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Before: SHRI N. K. BILLAIYA & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
These four appeals are filed by the Revenue against the orders dated 22/01/2015, 23/7/2015 & 30/12/2015 for Assessment Year 2008-09 & 2009- 10 passed by CIT(A)-44, New Delhi.
The grounds of appeal are as under:-
I.T.A .No. 1799/DEL/2015 (A.Y 2008-09) “On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in:-
The order of the CIT(A) is not correct in law and facts.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deleting the addition of Rs.2,16,81,541/- made by A.O on account of advertising expenditure.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deleting the addition of Rs.3,97,06,202/- made by A.O on account of Arms Length Pricing.”
I.T.A .No. 5667/DEL/2015 2015 (A.Y 2008-09) “On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in:-
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The order of the CIT(A) is not correct in law and facts.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in quashing the order of penalty imposed by the A.O amounting to Rs.27,48,618/- u/s 271AA of the Income Tax Act.”
I.T.A .No. 1800/DEL/2015 (A.Y 2009-10) “On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in:-
The order of the CIT(A) is not correct in law and facts.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law in deleting the addition of Rs.2,89,06,778/- made by A.O on account of advertisement expenditure.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law in deleting the addition of Rs.2,18,25,568/- made by A.O on account of Arms Length Pricing.”
I.T.A .No. 2374/DEL/2016 (A.Y 2009-10) “On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in:-
The order of the CIT(A) is not correct in law and facts.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deleting the penalty order passed by the A.O imposing penalty amounting to Rs.23,86,158/- u/s 271AA of the Income Tax Act, 1961.
On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in deleting the penalty order passed by the A.O imposing penalty amounting to Rs.23,86,158/- u/s 271G of the Income Tax Act, 1961.”
The present appeals are filed by the Revenue. These four appeals
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comprised of two quantum appeals and two penalty appeals. The issues are common in these appeals. Therefore, we are taking up brief facts of Assessment Year 2008-09 in ITA No. 1799/DEL/2015.
M/s. Mahashayan Di Hatti Limited (hereinafter referred as M/s MDH Ltd.) is a Private Company and the main Directors of the Company are Shri Dharam Pal Gulati and Shri Rajeev Gulati. The Company is engaged in the manufacturing of edible oils at MDH House, Gurgaon. Over the years, the Company has positioned itself into a well-known brand in its line of business. At present, the company has large network of associated concerned that are engaged in procurement of raw materials for the manufacturing by the Company and a highly diversified network of distributors/super-stockiest for all India distribution of its products. The products portfolio of the Company has also diversified and several new products such as Dant Manjan, Agarbatties have been added. Another company M/s Super Delicacies P. Ltd has been set up to manufacture these new products. The Company has also been regularly exporting its products to foreign countries such as Europe and USA. Its overseas business is looked after by 100% subsidiaries namely M/s Mark Spices Ltd. (U.K) and M/s R. Pure Agro Ltd. (UAE). The return declaring income of Rs. 66,36,39,237/- was e-filed on 30/09/2008 and a paper return was filed on 15/10/2008 i.e. within stipulated period of 15 days. Return was processed u/s 143(1) on 15/3/2010. The case was selected for scrutiny. Notice u/s 143(2) and 115WE (2) dated 29/6/2009 was sent. Basic questionnaire was issued on 13/07/2009. On 6/5/2009, the assessee filed the details in response to the basic questionnaire. Further notices u/s 143(2) and 142(1) were issued along with questionnaire dated 18/8/2011. In response to statutory notices and questionnaire, C.A of the assessee appeared from time to time and filed written submissions. The assessee filed Form No. 3CEB showing total foreign transactions of Rs. 9,77,24,705/-. The matter was referred to TPO after determination of Arm’s Length Pricing on 22/7/2010 after obtaining the permission from the Commissioner of Income Tax, Central Circle-
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1, New Delhi. The TPO vide order u/s 92CA (3) dated 25/10/2011directed that the Arm’s Length Pricing shown by the assessee for export to associated enterprises be increased by an amount of Rs. 3,97,06,202/-. The Assessing Officer observed that the assessee Company claimed a huge expenditure of Rs.10.84 lacs in its profit and loss account towards advertisement expenses. The said expenditure was disallowed at 20% by the Assessing Officer and Rs. 2,16,81,541/- was added to the income of the assessee. Thus, the Assessing Officer assessed total income of Rs.72,50,26,980/-.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) while considering all the contentions of the assessee and after verifying the record allowed the appeal of the assessee.
