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TMI Blog2017 (5) TMI 1358X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 2010-11. A.The Order of the Learned DCIT is not justified in law and on facts and circumstances of the case. B.The Honourable DRP is not justified in dismissing the objections of the Appellant in an arbitrary manner, without appreciating the contentions of the Appellant and without application of mind and by failing to note that the Learned TPO has passed a stereotyped order. C.As regards rejecting information and document (TP Document) maintained by the Appellant in accordance with the provisions of section 92D of the IT Act: 1. The Honourable DRP is not justified in upholding the action of the Learned TPO in invoking the provisions of section 92C (3) of the IT Act without satisfying the conditions therein by making extraneous reasoning based on section 92CA(1). 2. The Honourable DRP is not justified, in impliedly upholding the action of the Learned TPO in perversely stating that the Appellant's data are not reliable or correct when he himself has used the very same data for the purpose of making adjustment in respect of payment of royalty and in failing to appreciate that the Learned TPO re-determined ALP even without substantiating as to how and why the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... name of Falco in India as well as abroad', is not justified in upholding the action of the Learned TPO in stating that the royalty paid is only in respect of technical know-how and not in respect of use of brand name and other marketing support. 8. The Honourable DRP is not justified in impliedly upholding the action of the Learned TPO in comparing the case of the Appellant with that of Toyota Motors without bringing on record as to how the latter could ever be called as comparable company particularly when such company is not one of the comparable companies chosen by the Appellant and accepted by the Learned TPO in the TNMM study carried out by the Appellant, when such company failed the test of RPT filter and without countering the Appellant and giving an opportunity to the Appellant to distinguish its case. 9. The Honourable DRP is not justified in impliedly upholding the action of the Learned TPO in failing to appreciate that the payment of royalty by the Appellant to Falco is suffering tax in the hands of Falco on gross basis thereby meaning no flight of tax base so as to warrant addition on account of transfer pricing. E.As regards exclusion of freight expense of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of this TP study report the assessee company adopted TNMM method. 7. The AO had referred the matter to the TPO for the purpose of bench marking the above international transactions. The TPO vide order dated 30.01.2014 passed u/s. 92CA of the IT Act, determined the ALP in respect of the royalty at Rs. 2,75,25,270/-. According to the ld. TPO, the appellant was not justified in paying royalty at the rate of 8% on sales as there was no value addition made from the AE; it is the contention of the ld. TPO that if the royalty is paid on gross sales it amounts to paying the royalty on the purchases made by the AE also. Thus the TPO determined the ALP adjustment in payment of royalty as follows. 10. Determination of Arm's Length Price: 10.1 The Arm's Length Price of the international transaction of Payment of Royalty is therefore determined as under: Particulars Amount Gross Sales of the Assessee Company Rs. 55,51,87,248/- Material Cost Rs. 34,93,30,137/- Value addition due to operations using Technology and knowhow leased out by the AE M/s. Falco Ltd. Rs. 20,58,57,111/- Royalty payable @ 8 percent on value addition Rs. 1,64,68,568/- The Royalty paid by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d selling components under the brand name of Falco in India as well as abroad by the assesseecompany. In consideration of same, royalty at the rate of 8% of sales was made by the appellant to M/s. Falco Limited. No doubt the law is settled to the extent that an international transaction can be clubbed / aggregated with other international transactions provided such transactions are closely connected with each other. In the cases cited by the ld. counsel for the appellant, this proposition of law was reiterated. But in the present case, the TPO had not applied TNMM at entity level. The TP study report submitted by the assessee company had been rejected by the TPO. This action of the TPO is confirmed by the Hon'ble DRP. But the TPO proceeded to bench mark the transaction of the royalty payment on stand alone basis. In the process, the cost of production or other transactions are not subjected to bench marking by the TPO. Therefore the contention of the ld. counsel that when the TNMM was applied at the entity level, there was no necessity of separate bench marking in respect of royalty transactions cannot be accepted. This submission made by the assessee-company is factually incorrect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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