Toyota Kirloskar Motor Pvt. Ltd., V. DCIT, Bangalore

ITA 256/BANG/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3251 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-01-2020
• Assessment Year: 2011-2012
• Appeal Filed On: 26-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Capital asset; Transfer pricing; International transaction; Set aside
• Section: 143(3); 144C; 48; 13; 92CA; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI. B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER IT(TP)A 256/BANG/2016 ASSESSMENT YEAR : 2011 12 M/S. TOYOTA KIRLOSKAR MOTOR (P) LTD., PLOT NO. 01, BIDADI INDUSTRIAL AREA, RAMANAGAR DISTRICT, BANGALORE 562 109. PAN NO : AAACT 5415 B VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, CIRCLE -1, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI. PADAMCHAND KHINCHA, CA RESPONDENT BY : MS. NEERA MALHOTRA, CIT DR DATE OF HEARING : 06-01-2020 DATE OF PRONOUNCEMENT : 06-03-2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST O RDER DATED 11/01/2016 PASSED BY LD. DCIT, LARGE TAXPAYER UNIT, CIRCLE-1, BANGALORE UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ACT, ON FOLLOWING GROUNDS OF APPEAL: PAGE 2 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 PAGE 3 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 PAGE 4 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 PAGE 5 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 PAGE 6 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 PAGE 7 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 BRIEF FACTS OF THE CASE ARE AS UNDER: 2. ASSESSEE IS A COMPANY AND A SUBSIDIARY OF TOYOTA MOTOR CORPORATION, JAPAN. IT IS IN THE BUSINESS OF MANUFACTURE AND SELLING MULTI UTILITY VEHICLES UNDER THE MODEL NAME INNOVA, FORTUNE PASSENGER CAR UNDER THE MODEL NAME COROLLA . FOR YEAR UNDER CONSIDERATION ASSESSEE FILED ITS RETURN OF INCOME ON 29/11/2011, WHICH WAS SUBSEQUENTLY REVISED ON 04/01 /2013 DECLARING INCOME OF RS.2,48,57,41,829/-. IN THE COU RSE OF ASSESSMENT PROCEEDINGS, LD.AO NOTICED THAT, ASSESSE E ENTERED INTO FOLLOWING INTERNATIONAL TRANSACTION WITH ITS A SSOCIATED ENTERPRISES DURING THE YEAR UNDER CONSIDERATION. PAGE 8 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 PARTICULARS AMOUNT PURCHASE OF PARTS AND COMPONENTS 2692,69,04,302 PURCHASE OF CBU 212,68,23,738 SALE OF RACKS AND OTHER INCOME 5,00,53,305 SALE OF PROTOTYPES AND TRIAL PARTS 2,20,43,509 SALE OF PARTS & COMPONENTS 433,42,86,791 SALE OF MANUFACTURED CBU 1,97,56,687 PURCHASE OF CAPITAL ASSETS 398,19,62,065 PURCHASE OF INTANGIBLE FIXED ASSETS 111,73,34,804 PAYMENT OF ROYALTY 179,98,19,708 PAYMENT TOWARDS SALES PROMOTION, ADVERTISEMENT, TRAVELLING, SOFTWARE EXPENSES, RESEARCH AND DEVELOP MENT, TRAINING AND REPAIRS AND MAINTENANCE CHARGES 5,95,19,248 PAYMENT TOWARDS SALES PROMOTION, SOFTWARE EXPENSES, TRAINING, PROFESSIONAL FEES AND REPAIRS AND MAINTEN ANCE CHARGES 5,90,12,638 PAYMENT TOWARDS SOFTWARE EXPENSES, PROFESSIONAL FEE S AND TRAINING AND REPAIRS AND MAINTENANCE 1,55,31,050 PAYMENT TOWARDS TRAINING AND DEVELOPMENT 98,006 PAYMENT TOWARDS REPAIRS AND MAINTENANCE 19,51,794 PAYMENT TOWARDS SALES PROMOTION, ADVERTISEMENT AND TRAVELLING EXPENSES 82,493 REIMBURSEMENT RECEIVED TOWARDS ADVERTISEMENT, TRAVE L AND OTHER EXPENSES 2,82,01,673 REIMBURSEMENT RECEIVED TOWARDS LABOUR CHARGES, WARRANTY AND SALES PROMOTION 4,92,06,270 REIMBURSEMENT OF TRAVEL EXPENSES 63,273 TECHNICAL ASSISTANCE FEES 8,41,89,853 TOTAL 4067,68,41,657 3. LD. TPO OBSERVED THAT, DURING THE YEAR, ASSESSEE WA S ENGAGED IN CARRYING OUT TWO ACTIVITIES BEING MANUFA CTURING AND PAGE 9 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 TRADING. IT WAS ALSO OBSERVED THAT, ALL THESE SEGM ENTS WERE COMBINED FOR TP ANALYSIS UNDER TNMM AS MOST APPROPR IATE METHOD. LD. TPO OBSERVED SEGMENTAL RESULTS IN RES PECT OF THESE 2 SEGMENTS WERE AS UNDER: PARTICULARS MANUFACTURING TRADING TOTAL AMOUNT SALES 66,29,18,01,422 12,07,94,37,000 78,37,12,38,422 TOTAL EXPENDITURE 61,29,82,40,403 10,17,05,05,000 71,46,87,45,403 OPERATING PROFIT 4,99,35,61,019 1,90,89,32,000 6,90,24,93,019 OP/OC 8.15% 18.77% 9.66% OP/OR 7.53% 15.80% 8.80% 4. LD. TPO ALSO OBSERVED THAT, EXPENSES THAT COULD NOT BE ALLOCATED TO ANY OF THE SEGMENTS, WERE ALLOCATED TO GENERAL ADMINISTRATION EXPENSES. LD. TPO SEPARATED TRANSFE R PRICING ANALYSIS FOR TRADING AND MANUFACTURING SEGMENT AS M ANDATED BY RULE 10 B (2) (A) AS UNDER: PAYMENT OF INTRA GROUP SERVICES-CUP METHOD PAYMENT OF ROYALTY AND TECHNICAL SERVICE FEES-CUP METHOD/TNMM PAYMENT TOWARDS SALES PROMOTION, ADVERTISEMENT, TRAVELLING, SOFTWARE EXPENSES, RESEARCH AND DEVELOP MENT, TRAINING AND BUSINESS PROMOTION-CU P/TNMM AS PER TH E REPLY RECEIVED FROM TRACK TAXPAYER REIMBURSEMENT OF EXPENSES RECEIVED-AGGREGATED AT TH E SEGMENTAL LEVEL UNDER TNMM MANUFACTURING-TNMM AT THE SEGMENTAL LEVEL TRADING-TNMM AT THE SEGMENTAL LEVEL PAGE 10 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 5. ON SEGREGATING TRANSACTIONS INTO VARIOUS SEGMENTS, LD.TPO OBSERVED THAT, TRANSACTIONS PERTAINING TO PURCHASE OF SPARE PARTS AND COMPONENTS AND SALE OF PARTS AND COMPONENTS IN MANUFACTURING SEGMENT, TECHNICAL SUPPORT FEE PAID T O AE, PURCHASE OF INTANGIBLES WERE AT ARMS LENGTH. ONLY DISPUTED SEGMENT TO WHICH ADJUSTMENTS WERE PROPOSED WAS TRAD ING SEGMENT, MANUFACTURING SEGMENT AND PAYMENT OF ROYAL TY.LD.TPO ISSUED NOTICE DATED 20/08/2014 AND 29/12/2014 TO EX AMINE ARMS LENGTH NATURE OF ROYALTY PAYMENT, WHEREIN VAR IOUS DETAILS LIKE COPIES OF AGREEMENTS NATURE AND COMPLETE DESCR IPTION OF INTANGIBLES TRANSFERRED OR LICENSED TO ASSESSEE ETC WERE CALLED FOR. 6. ON THE BASIS OF VARIOUS SUBMISSIONS MADE BY ASSESSEE, IT WAS HELD BY LD. TPO THAT, ROYALTY RATE OF 5% PAID BY ASSESSEE WAS DISPROPORTIONATELY HIGH AND NOT REASON ABLE. LD. TPO ALSO OBSERVED THAT, ROYALTY RATE VARIED FROM 0. 82% TO 3.25% IN CASE OF COMPARABLES IN AUTOMOBILE INDUSTRY, AS C OMPARED TO ROYALTY PAID BY ASSESSEE TO ITS AE. LD. TPO THUS C ONSIDERED THE ROYALTY RATE AT 2% TO BE APPROPRIATE AND PROPOSED A DJUSTMENT OF RS.1,07,98,91,825/-. AGGRIEVED, BY PROPOSED ADJUSTMENTS MADE BY LD. TPO AND OBSERVATION OF SEGREGATING TRADING AND MANUFACTURIN G TRANSACTIONS WHICH WERE INTERLINKED WITH EACH OTHER , ASSESSEE RAISED OBJECTIONS BEFORE DRP. DRP SUMMARILY REJECTED OBJECTIONS OF ASSESSEE BY HO LDING AS UNDER. OBJECTION RELATING TO AGGREGATION VS SEGMENTATION: 4.1. THE ABOVE OBJECTION WAS RAISED BY ASSESSEE BEF ORE DRP DURING PROCEEDINGS FOR A Y 2009-10 AS WELL AS 2010-11 AND THE SAME WERE DEALT DETAIL PAGE 11 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 IN THE ORDERS PASSED BY DRP AND NONE OF THESE OBJEC TIONS WAS ACCEPTED. HOWEVER, IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04, 2007-08 AND 2008-09 ISSUE WAS DECIDED IN FAVOUR OF ASSESSEE BY JURISDICTIONAL BENCH OF ITAT ALTHOUGH WITH A RIDER THAT EACH YEAR NEEDS TO BE LOOKED INTO SEPARATELY. FURTHER, IT IS NOTED FROM THE ORDER OF TPO THAT NO ADJUSTMENT HAS BEEN DETERMINED ON THE BASIS OF THE ABOVE SEGMENTATION A NALYSIS IN THE YEAR UNDER CONSIDERATION AND AS SUCH NO PREJUDICE IS CAUSED TO THE ASSESSEE. SO, THE ISSUE IS ONLY OF ACADEMIC NATURE AND THE YEAR UNDER CONSI DERATION DOES NOT CALL FOR ANY ADJUDICATION. SO, THE SAME IS REJECTED. OBJECTION RELATING TO ROYALTY ADJUSTMENT: 5.1. IN RELATION TO ABOVE OBJECTIONS, DETAILED SUB MISSIONS HAVE BEEN MADE BY THE ASSESSEE. THE SAME HAVE DULY BEEN CONSIDERED. H OWEVER, ON EXAMINATION THE ORDER OF THE TPO IT IS OBSERVED THAT VARIOUS OB JECTIONS OF THE ASSESSEE HAVE ALREADY BEEN SUITABLY DEALT WITH BY THE TPO. IN ASS ESSEES OWN CASE FOR AY 2007-08, 2008-09 THE JURISDICTION BENCH ITAT HAD DI RECTED THE TPO TO DETERMINE THE ALP SEPARATELY IN RELATION TO ROYALTY PAYMENT. SO, THERE ISNT ANY INFIRMITY IN THE ORDER OF TPO IN THIS REGARD. AS RE GARDS SELECTION REJECTION OF COMPARABLES, TPO HAS GIVEN REASONS FOR THE SAME EXA MPLE IN CASE OF ASHOK LEYLAND IT IS NOT IN BUSINESS OF MANUFACTURE OF PAS SENGER CAR OR MUP, TATA MOTORS FAILED THE RPT FILTER ETC. ASSESSEE IS OBJEC TION REGARDING REJECTION OF MULTI-YEAR DATA HAS ALREADY BEEN DEALT ELSEWHERE IN THIS ORDER. ASSESSEE HAS CLAIMED SUPERIOR TECHNOLOGY BUT THERE IS NOTHING TO SUBSTANTIATE THE SAID CLAIM. SO, NO CREDENCE CAN BE GIVEN TO THE SAME. ASSESSEE HAS CLAIMED THAT CIT (A) AND DRP HAVE ACCEPTED BOTH FACT AS WELL AS QUANTUM OF ROYALTY AS AT ARMS LENGTH FOR THE PRECEDING ASSESSMENT YEARS. HOWEVER, THIS CLAIM IS ALSO NOT CORRECT. FOR AY 2005-06 THE CIT (A) HAD DIRECTED TP O TO DETERMINED ALP OF ROYALTY PAYMENTS ASKED TPO HAD FAILED TO DO SO. FOR AY 2008-09 AND AY 2009- 10 DRP DECIDED IN FAVOUR OF ASSESSEE AS THE TPO HAD FAILED TO DETERMINED ALP OF ROYALTY PAYMENT IN CASE OF ASSESSEE AS PER PROVI SIONS OF THE ACT AND SIMPLY ADOPTED ALP AT NIL BY HOLDING THAT ASSESSEE HAD NOT GOT ANY ECONOMIC BENEFIT BY PAYING THE SAME. ASSESSEES CLAIM THAT ROYALTY P AID BY IT SHOULD BE TREATED AT ARMS LENGTH AS THE TECHNICAL ASSISTANT AGREEMEN TS WERE APPROVED BY PAGE 12 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 GOVERNMENT AUTHORITIES ALSO DOES NOT CARRY ANY WEIG HT AS APPROVAL BY THE GOVERNMENTAL AUTHORITIES DOES NOT PREVENT TPO FROM EXAMINING THE ALP AS PER THE PROVISIONS OF THE ACT. CONSIDERING ALL THESE AS PECTS, THE OBJECTIONS OF ASSESSEE CANNOT BE ACCEPTED. 7. AS REGARDS ADJUSTMENT IN RESPECT OF ADVERTISEMENTS PROPOSED BY LD. TPO, DRP UPHELD LD. TPOS VIEW BY H OLDING THAT ASSESSEE HAS NOT PROVIDED ANY EVIDENCE IN SUPPORT O F ADVERTISEMENT EXPENSES AND THEREFORE ARMS LENGTH P RICE WAS TO BE COMPUTED AT NIL. ON RECEIPT OF DIRECTIONS FROM DRP, LD.AO COMPUTED T HE ADDITION IN HANDS OF ASSESSEES AT RS.1,10,31,43,825/-. AGGRIEVED BY FINAL ASSESSMENT ORDER PASSED BY LD.AO , ASSESSEE IS IN APPEAL BEFORE US NOW. AT THE OUTSET, LD. AR SUBMITTED THAT, GROUND NO.1-3 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICA TION. GROUND NO.4-10 ARE IN RESPECT OF TRANSFER PRICING ADDITION MADE UNDER ROYALTY SEGMENT AND ADVERTISEMENT SEGMENT. AS SESSEE ALSO ALLEGES ACTION OF LD. TPO SEGREGATING MANUFACTURING AND TRADING ACTIVITY. 8. LD.AR SUBMITTED THAT, RULE 10A(D) OF INCOME TAX RUL ES, DEFINES TRANSACTION AS A NUMBER OF CLOSELY LINKED TRANSACTIONS. HE SUBMITTED THAT, BY LD.TPO RELIED UPON DECISION I N CASE OF UCB INDIA (P.) LTD. V. ASSTT. CIT [2009] 121 ITD 131 TO HOLD THAT TRADING AND MANUFACTURING SEGMENT OF ASSESSEE ARE DISTINCT. LD.AR SUBMITTED THAT, LD. TPO FAILED TO APPRECIATING THAT BOTH SEGMENTS ARE INTERTWINED AND INTER-RELATED WARRANTING A 'COM BINED TRANSACTION APPROACH' IN ARRIVING AT ARM'S LENGTH P RICE. LD.AR SUBMITTED THAT, ASSESSEE HAD APPLIED TNMM AT ENTITY LEVEL, SINCE PAGE 13 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 THE TRANSACTIONS BETWEEN ASSESSEE AND ITS ASSOCIATE D ENTERPRISES INCLUDES PURCHASE AS WELL AS SALE OF PARTS AND COMP ONENTS. THE TRANSACTIONS ARE LINKED AND INTERDEPENDENT ON EACH OTHER. HE SUBMITTED THAT, VARIOUS ACTIVITIES ARE INTERTWINED AND INTER-RELATED AND THAT PART OF TRADING ACTIVITIES ARE A RESULT OF MANUFACTURING ACTIVITY, THAT INCLUDE WARRANT COMMITMENTS. HE SUB MITTED THAT, INTERNATIONAL TRANSACTIONS BETWEEN ASSESSEE AND ITS AE INCLUDE BOTH SERVICE AND SALE TRANSACTIONS. 9. REFERRING TO OECD IN ITS COMMENTARY ON TRANSFER PRI CING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX AD MINISTRATIONS, PARA 1.42 OF GUIDELINES LD.AR SUBMITTED THAT IDEALL Y, IN ORDER TO ARRIVE AT THE BEST APPROXIMATION OF FAIR MARKET VAL UE, ARM'S LENGTH PRINCIPLE SHOULD BE APPLIED ON A TRANSACTION BY TRA NSACTION BASIS ('SEPARATE TRANSACTION' APPROACH). HE SUBMITTED THA T, HOWEVER OECD GUIDELINES ALSO PROVIDE THAT A 'COMBINED TRANS ACTION APPROACH' CAN BE ADOPTED IN CASE TRANSACTIONS ARE C LOSED LINKED OR CONTINUOUS AND THEY CANNOT BE EVALUATED ADEQUATELY ON AN INDIVIDUAL BASIS. IT HAS BEEN SUBMITTED BY LD.AR THAT, IN SUCH A SITUATION, RATHER THAN ASSESSING ARM'S LENGTH PRICE OF TRANSACTIONS INDIVIDUALLY, THESE TRANSACTIONS COULD BE EVALUATED TOGETHER USING THE MOST APPROPRIATE METHOD. THE RELEVANT OBSERVATI ONS RELIED BY LD.AR ARE EXTRACTED HEREIN BELOW: 'HOWEVER, THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTIONS ARE SO CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EV ALUATED ADEQUATELY ON A SEPARATE BASIS. EXAMPLES MAY INCLUDE 1. SOME LONG -TERM CONTRACTS FOR THE SUPPLY OF COMMODITIES OR SERVICES, 2. RIGHTS TO USE INTANGIBLE PROPERTY, AND 3. PRICING A RANGE OF CLOSELY-LINKED PRODUCTS ( E.G. IN A PRODUCT LINE) WHEN IT IS IMPRACTICAL TO DETERMINE PRICING FOR EAC H INDIVIDUAL PRODUCT OR PAGE 14 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 TRANSACTION. ANOTHER EXAMPLE WOULD BE THE LICENSING OR MANUFACTURING KNOW-HOW AND THE SUPPLY OR VITAL COMPONENTS TO AN A SSOCIATED MANUFACTURER,' IT MAY BE MORE REASONABLE TO ASSESS THE ARM'S LENGTH TERMS {OR THE TWO ITEMS TOGETHER RATHER THAN INDIVI DUALLY. SUCH TRANSACTIONS SHOULD BE EVALUATED TOGETHER USING THE MOST APPROPRIATE ARM'S LENGTH METHOD OR METHODS'. (EMPHASIS SUPPLIED) 10. HE SUBMITTED THAT, DECISIONS RELIED UPON BY LD. TPO IN CASE OF UCB INDIA (P.) LTD. ( SUPRA ) ARE APPLICABLE ONLY WHEN ACTIVITIES CLUBBED ARE DISSIMILAR OR ARE NOT CLOSEL Y LINKED, WHICH IS NOT THE CASE OF ASSESSEE. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS PASSED BY AUTHORITIES BELOW. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 11. ADMITTEDLY LD.TPO HAS NOT MADE ANY ADJUSTMENT UPON SEGREGATING TRADING AND MANUFACTURING SEGMENT. HO WEVER, LD. AR VEHEMENTLY SUBMITTED THAT, THE TWO SEGMENTS CANN OT BE SEGREGATED, AS THEY ARE INTERLINKED AND INTERTWINED WITH EACH OTHER AND THAT ASSESSEE HAS DETERMINED THE ALP BY U SING TNMM AT ENTITY LEVEL. IT IS OBSERVED THAT, THIS ISSUE H AS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A Y 2003-04, 2007-08, 2008-09 AND 2010-11. IN IT(TP)A NO.6&108/BANG/2018 VIDE ORDER DATED 30/06/2016 IN ASSESSEES OWN CASE, THIS TRIBUNAL OBSERVED THAT, LD.TPO FOR AY 2012-13 ACCEPTED MANUFACTURING AND TRADING SEGMENT AS INTEGRATED AND COMBINED TRANSACTION FOR PURPOSE OF DETERMINING ALP UNDER TNMM. FURTHER, IT HAS ALSO BE EN RECORDED THEREIN THAT FOR ASSESSMENT YEAR 2007-08, DECISION OF THIS TRIBUNAL PAGE 15 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 IN ASSESSEES OWN CASE REPORTED IN [2014] 48 TAXMANN.COM 380 (BANGALORE - TRIB.) HAS CONCLUDED IN PARA 46 AS UNDER: 46. WE HAVE ALREADY SEEN IN PARA 9 OF THIS ORDER THAT THE TPO HAS ARRIVED AT THE BIFURCATION OF THE MANUFACTURING AND TRADING SE GMENTAL OPERATING RESULTS. IN VIEW OF OUR CONCLUSIONS THAT THE TRADING AND MAN UFACTURING SEGMENTS ARE INTERLINKED AND THEREFORE A COMBINED TRANSACTION AP PROACH HAS TO BE ADOPTED, WE COMBINE THE RESULTS SO ARRIVED AT BY THE TPO, WH ICH IS GIVEN IN PARA 9 OF THIS ORDER. IF THE SEGMENTAL RESULTS ARE COMBINED, THE OPERATING REVENUE OF THE ASSESSEE WOULD BE 3767.91 CRORES AND THE OPERATING PROFIT WOULD BE RS.94.34 CRORES. THUS, THE OPERATING PROFIT MARGIN ON SALES WOULD BE 2.517. 12. REVENUE HAS NOT BEEN ABLE TO ESTABLISH ANY FACTUAL DIFFERENCES BETWEEN THE YEAR UNDER CONSIDERATION AS WELL AS PRECEDING ASSESSMENT AND SUCCESSIVE ASSESSMENT YEAR . MORE OVER REVENUE HAS ACCEPTED COMBINED TRANSACTION APPR OACH OF TRADING AND MANUFACTURING SEGMENT IN IMMEDIATE SUBS EQUENT ASSESSMENT YEAR. WE THEREFORE DO NOT FIND ANY REAS ON TO DEVIATE FROM THE SAME. FURTHER LD. TPO HAS HELD TRADING AN D MANUFACTURING SEGMENTS INDEPENDENTLY TO BE AT ARMS LENGTH. ON THE BASIS OF ABOVE DISCUSSIONS, RESPECTFULLY FOL LOWING EARLIER ORDERS OF THIS TRIBUNAL , WE DIRECT LD.AO/TPO TO COMPUTE ALP BY CONSIDERING TRADING AND MANUFACTURIN G SEGMENTS AS INTERLINKED WITH EACH OTHER AND AS A CO MBINED TRANSACTION. 13. IN RESPECT OF ADDITION MADE TO ROYALTY, IT IS OBSER VED THAT, THIS TRANSACTION WAS ALSO CONSIDERED TO BE INTERLIN KED WITH TRADING AND MANUFACTURING SEGMENT. HOWEVER, LD.AR DO NOT O BJECT TO IT BEING CONSIDERED SEPARATELY IN VIEW OF OBSERVATIONS BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN PRECEDING ASSESSMENT YEA RS PAGE 16 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 (SUPRA). THE LD. AR SUBMITTED THAT, IN PRECEDING AS SESSMENT YEARS, LD.TPO CONSIDERED ALP OF TRANSACTION TO BE A T NIL, WHEREAS THERE IS A SLIGHT DEPARTURE IN THE METHOD OF COMPUT ING ALP, FOR YEAR UNDER CONSIDERATION. HE SUBMITTED THAT, DURING THE YEAR UNDER CONSIDERATION, LD.TPO ON AN AD HOC BASIS COMPUTED ADJUSTMENT IN RESPECT OF ROYALTY PAID BY ASSESSEE T O ITS AE AT 2%. 14. HE SUBMITTED THAT, ON THE BASIS OF COMPARABLES WHIC H WAS SUBMITTED BEFORE LD.TPO AND ACCEPTED ORDER U/S 92 CA, PAYMENT MADE BY ASSESSEE TO ITS AE IS AT ARMS LENG TH INDEPENDENTLY. HE SUBMITTED THAT, AVERAGE MARGIN OF COMPARABLES REFERRED TO IN LD.TPOS ORDER IS 1.92% WHEREAS ASSESSEE HAS PAID ROYALTY AT 5%. IT WAS SUBMITTED T HAT, AS ASSESSEES MARGIN IS MORE THAN COMPARABLES THE TRAN SACTION IS AT ARMS LENGTH. HE ALSO SUBMITTED THAT, THERE IS NO BASIS ON WHICH LEARNT TPO COMPUTED ADJUSTMENT TO ROYALTY AT 2%. 15. ON THE CONTRARY LD.CIT DR SUBMITTED THAT, ISSUE MAY BE SET ASIDE TO LEARNT AO/TPO FOR DETERMINED IN THE ARMS LENGTH PRICE OF THE TRANSACTION IN ACCORDANCE WITH LAW AS HAS BEEN HELD BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN PRECEDING ASSESSMENT YEARS (SUPRA). WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE. 16. ASSESSEE IN TRANSFER PRICING STUDY CONSIDERED ROYAL TY AS A PART OF OPERATING EXPENSES IN TNMM AS MOST APPROP RIATE METHOD. THE LD.AR REFERRING TO PAGE 981 OF PAPER BO OK, SUBMITTED THAT COMPARISON OF PERCENTAGE OF AVERAGE ROYALTY IN RESPECT OF COMPARABLES WAS SUBMITTED WHICH COMES TO 3% AND 2.2 7%. WHEREAS ASSESSEE HAS PAID ROYALTY TO ITS AE AT 5%. HE SUBMITTED PAGE 17 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 THAT, SINCE AVERAGE PERCENTAGE OF ROYALTY EXPENDITU RE ON NET SALES OF ASSESSEE IS MUCH LOWER THAN PERCENTAGE OF ROYALT Y AND R&D EXPENDITURE ON NET SALES OF PROPOSED COMPARABLES, T HE TRANSACTION OF ROYALTY PAYMENTS TO AE HAS TO BE TREATED AT ARM S LENGTH. IT IS ALSO BEEN SUBMITTED THAT, MOST OF THE AUTO PARTS CO MPANIES ARE PAYING ROYALTY OF 3% TO 5% AND ASSESSEE IS BEING RO YALTY AT 3% ON PART SALES. HE THUS SUBMITTED THAT, EVEN IF ROYALT Y IS TO BE CONSIDERED INDEPENDENTLY, THE TRANSACTION IS AT ARM S LENGTH AS COMPARED TO THE COMPARABLES CONSIDERED BY LD.TPO. W E AGREE WITH THE SUBMISSIONS MADE BY LD. AR INSOFAR AS CONS IDERING THE MARGIN OF TRANSACTION COMPUTED BY ASSESSEE VIS-A-VI S AVERAGE MARGIN OF COMPARABLES. HOWEVER, IN OUR VIEW THIS N EEDS TO BE VERIFIED BY LD. AO/TPO. 17. WE, THEREFORE, DIRECT LD.AO/TPO TO CONSIDER THE ABO VE SUBMISSIONS OF ASSESSEE AND TO RECOMPUTE ALP OF THE TRANSACTION, IN ACCORDANCE WITH LAW. IT IS ALSO DIR ECTED THAT, COMPARABLES CONSIDERED BY LD.TPO IN THE ORDER PASSE D UNDER SECTION 92CA OF THE ACT, SHOULD BE CONSIDERED FOR C OMPUTING ALP OF THE TRANSACTION. ACCORDINGLY, WE SET ASIDE THIS ISSUE BACK TO LD. AO /TPO WITH THE AFORESTATED DIRECTIONS. 18. AS REGARDS THE ADJUSTMENT MADE TOWARDS THE CLAIM OF EXPENDITURE, LD. AR SUBMITTED THAT, ASSESSEE IS IN A POSITION TO FILE ALL THE RELEVANT DETAILS WHICH COULD BE VERIFI ED BY LD.AO/TPO. LD. CIT DR DID NOT OBJECT TO THE SUBMISSIONS OF ASS ESSEE. 19. CONSIDERING THE SUBMISSIONS MADE BY BOTH SIDES, WE ARE OF THE OPINION THAT LD. AO/TPO SHALL VERIFY THE DET AILS FILED BY ASSESSEE AND TO COMPUTE ALP OF TRANSACTION BY USING MOST PAGE 18 OF 18 IT(TP) 256/BANG/2016 A. Y : 2011 12 APPROPRIATE METHOD, THAT WOULD BE APPLICABLE IN ACC ORDANCE WITH LAW. NEEDLESS TO SAY, THAT ASSESSEE SHALL BE GRANTE D PROPER OPPORTUNITY OF BEING REPRESENTED. ACCORDINGLY, THESE GROUNDS RAISED BY ASSESSEE STAND S ALLOWED FOR STATISTICAL PURPOSES. GROUND NO.11 IS GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ANY ADJUDICATION. GROUND NO.12 HAS NOT BEEN ARGUED BY LD.AR AND HENCE ACCORDINGLY NOT ADJUDICATED. GROUND NO.13 IS CONSEQUENTIAL IN NATURE. IN THE RESULT, APPEAL FILED BY ASSESSEE STANDS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH MARCH, 2020. SD/- SD/- (B. R. BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL ME MBER BANGALORE, DATED, THE 6 TH MARCH, 2020. /MK-VMS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL. BANGALORE.