TaxTMI 
TaxTMI 
2021 (1) TMI 472
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....cts and circumstances of the case, Dow AgroSciences India Private Limited (hereinafter referred to as the Appellant') respectfully craves to prefer an appeal against the order issued by the Assistant Commissioner of Income - tax, Range 14(1)(2), Mumbai [hereinafter referred to as the 'Assessing Officer'] under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-I, (hereinafter referred to as the Hon'ble DRP') on the following grounds, each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned AO/ Additional Commissioner of Income-tax (Transfer Pricing) - 1(3) ('TPO') on fact and in law has: GENERAL 1. erred in assessing the total income at Rs. 88,34,41,810 as against returned income of Rs. 80,04,98,533 computed by the Appellant. TRANSFER PRICING ADJUSTMENTS PAYMENT OF ROYALTY TO ASSOCIATED ENTERPRISE ('AE') General 2. erred in making an adjustment of Rs. 4,29,47,493 to the total income of the Appellant un....
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.... 10. without prejudice to the above, erred in directing the Appellant to carry out a fresh search for identifying comparable royalty agreements using 'RoyaltyStat' database (during the remand proceedings) as the same was beyond the powers of the learned TPO 11. without prejudice to the above, failed to appreciate that none of the agreements derived from the above search were considered comparable by the Appellant. 12. without prejudice to the above, erred in considering the agreement between HERC products and CCT corporation as comparable agreement without giving cognizance to the validity of the agreement as well as the fact that the complete information about the agreement is not available. Variation of 5% from the arithmetic mean 13. the benefit of proviso to section 920(2) of the Act should be granted to the Appellant, if the transaction payment of royalty is within such range. II. AVAILING OF INFORMATION TECHNOLOGY SERVICES, FINANCE AND TREASURY SUPPORT SERVICES, FINANCIAL AND ACCOUNTING SUPPORT SERVICES AND LEGAL AND ADMINISTRATIVE SUPPORT SERVICES FROM AEs General 14. erred in making an adjustment of R....
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....t the credit of total TDS credit claimed by the Appellant of As 1,46,98,582. 23. Levy of interest under section 234B of the Act 24. erred in levying of interest under section 234B of the Act of As. 3,29,22,946. Levy of interest under section 234C of the Act 25. erred in levying of interest under section 234C of the Act of As. 61.07,852. 26. erred in not appreciating that interest under section 234C would be applicable only on the returned income as against on assessed income levied by the learned AC. Initiation of penalty proceedings under section 271(1)(c) of the Act 27. erred in initiating the penalty proceedings under section 274 read with section 271 (1)(c) of the Act. The Appellant craves leave to add, alter, amend, delete or withdraw any or all of the grounds of appeal at or before the hearing of the appeal so as to enable the Income tax Appellate Tribunal to decide the appeal according to law." 2. Briefly stated, the assessee company which is engaged in the business of manufacturing and trading of pesticides, agro chemicals & seeds had filed its return of income for A.Y. 2010-11 on 30.09.2010....
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....arking of the transaction of payment of royalty by the assessee to its AE had earlier came up before the panel in the assessee's case for the immediately preceding year i.e A.Y. 2009-10 and the transfer pricing adjustment made by the TPO was confirmed. Also, it was noticed by the DRP that involving identical facts the Tribunal in the assessee's own case for A.Y. 2003-04 in ITA No. 630/Mum/2011, dated 30.01.2014 had principally upheld the application of the approach that was adopted by the lower authorities for benchmarking the transaction of payment of royalty. Accordingly, the DRP upheld the determining of the arm's length price of the royalty transaction by the TPO at Nil. Adverting to the alternative view of the TPO wherein using the CUP method he had considered the royalty paid by an another AE of the assessee, viz. Dow U.K to Dow Netherlands as a comparable transaction and determined the arm's length price of the royalty paid by the assessee to its AE at 5% of its net export sales, and had suggested an alternate adjustment of Rs. 1,37,57,774/- that was to be substituted in case the primary adjustment of taking the arm's length price of the royalty transaction at Nil was vacate....
