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TMI Blog2014 (11) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant were clearly provided in the agreements entered into with the AE. The cost benefit test as worked out by the TPO was not based on proper appreciation of the facts and thus CUP method applied by the AO / TPO was not justifiable. The judicial citations relied on by ld. CIT(A) as well as further judgments relied on by the assessee including Hon'ble High court in the case of Delhi EKL Appliances Ltd. (2012 (4) TMI 346 - DELHI HIGH COURT) support the view taken by ld. CIT(A). - decided against revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... ricing Officer-1), Jaipur considered the Arm's Length Price of the payment of Royalty by the assessee to its Associated Enterprises at Rs. Nil as against ₹ 1,02,91,000/- declared in Form 3CEB, after making adjustment of ₹ 1,02,91,000/-., consequently the same was disallowed by AO and added back to the income of the assessee. Thus the AO adopted the TPO's reasoning applying the Cup Method qua royalty amount and held that the assessee failed to demonstrate to show that substantial benefit accrued to it by paying this amount of royalty. 2.2 Aggrieved, assessee preferred first appeal before the ld. CIT(A), who deleted the addition by making detailed observations which are summed up as under:- ''The appellant had m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case belonged to Sakata Japan and the appellant was provided a right to use the technology and trademarks for its own operations. In return, the appellant i.e. Sakata India paid royalty to Sakata Japan. Thus, it was a purely business decision taken out of commercial expediency and the AO or TPO could not question the decision of prudent businessman.'' 2.3 While holding so ld. CIT(A) placed reliance on following case laws: (i) Dy.CIT v. Vinarom Ltd. [2007] 104 ITD 234 (Bang.) (ii) Dresser Rand India (P.) Ltd. v. Addl.CIT [2012] 53 SOT 173/[2011] 13 taxmann.com 82 (Mum.) (iii) Abhishek Auto Industries Ltd. v. Dy. CIT [2011] 9 taxmann.com 27 (Delhi) 2.4 Apropos application of CUP Method, the ld. CIT(A) held that applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant on the other hand selected companies which were engaged in the manufacturing of dyes. These included Indokem Ltd., Jaysynth Impex Ltd., Lona Industries Ltd., Metrochem Industries Ltd., Metropolitan Eximchem Ltd., Phthalo Colours & Chemicals (India) Ltd. and Saraf Chemicals Ltd.. The TPO had not questioned the comparability of these companies. The appellant had selected Pthalco Colors & Chemicals (India) Ltd. and Rainbow Ink & Varnishing Co. Ltd. as comparables. The TPO rejected these two companies as persistent loss makers/ diminishing revenues. However, the OECD guidelines also supported the fact that loss makers could not be rejected out-rightly. The comparability should also be judged on various other factors. Similarly, the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. CIT(A) erred in :- (i) Assessing total income at ₹ 91,36,830/- as against r 5,61,900/- computed by the appellant. (ii) Marking transfer pricing adjustment by rejecting the analysis undertaken by the appellant to determine ALP for its international transactions pertaining to provision of Software Development Services to the AE. (iii) Rejection of the economic analysis undertaken by the appellant and conducting unjustified fresh search conducted by the ld. TPO. (iv) Considering the non-contemporaneous data and single year data while determining the ALP. (v) Inappropriate use of information obtained which was not available in public domain by exercising the power u/s 133(6) of the Act without adopting consistent and tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions on TNMM method. The transactions were held to be on arm's length as arithmetic mean of the OP/OR of the comparables companies as adopted by the ld. CIT(A) was 5.18% whereas the assessee's margin came to 5.77% as per TPO order. (iii) In addition to the case laws cited by the ld. CIT(A), further reliance is placed on following judgments. (1) CIT v. EKL Appliances Ltd. [2012] 345 ITR 241/209 Taxman 200/24 taxmann.com 199 (Delhi) (2) CIT v. Cushaman & Walkfield (India) (P.) Ltd. [IT Appeal No. 475 of 2012] (Delhi High Court) (3) Toyota Kirloskar Motor (P.) Ltd. v. Asstt. CIT [IT Appeal No. 1595 (bang.) of 2012 - ITAT, Bangalore bench] (4) Dy. CIT v. Hitachi House & Life Solutions (India) Ltd. [IT Appeal No. 182/Ahd./ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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