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TMI Blog2015 (10) TMI 2509X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 2005-06, ITA No. 5252/Del/2011 for the AY 2007-08 and ITA No. 4715/Del/2010 for the AY 2004-05 respectively. ITA No. 587 of 2014 is an appeal by the Revenue against the order dated 31st May 2013 passed by the ITAT in ITA No. 4456/Del/2012 for the AY 2008-09. 2. The facts leading to the filing of the present appeals are that the Respondent-Assessee is engaged in the business of manufacturing and sale of lighting products for automobiles. The Assessee entered into a technical collaboration agreement with Stanley Electric Co. Ltd., Japan ('Stanley') in 1984 in terms of which the Assessee was granted a non- exclusive right and licence to manufacture and sell licensed products under Stanley's patents and technical information in India as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Executive Director as the representative of Stanley on the Board of the Assessee, by virtue of Section 92A (2) of the Act, Stanley became an AE of the Assessee. 5. During AYs 2004-05 and 2005-06 the Assessee entered into the following the international transactions: International transactions 2004-05 2005-06 Import of raw material 6,44,50,527 9,14,53,820 Import of capital equipment 62,50,907 7,86,59,617 Payment of royalty 2,03,02,776 2,68,77,737 Import of design and drawings 33,18,000 ... Payment of R&D expenses ...... 11,10,173 6. The Assessee filed its return of income for AY 2004-05 on 29th October 2004 showing income at Rs. 12,36,46,429 which was set off against the unabsorbed depreciation to the extent of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacturing the auto lights. It was also observed that the Assessee's Engineers did not visit Japan for training. However, no separate addition on account of royalty was made because the adjustment under TNMM was more than the royalty payment. 9. The AO passed an assessment order dated 20th December 2006 on the basis of the aforementioned report of the TPO and made additions both on account of payment of royalty and disallowance of foreign travelling expenses. 10. The appeal by the Assessee against the said order was disposed of by an order dated 30th September 2010 by the Commissioner of Income Tax (Appeals) ['CIT (A)']. For AY 2004-05 the CIT (A) observed that the adjustment made on the basis of net profit margin of Phoenix Lamps Limite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT against the final assessment order dated 17th July 2012. 14. The appeal for the AY 2008-09 was first decided by the ITAT by order dated 31st May 2013. The ITAT allowed the appeal of the Assessee as regards adjustment on account of royalty for the following reasons: (i) The agreement with Stanley was not a paper agreement. The payment of royalty is about the trade mark, patent and technology in the technical collaboration agreement between the Assessee and Stanley since 1984. (ii) In terms of the agreement the Assessee was to pay royalty on its net sales, after deduction from the net sale price of the licensed products sold by it to Stanley. Although such payment was to be 4% on the net sales during the year, i.e. AY 2008-09, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e determination of ALP by the TPO in respect of payment of royalty at Nil did not refer to a comparable case. 16. On the question of addition made by the AO on account of ALP for the payment of royalty, learned counsel for the Assessee has rightly referred to the decision in Commissioner of Income Tax v. Sony Ericsson Mobile Communication (2015) 374 ITR 118 where the determination of the ALP of the royalty paid as Nil was not approved. The Court's attention has also been drawn to the decision in Commissioner of Income Tax v. EKL Appliances Limited (2012) 345 ITR 241 wherein it was held that Rule 10B (1) (a) did not authorize disallowance of any expenditure on the ground that it was not necessary for the Assessee to have incurred such e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (A) is not found to be perverse. The Court declines to frame a question on this issue. 21. The CIT (A) has deleted the disallowance of expenses on account of foreign trips of the Director of the Assessee after holding that the visits made to USA and Dubai were for the business purposes. The disallowance by the AO of the said expenses was found to be not justified. Since the above finding turned purely on facts, the order of the CIT (A) as affirmed by the ITAT, does not give rise to any substantial question of law. 22. On the issue of disallowance of the expenses on account of provision for warranty, the ITAT deleted it since the provision was made by the assessee based on actual warranty expenses incurred for the unexpired warranty p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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