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....n appeal before us. As observed by us hereinabove, the assessee is aggrieved with the assessment order on account of the aforesaid two transfer pricing adjustments carried out by the A.O/TPO, viz. (i) transfer pricing adjustments as regards the transaction of payment of royalty by the assessee to its AE viz. Dow AgroSciences BV : Rs. 4,29,47,493/-; and (ii) transfer pricing adjustment as regards the intra-group services: Rs. 3,99,95,779/-. 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. For a fair appreciation of the issues under consideration we shall briefly cull out the facts as regards the same, as under: (A). Transfer pricing adjustment as regards the royalty paid by the assessee to its AE : Rs. 4,29,47,493/- : The assessee company had entered into a Process Technology Agreement, dated 23.01.1997 with its AE, viz. Dow AgroSciences, BV (formerly known as "Dow Elanco BV") as per which the assessee was obligated to pay royalty to the....
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.... as a primary analysis basis for benchmarking the aforesaid international transaction. Using the CUP method the assessee had considered the aforesaid approval received from the Government of India and RBI for the purpose of benchmarking the aforesaid transaction. As the royalty paid by the assessee company to its AE was approved both by the Government of India and RBI, vide their respective approvals dated 17th September, 1996 AND 22nd January 1997, therefore, the aforesaid transaction was considered by the assessee to be at arm's length. Alternatively, the assessee aggregated the transaction of payment of royalty with its other international transactions carried out in the manufacturing segment, for the reason, that such other transactions viz. import of raw material and export of finished goods in the manufacturing segment were closely connected with the transaction of payment of royalty. Adopting TNM method as a basis for a secondary analysis the assessee benchmarked the manufacturing segment, and finding the net margin of the said segment during the year under consideration higher than the net margin of the comparables, the payment of royalty to its AE was claimed as being at a....
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....ngth price of the royalty paid by the assessee to its AE, viz. Dow AgroSciences BV at Nil. Alternatively, the TPO adopted the CUP method and considering an "agreement" entered into between two group companies of the assessee, viz. Dow UK King Lynn Plant ('Dow, UK') with Dow B.V, as per which the former i.e Dow, UK was obligated to pay a royalty @ 3% and @ 5% of its domestic sales and export sales, respectively, for manufacture and sale of "Chlorpyrifos", determined the arm's length price of the royalty paid by the assessee to its AE i.e Dow AgroSciences, BV at 5% of its export sales for the year under consideration. On the basis of his aforesaid alternate working the TPO suggested an alternate transfer pricing adjustment of Rs. 1,37,52,774/-, which however was to be invoked only in case the determination of the arm's length price at Nil was subsequently vacated by the appellate authorities. 11. As observed by us hereinabove, the DRP had upheld the view taken by the TPO both as regards the adoption of the ALP of the royalty paid by the assessee to its AE at Nil, and also, the alternate adjustment of Rs. 1,37,52,774/- that was suggested by him in case the primary adjustment was va....
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....o parties, viz. AARC Corporation and CCT Corporation, as per which, the arm's length price of the royalty paid by the assessee to its AE was to be taken at the rate of 2% of its export sales. To sum up, the DRP had upheld the view taken by the TPO both as regards, viz. (i). the determining of the arm's length price of the royalty paid by the assessee to its AE as per his order passed u/s 92CA(3) i.e (a). primary adjustment of taking the ALP of the royalty paid by the assessee to its AE at Nil AND (b). the alternate working of the ALP on the basis of an "agreement" between two group concerns of the assessee at Rs. 1,37,52,774/-; and (ii). the transfer pricing adjustment of the royalty transaction @2% of the export sales as was suggested by the TPO in his 'remand report', dated 13.11.2014. 12. We shall now deal with the sustainability of the view arrived at by the TPO/DRP as regards the determination of the ALP of the royalty paid by the assessee to its AE, viz. Dow AgroSciences BV. As observed by us at length hereinabove, the TPO/DRP were of the view that as per the Process Technology Agreement, dated 23rd January, 1997, the assessee was obligated to pay royalty to its AE viz. Do....
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....any additional technical information related to the production of Product or to use Technology received under this Agreement outside the scope o the license granted in this Article 11.1 subsequent to consummation of this Agreement , it shall first negotiate a new technology license agreement with LICENSOR." On a perusal of the aforesaid clause, we find that the same inter alia places the respective parties at a liberty to extend the same. As per the "agreement" the licensee i.e the assessee after meeting all its obligations under the original "agreement", dated 23.01.1997 would stand vested with a fully paid, non-assignable and non-exclusive right, though without any right to sub-license, and would be entitled to practice, only at the plant, the process utilizing technology that was received prior to the consummation of the said agreement. It was therein further provided that if the licensee i.e the assessee subsequent to consummation of the aforesaid "agreement" wished to receive from the licensor i.e its AE, viz. Dow AgroSciences BV any additional technical information related to the production of product or to use technology received under the aforesaid agreement, it....
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....he TPO in his 'remand report' that the assessee had during the year under consideration got some kind of technical support from its AE, we are unable to comprehend as to on what basis it has thereafter been concluded by the lower authorities that no new "agreement" was required to be executed by the assessee with its AE. Admittedly, after consummation of the original "agreement", dated 23.01.1997 the assessee was to be vested with a fully paid, non-assignable and nonexclusive right, though without any right to sub-license, and would be entitled to practice, only at the plant, the process utilizing technology that was received during the period of the aforesaid original "agreement", dated 23.01.1997, and thus, remained under no obligation to pay any royalty to its AE for use of the aforesaid technology. But then, if the assessee after the consummation of the original "agreement" wished to receive from the licensor i.e the AE any additional technical information related to the production of product or to use technology received under the terms of the said agreement, it was required to negotiate a new technology license "agreement" with the licensor. At the outset, we may herein ob....
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....ation to the technology already received by the assessee as per the original "agreement". However, the lower authorities had wrongly observed that the "agreement" required receipt of new technology by the assessee from its AE. Be that as it may, we find substantial force in the claim of the assessee that now when on the basis of the supplementary royalty "agreement", dated 08th June, 2005 that was made effective from 01st June, 2004, i.e A.Y 2005-06 the assessee had received necessary technical know-how and assistance from its AE, which had consistently been accepted by the department upto A.Y 2009- 10, therefore, in respect of the same "agreement" the department could not take a contrary stand during the year under consideration and therein assail the very existence of the same. To sum up, it is the claim of the assessee that now when the department had for the period A.Y 2005-06 to A.Y 2009-10 accepted the technical know-how and assistance received by the assessee from its AE, it could not during the year in question i.e A.Y 2010-11 assail the validity of the said "agreement". Admittedly, the aforesaid supplementary royalty "agreement", dated 08th June, 2005 (effective from 01....
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....ed 24th June, 2003, therefore, no infirmity could be related to the assessee in considering the same for benchmarking the royalty paid by the assessee to its AE using CUP method. Insofar the reliance placed by the TPO on the judgment of the Hon'ble High Court of Punjab and Haryana in the case of Coca Cola India Inc. Vs. Asst. CIT (2009) 309 ITR 194 (P&H), we find that the said order had been relegated by the Hon'ble Supreme Court vide its order, viz. M/s Coca Cola India Inc. Vs. Addl. CIT & Ors. [SLP (Civil) No(s). 646/2009, dated 25.10.2010] to the file of the lower authorities before whom the proceedings were pending. Also, we find, that the Hon'ble High Court of Bombay in the case of CIT Vs. SI Group India Ltd. (2019) 107 taxmann.com 314 (Bom) and CIT Vs. SGS India Pvt. Ltd. (2015) 94 CCH 338 (Bom), had held, that where the payment made by the assessee to its AE is within the limits prescribed by the Government of India, then, the same can be considered as being at arm's length. In fact, we find that the DRP in the assessee's own case for A.Y 2012-13 by relying on the judgement of the Hon'ble High Court of Bombay in the case of SGS India Pvt. Ltd. (supra) had though accepted tha....
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....etermining of the arm's length price of the transaction. Our aforesaid view is fortified by the following judicial pronouncements: "(a) CIT vs. Lever India Exports Ltd. (78 taxmann.com 88) (b) CIT vs. Merck Ltd. (73 taxmann.com 23) (c) CIT vs. Johnson & Johnson (80 taxmnn.com 269) (d) CIT vs. RK Ceramics India P. Ltd. (78 taxmann.com 230) (e) Firmenich Aromatics India (P) Ltd. Vs. DCIT (96 taxmann.com 649)" In the backdrop of the aforesaid facts, now when the TPO without following any of the methods prescribed under Sec. 92C of the Act had determined the ALP of the royalty paid by the assessee to its AE at Nil, the same, on the said count also is liable to be struck down. 16. We shall now deal with the sustainability of the alternate transfer pricing adjustment of Rs. 1,37,52,774/- that was made by the TPO by selecting CUP method and considering an "agreement" entered into between two group companies of the assessee i.e Dow UK King Lynn Plant (Dow, UK) with Dow BV (Dow Netherland), whereby Dow, UK had paid royalty @ 3% of its domestic sales and @ 5% of its export sales for manufacture and sale of "Chlorpyrifos". Adopting the afo....
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....nt of Rs. 1,37,52,774/- made by the TPO. 18. We shall now deal with the sustainability of the arm's length price determined by the TPO in the course of the remand proceedings by benchmarking the royalty transaction on the basis of an "agreement" between AARC Corporation and CCT Corporation found in the Royaltstat database. As observed by us hereinabove, the TPO in the course of the remand proceedings by selecting an "agreement" between two parties viz. AARC Corporation and CCT Corporation from the Royaltstat database had in his 'remand report', dated 13.11.2014 suggested to the DRP an alternate arm's length price for the royalty paid by the assessee to its AE @ 2% of the export sales. As such, the TPO had proposed an alternate adjustment in the event the determination of the arm's length price by him vide his order passed u/s 92CA(3) did not find favour with the appellate authorities. As observed by us hereinabove, the aforesaid view of the TPO was also approved by the DRP. 19. The ld. A.R had objected to the adoption of the royalty agreement between the aforesaid third parties, viz. AARC Corporation and CCT Corporation for benchmarking of the royalty paid by the assessee to ....
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....oyalty paid by the assessee to its AE could not have been carried out by selecting the aforesaid royalty "agreement". Accordingly, we vacate the alternate benchmarking that was suggested by the TPO in the course of the remand proceedings. 21. Although we have held that as the royalty paid by the assessee to its AE was approved by the Government of India and RBI, vide their respective approvals dated 17th September, 1996 and 22nd January, 1997, and was also in conformity with the rates prescribed in the "Press Note No. 2 (2003 series)", dated 24th June, 2003, therefore, no infirmity did emerge from considering of the same for benchmarking the royalty paid by the assessee to its AE using CUP method, however, for the sake of completeness we shall deal with the sustainability of the secondary analysis carried out by the assessee following TNM method. As observed by us hereinabove, the assessee had carried out a secondary analysis to ascertain the arm's length price of the royalty paid to its AE by applying the TNM method. As stated by the assessee, since the royalty transaction is clearly linked to the manufacturing activity, it had, therefore, analyzed the same alongwith t....
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....he royalty paid by the assessee company to its AE viz. Dow AgroSciences BV cannot be sustained and is liable to be vacated. Accordingly, we herein direct the A.O to delete the transfer pricing adjustment of Rs. 4,29,47,493/-. The Grounds of appeal Nos. 1 to 13 are allowed in terms of our aforesaid observations. (B). Transfer pricing adjustment as regards the Intra-Group services received by the assessee from its AEs : Rs. 3,99,95,779/- : 23. We shall now deal with the grievance of the assessee that the lower authorities had erred in making a transfer pricing adjustment of Rs. 3,99,95,779/- as regards the Intra-Group Services received by the assessee from its AEs, viz. information technology services, financial and treasury support services, financial and accounting support services and legal and administrative support services. As observed by us hereinabove, the assessee company had received the aforementioned Intra-Group Services for which its AEs had raised a charge upon it on cost plus mark up basis. Since, the above services rendered by the AEs were used by all the business segments of the assessee company, viz. manufacturing segment, trading segment, indenting segment an....
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....itional evidence" before the panel. On being confronted with the aforesaid documentary evidence, it was submitted by the TPO in his "remand report" that the evidence and e-mails produced by the assessee were general in nature and were not commensurate to the amount of expenditure that was claimed in terms of the cost benefit analysis. Apart from that, we find, that it was observed by the TPO that the assessee had not provided quantification of the services in terms of actual expenditure incurred and the benefits derived there from. It was observed by the DRP that the "additional evidence" produced by the assessee in the form of e-mails, templates and screen shots were general in nature and did not prove the amount of contribution the AEs would have made by rendering the services to the assessee company. Also, it was observed by the DRP that the assessee had not submitted evidence relating to the cost that was incurred by the AEs and the commensurate benefit derived there from on the basis of which it could be held that the payments made by the assessee were found to be at arm's length. Further, the DRP rejected the benchmarking carried out by the assessee by applying the TNM method....
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....p companies in India, viz. Dow Chemical International Pvt. Ltd and Rohm & Haas India Pvt. Ltd., and holding the transactions as being at arm's length no adjustment was made by the department in their hands. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that now when the department had accepted the receipt of the same intra-group services from the same AEs as being at arm's length price in the case of the other group companies in India, therefore, it could not be allowed to take a contrary stand while framing the assessment in the case of the assessee company. Further, it was submitted by the ld. A.R that similar services were rendered by the AEs in the earlier assessment years, i.e A.Y 2006-07, A.Y 2007-08, A.Y 2008-09 and A.Y 2009-10, and the TPO in his orders passed for the said respective years under Sec. 92CA(3) of the Act holding the services to be at arms' length had not made any adjustment as regards the same. It was averred by the ld. A.R that as there was no change in the facts and circumstances of the assessee's case as in comparison to those of the preceding years, therefore, the TPO was not entitled to adopt a contrary view and draw adverse inf....
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.... at length on the issue under consideration and find substantial force in the contentions advanced by the counsel for the assessee. On a perusal of the documentary evidence that has been filed by the assessee before us as "additional evidence", as well those that were filed before the lower authorities, we are of the considered view that substantial evidence/ material had been placed on record by the assessee to substantiate the fact that it had during the year under consideration received intra-group services from its AEs. In fact, we find that both the lower authorities had admitted that intra-group services were received by the assessee from its AEs. On a perusal of the "remand report", dated 13.11.2014, we find that the TPO had though accepted that services were received by the assessee from its AEs, but, had observed, that the benefit received from availing of such services had not been substantiated by the assessee company. Adopting a similar view, we find that the DRP in its order had held that though the assessee had received the services from its AEs, but then, the same were general in nature. In the backdrop of the aforesaid facts, we find that it is a matter of an ....
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....ernational transaction by adopting any of the prescribed method contemplated in Sec. 92C of the Act, failing which the adjustments made by him cannot be sustained in the eyes of law. Our aforesaid view is fortified by the following judicial pronouncements : "(a) CIT Vs. Merck Ltd. (74 taxmann.com 23) (Bom) (b) CIT vs. Lever India Exports (78 taxmann.com 88) (Bom) (C) CIT vs. RAK Cermics (78 taxmann.com 230) (AP) (d) CIT vs. Johnson & Johnson (80 taxmann.com 269) (Bom.) (e) Firmenich Aromatics Vs. DCIT (ITA No. 2590/Mum/2017)" Accordingly, in the backdrop of our aforesaid deliberations, the transfer pricing adjustment carried out by the TPO as regards the intra-group services received by the assessee from its AEs cannot be sustained and is liable to be struck down. 29. Although, we have struck down the transfer pricing adjustment in respect of the intra-group Services received by the assessee from its AE, however, for the sake of completeness we shall deal with the claim of the assessee that no such adjustment was even otherwise called for on the merits of the case. It is the claim of the assessee that now when the intra-group servi....
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....ra-Group services. As observed by us hereinabove, the TPO/DRP had rejected the application of TNM method, for the reason, that as it was a separate and distinct transaction, therefore, the same could not have been aggregated and benchmarked by applying the aforesaid method. After rejecting the TNM method applied by the assessee, the TPO/DRP had purported to apply the CUP method without placing on record any comparable transaction to benchmark the said transaction. In our considered view, there is substantial force in the claim of the assessee that as on the one hand, in the absence of any comparable transaction the CUP method could not have been applied, while for on the other hand the other methods i.e Resale Price Method (RPM) Cost Plus Method, (CPM) and Profit Split Method (PSM) are not applicable to the transaction under consideration, therefore, TNM was the only method that could have been applied to benchmark the aforesaid transaction. Our aforesaid view that in case the TPO is not able to bring comparables on record by applying CUP method, then, the TNM method applied by the assessee is to be accepted is supported by the following judicial pronouncements: "(a) Knorr....
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....reply the said fact was brought to his notice. As regards the nature of services rendered by the aforesaid person alongwith documents supporting the factum of receipt of services, the ld. A.R took us through certain e-mail correspondences between Mr. Jeorge La Roza and Shr. Suresh Ramchandran, Country Manager of the assessee company, Page 661 to 679 of APB. Also, our attention was drawn to the "additional evidence" that was filed by the assessee with the DRP, wherein at Page 469-470 the details as regards the payment made to Mr. Jeorge La Roza were stated. 33. We have perused the documents to which our attention was drawn by the ld. A.R, and find, that the details as regards the services rendered by Mr. Jeorge La Roza to the assessee, as well as the basis of the charge so raised formed part of the "additional evidence" that was filed by the assessee with the DRP. In fact, no adverse inference as regards the aforesaid payment made by the assessee company finds any mention in the order of the DRP. In our considered view, as there is no justifiable reason for drawing of any adverse inferences as regards the payments that were made by the assessee to the aforesaid person, we, thus, ....
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....uty Commissioner of Income - tax, Range 14(1)(1), Mumbai [hereinafter referred to as the Assessing Officer'] under section 143(3) read with section 144C(1 3) of the Income-tax Act, 1961 (the Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-I, (hereinafter referred to as the Hon'ble DRP) on the following grounds, each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned AO/ Additional Commissioner of Income-tax (Transfer Pricing) - 1(2) ('TPO') on fact and in law has: GENERAL 1. erred in assessing the total income at Rs. 83,85,77,731 as against returned income of Rs. 73,38,86,264 computed by the Appellant. TRANSFER PRICING ADJUSTMENTS I. REFERENCE TO THE TPO 2. erred in making reference of the Appellant's case to the TPO, without applying its mind and without recording its satisfaction, merely making the entire process of referring the matter to the TPO as invalid. II. PAYMENT OF ROYALTY TO ASSOCIATED ENTERPRISE ('AE') General 3. erred in making an adjustment of Rs. 5,90....
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....aring (on without prejudice basis) the rate of royalty paid by the Appellant to its AE [Dow AgroSciences B.V (Dow Netherlands)], with a controlled transaction i.e. the royalty rate paid by Dow UK, another AE of the Appellant, to Dow Netherlands. 12. erred in not considering the difference in definition of net sales as per agreement between Appellant and Dow Netherlands and as per agreement between Dow UK and Dow Netherlands 13. without prejudice to the above, erred in ignoring the fact that prices of the products in UK is much higher as compared to India, since UK is a developed country and thereby the royalty paid by Dow UK cannot be compared with the royalty paid by the appellant. 14. without prejudice to the above, erred in ignoring the fact that there exists technological differences between the technology availed by the Appellant and Dow UK (where the technology was old) and hence the same cannot be taken as comparable. 15. without prejudice to the above, even if controlled rate of royalty paid by Dow UK to Dow Netherlands is taken as CUP, appropriate adjustment should be provided on the same to eliminate the differences. Variation ....
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....nterest under section 234B of the Act 24. erred in levying of interest under section 234B of the Act of Rs. 2,19,76122. Levy of interest under section 234C of the Act 25. erred in levying of interest under section 234C of the Act of Rs. 37,787. 26. erred in not appreciating that interest under section 234B would be applicable only on the returned income as against on assessed income levied by the learned AO. Levy of interest under section 234D of the Act 27. erred in levying of interest under section 234D of the Act of Rs. 10,93,282. Initiation of penalty proceedings under section 271(1)(c) of the Act 28. erred in initiating the penalty proceedings under section 274 read with section 271(1)(c) of the Act. The Appellant craves leave to add, alter, amend, delete or withdraw any or all of the grounds of appeal at or before the hearing of the appeal so as to enable the Income tax Appellate Tribunal to decide the appeal according to law." 37. Briefly stated, the assessee company had filed its return of income for A.Y. 2011-12 on 28.11.2011, declaring its total income at Rs. 73,38,86,264/-. The return ....
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....n Panel-1, Mumbai (for short "DRP"). As regards the Transfer Pricing adjustment of Rs. 5,90,82,363/- made by the TPO in respect of the transaction of payment of royalty by the assessee to its AE, viz. Dow AgroSciences BV, Netherland, it was observed by the DRP that the benchmarking of the royalty transaction was a recurring issue over the years. After deliberating on the contentions advanced by the assessee, the DRP was of the view that no infirmity could be related to the determining of the ALP of royalty at nil by the TPO. Further, it was observed by the DRP that the issue of benchmarking of the transaction of payment of royalty by the assessee to its AE had earlier came up before the panel in the assessee's case for the preceding years i.e A.Y. 2009-10 and A.Y 2010-11 and the transfer pricing adjustment made by the TPO was confirmed. Also, it was noticed by the DRP that involving identical facts the Tribunal in the assessee's own case for A.Y. 2003-04 in ITA No. 630/Mum/2011, dated 30.01.2014 had principally upheld the application of the approach that was adopted by the lower authorities for benchmarking the transaction of payment of royalty. Accordingly, the DRP upheld the d....
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....d a deduction of Rs. 28,50,000/- and disallowed the balance amount of Rs. 4,56,09,104/-. After exhaustive deliberations, though it was observed by the DRP that the number of hours of service and the per hour rate of the services estimated by the TPO were too low considering the facts of the case, but, despite so observing, it upheld the transfer pricing adjustment made by the TPO as regards the intra-group services received by the assessee from its AEs. 42. After receiving the order passed by the DRP under Sec. 144C(5), dated 26.11.2015, the A.O framed the assessment vide his order passed under Sec. 143(3) r.w.s 144C(13), dated 08.12.2015 and determined the total income of the assessee company at Rs. 83,85,77,730/-. 43. Aggrieved, the assessee has assailed the assessment order passed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 08.12.2015 in appeal before us. 44. As regards the claim of the assessee that the TPO/DRP had erred in benchmarking the transaction of royalty paid by the assessee to its AE viz. Dow AgroSciences BV, Netherland, we find that as the facts and the issue involved in the case before us for the aforementioned year i.e A.Y. 2011-12, remains the same....
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....he Grounds of appeal Nos. 17 to 22 are allowed in terms of our aforesaid observations. 48. As regards the assessee's claim of allowing of a short credit of TDS of Rs. 8,34,809/- by the A.O, it was stated by the ld. A.R that as the credit for the deficit amount of tax deducted at source had been allowed to the assessee, therefore, the Ground of appeal No. 23 is rendered as infructous. Accordingly, in the backdrop of the concession of the ld. A.R the Ground of appeal No. 23 is dismissed as having been rendered as infructuous. 49. As stated by the ld. A.R, the A.O had erred in computing the assessee's tax liability for the year under consideration. It is stated by the assessee that for rectifying the aforesaid mistake an application under Sec. 154, dated 28.01.2016 was filed with the A.O, which, however, had not been disposed by him till date. It was submitted by the ld. A.R that the A.O be directed to rectify the aforesaid mistake. We have given a thoughtful consideration and in the backdrop of the aforesaid claim of the assessee, we direct the A.O to consider its aforesaid grievance while giving appellate effect to our order. The Grounds of appeal No(s). 26 to 28 are disposed ....
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.... Disregarding the commercial benefits received from the AE 5. Erred in not appreciating that the technical knowhow licensed by the AE to the assessee was an invaluable and unique intangible 'which yielded commercial benefits to the Appellant. 6. Erred in not appreciating the commercial rationale of the assessee for extending the technology agreement as well as making royalty payment to the AE and applying 'benefit test' to hold no benefit is received by the Appellant. Inappropriately considered supplementary agreement as CUP 7. Erred in considering the supplementary agreement between HERC products and CCT corporation as comparable without giving cognizance to the validity of the agreement as well as the fact that the complete information (i.e. the master agreement) is not available. 8. Without prejudice to the above, failed to appreciate that the supplementary agreement mentions 2 different rates (i.e. 2 percent of the gross value and 5 percent of gross value on sales, based on customer) and conveniently considering the lower royalty rate for making transfer pricing adjustment (i.e. 2 percent). 9. Without prejud....
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....d, for the determination of the arm's length price of the international transaction of payment for availing of services from AEs, without providing any cogent reasons for the same. 18. Erred in not appreciating that since costs in relation to the services availed by the Assessee were allocated to the manufacturing, trading and indenting segment which were at arm's length (based on net level margin analysis using TNMM), the transaction of availing services by the Assessee from its AEs also meets the arm's length test. Inappropriate application of CUP method to benchmark international transaction 19. Erred in not using any of the six methods prescribed under section 92C to benchmark the international transaction of payment for availing of services. 20. Without prejudice to the above, erred in computing the arm's length price by applying some ad-hoc man hour rate to some ad-hoc number of man hours (so called CUP) which is not in accordance with the transfer pricing regulations prescribed in India. 21. Erred in not appreciating the fact that one of the basic conditions for applying CUP is availability of the price of the same....
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....e said transactions. The TPO vide his order passed under Sec. 92CA(3), dated 11.01.2016 made an adjustment of Rs. 11,86,95,081/- to the ALP of the international transactions of the assessee, as under: Sr. No. Particulars Amount 1. (a). Adjustment to the ALP of royalty paid by the assessee to its AE viz. Dow AgroSciences BV by computing the same at Rs.nil as against the ALP of Rs. 2,51,41,162/- determined by the assessee. Rs. 2,51,41,162/- (b). Alternatively, the TPO by applying CUP method had suggested adjustment of Rs. 89,91,752/- that was to be invoked only if the primary adjustment of taking the ALP of the royalty transaction at Nil was vacated by the lower authorities. (c). Further, the TPO on the basis of the view taken by his predecessor in the case of the assessee for A.Y 2011-12 had on the basis of an alternate benchmarking by selecting an "agreement" between two parties, viz. AARC Corporation and CCT corporation (HERC agreement as referred by the TPO) from the Royaltystat database and suggested a transfer pricing adjustment as regards the royalty transaction @ 2% of the export sales, that was to be invoked only if both ....
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....of 5% of the net export sales, and had suggested an alternate transfer pricing adjustment of the royalty paid by the assessee to its AE at Rs. 1,61,49,411/- that was to be substituted in case the primary adjustment of taking the arm's length price of the royalty transaction at Nil was vacated by the appellate authorities, the DRP also did not dislodge the said observation of the TPO. Further, the TPO relying on the order passed by his predecessor for A.Y 2011-12 had carried out an alternate benchmarking by selecting an "agreement" between two parties, viz. AARC Corporation and CCT corporation (HERC agreement as referred by the TPO) from the Royaltystat database and had suggested a transfer pricing adjustment as regards the royalty transaction @ 2% of the export sales. DRP relying on the order passed by the panel in the immediately preceding year i.e A.Y 2011-12 also approved the aforesaid alternative transfer pricing adjustment which was to be invoked only if the determination of arm's length price of the royalty transaction at Nil and Rs. 1,61,49,411/- (alternative adjustment) was vacated by the appellate authorities. Accordingly, on the basis of his aforesaid observations the ....
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.... determining the arm's length price of the aforesaid transaction he had adopted an ad hoc method and held that 950 hours would have been spent by the AEs for rendering the aforesaid services to the assessee company, and therein, taking a rate of Rs. 3000/- per hour had estimated the arm's length price of the aforesaid intra-group services at Rs. 28,50,000/-. 60. On objection filed by the assessee, the DRP relied on the view taken by the panel in the case of the assessee for A.Y 2011-12 and thus, impliedly observed that the assessee company had received services from its AEs. Although, it was observed by the DRP that considering the facts of the case the number of hours and the rate estimated by the TPO were too low, but then, despite so observing the DRP mechanically relying on the view taken by the predecessor panel in A.Y 2011-12 confirmed the adjustment made by the TPO in context of the aforesaid issue under consideration. 61. We find that except for the fact that the TPO during the year under consideration had in the course of the proceedings before him accepted that the assessee had received intra-group services from its AEs, and therein, adopting an ad hoc method had....