THYSSENKRUPP INDUSTRIES INDIA P. LTD, MUMBAI V. DCIT CIR 3(3)(2), MUMBAI

ITA 1886/MUM/2017

AI Insights

Thyssenkrupp Industries India Pvt Ltd appealed against the order passed under sections 143(3) r.w.s 144C(13) of the Income Tax Act, which involved a transfer pricing adjustment of Rs.8,46,73,752. The adjustments were related to international transactions including payments for royalty, technical know-how, engineering and manufacturing drawings, brand license fees, and reimbursements of expenses. The Tribunal considered the submissions, previous judicial decisions, and the specific agreements and contracts between the assessee and its associated enterprises. The Tribunal noted that the payments were approved or deemed to have been approved by the Reserve Bank of India, and thus, should be considered at ALP.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299619 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 15-03-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 16-03-2017
• Other Referred Cases: ThyssenKrupp Industries India Pvt Ltd Vs. ACIT, CIT Vs. Thyssenkrupp Industries India Pvt Ltd, ThyssenKrupp Industries India Pvt Ltd, ACIT, DCIT VS. ThyssenKrupp Industries Ltd
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Question of law
• Section: 37; 143(3); 142(1); 14A; 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHIR M BALAGANESH, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No. 1886/Mum/2027 (A.Y: 2012-13) Thyssenkrupp Industries India Pvt Ltd., 154-C, Mittal Towers, 15 th Floor, 210, Nariman Point, Mumbai-400021. Vs. DCIT, Circle – 3(3)(2) Aayakar Bhavan, Room No. 609, Mumbai – 400020. PAN/GIR No. : AAACK1947K Appellant .. Respondent Appellant by : Shri Madhur Aggarwal & Shri Pratik Podar.AR Respondent by : Shri Samuel Pitta.DR Date of Hearing 16.03.2023 Date of Pronouncement 27.03.2023 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: The assessee has filed the appeal against the order passed u/s 143(3) r.w.s 144C(13) of the Act in pursuance to the directions of the Dispute Resolution Panel (DRP) order u/s 144C(5) of the Act dated 23.12.2016. The assessee has raised the following grounds of appeal: Ground 1: ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 2 - 1. On the facts and circumstances of the case, the Learned Assessing Officer ('Ld. AO'), under the directions of the Hon'ble Dispute Resolution Panel ('Hon'ble DRP'), erred in rejecting the benchmarking approach adopted by the Appellant and thereby making a transfer pricing adjustment of Rs.8,46,73,752 to the income of the Appellant by holding that international transactions of the Appellant pertaining to Payment of royalty for receipt of technical know-how, Payment of engineering and manufacturing drawing fees, Payment of brand license fees and Reimbursement of expenses, do not comply with the arm's length principle as envisaged under Chapter X of the Income-tax Act, 1961 (the 'Act'). Ground 2: 2. On the facts and circumstances of the case, the Ld. AO, under the directions of the Hon'ble DRP, erred in confirming the action of the Learned Transfer Pricing Officer ('Ld. TPO') of making an addition to the Appellant's total income with respect to the international transaction of payment of royalty for receipt of technical know-how amounting to Rs. 1,82,63,136. In doing so, the Hon'ble DRP/ Ld. AO/ Ld. TPO have erred in: 2.1. Rejecting the benchmarking analysis conducted by the assessee using Comparable Uncontrolled Price ('CUP') to demonstrate the arm's length nature of the transaction of payment of technology royalty; 2.2. Not taking cognizance of the corroborative benchmarking analysis conducted by the assessee using the Transactional Net Margin Method ('TNMM') to demonstrate the arm's length nature of the transaction of payment of technology royalty; ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 3 - 2.3. Failing to acknowledge the business efficacy of the said transaction and the benefits received by the assessee from the payment of technology royalty; and 2.4. In relying upon Ld. TPO's erroneous report on facts of the case for subsequent AY and erroneously concluding that facts of the case in the year under consideration (i.e.; AY 2012-13) and subsequent AY 2013-14 are different. Ground No. 3: 3. On the facts and circumstances of the case, the Ld. AO, under the directions of the Hon'ble DRP, erred in confirming the action of the Ld. TPO of making an addition to the Appellant's total income with respect to the international transaction of payment of engineering and manufacturing drawing fees amounting to Rs. 43,54,921. In doing so, the Ld. AO/Hon'ble DRP have erred in: 3.1. Rejecting the benchmarking analysis conducted by the assessee using CUP to demonstrate the arm's length nature of the transaction of payment of engineering and manufacturing drawing fees; 3.2. Not taking cognizance of the corroborative benchmarking analysis conducted by the assessee using the TNM method to demonstrate the arm's length nature of the transaction of payment of engineering & manufacturing drawings fees in the order; 3.3. Failing to understand the distinct nature of intangibles (i.e. technical know-how & technical and manufacturing drawings) requiring separate payments to be made by Applicant to its AE; 3.4. Failing to acknowledge the business efficacy of the said transaction and the benefits received by the ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 4 - assessee from the payment of engineering & manufacturing drawings fees; and 3.5. In relying upon Ld. TPO's erroneous report on facts of the case for subsequent AY and erroneously concluding that facts of the case in the year under consideration (i.e.; AY 2012- 13) and subsequent AY 2013-14 are different. Ground 4: 4. On the facts and circumstances of the case, the Ld. AO, under the directions of the Hon'ble DRP, erred in confirming the action of the Ld. TPO of making an addition to the Appellant's total income with respect to the international transaction of payment of brand license fees amounting to Rs. 5,65,11,397. In doing so, the Ld. AO/Hon'ble DRP have erred in: 4.1. Rejecting the benchmarking analysis conducted by the assessee using CUP to demonstrate the arm's length nature of the transaction of payment of brand license fees; 4.2. Not taking cognizance of the corroborative analysis using TNM method and contending that the assessee has incurred significant advertisement and marketing expenses despite the fact that the AMP incurred by the assessee is a meagre 0.06% of its total sales; 4.3. Failing to acknowledge the business efficacy of the said transaction and the benefits received by the assessee from the payment of brand license fees; and 4.4. In relying upon Ld. TPO's erroneous report on facts of the case for subsequent AY and erroneously concluding that facts of the case in the year under consideration (i.e.; AY 2012- 13) and subsequent AY 2013-14 are different. ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 5 - Ground 5: 5. On the facts and circumstances of the case, the Ld. AO, under the directions of the Hon'ble DRP, erred in confirming the action of the Ld. TPO of making an addition to the Appellant's total income with respect to the international transaction of reimbursement of expenses amounting to Rs. 55,44,298. In doing so, the Ld. AO/Hon'ble DRP have erred in: 5.1. Disregarding the submission of the Appellant that the correct amount of reimbursement of expenses is Rs. 30 lakhs; whereby the amount of Rs. 25 lakhs actually relates to recovery of certain expenses, which was inadvertently reported as reimbursement of expenses. 5.2. Disregarding the documentary evidence submitted by the assessee with respect to the said transaction of reimbursement of expenses to AE; and 5.3. Failing to acknowledge the business efficacy of the transaction of reimbursement of expenses. The above grounds are without prejudice to each other. Your Appellant craves leave to add, amend, alter, modify and/or substitute, and to withdraw the above grounds of appeal. 2. The brief facts of the case that the assessee company is engaged in the business of manufacturing of various machinery for sugar, cement, mining and boilers and also member of ThyssenKrupp Group Technologies being a segment of ThyssenKrupp Group ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 6 - AG of Germany, the assessee executes the contracts involving design, manufacturing, supply, erection and commission of cement plants, sugar plants and supply of mining equipment bulk materials, handling systems and boilers. The assessee has filed the return of income for the A.Y 2012-13 on 158,12,84,280/-, subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance, the Ld. AR of the assessee appeared from time to time and submitted the details and the case was discussed. The AO on perusal of the financial statements found that the assessee has entered into a international transactions with his associate enterprises(AE) and the assessee has filed the From 3CEB, the AO considering the nature of transactions and the matter was referred to the Transfer Pricing Officer (TPO) to determine the arms length price (ALP). Whereas the TPO on receipt of the information has considered the facts and the nature of transfer pricing proceedings at Para 4 to 5 of the order as under: 4. History of transfer Pricing Proceedings: A.Y Transaction 2003-04 No adjustment ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 7 - 2004-05 No adjustment 2005-06 No adjustment 2006-07 No adjustment 2007-08 Import of spares and equipment / entity level (Rs. 96,780,000), Royalty and project engineering & manufacturing drawing (Rs. 112,716,302), payment for Interest on delayed payments (Rs. 32,359) - In this regard the assessee filed an appeal with ITAT, Order received on November 27, 2012 and the entire adjustment (except of Rs. 32,359 for interest on delayed payments) is deleted by Tribunal 2008-09 Import of spares and equipment / Sales of equipments / Components Entity level profitability (Rs. 6,72,06,437), Royalty (Rs. 4,29,03,966)- In this regard the assessee has filed appeal with ITAT. 2009-10 Purchases from AEs-Rs.95,58,200/- Sales of goods to AES- Rs.2,52,73,978/- Royalty- Rs.3,34,06,807/- Engineering & Manufacturing Drawing- Rs.2,59,52,119/- 2010-11 Royalty -Rs. 2,42,62,257/-, Engineering & Manufacturing Drawing-Rs. 63,82,293/- 2011-12 Royalty & Engineering & Manufacturing Drawing- Rs.4,86,33,139, Reimbursement of expenses- Rs.19,35,468/-, Payment of brand license fees 2012-13 Under Consideration 5. The details of international transactions entered into by the assessee during the year are follows. Sr. No Nature of transaction Amount Method 1 Purchase of raw materials (paid) 15,17,57,063 TNMM 2 Sale of finished goods received (received) 66,34,939 TNMM ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 8 - 3 Payment of technology royalty (paid) 1,82,63,136 CUP 4 Fees for project engineering (paid) 43,54,921 CUP 5 Payment of brand license fees (paid) 5,65,11,397 CUP 6 Provision of engineering services (received) 6,99,76,343 TNMM 7 Provision for inspection services (received) 21,32,734 TNMM 7a Provision for inspection services (paid) 5,65,11,397 TNMM 10 E mil Transport cost (paid) 9,70,267 TNMM 11 SP maintenance cost (paid) 49,42,505 TNMM 12 Reimbursement of expenses (paid) 55,44,298 TNMM 13 Reimbursement of expenses received 13,59,603 TNMM 3. Further the TPO found that the assessee has aggregated the transactions and bench marked at TNMM method. The assessee has also clubbed the transactions of purchase of raw material, sale of finished goods, payments of SAP maintenance fees, availing of supervision, engineering, transport services and others etc. Whereas in respect of import of spares and equipments and sale of of equipment/components, the TPO has called for the information in respect of export. The assessee has submitted the information dealt at Para 6.1.2 of the ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 9 - order and worked out the average operating profit margin as under: 6.1.2 During the relevant year, the assessee has also exported certain equipments, components etc. to its AE. The equipments manufactured by the assessee are exported based on the purchase orders received from the AES. The purchase orders specify the type and quantity of components required, customized specifications, delivery terms and conditions, package specifications with the port of destination and other details. The prices are agreed upon based on market sources prevailing at the time when the sale was concluded. 6.2 The assessee has clubbed most the transactions together and had benchmarked these transactions using TNMM as the most appropriate method with the assessee as the tested party. It has considered net operating margin as the appropriate PLI. It has selected 5 comparables from Prowess and Capitaline as under Srl No. Name of the company Average operating profit margin (op/sales) 1 Walchandnagar Industries Ltd 4.40% 2 Mcnally Bharat Engg.Co. Ltd 6.85% 3 Petron Engineering Construction Ltd 10.03% 4 UB Engineering Ltd 10.71% 5 Gillianders Arbuthnot & Company Ltd Project segment 9.55% Arithmetic Mean 8.31% ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 10 - 4. Similarly the PLI was worked out based on the five comparables selected and margin of 7.21 referred at para 6.3 of the TPO order. 6.3 The assessee has submitted that the 5 comparables selected by it have earned a margin (op/sales) of 8.31% while the assessee has earned a margin of 7.21% the working of which is as under: Particulars Total (Rs. in millons) Sales 16589.00 OI 16589.00 Total Operating Cost (OC) 15392.99 Operating profit (OP) 1196.01 OP/OI 7.21% Further the TPO has called for the segment wise information and operating margin referred at 6.5 to 6.8 as under: 6.5 Further, in the TP report, the assessee has corroborated the arm's length nature of its international transactions by way of internal comparability analysis. Considering that the basic functional profile of AE Segment and Non AE Segment is same, they are considered to be comparable segments (page number 21 of TPSR). Financial statements of the company are bifurcated in two segments - AE Segment and Non AE Segment. The result of the same is as under: Particulars AE Non AE Total (A) (B) (A+B) ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 11 - Sales 8902.571 7686.431 16589.002 Operating cost 8118.522 7274.464 15392.986 Operating profit 784.049 411.966 1196.015 OP/Sales 8.81 5.36% 7.21% 6.6 From the above it is noted that the assessee has earned profit of 8.81% (on sales) from AE segment as against 5.36% from non AE segment. Therefore assessee submitted that the company's margin meet with arm's length standard. 6.7 It is observed that for AY.2010-11 & 2011-12 following comparables were also considered as comparable, which have been accepted as functionally comparable in assessee's own case by Hon'ble ITAT. Shriram EPC Ltd OP/OI 13.72% TRF Ltd ΟΡ/ΟΙ 7.83% 6.8 Therefore after considering the updated margin of these comparables the PLI is as under- Sr. No Name of the company (OP/Sales) 1 Walchandnagar Industries Ltd 3.06% 2 Mcnally Bharat Engg.Co Ltd 6.54% 3 Petron Engineering Construction Ltd 8.44% 4 UB Engineering Ltd 7.75% 5 Gillanders Arbuthnot & Company Ltd Project segment 10.35% 6 Shriram EPC Ltd 13.72% 7 TRF Ltd 5.83% Arithmetic Mean 7.96% ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 12 - 5. In respect of royalty, brand licence and project engineering and manufacturing drawings, the TPO has considered the TPSR report and the trade mark owned by TK AG. Further the TPO has dealt on the submissions and the facts and observed at Para 7.3 to 7.5 as under: 7.3 As such TPO made an observation that the royalty was paid by the assessee for a bundle of services / rights, for the territory of India and not outside. On the other hand the assessee also incurred huge cost for advertisement and marketing in respects of trademark owned by the AE. This arrangement rendered redundant, the agreement for provisions of international marketing service, for which an additional payment had been made by the assessee. The very fact that the brand continued to be owned by the foreign AE, which benefits from such expenditure towards international marketing services and royalty payment, would not be acceptable, if transacted between the two independent parties at an Arm's Length basis. 7.4 Further TPO observed that from the above it is evident that the assessee had been making payments through different mechanisms like royalty, fee for project engineering and manufacturing drawings in spite of the fact that it had already made a lump sum payment at the time of entering into the agreement. 7.5 In view of the above, and in line with the elaborate reasons discussed in the TPO order of AY.2008-09 and 2009-10 & 2010-11 as also A.Y 2011-12, the arm's length price of royalty of Rs.1,82,63,136/-, brand license of ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 13 - 5,65,11,397/- and also of project Engineering and Manufacturing drawings of Rs.43,54,921/- is treated as NIL respectively and the total amount of Rs.7,91,29,454/- is treated as a transfer pricing adjustment. 6. In respect of provision of engineering services, availing of inspection services, availing of insurance services, SAP license and email services. The TPO has considered the factual aspects and made the adjustments observed at Para 12.2 to 12.3 as under: 12.2 Based on the above and considering the group policy in place with respect to email transport services, the said payment is said to meet with the arm’s length price. 12.3 For A.Y 2010-11 & 2011-12 this transaction was accepted to be at arm’s length. In view of the above, no adjustment is proposed to the value of this transaction. 7. Further in respect of the reimbursement of expenses to and from AE. The assessee has reimbursement certain expenses to AE on account of travelling expenses, insurance and actual cost without any markup and the assessee has recovered from its AE on account of reimbursement of traveling, hotel charges on actual cost without any markup. The TPO is of the view that the assessee has ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 14 - not submitted the documentary evidence and has observed at Para 13.2 to 13.3 as under: 13.2 TPO’s view On perusal of the preceding year order it is observed that the TPO OBSERVED THAT During the hearing on 13/01/2015 assessee had stated that they had not filed any documentary evidence with respect to reimbursement of expenses. Assessee vide submission dtd.11/11/2014 submitted that "while recovering the expenditure from the assessee, it had charged handling fees of 8% to recover administrative overheads without adding any specific mark up towards the profit element." Thus assessee had also paid a markup of 8%. Since assessee had not submitted any evidence for the expenditure, TPO treated the same as NII. 13.3 Further TPO observed that since the benefit received for all the above expense claimed as reimbursements had not been substantiated ALP was determined as NIL, as in a Arm's Length scenario no independent person would make any payments without benefits received. One needs to understand, whether, and how much, of such expenditure was for the purpose of benefit of the assessee (deductible under Section 37 of the Act), and secondly, whether that amount passed a transfer pricing analysis. It also had to demonstrated that the price paid was such that an independent entity would have paid for such services for the benefits (if any) received by it. Despite the opportunity being provided, no evidence or explanation was furnished. Reliance is placed on the decision of the Hon'ble Delhi High Court in the case of CIT VS M/s Cushman and Wakefield (India) P Ltd in ITA No. ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 15 - 475/2012 wherein the court vide its order dated 23.05.2014 has upheld the above view. Finally the transfer pricing adjustment is as under: Description Amount in Rs. Royalty, brand license fees & Engineering & manufacturing drawing 7,91,29,454 Reimbursement of expenses 55,44,298 Total 8,46,73,752 8. Finally the TPO has passed the order u/s 92CA(3) of the Act dated 13.01.2016. Subsequently draft assessment order was passed with transfer pricing adjustment of Rs.8,46,73,752/- along with disallowance u/s 14A r.w.r 8D(2) and assessed the total income of Rs. 166,59,59,320/- and passed the order u/s 143(3) r.w.s 144C(1) of the Act dated 23.03.2016. 9. Aggrieved by the draft assessment order, the Assessee has filed objections with Form 35 with the DRP, whereas the DRP has considered the facts submissions and objections raised by the assessee and considering the information and submissions has issued directions u/s 144C(5) of the Act dated 23.12.2016. Subsequently the final assessment order ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 16 - was passed with assessed income of Rs. 166,59,59,320/- u/s 143(3) r.w.s 144C(13) dated 19.01.2017. Aggrieved by the final assessment order, the assessee has filed an appeal before the Hon’ble Tribunal. 10.. At the time of hearing, the Ld. AR has made submissions on the grounds of appeal. whereas the grounds of appeal Nos. 1 to 4 are connected and specifically ground no 2&3 are inter related and highlighted the percentage fee paid . The Ld.AR submitted that the TPO has not considered the various facts, information and decisions of the Hon’ble Tribunal in the assessee own case and unilaterally has treated ALP as NIL and ignored the brand licence fee agreement of year 1999. The Ld. AR further emphasized on the provisions and the contracts, and the reimbursement of expenses are supported with the details and evidences and 8% markup has been charged. The Ld.AR substantiated the submissions with Honble Tribunal decisions in the assessee own case, factual paper book, judicial decisions and prayed for allowing the assessee appeal. Contra, the Ld. DR supported the orders of ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 17 - the lower authorities and made submissions on the grounds of appeal with respect to the claims of ALP and the requirement of information on reimbursement expenses. 11. We heard the rival submissions and perused the material on record. The Ld. AR submitted that the addition was made treating the international transactions pertaining to payment of royalty for receipt of technical knowhow, payment of engineering, and manufacturing drawing fees and payment of brand license fee and for availing the services, were the assesee has paid 2% of contract value to its AE and royalty paid @5% of the selling price to its AE and the agreement between the assessee and krupp polysius AG was approved by the RBI and the assessee has bench marked the transactions with the TNMM and the TPO has overlooked these facts. The fees has been paid for the purpose transactions and TPO has treated as Rs. Nil. Whereas the assessee has incurred this expenditure and therefore the transactions value cannot be taken as Nil. In respect of brand license fee, the AO has overlooked the fees as per the agreement of year 1996 and the Ld.AR ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 18 - referred to copy of brand licence agreement with its AE placed at page 145 to 154 of the order. Whereas the Hon’ble tribunal for the A.Y 2008-09 and 2009- 10 has considered these facts of agreement. Further the assessee for the A.Y 2010-11 &A.Y.2011-12 has opted for VSVS and demonstrated Form no3. Whereas in respect of A.Y 2013-14 and subsequent years there is no addition. The Ld.AR emphasized that the DRP has also overlooked facts and for the A.Y 2011-12 the DRP has also followed earlier years observations and bench marked. The Ld. AR referred to page No.38 of the paper book in respect of ALP of engineering and manufacturing drawing fees and trade mark licence report at page 155. Further for A.Y 2013-14 there is no such addition was made and refer to page 325 of the paper book. The Ld. AR demonstrated decision of the Honble Tribunal in the assessee’s own case for the A.Y 2008-09. Further Honble High Court of Bombay in assessee’s own case for A.Y 2007-08, [2016] 70 taxmann.com 329 has held as under 1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated 27th November, 2011 passed by the Income Tax Appellate Tribunal (the Tribunal) for the Assessment Year 2007-08. ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 19 - 2. Mr. Kotangale, learned Counsel appearing for the Revenue urges the following re-framed questions of law for our consideration: "(a) Whether on the facts and the circumstance of the case and law, the Tribunal was justified in law in restricting the Transfer Pricing (TP) adjustment only to the transaction between the Associated Enterprises (AEs)? (b) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in 8/21/2020 allowing the payment of royalty, project engineering and manufacturing drawing fees of Rs.11,27,16,302/- disallowed by the Transfer Pricing Officer (TPO).? (c) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in allowing the payment of liquidated damages of Rs. 2,70,38,000/- disallowed by the TPO?". 3. Re:- Question (a) (a) The Respondent is in the business of execution of turnkey contracts involving design, manufacture, supply. erection and commissioning of sugar plants, cement plants, etc. During the subject Assessment Year, the Respondent-Assessee had International Transaction with its Associated Enterprises (AE) in respect of import of spares and equipments, royalty and project engineering, manufacturing drawings, settlement for liquidated damages and interest on delayed payments. (b) The TPO on selection of comparables arrived at the margin at 6.29% as against 5.19% arrived at by the Respondent-Assessee in its Form 3-CEB. However, the TPO proposed to make adjustment on account of enhancement of profit margin on all transactions of the ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 20 - Respondent- Assessee. This in spite of the Respondent- Assessee's objection to the application of the margin applicable to arrive at ALP at 6.29% on transactions with third party i.e. non-AE transactions. The Assessing Officer passed an order in accordance with the above order of the TPO. (c) Being aggrieved, the assessee carried the above issue in Appeal to the Tribunal. The Tribunal by the impugned order held that only transactions entered into by an assessee with its AE are subject to transfer pricing adjustment and not otherwise. Thus, allowing the Assessee's appeal before it. (d) The grievance of the Revenue before us is that the adjustment is not to be restricted only in respect of transactions entered into with the AE. All the transactions of the Respondent- Assessee would have necessarily be varied/ adjusted by the margin arrived at by the TPO to arrive at the ALP. (e) We find that in terms of Chapter X of the Act, re- determination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered into with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act. 4. A similar view has been taken by this Court in Income Tax Appeal No. 1814 of 2013 (CIT v. Tara Jewels Exports ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 21 - (P) Ltd. [2016] 381 ITR 404 (Bom.) as well as by the Delhi High Court in CIT v. Keilin Panalfa Ltd. [IT Appeal No. 11 of 2015, decided on 9th September, 2015]. 5. In the above view, as the provisions of the Act in respect of transfer pricing are self evident, Question No.(a) as proposed does not give rise to any substantial question of law. Thus, not entertained. 6. Appeal admitted on Question Nos. (b) and (c). 7. Registry is directed to communicate copy of this order to the Tribunal. This would enable the Tribunal to keep papers and proceedings relating to the present appeal available, to be produced when sought for by the Court. 12. The Ld. AR also relied on the judicial decisions as under: 1. Thyssekrupp Industries India Pvt Ltd Vs. ACIT, IT No. 7032/Mum/2011. 2. CIT Vs. Thyssenkrupp Industries India Pvt Ltd. [2016] 70 taxmann.com 329 3. Thyssenkrup Industries India Pvt ltd, ACIT, [2013] 33 taxmann.com 107 4. CIT Vs. ThyssenKrupp Industries India Pvt Ltd., [2016] 68 taxmann.com 248 5. DCIT VS. ThyssenKrupp Industries Ltd, ITA No. 2084/Mum/2014 6. ThyssenKrupp Industries India Pvt Ltd, ITA No. 7032/Mum/2021 7. CIT Vs. SI Group-India Ltd, [2019] 107 taxmann.com 314 8. CIT Vs. Merck Ltd, [2016] 389 ITR 70 (Bom) 9. CIT Vs. Johson & Johson Ltd, [2017] 80 taxmann.com 337 ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 22 - 10. CIT Vs.Lever India Exports Ltd, [2017] 78 taxmann.com 88 11. ACIT Vs. Netafim Irrigation Ind (P.) Ltd [2019] 106 taxmann.com 61 12. Henkel Chembond surface Technologies Ltd., Vs. ACIT, 125 taxmann.com 68 13. Henkel Chembond Surface Technologies Ltd., ACIT, 125 taxmann.com 65. 14. UT Woldwide India P Ltd Vs. DCIT, [2019] 103 taxmann.com 422 15. TheyssenKrupp Industries Pvt Ltd Vs. ACIT, ITA No. 7032/Mum/2011 16. TheyssenKrupp Industries India Pvt Ltd., [2013] 33 taxmann.com 107 17. DCIT Vs. ThyssenKrupp Industries Ind Pvt Ltd, ITA No. 2084/Mum/204 18. CIT Vs SGS India Pvt Ltd., ITA 1807 of 2013 (Bom HC) 19. DCIT Vs. AVT MC Cormick Ingredients Ltd (Automatic Approval), ITA No. 2167/Mds/2013 20. ACIT Vs. Dow Agrosciences Ind Pvt Ltd, [2016] 76 taxmann.com 124 21. DCIT Vs. SI Group India Ltd., ITA No. 813/Mum/2013 22. Spicer India Pvt Ltd Vs. ACIT, 2017 (10) TMI 1291 23. ACIT Vs. Netafim Irrigation India Ltd.,, [2019] 106 taxmann.com 61 24. CIT Vs. Wlspun Zuchi Textiles Ltd., [2017] 391 ITR 211 25. UT Worldwide Ind P Ltd, Vs DCIT, [2019] 103 taxmann.com 422 26. Omni Active Health Technologies Ltd., Vs. DCIT, [2018] 92 taxmann.com 88 27. PCIT Vs. Vishay Components India Ltd., [2019] 103 taxmann.com 421. ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 23 - 13. Further the Ld. AR also submitted that for A.Y 2010-11 and 2011-12 the assessee has opted for VSVS scheme and paid the taxes referred to page 390 to 393 of the paper book in respect of from 3 issued. Further the Ld. AR filed Form No. 5 issued by the department after payments are received. The Ld. AR contentions are that the TPO has not considered the expenses and treated ALP as Nil. We find the issues in the present appeal are identical to earlier year decided by the Honble Tribunal in the assessee’s case for the A.Y 2009-10 in ITA No. 2084/Mum/2014 dated 7-9-2020 observed at Page 4 Para 7 read as under: 7. In ground No.2 of the appeal, Revenue has assailed the findings of DRP in deleting the transfer pricing adjustment of Rs.5,93,58,926/- on account of payment of royalty, project engineering and manufacturing drawings. We find that the DRP has deleted the addition by placing reliance on the order of the Tribunal in assessee’s own case for assessment year 2008-09. The Co-ordinate Bench of the Tribunal deleted the addition in respect of payment of royalty in the assessment year 2008-09. The relevant extract of the findings of the Tribunal on this issue are as under:- “14.1 The next issue is against the adjustment of Rs. 4,29,03,966 pertaining to payment of royalty. The facts concerning this issue as recorded in the order of the TPO ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 24 - are that the assessee obtained know-how and project- engineering drawings from its Associated Enterprise vide collaboration agreement dated 23.07.1996. As per this agreement, the assessee availed technical and engineering support for cement plant equipment and machinery. For availing the said manufacturing drawings and project engineering services, the assessee paid 2% of contract value to its AE and for know-how. It also paid royalty at 5% of the selling price to its AE. Royalty agreement between the assessee and Krupp Polysius AG was approved by Reserve Bank of India and FIPB. The assessee selected itself as the tested party and TNMM as the most appropriate method for benchmarking this transaction. The TPO noted that similar issue was involved in assessee's case for the assessment year 2007-2008. Following the view taken by him in earlier year, the TPO determined ALP at Rs. Nil thereby proposing adjustment of Rs. 4.29 crore. The DRP also, following the view taken by it in the earlier year, declined to interfere with the order of the AO/TPO in respect of royalty payment. 14.2 The learned Counsel for the assessee contended that the said earlier year came up for adjudication before the Tribunal. Placing on record a copy of the order dated 27.11.2012 passed by the Tribunal in assessee's own case in Thyssen Krupp Industries India (P.) Ltd. v. Asstt. CIT [2013] 55 SOT 497/[2012] 27 taxmann.com 334 (Mum.) for the A.Y. 2007-08, the learned AR stated that this point has been decided in assessee's favour. The learned Departmental Representative, however, relied on the impugned order. 14.3 After considering the rival submissions and perusing the relevant material on record, we find that the assessee entered into collaboration agreement with its AE for ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 25 - payment of 2% of contract value for manufacturing, drawing and engineering services and 5% of the selling price as royalty. The assessee applied to the RBI seeking approval in respect of payment of royalty and technical fee through Central Bank of India. A copy of letter addressed by the Central Bank of India to the RBI dated 26.03.2008 is available on page 240 of the paper book. Through this letter, the Central Bank of India forwarded relevant documents along with a copy of the agreement. The RBI vide its letter dated 21.04.2008 requested Central Bank of India to consider the assessee's case in accordance with its AP (DIR Series) No.76 dated 24.02.2007. It is in pursuance to the deemed approval by RBI under the automatic approval scheme that the assessee made payment of royalty and technical fee to its AE. It is relevant to note that such payment has been approved or deemed to have been approved by the RBI. When a payment is made after obtaining due approval from the RBI, how its ALP can be computed at Rs. Nil, is anybody's guess. The fact of approval of the payment by the RBI has been succinctly recorded by the TPO in his order as well. He still chose to propose adjustment in respect of full payment. In our considered opinion, when the rate of royalty payment and fee for drawings etc. has been approved or deemed to have been approved by the RBI, then such payment has to be considered at ALP. We, therefore, direct to delete addition of Rs. 4.29 crore made by the A.O. in this regard.” No material has been placed on record by the Revenue to show that the facts in assessment year under appeal are distinguishable or to controvert the decision of the Tribunal. We see no infirmity in the directions of DRP in deleting the addition. The ground No.2 of the appeal is without any merit, hence, the same is dismissed. ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 26 - 8. In the result, appeal of the Revenue is dismissed. We considering the facts, circumstances and the ratio of the judicial decision discussed above are of the opinion that the payments are to be considered at ALP and accordingly direct the assessing officer to delete the addition and allow the grounds of appeal. 14. The last ground of appeal is in respect of reimbursement of expenditure, the Ld. AR submitted that the assessee has filed the details and evidences in particular at Para 7 at Page 143 and there is mark- up and demonstrated page 143 and 144 of the paper book and complete details were filed before the AO and there are debit notes. The Ld. AR also referred to the finding of the TPO and DRP and the reimbursement expenses are pertaining to employees who have been guaranteed the payments and for A.Y.2013-14 the expenses are allowed The Contentions raised by the Ld. DR on this issue that no information was filed and the benefit has been obtained by the assessee and these facts were never brought on record before A.O/ DRP. Accordingly, to meet the ends of justice, we restore the disputed issue to the file of the AO to examine details and adjudicate afresh and ITA No. 1886/Mum/2017 Thyssenkrupp Industries Ind Pvt Ltd, Mumbai. - 27 - the assessee should be provided adequate opportunity of hearing and shall cooperate in submitting the information and we allow the ground of appeal of the assessee for statistical purposes. 15. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 27.03.2023. Sd/- Sd/- (M BALAGANESH) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 27.03.2023 KRK, PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT (Judicial) 4. The PCIT 5. DR, ITAT, Mumbai 6. Guard File आदेशान ु सार/ BY ORDER, //True Copy//() 1. ( Asst. Registrar) ITAT, Mumb