TMI Blog2012 (4) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... ot conclusive to judge true nature of expenditure. One has to go further and ascertain as to whether particular expenditure results into an advantage of enduring nature in the capital field or revenue filed. In the instant case having regard to the nature and details of expenditure it is clear that the expenditure under the head "Promotional and Trade Marketing Expenses" is an expenditure which is incurred wholly and exclusively for the purposes of business and is in the revenue field. The same is allowable as a revenue expenditure. Capital or revenue expenditure - expenditure under the head "Product Development Expenses" - held that:- it is erroneous to conclude that the assessee acquired a new line of business by merely developing and introducing new products in the existing line of business. The new products clearly relate to the same line of business that the assessee has been hitherto carrying on. Therefore, on above consideration also the plea of the assessee that the expenditure in question is a revenue expenditure deserves to be upheld. - IT APPEAL NO. 1238 (CHD.) OF 2010 - - - Dated:- 25-1-2012 - MS. SUSHMA CHOWLA, MEHAR SINGH, JJ. Ajay Vohra and Neeraj Kumar J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring all economic costs and risks. 2.4 That the AO/TPO erred on facts and in law in not appreciating that advertisement and marketing expenses incurred by the appellant does not result in benefit nor created any intangible for the AE. 2.5 That the AO/TPO erred on facts and in law in not appreciating that the AMP expenses, etc., incurred by the appellant cannot be characterized as an international transaction as per section 92B of the Income Tax Act so as to invoke the provisions of section 92 of the Act. 2.6 That the AO/TPO erred on facts and in law in not appreciating that the associated enterprise was not under obligation to reimburse the alleged AMP expenses incurred by the appellant for sale of its products to the dealers. 2.7 That the AO/TPO erred on facts and in law in not appreciating that expenditure on advertisement and brand promotion could at best be said to be unilateral flow from action of the appellant and could not be regarded as transaction or international transaction: as per section 92B of the Income Tax Act so as to invoke the provisions of section 92 of the Act. 2.8 That the AO/TPO erred on facts and in law in not appreciating tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anik Industries Ltd. Hastun Agro Products Ltd. 2.15 Without prejudice that assessing officer/TPO erred on facts and in law in rejecting the following alternate set of comparable companies in FMCG segment identified by the appellant for benchmarking of advertisement and brand promotion expenses : Companies Advertisement expenses (% of sales) Cadbury India Ltd. 17.14% Gillette India Ltd. 17.10% Hindustan Unilever Ltd. 13.09% Nestle India Ltd. 9.98% Procter Gamble Hygiene Health Care Ltd. 13.89% Average 14.24% 2.16 That the AO/TPO erred on facts and in law in not appreciating that advertisement and promotion expenses of 14.24% of the sale was incurred by the aforesaid companies which was comparable/higher than that of the appellant. 2.17 Without prejudice that the AO/TPO erred on facts and in law in considering exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prosecution proceedings as witness of the department, he was unable to attend the proceedings before the Bench. The matter was adjourned to 12.10.2011. On the appointed date of hearing i.e. 12.10.2011 another application was moved by Shri Ajay Kumar Sharma, Addl. CIT on the plea that the case was being represented by Shri Ritesh Parmar, Addl. CIT, who was busy in disposal of time barring cases. The said request of the learned D.R. for the Revenue was rejected in view of the fact that on the earlier date, the contention of the learned D.R. for the Revenue that he was held-up due to his personal appearance before another Court, was accepted. Whereas on the date of hearing, the plea was in respect of non-attendance by Shri Ritesh Parmar. The matter was taken up for hearing on 12.10.2011 and was partly heard on the said date, wherein the learned A.R. for the assessee put forward the contentions and relied on the written submissions. It was further adjourned to 20.10.2011, on which date Shri Ritesh Parmar appeared alongwith Shri Ajay Kumar Sharma for the Revenue and the hearing of the case was concluded. 