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IN THE INCOME TAX APPELLATE TRIBUNAL,

DELHI ‘I’ BENCH, NEW DELHI

[Coram: I C Sudhir JM and Pramod Kumar AM]

I.T.A. Nos.: 5648, 5649 and 5650/Del/12

Assessment years 2003-04, 04-05, 05-06

Wrigley India Pvt Ltd

Appellant

206, Okhla Industrial Estate Phase III

New Delhi 110 020 [PAN: AAACW1789P]

Versus.

Assistant Commissioner of Income TaxCircle 18(1), New Delhi

Respondent

I.T.A. Nos.: 5987, 5988 and 5989/Del/12

Assessment years 2003-04, 04-05, 05-06

Assistant Commissioner of Income TaxCircle 18(1), New Delhi

Appellant

Versus.

Wrigley India Pvt LtdR

Respondent

206, Okhla Industrial Estate Phase III

New Delhi 110 020 [PAN: AAACW1789P]

I.T.A. No. 5224/Del/10

Assessment years 06-07

Wrigley India Pvt Ltd

Appellant

206, Okhla Industrial Estate Phase III

New Delhi 110 020 [PAN: AAACW1789P]

Versus.

Additional Commissioner of Income Tax

Range 18 New Delhi

Respondent

Appearances for Appellant : Kanchan Kaushal, Ravi Sharma and Sankalp Sharma

For Respondent : Peeyush Jain

Date of the hearing : November 24, 2014.

Date of pronouncing the order : December 31, 2014.

O R D E R

Per Pramod Kumar AM:

1. Out of these seven appeals, first six appeals are cross appeals, filed by the assessee as also the Assessing Officer, against a consolidated order dated 11thSeptember 2012 passed by the CIT(A) in the matter of assessment under section143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], for the assessment years 2003-04, 04-05 and 05-06. The seventh appeal is assessee’s appeal against order dated 29th October 2010 passed by the then Assessing Officer under section 143(3) r.w.s. 144C of the Act, for the assessment year2006-07. All these appeals pertain to the same assessee, involve some common issues arising out of a common set of facts, and were heard together. As a matter of convenience, therefore, we are disposing of all these appeals together by this consolidated order.

2. One common issue in all the assessment years is the challenge to the correctness of arm’s length price adjustment made to the billing for contract manufacturing by the assessee, to its associated enterprises based abroad. We will begin by taking up this common issue. The short question, as learned counsel for the assessee contends, that we have to adjudicate upon in this bunch of appeals is whether Cost Plus Method (CPM), with entrepreneurship profits derived from manufacturing and selling its products in India as the benchmark, would indeed be most appropriate method of determining the arm’s length price(ALP)of contract manufacturing of its same products for its associated enterprises abroad. The background in which this question arises is as follows.

3. The assessee company (Wrigley India, in short) was set up in India in October 1993 as a wholly owned subsidiary of the legendry William Wrigley JrCo, USA (Wrigley USA, in short) founded in 1891 and is thus part of a large network of business entities associated with Wrigley USA (collectively referred as Wrigley group) - world’s largest manufacturer and marketers of chewing gum and with its network in more than 180 countries. Wrigley India is engaged in the manufacture and sale of confectionary products like chewing gums, bubble gum lollipops and toffees. The company is manufacturing and selling these products to the associated enterprises (AEs) as also to the independent enterprises (non AEs).The fine line of distinction in respect of these transactions with AEs and non AEs, as canvassed before us, is that while the transactions with the AEs are in the capacity as limited risk contract manufacturer, its transactions with the domestic independent enterprises is a business transaction with regular entrepreneurship risks.

4. The assessee, as we have noted above, started its operations in Indian in the end of the calendar year 1993. The assessee produced and marketed its products in India and since the assessee could not utilize its entire production capacity, the assessee also produced the same products for its AEs abroad. So far as the assessment year 2003-04 is concerned, the transfer pricing study noted that the assessee’s operating loss has come down from 76.21% to 39.17%due to reduced capacity underutilization, and that it was so done with the help of exports to AEs abroad. The TP study, inter alia, noted as follows:

“The losses were on account of lack of demand in the domestic market and substantial underutilization of existing capacity. However, the loss has decreased during the year due to improvement in the capacity utilization. Wrigley India has produced 554 metric tones during the financial year ended on March 2003 as against installed capacity of 1951 metric tones i.e. a capacity utilization rate of 28 percent. The improvement in thecapacity utilization as compared to 12 percent is on account of increased demand in the export market. Breakeven analysis portrays the relationship between the cost of production, volume of production and the sales value. The breakeven point is the level of sales at which the company would neither earn profit nor incur losses. Based on the information made available to us, we understand that the turnover achieved by Wrigley India for the current financial year is still below the breakeven point.

To read the full judgment, please find the attached file:

Attached file:

http://www.itatonline.in:8080/itat/upload/698235648125888993513$5%5E1REFNOWrigley_India_Pvt_Ltd_Vs_ACIT_-_final.pdf