Goodyear India Ltd., Faridabad V. NeAC, Delhi

ITA 467/DEL/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 9022 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2016-2017
• Appeal Filed On: 23-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Business expenditure; International transaction; Additional evidence; Commercial expediency
• Section: 37; 92C; 234B; 37(1); 195; 144C; 73; 72; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI I-1 BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & DR.B.R.R.KUMAR, ACCOUNTANT MEMBER ITA NO.467/DEL/2021 ASSESSMENT YEAR : 2016-17 GOODYEAR INDIA LTD., MATHURA ROAD, BALLABHGARH, FARIDABAD, HARYANA-121001. PAN-AAACG3511H VS NEAC, DELHI. APPELLANT RESPONDENT APPELLANT BY SH. NEERAJ JAIN, ADV. & SH. ABHISHEK AGARWAL, ADV. RESPONDENT BY SH. SURENDRA PAL, CIT DR DATE OF HEARING 08.07.2021 DATE OF PRONOUNCEMENT 11 .0 8 .2021 ORDER PER KUL BHARAT, JM : THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) FOR THE ASSESSMENT YEAR 2016-17 U/S 1 43(3) R.W.S. 144C OF THE INCOME TAX ACT, 1961 (THE ACT). THE ASSESSEE HA S RAISED FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE IMPUGNED ORDER OF ASSESSMENT FRAMED BY THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS OF THE DISPU TE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS 'DRP') UNDER SECTION 14 3(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 ('ACT'), IS BAD IN LAW AND UNSUSTAINABLE. 1.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING ASSESSMENT UNDER SECTION 144C/L43(3) OF THE INCOME- TAX ACT, 1961 ('THE ACT') AT AN INCOME OF RS.186,18,12,440 AS AGAINST T HE INCOME OF RS. 1,72,57,98,490 DETERMINED BY THE APPELLANT IN ITS I NCOME TAX RETURN. ITA NO.467/DEL/2021 PAGE | 2 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING AN ADDITION OF RS.10,07,80,000 ALLEGEDLY ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF PAYME NT OF TRADEMARK FEE ENTERED INTO BY THE APPELLANT WITH ITS ASSOCIATED E NTERPRISE, THE GOODYEAR TIRE & RUBBER COMPANY, USA ON THE BASIS OF ORDER PA SSED BY THE TRANSFER PRICING OFFICER ('TPO') AND SUSTAINED BY THE DISPUT E RESOLUTION PANEL ('DRP'). 2.1. THAT THE DRP/TPO ERRED ON FACTS AND IN LAW IN HOLDING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PA YMENT OF TRADEMARK FEE OF RS. 10,07,80,000 AT NIL ALLEGEDLY HOLDING THAT NO R ECOGNIZABLE BENEFIT HAS BEEN PASSED ON TO THE APPELLANT AND THEREFORE THERE WAS NO RATIONALE FOR PAYING THIS TRADEMARK FEES TO THE AE. 2.2. THAT THE DRP ERRED ON FACTS AND IN LAW IN SUST AINING THE TRANSFER PRICING ADJUSTMENT MADE BY THE TPO, HOLDING THE ARM 'S LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY AS NIL, FOLLOWING ITS ORDERS FOR PRECEDING ASSESSMENT YEARS, I.E. ASSESSMENT YEA R 2007 -08 TO 2014- 15. 2.3. THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY AT NIL WITHOUT BRINGING ON RECORD ANY COMPARABLE UNCONTROL LED TRANSACTION AND THEREFORE, NOT CORRECTLY APPLYING CUP METHOD IN TER MS OF RULE 10B(1) OF THE INCOME TAX RULES, 1962. 2.4 WITHOUT PREJUDICE, THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN DISREGARDING THE COMPARABLE UNCONTROLLED TRANSACTIO N CONSIDERED FOR BENCHMARKING THE TRANSACTION OF PAYMENT OF ROYALTY APPLYING CUP METHOD. IN THE TRANSFER PRICING REPORT AND AS SUBMITTED DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW 111 MAKING AN ADHOC DISALLOWANCE OF RS.3,52,33,953 BEING 30% OF T HE TOTAL EXPENDITURE ITA NO.467/DEL/2021 PAGE | 3 OF RS.11,74,46.510 INCURRED BY THE APPELLANT ON ADV ERTISEMENT AND PUBLICITY FOLLOWING THE FINDING IN THE PRECEDING AS SESSMENT YEAR ALLEGEDLY HOLDING THAT THE EXPENDITURE WAS INCURRED FOR THE B ENEFIT OF THE ENTERPRISE WHO OWNS BRAND NAME. 3.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN RELYING ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED TO HELD THAT IF THE BRAND NAME IS NOT OWNED BY THE ASSESSEE. SUCH EXPENDITURE IS INCURRED FOR THE BENEFITS OF THE ENT ERPRISE WHO OWN THE BRAND NAME, NOT APPRECIATING THAT THE SAID DECISION WAS MADE REDUNDANT BY THE HON'BLE SUPREME COURT. 3.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ADVERTISEMENT AND PUBLICITY E XPENSES WERE INCURRED BY THE APPELLANT IN THE COURSE OF CARRYING ON OF IT S BUSINESS AND WERE ALLOWABLE DEDUCTION AS BUSINESS EXPENDITURE. 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 2. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THERE ARE TWO ISSUES IN THIS APPEAL. BOTH ISSUES IN THIS APPEAL ARE COVERED BY THE ORDER OF THE TRIBUNAL IN THE IMMEDIATE PRECEDING YEARS IN ASSESS EES OWN CASES. HE FURTHER SUBMITTED THAT GROUND NOS.1 & 1.1 OF THE ASSESSEE A RE GENERAL IN NATURE, NEED NO ADJUDICATION. 3. GROUND NOS. 2 TO 2.4 RAISED BY THE ASSESSEE ARE RELATED TO ADDITION OF RS.10,07,80,000/- MADE ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS OF PAYMENT OF TRADEMA RK FEE ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE (AE), THE GOODYEAR TIRE & RUBBER COMPANY, USA. ITA NO.467/DEL/2021 PAGE | 4 4. THE FACTS GIVING RISE TO THIS GROUND ARE THAT TH E ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF AUTOMOTIVE TYRES, TUBES, FLAPS AND OTHER INDUSTRIAL RUBBER PRODUCTS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD UNDERTAKEN CERTAIN INTERNATIONAL TRANSACTIONS. A REFERENCE WAS MADE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARM'S LENGTH PRICE. THE DCIT-TRANS FER PRICING OFFICER-(2)(1)(2), NEW DELHI RECOMMENDED THE UPWARD ADJUSTMENT VIDE O RDER DATED 10.10.2019 THEREBY, THE TPO CONCLUDED THAT THE ASSESSEE HAD B EEN MANDATORILY USING THE GOODYEAR TRADEMARK/LOGO IN INDIA SINCE 1922. OVER THE YEARS, THE ASSESSEE MADE EFFORTS BY WAY OF EXPENDITURE AND HUMAN EFFORT TO DEVELOP THE BRAND IN INDIA. IT CONTINUED TO DO SO TO REPLENISH THE BRAN D VALUE. THE ENTIRE MARKETING EFFORT IN INDIA WAS ADMITTEDLY DRIVEN, PLANNED AND EXECUTED BY THE ASSESSEE. BY THESE EFFORTS, THE BRAND HAD GROWN IN VALUE AND SIGNIFICANT ECONOMIC SUBSTANCE HAD BEEN ADDED TO IT BY THE COMPANY MAKIN G DECENT PROFITS. THE CORRECT ARM'S LENGTH PRICE FOR THE TRANSACTION RELA TED TO PAYMENT OF TRADEMARK FEE TO AE WAS HELD TO BE NIL INSTEAD OF 10,07,80,00 0/-. ACCORDINGLY, THE ASSESSING OFFICER WAS ADVISED TO ENHANCE THE INCOME BY RS.10,07,80,000/-. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FI LED ITS OBJECTION BEFORE THE DRP-1, NEW DELHI WHO VIDE ORDER DATED 10.02.2021 SU STAINED THE FINDING OF THE TPO. 5. NOW, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBU NAL. 6. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE IN THE ITA NO.467/DEL/2021 PAGE | 5 EARLIER YEARS. HE TOOK US THROUGH THE ASSESSMENT O RDER AND ALSO THE DIRECTION OF THE DRP AND THE DECISION OF TRIBUNAL IN ITA NOS. 5650/DEL/2011, 6240/DEL/2012 & 916/DEL/2014. FURTHER, LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAPER BOOK PAGE NOS. 273 TO 276, T O BUTTRESS THE CONTENTION THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL RENDERED IN APPEAL PERTAINING TO ASSESSMENT YEARS 2 007-08 TO 2012-13 AND 2014-15. 7. PER CONTRA, LD. CIT DR VEHEMENTLY OPPOSED THESE SUBMISSIONS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE DREW OUR ATTENTION TO THE AGREEMENT WITH THE AE TO BUTTRESS THE CONTENTION TH AT THE AUTHORITIES BELOW WERE JUSTIFIED IN DIRECTING THE UPWARD ADJUSTMENT. HE SUBMITTED THAT A BARE READING OF TERMS OF AGREEMENT WOULD SUGGEST THAT AC TION OF THE ASSESSING OFFICER FOR UPWARD ADJUSTMENT IS JUSTIFIED AND IN A CCORDANCE WITH LAW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE FACTS WERE IDENTICAL A S IN ITA NO.5650/DEL/2011 WHEREIN THE CO-ORDINATE BENCH OF THIS TRIBUNAL DECI DED THE ISSUES IN FAVOUR OF THE ASSESSEE. THE RELEVANT CONTENTS OF THE ORDER A RE REPRODUCED HEREUNDER FOR READY-REFERENCE:- 8. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND THE DECISIONS RELIED UPON. LD. COUNSEL OF THE A SSESSEE HAS EMPHASIZED ON THE BENCHMARKING OF PAYMENT OF TRADEM ARK AS CLOSELY LINKED TRANSACTION WITH THE MANUFACTURING SEGMENT. THE LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT THE ROYALTY RELATES TO THE ENTIRE TURNOVER/PRODUCTION OF THE APPELLANT AND CONSTITUTE S AN ESSENTIAL PART OF ITA NO.467/DEL/2021 PAGE | 6 THE COST OF SALES. THE ENTIRE BUSINESS MODEL OF THE APPELLANT IS BASED ON THE LICENSES GRANTED BY THE ASSOCIATED ENTERPRISE T O MANUFACTURE THE TYRES WHICH HAVE BEEN HIGHLY SUCCESSFUL AND RENOWNED THRO UGHOUT THE WORLD, AND FOR PROVIDING ALL THE I.P. RIGHTS AND TECHNOLOG Y NECESSARY FOR THE SAME, FOR WHICH THE ROYALTY PAYMENT HAS BEEN MADE. WITHOU T WHICH, THE APPELLANTS BUSINESS WILL CEASE TO EXIST AND ITS EN TIRE OPERATIONS WOULD COME TO A HALT. ACCORDINGLY, SINCE THE ENTIRE OPERA TION OF THE