TMI Blog2014 (11) TMI 1188X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 14-11-2014 - R.P. Tolani And T.R. Meena, JJ. Subhash Chandra for the Appellant. Piyush Singh, Nitin Narang and Anil Gupta for the Respondent. ORDER R.P. Tolani, This is an appeal filed by the Revenue against the order of the ld. CIT(A)-II, Jaipur, dated 12-01-2012 for the assessment year 2007-08 raising following ground:- That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in deleting the addition of ₹ 1,02,91,000/- on account of adjustment of Arm's length price of 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. Descrip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ongoing technical and development of new products support received by the appellant were clearly provided in the agreements entered by the appellant with the AE. In such a scenario, any form of 'cost benefit' analysis was neither possible and nor feasible. Even if a hypothetical cost benefit was to be presented, the benefit would be the entire revenue and profits generated from the business of the appellant. The technology and trademark in this case belonged to Sakata Japan and the appellant was provided a right to use the technology and trademarks for its own operations. In return, the appellant i.e. Sakata India paid royalty to Sakata Japan. Thus, it was a purely business decision taken out of commercial expediency and the AO or TPO could not question the decision of prudent businessman.'' 2.3 While holding so ld. CIT(A) placed reliance on following case laws: (i) Dy.CIT v. Vin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the fact that loss makers could not be rejected out-rightly. The comparability should also be judged on various other factors. Similarly, the TPO should have also rejected high margin companies but it was not done. On the contrary, the TPO had taken these high margin companies. Based on the above facts, the final comparable set would be as follows:- S.No. Name of the Company OP/OR for F.Y. 2006-07 1. Asahi Songon Colors Ltd. 15.43% 2. 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% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 for payment of royalty. Looking at the benefits derived from AE payment of royalty was a prudent business decision. (ii) The cost benefit test as worked out by the AO was based on distortion of the facts and assessee's version of business benefits being based on objective data was acceptable and thus CUP method applied by the AO / TPO suffered from inherent inconsistencies and on the basis of TNMM method and examining the impugned AE transactions on TNMM method. The transactions were held to be on arm's length as arithmetic mean of the OP/OR of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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