TMI Blog2020 (9) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... no doubt that the construction of roads facilitated the business operations of the assessee and enabled the management and conduct of the assessee's business to be carried on more efficiently and profitably. There could be no doubt that the advantage secured for the business of the assessee was of a long duration inasmuch as it would last so long as the roads continued to be in motorable condition, but it was not an advantage in the capital field, because no tangible or intangible asset was acquired by the assessee, nor was there any addition to or expansion of the profit-making apparatus of the assessee. The expenditure would be for the purpose of facilitating the conduct of the business of the assessee and making it more efficient and profitable and therefore, clearly an expenditure on revenue account. Another aspect is that The Income Tax Act, unless specifically provided in the provisions, do not recognise the concept of deferred revenue expenditure. If the expenditure qualifies for deduction u/s 37(1), the same would be an allowable expenditure in its entirety in the year in which it has been incurred, if the assessee chooses to claim the same at one go. The said pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 30/10/2017 passed u/s. 143(3) r.w.s. 144C(13) pursuant to the directions of Learned Dispute Resolution Panel-1, Mumbai [DRP] u/s 144C(5) dated 06/09/2017. The grounds raised by assessee read as under: - Ground No 1; Transfer Pricing 1.1 The learned Assessing Officer (AO) / Transfer Pricing Officer (TPO) / Dispute Resolution Panel (DRP) erred in law and on facts in making a Transfer Pricing adjustment of ₹ 45,85,16,563 on account of reimbursement of advertisement, marketing and promotional (AMP) expenses incurred by the Appellant under the presumption that the Appellant has benefited the Associated Enterprises (AEs) by incurring the said expenses. In doing so the learned DRP / TPO has grossly erred in: a) considering that AMP expenses of Kellogg India, which is incurred by way of payments to third parties for its domestic business operations, within the realm of international transaction based on his conjectures and surmises, violating section 926 and section 92(1) of the Income-tax Act, 1961 (the Act); b) disregarding that the issue of marketing intangibles is not relevant for licensed manufacturers as in the case of the Appellant, as the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of AMP expenses. The Appellant therefore prays that the action of the learned AO be held as bad in law and is liable to be quashed. Ground No.2: Disallowance of payment towards cost of infrastructure development 2.1 On the facts and in the circumstances of the case and in law, the learned AO, under the directions issued by the Hon'ble DRP, erred in characterizing the payment of ₹ 8,20,00,000 towards the cost of infrastructure development at Sri City as an upfront lease charge and thereby, allowing the same as deductible business expenditure over the period of lease. 2.2 The Appellant prays that the learned AO be directed to treat payment of ₹ 8,20,00,000 towards the cost of infrastructure development as revenue expenditure. Ground No.3: Interest income 3.1 On the facts and in the circumstances of the case and in law, the learned AO, under the directions issued by the Hon'ble DRP, erred in classifying interest income of ₹ 2,72,84,483 under the head 'Income from Other Sources' without appreciating the fact that interest income earned is inextricably linked to the business. 3.2 The Appellant prays that the Learned AO be directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on 29/11/2013 declaring total income at Nil which was subjected to scrutiny assessment by revenue authorities. The assessee s income has finally been assessed at ₹ 5826.16 Lacs under normal provisions in final assessment order dated 30/10/2017. The assessee is stated to be subsidiary entity of Kellogg Company. 3.2 The assessee carried out certain international transactions with its Associated Enterprises (AE) which were subject matter of determination of Arm s Length price (ALP) before Ld. Transfer pricing Officer (TPO) vide order u/s 92CA (3) dated 28/10/2016. These transactions have already been enumerated in para-6 of Ld. TPO s order. During proceedings before Ld. TPO, the perusal of assessee s financial statements revealed that assessee incurred certain Advertisement, Marketing Promotional (AMP) expenditure aggregating to ₹ 11537.80 Lacs during the year under consideration. The turnover, net profit, selling expenses, AMP expenses and royalty payment data for 5 years has been tabulated in para-7 of Ld. TPO s order. The AMP expenditure was on account of Television Advertising, Agency fees, Radio, Newspaper, outdoor advertising production, expenditure, freeb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2-13. It is evident from para 4.6 of Ld. DRP s order that facts of the case as well as the arguments raised by the assessee for the year under consideration are stated to be same as for AY 2012-13. Aggrieved as aforesaid, the assessee is under further appeal before us by way of elaborate ground no.1 and assails the TP adjustments so made. 4.1 As rightly pointed out by Ld. AR, this issue stood covered in assessee s favor by the order of coordinate bench of this Tribunal in assessee s own case for AY 2009-10 (lead case on the issue), Cross appeals ITA Nos. 2866 2888/Mum/2014 common order dated 19/07/2019 wherein the issue has been decided in assessee s favor by observing as under: - 6. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Undisputed facts are, the assessee is not merely a distributor of the products manufactured by the AE but the assessee itself manufactures its own products in India under license from the AE. It is also a fact that for marketing and promotion of its manufactured products in India, assessee has incurred AMP expenditure by making payments to third parties in India. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to promote the brand of the AE. That being the case, the entire approach of the Transfer Pricing Officer in determining the arm's length price of AMP expenditure is fallacious. 7. Moreover, there is no doubt that the Transfer Pricing Officer has determined the arm's length price of AMP expenditure by applying BLT method. While doing so, he has heavily relied upon the Special Bench decision of the Tribunal, in LG Electronics India Pvt. Ltd. (supra). Now, it is fairly well established that determination of arm's length price of AMP expenditure by applying BLT method is not valid. In a catena of decisions, the Hon'ble Delhi High Court while disapproving the decision of the Tribunal in L.G. Electronics India Pvt. Ltd. (supra) have held that BLT method is invalid as it is not prescribed in the statute. In this context, we may refer to the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra). Following the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra) and various other decisions, different Benches of the Tribunal have also held that in absence of an express arrangement/agreement between the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of the products manufactured by its AE but the assessee itself was manufacturing its own products in India under license from the AE. Further, with a view to market and promote its own manufactured products, the assessee incurred AMP expenditure by making payments to third parties in India. There was no express arrangement / agreement between the assessee and the AE for incurring such expenditure to promote the brand of the AE and therefore, the said transactions would not constitute international transaction relating to AMP expenditure. It was also observed that BLT method as adopted by Ld. TPO was not a valid method to benchmark the transactions. The technical collaboration agreement as referred to by Ld. TPO did not envisage any such express arrangement / agreement between the assessee and its AE and therefore, the same could not support the case of the revenue. Therefore, facts being pari-materia the same, respectfully following the aforesaid decisions of Tribunal in assessee s own case, we delete the impugned TP adjustment against AMP expenditure and allow ground no.1 of the appeal. Ground No.2: Disallowance of cost of infrastructure development 5.1 Facts to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee supported its case by reiterating that the since the assets were not owned by the assessee, the expenditure would be revenue in nature. The assessee did not receive any enduring benefits and the expenditure was merely for facilitating efficient conduct of the business. The benefits received were not in capital field. Reliance was placed on various judicial pronouncements (as enumerated in Ld. DRP s directions) in support of submission that the expenditure would be revenue in nature particularly when the expenditure did not result into any advantage to the assessee in capital field but which merely enabled the assessee to carry on business operations more efficiently. As an alternative, the assessee pleaded for allowance of the same over the period of agreement. 5.4 The Ld. DRP agreed that ownership of such rights belonged to the developer only and the assessee would not be entitled for depreciation on the same. Further, the expenditure would not become capital expenditure since no new asset was acquired by the assessee. The infrastructural facility only enabled the assessee to run its business properly and efficiently. 5.5 However, as per the SEZ / DTZ policy of the gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oad, creation of power infrastructure, water sewage facilities etc. The cost of the said facilities was to be borne by the assessee. In case of default by the developer to carry out the stated obligations, the assessee had the option to negotiate with developer for completion of infrastructure facilities or terminate the agreement along with lease agreement and the developer was to refund the entire amounts paid under this agreement as well as under lease agreement. 6.2 Upon perusal of the terms of the agreement, it is quite discernible that the payment made by the assessee was not towards acquisition of any asset but towards provision of infrastructure facilities which would enable the assessee to run its business operations more efficiently and without any hinderance. The benefit may be enduring in nature and the same would have benefitted the assessee over several years but nevertheless, the nature of expenditure was revenue in nature as is evident from the terms of the agreement. To rechristened the same as upfront lease payments as done by Ld. DRP was beyond the scope of terms of the agreement and the said conclusion was bereft of any material evidence on record. Quite cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king it more efficient and profitable and therefore, clearly an expenditure on revenue account. 6.4 Another aspect is that The Income Tax Act, unless specifically provided in the provisions, do not recognise the concept of deferred revenue expenditure. If the expenditure qualifies for deduction u/s 37(1), the same would be an allowable expenditure in its entirety in the year in which it has been incurred, if the assessee chooses to claim the same at one go. The said proposition stem from another decision of Hon ble Apex Court in Taparia Tools Limited V/s JCIT 372 ITR 605. 6.5 Viewing from any angle, we are of the considered opinion that the aforesaid expenditure, being revenue in nature would be an allowable expenditure in its entirety during this year. Accordingly, the ground raised stand allowed. Ground No.3: Treatment of interest income 7.1 During assessment proceedings, it transpired that the assessee earned interest income of ₹ 272.84 Lacs and offered the same as business income. The reasoning adduced was that the assessee received favorable credit period from the vendors of raw material and packaging material. The surplus funds generated out of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufactured products to distributors. The AR has contended that the assessee collects sales proceeds within a week's time whereas it enjoys credit period of more than 45 days from its vendors. It enjoys a longer credit period from its vendors as against shorter credit period given to its customers. The resultant float is parked in short term bank deposits. The period of these deposits ranges from 30 to 90 days. Reliance has been placed on the judgment of Hon'ble Bombay High Court in the case of CIT Vs. Lok Holdings 308 ITR 356. It is also observed that no details of bank deposits could be provided by AR despite specific request being made by the bench due to which we are unable to ascertain the fact that whether these deposits have direct nexus with the business of the assessee, The Ld. AR has attributed the parking of funds to general credit float enjoyed by the assessee without brining anything on record to substantiate the same. Hence, we deem it fit to restore the matter back to the file of AO to examine the nature of Bank FDR particularly the tenure of the deposit and also verify the fact of 'credit float' enjoyed by the assessee and decide the issue afresh in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 1997-98. The DRP in assessment year 2011-12 has decided this issue in favour of the assessee. The DRP in the assessment year under appeal has decided this issue against the assessee merely to keep the issue alive as after the amendment, the Department cannot file appeal against the directions of DRP. We find that the Hon'ble Bombay High Court in the case of CIT vs. Hindustan Unilever Ltd. (supra) following the decision of the Hon'ble Gujarat High Court in the case of General Motors India Ltd. (supra) has allowed the assessee to set off unabsorbed depreciation in accordance with the amended provisions of section 32(2) of the Act. As per amended provision of section 32(2), the unabsorbed depreciation can be carry forward and set off without any time limit. Thus, in the light of the settled position we find merit in the contentions of the assessee and direct the Assessing Officer to allow set off of brought forward unabsorbed depreciation pertaining to assessment year 2007-08 against the profits of the current year s assessment. Facts being identical, we direct Ld. AO to allow the set-off of the same. This ground stand allowed. Conclusion 9. The appeal stan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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