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TMI Blog2024 (6) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,29,520/- being the claim payable to the customers for non-achievement of the targets fixed for sales. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary." 3. The assessee company is engaged in the business of trading in pharmaceutical products on a wholesale basis in respect of phone products. The return of income for A.Y. 2010-11 was filed on 30.09.2010 declaring total income at Rs. 7,66,12,650/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 on 10.08.2011. Subsequently, the case was selected for scrutiny by issuing notice u/s 143(2) of the Act on 29.08.2011 and duly served upon the assessee company. Thereafter, notices u/s 142(1) of the Act were issued on various dates. In response to the notices, the authorized representative of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has not provided any record of the uncontrolled transactions taken into account for analysing their comparability with the international transaction including a record of the nature, terms and conditions of the comparable transaction. The Assessing Officer further held that by simply relying on RBI approval, the assessee did not produce any documentary evidence as per provisions of sub rule (1)(h). The Assessing Officer further held that the approval given by RBI would not suffice as CUP rate as RBI does not fix the rate at which a domestic company can pay royalty. Thus, the Assessing Officer held that determination of ALP for the royalty payment made by the assessee by relying on RBI approval was incorrect and erroneous. During the course of proceedings, the assessee submitted a search process after taking TNMM as the most appropriate method and conducting a search for which the details were submitted vide letter dated 08.03.2013. The Assessing Officer also held that TNMM analysis is also incorrect and unreliable. The Assessing Officer held that since the arm's length price for the royalty payment has been incorrectly determined by the assessee, the same is required to be correc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of payment of royalty, management fees and IT allocation cost account, the Ld. DR submitted that the payment of royalty was benchmarked by the assessee by applying CUP method for which the assessee relied upon the RBI's approval. The Ld. DR submitted that for the purpose of determination of ALP, the assessee is required to keep documentary evidence as described under Rule 10D(a) to (m). But except RBI approval nothing was placed on record by the assessee. This fact was totally ignored by the CIT(A). In fact, how the rate of 5% of net sales for royalty determination arrived by the CIT(A) was also not explained. 6. The Ld. AR submitted that as regards the payment of royalty, the assessee entered into a "Brand Licensing Agreement" with "Asia Pacific Pharmaceutical Investment Pte. Ltd." (Singapore AE) on 01.07.2006 for 5 years whereby assessee was assigned the right to manufacture, market and distribute two products namely, "Pyridium" & "Distaclor". Pursuant to the aforesaid agreement, assessee was required to compensate the Singapore AE with royalty @ 5% of net sales of the products. The Assessing Officer took a view that such transaction was not at ALP and hence, instead of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT vs. Excel Industries - 358 ITR 295 (SC). 7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that as per "Brand Licensing Agreement" with "Asia Pacific Pharmaceutical Investment Pte. Ltd." (Singapore AE) on 01.07.2006 for 5 years whereby assessee was assigned the right to manufacture, market and distribute two products namely, "Pyridium" & "Distaclor". The terms and conditions of the said agreement requires that the assessee has to compensate the Singapore AE with royalty @ 5% of net sales of the products. This has been benchmarked by the assessee by applying Comparable Uncontrolled Price (CUP) method as most appropriate method in the Form 3CEB report. For applying the CUP method the assessee has not found identical comparable and therefore, used external CUP as it is the suitable method for determining the ALP. The Assessing Officer has not pointed out as to why external CUP method will not be applicable in assessee's case. In fact, the assessee has given all the relevant documents and fulfilled all the criteria of Rule 10D especially giving details as envisaged in Rule 10D(l), (g), (h) and (j) which are most cru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of the same clarifies that there is no mark-up charged as well as no such services offered to any company other than the group company. The certificate also reiterate that management fees were on the same basis which are charged by AE from other entities to whom such services are rendered. The Ld. AR submitted that the Assessing Officer/TPO cannot question the business decision of the assessee as to payment or hold that no service was rendered. The Ld. AR relied upon the following decisions: a) CIT vs. EKL Appliances Ltd. 345 ITR 241 (Del.) b) Cadbury India Ltd. vs. ACIT - 147 ITD 487 (Mum) The Ld. AR submitted that assessee has mentioned in the TP Study Report that the transaction in question is also comparable with the amount charged to other associates. Even otherwise, it is no possible for the parent company to fix margin for all associates in respect of management support services. The Ld. AR further submitted that TNMM at entity level may be adopted as MAM, but the Assessing Officer should have not made 100% upward adjustment. The Ld. AR further submitted that similar payments was made in A.Y. 2007-08 to 09-10 and accepted in those years at the price declared by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AE for and on behalf of the assessee and there was no mark-up over and above the cost actually incurred for providing such services. The certificate produced by the assessee indicates the following aspects: i) I.T. support and maintenance charges and other expenses charged are merely reimbursement of expenses incurred by the AE ii) There is no mark-up over the actual cost incurred by the AE iii) It was pure allocation of actual cost amongst various beneficiaries and users iv) IT support and service charges include use of various equipment and systems installed in AEs premises for providing of support services for all Information Technology related matters, use of various I.T. based systems, including enterprise, email, enterprise financial, etc., availability of network, etc. The Ld. AR further submitted that while making 100% upward adjustment, the Assessing Officer has wrongly observed that assessee could not show any evidence to suggest that the payment was made on account of requirement of the assessee. The Ld. AR further submitted that TNMM at entity level may be adopted as MAM, but the Assessing Officer should have not made 100% upward adjustment. The Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in assessee's own case in ITA No. 537 & 1560/Ahd/2012 for A.Y. 2008-09 and 2009-10 ACIT vs. Invida India Pvt. Ltd. already decided this issue in favour and the Ld. DR could not distinguish the facts for the present assessment year, Ground No. 2 is dismissed. 17. As regards to Ground No. 3 relating to deletion of addition of Rs. 61,29,520/- being the claim payable to the customers for non-achievement of the targets fixed for sales, the Ld. DR submitted that the CIT(A) totally ignored the consistent stand taken by the Revenue in A.Y. 2008-09 and A.Y. 2009-10 and this year is also identical. 18. The Ld. AR submitted that the Assessing Officer has followed the assessment order of A.Y. 2008-09 and 2009-10 which has been decided in assessee's favour by the Tribunal in assessee's own case. 19. We have heard both the parties and perused all the relevant material available on record. Since the Tribunal in assessee's own case in ITA No. 537 & 1560/Ahd/2012 for A.Y. 2008-09 and 2009-10 already decided this issue in favour and the Ld. DR could not distinguish the facts for the present assessment year, Ground No. 3 is dismissed. 20. In result appeal of the Revenue is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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