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TMI Blog2012 (10) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... diture resutled in creating a benefit of enduring nature and thus is capital in nature and cannot be allowed as deduction under section 37(1) of the Income Tax Act, 1961". 3. The relevant facts are that the assessee company is in the business of manufacturing and trading in cosmetic products. For the assessment year under consideration assessee has incurred an expenditure of ₹ 2,02,86,576/- in respect of advertisement expenses under the head Media-Technical. AO disallowed the amount on the contention that the said expenditure (production cost of film etc) resulted in creating a benefit of an enduring nature and those are capital in nature and cannot be allowed as deduction under section 37(1) of the Income Tax Act. Before the CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of each case as to whether the expenditure is capital or revenue in nature would depend on the facts of a particular case. It was held that even the idea of 'once for all' payment and "enduring benefit" are not to be treated as something akin to statutory conditions; nor are the notions of "capital" or "revenue" a judicial fetish. It was held that what is relevant is the purpose of the outlay and its intended object and effect and to consider in a commonsense way having regard to business realities. In a given case, the test of "enduring benefit" might break down. However, the similar issue has been considered by Hon'ble Jurisdictional High Court in the case of Geoffrey Manners & Co. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no merit in the Revenue ground. Accordingly the same is dismissed. 4. Ground No.2 is as under: "2. Whether on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that the Resale Price Method (RPM) was the most appropriate method for determinging the Arms Length Prices of assessee's international transaction in respect of imports of finished goods". 5. Briefly stated assessee is a part of L'OREAL group which is one of the leading cosmetic company in the world and is a 100% subsidiary company of L'Oreal SA France. During the year assessee has entered into following international transactions with its associate enterprise: International Transaction Amount (Rs.) Method adopted Purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a gross margin of 48.69% on sales as against 24.27% on sales earned by comparable companies. TPO however, rejected the RPM and applied TNMM on the following grounds: a) Assessee is consistently incurring losses in India and hence the pricing policy is not at arm's length b) Gross margin in case of comparable cases cannot be relied upon because of product differences of comparable companies. c) The degree of similarity in the functions performed, assets employed and risks assumed between assessee and the comparable companies identified by assessee is not sufficient for the application of resale price method but is sufficient for application of TNMM. d) Adjustment of the margin/profits of assessee is not permissible under Rule 10B. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preceding assessment year, viz., A.Y. 2002-03 as well as succeeding assessment years to the assessment year under consideration, referred hereinabove and also the ITAT order dated 28.1.2011 (supra). 18. The only question for our consideration is as to whether to determine ALP in respect of business activity relating to distribution segment of the assessee with the AE is to be considered by RPM or TNMM. We observe that TPO has applied TNMM and has suggested adjustment of ₹ 4,90,07/OOO by showing desired profits margin of comparable companies at 0.36% on sales as the operating margin of the assessee shown is (-) 19.84%. Accordingly, TPO computed the ALP in the purchase of finished goods at ₹ 2,70,81,OOO as against actual value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines 2010 as stated hereinabove. On the other hand, Id A.R. justified the RPM method adopted by it and also referred to order of TPO in the preceding assessment years as well as succeeding assessment years to the assessment year under consideration to substantiate that RPM is the most appropriate method to determine ALP. He submitted that the assessee made adjustment for marketing and selling expenses to the profits to make it comparable to the comparable companies' profits. We agree with learned CIT(A) that there is no order of priority of methods to determine ALP. RPM is one of the standard method and OECD guidelines also states that in case of distribution and marketing activities when the goods are purchased from AEs which are sold ..... X X X X Extracts X X X X X X X X Extracts X X X X
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