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TMI Blog2023 (7) TMI 1140X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in IT(TP)A No.9/Chny/2018 for A.Y 2011-12 and grounds of appeal filed by the Revenue in ITA No.1034/Chny/2018 for A.Y 2011-12 are reproduced as under: IT(TP)A No.9/Chny/2018 for A.Y 2011-12: "The order of the Hon'ble Commissioner of Income Tax (Appeal) is against facts and circumstances of the case. Both the CIT (A) and the Assessing Officer has failed to appreciate the various submissions made in the current perspective. 1. Download Adjustment of Rs. 5,59,73,812/-: The Appellant has adopted different methods for each type of transactions and the same has been already produced before the TPO and Assessing Officer. However, TPO has ignored the method adopted by the Appellant and applied TNMM for the transaction as a whole. Even assuming but not admitting in the event of Lubrizol as comparison the following adjustments has to be granted. * Adjustments on account of Lube Oil / Base Oil/ Mineral Oil price * Tolling fee for Zinc * Freight cost on sales If the same is considered the Operating Profit/ Operating Income of IAL will be 23.57% as against Lubrizol ratio of 23.72% and the transaction will be at Arms Length Price. 2. Disallowance u/s. 40a(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves for the Indian market. IAL was formed as 60:40 joint venture between Chevron Oronite Company LLC, UK (COCL) and Chevron Oronite Japan Ltd. Japan (COJL). The assessee had filed its return of income for A.Y 2011-12 to 2014-15 u/s. 139(1) of the Income Tax Act, 1961 (hereinafter referred as "the Act"). The case was selected for scrutiny and during the course of assessment proceedings, a reference was made to the Transfer Pricing Officer (TPO) to determine Arms Length Price (ALP) of international transactions of the assessee with its associated enterprises (AE) as reported in Form-3CD, filed for the relevant assessment year. During the course of transfer pricing proceedings, the TPO noticed that the assessee had entered into various international transactions including purchase of raw materials from their AE Chevron Oronite Pvt. Ltd., Singapore etc. The assessee has followed CUP as a most appropriate method to benchmark international transactions for purchase of raw-materials. The assessee has taken external CUP and benchmarked its transactions with AE in respect of purchase of raw-materials and claimed that the transactions with its AE are at ALP. The TPO has called information fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er u/s. 143(3) r.w.s 144C(1) of the Act on 16.03.2015 and proposed TP adjustment as suggested by the TPO. The assessee vide letter dated 15.04.2015 informed the A.O that the assessee wish to prefer an appeal before the Ld. CIT(A) against the draft assessment order. Therefore, requested the A.O to pass final assessment order. Thereafter, the A.O passed final assessment order u/s. 143(3) r.w.s. 144C(13) of the Act, and made additions towards TP adjustment as suggested by the TPO. The A.O had also made additions towards disallowance u/s. 40(a)(ii) of the Act towards TDS on royalty, on the ground that the TDS is not deductible u/s. 40(a)(ii) of the Act. The A.O had also made additions towards disallowance of R&D Cess u/s. 43B of the Act. Similarly, the A.O had made additions towards disallowance of depreciation for non submission of supporting documents and has also made additions towards interest on unsecured loan. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged additions made by the A.O towards downward adjustment on international transactions of the assessee with its AE, royalty payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on record and gone through orders of the authorities below. We find that an identical issue has been considered by the Tribunal in assessee's own case for A.Y 2009-10 in ITA No.2579/Mds/2016, where the Tribunal after considering relevant facts has set aside the issue to the file of the A.O for reconsideration and give proper adjustment on account of raw-material cost of Lubrizol and mineral oil and also regarding tolling fee for zinc. The relevant findings of the Tribunal order are as under: "6. We have heard both the parties and perused the material on record. According to ld.A.R, Lubrizol is procuring raw materials at lower cost as Lubrizol is a JV promoted by M/s. Indian Oil Corporation ( I0CL)., and M/s.Chevron Oronite Company LLC USA. IOCL has given better discount in Lube Oil price/MT to Lubrizol, which is not available to the assessee. In our opinion, if it is reflected in the financial statement of Lubrizol, it is appropriate to give credit to the same and computation of T.P adjustments thereafter while determining the ALP. Accordingly we remit the issue to the file of AO for reconsideration and give proper adjustments on account of raw materials cost of Lubrizol and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession or assessed at a proportion of, or otherwise should not be allowed as expenditure. It was the argument of the assessee before the A.O that, out of sum of Rs. 1,08,43,349/- a sum of Rs. 75,05,019/- is on account of TDS on royalty paid to AE and said TDS has been incurred by the assessee as per terms of agreement with its AE. Therefore, when royalty has been treated as an expenditure, consequent TDS liability incurred by the assessee for grossing up purpose also needs to be allowed as an expenditure. 11. The Ld. counsel for the assessee submitted that, as per the agreement with its AE, the royalty payment to M/s. Chevron Oronite Company LLC, USA is net on all taxes. Therefore, while making payment of royalty, the assessee has grossed up TDS deductible on said royalty and paid royalty net of taxes to the AE and remitted TDS portion to the Govt. account. Since, royalty paid to AE has been held to be revenue in nature and allowable as expenditure, consequent TDS paid on said royalty is also in the nature of expenditure, which needs to be allowed as deduction. The A.O without understanding relevant facts simply disallowed TDS deducted on royalty paid and debited to rates and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby liability towards TDS is borne by the assessee. Since, the royalty expenditure is considered as revenue in nature, consequent TDS on said royalty is also revenue in nature which needs to be allowed as deduction. Therefore, we are of the considered opinion that the A.O is erred in disallowing TDS on royalty u/s. 40(a)(ii) of the Act because, it is neither a tax nor duty levied on profits of the assessee, but it is an expenditure incurred by the assessee for payment of royalty to its AE. Therefore, we direct the A.O to delete the additions made towards disallowance of royalty u/s. 40(a)(ii) of the Act for A.Ys 2011-12 & 2012-13. 14. The next issue that came up for our consideration from assessee appeal for A.Ys 2011-12 & 2012-13 is disallowance on R&D cess paid to RBI. The assessee has paid 5% cess on total royalty paid to its AE and remitted the same to RBI. The A.O has disallowed R&D cess on the ground that royalty expenditure is capital in nature and not revenue and consequently cess paid on said royalty expenditure and remitted to RBI cannot be allowed as a deduction. 15. We have heard both the parties, perused materials available on record and gone through orders of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the A.O has disallowed interest on unsecured loan amounting to Rs. 3.1 Lakh and added back to total income. 19. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. We find that the assessee has claimed interest paid on unsecured loan borrowed from HDFC Bank, but could not file any necessary evidences including relevant bank statements and loan sanctioned letter to prove interest on unsecured loan debited into the profit and loss account. Therefore, we are of the considered view that there is no error in the reasons given by the Ld. CIT(A) to sustain additions made towards disallowance of interest on unsecured loan and thus, we are inclined to uphold the findings of Ld. CIT(A) and reject the ground taken by the assessee. 20. The next issue that came up for our consideration from assessee appeal for A.Ys 2011-12 to 2014-15 is additions made towards disallowance of royalty payment to M/s. Chevron Oronite Company LLC, USA. The A.O has disallowed royalty paid to M/s. Chevron Oronite Company LLC, USA, AE of the assessee on the ground that royalty payment is capital in nature which gives enduring benefit to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt cannot be a reason to take a different view. So, considering the decision of Co-ordinate Bench of the Tribunal in assessee own case in ITA No.1437, 1438 & 1439/Mds/2012, assessment years 2003-04, 2005-06 & 2006-07 observed at para 4 at page 2 of his order as under: 4. We have perused the orders and heard the rival submissions. We find that a similar issue had come up before this Tribunal in Revenue's appeal for assessment years 1999-2000 to 2002-03 as also in assessment year 2004-05. In its order dated 17" June, 2011 for assessment year 2004-05 in ITA No.951/Mds/2009, it was held by co-ordinate bench of this Tribunal as under: "7. We have perused the orders and heard the rival contentions. We find that the same issue regarding royalty payment made to M/s.COCL was considered by this Tribunal in the orders referred supra. t was held by this Tribunal at para 2.17 of its order dated 13th November, 2009, as under: "2.17 In the facts and circumstances of the case, when the royalty payments shall be computed at a particular percentage of sales priced, and if there was no sales, no royalty would be payable. Merely because goods were produced in India by the assessee acquiring ..... X X X X Extracts X X X X X X X X Extracts X X X X
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