Full Judgment
21. t November, 2012 + ITA 644/2012 CIT Through: ..... Appellant Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Puneet Gupta, Jr. Standing Counsel. versus NESTLE INDIA LTD Through: ..... Respondent Mr. Ajay Vohra with Mr. Somnath Shukla, Advocates. CORAM: MR. JUSTICE S. RAVINDRA BHAT MR. JUSTICE R.V. EASWAR S. RAVINDRA BHAT, J: (OPEN COURT) The Revenue claims to be aggrieved by the impugned judgment of the Tribunal in ITA No.4477/Del/2010. The question of law urged on its behalf is: Whether the Tribunal fell into error in deleting `33.82 crores being 40% of the license royalty paid by the assessee to the owner of the brand and trademark i.e. Societe Des Products Nestle S.A. Switzerland? 2. The relevant facts are that for the concerned assessment year, the Transfer Pricing Officer (TPO) after a detailed analysis of the materials produced before him, concluded that no price adjustment was necessary. However, in the course of the order he stated as follows: - On the other hand, the question of reimbursement of expenses incurred on advertisement is examined. There is a strong nexus between brand building/ sales promotion and the benefits arriving to the overseas entity ill terms of royalty. However, there is no international transaction as per the assessee under this head. Based on this analysis even though royalty payment can be questioned but the problem of method as discussed above arises. Therefore, in the absence of data on royalty per se to suit any of the method, the arms length price of the international transaction of payment of royalty cannot be determined in the present circumstances. However, this should not be construed to mean that the payment of royalty and advertisement and sales promotion expenses are reasonable. Their reasonableness can be examined by the Assessing officer under other provision is ions on the Income Tax Act. On perusal of the observations made by the TPO, it is evident that the assessee is helping the parent company to enhance the brands value in India and it is attributable to the marketing efforts by the assessees. The OECD guidelines also propounds that the actual conduct of the parties over a period of years should be given significant weight in evaluating the return attributable to market activities. As such, it is evident that license fee paid by the assessee cannot be completely attributed to have been expanded wholly and exclusively for the purpose of business.
3. Apparently, taking cue from TPOs observation the Assessing Officer, in the regular assessment made, in the course of consideration of the assessees returns had disallowed the sum of `33.82 crores being 40% of the general license as not incurred wholly and exclusively for the purpose of business and that the royalty was excessive in the circumstances of the case so as to attract proportionate disallowance of 40%. The CIT (Appeals) directed the deletion of the disallowance in its entirety, after analyzing the facts and circumstances. The Revenues appeal was dismissed by ITAT. The relevant part of the impugned order containing the discussion in this regard is reproduced below:
4. We have considered the facts of the case and submissions made before us. It is an admitted fact that the question posed by the revenue stands squarely covered by earlier decisions of the Tribunal and the High Court. However, at the insistence of the ld. CIT, DR that the matter requires fresh look in view of further developments in law, we have traced the detailed history and mentioned the cases relied upon by him. We find that the decision of Honble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) does not advance the case of the revenue as it has been brought to a knought by the decision of the Honble Supreme Court, which has directed the Transfer Pricing Officer to independently make the valuation without being influenced by the decision of the High Court. Looking to the earlier decisions in this case, which we are bound to follow, it is held that the ld. CIT (Appeals) rightly deleted the addition of `33.82 crore by relying on earlier orders of the Tribunal.
4. This Court notices that the Tribunal placed reliance upon the decision, of the assessee itself, of this Court i.e. CIT v. Nestle India Ltd., (2011) 337 ITR 10.(Del.) pertaining to assessment year 2005-06 where an almost identical question had arisen. This Court had taken note of a similar approach as noticed by the Tribunal in the impugned order and observed as follows:
5. As the facts and circumstances during the year under consideration are in pari-materia and a view has already been taken by the coordinate Bench in this matter, whose order is having binding precedent, respectfully following the same, this ground of Revenues appeal stands dismissed.
5. This Court is also unpersuaded by the Revenue that the subsequent amendment by way of insertion of an Explanation by Finance Act, 2012 w. e. f. 01.04.2002, makes a difference. As observed earlier, the Transfer Pricing Officer after detailed analysis and examination of the material on record concluded that pricing adjustment was unnecessary; therefore, the application of this amendment, made later, to the facts of this case especially in a context in which they have arisen, is academic.
6. This Court sees no reason to differ with the view taken by it in Nestle India Ltd. (surpa). No substantial question of law arises, in these circumstances the appeal is dismissed. S. RAVINDRA BHAT, J R.V.EASWAR, J NOVEMBER 20 2012 hs