TaxTMI 
TaxTMI 
2020 (3) TMI 1200
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....liable to be quashed. 2. The learned Assessing Officer has erred in making a reference to Transfer Pricing Officer for determining arm's length price without demonstrating as to why it was necessary and expedient to do so. 'Ihe Honorable DRP has erred in confirming the action of the Assessing officer. 3. The lower authorities have erred in: a. Making transfer pricing adjustment ofRs. 110,31,43,825/-. b. Passing the order without demonstrating that the Appellant had motive of tax evasion. c. Not appreciating that there is no amendment to the definition of "income" and the charging or computation provision relating to income under the head "Profits & Gains of Business or Profession" do not refer to or include the amounts computed under Chapter X and therefore addition made under Chapter X is bad in law. d. Not appreciating that there being no disallowance under section 40A(2) for royalty payment and advertisement expenses, adjustment under Chapter X ought not to be made. e. Passing the orders without considering all the submissions and/or without appreciating properly the facts and circumstances of the case and th....
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....ransfer of technology; and b. Technology for Etios was received during the year whereas technology for other existing vehicles had been received in the earlier years. 8. The lower authorities have erred in: a. Rejecting external CUP transaction on unjustified grounds; b. Ignoring the fact that the ratio of R&D expenses of TMC was much higher than the effective royalty rate of the Appellant; c. Ignoring the fact that the Technical Assistance Agreements were approved by government authorities and therefore royalty payment should be considered as at arm's length; and d. Ignoring the fact that, the learned CIT(A) and DRP have accepted both factum as well as quantum of royalty as at arm's length for the preceding assessment years; 9. Without prejudice to above, the lower authorities have erred in: a. Adopting inconsistent denominator while calculating arm's length price; b. Adopting ratio of royalty and R&D expenditure to net sales in the case of comparables vis-å-vis that of royalty to Local Value Addition (LVA) instead of net sales in the case of the Appellant; c. Not appreciati....
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....lding that employee long term service benefit liability has not crystallized nor has accrued; and d. Disregarding actuarial valuation undertaken for quantifying the provisions in accordance with Commercial and Accounting practices and principles; 13. Levying a sum of Rs. 12,90,48,749/- as interest under section 234B On the facts and in the circumstances of the case, interest under section 234B is excessive. The Appellant denies its liability to pay the excessive interest. Brief facts of the case are as under: 2. Assessee is a company and a subsidiary of Toyota Motor Corporation, Japan. It is in the business of manufacture and selling Multi Utility Vehicles under the model name Innova(tm), Fortune(tm) passenger car under the model name Corolla(tm). For year under consideration assessee filed its return of income on 29/11/2011, which was subsequently revised on 04/01/2013 declaring income of Rs. 2,48,57,41,829/-. In the course of assessment proceedings, Ld.AO noticed that, assessee entered into following international transaction with its associated enterprises during the year under consideration. Particulars Amount Purchase of parts and components ....
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....ment towards sales promotion, advertisement, travelling, software expenses, research and development, training and business promotion-CU P/TNMM as per the reply received from track taxpayer * Reimbursement of expenses received-aggregated at the segmental level under TNMM * Manufacturing-TNMM at the segmental level * Trading-TNMM at the segmental level 5. On segregating transactions into various segments, Ld.TPO observed that, transactions pertaining to purchase of spare parts and components and sale of parts and components in manufacturing segment, technical support fee paid to AE, purchase of intangibles were at arm's length. Only disputed segment to which adjustments were proposed was Trading segment, Manufacturing segment and Payment of Royalty.Ld.TPO issued notice dated 20/08/2014 and 29/12/2014 to examine arm's length nature of royalty payment, wherein various details like copies of agreements nature and complete description of intangibles transferred or licensed to assessee etc were called for. 6. On the basis of various submissions made by assessee, it was held by Ld. TPO that, royalty rate of 5% paid by assessee was disproportionately high a....
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....ate the said claim. So, no credence can be given to the same. Assessee has claimed that CIT (A) and DRP have accepted both fact as well as quantum of royalty as at arm's length for the preceding assessment years. However, this claim is also not correct. For AY 2005-06 the CIT (A) had directed TPO to determined ALP of royalty payments asked TPO had failed to do so. For AY 2008-09 and AY 2009- 10 DRP decided in favour of assessee as the TPO had failed to determined ALP of royalty payment in case of assessee as per provisions of the act and simply adopted ALP at nil by holding that assessee had not got any economic benefit by paying the same. Assessee's claim that royalty paid by it should be treated at arm's length as the technical assistant agreements were approved by government authorities also does not carry any weight as approval by the governmental authorities does not prevent TPO from examining the ALP as per the provisions of the act. Considering all these aspects, the objections of assessee cannot be accepted." 7. As regards adjustment in respect of advertisements proposed by Ld. TPO, DRP upheld Ld. TPO's view by holding that assessee has not provided any evidence in suppo....
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....individually, these transactions could be evaluated together using the most appropriate method. The relevant observations relied by Ld.AR are extracted herein below: "However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis. Examples may include 1. some long-term contracts for the supply of commodities or services, 2. rights to use intangible property, and 3. pricing a range of closely-linked products (e.g. in a product line) when it is impractical to determine pricing for each individual product or transaction. Another example would be the licensing or manufacturing know-how and the supply or vital components to an associated manufacturer,' it may be more reasonable to assess the arm's length terms {or the two items together rather than individually. Such transactions should be evaluated together using the most appropriate arm's length method or methods". (Emphasis supplied) 10. He submitted that, decisions relied upon by Ld. TPO in case of UCB India (P.) Ltd. (supra) are applicable only when activities clubbed are dissimilar or are not closely linked,....
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....nterlinked with each other and as a combined transaction. 13. In respect of addition made to royalty, it is observed that, this transaction was also considered to be interlinked with trading and manufacturing segment. However, Ld.AR do not object to it being considered separately in view of observations by this Tribunal in assessee's own case in preceding assessment years (supra). The Ld. AR submitted that, in preceding assessment years, Ld.TPO considered ALP of transaction to be at 'nil', whereas there is a slight departure in the method of computing ALP, for year under consideration. He submitted that, during the year under consideration, Ld.TPO on an ad hoc basis computed adjustment in respect of royalty paid by assessee to its AE at 2%. 14. He submitted that, on the basis of comparables which was submitted before Ld.TPO and accepted order u/s 92 CA, payment made by assessee to its AE is at arm's length independently. He submitted that, average margin of comparables referred to in Ld.TPO's order is 1.92% whereas assessee has paid Royalty at 5%. It was submitted that, as assessee's margin is more than comparables the transaction is at arm's length. He also submitted that, t....