DOW CHEMICALS INTERNATIONAL PVT LTD. AS SUCCESSOR OF ROHM AND HAAS (INDIA) PVT LTD,MUMBAI vs. ITO 14 (1)(3), MUMBAI

This appeal by the assessee is directed against final assessment order dated 30/10/2019, passed by the Income-Tax Officer, Ward 14(1)(3), Mumbai [hereinafter shall be referred as ‘the Ld. Assessing Dow Chemical International Private Limited as successor of Rohm and Hass 2 (India) Private Limited Officer’], in pursuant to the direction of the Ld. Dispute Resolution Panel (DRP) for assessment year 2014-15. The grounds raised by the assessee are reproduced as under:

“On the facts and in the circumstances of the case and in law, the learned AO/ TPO/ DRP on fact and in law has:

GENERAL

1. Erred in determining the Appellant's total income at Rs.18,87,64,272 as against returned income of Nil computed by the Appellant.

I. TRANSFER PRICING ADJUSTMENTS IMPORT OF RAW MATERIAL AND EXPORT OF FINISHED GOODS General

2. erred in making an adjustment of Rs 24,38,56,927 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of export of finished goods and on a without prejudice basis of IN 23,54,22,466 on the international transaction of import of raw materials from Associated Enterprises ('AEs').

Inappropriate rejection of Cost-Plus Method ('PM') and instead adopting Transactional Net Margin Method ('TNMM') as most appropriate method ('MAM')

3. erred in not accepting the economic analysis undertaken by the Appellant under PM. In accordance with the provisions of the Income Tax Dow Chemical International Private Limited as successor of Rohm and Hass 3 (India) Private Limited Act, 1961 ('Act') read with the Income Tax Rules, 1962 ('Rules') for determination of the arm's length price and instead adopting TNMM as the MAM.

4. erred in making an incorrect observation that the Appellant is a loss-making concern and hence has chosen PM to benchmark the international transactions of import of raw materials and export of finished goods, without appreciating the fact that appellant is not a loss- making concern.

Inappropriate rejection of comparable companies adopted by Appellant

5. erred in inappropriately rejecting the companies adopted as comparable by the Appellant in relation to the international transaction of import of raw materials and export of finishes goods.

Inappropriate acceptance of non-comparable company

6. erred in considering Vivimed Labs Limited as a comparable to the Appellant for benchmarking the international transaction of import of raw materials and sale of finished goods without providing any cogent reason for rejecting Appellant's argument on non-comparability of the company.

7. erred in considering only a single company as comparable for benchmarking the international transactions of export of finished goods and import of raw materials.

Alternate benchmarking analysis carried out by the learned TPO

8. erred in proposing a secondary benchmarking analysis and proposing an adjustment of IN 6,77,40,911/- by considering non- Dow Chemical International Private Limited as successor of Rohm and Hass 4 (India) Private Limited comparable companies as comparable to the Appellant to benchmark the international transaction of import of raw materials, without providing any appropriate reasons for rejecting Appellant's argument on non- comparability of these additional companies.

Non-consideration of adjustments on account of functional and risk differences

9. erred in determining the arm's length price of the international transactions of import of raw materials from AEs and export of finished goods to AEs without taking into consideration the economic adjustments on account of the difference in the functions performed and risk assumed (including differences in working capital employed) between the tested party (Appellant) and the companies considered by the learned PO/ Appellant.

Objections specific to TP adjustment on export of finished goods of IN 24,38, 56,927 Non-consideration of Comparable Uncontrolled Price ('CUP') available in the form of market prices published by TIPS database

10. erred in inappropriately rejecting CUP in case of export of finished goods available on TIPS database (compiled based on customs data), furnished by the Appellant for justifying the arm's length nature of the transaction of export of finished goods.

11. erred in not taking cognizance of Appellant's contention that there will be no transfer pricing adjustment in case of export of finished goods (available on TIPS database for 92.46 percent of total exports to AEs) based on comparison with market prices published by TIPS Dow Chemical International Private Limited as successor of Rohm and Hass 5 (India) Private Limited database, in case the value of adjustment for each finished product exported is aggregated.

