M/s. Bacardi India Pvt. Ltd., Gurgaon V. DCIT, New Delhi

MA 323/DEL/2019

AI Insights

The case revolves around a Miscellaneous Application by M/s Bacardi India Pvt. Ltd. against the order of the Income Tax Appellate Tribunal, which had previously dismissed the company's appeal concerning the assessment year 2011-12. The company contended that the Tribunal had ignored significant grounds of appeal and relevant judicial decisions while dismissing their appeal. The Tribunal, referencing a prior decision by the Hon'ble High Court, emphasized that it could not review its decisions but only rectify mistakes that are apparent from the record. The Tribunal found no such mistakes in its earlier decision, leading to the dismissal of the Miscellaneous Application.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301044 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 2 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 20-03-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I2
• Next Hearing Date: 01-12-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 17-04-2019
• Other Referred Cases: Sony Ericsson Mobile Communications India Pvt. Ltd. vs. Commissioner of Income Tax, Maruti Suzuki India Ltd v. CIT, Good Year India Ltd. (ITA No. 5650/Del/2011, 6240/Del/2012 & 916/Del/2014)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 37; 143(3); 92; 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘I-2’ BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. ASTHA CHANDRA, JUDICIAL MEMBER MA No. 323/DEL/2019 [A/o ITA No. 1197/Del/2016 [A.Y. 2011-12]] M/s Bacardi India Pvt. Ltd., 805-808, Vs. DCIT, Circle 4(1), Time Tower, M.G. Road, Gurgaon. New Delhi. PAN : AAACB 3944 R (Applicant) (Respondent) Assessee By : Shri Nageshwar Rao, Adv Shri S. Chakrarborty Department By : Shri H.K. Choudhary, CIT- DR Date of Hearing : 17.03.2023 Date of Pronouncement : 21.03.2023 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This Miscellaneous Application by the assessee is directed towards the order of this Tribunal in ITAN No. 1197/DEL/2016 dated 27.03.2019 pertaining to Assessment Year 2011-12. 2 2. The sum and substance of the detailed Miscellaneous Application is that the Tribunal, while dismissing the appeal of the assessee has not adjudicated important grounds of appeal like Ground Nos. 2 to 9 ignoring the direct decision of the Special Bench and the Hon'ble Jurisdictional High Court. It is strongly contended that the conclusion of the Tribunal to dismiss the appeal is contrary to the directions given by the Hon'ble High Court. It is further contended that the decisions relied upon by the assessee during the course of arguments and also mentioned in the written synopsis have been completely ignored by the Tribunal while deciding the appeal of the assessee. 3. The ld. counsel for the assessee reiterated what has been mentioned in the MA and relied upon various judgments compiled in the form of Paper Book. 4. Per contra, the ld. DR supported the findings of the Tribunal and vehemently stated that the Tribunal has considered each and every issue raised by the assessee. There is no error rectifiable u/s 254(2) of the Act. 3 5. We have carefully perused the contents of the Miscellaneous Application. We have also gone through the order of this Tribunal dated 27.03.2019 and have the benefit of the order of the Hon'ble High Court in the first round of litigation. 6. The Hon'ble High Court in ITA No. 417/2017 order dated 24.05.2017 framed the following question and decided the issue as under: "Whether the ITAT ought to have itself dealt with the issue concerning the existence of the international transaction concerning the advertisement marketing and promotion (AMP) expenses and the determination of the arm's length price thereof instead of remanding the issues to the Transfer Pricing Officer (‘TPO’) for a fresh consideration?" 5. Having heard learned counsel for the parties, the Court finds that the case before the ITAT was argued at length and the views of the TPO as well as the Dispute Resolution Panel (‘DRP’) were already available to the ITAT. Arguments were advanced on the strength of judgments of this Court in Sony Ericsson Mobile Communications India Pvt. Ltd. vs. Commissioner of Income Tax (2015) 374 ITR 118 (Del.) as well as a string of subsequent judgments beginning with Maruti Suzuki India Ltd v. CIT, (2016) 381 ITR 117. 6. Nevertheless, the main reason that weighed with the ITAT to remand the matter to the TPO was that the TPO did not have the benefit of the above decisions of this Court when the order was initially passed by the TPO. That can hardly be a ground for remanding the entire matter to the TPO. In fact, this was anticipated by this Court in Sony Ericsson Mobile Communications India Pvt. Ltd.(supra). In para 193 of that 4 judgment, it cautioned that the ITAT should not simply remand the matter to the TPO but examine it itself, particularly when the facts have already been analysed and considered and no new facts have emerged in the meanwhile. 7. In the present case, all the facts necessary for the ITAT to form an opinion on the issues before it concerning the AMP expenditure were already before it. In the circumstances, the remand to the TPO of the entire matter for a decision afresh appears to be unwarranted. 