TMI Blog2016 (12) TMI 936X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act ) dated 22nd December, 2006. 2. The Grounds of appeal raised by the Revenue read as under:- 1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting- the disallowances of travelling and conveyance of ₹ 1,12,39,325/- without appreciating that the assessee in the course of the assessment proceedings did not submit the complete details of the travelling and conveyance expenses to justify and establish that the entire expenditure was laid out or expended wholly and exclusively for the purposes of its business. 2. On the facts and the circumstances of the case and in law , the Ld. CIT(A) erred in deleting the disallowance of freight forwarding charges of ₹ 3,35,04,706/- without appreciating that the assessee in the course of the assessment proceedings did not submit the complete details of the freight forwarding charges to justify and establish that the entire expenditure was laid out or expended wholly and exclusively for the purposes of its business. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of miscellaneous expenditure of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), Revenue is in appeal before us on the above stated Grounds of appeal. 4. In so far as Grounds of appeal No.1 to 3 are concerned, the same relate to an adhoc disallowance made by the Assessing Officer @50% of total expenses debited under the head travelling and conveyance, freight and forwarding charges and Miscellaneous expenditure. As per the discussion in para5 of the assessment order a common point raised by the Assessing Officer is that assessee did not furnish complete details of the expenses party-wise, amount wise and justification for the same alongwith supporting documents. As a consequence, the Assessing Officer disallowed 50% of the expenditure debited in the P L Account under each of the aforesaid heads and accordingly the disallowance worked out under various heads was as under:- Travelling and conveyance - ₹ 1,12,39,325/- Freight and forwarding charges - ₹ 3,35,04,706/- Miscellaneous Expenses - ₹ 3,81,11,174/- The assessee company carried the matter in appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the Act whereby, following his stand for the earlier assessment year of 2003-04, determined an adjustment of ₹ 1,21,81,647/-, which according to him was required to be made in order to bring the said stated value of the expenditure on royalty to its arm's length price. The aforesaid amount was added to the returned income by the Assessing Officer while finalizing assessment under section 143(3) of the Act, which was challenged in appeal before the CIT(A). The CIT(A), by way of a brief discussion vide para 8.4 of his order, deleted the addition following his order for the immediately preceding assessment year of 2003-04 on a similar issue. Hence, the appeal of the Revenue before us. 7. At the time of hearing, it was pointed out that for assessment year 2003-04 the Tribunal vide order dated 20/01/2004(supra) had affirmed the action of the CIT(A) in deleting the addition. So however, Ld. Representative for the assessee pointed out that the Tribunal had upheld the ultimate conclusion of the CIT(A) to delete the addition on an alternate plea and that it would be in the fitness of things that the matter in the present year be decided independently inasmuch as on other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s having been approved by the Government of India, such rates constitute a valid CUP data and no further adjustment was required to the stated value of the royalties paid. Secondly, Ld. Representative for the assessee also pointed out that the comparable transaction adopted by the Transfer Pricing Officer i.e. payment of royalty by Dow UK to Dow Netherlands was a wrong approach inasmuch as comparison could be made only with an uncontrolled transaction, whereas in the case of Dow UK and Dow Netherlands, both were associate enterprises and, therefore, payment of royalty by DOW UK to DOW Netherlands was a controlled transaction and accordingly, the same could not be considered as a valid CUP data. In so far as the latter plea of adoption of controlled transaction was concerned, the CIT(A) in assessment year 2002-03 has accepted the plea of the assessee. However, with regard to the plea of the assessee based on the rate of royalty approved by the Central Government is concerned, the CIT(A) rejected the same as according to him, such rates could not be considered as valid CUP data. The CIT(A) had however, allowed relief by benchmarking royalty payment under the TNMM whereby, the margins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court, Revenue stated the Press Note No.9 (2000 series) dated 8/9/2000 was applicable to examine the reasonableness of the royalty paid while computing the arm's length price. 7.3 On the basis of aforesaid it is canvassed that the royalties paid by the assessee are in terms of the approval granted by SIA as also in terms of Circular No.5 dated 21/7/2003(supra) of the Reserve Bank of India and, therefore, the royalties paid @ 8% on export and 5% on domestic sales are to be considered at arm s length rate. 7.4 Although the Ld. Departmental Representative did not dispute the factual matrix, but he has merely relied upon the order of the TPO in support of the case of the Revenue. 7.5 In our considered opinion, following the judgment of the Hon ble Bombay High Court in the case of SGS India Ltd.(supra), the payment of royalty by the assessee to its associated enterprise, Dow Netherlands @ 5% on domestic sales and 8% on export sales is liable to be considered as at an arm s length rate in view of the Circular No.5 dated 21/7/2003(supra). Therefore, the addition made by the Assessing Officer on this count is unsustainable. In the ultimate analysis, we uphold the action of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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