Appeal Details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 5799 (ITAT-INDORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 year(s) 10 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-02-2017
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
DB
Next Hearing Date
06-01-2017
Assessment Year
2010-2011
Appeal Filed On
20-04-2015
Judgement Text
PAGE 1 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE . . , . . , ' BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER M/S. ANDRITZ HYDRO PVT. LTD. (EARLIER KNOWN AS VA TECHNICAL HYDRO INDIA PVT. LTD.) D- 17 , MP A KVN INDUSTRIAL AREA , MANDIDEEP 462046 NEAR BHOPAL VS. DCIT 1(1) BHOPAL / APPELLANT / RESPONDENT . . ./ PAN: AABCV 2466R DCIT 1(1) BHOPAL VS. M/S. ANDRITZ HYDRO PVT. LTD. (EARLIER KNOWN AS VA TECHNICAL HYDRO INDIA PVT. LTD.) D- 17 , MP A KVN INDUSTRIAL AREA , MANDIDEEP 462046 , NEAR BHOPAL / APPELLANT / RESPONDENT . . ./ PAN: AABCV 2466R / APPELLANT BY SHRI KAPIL HIRANI CA, SHRI DERPAN KIRPALANI CA / RESPONDENT BY SHRI LAL CHAND CIT (DR) . . /. T.P.A. NO. 157/IND/2015 &T.P.A. NO. 316/IND/2016 $ $ / ASSESSMENT YEAR:2010-11 & A.Y. 2011-12 . . /.T .P.A . NO. 265 /IND/2015 & I.T.A. NO. 349/IND/2016 $ $ / ASSESSMENT YEAR:2010-11 & A.Y. 2011-12 PAGE 2 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 / DATE OF HEARING 06.01.2017 / DATE OF PRONOUNCEMENT 28.02.2017 / O R D E R PER O.P. MEENA, ACCOUTANT MEMEBR. THESE CROSS APPEALS FILED BY THE ASSESSEE AND REVENU E RESPECTIVELY, ARE DIRECTED AGAINST THE FINAL ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 144C AND 92CA OF INCOME TAX ACT,1961 (HEREINAFTER REFERRED AS OF THE ACT) OF THE DEPUTY COMMISSIONER O F INCOME TAX- 1(1),BHOPAL (HEREINAFTER REFERRED AS THE AO), FOR THE ASSESSMENT YEAR 2010-11 ORDER DATED 13.02.2015 AND FOR THE A.Y. 2011 -12 ORDER DATED 22.02.2016 PASSED IN PURSUANCE OF THE DIRECTIONS ISSU ED BY DISPUTE RESOLUTION PANEL-IV, MUMBAI (HEREINAFTER REFERRED AS DRP). SINCE THE ISSUE IN THESE APPEALS ARE COMMON IN NATURE , THESE APPEALS ARE CLUBBED TOGETHER AND BEING DISPOSED-OF BY THIS COM MON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. THE ASSESSEE AN D THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL IN T.P.A. NO. 157/IND/2015:A.Y. 2010-11 TRANSFER PRICING GROUNDS 1. THE LEARNED TRANSFER PRICING OFFICER (LD. TPO)/ DIS PUTE RESOLUTION PANEL (DRP) ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDE RTAKEN BY THE APPELLANT WHICH WAS IN ACCORDANCE WITH PROVISIONS O F THE ACT READ WITH RULES FOR ESTABLISHING ARM`S LENGTH PRICE OF T HE INTERNATIONAL TRANSACTIONS. 2. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. TPO/ DRP HAS ERRED IN LAW AND IN FACTS IN MAKING ADJUSTM ENT OF RS. 43,11,705/- TO THE TRANSACTION RELATED TO CONTRAC T REVENUE FROM PROJECTS IN DOING SO, THE LD. TPO/DRP ERRED IN A) IN NOT CONSIDERING THE INTERNAL COST PLUS METHOD ( CPM) ANALYSIS UNDERTAKEN BY THE APPELLANT USING COMBINED TRANSACTION APPROACH WHICH WAS IN ACCORDANCE WITH T HE PROVISIONS OF THE ACT READ WITH RULES AND INTERNATI ONALLY PAGE 3 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 ACCEPTED PRINCIPLES. APPLYING ON A PROJECT-BY-PROJE CT BASIS, DESPITE AGREEING TO VARIOUS FUNCTIONAL RISK DIFFERE NCES BETWEEN INDIVIDUAL PROJECTS, WHICH WOULD LEAD TO UNRELIABLE RESULTS WHEN COMPARED ON PROJECT-BY-PROJECT BASIS. B) NOT ACCEPTING THE MARGIN ON INDIVIDUAL PROJECTS TO BE AT ARM`S LENGTH WHICH WAS CONSIST MARGIN EARNED BY THE AE ON PROJECT FROM THIRD PARTY CUSTOMERS. C) NOT TAKING COGNIZANCE OF THE FACTS THAT SAME INTERN ATIONAL TRANSACTION OF APPELLANT HAS BEEN ACCEPTED BY THE R EVENUE AUTHORITIES TO BE AT ARM`S LENGTH IN PREVIOUS YEARS . D) NOT ACCEPTING USE OF TRANSACTION NET MARGIN METHOD (TNNM) AS A MOST APPROPRIATE METHOD ON WITHOUT PREJUDICE BASI S, DUE TO NON-APPLICABILITY OF CPM, TO BENCHMARK THE AFORESAI D TRANSACTION, IN DOING SO, THE LD. TPO/DRP FURTHER E RRED IN NOT ACCEPTING THE ORDER OF HON`BLE ITAT FOR EARLIER YEA RS 3. THE LD. TPO/DRP HAS ERRED IN MAKING AN ADJUSTMENT O F RS. 11,723,967 TO THE TRANSACTION RELATED TO PAYMENT FOR TECHNICAL SERVICE BY DETERMINING THE ARM`S LENGTH PRICE OF S UCH PAYMENTS AS NIL. IN DOING SO, THE LD. TPO/ DRP ERRED IN ; A) REJECTING THE ECONOMIC ANALYSIS IN RELATION TO SUCH PAYMENT, WHICH WAS DONE USING A TRANSACTION-BY-TRANSACTION ANALYSIS WHEREIN CLOSELY LINKED TRANSACTIONS WERE BENCHMARK TOGETHER, WHICH WAS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH RULES FOR ESTABLISHING THE ARM`S LENGTH PRICE OF SU CH PAYMENTS. B) IGNORING THE CORRECT NATURE OF INTERNATIONAL TRANSA CTION AND THE EVIDENCES/FACTS SUBMITTED BY THE APPELLANT, THEREBY NOT APPRECIATING THE DIFFERENCE BETWEEN THE PAYMENT FOR ROYALTY VIS- -VIS PAYMENT FOR TECHNICAL SERVICE BY THE APPELLAN T. C) USING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPRIATE METHOD AS PER RULE 10C OF THE INCOME-TA X RULES, 1962 . D) APPLYING CUP METHOD FOR DETERMINING THE ARM`S LENGT H PRICE IN RESPECT OF APPELLANT`S INTERNATIONAL TRANSACTIONS W ITHOUT IDENTIFYING ANY COMPARABLE UNCONTROLLED TRANSACTION (S) FOR THE COMPUTATION OF ARM`S LENGTH PRICE WHICH IS NOT IN A CCORDANCE WITH RULE 10B(1)(A) E) QUESTIONING THE COMMERCIAL RATIONALE OF THE LEGITIM ATE BUSINESS EXPENSE INCURRED BY THE TAXPAYER AND NOT RESTRICTIN G THE SCOPE OF ASSESSMENT UNDER SECTION 92CA TO DETERMINING THE AR M`S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS BY ADOPTING ONE OF THE PRESCRIBED METHOD ONLY. 4. THE DRP ALSO ERRED IN ISSUING DIRECTIONS WITH CERTA IN TYPOGRAPHICAL ERRORS, WHICH DENIED THE RELIEF THE APPELLANT A REL IEF ON INR PAGE 4 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 11,13,016 IN RELATION TO INTERNATIONAL TRANSACTION OF PAYMENT OF TECHNICAL SERVICES. CORPORATE TAX GROUNDS 5. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. ASSESSING OFFICER ( THE LD.AO) DRP HAD ERRED IN LAW AND FACT BY DISALLOWING THE PAYMENTS OF INR 10,699,464 MADE BY THE APPELLANT TO ITS OVERSEAS PARENT COMPANY FOR THE PURCHASE OF TECHNICAL DRAWINGS AND DESIGNS AND ALLEGING THE SAME TO BE IN THE NATURE OF ROYALTY ON WHICH TAX HAD TO BE WITHHELD AT THE TIME OF PAYMENT. IN DOING SO, THE LD.AO FURTHER ERRED IN NOT FOLLOWING THE RULING OF THE HON`BLE ITAT IN APPELLANT`S OWN CASE ON THIS ISSUE. COMMON GROUNDS 6. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD.AO HAS ERRED IN PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AGAINST THE APPELLANT. 7. ERRED IN GIVING SHORT CREDIT OF TAX DEDUCTED AT SOU RCE OF INR 26,920. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE, TO EACH OTHER UNLESS MENTIONED SPECIFICALLY. T.P.A. NO. 316/IND/2016:A.Y. 2011-12 TRANSFER PRICING GROUNDS ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW , THE LEARNED AO BASED ON DIRECTIONS OF DRP 1. ERRED ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN B Y THE APPELLANT WHICH WAS IN ACCORDANCE WITH PROVISIONS O F THE ACT READ WITH RULES FOR ESTABLISHING ARM`S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. 2. ERRED IN LAW AND IN FACTS IN MAKING ADJUSTMENT OF INR 17,71,095 TO THE TRANSACTIONS RELATED TO CONTRACT REVENUE FROM PROJECTS IN DOING SO, THE LD. TPO/HON`BLE DRP ER RED IN A) INAPPROPRIATELY REJECTING THE TRANSACTION NET MARGI N METHOD (TNNM) AS MOST APPROPRIATE METHOD USING COST PLUS M ETHOD (CPM) WITHOUT PROVIDING ANY COGENT REASONS. B) NOT CONSIDERING THE INTERNAL COST PLUS METHOD (CPM) ANALYSIS SUBMITTED BY THE APPELLANT, WHICH WAS IN PAGE 5 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH RULES AND INTERNATIONALLY ACCEPTED PRINCIPLES. C) APPLYING CPM ON A PROJECT-BY-PROJECT BASIS, DESPITE AGREEING TO VARIOUS FUNCTIONAL RISK DIFFERENCES BETWEEN INDI VIDUAL PROJECTS, WHICH WOULD LEAD TO UNRELIABLE RESULTS WH EN COMPARED ON PROJECT-BY-PROJECT BASIS. D) NOT TAKING COGNIZANCE OF THE FACTS THAT SAME INTERN ATIONAL TRANSACTION OF APPELLANT HAS BEEN ACCEPTED BY THE R EVENUE AUTHORITIES TO BE AT ARM`S LENGTH IN PREVIOUS YEARS . 3. ERRED IN MAKING AN ADJUSTMENT OF INR 34,18,088 TO T HE TRANSACTION RELATED TO PAYMENT FOR TECHNICAL SERV ICES BY DETERMINING THE ARM`S LENGTH PRICE OF SUCH PAYMENTS AS NIL. IN DOING SO, THE LD. TPO/HON`BLE DRP ERRED IN ; A) REJECTING THE ECONOMIC ANALYSIS IN RELATION TO SUCH PAYMENT, WHICH WAS DONE USING COMBINED TRANSACTIONS ANALYSI S WHEREIN CLOSELY LINKED TRANSACTIONS WERE BENCHMARK TOGETHER, WHICH WAS IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH RULES FOR ESTABLISHING THE ARM`S LENGTH PRICE OF SUCH PAYMENTS. B) USING COMPARABLE UNCONTROLLED PRICE (CUP) METHOD AS THE MOST APPROPRIATE METHOD AS PER RULE 10C OF THE INCO ME-TAX RULES, 1962 . C) APPLYING CUP METHOD FOR DETERMINING THE ARM`S LENGT H PRICE IN RESPECT OF APPELLANT`S INTERNATIONAL TRANSACTIONS W ITHOUT IDENTIFYING ANY COMPARABLE UNCONTROLLED TRANSACTION (S) FOR THE COMPUTATION OF ARM`S LENGTH PRICE WHICH IS NOT IN A CCORDANCE WITH RULE 10B(1)(A) D) QUESTIONING THE COMMERCIAL RATIONALE OF THE LEGITIM ATE BUSINESS EXPENSE INCURRED BY THE TAXPAYER AND NOT R ESTRICTING THE SCOPE OF ASSESSMENT UNDER SECTION 92CA TO DETER MINING THE ARM`S LENGTH PRICE OF INTERNATIONAL TRANSACTION S BY ADOPTING ONE OF THE PRESCRIBED METHOD ONLY. E) NOT APPRECIATING THAT EVEN IF PAYMENT FOR TECHNICA L SERVICES IS HELD TO BE COVERED BY TECHNICAL COLLABORATION AGREE MENT (TCA) ENTERED IN TO BY THE APPELLANT` WITH ITS AES , THE OVERALL PAYMENTS UNDER TCA IS WITHIN THE LIMITS OF THE RATE S AGREED IN TCAS. 4. LD TPO/ DRP HAVE ERRED IN NOT ALLOWING SET-OFF OF S URPLUS REVENUE / PROFIT EXCEEDING THE ARM`S LENGTH PRICE ( ALP) EARNED FROM OTHER TRANSACTIONS WITH ASSOCIATED ENTERPRISES (AES)WHILE COMPUTING THE ALP UNDER TRANSACTION-BY-TRANSACTION S ANALYSIS APPROACH. CORPORATE TAX GROUNDS PAGE 6 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 5. ERRED IS DISALLOWING THE PAYMENTS OF INR 3,21,61,71 0 MADE BY THE APPELLANT TO ITS OVERSEAS PARENT COMPANY FOR TH E PURCHASE OF TECHNICAL DRAWINGS AND DESIGNS AND ALLEGING THE SAM E TO BE IN THE NATURE OF ROYALTY ON WHICH TAX HAD TO BE WITHHE LD AT THE TIME OF PAYMENT. IN DOING SO, THE LD.AO/ HON`BLE DRP F URTHER ERRED IN NOT FOLLOWING THE RULING OF THE HON`BLE ITAT IN APPELLANT`S OWN CASE ON THIS ISSUE. 6. ERRED IN GIVING SHORT CREDIT OF TAX DEDUCTED AT SOU RCE OF INR 1,81,109 WHILE PASSING THE FINAL ASSESSMENT ORDER. COMMON GROUNDS 7. ERRED IN PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT AGAINST THE APPELLANT. THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE, TO EACH OTHER UNLESS MENTIONED SPECIFICALLY. TPA. NO. 265/IND/2015: REVENUE`S APPEAL FOR A.Y . 2010-11 GROUND:NO.1: WHETHER ON THE FACTS AND CIRCUMSTANCE S OF THE CASE, THE HON`BLE DISPUTE RESOLUTION PANEL, MUMBAI WAS JU STIFIED IN DELETION THE ADDITION OF RS. 3,47,53,202/- ON ACCOU NT OF PROVISION OF WARRANTY EXPENSES WHEN THERE WAS FAILURE ON THE PAR T OF THE ASSESSEE TO FULFILL THREE CONDITIONS NEEDED IN RES PECT OF GOODS SOLD TO CREATE WARRANTY LIABILITY AND ALSO IGNORING THE FI NDING OF THE AO THAT THE LIABILITY ARISING ON ACCOUNT OF SUCH CLAIM, IS HIGHLY CONTINGENT AND DEPENDING ON THE HAPPENING OF ALL THE THREE CO NDITIONS NEEDED IN THIS ASPECT. TPA. NO. 349/IND/2016: REVENUE`S APPEAL:FOR A.Y. 20 11- 12. GROUND NO: 1. WHETHER ON THE FACTS AND CIRCUMSTANCE S OF THE CASE, THE HON`BLE DISPUTE RESOLUTION PANEL, MUMBAI WAS JU STIFIED IN IN LAW IN DELETING THE ADDITION OF RS. 3,52,88,923/- ON AC COUNT OF PROVISION OF WARRANTY EXPENSES WHEN THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO FULFILL THREE CONDITIONS NEEDED IN RES PECT OF GOODS SOLD TO CREATE WARRANTY LIABILITY AND ALSO IGNORING THE FI NDING OF THE AO THAT THE LIABILITY ARISING ON ACCOUNT OF SUCH CLAIM, IS HIGHLY CONTINGENT AND DEPENDING ON THE HAPPENING OF ALL THE THREE CO NDITIONS NEEDED IN THIS ASPECT. PAGE 7 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 FIRST WE TAKE UP ASSESSEE`S APPEAL IN I. T. A. NO. 15 7/IND/2015 OF ASSESSMENT YEAR 2010-11 AND I.T.A. NO. 316/IND/2016 FOR A.Y. 2011- 12 FOR ADJUDICATION. 1. GROUND NO. 1 IS COMMON FOR A.Y. 10-11 AND A.Y. 11-12 WHICH IS OF GENERAL IN NATURE AND IS COVERED BY OTHE R GROUNDS OF APPEALS HENCE, NOT SPECIFICALLY AND SEPARATELY ADJUD ICATED. 2. GROUND NO. 2 FOR BOTH ASSESSMENT YEAR RELATES TO ADJ USTMENT OF RS. 43,11,705/- (A.Y.:10-11) & RS. 17,71,095/- (A .Y.:11-12) MADE BY THE TPO IN RESPECT OF TRANSACTIONS RELATING TO CONTRACT REVENUE FROM PROJECTS 2.1. SUCCINCTLY, THE FACTS AS CULLED OUT FROM THE ORDER OF THE LOWER AUTHORITIES ARE THAT AS PER TRANSFER PRICING STUDY RE PORT (IN SHORT TPSR), THE ASSESSEE ADOPTED COST PLUS METHOD (CPM) AS TH E MOST APPROPRIATE METHOD WITH GP MARGIN AS THE APPROPRIATE P ROFIT LEVEL INDICATOR (PLI). IT CARRIED OUT ANALYSIS FOR IDENTIFIC ATION OF COMPARABLE TRANSACTIONS FOR THE EXPORT OF FINISHED GOODS UNDER SI MILAR CONDITIONS WITH UNRELATED ENTITIES AND SUCH SEGMENTS WERE SEPARA TELY IDENTIFIABLE; THE ASSESSEE CONSIDERED THE TWO SEGMENTS VIZ PROJECTS WITH AES AND PROJECTS WITH NON-AES FOR CPM ANALYSIS. THE GP MARK- UP EARNED BY THE ASSESSEE FROM SALES TO UNRELATED PAR TIES WAS COMPUTED AND WAS ADDED TO THE DIRECT AND INDIRECT COS T OF PRODUCTION TO ARRIVE AT THE ALP OF THE PRODUCTS SOLD TO A ES DURING THE YEAR. THE ASSESSEE COMPUTED OVERALL GP MARGIN FROM S ALE TO AES AT 14.32% AND GP MARGIN ON SALES TO NON-AES AT 14.72%. T AKING RECOURSE TO PROVISO TO SECTION 92C(2), IT WAS CLAIMED B Y THE ASSESSEE THAT THE TRANSACTION IS WITHIN TOLERANCE BAND OF +/-5% M ARGIN. PAGE 8 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 2.2. THE TPO MADE THE COMPARISON WITH THE ASSESSEE MARGIN REFLECTED IN RESPECT OF CONTROLLED TRANSACTIONS WITH I TS AES FOR EACH PROJECTS SEPARATELY. THE TPO HELD THAT ALL THE PROJECTS OF THE ASSESSEE WITH THE AE WERE INDEPENDENT PROJECTS AND, THEREFORE, TRANSFER PRICING PROVISION WERE TO BE APPLIED ON INDIVIDUAL TRANSACTIO N BASIS. THE ASSESSEE CONTENDED THAT THERE WAS FUNCTIONAL AND RISK D IFFERENCE BETWEEN THE INDIVIDUAL CONTROLLED TRANSACTIONS AND AGGR EGATE UNCONTROLLED TRANSACTIONS. THE ASSESSEE, IS THEREFORE, OBJECTED TO THE ACTION OF THE TPO IN LOOKING AT DIFFERENT INDIVIDUAL RE LATED PARTY TRANSACTIONS INSTEAD OF AGGREGATING THE SAME. IT WAS ARG UED THAT THE ASSESSEE HAD UNDERTAKEN THE TRANSACTION WITH ITS PARENT CO MPANY, WHICH IS A SINGLE LARGE CUSTOMER AND THEREFORE, THE PROJECT INSTITUTED BY THE ASSESSEE FOR ITS AES IS BROADLY SIMILAR IN RE SPECT OF THE PRODUCT OUTPUT AND, THEREFORE, SUCH TRANSACTION SHOULD BE AGGRE GATED. IT WAS ARGUED THAT THE ASSESSEE IS A RISK BEARING ENTITY AND, THEREFORE, IT IS QUITE LIKELY THAT THE RETURN ON SOME PROJECTS WOULD BE LO WER THAN THE OTHERS. IT WAS POINTED OUT THAT EVEN IN THE UNRELATED TR ANSACTIONS, MARGIN EARNED ON SOME PROJECTS WAS LOWER THAN MEAN GR OSS MARGIN. THERE WAS NO INTENTION TO SHIFT PROFITS TO AE IN ANY PRO JECT. THE TPO IGNORED THE FUNCTIONAL DIFFERENCE BETWEEN INDIVIDUAL PROJECTS. IN RESPECT OF RELATED PARTY, THE CONTRACT INVOLVED MERELY SALE OF GENERATORS AND GENERATOR PARTS WHILE IN CASE OF UNRELATED PARTY, THE CONTRACT INVOLVED WAS OF SERVICING ERECTION AND INSTALLATION OF SUCH GENERATORS IN ADDITION TO DESIGN AND MANUFACTURING. THEREAFTER, THE ASSESSEE EXPLAINED THAT THE PROJECT ASHLUCREEK EARNED LOWER GRO SS PROFIT MARGIN ON ACCOUNT OF EXTRAORDINARY COST OF RS. 87,28, 333/- WHICH WAS INCURRED BY THE ASSESSEE DURING F.Y. 2008-09 ON WHIC H RS. 56,78,653/- WAS ALLOWED IN A.Y. 2009-10 IN PROPORTIO N TO TOTAL COST TO BE INCURRED OVER THE LIFE CYCLE OF THE PROJECT. THE S ECONDARY ANALYSIS DONE BASED ON TNNM, IS NOT APPRECIATED BY THE TPO. PAGE 9 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 2.3. THE DRP OBSERVED THAT THERE IS NO DISPUTE BETWEEN TPO A ND THE ASSESSEE AS REGARDS THE METHOD, WHICH IS CPM AND BENC HMARKING WHICH IS BASED ON INTERNAL, COMPARABLE. THE ONLY DIS PUTE IS THAT THE ASSESSEE HAS AGGREGATED ALL THE PROJECTS WITH AE (THE AE S ARE DIFFERENT) AND COMPARED THE MEAN CPM OF THE PROJECTS OF RELATED P ARTY TRANSACTIONS. IN CONTRAST, THE TPO HAS REJECTED THE AGGR EGATION OF RELATED PARTY TRANSACTIONS AND APPLIED THE BENCHMARKIN G ANALYSIS ON PROJECT-BY-PROJECT TRANSACTION WITH AE. THE DRP HAS O BSERVED THAT THE ASSESSEE ITSELF SUBMITTED THAT THERE IS HUGE VARIATION IN THE GROSS PROFIT MARGINS ON PROJECTS UNDERTAKEN WITH RELATED PARTI ES. THIS INDICATES DIFFERENCE IN FAR OF THE PROJECTS, RESULTING INTO DIFFERENT PROFIT MARGINS. CONSEQUENTLY, THE AGGREGATION OF SUCH P ROJECTS HAVING DIFFERENT FAR INCORRECT AND THEREFORE, THE AGGREGATION C ARRIED OUT BY THE ASSESSEE IS ALSO HELD TO BE INCORRECT. BASED ON R ULE 10A (D), AND EVEN THE OECD GUIDELINES, THE ONLY TRANSACTION, WHICH ARE SIMILAR IN NATURE OR CLOSELY INTERLINKED CAN BE AGGREGATED AS ON E TRANSACTION AND BENCHMARKED, AND ONLY WHERE CONSIDERING IT AS SEPARA TE TRANSACTION IS IMPRACTICAL. SUCH IS NOT THE CASE HERE. SINCE ALL THE AE PROJECTS OF THE ASSESSEE ARE INDEPENDENT AND DIFFERENT PROJECTS, THE BENCHMARKING NEEDS TO BE CARRIED OUT SEPARATELY ON INDIVIDUAL TRANS ACTION BASIS. THE APPLICATION OF GROSS PROFIT MARGIN ON GLOBAL BASIS WI LL LEAD TO LOWER THAN NON-ARM`S LENGTH PRICE OF ONE TRANSACTION BEING MARKED BY HIGH PRICE OF ANOTHER IN THE SAME OR ANOTHER AES CASE, WHIC H IS NOT IN ACCORDANCE WITH PROVISIONS OF LAW. THE CONTENTION OF AGGREGATING AS HELPING TO REDUCE THE IMPACT OF DIFFERENCES IN TERMS AND CONDITIONS AS THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IS INCORR ECT. IF THERE ARE DIFFERENCES AND SUCH DIFFERENCES ARE MATERIAL, THEN THEY MUST BE EXPLICITLY RECOGNIZED AND PROVIDED FOR IN THE COMPAR ABILITY ANALYSIS, BUT THIS DOES NOT MEAN THAT TRANSACTION WITH AES MUST BE AG GREGATED. THE ASSESSEE HAS CONTENDED THAT IT HAS CHARGED LOWER MA RGIN FOR SOME PAGE 10 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 PROJECTS WITH AE AS IT WAS ABLE TO COMMAND A HIGHER MA RGIN FOR OTHER PROJECTS FROM SAME AE SO THAT AS A PORTFOLIO, THE ASSE SSEE HAS REALIZED ARM`S LENGTH MARGIN FROM AE ON AGGREGATE BASIS. HOWE VER, IN ABSENCE OF ANY EVIDENCE IN THIS REGARD, THIS CONTENTION OF THE A SSESSEE WAS NOT FOUND ACCEPTABLE BY DRP. THE DRP HAS OBSERVED THAT A H IGHER MARGIN IN ONE PROJECT CANNOT BE THE REASON FOR A MARGIN NOT AS PER ALP IN ANOTHER PROJECT. FURTHER, THE ASSESSEE HAS NOT PROVIDED FUNCTIONAL DIFFERENCES, IF ANY IN THE SCOPE OF PROJECTS FOR AES AS WELL AS NON-AES NOR MENTIONED THE SAME IN TP DOCUMENTATION. HENCE, THIS ARGUMENT OF THE ASSESSEE WAS REJECTED. THE DRP HELD THAT IT IS S ETTLED LAW THAT EACH AE TRANSACTION HAS TO BE AT ALP. AGGREGATION IS PE RMITTED IN RESPECT OF SAME OR CLOSELY LINKED TRANSACTION WITH SAM E AE BUT AGGREGATION OF DIFFERENT AND INDEPENDENT TRANSACTION WIT H DIFFERENT AES CANNOT BE BENCHMARKED ON AGGREGATE BASIS. THERE FORE, THE DRP HAD HELD THAT ADMITTEDLY, THE AE TRANSACTION ARE NOT AT ALP ON STAND- ALONE BASIS. HENCE, THE ADJUSTMENT MADE BY THE TPO WERE UPHELD. THE DRP ALSO OBSERVED THAT THE TRIBUNAL HAS ACCEPTED TNNM IN EARLIER YEAR, BUT IT COULD NOT BE ACCEPTED IN THIS YEAR ON THE P LEA THAT RES- JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS AS TR ANSFER PRICING IS FACT SUBJECTIVE EXERCISE WHICH CAN BE DIFFERENT FRO M YEAR TO YEAR. BOTH THE TPO AND THE ASSESSEE HAVE AGREED THAT THE CPM IS MOST APPROPRIATE METHOD. MERELY, BECAUSE THE ANALYSIS LEADS TO DIFFERENT CONCLUSIONS, THE MAM CANNOT BE THROWN OUT. TNNM IS NOT DEMONSTRATED TO BE THE MAM. 2.4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS APPLYING CPM COMPUTED GROSS PROFIT MARGIN OF SALE TO AES AT 14.32% VS. SALE TO NON AES AT 14.72%. THE DIFFERE NCE BEING WITH THE ACCEPTABLE RANGE OF +-5PERCENTAGE PRESCRIBED UNDE R PROVISO TO SECTION 92C (2), NO ADJUSTMENT ON ACCOUNT OF ALP IS WAR RANTED. THE TPO/DRP ACCEPTING THE USE OF CPM, GROSSLY ERRED IN A PPLYING THE PAGE 11 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 SAME TO INDIVIDUAL TRANSACTION WITH AES INSTEAD OF AGG REGATING APPROACH ADOPTED BY THE ASSESSEE WHICH IS ILLEGAL. 