4. We proceed to dispose off the grounds of appeal raised by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had sales turnover of ₹ 103,131.33 lacs and had debited the following expenses : S. No. Name of Expenses Amount (Rs. Lacs) 1. Advertisement expenses 8640.06 2. Selling Distribution 372.17 3. Market Research 790.14 4. Sales Promotion 3676.75 5. Service charges paid to selling agent 11.49 6. Discount - sales 441.05 7. Development Scientific research 97.41 8. Royalty 4115.79 9. Total 18144.86 9. The submissions of the assessee in respect of various expenses is reproduced under para 7.6 at pages 8 to 11 of the order of TPO. The contention of the assessee, as per the TPO, was misplaced, because of the shareholdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion are not incurred at the instance or direction of the AE nor the AE is to benefit from such expenditure incurred by the assessee in India. Further, it will be appreciated that in absence of any transaction which results in transfer of the benefit of advertisement and brand promotion expenses which otherwise belong to and is exploited by the assessee company to the associated enterprise, the question of transfer of the intangibles or payment by the AE to the assessee company for transfer of such intangibles does not arise. Further contention by the assessee was that from the conjoint reading of provisions of clause (v) of section 92F and sub-section (I) of section 92B of the Act it could be inferred that Transfer Pricing regulation would be applicable to any transaction , being an arrangement, understanding or action in concert, inter alia , in the nature of purchase, sale or lease of tangible or intangible property or any other transaction having bearing on profits, income, losses or assets of such enterprises. Therefore, in order to be characterized as an 'international transaction', it would have to be demonstrated that the same arises pursuant to an arrangement, un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure by the AE. Accordingly, I have examined all the advertisement marketing and sale promotion expenditure (in short AMP expenditure) incurred by the assessee in India. In light of these facts, it is incorrect to say that AMP expenditure is not an international transaction. The TPO vide para 8.2.2 further observed as under : 8.2.2 The assessee has claimed that the TPO has no jurisdiction over the examination of this issue as he has no powers to make disallowances not referred to him. It has been contended in the Audit Report for the assessee that AMP expenditure is third party expenditure accordingly, the same can not be held as international transaction. It is pertinent to mention here that in this case AMP expenditure has been examined in order to determine arm's length price of international transactions of reimbursements of advertisement expenditure of 140.29 crores as discussed in paragraph above. Accordingly, on the international transaction and reference by the AO, no objection can be raised on the issue. 12. In the alternative the TPO observed that from the findings of facts, the assessee had incurred huge AMP expenditure to promote trademark owned by its AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to incur certain routine AMP expenditure as limited risk distributor but it is noted that the assessee has incurred certain non-routine expenditure for the AE. 13. The contention of the assessee that the advertisements in print media, press or otherwise was in relation to products aimed to benefit only the products sold by the assessee in India and any benefit accruing to AEs being incidental, was rejected by the TPO, as the thrust of AMP expenditure was to popularize the brand name of the AE and the same was to promote business activities of the parent company and to enhance brand value, for which no compensation was paid to the assessee in return. The TPO observed that the thrust of AMP expenditure was to promote the brand of AE and to develop market and customer loyalty for the AEs brand. The claim of the assessee that it had incurred AMP expenditure also on brands owned by it, was rejected by the TPO. Under para 8.6.11 of the order the TPO has enlisted the functions performed by the assessee, which in turn has resulted in development of marketing intangible by the assessee for its AE. The TPO thus was of the view that because of the intangible developed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SA. The contention of the assessee that the concept of bright line test should not be applied to its case, was found to be not tenable by the Dispute Resolution Panel, observing that TPO had simply applied a well devised, scientific, already in use and a sound taxation concept. The Panel further observed that while working out the excess payment to its associated enterprise, the TPO had already given set off of ₹ 20.83 crores, which in fact are the expenditure relating to AMP. Further observation of the Panel was that the total amount paid by the assessee to its AE comprised of different heads and as the TPO had held that expenses of ₹ 20.83 crores are at arm's length and required to be incurred for AMP expenses, no further adjustment is warranted. The order of the TPO was thus upheld. 15. The Assessing Officer during the assessment proceedings confronted the report of TPO to the assessee. The objections raised by assessee are incorporated at pages 21 to 24 of the assessment order. The Assessing Officer vide para 7 observed that a reference was made to the TPO under section 92CA of the Act for computation of arm's length price of the international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uing the present appeal shall be referred to by us at the appropriate juncture. 