8. In that view of the matter, the impugned order of the ITAT remanding the matter to the TPO is hereby set aside. The appeal before the ITAT being ITA No.1197/Del/2016 for AY 2011-12 is restored to its file for a decision on merits in accordance with law. The said appeal shall be listed before the ITAT on 19th June, 2017 for directions.” 7. Pursuant to the directions of the Hon'ble High Court, the Tribunal decided the appeal against the assessee vide order dated 27.03.2019. The relevant findings of the Tribunal read as under: “So in compliance to the findings and directions of Hon'ble Jurisdictional High Court, we have to examine the issue on merits on the basis of material available on record including various decisions and our decision on merits of this issue runs in the following paragraphs of this order. 5 7. As reveals the records, the assessee is in the business of manufacturing & distribution of liquor with brand name of 'Bacardi'. The assessee has incurred AMP expenditure of Rs. 62,48,21,343/- during the year out of which, the assessee had recovered from its AE an amount of Rs. 45,77,50,104/-. After considering bright line test of expenditure on AMP/Sales ratio of comparables and mark-up on excess expenditure on AMP, an adjustment was made by TPO for Rs.11,32,64,636/-. Thus, based on the order u/s 92CA(3), the Assessing Officer had passed order u/s 143(3) read with section 144C making addition of Rs. 11,32,64,636/-. 8. From the record, it reveals that during the year the assessee has incurred following international transaction:- S. No. Description of the transaction Amount (Rs.) 1 Export of finished goods 39,298, 257 2 Import of raw materials for consumption 8,497,163 3 Import of liquor for resale 160,322,418 4 Interest paid on ECB 1,815,001 5 Interest paid on FCD 55,763,889 6 Reimbursement of expenses by AEs 462,488,096 7 Reimbursement of expenses to AEs 17,534,304 9. The contention of the assessee has been that the AMP expenses incurred by assessee is solely for its own business and relied on the decision of Hon'ble ITAT in the case of Good Year India Ltd. (ITA No. 5650/Del/2011, 6240/Del/2012 & 916/Del/2014) for the proposition that AMP expenditure incurred is not an international transaction. 6 10. A perusal of T.P. Order shows that the marketing functions as enumerated in page 23 of TP order as per Transfer pricing analysis are as under : "The global marketing policies, standards and marketing strategies are decided by the Bacardi group. The 'local' or 'domestic' marketing strategy is independently planned and executed by BIPL within the global framework set by the Bacardi group. BIPL conducts marketing activities such as performing market research, creation of product brochures, monitoring market demand, formulating marketing strategies and budgets and organizing trade shows. BIPL determines the appropriate advertising and marketing mix in various media and promotional events." 11. From the above, it reveals that at global level marketing strategies are decided and planned. Even at local level such marketing strategy is within the global framework of Bacardi Group. Due to global decision the marketing expenses are reimbursed by the AE namely Bacardi Matini B.V. which has no business of distribution of its product or sale of raw material to the assessee, even then advertisement expenditure is reimbursed. The details of reimbursement of expenses by AE as per page 132 of Paper Book are as follows:- "During the FY 2010-11 BIPL incurred certain expenses on behalf of its AEs. These expense were in the nature of third party advertising and sales promotion expenses incurred by BIPL. The same has been claimed as reimbursement by BIPL. The total amount claimed as reimbursement by BIPL from AEs is as follows: 7 Associated enterprise Amount (INR) Bacardi - Martini B. V. 437,444,207 Tradall S. A. 22,791,650 Bacardi - Martini Asia Pacific Limited 2,252,239 Total 462,488,096 It may be mentioned that the distribution agreement of the assessee is with Tradall SA and (Page 82 to 97 of Paper Book) and license agreement is with Bacardi International Ltd. (Page 98 to 112 of Paper Book). Therefore, advertisement expenses reimbursed by the AE namely Bacardi Martini B.V. is purely for Brand building and marketing intangible of Bacardi Group. 12. There is no separate agreement between the assessee and its AE to ascertain as to what extent the AE will reimburse advertisement expense. Further there is no fact available on record that the function undertaken under the head advertisement & marketing by assessee can be segregated from function performed for AE. In fact, there is common function performed under the head advertisement & marketing and part of the expenses is recovered from AE. 13. The TPO has reproduced in his order u/s 92 CA(3) the content of its website (Page-247 & 248 of Paper Book) to support that the assessee is brand building of Bacardi products owned by its AE. The TPO has further abstracted the contents of economic times (Page 253 of Paper Book) and Bacardi Global marketing principles as per its website (page 257 of Paper Book) to prove that the assessee is performing marketing function leading to brand building/marketing intangibles of AE. In view of the above, we find that there exists an action in concert in respect of AMP function performed by the 8 assessee for creating marketing intangibles of AE u/s 92F(v) of IT Act in respect of AMP function. 