AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (10) TMI 1206
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.... at Rs. 8,34,22,404 instead of Rs. 7,59,14,928 thereby, computing a TP adjustment of Rs. 75,07,476. 1.2. While doing so, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in: (a) Disregarding the aggregation approach adopted by the Appellant thereby, rejecting the application of entity level Transactional Net Margin method ('TNMM') as the Most Appropriate Method ('MAM'); (b) Applying Comparable Uncontrolled Price ('CUP') Method as the MAM vis-a-vis the products sold to both Associated Enterprises ('AEs') and Non-AEs; and (c) Applying two methods i.e., CUP and TNMM at the same time for benchmarking the impugned international transaction. 1.3. Without prejudice to point 1.1. and 1.2., while applying CUP, the Hon'ble DRP/ Ld. AO/ Ld. TPO erred in ignoring the differences on account of geographical market, volume of transactions, functional and risk profile and level of market while comparing the impugned international transaction with the comparable uncontrolled transaction. 1.4. On the facts and circumstances of the case, and in law, the Hon'ble DRP/ Ld. AO/ Ld. TPO has erred in not following the order of the Hon'ble Income Tax Appella....
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.... by Reserve Bank of India ('RBI'); and (c) Disregarding the fact that the effective rate of interest paid by the appellant is lower than the SBI Prime Lending rate ('PLR') for the relevant year. 3.3. On the facts and circumstances of the case, and in law, the Hon'ble DRP/ Ld. AO/ Ld. TPO has erred in not following the order of the Hon'ble ITAT for AY 2013-14 and AY 2014-15. The Appellant prays that the aforesaid adjustment of Rs. 58,05,338 be deleted. 4. Ground No. 4: Transfer Pricing ('TP') adjustment in relation to payment of Information System ('IS') charges 4.1. On the facts and circumstances of the case and in law, the Hon'ble DRP erred in upholding the action of the Ld. AO/ Ld. TPO in determining the ALP of the international transaction of payment of IS service charge at Rs. 9,41,68,816 instead of Rs. 11,08,02,230 thereby disallowing the claim pertaining to internal cost of IS charge amounting to Rs. 1,66,33,414. 4.2. While doing so, the Hon'ble DRP/ Ld. AO/ Ld. TPO grossly erred in: (a) Determining the ALP of the international transaction of payment of internal cost of IS charge as 'Nil' purportedly applyi....
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.... Ld. TPO, vide its order dated 24/10/2018, proposed certain adjustments which are the subject matter of appeal before us. These adjustments were incorporated by Ld. AO in draft assessment order dated 21/12/2018 which was subjected to objections before Ld. DRP. The Ld. DRP issued directions on 22/08/2019 pursuant to which the final assessment order was passed by Ld. AO on 25/10/2019 which is under challenge before us. 5. TP adjustment on Export of finished products 5.1 The Ld. TPO noted that the assessee was into manufacturing and marketing of industrial flavors, fragrances and chemical specialties. Its AEs were in the business of production and the distribution of flavors and fragrances for use in products in the beauty, household, pharmaceutical and food and drink industries with the support of centralized extensive research and development. 5.2 During the year, the assessee exported finished goods of Rs. 759.14 Lacs to its AEs. The assessee benchmarked the transactions of import of raw material, export of finished goods, payment of royalty, commission received & purchase of raw material (domestic) using entity level Transactional Net Margin Method (TNMM). Taking assessee as th....
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....ucts, it is noticed that he has short listed eight common products which were sold both to AEs and non- AEs. On a critical examination of the details mentioned in Annexure-1, it is noticed that except one non-AE in U.A.E., all other non-AEs are located in India. Whereas, the AEs are located outside India. Even, in respect of price charged to the solitary non-AE situated outside India, the Transfer Pricing Officer has compared it to the price charged for similar product to an AE in India. Therefore, in strict sense of the term, this particular sale of product Lemoncello to the AE in India cannot be termed as an international transaction. Be that as it may, from a perusal of Annexure-1, it becomes factually clear that sale of similar products made to both AEs and non-AEs are in different geographical locations. While the AEs are located in foreign countries the non-AEs are located in India. Therefore, the price charged to non-AEs in India cannot be used as a CUP for determining the arm's length price of the sales of finished products made to overseas AEs. One of the conditions of rule-10B(2) of the I.T. Rules, 1962, is, while considering the issue of comparability with an uncontr....
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....with other factors would be relevant to decide which method would be suitable for benchmarking the transactions. Finally, the application of CUP method has been rejected by the bench and the adjustment has been deleted. Respectfully following the consistent stand of Tribunal, we reject application of CUP method and delete the impugned adjustment as proposed by Ld. TPO. This ground stand allowed. 7. TP adjustment against payment for technical know-how (Royalty) The assessee paid royalty for use of technical know-how to its AE @ 5% on local sale and @ 8% on export sales. It was stated that technical know-how owned by the AE was in the nature of secret formulae, trade secrets, manufacturing procedure, methods and other technical information relating to the manufacturing, compounding, quality control, testing and servicing of the licensed products. The assessee benchmarked the same applying TNMM method. However, Ld. AO adopted the benchmarked royalty rate of 4% as against effective rate of 4.57% paid by the assessee and proposed an adjustment of Rs. 329.13 Lacs. This adjustment, upon confirmation by Ld. DRP, is in further challenge before us. Our findings and Adjudication 8. We fin....
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.... we delete the impugned adjustment. The grounds thus raised stand allowed. 11. TP adjustment against payment to AE for Software charges 11.1 The assessee paid sum of Rs. 11.08 Crores for software usage during the year. Accordingly, assessee was asked to substantiate the use of software and actual services provided by the AE and basis for allocation of cost to the taxpayer, cost incurred by its AE and evidence for third party payments made by the AE. The assessee submitted that during financial year 2010-11, it switched over from old accounting software, stock maintenance software and software for other purposes into S3-ERP being SAP software. The software was developed / acquired by its AE namely Firmenich SA, Switzerland for all the Group entities around the world. Previously, the assessee was using three different software i.e. accounting software, stock maintenance software and software for other purposes and it switched over to combine S3-ERP being SAP software for all purposes. The cost of development of such software was substantial and would require regular up-gradation for its successful usage. Moreover, assessee's entire business was run, controlled and managed by comput....