TaxTMI 
TaxTMI 
2016 (3) TMI 274
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....18,85,27,400/-. The case was selected for scrutiny and accordingly, notices u/s 143(2) & 142(1) of the Income-Tax Act, 1961 (hereinafter called as 'the Act') were issued. In response to notices, the authorized representative of the assessee appeared from time to time and submitted the details called for vide questionnaire issued in connection with the scrutiny proceedings. During the course of assessment proceedings, the A.O. noticed that the assessee has entered into International transactions of payment of royalty to its associated enterprises L.G. Chem Limited, Korea for use of their trade mark. Since, the international transaction did not exceed the monetary limit of Rs. 5 crores, no reference has been made to the Transfer Pricing Officer (TPO) for determining arms length price. However, for the immediate preceding assessment year 2006-07, the case was referred to the TPO for determination of ALP of the international transaction. During the previous assessment year, under similar circumstances, the royalty payment to its associated enterprises was disallowed. Since, the Royalty payment was disallowed in the earlier assessment year, the A.O. issued a show-cause notice dated 18.1....
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..... was not correct in making additions towards royalty payment to associated enterprises for the year under consideration. The assessee further submitted that pursuant to the ITAT order, the TPO has passed order u/s 92A (3) of the Act and accepted the Royalty payment to be at ALP. Therefore, the A.O. was erred in disallowing the Royalty payment without considering the fact that the A.O. has accepted the Royalty payment in the order giving effect to ITAT order for A.Y. 2006-07. However, the CIT(A) after considering the explanations offered by the assessee and also relied upon the ITAT order in assessee own case for earlier assessment year, held the issue in favour of the assessee and directed the A.O. to refer the matter to the TPO and obtain a ALP of the international transaction. The CIT(A) further directed the A.O. to delete/modify the additions towards Royalty payment based on the findings of the TPO. However, the CIT(A) confirmed the additions made by the A.O. towards royalty payment u/s 40(a)(i) of the Act, by holding that the assessee has failed to deduct TDS on royalty payment, therefore in view of the provisions of section 40(a)(i) of the Act, the A.O. was justified in disal....
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.... has deducted TDS and remitted to Govt. account within the due date of furnishing return of income under sec. 139(1). The A.R. further submitted that the provisions of section 40(a)(i) and 40(a)(ia) of the Act are similar in so far as the allowability of expenditure is concerned. The ITAT, in the case of CIT Vs. Virgin Creations in ITA No.302/2011 has held that the amendment to section 40(a)(i) of the Act are applicable retrospectively. The Hon'ble Kolkata High Court held that the amendment of the Finance Act, 2010 is remedial in nature and therefore amendment has to be treated as retrospective w.e.f. 1.4.2005. The ITAT, Visakhapatnam bench in the case of Raja Mahendri Shipping and Oil Field Services Vs. ACIT 20 Taxman.Com 474 by following the judgment of Kolkata High Court, held that the amendment brought to Section 40(a)(i) of the Act by Finance Act, 2010 is retrospective in nature. Therefore, if the TDS was remitted to the Government account before the due date for filing the return of income u/s 139(1) of the Act, even as per the provisions of section 40(a)(i) of the Act, the expenditure is allowable in the year in which it was incurred. The A.R. further submitted that alternat....
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....d that the international transaction being royalty payment of the assessee to its associated enterprises is held to be within the arms length price. As regards to genuineness and necessity of Royalty payment is concerned, the A.O. was of the opinion that the assessee has not proved the necessity of Royalty payment. We do not see any merits in the contention of the A.O. for the reason that, the assessee has furnished copies of invoices and bank remittance challans. The payment was made through banking channel and which was supported by bills and agreements. The TPO as well as AO has accepted the payment of Royalty as genuine and not sham transaction in the previous assessment year. The fact remains same for the assessment year under consideration. The revenue has failed to substantiate its arguments with any evidences to show that the royalty payment is not genuine. Therefore, we are of the opinion that the A.O. was not right in disallowing the Royalty payment. The CIT(A) has rightly deleted the additions and his order does not require any interference. Hence, we inclined to upheld the order of the CIT(A) and reject the ground raised by the revenue. 9. The next issue emanates from ....