IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI “I-1” BENCH: NEW DELHI

(THROUGH VIDEO CONFERENCING)

BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER &
DR.B.R.R.KUMAR, ACCOUNTANT MEMBER

ITA No.467/Del/2021

Assessment Year : 2016-17

Goodyear India Ltd., vs NeAC,

Mathura Road, Ballabhgarh, Delhi.

Faridabad, Haryana-121001.

PAN-AAACG3511H

APPELLANT RESPONDENT

Appellant by Sh. Neeraj Jain, Adv. &
Respondent by Sh. Abhishek Agarwal, Adv.
Sh. Surendra Pal, CIT DR

Date of Hearing 08.07.2021

Date of Pronouncement 11.08.2021

ORDER

PER KUL BHARAT, JM :

This appeal filed by the assessee against the order passed by the
Assessing Officer in pursuance of the directions of the Dispute Resolution
Panel (“DRP”) for the assessment year 2016-17 u/s 143(3) r.w.s. 144C of the
Income tax Act, 1961 (“the Act”). The assessee has raised following grounds of
appeal:-

1. “That the impugned order of assessment framed by the assessing
officer in pursuance of the directions of the Dispute Resolution Panel
(hereinafter referred to as 'DRP') under Section 143(3) read with Section
144C of the Income-tax Act, 1961 ('Act'), is bad in law and unsustainable.

1.1 That the assessing officer erred on facts and in law in completing
assessment under section 144C/l43(3) of the Income-tax Act, 1961 ('the
Act') at an income of Rs.186,18,12,440 as against the income of Rs.
1,72,57,98,490 determined by the appellant in its income tax return.
ITA No.467/Del/2021

2. That the assessing officer erred on facts and in law in making an
addition of Rs.10,07,80,000 allegedly on account of difference in arm’s
length price of international transactions of payment of trademark fee
entered into by the appellant with its associated enterprise, the Goodyear
Tire & Rubber Company, USA on the basis of order passed by the Transfer
Pricing Officer ('TPO') and sustained by the Dispute Resolution Panel
('DRP').

2.1. That the DRP/TPO erred on facts and in law in holding the arm’s
length price of the international transaction of payment of trademark fee of
Rs. 10,07,80,000 at Nil allegedly holding that no recognizable benefit has
been passed on to the appellant and therefore there was no rationale for
paying this trademark fees to the AE.

2.2. That the DRP erred on facts and in law in sustaining the transfer
pricing adjustment made by the TPO, holding the arm's length price of
international transaction of payment of royalty as NIL, following its orders
for preceding assessment years, i.e. assessment year 2007 -08 to 2014-
15.

2.3. That the DRP/ TPO erred on facts and in law in determining the
arm's length price of international transaction of payment of royalty at NIL
without bringing on record any comparable uncontrolled transaction and
therefore, not correctly applying CUP method in terms of Rule 10B(1) of the
Income Tax Rules, 1962.

2.4 Without prejudice, that the DRP/ TPO erred on facts and in law in
disregarding the comparable uncontrolled transaction considered for
benchmarking the transaction of payment of royalty applying CUP method.
in the Transfer Pricing Report and as submitted during the course of
assessment proceedings.

3. That the assessing officer erred on facts and in law 111 making an
adhoc disallowance of Rs.3,52,33,953 being 30% of the total expenditure

Page | 2
ITA No.467/Del/2021

of Rs.11,74,46.510 incurred by the appellant on advertisement and
publicity following the finding in the preceding assessment year allegedly
holding that the expenditure was incurred for the benefit of the enterprise
who owns brand name.

3.1. That the assessing officer erred on facts and in law in relying on the
decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India
Limited to held that if the brand name is not owned by the assessee. such
expenditure is incurred for the benefits of the enterprise who own the
brand name, not appreciating that the said decision was made redundant
by the Hon'ble Supreme Court.

3.2. That the assessing officer erred on facts and in law in not
appreciating that the advertisement and publicity expenses were incurred
by the appellant in the course of carrying on of its business and were
allowable deduction as business expenditure.