14. It may be mentioned here that reliance on the decision of ITAT in the case of Goodyear is not proper as that decision is distinguishable on facts as in that case, there was purely manufacture whereas in present case there is distribution as well as manufacturing of products bearing AE's brand and the assessee has failed to adduce any evidence such as agreement, copy of ledger account etc. The other decisions relied by the assessee including the decision in the case of Maruti Suzuki India Ltd. (supra) too stand on different footings and are distinguishable in the peculiar facts of the present case. 15. In view of the above facts, it is held that AMP functions performed by the assessee is an international transaction and bench-marking should be done in the light of the decision of Hon'ble jurisdictional High Court in the case of Sony Ericsson Mobile Communication (India) Pvt. Ltd. vs. CIT (2015) 374 ITR 118 (Del). Therefore, AO/TPO is directed to determine the ALP of international transaction and calculate adjustment accordingly.” 8. We are of the considered view that the decision of the Tribunal is in reference to the directions of the Hon'ble High Court [supra]. We are conscious about the fact that u/s 254(2) of the Act, the appellate Tribunal may, with a view to rectifying any mistake apparent from record amend any order passed by it under sub-section (1). We are equally conscious about the fact that the Appellate Tribunal does not have any power to review its own orders under the provisions of 9 the Act. The only power which the Tribunal possesses is to rectify any mistake in its own order which is apparent from the record. This is merely a power of amending its order. 9. The power of rectification under section 254(2) of the Act can be exercised only when the mistake which is sought to be rectified as an obvious and patent mistake which is apparent from the record, and not a mistake which requires to be established by arguments and a long drawn process of reasoning on points on which there may conceivably be two opinions. Failure by the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may be an error of judgment. The Tribunal cannot, in exercise of its power of rectification, look into some other circumstances which would support or not support its conclusion. 10. For this proposition, we draw support from the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Ramesh Electric and Trading Company 203 ITR 497. The relevant findings of the judgment read as under: 10 “ Under section 254(2) of the Income-tax Act, 1961, the Appellate Tribunal may, "with a view to rectifying any mistake apparent from the record", amend any order passed by it under sub-section (1) within the time prescribed therein. It is an accepted position that the Appellate Tribunal does not have any power to review its own orders under the provisions of the Income-tax Act, 1961. The only power which the Tribunal possesses is to rectify any mistake in its own order which is apparent from the record. This is merely a power of amending its order. The extent of this power of rectification was considered by the Supreme Court as far back as in 1971 in the case of T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50. The Supreme Court said (headnote) : "A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record." 8. This view of the Supreme Court has held the field for a long time, and has been followed by other High Courts. Thus, for example, in the case of V. P. Minocha, ITO v. ITAT [1977] 106 ITR 691, the Gujarat High Court relying upon Balaram's case , said that a decision given by the Tribunal on a debatable point of law cannot be subsequently considered as showing any mistake apparent from the record which the Tribunal could consequently rectify. Similarly, the Madras High Court in the case of CIT v. R. Chelladurai [1979] 118 ITR 108, said that the Tribunal's power under section 254 (2) is not to review its earlier order but only to amend it with a view to rectifying any error apparent from the record. The court held that, in the case before it, the Tribunal had no power or authority to interfere with the quantum of penalty in exercise of its powers of rectification. In the case which is before us, it is obvious that the 11 Tribunal's earlier order of June 9, 1975, was based on the merits of the case. Various arguments were advanced the Tribunal by the assessee in support of its contention that the commission of Rs. 54,000 which was paid to Messrs. Neeta Electric Corporation was a genuine payment made in the course of business dealings for purchases effected by Messrs. Neeta Electric Corporation on behalf of the assessee-firm. After examining all the circumstances, the Tribunal came to the conclusion that the payment of Rs. 54,000 was not a genuine business payment. The only grounds on which the Tribunal has subsequently purported to "rectify" its order of June 9, 1975, are (i) that the Income-tax Officer had wrongly calculated the percentage of profit of the assessee-firm while holding that the business transaction with Messrs. Neeta Electric Corporation was not a genuine business transaction, and (ii) that overlooked the argument of the assessee to the effect that, if the amount of Rs. 54,000 was taxed in the hands of the assessee as also in the hands of Messrs. Neeta Electric Corporation, it would amount to double taxation. These two arguments, according to the Tribunal, were overlooked by it while passing the earlier order, and, hence, it purported to exercise its power of rectification by re-examining all the circumstances relating to this transaction and upholding it. Clearly, this could not have been done in the exercise of any power of rectification. In the present case, in the first order, there is no mistake which is apparent from the record at all. The Tribunal was required to decide whether the commission payment of Rs. 54,000 was deductible under section 37 of the Income-tax Act. After examining the circumstances, the Tribunal came to the conclusion that it was not so deductible. The Tribunal cannot, in exercise of its power of rectification, look into some other circumstances which would support or not support its conclusion so arrived at. The mistake which the Tribunal is entitled to correct is not an error of judgment but a mistake which is apparent from the record itself. No such mistake was apparent from the record. In fact, we doubt if this 12 sort of an exercise could have been done by the Tribunal even if it had the power of review. The Tribunal has, patently, far exceeded its jurisdiction under section 254(2) of the Income-tax Act in redeciding the entire dispute which was before it in this fashion, and the Tribunal has committed a gross and inexplicable error for reasons which we fail to understand. 9. Mr. Inamdar, learned advocate for the assessee, drew our attention to a judgment of the Madhya Pradesh High Court in the case of CIT v. Mithalal Ashok Kumar [1986] 158 ITR 755. The Madhya Pradesh High Court said that the Tribunal can correct its mistake by rectifying the same in case it is brought to its notice that the material which was already on record before deciding the appeal on merits was not considered by it. It, however, said that this will depend on the facts of each case. And whether it amounts to a review or rectification will depend on the facts of each case. In our view, these wide observations do not accord with the decision of the Supreme Court of this point in T. S. Balaram v. Volkart Brothers [1971] 82 ITR 50. Similarly, the decision of the Allahabad High Court in the case of Laxmi Electronic Corporation Ltd. v. CIT [1991] 188 ITR 398 to the effect that if the Tribunal fails or omits to deal with an important contention affecting the maintainability/merits of an appeal, it must be deemed to be a mistake apparent from the record which can be rectified by the Tribunal by its subsequent order, is also, in our view, in the teeth of the Supreme Court judgment in the case of Balaram v. Volkart Brothers [1971] 82 ITR 50. In fact, we find that the decision in the case of Balaram v. Volkart Brothers , was not brought to the attention of the learned judges who decided the above case. In our view, the power of rectification under section 254(2) of the Income- tax Act can be exercised only when the mistake which is sought to be rectified as an obvious and patent mistake which is apparent from the record, and not a mistake which requires to be established by arguments and a long drawn process of reasoning on points on 13 which there may conceivably be two opinions, as has been shown in the present case. Failure by the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may be an error of judgment. In the present case, the alleged failure, at least on one count, is attributed by the assessee to the Income-tax Officer and not the Tribunal. In our view, the Tribunal had no jurisdiction under section 254(2) to pass the second order.” 11. If the Miscellaneous Application is read alongwith the order of the Tribunal in ITA No. 1197/DEL/2016, the only logical conclusion that can be drawn is that there may be an error of judgment, but, as mentioned hereinabove, that error of judgment is only appealable before a superior court and not rectifiable u/s 254(2) of the Act. 12. Considering the facts of the case in hand, we do not find any merit in this Miscellaneous Application of the assessee u/s 254(2) of the Act and the same is dismissed. 13. Before parting, as mentioned elsewhere, the ld. counsel for the assessee has filed compilation of case laws which have been duly considered but found to be not appropriate on the facts of the case of the Miscellaneous Application under consideration. 14 14. In the result the Miscellaneous Application of the assessee in MA No. 323/DEL/2019 is dismissed. The order is pronounced in the open court on 21.03.2023. Sd/- Sd/- [ASTHA CHANDRA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 21 st March, 2023. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi 15 Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order