Akzo Nobel India Limited, Kolkata V. DCIT, Circle-10(1), Kolkata, Kolkata

ITA 621/KOL/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7306 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: MANONEET DALAL; GYAN SRIVASTAVA
• Keywords: Transfer pricing; International transaction; Rule of consistency; Set aside
• Section: 143(3); 92D; 92B; 144C; 264; 145; 154; 92

Judgement Text

1 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 , C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA ( ) BEFORE . , /AND . . , ) [BEFORE SHRI J. SUDHAKAR REDDY, AM & SHRI A. T. VARKEY, JM ] I.T .A. NO. 621/KOL/2017 ASSESSMENT YEAR: 2012 - 13 AKZO NOBEL INDIA LIMITED (PAN: AAACI6297I) V V S. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 10(1), KOLKATA. APPELLANT RESPONDENT FOR THE APPELLANT S/SHRI MANONEET DALAL & GYAN SRIVASTAVA, ADVOCATES FOR THE RESPONDENT DR. P. K. SRIHARI, CIT, DR DATE OF HEARING 04.09 .201 9 DATE OF PRONOUNCEMENT 18 . 10 .201 9 ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF AO U/S. 144C READ WITH SECTION 143(3) OF THE INC OME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) IN PURSUANCE TO THE DIRECTIONS OF THE DRP - 2, NEW DELHI ISSUED U/S. 144C(5) OF THE ACT VIDE ORDER DATED 20.12.2016 FOR AY 2012 - 13. 2 . GROUND NOS. 1 AND 7 ARE GENERAL IN NATURE AND DO NOT REQUIRE A NY ADJUDICATION, HENCE, THE SAME ARE DISMISSED. 3 . GROUND NO. 2 IS ON THE ISSUE OF TRANSFER PRICING (TP) ADJUSTMENTS MADE TOWARDS ADVERTISING, MARKETING AND PROMOTION EXPENSES (AMP EXPENSES). THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF PAINTS, SPECIALITY CHEMICALS AND STARCH. IT HAS FOLLOWING TWO BUSINESS DIVISIONS: I) PAINTS BUSINESS DIVISION (PBD) PBD IS ENGAGED IN MANUFACTURING AND SUPPLY OF DECORATIVE PAINTS. PBD HAS THREE MANUFACTURING PLANTS SITUATED AT HYDERABAD, THANE AND MOHALI. 2 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 II) NATIONAL STARCH AND CHEMICALS DIVISION (NSC) NSC DIVISION IS INTO NATURAL POLYMERS GROUP (NPG) AND SPECIALTY POLYMER GROUP (SPG). IT IS ENGAGED IN THE BUSINESS OF SURFACTANTS, SYNTHETIC SPECIALTY POLYMERS AND NATURAL POLYMERS, A GRO CHEMICALS, CHEMICALS USED IN CUSTOMER CARE PRODUCT, FABRIC AND CLEANING. 4. THE TRANSFER PRICING OFFICER (TPO) NOTED THAT ASSESSEE HAS INCURRED EXPENDITURE ON ADVERTISING, MARKETING AND PROMOTION EXPENSES (AMP EXPENSES). SO HE HELD THAT BY INCURRING S UCH EXPENSES, THE ASSESSEE HAS PROVIDED SERVICES TO ITS ASSOCIATE ENTERPRISES (AE). THE PRIMARY ARGUMENT OF THE LD. AR OF THE ASSESSEE IS THAT THE TRANSACTION IN QUESTION IS NOT AN INTERNATIONAL TRANSACTION. IN SUPPORT OF HIS SUBMISSION, THE LD. AR PLACE D RELIANCE ON THE FOLLOWING JUDICIAL PRECEDENTS: I) AKZO NOBEL INDIA LTD. (ITA NO. 560/KOL/2016 & ITA NO. 315/KOL/2016) DATED 28.08.2019. II) MARUTI SUZUKI INDIA LTD. (ITA 110/2014 & ITA 710/2015 (DEL. HIGH COURT). III) PHILIPS INDIA LTD. (ITA NOS. 863,5 39/KOL/2016 & 612/KOL/2017 (ITAT, KOL.) IV) ORGANON (INDIA) PVT. LTD. (ITA NOS. 633 & 2450/KOL/2017 (ITAT, KOL.) THE LD. AR ALSO BROUGHT TO THE NOTICE OF THE B ENCH THAT TH IS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIB UNAL IN ITS OWN CASE IN ITA NO. 560/KOL/2016 & ITA NO. 315/KOL/2016 VIDE ORDER DATED 28.08.2019. 5. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ACTION OF THE LOWER AUTHORITIES IN REJECTING THE CONTENTION OF THE ASSESSEE AND RELIED ON THE ORDER OF THE LO WER AUTHORITIES AND DOES NOT WANT US TO INTERFERE IN THE ORDER OF THE LOWER AUTHORITIES. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD . WE ALSO NOTE THAT THE ISSUE IN HAND IS SQUARELY COVERED BY THE DECI SION OF THIS TRIBUNAL, IN ASSESSEES OWN CASE IN ITA NO. 560/KOL/ 2016 & ITA NO. 315/KOL/2016 WHEREIN THE TRIBUNAL BY ORDER DATED 28.08.2019 HAS HELD THAT THAT THE AMP EXPENSES CANNOT BE REGARDED AS AN INTERNATIONAL TRANSACTION AS PER SECTION 92 B OF THE AC T IN THE CASE OF TH E ASSESSEE, SO AS TO INVOKE PRO VISI ONS OF SECTION 92 OF THE ACT. AND S INCE THE AMP 3 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 EXPENDITURE IS NOT AN INTERNATIONAL TRANSACTION, THE TP ADJUSTMENT MADE IN THIS REGARD NEED TO BE DELETED AND HAS OBSERVED AS UNDER: 6. GROUND NO. 2 & 3, ARE ON THE ISSUE OF TRANSFER PRICING (TP) ADJUSTMENTS, MADE TOWARDS ADVERTISING, MARKETING AND PROMOTION EXPENSES (AMP EXPENSES). THE TRANSFER PRICING OFFICER (TPO) HELD THAT BY INCURRING SUCH EXPENSES, THE ASSESSEE HAS PROVIDED SERVICES TO ITS ASSOCIA TE ENTERPRISES (AE). THOUGH A NUMBER OF ARGUMENTS WERE ADVANCED BY BOTH THE PARTIES ON THIS ISSUE, THE PRIMARY ARGUMENT OF THE ASSESSEE IS THAT, THE TRANSACTION IN QUESTION IS NOT AN INTERNATIONAL TRANSACTION. IN OTHER WORDS, THE SUBMISSIONS OF THE ASSESSE E IS THAT, THE AMP EXPENSES DO NOT CONSTITUTE INTERNATIONAL TRANSACTIONS. 6.1. WE FIND THAT THE ITAT KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S PHILIPS INDIA LTD. IN ITA NOS. 863 & 539/KOL/2016, ORDER DT. 15/12/2017, HELD AS FOLLOWS: - 4 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE PRIMARY ISSUE HERE ARISES WHETHER THE AMP EXPENSES CONSTITUTE THE INTERNATIONAL TRANSACTIONS SO AS TO ATTRACT THE PROVISIONS OF TRANSFER PRICING OF THE INCOME TAX ACT . THE CLAIM OF THE LD. AR IS THAT THE AMP TRANSACTION DOES NOT REPRESENT THE INTERNATIONAL TRANSACTION BETWEEN THE AE'S THEREFORE NO QUESTION OF DETERMINING THE ALP OF AMP TRANSACTIONS. WE FIND FORCE IN THE ARGUMENT OF THE LD. AR IN THE GIVEN FACTS & CIRCU MSTANCES. THEREFORE, IN OUR CONSIDERED VIEW THE AMP CANNOT BE REGARDED AS INTERNATIONAL TRANSACTION. IN HOLDING SO WE FIND THE SUPPORT & GUIDANCE FROM THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED VS. CIT REPORTED IN 3 81 ITR 117 WHEREIN IT WAS HELD AS UNDER : '51. THE RESULT OF THE ABOVE DISCUSSION IS THAT IN THE CONSIDERED VIEW OF THE COURT THE REVENUE HAS FAILED TO DEMONSTRATE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION ONLY ON ACCOUNT OF THE QUANTUM OF AMP EXPEND ITURE BY MSIL. SECONDLY, THE COURT IS OF THE VIEW THAT THE DECISION IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P.) LTD. CASE (SUPRA) HOLDING THAT THERE IS AN INTERNATIONAL TRANSACTION AS A RESULT OF THE AMP EXPENSES CANNOT BE HELD TO HAVE ANSWERED THE I SSUE AS FAR AS THE PRESENT ASSESSEE MSIL IS CONCERNED SINCE FINDING IN SONY ERICSSON TO THE ABOVE EFFECT IS IN THE CONTEXT OF THOSE ASSESSEES WHOSE CASES HAVE BEEN DISPOSED OF BY THAT JUDGMENT AND WHO DID NOT DISPUTE THE EXISTENCE OF AN INTERNATIONAL TRANS ACTION REGARDING AMP EXPENSES.' IN VIEW OF WE NOTE THAT THE FACTS OF THE ABOVE CASE ARE IDENTICAL TO THE PRESENT ISSUE, THUS THE PRINCIPLE LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED (SUPRA) ARE APPLICABLE TO THE INSTANT CASE. RESPECTFULLY FOLLOWING THE SAME WE DISMISS THE GROUND OF APPEAL FILED BY THE REVENUE. 6.2. THE KOLKATA C BENCH OF THE TRIBUNAL IN THE CASE OF ORGANON INDIA PVT. LTD. VS. DCIT IN ITA NOS. 633 & 2459/KOL/2017, ORDER DT. 24/10/2018, APPLIED THE RATIO OF DECISION IN THE CASE OF PHILIPS INDIA LTD VS ACIT IN ITA NO. 2489/KOL/2017 DATED 4.4.2018 FOR ASST YEAR 2013 - 14, AND CAME TO A CONCLUSION THAT THE AMP EXPENDITURE IS NOT AN INTERNATIONAL TRANSACTION. 