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2014 (2) TMI 1230 - AT - Income TaxAddition on account of royalty payment - Held that:- Liable to be considered as standard bought-out components are such material on which no further processing is required and are directly fitted into the final product; and, cost of such material only needs to be deducted from the sale price to compute the royalty payable. Applying the said clarification to the present situation, considering the manufacturing process explained, it cannot be construed that the so-called constituent material are merely fitted into the final product; on the contrary, it is a case where such material also undergoes a chemical reaction in the process of producing the final product and the same are irretrievable once the finished product is manufactured. For the said reason also, in our considered opinion, the so-called ‘constituent materials’ classified by the TPO cannot be equated to standard bought-out components so as to reduce their cost from the sales value to compute the royalty payable. For all the above reasons, we therefore find no justification on the part of the TPO in rejecting the methodology adopted by the assessee to calculate net sales for the purposes of computing the royalty payable. TPO considering 5% rate of royalty payment on export sales as arm’s length price as against 8% paid by the assessee - Held that:- We hold that the TPO erred in (i) re-working the stated value of the international transaction of royalty payment based on his interpretation of the expression ‘Net Sales’ and, (ii) considering the royalty payment by TNAPC to the AE as a comparable transaction under the CUP method for the purposes of determining the arm’s length price of the international transaction of royalty payment claimed by the assessee. As a consequence the adjustment/addition of ₹ 91,66,061/- made in respect of royalty payment is directed to be deleted. Addition on account of the international transaction on export of a product namely, Trigonox 25C75 to the AE - Held that:- The adjusted price of ₹ 300/- per kg., in our view, is liable to be taken as an arm’s length price in respect of export of Trigonox 25C75 to the AE instead of the stated price of ₹ 239/- per kg.. As a result, the addition of ₹ 11,34,000/- made by the TPO on this count shall be scaled down to ₹ 5,49,000/-. Accordingly, we direct the Assessing Officer to restrict the adjustment on account of international transaction of export to the AE to ₹ 5,49,000/- instead of ₹ 11,34,000/2-6. Thus, on this aspect, assessee partly succeeds. Addition on international transaction relating to receipt on intending commission and marketing support fee - selection of comoarable - Held that:- Alfred - Ostensibly, the financial data reflects inconsistent results, and in the absence of any credible explanation for the inconsistencies, it has been rightly excluded from the list of comparables. M/s IDC (India) Ltd. - assessee is justified in claiming that concern IDC (India) Ltd. be considered as a comparable for the purposes of benchmarking international transactions of Intending commission and marketing support fees The nature of activity being performed by the assessee in its Marketing and Sales support Segment have already been noted and on that basis we uphold assessee’s plea for exclusion on ICRA Online Ltd. (Information Services Segment) for the purposes of benchmarking its international transaction of Intending commission and marketing support fee for the assessment year 2007-08. Accordingly, the TPO is directed to re-work the adjustment on account of the Marketing and Sales support Services segment by excluding ICRA Online Ltd. from the list of comparables
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