TaxTMI 
TaxTMI 
2021 (3) TMI 53
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....issued by the Hon'ble Dispute Resolution Panel-l, (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/ Deputy Commissioner of Income-tax (Transfer Pricing) - l(2)(2) ('TPO') on fact and in law has: GENERAL 1. Erred in assessing the total income at Rs. 99,44,02,394 as against returned income of Rs. 66,91,50,480 disclosed in the return of income filed. TRANSFER PRICING ADJUSTMENTS 1. PAYMENT OF ROYALTY TO ASSOCIATED ENTERPRISE ('AE') General 2. Erred in making an adjustment of Rs. 5,40,32,169 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of payment of royalty. Rejection of economic analysis undertaken by the Appellant 3. Erred in not considering approvals received from Secretariat of Industrial Assistance ('SIA'), Ministry of Industry and Reserve Bank of India ('RBI') as valid CUP and rejecting the CUP analysis undertaken by the Appellant as a primary analysis. 4. Err....
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....r 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 significantly different 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 Netherland is taken as CUP, appropriate adjustment should be provided on the same to eliminate the differences. Variation from the arithmetic mean 16. Without prejudice to the above, the benefit of proviso to section 92C(2) of the Act (Variation of 3% from the arithmetic mean) should be granted to the Appellant, if the transaction payment of royalty is within such range. (ii) PAYMENT TO AE'S FOR AVAILING OF SERVICES General 17. Erred in making an adjustment of Rs. 24,42,84,844 to the total income of the Appellan....
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....substantiate services received/ benefits derived/ basis of allocation of costs and disregarded the same without giving any cogent reasons. CORPORATE TAX ADJUSTMENTS I. SHORT TERM CAPITAL GAIN ON SALE OF BUILDING 26. Erred in computing the short term capital gain on sale of building at Rs. 3,05,52,648 as against Rs. 36,17,750 computed by the Appellant. 27. Erred in passing the final assessment order under section 143(3) read with section 144C(13) without taking into account the report of the Department Valuation Officer, as directed by the Hon'ble Dispute Resolution Panel. 28. Erred in considering the stamp duty value of the building amounting to Rs. 3,58,42,240 as the lull value of consideration' as against the actual sale consideration of Rs. 89,07,342, as determined by a Government Approved Valuer, registered under the Wealth tax Act, 1957. 29. Erred in disregarding the valuation of building done by the Government Approved Valuer, registered under the Wealth Tax Act, 1957. II. Credit for tax deducted at source ('TDS') 30. Erred in granting short credit of TDS amounting to Rs. 2,07,68,263 III. Levy of interest under section 234A of the Act 31. Erred....
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....ow AgroSciences BV, Netherland was concerned, the DRP observing that the facts therein involved in context of the aforesaid issue in the assessee's case for the year in question were pari materia with the facts as were there in its case for A.Y 2011-12 thus, followed the view taken by the predecessor panel and upheld the transfer pricing adjustment made by the TPO and rejected the objection of the assessee. As regards the objection pertaining to the transfer pricing adjustment of Rs. 24,42,84,844/- made by the A.O regarding the intragroup services received by the assessee from its AEs, the DRP was of the view that the facts of the case and assessee's submissions and the issues at hand were squarely covered against the assessee by the order of the predecessor panel in A.Y 2011-12 thus, holding a conviction that he facts for the year in question were pari materia with the facts as were there before the predecessor panel in the assessee's case for A.Y 2011-12, therein respectfully followed the same and rejected the assessee's objection in context of the aforesaid issue. 6. After receiving the order passed by the DRP under Sec. 144C(5), dated 04.09.2018 the A.O framed the assessment u....
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....sfer pricing adjustments are concerned, viz.(i) royalty paid by the assessee to its AE, viz. Dow AgroSciences BV, Netherland; and (ii). intra-group services received by the assessee from its AEs, the panel had merely relied on its earlier order passed in the case of the assessee for A.Y 2011-12 and had not given any independent findings as regards the said respective issues. Accordingly, in the backdrop of the aforesaid admitted factual position we shall deal with the respective issues pertaining to the transfer pricing adjustment made by the A.O/TPO in the backdrop of the view taken by the Tribunal in A.Y 2011-12 in its order passed in ITA(TP)A. No. 203/2016, dated 11.01.2021. 11. Insofar the issue pertaining to the transfer pricing adjustment w.r.t royalty paid by the assessee to its AE, viz. Dow AgroSciences BV, Netherland is concerned, the Tribunal, vide its order passed in the assessee's own case for A.Y 2011-12 in ITA(TP)A. No. 203/2016, dated 11.01.2021, had in context of the said issue observed as under: 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....
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.... countries outside India as may be mutually agreed in writing from time to time between LICENSOR and LICENSEE. B. In the event LICENSEE subsequently wishes to receive from LICENSO any additional technical information related to the production of Product or to use Technology received under this Agreement outside the scopeo 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....
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....its AE. Summing up, the Clause 11.1 required the AE to provide additional information in relation to the technology already provided. In the backdrop of the observation of the 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 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 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 tech....
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....the TPO/DRP had wrongly construed the Clause 11.1(B) of the original "agreement". All that Clause 11.1(B) required was receipt of additional technical information in relation 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 ques....
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....h September, 1996 and 22nd January, 1997, and the same was also in conformity with the rates that were prescribed in the "Press Note No. 2 (2003 series)", dated 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 assess....
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.... with any jurisdiction to question the commercial expediency of the transaction carried out by the assessee with its AE, and his jurisdiction is restricted to determining 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 roya....
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....AE. Accordingly, in the backdrop of our aforesaid deliberations, we herein vacate the alternate transfer pricing adjustment 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 af....
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.... aforesaid observations, we are of the considered view that the benchmarking of the royalty 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 t....
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....ng adjustment made by the AO/TPO as regards the 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." As the order of the DRP for A.Y 2011-12 that was relied upon by the panel while disposing off the objections of the assessee as regards the issue pertaining to the transfer pricing adjustment made by the TPO towards payment of royalty by the assessee to its AE, viz. Dow AgroSciences BV, Netherland had been set aside by the Tribunal, we thus concurring with the view therein taken respectfully follow the same. Accordingly, we herein direct the A.O/TPO to vacate the transfer pricing adjustment as regards the royalty of Rs. 5,40,32,169/- paid by the assessee to its AE. The Grounds of appeal Nos. 1 to 16 are allowed in terms of our aforesaid observations. 12. We shall now advert to the grievance of the assessee that the lower authorities had erred in making a transfer pricing adjustment of Rs. 24,42,84,844/- as regards the Intra-Gro....
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....sh the services rendered by its AEs on the basis of supporting documents and evidence which were required to be maintained. Also, it was observed by the TPO that the assessee could not produce any evidence relating to direct and tangible benefits that was received by it from the services rendered by the AEs. Backed by his aforesaid observations, the TPO determined the arm's length price of the aforesaid services at Nil. 25. On a perusal of the order of the DRP, we find that the assessee vide its letter dated 19th September, 2014 had in order to substantiate the availing of services from its AEs along with the benefits derived from the rendering of the same filed "additional 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 deriv....
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....e in the course of the proceedings before the lower authorities, and the same would have a bearing on the adjudication of the issue under consideration, therefore, the same in all fairness merits to be admitted. It is stated by the ld. A.R before us that after perusing similar evidence that was submitted by the assessee with the TPO/DRP in the immediately succeeding years i.e A.Y. 2011-12 and A.Y. 2012-13, the said authorities had concluded that services were received by the assessee from the AEs. It was further stated by the ld. A.R that the AEs of the assessee company during the year under consideration i.e A.Y 2010-11 had rendered similar services to its other group 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 stan....
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.... by the TPO without following any of the prescribed method provided in Sec. 92C, the ld. A.R had on the same count challenged the validity of the jurisdiction assumed by the TPO for making the transfer pricing adjustment regarding the intra-group services received from its AEs. On the basis of the aforesaid facts, it was submitted by the ld. AR that the TPO/DRP had not only erred on facts in observing that no services had been received by the assessee from its AEs, but had also wrongly assumed jurisdiction in determining the arm's length price of the intra-Group services at Nil as against that worked out by the assessee at Rs. 3,99,95,779/-. 28. We have deliberated 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 ....
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....(50 taxmann.com 323) (d) Emerson Climate Vs. DCIT (ITA No. 2182/Pun/2013) (e) Merck Ltd. Vs. DCIT (69 taxmann.com 45) (f) Schneider Electric India P. Ltd. Vs. DCIT (82 taxmann.com 364) (g) Sabic Innovative Plastics India P. Ltd. Vs. ACIT (88 taxmann.com 810) Also, we are unable to persuade ourselves to subscribe to the determination of the ALP of the Intra-Group Services received by the assessee from its AEs at Nil by the TPO without following any of the method provided in Sec. 92C of the Act. As observed by us at length hereinabove, the TPO is obligated to benchmark the arm's length price of an international 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 af....
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....h AE, viz. Dow Chemical Pacific Singapore Pte. Ltd., and no such details in respect of the remaining AEs had been brought to our notice. Accordingly, in the backdrop of the fact that complete details in respect of the remaining AEs supporting the aforesaid claim of the assessee are not there before us, we, therefore, refrain from adjudicating the said claim of the assessee. 31. We shall now deal with the contention of the assessee that the TNM method in the backdrop of the peculiar facts of the case was rightly adopted by it to benchmark the transaction of receipt of Intra-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 th....
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.... for filing the copies of the e-mails which only revealed the involvement of the aforesaid person in managerial support survives, had however, failed to demonstrate the basis of the cost to the AE. Ld. A.R in his rejoinder submitted that Mr. Jeorge La Roza was the managing director of the company and no payment was made to him except for the cost allocated to the assessee by its AE for the services rendered. Ld. A.R took us through a letter dated 1st Ocober, 2014 filed with the TPO wherein at Sr. No 3 of the 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 ....
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....price of the property as per the 'agreement' was Rs. 1,25,00,000/- however, the same as per the stamp duty valuation/market value was Rs. 4,07,06,000/-. It was noticed by the A.O that the assessee had computed the Long Term Capital Gain (for short "LTCG") on the sale of land at Rs. 40,54,167/- and STCG on sale of building at Rs. 36,17,750/-. In the backdrop of the aforesaid facts, the A.O called upon the assessee to put forth an explanation as to why the stamp duty valuation of Rs. 4,07,06,000/- may not be adopted as the deemed sale consideration u/s 50C for the purpose of computing the capital gain on the sale of the property in question. In reply, the assessee vide its submission dated 11.12.2017 assailed the proposed adoption of stamp duty valuation of the aforesaid property of Rs. 4,07,06,000/- as the deemed sale consideration u/s 50 C of the Act inter alia on the ground, viz. (i). that the provisions of the Act provide for a separate mechanism for the computation of capital gains arising on sale of land and the capital gains arising on sale of building, while for as regards the sale transaction in question a lump sum amount was received for the entire property; (ii). that in t....
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....ation for the purpose of computing the capital gain within the meaning of Sec. 50C of the Act. However, as noticed by us hereinabove, the A.O had scrapped the aforesaid objection, for the reasons viz. (i). that the assessee had misinterpreted the provisions of Sec. 50C(2) of the Act; and (ii). that the assessee had never objected to the valuation adopted by the stamp valuation authority at the time of valuation. In our considered view, the A.O had grossly misinterpreted the provisions of Sec. 50C of the Act. AS per Sec. 50C(2), in a case where the assessee had not disputed the value so adopted by the stamp duty valuation authority for the purpose of payment of stamp duty in respect of a capital asset, being land or building or both, in any appeal or revision or no reference has been made before any other authority, court or the High Court, AND the assessee claims before the A.O that the value adopted or assessed by the stamp valuation authority under sub-section (1) i.e in respect of the aforesaid property for the purpose of payment of stamp duty exceeds the fair market value of the property as on the date of transfer, the A.O may refer the valuation of the capital asset to a Valua....
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....ence before any other authority, court or the High Court, had however, admittedly objected to the adoption of the stamp duty valuation as the deemed sale consideration by the A.O for computing the capital gains within the meaning of Sec. 50C of the Act thus, we herein direct the A.O to make a reference to the Valuation Officer for the purpose of valuation of the property in question for the purpose of Sec. 50C of the Act. The Grounds of appeal Nos. 26 to 29 are allowed for statistical purposes in terms of our aforesaid observations. 17. As regards the grievance of the assessee pertaining to allowing of short credit of TDS by the A.O, it was submitted by the ld. A.R that the assessee had filed a rectification application as regards the issue in question, which however is pending before the A.O. It was submitted by the ld. A.R that the A.O may be directed to look into the aforesaid grievance of the assessee. As the adjudication of the aforesaid issue would require verification of the records, we herein direct the A.O to verify the same and redress the aforesaid grievance of the assessee. The Ground of appeal No. 30 is allowed for statistical purposes. 18. As regards the Grounds of....