TaxTMI 
TaxTMI 
2010 (7) TMI 1047
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....nal Transaction on account of Royalty. The AO made this addition on the basis of TPO's order passed u/s 92CA(3) of the I.T. Act." 2. The facts are that during the assessment proceedings, the AO noticed the following International Transactions entered into by the appellant during the financial year 2003-04, as reported in Form 3CEB, filed along with the return of income. S.No. Type of international Transaction Method selscted Value of Transaction 1. Purchase of raw material, dies, jigs and special tools TNMM 1,19,43,197 2. Purchase of consumable & raw material TNMM 69,98,605 3. Sale of finished goods TNMM 6,05,40,938 4. Sales return of finished goods sold - 4,30,104 5. Roya....
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....ns. Accordingly, TPO held that the appellant had not determined the arm's length price for the payment of royalty in accordance with the provision of Sec. 92C(1) and (2). ii) The TPO further observed that royalty has been paid on total sale irrespective of sales made to same Associated Enterprise or other enterprises. Royalty has been paid @ 3% of he sales. Sales made to the AE amounted to Rs. 6,05,40,938/-. Accordingly, the corresponding royalty paid to the AE on these sales comes to Rs. 18,16,228/-, therefore, TPO held that it should not allow and to that extent it is an excess payment and the royalty payment is not at arm's length to that extent. Accordingly, an adjustment of Rs. 18,16,228/- is made on the royalty account. iii) The....
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....8. Challenging the impugned order, the ld. DR has argued that the ld. CIT(A) has erred in deleting the addition of Rs. 43,68,838/- correctly made by the AO, being the difference in the arm's length price and the value of International Transaction on account of royalty, overlooking that the AO had made the addition on the basis of the TPO's order passed u/s 92CA(3) of the I.T. Act. 9. The learned counsel for the assessee, on the other hand, has placed strong reliance on the impugned order. It has been contended that the ld. CIT(A) has rightly deleted the addition wrongly made by the AO; and that the TPO did not bring any material on record to show that the prices were not at arm's length. 10. We have heard the parties and have perused ....
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....ce and perquisites were not a part of royalty payment and it could not have been reduced from the actual royalty payment so as to compute the royalty payment at an arm's length price. It is these two amount of Rs. 16,76,839/- and Rs. 8,75,771/-, that go to make up the amount of Rs. 25,52,610/-, which was added on the first count by the AO, which addition has been deleted by the ld. CIT(A). The payment was an obligation of the assessee as per the know-how licence agreement, as noted by the ld. CIT(A). Besides, the TPO failed to take into account the fact that the assessee never bore the cost of about Rs. 75.38 lakhs, representing the cost of salary paid in Japan to the ex-patriates deputed . It is noteworthy that in assessment year 2002-03, ....
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.... by the AE and not by the assessee, since it was the assessee who was paying the royalty. The expenditure in question was no doubt incurred for business purposes and it was this which was the determining the factor, as rightly noted by the ld. CIT(A). It has not been shown that the payment was not as ought to have been made by a prudent business-man under similar circumstances, in the course of its/his normal business activities. 13. The payments made by the assessee to the Joint Managing Director and the Technical Adviser were thus correctly found by the ld. CIT(A) to be genuine business expenditure. 14. So far as regards the other limb of the addition, the assessee was paying royalty @ 3% on export as well as domestic sales net of i....
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....e ld. CIT(A), that for the purpose of computing the fees to be paid for production, no distinction was made between the products sold to the AE or to independent parties. As such, the fee was paid on the sales made to the AE also. There was no material brought by the TPO to demonstrate that the price on sales made to the AE was not at an arm's length . That being so, it was at market determined prices that the sales were made by the assessee. Moreover, it goes unchallenged that the fees paid under the Technology Agreement comprises an integral part of the cost of production, which was recovered from the sale price. It was thus, that so far as regards the sales made to the AE, the amount of fees paid under the Technology Agreement was recove....