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TMI Blog2019 (2) TMI 1790X X X X Extracts X X X X X X X X Extracts X X X X ..... m's length price of the international transaction was referred to the Transfer Pricing Officer (TPO). The TPO, vide proceedings dated 31.10.2016, proposed adjustment of Rs. 2,72,47,432/- on account of royalty payment. The TPO held that the assessee has failed to prove the benefit obtained by the assessee by use of latest technology. In accordance with the proposed adjustment, the A.O passed the draft assessment order and the assessee preferred its objections before the DRP. However, the DRP confirmed the TPO's order and in accordance therewith, the final assessment order was passed and the assessee is in second appeal before us. 3. The Ld. Counsel for the assessee submitted that the issue of determination of the royalty payment at Rs. Nil by using the benefit test, was considered by the Coordinate Bench of this Tribunal in the case of M/s. Toyota Kirloskar Auto Parts Pvt Ltd Vs. ACIT, reported in 2015 (1) TMI 921, wherein the Tribunal by following the decision of the Hon'ble Delhi High Court in the case of EKL Appliances has held that the benefit test cannot be adopted and the royalty payment cannot be determined at Rs. 'Nil'. He also drew our attention to the decisions of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Delhi High Court in the case of EKL Appliances (cited supra), the AO or the TPO cannot question the commercial expediency of the assessee or the quantum of benefit the assessee derived while making the payment. We agree with this contention of the assessee. The Hon'ble Delhi High Court, in the case of EKL Appliances (cited supra), has clearly held that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity and also that it is not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by him has actually resulted in profit or income either in the same year or in any of the subsequent years. The Hon'ble Delhi High Court further held that the only condition is that the expenditure should have been incurred wholly and exclusively for the purpose of business and nothing more and the quantum of expenditure can no doubt be examined by the TPO as per law in allowing as business expenditure but he has no authority to disallow the entire expenditure or part thereof on the ground that the assessee has suffered continuous losses. It was held that so long as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances that the Tribunal held that though the finding is given to the fact that no services are rendered in the light of the contradiction in the findings and the observations, it is clear that in effect, the commercial expediency of these payment is questioned. In the case before us also, though the TPO & AO have given finding that no services have been rendered to the assessee by the AEs, the AO has also treated the assessee as a representative assessee of the AEs and has treated their income ITA Nos 457 of 07 and 1658 of 08 IWM Constructions P Ltd Hyderabad Page 20 of 22 as chargeable to tax in India in the hands of the assessee on the ground that the employees of the AE's have visited India and have rendered services in India. Therefore, we find that these are contradictory stands of the AO. Similar view has been expressed by the Coordinate Bench of this Tribunal in the case of TNS India (P) Ltd vs. DCIT, reported in 40 ITR (Trib.)125 dated 17.04.2015 after considering the evidence on record to prove that the assessee therein had received services. The Tribunal had also considered and held that the role of the TPO is only to determine the ALP of the transactions. The Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.595/2016 for the A.Y 2010-11 and vide orders dated 23.12.2016 it was held as under: "8. Having considered the rival submissions, we find that the assessee offered two transfer pricing studies in relation to payment of royalty. In so far as the acceptable study adopting the Comparable Uncontrolled Price method is concerned, it is not in dispute that the assessee offered three comparables with an average royalty payment of 3.65% as against its own rate of royalty at 3%. Significantly, the TPO rejected these comparables on the ground that they were US based, while the AE of the assessee was UAE based. Having rejected these comparables, it was for the TPO to come up with other comparables so as to justify reduction of the royalty payment. However, no such exercise was undertaken by the TPO and by going into the whys and wherefores of the improvement in the net sales and profit of the assessee, the TPO determined that the reason for the same was increased marketing along with offer of discounts and that there was no justification for payment of royalty at 3% to the AE by the assessee. This reasoning is without legal basis of law as it is not for the TPO to decide the best business s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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