HYUNDAI MOTOR INDIA LTD.,KANCHIPURAM vs. DCIT, NCC-8(1), , CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the

Assessing Officer passed u/s.143(3) / 144C(13) of the Income Tax Act,

1961 [herein after “Act”] dated 23.07.2024 for assessment year 2020-

21[hereinafter in short “AY"] pursuant to the DRP directions dated

03.06.2024.

IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. ::2 ::

TRANSFER PRICING GROUNDS TRANSFER PRICING GROUNDS

The directions of the Dispute Resolution Panel (DRP), the Transfer The directions of the Dispute Resolution Panel (DRP), the Transfer The directions of the Dispute Resolution Panel (DRP), the Transfer Pricing order and the Final Assessment order are erroneous in Pricing order and the Final Assessment order are erroneous in so far as so far as the following issues/adjustments: the following issues/adjustments:

2.1. The NaFAC/DRP erred in facts and circumstances of the case and 2.1. The NaFAC/DRP erred in facts and circumstances of the case and 2.1. The NaFAC/DRP erred in facts and circumstances of the case and in law in confirming the action of the TPO in attributing notional in law in confirming the action of the TPO in attributing notional in law in confirming the action of the TPO in attributing notional income of Rs.3,81,01,00,000, on the premise that the Appellant has of Rs.3,81,01,00,000, on the premise that the Appellant has of Rs.3,81,01,00,000, on the premise that the Appellant has undertaken brand promotion/building activity for its AE i.e., Hyundai undertaken brand promotion/building activity for its AE i.e., Hyundai undertaken brand promotion/building activity for its AE i.e., Hyundai Motor Company, South Korea. Motor Company, South Korea.

TPO exceeded jurisdiction TPO exceeded jurisdiction

2.2. The NaFAC/DRP failed to appreciate the fact that the TPO 2.2. The NaFAC/DRP failed to appreciate the fact that the TPO 2.2. The NaFAC/DRP failed to appreciate the fact that the TPO exceeded his jurisdiction by analysing brand promotion/building as a eeded his jurisdiction by analysing brand promotion/building as a eeded his jurisdiction by analysing brand promotion/building as a separate international transaction though the NaFAC has not referred separate international transaction though the NaFAC has not referred separate international transaction though the NaFAC has not referred the same for determination of ALP as per Section 92CA of the Act. the same for determination of ALP as per Section 92CA of the Act. the same for determination of ALP as per Section 92CA of the Act.

2.3. The NaFAC/DRP ought to have held that the order of 2.3. The NaFAC/DRP ought to have held that the order of the TPO is the TPO is vitiated since it is based on a show cause notice that is void ab initio, vitiated since it is based on a show cause notice that is void ab initio, vitiated since it is based on a show cause notice that is void ab initio, as it has not established a prima facie case of brand promotion activity as it has not established a prima facie case of brand promotion activity as it has not established a prima facie case of brand promotion activity undertaken by the Appellant. undertaken by the Appellant.

2.4. The NaFAC/DRP ought to have held that the TPO has acted in 2.4. The NaFAC/DRP ought to have held that the TPO has acted in 2.4. The NaFAC/DRP ought to have held that the TPO has acted in excess of jurisdiction by suo ss of jurisdiction by suo-motu considering the incurrence of motu considering the incurrence of advertisement expenses as an "international transaction" advertisement expenses as an "international transaction"

2.5. The NaFAC/DRP erred in facts and circumstances of the case and 2.5. The NaFAC/DRP erred in facts and circumstances of the case and 2.5. The NaFAC/DRP erred in facts and circumstances of the case and in law by stating that the Appellant failed to report the "Advertiseme in law by stating that the Appellant failed to report the "Advertiseme in law by stating that the Appellant failed to report the "Advertisement Marketing and Promotion ("AMP") expenses" in the Form 3CEB when Marketing and Promotion ("AMP") expenses" in the Form 3CEB when Marketing and Promotion ("AMP") expenses" in the Form 3CEB when the same is not per se an international transaction as per Section 92B the same is not per se an international transaction as per Section 92B the same is not per se an international transaction as per Section 92B of the Act.

2.6. The NaFAC/DRP having acknowledged that the facts and 2.6. The NaFAC/DRP having acknowledged that the facts and 2.6. The NaFAC/DRP having acknowledged that the facts and circumstances are similar to the previous Assess circumstances are similar to the previous Assessment Years, erred in ment Years, erred in not following the binding order of this Hon'ble Tribunal in Appellant's not following the binding order of this Hon'ble Tribunal in Appellant's not following the binding order of this Hon'ble Tribunal in Appellant's own case for AY 2009 own case for AY 2009-10 to AY 2011-12, AY 2013- 14 to AY 2016 14 to AY 2016-17, wherein similar adjustment towards deemed brand promotion has wherein similar adjustment towards deemed brand promotion has wherein similar adjustment towards deemed brand promotion has been deleted by holding that the sa been deleted by holding that the same is not an international me is not an international transaction.

2.7. It is also to be noted that the impugned adjustment was deleted 2.7. It is also to be noted that the impugned adjustment was deleted 2.7. It is also to be noted that the impugned adjustment was deleted by this Hon'ble ITAT for AY 2012 by this Hon'ble ITAT for AY 2012-13, AY 2017-18 to AY 2019 18 to AY 2019-20, subsequently after the draft assessment order was passed for the subsequently after the draft assessment order was passed for the subsequently after the draft assessment order was passed for the subject year i.e., AY 2020 AY 2020-21.

AMP/Brand promotion is not an international transaction AMP/Brand promotion is not an international transaction

2.8. The NaFAC/DRP erred in not appreciating that the Appellant has 2.8. The NaFAC/DRP erred in not appreciating that the Appellant has 2.8. The NaFAC/DRP erred in not appreciating that the Appellant has not rendered any brand building service to its AE (i.e., Hyundai Motor not rendered any brand building service to its AE (i.e., Hyundai Motor not rendered any brand building service to its AE (i.e., Hyundai Motor Company, South Korea) and as such, there is no in Company, South Korea) and as such, there is no international ternational transaction.

2.9. The NaFAC/DRP failed to appreciate that in the absence of 2.9. The NaFAC/DRP failed to appreciate that in the absence of 2.9. The NaFAC/DRP failed to appreciate that in the absence of contract among the parties (i.e., Appellant and AE), deeming rendition contract among the parties (i.e., Appellant and AE), deeming rendition contract among the parties (i.e., Appellant and AE), deeming rendition of brand building service is null and void. of brand building service is null and void.

2.10. The NaFAC/DRP erred in facts and circumstances 2.10. The NaFAC/DRP erred in facts and circumstances and in law by and in law by construing the Technology and Royalty agreement entered between construing the Technology and Royalty agreement entered between construing the Technology and Royalty agreement entered between the Appellant and the AE to be relating to the rendition of brand the Appellant and the AE to be relating to the rendition of brand the Appellant and the AE to be relating to the rendition of brand building services.

2.11. The NaFAC/DRP, without appreciating the fact that the Appellant 2.11. The NaFAC/DRP, without appreciating the fact that the Appellant 2.11. The NaFAC/DRP, without appreciating the fact that the Appellant is engaged in the manuf is engaged in the manufacture and sale of cars both in the domestic as acture and sale of cars both in the domestic as well as in the export markets has erroneously confirmed the well as in the export markets has erroneously confirmed the well as in the export markets has erroneously confirmed the adjustment made by the TPO that the Appellant does Brand adjustment made by the TPO that the Appellant does Brand adjustment made by the TPO that the Appellant does Brand promotion/building activity for its AE. promotion/building activity for its AE.

2.12. The NaFAC/DRP, without appreciating the fact 2.12. The NaFAC/DRP, without appreciating the fact that the marketing that the marketing expenses are incurred by the Appellant to promote the sale of cars expenses are incurred by the Appellant to promote the sale of cars expenses are incurred by the Appellant to promote the sale of cars (licensed products) manufactured by it, has erroneously confirmed the (licensed products) manufactured by it, has erroneously confirmed the (licensed products) manufactured by it, has erroneously confirmed the conclusion of the TPO as a Brand promotion/building activity. conclusion of the TPO as a Brand promotion/building activity.

2.13. The NaFAC/DRP failed to apprecia 2.13. The NaFAC/DRP failed to appreciate that even an independent te that even an independent entity would have charged for brand building service only if the brand entity would have charged for brand building service only if the brand entity would have charged for brand building service only if the brand building activity has been actually agreed to undertaken as the primary building activity has been actually agreed to undertaken as the primary building activity has been actually agreed to undertaken as the primary activity and not where the promotion of brand name is ancillary to the activity and not where the promotion of brand name is ancillary to the activity and not where the promotion of brand name is ancillary to the core business activity of manufacture and sale of vehicles. activity of manufacture and sale of vehicles.

Separate benchmarking is void Separate benchmarking is void

2.14. The NaFAC/DRP failed to appreciate the fact that the TPO having 2.14. The NaFAC/DRP failed to appreciate the fact that the TPO having 2.14. The NaFAC/DRP failed to appreciate the fact that the TPO having accepted the Royalty transaction which is inclusive of right to use accepted the Royalty transaction which is inclusive of right to use accepted the Royalty transaction which is inclusive of right to use "Brand" is at arm's length, is precluded f "Brand" is at arm's length, is precluded from once again independently rom once again independently benchmarking the brand usage as separate international transaction. benchmarking the brand usage as separate international transaction. benchmarking the brand usage as separate international transaction.

2.15. The NaFAC/DRP failed to recognize that the TPO having accepted 2.15. The NaFAC/DRP failed to recognize that the TPO having accepted 2.15. The NaFAC/DRP failed to recognize that the TPO having accepted that the overall net margin of the Appellant under TNMM method to be that the overall net margin of the Appellant under TNMM method to be that the overall net margin of the Appellant under TNMM method to be at arm's length as pe at arm's length as per Section 92C(2) of the Act read with Rule 10B of r Section 92C(2) of the Act read with Rule 10B of the Income tax Rules, erred in independently benchmarking brand the Income tax Rules, erred in independently benchmarking brand the Income tax Rules, erred in independently benchmarking brand usage as a separate international transaction. usage as a separate international transaction.

2.16. Without prejudice to the above, the NaFAC/DRP failed to 2.16. Without prejudice to the above, the NaFAC/DRP failed to 2.16. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the excess appreciate that the excess margin earned by the Appellant over that of margin earned by the Appellant over that of comparable companies indicates that it is the Appellant who has comparable companies indicates that it is the Appellant who has comparable companies indicates that it is the Appellant who has benefited from the use of the brand name and has offered more benefited from the use of the brand name and has offered more benefited from the use of the brand name and has offered more income for tax in India. income for tax in India.

2.17. Without prejudice to the above, the NaFAC/DRP erred in 2.17. Without prejudice to the above, the NaFAC/DRP erred in 2.17. Without prejudice to the above, the NaFAC/DRP erred in facts and circumstances of the case by confirming the erroneous action of and circumstances of the case by confirming the erroneous action of and circumstances of the case by confirming the erroneous action of the TPO without appreciating the fact that the TPO himself have the TPO without appreciating the fact that the TPO himself have the TPO without appreciating the fact that the TPO himself have accepted that the benefits and costs incurred by the Appellant could accepted that the benefits and costs incurred by the Appellant could accepted that the benefits and costs incurred by the Appellant could not be accurately computed on account of brand. not be accurately computed on account of brand.

2.18. The NaFAC/DRP failed to appreciate that as per the principles .18. The NaFAC/DRP failed to appreciate that as per the principles .18. The NaFAC/DRP failed to appreciate that as per the principles laid down in Chapter VII of the OECD TP Guidelines, 2022, the laid down in Chapter VII of the OECD TP Guidelines, 2022, the laid down in Chapter VII of the OECD TP Guidelines, 2022, the incidental/ancillary benefits, if any, arising out of the AMP expenses incidental/ancillary benefits, if any, arising out of the AMP expenses incidental/ancillary benefits, if any, arising out of the AMP expenses incurred by the Appellant does not require any separate incurred by the Appellant does not require any separate compensation compensation as it is not in the nature of active service to AE. as it is not in the nature of active service to AE.

NaFAC/TPO failed to appreciate the business prerogative of the NaFAC/TPO failed to appreciate the business prerogative of the NaFAC/TPO failed to appreciate the business prerogative of the Appellant

2.19. The NaFAC/DRP failed to appreciate that the Appellant is not 2.19. The NaFAC/DRP failed to appreciate that the Appellant is not 2.19. The NaFAC/DRP failed to appreciate that the Appellant is not restricted from creating its own brand and it is th restricted from creating its own brand and it is the prudent business e prudent business decision of the Appellant to use the Brand name of the AE to increase decision of the Appellant to use the Brand name of the AE to increase decision of the Appellant to use the Brand name of the AE to increase its sales in India.

2.20. The NaFAC/DRP failed to appreciate that the AMP expenses 2.20. The NaFAC/DRP failed to appreciate that the AMP expenses 2.20. The NaFAC/DRP failed to appreciate that the AMP expenses incurred by the Appellant are purely to promote the sales of the cars incurred by the Appellant are purely to promote the sales of the cars incurred by the Appellant are purely to promote the sales of the cars manufactured and not towards promotion of Brand. nd not towards promotion of Brand.

2.21. The NaFAC/DRP failed to appreciate that in view of the rights 2.21. The NaFAC/DRP failed to appreciate that in view of the rights 2.21. The NaFAC/DRP failed to appreciate that in view of the rights granted in the agreement between the Appellant and the AE, the granted in the agreement between the Appellant and the AE, the granted in the agreement between the Appellant and the AE, the former gets the right to use the "Brand" and as such the Appellant former gets the right to use the "Brand" and as such the Appellant former gets the right to use the "Brand" and as such the Appellant cannot be deemed to rec cannot be deemed to receive income for using such brand.

Determination of ALP of alleged brand building service is Determination of ALP of alleged brand building service is Determination of ALP of alleged brand building service is grossly flawed

2.22. The NaFAC/DRP erred in facts and circumstances of the case and 2.22. The NaFAC/DRP erred in facts and circumstances of the case and 2.22. The NaFAC/DRP erred in facts and circumstances of the case and in law in not appreciating that the TPO has incorrectly considered and in law in not appreciating that the TPO has incorrectly considered and in law in not appreciating that the TPO has incorrectly considered and applied "Other Method" as the Most Appropriate Method without Other Method" as the Most Appropriate Method without Other Method" as the Most Appropriate Method without bringing on record any uncontrolled comparable companies while bringing on record any uncontrolled comparable companies while bringing on record any uncontrolled comparable companies while benchmarking deemed "Brand Promotion". benchmarking deemed "Brand Promotion".

2.23. The NaFAC/DRP erred in facts and circumstances of the case and 2.23. The NaFAC/DRP erred in facts and circumstances of the case and 2.23. The NaFAC/DRP erred in facts and circumstances of the case and in law in not appreciating that in law in not appreciating that the TPO has not provided any cogent the TPO has not provided any cogent reasons/basis for allocating 50% of the AMP expenses incurred by the reasons/basis for allocating 50% of the AMP expenses incurred by the reasons/basis for allocating 50% of the AMP expenses incurred by the Appellant to be recovered from the AE towards brand promotion. Appellant to be recovered from the AE towards brand promotion. Appellant to be recovered from the AE towards brand promotion.

2.24. The NaFAC/DRP failed to appreciate that the TPO has not 2.24. The NaFAC/DRP failed to appreciate that the TPO has not 2.24. The NaFAC/DRP failed to appreciate that the TPO has not provided the search parame provided the search parameters based on which the comparable ters based on which the comparable companies were selected by him. companies were selected by him.

2.25. Without prejudice to the above, the NaFAC/DRP failed to 2.25. Without prejudice to the above, the NaFAC/DRP failed to 2.25. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the comparables selected by the TPO are functionally appreciate that the comparables selected by the TPO are functionally appreciate that the comparables selected by the TPO are functionally dissimilar as they are engaged in the business of advertis dissimilar as they are engaged in the business of advertisement and ement and media whereas the Appellant is engaged only in the manufacture and media whereas the Appellant is engaged only in the manufacture and media whereas the Appellant is engaged only in the manufacture and sale of passenger cars and not brand promotion. sale of passenger cars and not brand promotion.

2.26. Without prejudice to the above, the NaFAC/DRP ought to have 2.26. Without prejudice to the above, the NaFAC/DRP ought to have 2.26. Without prejudice to the above, the NaFAC/DRP ought to have appreciated that the Appellant is not into core promotional/adver appreciated that the Appellant is not into core promotional/adver appreciated that the Appellant is not into core promotional/advertising activity and as such, if at all any adjustment is made for brand building activity and as such, if at all any adjustment is made for brand building activity and as such, if at all any adjustment is made for brand building activity, the same should be done after granting appropriate economic activity, the same should be done after granting appropriate economic activity, the same should be done after granting appropriate economic adjustments.

2.27. Without prejudice to the above, the NaFAC/DRP failed to 2.27. Without prejudice to the above, the NaFAC/DRP failed to 2.27. Without prejudice to the above, the NaFAC/DRP failed to appreciate that the TPO ought appreciate that the TPO ought to have restricted the adjustment to to have restricted the adjustment to 50% of the AMP expenses incurred by the Appellant without adding 50% of the AMP expenses incurred by the Appellant without adding 50% of the AMP expenses incurred by the Appellant without adding any mark-up.

2.28. The NaFAC/DRP erred in confirming the action of the TPO in 2.28. The NaFAC/DRP erred in confirming the action of the TPO in 2.28. The NaFAC/DRP erred in confirming the action of the TPO in conducting a fresh search for identifying the comparable companies for conducting a fresh search for identifying the comparable companies for conducting a fresh search for identifying the comparable companies for the limited purpose of quantifying the mark imited purpose of quantifying the mark-up to be added to the 50% up to be added to the 50% of AMP expenses (which was incorrectly considered to be incurred by of AMP expenses (which was incorrectly considered to be incurred by of AMP expenses (which was incorrectly considered to be incurred by the Appellant for the benefit of its AE). the Appellant for the benefit of its AE).

2.29. Without prejudice to the above ground, the NaFAC/DRP ought to 2.29. Without prejudice to the above ground, the NaFAC/DRP ought to 2.29. Without prejudice to the above ground, the NaFAC/DRP ought to have appreciated that the TPO's action of allocating a mark ted that the TPO's action of allocating a mark ted that the TPO's action of allocating a mark-up of 10.04% on 50% of the AMP expenses is devoid of any merit and 10.04% on 50% of the AMP expenses is devoid of any merit and 10.04% on 50% of the AMP expenses is devoid of any merit and unsustainable in law as it is highly arbitrary and unreasonable. unsustainable in law as it is highly arbitrary and unreasonable.

2.30. Without prejudice to our above grounds, the NaFAC/DRP failed to 2.30. Without prejudice to our above grounds, the NaFAC/DRP failed to 2.30. Without prejudice to our above grounds, the NaFAC/DRP failed to appreciate that the TPO erred in reckoning sales promotion campaigns, ate that the TPO erred in reckoning sales promotion campaigns, ate that the TPO erred in reckoning sales promotion campaigns, auto shows, website development and ad films agency payments as auto shows, website development and ad films agency payments as auto shows, website development and ad films agency payments as AMP expenses while determining the adjustment for Brand Promotion. AMP expenses while determining the adjustment for Brand Promotion. AMP expenses while determining the adjustment for Brand Promotion.

2.31. Without prejudice to our above grounds, the NaFAC/DRP ou 2.31. Without prejudice to our above grounds, the NaFAC/DRP ou 2.31. Without prejudice to our above grounds, the NaFAC/DRP ought to have appreciated that the TPO failed to consider the submissions of to have appreciated that the TPO failed to consider the submissions of to have appreciated that the TPO failed to consider the submissions of the Appellant and also erred in not appreciating that the expenses the Appellant and also erred in not appreciating that the expenses the Appellant and also erred in not appreciating that the expenses relating relating relating to to to sales sales sales promotion promotion promotion campaigns, campaigns, campaigns, auto auto auto shows, shows, shows, website website website development and ad films agency payments are not in the development and ad films agency payments are not in the nature of nature of AMP expenses, as these expenses are not incurred for the purpose of AMP expenses, as these expenses are not incurred for the purpose of AMP expenses, as these expenses are not incurred for the purpose of advertisement but grouped under the head AMP expenses for better advertisement but grouped under the head AMP expenses for better advertisement but grouped under the head AMP expenses for better presentation and disclosure in the financial statements. presentation and disclosure in the financial statements.

2.32. Without prejudice to the above, the NaFAC/DRP fai 2.32. Without prejudice to the above, the NaFAC/DRP failed to take led to take cognizance of the inconsistent stand by the TPO for the subject AY as cognizance of the inconsistent stand by the TPO for the subject AY as cognizance of the inconsistent stand by the TPO for the subject AY as compared to earlier AYs in relation to inclusion of certain non compared to earlier AYs in relation to inclusion of certain non compared to earlier AYs in relation to inclusion of certain non- advertisement expenses under the head AMP while determining the advertisement expenses under the head AMP while determining the advertisement expenses under the head AMP while determining the adjustment for Brand Promotion. adjustment for Brand Promotion.

2.33. Without prejudice to the above, the NaFAC/DRP failed to prejudice to the above, the NaFAC/DRP failed to prejudice to the above, the NaFAC/DRP failed to appreciate that the TPO has erred in incorrectly computing the margins appreciate that the TPO has erred in incorrectly computing the margins appreciate that the TPO has erred in incorrectly computing the margins of the comparable companies in the TP order. of the comparable companies in the TP order.

CORPORATE TAX GROUNDS: CORPORATE TAX GROUNDS:

3.1 The DRP/NaFAC erred in treating the Investment Promotion 3.1 The DRP/NaFAC erred in treating the Investment Promotion 3.1 The DRP/NaFAC erred in treating the Investment Promotion Subsidy Subsidy Subsidy (IPS) (IPS) (IPS) in in in the the the form form form of of of Output Output Output SGST SGST SGST amounting amounting amounting to to to Rs.114,66,83,991 as income for the previous year relevant Rs.114,66,83,991 as income for the previous year relevant Rs.114,66,83,991 as income for the previous year relevant to the subject assessment year (AY) 2020 subject assessment year (AY) 2020-21.

3.2 The DRP/NaFAC failed to appreciate that the IPS is a structured 3.2 The DRP/NaFAC failed to appreciate that the IPS is a structured 3.2 The DRP/NaFAC failed to appreciate that the IPS is a structured package of assistance granted for encouraging the setup of major package of assistance granted for encouraging the setup of major package of assistance granted for encouraging the setup of major automobile projects and boost the investment in the state of Tamil automobile projects and boost the investment in the state of Tamil automobile projects and boost the investment in the state of Tamil Nadu, in view of the various benefits accruing to the State. ew of the various benefits accruing to the State.

3.3 The DRP/NaFAC ought to have appreciated that the Investment 3.3 The DRP/NaFAC ought to have appreciated that the Investment 3.3 The DRP/NaFAC ought to have appreciated that the Investment Promotion Subsidy granted by the Government of Tamil Nadu to the Promotion Subsidy granted by the Government of Tamil Nadu to the Promotion Subsidy granted by the Government of Tamil Nadu to the Appellant was for the purpose of setting up of Phase II manufacturing Appellant was for the purpose of setting up of Phase II manufacturing Appellant was for the purpose of setting up of Phase II manufacturing facility and as such, the said subsidy should be treated as a 'capital y and as such, the said subsidy should be treated as a 'capital y and as such, the said subsidy should be treated as a 'capital receipt not chargeable to tax. receipt not chargeable to tax.

3.4 The DRP/NaFAC ought to have appreciated that the "purpose" for 3.4 The DRP/NaFAC ought to have appreciated that the "purpose" for 3.4 The DRP/NaFAC ought to have appreciated that the "purpose" for which an incentive is granted as per the Industrial Policy and the Govt. which an incentive is granted as per the Industrial Policy and the Govt. which an incentive is granted as per the Industrial Policy and the Govt. order issued by the G order issued by the Government of Tamil Nadu should be considered to overnment of Tamil Nadu should be considered to determine the nature of IPS as revenue/ capital. determine the nature of IPS as revenue/ capital.

3.5 The DRP/NaFAC ought to have appreciated that factors like 3.5 The DRP/NaFAC ought to have appreciated that factors like 3.5 The DRP/NaFAC ought to have appreciated that factors like contribution to GDP of the State, enhancement of brand value of the contribution to GDP of the State, enhancement of brand value of the contribution to GDP of the State, enhancement of brand value of the city/state in which the inves city/state in which the investment is made, enhancement in tment is made, enhancement in employment potential etc. are key factors in determination of IPS as employment potential etc. are key factors in determination of IPS as employment potential etc. are key factors in determination of IPS as capital receipt since the IPS is provided not for running the business capital receipt since the IPS is provided not for running the business capital receipt since the IPS is provided not for running the business more profitably but in view of the benefits accruing to the State in the more profitably but in view of the benefits accruing to the State in the more profitably but in view of the benefits accruing to the State in the form of contribution to the overall development of the State. ibution to the overall development of the State.

3.6 The DRP/NaFAC ought to have appreciated that the amendment to 3.6 The DRP/NaFAC ought to have appreciated that the amendment to 3.6 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act does not apply to non 2(24) of the Act does not apply to non-taxable capital subsidies as taxable capital subsidies as it was introduced only to align with the provisions of Income was introduced only to align with the provisions of Income was introduced only to align with the provisions of Income Computation and Disclosure Standards (ICDS). Computation and Disclosure Standards (ICDS).

3.7 The DRP/NaFAC ought to have appreciated that the amendment to 3.7 The DRP/NaFAC ought to have appreciated that the amendment to 3.7 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act is not a substantive amendment and no amendment is the Act is not a substantive amendment and no amendment is the Act is not a substantive amendment and no amendment is made in the charging provisions under section 28 of the Act. made in the charging provisions under section 28 of the Act.

3.8 The DRP/NaFAC ought to have appreciated that provisions of 3.8 The DRP/NaFAC ought to have appreciated that provisions of 3.8 The DRP/NaFAC ought to have appreciated that provisions of Section 2(24)(xviii) of the Act is not applicable for the IPS since the Section 2(24)(xviii) of the Act is not applicable for the IPS since the Section 2(24)(xviii) of the Act is not applicable for the IPS since the vested right to receive the subsidy was established on 17.04.2014 i.e., vested right to receive the subsidy was established on 17.04.2014 i.e., vested right to receive the subsidy was established on 17.04.2014 i.e., prior to 01.04.2016 and the vested rights cannot be taken away by a prior to 01.04.2016 and the vested rights cannot be taken away by a prior to 01.04.2016 and the vested rights cannot be taken away by a subsequent amendment. subsequent amendment.

3.9 The DRP/NaFAC erred in not appreciating that even post 3.9 The DRP/NaFAC erred in not appreciating that even post 3.9 The DRP/NaFAC erred in not appreciating that even post amendment to the definition of inco amendment to the definition of income, the principle of "purpose test" me, the principle of "purpose test" will have to be applied while determining the nature of subsidy. will have to be applied while determining the nature of subsidy.

3.10 The DRP/NaFAC failed to appreciate that once the nature of 3.10 The DRP/NaFAC failed to appreciate that once the nature of 3.10 The DRP/NaFAC failed to appreciate that once the nature of subsidy is held to be capital receipt not chargeable to tax, the subsidy is held to be capital receipt not chargeable to tax, the subsidy is held to be capital receipt not chargeable to tax, the character of the receipt a character of the receipt and its tax treatment shall not change in the nd its tax treatment shall not change in the subsequent years.

3.11 The NaFAC/DRP ought to have appreciated that the manner of 3.11 The NaFAC/DRP ought to have appreciated that the manner of 3.11 The NaFAC/DRP ought to have appreciated that the manner of utilization of a subsidy cannot determine its tax treatment. utilization of a subsidy cannot determine its tax treatment.

Without prejudice to the objections that the Investment Without prejudice to the objections that the Investment Without prejudice to the objections that the Investment Promotion Subsidy in the form of Output SGST is capital in bsidy in the form of Output SGST is capital in bsidy in the form of Output SGST is capital in nature, our alternate objections are as under: nature, our alternate objections are as under:

3.12 The DRP/NaFAC failed to appreciate that no amount of IPS in the 3.12 The DRP/NaFAC failed to appreciate that no amount of IPS in the 3.12 The DRP/NaFAC failed to appreciate that no amount of IPS in the form of refund of Output SGST was received by the Appellant during form of refund of Output SGST was received by the Appellant during form of refund of Output SGST was received by the Appellant during the subject AY.

3.13 The DRP/NaFAC ought to have appreciated that the receipt of RP/NaFAC ought to have appreciated that the receipt of RP/NaFAC ought to have appreciated that the receipt of subsidy is contingent upon approval by the Competent Authority subsidy is contingent upon approval by the Competent Authority subsidy is contingent upon approval by the Competent Authority sanctioning the subsidy, that all the conditions associated with the sanctioning the subsidy, that all the conditions associated with the sanctioning the subsidy, that all the conditions associated with the release of the subsidy are satisfied and not any time earlier. release of the subsidy are satisfied and not any time earlier.

3.14 The DRP/NaFAC ought to have appreciated that the subsidy can he DRP/NaFAC ought to have appreciated that the subsidy can he DRP/NaFAC ought to have appreciated that the subsidy can be subject to tax only in the year in which it is actually received (i be subject to tax only in the year in which it is actually received (i be subject to tax only in the year in which it is actually received (i.e., FY 2020-21 relevant to AY 2021 21 relevant to AY 2021- 22) as per section 145B(3) of the Act 22) as per section 145B(3) of the Act and hence, the same cannot be taxed in the subject and hence, the same cannot be taxed in the subject AY.

4.1 The DRP/NaFAC erred in treating the CEV subsidy amounting to Rs. 4.1 The DRP/NaFAC erred in treating the CEV subsidy amounting to Rs. 4.1 The DRP/NaFAC erred in treating the CEV subsidy amounting to Rs. 25,00,00,000 as income for the previous year relevant to the 25,00,00,000 as income for the previous year relevant to the subject assessment year (AY) 2020 assessment year (AY) 2020- 21.

4.2 The DRP/NaFAC erred in not segregating the CEV subsidy 4.2 The DRP/NaFAC erred in not segregating the CEV subsidy 4.2 The DRP/NaFAC erred in not segregating the CEV subsidy amounting to Rs.25,00,00,000 from the Output SGST incentive while amounting to Rs.25,00,00,000 from the Output SGST incentive while amounting to Rs.25,00,00,000 from the Output SGST incentive while issuing the DRP Directions dated 03rd June 2024 and the final issuing the DRP Directions dated 03rd June 2024 and the final issuing the DRP Directions dated 03rd June 2024 and the final assessment order dated 23rd J assessment order dated 23rd July 2024, by brushing aside the uly 2024, by brushing aside the additional evidence filed by the Appellant before the DRP. additional evidence filed by the Appellant before the DRP.

4.3 The DRP/NaFAC ought to have appreciated that the CEV subsidy 4.3 The DRP/NaFAC ought to have appreciated that the CEV subsidy 4.3 The DRP/NaFAC ought to have appreciated that the CEV subsidy was granted by the Government of Tamil Nadu for the purpose of was granted by the Government of Tamil Nadu for the purpose of was granted by the Government of Tamil Nadu for the purpose of expansion of manufacturing facility f expansion of manufacturing facility for production of clean energy or production of clean energy vehicles.

4.4 The DRP/NaFAC ought to have appreciated that the "purpose" for 4.4 The DRP/NaFAC ought to have appreciated that the "purpose" for 4.4 The DRP/NaFAC ought to have appreciated that the "purpose" for which an incentive is granted as per the Industrial Policy and the Govt. which an incentive is granted as per the Industrial Policy and the Govt. which an incentive is granted as per the Industrial Policy and the Govt. order issued by the Government of Tamil Nadu should be considered to order issued by the Government of Tamil Nadu should be considered to order issued by the Government of Tamil Nadu should be considered to determine the nature of subsidy as revenue capital. ne the nature of subsidy as revenue capital.

4.5 The DRP/NaFAC failed to appreciate that the CEV subsidy is not 4.5 The DRP/NaFAC failed to appreciate that the CEV subsidy is not 4.5 The DRP/NaFAC failed to appreciate that the CEV subsidy is not provided for running the business more profitably but for promoting provided for running the business more profitably but for promoting provided for running the business more profitably but for promoting the manufacture of clean energy vehicles and making Tamil Nadu a the manufacture of clean energy vehicles and making Tamil Nadu a the manufacture of clean energy vehicles and making Tamil Nadu a global leader in clean energy vehicle production. er in clean energy vehicle production.

4.6 The DRP/NaFAC ought to have appreciated that the amendment to 4.6 The DRP/NaFAC ought to have appreciated that the amendment to 4.6 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act does not apply to non 2(24) of the Act does not apply to non-taxable capital subsidies as it taxable capital subsidies as it was introduced only to align with the provisions of Income troduced only to align with the provisions of Income troduced only to align with the provisions of Income Computation and Disclosure Standards (ICDS). Computation and Disclosure Standards (ICDS).

4.7 The DRP/NaFAC ought to have appreciated that the amendment to 4.7 The DRP/NaFAC ought to have appreciated that the amendment to 4.7 The DRP/NaFAC ought to have appreciated that the amendment to the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section the definition of income by way of insertion of clause (xviii) to section 2(24) of the Act is not a substantive amendment and no amendment is s not a substantive amendment and no amendment is s not a substantive amendment and no amendment is made in the charging provisions under section 28 of the Act. made in the charging provisions under section 28 of the Act.

4.8 The DRP/NaFAC erred in not appreciating that even post AC erred in not appreciating that even post AC erred in not appreciating that even post amendment to the definition of income, the principle of "purpose test" amendment to the definition of income, the principle of "purpose test" amendment to the definition of income, the principle of "purpose test" will have to be applied while determining the nature of subsidy. applied while determining the nature of subsidy.

Without prejudice to the objections that the CEV subsidy is Without prejudice to the objections that the CEV subsidy is Without prejudice to the objections that the CEV subsidy is capital in nature, our alternate objections are as under: capital in nature, our alternate objections are as under:

4.9 The DRP/NaFAC failed to appreciate that the Appellant did not 4.9 The DRP/NaFAC failed to appreciate that the Appellant did not 4.9 The DRP/NaFAC failed to appreciate that the Appellant did not receive any CEV subsid receive any CEV subsidy during the subject AY.

4.10 The DRP/NaFAC ought to have appreciated that the receipt of CEV 4.10 The DRP/NaFAC ought to have appreciated that the receipt of CEV 4.10 The DRP/NaFAC ought to have appreciated that the receipt of CEV subsidy is contingent upon approval by the Competent Authority subsidy is contingent upon approval by the Competent Authority subsidy is contingent upon approval by the Competent Authority sanctioning the subsidy that all the conditions associated with the sanctioning the subsidy that all the conditions associated with the sanctioning the subsidy that all the conditions associated with the release of the subsidy are sati release of the subsidy are satisfied and not any time earlier.

4.11 The DRP/NaFAC ought to have appreciated that the subsidy can 4.11 The DRP/NaFAC ought to have appreciated that the subsidy can 4.11 The DRP/NaFAC ought to have appreciated that the subsidy can be subject to tax only in the year in which it is actually received (i.e., be subject to tax only in the year in which it is actually received (i.e., be subject to tax only in the year in which it is actually received (i.e., FY 2021-22 relevant to AY 2022 22 relevant to AY 2022- 23) as per section 145B(3) of the Act 23) as per section 145B(3) of the Act and cannot be taxed in the subject AY. taxed in the subject AY.

5.1 The NaFAC/DRP erred in disallowing depreciation amounting to Rs. 5.1 The NaFAC/DRP erred in disallowing depreciation amounting to Rs. 5.1 The NaFAC/DRP erred in disallowing depreciation amounting to Rs. 65,034 in the subject AY by considering the cash subsidy granted by 65,034 in the subject AY by considering the cash subsidy granted by 65,034 in the subject AY by considering the cash subsidy granted by SIPCOT in the FY 2001 SIPCOT in the FY 2001-02 (AY 2002-03) as a capital receipt to be 03) as a capital receipt to be adjusted against cost of assets. adjusted against cost of assets.

5.2 The NaFAC/DRP ought to have appreciated that SIPCOT had given 5.2 The NaFAC/DRP ought to have appreciated that SIPCOT had given 5.2 The NaFAC/DRP ought to have appreciated that SIPCOT had given the subsidy for setting up the mega project and not for the purpose of the subsidy for setting up the mega project and not for the purpose of the subsidy for setting up the mega project and not for the purpose of meeting any liability towards acquisition of asse meeting any liability towards acquisition of assets and as such, the ts and as such, the subsidy is a capital receipt which cannot be adjusted against the cost subsidy is a capital receipt which cannot be adjusted against the cost subsidy is a capital receipt which cannot be adjusted against the cost of the asset.

5.3 The NaFAC/DRP failed to appreciate that in AY 2003 5.3 The NaFAC/DRP failed to appreciate that in AY 2003-04, the 04, the Assessing Officer has accepted the Appellant's claim and deleted the Assessing Officer has accepted the Appellant's claim and deleted the Assessing Officer has accepted the Appellant's claim and deleted the disallowance of depreciation based on the directions of the CIT(A) and reciation based on the directions of the CIT(A) and reciation based on the directions of the CIT(A) and therefore, the question of disallowance of depreciation on subsidy in therefore, the question of disallowance of depreciation on subsidy in therefore, the question of disallowance of depreciation on subsidy in subsequent AY's does not arise. subsequent AY's does not arise.

5.4 The NaFAC/DRP ought to have followed the order of this Hon'ble 5.4 The NaFAC/DRP ought to have followed the order of this Hon'ble 5.4 The NaFAC/DRP ought to have followed the order of this Hon'ble Tribunal for AY 2006 Tribunal for AY 2006-07, AY 2013-14 to AY 2016-17, wherein the 17, wherein the impugned disallowance was directed to be deleted on the basis that impugned disallowance was directed to be deleted on the basis that impugned disallowance was directed to be deleted on the basis that the capital subsidy was a capital receipt. the capital subsidy was a capital receipt.

6.1 The NaFAC/DRP erred in disallowi 6.1 The NaFAC/DRP erred in disallowing a sum of Rs. 1,38,08,125 ng a sum of Rs. 1,38,08,125 under section 14A of the Act by applying the provisions of Rule 8D of under section 14A of the Act by applying the provisions of Rule 8D of under section 14A of the Act by applying the provisions of Rule 8D of the Rules.

6.2 The NaFAC/DRP ought not to have made disallowance under 6.2 The NaFAC/DRP ought not to have made disallowance under 6.2 The NaFAC/DRP ought not to have made disallowance under section 14A of the Act when the Appellant has not earned dividend / section 14A of the Act when the Appellant has not earned dividend / section 14A of the Act when the Appellant has not earned dividend / any other exempt income during the year. come during the year.

6.3 The NaFAC/DRP ought to have appreciated that in the absence of 6.3 The NaFAC/DRP ought to have appreciated that in the absence of 6.3 The NaFAC/DRP ought to have appreciated that in the absence of any exempt income earned during the year, no expenditure can be any exempt income earned during the year, no expenditure can be any exempt income earned during the year, no expenditure can be attributed towards earning such notional income so alleged to have attributed towards earning such notional income so alleged to have attributed towards earning such notional income so alleged to have accrued.

6.4 The NaFAC, having ackno 6.4 The NaFAC, having acknowledged the fact that the Appellant had wledged the fact that the Appellant had sufficient surplus funds in earlier AY's to make the investments, ought sufficient surplus funds in earlier AY's to make the investments, ought sufficient surplus funds in earlier AY's to make the investments, ought not to have resorted to making adhoc disallowance under section 14A not to have resorted to making adhoc disallowance under section 14A not to have resorted to making adhoc disallowance under section 14A r.w.r 8D of the Rules. r.w.r 8D of the Rules.

6.5 The NaFAC erred in law in stating that disallowan 6.5 The NaFAC erred in law in stating that disallowance under section ce under section 14A of the Act r.w.r. 8D of the Rules is mandatory without appreciating 14A of the Act r.w.r. 8D of the Rules is mandatory without appreciating 14A of the Act r.w.r. 8D of the Rules is mandatory without appreciating the fact that the application of Rule 8D is not mandatory/automatic. the fact that the application of Rule 8D is not mandatory/automatic. the fact that the application of Rule 8D is not mandatory/automatic.

6.6 The NaFAC/DRP ought to have appreciated that merely because 6.6 The NaFAC/DRP ought to have appreciated that merely because 6.6 The NaFAC/DRP ought to have appreciated that merely because there are investments (for strateg there are investments (for strategic purposes) and payment of interest ic purposes) and payment of interest (towards working capital), it cannot be assumed that the loan funds (towards working capital), it cannot be assumed that the loan funds (towards working capital), it cannot be assumed that the loan funds have been utilized for the purpose of making investments. have been utilized for the purpose of making investments.

6.7 The NaFAC/DRP erred in presuming that the Appellant had incurred 6.7 The NaFAC/DRP erred in presuming that the Appellant had incurred 6.7 The NaFAC/DRP erred in presuming that the Appellant had incurred a portion of personnel e a portion of personnel expenses, rent, salaries, communication, travel, xpenses, rent, salaries, communication, travel, printing & stationery. interest, etc. debited to P&L. during the subject printing & stationery. interest, etc. debited to P&L. during the subject printing & stationery. interest, etc. debited to P&L. during the subject AY towards carrying out investment transactions/earning income from AY towards carrying out investment transactions/earning income from AY towards carrying out investment transactions/earning income from investments without appreciating that the nature of Appellant's investments without appreciating that the nature of Appellant's investments without appreciating that the nature of Appellant's investments (in wholly owned subsidiaries) does not require any estments (in wholly owned subsidiaries) does not require any estments (in wholly owned subsidiaries) does not require any continuous monitoring and as such the presumption of the NaFAC is continuous monitoring and as such the presumption of the NaFAC is continuous monitoring and as such the presumption of the NaFAC is misconceived.

6.8 The NaFAC/DRP ought to have appreciated that the Appellant had 6.8 The NaFAC/DRP ought to have appreciated that the Appellant had 6.8 The NaFAC/DRP ought to have appreciated that the Appellant had neither made fresh investments for strategic pur neither made fresh investments for strategic purposes during the poses during the subject AY nor obtained any fresh loans during the subject AY and as subject AY nor obtained any fresh loans during the subject AY and as subject AY nor obtained any fresh loans during the subject AY and as such, the NaFAC's assumption that loan funds have been utilized for such, the NaFAC's assumption that loan funds have been utilized for such, the NaFAC's assumption that loan funds have been utilized for the purpose of making investments during the year is invalid. the purpose of making investments during the year is invalid.

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6.9 The NaFAC/DRP ought to have followe 6.9 The NaFAC/DRP ought to have followed the order of this Hon'ble d the order of this Hon'ble Tribunal for AY 2010 Tribunal for AY 2010-11 to AY 2016-17, wherein the disallowance 17, wherein the disallowance under section 14A was directed to be restricted to the amount of under section 14A was directed to be restricted to the amount of under section 14A was directed to be restricted to the amount of exempt income.

6.10 Without prejudice to the above, the NaFAC ought to have 6.10 Without prejudice to the above, the NaFAC ought to have 6.10 Without prejudice to the above, the NaFAC ought to have considered only those i considered only those investments which yielded dividend / any other nvestments which yielded dividend / any other exempt income and not the entire investments made for strategic exempt income and not the entire investments made for strategic exempt income and not the entire investments made for strategic purposes while computing the quantum of disallowance under Rule 8D purposes while computing the quantum of disallowance under Rule 8D purposes while computing the quantum of disallowance under Rule 8D of the Rules.

6.11 Without prejudice to the above, the NaFAC/DRP ought to have 6.11 Without prejudice to the above, the NaFAC/DRP ought to have 6.11 Without prejudice to the above, the NaFAC/DRP ought to have restricted the disallowance to 'Nil', since no dividend/any other exempt restricted the disallowance to 'Nil', since no dividend/any other exempt restricted the disallowance to 'Nil', since no dividend/any other exempt income was earned by the Appellant during the subject AY and as income was earned by the Appellant during the subject AY and as income was earned by the Appellant during the subject AY and as such, there is no requirement for any disallowance under section 14A such, there is no requirement for any disallowance under section 14A such, there is no requirement for any disallowance under section 14A of the Act.

7.1 The NaFAC erred in incorrectly computing interest to the extent of 7.1 The NaFAC erred in incorrectly computing interest to the extent of 7.1 The NaFAC erred in incorrectly computing interest to the extent of Rs.1,76,40,374 under the "total interest" line item under section Rs.1,76,40,374 under the "total interest" line item under section Rs.1,76,40,374 under the "total interest" line item under section 234A/234B/234C of the Act while determining the total tax and 234A/234B/234C of the Act while determining the total tax and 234A/234B/234C of the Act while determining the total tax and interest liability for the subject year. interest liability for the subject year.

submitted that substantial issues have already been adjudicated by the submitted that substantial issues have already been adjudicated by the submitted that substantial issues have already been adjudicated by the

Tribunal in their own case in IT(TP their own case in IT(TP) No. 53/Chny/2022 for AY 2018 ) No. 53/Chny/2022 for AY 2018-19.

Having heard rival submissions and upon perusal of case records, the Having heard rival submissions and upon perusal of case records, the Having heard rival submissions and upon perusal of case records, the

appeal is disposed-off as under. off as under.

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confirming the transfer pricing a confirming the transfer pricing adjustment of deemed Brand Development rand Development

expenditure. From the facts placed on record, it is noted that, t expenditure. From the facts placed on record, it is noted that, t expenditure. From the facts placed on record, it is noted that, the

assessee assessee assessee aggregated aggregated aggregated all all all major major major international international international transactions transactions transactions and and and

benchmarked the same using entity level Transactional Net Margin benchmarked the same using entity level Transactional Net Margin benchmarked the same using entity level Transactional Net Margin

Method (TNMM). The same was accepted by Ld. TPO. However, Method (TNMM). The same was accepted by Ld. TPO. However, Method (TNMM). The same was accepted by Ld. TPO. However, the TPO

proposed adjustment on account of expenses incurred by the as proposed adjustment on account of expenses incurred by the as proposed adjustment on account of expenses incurred by the assessee for

brand building allegedly incurred for the benefit of its AE brand building allegedly incurred for the benefit of its AE brand building allegedly incurred for the benefit of its AE and that this

transaction was not reported by the assessee in Form 3CEB. The Ld. TPO transaction was not reported by the assessee in Form 3CEB. The Ld. TPO transaction was not reported by the assessee in Form 3CEB. The Ld. TPO

is noted to have observed that, is noted to have observed that, the assessee was manufacturing car the assessee was manufacturing car

under license from Hyundai Korea under license from Hyundai Korea who was the owner of brand / trade who was the owner of brand / trade

mark / trade name "Hyundai" "Hyundai". The assessee was permitted to use the . The assessee was permitted to use the

said brand in terms of said brand in terms of 'Technology and Royalty agreement 'Technology and Royalty agreement' dated

30.09.2002. In terms of said agreement, the assessee had no 30.09.2002. In terms of said agreement, the assessee had no 30.09.2002. In terms of said agreement, the assessee had no

independent choice or discreti independent choice or discretion to select or use any brand name of its on to select or use any brand name of its

choice. The assessee manufactured the cars with brand and logo of its AE choice. The assessee manufactured the cars with brand and logo of its AE choice. The assessee manufactured the cars with brand and logo of its AE

and spent considerable amount for Advertising, Marketing and Promotion and spent considerable amount for Advertising, Marketing and Promotion and spent considerable amount for Advertising, Marketing and Promotion

(AMP) expenditure which resulted into increase in brand value of its A (AMP) expenditure which resulted into increase in brand value of its A (AMP) expenditure which resulted into increase in brand value of its AE.

According to to to TPO TPO TPO therefore, therefore, therefore, the the the assessee assessee assessee ought ought ought to to to havebeen havebeen havebeen

compensated for the same compensated for the same on arm’s length basis, as held as held by his

predecessors in earlier assessment years. Accordingly, Ld. TPO proposed in earlier assessment years. Accordingly, Ld. TPO proposed in earlier assessment years. Accordingly, Ld. TPO proposed

similar adjustment in this year and put the assessee to sho similar adjustment in this year and put the assessee to sho similar adjustment in this year and put the assessee to show cause

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notice. Though the assessee assailed the same, assessee assailed the same, TPO held that this TPO held that this

transaction would be an international transaction within the meaning of transaction would be an international transaction within the meaning of transaction would be an international transaction within the meaning of

Sec. 92B(1) which included the provision of services. Sec. 92B(1) which included the provision of services. The TPO further The TPO further

applied a different approach to ascertai applied a different approach to ascertain the ALP pricing, which was in line n the ALP pricing, which was in line

with earlier AY 2018-19 in terms of which 19 in terms of which increase in brand value was in brand value was

computed to demonstrate the extent of benefits that accrued to the AE. to demonstrate the extent of benefits that accrued to the AE. to demonstrate the extent of benefits that accrued to the AE.

The adjustment was accordingly made accordingly made as a percentage of AMP expenses as a percentage of AMP expenses

actually incurred by the assessee which could be attributed to increase in ncurred by the assessee which could be attributed to increase in ncurred by the assessee which could be attributed to increase in

brand value. Finally, 50% of AMP expenses with mark brand value. Finally, 50% of AMP expenses with mark- up of up of 10.04% was

held to be TP adjustment which resulted into an adjustment of Rs. TP adjustment which resulted into an adjustment of Rs. TP adjustment which resulted into an adjustment of Rs.381.01

Crores in the hands of the assessee. The Ld. DRP, Crores in the hands of the assessee. The Ld. DRP, following DRP

directions for AY 2018-19 19 rejected the objections raised by the assessee. rejected the objections raised by the assessee.

Aggrieved, the assessee is now in appeal before us Aggrieved, the assessee is now in appeal before us

4.1 Heard both the parties. Heard both the parties. As is evident from the orders of evident from the orders of TPO and the

Ld. DRP, this issue stood covered in assess this issue stood covered in assessee's favor in all the earlier ee's favor in all the earlier

years. We note that this Tribunal, in assessee’s own case in IT(TP) We note that this Tribunal, in assessee’s own case in IT(TP) We note that this Tribunal, in assessee’s own case in IT(TP)

No.53/Chny/2022 dated 09.02.2024 for AY 2018 No.53/Chny/2022 dated 09.02.2024 for AY 2018-19 following their earlier 19 following their earlier

order in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016 in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016 in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016-17 held

as under: -

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“3.3 As is evident from the orders of Ld. TPO itself, this issue stood 3.3 As is evident from the orders of Ld. TPO itself, this issue stood 3.3 As is evident from the orders of Ld. TPO itself, this issue stood covered in assessee's favor in all the earlier years. The bench, in covered in assessee's favor in all the earlier years. The bench, in covered in assessee's favor in all the earlier years. The bench, in IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016 IT(TP)A No.39/Chny/2021 dated 22.12.2021 for AY 2016- -17 chose to follow earlier view of the Tribunal and held as under follow earlier view of the Tribunal and held as under: -

7.3 We have heard both the parties, perused material available on 7.3 We have heard both the parties, perused material available on 7.3 We have heard both the parties, perused material available on record and gone through orders of the authorities below. An record and gone through orders of the authorities below. An record and gone through orders of the authorities below. An identical issue has been considered by Tribunal in assessee's own identical issue has been considered by Tribunal in assessee's own identical issue has been considered by Tribunal in assessee's own case case for for the the assessment assessment year year 2015 2015-16 16 in in IT(TP) IT(TP) No.10/CHNY/20 No.10/CHNY/2020, dated 17.09.2021, wherein the Tribunal 20, dated 17.09.2021, wherein the Tribunal following the earlier decision in assessee's own case for following the earlier decision in assessee's own case for following the earlier decision in assessee's own case for assessment year 2013 assessment year 2013-14 in ITA No.3192/Chny/2017, dated 14 in ITA No.3192/Chny/2017, dated 01.09.2021, held that learned TPO as well as learned DRP were 01.09.2021, held that learned TPO as well as learned DRP were 01.09.2021, held that learned TPO as well as learned DRP were erred in making transfer pricing adju erred in making transfer pricing adjustments towards brand stments towards brand services by adopting Spearman's Rank Correlation method and services by adopting Spearman's Rank Correlation method and services by adopting Spearman's Rank Correlation method and concluded that there is positive accretion between brand value and concluded that there is positive accretion between brand value and concluded that there is positive accretion between brand value and market capitalization of HMC Korea and hence, directed the market capitalization of HMC Korea and hence, directed the market capitalization of HMC Korea and hence, directed the AO/TPO to delete transfer pricing adjustment mad AO/TPO to delete transfer pricing adjustment made towards brand e towards brand development services. Therefore, consistent with the view taken development services. Therefore, consistent with the view taken development services. Therefore, consistent with the view taken by the coordinate Bench, we direct the AO to delete addition made by the coordinate Bench, we direct the AO to delete addition made by the coordinate Bench, we direct the AO to delete addition made towards brand fee adjustment. towards brand fee adjustment.

Similar Similar Similar view view view has has has been been been taken taken taken in in in latest latest latest decision decision decision in in in IT(TP)A IT(TP)A IT(TP)A No.51/Chny/2021 dated No.51/Chny/2021 dated 27.09.2023 for AY 2012-13. Taking consistent 13. Taking consistent view in the matter, we direct Ld. AO to delete impugned TP adjustment. view in the matter, we direct Ld. AO to delete impugned TP adjustment. view in the matter, we direct Ld. AO to delete impugned TP adjustment. The corresponding grounds raised by the assessee stand allowed. The corresponding grounds raised by the assessee stand allowed. The corresponding grounds raised by the assessee stand allowed.”

4.2 In absence of change in any facts or position of law, we follow the In absence of change in any facts or position of law, we follow the In absence of change in any facts or position of law, we follow the

above decision (supra), and accordingly Ground No. 2 of the appeal ve decision (supra), and accordingly Ground No. 2 of the appeal ve decision (supra), and accordingly Ground No. 2 of the appeal

stands allowed.

the AO’s order treating the investment promotion subsidy (‘IPS’) and the AO’s order treating the investment promotion subsidy (‘IPS’) and the AO’s order treating the investment promotion subsidy (‘IPS’) and

Clean Energy Vehicle (‘SEV) Subsidy by Clean Energy Vehicle (‘SEV) Subsidy by way of income instead of capital way of income instead of capital

receipt not liable to tax. The facts as noted are that, receipt not liable to tax. The facts as noted are that, receipt not liable to tax. The facts as noted are that, the assessee

company has entered into a MOU with Government of Tamil company has entered into a MOU with Government of Tamil company has entered into a MOU with Government of Tamil Nadu on

22/01/2008 for setting up / Expansion of its manufacturing facility. As per 22/01/2008 for setting up / Expansion of its manufacturing facility. As per 22/01/2008 for setting up / Expansion of its manufacturing facility. As per

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the said MOU, incentive was granted for the purpose of setting up of incentive was granted for the purpose of setting up of incentive was granted for the purpose of setting up of

Phase II manufacturing facility by way of refund of Output VAT under the Phase II manufacturing facility by way of refund of Output VAT under the Phase II manufacturing facility by way of refund of Output VAT under the

state policy. After the state policy. After the completion of the project on 31.03. completion of the project on 31.03.2011, a final

eligibility certificate was issued by SIPCOT on 17.04. e was issued by SIPCOT on 17.04.2014 and accordingly 2014 and accordingly

quantified the subsidy receivable in the form of IPS of Rs.4,023.36Crores. quantified the subsidy receivable in the form of IPS of Rs.4,023.36Crores. quantified the subsidy receivable in the form of IPS of Rs.4,023.36Crores.

Out of the said quantified subsidy, the assessee is noted to have received Out of the said quantified subsidy, the assessee is noted to have received Out of the said quantified subsidy, the assessee is noted to have received

sum of Rs. 114.66 crores during the relevant year. sum of Rs. 114.66 crores during the relevant year.

5.1 Further, in FY 2018 Further, in FY 2018-19, the assessee is noted to have entered into ssessee is noted to have entered into

another MOU with Government of Tamil Nadu dated 24.01.2019 for a another MOU with Government of Tamil Nadu dated 24.01.2019 for a another MOU with Government of Tamil Nadu dated 24.01.2019 for a

structured package of assistance for manufacturing clean energy vehicles structured package of assistance for manufacturing clean energy vehicles structured package of assistance for manufacturing clean energy vehicles

being electric / hybrid vehicle, for which the assessee was given an being electric / hybrid vehicle, for which the assessee was given an being electric / hybrid vehicle, for which the assessee was given an

assistance package of Rs.25 crores. It is noted that, both these subsidies package of Rs.25 crores. It is noted that, both these subsidies package of Rs.25 crores. It is noted that, both these subsidies

were credited by way of ‘Other Operating Revenue’ in the Profit & Loss were credited by way of ‘Other Operating Revenue’ in the Profit & Loss were credited by way of ‘Other Operating Revenue’ in the Profit & Loss

Account for the relevant FY 2019 Account for the relevant FY 2019-20. According to the assessee, the 20. According to the assessee, the

object behind both these subsidies granted by the Sta object behind both these subsidies granted by the State Government was te Government was

for the purpose of setting up / expansion of manufacturing facility and as for the purpose of setting up / expansion of manufacturing facility and as for the purpose of setting up / expansion of manufacturing facility and as

such, it was claimed that the , it was claimed that the IPS& CEV subsidies should be treated as a should be treated as a

capital receipt not chargeable to tax. capital receipt not chargeable to tax. The AO however did not accede to The AO however did not accede to

this claim of the assessee, which was also accepted by the Ld. DRP. ssessee, which was also accepted by the Ld. DRP. ssessee, which was also accepted by the Ld. DRP.

Aggrieved, the assessee is now in appeal before us. Aggrieved, the assessee is now in appeal before us.

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5.2 Heard both the parties. It is noted that, the ascertainment of object Heard both the parties. It is noted that, the ascertainment of object Heard both the parties. It is noted that, the ascertainment of object

/ purpose of incentive or subsidy ncentive or subsidy to determine whether it to determine whether it is capital or

revenue in nature, is no longer relevant as the position of law n nature, is no longer relevant as the position of law n nature, is no longer relevant as the position of law is noted to

have has underwent change from AY 2016 underwent change from AY 2016-17 and onwards. It is observed 17 and onwards. It is observed

that,in the Finance Act, 2015 the Finance Act, 2015, the Legislature has amended the , the Legislature has amended the definition

of ‘income’ by inserting clause (xviii) in se by inserting clause (xviii) in section 2(24), which read as ction 2(24), which read as

under:-

“assistance in the form of subsidy or grant or cash incentive or duty “assistance in the form of subsidy or grant or cash incentive or duty “assistance in the form of subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name drawback or waiver or concession or reimbursement (by whatever name drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any called) by the Central Government or a State Government or any called) by the Central Government or a State Government or any authority or body or authority or body or agency in cash or kind to the assessee other than agency in cash or kind to the assessee other than subsidy or grant or reimbursement which is taken into account for subsidy or grant or reimbursement which is taken into account for subsidy or grant or reimbursement which is taken into account for determination of actual cost of the asset in accordance with the determination of actual cost of the asset in accordance with the determination of actual cost of the asset in accordance with the provision of Explanation 10 to clause (1) of section 43.” provision of Explanation 10 to clause (1) of section 43.”

5.3 It is noted that, under the above provision, that, under the above provision, subsidies, grants, cash subsidies, grants, cash

incentives, duty drawback, waivers, concessions or reimbursements incentives, duty drawback, waivers, concessions or reimbursements incentives, duty drawback, waivers, concessions or reimbursements

provided by the Central or State Governments either in cash or kind, will provided by the Central or State Governments either in cash or kind, will provided by the Central or State Governments either in cash or kind, will

be included within the meaning of term “income” and consequ be included within the meaning of term “income” and consequ be included within the meaning of term “income” and consequently, will

be taxable under the Act. The genesis of above amendment can be trace be taxable under the Act. The genesis of above amendment can be trace be taxable under the Act. The genesis of above amendment can be traced

back to judicial precedents in which capital subsidy (the benefit of subsidy back to judicial precedents in which capital subsidy (the benefit of subsidy back to judicial precedents in which capital subsidy (the benefit of subsidy

being capital in nature) was held to be non being capital in nature) was held to be non-taxable. Through above taxable. Through above-

mentioned amendment, all mentioned amendment, all types of subsidy, assistance, incentive of subsidy, assistance, incentive

received from the Government, irrespective capital or revenue in nature, received from the Government, irrespective capital or revenue in nature, received from the Government, irrespective capital or revenue in nature,

has now become taxable. Prior to the above amendment, taxable. Prior to the above amendment, taxable. Prior to the above amendment, it is observed

that, the Hon’ble Supreme Court had applied the “purpose test” to the Hon’ble Supreme Court had applied the “purpose test” to the Hon’ble Supreme Court had applied the “purpose test” to

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determine whether a subsidy was a capital or revenue receipt. The ether a subsidy was a capital or revenue receipt. The ether a subsidy was a capital or revenue receipt. The

Hon’ble Supreme Court in the case of Hon’ble Supreme Court in the case of Sahney Steel & Press Works Ltd. Sahney Steel & Press Works Ltd.

vs. CIT (228 ITR 253 228 ITR 253) held that purpose or object of subsidy was held that purpose or object of subsidy was

relevant to decide the character of the incentive not the mechanism relevant to decide the character of the incentive not the mechanism relevant to decide the character of the incentive not the mechanism of

payment and observed that, payment and observed that, “If the object of the subsidy scheme was to “If the object of the subsidy scheme was to

enable the assessee to run the business more profitably then the receipt enable the assessee to run the business more profitably then the receipt enable the assessee to run the business more profitably then the receipt

is on revenue account. On the other hand, if the object of the assistance is on revenue account. On the other hand, if the object of the assistance is on revenue account. On the other hand, if the object of the assistance

under the subsidy scheme was to ena under the subsidy scheme was to enable the assessee to set up a new ble the assessee to set up a new

unit or to expand the existing unit then the receipt of the subsidy was on unit or to expand the existing unit then the receipt of the subsidy was on unit or to expand the existing unit then the receipt of the subsidy was on

capital account”. Similarly . Similarly, in CIT Vs Ponni Sugars and Chemicals CIT Vs Ponni Sugars and Chemicals

Limited (306 ITR 392 306 ITR 392), it was held that,if the subsidy's purpose was to f the subsidy's purpose was to

help the assessee run the business more profitably or meet daily business help the assessee run the business more profitably or meet daily business help the assessee run the business more profitably or meet daily business

expenses, it was considered a revenue receipt (and thus taxable). expenses, it was considered a revenue receipt (and thus taxable). expenses, it was considered a revenue receipt (and thus taxable).

Conversely, if the subsidy aimed at setting up a new unit or expanding an Conversely, if the subsidy aimed at setting up a new unit or expanding an Conversely, if the subsidy aimed at setting up a new unit or expanding an

existing unit, it was deemed a capital receipt (and not taxable). The it, it was deemed a capital receipt (and not taxable). The it, it was deemed a capital receipt (and not taxable). The

above amendment by the Finance Act, 2015, above amendment by the Finance Act, 2015, is noted to have altered the is noted to have altered the

position of law and has made position of law and has made all subsidies, irrespective of its object or , irrespective of its object or

purpose, to be taxable taxable by way of ‘income’ unless it has been received has been received

towards the actual cost of an asset. the actual cost of an asset. We also note that, the We also note that, the constitutional

validity of this amendment validity of this amendment was challenged, which is noted to have been , which is noted to have been

already negated by the Hon’ble Bombay High Court in the case of already negated by the Hon’ble Bombay High Court in the case of already negated by the Hon’ble Bombay High Court in the case of Serum

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Institute of India (P.) Ltd. Vs UOI (157 taxmann.com 107) ) Ltd. Vs UOI (157 taxmann.com 107) ) Ltd. Vs UOI (157 taxmann.com 107) wherein

it was held as under:-

“41. Matters of economic policy should be best left to the wisdom of the “41. Matters of economic policy should be best left to the wisdom of the “41. Matters of economic policy should be best left to the wisdom of the legislature. In the context of a changed economic scenario the expertise legislature. In the context of a changed economic scenario the expertise legislature. In the context of a changed economic scenario the expertise of the people dealing with the subject shou of the people dealing with the subject should not be lightly interfered ld not be lightly interfered with. While dealing with economic legislation, this court would interfere with. While dealing with economic legislation, this court would interfere with. While dealing with economic legislation, this court would interfere only in those few cases where the view reflected in the legislation is not only in those few cases where the view reflected in the legislation is not only in those few cases where the view reflected in the legislation is not possible to be taken at all. The case of petitioner certainly does not fall possible to be taken at all. The case of petitioner certainly does not fall possible to be taken at all. The case of petitioner certainly does not fall within this exception. We also do not find that by inserting the impugned thin this exception. We also do not find that by inserting the impugned thin this exception. We also do not find that by inserting the impugned sub clause there is any perversity or gross disparity resulting in clear or sub clause there is any perversity or gross disparity resulting in clear or sub clause there is any perversity or gross disparity resulting in clear or hostile discrimination. hostile discrimination.

The mere fact that the institution of tax by virtue of the impugned sub The mere fact that the institution of tax by virtue of the impugned sub The mere fact that the institution of tax by virtue of the impugned sub clause falls more heavily on petitioner cannot result in its invalidity. clause falls more heavily on petitioner cannot result in its invalidity. clause falls more heavily on petitioner cannot result in its invalidity.

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5.4 It is observed that, the It is observed that, the Hon’ble High Court has held that, Hon’ble High Court has held that, the

inclusion of various subsidies and concessions by sub inclusion of various subsidies and concessions by sub-clause (xviii) in clause (xviii) in

Section 2(24) i.e. the definition of income Section 2(24) i.e. the definition of income “indicates a well indicates a well-established

jurisprudential path ensuring that the income tax laws remain attuned t jurisprudential path ensuring that the income tax laws remain attuned t jurisprudential path ensuring that the income tax laws remain attuned to

the economic realities and continue to serve as a vital cog in the nation's the economic realities and continue to serve as a vital cog in the nation's the economic realities and continue to serve as a vital cog in the nation's

fiscal machinery”. It has accordingly,rejected ”. It has accordingly,rejected the challenge to the the challenge to the

constitutional validity of constitutional validity of insertion of sub-cause (xviii) in the definition of cause (xviii) in the definition of

income i.e. Section 2(24) by th income i.e. Section 2(24) by the Finance Act, 2015 by holding the same e Finance Act, 2015 by holding the same

as “a perfect example of a legislative endeavour to align the definition of a perfect example of a legislative endeavour to align the definition of a perfect example of a legislative endeavour to align the definition of

“income” with the evolving economic landscapes and judicial precedent of “income” with the evolving economic landscapes and judicial precedent of “income” with the evolving economic landscapes and judicial precedent of

it being an inclusive and elastic term it being an inclusive and elastic term”.It was also held that the that the assessee

has not been able to demonstrate a clear transgression of constitutional has not been able to demonstrate a clear transgression of constitutional has not been able to demonstrate a clear transgression of constitutional

principles; and that having regard to the having regard to the wide variety of diverse economic wide variety of diverse economic

criteria that go into the formulation of a criteria that go into the formulation of a fiscal policy, legislature enjoys a fiscal policy, legislature enjoys a

wide latitude in the matter of selection of matter of selection of persons, subject matter, events, persons, subject matter, events,

etc., for taxation. The Hon’ble High Court accordingly affirmed . The Hon’ble High Court accordingly affirmed . The Hon’ble High Court accordingly affirmed

theLegislature’s ’s act act of of overruling judicial judicial precedents precedents that that

distinguished capital receipts from revenue receipts and subsumed both capital receipts from revenue receipts and subsumed both capital receipts from revenue receipts and subsumed both

under ‘income’ and subjecting them subjecting them to taxation.

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5.5 We further observe that, this identical issue had come up for We further observe that, this identical issue had come up for We further observe that, this identical issue had come up for

consideration before this Tribunal in assessee’s own case consideration before this Tribunal in assessee’s own case in in IT(TP)A No.

53/Chny/2022 dated 09.02.2024 53/Chny/2022 dated 09.02.2024 for the assessment year 2018 for the assessment year 2018-19,

and the subsidies were held to be taxable, in light of the amendment to subsidies were held to be taxable, in light of the amendment to subsidies were held to be taxable, in light of the amendment to

Section 2(24)(xviii) by the Finance Act, 2015, by Section 2(24)(xviii) by the Finance Act, 2015, by holding as under: holding as under:

"12. Proceeding further, we find that the provisions of Sec.5 provide the "12. Proceeding further, we find that the provisions of Sec.5 provide the "12. Proceeding further, we find that the provisions of Sec.5 provide the scope of total income. It provides that subject to scope of total income. It provides that subject to the provisions of this the provisions of this Act, total income of a person who is resident would include all income Act, total income of a person who is resident would include all income Act, total income of a person who is resident would include all income from whatever sources derived which is received or deemed to be from whatever sources derived which is received or deemed to be from whatever sources derived which is received or deemed to be received in India or income which accrue or arise or deemed to accrue received in India or income which accrue or arise or deemed to accrue received in India or income which accrue or arise or deemed to accrue or arise in India. The head or arise in India. The heads of income has been carved out in Section 14 s of income has been carved out in Section 14 of the Act. The provisions of Sec.14 provide for heads of income under of the Act. The provisions of Sec.14 provide for heads of income under of the Act. The provisions of Sec.14 provide for heads of income under which such income would be assessable. These provisions provide that which such income would be assessable. These provisions provide that which such income would be assessable. These provisions provide that save as otherwise provided by this Act, all income shall, for the save as otherwise provided by this Act, all income shall, for the save as otherwise provided by this Act, all income shall, for the purposes of charge of income oses of charge of income-tax and computation of total income, be tax and computation of total income, be classified in five distinct heads of income i.e., Salaries, Income from classified in five distinct heads of income i.e., Salaries, Income from classified in five distinct heads of income i.e., Salaries, Income from House Property, Profits and Gains of business or profession, capital House Property, Profits and Gains of business or profession, capital House Property, Profits and Gains of business or profession, capital gains or income from other sources. In other words gains or income from other sources. In other words, once an item has , once an item has been found to be covered within the meaning of 'income', the same shall been found to be covered within the meaning of 'income', the same shall been found to be covered within the meaning of 'income', the same shall have necessarily to be classified in distinct heads of income and have necessarily to be classified in distinct heads of income and have necessarily to be classified in distinct heads of income and computations of tax would be made accordingly. Since the definition of computations of tax would be made accordingly. Since the definition of computations of tax would be made accordingly. Since the definition of income is an inclusive one, income is an inclusive one, it is not necessary as well as not practical it is not necessary as well as not practical that each item of income is clearly and distinctly spelt out in charging that each item of income is clearly and distinctly spelt out in charging that each item of income is clearly and distinctly spelt out in charging provisions of distinct heads of income. We also find that the provisions provisions of distinct heads of income. We also find that the provisions provisions of distinct heads of income. We also find that the provisions of Sec.28 specify the income which shall be chargeable to Income of Sec.28 specify the income which shall be chargeable to Income of Sec.28 specify the income which shall be chargeable to Income Tax under the heads 'Profits and Gains of business or Profession'. The sub under the heads 'Profits and Gains of business or Profession'. The sub under the heads 'Profits and Gains of business or Profession'. The sub- clause (i) provides that profits and gains of business or profession which clause (i) provides that profits and gains of business or profession which clause (i) provides that profits and gains of business or profession which was being carried on by the assessee at any time during the previous was being carried on by the assessee at any time during the previous was being carried on by the assessee at any time during the previous year shall be chargeable to tax under year shall be chargeable to tax under the head 'Profits and Gains of the head 'Profits and Gains of Business or Profession'. From the scheme of the Act, it could be seen Business or Profession'. From the scheme of the Act, it could be seen Business or Profession'. From the scheme of the Act, it could be seen that the definition of income as provided in Sec. 2(24)(xviii) is of widest that the definition of income as provided in Sec. 2(24)(xviii) is of widest that the definition of income as provided in Sec. 2(24)(xviii) is of widest amplitude and it is an inclusive definition and not an exhaustive amplitude and it is an inclusive definition and not an exhaustive amplitude and it is an inclusive definition and not an exhaustive definition. The scope of total income includes all types of income that is The scope of total income includes all types of income that is The scope of total income includes all types of income that is received or that accrues or arises to the assessee. The income has to be received or that accrues or arises to the assessee. The income has to be received or that accrues or arises to the assessee. The income has to be divided into five distinct heads one of which is 'Profits and Gains of divided into five distinct heads one of which is 'Profits and Gains of divided into five distinct heads one of which is 'Profits and Gains of Business or Profession'. In our considered opinio Business or Profession'. In our considered opinion, when the definition of n, when the definition of income is not exhaustive one, it is not necessary that to tax the income, income is not exhaustive one, it is not necessary that to tax the income, income is not exhaustive one, it is not necessary that to tax the income, corresponding amendment should have been made in Sec.28 of the Act. corresponding amendment should have been made in Sec.28 of the Act. corresponding amendment should have been made in Sec.28 of the Act.

The argument that the amendment is not a substantive amendment is The argument that the amendment is not a substantive amendment is The argument that the amendment is not a substantive amendment is not correct and we do not correct and we do not concur with this argument.

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and the earlier case laws holding the field would cease to apply after the earlier case laws holding the field would cease to apply after the earlier case laws holding the field would cease to apply after the amendment. The intention of legislature was to bring to tax all kinds of amendment. The intention of legislature was to bring to tax all kinds of amendment. The intention of legislature was to bring to tax all kinds of subsidies irrespective of their nature, manner of receipt and the agency subsidies irrespective of their nature, manner of receipt and the agency subsidies irrespective of their nature, manner of receipt and the agency from which it was received. The only excep from which it was received. The only exception provided is that in case tion provided is that in case the said concessions were taken into account to determine the actual the said concessions were taken into account to determine the actual the said concessions were taken into account to determine the actual cost of an asset in terms of Explanation 10 to clause (1) to Section 43, cost of an asset in terms of Explanation 10 to clause (1) to Section 43, cost of an asset in terms of Explanation 10 to clause (1) to Section 43, the same would not be separately taxable since in such a case, the the same would not be separately taxable since in such a case, the the same would not be separately taxable since in such a case, the quantum of deprec quantum of depreciation would be reduced. In all the other cases, iation would be reduced. In all the other cases, irrespective of nomenclature or the manner in which the same are irrespective of nomenclature or the manner in which the same are irrespective of nomenclature or the manner in which the same are given, such concessions would always form part of income of the given, such concessions would always form part of income of the given, such concessions would always form part of income of the assessee notwithstanding the 'purpose' or objective of the scheme or assessee notwithstanding the 'purpose' or objective of the scheme or assessee notwithstanding the 'purpose' or objective of the scheme or whether the same was in capital field or in revenue field. This he same was in capital field or in revenue field. This he same was in capital field or in revenue field. This amendment has, thus, taken away the distinction between capital amendment has, thus, taken away the distinction between capital amendment has, thus, taken away the distinction between capital receipts and revenue receipts or the 'purpose test' as laid down by receipts and revenue receipts or the 'purpose test' as laid down by receipts and revenue receipts or the 'purpose test' as laid down by Hon'ble Apex Court in various decisions. The amended definition provi Hon'ble Apex Court in various decisions. The amended definition provi Hon'ble Apex Court in various decisions. The amended definition provide that all sorts of assistance received by an assessee from the specified that all sorts of assistance received by an assessee from the specified that all sorts of assistance received by an assessee from the specified persons, irrespective of its nature as capital or revenue, shall be taxable persons, irrespective of its nature as capital or revenue, shall be taxable persons, irrespective of its nature as capital or revenue, shall be taxable as income of the assessee unless the same falls in the exclusion as income of the assessee unless the same falls in the exclusion as income of the assessee unless the same falls in the exclusion category. In such a situation, the relev category. In such a situation, the relevant case laws as cited by Ld. AR ant case laws as cited by Ld. AR in support of the argument that 'purpose test' must be followed are to in support of the argument that 'purpose test' must be followed are to in support of the argument that 'purpose test' must be followed are to be disregarded and it was to be held that those case laws would have no be disregarded and it was to be held that those case laws would have no be disregarded and it was to be held that those case laws would have no application after the aforesaid amendment. We concur with the stand of application after the aforesaid amendment. We concur with the stand of application after the aforesaid amendment. We concur with the stand of Ld. CIT-DR, in this regard. R, in this regard.

5.6 Before us, it was alternatively contended that the CEV subsidy had ore us, it was alternatively contended that the CEV subsidy had ore us, it was alternatively contended that the CEV subsidy had

only accrued but was not received during the year and therefore could not only accrued but was not received during the year and therefore could not only accrued but was not received during the year and therefore could not

be brought to tax in this year, but in subsequent year i.e. year of receipt. be brought to tax in this year, but in subsequent year i.e. year of receipt. be brought to tax in this year, but in subsequent year i.e. year of receipt.

Upon enquiry, the Ld. AR for the assessee Upon enquiry, the Ld. AR for the assessee was unable to confirm as to was unable to confirm as to

whether the impugned sum of Rs.25 crores, going by their own stand, whether the impugned sum of Rs.25 crores, going by their own stand, whether the impugned sum of Rs.25 crores, going by their own stand,

had been offered to tax in the year of receipt of not. We also note that had been offered to tax in the year of receipt of not. We also note that had been offered to tax in the year of receipt of not. We also note that

this particular argument was also raised before this Tribunal in their own this particular argument was also raised before this Tribunal in their own this particular argument was also raised before this Tribunal in their own

case in IT(TP)A No. 53/Chny/2022 TP)A No. 53/Chny/2022 (supra), and has been rejected. (supra), and has been rejected.

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5.7 Considering the above above, amendment to section 2(24) of the Act and ) of the Act and

decision of this Tribunal (supra), we are of the view that Tribunal (supra), we are of the view that both both the IPS and

CEV subsidieshave been ieshave been rightly brought to tax by the AO rightly brought to tax by the AO. Overall,

therefore, Ground Nos. 3 & 4 of the appeal stands dismissed. therefore, Ground Nos. 3 & 4 of the appeal stands dismissed. therefore, Ground Nos. 3 & 4 of the appeal stands dismissed.

Rs.65,034/- in relation to the cash subsidy. The facts as noted are that, in relation to the cash subsidy. The facts as noted are that, in relation to the cash subsidy. The facts as noted are that,

the assessee had received in FY 2002 the assessee had received in FY 2002-03 of Rs.1,00,00,000/ of Rs.1,00,00,000/- which was

claimed to be capital receipt. The AO had held the same to be adjustable claimed to be capital receipt. The AO had held the same to be adjustable claimed to be capital receipt. The AO had held the same to be adjustable

against the cost of assets in terms of Explanation (10) to Section 43(1) of against the cost of assets in terms of Explanation (10) to Section 43(1) of against the cost of assets in terms of Explanation (10) to Section 43(1) of

the the the Act Act Act and and and consequently consequently consequently disallowed disallowed disallowed depreciation depreciation depreciation thereon. thereon. thereon.

Consequentially, the depreciation attributable to the relevant year i.e. he depreciation attributable to the relevant year i.e. he depreciation attributable to the relevant year i.e.

Rs.65,034/- has been accordingly disallowed by the AO, which has been has been accordingly disallowed by the AO, which has been has been accordingly disallowed by the AO, which has been

upheld by the Ld. DRP.

6.1 Assailing the action of lower authorities, the Ld. AR for the assessee Assailing the action of lower authorities, the Ld. AR for the assessee Assailing the action of lower authorities, the Ld. AR for the assessee

has contended that the subsidy of has contended that the subsidy of Rs.1,00,00,000/- received in FY 2002 received in FY 2002-

03 had been held by way of capital receipt not liable to tax and 03 had been held by way of capital receipt not liable to tax and 03 had been held by way of capital receipt not liable to tax and

accordingly the disallowance of depreciation has been deleted in that accordingly the disallowance of depreciation has been deleted in that accordingly the disallowance of depreciation has been deleted in that

year. The Ld. AR further submitted that, following the same, this Tribunal year. The Ld. AR further submitted that, following the same, this Tribunal year. The Ld. AR further submitted that, following the same, this Tribunal

has deleted the disallowance of the cascading effect of depreciation in the ted the disallowance of the cascading effect of depreciation in the ted the disallowance of the cascading effect of depreciation in the

subsequent years as well. He has therefore urged that the impugned subsequent years as well. He has therefore urged that the impugned subsequent years as well. He has therefore urged that the impugned

disallowance ought to be deleted. disallowance ought to be deleted.

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6.2 Heard both the parties. Heard both the parties. We find that this issue is covered in favor of We find that this issue is covered in favor of

the assessee by the orders of Tribunal in assessee's own cases for AYs e by the orders of Tribunal in assessee's own cases for AYs e by the orders of Tribunal in assessee's own cases for AYs

2013-14 to 2016-17. 17. In In para para 9.3 9.3 of of the order order in IT(TP)A

No.39/Chny/2021 dated 22.12.2021 No.39/Chny/2021 dated 22.12.2021 for AY 2016-17, the Bench 17, the Bench

followed decision in earlier years and allowed this claim of the assessee. followed decision in earlier years and allowed this claim of the assessee. followed decision in earlier years and allowed this claim of the assessee.

Taking consistent view in the matter, this ground is therefore allowed. nsistent view in the matter, this ground is therefore allowed. nsistent view in the matter, this ground is therefore allowed.

under Section 14A read with Rule 8D. It is noted that, the assessee held under Section 14A read with Rule 8D. It is noted that, the assessee held under Section 14A read with Rule 8D. It is noted that, the assessee held

considerable investments during the year and th le investments during the year and thereforethe ereforethe AO had

proposed disallowance u/s.14A proposed disallowance u/s.14A of the Act. The assessee . The assessee had submitted

that it did not receive any income from investments and therefore, there that it did not receive any income from investments and therefore, there that it did not receive any income from investments and therefore, there

was no question of incurring any expenses and making impugned was no question of incurring any expenses and making impugned was no question of incurring any expenses and making impugned

disallowance. disallowance. However, However, rejecting rejecting the the same, same, the the AO AO computed computed

disallowance under Rule 8D(2)(ii) at 1% of average investments and disallowance under Rule 8D(2)(ii) at 1% of average investments and disallowance under Rule 8D(2)(ii) at 1% of average investments and

computed disallowance of Rs.1,3 computed disallowance of Rs.1,38,08,125/-. The Ld. DRP confirmed the . The Ld. DRP confirmed the

same. Aggrieved, the assessee is in further appeal before us. same. Aggrieved, the assessee is in further appeal before us. same. Aggrieved, the assessee is in further appeal before us.

7.1 We find that this issue sto We find that this issue stood covered by earlier decisions of the od covered by earlier decisions of the

Tribunal wherein the disallowance has been restricted to the extent of Tribunal wherein the disallowance has been restricted to the extent of Tribunal wherein the disallowance has been restricted to the extent of

exempt income earned by the assessee. Similar view has been expressed exempt income earned by the assessee. Similar view has been expressed exempt income earned by the assessee. Similar view has been expressed

in IT(TP)A No.53/Chny/2022 dated 09.02.2024 IT(TP)A No.53/Chny/2022 dated 09.02.2024 for AY 2018 for AY 2018-19.

Taking consistent view in the matter, we direct Ld. AO to restrict the t view in the matter, we direct Ld. AO to restrict the t view in the matter, we direct Ld. AO to restrict the

IT (TP) A No.56/Chny/20 /Chny/2024 (AY 2020-21) M/s. Hyundai Motor India Ltd. M/s. Hyundai Motor India Ltd. ::24 ::

disallowance to the extent of exempt income earned by the assessee. If disallowance to the extent of exempt income earned by the assessee. If disallowance to the extent of exempt income earned by the assessee. If

no exempt income is earned, no such disallowance is called for. The no exempt income is earned, no such disallowance is called for. The no exempt income is earned, no such disallowance is called for. The

corresponding grounds stand allowed for statistical purposes. corresponding grounds stand allowed for statistical purposes. corresponding grounds stand allowed for statistical purposes.

Act. This ground is found to be consequential in nature. The levy of Act. This ground is found to be consequential in nature. The levy of Act. This ground is found to be consequential in nature. The levy of

interest is mandatory and thus, the AO is directed to levy the interest in interest is mandatory and thus, the AO is directed to levy the interest in interest is mandatory and thus, the AO is directed to levy the interest in

accordance with law. This ground is theref accordance with law. This ground is therefore dismissed.

Order pronounced on the 28th day of February, 2025, in Chennai. Order pronounced on the , in Chennai.

Sd/- Sd/ Sd/- (अिमताभ शु�ा) (एबी टी. . वक�) (AMITABH SHUKLA AMITABH SHUKLA) (ABY T. VARKEY ABY T. VARKEY) लेखासद�य/ACCOUNTANT MEMBER �याियकसद�य/JUDICIAL MEMBER /ACCOUNTANT MEMBER /JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 28th February February, 2025. TLN आदेशक��ितिलिपअ�ेिषत/Copy to Copy to: