TMI Blog2017 (4) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... on record before us, since restriction on the rates of payment of royalty has been waived by concerned authorities. Therefore, the ‘ALP’ of the royalty needs to be determined in accordance with the Transfer Pricing Regulations. However, we also find force in the contention raised by the Ld. Counsel that if an authority by way of any specific approval has allowed a particular rate of payment, then it does carry persuasive value and can of course act as one of the supportive tools for carrying out bench marking of transaction of payment of royalty. Thus, under these circumstances and in view of aforesaid discussion, we find it appropriate to send this issue back to the file of the AO, as has been done by Tribunal in AY 2010-11 in assessee’s own case. The assessee shall be free to carry out fresh transfer pricing study and independently bench mark its aforesaid international transaction with independent comparables for establishing the payment made by it at Arm’s Length Price. The AO/TPO shall also be free and duty bound to take on record and consider all the evidences as may be brought on record by assessee to justify ‘ALP’ of the impugned transaction. Thus, with these directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited I.T. Act Nos 1807 of 2013 has held that FIPB approval is a valid CUP for benchmarking purposes; 5. Erred in not appreciating the fact that the royalty payments is already benchmarked under Transaction Net Margin Method ( TNMM ) analysis under bundled transaction approach; 6. Erred in not accepting the additional evidences submitted by the Appellant using CUP method from Power K database for fresh benchmarking analysis; Corporate Tax Grounds On the facts and in the circumstances of the case and in law, the learned AO/TPO/DRP has: Disallowance of employee contribution towards Provident funds and ESIC of ₹ 12,03,002/- 7. Erred by disallowing employees contribution towards Provident Fund and ESIC of ₹ 12,03,002/- u/s 36(1) (va) r.w.s 2(24) (x) of the Act: 8. Erred in violating the principles of judicial discipline in not following the order of the Hon'ble Tribunal for ASSESSMENT YEAR 2011-12 where in the Hon'ble Tribunal deleted the adjustment on disallowance of employees contribution towards Provident Funds and ESIC. 2. Ground No.1 is general and does not require any specific adjudication and therefore it is dismissed. 3. Grounds 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment orders of earlier years i.e. AYs 2010-11 2011-12 passed in assessee s own case. The DRP also followed its earlier orders while endorsing the views of the AO and gave no relief to the assessee. 4. During the course of hearing before us, Ld. Counsel of the assessee drew our attention on the order dated 13.9.2016 passed by the Tribunal for AY 2011-12 in assessee s own case and submitted that this issue has been decided in favour of the assessee. It was also contended that Tribunal had relied upon the order of the Hon'ble Bombay High Court in the case of SGS India Private Limited (ITAT No.1807/M/13 order dated 18.11.2015) while giving relief to the assessee. 5. Our attention was also drawn on page no. 266 of the paper book, which is copy of approval of FIPB Unit of Department of Economic Affairs dated 9th March, 2005 as well as Press Note No.2(2002 series) wherein government had allowed payment of royalty under automatic route up to 8% on exports and 5% on domestic sale. He thus submitted the issue is covered in favour of the assessee. 6. Per contra, Ld. CIT(DR) vehemently opposed the arguments of Ld. Counsel of the assessee. Firstly, she brought to our notice an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally route completely. Thus, no approval of the government of India was required for making such payment. However, such payments remained subject to the Foreign Exchange Management Rules and requirement of post reporting system for payment of royalty was also retained. She also placed before us, copy of the notification dated 15th May, 2010 issued by Ministry of Finance (Department of Economic Affairs) whereby Foreign Exchange Management (Current Account Transaction) Rules, 2010 were suitably amended to bring them in line with the notification issued by Ministry of Commerce Industry vide aforesaid Press Note No. 8 (2009) dated 16.12.2009. It was submitted that these documents show that there was no restriction on payment of royalty and the same was henceforth under automatic route. Therefore, under these circumstances, it cannot be presumed that whatever payment is made by assessee on account of royalty that would ipso-facto become Arm s Length Price at its own that too without bringing any other comparable on record or without carrying out any transfer pricing study. If, this kind of approach is allowed then it will make the transfer pricing regulations redundant and it may resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment as is claimed by assessee. She further placed relying upon the judgment Hon'ble Supreme Court in the case of B.S. Bazwa vs State of Punjab 2 Supreme Court Cases 523 (SC) for the preposition that the decision rendered on the basis of concession of one of the parties does not lay down a preposition of law, which can be made binding on other cases. In view of these submissions she requested for following the order of the Tribunal for AY 2010-11 and also requested for sending this issue back to the file of the AO for making fresh examination and transfer pricing study. Thereafter, hearing was kept for the next day so as to enable Ld. Counsel of the assessee to give reply to arguments and documents submitted by Ld. CIT-DR. 11. In his reply on the next date of hearing, Ld. Counsel of the assessee very fairly submitted that in view of Press Note No-8 (2009 series) dated 16.12.2009 read with notification issued by Ministry of Finance dated 5th May, 2010 for bringing out corresponding amendments in Foreign Exchange Management (Current Account Transaction) Rules, 2010 bring out a change in the legal position i.e. as on date of payment of royalty by the assessee, it was total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing before us, Ld. CIT-DR heavily relied upon the decision of the Tribunal in assessee s own case for assessment year 2010- 11, wherein this issue was held against the assessee and the matter was sent back to the AO for carrying out fresh transfer pricing analysis to determine ALP of the royalty payment. She also relied upon a Press Note No. 8 (2009 series) dated 16.12.2009 issued by Ministry of Commerce and Industry whereby restrictions on payment of royalty were waived and the same was put under automatic route. She also relied upon judgment of Hon'ble Delhi High Court and other courts in support of her claim that ALP of payment of royalty has to be independently determined. She also distinguished the judgment of Hon ble Bombay High Court in the case of SGS India Pvt. Ltd. (supra) on the ground that the aforesaid judgment was given on the basis of factual concession only and no ratio or point of law was propounded by the Hon ble High Court. Thus, she requested for following the order of the Tribunal passed in assessee s own case for assessment year 2010-11 and for sending the issue back to the file of the AO. On the other hand, Ld. Counsel of the assessee initially relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote 11 (1991), para 4 5 (a) of Press Note 12 (1991), para 2-6 of Press Note 20 (1991), para 2 of Press Note 5 (1992), para 4 Press Note 4 (1994), para 3 of Press Note 18 (1997) and paragraphs III and IV of Press Note 9 (2000). These guidelines will issue in supersession of provisions of Press Note 18 (1991), Press Note 4 (1992), Press Note 1 (1995), Press Note 4 (1996), Press Note 1 (2002) and Press Note 2 (2003). (Gopal Krishna) Joint Secretary to the Government of India D/o IPP F. No. 5(6)/2008-FC Dated 16.12.2009 . 15. A perusal of the aforesaid notification shows that the Government of India has now waived all the restrictions on payment of royalty under foreign technology collaboration and put the same under automatic route. Under these circumstances it is quite obvious now that assessee cannot be permitted to take this stand that since there are no restrictions on payment of royalty by the Government of India, therefore any amount paid by assessee on account of royalty would ipso-facto be its ALP also. If this kind of position is allowed to exist then it would amount to simply rendering the transfer pricing regulations as redundant. In our view that can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue and against the assessee but hasten to add that it has no bearing on the outcome of the case as they payment is found to be reasonable and genuine, even otherwise . (Emphasis supplied in bold) 18. Further, in the case of Oracle India Private Limited, it was inter-alia observed by the Hon ble Delhi High Court that notification issued by RBI to the said assessee permitting payment of royalty at the rate of 30% of IPP of the Oracle Software Appliances may not be the conclusive factor for the purpose of determination of ALP under Transfer Pricing Regulations. 19. Similarly in the case of Sony Ericsson Mobile Communication India Pvt. Ltd., Hon ble Delhi High Court observed on this issue as under:- However, we do not agree with the finding recorded by the Tribunal that as the Government of India had permitted remission of royalty through automatic route, the royalty paid can be per se or conclusively treated as the arm s length price. Applicable rules authorize remission of royalty upto a particular percentage under automatic route to the foreign collaborators. Authorising remission through automatic route upto a particular percentage, does not reflect examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, management of foreign exchange etc. and it varies in accordance with the business practices prevalent at different times which are clear from the RBI approvals themselves. Going by the relevant TP provisions as enshrined under the Act and relevant Rules, it is mandatory that the appellant has to independently benchmark its international transaction with independent comparables so as to arrive at arm s length price, which has not been made in this case. The comparability analysis is the substratum of determining the ALP, which has not been done by assessee at any stage. At the very same time we found that the revenue authorities have not properly appreciated the relevant clauses of the trademark licence agreement, precisely the clauses which were highlighted by Ld. AR during the course of hearing before us. Therefore, in the interest of justice and fair play, this case should be restored back to the file of Assessing Officer, no shall require the assessee to bench mark its international transaction of royalty with independent comparables following suitable methods prescribed under the Act and on its compliance, the AO after giving adequate opportunity to the assessee shall deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e royalty needs to be determined in accordance with the Transfer Pricing Regulations. However, we also find force in the contention raised by the Ld. Counsel that if an authority by way of any specific approval has allowed a particular rate of payment, then it does carry persuasive value and can of course act as one of the supportive tools for carrying out bench marking of transaction of payment of royalty. Thus, under these circumstances and in view of aforesaid discussion, we find it appropriate to send this issue back to the file of the AO, as has been done by Tribunal in AY 2010-11 in assessee s own case. 23. The assessee shall be free to carry out fresh transfer pricing study and independently bench mark its aforesaid international transaction with independent comparables for establishing the payment made by it at Arm s Length Price. The AO/TPO shall also be free and duty bound to take on record and consider all the evidences as may be brought on record by assessee to justify ALP of the impugned transaction. The AO/TPO shall also be free to carry out independent transfer pricing study, if required, as permitted and prescribed under the Transfer Pricing Regulations. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court has in the case of CIT vs. Hindustan Organics Chemicals Ltd. in I.T. Act No. 399 of 2012 vide order dated 11.07.14 has held that the Employees Contribution to PF is covered by the said decision and that the applicable date will be on or before the due date of filing of return of income for deposit of the said contribution. We, therefore, restore this issue to the file of the Assessing Officer for the limited purpose to verify that if the contributions towards provident fund ESIC were paid by the assessee on or before due date of filing of return of income and if the above contentions of the assessee are found correct, then to allow the same in the light of the decision of the Hon'ble Supreme Court in the case of Alom Extrusion Ltd (supra). 26. During the course of hearing before us, no distinction was made by Ld. CIT-DR on the legal position. This fact was shown to us that entire payment has been deposited within the financial year 2011-12, as has also been mentioned by the Assessing Officer in the assessment order itself. Under these circumstances, we find that the disallowance made by lower authorities is not sustainable and therefore same is he ..... X X X X Extracts X X X X X X X X Extracts X X X X
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