TaxTMI 
TaxTMI 
2020 (6) TMI 49
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the total income of the Appellant by holding that the international transaction relating to the export of goods entered into by the Appellant with its Associated Enterprise ("AE") was not at arm's length. 1:2 The learned AO/TPO/DRP erred in rejecting Transactional Net Margin Method ("TNMM") which was determined by the Appellant as the most appropriate method as per provisions of section 92C(1) of the Act. 1:3 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the international transaction relating to export of goods entered into by the Appellant with its AE was at arm's length and hence no adjustment in respect thereof was called for and the stand taken by the learned AO/TPO/DRP in this regard is misconceived, erroneous and incorrect. 1:4 The Appellant submits that the learned AO be directed to delete the upward adjustment of INR 112,079,641/- made by him to the Appellant's total income and to re-compute its total income and tax liability accordingly. 2 : 0 Transfer Pricing Adjustment of INR 1.20.969/- to the international transaction relating to Corporate Guarantee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Aggrieved, the assessee is under further appeal before us. The assessee is stated to be engaged in the field of Natural APIs and Novel delivery systems for nutrients and active ingredients. The assessee has established an international reputation for its range of active natural ingredients for healthcare, food and personal care applications. 1.3 The perusal of material on record would reveal that a draft assessment order was passed by Ld. AO on 28/12/2017 pursuant to the order of Ld. Transfer Pricing Officer-3(1)(1), Mumbai (TPO) dated 27/10/2017. The assessee preferred objections against the same before Ld. DRP which were disposed-off vide directions dated 24/09/2018. Pursuant to the said directions, final assessment order was passed on 17/10/2018 incorporating the proposed adjustments / disallowances. Against this order, the assessee is under appeal before us. 1.4 We have carefully heard the arguments advanced by both the representatives and perused relevant material on record. The Ld. Authorized Representative for Assessee (AR), placed on record ground-wise chart to submit that substantial issues are covered by the earlier order of the Tribunal in assessee's own case. The....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tabulated and confronted to the assessee. The amount less charged from AE segment was quantified at Rs. 1120.79 Lacs. 3.2 Although the assessee defended the benchmarking and relied upon various judicial pronouncements in support of the same. However, it could not find favor with Ld. TPO who proposed an adjustment of Rs. 1120.79 Lacs on these transactions. The assessee, in its reply, also submitted corroborative benchmarking considering OHTI as tested party and submitted that the margin of its AE was merely 1.40% as against assessee's margin of 22.05% in AE segment. In the alternative, the assessee submitted that as per CUP, the correct computations would work out to be Rs. 835.43 Lacs. However, rejecting TNMM and adopting CUP as Most appropriate method (MAM), Ld. TPO proposed an adjustment of Rs. 1120.79 Lacs. It was noted by Ld. TPO that similar methodology of benchmarking was adopted in AYs 2012-13 & 2013-14 which was upheld by Ld. DRP. 3.3 Before Ld. DRP, the attention was drawn to the favorable order of Tribunal for AYs 2012-13 & 2013-14 wherein it was held that there was no justification in rejecting TNMM method. However, Ld. DRP, to keep the issue alive, chose to confir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e DRP when it held that it was of the opinion that when internal CUP is easily available, the TNMM is to be treated as method of last resort. 28. From the above discussion, we find that the Transfer Pricing Officer has rejected the consistently applied TNMM method without bringing on record any cogent reason. It is the settled law that the consistent method followed can be changed only if there is a change of facts or law. There are various decisions of Hon'ble Apex Court in this regard including that from Radhasoami Satsang (supra). In the present case, there is no case that there is a change of law or there is a change in fact. It is also not the case that TNMM method which has been consistently applied in past was totally wrong method. In this regard, we may gainfully refer to the relevant provisions contended by the Transfer Pricing Officer as under: "i. 92C Computation of arm's length price 2) The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated per....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in subclause (i) is establis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssue on the basis of TNMM method. He has ordered for updated data of comparable. Thereafter, when even on the basis of updated data, the international transaction was found to be at arm's length, he laconically held that CUP method would be preferred. The DRP had summarily upheld the change from TNMM to CUP method without assigning any cogent reason whatsoever. By no means it is justified to keep on finding a method for addition by trial and error method. Accordingly, on the anvil of aforesaid Hon'ble Apex Court's decision as discussed hereinabove, we hold that there was no justification in rejecting the TNMM method applied by the assessee as in the preceding year. Since as per the same computation the assessee's margin was found to be at arm's length, we set aside the order of authorities below and decide the issue in favour of the assessee. Since we have already allowed the assessee's appeal on this issue, for lack of justification in changing the method of bench marking we are not dealing with the arguments on other aspects of merits of application of CUP method computation of