TaxTMI 
TaxTMI 
2020 (5) TMI 305
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....otective basis. Adjustment made on substantive basis and (Payment of royalty and product development fees) 3. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily applying benefit test and Comparable Uncontrolled Price (" CUP") method to benchmark the ALP of royalty and product development payments as Nil, without appreciating that the Hon'ble Tribunal in Appellant' s own case for AY 2013-14 and AY 2014 - 15, has rejected the said approach. 4. That on the facts and circumstances of the case and in law the AO / DRP / TPO erred in arbitrarily holding that the Appellant has not demonstrated any benefit received on account of royalty and product development services fees paid to Associated enterprises ("AE"). 5. That on the facts and circumstances of the case and in law, the AO / DRP / TPO while determining the ALP of royalty and product development payments as Nil, alleged that the effective royalty payments to the AEs amounted to 7.2% by taking into consideration certain irrelevant expenses without appreciating that the below mentioned expenses had no nexus to the royalty / product development ....
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....ees. Adjustment made on protective basis (Comparability analysis) 13. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily rejecting 1 comparable company selected by the Appellant in its transfer pricing documentation for benchmarking the manufacturing segment without any valid and cogent reasons. 14. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily selecting certain additional comparable companies for determining arm' s length price of the manufacturing segment. 15. That on the facts and circumstances of the case and in law, the AO / TPO erred in rejecting the alternative approach to consider PBDIT / Sales as the Profit Level Indicator. Further, the DRP erred in summarily rejecting the alternate the alternate approach. 16. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in rejecting adjustment sought on under-utilization of capacity without taking cognizance of the fact that the Appellant was operating at different level of capacity as compared to comparables and hence economic adjustment for the dif....
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....iness as that of the assessee. The ld. DRP vide order dated 27.08.2019 has not interfered on the issue of royalty and product development fees and directed that adjustments should be computed on the transactions carried with AE only. Thus, after restricting the transactions carried with the AE, the adjustment in the manufacturing segment on protective basis has been tapered down to Rs. 186,28, 342/- from Rs. 746,67,093 /-. 5. The assessee is in appeal before us on the issue of royalty payment as well as the adjustment in the manufacturing segment. Royalty Payment: 6. The assessee entered into holding company for grant of rights to use the trademarks and to manufacture products which are under ITR. The assessee's contention is that the agreement is not limited to the drawings but also applicable to designs, product standards, quality control and engineering & testing data too. It was contended that it is a running royalty paid by the assessee to Nissin Kogyo for the products manufactured, procured and sold by the assessee @ 3% of the value added. The basic issue of payment of royalty at the rate of 3% was objected by the revenue on the grounds that it is only an arrangement....
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....ent company on behalf of the assessee company. The agreement, calculation of product development fees and the invoices raised by the AE have been a part of the paper book which have been duly perused. 12. The facts reveal that the revenue has accepted the assessee' s contention for the assessment years 2009-10 and 2010-11. The Tribunal and the Hon'ble Jurisdictional High Court held that TNMM be the most appropriate method for benchmarking the transaction. 13. Hence, keeping in view the judgment of the Hon' ble Jurisdictional High Court, we hereby direct the revenue to determine adjustments considering the TNMM as the most appropriate method. The appeal of the assessee on this ground is treated as allowed. Adjustment on Protective Basis: 14. At the outset, we hold that protective adjustment and substantive adjustment for the same assessee are not required to be done by the revenue. Protective and substantive adjustments are resorted when there is lack of clarity owing to peculiar circumstances which are equal applicable to two different assessees pertaining to the same taxable income and the matter needs to be put at rest at level of revenue authorities. 15. Since, th....
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....for last 3 years. Before DRP the assessee did not object to this filter and accordingly Hon'ble DRP held that the same has been rightly rejected. Accordingly, it is requested that this comparable may kindly not be considered for inclusion under TNMM." 18. The entities are examined as to their relevance and comparability. 1. Admach Auto India Ltd.: The comparable manufactures sheet metal components against the brake system manufactured by the assessee company. As per Rule 10TA( b) and Rule 10TA(h) of the Income Tax Rules, 1962, a separate definitions have been laid down for core auto components and non-core auto components. As per Rule 10TA( b)(3), the core auto components means, suspension breaking parts including brake and brake assemblies, brake lining, shock absorbers and leaf springs and Rules 10TA(h) defines " non-core components" means auto components other than core auto components. Since, the business of the assessee is " core auto components", we hold that it cannot be compared with an entity which is in the business of " non- core auto components". This comparable cannot be considered for the study. 2. ASK Automotive Pvt. Ltd.: The turnover of the company is R....