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TMI Blog2016 (5) TMI 343X X X X Extracts X X X X X X X X Extracts X X X X ..... 09/Mum/2013, C.O. No.192/Mum/2013 - - - Dated:- 31-3-2016 - Pramod Kumar AM and Pawan Singh JM For The Assessee : Karishma R. Phatarphekar, Divyesh I. Shah, Harsh Shah, Pratik Poddar For The Assessing Officer : N.K. Chand ORDER Per Pramod Kumar, AM: These cross appeals, and the cross objection, are directed against the order dated 5th November, 2012, passed by the leaned CIT(A), in the matter of assessment under section 143(3) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year 2007-08. 2. In ITA No.813/Mum/2013, i.e. Assessing Officer s appeal, against learned CIT(A) s order dated 05.11.2012, the only grievance is as follows:- On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition relating to payment of royalty u/s.92CA(3) of the I.T. Act amounting to ₹ 3,80,99,599/- regarding the Arm s Length Price arrived by the TPO of International Transaction. 3. In a connected cross objection, filed by the assessee against the same order, the assesse has raised the following grievance:- On the facts and in the circumstances of the case and in law, the learned Transfer Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any other law in force . Hence, the contention that the RBI approval would show that the payment was at ALP is without merits. The assessee has not demonstrated with any evidence as to the specific benefits obtained under the agreement which would justify the payment of royalty. The perusal of the assessee's financial statements shows that the assessee has not derived any incremental benefit on account of payment of royalty. The important information is tabulated as follows;- (Amount in Crores) Particulars 31-3-05 (15 month) 31-3-06 31-3-07 Net Sales 709.60 516.81 607.34 Profit Before Tax 31.70 6.85 -2.43 Basic Chemicals (Sales) 470.96 300.96 382.72 Industrial Solvents (Sales) 188.30 147.07 131.21 Performance Resins (Sales) 11.13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned that the payment of royalty by other AEs could not bench mark the transaction as all were controlled transaction. Accordingly, observing that the assessee has failed to give economic justification towards the payment of the royalty an adjustment of the amount of the payment of royalty to the tune of ₹ 3,39,67,540/- was made by the TPO. iii. The appellant in its submission has given details in respect of commercial rights that the appellant has obtained by virtue of the agreement. The appellant has further submitted the details in respect of receipt of latest technology and technical assistance from AE on continuous basis under the sub-headings as under :- - Technical support for continuously customizing Standard Operating Procedures. - Technical support for assistance in production process and trouble shooting. - Cost saving projects - Access to Internal Portal for online technical support services. - Technical Audits conducted by the AE - Plant /site visit by Indian employees at overseas locations. - Plant/site visit by employees of the AE in India. - Introduction of new raw-material purification system, The d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er pricing perspective is the determination of arm's length price of such payment of royalty by the appellant. viii. The appellant in its submission has contended that the TPO has not applied any method for benchmarking the royalty payment and simply disallowed the same. In this regard, it is stated that the TPO having dissatisfied with the fact that appellant has not demonstrated the economic justification for the payment of royalty, has come to the conclusion that payment of royalty in the instant case was not required. Accordingly, he proceeded to disallow the royalty payment. Such disallowance made by the TPO without bringing on record the contrary facts to what has been stated and submitted by the appellant is not found to be acceptable. ix. The appellant had also submitted the list of Group entities paying royalty between 2 to 3%. The same has been rejected by the TPO being controlled transactions. In this regard, it is mentioned that such observation of the TPO that the transactions are controlled in nature is valid but at the same time such details do indicate that the other entities of the S.I. Group are paying royalty on net sale price ranging from 2 to 3% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing nature and receipt of technology and technical support. Further the TPO has not brought any fact to the contrary in his order. Accordingly, the contention/observation of the TPO that appellant not been able to give economic justification is not found to be acceptable. xiv. It is seen from the order of the TPO that he has overwhelming relied on the mention in the annual report in respect of technology absorption by the company. Such mention in the annual report cannot be determinative of the fact that there was no continuous technological support and assistance received by the appellant company. xv. In view of the facts of the case and discussion herein above, the disallowance made by the TPO by arriving at the arm's length price of international transaction relating to the payment of royalty by the appellant at nil is not found to be justified. Accordingly, such adjustment made by the TPO is directed to be deleted. Accordingly, Ground no.3 is allowed. 6. The Assessing Officer is aggrieved by the relief so granted by the learned CIT(A) and is in appeal before us. 7. We have heard the rival contentions, perused the material on record and duly consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punjab Haryana High Court s judgment in the case of Coca Cola India Inc. vs. ACIT [(2009) 221 CTR 225 (P H)] relied upon by the learned CIT(A) holding that RBI approval will not be determinative factor, we may only point out that this view has not found favour with Hon ble Supreme Court in the sense that Hon ble Supreme Court has, in the case of Coca Cola Inc. vs. ACIT [(2011) 336 ITR 1 (SC)] set aside this order, and directed the authorities to decide the matter uninfluenced by any of the observations made in the impugned judgement . 10. In any event, learned Departmental Representative has not been able to controvert very well-reasoned findings of the learned CIT(A). In view of these discussions, as also bearing in mind entirety of the case, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. As for the issue raised in the Cross Objection, though academic, it has been held to be in favour of the assessee for the assessment year 2006-07 and we see no reasons to take any other view of the matter now as well. Leaned CIT(A) s conclusions are approved for this reason as well. 11. In the result, the appeal filed by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2 The Appellant prays that the Transfer Pricing adjustment made under Section 92CA(3) of the Act in relation to export of the product PTBP is erroneous, unwarranted and be deleted. 15. We will take up all these grounds of appeal together. 16. So far as the above three grounds of appeals are concerned, the common thread in all these three grounds are that the related adjustments are made by the Transfer Pricing Officer without giving any detailed reasons in his order. He has merely stated the fact of the impugned adjustment and left at that. When assessee raised the grievance before the DRP, the DRP observed that the TNMM was rejected as the TPO was able to find internal CUP but does not give any further details. It is difficult to even understand, much less examine, the reasoning adopted by the authorities below in making these three adjustments. The assessee, aggrieved inter alia by these ALP adjustments is in appeal before us. 17. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 18. In our considered view, and particularly as the orders of the authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X
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