MOLSON COORS COBRA INDIA P.LTD ( ERSTWHILE COBRA INDIAN BEER P.LT),MUMBAI vs. DCIT 3(1), MUMBAI

Application of methodology

On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in rejecting the approach adopted by the assessee with respect to bifurcation of the marketing expenses into value-added and non-value added components and making an adjustment considering the entire marketing cost, thus considering a mark-up on pass-through non-value added costs as well.

On the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in calculating the Bright Line deduction by allowing only the royalty

On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in holding that the brewery sales are hypothetical in nature for computation of marketing spend;

On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in comparing the activity of Cobra India with an agency function and suggesting that the ideal remuneration model should be cost plus, in which case there is no possibility of incurring loss;

Use of Multiple Year Data

On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in considering the financial data of FY 2007-2008 for comparables, for computation of arm‟s length price, which was not contemporaneously available to the appellant at the time of documentation as required by Rule 10D(4) of Income Tax Rules, 1962. 3. 2. On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in rejecting the approach followed by the appellant in preparing contemporaneous documentation to give true commercial impact of an arm‟s length standard in the pricing of the international transaction;

Denial of plus / minus 5% benefit

On the facts and in the circumstances of the case and in law, the Ld CIT (A) has erred in not applying the proviso to section 92C and has failed to grant the relief for the downward adjustment of 5% from the arithmetic mean of the comparables.”

Ground no.1 raised by the assessee is general. Considering the general nature, the said Ground no.1 is dismissed. Ground nos. 3 and 4 are not pressed. Therefore, Ground nos. 3 and 4 are dismissed as not pressed. That leaves Ground no.2 for our adjudication.

Briefly stated relevant facts of the case are that the assessee is a subsidiary of Cobra Beer Ltd., UK (Cobra UK) engaged as a marketing service for Cobra brand of products in India. Assessee received Rs. 5,96,76,996/- from Cobra-UK for the same. Cobra India brews beer in India through local contract manufacturer. Assessee recorded the international transactions and one of such transactions relates to the above „reimbursement of expenses (AMP expenses)‟ incurred on behalf of Cobra Beer Ltd, UK. Unsatisfied with the TP studies of the assessee, TPO benchmarked these transactions and suggested an addition of Rs. 1,59,54,395/- vide his order dated 22.10.2010. AO, vide order dated 2.2.2011, made the above addition as per para 7 of his order.

During the proceedings before the first appellate authority, the said adjustment was questioned vide ground nos. 1 to 6 of appeal before the CIT (A). Elaborate submissions were made in this regard which were extracted in the order of the CIT (A). The summary of the same was provided in para 4.3 of his order. Eventually, CIT (A) rejected the assessee‟s claim in matter of bifurcation of marketing expenses into value addition and non-value added components or extraordinary / routine cost and made adjustment. CIT (A) also considered the Bright Line Test (BLT) on the royalty income and rent in calculating the deducion instead of considering the total sales of the assessee. Aggrieved with the above, the assessee is in appeal before the Tribunal against the above conclusions and raised various arguments.

At the outset, Ld Counsel for the assessee submitted that the impugned order being dated 10.9.2012 by the CIT (A) was passed prior to the judgment of the Hon‟ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT [374 ITR 118] and Maruti Suziki India Limited vs. CIT in ITA No. 110/ 2014 and ITA 710/2015, dated 11th December, 2015 and the coordinate Bench decision of the ITAT in the case of M/s. Johnson & Johnson Limited vs. ADIT vide I.T.A. No.829/M/2014 (AY 2009-2010), dated 07.01.2016. Summarising the above, Ld Counsel for the assessee submitted that the Ground no.2 with its sub-grounds are required to be set aside and remanded to the file of the AO / TPO for fresh adjudication following the guidelines mentioned by the Hon‟ble Delhi High Court in the above referred cases. Otherwise, it is the case of the assessee that AMP expenses constitute 40% of the sales and the assessee received from the AEs only to the extent of 7% which was not accepted by the Revenue Authorities. He further submitted that the BLT is not the approved method for benchmarking the above mentioned international transactions.

On the other hand, Ld DR for the Revenue relied on the orders of the Revenue Authorities.

We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. We have considered the submissions of the Ld Counsel that under the factual matrix of this case, the issue of benchmarking the AMP transactions was remanded in the case of M/s. Johnson & Johnson Limited (supra) and judgment of the Hon‟ble Delhi High No.407/Del/2015 (AY 2010-2011), dated 2.6.2015. The undersigned is a party to the said decision of the Tribunal in the case of M/s. Johnson & Johnson Limited (supra). For the sake of completeness of this order, relevant paras from the said Tribunal‟s order dated 7.1.2016 is extracted and placed as under:- “6. We have heard both the parties on this issue of benchmarking the AMP expenses qua the brand development and find the AO / TPO relied heavily on the Special Bench decision of ITAT, Delhi in the case of L.G. Electronics India Pvt Ltd (supra) in making the adjustments and in applying the „BLT‟ in benchmarking the AMP expenditure. It is an undisputed fact that the Hon‟ble Delhi High Court has rendered a judgment in the case of Sony Ericsson Mobile Communications India Pvt Ltd (supra), reversing the said Special Bench decision in the case of L.G. Electronics (supra). As on today, the „BLT‟ is not to be applied in such benchmarking exercise of the AMP expenditure. AP / TPO is statutorily bound to apply the existing methods mentioned in the IT Act, 1961 / IT Rules, 1962. We, accordingly, remand the issue, that revolves around the TP adjustment of Rs. 133.02 (rounded of), to the file of the AO / TPO to benchmark these transactions, if necessary in the light of the guidelines specified in the precedents enunciated by the Delhi High Court (supra). Further, TPO is directed to apply all the principles laid down by the Hon’ble Delhi High Court in the case of Maruti Suziki India Limited vs. CIT in ITA No. 110/ 2014 and ITA 710/2015, dated 11th December, 2015 in the remand proceedings in the matters of the requirement of benchmarking the AMP transactions.”

We also find that the judgments of the Hon‟ble Delhi High Court in the case of Sony Ericsson Mobile Communications Pvt Ltd (supra) and Maruti Suziki India Limited (supra) are also considered while remanding the above case (M/s. Jhonson and Jhonson) to the file of the AO for necessary adjudication. With similar directions, we remand Ground no.2 with its sub-grounds of the present appeal to the file of the AO for benchmarking the relevant international transactions. Accordingly, Ground no.2 with its sub-grounds raised by the assessee are allowed for statistical purposes.

In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 10th February, 2016. (SANJAY GARG) ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक 10.2.2016 व.नन.स./ OKK , Sr. PS

ITAT, Mumbai गार्ड पाईर / Guard file. 6. सत्मावऩत प्रनत ////