TaxTMI 
TaxTMI 
2013 (8) TMI 669
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....ion 92CA of the Act being the TPO adjustment. 3.1 The ld. CIT (A) ignored the fact recorded by the TPO and also the fact that amount of royalty paid and excess amount paid on purchases has also been ignored. 4. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) has erred in deleting the addition of Rs. 2,59,434/- made on account of foreign tour of the director of the company." 2. Ground No.1 is general. 3. Ground No.2 challenges the action of the Ld. CIT (A) in deleting the addition of Rs. 2,27,23,781/- made by the Assessing Officer for calculating the book profit, being the provision for retirement benefit. The Assessing Officer observed that in respect of computation of book profit u/s 115JB of the IT Act, the assessee has not offered any explanation in respect of provision of Rs. 2,27,23,781/- for retirement benefit. The Assessing Officer observed that this expenditure was a contingent liability for the future, calling for adjustment to be made under Explanation (c) to Section 115JB (2) of the Act. The Assessing Officer made addition of this amount of Rs. 2,27,23,781/-. 4. The Ld. CIT (A) having deleted the addition, the department has take....
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....certained shall be allowed while computing book profits under MAT. As such, provision for retirement benefit in the computation of book profits u/s 115JB of the Act is to be allowed, if such provision for retirement benefits has been made on a scientific basis. Now, in the case of the assessee, as even accepted by the Assessing Officer himself in the assessment order (in para No.6 thereof), the computation of retirement benefits, having been made on the basis of actuarial valuation, is based, undoubtedly, on a scientific basis. Such provision is not a contingent liability and the liability accrues from the moment an employee is hired and starts rendering services. Only the payment of the dues is deferred, which does not amount to a contingent liability. As such, the Ld. CIT (A) has correctly held that the provision for retirement benefit, as duly certified by the actuarial valuation, cannot be treated as a contingent or unascertained liability and it is a definite liability in present, which is to be discharged at a future date. 9. The Ld. CIT (A), therefore, has correctly deleted the addition. Accordingly, ground No.2 is rejected. 10. So far as regards ground No.3, the TPO made....
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....ases of moulds and designs to the tune of Rs. 1 crore, further technology was not required, because apart from the moulds and designs, the assessee had also purchased raw material such as bulbs, sockets, lenses, etc.; that in fact, there had not been any actual receipt of technology by the assessee company from Stanley; that all this had duly been taken into consideration by the TPO while making the adjustment; and that the Ld. CIT (A) has erred in brushing aside the observations made by the TPO. Besides, the Ld. DR has reiterated the arguments adduced while dealing with a similar issue concerning royalty, in the assessee's case for Assessment Year 2008-09 in the assessee's appeal in ITA No.4456/Del/2012 (which we have disposed of vide our order dated 31.05.2013). 13. The ld. counsel for the assessee, on the other hand, also reiterating the arguments raised in the assessee's appeal for Assessment Year 2008-09 (supra), has made further verbal arguments. A written synopsis/submissions have also been filed. 14. The arguments raised in the assessee's case for Assessment Year 2008-09 (supra) have been heavily relied on. It has been contended that the assessee had been paying royalty t....
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....that the technology was required, for which, the royalty had been paid; that the TPO had further erred in observing that there had been no actual receipt of technology by the assessee; that whereas the assessee had justifiably applied the CUP method to the royalty payment, the TPO had erred in disregarding the application of the CUP method, without assigning any cogent reason for such disregard; that the TPO had erroneously applied the TNMM and recommended upward adjustment of Rs. 2,03,02,776/-, which was wrong in the event of internal CUP having been available; that the TPO had wrongly rejected all the comparable companies selected by the assessee in its TP study, retaining only one, i.e., Phoenix Lamps Ltd.; that in such rejection, Rule 10B (2) of the Rules was not followed by the TPO; that apropos all the five companies rejected by the TPO as comparables, no FAR analysis was done by the TPO, even though such FAR analysis is essential for establishing comparability between the tested party and the other companies chosen for benchmarking the ALP, as held in the case of 'Aztec Software', 294 ITR (AT) 32 (Bang); that the Ld. CIT (A) has correctly concluded that the sole comparable s....
