Full News

ITAT remitted the issue of payment of royalty to AO/TPO

Assessee, a 100% Indian subsidiary of JCB, UK, had 19 international transactions including 'Payment of royalty'. TPO determined ALP of payment of royalty by assessee to its AE @5% of domestic sales and 8% of export sales, and recommended TP adjustment in the amount. DRP determined ALP of royalty at 0.25% on sales. ITAT remitted the matter to AO/TPO to decide according to the High Courts decision in Cushman & Wakefield (India) (P) Ltd.-501635

1. Assessee was a 100% Indian subsidiary of J.C. Bamford Excavators Ltd., UK, intothe manufacture of Earthmoving and Construction equipments.

2. The assessee reported 19 international transactions including 'Payment of royalty'with transacted value of Rs.185,76,44,174.

3. TPO observed that out of total royalty payment of Rs.185.76 crore, the assessee paid a royalty amounting to Rs.164,74,23,297 in respect of product 3DX to its AE @ 5% of domestic sales and 8% of export sales.

4. Determining the ALP of this international transaction at Nil, the TPO recommended transfer pricing adjustment of Rs.164.74 crore.

5. DRP approved TPO's findings in applying the 'benefit test' and in coming to the conclusion that the assessee did not receive any significant benefit from the payment of royalty to its AE because product 3DX was developed in India.

6. DRP determined ALP of royalty on 3DX model at 0.25% on sales.

7. AO reduced the amount of addition to Rs.156.38 crore, after allowing the benefit of 0.25% as directed by the DRP.

On appeal, the ITAT held as under:

8. An addition of Rs.156.38 crore has been made by the AO in his final assessment order giving effect to the direction given by the DRP and not by invoking section 37(1) of the Act.

9. TPO in the instant case initially determined nil ALP by holding that no benefit accrued to the assessee and the AO made the addition without examining the applicability of section 37(1) of the Act.

10. We set aside the impugned order and remit the matter to the file of AO/TPO for deciding this issue in conformity with the law laid down by the Hon'ble jurisdictional High Court in the case of Cushman & Wakefield (India) (P.) Ltd.

Similar Ripples

Questions

There is no question

ITAT remitted the issue of payment of royalty to AO/TPO

Write your Comment

Would you like to edit this news ? Edit

Select Format

You get opportunity to take 30 day Challenge program.