6.3. THE ARGUMENT OF THE LD. D/R THAT ON FACTS THE ASSESSEE IS A DISTRIBUTOR, IS NOT EMANATING FROM THE RECORDS. THE ASSESSEE IS ENGAGED IN MANUFACTURING AND SUPPLY ACTIVITIES. THUS, THE ARGUMENT OF THE LD. D/R IS REJECTED ON FACTS. THE FACTS OF THE 4 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 ASSESSEES CASE AND THE FACTS IN THE CASE OF PH ILIPS INDIA LTD. (SUPRA) AND ORGANON INDIA PVT. LTD. (SUPRA) ARE SAME AS ALL THESE COMPANIES ARE ENGAGED IN MANUFACTURING AND SALE. 7. IN VIEW OF THE ABOVE DISCUSSION, AMP EXPENSES CANNOT BE REGARDED AS AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF T HE ACT, IN THE CASE OF THE ASSESSEE SO AS TO INVOKE PROVISIONS OF SECTION 92 OF THE ACT. AS WE HAVE HELD THAT THE THAT THE AMP EXPENDITURE IN QUESTION IS NOT AN INTERNATIONAL TRANSACTION, THE TP ADJUSTMENT MADE IN THIS REGARD IS HEREBY DELETED AND THESE GR OUNDS OF THE ASSESSEE ARE ALLOWED. RESPECTFULLY FOLLOWING THE DECISION CITED SUPRA IN ASSESSEES OWN CASE , WE HOLD THAT THE AMP EXPENDITURE IN QUESTION IS NOT AN INTERNATIONAL TRANSACTION, THEREFORE, THE TP ADJUSTMENT MADE IN THIS REGARD IS HEREBY DIRECT ED TO BE DELETED AND THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 7. GROUND NO. 3 IS IN RESPECT OF TP ADJUSTMENT WITH RESPECT TO RESEARCH AND TRAINING EXPENDITURE (R&T EXPENDITURE). HERE ALSO AMONG THE OTHER ARGUMENTS THE LD. AR POINTED OUT THAT THE JUR ISDICTIONAL ISSUE IS WHETHER R&T EXPENSES CAN BE CONSIDERED AS AN INTERNATIONAL TRANSACTION OR NOT . ACCORDING TO LD. AR, T HE ADJUSTMENT TOWARDS THE EXPENSES IN QUESTION WAS MADE TO THE INCOME OF THE ASSESSEE UNDER AN ERRONEOUS AS SUMPTION OF FACT THAT THE ASSESSEE HAS PROVIDED RESEARCH AND DEVELOPMENT (R&D) SERVICES TO ITS AE FOR AES PRODUCT DEVELOPMENT/IMPROVEMENT. ACCORDING TO LD. AR , THE R&D EXPENDITURE WAS INCURRED BY THE ASSESSEE ONLY FOR ITS MANUFACTURING OPERATIONS AND LOCAL ENVIRONMENTAL COMPLIAN CE FROM HSE PERSPECTIVE AND AS SUCH IS NOT AN INTERNATIONAL TRANSACTION. IN SUPPORT OF HIS SUBMISSION, TH E LD. AR PLACED RELIANCE ON ITS OWN C ASE DECIDED BY THIS TRIBUNAL. AKZO NOBEL INDIA LTD. (ITA NO. 560/KOL/2016 & ITA NO. 315/KOL/2016) DATED 28.08.20 19. 8. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ACTION OF THE LOWER AUTHORITIES IN REJECTING THE CONTENTION OF THE ASSESSEE AND RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND DOES NOT WANT US TO INTERFERE IN THE ORDER OF THE LOWER AUTHORITIES. 9. WE HAVE HEARD RIVAL SUBMISSIONS AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE NOTE THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF ASSESSEE, THE R&D EXPENSES INCURRED BY IT CANNOT BE REGARDED AS AN INTERNATIONAL TRANSACTION AS PER SECT ION 92 5 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 B OF THE ACT. WE ALSO NOTE THAT THE ISSUE IN HAND IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 560/KOL/ 2016 & ITA NO. 315/KOL/2016 WHEREIN THIS TRIBUNAL BY ORDER DATED 28.08.2019 HAS HELD THAT THE EXPENSE S IN QUESTION COVERED UNDER R&T EXPENSES RELATE TO, SERVICE FEE PAID BY THE COMPANY FOR R&T SERVICES OBTAINED BY THE COMPANY, FROM ANOTHER GROUP COMPANY OF THE ASSESSEE I.E., ICT INDIA RESEARCH & TECHNOLOGY CENTRE (ICI). ICT IS A COMPANY REGISTERED U/S 25 OF THE ACT AS A NOT FOR PROFIT ORGANIZATION. ICT PROVIDES MANUFACTURING AND TRAINING SUPPORT SERVICES TO THE ASSESSEE ON COST TO COST BASIS. ACCORDINGLY, THE EXPENSES COVERED UNDER THE HEAD R&T EXPENSES PERTAIN TO THE FEE PAID TO ICT. ICT PROVIDES TEC HNICAL SUPPORT AND TRAINING TO THE MANUFACTURING AND MARKETING OPERATI ONS OF PAINTS BUSINESS DIVISION . THE TRIBUNAL AFTER EXAMINING THE SERVICES RENDERED BY THE ICT HAS GIVEN A FACTUAL FINDING THAT THE ASSESSEE HAS NOT CARRIED OUT ANY R&T ACTIVITIES. THE EXPENDITURE IN