As regards Ground No. 2, the Ld. DR submitted that the CIT(A) erred in law in deleting addition of Rs. 2,16,81,541/- on account of advertisement expenditure. The Ld. DR submitted that the Assessing Officer has rightly observed that the expenditure on advertisement was not fully expanded for the purpose of business of the Company but to promote Mahashian Dharampal Gulati and it is excessive and unreasonable.
As regards Ground No. 3, the Ld. DR submitted that no documentation as prescribed in Sub Rule 1(e) to 1(m) was filed by the assessee and there was no Transfer Pricing study/working in regard to international transaction undertaken and most appropriate method claim to have applied and reported in Form 3CEB was given by the assessee. Therefore, the Assessing Officer righty made addition of Rs. 3,97,06,202/- on account of Arm’s Length Pricing as per the Ld. DR.
The Ld. AR submitted that for Assessment Year 2010-11 and 2012-13, the Tribunal has already deleted Advertisement Expenditure by relying on the decision of the Hon’ble Delhi High Court in Assessee’s own case in which the Hon’ble High Court dismissed the appeals of the Revenue. Therefore, the Ld.
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AR submitted that the issue is squarely covered by the decision of the Delhi High Court in previous year and subsequent years in favour of the assessee.
As regards, Ground No.2, the Ld. AR relied upon the order of the TPO in Assessment Year 2005-06, 2006-07, and 2010-11, wherein the nature of the business model of the assessee has been stated out which is exactly the same in the current assessment year. Based on earlier and subsequent Assessment Years 2005-06, 2006-07, 2007-08 and 2010-11, the TPO has not made any Arm’s Length Price addition. The Ld. AR relied upon the order of the CIT(A) and stated that the said order is just and proper.
We have heard both the parties and perused the material available on record. As regards Ground No.1, the issue of Advertisement Expenditures has been allowed in favour of the assessee in earlier and subsequent Assessment Years by the ITAT being ITA No. 7067/DEL/2014 A.Y. 2010-11, ITA No. 6166/DEL/2015 A.Y. 2011-12 and ITA No. 6167/DEL/2014 A.Y. 2012-13. The Hon’ble Delhi High Court has confirmed the order of the ITAT as per submission of the Ld. AR. All these factual aspect was taken into consideration by the CIT(A) and held as under in the present Assessment Year:-
“3.3 Vide order dated 29/10/2010 in the appellant’s own case in ITA No. 1270, 1271, 1272 & 1273 for AY 2001-02 to AY 2004-05, the Hon’ble ITAT, Delhi has held as under:
“32. The next issue for consideration, which is common in all the four years relates to estimated disallowance of 20 per cent out of advertisement and publicity expenses. During the course of assessment proceedings the assessing officer noted that the advertisement expenses were disproportionately high being more than 10 per cent of the turnover. He further noted that in all advertisements made by the assessee in print and visual media, the name of its promoter, Director, Mr. Dharma Pal Gulati was equally and prominently displayed and advertised. Therefore,
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an attempt has been made by the company to promote Shri Dharam Pal Gulati and not the products. The brand of MDH actually refers to Mr. Dharam Pal Gulati and the ownership of the brand is not in proportion to the increase in advertisement expenses. He, therefore, disallowed 20 per cent of the total expenditure in each year as expenditure was incurred to promote, Mahashaya Dharam Pal Gulati, the CM D of the assessee company.
Before the Id. CIT (A) it was submitted that he name, Mahashaya Dharam Pal Gulati is never mentioned even once in any of the advertisements whether in print or TV media then how can he promoted personally through these advertisements as has been alleged in the assessment order. In the advertisement of the assessee’s products, Mahashaya Dharam Pal Gulati just appears as an actor and prominence is placed on the product and their useful qualities. It was also submitted that in advertisement of various consumer goods in the market the display of product is of a very short duration, but the concentration is mainly given to the celebrity therein. The assessee is engaged in the business of consumer house-hold produce having a very stiff competition from the organized as well as the unorganized sectors. A consumer has to be reminded about the availability of the product constantly so that they do not shift to any other brand/product. It was also submitted that there was many- fold increase in the turnover as well as n the net profit in absolute as well as percentage terms every year. In this case Mahashaya Dharam Pal Gulati is not only the pioneer of packaged species in India, but is also most respected name in the trade and has built business by his sheer vision and hard work in last sixty years. Therefore, who could be a better brand-ambassador than Mahashaya Dharam Pal Gulati himself. If the assessee had enagaged the services of some big stars, like Amitabh Bachhan or any other celebrity to promote his product, then the amount of expenses incurred on such advertisement would have been allowed by the AO as reasonable, but
8 ITA Nos. 5667, 1799, 2374 & 1800/Del/2015
when the - services of the CMD were obtained free of cost, the AO chooses to disallow 20 I per cent of the expenses. He also referred to advertisement campaigns in other companies, such as, Vijay Mallaya for Kingfisher Airlines and Mr. Singhania for Raymonds, The Id. CIT(A) after considering the submissions of the assessee deleted the addition
We have heard both the parties and gone through the material available on record. There is no dispute that the expenditure incurred on advertisement is genuine. The disallowance has been made by the assessing officer merely on the ground that instead of products, the CMD of the company is being promoted. In our considered opinion, this is a silly proposition on the part of the assessing officer. Had the assessee engaged a big celebrity for promotion of its products, the assessee would have incurred huge expenditure and that would have been allowed in full by the assessing officer. The expenditure has been incurred on promotion of the product. Therefore, in our considered opinion, the Id. CIT(A) is justified in deleting the addition. Merely because Mr. Dharam Pal Gulati name comes to prominence, it cannot be said that the expenditure was not incurred for the purpose of business. The issue is covered in favour of the assessee by the decision of ITAT, Mumbai Bench in the case of Star India P. Ltd. Vs ADIT 103 LTD.73 (Mum.) (TM) wherein it has been held that advertisement expenses incurred for the business purposes are allowable and it does not matter that advertisement expenses incurred for the business purposes are allowable and it does not matter that other party is also benefited by such advertisement.
In the result, the appeals filed by the assessee for all the four years are allowed and the appeals filed by the Revenue for all the four years, are dismissed.
3.4. The facts of the present case are exactly similar to the facts as in AY 2001-02 to AY 2004-05. The Hon’ble ITAT, Delhi has deleted the disallowance
9 ITA Nos. 5667, 1799, 2374 & 1800/Del/2015
out of advertisement expenditure for all the years vide the order dated 29/10/2010 in ITA No. 1270, 1271, 1272 & 1273(supra). Respectfully following the decision of the Hon’ble ITAT, Delhi, the AO is directed to delete the disallowance of Rs.2,16,81,541/- out of the advertisement expenditure. This ground of appeal is allowed.”
Therefore, the issue is squarely covered in favour of the assessee in its own case for previous years and subsequent years. Thus, there is no need to interfere with the findings of the CIT(A). Therefore, Ground No.2 of the Revenue’s appeal is dismissed.
As regards Ground No.3 relating to addition of Rs. 3,97,06,202/- on account of Arms’ Length Pricing, the CIT (A) held as under:-
“4.13 During the course of the appellate proceedings, the appellant has submitted the following documents in respect of the second round of Transfer Pricing assessment proceedings undertaken before the TPO for the AYs 2005- 06 to 2007-08 as per the order of the Hon’ble ITAT, Delhi in ITA Nos 4576, 4577 4578/Del/2010 and for the regular Transfer Pricing assessment proceedings for the AY 2010-11:
Photocopies of the written submissions dated 06/01/14 and 1. 15/01/14 furnished to the TPO along with their annexures by the appellant- company for the above said assessment years.
Photocopies of the TPO Order dated 23/01/14 passed u/s 92 CA(3) 2. of the Income-tax Act, 1961 for each of the above said assessment years.
It is observed that while passing the orders u/s 92CA(3) for AYs 2005-06 to 2007-08 as per the direction of the Hon’ble ITAT, Delhi in ITA No.s 4576, 4577 8& 4578/Del/2010, the TPO has accepted the similar TP analysis based on TNMM. In the regular order passed u/s 92CA13) for AY 2010-11, the TPO has also accepted the similar TP analysis based on TNMM. The TPO
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has not drawn any adverse inference for theses assessment years. The facts of the present case are exactly similar to the facts as in AYs 2005-06 to 2007- 08 and A.Y 2010-11. The decision of the Hon’ble ITAT, Delhi in ITA Nos 4576, 4577 & 4578/Del/2010 for the AYs 2005-06 to 2007-08 is also squarely applicable to the present case. Accordingly, I hold that the TNMM is the most appropriate method in the present case. Considering the TP analysis submitted' by the appellant during the appellate proceedings, I hold that the selling prices charged by the appellant from its AEs are at Arm’s Length. Accordingly, the AO/TPO is directed to delete the addition of Rs, 3,97,06,202/- on account of TP adjustment on an export turnover of Rs.9,77,24,705/- to its AEs. This ground of appeal is allowed.”
Thus, the issue is squarely covered in favour of the assessee by earlier Assessment Years. Therefore, there is no need to interfere with the findings of the CIT(A). Hence, Ground No.3 is dismissed.
In result, ITA No. 1799/Del/2015 filed by the Revenue for A.Y. 2008-09 is dismissed.
As regards to ITA No. 1800/DEL/2015 for A.Y. 2009-10 is identical to the facts of earlier A.Y. 2008-09, hence the appeal of the Revenue for A.Y. 2009-10 is also dismissed.
As regards penalty appeal for A.Y. 2008-09 being ITA No. 5667/DEL/2015, the Assessing Officer could not make out the case that the assessee was not maintaining books as per sub-rule 1(a) to 1(m) of Rule 10D of the Income Tax Rules, 1962, therefore, provisions of Section 271AA are not attracted in the present case. The CIT(A) held as under:-
“3.3. Decision:- I have considered the impugned penalty order written submission and oral argument of the Ld. AR carefully.
The penalty u/s 271AA has been levied by the Assessing Officer for not
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maintaining documents as per clause (e) to (m) of sub -rule (1) of 10D A.O was of the view that the appellant has not supported during transfer pricing proceedings as to how TNMM method is best suited for benchmarking its transactions with its AEs. The TPO has found CUP method as most suitable method for benchmarking transactions with its AEs. Therefore, the assessing officer held that in the case of appellant, penalty u/s 271AA is liable and penalty was levied.
The main arguments of the Ld. AR is that the quantum additions for enhancement of ALP u/s 92CA(3) has been deleted by CIT(A) vide order no.ITA No. 32/ 12-13/CIT(A)-44/709 dated 22.01.2015 considering the order of Hon’ble ITAT in ITA NO. 4576 to 4578/del/2010 and also acceptance by the assessing officer the ALP of the international transactions on TNM Method as applied by the appellant for A.Y. 2010-11. The relevant findings of CIT(A) are as under:-
4.13 During the course of the appellate proceedings, the appellant has submitted the following documents in respect of the second round of Transfer Pricing assessment proceedings undertaken before the TPO for the AYs 2005- 06 to 2007-08 as per the order of the Hon’ble ITAT, Delhi in ITA Nos 4576, 4577 & 4578/Del/2010 and for the regular Transfer Pricing assessment proceedings for the AY 2010-11:
Photocopies of the written submissions dated 06/01/14 and 15/01/14 furnished to the TPO along with their annexures by the appellant- company for the above said assessment years.
Photocopies of the TPO Order dated 23/01/14 passed u/s 92 CA(3) of the Income-tax Act, 1961 for each of the above said assessment years.
It is observed that while passing the orders u/s 92CA(3) for AYs 2005-06 to 2007-08 as per the direction of the Hon’ble ITAT, Delhi in ITA No.s 4576, 4577
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& 4578/Del/2010, the TPO has accepted the similar TP analysis based on TNMM. In the regular order passed u/s 92CA(3) for AY 2010-11, the TPO has also accepted the similar TP analysis based on TNMM. The TPO has not drawn any adverse inference for theses assessment years. The facts of the present case are exactly similar to the facts as in AYs 2005-06 to 2007-08 and AY 2010-11. The decision of the Hon’ble ITAT, Delhi in ITA Nos 4576, 4577 & 4578/Del/2010 for the AYs 2005-06 to 2007-08 is also squarely applicable to the present case. Accordingly, I hold that the TNMM is the most appropriate method in the present case. Considering the TP analysis submitted by the appellant during the appellate proceedings, I hold that the selling prices charged by the appellant from its AEs are at Arm’s Length. Accordingly, the AO/TPO is directed to delete the addition of Rs. 3,97,06,202/- on account of TP adjustment on an export turnover of Rs. 9,77,24,705/- to its AEs. This ground of appeal is allowed.
I have perused the order of Hon’ble ITAT for earlier assessment year namely 2005-06 to 2007-08 which has set aside the order passed by the AO/TPO for determination of ALP of international transactions denova subsequently the assessing officer has passed the assessment order for all the assessment years on 25.02.2014 where reference is made to the fresh transfer pricing proceedings before the TPO who have accepted the appellant transfer pricing documentation and the functional and economic analysis contain there in and no adverse influence was drawn. The relevant portion of findings of the assessing officer is reproduced as under:-
The TP adjustment on account of Arms Length Pricing shown by the assessee for export to the Associated Enterprises was referred to the Transfer Pricing Officer to be decide afresh in the light of the Hon’ble ITAT’s order u/s. 92CA(3) of the IT Act was passed by the Transfer Pricing Officer vide F.No. DDIT/TPO/1(4)/2013-14/637 dated 23.01.2014. Notice u/s 143(2) was issued to the assessee on 30-0102014 fixing the date for
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compliance on 10-02-2014. Shri Arvind Mittal CA on behalf the assessee company attended the proceedings and filed written submissions. The case was discussed with him. The Transfer Pricing Officer vide F.No. DDIT/TPO/1(4)/2013-14/637 dated 23.01.2014 has observed that:
“The Company’s transfer pricing documentation and the functional and economic analysis contained therein were examined. In view of the submissions and circumstances of the case, no adverse inference is presently called for.”
Considering the entire facts it appears the TPO/A.O for the A.Y. 2005-06 to 2007-08 and in subsequent assessment year 2010-11 has accepted that the appellant companies TP documents and functional economic analysis were proper and no adjustment has been made. On that basis my predecessor CIT(A) -44 has deleted the addition made in respect of adjustment in ALP u/s 92CA(3). Further, the Ld. AR has also argued as to how the documentation as required under clause (e) to (m) of sub-rule (1) of Rule 10D were maintained. In case where no such documentation is possible, the Ld. AR has explained that such documentation is not required for determination of ALP.
Considering the entire facts and circumstances of the case especially the quantum addition on enhancement of ALP u/s 92CA(3) deleted by CIT(A) and acceptance of transfer pricing documentation on similar facts for earlier assessment years namely 2005-06 to 2007-08 and subsequent A.Y 2010- 11 by AO/TPO, there is no case for levy the penalty u/s 271AA of the I.T. Act. I rely on the decision in the case of DCIT Vs. Bebo Technologies (P) Ltd. (2014) 148 ITD 122 (Chd.)(Trib.) while arriving at the above conclusion as penalty u/s 271AA is not leviable because international -transaction entered upon by the appellant with its associates concern has been held to be at. arms length. Accordingly, penalty levied by the assessing officer u/s
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'271AA is hereby quashed. These grounds of appeals are allowed.”
The CIT(A) has given categorical finding that considering the entire facts and circumstances of the case especially the quantum addition on enhancement of ALP u/s 92CA(3) deleted by CIT(A) and acceptance of transfer pricing documentation on similar facts for earlier assessment years namely 2005-06 to 2007-08 and subsequent A.Y 2010-11 by AO/TPO, there is no case for levy the penalty u/s 271AA of the I.T. Act. the penalty does not survive. ITA No. 2374/DEL/2016 is identical to that of ITA No. 5667/DEL/2015, therefore, both penalty appeals filed by the Revenue are dismissed.
In result, the appeals filed by the Revenue are dismissed.
Order pronounced in the Open Court on 29th OCTOBER, 2018.
Sd/- Sd/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 29/10/2018 R. Naheed * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT NEW DELHI
15 ITA Nos. 5667, 1799, 2374 & 1800/Del/2015
Date of dictation 26 .10.2018
Date on which the typed draft is placed before the 26 .10.2018 dictating Member
Date on which the typed draft is placed before the Other Member
Date on which the approved draft comes to the Sr. PS/PS
Date on which the fair order is placed before the Dictating Member for pronouncement
Date on which the fair order comes back to the Sr. 29.10.2018 PS/PS
Date on which the final order is uploaded on the 29.10.2018 website of ITAT
Date on which the file goes to the Bench Clerk 29.10.2018
Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant Registrar for signature on the order
Date of dispatch of the Order
16 ITA Nos. 5667, 1799, 2374 & 1800/Del/2015