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2020 (6) TMI 474 - AT - Income TaxTransfer Pricing adjustment in relation to payment of royalty -claim allowed for past years - HELD THAT:- We note that the assessee has been paying royalty to its Associate Enterprises (AEs) for a number of years which has been allowed in the assessment of earlier years. Therefore, the TPO cannot take a contrary view and disturb the settled facts unless there is a change in law or facts. Therefore, the arm`s length price adjustment made by TPO is not sustainable in law. We note that TPO has allowed royalty in respect of all except two products viz. Mincream and Robinson Burley, the TPO has held that no benefit was derived by the assessee from its AE. It is not denied that the trade- marks for the two products viz. Mincream and Robinson Burley were registered and the said brands were owned by the AEs. The royalties are paid not only in respect of patent but for a basket of services. It is a common occurrence that a person using a brand name pays certain brand royalty to the owner of brand. It is not the case of the TPO, that the royalty paid in respect of these products was without any use of the said brand names. The assessee has in its TP study included payment of royalty and according to it the royalties are at arm’s length. Considering these facts the proposed disallowance of royalty in respect of Mincream and Robinson Burley does not appear to be justified and proper. See EKL APPLIANCES LTD [2012 (4) TMI 346 - DELHI HIGH COURT] and FRIGOGLAS INDIA PVT. LTD. VERSUS DCIT, CIRCLE-9 (2) , NEW DELHI [2016 (5) TMI 548 - ITAT DELHI] We note that the trade- marks for the two products viz. Mincream and Robinson Burley were registered and the said brands were owned by the AEs. The royalties are paid not only in respect of patent but for a basket of services. It is a common occurrence that a person using a brand name pays certain brand royalty to the owner of brand. It is not the case of the TPO, that the royalty paid in respect of these products was without any use of the said brand names. The assessee has in its TP study included payment of royalty and according to it the royalties are at arm’s length. Considering these facts the proposed disallowance of royalty in respect of Mincream and Robinson Burley does not appear to be justified and proper. The ld DRP was right in deleting the disallowance of royalty.- Decided in favour of assessee. Transfer pricing adjustment in relation to advertisement, marketing and promotion expenses (AMP) - international tranaction or not? - HELD THAT:- We note that the AMP transaction does not represent the international transaction between the assessee and its AE’s as the revenue failed to bring on record any contract or arrangement between assessee and its AE for making AMP expenses for promotion of brand of its AE.In the assessee`s case, the assessee company was not under any obligation to incur AMP expenses and also its parent company had no control over such decisions of RBIL. These are routine advertisement expenses. Therefore, in assessee`s case the AMP cannot be regarded as international transaction as held in the case of Maruti Suzuki India Limited Vs. CIT [2015 (12) TMI 634 - DELHI HIGH COURT]. Therefore, we allow the appeal of the assessee and dismiss the appeal of the revenue and delete the ALP adjustment made - Decided in favour of assessee Comparable companies arbitrarily chosen by the TPO for computation of mark up percentage of 22.34% over the alleged ‘Agency Cost’ incurred by the assessee - HELD THAT:- We have gone through the order of TPO/DRP and noticed that there is no adjudication by the TPO or DRP as to what serviceswere rendered. As per ld Counsel, the expenses in question were in respect of system upgrade of the Assessee which costs were reimbursed to the Assessee by the AE. Hence, there was no element of any service that the Assessee rendered to the AE. The assessee submitted, 3 volumes of documents before the TPO and DRP to establish that these were cost to cost reimbursements and therehas been no adjudication on the same. Therefore, in the interest of justice and fair play we think it fit and appropriate to remit this issue back to the file of the TPO to adjudicate the issue taking into account 3 volumes of documents already submitted by assessee. For statistical purposes, the ground raised by the assessee and revenue are allowed. DRP not considering the specific objections raised by the appellant with respect to overall adjustment made to transaction of “Export of raw materials and finished products - HELD THAT:- DRP inadvertently did not give any directions vis-a-vis the said issue. However, vide rectified directions dated 18.02.2016 rejected the approach of the TPO of using external TNMM. The TPO is yet to give effect to the rectified DRP Directions. Therefore, Ld Counsel prayed the bench that ld TPO may be directed to give effect to the rectified DRP Directions. In the interest of justice and fair play, we direct the TPO to give effect to the rectified DRP Directions. For statistical purposes, the ground raised by the assessee are allowed. Apportionment of expenses between fiscal units, non-fiscal units and head office - HELD THAT:- As decided in own case [2018 (4) TMI 1129 - ITAT KOLKATA] allocation done by the assessee on the basis of number of employees who are directly linked with the factory operation is more logical. The residual cost is incurred at the head office and is not capable of being identified with any of the units which are running by the assessee. It is only because of this difficulty that the Assessing Officer and the assessee resorted to allocation of residual cost. When it comes to allocation of residual cost, it cannot be done arbitrarily. The allocation should have due regard to the efforts put at the head office level to be eligible. That can be done only by allocation on the basis of number of employees linked to factory operation divided by total number of employees into corporate office into sales of the eligible units divided by total sales. This allocation of residual cost done by the assessee was logical and we find no infirmity in the action of the CIT(A) in accepting this basis of allocation. Eligibility of income from sale of scraps whilst calculating deduction u/s 80IC - HELD THAT:- As decided in own case [2015 (2) TMI 506 - CALCUTTA HIGH COURT] profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under section 80IC, inasmuch as such gains or profits’ are derived from the industrial undertaking and includible in, the gross total income of the assessee and the question relatable to the profit on the sale of scrap is thus answered in favour of the assessee. Excess disallowance of interest income allocated to eligible units - HELD THAT:- As decided in own case . [2019 (3) TMI 626 - ITAT KOLKATA] assessee has raised an additional ground regarding quantification on the impugned disallowance which requires verification of facts. We find force in Revenue’s contention therefore and restore the instant additional issue raised at assessee’s behest to the Assessing Officer for necessary factual verification of facts. This additional ground is taken as accepted for statistical purposes. Refund of dividend distribution tax (DDT) paid in respect of non-residence share holders - HELD THAT:- We are of the view that this issue should be remitted back to the file of the ld AO for factual verification. The assessee is directed to file before AO, the amount of dividend paid, copy of agreement and other relevant documents, as required by AO.Therefore we direct the AO to examine relevant Double Taxation Avoidance Agreements between India – UK with reference to payment of dividend to the shareholders and adjudicate the issue in accordance to law. For statistical purposes, the additional ground raised by the assessee is allowed. Deduction of education cess on income tax paid by the assessee as allowable expenditure - HELD THAT:- We accept the submissions of the assessee concurring with the decisions of CHAMBAL FERTILIZERS AND CHEMICALS LTD., GADEPAN, DISTT. KOTA. [2018 (10) TMI 589 - RAJASTHAN HIGH COURT] and binding favourable decisions of Jurisdictional Tribunal and thus we allow the claim of the education cess. The AO is directed to allow the claim of education cess in computing total income of the assessee company. This additional ground raised by the assessee is allowed.
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