Appeal details
Counselvise Citation
[2017] 126 COUNSELVISE.COM (IT) 7284 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-10-2017
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
B
Next Hearing Date
16-11-2017
Assessment Year
2010-2011
Appeal Filed On
06-10-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO , AM AND SHRI VIKAS AWASTHY, JM . / I TA NO. 1321 /PUN/20 15 / ASSESSMENT YEAR : 2010 - 11 SPICER INDIA PRIVATE LTD. ( FORMERLY KNOWN AS SPICER INDIA LIMITED) 29, MILESTONE, PUNE - NASHIK HIGHWAY, VILLAGE : KURULI, TAL : KHED, PUNE - 410 501 PAN : AAECS1869C ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRLCE - 10,PUNE. / RESPONDENT . / ITA NO. 1350/PUN/2015 / ASSESSMENT YEAR : 2010 - 11 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRLCE - 10, PUNE. ....... / APPELLANT / V/S. SPICER INDIA PRIVATE LTD. ( FORMERLY KNOWN AS SPICER INDIA LIMITED) 29, MILESTONE, PUNE - NASHIK HIGHWAY, VILLAGE : KURULI, TAL : KHED, PUNE - 410 501 PAN : AAECS1869C 2 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 A SSESSEE BY : SHRI R.D ONKAR REVENUE BY : SHRI RAJEEV KUMAR / DATE OF HEARING : 24.10.2017 / DATE OF PRONOUNCEMENT : 27 .10.2017 / ORDER PER VIKAS AWASTHY, JM THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 13, PUNE DATED 29.07.201 5 FOR ASSESSMENT YEAR 2010 - 11. 2. THE BRIEF FACTS O F THE CASE AS EMANATING FROM RECORDS ARE : THE ASSESSEE COMPAN Y IS A JOINT VENTURE BETWEEN ANAND AUTOMOTIVE SYSTEMS AND DANA CORPORATION, USA. THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING AND SALE OF DRIVE TRAIN COMPONENTS NAMELY PROPELLER SHAFTS, UNIVERSAL JOINTS, AXLES AND COMPONENTS THEREOF. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL , THE ASSESSEE ENTERED INTO VARIOUS INTER NATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES ( IN SHORT AES). ACCORDINGLY, REFERENCE WAS MADE BY TRANSFER PRICING OFFICER (TPO) U/S. 92CA(1) OF THE ACT FOR COMPUTATION OF ARMS LENGTH PRICE IN RELATION TO THE SAID INTERNATIONAL TRANSACTIONS. DURING TRANSFER PRICING PROCEEDINGS , THE TPO OBSERVED THAT ASSESSEE HAD PAID ROYALTY TO THE TUNE OF RS.11,24,11,686/ - . THE TPO OBSERVED THAT THOUGH THE AMOUNT OF RS. 11,24,11,686/ - HAS BEEN PAID BY THE ASSESSEE AS ROYALTY TO ITS AE, DANA CORPORATION, USA, HOWEVER, DOCUMENTS ON RECORD DOES NOT SUGGEST THE FACT THAT PAYMENT HAS BEEN 3 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 MADE IN LIEU OF TECHNICAL SERVICES OR ANY OTHER SERVICES RECEIVED BY THE ASSESSEE. IT WAS ALSO NOTED THAT SIMILAR AMOUNT WAS PAID AS MANAGEMENT SERVICES FEES TO AN OTHER GROUP CONCERN I.E. ASIA INVESTMENT PVT. LTD. THE AFORESAID COMPANY H AS 25.10% SHARE HOLDING IN ASSESSEE COMPANY. ON THE BASIS OF OBSERVATION MADE BY TPO, THE ASSESSING OFFICER DISALLOWED RS. 11,24,11,686/ - PAID BY ASSESS EE AS MANAGEMENT SERVICES FEE TO ASIA INVESTMENT PVT. LTD. ( IN SHORT AIP L ) AS WELL AS ROYALTY PAYMENT OF RS.11,24,11,686/ - PAID BY ASSESSEE TO ITS AE, DANA CORPORATION, USA. 3. AGGRIEVED BY DISALLOWANCE OF MANAGEMENT SERVICES FEE AND PAYMENT OF ROYALTY, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISS IONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER REJECTED THE