TMI Blog2019 (12) TMI 1621X X X X Extracts X X X X X X X X Extracts X X X X ..... ance made by the AO u/s 37(1) is not sustainable. Coordinate Bench of the Tribunal while deciding the identical issue in case of PGS Geophysical as (Successor of PGS Exploration (Norway) AS) v [ 2014 (10) TMI 143 - ITAT DELHI] held that, DRP has no authority either to direct the AO/TPO to make further enquiry and to decide the matter and at the best, the DRP can call for the remand report from the Income-tax authority. Also in terms of section 144C (8), DRP does not have power to set aside any proposed variation or issue for further enquiry to the AO . So, we are of the considered view that disallowance made by the AO u/s 37(1) of the Act pursuant to the directions issued by the DRP is not sustainable in the eyes of law. So, question framed is answered in affirmative. Allowability of AMP expenditure - Assessee has undisputedly incurred advertisement and sales promotion expenses periodically, and not at once just to refresh the product and quality to be sold in the memory of its customers. So, it cannot be held to be in the nature of enduring benefit for a trader - Advertisement and sales promotion expenses have been incurred by the assessee just to enhance its sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble DRP have erred in disallowing advertisement expenses of Rs.6,64,24,161 incurred by the appellant, under Section 37(1) of the Act. 3. The Ld. AO has committed certain errors while computing the tax demand of Rs.5,08,83,820 against the appellant, and in the computation of interest under Section 234B and Section 234C of the Act. 2. The Appellant, DCIT, Circle 17 (1), New Delhi (hereinafter referred to as the Revenue ) by filing the present appeal sought to set aside the impugned order dated 30.12.2015 passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Act qua the assessment year 2011-12 on the grounds inter alia that :- 1. Whether in the facts and circumstances of the case and in law the Ld DRP was right in rejecting comparables accepted by TPO of 'IFB Agro Industry Ltd.' ignoring the fact that it is a good comparable being a part of wine and spirit industry which functionally matches with the assessee's business. 2. Whether in the facts and circumstances of the case and in law the Ld. DRP was right in directing to include Radico Khaitan Ltd. ignoring the fact that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Method PLI 1 Import of finished goods TNMM OP/Sales 30,04,27,894 12.77% 2 Sale of finished goods 1,47,87,279 3 Reimbursement of expenses (paid) CUP 1,04,40,381 - 4 Recovery of expenses (Received) CUP 26,19,766 5 Purchases of assets 3,50,419 Total 32,86,25,739 4, TPO noticed that the taxpayer has incurred huge Advertising, Marketing and Promotion (AMP) expenditure with objective of expanding the reach of the AE brand in India as AE is the legal owner of the brand. TPO also noticed that the AE has thereby created marketing intangibles in favour of the AE. 5. TPO in the backdrop of aforesaid facts and circumstances proceeded to issue a show-cause notice proposing to determine the arm s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer s own case in AYs 2009-10 2010-11, identical issue qua AMP expenditure incurred by the taxpayer has been decided by the coordinate Bench of the Tribunal vide order dated 23.08.2018 in ITA No.1906/Del/2014 in AY 2009-10 and order dated 09.04.2019 in ITA No.85/Del/2015 in AY 2010-11. In taxpayer s own case in AYs 2012-13 2013-14, identical issue qua AMP expenditure incurred by the taxpayer was also decided in favour of the taxpayer vide order dated 24.04.2019 in ITA Nos.5003/Del/2017 5004/Del/2017. It is also not in dispute that though the ld. DRP has discarded the BLT in determining the AMP expenses incurred by the taxpayer qua AMP expenditure but proceeded to confirm the addition entirely on the new ground that these expenses are to be disallowed u/s 37 (1) of the Act. 10. In the backdrop of the aforesaid facts and circumstances of the case, now the sole question arises for determination in this case is :- as to whether ld. DRP have erred in disallowing the AMP expenses of Rs.6,64,24,161/- incurred by the taxpayer u/s 37(1) of the Act as it has no power to take up the new issue which has never been agitated/decided by the ld. TPO/AO? 11. The ld. AR for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. Moreover, at the same time, AO is not empowered to make fresh determination while passing final assessment order which was not proposed by him in his draft assessment order. So, on these grounds also, disallowance made by the AO u/s 37(1) is not sustainable. 14. Coordinate Bench of the Tribunal while deciding the identical issue in case of PGS Geophysical as (Successor of PGS Exploration (Norway) AS) vs. Addl. Director of Income-tax (2014) 50 taxmann.com 392 (Delhi-Trib.) held that, DRP has no authority either to direct the AO/TPO to make further enquiry and to decide the matter and at the best, the DRP can call for the remand report from the Income-tax authority. 15. Similarly, coordinate Bench of the Tribunal in PGS Geophysical (supra) observed that, in terms of section 144C (8), DRP does not have power to set aside any proposed variation or issue for further enquiry to the AO . 16. So, we are of the considered view that disallowance made by the AO u/s 37(1) of the Act pursuant to the directions issued by the DRP is not sustainable in the eyes of law. So, question framed is answered in affirmative. 17. Even on merit, it is the case of the taxpayer that AMP ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al were not of capital nature. 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 are brought on record. Expenses for advertising consumer products generally are a part of the process of profit earning and not in the nature of capital outlay. The expenses in the present case were not incurred once and for all, but were a periodical expenses which had to be incurred continuously in view of the nature of the business. It was an on-going expense. Given the factual m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a. commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. 18. Hon ble Gujarat High Court in case cited as DCIT vs. Core Healthcare Ltd. (2009) 308 ITR 263 (Gujarat) has held that, even brand promotion expenses are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral view and has not brought the case of the taxpayer under any specific rules regulations of Cable TV Network Rules/ ASCI nor they have analyzed the nature of expenses. The ld. AR for the taxpayer drew our attention to section 22(2)(c) of the Cable TV Act which lays down that if the products are advertised on national television to whom these rules apply, only then it can be treated in violation of the said rules. There is no finding of facts by the AO/DRP as to how the Cable TV Act has been violated. Furthermore, when we examine ASCI code it is not a profit company u/s 25 of the Companies Act working as a self-regulatory body for protection of the interest of consumers and is not empowered to exercise any legislative powers under central or state statutes, so the violation of ASCI code, if any, is not prohibited by law. Moreover, AO/DRP have not brought on record to show as to how the taxpayer has violated ASCI code, rather proceeded on the basis of general observations. 22. Furthermore, there is not an iota of evidence on file to prove that the taxpayer has incurred expenditure to advertise its products on television or use minors to conduct its marketing activities and thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue by filing the cross appeal challenged the order passed by the ld. DRP discarding the Bright Line Test (BLT) applied by the TPO and consequently, rejecting the comparables accepted by the TPO. 29. Undisputedly, there is umpteen number of judgments passed by Hon ble jurisdictional High Court whereby BLT has held not to be a method having statutory force to determine the AMP expenses. Moreover, identical issue has been decided by the coordinate Bench of the Tribunal in taxpayer s own case vide order dated 23.08.2018 in ITA No.1906/Del/2014 in AY 2009-10 by returning following findings :- 10. In the present case, no new facts have emerged and all the facts brought to record, during the course of the assessment proceedings, do not indicate legally sustainable basis for coming to the conclusion that there was an internal transaction in respect of AMP expenses incurred by the assessee. We are, therefore, of the considered view that the plea of the assessee, on the peculiar facts of this case, does indeed deserve to be upheld that there is no material on record to hold that there was an international transactions, in terms of the provisions of Section 92B, nor any material has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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