9911796707
TMI Blog2019 (5) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT-A is justified in deleting the disallowance of interest made on account of borrowed funds Addition of travelling expenses reimbursed to the assessee s parent company, M/s DIC Corporation, Japan - HELD THAT:- Once the assessee established business connection with the visits undertaken by the executives of the foreign parent then the conditions prescribed u/s 37(1) for allowing deduction for expenditure were fulfilled. In such case it was not open for the AO to decide whether or not incurring of such expenditure was necessary for the assessee s business. All that the assessee was required to show was that the expenditure was incurred or laid out wholly and exclusively for its business purposes. On the facts of the present case we find that the assessee had established that the expenditure was incurred for it s business purposes and therefore the Ld. CIT(A) was justified in allowing the relief to the assessee. Ground No. 3 is therefore dismissed. Additional depreciation disallowed - addition on the ground that the depreciation did not pertain to plant machinery but in respect of furniture fixtures - HELD THAT:- Tribunal in its order [ 2019 (2) TMI 1619 - ITAT KOLKATA] directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore direct the AO to re-work the PLI of the tested party i.e. the assessee company, being OP/OR after excluding the foreign exchange gain. Ground No. 5(iii)(a) of the Revenue s appeal therefore stand allowed. Comparability analysis - grounds of the Revenue is that the CIT(A) had undertaken exact product comparability instead of a broader product comparability which is otherwise permitted under the TNMM - HELD THAT:- We do not see any merit in the Ld. DR s submission that the entire issue should be restored to the file of TPO for consideration afresh because the Ld. DR could not pin point any glaring factual mistake or legal infirmity in the Ld. CIT(A) s findings nor any fresh material was brought to our attention on the basis of which we could be persuaded to hold that the entire issue needs to be de novo examined by the TPO. However from the facts as discussed above, it is evident that the Ld. CIT(A) himself adopted broader product comparability criteria and not exact product comparability by adopting the broader segment of specialty chemicals as opposed to only printing inks. The Ld. DR could not controvert this fact.We therefore do not find any in-principle merit in the gri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and therefore it will assume the character of a debt in the hands of the assessee. If ultimately the customer does not pay this amount to the assessee, it has to be regarded as bad debt written off and allowed as deduction u/s 36(1)(vii) of the Act. In any event the deduction has to be allowed u/s 28 of the Act as a loss incidental to the business. We therefore direct the claim of the assessee to be allowed." 3. Before us both the parties agreed that this issue is squarely covered by the ITAT's order for the AY 2012-13. Following the appellate order forthe AY 2012-13, we hold that the sales tax component of the debts written off, was allowable as business loss under Section 28 of the Act being in the nature of loss incidental to business. Ground No. 1 is accordingly dismissed. 4. In Ground No. 2, Revenue has objected to the relief allowed by the Ld. CIT(A) in respect of interest disallowance of ₹ 14,37,394/- under Section 14A of the Act read with Rule 8D(2)(ii) of the Income-tax Rules, 1962. The Ld. AR for the assessee pointed out that the assessee had held only oneinvestment in shares of its wholly owned subsidiary M/s DIC Coatings India Pvt Ltd which was acqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Tribunal in the assessee's own case for the earlier years. Since factual matrix of the case remained unchanged during the relevant year, following the appellate orders for the earlier years, we uphold the Ld. CIT(A)'s order on this issue and dismiss ground No. 2 of the appeal. 7. Ground No. 3 is against the relief allowed by the Ld. CIT(A) in respect of travelling expenses of ₹ 16,44,313/- reimbursed to the assessee's parent company, M/s DIC Corporation, Japan. Briefly stated the facts of the case are that the assessee belongs to Dainippon Inks Corporation Group of Japan, which is a leader in speciality and printing ink business worldwide. Being member of the DIC Group, the assessee stands to benefit by the technological advancement achieved by the group companies worldwide. As is the practice followed in MNC groups, senior personnel of Group holding company pay visits to promote business interests of the Group affiliates in their respective territories. The personnel also pay visits to manufacturing locations with the purpose to review their operations, suggest improvisation and to inspect the facilities with a view to ensure that the affiliates are meeting the specifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the personnel visiting India were incurred by the assessee company and claimed as business expenditure u/s 37(1) of the Act. Merely because the persons visiting Indian operations of the assessee were employees of DIC, Japan did not ipso facto lead to conclusion that expenditure reimbursed on their visit to India were not for the purposes of assessee's own business. In my considered opinion the expression "incurred or laid down wholly & exclusively for the business purposes" as used in section 37(1) is much wider in its connotation and the said expression cannot be given any restrictive meaning. Whether or not the expenditure is incurred or laid out for business purposes must be viewed from the perspective of a businessman and not that of the Tax Authority" 15.3 In the impugned order the Ld. AO has opted to make disallowance on the ground that there was no necessity on the assessee's part to bear the expenses of foreign employees of the holding company. In my considered opinion, however, for deciding the allowability of expenditure, it is not necessary for the assessee to satisfy the 'necessity' test and it is not assessee's obligation to establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the order of the Ld. CIT(A). He submitted that the senior employees of DIC Japan had visited the manufacturing sites of the assessee at assesseee's request and as a result of these visits, assessee had received useful advice for improving its business operations. The Ld. AR further submitted that it was wholly at the discretion of the assessee to decide as to the terms on which it could deal with its foreign associates and the AO could not decide the issue of allowability of the expenditure from the view point of the tax gatherer. The Ld. AR submitted that it was never disputed by the AO or TPO that the assessee had merely reimbursed the travelling costs actually incurred and no further payment was made. He therefore urged to uphold the order of the Ld. CIT(A). 10. After giving a thoughtful consideration to the submissions of the rival parties, we find force in the submissions of the Ld. AR. It is an undisputed fact that the expenditure in question represented travelling costs actually incurred on the visit to India by the executives of DIC Japan which is the group holding company. It also an undisputed fact that DIC Japan is worldwide leader in the inks business and therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd evidences brought on record and also having regard to the nature of assets and the places at which these electrical installations were commissioned. The Ld. CIT(A) also adverted to the judgments of the Hon'ble Punjab & Haryana High Court in the cases of CIT vsOswalWollen Mills Ltd (289 ITR 261), CIT VsMetalman Auto Pvt Ltd (11 taxmann.com 51) and CIT VsSubrataDuttaChoudhury (197 Taxman 71) and recorded the following findings : "From the details of the additions made, I find that the appellant had made additions on account of air compressor, piping, filter housing, fire protection systems, chilled water lines, fabrication of structures, storage tanks, weighing scales & flame proof fittings for fire safety. It is also appeared from the locational details enumerated in the assessment order by the AO that he never questioned the fact every item was installed at the factory premises situated at Noida, Bangalore & Kolkata. I therefore find force in the Ld. A.R's submissions that these items were not installed at office or residential premises. From the impugned order, I also find that no positive material or evidence was gathered by the Ld. AO to substantiate his finding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation was claimed by the A' on multi gas detector model selection model - PGM-6228 & 12KL GD Storage Tank. The said object cannot be regarded by us as an office equipment or furniture. The AO shall verify from records whether additional depreciation is pressed against the above plant or against some office equipment. If it is in respect of the former the claim shall be allowed." 13. Since the directions of the DRP were not acted upon, the matter was taken up in appeal before the Tribunal. The coordinate Bench of this Tribunal in its order dated14.02.2018 in ITA No.552/Kol/2017 directed the AO to follow the directions of DRP and pass a speaking order. The Ld. AR for the assessee pointed out that in the order u/s 254 the AO accepted the assessee's contention that the electrical installations were installed at factory premises and these were not in the nature of 'furniture & fixtures' but formed part of 'plant & machinery' block qualifying for depreciation @ 15% and also additional depreciation u/s 32(1)(iia) of the Act. Since the factual matrix of the assessee'scase during the year is found to be same and the Ld. DR was unable to controvert the findings of the Ld. CIT(A) whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consisted of technical information concerning manufacturing, formulation and application along with plant designs, production process, quality control etc. in relation to manufacture of offset inks, gravure inks, web offset inks, conventional black and color inks, varnishes of all types including flush varnish, metal decorating inks, adhesives including packaging adhesives. The assessee has also been granted limited right to use the trademarks and brand names vis-à-vis such products. The assessee is permitted to non-exclusively use these licensed IPRs to manufacture and sell the products as aforesaid in any country except where DIC or DICAP has their plants. In terms of the said technical collaboration agreement, the assessee is also entitled to use the improvements in the licensed intangibles from time to time as a consequence of new developments, research, modifications, technological updates etc. In consideration the assessee was required to pay royalty at the rate of 2% on the net sales revenue of such products manufactured and sold using such technical knowhow and trademarks to DICAP. This technical collaboration agreement was entered into on 1st July 2008 having effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation agreements under the automatic route was only an indicator and therefore could not be taken as a benchmark to arrive at the ALP of the transaction in question. He further submitted that the assessee never submitted the details of the search process conducted in the Royalty Stat Database before the TPO and therefore the TPO was justified in rejecting the application of CUP Method. He submitted that the Ld. CIT(A) was unjustified in benchmarking the royalty transaction himself instead of setting it aside to the file of the AO and therefore urged us that the matter should be restored to the file of the AO. 19. Per contra the Ld. AR strongly relied on the appellate order of the Ld. CIT(A). He pointed out that the technical collaboration agreement with DIC was entered into way back in 2000 and the one with DICAP was entered into in 2007. It was submitted that all the preceding years were subjected to transfer pricing scrutiny u/s 92CA(3).In none of the past assessments the TPOs disputed ALP of the royalty payments. Upon query from the Bench; the Ld. AR of the assessee pointed out that the assessee all along had followed the same CUP Method and benchmarking exercise and there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder which royalty was paid at 2% of the net sales was entered into in the year 2008. The income-tax assessments of the assessee for the preceding years were completed u/s 143(3) after obtaining orders u/s 92CA(3) from the TPO. We note that in none of the past assessments the TPOs had questioned the ALP of royalty payments nor any material was brought on record in these orders to suggest that the payment of royalty was excessive. We therefore find force in the submissions of the Ld. AR that on the principle of judicial consistency the TPO as well as AO were not permitted to depart from the accepted position permeating through the years when neither of the authorities pointed out any change in the factual matrix or provisions of law governing such payments. In this regard a useful reference can be made to the decision of this Tribunal in the case of Donaldson India Filter Systems (P.) Ltd. Vs ACIT (101 taxmann.com 66)wherein it was observed as under: "19. Furthermore, when it is not in dispute that the business model of the taxpayer has not undergone any change since 2004 and payment of intra-group services have been formed to be at arm's length by the Revenue by passing deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violating the rule of consistency enunciated by the Hon'ble Supreme Court in the matter of Dalmia Promoters &Devels. (P.) Ltd. (supra). In the aforesaid decision, the Hon'ble Supreme Court has held that: "We are not going into this issue in as much as this appeal can be disposed of on the ground that consistency does demand that there being no change in circumstances, the income for the year 1993-94 would also have to be treated business income as for the previous three years. Accordingly, the appeal is dismissed." We note that the Department has been consistently accepting the assessee's transfer pricing documentation on the same facts and circumstances of the case, and no ALP adjustments were directed by the Ld TPO in respect of international transactions involving payments made by the assessee under the Cost Contribution Agreement (CCA) for receiving purchase services, order handling services and sales services for last three assessment years i.e. AY 2009-10, AY 2010- 11 and AY 2011-12, therefore we do not agree with the stand taken by the TPO in the current assessment year under consideration, by following the Rule of consistency. For that we rely o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find any infirmity in the Ld. CIT(A)'s order in granting relief. In this regard, we find support from the decision of the coordinate Bench of this Tribunal in the case of ACIT Vs Dow Agrosciences India Pvt Ltd (76 taxmann.com 124) wherein on analogous facts the Tribunal had held as follows: "7.1 In order to appreciate the aforesaid, the following discussion is relevant. The royalty paid by the assessee to its associated enterprise i.e. Dow Netherlands has been approved by the Secretariat of Industrial Approval (SIA), Ministry of Industry (Government of India) vide communication dated 07/09/1996 and also by the Reserve Bank of India dated 11/03/1997. Before us, a reference has also been made to Paper Book, wherein the aforesaid communications have been placed as also a communication SIA dated 22/1/1997, which is in continuation to its earlier approval dated 17/09/1996. In terms of such approvals, assessee is permitted to pay its foreign collaborator i.e. Dow Netherlands, royalty @ 5% on domestic sales and 8% on export sales. In this background, before the TPO assessee asserted that since royalty was paid in terms of the approvals by the Central Government, the payment of royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government is concerned, the CIT(A) rejected the same as according to him, such rates could not be considered as valid CUP data. The CIT(A) had however, allowed relief by benchmarking royalty payment under the TNMM whereby, the margins from the manufacturing activities of the assessee were found to be favourable vis-à-vis those of the comparables concerns. The Tribunal in assessment year 2003-04 upheld the ultimate conclusion of the CIT(A) to delete the addition on the ground that the basis on which the royalty was paid by the Dow UK to Dow Netherlands was different than that was paid by assessee to Dow Netherlands in as much as Dow UK was paying royalty as a percentage of gross sales, whereas assessee was paying royalty at net sales, in accordance with Foreign Exchange Control Regulations. The Tribunal found that if the royalty payable was calculated by adopting the same basis, then the royalty being paid by Dow UK was higher than what has been paid by assessee company to Dow Netherlands and, thus, the royalty paid by the assessee was at an arm's length rate, and no adjustment was required. On this basis, the Tribunal affirmed the order of the CIT(A) deleti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on domestic sales and 8% on export sales is liable to be considered as at an arm's length rate in view of the Circular No.5 dated 21/7/2003 (supra). Therefore, the addition made by the Assessing Officer on this count is unsustainable. In the ultimate analysis, we uphold the action of the CIT(A) in deleting the addition, albeit, on a different ground." 23. Similar view has been endorsed by another coordinate Bench of this Tribunal in the case of ACIT Vs. Owens Corning Industries (India) (P.) Ltd (67 SOT 61) wherein it was held as follows: 16. Furthermore, the assessee claimed that the Royalty agreement was originally entered with Saint GobainVetrotex France S.A.) from 1.7.2001 to 30.6.2008 and that agreement called for 5% of net "ex-factory sales price" as royalty payment. Further, by way of a supplementary agreement dt. 8.5.2002 the approval for payment towards foreign technology transfer sanctioned by RBI was incorporated in the original agreement (refer page 6 & 7 of TPO order dt. 13.12.12). Finally it is seen that Saint GobainVetrotex France S.A. is now known as Owens Coming Invest Cooperatief, Netherlands with which subsequent agreement dt. 1.7.2008 was made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taken as the tested party and its PLI was worked out at 5.33%. Since the PLI fell within the range of +/-5% prescribed in the proviso to Section 92C; the transaction was reported in the TPSR to be at arm's length. The TPO rejected the application of RPM vis-à-vis the import of finished goods in absence of reliable data and sought to benchmark it under TNMM Method. The TPO also did not fully agree with the benchmarking exercise conducted by the assessee company in respect of import of raw materials and export of finished goods. In his initial show cause notice he proposed to benchmark both the set of transactions separately under TNMM Method. He initially proposed to benchmark the transactions only with those companies, which were involved in manufacturing of inks. The AO also increased the turnover filter to 20% and the RPT filter to 25%. Further, instead of multiple year data, the AO advocated use of single year data of the comparables. In respect of import of finished goods, the AO identified two comparables and taking OP/OR as the PLI, he worked out the arm's length PLI at 15.15%. With regard to import of raw materials and export of finished goods; he proposed that O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even in the broader functional comparability. With these findings, the Ld. CIT(A) directed the AO to re-work the transfer pricing adjustment in the facts of the present case. Aggrieved by this order of the Ld. CIT(A), the Revenue is in appeal before us only on two specific issues; (a) whether foreign exchange gain can be considered to be operating income and (b) whether the Ld. CIT(A) was justified in adopting exact product comparability criteria as opposed to broader product comparability criteria and thereby rejecting functionally comparable companies as identified by the TPO. 27. We have heard the submissions of the rival parties. The Ld. AR of the assessee very fairly conceded at the beginning that foreign exchange gain could not be considered to be forming part of the operating income in the given set of facts. We therefore direct the AO to re-work the PLI of the tested party i.e. the assessee company, being OP/OR after excluding the foreign exchange gain. Ground No. 5(iii)(a) of the Revenue's appeal therefore stand allowed. 28. As regards the issue of adoption of the criteria of broader product comparability; we find the Revenue's ground to be misconceived because the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the file of TPO for consideration afresh because the Ld. DR could not pin point any glaring factual mistake or legal infirmity in the Ld. CIT(A)'s findings nor any fresh material was brought to our attention on the basis of which we could be persuaded to hold that the entire issue needs to be de novo examined by the TPO.We note that the specific grievance raised in this grounds of the Revenue is that the Ld. CIT(A) had undertaken exact product comparability instead of a broader product comparability which is otherwise permitted under the TNMM. However from the facts as discussed above, it is evident that the Ld. CIT(A) himself adopted broader product comparability criteria and not exact product comparability by adopting the broader segment of specialty chemicals as opposed to only printing inks. The Ld. DR could not controvert this fact.We therefore do not find any in-principle merit in the grievance raised by the Revenue. 30. On the merits of the issue, we are of the opinion that for correct application of TNMM, it was necessary for the lower authorities to select comparables, which were functionally similar and engaged in similar line of business. It is by now well settled that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctionally comparable under the broad segment of specialty chemicals cannot be faulted with. 31. Based on the reasons as discussed in the foregoing, we now proceed to examine the reasons as to why in the impugned order the Ld. CIT(A) rejected the comparables selected by the TPO /Assessee under the broader functional comparability criteria. - M/s Akzo Nobel Chemicals India Ltd : The Ld. CIT(A) noted that this company was engaged in the business of manufacture of Polymerization Initiators and Catalysts. The finished products of the company were found to be not even broadly comparable to that of the appellant and therefore rejected. - Casil Industries Limited&Vivimed Labs Limited: The Ld. CIT(A) noted that these two companies belonged to the drug & pharmaceutical industry segment. Since the product profile was completely different with the tested party, these companies were rejected by the Ld. CIT(A). - Daikafill Chemicals India Limited :The Ld. CIT(A) noted that this company was engaged in manufacture of whitening agents & coupling components which had different and wider applications and therefore could not be considered to be broadly comparable with the tested party and hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Ld. Pr.CIT-4, Kolkata for AY 2010-11 holding that the assessment order was erroneous and prejudicial to the interests of the Revenue because the royalty paid to these two entities under the same technical collaboration agreements was liable to be disallowed on the ground of being capital in nature. Being aggrieved, the matter was taken up before this Tribunal, which in its decision dated 05.04.2017 in ITA No.136/Kol/2017quashed the revision order of the CIT. Following this appellate order, this Tribunal in assessee's own case in its order dated 14.02.2018 in ITA No. 552/Kol/2017 for the subsequent AY 2012-13 similarly deleted the disallowance of royalty payment by observing as under: "The assessee paid a sum of ₹ 2,14,29,108/- to the holding company DIC Asia Pacific PTE Ltd., Singapore and Royalty of ₹ 7,03,28,595/- to another holding company DIC Corporation, Japan. The total royalty paid by the assessee was therefore ₹ 9,17,57,703/-. According to the AO by paying the aforesaid royalty the assessee acquired intangible assets technical knowhow for upgrading manufacturing technology and also got right to use the trading names, brand names and marks fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... varnishes of all types including flush varnish, adhesives including packaging adhesives on a continuous basis. The assessee had approached DIC Japan to make available to it the said technical knowhow for the purpose of upgrading its manufacturing technology for the existing as well as future products relating printing inks and allied products on a continuous basis in its plants located at Calcutta, Mumbai, Noida, Ahmedabad , New Delhi , Madras or any other future place as may be determined by assessee from time to time. It is further stated that the DIC Japan would make available to assessee the technical knowhow as aforesaid and the right to use the trade names and brand names. In this regard, the following clauses in the said agreement would be relevant:- 1.3. "Products" will also include the right of COATES to use the Trade Names, Brand Names relevant to the Products, whether the same be registered or otherwise (hereinafter referred to as "Trademarks" ), provided, however, it shall be the responsibility of COATES to ensure compliance with local laws relating to use of such names and marks. 1.4. Licensed Information means such technical information in pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effective date, provided that DIC, directly or indirectly owns more than fifty (50) percent of the shares of COATES. 9.2 One (1) year prior to the expiration of this Agreement, the parties shall meet and shall decide jointly either to renew this Agreement for the further period for five (5) years at the expiration of this Agreement or whether it shall not be renewed after the normal date of expiration. 10. Termination 10. I, Either party may terminate this Agreement forthwith: (1) if the other party is in breach of any of the provisions of this Agreement and fails or is unable to remedy the same within 30 days after receiving notice in writing thereof from the other party. (2) if the other party becomes insolvent, bankrupt or is placed liquidation. 10.2. If under the provisions of this Agreement COATES ceases to be entitled to use the Licensed Information COATES shall deliver up to DIC all such Licensed Information in tangible form which may then be in its possession and will keep no copies thereof. 9.1. We find from pages 27 to 29 of the Paper Book, a copy of the approval, from Government of India, Ministry of Commerce & Industry , Department of Industrial Policy & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see by using the licensed information obtained from DIC Asia Pacific Pte Ltd, Singapore and DIC Corporation, Japan had upgraded its P&M and also changed the setting up of P&M to make its finished products viable for the market. This assumption is factually incorrect and does not emanate out of the jurisdictional facts on record. The ld. CIT had not brought any material evidence on record to justify this incorrect assumption thereby leading to incorrect conclusion. We find that the assessee had all along been in the business of manufacture of printing inks and it had not ventured into any new business as could be evident from its financial statements. We find that the knowhow was provided for upgrading the existing business. This payment of royalty has been allowed as a revenue expenditure in the past by the ld. AO u/s 143(3) of the Act. The ld. CIT merely made a bald statement by stating that the assessee by using the licensed information had entered into new dimensions of business from time to time and hence the payment of royalty could not be equated with the nature of royalty paid in earlier years, which statement is absolutely without any basis and without any material on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. Sight cannot however be lost of the fact that the payment made by the assessee is on account of licence fee. By making such payment, the assessee has got a permission use technology. The money paid is irrecoverable. In case the business of the assessee for some reason or the other is stopped, no benefit from such payment is likely to accrue to the assessee. The license is not transferable. Therefore, it cannot be said with any amount of certainty that there has been an accretion to the capital asset of the assessee. In case, the assessee continues to do business and continues la exploit the technology for the agreed period of time, the assessee will be entitled to take the benefit thereof. But in case it does not do so, the payment made is irrecoverable. It is in this sense that the matter was looked into by the High Court of Madras and was endorsed by the apex court in the case of IAEC (Pumps) Ltd. (supra). The point as a matter of fact is covered by the aforesaid judgment. Nothing really is left for us to do the matter. 11. We are, therefore, of the opinion that the question has to be answered in the affirmative and in favour of the assessee. 12. The appeal is thus all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and acquisition of capital asset by the assessee existed in the present case. The assessee had enduring benefit and has functionally gained advantage and these facts ought to have prompted the tribunal to come to a conclusion that expenditure in question was capital in nature. 15. We have considered the rival submissions and we are arguments put forth by the ld. DR have already been considered of the view that the arguments put forth by the ld. DR have already been considered by the tribunal in the order cited in the earlier paragraphs. We are of the view that the facts and circumstances remain identical. There is no reason for taking a contrary view. We, therefore, do not accept the arguments put forth by the ld. DR. For the reasons given above we hold that the assessee is entitled to claim the entire royalty paid to DIC Asia Pacific PTE Ltd., Singapore and DIC Corporation, Japan. The addition made by the AO is directed to be deleted." 35. Since factual matrix of the case for AY 2011-12 is same as in the preceding and succeeding assessment year, respectfully following the above appellate orders, we uphold the order of the Ld. CIT(A) deleting the disallowance of royalty of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Ld. CIT(A). 39. As regards Ground No. 5(iii)(a), like in AY 2010-11, the Ld. AR fairly conceded that foreign exchange gain cannot form part of the operating income for computation of PLI being OP/OR of the assessee company. Following our conclusion drawn in A.Y. 2010-11, we allow this ground of the Revenue and direct the AO/TPO to re-compute the PLI i.e. OP/OR of the assessee company after excluding foreign exchange gain from the operational income. 40. In respect of Ground Nos. 5(iii) (b) & (c), we note that facts involved and the issue raised are identical to Ground No.5(iii) (b) & (c) of Department appeal in A.Y. 2010-11. The benchmarking exercise conducted by TPO under TNMM in the year under consideration are same as discussed in the transfer pricing order for AY 2010-11. The order of the Ld. CIT(A) was also passed on identical lines on which the relief was allowed in the appellate order for AY 2010-11. Therefore, following our conclusions drawn in A.Y. 2010- 11, we dismiss Ground No.5(iii) (b) & (c) raised by the Revenue and uphold the order of Ld. CIT(A). 41. In the result, both the appeals of the Revenue are partly allowed. Order is pronounced in the open court o ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
