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2021 (9) TMI 635 - AT - Income TaxTP Adjustment - payment of royalty - TPO determined the ALP of the royalty payment at 3% of the sales by taking it as appropriate benchmark - HELD THAT:- Admittedly, the royalty was paid @ 5% of domestic sales and 8% of the export sales in consideration of receipt of technology in the form of know-how, technical training and technical assistance for the purpose of manufacturing the compressors. TPO determined the ALP of the royalty payment at 3% of the sales by taking it as appropriate benchmark. TPO adopted this benchmark considering the transaction of payment of royalty by it’s A.E. i.e., Wuxi Atlas Copco Compressor Co Ltd., which is undisputedly controlled transactions, and the difference between two and the actual price was suggested as TP adjustment u/s 92CA of the Act without even going into the issue whether the approval of payment of RBI will constitute a CUP method or not. The present issue can be decided in favour of the assessee by holding that comparison in order to determine if the ALP cannot be done by comparing the prices charged to by A.E. which is controlled transaction, as the provisions of I.T. Act, mandates that the determination of ALP has to be done by comparison between controlled and un-controlled transactions. An identical issue has been dealt in the case of PCIT Vs. Audco India Limited [2019 (5) TMI 694 - BOMBAY HIGH COURT] on identical facts had confirmed the decision of Tribunal by dismissing the appeal filed by the Revenue by holding that TPO has to arrive at ALP of the transaction only comparing it with uncontrolled transactions and the Hon'ble High Court had found fault with the approach of the TPO by holding that it is contrary to the clear provisions of the Act as per Rule 10A(d) of the Rules. ALP adjustment on account of receipt of commission for Marketing Services - main contention of the appellant is that the functions undertaken by the assessee for selling the product is significantly different from what is undertaken for the purpose of earning the commission income from A.E and profit earned from independent activity of marketing function cannot be compared with the integrated marketing function of a fully integrated manufacturer - HELD THAT:- TPO was not justified in excluding the depreciation and cost of the material consumed in denominator of total costs. Further, we find that the methodology adopted by the TPO does not fall into any of the appropriate methods prescribed under Rule 10(b) of the I.T. Rules, 1962. We must also mention that clause (f) of clause (1) of Rule 10(b) prescribing any other method was inserted with retrospective effect from 01.04.2013 is not applicable for the year under consideration. Therefore, the ratio of the jurisdictional Bombay High Court in the case of CIT Vs. Kodak India (P) Ltd. [2016 (7) TMI 677 - BOMBAY HIGH COURT] is applicable in the present set of facts. When the TPO had not adopted any of methods prescribed u/s 92CA of the I.T. Act, no adjustment on account of ALP can be made by TPO. Therefore, the order of the ld.CIT(A) though does not contain independent reasoning, keeping in view of the order of the Tribunal for earlier years on identical issue in assessee’s own case on the principle of consistency and ratio of decision of Hon’ble Bombay High Court in the case of CIT Vs. Kodak India (P) Ltd. (supra), we uphold the order of ld.CIT(A). Addition on account of Software Development Expenses - CIT(A) deleted the addition by holding that there is no customized software. Mere up-gradation of the software does not result in any enduring benefit when the life of software is less than two years - HELD THAT:- From details on record, it is evident that the expenditure was paid to M/s Radix Business Models Pvt. Ltd., in order to upgrade the application software on contract basis for Lotus Notes Developer. The Hon'ble High Court in the case of CIT Vs. Geoffrey Manners & Co., Ltd. . [2014 (6) TMI 958 - BOMBAY HIGH COURT]that in view of the rapid advancement in the recent technology, it cannot be said that there is any enduring benefit to the assessee. Since the decision of the ld.CIT(A) is in line with the decision of jurisdictional High Court, we do not find any reason to interfere with the decision of ld.CIT(A). Accordingly, ground No.3 of the Revenue stands dismissed. Nature of expenses - expenditure incurred on the renovation of lease premises - HELD THAT:- As in view of the above legal position, the expenditure incurred on rented premises cannot be treated as revenue in view of the plain provisions of Explanation 1 to Sec.32 of the Act. CIT(A) is in total ignorance of the provisions of Explanation 1 of Sec.32 of the Act held it to be revenue in nature. The decision relied upon by the learned counsel has no application after insertion of Explanation 1 of Sec.32 of the Act. In the above circumstances, we reverse the order of ld.CIT(A) and restore the issue in this ground to the file of Assessing Officer. Thus, this ground of the Revenue is allowed for statistical purposes. Addition of miscellaneous expenses - assessee could not produce supporting documents, details, vouchers - HELD THAT:- During the course of assessment proceedings, the respondent / assessee company could not furnish the evidence, bills, vouchers etc to the extent of ₹ 2,59,407/- out of the total Miscellaneous Expenditure. On appeal before ld.CIT(A), ld.CIT(A) restricted the disallowance to ₹ 1,00,000/- which is in accordance with the decision of his order in assessee’s own case for the earlier assessment years. On the principle of consistency, we uphold the order of ld.CIT(A). Accordingly, this ground of appeal stands dismissed. Allowance of commission expenditure - HELD THAT:- CIT(A) following the decision of his order in assessee’s own case in earlier years has deleted the addition. From the material on record, it is clear that the respondent / assessee had discharged the onus cast upon it by filing the primary details. Mere inability to furnish the confirmation letters from the recipients cannot be the reason to disallow the commission expenditure without causing any further enquiries by the Assessing Officer as to the genuineness or otherwise of the expenditure. Admittedly, there is no material on record exhibiting the non-genuineness of the expenditure. Hence, respectfully following the decisions of this Tribunal and Hon’ble Bombay High Court in respondent / assessee’s own case, we hold that ld.CIT(A) is justified in deleting the commission expenditure and accordingly, this ground of appeal is dismissed.
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