GILLATTE INDIA LIMITED, ALWAR V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, ALWAR

ITTPA 04/JPR/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0869 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 08-06-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 24-12-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BK GUPTA
• Keywords: Transfer pricing; International transaction; Additional evidence; Question of law; Commercial expediency
• Section: 143(3); 92B; 92F; 234B; 201; 13; 22; 28; 154

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA- @ IT (TP) A. NO. 04/JP/2018 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2014-2015 M/S GILLETTE INDIA LTD. SPA-65-A, INDUSTRIAL AREA, BHIWADI. ALWAR. CUKE VS. THE ACIT, CIRCLE-2 ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACI 3924 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) & SHRI DHANESH BAFNA (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI B. K. GUPTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 05/06/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 08/06/2020 VKNS'K@ ORDER PER: SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF ACIT CIRCLE 2, ALWAR UNDER SECTION 143(3) R/W 144C(13) O F THE ACT DATED 23.10.2018 FOR ASSESSMENT YEAR 2014-15. 2. GROUND NO. 1 OF ASSESSEES APPEAL IS GENERAL IN NATURE AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER PURSUANT TO DIRECTIONS OF THE DRP. IT DOES NOT REQUIRE ANY SEPARATE ADJUDICATION AS EACH OF THE ISSUES ARE BEING DEALT WITH WHILE DISPOSING OFF SPE CIFIC GROUNDS OF APPEAL IN SUBSEQUENT PARAGRAPHS. THE GROUND OF APP EAL IS THUS DISMISSED. IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 2 3. IN GROUND NO. 2.1 TO 2.5, THE ASSESSEE HAS EFFEC TIVELY CHALLENGED THE ACTION OF THE LOWER AUTHORITIES IN MAKING A TRA NSFER PRICING ADJUSTMENT IN RELATION TO AMP EXPENSES TO THE TUNE OF RS 59,70,96,832/- TO THE RETURNED INCOME. 4. DURING THE COURSE OF HEARING, THE LD AR, REFER RING TO THE PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER, SU BMITTED THAT THE TPO ALLEGED THAT THE APPELLANT WAS UNDERTAKING DEVELOPM ENT, ENHANCEMENT, MAINTENANCE, PROTECTION AND EXPLOITATION (DEMPE) FUNCTION FOR ITS AE. ACCORDING TO THE TPO, BY INCURRING EXCESSIVE AMP SP END, THE APPELLANT WAS CREATING/ ADDING VALUE TO THE INTANGIBLES LEGAL LY OWNED BY ITS AE AND THEREFORE HE CONCLUDED THAT SUCH EXCESSIVE/ NON -ROUTINE AMP EXPENSE CONSTITUTED AN INTERNATIONAL TRANSACTION IN TERMS OF SECTION 92B R.W.S 92F (V) OF THE ACT. TO SUPPORT HIS CASE, THE TPO HAS PLACED RELIANCE ON THE HONBLE DELHI HIGH COURT DECISION I N THE CASE OF SONY ERICSSON MOBILE COMMUNICATIONS I. PVT. LTD. VS. CIT (ITA NO. 16/2014). THEREAFTER, APPLYING BRIGHT LINE TEST, THE TPO COMP ARED THE AMP SPEND OF THE APPELLANT (AS A PERCENTAGE OF SALES) WITH TH AT OF THE COMPARABLE COMPANIES AND CONCLUDED THAT DIFFERENCE BETWEEN RAT IO OF AMP/ SALES OF THE APPELLANT AND THAT OF THE COMPARABLE COMPANI ES (I.E. 14.87% MINUS 11.46%) WAS EXCESSIVE/ NON-ROUTINE. SUCH EXCE SS, ACCORDING TO THE TPO, SHOULD HAVE BEEN REIMBURSED BY THE AE HOLD ING LEGAL OWNERSHIP IN THE BRAND NAME I.E. THE GILLETTE COMPA NY, USA (TGC, USA). FURTHER, THE TPO ALSO ERRONEOUSLY INFERRED T HAT THE APPELLANT HAS RENDERED SERVICES TO ITS OVERSEAS AES BY INCURRING ADDITIONAL AMP EXPENSES AND APPLIED A MARK-UP OF 17.89% (BASED ON MARGINS EARNED BY COMPARABLE COMPANIES PROVIDING MARKETING SUPPORT SERVICES) ON THE INCREMENTAL AMP SPEND AND PROPOSED AN ADJUSTMENT TO THE APPELLANTS IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 3 INCOME BY RS. 66.91 CRORE. AGGRIEVED BY THE AFORESA ID TP ADJUSTMENT, THE APPELLANT APPROACHED THE DRP WHICH HAS COMPLETE LY DISREGARDED THE SUBMISSIONS OF THE APPELLANT AND HAS HELD THAT ISSUE OF AMP WAS PENDING BEFORE THE HONBLE SUPREME COURT (AS DEPART MENT HAS FILED SLP IN SEVERAL CASES AGAINST THE FAVOURABLE DECISIO NS OF HONBLE DELHI HIGH COURT) AND THEREFORE, THE ADJUSTMENT MADE BY T HE TPO WAS TO BE UPHELD. HOWEVER, THE DRP DIRECTED THE TPO TO EXCLUD E A FEW COMPANIES SELECTED BY THE TPO FOR COMPUTATION OF MARKUP ON TH E AMP ADJUSTMENT. ACCORDINGLY, THE ADJUSTMENT HAS REDUCED FROM RS. 66 ,91,23,056 (AS PER THE TPOS ORDER) TO RS. 59,70,96,832. AGGRIEVED BY THE DRPS DIRECTIONS, THE APPELLANT HAS NOW APPROACHED THE TR IBUNAL FOR SEEKING NECESSARY RELIEF. 5. IT WAS SUBMITTED BY THE LD AR THAT THE TRIBUNAL, IN THE APPELLANT'S OWN CASE FOR THE PREVIOUS FOUR ASSESSMENT YEARS (A. Y 2009-10, A.Y 2010-11, A.Y 2011-12 AND A.Y 2012-13) HAS DELETED T HE ADJUSTMENT ON ACCOUNT OF AMP EXPENSES BY HOLDING THAT INCURRENCE OF AMP PER SE DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION UNLESS THE REVENUE WAS ABLE TO PROVE THE EXISTENCE OF ANY ARRANGEMENT/ AGREEMEN T DE HORS THE APPLICATION OF BRIGHT LINE TEST (BLT). THE TRIBUN AL FURTHER HELD THAT THE APPLICATION OF BRIGHT LINE TEST TO ASCERTAIN THE EX ISTENCE OF THE ALLEGED INTERNATIONAL TRANSACTION WAS NOT PERMISSIBLE UNDER THE INDIAN TRANSFER PRICING REGULATIONS. TO HOLD THE AFORESAID, THE TRI BUNAL RELIED ON THE HONBLE DELHI HIGH COURT DECISION IN THE CASE OF MARUTI SUZUKI INDIA LTD. (ITA 110/2014). SINCE DE HORS THE APPLICATION OF BRIGHT LINE TEST, THE REVENUE HAD FAILED TO DEMONSTRATE THE EXISTENCE OF AN INTERNATIONAL TRANSACTION, THE TRIBUNAL HAD DELETED THE ENTIRE AM P ADJUSTMENT. THE IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 4 RELEVANT EXTRACT OF THE ORDER FOR THE LEAD ASSESSME NT YEAR I.E. AY 2009- 10 (ITA NO. 01/ JP/2013) READS AS UNDER: 4.17 APPLYING THE ABOVE LEGAL PROPOSITION TO THE F ACTS OF THE PRESENT CASE, IT IS NOT A CASE OF THE REVENUE THAT THERE EXISTED AN UNDERSTANDING OR AN ARRANGEMENT OR AN ACTION IN CON CERT BETWEEN THE ASSESSEE-COMPANY AND ITS FOREIGN AE TO INCUR AM P EXPENDITURE TO PROMOTE THE BRAND VALUE OF THE PRODUCTS MANUFACT URED AND DISTRIBUTED BY THE ASSESSEE COMPANY. MERELY BECAUSE THE ASSESSEE-COMPANY INCURRED EXCESSIVE AMP EXPENDITURE COMPARED TO THE EXPENDITURE INCURRED BY COMPARABLE COMPANIES , IT CANNOT BE INFERRED THAT THERE EXISTED INTERNATIONAL TRANSACTI ON BETWEEN ASSESSEE-COMPANY AND ITS FOREIGN AE. AS HELD IN THE CASE OF SONY ERICSSON CASE, APPLICATION OF BRIGHT LINE TEST AS A TOOL TO ASCERTAIN AN ALLEGED INTERNATIONAL TRANSACTION IS NOT PERMISS IBLE UNDER THE INDIAN TP REGULATIONS. THE ONUS IS ON THE REVENUE T O DEMONSTRATE THAT DE HORS THE BLT AN AMP EXPENSE INCURRED BY THE TAXPAYER CONSTITUTES AN INTERNATIONAL TRANSACTION WHICH HAS NOT BEEN DISCHARGED IN THE INSTANT CASE. THE REVENUE HAS FAI LED TO DEMONSTRATE THE EXISTENCE OF AN INTERNATIONAL TRANS ACTION. THEREFORE, THE QUESTION OF DETERMINATION OF ALP ON SUCH TRANSACTION DOES NOT ARISE. RESPECTFULLY FOLLOWING THE RATIO DECIDENDI OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF MARUTI SUZUKI AND SUBSEQUENT HONBLE DELHI HIGH COURT DECI SIONS REFERRED SUPRA, WE HOLD THAT AMP EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE TREATED AND CATEGORISED AS AN INTERNATION AL TRANSACTION UNDER SECTION 92B OF THE ACT. IN LIGHT OF THE ABOVE , THE ADDITIONAL GROUND NO. 7 RAISED BY THE ASSESSEE COMPANY IS ALLO WED IN FAVOUR OF THE ASSESSEE COMPANY. IN VIEW OF ADDITIONAL GROU ND DECIDED IN IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 5 FAVOUR OF THE ASSESSEE-COMPANY, GROUND NO. 2 DOESN T ARISE FOR CONSIDERATION. THE AO IS DIRECTED TO DELETE THE ADJ USTMENT ON ACCOUNT OF AMP SPEND BY THE APPELLANT. 6. IT WAS FURTHER SUBMITTED BY THE LD AR THAT THE A FORESAID RATIO OF THE TRIBUNAL DECISION HAS BEEN FOLLOWED BY THE TRIB UNAL IN SUBSEQUENT ASSESSMENT YEARS I.E, AY 2010-11, AY 2011-12 AND AY 2012-13. IT WAS SUBMITTED THAT THE REVENUES APPEAL AGAINST THE AFO RESAID ORDERS FOR AY 2009-10 (ITA NO. 40/2017), AY 2010-11 (ITA NO. 3 9/2017) AND AY 2011-12 (ITA NO. 341/2017) HAVE SINCE BEEN DISMISSE D BY THE HONBLE RAJASTHAN HIGH COURT ON MERITS. 7. IT WAS SUBMITTED THAT SIMILAR TO THE FACTUAL MAT RIX FOR THE PREVIOUS YEARS, IN THE YEAR UNDER CONSIDERATION ALS O, THE TPO HAS ARRIVED AT THE COST/ VALUE OF THE INTERNATIONAL TRA NSACTION BY APPLICATION OF BRIGHT LINE TEST. DE HORS THE APPLICATION OF BRIGHT LINE TEST, THE TPO HAS NOT BEEN ABLE TO DEMONSTRATE THAT THE APPELLANT WAS OBLIGED TO INCUR AMP EXPENSES ON BEHALF OF ITS AE OR THAT THE AMP EXPENSES WERE INCURRED AT THE BEHEST OF ITS AE. NOWHERE IN THE T P ASSESSMENT ORDER, THE TPO HAS BEEN ABLE TO SHOW THAT THERE EXISTS AN ARRANGEMENT OR AN AGREEMENT FOR INCURRENCE OF AMP EXPENSES BY THE APP ELLANT ON BEHALF OF ITS AE. ACCORDINGLY, IT WAS SUBMITTED THAT THE I SSUE IS WHOLLY COVERED IN FAVOUR OF THE APPELLANT BY VARIOUS TRIBUNAL AND HIGH COURT ORDERS IN THE APPELLANTS OWN CASE AND THEREFORE, THE ADJUSTM ENT ON ACCOUNT OF AMP MAY BE DELETED. 8. PER CONTRA, THE LD CIT/DR RELIED UPON AND SUPPO RTED THE ORDER OF THE LOWER AUTHORITIES. REGARDING THE ORDER PASSED B Y THE HONBLE RAJASTHAN HIGH COURT FOR A.Y 2009-10 AND 2010-11, I T WAS SUBMITTED IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 6 THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECIS IONS AND HAS FILED AN SLP AGAINST THE SAID DECISIONS BEFORE THE HONBL E SUPREME COURT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THERE ARE NO CHA NGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS COMPARED TO THE EARLIE R YEARS WHEREIN THE MATTER HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF T HE ASSESSEE BY THE COORDINATE BENCHES AND WHICH HAS SINCE BEEN UPHELD BY THE HONBLE RAJASTHAN HIGH COURT. IN DB ITA NO. 40/2017 & 39/2 017 DATED 18.07.2017 FOR A.Y. 2009-10 & 2010-11, THE SUBSTANT IAL QUESTIONS OF LAW FRAMED FOR CONSIDERATION BEFORE THE HONBLE RAJ ASTHAN HIGH COURT READ AS UNDER:- 3. COUNSEL FOR THE DEPARTMENT HAS FRAMED FOLLOWING SUBSTANTIAL QUESTION OF LAW NO. 1,2, & 3 WHICH ARE COMMON IN BO TH THESE APPEAL AND THE SAME READS AS UNDER:- 1. WHETHER THE TRIBUNAL WAS ILLEGALLY JUSTIFIED IN DELETING THE ADDITION OF RS. 87,12,49,257/- (IN APPEAL NO. 39/20 17) AND RS. 1,10,87,46,190/- (IN APPEAL NO. 40/2017) BEING ADJU STMENT ON ACCOUNT OF COMPENSATION TO BE RECEIVED BY THE ASSES SEE FROM ITS ASSOCIATED ENTERPRISE (AE) FOR CREATING MARKETING I NTANGIBLES AND PROMOTING THE BRAND NAME OF ITS AE, SPECIALLY WHEN THE ASSESSEE COMPANY WAS PROMOTING MARKETING INTANGIBLES OF ITS AE THOUGH THE BRAND BELONGS TO THE AE AND NOT TO THE ASSESSEE AND THE PRODUCTS MANUFACTURED BY THE ASSESSEE ARE ALSO MANU FACTURED BY THE AE AND ITS OTHER SUBSIDIARIES IN DIFFERENT COU NTRIES WITH THE SAME NAME? 2. WHETHER THE TRIBUNAL WAS LEGALLY JUSTIFIED IN HO LDING THAT ADVERTISEMENT MARKETING AND PROMOTION (AMP) EXPENDI TURE WAS NOT AN INTERNATIONAL TRANSACTION EVEN THOUGH THE AS SESSEE WAS PERFORMING DEVELOPMENT, ENHANCEMENT, MAINTENANCE, P ROTECTION AND EXPLOITATION (DEMPE) FUNCTIONS FOR ITS AE AND D OING ACTIVITY OF BRAND BUILDING? IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 7 AND THE RELEVANT FINDINGS OF THE HONBLE RAJASTHAN HIGH COURT WHEREIN THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE READS AS UNDER:- 6.1 REGARDING ISSUE NO. 1,2 &3, TRIBUNAL WHILE CON SIDERING THE EXPENSES OF THE ASSOCIATED ENTERPRISE (AE) FOR CREA TING MARKETING INTANGIBLES AND PROMOTING THE BRAND NAME OF ITS AE, IT IS FOR THE MARKETING PEOPLE TO LOOK NEW PRODUCTS WHICH HAS COM PETITION IN THE NATIONAL LEVEL OR GRASS ROUTE LEVEL AND INTERNA TIONAL LEVEL. IT IS ALWAYS FOR THE COMPANY TO DECIDE ON WHAT RATIO THE EXPENSES ARE TO BE INCURRED AT GRASS ROUTE AND ON THAT RATIO FOR PROMOTING THEIR PRODUCT. 6.2 IN THAT VIEW OF THE MATTER, UNLESS THE AMOUNT W HICH WAS FOUND TO BE NOT GENUINE MERELY BECAUSE EXCESS AMOUN T HAS BEEN SPENT ON ADVERTISEMENT, WILL NOT BE A GROUND FOR DI SALLOWING THE EXPENSES. 6.3 IN THAT VIEW OF THE MATTER, ON ISSUE NO. 1 & 2, WE ARE OF THE VIEW THAT THE TRIBUNAL HAS NOT COMMITTED ANY ERROR. THE ISSUE ARE ANSWERED IN FAVOUR OF THE ASSESSEE. 10. THE AFORESAID DECISION HAS BEEN FOLLOWED BY THE HONBLE RAJASTHAN HIGH COURT WHILE DISPOSING OFF THE DEPART MENTS SUBSEQUENT APPEAL IN DB APPEAL NO. 341/2017 DATED 6.02.2018 FO R A.Y 2011-12. FURTHER, MERE FILING AN SLP BEFORE THE HONBLE SUPR EME COURT AGAINST THE AFORESAID DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN ASSESEEES OWN CASE CANNOT BE A REASON FOR NOT FOLL OWING THE SAID DECISION. THE DECISION OF THE JURISDICTIONAL HIGH COURT IS BINDING ON THIS TRIBUNAL AS WELL AS ON THE DRP. NOTHING HAS BEEN B ROUGHT ON RECORD WHICH SUGGESTS THAT THE SAID DECISION OF THE HONBL E RAJASTHAN HIGH COURT HAS BEEN STAYED, THEREFORE, RESPECTFULLY FOLL OWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE , THE ADJUSTMENT ON ACCOUNT OF AMP EXPENSES IS HEREBY DIRECTED TO BE DELETED. IN THE RESULT, GROUND NO. 2 OF THE ASSESSEES APPEAL IS AL LOWED. IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 8 11. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF BUSINESS SUPPORT SERVICES AMOUNTING TO RS. 4,03,72,348/-. 12. DURING THE COURSE OF HEARING, THE LD AR SUBMITT ED THAT THE DRP HAS GIVEN SUBSTANTIAL RELIEF AND DIRECTED THE ASSES SING OFFICER TO COMPUTE THE ADJUSTMENT ON ACCOUNT OF BUSINESS SUPPO RT SERVICES AVAILED BY THE APPELLANT FROM ITS AES AT A COST PLU S 5% INSTEAD OF COST PLUS 7% CLAIMED BY THE APPELLANT. HOWEVER, WHILE GI VING EFFECT TO THE DIRECTIONS OF THE DRP, THE AO INCORRECTLY COMPUTED THE AMOUNT OF ADJUSTMENT. THE APPELLANT HAS FILED A RECTIFICATION APPLICATION ON 11 SEPTEMBER 2019 UNDER SECTION 154 OF THE ACT BEFO RE THE AO FOR RECTIFYING THE SAID MISTAKE APPARENT FROM RECORD. O N DISPOSAL OF THE SAME, THE AMOUNT OF ADJUSTMENT SHALL STAND AT RS. 2 6,41,182 INSTEAD OF RS. 4,03,72,348 AS CURRENTLY COMPUTED IN THE FINAL ASSESSMENT ORDER. ACCORDINGLY, THE APPELLANT DOES NOT WISH TO PRESS T HIS GROUND OF APPEAL ON ACCOUNT OF SMALLNESS OF AMOUNT AND THE SAME SHOU LD HOWEVER, NOT BE CONSTRUED AGAINST THE APPELLANT IN ANY MANNER WH ATSOEVER. 13. THE GROUND OF APPEAL NO. 3 IS THUS DISMISSED A S NOT PRESSED BY THE LD AR DURING THE COURSE OF HEARING. 14. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED TH E TRANSFER PRICING ADJUSTMENT TO THE TUNE OF RS. 16,49,06,644/- IN REL ATION TO PAYMENT OF ROYALTY. 15. THE LD AR SUBMITTED THAT THE APPELLANT IS A LIS TED COMPANY ENGAGED IN THE MANUFACTURING OF PERSONAL CARE PRODU CTS WHICH INCLUDES IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 9 BLADES, RAZORS AND CARTRIDGES, SHAVING SYSTEM AND B RUSHES. DURING THE YEAR, THE APPELLANT, INTER-ALIA , ENTERED INTO THE TRANSACTION FOR PAYMENT OF ROYALTY, AS PER THE INTELLECTUAL PROPERTY LICENS E AGREEMENT IN RESPECT OF GILLETTE GROOMING PRODUCTS ENTERED INTO WITH THE GILLETTE COMPANY, USA WITH EFFECT FROM 1 APRIL 2010. AS PER THE SAID LICENSE AGREEMENT, THE APPELLANT HAS BEEN GRANTED A NON-EXCLUSIVE LICE NSE TO MANUFACTURE, PROCESS AND PACKAGE GILLETTE PRODUCTS AND AN EXCL USIVE RIGHT TO DISTRIBUTE AND SELL THE SAID PRODUCTS WITHIN THE TE RRITORY OF INDIA UNDER THE APPLICABLE TRADEMARKS USING THE PROPRIETARY INF ORMATION AND UNDER ANY APPLICABLE PATENTS AND PATENT APPLICATION. IN C ONSIDERATION OF THE RIGHTS AND LICENSES GRANTED TO THE APPELLANT, IT HA S AGREED TO PAY GILLETTE USA, ROYALTY EQUAL TO 4.5% OF THE NET OUTS IDE SALES. THE SAID ROYALTY IS PAID TO GILLETTE USA FOR THE LICENSED TE CHNOLOGY AND TRADEMARKS OF GILLETTE USA. 16. IT WAS SUBMITTED BY THE LD AR THAT WHILE BENCHM ARKING THE AFORESAID ROYALTY TRANSACTION, THE APPELLANT APPLIE D EXTERNAL CUP IN THE FORM OF ROYALTY RATES FROM ROYALTY STAT DATABASE TH EREBY ARRIVING AT A SET OF 10 COMPARABLES WITH AN AVERAGE ROYALTY RATE OF 5.56% AS AGAINST THE ROYALTY RATE OF 4.5% PAID BY THE APPELLANT. ACC ORDINGLY, THE TRANSACTION WAS CONSIDERED TO BE AT ARMS LENGTH IN THE TP STUDY BENCHMARKING ANALYSIS. 17. IT WAS SUBMITTED BY THE LD AR THAT DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS, THE TPO REQUIRED THE APPELL ANT TO JUSTIFY THE PAYMENT FOR ROYALTY TO ITS AE. ACCORDINGLY, THE APP ELLANT VIDE SUBMISSION DATED 6 SEPTEMBER 2017, FILED DETAILED SUBMISSIONS JUSTIFYING THE PAYMENT FOR ROYALTY, BENEFITS DERIVED FROM PAYMENT OF ROYALTY ALONG IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 10 WITH THE VARIOUS DOCUMENTARY EVIDENCES IN THE FORM OF LICENSE AGREEMENT AND BENCHMARKING ANALYSIS. HOWEVER, AS PE R THE TPO, THE APPELLANT FAILED TO PROVE THAT IT HAD OBTAINED CONS EQUENTIAL BENEFIT OF ECONOMIC OR COMMERCIAL VALUE AGAINST THE SAID PAYME NT OF ROYALTY AND THEREFORE, SUCH ROYALTY PAYMENTS WERE NOT JUSTIFIED / REQUIRED TO BE MADE. FURTHER, WITHOUT PROVIDING ANY SHOW-CAUSE TO THE APPELLANT, THE TPO CONCLUDED THAT ROYALTY AGREEMENTS USED BY THE A PPELLANT FOR BENCHMARKING PURPOSES WERE NOT COMPARABLE. THE TPO ALSO IDENTIFIED TWO AGREEMENTS AS COMPARABLE SEARCHED ON WORLDWIDE BASIS IN ROYAL STAT DATABASE AND HELD THE ARMS LENGTH RATE OF ROY ALTY PAYMENT TO BE 1%. DESPITE THE AFORESAID, THE TPO DETERMINED THE A RMS LENGTH PRICE OF SUCH ROYALTY PAYMENT TO BE NIL. 18. IT WAS FURTHER SUBMITTED BY THE LD AR THAT BEF ORE THE DRP, THE APPELLANT VIDE LETTER DATED 2 JULY 2018 FILED ADDIT IONAL EVIDENCE IN THE FORM OF INTERNAL COMPARABLE AGREEMENTS WHEREIN THIR D PARTIES HAVE BEEN PAYING ROYALTY TO PROCTER & GAMBLE GROUP ENTIT IES FOR SIMILAR PRODUCTS. IT WAS EXPLAINED BEFORE THE DRP THAT THE TPO DID NOT CONFRONT THE APPELLANT WITH THE DETAILS OF THE ALLE GED COMPARABLE AGREEMENTS USED BY HIM FOR BENCHMARKING THE ROYALTY TRANSACTION. FURTHER, THE AGREEMENTS CONSIDERED BY THE TPO PERTA INED TO A TRANSACTION BETWEEN THE APPELLANTS AES AND THIRD P ARTIES. ACCORDINGLY, AFTER THE RECEIPT OF THE TPO ORDER, THE APPELLANT A PPROACHED ITS AES IN ORDER TO VERIFY THE COMPARABILITY OF THE PROPOSED A GREEMENTS. UPON SCRUTINY, IT WAS FOUND THAT THOSE AGREEMENTS (USED BY THE TPO) WERE PRIMA FACIE NOT COMPARABLE. ACCORDINGLY, IN ORDER T O PROVIDE A BETTER COMPARABILITY, THE APPELLANT SUBMITTED A SET OF INT ERNAL COMPARABLES BEFORE THE DRP AS ADDITIONAL EVIDENCE. PURSUANT TO FILING OF ADDITIONAL IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 11 EVIDENCE, THE DRP CALLED FOR A REMAND REPORT FROM T HE TPO. THE TPO, VIDE HIS REPLY DATED 26 JULY 2018 IN THE REMAND PRO CEEDINGS, SUBMITTED THAT THE ADDITIONAL EVIDENCE IN THE FORM OF BENCHMA RKING ANALYSIS HAS TO BE REJECTED SINCE THE APPELLANT HAD FAILED TO JUSTI FY THE PAYMENT FOR ROYALTY. THEREAFTER, THE DRP SIMPLY AGREED WITH THE REASONING GIVEN BY THE TPO IN THE REMAND REPORT AND THEREBY UPHELD THE ADJUSTMENT PROPOSED BY THE TPO AND AGAINST THE SAID FINDINGS, THE APPELLANT IS IN APPEAL BEFORE THE TRIBUNAL. 19. FIRSTLY, REGARDING JUSTIFICATION AND COMMERCIAL EXPEDIENCY FOR PAYMENT OF ROYALTY, IT WAS SUBMITTED THAT DURING FY 2010-11, APPELLANT INTRODUCED THE FOLLOWING TWO NEW PRODUCTS AND PAID ROYALTY IN RESPECT OF THE SAME: A) GILLETTE GUARD SHAVING SYSTEM, AND B) GILLETTE MACH3 RAZORS: 20. IT WAS SUBMITTED THAT THE MANUFACTURING FACILIT Y SET UP AT BADDI, HIMACHAL PRADESH FOR BOTH THE ABOVEMENTIONED PRODUC TS WERE AS PER SUPERVISION AND DIRECTION OF GILLETTE USA. THE TECH NICAL ASSISTANCE/ KNOW-HOW PROVIDED COMPRISED OF PLANT DESIGN, MANUFA CTURING PROCESS, SELECTION OF CAPITAL EQUIPMENT, AND THEIR SOURCING. FOR EXAMPLE, TECHNOLOGY FOR CARTRIDGE ASSEMBLY MACHINES, EXTRUDE D OVER CAP MACHINE, RED PACK PACKING MACHINES WERE ALL PROVIDE D BY GILLETTE USA. THE FORMULA CARDS FOR THE SAID PRODUCTS AND MATERIA L SPECIFICATIONS FOR RAW MATERIALS/PACKING MATERIALS, VARIOUS PACKAGING STANDARDS TO BE MAINTAINED, AND DESIGNS ARE ALL AS SPECIFIED BY GIL LETTE USA. IN RESPECT OF THE ABOVE TECHNOLOGY, TRADEMARK AND TECHNICAL KN OWHOW PROVIDED BY IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 12 THE GILLETTE USA FOR THE PRODUCTS INTRODUCED, THE A PPELLANT COMMENCED PAYMENT OF ROYALTY. IT WAS SUBMITTED THAT THE DRP/ TPO OBSERVED THAT, MACH3 RAZORS WERE INTRODUCED LONG AGO IN INDIA AND WHEN NO ROYALTY HAS BEEN MADE IN THE EARLIER YEARS, ROYALTY PAYMENT IN THE CURRENT YEAR WAS NOT JUSTIFIED. FURTHER, THE DRP/ TPO ALSO OBSER VED THAT GILLETTE GUARD WAS ONLY AN ADAPTION OF GILLETTES EXISTING P RODUCTS AND THEREFORE, ROYALTY PAYMENTS WITH RESPECT TO THIS PR ODUCT ALSO WAS NOT JUSTIFIED. HOWEVER, IT MAY BE NOTED THAT GILLETTE G UARD WAS INTRODUCED ONLY IN THE YEAR 2010. GILLETTE GUARD IS THE FIRST RAZOR EXCLUSIVELY DEVELOPED FOR LOW-INCOME CONSUMERS IN INDIA WHERE T RADITIONALLY MEN HAVE BEEN USING DOUBLE-EDGED RAZORS. THE GILLETTE C OMPANY, USA HAS INVESTED SUBSTANTIAL TIME, EFFORT, RESOURCES AND MO NEY, THEREBY UNDERTAKING SUBSTANTIAL RESEARCH & DEVELOPMENT ACTI VITIES IN ORDER TO DEVELOP THE PRODUCT AND MANUFACTURING PROCESS TECHN OLOGY REQUIRED TO MANUFACTURE A PRODUCT SPECIFICALLY REQUIRED FOR THE INDIAN MARKET. FURTHER, GILLETTE MACH3 HAS BEEN IN MARKET SINCE 19 98 BUT THE MANUFACTURING OF THE SAME STARTED ONLY IN 2010. PRI OR TO MANUFACTURING THE SAME, GILLETTE MACH3 WAS IMPORTED BY THE APPELL ANT FROM ITS AES FOR THE PURPOSE OF DISTRIBUTION IN INDIA. THE ROYALTY FOR THE KNOW-HOW AND LICENSE TO MANUFACTURE THESE PRODUCTS WAS THUS PAID BY THE APPELLANT TO GILLETTE USA IN FROM AY 2011-12 ONWARDS AND WAS ALS O PAID DURING THE YEAR UNDER CONSIDERATION. IT WAS ACCORDINGLY SUBMIT TED THAT FROM THE ABOVE SUBMISSION, IT CAN CLEARLY BE CONCLUDED THAT THE PAYMENT FOR ROYALTY WAS JUSTIFIED IN THE CASE OF THE APPELLANT AND IN THE ABSENCE OF SUCH AN AGREEMENT, THE APPELLANT WOULD NOT HAVE BEE N ABLE TO MANUFACTURE AND SELL ITS PRODUCTS IN THE INDIAN MAR KET. IN FACT, THE TPO WAS UNJUSTIFIED TO QUESTION THE COMMERCIALITY OR TH E NECESSITY OF MAKING A PAYMENT OF ROYALTY. IT IS A TRITE LAW THAT, TPO C ANNOT DETERMINE THE IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 13 ALP OF THE TRANSACTION AT NIL ON THE BASIS THAT IT WAS NOT PRUDENT FOR THE ASSESSEE TO HAVE INCURRED THE SAME. 21. IT WAS FURTHER SUBMITTED BY THE LD AR THAT THE TRIBUNAL IN THE APPELLANTS OWN CASE FOR AY 2011-12 HAS VERY CATEGO RICALLY HELD THAT THE FACT THAT THE SPECIFIED PRODUCTS (GILLETTE MACH3 AND GILLETTE GUARD) WERE MANUFACTURED BY THE APPELLANT ITSELF INDICATED THAT TECHNOLOGY AND KNOW-HOW RECEIVED WAS UTILISED AND EMPLOYED AND THE REFORE, THE PAYMENT OF ROYALTY WAS JUSTIFIED. IT WAS FURTHER HE LD THAT IT WAS NOT APPROPRIATE FOR THE REVENUE TO ENTER INTO THE REALM OF EXAMINING THE COMMERCIALITY OR NECESSITY OF ENTERING INTO A LICEN SING ARRANGEMENT AND PAYMENT OF ROYALTY IN TERMS OF SUCH ARRANGEMENT. 22. IT WAS FURTHER SUBMITTED THAT WHILE THE REVENU E HAS PREFERRED AN APPEAL BEFORE THE HONBLE RAJASTHAN HIGH COURT AGAI NST OTHER ISSUES/ ADJUSTMENTS, THE DECISION OF THE TRIBUNAL ON ROYALT Y WAS NOT APPEALED AGAINST. IT WAS FURTHER SUBMITTED THAT EVEN DURING THE COURSE OF TRANSFER PRICING ASSESSMENT FOR A.Y 2012-13, THE TP O ACCEPTED THE ARMS LENGTH PRICE DETERMINED BY THE APPELLANT FOR THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY. GIVEN THE FACT T HAT, THERE IS NO CHANGE IN THE FACTS OF THE CASE, IT WAS SUBMITTED T HAT THE PAYMENT OF ROYALTY IS COMMERCIALLY EXPEDIENT AND JUSTIFIED FOR THE YEAR UNDER CONSIDERATION. 23. NOW, COMING TO BENCHMARKING ANALYSIS OF INTERNA TIONAL TRANSACTION OF PAYMENT OF ROYALTY, THE LD AR SUBMIT TED THAT FIRSTLY, THE TPO, WITHOUT PROVIDING A SHOW CAUSE NOTICE, SELECTE D A SET OF TWO AGREEMENTS AS COMPARABLES FOR DETERMINING THE ARMS LENGTH PRICE OF IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 14 THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY BY THE APPELLANT TO ITS AE. IT WAS SUBMITTED THAT THE SAID AGREEMENTS C ONSIDERED BY THE TPO ARE NOT COMPARABLE TO THAT OF THE ROYALTY ARRAN GEMENT BETWEEN THE APPELLANT AND ITS AE FOR THE FOLLOWING REASONS: FIRSTLY, THE PRODUCTS COVERED BY THE AGREEMENTS CON SIDERED BY THE TPO ARE COMPLETELY DIFFERENT FROM THAT IN THE A PPELLANTS CASE. IN THE AGREEMENTS CONSIDERED BY THE TPO, THE LICENSE I S GRANTED FOR CERTAIN ELECTRONIC DEVICES WHICH ARE CALLED AS LIGH T BASED DEVICES FOR HAIR REMOVAL I.E. HAIR REMOVAL THROUGH OPTICAL RADI ATION WHEREAS THE LICENSE GRANTED IN THE CASE OF THE APPELLANT IS FOR GILLETTE GUARD AND GILLETTE MACH3 PRODUCTS WHICH BROADLY CAN BE SAID T O BE MECHANICAL DEVICES. SECONDLY, AS CAN BE NOTED, THE AGREEMENTS ARE ONLY FOR THE PURPOSE OF TECHNOLOGY LICENSE. IN THE CASE OF THE APPELLANT, THE ROYALTY IS PAID FOR TECHNOLOGY AS WELL AS TRADEM ARK LICENSE. 24. IT WAS SUBMITTED THAT IT IS A TRITE LAW THAT AP PLICATION OF CUP REQUIRES A CLOSE COMPARABILITY AND AS CAN BE SEEN F ROM THE ABOVE, THE AGREEMENTS CONSIDERED BY THE TPO DO NOT SATISFY SUC H COMPARABILITY TEST. ACCORDINGLY, IT IS THE SUBMISSION OF THE APPE LLANT THAT THE AGREEMENTS CONSIDERED BY THE TPO SHOULD BE REJECTED . IT WAS SUBMITTED THAT THE SET OF INTERNAL COMPARABLE AGREE MENTS (WHEREIN THIRD PARTIES HAVE BEEN PAYING ROYALTY TO PROCTER & GAMBLE GROUP ENTITIES) FOR SIMILAR PRODUCTS SHOULD INSTEAD BE CO NSIDERED. THE DETAILS OF SUCH INTERNAL COMPARABLE AGREEMENTS HAVE BEEN SU BMITTED BEFORE THE HONBLE DRP AND THE TPO. THE SAME ARE RE-ITERAT ED AS UNDER: IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 15 LICENSOR LICENSE E GEOGRAPHY TECHNOLOGY DESCRIPTION TRADEMARK/ TRADENAME PRODUCT DESCRIPTION VALID FOR CY RATE OF ROYALTY ASSESSEE: THE GILLETTE COMPANY GILLETEE INDIA LTD. INDIA FORMULAE (KNOW-HOW) GILLETTE GUARD AND GILLETTE MACH3 BLADES AND RAZORS YES 4.5% OF NOS COMPARABLES: 1. THE PROCTER & GAMBLE COMPANY UNIVERSAL RAZOR INDUSTRIES US AND CANADA FORMULAE (KNOW-HOW) NOXZEMA WOMEN RAZORS, SHAVING CREAMS AND GELS, PRE & POST SHAVE CARE YES 5.5% OF NOS 2. THE PROCTER & GAMBLE COMPANY UNIVERSAL RAZOR INDUSTRIES U S AND CANADA FORMULAE (KNOW-HOW) NOXZEMA SHAVING CREAM & GEL YES 11.67% OF NOS 3. THE PROCTER & GAMBLE COMPANY UNIVERSAL RAZOR INDUSTRIES US AND CANADA FORMULAE (KNOW-HOW) OLD SPICE BLADES, RAZORS, SHAVING CARE PRODUCTS YES 5.5% OF NOS ARITHMETIC MEAN 7.56% 25. BASED ON THE ABOVE, IT CAN BE FAIRLY CONCLUDED THAT THE INTERNAL ROYALTY AGREEMENTS SUBMITTED BY THE APPELLANT ARE C OMPARABLE TO THE ROYALTY ARRANGEMENT ENTERED INTO BETWEEN THE APPELL ANT AND ITS AE. SINCE THE RATE OF ROYALTY PAID BY THE APPELLANT IS LOWER THAN THE ARITHMETIC MEAN OF THE ROYALTY PAID BY THIRD PARTIE S, AS MENTIONED ABOVE, IT WAS SUBMITTED THAT THE INTERNATIONAL TRAN SACTION OF PAYMENT OF ROYALTY BE TREATED AT ARMS LENGTH PRICE. ACCORDING LY, NO DISALLOWANCE OF ROYALTY PAYMENT IS CALLED FOR AND THAT THE ADJUSTME NT MADE BY THE TPO IS LIABLE TO BE DELETED. IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 16 26. REGARDING THE QUERY RAISED BY THE BENCH DURING THE COURSE OF HEARING THAT AFORESAID AGREEMENTS ARE NOT EXACTLY COMPARABLE TO THE LICENSE AGREEMENT ENTERED INTO BY THE APPELLANT WIT H AE SINCE, APART FROM BLADES AND RAZORS, THEY ALSO COVER SHAVING CRE AMS AND OTHER SHAVING CARE PRODUCTS, IT WAS SUBMITTED THAT IT IS TRUE THAT PRODUCT COMPARABILITY SHOULD BE CLOSELY EXAMINED IN APPLYIN G CUP METHOD. HOWEVER, TO BE COMPARABLE DOES NOT MEAN THAT THE TW O TRANSACTIONS ARE NECESSARILY IDENTICAL, BUT THAT EITHER NONE OF THE DIFFERENCE BETWEEN THEM COULD MATERIALLY AFFECT THE ARMS LENGTH PRICE OR, WHERE SUCH MATERIAL DIFFERENCES EXIST, THEN REASONABLY ACCURAT E ADJUSTMENTS CAN BE MADE TO ELIMINATE THEIR EFFECT. IN OTHER WORDS, THE USE OF CLOSELY COMPARABLE PRODUCTS WILL SUFFICE IF CUP METHOD IS B EING APPLIED. REFERENCE IN THIS REGARD IS INVITED TO THE UN TP MA NUAL PARA B.3.2.2.3 WHICH STATES THAT THE CUP METHOD IS APPROPRIATE ESPECIALLY IN CASE S WHERE AN INDEPENDENT ENTERPRISE BUYS OR SELLS PRODU CTS THAT ARE PRODUCTS THAT ARE IDENTICAL OR VERY SIMILAR... 27. IT WAS SUBMITTED THAT IN THE CASE OF THE APPELL ANT, THE AGREEMENTS USED BY THE TPO ARE CLEARLY NOT COMPARAB LE. WHEREAS, THE AGREEMENTS USED BY THE APPELLANT FOR COMPARABILITY ANALYSIS ARE CLOSELY COMPARABLE TO THAT OF THE LICENSE AGREEMENT ENTERED INTO BY THE APPELLANT WITH THE AE. ESPECIALLY, THE AGREEMENT ST ATED AT SR. NO. 3 IS VERY SIMILAR TO THE ROYALTY AGREEMENT OF APPELLANT WHERE THE ROYALTY RATE IS 5.50% FOR ALL PRODUCTS INCLUDING RAZORS AND BLAD ES. ACCORDINGLY, IT WAS SUBMITTED THAT THE TRANSACTION OF PAYMENT OF RO YALTY BE TREATED AT ARMS LENGTH AND THAT THE ADJUSTMENT MADE BY THE TP O BE DELETED. IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 17 28. REGARDING THE QUERY RAISED BY THE LD. DR DURING THE COURSE OF HEARING AS TO WHETHER MACH3 RAZORS WERE MANUFACTURE D IN INDIA AND WHERE HE REFERRED TO THE LICENSE AGREEMENT ENTERED INTO BY THE APPELLANT WITH ITS AE AND POINTED OUT THAT, THE TRA DEMARK MACH3 WAS REGISTERED IN INDIA SINCE 1998. HE ALSO POINTED OUT THAT THE TP STUDY ALSO MENTIONED THAT THE PRODUCT MACH3 WAS IMPORTED. ACCORDING TO HIM, IF THE TRADEMARK WAS REGISTERED IN 1998 AND TH E TP STUDY ITSELF MENTIONED THAT THE PRODUCT MACH3 WAS IMPORTED (AND NOT MANUFACTURED), NO ROYALTY WAS PAYABLE. IN THIS REGA RD, IT WAS SUBMITTED THAT GILLETTE MACH3, THOUGH INTRODUCED IN 1998, THE MANUFACTURING OF THE SAME STARTED ONLY IN 2010 AT THE BADDI PLAN IN HIMACHAL PRADESH. PRIOR TO MANUFACTURING THE SAME, GILLETTE MACH3 WAS IMPORTED BY THE APPELLANT FROM ITS AES FOR THE PURPOSE OF DISTRIBUT ION IN INDIA. THE APPELLANT REQUIRED ACCESS TO THE NECESSARY TECHNOLO GY AND ALSO A RIGHT TO MANUFACTURE AND DISTRIBUTE GILLETTE MACH3 PRODUC TS IN INDIA. ACCORDINGLY, ROYALTY PAYMENT FOR GILLETTE MACH3 COM MENCED FROM 2010 I.E. FROM THE TIME THE APPELLANT OBTAINED LICENSE O F THE SAID IP AND STARTED MANUFACTURING SUCH PRODUCTS LOCALLY IN INDI A AND THE SAME CAN BE EVIDENCED FROM THE ANNUAL REPORT OF THE APPELLAN T FOR FY 2009-10 (I.E. THE YEAR IN WHICH THE APPELLANT STARTED TO MA NUFACTURE GILLETTE MACH3 PRODUCTS). IT WAS SUBMITTED THAT THESE FACTS ARE ALREADY ON RECORD OF THE LOWER AUTHORITIES. TO FURTHER PROVE T HIS POINT, THE APPELLANT HAS ALSO ANNEXED A PHOTO OF THE ACTUAL GI LLETTE MACH3 PRODUCTS MANUFACTURED DURING THE RELEVANT FINANCIAL YEAR WHICH CONCLUSIVELY PROVE THAT GILLETTE MACH3 WAS MANUFACT URED AT THE BADDI PLANT IN INDIA. THE APPELLANT WOULD FURTHER LIKE TO DRAW ATTENTION TO THE EXCISE RETURN (ON A SAMPLE BASIS) FOR THE PERIOD JA NUARY TO MARCH 2014 WHICH ALSO CLEARLY INDICATES THAT GILLETTE MACH3 WA S MANUFACTURED IN IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 18 INDIA. IT WAS FURTHER SUBMITTED THAT UNDER THE TRAD E MARKS ACT, 1999, A TRADEMARK MAY BE REGISTERED IRRESPECTIVE OF THE FAC T WHETHER THE GOODS ARE TRADED OR MANUFACTURED. IN TERMS OF SECTION 28 OF THE SAID ACT, THE REGISTRATION OF A TRADEMARK IN INDIA CONFERS UPON T HE OWNER THE EXCLUSIVE RIGHT TO USE THE TRADEMARK IN RELATION TO GOODS/ SERVICES IN RESPECT OF WHICH THE TRADEMARK IS REGISTERED. WHILE REGISTRATION OF A TRADEMARK IS NOT COMPULSORY, IT OFFERS BETTER LEGAL PROTECTION FOR ACTION AGAINST INFRINGEMENT. IN THE CASE OF THE APPELLANT, GILLETTE MACH3 WAS INTRODUCED IN INDIA SINCE 1998 AND THEREFORE, THE R ELATED TRADEMARK WAS ALSO REGISTERED IN INDIA IN THE YEAR 1998. THIS POI NT RAISED BY THE LD. DR THAT THE MACH3 TRADEMARK WAS REGISTERED SINCE 1998 NOWHERE GOES TO POINT OUT THAT THE GILLETTE MACH3 PRODUCTS WERE NOT MANUFACTURED IN INDIA. IT WAS FURTHER SUBMITTED THAT AS FAR AS THE WRITE UP IN THE TP STUDY IS CONCERNED, IT IS THE HUMBLE SUBMISSION OF THE APPELLANT THAT THE APPELLANT HAS MADE AN INADVERTENT ERROR. THE SAME H AS BEEN RECTIFIED MULTIPLE TIMES AT VARIOUS LEVELS WHERE THE APPELLAN T HAS CONSISTENTLY MENTIONED THAT GILLETTE MACH3 WAS MANUFACTURED IN I NDIA SINCE 2010. BASED ON THE ABOVE, IT IS THE HUMBLE SUBMISSION OF THE APPELLANT THAT GILLETTE MACH3 IS BEING MANUFACTURED IN INDIA SINCE 2010 INCLUDING THE YEAR UNDER CONSIDERATION AND THEREFORE, ON THIS PRE MISE, PAYMENT OF ROYALTY CANNOT BE DISALLOWED. IN VIEW OF THE ABOVE DISCUSSIONS AND DECISIONS, THE APPELLANT HUMBLY SUBMITS THAT THE TR ANSFER PRICING ADJUSTMENTS ON ACCOUNT OF PAYMENT OF ROYALTY AMOUNT ING TO RS. 16,49,06,644 BE DELETED. 