TaxTMI 
TaxTMI 
2019 (5) TMI 678
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....A) against which the Revenue had come up in appeal in ITA No.552/Kol/2017. The coordinate Bench of this Tribunal in its order dated 14.02.2018 upheld the Ld. CIT(A)'s order by holding as follows: "We have given a very careful consideration to the rival submissions. It is an admitted position that the trading receipts of the assessee recorded in the books of accounts also includes a sum of Rs. 3,34,330/- on account of sales tax. The assessee cannot claim deduction of the aforesaid sum without payment in view of the provision of section 43B of the Act. If the assessee had made the payment of sales tax then the debtor of the assessee has to pay back the said amount to the assessee and therefore it will assume the character of a debt in the hands of the assessee. If ultimately the customer does not pay this amount to the assessee, it has to be regarded as bad debt written off and allowed as deduction u/s 36(1)(vii) of the Act. In any event the deduction has to be allowed u/s 28 of the Act as a loss incidental to the business. We therefore direct the claim of the assessee to be allowed." 3. Before us both the parties agreed that this issue is squarely covered by the ITAT's o....
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....which was acquired in 1997 in terms of the scheme approved by the Hon'ble High Court of Calcutta. Undisputedly, the Revenue did not carry the first appellate order for A.Y. 2005-06 in appeal to the higher forums having jurisdiction. Therefore, we find no infirmity in the order impugned before us and the said order passed by the CIT-A is justified in deleting the disallowance of interest made on account of borrowed funds to an of Rs. 1,14,63,036/- u/s 36(1)(iii) of the Act and confirmed. Accordingly, grounds raised by the revenue are dismissed." 6. Before us both the parties fairly agreed that the issue involved in Ground No. 2 is covered by the orders of the coordinate Bench of this Tribunal in the assessee's own case for the earlier years. Since factual matrix of the case remained unchanged during the relevant year, following the appellate orders for the earlier years, we uphold the Ld. CIT(A)'s order on this issue and dismiss ground No. 2 of the appeal. 7. Ground No. 3 is against the relief allowed by the Ld. CIT(A) in respect of travelling expenses of Rs. 16,44,313/- reimbursed to the assessee's parent company, M/s DIC Corporation, Japan. Briefly stated the facts of the ca....
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....the affiliates in different countries. In case of conglomerates such as the DIC Group, it is thus a customery practice for the technical team of the ultimate holding company to visit plant locations to carry out review of operations, inspection of business facilities and suggest improvements. Such visits are undertaken by the personnel of the ultimate holding company for achieving improvement in the operations and thereby achieving improvement in the profitability of the affiliate and consequently the growth of the Group in overall terms. Since the visit of the technical team from DIC, Japan; was undertaken for reviewing the business operations of the assessee, the travelling expenses of the personnel visiting India were incurred by the assessee company and claimed as business expenditure u/s 37(1) of the Act. Merely because the persons visiting Indian operations of the assessee were employees of DIC, Japan did not ipso facto lead to conclusion that expenditure reimbursed on their visit to India were not for the purposes of assessee's own business. In my considered opinion the expression "incurred or laid down wholly & exclusively for the business purposes" as used in section 3....
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....n the AO's order and argued that the assessee had failed to bring on record any material which would justify the claim for deduction for travelling expenses incurred in respect of employees of the foreign companies. The Ld. DR submitted that the travelling expenditure which was borne by the appellant was not incurred by the assessee's own employees but by the employees of its group companies and therefore assessee had no locus to incur the expenditure and the assessee also failed to establish the business purpose which was served by incurring such expenditure in respect of visits undertaken by employees of the foreign company. 9. Per contra the Ld. AR of the appellant fully relied on the order of the Ld. CIT(A). He submitted that the senior employees of DIC Japan had visited the manufacturing sites of the assessee at assesseee's request and as a result of these visits, assessee had received useful advice for improving its business operations. The Ld. AR further submitted that it was wholly at the discretion of the assessee to decide as to the terms on which it could deal with its foreign associates and the AO could not decide the issue of allowability of the expenditure from ....
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....30/-. According to the assessee the electrical installations were situated at the factory premises and installed to enable the operations of the plant & machinery installed at various factory premises and therefore constituted integral part of 'plant & machinery' block. The AO however held that the electrical installations did not form part of 'plant & machinery' block but these were in the nature of 'furniture & fixtures' qualifying for lower depreciation rate of 10%. The AO also disallowed the assessee's claim for additional depreciation in respect of electrical installations added during the relevant year. On appeal the Ld. CIT(A) allowed the relief on appreciation of the facts and evidences brought on record and also having regard to the nature of assets and the places at which these electrical installations were commissioned. The Ld. CIT(A) also adverted to the judgments of the Hon'ble Punjab & Haryana High Court in the cases of CIT vsOswalWollen Mills Ltd (289 ITR 261), CIT VsMetalman Auto Pvt Ltd (11 taxmann.com 51) and CIT VsSubrataDuttaChoudhury (197 Taxman 71) and recorded the following findings : "From the details of the additions made, I find that the appell....
