PepsiCo India Holdings Pvt. Ltd., Gurgaon V. DCIT, Central Circle- 7, New Delhi

ITA 9003/DEL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9037 (ITAT-DELHI)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Assessment Year: 2015-2016
• Appeal Filed On: 19-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Transfer pricing; International transaction; Cost of acquisition; Capital expenditure; Set aside
• Section: 143(3); 144C; 43; 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-2 NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO. 9003/DEL/2019 ASSESSMENT YEAR: 2015-16 PEPSICO INDIA HOLDINGS PVT. LTD., LEVEL 3-6, PIONEER SQUARE, SECTOR-62, NEAR GOLF COURSE EXTENSION ROAD, GURGAON. AAACP 1272G VS DCIT, CENTRAL CIRCLE-7, NEW DELHI APPELLANT RESPONDENT ASSESSEE BY: SH. DEEPAK CHOPRA, ADVOCATE SH. ANMOL ANAND, ADVOCATE REVENUE BY: SH. SUNIL KUMAR, CIT/DR ORDER PER K. NARASIMHA CHARY, JM AGGRIEVED BY THE ORDER DATED 24/10/2019 PASSED UND ER SECTION 144C (5) READ WITH SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT), PURSUANT TO THE DIRECTIONS GIVEN BY THE LD. DISPUTE RESOLUTION PANEL-1, NEW DELHI (LD. DRP) ON 30/08/2019, FOR T HE ASSESSMENT YEAR 2015-16, M/S PEPSICO INDIA HOLDINGS PVT. LTD (THE ASSESSEE) FILED THIS APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE TRADING AND MANUFACTURING OF THE SOFT DRINK BEVERAGES AERATED AND DATE OF HEARING: 09.01.2020 DATE OF PRONOUNCEMENT: 10.01.2020 2 NON-AERATED DRINKS AND SNACKS FOOD ITEMS. ASSESSEE IS ALSO ENGAGED IN PROVIDING LOANS TO COMPANIES INVOLVED IN THE BUSINE SS OF MANUFACTURE OF SOFT DRINKS. FOR THE ASSESSMENT YEAR 2015-16, IT HA D FILED ITS RETURN OF INCOME ON 29/11/2015 DECLARING AN INCOME OF RS. 68, 49, 30, 320/-UNDER THE NORMAL PROVISIONS OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE COMPA NY HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS AND SPECIFIED DO MESTIC TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (AES) DURING THE YE AR AND, THEREFORE, THE DETERMINATION OF ARMS LENGTH PRICE OF SUCH INTERNA TIONAL TRANSACTIONS WAS REFERRED TO THE LD. TRANSFER PRICING OFFICER (L D. TPO). LD. TPO BY ORDER DATED 31/08/2017 PASSED UNDER SECTION 92CA(3) OF THE ACT PROPOSED ADJUSTMENT OF RS.457,20,63,73/-TOWARDS ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION ON ACCOUNT OF ADVERTI SEMENT, MARKETING AND PROMOTIONAL (AMP) EXPENDITURE. 3. FURTHER, LEARNED ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD DEDUCTED CAPITAL SUBSIDY AMOUNTING TO RS.13,07,88,5 20/-IN THE COMPUTATION OF TAXABLE INCOME AND EXPLAINED THAT TH E SAID CAPITAL SUBSIDY WAS RECEIVED FROM THE GOVERNMENT OF WEST BE NGAL FOR WBIDC TO THE TUNE OF RS. 11,31,21,158/-AND FROM GOVERNMENT O F MAHARASHTRA FOR PAITHON PLANT TO THE TUNE OF RS.1,76,67,362/-. LEAR NED ASSESSING OFFICER FOUND THAT THE SUBSIDY AMOUNT OF RS.1,76,67,362/-RE CEIVED FROM THE GOVERNMENT OF MAHARASHTRA WAS SPECIFICALLY FOR EXPA NSION OF THE EXISTING PLANT CAPACITY AND TOWARDS REIMBURSEMENT OF FIXED C APITAL INVESTMENT MADE BY THE ASSESSEE, AND FOLLOWING THE TREATMENT G IVEN IN THE PREVIOUS ASSESSMENT YEAR TO THE ASSESSEE BY THE DEPARTMENT I N THE PREVIOUS 3 ASSESSMENT YEARS, LEARNED ASSESSING OFFICER ACCEPTE D THE CLAIM OF THE ASSESSEE. 4. IN RESPECT OF THE SUBSIDY RECEIVED BY THE ASSESS EE FROM THE GOVERNMENT OF WEST BENGAL, IT IS COMPRISED OF TWO E LEMENTS, NAMELY, STATE CAPITAL INVESTMENT SUBSIDY (SCIS) AND INDUSTR IAL PROMOTION ASSISTANCE (IPA). LEARNED ASSESSING OFFICER HELD TH AT THE STATE CAPITAL INVESTMENT SUBSIDY TO THE TUNE OF RS. 1.5 CRORES AS CAPITAL IN NATURE AND PROPOSED THE BALANCE THEREOF AS REVENUE RECEIPT. LE ARNED ASSESSING OFFICER ACCORDINGLY PASSED THE DRAFT ASSESSMENT ORD ER. 5. IN RESPECT OF BOTH THE PROPOSED ADDITIONS, ASSES SEE FILED OBJECTIONS BEFORE THE LD. DRP. LD. DRP BY ORDER DAT ED 30/08/2019 NOTICED THAT BOTH THESE ISSUES WERE COVERED BY THE ORDER PASSED ON 19/11/2018 OF THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEARS 2006-07 TO 2013-14. LD. DRP, HOWEVER, OBSERVE D THAT THE DEPARTMENT HAD ALREADY FILED APPEALS ON THE ISSUES BEFORE THE HONBLE HIGH COURT AND THEREFORE, CONFIRMED THE PROPOSED AD DITIONS. FURTHER, IN RESPECT OF IPA, LD. DRP HELD THAT UPHOLDING OF SUCH AN ADDITION SHOULD BE SUBJECT TO THE ORDER OF THE HONBLE HIGH COURT. HAV ING SAID SO, LD. DRP FURTHER WENT ON TO OBSERVE THAT THE AMOUNT OF CAPIT AL SUBSIDY SHOULD BE REDUCED FROM THE BLOCK OF ASSETS, APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, FOR THE PURPOSE OF COMPUTING THE DEPR ECIATION ON SUCH BLOCK OF ASSETS, REPRESENTING THE NEW INVESTMENT IN THE FORM OF IPA. 6. AGGRIEVED BY SUCH AN ORDER OF THE LD. DRP, ASSES SEE PREFERRED THIS APPEAL ON AS MANY AS 43 GROUNDS. GROUNDS NO. 1 AND 2 ARE GENERAL IN NATURE. GROUNDS NO. 3 TO 29 RELATED TO THE CHALLENG E IN RESPECT OF THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF AMP EXPEN SES. GROUNDS 4 NOS.30 TO 37 ARE IN RESPECT OF ADDITION ON ACCOUNT OF IPA SUBSIDY. LD. AR SUBMITTED THAT GROUNDS NO. 38 AND 40 TO 43 ARE CONS EQUENTIAL IN NATURE. GROUND NO. 39 RELATED TO THE ALLOWANCE OF THE ACTUA L CREDIT OF TAX DEDUCTED AT SOURCE. 7. IT COULD, THEREFORE, BE SEEN THAT THE EFFECTIVE CHALLENGE IN THIS APPEAL IS ONLY IN RESPECT OF THE AMP EXPENSES AND I PA SUBSIDY. SUBMISSION OF THE LD. AR IS THAT BOTH THE ISSUES AR E COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 2006-07 TO 2013-14 IN THE DECISION REPORTED IN (2018) 100 TAXM ANN.COM 159 (DELHI- TRIB). 8. ON A READING OF THE ORDER DATED 19/11/2018 IN IT A NO. 1834/CHAND/2010 AND BATCH FOR THE ASSESSMENT YEARS 2006-07 TO 2013- 14 REPORTED IN (2018) 100 TAXMAN.COM 159 (DELHI) WE FIND THAT THE ISSUE OF AMP IS DEALT WITH BY THE TRIBUNAL IN EXTENSO AND A CONCLUSION WAS REACHED TO THE EFFECT THAT THE AMP ADJUSTMENT MADE BY THE LD. TPO/LEARNED ASSESSING OFFICER COULD BE SUSTAINED. 9. WE DEEM IT JUST AND NECESSARY TO REFER TO THE OB SERVATIONS OF THE TRIBUNAL, WHICH READ AS FOLLOWS:- 58. THUS, FORM THE PLAIN READING OF THE AFORESAID PRIN CIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT, THE KEY SEQU ITUR IS THAT: (I) INTERNATIONAL TRANSACTION CANNOT BE IDENTIFIED OR H ELD TO BE EXISTING SIMPLY BECAUSE EXCESS AMP EXPENDITURE HAS BEEN INCU RRED BY THE INDIAN ENTITY. (II) INTERNATIONAL TRANSACTIONS CANNOT BE FOUND TO EXIST AFTER APPLYING THE BLT TO DECIPHER AND COMPUTE VALUE OF INTERNATIONAL TRANSAC TION. (III) THERE IS NO PROVISION EITHER IN THE ACT OR IN THE R ULES TO JUSTIFY THE APPLICATION OF BLT FOR COMPUTING THE ARM'S LENGTH P RICE AND THERE IS NOTHING IN THE ACT WHICH INDICATE HOW IN THE ABSENC E OF BLT ONE CAN 5 DISCERN THE EXISTENCE OF AN INTERNATIONAL TRANSA CTION AS FAR AS AMP EXPENDITURE IS CONCERNED. (IV) REVENUE CANNOT RESORT TO A QUANTIFY THE ADJUSTMENT BY DETERMINING THE AMP EXPENSES SPENT BY THE ASSESSEE AFTER APPLYI NG BLT TO HOLD IT TO BE EXCESSIVE AND THEREBY EVIDENCING THE EXISTENC E OF THE INTERNA TIONAL TRANSACTION INVOLVING THE AE. 60. ANOTHER POINT WHICH HAS BEEN RAISED BY THE REVENUE IS THAT, HUGE SPENDING OF AMP EXPENSES AMOUNTS TO BRAND BUILDING AND TRADE MARK OF THE AE, AND THEREFORE, SUCH A SPENDING GIVES A BENE FIT TO THE AE BY ENHANCING ITS BRAND VALUE WHICH HELPS THE AE IN ACH IEVING SALES IN OTHER TERRITORIES OR OTHERWISE. THIS CONCEPT OF BRAND BUI LDING AND WHETHER SUCH A BRAND BUILDING CAN BE ATTRIBUTED TO ADVERTISEMENT AND SALE PROMOTIONS AND THEREBY BENEFITTING THE AE, HAS BEEN DISCUSSED IN DETAIL BY THE HON'BLE HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION (SUPRA) WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER: 'BRAND AND BRAND BUILDING 102. WE BEGIN OUR DISCUSSION WITH REFERENCE TO ELUC IDATION ON THE CONCEPT OF BRAND AND BRAND BUILDING IN THE MINORITY DECISION IN THE CASE OF L. G. ELECTRONICS INDIA PVT LTD. (SUPRA). T HE TERM 'BRAND', IT HOLDS, REFERS TO NAME, TERM, DESIGN, SYMBOL OR ANY OTHER FEATURE THAT IDENTIFIES ONE SELLER'S GOODS OR SERVICES AS D ISTINCT FROM THOSE OF OTHERS. THE WORD 'BRAND' IS DERIVED FROM THE WORD ' BRAND' OF OLD NORSE LANGUAGE AND REPRESENTED AN IDENTIFICATION MA RK ON THE PRODUCTS BY BURNING A PART. BRAND HAS BEEN DESCRIBE D AS A DUSTER OF FUNCTIONAL AND EMOTIONAL 103 IT IS A MATTER OF PERC EPTION AND REPUTATION AS IT REFLECTS CUSTOMERS' EXPERIENCE AND FAITH. BRAND VALUE IS NOT GENERATED OVERNIGHT BUT IS CREATED EVE R A PERIOD OF TIME, WHEN THERE IS RECOGNITION THAT THE LOGO OR TH E NAME GUARANTEES A CONSISTENT LEVEL OF QUALITY AND EXPERT ISE. LESLIE DE CHEMATONY AND MCDONALD HAVE DESCRIBED 'A SUCCESSFUL BRAND IS AN IDENTIFIABLE PRODUCT, SERVICE, PERSON OR PLACE, AUG MENTED IN SUCH A WAY THAT THE BUYER OR USER PERCEIVES RELEVANT, UNIQ UE, SUSTAINABLE ADDED VALUES WHICH MATCH THEIR NEEDS MOST CLOSELY'. THE WORDS OF THE SUPREME COURT IN CIVIL APPEAL NO. 1201 OF 1966 DECIDED ON FEBRUARY 12, 1970, IN KHUSHAL KHENGER SHAH V. KHORSHEDBANNDABIDABOATWALA, TO DESCRIBE 'GOODWILL', CAN BE ADOPTED TO DESCRIBE A BRAND AS AN INTANGIBLE ASSET BEING THE WHOLE ADVANTAGE OF THE REPUTATION AND CONNECTIONS FORMED WITH THE 6 CUSTOMER TOGETHER WITH CIRCUMSTANCES WHICH MAKE THE CONNECTION DURABLE. THE DEFINITION GIVEN BY LORD MACNAGHTEN IN COMMISSIONER OF INLAND REVENUE V. MIDLER AND CO. MARGARINE LTD. [1901] AC 217 (223) CAN ALSO BE APPLIED WITH MARGINAL CHANGES TO UNDERSTAND THE CONCEPT OF BRAND. IN THE CONTEXT OF 'GOODWILL' IT W AS OBSERVED: 'IT IS VERY DIFFICULT, AS IT SEEMS TO ME, TO SAY TH AT GOODWILL IS NOT PROPERTY. GOODWILL IS BOUGHT AND SOLD EVERY DAY. IT MAY BE ACQUIRED. I THINK, IN ANY OF THE DIFFERENT WAYS IN WHICH PROP ERTY IS USUALLY ACQUIRED. WHEN A MAN HAS GOT IT HE MAY KEEP IT AS H IS OWN. HE MAY VINDICATE HIS EXCLUSIVE RIGHT TO IT IF NECESSARY BY PROCESS OF LAW. HE MAY DISPOSE OF IT IF HE WILLOF COURSE, UNDER THE C ONDITIONS ATTACHING TO PROPERTY OF THAT NATURE ... WHAT IS GO ODWILL? IT IS A THING VERY EASY TO DESCRIBE VERY DIFFICULT TO DEFIN E. IT IS THE BENEFIT AND ADVANTAGE OF THE GOOD NAME, REPUTATION, AND: CO NNECTION OF A BUSINESS. IT IS THE ATTRACTIVE FORCE WHICH BRINGS I N CUSTOM. IT IS THE ONE THING WHICH DISTINGUISHES AN OLD ESTABLISHED BU SINESS FROM A NEW BUSINESS AT ITS FIRST START. THE GOODWILL OF A BUSINESS MUST EMANATE FROM A PARTICULAR CENTRE OR SOURCE. HOWEVER , WIDELY EXTENDED OR DIFFUSED ITS INFLUENCE MAY BE, GOODWILL IS WORTH NOTHING UNLESS IT HAS POWER OF ATTRACTION SUFFICIENT TO BRI NG CUSTOMERS HOME TO THE SOURCE FROM WHICH IT EMANATES. GOODWILL IS C OMPOSED OF A VARIETY OF ELEMENTS. IT DIFFERS IN ITS COMPOSITION IN DIFFERENT TRADES AND IN DIFFERENT BUSINESSES IN THE SAME TRADE. ONE ELEMENT MAY PREPONDERATE HERE AND ANOTHER ELEMENT THERE. TO ANA LYSE GOODWILL AND SPLIT IT UP INTO ITS COMPONENT PARTS, TO PARE I T DOWN AS THE COMMISSIONERS DESIRE TO DO UNTIL NOTHING IS LEFT BU T A DRY RESIDUUM INGRAINED IN THE ACTUAL PLACE WHERE THE BUSINESS IS CARRIED ON WHILE EVERYTHING ELSE IS IN THE ALL, SEEMS TO ME TO BE AS USEFUL FOR PRACTICAL PURPOSES AS IT WOULD BE TO RESOLVE THE HUMAN BODY I NTO THE VARIOUS SUBSTANCES OF WHICH IT IS SAID TO BE COMPOSED. THE GOODWILL OF A BUSINESS IS ONE WHOLE, AND IN A CASE LIKE THIS IT M UST BE DEALT WITH AS SUCH. FOR MY PART, I THINK THAT IF THERE IS ONE ATT RIBUTE COMMON TO ALL CASES OF GOODWILL IT IS THE ATTRIBUTE OF LOCALITY. FOR GOODWILL HAS NO INDEPENDENT EXISTENCE. IT CANNOT SUBSIST BY ITSELF. IT MUST BE ATTACHED TO A BUSINESS. DESTROY THE BUSINESS, AND T HE GOODWILL PERISHES WITH IT, THOUGH ELEMENTS REMAIN WHICH MAY PERHAPS BE GATHERED UP AND BE REVIVED AGAIN ...' 104 'BRAND' HAS REFERENCE TO A NAME, TRADE MARK OR TRADENAME. A BRAND LIKE 'GOODWILL', THEREFORE, IS A VALUE OF ATT RACTIONTO CUSTOMERS ARISING FROM NAME AND A REPUTATION FOR SKILL,INTEGR ITY, EFFICIENT BUSINESS MANAGEMENT OR EFFICIENT SERVICE.BRAND CREA TION AND VALUE, THEREFORE, DEPENDS UPON A GREATNUMBER OF FACTS RELE VANT FOR A PARTICULAR BUSINESS. IT REFLECTS THEREPUTATION WHIC H THE PROPRIETOR OF 7 THE BRAND HAS GATHERED OVERA PASSAGE OR PERIOD OF T IME IN THE FORM OF WIDESPREAD POPULARITYAND UNIVERSAL APPROVAL AND ACCEPTANCE IN THE EYES OF THECUSTOMER. TO USE WORDS FROM CTT V. CHUNILALPRABHUDAS ANDCO. [1970] 76 ITR 566 (CAL) ; AIR 1971 CAL 70 , IT WOULD MEAN : 'IT HAS BEEN HORTICULTURALLY AND BOTANICALLY VIEWED AS 'A SEEDSPROUTING' OR AN 'ACORN GROWING INTO THE MIGHTY OAK OF GOODWILL'.IT HAS BEEN GEOGRAPHICALLY DESCRIBED BY L OCALITY. IT HAS BEENHISTORICALLY EXPLAINED AS GROWING AND CRYSTALLI SING TRADITIONS INTHE BUSINESS. IT HAS BEEN DESCRIBED IN TERMS OF A MAGNET ASTHE 'ATTRACTING FORCE'. IN TERMS OF COMPARATIVE DYNAMIC S,GOODWILL HAS BEEN DESCRIBED AS THE 'DIFFERENTIAL RETURN OFPROFIT '. PHILOSOPHICALLY IT HAS BEEN HELD TO BE INTANGIBLE. THOUGHIMMATERIAL, I T IS MATERIALLY VALUED. PHYSICALLY ANDPSYCHOLOGICALLY, IT IS A 'HAB IT AND SOCIOLOGICALLY IT IS A 'CUSTOM'.BIOLOGICALLY, IT HAS BEEN DESCRIBE D BY LORD MACNAGHTEN INTREGO V. HUNT [1896] AC 7 AS THE 'SAP AND LIFE' OF THE BUSINESS.' THERE IS A LINE OF DEMARCATION BETWEEN DEVELOPMENT AND EXPLOITATION. DEVELOPMENT OF A TRADE MARK OR GOODWI LL TAKES PLACE OVER A PASSAGE OF TIME AND IS A SLOW ONGOING PROCES S. IN CASES OF WELL RECOGNISED OR KNOWN TRADE MARKS, THE SAID TRAD E MARK IS ALREADY RECOGNISED. EXPENDITURES INCURRED FOR PROMO TING PRODUCT(S) WITH A TRADE MARK IS FOR EXPLOITATION OF THE TRADE MARK RATHER THAN DEVELOPMENT OF ITS VALUE. A TRADE MARK IS A MARKET PLACE DEVICE BY WHICH THE CONSUMERS IDENTIFY THE GOODS ARID SERVICE S AND THEIR SOURCE. IN THE CONTEXT OF TRADE MARK, THE SAID MARK SYMBOLISES THE GOODWILL OR THE LIKELIHOOD THAT THE CONSUMERS WILL MAKE FUTURE PURCHASES OF THE SAME GOODS OR SERVICES. VALUE OF T HE BRAND ALSO WOULD DEPEND UPON AND IS ATTRIBUTABLE TO INTANGIBLE S OTHER THAN TRADE MARK. IT REFERS TO INFRA-STRUCTURE, KNOW-HOW, ABILITY TO COMPETE WITH THE ESTABLISHED MARKET LEADERS. BRAND VALUE, THEREFORE, DOES NOT REPRESENT TRADE MARK AS A STAND ALONE ASSET AND IS DIFFICULT AND COMPLEX TO DETERMINE AND SEGREGATE ITS VALUE. BRAND VALUE DEPENDS UPON THE NATURE AND QUALITY OF GOODS AND SERVICES SOLD OR DEALT WITH'. QUALITY CONTROL BEING THE MOST IMPORTANT ELEMENT, WHICH CAN MAR OR ENHANCE THE VALUE. THEREFORE, TO ASSERT AND PROFESS THAT BRAND BUILDIN G AS EQUIVALENT OR SUBSTANTIAL ATTRIBUTE OF ADVERTISEMENT AND' SALE PR OMOTION WOULD BE LARGELY INCORRECT. IT REPRESENTS A COORDINATED S YNERGETIC IMPACT CREATED BY ASSORT- MERIT LARGELY REPRESENTING REPUT ATION AND QUALITY. THERE ARE A GOOD NUMBER OF EXAMPLES WHERE BRANDS HA VE BEEN BUILT WITHOUT INCURRING SUBSTANTIAL ADVERTISEMENT OR PROM OTION EXPENSES AND ALSO CASES WHERE IN SPITE OF EXTENSIVE AND LARG E 8 SCALEADVERTISEMENTS, BRAND VALUES HAVE NOT BEEN CRE ATED. THEREFORE, IT WOULD BE ERRONEOUS AND FALLACIOUS TO TREAT BRAND BUILDING AS COUNTERPART OR TO COMMENSURATE BRAND WI TH ADVERTISEMENT EXPENSES. BRAND BUILDING OR CREATION IS A VEXED AND COMPLEXED ISSUE, SURELY NOT JUST RELATED TO ADVERTI SEMENT. ADVERTISEMENTS MAY BE THE QUICKEST AND EFFECTIVE WA Y TO TELL A BRAND STORY TO A LARGE AUDIENCE BUT JUST THAT IS NO T ENOUGH TO CREATE OR BUILD A BRAND. MARKET VALUE OF A BRAND WOULD DEP END UPON HOW MANY CUSTOMERS YOU HAVE, WHICH HAS REFERENCE TO BRA ND GOODWILL, COMPARED TO A BASELINE OF AN UNKNOWN BRAND. IT IS I N THIS MANNER THAT THE VALUE OF THE BRAND OR BRAND EQUITY IS CALC ULATED. SUCH CALCULATIONS WOULD BE RELEVANT WHEN THERE IS AN ATT EMPT TO SELL OR TRANSFER THE BRAND NAME. REPUTED BRANDS DO NOT GO I N FOR ADVERTISEMENT WITH THE INTENTION TO INCREASE THE BR AND VALUE BUT TO INCREASE THE SALES AND THEREBY EARN LARGER AND GREA TER PROFITS. IT IS NOT THE CASE OF THE REVENUE THAT THE FOREIGN ASSOCI ATED ENTERPRISES ARE IN THE BUSINESS OF SALE/TRANSFER OF BRANDS. ACCOUNTING STANDARD 26 EXEMPLIFIES DISTINCTION BETW EEN EXPENDITURE HJ7 INCURRED TO DEVELOP OR ACQUIRE AN I NTANGIBLE ASSET AND INTERNALLY GENERATED GOODWILL. AN INTANGIBLE AS SET SHOULD BE RECOGNISED AS AN ASSET, IF AND ONLY IF, IT IS PROBA BLE THAT FUTURE ECONOMIC BENEFITS ATTRIBUTABLE TO THE SAID ASSET WI LL FLOW TO THE ENTERPRISE AND THE COST OF THE ASSET CAN BE MEASURE D RELIABLY. THE ESTIMATE WOULD REPRESENT THE SET OFF OF ECONOMIC CO NDITIONS THAT WILL EXIST OVER THE USEFUL LIFE OF THE INTANGIBLE A SSET. AT THE INITIAL STAGE, INTANGIBLE ASSET SHOULD BE MEASURED AT COST. THE ABOVE PROPOSITION WOULD NOT APPLY TO INTERNALLY GENERATED GOODWILL OR BRAND. PARAGRAPH 35 SPECIFICALLY ELUCIDATES THAT IN TERNALLY GENERATED GOODWILL SHOULD NOT BE RECOGNISED AS AN A SSET. IN SOME CASES EXPENDITURE IS INCURRED TO GENERATE FUTURE EC ONOMIC BENEFITS BUT IT MAY NOT INSULT IN CREATION OF AN INTANGIBLE ASSET IN THE FORM OF GOODWILL OR BRAND, WHICH MEETS THE RECOGNITION CRIT ERIA UNDER AS- 26. INTERNALLY GENERATED GOODWILL OR BRAND IS NOT T REATED AS AN ASSET IN AS-26 BECAUSE IT IS NOT AN IDENTIFIABLE RESOURCE CONTROLLED BY AN ENTERPRISE, WHICH CAN BE RELIABLY MEASURED AT COST. ITS VALUE CAN CHANGE DUE TO A RANGE OF FACTORS. SUCH UNCERTAIN AN D UNPREDICTABLE DIFFERENCES, WHICH WOULD OCCUR IN FUTURE, ARE INDET ERMINATE. IN SUBSEQUENT PARAGRAPHS, AS-26 RECORDS THAT EXPENDITU RE ON MATERIALS AND SERVICES USED OR CONSUMED, SALARY, WA GES AND EMPLOYMENT RELATED COSTS, OVERHEADS, ETC., CONTRIBU TE IN GENERATING INTERNAL INTANGIBLE ASSET. THUS, IT IS POSSIBLE TO COMPUTE GOOD- WILL OR BRAND EQUITY/VALUE AT A POINT OF TIME BUT ITS FU TURE VALUATION WOULD BE PERILOUS AND AN IFFY EXERCISE. 9 IN PARAGRAPH 44 OF AS-26, IT IS STATED THAT INTANGI BLE ASSET ARISING FROM DEVELOPMENT WILL BE RECOGNISED ONLY AND ONLY I F AMONGST SEVERAL FACTORS, CAN DEMONSTRATE A TECHNICAL FEASIB ILITY OF COMPLETING THE INTANGIBLE ASSET: THAT IT WILL BE AV AILABLE FOR USE OR SALE AND THE INTENTION IS TO COMPLETE THE INTANGIBL E ASSET FOR USE OR SALE IS SHOWN OR HOW THE INTANGIBLE ASSET GENERATE PROBABLE FUTURE BENEFITS, ETC. THE AFORESAID POSITION FINDS RECOGNI TION AND WAS ACCEPTED IN CIT V. B. C. SRINIVASA SETTY [1981] 128 ITR 294 (SC), A RELATING TRANSFER TO GOODWILL. GOODWILL, IT WAS HEL D, WAS A CAPITAL ASSET AND DENOTES BENEFITS ARISING FROM CONNECTION AND REPUTATION. A VARIETY OF ELEMENTS GO INTO ITS MAKING AND THE CO MPOSITION VARIES IN DIFFERENT TRADES, DIFFERENT BUSINESSES IN THE SA ME TRADE, AS ONE ELEMENT MAY PRE-DOMINATE ONE BUSINESS, ANOTHER ELEM ENT MAY DOMINATE IN ANOTHER BUSINESS. IT REMAINS SUBSTANTIA L IN FORM AND NEBULOUS IN CHARACTER. IN PROGRESSING BUSINESS, BRA ND VALUE OR GOODWILL WILL SHOW PROGRESSIVE INCREASE BUT IN FALL ING BUSINESS, IT MAY VAIN. THUS, ITS VALUE FLUCTUATES FROM ONE MOMEN T TO ANOTHER, DEPENDING UPON REPUTATION AND EVERYTHING ELSE RELAT ING TO BUSINESS, PERSONALITY, BUSINESS RECTITUDE OF THE OWNERS, IMPA CT OF CONTEMPORARY MARKET REPUTATION, ETC. IMPORTANTLY, T HERE CAN BE NO ACCOUNT IN VALUE OF THE FACTORS PRODUCING IT AND IT IS IMPOSSIBLE TO PREDICATE THE MOMENT OF ITS BIRTH FOR IT COMES SILE NTLY INTO THE WORLD UNHERALDED AND UNPROCLAIMED. ITS BENEFIT AND IMPACT NEED NOT BE VISIBLY FELT FOR SOME TIME. IMPERCEPTIBLE AT BIRTH, IT EXITS UNWRAPPED IN A CONCEPT, GROWING OR FLUCTUATING WITH NUMEROUS IMPONDERABLES POURING INTO AND AFFECTING THE BUSINESS. THUS, THE DATE OF