29. THE LD CIT/DR VEHEMENTLY ARGUED THE MATTER AND TAKEN US THROUGH THE FINDINGS OF THE TPO. REGARDING THE WRI TTEN SUBMISSIONS FILED BY THE APPELLANT, WHERE IT HAS BEEN STATED TH AT AN INADVERTENT IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 19 ERROR HAS BEEN MADE IN THE TP STUDY WHEREIN IT HAS BEEN MENTIONED WRONGLY THAT THE PRODUCT MACH3 WAS IMPORTED, IT WAS SUBMITTED THAT THE TP STUDY IS AN IMPORTANT DOCUMENT AND ADMITTANC E OF INADVERTENT MISTAKE THEREIN BY THE LD. AR CAUSES A STRONG SHAD OW OF DOUBT OVER THE CORRECTNESS OF THE ENTIRE TP STUDY AND THEREFORE, T HE TP STUDY MAY BE REJECTED ON THIS GROUND ALONE. IT WAS FURTHER SUBMI TTED THAT AS PER LICENSE AGREEMENT, THE ROYALTY (CC 292) WAS TO BE P AID ON GILLETTE MARCH3: RAZORS I.E. ONLY ON MACH3 RAZORS AND NOT O N MACH3 CARTRIDGES. THE ISSUE WAS WHETHER THESE WERE MANUFA CTURED IN INDIA OR NOT. THE LD. AR HAS FILED ONE PAGE OF EXCISE RETURN IN SUPPORT OF ITS CLAIM THAT MACH3 RAZORS ARE BEING MANUFACTURED IN I NDIA. IT MAY BE MENTIONED THAT THE SAME WAS NOT FURNISHED BEFORE TH E LOWER AUTHORITIES AND REQUIRES VERIFICATION. FURTHER, IT MAY BE NOTED THAT THE MANUFACTURED ITEMS ARE STATED TO BE MACH3, MACH3 CR T (CARTRIDGES) AND MACH3 TURBO. IT IS HUMBLY SUBMITTED THAT ROYALT Y WAS TO BE PAID ON ONLY MACH3 RAZORS AND NO ROYALTY WAS TO BE PAID ON MACH3 TURBO RAZORS AND MACH3 CARTRIDGES. FURTHER, THE LD. AR HA S NOT FURNISHED THE WORKING OF ROYALTY, THOUGH STATED AT THE TIME HEARI NG THAT IT WOULD BE MADE AVAILABLE. IN THE ABSENCE OF THE SAME, IT IS N OT CLEAR WHETHER THE ROYALTY ON MACH 3 TURBO RAZORS AND MACH3 CARTRIDGES WAS PAID OR NOT. FURTHER, THE LD. AR HAS NOT STATED ANYTHING ABOUT C OLUMN 35B ON PAGE 32 OF TAX AUDIT REPORT AS HIGHLIGHTED DURING THE HE ARING, WHEREIN LARGE VOLUMES OF BLADES AND RAZORS ARE APPEARING ON ACCOU NT OF PURCHASE AND MANUFACTURING. IT HAS NOT BEEN SUBMITTED BY THE LD. AR, WHICH TYPE OF BLADES AND RAZORS WERE PURCHASED AS APPEARING IN TH E SAID TABLE. HE ACCORDINGLY SUPPORTED THE FINDINGS OF THE LOWER AUT HORITIES AND SUBMITTED THAT NO INFERENCE IS CALLED FOR IN THE SA ID FINDINGS AND THE APPELLANTS GROUND OF APPEAL MAY ACCORDINGLY BE DIS MISSED. IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 20 30. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE DRP HAS REJEC TED THE OBJECTION OF THE ASSESSEE COMPANY AGAINST THE SUBJECT TRANSFER P RICING ADJUSTMENT FOLLOWING ITS EARLIER ORDER FOR ASSESSMENT YEAR 201 1-12. THE SAID FINDINGS OF THE DRP WERE SUBJECT MATTER OF APPEAL B EFORE THE TRIBUNAL WHEREIN THE COORDINATE BENCH VIDE ITS ORDER DATED 4 .07.2017 IN ITA NO. IT(TP)A NO. 1/JP/16 & 2/JP/16 HAS HELD AS UNDER: 5.5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUE D THE MATERIAL AVAILABLE ON RECORD. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE STARTED MANUFACTURE OF TWO NEW PRODUCT S NAMELY, GILLETTE GUARD SYSTEM SHAVING SYSTEM AND GILLETTE M ACH3 RAZORS AT ITS MANUFACTURING FACILITY SET UP AT BADDI HIMAC HAL PRADESH UNDER LICENSE AND USING THE TECHNICAL ASSISTANCE/KN OW-HOW PROVIDED BY GILLETTE USA IN TERMS OF PLANT DESIGN, MANUFACTURING PROCESS SELECTION OF CAPITAL EQUIPMENT, ETC. FOR TH E PURPOSES, LICENSE AGREEMENT WAS ENTERED INTO WITH GILLETTE US A WITH EFFECT FROM APRIL 1, 2010 WHEREBY THE ASSESSEE WAS GRANTED A LICENSE TO MANUFACTURE, PROCESS AND PACKAGE AND AN EXCLUSIVE R IGHT TO DISTRIBUTE AND SELL WITHIN THE TERRITORY THE PRODUC TS SO MANUFACTURED UNDER THE APPLICABLE TRADEMARKS USING THE PROPRIETARY INFORMATION PROVIDED BY THE GILLETTE US A. AS PER THE AGREEMENT, THE ASSESSEE SHALL PAY 4.5% OF NET SALES OF PRODUCTS SO MANUFACTURED. 5.6 THE DRP WAS OF THE VIEW THAT THE ASSESSEE COULD NOT EXPLAIN WHY ROYALTY FOR SUCH AN OLD PRODUCT SHOULD BE PAID THIS YEAR, PARTICULARLY WHEN NO SUCH ROYALTY HAS BEEN PAID IN THE EARLIER IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 21 YEAR. IT FURTHER OBSERVED THAT MACH3 PRODUCTS ARE I MPORTED AND EVEN GILLETTE GUARD SHAVING SYSTEM IS ONLY AN ADAPT ION OF GILLETTE'S EXISTING PRODUCTS FOR THE LOW PRICE SEGM ENT AND DOESNT REPRESENT ANY LATEST TECHNOLOGY WHICH WOULD JUSTIFY ROYALTY. IN THIS REGARD, THE ID AR SUBMITTED THAT THERE IS MANU FACTURE OF SPECIFIED PRODUCTS DURING THE YEAR IS CLEARLY DISCE RNIBLE FROM THE FINANCIAL STATEMENTS. FURTHER, OUR ATTENTION WAS DR AWN TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CASE OF CIT VS EKL APPLIANCES (345 ITR 241) WHEREIN IT WAS HELD THAT R ULE 10B(1)(A) DOESN'T AUTHORISE DISALLOWANCE OF ANY EXPENDITURE O N THE GROUND THAT IT WAS NOT NECESSARY FOR THE ASSESSEE TO HAVE INCURRED SUCH EXPENSE. IT WAS ALSO OBSERVED THAT THOUGH THE QUANT UM OF EXPENDITURE COULD BE EXAMINED, THE ENTIRE EXPENDITU RE COULD NOT BE DISALLOWED ON THE GROUND THAT IT WAS NOT NECESSA RY. IN OUR VIEW, THE BUSINESS AND COMMERCIAL EXPEDIENCY OF ENT ERING INTO THE LICENSE AGREEMENT AND PAYMENT OF ROYALTY IS A M ATTER WHETHER THE ASSESSEE HAS TO DETERMINE TAKING INTO CONSIDERA TION BUSINESS DYNAMICS OF MANUFACTURING SUCH PRODUCTS IN INDIA, I TS CURRENT DEMAND, FUTURE POTENTIAL AND NEED FOR TECHNOLOGY AN D TECHNICAL KNOW-HOW TO CARRY OUT SUCH MANUFACTURING OPERATIONS IN INDIA. THEREFORE, IT WOULD NOT BE APPROPRIATE FOR REVENUE OR THE DRP TO ENTER INTO THE REALM OF EXAMINING THE COMMERCIALITY OR NECESSITY OF ENTERING