2017 (6) TMI 1388

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....payment of Royalty and FTS. 2.3. failing to accept that representatives of Gruner AG, Germany visited India from time to time to render the technical services. 2.4. incorrectly assuming multiple year data has been used for the purpose of TNMM method. 3. Ld. DRP erred by failing to appreciate that a comparable under TNMM may not be a comparable under CUP method. 3.1. Failed to appreciate instructions followed by Hon'ble ITAT on same issue in AY 2011-12. 3.2. erred in correctly identifying the proportion of the controlled transaction of royalty undertaken by Havells India Limited. 3.3. erred by incorrectly deriving the amount of royalty to be paid as percentage of Non-AE sale of assessee. 4. Ld. DRP erred by confirming the rejection of 7 comparables out of total 9 comparables determined in TP study on incorrectly assuming that they are not incurring expenditure on Royalty/ FTS. 5. Ld. DRP has erred in law and on facts of the case by confirming to benchmark under CUP Method the transactions of Royalty and FTS payments even when these are justified under TNMM. 6. Ld. DRP failed to appreciate the judgme....

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.... 3,54,01,007 Payment of royalty 53,60,429 5,35,39,092 4,81,78,663 Total expenses on royalty and technical fees 93,06,302 9,28,85,971 8,35,79,669 6. The TPO rejected justification of the Arm's Length Price for the aforesaid 2 transactions out of 6 transactions under the aggregation approach under TNMM adopted by the assessee and made an adjustment of Rs.8,35,79,699/-. The TPO identified CUP as the most suitable method for the aforesaid 2 transactions by comparing the payment of royalty/FTS of the set of 9 comparables identified under TNMM by the assessee. Accordingly, the TPO proposed the addition of Rs.8,35,79,669/- on account of Arm's Length Price. 7. Being aggrieved the assessee filed the objection before the Dispute Resolution Panel (DRP) u/s 144C(5) of the Act. However, the ld. DRP relied on the decision of the ITAT for the assessment year 2011-12 in assessee's own case wherein the decision of the TPO to segregate international transactions of payment of royalty and FTS from other international transactions was upheld. However, regarding the direction of the ITAT to apply the CUP method, the ld. DRP observed that in the absence of comparable dat....

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.... Which are making similar expenditure as being incurred by the assessee. Since, the comparables under the CUP should be making similar expenditure, therefore, the rejection of such comparables is also upheld by the Panel. The Panel therefore, rejects the claim of the assessee to apply TNMM as the MAM and upholds CUP as the MAM. The Panel also upholds the selection of comparables by the TPO and the computation of arm's length as determined by the TPO. The Panel thus, refuses to interfere with the order of the TPO/AO." On the direction of the ld. DRP, the AO passed the impugned order and made the addition of Rs.8,35,79,669/-. 8. Being aggrieved the assessee is in appeal. The ld. Counsel for the assessee submitted that in the preceding year, the ITAT in ITA No.6794/Del/2105 observed that the approach adopted by the TPO was not proper and against the methodology of CUP. A reference was made to page nos. 83 to 87 of the assessee's paper book which is relevant portion of the order of the ITAT for the assessment year 2011-12. It was further submitted that the ITAT rejected the panel of selection of comparable under CUP but the DRP failed to follow those instructions which wer....

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....iness of the assessee, it may be suitable to apply TNMM at the entity level i.e. aggregation approach. However, for the royalty/FTS, the transactional approach under the TNMM may not be suitable due to unavailability of information of uncontrolled comparables at the transaction level, thus, in such circumstances, entity level information is the best recourse available. It was pointed out that the ld. DRP failed to acknowledge the ruling of the Hon'ble Delhi High Court in the case of Magneti Marelli (supra), which was placed before the ld. DRP vide submission dated 07.12.2016, in this regard a reference was made to page no. 43 of the assessee's paper book. It was prayed that the assessee's case should be viewed on the basis of the ruling of Hon'ble Delhi High court in the assessee's own case for the assessment year 2011-12 and in the case of M/s Magneti Marelli (supra). 12. In his rival submissions the ld. DR strongly supported the order of the authorities below. 13. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is noticed that an identical issue was involved in assessee's own cas....

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....n return for the technical know-how, the assessee agreed to compensate the AE through a fee amounting to US$ 2 million for each LTAA (total US$ 8 million equivalent to over Rs.38 crores) on installment basis. It explained that the overseas AE provides crucial and pivotal support to the assessee in carrying out its business in India by providing access to patented products and technology developed by it. The assessee argued that without receiving such technology/technical know-how/ information/assistance from the overseas AE, the assessee would not be able to conduct/carry out manufacturing and sales of ECUs in India at all. The assessee strengthened this contention by saying that it earned revenue of Rs.42.23 crores from the sale of ECUs using the above mentioned technical knowhow as a result of payment of Rs.38.59 crores during FY 2008-09. Further, the assessee also earned aggregate revenue of Rs.174.89 crores during a period of 3 consecutive years (i.e. FY 2008-09, FY 2009-10 and FY 2010-11) against a total payment of US $ 8,000,000, equivalent to Rs.38.59 crores paid in FY 2008-09. During the transfer price proceedings, the assessee was unable to substantiate the need for paymen....