4. That the assessing officer erred on facts and in law in levying
interest under Section 234B of the Act.

2. At the outset, Ld. Counsel for the assessee submitted that there are two
issues in this appeal. Both issues in this appeal are covered by the order of the
Tribunal in the immediate preceding years in assessee’s own cases. He further
submitted that Ground Nos.1 & 1.1 of the assessee are general in nature, need
no adjudication.

3. Ground Nos. 2 to 2.4 raised by the assessee are related to addition of

Rs.10,07,80,000/- made on account of difference in Arm’s Length Price (“ALP”)

of international transactions of payment of trademark fee entered into by the

assessee with its Associated Enterprise (“AE”), the Goodyear Tire & Rubber

Company, USA.

Page | 3
ITA No.467/Del/2021

4. The facts giving rise to this ground are that the assessee company is
engaged in the business of manufacturing and trading of automotive tyres,
tubes, flaps and other industrial rubber products. During the year under
consideration, the assessee company had undertaken certain international
transactions. A reference was made to the Transfer Pricing Officer (“TPO”) for
determining the Arm's Length Price. The DCIT-Transfer Pricing Officer-(2)(1)(2),
New Delhi recommended the upward adjustment vide order dated 10.10.2019
thereby, the TPO concluded that the assessee had been mandatorily using the
Goodyear trademark/logo in India since 1922. Over the years, the assessee
made efforts by way of expenditure and human effort to develop the brand in
India. It continued to do so to replenish the brand value. The entire marketing
effort in India was admittedly driven, planned and executed by the assessee.
By these efforts, the brand had grown in value and significant economic
substance had been added to it by the company making decent profits. The
correct Arm's Length Price for the transaction related to payment of trademark
fee to AE was held to be NIL instead of 10,07,80,000/-. Accordingly, the
Assessing Officer was advised to enhance the income by Rs.10,07,80,000/-.
Against the draft assessment order, the assessee filed its objection before the
DRP-1, New Delhi who vide order dated 10.02.2021 sustained the finding of the
TPO.

5. Now, the assessee is in appeal before this Tribunal.

6. At the outset, Ld. Counsel for the assessee submitted that the issue is
squarely covered in favour of the assessee in the assessee’s own case in the

Page | 4
ITA No.467/Del/2021

earlier years. He took us through the assessment order and also the direction
of the DRP and the decision of Tribunal in ITA Nos.5650/Del/2011,
6240/Del/2012 & 916/Del/2014. Further, Ld. Counsel for the assessee drew
our attention to Paper Book Page Nos. 273 to 276, to buttress the contention
that issue is covered in favour of the assessee by the decision of the Tribunal
rendered in appeal pertaining to Assessment Years 2007-08 to 2012-13 and
2014-15.

7. Per contra, Ld. CIT DR vehemently opposed these submissions and
supported the orders of the authorities below. He drew our attention to the
agreement with the AE to buttress the contention that the authorities below
were justified in directing the upward adjustment. He submitted that a bare
reading of terms of agreement would suggest that action of the Assessing
Officer for upward adjustment is justified and in accordance with law.

8. We have heard the rival contentions and perused the material available
on record. We find that the facts were identical as in ITA No.5650/Del/2011
wherein the Co-ordinate Bench of this Tribunal decided the issues in favour of
the assessee. The relevant contents of the order are reproduced hereunder for
ready-reference:-

8. “We have heard the rival contentions in light of the material produced
and the decisions relied upon. Ld. Counsel of the assessee has
emphasized on the benchmarking of payment of trademark as closely
linked transaction with the manufacturing segment. The Ld. Counsel of the
assessee has submitted that the royalty relates to the entire
turnover/production of the appellant and constitutes an essential part of

Page | 5
ITA No.467/Del/2021

the cost of sales. The entire business model of the appellant is based on
the licenses granted by the associated enterprise to manufacture the tyres
which have been highly successful and renowned throughout the world,
and for providing all the I.P. rights and technology necessary for the same,
for which the royalty payment has been made. Without which, the
appellant’s business will cease to exist and its entire operations would
come to a halt. Accordingly, since the entire operation of the appellant is
based on rights and licenses to manufacture the automobile tyres and
tubes, for which royalty is being paid, the royalty payments cannot be
separately evaluated. In the case of the appellant, it is nobody’s case that
the company has entered into diverse activities. The international
transactions of the appellant primarily relate to its business of
manufacturing of tyres and such international transactions are closely
interlinked or inter-twined. It would also not be possible to determine
separately profit from the international transactions of payment of
trademark fees. Reliance in this regard is placed by the Ld. Assessee
counsel on the decision of Hon’ble coordinate Bench of Tribunal, in a
similar case of Maruti Suzuki India Limited vs. ACIT (ITA No.
5237/Del/2011), for assessment year 2005-06, too, held as under:

“13.1 Thus, we agree with the submission of the appellant’s
counsel that the entire business model of the appellant is based on
license from SMC, Japan for which royalty has been paid. Without
such technology supply the appellant’s business will cease to exist
and its entire operations would come to a halt. Thus, we agree with
the appellant’s submission TPO has arbitrarily divided the license
agreement of the appellant without appreciating that all the license
agreement is a single in severable agreement.”

9. Reliance has also been placed by the assessee on the decision of Delhi
Bench of Tribunal in the case of Lumax Industries Ltd. vs. ACIT (ITA No.
4456/Del/2012), wherein, in the similar case of payment of royalty, this
Tribunal concluded that:

Page | 6
ITA No.467/Del/2021

“.............the payment of royalty cannot be examined divorced from
the production and sales. Royalty is inextricably linked with these
activities. In the absence of production and sale of products, there
would be no question arising regarding payment of any royalty. Rule
10A(d) of the ITAT Rules defines ‘transaction’ as a number of closely
linked transactions. Royalty, then, is a transaction closely linked
with production and sales. It cannot be segregated from these
activities of an enterprise, being embedded therein. That being so,
royalty cannot be considered and examined in isolation on a
standalone basis………………..

Royalty is to be calculated on a specified agreed basis, on
determining the net sales which, in the present case, are required to
be determined after excluding the amounts of standard bought out
components, etc., since such net sales do not stand recorded by the
assessee in its books of account. Therefore, it is our considered
opinion that the assessee was correct in employing an overall TNMM
for examining the royalty. The TPO worked out the difference in the
PLI of the outside party (the assessee) at 4.09% and the
comparables at 7.05%. This has not been shown to fall outside the
permissible range.” The Hon’ble Tribunal accordingly held that the
assessee was correct in applying overall TNMM for examining
royalty.

10. The aforesaid decision of this Tribunal has been upheld by the Hon’ble
High Court in the case of ACIT vs. Lumax Industries Ltd. (ITA No.
102/2014).

11. The assessee has also rightly made reference to the decision of Delhi
High Court in the case of Sony Ericsson Mobile Communications India Pvt.
Ltd vs. CIT (ITA No 16/2014) reported at 374 ITR 118, wherein, the Court
has upheld clubbing of closely linked transactions for undertaking
benchmarking analysis applying entity wise TNMM. In fact, in the case of

Page | 7
ITA No.467/Del/2021

CIT vs. Reebok India Co Ltd (ITA no 213/2014), being part of the decision
of Hon’ble High Court in the case of Sony Erickson, the Court has held as
under:

“185. Royalty payable for availing the right to use would depend
upon corresponding price, which would have been paid by an
independent or unrelated enterprise. This is judged by applying
comparables. TPO has not rejected the quantum of royalty on the
said principle. The reasoning given by the TPO is not only erroneous
for the reasons stated above, but is also contrary to the Rules.
Depending upon the method selected, net profit or gross profit of the
assessed has to be compared with profit margins of related
enterprise. The formula prescribed under the Rules does not accept
the ratiocination adopted and applied by the TPO.”

12. Another contention of the TPO that the Goodyear Brand was weak and
therefore does not require payment of royalty, is not brought out from the
records. The AR of the assessee has made elaborate submission and
placed evidence on record to show that ‘Goodyear’ brand is considered to
be one of the top most acclaimed brand across the globe. Therefore, there
is no merit in the allegation of the TPO that Goodyear brand has no worth
and therefore, the payment made by the assessee for use of Goodyear
brand is unwarranted.

13. The DRP has further added that since the sister concern of the
assessee, Goodyear South Asia Private Limited, is not making payment of
royalty, therefore, there shall be no payment of royalty by the assessee
either. We have considered this aspect and found that there is difference in
business dynamics and commercial realities in both the companies in as
much as 60% of the sales made by Goodyear South Asia Limited is made
to its related parties itself. Nevertheless, the AR of the assessee has rightly
pointed out that in terms of Rule 10B(1)(a) of the Rules, international
transactions entered into by the assessee with its AE, Goodyear Inc. USA

Page | 8
ITA No.467/Del/2021

cannot be compared with the international transaction entered between
another AE, Goodyear South Asia Pvt. Ltd. with Goodyear Inc. USA.

14. The AR of the assessee has rightly placed reliance on the decision of
third Member Bench of the Mumbai Tribunal, in the case of Tecnimont ICB
Pvt. Ltd. vs. ACIT (ITA No. 4608 & 5085/Mum/2010), wherein, while
explaining the import of clause (i) of Rule 10B(e) of the Act, held that the
Rules strictly provides that an uncontrolled transaction shall be a
transaction undertaken between two unrelated parties and cannot be
given a wider term to include transaction entered between two other
related parties, as under:

“14. What is an ‘uncontrolled transaction’ has been clearly defined
under Rule 10A(a) to mean ‘a transaction between enterprises other
than associated enterprises whether resident or non-resident’. A
plain reading of the meaning given to the expression ‘uncontrolled
transaction’ leaves no room for any doubt that it is a transaction
between two non-associated enterprises. If he transaction is
between two associated enterprises, it goes out of the ambit of
‘uncontrolled transaction’ under Rule 10A. When section 92C is read
along with Rule 10B(e) and 10A, it becomes abundantly clear that in
computing ALP under the transactional net margin method, a
comparison of the assessee’s net profit margin from international
transactions with its AEs has necessarily to be made with that of
the net profit margin realized by the same enterprise or an unrelated
enterprise from a comparable but definitely uncontrolled transaction,
i.e., a transaction between non-associated enterprises. There is no
statutory sanction for roping in a comparable controlled transaction
for the purposes of benchmarking. When it has been clearly
mandated in all the relevant methods for determining ALP that the
comparison has to be made by the enterprise’s international
transaction with comparable uncontrolled transaction, by no sheer
logic a comparable controlled transaction can be employed for the

Page | 9
ITA No.467/Del/2021

purposes of making comparison. There is no warrant for diluting the
prescription given by the statute or rules when such prescription
itself serves the ends of justice properly and is infallible. If the view
of the Revenue that a controlled transaction should not be shunted
out for the purposes of benchmarking, is accepted, then all the
relevant provisions contained in Chapter X in this regard, will
become otiose. If such a contention of making comparison with a
comparable controlled transaction is taken to its logical conclusion,
then there will never arise any need to take up any case for transfer
pricing scrutiny. The reason is obvious. ALP is determined for
application in respect of transactions between two AE so that the
profit likely to arise from such transactions is not underreported vis-
à-vis from similar transactions with third parties. If the comparison
is made again with net profit margin realized from transactions
between two AEs, instead of third parties, it may demonstrate the
same cooked results in both the situations, thereby leaving no scope
for any adjustment. In this eventuality, the very object of such
provisions will be frustrated. Thus, it follows that the ALP can be
determined only by making comparison with a comparable
uncontrolled transaction and not a comparable controlled
transaction.”

15. It is also not acceptable that an international transaction which is not
undertaken in the preceding year, cannot be undertaken between parties
subsequently. In pursuance to direction of the Bench, the appellant has
submitted three documents as additional evidence, i.e. (i) certificate issued
by the associated enterprise, i.e. The Goodyear Tire & Rubber Company,
USA explaining the reasons for not charging royalty in the earlier years; (ii)
Copy of extracts of Minutes of Board of Directors meeting dated
31.07.2006 regarding approval for execution of Trademark License
Agreement and (iii) copy of an email exchanged between the appellant and
the associated enterprise regarding payment of trade mark fee in July

Page | 10
ITA No.467/Del/2021

2006. These evidences are admitted on record. The ld. DR has no objection
to admit these evidences on record. In these evidences, the AE has
clarified that it did not charge royalty in the earlier years in order to
support the appellant who was yet to achieve higher market share,
stabilize operations, maintain competitive pricing and was recovering from
financial difficulties. Subsequently, when the financial position of the
assessee improved, the AE started charging royalty in consideration for
allowing the assessee to use its valuable brand name. The reasons given
by the AR of the assessee, for not charging royalty by the AE, prior to the
year under consideration is duly corroborated from the year to year profits
shown by the company. It is valid reason that the AE was not charging
royalty prior to financial year 2006-07 was due to the losses incurred by
the assessee and prior to year 2000, no Indian companies were allowed to
pay trademark fees under automatic route. Nevertheless, the Mumbai
Bench of Tribunal has, in the case of Dresser- Rand India Pvt Ltd vs. ACIT
(ITA No. 8753/Mum/2010 held that whether the services given by the AE
to the assessee, without charging consideration, on gratuitous basis in the
preceding year, cannot de bar the AE from charging fee for the same
services subsequently. The observations are:

“8……When evaluating the arm’s length price of a service, it is
wholly irrelevant as to whether the assessee benefits from it or not;
the real question which is to be determined in such cases is whether
the price of this service is what an independent enterprise would
have paid for the same. Similarly, whether the AE gave the same
services to the assessee in the preceding years without any
consideration or not is also irrelevant. The AE may have given the
same service on gratuitous basis in the earlier period, but that does
not mean that arm’s length price of these services is ‘nil’. The
authorities below have been swayed by the considerations which
are not at all relevant in the context of determining the arm’s length

Page | 11
ITA No.467/Del/2021

price of the costs incurred by the assessee in cost contribution
arrangement.

16. In light of the above, we conclude that there exists a direct nexus
between the revenue earned by the assessee and the payment of royalty
made to the associated enterprise for using brand name, and therefore, it
would be incorrect to analyze the transaction of payment of royalty in
isolation. Further, the ld. DR had raised a contention that the assessee has
not demonstrated how the payment for royalty beneficial to the taxpayer.
We are of the opinion that, ascertaining whether a service has actually
benefitted the assessee is not within the prerogative of the tax authorities.
The Hon'ble Delhi High Court in CIT v. Cushman & Wakefield (India) (P.)
Ltd. (2014) 367 ITR 730(Del) has held that the authority of the TPO is
limited to conducting transfer pricing analysis for determining the ALP of
an international transaction and not to decide if such services exist or
benefits did accrue to the assessee. Such later aspects have been held to
be falling in the exclusive domain of the AO.

17. Accordingly, in view of the aforesaid, we are of the opinion that since
the operating margin of the assessee at 6.96% is higher than the
comparables at 2.77%, the international transaction of payment of royalty
entered into by the assessee are to be considered being at arm’s length
applying TNMM as the most appropriate method.

18. We therefore direct the assessing officer to delete the adjustment on
this account.”

This decision of the Tribunal has been followed in the preceding
Assessment Years 2007-08 to 2012-13 and 2014-15 in ITA Nos.
5650/Del/2011, 6240/Del/2012, 916/Del/2014, 1516/Del/2015,
1004/Del/2016, 1706/Del/2017 and 8006/Del/2018 respectively.

Page | 12
ITA No.467/Del/2021

9. There is no change into the facts and circumstances of the case in the
present year. Therefore, taking a consistent view, we hereby direct the
Assessing Officer to delete the addition in the light of decisions of the Tribunal
pertaining to Assessment Years 2007-008 to 2012-13 and 2014-15 in
assessee’s own case. Thus, Ground Nos. 2 to 2.4 raised by the assessee in this
appeal are allowed.

10. Now, coming to Ground Nos. 3 to 3.2 raised by the assessee are against
the making of adhoc disallowance amounting to Rs.3,52,33,953/- being 30% of
the total expenditure of Rs.11,74,46,510/- incurred by the assessee on
advertisement and publicity.

11. Facts giving rise to the present case are that the Assessing Officer
observed during the assessment proceedings that during Financial Year 2015-
16, the assessee company had incurred a total sum of Rs.11,74,46,510/-
towards advertisement, publicity and sales promotion. The assessee was
show-caused as to why the expenditure incurred on advertisement should not
be disallowed being in nature of brand building activity. In response thereto,
the assessee filed a detailed reply stating that the assessee company is engaged
in the manufacturing/trading of tyres and related products. It had incurred
these expenses for promoting its sale and to beat its competitor companies as
its competitors were also expending on advertisements of their products. It
was stated that benefit of such expenditure was derived entirely by the
assessee company and not by an affiliate company. In support of this, the
assessee had relied upon the following case laws:-

Page | 13
ITA No.467/Del/2021

(i) CIT vs Walchand & Co. 65 ITR 381.

(ii) J.K. Woolen Manufacturers vs CIT 72 ITR 612.

(iii) Aluminum Corporation of India Ltd. vs CIT 86 ITR 11.

(iv) CIT vs Panipat Woollen & General Mills Co.Ltd. 103 ITR 666.

(v) Sassoon J David and Co.P. Ltd. vs CIT 118 ITR 261 (SC).

(vi) CIT vs Chandulal Keshavlal & Co. 38 ITR 601 (SC).

(vii) SA Builders Limited vs CIT 288 ITR 1 (SC).

(viii) CIT vs. Sales Magnesite P. Ltd. 214 ITR 1(Bom).

(ix) JR Patel & Sons P. Ltd. vs. CIT : 69 ITR 782 (Guj) .

(x) CIT vs. Khambhatta Family Trust (215 Taxman 602) (Guj).

(xi) Star India P. Ltd.: 103 ITD 73 (TM)

(xii) National Panasonic (India) Ltd. vs. JCIT: ITA 3238/Del/2002 (Del)

(xiii) Nestle India Ltd. vs. DCIT (Del)(2007) 111 ITR 498 (Del).

(xiv) Sony India P. Ltd. vs. DCIT: 114 ITD 448.

(xv) CIT vs Adidas India Marketing (P) Ltd 195 Taxman 256 (Del).

(xvi) CIT vs Agra Beverages Corporation P Ltd (ITA No. 966/2009 &
836/2010)(Del)

(xvii) DCIT vs. Maruti Countrywide Auto Financial Services P. Ltd. (ITA Nos.
2181 to 2183/De1/2010).

(xviii) CIT vs Modi Revlon P.Ltd. (ITA No.1450, 1451, 1640, 1652/2010 &
825/201) (2012).

Page | 14
ITA No.467/Del/2021

(xix) ACIT vs NGC Network India P.Ltd. (ITA No.635 (Mum) of 2010)
(2011).
12. However, the submission of the assessee was not found acceptable by
the Assessing Officer who proceeded to disallow this expenditure. Hence, the
addition of Rs.3,52,33,953/- being 30% of the entire expenditure incurred on
advertisement and publicity was made by the Assessing Officer.

13. Aggrieved against this, the assessee is in appeal before this Tribunal.

14. Ld. Counsel for the assessee vehemently argued that this issue is also
covered in favour of the assessee in assessee’s own case in ITA
no.1516/Del/2015, 1004/Del/2016 and 1706/Del/2017 pertaining to
Assessment Years 2010-11 to 2012-13 respectively. Ld. Counsel for the
assessee submitted that the Assessing Officer has not given any specific reason
for making adhoc disallowances. He submitted that such disallowance is not
permissible under law hence, deserves to be deleted.

15. On the contrary, Ld.CIT DR opposed these submissions and supported
the orders of the authorities below. Ld.CIT DR took us through the Agreement
entered into between the parties. He submitted that the AE of the assessee
company would certainly be benefitted by expenditure incurred on
advertisement and publicity of the products of the AE in India since the
advertisement and the publicity would certainly have impact. He therefore,
strongly supported the orders of the authorities below.

Page | 15
ITA No.467/Del/2021

16. We have heard the rival contentions and perused the material available

on record. We find that the similar issues arose in earlier years as well and the

Tribunal was pleased to decide the issue in favour of the assessee. The

Tribunal in ITA No.8806/Del/8006/Del/2018 pertaining to Assessment Year

2014-15 has observed as under:-

12. “We have heard the rival submissions and perused the orders of the
lower authorities and materials available on the record. The undisputed
facts of the case are that during the financial year 2014-15, the assessee
company incurred a sum of Rs.12,69,00,000/- towards advertising and
sales promotion. The AO required the assessee to show cause as to why
the expenditure incurred on advertisement should not be disallowed being
in the nature of brand building activity. In reply to the show cause notice,
the assessee submitted that any disallowance on account of
advertisement and sales promotion expenses holding the same to be
incurred for brand building for the entities owing brand shall not be
sustainable in law. It was further submitted that the expenses were
incurred for advertisement/marketing support activities etc. and are
incidental to carrying on the business and were incurred by the assessee
regularly for promotion/quality control and its product. The expenses
incurred are to enable and increase efficiency in business and therefore,
was revenue in nature and deductible u/s 37 of the Act. The expenses are
solely incurred for the benefit of the assessee and not its foreign affiliate.
Any benefit flowing to the foreign affiliate out of the said expenditure is
purely incidental. Thus, the expenditure incurred on advertisement is
wholly and exclusively for the business of the assessee. The Assessing
Officer disallowed the same on the ground that the brand (marketing
intangibles) is not owned by the assessee, such expenditure is incurred for
the benefits of the enterprise who owns the brand name. The issue was
examined in detail in earlier assessment years and 30% of advertisement
and sales promotion expenses were disallowed which has also been

Page | 16
ITA No.467/Del/2021

upheld by the DRP. Accordingly, he made the disallowance of 30% of the
expenses and made an addition of Rs.3,80,70,000/- to the income of the
assessee (marketing intangibles) is not owned by the assessee, such
expenditure is incurred for the benefits of the enterprise who owns the
brand name. The issue was examined in detail in earlier assessment
years and 30% of advertisement and sales promotion expenses were
disallowed which has also been upheld by the DRP. Accordingly, he made
the disallowance of 30% of the expenses and made an addition of
Rs.3,80,70,000/- to the income of the assessee.

13. On appeal, the DRP confirmed the same.

14. Both the parties have agreed that the issue is covered by the order of
the Tribunal in the earlier assessment years 2007- 08, 2008-09 & 2009-10
vide order dated 29.04.2016 wherein it was held as under:

"61. The Id. AR of the assessee submitted before us that against the
total increase in advertisement and sales promotion expense of Rs.
4,87,14,000/- the assessing officer accepted only Rs. 4,20,43,000
and disallowed 50% of the difference of Rs.33,08,50O i.e.
(Rs.4,87,14,000 - 4,20,43,000) on the basis of his conjecture and
surmises.

62. The Id. AR of the assessee further made following written
submission:

"It was submitted that in a fast growing and very tough competitive
business environment, the appellant had to spend a good amount
on advertisement and marketing activities to show its presence in
the market and sustain in business. Also, for the initiative of
Branded Retail Stores, the appellant had spent nearly
Rs. 2,27,35,000 during the year and an amount of Rs.1,93,08,000
was spent towards launching and introducing the new product
range called "Excellence" for passenger cars. This two expenses

Page | 17
ITA No.467/Del/2021

alone totaled to Rs.4,20,43,000 out of total increase in expenditure
of Rs. 4,87,14,000.

Further, it was submitted that with the increase in advertisement
and sales promotion expense, the company has demonstrated sales
growth of nearly 28% as compared to financial year 2005-06. The
gross sale in year 2005-06 was Rs.751.74 crores, which has grown
to Rs. 958.11 crores in 2006-07. It would be appreciated that
despite having low spending on advertisement and marketing
expenditure, the appellant has maintained substantial growth in
terms of sales and sustained in this competitive business.

In terms of section 37(1) of the Act, deduction is admissible for
expenditure incurred wholly and exclusively for purposes of
business. Expenditure justified by business considerations and
incurred out of commercial expediency is allowable deduction.

It was also submitted that since the aforesaid expenditure of
advertisement and brand promotion has undergone a benchmarking
analysis under the Transfer Pricing regulations and an arm's length
price thereof has been determined, there could not be any further
disallowance of the said payment under section 37(1) of the Act,
holding the same to be not an expenditure incurred wholly and
exclusively for the purpose of the business of the appellant. Reliance
is placed on the decision of the Hon'ble Delhi Bench of the Tribunal
in the case of Whirlpool of India Ltd. vs. DCIT (ITA No. 426/D/13),
wherein, it is held as under:

"16 ………………..Once the total amount of AMP expenses is
processed through the provisions of Chapter X of the Act with the
aim of making TP adjustment towards AMP expenses incurred for
the foreign AE, or in other words such expenses as are not incurred
for the assessee's business, there can be no scope for again
reverting to section 37(1) qua such amount to make addition by
considering the same expenditure as having not been incurred

Page | 18
ITA No.467/Del/2021

'wholly and exclusively' for the purposes of assessee's business.
If the amount of AMP expenses is disallowed by processing under
both the sections, that is 37 and 92, it will result in double addition
to the extent of the original amount incurred for the promotion of the
brand of the foreign AE de hors the mark-up. In view of the foregoing
discussion, we are of the considered view that the AO was not
justified in observing alternatively that a sum of RS.180 crore and
odd is not allowable as per section 3 7( 1) of the Act. We, therefore,
vacate the alternative finding given by the AO for disallowance. "
63. Ld. CIT-DR placed reliance on the order of the assessing officer
and DRP.
64. We have heard the rival contentions in the light of the material
produced and precedent relied upon. We have already held that the
advertisement expenditure incurred by the assessee is incurred
wholly for the purpose of its business and profession and ought to
be allowed deduction in entirety. Further, the assessing officer has
clearly made an ad-hoc disallowance of advertisement expenditure
incurred by the assessee, which is not permissible under the law.
We are of the considered view that AO was not justified in making
such ad-hoc disallowances and therefore, direct the assessing
officer to delete the adjustment on this account."
15. Facts being identical respectfully following the precedent, we vacate
the disallowance of Rs.3,80,70,000/- and allow this ground of appeal of
the assessee.”

17. The Revenue could not point out any change in facts and circumstances

of the case as the issue has already been decided in favour of the assessee by

the Tribunal in earlier years. We do not see any reason to take a different view.

Therefore, respectfully following the precedents, we hereby direct the Assessing

Page | 19
ITA No.467/Del/2021

Officer to delete the adhoc disallowance as made by Assessing Officer. Ground
Nos. 3 to 3.2 raised by the assessee are allowed.

18. Ground No.4 raised by the assessee is against the levying penalty u/s
234B of the Act. This being consequential in nature. We hold accordingly.
Thus, Ground No.4 raised by the assessee is allowed.

19. In the result, the appeal of the assessee is allowed.

Above decision was pronounced on conclusion of Virtual Hearing in the
presence of both the parties on 11th August, 2021.

Sd/- Sd/-
(KUL BHARAT)
(DR.B.R.R.KUMAR) JUDICIAL MEMBER
ACCOUNTANT MEMBER
ASSISTANT REGISTRAR
* Amit Kumar * ITAT, NEW DELHI

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

Page | 20