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2013 (6) TMI 458 - AT - Income TaxTransfer pricing adjustment - Whether there can be two separate elements comprised in the promotion of the brand for which separate valuation has to be done? - Held that:- The amount on one side of Bright Line, was the amount on AMP expenditure incurred on normal business of the assessee, whereas the balance amount represented expenses incurred for and on behalf of FMC for creating and maintaining its marketing intangible which was the "Ford" logo. Only addition could be made was by considering the excess AMP spends, and the addition done by the lower authorities considering 1% of sales, as brand development fee was not justified. There was indeed a duplication in measuring the brand development fee for working out the ALP. Only the excess AMP expenditure incurred over and above the average of such expenditure as a percentage of sales of comparable entities - in favour of assessee. ALP of brand building activity - Held that:- Agreement between assessee and FMC, was not exclusive, in that it did not preclude either party from going solo or having other arrangements. There was a remote possibility of FMC giving the knowhow to any other company or person in India and they could also market products carrying "Ford" logo through any other person in India. Thus, there was an international transaction for creating and improving the marketing intangible comprised in the logo "Ford" by the assessee for and on behalf of FMC. FMC was a non-resident and such transaction was of the nature of "provision of service" as held in the case of L.G. Electronic's case (2013 (6) TMI 217 - ITAT DELHI). Thus no fault of revenue for treating the transaction of brand building as an international transaction - in favour of Revenue. Suo motu cognizance of a transaction for ALP analysis by TPO - Held that:- Once there was no reporting of an international transaction by the assessee, as held in L.G. Electronics India Pvt. Ltd. (2013 (6) TMI 217 - ITAT DELHI) it was well within the power of the TPO to consider such transaction also, whether or not it was referred by Assessing Officer to him, under sub-section (1) of Section 92CA - in favour of the Revenue. Whether Bright Line test applied for determination of ALP of AMP fit into any one of the methods allowed u/s 92C(1) r.w.r. 10B of Income-tax Rules - Held that:- As held in L.G. Electronics India Pvt. Ltd. [2013 (6) TMI 217 - ITAT DELHI] steps mentioned in Rule 10B(1)(c) have necessarily to be followed while working out arm's length price. Non-following of the steps in a given methodology can at the best be a lacuna in applying a procedural provision, in the sense that ALP was not computed strictly as per the force of the prescribed method. Therefore, BL test applied by the TPO did fall within the method prescribed under Section 92C and the lacuna was only in not following the steps mentioned in the Rule 10B(1)(c) in the manner prescribed. Selling expenses - whether be excluded from AMP while making a comparative study? -Held that:- As said in L.G. Electronics India Pvt. Ltd. (2013 (6) TMI 217 - ITAT DELHI) AMP referred only to advertisement, marketing and publicity expenses. A divider had to be placed between expenditure for promotion of sales on one hand and expenditure in connection with sales on the other. These expenses have to be treated differently. Thus sales expenditure, which had no connection with the building of the logo "Ford", but which were directly in connection with sales, had to be excluded - in favour of the assessee. Selection of comparables - Held that:- Comparable domestic cases not using foreign brand alone can be considered. Whatever may be the comparison attempted, it is cardinal that the selected entities were having uncontrolled comparable transactions. The selected entities should not be doing any piggybacking on or of a foreign brand owned by an Associate Enterprise abroad. Thus, while holding that comparables selected by the TPO might not have been appropriate, we also reject the comparables selected by the assessee. A.O./TPO has to identify a different set of comparables and they can even consider the same entities selected earlier with proper adjustments carried out on the figures for making good the deficiencies noted in such comparables in the case of Maruti Suzuki's case (2010 (7) TMI 84 - DELHI HIGH COURT). Disallowance of product design expenditure - Held that:- As both the assessee as well as FMC had benefitted from the product development expenditure incurred. Fruits of the improvement, which was better engineered cars, was enjoyed by the assessee whereas ownership was with M/s FMC. Assessee had an economic advantage derived out of such product development expenditure. Therefore, it cannot be said that the expenditure was incurred solely for the benefit of FMC. As long as FMC and assessee were separate legal entities having separate legal existence, it cannot be said that expenditure incurred by the latter was wholly for the benefit of former, when specific economic advantage was derived by the assessee as well. Thus 50% of the advantage derived on account of product development spendings ensued to the assessee and the balance 50% to FMC - partly in favour of assessee. Provision made for bad and doubtful debts disallowed - Held that:- Facts apropos are that assessee had made a provision towards doubtful advances and claimed it stating that such money could not be recovered from its suppliers, since it represented value of rejected parts. However, nothing was shown before us to prove that there was any actual write-off. A mere provision in the account will not be equivalent to a write-off. At the best be considered as a provision for unascertained liability. Nothing was brought on record to show that correspondingly debtors accounts were reduced. Thus the addition was rightly made by the AO. No interference is required. Disallowance of penalty paid under Central Excise & Service Tax Law - Held that:- Nothing was brought by the A.R. to show that these payments were not for any infringement of law. Explanation to Section 37 would squarely apply and therefore, the disallowance was rightly made. Vendor compensation disallowed treating it as capital outgo - Held that:- There is no dispute that the compensation given by the assessee was to its vendors. These were paid for assessee's failure to lift the whole of the ordered quantity, since it had stopped manufacture of certain models. Thus such compensation given for failure to honour the commitment for purchasing agreed quantities, could never be considered capital outgo. What was contemplated for purchase was only raw material, which was to become a part of the running stock of the assessee. Such compensation, was only in revenue field - disallowance was not called for & be deleted. Subsidy of ₹ 1 Crore received under Mega Projects Scheme of Tamil Nadu Government - whether be considered as revenue receipt? - Held that:- The subsidy scheme clearly mentions that it was being given as a special incentive for boosting mega investments in the State of Tamil Nadu & if the investments were between ₹ 200 Crores and ₹ 300 Crores, an industry would be eligible for capital subsidy. Thus the amount received by the assessee could only be considered as capital receipt and not a revenue receipt. In Shree Balaji Alloys (2011 (1) TMI 394 - Jammu and Kashmir High Court) even subsidy in the nature Excise duty refund, interest subsidy and insurance subsidy were held to be capital receipts and not revenue receipts after considering the decision of Sahney Steel & Press Works Ltd. v. CIT (1997 (9) TMI 3 - SUPREME Court) and CIT v. Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT). Thus subsidy cannot be considered as revenue receipt. The addition stands deleted.
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