Non-consideration of separate segment for TNMM analysis for the international

12. erred in not considering Appellant's segmental results pertaining to export to AEs segment for benchmarking the international transaction of export of finished goods which is at arm's length.

Objections specific to TP adjustment on import of raw materials of INR 23,54,22, 466 Alternate analysis usinq CUP data for import of raw materials Non-consideration of CUP available in the form of market prices published by Independent Chemical Information Services ("ICIS”) for import of raw materials 13 erred in inappropriately rejecting CUP in case of import of raw materials (i.e. monomers) available on ICIS website (relied upon by chemical industry), furnished by the Appellant for justifying the arm's length nature of the transaction of import of raw materials (monomers).

14. erred in not taking cognizance of Appellant's contention that there will be no transfer pricing adjustment in case of import of raw material (i.e. monomers which constitute 52.13 percent of import of raw materials from AEs) based on comparison with market prices published by ICIS, in case the value of adjustment for each raw material imported is aggregated.

Rejection of CUP to the extent available Dow Chemical International Private Limited as successor of Rohm and Hass 6 (India) Private Limited 15. erred in not considering CUP as the MAM to benchmark the international transaction of import of raw materials (to the extent CUP data is available) and TNMM for the balance amount; and instead applying TNMM for the entire international transaction of import of raw materials.

Non-consideration of CUP available in the form of market prices published by TIPS database

16. erred in inappropriately rejecting CUP in case of import of raw materials available on TIPS database (compiled based on customs data), furnished by the Appellant for justifying the arm's length nature of the transaction of import of raw material

17. erred in not taking cognizance of Appellant's contention that there will be no transfer pricing adjustment in case of import of raw materials (available on TIPS database for 95.37 percent of total imports from AEs) based on comparison with market prices published by TIPS database, in case the value of adjustment for each raw material imported is aggregated.

II. CORPORATE TAX ADJUSTMENTS Compensation received of Rs.17,87,49,236 on termination of marketing support agreement being held as revenue in nature

18. erred in holding that the compensation received on termination of market support agreement is a revenue receipt and is taxable under section 28 of the Act without appreciating that it has resulted in loss of profit-making apparatus of the Appellant.

19. erred in holding that the compensation received by the Appellant on termination of a part of the contract on account of discontinuance of Dow Chemical International Private Limited as successor of Rohm and Hass 7 (India) Private Limited certain product from its existing market support agreement is in the course of normal business activities of the Appellant. Charge of interest under section 234A of the Act 20. erred in charging interest of Rs 7,94,439 under section 234A of the Act. Charge of interest under section 234B of the Act 21. erred in charging under section 234B of the Act amounting to Rs.51,88,911. Penalty proceedings under section 271(1)(c) of the Act 22. erred in initiating penalty proceedings u/s 271(1)(c) of the Act without appreciating the fact that the appellant has not furnished any inaccurate particulars of income. 2. In the grounds raised, the assessee is aggrieved mainly in respect of ‘transfer pricing adjustment’ and ‘compensation received treated as revenue in nature’.

3.1 Meanwhile, M/s Rohm and Hass (I) P Ltd. merged with M/s Dow chemical International Private Limited (DCIPL) with effect from 01/04/2015, pursuant to the order of the Hon’ble Bombay High Court dated 22/01/2016.

Dow Chemical International Private Limited as successor of Rohm and Hass 10 (India) Private Limited