INTO SUCH LICENSING ARRANGEMENT AND PAY MENT OF ROYALTY IN TERMS OF SUCH AN ARRANGEMENT, FURTHER, I T IS NOT THE CASE OF REVENUE THAT SUCH TECHNOLOGY AND KNOW-HOW H AS NOT BEEN UTILISED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE FACT THAT THERE IS PRODUCTION OF THESE SPECIFIE D PRODUCTS DURING THE YEAR SHOWS THAT SUCH TECHNOLOGY AND KNOW -HOW HAS IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 22 BEEN UTILISED AND EMPLOYED IN THE MANUFACTURING PRO CESS AND FOR WHICH THE ROYALTY HAS BEEN DETERMINED AND PAID TO G ILLETTE USA. 31. THEREFORE, AS FAR AS BUSINESS EXPEDIENCY OF E NTERING INTO THE LICENSING AGREEMENT IS CONCERNED, THE SAME HAS BEEN EXAMINED AND DEALT WITH BY THE COORDINATE BENCH FOR THE EARLIER ASSESSMENT YEAR 2011-12 AND WE DONOT SEE ANY JUSTIFIABLE BASIS TO D EVIATE FROM THE SAID POSITION WHEREIN UNDER THE SAME AGREEMENT, THE ROYA LTY HAS BEEN DETERMINED IN RESPECT OF SPECIFIC PRODUCTS MANUFACT URED IN INDIA. DURING THE COURSE OF HEARING, THE LD CIT DR SUBMITT ED THAT ROYALTY WAS PAYABLE IN RESPECT OF MACH3 RAZORS MANUFACTURED IN INDIA AND NO ROYALTY WAS TO BE PAID ON MACH3 TURBO RAZORS AND MA CH3 CARTRIDGES IN TERMS OF THE LICENSE AGREEMENT, WE FIND THAT THE SA ME IS A MATTER OF RECORD AND A MATTER OF VERIFICATION WHICH CAN BE DO NE BY THE AO/TPO. THE ASSESSEE IS DIRECTED TO SUBMIT THE EXACT WORKIN G OF ROYALTY SPECIFYING THE PRODUCTS DESCRIPTION AND ITS NATURE WHICH ARE MANUFACTURED IN INDIA DURING THE YEAR AND IN RESPEC T OF WHICH ROYALTY HAS BEEN DETERMINED AS PAYABLE IN TERMS OF THE AGRE EMENT ALONG WITH SUPPORTING DOCUMENTATION WHICH CAN THEN BE VERIFIED BY THE AO/TPO. 32. IN TERMS OF BENCHMARKING THE ROYALTY PAYMENT, U NLIKE IN A.Y 2011-12 WHERE THE ASSESSEE HAS ADOPTED THE TNMM METHOD AND THE DRP HAS ADOPTED THE CUP METHOD, FOR THE YEAR UN DER CONSIDERATION, THE ASSESSEE COMPANY HAS ITSELF ADOPTED THE CUP MET HOD WHICH IS THUS NOT IN DISPUTE. IN ITS TRANSFER PRICING STUDY, THE ASSESSEE HAS SELECTED 10 COMPARABLES SHOWING MEAN ROYALTY OF 5.56% THEREB Y JUSTIFYING ITS ROYALTY DETERMINED AT THE RATE OF 4.5%. THE TPO HA S REJECTED THESE COMPARABLES ON ACCOUNT OF PRODUCT DIFFERENTIATION A S THESE COMPARABLES IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 23 WERE MANUFACTURING SKIN OINTMENTS AND SNACKS WHICH APPARENTLY HAVE NOT BEEN CONTESTED BY THE ASSESSEE. THE ASSESSEE H AS HOWEVER CONTESTED THE COMPARABLES SELECTED BY THE TPO BRING ING OUT PRODUCT DIFFERENTIATION AND TERMS OF THE LICENCING AGREEMEN T. FURTHER DURING THE PROCEEDINGS BEFORE THE DRP, THE ASSESSEE SUBMITTED A SET OF FRESH INTERNAL COMPARABLES SHOWING MEAN ROYALTY OF 7.05% BY WAY OF ADDITIONAL EVIDENCE. THOUGH THE DRP CALLED FOR A R EMAND REPORT FROM THE TPO, WE FIND IT STRANGE THAT THERE IS NO FINDIN G EITHER OF THE TPO OR THE DRP REGARDING THESE ADDITIONAL SET OF INTERNAL COMPARABLES SO SUBMITTED BY THE ASSESSEE. DURING THE COURSE OF HEA RING, THE LD AR HAS TRIED TO JUSTIFY THESE COMPARABLES AND HAS RAISED V ARIOUS CONTENTIONS IN SUPPORT THEREOF. WE FIND THAT THE COMPARABLES SO S ELECTED AND SUBMITTED BY THE ASSESSEE ALSO SUFFER FROM PRODUCT DIFFERENTIATION, FOR INSTANCE, SHAVING CREAM AND GEL HAS BEEN STATED AS PRODUCT DESCRIPTION IN RESPECT OF ONE OF THE COMPARABLES, IN TERMS OF A GREEMENT ENTERED INTO BETWEEN PROCTER & GAMBLE WITH UNIVERSAL RAZOR INDUSTRIES, WHICH CANNOT BE COMPARED WITH THAT OF THE PRODUCT DESCRIP TION OF RAZORS OF THE ASSESSEE COMPANY. WE THEREFORE FIND THAT EACH O F THESE COMPARABLES NEEDS A CLOSE EXAMINATION IN TERMS OF P RODUCT DESCRIPTION AND TERMS OF LICENCING AGREEMENT. WE HOWEVER, FIND THAT THERE IS NO FINDING OF THE DRP REGARDING THESE COMPARABLES. SI MILARLY, WE FIND THAT THERE IS NO FINDING REGARDING COMPARABLES WHICH HAV E BEEN SELECTED BY THE TPO AND CONTESTED BY THE ASSESSEE. THEREFORE, IN ABSENCE OF ANY FINDINGS REGARDING THE APPROPRIATENESS OF THE COMPA RABLES AND ITS APPLICABILITY IN THE INSTANT CASE, WE ARE NOT INCLI NED TO EXAMINE THESE COMPARABLES AT THIS STAGE FOR THE FIRST TIME AND TA KE A VIEW IN THE MATTER AND ARE CONSTRAINED TO REMAND THE MATTER TO THE FIL E OF THE AO/TPO TO EXAMINE THESE COMPARABLES AND RECORD A SPECIFIC FIN DING AND IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 24 DETERMINED THE ARMS LENGTH NATURE OF ROYALTY PAYME NT. THE CONTENTIONS SO ADVANCED BY THE LD AR ARE THUS KEPT OPEN AND THE ASSESSEE, IF SO ADVISED, IS FREE TO RAISE THESE CONTENTIONS BEFORE THE AO/TPO. IN THE RESULT, THE GROUND NO. 4 IS ALLOWED FOR STATISTICAL PURPOSES. 33. IN GROUND NO. 5, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF RS. 8,42,81,834/- ON ACCOUNT OF INVENTORIES WRI TTEN OFF MADE BY THE ASSESSING OFFICER AND AS SUSTAINED BY THE DRP. 34. DURING THE COURSE OF HEARING, THE LD AR SUBMITT ED THAT THE MATTER HAS BEEN DECIDED BY THE HONBLE RAJASTHAN HIGH COUR T IN ASSESSEES OWN CASE FOR A.Y 2006-07 IN DB ITA NO. 134/2014 WHE RE THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT FOLLOWING THE AFORESAID ORDER, APPEAL FOR A.Y 2007- 08 IN DB ITA NO.33/2016 & A.Y 2008-09 IN DB ITA NO.125/2016 FILE D BY THE DEPARTMENT WERE ALSO DISMISSED. SIMILARLY, FOR A.Y 2009-10 AND 2010- 11, THE MATTER IS DECIDED IN FAVOUR OF THE ASSESSEE . THUS, IT WAS SUBMITTED THAT THIS ISSUE IS NOW SETTLED IN FAVOUR OF THE ASSESSEE BY VARIOUS DECISIONS OF THE HONBLE RAJASTHAN HIGH COU RT AND GIVEN THAT THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF TH E CASE, THE DISALLOWANCE SO MADE BY THE AO MAY BE DIRECTED TO B E DELETED. 35. THE LD CIT DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES. REGARDING THE ORDER PASSED BY THE HONBLE RAJASTHAN HIGH COURT FOR THE EARLIER YEARS, IT WAS SUBMITTED THAT THE DEPARTMENT HAS NOT ACCEPTED THE ORDERS SO PASSED BY THE HONBLE HIGH COURT AND HAS FILED AN SLP AGAINST THE SAID DECISIONS BEFORE THE HONBLE SUPRE ME COURT. IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 25 36. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSING OFF ICER, FOLLOWING THE ORDER AND THE REASONING ADOPTED IN THE EARLIER YEAR S, HAS DISALLOWED THE CLAIM OF THE INVENTORY WRITTEN OFF AMOUNTING TO RS 8,42,81,834/-. UNDISPUTEDLY, THERE ARE NO CHANGES IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS COMPARED TO THE EARLIER YEARS WHEREIN T HE MATTER HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE BY T HE COORDINATE BENCHES AND WHICH HAVE BEEN UPHELD BY THE HONBLE R AJASTHAN HIGH COURT. IN DB APPEAL NO. 134/2014 FOR AY 2006-07 DA TED 23.05.2017, THE SUBSTANTIAL QUESTION OF LAW BEFORE THE HONBLE RAJASTHAN HIGH COURT READS AS UNDER:- (II) WHETHER THE TRIBUNAL WAS LEGALLY JUSTIFIED IN DELETING THE ADDITION OF RS. 8,28,35,757/- MADE ON ACCOUNT OF IN VENTORIES WRITTEN OFF SPECIFICALLY WHEN NEITHER ANY DETAILS W ERE FURNISHED BY THE COMPANY AND NOR THERE WAS ANY SUPPORTING EVIDEN CE TO JUSTIFY AND ESTABLISH THAT THE INVENTORIES WERE ACT UALLY DESTROYED? AND THE RELEVANT FINDINGS OF THE HONBLE RAJASTHAN HIGH COURT WHEREIN THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE READS AS UNDER:- 4 IN SO FAR AS THE ISSUE NO. (II) IS CONCERNED, TH E TRIBUNAL WHILE CONSIDERING THE CASE IN PARA 4.1 HAS OBSERVED AS UN DER:- 4.1 AFTER CONSIDERING THE RIVAL SUBMISSION, WE NOT ED THAT THE DETAILS OF INVENTORY WRITTEN OFF AS WELL AS PROCEDU RE OR WRITTEN OFF IS EXPLAINED BEFORE THE AO AND THE SAME IS ALSO PLACED BEFORE US AT PB PAGE 421-664. WE ALSO FIND THAT SIM ILAR ISSUE IS DECIDED BY THIS BENCH IN A.Y. 03-04 IN ITA NO. 1 88/JP/07 IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 26 DATED 09.08.2010 IN ASSESSEE'S FAVOUR AND FOLLOWED IN A.Y. 04- 05 IN ITA NO. 180/JP/09 DATED 27.05.2011 AND IN A.Y . 05-06 IN ITA NO. 1234/JP/2010 DATED 11.02.2011. THE RELEVANT PORTION OF THE DECISION OF TRIBUNAL IN PARA 16 IN A.Y. 03-0 4 IS REPRODUCED AS UNDER:- 'AS REGARD TO THE DISALLOWANCE OF RS 8,37,10,704/- IN RESPECT OF DAMAGED GOODS RETAIL AND RS 3,64,71,703/- IN RES PECT OF PROVISION FOR OBSOLESCE MADE BY THE AO FOR WANT OF ITEM WISE DETAILS AND THE PROCEDURE THEREOF, THE LD. CIT(A) A FTER CONSIDERING THE ITEM WISE DETAILS AND CONSIDERING T HE PROCEDURE ADOPTED FOR DISPOSAL AND DESTRUCTION OF S UCH STOCK, COPY OF WHICH IS PLACED IN THE PAPER BOOK HAS RIGHT LY DELETED THE DISALLOWANCE OF RS 8,37,10,704/- BUT AT THE SAM E TIME HE DID NOT ALLOWED THE CLAIM OF RS.3,64,71,703/-ON THE GROUND THAT IT IS ONLY A PROVISION AND NOT ACTUALLY DESTRO YED. WE FIND THAT IN RESPECT OF BOTH THESE AMOUNTS ITEM WISE DET AILS IS FILED. THE PROCEDURE ADOPTED AND THE RECOMMENDATION OF APPROPRIATE AUTHORITIES IS PLACED ON RECORD. THE DI SALLOWANCE OF RS 3,64,71,703/- CONFIRMED BY THE ID. CIT(A) ONL Y FOR THE REASON THAT THESE ITEMS ARE NOT ACTUALLY DESTROYED AND IS ONLY A PROVISION CAN'T BE UPHELD FOR THE REASON THAT ITE M WISE DETAILS OF THE SAME IS FILED, THESE ARE THE IDENTIF IED ITEMS AND HAVE BEEN SUBSEQUENTLY DESTROYED AS PER THE REGULAR PROCEDURE FOLLOWED. THE WRITE OFF FOR OBSOLESCE OF SUCH IDENTIFIED ITEMS IS ALLOW ABLE DEDUCTION AS PER THE CASE LAWS RELIED BY THE LD. AR. IN FACT NO PROVISIONS IS CREA TED IN BOOKS OF ACCOUNTS BUT ONLY THE NOMENCLATURE OF PROVISIONS FOR OBSOLESCE IS USED. IN THE BALANCE SHEET ALSO NO SUC H IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 27 PROVISION IS APPEARING EITHER IN THE LIABILITIES SI DE OR AS REDUCTION FROM ASSET SIDE NOT THE LD. D/R COULD POI NT OUT ANY SUCH PROVISION IN THE BALANCE SHEET. THEREFORE THE DISALLOWANCE OF RS. 3,64,71,703/- CONFIRMED BY THE LD. CIT(A) IS DELETED. FOLLOWING THE ORDERS OF THE TRIBUNALS IN CASE OF TH E ASSESSEE, THE CLAIM OF THE INVENTORY WRITTEN OFF OF RS. 8,28,35,7 57/- IS ALLOWED AND HENCE THE ADDITION MADE BY THE AO IS DELETED. T HIS GROUND IS THEREFORE ALLOWED. 4.1 THE OBSERVATIONS MADE BY THE TRIBUNAL IN THE EA RLIER YEAR WHERE APPEAL WAS PREFERRED BUT THIS QUESTION WAS NO T ADMITTED AND TODAY AN APPLICATION WAS ALSO MOVED FOR AMENDIN G OR ADDING QUESTION OF LAW WHICH HAS BEEN REJECTED BY US. 4.2 IN THAT VIEW OF THE MATTER, THE VIEW TAKEN BY T HE TRIBUNAL IS REQUIRED TO BE ACCEPTED IN FAVOUR OF THE ASSESSEE. 37. THE AFORESAID DECISION HAS BEEN FOLLOWED BY T HE HONBLE RAJASTHAN HIGH COURT WHILE DISPOSING OFF THE DEPART MENTS APPEALS FOR SUBSEQUENT YEARS. FURTHER, MERE FILING AN SLP BEFO RE THE HONBLE SUPREME COURT AGAINST THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESEEES OWN CASE CA NNOT BE A REASON FOR NOT FOLLOWING THE SAID DECISION. THE DECISION OF T HE JURISDICTIONAL HIGH COURT IS BINDING ON THIS TRIBUNAL AS WELL AS ON THE DRP AND WE SEE NO REASON WHY THE SAME HAS NOT BEEN FOLLOWED INSPITE O F THE FACT THAT THE SAID DECISIONS OF THE HONBLE RAJASTHAN HIGH COURT HAVE BEEN BROUGHT TO THE NOTICE OF THE DRP BY THE ASSESSEE. THEREFORE , THE DIRECTIONS OF THE DRP THAT SINCE THE DEPARTMENT HAS FILED AN APP EAL BEFORE THE HONBLE SUPREME COURT AGAINST THE DECISIONS OF THE HONBLE RAJASTHAN IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 28 HIGH COURT, THE AOS ACTION IS UPHELD CANNOT BE AC CEPTED AND IS HEREBY SET-ASIDE. NOTHING HAS BEEN BROUGHT ON RECORD WHIC H SUGGESTS THAT THE SAID DECISION OF THE HONBLE RAJASTHAN HIGH COURT H AS BEEN STAYED, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF H ONBLE RAJASTHAN HIGH COURT IN ASSESSEES OWN CASE, THE DISALLOWANCE OF C LAIM OF INVENTORY WRITTEN OFF IS HEREBY ALLOWED. IN THE RESULT, GROU ND NO. 5 OF THE ASSESSEES APPEAL IS ALLOWED. 38. IN GROUND NO. 6, THE ASSESSEE HAS CHALLENGED TH E ACTION OF THE ASSESSING OFFICER IN CHARGING OF INTEREST UNDER SEC TION 234B AND SECTION 234C OF THE ACT. NO SPECIFIC ARGUMENTS WERE ADVANC ED BY THE LD AR DURING THE COURSE OF HEARING AND IN ANY CASE, THE C HARGING OF INTEREST UNDER SECTION 234B/C IS CONSEQUENTIAL IS NATURE AND THEREFORE, DOESNT REQUIRE ANY SEPARATE ADJUDICATION AND THE GROUND IS THUS DISMISSED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISPOS ED OFF IN LIGHT OF AFORESAID DIRECTIONS. ORDER PRONOUNCED IN THE OPEN COURT ON 08/06/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 08/06/2020. GANESH KUMAR VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S GILLETTE INDIA LTD., BHIWADI, AL WAR. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-2, ALWAR. 3. VK;DJ VK;QDR@ CIT IT (TP) A. 04/JP/2018 GILLETTE INDIA LIMITED VS. ACIT, ALWAR 29 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. IT (TP) A. 04/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR