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TMI Blog2024 (7) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue recognition for the USA entity and the provisioning of expenditure for the Indian entities are bound to be different. When we peruse the agreement in relation to the royalty it is evident from Article VI (A) of the agreement that the method of computation of royalty for the assessee is also different and is based on the financial year sales of the group entities that end within the calendar year. However, when the group entities compute their royalty payments, it would be based purely on financial year figures on a real time basis as they have complete visibility regarding their external sales on which they have to pay royalty. Further, the group entities would also need to record royalty expenses following the accounting principle of conservatism irrespective of whether the assessee has disclosed the said figures as income in its books of accounts. Also examined the reconciliation submitted by the Assessee before the lower authorities and it is borne from record that the Assessee has been able to reconcile substantially the impugned differences and the major reason for the differences was only on account of timing differences in recognition of revenue. Thus, TP additions on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing Officer (TPO) and further making an enhancement of Rs. 1,15,97,802/- to the total income of the Appellant on account of value of the international transaction of receipt of royalty by the Appellant. 2. on the facts and circumstances of the case and in law, the learned DRP/learned AO erred in; 2.1. disregarding the transfer pricing analysis carried out by the Appellant by failing to appreciate that none of the conditions set out u/s. 92C(3) of the Income-tax Act, 1961 ('the Act') are satisfied. 2.2. referring the Appellant's case to the learned TPO even though none of the criteria mentioned in Instruction No. 3 of 2016 dated 10 March 2016, issued by the Central Board of Direct Taxes are satisfied. 2.3. Not appreciating that Chapter X provisions are not applicable in the Appellant's case as the international transactions of receipt of royalty do not result in tax avoidance by way of shifting of any profits from India. 2.4. in making transfer pricing adjustment on account of the differences between the amount reported by the Appellant in its Form 3CEB and that reported by the AE(s) in their respective financial statements without appreciating that the majority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brief facts of the case are that assessee is a non-resident company registered in the USA and a part of the GE group. The Assessee filed its return of income on 22.01.2016. The assessee is earning Royalty income for the use of Trade name of Rs. 18, 16, 64,724/- from its group entities in India. 3. The case of the assessee was picked up for scrutiny and during the assessment proceedings, it was noticed that during the year under consideration, the assessee had international transactions with its associated enterprises in India of Rs. 18,16,64,724/- and hence a reference was made to the TPO u/s. 92 CA (3) of the Act to determine the ALP of the international transactions of the assessee. The TPO proposed an adjustment of Rs. 7,94,80,630/- on account of royalty vide his order dated 31.10.2017. Based on this order of TPO, the Assessing Officer issued a draft order u/s. 144C of the Act. Against this draft order, assessee preferred a petition before the Ld. DRP, which in turn affirmed the draft order of AO and made a further addition of Rs. Rs. 1,15,97,802/- in consequence to the adjustments proposed by the TPO u/s. 92CA(3) of the Act. Ultimately a final assessment order u/s. 143(3) r.w.s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the draft assessment order along with the report of TPO, directions of the Ld. DRP, final assessment order and submissions of the assessee along with grounds raised in Form No. 36. On a careful perusal of the grounds, the single issue which arises for our consideration is whether the TPO was correct in making a transfer pricing addition to the Assessee merely on account of differences in the amounts reflected in Form 3CEB of the Assessee vis- -vis its group entities. 9. The TPO, during the assessment proceedings, compared the amounts reflected in Form 3CEB of the Assessee, with the amounts reflected in the Form 3CEB of the group entities and accordingly made an addition by adding the difference in the Form 3CEB to the income of the Assessee, wherever the assessee had reported amounts lower than the group entity. However, it is pertinent to note that no corresponding relief was provided where the assessee had reported amounts higher than the group entity. The TPO made a transfer pricing adjustment and determined the ALP of the impugned transactions solely on the basis of such differences in reporting. Such an approach is unfound in law as it is not prescribed under any of the method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income of the assessee. We derive support from the decision of the Hon ble Supreme Court in the case of CIT v. Excel Industries Ltd. [2013] 262 CTR 261 (SC), extract of which is reproduced hereunder: 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance license and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. (Emphasis supplied) 15. Even otherwise, the Ld. TPO has not determined the ALP of the international transactions by following any of the prescribed methods but has mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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