TMI Blog2016 (1) TMI 1338X X X X Extracts X X X X X X X X Extracts X X X X ..... e [2008 (7) TMI 606 - ITAT MUMBAI] - Ground no. 2 is decided in favour of the assessee. Adjustment made under the transfer pricing (TP) provisions - Held that:- The arm's length principle of transfer pricing is based on the premise that the amount charged by one related party to another for a product must be the same as if the parties were not related. An arm's length price in respect of a foreign transaction, therefore, is the price which that transaction would obtain in the open market. If the above basic principle is examined with regard to the facts of the case under appeal it becomes very clear that there is no shifting of income to the non-resident entity. Due to a bona-fide mistake the assessee adopted a particular figure, but, if the overall picture is looked in to, it becomes clear that there was act or intention of diverting the profits by the assessee. Considering the peculiar facts and circumstances of the case, we are of the opinion that view taken by the FAA cannot be endorsed. Reversing his order, we decide ground no.3 in favour of the assessee. - ITA No.1936/Mum/2007 - - - Dated:- 8-1-2016 - S/Shri.Rajendra, Accountant Member and Pawan Singh, Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of research activity that it had outsourced some of the activities to various parties based on agreements with each of the parties in the normal course of business, the payments were revenue in nature and were allowable u/s. 37 of the Act, that the AO did not allow depreciation as per the provisions of section 32 of the Act. After considering the submissions of the assessee and the assessment order, the FAA held that the payments made by it to various persons/institutions were termed as technical services, that the payments could not be categorised the payments for some technical services only, that a sustained and ongoing research work was carried out by the persons/institutions, that research work and the result of experimenting with various chemicals was part of the work assigned by the assessee, the whole process could be termed as an intangible asset within the meaning of the Act, that the clauses of the agreement entered into by the assessee with the third party showed that the technical knowhow/findings of the research were treated as the own property of the assessee, that same were not shown/share or disclosed to any third party. Referring to the provisions of section 2(14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head scope this agreement clearly provides for the services to be rendered by the assessee to Unilever group of companies for which fees have been provided. We, further find that there is a specific clause in this agreement relating to intellectual property rights . We find that none of the revenue authorities have considered the facts of the case in the light of this agreement of the assessee. In our considered opinion, the matter needs to be decided afresh in the light of this agreement dt. 16.11.2000. 8.1 In the interest of justice and fair play, we restore this issue to the file of the AO. The AO is directed to decide this issue afresh considering 5 Unilever Industries Ltd. the agreement dt. 16.11.2000 vis-a-vis objects of the assessee as per Memorandum of Association, after giving reasonable and fair opportunity of being heard to the assessee. 8.2. While deciding this issue afresh, the AO is also directed to consider the additional plea of the assessee u/s. 35(1)(ii) and Sec. 35(1)(iv) of the Act as per provisions of law. Ground No. 1 alongwith additional grounds are allowed for statistical purpose. 9. The second ground relates to holding that the payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o expenditure was incurred for realising the dividend. The FAA held that it had not the details of the expenditure before the AO, that his predecessor had upheld the disallowance of 5% while deciding the appeal for AY.2002-03.Following the order of his predecessor, he upheld the order of the assessee for AY. under appeal. 8. Before us, the AR argued that no disallowance was made in the earlier years u/s.80M of the Act, that assessee had not borrowed any funds for making investments i.e. for purchasing the shares, that it had not incurred any expenditure, that no disallowance should have been made/upheld, that investment was made as early as 1995-96, that it had earned dividend from two companies only. He referred to the page no. 2, 3 and 200 of the paper book. He relied on the cases of Zindal Iron and Steel Company(25SOT27) and General Insurance of Corporation of India(254 ITR 203). The DR supported the order of FAA. 9. We have heard the rival submissions and perused the material on record. We find that the AO had made an ad hoc disallowance of ₹ 2.50lakhs u/s. 80M of the Act, that the assessee had made investments in AY 1995-96,that except for two earlier years the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verse the order of the FAA. Ground no. 2 is decided in favour of the assessee. 10. Last ground of appeal is about adjustment made under the transfer pricing (TP) provisions. During the assessment proceedings, the AO found that the assessee had entered into international transaction with associated enterprise. So, he made a reference to the Transfer Pricing Officer (TPO).Vide his order, dated 31.10.2006,the TPO made an adjustment of ₹ 19.40 lacs to the Arms Length Price (ALP) of the international transactions. Accordingly, the AO made an addition of ₹ 19,40,000/- to the total income of the assessee, being the difference between the price shown by the assessee and the ALP determined by the TPO. 11. Before the FAA, the assessee argued that it had entered into an agreement with Unilever on 16.11.2000, that it was entitled to charge and invoices to Unilever on the basis of actual cost incurred and a mark up of 5% on the actual cost,that the actual cost had been defined in the agreement, that mark up on actual cost was to be calculated from the actual cost, that while raising the invoice the assessee did not include the finance cost of ₹ 3.87 crores, that similarl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of APL, that in the earlier and subsequent AY.s. the then FAA.s. had allowed the appeal of the assessee and had held that the value of the brought out purchase and the amount of service tax should have been reduced for the purpose of mark-up, that the AO.s had not challenged the orders of the FAA.s., that the order of the FAA.s. had become final as far as the AO is concerned, that the AO or the DR could not point out any difference in the facts of the case under appeal and the facts of the earlier/subsequent years. It is also an undisputed fact that the assessee had not included the finance cost (Rs.3.87 Crores),as well as it had not excluded the value of brought out services(Rs.4.94Crores) and service tax (Rs.61 Lacs)from the actual cost for the purposes of mark up.If the above figures are considered, it becomes clear that there was no scope for making any adjustment as per the provisions of section 92 of the Act. It is said the paramount objective behind enactment of these provisions is that the entities which are connected to each other on account of shareholding or managerial control, etc., and thereby are in a position to influence the business decisions of Indian entit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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