TaxTMI 
TaxTMI 
2026 (5) TMI 166
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.... the case and is liable to be quashed 2. That on the facts and circumstances of the case, the learned AO erred in concluding assessed income as INR 42,64,55,272 after making adding up disallowances to the Assessed Income as per intimation order u/s 143(1) of the Income-tax Act, 1961 (the Act). 3. That the learned Dispute Resolution Panel-1, Bengaluru ('learned DRP') erred in not appreciating that the order of the learned Deputy Commissioner of Income-tax DC/ACIT TP-3, Hyderabad ('learned TPO') passed under Section 92CA of the act is contrary to law and thus liable to be quashed 4. That on facts and in the circumstances of the case, the learned AO/ learned TPO and the learned DRP erred in making an upward adjustment to the transfer price of the Appellant's international transactions of INR 20,72,84,822 in respect of payment of royalty, INR 31,16,642 in respect of payment of interest on ECB and INR 86,54,646 on account of imputation of notional interest on outstanding receivables. Further, the learned AO and the learned DRP erred in disallowing an amount of INR 23,47,826 towards amortization of leasehold rights." 2. Succinctly stated,....
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....assed under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act, dated 30.10.2024 determined the income of the assessee-company at Rs. 42,64,55,272/- after making the aforesaid additions/ disallowances viz., (i) Disallowance of amortization of leasehold rights: Rs. 23,33,312/-; and (ii) Transfer Pricing adjustment as per the order passed by the TPO under section 92CA(3) of the Act dated 31.10.2023: Rs. 21,90,56,110/-. 8. The assessee-company aggrieved with the order passed by the A.O under Section 143(3) r.w.s 144C(13) r.w.s 144B of the Act, dated 30.10.2024, has carried the matter in appeal before us. 9. We have heard the Learned Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld.AR to drive home his contentions. 10. Shri Darpan Kirpalani, CA., Learned Authorized Representative (for short "Ld.AR") for the assessee, at the threshold of hearing of the appeal submitted that three of the issues (out of four issues) involved in the present appeal are squarely covered by the consolidated order passed by the ....
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.... by the assessee, the RBI had prescribed the maximum cap interest on ECB's with different tenures. The Ld.AR submitted that the Tribunal, based on its aforesaid observations, had upheld the view taken by the DRP, which had determined the ALP of the interest on ECB's as LIBOR + 200 basis points by considering it as rational based on certain judicial pronouncements. The Ld. AR submitted that the view taken by the DRP in the case of assessee-company for the subject year, wherein it had adopted the LIBOR + 200 basis points as Arm's length rate for benchmarking the payment of interest on the ECB's availed by the assessee-company from its AE, is covered by the aforesaid order of the Tribunal. The Ld.AR had drawn our attention to Page No. 20 - Para No. 20 of the aforesaid order of the Tribunal in ITA Nos. 154 & 155/VIZ/2022 dated 23.01.2023. 12. Coming to the issue of disallowance of land leasehold amortisation charges of Rs. 23,47,826/- by the AO/DRP, the Ld.AR submitted that involving identical facts, the Tribunal had allowed the assessee's claim for deduction of proportionate share of amortisation of leasehold charges amounting to Rs. 23,47,826/- for both the aforementioned years, i....
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....he assessee's own case for the preceding years, i.e., AY 2017-18 & AY 2018-19 in ITA Nos.154 & 155/VIZ/2022 dated 23.01.2023 had after taking cognizance of the aforesaid facts remitted the matter back to file of the A.O to decide the case on merits subject to the final outcome of the Advanced Pricing Agreement with CBDT by the assessee-company. The Ld.AR had drawn our attention to the observations recorded by the Tribunal at Page No. 19 - Para 18 of its aforesaid order passed in ITA Nos. 154 & 155/VIZ/2022 dated 23.01.2023. 15. Alternatively, the Ld.AR submitted that the assessee-company in its audited financial statements for the subject year, i.e., year ending 31.03.2024 had, inter alia, claimed deduction of royalty expenses of Rs. 20,72,84,822/- under the head "Other Expenses". The Ld.AR to support his aforesaid contention had drawn our attention to the copy of the financial statements of the assessee-company along with the bifurcated details of the "Other Expenses" Page No. 849 of APB. The Ld.AR in the backdrop of the aforesaid facts had drawn our attention to the order passed by the TPO under section 92CA(3) of the Act dated 31.10.2023, wherein at Para No. 3 of his order he....
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....We find that, as stated by the Ld.AR, and rightly so, the aforesaid issue is squarely covered by the order passed by the Tribunal in the assessee's own case for the A.Y.2017-18 and A.Y. 2018-19 vide its consolidated order, dated 23.01.2023. As observed by us hereinabove, the Tribunal in its aforesaid order for the preceding years had, after drawing support from its earlier order passed in the case of M/s. Devi Sea Food Limited v. DCIT in ITA No. 75/VIZ/2022, dated 09.09.2022, observed that as the Transactional Net Margin Method (TNMM) is considered as the most appropriate method, which was also not disputed by the Revenue, then the net margin thereunder would take care of such notional interest cost. The Tribunal, based on its aforesaid observations, had concluded that no upward adjustment on the outstanding receivables was called for in the hands of the assessee-company and had directed the AO to delete the adjustment made towards overdue receivables from its AE. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under: - "22. We have heard both the sides and perused the material available on record and the orders of the Ld. Reve....
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....rmination of the ALP for benchmarking the payment of interest on ECB by the A.O / TPO as LIBOR + 200 basis points, we find that as conceded by the Ld.AR, the said issue is also squarely covered by the order passed by the Tribunal in the case of assessee-company for the preceding years i.e., A.Y. 2017-18 and A.Y. 2018-19 in ITA Nos. 154 & 155/VIZ/2022 dated 23.01.2023. We find that the Tribunal in the assessee's own case for the aforementioned preceding years had, after drawing support from the case of Dr. Reddy's Laboratories Limited v. Addl. CIT in ITA No. 2229/H/2011 and ITA No. 85/H/2013 dated 02.01.2017 and Infotech Enterprises Limited v. Addl. CIT in ITA No. 115/Hyd/2011, dated 16.01.2014, had observed that as per the Master Circular, the RBI had prescribed the maximum cap on the interest on ECB of different tenures. The Tribunal, based on its aforesaid observations, concluded that DRP had rightly determined the ALP as LIBOR + 200 basis points and had declined to interfere with the view taken by him. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal in its aforesaid order, as under: "19. With respect to Ground No.7 ie., payment ....
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....id observations, allowed the claim of the assessee company for amortisation of the leasehold charges. For the sake of clarity, we deem it apposite to cull out the observations of the Tribunal, as under: "26. Ground No.11 relates to disallowance of leasehold amortization charges. The Ld. AR submitted that the assessee has taken the land on lease in 2009 for a period of 23 years and has paid a sum of Rs. 5.40 Crs. The Ld. AR submitted that the assessee is entitled to amortize these leasehold charges during the entire period of lease which should not and cannot be considered as capital expenditure. The Ld. AR submitted that various judicial precedents have held that the lease hold charges of land for a long term lease shall be amortized over the period of lease. Per contra, the Ld. DR relied on the order of the Ld. DRP. 27. We have heard both the sides and perused the material available on record. Admittedly the assessee has paid a sum of Rs. 5.40 Crs for a period of 23 years for taking the land on lease. It is the case of the Ld. AO that it is one time lumpsum payment and a prior period expenditure which cannot be apportioned during the impugned assessment year as r....
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....eparate adjustment. Our aforesaid view is fortified by the order of the ITAT, Delhi Bench in the case of Samsung India Electronics Pvt., Ltd. v. DCIT in ITA No. 9482/DEL/2019, dated 29.07.2024, wherein it is held as under: - "65. ......... Secondly, the TPO has already accepted TNMM for the Manufacturing segment as a whole. There are numerous international transactions in this segment - all these transactions like royalty, purchase of raw materials etc. have been aggregated under TNMM and benchmarked against independent third party comparables. In these circumstances, cherry-picking of one particular transaction like royalty and subjecting the same to a separate benchmarking and adjustment under CUP results in an impermissible double adjustment - once under TNMM and another CUP. This is contrary to the provisions which mandate adoption of only one method as the most appropriate method. A licensing arrangement where technical know-how is used for manufacturing is an inextricable part of the entire segment and we do not find any infirmity in bundling the same with the other transactions of this segment. At the end of the day, if the segment is generating arm's length level o....