TaxTMI 
TaxTMI 
2021 (7) TMI 39
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....fter assessment was framed u/s. 143(3) r.w.s 144C of the I.T. Act vide order dated 29.09.2010 and the total income was determined at Rs. 9,07,46,710/-. Aggrieved with the order of AO, assessee is now before us and has raised the following grounds: "Ground No. 1 The Assessing Officer had erred both on the law as well as on the facts in holding that the royalty payment made by the Appellant Company amounted to Rs. 23,215,000/- as capital expenditure by ignoring the facts that no asset of enduring nature was acquired by the appellant company. Further in assessment order at Page No. 7 - para 4, the AO mentioned that only 25% will be treated as capital expenditure i.e. Rs. 5,803,750/- after following the Hon'ble SC decision of Southern Switch Gear Ltd. vs CIT 232 ITR 359. However, while calculating total additions at page No. 14 of the order, total royalty amount of Rs. 23,215,000/- was disallowed. Ground No. 2 The Assessing Officer had erred both on the law as well as on the facts while making disallowance of Rs. 757,345/- under Section 14A of the Act in accordance with rule 8D as per notification no. 45/2008 dated 24.03.2008 by ignoring the fact that the notification is ....
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.... without appreciating that the appellant has entered the international transaction at arm's length principle and the margins earned by the appellant are comparable with the Industry's margin. Ground No. 2 The Assessing Officer had erred both on the law as well as on the facts while making disallowance of Rs. 257,860/- under Section 14A of the Act on the basis of certain expenditure by ignoring the fact that the no expenditure directly incurred by the appellant company during the year under consideration for earning the dividend income. Further the AO has ignored the fact that as per notification no. 45/2008 dated 24.03.2008 that the Rule 8D is not applicable to the relevant assessment year under consideration. Ground No. 3 The Assessing Officer has erred in law and on the facts of the case in initiating the penalty proceedings under Section 271(1)(c) of the Act. The above ground are independent and without prejudice to each other. The Appellant prays that it may be allowed to add, alter, or forego any of the ground at the time of hearing in the interest of principle of nature justice." 6. Ground No. 1 is with respect to the issue of treatment of royalty payme....
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....king this payment. He further submitted that the Hon'ble Tribunal has further held that assessee had only right and exclusive license to use the know-how to sell product in India and outside India which cannot be a ground for holding that it was an expenditure on capital account. He submitted that the orders of Tribunal was challenged by the Revenue before the Hon'ble High Court and the Hon'ble High Court has dismissed the appeals of the Revenue. He further submitted that for A.Y. 2007-08 disallowance proposed to be made by the AO was deleted by the DRP and from A.Y. 2008-09 onwards, the AO has accepted the royalty expense claimed by the assessee and has not made any disallowance. He pointed to the copy of order placed in the paper book at Page 83 to 85 and the order of High Court upholding the order of Tribunal at Page 85A of the paper book. He therefore submitted that expenditure by way of license fee incurred by the assessee was allowable revenue deduction. He therefore submitted that the disallowance made by the AO is liable to be deleted. 9. Before us, Learned AR further submitted that the Ground No. 1 raised in A.Y. 2007-08 is identical to Ground No. 3 raised in ....
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.... Tribunal in ITA No. 3188/Del/2010 order dated 31.08.2010 has upheld the contention of the assessee and dismissed the appeal of Revenue by observing as under: "5. We have considered the rival contentions and found from the record that assessee entered into an agreement for use of technical know-how. Under the said agreement, the non-transferable and exclusive license to technical know-how in India was acquired by the assessee. In terms of the agreement, assessee was paying royalty at the rate of 1.8% of the net of selling price of the products sold by the company. The AO disallowed 25% of such royalty payment by observing that it was on capital account. Under similar facts and circumstances for the AY 2001-02 & 2002-03, against the deletion of disallowance of such 25% of royalty payment, the Tribunal affirmed the order of the CIT(A) after having the following observations:- "4. We have heard the parties and considered the rival submissions. It is not in dispute that it is running agreement under which the royalty of fixed rate of 1.8% of the total sale is made by the assessee. The case of the assessee, in our opinion, is directly covered by the decisions of the Hon'ble Supr....
