9911796707
TMI Blog2013 (5) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(Appeals), this issue may be sent back to the AO for this purpose. - Matter remanded back. Contributions made by the assessee to various funds - worker's union - disallowance u/s 40A(9). - Held that – According to appellant most of the contributions having been made by the assessee as per the settlement arrived at with the workers' union, the same are covered by the Industrial Dispute Act, 1947 and provisions of section 40A(9) of the Act cannot be invoked. However, no evidence was provided for the same. - matter remanded back. TP adjustment transactions with its AE involving import of components. - Held that - The only contention raised by the learned DR on this issue is that the learned CIT(Appeals) has taken net margin of the assessee as well as that of the two comparables assuming that the method adopted by the assessee is TNMM whereas he should have taken only the gross margin as the method actually adopted by the assessee for the relevant transactions is resale price method. The basis of comparability analysis has to be done by taking into consideration the gross margin of the assessee company as well as the two comparables. - Matter remanded back. TP adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.47,76,850/- and Rs.1,21,659/- on account of MK 20 Engine Development Expenditure. In the assessment completed u/s 143(3), the said expenditure was disallowed by the AO treating the same as of capital nature on the ground that the same was incurred for acquiring enduring benefit in terms of better sales and higher profitability owing to the development of engines. Before the learned CIT(Appeals), it was submitted on behalf of the assessee that its core business being that of manufacture and sale of various types of engines, the expenditure incurred on research to make modifications, corrections and development in the existing products as ongoing process was revenue in nature. It was also submitted that the expenditure in question being in the nature of research and development, the same was fully allowable u/s 35(2)(ia) of the Act even if the same is capital in nature. After considering these submissions made on behalf of the assessee, the learned CIT(Appeals) found that a similar issue involved in assessee's case for assessment year 2001-02 was restored by the Tribunal to the file of the AO with the directions to verify and allow the same as per law. Respectfully following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of loss companies' shares were claimed under the head "Legal Expenses". The AO as well as the learned CIT(Appeals) held the said expenditure as capital in nature and disallowed the same. Similarly, fees of Rs.30,000/- paid by the assessee to Advocate C.M. Khorde for defending acquisition proceedings of company's plot of factory land at village Akurdi claimed by the assessee as revenue expenditure, was disallowed by the AO as well as by the learned CIT(Appeals) treating the same as capital in nature. 6. At the time of hearing before us, the learned counsel for the assessee has not pressed the disallowance of Rs.7,10,215/- made on account of legal fees paid to M/s Doijode Phatraphekar Associates. She, however, submitted that the sum of Rs.30,000/- paid to Advocate Shri C.M. Khorde should be allowed as deduction being expenditure incurred for protection of its business assets by the assessee. In reply to the query raised by the Bench, she however, has submitted that there is no evidence available with the assessee in the form of bill or receipt issued by the concerned Advocate to support and substantiate this claim and in the absence of the same, we find no justification in allowi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount 1. Contribution to welfare fund at: Petrol Engine Unit, Thoraipakkam Heavy Engineering Unit, Chennai 84,206 3,900 88,106 2. Contribution to family welfare fund at Light Engines Unit - II, Ranipet 40,580 3. Contribution to disability fund at Petrol Engine Unit, Thoraipakkam. 3,113 4. Contribution to benevolent fund at Petrol Engine Unit, Thoraipakkam. 15,326 5. Contribution to death relief fund at Light Engine Unit - II, Ranipet Petrol Engine Unit, Thoraipakkam 10,145 6,716 16,861 6. Contribution to Superannuation fund (not recognized) Petrol Engine Unit,Thoraipakkam 6,232 Total 1,70,218/- According to the AO, none of the above funds was covered u/s 36(1)(iv) or section 36(1)(v) and there being nothing to show that the contributions made by the assessee to the said funds was as per the requirement of any law, he therefore, disallowed the entire amount paid by the assessee as contributions to the various funds by invoking the provisions of section 40A(9). Before the learned CIT(Appeals), it was submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was made by the AO u/s 92A(1) of the Act to determine the arm's length price of the said transactions involving import of components, kits and spares from AEs. In its transfer pricing report, the assessee had adopted resale price method to benchmark these transactions and since its gross margin of 7.26% was more than the average gross margin of two comparable cases, namely, Larson Tubro Ltd. with 2.34% and Ingersoll Rand India Ltd. with 9.18%, it was claimed that the relevant transactions with its AEs were at arm's length. The TPO, however, took the margin of 9.18% shown by Ingersoll Rand Ltd. as arm's length margin and applying the same to the sale of Tandem Rollers and Vibratory Compactors shown by the assessee for the year under consideration at Rs.2350.32 lakhs, he worked out the arm's length gross profit of the assessee at Rs.215.76 lakhs as against the gross profit of Rs.176.01 lakhs shown by the assessee. Accordingly, the difference of Rs.39.75 lakhs was added to the total income of the assessee by way of TP adjustment in respect of its transactions with AEs involving import of components/kits/spares. 15. The addition of Rs.39,75,000/- made by the AO/TPO by way of TP a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions is resale price method. The learned counsel for the assessee has not disputed that gross margin should be considered if the method adopted is resale price method. She, however, has submitted that the assessee has followed TNMM in its transfer pricing study for benchmark transactions involving import of components. It is, however, observed from the copy of TP report placed on record before us that the method adopted by the assessee in this respect was resale price method. Keeping in view the same, although we agree with the learned CIT(Appeals) that L T should be taken as comparable keeping in view the functional similarity as well as the fact that the TPO himself has accepted the L T as comparable in assessment years 2005-06 and 2006-07, the working to arrive at arm's length price on the basis of comparability analysis has to be done by taking into consideration the gross margin of the assessee company as well as the two comparables. We, therefore, restore this issue to the file of the AO/TPO for the limited purpose of doing this exercise. Ground No. 1 of the Revenue's appeal is accordingly treated as partly allowed for statistical purposes. 17. In ground No.2 of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been charged royalty. Our group entities include leasing and investment companies. (4) Information asked for by TPO was given vide letter dated 14/3/2006. (5) Profit Margin justifies royalty paid. (6) Hon'ble Dispute Resolution Panel in assessment year 2006-07 deleted adjustment of royalty considering effective rate at which royalty was paid. 20. The learned CIT(Appeals) found merit in the submissions made on behalf of the assessee on this issue and deleted the addition made by the AO/TPO by way of TP adjustment on account of royalty paid by the assessee to its AEs for the following reasons given in paragraph No. 14.8 and 14.9 of his impugned order : "14.8. I have perused the facts of the case. The TPO has treated the Arms Length Price of Royalty at Nil basically on the ground that the appellant failed to file the details of rate of royalty payment made other AE's to BOMAG of Germany and CIFA, Italy. In doing this, it assumed that there are other AE's of BOMAG Germany and CIFA, Italy and also they are availing technology so as to be liable for levy of royalty. The basis of these assumptions are not disclosed. Even otherwise if it is assumed that other AEs are also paying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the rival submissions and also perused the relevant material on record. The issue involved in the present case is relating to the determination of arm's length price in relation to the international transactions involving payment of royalty by the assessee company to its associated enterprises. As provided in section 92C of the Act, such arms's length price is to be determined by one of the methods prescribed, which is found to be the most appropriate method having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as may be prescribed. The manner in which such most appropriate method is to be applied for determination of arm's length price is prescribed in Rule 10B of Income-tax Rules, 1962. In the present case, it appears from the TP report submitted by the assessee as well as the orders of the authorities below that neither the assessee nor the TPO or even the learned CIT(Appeals) has followed this procedure prescribed in section 92C of the Act and Rule 10B of the Income-tax Rules, 1962 to determine the arm's length price in relation to the royalty payment mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailing business of the assessee was related to its existing business. 26. At the time of hearing before us, the learned representatives of both the sides have agreed that this issue is squarely covered by the order of the Tribunal passed in assessee's own case for assessment year 2001-02 relying on which the learned CIT(Appeals) has given relief to the assessee in the year under consideration. Respectfully following the said decision of the Tribunal for assessment year 2001- 02, we uphold the impugned order of the learned CIT(Appeals) giving relief to the assessee on this issue and dismiss ground No.3 of the Revenue's appeal. 27. The grievance projected by the Revenue in ground No. 4 is that the learned CIT(Appeals) erred in allowing the MK 20 Development Expenses of Rs.48,98,509/- holding the same to be revenue in nature. 28. At the time of hearing before us, the learned DR has submitted that the issue as raised in ground No.4 of the Revenue's appeal is not arising from the impugned order of the learned CIT(Appeals) as the learned CIT(Appeals) has actually not allowed the impugned expenditure and has simply restored the issue to the file of the AO with a direction to verify ..... X X X X Extracts X X X X X X X X Extracts X X X X
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