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10-01-2020, PepsiCo India Holdings, Section 144C(5), 92CA(3), Tribunal Delhi

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8 months 5 days ago #12044 by amit
Section - 144C(5), 92CA(3), 92C
Order Date - 10-01-2020
Favouring - Assessee
Court - Tribunal Delhi
Appellant - PepsiCo India Holdings Pvt. Ltd.
Respondent - DCIT
Citation - 120Taxpundit108
Appeal No. - ITA No. 9003/Del/2019
Asstt. Year - 2015-16



Aggrieved by the order dated 24/10/2019 passed under section 144C (5) read with section 143(3) of the Income Tax Act, 1961 (for short “the Act”), pursuant to the directions given by the Ld. Dispute Resolution Panel-1, New Delhi (“Ld. DRP”) on 30/08/2019, for the assessment year 2015-16, M/s Pepsico India Holdings Pvt. Ltd (“the assessee”) filed this appeal.

2. Brief facts of the case are that the assessee is a company engaged in the trading and manufacturing of the soft drink beverages aerated and non-aerated drinks and snacks food items. Assessee is also engaged in providing loans to companies involved in the business of manufacture of soft drinks. For the assessment year 2015-16, it had filed its return of income on 29/11/2015 declaring an income of Rs. 68, 49, 30, 320/-under the normal provisions of the Act. During the course of assessment proceedings, it was noticed that the assessee company had entered into various international transactions and specified domestic transa tions with its associated enterprises (AEs) during the year and, therefore, the determination of arm’s length price of such international transactions was referred to the Ld. Transfer Pricing Officer (Ld. TPO). Ld. TPO by order dated 31/08/2017 passed under section 92CA(3) of the Act proposed adjustment of Rs.457,20,63,73/-towards arm’s length price of the international transaction on account of Advertisement, Marketing and Promotional (AMP) expenditure.

3. Further, learned Assessing Officer noticed that the assessee had deducted capital subsidy amounting to Rs.13,07,88,520/-in the computation of taxable income and explained that the said capital subsidy was received from the government of West Bengal for WBIDC to the tune of Rs. 11,31,21,158/-and from government of Maharashtra for Paithon plant to the tune of Rs.1,76,67,362/-. Learned Assessing Officer found that the subsidy amount of Rs.1,76,67,362/-received from the government of Maharashtra was specifically for expansion of the existing plant capacity and towards reimbursement of fixed capital investment made by the assessee, and following the treatment given in the previous assessment year to the assessee by the Department in the previous assessment years, learned Assessing Officer accepted the claim of the assessee.

4. In respect of the subsidy received by the assessee from the government of West Bengal, it is comprised of two elements, namely, State Capital Investment Subsidy (SCIS) and Industrial Promotion Assistance (IPA). Learned Assessing Officer held that the state Capital Investment Subsidy to the tune of Rs. 1.5 crores as capital in natu e and proposed the balance thereof as Revenue receipt. Learn d Assessing Officer accordingly passed the draft assessment order.

5. In respect of both the proposed additions, assessee filed objections before the Ld. DRP. Ld. DRP by order dated 30/08/2019 noticed that both these issues were covered by the order passed on 19/11/2018 of the Tribunal in assessee’s own case for the assessment years 2006-07 to 2013-14 Ld. DRP, however, observed that the department had already filed appeals on the issues before the Hon’ble High Court and therefore, confirmed the proposed additions. Further, in respect of IPA Ld. DRP held that upholding of such an addition should be subject to the order of the Hon’ble High Court. Having said so, Ld. DRP fu ther went on to observe that the amount of capital subsidy should be reduced from the block of assets, appearing in the books of accounts of the assessee, for the purpose of computing the depreciation on such block of assets, representing the new investment in the form of IPA.

6. Aggrieved by such an order of the Ld. DRP, assessee preferred this appeal on as many as 43 grounds. Grounds No. 1 and 2 are general in nature. Grounds No. 3 to 29 related to the challenge in respect of the transfer pricing adjustment on account of AMP expenses. Grounds Nos.30 to 37 are in respect of addition on account of IPA subsidy. Ld. AR submitted that grounds No. 38 and 40 to 43 are consequential in nature. Ground No. 39 related to the allowance of the actual credit of tax deducted at source.

7. It could, therefore, be seen that the effective challenge in this appeal is only in respect of the AMP expenses and IPA subsidy. Submission of the Ld. AR is that both the issues are covered in favour of the assessee in assessee’s own case for the assessment years 2006-07 to 2013-14 in the decision reported in (2018) 100 159 (DelhiTrib).

8. On a reading of the order dated 19/11/2018 in ITA No. 1834/Chand/2010 and batch for the assessment years 2006-07 to 2013-14 reported in (2018) 100 159 (Delhi) we find that the issue of AMP is dealt with by the Tribunal in extenso and a conclusion was reached to the effect tha the AMP adjustment made by the Ld. TPO/learned Assessing Officer could be sustained.

9. We deem it just and necessary to refer to the observations of the Tribunal which read as follows:-

58. Thus, form the plain reading of the aforesaid principles laid down by the Hon'ble Jurisdictional High Court, the key sequitur is that:

(i) International transaction cannot be identified or held to be existing simply because excess AMP expenditure has been incurred by the Indian entity.

(ii) International transactions cannot be found to exist after applying the BLT to decipher and compute value of international transaction.

(iii) There is no provision either in the Act or in the Rules to justify the application of BLT for computing the Arm's Length Price and there is nothing in the Act which indicate how in the absence of BLT one can

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