TaxTMI 
TaxTMI 
TaxTMI 
2016 (5) TMI 343
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....ross objection, filed by the assessee against the same order, the assesse has raised the following grievance:- "On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer and the Hon'ble Commissioner of Income Tax (Appeals) erred in rejecting the appellant's contention that as the payments of Royalty were approved by the Reserve Bank of India the same was at arm's length." 4. The relevant material facts are as follows. The assesse before us is a subsidiary of Schenectady (India) Holdings Pvt. Ltd. which, in turn, is a wholly owned subsidiary of SI Group Inc. USA. The assessee is engaged in the manufacture and sale of organic chemicals and phenolic resins having wide range of industrial applications. During the course of proceedings before the Transfer Pricing Officer, it was, inter alia, noted that the assessee has made a payment of Rs. 3,39,67,540/- towards royalties. However, the Transfer Pricing Officer held arm's length price of the royalty at NIL on the basis of following reasoning:- "3. Payment of Royalty In the form 3CEB, the assessee has reported payment of Royalty of Rs. 3,39,67,540 /- to SI Group Inc. In the form 3CEB, a no....
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....early state: "The technology acquired by the Company in the past for production of cumene, phenol, acetone, phenolic resins have been fully absorbed. The technologies have been further upgraded over the years through in house innovation and knowledge engineering" Thus, it can be inferred that there was no technology utilized under the said agreement to justify royalty payment. Even otherwise the assessee failed to benchmark that the payment was at ALP. That other AEs have paid at similar rates would not benchmark the transaction, as all were controlled transactions. In view of this an adjustment of Rs. 3,39,67,540/- is to be made as assessee failed to give economic justification for the payment of royalty." 5. Aggrieved, assessee carried the matter in appeal before the leaned CIT(A) who deleted the said adjustment by observing, inter alia, as follows: "6.5 I have considered the facts of the case, submission of the appellant as against the findings/observations of the AO/TPO in their order u/s. 143(3) r.w.s. 144C/92CA (3) of the I.T. Act. The contentions and submissions of the appellant are being discussed and decided here in under: i. The appellant has made payment of ....
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....ellant. v. The appellant has contended regarding the observations of the TPO that approval of RBI cannot be considered for determination of arm's length price. The appellant has relied on Rule 10B(2)(d) and on the various decisions in this regard. In respect of such contentions of the appellant, it is mentioned that the approval of the RBI for the payment of royalty is from the perspective of foreign exchange management Act. Under such circumstances, though the bona fide of the payment to be made or made by the appellant cannot be doubted but it remains to be examined whether such payments made by the appellant is inconformity with an arm's length principle as per the Indian Transfer Pricing Regulations. The Hon'ble Punjab & Haryana High Court in the case of Coca Cola India Inc. Vs. ACIT (P & H) (2008-TIOL-658-HC-P & H -IT) have clearly observed that the approval of RBI would not be determinative factor from the perspective of transfer pricing regulations. Accordingly, such contention of the appellant that the approval of the RBI should be considered as determination of arm's length price is not found to be acceptable. vi. The appellant in its submission has g....
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....tional evidence under rule 46A. It has been contended by the appellant that it case falls under clause (d) of Rule 46A of the I.T. Rule, 1962. Such additional evidence submitted by the appellant was forwarded to the TPO who after examining the same, has submitted his report vide his letter No. Addl. CIT/TP-II(4)/ Addl. Evidence/12-13 dated 26.9.2012. The contents of the report of the TPO has been reproduced as sub-para 6.3 above. It is seen from the report of the TPO that he has not specifically disputed the benchmarking analysis conducted by the appellant and has mentioned that the calculation of arm's length price rate of royalty payments answers only secondary reasons for the disallowance of royalty by the TPO, the primary ground being the economic justification which has not been answered xi. This being the fact that the appellant has not benchmarked this international transaction and further, before passing the order by the TPO, the appellant has not given any specific opportunity to benchmark this international transaction. Such benchmarking analysis submitted by the appellant by way of additional evidence is considered to be admissible and is admitted for the purpose ....
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....n. We find that the Transfer Pricing Officer did note, and was apparently swayed by the fact of assessee's making losses. It was for this reason that the payment of royalty was held to be not at an arm's length price, as is implicit in the Transfer Pricing Officer's observation to the effect that "having considered the submission made by the assessee in respect of payment of royalty, the position of the assessee cannot be accepted due to the fact that the assessee has incurred an operating loss during the year under consideration". The Transfer Pricing Officer has thereafter proceeded to treat the arm's length price of the royalty as "NIL", thus virtually disallowing entire royalty payment. It is not, however, clear as to under which method of ascertaining the arm's length price, the value of royalty has been determined as "NIL". There cannot be an adhoc adjustment in the course of ascertaining the arm's length price. If the Transfer Pricing Officer was to reject the assessee's benchmarking on the basis of Reserve Bank of India's approval under CUP method, the Transfer Pricing Officer was required to decide the correct mechanism of deciding the arm's length price and compute the ar....
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....f import of product 2, 4 DTBP from the associated enterprise, amounting to Rs. 16,34,685. 2.1 On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in confirming the addition made by AO/TPO relating to import of the product 2, 4 DTBP, to the extent of Rs. 16,34,685 under Section 92CA(3) of the Act by not appreciating the submissions made by the Appellant. 2.2 The Appellant prays that the Transfer Pricing adjustment made under Section 92CA(3) of the Act in relation to import of product 2, 4 DTBP is erroneous, unwarranted and be deleted." Ground No. 3 - Addition under Section 92CA(3) of the Act in respect of export of the product DPO to the associated enterprise, amounting to Rs. 7,99,076. 3.1 On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in confirming the addition made by AO/TPO relating to the export of the product DPO, amounting to Rs. 7,99,076 to its AE, under Section 92CA(3) of the Act by not appreciating / disregarding the benchmarking analysis, comparable transactions selected and the detailed submissions and the documentary evidence supplied by the Appellant. 3.2 The Appellant pray....