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DCIT, Circle-3 (1) , Visakhapatnam Versus M/s. L.G. Polymers India Pvt. Ltd. and Vica-Versa

2016 (3) TMI 274 - ITAT VISAKHAPATNAM

Transfer pricing adjustment - whether international transaction being royalty payment of the assessee to its associated enterprises is held to be within the arms length price - A.O. was of the opinion that the assessee has not proved the necessity of Royalty payment - Held that:- We do not see any merits in the contention of the A.O. for the reason that, the assessee has furnished copies of invoices and bank remittance challans. The payment was made through banking channel and which was supporte .....

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es not require any interference. Hence, we inclined to upheld the order of the CIT(A) and reject the ground raised by the revenue. - Decided in favour of assessee

Disallowance of royalty payment u/s 40(a)(i) - non deduction of TDS on royalty payment as per section 195 - Held that:- A careful study of the provisions of section 40(a)(i) of the Act, it was clear that any payments referred to in the said section, which is payable outside India or in India to a non-resident on which tax is .....

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lowed the Royalty payment under sec. 40(a)(i) of the Act.

Eligibility for deduction towards Royalty - Held that:- A careful study of provisions of section 40(a)(i) of the Act and proviso provided therein, it is clear that where in respect of any such sum, tax has been deducted in any subsequent year or has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub section 1 of section 200, such sum shall be allowed as a deducti .....

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Accordingly, we direct the A.O. to allow the deduction for the assessment year 2008-09. - I.T.A.Nos.700&701/Vizag/2013, C.O. Nos.22&23/Vizag/2014 - Dated:- 28-1-2016 - SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER For The Appellant : Shri C.V.S. Murthy, AR For The Respondent : Shri I. Sarish Kumar, DR ORDER PER G. MANJUNATHA, Accountant Member: These two appeals filed by the revenue and cross objections filed by the assessee are directed against the separate, but i .....

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n of income for the assessment year 2007-08 on 27.10.2007 declaring a total income of ₹ 18,85,27,400/-. The case was selected for scrutiny and accordingly, notices u/s 143(2) & 142(1) of the Income-Tax Act, 1961 (hereinafter called as the Act ) were issued. In response to notices, the authorized representative of the assessee appeared from time to time and submitted the details called for vide questionnaire issued in connection with the scrutiny proceedings. During the course of assess .....

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ination of ALP of the international transaction. During the previous assessment year, under similar circumstances, the royalty payment to its associated enterprises was disallowed. Since, the Royalty payment was disallowed in the earlier assessment year, the A.O. issued a show-cause notice dated 18.12.2009 to the assessee company, requiring it to explain as to why royalty payment to its associated enterprises i.e. L.G. Chem Limited, Korea amounting to ₹ 1,43,95,374/- should not be disallow .....

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the brand name has benefitted the company and the payment of royalty is well within the norms prescribed by the GOI. However, the A.O. after considering the explanations offered by the assessee disallowed the payment of royalty for the reason that the assessee has not proved the necessity of payment of royalty to its associated enterprises and also the benefits accrued to it by using the said brand name. The A.O. further was of the opinion that the assessee has not deducted TDS on such royalty p .....

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ted the arguments put forth before the A.O. The assessee further submitted that the A.O. has made similar addition during the previous assessment year and the issue was travelled upto the Income Tax Appellate Tribunal, wherein the ITAT has set aside the issue to the file of the A.O. with a direction to the A.O. to obtain the ALP of the international transaction. In case, the TPO determined separate ALP, which is different from expenditure claimed, then the same should be disallowed. Further, the .....

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he A.O. was erred in disallowing the Royalty payment without considering the fact that the A.O. has accepted the Royalty payment in the order giving effect to ITAT order for A.Y. 2006-07. However, the CIT(A) after considering the explanations offered by the assessee and also relied upon the ITAT order in assessee own case for earlier assessment year, held the issue in favour of the assessee and directed the A.O. to refer the matter to the TPO and obtain a ALP of the international transaction. Th .....

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eal before us. 5. The Ld. D.R. submitted that the CIT(A) was not correct in deleting the additions towards royalty payment based on the findings of the previous assessment years. The Ld. D.R. further argued that the A.O. made additions not only for ALP, but also hold that the transaction is a sham and the assessee is trying to shift the profit out of India in the guise of royalty payment, therefore, the additions made by the A.O. should be upheld. As far as the disallowance u/s 40(a)(i) of the A .....

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. A.R. of the assessee strongly supported the order of the CIT(A), in so far as the deletion of royalty based on the findings of the assessment year 2006-07. The A.R. further submitted that the similar issue has come up before the ITAT, for the previous assessment year i.e. 2006-07, wherein the ITAT, has set aside the issue to the file of the A.O. and directed the A.O. to refer the matter to the TPO and obtain the ALP of the international transaction. In case the TPO determined the ALP of intern .....

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ased on the findings of the previous assessment year, the additions made by the A.O. should be deleted. The Ld. A.R. further submitted that as far as the disallowance u/s 40(a)(i) of the Act is concerned, the A.O. was not correct in disallowing the royalty payment u/s 40(a)(i) of the Act, as the assessee has deducted TDS and remitted to Govt. account within the due date of furnishing return of income under sec. 139(1). The A.R. further submitted that the provisions of section 40(a)(i) and 40(a)( .....

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Field Services Vs. ACIT 20 Taxman.Com 474 by following the judgment of Kolkata High Court, held that the amendment brought to Section 40(a)(i) of the Act by Finance Act, 2010 is retrospective in nature. Therefore, if the TDS was remitted to the Government account before the due date for filing the return of income u/s 139(1) of the Act, even as per the provisions of section 40(a)(i) of the Act, the expenditure is allowable in the year in which it was incurred. The A.R. further submitted that alt .....

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royalty payment to its associated enterprises, as there was no benefit by the use of the brand name. The assessee s contention is that royalty payment to its associated enterprises is 0.2% of the total turnover which is within the prescribed limit of the Government of India. The assessee further contended that similar addition was made by the A.O. for the earlier assessment year on the same ground, which was later deleted by the A.O. based on the findings of the ITAT. During the course of heari .....

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sed order u/s 92C(3) of the Act and held that the royalty payment of the assessee to its associated enterprises LG Chemical Limited, Korea is held to be within ALP. The A.O., thereafter, passed consequential order giving effect to the ITAT order and deleted the additions. During the year under consideration, there is no change in facts. Therefore, the additions made by the A.O. should be deleted. 8. We have gone through the submissions of the assessee, orders of the ITAT, TPO orders and conseque .....

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rprises is held to be within the arms length price. As regards to genuineness and necessity of Royalty payment is concerned, the A.O. was of the opinion that the assessee has not proved the necessity of Royalty payment. We do not see any merits in the contention of the A.O. for the reason that, the assessee has furnished copies of invoices and bank remittance challans. The payment was made through banking channel and which was supported by bills and agreements. The TPO as well as AO has accepted .....

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the order of the CIT(A) and reject the ground raised by the revenue. 9. The next issue emanates from the assessee cross objection is disallowance of royalty payment u/s 40(a)(i) of the Act. The A.O. disallowed the royalty payment u/s 40(a)(i) of the Act for the reason that the assessee has not deducted TDS on royalty payment as per section 195 of the Act. The contention of the assessee was that it has deducted TDS on royalty and remitted the payment to the Government account within the due date .....

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40(a)(i) of the Act. 10. We have considered the submissions of the assessee. We also gone through the provisions of section 40(a)(i) of the Act and finds that there is no merit in the arguments of the assessee for the reason that sub-clause (i) of section 40(a) of the Act, mandates that in the case of any assessee makes any payment in respect of any interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India or in India to non-resident, .....

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Act, it was clear that any payments referred to in the said section, which is payable outside India or in India to a non-resident on which tax is deductible under chapter XVIIB and such tax is not deducted or, after deduction has not been paid within the due dates under sec. 200(1) of the Act, then such payment is not allowed in computing the income from Business or Profession. In the present case on hand, though assessee deducted tax at source, it has deducted tax in subsequent year, but failed .....

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