APPELLANT IS BASED ON RIGHTS AND LICENSES TO MANUFACTURE THE AUT OMOBILE TYRES AND TUBES, FOR WHICH ROYALTY IS BEING PAID, THE ROYALTY PAYMENTS CANNOT BE SEPARATELY EVALUATED. IN THE CASE OF THE APPELLANT, IT IS NOBODYS CASE THAT THE COMPANY HAS ENTERED INTO DIVERSE ACTIVITIES. TH E INTERNATIONAL TRANSACTIONS OF THE APPELLANT PRIMARILY RELATE TO I TS BUSINESS OF MANUFACTURING OF TYRES AND SUCH INTERNATIONAL TRANS ACTIONS ARE CLOSELY INTERLINKED OR INTER-TWINED. IT WOULD ALSO NOT BE P OSSIBLE TO DETERMINE SEPARATELY PROFIT FROM THE INTERNATIONAL TRANSACTIO NS OF PAYMENT OF TRADEMARK FEES. RELIANCE IN THIS REGARD IS PLACED B Y THE LD. ASSESSEE COUNSEL ON THE DECISION OF HONBLE COORDINATE BENCH OF TRIBUNAL, IN A SIMILAR CASE OF MARUTI SUZUKI INDIA LIMITED VS. ACI T (ITA NO. 5237/DEL/2011), FOR ASSESSMENT YEAR 2005-06, TOO, H ELD AS UNDER: 13.1 THUS, WE AGREE WITH THE SUBMISSION OF THE APP ELLANTS COUNSEL THAT THE ENTIRE BUSINESS MODEL OF THE APPEL LANT IS BASED ON LICENSE FROM SMC, JAPAN FOR WHICH ROYALTY HAS BEEN PAID. WITHOUT SUCH TECHNOLOGY SUPPLY THE APPELLANTS BUSINESS WIL L CEASE TO EXIST AND ITS ENTIRE OPERATIONS WOULD COME TO A HALT. THU S, WE AGREE WITH THE APPELLANTS SUBMISSION TPO HAS ARBITRARILY DIVI DED THE LICENSE AGREEMENT OF THE APPELLANT WITHOUT APPRECIATING THA T ALL THE LICENSE AGREEMENT IS A SINGLE IN SEVERABLE AGREEMENT. 9. RELIANCE HAS ALSO BEEN PLACED BY THE ASSESSEE ON THE DECISION OF DELHI BENCH OF TRIBUNAL IN THE CASE OF LUMAX INDUSTRIES L TD. VS. ACIT (ITA NO. 4456/DEL/2012), WHEREIN, IN THE SIMILAR CASE OF PAY MENT OF ROYALTY, THIS TRIBUNAL CONCLUDED THAT: ITA NO.467/DEL/2021 PAGE | 7 .............THE PAYMENT OF ROYALTY CANNOT BE EXAM INED DIVORCED FROM THE PRODUCTION AND SALES. ROYALTY IS INEXTRICABLY L INKED WITH THESE ACTIVITIES. IN THE ABSENCE OF PRODUCTION AND SALE O F PRODUCTS, THERE WOULD BE NO QUESTION ARISING REGARDING PAYMENT OF A NY ROYALTY. RULE 10A(D) OF THE ITAT RULES DEFINES TRANSACTION AS A NUMBER OF CLOSELY LINKED TRANSACTIONS. ROYALTY, THEN, IS A TRANSACTIO N CLOSELY LINKED WITH PRODUCTION AND SALES. IT CANNOT BE SEGREGATED FROM THESE ACTIVITIES OF AN ENTERPRISE, BEING EMBEDDED THEREIN . THAT BEING SO, ROYALTY CANNOT BE CONSIDERED AND EXAMINED IN ISOLAT ION ON A STANDALONE BASIS.. ROYALTY IS TO BE CALCULATED ON A SPECIFIED AGREED B ASIS, ON DETERMINING THE NET SALES WHICH, IN THE PRESENT CAS E, ARE REQUIRED TO BE DETERMINED AFTER EXCLUDING THE AMOUNTS OF STANDA RD BOUGHT OUT COMPONENTS, ETC., SINCE SUCH NET SALES DO NOT STAND RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THEREFORE, IT IS OUR CONSIDERED OPINION THAT THE ASSESSEE WAS CORRECT IN EMPLOYING AN OVERALL TNMM FOR EXAMINING THE ROYALTY. THE TPO WORKED OUT THE D IFFERENCE IN THE PLI OF THE OUTSIDE PARTY (THE ASSESSEE) AT 4.09% AN D THE COMPARABLES AT 7.05%. THIS HAS NOT BEEN SHOWN TO FA LL OUTSIDE THE PERMISSIBLE RANGE. THE HONBLE TRIBUNAL ACCORDINGL Y HELD THAT THE ASSESSEE WAS CORRECT IN APPLYING OVERALL TNMM FOR E XAMINING ROYALTY. 10. THE AFORESAID DECISION OF THIS TRIBUNAL HAS BEE N UPHELD BY THE HONBLE HIGH COURT IN THE CASE OF ACIT VS. LUMAX INDUSTRIES LTD. (ITA NO. 102/2014). 11. THE ASSESSEE HAS ALSO RIGHTLY MADE REFERENCE TO THE DECISION OF DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMM UNICATIONS INDIA PVT. LTD VS. CIT (ITA NO 16/2014) REPORTED AT 374 ITR 11 8, WHEREIN, THE COURT HAS UPHELD CLUBBING OF CLOSELY LINKED TRANSACTIONS FOR UNDERTAKING BENCHMARKING ANALYSIS APPLYING ENTITY WISE TNMM. IN FACT, IN THE CASE OF ITA NO.467/DEL/2021 PAGE | 8 CIT VS. REEBOK INDIA CO LTD (ITA NO 213/2014), BEIN G PART OF THE DECISION OF HONBLE HIGH COURT IN THE CASE OF SONY ERICKSON, THE COURT HAS HELD AS UNDER: 185. ROYALTY PAYABLE FOR AVAILING THE RIGHT TO USE WOULD DEPEND UPON CORRESPONDING PRICE, WHICH WOULD HAVE BEEN PAI D BY AN INDEPENDENT OR UNRELATED ENTERPRISE. THIS IS JUDGED BY APPLYING COMPARABLES. TPO HAS NOT REJECTED THE QUANTUM OF RO YALTY ON THE SAID PRINCIPLE. THE REASONING GIVEN BY THE TPO IS N OT ONLY ERRONEOUS FOR THE REASONS STATED ABOVE, BUT IS ALSO CONTRARY TO THE RULES. DEPENDING UPON THE METHOD SELECTED, NET PROFIT OR G ROSS PROFIT OF THE ASSESSED HAS TO BE COMPARED WITH PROFIT MARGINS OF RELATED ENTERPRISE. THE FORMULA PRESCRIBED UNDER THE RULES DOES NOT ACCEPT THE RATIOCINATION ADOPTED AND APPLIED BY THE TPO. 12. ANOTHER CONTENTION OF THE TPO THAT THE GOODYEAR BRAND WAS WEAK AND THEREFORE DOES NOT REQUIRE PAYMENT OF ROYALTY, IS N OT BROUGHT OUT FROM THE RECORDS. THE AR OF THE ASSESSEE HAS MADE ELABORATE SUBMISSION AND PLACED EVIDENCE ON RECORD TO SHOW THAT GOODYEAR B RAND IS CONSIDERED TO BE ONE OF THE TOP MOST ACCLAIMED BRAND ACROSS THE G LOBE. THEREFORE, THERE IS NO MERIT IN THE ALLEGATION OF THE TPO THAT GOODY EAR BRAND HAS NO WORTH AND THEREFORE, THE PAYMENT MADE BY THE ASSESSEE FOR USE OF GOODYEAR BRAND IS UNWARRANTED. 