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2017 (5) TMI 1358 - AT - Income TaxALP adjustment in respect of royalty payment made - MAM selected - Held that - TPO had not applied TNMM at entity level. The TP study report submitted by the assessee company had been rejected by the TPO. This action of the TPO is confirmed by the Hon ble DRP. But the TPO proceeded to bench mark the transaction of the royalty payment on stand alone basis. In the process the cost of production or other transactions are not subjected to bench marking by the TPO. Therefore the contention of the ld. counsel that when the TNMM was applied at the entity level there was no necessity of separate bench marking in respect of royalty transactions cannot be accepted. This submission made by the assessee-company is factually incorrect. On mere perusal of order of the ld. TPO it is manifest that the TPO had picked up the transaction royalty alone for the purpose of bench marking. The statement made by the ld. Counsel for the appellant is nothing but attempt to mislead the court. This conduct on the part of the counsel is highly deplorable. Ld. counsel chosen not to point out any fallacies in the reasoning of the TPO or of the ALP analysis in the working of the ALP adjustment. The ld. counsel also failed to establish that the transaction royalty payment is closely linked with the other transactions carried out with AE. It is trite law that a justification should be shown for clubbing the transactions. In the absence of such justification clubbing other transactions is not possible. The onus always lies on the assessee-company to establish the justification for clubbing and aggregation of the transaction of payment of royalty with other transactions. As mentioned (supra) the assessee-company had failed to discharge such onus in the circumstances we confirm the orders of the lower authorities in this respect of ALP adjustment on payment of royalty. - Decided against assessee. Deduction u/s 10A - reduction of the expenditure incurred under telecommunication freight and travelling incurred in foreign currency from export turnover - Held that - This issue is covered in favour of the assessee-company by the decision of the jurisdictional High court in case of Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT . Respectfully following the decision of the order we direct the AO / TPO to exclude the expenditure from both export turnover and total turnover. These grounds of the appeal are allowed.
Issues Involved:
1. Justification of the assessment order by the DCIT. 2. Dismissal of appellant's objections by the DRP. 3. Rejection of TP documentation by the TPO. 4. Adjustment of ?2,75,25,270/- under Section 92CA for royalty paid to associated enterprises. 5. Exclusion of freight and insurance expenses from export turnover. 6. Levy of interest under sections 234B & 234C of the IT Act. Issue-wise Detailed Analysis: 1. Justification of the assessment order by the DCIT: The appellant contended that the DCIT's assessment order was not justified in law and on facts and circumstances of the case. The Tribunal considered the grounds raised by the appellant but did not provide a specific ruling on this issue in the summary of the judgment. 2. Dismissal of appellant's objections by the DRP: The appellant argued that the DRP dismissed their objections arbitrarily without appreciating their contentions and without application of mind. The Tribunal did not specifically address this issue separately but considered the overall approach of the DRP in relation to the other issues raised. 3. Rejection of TP documentation by the TPO: The appellant maintained that the DRP was not justified in upholding the TPO's rejection of their TP documentation. The Tribunal noted that the TPO had rejected the TP study report submitted by the appellant and proceeded to benchmark the royalty payment on a standalone basis. The Tribunal found that the TPO's action was confirmed by the DRP and upheld this approach. 4. Adjustment of ?2,75,25,270/- under Section 92CA for royalty paid to associated enterprises: The appellant challenged the adjustment made by the TPO under Section 92CA for royalty paid to associated enterprises. The Tribunal noted that the TPO had determined the ALP adjustment for royalty payment as ?2,75,25,270/- based on the value addition due to operations using technology and knowhow leased out by the AE. The Tribunal found that the TPO had correctly benchmarked the royalty payment on a standalone basis and that the appellant's contention that TNMM was applied at the entity level was factually incorrect. The Tribunal confirmed the orders of the lower authorities regarding the ALP adjustment on royalty payment. 5. Exclusion of freight and insurance expenses from export turnover: The appellant argued against the exclusion of freight expense of ?28,66,311/- and insurance expenses of ?79,916/- from the export turnover. The Tribunal noted that this issue was covered in favor of the appellant by the decision of the jurisdictional High Court in the case of Tata Elxsi Ltd. The Tribunal directed the AO/TPO to exclude these expenses from both export turnover and total turnover, thereby allowing this ground of appeal. 6. Levy of interest under sections 234B & 234C of the IT Act: The appellant contended that the DRP was not justified in upholding the levy of interest under sections 234B & 234C of the IT Act. The Tribunal did not provide a specific ruling on this issue in the summary of the judgment. Conclusion: The Tribunal partly allowed the appeals for the assessment years 2010-11 and 2011-12 by directing the AO/TPO to exclude the expenditure from both export turnover and total turnover. However, it dismissed the appeal for the assessment year 2012-13, upholding the ALP adjustment on royalty payment and other related issues. The Tribunal emphasized the importance of accurate representation by the counsel and the duty to assist the court in accordance with the law.
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