ACQUISITION OR THE DATE ON WHICH IT COMES INTO EXIS TENCE IS NOT POSSIBLE TO DETERMINE AND IT IS IMPOSSIBLE TO SAY W HAT WAS THE COST OF ACQUISITION. THE AFORESAID OBSERVATIONS ARE RELE VANT AND ARE EQUALLY APPLICABLE TO THE PRESENT CONTROVERSY. IT H AS BEEN REPEATEDLY HELD BY THE DELHI HIGH COURT THAT ADVERT ISEMENT 110 EXPENDITURE GENERALLY IS NOT AND SHOULD NOT BE TREA TED AS CAPITAL EXPENDITURE INCURRED OR MADE FOR CREATING AN INTANG IBLE CAPITAL ASSET. APPROPRIATE IN THIS REGARD WOULD BE TO REPRO DUCE THE OBSERVATIONS IN CTT V. MONTO MOTORS LTD. [2012] 206 TAXMAN 43 (DELHI) , WHICH READ: '4. . . . ADVERTISEMENT EXPENSES WHEN INCURRED TO I NCREASE SALES OF PRODUCTS ARE USUALLY TREATED AS A REVENUE EXPENDITU RE, SINCE THE MEMORY OF PURCHASERS OR CUSTOMERS IS SHORT. ADVERTI SEMENT ARE ISSUED FROM TIME TO TIME AND THE EXPENDITURE IS INC URRED PERIODICALLY, SO THAT THE CUSTOMERS REMAIN ATTRACTE D AND DO NOT FORGET THE PRODUCT AND ITS QUALITIES. THE ADVERTISE MENTS PUBLISHED/DISPLAYED MAY NOT BE OF RELEVANCE OR SIGN IFICANCE AFTER 10 LAPSE OF TIME IN A HIGHLY COMPETITIVE MARKET, WHERE IN THE PRODUCTS OF DIFFERENT COMPANIES COMPETE AND ARE AVAILABLE IN ABUNDANCE. ADVERTISEMENTS AND SALES PROMOTION ARE CONDUCTED TO INCREASE SALE AND THEIR IMPACT IS LIMITED AND FELT FOR A SHORT DU RATION. NO PERMANENT CHARACTER OR ADVANTAGE IS ACHIEVED AND IS PALPABLE, UNLESS SPECIAL OR SPECIFIC FACTORS ARE BROUGHT ON R ECORD. EXPENSES FOR ADVERTISING CONSUMER PRODUCTS GENERALLY ARE A PART OF THE PROCESS OF PROFIT EARNING AND NOT IN THE NATURE OF CAPITAL OUT LAY. THE EXPENSES IN THE PRESENT CASE WERE NOT INCURRED ONCE AND FOR ALL, BUT WERE A PERIODICAL EXPENSES WHICH HAD TO BE INCURRED CONTIN UOUSLY IN VIEW OF THE NATURE OF THE BUSINESS. IT WAS AN ON-GOING E XPENSE. GIVEN THE FACTUAL MATRIX, IT IS DIFFICULT TO HOLD THAT THE EX PENSES WERE INCURRED FOR SETTING THE PROFIT EARNING MACHINERY IN MOTION OR NOT FOR EARNING PROFITS.'. (ALSO SEE, CIT V. SPICE DISTRIBUTION LTD., I. T. A. NO. 597 OF 2014, DECIDED BY THE DELHI HIGH COURT ON SEPTEMBER 19, 20 14 [2015] 374 ITR 30 (DELHI) AND CTT V. SALORA INTERNATIONAL LTD. [2009] 308 ITR 199 (DELHI) . ACCEPTING THE PARAMETERS OF THE 'BRIGHT LINE TEST' AND IF THE SAID PARA METERS AND TESTS ARE APPLIED TO INDIAN COMPANI ES WITH REPUTED BRANDS AND SUBSTANTIAL AMP EXPENSES WOULD LEAD TO D IFFICULTY AND UNFORESEEN TAX IMPLICATIONS AND COMPLICATIONS. TATA , HERO, MAHINDRA, TVS, BAJA], GODREJ, VIDEOCON GROUP AND SE VERAL OTHERS ARE BOTH MANUFACTURERS AND OWNERS OF INTANGIBLE PRO PERTY IN THE FORM OF BRAND NAMES. THEY INCUR SUBSTANTIAL AMP EXP ENDITURE. IF WE APPLY THE 'BRIGHT LINE TEST' WITH REFERENCE TO INDI CATORS MENTIONED IN PARAGRAPH 17.4 AS WELL AS THE RATIO EXPOUNDED BY THE MAJORITY JUDGMENT IN L. G. ELECTRONICS INDIA PVT LTD.'S CASE (SUPRA) IN PARAGRAPH 17.6 TO BIFURCATE AND SEGREGATE THE AMP E XPENSES TOWARDS BRAND BUILDING AND CREATION, THE RESULTS WO ULD BE STARTLING AND UNACCEPTABLE. THE SAME IS THE SITUATION IN CASE WE APPLY THE PARAMETERS AND THE 'BRIGHT LINE TEST' IN TERMS OF P ARAGRAPH 17.4 OR AS PER THE CONTENTION OF THE REVENUE, I.E., AMP EXP ENSES INCURRED BY A DISTRIBUTOR WHO DOES NOT HAVE ANY RIGHT IN THE INTANGIBLE BRAND VALUE AND THE PRODUCT BEING MARKETED BY HIM. THIS W OULD BE UNREALISTIC AND IMPRACTICABLE, IF NOT DELUSIVE AND MISLEADING (AFORESAID REPUTED INDIAN COMPANIES, IT IS PATENT, ARE NOT TO BE TREATED AS COMPARABLES WITH THE ASSESSEE, I.E., THE TESTED PARTIES IN THESE APPEALS, FOR THE LATTER ARE NOT THE LEGAL OWN ERS OF THE BRAND NAME/TRADE MARK). 112. BRANDED PRODUCTS AND BRAND IMAGE IS A RESULT O F CONSUMERISM AND A COMMERCIAL REALITY, AS BRANDED PRODUCTS 'OWN' AND HAVE A REPUTATION OF INTRINSIC BELIEVABILITY AND ACCEPTANC E WHICH RESULTS IN 11 HIGHER PRICE AND MARGINS. TRANS-BORDER BRAND REPUTA TION IS RECOGNISED JUDICIALLY AND IN THE COMMERCIAL WORLD. WELL KNOWN AND RENOWNED BRANDS HAD EXTENSIVE GOODWILL AND IMAGE, E VEN BEFORE THEY BECAME FREELY AND READILY AVAILABLE IN INDIA T HROUGH THE SUBSIDIARY ASSOCIATED ENTERPRISES, WHO ARE ASSESSEE S BEFORE US. IT CANNOT BE DENIED THAT THE REPUTED AND ESTABLISHED B RANDS HAD VALUE AND GOODWILL. BUT A NEW BRAND/TRADE MARK/TRAD E-NAME WOULD BE RELATIVELY UNKNOWN. WE HAVE REFERRED TO TH E SAID POSITION NOT TO MAKE A COMPARISON BETWEEN DIFFERENT BRANDS B UT TO HIGHLIGHT THAT THESE ARE RELEVANT FACTORS AND COULD AFFECT TH E FUNCTION UNDERTAKEN WHICH MUST BE DULY TAKEN INTO CONSIDERAT ION IN SELECTION OF THE COMPARABLES OR WHEN MAKING SUBJECTIVE ADJUST MENT AND, THUS, FOR COMPUTING THE ARM'S LENGTH PRICE. THE AFO RESAID DISCUSSION SUBSTANTIALLY NEGATES AND REJECTS THE REVENUE'S CAS E. BUT THERE ARE ASPECTS AND CONTENTIONS IN FAVOUR OF THE REVENUE WH ICH REQUIRES ELUCIDATION.' 60.1 THUS, THE HON'BLE HIGH COURT AFTER DESCRIBING THE CONCEPT OF THE 'BRAND' HAD MADE A CLEAR CUT DEMARCATION BETWEEN DE VELOPMENT AND EXPLOITATION OF BRAND WHICH IS EITHER IN THE FORM O F TRADEMARK OR GOODWILL WHICH TAKES PLACE OVER A PASSAGE OF TIME B Y WHICH ITS VALUE DEPENDS UPON AND IS ATTRIBUTABLE TO INTANGIBLES OTH ER THAN TRADEMARK LIKE, INFRASTRUCTURE, KNOWHOW, ABILITY TO COMPETE I N THE ESTABLISHED MARKET, LEASE, ETC. BRAND VALUE DOES NOT REPRESENT TRADEMARK AS ASSET AND IT IS QUITE DIFFICULT TO DETERMINE AND SEGREGAT E ITS VALUE. BRAND VALUE LARGELY DEPENDS UPON THE NATURE OF GOODS AND SERVIC ES SOLD, AFTER SALES SERVICES, ROBUST DISTRIBUTORSHIP, QUALITY CONTROL, CUSTOMER SATISFACTION AND CATENA OF OTHER FACTORS. THE ADVERTISEMENT IS M ORE TELLING ABOUT THE BRAND STORY, PENETRATING THE MIND OF THE CUSTOMERS AND CONSTANTLY REMINDING ABOUT THE BRAND, BUT IT IS NOT ENOUGH TO CREATE BRAND, BECAUSE MARKET VALUE OF A BRAND WOULD DEPEND UPON H OW MANY CUSTOMERS YOU HAVE, WHICH HAS REFERENCE TO A BRAND GOODWILL. THERE ARE INSTANCES WHERE REPUTED BRAND DOES NOT GO FOR ADVER TISEMENT WITH THE INTENTION TO INCREASE THE BRAND VALUE BUT TO ONLY I NCREASE THE SALE AND THEREBY EARNING GREATER PROFITS. IT IS ALSO NOT THE CASE HERE THAT FOREIGN AE IS IN THE BUSINESS OF SALE/TRANSFER OF BRANDS. T HEIR LORDSHIPS HAVE ALSO REFERRED TO ACCOUNTING STANDARD 26 WHICH PROVIDES F OR COMPUTATION OF GOODWILL AND BRAND EQUAL VALUE AT A POINT OF TIME B UT NOT ITS FUTURE VALUATION OR HOW SUCH AN INTANGIBLE ASSET WILL GENE RATE PROBABLE FUTURE BENEFIT. BECAUSE, THE VALUE FLUCTUATES FROM ONE MOM ENT TO OTHER DEPENDING UPON REPUTATION AND OTHER FACTORS. REPUTA TION OF A BRAND ONLY ENHANCES THE SALE AND PROFITABILITY AND HERE I N THIS CASE IS ONLY BENEFITTING THE ASSESSEE COMPANY WHEN MARKETING ITS PRODUCTS USING THE TRADE MARK AND THE BRAND OF AE. EVEN OTHERWISE ALSO , THE VALUE OF THE 12 BRAND WHICH HAS BEEN CREATED IN INDIA BY THE ASSESS EE COMPANY WILL ONLY BE RELEVANT WHEN AT SOME POINT OF TIME THE FOREIGN AE DECIDES TO SELL THE BRAND, THEN PERHAPS THAT WOULD BE THE TIME WHEN BRA ND VALUE WILL HAVE SOME SIGNIFICANCE AND RELEVANCE. BUT TO MAKE ANY TR ANSFER PRICING ADJUSTMENT SIMPLY ON THE GROUND THAT ASSESSEE HAS S PENT ADVERTISEMENT, MARKETING EXPENDITURE WHICH IS BENEFITTING THE BRAN D/TRADEMARK OF THE AE WOULD NOT BE CORRECT APPROACH. THUS, THIS LINE O F REASONING GIVEN BY THE TPO IS REJECTED. 61. FURTHER IN THE FINAL REPORT OF ACTION 8-10 OF BASE EROSION AND PROFIT SHIFTING PROJECT (BEPS) OF OECD TITLED AS 'ALIGNING TRANSFER PRICING OUTCOMES WITH VALUE CREATION'. IT HAS BEEN SUGGESTED THAT NO ADJUSTMENT IS REQUIRED ON AMP EXPENDITURE INCURRED BY FULL-FLEDGED MANUFACTURERS. THE REPORT CONTAINS VARIOUS EXAMPLES PERTAINING TO MANUFACTURER. THE FOLLOWING PASSAGE FROM THE REPORT IS QUITE RELEVANT WHICH FOR THE SAKE OF READY REFERENCE IS QUOTED HER EINBELOW: '6.40 THE LEGAL OWNER WILL BE CONSIDERED TO BE THE OWNER OF THE INTANGIBLE FOR TRANSFER PRICING PURPOSES. IF NO LEG AL OWNER OF THE INTANGIBLE IS IDENTIFIED UNDER APPLICABLE LAW OR GO VERNING CONTRACTS, THEN THE MEMBER OF THE MNE GROUP THAT, BASED ON THE FACTS AND CIRCUMSTANCES, CONTROLS DECISIONS CONCERNING THE EX PLOITATION OF THE INTANGIBLE AND HAS THE PRACTICAL CAPACITY TO RESTRI CT OTHERS FROM USING THE INTANGIBLE WILL BE CONSIDERED THE LEGAL O WNER OF THE INTANGIBLE FOR TRANSFER PRICING PURPOSES. 6.41 IN IDENTIFYING THE LEGAL OWNER OF INTANGIBLES, AN INTANGIBLE AND ANY LICENCE RELATING TO THAT INTANGIBLE ARE CONSIDE RED TO BE DIFFERENT INTANGIBLES FOR TRANSFER PRICING PURPOSES, EACH HAV ING A DIFFERENT OWNER. SEE PARAGRAPH 6.26. FOR EXAMPLE, COMPANY A, THE LEGAL OWNER OF A TRADEMARK, MAY PROVIDE AN EXCLUSIVE LICE NCE TO COMPANY B TO MANUFACTURE, MARKET, AND SELL GOODS USING THE TRADEMARK. ONE INTANGIBLE, THE TRADEMARK, IS LEGALLY OWNED BY COMP ANY A. ANOTHER INTANGIBLE, THE LICENCE TO USE THE TRADEMARK IN CON NECTION WITH MANUFACTURING, MARKETING AND DISTRIBUTION OF TRADEM ARKED PRODUCTS, IS LEGALLY OWNED BY COMPANY B. DEPENDING ON THE FACTS AND CIRCUMSTANCES, MARKETING ACTIVITIES UNDERTAKEN BY COMPANY B PURSUANT TO ITS LICENCE MAY POTENTIALLY AFFECT THE VALUE OF THE UNDERLYING INTANGIBLE LEGALLY OWNED BY COMPANY A, T HE VALUE OF COMPANY B'S LICENCE, OR BOTH. 6.42 WHILE DETERMINING LEGAL OWNERSHIP AND CONTRACT UAL ARRANGEMENTS IS AN IMPORTANT FIRST STEP IN THE ANAL YSIS, THESE DETERMINATIONS ARE SEPARATE AND DISTINCT FROM THE Q UESTION OF REMUNERATION UNDER THE ARM'S LENGTH PRINCIPLE. FOR TRANSFER PRICING PURPOSES, LEGAL OWNERSHIP OF INTANGIBLES, BY ITSELF , DOES NOT CONFER ANY RIGHT ULTIMATELY TO RETAIN RETURNS DERIVED BY T HE MNE GROUP 13 FROM EXPLOITING THE INTANGIBLE, EVEN THOUGH SUCH RE TURNS MAY INITIALLY ACCRUE TO THE LEGAL OWNER AS A RESULT OF ITS LEGAL OR CONTRACTUAL RIGHT TO EXPLOIT THE INTANGIBLE . THE RETURN ULTIMATELY RETAINED BY OR ATTRIBUTED TO THE LEGAL OWNER DEPEND S UPON THE FUNCTIONS IT PERFORMS, THE ASSETS IT USES, AND THE RISKS IT ASSUMES, AND UPON THE CONTRIBUTIONS MADE BY OTHER MNE GROUP MEMBERS THROUGH THEIR FUNCTIONS PERFORMED, ASSETS USED, AND RISKS ASSUMED . FOR EXAMPLE, IN THE CASE OF AN INTERNALLY DEVELOP ED INTANGIBLE, IF THE LEGAL OWNER PERFORMS NO RELEVANT FUNCTIONS, USES NO RELEVANT ASSETS, AND ASSUMES NO RELEVANT RISKS, BUT ACTS SOLELY AS A TITLE HOLDING ENTITY, THE LEGAL OWNER WILL NOT UL TIMATELY BE ENTITLED TO ANY PORTION OF THE RETURN DERIVED BY THE MNE GRO UP FROM THE EXPLOITATION OF THE INTANGIBLE OTHER THAN ARM'S LEN GTH COMPENSATION, IF ANY, FOR HOLDING TITLE.' FROM THE ABOVE QUOTED PASSAGE, IT CAN BE SEEN THAT THE GUIDELINES CLEARLY ENVISAGE THAT LEGAL OWNERSHIP OF INTANGIBLE S, BY ITSELF, DOES NOT CONFER ANY RIGHT ULTIMATELY TO RETAIN RETURNS DERIV ED BY MNE GROUP FROM EXPLOITING THE INTANGIBLES, EVEN THOUGH SUCH RETURN S IS INITIALLY ACCRUING TO THE LEGAL OWNER AS A RESULT OF ITS LEGAL/CONTRAC TUAL RIGHT TO EXPLOIT THE INTANGIBLE. THE RETURN DEPENDS UPON THE FUNCTIONS P ERFORMED BY THE LEGAL OWNER, ASSETS IT USES, AND THE RISKS ASSUMED; AND IF THE LEGAL OWNER DOES NOT PERFORM ANY RELEVANT FUNCTION, USES NO REL EVANT ASSETS, AND ASSUMES NO RELEVANT RISKS, BUT ACTS SOLELY AS A TIT LE HOLDING ENTITY, THEN THE LEGAL OWNER OF THE INTANGIBLE WILL NOT BE ENTIT LED TO ANY PORTION OF THE RETURN DERIVED BY THE MNE GROUP FROM THE EXPLOI TATION OF THE INTANGIBLE OTHER THAN THE ARM'S LENGTH COMPENSATION IF ANY FOR HOLDING THE TITLE. HERE ALSO THE PEPSICO INC WHICH IS LEGAL OWNER OF THE TRADEMARK LICENSE TO THE ASSESSEE HAS NOT PERFORMED ANY RELEV ANT FUNCTION OR USED ANY ASSETS OR ASSUMED ANY RISK ALBEIT HAS ACTED ONL Y AS A TITLE HOLDER. IT IS NOT EVEN ENTITLED TO ANY RETURN FOR HOLDING SUCH TI TLE AND IN SUCH CIRCUMSTANCES, THERE SEEMS TO BE NO REASON AS TO WH Y IT SHOULD COMPENSATE ITS SUBSIDIARY IN INDIA FOR THE MARKETIN G ACTIVITIES WHILE OPERATING IN INDIA AS A FULL-FLEDGED MANUFACTURER W HO ALONE IS REAPING THE PROFIT FROM THE OPERATION IN INDIA. IT HAS BEEN CLEARLY DEMONSTRATED BY THE ASSESSEE THAT THE RISK WITH RESPECT TO ITS M ANUFACTURING OPERATION IN INDIA WAS UNDERTAKEN WHOLLY BY THE ASSESSEE AND NOT BY THE US PARENT AE. THIS IS EVEN EVIDENT FROM THE VARIOUS CLAUSES O F THE AGREEMENT ALSO. 62. BEFORE US, LEARNED CIT-DR SUBMITTED THAT THE STAND OF THE REVENUE IS THAT, THE EXPENDITURE INCURRED BY THE INDIAN SUBSID IARY OF AN MNE GROUP ON MARKET FUNCTION AMOUNTS TO INCURRING OF SUCH EXP ENSES FOR AND ON BEHALF OF THE PARENT COMPANY OUTSIDE INDIA BECAUSE; FIRSTLY, SUCH KIND OF EXPENSES PROMOTE THE BRAND/TRADEMARKS THAT ARE 14 LEGALLY OWNED BY THE FOREIGN PARENT AE; SECONDLY, THESE EXPENDITURES CREATE OR DEVELOP MARKETING INTA NGIBLES IN THE FORM OF BRANDS, TRADEMARKS, CUSTOMER LIST DE ALER/DISTRIBUTION CHANNELS, ETC. EVEN THOUGH INDIAN COMPANY MAY NOT B E THE OWNER OR HAVE ANY RIGHT IN THESE INTANGIBLES, BUT DEVELOPMEN T OF SUCH I NTANGIBLES DESERVES COMPENSATION FOR COMPUTING THE VALUE OF COMPENSATION AND THE REQUIRED ADJUSTMENT. A COMPARI SON