19. We have heard the rival contentions and perused the record. The issue raised vide ground Nos. 2.0 to 2.19 is in respect of adjustment made on account of arm's length price in view of the provisions of Chapter-X of the Income Tax Act. 20. The assessee is engaged in the manufacturing and selling of malted food products and drinks under the brand names of Horlicks, Boost, Maltova and Viva. The assessee claimed that during the year under consideration it had exported malted milk food to its group companies, which in turn was manufactured by third party vendors in India. In addition, the assessee claimed to have carried on certain administrative support services such as marketing/sales inputs I.T. support and training, accounting, etc. to its group companies. The manufacturing units of the assessee are located in Nabha and Rajahmundry. The assessee had also set up manufacturing facility for malted food at Sonepat in Haryana. The said plant is established with a capacity to manufacture 26000 tpa of malted food and is the largest spray drying plant in Asia meeting European GMP and safety st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Reimbursement of expenses (receipts) GSK Financial Services, UK 32,66,181 32,66,181 GSK CH LP, USA 14,22,227 14,22,227 -- GSK Sdn Bhd. Malasia 8,50,000 8,50,000 GSK, Negeria 2,02,415 2,02,415 GSK Australia 5,65,728 5,65,728 Sterling Durg Malaya Sdn Bhd. Malasia 18,43,191 18,43,191 SB Ltd., Sri Lanka 47,50,970 47,50,970 GSK Pte Ltd., Singapore 4,27,460 4,27,460 GSK CH. Korea 18,048 18,048 GSK Ltd., Hong Kong 1,04,80,046 1,04,80,046 GSK K.K. Japan 15,000 15,000 GSK Export Ltd., UK 9,37,574 9,37,574 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and had analyzed the operating profits/total cost ratio of 11 comparable companies. Arithmetic meaning of operating profit margins, earned by the comparable companies was 6.38% and the assessee had computed the said margins at 16.68%. The TPO during the proceedings had show caused the assessee as to why the data of relevant financial year 2005-06 of the said companies should not only be used. In reply the working for operating profit margins relatable to financial year 2005-06 for the comparable companies was furnished and it was claimed that no adjustment is warranted. The TPO has accepted the contention of the assessee and has not made any adjustment on account of international transactions reported by the assessee in Form No.3CEB of Audit Report. However, from the Profit Loss Account, the TPO noted the assessee to have incurred expenditure totaling ₹ 18144.86 lacs on account of royalty and AMP expenses, details of which are as under : S.No. Name of Expenses Amount (Rs.Lacs) 1. Advertisement expenses 8640.06 2. Selling Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Average 2.02 25. The TPO held that as the ratio of selling and distribution expenses as a percentage of sales at 13.06% was higher than 2.02% incurred by the comparable companies, the assessee having incurred routine and non-routine AMP expenses, resulted in creation of marketing intangibles on account of promotion and development of brand, viz. , 'Horlicks' owned by the associated enterprise. The TPO, applying Bright Line test, computed an adjustment of ₹ 1,19,45,81,713/-, being the alleged difference on account of development and sales promotion expenses incurred by the assessee, for which, according to the TPO subsidy ought to be received by the assessee from the associated enterprise. 26. The assessee is in appeal against the aforesaid adjustment made by the TPO, which was upheld by the Dispute Resolution Panel and was applied by the Assessing Officer in making addition in the hands of the assessee . The said issue has been agitated by the assessee vide ground Nos.2.0 to 2.19 raised in the present appeal. The issue before us needs to be adjudicated in line with the broad propositions raised by the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed A.R. for the assessee further submitted that the payment for advertisement and sale promotion was made by the assessee to other Indian parties and the twin requirements under section 92B of the Act were non-existing in the present case. In the absence of any understanding between the associated enterprises, no international transaction was entered into by the assessee. As per the learned A.R. for the assessee the alleged benefit from the expenditure on advertisement and brand promotion can, at best, be said to unilaterally flow from the action of the assessee and could not, therefore, be characterized as an 'international transaction' so as to invoke the provisions of section 92 of the Act. Reliance was placed on the decision of Pune Bench of the Tribunal in the case of Patni Computer Systems Ltd. v. Dy. CIT (IT Appeal Nos.426 1131/PN/2006), wherein the Tribunal deleted similar adjustment made by the TPO in respect of expenditure incurred on consultancy charges paid to third party allegedly on the basis the same resulted in benefit to the foreign associated enterprise who was liable to compensate the Indian entity. 32. The learned D.R. for the Revenue in his w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to be provided to any one or more of such enterprises. (2) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of sub-section (1), be deemed to be a transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. 34. For computing the arm's length price, resort is to be made to section 92C of the Act which reads as under: Computation of arm's length price. 