arms length price by the Transfer Pricing Officer in this case. The case law referred by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in further appeal before us. 4.3 In the meantime, the assessee, vide rectification letter dated 02/11/2018 raised a plea that the ground of objection that adjustment was to be made only with respect of the amount of actual loan availed by the AE during the year, was not disposed-off by Ld. DRP. However, Ld. DRP, vide order dated 29/03/2019, rejected the said plea since the same could not be termed as matter of rectification under Rule 13 of Income Tax (Dispute Resolution Panel) Rules, 2009. Aggrieved as aforesaid, the assessee is under further appeal before us. 4.4 Upon, perusal of cited order of Tribunal for AYs 2012-13 & 2013-14, we find that the stand of Ld. DRP qua Corporate Guarantee has been confirmed vide para 35 of the order. Similar facts exist in this year. Therefore, no infirmity could be found in the order of lower authorities, on this issue. The rate of 1.25% would apply to gross amount of guarantee given by the assessee and not on the actual loan availed by AE as held in Mumbai Tribunal in Laqshya Media Pvt. Ltd. (ITA No.500/Mum/2015 04/01/2017). Accordingly, this ground stand dismissed. Corporate Adjustment 5.1 The assessee claimed deduction u/s 35(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utation of business income under section 35 of the Act, expenditure on scientific research is to be allowed on fulfillment of certain conditions which are enlisted in the said section. Under various sub-sections of section 35 of the Act, the conditions and the allowability of expenditure vary. Sub-section (1) to section 35 of the Act deals with expenditure on scientific research, not being in the nature of capital expenditure, is to be allowed to research association, university, college or other institution; for which an application in the prescribed form and manner is to be made to the Central Government for the purpose of grant of approval or continuation thereto. Before granting the approval, the prescribed authority has to satisfy itself about the genuineness of activities and make enquiries in this regard. Under sub-section (2B) to section 35 of the Act, a company engaged in the specified business as laid there on, if it incurs expenditure on scientific research or in-house Research & Development facility also needs to be approved by the prescribed authority, is entitled to deduction, provided the same is approved by the prescribed authority. 39. Now, coming to sub-s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the approval of in-house R & D facility in form No.3CL to the DG (Income-tax Exemption) within sixty days of its granting approval. Under clause (c), the company at the relevant time had to maintain separate accounts for each approved facility, which had to be audited annually. Clause (b) to sub-rule (7A) has been substituted by IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016, under which the prescribed authority has to furnish electronically its report (i) in relation to approval of in-house R & D facility in part A of form No.3CL and (ii) quantifying the expenditure incurred on in-house R & D facility by the company during the previous year and eligible for weighted deduction under sub-section 2AB of section 35 of the Act in part B of form No.3CL. In other words the quantification of expenditure has been prescribed vide IT (Tenth Amendment) Rules, 2016 w.e.f. 01.07.2016. Prior to this amendment, no such power was with DSIR i.e. after approval of facility. 41. Under the amended provisions, beside maintaining separate accounts of R & D facility, copy of audited accounts have to be submitted to the prescribed authority. These amendments to rules 6 and 7a are w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted deduction on expenditure so incurred by the assessee for development of facility. The Tribunal has also considered r. 6(5A) and Form No. 3CM and come to the conclusion that a plain and harmonious reading of Rule and Form clearly suggests that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided by s. 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R&D facility in India, the legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated to be promoted was development of facility, intention of the legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on development of facility, if approved, has to be allowed for the purpose of weighted deduction. 10. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. 46. The Courts have held that for deduction under section 35(2AB) of the Act, first step was the recognition of facility by the prescribed authority and entering an agreement between the facility and the prescribed authority. Once such an agreement has been executed, under which recognition has been given to the facility, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....precedented and beyond the control of any human being. The situation, thus created by this pandemic, could never be termed as ordinary circumstances and would warrant exclusion of lockdown period for the purpose of aforesaid rule governing the pronouncement of the order. Accordingly, the order is being pronounced now after the re-opening of the offices. 6.3 Faced with similar facts and circumstances, the co-ordinate bench of this Tribunal comprising-off of Hon'ble President and Hon'ble Vice President, in its recent decision titled as DCIT V/s JSW Limited (ITA Nos. 6264 & 6103/Mum/2018) order dated 14/05/2020 held as under: - 7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners: - (a) The Be....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the prevailing situation in the country. On 24th March, 2020, Hon'ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon'ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that "In case the limita....