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....e made the submissions which were not found acceptable to AO. AO thereafter by following the procedure prescribed under Rule 8D of the I.T. Rules worked out the disallowance u/s. 14A at Rs. 7,57,345/- and made its addition. When the matter was carried before the DRP by the assessee, DRP following the decision of ITAT Special Bench, Mumbai in the case of ITO vs. Daga Capital Management (P) Ltd. (2009) 117 ITD 169 (MUM. S. B.) held that Rule 8D was applicable retrospectively and accordingly upheld the order of AO. Aggrieved by the order of AO pursuant to the direction of DRP, assessee is now before us. 17. Before us, Learned AR reiterated the submissions made before the AO and DRP and further submitted that majority of the dividend yielding investments had been brought forward from earlier years and no fresh investments which yielded dividend was made in the year under consideration. He further submitted that investment made in Mutual Funds in the preceding years and during the relevant previous year were made out of own surplus fund. He further submitted that assessee had sufficient own funds in the form of Share Capital and Reserves & Surplus and therefore in such a situation no d....
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....e details of royalty on domestic sales to which assessee made the submissions. On the basis of the submissions and information furnished by the assessee, it was noted by the AO that assessee had paid royalty of Rs. 92,37,617/- on the domestic sales and export sales. AO/TPO noted that assessee was paying royalty to Roulunds Rubber A/S Denmark, the export were made to the Roulunds Rubber A/S Denmark and other AEs and it was paying royalty to Roulunds Rubber A/S Denmark for the export to its other AEs. TPO was of the view that the payment of Royalty to the AE for the exports made to AEs was in the nature of price reduction for the products sold to AEs. He was further of the view that assessee was in fact working as a contract manufacture for the limited purpose of export made to the AEs. He also noted that the technology was taken by the assessee from the AEs, the raw material was purchased from the AEs, the goods were sold to the AEs and on such sale of goods to AEs royalty was also paid by the assessee to the AEs. The assessee was therefore asked to justify the payment of royalty. On the basis of submissions made by the assessee, TPO concluded that the royalty paid as a percentage o....
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....t controvert the submissions of Learned AR but however supported the order of lower authorities. 25. We have heard the rival submissions and perused the material available on record. The issue in the present ground is with respect to the action of TPO in treating the payment of royalty at nil. We find that identical issue arose in assessee's own case in A.Y. 2009-10 and the Co-ordinate Bench of Tribunal while deciding the issue in ITA No. 455/Del/2014 held as under: "8. We have heard the rival submissions and perused the relevant material on record. It is observed that the TPO has computed ALP of the international transaction of 'Payment of Royalty' at Nil by holding that the assessee did not avail any benefit and the services provided by the foreign AEs were unwarranted. In doing so, he rejected the assessee's adoption of TNMM as the most appropriate method and followed the CUP method. That is how, he computed ALP of this international transaction at Nil. The AO in his order has simply incorporated the conclusion of the TPO in determining the ALP of this international transaction at Nil without carrying out any independent analysis or evaluation as to whether or....
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....rities below have acted in contradiction to the ratio laid down in Cushman & Wakefield (supra), we set aside the impugned order on this score and remit the matter to the file of AO/TPO for deciding it in conformity with the law laid down by the Hon'ble jurisdictional High Court in the case of Cushman & Wakefield (India) (P.) Ltd. (supra). 12. Before parting with this issue, we want to clarify that we have desisted from examining the correctness of any aspect of this international transaction, be it the calculation of the amount paid as royalty or determination of ALP of this international transaction, such as, the most appropriate method and comparables etc. because the matter is being sent to the AO/TPO for redoing in accordance with the judgment in the case of Cushman & Wakefield (India) (P.) Ltd. (supra). It is further seen that the TPO has also recommended the transfer pricing adjustment of the full amount of royalty payment, without checking the veracity of the calculation of royalty payment in terms of rate(s) as given in the Agreements with both the AEs. Now the ball is in the court of the lower authorities to independently do the needful." 26. We further find that th....
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....ed DR on the other hand supported the order of lower authorities. 30. We have heard the rival submissions and perused the material on record. The issue in the present ground is with respect to the disallowed of Rs. 8,50,000/-. We find that the disallowance of transportation is made for the reason that the transpiration was for the transportation of machinery and therefore required capitalization. 31. We find that the disallowance has been made by AO on ad hoc basis without bringing any material on record to support his views. In such a situation, we are of the view that the addition made by AO was not justified. We therefore direct its deletion. Thus the ground of assessee is allowed. 32. Ground No. 6 is with respect to denying the claim of depreciation of printers @ 60%. 33. AO noted that during the year under consideration, assessee had made purchase of "computer accessories and peripherals" amounting to Rs. 3,15,259/- and had claimed depreciation of the same @ 60%. The assessee was asked to show-cause as to why the depreciation not be restricted to 15%. Assessee inter alia submitted that the amount spent was towards the purchase of printers and it being output devise of the ....