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2015 (11) TMI 580 - ITAT MUMBAI

2015 (11) TMI 580 - ITAT MUMBAI - TMI - Transfer pricing adjustment - determination of armís length price of the international transaction of sale of old machineries to the associated enterprise - Held that:- The assessee selected the CUP method in order to benchmark the sale price of the international transactions. In support, assessee also adduced the relevant CUP data, namely, valuation report from a Chartered Engineer and claimed that the sale price recovered by the asessee from its associat .....

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le price stated in the invoices have been accepted. It is only in three sale transactions that such CUP data has not been accepted and the TPO considered the written down value of the machineries as the armís length sale price. Notably, in such three transactions, assessee had suffered a loss because sale values, based on the valuerís 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 c .....

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ore, 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 assesseeís own case for assessment year 2009-10 on similar issue decided the assessee was not to disclose to third parties any of the documents made available to the assessee without having received a written authorization from the foreign co .....

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of assessee. - ITA NO 471/Mum/2015 - Dated:- 30-9-2015 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Assessee : Shri Falee H. Bilimaria For The Revenue : Shri N.K. Chand and Shri Jitender Kumar ORDER PER G.S. PANNU, ACCOUNTANT MEMBER: This appeal by the assessee is directed against the order of Dy. CIT Cir. 10(2), Mumbai passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (in short the Act ) dated 15.12.2014 pertaining to the assessment year 201 .....

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and circumstances of the case, and the provisions of the law, the said addition is unjustified and the Appellant submits that the Assessing Officer be directed to delete the same . 2) Without prejudice to Ground No.1 above, the learned DRP erred in confirming the action of the Assessing Officer in holding that the loss on sale of certain machinery items was revenue in nature and consequent thereto, in adding back such loss to the total income of the Appellant, instead of restricting the addition .....

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e 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 .....

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377; 8,66,364/-, which has been added to the returned income in conformity with the order passed by the Transfer Pricing Officer (in short the TPO ) dated 31.10.2013 u/s 92CA(3) of the Act. During the year under consideration, assessee had sold few old machineries to its associated enterprise abroad, which constituted an international transaction within the meaning of section 92B of the Act. The Assessing Officer made a reference u/s 92CA(1) of the Act to the TPO for computation of arm s length .....

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ted the profitability of the assessee company. The TPO noted that out of eight such transactions of sale of machineries, in three cases there was a loss, although overall there was a profit of ₹ 12,49,295/-. Before the TPO, assessee justified the sale value of the machineries on the basis of valuation report from a Chartered Engineer. The appellant also furnished the shipping bills for export issued by the Indian Customs authorities duly accepting the invoice value for sale of the machiner .....

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ssessee raised objections before the DRP against the aforesaid adjustment proposed by the Assessing Officer in the draft assessment order. The DRP rejected the objections, and the Assessing Officer has passed the final assessment order, wherein, the aforesaid amount has been 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 .....

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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 price of the international transaction .....

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values arrived at by the valuer. Assessee also pointed out that the invoice values have been accepted by the Indian Custom authorities also. We find that the TPO has accepted the adoption of CUP method as the most appropriate method for benchmarking the international transaction of sale of old machineries. Out of the eight transactions of such sales, the CUP data relied upon by the assessee has also been accepted by the TPO in five cases inasmuch as the sale price stated in the invoices have be .....

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s 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 .....

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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 .....

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rival contentions and perused the record. The department is placing reliance fully on the decision rendered in the case of Southern switchgear Ltd (supra). However, a perusal of the said order would show that the assessee therein was entitled to use the technology even after the termination of the contract. Further the licensor of the technical knowhow had agreed not to manufacture in India any of the scheduled products or to grant or make available to any other person, firm or company any manuf .....

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etc. on completion of the agreement. It has to maintain strict confidentiality about the technology. Further, the assessee itself has capitalised the technology transfer fee. The royalty amount is paid to provide operational and commercial support. Under these set of facts, we are of the view that the royalty amount paid by the assessee should be treated as revenue expenditure only. We find support for our view from the decision rendered by the Hon ble Supreme Court in the case of CIT Vs. I.A.E. .....

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