TaxTMI 
TaxTMI 
2026 (7) TMI 1241
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.... filed by the assessee, whereas ITA No. 2322/Ahd/2017 has been filed by the Revenue, both arising out of the assessment order passed under section 143(3) read with section 144C(13) of the Act pursuant to the directions of the DRP for AY 2013-14. 2. Since the issues involved in all the appeals arise out of substantially common facts, particularly the transfer pricing adjustments relating to royalty and commission payments and common arguments were advanced by both the parties, these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience and to avoid repetition of facts. ITA(TP) No. 555/Ahd/2017 for AY 2012-13 (Assessee's appeal) 3. The assessee has raised following grounds of appeal:- "1. The Assessing Officer and DRP erred in making the following additions to the returned income: (i) Rs. 86,96,257/- consisting of Rs. 19,18,458/- by way of upward adjustment to royalty payment and Rs. 67,77,799/- by way of upward adjustment to commission payment as made by DRP. (ii) Long Term Capital Gain of Rs. 67,51,959/- in place of Rs. 61,64,036/- declared by the Appellant, thus making upward adjustment of R....
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....assessee to demonstrate that it had interest free funds available with it for making such investment and not other way round. 2.2 The Ld.DRP has failed to appreciate that as per Section 106 of Evidence Act, when any fact is especially within the knowledge of any person, the burden of proving the fact is upon him." 6. The facts of the case, as culled out from the record for AY 2012-13, are that the assessee company, KloecknerDesma Machinery Private Limited, is a downstream subsidiary of Kloeckner Desma Elastomertechnik GmbH, Germany ('KDE Germany'). The assessee company is engaged in manufacturing of vertical injection moulding machines with clamping forces up to 400 tons. It is also engaged in turnkey projects, produces moulds, and spares and provides after sales service support. For A.Y. 2012-13, the assessee filed its return declaring total income of Rs. 11,46,98,279/-. The case was selected for scrutiny and reference under section 92CA(1) was made to the Transfer Pricing Officer ("TPO" for short). The TPO proposed transfer pricing adjustments aggregating to Rs. 86,96,257/- comprising adjustment towards royalty payment of Rs. 19,18,458/- and commission payment....
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....es and computed adjustment of Rs. 19,18,458/-. 9.3 The DRP confirmed the action of the TPO and rejected the objections raised by the assessee. 9.4 Before us, the Ld. AR submitted that the authorities below were not justified in segregating the royalty transaction from the overall manufacturing activity of the assessee. It was submitted that the royalty payment enabled the assessee to manufacture high-quality machines using technical know-how received from the Associated Enterprise and therefore the transaction was closely linked with the manufacturing operations. The Ld. AR further submitted that the TPO had failed to appreciate the functional and economic relationship between the royalty payment and the overall business activity of the assessee. The Ld. AR argued that the domestic royalty agreement could not be considered as an appropriate CUP for export transactions since the markets, geographical conditions and commercial considerations were different. 9.5 The Ld. DR, on the other hand, supported the orders of the authorities below. 9.6 We have heard the rival contentions and perused the material available on record. It is an accepted principle under transfer pricing....
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....AE provided various services including identifying potential customers, providing market intelligence, assisting in negotiations, coordinating with customers and facilitating business development activities in overseas markets. The TPO, however, rejected the benchmarking approach adopted by the assessee and proceeded to benchmark the transaction independently by applying the CUP method. For this purpose, the TPO referred to agreements available in the KMine database and determined an arm's length commission rate. Based on such analysis, the TPO determined that the assessee had paid excess commission and proposed an adjustment of Rs. 67,77,799/-. 10.2 The DRP upheld the adjustment made by the TPO by observing that the benchmarking carried out by the TPO was scientific and in accordance with the Indian Transfer Pricing Regulations. 10.3 Before us, the Ld. AR submitted that the authorities below had erred in rejecting the aggregation approach adopted by the assessee. The Ld. AR submitted that the commission payment was an integral part of the assessee's business model and was directly linked with sales generated by the assessee in foreign markets. The Ld. AR contended th....
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....we are of the considered opinion that the matter requires reconsideration by the TPO. Accordingly, the issue relating to commission payment adjustment is restored to the file of the TPO/AO for fresh adjudication. The TPO shall examine the benchmarking adopted by the assessee under TNMM and also verify the comparables selected by him under CUP method after providing reasonable opportunity of being heard to the assessee. Ground raised by the assessee in this regard is allowed for statistical purposes. Ground No.1(i) is partly allowed. Ground No. 1(ii) Addition of Long-Term Capital Gain - Rs. 67,51,959/- against declared LTCG of Rs. 61,64,036/- 11. The assessee challenged the addition of Rs. 5,87,923/- made by the Assessing Officer by recomputing long-term capital gain. The difference arose mainly due to: (a) adoption of different indexed cost of acquisition; and (b) restriction of cost of transfer expenses. A. Indexed cost of acquisition : - The assessee claimed indexation from Financial Year 2001-02, whereas the Assessing Officer adopted Financial Year 2002-03 considering the date of registration of conveyance deed. The DRP confirmed the action....
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....ief where an industrial undertaking is shifted from an urban area to a rural area and investments are made in eligible assets. Therefore, the claim cannot be rejected merely on a procedural ground. Accordingly, the issue is restored to the file of the Assessing Officer to examine whether the investment of Rs. 67,89,051/- in plant and machinery satisfies the conditions prescribed under section 54G and allow the claim in accordance with law. Ground No.2 is allowed for statistical purposes. Ground No.3 Reversal of provision of Rs. 14,30,329/- in subsequent year 13. The assessee submitted that an amount of Rs. 14,30,329/- was debited during the year under consideration, but the corresponding entry was reversed in Assessment Year 2016-17 and therefore the upward adjustment, if any, should be reduced to that extent. We find that this issue requires verification of the accounting entries and their tax treatment in subsequent years. Accordingly, this issue is restored to the file of the Assessing Officer with a direction to verify whether the said amount has been offered to tax or reversed in Assessment Year 2016-17 and grant appropriate relief to avoid double taxation. G....
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.... domestic royalty payment as a benchmark for export transactions without establishing functional comparability. 15.6 The facts and circumstances for the year under consideration are identical. No distinguishing feature has been brought on record by the Revenue. Following our aforesaid findings for AY 2012-13, the adjustment made on account of royalty payment amounting to Rs. 19,67,641/- is directed to be deleted. Ground No.1(i) relating to royalty adjustment is allowed. Ground No.1(ii) Transfer Pricing adjustment on account of commission payment - Rs. 37,07,151/- 16. The next grievance of the assessee relates to the upward adjustment of Rs. 37,07,151/- made by the TPO towards commission payment made to Associated Enterprises. 16.1 The facts relating to this issue are identical to those considered by us in AY 2012-13. The assessee had paid commission to its AE towards marketing support and sales-related services rendered in overseas markets. The assessee benchmarked the transaction by adopting TNMM on an aggregated basis. The TPO rejected the approach adopted by the assessee and applied CUP method by relying upon certain agreements obtained from the KMine database.....
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.... of the DRP in deleting the disallowance made by the Assessing Officer under section 40(a)(i) of the Act in respect of commission payments made to non-resident agents. 19.1 The facts relating to this issue are that the assessee had paid commission to non-resident agents for procuring export orders and providing marketing support outside India. The Assessing Officer held that such commission payments were chargeable to tax in India and consequently the assessee was required to deduct tax at source under section 195 of the Act. Since no tax was deducted, disallowance under section 40(a)(i) was proposed. 19.2 The DRP deleted the disallowance by relying upon the judgment of the Hon'ble Supreme Court in the case of CIT v. Toshoku Ltd. and holding that commission paid to non-resident agents for services rendered outside India was not taxable in India. 19.3 Before us, the Ld. DR submitted that the amendment brought in section 9(1)(vii) of the Act had altered the legal position and the DRP was not justified in relying upon the decision of Toshoku Ltd. It was submitted that the payments were taxable in India under the provisions of the Act as well as relevant DTAA provisions. 19....