TMI Blog2016 (2) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant year vis- -vis the preceding year and respectfully following the precedent, we also admit the additional evidence and send the matter back to the file of AO/TPO for fresh determination of the ALP of this international transaction, after allowing a reasonable opportunity of being heard in the light of the additional evidence filed before us. Transfer pricing adjustment on the international transaction of Payment of Royalty - payment akin to the payment of fees for the use of technical know-how - HELD THAT:- TPO proposed the transfer pricing adjustment with Nil ALP of the international transaction of `Payment of royalty on the ground that no such payment was warranted and further no cost benefit analysis on this count was brought to his notice and as such the payment of royalty was not required. AO in his final assessment order dated 26.12.2013 has taken the ALP at Nil on the basis of recommendation of the TPO without carrying out any independent investigation in terms of the deductibility or otherwise of such payment in terms of section 37(1) of the Act. As per the ratio decidendi of Cushman Wakefield India (P.) Ltd. [ 2014 (5) TMI 897 - DELHI HIGH COUR T the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net Margin Method (TNMM) as the most appropriate method on aggregate basis for all the international transactions taken together with the Profit level indicator (PLI) of Operating Profit/Operating Cost (OP/OC). Its own OP/OC was computed at 15.8%. 19 companies were selected as comparable, whose mean margin, using current year s data, was worked out at 11.08%. That is how, the assessee demonstrated that its international transactions were at arm s length price (ALP). The AO referred the question of determination of ALP of these international transactions to the Transfer Pricing Officer (TPO), who determined Nil ALP of international transaction of Corporate expenses. The assessee remained unsuccessful before the Dispute Resolution Panel (DRP). In the final assessment order, the AO made addition for the equal sum. The assessee is aggrieved against the making of such addition. 4. We have heard the rival submissions and perused the relevant material on record. The assessee has submitted an application under Rule 29 of the Income-tax Appellate Tribunal Rules, 1963, filing additional evidence running into 321 pages concerning this issue. The ld. AR contended that these documents coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the purposes of manufacturing. As a quid pro quo, royalty was paid at the specified rate on total sales effected with the use of such technical knowITA how. The TPO noticed that the goods manufactured by the assessee with the help of such technical know-how received from its AEs were also exported to the AEs. He further observed that the assessee was purchasing raw material from AEs, goods were manufactured in India and, then, a part of the same were exported to these AEs alone. Payment of royalty as a percentage of sales to the AEs was treated as uncalled for, as in the opinion of the TPO, the assessee was acting like a contract manufacturer on behalf of these AEs. He, therefore, treated ALP of the international transactions relating to payment of royalty for exports to AEs amounting to ₹ 33,04,471/- at Nil. The DRP, in turn, noticed on perusal of Agreements between the assessee and these AEs that there was a constant inward and outward flow of technology and know-how between the assessee and its AEs and, hence, it was not a case of the AE bringing in new technology to the tax payer warranting any payment of royalty. On a perusal of the order passed by the TPO, the DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of specific activities for which cost was incurred by both AEs (for activities of Mr. Braganza and Mr. Choudhary), and attendant benefits to assessee were not considered, the Hon'ble High Court remanded the matter to file of concerned AO for an ALP assessment by TPO, followed by AO's assessment order in accordance with law considering the deductibility or otherwise as per section 37(1) of the Act. 10. When we advert to the facts of the instant case, it turns out that the TPO proposed the transfer pricing adjustment with Nil ALP of the international transaction of `Payment of royalty on the ground that no such payment was warranted and further no cost benefit analysis on this count was brought to his notice and as such the payment of royalty was not required. The AO in his final assessment order dated 26.12.2013 has taken the ALP at Nil on the basis of recommendation of the TPO without carrying out any independent investigation in terms of the deductibility or otherwise of such payment in terms of section 37(1) of the Act. As per the ratio decidendi of Cushman Wakefield India (P.) Ltd. (supra), the TPO was required to simply determine the ALP of this transaction uncon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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