TMI Blog2019 (11) TMI 1189X X X X Extracts X X X X X X X X Extracts X X X X ..... in final assessment order, in this regard, could not be sustained. By deleting the same, we allow Ground Nos. 1 2. Payment of trademark royalty @5% R D Royalty @1.4% - HELD THAT:- In line with view taken by Tribunal in assessee s own case for AY 2007-08, we deem it fit to restore the matter of trademark royalty as well as R D royalty back to the file of Ld. AO / TPO with similar directions as given in para-12 of the order for AY 2007- 08. Ground Nos. 3 4 stands allowed for statistical purposes. Allowability of brand development expenses - HELD THAT:- As per the terms of the agreement, the AE was, inter-alia, to make available and give assessee access to achievement in its product conception / development and marketing activities relating to Global brands. The assessee was also granted a non-exclusive, non-transferable and indivisible license under all existing and future intangible property rights for the products marketed and sold by the assessee under the Global Brands. In turn, the assessee was to pay to its AE a compensation in proportion to assessee s share in costs of such services computed on the basis of Net Sales Value in certain segment. The perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncontrolled arms length price in respect of sales made by the Appellant to Associated Enterprises. 2) Without prejudice to Ground 1, the learned Dispute Resolution Panel erred in ignoring the alternate submissions and the benchmarking analysis carried out by the Appellant Company by applying the Internal and External Transactional Net Margin Method. 3) The learned Dispute Resolution Panel/ Assessing Officer erred in disregarding the specific permission granted by the Government of India, Ministry of Commerce and Industry, New Delhi, for the use of Trademark and restricting the royalty paid by the Appellant Company to its Associated Enterprise @ 1% of the qualifying Net Sales as against the royalty payable @ 5% of such sales. 4) The learned Dispute Resolution Panel/ Assessing Officer erred in disregarding the Agreements and various reports/correspondence furnished during the course of the proceedings substantiating the payment of technical know-how fees by the Appellant and in holding that there was no need for payment of such technical knowhow fees and disallowing such payment computed @1.4% of qualifying net sales for the year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee compared the sale price of goods sold to AE s with that of non-AE s and in domestic market and contended that after making adjustments such as advertisement, publicity, export incentives, excise duty, cost of credit, royalty expenses, trade promotions, distribution costs etc., the price at which the goods were sold to its AEs are higher than the price at which goods were sold to non-AE s. However, Ld. TPO opined that the adjustment of advertisement publicity expenses would not be allowed since the advertisement would have mass product appeal inherent in it and therefore, the said adjustment could not be allowed. Out of export incentive, it was held that exchange gain would be purely hedging income and therefore, the deduction of exchange gain would not be allowed. Regarding cost of credit, the assessee claimed that in domestic market, it extended the credit in distribution chain whereas in export market, any credit in distribution chain is taken care of by its AE. However, in the absence of evidence, the said adjustment was not allowed, Similarly, the adjustment of trade promotions expenditure was not allowed. Finally, as against distribution cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the export market. 3.2 The Ld. DRP, after due consideration of factual matrix, held that the expenditure under the head advertisement and publicity had 3 components viz. media advertisement, market research and provision for doubtful debts. The expenditure on market research could not be said to have any relation with export of the products and therefore, the adjustment of the same was allowable to the assessee. However, at least 50% of expenditure on advertisement and publicity were directed to be treated as exclusively for the promotion of products in domestic market and therefore, the adjustment thereof was to be provided to the assessee. The assessee s plea regarding adjustment of sale promotion expenditure was accepted but the adjustment of foreign gains was not allowed. It is evident from final assessment order that the directions of Ld. DRP has reduced the proposed TP adjustment, under this head, to ₹ 79.95 Lacs. 3.3 The Ld. DRP also noted that, as per the direction of Ld. TPO, the assessee had carried out comparability analysis using Transactional Net Margin Method (TNMM), using internal as well as external data and taking operating pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in mind all these factors, the impugned adjustment made in final assessment order, in this regard, could not be sustained. By deleting the same, we allow Ground Nos. 1 2. 6.1 So far as the payment of trademark royalty @5% R D Royalty @1.4% is concerned, we find that the said rates / payments are pursuant to manufacturing distribution license agreement as amended on 02/07/2007 entered into by the assessee with Buttress B.V. for Brylcreem brand. Similar agreement for payment of royalty has been entered by the assessee with Kiwi European Holdings B.V. for Kiwi Products Brand. The documents on record establish that the said rates have duly been approved by Department of Industrial Policy Promotion, Secretariat for industrial Assistance (SIA), Government of India vide approval letters dated 07/07/2010 08/07/2010, the copies of which have been placed on record. The Ld. Sr. Counsel has relied upon the decision of Pune Tribunal rendered in Spicer India Private Limited V/s ACIT (ITA Nos. 376,826/Pun/2016 order dated 09/02/2018 for the submissions that approval of royalty rates by SIA / RBI would constitute CUP data and the transactions were to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2 Upon perusal of documents, we find that the said cost allocations are pursuant to global brands costs allocation agreement dated 15/06/2004 entered into by the assessee with its AE namely Sara Lee / DE N.V., a company incorporated in Netherlands. As per the terms of the agreement, the AE was, inter-alia, to make available and give assessee access to achievement in its product conception / development and marketing activities relating to Global brands. The assessee was also granted a non-exclusive, non-transferable and indivisible license under all existing and future intangible property rights for the products marketed and sold by the assessee under the Global Brands. In turn, the assessee was to pay to its AE a compensation in proportion to assessee s share in costs of such services computed on the basis of Net Sales Value in certain segment. The perusal of these documents would demonstrate that the impugned payments were made by the assessee pursuant to well defined contractual terms under an agreement. The nature of services being availed by the assessee were clearly spelt out in the agreement and the fact that the allocations were on cost basis, remain uncontrove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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