OF THE AVERAGE OF AMP SPENT BY THE COMPARABLES IN A SIMILA R LINE OF BUSINESS HAS TO BE MADE TO DETERMINE THE ROUTINE AMOUNT SPEN T ON AMP FOR THE PRODUCT SALE AND ANY SUCH EXPENDITURE OVER AND ABOVE IS PURELY FOR DEVELOPING THE BRAND VALUE OR OTHER MARKETING I NTANGIBLES FOR THE BENEFIT OF THE AE; AND IT IS IN THE FORM OF THE SER VICE TO THE AE WHICH REQUIRES ADJUSTMENT ALONG WITH THE MARKUP OF TH E SERVICE CHARGE ON THE SAME WORK OUT ON THE COST PLUS BASIS. LASTLY, THE FUNCTIONS RELATING TO DEMPE (DEVELOPMENT, ENHAN CEMENT, MAINTENANCE, PROTECTION AND EXPLOITATION) RESULTS I NTO MANY DIRECT AND INDIRECT BENEFITS, WHICH ARE BY WAY OF INCREASE REV ENUE FROM THE TERRITORY ON ACCOUNT OF SALE/ROYALTY/FTS ETC. AND I N SOME CASES IT MAY MAKE REVENUE ENHANCEMENT IN THE OTHER PARTS OF THE WORLD. THE DIRECT BENEFIT IS BY WAY OF OBTAINING AN ADVANTAGE IN THE TERMS OF THE DEVELOPMENT OF MARKET FOR THEMSELVES A ND ALSO LEADS TO ENHANCEMENT OF THE EXIT VALUE. 63. BEFORE EXAMINING AS TO WHETHER ANY TRANSFER PRICIN G ADJUSTMENT ON AMP IS REQUIRED OR NOT FOR THE REASON STATED ABOVE, THE FIRST AND FOREMOST CONDITION IS THAT, EXISTENCE OF AN INTERNA TIONAL TRANSACTION IN RELATION TO ANY SERVICE OF BENEFIT HAS TO BE ESTABL ISHED BEFORE THE TRANSFER PRICING PROVISION CAN BE TRIGGERED SO AS T O PLACE VALUE ON SERVICE OF BENEFIT FOR THE PURPOSE OF DETERMINING THE COMPE NSATION. MERE FACT OF EXCESSIVE AMP EXPENDITURE CANNOT ESTABLISH THE E XISTENCE OF SUCH A TRANSACTION. IT IS ONLY WHEN SUCH A TRANSACTION IS ESTABLISHED THEN PERHAPS IT MAY BE POSSIBLE TO BENCH MARK IT SEPARAT ELY. UNDER THE INDIAN TRANSFER PRICING PROVISIONS, IT HAS BEEN WELL ESTAB LISHED OVER THE PERIOD OF TIME THAT DETAILED FAR ANALYSIS HAS TO BE CARRIE D OUT TO IDENTIFY ALL THE FUNCTIONS OF RESIDENT TAX PAYER COMPANY AND THE NON -RESIDENT AES PERTAINING TO ALL THE INTERNATIONAL TRANSACTIONS LI KE PURCHASE OF RAW MATERIAL, PAYMENT OF ROYALTY, PURCHASE OF FINISHED GOODS, EXPORT OF FINISHED GOODS, SUPPORT SERVICES OR WHETHER THERE I S ANY DIRECT SALES BY AE IN INDIA. FURTHER IT NEEDS TO BE SEEN, WHETHER M ARKETING ACTIVITIES RELATING TO DEMPE FUNCTIONS REFLECTED IN ANY SUCH E XPENDITURE INCURRED BY THE RESIDENT TAX PAYER COMPANY AND THE NON-RESID ENT AE IN INDIA ARE IN CONFORMITY WITH THE FUNCTIONS AND RISK PROFILES AND THE BENEFIT DERIVED 15 BY THE TAX PAYER COMPANY AND THE AE. IT IS ALSO VER Y RELEVANT TO EXAMINE, WHETHER THE AE IS ASSUMING ANY KIND OF RISK IN THE INDIAN MARKET OR IS BENEFITTING FROM INDIA IN ONE WAY OR THE OTHER. THU S, FAR ANALYSIS IS THE KEY WHICH NEEDS TO BE SEEN WHAT KIND OF FUNCTIONS I S BEING CARRIED OUT BY THE AE IN INDIA, THE NATURE OF ASSETS WHICH HAVE BE EN DEPLOYED AND THE RISK WHICH HAVE BEEN ASSUMED. IF THERE IS NO RISK O F SUCH ATTRIBUTES WHICH IS BEING CARRIED OUT BY THE NON-RESIDENT AE IN INDI A THEN THERE IS NO QUESTION OF AE COMPENSATING TO ITS SUBSIDIARY IN IN DIA FOR ANY MARKETING EXPENSES. HERE, WE HAVE ALREADY STATED AT SEVERAL P LACES THAT PARENT AE OF THE ASSESSEE-COMPANY HAS NOT CARRIED OUT ANY FUN CTION IN INDIA AND HAD NOT ASSUMED ANY RISK IN INDIA AND EVEN FOR THE LICENSE FOR USE OF TRADEMARK, NO ROYALTY HAS BEEN PAID. HENCE, NO BENE FIT WHATSOEVER HAS ACCRUED TO THE PARENT AE. ACCORDINGLY, WE ARE OF TH E OPINION THAT UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE IT IS VER Y DIFFICULT TO ATTRIBUTE ANY KIND OF ARM'S LENGTH COMPENSATION WHICH IS SUPP OSED TO BE MADE BY THE AE TO THE ASSESSEE COMPANY. 64. THUS, IN VIEW OF DISCUSSION MADE ABOVE, WE HOLD TH AT, FIRSTLY, THERE IS NO INTERNATIONAL TRANSACTION IN THE FORM OF ANY AGR EEMENT OR ARRANGEMENT ON AMP EXPENDITURE INCURRED BY THE ASSE SSEE COMPANY; AND SECONDLY, UNDER FAR ANALYSIS ALSO, NO SUCH BENE FIT FROM THE AMP EXPENDITURE HAVING ANY KIND OF BEARING ON THE PROFI TS, INCOME, LOSSES OR ASSETS AS ACCRUED TO THE AE OR ANY KIND OF BENEFIT HAS ARISEN TO THE AE. 65. AS STATED ABOVE, FROM THE ASSESSMENT YEARS 2006-07 TO ASSESSMENT YEAR 2008-09, THE TPO HAS APPLIED BLT NOT ONLY FOR IDENTIFYING THE INTERNATIONAL TRANSACTION BUT ALSO FOR MAKING THE A DJUSTMENT. FROM THE ASSESSMENT YEARS 2010-11 TO 2012-13 TPO HAS CHANGED HIS STAND AND ADJUSTMENT HAS BEEN MADE BY APPLYING 'PROFIT SPLIT METHOD' . AS PER RULE 10B(1)(D) PSM HAS TO BE APPLIED, VIS--VIS THE INTE RNATIONAL TRANSACTION INVOLVING UNIQUE INTANGIBLES IN THE FOLLOWING MANNE R: '(I) THE COMBINED NET PROFIT OF THE ASSOCIATED ENTERPRIS ES ('AES') ARISING FROM THE INTERNATIONAL TRANSACTION IN WHICH THEY AR E ENGAGED IS TO BE DETERMINED FIRST; (II) THE RELATIVE CONTRIBUTION MADE BY EACH OF THE AES T O THE EARNING OF SUCH COMBINED NET PROFIT IS TO BE EVALUATED THEREAF TER ON THE BASIS OF FUNCTIONS PERFORMED, ASSETS EMPLOYED AND RISKS ASSU MED BY EACH ENTERPRISE (FAR) AND ON THE BASIS OF RELIABLE EXTER NAL MARKET DATA VIS- -VIS INDEPENDENT PARTIES; (III) THE COMBINED NET PROFIT IS TO BE THEN SPLIT AMONGST THE AES IN PROPORTION TO THEIR RELATIVE CONTRIBUTIONS; ( IV ) THE PROFIT THUS APPORTIONED TO THE ASSESSEE IS TO B E TAKEN INTO ACCOUNT 16 TO ARRIVE AT AN ARM'S LENGTH PRICE (ALP) IN RELATION TO THE INTERNA TIONAL TRANSACTION. (V) ALTERNATIVELY, THE COMBINED NET PROFIT MAY BE INITI ALLY PARTIALLY ALLOCATED TO EACH ENTERPRISE SO AS TO PROVIDE IT WI TH A BASIC RETURN APPROPRIATE FOR THE TYPE OF INTERNATIONAL TRANSACTION, IN WHICH IT WAS ENGAGED, WITH REFERENCE TO MARKET RETURNS ACHIEVED FOR SIMILAR TYPES OF TRANSACTIONS BY INDEPENDENT ENTERPRISES, AND THE REAFTER, THE RESIDUAL PROFIT REMAINING AFTER SUCH ALLOCATION MAY BE SPLIT AMONGST THE ENTERPRISES IN PROPOR TION TO THEIR RELATIVE CONTRIBUTION AS PER (II) AND (III) ABOVE, AND IN SUCH A CASE THE AGGREGATE O F THE NET PROFIT ALLOCATED TO THE ENTERPRISE IN THE FIRST INSTANCE T OGETHER WITH THE RESIDUAL NET PROFIT APPORTIONED TO THAT ENTERPRISE IS TO BE TAKEN TO BE THE NET PROFIT ARISING TO THAT ENTERPRISE FROM THE INTERNATIONAL TRANSACTION.' THE OECD TRANSFER PRICING GUIDELINES, 2010 PROVIDES THAT PSM FIRST REQUIRES THE IDENTIFICATION OF THE PROFITS WHICH IS TO BE SPLIT AMONG THE AES, FROM THE CONTROLLED TRANSACTIONS IN WHICH THE AES WERE ENGAGED (THE COMBINED PROFIT). THEREAFTER, THE COMBINED PRO FIT BETWEEN THE AES IS REQUIRED TO BE SPLIT ON AN ECONOMICALLY VALID BA SIS THAT APPROXIMATES THE DIVISION OF PROFITS THAT WOULD HAVE BEEN ANTICI PATED AND REFLECTED IN AN AGREEMENT MADE AT ARM'S LENGTH. THE