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2020 (9) TMI 1047 - AT - Income TaxRe-characterization of distribution fee paid/payable by the assessee to its AE as Royalty - HELD THAT - Departmental Representative could not bring any material on record to show that the facts in the assessment year under appeal are distinguishable or any judgment to controvert the findings of the Tribunal. We see no reason to take a divergent view. Thus, following the order of Co-ordinate Bench 2020 (7) TMI 494 - ITAT MUMBAI we hold that the distribution fee paid by the assessee is not in the nature of Royalty . Benchmarking of international transaction of alleged Royalty payment by applying CUP as the most appropriate method - HELD THAT - Since, we have held that distribution fee paid/payable by the assessee is not in the nature of Royalty , the grievance of assessee in ground no. 9 to 11 does not survive Deduction of education and secondary and higher education cess paid on the income-tax liability under the head profits and gains from business or profession - Admission of additional ground - HELD THAT - The additional ground raised by the assessee is purely of legal nature. Taking into consideration the facts and the decision rendered in the case of Sesa Goa Ltd. 2020 (3) TMI 347 - BOMBAY HIGH COURT we admit the additional ground and restore the issue to the file of Assessing Officer for consideration. The Assessing Officer shall afford reasonable opportunity of hearing to the assessee and shall pass speaking order, in accordance with law. The additional ground raised by the assessee is thus, allowed for statistical purpose. Short grant of TDS credit while computing tax liability in the impugned assessment year - charging of interest under section 234A - assessee has filed rectification petition under section 154 - HELD THAT - The Assessing Officer is directed to decide the aforesaid application filed by the assessee, in accordance with law by passing a speaking order within a period of three months from the date of receipt of this order. Levy of interest under section 234B and 234D is mandatory and consequential, hence, aforesaid grounds raised by the assessee are dismissed, sans-merit.
Issues Involved:
1. Assessment of total income. 2. Transfer pricing adjustment. 3. Jurisdiction of the Transfer Pricing Officer (TPO). 4. Characterization of distribution fee as royalty. 5. Rejection of economic analysis in transfer pricing study. 6. Benchmarking analysis method. 7. Selection of comparables. 8. Impugned order passed in the name of a non-existent entity. 9. Short grant of tax deducted at source (TDS). 10. Levy of interest under Sections 234A, 234B, and 234D. 11. Initiation of penalty proceedings under Section 271(1)(c). 12. Additional ground for deduction of education cess. Detailed Analysis: 1. Assessment of Total Income: The assessee contested the assessment of total income at ?4,00,08,51,830 against ?49,58,34,942 as computed in its return. The Tribunal did not find it necessary to adjudicate this general ground. 2. Transfer Pricing Adjustment: The assessee challenged the transfer pricing adjustment of ?3,50,50,16,888. The Tribunal noted that the TPO's re-characterization of the distribution fee as royalty was incorrect, following previous decisions in the assessee’s own case for earlier assessment years. The Tribunal held that the distribution fee paid by the assessee is not in the nature of royalty. 3. Jurisdiction of the TPO: The assessee argued that the order under Section 92CA(3) was passed by an Additional Commissioner without jurisdiction. This issue was rendered academic upon the Tribunal’s decision to admit the additional ground regarding the deduction of education cess. 4. Characterization of Distribution Fee as Royalty: The Tribunal found that the TPO erred in characterizing the distribution fee paid by the assessee to its AE as royalty. This was consistent with previous Tribunal decisions in the assessee's own case for assessment years 2011-12 and 2013-14, where it was held that distribution fees are not royalty. 5. Rejection of Economic Analysis in Transfer Pricing Study: The Tribunal noted that the TPO had rejected the comparables used by the assessee in its transfer pricing study without proper justification. The Tribunal restored the issue back to the TPO for a fresh analysis, directing the TPO to verify segmental data and recompute the TP adjustment. 6. Benchmarking Analysis Method: The Tribunal held that since the distribution fee is not royalty, the TPO’s application of the Comparable Uncontrolled Price (CUP) method was incorrect. The Transactional Net Margin Method (TNMM) adopted by the assessee was deemed appropriate. 7. Selection of Comparables: The Tribunal restored the issue of comparables back to the TPO with directions to verify segmental data for the relevant financial years. The Tribunal referred to its decision in the assessee’s own case for AY 2011-12, where similar comparables were accepted. 8. Impugned Order Passed in the Name of a Non-Existent Entity: This issue was rendered academic upon the Tribunal’s decision to admit the additional ground regarding the deduction of education cess. 9. Short Grant of TDS: The Tribunal directed the Assessing Officer to dispose of the assessee’s rectification petition regarding the short grant of TDS credit within three months from the date of receipt of the order. 10. Levy of Interest under Sections 234A, 234B, and 234D: The Tribunal noted that the levy of interest under Sections 234B and 234D is mandatory and consequential. The assessee’s grounds on this issue were dismissed. However, for interest under Section 234A, the Tribunal directed the Assessing Officer to dispose of the rectification petition. 11. Initiation of Penalty Proceedings under Section 271(1)(c): The Tribunal held that the challenge to penalty proceedings at this stage is premature and dismissed this ground. 12. Additional Ground for Deduction of Education Cess: The Tribunal admitted the additional ground for deduction of education cess, following the decision in the case of Sesa Goa Ltd. The issue was restored to the Assessing Officer for consideration, with a direction to afford a reasonable opportunity of hearing to the assessee and pass a speaking order. Conclusion: The appeal was partly allowed, with several issues being restored to the TPO or Assessing Officer for fresh consideration. The Tribunal’s decision was consistent with previous rulings in the assessee’s own cases for earlier assessment years. The order was pronounced on September 21, 2020.
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