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

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 341 / 2017 Pr. Commissioner of Income Tax, Alwar. ----Appellant Versus M/s Gillette India Ltd., SPA-65A, Industrial Area, Bhiwadi, District Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Ms. Shiva Goyal _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERIHON'BLE MR. JUSTICE VIJAY KUMAR VYASJudgment 06/02/2018 1.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has partlyallowed the appeal of the assessee and remitted the matter backto the AO. 2.Counsel for the appellant has framed following substantialquestions of law:- “(1) Whether the Tribunal was legally justifiedin deleting the addition of Rs.1,90,02,98,677/-being adjustment on account of compensationto be received by the assessee from itsAssociated Enterprise (AE) for creatingmarketing intangibles and promoting the brandname of its AE, specifically when the assesseecompany was promoting marketing intangiblesof its AE though the brand belongs to the AEand not to the assessee and the productsmanufactured by the assessee are alsomanufactured by the AE and its 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 u/s.92B even thoughthe assessee was performing Development,Enhancement, Maintenance, Protection andExploitation (DEMPE) functions for its AE anddoing activity of brand building? (3) Whether the Tribunal was legally justified inholding the ground of the revenue asinfructous, that the selling expenses should beexcluded from the AMP expenditure as well asto use the gross profit rate in the distributionsegment as the mark-up on the AMPexpenditure? (4) Whether the Tribunal was legally justified indeleting the addition of Rs.8,92,06,347/- madeon account of Arm's Length service feepayment to its Aes specifically when theassessee failed to submit cost benefit analysisfor payment of services, proof for requisition ofservices, proof of availing services andcomparison about the cost of services if theseservices were purchased in India itself? (5) Whether the Tribunal was legally justified indeleting the disallowance of Rs.5,79,30,029/-made on account of inventories written offspecifically when neither any details werefurnished by the company nor there was anysupporting evidence to justify and establishthat the sam deduction was not claimed by itearlier as cost of goods sold? (6) Whether the Tribunal was legally justified indeleting the addition of Rs.37,08,461/- madeon account of traveling and conveyanceexpenses specifically when the companyneither specified the nature and purpose ofexpenses nor any supporting evidence wasfiled to justify the claim? (7) Whether the Tribunal was legally justified indeleting the addition of Rs.84,92,509/- madeon account of miscellaneous expenses which were neither verifiable as no supportingevidence was available and also the same couldnot be established to have been incurredwholly and exclusively for the purpose ofbusiness?” 3.The facts of the case are that the respondent assesse derivesincome from manufacturing and trading of razors, blades andother shaving systems, grooming products, torches & dry batterycells etc. In this case draft assessment order u/s.143(3) read withsection 144C(1) was passed on 27.02.2015 whereby the totalincome was assessed at Rs.3,80,74,59,631/- as against thereturned income of Rs.1,60,68,50,750/- by making the followingadditions/disallowances: (i) ALP adjustment of Rs.2,13,04,77,882/- made on account ofAMP expenses incurred for benefit of its AEs. were neither verifiable as no supportingevidence was available and also the same couldnot be established to have been incurredwholly and exclusively for the purpose ofbusiness?” 3.The facts of the case are that the respondent assesse derivesincome from manufacturing and trading of razors, blades andother shaving systems, grooming products, torches & dry batterycells etc. In this case draft assessment order u/s.143(3) read withsection 144C(1) was passed on 27.02.2015 whereby the totalincome was assessed at Rs.3,80,74,59,631/- as against thereturned income of Rs.1,60,68,50,750/- by making the followingadditions/disallowances: (i) ALP adjustment of Rs.2,13,04,77,882/- made on account ofAMP expenses incurred for benefit of its AEs. (ii) Disallowance of Rs.5,79,30,029/- on account of inventorywritten off. (iii) Disallowance out of travelling and conveyance expenses ofRs.37,08,461/- (iv) Disallowance out of other expenses of Rs.84,92,509/- Being aggrieved by the draft order of the Assessing Officer, theassessee filed objections before the DRP, New Delhi. The DRPissued directions u/s.144C(5) on 23.11.2015 and directed theAssessing Officer to use the assessee's gross profit rate in thedistribution segment as the mark-up of the AMP expenditure takenfor the TP adjustment as against the base rate of SBI in accordance with the decision of Hon'ble Delhi High Court in thecase of Sony Ericsson. The DRP has raised following additionalissues: (i) Royalty amounting to Rs.6,72,27,640/-. (ii) Intra Group Services of Rs.8,92,06,347/- (iii) Purchase of fixed assets of Rs.51,33,22,090/-. 4.We have heard counsel for the appellant. 5.Since in the case of same assessee, we have already decidedthe matter with regard to issue no.1 to 5 in D.B. ITA No.39/2017(Pr. Commissioner of Income Tax, Alwar vs. M/s. Gillette India Ltd.) decided on 18.7.2017 wherein it has been held as under:- “4.Counsel for the appellant has taken us tothe order of the tribunal and contended thattribunal has wrongly relied upon the decisionagainst which the SLP is pending andadvertisement expenses which are incurredare disproportionate to the turnover orincome. 4.1 In that view of the matter, the tribunalhas committed serious error in reversing thefinding of AO as well as CIT(A). 4.2 Counsel for the appellant has taken us tothe details of the judgment of tribunal andfurther contended that the issue regardingthe chargeable interest and adjustment ofRs.80,95,948/- made on account of Arm’sLength Interest, the tribunal has wronglycharged the same. 5.Counsel for the respondent hascontended that question no.6 of appealno.40/2017 which is question no.4 of appealno.39/2017 is squarely covered by thedecision of this court in D.B. ITA No.349/2011decided on 23.5.2011. 5.1 He contended that issue no.7 of appealno.40/2017 is now covered by the decision inDBITA No.33/2016 decided on 23.5.2016. 5.2 Counsel for the respondent has reliedupon the following decisions:- 5.3 In Commissioner of Income Tax-3,Mumbai vs. General Atlantic (P) Ltd. reportedin (2016) 68 taxmann.com 88 (Bombay). 5.4 In CIT Alwar vs. M/s Sakata Inx (India)Ltd. D.B. ITA No.72/2015 decided on18.5.2017. 6.In that view of the matter, both theissues no.6 & 7 are answered in favour of theassessee and against the department. 6.1 Regarding issue no.1,2, & 3, tribunalwhile considering the expenses of theassociated enterprise (AE) for creatingmarketing intangibles and promoting thebrand name of its AE, it is for the marketingpeople to look new products which hascompetition in the national level or grassroute level and International level. It isalways for the Company to decide on whatratio the expenses are to be incurred at grassroute and on that ratio for promoting theirproduct. 5.4 In CIT Alwar vs. M/s Sakata Inx (India)Ltd. D.B. ITA No.72/2015 decided on18.5.2017. 6.In that view of the matter, both theissues no.6 & 7 are answered in favour of theassessee and against the department. 6.1 Regarding issue no.1,2, & 3, tribunalwhile considering the expenses of theassociated enterprise (AE) for creatingmarketing intangibles and promoting thebrand name of its AE, it is for the marketingpeople to look new products which hascompetition in the national level or grassroute level and International level. It isalways for the Company to decide on whatratio the expenses are to be incurred at grassroute and on that ratio for promoting theirproduct. 6.2 In that view of the matter, unless theamount which was found to be not genuinemerely because excess amount has beenspent on advertisement, will not not be aground for disallowing the expenses. 6.3 In that view of the matter, on issue no.1& 2, we are of the view that the tribunal hasnot committed any error. The issues areanswered in favour of the assessee. 6.4 Question no.4 in another appeal beingappeal no.40/2017 in view of the facts whichare recorded by the tribunal which reads asunder:- “Briefly the facts of the case are that during the FY 2008-09, the Appellant had exportedfinished goods to its AEs amounting toRs.28,57,16,513. In the course of assessmentproceedings, the TPO had considered thedelay in collection of the receivables from theAEs (on account of export of finished goods)as an extension of the credit/loan facility tothe AEs. On the outstanding receivables, theTPO proposed to charge a notional interest of16.25% i.e. Rs.80,95,948. Aggrieved by theTP Adjustment, the Appellant approached theDRP. The DRP upheld the TP adjustmentproposed by the TPO by stating that anyreceivable arising during the course ofbusiness is to be treated as internationaltransaction in light of amendment toexplanation to section 92B of the Act.Aggrieved by the DRP’s directions, theAppellant has approached the present Bench.” 6.5 And conclusion which has been reachedin para no.6.13 & 6.14 by the tribunal readsas under:- “6.13 After insertion of explanation 1(c) tosection 92B of the Act, the payment ofdeferred payment or receivable or any debtarising during the course ofbusiness shall fallunder the definition of internationaltransaction. However, at the same time, thesetransactions of allowing credit period to AE ofrealization of sale proceeds is not anindependent international transaction but isclosely linked or a continuous transactionalongwith sale transactions to the AE. Thesame is also in consonance with rule 10A(d)as well as the concept of aggregation ofclosely linked transaction supported by theOECD transfer pricing guidelines. In theinstant case, no adjustment has been madeby the TPO in respect of sale transactionswith the AEs and the ALP has been accepted.In light of that, there cannot be anyadjustment in respect of the credit periodextended to the AE. Even if one way toconsider it as an independent transaction, thecredit has to be compared with thetransactions done by the AE in the form ofcredit allowed to non-AEs. In the instant casewhere the assessee is not charging anyinterest from AE as well as non-AEs then theonly difference between the two transactionswhich can be considered is average periodallowed alongwith outstanding amount to AE and non-AEs. The Revenue has not broughtany material on record to suggest that theaverage period in realization of the exportproceedings is at variance and vastlydifferent. Further it is noted that the Co-ordinate Bench in the case of Bousch & LombEyecare (India) Pvt. Ltd. (supra) wherein theidentical issue was raised and the contentionsregarding the amendment of explanation tosection 92B was also raised, has followed thedecision of Bombay High Court in the case ofIndo American Jewellery Ltd. (Supra). 6.14 In light of above respectfully followingthe Bombay High Court’s decision in case ofIndo American Jewellery and the Co-ordinatebench decision in the case of Bousch & LombEyecare (India) Pvt. Ltd., we are of the viewthat there is complete uniformity in the act ofthe apellant in not charging interest from bothAE’s and non-AEs and adjustment inrealization to notional interest on outstandingreceivable cannot be made. In the result theground no.4 taken by the assessee isallowed.” 7.On the aforesaid factual finding, we findno substantial question of law. Evenotherwise, the assessee has not charged fromany other person. In that view of the matter,the department cannot compel the assesseeto do the same. 7.1 Regarding issue no.3, the departmenthas not preferred any appeal, it is covered bythe earlier decision of the tribunal. 7.2 In view of the above, no substantialquestions of law arises in these appeals.” 6.Regarding question no.3, the tribunal has also observed as under:- 3.9 undisputedly, there is no change in factsand circumstances of the case and no contraryauthority has been brought to our notice. Theld. CIT Dr fairly conceded that the issue iscovered in favour of the assessee’s by earlierdecision of the Coordinate Bench. Given theabove factual matrix and respectfully following the decision of Delhi High Court in case ofMaruti Suzuki and Coordinate Bench decisionin assessee’s own case, AMP expenditureincurred by the assessee could not be treatedand categorized as an international transactionu/s 92B of the Act and thereby, theadjustment on account of AMP expenditure ishereby deleted and ground of the assessee’sappeal is allowed. 7.Regarding issue no.6 which is issue no.2 of Tax AppealNo.125/2016 (Principal Commissioner Income Tax, Alwar vs. M/s.Gillette India Ltd.) decided on 23.5.2017 wherein with regard toissue no.2, it has been observed as under:- “5. Regarding issue No.(ii) & (iii), the sameare covered by the decision on issue No.(iv) &(v) of appeal No.134/2014, wherein thefollowing reasoning was adopted. “6. Regarding issue No.(iv) & (v) counsel hasrelied upon the decision of the Supreme Courtin the case of Commissioner of Income Tax.vs. Alfa Laval (India) Ltd. [2007] 295 ITR0451 and the decision of Bombay High Courtin the case of Commissioner of Income Taxvs. Retilal Becharlal & Sons andCommissioner of Income Tax vs. GeneralAtlantic (P) Ltd. [2016] 384 ITR 0271 (Bom). 6.1 Counsel for the appellant has contendedthat the expenses made were not admissibleunder Section 37 of the Act, where theincome was disproportionate to the turn-over. 6.2 In that view of the matter, the Tribunalhas seriously committed an error in allowingexpenses. 6.3 However, counsel for therespondent has taken us to para 6.3 wherethe Tribunal summarizing the same observedas under: “6.3 After considering the rival submission,we find that Group M Media India Pvt. Ltd. isan Indian Co. as is evident from the companymaster details placed at Paper Book Page 17.From the same, it is noted that this companyis incorporated on 29.11.2001 havingregistered office at Mumbai. Therefore, it is 6.1 Counsel for the appellant has contendedthat the expenses made were not admissibleunder Section 37 of the Act, where theincome was disproportionate to the turn-over. 6.2 In that view of the matter, the Tribunalhas seriously committed an error in allowingexpenses. 6.3 However, counsel for therespondent has taken us to para 6.3 wherethe Tribunal summarizing the same observedas under: “6.3 After considering the rival submission,we find that Group M Media India Pvt. Ltd. isan Indian Co. as is evident from the companymaster details placed at Paper Book Page 17.From the same, it is noted that this companyis incorporated on 29.11.2001 havingregistered office at Mumbai. Therefore, it is an Indian Co. as defined u/s 2(26) and is acompany resident in India u/s 6(3). Allpayment made to this company towardsadvertisement charges is in Indian currency.Tax is deducted at source on such paymentu/s 194C. Sec. 195 is applicable whenpayment is made to a non resident.Admittedly, payment to Group M Media IndiaPvt. Ltd. is a payment to resident and not anon resident. Therefore, section 195 is notattracted. The AO has not disputed thegenuineness of the payment and thereforeonly because there is no agreement for theadvertisement work with this company cannotbe viewed adversely. Therefore, thedisallowance of Rs.36,70,04,056/- made bythe AO is incorrect, against law and the sameis deleted. So far as expenses on tradeincentive is concerned, we find that similarincentives given as per various schemes inearlier years has been allowed. The AO atPage 2 of the order has admitted that billsand vouchers of expenses, as desired, wereproduced for verification which was testchecked. The observation of AO that serviceshas been received by the assessee againstthese payment and therefore he should havededucted tax at source on the value of thegift is ill founded in as much as the paymentis not against the services but against thesale of goods to the distributors and thereforeTDS provisions are not applicable. Therefore,the disallowance of Rs.16,17,24,303/- madeby the AO on this account is deleted.” 6.4 In our considered view, the view taken bythe Tribunal is required to be accepted onfacts.” 8.Regarding issue no.7 which is decided in case of sameassessee in Tax Appeal No.134/2014 decided on 23.5.2017 beingquestion no.4 which reads as under:- 7. Regarding issue No.(vi) counsel for theappellanthascontendedthatthemiscellaneous expenses were not permissibleand vouchers and everything were notproperly found. However, Tribunal in para 9.2has observed as under: “9.2 After considering the rival submissionand perusing the material on record, we findthat AO has made the disallowance withoutspecifying any particular expenses which isnot verifiable or not incurred wholly andexclusively for the purpose of business whenhe has given a finding at Page 2 of the orderthat bills and vouchers of expenses as desiredwere produced for verification and examinedon test check basis. We also noted that suchadhoc disallowance is not approved by theDRP in A.Y. 07-08. Considering the same, theadhoc disallowance made by AO is deleted.This ground of assessee is therefore allowed.” 9.In view of the above, no substantial questions of law arises. 10.The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 20.