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....d that the same issue came up for consideration before the Tribunal in assessee's own case for the AY 2012-13 in ITA No. 552/Kol/2017. He submitted that in that year also, applying the same analogy the AO similarly re-computed the depreciation allowance in respect of additions of electrical installations and also disallowed the assessee's claim for additional depreciation u/s 32(1)(iia) of the Act. On appeal the DRP had set aside this issue to the file of the AO with the following directions: "Findings: Ground No. 13 was also carefully considered by us. The arguments were also taken into account by us. It was noted by us that additional depreciation was claimed by the A' on multi gas detector model selection model - PGM-6228 & 12KL GD Storage Tank. The said object cannot be regarded by us as an office equipment or furniture. The AO shall verify from records whether additional depreciation is pressed against the above plant or against some office equipment. If it is in respect of the former the claim shall be allowed." 13. Since the directions of the DRP were not acted upon, the matter was taken up in appeal before the Tribunal. The coordinate Bench of this Tribunal in i....
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....e us. 15. We have heard the rival parties and carefully perused the material on record. It is noted that the assessee company belongs to the DIC Corporation Group of Japan which is its ultimate holding company. The assessee company is engaged in the business of manufacture of printing inks. The printings inks are mixtures of pigments and chemical additives. In order to manufacture specialized printing inks, the assessee has entered into two technical collaboration agreements with M/s DIC Corporation, Japan ('DIC') and DIC Asia Pacific Pte Ltd, Singapore ('DICAP). In terms of the agreement with DICAP, the assessee company was licensed intangibles which consisted of technical information concerning manufacturing, formulation and application along with plant designs, production process, quality control etc. in relation to manufacture of offset inks, gravure inks, web offset inks, conventional black and color inks, varnishes of all types including flush varnish, metal decorating inks, adhesives including packaging adhesives. The assessee has also been granted limited right to use the trademarks and brand names vis-à-vis such products. The assessee is permitted to non-exclusiv....
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....database. After carrying out a detailed search on this database, seven comparable agreements were identified involving licensing of technical information, trademarks and brand names and where the consideration in form of royalty was paid as a percentage of sales. The mean rate of royalty paid under the comparable agreements was worked out at 8.55% and hence the royalty payments to the AEs were reported to be at arm's length. 18. The Ld. DR submitted that the benchmarking exercise conducted by the assessee was not appropriate and he relied upon the order of the TPO. He submitted that the royalty rates notified by the SIA / FIPB in respect of technical collaboration agreements under the automatic route was only an indicator and therefore could not be taken as a benchmark to arrive at the ALP of the transaction in question. He further submitted that the assessee never submitted the details of the search process conducted in the Royalty Stat Database before the TPO and therefore the TPO was justified in rejecting the application of CUP Method. He submitted that the Ld. CIT(A) was unjustified in benchmarking the royalty transaction himself instead of setting it aside to the file o....
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....that payment was in excess of ALP. 20. After giving a thoughtful consideration to the rival submissions of the parties; we find merit in the contentions of the Ld. AR of the appellant. We note that the agreements in terms of which royalty was paid to AEs were in force in the past years as well. The technical collaboration agreement with DIC, which was entered into in the year 2000, was originally approved by the Dept. of Industrial Policy & Promotion, Ministry of Commerce & Industry. The same agreement was renewed in 2007 in terms of which royalty was consistently paid at the rate of 3% of the net sales. Similarly the technical collaboration agreement with DICAP under which royalty was paid at 2% of the net sales was entered into in the year 2008. The income-tax assessments of the assessee for the preceding years were completed u/s 143(3) after obtaining orders u/s 92CA(3) from the TPO. We note that in none of the past assessments the TPOs had questioned the ALP of royalty payments nor any material was brought on record in these orders to suggest that the payment of royalty was excessive. We therefore find force in the submissions of the Ld. AR that on the principle of jud....
