TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 1029
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....s in Form No. 3CEB. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining Arm's Length Price (ALP) of the international transactions. During the course of the transfer pricing proceedings, the AO observed that the assessee aggregated all the transactions of 'Manufacturing activity' and 'Trading activity' for demonstrating them at ALP. Taking note of the Tribunal order passed in the case of the assessee for the A.Y. 2012-13, the AO held that the aggregation of the 'Manufacturing activity' with the 'Trading activity' was not acceptable. He, therefore, segregated the 'Manufacturing segment' and took up the same for consideration. More specifically, the TPO focussed only on Royalty payment of Rs. 25,93,47,186/- paid by the assessee to its Associated Enterprise (AE) for technical know-how. He segregated this transaction from the 'Manufacturing segment'. The ALP of the royalty-payment transaction was separately determined under 'Other method' as prescribed under Rule 10AB by adopting 3 comparables giving average profit rate on net sales at 4.56%. The TPO also computed the assessee'....
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....arately; and for that purpose, a transaction in singular also includes plural for closely linked transactions. In other words, where the transactions are not closely linked, their ALP needs to be determined separately and such determination of the ALP of 'an' international transaction as per section 92C(1) of the Act should be done as per the most appropriate method. To put it more simply, each international transaction is viewed separately and independent of other international transactions for determining its ALP unless they are closely linked. It is impermissible to combine more than one unrelated international transaction for determining their ALP in a unified manner when they are diverse in nature. 6. It is simple and plain that cross subsidization of international transactions is impermissible. It is overt from section 92(1) of the Act that if an international transaction is recorded showing a lower income than its ALP income, then the higher ALP income is considered for the purpose of computing total income. Section 92(3) of the Act manifests that the provisions of this section shall not apply in a case where the computation of income having regard to ALP has the ef....
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....was dependent upon the assessee accepting all of them together (i.e. either take all or leave all), then also they have been held to be taken as one international transaction. But the onus has been put on the assessee to prove that although each is priced separately, but they were provided under one composite agreement. It still further held that each component may be priced differently also, but it will have to be shown that they are inextricably linked that one cannot survive without other. 8. Adverting to the facts of the extant case, it is seen that the transaction of payment of Royalty for use of technical know-how provided by the AE and other international transactions under the Manufacturing segment are not under any package deal nor is there any such understanding or any inextricable link between these transactions as one not surviving without the other, as has been spelt out in the case of Knorr- Bremse (supra). The assessee paid royalty for the use of technology as a separate independent transaction. Merely because payment of royalty for use of technical know-how leads to manufacture of final product, it does not follow that they both are dependent or closely-linked tran....
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....r: S.No. Name of the licensor Name of the foreign licensee Basis of royalty % on net sales 1 Turbodyne Technologies, Inc. and Turbodyne Systems, Inc. Honeywell International Inc. Net Sales 3.70% 2 Palweb Corp. Gravity Management & Engineering Group, LLC Sales Price or Gross Lease Payment (Revenue) 5.00% 3 Advanced Vibration Technologies Inc. and subsidiaries Aurios Inc. and subsidiaries Net Sales 5.00% Average 4.56% 12. The assessee objected to the selection of the comparables inter alia on the ground that there was difference in the nature of business in terms of Royalty Agreements and also territory of Royalty Agreement entered into by the assessee vis-à-vis comparables taken note of by the TPO. Relying on the mandate of Rule 10AB, the TPO rejected the assessee's contention by observing that the rule provides for considering "the same or similar uncontrolled transactions". Since the comparables chosen by him were similar to that of the assessee, the TPO repelled the assessee's contention. No further reprieve was provided by the DRP, which resulted in making the transfer pricing adjustment in the final assessment order.....
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....parable chosen by the TPO is the licensee, Gravity Management Engineering Group, LLC with a foreign licensor in respect of licensed products, namely, Multiple mould Work stations with Single Injection feeder and Hydraulic pumping station and production of plastic pallets. The third comparable is licensee Aurios, Inc. with again a foreign licensor in respect of the licensed products, namely, Pro max media isolation bearing and classic media isolation bearing. It is thus seen that all the three licensors and licensees are foreign parties and the licensed products are in entirely different field vis-à-vis the assessee, which got the license from its AE for manufacturing Four-stroke diesel engines for marine and land-based power generation and for marine propulsion. The TPO has emphasized on the expression "similar" uncontrolled transaction used in Rule 10AB for considering these three companies as comparable despite the fact that the licensed products by them were quite different from that of the assessee. At this stage, we want to emphasize that Rule 10AB talks of considering the price paid or that would have been paid "for the same or similar uncontrolled transaction". The wo....
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....ncontrolled transaction is pitted against the "similar" uncontrolled transaction, there is no prize for guessing that the preference has to be given to the "same" uncontrolled transaction. The ld. DR, after going through the Agreement between the assessee's AE and Korean party, could not point out any substantial difference between the terms of the Agreement with that of the assessee except for certain cosmetic changes. As the Royalty for same product charged by the assessee's AE from another Korean party in terms of Euro per KW is more than that charged from the assessee, we hold that the transaction of payment of Royalty is at ALP. The addition of Rs. 12.98 crore and odd is, therefore, directed to be deleted. 15. The second dispute in this appeal is in respect of the transfer pricing adjustment in the segment of "Design Engineering Services". The facts anent to this issue are that the assessee rendered design engineering services to its AE for a consideration of Rs. 31,57,01,539 and computed its Profit Level Indicator (PLI) at 12.12% under the TNMM, as against the weighted average Operating Profit/Total Cost (OP/OC) of 5 comparables at 11.19%. This is how, the assessee c....