9911796707
TMI Blog2021 (7) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... ing loss of Rs. 3.52 crore. Certain international transactions were reported in Form No. 3CEB. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the Arm‟s Length Price (ALP) of the international transactions. Instantly, we are concerned with international transaction of brand royalty out of the composite international transaction of "Payment of Royalty" amounting to Rs. 1,98,77,764/-, which covers both the brand royalty and also royalty for know-how. The assessee applied the Transactional Net Marginal Method (TNMM) for demonstrating that the international transaction was at ALP. The TPO did not accept the assessee‟s contention that payment of Royalty, as permitted under the Automatic Route of the Government of India, was to be considered at ALP. He took note of the fact that the assessee paid Royalty for last eight years and most of the Royalty Agreements had expired. He further did not find any logic in the assessee‟s contention of payment of brand royalty for the use of Carraro name and logo as the same was part of the assessee‟s own name. He held that the additional and new brand royalty payments were nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -04-2001 @ 2% in respect of steering axle and accessories for 35 and 55 HP tractors both towards use of technical knowhow and use of trade mark/brand name. It is further noticed that the assessee paid royalty of Rs. 75.41 lakh @ 0.5% on total sales for use of name, logo and trade mark. Payment of Rs. 75.41 lakh, as accepted by the ld. AR, is also in respect of sales made by the assessee of the products which were covered under agreement dated 05-04-2001, being, steering axle and accessories for 35 and 55 HP tractors. Thus, it is manifest that the assessee paid royalty for use of logo and trade mark in respect of steering, axle and accessories for 35 and 55 HP tractors, both under the agreement dated 05-04-2001 and once again under the new agreement dated 1.7.20008, which is plainly not permissible. Deduction can be allowed for payment of royalty for use of trade mark license etc. only once and not twice. As royalty for use of trade mark license in respect of steering axle and accessories for 35 and 55 HP tractors is covered within the payment of Rs. 26.39 lakh, whose ALP has been determined by the TPO, at the transacted value, the amount of royalty paid by the assessee for use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in its manufacturing, the royalty for the same cannot be said to be for non business purposes. Similarly, brand royalty has been paid for the use of brand on the products manufactured by it. Admittedly, the assessee was using the Brand name and logo on its manufactured products. These payments, therefore, cannot be considered as meant for non-business purpose, subject to the transfer pricing adjustment. We, therefore, approve the view point taken by the ld. CIT(A) in deleting the disallowance made by the AO u/s.37 of the Act. The Revenue‟s ground is thus dismissed. 7. Now we turn to the ground nos. 3 and 4 taken by the Revenue in its appeal against the direction given by the ld. CIT(A) for not treating Royalty as a capital expenditure and holding the amount to be covered disallowance u/s 37 . In this regard, it is observed that similar issue came up for consideration before the Tribunal in the assessee‟s own case for the immediately preceding assessment year 2009-10, which has been discussed in paras 13 and 14. The Tribunal overturned the action of the AO in capitalizing the royalty payment by relying on its orders passed for the assessment years 2003-04, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their respective stands. 11. Insofar as the Revenue‟s appeal is concerned, it is observed that the ld. CIT(A) has given cogent reasons for deleting the disallowance inasmuch as the AO simply adopted the TPO‟s reasoning without showing as to how the same applied to the non-AE transactions as well. Further, the expenditure contains payment for Testing fees and also Generic service fee. To this extent, we approve the view taken by the ld. CIT(A). Thus, the ground of the Revenue is dismissed. 12. Now coming to the assessee‟s ground of appeal, it is seen that the AO, following the view taken by him for the preceding year, inter alia, held that the assessee for the year under consideration - (i) did not prove the factum of receipt of the services from its AEs; (ii) wrongly adopted the Foreign/AE as tested party; (iii) wrongly applied the TNM method. The Tribunal in its order for the assessment year 2009-10 has dealt with such issues. It referred to the extensive material placed before it for holding that assessee did avail services from its AE. Similar material for the instant year, running into more than 1500 pages, has been placed on record which amply demonstrates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion came to be dismissed by the Tribunal vide its order dated 18-01-2021 in M.A.No.01/PUN/2020 by holding that the TPO was free to adopt the most appropriate method on the facts and circumstances of the case. 16. As the facts of this issue for the year under consideration are similar to those of the preceding year, following the view for such earlier year, we set-aside the impugned order on this score and remit the matter to the file of AO/TPO for a fresh determination of the ALP of the international transaction of payment of Management Service Fee in accordance with the observations and directions given in the Tribunal order passed for the assessment year 2009-10. Needless to say, the assessee will be allowed reasonable opportunity of hearing in such fresh determination. The ground taken by the Revenue is dismissed and that by the assessee is allowed for statistical purpose. 17. Ground no.6 of the Revenue‟s appeal is against allowing additional depreciation. The assessee claimed additional depreciation on foreign exchange fluctuation loss amounting to Rs. 1,82,06,905/- on repayment of loans, which were taken for purchase of capital assets in the years 2002 and 2007. Such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired/installed after 31st March, 2005. We have noticed above that the assessee availed two loans, viz., first in the year 2002 and second in 2007 and repaid the same in the year under consideration resulting in incurring foreign exchange fluctuation loss. Such a loss is required to be capitalized in terms of section 43(1) read with section 43A. As regards the question of additional depreciation, the same is admissible in respect of assets acquired on or after 1.4.2005. Patently, no additional depreciation can be allowed to the assessee in respect of loan taken in the year 2002 and the claim will be valid for the loan taken in foreign currency for the purchase of asset in the year 2007. There is no discussion in the assessment order or the impugned order about the bifurcation of the amount of liability discharged by the assessee on account of foreign exchange fluctuation rate difference. On a pertinent query, the ld. AR did not have such figure of forex loss incurred by the assessee, liable to be capitalized for the purposes of additional depreciation, in respect of loan taken in the year 2007. We, therefore, set-aside the impugned order and remit the matter to the file of the AO f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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