MOLSON COORS COBRA INDIA P.LTD ( ERSTWHILE COBRA INDIAN BEER P.LT), MUMBAI V. DCIT 3(1), MUMBAI

ITA 7119/MUM/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4244 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 28-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2012
• Court: TRIBUNAL
• Department Lawyers: N K CHAND; ABHINAHY KUMBHAR
• Assessee Lawyers: SAUZDBH SPARKAR
• Keywords: Business income; Transfer pricing; International transaction
• Section: 92C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER I.T.A. NO.7119/M/2012 (ASSESSMENT YEAR: 2007 - 2008 ) MOLSON COORS COBRA INDIA PRIVATE LIMITED (ERSTWHILE COBRA INDIAN BEER PRIVATE LIMITED), UNIT NO.603/6 TH FLOOR, CENTRAL PLAZA, 166, C.S.T. ROAD, KALINA, MUMBAI - 400 098. / VS. DCIT - CIRCLE 3(1), R.NO.607, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AABCC7215K ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SAUZDBH SPARKAR & MR. BANDISH SOPARKAR / RESPONDENT BY : SHRI N.K. CHAND - CIT AND SHRI ABHINAHY KUMBHAR, DR / DATE OF HEARING : 01.02.2016 / DATE OF PRONOUNCEMENT : 10 .02.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 29.11.2012 IS AGAINST THE ORDER OF THE CIT (A) - 15, MUMBAI DATED 10.9.2012 FOR THE ASSESSMENT YEAR 2007 - 2008. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN MAKING AN ADDITION OF RS. 1,59,54,395/ - BY VIRTUE OF RE - COMPUTATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTIONS VIDE HIS IMPUGNED ORDER DATED SEPTEMBER 10, 2012; 2. APPLICATION OF METHODOLOGY 2.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN REJECTING THE APPROACH ADOPTED BY THE ASSESSEE WITH RESPECT TO BIFURCATION OF THE MARKETING EXPENSES INTO VALUE - ADDED AND NON - VALUE ADDED COMPONENTS AND MAKING AN ADJUSTMENT CONSIDERING THE ENTIRE MARKETING COST, THUS CONSIDERING A MAR K - UP ON PASS - THROUGH NON - VALUE ADDED COSTS AS WELL. 2.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CALCULATING THE BRIGHT LINE DEDUCTION BY ALLOWING ONLY THE ROYALTY 2 INCOME AS THE DETERMINATION IN PLACE OF THE TO TAL SALES GENERATED BY THE BREWERIES THROUGH MARKETING EFFORTS OF THE ASSESSEE; 2.3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN HOLDING THAT THE BREWERY SALES ARE HYPOTHETICAL IN NATURE FOR COMPUTATION OF MARK ETING SPEND; 2.4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN COMPARING THE ACTIVITY OF COBRA INDIA WITH AN AGENCY FUNCTION AND SUGGESTING THAT THE IDEAL REMUNERATION MODEL SHOULD BE COST PLUS, IN WHICH CASE TH ERE IS NO POSSIBILITY OF INCURRING LOSS ; 3. USE OF MULTIPLE YEAR DATA 3.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN CONSIDERING THE FINANCIAL DATA OF FY 2007 - 2008 FOR COMPARABLES, FOR COMPUTATION OF ARMS LE NGTH PRICE, WHICH WAS NOT CONTEMPORANEOUSLY AVAILABLE TO THE APPELLANT AT THE TIME OF DOCUMENTATION AS REQUIRED BY RULE 10D(4) OF INCOME TAX RULES, 1962. 