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TMI Blog2014 (11) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... the international transaction on payment of royalty by Sakata Inx (India) to its Associate Enterprises." 2.1 Brief facts of the case are that assessee i.e. M/s. Sakata Inx (India) Ltd. is a 100% subsidiary of Sakata Inx Corporation, Japan. It manufactures printing inks for packing and printing industry. There is no change in method of maintenance of accounts, business activities etc. of the assessee during the year, as compared to the preceding year. During the year, AO observed that the assessee undertook the following international transactions with its Associates Enterprises. S.N. Description of transaction Value (in Rs.) Value (In Rs.) 1. Import of raw material, stores, spares etc. 12,31,83,956 2. Export of Polyurethane resin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its operations in India. The support provided by Sakata Japan for technology and product related issues consisted of the product manuals which contained full details about the products, their usage and application and manufacturing process. The emails supported the fact that technological assistance was provided by Sakata Japan to the appellant. The appellant had derived significant benefit under the royalty agreements for which it made royalty payments to its AE i.e. Sakata Japan. Almost every product manufactured by the appellant was developed from technology support provided by the AE and same would not have been possible without the continuous support received from the AE. The rights to which the appellant had the access and the ong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. At the outset, as per Rule 10B(1)(a)(i), the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, was to be identified. As per the Rules, the price charged in a comparable uncontrolled transaction was to be taken as an ALP. Rule 10A of the Rules defined the term 'uncontrolled transaction' as a transaction between enterprises other than associated enterprises, whether resident or non-resident. However, the TPO in the order had not provided the details of royalty paid under uncontrolled transactions. In the absence of comparable data from uncontrolled transactions, CUP method could not be applied. In this connection, reliance is placed on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Atul Ltd. 5.63% 3. Chromatic India Ltd. 1.80% 4. DIC India Ltd. 4.32% 5. Dynamic Industries Ltd. 2.44% 6. Indokem Ltd. 4.33% 7. Jaysynth Impex Ltd. 5.52% 8. Kiri Dyes & Chemicals Ltd. 9.24% 9. Metrochem Industries Ltd. 5.71% 10. Metropolitan Eximchem Ltd. 13.14% 11. Organic Coating Ltd. -0.31% 12.. Phthalo Colours & Chemicals(India) Ltd. -9.19% 13. Saraf Chemicals Ltd. 9.26% Arithmatic Mean 5.18% The arithmetic mean of the OP/OR of the comparable companies is 5.18% after considering data for only F.Y. 2006-07. The operating margin of the appellant is 5.77% as per the TPO's order. Since the operating margin of the appellant is higher than that of the comparable companies under TNMM analysis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies selected by the ld. TPO / AO as comparables to the appellant. (ix) Comparing full-fledged risk bearing entities with the appellant's captive operations without making any risk adjustment for differences between the functional and risk profile of comparable companies considered as comparable vis-a-vis the risk profit of the appellant. (x) Computing the ALP of software development services as the mean ALP determined without taking into account the lower 5% variation from the means ALP determined. 2.8 The ld. Counsel for the assessee on the other hands contends that the ld. CIT(A) awarded the relief by making categorical observations that :- (i) AO / TPO cannot question the expediency of business decision taken by assessee which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. In our considered view there is no infirmity in the order of ld. CIT(A) in as much as: (i) Ld DR could not justify the application of CUP method to Arms Length working. (ii) The products manufactured by the appellant were developed from technology support provided by the AE, it would not have been possible so without the continuous AE support. The rights of access to the ongoing technical support and development of new products received by the appellant were clearly provided in the agreements entered into with the AE. (iii) The cost benefit test as worked out by the TPO was not based on proper appreciation of the facts and thus CUP method applied by the AO / TPO was not justifiable. (iv) The judicial citations relied on by ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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