DCIT 10(2), MUMBAI V. DOW AGROSCIENCES INIDA P. LTD, MUMBAI

ITA 1443/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3779 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 26-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 18-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND; B S BIST
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary; Corroborative evidences
• Section: 143(3); 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) THE ACIT 10(2), ROOM NO.432, 4 TH FLOOR, AAYKAR BHAVAN,M.K.ROAD, MUMBAI 400 020 ...... APPELLANT VS. M/S. DOW AGROSCIENCES INDIA PVT. LTD. UNIT NO.1, CORPORATE PARK, V.N.PURAV MARG,CHEMBUR, MUMBAI -71 PAN:AAACD 3813H .... RESPONDENT APPELLANT BY : S/SHRI B.S. BIST & N.K .CHAND RESPONDENT BY : SHRI M.P.LOHIA DATE OF HEARING : 05/08/2016 DATE OF PRONOUNCEMENT : 10/08/2016 ORDER PER G.S.PANNU,A.M: THE CAPTIONED APPEAL FILED BY THE REVENUE PERTAININ G TO ASSESSMENT YEAR 2004-05 IS DIRECTED AGAINST AN ORD ER PASSED BY CIT(A)- 15, MUMBAI DATED 02/12/2010, WHICH IN TURN ARISES O UT OF AN ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 22 ND DECEMBER, 2006. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE AD AS UNDER:- 2 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING- THE DISALLOWANCES OF TRAVELLING AND CONVEYANCE OF RS.1,12,39,325/- WITHOUT APPRECIATING THAT THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEEDING S DID NOT SUBMIT THE COMPLETE DETAILS OF THE TRAVELLING AND CONVEYAN CE EXPENSES TO JUSTIFY AND ESTABLISH THAT THE ENTIRE EXPENDITURE W AS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSINESS. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE A ND IN LAW , THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF FREIGH T & FORWARDING CHARGES OF RS. 3,35,04,706/- WITHOUT APPRECIATING T HAT THE ASSESSEE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS DID NOT SUBMIT THE COMPLETE DETAILS OF THE FREIGHT & FORWARDING CHARGE S TO JUSTIFY AND ESTABLISH THAT THE ENTIRE EXPENDITURE WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSI NESS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF MI SCELLANEOUS EXPENDITURE OF RS. 3,81,11,1741- WITHOUT APPRECIATI NG THAT THE ASSESSEEE IN THE COURSE OF ASSESSMENT PROCEEDINGS D ID NOT SUBMIT THE COMPLETE DETAILS OF THE MISCELLANEOUS EXPENDITU RE TO JUSTIFY AND ESTABLISH THAT THE ENTIRE EXPENDITURE WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF ITS BUSI NESS. 4 (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADJUSTMENT OF RS. 1,21,81,647/- MADE BY THE TRANSFER PRICING OFFICER AND ASSESSING OFFICER TOWARDS THE ROYALTY PAYMENT BY HOLDING THAT THE ROYALTY PAY MENTS MADE BY THE ASSESSEEE MEETS THE ARMS LENGTH TEST. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE H AS RECEIVED KNOW HOW ONLY FOR ONE PRODUCT HAS ALSO NOT RECEIVED ANY PATENT BUT HAS ENDED UP PAYING MORE ROYALTY THAN THE UK COUNTERPAR T WHO IS THE ONLY ASSOCIATED ENTERPRISE TO WHOM THE TECHNOLOGICA L KNOWHOW IS GRANTED AND WHO IS PAYING ROYALTY AT 3% OF SALES OF THE PRODUCT AND HENCE THE TPO AND AO WERE JUSTIFIED IN RESTRICTING THE ROYALTY AS 5% OF THE EXPORT SALES INSTEAD OF 8% AS CLAIMED BY THE ASSESSEEE. (III) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) FAILED TO CONSIDER THE FACT THAT EVEN IF THE RBI PERMITS A ROYALTY RATE OF 8% ON . EXPORTS, BUT CONSIDERING TH AT NO DOW GROUP ENTITY PAYS ROYALTY AT A RATE HIGHER THAN 5% THE RA TES COULD NOT BE SAID TO BE AT ARMS LENGTH AND THE TPO AND AO WAS JU STIFIED IN MAKING THE, ADJUSTMENT' 3 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VERY OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3. THE RESPONDENT ASSESSEE IS A COMPANY INCORPORATE D UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTE R-ALIA, ENGAGED IN THE BUSINESS OF MANUFACTURE AND TRADING OF PESTICIDES, AGRO-CHEMICALS AND SEEDS. THE RETURN OF INCOME FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 WAS SUBJECT TO A SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT, WHEREBY THE FINAL TAX LIABILITY WAS DETERM INED ON THE BASIS OF THE BOOK PROFIT IN TERMS OF SECTION 115JB OF THE AC T. THE ASSESSING OFFICER HAD MADE CERTAIN DISALLOWANCES/ADDITIONS WH ILE COMPUTING THE INCOME UNDER NORMAL PROVISIONS OF THE ACT, WHICH WE RE CHALLENGED IN APPEAL BEFORE THE CIT(A), WHO HAS DELETED THE SAME. AGAINST SUCH ACTION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE U S ON THE ABOVE STATED GROUNDS OF APPEAL. 4. IN SO FAR AS GROUNDS OF APPEAL NO.1 TO 3 ARE CON CERNED, THE SAME RELATE TO AN ADHOC DISALLOWANCE MADE BY THE ASSESSI NG OFFICER @50% OF TOTAL EXPENSES DEBITED UNDER THE HEAD TRAVELLING AND CONVEYANCE, FREIGHT AND FORWARDING CHARGES AND MISCELLANEOUS EXPENDITURE. AS PER THE DISCUSSION IN PARA5 OF THE ASSESSMENT ORDER A C OMMON POINT RAISED BY THE ASSESSING OFFICER IS THAT ASSESSEE DID NOT F URNISH COMPLETE DETAILS OF THE EXPENSES PARTY-WISE, AMOUNT WISE AND JUSTIFI CATION FOR THE SAME ALONGWITH SUPPORTING DOCUMENTS. AS A CONSEQUENCE, THE ASSESSING OFFICER DISALLOWED 50% OF THE EXPENDITURE DEBITED IN THE P&L ACCOUNT UNDER EACH OF THE AFORESAID HEADS AND ACCORDINGLY THE DISALLOWANCE WORKED OUT UNDER VARIOUS HEADS WAS AS UNDER:- 4 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) TRAVELLING AND CONVEYANCE - RS. 1,12,39,325/- FREIGHT AND FORWARDING CHARGES - RS. 3,35,04,706/- MISCELLANEOUS EXPENSES - RS. 3,81,11,174/- THE ASSESSEE COMPANY CARRIED THE MATTER IN APPEAL B EFORE THE CIT(A). THE CIT(A) HAS DELETED THE ENTIRE ADDITIONS PRIMARI LY ON THE GROUND THAT SIMILAR ADDITIONS MADE IN ASSESSMENT YEAR 2003-04 W ERE DELETED BY HIM. THE CIT(A) HAS ALSO NOTED THAT ASSESSEE WAS D