Pr. Commissioner Of Income Tax, Alwar v. M/S Gillette India Ltd., Spa 65A, Industrial Area, Bhiwadi

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 40 / 2017 Pr. Commissioner of Income Tax, Alwar ----Appellant Versus M/s Gillette India Ltd., Spa 65A, Industrial Area, Bhiwadi C/o Kalani, & Co. CA, Vth Floor, Milestone Buildingh Gandhi Nagar Turn, Jaipur ----Respondent D.B. Income Tax Appeal No. 39 / 2017 Pr. Commissioner of Income Tax, Alwar. ----Appellant M/s. Gillette India Ltd., SPA-65A, Industrial Area, Bhiwadi C/o. Kalani & Co. CA, Vth Floor, Milestone Building, Gandhi Nagar Turn, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Ms. Shiva GoyalFor Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 18/07/2017 1. In both these appeals since identical question of law andfacts are involved, they are decided by this common judgment. 2.By way of these appeals, the appellants have challenged the judgment and order of the Tribunal whereby Tribunal has allowedthe appeal preferred by the assessee and modified the order ofthe CIT(A) as well as AO. 3.Counsel for the department has framed following substantialquestion of law no.1,2, & 3 which are common in both theseappeals and the same reads as under:- “1. Whether the Tribunal was legally justified indeleting the addition of Rs.87,12,49,257/- (Inappeal no. 39/2017) and Rs.1,10,87,46,190/- (Inappeal no. 40/2017) being adjustment on accountof compensation to be received by the assesseefrom its Associated Enterprise (AE) for creatingmarketing intangibles and promoting the brandname of its AE, specifically when the assesseecompany was promoting marketing intangibles ofits AE though the brand belongs to the AE and notto the assessee and the products manufactured bythe assessee are also manufactured by the AE andits other subsidiaries in different countries with thesame name?deleting the addition of Rs.87,12,49,257/- (Inappeal no. 39/2017) and Rs.1,10,87,46,190/- (Inappeal no. 40/2017) being adjustment on accountof compensation to be received by the assesseefrom its Associated Enterprise (AE) for creatingmarketing intangibles and promoting the brandname of its AE, specifically when the assesseecompany was promoting marketing intangibles ofits AE though the brand belongs to the AE and notto the assessee and the products manufactured bythe assessee are also manufactured by the AE andits other subsidiaries in different countries with thesame name? 2. Whether the Tribunal was legally justified inholding that Advertisement, Marketing andPromotion (AMP) expenditure was not aninternational transaction even though the assesseewas performing Development, Enhancement,Maintenance, Protection and Exploitation (DEMPE)functions for its AE and doing activity of brandbuilding?holding that Advertisement, Marketing andPromotion (AMP) expenditure was not aninternational transaction even though the assesseewas performing Development, Enhancement,Maintenance, Protection and Exploitation (DEMPE)functions for its AE and doing activity of brandbuilding? 3. Whether the Tribunal was legally justified indeleting the addition of Rs.6,87,53,869/- (Inappeal no. 39/2017) and Rs.6,62,31,158/- (Inappeal no. 40/2017) made on account of Arm’sLength service fee payment to its AEs specificallywhen the assessee failed to submit cost benefitanalysis for payment of services, proof forrequisition of services, proof of availing servicesand comparison about the cost of services if theseservices were purchased in India itself?” 3.1Question No.4 of appeal no.39/2017 is framed as question no.6 in appeal no. 40/2017 which reads as under:- 3. Whether the Tribunal was legally justified indeleting the addition of Rs.6,87,53,869/- (Inappeal no. 39/2017) and Rs.6,62,31,158/- (Inappeal no. 40/2017) made on account of Arm’sLength service fee payment to its AEs specificallywhen the assessee failed to submit cost benefitanalysis for payment of services, proof forrequisition of services, proof of availing servicesand comparison about the cost of services if theseservices were purchased in India itself?” 3.1Question No.4 of appeal no.39/2017 is framed as question no.6 in appeal no. 40/2017 which reads as under:- “Whether the Tribunal was legally justified indeleting the disallowance of Rs.5,96,86,713/- (Indeleting the disallowance of Rs.5,96,86,713/- (In appeal no. 39/2017) and Rs.2,10,79,382/- (Inappeal no. 40/2017) made on account ofinventories written off specifically when neither anydetails were furnished by the company nor therewas any supporting evidence to justify andestablish that the same deduction was not claimedby it earlier as ‘cost of goods sold’? 3.2Question no.4,5 & 7 of appeal no.40/2017 are not framed in appeal no. 39/2017 which are reproduced as under:- “(4) Whether the Tribunal was legally justified indeleting the adjustment of Rs.80,95,948/- madeon account of Arm’s Length interest to becharged by the assessee on the outstandingreceivables from its AEs and in holding thatnotional interest on overdue receivables cannotbe charged from AEs as assessee has notcharged any interest from non-AEs ? (5) Whether the Tribunal was legally justified inholding that no interest is chargeable onreceivables specifically when there is specificprovision in the Income Tax Act, 1961 for thisand deferred payment/receivables are termed asCapital Financing? (7) Whether the Tribunal was legally justified indeleting the disallowance of Rs.91,52,223/-made on account of restructuring being capitalexpenditure specifically when the assessee itselftreated these expenses as one time expenditurein the books of accounts and the auditor alsoqualified in the report stating these to be onetime expenditure?” 4.Counsel for the appellant has taken us to the order of the tribunal and contended that tribunal has wrongly relied upon thedecision against which the SLP is pending and advertisement expenses which are incurred are disproportionate to the turnoveror income. 4.1In that view of the matter, the tribunal has committedserious error in reversing the finding of AO as well as CIT(A). 4.2Counsel for the appellant has taken us to the details of thejudgment of tribunal and further contended that the issueregarding the chargeable interest and adjustment ofRs.80,95,948/- made on account of Arm’s Length Interest, thetribunal has wrongly charged the same. 5.Counsel for the respondent has contended that question no.6of appeal no.40/2017 which is question no.4 of appeal no.39/2017is squarely covered by the decision of this court in D.B. ITANo.349/2011 decided on 23.5.2011. 5.1He contended that issue no.7 of appeal no.40/2017 is nowcovered by the decision in DBITA No.33/2016 decided on23.5.2016. 5.2Counsel for the respondent has relied upon the followingdecisions:- 5.3 In Commissioner of Income Tax-3, Mumbai vs. GeneralAtlantic (P) Ltd. reported in (2016) 68 taxmann.com 88(Bombay). 5.4In CIT Alwar vs. M/s Sakata Inx (India) Ltd. D.B. ITANo.72/2015 decided on 18.5.2017. 6.In that view of the matter, both the issues no.6 & 7 areanswered in favour of the assessee and against the department. 6.1Regarding issue no.1,2, & 3, tribunal while considering theexpenses of the associated enterprise (AE) for creating marketingintangibles and promoting the brand name of its AE, it is for themarketing people to look new products which has competition inthe national level or grass route level and International level. It is 5.2Counsel for the respondent has relied upon the followingdecisions:- 5.3 In Commissioner of Income Tax-3, Mumbai vs. GeneralAtlantic (P) Ltd. reported in (2016) 68 taxmann.com 88(Bombay). 5.4In CIT Alwar vs. M/s Sakata Inx (India) Ltd. D.B. ITANo.72/2015 decided on 18.5.2017. 6.In that view of the matter, both the issues no.6 & 7 areanswered in favour of the assessee and against the department. 6.1Regarding issue no.1,2, & 3, tribunal while considering theexpenses of the associated enterprise (AE) for creating marketingintangibles and promoting the brand name of its AE, it is for themarketing people to look new products which has competition inthe national level or grass route level and International level. It is always for the Company to decide on what ratio the expenses areto be incurred at grass route and on that ratio for promoting theirproduct. 6.2In that view of the matter, unless the amount which wasfound to be not genuine merely because excess amount has beenspent on advertisement, will not not be a ground for disallowingthe expenses. 6.3In that view of the matter, on issue no.1 & 2, we are of theview that the tribunal has not committed any error. The issues areanswered in favour of the assessee. 6.4Question no.4 in another appeal being appeal no.40/2017 inview of the facts which are recorded by the tribunal which readsas under:- “Briefly the facts of the case are that during the FY2008-09, the Appellant had exported finished goodsto its AEs amounting to Rs.28,57,16,513. In thecourse of assessment proceedings, the TPO hadconsidered the delay in collection of the receivablesfrom the AEs (on account of export of finishedgoods) as an extension of the credit/loan facility tothe AEs. On the outstanding receivables, the TPOproposed to charge a notional interest of 16.25% i.e.Rs.80,95,948. Aggrieved by the TP Adjustment, theAppellant approached the DRP. The DRP upheld theTP adjustment proposed by the TPO by stating thatany receivable arising during the course of businessis to be treated as international transaction in lightof amendment to explanation to section 92B of theAct. Aggrieved by the DRP’s directions, the Appellanthas approached the present Bench.” 6.5And conclusion which has been reached in para no.6.13 & 6.14 by the tribunal reads as under:- “6.13 After insertion of explanation 1(c) to section92B of the Act, the payment of deferred payment orreceivable or any debt arising during the course of 6.5And conclusion which has been reached in para no.6.13 & 6.14 by the tribunal reads as under:- “6.13 After insertion of explanation 1(c) to section92B of the Act, the payment of deferred payment orreceivable or any debt arising during the course of business shall fall under the definition of internationaltransaction. However, at the same time, thesetransactions of allowing credit period to AE ofrealization of sale proceeds is not an independentinternational transaction but is closely linked or acontinuous transaction alongwith sale transactions tothe AE. The same is also in consonance with rule10A(d) as well as the concept of aggregation ofclosely linked transaction supported by the OECDtransfer pricing guidelines. In the instant case, noadjustment has been made by the TPO in respect ofsale transactions with the AEs and the ALP has beenaccepted. In light of that, there cannot be anyadjustment in respect of the credit period extendedto the AE. Even if one way to consider it as anindependent transaction, the credit has to becompared with the transactions done by the AE in theform of credit allowed to non-AEs. In the instant casewhere the assessee is not charging any interest fromAE as well as non-AEs then the only differencebetween the two transactions which can beconsidered is average period allowed alongwithoutstanding amount to AE and non-AEs. The Revenuehas not brought any material on record to suggestthat the average period in realization of the exportproceedings is at variance and vastly different.Further it is noted that the Co-ordinate Bench in thecase of Bousch & Lomb Eyecare (India) Pvt. Ltd.(supra) wherein the identical issue was raised andthe contentions regarding the amendment ofexplanation to section 92B was also raised, hasfollowed the decision of Bombay High Court in thecase of Indo American Jewellery Ltd. (Supra). 6.14 In light of above respectfully following theBombay High Court’s decision in case of IndoAmerican Jewellery and the Co-ordinate benchdecision in the case of Bousch & Lomb Eyecare(India) Pvt. Ltd., we are of the view that there iscomplete uniformity in the act of the apellant in notcharging interest from both AE’s and non-AEs andadjustment in realization to notional interest onoutstanding receivable cannot be made. In the resultthe ground no.4 taken by the assessee is allowed.” 7.On the aforesaid factual finding, we find no substantial question of law. Even otherwise, the assessee has not chargedfrom any other person. In that view of the matter, the departmentcannot compel the assessee to do the same. 7.1Regarding issue no.3, the department has not preferred anyappeal, it is covered by the earlier decision of the tribunal. 7.2In view of the above, no substantial questions of law arisesin these appeals. 8.The appeals stand dismissed. A copy of this judgment beplaced in each file. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh203 & 24