TaxTMI 
TaxTMI 
2024 (8) TMI 1289
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....assessee is engaged in the business of manufacture and sale of motorcycles and scooters. In the year under consideration, the assessee had entered into various international transactions with its associate enterprises (AEs). One amongst them being payment of export commission of Rs. 16,10,03,387/- to Honda Motor Co. Ltd., Japan. As could be seen from the facts on record, the assessee had entered into an export agreement with Honda Motor Co. Ltd., Japan on 13.07.2000, in terms of which, the assessee was granted consent to export specific models of two wheelers to certain countries on payment of export commission @ 5% of the freight on board (FOB) value of such export. In the transfer pricing study report, the assessee benchmarked the transaction by using transactional net margin method (TNMM). The approach adopted by the assessee was not to the liking of the Transfer Pricing Officer (TPO). After rejecting the benchmarking of the assessee qua the payment of export commission, the TPO proceeded to benchmark the transaction independently using Comparable Uncontrolled Price (CUP) method. While doing so, the TPO determined the ALP at nil on the reasoning that no services were provided to....
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....ated as per the provisions of Section 92CA of the act. The determined ALP of these transactions at Rs Nil. The coordinate bench in assessee's own case for assessment year 2015 - 16 has considered this issue as under:- "7. Ground No. 2 is with respect to adjustment on account of export commission and royalty paid to associated enterprises. This is challenged by the assessee from Ground No. 2 to Ground No. 7 of the above appeal. 8. The ld. AR submitted this issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee's own case in ITA No. 7463 and 7464/Del/2019 for Assessment Year 2013-14 and 2014-15 dated 30.09.2020. He submitted that there is no change in the facts and circumstances of the case with respect to TPO adjustment of export of commission. With respect to the transfer, pricing adjustment related to royalty paid on sales he also submitted that the coordinate bench in assessee's own case for Assessment Year 2008-09 to 2014-15 allowed this ground in favour of the assessee holding that the assessee has sold the good on principle-to-principle basis and has received the sale consideration. He further relied up....
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.... is claimed by the assessee that it is intrinsically, looked that the main activity of manufacturing and sale of products and as such could not be identified separately for benchmarking. It is also claimed by the assessee export commission is paid to its parent entity to get access to various global markets where the AE exists as network. The identical issue arose in the case of the for Assessment Year 2013-14 and 2014-15 wherein, coordinate bench deleted adjustment relying on the decision of ITAT in assessee's own case for Assessment Year 2008-09 in ITA No. 132/Del/2013. The ITAT quoted in para no. 12 and 13 of that order has followed the same. With respect to the issue of adjustment on account of payment of export commission, the coordinate bench has dealt with the same at para No. 7. The coordinate bench has given its reasons to delete the above adjustment in para No. 7.6 to 7.17 as under:- "7. Now, we will address to the grievance relating to addition on account of payment of export commission - Under technical know-how agreement dated 13.07.2000 the assessee was entitled to use technical know-how provided by Honda Motor Company Limited Japan for manufacture and sa....
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....her than the profitability derived by the assessee from sale of goods in the domestic market @ 5.50%. The comparative profitability statement is as under:- 7.10 For the sake of repetition, the entire edifice of the TPO/DRP's finding is based upon the assumption that the assessee is operating as a contract manufacturer with respect to export of good. 7.11 In our understanding of the facts of the case in hand, we are of the considered view that the TPO/DRP have grossly failed in distinguishing between the function of the license manufacturers and contract manufacturers. 7.12 A perusal of the business profile of the assessee viz-a-viz agreement with the parent, we find that the assessee is a licensed manufacturer such as the assessee, the seller is entitled to compensation which includes returns attributable to exploitation of intangibles such technical know-how etc i.e. market determined prices. On the other hand, in the case of a contact manufacturer, the manufacturer acts in accordance with the instructions of the buyer and is only entitled to routine cost plus returns. It would be pertinent to refer to the decision of the Tribunal in assessee's o....
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....d precedent, we allow this ground and thereby direct the TPO/AO to delete the adjustment on account of ALP of the export commission payment." 8. Due to parity of facts, we respectfully follow earlier decision of the coordinate Bench and decide the issue in favour of the assessee. The addition is deleted. 9. In ground No. 9, the assessee has challenged the addition made on account of transfer pricing adjustment of payment of royalty. 10. Briefly, the facts are, the assessee has entered into a technical know-how agreement with the AE on 13.07.2000. In terms of which, the assessee pays royalty based on percentage of sales including exports to AE. The assessee benchmarked the transaction by adopting aggregate approach under TNMM. However, the TPO did not accept the benchmarking of the assessee and proceeded to benchmark the payment of royalty separately by applying CUP method. While doing so, he held that sale made to AE is equivalent to sale made to self. Hence, there was no requirement to pay royalty. Thus, he determined ALP of royalty payment at nil, thereby proposing the entire amount of Rs. 13,84,61,947/- as transfer pricing adjustment. While deciding assessee's objection....
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.... are as under:- "The Hon'ble ITAT in the appellant's own case for assessment Year 2011- 12 reiterated that the facts in the case of the appellant differ from, the facts of Honda Siel Cars Ltd. (supra) because the amount expended is in relation to the running royalty and not for the purpose of setting up of plant. Further, reference is also made to the decision of the Delhi Tribunal in the case of Honda Cards India Ltd vs DCIT : ITA No.4491/Del/2014 dated 18.08.2017 (pages 414- 457 of the CLPB) and also confirmed by Hon'ble Delhi High Court in ITA No.45/2019 vide order dated 13.05.2019 (refer pages 457A-457F of the CLPB), wherein the Tribunal after referring to the decision of the Supreme Court in the case of Honda Siel Cars (supra) observed that the Supreme Court has carved out the distinction between the payments at the time of setting up of the manufacturing facility and the payments made once the manufacturing process has already began. In the former case, royalty expenditure for setting up the manufacturing facility is capital in nature while in the latter case, the royalty expense is revenue in nature. " 48. The SLP filed against the said....
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....el for the assessee submitted that the issue has been consistently decided in favour of the assessee by the Tribunal in assessment years 2012-13 to 2017-18. Thus, he submitted, the issue stands covered in favour of the assessee. 17. Learned Departmental Representative submitted that in assessment year 2012-13, the Tribunal has allowed the expenditure to the extent claimed by the assessee. He further submitted that specific terms of the agreement need to be examined. 18. We have considered rival submissions and perused materials on record. From the observations of learned DRP in paragraph No. 5.4.1 and 5.4.2, it is very much clear that this particular issue is a recurring issue between the assessee and the Revenue from past assessment years. In fact, the specific direction of learned DRP is to the effect that in case Tribunal's decision on identical issue has not been accepted by the department, the initial directions in earlier assessment years should be followed. It is observed, while deciding the issue in the latest order passed for the assessment year 2017-18 (supra), the Tribunal has followed its earlier decision and has held as under : "10. Apropos disallowance ....
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....f ITAT in assessee's own case for Assessment Year 2012-13 in ITA No. 7714/Del/2017 wherein, as per para No. 26 the coordinate bench held that the expenditure on the signage is allowable to the assessee as revenue expenditure signage are fixed at dealers premises and it dies bit satisfy the test of ownership with the assessee. Thus it was held that same is revenue expenditure as under:- "3. Disallowance of expenditure on signages - A similar issue was considered and decided by the Tribunal in A.Y. 2012-13 in ITA No. 7714/Del/2017. The relevant findings read as under:- "26. We have heard the rival contentions and perused the record. The expenditure was incurred on signage for display of the name of the assessee at the dealer's premises. However, once the same is fixed at dealers site then the Courts have held that it does not satisfy the test of ownership with the assessee and the expenditure is to be allowed as revenue expenditure, We find support from the ratio laid down by the Hon'ble Delhi High Court in CIT vs Honda Siel Power Products Ltd.(supra). Thus, we are of the view that the expenditure to the extent claimed by the assessee is to be allowed in....
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....nal in assessment years 2015-16, 2016-17 and 2017-18. 23. Learned Departmental Representative submitted that in Assessment Years 2003-04 to 2007-08, the Tribunal has decided the issue against the assessee, against which, assessee is in further appeal before the Hon'ble High Court. He submitted that without taking notice of its earlier decision, the Tribunal has granted relief to the assessee in Assessment Year 2012-13 and subsequent assessment years. Thus, he submitted that subsequent decisions rendered by the Tribunal ignoring the earlier decision, should not be relied upon. He submitted, earlier and subsequent dealership agreements are more or less identical except an inconsequential amendment in the subsequent agreement. Thus, he submitted, following the decisions of the Tribunal for Assessment Year 2003-04 to 2007-08, the issue has to be decided in favour of the Revenue. 24. In rejoinder, learned counsel for the assessee submitted that the agreement prevailing in Assessment Year 2003-04 to 2007-08 did not contain any specific clause in terms of which there was any contractual obligation on the assessee to incur such expenses. However, he submitted, subsequently, the agree....
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....essment year, respectfully following the decisions of coordinate Bench, we direct the Assessing Officer to allow assessee's claim. Ground is allowed. 26. In ground No. 12, the assessee has challenged the decision of the departmental authorities in capitalizing a part of the royalty expenses. 27. Briefly, the facts are, in terms with the royalty and technical know-how agreement with the parent company, the assessee has paid royalty of Rs. 11,98,29,81,954/-, which was claimed as revenue expenditure. The Assessing Officer, however, was not convinced with the claim of the assessee. Ultimately, he held that 25% of the royalty expense, which works out to Rs. 296,11,30,002/- is to be treated as capital expenditure having been spent towards acquisition of assets, which provides enduring benefit. Accordingly, he disallowed aforesaid amount. However, he allowed depreciation @ 25% on such amount. The assessee contested the aforesaid disallowance before learned DRP. While disposing of the objections of the assessee, learned DRP directed the Assessing Officer to verify whether orders passed by the Tribunal in favour of the assessee on identical issue has been accepted by the Revenue and i....
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....learned Departmental Representative, we must observe that neither the Assessing Officer nor learned Dispute Resolution Panel have found any substantial difference in factual position relating to past assessment years and the impugned assessment year. As discussed earlier, the issue has been consistently decided in favour of the assessee in its own case in assessment years 2012-13 to 2017-18. Having gone through the facts and material available on record, we do not find any good reason to deviate from the consistent view taken by the Tribunal on the issue in earlier assessment years. Hence, respectfully following the decision of the Co-ordinate Bench in Assessment Years 2012-13 to 2017-18 (Supra), we direct the Assessing Officer to allow assessee's claim. 32. In ground No. 13, assessee challenged disallowance of deduction claimed towards education cess amounting to Rs. 29,01,52,420/-. As could be seen from the facts on record, this claim was neither made by the assessee in the return of income nor before the Assessing Officer. The claim was made for the first time before learned DRP. However, learned DRP did not entertain assessee's claim. 33. Learned Departmental Representati....
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....aim that dividend income under section 115-O is income of the shareholders. Therefore, dividends paid to the shareholders in Japan and Thailand would be subject to the beneficial rate provided under India-Japan and India-Thailand Double Taxation Avoidance Agreement. The departmental authorities, however, rejected assessee's claim by stating that such claim cannot be entertained as it was not made either in the original return of income or through revised return of income. While doing so, they relied upon the decision of Hon'ble Supreme Court in case of Goetze (India) Ltd. vs. CIT (2006) 284 ITR 323 (SC). 39. Before us, the assessee has furnished written submission in support of its claim. 40. Learned Departmental Representative submitted, the issue is squarely covered against the assessee by the decision of the ITAT, Special Bench, in case of DCIT vs. Total Oil India Pvt. Ltd and others (ITA No. 6997/Mum/2019 & Ors.) dated 20.04.2023. 41. We have considered rival submissions and perused materials on record. Though, on a reading of ITAT, Special Bench decision in case of DCIT vs. Total Oil India Pvt. Ltd. (supra), it is clear that the issue raised by the assessee is covered....