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TMI Blog2014 (3) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... le of alcoholic beverage bases, known as concentrates used in the manufacture of beverages. The concentrates are sold to bottlers, who use the same to prepare beverages. 5. The matter pertains to the Assessment Years 2007-2008 and 2008-2009. The facts relevant to this petition, pertaining to both the assessment years are similar. We will for convenience refer to the facts pertaining to the AY 2007-2008. 6. The petitioner filed a return of income on 29.10.2007 offering an income of Rs.52,03,46,270/-. The petitioner claimed a deduction of Rs.191,15,03,471/- towards Advertising Marketing Promotion expenses (AMP) and Rs.76,80,37,502/- towards the service charges and reimbursement. 7. A reference was made to the Transfer Pricing Officer (TPO) for determination of the arm's length price (ALP) of certain international transactions disclosed by the petitioner. The TPO noted that the petitioner was indirectly a wholly owned subsidiary of Coca Cola South Asian (India) Holding Limited, who in turn was ultimately held by Coca Cola Inc. Coca Cola Incorporated is a company established under the laws of the state of Delaware, USA and has established a branch in India. 8. The TPO made a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia in addition to the routine AMP expenditure that the petitioner was expected to spend for its normal, routine distribution business. The TPO adopted the bright line limit / method. He noted that the AMP and marketing support expenses was Rs.285,35,51,777/-. He found the AMP expenses to be 46.04% of the sale. In doing so, he obviously took into consideration the petitioner's sales of about Rs.619.22 crores and not the sales by the bottlers. The routine advertising expenses of similar enterprises was determined at 2.9%. Accordingly Rs.267,13,18,421/- was determined to be the nonroutine AMP expenses which the TPO held was for the benefit of the foreign AE and therefore, ought to be added to the petitioner's income. 9. The petitioner opted to go before the Dispute Resolution Panel (DRP). The DRP by its order dated 26.09.2011, merely noted the observations of the TPO, stated that it had looked into the aspect carefully and was of the view that the AMP expenditure was an international transaction ; that the petitioner had incurred costs in connection with the benefit and service provided to the AE under a mutual agreement, which though not in writing was apparent from the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stayed in view of the decision relating to the assessment of the previous year being favour of the petitioner. The AO however, held that recovery ought to be made on the basis of the protective assessment by the assessment order of the previous year viz. on the basis of the transfer pricing adjustment as it had not been considered in the assessment of the previous years. The tax effect on this issue for the Ay's in question viz. 2007-2008 and 2008-2009 was Rs.64,34,12,068/- and Rs.73,54,73,697/- respectively. The AO kept in abeyance only 50% of the amount viz. Rs.68,88,85,765/- for six months or till the decision of the ITAT, whichever was earlier. He further stayed the demand to the extent of Rs.24.45 crores. Ultimately the AO agreed to treat the assessee as not being in default in respect of the said assessment years of Rs.189.05 crores and Rs.206.26 crores subject to the assessee making a payment of Rs.44.45 crores in six monthly installments. 14. The AO in the order dated 20.09.2013 referred to the L.G. Electronics case, but we do not see any analysis by which it was made applicable to the petitioner's case. The issues raised on behalf of the petitioner with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in AYs 2005-2006 and 2006-2007 was also not considered in either of the orders. We would not however, on the ground of the adjustment of the refund, have granted the reliefs sought. We may at the highest in that event have remanded the matter to the AO for considering this issue and permitted the petitioner to make an application in the proceedings relating AYs 2005-2006 and 2006-2007 to have the amounts released and thereafter applied to have the same adjusted against the AYs relevant to this petition viz. AYs 2007-2008 and 2008-2009. 17. It is however, clear to us that the most crucial aspect of the matter viz. the applicability of the order of the Special Bench in the L.G. Electronics case was not considered by the AO either in the order dated 20.09.2013 on the original application for stay or in the order dated 17.10.2013, disposing of the Miscellaneous Application for rectification. We will presently indicate that there are several aspects in this regard that require at least prima-facie consideration while dealing with the application for stay. 18. The petitioner thereafter filed stay petitions before the ITAT, which were disposed of by an order dated 20.01.2014. The ITAT r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparison with similarly placed independent entities be considered as conclusive to infer that some part of the advertisement expenses were incurred towards brand promotion for the foreign AE. Every businessman knows his interest best. It is for the assessee to decide that how much is to be incurred to carry on his business smoothly. There can be no impediment on the power of the assessee to spend as much as he likes on advertisement. The fact that the assessee has spent proportionately more on advertisement can, at best be a cause of doubt for the AO to trigger examination and satisfy himself that no benefit etc. in the shape of brand building has been provided to the foreign AE. There can be no scope for inferring any brand building without there being any advertisement for the brand or logo of the foreign AE, either separately or with the products and name of the assessee. The AO/TPO can satisfy himself by verifying if the advertisement expenses are confined to advertising the products to be sold in India along with the assessee's own name. If it is so, the matter ends. The AO will have to allow deduction for the entire AMP expenses whether or not these are proportionately highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s simply a distributor or is a holding a manufacturing licence from its foreign AE ? 2. Where the Indian AE is not a full fledged manufacturer, is it selling the goods purchased from the foreign AE as such or is it making some value addition to the goods purchased from its foreign AE before selling it to customers ? 3. Whether the goods sold by the Indian AE bear the same brand name or logo which is that of its foreign AE ? 4. Whether the goods sold bear logo only of foreign AE or a logo which is only of the Indian AE or is it a joint logo of both the Indian entity and its foreign counterpart ? 5. Whether Indian AE, a manufacturer, is paying any royalty or any similar amount by whatever name called to its foreign AE as a consideration for the use of the brand/logo of its foreign AE? 6. Whether the payment made as royalty to the foreign AE is comparable with what other domestic entities pay to independent foreign parties in a similar situation. 7. Where the Indian AE has got a manufacturing licence from the foreign AE, is it also using any technology or technical input or technical knowhow acquired from its foreign AE for the purposes of manufacturing such goods ? 8. Where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational Limited vs. B.R. Balakrishnan (2011) 251 ITR 158 set out the parameters for considering applications for stay. These observations have been repeatedly referred to in subsequent judgments of this Court. It is sufficient to refer to the judgment of a Division Bench of this Court in UTI Mutual Fund vs. Income Tax Officer, (2012) 345 ITR 71 and (2012) 206 Taxman 341. The Division Bench held :- "The remedies which are legitimately open in law to an assessee to challenge a demand cannot be allowed to be foreclosed by a hasty recourse to coercive powers. Assessing Officers and appellate authorities perform quasi-judicial functions under the Act. Applications for stay require judicial consideration. Rejecting such applications without hearing the assessee, considering submissions and indicating at least brief reasons is impermissible. The judgment of the Division Bench of this court in KEC International Ltd. v. B. R. Balakrishnan [2001] 251 ITR 158 (Bom), lays down guidelines in regard to the manner in which applications for stay should be disposed of. The parameters which were laid down by the Division Bench presided over by the Hon'ble Mr.Justice S. H. Kapadia (as the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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