IRECTED TO PRODUCE THE SAMPLE COPIES OF CERTAIN SUPPORTING EVIDENCES , WHICH WERE EXAMINED BY HIM. AGAINST SUCH ACTION OF THE CIT(A) , REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, IT A WAS A COMMON POINT BETWEEN THE PARTIES THAT THE ORDER OF THE CIT(A) FOR 2003-04 WAS EXAMINED BY THE TRIBUNAL VIDE ITA NO.630/MUM/2011 DATED 20/01/2014 AND THE ISSUE WERE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION S TO READJUDICATE THE CLAIM OF THE ASSESSEE AS PER PROVISIONS OF LAW. FO LLOWING THE SAID PRECEDENT AND CONSIDERING THAT IN THE INSTANT YEAR CIT(A) HAS ALSO RELIED UPON HIS OWN ORDER FOR ASSESSMENT YEAR 2003-04, WE HEREBY SET-ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO READJUDICATE THE ISSUE IN TERM S OF THE DIRECTIONS OF THE TRIBUNAL DATED 20/1/2014(SUPRA) AND AS PER LAW. THUS, GROUNDS OF APPEAL NO.1 TO 3 ARE ALLOWED FOR STATISTICAL PURPOS ES. 6. GROUNDS OF APPEAL NO.4(I) TO 4(III) RELATE TO AN ADDITION OF RS.1,21,81,647/- MADE BY THE ASSESSING OFFICER WHIL E DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTI ONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE. 5 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) 6.1 RELEVANT FACTS RELATING TO THE SAID ISSUE CAN B E SUMMARIZED AS FOLLOWS. THE ASSESSEE COMPANY PAID ROYALTY TO DOWEL ANCO BV (IN SHORT DOW NETHERLAND) FOR RECEIVING A NON-ASSIGNABLE AN D NON-EXCLUSIVE LICENCE TO USE THE PROCESS UTILIZING TECHNOLOGY AT ITS MANUFACTURING PLANT TO MANUFACTURE CHLOROPYRIFOS (CHP), THE USE AND S ALE OF CHP AND ITS FORMULATION MADE THERE-FROM IN INDIA AND ALSO FOR E XPORT OF CHP AND ITS FORMULATIONS. THE ASSESSEE COMPANY PAID ROYALTY TO ITS ASSOCIATED ENTERPRISE ( I.E. DOW NETHERLANDS) @ 5% ON NET DOME STIC SALE OF CHP AND 8% ON NET EXPORT SALES OF CHP. THE NET SALES F OR THE SAID PURPOSE WAS MEANT GROSS SALES LESS LOADED COST OF IMPORTE D IMPUTS, RETURNS, ALLOWANCES, REBATES, DISCOUNT, TRANSPORT, ETC. WH ICH WAS IN ACCORDANCE WITH THE FOREIGN EXCHANGE CONTROL REGULATIONS. THE ASSESSING OFFICER REFERRED THE MATTER OF COMPUTATION OF ARM'S LENGTH PRICE OF THE SAID INTERNATIONAL TRANSACTION TO THE TRANSFER PRICING O FFICER(TPO). THE TPO PASSED AN ORDER UNDER SECTION 92CA(3) OF THE ACT WH EREBY, FOLLOWING HIS STAND FOR THE EARLIER ASSESSMENT YEAR OF 2003-0 4, DETERMINED AN ADJUSTMENT OF RS.1,21,81,647/-, WHICH ACCORDING TO HIM WAS REQUIRED TO BE MADE IN ORDER TO BRING THE SAID STATED VALUE OF THE EXPENDITURE ON ROYALTY TO ITS ARM'S LENGTH PRICE. THE AFORESAID A MOUNT WAS ADDED TO THE RETURNED INCOME BY THE ASSESSING OFFICER WHILE FINALIZING ASSESSMENT UNDER SECTION 143(3) OF THE ACT, WHICH W AS CHALLENGED IN APPEAL BEFORE THE CIT(A). THE CIT(A), BY WAY OF A BRIEF DISCUSSION VIDE PARA 8.4 OF HIS ORDER, DELETED THE ADDITION FOLLOWI NG HIS ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OF 2003-04 ON A SIMILAR ISSUE. HENCE, THE APPEAL OF THE REVENUE BEFORE US. 6 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) 7. AT THE TIME OF HEARING, IT WAS POINTED OUT THAT FOR ASSESSMENT YEAR 2003-04 THE TRIBUNAL VIDE ORDER DATED 20/01/20 04(SUPRA) HAD AFFIRMED THE ACTION OF THE CIT(A) IN DELETING THE A DDITION. SO HOWEVER, LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THA T THE TRIBUNAL HAD UPHELD THE ULTIMATE CONCLUSION OF THE CIT(A) TO DEL ETE THE ADDITION ON AN ALTERNATE PLEA AND THAT IT WOULD BE IN THE FITNE SS OF THINGS THAT THE MATTER IN THE PRESENT YEAR BE DECIDED INDEPENDENTLY INASMUCH AS ON OTHER ASPECTS ALSO THE IMPUGNED DECISION OF THE CI T(A) IS UNIMPEACHABLE. 7.1 IN ORDER TO APPRECIATE THE AFORESAID, THE FOLLO WING DISCUSSION IS RELEVANT. THE ROYALTY PAID BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE I.E. DOW NETHERLANDS HAS BEEN APPROVED BY THE SECRE TARIAT OF INDUSTRIAL APPROVAL (SIA), MINISTRY OF INDUSTRY(GOVERNMENT OF INDIA) VIDE COMMUNICATION DATED 07/09/1996 AND ALSO BY THE RESE RVE BANK OF INDIA DATED 11/03/1997. BEFORE US, A REFERENCE HAS ALSO BEEN MADE TO PAPER BOOK, WHEREIN THE AFORESAID COMMUNICATIONS HA VE BEEN PLACED AS ALSO A COMMUNICATION SIA DATED 22/1/1997, WHICH IS IN CONTINUATION TO ITS EARLIER APPROVAL DATED 17/09/1996. IN TERMS OF SUCH APPROVALS, ASSESSEE IS PERMITTED TO PAY ITS FOREIGN COLLABORAT OR I.E. DOW NETHERLANDS, ROYALTY @ 5% ON DOMESTIC SALES AND 8% ON EXPORT SALES. IN THIS BACKGROUND, BEFORE THE TPO ASSESSEE ASSERT ED THAT SINCE ROYALTY WAS PAID IN TERMS OF THE APPROVALS BY THE CENTRAL G OVERNMENT, THE PAYMENT OF ROYALTY WAS AT ARMS LENGTH RATE. IN OT HER WORDS, THE RATE OF ROYALTY APPROVED BY THE CENTRAL GOVERNMENT WAS USED AS A RELIABLE DATA FOR BENCHMARKING THE TRANSACTION OF PAYMENT OF RO YALTY. IN THIS MANNER, ASSESSEE ADOPTED THE COMPARABLE UNCONTROLLE D PRICE (CUP) 7 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) METHOD AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS INTERNATIONAL TRANSACTION OF ROYALTY AND THE RATE APPROVED BY THE CENTRAL GOVERNMENT WAS USED AS A RELIABLE CUP DATA. SIMIL AR WAS THE POSITION TAKEN BY THE ASSESSEE IN ASSESSMENT YEAR 2003-04. A PART THERE-FROM, ASSESSEE HAD ALSO CANVASSED THAT EVEN AFTER APPLICA TION OF THE TRANSACTIONAL NET MARGIN METHOD (TNMM) TO TEST THE ARMS LENGTH NATURE OF ITS TRANSACTION OF PAYMENT OF ROYALTY, NO ADJUSTMENT WAS NECESSITATED. BE THAT AS IT MAY, THE TPO NOTED THA T ANOTHER ASSOCIATE ENTERPRISE OF THE ASSESSEE NAMELY, UK KING LYNNS P LANT ( IN SHORT DOW UK) WAS ALSO PAYING ROYALTY TO DOW NETHERLANDS, WH ICH WAS AT LOWER RATES. BASED ON THE ABOVE, THE TPO DETERMINED THAT THE ROYALTY PAID BY DOW UK WAS A COMPARABLE TRANSACTION AND ACCORDINGLY DETERMINED THE ARMS LENGTH ROYALTY PAYMENT AT 3% FOR DOMESTIC AS WELL AS 5% FOR