TMI Blog2011 (1) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the assessee under the provisions of section 253(1)(d) of the IT Act, 1961, against the order passed by the Assessing Officer dated 25th October, 2010 under section 143 (3) read with section 144C of the Income-tax Act, 1961 (the Act). The main addition in the present appeal is an addition of Rs. 40,67,16,966 on account of variation in income as a consequence of order of Transfer Pricing Officer (TPO) under section 92C (3) of the Act. Others are small following additions:- (i) Rs. 2,627 on account of disallowance under section 14A read with Rule 8D. (ii) Rs. 6,20,230 on account of disallowance of payment under section 40(a)(i). (iii) Rs. 27,08,000 on account of disallowance of payment under section 40(a)(ia) 2. A draft order was prepared by the learned Assessing Officer under section 144C which was sent to DRP wherein the income of the assessee was assessed of Rs. 255,45,21,520 against the returned income of Rs. 214,44,73,701 in which the above mentioned additions were made. The assessee had filed objections before the Dispute Resolution Panel (DRP) against the said draft order of the Assessing Officer on 31st December, 2009 and the said objections of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the TP arrangement with regard to payment of royalty to overseas AE s (including royalty payable on sales of 3DX) in its TP documentation maintained u/s 92D of the Act read with Rule 10D of the Income Tax Rules, 1962. 3. The Id. DRP and the Id. AO (following the directions of the Id. DRP), erred on facts and in law, in upholding the Id. TPO s stance of erroneously concluding that the arm s length price of the transaction of payment of royalty to overseas AEs on sales of the 3DX should be Nil and in doing so: 3.1 not appreciating the fact that the appellant leveraged considerably on the technology and know-how received by it from the AEs and derived substantial economic/commercial benefits from it, in return for which a royalty was paid by the appellant to the AEs; 3.2 not appreciating the fact that the 3DX was a much superior and advanced product in terms of technology/features/ specifications/benefits as compared to the older product 3D and was not merely a cosmetic variant of the 3D; and 3.3 disregarding the various submissions and documentary evidences filed by the appellant to establish the bona fide of the transaction, on the basis of pre-conceived notions, surmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on payments made to the non-resident dealers of the appellant u/s 195 of the Act without appreciating that provision of section 195 can be invoked only if the payment is chargeable to tax in India. 8. On the facts and in the circumstances of the case the Id. AO erred in holding that the appellant has failed to deduct tax at source on payments made to TBL enterprise for INR 2,708,000 without appreciating that the appellant is not bound to deduct TDS when the subject income is exempt from tax u/s 10(26) of the Act and the recipient i.e. TBL Enterprise a sole proprietorship firm of Mr. R. Sangkhuma, had obtained a certificate from the specified authority certifying that the recipient is qualified for exemption under the said section and a copy of the same duly certified by a Gazetted Officer had been furnished to the payer by the recipient. 9. On the facts and in the circumstances of the case and in law, the Id. AO erred in making addition of Rs. 2,627 on account of notional disallowance on investments by invoking sec. 14A of the Act read with Rule 8D without appreciating that: - The appellant has not earned any exempt income during the year in question. - T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total royalty paid by the assessee was Rs. 41,64,43,265. The Assessing Officer made a reference to TPO to determine the arm s length price in respect of international transactions undertaken by the assessee during the financial year 2005-06 relevant to assessment year 2006-07 and vide order dated 30th October, 2009 the TPO has suggested an upward adjustment of income by Rs. 40,67,16,966 and, accordingly, the said addition was made by the Assessing Officer rejecting the written submissions of the assessee dated 17th November, 2009. The TPO in his order while upholding the adjustment of Rs. 40,67,16,966 has observed that engine specifications for both 3D and 3DX models are identical. He has rejected the claim of the assessee that engine of 3DX was more fuel efficient. He has compared various aspects of both the models, namely, 3D and 3DX and has come to the conclusion that there was cosmetic improvement caused to the existing 3D model to change the existing model 3D to 3DX and, therefore, royalty payment by the assessee to its AE for 3DX wheeled excavator loaders is not at arm s length. The relevant observations of TPO as contained in para 7 of his order are reproduced for the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said report which has been obtained by the assessee from IIT and, for this purpose, learned AR submitted an application dated 25th January, 2011 for admission of the said report as an additional evidence. Relying upon the objections filed before the TPO, the Assessing Officer and Dispute Resolution Panel, it was submitted by Ld. AR that the addition on account of arm s length price has wrongly been upheld by DRP without considering the various objections of the assessee. He submitted that in the interest of justice as the said report will go to the root of the matter the same should be considered as additional evidence and should be admitted as it is merely supporting the objections of the assessee which have been duly filed before all the authorities mentioned above. 6. On the other hand, it was submitted by learned DR that the said report of IIT should not be admitted as this was never filed before any of the income-tax authorities. Without prejudice, he submitted that if such report is admitted as additional evidence and if the matter is restored back, then, the issue may be left open to provide equal opportunity to the department to adduce any evidence to prove the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any further inquiry to be made by any income-tax authority and report the result of the same to it. Under sub-section (8) the DRP has power to confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further inquiry and passing of the assessment order. Under sub-section (11) no direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue respectively. Under sub-section (12) directions under sub-section (5) cannot be passed after nine months from the end of the month in which draft order is forwarded to the eligible assessee. Under sub-section (13), on receipt of directions issued under sub-section (5), the Assessing Officer has to pass the assessment order in conformity with the directions without providing any further opportunity of being heard to the assessee within one month from the end of the month in which such directions are received. 10. The directions passed by DRP under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e competent authority, while passing the order, shall keep in mind the order dated 29th November, 2010 wherein we had directed that the period from the date of filing the write petition and four weeks after its disposal shall stand excluded, while computing the limitation for the department to pass an assessment order. The writ petition is allowed to the extent indicated above without any order as to costs. Order dasti under the signatures of the Court Master. [WPO (C) 7028/2010] 11. This Tribunal in many of such cases has restored the issue to the file of DRP for passing a speaking order on each of the objection of the assessee raised before it. Therefore, we find that it is a fit case where the entire matter should be restored back to the file of DRP to pass a detailed order stating all the objections of the assessee and disposing them by giving a cogent and germane reasons for adjudication of the objections of the assessee. We direct accordingly. After receiving the order from DRP, the Assessing Officer will again pass order u/s 144C(13) and the present assessment passed by the Assessing Officer is set aside as the DRP is directed to re-adjudicate the objections raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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