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2021 (7) TMI 681 - AT - Income TaxTP adjustment in respect of Brand royalty - assessee 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 - duplicate amount of Royalty paid was directed to be disallowed - HELD THAT - As the facts and circumstances of the assessee‟s ground for the year under consideration are admittedly similar to those of the preceding year, respectfully following the precedent, we set-aside the impugned order on this score and remit the matter to the file of AO/TPO for re-determining 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 for the assessment year 2009-10 above. This disposes of the assessee‟s ground of appeal. Disallowance of the full amount made u/s.37 - assessee paid royalty for use of technical know-how and brand - AO held such payments as not having been incurred for business purposes - HELD THAT - 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 non business purposes. Similarly, brand royalty has been paid for the use of brand on the products manufactured by it. Admittedly, the assessee was using the Brand name and logo on its manufactured products. These payments, therefore, cannot be considered as meant for non-business purpose, subject to the transfer pricing adjustment. We, therefore, approve the view point taken by the ld. CIT(A) in deleting the disallowance made by the AO u/s.37 of the Act. The Revenue‟s ground is thus dismissed. TP Adjustment - addition on account of payment of Management fees - assessee declared an international transaction of Payment of Professional fee - HELD THAT - 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). Thus, the ground of the Revenue is dismissed. Aggregation approach adopted for benchmarking transaction of Management Fees - HELD THAT - International transaction of Management services was wrongly clubbed and should be separately benchmarked. Selection of MAM - TNMM adopted by the assessee as most appropriate method, which got disapproved by TPO - HELD THAT - Assessee moved a Miscellaneous Application against the order of the Tribunal for the assessment year 2009-10 urging that a precise method for the ALP determination of Management Fees ought to have been directed by the Tribunal rather than leaving the matter open to the TPO‟s wisdom. The said Miscellaneous Application came to be dismissed by the Tribunal by holding that the TPO was free to adopt the most appropriate method on the facts and circumstances of the case. As the facts of this issue for the year under consideration are similar to those of the preceding year, following the view for such earlier year, we set-aside the impugned order on this score and remit the matter to the file of AO/TPO for a fresh determination of the ALP of the international transaction of payment of Management Service Fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10. Additional depreciation on foreign exchange fluctuation loss on repayment of loans, which were taken for purchase of capital assets - HELD THAT - As noticed above that the assessee availed two loans, viz., first in the year 2002 and second in 2007 and repaid the same in the year under consideration resulting in incurring foreign exchange fluctuation loss. Such a loss is required to be capitalized in terms of section 43(1) read with section 43A. As regards the question of additional depreciation, the same is admissible in respect of assets acquired on or after 1.4.2005. Patently, no additional depreciation can be allowed to the assessee in respect of loan taken in the year 2002 and the claim will be valid for the loan taken in foreign currency for the purchase of asset in the year 2007. There is no discussion in the assessment order or the impugned order about the bifurcation of the amount of liability discharged by the assessee on account of foreign exchange fluctuation rate difference. On a pertinent query, the ld. AR did not have such figure of forex loss incurred by the assessee, liable to be capitalized for the purposes of additional depreciation, in respect of loan taken in the year 2007. We, therefore, set-aside the impugned order and remit the matter to the file of the AO for examining the detail of ₹ 1.82 crore and allow additional depreciation on forex loss only in respect of repayment of loan taken in the year 2007. In other words, no additional depreciation will be allowed in respect of new asset purchased by the assessee against the loan taken in the year 2002 which got discharged during the year under consideration resulting in foreign exchange fluctuation loss. TDS u/s 195 - Addition on account of commission - assessee paid commission to overseas agents - assessee submitted that the commission was paid to overseas agents for export orders/business procured by them in overseas territories and hence, deduction of tax at source was not warranted - HELD THAT - As admittedly, the commission was paid by the assessee to overseas agents for procuring business in overseas territories, the amount of commission in the hands of the commission agents does not become chargeable to tax under the Act. The Hon‟ble Bombay High Court in CIT Vs. Gujarat Reclaim and Rubber Products Ltd. 2015 (12) TMI 1078 - BOMBAY HIGH COURT has held that the assessee was not obliged to deduct tax at source on commission paid to overseas agent in similar circumstances as are instantly obtaining before us. In view of the foregoing discussion, we are satisfied that the ld. CIT(A) has taken an unexceptionable view and hence no interference is warranted in the impugned order on this score. This ground is not allowed.
Issues Involved:
1. Transfer Pricing Adjustment for Brand Royalty 2. Disallowance of Royalty Payment under Section 37 3. Capitalization of Royalty Payment 4. Transfer Pricing Adjustment for Management Fees 5. Additional Depreciation on Foreign Exchange Fluctuation Loss 6. Disallowance of Commission Payment for Non-Deduction of Tax at Source Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment for Brand Royalty: The assessee contested a transfer pricing adjustment of ?70,52,220/- for brand royalty. The TPO determined a Nil ALP for the brand royalty, asserting that the payments were unjustified and perpetual. The CIT(A) upheld the TPO's adjustment but overturned the AO's disallowance under Section 37 and capitalization of the royalty. The Tribunal, referencing its previous decision for AY 2009-10, remitted the matter to the AO/TPO to re-determine the ALP, disallowing any duplicate payments. 2. Disallowance of Royalty Payment under Section 37: The AO disallowed the entire royalty payment of ?2.36 crore, deeming it non-business expenditure. The CIT(A) reversed this, confirming that the royalty payments were for business purposes, as the assessee used the technology and brand in its manufacturing process. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's ground. 3. Capitalization of Royalty Payment: The AO treated the royalty payment as capital expenditure. The CIT(A) disagreed, and the Tribunal, referencing prior years' decisions, supported the CIT(A)'s stance, ruling that royalty payments should not be capitalized. 4. Transfer Pricing Adjustment for Management Fees: The assessee and revenue both contested the CIT(A)'s decisions regarding a transfer pricing adjustment for management fees of ?4,86,14,759/-. The TPO had determined a Nil ALP, questioning the receipt of services and the method applied. The Tribunal, following its previous year's decision, remitted the matter for fresh determination of the ALP, confirming that the assessee did avail services and that the TNMM was not appropriately applied. 5. Additional Depreciation on Foreign Exchange Fluctuation Loss: The assessee claimed additional depreciation on a forex loss of ?1.82 crore related to loans for capital assets. The AO denied this, but the CIT(A) allowed it. The Tribunal clarified that additional depreciation is only permissible for assets acquired post-31st March 2005, remitting the matter to the AO to verify the bifurcation of the forex loss between the loans taken in 2002 and 2007. 6. Disallowance of Commission Payment for Non-Deduction of Tax at Source: The AO disallowed ?58,65,026/- paid as commission to overseas agents for non-deduction of tax at source. The CIT(A) overturned this, and the Tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling that such payments for overseas services are not chargeable under the Act, hence no TDS is required. Conclusion: The Tribunal partly allowed both appeals for statistical purposes, providing specific directions for fresh determinations and verifications by the AO/TPO. The order was pronounced on 15th July 2021.
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