TMI Blog2019 (8) TMI 1651X X X X Extracts X X X X X X X X Extracts X X X X ..... EGI, J. The assessee has filed the present appeal against the assessment order passed by the AO pursuant to the directions dated 21.08.2013 passed by the Ld. Dispute Resolution Panel-1 (for short the DRP) Mumbai, under section 144C (5) of the Income Tax Act, 1961 (for short the Act ) pertaining to the assessment year 2009-10. 2. The brief facts of the case are that the assessee company engaged in the business of manufacturing and trading in pesticides, Agro Chemicals and Seeds, filed its return of income for the assessment year under consideration declaring the total taxable income of ₹ 80,26,96,315/- along with Return of Investment (ROI) and Accountant s Reports in accordance with the provisions of section 92E of the Act, reporting the particulars of international transactions with its Associated Enterprises (AEs). During the course of assessment proceedings, the AO referred the issue relating to international transactions entered into by the assessee to the Transfer Pricing Officer (TPO) u/s 92CA (1) of the Act in order to determine the arm s length price. The Ld. TPO passed order u/s 92CA (3) of the Act proposing an adjustment of ₹ 61,37,905/- on payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... royalty. 4. The learned Assessing Officer/learned TPO erred in comparing the rate of royalty paid by the Appellant to its AE, Dow Netherlands with the royalty rate paid by Dow UK, another AE of the Appellant to Dow Netherlands which is a controlled transaction and which defeats the very purpose of undertaking the transfer pricing analysis. 5. The learned Assessing Officer/ learned TPO erred in disregarding the functional differences in the transactions proposed to be treated as comparable transactions. 6. The learned Assessing Officer erred in charging excess interest under section 234C of the Act. 7. The learned Assessing Officer erred in law and on facts in initiating penalty proceedings under section 271 (1) (c) of the Act without appreciating the fact that the Appellant has neither concealed nor furnished any inaccurate particulars of income. 4. The first issue raised by the assessee relates to disallowance of lease rental paid to IBM for taking computers on lease to the tune of ₹ 2,95,243/-. The assessee company claimed interest portion as expenditure, however, treated the same as operating lease and accordingly claimed entire lease rentals pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion will throw light about the nature of lease, which would decide the manner of treatment of lease rental. Accordingly, consistent with the view taken in the case of Dow Chemical International Pvt. Ltd. (supra), we set aside the order passed by learned CIT (A) on this issue and restore the same to the file of the Assessing Officer with the direction to examine the lease agreement in order to ascertain the nature of lease and take appropriate decision in accordance with law, after affording adequate opportunity of being heard to the assessee. 7. Since, the coordinate Bench has restored the identical issue to the file of the AO for deciding the same afresh in assessee s own appeals for the earlier years vide common order dated 20.09.2016 and since the revenue has not brought on record any material change in the facts of the present case, we respectfully following the decision of the coordinate Bench restore this issue to the file of Assessing Officer with the direction to examine the lease agreement in order to ascertain the nature of lease and take an appropriate decision in accordance with law after affording a reasonable opportunity of being heard to the assessee in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The findings of the coordinate Bench read as under:- 13. We have heard the parties on this issue. We notice that the identical issue was considered by the Coordinate Bench in assessee s own case for A.Y. 2004-05 (supra) and the same has been decided in favour of the assessee. For the sake of convenience we extract below relevant observations made by the coordinate Bench for A.Y. 2004-05: 7.1 In order to appreciate the aforesaid, the following discussion is relevant. The royalty paid by the assessee to its associated enterprise i.e. Dow Netherlands has been approved by the Secretariat of Industrial Approval (SIA), Ministry of Industry(Government of India) vide communication dated 07/09/1996 and also by the Reserve Bank of India dated 11/03/1997. Before us, a reference has also been made to Paper Book, wherein the aforesaid communications have been placed as also a communication SIA dated 22/1/1997, which is in continuation to its earlier approval dated 17/09/1996. In terms of such approvals, assessee is permitted to pay its foreign collaborator i.e. Dow Netherlands, royalty @ 5% on domestic sales and 8% on export sales. In this background, before the TPO assessee asserte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. However, with regard to the plea of the assessee based on the rate of royalty approved by the Central Government is concerned, the CIT(A) rejected the same as according to him, such rates could not be considered as valid CUP data. The CIT(A) had however, allowed relief by benchmarking royalty payment under the TNMM whereby, the margins from the manufacturing activities of the assessee were found to be favourable vis- -vis those of the comparables concerns. The Tribunal in assessment year 2003-04 upheld the ultimate conclusion of the CIT(A) to delete the addition on the ground that the basis on which the royalty was paid by the Dow UK to Dow Netherlands was different than that was paid by assessee to Dow Netherlands in as much as Dow UK was paying royalty as a percentage of gross sales, whereas assessee was paying royalty at net sales, in accordance with Foreign Exchange Control Regulations. The Tribunal found that if the royalty payable was calculated by adopting the same basis, then the royalty being paid by Dow UK was higher than what has been paid by assessee company to Dow Netherlands and, thus, the royalty paid by the assessee was at an arm's length rate, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra), the payment of royalty by the assessee to its associated enterprises, Dow Netherlands @ 5% on domestic sales and 8% on export sales is liable to be considered as at an arm s length rate in view of the Circular No. 5 dated 21/7/2003 (supra). Therefore, the addition made by the Assessing Officer on this count is unsustainable. In the ultimate analysis, we uphold the action of the CIT(A) in deleting the addition, albeit, on a different ground. 14. Consistent with the view taken in AY 2004-05, we direct the Assessing Officer to delete the addition made on account of transfer pricing adjustment. 10. The coordinate Bench has decided the identical issue in favour of the assessee in the assessee s own case for the earlier assessment years discussed above. Since, there is no material change in the facts of the present case, we respectfully following the decision of the coordinate Bench dated 20.09.2016 rendered in the assessee s appeals discussed above, allow this ground of appeal and set aside the findings of the AO confirmed by the Ld. DRP. Accordingly, we direct the AO to delete the addition made on account of transfer pricing adjustment. 11. Vide Ground No. 6, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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