MONDELEZ INDIA FOODS PVT. LTD. (FORMERLY KNOWN AS CADBURY INDIA LTD.),MUMBAI vs. ACIT ,RANGE 5 (1)(2), MUMBAI

आदेश / ORDER

PER ARUN KHODPIA, AM:

Grounds Issue No. 2-21. Adjustment on account of Advertisement, Marketing and Promotion (‘AMP’) expenses. 22-27. Disallowance of payment of royalty on technology paid to Cadbury Enterprises Pte Ltd.

Nature of adjustment Amount ( in Rs.) Adjustment of Advertising and 287,49,53,229/- Marketing expenses Adjustment of receipt of 10,69,60,319/- services from CEPT Adjustment of receipt of 21,60,90,172/- services from MIHL Payment of technical knowhow 7,37,752/- Royalty to CEPT Total 319,87,41,472/-

“10. Grounds No.2 to 22 are with regard to the TP adjustment made by the TPO towards advertisement, marketing and promotion on Cadbury brand in India for the reason that the assessee is not the legal owner of the brand in India, the AMP expenses incurred by the assessee translates into development of AEs brand and, therefore, the assessee needs to be compensated. We find that the co-ordinate bench of the Tribunal in assessee’s own case for A.Y. 2011-12 in while considering an identical issue, has followed the order of another order of the co-ordinate bench [A.Y.2009-10 (ITA No.2214/Mum/2014] to decide the issue in assessee’s favour by holding as under:- 10. We heard the parties and perused the materials on record. We notice that the co-ordinate bench in assessee’s own case for A.Y.2009-10 (ITA No.2214/Mum/2014) has considered the similar issue and held that – ―23. Considered the rival submission and material placed on record. We notice from the records that the identical ground has already been decided by the Coordinate Bench of ITAT in for AY 2006-07 in assessee’s own case on merits. For the sake of clarity, which is reproduced below:- 14. We have considered rival submissions and perused materials on record. Undisputedly, as could be seen from the material on record, in response to the show cause notice issued by the Transfer Pricing Officer the assessee had specifically submitted that there is no arrangement or agreement with the overseas A.E. for incurring AMP expenditure. It is also apparent the expenditure was wholly and exclusively incurred for marketing assessee‟s own products and the payment was made to third parties in India. Therefore, it is outside the purview of international transaction as defined under section 92B of the ACT. As could be seen, the Transfer Pricing Officer ignoring the submissions made by the assessee had assumed that a benefit has accrued to the overseas A.E. on account of AMP expenditure incurred by the assessee. The learned Commissioner (Appeals) has upheld the adjustment / addition proposed by the Transfer Pricing Officer simply relying upon his order passed in assessee‟s own case for assessment year 2005–06. Notably, while deciding assessee‟s appeal for assessment year 2005–06 the Tribunal vide order passed in ITA no. 5470/Mum./2012, dated 18th May 2016, has decided the issue in favour of the assessee holding as under:– ―3.4.We have heard the rival submissions and perused the material before us. Before proceeding further, it would be useful to understand the philosophy and to consider the historical background of the TP provisions. It is said that the purpose and object of introduction of the provisions contained in Chapter X is to prevent an assessee from avoiding payment of tax by transferring income yielding assets to non-residents even while retaining the power to enjoy the fruits of such transactions i.e. the income so generated. As a concept, it is not totally a new idea. A reference to the provisions of section 42(2)to the Indian Income Tax Act,1922,could be made in this regard-as it was a somewhat similar section and dealt with the trans-border transactions. The provisions of the said section broadly provided that where a nonresident carried out business withthe person resident in the taxable territory and it appeared to the AO that onaccount of a close connection between such persons the business was so arrangedthat the business conducted by the resident with the nonresident either yielded noprofit or, less than ordinary profit, which may be expected to arise in that businessthen, the AO was empowered to tax profits which were derived or which mayreasonably be deemed to be derived from the business in the hands of a personresident in the taxable territory. Thus, it can safely be concluded that TP provisionswere part of tax administration even during the 1922 Act days though at infancystage. The present provisions were been incorporated vide Finance Act,2001.Samewere further amended vide Finance Act,2002 and are being amended from time totime to meet the new challenges thrown up by the dynamism of the currentcommercial and business realities. Having regard to the object for which provisionshave been enacted, applicability of the said provisions has to be limited tosituations where there is diversion of profits out of India or where there may beerosion of tax revenue in intra group transaction. So, intra-group transaction is thefirst pre- condition for invoking the TP provisions. Calculation of ALP is the nextand logical step. But, if the first step itself is missing, the AO cannot go to thesecond stage. In other words, the AOs cannot climb the second storey of a buildingwithout reaching to the first storey if the existence of an IT and calculation of ALPcan be compared with a double storeyed building. 3.4.1.We find that the assessee is the market leader of the chocolate market in India,that it was commanding 70% of the market share in the year under appeal, that ithad debited AMP expenses, amounting to Rs.85.15crores to its P& L a/c,that the netturnover of the assessee was of Rs.766.21crores,that it was 11.11% of the salesrecorded by the assessee during the year, that it had also paid royalty amounting toRs.13.56 crores for the same period, that the TPO computed Rs.1.52 crores(1.78%)as the cost apportioned/allocable out of the A&M cost incurred by the assessee forthe benefit accruing to the AE, that he restricted the cost to Rs.71 lakhs(being0.87%of Rs.85.15crores)in view of the disallowance/ adjustment in income made onaccount of royalty for trade mark, that the average AMP expenditure by the leadingFMCG companies for the period 2001-05 was 10.28%,that the AMP expenditureincurred by the assessee during the same period was 10.45%,that the assessee hadcontended that its profitability(PBT to sales ratio)

@10.85%was much highercompared to the average profitability of the comparables at the rate of 3.57%,thatthe FAA had held that higher rate profitability could not be a justification of thisproportionate expenditure, that in the appellate proceedings the FAA had proposedfurther addition, that finally he upheld the order of the TPO and confirmed the addition of Rs.71 lakhs, that there was no contractual obligation to recover moneyfrom the AE, that it was separately paying royalty for use of brand and trademark.There is no reason for not holding that the increased AMP expenditure led to enhanced sales and profitability, that for the purpose of analysing the AMP expenditure incurred by and the comparables it is necessary to consider variousfactors. If factors like growth rate, nature of business ,number of productslaunched, territories serviced and turnover/profits achieved have necessarily to beconsidered for determining the AMP expenses. The entire expenditure was focusedon the Indian consumer and it is evident from the local flavour/ language/concepts. It is also an undeniable fact that new players were entering India after liberalization era started. If the expenditure incurred by the assessee is consideredin the back ground of the growth achieved by it one has to agree with the argumentof the assessee that it made rapid progress in the Indian market post liberalization period and AMP played an important role in it. Here, we would also like to mentionthat there exists a fundamental and basic distinction between the provisions ofsection 37 and section 92 of the Act-as the first is expense oriented and the secondis pricing oriented. The FAA tried to incorporate the ingredients of Section 37 whiledealing with the TP adjustments, when he talked of thehigher expenditure ‟and„justification” of such expenditure. In our opinion, the approach of the FAA was notin accordance with the basic philosophy of TP provisions. In our opinion, it is theassessee who has to decide how much to spend for earning his income. The taxauthorities are prevented from entering into the proverbial shoes of the assessee todecide the justification of the expenditure. The Act stipulates that in certainconditions only the so called higher expenditure can be questioned. The FAA hadnot proved that the expenditure incurred by the assessee for advertisement etc. wascovered by those sections. If it was the case then the transaction would not fallunder section 92 of the Act. Therefore, in our opinion he had adopted a totallyincorrect approach, while dealing the allowability of AMP expenditure.

3.4.2.We further hold that the claim of the assessee is factually correct that it hadincurred the AMP expenditure for creating product awareness and to recall thevalue of existing products and that it had a local marketing strategy of makingadvertisement/slogans in the local language. In our opinion, KUCH MEETHA HOJAY campaign proves the claim made by the assessee. The TPO had ignored thefact that films/TV advertisements of the assessee had the local messaging concept.Such local advertisement campaigns can never be held to be driven towards servingthe interests of the AE. It is also a fact that new multinational players in the industryhad entered the Indian market. The commercial wisdom of any assessee, in such asituation, would compel it to be innovative and to spent reasonable expenditure formaintaining its position in the market. The TPO/FAA had not controverted the factthat the AE was the owner of intellectual property of the “Cadbury” brand and thatit was responsible for promoting the brand all over the globe and that the brandrelated exercise at the cost of the AE for the overall brand positioning andmanagement benefited the assessee also in an indirect manner. Nothing has beenbrought on record to prove that the assessee was directly or indirectly promotingthe global brand rather than promoting its own products. In our opinion, thereexists a fine but very important distinction between products promoted and nurturedby an assessee and the brand owned and supported by its AE. In the modern worldboth exist and play different and specified roles. Therefore, until and unless some -thing positive is brought on record about sharing/incurring AMP expenditure underthe head by an assessee on behalf of its AE, it cannot be held that it should haverecovered some amount from the AE as the expenditure by it indirectly helped inaugmenting the brand value owned by its overseas AE. In the case underconsideration, the assessee was incurring expenditure for its products whereas theAE was looking after the ground at global level. If the AMP expenditure incurred bythem benefited indirectly in the local/ international market it would not mean that itwas an IT. The basic purpose of introducing the various provisions of chapter X, asstated earlier, was to prevent tax evasion in the transactions undertaken between anIndian entity and its overseas AE. In our opinion, a perceived/notional indirectbenefit to the AE, due to incurring of certain expenditure by an assessee in India, isnot covered by the TP provisions. It is a fact that the payment under the head AMPexpenditure was made to third parties and that those parties were located in India.

3.4.3.We find that in the cases of Maruti Suzuki(supra),Whirlpool India(supra),Bausch & Lomb Eyecare(India)Pvt.Ltd(ITA 643 of 2014 of Hon’ble Delhi HC), theissue of AMP expenses had been deliberated upon extensively and each and everyargument raised by the TPO/DRP have been analysed thread bare. We would liketo reproduce relevant portion of the judgment of Bausch & Lomb Eyecare(India)Pvt.Ltd.(supra) and same reads as under: 53.A reading of the heading of Chapter X['Computation of income frominternational transactions having regard to arm's length price"]and Section92 (1) which states that any income arising from an international transactionshall be computed having regard to the ALP and Section 92C (1) which setsout the different methods of determining the ALP, makes it clear that thetransfer pricing adjustment is made by substituting the ALP for the price of thetransaction. To begin with there has to be an international transaction with acertain disclosed price. The transfer pricing adjustment envisages thesubstitution of the price of such international transaction with the ALP. 54.Under Sections 92B to 92F, the pre-requisite for commencing the TP exerciseis to show the existence of an international transaction. The next step is todetermine the price of such transaction. The third step would be to determinethe ALP by applying one of the five price discovery methods specified inSection 92C. The fourth step would be to compare the price of the transactionthat is shown to exist with that of the ALP and make the TP adjustment bysubstituting the ALP for the contract price.

15. Facts being identical, respectfully following the aforesaid decision of the Co–ordinate Bench in assessee’s own case, we delete the addition made by theAssessing Officer towards transfer pricing adjustment on account of AMPexpenditure. Ground raised

is allowed.

24. Therefore, respectfully following theabove decision of Coordinate Bench in assessee’s own case in turn relying on thedecision of Assessment Year 2006-07. These issues are settled in favour of theassessee. Therefore, we are inclined to accept the submission of Ld. AR.Accordingly, these grounds raised by the assessee are allowed.

24. Therefore, respectfully following the above decision of Coordinate Bench inassessee’s own case in turn relying on the decision of Assessment Year 2006-07.These issues are settled in favour of the assessee. Therefore, we are inclined toaccept the submission of Ld. AR. Accordingly, these grounds raised by the assesseeare allowed.

10. Respectfully following the above decision of the co- ordinate bench, we hold thatthe decisions made by the TPO / AO towards transfer pricing adjustment onaccount of AMP expenditure be deleted. Accordingly, these grounds raised by theassessee are allowed.

11. The facts being identical, respectfully following the above order of the co-ordinate bench of the Tribunal, we hold that the TP adjustment made towards AMPexpenses is hereby deleted. The grounds raised by the assessee in this regard areallowed.”

In so far as Grounds of appeal No.22 to 27 concerning disallowance 12. of payment of royalty on technology paid to Cadbury Enterprises Pte Limited, we find that the Co-ordinate Bench of the ITAT, Mumbai in assessee’s own case for A.Y.2013-14& 2014-15, & dated 20.09.2023, while considering the same issue has observed as follows:

“12. With regard to the issue contended in grounds 23 to 27 pertaining to disallowance of payment of royalty on technology paid to Cadbury Enterprises Pte Limited, we find that this issue has also been decided by the Tribunal for A.Ys 2011-12 & 2012-13 and held as under:- 13. We heard the parties and perused the material on record. The co-ordinate bench in assessee’s own case for A.Y. 2009- 10 (supra) has considered the issue of payment of royalty on technology to Cadbury Adams USA LLC, to Cadbury Enterprises Pte Ltd and Cadbury Schweppes Asia Pacific Pte Limited (now merged with Cadbury Enterprises Pte Ltd) and held that- “10. Considered the rival submission and material placed on record. We noticefrom the records that the identical ground has already been decided by theCoordinate Bench of ITAT in for AY 2008-09 in assessee’sown case on merits. For the sake of clarity, the same is reproduced below:- “With regard to disallowance of payment of royalty on trademarks paid toCadbury Schweppes Overseas Ltd 3.3.2 It is admitted position that the issuestood squarely covered in assessee‟s favor by the decision of this very benchin assessee‟s own case for AY 2006-07 wherein the matter has beenconcluded in the following manner: - 7. We have considered rival submissions and perused materials on record.As could be seen from the order of the Transfer Pricing Officer, he hasdetermined the arm's length price of royalty payment on trademark toSCOL at zero. In other words, he has disallowed royalty payment ontrademark at 1% while allowing royalty payment on technical knowhow at1.25% of net sales. The reasoning on which the Assessing Officer hasdenied royalty payment on trademark are basically that as per the terms ofearlier agreement approved by the Government, the assessee can payroyalty for technical knowhow at the maximum rate of 2%, whereas, theassessee has paid royalty both for technical knowhow and trademarkaggregating to 2.25%. He has also referred to the Press Note issued by theGovernment clarifying that royalty payment cannot exceed 2% and furtherthe royalty payment for technical knowhow subsumes royalty payment fortrademark. In this context, the Transfer Pricing Officer has also referred tosimilar dispute arising in the preceding assessment years. It is evident thatthe learned Commissioner (Appeals) has upheld the disallowance of royaltypayment of trademark simply relying upon the order passed by him inassessee‟s own case for assessment year 2005–06. As could be seen fromthe material available on record, the assessee has entered into agreement.

13. We heard the parties and perused the material on record. The co-ordinatebench in assessee’s own case for A.Y. 2009-10 (supra) has considered the issueof payment of royalty on technology to Cadbury Adams USA LLC, to CadburyEnterprises Pte Ltd and Cadbury Schweppes Asia Pacific Pte Limited (nowmerged with Cadbury Enterprises Pte Ltd) and held that – 10. Considered therival submission and material placed on record. We noticed from the records thatthe identical ground has already been decided by the Coordinate Bench of ITATin for AY 2008-09 in assessee’s own case on merits.For the sake of clarity, the same is reproduced below:- With regard todisallowance of payment of royalty on trademarks paid to Cadbury SchweppesOverseas Ltd 3.3.2 It is admitted position that the issue stood squarely covered inassessee‟s favor by the decision of this very bench in assessee‟s own case for AY2006-07 wherein the matter has been concluded in the following manner: - 7. Wehave considered rival submissions and perused materials on record. As could beseen from the order of the Transfer Pricing Officer, he has determined the arm'slength price of royalty payment on trademark to SCOL at zero. In other words,he has disallowed royalty payment on trademark at 1% while allowing royaltypayment on technical knowhow at 1.25% of net sales. The reasoning on whichthe Assessing Officer has denied royalty payment on trademark are basically thatas per the terms of earlier agreement approved by the Government, the assesseecan pay royalty for technical knowhow at the maximum rate of 2%, whereas, theassessee has paid royalty both for technical knowhow and trademarkaggregating to 2.25%. He has also referred to the Press Note issued by theGovernment clarifying that royalty payment cannot exceed 2% and further theroyalty payment for technical knowhow subsumes royalty payment for trademark.In this context, the Transfer Pricing Officer has also referred to similar disputearising in the preceding assessment years. It is evident that the learnedCommissioner (Appeals) has upheld the disallowance of royalty payment oftrademark simply relying upon the order passed by him in assessee‟s own casefor assessment year 2005–06. As could be seen from the material available onrecord, the assessee has entered into agreement with its current company in theyear 1993, for availing technical knowhow for which it was required to payroyalty @ 2%. Subsequently, the assessee has entered into fresh agreements withthe parent company for transfer of technical knowhow as well as use of trademark for which assessee is required to pay royalty @ 1.25% and 1% of the net sales respectively. As could be seen from the materials placed on record, thepayment of royalty for technical knowhow @ 1.25% has been approved by theMinistry of Commerce and Industry, Government of India, vide letter dated 14thSeptember 2000 (copy is placed at Page–85 of the paper book). Similarly,payment of royalty for trademark @ 1% has been approved by the Reserve Bankof India, vide letter dated 25th June 2001, copy at Page–119 of the paper book.Thus, as could be seen, payment of royalty for trademark at 1% over and abovethe royalty paid at 1.25% for technical knowhow has been approved by theReserve Bank of India. Though, the Transfer Pricing Officer has relied uponPress Note dated 3rd January 2002, to observe that in case of technologytransfer payment of royalty subsumes the payment for royalty for use oftrademark, however, in a subsequent Press Note issued by the Ministry ofCommerce and Industry, Government of India, vide no.5(5)/2003–FC, dated 24thJune 2003, has permitted royalty payment up to 8% on export sales and 5% ondomestic sales. It is also relevant to note, the fact that the royalty paid by theassessee @ 2.25% both for technical knowhow and trademark is lesser than theroyalty paid by other comparables and even group companies has not beendisputed either by the Transfer Pricing Officer or by the learned Commissioner(Appeals). It is also relevant to note, identical dispute relating to payment ofroyalty for trademark at 1% over and above royalty paid for technical knowhowat 1.25% and its allowability came up for consideration before the Tribunal in assessee‟s own case for assessment year 2002–03 to 2005–06. While decidingthe issue in the aforesaid assessment years, the Tribunal held that the payment ofroyalty on trademark to CSOL at 1% of sales is allowable and at arm's length. Infact, decision of the Tribunal has also been accepted by the Revenue. In thiscontext, we may refer to the relevant observations of the Tribunal while deciding identical issue in assessee‟s own case for assessment year 2005–06, in ITAno.5470/Mum/2012, dated 18th May 2016, which is as under: – ―2.3. We haveheard the rival submissions and perused the material before us. We find thatwhile deciding the appeal for AY 2002-03(supra) the Tribunal has decided theissue as under: 37. We have heard the detailed arguments from both the sides. The basicissue is the correctness of ALP on the royalty payments made by theassessee company to its parent AE on account of technical knowhow andtrademark usage. 38.From the arguments of the DR, made on behalf of the TPO, theagreement for paying royalty on technical know-how at 1.25% andtrademark usage at 1.25%, were overlapping and thus, TNMM method usedby the assessee was incorrect. According to the TPO, the best method toascertain ALP in the interest case was CUP, as the transactions werecontrolled. This was reasonable, as no data was available fromindependent source to benchmark the transactions. 39.On going through the records and the orders of the revenue authorities,we find that in so far as the payment of royalty on technical knowhowconcerned, the assessee has been paying to its parent AE right from 1993,as, other group companies are paying across the globe. It has beenaccepted by the TPO that the payment does not effect the profitability of theassessee, if we are to examine the issue from that angle as well. In any casethe payment of royalty on technical knowhow is at par with the similarpayments from the group companies in other countries & region. Besidesthis, the payment is made as per the approval given by the RBI and SIA,Government of India. Hence there cannot be any scope of doubt that theroyalty payment on technical knowhow is not at arm’s length. 40.Comingto the issue of royalty payment on trademark usage, we find that theassessee, in fact is paying a lesser amount, if the payments are comparedwith the payments towards trademark usage, by the other group companiesusing the Brand Cadbury in other parts of the world. On the other hand, ifwe examine the argument taken by the TPO with regard to OECDguidelines. On this point the assessee‟s payment is coming to a lesserfigure, as discussed in detail by the CIT(A). 41.We are not going into thearguments advanced by the DR/TPO on geographical differences, andpayments made to Harshey, as these arguments gets merged in theinterpretation and details available in the table supplied by the assesseeand taken note of by the TPO and the CIT(A).

42.We are also not referring to the case of Maruti Suzuki Ltd. as we find that in sofar as the instant case is concerned, there is really no relevance. 43.On the basis ofthe above observations, we are of the opinion that the royalty payment ontrademark usage is within the arms‟ length and does not call for any adjustment.Respectfully, following the above order, and the order for subsequent AY.s wedecide the Ground of Appeal

No.1 in favour of the assessee.

8. There being nodifference in factual position in the impugned assessment year, respectfullyfollowing the consistent view of the Tribunal on identical issue in assessee‟s own case as referred to above, we hold that the royalty payment on trade mark to SCOL@ 1% of net sales is at arm's length, hence, no further adjustment is required.Accordingly, we delete the disallowance made by the Assessing Officer. Groundraised is allowed. Respectfully following the aforesaid view of Tribunal in assessee‟s own case, we delete the impugned adjustment of Rs.1300.22 Lacs asmade by Ld. AO in the final assessment order. Nothing has been shown to us thatthe aforesaid ruling is not applicable to the year under consideration. Ground No.3stand allowed. With regard to disallowance of payment of royalty on technologypaid to Cadbury Adams USA LLC. 3.4.2 We find that this issue is covered by the decision of this Tribunal for AY 2006-07 wherein it has been held as under: -

22. We have considered rival submissions and perused materials on record.Undisputedly, the assessee has paid royalty to CAUSA @ 2.7% of net sales as perthe agreement executed on 1st June 2006. It is the claim of the assessee that thepayment of royalty is for use of trademark as well as technical knowhow. However,the Transfer Pricing Officer after examining the agreement between the assesseeand CAUSA has opined that the agreement only provided for use of trademark andit does not provide for use of technical knowhow. It is the say of the Transfer Pricing Officer that since as per the Government guidelines, payment of royalty ontrade mark under the automatic route is fixed at the maximum rate of 1%. Royaltypaid for trademark at 2.7% is not at arm's length. Accordingly, he has allowedpayment of royalty for trademark at 1%. While doing so, the Transfer PricingOfficer has also observed that the agreement executed in December 2007,amending the terms of the original agreement having come in to existence afterexpiry of relevant financial year would not be applicable for a transactionundertaken in the relevant financial year. The learned Commissioner (Appeals) hasalso endorsed the aforesaid view of the Transfer Pricing Officer. No doubt, on aperusal of the agreement dated 1st June 2006 between the assessee and CAUSA itappears that the said agreement has been termed as trademark license agreement.However, reading the agreement as a whole and more particularly, Clause–7(b) ofthe said agreement, it becomes clear the licensee (the assessee) shall manufacturelicensed product using any technology of the licensor provided to the licensee inaccordance with all specifications and instructions provided by the licensor fromtime to time. It is not the case of the Revenue that in the relevant previous yearassessee has neither manufactured nor sold „Halls‟ brand products in India. Thus,it is necessary to ponder whether in absence of necessary technicalknowhow/knowledge it would have been possible for the assessee to manufacturethe aforesaid products? In our view, the answer would be– No. Further, theassessee and CAUSA have entered into one more agreement on 24th December2007, amending the terms of the original agreement. As per the aforesaidagreement, certain terms of the original agreement was amended to includelicensing / sub–licensing of technology. It is the contention of the learned Sr.Counsel for the assessee that the amendment agreement executed on 24th December2007, shall operate retrospectively from 1st January 2006, to emphasize this fact,the learned Sr. Counsel for the assessee has sought to produce letter dated 26thApril 2016, issued by Mondelez International as additional evidence. From aperusal of the aforesaid letter, it appears that it has been issued to clarify that asper the original agreement executed on 1st June 2006, effective from 1st January2006, the parties to the agreement intended to transfer and avail technical knowhow/ knowledge relating to the licensed product along with trademark. Considering thesubmissions of the learned Sr. Counsel for the assessee that in subsequentassessment years royalty paid by the assessee @ 2.7% of sales was accepted by theTransfer Pricing Officer, the letter dated 26th April 2016, sought to be produced bythe assessee as additional evidence, in our view, is of much significance since it willhave a crucial bearing in determining whether CAUSA has authorised the assessee to use technical knowhow along with trademark, hence, is admitted as additionalevidence. Even, without taking cognizance of the aforesaid additional evidence, theoriginal as well as amended agreement make it abundantly clear that assessee hasalso availed technical knowhow from CAUSA. Further, the DepartmentalAuthorities don dispute the genuineness or authenticity of the amended agreement.What they are disputing is the date from which the amended agreement is effective. If the departmental authorities in the subsequent assessment years have allowedpayment of royalty both for trademark and technical knowhow, there is no reasonwhy it should not be allowed in the impugned assessment year, since, it cannot besaid that the assessee was manufacturing „Halls‟ brand products without obtainingthe required technical knowhow. Accordingly, we hold that payment of royalty to CAUSA is at arm’s length. The ground is allowed. Respectfully following the same,we delete the impugned addition of Rs.87.61 Lacs. Ground No.4 stand allowed.With regard to disallowance of payment of royalty on technology paid toCadbury Enterprises Pvt. Ltd. 3.5.1 It was noted that the assessee entered intoTechnical collaboration Agreement dated 28/06/2007 with CEPT to avail thebenefits of Technical Know-how, trade secrets etc. for mixed fruit flavored andstrawberry flavored sugar noncoated center filled bubble gums / chewing gums.Another agreement was entered into with the same entity for Trademarks andcopyright licenses in respect of products Bubbaloo, Bubba the Cat & Adams. As peragreement, the assessee paid Technical royalty @4% and Trademark Royalty@1%. Applying the same reasoning, it was held that CEPT was authorized to sub-license the rights of the Trademark only and there was no reference to presume thatthe same included the right to sublicense the Technology and know-how related tothe products, an adjustment of Rs.142.51 Lacs was proposed by Ld. TPO. The Ld.DRP, finding the adjustment quite similar to as made for royalty payment toCAUSA, endorsed Ld. TPO‟s action. 3.5.2 Since facts as well as reasoning of lowerauthorities are quite similar as in the case of royalty payment made by assessee toCAUSA, applying the same analogy, we delete the impugned addition. One morereason to delete the adjustment is that the assessee has entered into two separateagreement for payment of Trademark Royalty & Technical royalty and therefore,the matter would stand on a better footing. Hence, Ground No. 5 stand allowed.

11. Therefore, respectfully following the above decision of Coordinate Bench inassessee’s own case in turn relying on the decision of Assessment Year 2008-09.These issues are settled in favour of the assessee. Therefore, we are inclined toaccept the submission of Ld. AR. Accordingly, these grounds raised by the assesseeare allowed.

14. It is noticed that the payment of royalty towards trademark for the year underconsideration is based on the same agreement, which is considered by the co-ordinate bench for the assessment year 2009-10. Therefore we are of the view thatthe issue is covered by the above decision for the year under consideration also.Accordingly, we delete the TP adjustment made by the TPO towards payment ofroyalty on technology paid to Cadbury Adams USA LLC, and Cadbury EnterprisesPte Ltd. These grounds are allowed in favour of the assessee.”

“14. Ground Nos. 28 to 30 pertain to disallowance of service fees paid to Cadbury Enterprises Pte Ltd. We notice that the facts and circumstances pertaining to this issue are identical for A.Y. 2011-12 & 2012-13, which, the co- ordinate bench has already decided in favour of the assessee by holding as under:- 16.The Ld.AR submitted that the issue is covered by the decision of the co-ordinate bench in assessee’s own case for A.Y. 2009-10 where it haws been held that – 14. Considered the rival submission and material placed on record. We notice from the records that the identical ground has already been decided by the Coordinate Bench of ITAT in for AY 2008-09 in assessee’s own case on merits in which ITAT has restored the matter back to the file of AO with direction to enable the revenue to take a consistent stand in the matter and also to follow the ITAT order for Assessment Year 2006- 07. We draw strength from the following decisions in which matter cannot be remanded back when the TPO has failed to follow the prescribed method u/s. 92C:- i) Kodak India Pvt. Ltd. (2013) 37 taxmann.com 233 (Mum) ii) Barclays Bank PLC vrs. ADIT (90 taxmann.com 378) (Mum) iii) Vedanta Ltd. Vrs. PCIT (ITA 303/2018, C.M.Appl. 10257/2018).

15. For the sake of clarity, the decision of ITAT in the case of Kodak India Pvt. Ltd. is reproduced below:- I. Section 92B, read with section 92C, of the Income-tax Act, 1961 – Transfer pricing -Meaning of international transaction - Assessment year 2008-09 Assessee, an Indian company sold its medical imaging business to 'C' Ltd. another Indian company for USD 13.543 million - Being domestic transaction, assessee returned its income, disclosing sale transaction as a normal domestic transaction - Assessing Officer found that sale transaction of imaging business by assessee to 'C' Ltd. was pursuant to a larger sale transaction, on global basis, wherein holding company of assessee sold its imaging business to 'C' Inc. i.e., holding company of 'C' Ltd. on global basis - Thus, on suo moto assumption of jurisdiction over impugned transaction, TPO, proceeded to determine ALP -TPO determined ALP, based on worldwide revenue break upamongst countries and concluded that India accounted for 1.4 per centthereof, which came to USD 32.9 million as against USD 13.54 million shownby assessee - Accordingly, an adjustment of Rs. 79.96 crore was made -Whether since transactions entered into by holding foreign companies andsubsidiary Indian companies were independent of each other and there was nointernational element involved in sale of imaging segment by assessee of itsbusiness to 'C' Ltd., authorities below were not justified in invoking transferpricing provisions in respect of assessee's transaction - Held, yes - Whether,therefore, impugned adjustment made by revenue authorities was to be setaside - Held, yes [paras 49 and 63] [In favour of assessee]Section 92C of the Income-tax Act, 1961 - Transfer pricing – Computationof arm's length price [Others] - Assessment year 2008-09 - Whether whiledetermining ALP of international transactions entered into by assessee, TPOcannot adopt any other method except methods prescribed in section 92C(1)- Held, yes [Para 66] II. Section 92C of the Income-tax Act, 1961 - Transfer pricing – Computationof arm's length price [Safe harbour rules] - Assessment year 2008-09 -Assessee had incurred certain expenses on behalf of its AE - As said expenseswere to be reimbursed to assesee receipts on account of reimbursement wasrecovered on cost plus 10 per cent mark up TPO proposed mark up at the rate. 12.5 per cent and made an adjustment accordingly- Whether since adjustmentsought by TPO and sustained by DRP was falling within margin of +/- 5 percent as provided by proviso to section 92C(2), same was not sustainable -Held, yes [Para .84] [In favour of assessee] 16. Therefore, respectfully following the above decision of Coordinate Benchwhich are similar to the facts of present case, we are inclined to accept thesubmission of Ld. AR. Accordingly, these grounds raised

by the assessee areallowed.

17. One of the grounds on which the TP adjustment is contested by the assessee isthat the TPO has computed the ALP based on an adhoc estimation of salary and thenumber of man hours. The Ld AR submitted that the TPO has not followed the CUPmethod but has arrived at the ALP on some estimation. It was further submitted thatthe determination of ALP cannot be done except under one of the methods asprescribed in section 92C(1) and therefore the TPO's computation of ALP based onadhoc assumptions is not correct. We notice that the TPO while arriving at the ALPhas used the estimated salary and also used earlier years man hours to determine thecurrent year man hours spent. In the above decision, the coordinate bench hasconsidered the issue of determination of ALP by the TPO and has held that the TPadjustment is not tenable by relying on the decision in the case of Kodak India Pvt.Ltd (supra) where it is held that –

64. On the other legal issue that whether the TPO was correct to employ an alienmethod for arriving at the ALP. Once again, relevant section is very clear, whichreads, "The arm's length price in relation to an international transaction shall bedetermined by any of the following methods, being the most appropriate method,having regard to the nature of transaction or class of transaction or class ofassociated persons or functions performed by such persons or such other relevantfactors as the Board may prescribe."

65. It is important to take note of the word "shall" used in the section. No doubt thatunder the General Clauses Act, shall can be used as may or vice versa, but theHon'ble Supreme Court of India in the case of CIT v. Anjum M.H. Ghaswala,[2001] 252 ITR 1/119 Taxman 352, sitting in Constitution Bench explained theexact premise of the word "shall". The case was pertaining to the levy of interestunder section 234B on Chapter XIXA of the Income-tax Act, i.e. SettlementCommission. In the decision, the Hon'ble Supreme Court held, 'Nextly, the Commission has elaborately discussed the object of introduction of Chapter XIX-Ain the Act, the history behind the introduction and schematic rationalisation of the provisions of Chapter XIX-A brought about through Finance Act, 1987 to hold thatin exercising its power under Chapter XIX-A it has almost an unbridled power toarrive at a settlement. This exercise of purposive interpretation by looking into theobject and scheme of the Act and legislative intendment would arise, in our opinion,if the language of the Statute is either ambiguous or conflicting or gives a meaningleading to absurdity. We do not find any such problem in the provisions of the Act towhich we have already referred to Sections 234A, 234B and 234C in clear termsimpose a mandate to collect interest at the rates stipulated therein. The expression"shall" used in the said Section cannot by any stretch of imagination be construedas "may". There are sufficient indications in the scheme of the Act to show that theexpression "shall" used in Sections 234A, 234B and 234C is used by the Legislaturedeliberately and it has not left any scope for interpreting the said expression as "may".' 66. By the use of the word "shall", for computing the ALP in one of the followingmethods, the Legislature has cast an embargo that no seventh method could beadopted by the TPO for computing the ALP. Even the Special Bench of the ITAT inthe case of LG Electronics India (P.) Ltd., (supra), in paras 22.10 and 22.11, pages128 and 129, observes,"As regards the contention that methods are tools for determining the ALP, we findthat there is dispute that there is no dispute the main purpose of Chapter X is todetermine the ALP of an international transaction, but such determination can bedone only by way of the methods specified by the statute. When the Legislature hasspecifically enshrined a provision under section 92C requiring the computation ofALP by any of the prescribed methods, it does not fall in the realm of the TPO or forthat matter any other authority to breach such mandate and apply or direct to applyany other method. Going by the dictate of the provision as subsists under sub-section (1) of section 92C, there can be absolutely no doubt on adoption of anysingle method of those set out in section. Rule 10B has specified a set procedure tobe followed for determining the ALP distinctly under the five methods. It is equallynot permissible to invent a new procedure and try to fit such procedure within anyof the existing procedures prescribed as per these methods. No one is authorized to add one ore more new steps in the prescribed procedure or to substitute any othermechanism with the prescribed under the rule. It is neither possible to invent amethod nor to substitute a new methodology in place of the one prescribed in therule."

In so far as Ground of appeal No.29 concerning disallowance of 16. service fees paid to Mondelez International Holdings LLC, we find that the Co- ordinate Bench of the ITAT, Mumbai in assessee’s own case for A.Y.2013- 14& 2014-15(ITA Nos. 7104/MUM/2017 & dated 20.09.2023 while considering the same issue has observed as follows:

“16. Ground Nos. 31 to 33 raised by the assessee pertains to disallowance of service fees paid to Mondelez International Holdings LLC. This issue also stands covered in favour of the assessee by the decision of the co-ordinate bench in assessee’s own case for A.Ys 21011-12 & 2012-13 (supra), wherein the Tribunal held as under:-

19. The Ld.AR submitted that this issue is also covered by the decision of the co- ordinate bench in assessee’s own case for A.Y. 2009-10. The Ld.AR further brought to our attention that the assessee raised a Miscellaneous Application with regard to the finding given by the Hon’ble Tribunal in the order 17.02.2021 and that the Hon’ble Tribunal passed the order in M.A. vide order dated 31/08/2021 substituting “3. The contents of misc. application insofar as assessee’s Prayer–(a) is concerned, the same is reproduced below:– Ground 11 to 13 - Transfer pricing adjustment on-account payment of service fees to Cadbury Holding Limited. 7. During the year under consideration, MIFPL has availed services from CadburySchweppes Asia Pacific Pte Limited ('CSAPL') (covered by ground no. 8 to 10) andCadbury Holding Limited ('CHL') (covered by ground 11 to 13).The Hon'ble ITAT while passing the order for AY 2009-10, allowed payment ofservice fees by MIFPL to CSAPL (covered by ground no. 8 to 10) stating that: a. The method followed by TPO for making adjustment was not a methodprescribed under the Act. b. Further relying on the decision of the coordinate bench in case of Kodak IndiaPvt., Barclays Bank PLC and Vedanta Ltd., it was held that matter cannot beremanded back when the TPO has failed to follow the prescribed method undersection 92C. (Refer Para 14 on page 13 of the ITAT order for AY 2009- 10) Since, facts and issues in relation to services availed from CSAPL (i.e. ground no. 8to 10) and facts and issues in relation to services availed from CHL (i.e. ground 11to 13) are identical and as both the transactions have been benchmarked by MIFPLusing TNMM, findings of ITAT for ground no. 8 to 10 are to be applied for groundno. 11 to 13 as well. The Tribunal has erroneously relied on the order for A.Y.2008-09, this being a mistake apparent from record may be rectified and thefindings given in Para 14 to 16 may be adopted for Ground No. 11 to 13 also.

4. In view of the submissions of the learned Counsel for the assessee and since themistake being apparent on the face of record, we proceed to rectify the mistakes. 5.The concluding part, vide Para–19 and 20 of grounds No.11 to 13, of the impugnedorder dated 17th February 2021, passed in assessee’s appeal being ITAno.2214/Mum./2014, for the assessment year 2009–10, are hereby substituted andbe read as under:– “19. Having considered the rival submissions and having perused the materialon record, we find that the related facts and circumstances of the issue raisedby the assessee in the grounds no.11 to 13 of the present appeal is materiallyidentical to the issue decided by us vide grounds no.8 to 11, in Para–14, 15and 16, wherein we have allowed the issue while following the decision of theCo–ordinate Bench of the Tribunal rendered in Kodak India Pvt. Ltd. v/sACIT, [2013] 37 taxmann.com 233 (Mum.). Since the issue raised in thesegrounds no.11 to 13, are identical to the issue decided by us in grounds no.8to 11 vide Para–14, 15 and 16, as aforesaid, consistent with the view takentherein, we set aside the impugned order passed by the learned CIT(A) andallow these grounds. Thus, grounds no.11 to 13, are allowed. We have already held in the earlier part of this order that the determination of ALPwithout applying any methods as prescribed under section 92C(1) by the TPO is nottenable. We notice that the TPO has computed the TP adjustment towards globalservices rendered by Cadbury Holdings Limited also in the same way by applyingadhoc estimation of salary cost and man hours. Therefore our decision with respectregional service fee paid to Cadbury Enterprises Pte Ltd., is equally applicable tothe current issue under consideration also. Therefore considering the decisions ofthe coordinate bench in assessee's own case for AY 2009-10 and in the case ofKodak India Private Ltd., (supra) we hold that the TP adjustment towards globalservices rendered by Cadbury Holdings Limited be deleted.

17. Respectfully following the aforesaid decision of coordinate bench in assessee’s case, we allow the Grounds of appeal No. 29 raised by the assessee company.

In so far as Grounds of appeal No.30-31 concerning disallowance 18. under section 14A of the act read with rule 8D, we find that the Co-ordinate Bench of the ITAT, Mumbai in assessee’s own case for A.Y.2013-14& 2014- 15, & dated 20.09.2023 while considering the same issue has observed as follows:

“18. Ground No.34 pertains to disallowance under section 14A of the act read with rule 8D. We notice that this issue is identical to the issue decided by the Tribunal for A.Ys. 2011-12 and 2012-13 (supra) and that the facts and circumstances are also identical. We find that the co-ordinate bench, for A.Y 2011-12 & 2012-13 has decided the issue by following its earlier decision for A.Y 2009-10 and remitted the issue back to the Assessing Officer with the following observations: - “22. We heard the parties and perused the material on record. It is now settled position that when the own funds are available, no disallowance is warranted under section 14A read with rule 8D. For the year under consideration, the reserves and surplus of the company as on 31/03/2011 is at Rs.89,988.09 lakhs and the investments made stands at Rs.12,881.07 lakhs, therefore, we see merit in the contention of the Ld.AR that no disallowance is warranted under section 14A. Further, the co-ordinate bench in assesse’s own case for A.Y. 2009-10 had also held that “31. Considered the rival submission and material placed on record. Wenotice from the records that the identical ground has already been decidedby the Coordinate Bench of ITAT in for AY 2008-09 in assessee’s own case on merits. For the sake of clarity, which isreproduced below:- 5.1 During assessment proceedings, it transpired that the assesseeearned exempt income of Rs.16.18 Crores which mainly comprised-off of dividend on mutual funds. The assessee, inter-alia, submittedthat Rule 8D was not applicable to year under consideration. It wasalso submitted that assessee‟s surplus funds were invested inLiquid Mutual Fund and the same were withdrawn as per businessrequirements. The attention was also drawn to the fact there weretwo persons in the Treasury department to manage mutual fundsinvestment on regular basis and the total salary paid to them wasRs.9.20 Lacs therefore, a part of the same could be disallowed. Thearguments were also raised to submit that investments were madeout of reserves and surplus. However, not satisfied, Ld. AO,applying Rule 8D, worked out aggregate disallowance of Rs.233.04Lacs which comprised-off of direct disallowance u/r 8D(2)(i) forRs.9.20 Lacs, interest disallowance u/r 8D(2)(ii) for Rs.80.56 Lacsand indirect expense disallowance u/r 8D(2)(iii) for Rs.143.28Lacs. The direct expense disallowance u/r 8D(2)(i) for Rs.9.20 Lacs is the same disallowance which has been offered by the assesseeagainst Treasury department expenses. The disallowance, uponconfirmation by learned DRP, is under appeal before us.5.2 The arguments of Ld. Sr. Counsel are two-fold viz. (i) Ld. AOhas not recorded requisite satisfaction before proceeding tocompute disallowance as per Rule 8D; (ii) The assessee hadsurplus funds to make the investments and therefore, thepresumption that the investments were out of surplus funds stood in assessee‟s favor by the judgments of Hon’ble Bombay High Court rendered in HDFC Bank Ltd. V/s CIT (2016 95 CCH 61) & CITV/s HDFC Bank Ltd. (2014 366 ITR 505). 5.3 We have consideredthe same. Upon perusal of financial statements, we find that ownfunds in the shape of share capital & free reserves at yearend stoodat Rs.46266.97 Lacs as against investment of Rs.31228.98 Lacs.Nothing has been brought on record by Ld. AO to establish thenexus of investments with borrowed funds. In fact, openinginvestments stood at Rs.26663.91 Lacs and the assessee earnedprofit after tax for Rs.15094.68 Lacs during the year underconsideration which is more than incremental investments.Therefore, applying the ratio of cited decisions, we hold that nointerest disallowance would be justified on the facts andcircumstances. We order so. So far as the disallowance of direct /indirect expenses is concerned, we are of the view that since Rule8D was applicable to this AY, the findings given in earlier orders ofTribunal would not apply to this year and the disallowance has tobe worked out in terms of the Rule 8D. The Ld. AO, in draftassessment order, at para 6.4, has noted that the submissions madeby assessee in defense of suo-moto disallowance could not beaccepted as against the submissions of the Ld. Sr. Counsel that therequisite satisfaction was not recorded by Ld. AO beforeproceeding to apply Rule 8D. We are of the considered opinion thatthere was no particular method of recording satisfaction in thequantum assessment order and therefore, unable to accept thisspecific plea of Ld. Sr. Counsel. However, keeping in view thefactual matrix as well as submissions made before us, we deem it fitto restore the matter of direct / indirect expense disallowance to thefile of Ld. AO for re-adjudication in the light of suo-moto disallowance offered by the assessee. As held earlier, no interestdisallowance would be justified, keeping in view the assesse’s financial parameters. Ground No. 14 stand partly allowed.

by the assessee are allowed.

23. Respectfully following the above decision, we hold that nodisallowance towards interest is warranted under section 14A r.w.r.8D of theAct. With regard to the contention that the suo motu disallowance we noticethat the Assessing Officer in the OGE passed for AY 2009-10 has deleted thedisallowance made under section 14A and therefore we see merit in thesubmission of the ld AR that the suo moto disallowance based on the salary ofemployees in treasury department is being accepted by the revenue. Wetherefore remit the issue of verification of direct / indirect expense disallowanceto the file of Ld. AO for re-adjudication in the light of suo-moto disallowance offered by the assessee i.e. of Rs.3,44,215/- keeping in mind the fact that for AY2009-10 the suo motu disallowance based on salary of employees in treasurydepartment has been accepted by the Assessing Officer. Needless to say that theassessee be given an opportunity of being heard. It is ordered accordingly.

19. For the year under consideration also we notice that the assessee is havingsufficient own funds which is more than the investments made. Further theassessee has made a suo moto disallowance of Rs.81,000 towards salary paid topersonnel working in Treasury Department. Therefore the facts and circumstancesare identical to the above decision of the Tribunal and respectfully following theabove order of the Tribunal, we remit the issue to assessing officer with similardirections. This ground is allowed for statistical purpose.

In so far as Grounds of appeal No.32-33 concerning allocation of 20. expenditure at Baddi Unit-I and Unit-II in turn affecting the assessee’s claim u/s 80IC, we find that the Co-ordinate Bench of the ITAT, Mumbai in assessee’s own case for A.Y.2013-14& 2014-15, & dated 20.09.2023 while considering the same issue has observed as follows:

“20. Grounds 35 to 36 pertain to allocation of expenditure at Baddi Unit-I and Unit-II. We find that this issue has been exhaustively considered by the co- ordinate bench in its order for A.Ys 2011-12 & 2012-13 (supra) and then arrived at the following conclusions:- “31. We heard the rival submissions and perused the materials on record. From the perusal of statement showing the basis of allocation of expenses to Baddi Unit I and II (page 430 and 431 of paper book) we notice that the Assessing Officer has accepted the allocation of Material cost, employee cost and depreciation. The disallowance is arising out of the allocation of finance cost and the Operating & Establishment expenses (O&E) which the assessee allocated based on the revenue ratio as compared to the total revenue of the assessee. We notice that the coordinate bench in assessee's own case for AY 2009-10 accepted the claim towards finance cost and remitted the issue back to the Assessing Officer only with respect to the verification of allocation of O&E expenses. We further notice that in the OGE the Assessing Officer has allowed the O&E expenses as claimed in the return of income for the purpose of deduction under section 80IC thereby accepting the method of allocation followed by the assessee for allocatingO&E expenses. It is also noticed that there is no change in the method ofallocation followed by the assessee for AY 2011-12 also. Considering thedecision of the coordinate bench and the OGE passed by the AssessingOfficer, we delete the disallowance made by the Assessing Officer and holdthat the assessee be allowed the deduction under section 80IC as claimed inthe return of income.

21. For the year under consideration, the ld AR during the course hearingpresented a worksheet with details of how the disallowance is computed by theassessing officer. From the perusal of the same we notice that the assessing officerhas used the same basis as in AY 2011-12 in order to make the disallowances.Therefore, in our considered view our decision in assessee's own case for AY 2011-12, as extracted above will be applicable for the year under consideration also.Therefore, respectfully following the earlier decision of the co-ordinate bench, wedelete the disallowance made by the Assessing Officer. These grounds of theassessee are allowed.”

In so far as the Grounds of appeal No.34regarding the levy of 22. interest u/s. 234C of the Act, the Ld. Counsel submitted that the A.O has levied interest u/s. 234C of the Act on the assessed income whereas the provisions of Section 234C talks about levy of interest on income returned. We, therefore, remit the issue back to the A.O with a direction to examine the records and re-compute the interest u/s. 234C of the Act as per provisions of the said section. Thus, the Ground of appeal No.34 is allowed for statistical purposes.

23. Ground No. 38 pertains to non grant of MAT credit. We find that the Tribunal while considering the appeal for A.Y. 2011-12 has observed as under with regard to similar issue:- “36. The Ld.AR submitted that the MAT credit is carried forward from A.Y.2010-11 and the credit was modified due to additions made in theassessment order for A.Y. 2010-11. The Ld.AR further submitted that theTribunal vide order dated 14th November, 2022 has quashed theassessment for A.Y. 2010-11 as being barred by limitation. It is therefore,prayed that the assessee allowed the MAT credit as per the original returnof income filed as has been carried forward from A.Y. 2010-11. Afterhearing the parties, we are of the view that this issue needs to be factually examined for the purpose of allowing the credit towards carried for MATcredit from AY 2010- 11. Therefore, we remit the issue back to the AssessingOfficer to examine the status of the assessment order passed for A.Y. 2010-11 and accordingly give credit for the carried forward MAT for the yearunder consideration‖ 24. Facts and circumstances, being identical, consistent with the earlier decisionof the Tribunal, we remit the issue back to the Assessing Officer to examine thestatus of the assessment order for A.Y.2010-11 and accordingly give credit for thecarried forward MAT for the year under consideration. This ground is allowedfor statistical purpose.

Order pronounced in the open court on 22nd August, 2025.