2021 (1) TMI 238

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....nd are being disposed of by this common order, for the sake of convenience. 2. The grounds of appeal urged by the assessee in all the three years relate to the following two issues:- (a) Transfer pricing adjustment made in respect of royalty payment. (b) Re-computation of deduction allowable u/s 10A of the Act. 3. The assessee company is engaged in the business of manufacture, sale and service of medical diagnostic equipments and accessories. It is also engaged in software development and trading in various products. 4. This is second round of proceedings for all the three years under consideration. The first issue relates to the addition made on account of transfer pricing adjustment made in respect of royalty payment. In the first ....

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....d the ALP of the trading segment. Accordingly no separate addition was made towards payment of royalty. The Ld CIT(A), however, upheld the order of the TPO. 6. We heard the parties on this issue and perused the record. We notice that co-ordinate bench of ITAT has given following directions to the AO in AY 2005-06 in IT(TP)A No.40/Bang/2011 dated 21.04.2017:- " 16. Ground No.9 is regarding payment of royalty. The assessee has paid the royalty to its AE @ 2% on sale. The Assessing Officer / TPO held that none of the comparable company has paid royalty for trading segment. The TPO/A.O. has considered the case of AMDL and held that when the comparable company has not paid the royalty then the payment of royalty is not justified and according....

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....y choose to do so (emphasis supplied). ALP cannot be determined in isolation of either commercial reality or commercial expediency. Desirable course would be to see in a similarly placed situation what an uncontrolled transctin would reflect. Accordingly it is directed." 7.4 This direction of the CIT (Appeals) has been confirmed by the Hon'ble ITAT in Page No.43, ITA No.810 to 812/(Bang)/2007 dt.16.05.2008. Since the issue during A.Y. 2005-06 is also the same, the A.O. is directed to follow the same directions of the CIT (Appeals) as held for A.Y. 2002-03 in the appellate order referred to above." The ld. AR has also submitted that in case no comparable is found to determine the ALP of royalty then in view of the decision of this Tr....

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....le of AO/TPO with similar directions as given by ITAT in AY 2005-06 & 2006-07. 8. We heard Ld D.R and perused the record. We notice that the co-ordinate bench, in AY 2005-06 and 2006-07, has given a specific direction to the effect that, if the TPO could not find any comparable in respect of royalty payment, then the TPO/AO may consider the royalty payment as part of the international transactions under trading segment and he may consider royalty payment as part of operating cost for the purpose of computing margin in the trading segment. According to Ld A.R, the TPO has followed the alternative direction given by ITAT while giving effect to the order of the ITAT in AY 2005-06 and 2006-07. 9. We notice that the Ld CIT(A) did not properly ....