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TMI Blog2022 (2) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... to reconsider the issue in light of royalty agreement between the parties, revenue base of passenger vehicles assembled in India and reconciliation statement filed by the assessee explaining difference between royalty income computed by the assessee and royalty income determined by the Assessing Officer. Appeal filed by the Revenue is treated as allowed for statistical purposes. - I.T.A.No. 3095/Chny/2019 - - - Dated:- 9-2-2022 - Shri V. Durga Rao, Judicial Member And Shri G. Manjunatha, Accountant Member For the Appellant : Mr. G.Johnson, Addl.C For the Respondent : Mr. Ajith Kumar Jain, C.A. ORDER PER G. MANJUNATHA, AM: This appeal filed by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-9, Chennai, dated 27.08.2019 and pertains to assessment year 2014-15. 2. The revenue has raised following grounds of appeal:- 1. The Ld. CIT(A) erred in facts and law in deleting the addition made amounting to ₹ 7,95,13,858/- on account of unaccounted royalty. 2. The Ld CIT (A) erred in applying royalty @ 2.5% on profit making models alone, whereas the Assessing Officer has correctly computing Ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year relevant to assessment year 2014-15, the assessee company had shown royalty income of ₹ 92,69,83,597/- from M/s. Ford India Private Limited. During the course of assessment proceedings, the Assessing Officer on the basis of Notes to financial statements observed that the assessee has achieved sale of goods at ₹ 8,562.47 crores and on this sale, as per agreement minimum royalty @ 2.5%, should work out to ₹ 183.95 crores, whereas the assessee admitted royalty income at ₹ 92.70 crores. Therefore, called upon the assessee to explain and reconcile difference between royalty to be received and royalty actually received from M/s. Ford Motor India Pvt Ltd. In response, the assessee has filed computation explaining amount of royalty received from sale of vehicles assembled in India and argued that it has received royalty income from different models, wherever the company has earned profit and further, in case there is loss, it has not computed royalty. The Assessing Officer, after considering relevant submissions of the assessee and also taken note of sales declared in financial statement, has computed net sale on which royalty is payable by M/s. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty. However, there is dispute with regard to computation of royalty and hence, to ascertain correct facts and quantify correct amount of royalty, issue may be set aside to the file of the Assessing Officer. 7. The learned A.R for the assessee, on the other hand, submitted that the Assessing Officer has adopted incorrect method for computing amount of royalty receivable from M/s. Ford India Private Limited, which is evident from fact that the assessee has received royalty only on those passenger vehicle models which has positive revenue base, whereas the Assessing Officer has considered passenger vehicle models, which has negative revenue base, however, failed to consider cost associated with those models which has negative revenue base. The learned AR further referring to paper book filed by the assessee submitted that the assessee has filed reconciliation, which is available at page 40 of paper book filed by the assessee, as per which correct amount of royalty receivable by the assessee as per approach of the Assessing Officer is at ₹ 91.68 crores, which is lesser than the amount of royalty income considered by the assessee at ₹ 92.74 crores. The learned CIT(A), a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts brought out by the Assessing Officer and we find that as per clause V(A) (B) of the agreement, the assessee shall receive royalty on revenue base from sale of vehicles assembled by M/s. Ford India Private Limited. However, there is no segregation as to payment of royalty only on those passenger vehicles models which has positive revenue base. Therefore, to this extent arguments of the assessee that it has considered only those passenger vehicle models which has positive revenue base, is inconsistent with royalty agreement between the parties and thus, argument of the learned A.R for the assessee is rejected. As regards other arguments of the assessee that in case passenger vehicle models which has negative revenue base also needs to be considered for royalty computation, then cost associated with those passenger vehicle models also needs be considered to arrive at sales value, we find force in the arguments of the assessee for simple reason that once gross revenue from all models is considered, including those passenger vehicle models which has negative base, then related cost associated with those models also needs to be considered, because royalty agreement specifies paym ..... X X X X Extracts X X X X X X X X Extracts X X X X
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