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2021 (9) TMI 1517 - AT - Income TaxTP adjustment - international transactions in connection with payment of brand royalty and payment of professional fees - benchmarking the international transaction without appreciating the fact that the said international transaction is closely interlinked to the manufacturing activity of the Appellant - HELD THAT - The crux of the discussions wherein in the Tribunal s order for the assessment year 2009-10 it has observed that the assessee had paid brand royalty under two agreements first at 0.5% under the agreement dated 01.07.2008 and then again under another agreement dated 05.04.2001. The duplicate amount of royalty earlier paid was directed to be disallowed. The relevant part of this Tribunal order 2021 (7) TMI 681 - ITAT PUNE for the assessment year 2010-11 in assessee s own case remit the matter to the file of AO/TPO for redetermining the ALP of the international transaction of payment of Royalty and disallow the duplicate payment of brand Royalty in terms indicated above in the Tribunal order - Ground allowed for statistical purposes. Management services fess and payment of professional fees - Tribunal observed that in its own order for the assessment year 2009-10 2019 (4) TMI 1505 - ITAT PUNE following the view taken for the preceding year held that the assessee did avail services from its AE and the authorities below were not justified in coming to the conclusion that no services were obtained by the assessee. We set aside the impugned order on this score and remit the same to the file of the AO/TPO for fresh determination of ALP of the international transaction of payment of management services fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10 2019 (4) TMI 1505 - ITAT PUNE and 2010-11 2021 (7) TMI 681 - ITAT PUNE . Thus Grounds allowed for statistical purposes. Disallowance u/s. 37 in respect of royalty expenditure incurred by the assessee - CIT(Appeals) had taken a view that the assessee is engaged in manufacture of equipments through licenses from group concerns. Royalty has been paid in respect of technical know-how obtained for manufacturing of equipments. Since the technology and designs have been used by the assessee in its manufacturing the royalty for the same cannot be said to be for nonbusiness purposes. Similarly brand royalty has been paid for the use of brand on the products manufactured by it. It was therefore an admitted fact that assessee was using the Brand name and logo on its manufactured products. These payments therefore cannot be considered as meant for nonbusiness purposes in respect of transfer pricing adjustment. This view of the Ld. CIT(Appeals) was left unaltered and relief provided to the assessee was sustained by the Tribunal. Before us also DR submitted that there is no difference on the facts and circumstances for this year also and the issue is covered in favour of the assessee. That when the facts and circumstances are similar and that a view has already been taken which is factually analyzed therefore on same parity of reasoning under same set of facts and circumstances we allow this ground of appeal. Thus Ground No.2 raised in appeal by the assessee is allowed. Disallowance u/s.37 in respect of legal and professional fees incurred by the assessee on account of HR legal IT finance sales marketing and other ancillary services - As decided in own case assessment year 2010-11 2021 (7) TMI 681 - ITAT PUNE CIT(A) has given cogent reasons for deleting the disallowance inasmuch as the AO simply adopted the TPO s reasoning without showing as to how the same applied to the non- AE transactions as well. Further the expenditure contains payment for Testing fees and also Generic service fee. To this extent we approve the view taken by the ld. CIT(A). TDS u/s 195 - non deduction of tds on commission on sale to overseas sales agents - HELD THAT - As decided in Kikani Exports Pvt. Ltd 2014 (9) TMI 96 - MADRAS HIGH COURT wherein it was held that the services rendered by the non-resident agent can at best be called as a service for completion of the export commitment and would not fall within the definition of fees for technical services and therefore section 9 of the Act is not applicable to the instant case and consequently section 195 of the Act does not come into play. The assessee has further submitted that it is a settled position of law that the retainer ship charges/commission paid to overseas non-resident agents for promoting assessee s business in foreign countries is not in the nature of fees for technical services and therefore is not liable to be taxed in India. Thus no statutory obligation to make TDS u/s.195 of the IT Act in respect of the commission paid to overseas sales agents. Disallowance u/s.14A r.w. Rule 8D - AO proposed to the assessee that the expenditure incurred in relation to the dividend income in respect of this investment is required to be disallowed - assessee objected to the same on the ground that no dividend income has been received during the year with regard to this investment - HELD THAT - It is a settled position of law that when no exempt income has been received by the assessee then there cannot be any disallowance u/s.14A of the Act. This view was also taken in the case of HOLCIM INDIA P. LTD. 2014 (9) TMI 434 - DELHI HIGH COURT and based on this decision of the Hon ble Delhi High Court the Ld. DRP had directed the Assessing Officer to delete the addition. Therefore we are of the considered view on the given facts and circumstances there is no need for interference with the findings of the Ld. DRP and relief provided to the assessee is sustained. Revenue appeal dismissed.
Issues Involved:
1. Disallowance under Section 37 of the Income Tax Act. 2. Transfer pricing adjustment related to payment of brand royalty. 3. Transfer pricing adjustment related to payment of professional fees. 4. Disallowance under Section 14A read with Rule 8D. 5. Disallowance due to failure to deduct TDS under Section 195. Detailed Analysis: 1. Disallowance under Section 37 of the Income Tax Act: The assessee challenged the disallowance of ?8,17,28,763/- on account of brand royalty and royalty for technical know-how, ?2,28,567/- for amortization of lease charges, and ?9,13,87,792/- for legal and professional fees. The Tribunal referred to its previous judgments for the assessment years 2009-10 and 2010-11, where it was held that the royalty payments were incurred wholly and exclusively for business purposes. The Tribunal reiterated that the royalty for technical know-how and brand was necessary for the assessee's manufacturing processes and business operations. Consequently, the disallowance under Section 37 was deleted, and the appeal on this ground was allowed. 2. Transfer Pricing Adjustment Related to Payment of Brand Royalty: The Transfer Pricing Officer (TPO) had determined the Arm's Length Price (ALP) for brand royalty as NIL, arguing that the brand royalty was not justified since the company had been in existence for years without such charges. The Tribunal, following its previous year’s decisions, remanded the matter back to the TPO. It was directed to re-determine the ALP, considering that the assessee had indeed benefited from using the brand name and logo, which helped in increasing turnover and acquiring new customers. The Tribunal emphasized that the TPO should not disregard the actual benefits derived by the assessee from the brand royalty payments. 3. Transfer Pricing Adjustment Related to Payment of Professional Fees: The TPO had also determined the ALP for professional fees as NIL, claiming insufficient evidence of services rendered by the Associated Enterprises (AEs). The Tribunal, referencing its earlier orders, held that the assessee had provided sufficient evidence, including emails and other documents, proving that services were availed from AEs. The Tribunal directed the TPO to re-evaluate the ALP, acknowledging that the services were indeed rendered and were necessary for the assessee's business operations. The Tribunal rejected the notion that the lack of perceived benefit could justify a NIL ALP. 4. Disallowance under Section 14A read with Rule 8D: The Assessing Officer had disallowed ?4,22,929/- under Section 14A, arguing that the assessee failed to demonstrate that non-interest-bearing funds were used for investments. The Tribunal upheld the DRP’s decision, which relied on the Delhi High Court’s ruling in Holcim India Pvt. Ltd., stating that no disallowance under Section 14A can be made if no exempt income is received during the year. The Tribunal also referenced the Bombay High Court’s decisions, which supported this view. Thus, the disallowance under Section 14A was deleted. 5. Disallowance due to Failure to Deduct TDS under Section 195: The Assessing Officer had disallowed ?1,61,03,794/- for commission payments to overseas agents, citing non-deduction of TDS under Section 195. The Tribunal agreed with the DRP’s findings that the commission payments were for services rendered outside India and did not fall under the purview of fees for technical services under Section 9(1)(vii). Therefore, there was no obligation to deduct TDS. The Tribunal upheld the deletion of this disallowance. Conclusion: The assessee’s appeal was partly allowed for statistical purposes, and the Revenue’s appeal was dismissed. The Tribunal directed re-evaluation of certain transfer pricing adjustments while upholding the deletion of disallowances under Sections 37 and 14A, and for non-deduction of TDS under Section 195. The judgment emphasized adherence to previous Tribunal decisions and higher court rulings, ensuring consistency in legal interpretations.
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