Appeal partly allowed, royalty disallowed on export sales, remand for recalculations

The appeal was partly allowed for statistical purposes, with specific issues remanded to the AO for further verification and recalculations. The tribunal upheld the disallowance of royalty payments on export sales, citing consistency with prior decisions. The addition for payments to foreign concerns without TDS was remanded back to the AO for verification of the assessee's claims. The incorrect figure for the carry forward of short-term capital loss was also remanded for recalculation in line with earlier orders.

---

---

Issues Involved:
1. Disallowance of royalty payment on export sales.
2. Addition made for payments to foreign concerns without making TDS.
3. Incorrect figure taken for carry forward of short-term capital loss.

Issue-wise Detailed Analysis:

1. Disallowance of royalty payment on export sales:
The assessee contested the disallowance of Rs. 13,18,304 as royalty payment on export sales. The assessee paid royalty to Gulf Oil International Mauritius (Inc.) (GOIL) as per agreements dated 01.08.2003 and 10.11.2003, approved by the Government of India. The royalty rates approved were 5.88% for domestic sales and 9.41% for export sales. For the relevant financial year, the assessee paid royalty of Rs. 27,16,107 on export sales of Rs. 13,35,82,370, which worked out to 2.03%. However, the TPO restricted the deduction to 1% of export sales, based on a prior ITAT order, resulting in an adjustment of Rs. 13,80,304. The DRP confirmed this order. The assessee argued that the royalty was reasonable and at arm's length, citing higher percentages paid by third parties and other subsidiaries, and approvals by the RBI. However, the tribunal upheld the disallowance, referencing a prior decision where 1% royalty on export sales was deemed reasonable. Thus, ground of appeal No.2 was rejected.

2. Addition made for payments to foreign concerns without making TDS:
The assessee challenged the addition of Rs. 45,97,042 for payments made to foreign entities without TDS. The payments were Rs. 44,86,063 to M/s. C & C Maritime P. Ltd. and Rs. 1,10,979 to M/s. East Port Maritime P. Ltd. for services rendered outside India. The assessee argued that these payments were for freight charges and commission, respectively, and since the payees had no permanent establishment in India, TDS provisions were not applicable. The DRP had previously directed the AO to verify the assessee's claim regarding similar payments for AY 2010-11. The tribunal remanded the issue back to the AO for verification of the assessee's claims, thus allowing grounds No.3 and 4 for statistical purposes.

3. Incorrect figure taken for carry forward of short-term capital loss:
The assessee contended that the AO incorrectly recorded the carry forward of short-term capital loss as Rs. 16,99,16,235 instead of the correct amount of Rs. 38,42,82,950. The tribunal noted that this issue had been previously remanded to the AO by the ITAT for earlier years. Consequently, the tribunal remanded this issue back to the AO for recalculating the correct carry forward amount in line with the earlier remand orders. Thus, ground of appeal No.5 was allowed for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific issues remanded to the AO for further verification and recalculations. The tribunal upheld the disallowance of royalty payments on export sales, citing consistency with prior decisions.

---