Tribunal remits issues for fresh review, upholds disallowance of commission payment.

The Tribunal partly allowed both appeals, remitting various issues back to the AO/TPO for fresh determinations. The adjustments related to brand royalty, management fees, and foreign exchange fluctuation loss were to be re-evaluated, with specific instructions to avoid duplicate payments and verify asset acquisition dates. The Tribunal upheld the disallowance of commission payment for non-deduction of tax at source, citing relevant case law. The order was issued on 15th July 2021.

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Issues Involved:
1. Transfer Pricing Adjustment for Brand Royalty
2. Disallowance of Royalty Payment under Section 37
3. Capitalization of Royalty Payment
4. Transfer Pricing Adjustment for Management Fees
5. Additional Depreciation on Foreign Exchange Fluctuation Loss
6. Disallowance of Commission Payment for Non-Deduction of Tax at Source

Issue-wise Detailed Analysis:

1. Transfer Pricing Adjustment for Brand Royalty:
The assessee contested a transfer pricing adjustment of Rs. 70,52,220/- for brand royalty. The TPO determined a Nil ALP for the brand royalty, asserting that the payments were unjustified and perpetual. The CIT(A) upheld the TPO's adjustment but overturned the AO's disallowance under Section 37 and capitalization of the royalty. The Tribunal, referencing its previous decision for AY 2009-10, remitted the matter to the AO/TPO to re-determine the ALP, disallowing any duplicate payments.

2. Disallowance of Royalty Payment under Section 37:
The AO disallowed the entire royalty payment of Rs. 2.36 crore, deeming it non-business expenditure. The CIT(A) reversed this, confirming that the royalty payments were for business purposes, as the assessee used the technology and brand in its manufacturing process. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's ground.

3. Capitalization of Royalty Payment:
The AO treated the royalty payment as capital expenditure. The CIT(A) disagreed, and the Tribunal, referencing prior years' decisions, supported the CIT(A)'s stance, ruling that royalty payments should not be capitalized.

4. Transfer Pricing Adjustment for Management Fees:
The assessee and revenue both contested the CIT(A)'s decisions regarding a transfer pricing adjustment for management fees of Rs. 4,86,14,759/-. The TPO had determined a Nil ALP, questioning the receipt of services and the method applied. The Tribunal, following its previous year's decision, remitted the matter for fresh determination of the ALP, confirming that the assessee did avail services and that the TNMM was not appropriately applied.

5. Additional Depreciation on Foreign Exchange Fluctuation Loss:
The assessee claimed additional depreciation on a forex loss of Rs. 1.82 crore related to loans for capital assets. The AO denied this, but the CIT(A) allowed it. The Tribunal clarified that additional depreciation is only permissible for assets acquired post-31st March 2005, remitting the matter to the AO to verify the bifurcation of the forex loss between the loans taken in 2002 and 2007.

6. Disallowance of Commission Payment for Non-Deduction of Tax at Source:
The AO disallowed Rs. 58,65,026/- paid as commission to overseas agents for non-deduction of tax at source. The CIT(A) overturned this, and the Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling that such payments for overseas services are not chargeable under the Act, hence no TDS is required.

Conclusion:
The Tribunal partly allowed both appeals for statistical purposes, providing specific directions for fresh determinations and verifications by the AO/TPO. The order was pronounced on 15th July 2021.

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