QUESTION IS INCURRED ONLY FOR ITS MANUFACTURING OPERATIONS AND LOCAL ENVIRONMENTAL COMPLIANCE FROM HSE PERSPECTIVE. THE ASSESSEE SUBMITTED THAT ICT ALSO DOES NOT CARRY OUT ANY RESEARCH AND DEVELOPMENT ACTIVITIES FOR DEVELOPMENT OF ANY NEW PR OJECT/TECHNOLOGY. IT IS PRIMARILY A CAPTIVE SUPPORT CENTRE FOR THE LOCAL INDIA OPERATION OF THE ASSESSEE. THUS, CONSIDERING THESE FACTS, THE TRIBUNAL HELD THAT THE EXPENDITURE ON RESEARCH AND TRAINING DOES NOT CONSTITUTE ANY INTERNATIONAL TRANSAC TION . TH US, THE TRIBUNAL HELD THAT THE EXPENDITURE INCURRED ON R&T IS NOT AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT, SO AS TO ENABLE INVOCATION OF PRO VISION OF SECTION 92 OF THE ACT AND OBSERVED AS UNDER: 8.1. HERE ALSO, THOUGH A NUMBER OF AR GUMENTS WERE RAISED, THE JURISDICTIONAL ISSUE IS WHETHER R&T EXPENSES CAN BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. THE EXPENSES IN QUESTION COVERED UNDER R&T EXPENSES RELATE TO, SERVICE FEE PAID BY THE COMPANY FOR R&T SERVICES, OBTAINED BY THE COMPAN Y, FROM ANOTHER GROUP COMPANY OF THE ASSESSEE I.E., ICT INDIA RESEARCH & TECHNOLOGY CENTRE (ICI). ICT IS A COMPANY REGISTERED U/S 25 OF THE ACT AS A NOT FOR PROFIT ORGANIZATION. ICT PROVIDES MANUFACTURING AND TRAINING SUPPORT SERVICES TO THE ASSESSEE ON COST TO COST BASIS. ACCORDINGLY, THE EXPENSES COVERED UNDER THE HEAD R&T EXPENSES PERTAIN TO THE FEE PAID TO ICT. ICT PROVIDES TECHNICAL SUPPORT AND TRAINING TO THE MANUFACTURING AND MARKETING OPERATIONS OF PAINTS BUSINESS DIVISION. THE SERVICES PROVIDED BY ICT DURING THE RELEVANT FINANCIAL YEAR CAN BE SUMMARIZED AS FOLLOWS: ASSISTED THE APPELLANT IN COMPLYING WITH VARIOUS HEALTH SAFETY AND ENVIRONMENT (HSE) PROCEDURES MANDATED FOR THE CHEMICAL INDUSTRY IN INDIA. PROVIDED SOLUTIONS FOR COMPLIANCE OF ENVIRONMENTAL REGULATIONS GOVERNED BY VARIOUS LOCAL AUTHORITIES IN INDIA. 6 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 PROVIDED ASSISTANCE TO THE PRODUCTION DEPARTMENT AND THE COMPANY'S FACTORIES IN DETERMINING THE APPROPRIATE MIXTURE OF VARIOUS RAW MATERIAL COMPONENTS FOR ACHIEVING THE DESIRED C OLOUR AND TEXTURE OF THE PAINT TO BE MANUFACTURED. PROVIDED TECHNICAL TRAINING ON THE MANUFACTURING PROCESSES TO THE PRODUCTION TEAM FROM TIME TO TIME TO ENSURE TECHNICAL UPDATION, IMPROVEMENT AND REFINEMENT OF THE PRODUCTION TEAM FOR THE OVERALL EFFICI ENT EXECUTION OF MANUFACTURING OPERATIONS OF THE APPELLANT. PROVIDED OTHER TECHNICAL SUPPORT ON DAY TO DAY BASIS TO THE MANUFACTURING OPERATIONS AND ADDRESSED THE MANUFACTURING PROCESS GAPS. PROVIDED TRAINING TO THE MARKETING TEAM ON THE PRODUCT, THE NATURE AND FEATURE OF THE PRODUCTS ETC. NECESSARY FOR SALES AND MARKETING OF THE APPELLANT'S PRODUCTS IN THE DESIGNATED MARKET I.E. INDIA. ASSISTED THE QUALITY DEPARTMENT IN HANDLING PRODUCT DEFECT/ QUALITY ISSUE OR REDRESSING ANY PRODUCT COMPLAINTS FR OM THE CUSTOMERS. 8.2. A PERUSAL OF THE ABOVE DEMONSTRATES THAT, ON FACTS THE ASSESSEE HAS NOT CARRIED OUT ANY R&T ACTIVITIES. THE EXPENDITURE IN QUESTION IS INCURRED ONLY FOR ITS MANUFACTURING OPERATIONS AND LOCAL ENVIRONMENTAL COMPLIANCE FROM HSE PERSP ECTIVE. THE ASSESSEE SUBMITTED THAT ICT ALSO DOES NOT CARRY OUT ANY RESEARCH AND DEVELOPMENT ACTIVITIES FOR DEVELOPMENT OF ANY NEW PROJECT/TECHNOLOGY. IT IS PRIMARILY A CAPTIVE SUPPORT CENTRE FOR THE LOCAL INDIA OPERATION OF THE ASSESSEE. THUS, WE ARE OF T HE CONSIDERED OPINION THAT THE EXPENDITURE ON RESEARCH AND TRAINING DOES NOT CONSTITUTE ANY INTERNATIONAL TRANSACTIONS ON FACTS. WE ALSO FIND THAT THE TPO/AO HAS NOT CONSIDERED THIS EXPENDITURE INCURRED IN THE EARLIER YEARS TOWARDS R&T EXPENSES, AS INTERNA TIONAL TRANSACTIONS. THUS, IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT THE EXPENDITURE INCURRED ON R&T IS NOT AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT, SO AS TO ENABLE INVOCATION OF PROVISION OF SECTION 92 OF THE ACT. THUS, WE DELETE TH E TP ADJUSTMENT MADE IN THIS REGARD AND ALLOW THIS GROUND OF THE ASSESSEE. RESPECTFULLY FOLL OWING THE DECISION CITED SUPRA IN ASSESSEES OWN CASE, WE HOLD THAT THE AMP EXPENDITURE IN QUESTION IS NOT AN INTERNATIONAL TRANSACTION, THEREFORE, THE TP ADJUSTM ENT MADE IN THIS REGARD IS HEREBY DIRECTED TO BE DELETED AND THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED. 10 . GROUND NO. 4 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE ACTION OF THE AO IN ENHANCING THE INCOME OF THE ASSESSEE BY RS.69,963,072/ - BY DETERM INING ARMS LENGTH PRICE OF INTRA - GROUP SERVICES IN RESPECT OF SUPPORT SERVICES RECEIVED FROM ITS AES AS NIL. THIS ISSUE HAS BEEN CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN THE EARLIER AY 2011 - 12 IN ASSESSEES OWN CASE IN ITA NO. 560/KOL/2016 & ITA NO. 31 5/KOL/2016 VIDE ORDER DATED 28.08.2019 IN WHICH THE TRIBUNAL HAS OBSERVED AS UNDER: 7 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 9. GROUND NO. 5, IS AGAINST THE TP ADJUSTMENT MADE WITH REGARD TO THE INTERNATIONAL TRANSACTION PERTAINING TO INTRA GROUP SERVICES. THIS ISSUE HAS BEEN CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS, IN THE ASSESSEES OWN CASE IN ITA NO. 229 & 346/KOL/2015, ASSESSMENT YEAR 2010 - 11, ORDER DT. 14/02/2018, WHEREIN IT HAS BEEN HELD AS FOLLOWS: - 7. WE HAVE HEARD BOTH THE PARTIES. WE NOTE THAT TH E TPO HAS NOT CARRIED OUT THE EXERCISE FOR COMPUTING THE ARM'S LENGTH PRICE ON THE PLEA THAT ASSESSEE DID NOT PROVIDE THE AGREEMENT WITH ANCR, WHEREAS THE ASSESSEE CLAIMS TO HAVE PROVIDED A COPY ON 21.01.2014. THOUGH THE DRP OBSERVES THAT NATURE OF SERVICE PROVIDED BY ANCR ARE IN THE NATURE OF SERVICE FOR STRATEGIC AND OPERATIONS AND HELPS IN ACHIEVING CORPORATE OBJECTIVES BY ALIGNING WORKFORCE AND ORGANIZATIONAL OBJECTIVES IN THE FIELD OF MARKETING HR, FINANCE, MANAGEMENT SERVICES, PURCHASES ETC., HELD IT AS STEWARDSHIP SERVICES. WE NOTE THAT TPO HAS NOT CARRIED OUT ANY EXERCISE TO DETERMINED THE ARMS LENGTH PRICE OF BENEFIT, SERVICE ETC. AS PER THE MOST APPROPRIATE METHOD AS ENVISAGED IN SEC. 92C(1) OF THE ACT. SINCE THE TPO HAS NOT CARRIED OUT THE EXERCIS E WHICH HE OUGHT TO HAVE CARRIED OUT AS ENVISAGED BY THE ACT ON THE ERRONEOUS PLEA THAT AGREEMENT BETWEEN ASSESSEE AND ANCR WAS NOT PLACED BEFORE HIM, WE SET ASIDE THE ORDER OF LD. DRP/AO & TPO AND REMAND THE MATTER BACK TO TPO FOR FRESH CONSIDERATION AND PASS ORDER IN THE LIGHT OF THE TRIBUNAL'S DETAILED ANALYSIS OF THE AGREEMENT BETWEEN ASSESSEE AND ANPAP WHICH WE DECIDED SUPRA. THE TPO IS DIRECTED TO PASS SPEAKING ORDER AFTER GIVING PROPER OPPORTUNITY TO ASSESSEE ON THIS ISSUE. 10. CONSISTENT WITH THE VIEW TAKEN THEREIN, AS AGREED BY BOTH THE PARTIES, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER, FOR FRESH ADJUDICATION, IN ACCORDANCE WITH LAW. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. SINCE ISSUE IS I DENTICAL , RESPECTFULLY FOLLOWING THE DECISION CITED SUPRA, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCORDANCE TO LAW. ACCORDINGLY, THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11 . G ROUND NO. 5 IS AGAINST THE ACTION OF AO/TPO IN NOT GIVING APPROPRIATE EFFECT TO THE ORDER OF LD. DRP AND MAKING AN ADDITION OF RS.4,93,09,294/ - IN RELATION TO PAYMENT MADE ON ACCOUNT OF I. T. RELATED SERVICES TO THE AE S. I N THE GROUND OF APPEAL, IT IS STATED THAT AP PLICATION U/S. 154 OF THE ACT HAS BEEN FILED BY THE ASSESSEE BEFORE AO/TPO TO GIVE EFFECT TO THE ORDER OF LD. DRP. SO, THIS GROUND WAS NOT ARGUED BEFORE US AND NOT EVEN MENT IONED IN THE CHART SUBMITTED BEFORE US DURING THE HEARING, SO IT IS NOT ADJUDICATE D. NEEDLESS TO SAY THAT AO/TPO IS BOUND TO GIVE EFFECT TO THE ORDER OF LD DRP IN ACCORDANCE TO LAW. 8 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 12. GROUND NO. 6 OF THE APPEAL OF ASSESSEE IS AGAINST THE ACTION OF AO IN MAKING AN ADJUSTMENT OF RS.45,106,451/ - TOWARDS CONTRACT RESEARCH AND DEVELOPMENT SERVICES RENDERED TO AE DISREGARDING THE FOLLOWING IMPORTANT ISSUES. 6.1. DISREGARDING THE ALP AS DETERMINED BY THE APPELLANT IN THE TRANSFER PRICING ('TP') DOCUMENTATION MAINTAINED BY IT IN TERMS OF SECTION 92D OF THE ACT READ WITH RULE 10D OF THE I NCOME - TAX RULES, 1962 ('RULES') AND IN PARTICULAR MODIFYING/REJECTING THE FILTERS APPLIED BY THE APPELLANT; 6.2. DISREGARDING MULTIPLE YEAR/PRIOR YEARS' DATA AS USED BY THE APPELLANT IN THE TP DOCUMENTATION AND HOLDING THAT CURRENT YEAR [(I.E. FINANCIAL YEAR ('FY') 2011 - 12] DATA FOR COMPARABLE COMPANIES SHOULD BE USED DESPITE THE FACT THAT THE SAME WAS NOT NECESSARILY AVAILABLE TO THE APPELLANT AT THE TIME OF PREPARING ITS TP DOCUMENTATION; 6.3. NOT APPROPRIATELY CONSIDERING THE FUNCTIONS, ASSETS AND RI SK PROFILE OF THE COMPANIES USED FOR COMPARISON WITH THE APPELLANT, THEREBY INCLUDING IN THE FINAL COMPARABLE SET CERTAIN COMPANIES WITH COMPLETELY DIFFERENT FUNCTIONAL PROFILE; 6.4. EXCLUDING CERTAIN COMPANIES CONSIDERED BY THE APPELLANT IN THE TP DOCUM ENTATION AND FRESH SEARCH ON ARBITRARY/FRIVOLOUS GROUNDS EVEN THOUGH THEY ARE COMPARABLE TO THE APPELLANT IN TERMS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSUMED; AND 6.5. COMMITTING A NUMBER OF FACTUAL ERRORS IN THE COMPUTATION OF THE OPERATI NG PROFIT MARGINS OF THE COMPARABLES. ACCORDING TO LD. AR, THE AO HAS TAKEN AS COMPARABLE, PHARMA COMPANIES WHICH WERE HELD TO BE NOT COMPARABLE TO THE ASSESSEES ACTIVITIES AS HELD BY THE TRIBUNAL IN THE CASE OF ASSESSEES SISTER CONCERN AKZO NOVEL CAR REFINISHES INDIA PVT. LTD. VIDE ITA NO. 614/DEL/2014 AND 5007/DEL/2014. HE FURTHER SUBMITTED THAT THIS VIEW HAS ALSO BEEN UPHELD BY THE DRP IN ASSESSEES OWN CASE IN AY 2014 - 15. SO, HE URGED US TO REMAND THE MATTER BACK TO TPO FOR DE NOVO ADJUDICATION. P ER CONTRA, THE LD. DR CONTENDED THAT ASSESSEE COMPANY HAS TO FIRST DEMONSTRATE THAT ITS SISTER CONCERN M/S. AKZO NOVEL CAR REFINISHES IN DIA PVT. LTD. IS SIMILAR IN FUNCTIONAL PROFILE AND PRODUCT SIMILARLY ETC. AND THEN ONLY THE TPO CAN CONSIDER THE DECISIO N IN M/S. AKZO NOVEL CAR REFINISHES AND ACCEPT/REJECT COMPARABLES AS DECIDED BY THE TRIBUNAL AND APPLY THE SAME TO THE ASSESSEES CASE FOR ADJUDICATION OF ARMS LENGTH CONSIDERATION. 13. AFTER HEARING THE RIVAL SUBMISSIONS , WE NOTE THAT AS PER THE ASSESS EE, THE ADJUSTMENT MADE BY TPO TOWARDS CONTRACT RESEARCH & DEVELOPMENT SERVICE (CONTRACT R&D) RENDERED 9 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 TO THE AE IS ERRONEOUS FOR NOT TAKING INTO CONSIDERATION THE TRIBUNALS DECISION IN ASSESSEES SISTER CONCERN M/S. AKZO NOVEL CAR REFINISHES INDIA PVT. L TD . WHEREIN THE TRIBUNAL WHILE ADJUDICATING SIMILAR ISSUE HAS EXCLUDED PHARMA COMPANIES FROM THE LIST OF COMPARABLES AND WHICH ACTION OF TRIBUNAL HAS BEEN FOLLOWED BY THE LD. DRP IN ASSESSEES OWN CASE FOR AY 2014 - 15. IF THAT IS THE CASE, THEN WE ARE INC LINED TO SET ASIDE THE IMPUGNED ORDER AND REMA ND THE ISSUE BACK TO THE LD. TPO FOR FRESH CONSIDERATION THE CONTENTION OF ASSESSEE AS WELL AS LD. DR ON THIS ISSUE AND TO PASS ORDER AFRESH IN THE LIGHT OF DISCUSSION SUPRA BY A SPE AKING ORDER AFTER GIVING OPP ORTUNITY TO THE ASSESSEE. 14. GROUND NO S . 8 AND 9 ARE AGAINST THE DISALLOWANCE OF CASH DISCOUNT ON SALES OF RS.35,50,000/ - AND DISALLOWANCE OF PUBLICITY AND ADVERTISEMENT EXPENSES OF RS.2,73,00,000/ - ON AD - HOC BASIS BY STATING THAT THE ASSESSEE FAILED T O PRODUCE ENOUGH DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE SAME. BRIEF FACTS OF THE ISSUE ARE THAT DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE CLAIMED TO HAVE INCURRED AN EXPENDITURE ON CASH DISCOUNT AMOUNTING TO RS. 71 CRORES AND CLAIMED EXPENDITURE ON ADVERTISEMENT & PUBLICITY AMOUNTING TO RS.109.2 CRORE . THE AO PARTLY DISALLOWED THE CLAIM OF ASSESSEE ON ACCOUNT OF CASH DISCOUNT EXPE NSES ON AN ESTIMATE BASIS ON THE GROUND OF ABSENCE OF COMPLETE DOCUMENTARY EVIDENCE OF THE EXPENDITURE. ON APPEAL, B Y THE ASSESSEE THE LD. DRP OBSERVED THAT THE ASSESSEE S CONTENTION BEFORE IT HAS PRIMA FACIE MERITS BUT THE SAME MUST BE VERIFIED . ACCORDINGLY, THE LD. DRP DIRECTED THE AO TO VERIFY THE CONTENTION AND ALLOW IF FOUND TO BE CORRECT. SUBSEQUENT TO THE DRP D IRECTIONS THE ASSESSEE SUBMITTED THE REQUISITE DETAILS FOR VERIFICATION BEFORE THE AO VIDE SUBMISSION DATED 19.01.2019. HOWEVER, THE AO DISALLOWED CASH DISCOUNT EXPENSES AMOUNTING TO RS.35,50,000/ - AND RS.2,73,00,000/ - DUE TO THE ABSENCE OF COMPLETE DOCUM ENTARY EVIDENCE OF THE EXPENDITURE. BEFORE US, THE LD. AR SUBMITTED THAT THE AO DISREGARDED THE SUBMISSION DATED 19.01.2017 AND DISALLOWED CASH DISCOUNT AND ADVERTISEMENT AND PUBLICITY EXPENSES AMOUNTING TO RS.35,50,000/ - AND RS.2,73,00,000/ - RESPECTIVELY ON AD - HOC BASIS. ACCORDING TO HIM THE AD - HOC DISALLOWANCE MADE BY THE AO IS BAD AND VOID AB INITIO. FOR THAT, HE RELIED ON THE FOLLOWING PRECEDENTS: I) DHAKESHWARI COTTON MILLS LTD. VS. CIT (1954) 26 ITR 775 (SC); 10 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 II) OMAR SALAY MOHAMED SAIT VS. CIT (1 959) 37 ITR 151 (SC) AND III) STATE OF ORISSA VS. MAHARAJA SHRI B. P. SINGH DEO (1970) 76 ITR 690 (SC). THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS ITS POLICY OF GIVING THE CASH DISCOUNT AND PUBLICITY AND ADVERTISEMENT EXPENSES FROM PAST SEVERAL YEARS AND THE ASSESSEE HAS CLAIMED CASH DISCOUNT EXPENSES AND PUBLICITY AND ADVERTISEMENT EXPENSES IN PRECEDING YEARS AS WELL. HOWEVER, THE DEPARTMENT HAS NEVER QUESTIONED THE SAID EXPENSES IN THE PAST. ACCORDINGLY, THE SAID EXPENDITURE SHOULD BE ALLOWED FOLLOWING THE PRINCIPLE OF CONSISTENCY. FOR THAT, HE RELIED ON THE FOLLOWING JUDICIAL PRECEDENTS: I) RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 321. II) CIT VS. A.K.J. SECURITY PRINTERS (2003) 264 ITR 276 AND III) CIT VS. NEO POLY PACK (P) LTD. (2000) 12 TAXMAN 363. 15. ON THE OTHER HAND, THE LD. DR PLACED HEAVY RELIANCE ON THE ORDERS OF THE LOWER AUTHORITIES AND URGED BEFORE THE BENCH NOT TO INTERFERE IN THE ORDER OF THE AO. 16. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE C ASE AND THE FACTS ARE NOT REPEATED AGAIN FOR THE SAKE OF BREVITY. THE ASSESSEE HAS CLAIMED DEDUCTION OF THE EXPENDITURE TO THE TUNE OF RS. 71 LAKHS AND RS.109.2 CR. ON ACCOUNT OF CASH DISCOUNT AND PUBLICITY AND ADVERTISEMENT EXPENSES RESPECTIVELY. THE AO HAS RESTRICTED THE DISALLOWANCE OF THE EXPENDITURE CLAIMED TO THE TUNE OF RS.35.50 LAKHS AND RS. 2.73 CR. RESPECTIVELY ON THE GROUND THAT ASSESSEE FAILED TO PRODUCE COMPLETE DOCUMENTARY EVIDENCE OF THE EXPENDITURE. ON APPEAL, THE LD. DRP FOUND SUBSTANCE IN THE CONTENTION OF THE ASSESSEE BEFORE IT AND DIRECTED THE AO TO VERIFY THE CONTENTION OF ASSESSEE AND AFTER VERIFICATION IF FOU ND TRUE TO ALLOW IT. A CCORDING LY THE ASSESSEE FILED THE