TaxTMI 
TaxTMI 
2016 (9) TMI 393
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....ble Uncontrolled Price [CUP] contracts for the application of CUP method; b. In rejecting the analysis of aggregation under Transactional Net Margin Method [TNMM] conducted by the Appellant in the transfer pricing report without providing any cogent reasons for such rejections; c. In disregarding the external comparable uncontrolled transaction (External CUT) search performed by the appellant and provided as a supplementary analysis to justify the arm's length nature of the international transaction pertaining to payment of royalty; d. In disregarding the internal comparable uncontrolled transaction (Internal CUT) search performed by the appellant and provided as a supplementary analysis to justify the arm's length nature of the international transaction pertaining to payment of royalty; e. In disregarding the comparable intercompany royalty rates between the parent and other group companies submitted by the appellant and provided as a supplementary analysis to justify the arm's length nature of the international transaction pertaining to payment of royalty. 3. Further the Honourable DRP, the Ld. AO and the Ld. TPO erred in: ....
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....ned Assessing Officer and the Honourable DRP have erred in computing the amount of unabsorbed depreciation to be carried forward to future assessment years at Rs.,17 1,544,189,037 instead of Rs. 1,919,416,420 claimed in the return of income. 3. Briefly, facts of the case are that the assessee is a company incorporated under the provisions of the Companies Act, 1956. It is wholly owned subsidiary of M/s.Praxair Pacific Ltd., Mautitius. It is engaged in the business of manufacture of industrial gases. The assessee-company filed return of income for the assessment year 2007-08 on 31/10/2007declaring nil income. Late on, return of income was revised on 8/1/2009 at nil income. However, the assessee-company returned book profits u/s 115JB of the Act. After processing the return of income u/s 143(1) of the Incometax Act, 1961 [hereinafter referred to as 'the Act' for short] the case was taken up for scrutiny assessment. During the course of assessment proceedings, the Assessing Officer (AO) noticed that the assessee-company had reported the following transactions as international transactions within the meaning of the provisions of sec.92B of the Act in Form 3CD report along wi....
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....ise solely through the engine of the technology. There are returns from the mix of assets it employs such as fixed and working capital and the returns from intangible assets such as distribution systems, trained workforce, etc. Allowances need to be made for them. In the absence of any data provided by the taxpayer, it is impossible to know what percentage of profits the licensee would like to share at an arm's length after removing the returns from assets employed and other economic factors which may not arise solely through the engine of the technology. 6. The taxpayer did not give the details of royalty rates in the industry. Thus the arm's length price of royalty is determined at Rs. Nil. a. Payment of Royalty Rs. 3,29,18,381/ b. Arm's length price under CUP Rs. NIL c. Adjustment U/s 92CA Rs. 3,29,18,381/- The above amount of Rs. 3,29,18,381/- is treated as adjustments U/s 92CA as the value of royalty transactions in uncontrolled conditions is treated as Rs. Nil under CUP and in the absence of any substantiation to show that substantial benefit is accrued to the taxpayer. Thus the above amount of Rs. 3,29,18,381/ is treated a....
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....y following TNMM. The principle of aggregation are laid down in rule 10A(d) of the IT Rules. The circumstances in which transaction should be aggregated are laid down in rule 10A(d) of the IT Rules which are as follows: "10A. For the purposes of this rule and rules 10AB to 10E,- ..................................................... (d) 'transaction includes a number of closely linked transactions. 5.4 The only contention urged by the learned counsel for assessee is that royalty forms part of the manufacturing cost and royalty expenditure is very minimum and therefore should be aggregated. This is not one of the circumstances envisaged under the provisions of rule 10A(d) of the Rules. Furthermore Special Bench of the Tribunal in the case of L.G.Electronics India (P) Ltd. vs. ACIT (153 ITD 591) vide para.8.3 held that international transaction of royalty payment is a separate transaction and not closely linked with other transactions. Therefore, cannot be mixed with other transactions for the purpose of determination of ALP at the entity level under TNMM cannot be allowed. Even the Hon'ble Delhi High Court in the case of Sony Ericson Mobile Communication India (P) Ltd. Vs....
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.... components, irrespective of the source of procurement, including ocean freight, insurance, custom duties, etc. Apart from this Agreement, the assessee also entered into another Agreement dated 25.6.2009 with Gruner AG, Germany, for availing certain Management services. A copy of such Agreement is available on page 107 onwards of the paper book. Under this Agreement, the assessee agreed to pay at the hourly rates. It is the payment pursuant to the Agreement dated 25.6.2009 and 8% fees for technical services under the Agreement dated 6.3.2009, that the assessee paid total fees for technical services at Rs. 4.72 crore. Royalty payment @ 8% made to Gruner AG, under the Agreement dated 6.3.2009, stands at Rs. 3.24 crore. Thus it is palpable that the assessee paid royalty and fees for technical services to its AE pursuant to the Agreements which are solely for this purpose. There is no reference or mention whatsoever of any other international transactions undertaken by the assessee during the year in these Agreements. It is further found that the international transactions of import of raw material and export of finished goods along with lease of machine/tools and purchase of plant and....
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....elation with the total sales made by the assessee and it cannot be construed as interlinked with import of raw materials from its AE alone. 5.7 It is simple and plain that cross subsidization of the international transactions in a combined approach is impermissible. It is clear from section 92(1) that if an international transaction is recorded showing a lower income than its ALP income, then it is the higher ALP income, which should be considered for the purpose of computation of the total income. Section 92(3) of the Act manifests that the provisions of this section shall not apply in a case where the computation of income having regard to ALP has the effect of reducing income chargeable to tax. The net effect of section 92(3) is that if transacted value income from an international transaction is more than its arm's length price income, then, the ALP income should be discarded and the actual income should be considered. To sum up, it is the higher of actual income or the ALP income from an international transaction, which should to be taken into consideration for computing the total income. It does not mean that the actual more income from one international transaction vi....
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....burden of proving that the expenditure laid out were incurred wholly and exclusively for the purpose of business. We may further add that the Hon'ble Supreme Court in the case of CIT Vs Imperial Chemical Industries (Ind.) Pvt. Ltd (1969) 74 ITR 17 has unequivocally held that the burden of proving that a particular expenditure had been aid out or incurred wholly and exclusively for the purpose of business entirely lies on the assessee. The discharge of the burden had to be effective and meaningful and not to cover up by merely book entries and paper work. The mere fact of payment of commission by account payee cheques and compliances with the TDS provisions shall not alone enable the assessee to claim deduction unless and amount has been expended wholly and exclusively for the purpose of business. 11. A Co-ordinate Bench Tribunal of Delhi in the case of Kanu Kitchen Kulture (P)Ltd Vs DCIT (2013) 28 ITR (T) 49 (Del.-Trib.) held that whether the assessee failed to demonstrate the services rendered by the commission agent, the commission was disallowed. The relevant paras of the judgment are reproduced below; "22. Thus the assessee as utterly failed to demonstrate the nature and ....