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TMI Blog2024 (8) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... carries out contract software development activities for its Korean parent and is also engaged in trading of telecommunication networking equipment whereby network equipment purchased from its Korean parent were sold to a 3rd party customer (Reliance) in India. 3. The assessee filed its return of income for the AY 2015-16 on 29.10.2015 declaring an income of Rs. 2415,02,39,200/- through e-filing mode and also filed its revised Income Tax Return on 14.03.2017 keeping the same income at Rs. 2415,02,39,200. The case of the assessee was selected under limited scrutiny and notice u/s. 143(2) was issued on 21.6.2016 and another notice u/s. 143(2) was issued on 27.7.2016. A detailed questionnaire alongwith notice u/s. 142(1) of the Act was issued on 27.9.2016. The AO initiated scrutiny proceedings under section 143(2) of the Act and referred the case to the Transfer Pricing Officer (hereinafter referred as "TPO") u/s. 92CA of the Act for the examination of the arm's length price of its various international transactions. 4. The TPO in her order dated 31.10.2018 passed u/s 92CA(3) of the Act proposed adjustments under the following heads: (a) Advertisement, Marketing and Promotion (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the provisions of section 92C of the Act read with Rule lOB of the Income Tax Rules, 1962 ("the Rules"). 3. That on the facts and circumstances of the case and in law, the Ld. DRP/AO erred in making an addition of Rs. 192,45,41,190/- on account of disallowance of salary expenditure incurred in relation to expatriate employees under section 37(1) of the Act. GROUNDS AGAINST SUBSTANTIVE ADJUSTMENT MADE IN RELATION TO AMP EXPENSES 4. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in making substantive adjustment of Rs. 2310,30,56,382/- on account of AMP which comprised of Rs. 1021,16,52,791/- for the Manufacturing Segment (Non-IT), Rs. 978,46,08,952/- for Networking Segment (Non-IT) and Rs. 310,67,94,639/- for trading segment (Non-IT) 5. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in holding that the AMP expenditure incurred by the Appellant in India is an 'international transaction' as per the provisions of the Act. 6. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO erred in: a. not demonstrating the existence of an 'understanding' or an 'arrangement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture in networking segment ignoring the fact that under networking segment, the Appellant operates under a Business-to-Business ('B2B') model wherein the it caters to a single customer and does not undertake any activity pertaining to AMP. 13. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in considering all 'value added expenses' (excluding employee costs) as part of the AMP expenditure on the premise that all value-added expenses lead to promotion of the brand 'Samsung' disregarding the fact that many of such expenses are purely operational in nature. 14. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in not allowing the exclusion of sales related expenses from the ambit of AMP disregarding the fact that exclusion of such expenses has been allowed in Appellant's own case by DRP in prior years. 15. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO erred in modifying the comparable set, in contravention of section 92C(3) of the Act read with Rule 10B(2) of the Rules, by including/selecting companies that are not comparable to the Appellant in terms of functions p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order giving effect to the DRP directions despite the fact that the said adjustments were made as protective adjustments in the TPO Order and there is no direction of the DRP to make the said adjustments as substantive adjustments. 23. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in making an adjustment of Rs. 978,46,08,952/- in networking segment under TNMM by including companies that are not comparable to the Assessee in terms of functions performed, assets employed, risks assumed, and rejecting comparable companies selected by the Assessee. 24. That on the facts and circumstances of the case and in law, the Ld. TPO erred in making an adjustment of Rs. 1105,54,54,842/- in Manufacturing Segment under TNMM by including companies that are not comparable to the Assessee in terms of functions performed, assets employed, risks assumed, and rejecting comparable companies selected by the Assessee. 25. That on the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO have erred in incorrectly computing the margin of the Assessee and the comparables for all the three segments i.e. trading segment, manufacturing segment and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to expatriate employees under section 37(1) of the Act ignoring the fact that this Hon'ble Tribunal has decided the issue in favour of the Appellant in the case of Samsung Electronics Co. Ltd v DCIT: [2018] 92 taxmann.com 171 (Delhi - Trib.). 34. That on the facts and circumstances of the case and in law the Ld. DRP /AO in holding that there was no employer-employee relationship between expatriate employees and the Appellant and the expatriate employees were the employees of the parent company, i.e., Samsung Electronics Co. Limited 35. That on the facts and circumstances of the case and in law the Ld. DRP /AO erred in holding that expatriate employees were not working wholly and exclusively for the business of the Assessee and accordingly, their salary expenditure is disallowable under section 37(1) of the Act. 36. That on the facts and circumstances of the case and in law, the AO has erred in charging interest under Sections 234A and 234B of the Act. 37. That on the facts and circumstances of the case and in law, the AO erred in initiating penalty proceedings under Section 271(l)(c) and Section 271 BA and Section 271AA of the Act for furnishing of Inaccurate particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of brand-promotion service. Applying this Bright Line Test, the TPO and the DRP have held that the excess amount alongwith an arm's length mark-up (profit that comparable service companies would earn) should be treated as the arm's length price of this international transaction. However, since this Bright Line Test has been held to be illegal and untenable by the Hon'ble Delhi High Court in Sony Ericsson Mobile Communications v. CIT (2015) 374 ITR 118 (Delhi) and this order of the High Court is in appeal before the Hon'ble Supreme Court by way of a Special Leave Petition, the TPO, DRP and AO have kept the adjustment on protective basis. 9. On the other hand, while dealing with this issue on "substantive" basis, the TPO and the DRP have adopted an alternative way of determination of arm's length price of the international transaction of the AMP expenditure. This approach was adopted in earlier years as well and has been referred to as Transaction Net Margin Method (TNMM) intensity-based approach. The excessive nature of AMP expenditure, in TPO's view, results in much higher intensity of functions reflected in the higher levels of operating expenditure vis-a-vis the companies th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to cost to cost reimbursement of marketing expenses to a much larger "excessive" AMP expenditure. It was further submitted that once the existence of an international transaction is itself negated, there would be no question of determination of its arm's length price. As regards TNMM intensity approach, the Ld. AR submitted that the steps adopted to adjust for the higher intensity of marketing function are nothing but a disguised form of Bright Line Test. Further, there is no economic or logical justification in first increasing the cost base and then applying an artificial profit margin of marketing and advertising companies on the artificially enhanced cost base. Such a method has not basis in rules. 12. On the other hand, Ld. CIT(DR) countered the arguments and contentions raised by the assessee's AR. He submitted that though the Tribunal has decided this issue in favour of the assessee in prior years, principle of res-judicata does not apply to income tax proceedings and each assessment year is to be judged on its own basis. Unlike preceding years, there is no MDF agreement this year and the fact that the assessee itself has accepted that the reported transaction of reimburs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture would be incurred in India to promote the 'Samsung' brand in a manner that was not justified by the scale and nature of Indian business but at the behest and requirement of the foreign parent that owned the brand. We do not find any merit in the approach taken by the TPO and the DRP as well the contention raised by the Ld. CIT(DR) that consistency of approach by the Tribunal should be disregarded. The Transfer Pricing Report of the assessee states very clearly in Para 4.4.3 that the reimbursement of marketing expenses of the assessee is strictly limited to those items for which prior approval is received from the AE and consequently there is no element of service to the AE. The reimbursement is restricted to the actual expense without any mark-up as per the prior approval granted by the AE. In the prior years, the Tribunal had found that identical system of reimbursements was adopted. Accordingly, even without any express MDF agreement, the assessee and its AE have been consistently following the same approach over the years. 15. Since it has consistently been held that the scope of international transaction pertaining to AMP expenses cannot be expanded beyond what has alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence of an international transaction involving SMC and (b) to make a quantitative 'adjustment' to the ALP to the extent that the expenditure exceeds the expenditure by comparable entities. It is submitted that with the decision in Sony Eric.sson Mobile Communications India (P.) Ltd. (supra) having disapproved of BLT as a legitimate means of determining the ALP of an international transaction involving AMP expenses, the very basis of the Revenue's case is negated. 45. Since none of the above issues that arise in the present appeals were contested by the Assessees who appeals were decided in the Sony Ericsson Mobile Communications India (P.) Ltd. case (supra), it cannot be said that the decision in Sony Ericsson Mobile Communications India (P.) Ltd. (supra), to the extent it affirms the existence of an international transaction on account of the incurring of the AMP expenses, decided that issue in the appeals of MSIL as well...." 16.1 In the instant case, therefore, where the assessee does not accept the existence of any such transaction, the onus is on the TPO to bring evidence and material on record to rebut the assessee's position. From the facts on record, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MDF agreement to cover the entire gamut of AMP expenditure incurred by the Appellant during the year. 45. In view of the above, we hold that the "bright line" approach is untenable in law either as a way to determine the existence of an international transaction or as a method to determine the ALP of an international transaction pertaining to AMP. No international transaction can be presumed to exist merely on the basis of "bright line" of expenditure incurred by comparable companies." ITA No. 6813/Del/2017 (AY 2012-13) vide order 7.01.2020 "6. Heard the arguments of both the parties and perused the material available on record. This matter stands adjudicated by the Co-ordinate Bench of /TAT wherein it was held that the scope and value of the International Transaction cannot be expanded beyond the reimbursement received under MDF agreement to cover the entire gamut of AMP expenditure incurred by the Appellant during the year. 7. Regarding the applicability of the Bright Line Text (BLT) (specific grounds at 11, 12 & 13) to determined the adjustment in the AMP expenditure has been rejected by the Hon'ble Jurisdictional High Court in the case of Sony Ericsson Mobile Communicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decisions rendered by various Coordinate Benches in ten prior assessment years on this issue, we hold that the transfer pricing adjustments to the arm's length price of the alleged international transaction of AMP expenditure of the appellant is bad in law and liable to be deleted. Grounds 4 to 20 are accordingly allowed. 18. The next issue is in respect of the adjustment of Rs. 250,89,73,885/- made by the TPO to the arm's length price of the international transactions in the Trading segment under TNMM by altering the set of comparable companies. In Ground no. 21 the assessee has contested the erroneous inclusion of three companies as comparables. The relevant facts pertaining to the trading segment are as follows: in this segment the company's business comprises of distribution of consumer electronics, home appliances, mobile phones, IT product and medical equipment. The main international transactions in this segment are purchase of finished goods, software, stores and service spares, besides other ancillary transactions of sale of stores and service spares and provision of after sales support services. To determine the ami's length price of these transactions, the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; for sale of electronic products. It acts as an aggregator in the online marketing space. Taking us through the relevant pages of the Paper Book, the Ld. AR submitted that the company sells electronic products of various brands on its online platform, hence, it is not a 'Sole-Selling Agent' of any brand, whereas the assessee is the sole seller of Samsung goods in India. The Ld. AR further submitted that OTS E-Solutions is a routine distributor and does not perform critical functions such as quality control and post-sale/ warranty support unlike the assessee which performs other functions as well, making it functionally dissimilar to the assessee. 23. On the other hand, Ld. CIT(DR) submitted that this company is engaged in the distribution of consumer electronic products like mobile phones, air-conditioners, refrigerators etc. similar to the business of the appellant in the distribution segment. Merely because the company deals with consumer products of different brands and uses an online portal to sell the products, it cannot be rejected as a valid comparable. Moreover, since the TPO has applied TNMM as the most appropriate method to benchmark the trading segment which al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the aforesaid factual matrix and the coordinate bench, this company is directed to be excluded from the list of comparables. 25. Virtual Netcom Pvt Ltd: The TPO as well as the Ld. DRP have not provided any reasoning or finding for this company's inclusion. The Ld. AR submitted that the company offers comprehensive information management solutions including information security, networking & network management etc. to customers in India and SAARC through its alliance with technology partners like Barracuda Networks, Blue Coat, Extreme Networks, ForeScout, Palo Alto Networks, Radvision, Ruckus Wireless and Splunk, which is nowhere comparable with the appellant's trading functions. On perusal of the annual report of the company, it is noted that the company is carrying on the business of computer software developers and providing IT services. The Ld. AR also pointed out that the company operates on an entirely different business model, i.e. majority of sales are exports, and major portion of purchases are import. 26. The Ld. CIT(DR) submitted that this company is engaged in trading of computers and allied products as evident from the details of purchase of stock in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the TPO and the Ld. DRP. At this stage, the assessee cannot be allowed to change its stand and argue for its exclusion. It was also submitted that the grounds of appeal do not have any specific reference to this comparable and in the absence of such ground, it is not open for the Tribunal to examine the same. We do not agree with this contention. The rules do not require a specific ground to be taken in respect of each comparable. A general ground in respect of arm's length price of the international transactions of the Trading segment is wide and comprehensive to include within its sweep any aspect of the determination of the arm's length price - whether it is inclusion or exclusion of a comparable or computation of the profit level indicator. 29. The purpose of the provisions of the Act is to enable the TPO and AO is to determine the correct taxable income and technical objections cannot be set up as barrier to adopt an admittedly correct position of fact and law. In the present situation, the comparable that is sought to be included by the Revenue evidently and admittedly lacks comparability on account of sharp differences in product profile. This aspect was examined by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating margin, the TPO denied working capital and risk adjustments. The Ld. DRP did not give any finding on the objections raised by the assessee on inclusion/exclusion of comparable companies and accordingly, the adjustments made in the original TP order were incorporated in the impugned order. The Ld. AR submitted that the assessee is aggrieved by the inclusion of seven (7) comparable companies, and wrongful exclusion of 2 comparable companies. 32. The Ld. AR submitted that all the companies introduced by the TPO are service providers and are not engaged in any sort of buy-sell activity, whereas the assessee is a trader who supplies telecom equipment to its customer (Reliance) wherein it performs buy-sell functions. For each of the comparable company, the Ld. AR made submissions reproduced below: 33. Altruist Technologies Ltd: It was submitted that the company is a pure service provider engaged in the provision of telecom solutions in the nature of content-based value-added services, revenue assurance, media related solutions etc. Reliance was placed on various extracts of the annual report of the company to substantiate the fact that this company is an IT service provider. Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustry comprising of digital media distribution services, digital media technology services, content production and acquisition services, content management and postproduction, cloud based content management services, outdoor media acquisition and media/live event coverage. It was also submitted that this company earns 99% of its revenue from sale of services. 37. Avantel Ltd, Hughes Communication Ltd and PCS Technology Ltd: Ld. AR submitted that the TPO committed the same error in these 3 comparable companies by treating these as trader of networking equipment, whereas on perusal of their financials, it is clearly evident that these companies are pure services provider. 38. On the contrary, Ld. CIT(DR) submitted that the TPO/DRP while dealing with the networking segment and selecting the comparable companies did not distinguish between a service provider and a trader since in common parlance the meaning of 'network infrastructure' includes both rendition of services and trading of networking equipment. In fact, provision of services is an essential ingredient of networking segment and thus the comparables chosen by the TPO/DRP cannot be rejected merely because they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same figure of Rs. 488.38 crore. Though, this figure on 31.03.2014 and 31.03.2014 was 15% less than the net worth as on 31.03.2013, it is not correct to state that there is downward trend in net worth. Moreover, the decline that was witnessed two years earlier of 15% cannot be treated as extraordinary in nature. Increase or decrease of net worth of businesses are normal incidents and there is nothing unusual regarding its change unless the going concern status is threatened. Similarly, we note that the TPO's observation that the company has seen a declining trend in sales is also factually incorrect as the sales in F.Yr 2012-13 was Rs. 119 crore which went up to Rs. 139 crore in F.Yr 2013-14 and subsequently declined to Rs. 66 crore in F.yr. 2014-15. In our considered view, fluctuating sales figures, by themselves, do not disqualify a company from being treated as a comparable unless it can be shown that there are factors which are unusual and extraordinary which render the company as incomparable. No such factor is evident from the annual report or has been pointed out by the Ld. CIT (DR). On the functional level, this company is found to be comparable as it is trading in tel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /exclusion of comparable companies and accordingly, the adjustments made in the original TP order were incorporated in the impugned order. Under Ground no. 24, the assessee is aggrieved by the inclusion of two (2) comparable companies, namely Frog Cellsat Ltd. and Glen appliances, and wrongful exclusion of 3 comparable companies namely Value Industries Limited, Trend Electronics Limited and Penguin Electronics Limited. 45. Frog Cellsat Ltd: The TPO included this comparable on the ground that the company is engaged in the business of manufacturing equipment. DRP did not give any finding. The Ld. AR submitted that Frog Cellsat Ltd. is engaged in manufacturing of telecom repeaters, line amplifiers and other networking monitoring systems whereas the appellant is engaged in manufacturing of mobile phones, washing machines, refrigerators, colour television, air conditioners. The Ld. AR pointed out that the company's business model is different since it follows a B2B business-to-business model with sales being made to telecom companies. On the other hand, the assessee follows Business-to-customer (B2C) model with sales being made in the retail market. The Ld. AR also submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny is admittedly a distributor company and is not engaged in manufacturing function. On account of this fundamental difference, Glen Appliances has no basis to be included. It was submitted that this company was held to be a non-routine distributor of goods by the TPO himself while he examined the suitability of this company for the TNMM based intensity approach for AMP expenditure. Accordingly, it is an admitted position that Glen is a distributor and therefore cannot be included in the manufacturing set. The Ld. AR further submitted that Glen deals with products like gas stove, burners etc which do not involve any sophisticated technology. They have a mechanical mode of functioning and operate on ignition mechanism. On the other hand, the assessee is engaged in manufacturing of sophisticated products like mobile phones, washing machines, colour television, air conditioners etc.. These products increasingly use digital technologies and softwares in their making. The Ld. CIT(DR) submitted that, since the manufacturing segment is benchmarked using the TNMM method, comparables can be chosen even if there are some functional differences since TNMM method allows flexibility in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not filed the quarterly data of these two companies. Accordingly, we cannot accede to their demand and these companies cannot be included in the list of comparables. 49. Penguin Electronics Limited: TPO rejected this comparable on the ground of functional dissimilarity stating that it is engaged in manufacturing of different products and hence the same cannot be taken as a comparable company. The Ld. AR submitted that this comparable company was selected as a suitable comparable by the TPO himself in the TP Order for AY 2013-14 and the product profile of this company as well as that of the appellant has remained unchanged ever since. Penguin manufactures products such as radios, Walkman, audio products, domestic appliances etc., and hence it essentially operates as a manufacturer in the space of "Consumer Electronics" and "Home Appliances", which are the two broad categories in which the appellant operates. We are in agreement with the view that there is similarity of product profiles between this company and the appellant. Radios, Walkman, Audio products and domestic appliances form part of the same market space which has been referred to as consumer electronics and home applianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of AE transactions and the Tribunal had remanded the matter back to the TPO for reconsideration. Ld. CIT(DR) did not object to the issue being remanded back to the TPO. We, accordingly, direct the TPO to determine the proportionate adjustment, if any, in an appropriate manner which considers the transactions with the AEs and excludes the unrelated party transactions after taking into account the computations submitted by the assessee. 52. The penultimate issue to be decided here is the adjustment/disallowance made in respect of royalty paid by the assessee to its parent for the know-how licensed for manufacturing of various products. The TPO has concluded that the rate of royalty is higher than the arm's length rate and has made adjustment of Rs. 902,75,71,252/- in this regard which has been contested in this appeal. Grounds 29 to 35 pertain to this issue. 53. As far as payment of royalty is concerned, appellant performs licensed manufacturing of products including colour televisions, washing machines, refrigerators, air conditioners and mobile phones. For this purpose, assessee entered into a license agreement for each category of product with its parent SEC Korea, under whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1.50%). This SCN was responded to vide submission dated 9 October 2018, wherein the assessee raised its objections against 1) application of the CUP method while rejecting TNMM (Aggregated approach) and 2) the stark dissimilarities in the three third party royalty agreements v/s the assessee's license agreement. The TPO, after taking note of the appellant's arguments, did not make any adverse inference/ adjustment against the payment of royalty. Rather, the TPO in the TP order dated 31 October 2018 chose to adopt TNMM for the licensed manufacturing segment and carried out an aggregated analysis, wherein royalty was subsumed in the aforesaid analysis. The Ld. AR emphasized that the TPO was accordingly, convinced that royalty is an intrinsic part of the Licensed Manufacturing segment and accordingly, aggregated with the segment. 56. However, in the draft assessment order, ignoring the assessee's detailed submissions to the contrary, the AO held that the appellant had paid excessive royalty to the tune of INR 921.9 crores during the subject year and disallowed the same under Section 40A(2) of the Act. In the alternative, the AO also proposed to treat 75% of the royalty pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect regarding any variation of his income before the DRP since the AO has passed the final assessment order based on the adjustment made by the TPO on the directions of the DRP. Placing reliance on PCIT v. Woco Motherson Advanced Rubber Technologies Ltd. 406 ITR 375, it was submitted that the machinery u/s 144C was a complete and exhaustive one and it does not give any room for the DRP to remand or set aside any matter to the TPO or the AO. Numerous decisions were cited in support of the proposition that a final assessment order passed in violation of the mandatory requirements of section 144C would vitiate the same and render it void and non-est. 59. Without prejudice to the above arguments, the Ld. AR submitted that the technology and technical assistance received from SEC Korea is critical to the business operations of the assessee and hence the payments made by the appellant for the technology it receives are closely linked to its manufacturing business. Therefore, an aggregated arm's length analysis of the segment is the most appropriate approach. The issue of aggregation of closely linked transactions was decided by the Tribunal in assessee's favour in AY 2005-06 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparables by the TPO, the Ld. AR submitted that royalty agreements introduced by the TPO under CUP method belong to a completely different sector, i.e. agriculture. The appellant (in its licensed manufacturing segment) is engaged in manufacturing of consumer electronics like TVs, home appliances like washing machines and mobile phones. The technology and other economic parameters in the electronics and communication industry is unique, fast evolving and affected by numerous global and local factors. The three comparable royalty agreements introduced by the TPO are entirely disparate and involve agricultural companies, engaged in developing products and tools in relation to seeds development which help farmers/ crop-growers make more efficient use of resources such as energy/ water/ land etc. 62. Ld. CIT(DR) opposed the contentions raised by the Ld. AR and submitted that the directions of the Ld. DRP to the TPO to benchmark the royalty transaction has resulted in partial relief to the assessee. Further, the directions issued by the Ld. DRP do not amount to "setting aside" of the matter to the TPO but to carry out a benchmarking exercise under a set of laid down guidelines. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant year since this agreement started in November 2000 for a period of 3 years and there is no material on record to show that it was in currency for the current year. The Licensor is a laboratory based in Washington which is engaged in provision of genomics services such as genotyping, gene sequencing, and gene expression profiling. The licensee is an agricultural company engaged in developing products and tools to including seeds to help farmers grow crops while using energy, water, and land more efficiently. The licensee uses biotechnology and other advanced methodologies including gene editing to make improvements in the plant's DNA to ensure a productive harvest. (b) MONSANTO CO (LICENSOR) AND CALGENE II, INC (LICENSEE)- The agreement does not even state the date of commencement nor the date of termination of the license. The Licensor is an agricultural company engaged in developing products and tools to including seeds to help fanners grow crops while using energy, water, and land more efficiently and Licensee is a biotechnology research and development firm. (c) PARADIGM GENETICS INC (LICENSOR) AND MONSATO CO. (LICENSEE) - This agreement was entered on 17 November 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mparables, there can be no cause for the Revenue to carry out an exercise of the present kind. Grounds 29-32 are disposed of in terms of the aforesaid observations. DISALLOWANCE OF SALARY PAID TO EXPATRIATE EMPLOYEES 66. The last issue in this appeal pertain to Grounds 33, 34 and 35 - these are in respect of disallowance of salary amounting to Rs. 192,45,41,190/- paid to expatriate employees on secondment made u/s 37 of the Act by the AO. The AO has held that the employees on secondment from Korea are primarily working for the Korean parent and therefore, their salaries being paid by the appellant are not allowable as deductible expenses. This conclusion is based on legacy assessments carried out by the AO of the parent entity, Samsung Electronics Co. Ltd. Korea wherein the AO had concluded that on account of the presence of these secondee expatriates in India at the premises of the appellant, the Korean company had a fixed place permanent establishment in India. It was concluded that since the expatriate employees on secondment from Korea to India are regularly providing information to the parent company, they were in effect carrying out the business of the foreign company. 67. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal order on this issue squarely covers the issue, submits that res-judicata does not apply to income tax proceedings and every year needs to be seen separately. He would submit that the seconded employees are furthering the objectives of the Korean company and are in effect the employees of the Korean company. We do not find any merit in his contention. The AO has not brought any evidence on record to show that the seconded employees were furthering the business objectives of the foreign parent. He has merely relied on the assessment order passed in the Korean company's case where it was held by the AO of the Korean company that it had a permanent establishment in India on account of the functions of the secondees. The entire approach is based on surmises and conjectures. The Coordinate Bench in the case of the Korean company has already deleted the additions and negated the existence of permanent establishment. Based on these orders, in A.Yr. 2014-15, another Coordinate Bench has deleted the disallowance of salary made on this account. We accordingly direct the deletion of this disallowance. Grounds 33, 34 and 35 are, accordingly, allowed in favour of the assessee. 70. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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