CONTENTION OF ASSESSEE AND CONFIRMED DISALLOWANCE OF MANAGEMENT SERVICES FEES OF AND CONFIRMED DISALLOWANCE OF MANAGEMENT SERVICES FEES OF RS.11,24,11,686/ - . HOWEVER, THE COMMISSIONER OF INCOME TAX (APPEALS) REVERSED THE FINDINGS OF ASSESSING OFFICER WITH RESPECT TO DISALLOWANCE OF PAYMENT OF ROYALTY TO DANA CORPORATION, USA. AGAINST THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS), BOTH, THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. ITA NO. 1321/PUN/2015 ( ASSESSEES APPEAL) ( A.Y. 2010 - 11) : 4. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) : 1. THE LEARNED CI T A ERRED IN CONFIRMING THE DISALLOWANCE OF THE ENTIRE MANAGEMENT SERVICES FEES PAID RS. 11,24,11,686/ - WHEN THE SAID REVENUE EXPENSES WERE INCURRED BY THE APPELLANT WHOLLY AND EXCLUSIVELY FOR THE LEGITIMATE PURPOSES OF ITS BUSINESS AND CLAIMED ACCORDINGLY BY THE APPELLANT UNDER SECTION 37 OF THE INCOME TAX ACT, 1961. 4 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 THE LEARNED CITA FURTHER ERRED IN CONF IRMING THE DISALLOWANCE OF THE SAID EXPENSES BY SIMPLY BRUSHING ASIDE THE VOLUMINOUS COMPILATION OF COPIES OF EMAIL COMMUNICATIONS, PRESENTATIONS AND REPORTS AND INFORMATION AND OTHER DOCUMENTS ON RECORD SUBSTANTIATING THE SAID SERVICES RECEIVED BY THE APP ELLANT AND IN GIVING AN ADVERSE FINDING THAT THE APPELLANT DID NOT ESTABLISH ITS CASE ON FACTS. 2. THE LEARNED CITA FAILED TO APPRECIATE THAT MANAGEMENT AS AN INTANGIBLE PROCESS IS PRACTICED THROUGHOUT BUSINESS ORGANIZATION FROM TOP TO MIDDLE TO OPERATIO NAL LEVELS AND IS MANAGEMENT OF DAY TO DAY BUSINESS AFFAIRS. THE LEARNED CITA FURTHER FAILED TO APPRECIATE THAT THE ONLY CONDITION WAS THAT THE REVENUE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND SPECIFIC SE RVICES FOR IDENTIFIED AND LEGITIMATE BUSINESS NEEDS OF THE APPELLANT WERE RECEIVED IN PERFORMING ALL THE VITAL BUSINESS FUNCTIONS BY THE APPELLANT AND THE SAID FACTUM WAS CLEARLY DEMONSTRATED BY THE APPELLANT IN THE FORM OF THE AFORESAID SUPPORTING DOCUMEN TATION PLACED ON RECORD. IT IS PRAYED THAT THE DISALLOWANCE BE DELETED. 3. YOUR APPELLANT CRAVES LEAVE TO ADD TO, MODIFY, DELETE THE ABOVE GROUNDS OF APPEAL. 5. SHRI R.D ONKAR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT DISALLOWANCE OF MANAGEMENT SERVICES FEE WAS MADE BY REVENUE FOR THAT DISALLOWANCE OF MANAGEMENT SERVICES FEE WAS MADE BY REVENUE FOR IDENTICAL REASONS IN ASSESSMENT YEAR 2009 - 10. THE ASSESSEE CARRIED THE MATTER IN SECOND APPEAL BEFORE TRIBUNAL IN ITA NO. 251/PUN/2014. T HE TRIBUNAL VIDE ORDER DATED 10.02.2017 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE LD. AR FURTHER SUBMITTED THAT AIPL, A GROUP CONCERN, IS PROVIDING MANAGEMENT SERVICES TO ITS GROUP CONCERN SINCE FINANCIAL YEAR 2004 - 05. THE ASSESSEE HAD ENTERED INTO COR PORATE SERVICES AGREEMENT DATED 14.12.2004 VALID TILL 31.12.2010 WITH AIPL. THE SAME IS AT PAGES 43 TO 53 OF THE PAPER BOOK. THE SERVICES PROVIDED BY AIPL UNDER THE SAID AGREEMENT INCLUDE SERVICES IN THE AREA O F HUMAN RESOURCES, ENVIRONMENT H EALTH & SAFETY , BUSINESS DEVELOPMENT & MARKETING, FINANCE, LEGAL AND TAXATION , OPERATION S AND CORPORATE TRANSACTIONS ETC. THE ASSESSEE PAID MANAGEMENT SERVICE FEES TO AIPL @ 2.85% OF THE SALES. 