REQUISITE DETAILS FOR VERIFICATION BEFORE THE AO VIDE SUBMISSION DATE D 19.01.2019 WHICH HAS BEEN DISREGARDED BY THE AO AND HE REITERATED THE DISALLOWANCE ON BOTH ISSUES. WE NOTE THAT THE AO HAS RESORTED TO AD HOC DISALLOWANCE OF EXPENDITURE CLAIMED BY THE ASSESSEE WITHOUT REJECTING THE BOOKS OF ACCOUNT WHICH IS UNDISPUTEDL Y STATUTORILY AUDITED. ACCORDING TO US, THE A O CANNOT RESORT TO ESTIMATION OF DISALLOWANCE WITHOU T SATISFYING THE CONDITION LAID DOWN UNDER SEC. 145 OF 11 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 THE ACT. AND , WE DO NOT COUNTENANCE THE AD HOC DISALLOWANCE WHICH ACTION ITSELF IS PER - SE ARBITRARY IN NATURE AND HAS NO SANCTION OF LAW. HAVING SAID SO, WE ARE OF THE OPINION THAT THE AO IS EMPOWERED TO DISALLOW THE EXPENDITURE CLAIMED BY THE ASSESSEE IF THERE IS DEFICIENCY IN THE VOUCHERS OR THE BILLS SUPPORTING THE INCURRENCE OF EXPENDITURE . THE AO AT THE MOST CAN DISALLOW THE EXPENSES TO THE EXTENT THAT ARE NOT SUPPORTED BY VOUCHERS CAN BE REGARDED AS NON - GENUINE. THE AO HAS TO POINT OUT FOR WHICH OF THE EXPENSES CLAIMED BY THE ASSESSEE EITHER VOUCHERS ARE NOT MAINTAINED BY ASSESSEE OR THE EXPENSES A RE NOT VERIFIABLE , WHEN THE ASSESSEE HAS PRODUCED IN THIS CASE, PARTY - WISE DETAILS OF CASH DISCOUNT ALONG WITH ADDRESS PURSUANT TO THE DIRECTION OF DRP. LIKEWISE THE ASSESSEE HAS TO PRODUCE THE LIST OF EXPENSES INCURRED ON ACCOUNT OF EXPENDITURE INCURRED ON PUBLICITY AND ADVERTISEMENT , FOR WHICH PARTY WISE ALONG WITH COMPLETE PAN AND ADDRESS NEED TO BE FURNISHED BEFORE THE AO . THE LD. AR SUBMITTED THAT DETAILS SOUGHT FOR ARE VOLUMINOUS IN NATURE, AND EXPRESSED THE PRACTICAL DIFFICULTY TO PRODUCE THE SAME. HOWEVER , WE NOTE THAT EXPENDITURE CLAIMED ON THIS COUNT IS ALSO HIGH AND IN ORDER TO SOLVE THE PRACTICAL DIFFICULTY OF PRODUCING THE DETAILS BEING VOLUMINOUS IN NATURE, THE ASSESSEE IS DIRECTED TO FILE THE DETAILS OF THE EXPENDITURE IN THE ELECTRONIC MOD E (PEN DRIVE) ETC, LIKE NAME OF PARTIES, ALONG WITH COMPLETE PAN AND ADDRESS NEED TO BE FURNISHED BEFORE THE AO. THEREAFTER, THE AO ATLEAST ON TEST - CHECK BASIS CAN VERIFY THE VERACITY OF THE EXPENDITURE AND EXAMINE WHETHER THE CLAIM MADE ARE ALLOWABLE AS PER LAW, AND THE ASSESSEE TO PRODUCE SUPPORTING BILLS/VOUCHERS/PROOF OF THE EXPENDITURE , WHICH THE AO CALLS SPECIFICALLY FOR EXAMINATION . THUS A S DISCUSSED, ONCE THE ASSESSEE SUBMITS THE DETAILS BEFORE THE AO, THEN HE CAN VERIFY THE VERACITY OF THE EXPENDI TU RE AND IF ALLOWABLE BY LAW, THEN IT SHOULD BE ALLOWED IN ACCORDANCE TO LAW. SO, WE SET ASIDE THE IMPUGNED ACTION OF LD. DRP/AO ON THIS ISSUE AND RE MAND THE ISSUE BACK TO THE FILE OF AO FOR DE NOVO ADJUDICATION. WITH THE AFORESAID OBSERVATION, THESE TWO GROUNDS ARE DISPOSED OF FOR STATISTICAL PURPOSES. 12 IT A NO. 621 /KOL/201 7 AKZO NOBEL INDIA LTD., AY 20 1 2 - 1 3 17. GROUND NOS. 10 AND 12 ARE CONSEQUENTIAL IN NATURE IN RESPECT OF PENALTY AND INTEREST PROCEEDINGS WHICH ARE CONSEQUENTIAL IN NATURE AND HENCE, DISMISSED. 1 8 . IN THE RESULT, THE APPEAL OF THE AS SESSEE IS PARTLY ALLOWED FOR STATISTICAL PU R POSES . ORDER IS PRONOUNCED IN THE OPEN COURT ON 18 OCTOBER , 2019. SD/ - SD/ - (J. SUDHAKAR REDDY) (A. T. VA RKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18 OCTOBER , 2019 JD. (SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1)APPELLANT AKZO NOBEL INDIA LTD., GEETANJALI APARTMENT, 1 ST FLOOR, 8B, MIDDLETON STREET, KOLKATA - 700 071. 2) RESPONDENT DCIT, CIRCLE - 10(1), KOLKATA. 3) D CIT - 15, KOLKATA. (SENT THROUGH E - MAIL) 4 ) DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E - MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR