Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2023 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (6) TMI 338 - AT - Income TaxTP Adjustment - adjustment made by the TPO towards technical know-how fees despite accepting the entity level margins - HELD THAT:- On facts of the present case, it would be impractical and also inappropriate to evaluate payment of technical know-how fee on an individual or on a stand-alone basis (dehors the segment to which a benefit from such services accrues). For the year under consideration, the net profit margin of the assessee is 12.34% which is higher than the net profit margin of the comparable companies arrived at 9.23%. It is undisputed that the TPO had accepted the benchmarking analysis of the assessee for all transactions except for the payment of technical know-how fee to AE. This in our view would mean that the TPO has accepted the entity level margins earned by the assessee but proceeded to make TP adjustment on payment towards technical know-how. The Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. [2015 (3) TMI 580 - DELHI HIGH COURT] held that once the revenue accepts the entity level margins as per the most appropriate method, it would be inappropriate to treat a particular expenditure as a separate international transaction. It was held that such an exercise would lead to unusual and absurd results. Also in Lenovo (India) (P.) Ltd. case [2023 (1) TMI 1242 - ITAT BANGALORE] held that if margins of assessee with respect to its trading segment were accepted to be at arm's length by TPO, then no separate adjustment of AMP expenses could be made by treating it as an international transaction. Thus adjustment made by the TPO towards technical know-how fees despite accepting the entity level margins, is hereby deleted. Adjustment invoking the provisions of section 40(a)(i) - we note that the assessee could not establish whether or not the tax had been deducted at source on the impugned payment due to absence of historical records. Irrespective of such fact, in our view, the action of the CIT(A) to invoke section 40(a)(i) of the Act is misplaced. As noted above, the payment towards technical know-how was capitalized in the books of the assessee and depreciation on the same was claimed. We note that in Nector Beverages (P.) Ltd. [2009 (7) TMI 5 - SUPREME COURT] in the context of section 41, held that depreciation, by its very nature, is neither a loss, nor an expenditure, nor a trading liability. On this count, invoking section 40(a)(i) of the Act which prohibits claim of revenue expenditure, is incorrect. Thus alternative proposal to disallow the impugned expense u/s 40(a)(i) of the Act made by the CIT(A), is not sustainable.
|