92C. (1) The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely :- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (3), the Assessing Officer may compute the total income of the assessee having regard to the arm's length price so determined : Provided that no deduction under section 10A [or section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section : Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm's length price paid to another associated enterprise from which tax has been deducted 88[or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm's length price in the case of the first mentioned enterprise. 35. Section 92C(1) of the Act specifies the method to be applied for determining the arm's length price in relation to international transaction and it is provided under section 92C(2) of the Act that the most appropriate method having regard to the nature of transaction is to be applied for computing the arm's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said international transaction under section 92C to the Transfer Pricing Officer. (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therein, any evidence on which the assessee may rely in support of the computation made by him of the arm's length price in relation to the international transaction referred to in sub-section (1). [(2A) Where any other international transaction [other than an international transaction referred under sub-section (1)], comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1).] (3) On the date specified in the notice under sub-section (2), or as soon thereafter as may be, after hearing such evidence as the assessee may produce, including any information or documents referred to in sub-section (3) of section 92D and after considering such evidence as the Transfer Pricing Officer may require on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-X of the Act it is clear that it is the duty of the Assessing Officer to compute any income arising from an international transaction having regard to the arm's length price. The Assessing Officer may determine the arm's length price of an international transaction on its own or where the Assessing Officer considers it necessary, subject to the approval of the Commissioner, he may refer the said computation of arm's length price in relation of international transaction under section 92CA of the Act to the TPO. In view of the relevant provisions of the Act the Assessing Officer is to determine whether the transaction involved is an international transaction and he may either determine the arm's length price of the said transaction on its own or where necessary, subject to approval of the Commissioner, refer the same to the TPO. 37. Without going into the issue whether the transaction involved is an international transaction, we first refer to the second proposition raised by the assessee. The second proposition raised by the assessee is that whether inference by TPO was permissible without reference from the AO? In the facts of the present case the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o him by the Assessing Officer, is not warranted under the provisions of section 92CA of the Act. 39. The aforesaid position in law has also been clarified by the CBDT vide Instruction No. 3 of 2003, dated 20-05-2003, which read as under: Subject : Computation of income from international transaction having regard to arm's length price - section 92 of the Income tax Act - Reference to Transfer Pricing Officer and his role -Regarding. The provisions relating to transfer price contained in sections 92 to 92F of the Income Tax Act have come into force with effect from assessment year 2002-03. In terms of the provisions, income from an international transaction is to be computed having regard to arm's length price between the associated enterprises. Further, in terms of section 92CA, a Transfer Pricing Officer, on a reference received from the Assessing Officer, is required to determine arm's length price of an international transaction by an order and the Assessing Officer is required to compute the income having regard to the price so determined by the TPO. The notification regarding jurisdiction of TPOs and their controlling officers have been issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are needed at this stage and the Assessing Officer should not embark upon scrutinishing the correctness or otherwise of the price of the international transaction at this stage. In the initial years of implementation of these provisions and pending development of adequate date base, it would be appropriate if a small number of cases are selected for scrutiny of transfer price and these are dealt with effectively. The Central Board of Direct Taxes, therefore, have decided that wherever the aggregate value of international transaction exceed ₹ 5 crores, the case should be pricked up for scrutiny and reference under section 92CA be made to the TPO. If there are more than one transaction with an associated enterprise or there are transactions with more than one associated enterprise the aggregate value of which exceeds ₹ 5 crores. the transactions should be referred to the TPO. Before making reference to the TPO, the Assessing Officer has to seek approval of the Commissioner/Director as contemplated under the Act. Under the provisions of section 92CA reference is in relation to the international transaction. Hence all transactions have to be explicitly mentioned in the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , factors governing the applicability of respective methods, computation of price under a given method will all be subjected to judicial scrutiny. It is, therefore, necessary that the order that of the TPO contains adequate reasons on all these counts. Copies of the documents or the relevant data used in arriving at the arm's length price should be made available to the Assessing Officer for his records and use at subsequent stages of appellate or panel or proceedings. 