TaxTMI 
TaxTMI 
2023 (9) TMI 596
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....osses and addition on account of non-reconciliation of ITS data only direction to the assessing officer is required. In view of this, both parties argued all the grounds together and therefore we decide these appeals by this consolidated order. 02. Assessment year 2006 - 07 is the lead year. The facts for assessment year 2006 - 07 show that assessee is formerly known as United Carbon India Ltd which was incorporated on 1 October 1962 engaged in the business of manufacture of carbon black. It is part of CABOT group which is the largest carbon black manufacturers in the world and is a technological leader in its field having headquartered in Massachusetts US and operation in 21 countries. Group holds 97.79% shares in Cabot India Ltd. Cabot India Ltd produces two grades of carbon black - carcass grade Carbon Black and trade grade Carbon Black. It pays royalty at the rate of 3% till assessment year 2005 - 06 on trade grade and 2% on carcass grade. During assessment year 2005 - 06 the rate of royalty payment were enhanced in carcass grade from 2% to 5%. 03. Assessee filed its return of income declaring loss of Rs. 90,023,388/- on 29/11/2006. Return of income was processed and accepted....
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....te down the finding of the coordinate bench for assessment year 2005 - 06 at Para number 11 (page number 13). In that assessment year also the royalty was paid at the rate of 5% of sales on carcass grade carbon black and 3% of sales on trade grade carbon black. The learned TPO made adjustment at the rate of 2% of sales on carcass grade carbon black. When the matter reached before the coordinate bench, it held that assessee is dealing into product manufactured by it being unique and the technology or technical input provided by Cabot incorporation USA are also unique, it is very difficult to find out the comparable case involving supply of similar technology or technical input so as to ascertain a comparable uncontrolled price paid for the royalty. Therefore the coordinate bench held that in absence of data available in the present case in respect of uncontrolled comparable transaction, the CUP method adopted by the assessee cannot be considered as a most appropriate method to determine the arm's-length price. Therefore for assessment year 2006 - 07 also the coordinate bench, despite objection by the learned authorized representative but pressed by the learned departmental represent....
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.... by adopting CUP method as the most appropriate method stating that rates at which royalty was paid by other group companies of Cabot group to cabot Corporation are also in the similar range. The reserve bank of India has laid down guidelines which prescribed that royalty at the rate of 5% can be paid. Further the Secretariat For Industrial Assistance [ SIA] disclosed the royalty rates approved by it for various company in India for each industry wherein the rates are in the range of 3% to 8% and accordingly, the royalty paid at the rate of 5% on carcass grade carbon black to the associated enterprise is at arm's-length. The assessee further challenged that the learned AO rejected the secretary of industrial assistance royalty rates stating that they relate to year 2000 or prior to that, however those rates are pertaining for 5 years. With respect to the geography, it was stated that the royalty payer is always an Indian company. Therefore it was submitted that AO has taken the benchmarking of royalty by adopting internal cup at the rate of 3% with respect to the trade grade carbon black Royalty rates, is not acceptable benchmarking methodology. The learned CIT - A passed an appell....
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....ween 3% to 30%. The assessee also submitted the rates of the secretary of industrial assistant website wherein the royalty rates ranged between 3% to 8% and further compared the royalty paid by the group companies where there is no management or control. iii. assessee also benchmarked the transaction using the TRANSACTIONAL NET MARGIN METHOD also as the alternative benchmarking methodology by comparing its profit margin with its competitor Phillips Carbon after making certain adjustments. iv. The learned transfer pricing officer rejecting all the contentions of the assessee held that 3% royalty was already allowed on trade grade carbon black and the same rate be applied for carcass grade rate thereby restricting the disallowance to 2% on carcass grade. v. Learned CIT - A confirmed the same. vi. The learned authorized representative stated that benchmarking methodology adopted by the assessee applying CUP method is the most appropriate method is correct in all respect. vii. Alternatively it was stated that the "other method" may be allowed to be benchmarked and for other method the SIA and RBI circular rates may be adopted as the comparable rate for benchmarking royalty tr....
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....me is not applicable. f. Further the RBI rates and SIA rates cannot be considered appropriate for benchmarking of the royalty. He submitted that transfer pricing provisions are Anti avoidance provision and they cannot be compared with the RBI rates and SIA rates. g. Further there is no FAR available of RBI rates or SIA rates, therefore how those are comparable is not demonstrated. h. Even in the "other method" the benchmarking based on RBI rate or SIA rates cannot be made as those are coupled with several other conditions and consideration which are not shown to be existing similarly in case of the assessee. i. With respect to the decision of Dow Agrosicence India private limited the learned DR submitted that it is not the case of the "other method" , further the CUP method deals with the actual price charged in comparable circumstances. Further for assessment year 2004 - 05 in that case it clearly shows that in assessee's own case the SIA and the reserve bank of India has approved the rates of royalty. Those rates are not in the case of somebody else but in the case of that assessee. Assessee in that case adopted the comparable uncontrolled price method and the comparable ....
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....at no data available for that year in respect of uncontrolled comparable transactions which have a similarity or at least a close similarity with the transaction of the assessee with its associated enterprise involving payment of royalty. For these reasons, the coordinate bench held for that year that the CUP method adopted by the assessee cannot be considered as the most appropriate method to determine arm's-length price. Therefore on the facts of the case and arguments by the parties the coordinate bench for that year It held that CUP method cannot be regarded as the most appropriate method for determining the arm's-length price of the royalty paid by the assessee as there is no data available in respect of uncontrolled transactions which are similar or at least closely similar to the transaction of the assessee company with its associated enterprise. In the circumstances the coordinate bench set-aside the issue back to the file of the learned assessing officer to determine the most appropriate method first for benchmarking of this transaction. However for the current year, the assessee as per letter dated 15 January 2015 before the Additional Commissioner Of Income Tax [ THE TPO....
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....nsactional net margin method as the most appropriate method. However we do not have any reasoning from either side that why the transactional net margin method is the most appropriate method for benchmarking royalty transaction. Further assessee has selected only one comparable i.e. Phillips Carbon Ltd, made a lot of adjustments to the margin of the comparable. Assessee has also categorically held that the capacity of the comparable is five times more than the capacity of the assessee. The comparable company is having huge profit whereas the assessee is having the huge losses because of the captive power plant generating power with the comparable. The age of the plant of the assessee and the age of the plant of the comparable was also distinguished. Ultimately the assessee itself stated that that comparable is not a good comparable because of Many reasons. Therefore in the words of the assessee itself the transactional net margin method fails. Therefore the benchmarking conducted by the assessee is a futile exercise and cannot be given any credence. In view of this, the transactional net margin method pleaded before the learned assessing officer/transfer pricing officer is correctl....
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....he transaction by adopting the cup method as held above. The learned AO/TPO may examine the benchmarking and decide the issue afresh. In the result, ground number 1 - 7 of the appeal for assessment year 2006 - 07 are allowed with above directions. 014. Appeal of the assessee for assessment year 2006 - 07 is allowed for statistical purposes. 015. ITA number 2539/M/2014 for assessment year 2007 - 08 is filed by the assessee wherein the adjustment with respect to the arm's-length price of the royalty payment to its associated enterprise of carcass grade carbon black was made by proposing an adjustment of Rs. 24,540,961. The facts and circumstances of the case for assessment year 2007 - 08 are identical to the facts and circumstances of the case for assessment year 2006 - 07. As we have decided the appeal of assessee for that year, with similar directions we set-aside this appeal also back to the file of the learned TPO. 016. In the result ITA number 2539/M/2014 filed by the assessee for assessment year 2007 - 08 is allowed for statistical purposes. 017. ITA number 7496/M/2012 is filed by the assessee for assessment year 2008 - 09 wherein the transfer pricing adjustment of Rs. 80,1....
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.... honourable Bombay High Court for assessment year 2002 - 03. Further, the learned AO himself has accepted the same in subsequent year. 019. The learned departmental representative did not challenge the same. 020. Accordingly we direct the learned assessing officer to delete the addition made by invoking provisions of section 145A of Rs. 25,397,539/-. Accordingly ground number 1 - 4 of the appeal are allowed. 021. Ground number 8 is with respect to allowance of brought forward losses from earlier years. The assessee stated that it has carried forward loss available of Rs. 111,231,608/- where the learned AO has allowed the set off only to the extent of Rs. 77,273,618. Further the assessee has pleaded before us by way of an additional ground of appeal that the learned assessing officer has not allowed the carry forward of losses and unabsorbed depreciation for which assessee is eligible. 022. After hearing the parties, we set-aside the issue back to the file of the learned assessing officer with a direction to assessee to submit before the learned assessing officer the chart of allowability of carry forward of depreciation and business losses, the learned AO may examine the same a....
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..../M/2016 and the learned assessing officer has filed appeal in ITA number 2595/M/2016 against the appellate order passed by the Commissioner Of Income Tax (Appeals) - 55, Mumbai dated 30/11/2015. 031. In assessee's appeal in ITA number 2108/M/2016 the assessee has raised all the grounds of appeal starting from 1 - 9 against the benchmarking of the international transaction of the payment of royalty. The assessee has made a royalty payment of Rs. 98,745,449/- the learned transfer pricing officer has determined the arm's-length price of the royalty at Rs. Nil. The reasons given are similar as in assessment year 2008 - 09. The learned CIT - A has determined the arm's-length price of the royalty payment at the rate of 3% in case of carcase grade carbon black and also in case of trade grade carbon black at the same rate. Thus the learned CIT - A has restricted the arm's-length price adjustment on carcase grade carbon black royalty payment by 2% as held in earlier years. The ld AO is also in appeal against that appellate order. 032. We have already set-aside the issue back to the file of the learned assessing officer for the earlier years with respect to the benchmarking of the royalty ....
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....he addition of Rs. 77,043,394/- on account of depreciation on retired assets. 039. The appeal of the assessee is with respect to the assessment order wherein the arm's-length price of the royalty payment made by the assessee of Rs. 28,200,762/- is considered at Rs Nil. The assessee is also aggrieved with the partial grant of credit for carry forward of losses. 040. We find that with respect to the royalty the issue involved is identical to the issue involved in the appeal of the assessee for assessment year 2008 - 09. We have set-aside that appeal of the assessee back to the file of the learned assessing officer with specific direction, we also for similar reasons and direction set-aside the appeal of the assessee to the file of the learned assessing officer to examine the arm's-length price of the royalty transaction. 041. With respect to the carry forward of losses, we direct the learned assessing officer to grant assessee the correct amount of carry forward losses after examining the necessary detail submitted by assessee. In the result ground number 1 - 9 of the appeal of the assessee are allowed with the direction and ground number 10 and 11 of the appeal are allowed. 042.....