M/s Reckitt Benckiser (I) Pvt. Ltd., Kolkata V. DCIT, CIR-12(1), KOLKATA, Kolkata

ITA 625/KOL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0595 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Keywords: Gift; Depreciation; Transfer pricing; Business expenditure; Double taxation relief; Principle of natural justice; International transaction; Rule of consistency; Period of limitation; Fair market value; Bad and doubtful debts; Commercial expediency; Time period of passing order; Condonation of delay
• Section: 92C; 92B; 92F; 115JB; 80IB; 37(1); 10B; 80IC; 80IC; 43; 48; 13; 22; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM ./ITA NO.404/KOL/2015 ./ITA NO.625/KOL/2016 ( / ASSESSMENT YEAR: 2010-11 TO 2011-12) RECKITT BENCKISER (I) PVT. LTD. DIAMOND PRESTIGE, 3 RD FLOORS, SUITE NO. 315, 414, A.J.C. BOSE ROAD, KOLKATA-700017 VS. DCIT, CIRCLE-12(1), KOLKATA ./ ./PAN/GIR NO.: AABCR 2655 Q (APPELLANT) .. (RESPONDENT) ./ITA NO.529/KOL/2015 ./ITA NO.518/KOL/2016 ( / ASSESSMENT YEAR: 2010-11 TO 2011-12) DCIT, CIRCLE-12(1), KOLKATA VS. RECKITT BENCKISER (I) PVT. LTD. DIAMOND PRESTIGE, 3 RD FLOORS, SUITE NO. 315, 414, A.J.C. BOSE ROAD, KOLKATA-700017 ./ ./PAN/GIR NO.: AABCR 2655 Q (APPELLANT) .. (RESPONDENT) APPELLANTBY : SHRI DEEPAK CHOPRA, ADVOCATE & SHRI ROHAN KHARE, ADVOCATE RESPONDENT BY : DR. P. K SRIHARI, CIT(DR) / DATE OF HEARING : 28/02/2020 /DATE OF PRONOUNCEMENT : 17/06/2020 RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 2 / O R D E R PER DR. A.L. SAINI, AM: THESE ARE THE CROSS APPEALS FILED BY THE REVENUE A ND ASSESSEE PERTAINING TO ASSESSMENT YEAR 2010-11 AND 2011-12, AND ARE DIRECT ED AGAINST THE SEPARATE FAIR ASSESSMENT ORDERS PASSED BY THE A.O./ TPO, WHICH IN CORPORATES THE FINDINGS OF THE DISPUTE RESOLUTION PANEL (IN SHORT DRP). 2. THE APPEAL FILED BY THE REVENUE IN ITA NO. 529/ KOL/2015 FOR A.Y. 2010-11 IS BARRED BY LIMITATION BY 54 DAYS. THE REVENUE FILED A PETITION FOR CONDONATION OF DELAY REQUESTING THE BENCH TO CONDONE THE DELAY. WE HAVE HEARD BOTH THE PARTIES ON THIS PRELIMINARY ISSUE AND HAVING REGARD TO THE REASONS GIVEN IN THE PETITION FOR CONDONATION OF DELAY, WE CONDONE THE DELAY AND ADMI T THE APPEAL OF THE REVENUE FOR HEARING ON MERITS. 3. SINCE THE ISSUES INVOLVED IN ALL THE APPEALS ARE COMMON AND IDENTICAL, THEREFORE THESE APPEALS HAVE BEEN HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY THIS CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENCE, TH E GROUNDS AS WELL AS FACTS NARRATED IN ITA NO. 625/KOL/2016, FOR A.Y. 2011-12, HAVE BEEN TAKEN INTO CONSIDERATION FOR DECIDING THE APPEALS PERTAINING T O TRANSFER PRICING ISSUES, ENMESSE. 4. AT THE OUTSET ITSELF, WE NOTE THAT THESE APPEALS FILED BY THE REVENUE AS WELL AS ASSESSEE FOR A.Y. 2010-11 AND 2011-12, CONTAINED MU LTIPLE GROUNDS OF APPEAL. HOWEVER, AT THE TIME OF HEARING, WE HAVE CAREFULLY PERUSED ALL THE GROUNDS RAISED BY THE REVENUE AS WELL AS ASSESSEE. THE MOST OF THE GROUNDS RAISED BY THE REVENUE AS WELL AS ASSESSEE, ARE EITHER ACADEMIC IN NATURE OR CONTENTIOUS IN NATURE. HOWEVER TO MEET THE END OF JUSTICE, WE CONFINE OURS ELVES TO THE CORE OF THE CONTROVERSY AND MAIN GRIEVANCES OF THE REVENUE AND ASSESSEE AS WELL. WITH THIS RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 3 BACKGROUND, WE SUMMARIZE AND CONCISE THE GROUNDS RA ISED BY THE REVENUE AS WELL AS ASSESSEE AS FOLLOWS: GROUNDS RELATING TO TRANSFER PRICING 1.TRANSFER PRICING ADJUSTMENT IN RELATION TO PAYMEN T OF ROYALTY TO THE TUNE OF RS. 787,096,934/- THIS GROUND COVERS GROUND NO. 5 TO 7 OF REVENUES A PPEAL IN ITA NO. 529/KOL/2015, FOR A.Y. 2010-11, GROUND NO. 6 OF REV ENUES APPEAL IN ITA NO. 518/KOL/2016, FOR A.Y. 2011-12,GROUND NO.4A TO4B OF ASSESSEE`S APPEAL IN ITA NO.625/KOL/2016 FOR A.Y.2011-12 AND ADDITIONAL GROU NDS RAISED BY THE ASSESSEE IN A.Y. 2011-12 WHEREIN THE ASSESSEE STATED THAT PA YMENT OF ROYALTY WAS SUBSUMED IN THE ENTITY LEVEL TRANSACTIONAL NET MARGIN METHOD (TNMM), ANALYSIS CONDUCTED BY THE ASSESSEE USING COMBINED TRANSACTION APPROACH . 2.TRANSFER PRICING ADJUSTMENT IN RELATION TO ADVERT ISEMENT, MARKETING AND PROMOTION EXPENSES (AMP). THIS GROUND COVERS GROUND NO. 5A TO 5B OF ASSESSEE S APPEAL IN ITA NO. 404/KOL/2015, FOR A.Y. 2011-12, GROUND NO. 1 TO 4 O F REVENUES APPEAL IN ITA NO. 529/KOL/2015, FOR A.Y. 2010-11, GROUND NO. 3A TO 3B OF ASSESSEES APPEAL IN ITA NO. 625/KOL/2016, FOR A.Y. 2011-12, GROUND NO. 4 TO 5 OF REVENUES APPEAL IN ITA NO. 518/KOL/2016, FOR A.Y. 2011-12. 3.COMPARABLE COMPANIES ARBITRARILY CHOSEN BY THE TP O FOR COMPUTATION OF MARK UP PERCENTAGE OF 22.34% OVER THE ALLEGED AGENCY CO ST INCURRED BY THE ASSESSEE. THIS GROUND COVERS GROUND NO.5 OF ASSESSEE`S APPEAL IN ITA NO. 625/KOL/2016 FOR A.Y.2011-12 AND GROUND NO.7 OF REVENUE`S APPEAL IN ITA NO. 518/KOL/2016 FOR A.Y.2011-12. 4.THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN NOT CONSIDERING THE SPECIFIC OBJECTIONS RAISED BY THE A PPELLANT WITH RESPECT TO OVERALL ADJUSTMENT OF RS. 21,842,032/- MADE TO TRANSACTION OF EXPORT OF RAW MATERIALS AND FINISHED PRODUCTS. (THIS COVERS GROUND NO.6 OF ASSESSEE`S APPEAL IN IT A NO.625/KOL/2016, FOR A.Y. 2011-12) GROUNDS RELATING TO CORPORATE TAX ISSUE 1.APPORTIONMENT OF EXPENSES BETWEEN FISCAL UNITS, N ON-FISCAL UNITS AND HEAD OFFICE OF RS. 261,160,962/-. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 4 THIS GROUND COVERS GROUND NO.8 OF REVENUE`S APPEAL IN ITA NO.529/KOL/2015 FOR A.Y. 2010-11 AND GROUND NOS. 1 AND 2 OF REVENUE`S A PPEAL IN ITA NO.518/KOL/2016 FOR A.Y.2011-12. 2.ELIGIBILITY OF INCOME FROM SALE OF SCRAPS WHILST CALCULATING DEDUCTION U/S 80IC OF THE ACT OF RS. 20,723,924/-. THIS GROUND COVERS GROUND NO. 9 RAISED BY THE REVEN UE IN ITA NO. 529/KOL/2015 FOR A.Y. 2010-11 AND GROUND NO. 3 RAISED BY THE REV ENUE IN ITA NO. 518/KOL/2016 FOR A.Y. 2011-12. 3.EXCESS DISALLOWANCE OF INTEREST INCOME ALLOCATED TO ELIGIBLE UNITS RS. 23,400,187/-. THIS GROUND COVERS GROUND NO. 4 OF ASSESSEES APPEA L IN ITA NO. 404/KOL/2015 FOR A.Y. 2010-11 ADDITIONAL GROUNDS RAISED BY THE ASSESSEE 1.REFUND OF DIVIDEND DISTRIBUTION TAX (DDT) PAID IN RESPECT OF NON-RESIDENCE SHARE HOLDERS. THIS GROUND RELATES TO A.Y. 2011-12 2.DEDUCTION OF EDUCATION CESS ON INCOME TAX PAID BY THE ASSESSEE IS ALLOWABLE EXPENDITURE. THIS GROUND RELATES TO A.Y 2011-12. 5.NOW, WE SHALL TAKE THESE GROUNDS ONE BY ONE. GROUNDS RELATING TO TRANSFER PRICING 1.TRANSFER PRICING ADJUSTMENT IN RELATION TO PAYMEN T OF ROYALTY TO THE TUNE OF RS. 787,096,934/- THIS GROUND COVERS GROUND NO. 5 TO 7 OF REVENUES A PPEAL IN ITA NO. 529/KOL/2015, FOR A.Y. 2010-11, GROUND NO. 6 OF REV ENUES APPEAL IN ITA NO. 518/KOL/2016, FOR A.Y. 2011-12,GROUND NO.4A TO4B OF ASSESSEE`S APPEAL IN ITA NO.625/KOL/2016 FOR A.Y.2011-12 AND ADDITIONAL GROU NDS RAISED BY THE ASSESSEE IN A.Y. 2011-12 WHEREIN THE ASSESSEE STATED THAT PA YMENT OF ROYALTY WAS SUBSUMED IN THE ENTITY LEVEL TRANSACTIONAL NET MARGIN METHOD (TNMM), ANALYSIS CONDUCTED BY THE ASSESSEE USING COMBINED TRANSACTION APPROACH . RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 5 55 5 6. FACTS OF THIS GROUND, AS STATED IN THE TPO/AO OR DER ARE AS FOLLOWS: M/S RECKITT BENCKISER (INDIA) LIMITED ( RBIL IN BRIEF) IS A S UBSIDIARY OF RECKITT BENCKISER PLC. UK. THE RBIL IS ENGAGED IN THE BUSINESS OF MAN UFACTURING AND TRADING OF FMCG PRODUCTS. THE RBIL MANUFACTURES AND DISTRIBUTE S VARIOUS BRANDS OF HOUSEHOLD PRODUCTS, AND OVER THE COUNTER PHARMACEUT ICAL PRODUCTS. SOME OF THE KEY PRODUCTS ARE DETTOL SOAP, DISPRIN, ROBIN BLUE, CHERRY BLOSSOM SHOW POLISH, HARPIC TOILET CLEANER, MORTEIN INSECTICIDE, COLIN E TC. THE RBIL IS REGISTERED IN INDIA UNDER THE COMPANIES ACT, 1956. THE RBIL HAS E NTERED INTO A LICENSE AGREEMENT WITH RECKITT BENCKISER N.V. AND RECKITT & COLMAN LIMITED FOR THE TRANSFER OF INTELLECTUAL PROPERTY RIGHTS FOR THE PR ODUCTION, SALE, DISTRIBUTION AND MARKETING OF RECKITT BENCKISER PRODUCTS DOMESTICA LLY AND INTERNATIONALLY. THESE INCLUDE ALL IPR(S) OWNED BY THE AES SUCH AS TRADEM ARKS, DESIGN AND MODEL RIGHTS, KNOWHOW, AND ALL CURRENT AND FUTURE COPYRIGHTS AND RIGHTS TO DATABASES RELATING TO DESIGN, DISTRIBUTION, MARKETING AND SALE OF LICENSE D PRODUCTS IN THE LICENSED TERRITORY. 7. THE TRANSFER PRICING OFFICER ON PERUSAL OF THE A BOVE DETAILS, NOTICED THAT THE ASSESSEE HAS NOT PROVIDED DETAILS W.R.T CERTAIN PRO DUCTS/BRANDS WHICH WERE IN EXISTENCE FOR MANY YEARS BEFORE THE ACQUISITION OF THE ASSESSEE BY THE BENCKISER GROUP. ACCORDINGLY, IN THE NOTICE U/S 92CA(2) DATED 06.01.2014, THE ASSESSEE WAS ASKED AS TO WHY ROYALTY WAS CHARGED IN SUCH CASES. THE NOTICE OF THE TPO IS REPRODUCED BELOW: 9. PLEASE REFER TO PAYMENTS MADE TOWARDS ROYALTY O N PRODUCTS MANUFACTURED BY YOU. VARIOUS DETAILS HAVE BEEN FILED IN THIS REGARD . IT IS ALSO SEEN THAT THE ROYALTY AGREEMENTS SIGNED BY YOU REPRESENT A BUNDLE OF INTA NGIBLES. HOWEVER, THE DETAILS FILED BY YOU IN THE CASE OF PRODUCTS AS GIVEN IN TA BLE BELOW DO NOT SHOW ANY PATENTS REGISTERED AGAINST THEM 9.1 YOU ARE REQUESTED TO PROVIDE THE DETAILS OF SUCH PATENT S ETC. RECEIVED BY YOU IN CASE OF PRODUCTS UNDER THESE BRAND NAMES WHICH ARE OF RECENT DEVELOPMENT SO AS TO PROVIDE YOU WITH CONTINUING BENEFIT. IN CASE THIS IS NOT PROVID ED AND ESTABLISHED, THEN YOU ARE R SAME SHOULD NOT BE TAKEN AS RS. NIL AS NO BENEFIT H AS BEEN RECEIVED AND NO PATENT OR KNOW- HOW HAS BEEN TRANSFERRED. FURTHER, PLEASE SPECIFY W HICH PATENTS ARE REGISTERED FOR DETTOL ANTISEPTIC LIQUID AS PERTAIN TO DETTOL ANTISEPTIC LIQUID. IN CASE YOU AR E NOT ABLE TO PROVIDE THE SAME WHICH HAS A RECENT ORIGIN/DEVELOPMENT AND WHICH CAN BE CONSIDERED TO PROVIDE YOU WITH CONTINUING BENEFITS, THEN PLEASE SHOW CAUS E AS TO WHY THE ROYALTY SHOULD NOT BE CONSIDERED AS RS. NIL IN CASE OF THIS PRODU CT. 10. THE TAXPAYER HAS BENCHMARKED THE ROY APPROPRIATE METHOD WITH OPERATING PROFIT ON COST AS PLI OF THE COMPARABLE. ON THE BASIS OF SEARCH CONDUCTED ON PROWESS AND CAPITA LINE DATABASE THE TAXPAYER HAD IDENTIFIED 9 COMPANIES AS COMPARABLE TO RBIL. T HE AVERAGE OPERATING ON COST OF THE COMPARABLE COMPANIES WERE CALCULATED AT 16.04 WHILE THE OPERATING PROFIT ON COST OF THE TESTED WAS CALCULAT ED AT 18.46% BASED ON THE ABOVE IT IS CONCLUDED THAT THE TRANSACTION OF ROYAL TY IS AT ARITHMETIC MEAN OF T RECKITT BENCKISER (I) PVT. LTD. ITA NOS. 404 & 529 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS: 2010 ARE REQUESTED TO PROVIDE THE DETAILS OF SUCH PATENT S ETC. RECEIVED BY YOU IN CASE OF PRODUCTS UNDER THESE BRAND NAMES WHICH ARE OF RECENT DEVELOPMENT SO AS WITH CONTINUING BENEFIT. IN CASE THIS IS NOT PROVID ED AND ESTABLISHED, THEN YOU ARE R EQUESTED TO SHOW CAUSE AS TO WHY THE ROYALTY FOR TH E SAME SHOULD NOT BE TAKEN AS RS. NIL AS NO BENEFIT H AS BEEN RECEIVED AND NO PATENT HOW HAS BEEN TRANSFERRED. FURTHER, PLEASE SPECIFY W HICH PATENTS ARE REGISTERED FOR DETTOL ANTISEPTIC LIQUID AS THE DETAILS GIVEN BY YOU DO NOT PERTAIN TO DETTOL ANTISEPTIC LIQUID. IN CASE YOU AR E NOT ABLE TO PROVIDE THE SAME WHICH HAS A RECENT ORIGIN/DEVELOPMENT AND WHICH CAN BE CONSIDERED TO PROVIDE YOU WITH CONTINUING BENEFITS, THEN PLEASE SHOW CAUS E AS TO WHY THE ROYALTY SHOULD NOT BE CONSIDERED AS RS. NIL IN CASE OF THIS PRODU CT. 10. THE TAXPAYER HAS BENCHMARKED THE ROY ALTY USING TNMM AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT ON COST AS PLI OF THE COMPARABLE. ON THE BASIS OF SEARCH CONDUCTED ON PROWESS AND CAPITA LINE DATABASE THE TAXPAYER HAD IDENTIFIED 9 COMPANIES AS COMPARABLE TO RBIL. T HE AVERAGE OPERATING ON COST OF THE COMPARABLE COMPANIES WERE CALCULATED AT 16.04 WHILE THE OPERATING PROFIT ON COST OF THE TESTED WAS CALCULAT ED AT 18.46% BASED ON THE ABOVE IT IS CONCLUDED THAT THE TRANSACTION OF ROYAL TY IS AT ARMS LENGTH AS THE ARITHMETIC MEAN OF T HE COMPARABLE PRICE IS LESS THAN OPERATING MARGIN E ARNED BY RECKITT BENCKISER (I) PVT. LTD. 404 & 529 /KOL/2015 625 & 518/KOL/2016 2010 -11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 6 66 6 ARE REQUESTED TO PROVIDE THE DETAILS OF SUCH PATENT S ETC. RECEIVED BY YOU IN CASE OF PRODUCTS UNDER THESE BRAND NAMES WHICH ARE OF RECENT DEVELOPMENT SO AS WITH CONTINUING BENEFIT. IN CASE THIS IS NOT PROVID ED AND EQUESTED TO SHOW CAUSE AS TO WHY THE ROYALTY FOR TH E SAME SHOULD NOT BE TAKEN AS RS. NIL AS NO BENEFIT H AS BEEN RECEIVED AND NO PATENT HOW HAS BEEN TRANSFERRED. FURTHER, PLEASE SPECIFY W HICH PATENTS ARE THE DETAILS GIVEN BY YOU DO NOT PERTAIN TO DETTOL ANTISEPTIC LIQUID. IN CASE YOU AR E NOT ABLE TO PROVIDE THE SAME WHICH HAS A RECENT ORIGIN/DEVELOPMENT AND WHICH CAN BE CONSIDERED TO PROVIDE YOU WITH CONTINUING BENEFITS, THEN PLEASE SHOW CAUS E AS TO WHY THE ROYALTY SHOULD ALTY USING TNMM AS THE MOST APPROPRIATE METHOD WITH OPERATING PROFIT ON COST AS PLI OF THE COMPARABLE. ON THE BASIS OF SEARCH CONDUCTED ON PROWESS AND CAPITA LINE DATABASE THE TAXPAYER HAD IDENTIFIED 9 COMPANIES AS COMPARABLE TO RBIL. T HE AVERAGE OPERATING PROFIT ON COST OF THE COMPARABLE COMPANIES WERE CALCULATED AT 16.04 WHILE THE OPERATING PROFIT ON COST OF THE TESTED WAS CALCULAT ED AT 18.46% BASED ON THE ARMS LENGTH AS THE HE COMPARABLE PRICE IS LESS THAN OPERATING MARGIN E ARNED BY RBIL. THE APPROACH ADOPTED BY THE TAXPAYER TO BENCH MARK THE TRANSACTION OF ROYALTY WHICH IS DIFFERENT IN SCOPE, RISK AND RETUR N HAS TO BE BENCHMARKED APPROPRIATELY AND THE MOST APPROPRIATE METHOD TYPES OF ROYALTY IS AVAILABLE. THIS OFFICE HAS CON DUCTED A SEARCH FOR THE SIMILAR AGREEMENTS AS THAT OF THE TAXPAYER FROM THE PUBLICA LLY AVAILABLE DATABASE. FROM PERUSAL OF THOSE AGREEMENTS, IT WAS FOUND THAT THER E IS ONE BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE WHICH IS AS GIVEN BELOW: HENCE YOU ARE TO SHOW CAUSE AS TO WHY NOT THE PAYME NT FOR ROYALTY BE RESTRICTED TO 1.5% OF NET SALES. 8. IN RESPONSE TO THE NOTICE THE ASSESSEE SUBMITTED REP THE EXTENT USEFUL FOR OUR DISCUSSION IS REPRODUCED BELOW (A)I T WOULD BE ERRONEOUS ON YOUR PART AND HIGHLY PREJUD ICIAL AND UNNECESSARILY HARSH ON US, IF YOU ADOPT THE BENEFIT TEST AND IN DULGE INTO THE QUESTION OF BENEFITS DERIVED BY THE ASSESSEE FROM THE USE OF BRANDS SPEC IFIED IN THE NOTICE. HOWEVER, WE APPRECIATE THAT YOUR GOODSELF HAS EXPRESSED NO DOUBT DERIVED BY RBIL, IT WOULD BE EVEN MORE UNREASONABLE TO DENY THE OTHERWISE ACCEPTED BENEFITS ONLY ON TO DETAILS OF PATENTS. IT MUST BE CAREFULLY NOTED T HAT, THE BENEFITS DERIVED BY RBIL HAVE BEEN DERIVED BY USE OF THE BUNCH OF INTANGIBLE S AND NOT SOLELY BECAUSE OF PATENTS, WHICH ALSO HAS BEEN AGR IN FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE APPLICATION OF BENEFIT TEST IS UNWARRANTED, BECAUSE STANDALONE BASIS, IT DEPENDS ON THE SALES AND THUS APPLICATION OF BENEFIT TEST TO ROYALTY PAYMENT IS IRRATIONAL AND ERRONEOUS. IT IS NOT CORRECT TO JUDGE PAYMENT OF ROYALTY ON THE YARDSTICK OF BENEFIT TES AND ARRIVE AT THE ARMS LENGTH PRICE IS NOT BASED O N ANY OF THE METHODS PRESCRIBED UNDER SECTION 92C OF THE ACT. RECKITT BENCKISER (I) PVT. LTD. ITA NOS. 404 & 529 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS: 2010 RBIL. THE APPROACH ADOPTED BY THE TAXPAYER TO BENCH MARK THE TRANSACTION OF ROYALTY WHICH IS DIFFERENT IN SCOPE, RISK AND RETUR N HAS TO BE BENCHMARKED APPROPRIATELY AND THE MOST APPROPRIATE METHOD IS CUP AS THE DATA FOR DIFFERENT TYPES OF ROYALTY IS AVAILABLE. THIS OFFICE HAS CON DUCTED A SEARCH FOR THE SIMILAR AGREEMENTS AS THAT OF THE TAXPAYER FROM THE PUBLICA LLY AVAILABLE DATABASE. FROM PERUSAL OF THOSE AGREEMENTS, IT WAS FOUND THAT THER E IS ONE AGREEMENTS WHICH CAN BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE WHICH IS AS GIVEN BELOW: HENCE YOU ARE TO SHOW CAUSE AS TO WHY NOT THE PAYME NT FOR ROYALTY BE RESTRICTED TO 1.5% OF NET SALES. 8. IN RESPONSE TO THE NOTICE THE ASSESSEE SUBMITTED REP LY BEFORE TPO AS FOLLOWS:(TO THE EXTENT USEFUL FOR OUR DISCUSSION IS REPRODUCED BELOW ) T WOULD BE ERRONEOUS ON YOUR PART AND HIGHLY PREJUD ICIAL AND UNNECESSARILY HARSH ON US, IF YOU ADOPT THE BENEFIT TEST AND IN DULGE INTO THE QUESTION OF BENEFITS DERIVED BY THE ASSESSEE FROM THE USE OF BRANDS SPEC IFIED IN THE NOTICE. HOWEVER, THAT YOUR GOODSELF HAS EXPRESSED NO DOUBT ABOUT THE BENEFITS DERIVED BY RBIL, IT WOULD BE EVEN MORE UNREASONABLE TO DENY THE OTHERWISE ACCEPTED BENEFITS ONLY ON THE BASIS OF NON- AVAILABILITY OF INFORMATION WITH RESPECT TO DETAILS OF PATENTS. IT MUST BE CAREFULLY NOTED T HAT, THE BENEFITS DERIVED BY RBIL HAVE BEEN DERIVED BY USE OF THE BUNCH OF INTANGIBLE S AND NOT SOLELY BECAUSE OF PATENTS, WHICH ALSO HAS BEEN AGR EED BY YOUR GOODSELF IN THE SUBJECT NOTICE. IN FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE APPLICATION OF BENEFIT TEST IS UNWARRANTED, BECAUSE PAYMENT OF ROYALTY HAS NOT BEEN MADE BY US ON A STANDALONE BASIS, IT DEPENDS ON THE SALES AND THUS APPLICATION OF BENEFIT TEST TO ROYALTY PAYMENT IS IRRATIONAL AND ERRONEOUS. IT IS NOT CORRECT TO JUDGE PAYMENT OF ROYALTY ON THE YARDSTICK OF BENEFIT TES T. SUCH A TEST TO BENCHMARK A TRANSACTION AND ARRIVE AT THE ARMS LENGTH PRICE IS NOT BASED O N ANY OF THE METHODS PRESCRIBED UNDER SECTION 92C OF THE ACT. RECKITT BENCKISER (I) PVT. LTD. 404 & 529 /KOL/2015 625 & 518/KOL/2016 2010 -11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 7 77 7 RBIL. THE APPROACH ADOPTED BY THE TAXPAYER TO BENCH MARK THE TRANSACTION OF ROYALTY WHICH IS DIFFERENT IN SCOPE, RISK AND RETUR N HAS TO BE BENCHMARKED IS CUP AS THE DATA FOR DIFFERENT TYPES OF ROYALTY IS AVAILABLE. THIS OFFICE HAS CON DUCTED A SEARCH FOR THE SIMILAR AGREEMENTS AS THAT OF THE TAXPAYER FROM THE PUBLICA LLY AVAILABLE DATABASE. FROM AGREEMENTS WHICH CAN BE CONSIDERED AS A COMPARABLE TO THE ASSESSEE WHICH IS AS GIVEN BELOW: HENCE YOU ARE TO SHOW CAUSE AS TO WHY NOT THE PAYME NT FOR ROYALTY BE RESTRICTED LY BEFORE TPO AS FOLLOWS:(TO T WOULD BE ERRONEOUS ON YOUR PART AND HIGHLY PREJUD ICIAL AND UNNECESSARILY HARSH ON US, IF YOU ADOPT THE BENEFIT TEST AND IN DULGE INTO THE QUESTION OF BENEFITS DERIVED BY THE ASSESSEE FROM THE USE OF BRANDS SPEC IFIED IN THE NOTICE. HOWEVER, ABOUT THE BENEFITS DERIVED BY RBIL, IT WOULD BE EVEN MORE UNREASONABLE TO DENY THE OTHERWISE AVAILABILITY OF INFORMATION WITH RESPECT TO DETAILS OF PATENTS. IT MUST BE CAREFULLY NOTED T HAT, THE BENEFITS DERIVED BY RBIL HAVE BEEN DERIVED BY USE OF THE BUNCH OF INTANGIBLE S AND NOT SOLELY BECAUSE OF EED BY YOUR GOODSELF IN THE SUBJECT NOTICE. IN FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE APPLICATION OF BENEFIT TEST IS PAYMENT OF ROYALTY HAS NOT BEEN MADE BY US ON A STANDALONE BASIS, IT DEPENDS ON THE SALES AND THUS APPLICATION OF BENEFIT TEST TO ROYALTY PAYMENT IS IRRATIONAL AND ERRONEOUS. IT IS NOT CORRECT TO JUDGE PAYMENT OF T. SUCH A TEST TO BENCHMARK A TRANSACTION AND ARRIVE AT THE ARMS LENGTH PRICE IS NOT BASED O N ANY OF THE METHODS PRESCRIBED RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 8 88 8 (B) OUR SUBMISSIONS REGARDING APPLICABILITY OF CUP IN THE WAY SUGGESTED BY YOUR GOODSELF AS AGAINST TNMM ADOPTED BY THE COMPAN Y FOR THE TRANSACTION OF PAYMENT OF ROYALTY IN THIS REGARD, AT PARA 10 OF THE SHOW CAUSE NOTICE DATED 06 JANUARY 2014, YOUR GOODSELF HAS SOUGHT TO REJECTED TNMM, AS ADOPTED BY THE ASSESSEE, TO BENCHMARK THE PAYMENT OF ROYALTY TRANSACTION AND INSTEAD SUGG ESTED TO ADOPT CUP ON THE GROUNDS THAT THE ASSESSEE'S TRANSACTION ON ROYALTY IS DIFFERENT IN SCOPE, RISK AND RETURN. WE WOULD LIKE TO SUBMIT THAT THE ASSESSEE HAS BENCH MARKED THE TRANSACTION OJ PAYMENT OF ROYALTY BY APPLYING TNMM AT ENTITY LEVEL . WE WOULD LIKE TO SUBMIT THAT WITHOUT THE PAYMENT OF ROYALTY FOR THE PRODUCT S IT WOULD NOT BE POSSIBLE FOR THE ASSESSEE TO CARRY ON ITS BUSINESS, HENCE THE RO YALTY TRANSACTION IS NOTHING BUT AN IMPORTANT & INTEGRAL PART OF ALL OTHER INTERNATI ONAL TRANSACTIONS, AND THUS THE ASSESSEE QUALIFIES FOR APPLICATION OF TNMM FOR BENC HMARKING ITS ROYALTY TRANSACTION. WE WOULD INVITE THE ATTENTION OF YOUR GOODSELF TO PARA 5.02.3 AT PAGE 48 OF THE TRANSFER PRICING STUDY REPORT SUBMITTED VIA SUBMISS ION DATED 07 JULY 2014, WHEREIN THE ASSESSEE HAS CATEGORICALLY EXPLAINED WH Y CUP CANNOT BE CONSIDERED AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE TRANSACTION OF PAYMENT OF ROYALTY. THE RELEVANT PORTION HAS BEEN REPRODUCED B ELOW FOR YOUR READY REFERENCE: 'CUP METHOD THE CUP METHOD CANNOT BE APPLIED TO TRANSACTION INV OLVING THE PAYMENT OJ ROYALTY BY RBIL FOR THE FOLLOWING REASONS: RBIL DOES NOT PAY ROYALTY TO THIRD PARTIES. RBIL PA YS ROYALTY ONLY TO ASSOCIATED ENTERPRISES; RB GROUP COMPANIES DO NOT RECEIVE ROYALTY FROM THIR D PARTIES IN INDIA; AND THERE IS NO PUBLICLY AVAILABLE INFORMATION ON PRICE S CHARGED IN INDEPENDENT TRANSACTIONS OF SIMILAR OR IDENTICAL NATURE THAT RE FLECTS THE CHARACTERISTICS OF THE ROYALTY PAID BY RBIL. THEREFORE, THERE ARE NO COMPARABLE PRICES AVAILABL E IN ORDER TO APPLY CUP METHOD. TNMM THE APPLICABILITY OF TNMM DEPENDS ON A RELATED PART YS FUNCTIONS PERFORMED, RESOURCES EMPLOYED, AND RISKS ASSUMED. THIS METHOD EVALUATED WHETHER THE AMOUNT CHARGED IN A CONTROLLED TRANSACTION IS ARMS LENGTH BASED ON OBJECTIVE MEASURES OF PROFITABILITY DERIVED FROM UNCONTROLLED PARTIES THAT ENGAGE IN SIMILAR BUSINESS ACTIVITIES UNDER SIMILAR CIRCUMSTANCES. SI NCE COMPARABLE INFORMATION WAS AVAILABLE AND COMPARISON AT AN OPERATING MARGIN LEVEL IS A REASONABLE COMPARISON, TNMM WAS SELECTED AS THE MOST APPROPRIA TE METHOD. THE TNMM EXAMINES THE NET PROFIT MARGIN RELATIVE TO AN APPRO PRIATE BASE (E.G. COSTS, SALES, ASSETS) THAT A TAXPAYER REALIZES FROM A CONTROLLED TRANSACTION. IT IS A WELL ACCEPTED PRINCIPLE THAT NET MARGINS AR E LESS AFFECTED BY TRANSACTIONAL DIFFERENCE THAN ARE PRICES (AS IN THE CASE OF CUP) AND GROSS MARGINS (AS IN THE CASE OF RPM / CPM). IN THIS CASE, SINCE THE FUNCTIO NS PERFORMED BY COMPARABLES IDENTIFIED BY US WERE BROADLY SIMILAR TO THE FUNCTIONS PERFORM ED BY RBIL, THE TNMM, WHICH INVOLVES NET MARGIN COMPARISON, WAS CON SIDERED AS THE MOST APPROPRIATE METHOD FOR TESTING THE MARGIN OF RBIL. 9. HOWEVER, THE TPO REJECTED THE CONTENTION OF THE ASSESSEE AND TRANSFER PRICING ADJUSTMENTS IN RESPECT OF ROYALTY AS FOLLOWS: 36. THUS ON CONJOINT READING OF THE AGREEMENT ENTER ED INTO BY THE ASSESEEE WITH ITS A.E AND ABOVE FACTS IT WELL ESTABLISHED TH AT THE A.E ALSO PROVIDE THE FORMULA AND TRADE NAME WHICH HAS APPLICATION IN SKINCARE ETC. HENCE, THE CONTENTION OF THE ASSESSE IS REJECTED AN D THE ROYALTY IS RESTRICTED TO 1.5% OF THE NET SALES. THE CALCULATION OF ROYALTY I S AS UNDER 37. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, EVEN IF IT CONSIDERED, AT LATER APPELLATE PROCEEDINGS, THAT TH E TNMM IS REQUIRED TO BE CONSIDERED AS THE MOST APPROPRIATE METHOD ON THE FA CTS OF THE CASE, THE PROCEDURE FOR ANALYSIS CARRIED OUT BY THE ASSESSEE IS THE ASSESSEE HAS COMPARED THE PROFIT MARGINS EARNED BY ITSELF WITH THE PROFIT MARGINS EARNED BY ENTITIES CONSIDERED AS COMPARABLE , AFTER MAKING A SEARCH THE DATABASES. AGAIN SUCH AN APPROACH MIXES THE PROFIT MARGI THE 'INTANGIBLE' AND 'OTHER ROUTINE ACTIVITIES' CAR RIED OUT BY THE ASSESSEE AND IT TANTAMOUNT TO BENCHMARKING THE THIRD PARTY TRANSACT IONS OF THE ASSESSEE (THROUGH EXPENSES INCURRED ON HEADS OTHER THAN 'INT ANGIBLES' ALONG WITH THE 'INTAN GIBLE' RELATED TRANSACTIONS CONSIDERED AS THE MOST APPROPRIATE METHOD, 5.IN THE DISCUSSION MADE IN THE PAPER ON THIS ISSUE , PUBLISHED IN BUSINESS ECONOMICS APRIL, 1997 ISSUE , AT HTTP://WWW.FREEPATENTSONLINE.COM/ARTICLE/BUSINESS WRITES AS FOLLOWS: RECKITT BENCKISER (I) PVT. LTD. ITA NOS. 404 & 529 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS: 2010 IT IS A WELL ACCEPTED PRINCIPLE THAT NET MARGINS AR E LESS AFFECTED BY TRANSACTIONAL DIFFERENCE THAN ARE PRICES (AS IN THE CASE OF CUP) AND GROSS MARGINS (AS IN THE CASE OF RPM / CPM). IN THIS CASE, SINCE THE FUNCTIO NS PERFORMED BY COMPARABLES BY US WERE BROADLY SIMILAR TO THE FUNCTIONS PERFORM ED BY RBIL, THE TNMM, WHICH INVOLVES NET MARGIN COMPARISON, WAS CON SIDERED AS THE MOST APPROPRIATE METHOD FOR TESTING THE MARGIN OF RBIL. 9. HOWEVER, THE TPO REJECTED THE CONTENTION OF THE ASSESSEE AND TRANSFER PRICING ADJUSTMENTS IN RESPECT OF ROYALTY AS FOLLOWS: 36. THUS ON CONJOINT READING OF THE AGREEMENT ENTER ED INTO BY THE ASSESEEE WITH ITS A.E AND ABOVE FACTS IT WELL ESTABLISHED TH AT THE A.E ALSO PROVIDE THE FORMULA AND TRADE NAME TO THE ASSESSE TO FRACTURE THE PRODUCTS THE PRODUCT S WHICH HAS APPLICATION IN SKINCARE ETC. HENCE, THE CONTENTION OF THE ASSESSE IS REJECTED AN D THE ROYALTY IS RESTRICTED TO 1.5% OF THE NET SALES. THE CALCULATION OF ROYALTY I S AS UNDER WITHOUT PREJUDICE TO THE ABOVE CONTENTION, EVEN IF IT CONSIDERED, AT LATER APPELLATE PROCEEDINGS, THAT TH E TNMM IS REQUIRED TO BE CONSIDERED AS THE MOST APPROPRIATE METHOD ON THE FA CTS OF THE CASE, THE PROCEDURE FOR ANALYSIS CARRIED OUT BY THE ASSESSEE IS ERRONEOUS AND FAULTY. IN THE ANALYSIS, THE ASSESSEE HAS COMPARED THE PROFIT MARGINS EARNED BY ITSELF WITH THE PROFIT MARGINS EARNED BY ENTITIES CONSIDERED AS COMPARABLE , AFTER MAKING A SEARCH AGAIN SUCH AN APPROACH MIXES THE PROFIT MARGI THE 'INTANGIBLE' AND 'OTHER ROUTINE ACTIVITIES' CAR RIED OUT BY THE ASSESSEE AND IT TANTAMOUNT TO BENCHMARKING THE THIRD PARTY TRANSACT IONS OF THE ASSESSEE (THROUGH EXPENSES INCURRED ON HEADS OTHER THAN 'INT ANGIBLES' ALONG WITH THE GIBLE' RELATED TRANSACTIONS THE GUIDANCE FOR THE APPLICATION OF TNMM, IF CONSIDERED AS THE MOST APPROPRIATE METHOD, I S PROVIDED IN US REGULATIONS 1.482 5.IN THE DISCUSSION MADE IN THE PAPER ON THIS ISSUE , PUBLISHED IN BUSINESS ECONOMICS APRIL, 1997 ISSUE , THE AUTHOR GLENN DESOUZA (AVAILABLE HTTP://WWW.FREEPATENTSONLINE.COM/ARTICLE/BUSINESS - ECONOMICS/19545602.HTML RECKITT BENCKISER (I) PVT. LTD. 404 & 529 /KOL/2015 625 & 518/KOL/2016 2010 -11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 9 99 9 IT IS A WELL ACCEPTED PRINCIPLE THAT NET MARGINS AR E LESS AFFECTED BY TRANSACTIONAL DIFFERENCE THAN ARE PRICES (AS IN THE CASE OF CUP) AND GROSS MARGINS (AS IN THE CASE OF RPM / CPM). IN THIS CASE, SINCE THE FUNCTIO NS PERFORMED BY COMPARABLES BY US WERE BROADLY SIMILAR TO THE FUNCTIONS PERFORM ED BY RBIL, THE TNMM, WHICH INVOLVES NET MARGIN COMPARISON, WAS CON SIDERED AS THE MOST 9. HOWEVER, THE TPO REJECTED THE CONTENTION OF THE ASSESSEE AND WORKED OUT THE 36. THUS ON CONJOINT READING OF THE AGREEMENT ENTER ED INTO BY THE ASSESEEE WITH ITS A.E AND ABOVE FACTS IT WELL ESTABLISHED TH AT THE A.E ALSO PROVIDE THE TO THE ASSESSE TO FRACTURE THE PRODUCTS THE PRODUCT S HENCE, THE CONTENTION OF THE ASSESSE IS REJECTED AN D THE ROYALTY IS RESTRICTED TO WITHOUT PREJUDICE TO THE ABOVE CONTENTION, EVEN IF IT CONSIDERED, AT LATER APPELLATE PROCEEDINGS, THAT TH E TNMM IS REQUIRED TO BE CONSIDERED AS THE MOST APPROPRIATE METHOD ON THE FA CTS OF THE CASE, THE PROCEDURE ERRONEOUS AND FAULTY. IN THE ANALYSIS, THE ASSESSEE HAS COMPARED THE PROFIT MARGINS EARNED BY ITSELF WITH THE PROFIT MARGINS EARNED BY ENTITIES CONSIDERED AS COMPARABLE , AFTER MAKING A SEARCH IN AGAIN SUCH AN APPROACH MIXES THE PROFIT MARGI NS ATTRIBUTABLE TO THE 'INTANGIBLE' AND 'OTHER ROUTINE ACTIVITIES' CAR RIED OUT BY THE ASSESSEE AND IT TANTAMOUNT TO BENCHMARKING THE THIRD PARTY TRANSACT IONS OF THE ASSESSEE (THROUGH EXPENSES INCURRED ON HEADS OTHER THAN 'INT ANGIBLES' ALONG WITH THE THE GUIDANCE FOR THE APPLICATION OF TNMM, IF S PROVIDED IN US REGULATIONS 1.482 - 5.IN THE DISCUSSION MADE IN THE PAPER ON THIS ISSUE , PUBLISHED IN BUSINESS THE AUTHOR GLENN DESOUZA (AVAILABLE ECONOMICS/19545602.HTML ) RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 AS DEFINED BY TREAS. REG. [SECTION]1.482-5(A), THE COMPARABLE PROFIT METHOD (CPM) EVALUATES AN ARM'S LENGTH PRICE BY REFERENCE TO THE PROFITABILITY OF UNRELATED COMPANIES THAT ENGAGE IN SIMILAR ACTIVITI ES UNDER SIMILAR CIRCUMSTANCES. THE EARNINGS OF THE ENTITY USING THE INTELLECTUAL PROPERTY (THE SO- CALLED TESTED PARTY) IS COMPARED TO THE EARNINGS OF COMPANIES ENGAGED IN SIMILAR ACTIVITIES BUT NOT OWNING SUCH INTELLECTUAL PROPERT Y. THE EXCESS EARNINGS OF THE TESTED PARTY IS ASSUMED TO BE THE CONTRIBUTION OF T HE INTELLECTUAL PROPERTY. THE FOLLOWING EXAMPLE ILLUSTRATES THE APPLICATION OF TH E CPM. USPHARM, A U.S. PRODUCT COMPANY IS THE DEVELOPER OF A DRUG, NOGRAINE, THAT IS USEFUL IN TREATING MIGRAINE HEADACHES WITH MINIMAL SIDE EFFECTS. USPHARM IS NEGOTIATING WITH A LEADING JAPANESE PHARMACEUTICAL COMPANY, JPHARM FOR THE EXCLUSIVE JAPANESE DISTRIBUTION RIGHTS TO NOGRAINE. WHAT ROYALTY RATE SHOULD JPHARM PAY? TO ANSWER THIS QUESTION, FOUR COMPANIES WERE IDENTI FIED THAT ARE ENGAGED IN THE MANUFACTURE AND MARKETING OF GENERIC DRUGS. THEIR M EDIAN RETURN ON SALES (ROS) WAS 14 PERCENT. USPHARM HAS BEEN REALIZING A 34 PER CENT ROS ON NOGRAINE. THIS SUGGESTS THAT THE PATENTED STATUS OF NOGRAINE HAS A LLOWED IT TO GENERATE PROFITS THAT ARE 20 PERCENT ABOVE THE GENERIC LEVEL. THEREF ORE, THE TOTAL INTELLECTUAL CONTRIBUTION (TIC) OF NOGRAINE IS ESTIMATED AT 20 P ERCENT. THE TRANSFER PRICING REGULATIONS PROVIDE NO GUIDANCE ON HOW TO ALLOCATE THE TIC. THE ONLY EXAMPLE IN THE REGULATIONS [TREAS. REG. [SECTION] 1.482-5(E), EXAMPLE 4] ALLOCATES THE ENTIRE TIC TO THE DEVELOPER. IT IS, HOWEVER, UNREALISTIC T O ALLOCATE THE ENTIRE TIC TO THE DEVELOPER OF THE INTANGIBLE ASSET. BECAUSE THE LICE NSEE ASSUMES THE RISKS AND CHALLENGES OF COMMERCIALIZATION, THE LICENSEE WILL EXPECT TO CAPTURE SOME OF THE BENEFITS PRODUCED BY THE TECHNOLOGY.THE SIMPLEST WA Y TO SPLIT THE TIC BETWEEN THE LICENSOR AND LICENSEE IS TO USE A RULE OF THUMB. CAVES, WHO DID A STUDY OF TECHNOLOGY LICENSES, WRIT ES THAT 'IN AN IMPERFECT LICENSE MARKET, THE MONOPOLIST OF A TECHNOLOGY CANNOT FULLY APPROXIMATE MAXIMUM RENT...THE BARGAINING APPEARS TO YIELD BETWEEN ONE- THIRD TO ONE-HALF TO THE LICENSOR WITH A MEAN OF ABOUT 40 PERCENT. VARIOUS COURT CASES (ALL OF WHICH DEALT WITH CUTS, NOT CPM) CONFIRM CAVE'S POSITION AS A REASONABLE RULE OF THUMB. IN BAUSCH & LOMB, THE COURT FAVORED A 50-50 SPLIT BETWEEN THE LICENSOR AND LICENSEE. IN E LI LILLY V. COMMISSIONER, 84 T.C. 996 (1985), THE COURT PROVIDED A 45-55 SPLIT.L T IS ALSO POSSIBLE TO USE A BARGAINING MODEL TO EVALUATE HOW THE TIC WILL BE SP LIT. TO IMPLEMENT A BARGAINING MODEL, IT IS NECESSARY TO DETERMINE THE THREAT POINTS. THE THREAT POINT IS THE POINT AT WHICHTHE PARTY WILL WALK RATHER THA N DEAL. TO DETERMINE THE THREAT POINTS IT IS NECESSARY TO IDENTIFY THE SPECIFIC ALT ERNATIVES AVAILABLE TO EACH PARTY. FOR EXAMPLE, IF USPHARM ALREADY HAS AN 10 PERCENT R OYALTY OFFER FROM ANOTHER COMPANY FOR THE DISTRIBUTION RIGHTS, THEN 10 PERCEN T IS THE THREAT POINT. USPHARM WILL WALK RATHER THAN ACCEPT A ROYALTY LOWER THAN 1 0 PERCENT THE ACTUAL DEAL WILL OCCUR SOMEWHERE BETWEEN THE TW O THREAT POINTS. THE DISTANCE BETWEEN THE TWO THREAT POINTS IS THE BARGAINING SPA CE.(11) GAME THEORY TELLS US THAT THE PARTY WITH THE HIGHER RISK PREFERENCE WILL BE ABLE TO PUSH THE DEAL CLOSER TO THE OTHER PARTY'S THREAT POINT. SO, FOR EXAMPLE, IF THE LICENSOR IS MORE WILLING TO TAKE THE RISK OF THE NEGOTIATIONS COLLAPSING, THEN IT IS THE LICENSOR WHO WILL BENEFIT. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 11 11 1 IN PRACTICE, DETERMINING RISK-PREFERENCE IS A HIGHL Y SUBJECTIVE PROCESS, SO THE PRAGMATIC OPTION IS TO SPLIT THE BARGAINING SPACE, IN THE EXAMPLE BELOW, THE BARGAINING SPACE IS SPLIT 50-50.' THIS PAPER IDENTIFIES THAT FOR THE OPERATION OF TNN M METHOD, THE NORMAL REMUNERATION PERTAINING TO ROUTINE ACTIVITIES, OTHE R THAN 'INTANGIBLE 'RELATED RETURNS ARE REQUIRED TO BE DETERMINED AND THEN ON T HE BASIS OF THE RELATIVE CONTRIBUTION TO THE FAR OF THE 'INTANGIBLE' RELATED TRANSACTION, THE BENEFIT OF THE 'INTANGIBLE' RELATED PROFIT IS TO BE SHARED. FROM P ERUSAL OF THE TNMM ANALYSIS CARRIED OUT BY THE ASSESSEE, IT CAN BE SEEN THAT N O SUCH IDENTIFICATION OF REMUNERATION RELATED TO ROUTINE FUNCTIONS WAS IDENT IFIED. AS A MATTER OF FACT IT WAS NOT EVEN ANALYZED WHETHER THE COMPARABLES WHICH HAV E BEEN SELECTED ARE PAVING ANY INTANGIBLE RELATED ROYALTY PAYMENTS ARE NOT. CO NSEQUENTLY, EVEN IF ON A WITHOUT PREJUDICE BASIS IT IS CONSIDERED THAT TNMM IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING ROYALTY PAYMENTS, THE ANALY SIS CARRIED OUT BV THE ASSESSEE IS ABSOLUTELY INCORRECT, FAULTY AND IS NOT AN INDICATOR OF THE ARMS LENGTH NATURE OF ROYALTY PAYMENTS. 38. FURTHER ON THE BASIS OF SUBMISSIONS MADE AND DE TAILS FILED BY THE ASSESSEE, IT IS SEEN THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW ANY EVIDENCE OF RECEIPT OF ANY TECHNICAL KNOW-HOW ETC FOR THE PRODUCTS PERTAINING TO 'MINCREAM' AND 'ROBINSON BARLEY' - TWO BRANDS CONTINUING FROM 1940S UP TO TH E LIMITATION PERIOD. ACCORDINGLY, BASED ON THE DOCUMENTS SUBMITTED TO DA TE, IT IS HELD THAT THE ASSESSEE HAS NOT RECEIVED ANY SUPPORT/ KNOW-HOW W.R.T. THESE TWO BRANDS/PRODUCTS TO SUPPORT ANY PAYMENT OF ROYALTY AND THE ARM'S LENGTH PRICE OF THE ROYALTY PAID IN CASE OF THESE TWO ITEMS IS DETERMINED TO BE RS.NIL UNDER THE CUP METHOD. THUS, THE TOTAL INCOME OF THE ASSESSEE IS REQUIRED TO BE ADJUSTED UPWARDLY BY RS.39,55,843/- ON THIS ACCOUNT. TOTAL ADJUSTMENT IN RESPECT OF ROYALTY IS 78,70,96, 934/- (78,31,41,091 + 39,55,843/-) 10. THUS, DURING THE TPO PROCEEDINGS, AS NOTED ABOV E, THE ASSESSEE WAS ASKED AS TO WHY ROYALTY WAS CHARGED IN RESPECT OF CERTAIN PR ODUCTS/BRANDS WHICH WERE IN EXISTENCE YEARS BEFORE ACQUISITION OF THE ASSESSEE BY BENCKISER GROUP. THE ASSESSEE GAVE DETAILED SUBMISSION IN RESPECT OF VAR IOUS PRODUCTS. ASSESSEE COMPANY STATED THAT IT HAS ADOPTED THE TNMM METHOD FOR BENCHMARK THE ROYALTY PAYMENT. ASSESSEE COMPANY ALSO EXPLAINED THAT NONE OF THE BRANDS WITH RESPECT TO PRODUCTS MANUFACTURED BY ASSESSEE COMPANY IS OWNED BY IT. HOWEVER, THE TPO REJECTED THE CONTENTION OF THE ASS ESSEE AND ADOPTED THE BENEFIT TEST APPROACH TO COMPUTE THE ARM`S LENGTH PRICE OF ROYALTY PAID.THELD TPO WHILST RELYING ON CONTEMPORANEOUS DATA OF AN AGREEMENT WHI CH DID NOT EVEN RELATE TO THEYEAR IN QUESTION RESTRICTED THE PERCENTAGE OF RO YALTY PAID TO 1.5%, AS NARRATED ABOVE. BESIDES, THE TPO AS DONE IN ASSESSMENT YEAR 2010-11, WHILST APPLYING THE RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 12 22 2 BENEFIT TEST, DETERMINED THE ARM`S LENGTH PRICE OF ROYALTY PAID ON MINCREAM AND ROBINSON BARLEY AT NIL. THIS WAY, LD TPO MADE ALP ADJUSTMENT OF RS. 35,05,809/- IN A.Y.2010-11 AND ALP ADJUSTMENT OF RS .78,70,96,934/-. 11. AGGRIEVED BY THE ORDER OF LD TPO/AO, THE ASSESS EE FILED THE OBJECTIONS BEFORE THE LD DRP, WHO HAS DELETED THE ARM`S LENGTH PRICE ADJUSTMENT (ALP) OBSERVING THE FOLLOWINGS: THE 9 TH GROUND OF OBJECTION RELATES TO DISALLOWANCE OF ROYALTY EXP ENSES OF RS. 35,05,803/- IN RESPECT OF TWO BRANDS. THE ASSESSEE PAYS ROYALTY TO RECKITT BENCKISER NV AND RECKITT AND COLMAN LTD IN RESPECT OF INTELLECTUAL PROPERTY RIGHTS OWNE D BY THE SAID AES. THE TPO CALLED FOR DETAILS OF PAYMENTS RELATING TO VARIOUS BRANDS/PRODUCTS. THE A SSESSEE WAS ALSO ASKED AS TO WHY ROYALTY WAS CHARGED IN RESPECT OF CERTAIN PRODUCTS/BRANDS WHICH WERE IN EXISTENCE YEARS BEFORE ACQUISITION OF THE ASSESSEE BY BENCKISER GROUP. THE ASSESSEE GAVE DETAILED SUBMISSION IN RESPECT OF VARIOUS PRODUCTS. AFTER EXAMINING THE SAME, THE TPO WAS OF THE VIEW THAT THE ASSESSEE HAD NOT BEEN ABLE TO SHOW ANY EVIDENCE OF RECEIVING TECHNICAL KNOWHOW ETC. FOR TWO PRODUCTS NAMELY, MINCREAM AND ROBINSON BURLEY WHICH WERE CONTINUING SINCE 194 0 ONWARDS. HE THEREFORE DETERMINED ARMS LENGTH PRICE IN RESPECT OF ROYALTY FOR THE TWO PROD UCTS AT NIL. THE AO HAS, ACCORDINGLY, PROPOSED ADDITION OF RS. 35,05,809/- IN THE DRAFT ORDER. TH E ASSESSEE HAS GIVEN FOLLOWING SUBMISSION IN THE MATTER:- WE SUBMIT THAT RBIL HAS ENTERED INTO ROYALTY AGREE MENTS WITH ITS AES [RCO & RBNV] FOR PRODUCTION, SALES, DISTRIBUTION & MARKETING OF PROD UCTS. ROYALTY PAYMENT IS MADE BY RBIL FOR THE RIGHT TO USE THE INTELLECTUAL PROPERTY RIGHTS WHICH INCLUDES TRADEMARKS, PATENTS, DESIGN AND MODEL RIGHTS, KNOW HOW AND ALL CURRENT AND FUTURE C OPYRIGHTS AND RIGHTS TO DATABASES RELATING TO THE DESIGN, PRODUCTION, DISTRIBUTION, MARKETING AND SALE OF THE PRODUCTS. IN THIS REGARD, RBIL SUBMITTED THE DETAILS OF PATENTS AND TRADEMARKS OF THE PRODUCTS FOR WHICH ROYALTY HAS BEEN PAID BY RBIL TO ITS AES. RBIL ALSO SUBMITTED THE DETAILE D WRITE-UP ON THE BENEFITS RECEIVED BY THE COMPANY FROM ITS AES IN THE FORM OF VARIOUS INTELLE CTUAL PROPERTY RIGHTS, IMPROVEMENTS AND DEVELOPMENTS, DESIGN & MODEL, KNOW-HOW, PATENTS, PR ODUCTS, TRADEMARKS ETC. WE SUBMIT THAT THE RBIL HAS RECEIVED SERVICES ON AN ONGOING BASIS W.R. T.INTELLECTUALPROPERTY RIGHTS, PRODUCTS/ BRANDS, DESIGNS & MODEL RIGHTS, KNOW HOW FROM ITS A ES. THE SAME HAS RESULTED IN THE SIGNIFICANT GROWTH IN ALL SEGMENTS DESPITE TOUGH COMPETITION ON LY DUE TO THE ACTIVE INVOLVEMENT AND CONTRIBUTION FROM THE LICENSORS. HOWEVER, THE TPO IN ITS ORDER HELD THAT THE ASSESSE E HAS NOT PRODUCED ANY EVIDENCE OF ANY SUPPORT/ KNOW HOW RECEIVED WITH RESPECT TO 'MINCREA M' AND 'ROBINSON BARLEY' BRANDS/ PRODUCTS TO SUPPORT PAYMENT OF RS 3,505,809 AS ROYALTY AND T HUS THE ALP WAS TAKEN AT NIL BY USING THE CUP METHOD. THE TPO MADE THE ADJUSTMENT SINCE THE ASSESSEE WAS NOT ABLE TO PRODUCE ANY EVIDENCE OF RECEIPT OF ANY TECHNICAL KNOW-HOW ETC. FOR THE PRODUCTS, 'M INCREAM' AND 'ROBINSON BARLEY' UP TO THE DATE OF LIMITATION OF PASSING THE TRANSFER PRICING ORDER . IN THIS REGARD, WE SUBMIT THAT RBIL HAVE BENCHMARKE D THE TRANSACTIONS OF PAYMENT OF ROYALTIES AS PER TNMM METHOD AND A COMPARISON ON COMPANY WIDE BA SIS OF THE NET OPERATING MARGIN OF RBIL IS HIGHER THAN THAT OF COMPARABLE INDEPENDENT COMPANIES. WE SUBMIT THAT THE APPLICATION OF 'BENEFIT TEST' IS UNWARRANTED, BECAUSE PAYMENT OF R OYALTY HAS NOT BEEN MADE BY RBIL ON A STANDALONE BASIS, IT DEPENDS ON THE SALES AND THUS APPLICATION OF 'BENEFIT TEST' TO ROYALTY PAYMENT IS IRRATIONAL AND ERRONEOUS. RELIANCE IS PLACED IN THE FOLLOWING JUDICIAL PRONOUNCEMENTS DCIT VS. EKLA APPLIANCES (2012-TII-01-HC-DEL-TP) (D EL-HC) LUMAX INDUSTRIES LIMITED VS. ACIT (ITA NO. 5252/DEL /2011) RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 13 33 3 SC ENVIRO AGRO INDIA LTD VS. DCIT (2013) 143 ITD 19 5 (MUM-ITAT) WE WOULD LIKE TO HUMBLY SUBMIT THAT IT IS BEYOND TH E SCOPE OF THE POWERS OF TPO TO DISALLOW THE OTHERWISE BONA FIDE EXPENDITURE INCURRED BY THE ASS ESSEE, ONLY ON THE GROUNDS THAT NO DETAILED INFORMATION HAS BEEN FILED WITH REGARD TO TECHNICAL ASPECTS OF THE PATENT WHOSE RIGHTS HAVE BEEN TRANSFERRED TO THE ASSESSEE. WE SUBMIT THAT RBIL HAS RECEIVED BENEFITS/ SUBSTAN TIAL BENEFITS FROM THE USE OF INTANGIBLE PROPERTY LICENSED BY THE AES AND RIGHTS ASSOCIATED WITH SUCH INTANGIBLE PROPERTY UNDER THE LICENSINGAGREEMENT(S). IT IS SUBMITTED THAT THE ASS ESSEE GETS ITS PRODUCTS MANUFACTURED ON THE BASIS OF THE TECHNICAL KNOW-HOW AND TECHNOLOGY SPEC IFICATIONS PROVIDED BY THE LICENSORS. THE ASSESSEE DERIVES SIGNIFICANT BENEFIT IN THE FORM OF GROWING REVENUE AND PROFITABILITY FROM THE USE OF THE PATENTED TECHNOLOGY WHICH IS OWNED & DEVELOP ED BY THE AES. HENCE, WE SUBMIT THAT RBIL HAVE MADE THE PAYMENT OF ROYALTY SOLELY IN CONNECTI ON WITH AND IN THE COURSE OF ITS BUSINESS. THE EXPENDITURE OF ROYALTY HAS A DIRECT NEXUS WITH THE BUSINESS OF RBIL. IT IS NOT THE CASE THAT SUCH EXPENSES ARE INCURRED IN ISOLATION OR ARE NOT CONNE CTED WITH RBIL'S BUSINESS. THE EXPENDITURE INCURRED ON PAYMENT OF ROYALTIES ARE COMPLETELY BON A FIDE AND HAVE BEEN IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE. WE WISH TO PLACE RELIANCE ON THE JUDICIAL PRONOUNCEMENT OF DELHI TRIBUNAL IN THE CASE OF REEBOK INDIA CO. VS. ADDLCI T (ITA NO.5857/DEL/2012) WHEREIN THE FOLLOWING HAVE BEEN HELD AS PER THE TERMS OF LICENSE AGREEMENT BETWEEN ASSES SEE AND THE AE, THE LICENSOR HAS AGREED TO GRANT EXCLUSIVE RIGHT TO UTI LIZE THE TECHNOLOGY IN MANUFACTURING AND DISTRIBUTION OF PRODUCTS AND THE ASSESSEE IN FACT HAS GOT THE GOODS MANUFACTURED ON THE BASIS OF TECHNOLO GY. THAT THE ASSESSEE DOES NOT UNDERTAKES ANY SIGNIFICA NT RESEARCH AND DEVELOPMENT ACTIVITY ON ITS OWN AND TOTALLY DEPENDS UPON THE ASSOCIATE ENTERPRISE FOR PROVISION OF TECHNOLOGY AND THUS AGR EED THAT THE ENTIRE BUSINESS OF THE ASSESSEE DEPENDS UPON THE TECHNOLOG Y PROVIDED BY THE AE AND WITHOUT THE LICENSE TO USE SUCH TECHNOLOGY, THE ASSESSES WOULD NOT BE ABLE TO CONTINUE ITS BUSINESS. PREMIUM VALUE OF PRODUCTS ALLOWS THE ASSESSEE TO IN CREASE THE SALES AND CHARGE HIGHER PRICE WHICH LEADS TO HIGHER PROFITABI LITY AND THAT GROWTH IN THE REVENUE OF THE ASSESSEE CLEARLY DEMONSTRATES THE BENEFIT DERIVED BY THE ASSESSEE FROM THE USE OF TECHNOLOGY. ON THE BASIS OF THE SAME LICENSING AGREEMENT THE RO YALTY WAS PAID IN EARLIER YEARS. IN EARLIER YEARS THE PAYMENT OF THE ROYALTY HAS NOT BEEN HELD TO BE NON-BONA FIDE EXPENDITURE BY TPO. THE TPOS CONCLUSION THAT THERE IS NO BENEFIT T O THE ASSESSEE FROM THE PAYMENTS OF ROYALTY IS UNSUSTAINABLE. IN V IEW OF THE FOREGOING DISCUSSION WE HOLD THAT PAYMENT OF ROYALTY SATISFIE S THE BENEFIT TEST. IN VIEW OF THE ABOVE, WE SUBMIT BEFORE YOUR HONORS THAT IN THE INTEREST OF EQUITY AND JUSTICE IT WOULD BE HIGHLY PREJUDICIAL IF THE BONA FIDE PAYMEN TS MADE BY RBIL IN FORM OF ROYALTY WITH RESPECT TO SUBJECTED BRANDS ARE TREATED TO BE NIL. IN THIS REGARD, WE ALSO SUBMIT THAT THE TPO ALSO ER RED IN NOT FOLLOWING THE PRINCIPLE OF CONSISTENCY TO THE EXTENT APPLICABLE TO THE INCOME TAX PROCEEDINGS. THE TPO ALSO ERRED IN NOT CONSIDERING THE FACT THAT DURING FY 2009-10, THERE HAS BEEN NO CHANGE IN THE FACTS AND CIRCUMSTANCES IN THE CASE OF THE ASSESSEE AS COMPAR ED TO EARLIER YEARS AND ACCORDINGLY NO TRANSFER PRICING ADJUSTMENT WAS CALLED FOR IN RESPE CT OF THE PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS AES. IN LIGHT OF THE PRINCIPLE OF LEGITIMATE EX PECTATIONS AND NATURAL JUSTICE IT WOULD BE UNFAIRLY PREJUDICIAL TO RBIL, IF THE HON'BLE PANEL CONSIDERS THE ROYALTY PAYMENT MADE FOR USE OF THE IPRS INAPPROPRIATE. THE FACTS IN CURRENT ASSESSMENT PROC EEDINGS ARE EXACTLY SIMILAR TO FACTS IN PREVIOUS ASSESSMENT YEARS AND THAT THERE HAS BEEN N O CHANGE IN THE BUSINESS MODEL OF RBIL OR IN THE NATURE, TERMS & CONDITIONS, FUNCTIONS PERFORMED , RISK ASSUMED AND ASSET EMPLOYED BY RBIL IN RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 14 44 4 RELATION TO ITS INTERNATIONAL TRANSACTIONS DURING F Y 2009-10 AS COMPARED TO PRECEDING YEARS, HENCE THE ASSESSEE HUMBLY SUBMITS THAT THE ACTION P ROPOSED BY THE TPO IN TAKING A DIFFERENT STAND IS HIGHLY PERVERSE AND AGAINST ESTABLISHED LE GAL AND EQUITABLE PRINCIPLES. IN VIEW OF THE ABOVE, WE REQUEST THE HONORABLE PANE L TO DELETE THE DISALLOWANCE OF ROYALTY PAYMENT WITH RESPECT TO MIN CREAM AND ROBINSON BARL EY.' WE HAVE CONSIDERED FACTS OF THE CASE. THE ASSESSEE IS A MANUFACTURER AND DISTRIBUTOR OF A LARGE NUMBER OF PRODUCTS/BRANDS FOR WHICH ARE OWNED BY IT S AES. THE ASSESSEE HAS BEEN PAYING ROYALTY TO ITS AES FOR A NUMBER OF YEARS WHICH HAS BEEN ALL OWED IN THE ASSESSMENT OF EARLIER YEARS. EVEN IN THE YEAR UNDER CONSIDERATION ALSO, THE TPO HAS A LLOWED ROYALTY IN RESPECT OF ALL BUT TWO PRODUCTS MANUFACTURED AND SOLD BY THE ASSESSEE. HOWEVER, IN RESPECT OF TWO PRODUCTS VIZ. MINCREAM AND ROBINSON BURLEY, THE TPO HAS HELD THAT NO BENEFIT WAS DERIVED BY THE ASSESSEE FROM ITS AE. IT IS NOT DENIED THAT THE TRADE- MARKS FOR THE TWO PRODUCTS VIZ. MINCREAM AND ROBINSON BURLEY WERE REGISTERED AND THE SAID BRANDS WERE OWNED BY THE AES. THE ROYALTIES ARE PAID NOT ONLY IN RESPECT OF PATENT BUT FOR A BASKET OF SERVICES. IT IS A COMMON OCCURRENCE THAT A PERSON USING A BRAND NAME PAYS CERTAIN BRAND ROYALT Y TO THE OWNER OF BRAND. IT IS NOT THE CASE OF THE TPO, THAT THE ROYALTY PAID IN RESPECT OF THESE PRODUCTS WAS WITHOUT ANY USE OF THE SAID BRAND NAMES. THE ASSESSEE HAS IN ITS TP STUDY INCLUDED PA YMENT OF ROYALTY AND ACCORDING TO IT THE ROYALTIES ARE AT ARMS LENGTH. CONSIDERING THESE FA CTS THE PROPOSED DISALLOWANCE OF ROYALTY IN RESPECT OF MINCREAM AND ROBINSON BURLEY DOES NOT AP PEAR TO BE PROPER. THE SAME IS, ACCORDINGLY, DIRECTED TO BE DELETED. NOTE: FOR ASSESSMENT YEAR 2011-12, THE LD DRP DID N OT PASS A DETAILED ORDER BUT IT RELIED ON ITS DIRECTIONS FOR A.Y.2010-11. 12.AGGRIEVED BY THE ORDER OF THE DRP/AO, THE REVENU E AS WELL AS ASSESSEE IS IN APPEAL BEFORE US. 13. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE TH ROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD DRP/AO AND OTHER MATERIALS BROUGHT ON RECORD. BEFOR E US, LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED ON THE FINDINGS OF THE LD DRP. ON THE OTHER HAND, T HE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE LD TPO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. WE NOTE THAT IN ASSESSMENT YEAR 2011-12, THE LD TPO PROCEEDED BY RE JECTING THE COMBINED TRANSACTION APPROACH UNDER TNMM AS ADOPTED BY THE A SSESSEE IN ITS TP STUDY REPORT AND HELD THAT CUP METHOD TO BE THE MOST APPR OPRIATE METHOD WHILST APPLYING THE BENEFIT TEST (VIDE PG. 259 TO 273 OF P B-1). THEREAFTER, THE LD TPO WHILST RELYING ON CONTEMPORANEOUS DATA OF AN AGREEM ENT WHICH DID NOT EVEN RELATE RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 15 55 5 TO THE YEAR IN QUESTION RESTRICTED THE PERCENTAGE OF ROYALTY PAID TO 1.5% ( VIDE PG. 273 TO 281 OF PB-1). BESIDES, THE TPO AS DONE IN AS SESSMENT YEAR 2010-11, WHILST APPLYING THE BENEFIT TEST, DETERMINED THE ARM`S LEN GTH PRICE OF ROYALTY PAID ON MINCREAM AND ROBINSON BARLEY AT NIL. (VIDE PG.2 81 OF PB-1). 14.AGGRIEVED BY THE ORDER OF THE LD TPO, THE ASSESS EE FILED OBJECTIONS BEFORE THE LD DRP. THE LD DRP RELYING ON ITS OWN DIRECTIONS FO R ASSESSMENT YEAR 2010-11, HAD DIRECTED THE TPO TO DELETE THE ARM`S LENGTH PRI CE ADJUSTMENT. 15. THE LD TPO, VIDE HIS ORDER DATED 21.01.2016, AS PER THE DIRECTION OF THE DRP DELETED THE ADJUSTMENT MADE TOWARDS PAYMENT OF ROYA LTY ON MINCREAM AND ROBINSON BARELY HOWEVER, CONFIRMED THE REMAINDER ADJUSTMENT AS THERE WAS NO FINDING ON THE METHOD AND NO ADJUDICATION ON THE CO MPARABLE CHOSEN BY THE TPO. 16. WE NOTE THAT THE ASSESSEE IS A MANUFACTURER AND DISTRIBUTOR OF A LARGE NUMBER OF PRODUCTS/BRANDS. THESE BRANDS ARE OWNED BY ITS A ES. THE ASSESSEE HAS BEEN PAYING ROYALTY TO ITS AES FOR A NUMBER OF YEARS WHI CH HAS BEEN ALLOWED IN THE ASSESSMENT OF EARLIER YEARS. THIS YEAR THERE IS NO CHANGE IN FACTS AND LAW SO FAR ASSESSEE COMPANY AND ITS ASSOCIATE ENTERPRISES (AES ) ARE CONCERNED. IT IS A WELL SETTLED LEGAL POSITION THAT FACTUAL MA TTERS WHICH PERMEATE THROUGH MORE THAN ONE ASSESSMENT YEAR, IF THE REVENUE HAS ACCEPT ED A PARTICULAR VIEW OR PROPOSITION IN THE PAST, IT IS NOT OPEN FOR THE REV ENUE TO TAKE AN ENTIRELY CONTRARY OR DIFFERENT STAND IN A LATER YEAR ON THE SAME ISSU E, INVOLVING IDENTICAL FACTS UNLESS AND UNTIL A COGENT CASE IS MADE OUT BY THE TPO/ASSE SSING OFFICER ON THE BASIS OF CHANGE IN FACTS. FOR THAT WE RELY ON THE ORDER OF T HE HONBLE SUPREME COURT IN RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC), WHEREI N IT WAS HELD AS FOLLOWS: 'WE ARE AWARE OF THE FACT THAT, STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR BUT WHERE A FUN DAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT C HALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ON THESE REASONING, IN THE ABSENCE OF ANY MATERIAL CHANGE JU STIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER - AND, IF THERE WAS NO CHANGE, IT WAS IN SUPPORT OF THE ASSESSEE WE DO NOT THINK THE QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER OF INCOME-TAX IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN.' RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 16 66 6 WE ARE OF THE VIEW THAT THE ABOVE CITED PRECEDENT O N PRINCIPLE OF CONSISTENCY IS SQUARELY APPLICABLE TO THE ASSESSEE UNDER CONSIDERA TION. IN THE FACTS OF THE ASSESSEE'S CASE, THE LD. TPO HAS NOT POINTED OUT TH E CHANGE IN FACTS OR ANY PROVISION OF LAW WHICH LED HIM TO TAKE A VIEW CONTR ARY TO THE VIEW TAKEN BY HIS PREDECESSORS IN PREVIOUS YEARS. WE NOTE THAT THE AS SESSEE HAS BEEN PAYING ROYALTY TO ITS ASSOCIATE ENTERPRISES(AES) FOR A NUMBER OF Y EARS WHICH HAS BEEN ALLOWED IN THE ASSESSMENT OF EARLIER YEARS. THEREFORE, THE TPO CANNOT TAKE A CONTRARY VIEW AND DISTURB THE SETTLED FACTS UNLESS THERE IS A CHA NGE IN LAW OR FACTS. THEREFORE, THE ARM`S LENGTH PRICE ADJUSTMENT MADE BY TPO IS NOT SU STAINABLE IN LAW. 17. WE NOTE THAT TPO HAS ALLOWED ROYALTY IN RESPECT OF ALL EXCEPT TWO PRODUCTS VIZ. MINCREAM AND ROBINSON BURLEY, THE TPO HAS HELD THAT NO BENEFIT WAS DERIVED BY THE ASSESSEE FROM ITS AE. IT IS NOT DENIED THAT THE TRADE- MARKS FOR THE TWO PRODUCTS VIZ. MINCREAM AND ROBINSON BURLEY WERE REG ISTERED AND THE SAID BRANDS WERE OWNED BY THE AES. THE ROYALTIES ARE PAID NOT O NLY IN RESPECT OF PATENT BUT FOR A BASKET OF SERVICES. IT IS A COMMON OCCURRENCE THA T A PERSON USING A BRAND NAME PAYS CERTAIN BRAND ROYALTY TO THE OWNER OF BRAND. I T IS NOT THE CASE OF THE TPO, THAT THE ROYALTY PAID IN RESPECT OF THESE PRODUCTS WAS W ITHOUT ANY USE OF THE SAID BRAND NAMES. THE ASSESSEE HAS IN ITS TP STUDY INCLUDED PA YMENT OF ROYALTY AND ACCORDING TO IT THE ROYALTIES ARE AT ARMS LENGTH. CONSIDERING THESE FACTS THE PROPOSED DISALLOWANCE OF ROYALTY IN RESPECT OF MINC REAM AND ROBINSON BURLEY DOES NOT APPEAR TO BE JUSTIFIED AND PROPER. FOR THA T WE RELY ON THE FOLLOWING JUDGMENTS: (I). CIT V EKL APPLIANCES LTD [2012] 345 ITR 241(DE LHI-HC) 15. IT SEEMS TO US THAT THE DECISION TAKEN BY THE TRIBUNAL IS THE RIGHT DECISION. THE TPO APPLIED THE CUP METHOD WHILE EXAMINING THE PAYMENT OF BRAND FEE/ ROYALTY. THE CUP METHOD WHICH IN ITS EXPANDED FORM IS KNOWN AS COMPARABLE UNCONTROL LED PRICE METHOD IS PROVIDED FOR IN RULE 10B(1)(A) OF THE INCOME TAX RULES, 1962. IT IS ONE OF THE METHODS RECOGNISED FOR DETERMINING THE ALP IN RELATION TO AN INTERNATIONAL TRANSACTION. RU LE 10B(1) SAYS THAT FOR THE PURPOSES OF SECTION 92C(2), THE ALP SHALL BE DETERMINED BY ANY ONE OF T HE FIVE METHODS, WHICH IS FOUND TO BE THE MOST APPROPRIATE METHOD, AND GOES ON TO LAY DOWN THE MAN NER OF DETERMINATION OF THE ALP UNDER EACH METHOD. THE FIVE METHODS RECOGNIZED BY THE RULE ARE (I) COMPARABLE UNCONTROLLED PRICE METHOD (CUP), (II) RE-SALE PRICE METHOD, (III) COST PLUS M ETHOD, (IV) PROFIT SPLIT METHOD AND (V) RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 17 77 7 TRANSACTIONAL NET MARGINAL METHOD (TNMM). THE MANNE R BY WHICH THE ALP IN RELATION TO AN INTERNATIONAL TRANSACTION IS DETERMINED UNDER CUP I S PRESCRIBED IN CLAUSE (A) OF THE SUB-RULE (1) OF RULE 10B. THE FOLLOWING THREE STEPS HAVE BEEN PR ESCRIBED: - (A) COMPARABLE UNCONTROLLED PRICE METHOD, BY WHICH , (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER RED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMBER OF SUCH TRANS ACTIONS, IS IDENTIFIED; (II) SUCH PRICE IS ADJUSTED TO ACCOUNT FOR DIFFEREN CES, IF ANY, BETWEEN THE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACTIONS OR BET WEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRI CE IN THE OPEN MARKET; (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB- CLAU SE (II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT OF THE PROPERTY TRANSFERRED OR SERVICES PRO VIDED IN THE INTERNATIONAL TRANSACTION; 16. THE ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD , FOR SHORT) HAS LAID DOWN TRANSFER PRICING GUIDELINES FOR MULTI-N ATIONAL ENTERPRISES AND TAX ADMINISTRATIONS. THESE GUIDELINES GIVE AN INTRODUCTION TO THE ARM S LENGTH PRICE PRINCIPLE AND EXPLAINS ARTICLE 9 OF THE OECD MODEL TAX CONVENTION. THIS ARTICLE PROVIDE S THAT WHEN CONDITIONS ARE MADE OR IMPOSED BETWEEN TWO ASSOCIATED ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATIONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEP ENDENT ENTERPRISES THEN ANY PROFIT WHICH WOULD, BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ON E OF THE ENTERPRISES, BUT, BY REASON OF THOSE CONDITIONS, IF NOT SO ACCRUED, MAY BE INCLUDED IN T HE PROFITS OF THAT ENTERPRISE AND TAXED ACCORDINGLY. BY SEEKING TO ADJUST THE PROFITS IN TH E ABOVE MANNER, THE ARMS LENGTH PRINCIPLE OF PRICING FOLLOWS THE APPROACH OF TREATING THE MEMBER S OF A MULTI-NATIONAL ENTERPRISE GROUP AS OPERATING AS SEPARATE ENTITIES RATHER THAN AS INSEP ARABLE PARTS OF A SINGLE UNIFIED BUSINESS. AFTER REFERRING TO ARTICLE 9 OF THE MODEL CONVENTION AND STATING THE ARMS LENGTH PRINCIPLE, THE GUIDELINES PROVIDE FOR RECOGNITION OF THE ACTUAL T RANSACTIONS UNDERTAKEN IN PARAGRAPHS 1.36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 ARE IMPORTANT AND ARE RELEVANT TO OUR PURPOSE. THESE PARAGRAPHS ARE RE-PRODUCED BELOW: - 1.36 A TAX ADMINISTRATIONS EXAMINATION OF A CONTR OLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANSACTION ACTUALLY UNDERTAKEN BY THE ASSOC IATED ENTERPRISES AS IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY THE TAXPAYER INS OFAR AS THESE ARE CONSISTENT WITH THE METHODS DESCRIBED IN CHAPTERS II AND III. IN OTHER THAN EXC EPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COULD BE COMPOUNDED BY DOUBLE TAXATION CREATED WHERE THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEWS AS TO HOW THE TRANSACTION SHOULD BE STRU CTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCE S IN WHICH IT MAY, EXCEPTIONALLY, BE BOTH APPROPRIATE AND LEGITIMATE FOR A TAX ADMINISTRATION TO CONSIDER DISREGARDING THE STRUCTURE ADOPTED BY A TAXPAYER IN ENTERING INTO A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTANCE ARISES WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFE RS FROM ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DISREGARD THE PARTIES CHARACTER IZATION OF THE TRANSACTION AND RE-CHARACTERISE IT IN ACCORDANCE WITH ITS SUBSTANCE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN INVESTMENT IN AN ASSOCIATED ENTERPRISE IN THE FORM OF INTEREST-BEARI NG DEBT WHEN, AT ARMS LENGTH, HAVING REGARD TO THE ECONOMIC CIRCUMSTANCES OF THE BORROWING COMPANY , THE INVESTMENT WOULD NOT BE EXPECTED TO BE STRUCTURED IN THIS WAY. IN THIS CASE IT MIGHT BE APPROPRIATE FOR A TAX ADMINISTRATION TO CHARACTERIZE THE INVESTMENT IN ACCORDANCE WITH ITS ECONOMIC SUBSTANCE WITH THE RESULT THAT THE LOAN MAY BE TREATED AS A SUBSCRIPTION OF CAPITAL. T HE SECOND CIRCUMSTANCE ARISES WHERE, WHILE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME, THE ARRANGEMENTS MADE IN RELATION TO THE RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 18 88 8 TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER AND THE ACTUAL STRUCTURE PRACTICALLY IMPEDES THE TAX ADMINISTRATION FROM DET ERMINING AN APPROPRIATE TRANSFER PRICE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE A SALE UNDER A LONG-TERM CONTRACT, FOR A LUMP SUM PAYMENT, OF UNLIMITED ENTITLEMENT TO THE INTELLECTU AL PROPERTY RIGHTS ARISING AS A RESULT OF FUTURE RESEARCH FOR THE TERM OF THE CONTRACT (AS PREVIOUSL Y INDICATED IN PARAGRAPH 1.10). WHILE IN THIS CASE IT MAY BE PROPER TO RESPECT THE TRANSACTION AS A TRANSFER OF COMMERCIAL PROPERTY, IT WOULD NEVERTHELESS BE APPROPRIATE FOR A TAX ADMINISTRATIO N TO CONFORM THE TERMS OF THAT TRANSFER IN THEIR ENTIRETY (AND NOT SIMPLY BY REFERENCE TO PRICING) T O THOSE THAT MIGHT REASONABLY HAVE BEEN EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJ ECT OF A TRANSACTION INVOLVING INDEPENDENT ENTERPRISES. THUS, IN THE CASE DESCRIBED ABOVE IT M IGHT BE APPROPRIATE FOR THE TAX ADMINISTRATION, FOR EXAMPLE, TO ADJUST THE CONDITIONS OF THE AGREEM ENT IN A COMMERCIALLY RATIONAL MANNER AS A CONTINUING RESEARCH AGREEMENT. 1.38 INBOTHSETSOFCIRCUMSTANCESDESCRIBEDABOVE,THE CH ARACTER OF THE TRANSACTION MAY DERIVE FROM THE RELATIONSHIP BETWEEN THE PARTIES RATHER THAN BE DETERMINED BY NORMAL COMMERCIAL CONDITIONS AS MAY HAVE BEEN STRUCTURED BY THE TAXPAYER TO AVOI D OR MINIMIZE TAX. IN SUCH CASES, THE TOTALITY OF ITS TERMS WOULD BE THE RESULT OF A CONDITION THA T WOULD NOT HAVE BEEN MADE IF THE PARTIES HAD BEEN ENGAGED IN ARMS LENGTH DEALINGS. ARTICLE 9 WO ULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO REFLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAINED HAD THE TRANSACTION BEEN STRUCTURED IN ACCORDANCE WITH THE ECONOMIC AND COMMERCIAL REALITY OF PARTIES DEALING AT ARMS LENGTH. 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LI ES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NO T DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMINATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UN DERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES DISCOURAGE RE-STRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERISAT ION OF SUCH RE-STRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HA S THE POTENTIAL TO CREATE DOUBLE TAXATION IF THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VI EW AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESA ID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM IT S FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MA DE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. 19. THERE IS NO REASON WHY THE OECD GUIDELINES SHOU LD NOT BE TAKEN AS A VALID INPUT IN THE PRESENT CASE IN JUDGING THE ACTION OF THE TPO. IN F ACT, THE CIT (APPEALS) HAS REFERRED TO AND APPLIED THEM AND HIS DECISION HAS BEEN AFFIRMED BY THE TRIBUNAL. THESE GUIDELINES, IN A DIFFERENT FORM, HAVE BEEN RECOGNIZED IN THE TAX JURISPRUDENCE OF OUR COUNTRY EARLIER. IT HAS BEEN HELD BY OUR COURTS THAT IT IS NOT FOR THE REVENUE AUTHORITI ES TO DICTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINESS AND IT IS NOT FOR THEM TO TELL THE ASSESSEE AS TO WHAT EXPENDITURE THE ASSESSEE CAN INCUR. WE MAY REFER TO A FEW OF THESE AUTHORITI ES TO ELUCIDATE THE POINT. IN EASTERN INVESTMENT LTD. V. CIT, (1951) 20 ITR 1, IT WAS HELD BY THE SU PREME COURT THAT THERE ARE USUALLY MANY WAYS IN WHICH A GIVEN THING CAN BE BROUGHT ABOUT IN BUSI NESS CIRCLES BUT IT IS NOT FOR THE COURT TO DECIDE WHICH OF THEM SHOULD HAVE BEEN EMPLOYED WHEN THE COURT IS DECIDING A QUESTION UNDER SECTION 12(2) OF THE INCOME TAX ACT. IT WAS FURTHE R HELD IN THIS CASE THAT IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR T HAT IN FACT ANY PROFIT WAS EARNED. IN CIT V. WALCHAND& CO. ETC., (1967) 65 ITR 381, IT WAS HELD BY THE SUPREME COURT THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETH ER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, R EASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AN D NOT OF THE REVENUE. IT WAS FURTHER OBSERVED THAT THE RULE THAT EXPENDITURE CAN ONLY BE JUSTIFIE D IF THERE IS CORRESPONDING INCREASE IN THE PROFITS WAS ERRONEOUS. IT HAS BEEN CLASSICALLY OBSERVED BY LORD THANKERTON IN HUGHES V. BANK OF NEW RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 1 11 19 99 9 ZEALAND, (1938) 6 ITR 636 THAT EXPENDITURE IN THE COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONE THE LESS A PROPER DEDUCTION IF WHOLLY AND E XCLUSIVELY MADE FOR THE PURPOSES OF TRADE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE C REDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE. THE QUESTION WHETHER AN EXPENDITURE CAN B E ALLOWED AS A DEDUCTION ONLY IF IT HAS RESULTED IN ANY INCOME OR PROFITS CAME TO BE CONSID ERED BY THE SUPREME COURT AGAIN IN CIT V. RAJENDRA PRASAD MOODY, (1978) 115 ITR 519, AND IT W AS OBSERVED AS UNDER: - WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTH ERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE INTE RPRETATION OF SECTION 57(III) CANNOT BE DIFFERENT. THE DEDUCTION OF THE EXPENDITURE CANNOT, IN THE CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNING OF THE INCOME. IT IS NOTEWORTHY THAT THE ABOVE OBSERVATIONS WERE M ADE IN THE CONTEXT OF SECTION 57(III) OF THE ACT WHERE THE LANGUAGE IS SOMEWHAT NARROWER THAN THE LA NGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT. THIS FACT IS RECOGNISED IN THE JUDGMENT ITSELF . THE FACT THAT THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT IS BROADER THAN SECTION 57(III) OF THE ACT MAKES THE POSITION STRONGER. 20. IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD. V. CIT, (1979) 118 ITR 261 (SC), THE SUPREME COURT REFERRED TO THE LEGISLATIVE HISTORY AND NOTED THAT WHEN THE INCOME TAX BILL OF 1961 WAS INTRODUCED, SECTION 37(1) REQUIRED THAT THE EXPENDI TURE SHOULD HAVE BEEN INCURRED WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSES OF BU SINESS IN ORDER TO MERIT DEDUCTION. PURSUANT TO PUBLIC PROTEST, THE WORD NECESSARILY WAS OMITTED FROM THE SECTION. 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITURE INCURRED BY HI M WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY EXP ENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINES S AND NOTHING MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOW ANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HA VE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR THAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARED B ETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUAN TUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILI TY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A P ART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THERE IS CERTAINLY NO A UTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/ BRAND FEE, BECAUSE IT HAS BEEN SUFFERING L OSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCUR RED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE INTE RNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLES ALE DISALLOWANCE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN B Y THE TPO IS NOT CONTEMPLATED OR AUTHORISED. 23. APART FROM THE LEGAL POSITION STATED ABOVE, EVE N ON MERITS THE DISALLOWANCE OF THE ENTIRE BRAND FEE/ ROYALTY PAYMENT WAS NOT WARRANTED. THE A SSESSEE HAS FURNISHED COPIOUS MATERIAL AND VALID REASONS AS TO WHY IT WAS SUFFERING LOSSES CON TINUOUSLY AND THESE HAVE BEEN REFERRED TO BY US RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 20 00 0 EARLIER. FULL JUSTIFICATION SUPPORTED BY FACTS AND FIGURES HAVE BEEN GIVEN TO DEMONSTRATE THAT THE INCREASE IN THE EMPLOYEES COST, FINANCE CHARGES, AD MINISTRATIVE EXPENSES, DEPRECIATION COST AND CAPACITY INCREASE HAVE CONTRIBUTED TO THE CONTINUOU S LOSSES. THE COMPARATIVE POSITION OVER A PERIOD OF 5 YEARS FROM 1998 TO 2003 WITH RELEVANT F IGURES HAVE BEEN GIVEN BEFORE THE CIT (APPEALS) AND THEY ARE REFERRED TO IN A TABULAR FOR M IN HIS ORDER IN PARAGRAPH 5.5.1. IN FACT THERE ARE FOUR TABULAR STATEMENTS FURNISHED BY THE ASSESS EE BEFORE THE CIT (APPEALS) IN SUPPORT OF THE REASONS FOR THE CONTINUOUS LOSSES. THERE IS NO MATE RIAL BROUGHT BY THE REVENUE EITHER BEFORE THE CIT (APPEALS) OR BEFORE THE TRIBUNAL OR EVEN BEFORE US TO SHOW THAT THESE ARE INCORRECT FIGURES OR THAT EVEN ON MERITS THE REASONS FOR THE LOSSES ARE NOT GENUINE. 24. WE ARE, THEREFORE, UNABLE TO HOLD THAT THE TRIB UNAL COMMITTED ANY ERROR IN CONFIRMING THE ORDER OF THE CIT (APPEALS) FOR BOTH THE YEARS DELET ING THE DISALLOWANCE OF THE BRAND FEE/ ROYALTY PAYMENT WHILE DETERMINING THE ALP. ACCORDINGLY, THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE. THE APPEALS ARE ACCORDINGLY DISMISSED WITH NO ORDER AS TO COSTS. (II) FRIGOGLASS INDIA PVT LTD V DCIT [2016] 180 TTJ 401(DEL-TRIB) 9. ON THE ISSUE OF ROYALTY, THE LD. AR SUBMITTED T HAT THE ASSESSEE HAS ENTERED INTO ROYALTY AGREEMENT WITH ITS AE - FRIGOGLASS SAIC (HEAD OFFIC E) ON ACCOUNT OF RECEIPT OF ICM TECHNOLOGY AND FOR USE OF TRADEMARK. IT WAS SUBMITTED THAT CUP METHOD COULD NOT BE APPLIED IN THE CASE AS NEITHER THE AE NOR THE ASSESSEE HAVE ENTERED INTO S IMILAR ROYALTY ARRANGEMENTS WITH THIRD PARTIES AND THE DATA FOR EXTERNAL COMPARABLE TRANSACTIONS B ETWEEN INDEPENDENT PARTIES IN INDIA WAS NOT AVAILABLE. IT WAS SUBMITTED THAT THE ONLY METHOD WH ICH COULD BE CORRECTLY APPLIED WAS TNMM (WHICH HAS BEEN APPLIED BY THE ASSESSEE). IT WAS FU RTHER SUBMITTED THAT THE BENCHMARKING APPROACH ADOPTED BY THE ASSESSEE HAS BEEN WRONGLY R EJECTED AND THAT THE APPLICATION OF CUP METHOD WAS ERRONEOUS.IT WAS SUBMITTED THAT FIPLS P RINCIPAL ACTIVITY BEING MANUFACTURING OF GLASS DOOR REFRIGERATORS, THE INTERNATIONAL TRANSAC TIONS FORM AN INTEGRAL PART OF FIPLS BUSINESS OF MANUFACTURE AND SALE OF GLASS DOOR REFRIGERATORS . ACCORDINGLY, FOR THE PURPOSE OF ECONOMIC ANALYSIS, THE ASSESSEE COMBINED THE INTERNATIONAL T RANSACTION PERTAINING TO PAYMENT OF ROYALTY AS IN THIS CASE; THE TRANSACTION WAS SO CLOSELY LINKED OR CONTINUOUS THAT IT COULD NOT HAVE BEEN EVALUATED ADEQUATELY ON AN INDIVIDUAL BASIS. THEREF ORE, THE TRANSACTIONS PERTAINING TO PAYMENT OF ROYALTY WERE CONSIDERED AS CLOSELY LINKED TO THE MA NUFACTURE OF GLASS DOOR REFRIGERATORS AND A COMBINED TRANSACTIONS APPROACH WAS USED. THE LD. AR SUBMITTED THAT SINCE THE OPERATING MARGIN OF THE ASSESSEE WAS HIGHER THAN THE ARITHMETIC MEAN OF THE OPERATING MARGINS OF THE COMPARABLE COMPANIES AND THE COST PERTAINING TO THE PAYMENT OF ROYALTY HAD ALREADY BEEN BENCHMARKED, THE INTERNATIONAL TRANSACTION PERTAINING TO THE PAYMENT OF ROYALTY BY FIPL TO FRIGOGLASS SAIC SHOULD BE CONSIDERED TO BE AT ARMS LENGTH FROM THE ASSESS EES PERSPECTIVE. THE LD. AR FURTHER SUBMITTED THAT FRIGOGLASS SAIC HAD HIRED AN INDEPENDENT EXTER NAL CONSULTANT FOR REVIEWING THE ARMS LENGTH NATURE OF 4% ROYALTY APPLIED BY THE HEAD OFF ICE FOR THE LICENSING OF THE ICM TECHNOLOGY AND TRADEMARKS TO RELATED GROUP ENTITIES AND BASED ON THE TERMS AND CONDITIONS OF THE LICENSE AGREEMENT BETWEEN FRIGOGLASS SAIC AND ITS AFFILIATE S AND IN VIEW OF THE BROADLY COMPARABLE LICENSING AGREEMENTS IDENTIFIED FROM THE SEARCH OF PUBLICLY AVAILABLE LICENSE AGREEMENTS, IT WAS CONCLUDED THAT A ROYALTY RATE OF 4% ON SALE OF PROD UCTS FOR THE USE OF TRADEMARKS AND ICM TECHNOLOGY WAS CONSIDERED TO BE AN ARMS LENGTH RAT E. IT WAS ALSO SUBMITTED THAT NO INDEPENDENT THIRD PARTY WILL LET ANY OTHER ENTITY USE ITS INTEL LECTUAL PROPERTY RIGHTS (IPR) AND ALLOW TO ENJOY THE BENEFITS FROM THE USAGE OF SUCH IPR WITHOUT CHA RGING A FEE. IT WAS SUBMITTED THAT FIPL ENJOYS A LOT OF BENEFITS IN MANUFACTURING AND MARKETING FR OM THE USE OF THE IPRS OWNED BY FRIGOGLASS SAIC. IT WAS SUBMITTED THAT FIPL HAD STARTED ENJOYI NG THE BENEFITS FROM THE USAGE OF THE TRADEMARKS AND ICM TECHNOLOGY FROM VERY INCEPTION A LTHOUGH A FORMAL AGREEMENT WAS ENTERED INTO IN SEPTEMBER 2007 AND HAD STARTED MAKING PAYME NT FOR SUCH SERVICES FROM ASSESSMENT YEAR 2009-10 ONLY. IT WAS FURTHER SUBMITTED THAT THE ACT IVITIES PERFORMED BY THE AE IN TERMS OF THE ROYALTY AGREEMENT WERE ICM SALES, CUSTOMER SERVICE, MARKETING SERVICES, PRODUCT DEVELOPMENT AND FUTURE TECHNOLOGIES. IT WAS SUBMITTED THAT MOST OF THE CLIENTS OF THE FIPL WERE GLOBAL CLIENTS RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 21 11 1 AND THE USE OF THE TRADEMARK HAD A POSITIVE IMPACT ON THE SALES OF FIPL IN INDIA. THE LD. AR MADE A REFERENCE TO THE COMPARATIVE PROFITABILITY C HART FROM FY 2005-06 TO FY 2009-10 AND SUBMITTED THAT THE PROFITABILITY HAS BEEN INCREASIN G ON AN YEAR TO YEAR BASIS BECAUSE OF AVAILING OF THE SERVICES OF FRIGOGLASS SAIC AND, THEREFORE, SINCE THE BENEFITS RECEIVED FROM FIPL FROM RECEIPT OF SUCH SERVICES OUTWEIGH THE PAYMENT FOR S UCH SERVICES, THE ASSESSEE WAS JUSTIFIED IN MAKING PAYMENTS FOR ROYALTY. 10. IT WAS ALSO SUBMITTED THAT ROYALTY HAS BEEN PAI D ONLY AS PER THE TERMS OF THE AGREEMENT. THE LD. AR SUBMITTED THAT THE DISALLOWANCE FOR ROYALTY WAS ULTIMATELY MADE ON THE GROUND OF COMMERCIAL EXPEDIENCY AND HE PLACED RELIANCE ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS EKL APPLIANCES LTD. 345 UTR 2 41 (DEL) AND THAT OF THE ITAT HYDERABAD B BENCH IN THE CASE OF DCIT VS AIR LIQUIDE ENGINE ERING IN I.T.A. NO. 1040/HYD/2011 FOR THE PROPOSITION THAT SO LONG AS THE EXPENDITURE OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT WAS NO CONCERN OF THE TPO TO DISALLOW IT ON ANY EXTRANEOUS REASONING. HE SUBMITTED THAT ON THE FACTS OF THE CASE, THE PA YMENT OF ROYALTY DESERVES TO BE ALLOWED IN TOTO AS IT WAS ALLOWABLE BUSINESS EXPENDITURE. 16 . WE HAVE HEARD THE RIVAL PARTIES AT LENGTH AND CAR EFULLY PERUSED THE MATERIAL ON RECORD. AS FAR AS THE ISSUE OF ROYALTY IS CONCERNED, WE FIND THAT THE ASSESSEE HAD FILED IN THE COURSE OF THE TPO ASSESSMENT AS WELL AS BEFORE THE DRP, DETAILED SUBM ISSIONS, INCLUDING AGREEMENT BETWEEN AE AND THE ASSESSEE, JUSTIFYING HOW THE TECHNICAL KNOW -HOW SUPPLIED BY ITS AE WAS CRUCIAL TO THE RUNNING OF ITS BUSINESS. IN CIT VS EKL APPLIANCES 3 41 ITR 241 (DEL), THE HON'BLE DELHI HIGH COURT HAD THE OCCASION TO CONSIDER AN ISSUE OF DISA LLOWANCE OF ROYALTY BY TPO BECAUSE THE ASSESSEE IN THAT CASE HAD BEEN SUFFERING LOSSES, TH E HON'BLE HIGH COURT WHILE HOLDING THAT SO LONG AS THE EXPENDITURE OR PAYMENT BY ASSESSEE HAS BEEN DEMONSTRATED TO HAVE BEEN INCURRED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING, OBSERVED AS FOLLOWS:- '16. THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT (OECD, FOR SHORT) HAS LAID DOWN TRANSFER PRICING GUIDELINES FOR MULTI-NA TIONAL ENTERPRISES AND TAX ADMINISTRATIONS. THESE GUIDELINES GIVE AN INTRODUCTION TO THE ARMS LENGTH PRICE PRINCIPLE AND EXPLAINS ARTICLE 9 OF THE OECD MODEL TAX CONVENTION. THIS ARTICLE PROVIDE S THAT WHEN CONDITIONS ARE MADE OR IMPOSED BETWEEN TWO ASSOCIATED ENTERPRISES IN THEIR COMMERCIAL OR FINANCIAL RELATIONS WHICH DIFFER FROM THOSE WHICH WOULD BE MADE BETWEEN INDEP ENDENT ENTERPRISES THEN ANY PROFIT WHICH WOULD, BUT FOR THOSE CONDITIONS, HAVE ACCRUED TO ON E OF THE ENTERPRISES, BUT, BY REASON OF THOSE CONDITIONS, IF NOT SO ACCRUED, MAY BE INCLUDED IN T HE PROFITS OF THAT ENTERPRISE AND TAXED ACCORDINGLY. BY SEEKING TO ADJUST THE PROFITS IN TH E ABOVE MANNER, THE ARMS LENGTH PRINCIPLE OF PRICING FOLLOWS THE APPROACH OF TREATING THE MEMBER S OF A MULTI-NATIONAL ENTERPRISE GROUP AS OPERATING AS SEPARATE ENTITIES RATHER THAN AS INSEP ARABLE PARTS OF A SINGLE UNIFIED BUSINESS. AFTER REFERRING TO ARTICLE 9 OF THE MODEL CONVENTION AND STATING THE ARM'S LENGTH PRINCIPLE, THE GUIDELINES PROVIDE FOR RECOGNITION OF THE ACTUAL TR ANSACTIONS UNDERTAKEN IN PARAGRAPHS 1.36 TO 1.41. PARAGRAPHS 1.36 TO 1.38 ARE IMPORTANT AND ARE RELEVANT TO OUR PURPOSE. THESE PARAGRAPHS ARE REPRODUCED BELOW: - 1.36 A TAX ADMINISTRATIONS EXAMINATION OF A CONTR OLLED TRANSACTION ORDINARILY SHOULD BE BASED ON THE TRANSACTION ACTUALLY UNDERTAKEN BY THE ASSOC IATED ENTERPRISES AS IT HAS BEEN STRUCTURED BY THEM, USING THE METHODS APPLIED BY THE TAXPAYER INS OFAR AS THESE ARE CONSISTENT WITH THE METHODS DESCRIBED IN CHAPTERS II AND III. IN OTHER THAN EXC EPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NOT DISREGARD THE ACTUAL TRANSACTIONS OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM. RESTRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS WOULD BE A WHOLLY ARBITRARY EXERCISE THE INEQUITY OF WHICH COULD BE COMPOUNDED BY DOUBLE TAXATION CREATED WHERE THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VIEWS AS TO HOW THE TRANSACTION SHOULD BE STRU CTURED. 1.37 HOWEVER, THERE ARE TWO PARTICULAR CIRCUMSTANCE S IN WHICH IT MAY, EXCEPTIONALLY, BE BOTH APPROPRIATE AND LEGITIMATE FOR A TAX ADMINISTRATION TO CONSIDER DISREGARDING THE STRUCTURE RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 22 22 2 ADOPTED BY A TAXPAYER IN ENTERING INTO A CONTROLLED TRANSACTION. THE FIRST CIRCUMSTANCE ARISES WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFE RS FROM ITS FORM. IN SUCH A CASE THE TAX ADMINISTRATION MAY DISREGARD THE PARTIES CHARACTER IZATION OF THE TRANSACTION AND RECHARACTERISE IT IN ACCORDANCE WITH ITS SUBSTANCE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE AN INVESTMENT IN AN ASSOCIATED ENTERPRISE IN THE FORM OF INTEREST -BEAR ING DEBT WHEN, AT ARMS LENGTH, HAVING REGARD TO THE ECONOMIC CIRCUMSTANCES OF THE BORROWING COMPANY , THE INVESTMENT WOULD NOT BE EXPECTED TO BE STRUCTURED IN THIS WAY. IN THIS CASE IT MIGHT BE APPROPRIATE FOR A TAX ADMINISTRATION TO CHARACTERIZE THE INVESTMENT IN ACCORDANCE WITH ITS ECONOMIC SUBSTANCE WITH THE RESULT THAT THE LOAN MAY BE TREATED AS A SUBSCRIPTION OF CAPITAL. T HE SECOND CIRCUMSTANCE ARISES WHERE, WHILE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME, THE ARRANGEMENTS MADE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER AND THE ACTUAL STRUCTURE PRACTICALLY IMPEDES THE TAX ADMINISTRATION FROM DET ERMINING AN APPROPRIATE TRANSFER PRICE. AN EXAMPLE OF THIS CIRCUMSTANCE WOULD BE A SALE UNDER A LONG-TERM CONTRACT, FOR A LUMP SUM PAYMENT, OF UNLIMITED ENTITLEMENT TO THE INTELLECTU AL PROPERTY RIGHTS ARISING AS A RESULT OF FUTURE RESEARCH FOR THE TERM OF THE CONTRACT (AS PREVIOUSL Y INDICATED IN PARAGRAPH 1.10). WHILE IN THIS CASE IT MAY BE PROPER TO RESPECT THE TRANSACTION AS A TRANSFER OF COMMERCIAL PROPERTY, IT WOULD NEVERTHELESS BE APPROPRIATE FOR A TAX ADMINISTRATIO N TO CONFORM THE TERMS OF THAT TRANSFER IN THEIR ENTIRETY (AND NOT SIMPLY BY REFERENCE TO PRICING) T O THOSE THAT MIGHT REASONABLY HAVE BEEN EXPECTED HAD THE TRANSFER OF PROPERTY BEEN THE SUBJ ECT OF A TRANSACTION INVOLVING INDEPENDENT ENTERPRISES. THUS, IN THE CASE DESCRIBED ABOVE IT M IGHT BE APPROPRIATE FOR THE TAX ADMINISTRATION, FOR EXAMPLE, TO ADJUST THE CONDITIONS OF THE AGREEM ENT IN A COMMERCIALLY RATIONAL MANNER AS A CONTINUING RESEARCH AGREEMENT. 1.38 IN BOTH SETS OF CIRCUMSTANCES DESCRIBED ABOVE, THE CHARACTER OF THE TRANSACTION MAY DERIVE FROM THE RELATIONSHIP BETWEEN THE PARTIES RATHER TH AN BE DETERMINED BY NORMAL COMMERCIAL CONDITIONS AS MAY HAVE BEEN STRUCTURED BY THE TAXPA YER TO AVOID OR MINIMIZE TAX. IN SUCH CASES, THE TOTALITY OF ITS TERMS WOULD BE THE RESULT OF A CONDITION THAT WOULD NOT HAVE BEEN MADE IF THE PARTIES HAD BEEN ENGAGED IN ARMS LENGTH DEALINGS. ARTICLE 9 WOULD THUS ALLOW AN ADJUSTMENT OF CONDITIONS TO REFLECT THOSE WHICH THE PARTIES WOULD HAVE ATTAINED HAD THE TRANSACTION BEEN STRUCTURED IN ACCORDANCE WITH THE ECONOMIC AND COMM ERCIAL REALITY OF PARTIES DEALING AT ARMS LENGTH. 17. THE SIGNIFICANCE OF THE AFORESAID GUIDELINES LI ES IN THE FACT THAT THEY RECOGNISE THAT BARRING EXCEPTIONAL CASES, THE TAX ADMINISTRATION SHOULD NO T DISREGARD THE ACTUAL TRANSACTION OR SUBSTITUTE OTHER TRANSACTIONS FOR THEM AND THE EXAMINATION OF A CONTROLLED TRANSACTION SHOULD ORDINARILY BE BASED ON THE TRANSACTION AS IT HAS BEEN ACTUALLY UN DERTAKEN AND STRUCTURED BY THE ASSOCIATED ENTERPRISES. IT IS OF FURTHER SIGNIFICANCE THAT THE GUIDELINES DISCOURAGE RE-STRUCTURING OF LEGITIMATE BUSINESS TRANSACTIONS. THE REASON FOR CHARACTERISAT ION OF SUCH RE-STRUCTURING AS AN ARBITRARY EXERCISE, AS GIVEN IN THE GUIDELINES, IS THAT IT HA S THE POTENTIAL TO CREATE DOUBLE TAXATION IF THE OTHER TAX ADMINISTRATION DOES NOT SHARE THE SAME VI EW AS TO HOW THE TRANSACTION SHOULD BE STRUCTURED. 18. TWO EXCEPTIONS HAVE BEEN ALLOWED TO THE AFORESA ID PRINCIPLE AND THEY ARE (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACTION DIFFERS FROM IT S FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE TRANSACTION ARE THE SAME BUT ARRANGEMENTS MA DE IN RELATION TO THE TRANSACTION, VIEWED IN THEIR TOTALITY, DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. 19. THERE IS NO REASON WHY THE OECD GUIDELINES SHOU LD NOT BE TAKEN AS A VALID INPUT IN THE PRESENT CASE IN JUDGING THE ACTION OF THE TPO. IN F ACT, THE CIT (APPEALS) HAS REFERRED TO AND APPLIED THEM AND HIS DECISION HAS BEEN AFFIRMED BY THE TRIBUNAL. THESE GUIDELINES, IN A DIFFERENT FORM, HAVE BEEN RECOGNIZED IN THE TAX JURISPRUDENCE OF OUR COUNTRY EARLIER. IT HAS BEEN HELD BY OUR COURTS THAT IT IS NOT FOR THE REVENUE AUTHORITI ES TO DICTATE TO THE ASSESSEE AS TO HOW HE SHOULD CONDUCT HIS BUSINESS AND IT IS NOT FOR THEM TO TELL THE ASSESSEE AS TO WHAT EXPENDITURE THE ASSESSEE CAN INCUR. WE MAY REFER TO A FEW OF THESE AUTHORITI ES TO ELUCIDATE THE POINT. IN EASTERN INVESTMENT RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 23 33 3 LTD. V. CIT, (1951) 20 ITR 1, IT WAS HELD BY THE SU PREME COURT THAT THERE ARE USUALLY MANY WAYS IN WHICH A GIVEN THING CAN BE BROUGHT ABOUT IN BUSI NESS CIRCLES BUT IT IS NOT FOR THE COURT TO DECIDE WHICH OF THEM SHOULD HAVE BEEN EMPLOYED WHEN THE COURT IS DECIDING A QUESTION UNDER SECTION 12(2) OF THE INCOME TAX ACT. IT WAS FURTHE R HELD IN THIS CASE THAT IT IS NOT NECESSARY TO SHOW THAT THE EXPENDITURE WAS A PROFITABLE ONE OR T HAT IN FACT ANY PROFIT WAS EARNED. IN CIT V. WALCHAND & CO. ETC., (1967) 65 ITR 381, IT WAS HELD BY THE SUPREME COURT THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETH ER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF BUSINESS, R EASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AN D NOT OF THE REVENUE. IT WAS FURTHER OBSERVED THAT THE RULE THAT EXPENDITURE CAN ONLY BE JUSTIFIE D IF THERE IS CORRESPONDING INCREASE IN THE PROFITS WAS ERRONEOUS. IT HAS BEEN CLASSICALLY OBSERVED BY LORD THANKERTON IN HUGHES V. BANK OF NEW ZEALAND, (1938) 6 ITR 636 THAT EXPENDITURE IN THE COURSE OF THE TRADE WHICH IS UNREMUNERATIVE IS NONETHELESS A PROPER DEDUCTION IF WHOLLY AND EXC LUSIVELY MADE FOR THE PURPOSES OF TRADE. IT DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE C REDIT SIDE TO JUSTIFY THE DEDUCTION OF AN EXPENSE. THE QUESTION WHETHER AN EXPENDITURE CAN BE ALLOWED AS A DEDUCTION ONLY IF IT HAS RESULTED IN ANY INCOME OR PROFITS CAME TO BE CONSIDERED BY THE SUPR EME COURT AGAIN IN CIT V. RAJENDRA PRASAD MOODY , (1978) 115 ITR 519, AND IT WAS OBSERVED AS UNDER: - WE FAIL TO APPRECIATE HOW EXPENDITURE WHICH IS OTH ERWISE A PROPER EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIPT OF INCOME. WHATEVER IS A PROPER OUTGOING BY WAY OF EXPENDITURE MUST BE DEBITED IRRESPECTIVE OF WHETHER THERE IS RECEIPT OF INCOME OR NOT. THAT IS THE PLAIN REQUIREMENT OF PROPER ACCOUNTING AND THE INTE RPRETATION OF SECTION 57(III) CANNOT BE DIFFERENT. THE DEDUCTION OF THE EXPENDITURE CANNOT, IN THE CIRCUMSTANCES, BE HELD TO BE CONDITIONAL UPON THE MAKING OR EARNING OF THE INCOME. IT IS N OTEWORTHY THAT THE ABOVE OBSERVATIONS WERE MADE IN THE CONTEXT OF SECTION 57(III) OF THE ACT W HERE THE LANGUAGE IS SOMEWHAT NARROWER THAN THE LANGUAGE EMPLOYED IN SECTION 37(1) OF THE ACT. THIS FACT IS RECOGNISED IN THE JUDGMENT ITSELF. THE FACT THAT THE LANGUAGE EMPLOYED IN SECTION 37(1 ) OF THE ACT IS BROADER THAN SECTION 57(III) OF THE ACT MAKES THE POSITION STRONGER. 20. IN THE CASE OF SASSOON J. DAVID & CO. PVT. LTD. V. CIT, (1979) 118 ITR 261 (SC), THE SUPREME COURT REFERRED TO THE LEGISLATIVE HISTORY AND NOTED THAT WHEN THE INCOME TAX BILL OF 1961 WAS INTRODUCED, SECTION 37(1) REQUIRED THAT THE EXPENDI TURE SHOULD HAVE BEEN INCURRED WHOLLY, NECESSARILY AND EXCLUSIVELY FOR THE PURPOSES OF BU SINESS IN ORDER TO MERIT DEDUCTION. PURSUANT TO PUBLIC PROTEST, THE WORD NECESSARILY WAS OMITTED FROM THE SECTION. 21. THE POSITION EMERGING FROM THE ABOVE DECISIONS IS THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITURE INCURRED BY HI M WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY EXP ENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSINESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT OR INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINES S AND NOTHING MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EXPRESSION IN THE OECD GUIDELINES, IN THE PARAGRAPHS WHICH WE HAVE QUOTED ABOVE. 22. EVEN RULE 10B (1)(A) DOES NOT AUTHORISE DISALLO WANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME OR THAT IN THE VIEW OF THE REVENUE THE EXPENDITURE WAS UNREMUNERATIVE OR T HAT IN VIEW OF THE CONTINUED LOSSES SUFFERED BY THE ASSESSEE IN HIS BUSINESS, HE COULD HAVE FARE D BETTER HAD HE NOT INCURRED SUCH EXPENDITURE. THESE ARE IRRELEVANT CONSIDERATIONS FOR THE PURPOSE OF RULE 10B. WHETHER OR NOT TO ENTER INTO THE TRANSACTION IS FOR THE ASSESSEE TO DECIDE. THE QUAN TUM OF EXPENDITURE CAN NO DOUBT BE EXAMINED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILI TY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALLOW THE ENTIRE EXPENDITURE OR A P ART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINANCIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUDGE ALLOWABILITY OF AN EXPENSE; THERE IS CERTAINLY NO A UTHORITY FOR THAT. WHAT THE TPO HAS DONE IN THE PRESENT CASE IS TO HOLD THAT THE ASSESSEE OUGHT NOT TO HAVE ENTERED INTO THE AGREEMENT TO PAY ROYALTY/ BRAND FEE, BECAUSE IT HAS BEEN SUFFERING L OSSES CONTINUOUSLY. SO LONG AS THE EXPENDITURE RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 24 44 4 OR PAYMENT HAS BEEN DEMONSTRATED TO HAVE BEEN INCUR RED OR LAID OUT FOR THE PURPOSES OF BUSINESS, IT IS NO CONCERN OF THE TPO TO DISALLOW THE SAME ON ANY EXTRANEOUS REASONING. AS PROVIDED IN THE OECD GUIDELINES, HE IS EXPECTED TO EXAMINE THE INTE RNATIONAL TRANSACTION AS HE ACTUALLY FINDS THE SAME AND THEN MAKE SUITABLE ADJUSTMENT BUT A WHOLES ALE DISALLOWANCE OF THE EXPENDITURE, PARTICULARLY ON THE GROUNDS WHICH HAVE BEEN GIVEN B Y THE TPO IS NOT CONTEMPLATED OR AUTHORISED. 23. APART FROM THE LEGAL POSITION STATED ABOVE, EVE N ON MERITS THE DISALLOWANCE OF THE ENTIRE BRAND FEE/ ROYALTY PAYMENT WAS NOT WARRANTED. THE A SSESSEE HAS FURNISHED COPIOUS MATERIAL AND VALID REASONS AS TO WHY IT WAS SUFFERING LOSSES CON TINUOUSLY AND THESE HAVE BEEN REFERRED TO BY US EARLIER. FULL JUSTIFICATION SUPPORTED BY FACTS AND FIGURES HAVE BEEN GIVEN TO DEMONSTRATE THAT THE INCREASE IN THE EMPLOYEES COST, FINANCE CHARGES, AD MINISTRATIVE EXPENSES, DEPRECIATION COST AND CAPACITY INCREASE HAVE CONTRIBUTED TO THE CONTINUOU S LOSSES. THE COMPARATIVE POSITION OVER A PERIOD OF 5 YEARS FROM 1998 TO 2003 WITH RELEVANT F IGURES HAVE BEEN GIVEN BEFORE THE CIT (APPEALS) AND THEY ARE REFERRED TO IN A TABULAR FOR M IN HIS ORDER IN PARAGRAPH 5.5.1. IN FACT THERE ARE FOUR TABULAR STATEMENTS FURNISHED BY THE ASSESS EE BEFORE THE CIT (APPEALS) IN SUPPORT OF THE REASONS FOR THE CONTINUOUS LOSSES. THERE IS NO MATE RIAL BROUGHT BY THE REVENUE EITHER BEFORE THE CIT (APPEALS) OR BEFORE THE TRIBUNAL OR EVEN BEFORE US TO SHOW THAT THESE ARE INCORRECT FIGURES OR THAT EVEN ON MERITS THE REASONS FOR THE LOSSES ARE NOT GENUINE. 17. HERE, IN THE PRESENT APPEAL, WHAT WE SEE IS THE TPO SITTING ON JUDGMENT ON THE BUSINESS AND COMMERCIAL EXPEDIENCY OF THE ASSESSEE WHICH IS ERRO NEOUS AS PER THE PROVISIONS OF THE ACT AS LAID DOWN CLEARLY BY THE HON'BLE DELHI HIGH COURT IN EKL APPLIANCES (SUPRA). AS FAR AS THE DEPARTMENTS RELIANCE ON THE HONBLE DELHI HIGH COU RTS JUDGMENT IN ABHINANDAN INVESTMENTS (SUPRA) AND ON THE DECISION OF THE CO-ORDINATE I BE NCH OF THE DELHI TRIBUNAL IN THE CASE OF BOMBARDIER TRANSPORTATION INDIA PVT. LTD. IS CONCER NED, THESE JUDGMENTS WERE RENDERED ON A DIFFERENT SET OF FACTS AND HENCE THE RATIO AS LAID DOWN BY THESE ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. 18. FURTHERMORE, WE ARE OF THE OPINION THAT ONCE TN MM HAS BEEN APPLIED TO THE ASSESSEE COMPANYS TRANSACTION, IT COVERS WITHIN ITS AMBIT T HE ROYALTY TRANSACTIONS IN QUESTION TOO AND HENCE THE DEPARTMENTS CONTENTION FOR APPLYING THE CUP METHOD IS ERRONEOUS. WE DRAW SUPPORT FROM THE DECISION OF THE MUMBAI BENCH OF THE TRIBUN AL IN CADBURY INDIA LTD. VS ACIT IN I.T.A. NO. 7408/MUM/2010 AND I.T.A. NO. 7641/MUM/2010 WHER EIN THE BENCH HAS UPHELD THE USE OF TNMM FOR ROYALTY BY HOLDING: 33. THE TPO HAS MADE THE DISALLOWANCE IN QUESTION MAINLY ON THE BASIS OF THE BENEFIT TEST. IN THIS REGARD, IT IS SEEN THAT THE PAYMENT OF ROYALTY CANNOT BE EXAMINED DIVORCED FROM THE PRODUCTION AND SALES. ROYALTY IS INEXTRICABLY LINKE D WITH THESE ACTIVITIES. IN THE ABSENCE OF PRODUCTION AND SALE OF PRODUCTS, THERE WOULD BE NO QUESTION ARISING REGARDING PAYMENT OF ANY ROYALTY. RULE 10A (D) DEFINES 'TRANSACTION AS A NU MBER OF CLOSELY LINKED TRANSACTIONS. ROYALTY, THEN, IS A TRANSACTION CLOSELY LINKED WITH PRODUCTI ON 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 ISOLATION ON A STANDALONE BASIS. RO YALTY IS TO BE CALCULATED ON A SPECIFIED AGREED BASIS, ON DETERMINING THE NET SALES WHICH, IN THE P RESENT CASE, ARE REQUIRED TO BE DETERMINED AFTER EXCLUDING THE AMOUNTS OF STANDARD BOUGHT OUT COMPON ENTS, ETC., SINCE SUCH NET SALES DO NOT STAND RECORDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. T HEREFORE, IT IS OUR CONSIDERED OPINION THAT THE ASSESSEE WAS CORRECT IN EMPLOYING AN OVERALL TNMM F OR EXAMINING THE ROYALTY 19. IN THE CASE OF DCIT - LTU VS CLSA INDIA LTD. (2 013) 33 TAXMANN.COM 260 (MUMBAI TRIBUNAL), THE BENCH HELD THAT CUP METHOD CANNOT BE APPLIED IF THE RELEVANT INFORMATION IS NOT AVAILABLE. NO SUCH COMPARABLE TRANSACTION HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER OR EVEN BY THE DRP. NO SUCH COMPARABLE CASE HAS BEE N PLACED BY THE REVENUE EVEN NOW. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 25 55 5 20. HENCE, FOLLOWING THE RATIO OF THE HON'BLE DELHI HIGH COURT IN CIT VS EKL APPLIANCES (SUPRA), WE HOLD THAT THE ADDITION MADE BY THE TPO AND UPHELD BY THE DRP IS UNSUSTAINABLE AND IS LIABLE TO BE DELETED. HENCE, GROUND NOS. 4.1 AND 4.2 ARE ALLOWED. 18.TAKING INTO ACCOUNT THE FACTS NARRATED AND THE C ASE LAW CITED ABOVE, WE NOTE THAT THE TRADE- MARKS FOR THE TWO PRODUCTS VIZ. MIN CREAM AND ROBINSON BURLEY WERE REGISTERED AND THE SAID BRANDS WERE OWNED BY T HE AES. THE ROYALTIES ARE PAID NOT ONLY IN RESPECT OF PATENT BUT FOR A BASKET OF S ERVICES. IT IS A COMMON OCCURRENCE THAT A PERSON USING A BRAND NAME PAYS CE RTAIN BRAND ROYALTY TO THE OWNER OF BRAND. IT IS NOT THE CASE OF THE TPO, THAT THE ROYALTY PAID IN RESPECT OF THESE PRODUCTS WAS WITHOUT ANY USE OF THE SAID BRAN D NAMES. THE ASSESSEE HAS IN ITS TP STUDY INCLUDED PAYMENT OF ROYALTY AND ACCORD ING TO IT THE ROYALTIES ARE AT ARMS LENGTH. CONSIDERING THESE FACTS THE PROPOSED DISALLOWANCE O F ROYALTY IN RESPECT OF MINCREAM AND ROBINSON BURLEY DOES NOT APPEAR TO BE JUSTIFIED AND PROPER. THE LD DRP WAS RIGHT IN DELETING THE DISALLOWANCE OF ROYAL TY. THEREFORE, THE ARM`S LENGTH PRICE ADJUSTMENT FOR PAYMENT OF ROYALTY OF RS. 35,0 5,809/- FOR A.Y. 2010-11 AND RS.78,70,96,934/-FOR A.Y. 2011-12 ARE DIRECTED TO B E DELETED. 19. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSE D AND APPEAL OF THE ASSESSEE IS ALLOWED. 20. SUMMARIZED GROUND NO. 2 READS AS FOLLOWS: 2.TRANSFER PRICING ADJUSTMENT IN RELATION TO ADVERT ISEMENT, MARKETING AND PROMOTION EXPENSES (AMP). THIS GROUND COVERS GROUND NO. 5A TO 5B OF ASSESSEE S APPEAL IN ITA NO. 404/KOL/2015, FOR A.Y. 2011-12, GROUND NO. 1 TO 4 OF REVENUES APPEAL IN I TA NO. 529/KOL/2015, FOR A.Y. 2010-11, GROUND NO. 3A TO 3B OF ASSESSEES APPEAL IN ITA NO. 625/KOL/2016, FOR A.Y. 2011-12, GROUND NO. 4 TO 5 OF REVENUES APPEAL IN ITA NO. 518/KOL/2016, FOR A.Y. 2011-12. 21. BRIEF FACTS QUA THE ISSUE ARE THAT RECKITT BENC KISER (INDIA) LIMITED (RBIL) IS A SUBSIDIARY OF RECKITT BENCKISER PLC., UK. THE RBIL IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FMCG PRODUCTS. THE RBI L MANUFACTURES AND DISTRIBUTES VARIOUS BRANDS OF HOUSEHOLD PRODUCTS, A ND OVER-THE-COUNTER RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 26 66 6 PHARMACEUTICAL PRODUCTS. SOME OF THE KEY PRODUCTS A RE DETTOL SOAP, DISPIRIN, ROBIN BLUE, CHERRY BLOSSOM SHOE POLISH, HARPIC TOIL ET CLEANER, MORTEIN INSECTICIDE, COLIN, ETC. THE RBIL IS REGISTERED IN INDIA UNDER THE COMPANIES ACT, 1956.THERBIL HAS ENTERED INTO A LICENSE AGREEMENT W ITH RECKITT BENCKISER N.V. AND RECKITT & COLMAN LIMITED FOR THE TRANSFER OF IN TELLECTUAL PROPERTY RIGHTS FOR THE PRODUCTION, SALE, DISTRIBUTION AND MARKETING OF RECKITT BENCKISER PRODUCTS DOMESTICALLY AND INTERNATIONALLY. THESE INCLUDE ALL IPR(S) OWNED BY THE AES SUCH AS TRADEMARKS, DESIGN AND MODEL RIGHTS, KNOW-HOW', AND ALL CURRENT AND FUTURE COPYRIGHTS AND RIGHTS TO DATABASES RELATING TO DESI GN, DISTRIBUTION, MARKETING AND SALE OF LICENSED PRODUCTS IN THE LICENSED TERRITORY . THE ASSESSEE COMPANY INCURRED ADVERTISEMENT, MARKET ING AND PROMOTION (AMP) EXPENSES. THE TPO ISSUED THE NOTICE TO THE ASSESSEE COMPANY STATING THAT WHY NOT AN ADJUSTMENT ON ACCOUNT OF ADVERTISEMENT, MARKETIN G AND PROMOTION (AMP) EXPENSESIN EXCESS OFBRIGHT LINE TEST' LAID DOWN BY THE SPECIAL BENCH IN M/S LG ELECTRONICS INDIA PVT. LTD VS. ACIT (1TA NO. 5140/D EL/2011) SHOULD BE MADE? IN RESPONSE, THE ASSESSEE SUBMITTED THAT RBIL IS EN GAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FAST MOVING CONSUMER G OODS (FMCG)/ PRODUCTS. THE RBIL MANUFACTURES AND DISTRIBUTES VARIOUS BRAND S OF HOUSEHOLD PRODUCTS, AND OVER-THE-COUNTER PHARMACEUTICAL PRODUCTS. SOME OF T HE KEY PRODUCTS ARE DETTOL SOAP, DISPRIN, ROBIN BLUE, CHERRY BLOSSOM SHOE POLI SH, HARPIC TOILET CLEANER, MORTEM INSECTICIDE, COLLIN ETC. THE RBIL MANUFACTUR ES PRODUCTS AT ITS OWN FACILITIES AND ALSO ENGAGES THIRD PARTY CONTRACT MA NUFACTURERS FOR MANUFACTURING SOME PRODUCTS. THE DETAILED LIST OF PRODUCTS AND TH E THEIR BRANDS HAVE BEEN SUBMITTED BEFORE TPO. IT IS TO BE NOTED THAT, THE N AME OF ALL PRODUCTS SOLD BY RECKITT BENCKISER, IN INDIA BEAR THE NAME OF THE BR AND (E. G. THE PRODUCTS OF BRAND AIRWICK, AIRWICK SPRAY, AIRWICK AEROSOL, AIRWICK FRESHMATIC, AIRWICK-CAR AIR FRESHNER ETC.). THE ASSESSEE HAS INCURRED CERTAIN E XPENSES ON ADVERTISEMENT, AMOUNTING TO RS. 302.43 CRORES (WHICH INCLUDES SALE S PROMOTION EXPENSES, REBATES AND DISCOUNT ETC.) DURING FINANCIAL YEAR (FY) 2009- 10, DETAILS OF WHICH ARE TABULATED AS UNDER: ALL ACTIVITIES, OF ADVERTISEMENT PERFORMED WERE TAR GETED FOR CONSUMERS IN INDIA AND WERE RELATED TO ITS DOMESTIC SALES ONLY. NO PAR T OF ADVERTISEMENT ACTIVITY PERFORMED FOR CONSUMERS THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTI SEMENT PERTAINED TO ONLY THOSE PRODUCTS THAT IT WAS DEALING IN (I.E. EXISTING PROD UCTS AND CERTAIN NEW PRODUCTS LAUNCHED BY IT IN INDIA), ADVERTISEMENT. THE MONEY SPENT ON ADVERTISEMENT WAS TO PUBLICIZE T HE PRODUCT AND THE SAME WAS NOT A BRAND PUBLICITY EXERCISE. LG ELECTRONICS INDIA P CONSIDERATION. THEREFORE, THERE IS NO ANY TRANSFER PRICING ADJUSTM ENT IS REQUIRED. 22 . HOWEVER, LD TPO REJECTED THE CONTENTION OF THE AS SESSEE LENGTH PRICE ADJUSTMENT( ALP EXPENSES HAS TO BE COMPUTED IN THE CASE OF THE ASSE SSEE, AS DIRECTED IN THE LG ELECTRONICS CASE(SUPRA) . WITH REGARD TO DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMOTION BASED ON AMP EXPENSES, LD. ITAT (SB), DELHI THAT AN ARMS LENGTH MARGIN NEEDS TO BE ADDED TO TH E COST AS DETERMINED BY USING THE BRIGHT LINE TEST. BASED ON THE ASSESSEES OWN COMPARABLES, INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMO TION IS COMPUTED AS UNDER: RECKITT BENCKISER (I) PVT. LTD. ITA NOS. 404 & 529 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS: 2010 ALL ACTIVITIES, OF ADVERTISEMENT PERFORMED WERE TAR GETED FOR CONSUMERS IN INDIA AND WERE RELATED TO ITS DOMESTIC SALES ONLY. NO PAR T OF ADVERTISEMENT ACTIVITY CONSUMERS OUTSIDE INDIA OR WAS RELATED TO EXPORTS. THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTI SEMENT PERTAINED TO ONLY THOSE PRODUCTS THAT IT WAS DEALING IN (I.E. EXISTING PROD UCTS AND CERTAIN NEW PRODUCTS LAUNCHED BY IT IN INDIA), IT DID NOT INCLUDE ANY EXPENDITURE ON SO- CALLED CORPORATE THE MONEY SPENT ON ADVERTISEMENT WAS TO PUBLICIZE T HE PRODUCT AND THE SAME WAS NOT A BRAND PUBLICITY EXERCISE. SPECIAL BENCH LG ELECTRONICS INDIA P VT. LTD (SUPRA) D OES NOT APPLY TO THE ASSESSEE UNDER THEREFORE, THERE IS NO ANY TRANSFER PRICING ADJUSTM ENT IS REQUIRED. . HOWEVER, LD TPO REJECTED THE CONTENTION OF THE AS SESSEE AND ALP ) OF ADVERTISEMENT, MARKETING AND PROMOTION( EXPENSES HAS TO BE COMPUTED IN THE CASE OF THE ASSE SSEE, AS DIRECTED IN THE LG . WITH REGARD TO DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMOTION BASED ON AMP EXPENSES, LD. ITAT (SB), DELHI (SUPRA) HAVE HELD IN PARA 23.5 OF THEIR ORDER THAT AN ARMS LENGTH MARGIN NEEDS TO BE ADDED TO TH E COST AS DETERMINED BY USING BASED ON THE ASSESSEES OWN COMPARABLES, THE COST PART OF THE INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMO TION IS COMPUTED AS UNDER: RECKITT BENCKISER (I) PVT. LTD. 404 & 529 /KOL/2015 625 & 518/KOL/2016 2010 -11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 27 77 7 ALL ACTIVITIES, OF ADVERTISEMENT PERFORMED WERE TAR GETED FOR CONSUMERS IN INDIA AND WERE RELATED TO ITS DOMESTIC SALES ONLY. NO PAR T OF ADVERTISEMENT ACTIVITY WAS THE EXPENDITURE INCURRED BY THE ASSESSEE ON ADVERTI SEMENT PERTAINED TO ONLY THOSE PRODUCTS THAT IT WAS DEALING IN (I.E. EXISTING PROD UCTS AND CERTAIN NEW PRODUCTS CALLED CORPORATE THE MONEY SPENT ON ADVERTISEMENT WAS TO PUBLICIZE T HE PRODUCT SPECIAL BENCH DECISION IN M/S OES NOT APPLY TO THE ASSESSEE UNDER THEREFORE, THERE IS NO ANY TRANSFER PRICING ADJUSTM ENT IS REQUIRED. AND HELD THAT ARM`S AND PROMOTION( AMP) EXPENSES HAS TO BE COMPUTED IN THE CASE OF THE ASSE SSEE, AS DIRECTED IN THE LG . WITH REGARD TO DETERMINATION OF THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMOTION BASED ON EXCESSIVE HAVE HELD IN PARA 23.5 OF THEIR ORDER THAT AN ARMS LENGTH MARGIN NEEDS TO BE ADDED TO TH E COST AS DETERMINED BY USING THE COST PART OF THE PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMO TION IS COMPUTED AS UNDER: THUS, AS PER THE TABLE ABOVE, COMPARABLE COMPANIES HAVE AN AMP TO SALES RATIO OF 6.09% WHILE THE ASSESSEE HAS A RATIO OF 11.03%. HEN CE AN EXCESS AMOUNT OF RS. 93,02,03,439/- [ REPRESENTING 4.94% THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMOTION. TO ARRIVE AT THE MARGIN ON SUCH COST, SEARCH FOR EN TITIES CARRYING OUT NORMAL MARKETING AND AD VERTISING RESULTED IN TWO COMPANIES NAMELY M/S MARK ETING CONSULTANTS & AGENCY LIMITED AND M/S QUADRANTS COMM UNICATIONS LTD. THE MARK- UP ON COST EARNED BY THESE TWO ENTITIES IS AS FOLLO WS: THUS, A MARK UP OF 12.27% IS TO BE ADDED TO THE COS T OF THE BRAN ACTIVITY OF THE ASSESSEE. ACCORDINGLY, THE MARGIN 11,41,35,962/- (93,02,03,439 * 12.27%) WHICH THE ASSESSEE SHOULD H AVE EARNED OVER ITS COST INCURRED FOR BRAND PROMOTION ACTIVITI ES. THUS, THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION PERTAINING TO AMP EXPENSE S AT RS. 104,43,39,401/- (93,02,03,439 + 11,41,35,962). RECKITT BENCKISER (I) PVT. LTD. ITA NOS. 404 & 529 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS: 2010 THUS, AS PER THE TABLE ABOVE, COMPARABLE COMPANIES HAVE AN AMP TO SALES RATIO OF 6.09% WHILE THE ASSESSEE HAS A RATIO OF 11.03%. HEN CE AN EXCESS AMOUNT OF RS. REPRESENTING 4.94% =11.03%-6.09%] IS CONSIDERED AS COST PART OF THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMOTION. TO ARRIVE AT THE MARGIN ON SUCH COST, SEARCH FOR EN TITIES CARRYING OUT NORMAL VERTISING RESULTED IN TWO COMPANIES NAMELY M/S MARK ETING CONSULTANTS & AGENCY LIMITED AND M/S QUADRANTS COMM UNICATIONS LTD. THE UP ON COST EARNED BY THESE TWO ENTITIES IS AS FOLLO WS: THUS, A MARK UP OF 12.27% IS TO BE ADDED TO THE COS T OF THE BRAN ACTIVITY OF THE ASSESSEE. ACCORDINGLY, THE MARGIN ON COST IS COMPUTED AT RS. (93,02,03,439 * 12.27%) WHICH THE ASSESSEE SHOULD H AVE EARNED OVER ITS COST INCURRED FOR BRAND PROMOTION ACTIVITI ES. THUS, THE ARMS LENGTH PRICE INTERNATIONAL TRANSACTION PERTAINING TO AMP EXPENSE S WAS COMPUTED BY TPO (93,02,03,439 + 11,41,35,962). RECKITT BENCKISER (I) PVT. LTD. 404 & 529 /KOL/2015 625 & 518/KOL/2016 2010 -11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 28 88 8 THUS, AS PER THE TABLE ABOVE, COMPARABLE COMPANIES HAVE AN AMP TO SALES RATIO OF 6.09% WHILE THE ASSESSEE HAS A RATIO OF 11.03%. HEN CE AN EXCESS AMOUNT OF RS. IS CONSIDERED AS COST PART OF THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION PERTAINING TO BRAND PROMOTION. TO ARRIVE AT THE MARGIN ON SUCH COST, SEARCH FOR EN TITIES CARRYING OUT NORMAL VERTISING RESULTED IN TWO COMPANIES NAMELY M/S MARK ETING CONSULTANTS & AGENCY LIMITED AND M/S QUADRANTS COMM UNICATIONS LTD. THE THUS, A MARK UP OF 12.27% IS TO BE ADDED TO THE COS T OF THE BRAN D PROMOTION ON COST IS COMPUTED AT RS. (93,02,03,439 * 12.27%) WHICH THE ASSESSEE SHOULD H AVE EARNED OVER ITS COST INCURRED FOR BRAND PROMOTION ACTIVITI ES. THUS, THE ARMS LENGTH PRICE WAS COMPUTED BY TPO RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 2 22 29 99 9 23. AGGRIEVED BY THE ORDER OF THE LD TPO, THE ASSES SEE FILED OBJECTIONS BEFORE THE LD DRP. THE LD DRP HAD CONFIRMED THE ARM`S LENGTH P RICE ADJUSTMENT DONE BY THE TPO OBSERVING THE FOLLOWING: WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THE DEFIN ITION OF THE TERM INTERNATIONAL TRANSACTION DEFINED IN SECTION 92B IS QUITE WIDE A ND INCLUDES AN ARRANGEMENT, UNDERSTANDING OR CONCERTED ACTION, WHICH MAY BE INF ORMAL OR IN WRITING. IT HAS BEEN HELD BY THE SPECIAL BENCH OF HONBLE TRIBUNAL IN THE CAS E OF LG ELECTRONICS INDIA LTD. (SUPRA), THAT IF AN ASSESSEE HAS SIMULTANEOUSLY OR INDEPENDE NTLY ADVERTISED THE BRAND OR LOGO OF THE FOREIGN AE THE SAME IS TO BE TREATED AS INTERNA TIONAL TRANSACTION WITHIN THE MEANING OF SECTION 92F. THE TPO HAS REPRODUCED SEVERAL RELE VANT EXTRACT IN HIS ORDER. WHILE ALL THE FACTS IN THE ASSESSEES CASE MAY NOT BE IDENTIC AL TO THE FACTS OF LG ELECTRONICS (SUPRA), HERE ALSO, THE ASSESSEE WAS ADVERTISING TH E PRODUCTS, PROMINENTLY DISPLAYING THE BRANDS WERE OWNED BY FOREIGN AE. IN OUR OPINION, RA TIO OF THE DECISION IN THE CASE OF LG ELECTRONICS (SUPRA) IS APPLICABLE ON THE ASSESSEES CASE. THIS GROUND IS ACCORDINGLY REJECTED. 24. AGGRIEVED BY THE ORDER OF THE DRP/TPO, THE ASSE SSEE IS IN APPEAL BEFORE US. 25.WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD DRP AND OTHER MATERIALS BROUGHT ON RECORD. LEARNED COUN SEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE FACTS OF THE CASE OF THE SPECIAL BENCH RULING IN LG ELECTRONICS (SUPRA) IS DIFFERENT FROM THE FACTS OF THE PRESENT CASE OF THE ASSESSEE. ASSESSEE COMPANY IS ENGAGED IN ONLY PRODUCT PROMOTION AND NO T BRAND PROMOTION AND HENCE BENEFIT OF AMP ACCRUES TO THE ASSESSEE AND NO T TO ITS AE(S).THE BRIGHT LINE TEST (BLT) IS NOT ONE OF THE PRESCRIBED METHODS U NDER THE ACT AND HENCE CANNOT BE APPLIED IN THE ASSESSEE`S CASE UNDER CONSIDERATI ON. THE VARIOUS EXPENSES IN THE NATURE OF SALES PROMOTION EXPENSES, BUSINESS P ROMOTION EXPENSES (INCLUDING FREE GIFTS/FREEBIE/BONUS PACKS ETC.) MARKET RESEARC H EXPENSES HAS TO BE EXCLUDED FROM THE COMPUTATION OF AMP EXPENDITURE. LD COUNSEL ALSO POINTED OUT THAT ADDITION OF ANY PROFIT MARK-UP OVER THE COSTS OF AM P IS UNWARRANTED FROM THE FACTS OF THE ASSESSEE`S CASE. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS P RIMARILY REITERATED THE STAND TAKEN BY THE TPO/ASSESSING OFFICER, WHICH WE HAVE A LREADY NOTED IN OUR EARLIER RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 30 00 0 PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREV ITY. WE NOTE THAT ISSUE BEFORE US RELATES TO TPOS ACTION IN APPLYING PROVISION OF SE CTION 92OF THE ACT IN RESPECT OF ADVERTISEMENT MARKETING AND PROMOTION (AMP) EXPENSE S TREATING THEM AS INTERNATIONAL TRANSACTION COVERED UNDER THE PURVIEW OF SECTION 92OF THE ACT. THE ASSESSEE HAD ENTERED INTO LICENSE AGREEMENT WITH IT S AE RECKITT BENCKISER NV AND RECKITT COLMAN LTD FOR TRANSFER AND INTELLECTUAL PR OPERTY RIGHT FOR PROVISION OF SALE, DISTRIBUTION AND MARKETING OF RECKITT BENCKIS ER PRODUCTS. IT WAS MANUFACTURING AND DISTRIBUTING VARIOUS BRANDS OF SU CH PRODUCTS AND HAD INCURRED SUBSTANTIAL MARKETING AND PROMOTION EXPENSES IN RES PECT OF SAME AMOUNTING TO RS. 3,02,43,43,377/-.SUCH EXPENSES WERE RELATED TO THE PROMOTION OF THE BRAND OWNED BY THE AE OF THE ASSESSEE WHICH WERE PROMINENTLY DI SPLAYED IN THE ADVERTISEMENT. THE TPO FURTHER OBSERVED THAT AMP EXPENSES WERE SUB STANTIALLY HIGHER THAN THE COMPARABLES SELECTED BY THE ASSESSEE. THE EXCESS OF SUCH EXPENSES WAS CONSIDERED BY HIM TO BE FOR BRAND PROMOTION DONE FOR THE AE. T HE TPO, PLACING RELIANCE UPON THE DECISION OF SPECIAL BENCH OF ITAT, DELHI I N THE CASE OF LG ELECTRONICS INDIA PVT .LTD VS ACIT, CIR-3, NOIDA ITA NO.5140/DE L/2011,HELD THAT SUCH BRAND PROMOTION WAS TO BE TREATED AS INTERNATIONAL TRANSA CTION U/S 92B OF THE ACT. THE TPO APPLIED BRIGHT LINE TEST (BLT) AND AFTER APPLYI NG MARK UP OF 12.27%, BASED ON MARGIN OF ENTITIES CARRYING OUT MARKETING AND AD VERTISING ACTIVITIES, MADE ALP ADJUSTMENT OF RS.104,43,39,401/-.WE NOTE THAT IN TH E CASE OF LG ELECTRONICS (SUPRA), THE INDIAN COMPANY WAS ACTING ON BEHALF OF /FOR THE BENEFIT OF KOREAN COMPANY AND HAD NO AUTONOMY' IN DECISIONS RELATING TO EXPENDITURE INCURRED ON MARKETING AND PROMOTION. IN THE ASSESSEE`S CASE, TH E ASSESSEE COMPANY WAS NOT UNDER ANY OBLIGATION TO INCUR AMP EXPENSES AND ALSO ITS PARENT COMPANY HAD NO CONTROL OVER SUCH DECISIONS OF RBIL. THE ACTIVITIES OF BRAND PROMOTION WERE A GLOBAL MARKETING AND SALES PROMOTION STRATEGY OF TH E PARENT CALLED BLUE OCEAN STRATEGY', WHICH IS NOT THE FACT IN THE CASE OF RBI L. THERE IS NO TRANSACTION/UNDERTAKING/AGREEMENT BETWEEN RBIL AND ITS AE, AS DIFFERENT FROM THAT WHICH WAS EXISTED IN LG ELECTRONICS CASE(SUPRA ). THEREFORE, ASSESSEE COMPANY`S CASE CANNOT BE COMPARED WITH LG ELECTRONI CS CASE(SUPRA). RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 31 11 1 26. WE NOTE THAT INCURRENCE OF THE AMP EXPENSES, BE ING A DOMESTIC TRANSACTION CANNOT BE TOUTED AS AN INSTANCE OF PROFIT-SHARING E XERCISE. WE NOTE THAT THE TPO FAILED TO APPRECIATE THAT, THOUGH A 'TRANSACTION' U NDER SECTION 92F(V) INCLUDES ARRANGEMENT OR UNDERSTANDING; IT PER SE INVOLVES A BILATERAL ARRANGEMENT OR CONTRACT BETWEEN THE PARTIES. A UNILATERAL ACTION B Y ONE PARTY IN ABSENCE OF ANY UNDERSTANDING OR CONTRACT OR BINDING OBLIGATION COU LD NOT BE TERMED AS TRANSACTION. IN THE ASSESSEE`S CASE, RBIL HAS INC URRED AMP EXPENDITURE IN RESPECT OF ITS BUSINESS OPERATIONS IN INDIA AND IN ORDER TO BOOST ITS SALES IN INDIA. THUS, NO TRANSACTION COULD BE SAID TO EXIST IN R ESPECT OF SUCH AMP EXPENDITURE INCURRED BY THE ASSESSEE. AT THE COST OF REPETITION WE STATE THAT THERE IS NO TERM OR CONDITION OR PROVISION IN EITHER OF THE LICENSING AGREEMENTS TO THE EFFECT WH ICH CREATE ANY SORT OF OBLIGATION ON RBIL TO CARRY OUT MARKETING AND PROMO TIONAL ACTIVITIES IN ORDER TO PROMOTE THE BRANDS AND RELATED IPRS. NEITHER THERE IS AN UNDERTAKING BETWEEN RBIL AND ANY OF ITS ASSOCIATED ENTERPRISE) [AE(S)] INCLUDING THE BRAND OWNERS TO INCUR SUCH EXPENSES FOR BRAND PROMOTION AS PER ANY GLOBAL OR NATION SPECIFIC STRATEGY, UNLIKE IN LG ELECTRONICS (SUPRA) CASE. TH E RBIL HAS COMPLETE AUTONOMY TO INCUR EXPENSES RELATING TO MARKETING AND PROMOTI ON OF ITS PRODUCTS FOR ENHANCING BETTER SALES AND MARKETING AND IS UNDER N O OBLIGATION FROM ANY OF ITS AE(S). IN THE LIGHT OF ABOVE FACTS WE NOTE THAT ARM `S LENGTH PRICE ADJUSTMENT (ALP) MADE BY TPO AND CONFIRMED BY DRP IS NOT JUSTIFIED F OR THAT WE RELY ON THE JUDGMENT OF HON`BLE DELHI HIGH COURT IN THE CASE O F MARUTI SUZUKI INDIA LTD V.CIT [2016] 381 ITR 117 (DEL-HC), WHEREIN IT WAS H ELD AS FOLLOWS: 66. IT IS CONTENDED BY THE REVENUE THAT THE MERE F ACT THAT THE INDIAN ENTITY IS ENGAGED IN THE ACTIVITY OF CREATION, PROMOTION OR MAINTENANCE OF C ERTAIN BRANDS OF ITS FOREIGN AE OR FOR THE CREATION/PROMOTION OF NEW/EXISTING MARKETS FOR THE AE, IS BY ITSELF ENOUGH TO DEMONSTRATE THAT THERE IS AN ARRANGEMENT WITH THE PARENT COMPANY FOR THIS ACTIVITY. IT IS URGED THAT MERELY BECAUSE MSIL AND SMC DO NOT HAVE AN EXPLICIT ARRANGEMENT/AG REEMENT ON THIS ASPECT CANNOT LEAD TO THE INFERENCE THAT THERE IS NO SUCH ARRANGEMENT OR THE ENTIRE AMP ACTIVITY OF THE INDIAN ENTITY IS UNILATERAL AND ONLY FOR ITS OWN BENEFIT. ACCORDING TO THE REVENUE, 'THE ONLY CREDIBLE TEST IN THE CONTEXT OF TP PROVISIONS TO DETERMINE WHETHER THE I NDIAN SUBSIDIARY IS INCURRING AMP EXPENSES UNILATERALLY ON ITS OWN OR AT THE INSTANCE OF THE A E IS TO FIND OUT WHETHER AN INDEPENDENT PARTY WOULD HAVE ALSO DONE THE SAME.' IT IS ASSERTED: 'AN INDEPENDENT PARTY WITH A SHORT TERM AGREEMENT WITH THE MNC WILL NOT INCUR COSTS WHICH G IVE LONG TERM BENEFITS OF BRAND & MARKET RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 32 22 2 DEVELOPMENT TO THE OTHER ENTITY. AN INDEPENDENT PAR TY WILL, IN SUCH CIRCUMSTANCES, CARRY OUT THE FUNCTION OF DEVELOPMENT OF MARKETS ONLY WHEN IT IS ADEQUATELY REMUNERATED FOR THE SAME.' 67. REFERENCE IS MADE BY MR. SRIVASTAVA TO SOME SAM PLE AGREEMENTS BETWEEN REEBOK (UK) AND REEBOK (SOUTH AFRICA) AND IC ISSACS & CO AND BHPC M ARKETING TO URGE THAT THE LEVEL OF AMP SPEND IS A MATTER OF NEGOTIATION BETWEEN THE PARTIE S TOGETHER WITH THE RATE OF ROYALTY. IT IS FURTHER SUGGESTED THAT IT MIGHT BE NECESSARY TO EXAMINE WHE THER IN OTHER JURISDICTIONS THE FOREIGN AE I.E., SMC IS ENGAGED IN AMP/BRAND PROMOTION THROUGH INDEP ENDENT ENTITIES OR THEIR SUBSIDIARIES WITHOUT ANY COMPENSATION TO THEM EITHER DIRECTLY OR THROUGH AN ADJUSTMENT OF ROYALTY PAYMENTS. ABSENCE OF A MACHINERY PROVISION 68. THE ABOVE SUBMISSIONS PROCEED PURELY ON SURMISE S AND CONJECTURES AND IF ACCEPTED AS SUCH WILL LEAD TO SENDING THE TAX AUTHORITIES THEMSELVES ON A WILD-GOOSE CHASE OF WHAT CAN AT BEST BE DESCRIBED AS A 'MIRAGE'. FIRST OF ALL, THERE HAS TO BE A CLEAR STATUTORY MANDATE FOR SUCH AN EXERCISE. THE COURT IS UNABLE TO FIND ONE. TO THE Q UESTION WHETHER THERE IS ANY 'MACHINERY' PROVISION FOR DETERMINING THE EXISTENCE OF AN INTER NATIONAL TRANSACTION INVOLVING AMP EXPENSES, MR. SRIVASTAVA ONLY REFERRED TO SECTION 92F (II) WH ICH DEFINES ALP TO MEAN A PRICE 'WHICH IS APPLIED OR PROPOSED TO BE APPLIED IN A TRANSACTION BETWEEN PERSONS OTHER THAN AES IN UNCONTROLLED CONDITIONS'. SINCE THE REFERENCE IS TO PRICE AND TO UNCONTROLLED CONDITIONS IT IMPLICITLY BRINGS INTO PLAY THE BLT. IN OTHER WORDS , IT EMPHASISES THAT WHERE THE PRICE IS SOMETHING OTHER THAN WHAT WOULD BE PAID OR CHARGED BY ONE ENTITY FROM ANOTHER IN UNCONTROLLED SITUATIONS THEN THAT WOULD BE THE ALP. THE COURT DO ES NOT SEE THIS AS A MACHINERY PROVISION PARTICULARLY IN LIGHT OF THE FACT THAT THE BLT HAS BEEN EXPRESSLY NEGATIVED BY THE COURT IN SONY ERICSSON . THEREFORE, THE EXISTENCE OF AN INTERNATIONAL TRAN SACTION WILL HAVE TO BE ESTABLISHED DE HORS THE BLT. 69. THERE IS NOTHING IN THE ACT WHICH INDICATES HOW , IN THE ABSENCE OF THE BLT, ONE CAN DISCERN THE EXISTENCE OF AN INTERNATIONAL TRANSACTION AS FA R AS AMP EXPENDITURE IS CONCERNED. THE COURT FINDS CONSIDERABLE MERIT IN THE CONTENTION OF THE A SSESSEE THAT THE ONLY TP ADJUSTMENT AUTHORISED AND PERMITTED BY CHAPTER X IS THE SUBSTITUTION OF T HE ALP FOR THE TRANSACTION PRICE OR THE CONTRACT PRICE. IT BEARS REPETITION THAT EACH OF THE METHODS SPECIFIED IN S.92C (1) IS A PRICE DISCOVERY METHOD. S.92C (1) THUS IS EXPLICIT THAT THE ONLY MA NNER OF EFFECTING A TP ADJUSTMENT IS TO SUBSTITUTE THE TRANSACTION PRICE WITH THE ALP SO DE TERMINED. THE SECOND PROVISO TO SECTION 92C (2) PROVIDES A 'GATEWAY' BY STIPULATING THAT IF THE VARIATION BETWEEN THE ALP AND THE TRANSACTION PRICE DOES NOT EXCEED THE SPECIFIED PERCENTAGE, NO TP ADJUSTMENT CAN AT ALL BE MADE. BOTH SECTION 92CA, WHICH PROVIDES FOR MAKING A REFERENCE TO THE TPO FOR COMPUTATION OF THE ALP AND THE MANNER OF THE DETERMINATION OF THE ALP BY THE T PO, AND SECTION 92CB WHICH PROVIDES FOR THE 'SAFE HARBOUR RULES FOR DETERMINATION OF THE ALP, CAN BE APPLIED ONLY IF THE TP ADJUSTMENT INVOLVES SUBSTITUTION OF THE TRANSACTION PRICE WITH THE ALP. RULES 10B, 10C AND THE NEW RULE 10AB ONLY DEAL WITH THE DETERMINATION OF THE ALP. T HUS FOR THE PURPOSES OF CHAPTER X OF THE ACT, WHAT IS ENVISAGED IS NOT A QUANTITATIVE ADJUSTMENT BUT ONLY A SUBSTITUTION OF THE TRANSACTION PRICE WITH THE ALP. 70. WHAT IS CLEAR IS THAT IT IS THE 'PRICE' OF AN I NTERNATIONAL TRANSACTION WHICH IS REQUIRED TO BE ADJUSTED. THE VERY EXISTENCE OF AN INTERNATIONAL TR ANSACTION CANNOT BE PRESUMED BY ASSIGNING SOME PRICE TO IT AND THEN DEDUCING THAT SINCE IT IS NOT AN ALP, AN 'ADJUSTMENT' HAS TO BE MADE. THE BURDEN IS ON THE REVENUE TO FIRST SHOW THE EXIS TENCE OF AN INTERNATIONAL TRANSACTION. NEXT, TO ASCERTAIN THE DISCLOSED 'PRICE' OF SUCH TRANSACTION AND THEREAFTER ASK WHETHER IT IS AN ALP. IF THE ANSWER TO THAT IS IN THE NEGATIVE THE TP ADJUSTMENT SHOULD FOLLOW. THE OBJECTIVE OF CHAPTER X IS TO MAKE ADJUSTMENTS TO THE PRICE OF AN INTERNATIONAL T RANSACTION WHICH THE AES INVOLVED MAY SEEK TO SHIFT FROM ONE JURISDICTION TO ANOTHER. AN 'ASSUMED ' PRICE CANNOT FORM THE REASON FOR MAKING AN ALP ADJUSTMENT. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 33 33 3 71. SINCE A QUANTITATIVE ADJUSTMENT IS NOT PERMISSI BLE FOR THE PURPOSES OF A TP ADJUSTMENT UNDER CHAPTER X, EQUALLY IT CANNOT BE PERMITTED IN RESPEC T OF AMP EXPENSES EITHER. AS ALREADY NOTICED HEREINBEFORE, WHAT THE REVENUE HAS SOUGHT TO DO IN THE PRESENT CASE IS TO RESORT TO A QUANTITATIVE ADJUSTMENT BY FIRST DETERMINING WHETHER THE AMP SPE ND OF THE ASSESSEE ON APPLICATION OF THE BLT, IS EXCESSIVE, THEREBY EVIDENCING THE EXISTENCE OF AN INTERNATIONAL TRANSACTION INVOLVING THE AE. THE QUANTITATIVE DETERMINATION FORMS THE VERY B ASIS FOR THE ENTIRE TP EXERCISE IN THE PRESENT CASE. 72. AS RIGHTLY POINTED OUT BY THE ASSESSEE, WHILE S UCH QUANTITATIVE ADJUSTMENT INVOLVED IN RESPECT OF AMP EXPENSES MAY BE CONTEMPLATED IN THE TAXING S TATUTES OF CERTAIN FOREIGN COUNTRIES LIKE U.S.A., AUSTRALIA AND NEW ZEALAND, NO PROVISION IN CHAPTER X OF THE ACT CONTEMPLATES SUCH AN ADJUSTMENT. AN AMP TP ADJUSTMENT TO WHICH NONE OF T HE SUBSTANTIVE OR PROCEDURAL PROVISIONS OF CHAPTER X OF THE ACT APPLY, CANNOT BE HELD TO BE PE RMITTED BY CHAPTER X. IN OTHER WORDS, WITH NEITHER THE SUBSTANTIVE NOR THE MACHINERY PROVISION S OF CHAPTER X OF THE ACT BEING APPLICABLE TO AN AMP TP ADJUSTMENT, THE INEVITABLE CONCLUSION IS THAT CHAPTER X AS A WHOLE, DOES NOT PERMIT SUCH AN ADJUSTMENT. 73. IT BEARS REPETITION THAT THE SUBJECT MATTER OF THE ATTEMPTED PRICE ADJUSTMENT IS NOT THE TRANSACTION INVOLVING THE INDIAN ENTITY AND THE AGE NCIES TO WHOM IT IS MAKING PAYMENTS FOR THE AMP EXPENSES. THE REVENUE IS NOT JOINING ISSUE, THE COURT WAS TOLD, THAT THE INDIAN ENTITY WOULD BE ENTITLED TO CLAIM SUCH EXPENSES AS REVENUE EXPEN SE IN TERMS OF SECTION 37 OF THE ACT. IT IS NOT FOR THE REVENUE TO DICTATE TO AN ENTITY HOW MUCH IT SHOULD SPEND ON AMP. THAT WOULD BE A BUSINESS DECISION OF SUCH ENTITY KEEPING IN VIEW IT S EXIGENCIES AND ITS PERCEPTION OF WHAT IS BEST NEEDED TO PROMOTE ITS PRODUCTS. THE ARGUMENT OF THE REVENUE, HOWEVER, IS THAT WHILE SUCH AMP EXPENSE MAY BE WHOLLY AND EXCLUSIVELY FOR THE BENEF IT OF THE INDIAN ENTITY, IT ALSO ENURES TO BUILDING THE BRAND OF THE FOREIGN AE FOR WHICH THE FOREIGN AE IS OBLIGED TO COMPENSATE THE INDIAN ENTITY. THE BURDEN OF THE REVENUE'S SONG IS THIS: A N INDIAN ENTITY, WHOSE AMP EXPENSE IS EXTRAORDINARY (OR 'NON-ROUTINE') OUGHT TO BE COMPEN SATED BY THE FOREIGN AE TO WHOSE BENEFIT ALSO SUCH EXPENSE ENURES. THE 'NON-ROUTINE' AMP SPEND IS TAKEN TO HAVE 'SUBSUMED' THE PORTION CONSTITUTING THE 'COMPENSATION' OWED TO THE INDIAN ENTITY BY THE FOREIGN AE. IN SUCH A SCENARIO WHAT WILL BE REQUIRED TO BE BENCHMARKED IS NOT THE AMP EXPENSE ITSELF BUT TO WHAT EXTENT THE INDIAN ENTITY MUST BE COMPENSATED. THAT IS NOT WITH IN THE REALM OF THE PROVISIONS OF CHAPTER X. 74. THE PROBLEM WITH THE REVENUE'S APPROACH IS THAT IT WANTS EVERY INSTANCE OF AN AMP SPEND BY AN INDIAN ENTITY WHICH HAPPENS TO USE THE BRAND OF A FOREIGN AE TO BE PRESUMED TO INVOLVE AN INTERNATIONAL TRANSACTION. AND THIS, NOTWITHSTANDIN G THAT THIS IS NOT ONE OF THE DEEMED INTERNATIONAL TRANSACTIONS LISTED UNDER THE EXPLANA TION TO SECTION 92B OF THE ACT. THE PROBLEM DOES NOT STOP HERE. EVEN IF A TRANSACTION INVOLVING AN AMP SPEND FOR A FOREIGN AE IS ABLE TO BE LOCATED IN SOME AGREEMENT, WRITTEN (FOR E.G., THE S AMPLE AGREEMENTS PRODUCED BEFORE THE COURT BY THE REVENUE) OR OTHERWISE, HOW SHOULD A TPO PROCEED TO BENCHMARK THE PORTION OF SUCH AMP SPEND THAT THE INDIAN ENTITY SHOULD BE COMPENSATED FOR? 75. AS AN ANALOGY, AND FOR NO OTHER PURPOSE, IN THE CONTEXT OF A DOMESTIC TRANSACTION INVOLVING TWO OR MORE RELATED PARTIES, REFERENCE MAY BE MADE TO SECTION 40A (2) (A) UNDER WHICH CERTAIN TYPES OF EXPENDITURE INCURRED BY WAY OF PAYMENT TO RELATED PARTIES IS NOT DEDUCTIBLE WHERE THE AO 'IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSI VE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS.' IN SUCH EVENT, 'SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED BY HIM TO BE EXCESSIVE OR UNREASONABLE SHALL NOT BE ALLOWE D AS A DEDUCTION.' THE AO IN SUCH AN INSTANCE DEPLOYS THE 'BEST JUDGMENT' ASSESSMENT AS A DEVICE TO DISALLOW WHAT HE CONSIDERS TO BE AN EXCESSIVE EXPENDITURE. THERE IS NO CORRESPONDING 'M ACHINERY' PROVISION IN CHAPTER X WHICH ENABLES AN AO TO DETERMINE WHAT SHOULD BE THE FAIR 'COMPENSATION' AN INDIAN ENTITY WOULD BE ENTITLED TO IF IT IS FOUND THAT THERE IS AN INTERNA TIONAL TRANSACTION IN THAT REGARD. IN PRACTICAL TERMS, ABSENT A CLEAR STATUTORY GUIDANCE, THIS MAY ENCOUNTER FURTHER DIFFICULTIES. THE STRENGTH OF A BRAND, WHICH COULD BE PRODUCT SPECIFIC, MAY BE IMPA CTED BY NUMEROUS OTHER IMPONDERABLES NOT LIMITED TO THE NATURE OF THE INDUSTRY, THE GEOGRAPH ICAL PECULIARITIES, ECONOMIC TRENDS BOTH INTERNATIONAL AND DOMESTIC, THE CONSUMPTION PATTERN S, MARKET BEHAVIOUR AND SO ON. A SIMPLISTIC RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 34 44 4 APPROACH USING ONE OF THE MODES SIMILAR TO THE ONES CONTEMPLATED BY SECTION 92C MAY NOT ONLY BE LEGALLY IMPERMISSIBLE BUT WILL LEND ITSELF TO AR BITRARINESS. WHAT IS THEN NEEDED IS A CLEAR STATUTORY SCHEME ENCAPSULATING THE LEGISLATIVE POLI CY AND MANDATE WHICH PROVIDES THE NECESSARY CHECKS AGAINST ARBITRARINESS WHILE AT THE SAME TIME ADDRESSING THE APPREHENSION OF TAX AVOIDANCE. 76. AS EXPLAINED BY THE SUPREME COURT IN CIT V. B.C. SRINIVASA SETTY (1979) 128 ITR 294 (SC) AND PNB FINANCE LTD. VS. CIT (2008) 307 ITR 75 (SC) IN THE ABSENCE OF ANY MACHINERY PROVISION, BRINGING AN IMAGINED INTERNATIONAL TRANS ACTION TO TAX IS FRAUGHT WITH THE DANGER OF INVALIDATION. IN THE PRESENT CASE, IN THE ABSENCE O F THERE BEING AN INTERNATIONAL TRANSACTION INVOLVING AMP SPEND WITH AN ASCERTAINABLE PRICE, NE ITHER THE SUBSTANTIVE NOR THE MACHINERY PROVISION OF CHAPTER X ARE APPLICABLE TO THE TRANSF ER PRICING ADJUSTMENT EXERCISE 27. OUR VIEW IS ALSO FORTIFIED BY THE DECISION OF T HE COORDINATE BENCH OF ITAT KOLKATA IN THE CASE OF M/S PHILIPS INDIA LTD ,ITA N O.2489/KOL/2017, ORDER DATED 04.04.2018 WHEREIN IT WAS HELD AS FOLLOWS: 11. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OU TSET, WE FIND THAT THE LD TPO, LD AO AND THE LD DRP HAD CATEGORICALLY ACCEPTED THE BASIC FACT THAT THE ASSESSEE IS A MANUFACTURER AND ALSO ENGAGED IN DISTRIBUTION OF PRODUCTS. WHILE THIS I S SO, WE ARE NOT ABLE TO COMPREHEND THE ARGUMENT ADVANCED BY THE LD DR THAT ASSESSEE IS ONL Y A DISTRIBUTOR AND THEREBY THE DECISION OF SONY ERICSSON WOULD APPLY TO THE CASE. WE FIND THA T SINCE THE ASSESSEE IS A MANUFACTURER CUM DISTRIBUTOR AS ACCEPTED BY THE LOWER AUTHORITIES, T HE DECISION RENDERED IN MARUTI SUZUKI SUPRA WOULD BE APPLICABLE TO THE ASSESSEES CASE, SINCE T HE CONTENTION OF THE LD DR THAT ASSESSEE IS ONLY DISTRIBUTOR, IS NOT EMANATING FROM THE RECORDS OF T HE LOWER AUTHORITIES. WE FIND THAT THE ISSUE UNDER DISPUTE BEFORE US IS SQUARELY ADDRESSED BY TH IS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2011-12 SUPRA WHEREIN IT WAS HELD :- 43. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. THE PRELIMINARY ISSUE HERE ARISES WHETHER THE AMP E XPENSES CONSTITUTE THE INTERNATIONAL TRANSACTIONS SO AS TO ATTRACT THE PROVISIONS OF TRA NSFER PRICING OF THE INCOME TAX ACT, 1961. THE CLAIM OF THE LD. AR IS THAT THE AMP TRAN SACTION DOES NOT REPRESENT THE INTERNATIONAL TRANSACTION BETWEEN THE AES THEREFOR E NO QUESTION OF DETERMINING THE ALP OF AMP TRANSACTIONS. WE FIND FORCE IN THE ARGUMENT OF THE LD. AR IN THE GIVEN FACTS AND CIRCUMSTANCES. THEREFORE, IN OUR CONSIDERED VIEW TH E AMP CANNOT BE REGARDED AS INTERNATIONAL TRANSACTION. IN HOLDING SO WE FIND TH E SUPPORT & GUIDANCE FROM THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED VS. CIT REPORTED IN 381 ITR 117 WHEREIN IT WAS HELD AS UNDE R: 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 E XPENDITURE BY MSIL. SECONDLY, THE COURT IS OF THE VIEW THAT THE DECISIO N IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA (P) LTD. CASE (SUPRA) HOLDING THAT THERE IS AN INTERNATIONAL TRANSACTION AS A RESULT OF THE AMP EX PENSES CANNOT BE HELD TO HAVE ANSWERED THE ISSUE AS FAR AS THE PRESENT ASSESSEE M SIL 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 TRANSACTION REGARDING AMP EXPENSES. IN VIEW OF WE NOTE THAT THE FACTS OF THE ABOVE CASE S ARE IDENTICAL TO THE PRESENT ISSUE, THUS, THE PRINCIPLE LAID DOWN BY THE HONBLE 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 R EVENUE. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 35 55 5 28.WE NOTE THAT THE AMP TRANSACTION DOES NOT REPRES ENT THE INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS AES AS TH E REVENUE FAILED TO BRING ON RECORD ANY CONTRACT OR ARRANGEMENT BETWEEN ASSESSEE AND ITS AE FOR MAKING AMP EXPENSES FOR PROMOTION OF BRAND OF ITS AE.IN THE AS SESSEE`S CASE, THE ASSESSEE COMPANY WAS NOT UNDER ANY OBLIGATION TO INCUR AMP E XPENSES AND ALSO ITS PARENT COMPANY HAD NO CONTROL OVER SUCH DECISIONS OF RBIL. THESE ARE ROUTINE ADVERTISEMENT EXPENSES. THEREFORE, IN ASSESSEE`S CA SE THE AMP CANNOT BE REGARDED AS INTERNATIONAL TRANSACTION AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZUKI INDIA LIMITED VS. CIT REPORTED IN 381 ITR 117 (SUPRA). THEREFORE, WE ALLOW THE APPEAL OF THE ASSESSEE AND DISMISS THE APPEAL OF THE REVENUE AND DELETE THE ALP ADJUSTMENT MADE BY TPO RS.104,43,39, 401/- FOR A.Y.2010-11 AND RS.331,09,56,767/- FOR A.Y. 2011-12. 29. SUMMARIZED GROUND NO. 3 READS AS FOLLOWS: 3.COMPARABLE COMPANIES ARBITRARILY CHOSEN BY THE T PO FOR COMPUTATION OF MARK UP PERCENTAGE OF 22.34% OVER THE ALLEGED AGENCY COST INCURRED BY THE ASSESSEE. THIS GROUND COVERS GROUND NO.5 OF ASSESSEE`S APPEAL IN ITA NO. 625/KOL/2016 FOR A.Y.2011-12 AND GROUND NO.7 OF REVENUE`S APPEAL IN ITA NO. 518/KOL/2016 FOR A.Y.2011-12. 30. FACTS OF THE ISSUE WHICH CAN BE STATED QUITE SH ORTLY AS PER TPO ORDER ARE AS FOLLOWS:FROM THE SUBMISSION OF THE DETAILS DURING T HE COURSE OF PROCEEDINGS IT IS NOTICED BY TPO THAT THERE ARE RECOVERY OF EXPENSES AMOUNTING TO RS. 19,30,38,246/- FROM R.B. CORPORATE SERVICES. FROM T HE DETAILS SUBMITTED IN 3 VOLUMES IT WAS OBSERVED THAT THE ASSESSEE WAS SUPPO RTING THE A.E. IN ITS PROJECT GSC AND PROJECT BEDROCK BY PROCURING MATERIAL FROM INDIA AND SENDING THEM TO ITS A.E WHICH IS IN THE FORM OF MARKET SUPPORT SER VICES. HENCE WIDE LETTER DATED 06.01.2105 THE ASSESSE WAS ASKED TO EXPLAIN THE SAM E AND THE ASSESSE WAS ALSO SHOW CAUSED TO AS WHY NOT THE MARGIN BE IN RESPECT OF SUPPORT SERVICES COMPANY BE CALCULATED IN THIS REGARD. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 36 66 6 31. IN RESPONSE TO THAT THE ASSESSEE IN ITS LETTER DATED 16.01.2015 SUBMITT ED BEFORE TPO AS FOLLOWS: '5.07 CHARGEBACK OF EXPENSES BY RBIL TO AES DURING THE FINANCIAL YEAR 2010-11, RBIL HAS INCURRE D CERTAIN EXPENSES ON BEHALF OF RB GROUP COMPANIES. THE SAME HAS BEEN CROSS-CHAR GED TO RB GROUP COMPANIES. WE UNDERSTAND THAT THESE EXPENSES HAVE B EEN CHARGED-BACK BASED ON ACTUAL COST INCURRED BY RBIL ON BEHALF OF AES. WE F URTHER, UNDERSTAND THAT THE EXPENSES INCURRED BY RBIL ON BEHALF OF RB GROUP COM PANIES, THE FUNCTION PERFORMED BY RBIL RELATES TO MERE FACILITATION OF P AYMENT ON BEHALF OF GROUP ENTITIES. IN THIS REGARD, RBIL IS A FACILITATOR AND IT PROVIDES NO ADDITIONAL SERVICE. ACCORDINGLY, THE 'COST ONLY' REIMBURSEMENT BY RB GR OUP COMPANIES TO RBIL COULD BE REGARDED AS THE ARM'S LENGTH PRICE FOR THE ABOVE EXPENSES.' IN VIEW OF THE ABOVE, WE SUBMIT THAT THE 'COST ONLY ' REIMBURSEMENT BY AES TO THE COMPANY COULD BE REGARDED AS THE ARM'S LENGTH PRICE FOR THE ABOVE EXPENSES. PROJECT BEDROCK WE SUBMIT THAT PROJECT BEDROCK IS A PROJECT IMPLEME NTED FOR GLOBAL TRANSITION OF THE NETWORK SERVICES PROVIDER FROM INFONET NL TO AT &T FOR OVERALL COST REDUCTION ON NETWORK UNDERTAKEN AT THE BEHEST OF RBCSL. THE C OST INCURRED IN RELATION TO SUCH CHANGE IN SERVICE PROVIDER (SUCH AS CHANGE IN SERVER FOR ENHANCEMENT OF THE CONNECTIVITY BETWEEN RBIL AND RB GLOBAL OFFICES INC LUDING EXPENSES ON NETWORK LINES, ETC) WAS INCURRED BY RBIL DURING THE YEAR. H OWEVER, AS A MATTER OF FINANCIAL SUPPORT TO THE ASSESSEE, THESE COSTS INCU RRED BY RBIL HAVE BEEN REIMBURSED BY THE AE. IT MAY BE APPRECIATED THAT NO SERVICES HAVE BEEN RENDERED BY THE ASSESSEE TO THE AE, ON THE CONTRARY THE ASSE SSEE HAS RECEIVED SERVICES FROM THIRD PARTIES AND IS THE SOLE BENEFICIARY OF THE SE RVICES RECEIVED BY IT. THE EXPENSES RECOVERED FROM THE ASSESSEE ARE PURELY ON ACCOUNT OF FINANCIAL SUPPORT EXTENDED BY THE AE. HENCE, A QUESTION OF CHARGING A MARK-UP ON COSTS REIMBURSED BY THE AE DOES NOT ARISE. 32. HOWEVER, THE LD. TPO REJECTED THE CONTENTION OF THE ASSESSEE AND COMPUTED THE UPWARD TRANSFER PRICING ADJUSTMENT AS FOLLOWS: 40. THE SUBMISSION OF THE ASSESSE IS NOT TENABLE A S THE RECOVERY FROM A.E IS NOT ONE OFF OR INFREQUENT TRANSACTION. FROM THE PERUSAL OF THE BILL ETC. SUBMITTED DURING THE PROCEEDINGS THE ASSESSE WAS REGULARLY PR OCURING MATERIALS FROM DIFFERENT INDEPENDENT PARTIES IN INDIA WHICH WERE T HEN SEND TO THE A.E FOR USE IN THE PROJECT OF THE A.E. THIS REGULAR TRANSACTION IS AKIN TO SUPPORT SERVICES PROVIDED BY THE ASSESSEE TO ITS A.E. AN INDEPENDENT ENTITY UNDER SIMILAR CIRCUMSTANCES WOULD NOT GIVE SUCH SERVICES TO THIRD PARTY SINCE THIS INVOLVES MONETARY EXPENDITURE AS WELL AS EFFORTS AND ANY IND EPENDENT ENTERPRISE WOULD ASK FOR REMUNERATION FOR SUCH EFFORTS. TO ARRIVE AT THE ON SUCH EFFORT, SEARCH FOR ENT ITIES CARRYING OUT NORMAL MARKET SUPPORT SERVICES R ESULTED IN THE FOLLOWING COMPANIES. THE MARK IN VIEW THE ABOVE THE ASSESSE WOULD HAVE 22.34% ON SUCH RECOVERIES. THE VALUE IS CALCULATED AS UNDER 22.34% OF RS 19,30,38,246/ - THUS THE INCOME OF THE ASSESSE IS TO BE UPWARDLY AD JUSTED BY RS 4,31,24,744/ THIS COUNT. 33 . AGGRIEVED BY THE ADDITION MADE BY THE LD TPO, THE ASSESSEE FILED BEFORE THE LD DRP. THE LD DRP CONFIRMED THE ORDER O F TPO, OBSERVING AS FOLLOWS: DRP DIRECTIONS: THE ASSESSEE HAS RENDERED SERVICES TO ITS AE. THE A SSESSEE WAS PROCURING MATERIAL FROM THE THIRD PARTIES FOR ITS AE FOR ITS USAGE AND CONS UMPTION. T COSTS FROM THE AE FOR SUCH SERVICES. THE CONTENTION IN RESPECT OF THE RECOVERY OF ONLY COSTS AS THIRD PARTIES WERE INVOLVED IS NOT TENABLE IF THE ASSESSEE WAS THE CHANNEL FOR SUCH PROCUREMENT SERVICES SO AS TO ENSURE PROPER DELIVE CRITICAL FUNCTION AND INVOLVING COSTS FOR THE ASSES SEE SHOULD DEFINITELY ENTAIL A COST PLUS MARKUP MODEL TO ENSURE ARMS LENGTH COMPENSATION FO R THE ASSESSEE FOR THE SERVICES RENDERED. BASED ON NATURE OF SERVICES RENDERED, MARKUP ON THE AGENCY COSTS OF THE ASSESSEE AND NOT ON THE COSTS OF MATERIAL PROCURED. THE MARK UP SHALL HENCE BE ONLY ON THE SERVICES COM PONENT. THE ASSESSEE HAS ONLY GENERALLY OBJECTED TO THE CHOICE OF COMPARABLES ITEM WISE CHOICE OF COMPARABLES SO CHOSEN BY THE TP O, HENCE NO SPECIFIC DIRECTIONS ARE ISSUED. THE OBJECTION IS ACCORDINGLY DISPOSED OF AS ABOVE. 34 . AGGRIEVED BY THE ORDER OF THE LD DRP/TPO, THE ASS ESSEE IS IN APPEAL 35. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUG H THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD RECKITT BENCKISER (I) PVT. LTD. ITA NOS. 404 & 529 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS: 2010 FOR REMUNERATION FOR SUCH EFFORTS. TO ARRIVE AT THE ON SUCH EFFORT, SEARCH FOR ITIES CARRYING OUT NORMAL MARKET SUPPORT SERVICES R ESULTED IN THE FOLLOWING COMPANIES. THE MARK - UP ON COST EARNED BY THESE ENTITIES IS AS FOLLOWS: IN VIEW THE ABOVE THE ASSESSE WOULD HAVE 22.34% ON SUCH RECOVERIES. THE VALUE IS CALCULATED AS UNDER 22.34% ON TRANSACTION PURPORTED TO BE RECOVERIES IE. 22.34 % OF RS 19,30,38,246/ - =4,31,24,744/- THUS THE INCOME OF THE ASSESSE IS TO BE UPWARDLY AD JUSTED BY RS 4,31,24,744/ . AGGRIEVED BY THE ADDITION MADE BY THE LD TPO, THE ASSESSEE FILED BEFORE THE LD DRP. THE LD DRP CONFIRMED THE ORDER O F TPO, OBSERVING AS FOLLOWS: THE ASSESSEE HAS RENDERED SERVICES TO ITS AE. THE A SSESSEE WAS PROCURING MATERIAL FROM THE THIRD PARTIES FOR ITS AE FOR ITS USAGE AND CONS UMPTION. T HE ASSESSEE HAS RECOVERED COSTS FROM THE AE FOR SUCH SERVICES. THE CONTENTION IN RESPECT OF THE RECOVERY OF ONLY COSTS AS THIRD PARTIES WERE INVOLVED IS NOT TENABLE IF THE ASSESSEE WAS THE CHANNEL FOR SUCH PROCUREMENT SERVICES SO AS TO ENSURE PROPER DELIVE RY OF SUCH SERVICES. THIS BEING A CRITICAL FUNCTION AND INVOLVING COSTS FOR THE ASSES SEE SHOULD DEFINITELY ENTAIL A COST PLUS MARKUP MODEL TO ENSURE ARMS LENGTH COMPENSATION FO R THE ASSESSEE FOR THE SERVICES RENDERED. BASED ON NATURE OF SERVICES RENDERED, IT IS ALSO APPROPRIATE TO RESTRICT SUCH MARKUP ON THE AGENCY COSTS OF THE ASSESSEE AND NOT ON THE COSTS OF MATERIAL PROCURED. THE MARK UP SHALL HENCE BE ONLY ON THE SERVICES COM PONENT. THE ASSESSEE HAS ONLY GENERALLY OBJECTED TO THE CHOICE OF COMPARABLES AND NOT SUBSTANTIVELY CHALLENGED THE ITEM WISE CHOICE OF COMPARABLES SO CHOSEN BY THE TP O, HENCE NO SPECIFIC DIRECTIONS ARE ISSUED. THE OBJECTION IS ACCORDINGLY DISPOSED OF AS ABOVE. . AGGRIEVED BY THE ORDER OF THE LD DRP/TPO, THE ASS ESSEE IS IN APPEAL WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUG H THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD RECKITT BENCKISER (I) PVT. LTD. 404 & 529 /KOL/2015 625 & 518/KOL/2016 2010 -11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 37 77 7 FOR REMUNERATION FOR SUCH EFFORTS. TO ARRIVE AT THE ON SUCH EFFORT, SEARCH FOR ITIES CARRYING OUT NORMAL MARKET SUPPORT SERVICES R ESULTED IN THE FOLLOWING UP ON COST EARNED BY THESE ENTITIES IS AS FOLLOWS: IN VIEW THE ABOVE THE ASSESSE WOULD HAVE 22.34% ON SUCH RECOVERIES. THE VALUE IS ON TRANSACTION PURPORTED TO BE RECOVERIES IE. 22.34 % THUS THE INCOME OF THE ASSESSE IS TO BE UPWARDLY AD JUSTED BY RS 4,31,24,744/ - ON . AGGRIEVED BY THE ADDITION MADE BY THE LD TPO, THE ASSESSEE FILED OBJECTIONS BEFORE THE LD DRP. THE LD DRP CONFIRMED THE ORDER O F TPO, OBSERVING AS FOLLOWS: THE ASSESSEE HAS RENDERED SERVICES TO ITS AE. THE A SSESSEE WAS PROCURING MATERIAL FROM HE ASSESSEE HAS RECOVERED COSTS FROM THE AE FOR SUCH SERVICES. THE CONTENTION IN RESPECT OF THE RECOVERY OF ONLY COSTS AS THIRD PARTIES WERE INVOLVED IS NOT TENABLE IF THE ASSESSEE WAS THE CHANNEL FOR SUCH RY OF SUCH SERVICES. THIS BEING A CRITICAL FUNCTION AND INVOLVING COSTS FOR THE ASSES SEE SHOULD DEFINITELY ENTAIL A COST PLUS MARKUP MODEL TO ENSURE ARMS LENGTH COMPENSATION FO R THE ASSESSEE FOR THE SERVICES IT IS ALSO APPROPRIATE TO RESTRICT SUCH MARKUP ON THE AGENCY COSTS OF THE ASSESSEE AND NOT ON THE COSTS OF MATERIAL PROCURED. THE MARK UP SHALL HENCE BE ONLY ON THE SERVICES COM PONENT. THE ASSESSEE HAS ONLY AND NOT SUBSTANTIVELY CHALLENGED THE ITEM WISE CHOICE OF COMPARABLES SO CHOSEN BY THE TP O, HENCE NO SPECIFIC DIRECTIONS ARE . AGGRIEVED BY THE ORDER OF THE LD DRP/TPO, THE ASS ESSEE IS IN APPEAL BEFORE US. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THROUG H THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD DRP RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 38 88 8 AND OTHER MATERIALS BROUGHT ON RECORD. LEARNED COUN SEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT TPO HAS ERRED IN PROPOSING AN ADDITI ON IN RELATION TO EXPENSES RECOVERED BY RBIL FROM ITS AE, WITHOUT APPRECIATING THAT THERE IS NO ELEMENT OF SERVICE PROVIDED BY RBIL IN RESPECT OF THE IMPUGNED INTERNATIONAL TRANSACTIONS. THE LD TPO ALSO DID NOT APPRECIATE THAT RECOVERY OF EXPENSES WAS ONLY ON COST BASIS. ON THE OTHER HAND, THE LD. DR FOR THE REVENU E HAS PRIMARILY REITERATED THE STAND TAKEN BY THE TPO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. WE NOTE THAT THE TPO WITHOUT APPRECIATING THE TRUE NATURE OF EXPENSES, HELD THE SAME TO BE IN THE NATURE OF SUPPORT SERVICES OF PR OCURING MATERIAL BEING PROVIDED BY THE ASSESSEE TO ITS AE ELIGIBLE FOR A M ARKUP. (PG. 281 TO 282 AND 288 OF PB-1).ACCORDINGLY, THE TPO SELECTED THE COMPARAB LES ENGAGED IN MARKETING SUPPORT SERVICES / TECHNICAL SUPPORT SERVICES AND A PPLIED A MARK-UP OF 22.34% ON THE SAID EXPENSE. WE NOTE THAT THE DRP UPHELD THE ACTION OF THE TPO W HILST OBSERVING THAT THE ASSESSEE WAS INDEED PROVIDING SERVICES TO THE AE. [ PG. 15 OF DRP DIRECTIONS]. HOWEVER, THE DRP DIRECTED THE TPO TO RESTRICT THE A DJUSTMENT TO AGENCY COST AND TO NOT INCLUDE COST OF MATERIAL WHILST APPLYING THE MARKUP. [PG. 15 TO 16 OF DRP DIRECTIONS ]. ACCORDINGLY, THE TPO VIDE ORDER DATED 21.01.2016 RESTRICTED THE COST TO THE AGENCY COST AND HENCE THE ADJUSTMENT WAS RED UCED FROM INR 4.31 CRORES TO INR 2.71 CRORES. THE ASSESSEE IS IN APPEAL BEFORE U S TO ADJUDICATE THE AGENCY COST. WE HAVE GONE THROUGH THE ORDER OF TPO/DRP AND NOTIC ED THAT THERE IS NO ADJUDICATION BY THE TPO OR DRP AS TO WHAT SERVICESW ERE RENDERED. AS PER LD COUNSEL, THE EXPENSES IN QUESTION WERE IN RESPECT O F SYSTEM UPGRADE OF THE ASSESSEE WHICH COSTS WERE REIMBURSED TO THE ASSESSE E BY THE AE. HENCE, THERE WAS NO ELEMENT OF ANY SERVICE THAT THE ASSESSEE REN DERED TO THE AE. THE ASSESSEE SUBMITTED, 3 VOLUMES OF DOCUMENTS BEFORE THE TPO AN D DRP TO ESTABLISH THAT THESE WERE COST TO COST REIMBURSEMENTS AND THEREHAS BEEN NO ADJUDICATION ON THE SAME. THEREFORE, IN THE INTEREST OF JUSTICE AND FAI R PLAY WE THINK IT FIT AND APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF THE TPO TO ADJUDICATE THE ISSUE RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 3 33 39 99 9 TAKING INTO ACCOUNT 3 VOLUMES OF DOCUMENTS ALREADY SUBMITTED BY ASSESSEE. FOR STATISTICAL PURPOSES, THE GROUND RAISED BY THE ASSE SSEE AND REVENUE ARE ALLOWED. 36.SUMMARIZED GROUND NO. 4 READS AS FOLLOWS: 4.THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE DRP ERRED IN NOT CONSIDERING THE SPECIFIC OBJECTIONS RAISED BY THE A PPELLANT WITH RESPECT TO OVERALL ADJUSTMENT OF RS. 21,842,032/- MADE TO TRANSACTION OF EXPORT OF RAW MATERIALS AND FINISHED PRODUCTS. (THIS COVERS GROUND NO.6 OF ASSESSEE`S APPEAL IN IT A NO.625/KOL/2016, FOR A.Y. 2011- 12) 37.AT THE OUTSET ITSELF, LD COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE TPO REJECTED THE EXTERNAL TNMM AS APPLIED BY RBIPL FOR BENCHMARK ING THE TRANSACTION AND INSTEAD APPLIED THE INTERNAL TNMM. (PG. 288 TO 291 AND 294 OF PB-1). AGGRIEVED BY THE ORDER OF THE TPO, THE ASSESSEE CARRIED THE M ATTER BEFORE THE LD DRP. THE LD DRP INADVERTENTLY DID NOT GIVE ANY DIRECTIONS VIS-A -VIS THE SAID ISSUE. HOWEVER, VIDE RECTIFIED DIRECTIONS DATED 18.02.2016 REJECTED THE APPROACH OF THE TPO OF USING EXTERNAL TNMM. THE TPO IS YET TO GIVE EFFECT TO THE RECTIFIED DRP DIRECTIONS. THEREFORE, LD COUNSEL PRAYED THE BENCH THAT LD TPO MAY BE DIRECTED TO GIVE EFFECT TO THE RECTIFIED DRP DIRECTIONS. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE DIRECT THE TPO TO GIVE EFFECT TO THE RECTI FIED DRP DIRECTIONS. FOR STATISTICAL PURPOSES, THE GROUND RAISED BY THE ASSE SSEE ARE ALLOWED. GROUNDS RELATING TO CORPORATE TAX ISSUE 38. SUMMARIZED GROUND NO. 1 OF CORPORATE TAX ISSUE READS AS FOLLOWS: 1.APPORTIONMENT OF EXPENSES BETWEEN FISCAL UNITS, NON-FISCAL UNITS AND HEAD OFFICE OF RS. 261,160,962/-. THIS GROUND COVERS GROUND NO.8 OF REVENUE`S APPEAL IN ITA NO.529/KOL/2015 FOR A.Y. 2010-11 AND GROUND NOS. 1 AND 2 OF REVENUE`S A PPEAL IN ITA NO.518/KOL/2016 FOR A.Y.2011-12. 39.WHEN THIS ISSUE WAS CALLED OUT FOR HEARING, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 20.04.2018 , PASSED BY THE TRIBUNAL IN RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 40 00 0 ASSESSEES OWN CASE IN I.T.A. NOS. 2138/KOL/2009, F OR ASSESSMENT YEAR 2005-06, WHEREBY THE ISSUE OF APPORTIONMENT OF EXPENSES BETW EEN FISCAL UNITS HAVE BEEN DISCUSSED AND ADJUDICATED IN FAVOUR OF THE ASSESSEE . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT ISSUE IS SQUARE LY COVERED BY THE ABOVE SAID ORDER OF THE TRIBUNAL, A COPY OF WHICH IS ALSO PLAC ED BEFORE THE BENCH. 40. THE LD. DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 41. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE DIVISION BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE VIDE ORDER DATED 20.04.2018. IN THIS ORDER, THE TRIBUNAL HAS INTER A LIA OBSERVED AS UNDER: 4. AS FAR AS GROUND NO.3 RAISED BY THE REVENUE IS CONCERNED, IT IS SEEN THAT THE DETAILS OF THE BAD DEBTS WRITTEN OFF, GIVEN AT PAGE NO.128 AND 129 OF THE ASSESSEES PAPER BOOK READ WITH PAGE 145 OF THE PAP ER BOOK. THE DETAILS OF BAD DEBTS WRITTEN OFF, AS GIVEN IN PAGE 145 OF THE P.B IS AS FOLLOWS: THE DEDUCTION CLAIMED BY THE ASSESSEE WAS IN RESPEC T OF UNIT 1,2,3 & 4. THE UNIT 1 COMMERCIAL OPERATION COMMENCED ONLY ON 02.02.200 4 WHICH IS EVIDENCED BY THE AUDIT REPORT IN FORM 10CCB WHICH IS PLACED AT P AGE 90 OF THE ASSESSEES PAPER BOOK. THE UNIT NO.2 COMMENCED COMMERCIAL OPER ATION ONLY W.E.F. 03.04.2004 WHICH IS EVIDENCED BY FORM NO.10CCB, PLA CED AT PAGE 79 OF THE ASSESSEES PAPER BOOK. THE UNIT NO.3 COMMENCED COMM ERCIAL OPERATION ONLY ON 08.12.2004 AS IT IS EVIDENCED BY THE FORM NO.10CCB, COPY OF THE PAGE 101 OF THE ASSESSEES PAPER BOOK. THE UNIT NO.4 COMMENCED COMM ERCIAL OPERATION W.E.F, 02.02.2005 WHICH IS EVIDENCE BY FORM NO.10CCB FROM PLACED AT PAPER BOOK PAGE 68. IT CAN THUS PERUSAL OF THE BAD DEBTS WRITT EN OFF WOULD SHOW THAT ALL THE DEBTS PERTAINED TO ASSESSMENT YEAR 2002-03 AND EARL IER FINANCIAL YEARS. THE RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 41 11 1 UNITS FOR WHICH DEDUCTION U/S 80-IB AND 80-IC WERE CLAIMED BY THE ASSESSEE, CAME INTO EXISTENCE ONLY IN F.Y. 2004-05. THUS, IT IS CL EAR THAT THE BAD DEBTS WRITTEN OFF WHICH WAS CLAIMED AS DEDUCTION DID NOT PERTAIN TO A NY OF THE UNITS FOR WHICH THE ASSESSEE CLAIMED DEDUCTION U/S 80-IB AND 80-IC OF T HE ACT. THEREFORE, APPORTIONMENT OF BAD DEBT WRITTEN OFF TO THE ELIGIB LE UNITS AND REGISTERING PROFIT OF THOSE ELIGIBLE UNITS FOR THE PURPOSE OF ALLOWING DE DUCTION U/S 80-IB AND 80-IC, AS DONE BY THE REVENUE AUTHORITIES IS UNSUSTAINABLE. T HE APPORTIONMENT IS DIRECTED TO BE DELETED. GROUND NO.3 RAISED BY THE ASSESSEE IS A LLOWED. 5.AS FAR AS GROUND NO.2 RAISED BY THE REVENUE IS CO NCERNED, THIS ISSUE AGAIN PERTAINS TO APPORTIONMENT OF RESIDUAL COST OF RS.40 .43 CRORES. THE TOTAL COST AS PER THE PROFIT & LOSS A/C OF THE ASSESSEE IS A SUM OF RS.717.26 CRORES. THE DETAILS OF THE OTHER EXPENSES ISGIVEN IN SCHEDULE 16 TO THE PROFIT & LOSS A/C. AS FAR AS RESIDUAL COST IS CONCERNED, THE ASSESSEE ALLOCATED RESIDUAL COST AMOUNT TOTHE ELIGIBLE AND NON-ELIGIBLE UNITS IN THE RATIO OF NUM BER OF EMPLOYEES AT THE CORPORATE OFFICE WHO ARE DIRECTLY INVOLVED IN THE M ANAGEMENT OF THESE ELIGIBLE UNITS LIKE PRODUCTION, PROCUREMENT, QUALITY, LOGIST ICS ETC. TO THE TOTAL NUMBER OF EMPLOYEES AT THE CORPORATE OFFICE. ACCORDING TO THE ASSESSEE THESE EXPENSES PRIMARILY RELATES TO THE CORPORATE OFFICE OF THE CO MPANY. THE BENEFIT OF WHICH IS DERIVED BY THE WHOLE ORGANIZATION INCLUDING THE ELI GIBLE UNITS, THE ALLOCATION OF COST INCURRED ON ACCOUNT OF RESIDUAL COST AMONG ELI GIBLE AND NON-ELIGIBLE UNITS SHOULD HAVE TO BE DONE IN THE RATIO OF ELIGIBLE WOR KERS OF ELIGIBLE UNDERTAKINGS TO THE TOTAL NUMBER OF WORKERS ACROSS ALL THE MANUFACT URING UNITS. THE ASSESSING OFFICER, HOWEVER, WAS OF THE FOLLOWING VIEWS: REGARDING THE ISSUE OF BIFURCATION OF RESIDUAL COS T AS HAS BEEN DISCUSSED IN DETAIL IN THE EARLIER PART OF THE ORDER, THE ASSESS EE HAS NOT APPLIED THE PROVISIONS OF SECTION 80IB OF THE ACT PROPERLY ESPECIALLY SUB- SECTION (5) THEREOF WHICH DEARLY STATES THAT THE PROFIT OF THE ELIGIBLE UNIT HAS TO BE DETERMINED AS IF THIS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THE PROFIT OF THE ELIGIBLE UNIT HAS TO BE CALCULATE D IN SUCH A WAY AS IF THIS IS THE ONLY SOURCE OF INCOME OF THE ASSESSEE. THE RELEVANT PORTION OF THE SECTION IS REPRODUCED AS UNDER- '(5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHE R PROVISION OF THIS ACT, THE PROFITS AND GAINS OF AN ELIGIBLE BUSINESS TO WHICH THE PROVISIONS OF SUB-SECTION (1) APPLY SHALL, FOR THE PURPOSES OF DETERMINING THE Q UANTUM OF DEDUCTION UNDER THAT SUB-SECTION FOR THE ASSESSMENT YEAR IMMEDIATELY SUC CEEDING THE INITIAL ASSESSMENT YEAR OR ANY SUBSEQUENT ASSESSMENT YEAR, BE COMPUTED AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURI NG THE PREVIOUS YEAR RELEVANT TO THE INITIAL ASSESSMENT YEAR AND TO EVERY SUBSEQU ENT ASSESSMENT YEAR UP TO AND INCLUDING THE ASSESSMENT YEAR FOR WHICH THE DETERMI NATION IS TO BE MADE. (EMPHASIS SUPPLIED)'. AS PER SECTION 80IA(5) R/W SECTION 80IB(13) AND 80I C(7), FOR THE PURPOSES OF COMPUTING THE QUANTUM OF ALLOWABLE DEDUCTION U/S 80 IB, THE PROFITS AND GAINS OF THE ELIGIBLE UNIT OF THE ASSESSEE HAS TO BE COMPUTE D AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME OF THE ASSESSEE DURI NG THE YEAR. THE ABOVE EXPENSES, EVEN THOUGH BOOKED CENTRALLY IN THE HEAD OFFICE BOOKS, HAVE BEEN INCURRED FOR ALL THE UNITS OF THE ASSESSEE CO MPANY. HENCE; IN ORDER TO ARRIVE AT THE TRUE AND CORRECT VALUE OF THE PROFITS & GAIN S DERIVED FROM THE ELIGIBLE UNITS, RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 42 22 2 THESE EXPENSES ARE REQUIRED TO BE ALLOCATED TO ALL THE UNITS IN THE PROPER MANNER. THE BEST WAY TO DIVIDE THESE EXPENSES WOULD BE TO A LLOCATE AMONG ELIGIBLE AND NON-ELIGIBLE UNITS IN THE RATIO OF WORKERS OF ELIGI BLE UNDERTAKINGS TO THE TOTAL NUMBER OF WORKERS ACROSS ALL THE MANUFACTURING LOCA TIONS FROM WHERE THE ASSESSEE HAS SOURCED ITS REQUIREMENTS, INSTEAD OF I N THE RATIO OF NUMBER OF EXECUTIVES AT THE CORPORATE OFFICE WHO ARE DIRECTLY INVOLVED IN THE MANAGEMENT OF THESE ELIGIBLE UNITS TO THE TOTAL NUMBER OF EXECUTI VES AT THE CORPORATE OFFICE AS HAS BEEN DONE BY THE ASSESSEE COMPANY. THIS IS BECAUSE THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY ON THE RESIDUAL FUNCTIONS HAVE ALSO BEEN USED AND BENEFITED THE WHOLE COMPANY INCLUDING THE ELIGIBLE UNITS HENC E IT HAS TO BE BIFURCATED IN THE RATIO OF TOTAL WORKFORCE OF THE ELIGIBLE UNITS WITH TOTAL NUMBER OF WORKERS OF THE COMPANY TO ARRIVE AT THE CORRECT AND TRUE PROFIT. T HIS IS ALSO SUPPORTED BY THE FACT THAT ON AN AVERAGE ALL THE EXPENDITURES WHICH HAS E ITHER BEEN BIFURCATED IN THE RATIO OF SALES OR ON THE BASIS OF ACTUALS ARE IN TH E PERCENTAGE OF ALMOST AVERAGE OF 22% WHEREAS THE PERCENTAGE OF THESE PARTICULAR EXP ENDITURES ARE AROUND 5.69%. THIS ITSELF PROVES BEYOND DOUBT THAT THIS EXPENDITU RE HAS NOT BEEN BIFURCATED PROPERLY BY THE ASSESSEE COMPANY. MOREOVER, THE ASSESSEE'S ARGUMENTS THAT THE ACCOUNT S OF THE COMPANY ARE AUDITED DOES NOT HAVE A BEARING ON THE DEDUCTION BEING CLAI MED U/S 80IB/IC OF THE ACT. THE INCOME-TAX ACT SPECIFICALLY PROVIDES THAT THE P ROFITS OF THESE UNDERTAKINGS IS REQUIRED TO BE COMPUTED IN THE MANNER AS IF THESE A RE INDEPENDENT AND ONLY SOURCE OF INCOME OF THE ASSESSEE COMPANY. THIS EFFE CT HAS PROBABLY NOT BEEN GIVEN BY THE AUDITOR WHO HAS FILED THE ACCOUNTANTS REPORT ALONG WITH CLAIM OF DEDUCTION. THIS IS ALSO PROVED BY THE FACT THAT THI S HAS NOT BEEN MENTIONED BY THE AUDITOR WHO HAS SUBMITTED THE ACCOUNTANTS REPORT AS PER THE PROVISIONS OF SECTION 80IB/IC AS TO THE PROCEDURE FOR BIFURCATING THE EX PENDITURE FOR THE ELIGIBLE UNITS. IN VIEW OF THIS, THERE IS NO FORCE IN THE ASSESSEE S ARGUMENTS AND THE SAME ARE REJECTED. THE ASSESSEE WAS ASKED TO FURNISH THE REVISED WORKI NG AFTER ALLOCATING THE RESIDUAL COST IN THE MANNER AS DETAILED ABOVE WHICH WAS SUBMITTED BY THE A VIDE LETTER DATED APRIL 11, 2008 AND MADE PART OF THIS O RDER AS ANNEXURE A OF THIS ORDER. 6. ON APPEAL BY THE ASSESSEE, THE CIT(A) ACCEPTED T HE BASIS OF APPORTIONMENT OF THE RESIDUAL COST AS MADE BY THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: 7.3.3. WITH REGARD TO CHANGE IN THE BASIS OF ALLOC ATION OF RESIDUAL COST BY THE AO. I FIND MERIT IN THE APPELLANTS ARGUMENT THAT T HE RESIDUAL COSTS PERTAIN TO THOSE COST WHICH COULD NOT BE ALLOCATED OR IDENTIFI ED WITH SINGLE FUNCTION OR UNIT DUE TO THE GENERAL UTILITY TO ALL THE FUNCTIONS AND UNITS OF THE COMPANY. THE BASIS OF ALLOCATION OF THIS COST IS THE NUMBER OF EXECUTI VE. THESE COSTS INCLUDE THE RESIDUARY COSTS OF ALL THE SUPPORT FUNCTIONS WHICH HAVE NOT BEEN ALLOCATED TO THE COST OF GOODS SOLD. AS PER THE APPELLANT, AT CORPOR ATE OFFICE LEVEL THERE WERE 101 PERSONS DURING THE FY 2004-05 OUT OF WHICH, PERSONS WERE WORKING IN SUPPLY FUNCTION WHICH IS DIRECTLY LINKED TO FACTORY OPERAT ION. THIS WORKED OUT TO 21.78%. THE RATIO OF SALE OF FISCAL UNITS TO OVERALL SALES WAS 26.10%. THE EFFECTIVE PERCENTAGE OF RESIDUAL COST THUS WORKED OUT TO 5.68 % (21.78% * 26.10%), WHICH THE APPELLANT APPLIED FOR ALLOCATING THE RESIDUAL C OST TO THE ELIGIBLE UNITS. FOR ALLOCATION EXPENSES, THE APPELLANT HAS TAKEN INTO C ONSIDERATION NUMBER OF PERSON RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 43 33 3 AS WELL AS SALES OF THE ELIGIBLE UNITS. THE AO HAS ALLOCATED THE RESIDUAL COSTS OF THE CORPORATE OFFICE ON THE BASIS OF THE NUMBER OF WORKERS. HENCE, I FIND MORE LOGIC ON THE BASIS OF ALLOCATION OF EXPENSES ADOPTE D BY THE APPELLANT AS THE APPELLANT HAS ALSO TAKEN TURNOVER OF THE ELIGIBLE U NITS INTO CONSIDERATION. 7.WE HAVE HEARD THE RIVAL SUBMISSIONS, THE LD. DR R EITERATED THE STAND OF THE ASSESSING OFFICER AS REFLECTED IN THE ORDER OF THE ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A). WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS, WE NOTE THA T THE BASIS OF ALLOCATION OF RESIDUAL COST TO THE ELIGIBLE UNITS HAS BEEN DONE B Y THE ASSESSING OFFICER IS AS FOLLOWS: IT CAN BE SEEN FROM THE ABOVE CHART THAT THE ALLOCA TION DONE BY THE ASSESSEE ON THE BASIS OF NUMBER OF EMPLOYEES WHO ARE DIRECTLY L INKED WITH THE FACTORY OPERATION IS MORE LOGICAL. THE RESIDUAL COST IS INC URRED AT THE HEAD OFFICE AND IS NOT CAPABLE OF BEING IDENTIFIED WITH ANY OF THE UNI TS WHICH ARE RUNNING BY THE ASSESSEE. IT IS ONLY BECAUSE OF THIS DIFFICULTY THA T THE ASSESSING OFFICER AND THE ASSESSEE RESORTED TO ALLOCATION OF RESIDUAL COST. W HEN IT COMES TO ALLOCATION OF RESIDUAL COST, IT CANNOT BE DONE ARBITRARILY. THE A LLOCATION SHOULD HAVE DUE REGARD TO THE EFFORTS PUT AT THE HEAD OFFICE LEVEL TO BE ELIGIBLE. THAT CAN BE DONE ONLY BY ALLOCATION ON THE BASIS OF NUMBER OF EMPLOY EES LINKED TO FACTORY OPERATION DIVIDED BY TOTAL NUMBER OF EMPLOYEES INTO CORPORATE OFFICE INTO SALES OF THE ELIGIBLE UNITS DIVIDED BY TOTAL SALES. THIS ALLOCAT ION OF RESIDUAL COST DONE BY THE ASSESSEE WAS LOGICAL AND WE FIND NO INFIRMITY IN TH E ACTION OF THE CIT(A) IN ACCEPTING THIS BASIS OF ALLOCATION. WE, THEREFORE, DO NOT FIND ANY MERIT IN GROUND NO.2 RAISED BY THE REVENUE AND THE SAME IS DISMISSE D. IN THE RESULT, THE GROUND NO.3 RAISED BY THE ASSESS EE IS ALLOWED AND THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 44 44 4 42. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA) IN I.T.A. NO. 2138/KOL/2009 FOR A.Y 2005-06, AND THERE IS NO CHANGE IN FACTS AND LA W AND THE REVENUE IS UNABLE TO PRODUCE ANY MATERIAL TO CONTROVERT THE ABOVE SAI D FINDINGS OF THE CO-ORDINATE BENCH(SUPRA). THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH WE DISMISS THE APPEALS OF REVENUE FOR A.Y. 2010-11 AND A.Y. 2011-12. 43. SUMMARIZED GROUND NO. 2 OF CORPORATE TAX ISSUE READS AS FOLLOWS: 2.ELIGIBILITY OF INCOME FROM SALE OF SCRAPS WHILST CALCULATING DEDUCTION U/S 80IC OF THE ACT OF RS. 20,723,924/-. THIS GROUND COVERS GROUND NO. 9 RAISED BY THE REVEN UE IN ITA NO. 529/KOL/2015 FOR A.Y. 2010-11 AND GROUND NO. 3 RAISED BY THE REVENUE IN I TA NO. 518/KOL/2016 FOR A.Y. 2011- 12. 44.WHEN THIS ISSUE WAS CALLED OUT FOR HEARING, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 23.12.2014 , PASSED BY THE HONBLE CALCUTTA HIGH COURT IN ASSESSEES OWN CASE IN GA NO. 1420 OF 2014, ITAT NO. 41 OF 2014, WHEREBY THE ISSUE OF ELIGIBILITY OF INCOME FROM SAL E OF SCRAPS HAVE BEEN DISCUSSED AND ADJUDICATED IN FAVOUR OF THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT ISSUE IS SQUARELY COVERE D BY THE ABOVE SAID ORDER OF THE, HONBLE CALCUTTA HIGH COURT, A COPY OF WHICH IS ALS O PLACED BEFORE THE BENCH. 45. THE LD. DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 46. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN ASSESSEES OWN CASE VIDE ORDER DATED 23.12.2014. IN THIS ORDER, THE HONBLE CALCUT TA HIGH COURT HAS INTER ALIA OBSERVED AS UNDER: ON THE QUESTION RAISED BY THE REVENUE IN ITS APPEA L,- WE 2 DECISION THEREON BY THE HIGH. COURT OF MADRAS IN FENNER (INDIA) LTD. (SUPRA) RELI ED ON BY- THE REVENUE IN URGING ITS CASE REGARDING THE QUESTION FORMULATED IN THE ASSESSEE'S APPEAL. IN PARAGRAPH 13 OF THE SAID DECISION THE HIGH COURT, OF MADRAS HELD AS FOLLOWS '13. AS ALREADY STATED, IN THE INDUSTRIAL UNDERTAKI NG IN THE MANUFACTURE OF V-BELTS, OIL SEALS, 0- RINGS AND RUBBER- MOULDED PRODUCTS, CERTAIN SCRAP M ATERIALS RESULTED IN, WHICH HAS ASALEABLE VALUE. TO SAY THAT THE SCRAP MATERIALS HAS NO DIREC T LINK OR NEXUS WITH THE INDUSTRIAL UNDERTAKING RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 45 55 5 CANNOT BE AT ALL BE EXPECTED OR COMMEND ACCEPTANCE, ESPECIALLY, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. FOR THE SAKE OF EMPHASIS , WE MAY SAY THAT THE SCRAP MATERIALS COME WITHIN THE MANUFACTURING PROCESS OF THE INDUSTRIAL UNDERTAKING IN THE MANUFACTURE- OF CERTAIN PRODUCTS SUCH AS V-BELTS, OIL SEALS, 0-RINGS : AND CERTAIN RUBBER MOULDED PRODUCTS- ETC. IN THIS VIEW OF THE MATTER, WE ARE OF THE VIEW THAT PROFITS ANDGAINSFROM THE SALE OF SCRAP MATERIALS IS ELIGIBLE TO DEDUCTION IN AN AMOUNT EQUAL TO TWENTY PER CENT UNDER SECTION 80IC, INASMUCH AS SUCH GAINS OR PROFITS ARE DERIVED FROM THE INDUSTRIAL U NDERTAKING AND INCLUDIBLE IN, THE GROSS TOTAL INCOME OF THE ASSESSEEAND THE QUESTION RELATABLE TO THE PROFIT ON THE SALE OF SCRAP IS THUS ANSWERED IN FAVOUR OF THE ASSESSEE' WE ARE PERSUADED BY THE REASONING OF THE SAID COURT AND ANSWER THE QUESTION ACCORDINGLY. THE QUESTION IN THE REVENUE'S APPEAL I S ANSWERED IN THE NEGATIVE, IN FAVOUR, OF THE ASSESSES AND AGAINST THE REVENUE.ACCORDINGLY , BOTH THE APPLICATIONS BEING GA NO.1420 OF 2014 AND GA NO.1735 OF 2014 ARE DISPOSED OF AND THE APPEALS BEING ITAT NO.,41 OF 2014 AND ITAT NO, 59 OF 2014 ARE DISMISSE D. 47. AS THE ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF HONBLE CALCUTTA HIGH COURT IN ASSESSEES OWN CASE (SUPRA) AND THERE IS NO CHANGE IN FACTS AND LAW AND THE REVENUE IS UNABLE TO PRODU CE ANY MATERIAL TO CONTROVERT THE ABOVE SAID FINDINGS OF THE CO-ORDINATE BENCH. T HEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH WE ALLO W GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 48.SUMMARIZED GROUND NO. 3 OF CORPORATE TAX ISSUE R EADS AS FOLLOWS: 3.EXCESS DISALLOWANCE OF INTEREST INCOME ALLOCATED TO ELIGIBLE UNITS RS. 23,400,187/-. THIS GROUND COVERS GROUND NO. 4 OF ASSESSEES APPEA L IN ITA NO. 404/KOL/2015 FOR A.Y. 2010-11 49.WHEN THIS ISSUE WAS CALLED OUT FOR HEARING, THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 14.09.2018 , PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2113,2150,2114&2151/K OL/2013 & ITA NO. 760&762/KOL/2014 FOR A.Y. 2006-07, 2008-09, 2009-10 , WHEREBY THE ISSUE OF EXCESS DISALLOWANCE OF INTEREST INCOME ALLOCATED TO ELIGIBLE UNITSHAVE BEEN DISCUSSED AND REMANDED THE MATTER BACK TO THE AO FO R FACTUAL VERIFICATION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE ABOVE SAID ORDER OF THE TRIBUNAL, A COPY OF WHICH I S ALSO PLACED BEFORE THE BENCH. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 46 66 6 50. THE LD. DR RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW. 51. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE MATTER THEN THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH OF ITAT KOLKATA IN ASSESS EES OWN CASE VIDE ORDER DATED 14.09.2018. IN THIS ORDER, THE TRIBUNAL HAS I NTER ALIA OBSERVED AS UNDER: ASSESSMENT YEAR 2009-10 ASSESSEES AND REVENUES C ROSS APPEALS IN I.T.A. NO 760 & 762/KOL/2014.THE ASSESSEES FIRST SUBSTANTIVE GROUND SEEKS TO REVERSE BOTH THE LOWER AUTHORITIES ACTION DISALLOWING ITS SECTI ON 80IB/80IC DEDUCTION CLAIM TO THE TUNE OF RS. 16,02,07,000/- PERTAINING TO INTERE ST INCOME. MR. KHAITAN CONCEDES VERY FAIRLY THAT THE ASSESSEES VERY CLAIM HAS ALRE ADY BEEN DECLINED BY HONBLE JURISDICTIONAL HIGH COURT (SUPRA). WE UPHOLD THE I MPUGNED DISALLOWANCE OF INTEREST INCOME FOR THE PURPOSE OF ALLOWBILITY OF S ECTION 80IB/80IC DEDUCTION. IT TRANSPIRES FROM THE CASE FILE THAT THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND AT THIS STAGE REGARDING QUANTIFICATION OF TH E IMPUGNED DISALLOWANCE. IT IS PLEADED THAT THE ABOVE INTEREST INCOME OF RS.1,60,2 7,000/- IS INCLUSIVE OF RS. 3,39,26,000/- RELATING TO ITS PARWANU UNIT IN RESPE CT OF WHICH IT HAD CLAIMED SECTION 80IC DEDUCTION. IT IS CLARIFIED THAT THE S AID DEDUCTION WAS ALLOWABLE TO THE EXTENT OF 30% ONLY BEING 6 TH YEAR OF CLAIM. IT THUS SUBMITS THAT ONLY 33% OF RS . 3,39,26,000/- I.E. RS. 1,01,77,800/- FORMED PART OF SECTION 80IC DEDUCTION IN RESPECT OF PARWANU UNIT WHEREAS THE ENTIRE INTEREST OF RS. 3,39,26,000/- STANDS DISALLOWED/ADDED IN BOTH THE LOWER PROCEEDINGS. IT PLEADS DOUBLE ADDITION OF INTEREST INCOME AMOUNTING TO RS. 2,37,48,200/- THER EFORE, LEARNED CIT DR ON THE OTHER HAND VEHEMENTLY CONTENDS THAT THERE IS NO DIS PUTE ON THE NON-ALLOWBILITY OF INTEREST INCOME FOR THE PURPOSE OF SECTION 80IB/80I C DEDUCTION. IT THEN AVERS THAT THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND REGARD ING QUANTIFICATION ON THE IMPUGNED DISALLOWANCE WHICH REQUIRES VERIFICATION O F FACTS. WE FIND FORCE IN REVENUES CONTENTION THEREFORE AND RESTORE THE INST ANT ADDITIONAL ISSUE RAISED AT ASSESSEES BEHEST DATED 24.06.2018 TO THE ASSESSIN G OFFICER FOR NECESSARY FACTUAL VERIFICATION OF FACTS. THIS ADDITIONAL GROUND IS TAKEN AS ACCEPTED FOR STA TISTICAL PURPOSES . 52. AS THE ISSUE IS SQUARELY COVERED BY THE DECISIO N OF CO-ORDINATE BENCH OF ITAT KOLKATA IN ASSESSEES OWN CASE (SUPRA). THEREFORE, THIS ISSUE IS BEING REMANDED BACK TO THE FILE OF THE AO FOR FACTUAL VERIFICATION . FOR STATISTICAL PURPOSES, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 53. ADDITIONAL GROUNDS RAISED BY THE ASSESSEE 1.REFUND OF DIVIDEND DISTRIBUTION TAX (DDT) PAID IN RESPECT OF NON-RESIDENCE SHARE HOLDERS. THIS GROUND RELATES TO A.Y. 2011-12 RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 47 77 7 54.THE ASSESSEE HAS RAISED THIS ADDITIONAL GROUND S TATING THAT THE ASSESSING OFFICER (AO') ERRED IN NOT EXTENDING THE BENEFIT OF APPLIC ABLE DOUBLE TAXATION AVOIDANCE AGREEMENTS BETWEEN INDIA - UK AND INDIA - SPAIN (DTAA') RESPECTIVELY QUA THE RATE OF TAX TOWARDS PAYMENT OF DIVIDEND TO THE SHAREHOLDERS NAMELY RECKITT BENCKISER PIC., UK AND LANCASTER SQU ARE HOLDINGS, SPAIN. THE AO ALSO FAILED TO APPRECIATE THAT IN TERMS OF SECTI ON 90(2), DIVIDENDS BEING THE INCOME IN THE HANDS OF THE NON-RESIDENT COULD NOT B E SUBJECTED TO TAX BY APPLYING DDT AT A RATE IN EXCESS OF THE RATE PRESCRIBED UNDE R THE DTAA AND HENCE, ERRED IN SUBJECTING THE APPELLANT TO ADDITIONAL INCOME TAX I N TERMS OF SECTION 115-0 OF THE ACT AND THE AO ALSO ERRED IN NOT GRANTING REFUND OF THE EXCESS DIVIDEND DISTRIBUTION TAX PAID BY THE APPELLANT. WE ARE OF THE VIEW THAT THIS ISSUE SHOULD BE REMITT ED BACK TO THE FILE OF THE LD AO FOR FACTUAL VERIFICATION. THE ASSESSEE IS DIRECTED TO FILE BEFORE AO, THE AMOUNT OF DIVIDEND PAID, COPY OF AGREEMENT AND OTHER RELEVANT DOCUMENTS, AS REQUIRED BY AO.THEREFORE WE DIRECT THE AO TO EXAMINE RELEVANT D OUBLE TAXATION AVOIDANCE AGREEMENTS BETWEEN INDIA UK WITH REFERENCE TO PAY MENT OF DIVIDEND TO THE SHAREHOLDERS AND ADJUDICATE THE ISSUE IN ACCORDANCE TO LAW. FOR STATISTICAL PURPOSES, THE ADDITIONAL GROUND RAISED BY THE ASSES SEE IS ALLOWED. 55. THE SECOND ADDITIONAL GROUND RAISED BY THE ASSE SSEE READS AS FOLLOWS: 2.DEDUCTION OF EDUCATION CESS ON INCOME TAX PAID B Y THE ASSESSEE IS ALLOWABLE EXPENDITURE. THIS GROUND RELATES TO A.Y 2011-12. 56. WE NOTE THAT ISSUE RAISED BY THE ASSESSEE IN TH IS ADDITIONAL GROUND IS NO LONGER RES-INTEGRA. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT EDUCATIO N CESS IS NOT TAX AND HENCE NOT DISALLOWABLE U/S 40(A)(II) OF THE ACT . WE NOTE THAT THE CBDT CIRCULAR NO. 91/58/66 - ITJ(19) DATED 18-05-1967, W HEREIN IT HAS BEEN CLARIFIED THAT THE EFFECT OF OMISSION OF THE WORD CESS FROM SEC. 40(A)(II) OF THE ACT IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED AND NOT CESS. RELEVANT EXTRACT OF CIRCULAR IS AS UNDER:- RECENTLY A CASE HAS COME TO THE NOTICE OF THE BOAR D WHERE THE ITO HAS DISALLOWED THE CESS'PAID BY THE ASSESSEE ON THE GROUND THAT THERE HAS BEEN N O MATERIAL CHANGE IN THE PROVISIONS OF S. 10(4) OF THE OLD ACT AND S. 40(A)(II) OF THE NEW ACT.THE VIEW OF THE ITO IS NOT CORRECT. CLAUSE 40(A) (II) OF THE IT BILL, 1961 AS INTRODUCED IN THE PARLIAMEN T STOOD AS UNDER: '(II) ANY SUM PAID ON ACCOUNT RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 48 88 8 OF ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR G AINS OF ANY BUSINESS OR PROFESSION OR ASSESSED 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. THE 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. THE BOARD DESIRE THA T THE CHANGED POSITION MAY PLEASE BE BROUGHT TO THE NOTICE OF ALL THE ITOS SO THAT FURTH ER LITIGATION ON THIS ACCOUNT MAY BE AVOIDED 57. WE ALSO RELY ON THE JUDGMENT OF HON'BLE RAJASTH AN HIGH COURT IN THE CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LTD. VS. JCIT (IT A NO. 52/2018) WHICH AFTER TAKING INTO ACCOUNT AFOREMENTIONED CBDT CIRCULAR HE LD THAT SEC. 40(A)(II) APPLIES ONLY TO TAXES AND NOT TO EDUCATION CESS. RELEVANT E XTRACT OF THE DECISION IS REPRODUCED FOR EASE OF REFERENCE:- 13. ON THE THIRD ISSUE IN APPEAL NO. 52/2018, IN V IEW OF THE CIRCULAR OF CBDT WHERE WORD 'CESS' IS DELETED, IN OUR CONSIDERED OPINION, THE TRIBUNAL HAS COMMITTED AN ERROR IN NOT ACCEPTING THE CONTENTION OF THE ASSESSEE. APART FROM THE SUPREME COURT DECISION REFERRED THAT ASSESSMENT YEAR IS INDEPENDENT AND WO RD CESS HAS BEEN RIGHTLY INTERPRETED BY THE SUPREME COURT THAT THE CESS IS NOT TAX IN TH AT VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW TAKEN BY THE TRIBU NAL ON ISSUE NO. 3 IS REQUIRED TO BE REVERSED AND THE SAID ISSUE IS ANSWERED IN FAVOUR O F THE ASSESSEE. 58. WE NOTE THAT COORDINATE BENCHES OF THIS TRIBUN AL IN THE FOLLOWING CASES HELD THAT EDUCATION CESS SHOULD BE ALLOWED AS AN EXPENSE . THE RELEVANT JUDGMENTS ARE GIVEN BELOW: (I) M/S ITC LIMITED -VS.-ACIT (ITA NO. 685/KOL/2014 ) THE ASSESSEES ADDITIONAL LAST/ SUBSTANTIVE GROUND AVERS THAT IT IS ENTITLED FOR THE EDUCATIONS SECONDARY HIGHER EDUCATION CESS AS OVERH EAD DEDUCTION AMOUNTING TO RS. 423618317 U/S 37 OF THE ACT. WE NOTE THAT HONBLE R AJASTHAN HIGH COURTS DECISION IN DB INCOME TAX APPEAL NO. 52/KOL/2018 M/S CHAMBAL FERTI LIZERS LTD. VS. DCIT DECIDED ON 31.07.2018 TAKES INTO ACCOUNT CBDT CIRCULAR DATED 1 8.05.1967 FOR HOLDING SUCH CESS(ES) TO BE ALLOWABLE AS DEDUCTION. THEIR LORDSHIPS HOLD THAT SECTION 40A(II) APPLIES ONLY ON TAXES SUCH THAN EARN CESS(ES). WE THEREFORE REJECT THE REVENUES CONTENTIONS SUPPORTING THE IMPUGNED DISALLOWANCE. THE ASSESSEES INSTANT S UBSTANTIVE GROUND IS ACCEPTED. THE ASSESSING OFFICER IS DIRECTION TO VERIFY ALL THE RE LEVANT FACTS AND ALLOW THE IMPUGNED CESS (ES) AS DEDUCTION U/S 37 OF THE ACT. THE ASSESSEES APPEAL I.T.A. NO. 685/KO/2014 IS PARTLY ACCEPTED IN ABOVE TERMS. (II).PEERLESS GENERAL FINANCE & INVESTMENT CO. LTD. -VS. - DCIT (ITA NO. 937/KOL/2018) 37. ADDITIONAL GROUND RAISED BY THE ASSESSEE IN ITA NO. 937/KOL/2018 FOR A.Y.201011 READS AS UNDER:THAT ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE, THE AUTHORITIES BELOW ERRED IN NOT ALLOWING DEDUCTION U/S 37(1) OF THE INCOME TAX ACT,1961, ON ACCOUNT OF EDUCATION CESSES PAID BY THE ASSESSEE WHILE ARRI VING AT THE ASSESSED INCOME FOR THE YEAR UNDER APPEAL. RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 4 44 49 99 9 38. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO TH E SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. AR, WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT GROUND OF APPEAL IS NO LONGER RES IN TEGRA. THE EDUCATION CESS BEING NOT INCOME TAX IS ALLOWABLE AS DEDUCTION UNDER SECTIO N 37 (1) OF THE ACT. FOR THIS, WE RELY ON THE JUDGMENT OF THE COORDINATE BENCH OF IT AT KO LKATA IN THE CASE OF ITC LIMITED, ITA NO.685/KOL/2014, ORDER DATED 27.11.2018, WHEREIN IT WAS HELD THAT EDUCATION CESS IS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE AC T. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO VERIFY ALL THE RELEVANT FACTS AND ALLOW EDUCATION CESS AS DEDUCTION UNDER SECTION 37(1) OF THE ACT. (III)TEGA INDUSTRIES -VS.- ACIT (ITA NO. 404/KOL/20 17)- WE FURTHER TO NOTICE THAT ASSESSEE HAS RAISED AN I DENTICAL ADDITIONAL GROUND IN BOTH CASES SEEKING TO CLAIM EDUCATION CESS ON PROVISION FOR INCOME-TAX AMOUNT OF RS. 71,65,049/- AND RS. 77,76,699 (ASSESSMENT YEAR WISE ); RESPECTIVELY AS ALLOWABLE IN COMPUTING TOTAL INCOME OTHER THAN MAT U/S. 115JB OF THE ACT. HONBLE APEX COURTS LAND MARK DECISION NATIONAL THERMAL POWER CORPORATION LT D (NTPC) V/S. CIT (1998) 229 ITR 383 (SC) AS CONSIDERED BY THIS TRIBUNALS SPECI AL BENCH ORDER M/S. ALL CARGO GLOBAL LOGISTICS LTD V/S. DCIT (12) 137 1TD 26 (MUM.) SETT LES THE LAW THAT WE AN VERY WELL ENTERTAIN SUCH A LEGAL QUESTION IN ORDER TO DETERMI NE THE CORRECT TAX LIABILITY WHEN ALL THE RELEVANT FACTS FORM PART OF RECORDS. WE THUS ALLOW ASSESSEES ADDITIONAL GROUND TO BE RAISED. 12. COMING TO MERITS OF THE HONBLE RAJASTHAN HIGH COURTS DECISION IN CHAMBAL FERTILISERS& CHEMICALS LIMITED V/S. JCIT(D.B INCOME TAX APPEAL NO. 52/2018, DATED 31-07-2018 TAKING NOTE OF CBDTS CIRCULAR NO. 91/58 /66 DATED 18-05-1965 AS WELL AS CO-ORDINATE BENCHS ORDER IN ITC LIMITED V/S. ACIT( ITA NO. 685/KOL/2014 DATED 27- 11- 2018 HOLD THAT SUCH A CLAIM OF EDUCATION CESS IS VE RY MUCH ALLOWABLE IN COMPUTING TOTAL INCOME UNDER THE PROVISIONS OF THE ACT. 59. THE LD DEPARTMENTAL REPRESENTATIVE RELIED ON TH E EARLIER DECISION OF ITAT DATED 27- 02-2019, WHEREIN THIS TRIBUNAL HAD DISAL LOWED THE CLAIM ON THE BASIS OF TWO CONTENTIONS: (I) EDUCATION CESS IS AN ADDITIONA L SURCHARGE AND HENCE FORMS OF INCOME TAX AND (II) DECISION OF KALIMATI INVESTMENT COMPANY LTD. -VS.- ITO (ITA NO.2706,4508/M/2010,2552,2553/M/2011) AND SESA GOA LTD. -VS.- JCIT (ITA NO. 72/PNJ/2012) SQUARELY APPLICABLE AGAINST THE AS SESSEE. 60. WE ACCEPT THE SUBMISSIONS OF THE ASSESSEE CONC URRING WITH THE DECISIONS OF RAJASTHAN HIGH COURT AND BINDING FAVOURABLE DECISIO NS OF JURISDICTIONAL TRIBUNAL AND THUS WE ALLOW THE CLAIM OF THE EDUCATION CESS. THE AO IS DIRECTED TO ALLOW THE CLAIM OF EDUCATION CESS IN COMPUTING TOTAL INCOME O F THE ASSESSEE COMPANY. THIS ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED . RECKITT BENCKISER (I) PVT. LTD. ITA NOS.404 & 529/KOL/2015 ITA NOS. 625 & 518/KOL/2016 ASSESSMENT YEARS:2010-11 TO 2011-12 P PP PA AA AG GG GE EE E | || | 5 55 50 00 0 61.BEFORE PARTING, IT IS NOTED THAT THE ORDER IS BE ING PRONOUNCED AFTER 90 DAYS OF HEARING. HOWEVER, TAKING NOTE OF THE EXTRAORDINARY SITUATION IN THE LIGHT OF THE COVID-19 PANDEMIC AND LOCKDOWN, THE PERIOD OF LOCKD OWN DAYS NEED TO BE EXCLUDED. FOR COMING TO SUCH A CONCLUSION, WE RELY UPON THE DECISION OF THE CO- ORDINATE BENCH OF THE MUMBAI TRIBUNAL IN THE CASE O F DCIT VS. JCB LIMITED IN ITA NO. 6264/MUM/2018 AND ITA NO. 6103/MUM/2018 FOR A.Y. 2013-14 ORDER DATED 14.05.2020. 62. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PAR TLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS APPEALS OF THE REVENUE ARE DISMISSED TO THE EXTENT INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT ON 17 .06.2020 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 17/06/2020 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. RECKITT BENCKISER (I) PVT. LTD. 2. DCIT, CIRCLE-12(1), KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATABENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES