TaxTMI 
TaxTMI 
2024 (6) TMI 96
X X X X Extracts X X X X
X X X X Extracts X X X X
....) has erred in law and on facts in deleting the addition of Rs. 61,29,520/- being the claim payable to the customers for non-achievement of the targets fixed for sales. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary." 3. The assessee company is engaged in the business of trading in pharmaceutical products on a wholesale basis in respect of phone products. The return of income for A.Y. 2010-11 was filed on 30.09.2010 declaring total income at Rs. 7,66,12,650/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 on 10.08.2011. Subsequently, the case was selected for scrutiny by issuing notice u/s 143(2) of the Act on 29.08.2011 and duly served upon the assessee company. Thereafter, notices u/s 142(1) of the Act were issued on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at for the purpose of benchmarking this payment the assessee has considered CUP as most appropriate method. The Assessing Officer observed that the assessee has not provided any record of the uncontrolled transactions taken into account for analysing their comparability with the international transaction including a record of the nature, terms and conditions of the comparable transaction. The Assessing Officer further held that by simply relying on RBI approval, the assessee did not produce any documentary evidence as per provisions of sub rule (1)(h). The Assessing Officer further held that the approval given by RBI would not suffice as CUP rate as RBI does not fix the rate at which a domestic company can pay royalty. Thus, the Assessing Officer held that determination of ALP for the royalty payment made by the assessee by relying on RBI approval was incorrect and erroneous. During the course of proceedings, the assessee submitted a search process after taking TNMM as the most appropriate method and conducting a search for which the details were submitted vide letter dated 08.03.2013. The Assessing Officer also held that TNMM analysis is also incorrect and unreliable. The Assessin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal. 5. As regards Ground No.1 relating to addition of Rs. 2,41,23,181/-, made on account of payment of royalty, management fees and IT allocation cost account, the Ld. DR submitted that the payment of royalty was benchmarked by the assessee by applying CUP method for which the assessee relied upon the RBI's approval. The Ld. DR submitted that for the purpose of determination of ALP, the assessee is required to keep documentary evidence as described under Rule 10D(a) to (m). But except RBI approval nothing was placed on record by the assessee. This fact was totally ignored by the CIT(A). In fact, how the rate of 5% of net sales for royalty determination arrived by the CIT(A) was also not explained. 6. The Ld. AR submitted that as regards the payment of royalty, the assessee entered into a "Brand Licensing Agreement" with "Asia Pacific Pharmaceutical Investment Pte. Ltd." (Singapore AE) on 01.07.2006 for 5 years whereby assessee was assigned the right to manufacture, market and distribute two products namely, "Pyridium" & "Distaclor". Pursuant to the aforesaid agreement, assessee was required to compens....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... made in A.Y. 2007- 08 to 09-10 and accepted in those years at the price declared by the assessee i.e. no TP adjustment has been made. Hence, following principles of consistency, no TP adjustment is warranted as held in CIT vs. Excel Industries - 358 ITR 295 (SC). 7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that as per "Brand Licensing Agreement" with "Asia Pacific Pharmaceutical Investment Pte. Ltd." (Singapore AE) on 01.07.2006 for 5 years whereby assessee was assigned the right to manufacture, market and distribute two products namely, "Pyridium" & "Distaclor". The terms and conditions of the said agreement requires that the assessee has to compensate the Singapore AE with royalty @ 5% of net sales of the products. This has been benchmarked by the assessee by applying Comparable Uncontrolled Price (CUP) method as most appropriate method in the Form 3CEB report. For applying the CUP method the assessee has not found identical comparable and therefore, used external CUP as it is the suitable method for determining the ALP. The Assessing Officer has not pointed out as to why external CUP method will not be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sement of the expenditure incurred by the AE for and on behalf of the assessee and there was no mark-up over and above the cost actually incurred for providing such services. The Ld. AR further submitted that certificate in respect of the same clarifies that there is no mark-up charged as well as no such services offered to any company other than the group company. The certificate also reiterate that management fees were on the same basis which are charged by AE from other entities to whom such services are rendered. The Ld. AR submitted that the Assessing Officer/TPO cannot question the business decision of the assessee as to payment or hold that no service was rendered. The Ld. AR relied upon the following decisions: a) CIT vs. EKL Appliances Ltd. 345 ITR 241 (Del.) b) Cadbury India Ltd. vs. ACIT - 147 ITD 487 (Mum) The Ld. AR submitted that assessee has mentioned in the TP Study Report that the transaction in question is also comparable with the amount charged to other associates. Even otherwise, it is no possible for the parent company to fix margin for all associates in respect of management support services. The Ld. AR further submitted that TNMM at entit....
X X X X Extracts X X X X
X X X X Extracts X X X X
...." (Singapore AE) on 01.05.06 for Information Technology Services, Technical Support and Maintenance. The Ld. AR submitted that the amount paid by the assessee for IT services and maintenance fees were merely reimbursement of the expenditure incurred by the AE for and on behalf of the assessee and there was no mark-up over and above the cost actually incurred for providing such services. The certificate produced by the assessee indicates the following aspects: i) I.T. support and maintenance charges and other expenses charged are merely reimbursement of expenses incurred by the AE ii) There is no mark-up over the actual cost incurred by the AE iii) It was pure allocation of actual cost amongst various beneficiaries and users iv) IT support and service charges include use of various equipment and systems installed in AEs premises for providing of support services for all Information Technology related matters, use of various I.T. based systems, including enterprise, email, enterprise financial, etc., availability of network, etc. The Ld. AR further submitted that while making 100% upward adjustment, the Assessing Officer has wrongly observed tha....