TaxTMI 
TaxTMI 
2018 (3) TMI 1657
X X X X Extracts X X X X
X X X X Extracts X X X X
....ribunal dated 30.09.2016. The Tribunal vide order dated 27.12.2017 in MA No.18/PUN/2017 recalled the findings of Tribunal in ground Nos. 1, 2 and 5 raised in the appeal by Department in ITA No.1108/PUN/2013 for assessment year 2003-04. Identical grounds were raised by the Department in ITA No.1109/PUN/2013 for assessment year 2004-05. Accordingly, in MA No.19/PUN/2017 for assessment year 2004-05, the findings of Tribunal with respect to ground Nos. 1, 2, 3 and 5 were recalled. 2. The assessee in CO.No.59/PUN/2014 for assessment year 2004-05 has raised additional ground corresponding to ground No. 1 raised in appeal by the Department in ITA No.1109/PUN/2013. Accordingly, the findings of Tribunal with regard to additional ground No.3 in CO. No.59/PUN/2014 was also recalled. 3. Now, the grounds to be adjudicated in present proceeding in ITA No. 1108/PUN/2013 for assessment year 2003-04 are as under: "On the issue of use of Controlled Transaction 1. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was correct in law, i) When he implicitly rejected the direct method of Comparable Uncontrolled Price under Rule 10B(1) a) for the evaluation of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the present appeal. 5. Shri Rajeev Kumar representing the Department fairly admitted that the issue relating to transfer pricing adjustment on payment of Royalty has been adjudicated by the Tribunal in assessee's own case in immediately preceding assessment year i.e. assessment year 2002-03. 6. We observe that in ITA No.1107/PN/2013 for assessment year 2002- 03, ground Nos. 2 and 3 raised by the Department with respect to payment of Royalty are identical to ground No. 1 & 2 of the present appeal. The Tribunal decided the issue in favour of assessee by upholding Transactional Net Margin Method (TNMM) adopted by assessee as the most appropriate method for benchmarking its international transaction including payment of Royalty and also emphasized on the rule of consistency. The relevant extract of the findings of Tribunal on this issue are as under: "73.We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case had entered into an agreement dated 12-12-1994 with DCAG to pay royalty ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... held that the royalty rates charged from other associated enterprises by DCAG was not submitted. Accordingly, the TPO made downward adjustment of Rs. 1,84,42,531/- for the year under consideration. 75. We find the Ld.CIT(A) deleted the above adjustment made by the TPO on the ground that the TPO has compared the royalty paid by Maruti Udyog Ltd. which is a controlled transaction. According to him, the transfer price determined by benchmarking controlled transaction with another controlled transaction cannot be considered the Arm's length price because the arm's length signifies transfer price without the possibility of it being influenced by the Associated Enterprise. Further, he noted that the TPO is inconsistent in his approach on this issue. He observed that during assessment year 2007-08 and 2008-09 royalty payment @5% was held to be at Arm's length which is paid at the same rate as that for the years under consideration. 76. We do not find any infirmity in the above finding of the Ld.CIT(A). From the various details furnished by the assessee in the paper book we find in consideration of the use of technology and technical information received from DCAG for manufacturing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssible range." 78. We find the Hon'ble Delhi High Court in the case of Soni Ericsson Mobile Communications Pvt. Ltd. (Supra) while deciding on the issue of bundling of transactions and use of TNM method has observed that the expression "class of transaction", "functions performed by the parties" in section 92C(1) of the Act illustrates that the meaning or definition of the expression "transaction" does not prohibit clubbing of closely connected or continuous transactions. The Hon'ble High Court has held that in case the tax payer is engaged in single line of business, there is no bar or prohibition from applying the TNMM on entity level basis. It has further been held that once the comparables pass the functional analysis test and profit margins matches with the comparables, it leads to an affirmation of the transfer price as the arm's length price. After this it is not permissible to make a comparison of a particular item of costs without segregation of profits." 79. We further find force in the submission of the Ld. Counsel for the assessee that for application of CUP it is necessary that transactions being compared should be controlled. In the instant case the TPO has comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vation of the Tribunal at para 14.3 of the order reads as under : "14.3. After considering the rival submissions and perusing the relevant material on record, we find that the assessee entered into collaboration agreement with its AE for payment of 2% of contract value for manufacturing, drawing and engineering services and 5% of the selling price as royalty. The assessee applied to the RBI seeking approval in respect of payment of royalty and technical fee through Central Bank of India. A copy of letter addressed by the Central Bank of India to the RBI dated 26.03.2008 is available on page 240 of the paper book. Through this letter, the Central Bank of India forwarded relevant documents along with a copy of the agreement. The RBI vide its letter dated 21.04.2008 requested Central Bank of India to consider the assessee's case in accordance with its AP(DIR Series) No.76 dated 24.02.2007. It is in pursuance to the deemed approval by RBI under the automatic approval scheme that the assessee made payment of royalty and technical fee to its AE. It is relevant to note that such payment has been approved or deemed to have been approved by the RBI. When a payment is made after obtaining....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Loss account under the head "Homologation Expenses". In assessment year 2002- 03, the assessee had incurred an expenditure of Rs. 77.74 Lacs towards homologation. Out of above expenditure, Rs. 54.94 Lacs was with respect to material supplied to ARAI. The Assessing Officer in the absence of complete details of expenditure on homologation made disallowance of Rs. 37,99,831/-. In the assessment year 2003-04, the assessee had provided complete details of 'Homologation Charges'. However, the Assessing Officer made ad-hoc disallowance of Rs. 10,00,000/- on account of non production of supportive evidence. A perusal of the assessment order would reveal that disallowance has been made merely on presumption. The Assessing Officer has not taken pain to examine the details furnished by assessee. The Commissioner of Income Tax (Appeals) deleted the addition on the ground that the Assessing Officer has failed to specify the extent of expenditure for which assessee has failed to furnished the details of expenditure. 7.2 On the other hand, the ld. DR submitted that the issue can be remitted back to the file of the Assessing Officer for fresh adjudication after considering evidences filed by the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly rejected the direct method of Comparable Uncontrolled Price under Rule 10B(1) a) for the evaluation of the International Transaction of the payment of Royalty & Seems to have preferred Aggregated Transaction Net Margin Method under Rule 10B(1)(e), a indirect method while evaluating the Arms Length Price, which was rejected by him for A.Y.2005-06 ( and in A.Y.2008-09 as part of the Dispute Resolution Panel); ii) by rejecting the CUP, a direct method for working out the Arm's Length of the international transaction and uncontrolled transaction; which provides for instant comparison of the prices of the products/services; iii) when the OECD guidelines in para 1.70 clearly suggests that 'an attempt should be made to reach a reasonable accommodation keeping in mind the imprecision of the various methods and the preference for higher degrees of comparability and a more direct and closer relationship to the transaction? On the issue of Consistency. 3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in law, i) when the assessee company itself has provided separate benchmarking and detailed information regarding the Ro....