TaxTMI 
TaxTMI 
2015 (5) TMI 861
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....t was initially made through 50:50 joint venture with K.K.Birla Group in the Financial Year [FY] 2000-01. Assessee, Zuari Cement Ltd., was hived off from Zuari Industries Ltd., and was operating between 2001 to 2006 as a joint venture company. In May, 2006, Italcementi Group acquired full control of assessee through Ciments Francais S.A., as immediate holding company. While assessee-company was in joint venture, it acquired another company Sri Vishnu Cement Limited [SVCL], whose 1.3 million tonne plant is situated at Sitapuram in Andhra Pradesh as a sick company. After acquiring the company by infusion of fresh capital and technology, the said company was turned around, which was operating as a subsidiary company of assessee-company. Pursuant to the scheme of amalgamation sanctioned by the Hon'ble High Court of Andhra Pradesh on 29-06-2007, SVCL stood merged with assessee-company w.e.f. 01-01-2007. The TPO acknowledges that from a modest 0.5 million tonne capacity in 1995, Zuari has grown to a 3.5 million tonne capacity today. During the year, assessee filed return of income admitting total income of Rs. 389.75 Crores, the return was taken for scrutiny and eventually the final ....
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....by villages and these expenditures are necessary to retain such employees and motivate them to work with the company for a longer term by providing necessary amenities in the villages. These expenditures are essential for smooth operations and are incurred wholly and exclusively for the purpose of business. It was further submitted that assessee has maintained proper bills and documentation in support of the expenditures and AO has incorrectly disregarded sample voucher copies submitted. Assessee places reliance on the following judicial precedents wherein it has been held that expenditure incurred on various 'corporate social responsibility' is allowed as business expenditure. i. CIT Vs. Madras Refineries Ltd., [266 ITR 170 (Madras)] ii. CIT Vs. Jayendrakumar Hiralal [327 ITR 147 (Gujarat HC)] iii. CIT & Anr. Vs. Karnataka Financial Corporation [326 ITR 355] [(Kar. HC)] iv. CIT Vs. Infosys Technologies Limited [360 ITR 714 (Karnataka)] Assessee also relied on various ITAT decisions in support of the contention. 4.3 DRP however, accepted that this expenditure was incurred for the purpose of business which should be allowed u/s.37(1) of the Act. However, since AO has ob....
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....gifts to other Govt. employees etc. Except the purchase of gold coins from Corporation Bank, Bangalore on 16-02-2008 for Rs. 3,85,166/- vide Invoice No.120 for which no details were furnished, rest of the expenditure has same identity etc. Since the business necessity was already decided by the DRP, AO's duty is only to examine the vouchers. In our opinion, except the amount of Rs. 3,85,166/- for which details were not available, rest of the expenditure cannot be disallowed on the reasons stated by AO. We therefore, direct the AO to allow the expenditure, except the amount of Rs. 3,85,166/-. This ground is partly allowed. Contribution to Zuari School: 6. The last item is the expenditure incurred in the nature of contribution to Zuari School amounting to Rs. 13,43,496/-. As per the copy of the MOU entered between assessee and DAV College Trust and management society, New Delhi, assessee-company was required to reimburse the expenditure on running the school after deducting the income realized as fees etc., from the students. AO, however, noticed that 'school' was not defined in the MOU and disallowed the expenditure stating that there is no clarity in the MOU itself. W....
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.... that aggregation of transactions were not allowed and relied on the decisions of the co-ordinate bench in the case of Star India P. Ltd., Vs. ACIT [2008-TIOL-426-ITAT-MUM] and also UCB India Pvt. Ltd., [317 ITR 292 (AT) (Mum)], to come to a conclusion that any transaction that has bearing on profits can be analysed separately. Thereafter, he analysed various international transactions, mostly under the Comparable Uncontrolled Price (CUP) method for analyzing the arm's length nature of payments to its AEs. He further held that fees for technical know-how, fees for use of trade mark and fees for procurement etc., are a separate class of transactions, therefore, they have to be analysed separately, as each transaction has a bearing on profits. Accordingly, the transactions entered into by and between the taxpayer and its AEs are considered separately for the purpose of transfer pricing analysis. Ld.TPO noticed that assessee paid an amount of Rs. 12,53,26,000/- to Ciments Francais S.A., as technical know-how and research and other service fee. This payment was paid on an agreement dt.02-08-2000 for getting technical know-how for a period of three calendar years from that effect da....
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....argeable for its use. Thereafter, he has disallowed the entire amount of sub-license fee paid under the provisions of Section 92CA. Not only that he further analysed the cobranding of ZCL and 'Italcementi' Group and came to the conclusion that Italcementi Group got benefit by piggy riding on ZCL brand, which has tremendous value in the market and therefore, the same requires to be compensated at arm's length. He took the 10% of ALP expenses between 2001 and 2008 and arrived at the compensation payable to ZCL, for use of its trade mark at Rs. 41,60,00,000/- and made the adjustment of the above in the impugned year. 9. In addition, TPO also analysed the payments from the intra group services of procurement fee of Rs. 7,11,82,000/-. Considering that there is no need for any services, he disallowed the entire amount. Likewise, consultancy fees paid of Rs. 38,10,000/- to Bravo Consultancy SPA and Rs. 42,10,94,000/- to CTG SPA were also considered and disallowed the same reason and on the basis of the benefit test, in its entirety. Assessee's objections were rejected and the above amounts were disallowed. Another disallowance made by the AO was with reference to reimburs....
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....mitted that the technical fee paid included in their annual report is not the royalty on sales, but expenses like royalty on lime stone, other fees paid to Government authorities which cannot be considered as royalty payment on sales. He referred to the order of the TPO and balance sheet of various companies to submit that the basis itself is not correct. With reference to sub-license fee of Rs. 6,26,62,000/-, it was submitted that this agreement was entered in the year 2007 and objected to the method adopted by the TPO stating that the transaction is inextricably linked with the manufacturing operation, thereby aggregation of transaction with application of TNMM as a MAM cannot be ignored. It was further contended that there were no cogent reasons as to why CUP should be adopted and both TPO and DRP erred in determining the ALP at NIL. It was the submission that use of trade mark is a business decision and there are benefits to assessee for use of Italcementi Group trade mark and demonstrated by the support of growth in sales volume over a five year period and increase in customer base in the five years and furnished the copies of evidences furnished to the TPO, in support of the ....
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.... by the TPO. Detailed submissions were filed issue- wise. 12. Ld.DR further referred to various observations of the TPO and findings of the DRP to submit that the adjustments made are warranted on the facts of the cases. He supported the orders of the TPO/DRP. 13. We have considered the issue and pursued the evidences on record, including the documents placed on the Paper Books. We are of the opinion that the approach of the TPO is not correct. Even though the payments made by assessee to the AEs are just a fraction of the total turnover of assessee, these transactions are invariably inter-linked to the manufacturing and trading of cement by the assessee-company. Therefore, the approach of the TPO in considering the CUP method for analyzing independent transactions is not fully justifiable. Apart from that, the methodology used in various analysis is also faulty. As far as the royalty payment on sales is concerned, as rightly pointed out by the Ld.Counsel, there are no comparable companies which are offering similar services. The TPO's comparison on transactions of assessee subsidiary company much prior to the year under consideration cannot be justified. Therefore, on that b....
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....nnot be stated that 'Zuari Cements' is exclusive brand owner of the Birla Group in exclusion of Italcementi Group. The entire approach by the TPO is biased and cannot be justified on the facts of the case. Therefore, we are not in a position to uphold any of the contentions raised by TPO in his order. Likewise, the disallowance of various service fees including reimbursements made by assessee to AE. Since we do not find any valid reason for TPO to disallow these expenditures, we have no other go than to set aside the entire order of the TPO which is based on wrong presumptions and propositions. DRP unfortunately, even though consisted of three senior officers, did not apply its mind to the valid objections raised by assessee. In view of this, without deciding the merits of various issues, we set aside the orders and direct the TPO to re-consider the entire order and analyse them in fresh, first by determining the most appropriate method and then analyzing the transactions under the provisions of the TP. The orders of the TPO/DRP on the TP issues are therefore set aside and the entire issue on TP analysis is restored to the file of AO for fresh consideration. The grounds rai....