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M/s. Bosch Ltd. Versus Asst. Commissioner of Income-tax, (LTU) , Bangalore.

2015 (9) TMI 131 - ITAT BANGALORE

Transfer pricing (TP) adjustment - assessee is seeking exclusion of only 2 comparable companies i.e. Alpha Geo (India) Ltd., and Vimta Labs from the final list of comparables - Held that:- assessee has conducted functional analysis by adopting the companies performing similar functions and activities without any similarity of products or industry. We find that M/s. Alpha Geo Ltd., is also in the business of research and development of seismic data, functions similar to the functioned performed b .....

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earch and development, there is involvement of living beings both animals and human beings and the margin would definitely depend on the result from such research and development involving human interface. Therefore, the said company cannot be considered as comparable to the assessee herein, particularly since the TPO himself has rejected the said company as a comparable to the assessee in the subsequent assessment year i.e. 2005-06. We are therefore inclined to direct the TPO/AO to exclude this .....

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wing interest payable to Central Excise Department has been upheld by the Tribunal. - Decided against assessee.

Disallowance of deduction u/s 80-O - Held that:- Claim for deduction u/s.80-O are within the exclusive knowledge of the Assessee. It is for the Assessee to let in cogent evidence to substantiate its claim. The Assessee in our view has failed to do so and in the circumstances, the revenue authorities were justified in not allowing the claim for deduction. Assessee is not enti .....

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assessee’s own case for assessment year 1994-95 to hold that the consideration received for development work from Robert Bosch was not liable to be reduced under Explanation (baa) in computing the profits of the business. Since the issue is covered by the decision of the jurisdictional High Court in the assessee’s own case for the earlier assessment year and the CIT(A) has only followed the judicial precedent on the issue, we do not see any reason to interfere with the same. - Decided against r .....

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]. We find that this issue is now covered in favour of the assessee by the above decision. Therefore, we see no reason to interfere with the order of the CIT(A) which is in consonance with the judicial precedent on the issue. - Decided in favour of assessee. - IT(TP)A No.670/Bang/2011, IT(TP)A No.695/Bang/2011 - Dated:- 20-8-2015 - SMT. P. MADHAVI DEVI AND SHRI ABRAHAM P GEORGE, JJ. For The Appellant : Shri Percy Pardiwala, Sr. Counsel For The Respondent : Shri G.R. Reddy, CIT(DR). ORDER Per Sm .....

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92CA of the Income-tax Act, 1961 [ the Act for short]. 3.1 At the time of hearing, the learned counsel for the assessee submitted that the assessee is seeking exclusion of only 2 comparable companies i.e. Alpha Geo (India) Ltd., and Vimta Labs from the final list of comparables for the purpose of determination of the arms length price (ALP). He submitted that the assessee had entered into international transactions with its Associated Enterprises (AEs) for basic development and the application d .....

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ee s margin of 10.01% was more than the average arithmetical mean of the comparable companies, the assessee treated the international transaction to be at arms length. On a reference to the TPO for determination of the ALP, the TPO also accepted TNMM to be the most appropriate method (MAM). Thereafter, he accepted the companies selected by the assessee as comparables except for Esquire Engineers and consultants Ltd., and Gilcon Project Services Ltd., and rejected them on the ground that no finan .....

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dingly made ALP adjustment consequent to which the Assessing Officer (AO) brought the ALP to tax. 3.2 Aggrieved, the assessee preferred an appeal before the CIT(A) seeking exclusion of M/s. Alpha Geo Ltd., on the ground of functional dissimilarity and also Vimta Labs on account of high profit margin. The CIT(A), however, confirmed the order of the AO and the assessee is in second appeal before us. 3.3 The learned counsel for the assessee, while reiterating the submissions made by the assessee be .....

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y the assessee itself as one of the comparables, he had challenged the inclusion of the same on the basis of the assessment order in the assessee s own case for the assessment year 2005-06 wherein it has been rejected as uncomparable on the ground that Vimta Labs was into research and development of various drugs involving human beings. He has drawn our specific attention to various documents filed by the assessee in support of his contention and submitted that this company should be excluded fr .....

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ferent authorities according to his convenience. As regards, M/s. Alpha Geo (India) Ltd., is concerned, the learned departmental representative submitted that the assessee was into research and development work as in the case of M/s. Alpha Geo (India) Ltd., and that the area of work may be different but since the functions are similar, the said company has been rightly chosen as the comparable company to the assessee. He, therefore, prayed that the assessee s grounds may be rejected. 3.5. Having .....

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TP study, the assessee had considered 705 companies and accepted only 9 out of the same as comparable to the assessee which includes Vimta Labs. At page 33 of the paper book is filed the brief description of the comparable companies adopted by the assessee, which is reproduced hereunder for the sake of convenience and ready reference. Brief business descriptions of comparable companies Chokshi Laboratories Ltd. Chokshi Laboratories Ltd. is a commercial testing and analysis laboratory based in I .....

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ied into and excelled in other fields such as pipelines, petrochemicals, oil and gas processing, offshore structures and platforms, fertilizers, metallurgy and power. Engineers India Ltd. now provides a complete range of project services in these fields and has emerged as Asia s leading design and engineering company. Services provided by the company include feasibility studies, project management, planning and scheduling, cost engineering, process & equipment design, detailed engineering, p .....

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d in the provision of consultancy services such as site investigation, feasibility studies, detailed designs and working drawings, tender and contract document preparation. Mahindra Acres Consulting Engineers Limited Mahindra Acres Consulting Engineers Ltd was incorporated in 1993, and is a part of the Mahindra & Mahindra group. The company is engaged in the provision of technical and engineering services in the fields of environmental engineering, solid waste management, agro and food proce .....

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t planning involving project identification, feasibility studies and project appraisal, project support activities comprising surveys, environmental impact assessment, technical and other investigations, project preparation activities of detailed engineering, design, tender documentation, bid evaluations etc and also economic and financial evaluations. Vimta Labs Limited Vimta Labs Ltd provides testing and analytical services. This includes activities such as sample preparation, data generation .....

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in over 30 developing countries. From a reading of the above description of the various comparable companies, we find that all the companies are engaged in similar type of functions i.e. research and development in various products including power, petroleum, refinery, power energy, site investigation, environmental engineering, project preparation activities, sample preparation and domestic and international water and power sector. Thus it can be seen that the comparable companies have been sel .....

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nt to examine the criteria to be analyzed for the transfer pricing exercise. The transfer pricing exercise/study involved FAR analysis as in dealings between two independent enterprises, compensation usually reflects and depends on the functions that each enterprise performs taking into assets used and risks assumed. Therefore, the foremost criteria to be considered is the functions performed by entities to ascertain their comparability. For this purpose, the economically significant activities .....

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see is carrying on the research and development activity in the field of automobile industry while the Alpha Geo is involved in research in seismic services. Therefore, there is no functional dissimilarity. The next criteria to be considered are the assets used and the risks assumed and also the industry to which the assessee belongs to for determining market comparability and economic condition of the industry. In the case before us, assessee has conducted functional analysis by adopting the co .....

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ith the order of the CIT(A) on this issue. 3.6 As regards Vimta Labs is concerned, we find that Vimta Labs is a research and development company researching into effects of various drugs on human beings. Though the function is similar i.e. research and development, there is involvement of living beings both animals and human beings and the margin would definitely depend on the result from such research and development involving human interface. Therefore, the said company cannot be considered as .....

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lding the order of the AO in not allowing deduction for provision made towards interest payable to Central Excise Department and Sales Tax Department at ₹ 4,29,67,460/-, the learned counsel for the assessee submitted that this issue is covered against the assessee by the decision of this Tribunal in the assessee s own case for assessment year 2000-01 and 2001-02 which is placed at pages 3 to 58 of the case-laws paper book filed before us. The Tribunal, at para.6 of its order, has observed .....

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for deduction of ₹ 64,28,890/- u/s 80-O of the Act, is concerned, the learned counsel for the assessee has submitted that this issue is also covered against the assessee by the decision of the Tribunal in the assessee s own case for the assessment year 2001-02. A copy of the said order is filed before us at pages 230 to 241 of the case-laws paper book. 5.1. After going through the decision of the Tribunal in ITA No.102/Bang/2011 dt.18/07/2012 for assessment year 2001-02, we find that the .....

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the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, and such inc .....

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the scope of deduction became restricted and the case of the Assessee has to be tested on the basis of the provisions as it existed after 1-4-98. 14. As we have already seen the consideration received by the Assessee from Bosch has to be for the use outside India by Bosch of any patent, invention, design or registered trade mark and such income should be received in convertible foreign exchange in India. The dispute in the present case as we have already seen is as to whether there was use outs .....

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ect of products such as single cylinder pumps of the type PF, Compact Alternator type GCB1, Spark Plug U-type etc., In the consideration for the use of the result of such research/design/development during the FY 2000-01, the Assessee received fees amounting to ₹ 4,85,77,690/. The further claim of the Assessee was that the development works carried out by it resulting in brining into existence new designs or inventions which was allowed by the Assessee to be used by Bosch for which Bosch m .....

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necessary for conducting specific work. It is also provided in the agreement that in case the Assessee becomes aware of property rights which may be relevant in connection with the development to be conducted by the Assessee, then the Assessee should inform Bosch and shall not use such rights without Bosch s prior permission/agreement. The agreement also provides that any results arising from or in connection with the development agreement which incorporates an invention, a patent and /or utilit .....

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side India and is free to maintain or lapse any property rights arising therefrom including those in India. The 11 compensation for such rights is included in the compensation paid by Bosch to the Assessee under the agreement. The terms of the agreement nowhere talks of any design to be developed by Assessee and given to Bosch. 17. In the proceedings before the AO after remand by the Tribunal, the emphasis of the Assessee has been more on supply of design. In this regard it is worthwhile mention .....

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et method for a period of 20 years from 5.11.1999. Even in respect of such patent the registration came much later. Thus the case of the Assessee that consideration received by it from Bosch is for right to use patent, in our view cannot be said to have been established. 18. As far as the claim of the Assessee that the consideration received was for right to use design developed by the Assessee, we find that the evidence filed by the Assessee is very sketchy. In the first place there is no evide .....

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sessee and Bosch, which we have already seen nowhere mentions development of any design or a right to use design developed by the Assessee by Bosch. There is nothing on record to establish the ownership of the Assessee over these drawings. Apart from the above, the Assessee has not been able to link payments with the right to use any particular design or patent. Despite repeated request by the AO to file such link, the Assessee failed to comply with the request of the AO. 19. In our view facts w .....

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t started in the year 1991. The claim of the Assessee for deduction u/s.80-O of the Act in AY s prior to AY 98- 99, as we have already observed, would have been sustainable upto AY 97-98 because of the larger coverage of activities for which deduction was allowed u/s.80-O of the Act. There is every reason to suspect that the Assessee has attempted to camouflage its claim for deduction u/s.80-O of the Act for AY 2001-02, so as to be in conformity with the amended provisions of law, though the nat .....

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isions of law. Respectfully following the same, this ground of appeal of the assessee is rejected. 6. In the result, the assessee s appeal is partly allowed. 7. As regards the revenue s appeal (IT(TP)A No.695/Bang/2011) is concerned, though the revenue has raised as many as 8 grounds of appeal, we find that ground Nos.1, 7 and 8 are general in nature and need no adjudication. 7.1 Grounds No.2 and 3 relate to deduction u/s 80HHC of the Act. Brief facts of the case are that while considering the c .....

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