THE REVENUE HOWEVER SUBMITTED THAT THE APPELLANT - ASSESSEE, IN ITS ORIGINAL RETURN, HAD NEVER CLAIMED DEDUCTION TOWARDS THE AMO UNTS PAID BY IT AS 'CE.S.Y'. SHE SUBMITS THAT NEITHER WAS ANY SUCH CLAIM MADE BY FILING ANY REVISED RETURN BEFORE THE ASSESSING OFFI CER. SHE THEREFORE RELIED UPON THE DECISION OF THE SUPREME COURT IN GO ETZE {INDIA) LTD. V. CIT [2006] 284 1TR 323/157 TAXMAN 1 (SC) TO SUBM IT THAT THE ASSESSING OFFICER, WAS NOT ONLY QUITE RIGHT IN DENY ING SUCH A DEDUCTION, BUT FURTHER THE ASSESSING OFFICER HAD NO POWER OR JURISDICTION TO GRANT SUCH A DEDUCTION TO THE APPEL LANT - ASSESSEE. SHE SUBMITS THAT THIS IS WHAT PRECISELY HELD BY THE ITAT IN ITS IMPUGNED JUDGMENTS AND ORDERS AND THEREFORE, THE SA ME, WARRANTS NO INTERFERENCE. 85 38. ALTHOUGH, IT IS TRUE THAT THE APPELLANT - ASSES SEE DID NOT CLAIM ANY DEDUCTION IN RESPECT OF AMOUNTS PAID BY I T TOWARDS 'CESS' IN THEIR ORIGINAL RETURN OF INCOME NOR DID THE APPE LLANT - ASSESSEE FILE ANY REVISED RETURN OF INCOME, ACCORDING TO US, THIS WAS NO BAR TO THE COMMISSIONER (APPEALS) OR THE ITAT TO CONSIDER AND ALLOW SUCH DEDUCTIONS TO THE APPELLANT - ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE RECORD BEARS OUT THAT SUCH DEDUCTION WAS CLEARLY CLAIMED BY THE APPELLANT - AS SESSEE, BOTH BEFORE THE COMMISSIONER (APPEALS) AS WELL AS THE IT AT. 39. IN CIT V. PRUTHVI BROKERS & SHAREHOLDERS (P.) L TD. [2012] 349 1TR 336/208 TAXMAN 498/23 TAXMANN.COM 23 (BOM), ONE OF THE QUESTIONS OF LAW WHICH CAME TO BE FRAMED WAS WHETHE R ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT, IN LAW, WA S RIGHT IN HOLDING THAT THE CLAIM OF DEDUCTION NOT MADE IN THE ORIGINA L RETURNS AND NOT SUPPORTED BY REVISED RETURN, WAS ADMISSIBLE. THE RE VENUE HAD RELIED UPON GOETZE {SUPRA) AND URGED THAT THE ITAT HAD NO POWER TO ALLOW THE CLAIM FOR DEDUCTION. HOWEVER, THE DIVISIO N BENCH, WHILST PROCEEDING ON THE ASSUMPTION THAT THE ASSESSING OFF ICER IN TERMS OF LAW LAID DOWN IN GOETZE {SUPRA) HAD NO POWER, PROCE EDED TO HOLD THAT THE APPELLATE AUTHORITY UNDER THE IT ACT HAD S UFFICIENT POWERS TO PERMIT SUCH A DEDUCTION. IN TAKING THIS VIEW, THE D IVISION BENCH RELIED UPON THE FULL BENCH DECISION OF THIS COURT I N AHMEDABAD ELECTRICITY CO. LTD. V. CIT [1993] 199 ITR 351/66 TAXMAN 27 (BOM.) TO HOLD THAT THE APPELLATE AUTHORITIES UNDER THE IT ACT HAVE VERY WIDE POWERS WHILE CONSIDERING AN APPEAL WHICH MAY B E FILED BY THE ASSESSEE. THE APPELLATE AUTHORITIES MAY CONFIRM, RE DUCE, ENHANCE OR ANNUL THE ASSESSMENT OR REMAND THE CASE TO THE A SSESSING OFFICER. THIS IS BECAUSE, UNLIKE AN ORDINARY APPEAL , THE BASIC PURPOSE OF A TAX APPEAL IS TO ASCERTAIN THE CORRECT TAX LIABILITY OF THE 86 ASSESSEE IN ACCORDANCE WITH LAW. 40. THE DECISION IN GOETZE {SUPRA) UPON WHICH RELIA NCE IS PLACED BY THE ITAT ALSO MAKES IT CLEAR THAT THE ISSUE INVO LVED IN THE SAID CASE WAS LIMITED TO THE POWER OF THE ASSESSING AUTH ORITY AND DOES NOT IMPINGE ON THE POWERS OF THE ITAT UNDER SECTION 254 OF THE SAID ACT. THIS MEANS THAT IN GOETZE INDIA LTD. {SUPRA), THE HON'BLE APEX COURT WAS NOT DEALING WITH THE EXTENT OF THE POWERS OF THE APPELLATE AUTHORITIES BUT THE OBSERVATIONS WERE IN RELATION T O THE POWERS OF THE ASSESSING AUTHORITY. THIS IS THE DISTINCTION DRAWN BY THE DIVISION BENCH IN PRUTHVI BROKERS SHAREHOLDERS (P.) LTD. {SU PRA) AS WELL AND THIS IS THE DISTINCTION WHICH THE ITAT FAILED TO NO TE IN THE IMPUGNED ORDER. 41. BESIDES, WE NOTE THAT IN THE PRESENT CASE, THOU GH THE CLAIM FOR DEDUCTION WAS NOT RAISED IN THE ORIGINAL RETURN OR BY FILING REVISED RETURN, THE APPELLANT - ASSESSEE HAD INDEED ADDRESS ED A LETTER CLAIMING SUCH DEDUCTION BEFORE THE ASSESSMENT COULD BE COMPLETED. HOWEVER, EVEN IF WE PROCEED ON THE BASIS THAT THERE WAS NO OBLIGATION ON THE ASSESSING OFFICER TO CONSIDER THE CLAIM FOR DEDUCTION IN SUCH LETTER, THE COMMISSIONER (APPEALS ) OR THE ITAT, BEFORE WHOM SUCH DEDUCTION WAS SPECIFICALLY CLAIMED WAS DUTY BOUND TO CONSIDER SUCH CLAIM. ACCORDINGLY, WE ARE U NABLE TO AGREE WITH MS. LINHARE'S CONTENTION BASED UPON THE DECISI ON IN GOETZE INDIA LTD. {SUPRA). 42. FOR ALL THE AFORESAID REASONS, WE HOLD THAT THE SUBSTANTIAL QUESTION OF LAW NO. {III) IN TAX APPEAL NO. 17 OF 2 013 AND THE SOLE SUBSTANTIAL QUESTION OF LAW IN TAX APPEAL NO. 18 OF 2013 IS ALSO REQUIRED TO BE ANSWERED IN FAVOUR OF THE APPELLANT - ASSESSEE AND AGAINST THE REGPONDENT-REVENUE. TO THAT EXTENT THER EFORE, THE IMPUGNED JUDGMENTS AND ORDERS MADE BY THE ITAT WARR ANT 87 INTERFERENCE AND MODIFICATION. 96. THE AFORESAID JUDGMENT CLINCHES THE ISSUE IN FAVOUR OF THE ASSESSEE NOT ONLY IN ALLOWING THE CLAIM MADE FOR TH E FIRST TIME BUT ALSO THE ALLOWABILITY OF CESS AS BUSINESS EXPENDITU RE WHILE COMPUTING THE PROFIT. FOLLOWING THE AFORESAID TWO DECISIONS OF THE HONBLE HIGH COURTS, CO-ORDINATE BENCH OF THIS TRIB UNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE. 97. THOUGH, WE HAVE JUST EXPRESSED OUR VIEW IN THE F OREGOING PARAGRAPHS, BUT THE TWO ABOVE DECISIONS OF THE HON BLE HIGH COURT ARE DIRECTLY COVERED ON THIS POINT AND AS A M ATTER OF JUDICIAL PRECEDENCE WHICH HAS ALSO BEEN FOLLOWED BY THE VARIOUS BENCHES OF THIS TRIBUNAL, WE ALLOW THE CLAIM OF THE ASSESSEE. 98. IN THE RESULT, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. 99. ACCORDINGLY APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND SEPTEMBER, 2021. SD/- SD/- [DR. B.R.R. KUMAR] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 22/09/2021 PKK: