TaxTMI 
TaxTMI 
2017 (3) TMI 106
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....ial questions of law are sought to be raised by the Revenue: 'i. In the facts and circumstances of the case, whether the Hon'ble Tribunal (ITAT) is correct in law in directing the Assessing Officer in deleting the addition made on account of transfer pricing adjustments to royalty payment made by the Transfer Pricing Officer in terms of Section 92CA of the Income Tax Act 1961 ? ii. In the facts and circumstances of the case, whether the Hon'ble Tribunal (ITAT) is correct in law in upholding the payment of royalty at the rate of 2% as against 3% restricted by the Transfer Pricing Officer, when the Respondent-assessee company could not satisfy the benefit test?' 2. Heard Sri B. Narasimha Sarma, learned senior standing....
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....nsaction with tangible transactions and applied the Transaction Net Margin Method. 4. The TPO held that the assessee did not fulfill the conditions of the 'benefit test' and that there was no perceptible change in the sale or profit which could be attributed to receipt of technical know-how from the AE to justify payment of royalty at 3% to it. The TPO further found that substantial expenditure had been incurred by the assessee on advertisement and marketing and it was these efforts which had yielded increased revenue and profit. The TPO accordingly restricted the royalty payment to 2% instead of 3% of the net ex-factory sale proceeds. The alternate study undertaken by the assessee applying the Comparable Uncontrolled Price method,....
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....% by the TPO was without basis and could not be accepted. 6. Sri B. Narasimha Sarma, learned senior standing counsel, would contend that the reasoning of the TPO ought not to have been dismissed lightly by the Tribunal. He would state that the application of the 'benefit test' by the TPO was fully justified on facts and therefore, the order under appeal requires admission for consideration of the substantial questions of law raised. 7. Per contra, Sri S. Ravi, learned senior counsel, would point out that Section 92CA of the Act of 1961 dealing with 'Reference to the Transfer Pricing Officer' details the procedure to be followed by the TPO in such exercise under Rule 10B of the Rules of 1962 which deals with 'Determinat....
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....ssessee. This reasoning is without legal basis of law as it is not for the TPO to decide the best business strategy for the assessee. 9. In Walchand & Co. (P.) Ltd. (supra), the Supreme Court observed in the context of the Income Tax Act, 1922 that when a claim is made for an allowance by the assessee, the income tax authorities have to decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds of commercial expediency. The Supreme Court pointed out that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively for the purpose of business, it has to be adjudged from the point of view of the businessman and not of the revenue. The Supreme Court conclu....