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....ng to principle of consistency, which have been pointed out by the assessee is that on the same facts and circumstances of the case, no ALP adjustments were directed by the Ld TPO in respect of international transactions involving payments made by the assessee under the Cost Contribution Agreement (CCA) for receiving purchase services, order handling services and sales services for last three assessment years i.e. AY 2009-10, AY 2010-11 and AY 2011-12. Though there was no change in the facts and circumstances of the case for the previous year relevant to the assessment year 2012-13, the TPO/DRP determined the arm's length price of the said transactions at NIL value thereby violating the rule of consistency enunciated by the Hon'ble Supreme Court in the matter of Dalmia Promoters &Devels. (P.) Ltd. (supra). In the aforesaid decision, the Hon'ble Supreme Court has held that: "We are not going into this issue in as much as this appeal can be disposed of on the ground that consistency does demand that there being no change in circumstances, the income for the year 1993-94 would also have to be treated business income as for the previous three years. Accord....
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.... this score." 22. We also take note of the fact that the rates at which the royalty was paid was pursuant to the agreement approved by the Dept. of Industrial Policy & Promotion, Ministry of Commerce & Industry. Such rates were also within the rates prescribed by SIA & FIPB in respect of the technical collaboration agreements between residents of India and the nonresidents under the automatic route i.e. 5% & 8% in respect of domestic sales & export sales respectively. In view of the foregoing facts we hold that the rate of royalty adopted by the assessee for making royalty payments were within the prescribed parameters and therefore at arm's length. In the circumstances therefore we do not find any infirmity in the Ld. CIT(A)'s order in granting relief. In this regard, we find support from the decision of the coordinate Bench of this Tribunal in the case of ACIT Vs Dow Agrosciences India Pvt Ltd (76 taxmann.com 124) wherein on analogous facts the Tribunal had held as follows: "7.1 In order to appreciate the aforesaid, the following discussion is relevant. The royalty paid by the assessee to its associated enterprise i.e. Dow Netherlands has been approved by the Secretar....
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....hat the comparable transaction adopted by the Transfer Pricing Officer i.e. payment of royalty by Dow UK to Dow Netherlands was a wrong approach inasmuch as comparison could be made only with an uncontrolled transaction, whereas in the case of Dow UK and Dow Netherlands, both were associate enterprises and, therefore, payment of royalty by DOW UK to DOW Netherlands was a controlled transaction and accordingly, the same could not be considered as a valid CUP data. In so far as the latter plea of adoption of controlled transaction was concerned, the CIT(A) in assessment year 2002-03 has accepted the plea of the assessee. However, with regard to the plea of the assessee based on the rate of royalty approved by the Central Government is concerned, the CIT(A) rejected the same as according to him, such rates could not be considered as valid CUP data. The CIT(A) had however, allowed relief by benchmarking royalty payment under the TNMM whereby, the margins from the manufacturing activities of the assessee were found to be favourable vis-à-vis those of the comparables concerns. The Tribunal in assessment year 2003-04 upheld the ultimate conclusion of the CIT(A) to delete the additi....
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....he basis of aforesaid it is canvassed that the royalties paid by the assessee are in terms of the approval granted by SIA as also in terms of Circular No.5 dated 21/7/2003 (supra) of the Reserve Bank of India and, therefore, the royalties paid @ 8% on export and 5% on domestic sales are to be considered at arm's length rate. 7.4 Although the Ld. Departmental Representative did not dispute the factual matrix, but he has merely relied upon the order of the TPO in support of the case of the Revenue. 7.5 In our considered opinion, following the judgment of the Hon'ble Bombay High Court in the case of SGS India Ltd. (supra), the payment of royalty by the assessee to its associated enterprise, Dow Netherlands @ 5% on domestic sales and 8% on export sales is liable to be considered as at an arm's length rate in view of the Circular No.5 dated 21/7/2003 (supra). Therefore, the addition made by the Assessing Officer on this count is unsustainable. In the ultimate analysis, we uphold the action of the CIT(A) in deleting the addition, albeit, on a different ground." 23. Similar view has been endorsed by another coordinate Bench of this Tribunal in the case of ....
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....tment made by the TPO in respect of royalty payments. Ground No. 5(i) & (ii) of the Revenue's appeal therefore stand dismissed. 25. Now we proceed to deal with the issue concerning the adjustment made by the TPO in respect of international transactions involving purchase/sale of materials/goods. Briefly stated facts of the case are that the assessee had benchmarked the transactions involving purchase of finished goods applying Resale Price Method ('RPM') and the transactions involving import of raw materials and export of finished goods by applying Transactional Net Margin Method ('TNMM'). For applying the TNMM, the assessee conducted a search and thereafter identified seven comparables whose mean PLI, being OP/OR worked out to 5.74%. The assessee was taken as the tested party and its PLI was worked out at 5.33%. Since the PLI fell within the range of +/-5% prescribed in the proviso to Section 92C; the transaction was reported in the TPSR to be at arm's length. The TPO rejected the application of RPM vis-à-vis the import of finished goods in absence of reliable data and sought to benchmark it under TNMM Method. The TPO also did not fully agree with the benchmarking exe....
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....in was to be considered as part of the 'operating revenue' to arrive at the correct PLI of the tested party. The Ld. CIT(A) also agreed with the TPO's broader product comparability search of manufacture of specialty chemicals including printing inks as opposed to the appellant's claim for considering companies only engaged in manufacture of printing inks. He however noted that some of the comparables adopted by the TPO as well as the assessee were not functionally similar even under this broader product comparability test. After analyzing the functional profile of each of the comparable; the Ld.CIT(A) identified seven companies, which in his opinion fitted the broader product comparability and rejected companies which according to the Ld. CIT(A) did not fit even in the broader functional comparability. With these findings, the Ld. CIT(A) directed the AO to re-work the transfer pricing adjustment in the facts of the present case. Aggrieved by this order of the Ld. CIT(A), the Revenue is in appeal before us only on two specific issues; (a) whether foreign exchange gain can be considered to be operating income and (b) whether the Ld. CIT(A) was justified in adopting exact product c....
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....companies engaged in manufacture of specialty chemicals inter alia including printing inks is accepted at its face value, even then the facts demonstrated that the assessee's transactions with AEs involving import of material and import & export of finished goods were on arm's length requiring no transfer pricing adjustment. In this regard he drew our attention to the order passed by the TPO while giving effect to the Ld. CIT(A)'s order wherein the TPO worked out mean PLI of the comparables at 4.11% whereas the PLI of the assessee was 5.51%. He therefore urged that the order of the Ld. CIT(A) on this issue be upheld. 29. After hearing the submissions of the rival parties; we do not see any merit in the Ld. DR's submission that the entire issue should be restored to the file of TPO for consideration afresh because the Ld. DR could not pin point any glaring factual mistake or legal infirmity in the Ld. CIT(A)'s findings nor any fresh material was brought to our attention on the basis of which we could be persuaded to hold that the entire issue needs to be de novo examined by the TPO.We note that the specific grievance raised in this grounds of the Revenue is that the Ld. CIT(A) ha....
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.... even after following the broader approach as advocated by the Ld. CIT(A)and by taking into account functionally comparable companies engaged in manufacture of specialty chemicals, found the PLI of the tested party i.e. the assessee to be at arm's length. In this regard, we further note that even the Ld. DRP, Delhi while adjudicating the assessee's objections to transfer pricing adjustments carried out by the TPO in the immediately succeeding year i.e. AY 2012-13, in-principle upheld the inclusion of only those broadly comparable companies which were engaged in manufacture of specialty chemicals, in the list of comparables. Therefore in our considered opinion and having regard to the facts of the case, the approach of the Ld. CIT(A) in considering companies found to be functionally comparable under the broad segment of specialty chemicals cannot be faulted with. 31. Based on the reasons as discussed in the foregoing, we now proceed to examine the reasons as to why in the impugned order the Ld. CIT(A) rejected the comparables selected by the TPO /Assessee under the broader functional comparability criteria. - M/s Akzo Nobel Chemicals India Ltd : The Ld. CIT(A) noted that....
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....laboration agreements with its holding company, M/s DIC Asia Pacific Pte Ltd and ultimate holding company, M/s DIC Corporation, Japan holding it to be capital in nature. At the outset the Ld. AR of the appellant pointed out that the royalty payments were made to these entities, pursuant to the agreements executed in the years 2000 & 2007 respectively and in all the past income-tax assessments, framed u/s 143(3), royalty paid as a specified percentage of the net sales was allowed as revenue deduction in computing business income of the respective years. The Ld. AR further submitted that in the assessment order for AY 2010-11 also the AO had allowed the deduction for royalty payment in the assessment completed u/s 143(3). Consequent to passing of the order u/s 143(3) for the relevant AY 2011-12, an order u/s 263 was passed by the Ld. Pr.CIT-4, Kolkata for AY 2010-11 holding that the assessment order was erroneous and prejudicial to the interests of the Revenue because the royalty paid to these two entities under the same technical collaboration agreements was liable to be disallowed on the ground of being capital in nature. Being aggrieved, the matter was taken up before this Tribuna....
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.... have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find Coates of India Limited was the erstwhile name of DIC India Limited (assessee herein) . We find from the technical collaboration agreement entered into between assessee and DIC Corporation, Japan on 5.12.2000 that assessee is engaged in the business of manufacturing of printing inks and allied products in India in its various factories located at Calcutta, Delhi, Mumbai, Chennai, Noida and Ahmedabad. The assessee was desirous of upgrading its overall technology and introduction of new technology for manufacturing printing inks and allied products of all types viz., manufacturing of flushed pigments, sheetfed offset inks, gravure inks, web offset inks, news inks, screen printing inks, varnishes of all types including flush varnish, adhesives including packaging adhesives on a continuous basis. The assessee had approached DIC Japan to make available to it the said technical knowhow for the purpose of upgrading its manufacturing technology for the existing as well as future products relating printing inks and allied products on a continuous basis in i....
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....nsactions. ...................................... 7. SECRECY 7.1. COATES agree to keep the Licensed Information provided hereunder by DIC as secret and confidential and agrees not to disclose it to any third party provided that the information of the following nature shall be excluded from these secrecy obligations: a. Information that is in public domain. b. Information that COATES has in its possession at the effective date which is not subject to an Agreement of Confidentiality. c. Information which COATES has received rightfully from other sources before or after at the effective date. 7.2. The obligation under this article shall survive any termination of this Agreement for ten (10) years. 9. Period of Agreement 9.1. The Agreement will remain in force for 7 years from the effective date, provided that DIC, directly or indirectly owns more than fifty (50) percent of the shares of COATES. 9.2 One (1) year prior to the expiration of this Agreement, the parties shall meet and shall decide jointly either to renew this Agreement for the further period for five (5) years at the expiration of thi....
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....btained for a period of seven years by the assessee and hence there cannot be any question of acquisition of such licensed information by the assessee. We have gone through the agreement entered into between the assessee and DIC Asia Paciftc Pte Ltd, Singapore and DIC Corporation, Japan and we find that nowhere it was mentioned that the assessee had acquired the business/ commercial rights of IPR so as to fall within the ambit of an asset having enduring nature in the capital field. On the contrary it is very clearly stated in both the agreements that DIC Asia Paciftc Pte Ltd, Singapore and DIC Corporation, Japan has granted license to use technology, knowhow and other license information for a specified period and hence it cannot be said that the assessee had acquired any business / commercial rights thereon. We find that the ld. CIT had persuaded himself to incorrect assumption of facts that assessee by using the licensed information obtained from DIC Asia Pacific Pte Ltd, Singapore and DIC Corporation, Japan had upgraded its P&M and also changed the setting up of P&M to make its finished products viable for the market. This assumption is factually incorrect and does not emanate ....
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....ment, The technical know-how trade-marks denies drawings. notes etc. in respect of the agreement for which the assessee has paid the royalty belongs to the licensor being M/s. Wolverine World Wide, INC. Thus as the assessee has derived no enduring benefit the same cannot be treated as a capital expenditure but is clearly in the name of revenue expenditure and allowable. In the circumstances the AO is directed to allow the royalty paid by the assessee as revenue expenditure as claimed. 11. The Tribunal also placed reliance on the decision of the Hon'ble Calcutta High Court in the case of Timken India Ltd. (2014) 51 Taxman 184 (Cal) in which the Hon'ble Calcutta High Court took the following view: '10. We have considered the rival submissions of the learned advocates for the parties. The submissions advanced by Ms. Gutgutia are no doubt meritorious and certainly represent one way of looking at the things. Sight cannot however be lost of the fact that the payment made by the assessee is on account of licence fee. By making such payment, the assessee has got a permission use technology. The money paid is irrecoverable. In case the business of the assessee for some rea....
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....third parties or make available any licensed information to any third parties and is also directed to maintain the secrecy and confidentiality or the licensed information by not disclosing to any third party and such secrecy & confidentiality clause shall be binding even after termination of the agreement for ten years. Hence it is a restrictive usage privilege given to the assessee in the instant case and hence the facts before the Hon'ble Madras High Court are squarely distinguishable." 13. In view of the aforesaid decision on the same facts, we are of the view that the claim for deduction as made by the assessee ought to have been allowed by the revenue authorities. 14. The ld. DR submitted that the order of the tribunal relied upon by the ld. Counsel needs a re-look because the decision of the Hon'ble Madras High Court in the case of CIT vs Southern Switchgear Ltd had not been appreciated. He further submitted that a new advantage and acquisition of capital asset by the assessee existed in the present case. The assessee had enduring benefit and has functionally gained advantage and these facts ought to have prompted the tribunal to come to a conclusion....