3.2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN REJECTI NG THE APPROACH FOLLOWED BY THE APPELLANT IN PREPARING CONTEMPORANEOUS DOCUMENTATION TO GIVE TRUE COMMERCIAL IMPACT OF AN ARMS LENGTH STANDARD IN THE PRICING OF THE INTERNATIONAL TRANSACTION; 4. DENIAL OF PLUS / MINUS 5% BENEFIT 4.1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN NOT APPLYING THE PROVISO TO SECTION 92C AND HAS FAILED TO GRANT THE RELIEF FOR THE DOWNWARD ADJUSTMENT OF 5% FROM THE ARITHMETIC MEAN OF THE COMPARABLES. 2. GROUND NO.1 RAISED BY THE ASSESSEE IS GENERAL . CONSIDERING THE GENERAL NATURE, THE SAID GROUND NO.1 IS DISMISSED. GROUND NOS. 3 AND 4 ARE NOT PRESSED . THEREFORE, GROUND NOS. 3 AND 4 ARE DISMISSED AS NOT PRESSED. THAT LEAVES GROUND NO.2 FOR OUR ADJUDICATION. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SUBSIDIARY OF COBRA BEER LTD., UK (COBRA UK) ENGAGED AS A MARKETING SERVICE FOR COBRA BRAND OF PRODUCTS IN INDIA. ASSESSEE RECEIVED RS. 5,96,76,996/ - FROM COBRA - UK FOR THE SAME. COBRA INDIA BREWS BEER IN INDIA THROUGH LOCAL CONTRACT MANUFACTURER. ASSESSEE RECORDED THE INTERNATIONAL TRANSACTIONS AND ONE OF SUCH TRANSACTIONS RELATES TO THE ABOVE REIMBURSEMENT OF EXPENSES (AMP EXPENSES) INCURRED ON BEHALF OF COBRA BEER LTD, UK. UNSATI SFIED WITH THE TP STUDIES OF THE ASSESSEE, TPO BENCHMARKED THESE TRANSACTIONS AND SUGGESTED AN ADDITION OF RS. 1,59,54,395/ - VIDE HIS ORDER DATED 22.10.2010. AO, VIDE ORDER DATED 2.2.2011, MADE THE ABOVE ADDITION AS PER PARA 7 OF HIS ORDER. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, THE SAID ADJUSTMENT WAS QUESTIONED VIDE GROUND NOS. 1 TO 6 OF APPEAL BEFORE THE CIT (A). ELABORATE SUBMISSIONS WERE MADE IN THIS REGARD WHICH WERE EXTRACTED IN THE ORDER OF 3 THE CIT (A). THE SUMMARY OF THE SAME WAS PROVIDED IN PARA 4.3 OF HIS ORDER. EVENTUALLY, CIT (A) REJECTED THE ASSESSEES CLAIM IN MATTER OF BIFURCATION OF MARKETING EXPENSES INTO VALUE ADDITION AND NON - VALUE ADDED COMPONENTS OR EXTRAORDINARY / ROUTINE COST AND MADE ADJUSTMENT . CIT (A) ALSO CONSIDERED THE BRIGHT LINE TEST (BLT) ON THE ROYALTY INCOME AND RENT IN CALCULATING THE DEDUCION INSTEAD OF CONSIDERING THE TOTAL SALES OF T HE ASSESSEE . AGGRIEVED WITH THE ABOVE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ABOVE CONCLUSIONS AND RAISED VARIOUS ARGUMENTS. 5. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IMPUGNED ORDER BEING DATED 10.9.2012 BY THE CIT (A) WAS PA SSED PRIOR TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD VS CIT [374 ITR 118] AND MARUTI SUZIKI INDIA LIMITED VS. CIT IN ITA NO. 110/ 2014 AND ITA 710/2015, DATED 11 TH DECEMBER, 2015 AND TH E COORDINATE BENCH DECISION OF THE ITAT IN THE CASE OF M/S. JOHNSON & JOHNSON LIMITED VS. ADIT VIDE I.T.A. NO. 829/M/2014 (AY 2009 - 2010), DATED 07.01.2016 . SUMMARISING THE ABOVE, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GROUND NO.2 WITH ITS SUB - GROUNDS ARE REQUIRED TO BE SET ASIDE AND REMANDED TO THE FILE OF THE AO / TPO FOR FRESH ADJUDICATION FOLLOWING THE GUIDELINES MENTIONED BY THE HONBLE DELHI HIGH COURT IN THE ABOVE REFERRED CASES. OTHERWISE, IT IS THE CASE OF THE ASSESSEE THAT AMP EX PENSES CONSTITUTE 40% OF THE SA LES AND THE ASSESSEE RECEIVED FROM THE AES ONLY TO THE EXTENT OF 7% WHICH WAS NOT ACCEPTED BY THE REVENUE AUTHORITIES. HE FURTHER SUBMITTED THAT THE BLT IS NOT THE APPROVED METHOD FOR BENCHMARKING THE ABOVE MENTIONED INTERNA TIONAL TRANSACTIONS. 6. ON THE OTHER HAND, LD DR FOR THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. WE H AVE CONSIDERED THE SUBMISSIONS OF THE LD COUNSEL THAT UNDER THE FACTUAL MATRIX OF THIS CASE, THE ISSUE OF BENCHMARKING THE AMP TRANSACTIONS WAS REMANDED IN THE CASE OF M/S. JOHNSON & JOHNSON LIMITED (SUPRA) AND JUDGMENT OF THE HONBLE DELHI HIGH COURT IN T HE CASE OF PERFETTI VAN MELLE INDIA PVT LTD VS. DCIT IN ITA 4 NO.407/DEL/2015 (AY 2010 - 2011), DATED 2.6.2015. THE UNDERSIGNED IS A PARTY TO THE SAID DECISION OF THE TRIBUNAL IN THE CASE OF M/S. JOHNSON & JOHNSON LIMITED (SUPRA). FOR THE SAKE OF COMPLETENES S OF THIS ORDER, RELEVANT PARAS FROM THE SAID TRIBUNALS ORDER DATED 7.1.2016 IS EXTRACTED AND PLACED AS UNDER: - 6. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE OF BENCHMARKING THE AMP EXPENSES QUA THE BRAND DEVELOPMENT AND FIND THE AO / TPO RELIED HEAVILY ON THE SPECIAL BENCH DECISION OF ITAT, DELHI IN THE CASE OF L.G. ELECTRONICS INDIA PVT LTD (SUPRA) IN MAKING THE AD JUSTMENTS AND IN APPLYING THE BLT IN BENCHMARKING THE AMP EXPENDITURE. IT IS AN UNDISPUTED FACT THAT THE HONBLE DELHI HIGH COURT HAS RENDERED A JUDGMENT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT LTD (SUPRA), REVERSING THE SAID SPECIAL BENCH DECISION IN THE CASE OF L.G. ELECTRONICS (SUPRA). AS ON TODAY, THE BLT IS NOT TO BE APPLIED IN SUCH BENCHMARKING EXERCISE OF THE AMP EXPENDITURE. AP / TPO IS STATUTORILY BOUND TO APPLY THE EXISTING METHODS MENTIONED IN THE IT ACT, 1961 / IT RULES, 1962. WE, ACCORDINGLY, REMAND THE ISSUE, THAT REVOLVES AROUND THE TP ADJUSTMENT OF RS. 133.02 (ROUNDED OF), TO THE FILE OF THE AO / TPO TO BENCHMARK THESE TRANSACTIONS, IF NECESSARY IN THE LIGHT OF THE GUIDELINES SPECIFIED IN THE PRECEDENTS ENUN CIATED BY THE DELHI HIGH COURT (SUPRA). FURTHER, TPO IS DIRECTED TO APPLY ALL THE PRINCIPLES LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MARUTI SUZIKI INDIA LIMITED VS. CIT IN ITA NO. 110/ 2014 AND ITA 710/2015, DATED 11 TH DECEMBER, 2015 IN TH E REMAND PROCEEDINGS IN THE MATTERS OF THE REQUIREMENT OF BENCHMARKING THE AMP TRANSACTIONS. 8. WE ALSO FIND THAT THE JUDGMENTS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS PVT LTD (SUPRA) AND MARUTI SUZIKI INDIA LIM ITED (SUPRA) ARE ALSO CONSIDERED WHILE REMANDING THE ABOVE CASE ( M/S. JHONSON AND JHONSON ) TO THE FILE OF THE AO FOR NECESSARY ADJUDICATION. WITH SIMILAR DIRECTIONS, WE REMAND G ROUND NO.2 WITH ITS SUB - GROUNDS OF THE PRESENT APPEAL TO THE FILE OF THE AO FO R BENCHMARKING THE RELEVANT INTERNATIONAL TRANSACTIONS. ACCORDINGLY, GROUND NO.2 WITH ITS SUB - GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES . 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNC ED IN THE OPEN COURT ON 10 TH FEBRUARY, 2016. SD/ - SD/ - ( SANJAY GARG ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 10 .2.2016 . . ./ OKK , SR. PS 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI