TMI Blog2018 (6) TMI 1843X X X X Extracts X X X X X X X X Extracts X X X X ..... th such a course of action since the assessee itself having paid Nil amount in the past to the AE, cannot be taken as a valid comparable. This tribunal in the case of Technimont ICB India (P) Ltd.[ 2013 (9) TMI 595 - ITAT MUMBAI] has concluded long back that a transaction between payee and its AE is not an uncontrolled one so as to be taken as a comparable. We accept the assessee s instant first substantive ground both on legality as well as on quantification therefore. The impugned ALP adjustment stands deleted accordingly. Disallowing provision for leave encashment u/s 43B(f) - HELD THAT:- This issue deserves to be remitted back to the Assessing Officer for taking a fresh call after the hon ble apex court s decision in the Revenue s special leave petition converted to appeal staying operation of hon ble jurisdictional high court s judgment in Exide Industries Ltd.. [ 2007 (6) TMI 175 - CALCUTTA HIGH COURT] deleting identical disallowance as well as holding the statutory provision itself to be unconstitutional. We accept this fair stand and direct the AO to keep the instant issue in abeyance to be decided after the hon ble apex court s final verdict in the department s ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied purpose only and not qua a claim raised u/s 37 - DRP has deleted the very disallowance in the preceding assessment year. The same has attained finality. We thus adopt judicial consistency to delete the impugned disallowance as well. Assessee appeal partly allowed. - Hon ble Shri S.S.Godara, JM Shri M.Balaganesh, AM For the Appellant: Shri Ravi Sharma, AR For the Respondent: G. Mallikarjuna, CIT, D/R ORDER PER S.S.GODARA, JM These two assessee s appeals for Assessment Years 2010-11 2011-12 are directed against the DCIT, Circle-11, Kolkata s assessment order dt. 31/03/2014, passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short the Act ) in the former and the JCIT Range-11, Kolkata s assessment dt. 23/11/2015 framed u/s 143(3) r.w.s. 144C(13) of the Act in the later Assessment Year; respectively. We proceed assessment year wise for the sake of convenience and brevity. 3. Former Assessment Year 2010-11 involves assessee s appeal ITA No. 418/Kol/2015. It pleads ten grounds in the instant appeal. The same appears to be giving rise to five issues in all The taxpayers first and foremost grievance is that the lower authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03-04, the products bearing the names which were associated with the ICI products are being sold. Accordingly, during the years that followed the separation, the Orica name got associated with the products. Thus, it is held that no direct benefit has been receive by the assessee from the brand name Orica as the products were always associated with ICI, and Orica Australia itself was a part of the ICI Group. Accordingly, the arm s length price of the Royalty is computed at Rs.Nil under the CUP Method and accordingly, the total income of the assessee is required to be upwardly adjusted by Rs.16,24,110/- 3.2.1. The Assessing Officer framed the draft assessment on 31/03/2014 on the same lines. The assessee preferred its statutory objections. The Dispute Resolution Panel DRP upheld the TPO s findings available by applying benefit test as under:- 4.2.2. We have considered the facts of the case. The assessee was incorporated as a joint venture of ICI India Ltd. and Orica, Australia in 1999 and was manufacturing and selling its products under ICI trade mark. In the year 2003, ICI sold its entire stake to Orica, Australia. However, even though the assessee entered into agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that arises for our apt adjudication is as to whether action of the lower authorities right from the TPO, DRP to Assessing Officer holding the assessee not to have derived any tangible and commensurative benefit of paying any of the interest sales thereby culminating in the impugned adjustment of the entire payment of Rs.16,24,110/- is sustainable or not. Learned CIT D/R vehemently supports the above extracted findings under challenge that the payee s products in question had long been established in India. He points out the fact that this is the first year of the impugned royalty outgo forming the point of dispute as international transaction under the Act. whereas the assessee had been using the very brand name/trademark in the past without incurring any such expenditure. He terms the lower authorities action under challenge to be strictly as per law. We see no reason to accept the same. Hon ble Delhi High Court s judgement in Commissioner of Income-tax v. EKL Appliances Ltd. [2012] 24 taxmann.com 199 (Delhi), as well as this Tribunal s decision in Deputy Commissioner of Income-tax, Circle- 1(1), Kolkata v. Landis+ Gyr Ltd. [2017] 86 taxmann.com 109 (Kolkata - Trib.), Deputy C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the impugned royalty so as to make the adjustment in question. We see no reason to concur with such a course of action since the assessee itself having paid Nil amount in the past to the AE, cannot be taken as a valid comparable. This tribunal in the case of Technimont ICB India (P) Ltd. v. Addl. CIT (2012) 138 ITD 23(Mumbai TM) has concluded long back that a transaction between payee and its AE is not an uncontrolled one so as to be taken as a comparable. We accept the assessee s instant first substantive ground both on legality as well as on quantification therefore. The impugned ALP adjustment stands deleted accordingly. 6. Both the learned representatives state qua the assessee s next substantive grievance with regard to the leave encashment provision of Rs. 15,97,944/- made u/s 43B(f) of the Act deserves to be remitted back to the Assessing Officer for taking a fresh call after the hon ble apex court s decision in the Revenue s special leave petition converted to appeal staying operation of hon ble jurisdictional high court s judgment in Exide Industries Ltd. vs. UOI, 292 ITR 470, deleting identical disallowance as well as holding the statutory provision itself to be unc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,66,27,119/- incurred in case of M/s. Orica International PTE Ltd. Singapore. Both the learned representatives, agree very fairly that our discussion qua identical adjustment at nil ALP in the preceding Assessment Year on both legality as well as on quantification would apply mutatis mutandis in the impugned assessment year as well. We accept assessee s instant substantive grievance therefore as per our foregoing detailed discussion the ALP upward adjustment under challenge forming the subject matter of the instant issue to the tune of Rs.1,66,27,119/- is deleted. 13. The tax payers next substantive ground is that the lower authorities have erred in law on facts in making transfer pricing TP Adjustment of Rs.18,84,152/-, in respect of goods exported to Associate Enterprises outside India forming subject matter of international transactions. 13.1. The TPO s order dt. 30/01/2015, first of all compared FOB Price to those in case of assessee s sales made to domestic independent parties. The tax payer quoted multiple factors such as non-similarity of the said price because of geographical difference between the two kinds of rate forming the subject matter of comparison, diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the impugned adjustment made in the final order. We have given our thoughtful consideration to the rival submissions. There is no dispute that the authorities below right from the TPO to the DRP have all taken assessee s domestic sales of the very products to be valid comparables for applying CUP Method in case of its export sales to AEs giving rise to the impugned adjustment. Mr. Mallikarjuna s case before us is that there is a definite product similarity in the instant case which attracts application of CUP method. He, therefore, vehemently contends that the authorities below have rightly made the impugned ALP adjustment. We find no substance in the Revenue s instant arguments. There is no dispute that Rule 10B(1)(a)(i), stipulates application of CUP method by which the price charged or paid for property transferred or services provided in the comparable uncontrolled transactions, is identified; such a price is adjusted on account of differences, if any, arising from factors materially affecting the price in open market which in turn to be finally taken as the ALP as per clause (iii) thereof. The question before us is as to whether such domestic sales in case of independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... storical costs, is ascertainment of the normal mark-up of profit over aggregate of such direct costs and indirect costs in respect of same or similar property or services in a comparable uncontrolled transaction or, of course, a number of such comparable uncontrolled transactions . When compared with CUP method, as against the price of a comparable uncontrolled transaction, one has to find out normal mark up of profit in a comparable uncontrolled transaction. Whether it is price or normal mark up of profit , the starting point of both these exercises in the CUP and the CPM is finding a comparable uncontrolled transaction . In order for such comparisons to be useful, the economically relevant characteristics of the situations being compared must be sufficiently comparable. It is only elementary, as is also noted in the OECD Transfer Pricing Guidelines, that t o be comparable means that none of the differences (if any) between the situations being compared could materially affect the condition being examined in the methodology (e.g. price or margin), or that reasonably accurate adjustments can be made to eliminate the effect of any such differences . 17. Let us, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. It i s not only in the marketing and sales promotion that the difference lies, but it extends to the fundamental business model itself particularly as the sale is not to an end user, such as in the cases of plant and equipment etc, but to an intermediary who, i n turn, has to sell it to, through yet another tier or tiers of intermediaries, the end user. The sale of products to the non-resident AEs is more akin to contract manufacturing arrangement, while the sale of products to independent enterprises domestically is a regular business entrepreneurial venture. As a matter of fact, it has been one of the arguments of the assessee before us, and the assessee has also filed some documents and copies of contracts in support of that contention, that the assessee had done the contract manufacturing for its overseas AEs as it had idle and underutilized capacity, but, as there are no findings by the authorities below on this aspect of the matter and as we can anyway dispose of the matter without giving any categorical find ings on that aspect of the matter, we see no need to deal with that contention at this stage. Suffice to say that whether contract manufacturing or not, as long as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity two transactions are seldom completely alike and in this imperfect world, perfect comparables are often not available. It is therefore necessary to use a practical approach to establish the degree of comparability between controlled and uncontrolled transactions. To be comparable does not mean that the two transactions are necessarily identical, but instead means that either none of the differences between them could materially affect the arm's length price or profit or, where such material differences exist, that reasonably accurate adjustments can be made to eliminate their effect. Thus, in determining a reasonable degree of comparability, adjustments may need to be made to account for certain material differences between the controlled and uncontrolled transactions. These adjustments (which are referred to as comparability adjustments ) are to be made only if the effect of the material differences on price or profits can be ascertained with sufficient accuracy to improve the reliability of the results. 5.1.6 The aforesaid degree of comparability between controlled and uncontrolled transactions is typically determined on the basis of a number of attributes of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncontrolled transactions can be identified and analysed accordingly. That has not been done in the present case. There is, therefore, no good reason to disturb the TNMM method adopted by the assessee. We have also noted that the TPO himself has accepted the TNMM for the assessment years 2007-08, 2008-09 and 2009-10. Learned Departmental Representative does not dispute that the facts for all these assessment years are similar in material respects. For this reason also, there was no good reason to disturb the ALP determination on the basis of TNMM in respect of the assessment years before us, i.e. 2003-04, 2004-05, 2005-06 and 2006-07. We adopt the very reasoning hereinafter to restore the instant issue back to the TPO for fresh adjudication as per law. It shall be open for the assesse to raise all legal and factual pleadings available in consequential proceedings. The assessee s instant substantive ground is treated as accepted for statistical purposes. 14. Both the learned representatives inform that the assessee s next substantive ground challenging correctness of both the lower authorities action in disallowing the assessee s leave encashment provision of Rs.44,21 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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