2011 (12) TMI 233

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....th price and the value of the International Transaction on account of Royalty. The A.O. made this addition on the basis of TPO's order passed u/s. 92CA(3) of the Income-tax Act.  2.  The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal". 2. The brief facts of the case are that the assessee company is engaged in the business of manufacturing of precision forged beval gears and synchronizer rings used in the automobile industry. It has filed its return of income for assessment year 2004-05 on 28.10.2005 declaring an income of Rs. 8,89,09,600. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Act was ....

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....s noticed by him in the tabular form in paragraph 3. This transaction relates to payment of royalty at Rs. 1,73,24,153. The facts relating to this transaction are that assessee is a joint venture company with the Mitsubhishi Material Corporation (MMC, Japan) having 25.79% of shares holding in the assessee company. The assessee has entered into a collaboration agreement with MMC, Japan on 19.12.1995 which has been approved by the Ministry of Industries, Department of Industrial Policy and Promotion on 18.7.1996. As per the agreement, assessee had paid royalty @ 3% on export and domestic sales (net of imported raw-material & bought out components) as per collaboration agreement approved by the Government of India. There is no dispute that MMC....

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....ot a contract manufacturer. The total royalty paid by the assessee is of Rs. 173 lacs, out of this payment Rs. 154 lacs pertains to the sales made to others. The royalty payment attributable to the sales made to the A.E is only Rs. 19 lacs. It suggests that royalty was paid keeping in view the business necessity and as per the collaboration agreement. It also pointed out that the characteristic of a contract manufacturer is that it performs certain production activities regarding the products of the principle, in return it receives a previously agreed fees. The goods in such situation remains the principal's properties, the contract manufacturer assumes only a limited degree of risk with regard to the goods. Learned First Appellate Authorit....

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....s revenue neutral. If the appellant does not pay the fees on the sales made to the A.E, it will have to give a corresponding reduction in the price charged to the A.E since its costing for the sale will come down. This will create more complications in the accounts and the impact on the taxable profits will be nil. Therefore since the sale prices charged by the appellant on supplies made to the A.E are at market prices, there is no reason for adjustments to be made in the manner in which the fees paid under the Technology Agreement is being computed. Hence, the addition made by the TPO is deleted". 7. Learned DR relied upon the order of the Assessing Officer whereas learned counsel for the assessee submitted that a similar issue arose in a....