TaxTMI 
TaxTMI 
2019 (7) TMI 1992
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....justments 1. In making an adjustment of Rs. 21,37,70,000 to the total income of the Appellant under section 92CA(3) of the Act on account of adjustment in the arm's length price of international transactions of the Appellant. Payment of Royalty 2. In not accepting the economic analysis undertaken by the Appellant using the Transactional Net Margin Method ('TNMM'), in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('the Rules'), for the determination of the arm's length price in connection with the international transaction of payment of royalty to its associated enterprises ('AE'). 3. In determining the arm's length price for the trademark royalty paid to Cadbury Schweppes Overseas Limited at Rs. NIL vis-a-vis the actual payment of Rs. 10,74,54,000 on the ground that the same was subsumed in the technical assistance royalty paid by the Appellant. 4. In not considering the agreements submitted as Comparable Uncontrolled Price ('CUP') by the Appellant while determining the arm's length price. 5. In not considering the approvals received from Secretaria....
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....the allocation by the Appellant on scientific basis, for determining profits eligible for deduction under section 80-IC of the Act. Thus, reducing the said deduction claimed in the Return of Income from Rs. 41,06,18,903 to Rs. 28,96,63,777. The above grounds are without prejudice to one another. The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal hearing. Apropos issue relating to transfer pricing adjustment for payment of royalty. Ground No. 2 to 5 relates to this issue. 3. The assessee in this case is a listed company engaged in manufacturing and marketing of malted food and drinks and chocolates. On this issue the Transfer Pricing Officer (TPO) noted that Cadbury India had entered into Technical Assistance and Royalty Agreement with AE M/s. CSOL on 9.3.1993 for availing itself of the benefits of the said technical know-how developed by CSOL relating to the manufacturing, processing, distributing and marketing of products as well as the benefits of the continuing research and development undertaken by CSOL. This agreement was effective for a time of ten year....
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....oduct launches such as Bourneville, Cadbury silk etc. * To increase sales of its existing products especially where there is a downward trend. * To create awareness of discounts offered on various products at a particular point of time. * To create a recall vale of an Indian sweet on festive occasions such as Diwali, New year, Holi etc; * To reach out to rural markets for its low cost products. * To market its health drinks/nutraceutical products (Bournvita); etc. However, considering that similar adjustments made in the earlier assessment year, and the fact that it is a subject matter of appeal before the CIT(A), TPO proposed to follow the view taken in the preceding year and make similar adjustment in, the current year. Further, the observations made by the CIT(A) on advertisement and marketing expenses while adjudicating the appeal for AY 2002-03 is not binding since department proposes to appeal the same in the tribunal. In view of the discussion above, TPO computed Rs. 2.56 crores (1.88%) as the cost apportioned or allocable out of the advertisement and marketing cost incurred by the assessee for the benefit accrui....
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....1.25% of net sales. The reasoning on which the Assessing Officer has denied royalty payment on trademark are basically that as per the terms of earlier agreement approved by the Government, the assessee can pay royalty for technical know-how at the maximum rate of 2%, whereas, the assessee has paid royalty both for technical know-how and trademark aggregating to 2.25%. He has also referred to the Press Note issued by the Government clarifying that royalty payment cannot exceed 2% and further the royalty payment for technical know-how subsumes royalty payment for trademark. In this context, the Transfer Pricing Officer has also referred to similar dispute arising in the preceding assessment years. It is evident that the learned Commissioner (Appeals) has upheld the disallowance of royalty payment of trademark simply relying upon the order passed by him in assessee's own case for assessment year 2005-06. As could be seen from the material available on record, the assessee has entered into agreement with its current company in the year 1993, for availing technical know-how for which it was required to pay royalty @ 2%. Subsequently, the assessee has entered into fresh agreements w....
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....ssions and perused the material before us. We find that while deciding the appeal for AY 2002-03(supra) the Tribunal has decided the issue as under:- "37. We have heard the detailed arguments from both the sides. The basic issue is the correctness of ALP on the royalty payments made by the assessee company to its parent AE on account of technical know-how and trademark usage. 38. From the arguments of the DR, made on behalf of the TPO, the agreement for paying royalty on technical know how at 1.25% and trademark usage at 1.25%, were overlapping and thus, TNMM method used by the assessee was incorrect. According to the TPO, the best method to ascertain ALP in the interest case was CUP, as the transactions were controlled. This was reasonable, as no data was available from independent source to benchmark the transactions. 39. On going through the records and the orders of the revenue authorities, we find that in so far as the payment of royalty on technical know-how concerned, the assessee has been paying to its parent AE right from 1993, as, other group companies are paying across the globe. It has been accepted by the TPO that the payment does not effect ....
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....file of the Assessing Officer, we deem it appropriate to follow the precedent and set aside the issue to the file of the Assessing Officer. The Assessing Officer is directed to consider the issue afresh keeping in mind additional submissions being made by learned counsel. 11. Another issue raised in Ground No. 6&7 relates to disallowance of payment of royalty on technology paid to Cadbury Adams USA LLC. 12. It transpires that this issue has been decided by learned CIT(A) by upholding the order of TPO by following his earlier year order. It transpires that in assessee's own case for A.Y. 2006-07, the ITAT has decided this issue as under:- 22. We have considered rival submissions and perused materials on record. Undisputedly, the assessee has paid royalty to CAUSA @ 2.7% of net sales as per the agreement executed on 1st June 2006. It is the claim of the assessee that the payment of royalty is for use of trademark as well as technical know-how. However, the Transfer Pricing Officer after examining the agreement between the assessee and CAUSA has opined that the agreement only provided for use of trademark and it does not provide for use of technical know-how. It is ....
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....anuary 2006, the parties to the agreement intended to transfer and avail technical know-how/knowledge relating to the licensed product along with trademark. Considering the submissions of the learned Sr. Counsel for the assessee that in subsequent assessment years royalty paid by the assessee @ 2.7% of sales was accepted by the Transfer Pricing Officer, the letter dated 26th April 2016, sought to be produced by the assessee as additional evidence, in our view, is of much significance since it will have a crucial bearing in determining whether CAUSA has authorised the assessee to use technical know-how along with trademark, hence, is admitted as additional evidence. Even, without taking cognizance of the aforesaid additional evidence, the original as well as amended agreement make it abundantly clear that assessee has also availed technical know-how from CAUSA. Further, the Departmental Authorities don dispute the genuineness or authenticity of the amended agreement. What they are disputing is the date from which the amended agreement is effective. If the departmental authorities in the subsequent assessment years have allowed payment of royalty both for trademark and technical know....
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....ent will be separate and differentiated from any service provided to the Recipient by the Group parent. 15. TPO observed that in the 3CBB Report, the arm's length price determined by the assessee (at Rs. 9.92 crores) was the same as recorded in the books of accounts on the basis of the above referred agreement (4.80 million Singapore Dolar per anum). The assessee stated to have used Transactional net Margin Method (TNMM) for recording this transaction. 16. Before TPO the assessee submitted various details. The TPO observed that show-cause notice was issued to the assessee as to why regional management charges should not be made on last year basis. The TPO proceeded to reject the submissions of the assessee and treat arm's length price as nil by concluding that similar assessment has made by his predecessor in earlier year. 17. Upon assessee's appeal learned CIT(A) referred to his earlier order for A.Y. 2006-07 and upheld the action of the TPO. 18. Against this order, assessee is in appeal before us. 19. We have heard both the counsel and perused the records. We find that this issue was remitted by the ITAT back to the file of the Assessing Officer by obse....
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....l authorities have alleged that relevant documentary evidences were not produced, the assessee claims that all evidences were produced. Without entering into the controversy as to whether assessee has produced the evidences or not, we are of the opinion that evidences brought on record, as contained in the paper books filed before us, deserve to be examined on their own merit before deciding the issue one way or the other. More so, when as per assessee's claim in the subsequent assessment years the Transfer Pricing Officer himself has allowed a part of the service charges paid by the assessee to CSAPL, though, the quantum is in dispute. If in the subsequent assessment years the Transfer Pricing Officer has accepted the fact that the assessee has availed services from CSAPL under the very same agreement, there is no reason to dispute assessee's claim of availing services in the impugned assessment year if the assessee can demonstrate such fact by furnishing proper documentary evidences. In that event, the Transfer Pricing Officer certainly cannot determine the arm's length price at nil by applying the benefit test. Therefore, on overall consideration of facts and circums....
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....wherein the issue has been decided against the assessee. Against this order, assessee is in appeal before us. 24. It transpires that this Tribunal in assessee's own case for A.Y. 2006-07 has decided this issue and allowed the claim of the assessee as under:- 33. We have considered rival submissions and perused materials on record. It is evident, the Assessing Officer disallowed assessee's claim on capitalized value of marketing know-how simply relying upon the assessment order passed for the assessment year 2003--04. However it is a fact on record, while deciding similar issue in assessment year 2003--04 and 2004--05 in ITA no. 3510/Mum./2011 and ITA no. 4205/Mum./2011, dated 13th March 2015, the Tribunal has allowed assessee's claim of depreciation. Same view was reiterated by the Tribunal while deciding assessee's appeal for assessment year 2005-- 06 in ITA no. 5470/Mum./2012, dated 18th May 2016. Therefore, respectfully following the consistent view of the Tribunal on this issue in assessee's own case in the preceding assessment years, we allow assessee's claim of depreciation. 25. Following the precedent as above, we decide this issue in f....
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.... parries. 28. Considering the above, the AO noted that the assessee in its letter stated that different methods are employed in allocating common expenses to various units of the company. That the broader question of uniformity in allocating expenses to various divisions has not been satisfactorily answered. That a multinational company like Cadbury India Ltd., needs to have a system of at least satisfactorily apportioning their expenses. That any allocation of expenses however should not depend upon the fact that the income generated from a particular division is chargeable to tax or not. That the apportionment need to be based on uniform and reasonable principles which are fair and transparent. From the response of the Assessing Officer observed that:- "Direct market expenses relating to one particular product (Bournvita) are said to be allocated against various units on the basis of sale of that particular product. The expenses on other employees at Head Office are allocated on the basis of number of employees at each factory. This allocation is totally unacceptable as the Head Office renders services to all divisions and sub-divisions of the company and by ....
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....ds decrease in stock, learned Counsel of the assessee submitted that this is actually change in inventory at Baddi unit and it is submitted that there is no question of any allocation of sales ratio. As regards voluntary retirement scheme expenses, learned counsel contended that Baddi unit was a new unit and none of the employee at Baddi unit has opted for VRS, hence he submitted that there cannot be any allocation. However, learned counsel agreed that for actually verifying this aspect this matter can be remitted to the file of the Assessing Officer. As regards interest expenditure learned counsel submitted that there are no financial charges attributable to Baddi Unit. He submitted that financial charges comprise majority of bill discount, letter of credit charges, bank charges etc. They cannot be allocated to Baddi unit since Baddi unit is a cash surplus unit. As regards allocation of operation and establishment cost, learned counsel made following written submissions:- * MIFPL manufactures Bournvita and Cadbury Dairy milk at its Baddi factory while it manufactures only chocolates at other factories. Because of the product mix, cost of the material for Bournvita is lowe....