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....Act, on account of adjustment of arms' length price amount to Rs. 2,51,88,406/-. The AO has discussed this issue in para 7 onwards in his order. The appellant has submitted that during the course of the assessment year under consideration it had undertaken the following international transactions with its AEs and the TPO has made adjustment against such transactions as given below:- Sl. No. Particulars Transactions Adjustment by TPO (Rs.) Arm's length Price as per TPO (Rs.) 1 Import of raw material, spares and components 6,44,55,527/- 48,85,630/- 5,95,64,897/- 2 Purchase of Moulds/Machinery 62,50,907/- NIL 62,50,907/- 3 Payment of Royalty 2,03,02,776/- 2,03,02,776/- NIL 4 Purchases of Design & Drawings 33,18,000/- NIL 33,18,000/- Total 9,43,22,210/- 2,51,88,406 It is further submitted by the appellant that the TPO has recommended adjustments in the arms' length price pertaining to transactions at serial no. 1 & 3 i.e. value of Import of raw material, spares and components amounting to Rs. 48,85,630/- and payment of royalty of Rs. 2,03,02,776/- and he has accepted the other two international transactions pertaining to purchase of moul....
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....ations or partnership with foreign companies. The Brand/ goodwill created by the foreign partner is his home country and/ or the world market turn into a Brand even for the Indian market. The consumers of the goods manufactured by the foreign partners of the Indian consumers of the same products in India. Thus, in the present case the assesse is able to sell the products it manufactures under the 'Stanley' brand name without undertaking much of the marketing efforts to the same companies' joint ventures/ collaborations in India who are Stanley's customers in its home market. Thus it is also humbly submitted that, the assess is not incurring substantial expenses on advertisement and sales promotion. The Stanley brand has enormous goodwill in the world market of the auto- industry, which assures all its consumers products of the highest quality and the latest technology and helps the assessee sell its products under the 'Stanley' brand at minimum cost and efforts. It is important to note that the assessee has paid the royalty to the AE only on sales made by using the brand name, technology and know-how of AE's. (v) That the TPO has raised objections as to why the royalty is being pa....
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....case the rate of royalty has been reduced from earlier 4 % to 3 5 for the last few years. The appellant has applied to CUP method to justify the payment of royalty. Alternatively, the royalty payment was justified even under an overall analysis performed by the assessee under the TNMM method. The TPO has ignored all this vital information, ignored the provisions of transfer pricing, ignored the legal aspect (RBI & SIA approvals of the royalty payment and has attempted to decide the issue by saying that the payment was not required to be made or was not warranted. All the reasons adopted by A.O. / TPO to disallow the amount of royalty are of frivolous nature and are full of surmises and conjectures and in any case not warranted from the transfer pricing point of view. (i) It has been submitted that while giving hypothetical examples the TPO had completely overlooked the facts of the assessee's case. Whereas there could be some element of practicability in the case studies given by the TPO in the case of 100 % subsidiary/ holding relationship, the same cannot be true where the concerned AE is just about 19.41 % stakeholder. It is not understood how and why a majority stakeholder (of....
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....f its employees with business necessity and sound reason. Hence, the contention of the Ld TPO is completely incorrect, it is re-iterated that the visits of the engineers of the appellant were made for training purposes only and not otherwise. (iv) The appellant has further submitted that the TPO's observation that since the assessee had purchased moulds, designs and drawings from the AE and apart from these, most of the material purchased are small items, such as bulbs, sockets, lenses etc. therefore, there was no further technology that may be required in manufacturing, are required to be rejected as surmises and conjectures. It has been claimed that merely import of these drawings, designs and moulds does not ispo-facto lead to situation that the appellant would also know how to make these designs. It has been claimed that if the view of the TPO are accepted, then primarily it would mean that by importing designs and moulds everybody become expert in manufacturing the items for which the designs and molds have been imported It has been explained that the manufacturing many item involves may more steps and stages and these observations of the TPO are away from the reality. The i....
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....ated in SEZ and enjoying lower excise duty fell on aq different platform and which required either an adjustment in its PLI or a total rejection as has been done by the TPO himself in AY 2006-07 based on our similar submissions . It has, therefore, been submitted that all the comparables rejected by the TPO is on certain extraneous factors such as low turnover which is not as per rules. Further, it has been claimed that if the TPO was to retain Phoenix Lamps Ltd., as a sole comparable, he should have carried out adjustment in accordance with rule 10B (1) (e) (iii) of the I.T. Rules. The reliance has been placed on the case of M/s Mentor Graphics (Noida ) Pvt Ltd., 109 ITD 101 (Del) for this proposition. Further, the TPO while rejecting the companies has not performed any FAR analysis and has proceeded to make ad-hoc rejections of comparables chosen by the assesse on a well laid out and accepted basis. (vi) Two other ratios i.e. Fixed Assets ratio and Inventory ratio calculated by the TPO should have been chosen to reject the Phoenix as a comparable. As the asset based of assessee is more than 150 % of the Phoenix, similarly, inventory ratio clearly indicates that assessee has to....
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....t profit margin @ 6.5% and the average net profit margin of the comparable was computed @ (-) 0.5 % based on three years average. It was concluded that the Transactions undertaken by the assessee with its AE are on arms' length. However, during the course of proceedings, it has been submitted that only current year's data and information should be compared and not three years average which can be done only under certain eventualities, which is as per judgement of M/S Mentor Graphics Pvt Ltd Vs DCIT 109-ITD-101 (Del). Therefore, a revised chart was submitted vide letter dated 5th July, 2010 as under :- SUMMARY OF WEIGHTED AVERAGE NPM S. No. Companies 2003-04 1 India Japan Lighting 8.17 % 2 Autolite India Ltd -10.79 % 3 Fiem Industries Ltd 2.69 % 4 Japan Lamps 1.91 % 5 Phoenix Lamps 12.97 % JMA Industries -34.36 % S. No. Average 3.24 % 1 Maximum 12.97 % 2 Upper Quartile 8.17 % 3 Median 2.69 % 4 Lower Quartile 1.91 % 5 Minimum -34.36 % From the From the above, it would be observed the average of the comparable compies worked out to be (-) 3.24 % as against (-) 0.05 based on three years average, which was given in Transfer Pricin....
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....t of royalty to the AE, an internal CUP is also applicable. These submissions have been made based on the fact that it was only during this assessment year that M/S Stanley Electric Co. Corporation, Japan has become its AE, because it acquired 19.41 % in the paid up capital and has also appointed Executive Director of the assessee has entered into a commercial relationship with Stanley much before it become its AE in assessment year 2004-05. It has also been submitted and clarified that the assesse was paying royalty @ 4% to the Stanley Electric Co. till assessment year 2003-04, when it was not its AE. However, after it becomes an AE i.e. from assessment year 2004-05, the royalty has been paid @ 3%. To that extent, it was submitted that so far as the royalty payment is concerned, it satisfies all the ingredients of an internal CUP. The courts are continuously taking a view that if internal CUP is available, then there is no need to follow any other method. To that extent, the payment of royalty to the AE by the assessee during the year under consideration is also justified based on internal CUP. Following judgements are relevant for the proposition. VVF Ltd vs. DCIT [2010-TII-04-I....
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.... 9.01 (46.47) It was also submitted that this is not an additional data as the TPO himself has referred to all the data i.e. sales etc. in his order in Page 15 in para second. (xii) It has further been submitted that so far as the claim of the assessee reject Phoenix Lamps Ltd. is concerned, although the assessee itself selected the Phoenix Lamps Ltd. as one of its comparables, yet it was during the course of these appellate proceedings and also during the course of assessment proceedings before TPO pertaining to assessment year 2006-07, the assessee realized that the said company cannot be compared with the assessee. To that extent, it was refinement of the TP study conducted by the assessee itself. It has been held in the case of DCIT vs. Quark Systems Pvt. Ltd [2010-TIOL-31- ITAT-CHD-SB] that the assessee be allowed to revise its comparables and data because the Transfer Study is a statistical analysis of results of the assessee and are required to be compared with other comparable entities and the assessee should be allowed to revise its study. It has been claim and contended by the AR of the assesse that Phoenix Lamps Ltd. was not a comparable entity at all and it has been....
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....acceptable and the TPO was not justified to reject the comparables without getting into details FAR analysis merely on turnover criteria. I am in agreement with the A.R. of the assessee that high turnover may lead to certain economies of scale. Therefore, I would also like to reject two comparables which are into losses as according to me in these two cases low turnover has resulted into losses and the tested party's turnover has given it the advantage of economies of scale. Therefore, I proceed to examine the assessee's performance under TNMM method by retaining the other three comparables because I further find that the assessee's contentions regarding Phoenix Lamps Ltd has also to be accepted as would be seen from my subsequent findings and reasons. 9. Similarly, the observation of the TPO that the agreement for payment of royalty between the assessee and its AE, Stanley, Japan is merely an agreement without anything more, cannot be accepted in view of the fact that the appellant has been a relationship with the said foreign collaborator before it became its AE and since 1984 and only in assessment year 2004-05 the relationship of AE has been established by the appellant with S....
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....llant and therefore there was no requirement of payment of any royalty. The answer to this question needs tom be found whether any associated enterprise would give qualified expatriate engineers without any remuneration to the other entity. To my mind, it was only because the appellant was into commercial relationship with the foreign collaborator, that expatriate engineers had been sent to the assessee so that the technology being supplied by the AE of the assessee is properly applied in the production of licensed products. It is not the case of the TPO that the AE of the assessee is not charging a mark-up/cost plus the expats salaries. Rather, such salary is being paid by the AE and assessee is meeting certain expenses on meeting the day-to-day living of such employees. Hence, the factum of putting expats on assessee's premises goes in favour of paying royalty than treating it otherwise. 12. Yet another reasoning of the TPO that only one to two visits have been made to Japan is also factually incorrect, because the engineer/directors of the assessee have visited places like Thailand also. The assessee had filed complete details of foreign travelling in connection with this groun....
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....of raw material from the AE, which the appellant had justified on the overall TNMM basis is justified or not. The appellant has successfully made out his case for rejection of Phoenix Lamps Ltd. as one of the comparables because the said entity was situated in SEZ and was enjoying certain benefits and was in an advantageous position as compared to the assessee. I fully concur with the view of the appellant that if Phoenix Lamps Ltd. was to be retained as comparable, certain adjustments are required to be made in the said comparable. It is also observed that based on the submissions of the appellant in assessment year 2006-07, the TPO himself has rejected Phoenix Lamps Ltd. as a comparable entity. 17. In assessment year 2006-07, the TPO has retained three comparables under an overall TNMM method, viz. Fiem Industries Ltd., Hella India and India Japan Lighting. It is seen that out of 3 comparables in assessment year 2006-7, 2 comparables exist i.e. Fiem Industries Ltd. and India Japan Lightings in the assessment year under consideration also. Apart from these 2 comparables, 3 comparables have been found by the appellant during the year under consideration i.e. Jagan Lamps Ltd., JMA ....
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....an overall basis under the TNMM. 16.1 Vide order dated 15.12.2006, passed u/s 92CA (3) of the Act, the TPO, qua the issue of payment of royalty and import of raw materials, spares and components, observed, as his first finding that in the TP report of the assessee, it had been mentioned that TNMM had been selected as the most appropriate method for determining the ALP; that however, in para 5.3 of the TP Report, concerning the payment of royalty, it had been mentioned that since 1990, the royalty was being paid to Stanley @ 3% of sales and the CUP method could be considered as the most appropriate method, the agreement of royalty having been made under uncontrolled conditions, as during the period from 1990 to 1994, the parties were unrelated; that however, since the agreement was renewable and renewed every year, the agreement entered into in the years 1990-1994 could not be considered as a comparable uncontrolled transaction; that formal agreements between associate enterprises could not be a basis for determining the ALP of the transactions; and that the agreement for payment of royalty was merely a paper document. 17. With regard to this observation of the TPO, it is seen tha....
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....on an year to year basis, which is as per the policy of the Government of India, further strengthens the validity of the agreement. Further, whereas for the year under consideration, the rate of royalty stood reduced from 4% to 3%, the assesse company was also paying royalty to two other concerns, namely, Rober Bosch Gmbh, Germany and Value Vision, France, @ 4% of its sales, which fact has also been taken note of by the Assessing Officer in the assessment order, in para 7.2 thereof. 18. In 'Sony India (P) Ltd. vs. DCIT', 114 ITD 448 (Del), the agreement being dealt with was an agreement similar to that under consideration herein. The Hon'ble High Court held, inter alia, that the income-tax authorities have no power to rewrite a transaction and the actual transaction as entered into, is to be considered; that this is the legal position under the fiscal laws and an exception may be taken only where the transaction is a sham or bogus transaction or a transaction entered into by the parties in bad faith to avoid and evade taxes. As in that case, herein also, there is no allegation whatsoever by either the TPO or the Assessing Officer, that the transaction concerning payment of royalty....
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....g the comparability of an international transaction with an uncontrolled transaction. That the Rule is mandatory is amply clear from the use of the expression 'shall' in the opening part of Rule 10B (2). 24. All these factors have duly been taken into consideration by the Ld. CIT (A). The findings of the Ld. CIT (A) in this regard are elaborate, self- contained and speaking. Therefore, we find the order of the Ld. CIT (A) with regard to this aspect of the issue of addition of Rs. 2,51,88,406/-, to be on all fours. 25. The next objection raised by the TPO was that since Stanley had provided full time expatriate employees/qualified engineers to the assessee company, there was no need for the assessee company to receive any further technology, the said technical personnel having been in full time employment of the assessee and the know-how having been provided by he said technical personnel. Here, it is seen that the assessee has maintained, and the same has remained undisputed, that the technical personnel employed were expert qualified engineers provided by Stanley to the assessee company. It was their presence which resulted in the high quality of the products manufactured by the....
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.... Stanley to get the training of the latest know-how, was false. The TPO observed that in this regard, as per the details filed, 34 foreign visits were undertaken by various employees and directors of the assessee company; that however, barring one or two visits to Japan, all other visits were made to different destinations like Thailand, the UK, Europe, Korea, the USA, Dubai, Malaysia, Singapore, Bangkok, Australia, etc.; that therefore, the assessee's contention that its engineers had visited its AE's or Stanley's units for getting trained in the technology was a blatant lie and the assessee had resorted to suppressio vari and suggestio falsi. Here, it is seen that as correctly maintained on behalf of the assessee, not only Stanley, Japan, but also its 100% subsidiaries also fall in the category of 'associate enterprise' of the assessee, as defined in Section 92A(2) of the Act. Now, it remains an unchallenged fact that the visits made by the employees of the assessee company were to the factories of those companies, which were also the AEs of Stanley, Japan. As per the record, ten visits were made to Japan and Thailand, where the AEs of the assessee were situated. The purpose of ....
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....rnational transactions do not require any adjustment to the value of the imports. From this, it is evident that proper technology and knowledge of the manufacturing process was required so as to utilize the moulds, designs and drawings and it was for this, that the payment of royalty had to be made. In 'Abhishek Auto Industries' (supra), on this aspect, it has been held that where the TPO had accepted the international transactions of purchase of machinery by the assessee from its AE, but an inference had been drawn that the assessee was competent to make independent use of such machinery, whenever international transactions of such a nature are undertaken, it is a combination of technical know-how, royalty and technical assistance through the deputation of expatriate employees on the rolls of the person obtaining the technical know-how and it cannot be said that merely by importing the machinery, the assesse would become competent to make use of such machinery. Thus, the observation of the TPO in this regard too does not hold much water and the same has been rightly rejected by the Ld. CIT (A). 31. The TPO has also observed that since according to him, the reason for making payme....
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....uses CKD parts purchased from STANLEY, where these CKD parts bear the STANLEY trademark and/or name, LUMAX shall be authorities to use these parts. STANLEY shall also permit LUMAX to imprint on Licensed Products or components/cartons thereof, a LOGO during the currency of this Agreement. PB page 30 - relevant extracts from the renewal of Technical Assistance Agreement WHEREAS Stanley is willing to continue to grant said right and license defined in AGREEMENT and its supplement to Lumax; and WHEREAS Lumax desires to extend the same in order to meet customer's technical and quality requirement and to maintain competitiveness in the market. PB page 31- relevant extracts from the renewal of Technical Assistance Agreement Rate of Royalty shall continue to be Three Percent (3%) subject to taxes on all new Lighting Equipments manufactured and supplied by Lumax utilizing the technology license and/or technical assistance provided by Stanley." 33. Further, the assessee has also placed before us, at pages 168- 173 of the assessee's paper book, a copy of the assessee's submissions filed with the TPO, on 28.11.2006. Therein (at APB 171- 173), the assessee submitted a detailed note regardi....
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....hnical assistance to the extent mutually agreed namely :- "1.1 STANLEY will render and communicate or procure to be rendered and communicated to Lumax Technical Information and assistance relating to the Licensed Products from time to tine as agreed by the parties. 1.2 STANLEY will make available to Lumax promptly necessary Technical Information which are from time to time incorporated in STANLEY'S production of any of the Licensed Products to enable Lumax to apply such Technical information to the Licensed Products manufactured by Lumax. 1.3 STANLEY will use its best endeavours to assist LUMAX and provide LUMAX with necessary technical advice in producing the Licensed Products which are satisfactory of the quality, performance of fitness of the Licensed Products manufactured by LUMAX. 1.4 Upon the request of LUMAX and/or when it is considered necessary by STANLEY to do so, STANLEY will make available to LUMAX technical advice on purchase, installation, operation and maintenance of machines, equipment and facilities which are required for the production of the Licensed Products. 1.5 As necessary from time to time, upon the request of LUMAX, STANLEY agrees to dispatch its techn....
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....dian Companies who have very high standard manufacturing facilities with collaboration agreements with renowned MNCS'. Profile of Stanley have already been submitted on page 5 of Transfer Pricing Report. During the year Lumax has obtained fresh orders in respect of the following new products for which technical know-how has been provided on day to day basis to the manufacturing units of the Lumax 1. Maruti Udyog Ltd.- High Mount Stop Lamp H/L. T/L of Zen Minor High Mount -Baleno 2. Honda Scooter & - KRBA -Eterno Motorcycles 3. Hero Honda - Passion, Splendor During the year Lumax engineers and directors visited the manufacturing units of Stanley to get training of the latest technical know- how which was under the use at the manufacturing units of the Stanley and detail of visits made be the Lumax engineers is enclosed herewith. With the suggestions and know- how provided by the Stanley the assembly line has been changed to 'U' 'T' 'V', or 'L' shaped for improving the production and also initiatives have taken to plan and absorb new technology like LED applications. It is to be further submitted that collaborators has provided Japanese engineers on deputation as full time em....
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....we are enclosing herewith valuation copies of the capital goods and HOOD CP and socket CP (Components) with details. From the same your honour will note that the invoice values were accepted by the custom department. It is to be further stated that in all cases the invoice values have been accepted by the custom department. In case your honour desire to verify documents of any consignment of import, the same shall be produced for your verification." 34. In view of the above, this observation/finding of the TPO is also baseless and it was correctly rejected by the Ld. CIT (A). 35. The fact of the matter, as noted, is that the assessee has been paying royalty to Stanley from 1984 and such payment has been allowed to the assessee by the Assessing Officer himself upto Assessment Year 2003-04, from Assessment Years 1984-85 to 1993- 94, as a 100% revenue expenditure. In Assessment Years 1994-95 to 1999-2000, though the Assessing Officer had allowed the royalty as a bona fide payment, 25% thereof had been capitalized. The matter was carried up to the Hon'ble High Court and the Hon'ble High Court, vide its judgement reported in 173 Taxman 390 (Del), on examining the clauses of the agreem....
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....he multinational group, by manipulating the prices charged and paid in such intra-group transactions, thereby leading to erosion of tax revenues. ........ The basic intention underlying the new transfer pricing regulations is to prevent shifting out of profits by manipulating prices charged or paid in international transactions, thereby eroding the country's tax base." 36. It is noteworthy that during the period Assessment Years 1990- 94, the AE of the assessee did not hold any equity share in the assessee company and so, by transferring income through payment of royalty or purchasing raw material or capital equipment from Stanley, the assessee would earn no benefit. However, even at that time, royalty @ 3% of the sales was being regularly paid by the assessee to Stanley, proving the veracity of the contract between the assessee and Stanley, made under uncontrolled conditions and renewed every year, at the same rate, or at arm's length. Intention of tax evasion could have been imputed to the assessee company in case the payment of royalty had commenced only after the relationship of associate enterprise had been established, or when, if at all, the rate of payment of royalty had u....
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.... This is equivalent to about Rs. 50 crores. Stanley is shown to have made income-tax provisions of about 138 million US $ in each of these two years. So much for the doubt entertained by the TPO/Assessing Officer regarding tax avoidance at the hands of the parties to the payment of royalty. 40. Coming to the method applied by the assessee to justify the payment of royalty, in its Transfer Pricing Study, the assessee justified payment of royalty on the basis of the internal CUP method. Royalty had been paid, to reiterate, by the assessee company to Stanley @ 4% in the years when there did not exist any relationship of AE within the meaning of Section 92A of the Act between the two entities. Subsequently, on the coming into existence of the relationship of AE in Assessment Year 2004-05, i.e., one of the years under consideration, on the sales made using the licensed technology, @ 3%. This has been duly taken note of by the Ld. CIT (A), in para 9 of the impugned order. The Ld. CIT (A) also noted that besides, the assessee was paying royalty to two other concerns, namely, Rober Bosch Gmbh, Germany and Value Vision, France, @ 4% of the sales. The Assessing Officer had also noted this ....
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....CIT (A) rightly rejected this approach. 43. The TPO applied the TNMM and recommended upward adjustment of Rs. 2,03,02,776/-. The assessee had benchmarked the royalty and raw material on overall TNMM, besides supporting the ALP for royalty by the internal CUP, as above. The CIT (A) held that TNMM was the most appropriate method for benchmarking the international transactions with the assessee's AE and that the comparables found out by the assessee were also broadly acceptable on a functional basis. This has not been shown to be incorrect. Firstly, the TPO had erred in applying the TNMM as against the internal CUP, particularly in view of 'Serdia Pharmaceuticals' (supra), as discussed hereinabove. Then, it was, chiefly, the information supplied by the assessee itself, that the TPO proceeded on. However, the assessee had itself selected TNMM as the most appropriate method also. This is so, since, as noted by the Ld. CIT (A), the net margins were less affected than the prices of the products by transactional differences. The FAR analysis by the assessee was based on two data bases, i.e., Provess and Capital-line. Making reference to the brief description of business and activities und....
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....as a comparable, certain adjustments were required to be made to its statistics. Therefore, observing that based on the assessee's submissions in Assessment Year 2006-07, the TPO had himself rejected Phoenix Lamps, the CIT (A) also proceeded to reject Phoenix Lamps Ltd. as an entity comparable to the assessee company. The remaining three comparables, i.e., Indo-Japan Lightings, Fiem Industries Ltd. and Jagan Lamps Ltd. were retained by the CIT (A). The PLI's of these comparables were 8.1%, 2.69% and 1.91% respectively, amounting to a total of 12.77%. The Ld. CIT (A) worked out the average PLI of these comparables at 4.26%. The assessee's margin, at 6.5%, it is seen, is higher than the above average PLI of 4.26% and the assessee's margin, therefore, does not call for any adjustment on account of ALP concerning royalty payment on purchase of raw material. The CIT (A)'s order in this regard is found to be fully justified as against that of the TPO, who initially observed that an FAR convergence was mandatory and then, simply rejected the comparables on the basis of turnover, without checking out the FAR convergence, and thereafter, chose a single comparable which too (according to him....
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....see company. The Assessing Officer observed that the assessee's Director, Shri D.K. Jain had incurred an expenditure of Rs. 1,11,497/- on his visit to the USA on 15.08.2003 and that of Rs. 1,47,937/- on his visit to Dubai on 01.10.2003. Holding that these visits had no business connection and were not commercially expedient for admissibility u/s 37(1) of the Act and that the assessee had failed to substantiate the reasonableness and genuineness of the foreign expenses, the Assessing Officer disallowed the amount of Rs. 2,59,434/- and added it to the income of the assessee. The Ld. CIT (A) deleted this addition, giving rise to the department's grievance by way of the ground at hand. 47. The Ld. DR has contended that the disallowance correctly made has wrongly been deleted by the Ld. CIT (A), ignoring the fact that the foreign tours were not undertaken by the Director of the assesse company for any business purpose, as correctly observed by the Assessing Officer. 48. The ld. counsel for the assessee, on the other hand, has strongly relied on the impugned order in this regard, contending that all the details with regard to the two foreign visits were duly filed along with the detail....
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...., as also the fact that Stanley, Japan and Stanley Electric Company, Japan are associate enterprises in the year under consideration. 53. The facts are that in its Form No.3CEB, for the year under consideration, the assessee reported the following international transactions:- S. No. Description of transaction Value (in Rs.) 1 Import of raw material Rs.9,14,53,820/- 2 Import of fixed assets Rs.7,86,59,617/- 3. Payment of Royalty Rs.2,68,77,737/- 4 Payment of R&D Expenses Rs.11,10,173/- 54. The assessee had selected Transactional Net Margin Method (TNMM) as the most appropriate method for benchmarking of the international transactions at the entity level. The assessee had selected operating profit/operating revenue as the profit level indicator. In annexure 5 of the Report, the PLI of the assessee was computed at 6.5% and the PLI of the 4 comparables was computed at -0.52%, on the basis of multiple year data. The current year margin of the comparables in Annexure 4 of the T.P. Report was shown at 7.55%. On the basis of the above analysis, it was concluded that the international transactions were at arm's length price. 55. The TPO accepted the assessee's selection of....
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....e Ld. DR has reiterated the submissions made while arguing ITA No.4715/Del/2010 for Assessment Year 2004-05 (supra). The ld. counsel for the assessee has also stood by the corresponding arguments made by him for Assessment Year 2004-05. 57. The CIT (A), it is seen, while deleting the addition made, has held, as for Assessment Year 2004-05, that the TPO had erred in holding that the agreement between the assessee and Stanley was merely an agreement; that the TPO erred in disregarding that the assessee was into a commercial relationship with Stanley and the expatriate engineers had been sent to ensure that the technology supplied was properly applied; that mere obtaining of moulds, designs and drawings could not lead to disallowance of the royalty payment, since the technology for use thereof was what required the payment of royalty; that from the fact that the assessee's turnover had increased over the years and that the assessee was establishing its own R&D Centre and thereby trying to absorb the technology the company received from its AE, went to show that it could not be said that there was no transfer of intangible, or that no technology had actually been received, or was requ....