13. THE DRP HAS FURTHER ADDED THAT SINCE THE SISTER CONCERN OF THE ASSESSEE, GOODYEAR SOUTH ASIA PRIVATE LIMITED, IS N OT MAKING PAYMENT OF ROYALTY, THEREFORE, THERE SHALL BE NO PAYMENT OF RO YALTY BY THE ASSESSEE EITHER. WE HAVE CONSIDERED THIS ASPECT AND FOUND TH AT THERE IS DIFFERENCE IN BUSINESS DYNAMICS AND COMMERCIAL REALITIES IN BOTH THE COMPANIES IN AS MUCH AS 60% OF THE SALES MADE BY GOODYEAR SOUTH ASI A LIMITED IS MADE TO ITS RELATED PARTIES ITSELF. NEVERTHELESS, THE AR OF THE ASSESSEE HAS RIGHTLY POINTED OUT THAT IN TERMS OF RULE 10B(1)(A) OF THE RULES, INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AE, GOODYEAR INC. USA ITA NO.467/DEL/2021 PAGE | 9 CANNOT BE COMPARED WITH THE INTERNATIONAL TRANSACTI ON ENTERED BETWEEN ANOTHER AE, GOODYEAR SOUTH ASIA PVT. LTD. WITH GOOD YEAR INC. USA. 14. THE AR OF THE ASSESSEE HAS RIGHTLY PLACED RELIA NCE ON THE DECISION OF THIRD MEMBER BENCH OF THE MUMBAI TRIBUNAL, IN THE C ASE OF TECNIMONT ICB PVT. LTD. VS. ACIT (ITA NO. 4608 & 5085/MUM/2010), WHEREIN, WHILE EXPLAINING THE IMPORT OF CLAUSE (I) OF RULE 10B(E) OF THE ACT, HELD THAT THE RULES STRICTLY PROVIDES THAT AN UNCONTROLLED TRANSA CTION SHALL BE A TRANSACTION UNDERTAKEN BETWEEN TWO UNRELATED PARTIE S AND CANNOT BE GIVEN A WIDER TERM TO INCLUDE TRANSACTION ENTERED B ETWEEN TWO OTHER RELATED PARTIES, AS UNDER: 14. WHAT IS AN UNCONTROLLED TRANSACTION HAS BEEN CLEARLY DEFINED UNDER RULE 10A(A) TO MEAN A TRANSACTION BETWEEN EN TERPRISES OTHER THAN ASSOCIATED ENTERPRISES WHETHER RESIDENT OR NON -RESIDENT. A PLAIN READING OF THE MEANING GIVEN TO THE EXPRESSIO N UNCONTROLLED TRANSACTION LEAVES NO ROOM FOR ANY DOUBT THAT IT I S A TRANSACTION BETWEEN TWO NON-ASSOCIATED ENTERPRISES. IF HE TRANS ACTION IS BETWEEN TWO ASSOCIATED ENTERPRISES, IT GOES OUT OF THE AMBIT OF UNCONTROLLED TRANSACTION UNDER RULE 10A. WHEN SEC TION 92C IS READ ALONG WITH RULE 10B(E) AND 10A, IT BECOMES ABUNDANT LY CLEAR THAT IN COMPUTING ALP UNDER THE TRANSACTIONAL NET MARGIN ME THOD, A COMPARISON OF THE ASSESSEES NET PROFIT MARGIN FROM INTERNATIONAL TRANSACTIONS WITH ITS AES HAS NECESSARILY TO BE MAD E WITH THAT OF THE NET PROFIT MARGIN REALIZED BY THE SAME ENTERPRI SE OR AN UNRELATED ENTERPRISE FROM A COMPARABLE BUT DEFINITELY UNCONTR OLLED TRANSACTION, I.E., A TRANSACTION BETWEEN NON-ASSOCIATED ENTERPRI SES. THERE IS NO STATUTORY SANCTION FOR ROPING IN A COMPARABLE CONTR OLLED TRANSACTION FOR THE PURPOSES OF BENCHMARKING. WHEN IT HAS BEEN CLEARLY MANDATED IN ALL THE RELEVANT METHODS FOR DETERMININ G ALP THAT THE COMPARISON HAS TO BE MADE BY THE ENTERPRISES INTER NATIONAL TRANSACTION WITH COMPARABLE UNCONTROLLED TRANSACTIO N, BY NO SHEER LOGIC A COMPARABLE CONTROLLED TRANSACTION CAN BE EM PLOYED FOR THE ITA NO.467/DEL/2021 PAGE | 10 PURPOSES OF MAKING COMPARISON. THERE IS NO WARRANT FOR DILUTING THE PRESCRIPTION GIVEN BY THE STATUTE OR RULES WHEN SUC H PRESCRIPTION ITSELF SERVES THE ENDS OF JUSTICE PROPERLY AND IS I NFALLIBLE. IF THE VIEW OF THE REVENUE THAT A CONTROLLED TRANSACTION SHOULD NOT BE SHUNTED OUT FOR THE PURPOSES OF BENCHMARKING, IS ACCEPTED, THEN ALL THE RELEVANT PROVISIONS CONTAINED IN CHAPTER X IN THIS REGARD, WILL BECOME OTIOSE. IF SUCH A CONTENTION OF MAKING COMPA RISON WITH A COMPARABLE CONTROLLED TRANSACTION IS TAKEN TO ITS L OGICAL CONCLUSION, THEN THERE WILL NEVER ARISE ANY NEED TO TAKE UP ANY CASE FOR TRANSFER PRICING SCRUTINY. THE REASON IS OBVIOUS. ALP IS DET ERMINED FOR APPLICATION IN RESPECT OF TRANSACTIONS BETWEEN TWO AE SO THAT THE PROFIT LIKELY TO ARISE FROM SUCH TRANSACTIONS IS NO T UNDERREPORTED VIS- -VIS FROM SIMILAR TRANSACTIONS WITH THIRD PARTIES. IF THE COMPARISON IS MADE AGAIN WITH NET PROFIT MARGIN REALIZED FROM TRANSACTIONS BETWEEN TWO AES, INSTEAD OF THIRD PARTIES, IT MAY D EMONSTRATE THE SAME COOKED RESULTS IN BOTH THE SITUATIONS, THEREBY LEAVING NO SCOPE FOR ANY ADJUSTMENT. IN THIS EVENTUALITY, THE VERY O BJECT OF SUCH PROVISIONS WILL BE FRUSTRATED. THUS, IT FOLLOWS THA T THE ALP CAN BE DETERMINED ONLY BY MAKING COMPARISON WITH A COMPARA BLE UNCONTROLLED TRANSACTION AND NOT A COMPARABLE CONTR OLLED TRANSACTION. 15. IT IS ALSO NOT ACCEPTABLE THAT AN INTERNATIONAL TRANSACTION WHICH IS NOT UNDERTAKEN IN THE PRECEDING YEAR, CANNOT BE UNDERTA KEN BETWEEN PARTIES SUBSEQUENTLY. IN PURSUANCE TO DIRECTION OF THE BENC H, THE APPELLANT HAS SUBMITTED THREE DOCUMENTS AS ADDITIONAL EVIDENCE, I .E. (I) CERTIFICATE ISSUED BY THE ASSOCIATED ENTERPRISE, I.E. THE GOODYEAR TIR E & RUBBER COMPANY, USA EXPLAINING THE REASONS FOR NOT CHARGING ROYALTY IN THE EARLIER YEARS; (II) COPY OF EXTRACTS OF MINUTES OF BOARD OF DIRECTORS M EETING DATED 31.07.2006 REGARDING APPROVAL FOR EXECUTION OF TRAD EMARK LICENSE AGREEMENT AND (III) COPY OF AN EMAIL EXCHANGED BETW EEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE REGARDING PAYMENT OF TRAD E MARK FEE IN JULY ITA NO.467/DEL/2021 PAGE | 11 2006. THESE EVIDENCES ARE ADMITTED ON RECORD. THE L D. DR HAS NO OBJECTION TO ADMIT THESE EVIDENCES ON RECORD. IN THESE EVIDEN CES, THE AE HAS CLARIFIED THAT IT DID NOT CHARGE ROYALTY IN THE EAR LIER YEARS IN ORDER TO SUPPORT THE APPELLANT WHO WAS YET TO ACHIEVE HIGHER MARKET SHARE, STABILIZE OPERATIONS, MAINTAIN COMPETITIVE PRICING AND WAS RECOVERING FROM FINANCIAL DIFFICULTIES. SUBSEQUENTLY, WHEN THE FINA NCIAL POSITION OF THE ASSESSEE IMPROVED, THE AE STARTED CHARGING ROYALTY IN CONSIDERATION FOR ALLOWING THE ASSESSEE TO USE ITS VALUABLE BRAND NAM E. THE REASONS GIVEN BY THE AR OF THE ASSESSEE, FOR NOT CHARGING ROYALTY BY THE AE, PRIOR TO THE YEAR UNDER CONSIDERATION IS DULY CORROBORATED FROM THE YEAR TO YEAR PROFITS SHOWN BY THE COMPANY. IT IS VALID REASON THAT THE A E WAS NOT CHARGING ROYALTY PRIOR TO FINANCIAL YEAR 2006-07 WAS DUE TO THE LOSSES INCURRED BY THE ASSESSEE AND PRIOR TO YEAR 2000, NO INDIAN COMP ANIES WERE ALLOWED TO PAY TRADEMARK FEES UNDER AUTOMATIC ROUTE. NEVERTHEL ESS, THE MUMBAI BENCH OF TRIBUNAL HAS, IN THE CASE OF DRESSER- RAND INDIA PVT LTD VS. ACIT (ITA NO. 8753/MUM/2010 HELD THAT WHETHER THE SERVIC ES GIVEN BY THE AE TO THE ASSESSEE, WITHOUT CHARGING CONSIDERATION, ON GRATUITOUS BASIS IN THE PRECEDING YEAR, CANNOT DE BAR THE AE FROM CHARGING FEE FOR THE SAME SERVICES SUBSEQUENTLY. THE OBSERVATIONS ARE: 8WHEN EVALUATING THE ARMS LENGTH PRICE OF A SER VICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFI TS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PRICE OF THIS SERVICE IS WHAT AN INDEPENDENT EN TERPRISE WOULD HAVE PAID FOR THE SAME. SIMILARLY, WHETHER THE AE G AVE THE SAME SERVICES TO THE ASSESSEE IN THE PRECEDING YEARS WIT HOUT ANY CONSIDERATION OR NOT IS ALSO IRRELEVANT. THE AE MAY HAVE GIVEN THE SAME SERVICE ON GRATUITOUS BASIS IN THE EARLIER PER IOD, BUT THAT DOES NOT MEAN THAT ARMS LENGTH PRICE OF THESE SERVICES IS NIL. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERA TIONS WHICH ARE NOT AT ALL RELEVANT IN THE CONTEXT OF DETERMINI NG THE ARMS LENGTH ITA NO.467/DEL/2021 PAGE | 12 PRICE OF THE COSTS INCURRED BY THE ASSESSEE IN COST CONTRIBUTION ARRANGEMENT. 16. IN LIGHT OF THE ABOVE, WE CONCLUDE THAT THERE E XISTS A DIRECT NEXUS BETWEEN THE REVENUE EARNED BY THE ASSESSEE AND THE PAYMENT OF ROYALTY MADE TO THE ASSOCIATED ENTERPRISE FOR USING BRAND N AME, AND THEREFORE, IT WOULD BE INCORRECT TO ANALYZE THE TRANSACTION OF PA YMENT OF ROYALTY IN ISOLATION. FURTHER, THE LD. DR HAD RAISED A CONTENT ION THAT THE ASSESSEE HAS NOT DEMONSTRATED HOW THE PAYMENT FOR ROYALTY BENEFI CIAL TO THE TAXPAYER. WE ARE OF THE OPINION THAT, ASCERTAINING WHETHER A SERVICE HAS ACTUALLY BENEFITTED THE ASSESSEE IS NOT WITHIN THE PREROGATI VE OF THE TAX AUTHORITIES. THE HON'BLE DELHI HIGH COURT IN CIT V. CUSHMAN & WA KEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730(DEL) HAS HELD THAT THE AUTH ORITY OF THE TPO IS LIMITED TO CONDUCTING TRANSFER PRICING ANALYSIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO DECIDE IF S UCH SERVICES EXIST OR BENEFITS DID ACCRUE TO THE ASSESSEE. SUCH LATER ASP ECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAIN OF THE AO. 17. ACCORDINGLY, IN VIEW OF THE AFORESAID, WE ARE O F THE OPINION THAT SINCE THE OPERATING MARGIN OF THE ASSESSEE AT 6.96% IS HI GHER THAN THE COMPARABLES AT 2.77%, THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY ENTERED INTO BY THE ASSESSEE ARE TO BE CONSIDERED B EING AT ARMS LENGTH APPLYING TNMM AS THE MOST APPROPRIATE METHOD. 