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2023 (8) TMI 1179
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....line in view of the orders of this Hon'ble ITAT in the Assessee's own case for AY 2012-13 [ITA No.7714/DEL/2017], AY 2013-14 & AY 2014-15 [ITA No. 7463 & 7464/DEL/2018] and AY 2015-16 [ITA No.9073/De1/2019], wherein similar grounds are allowed by this Tribunal. A. Transfer Pricing Adjustments 3. That the TPO/DRP grossly erred in law in making/sustaining TP adjustments of INR 21,97,22,094/- being payment of Export Commission amounting to INR 20,92,73,824/- and on payment of Model Fee amounting to INR 1,04,48,270/- 4. That the TPO/DRP have erred in rejecting the transfer pricing methodology adopted by the Appellant for benchmarking its international transactions without revealing any basis thereof. 5. The TPO/DRP erred in rejecting the 'combined transaction approach' adopted by the Assessee for benchmarking its operating profitability using the TNMM method. 6. That without prejudice, the TPO/DRP erred in applying the CUP method and the "benefit test" for determining the ALP of the transactions at NIL. 7. That the TPO/DRP erred in making/upholding the adjustments while applying the principles of "commercial expedien....
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....s were significantly higher even after incurring the expenditure on account of export commission. 8.8 That the TPO/DRP completely failed to apply the correct transfer pricing approach for determining the ALP of this international transaction and further failed to bring any evidence on record that the payment of export commission was in any way excessive as compared to independent transactions of similar nature. 8.9 That the TPO/ DRP erred in rejecting the alternate analysis submitted by the Appellant using CUP as a most appropriate method on the basis of lack of similar comparable/s and stressing on the need of product similarity in applying CUP on one hand and on the other hand applied CUP in a manner which is fundamentally flawed. Re: Payment of Model Fee -INR 1.04.48.270/- 9. That the TPO/DRP erred on facts and in law making adjustment of INR 1,04,48,270 being Model Fee paid by the Appellant to Honda Motors Japan (HMJ) for exports to AEs. 9.1 That the TPO/DRP completely failed to appreciate that the payment of Model fee is paid for launch of new models/upgraded models as per the terms of the Technical Collaboration Agreement dated 13.....
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....he above ground, the AO/DRP grossly erred in not appreciating the fact that the Appellant was entitled to make payments to the dealers in respect of advertising material as per the dealer agreement. 11.3 That the AO/DRP also erred in law in not appreciating that even if the expenditure resulted in benefit to the dealers (third parties), the same was still an allowable expenditure being incurred wholly and exclusively for the purpose of business of the Appellant. 11.4 The AO/DRP also erred in not appreciating that the sales tool expenses were incurred in respect of standardisation of the dealer's showrooms who were selling the product's manufactured by the Appellant and hence the expenditure was wholly and exclusively for the purposes of the Appellant's business. 11.5 That the AO/DRP erred in making the above disallowance when there was no dispute regarding the genuineness of such expenditure. Re: Capitalization or Royalty -INR 159.17,81,250 12. That the AO/DRP grossly erred in coming to the conclusion that 25% of the running royalty of INR 848,95,00,0001- was to be treated as capital in nature as it resulted in enduring benef....
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....ent of INR 30,00,253/-. 15.1 That the AO/DRP erred on facts and in law by applying the provision of amended section to the fact of case while disallowing the claim u/s 80JJAA. 15.2 That the AO/DRP grossly erred in not appreciating that the claim was made as a part of one of the three Assessment Years under pre-amended section 80JJAA where conditions such as wages cannot exceed INR 25,000 per month and that workmen should participate in recognized provident fund were not prescribed under the Act and thus were not applicable for making the claim. Re: Payment o[Gratuity - INR 20,89,14,750 16. That on the facts and circumstances of the case and in law, in relation to additions made by the AO basis intimation issued under section 143(1) of the Act. 16.1 That AO has erred in passing a non-speaking order under section 143(3) of the Act and as such no details or findings or reference is mentioned basis which addition is made relying on the intimation issued by CPC under section 143( I) of the Act. 16.2 That the AO erred in rejecting the revised income filed by the Assessee and sustaining the addition made in the intimation issued by CPC....
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.... on payment of export commission @ 5% of the FOB value of such exports. The assessee in its TP study had benchmarked the transactions related to Export Commission taking combined transaction approach using TNMM. The TPO rejected this approach without any basis and selected two transactions and decided to benchmark them separately using CUP method. On such payment of export commission, the TPO / DRP determined the arm's length price at NIL, for the following reasons- (a) No service was provided by the AE to deserve any commission. (b) The assessee was a contract manufacturer and only exports as per orders received from the AE 4. Ld. Counsel of the assessee submitted that the transaction of payment of export commission was intrinsically linked with the main activity of manufacture and sale of products and as such could not be alienated to be bench marked separately. He submitted that the TPO order is self contradictory because at one place, it is held that the assessee is providing services for building the brands of the AEs in terms of its export activities and on other hand, it was held that the services provided by HMJ in terms of providing the dealer netw....
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.... coordinate bench in assessee's own case for assessment year 2015 - 16 has considered this issue as under:- "7. Ground No. 2 is with respect to adjustment on account of export commission and royalty paid to associated enterprises. This is challenged by the assessee from Ground No. 2 to Ground No. 7 of the above appeal. 8. The ld. AR submitted this issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee's own case in ITA No. 7463 and 7464/Del/2019 for Assessment Year 2013-14 and 2014- 15 dated 30.09.2020. He submitted that there is no change in the facts and circumstances of the case with respect to TPO adjustment of export of commission. With respect to the transfer, pricing adjustment related to royalty paid on sales he also submitted that the coordinate bench in assessee's own case for Assessment Year 2008-09 to 2014-15 allowed this ground in favour of the assessee holding that the assessee has sold the good on principle-to-principle basis and has received the sale consideration. He further relied upon the decision of the coordinate bench in assessee's own case in ITA No. 7963 and 7964/Del/2019 for Asse....
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.... of products and as such could not be identified separately for benchmarking. It is also claimed by the assessee export commission is paid to its parent entity to get access to various global markets where the AE exists as network. The identical issue arose in the case of the for Assessment Year 2013-14 and 2014-15 wherein, coordinate bench deleted adjustment relying on the decision of ITAT in assessee's own case for Assessment Year 2008-09 in ITA No. 132/Del/2013. The ITAT quoted in para no. 12 and 13 of that order has followed the same. With respect to the issue of adjustment on account of payment of export commission, the coordinate bench has dealt with the same at para No. 7. The coordinate bench has given its reasons to delete the above adjustment in para No. 7.6 to 7.17 as under:- "7. Now, we will address to the grievance relating to addition on account of payment of export commission - Under technical know-how agreement dated 13.07.2000 the assessee was entitled to use technical know-how provided by Honda Motor Company Limited Japan for manufacture and sale of two wheelers and parts in India and was not authorized to sell its products or part in any oth....
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..... The comparative profitability statement is as under:- 7.10 For the sake of repetition, the entire edifice of the TPO/DRP's finding is based upon the assumption that the assessee is operating as a contract manufacturer with respect to export of good. 7.11 In our understanding of the facts of the case in hand, we are of the considered view that the TPO/DRP have grossly failed in distinguishing between the function of the license manufacturers and contract manufacturers. 7.12 A perusal of the business profile of the assessee viza- viz agreement with the parent, we find that the assessee is a licensed manufacturer such as the assessee, the seller is entitled to compensation which includes returns attributable to exploitation of intangibles such technical know-how etc i.e. market determined prices. On the other hand, in the case of a contact manufacturer, the manufacturer acts in accordance with the instructions of the buyer and is only entitled to routine cost plus returns. It would be pertinent to refer to the decision of the Tribunal in assessee's own case in ITA No. 132/Del/2013 held as under:- 7.13 A similar decision was taken by the Tr....
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.... of the export commission payment. 7. Apropos issue of transfer pricing adjustment relating to model fee paid for strips and color change : The TPO/DRP have made the aforesaid disallowance by holding that model fee paid by the assessee to its AE is nothing but in the nature of royalty which is already paid separately to the AE. It was held that the model fee appearing as a separate transaction is in essence a duplicate transaction already subsumed in the royalty payment by the assessee to its AE. 8. The submissions of the assessee in this regard are that the assessee has entered into a Technical Know- How Agreement dated 13.07.2000 with is parent entity HMJ to use the technical know- how for manufacture and sale of two wheelers and parts in India. The products offered by the assessee in the Indian market are required to be constantly updated owing to the changes in the technology and the needs of the industry. Over the years, HMJ has invested considerable amount of money for the development of new products based on the research analysis of the domestic market provided by assessee. It is pertinent to note that the development of new models is imperative in the industry in whic....
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.... has just picked up the amounts from the details provided by the assessee with regard to payment of Model Fee and decided to take it as NIL for the fee paid for modifications related to 'color and strip changes'. The DRP / TPO despite considering the above transaction exceeded his jurisdiction in disallowing mark-up charged by the AE in complete disregard to the contractual arrangement between the parties. The DRP / TPO whilst benchmarking an international transaction, their scope is limited to determination of arm's length price and it is not open to step into the shoes of a businessman to adjudge commercial expediency of a transaction. Ld. Counsel of the assessee placed reliance on the following decisions: (i) Hon'ble Delhi High Court in Sony Ericsson Mobile Communication India (P.) Ltd. v. CIT ITA No. 16/2014 (ii) Sabic Innovative Plastics India Pvt Ltd Vs Assistant Commissioner of Income Tax (ITA No.1125/Ahd/ 2014 and IT (TP) No. 427/Ahdfl6 Assessment years: 2009-10 and 2011-12 (iii) Frigoglas India Pvt. Ltd. vs DCIT [ITA No. 1906/Del/2015] (iv) Hero Motor Corp v. DCIT, [2019] 108 taxmann.com 433 (Delhi - Trib.) (v) D....
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.... given below :- "12. Coming to ground number 7 of the appeal with respect to the disallowance of expenditure of signage is of Rs. 7,545,398/- we find that this issue is also been dealt with by the coordinate bench in assessee's own case for assessment year 2015 - 16 as under:- "13. Ground No. 8 of the appeal is with respect to the expenses of signage, which was considered by the ld. AO as capital expenditure whereas the assessee claimed it to be revenue expenditure. On carefully consideration of rival contentions, we find that this issue is squarely considered the coordinate bench in ITA No. 7463 and 7064/Del/2018 at para No. 3 of the order. In that para the coordinate bench held that the order of ITAT in assessee's own case for Assessment Year 2012-13 in ITA No. 7714/Del/2017 wherein, as per para No. 26 the coordinate bench held that the expenditure on the signage is allowable to the assessee as revenue expenditure signage are fixed at dealers premises and it dies bit satisfy the test of ownership with the assessee. Thus it was held that same is revenue expenditure as under:- "3. Disallowance of expenditure on signages - A similar issue was considere....
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....y for the purpose of business of the assessee. AO/DRP disallowed the said expense holding not to be a contractual liability. It is a contractual liability and even otherwise allowable expenditure. In this regard, he relied upon the orders of Tupperware India (P) Ltd. Vs. CIT (2015) 234 Taxmann 56 (Del) and SA Builders Vs. CIT [2007] 288 ITR 1 (SC). He further submitted that this issue is squarely covered by the decision of the ITAT in assessee's own case for AY 2015-16 & 2016-17 (supra). 14. We have heard both the parties and perused the material on record and also the decisions of the coordinate Bench of the Tribunal in assessee's own case. The coordinate Bench of the Tribunal in AY 2016- 17 on this issue has held in favour of the assessee and the relevant portion of the said order is reproduced as under :- " Respectfully following the decision of the coordinate bench in assessee's own case for assessment year 2015 - 16, we also hold that sales tool expenditure are revenue expenditure in nature and therefore the disallowance made by the learned assessing officer of Rs. 1,92,90,061/- is directed to be deleted. Accordingly, ground number 8 of the appeal is allowed." ....
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.... deduction u/s 80G. This amount also formed part of the CSR initiative of the assessee company which amounts to INR 22,81,29,964/-. It is observed that the assessee has duly disallowed CSR expenditure of INR 22,81,29,964/- debited to the statement of profit and loss under section 37 of the Act. DRP rejected the claim of the assessee by saying that the donation is pursuant to the CSR policy of the company and lacks the test of voluntariness as required under section 80G. The AO has disallowed the claim on the ground that anything donation over and above the CSR u/s 80G will be only allowed as the CSR expense is not an allowable expense u/s 37 of the Act. Ld. Counsel of the assessee placed reliance on the following decisions :- (i) JMS Mining (P.) Ltd. vs. PCIT [2021] 130 taxmann.com 118 (Kolkata - Trib.) (ii) Goldman Sachs Services (P) Ltd. vs. JCIT (2020) (117 taxmann.com 535) {ITAT Bangalore} (iii) First American (India) Pvt. Ltd. (ITA No. 1762/Bang/2019) (iv) Allegis Services (India) Pvt. Ltd. (ITA No. 1693 /Bang/ 2019) Ld. Counsel further submitted that if the intention was to deny deduction of CSR expenses under section 80G, appropriate am....
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....0JJAA of the Act keeping in mind the basic intent and purpose of introduction of such section. 20. Upon hearing both the parties and perusing the records, we agree that AO has erred in applying amended provisions of section 80JJAA of the Act. Hence, we remit the issue to the file of AO to examine the factual aspects in terms of the unamended provisions of section 80JJAA. The issue of liberal interpretation raised by the ld. Counsel for the assessee is not tenable. The AO will act as per the sanguine provisions of the Act. 21. Apropos issue of claim of deduction of expenses in respect of technical know-how : The assessee raised an additional claim of deduction of expenses of Rs. 265,78,13,070/ - in respect of Technical Know how. The assessee contented that in light of Circular No. 14(XL- 35) dated 11.04.1955, it has been made clarified by the CBDT that the officers of the Department shall genuinely provide reliefs/remedies available to assessee in cases wherein the assessee has missed to claim any relief available to during the assessment and therefore the claim of deduction shall be allowed by the AO. AO / DRP summarily rejected the plea of the Appellant by placing reliance o....
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.... objection before learned DRP. However, relying upon its direction on similar issue in assessee's own case in assessment year 2015-16, learned DRP upheld the decision of the Assessing Officer. 10. Before us, learned counsel appearing for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessment year 2015-16. In this context, he drew our attention to the relevant observations of the Tribunal while deciding the issue in ITA No. 9073/Del/19 dated 21.05.2021. 11. Learned Departmental Representative, though, agreed that the issue is covered by the decision of the Tribunal, however, he relied upon the observations of the Assessing Officer and learned DRP. 12. We have considered rival submissions and perused the material available on record. 13. On going through the material available on record, we find, the issue, whether, technical know-how fee paid is in the nature of capital or revenue expenditure is a legacy issue and is continuing from preceding assessment years. While, deciding the issue in the immediately preceding assessment year i.e. assessment year 2015- 16, the Tribunal,....
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..... In the former case, royalty expenditure for setting up the manufacturing facility is capital in nature while in the latter case, the royalty expense is revenue in nature. "48. The SLP filed against the said decision has been dismissed by the Hon'ble Supreme Court. Applying the said ratio, we are of the view that the assessee was entitled to claim the aforesaid expenditure as revenue expenditure in the hands of the assessee. 49. Coming to the stand of the Revenue that where the assessee itself had not claimed as deductible in its hands, then the same cannot be allowed by the additional ground of appeal. We find no merit in the stand of the Ld. DR for the Revenue as there is no estoppel in law; especially where the issue has been decided by the Jurisdictional High Court on similar facts. Accordingly, we allow the additional ground of appeal raised by the assessee. 6.1 Respectfully following the findings of the coordinate bench we decide accordingly. In view of this issue being squarely covered in favour of the assessee by the order of the coordinate bench in assessee's own case for the earlier years, we respectfully following the same allow ground num....