5 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 6. SHRI RAJEEV KUMAR , CIT - SR. DR REPRESENTING THE DEPARTMENT VEHEMENTLY S UPPORTING THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) SUBMITTED THAT DURING THE PROCE EDINGS BEFORE AUTHORITIES BELOW THE ASSESSEE DID NOT SUBMIT ANY MATERIAL TO SHOW THAT ASSESSEE HAD RECEIVED ANY KIND OF MANAGEMENT SUPPORT SERVICES FROM ITS G ROUP CONCERN I.E. ASIA INVESTMENT PVT. LTD. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER HAS CATEGORICALLY STATED THAT THE APPELLANT HAS NOT FURNISHED ANY DOCUMENT IN SUPPORT OF ITS CLAIM INDICATING SERVICES RENDERED BY THE GROUP ENTITY . 7. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. THE LD. AR HAS BROUGHT TO OUR NOTICE THAT DISALLOWANCE OF MANAGEMENT SERVICE FEES WAS MADE BY THE REVENUE IN ASSESSMENT YEAR 2009 - 10 FOR IDENTICAL REASONS. WE FIND THAT ASSESSEE IN ITS APPEAL ITA N O. 251/PUN/2014 IN ASSESSMENT YEAR 2009 - 10 HAD ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) AGAINST DISALLOWANCE OF MANAGEMENT SERVICE FEES OF RS.8,11,62,596/ - . THE CO - ORDINATE BEN CH OF THE TRIBUNAL AFTER ANALYSING THE FACT S OF THE CASE HELD THAT ONCE COMMERCIAL EXPEDIENCY OF EXPENDITURE IS ESTABLISHED, THEN THE SAME IS TO BE ALLOWED AS BUSINESS EXPENDITURE. THE RELEVANT EXTRACT OF ORDER OF THE TRIBUNAL DATED 10.02.2017 ON THE ISSUE IS AS UNDER: 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE CORPORATE ISSUE RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF MANAGEMENT FEES PAID BY THE ASSESSEE. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH AIPL DATED 14. 12.2004. THE SAID CONCERN WAS ENGAGED IN PROVIDING PROFESSIONAL AND MANAGEMENT SERVICES TO THE ASSESSEE. THE ASSESSEE HAS ENLISTED BENEFITS RECEIVED BY IT BY MAKING THE SAID PAYMENT OF MANAGEMENT FEES TO AIPL WHICH ARE AS UNDER: - 6 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 HUMAN RESOURCE : AIPL CONSISTENTLY PROVIDED HUMAN RESOURCE SERVICES LIKE EDUCATION / TRAININGS SERVICES WITH THE INTENTION OF DEVELOPING A TALENT POOL, BY EDUCATING, TRAINING, AND DEVELOPING A CHAIN OF EMPLOYEES WHO ARE SLATED TO TAKE OVER THE BATON OF FUTURE LEADERSHIP. FURTHE R, AIPL ADVISED SIPL BASED ON SURVEY OUTPUT LIKE COMPENSATION SURVEY, SUPPORTED IN FORMING HR POLICIES LIKE PERFORMANCE MANAGEMENT SYSTEM ETC., SUPPORTED ON SETTING - UP AND DEPLOYING THE OPERATING ENGINEERING MODEL CONCEPT ACROSS S I PL. BUSINESS DEVELOPMEN T, MARKETING AND DISTRIBUTION : SERVICES LIKE CONDUCTING PRESENTATIONS ON LATEST TECHNOLOGIES AT CLIENT LOCATION, MEETING WITH KEY CUSTOMERS TO GENERATE OPPORTUNITIES FOR SIPL, SUPPORTING IN PARTICIPATION AT VARIOUS BUSINESS EVENTS ETC. THIS SUPPORT FROM AI PL RESULTED IN INCREASED TURNOVER YEAR ON YEAR AS WELL AS BOOST IN AFTERMARKET SALES AS PROVIDED VIDE SUBMISSION DATED 26 MARCH 2013 BEFORE THE LEARNED AO . FINANCE : AIPL'S STRONG CORPORATE RELATIONSHIP WITH LEADING LENDING INSTITUTIONS, COMMERCIAL BANKS, INSURANCE COMPANIES SUPPORTED SIPL IN ARRANGING AND AVAILING LONG TERM FUNDS AND SHORT TERM WORKING CAPITAL NEEDS AT COMPETITIVE RATES, COVERING FOREIGN EXCHANGE EXPOSURE RISK, NEGOTIATING QUOTES FOR INSURANCE AS WELL AS REVIEWING AND ADVISING FOR RISK CO VERAGE ETC. LEGAL AND TAXATION : IN ACCORDANCE WITH FREQUENT CHANGES IN VARIOUS ACTS AND RULES IN DIRECT AND INDIRECT TAX LAWS AND VARIOUS OTHER LAWS, AIPL SUPPORTED IN ADVISING FROM TIME TO TIME WITH REGARD TO CHANGES WHICH HELPED SIPL TO COMPLY WITH ALL THE LAWS AND REGULATIONS. OPERATIONAL OVERVIEW : AIPL CONDUCTED PERIODIC OPERATION REVIEW MEETINGS TO DRIVE THE PERFORMANCE OF SIPL AND SUPPORTED FOR EXCELLING THE OPERATIONS. IN ADDITION TO THAT, ADVISORS DRAWN FROM DIVERSE FIELDS WERE AVAILABLE FOR ADVISING SIPL IN THE MATTERS OF STRATEGIC ISSUES, KE Y BUSINESS DECISIONS, ORGANIZATIONAL MARKET DEVELOPMENT AND GLOBAL TREND. AND GLOBAL TREND. OPERATIONAL EXCELLENCE DRIVE : AS THE MAIN FOCUS WAS ON COMPETENCE WITH GLOBAL BENCHMARK, AIPL INITIATED VARIOUS PROGRAMS WITH AN OBJECTIVE WHICH DIRECTLY BENEFITED SIPL TO MANUFACT URE BASED ON THE REQUIREMENT OF MARKET/ CUSTOMERS, FOCUS FLOW, STABLE PRODUCTION ACROSS ALL TIERS, LESS FLUCTUATED DELIVERY REQUESTS ETC. FACILITIES : SIPL USED FACILITY SET UP OF AIPL WHICH IS WELL EQUIPPED FOR THEIR BOARD MEETINGS AND MEETINGS WITH OVER SEAS VISITORS AND ALSO OTHER FACILITIES LIKE TRANSIT FACILITIES FOR THE STAY OF EMPLOYEES OF CLIENT COMPANIES ETC. SUPPORT IN NEW MANUFACTURING FACILITY SET - UP AND EXPANSIONS : AIPL SUPPORTED IN SETTING UP NEW FACILITIES FOR SIPL IN TERMS OF PREPARATION O F FEASIBILITY STUDY, EFFECTIVE PLANNING AND EXECUTION FOR NEW PROJECT / MANUFACTURING FACILITY, MONITORING CONTROLLING ON CAPITAL SPENT AND IN EXECUTING COST EFFECTIVE CONTRACTS, ETC. GOVERNMENT LIASON : ASSISTED SIPL TO HAVE EFFECTIVE INTERACTION WITH VARIOUS GOVERNMENT AGENCIES, MINISTRY AND TRADE CHAMBERS OF COMMERCE ETC. CORPORATE RELATIONS AND COMMUNICATIONS : CONTINUOUS CORPORATE COMMUNICATION DEPARTMENT WITH CONTRACTS WITH MEDIA AND BROUGHT OUT A QUARTERLY CORPORATE PUBLICATION WHICH HELPED SIPL IN BRANDING AND PUBLICITY. STRATEGIC SOURCING : SUPPORTED IN VENDOR DEVELOPMENT AND DEFINING STRATEGY FOR SOURCING COMMODITIES OR MATERIALS THROUGH VARIOUS ACTIVITIES. ENVIRONMENT, HEALTH AND SAFETY : AIP L SUPPORTED IN FORMING GROUP ENVIRONMENT POLICIES WHICH LAID DOWN THE ACTIONS EXPECTED FROM EMPLOYEES AND VARIOUS GREEN 7 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 INITIATIVES. STANDARDS OF SERVICES WITH BUSINESS CODE OF CONDUCT: AIPL DEPLOYED BUSINESS CODE OF CONDUCT IN CONFIRMATION WITH STANDARD S OF SERVICES AND MADE AVAILABLE ETHICS HELPLINE TO REPORT NON - COMPLIANCES. 24. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS PAYING ROYALTY TO DANA CORPORATION @ 2.85% AND WAS ALSO PAYING MANAGEMENT FEES TO AIPL FOR RENDERING SEVERAL TYPES OF SERVI CES AT REMUNERATION WHICH WAS EQUIVALENT TO THE AMOUNT OF ROYALTY I.E. 2.85% OF SALES. THE PERUSAL OF AGREEMENT REFLECTS THE NATURE OF SERVICES TO BE PROVIDED AND THE FEES TO BE CHARGED FOR PROVIDING THE SAID SERVICES. THE MAJORITY OF SUPPORT SERVICES AR E BEING RENDERED BY THE SAID CONCERN TO THE ASSESSEE AND THE PERUSAL OF EXPENSES DEBITED BY THE ASSESSEE REFLECTS THAT NO MAJOR EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE AND THE BENEFITS FLOW FROM AIPL TO THE ASSESSEE. THE SAID BENEFITS WERE FOR SMOOTH CARRYING ON OF THE BUSINESS BY THE ASSESSEE AND WERE INCURRED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE IS THE BEST JUDGE TO DECIDE THE EXPENDITURE IT NEEDS TO INCUR FOR SMOOTH CARRYING ON OF ITS BUSINESS. THE ASSESSING OFFICER CANNOT SIT IN JUDGMENT OF BUSINESSMAN POSITION IN INCURRING ANY EXPENDITURE. THE HONBLE SUPREME COURT IN HERO CYCLES (P) LTD. VS. CIT (SUPRA) HAVE APPLIED THE RATIO LAID DOWN BY THE APEX COURT IN S.A. BUILDERS LTD. VS. CIT(A) AND ANOTHER (2007) 288 ITR 1 (SC) AND UPHELD THE SCOPE OF COMMERCIAL EXPEDIENCY, WHEREIN IT WAS HELD THAT THE EXPRESSION 'COMMERCIAL EXPEDIENCY ' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS IN CURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. WHERE THERE IS NEXUS IN CURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY. WHERE THERE IS NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE PURPOSE OF BUSINESS, THEN THE REVENUE CANNOT PUT ITSELF IN THE ARM CHAIR OF THE BUSINESSMAN TO DECIDE HOW MUCH OF THE EXPENDITURE IS REASONABLE. APP LYING THE ABOVE SAID PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON MANAGEMENT FEES IN ORDER TO FACILITATE SMOOTH RUNNING OF ITS BUSINESS IS AN ALLOWABLE EXPENDITURE IN THE HANDS OF ASSESSEE. S IMILAR EXPENDITURE HAS BEEN ALLOWED IN THE HANDS OF ASSESSEE IN PRECEDING YEAR. ANOTHER ASPECT OF THE ISSUE IS THAT THE SAID MANAGEMENT FEES IS TO BE TAXED IN THE HANDS OF RECIPIENT AND EVEN THE SERVICE TAX HAS BEEN PAID BY THE RECIPIENT, EVIDENCE OF WHIC H IS PLACED IN THE PAPER BOOK. ONCE THE COMMERCIAL EXPEDIENCY OF EXPENDITURE IS ESTABLISHED, THEN THE SAME IS TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF ASSESSEE. WE HOLD SO. THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 8. WE FIND THAT FACTS IN THE PRESENT APPEAL ARE SIMILAR TO THE ONE ADJUDICATED BY THE CO - ORDINATE BENCH IN THE ASSESSEES OWN CASE IN IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2009 - 10. THE LD. DR HAS NOT BEEN ABLE TO CONTROVERT THE FINDINGS OF THE CO - ORDINATE BENCH OF THE TRIBUNAL. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE, WE SEE NO REASON 8 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 TO TAKE A DIVERGENT VIEW. FOLLOWING THE REASONING AND DECISION OF CO - ORDINATE BENCH IN ASSES SEES OWN CASE , WE ALLOW GROUND NO. 1 AND 2 RAISED BY THE ASSESSEE IN PRESENT APPEAL. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 1350/PUN/2015 ( REVENUES APPEAL) ( A.Y.2010 - 11) : 10. THE REVENUE IN ITS APPEAL HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) BY RAISING FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF ROYALTY EXPE NSES AMOUNTING TO RS.11 ,24,11,686/ - , IGNORING THE FINDINGS OF THE TPO AND THE AO THAT THE SAID TECHNOLOGY TRANSFER AGREEMENT WHICH WAS SIGNED 15 YEARS AGO FROM RELEVANT A.Y, HAS BECOME OBSOLETE? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF ROYALTY EXPENSES, IGNORING THE FINDINGS OF THE TPO AND THE AO THAT NO TANGIBLE BENEFIT HAD ACCRUED TO THE ASSESSEE ON ACCOUNT OF PAYMENT OF ROYALTY? THE ASSESSEE ON ACCOUNT OF PAYMENT OF ROYALTY? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES O F THE CASE THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF ROYALTY EXPENSES, IGNORING THE FINDINGS OF THE TPO AND THE AO THAT THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENTS TO ESTABLISH THAT DURING RELEVANT A.Y., ANY QUALIFIED PERSONAL WA S SECONDED BY THE AE FOR PROVIDING TECHNICAL ASSISTANCE TO THE ASSESSEE ON HIS REQUEST? 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF ROYALTY EXPENSES, IGNORING THE FINDINGS OF TH E TPO AND THE AO THAT ASSESSEE HAS SEPARATELY CHARGED EXPENSES SUCH AS FEES, TRAVELLING AND LIVING EXPENSES OF AE'S PERSONAL TO ASSESSEE AND ASSESSEE'S PERSONAL TO AE AND THUS SEPARATELY CHARGED FOR PROVIDING TECHNICAL ASSISTANCE AND THUS THERE IS DUPLICAT ION OF CHARGES LEVIED BY THE AE ON THE ASSESSEE IN THE FORM OF ROYALTY CHARGES? 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. THOUGH THE REVENUE HAS RAISED FOUR GROUNDS IN APPEAL BUT ALL THE GROUNDS ARE WITH RESPECT TO SINGLE ISSUE I.E . PAYMENT OF ROYALTY EXPENSES TO THE TUNE OF RS.11,24,11,686/ - . 9 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 11. SHRI R.D. ONKAR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO TECHNOLOGY LICENSE AGREEMENT WITH ITS PA RENT AE FOR MANUFACTURING LIGHT AXLES AND DRIVE SHAFTS AND COMPONENTS WHICH ARE USED IN SPORTS UTILITY VEHICLES AND LIGHT COMM ERCIAL VEHICLES MANUFACTURED BY ORIGINAL EQUIPMENT MANUFACTURERS ( OEMS ) . THE SAID TECHNOLOGY LICENSE AGREEMENT S IS RENEWED FROM TI ME TO TIME. THE AGREEMENT RELEVANT FOR THE ASSESSMENT YEAR 2010 - 11 WAS EXECUTED ON 30.03.2007 AND IT WAS VALID FROM 01.04.2007 TO 30.03.2012 . THE TPO MECHANICALLY FOLLOWED THE TRANSFER PRICING ORDER PASSED IN IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 200 9 - 10 AND DISALLOWED THE ENTIRE ROYALTY AMOUNT BY TAKING THE ARMS LENGTH PRICE OF ROYALTY AS NIL. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONSIDERING ALL RELEVANT FACTS , ACCEPTED THE CONTENTION S OF THE ASSESSEE AND DELETED THE ADDITION. THE LD. AR FURTHER SUBMITTED THAT IDENTICAL ISSUE HAD CAME UP IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10 AND THE TRIBUNAL ALLOWED THE CLAIM OF ASSESS EE. 12. SHRI RAJEEV KUMAR REPRESENTING THE DEPARTMENT VEHEMENTLY SUPPORTING THE ORDER OF ASSESSING OFFICER/TRANSFER PRICING OFFICER SUBMITTED THAT ASSESSEE HAS SIGNED TECHNOLOGY LICENSE AGREEMENT FOR THE FIRST TIME IN 1993. NO JUSTIFICATION HAS BEEN GIVE N BY THE ASSESSE FOR PAYMENT OF ROYALTY EVEN AFTER ELAPSE OF SUCH A LONG PERIOD. THE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS NOT SUBMITTED ANY DOCUMENT TO ESTABLISH THAT DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS DE RIVED ANY BENEFIT OR HAS RECEIVED ANY 10 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 TECHNICAL ASSISTANCE. HOWEVER, THE LD. DR FAIRLY ADMITTED THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10. 13. WE HAVE PERUSED THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 10. WE FIND THAT T HE ISSUE RELATING TO PAYMENT OF ROYALTY BY ASSESSEE TO DANA CORPORATION, USA HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 - 10. T HE CO - ORDIN ATE BENCH HAS GIVEN DETAILED FINDI NGS ON THIS ISSUE. THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL ARE AS UNDER : 48. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD ENTERED INTO A DRIVE SHAFT TECHNOLOGY LICENCING AGREEMENT AND TECHNOLOGY LICENCE AGREEMENT FOR AXLES ALONG WITH SUPPLEMENTARY AGREEMENT WITH DANA CORPORATION, UNDER WHICH FOR THE SERVICES AND ASSISTANCE PROVIDED BY ASSOCIATE ENTERPRISES, THE ASSESSEE WAS TO PAY ROYALTY INITIALLY @ 3% AND THEREAFTER, @ 2.85%. THE COPIES OF AGREEMENTS ARE PLACED AT PAGES 116 TO 158 OF THE PAPER BOOK. THE ASSESSEE ALSO PROVIDED DOCUMENTATION, UNDER WHICH THE ASSESSEE HAD RECEIVED THE BENEFITS AND ASSISTANCE FROM ITS ASSOCIATE ENTERPRISES IN RELATION TO THE BENEFITS AND ASSISTANCE FROM ITS ASSOCIATE ENTERPRISES IN RELATION TO THE ROYALTY TRANSA CTION ON ACCOUNT OF TECHNICAL ASSISTANCE, DESIGN, PROCESS REVIEW AND TECHNICAL KNOW - HOW, WHICH ARE PLACED AT PAGES 201 TO 210 OF THE PAPER BOOK. IT WAS POINTED OUT THAT ASSOCIATE ENTERPRISES SUPPORTS THE ASSESSEE IN TECHNOLOGY UPGRADATION BY BRINGING THE LATEST TECHNOLOGY IN DRIVE TRAIN SYSTEMS TO INDIA. THE ASSESSING OFFICER REFERRED THE ISSUE OF COMPUTATION OF ARM'S LENGTH PRICE OF THE SAID INTERNATIONAL TRANSACTION TO THE TPO, WHO IN HIS ORDER TREATED THE ARM'S LENGTH PRICE AT NIL. 49. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE ROYALTY PAID BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES HAD BEEN APPROVED BY THE SECRETARIAT OF INDUSTRIAL APPROVAL, MINISTRY OF INDUSTRY, GOVERNMENT OF INDIA, VIDE LETTER DATED 28/31.01.2003 AND INITIALLY BY T HE RBI @ 3%. HOWEVER, SUBSEQUENTLY, THE RBI VIDE COMMUNICATION DATED 21.07.2003 ACCORDED AUTOMATIC APPROVAL ROUTE TO MAKE THE ROYALTY PAYMENT AT 8% ON EXPORTS AND 5% ON DOMESTIC SALES WITHOUT ANY RESTRICTION ON THE DURATION OF ROYALTY PAYMENTS. THEREAFTE R, THIS RATE WAS REDUCED TO 2.85% BY THE RBI. THE CASE OF THE ASSESSEE BEFORE THE TPO WAS THAT SINCE THE ROYALTY PAYMENTS WERE IN TERMS OF APPROVAL GRANTED BY SIA AND RBI, THE SAME WERE AT ARM'S LENGTH PRICE AND THE ASSESSEE PLACED RELIANCE ON CUP METHOD FOR BENCHMARKING THE SAID TRANSACTION OF PAYMENT OF ROYALTY IN THIS REGARD. THE PLEA OF ASSESSEE THAT THE RATE APPROVED BY THE SIA AND RBI WAS TO BE USED AS RELIABLE CUP DATA, WAS NOT ACCEPTED BY THE TPO. THE TPO ON THE OTHER HAND, REJECTING THE EXPLANAT ION OF ASSESSEE OF TECHNOLOGY SUPPORTS PROVIDED BY ASSOCIATE ENTERPRISES TO THE ASSESSEE, FURTHER HELD THAT SIA / RBI WERE NOT RELATED TO TRANSFER PRICING. THE TPO STRESSED THAT NO PROPER DOCUMENTATION HAD BEEN BROUGHT ON RECORD TO JUSTIFY THE BENEFITS RE CEIVED BY THE ASSESSEE AGAINST PAYMENT OF ROYALTY AND HENCE, THE ROYALTY TRANSACTION WAS HELD TO BE NOT AT ARM'S LENGTH. 11 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 THE FIRST ISSUE WHICH HAS BEEN RAISED BEFORE US IS AGAINST JUSTIFICATION OF ROYALTY PAYMENT VIS - - VIS BENEFITS RECEIVED BY THE ASSESSE E AND WHETHER IT WAS BEYOND THE SCOPE OF TPO WHILE DETERMINING THE ARM'S LENGTH PRICE OF SAID TRANSACTIONS. THE SECOND ISSUE RAISED BEFORE US WAS THAT THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE ON ACCOUNT OF ROYALTY PAYMENT WERE AT ARM'S LENGTH OR NOT. 50. THE FIRST ASPECT OF THE ISSUE IS THAT THE ASSESSEE HAS BEEN PAYING THE SAID ROYALTY