TMI Blog2010 (1) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by the decision In the case of Ekata Promoters (2008 -TMI - 65270 - ITAT DELHI) - As admittedly, the assessment year involved is 2003-04 and section 234D is brought under statue book from assessment year 2004-05 - AO directed not to levy interest u/s 234D. - ITA Nos. 5420 & 5421/Mum/2006 - - - Dated:- 28-1-2010 - SHRI J. S. REDDY, ACCOUNTANT MEMBER AND SHRI R. S. PADVEKAR, JUDICIAL MEMBER Appellant by: Shri Rajan R Vora Mrs Ritika Sachade Respondent by: Shri S S Rana ORDER Per: R S Padvekar: The assessee has filed these appeals challenging the respective orders of Learned CIT (A)-VI Mumbai for the assessment years 2002-03 and 2003-04. As the issue as well as facts are identical hence both these appeals are disposed off by this common order. 2. The first common issue in respect of disallowance of royalty paid by the assessee to C A Management Inc USA (in short 'CAMI') for distribution of the software products in India. 3. The facts, which reveals from the record are as under. The assessee-company is a 100% subsidiary company incorporated in 1998 under the Indian Companies Act, which is one of the subsidiaries of Computer Associates Internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the details given by the Assessee in respect of the bad debts written off, the same were in respect of the amount invoice during the year. The TPO was of the view that why not the ALP of royalty payable of Rs 47,09,755/- to the extent of bad debts written off be computed at 'nil'. The assessee tried to justify the bat debts written off which summary is given in the TPO's order. 4. The TPO did not agree with the contention of the assessee and so far as royalty payment to CAMI USA was concerned the same was determined at 'nil' as against the ALP of the transaction was determined by the assessee at Rs 47,09,755/-. The reasons given by the TPO are as under:- "The contention of the company are considered, however, the same are not acceptable for the following reasons: (i) The invoices were raised during FY 2001-02, the decision of write off was taken in all the cases, in the meeting of Board of Directors of the company held on 07.03.2002 at Phuket, Thailand. (ii) As mentioned in the agreement between the company and CAMGT, the company was to submit a monthly report regarding all the product licenses consummated by the distributor and the payments collected. This means that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to CA Management Inc, how could a Royalty can be considered as payable. The independent entities acting independent of each other, would certainly enter into agreement for payment of Royalty, on the basis of actual collections made and not on the basis of just invoicing. (viii) The contention of the company that it paid Royalty at a lesser rate than paid in comparable uncontrolled transactions. This contention is not relevant in the present issue, because regarding the rate of royalty, there is no dispute, of being at Arm's Length but issue at hand deals with the specific issue of royalty on write off of the invoiced amount during the year, itself. (ix) The agreements entered into by the CA India with the clients are in standard agreements, as referred in the Distributor agreement. As per the software license agreement entered into by CA India with clients, it is mentioned that the licensed programme belongs to Computer Associates International Inc. Had the Computer Associates licensed the products directly the clients, it could have suffered that bad debts, as the company has suffered. (x) In view of the fact that the CA India was only acting as Distributor, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hort ALP) has been given in section 92C of the Act, which reads as under:- Computation of arm's length price. 92C. (1) The arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely:- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. (2) The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed: [ Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in which the A.L.P is to be determined by any of the method prescribed in Sec. 92C in provided in Rule 10B of the I.T. Rules, 1962. After examining the parameters prescribed in Rule 10B, it can be seen that bad debts written off cannot be factor to determine the arm's length price of any international transaction. In our opinion, the TPO has exceeded his limitation by following the method which is not authorised under the Act or rules. We, therefore, hold that the Arms Length Price determined by the TPO and adopted by the Assessing Officer to the extent of royalty payable to the CA Inc Management, USA is not as per the procedure prescribed and same cannot be sustained. We, therefore, direct the Assessing Officer to adopt the Arms Length Price of the royalty payable to CA Inc Management, USA as declared by the assessee in both the years. 9. The next issue for assessment year 2003-04 is with regards to the levy of interest u/s 234D. We have heard the parties. This issue stands covered in favour of the assessee by the decision In the case of Ekata Promoters reported in 113 ITD 719. (Del)(SB) . As admittedly, the assessment year involved is 2003-04 and section 234D is brought unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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