TMI Blog2024 (2) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in favour of the assessee. - SHRI GEORGE GEORGE K., VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Assessee : Shri Padamchand Khincha, CA For the Revenue : Dr. Manjunath Karkihalli, CIT(DR)(ITAT), Bengaluru. ORDER Per Bench These cross appeals are filed by the assessee and the revenue against the separate DIN Orders dated 30.03.2023 31.03.2023 of the CIT(Appeals)-12, Bangalore for the AYs 205-16 2016-17 respectively. 2. The assessee, subsidiary of TMC, is a private limited company and is set up in India to manufacture and sell MUV and Passenger car. It has obtained license technology to manufacture and sell passenger vehicles from TMC. It also imports certain models of car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and SML Isuzu (Page 71 72 of Appeal Papers). 4. Briefly stated, the TPO adopted net manufacturing sales as the denominator for the assessee, whereas in case of comparables, the TPO adopted net manufacturing plus trading sales as denominator. Further, the technical know-how fees and testing charges (classified as R D expenses) were included in royalty to calculate the royalty to sales ratio. The ratio of was calculated at 3.62%. 5. In case of comparables, the average R D expenses plus royalty expenses divided by net sales ratio was calculated at 2.04%. Accordingly, TP adjustment was computed at Rs.225,43,63,920/- in respect of royalty payment. As there was error in computation, the TPO passed a rectified order wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating cost in the TP study Report. The Assessee gave detailed reasons as to why royalty is considered as closely linked transaction and should not be separately benchmark before the lower authorities. It is submitted that once the net profit margin is tested on the touchstone of arm s length price, it pre-supposes that the various components of income and expenditure considered in the process of arriving at the net profit are also at arm s length. 10. The ld. AR submitted that that the royalty payment of Rs. 374.99 crores is part of other expenses in the financial statements. The other expenses of Rs. 1158.65 crores are considered as part of operating expenses by the TPO. Thus, it is clear that royalty is included as part of the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd development expenses. The view taken by the Coordinate Bench of this Tribunal in assessee's own case for A.Y. 2007- 08 has been reproduced hereinabove wherein all these aspects have been considered. This Tribunal for A.Y. 2007-08 has deleted the adjustment made by the Ld.TPO in respect of royalty by separately bench marking the transactions. This has been fortified by the clarification given in a Miscellaneous Petition filed by the department which is also reproduced hereinabove. This view is also supported by various decisions of Coordinate Benches of this Tribunal as well as various High courts, Cojoint reading of these orders, we direct the Ld.AO/TPO to delete the adjustment proposed for royalty as a separate international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment is required and this issue is decided in favour of the assessee and ground No.3 is allowed. Thus, grounds no.4 to 9 relating to ALP computation of royalty has become academic and is left open. 14. Similarly, on the same facts, the ground No.3 raised on this issue for AY 2016-17 is also allowed and thus, ground Nos. 4 to 8 regarding ALP computation of royalty is left open as academic. 15. Grounds 10 relating to interest u/s 234B is consequential in nature. Departmental Appeals 16. The revenue has raised common ground in both the appeals as to whether the CIT(Appeals) was right in holding that testing expenses which have been characterized as R D expenses do not involve the use of know-how from the AE without verifying ..... X X X X Extracts X X X X X X X X Extracts X X X X
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