9911796707
TMI Blog2025 (3) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... aged in the business of manufacturing and distribution of moulded plastic kitchenware products, carrying out manufacturing activities from its plant located at Dehradun. The Appellant filed its return of income on 30.11.2015 declaring total income of INR 97, 70, 39, 530. Since the Appellant company, during the impugned financial year, had entered into international transactions with its Associated Enterprises ("AEs"), covered under section 92CA of the Act, AO referred the matter to the Learned Transfer Pricing Officer ("TPO") for determination of the Arm's Length Price ("ALP") of the international transactions. As per the Transfer Pricing documentation, the Appellant has earned an operating margin of 21.94%. On the other hand, the comparables have earned a working capital adjusted margin of 3.77% (35th Percentile) to 7.82% (65th Percentile) with a median of 5.90%. Hence, the transactions of Tupperware India have been claimed to be at arm's length. 3. During the course of the TP assessment proceedings, the TPO requested for various information/ documents which were filed time to time. Subsequently, the TPO issued show cause notice dated October 03, 2018 (F. No. DCIT/TPO- 3(2)(1)/SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab-initio as it not in conformity with provisions of section 144C of the Act. 2. That on the facts and circumstances of the case and in law, the Ld. AO erred in passing the impugned assessment order whereby making an adjustment of Advertisement, Marketing and Promotion ("AMP") both on substantive as well as on protective basis which is not in consonance with provisions of the Act. 3. That on the facts and circumstances of the case and in law, the Ld. AO erred in following the directions of the Hon'ble DRP and thereby erred in assessing the returned income of the Appellant of INR 97, 70, 39, 530 at INR 1, 53, 55, 51, 410. TRANSFER PRICING (TP) GROUNDS: 4. That the Hon'ble DRP/Ld. AO/ the Deputy Commissioner of Income Tax, Transfer Pricing Officer-3(2) (1) ("Ld. TPO") have erred in proposing an addition of INR 38, 83, 59, 955 holding that the Appellant's international transaction does not satisfy the arm's length principle envisaged under the Act. 5. That the Hon'ble DRP/Ld. AO/Ld. TPO have erred in undertaking adjustment on account of Advertisement, Marketing and Promotion ("AMP") expenses and payment of royalty by: 5.1. not appreciating the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis, on account of payment of royalty by rejecting the transfer pricing documentation maintained by the Appellant and determining arm's length royalty rate as 2% of the sales. In doing so, Hon'ble DRP/Ld. AO/Ld. TPO have erred: 7.1. in assuming that 'no benefit' has been conferred on the Appellant from the use of trademarks and know-how for which royalty was paid by the Appellant. 7.2. in not giving due cognizance to the information and documents submitted by the Appellant during the course of proceedings; 7.3. by disregarding the economic analysis performed by the Appellant, thereby rejecting the comparable agreements selected by the Appellant in the transfer pricing documentation; and 7.4. by arbitrarily determining the royalty rate of 2% based on the fresh search undertaken by the Ld. TPO during the course of proceedings by adopting the methodology similar to that adopted by the Appellant in the transfer pricing documentation. 8. That on the facts and circumstances of the case and in law, the Hon'ble DRP/Ld. AO/Ld. TPO have erred in undertaking an adjustment on account of payment of management service fees. In doing so, the Hon'ble DRP/Ld. AO/L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant that the amount in question are pure reimbursements of expenses based upon proper allocation key and without any mark up. While doing so, the Hon'ble DRP has disregarded the third party invoices and allocation methodology. 14. Without prejudice to Ground No. 11 to 13, that on the facts and circumstances of the case, and in law, the Hon'ble DRP/Ld. AO failed to appreciate that the amounts in question are held not liable to be taxed in the hands of Dart for the year under consideration, thereby disallowance under section 40(a)(i) of the Act unwarranted and liable to be deleted. 15. That on the facts and circumstances of the case and in law, the Ld. AO erred in not granting the MAT credit available to the Appellant while computing the tax liability. 16. That on the facts and circumstances of the case and in law, the Ld. AO erred in calculating interest u/s 234A/234B/234C of the Act. 17. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 274 read with section 271(1)(c) of the Act. That the above grounds of appeal are without prejudice to each other. That the Appellant reserves its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in which, accordingly to him, the Hon'ble High Court, has cast the onus to prove an international transaction arising from AMP expense, upon the Revenue authorities. It is contended that the Hon'ble High Court has held that the onus to demonstrate that an AMP expense incurred by a taxpayer constitutes an international transaction would rest upon the Revenue authorities. The existence of an international transaction would have to be established by the Revenue authorities without application of bright line test, based upon documentary evidence of an arrangement between the Appellant and its AEs. The relevant extracts of the Hon'ble High Court decision in this regard, as relied by Ld. Counsel is reproduced below: "..the very existence of an international transaction cannot be presumed by assigning some price to it and then deducing that since it is not at ALP, an adjustment has to be made. The burden is on the Revenue to first show the existence of an international transaction. Next, to ascertain the disclosed price of such transaction and thereafter ask as to whether it is an ALP." 11. Then referring to Para 44 and Para 61 of the decision in Maruti Suzuki ruling (supra), it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emark or goodwill takes place over a passage of time and is a slow ongoing process. In cases of well recognised or known trademarks, the said trademark is already recognised. Expenditures incurred for promoting product(s) with a trademark is for exploitation of the trademark rather than development of its value. A trademark is a market place device by which the consumers identify the goods and services and their source. In the context of trademark, the said mark symbolises the goodwill or the likelihood that the consumers will make future purchases of the same goods or services. Value of the brand also would depend upon and is attributable to intangibles other than trademark. It refers to infrastructure, know-how, ability to compete with the established market leaders. Brand value, therefore, does not represent trademark as a standalone asset and is difficult and complex to determine and segregate its value. Brand value depends upon the nature and quality of goods and services sold or dealt with. Quality control being the most important element, which can mar or enhance the value. 106. Therefore, to assert and profess that brand building as equivalent or substantial attribute of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur, once all transactions are at arm's length, there is no need to test the AMP expense separately. As per the contentions of the Appellant, the TP study demonstrates that the international transactions have been undertaken at arm's length. Comparing individual element cost, i.e., of AMP expenses would amount to comparison or reconstruction of profit and loss account of Tupperware India to make it identical - cost-to-cost, to that of the comparable companies which is not the intent of transfer pricing regulations. The Appellant functions as an entrepreneur, once payment of royalty as well as import of raw material is demonstrated to have been undertaken at arm's length, the issue of AMP expense would be a misnomer. 15. It is next contended for the assessee that incidental benefits (if at all any) to the AE, do not constitute intra-group services. Ld. Counsel has submitted that any AMP activity undertaken by the Company primarily benefits the Company and AE is only benefitted in the form of increased royalty, which has been separately demonstrated to be at arm's length. 16. Ld. DR has countered it by submitting that assessee admits of supporting the global market strategy of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a legacy issue arising since AY 2013-14, and the DRP has confirmed the proposed adjustment. 2.2.2 The assessee is manufacturer and distributor of molded plastic kitchenware products under the brand name of the AE, i.e. "Tupperware". The assessee has objected to treatment of AMP expenses as International transaction and adjustment of ALP on this count. This issue has been recently examined in detail by the ITAT as also Hon'ble Delhi High Court in Sony Ericsson Mobile Co Pvt. Limited (ITA 16/2014- [2015] 55 taxmann.com 240 (Delhi)) and other cases and such transactions have been held to be International transactions and subject to TP provisions. The TPO has held it to be an International transaction in view of clear and unambiguous ownership of the Brand by the AE and the promotional activities undertaken result in a clear benefit to the AE as the assessee is just a transit point for the product towards the end user. The assessee is not subject to the related risks of a brand owner producer. This panel has also considered the order of the TPO, who has discussed it in details in para 32 to 35.08 pages-101 to 136 of the TP order. 2.2.3 The assessee seeks relief relying on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... help the case of the assessee, whereas the conduct has the transaction written all across. In such a scenario, it does not help the case of the assessee as the assessee indeed undertakes the AMP action resulting in promotion of the brand. The TPO concluded that the Assessee incurs. excessive AMP expenditure; by this act the assessee renders a service to the AE. Such service is in the form an international transaction and calls for a higher remuneration on the part of the Assessee. The absence of adequate compensation is also concluded by the TPO. The fact that year after year the assessee has been carrying out high intensity of AMP activities is itself proof that there exists an arrangement between the Assessee and the AE that compels the Assessee to carry out this level of expenditure. Here we may refer to clause (v) of Section 92F which defines 'transaction'. The same is reproduced below: (v)"transaction" includes an arrangement, understanding or action in concert - (A) whether or not such arrangement, understanding or action is formal or in writing: or (B) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding.] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 taxmann.com 240 (Delhi) the Hon'ble Delhi High Court has disapproved the bright line test for finding out the cost/value of international transaction, which is the first variable under the TP provisions, the Hon'ble Court has held that the TPO has authority to examine and determine the international transaction of AMP spend. The Hon'ble High Court has observed and held as under in this regard: "3..... the assessed were engaged in distribution and marketing of imported and branded products, manufactured and sold to them by the foreign AEs resident abroad. Intangible rights in the brandname/ trademark/trade-name were owned by the foreign AEs. There is no dispute or lis that the assessed are AEs who had entered into controlled transactions with the foreign AEs. It is also uncontested that the controlled international transactions can be made subject matter of the transfer pricing adjustment in terms of Chapter X of the Income Tax Act... 43 where an assessee has failed or not furnished a report in respect of an international transaction, a specific reference for the said transaction under sub-section (1) is not required. It is sufficient, if arm's length pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred INR 373427630/- on account of AMP expenditure which represents 7.85% of its sales, * The taxpayer does not have any agreements for use of trademarks and patent owned by the parent entity. The said trademarks/formulations (intellectual property) was owned by the taxpayer's US based AE ie. M/s Tupperware Brands Corporation US. This implied that third parties could be granted licenses to use the trademarks. Therefore, it is clear that any creation of marketing intangible by the taxpayer could be utilized by third party manufacturers licensed by M/s Tupperware Brands Corporation US also; * Hence, the benefit of AMP expenditure incurred by the taxpayer was not found to be exclusively for its own purpose. Accordingly, the benefit of the AMP expenditure is inuring to the US based AE as the latter clearly retained the rights to pass on the benefit of developed marketing intangibles to third-party manufacturers as per its own wish: * The taxpayer was asked to provide its global advertisement policy along with global transfer pricing policy... to provide if there is any correspondence between the marketing head of the taxpayer and that of the foreign parent AE... to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not own any interest in the intangible and is only a manufacturer and seller of "Tupperware" products in India. * 12.2 Tupperware has taken worldwide initiatives to protect its brand name. The taxpayer has further added that the AE(s) has knowledge and resources required for legal protection of the brands and protecting the brand from infringement is extremely critical for the business and the registration of brands with AE has benefitted the Taxpayer since it is absolved of the responsibility of protection of the brands * The above facts indicate the absence of independence of choice of theme, application of mind and decision making while selecting the advertisements. * There is sufficient evidence that it is discharging marketing function, function of market development including adding value to the intangibles of its AE and is not merely engaged in dealing of plastic products. * The above-mentioned analysis of the facts clearly substantiate that the taxpayer is promoting brand of the AE in India. For this it is required to maintain a trained sales force, maintain full distribution ad sales presence etc. The taxpayer is also required to undertake advertising promotion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gated approach. The TPO has, inter alia, observed as under * In this case, the assessee and comparables are undertaking different levels of AMP functions. The difference in the routine AMP spend of assessee and comparables would not have similar effect on their respective margins. In the absence of data related to value of brand, value of marketing intangible created and incidental benefits to assessee and AE, ALP of non-routine AMP spend cannot be accurately calculated if the transactions are aggregated. Therefore, TNMM cannot be applied considering the facts of the case and accordingly. AMP transaction is being benchmarked separately using segregation approach. * It is important to clarify that TPO has used the comparables only for the purpose of determining non-routine AMP spend. This does not mean that comparables have been accepted at entity level using bundled approach. Therefore, non-routine AMP expense is treated as a separate international transaction for ALP determination. 2.2.12 In view of the DRP directions in the assessee's case for AYs 2013-14 and 2014-15 and the above factual and legal position, the panel holds 'the AMP spend and lack of suitable compen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. 22. We are of considered view that AMP necessarily does not result in brand building. The Hon'ble High Court in the Sony Ericsson Mobile Communications India (P.) Ltd. case (supra), vide para 106 as reproduced earlier in para 12 has held that advertisement may not be the only tool for brand building. Hence, it cannot be held that AMP necessarily leads to brand building. 23. Thus in our considered view ld. Tax authorities should establish on facts that the gross margin remuneration is adjusted to AMP expenses to benefit the AE. The AMP expenditure is not unilateral and out of some discernible arrangement which is reflected in concert action between the assessee and AE. A mere allegation is made of foreign AE being a beneficiary but nothing on that account is available in impugned orders in terms of any overt act of either of the assessee or its AE. 24. Further we are of the considered view that since Bright Line Test method is used for protective adjustment and Residual Profit Split Method for substantive adjustments, so that shows that the ld. TPO has not found anything from the transactions between the assessee and AE or specific heads of expenditures incurred by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if the brand is owned by the foreign AE, the assessee carries a risk of its own in the local market. We find that the ld. tax authorities have repeatedly observed that mere absence of a formally agreement does not help the assessee whereas the 'conduct' has the transaction written all across. 25.2 We are of the considered view that merely on the basis of high intensity of AMP activities no presumption can be drawn so as to impute existence of an international transaction by an artificial component of 'conduct' which is not otherwise supported by any evidence. Conduct as a basis of imputing an element of concert action so as to invoke the provisions of the Act, to allege there is a 'implied transaction', should be on the basis of some 'overt act' of both the AEs, which is not pointed out at all. The ld. DR's contention on the basis of judgement of the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communication India (P) Ltd. (supra) that the TPO has authority to examine and determine the international transaction of AMP spend cannot be extended so as to draw a conclusion on the basis of the 'conduct' alone whereby the conduct is not reflected by any concerted ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by one party to the other would by itself constitute a transaction irrespective of whether the consideration for the same has been paid or remains payable or there is a mutual agreement to not charge any compensation for the service or benefit." Even if the word 'transaction' is given its widest connotation, and need not involve any transfer of money or a written agreement as suggested by the Revenue, and even if resort is had to Section 92F (v) which defines 'transaction' to include 'arrangement', 'understanding' or 'action in concert', 'whether formal or in writing', it is still incumbent on the Revenue to show the existence of an 'understanding' or an 'arrangement' or 'action in concert' between MSIL and SMC as regards AMP spend for brand promotion. In other words, for both the 'means' part and the 'includes' part of Section 92B (1) what has to be definitely shown is the existence of transaction whereby MSIL has been obliged to incur AMP of a certain level for SMC for the purposes of promoting the brand of SMC." 27. Thereafter, the Hon'ble High Court went on to hold that in the absence of there being an interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently, the Court does not agree with the submission of the learned Special counsel for the Revenue that de hors the BLT, which has been rejected in the Sony Ericsson Mobile Communications India(P.) Ltd. (supra) judgment, the existence of an international transaction on account of the incurring of the AMP expenses can be established. .......... 51. The result of the above discussion is that in the considered view of the Court the Revenue has failed to demonstrate the existence of an international transaction only on account of the quantum of AMP expenditure by MSIL. Secondly, the Court is of the view that the decision in Sony Ericsson Mobile Communications India(P.) Ltd. case (supra) holding that there is an international transaction as a result of the AMP expenses cannot be held to have answered the issue as far as the present Assessee MSIL is concerned since finding in Sony Ericsson to the above effect is in the context of those Assessees whose cases have been disposed of by that judgment and who did not dispute the existence of an international transaction regarding AMP expenses." 29. Further, the reliance of ld. AR on the decision of Hon'ble Delhi High Court's in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of this Court in the case of Maruti Suzuki (supra) and Bausch & Lomb Eyecare (India) (P.) Ltd. (supra). We are, therefore, not inclined to frame any substantial question of law on this issue. The facts and law have been correctly assessed by the ITAT and we therefore, do not find any merits in the appeal and the accordingly, the same are dismissed" 31. Then we find that DRP has specifically mentioned that the issue of AMP adjustment is pending before the Hon'ble Supreme Court for final decision. DRP observed "According to Taxsutra/Taxmann, the Hon'ble Supreme Court has admitted the Department's SLP in several cases involving AMP, in respect of a distributor as also a manufacturer-distributor, where the Hon'ble Delhi High Court has decided the issue against the Revenue." However, now, Hon'ble Supreme Court has dismissed the Revenue's SLP finding no international transaction involving AMP expenses in case of Whirlpool India. The issue there in also have in its background the claim of Revenue department that excess AMP expenses incurred by an Indian associated enterprise lead to creation of "marketing intangibles", adds to the brand value and expands brand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the determination of ALP of such transaction. Although, under Section 92B read with Section 92F (v), an international transaction could include an arrangement, understanding or action in concert, this cannot be a matter of inference. There has to be some tangible evidence on record to show that two parties have "acted in concert". XXX XXX XXX 37. The provisions under Chapter X do envisage a 'separate entity concept'. In other words, there cannot be a presumption that in the present case since WOIL is a subsidiary of Whirlpool USA, all the activities of WOIL are in fact dictated by Whirlpool USA. Merely because Whirlpool USA has a financial interest, it cannot be presumed that AMP expense incurred by the WOIL are at the instance or on behalf of Whirlpool USA. There is merit in the contention of the Assessee that the initial onus is on the Revenue to demonstrate through some tangible material that the two parties acted in concert and further that there was an agreement to enter into an international transaction concerning AMP expenses. XXX XXX XXX 39. It is in this context that it is submitted, and rightly, by the Assessee that there must be a machinery provision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beneficial to the brand of foreign AE requiring TP adjustment. Thus this issue is decided in favour of the assessee and as a consequence of same the grounds no. 5 and 6 are decided in favour of assessee. 33. In regard to grounds No.7 and 9 arising out of payment of royalty, we find that in AY 2013-14 the coordinate Bench had examined the issue if the tax authorities have erred in rejecting the transfer pricing documentation maintained by the assessee in respect of payment of royalty and erroneously determined arm's length royalty rate at 2% of the sales of the assessee and while examining this, the coordinate Bench had made the following relevant observations:- "13. In the backdrop of the above factual matrix, the Ld. AR submitted that the assessee has entered into a License Agreement with Tupperware USA (copy of License Agreement at pages 165-172 of Paper Book-Convenience Compilation) for the use of Tupperware registered trademarks, trademark applications and marketing information to sell the products in India. While the registered trademarks include trademarks like "Tupperware(r)", "Tuppercraft(r)", "Tuppertoys(r)" and other trademarks which include the derivative "Tupper", t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objects, accent pieces, architectural treatments, china, dishware, flatware, stemware, cookware, bed and bath items, and home accessories 2.00% 2. Mikasa Inc. American Commercial Inc.; Mikasa Licensing Inc.; ARC International, SA TMC Acquisition Inc.; Lifetime Brands, Inc. Asset Purchase; Copyrights; Know-how; Patent; Proprietary Information; Technology; Trade Name; Trademark; Web content business which designs, develops, markets, distributes and sells branded and cobranded dinnerware, giftware, stemware, barware, flatware and other products designed for decorative or utilitarian purposes, including inventory, the "Mikasa" and "Oenology" trademarks and trade names, patents, copyrights, technology, know-how, formulations, web content and domain names, goodwill, marketing materials, a showroom lease, contracts, actions, and raw materials. 5.00% 3. Oneida Ltd. Robinson Home Products Inc. Copyrights; know-how; Patent, Trademark Exclusive patent, knowhow and copyright license to use the 'Oneida' trademarks to design, engineer, market, promote, manufacture, distribute, use and sell flatware, dinnerware, kitchen gadgets, tools, barware and cutlery products and other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be accepted. 13.5 With respect to the 'product similarity' filter applied by the Ld. TPO/Hon'ble DRP, the Ld. AR submitted that royalty is paid for the use of intangibles and that it is a factor of profit generating potential of the intangibles. In transactions relating to payment of royalty, similarity ought to be considered in respect of the use of intangibles, rather than the comparability of products for which license has been granted and hence the comparable selected by the assessee in the transfer pricing documentation should be accepted in the final set of comparable agreements. 14. The Ld. DR relied on the order of the Ld. TPO / Hon'ble DRP. He pointed out certain technical defects in the license agreement such as the effective date being 01.04.2012 and the signing date being 13.11.2012. He submitted that the comparables selected by the assessee are inappropriate as there is no product similarity and that the assessee has not produced any evidence to show that even marketing know-how was provided to the assessee by Tupperware USA. 15. In rebuttal to the DR's contentions above, the Ld. AR submitted that the license agreement clearly shows that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and the Foreign Investment Promotion Board, in cases where the BRAND is used is around 1% to 2%, As already discussed in earlier paragraphs, the assessee has not received any technical knowhow from its AEs, rather it has used the Brand of its AE the "Tupperware". However, considering the various contentions and functions of the Assessee, and in absence of any reliable comparable analysis or the data submitted by the assessee, the undersigned is having view that royalty of 2% of the sales is justifiable in the case of the Assessee, being Arm's Length of Royalty payment, Therefore, the undersigned proposes to make an adjustment against excess royalty being paid by the Assessee Company to its foreign based AEs with the purpose of tax evasion u/s 92CA. Computation of Arm's Length Price: Particulars Amount (In INR) Sales of the Assessee Company (A) 483, 79, 01, 881 Royalty Allowable [ B=A*2%] 9, 67, 58, 038 Total Royalty paid to AE [C] 25, 33, 48, 790 Adjustment u/s 92CA [D=C-B] 5, 65, 90, 752 16.2 We find force in the contention of the assessee that royalty agreements operating in different geographical regions can be applied as a filter as the Ld. TPO hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts by LICENSOR, LICENSEE Shall compensate LICENSOR for all of LICENSOR'S actual costs associated therewith, plus an additional amount calculated to cover reasonable allocable overhead expense. For the purpose of this- Agreement, time of the LICENSOR or of its designee which exceeds twenty man days per fiscal year will be considered to be extraordinary. 9. Payments (a) In consideration of the license and rights granted hereunder, LICENSEE agrees to pay a royalty of five percent (5%) of the net sales proceeds of the Licensed Products manufactured and sold by LICENSEE in India, in connection with which LICENSEE utilizes any of the Licensed Trademarks or the Marketing Information, or any part of anyone or more thereof. 1n this connection, the net sales proceeds shall be the gross sales proceeds of the Licensed Products marketed and sold under this Agreement minus the following: (1) sales discounts including any sales rebates; (2) sales returns; and (3) indirect taxes (value added tax, etc.) on sales of goods." 16.5 Coming to the issue whether the set of comparables selected by the assessee are appropriate for benchmarking the payment of royalty or not, we note that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas the assessee is not obtaining know-how which in our considered view is incorrect as evident from the license agreement as well as other documentary evidence submitted by the assessee. The assessee has paid royalty for use of trademark and marketing information /marketing know-how. All the eight comparables listed in the chart in para 16.5 above are from the same geography and same industry and hence are valid comparables to that of the assessee. Accordingly, the Ld. AO/TPO is directed to include the aforesaid eight comparables in the final set of comparable agreements for the purpose of benchmarking the payment of royalty by the assessee. Ground No. 6 and 9 are thus allowed." 34. Thus, we find that in appellant's own case, the comparable agreements selected by the assessee in its TP documentation maintained for the subject year were rejected by the ld. TPO on account of different geographical reasons, but, the issue was considered in favour of the assessee and further comparable agreements selected by the assessee and the ld. TPO belong to same industry i.e., kitchenware and home furnishing items. Therefore, the rejection of comparable companies selected by the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court judgement in the case of Cotton Naturals, upheld the enhancement done by the ld. TPO. Since the case of assessee is that post undertaking working capital adjustment of comparable companies selected in TP documentation, the margins earned by appellant are more than that of comparable companies. We consider it appropriate to remit the issue with the ld. AO/TPO to examine the issue afresh on the basis if post undertaking working capital adjustment the assessee selected the comparable companies and ratio of judgment in the case of Kusum Healthcare Pvt. Ltd., (supra). The ground is sustained for statistical purposes. 38. As with regard to ground No.11 on account of payments made to 'Dart' alleged to be royalty, in assessee's own case for AY 2013-14, the issue has been dealt by the Bench in ITA No.7580/Del/2017, order dated 01.08.2022 and the facts before us are not in any way different from AY 2013-14. The relevant part of the order of the coordinate Bench being paras 23 to 25 are reproduced below:- "23. We have heard the Ld. Representatives of the parties and perused the material available on record and the judicial precedents relied upon. The facts placed on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow stands settled by the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence P. Ltd. (supra) wherein the Hon'ble Supreme Court has held that such payments are not royalty payment and the same does not give rise to any income taxable in India, as a result of which such payments are not liable to tax deduction at source under the provisions of section 195 of the Act. The decision (supra) of the Hon'ble Supreme Court will apply to the case of the assessee provided the consideration paid by the assessee is towards purchase of standard/off-the-shelf software from Dart. 24. The issue whether the software supplied by Dart to the assessee is standard/off-the-shelf software or customized software needs verification in the light of observations made by the Hon'ble DRP. We, therefore, deem it fit to restore this issue to the file of the Ld. AO for verification. Needless to say, the assessee will be given adequate opportunity of hearing before the Ld. AO. If, on verification it is found that the software supplied by Dart is standard software without any customization being done by Dart, the Ld. AO shall reconsider this issue in ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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