Optional

Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016Income Tax Appellate Tribunal - DelhiJcb India Ltd., New Delhi vs Assessee on 31 March, 2016IN THE INCOME TAX APPELLATE TRIBUNALDELHI BENCHES : I-1 : NEW DELHIBEFORE SHRI R.S. SYAL, AM & SHRI KULDIP SINGH, JMITA No.1075/Del/2016Assessment Year : 2011-12JCB India Ltd.,B-1/I-1, 2nd Floor,Mohan CooperativeIndustrial Estate,Mathura Road,New Delhi.PAN: AAACE0078PVs.DCIT,Circle 13(1),New Delhi.(Appellant)(Respondent)Assessee By :Department By :Shri M.S. Syali, Sr. Advocate &Shri Tarandeep Singh, CAShri Amrendra Kumar, CIT, DRDate of HearingDate of Pronouncement::29.03.201631.03.2016ORDERPER R.S. SYAL, AM:This appeal filed by the assessee is directed against the final assessment order passed by theAssessing Officer (AO) on 30.1.2016 u/s ITA No.1075/Del/2016 143(3) read with section 144C(1) ofthe Income-tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year2011-12.2. The only grievance raised in this appeal is against the addition of Rs.156,38,82,889/- made by theAO on account of transfer pricing adjustment.3. Briefly stated, the facts of the case are that the assessee is a wholly owned Indian subsidiary ofJ.C. Bamford Excavators Ltd., UK. It commenced its operations in the year 1979 and is engaged inthe manufacture of Earthmoving and Construction equipments. The assessee reported 19international transactions for the year in question in Form No. 3CEB including 'Payment of royalty'with transacted value of Rs.185,76,44,174/-. The assessee used the Transactional Net MarginMethod (TNMM) to benchmark its major international transactions. Profit Level Indicator (PLI) ofOperating Profit to Total Cost (OP/TC) was adopted. The assessee employed ComparableUncontrolled Price (CUP) Method qua the international transaction of `Payment of royalty' ITANo.1075/Del/2016 to demonstrate that the same was at arm's length price (ALP). On a referenceIndian Kanoon - http://indiankanoon.org/doc/188693720/1Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016made by the AO to the Transfer Pricing Officer (TPO), the latter disputed only the internationaltransaction of 'Payment of royalty.' The TPO observed that out of total royalty payment of Rs.185.76crore, the assessee paid a royalty amounting to Rs.164,74,23,297/- in respect of product 3DX to itsassociated enterprise (AE) @ 5% of domestic sales and 8% of export sales. A show cause notice wasissued requiring the assessee to explain as to why such royalty of Rs.164 crore and odd was paid onmodel 3DX machine which was nothing, but replication of model 3D, whose patent expired longback. At this stage, we consider it relevant to mention that the view point of the TPO that theassessee did not pay any royalty on model 3D during the period 1987 to the financial year 2005 onaccount of unexpired patent, is factually incorrect. The ld. AR has candidly admitted during thecourse of hearing before us that no royalty was paid for the product 3D during the period 1987 tofinancial year 2005 because the agreement between the assessee and its AE for such payment ofroyalty expired in 1987 and a new agreement was entered into only w.e.f. 5.3.2004. The ld. ARstated that no royalty was ITA No.1075/Del/2016 paid during the above period due to non-existenceof any agreement between the assessee and its AE and not due to any unexpired patent. Comingback, the assessee was also called upon by the TPO to file agreements along with necessaryannexures for products 3D and 3DX and also to substantiate new inventions/improvements inproduct 3DX vis-à-vis product 3D. The assessee furnished such details along with agreements andalso a technical report of some professor from IIT Delhi on the study made by him on the features ofmodels 3D and 3DX. The TPO noticed that such report was also filed by the assessee before theDispute Resolution Panel (DRP) during the course of proceedings for the assessment years 2008-09and 2009-10. The assessee justified payment of royalty on 3DX model by submitting that it receivedtechnical knowhow, information and assistance from JCB group for its manufacturing activities.Various documents were filed to indicate difference in products 3D and 3DX. The assessee alsosubmitted that it was granted an exclusive non-transferrable license in India to manufacture,assemble, use and sell products and, for that purpose, to use the know-how inventions covered bythe patent rights. The assessee ITA No.1075/Del/2016 still further submitted that it did not own anypatent rights in India for 3D and the design registrations were done in its name to protect thepotential infringements of designs in India. The TPO observed that there was a change in theapproach of the assessee in this year vis-à-vis the earlier years inasmuch as the assesseebenchmarked the international transaction of `Payment of royalty' by using CUP as the mostappropriate method in contrast to the TNMM used for earlier years on entity level. He furtherobserved that the facts for this year regarding payment of royalty were similar to those for precedingyears in which it was held that - payment of royalty requires separate analysis on the basis oftransaction by transaction approach and for that CUP method is to be applied as the most suitablemethod for the royalty payment transaction; new product 3DX is existing old product 3D with thesame Indian manufacturer of Kirloskar Ltd.; and the assessee had not paid any royalty on product3D from the year 1987 to financial year 2005-06. As regards the use of the CUP method by theassessee for benchmarking the international transaction of `Payment of royalty' on 3DX for the yearunder consideration, the TPO did not find any convincing reasons to ITA No.1075/Del/2016 acceptthree comparables chosen by the assessee on several grounds tabulated on para 14 of his orderincluding difference in type of technology and different geographical locations inasmuch as both thepayers and payees were foreign parties. Then, the TPO viewed the assessee's annual reports forearlier years which indicated the carrying on of R&D activity by it in respect of the productsincluding 3DX. Considering the fact that there was not much difference between the product 3D, onIndian Kanoon - http://indiankanoon.org/doc/188693720/2Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016which the assessee did not pay any royalty from 1987 till the financial year 2005 on one hand andproduct 3DX on the other on which the said royalty has been paid and the further fact that theassessee itself carried out R&D activity in respect of 3DX model during earlier years, the TPO cameto hold that no independent person would have paid royalty on product 3DX under the comparableuncontrolled circumstances. Determining the ALP of this international transaction at Nil, the TPOrecommended transfer pricing adjustment of Rs.164.74 crore. The assessee assailed the draft order,incorporating the transfer pricing adjustment proposed by the TPO before the Dispute ResolutionPanel. Vide its direction dated 23.12.2015, the DRP noticed it to be a ITA No.1075/Del/2016recurring issue from the assessment year 2006-07 onwards for which the Tribunal has remandedthe matter back to the TPO/AO for fresh determination of ALP of international transaction ofpayment of royalty. The DRP approved the findings given by the TPO in applying the 'benefit test'and in coming to the conclusion that the assessee did not receive any significant benefit from thepayment of royalty to its AE because product 3DX was developed in India. Considering that the DRPfor earlier years determined ALP of royalty on 3DX model at 0.25% on sales, it gave similardirection for the extant year as well. That is how, the AO vide his final order, reduced the amount ofaddition to Rs.156.38 crore, after allowing the benefit of 0.25% as directed by the DRP. The assesseeis aggrieved against this addition.4. We have heard the rival submissions and perused the relevant material on record. Thecontroversy in the present appeal is against the international transaction of `Payment of royalty'and that too, only on model 3DX. It is manifest that the TPO, following his findings given for earlieryears, initially determined Nil ALP of the international ITA No.1075/Del/2016 transaction bynoticing, inter alia, that the assessee did not pay any royalty for use of technology of product 3D forthe years 1987 to the financial year 2005 and further that it developed technology for 3DX modelthrough its own R&D division and as such the assessee did not receive any benefit from the so-calleduse of the technology of 3DX from its AE for which the royalty was paid. He approved, in principle,the application of CUP method by the assesee for the year under consideration in contrast to theTNMM on entity level for earlier years, which was not accepted by him as the most appropriatemethod. However, on merits it was found that no companies cited by the assessee were comparableand that since the assessee did not derive any benefit, the ALP of this transaction was Nil. It is onlypursuant to the direction of the DRP that finally the ALP was determined at 0.25% of the amount ofsales as against 5% and 8% paid by the assessee on domestic and export sales. It is an admittedposition that this is a recurring issue from the A.Y. 2006-07 when the assessee started payingroyalty on product 3DX. The Tribunal vide its combined order dated 18.9.2013 for the assessmentyears 2006-07 to 2008-09 has not approved the assessee's approach in ITA No.1075/Del/2016following the TNMM for benchmarking all its international transactions including `Payment ofroyalty' in an aggregated manner. It has been held that the benchmarking should be done on atransaction to transaction basis. In simple words, the Tribunal recommended the following of theCUP method qua the international transaction of payment of royalty. It further found that the ALPof the international transaction could not be taken 0.25% on ad hoc basis. In the ultimate analysis, itrestored the matter to the file of the AO/TPO for determining the ALP of the internationaltransaction of payment of royalty afresh. This view has been consistently followed by the tribunal forthe assessment year 2009-10, a copy of which order is available on page 107 onwards of the paperbook and for the assessment year 2010-11, a copy of which order is available on page 111 onwards ofIndian Kanoon - http://indiankanoon.org/doc/188693720/3Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016the paper book. It was fairly admitted before us on behalf of the assessee that the facts andcircumstances of the instant year are mutatis mutandis similar to the earlier years.ITA No.1075/Del/20165. The ld. Sr. AR, however, put forth two fold submissions, viz., first that no addition on account oftransfer pricing adjustment is permissible as the AO has not made any disallowance u/s 37(1), andsecond, the application of the TNMM on entity level should be upheld covering the internationaltransaction of payment of royalty. 6.1. In so far as the first contention is concerned, the ld. ARsubmitted that the AO did not make any disallowance u/s 37(1) of the Act on account of payment ofroyalty. Relying on the judgment of the Hon'ble Delhi High Court in CIT v. Cushman & Wakefield(India) (P.) Ltd. (2014) 367 ITR 730 (Del), he contended that not having made any addition u/s37(1), the AO was debarred from making addition towards transfer pricing adjustment on this score.This was strongly opposed by the ld. DR.6.2. We are unconvinced with the submission advanced on behalf of the assessee. Their Lordships inthe afore referred case have held that the authority of the TPO is limited to conducting transferpricing analysis for determining the ALP of an international transaction and not to decide ITANo.1075/Del/2016 if such services exist or benefits did accrue to the assessee. Such later aspectshave been held to be falling in the exclusive domain of the AO. In that case, it was observed that thee-mails considered by tribunal from Mr. Braganza and Mr. Choudhary dealt with specific interactionand related to benefits obtained by assessee, providing a sufficient basis to hold that benefit accruedto assessee. As the details of specific activities for which cost was incurred by both AEs (for activitiesof Mr. Braganza and Mr. Choudhary), and attendant benefits to assessee were not considered, theHon'ble High Court remanded the matter to file of concerned AO for an ALP assessment by TPO,followed by AO's assessment order in accordance with law considering the deductibility or otherwiseas per section 37(1) of the Act. In our considered opinion, the argument of the ld. AR advocating forthe deletion of the addition on the sole ground of the AO not disallowing any amount u/s 37(1) of theAct is sans merit. There is no doubt that the TPO initially determined Nil ALP of the internationaltransaction of `Payment of royalty', which was given effect to by the AO in the impugned order, aftertaking into consideration the direction given by the DRP. It is obvious that when the ITANo.1075/Del/2016 TPO determined Nil ALP of this transaction, nothing was left with the AO to dofurther. In sequence, the TPO passes his order first and then after passing through the route of theDRP, the matter comes to the AO for passing the final order of assessment. Once a particularamount has been added on account of transfer pricing adjustment by relying on the TPO's order,there cannot be one more disallowance of the same amount or some part of it by the AO u/s 37(1) ofthe Act. Rather its converse is true. It is possible that the TPO may find a particular internationaltransaction to be at ALP and the AO, may thereafter make disallowance by considering theapplicability of section 37(1). Be that as it may, the Hon'ble High Court in this case has remitted thematter back to the authorities below for following the mandate, viz., the TPO firstly determining theALP of the international transaction and then the AO applying the provisions of section 37(1) of theAct. 6.3. When we advert to the facts of the instant case, it turns out that the TPO proposed thetransfer pricing adjustment equal to the stated value of transaction at Rs.164.74 crore with Nil ALPof `Payment of royalty' ITA No.1075/Del/2016 by holding that no benefit was received by theIndian Kanoon - http://indiankanoon.org/doc/188693720/4Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016assessee as a result of the payment of royalty and hence no payment on this account was warranted.The AO in his draft order has taken its ALP at Nil on the basis of recommendation of the TPOwithout carrying out any independent investigation in terms of the deductibility or otherwise of suchpayment in terms of section 37(1) of the Act. An addition of Rs.156.38 crore has been made by theAO in his final assessment order giving effect to the direction given by the DRP and not by invokingsection 37(1) of the Act. As per the ratio decidendi in Cushman & Wakefield India (P.) Ltd. (supra),the TPO was required to simply determine the ALP of the international transaction of `Payment ofroyalty' unconcerned with the fact, if any benefit accrued to the assessee and thereafter, it was forthe AO to decide the deductibility of this amount u/s 37(1) of the Act. As the TPO in the instant caseinitially determined nil ALP by holding that no benefit accrued to the assessee and the AO made theaddition without examining the applicability of section 37(1) of the Act, we find the actions of theAO/TPO running in contradiction to the ratio laid down in Cushman & Wakefield (supra).ITA No.1075/Del/2016 Respectfully following the precedent, we set aside the impugned order andremit the matter to the file of AO/TPO for deciding this issue in conformity with the law laid downby the Hon'ble jurisdictional High Court in the case of Cushman & Wakefield (India) (P.) Ltd.(supra) and also the tribunal orders in assessee's own case for immediately preceding fiveassessment years to the extent they accord with this judgment.7.1. Next argument of the ld. AR was that the TNMM was applicable on entity level de hors theseparate determination of ALP of the international transaction of payment of royalty under the CUPmethod by the assessee. It was argued that the assessee's main emphasis in the TP study report andalso before the TPO was that the TNMM should be applied on entity level and that thedetermination of ALP of the international transaction of payment of royalty under the CUP methodwas without prejudice to its main argument of the applicability of the TNMM. Notwithstanding thefact that such a contention has been repelled by the tribunal for earlier years, still the ld. ARcanvassed this ITA No.1075/Del/2016 view before us by relying on the judgment of the Hon'blejurisdictional High Court in Sony Ericsson Mobile Communications India (P) Ltd. VS. CIT (2015)374 ITR 118 (Del), which in the opinion of the ld. AR, is an authority for the proposition thataggregation of all the international transactions for benchmarking under the TNMM is permissibleand, there is no need to separately determine the ALP of any international transaction including`Payment of royalty'.7.2. We are unable to countenance this contention. In a group of appeals by `Distributors' (notManufacturers) led by Sony Ericson Mobile Communications (supra), their Lordships espoused thedetermination of the ALP of Advertisement, Marketing and Promotion expenses (AMP expenses).Dealing with the computation of ALP of the international transaction of AMP expenses by aDistributor, the Hon'ble High Court held, inter alia, that the international transaction of AMPexpenses should be bundled/aggregated with other international transaction carried out by theassessee as a distributor, who either simply acts an agent of manufacturer or purchases goods fromthe manufacturer ITA No.1075/Del/2016 for resale at his own account. The Hon'ble High Court heldthat where the TNMM has been applied as the most appropriate method by a Distributor, whichmethod has not been disturbed by the TPO, then, the international transaction of AMP anddistribution activities should be clubbed. It further held that for determining the ALP of suchIndian Kanoon - http://indiankanoon.org/doc/188693720/5Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016transactions under a combined approach, only such comparables should be chosen which conformto the AMP functions and other distribution functions conducted by the assessee. If there is somedifference in the functions under these international transactions, including that of AMP, betweenthe assessee and the comparables, then, suitable adjustment should be made to bring both thetransactions at par. If probable comparables are not performing similar functions as done by theassessee and no adjustment is possible for bringing the international transactions of the assessee inan aggregated manner at par with those undertaken by the comparables, then, segregation shouldbe done and the international transaction of AMP should be separately processed under the transferpricing provisions. In such a determination of ALP of ITA No.1075/Del/2016 AMP expenses in asegregated manner, proper set off on account of excess purchase price adjustment should beallowed. 7.3. We can summarize the relevant position emanating from the judgment of the Hon'bleHigh Court in the case of a `Distributor', as under : -Inter-connected international transactions can be aggregated and section 92(3) doesnot prohibit the set-off [Paras 80 & 81]; AMP is a separate function. An externalcomparable should perform similar AMP functions. [Paras 165 &166] ; ALP of AMPexpenses should be determined preferably in a bundled manner with the distributionactivity [Paras 91, 121 & others] ;For determining the ALP of these transactions in a bundled manner, suitablecomparables having undertaken similar activities of distribution of the products andalso incurring of AMP expenses, should be chosen [Paras 194(i), (ii), (viii) & others];ITA No.1075/Del/2016 If no comparables having performed both the functions in asimilar manner are available, then, suitable adjustment should be made to bringinternational transactions and comparable transactions at par [Para 194 (iii)] ;If adjustment is not possible or comparable is not available, then, the TNMM onentity level should not be applied [Paras 100, 121, 194(iii) & (vi)] ;In the above eventuality, international transaction of AMP should be viewed in ade-bundled manner or separately [Paras 121& 194(xi)] ;In separately determining the ALP of AMP expenses, the TPO is free to choose anyother suitable method [Para 194(xiii)]; In so making a TP adjustment on account ofAMP expenses, a proper set off/purchase price adjustment should be allowed fromthe other transaction of distribution of the products [Para 93] ;7.4. Though the judgment in Sony (supra) lays down at length the broader principles fordetermination of the ALP of AMP expenses in the ITA No.1075/Del/2016 case of a `Distributor',certain principles dealing exclusively with the determination of the ALP of AMP expenses in the caseof a `Manufacturer' have also been laid down. Such discussion has been made in para 92 of thejudgment, the relevant part of which is reproduced here as under : -Indian Kanoon - http://indiankanoon.org/doc/188693720/6Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016`92. The majority judgment refers to an example where the Indian AE may haveearned actual profit of Rs.140/-, but returned reduced net profit of Rs.120/- as theIndian AE had incurred brand building expenses to the tune of Rs.20/- for theforeign AE, whereas the net profit on sales declared by comparable uncontrolledtransactions was Rs.100/- only. Thus, it was observed that the costs including AMPexpenses are independent of cost of imported raw material/finished products havingsome correlation with overall profit. The example highlights the weakness of theTNM Method. The reasoning would be equally valid, where no AMP or brandbuilding' expenses are incurred. (See paragraph 21.8 to 22.10 of the majoritydecision). The net profit margins can be affected by variation of operating expenses.Thus, the requirement to select appropriate comparable and adjustment. It would beinappropriate and unsound to accept comparables, with or without adjustment andapply TNM Method, and yet conjecturise and mistrust the arm's length price. TNMMethod would not be the most appropriate method when there are considerablevalue additions by the subsidiary AEs. In paragraph 22.9, the majority decision hasobserved that all costs including the AMP expenses are independent of cost ofmaterial. This indicates that the observations have been made with reference tomanufacturing activities. It would not be appropriate and proper to apply the TNMMethod in case the Indian assessed is engaged in manufacturing activities anddistribution and marketing of imported and manufactured products, ITANo.1075/Del/2016 as interconnected transactions. Import of raw material formanufacture would possibly be an independent international transaction viz.marketing and distribution activities or functions.We have earlier used the term `plain vanilla distributor'. When we use the words `plain vanilladistributor' we do not mean plain vanilla situations, but value additions and each party makingvaluable unique contribution.' 7.5. It is discernible from the italicized part of the above para that theapplication of TNM Method is not appropriate and proper in case the assessee is engaged inmanufacturing activities. In such circumstances, the import of raw material for manufacture wouldbe an independent international transaction viz., marketing and distribution activities or functions.The essence of the above para is that two or more unrelated transactions cannot be aggregated andin case of a `Manufacturer', the international transactions concerned with the manufacturingactivity cannot be aggregated with the AMP activities as both are separate and distinct.7.6. Nitty gritty of the above discussion is that aggregation of related transactions is permissible, butthere is no rule that all the related and unrelated transactions can be combined and shown at ALPunder the TNMM on entity level. The Hon'ble Punjab & Haryana High Court in ITANo.1075/Del/2016 Knorr-Bremse India P. Ltd. vs. ACIT (2016)380 ITR 307 (P&H) has held that inorder to combine two or more transactions, it is essential that they should be either inextricablylinked to each other either by way of a package deal or that a number of transactions are priceddifferently but on the understanding that the assessee will accept all of them together (i.e. eithertake all or leave all). It further held that merely because purchase of goods and acceptance ofservices lead to manufacture of final product, it does not follow that they are dependenttransactions. 7.7. On going through the facts and ratio of the decisions in Sony Ericsson (supra) andIndian Kanoon - http://indiankanoon.org/doc/188693720/7Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016Knorr-Bremse (supra), it is manifest that the contention of the ld. AR for aggregating all theinternational transactions including `Payment of royalty', and then applying TNMM on entity level,cannot be upheld because the international transaction of `Payment of royalty' is independent ofother transactions. The tribunal in assessee's own case has also jettisoned such argument advancedon behalf of the assessee for earlier years and has rightly held that the ALP of the internationaltransaction of `Payment of royalty' should be done ITA No.1075/Del/2016 separately on atransaction by transaction approach, which has been rightly interpreted by the assessee as a CUPmethod, that was employed by the assessee in its transfer pricing study report for the year underconsideration. Ergo, we turn down the argument of the ld. AR and approve in principle that theTNMM cannot be applied and the international transaction of payment of royalty in respect ofmodel 3DX has to be benchmarked by applying CUP as the most appropriate method.8. Now, coming to the determination of ALP of this international transaction under the CUPmethod, we find that the assessee chose three companies as comparable, which, in our consideredopinion, have been rightly rejected by the TPO on several cogent reasons tabulated vide para 14 ofhis order including difference in type of technology and different geographical locations inasmuchas both the payers and payees were foreign parties. However, the fact remains that if the assessee'scomparables are not correct and the assessee is not forthcoming with a new set of comparables,then, it becomes the duty of the TPO to find out ITA No.1075/Del/2016 relevant comparables andproceed to determine the ALP accordingly. Coming back to the TPO's opinion about nil ALP of thepayment of royalty, we find that the DRP has accepted the marginal use of technical know-how bythe assessee from its AE, for which it directed to adopt 0.25% on sales as the ALP of royalty paymentin respect of this model. It is this ad hoc approach of the DRP which has been turned down by theTribunal for the earlier years leading to the restoration of the matter to the file of AO/TPO for afresh determination of the ALP of this transaction by using the transaction by transaction approach,which the assessee has done for this year by applying the CUP method in respect of the internationaltransaction of payment of royalty. As the facts and circumstances for the instant year continue toremain similar vis-à-vis the preceding years, respectfully following the precedent, we set aside theimpugned order and remit the matter to the AO/TPO for a fresh determination of the ALP of theinternational transaction of `Payment of royalty' for model 3DX by applying the CUP method afteraffording a reasonable opportunity of being heard.ITA No.1075/Del/20169. In the result, the appeal is allowed for statistical purposes.The order pronounced in the open court on 31.03.2016.Sd/-[KULDIP SINGH]JUDICIAL MEMBERSd/-[R.S. SYAL]ACCOUNTANT MEMBERDated, 31st March, 2016.dkIndian Kanoon - http://indiankanoon.org/doc/188693720/8Jcb India Ltd., New Delhi vs Assessee on 31 March, 2016Copy forwarded to:1.Appellant2.Respondent3.CIT4.CIT (A)5.DR, ITATAR, ITAT, NEW DELHI.Indian Kanoon - http://indiankanoon.org/doc/188693720/9

Advanced

You get opportunity to take 30 day Challenge program.

Optional

Add tags

You get opportunity to take 30 day Challenge program.

Optional

PUBLISH IT

Don't sell
PUBLISH IT
Publish privately
SAVE AS DRAFT

Dont't publish now

1. Assessee was a 100% Indian subsidiary of J.C. Bamford Excavators Ltd., UK, intothe manufacture of Earthmoving and Construction equipments.2. The assessee reported 19 international transactions including 'Payment of royalty'with transacted value of Rs.185,76,44,174.3. TPO observed that out of total royalty payment of Rs.185.76 crore, the assessee paid a royalty amounting to Rs.164,74,23,297 in respect of product 3DX to its AE @ 5% of domestic sales and 8% of export sales.4. Determining the ALP of this international transaction at Nil, the TPO recommended transfer pricing adjustment of Rs.164.74 crore.5. DRP approved TPO's findings in applying the 'benefit test' and in coming to the conclusion that the assessee did not receive any significant benefit from the payment of royalty to its AE because product 3DX was developed in India.6. DRP determined ALP of royalty on 3DX model at 0.25% on sales.7. AO reduced the amount of addition to Rs.156.38 crore, after allowing the benefit of 0.25% as directed by the DRP.On appeal, the ITAT held as under:8. An addition of Rs.156.38 crore has been made by the AO in his final assessment order giving effect to the direction given by the DRP and not by invoking section 37(1) of the Act.9. TPO in the instant case initially determined nil ALP by holding that no benefit accrued to the assessee and the AO made the addition without examining the applicability of section 37(1) of the Act.10. We set aside the impugned order and remit the matter to the file of AO/TPO for deciding this issue in conformity with the law laid down by the Hon'ble jurisdictional High Court in the case of Cushman &amp; Wakefield (India) (P.) Ltd.

Hi Thakurani,
I want to withdraw in my Thakurani wallet
Thanks,

Select the reason for validity check

I feel great..the news is still good.please give the reason too..thanks..

Why do you think the News as invalid?” Please mention the reason.

I appreciate your effort. May I request you to select one of the reasons from below.
I am marking this post and your reason to Thakurani Moderators. They will take appropriate action.
Thanks,

Write your reason

My Dear ,

Harassing

Spam

Ingenuine

Rotten

Alien

Plagiarism

Unformatted

Full News

ITAT remitted the issue of payment of royalty to AO/TPO