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TMI Blog2016 (5) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer must be attributed entirely to the international transaction is bereft of any merits. During the financial year 2003-04 relating to the assessment year 2004-05, the assessee had reported an operating income of ₹ 72,24,22,000. The total expenses for the said period amounted to ₹ 68,00,88,000. Admittedly, the international transactions in question amounted to ₹ 15,90,66,935 which were only 23.38 per cent. in value of the total expenses. The Transfer Pricing Officer had determined the profit level indicator (operating profit over total cost) of comparable cases at 8.29 per cent. against 6.22 per cent. as declared by the assessee. Applying the profit level indicator of comparable cases, the adjusted total expenses w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter CIT(A) ) on March 29, 2011 and August 27, 2012 allowing the appeals preferred by the assessee against the assessment orders passed by the Assessing Officer (hereafter AO ) in respect of the assessment years 2004-05 and 2005-06 respectively. 2. The controversy involved in the present case relates to the transfer pricing adjustment (hereafter TP Adjustment ) made by the Assessing Officer in respect of international transactions relating to the purchases made and the royalty paid by the assessee to Keihin Corporation, Japan (hereafter KC ). 3. The relevant facts relating to the assessment year 2004-05 are narrated as under : 3.1 The assessee is engaged in the manufacture and sale of air-conditioners for cars manufactured by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66,71,17,924. Since the actual operating expenses incurred by the assessee during the period were ₹ 68,00,88,000, the Transfer Pricing Officer held that a transfer pricing adjustment of ₹ 1,29,70,076 ought to be made in respect of expenses attributable to the international transactions. In so far as the payment of royalty of ₹ 1,24,41,118 is concerned, the Transfer Pricing Officer had held that no royalty would be payable if the transactions were on arm's length basis as according to the Transfer Pricing Officer, the assessee was functioning as a contract manufacturer. The Transfer Pricing Officer observed that all the sales were being made by the petitioner to the Honda Siel Cars India Ltd. and 99.99 per cent. of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith respect to the international transactions except the transaction relating to payment of royalty. The Transfer Pricing Officer followed a similar reasoning as adopted in respect of the assessment year 2004-05 and passed an order dated October 24, 2008, directing the Assessing Officer to make an addition of a sum of ₹ 1,97,40,726 being the amount of royalty, for the financial year 2004-05. The Assessing Officer, following the directions of the Transfer Pricing Officer, made an addition of the aforesaid sum and passed an assessment order dated December 29, 2008. 5. The assessee preferred appeals before the Commissioner of Income-tax (Appeals) against the assessment orders dated December 26, 2006 in respect of the assessment year 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g adjustments were liable to be made. This contention was accepted by the Commissioner of Income-tax (Appeals) and the transfer pricing adjustments made by the Assessing Officer were deleted. 7. The Commissioner of Income-tax (Appeals) also held that the Transfer Pricing Officer was in error in holding that no royalty was payable. The Commissioner of Income-tax (Appeals) held that the functions performed by the assessee included procurement and inventory management, production and manufacturing planning, co-ordination of production and sales, import of goods, maintenance of production facilities and quality control functions ; therefore, the assessee could not be considered as a contract manufacturer. The Commissioner of Income-tax (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,29,70,076 as determined by the Transfer Pricing Officer ought to have been adjusted only against the international transaction, which admittedly constituted only 23.38 per cent. of the operating income or revenue. He next referred to the technical collaboration agreement dated September 12, 1997 entered into between KC and the assessee and contended that the royalty paid by the assessee was in excess of the amounts as computed under the said agreement. 11. In so far as the contention that the amounts paid were not in accordance with the agreement between the assessee and the KC is concerned, we find that no such contention had been urged by the Revenue either before the Commissioner of Income-tax (Appeals) or before the Tribunal. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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