TMI Blog2018 (12) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. No FAR analysis of AE has been carried out or even demonstrated that any kind of profit has been derived by the AE from the AMP expenses incurred in India. Otherwise also, the profit earned on account of AMP expenses incurred by the assessee by way of economic exploitation of the trademark/brand in India already stands captured in the profit and loss account for the assessee company and the same has duly offered to tax and hence there was no logic to compute or make any Transfer Pricing Adjustment on this score. TPO has followed the same reasoning in the Assessment Year 2013-14 also, but the DRP did not find any substance in the TPO’s approach and directed the application of ‘Other Method’ as prescribed under Rules as against the application of PSM. By applying ‘Other Method’, adjustment had been made by comparing the AMP/sales ratio of the US parent AE with that of the assessee company and thereafter the DRP has considered the excessive AMP spent by the assessee company as a Transfer Pricing Adjustment. The only difference between the earlier approach of the TPO and the approach adopted by the DRP is that, earlier TPO compared the AMP/sales of the party, i.e., t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Price Support given to Bottlers - Held that:- Assessing Officer concededly adopted the same characteristic to all parties related and unrelated as to the prevailing and local market conditions. There may be several reasons why an Assessee or a commercial venture might be compelled to provide discounts/price support etc. for ensuring the marketability of its product at the price that they proposes. Having regard to these, the method of averaging, to say the least, is illegal Respectfully following the binding precedence on the same issue rendered in the earlier years in assessee’s own case which has been upheld by the Hon'ble Delhi High Court also as incorporated above, we decide this issue in favour of the assessee. Disallowance of sponsorship fees paid by the assessee to ICC - whether the decision taken by the assessee for paying sponsorship fees was for the purpose of business or not? - Held that:- Here in this case, the commercial expediency has not been doubted but rather it has been held by the AO that in all the years transfer pricing adjustments has been made on this score and benefit is arising to the other AEs also. What is relevant for an expense to be allowable as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent from his order and pursuant to his order on such, the amount of assessed tax stood at INR 70,97,80,046. Since, the amount of advance tax deposited was greater than 90% of the assessed tax, no interest under Section 234B of the Act could have been levied. In view of the aforesaid facts submitted by the assessee, we direct the AO to verify the claim of the assessee and re-compute the interest leviable under section 234A/ 234B of the Act in as per law. Credit of tax deduction at source (TDS), advance tax and self-assessment tax not given - Now as a result of the amalgamation order by the Hon’ble High Court, the group companies ceased to exist from 01.04.2010 onwards and could not be regarded as a legal entity for F.Y. 2010-11 and onwards - Held that:- We direct the AO to verify the claim of the assessee and allow the credit of taxes in accordance with the directions contained herein and as per law. - I.T.As. No. 1334/CHANDI/2010, 1203/ CHANDI /2011, 2511/DEL/2013, 1044/DEL/2014 & 4516/DEL/2016, I.T.As. No. 4517/DEL/2016, 4518/DEL/2016, 6537/DEL/2016, 6582/DEL/2017 - - - Dated:- 19-11-2018 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1334/CHANDI/2010 for AY 2006-07. (iii) In Grounds No. 6 to 6.4, the assessee has challenged the addition made by the AO on account of Price Support given to Bottlers amount to INR 14,23,72,674/-. This issue, the assessee has submitted, is squarely covered in favour of the assessee by the decision of the coordinate bench dated 05.10.2016 passed in ITA 1334/CHANDI/2010 as affirmed by the Hon ble High Court of Delhi vide order dated 13.11.2017 passed in ITA No. 474/2017. (iv) In Ground No. 7, the assessee has challenged the addition on account of un-utilized CENVAT credit under section 145A of the Act. The assessee has not pressed this ground and therefore the same is not adjudicated. (v) In Ground No. 8, the assessee has challenged the adjustment made to book profit amounting to INR 70,30,540 (provisions for bad and doubtful debts) under section 115JB of the Act. The assessee has not pressed this ground as the same is academic in nature and therefore the same is not adjudicated. (vi) Grounds No. 9 to 9.1 pertain to initiation of penalty proceedings under section 271(1)(c) of the Act and is consequential in nature. C. I.T.A. No. 1044/DEL/2014 pertaining to AY 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature. F. I.T.A. No. 4518/DEL/2016 pertaining to AY 2011-12 , the assessee company has raised the following issues in its grounds of appeal: (i) Grounds No. 1 to 2 are general in nature. (ii) In Grounds No. 3 to 26, the assessee has challenged the AMP adjustment computed by the TPO vide order dated 30.06.2015 and incorporated in the final assessment order dated 28.07.2016 passed by the AO. (iii) In Grounds No. 27 to 31, the assessee has challenged the disallowance of INR 69,84,350/- computed by the AO as per the provisions of section 14A of the Act. (iv) In Grounds No. 32 to 33, the assessee has challenged the wrongful levy of interest under section 234A/ 234B of the Act. (v) In Ground No. 34, the assessee has challenged the surcharged levied at a higher rate of 10% instead of 7.5%. However, the assessee has submitted that the AO vide rectification order dated 19.01.2017, has rectified the said error and hence the said issue has not been pressed. Therefore, the same is not adjudicated. (vi) In Ground No. 35, the assessee has challenged the credit of tax deduction at source (TDS), advance tax and self7 assessment tax amounting to INR 84,90,70,726/- not given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the assessee has submitted that the same has been rendered academic since the entire amount of adjustment has been deleted in the final assessment order after the grant of working capital adjustment as directed by the Dispute Resolution Panel vide order dated 21.08.2017. Therefore, the same is not adjudicated. (iv) In Grounds No. 35 to 41, the assessee challenged the transfer pricing adjustment amounting to INR 10,42,067/- on account of receivables computed by the TPO and incorporated in the final assessment order by the AO. (v) In Grounds No. 42 to 44, the assessee has challenged the addition of INR 3,93,52,756/- on account of IPA Subsidy received by the assessee under the West Bengal Incentive Scheme, 2004. (vi) In Ground No. 45, the assessee has challenged the erroneous computation of brought forward losses and unabsorbed depreciation by the in the final assessment order. (vii) In Ground No. 46, the assessee has challenged the levy of interest under section 234B of the Act and as such is consequential in nature. (viii) Ground No. 47 pertains to initiation of penalty proceedings under section 271(1)(c) of the Act and is consequential in nature. 2. One of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of the aforesaid agreement has been importing keys and essences for the production of concentrate from AEs. The said import transaction has been duly reported by the assessee in Form 3CEB Report, which has been stated before us that no adverse inference was drawn by the TPO in the earlier years. As per clause 11 of the aforesaid agreement, assessee was required to employ its best efforts to promote the goodwill associated with the Trademarks and the sale of goods. As per clause 12 of the aforesaid agreement, PepsiCo Inc. was responsible for the protection of its Trademarks in India and assessee was obligated to fully co-operate with PepsiCo Inc. on that. As per clause 8 of the aforesaid agreement, assessee was to use the Trademarks of PepsiCo Inc. in connection with sale of goods in India and in the manner as may be directed or approved by PepsiCo Inc. or its representative. Furthermore, as per the said clause, the assessee was to use the Trademarks of PepsiCo Inc. on the labels, containers, packaging, pamphlets and advertisements in connection with sale of goods in India as may have been approved or directed by PepsiCo Inc. In the aforesaid agreement, the assessee was gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PSM 2012-13 601,59,21,918/- PSM 601,59,21,918/- PSM 2013-14 578,21,11,120/- PSM 334,06,17,000/- BLT/ OTHER METHOD Thus, in these appeals, the issue of Transfer Pricing Adjustment on account of AMP can be segregated into three separate categories on the basis of methodology applied by the TPO for computing the AMP adjustment: - a) Appeals for A.Y. 2006-07 to 2009-10 wherein the Ld. TPO has computed the adjustment by applying Bright line ( BLT ); b) Appeals for A.Y. 2010-11 to 2012-13, wherein the Ld. TPO has computed the adjustment by applying Profit Split Method ( PSM ); and c) Appeals for A.Y. 2013-14, wherein the Ld. TPO had computed the adjustment by applying PSM, however, the Hon'ble DRP rejected PSM and instead applied BLT under the garb of Other Method . 5. We will first take up the appeal for the Assessment Year 2006-07 and our observations and finding given herein will ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue in India. Further, referring to provisions of section 92B (1) that arrangement between two AEs for 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 any one or more of such enterprises was an international transaction. He held that here in this case the assessee company had incurred the cost in connection with a benefit and services provided to the AE under a mutual agreement which was, although, not in writing, but such arrangements could be proved from the conduct of the assessee company and accordingly, the AMP expenditure of INR 202,80,54,000/- was an international transaction under section 92B(1) read with 92F(v). 7. Thereafter, the TPO held that the AMP expenditure incurred by the assessee company was 66.89% of the total revenue of the assessee company for the year under consideration and the same was in the nature of intra-group-service provided to the AE, which requires compensation on an arm s length basis. In order to arrive at the arm s length price of such transaction, the TPO applied the bright line test (BLT). After applying BLT, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the TPO. This Court has heard learned counsel for the parties. In Le Passage to India Tour Travels (P) Ltd. v. DCIT [ITA 368/2016 connected matter, decided on 12.01.2017], this Court stated as follows: 4. This Court is of the view that whilst L.G. Electronics India Pvt. Ltd. (supra) indicated that AMPs were or did constitute the basis for an inquiry into the international transaction and indicated a bright line test for it, Sony Ericsson Mobile Communications India Pvt. Ltd.(supra) overruled that decision. This per se does not mean that every endeavour will be to conclude that all transactions reporting AMPs are to be treated as international transactions, the facts of each case would have to be examined for some deliberations. Whilst the TPO and the DRP undoubtedly held that the international transactions existed - that understanding apparently was passed upon the pre-existing regime, propounded in L.G. Electronics India Pvt. Ltd. (supra) with greater clarity on account of this Court s decision in Sony Ericsson Mobile Communications India Pvt. Ltd.(supra). The I.T.A.T. in our opinion, should have first decided whether in the circumstances of this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s PepsiCo Inc., USA for the technology to manufacture the concentrates and to use and exploit the brands owned by PepsiCo Inc., in the regions allocated to the assessee company. Under the aforesaid agreement, the assessee company had been granted a non-transferable, royalty free license for the use of the trademarks in its territory. The assessee company has been the exclusive user of the trademarks in India in respect of syrups and concentrates but has been granted non-exclusive rights for beverages. It was explained that the reason for the same was that the manufacture of concentrate was done exclusively by the assessee company whereas the bottling activity was done by group entities as well as independent bottlers spread across the country. A letter dated 11.06.2015 issued by PepsiCo Inc. addressed to JCIT, Transfer Pricing Officer 3(3), New Delhi, was also placed on record acknowledging therein that the assessee company had not paid any trademark royalty to it over the years. He further submitted that all the necessary functions of strategizing, advertising and marketing activities, their implementation and controlling across India were to be performed by the assessee for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icketing events. Keeping the aforesaid in view, one of Pepsi s AE, namely, PCIC, Ireland, on behalf of all group entities located in cricketing nations, entered into a Global Partnership Agreement dated 28.10.2004 with Global Cricket Corporation PTE Limited (GCC) for obtaining sponsorship rights of various ICC cricketing events worldwide. The said agreement was placed on record and pointed out that PCIC, Ireland, had entered into the aforesaid agreement with GCC only with the consent of the group companies from whom reimbursement was sought. Thereafter, PCIC had entered into an agreement dated 9.09.2005 with the assessee company, wherein the assessee company admitted that it recognizes the substantial popularity of the sport in India and has consistently promoted its range of products using the Cricket platform either through promotion of the events itself be they domestic or international or through endorsements of cricketing personalities . In view of these facts, the assessee company for promoting its own business, decided to reimburse a portion of the total sponsorship fees paid to GCC. The payment under the said agreement dated 9.09.2005 was made by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstanding/action in concert between the two AEs. In the present case he submitted that, AMP expenses incurred by the assessee company would rather fall under the category of domestic transaction as it was undertaken with the third parties which are not covered under the definition of international transaction within the purview of Section 92 of the Act. Any kind of analysis of such domestic transactions undertaken with the third parties was also beyond the purview of Section 92CA of the Act. Further, these transactions purely represented the expenses incurred by the assessee company for the purpose of its own business and had no bearing whatsoever on any international transactions that the assessee company had with its AEs. Thereafter, he drew our attention towards Section 92 of the Act that provides for computation of income arising from an international transaction having regard to the arm s length price and International transaction has been defined in section 92B of the Act, as transaction between two or more 'associated enterprises', either of whom is a non-resident; and also to clause (v) of section 92F of the Act He submitted that Section 92F only prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The reimbursement made by the assessee to its AE in lieu of sponsorship fees paid to ICC was wholly and exclusively for assessee company s business and was not at the behest of the AE. He submitted that the twin requirements of section 92B did not exist in the present case, i.e., the transaction involved was between Indian parties and no foreign party was involved and the transaction of AMP expenses did not take place between two AEs. 17. Mr. Chopra further invited our attention towards the decisions of the Hon ble High Court of Delhi in this regard and submitted that the Hon ble High Court had held that the onus was upon the Revenue to demonstrate that there existed an arrangement between the assessee and its AE under which assessee was obliged to incur excess of amount of AMP expenses to promote the brands owned by AE. The TPO had heavily relied upon clause 8 in the Trademark License agreement, which empowered PepsiCo. Inc to approve and review the advertisement proposed to be telecasted in India but he failed to appreciate that it was only the advertisement content and not the quantum of the AMP expenditure, which was sent to the AE for alignment. He submitted that the al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. The learned counsel for the assessee, thereafter, referred to clause 13 of the agreement dated 09.11.1989 to contend that the risk and rewards of incurring the AMP expenditure lied with the assessee company only as the foreign AE was completely insulated from such risks and rewards arising from the manufacturing activity carried on by the assessee company in India. He submitted that the assessee company has been operating as a licensed manufacturer of concentrates in India, which have been used in the manufacturing of soft drinks. For this purpose, the assessee company had obtained the license from its US parent AE for the technology to manufacture concentrates and to exploit the brands owned by the US parent AE. It was submitted that the assessee company has been maintaining advertising and marketing team of its own which has been strategizing for the marketing and promotion of its products. As a part of the license agreement for the use of trademarks own by the US AE, the assessee company is entitled to promote its products in India using the trademark. The assessee company has been performing the function of procurement of raw material, manufacturing of concentrates, devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on part of the TPO to allege that the assessee should have been compensated for brands conceptualized and developed by it. The allegation of the TPO that the assessee company merely duplicated the advertisements of PepsiCo Inc., USA is also not correct since there were various advertisements which had been independently conceptualized by the assessee company in India. Thereafter, he pressed on the point that it was an admitted position that the US parent AE was the legal owner of the brand/trademarks/ intellectual property which had been licensed to the assessee for the use in Indian market. However, the assessee happened to be the economic owner of the brand in India and therefore, was entitled to all the economic benefits arising out of the intangible property. It was submitted that the assessee bore all the risks associated with the AMP spending, as it was the assessee who was earning the ultimate benefit from those expenses in the form of increase in sales. Since no residual profits were flowing out of India to the AE, there was no way income of the AE was increasing from where it could fund the reimbursement of advertising and marketing expense to the assessee in India. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MP vendors) in India, so as to bring the transaction within the fold of sub-section (2) of Section 92B of the Act. It was submitted that the TPO proceeded to aver that the assessee was contributing to global profits and therefore, AMP expenses assumed the characteristics of an international transaction based on misconstrued facts and complete disregard of the assessee s business model. Hence, there was invalid assumption of jurisdiction on the part of the TPO. 23. The learned counsel also pointed towards the explanation to Section 92B. The explanation to Section 92B as inserted by the Finance Act 2012. From the said provisions he submitted that it was clear that under the expanded definition of the term international transaction the purchase, sale, transfer, lease or use of intangible property had been classified as an international transaction. Intangible property had been defined to include marketing related intangible assets such as trade-marks, trade names, brand names and logos etc. Thus, it was submitted that where two AEs engaged in a transaction, which involved the purchase, sale, transfer, lease or use of intangible property, the same shall be classified as an interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to AMP expenses. He submitted that for the AYs 2006-07 to 2009-10, the TPO used Bright Line Test, not only to benchmark the alleged international transaction but also for concluding that there existed an international transaction in the first place. He stressed heavily that the transfer pricing adjustment pertaining to AMP expenses computed using BLT has specifically been time and again deleted/ remanded back by the Hon ble High Court of Delhi in various decisions starting with Sony Ericsson Mobile Communications Pvt. Ltd. (supra). He again drew our attention towards the relevant passage in para 121 122 from the decision of the Hon ble Delhi High Court in Sony Ericsson Mobile Communications Pvt. Ltd. (supra) Thereafter, he re-directed our attention towards the para 68 to 76 from the decision of the Hon ble Delhi High Court in Maruti Suzuki India Pvt. Ltd (supra). Relying on the judgement he submitted that in the absence of any machinery provision as well as a substantive provision to bring AMP spending within the purview of Chapter X, there could not be any transfer pricing adjustment exercise. He further submitted that it was a settled position of law in the jurisdiction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntities, i.e., the assessee company and the US Parent AE, on the relative value of the FAR of each of the entities. He also pointed out various other inconsistencies in the TPO s application of PSM for benchmarking the alleged international transaction of AMP expenses. 31. It was pointed out by him that the TPO in its order for the AYs 2010-11 to 2012-13, had applied the PSM method by taking the financials of the US Parent AE into account. He has determined a rate of 35% allocable towards marketing activities by relying upon the decision of the coordinate bench of this Tribunal in Rolls Royce PLC vs. DDIT [TIOL-408-ITAT-DEL] and had applied the same to the global net profit of the US Parent AE to arise at the global profit of the US Parent AE from marketing activities. Thereafter, the TPO had compared the AMP spent by the US Parent AE with that of the assessee company and multiplied that ratio with the global net profit of the US Parent AE arising from the marketing activities to compute the subject transfer pricing adjustment on account of AMP expenses. He submitted that PSM is applicable mainly in international transactions involving transfer of unique intangibles or in mult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with that of its parent AE. He submitted that even in AY 2013-14, the other method has been incorrectly applied. He also drew our attention to Rule 10AB and pointed out that erroneous interpretation of this Rule has been made by the DRP by comparing the AMP / Sales ratio of the assessee with the Global AMP/ sales of Pepsi Group on a worldwide basis. He submitted that Rule 10AB provided that Other Method takes into account the price which had been charged or paid for the same or similar uncontrolled transaction with or between nonassociated enterprises under similar circumstances. Comparison of the AMP over sales ratio of the assessee with the AMP ratio of Pepsi Co Group on a worldwide basis was nothing but a distorted version of the BLT. 34. Without prejudice, Ld. Counsel submitted that even if there was an international transaction pertaining to incurrence of AMP expenses, then also the application of BLT for benchmarking would render no transfer pricing adjustment in view of settled law by the Jurisdictional High Court in several cases, as a result would be liable to be set aside. He placed heavy reliance on the decision of the Hon ble High Court of Delhi in Valvoline Cum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en recognized in the subsequent decision of the Hon ble Delhi High Court in Maruti Suzuki India Pvt. Ltd. (supra), which was a case of manufacturer. Thus, the assessee s case was squarely covered by the Maruti decision. For this reason, Special Bench of this Tribunal in LG Electronics India (P.) Ltd. vs. Asstt. CIT 140 ITD 41 (Delhi) (SB) held that all selling and manufacturing expenses were to be excluded for the purposes of determining any the transfer pricing adjustment on account of AMP expenses. Such a finding has been upheld by the Hon ble Delhi High Court Hon ble Delhi High Court in Sony Ericson Mobile Communications (India) Pvt. Ltd. (supra). 37. He further contended that the entire AMP expenditure incurred by the assessee formed part of the assessable value under the excise laws and on which the assessee had paid excise duty. To demonstrate the same, he placed reliance on the decision of the Hon ble Supreme Court in assessee s own case reported as Collector of Central Excise, Chandigarh vs. Pepsi Foods Ltd. 1997 (91) ELT 544 (SC) and submitted that such an amount also included the reimbursements made to the AE for ICC cricketing sponsorship. Hence, it the entire AMP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided in the report to contend that none of the examples therein pertained to a manufacturer, thereby indicating a consistent logic that AMP expenditure incurred by a manufacturer could not be subjected to transfer pricing adjustment. 40. He thus, contended that in assessee s case the legal owner of the trademarks licensed to the assessee has performed no relevant functions, used no relevant assets, and assumed no relevant risks, but for solely acting as the title holder and therefore, it is actually not entitled to any return for holding such title. When the legal owner being the US Parent AE is not entitled to any return, then there was no reason why it compensates its subsidiary in India, i.e., the assessee company for marketing activities while operating in India as a full-fledged manufacturer and reaping all profits from its operations in India. To support his averments, learned counsel also demonstrated that the risk with respect to its manufacturing operations in India was undertaken totally by the assessee and not by the US Parent AE. He referred to various clauses in the Agreement dated 09.11.1989 that indicated that the assessee was to undertake all risks with the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mattel Toys (India) Pvt Ltd: ITA No. 4415/Mum/2014 (Mumbai Tribunal); (xv) WideX India Pvt. Ltd. vs. ACIT: 117/Chandi/2016 (Chandigarh Tribunal); (xvi) Nippon Paint India Pvt. Ltd vs. ACIT: ITA No.779/Mds/2016 (Chennai Tribunal); (xvii) Nikon India Pvt. Ltd. vs. DCIT: ITA No. 4574/Del/2017 (Delhi ITAT). Contention raised by the Ld. CIT-DR: 42. The learned CIT DR in support of TPO s order submitted that, it is an undisputed position that the Pepsi brand for soft drinks and other brands, on which the assessee incurred AMP expenditure, belonged to the US Parent AE. It was submitted that the assessee did not own and develop its own brand and that the AMP spent was purely towards brand building and not sales promotion expenses. Through the AMP spend of the assessee, new brands were developed such as Nimbooz and Kurkure , which were although conceptualized in India, but belonged to the US Parent AE. He relied upon the TPO s order for AY 2010-11 to 2013-14 and submitted that the themes/ slogans used in advertisements in India by the assessee were identical to those used abroad by the US Parent AE. He submitted that such an exercise revealed that the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AE. 44. The learned DR further submitted that the benefit for the assessee by way of increase in sale was incidental and the main purpose of the AMP was the creation of market intangible namely brand owned by the AE. The assessee mainly existed and carried out the activity for the creation and strengthening of brands owned by the AE. Accordingly, it was submitted that the assessee was providing a service to the AE for creation of marketing intangible by incurring AMP expenses, which was an international transaction and required benchmarking. He submitted that the reliance placed by the assessee on the decision of the Hon ble High Court of Delhi in Maruti Suzuki India Pvt. Ltd. (supra) was not tenable, since Maruti Suzuki was a manufacturer and that there was hardly any manufacturing activity undertaken by the assessee. Furthermore, in the said decision, the brand that was promoted was Maruti Suzuki which was co-owned by Maruti Suzuki. He submitted that said brand was not exclusively owned by the AE, namely Suzuki Ltd. He further submitted that that Hon ble High Court had appreciated therein that Maruti brand had already built a huge reputation and therefore, the AMP exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntum of expenditure in the earlier years was high given the issue raised by the food inspector in Kerala in 2006 which had affected the goodwill of the company substantially and hence there was a commercial rationale for the assessee company to incur such huge expenditure to sustain in the highly competitive Indian market. Therefore, he submitted that the argument of the learned DR that the assessee company was primary engaged in development of brand of the AE was completely misplaced and deserved to be ignored. The learned counsel for the assessee also relied upon the said figures to contend that despite the fall of AMP/ sales ratio of the assessee company from 67% in AY 2006-07 to below 10% in AY 2013-14, the Revenue had been computing transfer pricing adjustment based on the excessiveness of the expenditure incurred, which demonstrated lack of application of mind and hence deserved to be set aside. DECISION 48. We have heard the rival submissions, perused the relevant findings given in the impugned orders as well as material referred to before us in respect of transfer pricing issue pertaining to AMP adjustment made by the TPO. We have already discussed in detail, the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure on account of AMP amounts to international transaction or not. In a succinct manner we would like to analyze function and the profile of the assessee company. The assessee is a subsidiary of US entity, PepsiCo Inc, which is mainly involved in the manufacturing of Softdrink/ juice based concentrate and other agro products; and supply concentrated for aerated and non-aerated soft-drinks in India as well as to its AEs in Bangladesh, Nepal, Bhutan and Sri Lanka. It has obtained a license from its US parent AE for the technology to manufacture the concentrate and to use and exploit the brands owned by the said AE in the regions designated to the assessee company. The relevant clauses of Trademark, Licensing Agreement dated 09.11.1989 has already been referred above whereby the assessee was granted a non-transferrable, royalty free license for the use of trademarks in its territory. The assessee is exclusive user of the trademarks in India in respect of syrups and concentrate but was granted non-exclusive right for the beverages manufactured by it. The manufacture of concentrate is done exclusively by the assessee, whereas the bottling activity is done by the group entities as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,54,32,000 124,29,00,000 24.93% 306,50,13,000 51.79% 77,13,883 0.13% 50. The FAR analysis of the various functions performed, assets and risks involved of the Parent AE, assessee company and the third parties can be summarized in the following manner: - Particulars AEs PFL PIH/ Third Parties Functions performed Legal ownership of trademark Yes Nil Nil Registration/ protection of trademark Yes Nil Nil Supply of keys and essences for manufacturing of concentrates Yes Nil Nil Manufacturing of concentrate Nil Yes Nil Bottling of final beverage Nil Nil Yes Advertisement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses, he concluded that assessee has created marketing intangibles only for the promotion of brand and products of the AE. Since AEs recovering some part of the AMP expenditure incurred by it from the assessee this goes to show that AE is controlling the AMP activity of the assessee and also indicate that there was some arrangement between the assessee and its AE regarding incurring of AMP expenditure. As per the provision of Section 92B(1) such an arrangement between two AEs for allocation or apportionment or any contribution to any cost or expenditure incurred or to be incurred in connection with the benefit is an international transaction and if the assessee company had incurred the cost in connection with benefit and services provided to the AE under a mutual agreement though not in writing but if it can be proved from the conduct then it amounts to an international transaction u/s.92B(1) r.w.s. 92F(v). Accordingly, he held that such an AMP expenditure was in the nature of intra-group services provided to the AE which required compensation on an Arm s Length basis and in order to arrive such ALP, he applied Bright Line Test and after applying such method, he made an adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company, then it cannot be held that such a transaction though amounts to international transaction under the Act, requires determination of ALP. In any case, if at all, ALP was to be determined then it should have been strictly circumscribed to the reimbursement of the cost aggregating to ₹ 33,60,15,501/-. Further, the transaction of reimbursement of expenditure of ₹ 33,60,15,501/- cannot be expanded to the entire expenditure of AMP of ₹ 202.34 crores. The reason being, the amount of ₹ 202.34 crores have been incurred by the assessee on its own volition and business requirement to be in competition with other big players in the field of aerated and non-aerated beverages and food products. It is acclaimed fact that industry in which assessee company is operating has to face stiff competition not only from the Indian companies but also from many multinational companies; and to remain in the competition as a lead brand it has to aggressively promote its product under the brand to remain in the competition and to augment its sale. All the necessary functions of strategizing, advertising and marketing activities, its implementation for market penet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property or provision of services or lending or borrowing money; (iii) or any other transaction having bearing on the profits, income, loss or assets of such enterprises; (iv) all such nature of transaction described in the section will also include mutual agreement and the arrangement between the parties for allocation or apportionment or any contribution to any cost or expenses incurred or to be incurred in connection with benefit, services and facility provided to any of such parties. Relevant Explanation to Section 92B as inserted by the Finance Act, 2012 reads as under: - i. the expression international transaction shall include- (b) the purchase, sale, transfer, lease or use of intangible property, including the transfer of ownership or the provision of use of rights regarding land use, copyrights, patents, trademarks, licences, franchises, customer list, marketing channel, brand, commercial secret, know-how, industrial property right, exterior design or practical and new design or any other business or commercial rights of similar nature; Clause (ii) of the said explanation reads as follows ii. the expression intangible property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own business purpose, then without there being any corresponding binding obligation on the other or any such kind of an arrangement actually existing in wring or oral or otherwise, it cannot be characterized as international transaction within the scope and definition of Section 92B (1). 54. Here, in this case, it has been vehemently argued from the side of the assessee that assessee-company had incurred expenditure on AMP to cater to the needs of the customers in the local market and such an expenditure was neither incurred at the instance or behest of overseas AE nor there was any mutual understanding or arrangement or allocation or contribution by the AE towards reimbursement of any part of AMP expenditure incurred by it for the purpose of its business. If no such understanding or arrangement exists, then no transaction or international transaction could be said to be involved between the AE and the assessee which can be reckoned to be covered within the provision of Transfer Pricing Regulation. The incurring of expenditure by the assessee is in fact purely a domestic transaction by a domestic enterprise with a third party in India for its own business purpose. Even the reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Jurisdictional High Court in the case of Whirlpool of India Ltd. vs. DCIT, Bausch Lomb Eyecare India Pvt. Ltd. vs. ACIT (supra) and Honda Siel Power Products Ltd. vs. DCIT (supra). 55. The TPO in his order has relied upon clause (viii) of the Trade mark License Agreement which empowered the PepsiCo Inc to approve and review the advertisement proposed to be telecasted in India. It has been clarified by Mr. Chopra before us that, it was only for the purpose of advertisement content and not for the quantum of the AMP expenditure. The mandate of the AE was to only ensure that same brand guardrails are being followed by the AEs all across the world, i.e., the logo of the Pepsi or any other brand or trademark owned by the AE should be presented in the same manner all across the world. The AE does not have any direct control of the marketing functions of any AE in various geography. This contention of the learned counsel is also borne out from the material on record and nothing has been brought by the TPO to rebut that the AEs had any direct control over the marketing functions or has any say in the quantum of expenditure to be spent. Marketing of such an impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... miniscule amount for the import of keys and essences. 56. One of the other allegations of the TPO has been that assessee do not have exclusive right to manufacture the beverage in India and hence it could not be said that AMP expenditure incurred was solely for its benefit. However, such an allegation does not hold ground, because assessee had exclusive right to manufacture concentrate in India and only bottling of the beverage was located to third parties which was a separate function and for strategic reason it has been given to third party bottlers also for the efficiency of the operation. Another allegation made in subsequent years by the TPO certain brands such as Kurkure , Nimbus , etc. though were conceptualized and developed in India but the trade mark in respect of these brands were owned by the foreign AE. It has been stated by the learned counsel that these brands were largely sold in India and no benefit could have been said to accrue to the AE in other territory on account of promotion of these brands in different territory and geographical location because such kind of different brands are peculiar to a native choice and are sold in their respective territory wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the batch of appeals, including those disposed of by the Sony Ericsson Mobile Communications India (P.) Ltd. (supra) judgment, at one stage of the proceedings on 30th October 2014 the appeal was delinked to be heard separately. 43. Secondly, the cases which were disposed of by the Sony Ericsson Mobile Communications India (P.) Ltd. (supra) judgment, i.e. of the three Assessees Canon, Reebok and Sony Ericsson were all of distributors of products manufactured by foreign AEs. The said Assessees were themselves not manufacturers. In any event, none of them appeared to have questioned the existence of an international transaction involving the concerned foreign AE. It was also not disputed that the said international transaction of incurring of AMP expenses could be made subject matter of transfer pricing adjustment in terms of Section 92 of the Act . 44. However, in the present appeals, the very existence of an international transaction is in issue. The specific case of MSIL is that the Revenue has failed to show the existence of any agreement, understanding or arrangement between MSIL and SMC regarding the AMP spend of MSIL. It is pointed out that the BLT has been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of effecting a TP adjustment is to substitute the transaction price with the ALP so determined. The second proviso to Section 92C (2) provides a 'gateway' by stipulating that if the variation between the ALP and the transaction price does not exceed the specified percentage, no TP adjustment can at all be made. Both Section 92CA, which provides for making a reference to the TPO for computation of the ALP and the manner of the determination of the ALP by the TPO, and Section 92CB which provides for the safe harbour rules for determination of the ALP, can be applied only if the TP adjustment involves substitution of the transaction price with the ALP. Rules 10B, 10C and the new Rule 10AB only deal with the determination of the ALP. Thus, for the purposes of Chapter X of the Act, what is envisaged is not a quantitative adjustment but only a substitution of the transaction price with the ALP. 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 assigning some price to it and then deducing that since it is not an ALP, an 'adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eption of what is best needed to promote its products. The argument of the Revenue, however, is that while such AMP expense may be wholly and exclusively for the benefit of the Indian entity, it also ensures to building the brand of the foreign AE for which the foreign AE is obliged to compensate the Indian entity. The burden of the Revenue's song is this: an Indian entity, whose AMP expense is extraordinary (or 'nonroutine') ought to be compensated by the foreign AE to whose benefit also such expense enures. The 'nonroutine' AMP spend is taken to have 'subsumed' the portion constituting the 'compensation' owed to the Indian entity by the foreign AE. In such a scenario what will be required to be benchmarked is not the AMP expense itself but to what extent the Indian entity must be compensated. That is not within the realm of the provisions of Chapter X. 74. The problem with the Revenue's approach is that it wants every instance of an AMP spend by an Indian entity which happens to use the brand of a foreign AE to be presumed to involve an international transaction. And this, notwithstanding that this is not one of the deemed internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise. Further in the judgment of Sony Ericsson Mobile Communication Pvt. Ltd. (supra), the High Court itself has distinguished the cases before it wherein there were cases which already themselves had accepted that there exists international transaction and there were other set of cases where the assessee has disputed the international transaction. This is clear from the following passage of the judgment: - 120. Notwithstanding the above position, the argument of the Revenue goes beyond adequate and fair compensation and the ratio of the majority decision mandates that in each case where an Indian subsidiary of a foreign AE incurs AMP expenditure should be subjected to the 'bright line test' on the basis of comparables mentioned in paragraph 17.4. Any excess expenditure beyond the bright line should be regarded as a separate international transaction of brand building. Such a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Assessing Officer/TPO comes to the conclusion that it is not possible to compute arm's length price without segregating and dividing distribution and marketing or AMP functions, he can so proceed after giving justification and adequate reasons. At that stage, he would have apportioned the price received or the compensation paid by the foreign AE towards distribution and marketing or AMP functions. The TPO can then apply an appropriate method and compute the arm's length price of the two independently and even by applying separate methods. This will be in terms of the provisions of the Act and the Rules and also as per the general principles of international taxation accepted and applied universally. On the other hand, as recorded by us above, applying 'bright line test' on the basis of parameters prescribed in paragraphs 17.4 and 17.6 would be adding and writing words in the statute and the Rules and introducing a new concept which has not been recognised and accepted in any of the international commentaries or as per the general principles of international taxation accepted and applied universally. There is nothing in the Act or the Rules to hold that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rand building in the minority decision in the case of L. G. Electronics India Pvt Ltd. (supra). The term brand , it holds, refers to name, term, design, symbol or any other feature that identifies one seller's goods or services as distinct from those of others. The word brand is derived from the word brand of Old Norse language and represented an identification mark on the products by burning a part. Brand has been described as a duster of functional and emotional 103 It is a matter of perception and reputation as it reflects customers' experience and faith. Brand value is not generated overnight but is created ever a period of time, when there is recognition that the logo or the name guarantees a consistent level of quality and expertise. Leslie de Chematony and McDonald have described a successful brand is an identifiable product, service, person or place, augmented in such a way that the buyer or user perceives relevant, unique, sustainable added values which match their needs most closely . The words of the Supreme Court in Civil Appeal No. 1201 of 1966 decided on February 12, 1970, in Khushal Khenger Shah v. Khorshedbann Dabida Boatwala, to describe goodwill , c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again ... 104 Brand has reference to a name, trade mark or trade name. A brand like goodwill , therefore, is a value of attraction to customers arising from name and a reputation for skill, integrity, efficient business management or efficient service. Brand creation and value, therefore, depends upon a great number of facts relevant for a particular business. It reflects the reputation which the proprietor of the brand has gathered over a passage or period of time in the form of widespread popularity and universal approval and acceptance in the eyes of the customer. To use words from CTT v. Chunilal Prabhudas and Co. [1970] 76 ITR 566 (Cal) ; AIR 1971 Cal 70, it would mean : It has been horticulturally and botanically viewed as 'a seed sprouting' or an 'acorn growing into the mighty oak of goodwill'. It has been geographically described by locality. It has been historically explained as growing and crystallising traditions in the business. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r creation is a vexed and complexed issue, surely not just related to advertisement. Advertisements may be the quickest and effective way to tell a brand story to a large audience but just that is not enough to create or build a brand. Market value of a brand would depend upon how many customers you have, which has reference to brand goodwill, compared to a baseline of an unknown brand. It is in this manner that the value of the brand or brand equity is calculated. Such calculations would be relevant when there is an attempt to sell or transfer the brand name. Reputed brands do not go in for advertisement with the intention to increase the brand value but to increase the sales and thereby earn larger and greater profits. It is not the case of the Revenue that the foreign associated enterprises are in the business of sale/transfer of brands. Accounting Standard 26 exemplifies distinction between expenditure HJ7 incurred to develop or acquire an intangible asset and internally generated goodwill. An intangible asset should be recognised as an asset, if and only if, it is probable that future economic benefits attributable to the said asset will flow to the enterprise and the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness, it may vain. Thus, its value fluctuates from one moment to another, depending upon reputation and everything else relating to business, personality, business rectitude of the owners, impact of contemporary market reputation, etc. Importantly, there can be no account in value of the factors producing it and it is impossible to predicate the moment of its birth for it comes silently into the world unheralded and unproclaimed. Its benefit and impact need not be visibly felt for some time. Imperceptible at birth, it exits unwrapped in a concept, growing or fluctuating with numerous imponderables pouring into and affecting the business. Thus, the date of acquisition or the date on which it comes into existence is not possible to determine and it is impossible to say what was the cost of acquisition. The aforesaid observations are relevant and are equally applicable to the present controversy. It has been repeatedly held by the Delhi High Court that advertisement 110 expenditure generally is not and should not be treated as capital expenditure incurred or made for creating an intangible capital asset. Appropriate in this regard would be to reproduce the observations in CTT v. Mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd unacceptable. The same is the situation in case we apply the parameters and the bright line test in terms of paragraph 17.4 or as per the contention of the Revenue, i.e., AMP expenses incurred by a distributor who does not have any right in the intangible brand value and the product being marketed by him. This would be unrealistic and impracticable, if not delusive and misleading (aforesaid reputed Indian companies, it is patent, are not to be treated as comparables with the assessee, i.e., the tested parties in these appeals, for the latter are not the legal owners of the brand name/trade mark). 112. Branded products and brand image is a result of consumerism and a commercial reality, as branded products own and have a reputation of intrinsic believability and acceptance which results in higher price and margins. Trans-border brand reputation is recognised judicially and in the commercial world. Well known and renowned brands had extensive goodwill and image, even before they became freely and readily available in India through the subsidiary associated enterprises, who are assessees before us. It cannot be denied that the reputed and established brands had v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rketing its products using the trade mark and the brand of AE. Even otherwise also, the value of the brand which has been created in India by the assessee company will only be relevant when at some point of time the foreign AE decides to sell the brand, then perhaps that would be the time when brand value will have some significance and relevance. But to make any transfer pricing adjustment simply on the ground that assessee has spent advertisement, marketing expenditure which is benefitting the brand/trademark of the AE would not be correct approach. Thus, this line of reasoning given by the TPO is rejected. 61. Further in the final report of Action 8-10 of Base Erosion and Profit Shifting Project (BEPS) of OECD titled as Aligning Transfer Pricing Outcomes with Value Creation . It has been suggested that no adjustment is required on AMP expenditure incurred by full-fledged manufacturers. The report contains various examples pertaining to manufacturer. The following passage from the report is quite relevant which for the sake of ready reference is quoted hereinbelow: 6.40 The legal owner will be considered to be the owner of the intangible for transfer pricing purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn derived by the MNE group from the exploitation of the intangible other than arm s length compensation, if any, for holding title. From the above quoted passage, it can be seen that the guidelines clearly envisage that legal ownership of intangibles, by itself, does not confer any right ultimately to retain returns derived by MNE group from exploiting the intangibles, even though such returns is initially accruing to the legal owner as a result of its legal/contractual right to exploit the intangible. The return depends upon the functions performed by the legal owner, assets it uses, and the risks assumed; and if the legal owner does not perform any relevant function, uses no relevant assets, and assumes no relevant risks, but acts solely as a title holding entity, then the legal owner of the intangible will not be entitled to any portion of the return derived by the MNE group from the exploitation of the intangible other than the Arm s Length compensation if any for holding the title. Here also the PepsiCo Inc which is legal owner of the trademark license to the assessee has not performed any relevant function or used any assets or assumed any risk albeit has acted only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired or not for the reason stated above, the first and foremost condition is that, existence of an international transaction in relation to any service of benefit has to be established before the transfer pricing provision can be triggered so as to place value on service of benefit for the purpose of determining the compensation. Mere fact of excessive AMP expenditure cannot establish the existence of such a transaction. It is only when such a transaction is established then perhaps it may be possible to bench mark it separately. Under the Indian Transfer Pricing provisions, it has been well established over the period of time that detailed FAR analysis has to be carried out to identify all the functions of resident tax payer company and the non-resident AEs pertaining to all the international transactions like purchase of raw material, payment of royalty, purchase of finished goods, export of finished goods, support services or whether there is any direct sales by AE in India. Further it needs to be seen, whether marketing activities relating to DEMPE functions reflected in any such expenditure incurred by the resident tax payer company and the non-resident AE in India are in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of functions performed, assets employed and risks assumed by each enterprise (FAR) and on the basis of reliable external market data vis- vis independent parties; (iii) the combined net profit is to be then split amongst the AEs in proportion to their relative contributions; (iv) the profit thus apportioned to the assessee is to be taken into account to arrive at an arm's length price (ALP) in relation to the international transaction. (v) Alternatively, the combined net profit may be initially partially allocated to each enterprise so as to provide it with a basic return appropriate for the type of international transaction, in which it was engaged, with reference to market returns achieved for similar types of transactions by independent enterprises, and thereafter, the residual profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution as per (ii) and (iii) above, and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise is to be taken to be the net profit arising to that enterprise from the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermine the combined profit arisen from international transaction of incurring AMP expenses and then he is required to split the combined profit in proportionate to the relative contribution of the assessee and the AE. Here, the TPO has neither applied PSM correctly nor has he analysed the contribution made by both entities on the relative value of FAR of each of the entity. He has also not provided any reliable external data based on which the relative contribution of the entities involved in the transaction could have been evaluated either. He has applied PSM by taking the finance of the US part AE and has determined the rate of 35% allocable towards marketing activities by relying upon judgment of the Tribunal in Roll Royce PLC vs. DDIT (supra) and has applied the same to the global net profit of the US parent AE to arrive at the global profit of US parent AE from marketing activities. Thereafter, he has compared the AMP spent by the AE with that of the assessee company and multiplied that ratio with the global net profit of the US parent AE arising from marketing activities to compute the Transfer Pricing Adjustment on account of AMP expenses. Such an approach of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction [or a specified domestic transaction] shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts. The aforesaid Rule provides that that Other Method shall be any method which takes into account the price which had been charged or paid for the same or similar uncontrolled transaction with or between non-associated enterprises under similar circumstances. Comparison of the AMP over sales ratio of the assessee with the AMP ratio of Pepsi Co Group on a worldwide basis was nothing but a distorted version of the BLT. 67. In view of the above discussion, we hold that in none of the years impugned before us, the AMP adjustment made by the TPO/Assessing Officer can be sustained and accordingly, same is directed to be deleted. 68. In result thereof, Grounds No. 4 to 4.14 in I.T.A. No. 1334/CHANDI/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee were not received within the stipulated time. The TPO opined that in such circumstances the delayed payment had to be treated as unsecured loans advanced to the AEs on which he proposed to charge a normal rate of interest for the period of delay in receipt of the payment beyond the time stipulated in the services agreement. The assessee in response to the show-cause notice submitted that the benchmarking of receivables could not have been done as it was not an international transaction which warranted any kind of benchmarking. However, the TPO after detailed discussions and relying upon the provisions of section 92B(1) read with section 92F(v), held that it was an international transaction and after detailed discussion, held that interest rate of 4.45690% per annum based on 6 months LIBOR plus 400 basis points should be applied; and accordingly, made the adjustment after detailed calculation which worked out to INR 10,42,067/-. The DRP confirmed the said action of the TPO, which culminated in the final assessment order dated 27.09.2017. 72. Before us, the learned counsel for the assessee, at the outset, submitted that as per commercial policy of the assessee, it does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions of a coordinate bench of this Tribunal in Micro Inks Ltd. vs ACIT [2013] 144 ITD 610 (Ahmedabad - Trib.). Further reliance was placed on the decisions of; CIT vs. Indo-American Jewellery Ltd. (supra), Bartronics India Ltd. Vs. DCIT [2017] 86 taxmann.com 254 (Hyderabad - Trib.), Deputy Commissioner of Income-tax, Circle - 16(1), Hyderabad vs. Lanco Infratech Ltd. [2017] 81 taxmann.com 381 (Hyderabad - Trib.), Dinurje Jewellery (P.) Ltd. vs. Income-tax Officer, 5(1)(3), Mumbai [2014] 51 taxmann.com 41 (Mumbai - Trib.) and M/s Lintas India Pvt. Ltd. v. ACIT [TS-713-ITAT-2012 (Mum)-TP]. 74. Thereafter, he cited the decision of a coordinate bench of this Tribunal in BC Management Services (P.) Ltd. v. DCIT [2017] 83 taxmann.com 346 (Delhi Trib.) , wherein it was observed that when a similar credit period is given to both AEs as well as third parties, then, there cannot be any adjustment as in such situations there is a direct comparable uncontrolled price to analyze. Further, as per the terms of the agreement, there was no credit period specified for the transactions to which the receivables pertained and as picked up by the TPO. In this regard, our attention was drawn to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding money' gives interest income. Thus, it is evident that interest income is associated only with the lending or borrowing of money and not with sale. So if the international transaction is that of 'sale', the arm's length price is determined qua the 'sale price'. Of course, while determining the ALP in a sale transaction, all the relevant aspects including the credit period allowed are taken into view. On the other hand, if the international transaction is that of 'lending or borrowing money', the arm's length price is gauged qua the 'interest'. When the international transaction is that of 'sale', the interest aspect is embedded in it. There can be no separate international transaction of 'interest' in the international transaction of sale. Early or late realization of sale proceeds is only incidental to the transaction of sale, but not a separate transaction in itself. If the ALP in respect of an international transaction of 'sale' is determined, then there can be no question of treating the nonreceipt of interest in such sale transaction as a separate international transaction warranting any further adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a matter of commercial policy neither charged interest on AEs nor from the non-AEs on outstanding trading receivables. In that scenario, there is an internal CUP for bench marking the transaction, i.e., under the control and uncontrol transaction, assessee has not been charging interest. Assessee has also availed external commercial borrowing amounting to ₹ 705 crore which has already been incorporated above and for the Assessment Year 2013-14 total receivable outstanding for the period exceeding six months from the date it had become due for payment had been disclosed in the P L account which reveals that receivable dues from AEs were ₹ 317 crore, whereas from the non-AEs it was ₹ 320 crore. Once, no interest has been charged on receivables from unrelated parties, then to allege that assessee is conforming any benefit to its AE by not charging the interest on its outstanding receivable would not be correct under the Arm s Length scenario, because here in this case in a comparability analysis of both control and uncontrol transaction, no benefit has arisen from delay in trade receivables from the AE. Now it is quite well settled proposition in the wake of various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese two grounds are related to each other, we have clubbed them for disposal. Briefly stated, the facts of these grounds are that the assessee claimed deduction for a sum of ₹ 50.95 crore towards Price support expenses in its Profit Loss Account on a sale turnover of ₹ 358.05 crore. The AO observed that this expenditure at 14.23% of total sales was excessive. The assessee was called upon to furnish the details of the scheme of Price support to the bottlers, whether related or unrelated. The assessee explained vide its letter dated 11.8.2009 that volume discount/price support was allowed to bottlers in view of prevailing low price of aerated and nonaerated beverages products due to competition pressure on the basis of volume of sales under different rates/schemes. The assessee also contended that the price support/volume discount allowed in the instant year at ₹ 50.95 crore was less than the preceding year s figure of ₹ 62.52 crore. The assessee further provided details of parties to whom domestic sales exceeding ₹ 5 lac were made during the year and who were allowed volume discount/price support . 8. The AO noticed that there was a wide varia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the location of the party, its terms of payment, the competitiveness in that particular area, etc., etc. It is apparent from the calculation of percentage of Price support to sales that out of 21 parties, the assessee did not pay any price support to 8 parties including one related party. Such volume discount to remaining 13 parties varied from 3.72% to 32.90%. We fail to appreciate the view point of the AO in picking up only those 12 parties to whom price support was allowed and, then, averaging the percentage of price support to total sales as a benchmark for the purposes of disallowance. This course of action has no legal sanctity and is unfounded. If the AO was not satisfied with the explanation given by the assessee for allowing of discount at varying rates, it was open to him to specifically examine each and every party to whom volume discount was allowed for ascertaining whether it was genuinely paid or not and further whether it was commensurate with the business requirements and trade practices. Nothing of this sort has been done by the AO, who went by a mathematical exercise in making disallowance of ₹ 12.04 crore. Such a mechanism for making disallowance in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of the provision already debited. The AO has misunderstood the provision debited and credited to the Price support account as a mere provision and not as an actual expense. When this provision is a part and parcel of the total Price support expense, such part of provision, which actually represents the expenditure incurred, cannot be disallowed. 13. Be that as it may, it is seen that the amount of ₹ 10.67 crore disallowed by the AO is part of the overall expenditure of ₹ 50.95 crore, out of which he made the first addition of ₹ 12.04 crore on the basis of the average worked out at 11.79%. When the amount of ₹ 10.67 crore is part of ₹ 50.95 crore, out of which the AO picked up ₹ 43.72 crore for making disallowance, the further addition of ₹ 10.67 crore amounts to double addition which even otherwise cannot be sustained. We, therefore, order for the deletion of these two additions amounting to ₹ 12.04 crore and ₹ 10.67 crore. It has been pointed out that the said ruling has now been affirmed by the Hon ble High Court of Delhi in PCIT vs. Pepsi Foods Pvt. Ltd. ITA No. 474/2017 (judgment delivered on 13.11.2017) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer, involved excess price support . The Tribunal thereafter recorded its findings in the following terms:- . 7. This Court is of the opinion that the reasoning of the ITAT, cannot be faulted. The Assessing Officer concededly adopted the same characteristic to all parties related and unrelated as to the prevailing and local market conditions. There may be several reasons why an Assessee or a commercial venture might be compelled to provide discounts/price support etc. for ensuring the marketability of its product at the price that they proposes. 8. Having regard to these, the method of averaging, to say the least, is illegal, this Court, therefore, is of the opinion that no question of law arises on this aspect. . For the above reasons, the Appeal is dismissed. 82. Thus, respectfully following the binding precedence on the same issue rendered in the earlier years in assessee s own case which has been upheld by the Hon'ble Delhi High Court also as incorporated above, we decide this issue in favour of the assessee. 83. Accordingly, Grounds No. 5 to 5.5 in I.T.A. No. 1203/CHANDI/2011 for AY 2007-08, Grounds No. 6 to 6.4 in I.T.A. No. 2511/DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of AMP expenses. (ii) Assessee has been bearing substantial portion of the fees paid to ICC for acquiring sponsorship rights even though benefit of the same is derived by the other entities of the world. 88. Aggrieved by the addition proposed by the AO, the assessee had filed objections before the DRP. The DRP vide directions dated 20.12.2013 upheld the action of the AO, on the ground, that the expenditure was benefitting all the entities across the globe and hence, it could not be said to have been incurred wholly and exclusively for the business of the assessee. 89. The learned counsel for the assessee submitted that the said disallowance was unwarranted since the said expense was incurred in view of the fact that major viewership of cricket is in the Indian subcontinent. He also referred to various newspapers reports which demonstrated the popularity of the sport in India to support the aforesaid contentions. It was also submitted that the assessee company has consistently promoted its range of products using cricket as an advertising platform. It was also to our notice that payment of sponsorship fees to ICC was remitted by the assessee after deduction of tax at sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er entity cannot be a bar for allowance of expenditure u/s. 37. Under the principle of commercial expediency such an expenditure has to be seen from the angle, whether the decision taken by the assessee for paying sponsorship fees was for the purpose of business or not. Here in this case, the commercial expediency has not been doubted but rather it has been held by the AO that in all the years transfer pricing adjustments has been made on this score and benefit is arising to the other AEs also. What is relevant for an expense to be allowable as revenue expense is that, whether it has been incurred during the course of business and is for the purpose of business. Benefit factor to other related parties is relevant under transfer pricing provision and not while allowability of business expense u/s 37(1). It is well known fact that companies use sports event as a platform to advertise their range of products as it has a very high viewership. Any such incurring of expenditure is ostensibly for promotion of business only and hence, no disallowance is called for. Accordingly, Grounds No.7 to 7.3 in ITA No.1044/Del/2014 pertaining to A.Y. 2009-10 are allowed. Re: Disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,84,000/- Varun Beverages Ltd. 2,86,00,000/- (Refer Schedule 5) 2,86,00,000/- Preference shares Pearl Group 56,88,14,000/- 9,76,38,000/- Varun Beverages Ltd. 77,37,64,000/- (Refer Schedule 5) 0 TOTAL 138,76,62,000/- 12,77,22,000/- NAME OF THE INVESTEE INVESTMENTS YIELDING EXEMPT INCOME FOR AY 2012-13 AT THE BEGINNING OF THE YEAR AT THE END OF THE YEAR Equity shares Varun Beverages Ltd. 2,86,00,000/- (Refer Note 12) 2,86,00,000/- TOTAL 2,86,00,000/- 2,86,00,000/- AY NAME OF THE INVESTEE EXEMPT INCOME EARNED 2010-11 Pearl Group 16,89,58,788/- Varun Bevera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not envisage that wherever there is an exempt, expenditure had to be disallowed under section 14A of the Act. He further submitted that it had to be seen as to whether any expenditure had been incurred by assessee in relation to earning of exempt income or not. He also placed reliance on the decision of the Hon ble Supreme Court in CIT vs. Walfort Share Stock Brokers (P.) Ltd. [2010] 326 ITR 1 (SC) wherein it was observed that there should be a proximate relationship between the expenditure incurred and the exempt income. It was also observed therein that if the assessee had prima facie demonstrated that no expenditure had been incurred for earning of exempt income, then, in the absence of any contrary finding by the AO, provisions of section 14A could not be invoked. Thereafter, he placed reliance on the decision of the Hon ble High Court of Delhi in H.T. Media Ltd. vs. PCIT [2017] 85 taxmann.com 113 (Delhi) to contend that there was a failure on the part of the AO to comply with the mandatory requirement of section 14A (2) read with Rule 8D(1) and the same was clearly evident from the draft assessment order placed on record for all these years. Therefore, he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. On the other hand, the learned DR relied upon the order of the AO and the DRP and further submitted that assessee has not offered any disallowance and had also not demonstrated before the authorities below that having regard to the accounts and nature of expenses debited no disallowance is called for, hence onus cast upon by the assessee had not been discharged. Thus, disallowance made under Rule 8D(2)(iii) is justified. 98. After considering the rival submission and on perusal of the impugned orders, it is seen that the Assessing Officer has made the disallowance under Rule 8D2(iii) which is 0.5% of the average investment. One of the contentions raised by the learned counsel before us is that the learned Assessing Officer having regard to the accounts maintained by the assessee and on the facts and circumstances of the case has not been recorded any satisfaction in terms of section 14A (2) before invoking the disallowance under Rule 8D (2). Secondly, for the purpose of computing the average value of investment under Rule 8D(2)(iii) only those investments are to be considered have yielded exempt income and no other investment which has not yielded any exempt income. In so f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of IPA subsidy received by the assessee under the West Bengal Incentive Scheme, 2004, details of which are as under: - AMOUNT IN RS. S. NO. ASSESSMENT YEAR AMOUNT OF DISALLOWANCE MADE BY AO 1. 2012-13 2,95,10,993/- 2. 2013-14 3,93,52,756/- 101. In the relevant years involved, the assessee received subsidy from Government of Bengal for WBIDC Plant and Government of Maharashtra for Paithan Plant. The said subsidy was credited in the profit and loss account and had accordingly been reduced while computing the taxable income for the years under consideration claiming the same to be in the nature of capital receipt. Subsidy from the Government of West Bengal was received for setting up a new project in West Bengal under the West Bengal Incentive Scheme, 2000 read with West Bengal Incentive Scheme, 2004 . The said schemes were introduced by the State Government of West Bengal to promote the establishment of industries in the State. The aforesaid subsidy inter-alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y facilitating the assessee growth in terms of increased turnover and volumes. The certificate issued by WBIDC for incentives under WBIS 2004, the assessee was declared eligible for the following incentives: - State Capital Investment Subsidy - Industrial Promotion Assistance ( IPA ) The AO has allowed certain components of the subsidy to the assessee as capital in nature and upon examination of the details has treated only one part of such subsidy as revenue in nature. The assessee has placed reliance on the judgment of the jurisdictional High Court in case of the Rasoi Ltd (2011) 335 ITR 438 (Cal HC) in support of its contention that subsidy received on account of Sales tax deferment/ remission and Industrial Promotion Assistance are capital receipts not chargeable to tax. The judgment is not applicable in case of the assessee as the facts in case of the assessee are quite different from the case cited. The ratio of this citation outlines different factual matrix in case of the assessee and does not help the case of the assessee. Similar issue was also examined by the Hon ble Delhi ITAT in case of Jindal Power Steel [reported in [2013] 38 taxmann.com ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court put the whole gamut of grant of subsidy for setting up of the enterprises in proper perspective. The contextual clarification here above helps us see the matter in correct perspective to determine income taxable as per provisions of the income Tax Act 1961. It would also be important to observe here that the assessee has never made similar claim in the earlier assessment cycles for the prior periods indicating clearly that the assessee itself was not seeking the subsidy as capital receipt with the best legal help available to it. Considering the facts and submissions of the assessee and in light of the above jurisprudence, the receipts on account of subsidy by the assessee are clearly Revenue in nature. The action of the AO is, accordingly, upheld by the panel. 103. The directions of the DRP culminated in the final assessment order of the AO for AY 2012-13 and 2013-14. Aggrieved by the said directions, the assessee is in appeal before us. 104. The learned counsel for the assessee placed before us the text of the West Bengal Incentive Scheme, 2004 and referred to the following passage from the scheme to contend that the object of the said scheme was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teel and Press Works Ltd vs CIT [1997] 228 ITR 253 (SC) wherein it was observed that the it was not the source from which the amount was paid to the assessee which was determinative of the question whether the subsidy payments were of revenue or capital nature. The Court further observed that if payments in the nature of subsidy from public funds were made to the assessee to assist him in carrying on his trade or business, they were to be treated as trade receipts. The Hon ble Supreme Court had also observed that the sales tax upon collection formed part of the public funds of the State and if the assessee as per the scheme was to be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing capacity in backward area, the entire subsidy was to treated as a capital receipt in the hands of the assessee. He placed reliance on the Hon ble Supreme Court s decision in CIT vs Chaphalkar Brothers [2017] 88 taxmann.com 178 (SC) wherein it was observed that where object of respective subsidy schemes of State Governments was to encourage development of Multiple Theatre C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in which the subsidy amount was to be utilized by the assessee, still, solely on the basis of object of the scheme, subsidy was held to be capital in nature. Explaining the decision of the Hon ble High Court of Calcutta in CIT vs. Rasoi Ltd. [2011] 335 ITR 438 (Calcutta) , he submitted that therein, the scheme in question was given effect to from 1-4-1994 and initially, was in force only for one year from that date and, thus, the benefit was then available to the assessee only for that year which was the relevant assessment year. From the objects and reasons of the aforesaid scheme, it was clear that the Government had decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which had the manufacturing units in West Bengal and which were in need of financial assistance for expansion of their capacities, modernization and improving their marketing capabilities and thus, the subsidy was held to be capital in nature. The Hon ble Court had observed therein that merely because the amount of subsidy was equivalent to 90 per cent of the sales tax paid by the beneficiary did not imply that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, AO has disallowed the claim of the assessee on the IPA subsidy received from Government of West Bengal on the ground that the subsidy received from Government of West Bengal was given to the assessee for business promotion and not specifically related to any capital expenditure. The Object of the West Bengal Incentive Scheme 2004 has already been incorporated above and from the perusal of the same it is seen that the same was to promote setting up and expansion of projects/industries and was not available to the existing industries unless they undertook substantial expansion. The Hon'ble Supreme Court in the case of CIT vs. Ponni Sugar and Commercial Ltd. (supra) observed that character of the receivables in the hands of the assessee had to be determined with respect to the purpose for which subsidy was given. The purpose for which subsidy is given assumes more significance rather than the manner in which it has been given. Here in this case also the subsidy was given by the Government of West Bengal for the purpose of industrialization of the State which was available only to new units or to existing units which were initiating substantial expansion. Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pparent from his order and pursuant to his order on such, the amount of assessed tax stood at INR 70,97,80,046. Since, the amount of advance tax deposited was greater than 90% of the assessed tax, no interest under Section 234B of the Act could have been levied. He further submitted that a similar issue had been raised in Grounds No. 27 to 29 in I.T.A. No. 4516/DEL/2016 pertaining to AY 2010-11. 111. In view of the aforesaid facts submitted by the assessee, we direct the AO to verify the claim of the assessee and re-compute the interest leviable under section 234A/ 234B of the Act in as per law. 112. In Ground No. 35 in I.T.A. No. 4518/DEL/2016 pertaining to AY 2011-12, the assessee has challenged the credit of tax deduction at source (TDS), advance tax and self-assessment tax amounting to INR 84,90,70,726/- not given by the AO. 113. The learned counsel submitted that the said tax credit comprised of taxes deposited by the assessee and its group concerns namely PFL and Aradhana Soft Drinks Company. These group companies were amalgamated with the assessee vide amalgamation order dated 01.12.2011 of the Hon ble Punjab and Haryana High Court with retrospective effect from 01. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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