TaxTMI 
TaxTMI 
2019 (8) TMI 1651
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....l transactions with its Associated Enterprises (AEs). During the course of assessment proceedings, the AO referred the issue relating to international transactions entered into by the assessee to the Transfer Pricing Officer (TPO) u/s 92CA (1) of the Act in order to determine the arm's length price. The Ld. TPO passed order u/s 92CA (3) of the Act proposing an adjustment of Rs. 61,37,905/- on payment of royalty for use of technical know-how on the ground that the royalty payment made by the assessee to its AE is excessive vis-à-vis royalty payment made by another group enterprise to the same AE. The assessee filed objections before the Ld. DRP, along with Form No. 35-A in respect of the additions proposed to be made by the Ld. TPO in the draft order, inter alia on the grounds that the Ld. AO has erred in considering the lease payments of Rs. 2,95,243/- made to IBM as capital expenditure and the Ld. TPO has wrongly made an adjustment of Rs. 61,37,905/- u/s 92CA(3) of the Act on account of adjustment in arm's length price of international transactions in respect of payment of royalty made by the assessee. The Ld. DRP decided the issue regarding the lease payment against the as....
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....iating the fact that the Appellant has neither concealed nor furnished any inaccurate particulars of income." 4. The first issue raised by the assessee relates to disallowance of lease rental paid to IBM for taking computers on lease to the tune of Rs. 2,95,243/-. The assessee company claimed interest portion as expenditure, however, treated the same as operating lease and accordingly claimed entire lease rentals paid by it as revenue expenditure. The revenue officer after hearing the assessee treated the nature of lease as financial lease and disallowed the claim for deduction of principle portion of the lease rental. The Ld. DRP confirmed the findings of the AO. 5. The Ld. counsel for the assessee submitted before us that the ITAT has dealt with the identical issue in the assessee's own appeals ITA No. 8385/Mum/2011, ITA NO. 7459/Mum/2010 and ITA No. 7695/Mum/2012 for the AYs 2005-06, 2006-07 and 2008-09 respectively and the Tribunal restore the issue to the file of Assessing Officer to decide the issue afresh after examining the lease agreement in order to ascertain the nature of lease and to take an appropriate decision in accordance with law. Accordingly, the Ld. counsel....
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....has not brought on record any material change in the facts of the present case, we respectfully following the decision of the coordinate Bench restore this issue to the file of Assessing Officer with the direction to examine the lease agreement in order to ascertain the nature of lease and take an appropriate decision in accordance with law after affording a reasonable opportunity of being heard to the assessee in terms of the order dated 20.09.2016 passed by the coordinate Bench in the assessee's appeals discussed above. 8. Vide Ground No. 2 to 5, the assessee has challenged the transfer pricing adjustment made on payment of royalty. The assessee company had entered into a Process Technology Agreement and supplementary agreement with Dow Agrosciences BV (earlier Dow Elanco BV) (Dow Netherlands) to receive a non assignable, non exclusive license to use the process utilizing technology as its manufacturing plant to manufacture the products, use and sell the products and product formulation made from such product in India and export the product and product formulation. The assessee during the previous year has paid royalty @ 5% on domestic sales and 8% on export sales to its AE M/....
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..... Before us, a reference has also been made to Paper Book, wherein the aforesaid communications have been placed as also a communication SIA dated 22/1/1997, which is in continuation to its earlier approval dated 17/09/1996. In terms of such approvals, assessee is permitted to pay its foreign collaborator i.e. Dow Netherlands, royalty @ 5% on domestic sales and 8% on export sales. In this background, before the TPO assessee asserted that since royalty was paid in terms of the approvals by the Central Government, the payment of royalty was at arm's length rate. In other words, the rate of royalty approved by the Central Government was used as a reliable data for benchmarking the transaction of payment of royalty. In this manner, assessee adopted the Comparable Uncontrolled Price (CUP) method as the most appropriate method to benchmark its international transaction of royalty and the rate approved by the Central Government was used as a reliable CUP data. Similar was the position taken by the assessee in assessment year 2003-04. Apart there-from, assessee had also canvassed that even after application of the Transactional Net Margin Method (TNMM) to test the arm's length natu....
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....K was paying royalty as a percentage of gross sales, whereas assessee was paying royalty at net sales, in accordance with Foreign Exchange Control Regulations. The Tribunal found that if the royalty payable was calculated by adopting the same basis, then the royalty being paid by Dow UK was higher than what has been paid by assessee company to Dow Netherlands and, thus, the royalty paid by the assessee was at an arm's length rate, and no adjustment was required. On this basis, the Tribunal affirmed the order of the CIT(A) deleting the addition in assessment year 2003-04. 7.2 Now in the present year, the case of the assessee is that the plea that rate of royalty' approved by the Central Government as also by the Reserve Bank of India constitutes a valid CUP data has been affirmed by the Hon'ble Bombay High Court in the case of CIT vs. SGS India Pvt. Ltd., ITA No.1807 of 2013 dated 18/11/2015. In this context, the Ld. Representative for the assessee pointed out that before the Hon'ble High Court, the Revenue had relied upon Press Note No.9 (2000 series) issued by Central Government for adopting the rates of royalty prescribed therein for benchmarking royalty paya....