2.4.1. THE LEARNED COUNSEL SUBMITTED THAT THE GROSS MARGIN EARNED BY THE ASSESSEE FROM TRANSACTION WITH UNRELATE D PARTIES RANGE FROM (-) 486.10% TO 3867.84%, AVERAGE BEING 14.72% WHICH HAS BEEN COMPARED WITH THE AVERAGE GROSS MARGIN OF TRANSACTION S WITH AES. THE ASSESSEE RECOGNIZES REVENUE ON PERCENTAGE OF COM PLETION METHOD (POCM) IN ACCORDANCE WITH ACCOUNTING STANDARD 7. WHILE RECOGNIZING REVENUE OF POCM BASIS, YEARLY GROSS MARGINS FROM EA CH TRANSACTION MAY VARY AS THE PROJECT SPAN FOR THE PERIODS OVER ONE YEAR. ACCORDINGLY, UNRELATED PARTY TRANSACTIONS CANNOT BE R ELIABLY COMPARED WITH RELATED PARTY TRANSACTIONS ON INDIVIDUAL TRANSACT ION BASIS. THUS, TO ELIMINATE THE IMPACT OF SUCH DIFFERENCES, THE ARITHMETI C MEAN OF GROSS MARGINS EARNED BY THE ASSESSEE FROM ALL RELATE D PARTY TRANSACTIONS SHOULD BE COMPARED WITH ARITHMETIC MEAN OF GROSS MARGINS OF ALL UNRELATED TRANSACTIONS WHICH HAS BEEN DONE BY THE ASSESSEE. 2.4.2. IT WAS SUBMITTED THAT IT IS NOT POSSIBLE TO FIND A PROJECT WITH REFERENCE TO ITS AE WHICH IS COMPLETELY WITH SIM ILAR FUNCTIONALITIES TO A PROJECT, AND WHICH HAS BEEN UNDER TAKEN BY THE ASSESSEE FOR NON AE ENTERPRISES AS EACH PROJECT OPER ATES IN A DIFFERENT LIFE CYCLE. WITH PROJECTS OPERATING IN DIFFERENT LIFE C YCLES WITH DIFFERENT LEVEL OF COMPLETIONS, THE MARGIN NEEDS TO BE COMPARED ON AN AGGREGATE BASIS AS PROJECT WISE ONE-ON-ONE COMPARISON IS NOT PO SSIBLE. MOREOVER, IN VIEW OF THE NATURE OF BUSINESS OF THE ASSESSEE, THE OVERALL PROFITABILITY OF THE PROJECTS DEPENDS UPON VARIOUS FAC TORS SUCH AS NATURE OF WORK, BIDDING PROCESS, LOCATION ETC. THE AS SESSEE ACCORDINGLY COMPARED THE GROSS MARGINS EARNED FROM THE AGGREGATE TRANSACTION ENTERED WITH NON AES. THE LD. TPO/DRP HOWEVER, GROS SLY ERRED IN COMPARING INDIVIDUAL PROJECTS MARGINS OF TRANSACTION WITH AE WITH PAGE 12 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 AGGREGATE MARGINS EARNED FROM TRANSACTION WITH NON A ES WHICH IS IMPROPER AS INDIVIDUAL MARGINS ARE BEING COMPARED WITH AGGREGATE MARGIN WHICH IS IMPERMISSIBLE UNDER LAW. 2.4.3. THE LD. TPO ASSUMED THAT EACH PROJECT TRANSACTION WITH AE IS SEPARATE TRANSACTION AND NEEDS TO BE ANALYZED S EPARATELY IGNORING THE FACT THAT THE ASSESSEE HAD UNDERTAKEN THE IM PUGNED TRANSACTION WITH ITS PARENT COMPANY AS A SINGLE LARGE CUSTOMER. SINCE ALL THE GROSS MARGINS OF THE ASSESSEE FROM SALES MA DE TO AES ARE, COMPARABLE WITH NON AES, THE IMPUGNED TRANSACTIONS SH OULD BE CONSIDERED ALP AND NO ADJUSTMENT IS WARRANTED. 2.4.4. THE LEARNED COUNSEL SUBMITTED THAT THE LD. TPO ERRED IN MISINTERPRETING THE OECD GUIDELINES, WHICH PRESCRIBED THAT THE TRANSACTION SHOULD BE EVALUATED TOGETHER WHERE TRANSACTION S ARE IN THE NATURE OF LONG-TERM CONTRACTS. THE CONTRACTS OF THE A SSESSEE WITH AE RUN OVER A PERIOD OF 2 TO 4 YEAR AND AS SUCH ARE LONG-TERM CONTRACTS JUSTIFYING COMBINED TRANSACTION APPROACH AS TAKEN BY THE ASSESSEE. 2.4.5. THE LEARNED COUNSEL SUBMITTED THAT THE LD. TPO/DRP ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD EARNED LOWER THAN MEAN GROSS MARGIN IN SOME INDIVIDUAL UNRELATED PARTY TRANSACTIONS ALSO. THEREFORE, COMPARING MARGIN OF IND IVIDUAL CONTRACTS WITH AES WITH MARGIN CALCULATED THE AVERAGE MARGINS E NTERED WITH NON AES IS ILLEGAL AND AGAINST THE PRINCIPAL OF TRANS FER PRICING. 2.4.6. THE LEARNED COUNSEL ALSO SUBMITTED THAT THE CASE LAWS CITED BY THE TPO IN FACT SUPPORTS THE VIEW OF THE ASSESSE E THAT IN CASE OF TRANSACTION WHICH ARE SIMILAR IN NATURE, CAN BE AN ALYZED UNDER A COMBINED TRANSACTION APPROACH. IT WAS CONTENDED THAT THE A PPROACH ADOPTED FOR DETERMINATION OF ALP OF THE INTERNATIONAL TRA NSACTIONS OF THE ASSESSEE HAS BEEN ACCEPTED BY REVENUE AUTHORITIES TO BE AT ARM`S LENGTH IN A.Y. 2008-09. PAGE 13 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 2.4.7. THE LEARNED COUNSEL SUBMITTED THE LD. TPO/DRP ERRED IN NOT APPRECIATING THE FACT THAT IN THE CASE OF UNRELATED P ARTY TRANSACTIONS, THE ASSESSEE PERFORMED ADDITIONAL FUNCT IONS SINCE IT IS ALSO RESPONSIBLE FOR THE INSTALLATION AND COMMISSIONI NG OF EQUIPMENT SUPPLIED, THE AREAS IN CASE OF RELATED PARTIES, THE DR AWN OF THE ASSESSEE IS RESTRICTED TO ONLY SUPPLY OF EQUIPMENT. TH US, GIVEN THAT ADDITIONAL FUNCTIONS PERFORMED, THE ASSESSEE IS ANYWA YS LIKELY TO EARN HIGHER GROSS MARGINS IN UNRELATED PARTY TRANSACTIONS THAN RELATED PARTY TRANSACTIONS. 2.4.8. THE LEARNER TPO/DRP FURTHER GROSSLY ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS A RISK BEARIN G ENTITY. THE ASSESSEE IS FULL OF RISK BEARING MANUFACTURES AND SU PPLY OF ALL POWER GENERATION EQUIPMENTS AND AS SUCH THE ASSESSEE IS LIK ELY TO EARN LOW GROSS MARGINS INSERTING TRANSACTIONS BASED ON THE QUO TIENT OF RISK INVOLVED. THE SAME IS ALSO EVIDENT FROM THE FACT THAT THE ASSESSEE HAS EARNED LOWER THEN MEAN GROSS MARGINS IN UNRELATED PA RTY TRANSACTIONS ALSO. 2.4.9. THE LD. A.R. FURTHER SUBMITTED THAT THE TPO/DRP HAS GROSSLY ERRED IN IGNORING THE INDIVIDUAL PROJECTS SPE CIFIC FUNCTIONAL DIFFERENCES. AS REITERATED ABOVE, THE OVERALL PROFITA BILITY OF THE PROJECTS DEPENDS UPON VARIOUS FACTORS SUCH AS NATURE OF WORK, BIDDING PROCESS, LOCATION ETC. THUS, IN SOME PROJECTS DURING THE OVERALL PROFITABILITY MARGINS EARNED LOWER, IT WOULD BE INAPP ROPRIATE TO HOLD THAT THE ASSESSEE SHOULD EARN MORE THAN THE REST OF THE P ROJECTS. WITHOUT PREJUDICE TO ABOVE, IT WAS SUBMITTED THAT THE MARGI N OF XE KAMAN- ANDRITZ INDIA PROJECTS IS MARGINALLY LOWER WHE N COMPARED INDIVIDUALLY WITH TWO OTHER PROJECTS AS ITS RISK IS CO VERED THROUGH THE THIRD PARTY CONSORTIUM. THE RISK BEING MITIGATED, THE MARGINS ARE LESS AS PER THE COMMON BUSINESS PRACTICES. THE ADDITION MA DE BECAUSE OF PAGE 14 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 THE DIFFERENCE IN MARGINS OF XE, KAMAN PROJECTS; THUS, DESERVES TO BE DELETED ON THIS FACT AS WELL IN THE INTEREST OF NATURAL JUSTICE. 2.4.10. THE LEARNED COUNSEL FURTHER SUBMITTED WITHOUT PREJUDICE TO THE ABOVE, THAT WITH REFERENCE TO ADDITIONS MADE IN PR OJECT ASHLUCREEK, THE LD. TPO/DRP ERRED IN NOT APPRECIATING THE FACT THAT THE REASON FOR LOWER GROSS MARGIN ON THIS PROJECT WAS EXTRAORDINARY COST OF INR 87,28,333 WHICH WAS INCURRED BY THE ASSES SEE DURING FINANCIAL YEAR 2008-09 OF HER BREACH INR 56,78,653, WHICH HAS BEEN ALLOWED IN A.Y. 2009-10 IN PROPORTION TO THE TOTAL COS T TO BE INCURRED OVER THE LIFE CYCLE OF THE PROJECT. THUS, PROPORTIONATE ADJUSTMENT FOR THE EXTRAORDINARY COST INCURRED IN F.Y. 2008-09 SHOULD BE ALLOWED DURING F.Y. 2009-10. IF THE EFFECT OF THE EXTRA-ORDINA RY EVENT IS IGNORED, THE REVISED ADJUSTED GROSS MARGIN COMES TO 18 .8% AS COMPARED TO 14.70% AVERAGE GROSS MARGIN EARNED FROM NON-AE PROJECTS AND THUS WARRANTING NO ADDITION. 2.4.11. WITHOUT PREJUDICE TO THE ABOVE , THE LD. A.R. FURTHER SUBMITTED THE ASSESSEE IN THE ALTERNATE ALSO PERFORMED T P ANALYSIS USING TRANSITIONAL NET MARGIN, WHICH SERVE AS CORROBO RATIVE ANALYSIS FOR THE INTERNATIONAL TRANSACTIONS RELATING TO CONTRACT RE VENUE AND FROM THE PROJECTS WITH AES. IN AN UNDERTAKING THAT TNMM ANALYSIS, THE ASSESSEE CHOSE ITSELF AS TESTED PARTY AND OPERATIN G PROFIT AS A RATIO OF OPERATING REVENUE AS A PROFIT LEVEL INDICATOR. THE MARGIN USING TNMM METHOD FOR THE ASSESSEE FOR TRANSACTION WITH AE WA S DETERMINED AT 10.01% COMPARED TO 6.66% FOR TRANSACTION S WITH NON AES. THIS CONTENTION OF THE ASSESSEE WAS ALSO ACCEPTE D BY THE ITAT INDORE BENCH IN EARLIER YEARS (I.E. A.Y. 2006-07, 2 007-08, AND 2009- 10) VIDE ORDER DTD. 03.07.2004. RELYING ON THE ANALY SIS UNDERTAKEN BY THE ASSESSEE, THE ENTIRE ADJUSTMENT ON ACCOUNT OF CONTRA CT REVENUE FROM AE PROJECTS WAS DELETED AS THE TRANSACTIONS HAVIN G BEEN ANALYZED UNDER TNMM WERE HELD TO BE AT ARM`S LENGTH. THEREFORE, RELYING ON THE PAGE 15 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 DECISION IN PRECEDING YEARS, THE LD. A.R. SUBMITTED THA T THE ADDITION MADE IN CURRENT YEAR DESERVE TO BE DELETED. 2.5. THE LD. D.R. SUBMITTED THAT AS PER TP DOCUMENTS INTERNATI ONAL TRANSACTION REPRESENTING SALES TO AE HAS BEEN BENCHMARK ED USING TNNM METHOD. IT WAS NOTICED THAT THE ASSESSEE WAS AGGREG ATING ALL TRANSACTIONS UNDERTAKEN BY BOTH UNITS MANDIEEP AND PRITHL A COMPARING THE AVERAGE GROSS MARGIN OF COMPARABLE TR ANSACTIONS. AS PER INDIAN TP REGULATIONS, TNNM IS TO BE APPLIED ON TRANSACTION BASIS. SINCE IN THIS CASE, GROSS MARGIN EARNED ON THE TRANSAC TION IS SEPARATELY, THERE WAS NO REQUIREMENT OF AGGREGATING AL L OF THEM AND THEN CALCULATING THE AVERAGE GROSS MARGIN. THE LD. D. R. REFERRED TO PARA 1.42 OF OECD GUIDELINES WHICH SUGGEST THAT IDE ALLY ALP SHOULD BE APPLIED ON TRANSACTION-BY-TRANSACTION BASIS, HOWEVER , WHERE SEPARATE TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOU S THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS. S UCH TRANSACTION SHOULD BE EVALUATED TOGETHER USING THE MOST APPROPRIATE ARM`S LENGTH METHOD OR METHODS. IT CAN BE SEEN FROM THE AFORESAID PA RA OF THE OECD GUIDELINES THAT IT RECOMMENDS EVALUATION / BENCHM ARKING ON TRANSACTION BY TRANSACTION BASIS AND ONLY IN CERTAIN SI TUATIONS WHEN THEY CANNOT BE EVALUATED ON SEPARATE BASIS THAT COMBINE D APPROACH HAS BEEN SUGGESTED. FURTHER, SOME EXAMPLES HAVE BEEN GIVEN THE INTERNATIONAL TRANSACTIONS, WHICH MAY WARRANT AN AGGREG ATED APPROACH FOR BENCHMARKING. IT CAN BE FURTHER SEEN THAT IN THE CASE OF THE ASSESSEE, SEPARATELY IN RESPECT OF ITS INTERNATION AL TRANSACTION SALE RELATING TO RECEIPT OF REVENUES FROM EACH PROJEC T HAS BEEN FOUND TO BE FEASIBLE, WHICH IN FACT HAS BEEN PROVIDED BY TH E ASSESSEE ITSELF IN TP DOCUMENTATION. THE CASE OF THE ASSESSEE DOES NOT FALL IN ANY OF THE CATEGORIES/ EXAMPLES GIVEN IN PARA 1.42 OF OECD GUIDELINES. ACCORDINGLY, THE CONTENTION OF THE ASSESSEE OF BENCHMAR KING ALL PAGE 16 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 INTERNATIONAL TRANSACTION ON AGGREGATED BASIS, BEING IN CORRECT NOT FOUND ACCEPTABLE. 2.5.1. THE LD. D.R. FURTHER SUBMITTED THAT THE CONTENTION OF THE ASSESSEE THAT AGGREGATING THE ACCOUNTING DIFFERENCES BET WEEN DIFFERENT PROJECTS NEUTRALIZED IS ALSO FALLACIOUS. THE ADJUSTME NT OF SUCH ACCOUNTING DIFFERENCE IS NOT REQUIRED TO BE CARRIED OU T BY NEUTRALIZING SUCH DIFFERENCES IN ONE TRANSACTION WITH THE OTHER. FU RTHER, NO SUCH ACCOUNTING DIFFERENCE WAS POINTED OUT IN TRANSFER PRIC ING DOCUMENTATION. 2.5.2. THE LD. D.R. FURTHER SUBMITTED THAT THE CONTENTION OF THE ASSESSEE THAT THE TRANSACTION SHOULD BE CONSIDERED AT AR M`S LENGTH ON THE BASIS OF SECONDARY ANALYSIS CARRIED OUT USING TNN M WAS CONSIDERED AND NOT FOUND TO BE ACCEPTABLE AS THE PROVI SIONS OF LAW SAY THAT MOST APPROPRIATE METHOD IS REQUIRED TO BE APPLIED IN ACCORDANCE WITH RULE 10C. IT IS NOT IN DISPUTE THAT ON SAME BASIS , THE ASSESSEE HAS SELECTED CPM AS THE MOST APPROPRIATE METHOD, WHICH WAS ALSO ACCEPTED BY THE TPO. CONSEQUENTLY, THE ANALYSIS CARRIE D OUT BY THE ASSESSEE USING TNNM AS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE OTHER TRANSACTIONS AND BECOMES THE MOST APPROPRIATE METHOD FOR BENCHMARKING THAT TRANSACTION ON LY CANNOT BE THE MOST APPROPRIATE METHOD FOR BENCHMARKING THESE TRAN SACTIONS. 2.6. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIE S AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT AS PER TRANSFER PRICING STUDY REPORT (IN SHORT TPSR), THE ASSE SSEE ADOPTED COST PLUS METHOD (CPM) AS THE MOST APPROPRIATE METHOD WITH GP MARGIN AS THE APPROPRIATE PROFIT LEVEL INDICATOR (PLI) . IT CARRIED OUT ANALYSIS FOR IDENTIFICATION OF COMPARABLE TRANSACTIONS FOR THE EXPORT OF FINISHED GOODS UNDER SIMILAR CONDITIONS WITH UNRELAT ED ENTITIES AND SUCH SEGMENTS WERE SEPARATELY IDENTIFIABLE; THE ASSES SEE CONSIDERED THE TWO SEGMENTS VIZ PROJECTS WITH AES AND PROJECTS WITH NON-AES FOR PAGE 17 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 CPM ANALYSIS. THE ASSESSEE COMPUTED OVERALL GP MARGI N FROM SALE TO AES AT 14.32% AND GP MARGIN ON SALES TO NON-AES AT 1 4.72%. TAKING RECOURSE TO PROVISO TO SECTION 92C (2), IT WAS CLAIMED THAT THE TRANSACTION IS WITHIN TOLERANCE BAND OF +/-5% MARGIN. 2.6.1. WE FIND THAT THERE IS NO DISPUTE BETWEEN TPO AND THE ASSESSEE AS REGARDS THE METHOD, WHICH IS CPM AND BEN CHMARKING BASED ON INTERNAL COMPARABLE. THE ONLY DISPUTE WHETHER THE ASSESSEE HAS JUSTIFIED FOR CONSIDERING THE AGGREGATION OF AL L THE PROJECTS WITH AE (THE AES ARE DIFFERENT) AND COMPARED THE MEAN CPM OF TH E PROJECTS OF RELATED PARTY TRANSACTIONS. IN CONTRAST, THE TPO HAS REJ ECTED THE AGGREGATION OF RELATED PARTY TRANSACTIONS AND APPLIED THE BENCHMARKING ANALYSIS ON PROJECT-BY-PROJECT TRANSACTI ON WITH AE. IT IS SEEN THAT THAT THE GROSS MARGIN EARNED BY THE ASSESSEE FR OM TRANSACTION WITH UNRELATED PARTIES RANGE FROM (-) 486.1 0% TO 3867.84% OF WHICH AVERAGE BEING 14.72%, WHICH HAS B EEN COMPARED WITH THE AVERAGE, GROSS MARGIN OF TRANSACTIONS WITH A ES. THE ASSESSEE RECOGNIZES REVENUE ON PERCENTAGE OF COMPLETION METHOD (POCM) IN ACCORDANCE WITH ACCOUNTING STANDARD 7. WHILE RECOGNIZI NG REVENUE OF POCM BASIS, YEARLY GROSS MARGINS FROM EACH TRANSACTIO N MAY VARY AS THE PROJECT SPAN IS FOR THE PERIODS OVER ONE YEAR. TH EREFORE, WE ARE OF THE VIEW THAT UNRELATED PARTY TRANSACTIONS CANNOT BE REL IABLY COMPARED WITH RELATED PARTY TRANSACTIONS ON INDIVIDUAL TRANSACTION BASIS. IN VIEW OF THIS MATTER, WE ARE OF THE OPINION TH E ARITHMETIC MEAN OF GROSS MARGINS EARNED BY THE ASSESSEE FROM ALL REL ATED PARTY TRANSACTIONS SHOULD BE COMPARED WITH ARITHMETIC MEAN OF GROSS MARGINS OF ALL UNRELATED TRANSACTIONS, WHICH HAS BEEN DONE BY THE ASSESSEE. IT WAS CONTENDED BY THE LEARNED COUNSEL THAT I T IS NOT POSSIBLE TO FIND OUT PROJECT WITH REFERENCE TO ITS AE, W HICH IS COMPLETELY WITH SIMILAR FUNCTIONALITIES TO A PROJECT, W HICH HAS BEEN UNDERTAKEN BY THE ASSESSEE FOR NON AES ENTERPRISES AS EACH PROJECT PAGE 18 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 OPERATES IN A DIFFERENT LIFE CYCLE. SINCE THE PROJECTS ARE OPERATING IN DIFFERENT LIFE CYCLES WITH DIFFERENT LEVEL OF COMPLETI ONS, IT WOULD BE MORE APPROPRIATE TO COMPARE THE MARGIN ON AN AGGREGATE BASI S AS PROJECT- WISE ONE-ON-ONE COMPARISON IS NOT POSSIBLE AND WOULD GIVE DISTORTED RESULTS. WE ARE ALSO AWARE OF THE NATURE OF BUSINESS OF THE ASSESSEE. THE OVERALL PROFITABILITY OF THE PROJECTS DEPENDS UPON VARIOUS FACTORS SUCH AS NATURE OF WORK, BIDDING PROCESS, LOCATION ETC . THEREFORE, WE ARE OF THE VIEW THE LD. TPO/DRP WAS IN ERROR IN COMPA RING INDIVIDUAL PROJECTS MARGINS OF TRANSACTION WITH AE WITH AGGREGATE MARGINS EARNED FROM TRANSACTION WITH NON AES WHICH IS IMPROP ER AS INDIVIDUAL MARGINS ARE BEING COMPARED WITH AGGREGAT E MARGIN WHICH IS IMPERMISSIBLE UNDER LAW. 2.6.2. IT APPEARS TO US THAT THE TPO MIGHT HAVE ASSUMED THAT EACH PROJECT TRANSACTION WITH AES IS SEPARATE TRANSACTION AND NEEDS TO BE ANALYZED SEPARATELY WHEREAS IT IS THE CONTENTION OF THE ASSESSEE THAT THE IMPUGNED TRANSACTIONS ARE UNDERTAKEN BY THE ASSESSE E WITH ITS PARENT COMPANY AS A SINGLE LARGE CUSTOMER. 2.6.3. WE ALSO NOTE THAT ACCORDING TO THE TPO THE OECD GUIDELINES PRESCRIBED THE TRANSACTION SHOULD BE EVALUA TED TOGETHER WHERE TRANSACTIONS ARE IN THE NATURE OF LONG-TERM CONTRAC TS. THE LD. D.R. REFERRED TO PARA 1.42 OF OECD GUIDELINES WHIC H SUGGESTS THAT IDEALLY ALP SHOULD BE APPLIED ON TRANSACTION-BY-TRANS ACTION BASIS, HOWEVER, WHERE SEPARATE TRANSACTIONS ARE CLOSELY LINK ED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE B ASIS. THE PARA 1.42 OF OECD GUIDELINES IS REPRODUCED AS UNDE R: IDEALLY, IN ORDER TO ARRIVE AT THE MOST PRECISE AP PROXIMATION OF FAIR MARKET VALUE, THE ARM`S LENGTH PRINCIPLE SHOUL D BE APPLIED ON A TRANSACTION-BY-TRANSACTION BASIS. HOWEVER, THERE ARE OFTEN SITUATIONS WHERE SEPARATE TRANSACTION ARE SO CLOSEL Y LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON SEPARATE PAGE 19 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 BASIS. EXAMPLES MAY INCLUDE 1. SOME LONG-TERM CONTR ACTS FOR THE SUPPLY OF COMMODITIES OR SERVICES, 2. RIGHT 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 EACH INDIVIDUAL PRODUCT OR TRANSACTION. ANOTHER EXAMPLE WOULD BE THE LICENSING OF MANUFACTURING KNOW-HOW AND THE SUPPLY OF VITAL COMPONENTS TO AN ASSOCIATED MANUFACTURE; IT MAY BE MORE REASONABLE TO ASSESS THE ARM`S LENGTH TERMS FOR THE TWO ITEMS TOGETHER RATHER THAN INDIVIDUALLY. SUCH TRANSACTION S SHOULD BE EVALUATED TOGETHER USING THE MOST APPROPRIATE ARM`S LENGTH METHOD OR METHODS. A FURTHER EXAMPLE WOULD BE THE R OUTING OF A TRANSACTION THROUGH ANOTHER ASSOCIATED ENTERPRISE; IT MAY BE MORE APPROPRIATE TO CONSIDER THE TRANSACTION OF WHICH TH E ROUTING IS A PART IN ITS ENTIRETY, RATHER THAN CONSIDER THE TRAN SACTION ON SEPARATE BASIS. 2.6.4. WE FIND THAT IN THE CASE OF THE ASSESSEE, THERE ARE LONG - TERM CONTRACTS FOR SUPPLY OF COMMODITIES, AND SEPARATE TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS THAT THEY CANNOT BE EVALUATED ADEQUATELY ON A SEPARATE BASIS AS PER EXAMPLES GIVE N IN THE LIGHT OF OECD GUIDELINES PARA 1.42 AS QUOTED ABOVE, WE ARE, T HEREFORE, OF THE VIEW THAT THE COMBINED APPROACH OF TRANSACTION AND AGGRE GATION OF TRANSACTION IS THE MOST APPROPRIATE METHOD. 2.6.5. WE ALSO FIND THAT THE CONTRACTS OF THE ASSESSEE WITH AE S RUN OVER A PERIOD OF 2 TO 4 YEAR AND AS SUCH ARE LON G-TERM CONTRACTS JUSTIFYING AS A COMBINED TRANSACTION APPROACH AS TAKEN BY THE ASSESSEE. WE ALSO OBSERVE THAT THE ASSESSEE HAD EARNED LOWER THAN MEAN GROSS MARGIN IN SOME INDIVIDUAL UNRELATED PART Y TRANSACTIONS ALSO. THEREFORE, COMPARING MARGIN OF INDIVIDUAL CON TRACTS WITH AES WITH MARGIN CALCULATED THE AVERAGE MARGINS ENTERED WI TH NON AES DOES NOT APPEAR TO BE AS PER THE PRINCIPAL OF TRANSFER PRICING. PAGE 20 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 2.6.6. WE ALSO FIND THAT THAT THE CASE LAWS CITED BY THE TPO I N FACT SUPPORTS THE VIEW OF THE ASSESSEE THAT THE TRANSACTIO NS, WHICH ARE SIMILAR IN NATURE, CAN BE ANALYZED UNDER A COMBINED TRANSACTION APPROACH. IT WAS ALSO POINTED OUT TO US THAT THE APPRO ACH ADOPTED FOR DETERMINATION OF ALP OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE HAS BEEN ACCEPTED BY REVENUE AUTHORITIES TO BE AT ARM`S LENGTH IN A.Y. 2008-09. THEREFORE, WE DO NOT FIND ANY PLAUSIB LE REASON FOR THE TPO TO DEVIATE FROM THAT STAND. 2.6.7. WE ALSO NOTICE THAT IN CASE OF UNRELATED PARTY TRANSACTIO NS, THE ASSESSEE PERFORMED ADDITIONAL FUNCTIONS SINCE IT IS ALSO RESPONSIBLE FOR THE INSTALLATION AND COMMISSIONING OF EQUIPMENT SU PPLIED THE AREAS IN CASE OF RELATED PARTIES, THE DRAWING OF THE A SSESSEE IS RESTRICTED TO ONLY SUPPLY OF EQUIPMENT. THUS, GIVEN THA T ADDITIONAL FUNCTIONS PERFORMED, THE ASSESSEE IS ANYWAYS LIKELY TO EARN HIGHER GROSS MARGINS IN UNRELATED PARTY TRANSACTIONS THAN RE LATED PARTY TRANSACTIONS. THE ASSESSEE IS A RISK BEARING ENTITY AND IS FULL O F RISK BEARING MANUFACTURES AND SUPPLY OF ALL POWER GENERA TION EQUIPMENTS AND AS SUCH THE ASSESSEE IS LIKELY TO EARN LOW GROSS MARGINS ON INTERNATIONAL TRANSACTIONS BASED ON THE QUOTIENT OF RISK INVOLVED. THE SAME IS ALSO EVIDENT FROM THE FACT THAT THE ASSESSEE HAS EARNED LOWER THAN MEAN GROSS MARGINS IN UNRELATED PARTY TRANSACTION S ALSO. 2.6.8. THE INDIVIDUAL PROJECTS HAVE SPECIFIC FUNCTIONAL DIFF ERENCES AS EACH HAS VARIOUS FACTORS SUCH AS NATURE OF WORK, B IDDING PROCESS, LOCATION ETC. AS DIFFERENT. THEREFORE, OVERALL PROFITA BILITY IN SOME PROJECTS MAY BE LOWER MARGIN EARNED; THEREFORE, IT WOU LD NOT BE APPROPRIATE TO HOLD THAT THE ASSESSEE SHOULD EARN MORE TH AN THE REST OF THE PROJECTS. FOR EXAMPLE, THE MARGIN OF XE KAMAN- ANDRITZ INDIA PROJECTS IS MARGINALLY FOUND TO BE LOWER WHEN COMPARE D INDIVIDUALLY WITH 2 OTHER PROJECTS AS RISK IS COVERED THROUGH THE 3 RD PARTY CONSORTIUM. THE RISK BEING MITIGATED, THE MARGINS ARE L ESS AS PER THE PAGE 21 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 COMMON BUSINESS PRACTICES. THEREFORE, ADJUSTMENT MADE ON ACCOUNT OF THE DIFFERENCE IN MARGINS OF XE, KAMAN PROJECTS IS NOT JUSTIFIED. WE ALSO FIND THAT IN THE CASE OF ASHLUCREEK PROJECTS, TH E REASON FOR EARNING LOWER GROSS MARGIN WAS ON ACCOUNT OF EXTRAORD INARY COST OF RS. 87,28,333 INCURRED BY THE ASSESSEE DURING FINAN CIAL YEAR 2008-09 OF RS.56,78,653 WHICH HAS BEEN ALLOWED IN A.Y. 2009 -10 IN PROPORTION TO THE TOTAL COST TO BE INCURRED OVER THE LIFE CYCLE OF THE PROJECT. IF THE EFFECT OF THE EXTRA ORDINARY EVENT IS IGNORED, THEN REV ISED ADJUSTED GROSS MARGIN COMES TO 18.8% AS COMPARED TO 14.70% AVE RAGE GROSS MARGIN EARNED FROM NON-AES PROJECTS AND THUS WE FIND THAT THERE IS NO REASON TO MAKE ADJUSTMENT ON THIS ACCOUNT ALSO. 2.6.9. WE ALSO FIND FORCE IN THE SUBMISSIONS OF THE LD. A. R. FOR THE ASSESSEE THAT THE ASSESSEE HAS ALSO IN THE ALTERNATE PERFORMED TP ANALYSIS USING TRANSITIONAL NET MARGIN WHICH SERVE AS CORROBORATIVE ANALYSIS FOR THE INTERNATIONAL TRANSACTIONS RELATED TO C ONTRACT REVENUE AND FROM THE PROJECTS WITH AES. THE MARGIN USING TNMM METHOD FOR THE ASSESSEE FOR TRANSACTION WITH AE WAS DETERMINED AT 10.01% COMPARED TO 6.66% FOR TRANSACTIONS WITH NON AES. WE A LSO FIND THAT THIS CONTENTION OF THE ASSESSEE WAS ALSO ACCEPTED BY TH E HON`BLE ITAT IN EARLIER YEARS (I.E. A.Y. 2006-07 ,2007-08, AND 2 009-10) VIDE ORDER DTD. 03.07.2004. RELYING ON THE ANALYSIS UNDERTAKEN BY THE ASSESSEE, THE ENTER ADJUSTMENT ON ACCOUNT OF CONTRACT REVENUE FRO M AE PROJECTS WAS DELETED AS THE TRANSACTIONS HAVING BEEN ANALYZED U NDER TNMM WERE HELD TO BE AT ARM`S LENGTH. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE LD.AO TO DELETE THE ADJUSTM ENT MADE BY THE AO/ TPO. THE ABOVE GROUNDS OF THE ASSESSEE ARE, TH EREFORE, ALLOWED. 3. GROUND NO. 3 RELATES TO ADJUSTMENT OF RS. 1,17,23,96 7/-( A.Y. 2010-11) AND RS. 34,18,088/- (A.Y. 2011-12) T O THE PAGE 22 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 TRANSACTION RELATED TO PAYMENT FOR TECHNICAL SERVI CE BY DETERMINING THE ARM`S LENGTH PRICE OF SUCH PAYMENTS AS NIL 3.1. BRIEFLY, STATED THE FACTS OF THE CASE ARE THAT THE TPO ON TH E BASIS OF LAST YEARS IN THE CASE OF M/S. VA TECHNICAL ESHCHE R WYSS FLOVEL LIMITED MERGED WITH THE ASSESSEE, NOTED THAT THE TRANSFER PRICING ADJUSTMENT WAS MADE IN WHICH THE ARM`S LENGTH PRICE DET ERMINED WAS NIL FOR TECHNICAL SERVICES RECEIVED FROM AES OF WHI CH PAYMENTS MADE WERE ALREADY COVERED UNDER TECHNICAL ROYALTY AGREEM ENT. IT WAS EXPLAINED THAT IN RESPECT OF MANDIDEEP UNIT , THE ENTITY HAD ENTERED IN TO AN AGREEMENT WITH THE AES WHICH WAS ALTOGETHER DIFF ERENT FROM THE AGREEMENT ENTERED IN TO BY PRITHLA UNIT AND FURTHER AR TICLE 5 AND 6 OF AGREEMENT SHOWED THAT IT DOES NOT INCLUDE ANY ARRANGEMEN T TOWARDS PROVISION OF TECHNICAL SERVICES RENDERED BY THE AES. IN RESPECT OF PRITHLA UNIT, AGREEMENT WITH GERMAN AE WAS FOR RECEIPT OF TECHNICAL ASSISTANCE FOR MANUFACTURING OF CONTRACT PRODUCTS WHIL E PAYMENT FOR TECHNICAL SERVICES WAS IN RELATION TO OTHER COMPONENT OF PROJECT. THEREFORE, THE PAYMENTS OF TECHNICAL ROYALTY AND TECH NICAL SERVICES ARE DIFFERENT, HENCE, NO DISALLOWANCE SHOULD BE MADE. H OWEVER, THE TPO REPRODUCED SOME PROVISIONS OF TECHNICAL COLLABORATIO N AGREEMENT (TCA) DTD. 1 ST DAY OF JANUARY 2006 AND VIEWED THAT THE LICENSOR HAS PROVIDED KNOW-HOW AND AVAILABLE TECHNICAL INFORMATIO N AND ASSISTANCE FOR MARKETING, LAYOUT, BASIC DESIGN, MANUFA CTURE, INSTALLATION AND SERVICING OF CONTRACT PRODUCTS TO THE ASSESSEE. THE TERM TECHNICAL INFORMATION MEANS ENGINEERING AND M ANUFACTURING INFORMATION AVAILABLE WITH THE LICENSOR WHICH INTER-ALI A INCLUDES PROCESSES AND PRODUCTS RELATED TO MANUFACTURE, TESTIN G, APPLICATION, INSTALLATION, OF RS. 1, 39, 79,990/- COMMISSIONING A ND SERVICING OF CONTRACT PRODUCTS. IT IS CLEAR THAT AS PER THE ROYALTY AG REEMENT, THE ASSOCIATES ENTERPRISE IS REQUIRED TO PROVIDE ALL THE INFORMATION, WHICH PAGE 23 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 RELATES TO MARKETING AS WELL AS INSTALLATION AND SERVI CING OF THE CONTRACT PRODUCTS TO THE ASSESSEE, WHICH ARE ALREADY CO VERED UNDER TCA AND THUS, IT IS DUPLICATE IN NATURE. ACCORDINGLY, THE TPO FOUND THAT AN AMOUNT OF RS. 1,39,79,990/- IS COVERED UNDER TH E ROYALTY AGREEMENT IN RESPECT OF MANDIDEEP UNIT HENCE, ITS ALP W AS DETERMINED AT NIL AND DISALLOWANCE OF RS. 1,39,79, 990/- WERE PROPOSED. SIMILARLY AN AMOUNT OF RS. 3,02,21,072/- I N RESPECT OF PRITHLA UNIT IS FOUND TO BE COVERED UNDER ROYALTY AG REEMENT HENCE, SAME WAS DISALLOWED BY NOT CONSIDERING TO BE ALP. ACC ORDINGLY, THE TPO PROPOSED ADJUSTMENT OF RS. 4, 42, 01,062/- IN THIS REGARD. 3.2. BEFORE DRP, IT WAS ARGUED THAT CERTAIN EXPENSES WERE DI SALLOWED WITHOUT CONSIDERING THAT THESE WERE EXAMINED IN PREVIOU S YEAR A.Y. 2009-10 FOR PRITHLA UNITS PERTAINING TO BAGHLIGHAR PROJ ECTS OF WHICH PAYMENTS WERE NOT COVERED BY ROYALTY AGREEMENT. THE ASSESSEE FILED ADDITIONAL EVIDENCE, WHICH WERE SENT TO THE TPO, BUT TH E TPO OBJECTED TO ITS ADMISSION. HOWEVER, THE DRP OBSERVED THAT THESE G O TO ESTABLISH THE FACTUAL POSITION IN RESPECT OF ADJUSTMENT MADE, HENCE , THE SAME WERE ADMITTED. THE DRP FOUND THAT AN AMOUNT OF RS. 15, 94,092/ OF IDENTICAL ITEMS TO BE DUPLICATIVE IN NATURE HENCE, IT WAS DISALLOWED. THIS IS AS PER ITEM 12 & 13 ON PAGE NO 33 OF TPO ORD ER. FROM THE EXPLANATION FILED, IT IS CLEARLY APPEARING TWICE. AS PER THE PAYMENT TERMS 50% WAS PAID UPFRONT AND 50% WAS LATER ON COMPL ETION OF WORK. SINCE IT IS NOT COVERED UNDER ROYALTY AGREEMENT ON THE ARGUMENT THAT IT IS DUPLICATIVE IN NATURE TO BE CONSIDERED, HENCE , THE DRP FOUND THE ADJUSTMENT AS INCORRECT AND DELETED THE SAME. THE DR P FURTHER HELD THAT THERE IS NO SUPPLY OF PRODUCTS SO FAR AS BAG LIHAR PROJECT IS CONCERNED AND MERELY SUPERVISION CONTRACT, WHICH IS N OT COVERED BY TCA DTD. 01.01.2006. FURTHER, IN TP ORDER FOR A.Y. 2 009-10 IN THE CASE OF M/S. VA TECHNICAL ESCHER WYSS FLOVES PVT. LTD. (N OW MERGED WITH THE ASSESSEE) DTD. 29.01.2013, THE FACTUAL ASPECT OF TRAN SACTION HAS PAGE 24 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 BEEN DISCUSSED IN PARA 63 OF TP ORDER, MADE SIMILA R PAYMENTS OF RS. 2,06,77,248/- WHICH HAS BEEN CLEARLY HELD TO BE NOT C OVERED BY PAYMENT TO TECHNICAL SERVICES COVERED IN IMPUGNED TCA, HENCE, ADJUSTMENT OF RS. 2,70,,70,489/- WAS DIRECTED TO BE DE LETED. THE DRP HAS ALSO DIRECTED THE TPO TO VERIFY THE PAYMENTS LISTE D AT SERIAL NO. 1,4,8,9,21,AND 54 AS BEING COMMISSIONING OF OTHER P ROJECTS AND FOR SERVICE IN CANADA AND BHUTAN TOTALING TO RS.38,12,515 /- AND DELETE THE ADJUSTMENT IF THAT SAME WERE NOT FOUND LINKED TO CONTRA CT PRODUCTS. THUS, PAYMENTS OF RS. 15,94,092/- RS. 2,70, 70,489/- AND RS. 38,12,515 WERE DELETED AND BALANCE AMOUNT OF NE T ADJUSTMENTS OF RS. 1,17,23,967/- I.E. [RS. 4,42,01,062- (15,94,092 - 2,70,70,489- 38,12,515)] WERE UPHELD. 3.3. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFOR E THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE, SUBM ITTED THAT THE DRP HAS GROSSLY ERRED IN CONFIRMING ADDITION OF RS. 1,17,23,967/- FOR A.Y. 2010-11 AND RS. 34,18,088/- FOR A.Y. 2011-12 O N THE FOLLOWING GROUNDS THAT THE EXPENDITURE ON ACCOUNT OF TECHNICAL SERVIC ES AMOUNTING TO RS. 1,17,23,967/- AS CONFIRMED BY THE DRP ARE NO T COVERED UNDER THE ROYALTY AGREEMENTS AND AS SUCH NO ADJUSTM ENT IS WARRANTED ON THE SAME. THE RECEIPTS OF TECHNICAL SE RVICE BY THE ASSESSEE IS NOT IN DISPUTE. THE AMOUNT PAID FOR TEC HNICAL SERVICES FOR MANDIDEEP UNIT, THE ROYALTY IS PAID ONLY FOR MA NUFACTURING AND SELLING RIGHTS (ARTICLE 5) AND DOES NOT COVER OTHER SERVICES SUCH AS TRAINING OF LICENSE PERSONAL (ARTICLE 2), DEPUTATIO N OF LICENSOR`S PERSONAL TO LICENSEE (ARTICLE 3) AND TRANSMISSION OF TECHNICAL INFORMATION (ARTICLE 4) . THE PAYMENTS MADE THUS, A RE ON ACCOUNT OF SERVICE COVERED VIDE ARTICLE 2, ARTICLE 3 AND AR TICLE 4 AND CANNOT BE DEEMED TO BE COVERED BY ROYALTY PAYABLE AS ENVIS AGED FOR SERVICE MENTIONED IN ARTICLE 5 . THE PAYMENTS FOR T ECHNICAL PAGE 25 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 SERVICES ARE THUS, OVER AND ABOVE THE CONSIDERATION TOWARDS MANUFACTURING AND SELLING RIGHTS AND IS THUS, ALLOW ABLE DEDUCTION. SIMILARLY, THE AMOUNTS PAID FOR TECHNICA L SERVICES FOR PRITHLA UNIT, THE AMOUNTS PAID, ARE COVERED UNDER A SPECIFIC EXCLUSION UNDER ARTICLE 4.2 OF THE ROYALTY AGREEMEN T AND AS SUCH IS ALLOWABLE. THE CONSIDERATION MENTIONED IN THE AG REEMENT FOR PRITHLA UNIT DOES NOT, COVER PAYMENTS MADE TOWARDS THE DEPUTATION OF THE LICENSOR PERSONAL IN ARTICLE 4 A ND AS SUCH PAYMENTS MADE IN PURSUANCE OF THE SAME ARE DISTINCT FROM THE ROYALTY CONSIDERATION IS SPECIFIED THEREIN IN ARTIC LE 7 AND AS SUCH IS ALLOWABLE AS DEDUCTION. THE LEARNED THAT TPO/DRP GROSSLY FAILED TO APPRECIATE THE FACT THAT THE PAYMENT OF R OYALTY AND TECHNICAL SERVICES SERVE TWO DIFFERENT PURPOSES. TH E APPROACH PROPOSED BY THE TPO IN THE YEAR UNDER APPEAL IS ABS OLUTE CONTRADICTION OF THE APPROACH ENDORSED IN TP ORDER FOR A.Y. 2008- 09 WHEREIN HE HAS ACCEPTED THE USE OF TNNM AS THE M OST APPROPRIATE METHOD AND MANNER OF APPLICATION OF TNN M FOR BENCHMARKING THE IMPUGNED INTERNATIONAL TRANSACTION OF THE APPELLANT. THE LEARNED TPO GROSSLY ERRED IN QUESTIONING THE C OMMERCIAL EXPEDIENCY OF PAYMENTS TOWARDS TECHNICAL SERVICES W HICH IS IMPERMISSIBLE AND THE TPO CANT QUESTION THE QUANTU M OF ANY PAYMENT MADE BUT THE SCOPE IS RESTRICTED ONLY TO VE RIFY WHETHER THE SERVICES HAVE ACTUALLY BEEN RENDERED. THE RENDE RING OF SERVICES HAS NOT BEEN DISPUTED BY THE TPO. THE LEAR NED COUNSEL HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS: CIT VS. EKL APPLIANCES (20 12) 345 ITR 241 (DEL) AND S A BUILDE RS (2007) 288 ITR 1 (SC) FOR HIS PROPOSITION OF CONSISTENCY. PAGE 26 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 3.3.1. THE LEARNED COUNSEL FURTHER SUBMITTED WITHOUT PREJUDICE TO ABOVE THAT IN VIEW OF TPO/DRP PAYMENT OF TECHNICAL S ERVICES COVERED BY TECHNICAL COLLABORATION AGREEMENT (TCA) WITH AES, AFTER INCLUDING PAYMENT OF TECHNICAL SERVICES, EFFECTIVE RA TE OF ROYALTY ON TOTAL SALES OF ASSESSEE IS RE-COMPUTED AROUND 3.48% W HICH IS LESS THAN THE RATES AT AGREED IN TCA WITH AES WHICH MAKES I T VERY CLEAR THAT THE PAYMENT OF TECHNICAL SERVICES IS OVER AND ABO VE THE ROYALTY PAYMENTS SPECIFIED IN THAT TCA. 3.3.2. WITHOUT PREJUDICE TO ABOVE, IT WAS SUBMITTED THAT THE TPO HAS APPLIED CUP TO DETERMINE ALP OF THE AMOUNTS PAID FOR TECHNICAL SERVICES WITHOUT BRINGING ANY COMPARABLES ON RECORD, WHICH IS ILLEGAL. 3.3.3. THE LD. A.R. FURTHER SUBMITS THAT IN THE SUCCEEDING YEA RS I.E. A.YS. 2012-13 AND 2013-14, THE TPO HAS ACCEPTED THIS FACTUAL POSITION BY NOT MAKING ANY ADJUSTMENT FOR AMOUNTS PAID F OR SERVICES COVERED UNDER ARTICLE 2, ARTICLE 3, AND ARTICLE 4 OF TH E AGREEMENT IN CASE OF MANIDEEP UNIT AND ARTICLE 4.2 IN RESPECT OF AG REEMENT IN THE CASE OF PRITHLA UNIT. THE ADDITIONS MADE IN A.Y. 2012 -13 AMOUNTING TO RS. 34,12,846/- PERTAINED TO SUMS, DETAILS OF WHICH WE RE FURNISHED BY THE ASSESSEE HIMSELF, WHICH WERE COVERED UNDER ROYAL TY AGREEMENTS AND THAT WHOSE ALP WAS TAKEN AT NIL. THEREFORE, IN THE LINE OF COURSE OF ACTION TAKEN BY THE TPO FOR A.Y. 2012-13, THE LD. A. R. FURNISHED THE DETAILS OF ADJUSTMENTS VIDE ANX-A FOR A.Y. 2010-11 AN D ANX-B FOR A.Y. 2011-12 WHICH ARE WRONGLY SUSTAINED BY THE DRP IN CO NNECTION WITH PAYMENTS FOR TECHNICAL SERVICES WRONGLY HELD TO BE ALR EADY COVERED IN ROYALTY AGREEMENT SPECIFYING THE EXACT NATURE OF THE SUM SO PAID ALONG WITH THE EXCLUSION CLAUSES RELATING TO ROYALTY AGREEMENTS TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE THAT AMOUNTS SO AD JUSTED BY THE TPO /DRP FOR A.Y. 2010-11 AND A.Y. 2011-12 WERE UNJUSTIFIED AS PAGE 27 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 THE SAME WERE ON ACCOUNT OF PAYMENTS NOT COVERED VIDE R OYALTY AGREEMENT. 3.3.4. THE DETAILS OF TECHNICAL SERVICES RECEIVED FROM AES - AMOUNTS IN DISPUTE BEFORE ITAT FOR THE A.Y. 2010-11 ARE SUBMITTED AS PER ANX-A BELOW : NO NAME OF ASSOCIATED ENTERPRISE UNIT PARTICULARS/SCO PE OF WORK TP ADJUSTMEN T AMOUNT (INR) APPELLANTS COMMENTS 1 ANDRITZ HYDRO GMBH,AUSTRIA MANDIDE EP MANUFACTUR ING SUPPORT IN SHOP FLOOR FOR THE PURPOSE OF UP GRADATION 3,581,363 AMOUNT PAID FOR NEED BASED ONSITE JOB-WORK SUPPORT. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. 2 ANDRITZ HYDRO GMBH,AUSTRIA MANDIDE EP DESIGNS 14,760 AMOUNT PAID FOR NEED BASED ONSITE JOB-WORK SUPPORT. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL PAGE 28 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. 3 ANDRITZ HYDRO GMBH,AUSTRIA MAN DIDE EP DESIGNS 35,835 AMOUNT PAID FOR NEED BASED ONSITE JOB-WORK SUPPORT. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. 4 ANDRITZ HYDRO GMBH,AUSTRIA MANDIDE EP SUPPORT FOR LOGISTIC NETWORK IN INDIA 761,755 AMOUNT PAID FOR NEED BASED ONSITE JOB-WORK SUPPORT- NOT COVERED UNDER ROYALTY AGREEMENT. SEPARATELY CHARGEABLE AS PER TCA, AS TCA DATED 1 JANUARY 2006. THE ROYALTY PAGE 29 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 CONSIDERATION (AS PER ARTICLE 6)IS PAID ONLY FOR THE MANUFACTURING AND SELLING RIGHTS (ARTICLE 5) AND DOES NOT COVER OTHER SERVICES COVERED BY ARTICLE 2 (TRAINING OF LICENSEE PERSONNEL), ARTICLE 4(TRANSMISSION OF TECHNICAL INFORMATION) (ITEM 29 OF THE PAPER BOOK) 5 ANDRITZ HYDRO GMBH,AUSTRIA MANDIDE EP ENGINEERING SUPPORT FOR SCADA PORTION OF THE PROJECT 1,477,770 PAID FOR ENGINEERING SUPPORT FOR SPECIFIC TASKS. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. 6 ANDRITZ HYDRO GMBH,AUSTRIA MANDIDE EP REIMBURSEMENT OF EXPENSES INCURRED FOR TRAINING 293,460 REIMBURSEMENT OF TRAINING COSTS ON ACTUAL BASIS. OTHER SIMILAR PAYMENT HAS BEEN ACCEPTED AT ALP(PLEASE REFER PAGE 30 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 FROM 3CEB) 7 ANDRITZ HYDRO GMBH,AUSTRIA MANDIDE EP SITE SUPPORT, SITE VISIT TRAVEL INSURANCE 75,991 AMOUNT PAID FOR NEED BASED ONSITE JOB-WORK SUPPORT. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. 8 ANDRITZ HYDRO GMBH, AUSTRIA MANDIDE EP QUALITY INSPECTION- FORGING 192,433 PAID FOR ENGINEERING SUPPORT FOR SPECIFIC TASKS. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. PAGE 31 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 9 ANDRITZ HYDRO GMBH, AUSTRIA MANDIDE EP ROTOR HUB MACHINING AND SUPPORT FROM HAW 479,672 PAID FOR ENGINEERING SUPPORT FOR SPECIFIC TASKS. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. 10 ANDRITZ HYDRO GMBH, AUSTRIA MANDIDE EP BUSINESS DEVELOPMENT SUPPORT HOURS 1,113,016 PAID FOR ENGINEERING SUPPORT FOR SPECIFIC TASKS. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. ALLOWED BY DRP IN PRINCIPLE. HOWEVER, DUE TO A PAGE 32 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 TYPOGRAPHIC ERROR IN THE DRP DIRECTION APPLICATION FILED WITH DRP. 11 ANDRITZ HYDRO GMBH, AUSTRIA MANDIDE EP SUPPORT OF MR. KRAXNER IN WEIZ 149,760 AMOUNT PAID FOR NEED BASED ONSITE JOB-WORK SUPPORT. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING. 12 ANDRITZ HYDRO GMBH, AUSTRIA MANDIDE EP COOLER, B EARING , RETAINING RINGS PROCUREMENT SUPPORT 619,008 PAID FOR ENGINEERING SUPPORT FOR SPECIFIC TASKS. COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND PAGE 33 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 SERVICING. 13 ANDRITZ HYDRO GMBH, GERMANY PRITHLA REIMBURSEMENT OF EXPENSES INCURRED FOR GENERAL TRAINING FOR THE PROJECTS HEADS-LARGE HYDRO 269,869 REIMBURSEMENT OF TRAINING COSTS ON ACTUAL BASIS. OTHER SIMILAR PAYMENT HAS BEEN ACCEPTED AT ALP(PLEASE REFER FROM 3CEB) 14 ANDRITZ HYDRO GMBH, GERMANY PRITHLA HYDRAULIC LAYOUT AND DATA SCHEDULE FOR BID DOCUMENTATION 408,904 PAID FOR SUPPORT IN RESPECT OF BID DOCUMENTATION (HYDRAULIC LAYOUT AND DATA SCHEDULE) FOR A SPECIFIC PROJECT (SINGOLI BATWARI) AND NOT FOR DESIGN AND DRAWINGS OF CONTRACT PRODUCTS. COVERED BY EXCLUSION CLAUSE IN 4.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATIONS, INSTALLATION AND SERVICING. PAGE 34 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 15 ANDRITZ HYDRO GMBH, GERMANY PRITHLA COMMISSIONING OF ENGINEER FOR INSPECTION OF NOZZLE SPRING (HOURS + EXPENSES) 145,246 COVE RED BY EXCLUSION CLAUSE IN 4.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATIONS, INSTALLATION AND SERVICING. FURTHER, IT ALSO INCLUDES REIMBURSEMENT OF LOCAL COSTS SUCH AS HOTEL EXPENSES, DAILY ALLOWANCE, CAR, PETROL, ETC. FOR THE EXPATRIATES WORKING ON ERECTION COMMISSIONING SITE FOR TEESTA 16 ANDRITZ HYDRO GMBH, GERMANY PRITHLA HYDRAULIC LAYOUT AND DATA SCHEDULE FOR BID DOCUMENTATION 269,249 PAID FOR SUPPORT IN RESPECT OF BID DOCUMENTATION (HYDRAULIC LAYOUT AND DATA SCHEDULE) FOR A SPECIFIC PROJECT (SINGOLI BATWARI). COVERED BY EXCLUSION UNDER ARTICLE 4.2 OF TCA PAGE 35 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 DATED 26 APRIL 2006. THEREFORE, SEPARATELY CHARGEABLE. 17 ANDR ITZ HYDRO GMBH, GERMANY PRITHLA ENGINEERING SERVICES 1,835,876 PAID FOR DETAILED ENGINEERING SERVICES FOR A SPECIFIC PROJECT (RANGIT). TOTAL 11,723,96 7 3.3.3. SIMILARLY DETAIL OF TECHNICAL SERVICES RENDERED ARE AS UNDER FOR A.Y. 2011-12: NO NAME OF ASSOCIATED ENTERPRISE UNIT PARTICULARS/SCOPE OF WORK TP ADJUSTMENT AMOUNT (INR) APPELLANTS COMMENTS 1 ANDRITZ HYDRO GMBH, AUSTRIA PRITHLA BASIC DESIGN & ENGINEERING FOR BUTTERFLY VALVE 1,077,972 COVERED BY EXCLUSION CLAUSE IN 4.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING PAGE 36 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATIONS, INSTALLATION AND SERVICING. 2 ANDRITZ HYDRO GMBH, AUSTRIA MANDIDEEP GH-DE DESIGN SUPPORT FOR TURBO Q 3&4 830,114 COVERED BY EXCLUSION CLAUSE IN 3.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATIONS, INSTALLATION AND SERVICING. PAGE 37 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 3 ANDRITZ HYDRO GMBH, GERMANY PIRTHLA BASIC DESIGN FOR VARIOUS 1,510,002 COVERED BY EXCLUSION CLAUSE IN 4.2 OF THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL, TESTING, APPLICATIONS, INSTALLATION AND SERVICING. TOTAL 3,418,088 3.4. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO A TECHNICAL COLLABORATION A GREEMENT (TCA) WITH ITS AES UNDER WHICH THE ASSESSEE IS PAYING ROYA LTY TO THE SAID AE. THE ASSESSEE ALSO PROCURES PROJECT SPECIFIC TECHN ICAL SERVICES FROM THE SAID AE AS AND WHEN REQUIRED. THE LICENSOR HAS PROVIDED PAGE 38 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 KNOW-HOW, AVAILABLE TECHNICAL INFORMATION AND ASSISTA NCE FOR MARKETING, LAYOUT, BASIC DESIGN, MANUFACTURE, INSTALL ATION AND SERVICING OF CONTRACT PRODUCTS TO THE ASSESSEE. THE TE RM TECHNICAL INFORMATION MEANS ENGINEERING AND MANUFACTURING INF ORMATION AVAILABLE WITH THE LICENSOR WHICH INTER-ALIA INCLUDES PROCESSES AND PRODUCTS RELATING TO MANUFACTURE, TESTING, APPLICATION, INSTALLATION, COMMISSIONING AND SERVICING OF CONTRACT PRODUCTS. IT IS CLEAR THAT AS PER THE ROYALTY AGREEMENT, THE ASSOCIATES ENTERPRISE IS REQUIRED TO PROVIDE ALL THE INFORMATION, WHICH RELATES TO MARKETING AS WELL AS INSTALLATION AND SERVICING OF THE CONTRACT PRODUCTS TO THE ASSESSEE, WHICH ARE ALREADY COVERED UNDER TCA AND THUS, IT IS DUPLICATE IN NATURE. THE INTERNATIONAL TRANSACTION REPRESENTING PAYMEN T OF TECHNICAL SERVICES ARE CLASS OF TRANSACTIONS IN ITSELF AND IT CANNOT BE CLUBBED WITH THE OTHER TRANSACTION OF THE ASSESSEE FOR B ENCHMARKING. THE LD. D.R. ALSO SUBMITTED THAT IT IS NOT THE CLAIM OF TH E ASSESSEE THAT THE EXPENDITURE IN RELATION TO THE PAYMENT OF TECHNI CAL SERVICES IS INCLUDED IN COST OF GOODS SOLD CALCULATED FOR THE P URPOSE OF DETERMINING GROSS MARGINS FOR USING COST PLUS METHOD IN THE DETERMINATION OF ARM`S LENGTH PRICE FOR THE INTERNATIONA L TRANSACTIONS REPRESENTING RECEIPT OF CONTRACT REVENUE. THEREFORE, TH E PAYMENT OF TECHNICAL SERVICES CANNOT BE CONSIDERED ALP BASED ON TNNM ANALYSIS UNDERTAKEN BY THE ASSESSEE. 3.5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIE S AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE ASSESSEE HAS CONSIDERED AGGREGATION OF TRANSACTION INTO ITS TPSR. WHEN THAT INTERNATIONAL TRANSACTION PERTAINING TO IMPORT O F RAW MATERIAL, CONTRACT REVENUE FROM FOR ASSOCIATES WERE CL OSELY LINKED WITH MAIN BUSINESS AND THUS, APPLIED TNMM METHOD WHERE OP/ OR WAS COMPUTED AT 10-10% FOR THE ASSESSEE AS AGAINST 6.66% OF THE PAGE 39 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 COMPARABLES. IT WAS ARGUED THAT THE TPO HAS NOT PROVIDED COGENT REASONS FOR REJECTING ECONOMIC ANALYSIS UNDERTAKEN BY THE ASSESSEE. WE FIND THAT THE TPO HAS APPLIED CUP METHOD, WITHOUT BRI NGING ANY COMPARABLE ON RECORD. WE, FURTHER FIND THAT THE TPO H AS QUESTIONED THE BUSINESS DECISION OF ENTERING INTO TECHNICAL SERVI CES AGREEMENT, WHICH IS BEYOND HIS JURISDICTION AND NOT PERMISSIBLE IN LAW. IT IS NOT FOR THE TPO TO ADVISE AS TO HOW THE BUSINESS HAS TO B E RUN BY THE ASSESSEE AND WHAT TYPE OF CONTRACT AGREEMENT HAS TO BE ENTERED IN TO BY THE ASSESSEE. IT IS THE DECISION OF COMMERCIAL EX PEDIENCY, WHICH IS NOT PERMISSIBLE TO BE DISTURBED BY THE TPO. WE ALSO F IND THAT RENDERING OF SERVICE HAS NOT BEEN DISPUTED. THE DRP H AS CONFIRMED THE EXPENDITURE OF RS. 1,17,23,967/- INCURRED ON ACCO UNT OF TECHNICAL SERVICES AS COVERED UNDER THE ROYALTY AGREEMENT. HOW EVER, THE PERUSAL OF TECHNICAL COLLABORATION AGREEMENT (IN SHORT TCA) DT D. 01.01.2006 IN RESPECT OF MANIDEEP UNIT SHOWS THAT THE ROYALTY IS BEING PAID ONLY FOR MANUFACTURING AND SELLING OF RIGHT AS PRESCRIBED UNDER ARTICLE 5 OF TCA OF WHICH CONSIDERATION IS TO BE PAID AS PROVIDED UNDER ARTICLE 6 OF TCA: IN ORDER TO APPRECIATE IT IN PROPER PERSPECTIVE, THE RELEVANT ARTICLE 2,3,4 AND 5 OF TCA IS REPRODUCED AS UNDER: ARTICLE TWO- TRAINING OF THE LICENSEES PERSONNEL 2 .1. DURING THE TERM OF THIS AGREEMENT THE LICENSOR SHALL RECEIVE THE LICENSEES PERSONAL FOR TRAINING IN IT IS THE L ICENSORS COUNTRY OR ELSEWHERE. SUCH PERSONNEL WILL BE TRAINE D BY THE LICENSOR IN THE FUNCTIONS RELATING TO THE MARKETING , DESIGN, MANUFACTURE, TESTING, INSTALLATION, COMMISSIONING A ND SERVICING OF CONTRACT PRODUCTS AND MATERIALS USED THEREIN. THE T RAINING SHALL BE FOR SUCH PERIODS AND FOR SUCH NUMBERS AS M AY FROM TIME TO TIME BE AGREED UPON BY THE PARTIES IN RESPECT OF TH E CONTRACT PRODUCTS. THE LICENSOR SHALL ENDEAVOR TO ENSURE THA T THE TRAINING OF THE LICENSEES PERSONNEL IN THE ABOVE F IELDS WILL BE ADEQUATE TO IMPART COMPLETE COMPETENCY IN THE RESPE CTIVE FIELDS. THELICENSEE SHALL OBTAIN THE PRIOR APPROVAL OF THE CONCERNED PAGE 40 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 INDIAN GOVERNMENT AUTHORITIES WHEREVER APPLICABLE, FOR THE DEPUTATION OF THEIR PERSONNEL TO THE LICENSOR. 2.2. THE LICENSEE SHALL BE RESPONSIBLE FOR AND SHAL L PAY ALL SUCH SALARIES, LIVING ALLOWANCES, TRAVELLING EXPENS ES AND OTHER REMUNERATION AND EXPENSES TO WHICH ITS PERSONNEL DE PUTED TO THE LICNSOR MAY BE ENTITLED. THE LICENSOR WILL NOT CHAR GE TRAINING COSTS IF LICENSORS PERSONNEL IMPART TRAINING. 2.3. THE LICNSEE SHALL BE RESPONSIBLE FOR AND SHALL HAVE SUFFICIENT KNOWLEDGE IN THEIR RESPECTIVE LINES AND ACTIVELY PARTICIPATE IN THEIR RESPECTIVE FUNCTIONS. THEY SHALL ALSO HAVE SUFFICIENT WORKING KNOWLEDGE OF THE ENGLISH LANGUAGE THE LICENSEE SHAL L ENDEAVOR THAT THE PERSONNEL TRAINED BY THE LICENSOR WILL THE REAFTER WORK AT THE LICENSEE, S WORKS WHERE CONTRACT PRODUCTS ARE ENGINEERED AND/OR MANUFACTURED FOR AT LEAST THREE Y EARS FROM THE DATE OF COMPLETION OF THE TRAINING. 2.4. A MAN-MONTH AS USED IN THIS ARTICLE 2 IS BASE D UPON THE REGULAR WORKING TIME OF FIVE DAYS PER WEEK WITH SEV EN HOURS EACH, WITH NO WORKING ON HOLIDAYS. ARTICLE 3-DEPUTATION OF THE LICENSORS PERSONNEL 3.1 SUBJECT TO THE LICENSEE OBTAINING THE APPROVAL OF THE CONCERNED INDIAN GOVERNMENT AUTHORITIES IF ANY AND UPON MUTUAL AGREEMENT OF THE PARTIES, THE LICENSOR SHALL MAKE A VAILABLE TO THE LICENSEE FOR PERIODS TO BE AGREED UPON BY THE P ARTIES SUITABLE SPECIALISTS WHO ARE REQUIRED BY THE LICENSEE IN IND IA IN ORDER TO TRAIN ITS PERSONNEL AT THE LICENSEES FACTORY AND T O PROVIDE GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN EST ABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CO NTROL, TESTING, APPLICATIONS, INSTALLATION, COMMISSIONING AND SERVI CING AT THELICENSEE FACTORY OF CONTRACT PRODUCTS OR SITES W HERE SUCH PRODUCTS ASSEMBLED, INSTEAD AND /OR TESTED. 3.2 THE LICENSORS TECHNICAL PERSONNEL SHALL BE MAD E AVAILABLE TO THE LICENSEE ON THE VA TECH HYDRO RATES ACCORDING T O THE TRANSFER PRICE REGULATION AND THE PERIODS TO BE MUT UALLY AGREED UPON. ARTICLE 4-TRASMISSION OF TECHNICAL INFORMATION 4.1 THE DOCUMENTATION TO BE SUPPLIED TO THE LICENSE E BY THE LICENSOR HEREUNDER SHALL BE IN THE METRIC SYSTEM AN D IN ENGLISH LANGUAGE. PAGE 41 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 4.2 THE DOCUMENTATION SHALL BE GIVEN IN THE FORM OF SUITABLE REPRODUCIBLE AVAILABLE WITH THE LICENSOR SUCH AS TR ACINGS, TRANSPARENCIES, MICROFILMS, ELECTRONIC FILES, ETC. AS MAY BE DESIRED BY THE LICENSEE. 4.3 THE LICENSOR SHALL DELIVER THE DOCUMENTATION TO THE LICENSEE IN THE LICENSORS COUNTRY BY EITHER DELIVERING TO THE AIR CARRIERS DE SIGNATED BY THE LICENSEE FOR DISPATCH TO THE LICENSEE, OR AT THE RE QUEST OF THE LICENSEE IT SHALL BE MADE AVAILABLE BY THE LICENSOR TO PERSONNEL OF THE LICENSEE DELEGATED TO THE LICENSOR OR TO A R EPRESENTATIVE OF THE LICENSEE IN LINCESORS COUNTRY. THE CUSTOMS DUTIES AND OTHER LEVIES, TAXES OR CHARGES PAYABLE IN INDIA SHA LL BE ON THE ACCOUNT OF THE LICENSEE. ARTICLE 5- MANUFACTURING AND SELLING RIGHTS 5.1. THE LICENSOR FOR THE PERIOD TO THIS AGREEMENT GRANTS TO THE LICENSEE, UNDER KITS TECHNICAL INFORMATION AND IMPR OVEMENTS FURNISHED BY THE LICENSOR TO THE LICENSEE PRESENT P URSUANT TO THIS AGREEMENT AS WELL AS UNDER THE RELEVANT PAT ENTS 5.2. THE LICENSEE IS FREE TO OFFER FOR EXPORT CONTR ACT PRODUCTS MANUFACTURED BY IT TO OTHER COUNTRIES AS M AY BE MUTUALLY AGREED UPON BETWEEN THE LICENSOR AND THE LICENSEE. 5.3. THE LICENSEE SHALL MAKE ADEQUATE ARRANGEMENTS FOR THE MARKETING OF CONTRACT PRODUCTS. 5.4. THE LICENSEE SHALL HAVE THE RIGHT TO SUBLICENS E THE RIGHTS GRANTED HEREUNDER TO ANOTHER PARTY IN INDIA ONLY WI TH THE PRIOR WRITTEN APPROVAL OF THE LICENSOR AND THE GOVERNMENT AUTHORITIES, ON TERMS AND CONDITIONS TO BE MUTUALLY AGREED UPON BY THE PARTIES HERETO. ARTICLE 6-CONSIDERATION 6.1 IN CONSIDERATION OF THE RIGHTS GRANTED TO THE L ICENSEE AS SET FORTH IN ARTICLE 5 OF THIS AGREEMENT, THE LICENSEE SHALL, SUBJECT TO THE COMPLIANCE OF STATUTORY REGULATIONS, PAY TO THE LICENSOR FOLLOWING ROYALTIES. PAGE 42 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 A) CONTRACT PRODUCTS MANUFACTURED 5% AND/OR SOLD BY THE LICENSEE FOR THE DOMESTIC MARKET. B) CONTRACT PRODUCTS MANUFACTURED 8% AND/OR SOLD BY THE LICENSEE FOR THE EXPORT MARKET. THE ABOVE PERCENTAGES OF ROYALTIES ARE APPLICATION ON NET SALES OF CONTRACT PRODUCTS MANUFACTURED AND/OR SOLD BY TH E LICENSEE DURING THE VALIDITY OF THIS AGREEMENT, THE TERM NET SALES SHALL MEAN THE NET EX-FACTORY SALE PRICE OF THE CONTRACT PRODUCT EXCLUSIVE OF COST OF IMPORTED COMPONENTS IR RESPECTIVE OF THE SOURCE OF PROCUREMENT (INCLUDING OCEAN FREIGHT, INSURANCE CUSTOM DUTY ETC.). ROYALTIES ARE NOT APPLICABLE ON CONTRACT PRODUCTS SOLD TO THE LICENSOR. 6.2 ALL PAYMENTS DUE BASED ON THIS AGREEMENT WILL B E CONSIDERED AS EFFECTED ONLY WHEN THEY ARE AT FREE DISPOSAL OF THE LICENSOR. THE LICENSEE WILL PAY ANY DUTY, TAXES AND SIMILAR C HARGES PAYABLE IN INDIA AND RELATED TO THESE PAYMENTS. 6.3 WITHIN THREE MONTHS FROM MARCH 31 TH AND SEPTEMBER 30TH OF EACH YEAR THE LICENSEE SHALL RENDER TO THE LICENSOR A REPORT SHOWING THE TOTAL EX-FACTORY SELLING PRICES OF EACH OF THE CONTRACT PRODUCTS INVOICED BY THE LICENSEE DURING T HE PRECEDING HALF YEAR, THE AMOUNT INVOICED FOR FOREIG N SUPPLIED COMPONENTS IN ACCORDANCE WITH ARTICLE 6.1 AS WELL A S THE CORRESPONDING ROYALTIES DUE. 6.4 THE ROYALTIES WHICH ARE DUE SHALL BE PAYABLE IN EURO AT THE MARKET RATE OF EXCHANGE EXISTING AT THE TIME OF RE MITTANCE. THE AMOUNT SHALL BE REMITTED TO THE LICENSOR AT THEIR B ANK ACCOUNT IN AUSTRIA WITHIN FOUR MONTHS (SUBJECT TO THE CURRE NT REGULATORY FRAMEWORK) AFTER THE END OF THE RESPECTIVE HALF YEA R THE LICENSEE SHALL SEND A COPY OF THE RESPECTIVE DOCUME NTS (APPLICATION FOR TRANSFER OF ROYALTIES) TO THE LICE NSOR WITHIN ONE MONTH ALONG WITH THE REPORT OF THE ROYALTIES DUE. 6.5 THE LICENSEE SHALL KEEP PROPER BOOKS AND RECORD S GIVING FULL INFORMATION REGARDING THE TURNOVER SUBJECT TO ROYAL TIES PAYABLE TO THE LICENSOR. THE LICENSOR SHALL BE ENTITLED AT ITS COST TO HAVE THESE RECORDS AND RELEVANT DOCUMENTS EXAMINED. FOR THE PURPOSE OF EXAMINATION, THE LICENSEE IS OBLIGED TO GRANT INSPECTION OF ITS BOOKS AND RECORDS AND ACCESS TO I TS OFFICES. PAGE 43 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 3.5.1. THUS, THE ROYALTY PAYMENTS AS MENTIONED IN CLAUSE 6.1 AS PER THE TERMS SET OUT IN CLAUSE 6.2 TO 6.5 OF ARTICLE 6 OF TCA IN RESPECT OF MANUFACTURING AND SELLING RIGHTS AS MENTIONED UNDE R ARTICLE 5 OF TCA DTD. 01.01.2006 WOULD BE PAYABLE BY THE ASSESSEE TO ITS PARENT COMPANY ANDRITZ AUSTRIA. HOWEVER, IN ADDITION TO THIS, THE ASSESSEE HAS ALSO AVAILED SERVICES RENDERED ON ACCOUNT OF TRA INING OF THE LICENSEE`S PERSONNEL AS PRESCRIBED UNDER ARTICLE 2 O F TCA, DEPUTATION OF THE LICENSOR`S PERSONNEL AS PRESCRIBED UNDER ARTIC LE 3 OF TCA AND TRANSMISSION OF TECHNICAL INFORMATION AS PRESCRIBED UNDER ART 4 OF TCA. WE HAVE GONE THROUGH THE ARTICLES 2 TO 4 OF TC A AND FIND THAT THE PAYMENTS MADE ON ACCOUNT OF SERVICES MENTIONED IN TH ESE ARTICLES ARE NOT COVERED BY THE SERVICES IN THE NATURE OF ROYAL TY AS MENTIONED IN THE ARTICLE 5 AND PAYMENTS MENTIONED UNDER ARTICLE 6 OF TCA. IN THIS VIEW OF THE MATTER, THE NATURE OF SERVICES RENDERED UNDER ARTICLE 2,3 AND 4 OF TCA CANNOT BE DEEMED TO BE COVERED BY RO YALTY PAYABLE AS ENVISAGED UNDER ARTICLE 5 READ WITH ARTICLE 6 OF TC A. WE FIND THAT CLAUSE 2.1 OF ARTICLE 2 PROVIDES THAT LICENSOR SHALL R ECEIVE THE LICENSEE `S PERSONNEL FOR TRAINING IN ITS PLANTS IN THE LICENSO R COUNTRY OR ELSEWHERE AND AS PER CLAUSE 2.2 OF ARTICLE 2 THE LICE NSEE SHALL BE RESPONSIBLE TO PAY ALL SUCH SALARIES AND LIVING ALLO WANCES, TRAVELLING ALLOWANCES AND OTHER REMUNERATION AND EXPENSES TO PERS ONNEL DEPUTED FOR TRAINING. THIS TYPE OF SERVICES UNDER THE HEAD OF TRAINING AS GIVEN IN SCOPE OF WORK AS LISTED IN ARTICLE 2 ARE NOT COVERED BY ARTICLE 5 OF TCA . SIMILARLY PAYMENTS RELATED TO DEPUTA TION OF PERSONNEL AT THE ASSESSEE`S FACTORY AT MANDIDEEP UNIT TO TRAIN THE LICENSEE`S PERSONNEL FOR THE SERVICES OF NATURE MENTI ONED IN CLAUSE 3.1 OF ARTICLE 3 OF TCA ARE ALSO NOT COVERED BY THE SERVIC ES MENTIONED UNDER ARTICLE 5 OF TCA. SUCH NATURE OF PAYMENT HAS B EEN REFLECTED IN ANX-A OF THE TABLE MENTIONED IN PARA 7.3.15 OF DRP`S ORDER IN THE CASE OF THE ASSESSEE. THE PERUSAL OF ARTICLE 4 OF TCA SHOWS THAT PAGE 44 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 PAYMENTS RELATING TO DELIVERY OF DOCUMENTATION BY AIR C ARRIER, CUSTOM DUTIES AND OTHER LEVIES UNDER THE HEAD OF TRANSMISSIO N OF TECHNICAL INFORMATION ARE NOT COVERED BY ROYALTY CLAUSE FALLING UNDER ARTICLE 5 OF TCA. WE FIND THAT THE CONSIDERATION MENTIONED IN ARTICLE 6 TALKS ABOUT SERVICES OF ROYALTY IN NATURE AND NOT THE SERVICE S RENDERED UNDER ARTICLES 2, 3 AND 4 OF TCA. THE ASSESSEE HAS C LAIMED THAT THE PAYMENT DISALLOWED BY THE AO/TPO PERTAINED TO SERVICE RENDERED UNDER ARTICLE 2 ,3 AND 4 OF TCA , HENCE, THE SAME ARE EXCLUSIVE OF SERVICES OF ROYALTY NATURE AS MENTIONED UNDER ARTICLE 5 OF TCA . THEREFORE, THE AO/TPO WAS NOT JUSTIFIED OF HAVING CONS IDERED THE SAME AS FALLING UNDER ARTICLE 5 OF TCA. 3.5.2. WE ARE OF THE CONSIDERED OPINION THAT THAT THE PAYMEN T FOR TECHNICAL SERVICES OF ARTICLES 2, 3 AND 4 OF TCA ARE OVER AND ABOVE THE CONSIDERATION PAID TOWARDS MANUFACTURING AND SELLING AND IS THEREFORE, ALLOWABLE DEDUCTION. SIMILARLY, THE AMOUNTS PAID FOR TECHNICAL SERVICES FOR PRITHLA UNIT ARE ALSO COVERED UNDER THE SPECIFIC EXCLUSION CLAUSE 4.2 OF THE ROYALTY AGREEMENT AND AS SUCH IS ALLOWABLE DEDUCTION AS NOT FALLING UNDER THE ROYALTY C ATEGORY. WE HAVE PERUSED THE TCA DTD. 26.04.2006 ENTERED IN TO IN RESPEC T OF PRITHLA UNIT AND FIND THAT CONSIDERATION MENTIONED UNDER ARTICLE 7 IS READ AS UNDER :- 7.1. IN CONSIDERATION OF THE TECHNICAL KNOW-HOW AN D DOCUMENTATION PREPARED AND TRANSMITTED IN THE LICEN SOR `S COUNTRY AS PER ARTICLE 5 AND THE TECHNICAL ASSISTAN CE RENDERED IN THE LICENSOR `S COUNTRY AS PER ARTICLE 2, AND TRAIN ING OF THE LICENSEE `S PERSONNEL AS PER ARTICLE 3, THE LICENSE E SHALL PAY THE LICENSOR ROYALTY AS PROVIDED BELOW. 3.5.3. THUS, WE FIND THAT THE PAYMENTS MENTIONED FOR THE SERVIC E RENDERED UNDER ARTICLE 2, 3 AND 5 ARE FALLING UNDER THE ROYALTY AS PER ARTICLE 7, WHICH CLEARLY MENTIONED THAT THESE SERVICES A RE IN THE NATURE PAGE 45 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 OF ROYALTY. HOWEVER, THE SERVICE RENDERED UNDER ARTIC LE 4 OF TCA DTD. 26.04.2006 ARE NOT COVERED BY THIS ROYALTY CLAUSE WHICH IS REPRODUCED AS UNDER: ARTICLE FOUR DEPUTATION OF THE LICENSOR `S PERSONNEL 4.1 THE LICENSOR SHALL MAKE AVAILABLE TO THE LICE NSEE FOR PERIODS TO BE AGREED UPON BY THE PARTIES SUITABLE S PECIALISTS WHO ARE REQUIRED BY THE LICENSEE IN INDIA IN ORDER TO T RAIN ITS PERSONNEL AT THE LICENSEE`S FACTORY AND TO PROVIDE GENERAL TECHNICAL ASSISTANCE BY ACTIVE PARTICIPATION IN EST ABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CO NTROL, TESTING, APPLICATIONS, INSTALLATION AND SERVICING AT THE LIC ENSEE`S FACTORY, OF CONTRACT PRODUCTS. 4.2. THE LICENSOR`S TECHNICAL PERSONNEL SHALL BE MA DE AVAILABLE TO THE LCNSE ON THE VA TECH HYDRO INTER- COMPANY RATES AND FOR THE PERIODS TO BE MUTUALLY AGREED UPO N. 3.5.4. THUS, PERUSAL OF ARTICLE 4 OF TCA WITH PRITHLA UNIT A S ABOVE SHOWS THAT THE NATURE OF SERVICES RENDERED THROUGH THE ABOVE ARTICLE 4 IS NOT COVERED BY ROYALTY CLAUSE OF ARTICLE S 2, 3, 5 AND 6 AND CONSIDERATION PRESCRIBED UNDER ARTICLE 7 OF TCA. IT IS THE CLAIM OF THE ASSESSEE THAT THE PERSONNEL TREATED BY THE AO/TPO WERE M ADE FOR THE SERVICE RENDERED UNDER ARTICLE 4 FOR DEPUTATION OF PER SONNEL, WHICH IS NOT COVERED BY ROYALTY CLAUSES CONSIDERATION AS MENTI ONED UNDER ARTICLE 7 OF THE TCA. THEREFORE, THE CONSIDERATION MENTI ONED IN THE AGREEMENT FOR PRITHLA UNIT DOES NOT COVER PAYMENTS MAD E TOWARDS THE DEPUTATION OF THE LICENSOR PERSONAL IN ARTICLE 4 AND A S SUCH PAYMENTS MADE IN PURSUANCE OF THE SAME ARE DISTINCT FROM THE ROY ALTY CONSIDERATION AS SPECIFIED IN THE ARTICLE 7 AND AS SU CH IS ALLOWABLE AS DEDUCTION. WE FIND THAT THE LEARNED THAT TPO/DRP HAS FAI LED TO APPRECIATE THE FACT THAT THE PAYMENT OF ROYALTY AND TECHN ICAL SERVICES SERVE TWO DIFFERENT PURPOSES. WE ALSO FIND THAT THE T PO HAS ACCEPTED THE USE OF TNNM METHOD IN A.Y. 2008-09 AS MOST APPROPR IATE METHOD PAGE 46 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 FOR THE PURPOSE OF BENCHMARKING THE IMPUGNED INTERNATI ONAL, WHEREAS THE APPROACH PROPOSED BY THE TPO FOR THE YEAR UNDER APPEAL IS ABSOLUTE CONTRADICTION OF THE APPROACH ADOPTED EARLIER IN TP ORDER FOR A.Y. 2008-09. 3.5.5. WE FURTHER FIND THAT IN THE SUCCEEDING YEARS I.E. A.Y. 2012- 13 AND A.Y. 2013-14, THE TPO HAS ACCEPTED THIS FACTUAL POSITION BY NOT MAKING ANY ADJUSTMENT FOR AMOUNTS PAID FOR SERVICE S COVERED UNDER ARTICLE 2, ARTICLE 3, AND ARTICLE 4 OF THE AGREEM ENT IN CASE OF MANIDEEP UNIT AND ARTICLE 4.2 IN RESPECT OF AGREEMENT IN THE CASE OF PRITHLA UNIT. THE ADDITIONS MADE IN A.Y. 2012-13 AMOUN TING TO RS. 34,12,846/- PERTAINED TO SUMS, DETAILS OF WHICH WERE F URNISHED BY THE ASSESSEE HIMSELF, WHICH WERE COVERED UNDER ROYALTY AGREEMENTS AND THAT WHOSE ALP WAS TAKEN AT NIL. THE LEARNED COUNSEL F OR THE ASSESSEE, HAS FURNISHED THE DETAILS OF ADJUSTMENTS VID E ANX-A FOR A.Y. 10-11 AND ANX-B FOR A.Y. 11-12, WHICH ARE WRONGLY S USTAINED BY THE DRP IN CONNECTION WITH PAYMENTS FOR TECHNICAL SERVICES WRONGLY HELD TO BE ALREADY COVERED IN ROYALTY AGREEMENT SPECIFYING THE EXACT NATURE OF THE SUM SO PAID ALONG WITH THE EXCLUSION CLAUSES R ELATING TO ROYALTY AGREEMENTS TO SUBSTANTIATE THE CLAIM OF THE ASSESSEE THAT A MOUNTS SO ADJUSTED BY THE TPO /DRP FOR A.Y. 2010-11 AND A.Y. 2 011-12. SINCE THE TPO HAS ACCEPTED THE FACT THAT ABOVE NATURE OF SERVI CES DOES NOT FALL UNDER THE CLAUSE OF ROYALTY AS PER TCA, WE ARE OF THAT VIEW THAT NO ADJUSTMENT IS CALLED FOR IN THE CASE OF THE ASSESSEE. T HEREFORE, THE TPO WAS NOT JUSTIFIED IN MAKING ADJUSTMENT AS THE SAME WERE ON ACCOUNT OF PAYMENTS NOT COVERED UNDER THE ROYALTY AGREEMENT. 3.5.6. IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE OF THE CONSIDERED VIEW THAT THE PAYMENTS MADE IN RESPECT OF MAN DIDEEP AND PRITHLA UNITS AS SUSTAINED BY THE DRP BY HOLDING AS COV ERED BY ROYALTY AGREEMENT ARE NOT SUSTAINABLE IN LAW AS THE SAME ARE N OT COVERED PAGE 47 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 UNDER THE ROYALTY CLAUSE OF RESPECTIVE TCA DTD. 01.01. 2006 IN RESPECT OF MANDIDEEP UNITS AND DTD. 26.04.2006 IN RESPECT OF PRITHLA UNIT FOR AFORESAID UNITS. ACCORDINGLY THE TP ADJUSTMENTS OF R S. 1,17,23,967/- FOR A.Y. 2010-11 AND RS. 34,18,088/- FOR A.Y. 2011- 12 ARE DIRECTED TO BE DELETED. THUS, GROUND NO. 3 OF A.Y. 2010-11 AND GROUND NO. 4 OF A.Y. 2011-12 ARE ALLOWED. 4. GROUND NO. 4 STATES THAT THE DRP ALSO ERRED IN ISSU ING DIRECTIONS WITH CERTAIN TYPOGRAPHICAL ERRORS, WHICH DENIED THE RELIEF TO THE APPELLANT OF INR 11,13,016 IN RELATION TO INTERNATIONAL TRANSACTION OF PAYMENT OF TECHNICAL SER VICES. 4.1. BRIEF FACTS ARE THAT THE TPO HAS PROPOSED THE ADJUSTMENT O F RS. 4,42,01,062/- TOWARDS PAYMENTS FOR TECHNICAL SERVICES TO AES. THE ASSESSEE FILED OBJECTION BEFORE THE DRP , WHO ALLOWED RELIEF OF RS. 3,24,77,095/- AND CONFIRMED THE BALANCE AMOUNT OF RS . 1,17,23,967/- AGAINST WHICH THE ASSESSEE HAS PREFERR ED THIS APPEAL BEFORE US ON GROUND NO. 3 ABOVE. HOWEVER, WITHOUT PRE JUDICE TO ABOVE, THE LEARNED COUNSEL SUBMITTED THAT AN AMOUNT OF RS . 11,13,016/- RELATING TO MANDIDEEP UNIT WAS HELD TO BE NOT COVERED BY ROYALTY AGREEMENT AND AS SUCH NO ADDITION WAS WARRAN TED ON THE SAME. THE SAID RELIEF DUE TO SOME TYPOGRAPHICAL ERRO R REMAINED TO BE GIVEN TO THE APPELLANT AGAINST WHICH THE APPELLANT HAS P REFERRED A RECTIFICATION APPLICATION AND THE SAME IS PENDING. THE LEARNED COUNSEL THEREFORE, PRAYED THAT THE SAME MAY BE GRANTED IN THE I NTEREST OF NATURAL JUSTICE. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIE S AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THIS AMOUNT IS COVERED BY GROUND NO. 3 ABOVE. WE ALSO FIN D THAT THIS PAGE 48 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 AMOUNT IS APPEARING AT SERIAL NO. 11 OF THE DETAILS OF PAYMENT WHICH RELATES TO PAYMENT MADE FOR SUPPORT IN RESPECT OF BUSIN ESS DEVELOPMENT AND NOT FOR DESIGN AND DRAWING OF CONTRAC T PRODUCTS HENCE, SAME IS COVERED BY EXCLUSION CLAUSE IN 3.2 O F THE AGREEMENT RELATING TO GENERAL TECHNICAL ASSISTANCE BY ACTIVE PAR TICIPATION IN ESTABLISHING MARKETING, DESIGN, PRODUCTION, ASSEMBLY, QUALITY CONTROL TESTING APPLICATION, INSTALLATION, COMMISSIONING AND S ERVICING. THEREFORE, THIS AMOUNT IS NOT COVERED BY RO AGREEMENT; HENCE, IT IS REQUIRED TO BE DELETED. HENCE, THIS GROUNDS OF APPEAL IS ALLOWED. 5. GROUND NO. 4 FOR A.Y. 2011-12 RELATES TO NOT ALLOWI NG SET- OFF OF SURPLUS REVENUE / PROFIT EXCEEDING THE ARM`S LEN GTH PRICE EARNED FROM OTHER TRANSACTION WHILE COMPUTING THE TR ANSACTION- BY-TRANSACTION ANALYSIS APPROACH. 5.1. WE HAVE HEARD THE PARTIES. WE ARE OF THE VIEW THAT THE D ECISIONS RENDERED IN ABOVE GROUND WOULD TAKE CARE OF THIS GROU ND. HOWEVER, EVEN IF THERE IS ANY SURPLUS OF REVENUE /PROFITS REMA INS AFTER GIVING APPEAL EFFECT TO THIS ORDER, THE AO MAY CONSIDER FOR AL LOWING SET-OFF IF ADMISSIBLE UNDER THE LAW. THESE GROUNDS ARE DISPOSE D-OF ACCORDINGLY. 6. GROUND NO. 5 FOR BOTH ASSESSMENT YEAR RELATES TO DISALLOWANCE OF PAYMENTS OF RS. 1,06,99,464/- FOR AY1 0-11 AND RS. 3,21,61,710/- FOR A.Y. 11-12 MADE BY THE ASSESS EE TO ITS OVERSEAS PARENT COMPANY FOR THE PURCHASE OF TECHNICAL DRAWINGS AND DESIGNS THAT SAME IN THE NATURE OF ROYALTY ON WH ICH TAX WAS REQUIRED TO BE DEDUCTED AT SOURCE. 6.1. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY HAS DEBITED RS.1,06,99,464 IN THE PROFIT & LOSS ACCOUNT IN THE A.Y . 2010-11 ON ACCOUNT OF TECHNICAL DRAWING EXPENSES UNDER THE HEAD COST OF RAW MATERIALS AND COMPONENTS. THE AO TREATED THE SAME AS EXPENDITURE IN THE NATURE OF ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF DTAA WITH PAGE 49 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 AUSTRIA. AS NO TDS WAS DEDUCTED THEREON BY INVOKING PR OVISIONS OF SECTION 40(A)(IA), THE AO DISALLOWED THE PAYMENT SO MA DE. SINCE TDS WAS NOT MADE IN RESPECT OF THIS EXPENDITURE UNDER SECT ION 195 OF THE ACT, HE DISALLOWED THE EXPENSES CLAIM UNDER SECTION 40 (A) (IA) OF THE ACT. 6.1.1. THE LD.AO FOLLOWED THE OBSERVATION MADE IN THE ORDER UNDER SECTION 195 READ WITH SECTION 9(1)(VI) DTD. 22.03 .2005 PASSED BY THE ACIT, TDS BHOPAL. THE ARGUMENTS ADVANCED WERE THA T THE ROYALTY HAS BEEN GIVEN A WIDE MEANING IN BOTH IT ACT AND THE DTAA. THE DESIGN AND DRAWING IS NOT KEPT AS GOODS BY NON-RESID ENT AUSTRIAN PARENT COMPANY NOR IS THE ASSESSEE KEEPING IT AS SUCH. THE DRAWINGS ARE MORE IN THE NATURE OF SECRET FORMULA. NO OUTRIGHT S ALE OF DESIGN HAS TAKEN PLACE AND IT IS FOR LIMITED USE IN MANUFACTUR ING BY THE ASSESSEE AND FINALLY GIVEN TO CUSTOMERS TO WHOM GENER ATORS DESIGNED BASED ON DRAWING ARE SOLD. THE DESIGNS PURCHASED AR E NOT AVAILABLE OFF THE SHELF. THE INCOME ARISING TO PARENT AUSTRIAN COMP ANY ON SALE OF GENERATORS BY ITS 100% SUBSIDIARY BEING RECEIVED IN I NDIA, ORDERS OF WHICH RECEIVED IN INDIA AND BEING MANUFACTURED IN I NDIA AS PER DESIGN PROVIDED BY THE PARENT AUSTRIAN COMPANY. THE LD.AO ALS O PLACED RELIANCE IN THE CASE OF CIT VS. DAVY ASHMORE INDIA LTD. AND CIT VS. NEYVELI LIGNITE CORPORATION LTD. AND AAR RULING IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES COMPANY LTD. 271 ITR 193 (SC) IN SUPPORT OF HIS VIEW. 6.1.2. THE AO HELD THAT THE ASSESSEE COMPANY HAS NOT OBTAINED THE DESIGN FROM ANYWHERE ELSE AND IT MANUFACTURES EVE RY GENERATOR ON THE DESIGN PROVIDED BY THE PARENT AUSTRIAN COMPANY WITH ITS 100% SUBSIDIARY COMPANY ONLY. THUS THE INCOME ACCRUING/I N INDIA IS DIRECTLY THROUGH THE CONNECTION OF AUSTRIAN COMPANY IN INDIA, AS ENVISAGED IN SECTION 9(1)(VI) OF INCOME TAX ACT,1961 AND ARTICLE 12 OF DTAA. HE THEREFORE, HELD THAT PAYMENTS ARE IN THE NATURE OF ROYALTY ON PAGE 50 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 WHICH NO TDS WAS DONE; THEREFORE, THESE WERE DISALLOW ED UNDER SECTION 40(A) (IA) OF THE ACT. 6.2. THE DRP OBSERVED THAT CAREFUL STUDY OF TECHNICAL SERVI CES PROVES AND AGREEMENT WITHIN PARENT COMPANY SHOW THAT THE TECHNI CAL DRAWINGS AND DESIGNS FOR USE OF THE ASSESSEE ARE RIG HTS GRANTED TO USE SCIENTIFIC WORK, PATENT, DESIGN, PLAN, SECRET FORMULA, PROCESS, OR INDUSTRIAL COMMERCIAL OR SCIENTIFIC EXPERIENCE. HENCE , TECHNICAL DRAWINGS AND DESIGNS CAN BE HELD TO BE FALLING UNDER ONE OR MORE OF THE VARIOUS ITEMS LISTED IN THE TREATY. THE SERVICE PRO VIDED UNDER THE AGREEMENT ARE ALSO TECHNICAL IN NATURE. THEREFORE, TH E PAYMENTS MADE AS PER AGREEMENT IS TAXABLE IN INDIA AS PER ARTICLE 12 OF TAX TREATY AS WELL AS SECTION 9(1) (VI) AND SECTION 9(1) (VII) OF T HE ACT. THE DRP ALSO PLACED RELIANCE IN THE CASE OF HMS REAL ESTATE (P) LTD. 325 ITR 71(AAR) AND DCIT VS. ALL RUSSIA SCIENTIFIC RESEARCH INSTITUTE AND CABLE INDUSTRY 92 TTJ 74(MUM). THE DRP OBSERVED THAT AUSTRALIAN COMPANY PROVIDED COMPLETE DESIGN, DRAWING AND THE A SSESSEE HAS NOT PURCHASED DESIGNS & DRAWINGS BUT ONLY AGREED TO RIGHT TO USE IT UNDER LICENSE. THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TDS U/S. 195 OF THE ACT. SINCE, THE ASSESSEE HAS NOT DEDUCTED TDS, PROV ISIONS OF SECTION 40(A) (IA) ARE ATTRACTED AND THE AO HAS RIGHTL Y DISALLOWED THE SUM PAID TO AUSTRALIAN PARENT COMPANY. THE DRP NOTED TH AT THE TECHNICAL SERVICES AGREEMENT ENTERED IN TO JANUARY 2 006 SUBSTANTIALLY ALTERS THE POSITION. THE DRP, OBSERVED THAT THE ITATS HA S NOT CONSIDERED IN THE ORDER GIVEN IN FAVOUR OF THE APPELL ANT PRIOR TO THE YEAR 2006 AS THE ORDERS OF THE ITAT FOR A.Y. 1999-20 00 TO A.Y. 2002- 03 WAS PASSED ON 09.04. 2010,AND THE ORDER FOR A.Y. 2001-01 TO 2003-04 WAS PASSED ON 28. 12.2011ON THE BASIS OF ORD ER OF A.Y. 1999- 2000 TO 2002-03, WHEREAS THE INCOME TAX ACT,1961 HAS BEEN AMENDED RETROSPECTIVELY BY FINANCE ACT 2010, W. E. F. 01. 06. 1976, PAGE 51 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 WHEREBY, UNDER THE ACT, THE SCOPE OF ROYALTY ON FEES FOR TECHNICAL SERVICES HAS BEEN EXPANDED WHICH WAS NOT CONSIDERE D BY THE ITAT. 6.3. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFOR E THE TRIBUNAL. THE LD. A.R. SUBMITTED THAT THE PAYMENTS OF R S. 1, 06, 99,464/- FOR A.Y. 2010-11 AND RS. 3, 21, 61,710/- F OR A.Y. 2011-12 HAVE BEEN MADE FOR PURCHASE OF TECHNICAL DRAWINGS A ND DESIGNS TO MANUFACTURE THE GENERATORS CUSTOMIZED TO THE NEEDS OF I TS CUSTOMERS. ANDRITZ AUSTRIA IN TURN PREPARES AND SELLS THE TECHNICA L DRAWINGS AND DESIGNS TO THE ASSESSEE ON PRINCIPAL-TO-PRINCIPAL BAS IS WITHOUT RETAINING ANY RIGHTS IN THE DRAWINGS. THE COPYRIGHT IN THE DRAWINGS IS HOWEVER, RETAINED BY ANDRITZ AUSTRIA. THE OWNERSHIP OF THE DESIGN PER SE THUS, IS TRANSFERRED TO THE ASSESSEE WHEREAS OWNERSH IP OF COPYRIGHT IN DRAWINGS IS RETAINED BY ANDRITZ AUSTRIA. THE ASSES SEE THUS, HAS THE RIGHT TO USE THE PRODUCT I.E. DESIGN SO PURCHASED ON AS IS BASIS AND IS NOT AUTHORIZED TO MODIFY, EDIT, REPRODUCE THE SAME. E VEN THE TECHNICAL KNOW-HOW IN RELATION TO THE DRAWINGS SO MA DE IS RETAINED BY THE ANDRITZ AUSTRIA AND IS NOT TRANSFERRED TO THE ASSESSEE . THE TRANSACTION IS THUS IF IT TRANSACTION OF PURCHASE OF DRA WINGS AND NOT IN THE NATURE OF ROYALTY WARRANTING DEDUCTION OF TAX AT SOU RCE. THE DESIGNS SO PURCHASED ARE GIVEN TO THE CUSTOMERS OF THE ASSESSEE AS PART OF THE TERMS OF CONTRACT BETWEEN THE ASSESSEE AND ITS CUSTOMERS, WHICH IS SPECIFICALLY PROVIDED FOR CONSOLIDATED CONS IDERATION TO BE CHARGED FOR THE SUPPLY OF GENERATORS AS WELL AS THE T ECHNICAL DRAWINGS AND DESIGNS USED IN THEIR MANUFACTURE. THE SUPPLY OF THE DESIGN IS IMPERATIVE FOR THE CUSTOMERS OF THE ASSESSEE TO ENSURE MAINTENANCE AND SMOOTH RUNNING OF THE GENERATORS. THAT THE TRANSACTIO N OF PURCHASE OF DRAWINGS IS THE OUTRIGHT PURCHASES IS FURTH ER SUBSTANTIATED BY THE FACT THAT THE SAID DRAWINGS ARE CONS IDERED AS GOODS UNDER THE CUSTOMS ACT AND ARE CHARGEABLE TO CUSTOM DUTY AT THE APPROPRIATE RATES. THE HARD COPIES OF TECHNICAL D RAWINGS AND PAGE 52 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 DESIGN ARE RETAINED BY ANDRITZ AUSTRIA ARE ACCORDINGLY ACCOMPANIED BY A BILL OF ENTRY AND SUBJECT OF PAYMENT OF CUSTOMS DUTY WHILE BEING IMPORTED IN INDIA. 6.3.1. THE LD. COUNSEL FURTHER SUBMITTED THAT THE TRANSACTION IS THUS A PURCHASE OF THE COPYRIGHTED ARTICLE AND NOT THE P URCHASE OF COPYRIGHTS THEREIN. THE ASSESSEE DOES NOT POSSESS ANY RIGHTS OF WHATSOEVER NATURE IN THE COPYRIGHTS CONTAINED IN THE DE SIGN, WHICH CONTINUES TO BE OWNED BY ANDRITZ AUSTRIA. PURCHASE OF TH E DESIGN ONLY ALLOWS USE OF INFORMATION CONTAINED THEREIN BUT DOES NO T TRANSFER THE COPYRIGHT THEREIN. 6.3.2. THE LD. A.R. ALSO BROUGHT TO OUR NOTICE THAT THE ITAT I N THE CASE OF THE ASSESSEE FOR EARLIER YEARS INCLUDING FOR A.Y. 2006-07 TO A.Y. 2009-10 VIDE ORDER DATED 03.07.2014, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE TRANSACTIONS ARE IN THE NATURE OF PURCHASE OF DESIGN AND DRAWINGS AND NOT IN THE NATURE OF ROYALTY. THE HON`BLE ITAT VIDE PARA 8.1 OF THE SAID ORDER FURTHER OBSERVED THAT THE DEPARTMENT HAS NOT FILED ANY APPEAL AGAINST THE ORDER O F CIT(A) FOR A.Y. 2004-05, WHEREIN SIMILAR ADDITIONS WERE DELETED . SINCE THE PRESENT CASE OF THE ASSESSEE IS ON IDENTICAL FACTS, THE ADDITION MADE IN CURRENT YEAR IS NOT JUSTIFIED AND MUST BE DELETED IN THE INTEREST OF JUSTICE. IN SUPPORT OF HIS CONTENTIONS, THE COUNSEL PLA CED RELIANCE IN THE CASE OF RADHASAOMI SATSANG SAOMI BAGH VS. CIT (19 92) 193 ITR 321(SC). THE LEARNED COUNSEL FOR THE ASSESSEE, HAS A LSO SUBMITTED A CHART GIVING COMPARISON OF DRP FINDING AND SUBMISSIO NS OF THE ASSESSEE AS UNDER ; DRP OBSERVATION ASSESSEE`S COMMENTS TO DRP OBSERVATION I. THE DRP HELD THAT THE TECHNICAL SERVICES A GREEMENT ENTERED IN TO I. THE HON`BLE ITAT HAS POST 2006, VIDE ORDER DATED 3.7.2014 FOR A.Y. PAGE 53 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 2006 SUBSTANTIALLY ALTERS THE POSITION. THE DRP, AT THE TIME OF HEARING, THE TO ORDER OF HON`BLE ITAT FOR YEARS WHICH WERE GIVEN IN FAVOUR OF THE APPELLANT PRIOR TO THE YEAR 2006 2006-07 TO 2009-10 HAS TAKEN THE SAME VIEW AND HELD THAT THE TRANSACTION IS IN THE NATURE OF PURCHASE NOT WARRANTING DEDUCTION OF TAX AT SOURCE. THE FINDING OF THE DRP IS THUS, NOT SUSTAINABLE II. THE ORDERS OF THE HON`BLE ITAT FOR A.Y. 1999-2000 TO A.Y. 2002- 03 HAS BEEN PASSED ON 9.4. 2010 WHEREAS THE ORDER FOR A.Y. 2001-01 TO 2003-04 HAS BEEN PASSED ON 28. 12.2011. THE INCOME TAX ACT,1961 HAS BEEN AMENDED RETROSPECTIVELY BY FINANCE ACT 2010, W.E.F. 1. 6. 1976, WHEREBY, UNDER THE ACT, THE SCOPE OF ROYALTY ON FEES FOR TECHNICAL SERVICES IS BEEN EXPANDED WHICH WERE NOT CONSIDERED BY THE HON`BLE ITAT. III. THERE WERE ONLY 2 RETROSPECTIVE AMENDMENTS MADE BY FINANCE ACT, 2010 WHICH ARE REFERRED BY THE DRP. FIRST PERTAINS TO RIGHT TO USE A COMPUTER SOFTWARE AND SECOND IS WITH REFERENCE TO INCOME DEEMING TO ACCRUE ON ARISING INDIA WHETHER OR NOT, THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. BOTH AMENDMENTS ARE NOT APPLICABLE TO THE FACTS OF THE CASE. THE OBSERVATIONS OF THE DRP ARE THUS MISPLACED AND NOT SUSTAINABLE. 6.3.3. THE LEARNED COUNSEL STATED WITH REFERENCE TO THE CONTENTION OF THE DRP, RELYING ON THAT THE AGREEMENT ENTER ED BY THE ASSESSEE WITH ANDRITZ AUSTRIA WHEREIN CONSIDERATION PA YABLE IS PAGE 54 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 DESIGNATED AS ROYALTY @ 5% ON SALES IN INDIA AND ADJ ACENT COUNTRIES AND @8% OF EXPORTS TO OTHER COUNTRIES, THE ASSESSEE SUB MITS THAT THE TERMS AND CONDITIONS MENTIONED IN THE AGREEMENT RELATIN G TO TRANSACTIONS OF SALES OF GENERATORS WHICH HAVE BEEN DE VELOPED BASED ON THE EXPERTISE OF ANDRITZ AUSTRIA. HOWEVER, IN CER TAIN CASES, LOOKING AT THE COMPLEXITIES OF THE PROJECT INVOLVED IT BECOMES IMPERATIVE THAT THE SPECIFIC DESIGNING OF THE GENERATORS IS MADE LOOKI NG AT THE SPECIFIC NEEDS OF THE CLIENTS AND THEIR PROJECTS. THE ASSESSEE DOES NOT POSSESS THE REQUISITE EXPERTISE TO CREATE SUCH DESIGNS. ACCORDI NGLY, IN SUCH CASES, THE DESIGNS ARE SOLD BY ANDRITZ AUSTRIA TO THE AS SESSEE FOR FURTHER DELIVERY TO THE CLIENTS ALONG WITH GENERATORS AS PART OF THE TERMS OF CONTRACT. THE ASSESSEE MERELY EXECUTE THE CON TRACT AND SUPPLY THE GENERATORS BASED ON THE DESIGN SO RECEIVE D. THE ASSESSEE DOES NOT GET ANY OTHER RIGHT IN THE SAID DESIGNS APART FROM CREATING THE GENERATORS AND THAT TOO FOR SPECIFIC ENTITY FOR WHOM DES IGN WAS MADE. THE TECHNICAL KNOW-HOW IN RESPECT OF THE SAID DESIGN IS RETAINED BY ANDRITZ AUSTRIA. ACCORDINGLY, IT WAS PRAYED THAT THE ADDI TION OF RS. 1,06,99,464/- FOR A.Y. 10-11 AND RS. 3,21,61,710/- FROM A.Y. 11-12 MAY BE DELETED. 6.3.4. THE LEARNED COUNSEL FOR THE ASSESSEE, ALSO PLACED RE LIANCE IN THE CASE OF SONATA INFRA TECHNOLOGY LTD. (2006) 7 5 SOT 465(MUM), TATA CONSULTANCY LTD. 271 ITR 401 , LUCENT TECHNOLOGIES INSTITUTE 2009-TIOL_161-ITAT-DEL, SAMSUNG ELECTRONICS CO LTD. 94 ITD 91, PROPERTY QUIP CORPORATION LTD. 255 ITR 354, ASSOCIATED CEMENT CORPORATION (2001) 124 STC 59, CITIZEN WATCH COMPANY L TD. 148 ITR 774 ETC. AS PER SUBMISSION MADE BEFORE THE TPO IN SUP PORT OF HIS CONTENTION. 6.4. THE LD. D.R. RELAYING ON THE ORDERS OF THE TPO/ DRP SUBMITTED THAT ITAT ORDER FOR A.Y. 1999-2000 TO 2002-03 DTD. 09.04.2 010 IS PASSED BEFORE THE AMENDMENT IN FINANCE ACT, 2010. FURTH ER THE ORDER PAGE 55 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 FOR A.Y. 2001-01 TO 2003-04 DTD. 28.12.2011 WAS PASSE D RELYING ORDERS OF EARLIER YEARS, HENCE, THE TRIBUNAL HAS NO T CONSIDERED THE SCOPE OF RETROSPECTIVE EFFECT OF AMENDMENT BY FINANCE A CT, 2010. IT WAS ARGUED THAT TECHNICAL DRAWING AND DESIGNS ARE INTA NGIBLE PROPERTIES AND NOT TANGIBLE GOODS THOUGH NOT APPEAR ON PAPER, THEREFORE, THEREFORE, SAME CANNOT BE REGARDED AS TRANSF ER FOR LIMITED RIGHT TO USE AND THEY ARE COMPOSITE PAYMENT OF ROYALTY WHICH IS ALSO COVERED BY SECTION 9(1)(VI) AND SECTION 9(1)(VII)OF T HE ACT AS WELL AS UNDER INDIA- AUSTRIA TAX TREATY ON WHICH TDS WAS NOT MADE HENCE, THE AO HAS RIGHTLY DISALLOWED THE SAME UNDER SECTION 40 (A)(IA) OF THE ACT. 6.5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIE S AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE SUPPLY OF GENERATORS TO ITS CUSTOMERS AS PER TERMS OF CONTRAC T WHICH IS SPECIFICALLY PROVIDED FOR CONSOLIDATED CONSIDERATION IS TO BE CHARGED CONSISTING OF GENERATORS AS WELL AS TECHNICAL DRAWING S AND DESIGNS USED IN THEIR MANUFACTURE. THE SUPPLY OF THE DESIGN IS IMPERATIVE FOR THE CUSTOMERS OF THE ASSESSEE TO ENSURE MAINTENANCE AND SMOOTH RUNNING OF GENERATORS. THE ASSESSEE MAKES PURCHASES OF TECHNICAL DRAWINGS AND DESIGNS TO MANUFACTURE GENERATORS AS PE R NEEDS OF CUSTOMERS. ACCORDINGLY AUSTRALIAN PARENT COMPANY PREPA RES AND SALES DESIGN TO THE ASSESSEE ON THE PRINCIPAL-TO-PRINC IPAL BASIS WITH RETAINING THE RIGHTS THEREIN WITH HIM. THUS, THE COPYRI GHT IN DESIGN IS RETAINED BY ANDRITZ AUSTRIA, THUS, THE ASSESSEE HAS RI GHT TO USE THE PRODUCT OF DESIGN SO PURCHASED AS IS BASIS AND N OT AUTHORIZED TO MODIFY, EDIT, REPRODUCED. WE FIND THAT THE TECHNICAL K NOW-HOW RELATING TO DESIGN AND DRAWINGS IS NOT TRANSFERRED TO TH E ASSESSEE AND SAME IS RETAINED BY THE PARENT COMPANY. THUS, THE PURC HASE OF TECHNICAL DRAWINGS AND DESIGNS IS OUTRIGHT PURCHASE IN THE NATURE. WE PAGE 56 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 ALSO NOTE THAT THAT THESE DRAWINGS SUPPLIED TO THE ASSESSE E BY PARENT COMPANY ARE ALSO TREATED AS GOODS AS PER CUSTOMS ACT, ON WHICH CUSTOM DUTY IS PAYABLE. IN VIEW OF THESE FACTS, WE AR E OF THE VIEW THAT THE TRANSACTION OF PURCHASE OF DRAWINGS AND DESIGN IS NOT IN THE NATURE OF ROYALTY. 6.5.1. SO FAR, OBSERVATION OF THE DRP THAT TECHNICAL SERVICES AGREEMENT ENTERED IN 2006 ALTERED THE POSITION AND DECI SIONS AS GIVEN BY TRIBUNAL PRIOR TO YEAR 2006, AND THERE IS AMENDMEN T IN INCOME TAX ACT, 1961 WHICH HAS INCREASED THE SCOPE OF ROYAL TY TO COVER SUCH SUPPLY OF TECHNICAL DRAWINGS AND DESIGNS. WE FIND THA T THE LEARNED COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THERE WERE ONLY TWO RETROSPECTIVE AMENDMENTS MADE BY FINANCE ACT, 2010 THAT ARE REFERRED TO BY THE DRP. FIRST PERTAINS TO RIGHT TO USE A COMPUTER SOFTWARE AND SECOND IS WITH REFERENCE TO INCOME DEEM ING TO ACCRUE OR ARISING IN INDIA WHETHER OR NOT, THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA OR THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. BOTH AMENDMENTS ARE N OT APPLICABLE TO THE FACTS OF THE CASE, AS THEY DO NOT CHANGE THE DEFI NITION OF ROYALTY IN RESPECT OF SUPPLY BECAUSE OF OUTRIGHT PURCHASE WITHO UT TRANSFERRING COPYRIGHT THEREIN. FURTHER, WE FIND THAT TH E ITAT VIDE ORDER DATED 3.7.2014 FOR A.Y. 2006-07 TO 2009-10 HAS TAKEN THE SAME VIEW AND HELD THAT THE TRANSACTIONS ARE IN THE NATURE OF PURCHASE NOT WARRANTING DEDUCTION OF TAX AT SOURCE. THE FINDING OF TH E DRP IS THUS, NOT SUSTAINABLE ON FACTS AND IN LAW. WE FIND THE ITAT I N THE CASE OF THE ASSESSEE FOR A.Y. 2006-07 TO 2009-10 VIDE ORDER DATED 03.07.2014 IN I.T.A. NO. (TP) NO. 5& 311/IND/2011 HAS OBSERVED AS UNDER 8. THE ASSESSEE COMPANY HAS DEBITED RS.66,90,516/- IN THE A.Y. 2006-07 ON ACCOUNT OF TECHNICAL DRAWING EXPENSES UN DER THE HEAD COST OF RAW MATERIALS AND COMPONENTS. THE AO TREA TED THE SAME AS EXPENDITURE IN THE NATURE OF ROYALTY WITHIN THE MEA NING OF ARTICLE 12 OF DTAA WITH AUSTRIA. AS NO TDS WAS DEDUCTED THEREO N BY INVOKING PAGE 57 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 PROVISIONS OF SECTION 40(A)(IA), THE AO DISALLOWED THE PAYMENT WAS SO MADE. 8.1 THE FACT AS SUBMITTED BY THE ASSESSEE WITH REGA RD TO PAYMENT FOR DESIGNS & DRAWINGS AS UNDER: THE ASSESSEE COMPANY IS A WHOLLY OWNED SUBSIDIARY OF NONRESIDENT COMPANY M/S ANDRITZ HYDRO GMBH, AUSTRIA (ANDRITZ AUSTRIA) AND IS ENGAGED IN THE BUSINESS OF MANUFAC TURING GENERATORS AND OTHER HEAVY ELECTRICAL EQUIPMENTS F OR SUPPLY TO HYDRO POWER PLANTS. THE ASSESSEE ENTERS INTO CONTRACTS WITH ITS CUSTO MERS FOR SUPPLY OF GENERATORS AND EQUIPMENTS AS PER THEIR SPECIFICATI ONS OF FREQUENCY, CURRENT, CAPACITY, SPEED, EFFICIENCY ETC. SUCH CONT RACTS INCLUDE SUPPLY OF TECHNICAL DRAWING AND DESIGN TO THE CUSTOMERS ALONG WITH THE EQUIPMENTS THE ASSESSEE DOES NOT POSSESS THE REQUISITE SKILL S AND TECHNICAL EXPERTISE FOR THE DESIGNING OF THE GENERATORS AND I N THIS REGARD SEEKS ASSISTANCE FROM ITS OVERSEAS PARENT ENTITY. FOR THE ABOVE PURPOSE, PURCHASE ORDERS ARE PLACED ON ANDRITZ AUSTRIA FOR THE SUPPLY OF TECHNICAL DRAWINGS AND DE SIGNS TO MANUFACTURE THE GENERATORS CUSTOMIZED TO THE NEEDS OF THE CUSTOMERS. COPIES OF SOME OF THE SAMPLE PURCHASE OR DERS ARE ATTACHED AS EXHIBIT 35 OF THE PAPER BOOK) TO SUBSTA NTIATE THE FACT THAT ORDERS ARE PLACE BY THE ASSESSEE FOR PURCHASE OF TH E DESIGNS AND NOT OBTAINING A LIMITED RIGHT TO USE THEM. IT HAS BEEN SUBMITTED TO THE AO THAT ANDRITZ AUST RIA SELLS THE TECHNICAL DRAWINGS AND DESIGNS TO THE ASSESSEE ON A PRINCIPAL-TO- PRINCIPAL BASIS AND DOES NOT RETAIN ANY RIGHT IN SU CH DRAWINGS AND DESIGNS. THE DRAWINGS PROCURED FROM ANDRITZ AUSTRIA ARE USED IN THE MANUFACTURE OF GENERATORS AND SUPPLIED ALONG WITH T HE GENERATORS TO THE CUSTOMERS. THE TERMS OF THE CONTRACT BETWEEN THE ASSESSEE AN D ITS CUSTOMERS SPECIFICALLY PROVIDE FOR A CONSOLIDATED CONSIDERATI ON TO BE CHARGED FOR THE SUPPLY OF GENERATORS AS WELL AS THE TECHNICAL D RAWINGS AND DESIGNS USED IN THEIR MANUFACTURE. (COPY OF RELEVAN T EXTRACTS OF CONTRACT AGREEMENTS AS ENCLOSED AS EXHIBIT 36 OF TH E PAPERBOOK). THE HARD COPIES OF TECHNICAL DRAWINGS AND DESIGN OBTAINED FROM ANDRITZ AUSTRIA ARE ACCOMPANIED BY A BILL OF ENTRY AND SUBJECT TO PAYMENT OF CUSTOM DUTY WHILE BEING IMPORTED IN INDI A. FURTHER, PAYMENT IS MADE TO ANDRITZ AUSTRIA TOWARDS OUTRIGHT PURCHASE OF TECHNICAL DRAWINGS AND IN THIS REGARD HAS BEEN CLAI MED AS EXPENDITURE BY THE ASSESSEE IN ITS BOOKS AS, COST OF RAW MATERIALS AND COMPONENTS. THE ASSESSEE HAS ALSO SUBMITTED COPIES OF ORDERS PA SSED BY HIGHER APPELLATE AUTHORITY I.E. COMMISSIONER OF INCOME TAX (APPEALS) PAGE 58 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 (CIT(A)) IN FAVOUR OF ASSESSEE IN SIMILAR MATTERS IN PAST ASSESSMENT YEARS HOLDING THAT ANDRITZ AUSTRIA HAD SOLD TECHNIC AL DRAWING AND DESIGN TO THE ASSESSEE. IN THIS REGARD, THE SAID EX PENDITURE WOULD BE REGARDED AS A BUSINESS EXPENDITURE AND NOT ROYALTY AS CONTENDED BY THE LD. AO. 8.2 THE CONTENTION OF THE ASSESSEE WITH REGARD TO T HE DISALLOWANCE OF PAYMENT U/S.40 (A) (I) WAS AS UNDER:- THE DESIGNS AND DRAWINGS ARE PURCHASED ON A PRINCI PLE-TO-PRINCIPLE BASIS AND IS IN THE NATURE OF PURCHASE OF GOODS THE TRANSACTION IS IN THE NATURE OF PURCHASE OF 'COPYRIGHTED ARTICLE' AND NOT OF A PURCHASE OF 'COPYRIGHT' ITSELF IN THE DRAWINGS. HENCE, THE S AME IS IN THE NATURE OF THE 'BUSINESS INCOME' AND NOT IN THE NATURE OF ' ROYALTY'. TO SUBSTANTIATE THE NATURE OF TRANSACTION AS A PURC HASE OF GOODS, THE APPELLANT HAS PROVIDED VARIOUS SUPPORTING DOCUMENTS SUCH AS COPIES OF BILL OF ENTRY, COPY OF PHYSICAL DRAWINGS RECEIVE D, COPIES OF INVOICES AND DETAILS REGARDING THE TERMS AND CONDITIONS OF T HE TRANSACTION, WHICH HAVE NOT BEEN CHALLENGED BY THE LD. AO FOR AY 2003-04 AND AY 2004-05, THE LD. CIT(A) HAS ALSO HELD THAT THE T RANSACTION IS IN THE NATURE OF PURCHASE OF DESIGNS AND DRAWINGS NOT IN THE NATURE OF ROYALTY (VIDE ORDERS DATED 19 JANUARY 2007 AND 23 N OVEMBER 2007). FURTHER, THE CIT(A) ORDER FOR A Y 2003-04 HAS ALS O BEEN UPHELD BY THE SAME BENCH OF THE HON'BLE ITAT VIDE ORDER DATED 28 DECEMBER 2011 (ITA NO 29/IND-2005 FOR AY 2000-01, ITA NO 253 AND 254/1ND- 2007 FOR AY 2001-02 AND AY 2002-03, ITA NO 255/IND- 2007 FOR AY 2003-04). FURTHER, NO APPEAL HAS BEEN FILED BY THE TAX AUTH ORITIES AGAINST THE ORDER OF THE LD. CIT(A) FOR AY 2004-05. THE FACTS OF THE CURRENT APPEALS ARE SAME AS THOS E COVERED IN THE AFORESAID ORDERS. IN THIS REGARD APPELLANT HAS RELI ED ON FOLLOWING KEY JUDICIAL PRECEDENTS: DCIT-3(1), BHOPAL VS VA TECH HYDRO INDIA PRIVATE LIMITED (ITA NO 255/IND-2007) ACIT, 3(1), BHOPAL VS VA TECH HYDRO INDIA PRIVATE LIMITED (ITA NO 112 TO 115/IND-2007) DAVY ASHMORE INDIA LTD. VS CIT - 190 ITR 626 PRO-QUIP CORPORATION VS CIT - 255 ITR 354 9. WITH REGARD TO THE PAYMENT MADE FOR DESIGN AND D RAWING IMPORTED BY IT FROM ITS GROUP COMPANIES IN AUSTRIA, THE AO HELD THAT SUCH IMPORT OF DESIGN IS NOT IN NATURE OF PURCHASE OF RAW MATERIALS, HOWEVER, THE AO TREATED THE SAME AS PAYMENT OF ROYA LTY AS PER SECTION 91(VII). WHILE REACHING TO THIS CONCLUSION THE AO HAS RELIED UPON THE ORDER PASSED U/S.201(1). AS NO TAX WAS DED UCTED ON THESE PAYMENTS, THE AO DISALLOWED THE SAME BY INVOKING PR OVISIONS OF SECTION 40(A)(I) AND WHICH WAS CONFIRMED BY CIT(A). WE DO NOT FIND PAGE 59 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 ANY MERIT IN THE CONCLUSION OF THE LOWER AUTHORITIE S INSOFAR AS THE DESIGN AND DRAWINGS WAS PURCHASED ON A PRINCIPLE TO PRINCIPLE BASIS AND SAME WAS IN THE NATURE OF PURCHASE OF GOODS. PR ECISELY THE DRAWING IS IN THE NATURE OF PURCHASE OF COPYRIGHT ARTICLES AND NOT OF PURCHASE OF COPYRIGHT ITSELF IN THE DRAWINGS. HEN CE, THE SAME IS IN THE NATURE OF BUSINESS EXPENDITURE AND NOT IN THE N ATURE OF ROYALTY. THE PAYMENTS OF TECHNICAL DRAWINGS AND DESIGN HAVE BEEN INCURRED TO PROCURE SUCH DRAWINGS AND DESIGNS ALONG WITH ALL THE RIGHTS ATTACHED TO THEM AS THE ENTIRE SET WAS REQUIRED TO BE PROVIDED TO THE CUSTOMERS AS PER THE TERMS OF THE CONTRACT. WITHOUT ACQUIRING ALL THE RIGHTS ATTACHED TO SUCH DRAWINGS AND DESIGNS, THE A SSESSEE WOULD NOT HAVE BEEN IN THE POSITION TO MEET ITS CONTRACTU AL OBLIGATION. WE HAD VERIFIED THE COPIES OF BILLS OF ENTRY, COPY OF PHYSICAL DRAWINGS RECEIPT, COPIES OF INVOICES AND DETAILS REGARDING T ERMS AND CONDITION OF THE TRANSACTION IT(TP)A NO.5/IND/2011, IT(TP)A N O.313/IND/2011, IT(TP)A NO.616/IND/2012,& IT(TP)A NO.120/IND/2014 1 7 AND FOUND THAT THE DRAWING WAS IN THE NATURE OF PURCHASE OF G OODS. EXACTLY SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL I N ASSESSEES OWN CASE FOR THE A.Y. 2003-04 VIDE ORDER DATED 28-12- 2 011 IN ITA NO.29/IND/2005. THE PRECISE OBSERVATION OF THE TRIB UNAL WERE AS UNDER :- FIRST, WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2000-01 (ITA NO.29/IND/2005) WHEREIN FIRST GRO UND PERTAINS TO GRANTING RELIEF OF RS.4,14,18,313/- REPRESENTING DI SALLOWANCE OF EXPENDITURE UNDER THE HEAD TECHNICAL DESIGN & DRAW INGS. THE CRUX OF ARGUMENTS ON BEHALF OF THE REVENUE IS IN SUPPORT TO THE ASSESSMENT ORDER WHEREAS THE LEARNED COUNSEL FOR TH E ASSESSEE CONTENDED THAT THE IMPUGNED ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. IN REPLY, T HE LD. CIT/DR SHRI ANADI VARMA INVITED OUR ATTENTION TO PAGES 2 TO 5 A ND PARA 37 OF PAGE 13 OF THE ASSESSMENT ORDER. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON FILE. SINCE COMMON GROUNDS AR E INVOLVED, THEREFORE, THESE CAN BE DISPOSED OF BY THIS COMMON & CONSOLIDATED ORDER FOR THE SAKE OF BREVITY. WITHOUT GOING INTO M UCH DELIBERATION, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION O F THE ORDER FOR ASSESSMENT YEAR 1999-00 TO 2002-03 (ITA NOS.112 TO 115/IND/2007), ORDER DATED 30.4.2010: 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPA NY IS A MANUFACTURER OF DYDROELECTRIC AND TURBO-GENERATORS FOR HYDEL AND TURBO PROJECTS AND SELLING THE SAME IN INDIA AND AB ROAD. THE ASSESSEE IS A 100% SUBSIDIARY OF VA TECH HYDRO GMBH AUSTRIA FROM 1.4.2001. VA TECH HYDRO IS AN ESTABLISHED NAME IN THE WORLD IN THE FIELD OF MANUFACTURING AND ERECTION OF HYDRO AND TURBO PAGE 60 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 PROJECTS SINCE LAST ABOUT 100 YEARS. THE ASSESSING OFFICER, ON SCRUTINY OF BOOKS OF ACCOUNTS OF THE ASSESSEE COMPA NY AND FORM NO. 27 FOR THE ASSESSMENT YEARS, IN QUESTION, FOUND THA T THOUGH THE ASSESSEE COMPANY HAS SPENT HUGE AMOUNTS AS EXPENDIT URE ON TECHNICAL DRAWINGS AND DESIGNS ON ACCOUNT OF PAYMEN TS TO PARENT COMPANY, NEITHER THE TAX WAS DEDUCTED AT SOURCE, NO R THE ASSESSEE COMPANY OBTAINED NO DEDUCTION CERTIFICATE FROM THE ASSESSING OFFICER. THE ASSESSING OFFICER, CALLED FOR THE EXPL ANATIONS OF THE ASSESSEE AND AFTER CONSIDERING THE SAME, MADE THE F OLLOWING OBSERVATIONS :- 6.1 ARGUMENTS OF THE ASSESSEE ARE HOVERING AROUND INCORRECT REASONING THAT A) IT HAS PURCHASED THE DESIGN ON OU T RIGHT BASIS AS COMMODITY AND B) ON THE DICTIONARY MEANING OF ROYAL TY. 6.2. ROYALTY HAS BEEN GIVEN WIDER MEANING BOTH IN T HE INCOME TAX ACT AND DTAA, WHICH INCLUDES PAYMENT FOR DESIGN/DRA WING. ASSESSEE HAS RELIED ON JUDGMENT IN THE CASE OF CIT V/S DAVY ASHMORE INDIA LTD. 190 ITR, CIT VS. NEYVELI LIGNITE CORPORATION LTD. 243 ITR 459,ETC. HOWEVER, THESE CASES ARE DIST INGUISHABLE ON FACTS WHICH ARE DIFFERENT AND NOT OF ANY SUPPORT TO THE ASSESSEE. THE DESIGN PURCHASED BY THE ASSESSEE ARE NOT IN RESPECT OF COMMISSIONING OF PLANT BUT THESE ARE IN RESPECT OF A IT(TP)A NO.5/IND/2011, IT(TP)A NO.313/IND/2011, IT(TP)A NO.616/IND/2012,& IT(TP)A NO.120/IND/2014 18 PARTIC ULAR GENERATOR WHICH IS BEING MANUFACTURED AND SOLD TO T HE CUSTOMERS. SUCH DESIGNS ARE PURCHASED SEPARATELY FOR EVERY GEN ERATOR THE ASSESSEE HAS MANUFACTURED SO FAR. IN THESE CASE LAW S, THERE WAS AN OUTRIGHT PURCHASE OF PLANT ALONG WITH DESIGN THROUG H A BID PROCESS. WHERE AN ASSESSEE IS GETTING THE DESIGN PREPARED FO R EVERY GENERATOR FROM THE PARENT AUSTRIAN COMPANY. ASSESSEES ARGUME NTS ARE BASELESS AND DENYING THE BASIC DEFINITION OF ROYALT Y AS MENTIONED IN ARTICLE 12 OF DTAA AND EXPLANATION 2 TO SECTION 9(V I) OF THE I.T. ACT, ACCORDING TO WHICH PAYMENTS IN THE HEAD OF DESIGN I N REFERENCE TO ASSESSEES CASE IS WITHIN THE AMBIT OF THE DEFINITI ON OF ROYALTY AS PROVIDED THEREIN. IN FACT THE CASE ISHIKAWAJIMA HAR IMA HEAVY INDUSTRIES COMPANY LTD. IN RE (AAR) 271 ITR 193 MAK ES THE POSITION OF TAXABILITY CLEAR. 6.3. THE NON-RESIDENT AUSTRIAN PARENT COMPANY IS NO T MARKETING DESIGN AS GOODS FOR SALE TO ALL. IN ADDITION, THE ASSESSEE COMPANY V A TECH INDIA IS NOT KEEPING, NOR HAS ANY INTENT ION TO KEEP, THE DESIGN AS GOODS. IT IS IN FACT MORE LIKE A SECRET F ORMULA. THE WEB SITE OF THE ASSESSEE COMPANY GIVES THE DETAILS ABOUT THE ALGORITHMS AND THE DESIGN PROCESS (ENCLOSED AS ANNEXURE A). THAT D ESIGN IS BEING USED BY IT TO MANUFACTURE THE END PRODUCT (GENERATO R) WHICH IS MEANT FOR SALE AFTER THAT IT IS OF NO USE TO THE ASSESSEE . THEREFORE, DESIGN OF PAGE 61 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 A GENERATOR CANNOT BE EQUATED WITH SOFTWARE PACKAGE OR ANY OTHER COPY RIGHTED ARTICLES WHOSE UNLIMITED NUMBER CAN BE SOLD IN MARKET. 6.4. NO OUTRIGHT SALE OF DESIGNS HAS TAKEN PLACE. I T IS ONLY THE LIMITED USE FOR MANUFACTURING THAT THE ASSESSEE COMPANY IS HOLDING AUTHORITY TO USE DESIGN. ASSESSEE COMPANY CANNOT PU RCHASE THESE DESIGN FROM ANY OTHER THIRD COMPANY AS THE TRADE NA ME UNDER WHICH ASSESSEE COMPANY AND NON-RESIDENT AUSTRIAN COMPANY ARE MANUFACTURING AND SELLING THE GENERATOR IS SAME AND BOTH THE COMPANIES ARE KNOWN FOR THEIR SPECIFIC DESIGNS OF G ENERATORS. IT HAS SPECIFICALLY BEEN MENTIONED ON THE DESIGNS THAT IT IS THE PROPERTY OF THE PARENT AUSTRIAN COMPANY. THE ASSESSEE HAD RIGHT TO USE A PARTICULAR DESIGN FOR SINGLE TIME. THE ASSESSEE HAS BEEN BARRED TO SALE THE DESIGN AS SUCH TO ANOTHER MANUFACTURER BY THE SPECIFIC CONDITION AND WARNING PRINTED ON THE DESIGN. WHEN T HE DESIGN CANNOT BE SOLD AS ABOVE HOW IT CAN BE TERMED AS OUT RIGHT PURCHASE AS CLAIMED BY THE ASSESSEE. THUS, THE ASSESSEE HAS ONLY BEEN GIVEN THE RIGHT TO USE THE DESIGN. 6.5. THE DESIGNS ARE NOT PURCHASED THROUGH OPEN TEN DER OR BID BECAUSE ASSESSEE IS MANUFACTURING GENERATORS WITH A UNIQUE TECHNOLOGY WHICH IS POSSESSED BY THE PARENT AUSTRIA N COMPANY ONLY HENCE THE DESIGNS ARE SPECIFIC TO THE PARENT COMPAN Y. BECAUSE OF THIS SPECIAL RELATIONSHIP ASSESSEE IS BOUND TO PURCHASE THE DESIGN FROM ITS PARENT AUSTRIAN COMPANY ONLY. THE DESIGN IS FIR ST RECEIVED THROUGH INTERNET AND ITS HARD COPY ALONG WITH BILL IS RECEIVED THROUGH CUSTOMS TO JUSTIFY THE PAYMENTS MADE TO THE PARENT COMPANY FROM THE ANGLE OF ALLOWABILITY OF EXPENDITURE. 6.6. THERE IS NO AGREEMENT/TERMS AND CONDITIONS IN PURCHASE OF THE DESIGNS FROM THE PARENT AUSTRIAN COMPANY. ASSESSEE IS JUST PLACING THE ORDERS FOR SUPPLY OF THE DESIGNS TO ITS PARENT COMPANY IT(TP)A NO.5/IND/2011, IT(TP)A NO.313/IND/2011, IT(TP)A NO.616/IND/2012,& IT(TP)A NO.120/IND/2014 19 AND IN EACH CASE THE COST OF THE DESIGN IS ALSO DETERMINED BY THE AU STRIAN COMPANY ON ITS OWN PARAMETERS. 6.7. THE DESIGN PURCHASED BY THE COMPANY ARE NOT AV AILABLE OFF THE SHELF. THESE DESIGNS ARE PREPARED AND SUPPLIED EXCL USIVELY AS PER THE SPECIFICATION AND REQUIREMENTS OF THE CUSTOMERS WHICH IS PROVIDED TO AUSTRIAN COMPANY BY THE ASSESSEE. AS IN FORMED BY THE ASSESSEE THESE DESIGNS ARE DIFFERENT FOR EACH GENER ATOR ASSESSEE HAS MANUFACTURED. 6.8. INCOME IS ARISING TO THE PARENT AUSTRIAN COMPA NY ON SALE OF GENERATORS BY ITS 100% SUBSIDIARY COMPANY IN INDIA, ORDERS FOR WHICH ARE RECEIVED IN INDIA AND BEING MANUFACTURED IN INDIA AS PER DESIGNS PROVIDED BY THE PARENT AUSTRIAN COMPANY. AS SESSEE COMPANY HAS NOT OBTAINED THE DESIGN FROM ANYWHERE E LSE AND IT PAGE 62 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 MANUFACTURES EVERY GENERATOR ON THE DESIGN PROVIDED BY THE PARENT AUSTRIAN COMPANY ONLY. THUS THE INCOME IS ACCRUING/ ARISING IN INDIA DIRECTLY THROUGH BUSINESS CONNECTION OF AUSTRIAN CO MPANY WITH ITS 100% SUBSIDIARY COMPANY IN INDIA AS ENVISAGED IN SE CTION 9(1)(VI) OF THE INCOME TAX ACT, 1961 AND ARTICLE 12(2) OF THE D TAA. 6.9. THE LEGAL PROVISIONS HAVE BEEN EXAMINED IN PAR A 2 SUPRA AND THE DTAA IN PARA 3. THE PAYMENT MADE BY ASSESSEE CO MPANY IS COVERED IN DEFINITION OF ROYALTY AS PER DTAA, WHICH DEFINES ROYALTY AS CONSIDERATION FOR THE USE OF OR THE RIGHT TO US E DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS INFORMATION CONCER NING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 6.10. THE PAYMENT MADE BY ASSESSEE COMPANY IS ALSO COVERED IN DEFINITION OF ROYALTY AS PER IT ACT, 1961 EXPLANATI ON 2 SECTION 9(1)(VI); EXPLANATION 2.- FOR THE PURPOSE OF THIS CLAUSE ROY ALTY MEANS ..(II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WOR KING OF..DESIGN, SECRET FORMULA OR PROCESS 6.11. THE FACTS ALONG WITH THE CASE LAWS HAVE BEEN EXAMINED IN PARA 4 AND 5. AFTER THE DETAILED EXAMINATION OF FACTS AN D CIRCUMSTANCES OF THE CASE IT IS HELD THAT VA TECH HYDRO INDIA PVT. L TD. HAS FAILED TO DEDUCT TAX ON SUMS PAID TO THE PARENT AUSTRIAN COMP ANY WHICH WAS CHARGEABLE TO TAX WITHIN INDIA BY VIRTUE OF THE IT ACT, 1961 AND AS PER THE PROVISIONS OF DTAA BETWEEN INDIA AND AUSTRI A. 6.12. ASSESSEE COMPANY IS MANUFACTURING GENERATOR A ND ITS ACCESSORIES I.E. ONLY THE ELECTRICAL PART OF THE CO MPLETE TURN KEY PROJECT FOR GENERATION OF ELECTRICITY. TURBINE IS M ANUFACTURED BY THE VATECH ESCHER VYAS FLOVAL LTD., FARIDABAD, WHICH IS AGAIN AUSTRIA 100% SUBSIDIARY COMPANY OF AUSTRIA IN INDIA . INTERNATIONAL ORDERS FOR SUPPLY OF GENERATORS ARE RECEIVED THROUG H ITS PARENT COMPANY IN AUSTRIA FOR WHICH THE ASSESSEE COMPANY S UPPLIES GENERATOR AND ITS ACCESSORIES TO ITS PARENT AUSTRIA N COMPANY. TURBINE AND ERECTION INFRASTRUCTURE IS SUPPLIED BY THE AUSTRIAN COMPANY IN SUCH PROJECTS. PROJECTS IN INDIA ARE COM PLETED BY THE ASSESSEE COMPANY WITH THE TURBINE SUPPLIED BY THE A NOTHER 100% SUBSIDIARY COMPANY I.E. VATECH ESCHER VYAS FLOVAL L TD., FARIDABAD. IN ALL THE CASES DESIGN OF GENERATOR IS SUPPLIED BY THE PARENT AUSTRIA COMPANY ONLY. 6.13. THE V AUSTRIA TECH INDIA HAS STATED THAT IT S PARENT AUSTRIAN COMPANY DOES NOT HAVE AUSTRIA PERMANENT ESTABLISHME NT. IN FACT, THERE IS NO NEED FOR THE AUSTRIAN COMPANY TO HAVE A NOTHER PERMANENT ESTABLISHMENT IN INDIA, AS THEY HAVE THEI R 100% SUBSIDIARY COMPANY IN INDIA (VA TECH INDIA) WHICH IS ACTING ON THEIR BEHALF FOR PROCURING ORDERS ETC. FURTHER THE VA TE CH INDIA IS MANUFACTURING EVERY GENERATOR ON THE BASIS OF DESIG N PROVIDED BY THE AUSTRIAN COMPANY. THUS THE ASSESSEE COMPANY VA TECH INDIA PAGE 63 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 IS MEANS FOR ACCRUAL OF INCOME TO THE AUSTRIAN COMP ANY ON ACCOUNT OF ITS BUSINESS ACTIVITIES IN INDIA. MOREOVER, FOR TA XABILITY OF ROYALTY, PERMANENT ESTABLISHMENT IS NOT AN ESSENTIAL CRITE RION. (ALSO HELD IN LEONHARDT ANDRA UND PARTNER, GMBH V. COMMISSIONER O F INCOME TAX; 249 ITR 418 (CAL). IN VIEW OF THE ABOVE IT IS HELD IN THE CASE OF VA TECH INDIA THAT THE PAYMENT MADE BY THE ASSESSEE I S IN THE NATURE OF ROYALTY. HOWEVER, EVEN IF THE CLAIM OF THE ASSES SEE IS TAKEN UP FOR ARGUMENTS SAKE AS PAYMENT FOR TECHNICAL SERVICES ST ILL THE PAYMENT SHALL BE TAXABLE @ 10% IN INDIA IN VIEW OF THE EARL IER DISCUSSION IN THIS ORDER. 6.14. GENERATOR IS DESIGNED AS PER THE REQUIREMENT OF THE CUSTOMER THEREFORE ITS DESIGN IS AN INTEGRAL PART OF IT, ON THE BASIS OF WHICH IT IS MANUFACTURED AND FOR THAT GENERATOR THE CUSTOMER MA KING PAYMENTS. THEREFORE, PROVIDING OF THE DESIGN TO THE CUSTOMER CANNOT BE TERMED AS AUSTRIA SEPARATE SALE AS CLAIMED BY THE ASSESSEE . WITHOUT DESIGN GENERATOR CANNOT BE MANUFACTURED. HENCE THE PRICE O F GENERATOR OR ANY PLANT WILL ALWAYS BE INCLUSIVE OF DESIGN WITHOU T WHICH IT IS OF NO USE. THE DESIGN OF PARTICULAR GENERATOR IS SPECIFIC TO THAT ONLY AND IS OF NO USE IN CASE OF ANY OTHER GENERATOR. HENCE THE ARGUMENTS OF THE ASSESSEE THAT THEY ARE SELLING THE DESIGN ALONG WIT H GENERATOR IS SIMPLY MISLEADING AND NOT RELEVANT TO THE ISSUE OF TAXABILITY. 6.15. AS DISCUSSED EARLIER IN PARA 1.9 THE DRAWINGS AND DESIGNS ARE MADE WITH THE HELP OF SOPHISTICATED COMPUTER PROG RAMS AND ALGORITHMS. (PLEASE SEE ANNEXURE AUSTRIA). THE COMP UTER PROGRAM ALONG WITH THE BRAIN OF THE DESIGN ENGINEER IS THE INPUT IN THE PROCESS AND OUTPUT IS CERTAIN DESIGN AND OTHER PARAMETERS. THESE PARAMETERS ARE FOR THE HELP OF DETAILED DESIGN WHIC H IS PREPARED IN INDIA BY THE ASSESSEE VA TECH INDIA. THE PARENT AU STRIAN COMPANY HAS NEITHER GIVEN THE SOPHISTICATED COMPUTER PROGRA MS NOR THE ALGORITHMS TO VA TECH INDIA. ONLY THE OUTPUT OF THE SOPHISTICATED COMPUTER PROGRAMS AND ALGORITHMS IS PROVIDED TO THE ASSESSEE VA TECH INDIA WHICH IT CALLS AS DESIGN. RIGHTS OVER THESE DESIGNS IS WITH PARENT AUSTRIAN COMPANY. THE ASSESSEE COMPANY FURTHER PREPARES DETAILED DESIGNS ON THE BASIS OF THE PARAM ETERS AND DESIGNS PROVIDED BY ITS PARENT COMPANY. THE RIGHTS OVER THESE DETAILED DESIGNS PREPARED BY THE ASSESSEE VA TECH INDIA WITH VA TECH INDIA ITSELF. THUS IT IS CLEAR THAT THERE ARE TWO SETS OF DESIGNS, ONE PREPARED BY THE PARENT AUSTRIAN COMPANY FOR WHI CH ASSESSEE MAKES PAYMENT AND ANOTHER IN HOUSE DETAILED DESIGN PREPARED BY VA TECH INDIA BASED ON THE ORIGINAL DESIGN. 6.16. FROM THE DISCUSSION, IT IS CLEAR THAT WITH TH E DESIGN AND OTHER PARAMETERS SUPPLIED BY THE PARENT AUSTRIAN COMPANY, THE ASSESSEE CANNOT CREATE ANOTHER OUTPUT IN AUSTRIA DIFFERENT C ASE OR EVEN AUSTRIA SIMILAR CASE. FROM ALL THE DISCUSSION AND CASE LAWS CITED ABOVE, IT IS PAGE 64 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 BEYOND DOUBT THAT THE PAYMENTS MADE BY THE ASSESSEE VA TECH INDIA ARE IN THE NATURE OF ROYALTY AND ARE SQUAREL Y COVERED BY THE DECISION OF ROYALTY BOTH IN THE DTAA AND IT ACT, 19 61. I HOLD THAT THE PAYMENTS MADE BY THE ASSESSEE VA TECH INDIA ARE I N THE NATURE OF ROYALTY AND THAT THE ASSESSEE VA TECH INDIA HAVIN G FAILED TO DEDUCT TAX HAS COMMITTED DEFAULT WITHIN THE MEANING OF SEC.195(1) READ WITH DTAA BETWEEN AUSTRIA AND INDIA AND READ W ITH SEC.9(1)(VI) OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER , FOR THE REASONS MENTIONED ABOVE, FINALISED THE PROCEEDINGS INITIATE D EARLIER CULMINATING IN THE ORDER UNDER SECTION 195(1) READ WITH SECTION 9(1)(VI) AND 201(1)/ 201(1A), BY HOLDING THAT THE P AYMENTS MADE BY THE ASSESSEE COMPANY TO ITS PARENT AUSTRIAN COMPANY VA TECH HYDRO GMBH AUSTRIA, FOR THE PURCHASE OF DESIGN, DUR ING THE F.Y.2002-03, 2001-02, 2000-01 AND 1999-2000, ARE TR EATED AS ROYALTY WITHIN THE MEANING OF EXPLANATION 2 TO SE CTION 9(1)(VI) AND ARTICLE 12 OF THE DTA AGREEMENT, ON WHICH THE ASSES SEE HAS FAILED TO DEDUCT TAX AT THE RATE OF 10% UNDER SECTION 195 OF THE INCOME TAX ACT, 1961. THE CALCULATION MADE BY THE ASSESSING OF FICER IN THIS BEHALF IS AS UNDER :- DEFAULT UNDER SECTION 201(1) RS. 1,16,28,072 INTEREST UNDER SECTION 201(1A) RS. 71,28,172 TOTAL DEMAND PAYABLE RS.1,87,56,244 . 4. FELT AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHEREI N DETAILED SUBMISSIONS WERE MADE. THE LEARNED CIT(AUSTRIA), AF TER CONSIDERING THE SUBMISSIONS AND THE LEGAL POSITION EXPLAINED BY THE ASSESSEE, MADE THE FOLLOWING OBSERVATIONS :- THE ENTIRE TRAN SACTION BETWEEN THE APPELLANT AND THE NONRESIDENT COMPANY IS OF SAL E AND PURCHASE OF GOODS ON PRINCIPAL TO PRINCIPAL BASIS. THE MEANI NG OF ROYALTY HAS BEEN DEFINED IN THE DTAA. THE APEX COURT IN THE CAS E OF UNION OF INDIA VS AZADI BACHO ANDOLAN AND ANOTHER REPORTED I N 263 ITR 706 (SC) HELD THAT IN CASE OF DIFFERENCE BETWEEN THE PR OVISIONS OF THE ACT AND THE AGREEMENT, THE PROVISIONS OF THE AGREEMENT WOULD PREVAIL OVER THE PROVISIONS OF THE ACT, THEREFORE, THE DEFI NITION OF ROYALTY IS UNDER THE DOMESTIC LAW IS NOT APPLICABLE FOR THE PU RPOSE OF UNDERSTANDING THE CONCEPT OF ROYALTY UNDER THE DOUB LE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND AUSTRIA AND, THEREFORE, THE A.O. IS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF SECTION 9(1)(VI) OF THE IT ACT. AS REGARDS THE OWNERSHIP IS CONCERNED, AS R IGHTLY EXPLAINED BY THE LEARNED COUNSELS THAT THE TRANSFER OF OWNERS HIP IN THE CASE OF MOVABLE GOODS IS GOVERNED BY THE SALES OF GOODS ACT . THE SALE BILL ISSUED BY THE SELLING PARTY CONTAINS THE TERMS AND CONDITION ON THE BASIS OF WHICH THE GOODS ARE BEING SOLD AGAINST THE PRICE. IN THE SALE BILLS ISSUED BY THE NON-RESIDENT AUSTRIAN COMPANY, THERE IS NO MENTION THAT DESPITE THE SALE OF DRAWINGS AND DESIG NS AGAINST THE PAGE 65 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 PRICE, THEY HAVE RETAINED THE OWNERSHIP IN THE DRAW INGS AND DESIGNS. THE A.O. HAS FAILED TO ESTABLISH AS TO HOW THE INCOME ARISING TO THE NON-RESIDENT COMPANY FROM THE SALE O F THE DRAWINGS AND DESIGNS FROM OUTSIDE COUNTRY TO THE APPELLANT C OMPANY IS CHARGEABLE TO TAX IN INDIA, WHEN THE NON RESIDENT C OMPANY IS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA, IS TAX ABLE IN INDIA AND, THEREFORE, IN THE ABSENCE OF ANY CONCRETE FIND ING THAT SUCH PAYMENTS ARE CHARGEABLE TO TAX IN INDIA, SECTION 19 5 HAS NO APPLICATION. HAVING REGARD TO THE DETAILED AND EXHA USTIVE SUBMISSION AND THE CASE LAWS RELIED UPON BY THE APPELLANT, I H OLD THAT THE PAYMENTS MADE FOR THE PURCHASE OF DRAWINGS AND DESI GNS DO NOT GIVE RISE TO ANY INCOME IN INDIA AND NO TAX NEEDS T O BE DEDUCTED U/S 295 OF THE IT ACT. THE SAID PAYMENTS ARE ALSO NOT I N THE NATURE OF ROYALTY AS DEFINED IN THE DTAA ENTERED INTO BETWEEN INDIA AND AUSTRIA. IN ANY CASE, IT IS NOT A CASE OF THE A.O. THAT THERE IS A TRANSFER OF COPYRIGHT BY THE AUSTRIAN COMPANY IN FA VOUR OF THE APPELLANT COMPANY BUT ITS IS A CASE OF SALE OF COPY RIGHTED ARTICLES AND THEREFORE ALSO THE PAYMENTS MADE BY THE INDIAN COMPANY TO NON RESIDENT COMPANY ARE NOT IN THE NATURE OF ROYALTY. HENCE THE DEMANDS RAISED U/S 201(1A) FOR INTEREST PAYABLE FRO M THE DATE OF DEFAULT IN NOT DEDUCTING THE TAX AT SOURCE TILL PAS SING OF THE ORDER BY THE A.O. IN FINANCIAL YEARS 1999-2000, 2000-01, 200 1-02 & 2002-03 ARE CANCELLED. 5. NOW, THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED CIT DR SUBMITTED THAT ON THE HARD CO PY OF DRAWINGS AND DESIGNS SUPPLIED BY THE FOREIGN COMPANY, IT WAS SPECIFICALLY MENTIONED THAT SUCH DRAWING WAS THE PROPERTY OF THA T COMPANY AND IT COULD NEITHER BE KEPT, NOR COULD BE USED IN ANY OTHER MANNER, WITHOUT THE WRITTEN CONSENT OF THE FOREIGN CONCERN. THE LEARNED CIT DR FURTHER SUBMITTED THAT IT COULD NEITHER BE HANDE D OVER, NOR IN ANY OTHER WAY COULD BE COMMUNICATED TO A THIRD PARTY, H ENCE, THE ASSESSING OFFICER LOGICALLY INFERRED THAT THE ASSES SEE COMPANY COULD NOT BE CONSIDERED AS OWNER OF SUCH DESIGNS. THE ASS ESSING OFFICER, ACCORDING TO THE LEARNED CIT DR, IN THE ABSENCE OF ANY MATERIAL BROUGHT ON RECORD BY THE ASSESSEE COMPANY, RIGHTLY HELD THAT THE PARENT NON-RESIDENT COMPANY HAD PROPRIETARY RIGHTS IN SUCH DRAWINGS. THE LEARNED CIT DR THEREAFTER REFERRED TO THE PROVISIONS OF SECTION 9(1)(VI) AND EXPLANATION 2 THERETO AND ALSO TO THE PROVISIONS OF ARTICLE 12 OF DTAA WITH AUSTRIA WHICH ARE REPROD UCED AS UNDER FOR THE SAKE OF CONVENIENCE :- PROVIDED THAT NOTHI NG CONTAINING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM CO NSIDERATION FOR THE TRANSFER OUTSIDE INDIA OF, OR THE IMPARTING OF INFORMATION OUTSIDE INDIA IN RESPECT OF ANY DATA, DOCUMENTATION, DRAWIN G OR SPECIFICATION PAGE 66 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 RELATING TO ANY PATENT, INVENTION, MODEL, DESIGN, S ECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY, IF SUCH INCOME IS PAYABLE IN PURSUANCE OF AN AGREEMENT MADE BEFORE THE IST DA Y OF APRIL, 1976, AND THE AGREEMENT IS APPROVED BY THE CENTRAL GOVERN MENT. PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO SO MUCH OF THE INCOME BY WAY OF ROYALTY AS CONSISTS OF LUMP SUM PAYMENT MADE BY A PERSON, WHO IS A RESIDENT, FOR TH E TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF COMPUTER SOFTWARE SUPPLIED BY A NONRESIDENT MANUFAC TURER ALONG WITH A COMPUTER OR COMPUTE-BASED EQUIPMENT UNDER AN Y SCHEME APPROVED UNDER THE POLICY ON COMPUTER SOFTWARE EXPO RT, SOFTWARE DEVELOPMENT AND TRADING, 1986 OF THE GOVERNMENT OF INDIA. EXPLANATION 2.- FOR THE PURPOSE OF THIS CLAUSE. RO YALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD CAPITAL GAINS) FOR (I ) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF A PATEN, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY. (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY. (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMME RCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL; (IVA) THE USE OR RI GHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENTS BUT NOT INCLUDING THE AMOUNT REFERRED TO IN SECTION 44AB (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FI LMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH THE A CTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND (V) THE TERM ROYALTIES AND FEES FOR TECHNICAL SERVICES HAS BEEN DEFINED IN ARTICLE 12 O F DTAA WITH AUSTRIA WHICH READS AS UNDER :- ARTICLE 12 : ROYAL TIES AND FEES FOR TECHNICAL SERVICES (1) ROYALTIES AND FEES FOR TE CHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDE NT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. (2) HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE BENEFICIAL OWNER OF THE ROYA LTIES AND FEES FOR TECHNICAL SERVICES IS A RESIDENT OF THE OTHER CONTR ACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED 10% OF THE GROSS AMOUNT OF THE ROYALTIES PAGE 67 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 AND FEES FOR TECHNICAL SERVICES. (3) THE TERM ROYA LTIES AS USED IN THIS ARTICLE, MEANS PAYMENTS OF ANY KIND RECEIVED A S A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPHY FILMS OR F ILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, T RADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR T HE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC EXPERIENCE. THE LEARNED CIT DR CONTENDED THAT AS P ER THE MEANING OF THE TERM ROYALTY, AS PER BOTH THESE PROVISIONS , THE TRANSACTION BETWEEN THE ASSESSEE COMPANY AND ITS PARENT NON-RES IDENT COMPANY, FELL WITHIN THE REALM THEREOF, HENCE, THE ASSESSEE SHOULD HAVE DEDUCTED THE TAX AT SOURCE. THE LEARNED CIT DR THEREAFTER ALSO DREW OUR ATTENTION TO THE OBSERVATIONS OF THE ASSES SING OFFICER AS REGARD TO PROCUREMENT OF THE SAME DESIGNS FOR THE S AME CONTRACT, WHICH ALSO INDICATED THAT IT WAS A CASE OF ROYALTY AND NOT A CASE OF OUT-RIGHT PURCHASE THEREOF. THE LEARNED CIT DR PLAC ED HEAVY RELIANCE ON THE CONCLUSIONS DRAWN BY THE ASSESSING OFFICER W HICH HAVE ALREADY BEEN REPRODUCED HEREINBEFORE. THE LEARNED C IT DR, THEREAFTER, CONTENDED THAT THE PARENT COMPANY WAS N OT SELLING THE DESIGNS IN THE OPEN MARKET I.E. TO ANY OTHER PARTY OTHER THAN ITS SUBSIDIARIES. HENCE, IT WAS NOT A CASE OF SALE OF C OPY RIGHTED ARTICLES. THE LEARNED CIT DR FURTHER EMPHASIZED ON THE FACT T HAT IT WAS USED BY THE ASSESSEE IN MANUFACTURING OF THE TURBINE/GEN ERATOR AND WAS NOT SOLD AS SUCH IN THE OPEN MARKET LIKE PURCHASE A ND SALE OF A COPY RIGHTED BOOK OR SOFTWARE, ETC. THE LEARNED CIR DR F URTHER EMPHASIZED ON THE FACT THAT IF THE VIEW OF THE ASSE SSEE WAS ACCEPTED THEN EVERY TRANSACTION WOULD BECOME A CASE OF SALE AND IN THAT CASE, PROVISIONS RELATING TO ROYALTY WOULD BECOME REDUNDA NT. AT THIS STAGE, A QUESTION WAS POSED TO HIM THAT IF THE VIEW OF THE REVENUE IS ACCEPTED, THEN EVERY TRANSACTION WOULD BECOME A CAS E OF ROYALTY, TO WHICH THE LEARNED CIT DR COULD NOT GIVE ANY EFFECTI VE REPLY. THE LEARNED CIR DR THEREAFTER PLACED RELIANCE ON THE OR DER OF THE ASSESSING OFFICER. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED ADDITIONAL EVIDENCE AS REGARDS THE TREATMENT OF SUCH TRANSACTI ONS IN THE BOOKS OF NON-RESIDENT PARENT COMPANY WHICH WAS ADMITTED A S THE LEARNED CIT DR DID NOT OBJECT FOR ADMISSION OF THE SAME. TH E LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THIS INFORMA TION, IT WAS ABUNDANTLY CLEAR THAT SUCH TRANSACTIONS WERE TREATE D AS TRANSACTIONS OF SALE AND PURCHASE IN THE BOOKS OF PARENT COMPANY AND HAD BEEN TAXED AS BUSINESS PROFITS AND NOT AS A ROYALTY. IT WAS FURTHER POINTED OUT THAT THE TAX RATE ON BUSINESS PROFIT WAS HIGHER THAN THE TAX RATE APPLICABLE TO ROYALTIES. THE LEARNED COUNSEL FOR TH E ASSESSEE PAGE 68 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 THEREAFTER CONTENDED THAT THE OWNERSHIP IN SUCH DRA WINGS WAS TRANSFERRED TO THE ASSESSEE COMPANY ON DELIVERY OF DRAWINGS BY SUCH COMPANY TO THE ASSESSEE. HOWEVER, AS PER THE C ONDITION OF SUCH SALE TRANSACTION, THE ASSESSEE COULD NOT REPRODUCE IT ON ITS OWN OR COULD USE IT IN A MANNER NOT BEING PERMITTED BY THE SELLER. THUS, THE SALE TRANSACTION WAS SUBJECT TO CERTAIN CONDITION A ND WHICH WAS A NORMAL CONDITION IN THE CASE OF PURCHASE OF ALL COP Y-RIGHTED ARTICLES/GOODS. HENCE, SUCH TRANSACTION WAS A CASE OF OUT-RIGHT PURCHASE FOR A SPECIFIED PURPOSE. THE LEARNED COUNS EL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ASSESSEE DELIVE RED THESE DRAWINGS TO THE BUYERS OF PLANT AND MACHINERY AND S UCH CONDITION ALSO RESTRICTED SUCH BUYERS FROM USING SUCH DRAWING S FOR COMMERCIAL MANNER BENEFITS. THE LEARNED COUNSEL FOR THE ASSESS ED, THEREAFTER, CONTENDED THAT THESE WERE SUBJECT TO THE CUSTOM DUT Y AND REFUND OF CUSTOM DUTY HAD ALSO NOT BEEN CLAIMED WHICH WAS GEN ERALLY A CASE IN RESPECT OF AN ITEM RECEIVED FOR A LIMITED USE OR FOR A LIMITED PERIOD. IT WAS ALSO SPECIFICALLY POINTED OUT THAT SUCH DESI GNS WERE PROCURED FOR SPECIFIC PROJECTS ON A SINGLE USER BASIS AS THE SAME HAD TO BE GIVEN TO THE BUYER OF PLANT AND MACHINERY MANUFACTU RED BY THE ASSESSEE COMPANY. THE LEARNED COUNSEL FOR THE ASSES SEE THEREAFTER CONTROVERTED THE FACTUAL FINDINGS OF THE ASSESSING OFFICER, PARTICULARLY IN REGARD TO THE ASSESSING OFFICERS CONTENTION THA T THE ASSESSEE HAD PAID MONEY FOR THE SAME DRAWING THREE TIMES AND REF ERRED TO THE VARIOUS PAGES OF THE PAPER BOOK IN THIS REGARD. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE ACTION OF THE ASSESSING OFFICER WAS A CASE OF CHANGE OF OPINION IN RESPECT OF THE SAME TRANSACTION WHICH HAD BEEN FOUND TO BE OF THE NATUR E OF PURCHASES, BOTH IN THE COURSE OF PROCEEDINGS UNDER SECTION 144 A AS WELL AS UNDER SECTION 92CA OF THE ACT. HENCE, FOR THIS REAS ON ALSO, THE ACTION OF THE ASSESSING OFFICER WAS NOT JUSTIFIED. THE LEA RNED COUNSEL FOR THE ASSESSEE THEREAFTER CONTENDED THAT IT WAS A SETTLED LAW THAT THE SALE TRANSACTION DID NOT RESULT IN ROYALTY AND IN THIS R EGARD AGAIN SUBMITTED THAT THE TRANSFER OF SUCH DESIGNS BY THE ASSESSEE TO THE BUYERS OF GENERATORS IN AN UNBRIDLED MANNER ESTABLI SHED THIS FACT. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER REITER ATED THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS), PARTICULARLY IN RESPECT OF DRAWINGS BEIN G GOODS AND THE ACQUISITION OF DRAWINGS ON OUT-RIGHT PURCHASE BASIS COULD NOT BE CONSIDERED AS A TRANSACTION OF THE NATURE OF ROYALT Y. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE PROVISIONS OF DTAA WERE TO SUPERCEDE THE PROVISIONS OF THE INCOME TAX ACT AND FOR THIS PROPOSITION THE LEARNED CIT DR ALSO DID NOT DI SAGREE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DAVY PAGE 69 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 ASHMORE INDIA LIMITED V. CIT; 190 ITR 626, WHEREIN THE HONBLE HIGH COURT HAD POINTED OUT THAT THE TRANSFEROR RETAINED THE PROPRIETARY RIGHT IN THE DESIGNS AND ALLOWED THE USE OF SUCH RI GHTS, THE CONSIDERATION RECEIVED FOR SUCH USER WAS IN THE NAT URE OF ROYALTY. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE COMPANY WAS NOT ALLOWED TO USE SUCH RIGHT I.E. TO MAKE SIMILAR DESI GNS AT ITS LEVEL AND TO SELL THE SAME TO THIRD PARTIES AND TO PAY CONSID ERATION OUT OF SUCH SALES TO THE PARENT COMPANY AS IT WAS AN UNDISPUTED FACT THAT SUCH DESIGN WAS USED FOR A SPECIFIED PROJECT AND HAD BEE N HANDED OVER TO THE BUYER OF THE PLANT AND MACHINERY FOR THEIR REFE RENCE, IF THE SITUATION SO REQUIRED. HE FURTHER CONTENDED THAT TH E DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF LEONHARD T ANDHRA UND PARTNER,GMBH V. CIT; 249 ITR 418 WAS NOT APPLICABLE AS IN THAT CASE THE ROYALTY WAS NOT DEFINED IN DTAA BETWEEN INDIA A ND GERMANY AND IN THE ABSENCE OF SUCH DEFINITION, THE STATUTOR Y DEFINITION AS CONTAINED IN SECTION 9(1)(VI) WAS APPLIED, WHEREAS IN THE PRESENT CASE, ARTICLE 12(3) EXISTED BETWEEN TWO COUNTRIES A ND AS PER THAT DEFINITION, CONSIDERATION PAID WAS NOT TOWARDS RIGH T TO USE BUT IT WAS FOR THE USE OF DESIGNS AS SUCH AND, THEREFORE, THE AFORESAID DECISION OF THE HONBLE HIGH COURT WAS NOT APPLICABLE. THE L EARNED COUNSEL FOR THE ASSESSEE THEREAFTER REFERRED TO THE RULING OF T HE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) FOR ADVANCE RUL ING IN THE CASE OF PRE-QUIP CORPORATION V. CIT, AS REPORTED IN 255 ITR 354 (PAGES 140 TO 150 OF THE PAPER BOOK) WHEREIN IT HAS BEEN OPINE D THAT TRANSACTION OF SALE OF ENGINEERING DRAWINGS AND DESIGNS BY US C OMPANY TO INDIAN COMPANY DID NOT AMOUNT TO A TRANSACTION RESU LTING INTO PAYMENT OF ROYALTY. THE LEARNED COUNSEL FOR THE ASS ESSEE SUBMITTED THAT THE FACTS OF THIS CASE ARE IDENTICAL WITH THE FACTS OF THE PRESENT CASE BEFORE THE TRIBUNAL AND THE ROYALTY AS PER ART ICLE 12(3) OF INDO US DTAA WAS ALSO SIMILAR. HENCE, THE RATIO LAID DOW N IN THIS CASE IS SQUARELY APPLICABLE TO THE PRESENT CASE. THE LEARNE D COUNSEL FOR THE ASSESSED, THEREAFTER, REFERRED TO THE DECISION OF T HE TRIBUNAL IN THE CASE OF LUCENT TECHNOLOGIES HINDUSTAN LIMITED V. IT O AS REPORTED IN 270 ITR 62 (AT) WHEREIN THE ASSESSEE HAD ACQUIRED H ARDWARE AND SOFTWARE AND THE DEPARTMENT BIFURCATED THE TRANSACT ION AS ONE OF SUPPLY OF HARDWARE AND THE OTHER OF THE SOFTWARE, T REATING THE SOFTWARE PART AS ROYALTY, THE TRIBUNAL HELD THAT TH E ASSESSEES TRANSACTION WITH THE NON-RESIDENT COMPANY WAS FOR T HE PURCHASE OF INTEGRATED EQUIPMENT WHICH CONSISTED HARDWARE AS WE LL AS SOFTWARE AND IT WAS INSEPARABLE AND HAVING REGARD TO THE NAT URE OF AGREEMENT, WHAT THE ASSESSEE HAD PURCHASED WAS A CO PY RIGHTED ARTICLE AND NOT COPY RIGHT OF THE RIGHTS AND SIMILA R WAS THE POSITION HERE, HENCE, THIS DECISION OF THE TRIBUNAL ALSO SUP PORTED THE CLAIM OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE THEREAFTER PAGE 70 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CAS E OF INDIAN HOTELS CO. LTD. V. ITO IN ITA NO.553/MUM/00 (REFER PAGES 1 63 TO 167 OF THE PAPER BOOK),WHEREIN INDIAN OIL HAD OBTAINED THE SER VICES OF A FOREIGN COMPANY TO PREPARE THE INTERIOR DESIGN WHICH HAD TO BE USED BY THE INDIAN COMPANY FOR THE PURPOSE OF RE-DESIGNING OR R ENOVATING THE INTERIORS OF TAJ MAHAL HOTEL AT MUMBAI AND THE DESI GN SUPPLIED BY THE FOREIGN COMPANY BECAME THE PROPERTY OF INDIAN H OTEL COMPANY LIMITED (ASSESSEE) AND IN THAT BACKGROUND, THE TRIB UNAL HELD THAT THE ASSESSEE COMPANY HAD PURCHASED AND ACQUIRED INTERIO R DESIGN ON A PRINCIPAL TO PRINCIPAL BASIS I.E. AS A BUYER AND IN THAT VIEW OF THE MATTER, THE PAYMENT BY THAT COMPANY DID NOT AMOUNT TO ROYALTY. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DE CISION OF THE TRIBUNAL IN THE CASE OF WIPRO LIMITED V. ITO AS REP ORTED IN 94 ITD 9 FOR THE PROPOSITION THAT WHERE THE PAYMENT WAS FOR OBTAINING THE DATA AND USE IT THE WAY THE ASSESSEE WANTED TO USE IT, IT WAS THE USE OF A COPY-RIGHTED ARTICLE AND NOT A CASE OF TRA NSFER OF RIGHT IN THE COPY-RIGHT OF THAT ARTICLE AND SIMILAR WAS THE CASE HERE WHEREIN THE ASSESSEE COMPANY GOT THE RIGHT TO USE OF A COPY-RIG HTED ARTICLE AND NO RIGHT IN THE COPY-RIGHT OF THE DRAWINGS/DESIGNS AND THE NOTE ON THE HARD COPY OF SUCH DESIGNS CONFIRMED THIS POSITI ON I.E. THE ASSESSEE HAD NO RIGHT IN THE COPY RIGHT OF THESE DR AWINGS/DESIGNS I.E. THE ASSESSEE HAD NO RIGHT IN THE COPY RIGHT OF THESE DRAWINGS/DESIGNS AND IT COULD USE ONLY AS PER THE T ERMS AND CONDITIONS OF THE AGREEMENT WITH ITS PARENT COMPANY FOR ITS OWN PURPOSES IN THE CAPACITY OF THE OWNER THEREOF. THER EAFTER, THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE DECISION O F THE TRIBUNAL IN THE CASE OF DCIT V. FINOLEX PIPES LIMITED AS REPORTED I N 106 TTJ (PUNE) 741 WHEREIN THE TRIBUNAL HAD HELD THAT FEE PAYMENT FOR DESIGN DOCUMENTATION TO GERMAN COMPANY BY THE ASSESSEE IND IAN COMPANY FOR OUT-RIGHT SALE OF SUCH DOCUMENTATION WAS NOT RO YALTY AS PER DTAA. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO REL IED UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF JINDAL THERMAL POWER COMPANY LIMITED V. DCIT (2009) 225 CT R (KAR) 220. 8. THE LEARNED CIT DR, IN THE REJOINDER, CONTENDED THAT IN THE CASE OF PRO-QUIP CORPORATION V. CIT (SUPRA), THE LANGUAGE O F ARTICLE 12(3) OF DTAA WAS MATERIALLY DIFFERENT AND THE SAID DECISION WAS BASED ON SUCH LANGUAGE, HENCE, NOT APPLICABLE TO THE FACTS O F THE CASE. THE LEARNED CIT DR FURTHER SUBMITTED THAT THE OTHER DEC ISIONS RELIED UPON BY THE ASSESSEE WERE FACTUALLY DIFFERENT AS IN THOS E CASES, THE ASSESSEE WAS THE ULTIMATE USER OF THOSE DESIGNS/DRA WINGS ALONG WITH THE PLANT AND MACHINERY, WHEREAS IN THE PRESEN T CASE, THE ASSESSEE MANUFACTURED TURBINE/GENERATOR AND SOLD SU CH TURBINE/GENERATORS. THE CIT DR FURTHER SUBMITTED TH AT THE DECISION OF THE TRIBUNAL IN THE CASE OF LUCENT TECHNOLIGIES HIN DUSTAN LIMITED PAGE 71 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 (SUPRA) RATHER SUPPORTED THE CASE OF THE REVENUE. T HE CIT DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE BASIC DESIGN OBTAINED BY THE ASSESSEE COMPANY WAS FURTHER MODIFI ED AND SUCH MODIFIED DESIGN WAS GIVEN TO THE BUYER OF THE TURBI NE/GENERATOR AND NOT BASIC DESIGN, AS CONTENDED BY THE LEARNED COUNS EL FOR THE ASSESSED. 9. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH THE SIDES, MATERIAL ON RECORD AND THE ORDERS OF THE AUTHORITIE S BELOW. IT IS NOTED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF TU RBINE/GENERATOR AS PER THE SPECIFICATIONS/REQUIREMENTS OF ITS CUSTO MERS. FOR THIS PURPOSE, THE ASSESSEE PROCURES BASIC DESIGN FROM IT S PARENT COMPANY AND ACCORDINGLY MANUFACTURES SUCH PLANT AND MACHINERY. IT IS ALSO NOTED THAT SUCH BASIC DESIGN IS ALSO GIV EN TO THE BUYER OF PLANT AND MACHINERY BY THE ASSESSEE COMPANY. THE DI SPUTE BEFORE US IS REGARDING THE NATURE OF PAYMENT MADE BY THE A SSESSEE COMPANY TO ITS PARENT NONRESIDENT COMPANY FOR OBTAI NING SUCH DESIGNS. THE CONCLUSIONS OF THE ASSESSING OFFICER A S WELL AS THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOMETAX ( APPEALS) HAVE ALREADY BEEN REPRODUCED WHICH CONTAIN DETAILS OF JU DICIAL DECISIONS RELIED UPON BY BOTH THE SIDES. IN OUR OPINION, IF T HE VIEW OF THE ASSESSING OFFICER IS ACCEPTED, THEN THERE WILL NOT BE ANY TRANSACTION OF SALE AND PURCHASE IN SUCH SITUATIONS AND EVERY T RANSACTION WOULD COME WITHIN THE MEANING OF TERM ROYALTY. FURTHER, IN OUR OPINION, THE BASIC DISTINCTION BETWEEN A TRANSACTION OF ROYALTY AND OF OUTRIGHT SALE AND PURCHASE IS TRANSFER OF OWNERSHIP TO THE B UYER AND THIS DISTINCTION HAS BEEN MAINTAINED EVEN IN THE PROVISI ONS OF SECTION 9(1)(VI) AS WELL AS OF DTAA. WE HAVE ALSO PERUSED T HE NOTE ON THE HARD COPY OF SUCH DESIGNS. IN OUR OPINION, SUBSTANC E OF SUCH NOTE IS NOTHING BUT AN INDICATION THAT SUCH PRODUCT IS SOLD ONLY FOR SPECIFIC USE AND NO RIGHT IN COPY-RIGHT THEREOF HAS BEEN GIV EN TO THE BUYER BY THE TRANSFEROR/SELLER, MEANING THEREBY THAT SUCH AR TICLE/GOODS IN THE FORM OF DESIGNS COULD BE USED FOR SPECIFIC PURPOSES AND CANNOT BE USED FOR OTHER COMMERCIAL GAINS BY THE BUYER. THIS CAN BE PUT IN DIFFERENT WORDS I.E. IT IS A CASE OF PURCHASE OF CO PY RIGHTED ARTICLE AND NOT OF COPY RIGHTS THEREIN. THUS, ON THIS VERY FACT , WE DO NOT CONSIDER ANY NECESSITY TO GO INTO THE ISSUE FURTHER AND DEAL WITH THE JUDICIAL DECISIONS CITED BY BOTH THE SIDES. HOWEVER, BEFORE PARTING, WE CONSIDER IT APPROPRIATE TO OBSERVE THAT IF THE VIEW OF THE REVENUE THAT COPY RIGHTED ARTICLE COULD ONLY BE A TRADING ITEM O R OF THE NATURE OF FINISHED GOODS ONLY, THEN A TRANSACTION OF SALE AND PURCHASE OF SUCH DRAWINGS/DESIGNS WOULD NECESSARILY BE CONSIDERED AS A TRANSACTION OF PAYMENT OF ROYALTY, WHICH CANNOT BE CORRECT AS EVEN THE SOFTWARE HAS BEEN JUDICIALLY CLASSIFIED AS GOODS. WE ALSO DO NOT AGREE WITH THE CONTENTION OF THE REVENUE THAT WHEN THE GOODS ARE A CQUIRED FOR SELF- PAGE 72 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 CONSUMPTION, THAT WOULD AMOUNT ONLY TO USE OF SUCH ITEMS, RESULTING INTO ROYALTY BECAUSE ITEMS FOR SELFCONSUMPTION FO R USE IN INTERMEDIATE PROCESS ARE ALSO ACQUIRED ON PRINCIPAL TO PRINCIPAL BASIS BY WAY OF PURCHASE. IT IS ALSO TO BE NOTED THAT IN THE HANDS OF NON- PARENT COMPANY, SUCH TRANSACTIONS HAVE BEEN ACCEPTE D BY THE REVENUE AUTHORITIES OF THAT COUNTRY AS OF THE NATUR E OF BUSINESS PROFITS RESULTING FROM THE SALE OF SUCH DRAWINGS. H ENCE, WHEN THE SAME PROVISIONS OF DTAA ARE APPLICABLE THEN THIS AC TION OF SUCH REVENUE AUTHORITIES ALSO SUPPORTS THE CLAIMS OF THE ASSESSEE. TO SUM UP, EVEN AT THE COST OF REPETITION, WE STATE THAT I T IS A CASE OF PURCHASE OF A COPYRIGHTED ARTICLE ON PRINCIPAL TO P RINCIPAL BASIS AND NOT A CASE OF PAYMENT FOR TRANSFER OF RIGHT IN THE COPY RIGHT OF SUCH DESIGNS. IN THIS VIEW OF THE MATTER, WE CONFIRM THE FINDINGS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 10. IN THE RESULT, ALL THE APPEALS OF THE REVENUE FAIL AND ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 30TH A PRIL, 2010. 3. IN THE AFORESAID ORDER, AN ELABORATE DISCUSSION HAS BEEN MADE BY THE TRIBUNAL. IF THE AFORESAID FACTS ARE KEPT IN JU XTAPOSITION WITH THE FACTS OF THE APPEAL IN HAND, WE FIND THAT THE ASSES SEE PURCHASES TECHNICAL DRAWINGS AND DESIGN FOR RS.4,14,18,313/- FROM ITS AUSTRIAN JOINT VENTURE COMPANY I.E. VA SPACE TECH ELIN, AUST RIA AND THE SAID EXPENDITURE WAS DIRECTLY CLAIMED TO BE MANUFACTURIN G EXPENSES AND WAS CLAIMED IN ITS P & L ACCOUNT UNDER THE HEAD MA NUFACTURING EXPENSES WHICH WERE DISALLOWED BY THE LD. ASSESSIN G OFFICER DOUBTING THE GENUINENESS OF THE EXPENSES. ADMITTEDL Y, THE AUDITED ACCOUNTS, TRADING AND P & L ACCOUNT AND DETAILS OF TECHNICAL DRAWINGS EXPENSES WERE DULY FURNISHED BY THE ASSESS EE BEFORE THE ASSESSING OFFICER AS WELL AS BEFORE THE LD. CIT(A). THE STAND OF THE ASSESSEE BEFORE THE REVENUE AUTHORITIES AS WELL AS BEFORE US IS THAT THE EXPENSES WERE INCURRED FOR PURCHASE OF TECHNICA L DRAWINGS AND DESIGN FROM ITS JOINT VENTURE COMPANY FOR BUSINESS EXPEDIENCY. UNCONTROVERTEDLY, THE IMPUGNED EXPENDITURE WAS FULL Y SUPPORTED BY BILL OF ENTRIES, CUSTOM CLEARANCE, SHIPPING AGENTS DOCUMENTS, PAYMENTS THROUGH BANKING CHANNEL WITH COMPLIANCE OF RULES AND REGULATION OF FOREIGN REGULATION ACT (AT THE RELEVA NT TIME). ALL THESE DOCUMENTS WERE NOT DISPUTED BY THE ASSESSING OFFICE R AND WERE DULY EXAMINED BY THE LD. CIT(A), MEANING THEREBY, T HE EXPENSES WERE CLAIMED TO BE GENUINE BUSINESS EXPENDITURE. THERE I S CATEGORICAL FINDING IN THE IMPUGNED ORDER THAT THE GENUINENESS OF THE EXPENSES FOR INCURRING THE TECHNICAL DRAWINGS AND DESIGN WAS DULY ESTABLISHED AS THE COPIES OF THE INVOICES, PURCHASE ORDERS WERE DULY PRODUCED RIGHT FROM ASSESSMENT STAGE. EVEN OTHERWISE, THE LD . ASSESSING OFFICER HAS NOWHERE MENTIONED IN THE ASSESSMENT ORD ER THAT THE PAYMENTS FOR THE IMPUGNED EXPENSES WERE NOT MADE. T HE SUSPICION PAGE 73 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 OF THE LD. ASSESSING OFFICER IS THAT THE TRANSACTIO NS RELATING TO DRAWINGS & DESIGN EXPENSES ARE NOTHING BUT AN AFTER THOUGHT. HOWEVER, NOTING CONCRETE HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER IN SUPPORT OF HIS SUSPICION AS TO HOW THE PURCHASE ORDERS ARE NOT GENUINE. THE ASSESSEE HAS FURNISHED VARIOUS DOCUMENTS TO ESTABLISH THE GENUINENESS OF SUCH EXPE NSES AND THE TECHNICAL DESIGN WAS PURCHASED AS A MATTER OF BUSIN ESS EXPEDIENCY TO IMPLEMENT THE PROJECT, THEREFORE, WE FIND NO INF IRMITY IN THE STAND OF THE LD. CIT(A) ON THIS ISSUE. CONSEQUENTLY, AFFI RMED. OUR CONCLUSION WILL COVER GROUND NO.1 OF ITA NO.253/IND/2007 (ASSE SSMENT YEAR 2001-02) AND GROUND NO.2 OF ITA NO.255/IND/2007 (AS SESSMENT YEAR 2003-04) ALSO. 8.1 THE DEPARTMENT HAS ALSO NOT FILED ANY APPEAL A GAINST THE ORDER OF CIT(A) FOR A.Y.2004-05 HOLDING THAT TRANSA CTION IS IN THE NATURE OF PURCHASE AND DESIGN AND DRAWINGS ARE NOT IN THE NATURE OF ROYALTY. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DELETE THE DISA LLOWANCE MADE BY THE AO BY INVOKING SECTION 40(A)(I) FOR ALL THE YEARS UNDER CONSIDERATION. 6.5.2. IN THE LIGHT OF FINDINGS OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR A.YS. 2006-07 TO 2009-10 AS REPRODUCED ABOVE, AND THE FACTS OF THE CASE, WE ARE OF THE CONSIDERED OPINION TH AT THE ASSESSEE HAS PURCHASED COPYRIGHTED ITEMS IN FORM OF TECHNICAL D RAWINGS AND DESIGNS ONLY AND THE AMOUNT PAID ON ACCOUNT OF SUPPL Y OF TECHNICAL DRAWINGS AND DESIGNS IS NOT IN THE NATURE OF ROYALTY, HENCE, NO TDS WAS REQUIRED TO BE DEDUCTED UNDER SECTION 195 OF THE AC T. THEREFORE, DISALLOWANCE MADE UNDER SECTION 40(A)(IA) OF THE ACT B Y THE AO/TPO AND SUSTAINED BY THE DRP IS NOT JUSTIFIED HENCE, DIRECT ED TO BE DELETED. THUS, GROUND NO. 5 OF A.YS. 2010-11 AND 2 011-12 OF ASSESSEE`S APPEAL IS ALLOWED. 7. GROUND NO.6:FOR A.Y. 2010-11 AND GROUND NO. 7 FOR A. Y. 2011-12 RELATES TO INITIATION OF PENALTY PROCEEDING S UNDER SECTION 271(1) (C) OF THE INCOME-TAX ACT 1961. PAGE 74 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 7.1. WE FIND THAT THE ASSESSEE IS AGGRIEVED WITH THE INITIA TION OF PENALTY PROCEEDINGS UNDER SECTION 271 (1) (C) OF THE ACT. NO APPEAL LIES AGAINST MERE INITIATION OF PENALTY PROCEEDINGS. THESE GROUNDS OF APPEALS, ARE THEREFORE, PREMATURE AND ACCORDINGLY DIS MISSED. 8. GROUND NO. 7 FOR A.Y. 10-11 AND GROUND NO. 6 FOR A.Y. 11-12 : RELATES TO NOT GIVING CREDIT OF TDS OF RS. 26,920/-( A.Y. 10-11) AND RS. 1,81,109/- FOR A.Y. 11-12 . 8.1. WE HAVE CONSIDERED THE FACTS AND ARE OF THE VIEW THAT D UE CREDIT OF TDS PAID IS ALLOWABLE TO THE ASSESSEE. THEREFORE, THE AO IS DIRECTED TO ALLOW DUE CREDIT OF TDS, AS CLAIMED BY THE ASSESSEE AFTER DUE VERIFICATION. ACCORDINGLY, THESE GROUNDS OF APPEAL A RE, TREATED, AS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 265/IND/2015: REVENUE`S APPEAL FOR ASSES SMENT YEAR 2010-11 I.T.A. NO. 349/IND/2016: REVENUE`S APP EAL FOR ASSESSMENT YEAR 2011-12. 9. GROUND NO. 1: FOR A.Y. 2010-11 AND A.Y. 2011-12 PE RTAINED TO DISALLOWANCE OF WARRANTY PROVISIONS OF RS. 3,47,53 ,202/- FOR A.Y. 10-11 AND RS. 3,52,88,923/- FOR A.Y. 11-12 OF WH ICH FACTS ARE IDENTICAL EXCEPT FIGURES HENCE, SAME ARE BEING CONSI DERED TOGETHER AND BEING DISPOSED-OF ACCORDINGLY. 9.1. THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 3,47,53,20 2/- FOR THE ASSESSMENT YEAR 2010-11 AND RS. 3,52,88,923/- FOR THE ASSESSMENT YEAR 2011-12 AS WARRANTY UNDER THE HEAD SELLING EX PENSES. THE AO CALLED UPON THE ASSESSEE TO FURNISH THE PROJECT-WISE DETAILS, IN RESPECT OF WARRANTY PROVISION AND SUBSTANTIATE THE PROVISION FO R WARRANTY CLAIMED IN THE BOOKS OF ACCOUNTS. THE AO NOTED THAT THE S TATEMENT PAGE 75 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 FILED BY THE ASSESSEE GIVES THE VALUE, WHICH IS SAID TO BE THE BASIS FOR MAKING PROVISION, RATHER THAN VALUE OF CONTRACT EXECUTED . THE SAID CLAIM IS MERELY A CONTINGENT LIABILITY MADE ON ESTIMAT E BASIS AND NOR THE SALE PRICE INCLUDED THE WARRANTY EXPENSES. IN THE ABSENCE OF SATISFACTORILY EXPLANATION, THE AO CONCLUDED, THAT THE PROVISIONS WERE ARBITRARY AND THERE WAS NO RATIONALE BEHIND THE WARRAN TY PROVISIONS MADE IN THE BOOKS OF ACCOUNTS. THE ASSESSEE COMPANY H AS NOWHERE PROVED THAT SALE PRICE INCLUDED WARRANTY EXPENSES. TH E AO OBSERVED THAT THE ASSESSEE COMPANY HAS RELIED ON THE CASE OF RO TORK CONTROL (P) INDIA LTD. 314 ITR 62(SC)/(2009-TIOL-64-SC) BUT AS HE LD IN THE SAID CASE THIS PROVISION CAN BE ALLOWED IF MADE AFTER SCI ENTIFIC METHOD FOR ITS QUANTIFICATION. THE AO HAS RELIED IN THE CASE OF ME TAL BOX VS. WORKMAN 73 ITR 53 (SC) TO CONTEND THAT CONTINGENT LIABIL ITY CANNOT BE ALLOWED AS DEDUCTION. FURTHER, IN CIT VS. KALINGA TUB ES 218 ITR 164(SC) IT WAS HELD THAT ONLY SUCH EXPENDITURE, WHICH A CCRUES IN A YEAR UNDER MERCANTILE SYSTEM OF ACCOUNTING, IS ALLOWA BLE ONLY FROM THE PROFITS OF THAT YEAR. HENCE, THE AO HAS PROPOSED TO DIS ALLOW THE SAME IN DRAFT ASSESSMENT ORDER. AGGRIEVED WITH THE DRAFT OR DER, THE ASSESSEE APPROACHED TO DRP. 9.2. BEFORE THE DRP, IT WAS SUBMITTED THAT THE ASSESSEE HAS EN TERED IN TO ENTERED THE CONTRACT WITH ITS CUSTOMERS FOR THE SA LE OF GENERATORS WHICH REQUIRED BY HYDRO POWER PLANT. THE LIABILITY O F WARRANTY FLOWS PAGE 76 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 FROM THE CONTRACT SALE. MAKING A PROVISION FOR ALL KN OWN LIABILITIES IS FUNDAMENTAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNT ING. THE ASSESSEE HAS SUBMITTED PROJECT-WISE DETAILS OF THE WAR RANTY EXPENSES BOOKED DURING THE YEAR AND ALSO EXPLANATION REGARDIN G THE BASIS OF CLAIMING THE SAME AS BUSINESS EXPENDITURE. IT WAS SUB MITTED THAT ONCE THE WARRANTY PERIOD SPECIFIED UNDER THE CONTRACT L APSES, THE SURPLUS BALANCE LYING IN THE WARRANTY PROVISION IS TRANSFERRED BACK TO PROFIT & LOSS ACCOUNT. THE ASSESSEE HAS ALSO PRODUCED BEFORE THE LD. AO, ORDERS OF CIT(A) ON SIMILAR ISSUES OF THE ASSESS EE ARISING IN AY 2003-04 AND AY 2004- 05, WHEREIN THE CIT(A) HAS ALLO WED THE PROVISION FOR WARRANTY AS DEDUCTIBLE EXPENSE. FURTHER , THE CIT(A) ORDER FOR A Y 2003-04 HAS ALSO BEEN UPHELD BY THE INDORE B ENCH OF THE INCOME TAX APPELLATE TRIBUNAL VIDE ORDER DATED 28 D ECEMBER 2011 IN I.T.A. NO. 255/IND/2007 AND VIDE ORDER DATED 03.07. 2014 FOR A.Y. 2006-07,2007-08, 2008-09 AND 2009-10 IN LTA NO. IT(TP)A.NO.5/IND/2011, IT(TPA)NO.313/IND/2011, IT(T P)A NO.616/IND/2012, & IT(TP)A NO.120/IND/2014 & 255/IN D-2007. THE DRP FURTHER OBSERVED THAT NO APPEAL HAS BEEN FILED B Y THE TAX AUTHORITIES AGAINST THE ORDER OF THE LD. CIT(A) FOR AY 2004-05. THE FACTS OF THE CURRENT APPEALS ARE SAME AS THOSE COVERED IN THE PREVIOUSLY MENTIONED ORDERS. THE ASSESSE HAS ALSO RE LIED ON HON`BLE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS VS. CIT[200] PAGE 77 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 245 ITR 428 (SC) FOR THE PROPOSITION THAT IF A BUSINESS LIABILITY HAS ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD B E ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND D ISCHARGED AT A FUTURE DATE. BASED ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, THE DRP HAS DIRECTED THE AO TO ALLOW THE ASSESSEE AS DED UCTION, WHILE COMPUTING THE INCOME OF THE ASSESSEE AS IT HAS CREATE D THE PROVISION FOR WARRANTY. 9.3. BEING, AGGRIEVED THE REVENUE HAS FILED THIS APPEAL B EFORE THE TRIBUNAL. THE LD. CIT (DR) SUBMITTED THAT THE AO ALSO D ISALLOWED PROVISION OF WARRANTY EXPENSES ON THE PLEA THAT WARRAN TY PROVISION IS A CONTINGENT LIABILITY. THE LD. DRP VIDE ORDER DA TED 23. 12. 2014 FOR THE ASSESSMENT YEAR 2010-11 HAS HELD THAT THE ASSESSEE H AS MADE SUCH ESTIMATE AND AT APPROXIMATELY 1% OF COGS FROM THE DETAILS FURNISHED FOR A.Y. 2006-07 TO A.Y. 2010-11. IT IS SE EN THAT THE OVERALL REVERSAL OF PROVISIONS FOR THIS PERIOD IS 17% OF THE PROVISIONS MADE AND HAS FALLEN TO 7% IN A.Y. 2010-10, CONSIDERING ON LY THIS YEAR. THIS SHOWS THAT THE PROVISION MADE IS NOT EXCESSIVE. THE AS SESSEE COMPANY HAS DEBITED AN AMOUNT OF RS. 3,47,53,202/-AS WARRANTY EXPENSES UNDER THE HEAD SELLING EXPENSES. THE DETAILS AS PROVI DED OF WARRANTY PROVISION SHOWED THAT ARBITRARY PROVISION HAS BEEN MAD E FOR WARRANTY. FURTHER, THE ASSESSEE HAS FAILED TO FULFILL THE CONDITI ONS IN RESPECT OF GOODS SOLD TO CREATE WARRANTY LIABILITY. THEREFORE, THE LIABILITY ARISING PAGE 78 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 ON ACCOUNT OF THIS CLAIM, IS HIGHLY CONTINGENT AND DEP ENDENT ON THE HAPPENING OF CERTAIN EVENTS. UNLESS THE CONTINGENT EVEN T BECOMES CERTAIN, THE ASSESSEE DOES NOT HAVE ANY OBLIGATION FOR DAMAGES. FURTHER, THE DRP UPHELD THE DISALLOWANCE MADE ON ACCOU NT OF WARRANTY PROVISIONS DURING THE ASSESSMENT YEAR 2006-0 7 TO 2009-10. FURTHER, IT HAS BEEN OBSERVED THAT THE ASSESSEE HAS FAIL ED TO DEMONSTRATE THAT IT MEETS THE CONDITIONS LAID DOWN BY THE HO N`BLE SUPREME COURT IN THE CASE OF ROTORK CONTROL (P) INDIA LTD. 314 ITR 62(SC)/ (2009-TIOL-64-SC), AND M/S. METAL BOX 73 ITR 53 FOR ALLOW- ABILITY OF WARRANTY EXPENSES AND SUBMITTED THAT THE DEDU CTION FOR THE SAME CANNOT BE ALLOWED. 9.4. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSE E, SUBMITTED THAT THE DRP HAS RIGHTLY DELETED THE ADDITION AS THE SIMILAR ADDITIONS WERE DELETED BY THE TRIBUNAL IN EARLIER YEA RS IN ASSESSEE`S OWN CASE. THE ACTIVITY OF THE ASSESSEE IS BEING TURNKE Y CONTRACTS, EPC CONTRACT, AND SUPPLY OF TURBINES/GENERATORS STIPULATE W ARRANTY OBLIGATIONS. THE ASSESSEE HAS MADE WARRANTY PROVISI ONS APPROXIMATELY 1% OF COST OF GOODS SOLD (COGS) WHICH HAS BEEN HELD TO BE NON- EXCESSIVE CONSIDERING DATA FOR A.YS. 2006-07 TO 2010- 11. THE LEARNED COUNSEL PLACED RELIANCE IN THE CASE OF ROTORK CONTROL (P) INDIA LTD. 314 ITR 62(SC)/(2009-TIOL-64-SC). PAGE 79 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 9.5. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIE S AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE ASSESSEE HAS ENTERED INTO CONTRACTS WITH ITS CUSTOMERS FOR THE SALE OF GENERATORS AND OTHER EQUIPMENTS REQUIRED BY HYDRO POW ER PLANTS. SUCH CONTRACTS CONTAIN THE ESSENTIAL WARRANTY CLAUSE, W HICH SERVES AS AN ASSURANCE, OR GUARANTEE BY A SELLER OF GOODS ABOU T THE CHARACTER, QUALITY OR FITNESS OF THE PRODUCT UNDER SALE FOR THE AG REED PERIOD. THE OBLIGATION OF WARRANTY FLOWS FROM THE CONTRACT OF SAL E. DURING THE WARRANTY PERIOD, THE ASSESSEE IS COMMITTED TO TAKE REMED IAL ACTION AT HIS COST SHOULD THERE BE FAILURE IN QUALITY OR PERFO RMANCE OF ITS PRODUCTS (I.E. GENERATORS AND EQUIPMENTS) SOLD. WE AL SO NOTE THAT MAKING A PROVISION FOR ALL KNOWN LIABILITIES IS A FU NDAMENTAL PRINCIPLE OF THE MERCANTILE SYSTEM OF ACCOUNTING AND THE ASSESSEE BY PROVISIONING FOR THE LIABILITY ARISING FROM WARRANT Y CLAUSES OF THE LONG- TERM CONTRACTS HAS TO ABIDE BY SUCH ACCOUNTING PRINCIP LES. IT IS SEEN THAT THE ASSESSEE HAD DEBITED THE RELEVANT EXPENSES TO THE WARRANTY PROVISION ACCOUNT. FOR THIS PURPOSE, THE ASSESSEE HAS FURNISHED PROJECT-WISE DETAILS OF THE WARRANTY EXPENSES BOOKED DURING THE YEAR AND ALSO EXPLANATION REGARDING THE BASIS OF CLAIMING THE SAME AS BUSINESS EXPENDITURE. IT WAS ALSO SUBMITTED TO THE LD. AO THAT ONCE THE WARRANTY PERIOD SPECIFIED UNDER THE CONTRACT LAPSES , THE SURPLUS PAGE 80 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 BALANCE LYING IN THE WARRANTY PROVISION ACCOUNT IS TR ANSFERRED BACK TO THE PROFIT AND LOSS ACCOUNT. 9.5.1. WE FIND THAT FOR A Y 2003-04 AND A Y 2004-05, THE PROVISION FOR WARRANTY HAS BEEN HELD TO BE IN THE NATU RE OF ASCERTAINED LIABILITY AND NOT CONTINGENT LIABILITY BY THE LD. CIT (A) VIDE ORDERS DATED 19 JANUARY 2007 AND 23 NOVEMBER 2007. 9.5.2. WE ALSO FIND THAT ORDER OF LD. CIT (A) FOR A Y 2003- 04 HAS ALSO BEEN UPHELD BY THE SAME BENCH OF THE HON'BLE IND ORE BENCH OF THE INCOME TAX APPELLATE TRIBUNAL VIDE ORDER DATED 2 8.11.2011 IN I.T.A. NO. 255/IND-2007. WE ALSO FIND THAT THE TAX AUTHO RITIES AGAINST THE ORDER OF THE LD. CIT (A) HAVE FILED THE NO APPEAL FOR AY 2004-05. THE FACTS OF CURRENT APPEALS ARE SAME AS THOSE COVERED IN THE AFORESAID ORDERS. THE FOLLOWING KEY JUDICIAL PRECED ENTS SUPPORT THE CONTENTIONS OF THE ASSESSEE: DCIT-3(1), BHOPAL VS VA TECH HYDRO INDIA PRIVATE LIMITED (ITA NO 255/IND- 2007). ROTORK CONTROLS INDIA (P) LTD - 2009-TIOL-64-SCIT BHARAT EARTH MOVERS V CIT - 245 ITR 428 (2000) (SC) CIT V VINITEC CORPORATION PVT LTD - 278 ITR 337 (2005 ) (DEL) CIT VS. MAJESTIC AUTO LTD. (204 ITR (AT) 14) (CHD) 9.5.3. HENCE, BASED ON THE ABOVE, IT CAN BE CONCLUDED THAT TH E PROVISION FOR WARRANTY IS IN THE NATURE OF AN ASCERTAI NED LIABILITY (WITH A REASONABLE ESTIMATE OF THE QUANTUM) AND NOT A CONTIN GENT LIABILITY, HENCE, A DEDUCTION FOR THE SAME SHOULD BE ALLOWED WH ILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSM ENT YEARS. PAGE 81 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 9.5.4. FURTHER WE FIND THAT THE INDORE BENCH OF THE INCOME TAX APPELLATE TRIBUNAL VIDE ORDER DATED 03.07.2014 IN I T A NO. IT(TP)A NO.5/IND/ 2011, IT(TP)A NO.313/IND/2011, IT(TP)A NO.616/IND/2012,& IT(TP)A NO.120/IND/2014 12 255/IN D-2007 IN PARA 6 TO 8 OF THE ORDER OBSERVED AS UNDER : 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREF ULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOU ND THAT ASSESSEE HAS MADE PROVISION FOR WARRANTY FOR EACH P ROJECT SEPARATELY TAKING INTO CONSIDERATION ALL THE FACTOR S WITH REGARD TO THE SCOPE OF WORK, TERMS OF WARRANTY AGREED WITH TH E CUSTOMERS, ESTIMATED COST OF WARRANTY BASED ON EARLIER YEARS EXPERIENCE. THIS METHOD OF WARRANTY PROVISIONS WAS CONSISTENTLY FOLLOWED OVER THE YEARS, WHICH IS ALSO IN ACCORDANCE WITH TH E ACCOUNTING STANDARD U/S.145(2). THUS, WE FOUND THAT THE BASIS OF PROVISION WAS NOT AN AD-HOC OR CONTINGENT AS ALLEGED BY THE A O. WITH REGARD TO THE REASONABLENESS OF THE WARRANTY PROVISION, WE HAD VERIFIED FROM THE WARRANTY PROVISION REVERSED ON YEARLY BASI S AND THE SAME WAS FOUND TO BE REASONABLE. EXACTLY SIMILAR IS SUE WAS DEALT BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEAR 2003-04 VIDE ORDER DATED 28-12-2011 IN ITA NO.255/I ND/2007, WHEREIN IT WAS HELD THAT THE PROVISION OF WARRANTY WAS NOT A CONTINGENT LIABILITY. THE PRECISE OBSERVATION OF TRIBUNAL WERE AS UNDER:- 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON FILE. WE FIND THAT THE FOLLOW ING PROVISION WAS MADE OF THE WARRANTY CLAIM IN THE ACCOUNTS OF THE A SSESSEE: PROJECT NAME TOTAL COST INCURRED (IN RS.) PROVISION @1% (IN RS.) WARRANTY PERIOD. THE DETAILS OF WARRANTY PROVISION AND ITS REVERSALS ARE REPRODUCED HEREUNDER: PROJECT NAME TOTAL COST INCURRED (IN PROVISION @1% (IN RS.) WARRANTY PERIOD PAGE 82 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 RS.) BHANDARDHARA 53230000 532300 18 MONTHS FROM TEST RUN TRIVENI SUGARS 12000000 120000 2 CRUSHING SEASONS VAJRA 6550000 65500 18 MONTHS FROM SUPPLY CHASKAMAN 7550000 75500 18 MONTHS FROM SUPPLY RANA SUGARS 5190000 51900 2 CRUSHING SEASONS TRIVENI TURBO 4915000 49150 24 MONTHS FROM SUPPLY HPCL 6600000 66000 24 MONTHS FROM SUPPLY RENUKA SUGARS 9150000 91500 2 CRUSHING SEASONS NA LOI 25450000 254500 24 MONTHS/8 HRS. OF OPERATION PAN AFRICA 9028000 90280 18 MONTHS FROM COMMISSIONING SHRI RAM 5315000 53150 18 MONTHS FROM COMMISSIONING KORADI 1630000 16300 12 MONTHS FROM COMMISSIONING WEST COAST 12200000 122000 24 MONTHS FROM OPERATION TOTAL 15,88,080 THE DETAILS OF WARRANTY PROVISION AND ITS REVERSALS ARE REPRODUCED HEREUNDER: S.NO. ASSESSMENT WARRANTY WARRANTY PROVISION OF PAGE 83 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 YEAR PROVISION CREATED DURING THE PERIOD (IN RS.) EARLIER YEARS REVERSED DURING THE PERIOD (IN RS.) 1 2003-04 1588080 2 2004-05 3024128 680100 3 2005-06 6954871 529718 4 200607 6810422 487755 5 2007-08 6572822 2872949 TOTAL: 24950323 45701522 IF THE TOTALITY OF THE FACTS ARE ANALYSED, WARRANTY CLAIMED IS INBUILT IN THE SALE MECHANISM AND THE WARRANT PROVISION WAS MADE DUE TO CONTRACTUAL LIABILITY WHICH CAN BE BASED UPON ESTIM ATED LIABILITY WHICH IS OTHERWISE ELIGIBLE FOR DEDUCTION U/S 37 OF THE ACT. INCURRING OF LIABILITY IS CERTAINTY WHEREAS THE QUA NTIFICATION DEPENDS UPON CERTAIN BUSINESS EXIGENCY AND AT THE S AME TIME, EXACT QUANTIFICATION MAY NOT BE POSSIBLE WHEN SUCH PROVISION IS ESTIMATED, WHICH IS TO BE DISCHARGED AT A FUTURE DA TE, THEREFORE, IT IS LAWFULLY DEDUCTIBLE. OUR VIEW IS SUPPORTED BY TH E RATIO LAID DOWN IN DECISIONS FROM HONBLE APEX COURT IN BHARAT EART H MOVERS LTD. VS. CIT (245 ITR 428) (SC), CIT VS. VINITEC CORPORA TION PVT. LTD. (278 ITR 337) (DEL) AND CIT VS. MAJESTIC AUTO LTD. (204 ITR (AT) 14) (CHD). THEREFORE, THE STAND OF THE LD. CIT(A) IS AF FIRMED. 6.3 AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DELETE THE DISA LLOWANCE MADE BY THE AO IN RESPECT OF PROVISION OF WARRANTY. 7. IT IS PERTINENT TO MENTION HERE THAT AGAINST TH E ORDER OF CIT(A) FOR THE ASSESSMENT YEAR 2004-05, NO APPEAL HAS BEEN FIL ED BY THE REVENUE BEFORE THE TRIBUNAL, WHICH FURTHER SUBSTAN TIATES THE FACT THAT THE DEPARTMENT HAS ACCEPTED THE ASSESSEES CLA IM OF WARRANTY AS ASCERTAINED LIABILITY. IN THE RESULT, GROUNDS TAKEN BY THE ASSESSEE IN ALL THE YEARS WITH RESPECT TO PROVISION OF WARRANTY ARE ALLOWED. 9.5.5. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES, WE FIND THAT THE ASSESSEE HAS MADE PROVISION FOR WARRANTY FOR EAC H PROJECT PAGE 84 OF 84 M/S. ANDRITZ HYDRO PVT. LTD V DCIT/ T.P.A. NO.157/ IND/2015 &316/IND/2016/ A.Y.:10-11&11-12 DCIT VS. ANDRITZ HYDRO PVT. LTD T.P. A. NO. 265/I ND/2015 & 349/IND/2016/A.Y.:10-11&11-12 SEPARATELY TAKING INTO CONSIDERATION ALL THE FACTORS WIT H REGARD TO THE SCOPE OF WORK, TERMS OF WARRANTY AGREED WITH THE CUST OMERS AND ESTIMATED COST OF WARRANTY BASED ON EARLIER YEARS EX PERIENCE. THIS METHOD OF WARRANTY PROVISIONS WAS CONSISTENTLY FOLLOWE D OVER THE YEARS, WHICH IS ALSO IN ACCORDANCE WITH THE ACCOUNTIN G STANDARD UNDER SECTION 145(2). THUS, WE ARE OF THE VIEW THAT THE BASIS OF PROVISION WAS NOT AN AD-HOC OR CONTINGENT AS ALLEGED BY THE AO. WITH REGARD TO THE REASONABLENESS OF THE WARRANTY PROVISION , WE HAD VERIFIED FROM THE WARRANTY PROVISION REVERSED ON YEARLY BASIS AND THE SAME WAS FOUND TO BE REASONABLE. IN VIEW OF THESE FACTS AN D CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT DRP IS JUSTIFIE D IN ALLOWING THE DEDUCTION ON ACCOUNT OF WARRANTY PROVISIONS. IN THE RE SULT, GROUNDS TAKEN BY THE REVENUE FOR THE A.YS. 2010-11 AND 2011-12 WITH RESPECT TO PROVISION OF WARRANTY ARE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AN D APPEAL OF REVENUE IS DISMISSED FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12. 11. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.02.2017 . SD/- SD/- ( . . ) (D.T.GARASIA) JUDICIAL MEMBER ( . . ) (O.P.MEENA) ACCOUNTANT MEMBER ' / DATED : 28 FEBRUARY, 2016.OPM
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