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TMI Blog2022 (10) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... pport of the objection. Though the DRP decided the larger issue and upheld the TPO s view in segregating the Royalty transaction from the others in the overall Manufacturing segment, but inadvertently omitted to adjudicate the issue of segregation of domestic sale-based and export-based royalty payment raised through objection no. 3. We are of the considered opinion that the ends of justice would meet adequately if the impugned order on this specific issue is set-aside and the matter is restored to the file of the DRP for limited purpose of disposing of the assessee s objection no.3. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh proceedings. Disallowance of expenses u/s.14A - HELD THAT:- As observed that similar issue came up for consideration before the Tribunal in the assessee s appeal for the A.Y. 2013-14. A copy of the order has been placed - Relevant discussion has been made at page 8 onwards of the order and eventually the matter has been restored to the file of the AO for deciding it in conformity with the decision taken by the Tribunal in the assessee s own case for the A.Y. 2013-14. As the facts are admittedly similar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction on Education Cess and Secondary higher education cess has to fail in view of the statutory amendment carried out to section 40(a) with retrospective effect covering the year under consideration - AR was fair enough to accept this position. This ground is, therefore, not allowed. - ITA No.2111/PUN/2019 - - - Dated:- 28-9-2022 - Shri R.S. Syal, Vice President And Shri S.S.Viswanethra Ravi, Judicial Member For the Assessee : Shri Ketan Ved For the Revenue : Shri Shivraj Morey ORDER PER R.S. SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 25-10-2019 passed by the Assessing Officer (AO) u/s.143(3) and 144C(13) of the Income-tax Act, 1961 (hereinafter also called the Act ) in relation to the assessment year 2015-16. 2. The first issue raised through six grounds is against the transfer pricing adjustment of Rs.30.28 crore made in the international transaction of `Payment of Royalty for use of technology . 3. Briefly stated, the facts of the case are that the assessee is a Indian company engaged in the business of Manufacture and Sale of Internal Combustion Engines, Spares, Components (including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing figure of total sale of licensed products at Rs.1653,48,57,041. The assessee also chose certain comparables and furnished the ALP determination. The TPO found out the value of domestic sales at Rs.907.73 crore (with value of net sales at Rs.635.79 crore) on which Royalty of Rs.8.15 crore was paid; and the value of exports at Rs.752.13 crore (with value of net sale at Rs.577.41 crore) on which Royalty of Rs.46.16 crore was paid. In view of the fact that the assessee paid Royalty at varying rates on the same products when sold in domestic or foreign markets, the TPO came to the conclusion that payment of such Royalty at different rates was not appropriate. He segregated the amount of Royalty paid on Domestic sales as well as Export sales and found out the percentage of Royalty in case of Domestic sale at 0.89% and in case of Export sales at 6.13%. Without disputing the ALP of royalty payment on the domestic sales, he took up the determination of the ALP of the royalty payment on exports. By adding one more comparable to the list of comparables furnished by the assessee, he worked out 35 percentile at 2.50%; 65 percentile at 3.00%; and median at 2.75% for working out the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of such enterprises, .. . It is discernible from the above definition of the `international transaction given in section 92B that it refers to a transaction between two or more associated enterprises. The term transaction has been defined in section 92F(v) and also in Rule 10A(d) of the Income-tax Rules, 1962. The Rule defines the term transaction to include: a number of closely linked transactions. On going through the above provisions, it becomes palpable that the arm s length price is essentially determined on transaction-by-transaction approach for each international transaction separately; and for that purpose, a transaction in singular also includes plural for closely linked transactions. In other words, where the transactions are not closely linked, their ALP needs to be determined separately and such determination of the ALP of an international transaction as per section 92C(1) of the Act should be done as per the most appropriate method. To put it more simply, each international transaction is viewed separately and independent of other international transactions for determining its ALP unless they are closely linked. It is impermissible to combine more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo or more AEs can form a single composite transaction if they are closely linked transactions and the onus is always on the assessee to establish that such transactions are part of an international transaction pursuant to an understanding between various members of a group. The Hon ble High Court observed that in case of a package deal where each item is not separately valued but all are given a composite price, these are one international transaction. Further, where a number of transactions are priced differently but on the understanding that the pricing was dependent upon the assessee accepting all of them together (i.e. either take all or leave all), then also they have been held to be taken as one international transaction. But the onus has been put on the assessee to prove that although each is priced separately, but they were provided under one composite agreement. It still further held that each component may be priced differently also, but it will have to be shown that they are inextricably linked that one cannot survive without other. In that case, the assessee raised a contention, similar to the one raised before us, as discussed in para 40: `that as the services and goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of fixed assets. All these transactions were categorized under one broad head, that is, Manufacturing of automotive components and shown to be at ALP. The TPO rejected the assessee s entity level approach applied to benchmark the international transactions, including, Technical assistance fees and proceeded to determine the ALP of the Technical assistance fees separately. The Tribunal approved the TPO s stand on segregation of payment of Technical assistance fee. The Hon ble Delhi High Court admitted the question in this regard - `Whether the Income Tax Appellate Tribunal was right in holding that royalty and technical assistance fee did not form part of a composite transaction and have to be treated as two separate transactions for the purpose of benchmarking and computing arms length price? and answered it against the assessee thereby affirming the view of the Tribunal that aggregation of the transaction of payment of Technical fees with other international transactions under the common TNMM was not correct. Restoring the matter to the TPO/AO, it held that the TNMM should be separately applied for determining the ALP of the international transaction of payment of Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property etc. in connection with the technical support that the Cummins Inc., granted to the assessee for making and selling the licensed products listed in Schedule II in any part of the world. Three exceptions have been carved out. The assessee has been prohibited from exporting Cummins products outside India without prior evaluation/approval from Cummins. The new agreement, which is relevant for the year in appeal, naturally had no occasion to come up for consideration before the earlier Bench. 13. In principle, we are in concurrence with the ld. AR that the per se aggregation rule applies in the transfer pricing provisions and has also been judicially approved as well. However, the question is that which of the international transactions can be aggregated for a combined ALP determination approach? The answer to this question has been given generally in Knorr-Bremse (supra) by laying down the principles of aggregation and specifically in Magneti Marelli (supra) disapproving the aggregation of royalty payment with other international transactions in the manufacturing segment. The assessee does not satisfy either the general or the specific rules of aggregation in the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant for sale in domestic market and foreign market. On domestic sales of Rs.907.73 crore, the assessee paid Royalty of Rs.8.15 crore, which is 0.89%; and on export sales of Rs.752.13 crore, the assessee paid Royalty amounting to Rs.46.16 crore, which is 6.13%. Whereas, the view point of the TPO is that the assessee paid royalty on goods meant for sale to its AEs at higher rates so as to reduce its income and the consequential tax incidence in India and accordingly segregated the royalty on domestic sale and exports for separate benchmarking, the ld. AR has pitched for aggregating both to be processed as a single transaction for the ALP determination. The ld. AR submitted that this issue was also raised before the DRP through objection no.3. On a perusal of the directions of the DRP, it is seen that the assessee did take up this issue by means of objection no.3 as has been mentioned at page 29 of the Direction. The assessee also tendered its explanation in support of the objection. Though the DRP decided the larger issue and upheld the TPO s view in segregating the Royalty transaction from the others in the overall Manufacturing segment, but inadvertently omitted to adjudicate the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was put to use for a period of less than 180 days in the earlier year. Relying on the second proviso to section 32(1), the AO did not allow further deduction of 50% of the admissible additional depreciation to the assessee in the year under consideration on the plant and machinery acquired in the preceding year. No reprieve was given by the DRP. 19. After considering the rival submissions and perusing the relevant material on record, it is seen that this issue also came up for consideration before the Tribunal in the case of the assessee for the A.Y. 2013-14. Relevant discussion has been made at page 12 of the order. The Tribunal has followed its own order for the A.Y. 2012-13 in allowing the assessee s claim in respect of such additional depreciation. As the facts and circumstances are mutatis mutandis similar, respectfully following the precedent, we allow this ground of appeal. 20. The next ground is against the addition of Rs.3,50,41,050/- made by the AO u/s.50C of the Act. The facts anent to this issue are that the assessee sold certain land in Dewas for a consideration of Rs.8.31 crore. On being called upon to explain as to why provisions of section 50C should not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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