TMI Blog2015 (11) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... d the TPO considered the written down value of the machineries as the arm’s length sale price. Notably, in such three transactions, assessee had suffered a loss because sale values, based on the valuer’s report, was lower than the WDV of such machineries. Quite clearly, the approach of the TPO is inconsistent. The CUP data which has been found to be acceptable in considering five transactions of sales as being in consonance with the arm’s length price, cannot be disregarded in case of other three transactions merely because of the resultant loss. In the impugned orders of the authorities below, there is no charge against the assessee that the CUP data relied upon by the assessee qua the aforestated three transactions was inconsistent or otherwise unreliable in comparison to the similar data relied upon in the context of the other five transactions. Therefore, in our view the lower authorities have mis-directed themselves in making the addition - Decided in favour of assessee. Disallowance of expenditure incurred on account of royalty - revenue v/s capital in nature - Held that:- The Tribunal in assessee’s own case for assessment year 2009-10 on similar issue decided the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowing and adding back royalty expenditure aggregating to Rs.l,50,34,404/- by holding the same to be capital in nature. Having regard to the facts and circumstances of the case, and the provisions of law, the disallowance is unjustified and unwarranted, and the Appellant submits that the Assessing Officer be directed to delete the same. 4) The Assessing Officer erred in levying interest under Section 234B of the Act as a consequence of the disallowance made in the assessment order. The Appellant denies the liability to the levy of such interest and the Assessing Officer be directed to delete the same accordingly. 3. Briefly put, the relevant facts of the case are that the appellant is a company incorporated under the provisions of Companies Act, 1956, and is, inter-alia, engaged in the business of insulation processing of pipes for the oil and gas industry. For the assessment year under consideration, assessee filed a return of income declaring total income of ₹ 12,97,66,010/-, which was subject to scrutiny assessment u/s 143(3) r.w.s 144C(13) of the Act, whereby, the total income was assessed at ₹ 13,45,01,430/-. One of the additions made to the returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n added to the returned income. 4. Before us, the Ld. Representative for the assessee has pointed out that the sale value of the machineries sold to the associated enterprise was determined on the basis of the valuation report which has been accepted by the Indian Customs authorities and, therefore, there was no justification for disregarding the stated consideration for the purposes of arriving at the arm s length sale price of the machineries sold to the associated enterprise. 5. On the other hand, the Ld. CIT(DR) has defended the action of the lower authorities by pointing out that the valuation report being relied upon by the assessee cannot be determinative of the arm s length price for the purpose of a transfer pricing regulations as the purpose of the said valuation report was quite different. The Ld. CIT(DR) contended that the action of the TPO in considering the written down value of the machineries as the arm s length sale price was fair and proper and accordingly, the addition of ₹ 8,66,364/- has been defended. 6. We have considered the rival submissions. The dispute before us lies in a narrow compass which relates to the determination of arm s length pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to associated enterprise be restricted to the amount of depreciation claimed. This plea no longer survives, as the appellant has already succeeded in Ground of appeal no. 1. Thus, Ground of appeal no. 2 raised by the assessee is dismissed. 8. Ground of appeal no. 3, relates to expenditure incurred by the assessee on account of royalty aggregating to ₹ 1,50,34,404/-, which has been disallowed on the ground that the same was capital in nature. The relevant facts are that assessee had incurred expenditure on payment of royalty to M/s Parma Pipe Middle East FSC, for acquiring necessary technology and it was claimed as a revenue expenditure, which has since been disallowed by the Assessing Officer holding it to be a capital expenditure . 9. Before us, it was a common point between the parties that similar issue had come up before the Tribunal in assessee s own case for assessment year 2009-10, wherein, vide ITA No. 2188/Mum/2014, Dated 21.04.2015, such expenditure has been held to be a revenue expenditure. Following discussion in the order of the Tribunal dated 21.04.2015 (supra), is worthy of notice:- 6. We heard the rival contentions and perused the record. The depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed that what was obtained by the assessee was only a licence and what was paid by the assessee to the foreign collaborator was only a licence fee and not the price for acquisition of any capital asset and, therefore, the Tribunal was right in treating the amount as revenue expenditure. On appeal to the Supreme Court The reasoning and conclusion of the High Court were unassailable. The High Court rightly held that the expenditure incurred in the instant case by the assessee was only a revenue expenditure. The instant appeal failed and were dismissed. 8. In view of the above, we set aside the order of AO/DRP on this issue and direct the AO to allow the royalty payment as revenue expenditure. 10. Following the aforesaid precedent, which has been rendered under identical circumstances, we hereby allow Ground of appeal no. 3 raised by the assessee. Thus, on this aspect, assessee succeeds. 11. The last Ground of appeal relates to levy of interest u/s 234B of the Act, which is consequential in nature and does not require any specific adjudication. 12. In the result, appeal of the assessee is partly allowed as above. Order pronounced in the open court on this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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