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2016 (5) TMI 969 - ITAT MUMBAI

2016 (5) TMI 969 - ITAT MUMBAI - TMI - Addition of AMP expenses - TPA - Held that:- In the case under consideration, the AO/TPO has not brought anything on record that there existed and agreement, formal or informal, between the assessee and the AE to share/reimburse the AMP expenses incurred by the assessee in India. In absence of such an agreement the first and primary precondition of treating the transaction-in-question an IT remains unfulfilled. Conducting FAR analysis or adopting an appropr .....

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not justified in upholding the order of the TPO. Therefore, reversing his order, we decide second ground in favour of the assessee.

Disallowance of deduction in respect of payment for additional excise duty payable by third-party manufacturers - Held that:- provision made by the assessee for the amount payable to third party manufacturers/convertors on account of excise duty payable by them as per the agreement had not been crystallised or ascertained during the year under considerat .....

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rketing know-how (in pursuance of worldwide stock and asset purchase agreement entered into by Pfizer US and the parent company of the assessee) - Held that:- When the AO has accepted the payment in question for goodwill then in view of the judgment of the Hon’ble Supreme Court in the case of M/s SMIFS SECURITIES LTD (2012 (8) TMI 713 - SUPREME COURT ), the depreciation is allowable on the marketing knowhow

Disallowance made u/s. 14A - Held that:- Disallowance should be restricted to .....

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ing and marketing of malted food, drinks and chocolates, filed its return of income on 31/10/2005, declaring total income of ₹ 61. 98 crores. The AO completed the assessment u/s. 143(3) of the Act, on 31/01/2008, determining the income of the assessee at ₹ 75. 67 crores. 2. First ground of appeal is about disallowance of ₹ 7. 30 crores out of the royalty payment made by the assessee to its associated enterprise(AE), M/s. Cadbury Schweppes Overseas Ltd. , UK(CSOL)on the ground t .....

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nowhow developed by the AE relating to the manufacturing, processing, distributing and marketing of products as well as benefits of continuing research and development (R&D) undertaken by CSOL, that it had also entered into an agreement with AE on 20. 12. 2000, that the assessee had agreed to pay royalty to the AE @ 1. 25%, that it had paid royalty to the tune of ₹ 6. 35crores, that it also paid ₹ 730. 41 lakhs for the use of trade mark. The TPO was of the opinion that royalty pa .....

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while deciding the appeals for AY. s 2003-04 and 04-05, that in the TP order for the AY. 2010-11 and 2011-12, the TPO had not made any disallowance for the identical payment. The Departmental Representative (DR)left the issue to the discretion of the Bench. 2. 3. We have heard the rival submissions and perused the material before us. We find that while deciding the appeal for AY 2002-03(supra) the Tribunal has decided the issue as under:- 37. We have heard the detailed arguments from both the si .....

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ctions were controlled. This was reasonable, as no data was available from independent source to benchmark the transactions. 39. On going through the records and the orders of the revenue authorities, we find that in so far as the payment of royalty on technical knowhow concerned, the assessee has been paying to its parent AE right from 1993, as, other group companies are paying across the globe. It has been accepted by the TPO that the payment does not effect the profitability of the assessee, .....

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sessee, in fact is paying a lesser amount, if the payments are compared with the payments towards trademark usage, by the other group companies using the Brand Cadbury in other parts of the world. On the other hand, if we examine the argument taken by the TPO with regard to OECD guidelines. On this point the assessee s payment is coming to a lesser figure, as discussed in detail by the CIT(A). 41. We are not going into the arguments advanced by the DR/TPO on geographical differences, and payment .....

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ent. Respectfully, following the above order, and the order for subsequent AY. s we decide the Ground of Appeal No. 1 in favour of the assessee. 3. The second ground of appeal is about disallowance of AMP expenses (Rs. 71. lakhs)towards the cost allocable to CSOL for the benefit accruing to it. On perusal of the accounts of the assessee, the TPO noticed that the assessee had debited advertisement and marketing expenses amounting to ₹ 85. 15crores, that it was 11. 11% of the sales recorded .....

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reased to ₹ 85. 15crores for the year under appeal, that the royalty had increased from ₹ 2. 07 crores to ₹ 13. 56crores for the same period. He held that high degree of correlation between the royalty payment and sales on one hand and marketing and advertisement expenditure and sales on the other was not a matter of coincidence, that it was coming out as a feature of business undertaken by the assessee, that the AMP expenses debited by the assessee in the P&L Account was b .....

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it to the assessee from the sales was 1. 78% of the net sales, that the overseas AE should bear 1. 7% of the AMP expenses that were entirely borne by the assessee. The TPO computed ₹ 1. 52 crores(1. 78%) as the cost apportioned/allocable out of the AMP cost incurred by the assessee for the benefit accruing to the AE. However, the cost was restricted to ₹ 71. 00 lakhs (being 0. 87% of ₹ 85. 15crores), in view of the disallowance/adjustment in income made on account of royalty fo .....

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nditure on AMP for the products manufactured by it, that the expenditure was incurred wholly and exclusively for its business in the licensed territory, that the products manufactured by the assessee were in the impulse-purchase category, that for such products higher advertising and marketing was a pre-requisite to increase product awareness, that the AMP expenditure was incurred for creation of product-awareness of new products and recall-value of existing product in the minds of Indian custom .....

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e AE. s had provided strict brand guidelines to ensure that overall strategy and vision associated with the brand was adhered to by the assessee in India, that the AE. s would also do their brand related exercise at their own cost for over all brand positioning and management on global basis which would also benefit the assessee in an indirect manner, that the expenditure the AE would incur as brand owner had substantially benefitted the assessee from a commercial stand point, that one of the ke .....

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hat if the assessee could not have achieved the turnover without the license it clearly meant that the net turnover of ₹ 766. 21crores had been achieved on account of license, that payment of ₹ 13. 66 crores to achieve the turnover and to realise the net profit of ₹ 46. 36 crores was reasonably at arm s length, that the AMP exepenses incurred by the assessee for promoting the sales of its products in India did not benefit the AE. s directly, that they were not involved in the b .....

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d AMP expenditure that led to enhanced sales and profitability on year on year basis, that for the purpose of analying the AMP expenditure incurred by the assessee vis-a-vis the comparables it would be necessary to consider the factors like growth rate, nature of business, number of products launched, territories serviced and turnover/profits achieved, that the entire expenditure was focused on the Indian consumer, that the said fact was evident from the local flavour/language/concepts, that the .....

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CG segment was 8. 89% on sales is against such expenditure of the assessee at the rate of 10. 45%. He held that the companies chosen by the assessee were not the same that could be considered for benchmarking, that if the amount correspond - ing to the difference in average marketing and advertisement expenses of those companies(@8. 89%)and that of the assessee (@10. 45%) would be at 1. 56%. He applied the difference to the total sale (Rs. 766. 21 crores) and determine the adjustment to ₹ .....

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ability(PBT to sales ratio) at 10. 85%were much higher compared to the average profitability of the comparables at 3. 57% in the FMCG sector, that higher rate of profitability could not be justification of disproportionate and higher expenditure, that there could not be any justification to incur such expenditure which was benefiting it as well as it s AE, that in an ALP situation for any benefit which had been enjoyed by the AE and which was payable in monetary terms had to be adequately compen .....

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to incur certain expenditure by it which was otherwise benefiting the AE, that the FAA had given the relief to the assessee in the earlier years following the judgement of Maruti Suzuki Ltd. , that later on the Hon ble Apex court had directed the TPO to compute the ALP without being influenced by the decision of the Hon ble High Court, that while deciding the appeal for the earlier year the FAA had adopted incorrect figures. Finally, he upheld the order of the TPO. 3. 3. During the course of hea .....

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its own products, that it had not advertised the brand owned by its AEs. He relied upon the cases of Maruti Suzuki India Ltd. (64 Taxmann. com 150), Honda Ciel Power Products (64Taxmann. com328), Whirlpool of India Ltd. (64 Taxmann. com 324), delivered by the Hon ble Delhi High Court. Referring to the case of Sony Ericsson Mobile Communication India Private Ltd. (231 taxmann 113), he stated that matter should not be remanded back to the file of the TPO in view of the said decision. He further ar .....

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ble High Court of Delhi, in the case of Sony Ericsson Mobile Communication, (supra)had held AMP to be an international transaction, that BLT was not approved by the Court, that the Hon ble court had laid down certain important principles of TP, that the court had laid emphasis on conducting detailed functional analysis that would include AMP functions/expenses, that the court had observed that selection of comparables also required to be matched with the functions and obligations performed by t .....

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artmental authorities did not have the benefit of the decision, that they were following the order of the LG Electronics (supra)using BLT, that in some cases BLT had been followed and the expenditure on AMP had been sliced into two portions, that the non routine expenditure in excess of BLT was considered separately as international transaction and benchmarked accordingly for the purpose of ALP, that non-routine excess expenditure taken out for benchmarking of AMP would be required to be conside .....

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Before proceeding further, it would be useful to understand the philosophy and to consider the historical background of the TP provisions. It is said that the purpose and object of introduction of the provisions contained in Chapter X is to prevent an assessee from avoiding payment of tax by transferring income yielding assets to non-residents even while retaining the power to enjoy the fruits of such transactions i. e. the income so generated. As a concept, it is not totally a new idea. A refe .....

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the non-resident either yielded no profit or, less than ordinary profit, which may be expected to arise in that business then, the AO was empowered to tax profits which were derived or which may reasonably be deemed to be derived from the business in the hands of a person resident in the taxable territory. Thus, it can safely be concluded that TP provisions were part of tax administration even during the 1922 Act daysthough at infancy stage. The present provisions were been incorporated vide Fin .....

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e first pre-condition for invoking the TP provisions. Calculation of ALP is the next and logical step. But, if the first step itself is missing, the AO cannot go to the second stage. In other words, the AOs cannot climb the second storey of a building without reaching to the first storeyif the existence of an IT and calculation of ALP can be compared with a doublestoreyed building. 3. 4. 1. We find that the assessee is the market leader of the chocolate market in India, that it was commanding 70 .....

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for the benefit accruing to the AE, that he restricted the cost to ₹ 71 lakhs(being0. 87% of ₹ 85. 15crores)in view of the disallowance/ adjustment in income made on account of royalty for trade mark, that the average AMP expenditure by the leading FMCG companies for the period 2001-05 was 10. 28%, that the AMP expenditure incurred by the assessee during the same period was 10. 45%, that the assessee had contended that its profitability(PBT to sales ratio) @10. 85%was much higher co .....

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There is no reason for not holding that the increased AMP expenditure led to enhanced sales and profitability, that for the purpose of analysing the AMP expenditure incurred by and the comparables it is necessary to consider various factors. If factors like growth rate, nature of business, number of products launched, territories serviced and turnover/profits achieved have necessarily to be considered for determining the AMP expenses. The entire expenditure was focused on the Indian consumer an .....

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and basic distinction between the provisions of section 37 and section 92 of the Act-as the first is expense oriented and the second is pricing oriented. The FAA tried to incorporate the ingredients of Section 37 while dealing with the TP adjustments, when he talked of the higher expenditure and justification of such expenditure. In our opinion, the approach of the FAA was not in accordance with the basic philosophy of TP provisions. In our opinion, it is the assessee who has to decide how much .....

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pinion he had adopted a totally incorrect approach, while dealing the allowability of AMP expenditure. 3. 4. 2. We further hold that the claim of the assessee is factually correct that it had incurred the AMP expenditure for creating product awareness and to recall the value of existing products and that it had a local marketing strategy of making advertisement/slogans in the local language. In our opinion, KUCH MEETHA HO JAY campaign proves the claim made by the assessee. The TPO had ignored th .....

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ct that the AE was the owner of intellectual property of the Cadbury brand and that it was responsible for promoting the brand all over the globe and that the brand related exercise at the cost of the AE for the overall brand positioning and management benefited the assessee also in an indirect manner. Nothing has been brought on record to prove that the assessee was directly or indirectly promoting the global brand rather than promoting its own products. In our opinion, there exists a fine but .....

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ue owned by its overseas AE. In the case under consideration, the assessee was incurring expenditure for its products whereas the AE was looking after the ground at global level. If the AMP expenditure incurred by them benefited indirectly in the local/ international market it would not mean that it was an IT. The basic purpose of introducing the various provisions of chapter X, as stated earlier, was to prevent tax evasion in the transactions undertaken between an Indian entity and its overseas .....

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en deliberated upon extensively and each and every argument raised by the TPO/DRP have been analysed thread bare. We would like to reproduce relevant portion of the judgment of Bausch & Lomb Eyecare(India) Pvt. Ltd. (supra) and same reads as under: 53. Areading of the heading of Chapter X['Computation of income from international transactions having regard to arm's length price"]and Section 92 (1) which states that any income arising from an international transaction shall be co .....

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ncing the TP exercise is to show the existence of an international transaction. The next step is to determine the price of such transaction. The third step would be to determine the ALP by applying one of the five price discovery methods specified in Section 92C. The fourth step would be to compare the price of the transaction that is shown to exist with that of the ALP and make the TP adjustment by substituting the ALP for the contract price. 55. Section 928 defines 'international transacti .....

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h enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost. or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to anyone 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 .....

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transaction is in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, incomes or losses of such enterprises, and (c) shall include a mutual agreement or arrangement between two or more AEs for allocation or apportionment or contribution to the any cost or expenses incurred or to be incurred in connection- with the - benefit, service or facility provided or to be p .....

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ere exists an 'agreement' or 'arrangement' or' 'understanding' between BLI -and B&L, USA whereby BLI is obliged to spend excessively on AMP in order to promote the brand of B&L, USA. As far as the legislative intent is concerned, it is seen that certain transactions listed in the Explanation under clauses (i) (a) to (e) to Section 92B are described as an 'International transaction'. This might be only an illustrative list, but significantly' it doe .....

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ven if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v), which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or &# .....

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ntext referred to the decision of the Supreme Court in Daiichi Sankyo Company Ltd. v. . Jayaram Chigurupati 2010(6)MANU/SC/0454/2010, which arose in the context of acquisition of shares of Zenotech Laboratory Ltd. by the Ranbaxy Group. The question that was examined was whether at the relevant time the Appellant, i. e. , 'Daiichi Sankyo Company and Ranbaxy were "acting in concert" within the meaning of Regulation 20(4) (b) of the Securities and Exchange Board of India (Substantial .....

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e hors the element of the shared common Objective' or purpose the idea of "person acting in concert" is as meaningless as criminal conspiracy without any agreement to commit a criminal offence. The idea of "persons acting in concert" is not about a fortuitous relationship coming into existence by accident or chance. The relationship' can come into being only by design, by meeting of minds between two or more persons leading to the shared common objective or purpose of .....

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non for the relationship of "persons acting in concert" to come into being. " 60. The transfer pricing adjustment is not expected to be made by deducing from the difference between the 'excessive' AMP expenditure incurred by the Assessee and the AMP expenditure of a comparable entity that an international transaction exists and then proceeding to make the adjustment of the difference in order to determine the value of such AMP expenditure incurred , for the AE. In any even .....

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he AMP expenditure incurred as a transaction by itself when it has neither been identified as such by the Assessee or legislatively recognised in the Explanation to Section 92 B runs counter to legal position explained in CIT vs. EKL Appliances Ltd. (supra) which required a TPO "to examine the 'international transaction' as he actually finds the same. " 62. In the present case, the mere fact that B&L, USA through B&L, South Asia, Inc holds 99. 9% of the share of the Ass .....

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pra) as under: "68. The above submissions proceed purely on surmises and conjectures and if accepted as such will lead to sending the tax authorities themselves on a wild-goose chase of what can at best be described as a 'mirage'. First of all, there has to be a clear statutory mandate for such an· exercise. The Court is unable to find one. To the question whether there is any 'machinery' provision for determining the existence of an international transaction involvin .....

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situations then that would be the ALP. The Court does not see this as a machinery provision particularly -in-light of the fact that -the-BLT has been expressly negatived by the Court in Sony Ericsson. Therefore, the existence of an international transaction will have to be established de hors the BLT, 70. What is clear is that it. is the 'price' of an international transaction which is required to be adjusted: The very existence of an international transaction cannot be presumed by assi .....

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k to shift from one jurisdiction to another. An 'assumed' price cannot form the reason for making an ALP adjustment. " 71- Since a quantitative adjustment is not permissible for the purposes of a TP adjust - ment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbetore, what the Revenue has sought to do in the present. case is to resort to a quantitative adjustment by first determining whether the AMP spend of the Assessee on .....

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eemed international transactions listed under the Explanation to Section 928 of the Act. The problem does not stop here. Even if a transaction involving an AMP spend for a foreign AE is able to be located in some agreement, written (for e. g. , the sample agreements produced before the Court by the Revenue) or otherwise, how should a TPO proceed to benchmark the portion of such AMP spend that the Indian entity should be compensated for? 63. Further, in Maruti Suzuki India Ltd. '(supra) the C .....

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air market value of the goods. " In such event, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. " The AO in such an instance deploys the 'best judgment' assessment as a device to disallow what he considers to be an excessive expenditure. There is no corresponding 'machinery' provision in Chapter X which enables' an AO to determine what should be the fair 'compensation' an Indian entit .....

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approach using one of the modes similar to the ones contemplated by Section 92C may not only be legally impermissible but will lend itself to arbitrariness. What is then needed is a clear statutory scheme encapsulating the legislative policy and mandate which provides the necessary checks against arbitrariness while at the same time addressing the apprehension of tax avoidance. 64. In the absence of any machinery provision, bringing an imagined transaction to tax is not possible. The decisions .....

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the AMP expenses incurred by the Indian entity was for promoting the brand of the foreign AE. As mentioned-in- Sassoon -J David-(supra)- "the-fact that- somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being 'allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law". Considering the facts-like absence of an agreement be .....

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ions of Chapter X of the Act for the said transaction. 3. 4. 4. With regard to the submissions of the AR that the issue of AMP should be restored back to the file of the AO, we want to mention that law as a concept is supposed to evolve with passage of time-it cannot be static always. Nonavailability of a particular decision of the higher forum cannot justify the restora -tion of issue/cases to the file of AO in each and every case. Unnecessary litigation has to be avoided and issues have to be .....

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eating the transaction-in-question an IT remains unfulfilled. Conducting FAR analysis or adopting an appropriate method is the second stage of TP adjustments. The first thing is to find out whether the disputed transaction in is IT or not. Without crossing the first threshold second cannot be approached, as stated earlier. In the case under consideration, we are of the opinion that AMP expenditure is not an IT and therefore we are not inclined to restore back the issue to the file of the AO. Con .....

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deciding the appeals for the earlier years (ITA/282/Mum/2000-AY. 1994-95, ITA/4135/Mum/2010-AY. 1997- 98, ITA3510/Mum/2011-AY. 2003-04, ITA/4205/Mum/2011-AY. 2004-05). We find that while deciding the appeal for the year AY. 1994-95, the Tribunal had discussed and decided the issue as under: 33. Ground No. 12 of this appeal relates to the addition made by the A. O. and confirmed the learned CIT(A) by way of disallowance made on account of assessee s claim for deduction of excise duty liability o .....

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y the third party manufacturers/convertors but was disputed by them, which dispute was not settled in the year under consideration. The said liability was a contingent liability and it was not while computing the business income of the assessee for the year under consdiration. In that view of the matter, we uphold the impugned order of the ld. CIT(A) confirming the disallowance made by the A. O. on this issue sand dismiss ground No. 12 of assessee s appeal. Respectfully, following the orders of .....

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uce the relevant portion of the order and same reads as under: 12. The ground no. 5 is regarding disallowance of depreciation on marketing knowhow. 13. The assessee acquired on going non-chocolate confectionary business of M/s. Warner Lambert (I) Pvt. Ltd in pursuance of worldwide stock and asset purchase agreement between Pfizer and Cadbury Schweppes Plc of UK, the respective parent companies of the parties. The assessee has paid total consideration of ₹ 33, 35, 00, 000/-. In the valuatio .....

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el of the assessee has submitted that the issue is now covered by the series of judgments including the judgment of the Hon ble Delhi High Court in the case of CIT V/s HINDUSTAN COCO COLA BEVERAGES P. LTD [2011] 331 ITR 192 (Del) wherein the Hon ble High Court after considering the facts that the specific payment for goodwill represents the consideration for marketing and trading reputation, trade style and name, marketing and distribution, territorial know-how, including information of the terr .....

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the AO has disallowed the depreciation on the marketing knowhow on the ground that the amount is considered towards goodwill and no depreciation is allowed on this. He has also relied upon the decision of the Hon ble Supreme Court in the case of CIT V/s SMIFS SECURITIES LTD. [2012] 348 ITR 302 (SC) and submitted that the Hon ble Supreme Court has held that goodwill is an asset u/s 32 of the Act and eligible for deduction under section 32 of the Act. 15. On the other hand, the ld. DR relied on t .....

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ay be a marketable commodity. However, when something has to be a right then it connotes much more than a mere commodity. The said object should be in exclusive position of the right holder and at the exclusion of others. The assessee has not shown any evidence that it has acquired anything from Warner Lambert to this effect. Secondly, the report of Bansi Mehta and & Co, also states that market value can be taken as 3 months advertising cost. This also shows that this know how is general in .....

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owance works out to ₹ 23, 11, 625 (emphasis is ours) 17. It is clear that the AO has denied the claim of depreciation by treating the amount paid by the assessee as consideration towards goodwill. Thus, the AO has treated the said payment towards goodwill. Once, the payment is accepted for goodwill then the judgment of Hon ble Supreme Court in the case of M/s SMIFS SECURITIES LTD (supra) is applicable on the issue. The Honblé Supreme Court has decided the issue of depreciation on go .....

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es (P. ) Ltd. with Smifs Securities Ltd. (duly sanctioned by the hon'ble High Courts of Bombay and Calcutta) with retrospective effect from 1st April, 1998, assets and liabilities of YSN Shares and Securities (P. ) Ltd. were transferred to and vest in the company. In the process goodwill has arisen in the books of the company. " It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities P. Ltd. (amalgamating .....

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of this sub-section, the expres sions 'assets' and 'block of assets' shall mean- (a) tangible assets, being buildings, machinery, plant or furniture ; (b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature :" Explanation 3 states that the expression "asset" shall mean an intangible asset, being know-how, patents, copyrights, trade marks, licences, franchises or any o .....

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; is an asset under Explanation 3(b) to section 32(1) of the Act. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income-tax (Appeals) ("the CIT(A)", for short) has come to the conclusion that the authorised representatives had filed copies of the orders of the High Court ordering amalgamation of the abo .....

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uot;the ITAT", for short). We see no reason to interfere with the factual finding. One more aspect which needs to be mentioned is that, against the decision of the Income-tax Appellate Tribunal, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact referred to hereinabove. For the afore .....

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5 is decided in favour of the assessee. 6. Last ground pertains to disallowance made u/s. 14A of the Act, amounting to ₹ 2, 00, 52, 715/-. During the assessment proceedings, the AO found that the assessee had claimed exempted income of ₹ 5. 29 crores (dividend income- 5. 27 crores, interests received on US 64 tax free bonds -Rs. 2. 90 lakhs). The AO raised a query as to what expenses had been incurred for earning the exempt income, so that same could be disallowed as per the provisio .....

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e exempt income, that the salary of treasury manager, who was managing the investment of the assessee, was ₹ 10. 76 lakhs, that if at all any disallowance was to be made than 10% of his salary could be attributed to the earning of exempt income. After considering the submission of the assessee, held that the assessee had shown net profit to be 67. 64 crores, that the total exempt receipts were at ₹ 5. 29 crores, that percent contribution to the net profit of the exempt income was7. 8 .....

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f the Treasury Department) incurred during the year could only be considered to have been incurred for earning of exempt income, that disallowance u/s. 14A should be restricted to ₹ 2. 13 Lacs. The FAA issued a show cause notice on 24/10/2011 asking the assessee to explain as to why disallowance u/s. 14 A should not be computed in accordance with the formula mentioned therein. The assessee submitted that the formula mentioned in the notice was akin to the method prescribed by the rule 8D o .....

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DTR 177). After considering the submission of the assessee and the assessment order, the FAA worked out the disallowance at ₹ 2, 00, 52, 715/- and thus partly allowed the appeal. 6. 2. Before us, the AR stated that while deciding the appeal for the AY. 2004-05 (supra)the Tribunal had at paragraphs 38-40 at pages 18-19 had dealt with the issue, that in earlier years the disallowance was restricted to 1% -2% of the dividend income, that same disallowance should be made for the year under con .....

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f the Act. 39. The assessee has received dividend income from mutual funds amounting to ₹ 3, 64, 10, 101/- and interest on US64 bonds amounting to ₹ 1, 09, 093/- ITA Nos. 3510/M/11, 3726/M/11, 4205/M/11 and 4561/M/2011 19 and claimed the same exempt under section 10(35) of the Act. The AO disallowed the head office expense amounting to ₹ 1, 57, 00, 000/- u/s 14A of the Act by allocating in proportion of exempt income and net profit. On appeal, the assessee has contended that fo .....

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amounting to ₹ 1, 76, 271/- u/s 14A of the Act. 40. We have heard the ld. DR as well as Ld. Sr. Counsel for the assessee and considered the relevant material on record. The AO has allocated Head office expenses in the ratio of net profit and exempt income which cannot be accepted as there is no basis of such allocation of the Head office expenses in proportionate of the income the administrative expenses cannot be apportioned equally on the regular business income and exempt income because .....

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