PAYMENT FROM YEAR TO YEAR, WHICH HAS BEEN ALLOWED IN THE HANDS OF ASSESSEE BY THE TPO WITHOUT MAKING ANY ADJUSTMENT IN ASSESSMENT YEARS 2005 - 06 TO 2008 - 09. THE ASSES SING OFFICER HAD ALSO ALLOWED THE CLAIM OF ASSESSEE. FURTHER, IN ASSESSMENT YEAR 2010 - 11, IT HAS BEEN ALLOWED BY THE CIT(A) AND IN ASSESSMENT YEAR 2011 - 12, ALLOWED BY THE DRP. THE SECOND ASPECT IS THAT WHETHER THE RATE OF ROYALTY APPROVED BY SIA / RBI WO ULD CONSTITUTE CUP DATA AND THE TRANSACTION IS AT ARM'S LENGTH PRICE. THE HONBLE BOMBAY HIGH COURT IN CIT VS. SGS INDIA PVT. LTD. (SUPRA) HAS HELD SO. THE SAID PROPOSITION HAS ALSO BEEN LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN ACIT VS. M/S. DOW AGRO SCIENCES INDIA PVT. LTD. (SUPRA) AND IT HAS BEEN HELD THAT WHERE THE ROYALTIES WERE PAID IN TERMS OF APPROVAL GRANTED BY SIA / RBI, THEN THE SAME ARE TO BE CONSIDERED AT ARM'S LENGTH RATE. FOLLOWING THE SAID PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIG H COURT IN CIT VS. SGS INDIA PVT. LTD. (SUPRA) AND MUMBAI BENCH OF TRIBUNAL IN ACIT VS. M/S. DOW AGRO SCIENCES INDIA PVT. LTD. (SUPRA), WE HOLD THAT WHERE THE PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISE DANA CORPORATION IS @ 2.85%IS LIAB LE TO BE CONSIDERED AT ARM'S LENGTH RATE AND NO ADDITION IS WARRANTED ON THIS COUNT. ACCORDINGLY, THE CLAIM OF ASSESSEE IS THUS, ALLOWED. IN ANY CASE, THE JURISDICTION AND POWER OF TPO IS TO DETERMINE ARM'S LENGTH PRICE OF ROYALTY AND THE ORDER OF TPO HO LDING THAT THE ASSESSEE HAD NOT DERIVED ANY BENEFIT UNDER THE SAID AGREEMENT THAT THE ASSESSEE HAD NOT DERIVED ANY BENEFIT UNDER THE SAID AGREEMENT IS BEYOND THE SCOPE OF TPO WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION FOR THE PURPOSE OF DETERMINING ARM'S LENGTH PRICE. ACCORDINGLY, WE HOLD SO. THE GROUNDS OF OBJECTIONS RAISED BY THE ASSESSEE ARE THUS, ALLOWED. IT IS UNDISPUTED FACT THAT THE ISSUE RELATING TO PAYMENT OF ROYALTY IN ASSESSMENT YEAR UNDER APPEAL IS A RISING FROM SAME SET OF FACTS. THE ROYALTY PAID BY THE ASSESSEE TO DANA CORPORATION, USA DURING THE PERIO D RELEVANT TO ASSESSMENT YEAR 2010 - 11 IS GERMINATING FROM SAME AGREEMENT WHICH WAS SUBJECT MATTER OF DISPUTE IN ASSESSMENT YEAR 2009 - 10. THE DETAILED REASONS HAVE BEEN GIVEN BY THE C O - ORDINATE BENCH IN ASSESSMENT YEAR 2009 - 10 FOR ALLOWING THE PAYMENT OF R OYALTY . FOLLOWING THE DECISION OF CO - ORDINATE BENCH, WE HOLD THAT THE PAYMENT OF ROYALTY PAID BY THE ASSESSEE TO ITS AE IS JUSTIFIED AND IS AT ARMS LENGTH PRICE. WE FIND NO MERIT IN THE GROUND S RAISED BY THE REVENUE . A CC ORDINGLY, THE APPEAL OF THE REVENU E IS DISMISSED. 12 ITA NOS. 1321 & 1350/PUN/2015 A.Y. 2010 - 11 14. TO SUM UP, APPEAL OF THE ASSESSEE IS ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRO NOUNCED ON FRIDAY, THE 27 TH DAY OF OCTOBER , 201 7 . SD/ - SD/ - ( . / D. KARUNAKARA RAO ) ( /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 27 TH OCTOBER , 2017 . SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS) - 13, PUNE. 4. IT/TP, PUNE. 5 . , , , / DR, ITAT, A BENCH, PUNE. 6 . / GUARD FILE. // TRUE COPY // / BY ORDER, / PRIVATE SECRETARY , / ITAT, PUNE .
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