2026 Supreme(Online)(ITAT) 13835

INCOME TAX APPELLATE TRIBUNAL (KOLKATA BENCH)
AKZO NOBEL INDIA LTD. GURUGRAM – Appellant
Versus
D.C.I.T. CIRCLE-10(1) KOLKATA – Respondent
ITA 140/KOL/2019[2014-15]

AMP and R&T expenses incurred solely for an assessee's own business, without any agreement with AEs, do not constitute 'international transactions' under Section 92B of the Income-tax Act, 1961.

Headnote:(A) Income-tax Act, 1961 - Sections 92, 92B, 115-O, 32(1)(ii), 32(1)(iia), 35(1)(i), 37(1), 80G, 35AC, 32AC, 43B, 90(2) - Transfer Pricing - Advertisement, Marketing and Promotion (AMP) expenses - International transaction - Intra-group services - Contract R&D services - Research and Training (R&T) expenses - Royalty expense - Depreciation on electrical fittings - Additional depreciation - Scientific research expenditure - CSR expenditure - Duty drawback - Dividend Distribution Tax (DDT) under DTAA - Bad debts - Foreign tax credit - TDS credit.

(B) Transfer Pricing - The Tribunal held that AMP expenses do not constitute an 'international transaction' under Section 92B of the Act, following its own precedent and the Apex Court's decision in PCIT vs Amadeus India (Pvt) Ltd., as the assessee did not render any marketing or distribution support services to its AEs and incurred the expenditure for its own business. (Paras 5-7)

(C) Transfer Pricing - The issue of determining the Arm's Length Price (ALP) for Intra-Group Services received from AEs was set aside to the AO/TPO for fresh adjudication, as the TPO had not carried out the requisite exercise. (Paras 11-12)

(D) Transfer Pricing - The Tribunal held that Research & Training (R&T) expenses cannot be regarded as an international transaction under Section 92B, as the assessee did not carry out R&D for its AEs but incurred the expenditure for its own manufacturing operations and local compliance. (Paras 17-18) (E) Corporate Tax - Royalty payments made to AEs for the non-exclusive right to use licenses, trademarks, and know-how on a sales-based percentage, without any lump-sum payment, were held to be revenue expenditure and not capital in nature, following the decisions in CIT vs I.A.E.C. (Pumps) Ltd. and Timken India Ltd. vs CIT. (Paras 22-23) (F) Depreciation - Electrical cables, wires, and DG sets installed in factory premises were held to be part of 'Plant and Machinery' and not 'Furniture and Fittings'. The disallowance of additional depreciation under Section 32(1)(iia) for assets put to use for less than 180 days was also deleted as the third proviso was held to be clarificatory and retrospectively applicable. (Paras 26-27) (G) Deduction u/s 35(1)(i) - Scientific research expenditure was held allowable under Section 35(1)(i) even if the recipient's facility lacked approval, as the expenditure was for the assessee's business. In the alternative, it was held allowable under Section 37(1) as the genuineness of the expenditure was not disputed. (Paras 31-33) (H) CSR Expenditure - Deductions claimed under Sections 80G and 35AC for CSR expenditure were allowed, following judicial precedents that such expenses, when in the nature of qualifying donations, are eligible for deduction. The DRP itself had directed the AO to allow the claim under Section 35AC subject to verification. (Paras 70-71) (I) Deduction u/s 32AC - The Tribunal held that color solution/mixing machines installed at dealers' premises were eligible for deduction under Section 32AC(1A), as the section does not mandate installation at the assessee's own premises and the machines were integral to the assessee's business operations. (Paras 83-85) (J) Duty Drawback - Following the principle of consistency established in Radhaswami Satsang vs CIT, the Tribunal held that since the assessee had consistently offered duty drawback on a receipt basis, the Revenue could not change this accepted method without a change in facts or circumstances. (Para 114) (K) Dividend Distribution Tax - The Tribunal held that by virtue of Section 90(2), the assessee is entitled to apply the more beneficial provisions of the DTAA for dividend taxation, and the issue was restored to the AO for adjudication. (Paras 41, 86) (L) Bad Debts & Foreign Tax Credit - Claims for bad debts written off and foreign tax credit were restored to the AO for verification on merits, as the authorities' rejection on grounds of it being a 'fresh claim' was held to be hyper-technical. (Paras 101, 104)

Facts of the case:
These appeals by the assessee pertain to six assessment years (A.Y. 2014-15 to 2018-19 and 2020-21) and involve common issues concerning transfer pricing adjustments for AMP expenses, intra-group services, R&T expenses, corporate tax disallowances for royalty, depreciation, scientific research expenditure, and other miscellaneous grounds. The Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP) had confirmed various additions against the assessee. The assessee appealed, contending that these transactions were not international transactions or that the disallowances were legally and factually incorrect.

Findings of Court:
The Tribunal allowed the appeals partly for statistical purposes. It deleted the TP adjustment for AMP expenses and R&T expenses, holding them not to be international transactions. It set aside the issues of intra-group services and contract R&D services to the AO/TPO. It allowed the corporate tax issues concerning the revenue nature of royalty, the correct classification of electrical fittings for depreciation, the allowance of scientific research expenditure, CSR deductions, and the deduction under Section 32AC. It also directed the AO to apply DTAA rates for DDT, allow the claim for bad debts and foreign tax credit after verification, and follow the principle of consistency for duty drawback.

Issues: The main issues were whether AMP and R&T expenses constitute international transactions attracting transfer pricing provisions; whether royalty payments were capital or revenue in nature; the correct rate of depreciation on electrical fittings; the allowability of scientific research expenditure under Section 35(1)(i) without prescribed authority approval; the allowability of deductions on CSR expenditure under Sections 80G and 35AC; the allowability of deduction under Section 32AC for machinery installed at dealer's premises; and the correctness of applying a more beneficial DTAA rate for DDT.

Ratio Decidendi: The court ruled that for an expense to be an international transaction, there must be a mutual agreement or arrangement with the AE, and expenses incurred solely for the assessee's own business do not qualify. It reaffirmed the principle that enduring benefit alone does not make an expense capital if the payment is for the right to use an asset without acquiring ownership. It held that provisions of fiscal statutes must be interpreted strictly, but hyper-technical rejections of legitimate claims are unsustainable. The principle of consistency in assessing income was upheld for recurring issues with no change in facts. Result : Appeals partly allowed for statistical purposes.

Table of Content

1. the primary legal principle discussed in this entire group is whether the expense in question constitutes an international transaction within the meaning of section 92b of the income tax act, and if so, what is the appropriate arm's length price, and also the proper treatment of various business expenses (e.g., royalty, depreciation, csr) under the act. (Para 1 , 2 , 3 , 4 , 5 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 , 65 , 66 , 67 , 68 , 69 , 70 , 71 , 72 , 73 , 74 , 75 , 76 , 77 , 78 , 79 , 80 , 81 , 82 , 83 , 84 , 85 , 86 , 87 , 88 , 89 , 90 , 91 , 92 , 93 , 94 , 95 , 96 , 97 , 98 , 99 , 100 , 101 , 102 , 103 , 104 , 105 , 106 , 107 , 108 , 109 , 110 , 111 , 112 , 113 , 114 , 115 , 116 , 117 , 118)

ORDER

Per Rajesh Kumar, AM:

These are appeals preferred by the assessee against the orders of the ld. Dispute Resolution Panel (hereinafter referred to as the “Ld. DRP]dated 20.09.2018, for A.Y. 2014-15, 30.08.2019 for A.Y. 2015-16, 09.12.2020 for A.Y. 2016-17, 12.01.2022 for A.Y. 2017-18, 04.03.2022 for A.Y. 2018-19, 30.06.2024 for A.Y. 2020-21/AOs.

A.Y. : 2014-15

ITA No.140/KOL/2019

2. Ground No.1 is general in nature and needs no specific adjudication.

3. The issue raised in ground No.2 is relating to Transfer Pricing issue in respect of Advertisement, Marketing and Promotion Expenses(AMP) not being international Transaction.

4. The facts in brief are that in TP order dated 27.10.2017 the TPO has discussed the said issue in depth from page 14 onwards and concluded that AMP is an international transaction and accordingly applied a mark-up on the same and proposed an adjustment of Rs 137.97 crores. The assessee company contested the said addition before the DRP. The DRP upheld the findings of the TPO. The relevant extract of the DRP direction is given in para 7.1 and 7.2 (page 23 of the DRP order dated 20.09.2018).

5. We have heard the rival contentions and perused the material on records. We find that AMP expense is not an international transaction as Assessee does not render any marketing and distribution support services to its AEs. Further all the expenses incurred on its own account and has no agreement with its AEs and that AMP expenditure incurred by the Assessee is wholly and exclusively for the purpose of its own business. Further the Ld.AR submitted that it is a recurring issue and he relied upon the Assessee’s own case for previous years in ITA No. 621/Kol/2017 for AY 2012-13 ,ITA No. 315/Kol/2016 for AY 2011-12 and ITA No. 114/Kol/2018 for AY 2013-14wherein the said issue has been allowed in favour of the assessee.The relevant extract of the decision in ITA No. 114/Kol/2018 for AY 2013-14is reproduced as under:

“6. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee's own case vide order dated 18.10.2019. In this order, the Tribunal has inter alia observed as follows:

"6. We have heard rival submissions and carefully gone through the material available on record. We also note that the issue in hand is squarely covered by the decision of this Tribunal, in assessee's own case in ITA No. 560/Kol/2016 & ITA No. 315/Kol/2016 wherein the Tribunal by order dated 28.08.2019 has held that that the AMP expenses cannot be regarded as an international transaction as per section 92 B of the Act in the case of the assessee, so as to invoke provisions of section 92 of the Act. And since the AMP expenditure is not an international transaction, the TP adjustment made in this regard need to be deleted and has observed as under:

"6. Ground No. 2 & 3, are on the issue of Transfer Pricing (TP) adjustments, made towards advertising, marketing and promotion expenses (AMP Expenses). The Transfer Pricing Officer (TPO)

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