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2011 (6) TMI 449 - AT - Income TaxRoyalty payment - Revenue Expenditure or Capital Expenditure - CIT bifurcated 75% of royalty expenditure as revenue expenditure and the balance as capital expenditure - Held that:- Tribunal in relation to assessee's earlier AYs had held that running royalty payable has no nexus or direct connection with the manufacture of the product. The liability to pay the royalty arises only when there is a sale. Therefore, running royalty cannot be said to be a capital expenditure. We do not find any rationale in bifurcation of the running royalty and treating one part as capital and the other part as revenue without any basis - Decided in favor of Assessee Transfer pricing - addition made on account of revision of ALP - transactions with related parties - Held that:- As far as purchase of raw materials are concerned determination of ALP by assessee cannot be faulted, since it had proceeded based on CUP method, which was rejected by the TPO and A.O. for wrong reasons. Further, not only the TPO had unilaterally adopted TNM method, but made comparisons with the working results of a concern which was not comparable at all - Decided against the revenue With respect to purchase of finished goods - Held that:- Assessee has committed two fundamental mistakes in working out the ALP based on resale price method. It went by its internal gross profit rate averaged over two years, that too without excluding the purchases and sales from the associated enterprises. Neither the A.O. nor the TPO went into this aspect but simply applied TNM method, that too based on a single comparable, which as already mentioned by us was not comparable at all. Matter set aside to AO - Decided in favor of Revenue for statistical purposes.
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