6. The ground No. one of the appeal being general in nature, we are not required to adjudicate upon specifically.

Dow Chemical International Private Limited as successor of Rohm and Hass 12 (India) Private Limited The assessee chosen 11 comparables, but taken operating profit/operating income as PLI and computed mean PLI of those comparables at 6.64% and accordingly, the assessee was of the view that the transactions of purchase of raw material and finished goods were at arm’s length. The Ld. TPO rejected the CPM method as most appropriate method for determination of arms length price. According to the Ld. TPO, the application of CPM requires gross margins both for the tested party and the comparables. The Ld. TPO found that assessee is a loss-making concern and has incurred selling & distribution and administration expenses and therefore to avoid comparability at entity level, the assessee is trying to benchmark the transactions on GP/sales. The Ld. TPO also rejected the CPM method because of non-availability of gross profit margin details in respect of the comparables. The Ld. TPO also observed that in immediately preceding assessment year 2014-15, the Ld. DRP rejected the CPM method and applied TNMM as most appropriate method. The Ld. TPO also rejected the argument of the Dow Chemical International Private Limited as successor of Rohm and Hass 13 (India) Private Limited ITA No. 7936/M/2019 assessee of applying CUP method in view of Independent Chemical Information Service (ICIS) data. According to the Ld. TPO the import prices on various indices/markets as reported in ICIS data fluctuate on hourly basis and therefore the assessee’s attempts to benchmark the transactions with non-contemporaneous data, vitiates the whole benchmarking process. He also noticed that the data published by the ICIS is based on number of assumptions and presumption and actual transactions as well bids and offers, i.e. quotations, which are not actual transactions, therefore, the ‘data’ cannot be accepted as CUP. He also noticed that there was no complete ICIS data for comparing all the transactions of the assessee. The Ld. TPO applied TNMM as most the appropriate method using operating profit/operating revenue as PLI. The PLI of the manufacturing segment of the assessee was worked out to 4.87%. The Ld. TPO taken M/s Vivimed Labs Ltd as comparable and worked out weighted average of its PLI for the last three years at 23.73%. The Dow Chemical International Private Limited as successor of Rohm and Hass Dow Chemical International Private Limited as successor of Rohm and Hass Dow Chemical International Private Limited as successor of Rohm and Hass 14 (India) (India) Private Limited ITA No. 7936/M/2019 ITA No. 7936/M/2019 Ld. TPO, accordingly computed the transfer pricing adjustment of TPO, accordingly computed the transfer pricing adjustment of TPO, accordingly computed the transfer pricing adjustment of ₹ 24,38, 56,927/-as under: as under:

4.2.1 With reference to the objections of the assessee regarding rejection With reference to the objections of the assessee regarding rejection With reference to the objections of the assessee regarding rejection of the economic analysis of the economic analysis undertaken by the assessce and documentation undertaken by the assessce and documentation maintained by it, we find that the analysis of maintained by it, we find that the analysis of the assessee has been the assessee has been Dow Chemical International Private Limited as successor of Rohm and Hass 15 (India) Private Limited examined by the TO before arriving at an opinion regarding the study carried out by the assessee. With respect to use of gross margin in assessee's study, it is noted that the assessee is a full risk manufacturer and has significant below the line expenses which need to be compensated. Hence, a TP study using gross margins in the case of the assessee is totally incorrect and has rightly been rejected. The assessee, keeping in view its FAR needs to be benchmarked at operating margin level. Hence, the TPO was right in rejecting gross margin as a PLÎ, Gross margins are proper only when the use of assessee's own capital assets or employee is minimal and does not contribute to value creation. Such is not the case here. The TPO has pointed out several issues with the benchmarking and has clearly brought out the fact that the companies selected by the assessee were not functionally comparable with the assessee. The IPO has also commented on the search process and the use of multiple year data. He has dealt with each of the comparable selected by the assessee and has pointed out the defects in them. The TPO has after detailed analysis of the facts of the case, noted that the TP study of the assessee using PM method was not the appropriate method and the TPO has adopted the TNMM method. In view of the facis and details narrated in the TPO's order, it is clear that the study conduced by the assessee does not comply with the provisions of section 92C(3) of the Act. Hence, we find no merit in the objections raised no. 3 to 5 are rejected.

“5.2 Discussion & Direction of the DRP:

We have considered the order of the AO/TPO, submissions of the assessee, additional evidences filed by the assessee, remand report of the assessee and the rejoinder of the assessee. It is noted that the TPO has dealt with the additional evidences filed by the assessee and noted the following:

1. In the import segment the assessce has value of imports of 156.53 crores, the contention of the assessee that 95.37% of the data was available in TIPS database was incorrect the correct number comes to $2.2%. There is mismatch of dates in the data of the assessee and the database. Further there is no mention of geography and volume of transactions which makes the data unreliable for a CUP analysis which requires closer proximity of data. For these reasons the TO has rejected the data of the assessee.

“5.2.1 Import of Raw materials We have considered the facts of the case and submissions made by the assessee. The assessee in its submission argued that the TO had rejected the CUP available in the form of market prices published by the ICIS applied by the assessce for arriving at the Arms Length Price for import of Raw Materials. The assessee has compared its purchase price with the data spread over a few weeks and months available on the ICIS. The assessee in its submission has further stated that the TO has rejected the CUP Method applied by the assessee in arriving at the Arms Length Price without giving Dow Chemical International Private Limited as successor of Rohm and Hass 18 (India) Private Limited a valid explanation. The assessee submitted that the method applied by it was most appropriate.

5.2.2 We have gone through the Order by the PO and find that the TPO has clearly mentioned the reasons for rejection of CUP Method on account non availability of contemporaneous import price in so far as the Assessee has tried to compare its import transactions with data spread over a few weeks and months. The TPO has also stated that import prices on various indices/markets fluctuate on an hourly basis and the Assessee's attempt to benchmark transactions with non contemporancous data vitiates the whole benchmarking process. The quotations given in the database used for benchmarking the transactions of raw material import by the assessee are not actual transaction data for the relevant date of transaction and therefore cannot be accepted as a CUP. The TPO rejected the CUP data available on the TIPS database on the ground that TIPS database gives prices of raw material imported for only 80 % of raw material and hence, the CUP data on TIPS database was also rejected and TNMM was applied. The Panel is in agreement the findings of the PO and the objection of the assessee in this regard is rejected.

5.2.3 Sale of Finished Goods 5.2.4 We have considered the facts of the case and submissions made by the assessee. The assessee in its submission argued that the TO had rejected the cost plus method applied by the assessee for arriving at the Arms Length Price for sale of finished goods. The assessee in its submission has further stated that the TO has rejecied the Cost Plus Method applied by the assessee in arriving at the Anns Length Price without giving a valid explanation. The assessee also submitted that the method applied by the assessce was most appropriate.

Dow Chemical International Private Limited as successor of Rohm and Hass 19 (India) Private Limited 5.2.5 We have gone through the Order by the TPO and find that the TPO has clearly mentioned the reasons for rejection of Cost Plus Method on account of non comparability of the selected companies at the entity level. Further, since the assessee was making à loss, it had adopted CPM so as to make comparability of gross margin with the comparables. The assessee is in gross error in trying to use cost plus method in case of an entrepreneur who is a manufacturer.

5.2.6 We have also noted that in the assessee's own case PM was rejected in A Y 2010-2011 & A Y 2011-2012, A.Yr. 2012-13 and A.Yr. 2014-15 by the DRP. Since the issue is covered against the assessee, we dismiss the ground of objection of the assessee.”

(emphasis supplied externally)

“7.2 Discussions & Directions of the DRP:

It is noted that the TO, in his order, has adopted 4 companies (Jupiter Bioscience Limited, Fineotex Chemical Limited, Jubilant Life Sciences Limited, Vivimed Labs Limited) engaged in products which are in the manufacture of specialty chemicals as comparable companies.

During the course of the transfer pricing assessment proceedings, the TP had provided an opportunity to the Assessee to provide reasons why the aforesaid companies could not be treated as comparable to the Assessee in relation to the international transaction under question.

Dow Chemical International Private Limited as successor of Rohm and Hass 20 (India) Private Limited The DRP does not agree with the assessee's contention that only one comparable cannot be adopted for delermining arm's length Price.

The final set of comparable have been selected carefully having regard to FAR analysis of the assessee. The panel is in agreement with the methodology followed by the TPO and the same is upheld and the ground of objection no. 7 & 8 of assessee are dismissed.”

“9.2 Discussion & Directions of the DRP:

It is noted that the TPO, in his order, has adopted I company (Vivimed Labs Limited) engaged in products which are in the manufacture of specialty chemicals as comparable companies.

During the course of the transfer pricing assessment proceedings, the TPO had identified from companies and had provided an opportunity to the Assessee to provide reasons why these companies could not be treated as comparable to the Assessee in relation to the international transaction under question.

It is noted that the final set of comparables include only one company which is seen as a narrow set. The comparables have been selected having regard to FAR analysis of the assessee. However in the case of M/s Jupiter Biosciences Limited it is noted that the TPO was not able to get annual accounts of the company while passing the order W/s 92CA(3). In this regard the AO/IPO is directed to consider the possibility of including M/s Jupiter Biosciences Limited as a comparable if its annual report is now Dow Chemical International Private Limited as successor of Rohm and Hass 21 (India) Private Limited available, in order to have a good set of comparables. The ground of objection no. 10 of assessee is disposed on these lines.”

10.2 Discussion & Direction of the DRP: Import of Raw materials We have considered the facts of the case and submissions made by the assessee. The assessee in its submission argued that the TPO had rejected the CUP available in the form of market prices published by the ICIS applied by the assessee for arriving at the Arms Length Price for import of Raw Materials. The assessee has compared its purchase price with the dala spread over a few weeks and months available on the ICIS. The assessee in its submission has further stated that the TO has rejecled the CUP Method applied by the assessee in arriving at the Arms Length Price without giving a valid explanation. The assessee submitted that the method applied by it was most appropriate.

11.2 Discussions & Directions of the DRP: Sale of Finished Goods Dow Chemical International Private Limited as successor of Rohm and Hass 22 (India) Private Limited 11.2.1 We have considered the facts of the case and submissions made by the assessee. The assessee in its submission argued that the TPO had rejected the cost plus method applied by the assessee for arriving at the Arms Length Price for sale of finished goods. The assessee in its submission has further stated that the TPO has rejected the Cost Plus Method applied by the assessee in arriving at the Arms Length Price without giving a valid explanation. The assessee also submitted that the method applied by the assessee was most appropriate. 11.2.2 We have gone through the Order by the TPO and find that the TPO has clearly mentioned the reasons for rejection of Cost Plus Method on account of wrong use of PLI and non comparability of the comparables at the entity level. The method PM adopted by the assessce was also not found to be most appropriate. The assessce was in gross error in trying to use cost plus method in case of an entrepreneur who is a manufacturer. 11.2.3 We have also noted that in the assessee's own case PM was rejected in A Y 2010-2011 & A Y 2011-2012, A. Yr. 2012-13& 2014-15 by the DRP. Since the issue is covered against the assessee, we dismiss the grounds of objection number 16 & 17 of the assessee.

4.6 As directed by the Hon'ble DRP, the Id. TO has considered the possibility of including the name of M/s Jupiter Blosciences Limited. However, as the annual report of the said company are not available, it is not possible to include M/S Jupiter Biosciences Limited as a comparable by it. The Id. Transfer Pricing Officer, Jt. CIT(TP)-1(2), Mumbai, vide order passed under section 92CA(3) of the Income-tax Act, 1961 dated 31.10.2018, had made an upward adjustment of Rs.24,38,56,927/- to the Arm's Length Price of transactions as reported by the assessee in Form No.3CEB pertaining to export of goods. The addition was confirmed by the Hon'ble DRP. Therefore, as required under section 92CA(4) of the Income- tax Act, 1961, an amount of Rs. 24,38,56,927/- (being the upward adjustment to the arm's length price) is treated as income of the assessee and the same is added to its total income.

13.8. We have heard rival submissions. Before us, the assessee filed additional evidence in the form of datawise comparison of export prices and market prices using TIPS Data Base under CUP method using aggregation / portfolio approach for 94.23% of the total exports made to AE's and pleaded for acceptance of the same. This was filed in addition to vehemently objecting to the adoption of TNMM as MAM. The ld. AR on without prejudice basis, vide letter dated 08/02/2019 also submitted that even if TNMM is to be adopted as MAM, the assessee segmental results pertaining to export of finished goods is required to be considered for benchmarking the international transaction of export of finished goods wherein assessee has earned operating margin of 25.14% on operating Dow Chemical International Private Limited as successor of Rohm and Hass 26 (India) Private Limited cost. Accordingly, the operating margin earned by the assessee in respect of export to AEs was higher than the arithmetic mean of the operating margin earned by comparable companies selected in TP study (i.e. 2.55% companies selected by the ld. TPO for computing disallowance i.e. 17.86%, additional companies selected by the ld. TPO from emulsions companies i.e. 10.78%). 13.9. Per contra ld. DR vehemently objected to the admission of additional evidences filed before this Tribunal and reiterated the findings of the ld. DRP. We have already held in A.Y.2010-11 that additional ITA Nos.2199/Mum/2015 & 6577/Mum/2018 & SA No.261/Mum/2019 evidences filed by the assessee for import of raw materials using TIPS Data Base under CUP method is to be admitted as it covers majority of the international transactions carried out by the assessee. In the instant case in respect of export of finished goods, the comparable data using TIPS Data Base under CUP method covers 94.23% as stated by the ld. AR of the total value of the transactions. However, since this data requires factual examination of comparable prices by the ld. TPO, we deem it fit and appropriate to remand this issue to the file of the ld. TPO in the same directions as was given by us for import of raw materials from AEs for A.Y.2014-15 supra.

21.1 We find that in assessment year 2014-15, factual examination of the comparable price was required and therefore matter was restored to the Ld. TPO. The Ld. TPO wide order dated 17/01/2022 has adjudicated the issue as under:

“5. Determination of Arm's Length Price:

Dow Chemical International Private Limited as successor of Rohm and Hass 27 (India) Private Limited Notice u/s 92 CA(2) of the 1. T. Act dated 09/11/2021 and u/s 92 D(3) dated 27/12/2021 were issued to the assessee calling for details and documents along with documentary evidences in respect of international transactions entered into by the assessee in respect of import of raw materials and export of finished goods from its Associated Enterprises (AEs). In response to the notices, the assessee submitted its reply vide letter dated 11/01/2022. After considering the submissions and explanations of the assessee, the international transactions entered into by the assessee for import of raw materials and export of finished goodswith its associated enterprises during F.Y. 2013-14 relating to A.Y 2014-15 are treated at arm's length in the absence of any adverse inference drawn on the facts submitted by the assessee and material available on record. Therefore, the international transactions reported by the assessee are accepted to be at an arm's length and no adjustment is being made.

6. This decision is in response to specific reference u/s 92CA(1) received and will apply to the case of the assessee for A.Y. 2014-15.” 21.2 We are also of the view that in assessment year 2015-16 i.e. the year under consideration Ld. TPO is required to examine the comparability of the transactions on strict parameter of CUP method comparability after excluding the related party transactions from the set of the TIPS data base.

Dow Chemical International Private Limited as successor of Rohm and Hass 28 (India) Private Limited 21.3 This exercise of examining comparability has already been carried out by the Ld. TPO in remand during DRP proceedings, wherein the TPO has rejected the comparability on the ground that geography and volume of the transactions was not available in the database. In our opinion, the Assessing Officer or the TPO has authority to call for complete information of the transactions of import of raw materials and export of finished goods from the Custom Authorities including invoices of import or export having details of geography and volume. The Ld. TPO may also remove the related party transactions from the relevant information. We note that Assessing Officer in assessment year 2014-15 has carried out exercise for comparing the international transactions of the assessee with the uncontrolled transactions available in TIPS data base and that too after the order of the Ld. DRP for year under consideration. In view of above, we feel it appropriate to restore the matter to the Ld. AO/TPO for comparing the TIPS data with the international transactions of the assessee under CUP method of comparability as Dow Chemical International Private Limited as successor of Rohm and Hass 29 (India) Private Limited ITA No. 7936/M/2019 most appropriate method. In case, the CUP method fails, the Ld. AO/TPO may explore another methods including TNMM. The ground No. 10 to 11 and 15 to 17 of the appeal are accordingly allowed for statistical purposes.

Dow Chemical International Private Limited as successor of Rohm and Hass 31 (India) Private Limited to its overseas group entities in USA, Taiwan, Singapore etc. since 1997 and earned commission income from rendering such services. On account of internal restructuring of the ‘Dow Group’ and streamlining the business operations, the sales promotion agreement with various group entities were replaced by a singular market support agreement dated 04/12/2014 between the assessee and Dow chemical Pacific Singapore Pte. Ltd. and its affiliates for marketing of various products of the Dow overseas entities including the SBH. A copy of the said market support agreement dated 04/12/2014 was filed before the Ld. Assessing Officer. The Ld. Assessing Officer noted that as per this agreement, the assessee was required to provide the marketing support for promotion of the product of the Dow group in the territory (i.e. India, Bangladesh, Sri Lanka and Pakistan) and solicit orders from customers in such territory for each products. As per clause 8, the agreement was effective from 01/10/2014 till 31/12/2015, renewable every year.

Dow Chemical International Private Limited as successor of Rohm and Hass 32 (India) Private Limited

Dow Chemical International Private Limited as successor of Rohm and Hass 33 (India) Private Limited

“12.2 Discussion & Direction of the DRP:

Dow Chemical International Private Limited as successor of Rohm and Hass 34 (India) Private Limited We have gone through the order of the AO/TO and the submissions of the assessee made in this regard. It is noted that the AO has held that the compensation of INR 17,87,49,236 received on termination of marketing support agreement for the SBH productis revenue in nature chargeable to tax as per section 28 of the Act. It is submitted that the AO has made addition without appreciating the fact that it resulted in loss of profit-making apparatus of the Assessee and therefore, Ought to be treated as capital receipt not chargeable to tax.

The assessee has submitted that it provides market support services for various products including Sodium Borohydride (SBH) to its overseas group entities in USA. Taiwan. Singapore, etc. since 1997 and earned commission income from rendering such services. On account of the intemal restructuring of the bow Group and streamlining the business operations, the sales promotion agreements with various overseas group entities were replaced by a singular market support agreement dated 4 December 2014 between the Assessee, Dow Chemical Pacitic Singapore PIe Ltd (*Dow Singapore") and its affiliates for marketing various products of the Dow overseas entities including SBH. It is on this account payment was received by the assessee.

In this regard it is noted that the order of the Division Bench of Mumbai High Court in Blue Star Ltd. v. CIT [1996] 217 ITR 514/ 1995] 79 Taxman 281 (Bom) is applicable to the facts of this case.

The Division Bench held as under:

Dow Chemical International Private Limited as successor of Rohm and Hass 36 (India) Private Limited It is noted that the assessee admittedly had other service and distribution contracts and the assessee is engaged in several other lines of activities during the year. It is also noted that the assessee has not established that the termination of the marketing support agreement for the SBH producthas resulted in a loss of source of income or has affected its other trading contracts. The marketing contract was but one of the many contracts that the assessee had entered into. It was one of the many activities that the assessee had engaged in and that the assessee is not prevented in any manner whatsoever from continuing a similar line of business with other enterprises. In view of this the panel finds itself in agreement with the AO that the receipt on termination of the marketing support agreementfor the SBH productis taxable as a revenue receipt under the IT Act.In view of this the ground of objection number 18 of the assessee is dismissed.”

Dow Chemical International Private Limited as successor of Rohm and Hass 38 (India) Private Limited Case laws against the assessee:

Case law in favour of the assessee

1. N. Sandeep Reddy 95 ITD 33 (Hyderabad Tribunal) 2. Sri K.S.N. Enterprises (P.) Ltd. 105 ITD 375 (Hyderabad Tribunal) 3. Kwality Cafe & Restaurant (P.) Ltd. 105 ITD 169 (Chandigarh Tribunal) 4. Khanna & Annadhaman 351 ITR 110 (Delhi HC)

Dow Chemical International Private Limited as successor of Rohm and Hass 39 (India) Private Limited