A.W. FABER CASTELL (INDIA) P.LTD, MUMBAI V. DCIT 9(1)(1), MUMBAI

ITA 1037/MUM/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1194 (ITAT-MUMBAI)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 14-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S MALATHI SRIDHARAN
• Assessee Lawyers: M P LOHIA MR PRANAY GANDHI
• Keywords: Transfer pricing; International transaction; Additional evidence; Question of law
• Section: 43B; 143(3); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUM BAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER I.T.A. NO. 1037/MUM/2017 ASSESSMENT YEAS: 2012-13 A.W. FABER CASTELL (INDIA) P. LTD. 801 KAMLA EXECUTIVE PARK, OFF M.V. RD J.B. NAGAR ANDHERI (E) MUMBAI PIN: 400059 / VS. DCIT 9 (1) (1) . MUMBAI PIN: 40005 ./ ./PAN/GIR NO AACCA3117H ( /APPELLANT ) : ( / RESPONDENT ) APPELLANT BY : MR. M.P. LOHIA MR. PRANAY GANDHI RESPONDENT BY : MR S . MALATHI SRIDHARAN CIT (DR) / DATE OF HEARING : 24/03/2017 / DATE OF ORDER : 12/04/2017 / O R D E R PER ASHWANI TANEJA, AM : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE FINAL ASSESSMENT ORDER PASSED BY ASSESSING OFFICER DATED 13/02/2017, U/S- 143(3) R.W.S. 144 C (13) OF THE INCOME TAX ACT 1961 FOR AY 2012-13 IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL-1, M UMBAI ISSUED VIDE ITS ORDER DATED 08.12.2016, U/S 144C (5) OF THE INCOME TAX AC T 1961 ON THE FOLLOWING GROUNDS: 2 A.W FABER CASTELL ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/TPO/1 (1) (TPO)/DISPUTE RESOLUTION PAN EL(DRP) HAS: 1. ERRED IN ASSESSING THE TOTAL INCOME AT RS.2,56,86,3 30/- AS AGAINST INCOME OF RS.53,80,292/- COMPUTED BY THE APPELLANT; TRANSFER PRICING GROUNDS ADJUSTMENT ON ACCOUNT OF PAYMENT OF ROYALTY OF RS.1 ,91,03,040/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED ASSESSING OFFICER/TPO/DRP HAS; 2. ERRED IN DETERMINING THE ARMS LENGTH PRICE FOR ROY ALTY PAYMENT AS NIL (WITHOUT UNDERTAKING ECONOMIC ANALYSIS AND USING ON E OF THE PRESCRIBED METHODS) AND DISALLOWING THE ENTIRE ROYALTY PAYMENT AMOUNTING TO RS.1,91,03,040/; 3. ERRED IN REJECTING THE TRANSFER PRICING ANALYSIS UN DERTAKEN BY THE APPELLANT BY CONSIDERING THE FIPB APPROVAL AS COMPA RABLE UNCONTROLLED PRICE (CUP); 4. ERRED IN VIOLATING THE PRINCIPLES OF JUDICIAL DISCI PLINE IN NOT FOLLOWING THE ORDER OF THE HON'BLE TRIBUNAL FOR AY 2011-12 WHEREI N THE HON'BLE TRIBUNAL, RELYING ON JURISDICTIONAL HIGH COURT IN C ASE OF SGS INDIA PRIVATE LIMITED I.T. ACT NOS 1807 OF 2013 HAS HELD THAT FIP B APPROVAL IS A VALID CUP FOR BENCHMARKING PURPOSES; 5. ERRED IN NOT APPRECIATING THE FACT THAT THE ROYALTY PAYMENTS IS ALREADY BENCHMARKED UNDER TRANSACTION NET MARGIN METHOD (T NMM) ANALYSIS UNDER BUNDLED TRANSACTION APPROACH; 6. ERRED IN NOT ACCEPTING THE ADDITIONAL EVIDENCES SUB MITTED BY THE APPELLANT USING CUP METHOD FROM POWER K DATABASE FO R FRESH BENCHMARKING ANALYSIS; CORPORATE TAX GROUNDS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED AO/TPO/DRP HAS: DISALLOWANCE OF EMPLOYEE CONTRIBUTION TOWARDS PROVI DENT FUNDS AND ESIC OF RS. 12,03,002/- 7. ERRED BY DISALLOWING EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC OF RS. 12,03,002/- U/S 36(1) (VA) R.W.S 2( 24) (X) OF THE ACT: 8. ERRED IN VIOLATING THE PRINCIPLES OF JUDICIAL DISCI PLINE IN NOT FOLLOWING THE ORDER OF THE HON'BLE TRIBUNAL FOR ASSESSMENT YEAR 2 011-12 WHERE IN THE HON'BLE TRIBUNAL DELETED THE ADJUSTMENT ON DISA LLOWANCE OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUNDS AND ESIC. 3 A.W FABER CASTELL 2. GROUND NO.1 IS GENERAL AND DOES NOT REQUIRE ANY SPECIFIC ADJUDI CATION AND THEREFORE IT IS DISMISSED. 3. GROUNDS 2 TO 6 DEAL WITH THE SOLITARY ISSUED WITH REGARD TO TRANS FER PRICING ADJUSTMENT MADE BY THE AO ON ACCOUNT OF PAY MENT OF ROYALTY MADE BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE (AE) OF R S.1,91,03,040/-. THE BRIEF FACTS IN THIS CASE ARE THAT DURING THE YEAR UNDER C ONSIDERATION THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING AND TRADING OF WID E RANGE OF STATIONARY PRODUCTS. THE ASSESSEE SOLD ITS PRODUCTS IN INDIA A S WELL AS ABROAD TO ITS AES. IT WAS INFORMED THAT ONE OF ITS AES NAMELY M/S A.W. FA BER CASTELL A.G., GERMANY (IN SHORT REFERRED TO AS AE) WAS OWNER OF TRADEMA RKS AND THE CORPORATE BRAND NAME WHICH ASSESSEE USED IN ITS PRODUCT. SINC E THE ASSESSEE USED THE TRADEMARK IN RELATION TO THE SALE OF THE PRODUCTS, THEREFORE IN CONSIDERATION OF GRANT OF LICENSE AND RIGHT TO USE THE TRADEMARK THE ASSESSEE PAID TO ITS AFORESAID AE ROYALTY @ 3% ON NET SALES EXCLUDING SA LES TO AES AND SALE OF NON- BRAND FABERS PRODUCTS. IT WAS ALSO INFORMED THAT S IMILAR PAYMENT WAS MADE IN AYS 2010-11 AND 2011-12 ALSO. IN ITS TRANSFER PR ICING STUDY REPORT, THE ASSESSEE BENCH MARKED ITS TRANSACTION OF PAYMENT OF ROYALTY USING CUP (COMPARABLE UNCONTROLLED PRICE) METHOD. THE ASSESSE E TOOK HELP OF APPROVAL IN THIS REGARD GRANTED TO IT VIDE LETTER DT 9 TH MARCH 2005 ISSUED BY FIPB UNIT OF DEPARTMENT OF ECONOMIC AFFAIRS OF MINISTRY OF FINAN CE (GOVERNMENT OF INDIA) READ WITH PRESS NOTE NO 2 DT 24 TH JUNE 2003 ISSUED BY SIA (FC DIVISION) OF DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTIONS, MIN ISTRY OF COMMERCE & INDUSTRY, GOVERNMENT OF INDIA AND CONTENDED BEFORE THE AO THAT THOUGH THE ASSESSEE HAD GOT APPROVAL OF MAKING PAYMENT UP TO 8 % ON EXPORTS AND 5% OF DOMESTIC SALES, BUT THE PAYMENT WAS MADE BY THE ASS ESSEE TO ITS AE MERELY AT 4 A.W FABER CASTELL THE RATE OF 3%. THEREFORE, THE SAME WAS AT ARMS LE NGTH PRICE AS THE PAYMENT WAS FAR BELOW THEN THE RATE OF APPROVAL GRANTED BY THE GOVERNMENT UNDER FEMA RULES AND INDUSTRIAL NORMS. HOWEVER, THE AO DI D NOT AGREE WITH THE ABOVE CONTENTION OF THE ASSESSEE. IT WAS OBSERVED B Y HIM IN THE ASSESSMENT ORDER THAT NO COMPARABLE ROYALTY AGREEMENT WAS PROD UCED BY ASSESSEE TO JUSTIFY THE CUP METHOD ADOPTED BY IT. THEREFORE, AO DETERMINED THE ALP (ARMS LENGTH PRICE) AT NIL IN RESPECT OF PAYMENT O F ROYALTY AND ACCORDINGLY MADE ADDITION OF THE ENTIRE AMOUNT OF ROYALTY PAID BY ASSESSEE TO ITS AE. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT IN DOING SO THE AO FOLLOWED THE ASSESSMENT ORDERS OF EARLIER YEARS I.E. AYS 2010-11 & 2011-12 PASSED IN ASSESSEES OWN CASE. THE DRP ALSO FOLLOWED ITS EARL IER ORDERS WHILE ENDORSING THE VIEWS OF THE AO AND GAVE NO RELIEF TO THE ASSES SEE. 4. DURING THE COURSE OF HEARING BEFORE US, LD. COUNSEL OF THE ASSESSEE DREW OUR ATTENTION ON THE ORDER DATED 13.9.2016 PAS SED BY THE TRIBUNAL FOR AY 2011-12 IN ASSESSEES OWN CASE AND SUBMITTED THAT T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IT WAS ALSO CONT ENDED THAT TRIBUNAL HAD RELIED UPON THE ORDER OF THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF SGS INDIA PRIVATE LIMITED (ITAT NO.1807/M/13 ORDER DATE D 18.11.2015) WHILE GIVING RELIEF TO THE ASSESSEE. 5. OUR ATTENTION WAS ALSO DRAWN ON PAGE NO. 266 OF THE PAPER BOOK, WHICH IS COPY OF APPROVAL OF FIPB UNIT OF DEPARTMENT OF E CONOMIC AFFAIRS DATED 9 TH MARCH, 2005 AS WELL AS PRESS NOTE NO.2(2002 SERIES) WHEREIN GOVERNMENT HAD ALLOWED PAYMENT OF ROYALTY UNDER AUTOMATIC ROUTE UP TO 8% ON EXPORTS AND 5% ON DOMESTIC SALE. HE THUS SUBMITTED THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. 5 A.W FABER CASTELL 6. PER CONTRA, LD. CIT(DR) VEHEMENTLY OPPOSED THE ARGU MENTS OF LD. COUNSEL OF THE ASSESSEE. FIRSTLY, SHE BROUGHT TO OU R NOTICE AN ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 WHEREIN THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED AND THE ISSUE WAS SENT BA CK TO THE FILE OF THE AO TO DECIDE THE ALP ON THE BASIS OF THE FRESH TP STUDY . 7. IT WAS FURTHER CONTENDED BY HER THAT AFORESAID LETT ER DATED 9 TH MARCH, 2005 (ATTACHED IN THE PAPER BOOK AS PAGE NO. 266) D ID NOT GRANT APPROVAL OF ANY SPECIFIC RATE OF ROYALTY PAYABLE BY ASSESSEE. I T MERELY REFERRED TO THE MAXIMUM LIMIT WHICH IS PRESCRIBED BY THE MINISTRY O F COMMERCE & INDUSTRY IN ITS PRESS NOTE NO 2 DT 24 TH JUNE, 2003. THUS, MAKING REFERENCE OF THE HIGHER LIMIT OF PAYMENT OF ROYALTY UNDER THE AUTOMATIC ROU TE WOULD NOT IPSO-FACTO MEAN THAT AMOUNT OF ROYALTY PAID BY THE ASSESSEE AT THE RATE OF 3% WOULD BE ITS ARMS LENGTH PRICE ALSO. AS PER HER VIEW, IT WO ULD BE AT THE MOST ONE OF THE SUPPORTING TOOLS TO JUSTIFY THE RATE OF PAYMENT, BU T IT CANNOT BE ONLY AND THE CONCLUSIVE PROOF FOR JUSTIFICATION OF ALP. 8. FURTHER, IT WAS ALSO CONTENDED BY HER THAT THE PAYM ENT MADE BY THE ASSESSEE ON ACCOUNT OF ROYALTY WAS MERELY FOR THE U SER OF TRADEMARK AND BRAND AND THEREFORE ASSESSEE CANNOT CLAIM THE BENEF IT OF RATE OF 8%, WHICH WAS MEANT FOR THOSE CASES OF PAYMENTS WHERE TRANSFE R OF TECHNOLOGY WAS INVOLVED. IT WAS SUBMITTED THE RATES OF ONLY 1% AND 2% WERE PRESCRIBED IN THE CASES OF PAYMENT FOR TRADE MARK USER ONLY (I.E. WIT HOUT TECHNOLOGY TRANSFER). SHE ALSO DREW OUR ATTENTION ON PAGE NO.217 OF PAPER BOOK WHICH IS RELEVANT PAGE OF THE TRANSFER PRICING STUDY REPORT SUBMITTED BY ASSESSEE SHOWING FAR ANALYSIS OF PAYMENT OF ROYALTY BY ASSESSEE AT THE R ATE OF 3% TO ITS AE. SHE SUBMITTED THAT PERUSAL OF THE SAME CLEARLY DEPICTS THAT NO TECHNOLOGY WAS 6 A.W FABER CASTELL TRANSFERRED BY AE TO THE ASSESSEE AND THE PAYMENT A T THE RATE OF 3% WAS MADE ONLY FOR GRANT OF LICENSE AND RIGHT TO USE THE TRADE MARK OWNED BY ITS AE. 9. FURTHER, SHE ALSO BROUGHT ON RECORD PRESS NOTE NO.8 (2009 SERIES) DATED 16.12.2009 ISSUED BY MINISTRY OF COMMERCE & INDUSTR Y, DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION (FC SECTION) WHICH AMENDED THE EARLIER NOTIFICATION ISSUED ON THE SUBJECT OF REQUIREMENT O F APPROVAL FOR PAYMENT OF ROYALTY TO THE FOREIGN COLLABORATOR UNDER DIFFERENT CIRCUMSTANCES. THE SAID NOTIFICATION WAIVED ALL THE RESTRICTIONS LEVIED IN THIS REGARD AND PAYMENT OF ROYALTY FOR TRANSFER OF TECHNOLOGY OR FOR USE OF TR ADEMARK/BRAND WAS PUT UNDER THE AUTOMATICALLY ROUTE COMPLETELY. THUS, NO APPROVAL OF THE GOVERNMENT OF INDIA WAS REQUIRED FOR MAKING SUCH PA YMENT. HOWEVER, SUCH PAYMENTS REMAINED SUBJECT TO THE FOREIGN EXCHANGE M ANAGEMENT RULES AND REQUIREMENT OF POST REPORTING SYSTEM FOR PAYMENT OF ROYALTY WAS ALSO RETAINED. SHE ALSO PLACED BEFORE US, COPY OF THE NO TIFICATION DATED 15 TH MAY, 2010 ISSUED BY MINISTRY OF FINANCE (DEPARTMENT OF E CONOMIC AFFAIRS) WHEREBY FOREIGN EXCHANGE MANAGEMENT (CURRENT ACCOUNT TRANSA CTION) RULES, 2010 WERE SUITABLY AMENDED TO BRING THEM IN LINE WITH TH E NOTIFICATION ISSUED BY MINISTRY OF COMMERCE & INDUSTRY VIDE AFORESAID PRES S NOTE NO. 8 (2009) DATED 16.12.2009. IT WAS SUBMITTED THAT THESE DOCUMENTS S HOW THAT THERE WAS NO RESTRICTION ON PAYMENT OF ROYALTY AND THE SAME WAS HENCEFORTH UNDER AUTOMATIC ROUTE. THEREFORE, UNDER THESE CIRCUMSTANC ES, IT CANNOT BE PRESUMED THAT WHATEVER PAYMENT IS MADE BY ASSESSEE ON ACCOUNT OF ROYALTY THAT WOULD IPSO-FACTO BECOME ARMS LENGTH PRICE AT ITS OWN THAT TOO WITH OUT BRINGING ANY OTHER COMPARABLE ON RECORD OR WITHOUT CARRYING OUT ANY TRANSFER PRICING STUDY. IF, THIS KIND OF APPROACH IS ALLOWED THEN IT WILL MAKE THE TRANSFER 7 A.W FABER CASTELL PRICING REGULATIONS REDUNDANT AND IT MAY RESULT INT O SHIFTING OF TAXABLE PROFITS FROM INDIA TO OTHER COUNTRIES WHICH IS DEFINITELY N OT THE INTENTION OF LAW. IN SUPPORT OF HER ARGUMENTS SHE PLACED HEAVY RELIANCE ON THE FOLLOWING JUDGMENTS FOR THE PROPOSITION THAT RATES OF PAYMENT OF ROYALTY APPROVED BY THE CONCERNED GOVERNMENT AGENCIES UNDER AUTOMATIC R OUTE WOULD NOT PER SE BECOME ALP UNDER TRANSFER PRICING REGULATION ALSO :- 1. ORACLE INDIA PVT. LTD. VS. CIT (2011) 11 TAXMANN .COM 139 (DELHI HIGH COURT) 2. NESTLE INDIA LTD. VS. CIT (2011) 11 TAXMANN.COM 106 (DELHI HIGH COURT) 3. SONY ERICSSON MOBILE COMMUNICATION INDIA PVT. LT D. (2015)55 TAXMANN.COM 240 (DELHI HIGH COURT) 4. SARA LEE TTK LTD. VS. DCIT (2016) 76 TAXMANN.COM 74 (MUMBAI BENCH) 5. GRUNER INDIA (P) LTD. VS. DCIT (2016) 70 TAXMAN N.COM 240 ( DELHI HIGH COURT) 6. LG ELECTRONICS (P) LTD. VS. ACIT (2014) 52 TAXMA NN.COM 240 (DELHI HIGH COURT) 10. WITH REGARD TO THE RELIANCE PLACED BY ASSESSEE ON T HE JUDGMENT OF HON'BLE DELHI HIGH COURT IN THE CASE OF SGS INDIA PRIVATE L IMITED (SUPRA), IT WAS VEHEMENTLY SUBMITTED THAT THE SAME IS TOTALLY MISPL ACED IN VIEW OF FACTS OF THE CASE BEFORE US. IT WAS SUBMITTED BY HER THAT THE AF ORESAID JUDGMENT DID NOT LAY DOWN ANY PROPOSITION OF LAW BECAUSE IN THE SAID JUDGMENT THE ISSUE OF ASCERTAINMENT OF FACT WAS INVOLVED I.E. WHETHER THE ASSESSEE WOULD BE ELIGIBLE FOR THE BENEFIT OF CLAUSE (III) OR CLAUSE (IV) OF P RESS NOTE NO.9 (2000 SERIES) DATED 8 SEPTEMBER, 2007. DURING THE COURSE OF HEARI NG BEFORE HON'BLE HIGH COURT, THE STANDING COUNSEL OF THE DEPARTMENT MADE SOME CONCESSION UNDER SOME MISCONCEPTION OF THE FACTS. THEREFORE, IN THOS E CIRCUMSTANCES THE HON'BLE HIGH COURT DECIDED THE ISSUE PRIMARILY ON F ACTS BY ALLOWING THE 8 A.W FABER CASTELL ASSESSEE TO CLAIM THE BENEFITS OF CLAUSE (IV) AS AG AINST THE BENEFIT OF CLAUSE (III) AS WAS CONTENDED BY AO IN THE SAID CASE. HOWEVER, A T NO PLACE HON'BLE HIGH COURT HAS GIVEN ANY SUCH RATIO THAT RATES PRESCRIBE D BY THE GOVERNMENT AUTHORITIES UNDER AUTOMATIC ROUTE WOULD IPSO-FACTO BECOME ARMS LENGTH PRICE ALSO UNDER TRANSFER PRICING REGULATIONS. IT W AS THUS CONTENDED THAT ASSESSEE CANNOT TAKE BENEFIT OF AFORESAID JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN EACH AND EVERY CASE DEHORS THE FACTS OF THAT CASE. THE SAID JUDGMENT CONFINED TO THE PECULIAR FACTS AND CIRCUMS TANCES OF THE SAID CASE ONLY AND NO SUCH RATIO CAME OUT FROM THE HON'BLE HI GH COURT JUDGMENT AS IS CLAIMED BY ASSESSEE. SHE FURTHER PLACED RELYING UPO N THE JUDGMENT HON'BLE SUPREME COURT IN THE CASE OF B.S. BAZWA VS STATE OF PUNJAB 2 SUPREME COURT CASES 523 (SC) FOR THE PREPOSITION THAT THE DECISIO N RENDERED ON THE BASIS OF CONCESSION OF ONE OF THE PARTIES DOES NOT LAY DOWN A PREPOSITION OF LAW, WHICH CAN BE MADE BINDING ON OTHER CASES. IN VIEW OF THES E SUBMISSIONS SHE REQUESTED FOR FOLLOWING THE ORDER OF THE TRIBUNAL F OR AY 2010-11 AND ALSO REQUESTED FOR SENDING THIS ISSUE BACK TO THE FILE O F THE AO FOR MAKING FRESH EXAMINATION AND TRANSFER PRICING STUDY. THEREAFTER, HEARING WAS KEPT FOR THE NEXT DAY SO AS TO ENABLE LD. COUNSEL OF THE ASSESSE E TO GIVE REPLY TO ARGUMENTS AND DOCUMENTS SUBMITTED BY LD. CIT-DR. 11. IN HIS REPLY ON THE NEXT DATE OF HEARING, LD. COUNS EL OF THE ASSESSEE VERY FAIRLY SUBMITTED THAT IN VIEW OF PRESS NOTE NO-8 (2 009 SERIES) DATED 16.12.2009 READ WITH NOTIFICATION ISSUED BY MINISTR Y OF FINANCE DATED 5 TH MAY, 2010 FOR BRINGING OUT CORRESPONDING AMENDMENTS IN F OREIGN EXCHANGE MANAGEMENT (CURRENT ACCOUNT TRANSACTION) RULES, 201 0 BRING OUT A CHANGE IN THE LEGAL POSITION I.E. AS ON DATE OF PAYMENT OF RO YALTY BY THE ASSESSEE, IT WAS 9 A.W FABER CASTELL TOTALLY UNDER AUTOMATIC ROUTE AND NO RESTRICTIONS W ERE LEFT. UNDER THESE CIRCUMSTANCES, IT WOULD BE DIFFICULT TO HOLD THE SA ME AS ALP ON IPSO-FACTO BASIS. THUS, UNDER THESE CHANGED FACTUAL AND LEGAL CIRCUMSTANCES AN APPROPRIATE VIEW MAY BE TAKEN BY THE BENCH. HOWEVER , IT WAS ALSO SUBMITTED THAT AO WAS HIGHLY UNJUSTIFIED IN DETERMINING THE ALP AT NIL WHICH IS HIGHLY UNFAIR BY ANY STANDARDS. IT WAS SUBMITTED THAT RATE S APPROVED UNDER FEMA AND INDUSTRIAL NORMS BY THE CONCERNED AUTHORITIES C ARRY AMPLE PERSUASIVE VALUE AND THUS IT CANNOT BE IGNORED ALTOGETHER WHIL E DETERMINING ALP OF THE SAME. THEREFORE, THE MATTER MAY BE SENT BACK TO THE AO FOR FRESH EXAMINATION OF ALL THE FACTS AND FIGURES AND THE ASSESSING OFFI CER SHOULD BE DIRECTED TO PERMIT THE ASSESSEE TO FURNISH ALL THE EVIDENCES IN SUPPORT OF ITS CLAIM TO JUSTIFY THE PAYMENT OF ROYALTY AT THE RATE OF 3%. 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES AND ALSO GONE THROUGH VARIOUS JUDGMENTS CITED BEFOR E US. THE MAIN ISSUE TO BE DECIDED IN THESE GROUNDS IS WHETHER THE RATE OF PAY MENT OF ROYALTY APPROVED BY THE RESERVE BANK OF INDIA UNDER AUTOMATIC ROUTE OR THE APPROVAL GRANTED BY THE FIPB UNIT OF MINISTRY OF FINANCE RELYING UPO N THE RATES PRESCRIBED UNDER THE AUTOMATIC ROUTE, WOULD ITSELF IPSO-FACTO CONSTITUTE ARMS LENGTH PRICE ALP UNDER THE TRANSFER PRICING REGULATIONS AS PRO VIDED IN SECTION 92 TO 94A OF CHAPTER X OF THE INCOME TAX ACT, 1961. THE ASSESSEE CONTENDED BEFORE THE AO THAT THE ROYALTY PAID TO ITS AE FOR USER OF ITS TRA DE MARK AND BRAND NAME AT THE RATE OF 3% WAS WITHIN THE RATES ALLOWED BY THE FIPB UNIT OF MINISTRY OF FINANCE AND, THEREFORE, IT WAS ALP PRICE AND NO FURTHER S TUDY OR SUBSTANTIATION WAS NEEDED, WHEREAS THE AO AS WELL AS THE DRP WERE OF T HE OPINION THAT THE PAYMENT OF ROYALTY HAS TO BE JUSTIFIED ON THE BASIS OF ALP PRICE TO BE 10 A.W FABER CASTELL DETERMINED ON THE BASIS OF INDEPENDENT STUDY TO BE CARRIED OUT AS PER TRANSFER PRICING REGULATIONS AND SINCE NO SUCH PROPER STUDY HAS BEEN MADE BY ASSESSEE, NO ALP COULD BE DETERMINED AND THUS SAME WAS TAKE N AT NIL. UNDER THESE CIRCUMSTANCES, TOTAL AMOUNT OF ROYALTY OF RS.1,91,0 3,040/- PAID BY ASSESSEE TO ITS AE LOCATED IN GERMANY WAS HELD TO BE NOT ALLOWA BLE SINCE IT ALP WAS TAKEN IT NIL AND ACCORDINGLY AND UPWARD ADJUSTMENT OF THE SAME AMOUNT WAS MADE ON ACCOUNT OF ROYALTY PAYMENT. 13 . DURING THE COURSE OF HEARING BEFORE US, LD. CIT-D R HEAVILY RELIED UPON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010- 11, WHEREIN THIS ISSUE WAS HELD AGAINST THE ASSESSE E AND THE MATTER WAS SENT BACK TO THE AO FOR CARRYING OUT FRESH TRANSFER PRIC ING ANALYSIS TO DETERMINE ALP OF THE ROYALTY PAYMENT. SHE ALSO RELIED UPON A PRESS NOTE NO. 8 (2009 SERIES) DATED 16.12.2009 ISSUED BY MINISTRY OF COMM ERCE AND INDUSTRY WHEREBY RESTRICTIONS ON PAYMENT OF ROYALTY WERE WAI VED AND THE SAME WAS PUT UNDER AUTOMATIC ROUTE. SHE ALSO RELIED UPON JUD GMENT OF HON'BLE DELHI HIGH COURT AND OTHER COURTS IN SUPPORT OF HER CLAIM THAT ALP OF PAYMENT OF ROYALTY HAS TO BE INDEPENDENTLY DETERMINED. SHE ALS O DISTINGUISHED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F SGS INDIA PVT. LTD. (SUPRA) ON THE GROUND THAT THE AFORESAID JUDGMENT W AS GIVEN ON THE BASIS OF FACTUAL CONCESSION ONLY AND NO RATIO OR POINT OF LA W WAS PROPOUNDED BY THE HONBLE HIGH COURT. THUS, SHE REQUESTED FOR FOLLOWI NG THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2010-11 AND FOR SENDING THE ISSUE BACK TO THE FILE OF THE AO. ON TH E OTHER HAND, LD. COUNSEL OF THE ASSESSEE INITIALLY RELIED UPON THE DECISION OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12, BU T SUBSEQUENTLY IN VIEW OF 11 A.W FABER CASTELL PRESS NOTE NO.8 (2009 SERIES) HAVING BEEN BROUGHT O N RECORD BY LD. CIT-DR, HE FAIRLY SUBMITTED THAT SINCE ALL THE RESTRICTIONS HA VE BEEN WAIVED BY FIPB/RBI, NOW THE ALP NEEDS TO BE DETERMINED INDEPENDENTLY ON THE BASIS OF FRESH TRANSFER PRICING STUDY. 14 . WE HAVE CAREFULLY CONSIDERED THE INTRICACIES OF T HE ISSUE INVOLVED BEFORE US. IT HAS BEEN SIGNIFICANTLY NOTED BY US THAT PRES S NOTE NO-8 (2009 SERIES), DATED 16.12.2009 READS AS UNDER:- GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION (FC SECTION) PRESS NOTE NO. 8 (2009 SERIES) SUBJECT: LIBERALIZATION FOR FOREIGN TECHNOLOGY AGRE EMENT POLICY. THE EXISTING POLICY OF GOVERNMENT OF INDIA ON THE P AYMENT OF ROYALTIES UNDER FOREIGN TECHNOLOGY COLLABORATION PROVIDES FOR AUTOMATIC APPROVAL FOR FOREIGN TECHNOLOGY TRANSFERS INVOLVING PAYMENT OF LUMPSUM FEE OF US$ 2 MILLION AND PAYMENT OF ROYALTY OF 5% ON DOMES TIC SALES AND 8% ON EXPORTS. IN ADDITION, WHERE THERE IS NO TECHNOLOGY TRANSFER INVOLVED, ROYALTY UP TO 2% FOR EXPORTS AND 1% FOR DOMESTIC SA LES IS ALLOWED UNDER AUTOMATIC ROUTE ON USE OF TRADEMARKS AND BRAND NAME S OF THE FOREIGN COLLABORATOR. SEPARATE NORMS ARE AVAILABLE FOR THE HOTEL SECTOR VIDE PRESS NOTE 18 (1991 SERIES) AND PRESS NOTE 1 (1995 SERIES). TECHNOLOGY TRANSFERS INVOLVING PAYMENTS ABOVE THESE LIMITS REQ UIRED PRIOR PERMISSION OF THE GOVERNMENT OF INDIA (PROJECTS APP ROVAL BOARD, DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION). 2. THE GOVERNMENT OF INDIA HAS REVIEWED THE EXTANT POLICY AND IT HAS BEEN DECIDED TO PERMIT, WITH IMMEDIATE EFFECT, PAYM ENTS FOR ROYALTY, LUMPSUM FEE FOR TRANSFER OF TECHNOLOGY AND PAYMENTS FOR USE OF TRADEMARK/BRAND NAME ON THE AUTOMATIC ROUTE I.E. WI THOUT ANY APPROVAL OF THE GOVERNMENT OF INDIA. ALL SUCH PAYME NTS WILL BE SUBJECT TO FOREIGN EXCHANGE MANAGEMENT (CURRENT ACCOUNT TRA NSACTION) RULES, 2000 AS MENTIONED FROM TIME TO TIME. 12 A.W FABER CASTELL 3. A SUITABLE POST-REPORTING SYSTEM FOR TECHNOLOGY TRANSFER/ COLLABORATIONS AND USE OF TRADE MARK/BRAND NAME WIL L BE NOTIFIED BY THE GOVERNMENT SEPARATELY. 4. THESE GUIDELINES ISSUE IN MODIFICATION OF PROVIS IONS RELATING TO FOREIGN TECHNOLOGY PROPOSALS/APPROVALS CONTAINED IN PARAGRAPHS 3 OF PRESS NOTE 10 (1991), PARA 7 OF PRESS NOTE 11 (1991 ), PARA 4 & 5 (A) OF PRESS NOTE 12 (1991), PARA 2-6 OF PRESS NOTE 20 (19 91), PARA 2 OF PRESS NOTE 5 (1992), PARA 4 PRESS NOTE 4 (1994), PARA 3 O F PRESS NOTE 18 (1997) AND PARAGRAPHS III AND IV OF PRESS NOTE 9 (2 000). THESE GUIDELINES WILL ISSUE IN SUPERSESSION OF PROVISIONS OF PRESS N OTE 18 (1991), PRESS NOTE 4 (1992), PRESS NOTE 1 (1995), PRESS NOTE 4 (1 996), PRESS NOTE 1 (2002) AND PRESS NOTE 2 (2003). (GOPAL KRISHN A) JOINT SECRETARY TO THE GOVERNMENT OF INDIA D/O IPP F. NO. 5(6)/2008-FC DATED 16.12.2009. 15 . A PERUSAL OF THE AFORESAID NOTIFICATION SHOWS THA T THE GOVERNMENT OF INDIA HAS NOW WAIVED ALL THE RESTRICTIONS ON PAYMEN T OF ROYALTY UNDER FOREIGN TECHNOLOGY COLLABORATION AND PUT THE SAME UNDER AUT OMATIC ROUTE. UNDER THESE CIRCUMSTANCES IT IS QUITE OBVIOUS NOW THAT AS SESSEE CANNOT BE PERMITTED TO TAKE THIS STAND THAT SINCE THERE ARE NO RESTRICT IONS ON PAYMENT OF ROYALTY BY THE GOVERNMENT OF INDIA, THEREFORE ANY AMOUNT PAID BY ASSESSEE ON ACCOUNT OF ROYALTY WOULD IPSO-FACTO BE ITS ALP ALSO. IF THIS KIND OF POSITION IS ALL OWED TO EXIST THEN IT WOULD AMOUNT TO SIMPLY RENDERING T HE TRANSFER PRICING REGULATIONS AS REDUNDANT. IN OUR VIEW THAT CANNOT B E AN IDEAL SITUATION IN THE EYES OF LAW. THUS, IN OUR CONSIDERED OPINION, AFTER TAKEN INTO ACCOUNT THIS PRESS NOTE, THE AFORESAID CONTROVERSY COMES TO REST . THE AFORESAID NOTIFICATION WAS NOT BROUGHT TO NOTICE OF TRIBUNAL IN ASSESSMENT YEAR 2011-12 AND THAT IS WHY DECISION WAS GIVEN BY THE TRIBUNAL ACCORDINGLY. FURTHER, BOTH THE PARTIES UNANIMOUSLY AGREED THAT THIS PRESS NOTE HAS BROUGHT OUT CLARITY IN THE LEGAL 13 A.W FABER CASTELL POSITION AS COMPARED TO THAT AS EXISTED EARLIER. IT HAS BEEN FURTHER NOTED BY US WITH THE ASSISTANCE OF THE PARTIES THAT CONTROVERSY INVOLVED BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SGS INDIA PVT. LTD ., (SUPRA) WAS CONFINED TO THE FACTUAL ASPECT AS TO WHETHER THE PAYMENT MADE B Y ASSESSEE WAS COVERED IN CLAUSE (III) OR (IV) OF PRESS NOTE NO. 9 (2000 S ERIES) DATED 8 TH SEPTEMBER, 2000. UNDER THESE CIRCUMSTANCES, ON THE BASIS OF CO NCESSION GRANTED BY THE LD. STANDING COUNSEL OF THE REVENUE, HONBLE HIGH C OURT ACCEPTED THE CLAIM OF ASSESSEE THAT THE PAYMENT OF ROYALTY MADE BY ASSESS EE FELL WITHIN THE PROVISIONS OF CLAUSE (IV) OF THE SAID PRESS NOTE. U NDER THESE CIRCUMSTANCES NO SUCH RATIO WAS PROPOUNDED BY HONBLE HIGH COURT AS HAS BEEN CLAIMED BY ASSESSEE THAT ROYALTY PAYMENT RATES AS APPROVED BY THE FIPB/RBI WOULD IPSO- FACTO BECOME ALP UNDER THE TRANSFER PRICING REGULATION S ALSO. 16 . IT IS FURTHER BROUGHT TO OUR NOTICE THAT THIS ISS UE IS NO MORE RES-INTEGRA AS THE SAME HAS BEEN THREADBARE DISCUSSED, ANALYZED AND DECIDED BY HONBLE DELHI HIGH COURT AND FEW OTHER COURTS OF THE COUNTR Y. 17 . IN THE CASE OF NESTLE INDIA LTD. (SUPRA), HONBLE DELHI HIGH COURT OBSERVE AS UNDER:- WE TAKE UP QUESTION OF LAW NO. 2 IN THE FIRST INSTA NCE. WE ARE OF THE VIEW THAT THE TRIBUNAL IS NOT CORRECT IN OBSERVING THAT SINCE THE PERMISSION IS GIVEN BY THE RESERVE BANK OF INDIA, T HE REASONABLENESS AND GENUINENESS OF THE EXPENDITURE COULD NOT HAVE BEEN GONE INTO BY THE ASSESSING OFFICER. THE PURPOSE FOR WHICH SUCH PERMISSION IS GIVEN BY THE RBI IS TOTALLY DIFFERENT. THE RBI IS ONLY CONCE RNED WITH THE FOREIGN EXCHANGE AND, THEREFORE, WOULD LOOK INTO THE MATTER FROM THAT POINT OF VIEW. THE RBI, AT THE TIME OF GIVING SUCH PERMISSIO N WOULD NOT KEEP IN MIND THE PROVISIONS OF THE INCOME-TAX ACT AND THAT IS THE FUNCTION OF THE INCOME-TAX AUTHORITIES AND, THEREFORE, THEY CAN VALIDLY GO INTO SUCH AN ISSUE. THUS, WE ANSWER QUESTION OF LAW NO.2 IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BUT HASTEN TO ADD THAT IT HAS NO BEARING ON THE 14 A.W FABER CASTELL OUTCOME OF THE CASE AS THEY PAYMENT IS FOUND TO BE REASONABLE AND GENUINE, EVEN OTHERWISE. (EMPHASIS SUPPLIED IN BOL D) 18 . FURTHER, IN THE CASE OF ORACLE INDIA PRIVATE LIMITED , IT WAS INTER-ALIA OBSERVED BY THE HONBLE DELHI HIGH COURT THAT NOTIF ICATION ISSUED BY RBI TO THE SAID ASSESSEE PERMITTING PAYMENT OF ROYALTY AT THE RATE OF 30% OF IPP OF THE ORACLE SOFTWARE APPLIANCES MAY NOT BE THE CONCLUSIV E FACTOR FOR THE PURPOSE OF DETERMINATION OF ALP UNDER TRANSFER PRICING RE GULATIONS. 19 . SIMILARLY IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA PVT. LTD. , HONBLE DELHI HIGH COURT OBSERVED ON THIS ISSUE A S UNDER:- HOWEVER, WE DO NOT AGREE WITH THE FINDING RECORDED BY THE TRIBUNAL THAT AS THE GOVERNMENT OF INDIA HAD PERMITTED REMIS SION OF ROYALTY THROUGH AUTOMATIC ROUTE, THE ROYALTY PAID CAN BE PE R SE OR CONCLUSIVELY TREATED AS THE ARMS LENGTH PRICE. APPLICABLE RULES AUTHORIZE REMISSION OF ROYALTY UPTO A PARTICULAR PERCENTAGE UNDER AUTOMATI C ROUTE TO THE FOREIGN COLLABORATORS. AUTHORISING REMISSION THROUGH AUTOMATIC ROUTE UPTO A PARTICULAR PERCENTAGE, DOES NOT REFLECT EXAM INATION OF ARMS LENGTH PRINCIPLE. IT WOULD BE INCORRECT TO READ INT O THE GENERAL AUTHORIZATION UNDER THE FOREIGN EXCHANGE MANAGEMENT ACT AND RULES, AN IMPLIED ADJUDICATION ORDER ON THE QUESTION OF QU ANTUM OR ARMS LENGTH PRICE. WHEN SPECIFIC PERMISSION IS GRANTED, THE ISSUE MAY ACQUIRE A DIFFERENT DIMENSION. WE DO NOT EXPRESS ANY OPINIO N, WHEN SPECIFIC PERMISSION IS RELIED UPON. (EMPHASIS SUPPLIED IN B OLD) 20 . FURTHER, IDENTICAL ISSUED CAME UP BEFORE MUMBAI B ENCH TRIBUNAL IN THE CASE OF SARA LEE TTK LTD. , (SUPRA) DECIDED THIS ISSUE AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. WE HAD ALSO D ELIBERATED ON THE JUDICIAL PRONOUNCEMENT REFERRED BY LOWER AUTHORITIE S IN THEIR RESPECTIVE ORDERS AS WELL AS CITED BY LD. AR AND LEARNED D. R. DURING THE COURSE OF HEARING BEFORE US, IN THE CONTEXT OF FACTUAL MATRIX OF THE CASE. FROM THE RECORD WE FOUND THAT THE ASSESSEE DID NOT BENCH MAR K THE ROYALTY PAYMENT SEPARATELY. ON ENQUIRY BY TPO, IT HAS RELIE D ON RBI APPROVAL GIVEN IN 1995 AND ALSO ON THE FACT THAT THE ASSESSE E EARNED A GROSS PROFIT OF 41.6%. TPO APPLIED PRESS NOTE 9 (2000 SER IES) AND RESTRICTED IT 15 A.W FABER CASTELL TO 1% ON THE PLEA THAT THAT THE PAYMENT WAS FOR USE OF TRADEMARK WITHOUT TRANSFER OF TECHNOLOGY. THE ASSESSEE HAS NO T SEPARATELY BENCHMARKED THE ROYALTY TRANSACTION AT THE TIME SUB MISSION OF FORM 3CEB OR AT THE TIME OF PREPARATION OF TRANSFER PRIC ING REPORT. IT IS SETTLED PROPOSITION OF LAW THAT IT IS THE ONUS OF THE ASSES SEE TO PROVE THAT THE TRANSACTION WERE TAKEN AT ARMS LENGTH. ROYALTY IS A SEPARATE INTERNATIONAL TRANSACTION, FOR THIS PURPOSE, RELIAN CE CAN BE PLACED ON THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF KNORR-BREMSE INDIA (P.) LTD. V. ACIT (2015) 63 TAXMANN. COM 186/ (2016) 236 TAXMAN 318/380 ITR 307. THE RBI APPROVAL/FIPB APPROVAL IS NOT DETERMINATIVE OF ALP AND CANNOT BE CONSIDERED TO BE A VALID CUP. AUT OMATIC ROUTE UNDER WHICH FIPB APPROVALS OR RBI APPROVALS ARE GRANTED H AVE BEEN DEVISED FOR THE EASE OF DOING BUSINESS. THESE APPROVALS E MANATE FROM OTHER LEGISLATION OR POLICY AND ARE NOT IN RELATION TO DE TERMINATION OF ARMS LENGTH PRICE. THE PURPOSE OF THE RBI APPROVAL/FIPB APPROVAL ENTIRELY DIFFERENT AND CANNOT BE EQUATED WITH THE ARMS LENG TH PRINCIPLE. THE APPROVALS OF RATES GIVEN BY THE DIPP AND THE RBI AR E FOR DIFFERENT PURPOSES, LIKE FOR PROMOTION OF INDUSTRIES, MANAGEM ENT OF FOREIGN EXCHANGE ETC. AND IT VARIES IN ACCORDANCE WITH THE BUSINESS PRACTICES PREVALENT AT DIFFERENT TIMES WHICH ARE CLEAR FROM T HE RBI APPROVALS THEMSELVES. GOING BY THE RELEVANT TP PROVISIONS AS ENSHRINED UNDER THE ACT AND RELEVANT RULES, IT IS MANDATORY THAT THE AP PELLANT HAS TO INDEPENDENTLY BENCHMARK ITS INTERNATIONAL TRANSACTI ON WITH INDEPENDENT COMPARABLES SO AS TO ARRIVE AT ARMS LENGTH PRICE, WHICH HAS NOT BEEN MADE IN THIS CASE. THE COMPARABILITY ANALYSIS IS TH E SUBSTRATUM OF DETERMINING THE ALP, WHICH HAS NOT BEEN DONE BY ASS ESSEE AT ANY STAGE. AT THE VERY SAME TIME WE FOUND THAT THE REVENUE AUT HORITIES HAVE NOT PROPERLY APPRECIATED THE RELEVANT CLAUSES OF THE TR ADEMARK LICENCE AGREEMENT, PRECISELY THE CLAUSES WHICH WERE HIGHLIG HTED BY LD. AR DURING THE COURSE OF HEARING BEFORE US. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY, THIS CASE SHOULD BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER, NO SHALL REQUIRE THE ASSESSEE TO BENCH MARK ITS INTERNATIONAL TRANSACTION OF ROYALTY WITH INDEPEN DENT COMPARABLES FOLLOWING SUITABLE METHODS PRESCRIBED UNDER THE ACT AND ON ITS COMPLIANCE, THE AO AFTER GIVING ADEQUATE OPPORTUNIT Y TO THE ASSESSEE SHALL DECIDE THIS ISSUE IN ACCORDANCE WITH THE TP R EGULATIONS. 16 A.W FABER CASTELL 21 . IT WAS POINTED OUT BY LD. CIT-DR THAT FIPB APPROV AL RELIED UPON BY ASSESSEE IS ACTUALLY NO SPECIFIC APPROVAL BUT IT ME RELY REFERS TO THE RATES PRESCRIBED UNDER THE AUTOMATIC ROUTE PRESCRIBED UND ER PRESS NOTE NO.2 (2003 SERIES) IN THIS REGARD. OUR ATTENTION HAS ALSO BEEN BROUGHT TO THE LETTER ISSUED TO THE ASSESSEE DATED 9 MARCH, 2005 BY FIPB UNIT OF MINISTRY OF FINANCE, WHEREIN, IN RESPONSE TO ASSESSEES APPLICATION FOR SEEKING APPROVAL OF THE ROYALTY PAYMENT, THE CONCERNED AUTHORITY HAS MADE R EFERENCE TO THE AUTOMATIC ROUTE PERMISSION FOR THE PAYMENT OF ROYAL TY AS PER PRESS NOTE NO.2 (2003 SERIES) I.E. UP TO 8% ON EXPORTS AND 5% ON DO MESTIC SALE. THUS, FIRSTLY IT IS NOT SPECIFIC APPROVAL AS IT MERELY TALKS ABOUT O VERALL CEILING OR MAXIMUM RATES ALLOWED UNDER THE DOMESTIC ROUTE. FURTHER, TH E RATES REFERRED HERE WERE RELATED TO PAYMENT UNDER TECHNOLOGY TRANSFER WHEREA S ASSESSEE HAD ADMITTEDLY MADE THE PAYMENT ON ACCOUNT OF USER OF T RADEMARK/BRAND NAME AND NOT ON ACCOUNT OF TRANSFER OF TECHNOLOGY. THERE FORE, VIEWED FROM ANY ANGLE, THESE RATES WERE OF NO RELEVANCE OR USE FOR DETERMINATION OF ALP ON PER SE BASIS OR CONCLUSIVELY. 22 . WE HAVE CONSIDERED OVERALL FACTS OF THIS CASE AND LEGAL POSITION AS DISCUSSED ABOVE. IN OUR CONSIDERED OPINION ALSO THE RATES OF PAYMENT OF ROYALTY APPROVED BY THE RBI OR BY THE FIPB (RELYING UPON THE RATES ALLOWED BY RBI UNDER AUTOMATIC ROUTE) WOULD NOT BECOME PER SE OR CONCLUSIVELY OR IPSO- FACTO ALP RATES. IN OUR OPINION BOTH THE LEGISLATION O PERATE INTO DIFFERENT FIELDS. THE RATES ALLOWED UNDER THE AUTOMATIC ROUTE BY THE RBI OR FIPB ARE MEANT TO ACHIEVE OBJECTIVES IN DIFFERENT AREAS. THE WHOLE THRUST OF THE INCOME TAX PROCEEDINGS AND TRANSFER PRICING REGULATIONS IS TO ENSURE THAT TAXABLE PROFIT EARNED BY AN ENTITY INDIA ARE NOT SHIFTED TO FOREIG N TAX JURISDICTION WITHOUT 17 A.W FABER CASTELL PAYMENT OF LEGITIMATE SHARE OF TAX DUE IN INDIA. TH EREFORE, IN OUR CONSIDERED OPINION, INDEPENDENT EXERCISE OF DETERMINATION OF ALP IS NEEDED TO BE DONE TO FIND OUT IF PAYMENT OF ROYALTY HAS BEEN DOME IN LINE WITH ARMS LENGTH PRICE OR NOT. IT HAS BECOME ALL THE MORE NECESSARY NOW IN VIEW OF PRESS NOTE NO.8 (2009 SERIES) DATED 16.12.2009 (SUPRA) BROUGHT ON RECORD BEFORE US, SINCE RESTRICTION ON THE RATES OF PAYMENT OF ROYALT Y HAS BEEN WAIVED BY CONCERNED AUTHORITIES. THEREFORE, THE ALP OF THE ROYALTY NEEDS TO BE DETERMINED IN ACCORDANCE WITH THE TRANSFER PRICING REGULATIONS. HOWEVER, WE ALSO FIND FORCE IN THE CONTENTION RAISED BY THE LD. COUNSEL THAT IF AN AUTHORITY BY WAY OF ANY SPECIFIC APPROVAL HAS ALLOWED A PARTI CULAR RATE OF PAYMENT, THEN IT DOES CARRY PERSUASIVE VALUE AND CAN OF COURSE AC T AS ONE OF THE SUPPORTIVE TOOLS FOR CARRYING OUT BENCH MARKING OF TRANSACTION OF PAYMENT OF ROYALTY. THUS, UNDER THESE CIRCUMSTANCES AND IN VIEW OF AFOR ESAID DISCUSSION, WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO, AS HAS BEEN DONE BY TRIBUNAL IN AY 2010-11 IN ASSESSEES OWN CASE. 23 . THE ASSESSEE SHALL BE FREE TO CARRY OUT FRESH TR ANSFER PRICING STUDY AND INDEPENDENTLY BENCH MARK ITS AFORESAID INTERNATIONA L TRANSACTION WITH INDEPENDENT COMPARABLES FOR ESTABLISHING THE PAYMEN T MADE BY IT AT ARMS LENGTH PRICE. THE AO/TPO SHALL ALSO BE FREE AND DUT Y BOUND TO TAKE ON RECORD AND CONSIDER ALL THE EVIDENCES AS MAY BE BROUGHT ON RECORD BY ASSESSEE TO JUSTIFY ALP OF THE IMPUGNED TRANSACTION. THE AO/T PO SHALL ALSO BE FREE TO CARRY OUT INDEPENDENT TRANSFER PRICING STUDY, IF RE QUIRED, AS PERMITTED AND PRESCRIBED UNDER THE TRANSFER PRICING REGULATIONS. FURTHER, THE ASSESSEE SHALL BE FREE TO FILE ALL THE EVIDENCES AS MAY BE NEEDED TO SUPPORT ITS CLAIM AND IS ALSO FREE TO RAISE ANY LEGAL AND FACTUAL ISSUE IN T HIS REGARD. THE AO/TPO SHALL 18 A.W FABER CASTELL PASS THE ORDER AFTER ADEQUATE OPPORTUNITY OF HEARIN G TO THE ASSESSEE AND AFTER CONSIDERING THE ENTIRE MATERIAL ON OBJECTIVE BASIS AS MAY BE BROUGHT ON RECORD BY ASSESSEE. THUS, WITH THESE DIRECTIONS THIS ISSUE IS SENT BACK TO THE FILE OF THE ASSESSING OFFICER/TPO AND MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 24. GROUND NO. 7 AND 8:- THESE GROUNDS DEAL WITH THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES ON ACCOUNT OF LATE PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC AGGREG ATING TO RS.12,03,002/-. THE BRIEF BACKGROUND IS THAT THE DISALLOWANCE WAS M ADE BY THE AO ON THE GROUND THAT EMPLOYEES CONTRIBUTION TO PF AND ESIC WAS DEPOSITED BEYOND THE DUE DATE OF PAYMENT. IT WAS CONTENDED BY THE ASSESS EE THAT ENTIRE PAYMENT HAS BEEN MADE WITHIN THE FINANCIAL YEAR ITSELF, THU S ENTIRE PAYMENT DUE STOOD DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN. 25 . DURING THE COURSE OF HEARING, IT IS BROUGHT TO OU R NOTICE THAT IDENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2011-12 WHEREIN THE TRIBUNAL ALLOWED RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER:- THE GROUND NO. 2 RELATES TO THE ADJUSTMENTS ON ACCO UNT OF DISALLOWANCE OF EMPLOYEES CONTRIBUTION TOWARDS PRO VIDENT FUND AND ESIC. THE LD. AR, AT THE OUTSET, HAS STATED THAT TH E PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND & ES IC WAS MADE BY THE ASSESSEE BEFORE DUE DATE OF FILING OF RETURN OF INC OME FOR THE YEAR UNDER CONSIDERATION. HE, THEREFORE, HAS STATED THAT THE I SSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD. REPORTED IN (2009) 319 ITR 306 (SUPREME COURT) WHEREIN THE HON'BLE SUPREME COURT INTER ALIA HAS HELD THAT THE AMENDMENT TO SECTION 43B VIDE FINANCE ACT, 2003 W.E .F. 01.04.2004, WHEREBY, THE SECOND PROVISO TO SECTION 43B HAS BEEN DELETED AND FURTHER AMENDMENT TO 1 ST PROVISO HAS BEEN MADE, WHEREBY, IT HAS BEEN PROVID ED THAT NOTHING CONTAINED IN THE SAID SECTION SHALL AP PLY IN RELATION TO ANY SUM WHICH IS ACTUALLY PAID BY THE ASSESSEE ON OR BE FORE THE DUE DATE APPLICABLE FOR FURNISHING THE RETURN OF INCOME, IS RETROSPECTIVE IN NATURE 19 A.W FABER CASTELL AND WOULD OPERATE FROM 01.04.1988. THE HON'BLE BOMB AY HIGH COURT HAS IN THE CASE OF CIT VS. HINDUSTAN ORGANICS CHEM ICALS LTD. IN I.T. ACT NO. 399 OF 2012 VIDE ORDER DATED 11.07.14 HAS HELD THAT THE EMPLOYEES CONTRIBUTION TO PF IS COVERED BY THE SAID DECISION AND THAT THE APPLICABLE DATE WILL BE ON OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME FOR DEPOSIT OF THE SAID CONTRIBUTION. WE, THEREFORE, RE STORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPO SE TO VERIFY THAT IF THE CONTRIBUTIONS TOWARDS PROVIDENT FUND & ESIC WERE PA ID BY THE ASSESSEE ON OR BEFORE DUE DATE OF FILING OF RETURN OF INCOME AND IF THE ABOVE CONTENTIONS OF THE ASSESSEE ARE FOUND CORRECT, THEN TO ALLOW THE SAME IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF ALOM EXTRUSION LTD (SUPRA). 26 . DURING THE COURSE OF HEARING BEFORE US, NO DISTIN CTION WAS MADE BY LD. CIT-DR ON THE LEGAL POSITION. THIS FACT WAS SHOWN T O US THAT ENTIRE PAYMENT HAS BEEN DEPOSITED WITHIN THE FINANCIAL YEAR 2011-1 2, AS HAS ALSO BEEN MENTIONED BY THE ASSESSING OFFICER IN THE ASSESSMEN T ORDER ITSELF. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE DISALLOWANCE MADE B Y LOWER AUTHORITIES IS NOT SUSTAINABLE AND THEREFORE SAME IS HEREBY DELETED. A S A RESULT, GROUND NO.7 AND 8 ARE ALLOWED. 27. AS A RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. ORDER WAS PRONOUNCED IN THE OPEN COURT AT THE CONCL USION OF HEARING. SD/- SD/- (C.N. PRASAD) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 12.04.2017 V. PAL SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 20 A.W FABER CASTELL 3. # ( ) / THE CIT(A) 4. # / CIT - CONCERNED 5. & , & , / DR, ITAT, MUMBAI 6. '( / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 21 A.W FABER CASTELL SR. NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATION SHEETS ARE ATTACHED YES SR.PS/PS 2 DRAFT DICTATED ON 24 .4 .17 SR.PS/PS 3 DRAFT PLACED B EFORE AUTHOR SR.PS/PS 4 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 5 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 6 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 7 ORDER PRONOUNCEMENT ON SR.PS/PS 8 FILE SENT TO THE BENCH C LERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE AR 11 DATE OF DISPATCH OF ORDER