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2023 (5) TMI 109 - AT - Income TaxTP Adjustment - payment of royalty, project engineering and manufacturing drawings - addition made treating the international transactions pertaining to payment of royalty for receipt of technical knowhow, payment of engineering, and manufacturing drawing fees and payment of brand license fee and for availing the services, were the assessee has paid 2% of contract value to its AE and royalty paid @5% of the selling price to its AE - TPO has treated it as Rs. Nil - As argued agreement between the assessee and krupp polysius AG was approved by the RBI and the assessee has bench marked the transactions with the TNMM - HELD THAT - We find the issues in the present appeal are identical to earlier year decided by the Hon ble Tribunal in the assessee s case for the A.Y 2009-10 2020 (9) TMI 1289 - ITAT MUMBAI such payment has been approved or deemed to have been approved by the RBI. When a payment is made after obtaining due approval from the RBI, how its ALP can be computed at Rs. Nil, is anybody's guess. The fact of approval of the payment by the RBI has been succinctly recorded by the TPO in his order as well. He still chose to propose adjustment in respect of full payment. In our considered opinion, when the rate of royalty payment and fee for drawings etc. has been approved or deemed to have been approved by the RBI, then such payment has to be considered at ALP. We, therefore, direct to delete addition of Rs. 4.29 crore made by the A.O. in this regard. The payments are to be considered at ALP and accordingly direct the assessing officer to delete the addition and allow the grounds of appeal. Reimbursement of expenditure - Contentions raised by the Ld. DR on this issue that no information was filed and the benefit has been obtained by the assessee and these facts were never brought on record before A.O/DRP. Accordingly, to meet the ends of justice, we restore the disputed issue to the file of the AO to examine details and adjudicate afresh and the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information and we allow the ground of appeal of the assessee for statistical purposes.
Issues Involved:
1. Transfer Pricing Adjustment for Payment of Royalty 2. Transfer Pricing Adjustment for Payment of Engineering and Manufacturing Drawing Fees 3. Transfer Pricing Adjustment for Payment of Brand License Fees 4. Transfer Pricing Adjustment for Reimbursement of Expenses Summary: 1. Transfer Pricing Adjustment for Payment of Royalty: The assessee challenged the addition of Rs. 1,82,63,136 for payment of royalty for receipt of technical know-how. The TPO rejected the benchmarking analysis conducted by the assessee using Comparable Uncontrolled Price (CUP) and Transactional Net Margin Method (TNMM). The TPO also failed to acknowledge the business efficacy and benefits received by the assessee from the payment. The Tribunal noted that the royalty agreement was approved by the RBI and FIPB, and thus, the payment should be considered at arm's length price (ALP). The Tribunal directed the AO to delete the addition, referencing the Tribunal's earlier decisions in the assessee's favor for similar issues. 2. Transfer Pricing Adjustment for Payment of Engineering and Manufacturing Drawing Fees: The assessee contested the addition of Rs. 43,54,921 for payment of engineering and manufacturing drawing fees. The TPO rejected the CUP analysis and did not consider the TNMM analysis provided by the assessee. The TPO also failed to recognize the distinct nature of intangibles and the business benefits received. The Tribunal upheld the assessee's contention, noting that similar issues were decided in favor of the assessee in previous years. The Tribunal directed the AO to delete the addition. 3. Transfer Pricing Adjustment for Payment of Brand License Fees: The assessee disputed the addition of Rs. 5,65,11,397 for payment of brand license fees. The TPO rejected the CUP analysis and did not consider the TNMM analysis, contending that the assessee incurred significant advertisement and marketing expenses. The Tribunal found that the brand license agreement was approved and the fees were paid as per the agreement. The Tribunal referenced earlier decisions in favor of the assessee and directed the AO to delete the addition. 4. Transfer Pricing Adjustment for Reimbursement of Expenses: The assessee challenged the addition of Rs. 55,44,298 for reimbursement of expenses, arguing that the correct amount was Rs. 30 lakhs, with Rs. 25 lakhs relating to recovery of certain expenses. The TPO disregarded the documentary evidence and treated the ALP as NIL. The Tribunal restored the issue to the AO for fresh examination, directing the AO to consider the details and evidences provided by the assessee and adjudicate afresh. Conclusion: The Tribunal allowed the appeal filed by the assessee for statistical purposes, directing the AO to delete the transfer pricing adjustments for royalty, engineering and manufacturing drawing fees, and brand license fees, and to re-examine the reimbursement of expenses. The Tribunal emphasized the importance of considering the business efficacy, benefits received, and approvals from regulatory authorities in determining the ALP.
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