40. The learned A.R. for the assessee in this regard had placed reliance on the undermentioned case laws: (1) Amadeus India (P.) Ltd. v. Asstt. CIT [2011] 10 taxmann.com 88 (Delhi). (2) Infotech Ltd. v. Dy. CIT [2011] 129 ITD 422/10 taxmann.com 86 (Mum.) (3) Diageo India (P.) Ltd. v. Dy. CIT [2011] 47 SOT 252/13 taxmann.com 62 (Mum.) 41. The Tribunal in Amadeus India (P.) Ltd. ( supra ) had held as under: 10. On bare perusal of sub-section(1) of section 92CA it reveals certain conditions i.e. the assessee should have entered into an international transaction in any previous year. The Assessing Officer may considered it necessary and expedient to verify the arm's length pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Mumbai Bench of the Tribunal in Diageo India (P.) Ltd. ( supra ), in turn relying on the ratio laid down by Coordinate benche of the Tribunal in 3i Infotech Ltd. ( supra ) vide paras 23 and 24 held as under : 23. As far as this adjustment is concerned, it is an undisputed position that the Assessing Officer had not made any reference to the Transfer Pricing Officer for ascertaining ALP in respect of advertising, marketing and promotion expenses alleged to have been incurred for brand strengthening of the brands owned by the AE. The question whether TPO can make adjustments in such a situation is squarely covered by a decision of the Coordinate Bench in the case of 3i Infotech Ltd. v. Dy. CIT [2010] 136 TTJ 641 /[2011] 129 ITD 422 (Mum.) wherein Coordinate Bench has, inter alia, observed as follows: 38. Under the provisions of section 92E, an assessee who has entered into an international transaction during a previous year has to obtain a report from an accountant and furnish such report in the prescribed form, i.e., Form No. 3CEB. Section 92C(3) provides as follows: (3) Where during the course of any proceeding for the assessment of income, the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (3) of section 92D and after considering such evidence as the TPO may require on any specified points and after taking into account all relevant materials which he has gathered, the TPO shall, by order in writing, determine the ALP in relation to the international transaction in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee. In the present case, the Assessing Officer referred to the TPO for determination of ALP the transactions set out in Form No. 3CEB by his letter dated 29-9-2003. The details of these transactions have already been set out above in the earlier paras. The transaction by which the assessee deputed three of its employees to ICICI Infotech, USA, was not considered as an international transaction to be set out in Form No. 3CEB by the assessee. The Assessing Officer therefore never referred the computation of ALP to the TPO the transaction of deputation of three of its employees by the assessee to ICICI Infotech, USA. The jurisdiction of the TPO is therefore restricted to the transactions referred to him by the Assessing Officer under section 92CA(1). The TPO therefore could not un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition on this short ground of jurisdiction, we see no need to deal with the matter on merits. 43. We further find that the Hon'ble Delhi High Court in CIT v. Amadeus India (P.) Ltd. , [2011] 203 Taxman 602/16 taxmann.com 43 vide judgment delivered on 28.11.2011 had dismissed the appeal of the Revenue upholding the order of Tribunal, holding as under: 17. A plain reading of Section 92CA makes it clear that the Assessing Officer, if he considers it necessary or expedient so to do, may, with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to an international transaction under Section 92C to the Transfer Pricing Officer. At this juncture, we may reiterate that it is primarily the duty of the Assessing Officer to compute any income arising from an international transaction having regard to the arm's length price. He may determine the arm's length price of an international transaction himself or, if he feels that it is necessary or expedient so to do, he may seek the approval of the Commissioner and, thereafter, refer the computation of the arm's length price in respect of an international transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the duty to determine as to whether a transaction is an international transaction or not. Then, if it is an international transaction of the nature specified in Section 92B of the said Act, the Assessing Officer has to determine the income of the assessee having regard to the arm's length