18. WE THEREFORE DIRECT THE ASSESSING OFFICER TO DE LETE THE ADJUSTMENT ON THIS ACCOUNT. THIS DECISION OF THE TRIBUNAL HAS BEEN FOLLOWED IN THE PRECEDING ASSESSMENT YEARS 2007-08 TO 2012-13 AND 2014-15 IN ITA NOS. 5650/DEL/2011, 6240/DEL/2012, 916/DEL/2014, 1516/DE L/2015, 1004/DEL/2016, 1706/DEL/2017 AND 8006/DEL/2018 RESP ECTIVELY. ITA NO.467/DEL/2021 PAGE | 13 9. THERE IS NO CHANGE INTO THE FACTS AND CIRCUMSTAN CES OF THE CASE IN THE PRESENT YEAR. THEREFORE, TAKING A CONSISTENT VIEW , WE HEREBY DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION IN THE LIG HT OF DECISIONS OF THE TRIBUNAL PERTAINING TO ASSESSMENT YEARS 2007-008 TO 2012-13 AND 2014-15 IN ASSESSEES OWN CASE. THUS, GROUND NOS. 2 TO 2.4 RA ISED BY THE ASSESSEE IN THIS APPEAL ARE ALLOWED. 10. NOW, COMING TO GROUND NOS. 3 TO 3.2 RAISED BY T HE ASSESSEE ARE AGAINST THE MAKING OF ADHOC DISALLOWANCE AMOUNTING TO RS.3, 52,33,953/- BEING 30% OF THE TOTAL EXPENDITURE OF RS.11,74,46,510/- INCURRED BY THE ASSESSEE ON ADVERTISEMENT AND PUBLICITY. 11. FACTS GIVING RISE TO THE PRESENT CASE ARE THAT THE ASSESSING OFFICER OBSERVED DURING THE ASSESSMENT PROCEEDINGS THAT DUR ING FINANCIAL YEAR 2015- 16, THE ASSESSEE COMPANY HAD INCURRED A TOTAL SUM O F RS.11,74,46,510/- TOWARDS ADVERTISEMENT, PUBLICITY AND SALES PROMOTIO N. THE ASSESSEE WAS SHOW-CAUSED AS TO WHY THE EXPENDITURE INCURRED ON A DVERTISEMENT SHOULD NOT BE DISALLOWED BEING IN NATURE OF BRAND BUILDING ACT IVITY. IN RESPONSE THERETO, THE ASSESSEE FILED A DETAILED REPLY STATING THAT TH E ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURING/TRADING OF TYRES AND RELATED P RODUCTS. IT HAD INCURRED THESE EXPENSES FOR PROMOTING ITS SALE AND TO BEAT ITS COMPETITOR COMPANIES AS ITS COMPETITORS WERE ALSO EXPENDING ON ADVERTISEMEN TS OF THEIR PRODUCTS. IT WAS STATED THAT BENEFIT OF SUCH EXPENDITURE WAS DER IVED ENTIRELY BY THE ASSESSEE COMPANY AND NOT BY AN AFFILIATE COMPANY. IN SUPPORT OF THIS, THE ASSESSEE HAD RELIED UPON THE FOLLOWING CASE LAWS:- ITA NO.467/DEL/2021 PAGE | 14 (I) CIT VS WALCHAND & CO. 65 ITR 381. (II) J.K. WOOLEN MANUFACTURERS VS CIT 72 ITR 612. (III) ALUMINUM CORPORATION OF INDIA LTD. VS CIT 86 ITR 11. (IV) CIT VS PANIPAT WOOLLEN & GENERAL MILLS CO.LTD. 103 ITR 666. (V) SASSOON J DAVID AND CO.P. LTD. VS CIT 118 ITR 2 61 (SC). (VI) CIT VS CHANDULAL KESHAVLAL & CO. 38 ITR 601 (S C). (VII) SA BUILDERS LIMITED VS CIT 288 ITR 1 (SC). (VIII) CIT VS. SALES MAGNESITE P. LTD. 214 ITR 1(BO M). (IX) JR PATEL & SONS P. LTD. VS. CIT : 69 ITR 782 ( GUJ) . (X) CIT VS. KHAMBHATTA FAMILY TRUST (215 TAXMAN 602 ) (GUJ). (XI) STAR INDIA P. LTD.: 103 ITD 73 (TM) (XII) NATIONAL PANASONIC (INDIA) LTD. VS. JCIT: ITA 3238/DEL/2002 (DEL) (XIII) NESTLE INDIA LTD. VS. DCIT (DEL)(2007) 111 I TR 498 (DEL). (XIV) SONY INDIA P. LTD. VS. DCIT: 114 ITD 448. (XV) CIT VS ADIDAS INDIA MARKETING (P) LTD 195 TAXM AN 256 (DEL). (XVI) CIT VS AGRA BEVERAGES CORPORATION P LTD (ITA NO. 966/2009 & 836/2010)(DEL) (XVII) DCIT VS. MARUTI COUNTRYWIDE AUTO FINANCIAL S ERVICES P. LTD. (ITA NOS. 2181 TO 2183/DE1/2010). (XVIII) CIT VS MODI REVLON P.LTD. (ITA NO.1450, 145 1, 1640, 1652/2010 & 825/201) (2012). ITA NO.467/DEL/2021 PAGE | 15 (XIX) ACIT VS NGC NETWORK INDIA P.LTD. (ITA NO.635 (MUM) OF 2010) (2011). 12. HOWEVER, THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER WHO PROCEEDED TO DISALLOW THI S EXPENDITURE. HENCE, THE ADDITION OF RS.3,52,33,953/- BEING 30% OF THE ENTIR E EXPENDITURE INCURRED ON ADVERTISEMENT AND PUBLICITY WAS MADE BY THE ASSESSI NG OFFICER. 13. AGGRIEVED AGAINST THIS, THE ASSESSEE IS IN APPE AL BEFORE THIS TRIBUNAL. 14. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE IN ITA NO.1516/DEL/2015, 1004/DEL/2016 AND 1706/DEL/2017 P ERTAINING TO ASSESSMENT YEARS 2010-11 TO 2012-13 RESPECTIVELY. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS N OT GIVEN ANY SPECIFIC REASON FOR MAKING ADHOC DISALLOWANCES. HE SUBMITTED THAT SUCH DISALLOWANCE IS NOT PERMISSIBLE UNDER LAW HENCE, DESERVES TO BE DELETED . 15. ON THE CONTRARY, LD.CIT DR OPPOSED THESE SUBMIS SIONS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. LD.CIT DR TOO K US THROUGH THE AGREEMENT ENTERED INTO BETWEEN THE PARTIES. HE SUBMITTED THA T THE AE OF THE ASSESSEE COMPANY WOULD CERTAINLY BE BENEFITTED BY EXPENDITUR E INCURRED ON ADVERTISEMENT AND PUBLICITY OF THE PRODUCTS OF THE AE IN INDIA SINCE THE ADVERTISEMENT AND THE PUBLICITY WOULD CERTAINLY HAV E IMPACT. HE THEREFORE, STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BE LOW. ITA NO.467/DEL/2021 PAGE | 16 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE SIMILAR ISSUES AROSE I N EARLIER YEARS AS WELL AND THE TRIBUNAL WAS PLEASED TO DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL IN ITA NO.8806/DEL/8006/DEL/2018 PERTAININ G TO ASSESSMENT YEAR 2014-15 HAS OBSERVED AS UNDER:- 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON THE RE CORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT DURING THE FINANCIAL YEA R 2014-15, THE ASSESSEE COMPANY INCURRED A SUM OF RS.12,69,00,000/- TOWARDS ADVERTISING AND SALES PROMOTION. THE AO REQUIRED THE ASSESSEE TO SH OW CAUSE AS TO WHY THE EXPENDITURE INCURRED ON ADVERTISEMENT SHOULD NO T BE DISALLOWED BEING IN THE NATURE OF BRAND BUILDING ACTIVITY. IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT ANY DISALLOWANCE ON ACC OUNT OF ADVERTISEMENT AND SALES PROMOTION EXPENSES HOLDING THE SAME TO BE INCURRED FOR BRAND BUILDING FOR THE ENTITIES OWING BRAND SHALL NOT BE SUSTAINABLE IN LAW. IT WAS FURTHER SUBMITTED THAT T HE EXPENSES WERE INCURRED FOR ADVERTISEMENT/MARKETING SUPPORT ACTIVI TIES ETC. AND ARE INCIDENTAL TO CARRYING ON THE BUSINESS AND WERE INC URRED BY THE ASSESSEE REGULARLY FOR PROMOTION/QUALITY CONTROL AND ITS PRO DUCT. THE EXPENSES INCURRED ARE TO ENABLE AND INCREASE EFFICIENCY IN B USINESS AND THEREFORE, WAS REVENUE IN NATURE AND DEDUCTIBLE U/S 37 OF THE ACT. THE EXPENSES ARE SOLELY INCURRED FOR THE BENEFIT OF THE ASSESSEE AND NOT ITS FOREIGN AFFILIATE. ANY BENEFIT FLOWING TO THE FOREIGN AFFILIATE OUT OF THE SAID EXPENDITURE IS PURELY INCIDENTAL. THUS, THE EXPENDITURE INCURRED O N ADVERTISEMENT IS WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSE SSEE. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT THE BRAND (MARKETING INTANGIBLES) IS NOT OWNED BY THE ASSESSEE, SUCH EXP ENDITURE IS INCURRED FOR THE BENEFITS OF THE ENTERPRISE WHO OWNS THE BRAND N AME. THE ISSUE WAS EXAMINED IN DETAIL IN EARLIER ASSESSMENT YEARS AND 30% OF ADVERTISEMENT AND SALES PROMOTION EXPENSES WERE DISALLOWED WHICH HAS ALSO BEEN ITA NO.467/DEL/2021 PAGE | 17 UPHELD BY THE DRP. ACCORDINGLY, HE MADE THE DISALLO WANCE OF 30% OF THE EXPENSES AND MADE AN ADDITION OF RS.3,80,70,000/- T O THE INCOME OF THE ASSESSEE (MARKETING INTANGIBLES) IS NOT OWNED BY TH E ASSESSEE, SUCH EXPENDITURE IS INCURRED FOR THE BENEFITS OF THE ENT ERPRISE WHO OWNS THE BRAND NAME. THE ISSUE WAS EXAMINED IN DETAIL IN EAR LIER ASSESSMENT YEARS AND 30% OF ADVERTISEMENT AND SALES PROMOTION EXPENSES WERE DISALLOWED WHICH HAS ALSO BEEN UPHELD BY THE DRP. A CCORDINGLY, HE MADE THE DISALLOWANCE OF 30% OF THE EXPENSES AND MADE AN ADDITION OF RS.3,80,70,000/- TO THE INCOME OF THE ASSESSEE. 13. ON APPEAL, THE DRP CONFIRMED THE SAME. 14. BOTH THE PARTIES HAVE AGREED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS 2007- 08, 2008-09 & 2009-10 VIDE ORDER DATED 29.04.2016 WHEREIN IT WAS HELD AS UNDER: '61. THE ID. AR OF THE ASSESSEE SUBMITTED BEFORE US THAT AGAINST THE TOTAL INCREASE IN ADVERTISEMENT AND SALES PROMOTION EXPENSE OF RS. 4,87,14,000/- THE ASSESSING OFFICER ACCEPTED ONLY R S. 4,20,43,000 AND DISALLOWED 50% OF THE DIFFERENCE OF RS.33,08,50 O I.E. (RS.4,87,14,000 - 4,20,43,000) ON THE BASIS OF HIS CONJECTURE AND SURMISES. 62. THE ID. AR OF THE ASSESSEE FURTHER MADE FOLLOWI NG WRITTEN SUBMISSION: 'IT WAS SUBMITTED THAT IN A FAST GROWING AND VERY T OUGH COMPETITIVE BUSINESS ENVIRONMENT, THE APPELLANT HAD TO SPEND A GOOD AMOUNT ON ADVERTISEMENT AND MARKETING ACTIVITIES TO SHOW ITS PRESENCE IN THE MARKET AND SUSTAIN IN BUSINESS. ALSO, FOR THE I NITIATIVE OF BRANDED RETAIL STORES, THE APPELLANT HAD SPENT NEAR LY RS. 2,27,35,000 DURING THE YEAR AND AN AMOUNT OF RS .1,93,08,000 WAS SPENT TOWARDS LAUNCHING AND INTRODUCING THE NEW PRODUCT RANGE CALLED 'EXCELLENCE' FOR PASSENGER CARS. THIS TWO EXPENSES ITA NO.467/DEL/2021 PAGE | 18 ALONE TOTALED TO RS.4,20,43,000 OUT OF TOTAL INCREA SE IN EXPENDITURE OF RS. 4,87,14,000. FURTHER, IT WAS SUBMITTED THAT WITH THE INCREASE IN ADVERTISEMENT AND SALES PROMOTION EXPENSE, THE COMPANY HAS DEMONS TRATED SALES GROWTH OF NEARLY 28% AS COMPARED TO FINANCIAL YEAR 2005-06. THE GROSS SALE IN YEAR 2005-06 WAS RS.751.74 CRORES, WH ICH HAS GROWN TO RS. 958.11 CRORES IN 2006-07. IT WOULD BE APPREC IATED THAT DESPITE HAVING LOW SPENDING ON ADVERTISEMENT AND MA RKETING EXPENDITURE, THE APPELLANT HAS MAINTAINED SUBSTANTI AL GROWTH IN TERMS OF SALES AND SUSTAINED IN THIS COMPETITIVE BU SINESS. IN TERMS OF SECTION 37(1) OF THE ACT, DEDUCTION IS ADMISSIBLE FOR EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR PUR POSES OF BUSINESS. EXPENDITURE JUSTIFIED BY BUSINESS CONSI DERATIONS AND INCURRED OUT OF COMMERCIAL EXPEDIENCY IS ALLOWABLE DEDUCTION. IT WAS ALSO SUBMITTED THAT SINCE THE AFORESAID EXPE NDITURE OF ADVERTISEMENT AND BRAND PROMOTION HAS UNDERGONE A B ENCHMARKING ANALYSIS UNDER THE TRANSFER PRICING REGULATIONS AND AN ARM'S LENGTH PRICE THEREOF HAS BEEN DETERMINED, THERE COULD NOT BE ANY FURTHER DISALLOWANCE OF THE SAID PAYMENT UNDER SECTION 37(1 ) OF THE ACT, HOLDING THE SAME TO BE NOT AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE DELHI BENC H OF THE TRIBUNAL IN THE CASE OF WHIRLPOOL OF INDIA LTD. VS. DCIT (IT A NO. 426/D/13), WHEREIN, IT IS HELD AS UNDER: '16 ..ONCE THE TOTAL AMOUNT OF AMP EXPENSES I S PROCESSED THROUGH THE PROVISIONS OF CHAPTER X OF TH E ACT WITH THE AIM OF MAKING TP ADJUSTMENT TOWARDS AMP EXPENSES IN CURRED FOR THE FOREIGN AE, OR IN OTHER WORDS SUCH EXPENSES AS ARE NOT INCURRED FOR THE ASSESSEE'S BUSINESS, THERE CAN BE NO SCOPE FOR AGAIN REVERTING TO SECTION 37(1) QUA SUCH AMOUNT TO MAKE ADDITION BY CONSIDERING THE SAME EXPENDITURE AS HAVING NOT BEEN INCURRED ITA NO.467/DEL/2021 PAGE | 19 'WHOLLY AND EXCLUSIVELY' FOR THE PURPOSES OF ASS ESSEE'S BUSINESS. IF THE AMOUNT OF AMP EXPENSES IS DISALLOWED BY PROC ESSING UNDER BOTH THE SECTIONS, THAT IS 37 AND 92, IT WILL RESUL T IN DOUBLE ADDITION TO THE EXTENT OF THE ORIGINAL AMOUNT INCURRED FOR T HE PROMOTION OF THE BRAND OF THE FOREIGN AE DE HORS THE MARK-UP. IN VIE W OF THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS NOT JUSTIFIED IN OBSERVING ALTERNATIVELY THAT A SUM OF RS.180 CRORE AND ODD IS NOT ALLOWABLE AS PER SECTION 3 7( 1) OF THE ACT. WE, THEREFORE, VACATE THE ALTERNATIVE FINDING GIVEN BY THE AO FOR DISALLOWANCE. ' 63. LD. CIT-DR PLACED RELIANCE ON THE ORDER OF TH E ASSESSING OFFICER AND DRP. 64. WE HAVE HEARD THE RIVAL CONTENTIONS IN THE LIGH T OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE HAVE ALREAD Y HELD THAT THE ADVERTISEMENT EXPENDITURE INCURRED BY THE ASSESSEE IS INCURRED WHOLLY FOR THE PURPOSE OF ITS BUSINESS AND PROFESSI ON AND OUGHT TO BE ALLOWED DEDUCTION IN ENTIRETY. FURTHER, THE ASSE SSING OFFICER HAS CLEARLY MADE AN AD-HOC DISALLOWANCE OF ADVERTISEMEN T EXPENDITURE INCURRED BY THE ASSESSEE, WHICH IS NOT PERMISSIBLE UNDER THE LAW. WE ARE OF THE CONSIDERED VIEW THAT AO WAS NOT JUSTI FIED IN MAKING SUCH AD-HOC DISALLOWANCES AND THEREFORE, DIRECT THE ASSESSING OFFICER TO DELETE THE ADJUSTMENT ON THIS ACCOUNT.' 15. FACTS BEING IDENTICAL RESPECTFULLY FOLLOWING T HE PRECEDENT, WE VACATE THE DISALLOWANCE OF RS.3,80,70,000/- AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 17. THE REVENUE COULD NOT POINT OUT ANY CHANGE IN F ACTS AND CIRCUMSTANCES OF THE CASE AS THE ISSUE HAS ALREADY BEEN DECIDED I N FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN EARLIER YEARS. WE DO NOT SEE ANY R EASON TO TAKE A DIFFERENT VIEW. THEREFORE, RESPECTFULLY FOLLOWING THE PRECEDENTS, W E HEREBY DIRECT THE ASSESSING ITA NO.467/DEL/2021 PAGE | 20 OFFICER TO DELETE THE ADHOC DISALLOWANCE AS MADE BY ASSESSING OFFICER. GROUND NOS. 3 TO 3.2 RAISED BY THE ASSESSEE ARE ALLOWED. 18. GROUND NO.4 RAISED BY THE ASSESSEE IS AGAINST T HE LEVYING PENALTY U/S 234B OF THE ACT. THIS BEING CONSEQUENTIAL IN NATU RE. WE HOLD ACCORDINGLY. THUS, GROUND NO.4 RAISED BY THE ASSESSEE IS ALLOWED . 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIR TUAL HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 11 TH AUGUST, 2021. SD/- SD/- (DR.B.R.R.KUMAR) (KUL BHARAT) ACCOUNTANT MEMBER JUDI CIAL MEMBER * AMIT KUMAR * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI