Tribunal Partially Allows Appeal, Sets Aside Transfer Pricing Orders

The Tribunal partly allowed the appeal, setting aside the orders on the issues of transfer pricing adjustments and depreciation, remitting them for fresh consideration. The Tribunal ruled in favor of the assessee on the transfer pricing adjustment for 'Payment of royalty for exports to AEs,' rejecting the need for a fresh determination of arm's length price.

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Issues:
1. Addition of Rs. 22,85,36,863 on account of transfer pricing adjustment for 'Payment of export commission.'
2. Addition of Rs. 8,60,70,816 on account of transfer pricing adjustment from the international transaction of 'Payment of royalty for exports to AEs.'
3. Dispute regarding the grant of depreciation at a reduced rate of 15% on Moulds used for plastic components instead of the claimed 30%.

Issue 1 - Transfer Pricing Adjustment for 'Payment of Export Commission':
The assessee appealed against the addition of Rs. 22,85,36,863 made by the Assessing Officer based on the Transfer Pricing Officer (TPO) determining the arm's length price (ALP) at Nil for the international transaction of 'Payment of export commission.' The TPO concluded that no benefit accrued to the assessee from the commission payment, thus recommending the adjustment. However, the Tribunal found that the TPO's role was limited to determining ALP and not deciding the existence of services or benefits to the assessee. Following the precedent in CIT v. Cushman & Wakefield, the Tribunal set aside the order and remitted the matter to the AO/TPO for a fresh decision considering the deductibility under section 37(1) of the Act.

Issue 2 - Transfer Pricing Adjustment for 'Payment of Royalty for Exports to AEs':
The second issue involved the addition of Rs. 8,60,70,816 due to transfer pricing adjustment from the international transaction of 'Payment of royalty for exports to AEs.' The TPO determined the ALP at Nil based on the view that the assessee was a 'Contract manufacturer' for its AEs, leading to the addition by the AO. The Tribunal disagreed with the TPO's characterization, noting that the transactions were on a principal-to-principal basis, and the royalty rates were consistent for AEs and non-AEs. Citing past decisions in the assessee's favor, the Tribunal ruled in favor of the assessee, rejecting the need for a fresh determination of ALP.

Issue 3 - Depreciation on Moulds Used for Plastic Components:
The final issue pertained to the grant of depreciation at a reduced rate of 15% on Moulds used for plastic components, as opposed to the claimed 30%. The AO's decision to lower the depreciation rate was based on previous years' practices. The Tribunal, lacking clarity on the previous treatment of this issue, remitted the matter to the AO for a fresh decision in line with the directions provided.

In conclusion, the Tribunal partly allowed the appeal, setting aside the orders on the issues of transfer pricing adjustments and depreciation, remitting them for fresh consideration, while ruling in favor of the assessee on the transfer pricing adjustment for 'Payment of royalty for exports to AEs.'

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