GROSS EXPORT SALE, WHICH WERE THE RATES AT WHICH ROYALTY WAS PAID BY DOW UK TO DOW NETHERLANDS. IN ASSESSMENT YEAR 2003-04 AS ALSO IN THE INSTANT ASSESSMENT YEAR, ASSESSEE HAD CHALLENGED THE AFORE SAID ACTION OF THE TRANSFER PRICING OFFICER. FIRSTLY, IT WAS CANVASSE D THAT THE RATE OF ROYALTY PAYMENTS HAVING BEEN APPROVED BY THE GOVERNMENT OF INDIA, SUCH RATES CONSTITUTE A VALID CUP DATA AND NO FURTHER ADJUSTME NT WAS REQUIRED TO THE STATED VALUE OF THE ROYALTIES PAID. SECONDLY, LD. REPRESENTATIVE FOR THE ASSESSEE ALSO POINTED OUT THAT THE COMPARABLE T RANSACTION ADOPTED BY THE TRANSFER PRICING OFFICER I.E. PAYMENT OF ROY ALTY BY DOW UK TO DOW NETHERLANDS WAS A WRONG APPROACH INASMUCH AS C OMPARISON COULD BE MADE ONLY WITH AN UNCONTROLLED TRANSACTIO N, WHEREAS IN THE CASE OF DOW UK AND DOW NETHERLANDS, BOTH WERE ASSOC IATE ENTERPRISES AND, THEREFORE, PAYMENT OF ROYALTY BY DOW UK TO DOW NETHERLANDS 8 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) WAS A CONTROLLED TRANSACTION AND ACCORDINGLY, THE SAME COULD NOT BE CONSIDERED AS A VALID CUP DATA. IN SO FAR AS THE LATTER PLEA OF ADOPTION OF CONTROLLED TRANSACTION WAS CONCERNED, THE CIT(A) IN ASSESSMENT YEAR 2002-03 HAS ACCEPTED THE PLEA OF THE ASSESSEE. HOW EVER, WITH REGARD TO THE PLEA OF THE ASSESSEE BASED ON THE RATE OF R OYALTY APPROVED BY THE CENTRAL GOVERNMENT IS CONCERNED, THE CIT(A) REJ ECTED THE SAME AS ACCORDING TO HIM, SUCH RATES COULD NOT BE CONSIDERE D AS VALID CUP DATA. THE CIT(A) HAD HOWEVER, ALLOWED RELIEF BY BE NCHMARKING ROYALTY PAYMENT UNDER THE TNMM WHEREBY, THE MARGINS FROM THE MANUFACTURING ACTIVITIES OF THE ASSESSEE WERE FOUND TO BE FAVOURABLE VIS--VIS THOSE OF THE COMPARABLES CONCERNS. THE T RIBUNAL IN ASSESSMENT YEAR 2003-04 UPHELD THE ULTIMATE CONCLUS ION OF THE CIT(A) TO DELETE THE ADDITION ON THE GROUND THAT THE BASIS ON WHICH THE ROYALTY WAS PAID BY THE DOW UK TO DOW NETHERLANDS WAS DIFFE RENT THAN THAT WAS PAID BY ASSESSEE TO DOW NETHERLANDS IN AS MUCH AS DOW UK WAS PAYING ROYALTY AS A PERCENTAGE OF GROSS SALES, WHER EAS ASSESSEE WAS PAYING ROYALTY AT NET SALES, IN ACCORDANCE WITH FOR EIGN EXCHANGE CONTROL REGULATIONS. THE TRIBUNAL FOUND THAT IF THE ROYALT Y PAYABLE WAS CALCULATED BY ADOPTING THE SAME BASIS, THEN THE ROY ALTY BEING PAID BY DOW UK WAS HIGHER THAN WHAT HAS BEEN PAID BY ASSESS EE COMPANY TO DOW NETHERLANDS AND, THUS, THE ROYALTY PAID BY THE ASSESSEE WAS AT AN ARM'S LENGTH RATE , AND NO ADJUSTMENT WAS REQUIRED. ON THIS BASIS, THE TRIBUNAL AFFIRMED THE ORDER OF THE CIT(A) DELETING THE ADDITION IN ASSESSMENT YEAR 2003-04. 7.2 NOW IN THE PRESENT YEAR, THE CASE OF THE ASSESS EE IS THAT THE PLEA THAT RATE OF ROYALTY APPROVED BY THE CENTRAL GOVERN MENT AS ALSO BY THE 9 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) RESERVE BANK OF INDIA CONSTITUTES A VALID CUP DA TA HAS BEEN AFFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CI T VS. SGS INDIA PVT. LTD., ITA NO.1807 OF 2013 DATED 18/11/2015. IN THI S CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT BE FORE THE HONBLE HIGH COURT, THE REVENUE HAD RELIED UPON PRESS NOTE NO.9 (2000 SERIES) ISSUED BY CENTRAL GOVERNMENT FOR ADOPTING THE RATES OF ROYALTY PRESCRIBED THEREIN FOR BENCHMARKING ROYALTY PAYABLE . IN THIS CONTEXT, REFERENCE WAS MADE TO PARA 8 OF THE ORDER OF THE HO NBLE HIGH COURT, WHEREIN CLAUSE(IV) OF THE PRESS NOTE WAS SPECIFIC ALLY NOTED, WHICH PROVIDED FOR PAYMENT OF ROYALTY UPTO 8% ON EXPORT S ALES AND 5% ON DOMESTIC SALES. THE LD. REPRESENTATIVE FOR THE ASS ESSEE EXPLAINED THAT THOUGH CLAUSE (IV) OF PRESS NOTE NO.9 (2000 SERIES) CONSIDERED BY THE HONBLE HIGH COURT RELATED TO PAYMENT OF ROYALTY BY A WHOLLY OWNED SUBSIDIARY TO ITS OFFSHORE PARENT COMPANY, BUT SIM ILAR TREATMENT HAS BEEN EXTENDED EVEN TO OTHER ENTITIES ALSO VIDE A.P .(DIR SERIES) CIRCULAR NO.5 DATED 21/7/2003 ISSUED BY RESERVE BANK OF IND IA, EXCHANGE CONTROL DEPARTMENT, CENTRAL OFFICE, MUMBAI, A COPY OF WHICH HAS BEEN PLACED ON RECORD. THE LD. REPRESENTATIVE FOR THE AS SESSEE POINTED OUT THAT BEFORE THE HONBLE HIGH COURT, REVENUE STATED THE PRESS NOTE NO.9 (2000 SERIES) DATED 8/9/2000 WAS APPLICABLE TO EXAM INE THE REASONABLENESS OF THE ROYALTY PAID WHILE COMPUTING THE ARM'S LENGTH PRICE. 7.3 ON THE BASIS OF AFORESAID IT IS CANVASSED THAT THE ROYALTIES PAID BY THE ASSESSEE ARE IN TERMS OF THE APPROVAL GRANTED B Y SIA AS ALSO IN TERMS OF CIRCULAR NO.5 DATED 21/7/2003(SUPRA) OF THE RESE RVE BANK OF INDIA 10 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) AND, THEREFORE, THE ROYALTIES PAID @ 8% ON EXPORT AND 5% ON DOMESTIC SALES ARE TO BE CONSIDERED AT ARMS LENGTH RATE. 7.4 ALTHOUGH THE LD. DEPARTMENTAL REPRESENTATIVE D ID NOT DISPUTE THE FACTUAL MATRIX, BUT HE HAS MERELY RELIED UPON THE ORDER OF THE TPO IN SUPPORT OF THE CASE OF THE REVENUE. 7.5 IN OUR CONSIDERED OPINION, FOLLOWING THE JUDGM ENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SGS INDIA LTD.(SUP RA), THE PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRIS E, DOW NETHERLANDS @ 5% ON DOMESTIC SALES AND 8% ON EXPORT SALES IS LIAB LE TO BE CONSIDERED AS AT AN ARMS LENGTH RATE IN VIEW OF THE CIRCULAR NO.5 DATED 21/7/2003(SUPRA). THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS COUNT IS UNSUSTAINABLE. IN THE ULT IMATE ANALYSIS, WE UPHOLD THE ACTION OF THE CIT(A) IN DELETING THE ADD ITION, ALBEIT, ON A DIFFERENT GROUND. 8. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 10/08/2016 SD/- SD/- (AMARJIT SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOCUNTANT MEMBER MUMBAI, DATED 10/08/2016 VM , SR. PS 11 ITA NO. 1443/MUM/2011 (ASSESSMENT YEAR : 2004-05) COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI