TaxTMI 
TaxTMI 
2013 (9) TMI 796
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....aggregating to Rs. 22,490.58 lacs (including cess and Rs. 408.32 lacs treated by the TPO as not at arms' length price), incurred during the year on account of royalty and technical guidance fees paid to Honda Motor Co., Japan, ('Honda') in accordance with the 'License and Technical Assistance Agreement' ("LTAA") as capital expenditure. 6.1 Without prejudice, that the assessing office erred on facts and in law in treating 100% expenditure incurred on account of royalty and technical guidance fees as capital expenditure as opposed to 25% thereof being treated as capital expenditure in earlier years, which was, in any case, excessive." 4. The facts of the case are that the assessee derives income from manufacture and sale of motorcycles and spare parts. For the year under consideration, the assessee claimed the deduction of Rs. 22,940.58 lakhs as royalty payment which included the royalty of Rs. 408.32 lakhs paid on exports made to the associated enterprises. The TPO, vide his order dated 30th October, 2009, has held the royalty of Rs. 408.32 lakhs paid to AEs not at arm's length and, accordingly, the same was disallowed. The balance royalty of Rs. ....
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....e has acquired asset in the nature of intellectual property rights and patent from Honda. For the aforesaid reasons, while relying upon the decision of the apex Court in the case of Southern Switch Gear Ltd. vs. CIT : 232 ITR 359 and Jonas Woodhead & Sons (India) Ltd. vs. CIT : 224 ITR 342, it was held by the assessing officer that the said expenses incurred by the assessee constitutes capital expenditure. On the basis of transfer pricing report, where royalty paid on exports, to the extent of Rs. 408.32 lacs, was held to be not at arm's length, the assessing officer considered the aforesaid amounts as fully disallowable and allowed depreciation at 25% on the balance expenditure. Consequentially, the assessing officer made the net disallowance of Rs. 16,970 lacs, after allowing depreciation @ 25%. The disallowance made by the assessing officer on the aforesaid grounds is incorrect, both on facts and in law, for the reasons elaborated hereunder: a. Brief History and Facts : The assessee had set up its plant in the year 1984 to manufacture models of motorcycles by using know-how of Honda Motor Co. through Technical Collaboration Contra....
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....nly for the purpose of use of technical assistance in the manufacture and sale of products and the assessee has not acquired any capital asset, much less in the nature of intellectual property rights or patents belonging to Honda, which was to continue to vest in the absolute ownership of the Honda, as provided in unequivocal terms in the agreement. It will be appreciated that in the case of acquisition of technical know-how, etc., unlike in the present agreement, the acquirer is free to use the rights acquired in the manner he likes and has the right to dispose of such rights. There are no restrictions or obligations on the acquirer as to secrecy, disposal, inspection of facilities, returning the technical know how, etc. Similarly no asset was acquired on payment of technical guidance fees, paid @ US$ 650 per diem in respect of services provided by technicians deputed by Honda in order to guide or solve the problems arising to the assessee company, while manufacturing the licensed products. The payment of guidance fees does not result in creation of any new asset nor result in any benefit of enduring nature. The said payment, was allowable expenditure under secti....
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....plied intention to transfer or create ownership in the technical know-how/technical information in the assessee. On the contrary, it is unequivocally agreed that the know- how should at all times remain the property of Honda. In view of the above, on a conjoint and cumulative reading of the various clauses of the agreement, taking into account the totality of circumstances, it will kindly be appreciated that the expenditure by way of royalty and technical guidance fee incurred by the assessee was allowable revenue deduction since - (i) payment was made for limited license to use the know-how provided by Honda, as the proprietary and ownership rights in the same continued to remain vested with Honda at all times and, there was, therefore, no absolute parting of know-how in favour of the assessee resulting in acquisition of any asset, (ii) no benefit of enduring nature in the capital field accrued to the assessee (iii) The license to use the know- how was also non exclusive and Honda reserved the right to provide technology for manufacture of motorcycles to Honda Motorcycle and Scooters India Ltd. (iv) the subject payment made did not cover consideration paid for setting up ....
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.... nature. In the following decisions the Courts have held that though the doctrine of res judicata does not strictly apply to the income-tax proceedings but in order to maintain consistency, the Revenue cannot be permitted to rake up settled issues:- * Radhasoami Satsang v. CIT : 193 ITR 321 (SC). * CIT vs. Neo Polypack (P) Ltd : 245 ITR 492 (Del.). * CIT V. A.K.J. Security Printers : 264 ITR 276 (Del). * DIT(E) vs. Apparel Export Promotion Council : 244 ITR 734 (Del.). * Vesta Investment and Trading Co. (P) Limited v. CIT : 70 ITD 200 (Chd.). 6. The learned DR, on the other hand, relied upon the orders of the Assessing Officer as well as the DRP and has stated that since the assessee has an exclusive right for the manufacture and sale of motorcycles and even after the termination of the agreement the assessee was entitled to manufacture the motorcycles, therefore, the payment was certainly a capital expenditure. The Assessing Officer has already allowed the depreciation on such capital expenditure. He also submitted that the decision of the ITAT in the earlier year would not be applicable because law of res judicata is not applicable ....
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....ng no IPR ownership available to assessee after termination, the exclusive licence granted to assessee after 10 years in 2nd agreement i.e. 1995 cannot be called an enduring benefit in the capital field, there is a difference between the long term capital benefit and enduring benefit for revenue generations. The assessee being in second round of agreement and 15th year of licence to manufacture, in our view, it will not be a totally comparable case with cases cited by the revenue which are short term agreements coupled with ownership of IPR and exclusive licence. The only similarity, which could be gathered in these cases, is existence of exclusive licence, which cannot be taken on standalone basis. Hon'ble Supreme Court has repeatedly underlined the need of considering all the facts of any agreement carefully. In our view, the only element of exclusive licence that too in the second agreement after 15 years duration cannot be divorced from all other attending facts and circumstances. Therefore, we are unable to subscribe the view of the revenue that any part of expenditure is attributable to any enduring benefit so as to make it capital expenditure. 7.19. Even if it i....
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....ideration in other years. In our view, the view adopted by Assessing Officer allowing model fee and TGF expenses being a correct view, there was no error in passing original assessment order. Therefore, 263 action in assessment year 2002-03 is quashed. Since we have quashed the 263 order passed by CIT, subsequent proceedings i.e. AO's and CIT(A)'s consequential orders thereon order are also quashed. 7.22. Similarly, rectification order passed by CIT(A) in A.Y. 2000-01 is quashed as the issue of capital/ revenue was highly debatable and CIT(A) cannot revise his appellate order to disallow 25% of expenditure as capital expenditure u/s 154." 9. Thus, in AY 2001-02, 2002-03 & 2003-04, the ITAT held the payment for royalty as well as model fee to be revenue expenditure and the disallowance made by the Assessing Officer at 25% of the total royalty payment was deleted. In AY 2003-04, 2004-05 & 2005-06, similar disallowances were made. It was explained by the assessee's counsel that the same are deleted by the learned CIT(A) and Revenue's appeal before the ITAT is pending. He, however, submitted that since it is a stay granted matter, the appeal should be dispos....
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....to be calculated in accordance with the provisions of the agreement. The production of the appellant commenced on January 1, 1966, and in terms of the agreement the appellant made payments of Rs. 24,000 and Rs. 47,000, respectively, to the foreign company during the accounting period relevant to the assessment years 1967-68 and 1968-69, as royalty. In the assessment proceedings, the Income-tax Officer disallowed one-fourth of the payments on the ground that such payment represented the consideration for service provided by the foreign company of an enduring nature and was, therefore, capital expenditure. The Appellate Assistant Commissioner and the Tribunal confirmed the disallowance. On a reference, the High Court considered the various clauses of the agreement and held that the payment stipulated in clause 12 of the agreement was not remuneration for user of the rights granted by the foreign company but a composite payment for all the services rendered and information furnished by the said foreign company to the appellant in the setting up of the factory as well as in the manufacture of the licensed products in that factory. The High Court took the view that the appellant acquire....
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....ssee an enduring advantage and benefit in that the same was available to the assessee for its manufacturing and industrial process even after the termination of the agreement. The High Court held that the right to manufacture certain goods exclusively in India should be taken to be an independent right secured by the assessee from the foreign company which was of an enduring nature, that consequently, the entire technical fees could not be allowed as a revenue expenditure, and that the Tribunal was, therefore, right in its view that 25% of the technical aid fees would have to be taken as being capital in nature. Since the foreign company had also agreed not to manufacture in India any of the products in question or grant or make available to any other person any information relating to manufacture, license, or rights, for any of the products in question in India thereby conferring on the assessee exclusive right of manufacture and the sale of the products, the High Court held that the clause in the agreement indicated that the assessee paid the royalty for the acquisition of an exclusive privilege of manufacturing and selling the products and the acquisition of such a right was rig....
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....the license fee every year and for each of those years it had been incurring expenses claimed as revenue expenditure and that was being allowed by the Assessing Officer. Therefore, there was no reason as to why after a gap of almost 10 years, the Assessing Officer should suddenly change his mind and decide to treat the expenditure incurred by the assessee as a capital expenditure. The Tribunal added that even if the assessee had obtained a long term advantage of an enduring advantage, that, by itself, would not covert any expenditure incurred by it into a capital expenditure. In the instant case, the facts had been fully considered and a concurrent opinion had been expressed, both by the Commissioner (Appeals) as well as by the Tribunal that the expenditure was of a revenue nature and not of a capital nature. There was no reason to differ with the opinion on the facts of the instant case and it was quite clear that the ratio of the decisions of the Supreme Court in Jonas Woodhead & Sons ((India) Ltd. v. CIT [1997] 224 ITR 342/91 Taxman 1 and in Empire Jute Co.Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 was fully applicable to the facts of the instant case an....
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....or termination of the agreement. The agreement was valid only for a period of five years, but could be terminated earlier. There was no magic in the word 'sold' used in clause 5.0 of the agreement because on a reading of the agreement as a whole, it appeared that what was transferred to the assessee was only a right to use the technical know-how of 'R' and there was no sale of the technical know-how which the assessee could exploit. The assessee's rights were hedged in with all sorts of conditions, clearly making it a case of right to use the technology and not sale of the technical know-how. Therefore, the Tribunal was justified in holding that there was no sale of technical know-how by 'R' to the assessee and, hence, the payment made by the assessee to 'R' was a revenue expenditure." 18. In the case of CIT Vs. Sharda Motor Industrial Ltd. - [2009] 319 ITR 109 (Delhi), the facts are that the assessee had entered into two agreements with a Korean company under which the assessee was to pay a lump sum amount for transfer of technical know-how and running royalty at a specified rate per "piece of production" of different produc....
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....t process would ordinarily be construed as capital in nature;" In the present case, on facts, it was, inter alia, found as follows: "(a) in that case the grant of technical aid was for setting up of the factory combined with the right to sell products while in our case our company is already producing exhaust systems and the technology agreement was not for setting up of the factory. (b) in the cited case the foreign company who gave the technology agreed not to manufacture similar products in India while there is no such regulation in our agreement. (c) in the cited case the technical knowledge obtained was held to give an advantage of enduring nature to the assessee-company and as it had the right to continue to manufacture the product even after termination of the agreement. While in our case the design patent applies to the foreign company and we are only licensed to produce the goods for Hyundai Car and we cannot continue to produce the goods if the agreement is terminated. This itself is a major difference between the case cited by your honour and the facts of our case." On the facts and after applying the aforesaid principle, it b....
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....n treated as revenue expenditure." 21. In the case of CIT Vs. Munjal Showa Ltd. - [2010] 329 ITR 449 (Delhi), the facts of the case are that the assessee was engaged in the business of manufacture of shock absorbers used in automobile vehicles under license from S, a Japanese company. It incurred expenses on travel and stay of foreign technical personnel of S in Japan and also on designs and drawings charges payable to S. The assessee claimed the entire expenses as revenue expenditure. The Assessing Officer treated the expenses as capital expenditure which was confirmed by the CIT(A). The Tribunal held that the expenses were incurred for training the personnel of the assessee and for availing of drawings and designs to manufacture the shock absorbers but not for acquiring technology itself and, therefore, they could not be held to capital expenditure. On appeal, their Lordships of Jurisdictional High Court held as under:- "Held, dismissing the appeals, that the know-how was granted by the foreign company solely for the purpose of manufacture, assembly and sale of products during the term of the contract and the license was to pay royalty to the licensor. The drawings an....
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....pute arose in AY 2000-01 and then in AY 2000-01, 2001-02 & 2002-03, and the ITAT accepted the assessee's claim which has been discussed by us in detail in the earlier part of our order. In AY 2003-04, 2004-05 & 2005-06, the claim is disallowed by the Assessing Officer but it is stated by the learned counsel that it has been allowed by the learned CIT(A). However, in this year, the Assessing Officer disallowed 100% royalty holding it to be capital expenditure and the same is also sustained by the DRP. Hence, this appeal by the assessee. 23. In the year under consideration, the payment of royalty is as per agreement dated 2nd June, 2004. The preamble of the agreement reads as under:- "Preamble LICENSOR and LICENSEE entered into (i) a Technical Collaboration Contract dated January 24, 1984 ("1984 TC Contract"), a successively to the expiration of 1984 TC Contract, (ii) a License and Technical Assistance Agreement dated June 2, 1995 ("1995 LTAA") which was taken on record by the Government of India on 22nd of August, 1995, under which LICENSEE was entitled, among other things, a right and license in manufacture, assemble, sell, distribute, repair and service ce....
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....e information secret and confidential, and to restrict its use as provided for in the 1984 TC Contract and 1995 LTAA or in Article 18 hereof, as the case may be, and, for that purpose, shall establish and maintain internal regulations and procedures for protection of the secrecy, as approved by LICENSOR, recognizing that LICENSEE shall use at least the same degree of precautions as it takes to protect its own confidential information, and all reproduced copies shall be numbered in numerical sequence and such reproduced copies shall also remain the property of LICENSOR." "Article 18 (Limitation of Use, and Other Prohibition) Article Prohibition) hi 18.1 LICENSEE shall not use or cause or permit to be used by any third party the Intellectual Property Rights and the Technical Information licensed or provided hereunder, and the Licensed Parts manufactured by LICENSEE and/or its Subcontractors hereunder and the Supply Parts supplied to LICENSEE and/or its purchasing agencies designated by LICENSEE hereunder, in the manufacture, assembly, servicing, sale or other disposition of any goods other than the Products, or for any purpose other than as expressly provided in thi....
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....on) 25.1 In consideration of the right and license granted to LICENSEE under Article 2 hereof and of the furnishing of the Technical Information hereof, LICENSEE shall pay to LICENSOR the following model fee and running royalty: (1) Model Fee - ................................. (2) Running Royalty LICENSEE shall pay the running royalty to LICENSOR during the Royalty-Period on any and all Products carried out of the manufacturing facility of LICENSEE for delivery to any and all purchasers, renters or other transferees whether in the Territory or not. Such running royalty shall be (a) the amount specified in Exhibit I attached hereto or (b) the amount calculated by multiplying by the rate specified in Exhibit I attached hereto or (b) the amount calculated by multiplying by the rate specified in Exhibit I attached hereto (including any revision thereof) with the ex-factory sales price (or ex-warehouse sales price in case of the Products kept in a warehouse immediately before such delivery) of such Products invoiced by LICENSEE to purchaser, renters or other transferees of such Products, less, in case of (b) herein:- (i) the landed cost (inc....
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.... the date of expiry or termination of this Agreement towards the cost of right of use by LICENSEE of Technical Information for the manufacture, sale, distribution and disposition of Products; and (b) the relevant consideration for a term of three years from the date of expiry/termination, which shall be half of the current royalty rate(s) as specified under this Agreement; (ii) For the avoidance of any doubt, LICENSEE shall not make any further payment beyond the period mentioned in 33.3.2(i)(b) above in respect of such continued right to manufacture, sale, distribution and service of the Product(s) and Part(s) as envisaged in Article 33.1.1 above. 33.4 LICENSEE shall promptly discontinue the use of the Trademarks licensed by LICENSOR hereunder and shall not claim any right, title and interest whatsoever in the said Trademarks. 33.5 The expiration or any other termination of this Agreement hereunder shall be without prejudice to any right which shall have accrued to either party hereunder prior to such expiration or termination. 33.6 LICENSEE shall, to the extent it is reasonable and feasible, return to LICENSOR all particular documents ....
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....e of the Assessing Officer is that the payment under this agreement is for acquisition of technical know-how and technical information for manufacturing of two wheelers and, therefore, he held the payment to be capital in nature for acquisition of intangible asset and allowed depreciation at the rate of 25% thereon. While arriving at the conclusion, he has observed that the assessee has an exclusive right of manufacture, sale and distribution. However, from Article 2 of the agreement, it is evident that the exclusive right is only against the third parties and not against HMSI. Article 17 of the agreement clearly provides that the know-how, technical information and any other business information of licensor shall remain the sole and exclusive property of the licensor and shall be held in trust and confidence by the licensee. Article 18 of the agreement provides that the licensee (i.e. the assessee) shall not permit any third party to use the intellectual property right or the technical information provided under this license. Paragraph 18.3 of the agreement provides that even in respect of any inventions and improvements made by the licensee i.e. the assessee, the licensee is requ....
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.... and service of the motorcycles. The assessee made lump sum payment of $5,00,000 for the technical assistance for construction of plant and paid a running royalty as a percentage of sales in respect of technical assistance for manufacture, assembly and service of the motorcycles. The running royalty which was paid annually was claimed as revenue expenditure and was disallowed by the Assessing Officer treating the same as capital expenditure. Thus, the facts of the assessee's case are identical to the facts before the Hon'ble Jurisdictional High Court in the case of Climate Systems India Ltd. (supra). 28. Similar were the facts before the Hon'ble Jurisdictional High Court in the case of Sharda Motor Industrial Ltd. (supra). In that case also, SMIL made a lump sum payment and also running royalty at a specified percentage based upon the production. The lump sum payment was treated as capital expenditure and running royalty was claimed as revenue expenditure. The Assessing Officer treated the royalty as capital expenditure and the Hon'ble Jurisdictional High Court affirmed the views of the Tribunal that the payment of running royalty was revenue expenditure. In this....
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....Sharda Motor Industrial Ltd. (supra) and also the decision of ITAT in assessee's own case cited supra. We, therefore, respectfully following the above decisions of Hon'ble Jurisdictional High Court, hold that the annual payment of royalty was a revenue expenditure. Accordingly, ground No.6 of the assessee's appeal is allowed. 30. Ground Nos.7, 7.1 & 7.2 of the assessee's appeal read as under:- "7. That the assessing officer erred on facts and in law in computing disallowance under section 14A of the Act at Rs. 128.29 lacs as against amount of Rs. 15.08 lacs suomoto disallowed by the appellant in the return of income. 7.1 That the assessing officer erred on facts and in law in computing disallowance under section 14A of the Act in terms of Rule 8D of the Income Tax Rules, 1962 ('the Rules'), without appreciating that the said rule was not applicable during the relevant previous year. 7.2 That the assessing officer erred on facts and in law in applying provisions of Rule 8D in a routine manner, without recording any finding/satisfaction as to why the disallowance under section 14A of the Act made by the appellant in the return of ....
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....een incurred in relation to income which does not form part of total income, the Assessing Officer will have to verify the correctness of such claim. In case, the Assessing Officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the Assessing Officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the Assessing Officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the Assessing Officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the Assessing Officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment." 35. In the case of the assessee, the Assessing Officer has worked out the disallowance un....
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.... unit (6.16 + 15% of 6.16). The Assessing Officer, in the assessment order, has held that inter-unit transfer of power from power plant should have been priced at which HSEB i.e. the government body is supplying to the assessee's Dharuhera/Gurgaon plant i.e. at the rate of Rs. 3.90 per unit. Since the cost of the generation was more than the market value, there was no profit from the generation of power as per the Assessing Officer. He, therefore, disallowed deduction under Section 80IA. He stated that the Assessing Officer has compared the price with the rate of power supplied by HSEB. That the supply of power by HSEB is not regular and, therefore, the assessee was compelled to set up its own plant for generation of power. Therefore, the market value of the power cannot be compared with the rate at which power is supplied by the government undertaking. He submitted that the Maruti Udyog Limited, an independent supplier of the electricity, generating electricity, was charging rate for supply of power @ Rs. 8.50 per unit while the assessee has taken the price at Rs. 7.08 per unit. Therefore, the deduction as claimed by the assessee should have been allowed. 38. The learned DR....
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....ion under this Section, the profits and gains of such eligible business shall be computed as if transfer had been made at the market value of such goods or services as on date. In the case under appeal before us, it is not in dispute that in the eligible business, the assessee is generating the power which is being consumed by the assessee company's manufacturing facility. Therefore, the profit of the eligible business is to be computed at the market rate of supply of power. It is the assessee's contention that Maruti Udyog Limited is supplying the power to its AE at the rate of Rs. 8.50 per unit while the assessee has computed the profit of the eligible business by taking the rate of power at Rs. 7.08 per unit. The assessee has computed the rate of power by the cost of generation per unit with mark up of 15%. However, the Assessing Officer has pointed out that the government undertaking i.e. Haryana State Electricity Board has supplied the power to the assessee and other industrial units in the area at the rate of Rs. 3.90 per unit. Now, the question is, what is the market rate at which power is being supplied. In our opinion, the rate at which power is being supplied by t....
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....anty has held the actual expenses are being debited every year and a similar basis for making provisions is repeated every year. The system followed by the assessee is consistent. The expenses actually incurred for the previous year and provided for is not less than the actual expenses. Since the method of accounting is scientific and results in correct determination of profits. We are of the view, that the order of the learned CIT(A), is just and proper and does not call for any interference and the same is therefore, confirmed. Hence, this ground of appeal of the revenue is dismissed." 44. Similar view was taken by the ITAT in AY 1997-98 vide ITA No.3725/Del/2003 & 4028/Del/2003. The same view was followed by the ITAT in 1999-2000 vide ITA No.5511/Del/2003. That the Revenue filed the appeal before the Hon'ble Jurisdictional High Court. However, the Hon'ble Jurisdictional High Court, vide its order dated 20th July, 2007, in ITA No.5305/Del/2003 did not admit the ground relating to deletion of disallowance of warranty fee. In view of the above, we find that the issue of provisions for warranty is settled in favour of the assessee by the decision of ITAT as well as Hon....
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.... adjudicated, it will take care of ground Nos.1.2 to 5 also. Accordingly, we proceed to adjudicate the various adjustments made by the TPO which is challenged by the assessee vide ground No.1.1 of its appeal. 52. The first adjustment is with regard to payment of export commission of Rs. 12,18,78,393/- which is disallowed by the TPO by determining the arm's length price at nil. However, the Assessing Officer also disallowed it on various alternative grounds:- (a) He held this amount to be royalty/fee for technical services. Since the assessee did not deduct the tax at source under Section 195, he disallowed the amount under Section 40(a)(i). (b) The export agreement was for the benefit of HMCL and not the assessee company, therefore, the payment of export commission was held to be not allowable under Section 37(1). (c) The export agreement is in the nature of license acquired by the assessee for the purpose of making export to other countries where HMCL had exclusive privilege to operate. The license is for a longer period of time and, therefore, it constitutes an intangible asset. Accordingly, the expenditure was held to be a capital expenditure. ....
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....t of export commission at Rs. 12,18,78,393/-. Hence, this appeal by the assessee. 55. At the time of hearing before us, the learned counsel for the assessee argued at length and he also submitted in writing the broad propositions of his arguments. We deem it proper to reproduce the same herein below:- "A. Payment of export commission :- Under Technical Know How Agreement the appellant was entitled to use technical know-how provided by Honda Motor Co.Ltd., Japan (HMCL) for manufacture and sale of two wheelers and parts in India and was not authorized to sell its products or parts in any other territory than in India without the prior written consent of HMCL. The technical know-how agreement was approved by the concerned Ministry of the Government vide letter dated 06-09-2004. The appellant had entered into a separate Export agreement dated 21.06.2004 under which HMCL accorded consent to the appellant to export specific models of two wheelers to certain countries on payment of export commission @ 5% of the FOB value of such exports. The appellant has demonstrated the international transactions of payment of export commission to HMCL as being at arm's....
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....ew. Attention in this regard is invited to the following decisions: * JK Woolen Manufacturers v. CIT : 72 ITR 612 (SC). * CIT v. Dalmia Cement (P) Ltd. : 254 ITR 377 (Del). * CIT vs. Padmani Packaging (P) Ltd. : 155 Taxmann. * S.A.Builders Limited vs. CIT : 288 ITR 1 (SC). * CIT vs. Dalmia Cement (B) Ltd. (supra), (Del). Reliance may be placed on the decision of DCIT vs Ekla Appliances : (2011-TII-37-ITAT-Del-TP) wherein the Hon'ble Tribunal held that the TPO cannot challenge the judgment of the assessee as to the source from which the technology is to be obtained and at what cost etc. The Hon'ble Delhi High Court while upholding the decision of the Hon'ble Tribunal held that as long as an expense is incurred wholly and exclusively for the purpose of business, it is irrelevant as to whether such expenditure actually results in profit or not. The Hon'ble High Court held as under: "21. The position emerging from the above decisions is that it is not necessary for the appellant to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the appell....
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....PO of payment of royalty, has held as under: "The assessee had not made the one-time payment but making the continuous payment to the know-how provider which has been accepted by the Department in the past. The assessee has been charging 5 per cent royalty on each and every transaction and therefore the said payment cannot be said to have been paid on the aggregate amount, as argued by learned CIT-Departmental Representative. The findings of the AO in considering the royalty charges as nil as ALP cannot be accepted since the AO in the present case has not brought on record, the ordinary profits which can be earned in such type of business. Therefore in our view the payment of royalty is not hit by the provisions of s. 92 of the Act and there is no reason to hold that the expenses should not be allowed under s. 37(1) of the Act, since the expenditure has been incurred by the assessee during the course of business and is having the nexus with the business of the assessee. Therefore the payment of royalty is a business expenditure which has been incurred wholly and exclusively for the purpose of business of the assessee and same is to be allowed in toto as a matter of commerc....
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...., 2011, while upholding the contention of the assessee for payment of export commission under similar circumstances deleted the adjustment proposed by the TPO." 56. The learned DR, on the other hand, relied upon the orders of the TPO, Assessing Officer as well as the DRP. He submitted that the AE has allowed the assessee to export motorcycles only to designated countries, viz., Chile, Peru, Columbia, Sri Lanka, Bangladesh, Oman, UAE, Qatar, Kenya, Benin and Burundi. All these countries are underdeveloped countries and the associated enterprise has no manufacturing base there but the subsidiaries of associated enterprise are engaged in the distribution work of Honda vehicles. The AE has permitted the assessee to export to these countries just to support the subsidiaries who are engaged in the distribution work of Honda vehicles in those countries and to take advantage of low cost of production in India. Moreover, the assessee is required to conduct the service campaign of products in those countries at its own cost. Therefore, at the cost of the assessee, the market for Honda products was promoted in those countries. That the assessee was not entitled to export each and every mod....
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....cts and the Parts during the term of this Agreement within the Territory under the Intellectual Property Rights and by using the Technical Information. Provided, it is acknowledged by LICENSEE, (i) the exclusivity granted herein is against the third parties but not HMSI, and (ii) the exclusivity against HMSI is only with respect to the exterior of the Products. It is argued between the parties that subject to the terms hereof, the LICENSOR shall make necessary endeavours so that New Model(s) for the LICENSEE are introduced in a phased and timely manner in order to meet the request from the LICENSEE and such introduction would be on reasonable criteria." 60. From the above, it is evident that the assessee is granted license to manufacture, assemble, sell and distribute the products and parts within the "territory". That Article 1(6) of the agreement defines the "territory" as "The term "Territory" shall mean the Republic of India". Therefore, as per the agreement between the assessee and HMCL dated 2nd June, 2004, the assessee was entitled to sell and distribute the product and the parts only within India. Thus, it was not entitled to export the product. However, the ass....
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....portion of the order of the TPO in this regard:- "Who has received benefit of Export Commission? The AE has allowed the assessee to export motorcycles only to the designated countries viz. Chile, Peru, Columbia, Sri Lanka, Bangladesh, Oman, UAE, Qatar, Kenya, Benin and Burundi where the AE has not manufacturing base but has subsidiary engaged in distribution work of Honda vehicle. In order to support these subsidiary and enjoy benefit of low cost of production in India the AE under an agreement asked the assessee to make exports in those countries. It is evident from these facts that the sole purpose of allowing the assessee to export in these countries is as under: (a) To support the existing subsidiaries and group companies in various countries engaged in distribution activities, (b) To transfer the benefit of locational savings to these subsidiaries/group companies, (c) To promote market for Honda products in these countries. However, in-spite of using the assessee for these benefits of the subsidiaries and group companies, the AE has charged an export commission. During the course of proceedings no evidence to support a clai....
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....s under:- "The expenditure incurred was therefore, incurred wholly and exclusively for the purpose of business notwithstanding that the same has been paid to the collaborator for export made to a group company. The assessee company, it would be appreciated, makes payment of export commission to HMCL for enabling it to access its well established overseas marketing network/territories for exporting assessee's products from India. It has been submitted that the net price realized from such exports, after reducing therefrom the export commission paid to HMCL is higher than the price realized from domestic sales of two wheelers to the dealers in India. Enclosed at Annexure-I is a chart showing modelwise detail of domestic price and export price including detail of additional revenue/profits earned by the assessee from exports during the year. It would be seen from the above chart that additional benefit on export (over and above the domestic price after reducing royalty and export commission) amounted to Rs. 13.05 crores. Thus, it would be clear from the aforesaid chart that the assessee could earn additional margin from exports as sales price from export was high....
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.... as under, the assessee was entitled to use the marketing network of subsidiaries of HMCL:- "4.2 LICENSOR agrees that LICENSEE will utilize the distribution and service network established by distributor(s) of LICENSOR Goods, and LICENSEE hereby agrees to ship and make all its exports of the Products and the Service Parts for the Designated Country to (if the distributor in the Designated Country is the exclusive distributor or, even if a non-exclusive distributor, the only distributor in the Designated Country) the distributor for the LICENSOR Goods or (if there are more than one distributor) the distributor that LICENSOR will designate after mutual consultation with LICENSEE, in the Designated Country. In the event any distributor for the LICENSOR Goods in a Designated Country is disqualified to act as such distributor for any reason whatsoever, LICENSEE agrees to ship and make all its exports of the Products and the Service Parts for such Designated Country to a distributor, only, appointed by LICENSOR for the LICENSOR Goods in place of such disqualified distributor." 65. In the details filed before the Assessing Officer, the assessee has given model-wise details to ....
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....ct such campaign. In case any such campaign is conducted, then the expenditure in this regard would be borne by the assessee. In our opinion, this clause cannot be said to be a detrimental condition as stated by the TPO in his order. The TPO has disallowed the entire export commission on the ground that the export agreement was not for the benefit of the assessee but detrimental to the interest of the assessee. Therefore, no export commission is required to be paid. After considering the entire facts, we are of the opinion that the export agreement was for the benefit of the assessee and not detrimental to the interests of the assessee. By virtue of the export agreement, the assessee was able to export the specified models of the two wheelers to the specified countries. It is true that by virtue of the export agreement, the assessee was not permitted to export any of the models to any of the countries. However, even by export of specified models to the specified countries, the assessee has benefited and the assessee has given the detailed working of such benefit which is also enclosed as Annexure-1 to this order. As per this working, the assessee derived the benefit of Rs. 13.05 cr....
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....ee for the purpose of utilization to engage in the business activity. The license is for a longer period of time and therefore constitutes a capital asset by way of intangible rights provided u/s 32(1) of the Income Tax Act. Viewed from this aspect also the expenditure is in nature of capital expenditure and therefore not allowable u/s 37(1) of the Income Tax Act. Therefore, an addition of Rs. 12.19 crores is made to the total income of the assessee. However, in any case the TPO vide its order dated 30-10- 2009 has discussed this issue in detail and disallowed the same. Accordingly, the amount of Rs. 12.19 crores is added to the total income of the assessee." 68. At the time of hearing before us, it is stated by the learned counsel that the payment made to HMCL in terms of the export agreement was on account of consent granted by HMCL to the assessee to export out of India to certain designated countries. Thus, the export commission was not for use of any copyright, patent, trademark etc. The payment is, therefore, not in the nature of royalty. He further stated that the payment is not in the nature of fees for technical services since the same was not paid in lieu of rendering ....
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....tutes. It is the reality of the transactions and the relationship of the parties which will determine the nature of payment made. From the cumulative effect of the two agreements and conditions mentioned therein, it is clear that the payment made is clearly in the nature of royalty/fees for technical services. Since it was royalty/fees for technical services paid to non- resident, the assessee was required to deduct the tax under Section 195. Once the assessee failed to deduct the tax as required under Section 195, disallowance under Section 40(a)(ia) made by the Assessing Officer was quite justified. That if the above view of the Revenue is not accepted, then the amount is disallowable under Section 37(1) also because by the export agreement, it is only the HMCL which is benefited and not the assessee and, therefore, so far as the assessee is concerned, it is not the expenditure incurred for the purpose of business. He alternatively stated that the payment should be treated as a capital expenditure because by the export agreement, the assessee acquired the license to export for a longer period of time which itself is an intangible asset i.e. a capital asset. 71. We have careful....
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....consideration was to be received in India by the applicant and the commission was payable to Zaikog in India. On these facts, the assessee sought the ruling of the Authority on the following questions, inter alia:- (a) whether the amounts proposed to be paid by the applicant to Zaikog were subject to deduction of tax at source under section 195 of the Income-tax Act, 1961; (b) whether the amounts to be paid by the applicant to Zaikog were taxable in the hands of Zaikog, which did not have a permanent establishment in India; and (c) whether the amount payable to Zaikog would be taxable as fees for technical services in India. On these facts, the Authority ruled as under:- "(i) That, in view of Circular No.23, dated July 23, 1969, and No.786 dated February 7, 2000 ([2000] 241 ITR (St.) 132), which reiterated that circular, issued by the Central Board of Direct Taxes, the payments made to Zaikog towards commission for services rendered by it abroad were not liable to be taxed in India either under the Income-tax Act, 1961, or under the Double Taxation Avoidance Agreement between India and South Africa (DTAA). Consequently, the applicant was not l....
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....i) the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and] (v)." 73. Similarly, 'fee for technical services' has been defined by way of Explanation-2 after Section 9(1)(vii) of the Income-tax Act. From a plain reading of the above definitions of 'royalty' as well as 'fee for technical services', it would be evident that the payment of export commission would not fall in any of the above definitions. By way of technical agreement, the assessee received the technical know-how to manufacture, assemble, sell and distribute the two wheelers within the territory of India. The payment made in pursuance to such agreement was royalty and has been treated by the assessee itself as royalty. By way of second agreement i.e. export agreement, HMCL permitted the assessee to export the specified two wheelers to the specified countries. Therefore, by export agreement, the assessee has not been transferred or permitted to use any patent, invention, model, design or secret formula. Similarly, HMCL, by way of export agreement, has not rendered any managerial, technical or consultancy services. In view of the above, ....
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....be said to be capital expenditure. In view of the above, we delete the disallowance of export commission made by way of transfer pricing adjustment and also by way of general provisions of the Income-tax Act. 76. The next adjustment made by the Assessing Officer was with regard to payment of model fee. The assessee has paid a sum of Rs. 52,57,69,473/- by way of model fee to HMCL. The TPO determined the arm's length price only to the extent of 25% of the payment towards model fee. The conclusion of the TPO in paragraph 10.8 of his order reads as under:- "10.8 In view of the fact that considerable money and effort is expended by the assessee, in indigenization of the technology, there is an 'economic ownership' of the trade intangible ('technology') which vests with the assessee to a far greater extent compared to the overseas AEs. In view of customization of the technology, right from the market research for the kind of technology that is required to be the R&D undertaken to given final shape to the production technology, the assessee is responsible for the development of technology. Hence, keeping in view the relative contribution of the parties invo....
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....ivities for new model technology absorption. It is mentioned that the R&D activity carried out by the assessee has resulted in to launching of new models in the current financial year. The assessee itself in its report has while claiming the expenditure on research and development publicized that benefit derived from research and development activities undertaken by it. On the one hand in its Annual Report the assessee itself declares that it has undertaken considerable R&D for launching of these model, on the other hand it states before the TPO and us that it did not undertaken significant research and development activities and all of them were undertaken by the Honda. No doubt technical design and specifications received from Honda helped the assessee in launching of new models, it is equally important not to undermine the contribution of the R&D carried out by the assessee leading to the launching of new models. In the context of this type of Intra group services, it is important to perform functional analysis and also to see that commensurate benefit has been accrued to the participating entities. OECD Guideline throws ample light on the key measures for applying arm's len....
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....ferred to the assessee's audit report so as to point out that lot of research activity has been made by the assessee itself. That in the audit report, what is mentioned is that the assessee company has carried out research and development for new model technology absorption and indigenization of CKD parts etc. Thus, the research activity undertaken by the assessee was to absorb the technology of new model supplied by HMCL and to indigenization the parts of such model. That initially, whenever any new model is developed by HMCL, it is with the parts being manufactured by HMCL or its associated enterprises. However, such parts are costly and, therefore, gradually the assessee starts manufacturing the parts in India. The research activity undertaken by the assessee is for indigenization of such parts so that instead of importing the parts, the assessee can get them manufactured in India itself. Thus, the activity of the market research undertaken by the assessee was prior to the beginning of model development by HMCL and research activity undertaken by the assessee for technology absorption and indigenization of the part was subsequent to the development of the model and supply of....
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....ength price in relation to the international transaction has to be determined by any one of the methods stipulated in sub-section (1) of Section 92C. He also relied upon the following decisions :- (i) CA Computer Associates Pvt.Ltd. Vs. DCIT - ITA Nos.5420 & 5421/Mum/2006. He further stated that the above decision of Mumbai Bench of ITAT is approved by the Hon'ble Mumbai High Court in the case reported in 2012 (TII) 02 (HC). (ii) Nimbus Communications Ltd. Vs. ACIT - ITA No.2361/Mum/2007. 79. He, therefore, stated that since the TPO has not determined the arm's length price by applying any of the methods prescribed under Section 92C(1) of the IT Act, the same cannot be adopted for making the addition in the case of the assessee. He further submitted that the payment of model fee was made after the approval of the Government of India. That the approval given to the assessee was not an automatic approval, on the other hand, the Ministry of Heavy Industries and Public Enterprises which is authorized to give approval, vide letter dated 26th April, 2005, mentioned that the lump sum payment for model development appears to be on higher side and, therefore, the assesse....
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....ated that reference to the earlier years' orders of ITAT i.e. for AY 1996-97 and 1999-2000 is not relevant because in those years, the Revenue has disallowed the model development fee holding the same to be capital expenditure. While in the year under consideration the same was not disallowed as a capital expenditure, but the arm's length price has been determined by the TPO. He also submitted that the argument of the learned counsel that in the earlier year, the model development fee was held to be reasonable, would also not support the case of the assessee because - (i) in earlier year, there was no transfer pricing order and (ii) law of res judicata is not applicable to the income tax proceedings. He further submitted that the contention of the learned counsel that the payment of model development fee is approved by the Government of India is not relevant because that authority did not examine the payment from the angle of the transfer pricing provisions provided under the Income-tax Act. It is only the transfer pricing authorities who are competent to determine the arm's length price. In support of this contention, he relied upon the decision of Hon'ble Jurisdic....
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....o the development of model by HMCL as per the specification of the assessee. Thus, the presumption of the Assessing Officer that there was a joint activity for the development of the model and the model development fees also covered the activities undertaken by the assessee is factually incorrect. The model development fee is paid by the assessee to HMCL for the development of the model required by the assessee as per its specifications. The market research and market study was to ascertain which type of model was required by the assessee. Subsequent research and development by the assessee was for absorption of the technology and for indigenization of the parts. Even otherwise, there is no basis or justification for the TPO for arriving at the conclusion that the arm's length price for model fee should have been only to the extent of 25% of the payment made towards model fee. The TPO has not given any basis or justification for his conclusion that only 25% of the model fee paid by the assessee would be the arm's length price. He has not applied any of the methods prescribed under Section 92C(1) of the IT Act for determining the arm's length price. 82. It was pointed....
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....appreciate that the technology which will be used in the proposed model is a new technology which is not available with the Company. One of the proposed model is scooter wherein the Company is not manufacturing scooter till date. The other model is a higher capacity motorcycle which is a new technology in itself. The 3rd model is a new model vis-a-vis for the compliance of new emission and environment norms. The details of technology, specification and other features are specified in the enclosure. So far the amount of lump-sum payment is concerned we would like to inform you that Honda Motor Company Limited, Japan initially asked for 1630 Million Japanese Yen as lump-sum fee for these models which after a tedious negotiation of around an year was brought down to 1040 Million Japanese Yen. The first proposal was discussed sometime in the beginning of January, 2004 when Honda Motor Company Limited asked for 1630 Million Japanese Yen as lump-sum fee and 7% royalty on these models, towards the cost of their development. The Company had series of discussions and meetings with the representatives of Honda Motor Company Limited and ultimately in the end of November, 2004 a conse....
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....er dated 19.3.2005 on the subject mentioned above and to convey the approval of the Government for inclusion of the following 3(three) new models of two wheelers in the existing collaboration agreement with M/s Honda Motor Co., Ltd., Japan on payments of royalty and model fee as mentioned under:- (a) Royalty:- (The rates/amounts are applicable to both 'domestic' and 'export' sales) Development code Model description Royalty rate (i) KTNA CB1506/CB150M6 @ 4% for 3 years from the date of commencement of commercial production and @ 5% after the expiry of above three years. (ii) KSTF (STD/DLX) CDN1005 @ 4% from the date of commencement of commercial production. (iii) KTPA SCV100HH6 @ 4% for 3 years from the date of commencement of commercial production, and @ 5% after the expiry of three years period above. The above royalty payment is subject to taxes, during the term of the "License and Technical Assistance Agreement". (b) Lumpsum Payments (Model Fee for three (3) new models) Development code Model description Model Fee (i) KTNA CB1506/CB150M6 JPY 230,000,000 (ii) KSTF CDN1....
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....le Jurisdictional High Court in the case of Nestle India Ltd. (supra). The facts of the said case were that the assessee was engaged in the business of manufacture and marketing of various food products and beverages. In its return for the assessment year 1997-98, the assessee claimed deduction of the amount of Rs. 47,00,41,000 on account of royalty paid to its two subsidiary companies as business expenditure on account of technical assistance rendered by them to the assessee. The Assessing Officer formed the view that the payment made by way of commission/royalty was highly excessive in nature and there was no justification for making payment of this magnitude which was 40 per cent of the gross profits. The CIT(A) allowed the entire amount of royalty holding that royalty payment in terms of sales at 3.5 per cent to 5 per cent as against the Government norms of 5-8 per cent was reasonable. He further held that the royalty payments for technical know-how were linked to sales and not to profit which was a derived figure that could vary from year to year. The Tribunal held that the payment of commission was not huge or unreasonable and since it was a business expenditure the entire ex....
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....en able to discharge its burden, namely, it was a justifiable and reasonable business expenditure and thus should be allowed under section 37 of the Act. We may recapitulate the following findings of the Tribunal in this behalf: (i) that the assessee has successfully discharged this burden; (ii) that the assessee has furnished almost the entire information asked for; (iii) that technical assistance received by it was essential for its business purposes; (iv) that the assessee highly benefited from this know- how and technical assistance; (v) that the quantum of remuneration was justified; (vi) that the technical assistance was all pervasive in the operation of the assessee; (vii) that there was no camouflage to siphon away Indian profits abroad; and hence disallowance of remuneration is not called for; The Tribunal has held that the assessee having discharged the initial onus, the burden shifted to the Revenue to show that the payment of royalty was excessive or unreasonable having regard to the legitimate needs of business or that the assessee has made less than ordinary profits and the Revenue has not dischar....
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....assessee. We find that the TPO has not specified how the model development fee paid by the assessee was excessive or unreasonable. It is only his subjective assessment that the arm's length price of the model development fee should have been 25% of the payment made by the assessee. While taking this view, he has held that there was a joint activity of development of new model by the assessee and HMCL. The contribution of the assessee is much more than the HMCL and therefore, he attributed only 25% of the model development fee as arm's length price of the transaction. However, we have already discussed above that there was no such joint activity of the model development. The activity of the assessee of the market research and market study was for ascertaining the specifications of the model/technology required by it. Therefore, it was prior to the actual research and development undertaken by HMCL. The next activity of the assessee started only after the model is developed by HMCL and technology is handed over to the assessee. Then the assessee undertook the research and development activity for absorption of such technology and for indigenization of the spare parts. Thus, t....
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....oyalty to Honda Japan for the exports made to the subsidiaries and group companies of Honda Japan. 4. The assessee is also paying Export Commission to Honda Japan @ 5% for the exports made to the AEs. 5. In a way the price of exports made to AEs have been reduced by the amount of royalty and export commission as compared to the sale in the domestic market. 11.3 The position of the assessee company with regard to manufacturing for the AEs is that of a Contract Manufacturer. The assessee company is purchasing raw material from the AEs. The royalty paid as a percentage of sales to the associated enterprise is not at arm's length because it amounts to collecting royalty on the sales to itself. All the AEs are typically within the broad umbrella of the multinational corporation. Even though, it appears that the technical knowhow is commercially exploited in India, in realty the price for these activities are not fixed by market forces. Whether the sales of the assessee are made within India to its AE or to the parent company does not make much difference to the principles of arm's length transactions. In this case the capacity and other parameters are ....
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....er, in our opinion, is without any basis and in fact contrary to the facts on record. The raw materials have been purchased by the assessee in its own right. It is not the case of the TPO that the raw materials have been supplied by the AE. The assessee has sold the goods to AE on principal to principal basis and has received the sale consideration. In view of the above, in our opinion, there is no justification for disallowance of the royalty on the export. We may reiterate that the Revenue has disallowed the entire royalty paid even on domestic sale which has been considered at length by us in the earlier paragraph of this order and we have arrived at the conclusion that the payment or royalty was a revenue expenditure, incurred for the purpose of business. Accordingly, the addition made by the TPO by determining arm's length price of royalty on export at nil is deleted. 93. The next addition is with regard to the purchase of raw material, spare parts and components. During the accounting year, relevant to the assessment year under consideration, the assessee made purchases of Rs. 81,10,78,331/- from its AE. The TPO determined the ALP at Rs. 79,56,73,801/-, which resulted ....
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.... used. There exists a highest degree of similarity between import and domestic purchase of the spares/components. It is very difficult to accept an argument that CUP is not applicable in such circumstances. The responsibilities to establish the arm's length nature of the international transactions lies with the assessee. The assessee failed to discharge this responsibility as the method relied upon by it is ot the most appropriate method for the reasons discussed above. Since the assessee has not brought out any difference in the quality of components purchased from HMC and from uncontrolled domestic suppliers, the ALP of imports from HMC, Japan can be determined by comparing it with the prices of uncontrolled domestic suppliers. 12.10 In this manner the ALP of the imports of various components from HMC, Japan and the adjustment arising out of difference between the ALP and the book price has been computed in the table given in Para 11.6 above. A perusal of this table reveals that there is different of Rs. 1,54,04,530/- in the price as per book of account and arm's length price of the spare parts/components. In view of these finding, the arm's length price of p....
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....olled and uncontrolled transactions will have the greatest effort on comparability under this method. Minor differences in contractual terms or economic conditions could materially affect the amount charged in an uncontrolled transaction. The method becomes less reliable substitute for arm's length dealings if not all significant characteristics of the uncontrolled transactions are comparable. The prices of international transactions of import of components and spare parts would not be compared with the prices of such components sourced from local manufacturers in the domestic market after their indigenization. The appellant in absence of comparable uncontrolled transactions, has rightly applied Transactional Net Margin Method (TNMM) as the most appropriate method for determining the arm's length price of such international transactions. Reliance is placed on the Hon'ble Mumbai Bench of the Tribunal in the case of Intervet India Pvt.Limited vs. ACIT : ITA No.2845/Mum/2006, wherein it has been held that the two transactions between Thailand and Vietnam cannot be compared on account of economic and market conditions. Further, reliance may also be placed on the de....
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....bmitted that the TPO erred in comparing the prices at which spares and components were purchased by the appellant from local vendors, to whom technology for manufacturing such parts and components was provided by the appellant, with the price at which the spares and components were purchased by the appellant from the associated enterprise, who is the owner of such technical know-how. Reference may be invited in this regard to paragraphs 2.14 to 2.16 of the OECD guidelines. In the present case, prices of international transactions of import of components from associated enterprise in Japan, cannot be compared with domestic price of such components in much as purchase after indigenization for the reasons : (i) The two transactions have been undertaken in entirely different economic and market scenario and are not comparable. (ii) There is geographical difference in the international transactions. The TPO in the Transfer Pricing assessment for assessment year 2007-08 accepted the aforesaid contention of the appellant and did not make any adjustment on account of import of components." 96. The learned counsel also stated that in AY 2007-08, i.e. i....