TMI Blog2019 (2) TMI 1790X X X X Extracts X X X X X X X X Extracts X X X X ..... stment but wholesale disallowance of the expenditure is not contemplated or authorized, thus set aside the finding of the TPO that the ALP of the transaction of royalty is nil - for determining the ALP under the TNMM, the assessee as well as the Revenue have to search for comparable companies. Therefore, we remit this issue to the file of the AO/TPO to determine ALP of royalty by adopting TNMM As decided in M/S. RAK CERAMICS INDIA PRIVATE LIMITED [ 2017 (12) TMI 191 - ITAT HYDERABAD] once it is admitted by the Revenue that the assessee entered into a royalty agreement with the AE and the assessee claimed benefit from such agreement, in the form of quantum increase in sales with no apparent increase in production, minimal product recalls and low after sales maintenance cost, and consequently paid royalty in terms thereof, it was not for the TPO to determine as to what could be the other reasons for increase in the assessee's sales and profit. . Above all, there is no explanation forthcoming as to why the TPO decided upon 2% instead of the contractual rate of 3% for payment of royalty. No reason is offered by the TPO for picking on 2%. This whimsical fixation by the TPO amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, reported in 2015 (1) TMI 921, wherein the Tribunal by following the decision of the Hon ble Delhi High Court in the case of EKL Appliances has held that the benefit test cannot be adopted and the royalty payment cannot be determined at Rs. Nil . He also drew our attention to the decisions of this Coordinate Benches of the Tribunal at Hyderabad in the cases M/s IWM Constructions Pvt Ltd., Hyderabad in ITA No. 457/Hyd/2007 and 1658/Hyd/2008 dated 20.07.2016 and in the case of M/s. RAK Ceramics India Pvt Ltd., in ITA 193/Hyd/2017 dated 29.11.2017. Thus, he prayed for deletion of the adjustment made in the final assessment order. 4. The Ld. DR, on the other hand, supported the orders of the authorities below. 5. Having regard to the rival contentions and material available on record, we find that the assessee has used the technology supplied by its AE for in its manufacturing process and for such use of technology, it has paid the royalty. The A.O has applied the benefit test and observing that the assessee failed to prove the benefit derived by it by use of such technology, he has disallowed the entire expenditure by treating the arm s length price at Nil. We find that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and nothing more and the quantum of expenditure can no doubt be examined by the TPO as per law in allowing as business expenditure but he has no authority to disallow the entire expenditure or part thereof on the ground that the assessee has suffered continuous losses. It was held that so long as expenditure payment has been demonstrated to have been incurred or laid out for the purpose of business, it is no concern of the TPO to disallow the same on any extraneous reasoning and as provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but wholesale disallowance of the expenditure is not contemplated or authorized. Respectfully following the decision of the Hon ble Delhi High Court, we set aside the finding of the TPO that the ALP of the transaction of royalty is nil . However, for determining the ALP under the TNMM, the assessee as well as the Revenue have to search for comparable companies. Therefore, we remit this issue to the file of the AO/TPO to determine ALP of royalty by adopting TNMM after giving the assessee a fair opportunity of hearing. This issue is accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of TNS India (P) Ltd vs. DCIT, reported in 40 ITR (Trib.)125 dated 17.04.2015 after considering the evidence on record to prove that the assessee therein had received services. The Tribunal had also considered and held that the role of the TPO is only to determine the ALP of the transactions. The Tribunal has also relied upon the decision of the Hon'ble Delhi High Court in the case of EKL Appliances (Supra) to hold that the TPO went beyond his jurisdiction in denying the payment of deduction, whereas his role is limited to determining only the ALP. The Hon'ble High Court has held that the TPO cannot question the business decision of an assessee and determine that no services were rendered. Similar view was expressed by other Coordinate Benches of the Tribunal as well. Thus, it can be seen that in the case before us, initially it was the TPO who analysed the transaction and gave a finding that the AEs have not rendered any services to the assessee and that the transactions are sham transactions. It is thereafter that the AO also went into the details of the services rendered by the AE and have come to the conclusions that the transactions are sham. Therefore, it is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit of the assessee, the TPO determined that the reason for the same was increased marketing along with offer of discounts and that there was no justification for payment of royalty at 3% to the AE by the assessee. This reasoning is without legal basis of law as it is not for the TPO to decide the best business strategy for the assessee. 9. In Walchand Co. (P.) Ltd. (supra), the Supreme Court observed in the context of the Income Tax Act, 1922 that when a claim is made for an allowance by the assessee, the income tax authorities have to decide whether the expenditure claimed as an allowance was incurred voluntarily and on grounds of commercial expediency. The Supreme Court pointed out that in applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively for the purpose of business, it has to be adjudged from the point of view of the businessman and not of the revenue. The Supreme Court concluded that it is open to the revenue to come to the conclusion that the alleged payment was not real or that it had not been incurred by the assessee in the character of a trader or that it was not laid out exclusively for the purpose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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