TMI Blog2019 (1) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the TPO/Assessing Officer can be sustained and accordingly, same is directed to be deleted. Addition on account of IPA Subsidy received by the Appellant during the subject assessment year from the Government of West Bengal under the West Bengal Incentive Scheme, 2004. - revenue or capital receipt - Held that:- Hon'ble Supreme Court in the case of CIT vs. Chaphalkar Brothers [2017 (12) TMI 816 - SUPREME COURT] held that subsidiary scheme of the State Government to encourage development of multiple theatre complexes is capital in nature and not revenue's receipts there also subsidy was in the form of exemption from payment of entertainment due for the period of three years. Merely because here in this case the quantification of subsidy was based on reimbursement of sales tax, it does not meant that it is a revenue receipt. This view now is well supported by the various decisions as noted above that character of subsidy in the hands of the assessee is the determinative factor having regard to the purpose for which subsidy was given. Accordingly, we hold that the subsidy received by the assessee from the subsidy received under the West Bengal Incentive Scheme of 2004 is cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. 8. That the AO/TPO/DRP have made misplaced reference to the examples contained in OECD Transfer Pricing Guidelines, Final Report on Action 8-10 of the BEPS Action Plan and other international jurisprudence, since the same are not applicable to the facts of the case as the Appellant is a full risk manufacturer bearing all the risks and rewards of operations in India. 9. That the AO/TPO/DRP have erred in ignoring that economic ownership of the brands lied with the Appellant by conveniently overlooking relevant evidence produced by the Appellant during the course of proceedings, including the certification from the AE acknowledging the fact that the Appellant is the 'economic owner of trademark/brand owned by AE in India. 10. That the AO/TPO/DRP erred in coming to the conclusion that key functionaries of the Appellant were controlled and assigned by the Parent AE directly or through other AEs, which finding is perverse and unsubstantiated. 11. That the AO/TPO/DRP erred in concluding that the Parent AE of the Appellant reaped the benefits of marketing and market development activities carried out by the appellant. 12. That the AO/TPO/DRP grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AMP expenses incurred by the appellant. 21. That the AO/TPO/DRP erred in adopting the Other Method , without justifying the non- applicability of all the other prescribed methods under the Rules, for the purposes of computing the ALP of the alleged international transaction of AMP expenses incurred by the appellant. 22. That the AO/TPO/DRP erred in applying the Bright Line Method ( BLT ) for the purposes of computing the ALP of the alleged international transaction of AMP expenses incurred by the appellant. 23. That the AO/TPO/DRP erred in applying BLT in complete ignorance of the precedents set by the Hon ble High Court of Delhi against the application of BLT, for the purposes of computing the ALP of the alleged international transaction of AMP expenses incurred by the appellant. 24. That the AO/TPO/DRP erred in comparing the ratio of AMP/ Sales of the Appellant with that of the Pepsi Group globally while applying BLT for the purposes of computing the ALP of the alleged international transaction of AMP expenses incurred by the appellant. 25. Without prejudice to the above, the AO/TPO/DRP erred in not carrying out a separate benchmarking anal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the appeals for the Assessment Years 2006-07 to 2009- 10, the TPO has computed the adjustment by applying Bright Line Test ; in the appeals for the Assessment Years 2011-12 to 2012-13 adjustment has been completed by applying Profit Split Method and for the Assessment Year 2013-14 from the stage of the DRP, Other Method has been applied. In all the years, the TPO has held that incurring of excess AMP expenses amounts to international transactions as defined in Section 92B of the Act. He has compared the advertisement and marketing expenses with the sales turnover and thereafter concluded that the assessee company has created marketing intangibles for promotion of PepsiCo Inc (AE) without receiving any compensation for the same. The entire expenditure is to promote trade mark owned by its AE and developing the marketing intangibles for the product of the AE, and therefore, AE has benefitted from such AMP expenses and hence it has to be reckoned as international transaction . In the Assessment Year, 2006-07, the Hon'ble High Court has remanded the issue back to this Tribunal to decide the issue of AMP adjustment afresh on merits. Their Lordships referring to the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turer exposed to all kind of risks associated with carrying out such business. It does not own any significant intangibles and neither does it undertake the research and development on its account. The assessee has been importing only keys and essences for the production of the concentrate from its AE and said import transaction has been duly reported in the Form 3CEB and also filed transfer pricing documentation on which no adverse inference has been drawn by the department. Before us, learned counsel for the assessee has pointed out from the records that the value of import from the AE in ratio to total sales turnover is only 0.18%. The chart was filed before us giving details of turnover, total expenditure, net profit, amounts spent on AMP, ratio of AMP incurred upon turnover and the value of import. Such a chart for the sake of ready reference is reproduced hereunder: A.Y. Turnover (net) (in INR) (A) Total expenditure (in INR) (B) Net profit (before tax) (in INR) (C) Profitability (%) D=(C/B) X 100 AMP spent (in INR) (E) AMP/ turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited) Determination of advertisement and marketing budget NIL Yes Yes Deciding concept and content of advertising NIL Yes Yes Deciding the choice of media NIL Yes Yes Dealing with advertisement and marketing agencies NIL Yes Yes Selling and distribution in India of bottled beverage NIL NIL Yes Pricing of final product NIL Yes NIL All the necessary functions of strategizing, advertising and marketing activities, its implementation and controlling across the country is conducted by the assessee company alone for market penetration in India. Thus, in a way assessee is the economic owner of the brand though not a legal owner. As a full-fledged manufacturer, the assessee company has been assuming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f all, in so far as the reimbursement of cost of expenditure incurred by Ireland (AE), it has been brought on record that the said AE has entered into a global partnership agreement dated 28.10.2004 with Global Cricket Corporation PTE Ltd. for the sponsorship right of Cricketing event world-wide. Since, assesseecompany is mainly based in India where game of cricket is immensely popular, therefore, it was agreed amongst the group companies that the expenditure incurred for sponsoring the ICC cricketing events, all the group companies which had benefitted from the cricketing events in the form of advertisement will reimburse the cost. The said cost was purely for promoting assessee's own business and nowhere it has been brought on record that such a reimbursement of the cost was subject to any markup or any functions have been provided from where any income has been derived by the AE. The assessee on the basis of joint decision taken by Pepsi entities located in various cricketing jurisdiction had decided to reimburse the cost incurred by Ireland (AE) for sponsorship and advertisement as it will help the promotion of the business of such entities including that of the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India is solely carried out by the assessee and there is no material on record to infer that there is any arrangement or agreement with the AE at any point of time that assessee is required to spent on AMP or it has been done at the behest of the AE. The reason adopted by the Revenue to conclude that the incurrence of AMP expenditure by the assessee for promoting the brands which is owned by its AE constituting a separate international transaction for the purpose of Section 92B which requires separate bench marking, does not has any legs to stand, because the Revenue has failed to show the existence of any agreement, understanding or arrangement between the assessee company and AE regarding the quantum of AMP spent or it was spent on behest of AE. The TPO has not recorded or identified any such separate arrangement or agreement that AMP expenses incurred by the assessee company are in pursuance of any agreement or arrangement. It is also not the case of the Department that the expenses which has been incurred by the assessee company during the course of its business have any bearing whatsoever on any other international transaction with the AE, other than reimbursement of expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llows ii. the expression intangible property shall include-- ( a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos;.................... Thus, under the expanded definition of the term 'international transaction' intangible property has been defined to include marketing related intangible assets such as trademark, trade name, brand name and logos, etc. This inter alia means that where two AEs engaged in the transaction which involved, purchase, sale, transfer, lease or use of intangibles rights then the same shall be classified as international transaction. From the above, definition, apart from transaction relating to purchase, sale or lease of tangible or intangible property, services lending or borrowing money, etc. functions having bearing on the profits, income, losses or assets is reckoned as international transaction. Besides this, if such a transaction is based on any mutual agreement or arrangement between the AEs for allocation or any contribution to any cost or expenditure incurred or to be incurred for the benefit, service or facility, then also such an agreement or arrangement is treated as internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction by a domestic enterprise with a third party in India for its own business purpose. Even the reimbursement, as discussed above, by the assessee to its AE was in lieu of sponsorship fee paid to ICC which again was wholly and exclusively for the assessee's own business and was not at the behest or mandate of AE. This contention of the learned counsel on the face of record is liable to be accepted and in absence of any material or any kind of arrangement discovered or brought on record by the Revenue, remains unrebutted. The onus is on the Revenue to show that the twin requirement of Section 92B exists, that is, firstly, the transaction involved was between the AE, one of which is resident and other a non-resident was involved; and secondly, the transaction of AMP expenses has taken place between the two AEs (except for reimbursement of ₹ 33.60 crore). Now it has been well settled by the Hon'ble Jurisdictional High Court in the case of Maruti Suzuki India Pvt. Ltd. (supra) that onus is upon the Revenue to demonstrate that there existed an arrangement between the assessee and its AE under which assessee was obliged to incur excess amount of AMP expenses to promote th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 impulse product like beverages had to be managed locally as per the ethos, customs and preferences/choices of the local population and neither the content nor the quantum can be remotely managed by a non-resident AE. It has been brought on record that the assessee company had a fullfledged marketing team in India who with the help of local marketing agency and consultant managed the marketing function across the country. Further, mere review of marketing material by the AE does not indicate that there is existence of any international transaction, because here in this case there was no obligation on the assessee company to incur AMP expenditure to promote the brand of the AE and no such obligation too has been brought out by the TPO in the impugned order. It is also evident from clause (xiii) of the Agreement that the risk and reward of incurring the AMP expenditure lied entirely with the assessee company and the foreign AE was com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 with different flavour and spices which is suitable for local consumption on which advertising and marketing was carried out by the local entity in those jurisdiction. Such an argument has a strong basis for the reason that, firstly, AE had not charged any royalty for use of trademark in India from the assessee, and therefore to allege that assessee should have been compensated for the brand conceptualized and developed by it, is too farfetched and; secondly, the brand developed in India which are to be exclusively sold in India will only help in promotion of sales in India and not in the jurisdiction of the other AEs. Since assessee happened to be the economic owner of the brand in India, therefore, it was entitled to all such economic benefits arising out of intangible benefit. Because, assessee bore of the risk associated with the AMP spending and has ultimately benefited from such expenses which will result incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xistence 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 applied to the AMP spend by MSIL to (a) deduce the existence of an international transaction involving SMC and ( b) to make a quantitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Ericsson Mobile Communications India (P.) Ltd. (supra) having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses, the very basis of the Revenue's case is negated. 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 wildgoose 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 'adjustment' has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed 'price' of such transaction and thereafter ask whether it is an ALP. If the answer to that is in the negative the TP adjustment should follow. The objective of Chapter X is to make adjustments to the price of an international transaction which the AEs involved may seek 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 adjustment under Chapter X, equally it cannot be permitted in respect of AMP expenses either. As already noticed hereinbefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 international transactions listed under the Explanation to Section 92B 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 ample 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? 75. As an analogy, and for no other purpose, in the context of a domestic transaction involving two or more related parties, reference may be made to Section 40A(2)(a) under which certain types of expenditure incurred by way of payment to related parties is not deductible where the AO is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods. In such event, so much of the expenditure as is so considered by him to be excessive or unreaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 broadbrush universal approach is unwarranted and would amount to judicial legislation. During the course of arguments, it was accepted by the Revenue that the TPOs/Assessing Officers have universally applied 'bright line test' to decipher and compute value of international transaction and thereafter applied 'Cost Plus Method' or 'Cost Method' to compute the arm's length price. The said approach is not mandated and stipulated in the Act or the Rules. The list of parameters for ascertaining the comparables for applying bright line test in paragraph 17.4 and, thereafter, the assertion in paragraph 17.6 that comparison can be only made by choosing comparable of domestic cases not using any foreign brand, is contrary to the Rules. It amounts to writing and prescribing a mandatory procedure or test which is not stipulated in the Act or the Rules. This is beyond what the statute in Chapter X postu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 it is obligatory that the AMP expenses must and necessarily should be subjected to 'bright line test' and the nonroutine AMP expenses as a separate transaction to be computed in the manner as stipulated. 58. Thus, form the plain reading of the aforesaid principles laid down by the Hon'ble Jurisdictional High Court, the key sequitur is that: ( i) International transaction cannot be identified or held to be existing simply because excess AMP expenditure has been incurred by the Indian entity. ( ii) International transactions cannot be found to exist after applying the BLT to decipher and compute value of international transaction. ( iii) There is no provision either in the Act or in the Rules to justify the application of BLT for computing the Arm's Length Price and there is nothing in the Act which indicate how in the absence of BLT one can discern the existence of an international tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 , can be adopted to describe a brand as an intangible asset being the whole advantage of the reputation and connections formed with the customer together with circumstances which make the connection durable. The definition given by Lord MacNaghten in Commissioner of Inland Revenue v. Midler and Co. Margarine Ltd. [1901] AC 217 (223) can also be applied with marginal changes to understand the concept of brand. In the context of goodwill it was observed: It is very difficult, as it seems to me, to say that goodwill is not property. Goodwill is bought and sold every day. It may be acquired. I think, in any of the different ways in which property is usually acquired. When a man has got it he may keep it as his own. He may vindicate his exclusive right to it if necessary by process of law. He may dispose of it if he will--of course, under the conditions attaching to property of that nature .. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 been described in terms of a magnet as the 'attracting force'. In terms of comparative dynamics, goodwill has been described as the 'differential return of profit'. Philosophically it has been held to be intangible. Though immaterial, it is materially valued. Physically and psychologically, it is a 'habit and sociologically it is a 'custom'. Biologically, it has been described by Lord Macnaghten in Trego v. Hunt [1896] AC 7 as the 'sap and life' of the business. There is a line of demarcation between development and exploitation. Development of a trade mark or goodwill takes place over a passage of time and is a slow ongoing process. In cases of well recognised or known trade marks, the said trade mark is already recognised. Expenditures incurred for promoting product(s) with a trade mark is for exploi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting 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 cost of the asset can be measured reliably. The estimate would represent the set off of economic conditions that will exist over the useful life of the intangible asset. At the initial stage, intangible asset should be measured at cost. The above proposition would not apply to internally generated goodwill or brand. Paragraph 35 specifically elucidates that internally generated goodwill should not be recognised as an asset. In some cases expenditure is incurred to generate future economic benefits but it may not insult in creation of an intangible asset in the form of goodwill or brand, which meets the recognition criteria under AS-26. Internally generated goodwill or brand is not treated as an asset in AS-26 because it is not an identifiable resource controlled by an enterprise, which can be reliably measured at cost. Its value can change due to a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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. Monto Motors Ltd. [2012] 206 Taxman 43 (Delhi), which read: 4. . . . Advertisement expenses when incurred to increase sales of products are usually treated as a revenue expenditure, since the memory of purchasers or customers is short. Advertisement are issued from time to time and the expenditure is incurred periodically, so that the customers remain attracted and do not forget the product and its qualities. The advertisements published/displayed may not be of relevance or significance after lapse of time in a highly competitive market, wherein the products of different companies compete and are available in abundance. Advertisements and sales promotion are conducted to increase sale and their impact is limited and felt for a short duration. No permanent character or advantage is achieved and is palpable, unless special or specific factors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation 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 value and goodwill. But a new brand/trade mark/trade-name would be relatively unknown. We have referred to the said position not to make a comparison between different brands but to highlight that these are relevant factors and could affect the function undertaken which must be duly taken into consideration in selection of the comparables or when making subjective adjustment and, thus, for computing the arm's length price. The aforesaid discussion substantially negates and rejects the Revenue's case. But there are aspects and contentions in favour of the Revenue which requires elucidation. 60. Thus, the Hon'ble High Court after describing the concept of the brand had made a clear cut demarcation between development and exploitation of brand which is either in the form of trademark or goodwill which takes place over a passage of time by whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 purposes. If no legal owner of the intangible is identified under applicable law or governing contracts, then the member of the MNE group that, based on the facts and circumstances, controls decisions concerning the exploitation of the intangible and has the practical capacity to restrict others from using the intangible will be considered the legal owner of the intangible for transfer pricing purposes. 6.41. In identifying the legal owner of intangibles, an intangible and any licence relating to that intangible are considered to be different intangibles for transfer pricing purposes, each having a different owner. See paragraph 6.26. For example, Company A, the legal owner of a trademark, may provide an exclusive licence to Company B to manufacture, market, and sell goods using the trademark. One intangible, the trademark, is legally owned by Company A. Another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 as a title holder. It is not even entitled to any return for holding such title and in such circumstances, there seems to be no reason as to why it should compensate its subsidiary in India for the marketing activities while operating in India as a fullfledged manufacturer who alone is reaping the profit from the operation in India. It has been clearly demonstrated by the assessee that the risk with respect to its manufacturing operation in India was undertaken wholly by the assessee and not by the US parent AE. This is even evident from the various clauses of the agreement also. 62. Before us, learned CIT-DR submitted that the stand of the Revenue is that, the expenditure incurred by the Indian subsidiary of an MNE group on market function amounts to incurring of such expenses for and on behalf of the parent company outside India becau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 conformity with the functions and risk profiles and the benefit derived by the tax payer company and the AE. It is also very relevant to examine, whether the AE is assuming any kind of risk in the Indian market or is benefitting from India in one way or the other. Thus, FAR analysis is the key which needs to be seen what kind of functions is being carried out by the AE in India, the nature of assets which have been deployed and the risk which have been assumed. If there is no risk of such attributes which is being carried out by the non-resident AE in India then there is no question of AE compensating to its subsidiary in India for any marketing expenses. Here, we have already stated at several places that parent AE of the assessee-company has not carried out any function in India and had not assumed any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereafter, 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 international transaction. The OECD Transfer Pricing Guidelines, 2010 provides that PSM first requires the identification of the profits which is to be split among the AEs, from the controlled transactions in which the AEs were engaged (the combined profit). Thereafter, the combined profit between the AEs is required to be split on an economically valid basis that approximates the division of profits that would have been anticipated and reflected in an agreement made at arm's length. The combined profit to be split should only be those arising from the controlled transaction. In determining those profits, it is essential to first identify the relevant transaction to be covered under PSM. Where a taxpayer has controlled transactions with more than one AE, it is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 learned TPO at the threshold is wholly erroneous, because PSM is applicable mainly in international transaction involving transfer of unique intangibles or in multiple international transactions which are interrelated and interconnected that they cannot be evaluated separately for the purpose of determining the Arm's Length Price of any one transaction. Here in this case this is not in dispute that no transfer of any unique intangibles has been made accept for license to use trademark which too was royalty free. According to the Rule, under the PSM, combined net profit of the AEs arising from the international transaction has to be determined and thereafter, if incurrence of AMP expenses is to be considered from the value of such international transaction then the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances. 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/2010 pertaining to AY 2006-07; Grounds No. 4 to 4.10 in I.T.A. 1203/CHANDI/2011 pertaining to AY 2007-08; Grounds No. 5 to 5.30 in I.T.A. 2511/DEL/2013 pertaining to AY 2008-09; Grounds No. 4 to 6.22 in I.T.A. 1044/CHANDI/2014 pertaining to AY 2009-10; Grounds No. 3 to 26 in ITA 4516/DEL/2016 pertaining to AY 2010-11; Grounds No. 3 to 26 in ITA 4517/DEL/2016 pertaining to AY 2010- 11; Grounds No. 3 to 26 in ITA 4518/DEL/2016 pertaining to AY 2011-12; Grounds No. 7 to 32 in ITA 6537/DEL/2016 pertaining to AY 2012-13; and Grounds No. 3 to 28 in I.T.A. No. 6582/DEL/2017 pertaining to AY 2013-14 are decided in favour of the assessee and accordingly these grounds are allowed. 5.1. He has, therefore, submitted that issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. 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 Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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