9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (12) TMI 1751 - AT - Income TaxTP Adjustment - international transaction‟ related to payment of royalty - CIT(A) has deleted it holding that the appellant has paid similar royalty in Assessment Year 2002-03 and no transfer pricing adjustment was proposed and ITAT has allowed the claim of the royalty as revenue expenditure - HELD THAT - We do not subscribe to the finding of the ld CIT(A) as allowance of the expenditure operates in altogether different provisions of the law as well as the determination of arm s length price of international transaction operates in different. Further, as in the impugned assessment order the adjustment on account of arm s length price is made of ₹ 2.96 with respect to the service availed by the assessee. The ld CIT(A) has not given any answer to that fact. Further, the ld Assessing Officer has made an adjustment of ₹ 4.67 crores on the benefit test basis which is not permissible. Further, the comparability analysis made by the TPO is based on the past year, which is also not permissible. In view of this we set aside the whole transaction of determination of ALP of royalty back to the file of the ld Assessing Officer to determine the same in accordance with the law. Further, if the operating profit of the respondent falls into 5% range then no addition should be made. In the result ground No. 1 of the appeal of the Revenue is allowed. Addition on account of imports from Sumitomo, Japan - MAM Selection - During the year assessee imported raw materials from Japan which were localized as per Indian market condition - CIT(A) upheld that the transaction of import is an international transaction but deleted the adjustment holding that CUP is not an appropriate method - HELD THAT - Issue squarely covered by the order of the coordinate bench in assessee s own case wherein, the same was considered in para No. 38 and 39 holding that CUP method is the most appropriate method to be followed with respect to the import of raw material and components. Therefore, we also accordingly, upheld CUP method to be adopted for this year. With respect to the adjustment of ₹ 1.71 crores the coordinate bench has held in para No. 48 and 49, the matter was ultimately set aside to the file of the ld Assessing Officer for fresh adjudication in accordance with the law. The coordinate bench has also given a direction to the ld Assessing Officer vide para No. 44 about the comparability analysis. The above decision of the coordinate bench has further been upheld by the Hon'ble Delhi High Court 2016 (3) TMI 55 - DELHI HIGH COURT . Therefore respectfully following the decision of the coordinate bench in assessee s own case for earlier years, we also set aside the whole issue back to the file of the ld AO with similar direction for application of CUP method and adopting comparable analysis. Disallowance on account of NICNET charges paid - HELD THAT - As the Internet facilities were wholly exclusively for the business of assessee and not for the assessee company as covered by the decision of the Hon'ble Delhi High Court in assessee s own case 2015 (1) TMI 824 - DELHI HIGH COURT . Therefore, respectfully following the decision of the Hon'ble Delhi High Court the ground No. 3 of the appeal of the revenue is dismissed. Addition being adjustment on account of TPOs order u/s 92CA(3) with respect to the Arm s length price of international transaction - HELD THAT - CIT(A) held that operating profit/ sales is the correct PLI for benchmarking the international transaction of royalty and he arrived at PLI of 16 comparables at 7.35% against the PLI of the assessee of 6.4% and consequently after giving benefit of 5% deleted the above adjustment. Therefore, revenue aggrieved is in appeal before us. The above ground identical to ground No. 1 of the appeal of the revenue for AY 2004-05 which has been decided by us setting aside the whole issue to the file of the ld AO/TPO, therefore, for similar reasons we set aside this ground of appeal also to file of the AO/TPO for fresh adjudication with similar direction. In the result ground No. 1 of the appeal of the revenue is allowed accordingly. Nature of expenses - royalty payment - revenue or capital expenditure - HELD THAT - Hon'ble Delhi High Court in assessee s own case 2015 (1) TMI 824 - DELHI HIGH COURT has held that royalty paid by assessee to its parent company was revenue expenditure and cannot be treated as capital expenditure. Technical fees paid has been held to be revenue in nature Revenue expenditure of technical cost, training fee and IT cost fees Nice net facility provided by Denso Haryana to be treated as revenue expenditure - See M/S. DENSO INDIA LTD. 2015 (1) TMI 824 - DELHI HIGH COURT
Issues Involved:
1. Adjustment of Arm’s Length Price (ALP) for royalty payments. 2. Adjustment of ALP for import transactions. 3. Disallowance of NICNET charges. 4. Treatment of various expenses as capital expenditure. Detailed Analysis: 1. Adjustment of Arm’s Length Price (ALP) for Royalty Payments: The first issue pertains to the adjustment of ?2.96 crores on account of ALP of the royalty for AY 2004-05 and ?12.53 crores for AY 2005-06. The Transfer Pricing Officer (TPO) applied the Transactional Net Margin Method (TNMM) using Operating Profit/Total Cost (OP/TC) as the Profit Level Indicator (PLI) and selected comparables, determining the margins of the comparables at 7.77% and 10.35% respectively. The TPO proposed adjustments based on these margins. The CIT(A) used OP/Sales as the PLI and granted the benefit of +/- 5% range, determining the transactions to be at arm’s length. The Tribunal set aside the issue back to the Assessing Officer (AO) for fresh adjudication, directing that if the operating profit falls within the +/- 5% range, no addition should be made. 2. Adjustment of ALP for Import Transactions: For AY 2004-05, the AO considered the import transactions with Sumitomo Japan as international transactions under section 92B(2) of the Act and applied the Comparable Uncontrolled Price (CUP) method, resulting in an adjustment of ?1.71 crores. The CIT(A) deleted the adjustment, holding that CUP was not appropriate due to significant differences in the characteristics of the transactions. The Tribunal upheld the use of the CUP method but set aside the issue to the AO for fresh adjudication, following the directions of the coordinate bench in the earlier years. 3. Disallowance of NICNET Charges: The AO disallowed ?11,94,259 for AY 2004-05 and ?12,35,907 for AY 2005-06 paid towards NICNET charges to Denso Haryana, considering the agreement as a sham. The CIT(A) allowed the expenses under section 37(1). The Tribunal, following the decision of the Hon'ble Delhi High Court in the assessee’s own case, upheld the CIT(A)’s decision and dismissed the revenue’s ground. 4. Treatment of Various Expenses as Capital Expenditure: For AY 2005-06, the AO treated various expenses such as royalty, application cost, technical fees, technical know-how fees, training fees, and IT cost fees as capital expenditure. The CIT(A) deleted the additions, treating them as revenue expenditure based on the earlier judicial precedents in the assessee’s own case. The Tribunal upheld the CIT(A)’s decision, following the coordinate bench’s decisions and the Hon'ble Delhi High Court’s judgment in the assessee’s own case, confirming that these expenses are revenue in nature. Conclusion: The Tribunal allowed the appeals of the revenue partly, setting aside the issues related to the ALP adjustments for fresh adjudication and upheld the CIT(A)’s decisions on the treatment of various expenses and NICNET charges. The Tribunal directed the AO to re-examine the ALP adjustments in accordance with the law and judicial precedents.
|