price by following the method prescribed in Section 92C. If, for some reason, the Assessing Officer feels that it is necessary or expedient so to do, he may refer the computation of the arm's length price of specific international transactions, after obtaining the prior approval of the Commissioner of Income-tax, to the Transfer Pricing Officer. It is quite possible that in the case of a particular assessee, there may be several international transactions and the Assessing Officer may only wish to refer some of those international transactions for the purposes of computing the arm's length price while in respect of others, he may compute the arm's length price himself. Thus, the jurisdiction of the Transfer Pricing Officer is limited and restricted to computing the arm's length price of only those international transactions which have been specifically referred to him by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-est . We have decided the present issue on applicability of the provisions of section 92CA of the Act without adjudicating the first proposition raised by the assessee that the transaction in question is not an international transaction. The Assessing Officer is, therefore, directed to delete the impugned addition of ₹ 11945.81 lacs. The assessee is also in appeal in respect of the computation made by the TPO by holding several expenses as AMP expenditure and manner of computation and also the comparables picked up by the TPO. The assessee has raised several grounds of appeal against the same and both the authorized representatives had made elaborate submissions on the said issues. However, in view of our decision in holding the order of TPO to be non est , we are not addressing the said issues. The grounds of appeal Nos. 2.0 to 2.19 raised by the assessee are thus partly allowed. 46. The issue in ground No.3 raised by the assessee is in relation to royalty payment. The learned A.R. for the assessee pointed out that there was no revenue impact on account of observations of Assessing Officer/TPO. He further fairly admitted that the ground of appeal is premature. In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: Particulars Amount (Rs.) A. Promotional and Trade Marketing Expenses Boost badminton rackets 5319600 Boost cricket bat 5040000 Tennis Balls for Boost 2146001 Everfresh containers for packing Horliks GP for Nepal 980724 Printing for stickers 8710 Purchase of Horliks Baskets 88000 Hix glow sign board 648050 Outdoor Publicity 98022 GP Packaging material 140000 RSO-North Trade Mktg. 26703 RSO-West Trade Mktg. 21059 Souvenir Advertising 636993 15781862 B. Product Development Expenses Development Exp. for Nutribar chocolate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on advertisement material etc. The expenditure can be viewed as in actuality discount-in-kind allowed to the customers and expenditure on advertisement of the existing products of the assessee. Clearly the expenses incurred are of revenue nature. The expenses in question have merely facilitated the carrying on the business of the assessee more fruitfully. The argument of the revenue that such expenditure result in enduring benefit in as much as the expenditure results in enhancing of the brand, in our view, cannot be taken to mean that the expenditure is capital in nature. As we have noted earlier, it is not each and every enduring benefit which is to be concluded as a capital outgoing. At this point it is pertinent to refer to the decision of the Hon'ble Apex Court in the case of Empire Jute Co. Ltd. (Supra). According to the Hon'ble Apex Court what has to be seen is the nature and import of the expensed in question in a commercial sense. In this case although we are of the view that the said expenditure does not result in any enduring benefit to the assessee yet even if one is to concede to this argument of the revenue, still it is not possible to deduce that the expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cks re-launch expenses. Certainly such expenditure has the potential to improve the profitability of the assessee. However the issue to be considered is whether the expenditure seeks to enlarge the profit yielding capacity or it increases the efficiency of the business. This aspect, in our considered opinion, is to be decided in the light of the business realities under which the assessee is operating. The assessee is engaged in the business of manufacturing of fast moving consumer goods. The business of the assessee is subjected to volatility in consumer preferences, tastes and wants. The assessee is therefore required to perennially study the market and launch new varieties in its products line and meet the competition in the market. It is in this background one has to examine as to whether the impugned expenditure incurred on development, introduction and launching of newer products is an advantage in the revenue filed or not. In our humble opinion the expenditure in question has merely enabled the assessee to remain competitive in the market and retain the customer preferences and loyalty towards its brand of products. The said advantage certainly is not limited to the period u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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