COMBINED PRO FIT TO BE SPLIT SHOULD ONLY BE THOSE ARISING FROM THE CONTROLLED TR ANSACTION. IN DETERMINING THOSE PROFITS, IT IS ESSENTIAL TO FIRST IDENTIFY THE RELEVANT TRANSACTION TO BE COVERED UNDER PSM. WHERE A TAXPAY ER HAS CONTROLLED TRANSACTIONS WITH MORE THAN ONE AE, IT IS ALSO NECE SSARY TO IDENTIFY THE PARTIES IN RELATION TO THAT TRANSACTION. COMPARABLE DATA IS RELEVANT IN THE PROFIT SPLIT ANALYSIS TO SUPPORT THE DIVISION OF PR OFITS THAT WOULD HAVE BEEN ACHIEVED BETWEEN INDEPENDENT PARTIES IN COMPAR ABLE CIRCUMSTANCES. HOWEVER, WHERE COMPARABLE DATA IS NO T AVAILABLE, THE ALLOCATION OF PROFITS MAY BE BASED ON DIVISION OF F UNCTIONS (TAKING ACCOUNT OF THE ASSETS USED AND RISKS ASSUMED) BETWE EN THE AES. FURTHER, THE TP GUIDELINES ALSO SUGGEST TWO APPROACHES IN TH E EFFECTIVE APPLICATION OF PSM, WHICH ARE: (I) CONTRIBUTION ANALYSIS : UNDER THE CONTRIBUTION ANALYSIS, THE COMBINED PROFITS, WHICH ARE THE TOTAL PROFITS FROM THE CONTR OLLED TRANSACTIONS UNDER EXAMINATION, WOULD BE DIVIDED BETWEEN THE ASSOCIATED ENTERPRISES BASED UPON A REASONABLE APPROXIMATION O F THE DIVISION OF PROFITS THAT INDEPENDENT ENTERPRISES WOULD HAVE EXP ECTED TO REALIZE FROM ENGAGING IN COMPARABLE TRANSACTIONS. ( II ) RESIDUAL ANALYSIS: UNDER THE RESIDUAL ANALYSIS, THE COMBINED PROFITS 17 FROM THE CONTROLLED TRANSACTIONS UNDER EXAMINATION IS DONE IN TWO STAGES; IN THE FIRST STAGE, EACH PARTICIPANT IS ALL OCATED AN ARM'S LENGTH REMUNERATION FOR ITS NON- UNIQUE CONTRIBUTIONS IN RELATION TO THE CONTROLLED TRANSACT IONS IN WHICH IT IS ENGAGED; AND IN THE SECOND STAGE, ANY RESIDUAL PROFIT (OR LOSS) REMAINING AFTE R THE FIRST STAGE DIVISION WOULD BE ALLOCATED AMONG THE PARTIES BASED ON AN ANALYSIS OF THE FACTS AND CIRCUMSTANCES. AS PER THE AFORESAID GUIDELINES WHICH HAS ALSO BEEN REFERRED BY THE TPO IN HIS ORDER AND THE RELEVANT RULES, WE ARE OF THE OPINION THAT, FIRST OF ALL, TPO IS REQUIRED TO DETERMINE THE COMBINED PROFIT AR ISEN FROM INTERNATIONAL TRANSACTION OF INCURRING AMP EXPENSES AND THEN HE IS REQUIRED TO SPLIT THE COMBINED PROFIT IN PROPORTION ATE TO THE RELATIVE CONTRIBUTION OF THE ASSESSEE AND THE AE. HERE, THE TPO HAS NEITHER APPLIED PSM CORRECTLY NOR HAS HE ANALYSED THE CONTR IBUTION MADE BY BOTH ENTITIES ON THE RELATIVE VALUE OF FAR OF EACH OF THE ENTITY. HE HAS ALSO NOT PROVIDED ANY RELIABLE EXTERNAL DATA BASED ON WHICH THE RELATIVE CONTRIBUTION OF THE ENTITIES INVOLVED IN THE TRANSA CTION COULD HAVE BEEN EVALUATED EITHER. HE HAS APPLIED PSM BY TAKING THE FINANCE OF THE US PART AE AND HAS DETERMINED THE RATE OF 35% ALLOCABL E TOWARDS MARKETING ACTIVITIES BY RELYING UPON JUDGMENT OF TH E TRIBUNAL IN ROLL ROYCE PLC VS. DDIT (SUPRA) AND HAS APPLIED THE SAME TO THE GLOBAL NET PROFIT OF THE US PARENT AE TO ARRIVE AT THE GLOBAL PROFIT OF US PARENT AE FROM MARKETING ACTIVITIES. THEREAFTER, HE HAS COMPA RED THE AMP SPENT BY THE AE WITH THAT OF THE ASSESSEE COMPANY AND MUL TIPLIED THAT RATIO WITH THE GLOBAL NET PROFIT OF THE US PARENT AE ARIS ING FROM MARKETING ACTIVITIES TO COMPUTE THE TRANSFER PRICING ADJUSTME NT ON ACCOUNT OF AMP EXPENSES. SUCH AN APPROACH OF THE LEARNED TPO AT TH E THRESHOLD IS WHOLLY ERRONEOUS, BECAUSE PSM IS APPLICABLE MAINLY IN INTERNATIONAL TRANSACTION INVOLVING TRANSFER OF UNIQUE INTANGIBLE S OR IN MULTIPLE INTERNATIONAL TRANSACTIONS WHICH ARE INTERRELATED A ND INTERCONNECTED THAT THEY CANNOT BE EVALUATED SEPARATELY FOR THE PU RPOSE OF DETERMINING THE ARM'S LENGTH PRICE OF ANY ONE TRANSACTION. HERE IN THIS CASE THIS IS NOT IN DISPUTE THAT NO TRANSFER OF ANY UNIQUE INTAN GIBLES HAS BEEN MADE ACCEPT FOR LICENSE TO USE TRADEMARK WHICH TOO WAS R OYALTY FREE. ACCORDING TO THE RULE, UNDER THE PSM, COMBINED NET PROFIT OF THE AES ARISING FROM THE INTERNATIONAL TRANSACTION HAS TO B E DETERMINED AND THEREAFTER, IF INCURRENCE OF AMP EXPENSES IS TO BE CONSIDERED FROM THE VALUE OF SUCH INTERNATIONAL TRANSACTION THEN THE CO MBINED PROFIT HAS TO BE DETERMINED FROM THE VALUE OF SUCH INTERNATIONAL TRANSACTION. NO FAR ANALYSIS OF AE HAS BEEN CARRIED OUT OR EVEN DEMONST RATED THAT ANY KIND OF PROFIT HAS BEEN DERIVED BY THE AE FROM THE AMP E XPENSES INCURRED IN INDIA. OTHERWISE ALSO, THE PROFIT EARNED ON ACCOUNT OF AMP EXPENSES 18 INCURRED BY THE ASSESSEE BY WAY OF ECONOMIC EXPLOIT ATION OF THE TRADEMARK/BRAND IN INDIA ALREADY STANDS CAPTURED IN THE PROFIT AND LOSS ACCOUNT FOR THE ASSESSEE COMPANY AND THE SAME HAS D ULY OFFERED TO TAX AND HENCE THERE WAS NO LOGIC TO COMPUTE OR MAKE ANY TRANSFER PRICING ADJUSTMENT ON THIS SCORE. 66. THE TPO HAS FOLLOWED THE SAME REASONING IN THE ASS ESSMENT YEAR 2013-14 ALSO, BUT THE DRP DID NOT FIND ANY SUBSTANC E IN THE TPO'S APPROACH AND DIRECTED THE APPLICATION OF 'OTHER METHOD' AS PRESCRIBED UNDER RULES AS AGAINST THE APPLICATION OF PSM. BY A PPLYING 'OTHER METHOD', ADJUSTMENT HAD BEEN MADE BY COMPARING THE AMP/SALES RATIO OF THE US PARENT AE WITH THAT OF THE ASSESSEE COMPA NY AND THEREAFTER THE DRP HAS CONSIDERED THE EXCESSIVE AMP SPENT BY T HE ASSESSEE COMPANY AS A TRANSFER PRICING ADJUSTMENT. THE ONLY DIFFERENCE BETWEEN THE EARLIER APPROACH OF THE TPO AND THE APPROACH AD OPTED BY THE DRP IS THAT, EARLIER TPO COMPARED THE AMP/SALES OF THE PAR TY, I.E., THE ASSESSEE WITH THAT OF THE THIRD PARTY AND NOW THE DRP COMPAR ES THE AMP/SALES OF THE ASSESSEE COMPANY WITH THAT OF THE PARENT AE. IN OUR OPINION, EVEN THE 'OTHER METHOD' HAS BEEN INCORRECTLY IMPLIED FOR THE SAKE OF READY REFERENCE RULE 10AB READS AS UNDER: 'OTHER METHOD OF DETERMINATION OF ARM'S LENGTH PRIC E. 10AB. FOR THE PURPOSES OF CLAUSE (F) OF SUB-SECTION (1) OF SECTION 92C, THE OTHER METHOD FOR DETERMINATION OF THE ARM' S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION [OR A SPEC IFIED DOMESTIC TRANSACTION] SHALL BE ANY METHOD WHICH TAKES INTO A CCOUNT THE PRICE WHICH HAS BEEN CHARGED OR PAID, OR WOULD HAVE BEEN CHARGED OR PAID, FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACT ION, WITH OR BETWEEN NON-ASSOCIATED ENTERPRISES, UNDER SIMILAR C IRCUMSTANCES, CONSIDERING ALL THE RELEVANT FACTS.' THE AFORESAID RULE PROVIDES THAT THAT 'OTHER METHOD ' SHALL BE ANY METHOD WHICH TAKES INTO ACCOUNT THE PRICE WHICH HAD BEEN CHARGED OR PAID FOR THE SAME OR SIMILAR UNCONTROLLED TRANSACTI ON WITH OR BETWEEN NON-ASSOCIATED ENTERPRISES UNDER SIMILAR CIRCUMSTAN CES. COMPARISON OF THE AMP OVER SALES RATIO OF THE ASSESSEE WITH THE A MP RATIO OF PEPSI CO GROUP ON A WORLDWIDE BASIS WAS NOTHING BUT A DISTOR TED VERSION OF THE BLT. 10. FOR THE YEAR 2014-15 ALSO, ON THE SAME REASONIN G AND FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL FOR THE ASSESSMENT Y EARS 2006-07 TO 2013- 14 THE ISSUE WAS HELD IN FAVOUR OF THE ASSESSEE. 19 11. IN RESPECT OF THE ISSUE RELATING TO IPA, IN THE ORDER FOR THE ASSESSMENT YEARS 2006-07 TO 2013-14, A COORDINATE B ENCH OF THIS TRIBUNAL OBSERVED THAT,- 107. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO P ERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDERS. THE ASSESSEE HAS RECEIVED SUBSIDIARY FROM GOVERNMENT OF WEST BENGAL FOR WBIDC PLANT AND GOVERNMENT OF MAHARASHTRA FOR PAITHON PLANT. THE SU BSIDY FROM THE GOVERNMENT OF WEST BENGAL WAS RECEIVED FOR SETTING UP FOR A NEW PROJECT IN WEST BENGAL UNDER THE WEST BENGAL INCENT IVE SCHEME 2000 AND 2004 WHICH WAS TO PROMOTE THE ESTABLISHMENT OF THE INDUSTRIES IN THE STATE. THE NATURE OF SUBSIDY HAS ALREADY BEEN D ESCRIBED ABOVE. THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF SUBSIDY FROM GOVERNMENT OF MAHARASHTRA AND ALSO THE STATE CAPITAL INVESTMENT S UBSIDY BY THE WEST BENGAL GOVT. AS IT WAS COMPUTED ON 15% OF FIXED CAP ITAL INVESTMENT WHICH HAS BEEN TREATED AS CAPITAL IN NATURE AND ALL OWED THE CLAIM OF ASSESSEE. HOWEVER, AO HAS DISALLOWED THE CLAIM OF T HE ASSESSEE ON THE IPA SUBSIDY RECEIVED FROM GOVERNMENT OF WEST BENGAL ON THE GROUND THAT THE SUBSIDY RECEIVED FROM GOVERNMENT OF WEST B ENGAL WAS GIVEN TO THE ASSESSEE FOR BUSINESS PROMOTION AND NOT SPECIFI CALLY RELATED TO ANY CAPITAL EXPENDITURE. THE OBJECT OF THE WEST BENGAL INCENTIVE SCHEME 2004 HAS ALREADY BEEN INCORPORATED ABOVE AND FROM T HE PERUSAL OF THE SAME IT IS SEEN THAT THE SAME WAS TO PROMOTE SETTIN G UP AND EXPANSION OF PROJECTS/INDUSTRIES AND WAS NOT AVAILABLE TO THE EXISTING INDUSTRIES UNLESS THEY UNDERTOOK SUBSTANTIAL EXPANSION. THE HO N'BLE SUPREME COURT IN THE CASE OF PONNI SUGAR AND COMMERCIAL LTD.(SUPR A) OBSERVED THAT CHARACTER OF THE RECEIVABLES IN THE HANDS OF THE AS SESSEE HAD TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH SU BSIDY WAS GIVEN. THE PURPOSE FOR WHICH SUBSIDY IS GIVEN ASSUMES MORE SIG NIFICANCE RATHER THAN THE MANNER IN WHICH IT HAS BEEN GIVEN. HERE IN THIS CASE ALSO THE SUBSIDY WAS GIVEN BY THE GOVERNMENT OF WEST BENGAL FOR THE PURPOSE OF INDUSTRIALIZATION OF THE STATE WHICH WAS AVAILABLE ONLY TO NEW UNITS OR TO EXISTING UNITS WHICH WERE INITIATING SUBSTANTIAL EX PANSION. UNDER THE SCHEME IPA WAS MADE AVAILABLE @75% OF THE SALES TAX IN THE PREVIOUS YEAR FOR WHICH THE CLAIM WAS MADE AND THE TOTAL VAL UE OF INCENTIVE WAS NOT TO EXCEED THE FIXED CAPITAL INVESTMENT. THUS, S UBSIDY WAS BASED UPON FIXED CAPITAL INVESTMENT MADE AND ONLY THE MOD E OF DISBURSEMENT WAS IN THE FORM OF RE-PAYMENT OF SALES TAX PAID. TH E HON'BLE SUPREME COURT IN THE CASE OF CHAPHALKAR BROS.(SUPRA) HELD T HAT SUBSIDIARY SCHEME OF THE STATE GOVERNMENT TO ENCOURAGE DEVELOPMENT OF MULTIPLE THEATRE COMPLEXES IS CAPITAL IN NATURE AND NOT REVENUE'S RE CEIPTS THERE ALSO 20 SUBSIDY WAS IN THE FORM OF EXEMPTION FROM PAYMENT O F ENTERTAINMENT DUE FOR THE PERIOD OF THREE YEARS. MERELY BECAUSE H ERE IN THIS CASE THE QUANTIFICATION OF SUBSIDY WAS BASED ON REIMBURSEMEN T OF SALES TAX, IT DOES NOT MEANT THAT IT IS A REVENUE RECEIPT. THIS V IEW NOW IS WELL SUPPORTED BY THE VARIOUS DECISIONS AS NOTED ABOVE T HAT CHARACTER OF SUBSIDY IN THE HANDS OF THE ASSESSEE IS THE DETERMI NATIVE FACTOR HAVING REGARD TO THE PURPOSE FOR WHICH SUBSIDY WAS GIVEN. ACCORDINGLY, WE HOLD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE FROM THE SUBSIDY RECEIVED UNDER THE WEST BENGAL INCENTIVE SCHEME OF 2004 IS C APITAL IN NATURE AND CANNOT BE TAXED AS REVENUE RECEIPTS. THUS, THIS ISS UE IS DECIDED IN FAVOUR OF THE ASSESSEE. 12. AS RIGHTLY OBSERVED BY THE LD. DRP IN ITS ORDER THESE TWO ISSUES ARE COVERED IN ASSESSEES OWN CASE FOR THE ASSESSMENT Y EAR 2006-07 TO 2013- 14 AND FOLLOWED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2014-15. ONLY GROUND OF THE LD. DRP NOT ACCEPTING THE SAME IS THA T THE DEPARTMENT HAD FILED APPEALS AGAINST THE TRIBUNALS ORDERS BEFORE THE HONBLE HIGH COURT. FACT REMAINS THAT AS ON THE DATE THERE IS NO CHANGE OF CIRCUMSTANCES NOR THE ORDERS OF THE TRIBUNAL ARE RENDERED INVALID. IN RESPECT OF THE DIRECTIONS ISSUED BY THE LD. DRP TO REDUCE THE AMOU NT OF CAPITAL SUBSIDY FROM THE BLOCK OF ASSETS ARE APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE, IT IS CHALLENGED THAT SUCH A DIRECTION DO ES NOT HAVE ANY BACKING OF LAW AND IS OTHERWISE INCONSISTENT WITH THE APPRO ACH FOLLOWED IN THE PRECEDING YEARS BY THE AUTHORITIES IN ASSESSEES OW N CASE. LD. AR REFERRED TO THE DECISION DATED 27/6/2019, OF THE TRIBUNAL IN THE CASE OF M/S SEVAHEALTHCARE LTD VS. ACIT IN ITA NO. 1062 TO 1068 /PUN/2017 FOR ASSESSMENT YEAR 2007-08 TO 2013-14. THE QUESTION DE ALT WITH THERE WAS IN RESPECT OF THE JURISDICTION OF THE LD. DISPUTE R ESOLUTION PANEL (DRP) TO BENCHMARK A NEW TRANSACTION THAN THE ONE BENCHMARKE D BY THE LD. TPO AND/OR TO BENCHMARK ALTOGETHER A NEW TRANSACTION OF LSD PROVISION OF SERVICES BY ASSESSEE TO AE ENTITIES, WHERE NO SUCH TRANSACTION WAS 21 REPORTED IN FORM 3CEB AND IN SUCH A TRANSACTION WAS BENCHMARK BY THE LD. TPO. AFTER NOTICING THE DECISIONS IN VIJAY ARJU NADAS LUTHRA VS. DCIT IN ITA 1354/PUN/2016, THE TRIBUNAL REACHED A CONCLUSIO N THAT SUCH AN EXERCISE CARRIED OUT BY THE LD. DRP IS BEYOND THE S COPE OF ITS DIRECTION. ON A CAREFUL CONSIDERATION OF THE MATTER WE ARE IN AGREEMENT WITH THE SUBMISSIONS MADE BY THE LD. AR. 13. IN RESPECT OF GROUND NO. 39 WHEREIN THE ASSESSE E AGITATES THAT THE ACTUAL CREDIT OF TAX DEDUCTED AT SOURCE TO THE TUNE OF RS. 5,31,70,455/-AS CLAIMED IN THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2015-16 SHOULD HAVE BEEN ALLOWED, IS A MATTER OF VERIFICATION AND DIRECT THE ASSESSING OFFICER TO VERIFY THE ACTUAL CREDIT OF TAX DEDUCTED AT SOURCE AND ALLOW THE SAME. 14. IN THE CIRCUMSTANCES, WE DO NOT FIND ANY JUSTIF ICATION TO SUSTAIN THE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER . WE THEREFORE, SET ASIDE THE FINDINGS OF THE LD. DRP AND DIRECT THE AS SESSING OFFICER TO DELETE THE IMPUGNED ADDITIONS. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JANUARY, 2020. SD/- SD/- (R.K. PANDA) (K. NARASIMHA CHAR Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10/01/2020