1 ITA No.

789/Del/2016

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH: I-1 NEW DELHI
BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND
SMT SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A .No. 789/DEL/2016
(ASSESSMENT YEAR-2011-12)

Perfetti Van Melle India Pvt. Ltd. Vs DCIT

47th Milestone, Delhi-Jaipur Circle-3
Highway, Gurgaon
Manesar, Gurgaon
AAACP2626A (RESPONDENT)
(APPELLANT)

Appellant by Sh. Nageshwar Rao, Adv,

Respondent by Sh. Amrender Kumar, CIT
DR, Sh. Neeraj Kumar, Sr.
DR

Date of Hearing 28.02.2017

Date of Pronouncement 28.04.2017

ORDER

PER SUCHITRA KAMBLE, JM

This appeal has been filed by the assessee against the Assessment Order
dated 28/01/2016 passed by DCIT Circle-3, Gurgaon u/s 143(3) r/w Section
144C of Income tax Act, 1961 in Assessment Year 2011-12.

2. The facts of the case in brief are that M/s. Perfetti Van Melle, Italy (PVM)
started operations in 1994 and is engaged in manufacturing variety of
confectionary products. The assessee company is a subsidiary of the PVM,
Italy. The manufacturing of variety of confectionary products are from its
factory in Tamil Nadu, Haryana and Uttrakhand. Reference u/s 92CA (1) of
the Income-tax Act, 1961 was made by the Assessing Officer to the Transfer
 2 ITA No. 789/Del/2016

Pricing Officer for determining the assessee Arms Length Price u/s 92C A(3) of
the Act, in respect of the international transactions entered into by the
assessee during the Financial Year 2010-11 relevant to the Assessment Year
2011-12. The TPO passed an order dated 29/1/2015 and determine the
adjustment/difference in respect of international transactions as under:-
Advertisements Marketing and Rs. 194,02,13,185/-
Sales Promotion
Gross sales of assessee 13,116,894,000/-
AMP % of assessee 14.79%
Arms Length level of AMP% 4.55%
Arms Length level of AMP 59,68,18,677/-
expenses
Amount spent in excess of bright 1,343,394,508/-
line and on creation of marketing in
tangible
Mark up% 12.26%
Mark up (Rs.) 16,47,00,167/-
The amount by which the 1,50,80,94,675/-
assessee company should have
been reimbursed by A.E

3. In view of the TPOs direction an addition of Rs.1,50,80,94,675/- was

made to the income of the assessee company. The assessee claim the
deduction u/s 80 IC of the Act to the extent of Rs.149,89,32,563/- as against
the total income from business and profession to the extent of Rs.92.33 crores.
The assessee has three units out of which deduction u/s 80IC was claimed
only on one unit situated in Rudrapur (Uttrakhand). The assessee has other
units at Manesar (Gurgaon) and Chennai. The assessee was asked to submit
the details. The assessee submitted replies vide letters dated 12/1/2015,
12/2/2015 & 18/2/15. The assessee submitted only the profit and loss
account for three units. There is net loss in the Manesar and Chennai Units
and net profit in Rudrapur Unit. The particulars are as follows:-

Particulars Manesar Chennai Rudrapur Total

 3 ITA No. 789/Del/2016

Total 33144 21029 74316 128489

turnover
(Rs. In
Lakhs)
Net Profit (-)3854 (-)2037 14681 8788
(Rs. In
Lakhs)
% (-)11.62 (-)9.68 19.75 6.83
Profit/Loss

4. The TPO observed that the profit has been shown around 20% in a unit
the income from which is exempted whereas in other units from which the
income is liable to tax. The assessee has shown net loss of Rs.10% or more
than 10%. The Assessing Officer held that the other units were earning
handsomely till the start of Rudrapur, Uttarakhand Unit. The net profit was
around 6% in Assessment Year 2007-08 before the start of Uttrakhand Unit,
but it continuously reduced from Assessment Year 2010-11 & company started
showing loss in other units. The TPO further observed that the assessee was
not able to submit anything to justify this claim and hence disallowed this
claim made u/s 80IC (2) (b) of the Act by observing that the assessee is not
involved in manufacture of any item covered by Schedule XIV. The Assessing
Officer further held that without prejudice to the earlier disallowance although
the claim of the assessee was not allowable at all but even if for the sake of
argument it is accepted that the claim of the assessee is allowable u/s 80 IC
(2)(A) of the Income tax Act, then the claim made by it is excess in order, and if
it is acceptable then the deduction can only be allowed on pro rata basis i.e.
net taxable profit in the ratio of turnover. He further observed that the
turnover of Uttrakhand unit was over stated in such a way that its profit
shown was on higher side. The Assessing Officer also decided the issue of
capital subsidy of Rs.37.5 lakhs which was received by the assessee. The said
amount was included in general reserves which forms part of the capital. The
Assessing Officer held that the subsidy was received towards the capital assets
 4 ITA No. 789/Del/2016

and that the cost of the asset to the extent of subsidy was paid by the
Government, therefore, in view of the provision of Section 43(1) of the Income
tax Act, the amount of subsidy received has to be deducted from the cost of the
asset to arrive at the actual cost for the purpose of depreciation. He further
observed that the assessee has not actually reduced cost of the Plant and
Machinery by subsidy receipt, therefore, depreciation and additional
depreciation was claimed in excess. The subsidy received was not reduced
from the cost of the Plant and Machinery excess claim of depreciation and
additional depreciation to the extent of 35% was disallowed by the Assessing
Officer.

5. The assessee challenged these additions before the DRP and filed the
objections. The DRP observed that all the Transfer Pricing Grounds of
objections of the assessee was related to the transfer pricing adjustment
towards AMP expenses. The DRP further observed that the TPO did not have
the benefit of the decision of the Honble High Court in case of Sony Ericsson.
The DRP upheld the decision of the TPO that it is an international transaction.
The DRP held that the TPO has given valid reasons for the adjustment made
and the assessee has not been able to controvert the findings of the TPO. The
DRP upheld the order of the TPO as regards to the AMP adjustment made by
AO/TPO subject to the direction to use the assessees gross profit rate in the
distribution segment as the mark-up on the AMP expenditure taken for the TP
adjustment, in accordance with the observations of the Honble High Court in
Sony Ericsson.

6. The Ld. AR submits that there are broadly three issues contested in
present appeal: (i) AMP adjustment of Rs. 146.19 crores (grounds 2 to 13) (ii)
denial of deduction u/s 80 1C of Rs. 102.31 crores (grounds 14 to 25) and (iii)
disallowance of depreciation to the extent of capital subsidy Rs. 13.12 lacs
(grounds 26 & 27).
 5 ITA No. 789/Del/2016

6.1 The Ld. AR submits that the Assessee incurred AMP expenditure of Rs.
194.02 crores of which Rs. 102 crores of balance AMP is marked up by Gross
profit margin in manufacturing and sale business @ 42.66% resulting in
disputed TP adjustment of Rs. 146.19 crores. The Ld. AR submitted that by
referring to LG electronics decision of Special bench, TPO presumed existence
of international transaction of AMP by adopting Bright Line Test ('BIT') and
alleged that AE was benefited by way of increased business. The Ld. AR further
submits that though the DRP had benefit of both Sony Ericson 374 ITR 118
and Maruti Suzuki 381 ITR 117 decisions of Hon'ble High court. The Ld. AR
submits that the DRP deliberately ignored said decision in Maruti Suzuki and
upheld existence of international transaction of AMP solely on basis of paras
52 of Sony Ericsson and other decisions i.e., presumption which was directly
contrary to evidence/facts. The Ld. AR further submitted that no factual
foundation with reference to facts of present case was indicated and
department has not discharged its primary onus to establish or even remotely
indicate basis to show existence of separate international transaction.

6.2 The Ld. AR submits that the present case is not one wherein set aside
and remand for fresh consideration would be justified (on the pretext that
certain judicial decisions were not available to lower authorities at the point of
time of consideration of issues by them) as not only relevant decisions laying
down principles applicable in the context were available but specifically
pointed out. The Ld. AR further submits that if the authorities chose to
ignore/failed to discharge the onus and made determination contrary to law it
would be unjust and unlawful to allow them multiple opportunities to
somehow try and improve their case against the Assessee. The Ld. AR further
submits that as all the material relevant for deciding the issue as also case
laws were available to lower authorities the critical issue about existence of
international transaction deserves to be decided by this Tribunal.
 6 ITA No. 789/Del/2016

6.3 As relates to issue no. 2, the Ld. AR further submitted that this is the
fourth year of the assessee for claiming the benefit of Section 80IC. The Ld. AR
further submitted that the Assessing Officer misinterpreted certificate issued
by chartered accountant, ignored the explanation offered by the assessee and
denied the benefit of this deduction. The Ld. AR submitted that the claim of
the assessee is under Section 80IC(2)(a) of the Act i.e. not related to
manufacturing of any items specified in thirteenth Schedule (negative list) and
the same has been certified by the auditor in Form 10CCB. The Ld. AR further
submitted that the fulfillment of conditions of either Section 80IC(2)(a) or
Section 80IC(2)(b) is required to claim the deduction under Section 80IC of the
Act and the assessee fulfills the conditions of Section 80IC (2)(a) of the Act as it
is not manufacturing any product mentioned in negative list of Thirteenth
Schedule. The Ld. AR submitted that CST registration was obtained as a trader
in the year 2000 when Uttarakhand State was constituted while the
manufacturing unit was set up only on May 15, 2007 as evident from the
Certificate of Registration issued by the Deputy Commissioner of the
Department of Commercial Tax, Government of Uttarakhand. The Ld. AR
submitted that the required date during the course of the proceedings was
submitted at the time of assessment proceedings but the same was ignored by
the Assessing Officer. The Ld. AR submitted that the assessee follows SAP
based system of accounting and separate product codes exist in SAP for each
product manufactured by each manufacturing unit. All sales are duly booked
under the respective product codes. The Ld. AR further submitted that unit
wise profit and loss accounts was submitted during the assessment
proceedings, but the same was ignored by the Assessing Officer. The Ld. AR
submitted that assessee maintains books of accounts physically at the
respective units as well as in SAP system, though there is no requirement
under the Income Tax Act to physically maintain unit wise books at the unit
itself or get them audited unit wise. The Ld. AR further submits that the
assessee submitted detailed reasons for higher profits in Rudrapur unit as
compared to the other two manufacturing units, however the same were
 7 ITA No. 789/Del/2016

ignored by the AO/TPO. The Ld. AR submitted that assumption of

determining production/ sales volume based on the Gross Block or Net Block
will lead to hypothetical/absurd conclusions. The assessee is manufacturing
different products at different units. Production process of all the items
manufactured is also different. The Assessing Officer has completely
disregarded the process and technology varies in producing each brand of
product line. Even within a category, the production process varies with each
brand name. The Assessee duly submitted all the documents as required by
the Assessing Officer and the same was verified by the AO wherein no
discrepancies were pointed out by him. The claim of deduction under Section
80IC is a fact specific analysis and the facts of one case cannot be squarely
applied to the other. Further the case of Japan Exports which was relied by the
DRP is incorrect and has distinguishing facts. The assessee is eligible to claim
deduction of Rs. 149 crores. However, the deduction claimed by the assessee
was restricted to Gross Total Income i.e. upto Rs. 120 crores. The Ld. AR
submits that no loss/excess deduction was carried forward by the assessee.
Section 80AB of the Act provides for computation of taxable business profits of
that unit. While computing Gross Total Income, all the heads of income have to
be considered including Income from Other Sources. Thus, the Ld. AR submits
that the assessee is eligible for claiming deduction of Rs. 102 crores.

6.4 As relates to issue no. 3, the Ld. AR further submitted that depreciation
disallowed on capital subsidy by the AO is not proper as the same is allowable
since the amount of capital subsidy was not received during the subject year.
The Ld. AR submits that if the disallowance if any made, the same should be
restricted to Rs. 9,37,500/-.

7. The Ld. DR submits that the AMP issue has been duly considered by the
TPO and the DRP as per the decisions of the Honble Delhi High Court in case
of Sony Ericson and the same should be remanded back to the TPO.
 8 ITA No. 789/Del/2016

7.1 The Ld. DR submits that as regards ground nos. 14 to 16 related to

disallowance of claim of deduction of Rs. 102,31,58,679/- under Section 80IC
of the Act, the A.O correctly held in the assessment order that the assessee has
claimed deduction u/s 80IC (2) (b) as evident from the perusal of the Form No.
10CCB wherein the Auditor has observed at Para no. 25(f) of the Report that
the undertaking has manufactured any article or thing mentioned in
Fourteenth Schedule. In the Column No. 26 also the Auditor has mentioned
the production of Pharma Products/Chloromint Candy covered by Excise
Classification 30.03 to 30.05. As per the Notification No. 49/2003-Central
Excise; Dated: 10/6/2003 the Excise Classification 30/3-30/2005 pertains to
the Pharma Products. Thus, it is evident that the assessee has claimed
deduction u/s 80IC (2)(b) and not u/s 80IC (2)(a) as subsequently claimed by
the assessee. Since, during the Assessment Year 2011-12 the assessee has
not produced any pharma product (Schedule XIV) hence it is not eligible for
deduction u/s 80IC.

7.2 As relates to Ground No. 17, the Ld. DR relied on the principle of
consistency which flows from the fact that once an opinion is formed by the
Revenue on any particular issue then it cannot change that in subsequent
assessment years. Thus, principle of consistency is applicable only when an
opinion is formed by the A.O in earlier assessment years. The said issue was
not examined by the A.O in the earlier assessment years hence the principle of
consistency is not applicable. It is pertinent to mention that in subsequent
assessment years deduction u/s 80IC has not been allowed. Thus, the A.O
has consistently followed the identical approach from this assessment year
onward. The Honble Delhi High Court in case of Commissioner of Income-tax-
VI, New Delhi v. Usha International Ltd. [2012] 25 taxmann.com 200 (Delhi)
(FB) has held in respect of principle of change of opinion that when specific
query is raised by the AO and it is answered by the assessee then it will be
termed as change of opinion. In this case no such query, identical to the
queries raised during the course of assessment proceeding for the AY 2011-12,
 9 ITA No. 789/Del/2016

was ever raised in the earlier assessment years. Thus, when no opinion was
formed in the earlier assessment years then there is no question of any change
of opinion in this assessment year by following the ratio decidendi of the above
decision of jurisdictional High Court. The Ld. DR further submitted that the
principle of res judicata is not applicable in case of the assessment proceeding
and every assessment year is different. Though the principle of consistency has
held to be applicable by the Honble Courts but the Honble Courts have also
held in various judicial pronouncements that this principle cannot be
stretched beyond a limit in cases where erroneous views were taken in past.
Some of those landmark judgments are of the Honble Delhi High Court in case
of Krishak Bharati Cooperative Ltd. [2012] 23 taxmann.com 265 (Delhi)
wherein it has been held that there cannot be a wild application of the
principle of consistency after interpreting the judgment given by the Honble
Apex Court in case of Radhasoami Satsang which has been relied upon by the
assessee.

7.3 It is now necessary to take up the submission that the Tribunal erred
in departing from the "consistency" rule. This is based on the fact that for
the period of about 15 years, the income tax authorities had accepted the
assessee's submissions and permitted annual amortization of the initial
lease consideration, as advance rent. The assessee has relied on the
"consistency" rule enunciated in Radhasoami Satsang( supra). The Supreme
Court observed, in that case that:

"...where a fundamental aspect permeating through the different

assessment years has been found as a fact one way or the other and
parties have allowed that position to be sustained by not challenging the
order, it would not be at all appropriate to allow the position to be
changed in a subsequent year. The Ld. DR further submitted that there
cannot be a wide application of the rule of consistency. In Radhasomi
Satsang'scase (supra) itself, the Supreme Court acknowledged that there
 10 ITA No. 789/Del/2016

is no res judicata, as regards assessment orders, and assessments for

one year may not bind the officer for the next year. This is consistent
with the view of the Supreme Court that "there is no such thing as res
judicata in income-tax matters" Raja Bahadur Visheshwara Singh v. CIT
AIR 1961 SC 1062. Similarly, erroneous or mistaken views cannot fetter
the authorities into repeating them, by application of a rule such as
estoppel, for the reason that being an equitable principle, it has to yield
to the mandate of law. A deeper reflection would show that blind
adherence to the rule of consistency would lead to anomalous results, for
the reason that it would engender the unequal application of laws, and
direct the tax authorities to adopt varied interpretations, to suit
individual assesses, subjective to their convenience, - a result at once
debilitating and destructive of the rule of law. A previous Division Bench
of this Court, in Rohitasava Chand v. CIT [2008] 306 ITR 242/ 171
Taxman 147 had held that the rule of consistency cannot be of inflexible
application. Hon'ble Apex Court in Distributors (Baroda) (P.) Ltd. v.
Union of India [1985] 155 ITR 120/22 Taxman 49 (SC) has held that to
perpetuate an error is no heroism and to rectify it is the compulsion of
the judicial conscience. In case of CIT v. Excel Industries 358 ITR 295
the Honble Apex Court has held that when the Revenue accepted the
order of the Tribunal in favour of the assessee and did not pursue the
matter any further, it cannot be allowed to flip-flop on the issue and it
ought let the matter rest rather than spend the tax payers money in
pursuing litigation for the sake of it. This is not the case here thus the
above judgement of the Apex Court is not applicable keeping in view the
facts of the case which are distinguished from the facts of the above case.

7.4 As regards to Ground No. 19, on maintenance of separate Books of

Accounts for the eligible unit, the Ld. DR submitted that Separate Profit and
Loss Account and Balance Sheet is required to be maintained as per the
Rule 18BBB of the Income tax Rules a separate report is to be furnished by
 11 ITA No. 789/Del/2016

each undertaking or enterprise of the assessee claiming deduction under

section 80-1 or 80-1 A or 80-IB or 80-IC and shall be accompanied by the
Profit and Loss Account and Balance Sheet of the undertaking or enterprise
as if the undertaking or the enterprise were a distinct entity.

7.5 The Ld. DR further submitted that in the case of an enterprise carrying
on the business of developing or operating and maintaining or developing,
operating and maintaining an infrastructure facility, the form shall be
accompanied by a copy of the agreement of the enterprise with the Central
Government or the State Government or the local authority for carrying on the
business of developing or operating and maintaining or developing, operating
and maintaining the infrastructure facility. In any other case, the form shall be
accompanied by a copy of the agreement, approval or permission, as the case
may be, to carry on the activity signed or issued by the Central Government or
the State Government or the local authority for carrying on the eligible
business. It is evident that separate Profit and Loss Account and Balance
Sheet of the eligible unit can be prepared only if separate books of account are
maintained. However, the assessee has not submitted separate Profit and Loss
Account and Balance Sheet for the Rudrapur Unit. It has merely estimated the
profit of the unit from the consolidated account. The Honble Supreme Court
has also held in case of Arisudana Spinning Mills Ltd. v. Commissioner of
Income-tax, Ludhiana [2012] 26 taxmann.com 39 (SC) that for claim of
deduction u/s 80IA separate accounts are required to be maintained. Thus,
the claim of deduction u/s 80IC is not eligible for deduction as the assessee
has not submitted separate profit and loss account and balance sheet as per
the provision of Rule 18BBB of the IT Rules.

7.6 As relates to Ground No. 20 and 21 regarding rejection of Books of

Account and Non-submission of required documents/information, the Ld. DR
submitted that the AO has clearly held at para 4.9 that details were not
submitted by the assessee and unit-wise books of account were not produced
 12 ITA No. 789/Del/2016

by the assessee.

7.7 As regards to Ground No. 23 and 24 related to shifting of profit from

other units to the Rudrapur (eligible) unit and restriction of claim of deduction
on pro-rata basis, the Ld. DR submitted that the AO has discussed in detail
how the assessee has shifted profit from its other two ineligible units at
Manesar and Chennai to eligible unit at Rudrapur. During the AY 2011-12 the
assessee has disclosed losses of Rs.3854 Lakhs and Rs.2037 Lakhs in Manesar
and Chennai unit respectively and profit of Rs.74316 lakhs in the Rudrapur
Unit. The assessees profit has systematically declined in the ineligible units,
especially the Manesar Unit which was getting deduction u/s 80IC earlier and
is manufacturing identical products i.e. Chewing Gum, Toffee and Bubble
Gums. The AO has discussed that the assessee was disclosing good profits in
the Manesar Unit till the AY 2007-08 but since the AY 2008-09 when the
assessee set-up the Rudrapur Unit the profits in the Manesar Unit started
declining and resulted in loss in subsequent assessment years despite the fact
that it is producing identical goods. The assessee failed to submit any plausible
explanation for this as non-levy of Excise Duty, only distinguishing factor
between the Manesar Unit and Rudrapur Unit, in the Rudrapur Unit cannot
justify such huge difference between the profits of these units. The fact that
the assessee has not maintained separate books of accounts and has not
submitted separate Profit and Loss Account and Balance Sheet as mandated
by the Rules 18BBB of the IT Rules establishes the shifting of profit by the
assessee to lower its tax liability. From the bare perusal of the unit-wise
profit and loss estimated by the assessee it is evident that the assessee has
attributed less expenses on account of AMP and Operating to the Rudrapur
Unit. If the above expenses, which are common expenses and in absence of
separate books of account have to be distributed in pro-rata basis (on
turnover), are computed in ratio of the respective sales of the three units then
instead of Rs.7379 lakhs Rs. 10,993 Lakhs should be attributed on account of
AMP Expenses and instead of Rs. 10,679 lakhs Rs. 14,144 Lakhs should be
 13 ITA No. 789/Del/2016

attributed on account of Operating and other Expenses for the Rudrapur Unit
Thus, the Net profit of the Rudrapur unit will be Rs. 7601 Lakhs instead of Rs.
14681 Lakhs as claimed by the assessee. It is also evident that the assessee
has basically taken over the business of the Manesar Unit once it exhausted its
claim of deduction u/s 80IC. The Honble Apex Court has held in case of
Textile Machinery Corporation Ltd. v. CIT [1977] 107 ITR 195 (SC) that
reconstruction of business involves the idea of substantially the same persons
carrying on substantially the same business. Thus the claim of deduction is
liable to be disallowed on this ground as well. It is evident that the assessee
has claimed deduction u/s 80IC by adopting colourable device to evade tax.
The Honble Apex Court has held in case of McDowell & Co. v. CTO(1985) 154
ITR 148 that it is the right of the revenue to disregard a transaction and look at
its substance if it was undertaken as an antiavoidance tool. In Jiyajeerao
Cotton Mills Ltd. v. Commissioner of Income Tax and Excess Profits Tax,
Bombay AIR 1959 SC 270 the Honble Supreme Court has held that - Every
person is entitled so to arrange his affairs as to avoid taxation, but the
arrangement must be real and genuine and not a sham or makebelieve. Finally
the Honble Supreme Court, after analyzing all relevant judgments on tax
planning and tax evasion came to the following conclusion in case of
Vodafone International Holdings B.V. v. Union of India &Anr. 341 ITR 1:-

117. Revenue cannot tax a subject without a statute to support and in

the course we also acknowledge that every tax payer is entitled to arrange
his affairs so that his taxes shall be as low as possible and that he is not
bound to choose that pattern which will replenish the treasury.Revenues
stand that the ratio laid down in McDowell is contrary to what has been
laid down in Azadi Bachao Andolan, in our view, is unsustainable and,
therefore, calls for no reconsideration by a larger branch.

7.8 As relates to Ground No.25 regarding disallowance of deduction u/s

80IC on the income from other sources the Ld. DR submitted that from the
 14 ITA No. 789/Del/2016

perusal of the computation of 80IC deduction submitted by the assessee it is

evident that the assessee has claimed deduction on the interest income on
FDRs amounting to Rs.5,54,89,633/-. This issue has been settled by the
Honble Apex Court that deduction u/s 80IC cannot be allowed on the interest
income earned on FDRs in case of Pandian Chemicals Ltd. v. CIT [2003] 129
Taxman 539 (SC). Besides the above, the Honble J&K High Court has held in
case of Asian Cement Industries v. Income Tax Appellate Tribunal [2012] 28
taxmann.com 290 (Jammu & Kashmir) that interest income on FDRs cannot
be regarded as income flowing from business activity of industrial undertaking
and, thus, it cannot be computed for deduction under section 80-IB. Identical
view has been taken by the ITAT Delhi in case of M/s. A. T. Kearney India Pvt.
Ltd. v. ITO ITA No. 1403/Del/2010.

7.9 As regards to Ground No. 26 and 27 related to claim of depreciation on

assets on which Capital Subsidy was received, the Ld. DR submits that the
assessee cannot claim the depreciation on the assets or part of the assets
which have been acquired through Capital Subsidy received from the
Government.

8. We have heard both the sides and perused all the records. The issues
involved in these particular appeals are three folds. Ground No. 2 to 13 is
related to AMP adjustment of Rs.146.19 crores, Ground No. 14 to 25 is related
to denial of deduction u/s 80IC of Rs.102.31 crores and Ground Nos. 26 & 27
are related to disallowance of depreciation to the extent of capital subsidy
Rs.13.12 lakhs. The assessee is engaged in manufacturing of various
confectionary products and is a subsidiary of PVM, Italy. The assessee has
three factories at Tamil Nadu, Haryana and Uttrakhand. The AMP expenditure
of Rs.194.02 crores which included Rs.91.54 crores of selling and distribution
expenses and Rs.102 crores is marked up by gross profit margin in
manufacturing and selling business at 42.66% resulting in disputed Transfer
Pricing Adjustment of Rs.146.19 crores. The Ld. AR during the hearing clearly
 15 ITA No. 789/Del/2016

stated that the TPO was not dealt with the judgment in case of Sony Ericson
374 ITR 118 & Maruti Suzuki 381 ITR 117 passed by the Hon'ble High Court.
Before the DRP these two decisions were placed by the assessee but DRP has
not taken into consideration of Maruti Suzuki and held that existence of
international transaction of AMP solely on basis of Sony Ericson and other
decisions referred therein. The TPO presumed existence of international
transaction of AMP by adopting bright line test by relying special benchs
decision in case of LG Electronics. The TPO further held that A.E was
benefitted from increased business as all purchases from A.E accounted for 3%
of turnover of Rs.1311 crores amounts to international transaction and is only
to the tune of 6.09%. When the decision in case of Maruti Suzuki was
presented before the DRP, the DRP should have taken cognizance of these
decisions while determining the issue of AMP adjustment. But the DRP chose
not to comment on the said decision. While holding AMP expenses as an
international transaction, the TPO did not have the benefit of the judicial
precedents now available for consideration, in some of which the transaction of
AMP expenses has been held as an international transaction, in others as not
an international transactions, while still in some others, the matter has been
restored for fresh consideration in the light of the judgment in Sony Ericsson
Mobile Communications (India) Pvt. Ltd. Vs. CIT (2015) 374 ITR 118 (Del), in
which the AMP expenses as an international transaction has been accepted. In
another judgment dated 28.1.2016 of the Honble Delhi High Court in Sony
Ericson Mobile Communications (India) Pvt. Ltd. (for A.Y. 2010-11), the
question as to whether AMP expenses is an international transaction, has been
restored for a fresh determination. There are three recent judgments of the
Honble Delhi High Court, viz., Rayban Sun Optics India Ltd. Vs. CIT (dt.
14.9.2016), Pr. CIT Vs. Toshiba India Pvt. Ltd. (dt. 16.8.2016) and Pr. CIT vs.
Bose Corporation (India) Pvt. Ltd. (dt. 23.8.2016) in all of which similar issue
has been restored for fresh determination in the light of the earlier judgment in
Sony Ericsson Mobile Communications India Pvt. Ltd. (supra). Respectfully
following the predominant view of the Honble High Court, we are of the
 16 ITA No. 789/Del/2016

considered opinion that it would be in the fitness of things if the impugned

order is set aside and the matter is restored to file of TPO/AO for fresh
determination of the question as to whether there exists an international
transaction of AMP expenses. If the existence of such an international
transaction is not proved, the matter would end there and then, calling for no
transfer pricing addition. If on the other hand, the international transaction is
found to be existing, then the TPO will determine the ALP of such an
international transaction in the light of the relevant judgments of the Honble
High Court, after allowing a reasonable opportunity of being heard to the
assessee.

8.1 To sum up, we set aside the impugned order on the issue of transfer
pricing additions towards AMP expenses and remit the matter to the file of
AO/TPO for a fresh determination of their ALP in consonance with our above
observations and directions. Needless to say, the assessee will be allowed a
reasonable opportunity of being heard in such fresh proceedings. Thus,
Ground No. 2 to 13 are partly allowed for statistical purposes.

8.2. As relates to benefit of deduction under Section 80IC the same was
claimed only for the unit situated in Rudrapur (Uttrakhand). There is net loss
in the units of Manessar (Haryana) & Chennai (Tamilnadu) and there is a net
profit in Rudrapur Unit. The TPO has only disallowed this claim as the
assessee was not involved in manufacture of any item covered by Schedule
XIV, where as the assessee has referred Schedule XIII and submitted that it is
not considered by the TPO. After verifying Schedule XIII & XIV it is pertinent to
note that the assessees location at Rudrapur is coming under the scope of
80IC but the address was not properly verified by the TPO. Therefore, this
needs to be verified. We therefore, remit this issue back to the file of the TPO to
examine the same as relates to the applicability of the Schedule XIII. Needless
to say, the assessee will be allowed a reasonable opportunity of being heard in
 17 ITA No. 789/Del/2016

such fresh proceedings. Therefore, Ground No. 14 to 25 is partly allowed for

statistical purpose.

8.3. As related to Ground No. 26 and 27 relating to depreciation, the amount

of capital subsidy was not received during the subject year as per the Ld. ARs
contention but the same needs to be verified. Therefore, we remit this issue
back to the file of the TPO to examine the same. Needless to say, the assessee
will be allowed a reasonable opportunity of being heard in such fresh
proceedings..

9. In the result, this appeal is partly allowed for statistical purpose.

The order is pronounced in the open court on 28th of April, 2017.

Sd/- Sd/-
(N. K. SAINI) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 28/04/2017
*R.Naheed*

Copy forwarded to:

1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT

ASSISTANT REGISTRAR

ITAT NEW DELHI

 18 ITA No. 789/Del/2016

Date

1. Draft dictated on Sr. PS

01/03/2017

2. Draft placed before author 04/03/2017 Sr. PS

3. Draft proposed & placed before .2017 JM/AM

the second member

4. Draft discussed/approved by JM/AM

Second Member.

5. Approved Draft comes to the PS/PS

Sr.PS/PS 28.04.2017

6. Kept for pronouncement on PS

7. File sent to the Bench Clerk PS

28.04.2017

8. Date on which file goes to the AR

9. Date on which file goes to the

Head Clerk.

10. Date of dispatch of Order.