TMI Blog2010 (7) TMI 1047X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee under the Technology Agreement, computed on the basis of the entire production/sales. Considering, all the facts We do not find any reason to record any variance with the well reasoned elaborate findings of fact recorded by the ld. CIT(A). The same are hereby upheld. In the result, the appeal filed by the Department is dismissed. - SHRI A.D. JAIN AND SHRI A.K. GARODIA JJ. For the Appellant : Shri Nikhil Chaudhary, Sr. DR For the Respondent : Shri Vidur Puri Baldev Raj, CAs ORDER PER A.D. JAIN, J.M. This is Department s appeal for the assessment year 2004-05, taking the following ground:- The ld.Commissioner of Income Tax(Appeals) erred, in law and on the facts and circumstances of the case, in deleting the addition of ₹ 43,68,838/- being the difference in the arm s length price and the value of the International Transaction on account of Royalty. The AO made this addition on the basis of TPO s order passed u/s 92CA(3) of the I.T. Act. 2. The facts are that during the assessment proceedings, the AO noticed the following International Transactions entered into by the appellant during the financial year 2003-04, as repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, TPO held that the appellant had not determined the arm s length price for the payment of royalty in accordance with the provision of Sec. 92C(1) and (2). ii) The TPO further observed that royalty has been paid on total sale irrespective of sales made to same Associated Enterprise or other enterprises. Royalty has been paid @ 3% of he sales. Sales made to the AE amounted to ₹ 6,05,40,938/-. Accordingly, the corresponding royalty paid to the AE on these sales comes to ₹ 18,16,228/-, therefore, TPO held that it should not allow and to that extent it is an excess payment and the royalty payment is not at arm s length to that extent. Accordingly, an adjustment of ₹ 18,16,228/- is made on the royalty account. iii) The TPO further noticed that the assessee has incurred following expenses in respect of the two personnel of the Associated Enterprises Expenses incurred on Mr. Keichi Osawa (Technical Advisor) Salary relaterd expenses 4,26,415 Payment made for car 1,67,356 Payment made for residential accommodation 2,82,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnel on deputation of Associated Enterprise, it is seen that the assessee had appointed one Mr. Tadao Katsuchi as Joint Managing Director of the company as per shareholding of the company of MMC Japan. During the assessment year 2004-05 , i.e., the year under consideration, the assessee paid to him, a sum of ₹ 16,76,839/- by way of salary allowance and perquisites. This expenditure did not relate to the payment of royalty, the Joint Managing Director having not been appointed under the know-how lease agreement with MMTL. The remuneration was determined by the company on the basis of similar payment to the assessee s own employees. It was not shown otherwise. This payment did not qualify the test for arm s length price concerning payment of royalty. 12. Further, the assessee appointed as Technical Adviser Mr. Keichi Osawa. He was appointed under the agreement. On the assessee s request, he was deputed by MMTL. During the year, payment of ₹ 8,75,771/- was made to him. The deputation of the said Technical Adviser did not affect the amount of royalty due to Associated Enterprise ( AE , for short) and the payment of royalty to MMTL. The expenses by way of payment of sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o doubt incurred for business purposes and it was this which was the determining the factor, as rightly noted by the ld. CIT(A). It has not been shown that the payment was not as ought to have been made by a prudent business-man under similar circumstances, in the course of its/his normal business activities. 13. The payments made by the assessee to the Joint Managing Director and the Technical Adviser were thus correctly found by the ld. CIT(A) to be genuine business expenditure. 14. So far as regards the other limb of the addition, the assessee was paying royalty @ 3% on export as well as domestic sales net of imported raw material and brought out components. The actual payment of royalty was of ₹ 12.82 lakhs. This was erroneously computed for sales to MMTL, at ₹ 18,16,228/-. As per the contract, the assessee was to pay royalty @ 3% on export and domestic sales net of imported raw mateial and brought out components, whereas the TPO wrongly computed it @ 3% on gross sales. This, despite the fact that the assessee had submitted before the TPO, a detailed working in this regard. Therein, it had been clearly mentioned that the payment of royalty to the AE was of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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