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TMI Blog2024 (8) TMI 1289X X X X Extracts X X X X X X X X Extracts X X X X ..... re and sale of motorcycles and scooters. In the year under consideration, the assessee had entered into various international transactions with its associate enterprises (AEs). One amongst them being payment of export commission of Rs. 16,10,03,387/- to Honda Motor Co. Ltd., Japan. As could be seen from the facts on record, the assessee had entered into an export agreement with Honda Motor Co. Ltd., Japan on 13.07.2000, in terms of which, the assessee was granted consent to export specific models of two wheelers to certain countries on payment of export commission @ 5% of the freight on board (FOB) value of such export. In the transfer pricing study report, the assessee benchmarked the transaction by using transactional net margin method (TNMM). The approach adopted by the assessee was not to the liking of the Transfer Pricing Officer (TPO). After rejecting the benchmarking of the assessee qua the payment of export commission, the TPO proceeded to benchmark the transaction independently using Comparable Uncontrolled Price (CUP) method. While doing so, the TPO determined the ALP at nil on the reasoning that no services were provided to the assessee to deserve any commission and seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ALP of these transactions at Rs Nil. The coordinate bench in assessee's own case for assessment year 2015 - 16 has considered this issue as under:- "7. Ground No. 2 is with respect to adjustment on account of export commission and royalty paid to associated enterprises. This is challenged by the assessee from Ground No. 2 to Ground No. 7 of the above appeal. 8. The ld. AR submitted this issue is squarely covered in favour of the assessee by the decision of the coordinate bench in assessee's own case in ITA No. 7463 and 7464/Del/2019 for Assessment Year 2013-14 and 2014-15 dated 30.09.2020. He submitted that there is no change in the facts and circumstances of the case with respect to TPO adjustment of export of commission. With respect to the transfer, pricing adjustment related to royalty paid on sales he also submitted that the coordinate bench in assessee's own case for Assessment Year 2008-09 to 2014-15 allowed this ground in favour of the assessee holding that the assessee has sold the good on principle-to-principle basis and has received the sale consideration. He further relied upon the decision of the coordinate bench in assessee's own case in ITA No. 7963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sale of products and as such could not be identified separately for benchmarking. It is also claimed by the assessee export commission is paid to its parent entity to get access to various global markets where the AE exists as network. The identical issue arose in the case of the for Assessment Year 2013-14 and 2014-15 wherein, coordinate bench deleted adjustment relying on the decision of ITAT in assessee's own case for Assessment Year 2008-09 in ITA No. 132/Del/2013. The ITAT quoted in para no. 12 and 13 of that order has followed the same. With respect to the issue of adjustment on account of payment of export commission, the coordinate bench has dealt with the same at para No. 7. The coordinate bench has given its reasons to delete the above adjustment in para No. 7.6 to 7.17 as under:- "7. Now, we will address to the grievance relating to addition on account of payment of export commission - Under technical know-how agreement dated 13.07.2000 the assessee was entitled to use technical know-how provided by Honda Motor Company Limited Japan for manufacture and sale of two wheelers and parts in India and was not authorized to sell its products or part in any other territo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke of repetition, the entire edifice of the TPO/DRP's finding is based upon the assumption that the assessee is operating as a contract manufacturer with respect to export of good. 7.11 In our understanding of the facts of the case in hand, we are of the considered view that the TPO/DRP have grossly failed in distinguishing between the function of the license manufacturers and contract manufacturers. 7.12 A perusal of the business profile of the assessee viz-a-viz agreement with the parent, we find that the assessee is a licensed manufacturer such as the assessee, the seller is entitled to compensation which includes returns attributable to exploitation of intangibles such technical know-how etc i.e. market determined prices. On the other hand, in the case of a contact manufacturer, the manufacturer acts in accordance with the instructions of the buyer and is only entitled to routine cost plus returns. It would be pertinent to refer to the decision of the Tribunal in assessee's own case in ITA No. 132/Del/2013 held as under:- 7.13 A similar decision was taken by the Tribunal in the case of Hero Motocorp Limited in ITA No. 5130/Del/2010 wherein the Tribunal has held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the assessee. The addition is deleted. 9. In ground No. 9, the assessee has challenged the addition made on account of transfer pricing adjustment of payment of royalty. 10. Briefly, the facts are, the assessee has entered into a technical know-how agreement with the AE on 13.07.2000. In terms of which, the assessee pays royalty based on percentage of sales including exports to AE. The assessee benchmarked the transaction by adopting aggregate approach under TNMM. However, the TPO did not accept the benchmarking of the assessee and proceeded to benchmark the payment of royalty separately by applying CUP method. While doing so, he held that sale made to AE is equivalent to sale made to self. Hence, there was no requirement to pay royalty. Thus, he determined ALP of royalty payment at nil, thereby proposing the entire amount of Rs. 13,84,61,947/- as transfer pricing adjustment. While deciding assessee's objections on the issue, learned DRP relied upon their earlier directions and upheld the adjustment. 11. Before us, it is a common point between the parties that the issue is squarely covered by various decisions of the Tribunal in assessee's own cases in past assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f setting up of plant. Further, reference is also made to the decision of the Delhi Tribunal in the case of Honda Cards India Ltd vs DCIT : ITA No.4491/Del/2014 dated 18.08.2017 (pages 414- 457 of the CLPB) and also confirmed by Hon'ble Delhi High Court in ITA No.45/2019 vide order dated 13.05.2019 (refer pages 457A-457F of the CLPB), wherein the Tribunal after referring to the decision of the Supreme Court in the case of Honda Siel Cars (supra) observed that the Supreme Court has carved out the distinction between the payments at the time of setting up of the manufacturing facility and the payments made once the manufacturing process has already began. In the former case, royalty expenditure for setting up the manufacturing facility is capital in nature while in the latter case, the royalty expense is revenue in nature. " 48. The SLP filed against the said decision has been dismissed by the Hon'ble Supreme Court. Applying the said ratio, we are of the view that the assessee was entitled to claim the aforesaid expenditure as revenue expenditure in the hands of the assessee. 49. Coming to the stand of the Revenue that where the assessee itself had not claimed as deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent claimed by the assessee. He further submitted that specific terms of the agreement need to be examined. 18. We have considered rival submissions and perused materials on record. From the observations of learned DRP in paragraph No. 5.4.1 and 5.4.2, it is very much clear that this particular issue is a recurring issue between the assessee and the Revenue from past assessment years. In fact, the specific direction of learned DRP is to the effect that in case Tribunal's decision on identical issue has not been accepted by the department, the initial directions in earlier assessment years should be followed. It is observed, while deciding the issue in the latest order passed for the assessment year 2017-18 (supra), the Tribunal has followed its earlier decision and has held as under : "10. Apropos disallowance of Rs. 54,57,713 of signage expenses as capital in nature : On this issue, ld. Counsel of the assessee submitted that the assessee had purchased glow sign board/ signals, which were displayed at the location of the dealers of the assessee. The sole purpose of incurring these expenses is to increase the sales at the stores etc. and thus is solely for the purpose of bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure on signages - A similar issue was considered and decided by the Tribunal in A.Y. 2012-13 in ITA No. 7714/Del/2017. The relevant findings read as under:- "26. We have heard the rival contentions and perused the record. The expenditure was incurred on signage for display of the name of the assessee at the dealer's premises. However, once the same is fixed at dealers site then the Courts have held that it does not satisfy the test of ownership with the assessee and the expenditure is to be allowed as revenue expenditure, We find support from the ratio laid down by the Hon'ble Delhi High Court in CIT vs Honda Siel Power Products Ltd.(supra). Thus, we are of the view that the expenditure to the extent claimed by the assessee is to be allowed in the hands of the assessee and not/the entire expenditure. Ground of appeal No. 6 is thus partly allowed." 3.1 Respectfully following the decision of the coordinate bench, we hold accordingly." 14. Therefore, respectfully following the decision of the coordinate bench in assessee's own case ground No. 8 of the appeal of the assessee is allowed holding that signage expenditure of Rs. 1,65,62,386/- is revenue in nature." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that subsequent decisions rendered by the Tribunal ignoring the earlier decision, should not be relied upon. He submitted, earlier and subsequent dealership agreements are more or less identical except an inconsequential amendment in the subsequent agreement. Thus, he submitted, following the decisions of the Tribunal for Assessment Year 2003-04 to 2007-08, the issue has to be decided in favour of the Revenue. 24. In rejoinder, learned counsel for the assessee submitted that the agreement prevailing in Assessment Year 2003-04 to 2007-08 did not contain any specific clause in terms of which there was any contractual obligation on the assessee to incur such expenses. However, he submitted, subsequently, the agreement was amended on 24.12.2012, in terms of which, the assessee was under a contractual obligation to incur a part of sales tool expenses. Thus, he submitted, taking note of the subsequent agreement, the Tribunal has allowed assessee's claim. 25. Having considered rival submissions, we find that both the Assessing Officer and learned DRP have disallowed assessee's claim relying upon their respective decisions in past assessment years. It is further evident, though, le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture. The Assessing Officer, however, was not convinced with the claim of the assessee. Ultimately, he held that 25% of the royalty expense, which works out to Rs. 296,11,30,002/- is to be treated as capital expenditure having been spent towards acquisition of assets, which provides enduring benefit. Accordingly, he disallowed aforesaid amount. However, he allowed depreciation @ 25% on such amount. The assessee contested the aforesaid disallowance before learned DRP. While disposing of the objections of the assessee, learned DRP directed the Assessing Officer to verify whether orders passed by the Tribunal in favour of the assessee on identical issue has been accepted by the Revenue and if not so, then to follow the directions of the panel in assessment year 2015-16. 28. Before us, learned counsel appearing for the assessee submitted that this issue is squarely covered by the decisions of the Tribunal in earlier assessment years. 29. Having considered rival submissions, we find that this is a recurring dispute between the assessee and the Revenue from past assessment years. While dealing with the identical issue in assessment year 2017-18 (supra), the coordinate Bench following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal on the issue in earlier assessment years. Hence, respectfully following the decision of the Co-ordinate Bench in Assessment Years 2012-13 to 2017-18 (Supra), we direct the Assessing Officer to allow assessee's claim. 32. In ground No. 13, assessee challenged disallowance of deduction claimed towards education cess amounting to Rs. 29,01,52,420/-. As could be seen from the facts on record, this claim was neither made by the assessee in the return of income nor before the Assessing Officer. The claim was made for the first time before learned DRP. However, learned DRP did not entertain assessee's claim. 33. Learned Departmental Representative submitted that as per the information contained in the annual report of the company, it has set up a new plant and the expenditure relates to that plant. Thus, he submitted that it has to be treated as capital expenditure. He further submitted, there is nothing in the agreement to suggest that the assessee has to bear 50% of the manufacturing cost. 34. Before us, learned counsel appearing for the assessee has furnished a written submission in support of the claim. Learned Departmental Representative submitted that the issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Goetze (India) Ltd. vs. CIT (2006) 284 ITR 323 (SC). 39. Before us, the assessee has furnished written submission in support of its claim. 40. Learned Departmental Representative submitted, the issue is squarely covered against the assessee by the decision of the ITAT, Special Bench, in case of DCIT vs. Total Oil India Pvt. Ltd and others (ITA No. 6997/Mum/2019 & Ors.) dated 20.04.2023. 41. We have considered rival submissions and perused materials on record. Though, on a reading of ITAT, Special Bench decision in case of DCIT vs. Total Oil India Pvt. Ltd. (supra), it is clear that the issue raised by the assessee is covered against it, however, before us, learned counsel appearing for the assessee submitted that there are certain facets relating to the issue, which needs to be examined, as on those aspects, the decision of Special Bench is either silent or can be distinguished. Be that as it may, considering the fact that the issue was never examined on merits by the departmental authorities, we are inclined to restore the issue to the file of the Assessing Officer for de novo adjudication after considering the submissions of the assessee and keeping in view the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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