TaxTMI 
TaxTMI 
2025 (9) TMI 162
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....er Pricing ('TP') adjustment amounting to INR 215,39,66,832 in respect of the international transaction pertaining to export of finished goods. 1.1 That on the facts and circumstances of the case and in law, the Transfer Pricing Officer ('Ld. TPO') has erred in making and the Ld. AO/ DRP have erred in upholding the TP adjustment of INR 215,39,66,832 in respect of the international transaction pertaining to export of finished goods alleging that the same is not at arm's length. 1.2 That on the facts and circumstances of the case and in law, the Ld. TPO has erred in disregarding the aggregation approach adopted by the Appellant thereby, rejecting the application of Transactional Net Margin method ('TNMM') as the Most Appropriate Method ('MAM') to benchmark the impugned international transaction. The Ld. AO/DRP have further erred in upholding the action of the Ld. TPO. 1.3 That on the facts and circumstances of the case and in law, the Ld. TPO has erred in applying Comparable Uncontrolled Price ('CUP') method to benchmark the impugned transaction with respect to the common finished goods sold to both Associated Ent....
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....he CUP, the Ld. TPO erred in following the approach adopted by his predecessor in the prior assessment year: 2.3.1 For benchmarking the impugned transaction, the Ld. TPO erroneously accepted the royalty agreement entered between related parties without appreciating that the same is not comparable to the royalty agreement of the Appellant. The Ld. AO/ DRP have further erred in upholding the action of the Ld. TPO. 2.3.2 For inappropriately rejecting the royalty agreements submitted by the Appellant as part of TP Study which are comparable to the royalty agreement of the Appellant. The Ld. AO/ DRP have further erred in upholding the action of the Ld. TPO. 2.4 That on the facts and in the circumstances of the case and in law, the DRP/Ld. AO/Ld. TPO have erred in not following the orders of the Hon'ble ITAT for AY 2012-13 to 2015-16 and AY 2017-18 in the case of Appellant's sister concem (Firmenich Aromatics (India) Private Limited, now merged with the Appellant) wherein it was held that CUP is not the most appropriate method to benchmark the transaction due to geographical differences. 3. Ground No, 3: That on the facts and in the circumstanc....
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.... 1.3 Whether on the facts and circumstances of the case and in law, the Ld. TPO and the Ld. AO, under the directions of the Hon'ble DRP, have erred in applying Comparable Uncontrolled Price ('CUP') method to benchmark the impugned transaction with respect to the common finished goods sold to both Associated Enterprises ('AEs') and Non-AEs. 1.4 Whether on the facts and circumstances of the case and in law, the Ld. TPO and the Ld. AO, under the directions of the Hon'ble DRP, have erred in ignoring the differences on account of geographical market, volume of transactions, functional and risk profile of the parties involved and level of market while applying the CUP method. 1.5 Whether on the facts and circumstances of the case and in law, the Ld. TPO and the Ld. AO, under the directions of the Hon'ble DRP, have erred in applying two methods i.e., CUP and TNMM, at the same time to benchmark the impugned transaction. 1.6 Whether on the facts and circumstances of the case and in law, the Ld. TPO and the Ld. AO, under the directions of the Hon'ble DRP, have erred in ignoring the fact that once TNMM is applied for benchmark....
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....n of book profits as per section 115JB of the Act and credit as per section 115JAA of the Act 4.1 Whether on the facts and circumstances of the case and in law, the Ld. AO, has erred in computing the book profit as per section 115JB of the Act and has erred in not granting appropriate credit under section 115JAA. Ground No. 5-Levy of interest under sections 234A and 234B of the Act 5.1 Whether on the facts and circumstances of the case and in law, the Ld. AO, has erred in levying interest under section 234A and 234B of the Act. Ground No. 6-Initiation of penalty proceedings 6.1 Whether on the facts and circumstances of the case and in law, the Ld. AO, has erred in initiating penalty proceedings under section 270A of the Act. Each of the above grounds are independent and without prejudice to the other grounds of appeal preferred by the Appellant." 2.2. Issues involved in both the appeals are common except for change in quantum of addition / disallowance and one ground no. 3 in Assessment Year 2021-22 for denial of deduction of Rs.6,16,548/- claimed u/s 80G of the Act. Owing to commonality of the issue and facts remaining the s....
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....eding assessment years including A.Y. 2013-14, A.Y. 2014-15, A.Y. 2015-16, A.Y. 2017-18 which had reached before the Tribunal and the transfer pricing adjustment made in respect of export of finished products were deleted by holding that the prices at which finished products are sold to AEs cannot be compared with the prices at which such products are sold to non-AEs on account of differences in geography, volume and functions performed and risk assumed by the parties. Assessee strongly contended that the transactions of export of finished product are squarely covered by the decisions of the co-ordinate bench in assessee's own case as well as in the case of its sister concern Firmenich Aromatics India Pvt. Ltd. for A.Y. 2013-14 and 2014-15. 6. While making the upward adjustment in respect of transaction of export of finished goods, ld. TPO in the impugned order in para 4.5 noted that since the nature of transaction is same vis-à-vis previous year. He followed the consistency approach adopted in A.Y. 2017-18 and applied detailed reason mentioned in A.Y. 2017-18. Accordingly, he found the submission of assessee not acceptable. He thus, applied internal CUP and worked out a ....
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....he AEs are located, making the data incomparable. 8.4. He also submitted that the international transaction in relation to export of finished goods and its benchmarking is identical to the one in Assessment Years 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18 and ld. TPO/Assessing Officer in the preceding Assessment Years have been making adjustment in respect of international transaction of export of finished goods by raising similar objection. In Assessment Year 2013-14, in appeal by the assessee in Firmenich Aromatics India (P.) Ltd. v. Dy. CIT [2018] 96 taxmann.com 649 (Mum. Trib.) ITA No. 2590/Mum/2017, the Coordinate Bench vide order dated 23.07.2018 deleted the adjustment, holding that where the AE and non-AE are located in different geographical location, the price at which products are sold to non-AEs cannot be used as CUP to determine Arm's Length Price (ALP) of the sales made to AEs. The Tribunal upheld TNMM method adopted by the assessee for benchmarking the international transaction of export of finished goods and deleted the adjustment. The Id. Authorized Representative for the assessee further submitted that in Assessment Year 2014-15 and 2015-16, the Tribunal....
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....r relating to specific finished products sold both to AEs and non-AEs. Upon verifying the price charged for such products to AEs and non-AEs, he has observed that the price charged to non-AEs is more than the price charged to AEs. Thus, he has made an upward adjustment of 73,04,480, to the price charged to AEs for sale of finished products. On a perusal of Annexure-1 to the order passed by the Transfer Pricing Officer, wherein, he has made comparative analysis of price charged to AEs and non-AEs for common products, it is noticed that he has short listed eight common products which were sold both to AEs and non- AEs. On a critical examination of the details mentioned in Annexure- 1, it is noticed that except one non-AE in U.A.E., all other non-AEs are located in India. Whereas, the AEs are located outside India. Even, in respect of price charged to the solitary non-AE situated outside India, the Transfer Pricing Officer has compared it to the price charged for similar product to an AE in India. Therefore, in strict sense of the term, this particular sale of product Lemon cello to the AE in India cannot be termed as an international transaction. Be that as it may, from a perusal of ....
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....AE and the Non-AE. Sl. No. in TPO order Material Description Quantity in KG sold to Non AE's Quantity in KG sold to AE'S Addition Value (INR) AE sales times of Non AE Sales 59 Neobutenone Alpha 25 32,343 490,680,563 1,294 56 Damascenone Total 25 19,734 490,873,437 789 45 Great Heart 28,080 303,840 95,340,394 11 55 Aldehyde Supra 245 38,528 96,920,377 157 57 Damascone Alpha 2,175 33,610 84,185,258 15 60 Norlimbanol 250 10,825 73,314,292 43 1,331,314,321 Thus, we find from the facts of the case that the quantities sold to Non- AEs is significantly lower as compared with sales made to AEs. In fact the difference in quantities is to the extent of 1,294 times to 11 times. It is noteworthy that the CUP analysis of common products sold to AE and Non-AE, one of the example taken from the facts of the case is that w.r.t. product "Damascenone Total", the assessee had sold 25 kg to a Non-AE at the rate of INR 38,000 per kg and sold 1,260 kg and 16,299 kg at the rate of INR 9,800 and INR 9,664 respectively to....
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.... the methodology followed in earlier years, applied CUP method and determined the ALP @ 4% which is based on the agreement between Edward H. Hall and Uplift Nutrition Inc. This resulted into an upward TP adjustment of Rs. 53,93,97,497/-. According to the assessee, selected royalty agreement by the ld. TPO is between related/connected persons. Hence, it does not qualify the basic criteria of being a comparable uncontrolled transaction for applying CUP method. Ld. DRP rejected the objection raised by the assessee by referring to the directions issued by it in the preceding years. 12. Before us, ld. Counsel for the assessee reiterated that the issue had come up before the co-ordinate bench in assessee's own case for A.Y. 2015-16, A.Y. 2017-18 and in case of its associate concern which is now merged with the assessee for A.Y. 2012-13, A.Y. 2013-14 and A.Y. 2014-15. In all these decisions, TP adjustment in respect of international transaction of payment of royalty was deleted by holding that CUP is not the most appropriate method for benchmarking the said transaction. Ld. Counsel referred to the observation of co-ordinate bench of ITAT in assessee's own case for A.Y. 2017-18 (supra).....
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....-17 applied CUP and determined the rate of royalty at 4%. The TPO for applying CUP adopted comparable royalty rate based on the royalty agreement of Edward H. Hall and Uplift Nutrition Inc. The objection of assessee against use of said comparable by the TPO are: (i) Both the parties to agreement are located outside India and hence, are not governed by India Rules and Regulations; (ii) The Licensor is an individual; (iii) The Intellectual Property (IP) covered in comparable agreement differs from the IP covered in assessee's Technical Licence Agreement. The comparable agreement is only for 'patent', whereas the agreement in the case of assessee is for granting licence to IP such as secret formulae, trade secrets, etc. along with patents and copy rights; (iv) The comparables are functionally different." 13. On the above, nothing contrary has been brought on record to distinguish the findings arrived at by the co-ordinate bench in preceding years in assessee's own case. Further, it is not in dispute that the royalty is paid to AE in accordance with the same technical assistance and know-how agreement as was in the preceding assessment....
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....e grounds and Ground no. 3 which is specific to this Assessment Year 2021-22. There being no change in factual matrix and applicable law and nothing brought on record to distinguish the applicability of jurisprudence available in assessee's own case, our observations and findings in Assessment Year 2020-21 applies mutatis mutandis to relevant grounds of appeal in Assessment Year 2021-22. 18. We now take up ground no. 3 in appeal for Assessment Year 2021- 22 which is in respect of disallowance of claim of Rs. 6,16,548/- u/s. 80G made out of Corporate Social Responsibility fund (CSR). Claim of assessee is that it made three donations of Rs. 7,10,000/- Rs. 5,16,906/- and Rs. 7,000/- to discharge its CSR obligation under the Companies Act, 2013. Relevant documentary evidences for these donations are placed on record. These were claimed as a deduction u/s. 80G which according to the ld. AO is not permissible. According to the assessee, it is not barred from claiming deduction u/s. 80G in respect of donation made to the approved institutions, even though the same were made in discharge of its CSR obligation. The issue raised in this ground is no longer res integra in view of long line....
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....w. Claiming a deduction from computation of business income as provided from sections 28 to 44DB is different from claiming a deduction under chapter VIA of the Act which is allowed from Total Income. As per Explanation 2 to Section 37, CSR expenditure is not allowable as deduction while computing the business income under the provision of Section 28-44DB, whereas deduction u/s.80G is allowed while computing the total income under Chapter VIA. There is no pre-condition that claim for deduction u/s.80G on a donation should be voluntary. It is independent of computation of business income as it is allowed from Gross Total Income. The assessee had disallowed the CSR expenses while computing business income. Further, there is no dispute that the assessee has filed complete details of donation and also filed the certificate u/s.80G which was enclosed before the AO. Section 80G(1) of the Act provides that in computing total income of the assessee, they shall be deducted in accordance with the provision of Section, such sum paid by the assessee in the previous year as a donation. Deduction under Chapter VIA provides deduction from the gross total income which is computed after making nece....
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....sustainable in law or amounts to erroneous and prejudicial to the interest of the Revenue. Thus order of the Ld. PCIT is reversed on this point. 12. Thus, we hold that ld. PCIT is not correct in law in cancelling the assessment order by the ld. AO on this issue. Accordingly, the order of the ld. PCIT is quashed. Consequently, the appeal of the assessee is allowed. 18.2. Also, in the case of ACIT vs. Sikka Ports and Terminals Ltd. in ITA No. 3755/Mum/2023, on similar issue, it was held as under:- "The assessee during the year disallowed a sum of Rs.33.85 crores under section 37 towards the CSR Spend in compliance with section 135 of the Companies Act. Since the institutions to which the said amounts are given are registered under section 80G, the assessee claimed 50 per cent i.e. Rs.16.93 crores of the same as deduction. The argument of the revenue is that the payment are made to comply with the mandate under the Companies Act, and therefore it cannot be treated as donations which are "voluntary" payments. The further argument of the revenue is that when the statute has denied the direct claim of the CSR spend under section 37, the assessee claiming the deductio....
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....able under a specific provision of the Act. Further wherever the intention is to restrict the claim of deduction under any other provisions of the Act the same is explicitly provided for to that effect by the legislature. This view is supported by the Explanatory Memorandum to Finance Bill 2015 which brought in the specific restriction for claiming deduction under section 80G towards the CSR spend towards donation to Swachh Bharat Kosh and Clean Ganga Fund. Therefore, the contention that the CSR spend being claimed as a deduction under section 80G is against the intention of the legislature which restricts the same to be claimed as a deduction under section 37 cannot be appreciated. • The next issue is whether the impugned payments are otherwise eligible for deduction under section 80G. It has already been established that the payments made by the assessee are donations and therefore if the other conditions for the deduction under section 80G are fulfilled then there should not be any restriction for the assessee to claim the deduction. Before holding so the contention of the revenue that the payments made towards CSR spend are monitored and controlled by the assessee ....
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....ns are independent of each other. For example, when a company which is not required to comply with the provisions of section 135 of the Companies Act 2013 makes a donation or a company makes donations in excess of 2 per cent even then the payment may get disallowed under section 37 but in that case the revenue would not impose any restriction to evaluate the payment for claiming deduction under section 80G. If the same analogy is applied to the CSR spend it is viewed that the assessee should be able to claim deduction under section 80G if the other conditions are fulfilled. Denying the claim for the reason that there is a specific mention under section 37 for disallowance and that the payments are made in compliance with section 135 of the Companies Act is not legally tenable unless there is an explicit provision for e.g. contributions towards "Swacha Bharat Kosh" and "Clean Ganga Fund". • In view these discussions and considering the judicial precedence in this regard, it is viewed that there is no infirmity in the order of the Commissioner (Appeals) in allowing the deduction under section 80G to the assessee towards donations made to Reliance Foundation and Shyam Kot....