TaxTMI 
TaxTMI 
2023 (2) TMI 1326
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....the Act. The transfer pricing adjustment and the Transfer Pricing Order passed should be quashed as being bad in law or illegal or void ab initio. 2. General ground challenging the transfer pricing adjustment of INR 5,63,47,440 Erred in law and in facts in making upward transfer pricing adjustment of INR 5,63,47,440 to the returned income of the Appellant in respect of the development, enhancement, maintenance, protection and exploitation ('DEMPE') activities. 3. Inappropriate allegation of the appellant performing DEMPE functions with respect to the brand Erred in law and in facts in concluding that the Appellant is engaged in performing DEMPE activities with respect to the brand without appreciating that the Appellant, being a licensee, is incurring the advertisement and sales promotion expenses to promote products sold by the Appellant. 4. Inappropriate allegation of the appellant performing DEMPE functions through Advertisement and Marketing expenditure incurred in India and inappropriately treating the same as an international transaction under section 92B of the Act Erred in law and in facts concluding tha....
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.... expenditure. III. Other Grounds of Appeal 10. Final assessment order is invalid Erred in law by contravening the provisions of section 144B of the Act by passing the final assessment order under section 143(3) r.w.s. 144C(13) of the Act dated 29 July 2022 by Jurisdictional Assessing Officer (ACIT, Circle 8, Pune) and not by the National Faceless Assessment Centre, thereby making the entire assessment proceedings as void-ab-initio and is liable to be quashed. 11. Final assessment order barred by limitation Erred in law in passing the final assessment order on 29 July 2022, i.e. beyond due date (30 September 2021) as per section 153 of the Act, without appreciating that the time limit prescribed under section 153 is the outer time limit for passing the final assessment order and hence, the final assessment order dated 29 July 2022 is time barred and liable to be quashed. 12. Erroneous levy of interest under section 234D of the Income-tax Act, 1961 Erred on the facts and in circumstances of the case and in law by levying interest under section 234D of the Act. 13. Non-consideration of Tax Credit of Tax Deducted a....
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....factual paperbook for AY 2007-08 and 2008-09 2007-08 2006-07 2005-06 Allowed - Refer para 61 and 62 on page 42 of the order and page 618 of the factual paperbook 2004-05 Allowed - Refer para 23 and 24 on page 30 to 32 of the order and page 612 to 614 of the factual paperbook 2003-04 2002-03 Allowed - Refer para 85 to 102 from page 44 to 54 of the order and page 567 to 577 of the factual paperbook 2001-02 Allowed - Refer para from 25 to 31 from page 596 to 599 of the factual paperbook for AY 2000-01 and para 55 on page 606 of factual paper book for AY 2001-02 2000-01 Accordingly, the Assessee submits that this aspect is entirely covered by Hon'ble ITAT‟s order in Assessee's case and, hence, the entire royalty paid as revenue be allowed as a deduction for AY 2018-19. 4. We find in ITA No. 1859/PUN/2018 for A.Y. 2014-15 in Assessee's own case, order dated 24-08-2022 on the same issue with regard to disallowance of royalty expenditure whether the same is capital or revenue expenditure, it was observed as follows: "The first issue is with regard to disallowance of royalty expenditure whether the same is a capital or revenue ....
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....wner of the technical know-how, technical information, trade mark etc. and that MB India is debarred from claiming any title to the said rights. Such license right cannot be equated with ownership rights. The right of MB India to manufacture and sell licensed products in India does not restrict the rights of Daimler AG to sell the Licensed Products in India. No copyright has been transferred to MB India. In fact the agreement states that copyright of the technical product documentation, including any modifications as well as the know-how and any patents contained therein would remain the property of Daimler AG. There are restrictions placed on MB India from divulging confidential information obtained under the agreement to any third party. Upon the termination of the agreement, MB India is required to immediately discontinue all assembling/ manufacturing and sales operations of the licensed products (c) From the above terms and conditions, it is clear that MB India's rights under the agreement ends on termination of the agreement. It also evident that MB India has neither acquired any assets on an outright basis nor secured any....
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....r page 88 to 130 of the Paper Book) AY 2005-06 -Allowed as revenue expenditure by the Hon'ble ITAT for AY 2005- 06 25 October 2018 (Refer page 23 to 65 of the Paper Book) AY 2006-07, AY 2007-08 and AY 2008-09 -Allowed as revenue expenditure by the Hon'ble ITAT for AY 2006- 07, AY 2007-08 & AY 2008-09 30 April 2019 (Refer Page 1 to page 22 of the Paper Book) Department Appeal pending before Hon'ble Bombay High Court for admission of appeal AY 2009-10, AY 2010-11 and AY 2011-12 -Allowed as revenue expenditure by the Hon'ble ITAT for AY 2009- 10, AY 2010-11 and AY 2011-12. 31 July 2019(Refer page 1540 of the Legal Paperbook AY 2013-14 Hon'ble DRP upheld AO‟s order considering royalty expenditure to be capital in nature Not Applicable Pending before Hon'ble ITAT AY 2014-15 Expenditure allowed by the Hon'ble CIT(A) as revenue deduction Not Applicable AY 2015-16 AY 2016-17 and AY 2017-18 Disallowed by the Hon'ble AO based on the decisions in previous years - Pending before Hon'ble CIT(A) AY 2018-19 Disallowance made by the DRP in the DRP directions. Final order pending to be issue Final order is....
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.... 2 52,20,30,00,000 Effective royalty as a percentage of sale (3 = 1 / 2 %) 3 1.23% Computation of Royalty adjustment by the learned TPO: Particulars (page 299 of the Appeal memo being TP order) Ref Amount (in INR) Total Sales of finished goods 1 52,20,30,00,000 Operating margin earned by Assessee 2 8.95% Total sales excluding net profit (being cost of sales) 3 47,53,08,31,500 Royalty paid @ 1.23% on (1) above being actual royalty paid on value added 4 64,09,76,668 Royalty payable @ 1.23% on (3) above being royalty on cost of sales 5 58,46,29,227 Difference (4) - (5) being royalty adjustment computed as difference of royalty paid on sales less royalty paid on cost of sales 6 5,63,47,440 7. The ld. T.P.O made this adjustment on account of excess royalty on a protective basis, however, the ld. D.R.P while giving its directions deleted the adjustment stating that the royalty is paid @ 5% on value added and not as a percentage of sales. The ld. T.P.O has himself worked out the percentage at 1.23% which is arbitrary and the assessee had nowhere mentioned that the royalty was paid @ 1.23% on sales. T....
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....gy. Accordingly, the Assessee had paid royalty of Rs. 64,09,76,668 for the AY 2018-19. Annexure 4 of the Technology License Agreement prescribes the detailed mechanism to compute the net value addition on which royalty is payable by the Assessee. The assessee has nowhere stated that it is paying Royalty @ 1.23% on gross sales. That figure was derived by the TPO by dividing the royalty of Rs. 64,09,76,668 by the total sales of Rs. 52,20,30,00,000. Further, in order for the provisions of Chapter X to apply, inter alia the following conditions need to be satisfied which, it is submitted, the learned TPO/ ld. DRP have failed to establish: Sr. No. Pre-conditions for determining the arm's length price Assessee's Submission 1 Existence of international transaction The learned TPO/ Hon'ble DRP has failed to establish the existence of an international transaction between the Assessee and its AE in relation to so called DEMPE functions. 2 Inappropriately not using one of the prescribed methods The learned TPO in TP order has not used any of the six prescribed method to make the TP adjustment. 3 Failed to bring any comparable uncontrolled tra....
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....been questioned by the learned TPO/ ld. DRP and, accordingly, the same should be considered to be accepted by the authorities. Even if the ld. DRP is justified in its conclusion that the TPO has adopted a method prescribed in rule 10AB, nevertheless, the upholding of the addition of an ad hoc 3.8% of the expenses on advertising, marketing and publicity can never fall within the scope of the prescription in rule 10AB. Further, with regard to the specific clauses referred by the learned TPO to establish the existence of an international transaction, the assessee submits as below: Sr. No. Agreement Learned TPO's allegation Assessee's Submission 1 Distributor Agreement ('DA') dated 1 December 2012 -For distribution of vehicles, components and parts purchased by the Assessee from Daimler AG in India. As per agreement, the Assessee is asked to develop the market in India, use logos/ trademarks in India. Such efforts, including the marketing, leads to enhancement of brand value of AE The functions mentioned in the agreement are routine functions for development of sales and service network which is critical for every automobile original equipment manufa....