Appeal details
Counselvise Citation
[2018] 125 COUNSELVISE.COM (IT) 9368 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 11 month(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-02-2018
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2011-2012
Appeal Filed On
09-03-2016
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E , ! , ' # !$ , ! % BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM '. / ITA NO. 376/PUN/2016 ' (' / ASSESSMENT YEAR : 2011-12 SPICER INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS SPICER INDIA LIMITED), 29 MILESTONE, PUNE-NASHIK HIGHWAY, VILLAGE : KURULI, TAL: KHED, PUNE-410 501 PAN : AAECS1869C .... / APPELLANT ) / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE. / RESPONDENT '. / ITA NO. 826/PUN/2016 ' (' / ASSESSMENT YEAR : 2011-12 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE. .... / APPELLANT ) / V/S. SPICER INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS SPICER INDIA LIMITED), 29 MILESTONE, PUNE-NASHIK HIGHWAY, VILLAGE : KURULI, TAL : KHED, PUNE-410 501 PAN : AAECS1869C / RESPONDENT 2 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 ASSESSEE BY : SHRI R.D. ONKAR REVENUE BY : SHRI RAJEEV KUMAR, CIT / DATE OF HEARING : 07.02.2018 / DATE OF PRONOUNCEMENT : 09.02.2018 * / ORDER PER VIKAS AWASTHY, JM THESE CROSS APPEALS BY THE ASSESSEE AND THE DEPART MENT ARE DIRECTED AGAINST ASSESSMENT ORDER DATED 26.02.2016 PASSED U/S.1 43(3) R.W.S 144C(13) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE, ASSEMB LIES AND SALE OF AUTO COMPONENTS. DURING THE PERIOD RELEVANT TO ASSESSME NT YEAR UNDER APPEAL, ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES (AE). REFERENCE U/S.92CA(1) OF THE ACT WAS MADE TO THE TRA NSFER PRICING OFFICER (TPO) FOR COMPUTATION OF THE ARMS LENGTH PRICE (ALP) IN RE LATION TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY ASSESSEE WITH ITS AE. THE TPO VIDE ORDER DATED 29.01.2015 MADE ADJUSTMENT OF RS.14,54,45,173/ - IN RESPECT OF ROYALTY PAYMENT TO ITS AE, DANA CORP., USA. THE TPO HELD THAT THE ASSESSEE HAS FAILED TO SHOW ANY ADVANTAGE FROM THE SERVICES RENDE RED BY DANA CORP., USA, THEREFORE, PAYMENT OF ROYALTY IS NOT JUSTIFIED AND TOOK THE ALP OF ROYALTY PAYMENT AS NIL. THE ASSESSING OFFICER IN LINE WITH THE ORDER OF TPO PA SSED DRAFT ASSESSMENT ORDER ON 30.03.2015. FURTHER, THE ASSESSING OFFICER MADE ADDITION OF RS.2,25,00,000/- ON ACCOUNT OF WARRANTY PROVISION AND D ISALLOWED MANAGEMENT SERVICES FEES OF RS.14,54,45,173/- PAID TO ASIA INVESTMENT PVT. 3 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 LTD., A GROUP CONCERN OF THE ASSESSEE. THE ASSESSING O FFICER HELD THAT SERVICES RENDERED BY THE ASIA INVESTMENT PVT. LTD. ARE GENERA L IN NATURE. THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE THE REASON FOR MAKING SUCH HUGE PAYMENT. THE ASSESSEE HAS ALSO NOT BEEN ABLE TO SHOW THROUGH C OGENT EVIDENCE, SERVICES RENDERED BY ASIA INVESTMENT PVT. LTD. 3. AGGRIEVED BY THE ADDITIONS MADE BY ASSESSING OFFICER AN D TPO, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PAN EL (DRP). THE DRP VIDE DIRECTIONS DATED 30.12.2015 DELETED THE TRANSFER PRIC ING ADJUSTMENT IN RESPECT OF ROYALTY PAYMENT, AS WELL AS, ADDITION MADE BY TH E ASSESSING OFFICER IN RESPECT OF WARRANTY PROVISION. HOWEVER, IN RESPECT OF MANA GEMENT SERVICES FEES RS.14,54,45,173/- PAID TO ASIA INVESTMENT PVT. LTD, INDIAN ASSOCIATE OF THE ASSESSEE, THE DRP CONFIRMED THE DISALLOWANCE. IN LINE WITH T HE DIRECTIONS OF DRP, THE ASSESSING OFFICER PASSED IMPUGNED ASSESSMENT ORD ER CONFIRMING ADDITION OF RS.14,54,45,173/- ON ACCOUNT OF MANAGEMENT SERV ICES FEES. AGAINST THE ASSESSMENT ORDER DATED 26.02.2016 AND FINDINGS OF THE DRP, BOTH, THE ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE THE TRIBUNAL. 3.1 THE ASSESSEE IN ITS APPEAL HAS RAISED TWO GROUNDS. BO TH THE GROUNDS ARE DIRECTED TOWARDS SINGLE ADDITION I.E. ON ACCOUNT OF DISALLOWANC E OF MANAGEMENT SERVICES FEES RS.14,54,45,173/-. THE DEPARTMENT IN ITS APPEAL HAS RAISED SIX GROUNDS. T HE GROUND NOS. 1 TO 4 ARE DIRECTED TOWARDS DELETING ADDITION ON ACCOUNT O F PAYMENT OF ROYALTY TO DANA CORP., USA. IN GROUNDS NOS. 5 AND 6, THE REVENUE HAS ASSAILED DELETING OF ADDITION ON ACCOUNT OF WARRANTY PROVISION. 4 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 4. SHRI R.D. ONKAR APPEARING ON BEHALF OF ASSESSEE SUBMITT ED AT THE OUTSET THAT GROUNDS RAISED BY ASSESSEE IN ITS APPEAL AND GROUN D NO. 1 TO 4 RAISED BY THE DEPARTMENT AGAINST ALLOWING OF PAYMENT OF ROYALTY TO DANA CORP., USA ARE SQUARELY COVERED BY THE DECISION OF TRIBUNAL IN CROSS APP EALS IN ASSESSEES OWN CASE I.E. ITA NO.251/PUN/2014 AND ITA NO.1327/PUN/2014 FOR ASSESSMENT YEAR 2009-10 DECIDED ON 10.02.2017. 4.1 THE LD. AR SUBMITTED THAT IDENTICAL ISSUES HAD COME UP IN CROSS APPEAL BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2010-11 I.E. ITA NO . 1321/PUN/2015 AND ITA NO. 1350/PUN/2015 DECIDED ON 27.10.2017. THE CO- ORDINATE BENCH OF TRIBUNAL BY FOLLOWING THE DECISION IN EARLIER ASSESSMENT YEAR GRANTED RELIEF TO THE ASSESSEE. THE LD. AR PLACED ON RECORD COPY OF ORDER OF TRIBUNAL FOR ASSESSMENT YEAR 2009-10 AND 2010-11. THE LD. AR STATED AT THE BAR THAT THERE HAS BEEN NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF TH E ASSESSMENT YEAR UNDER APPEAL. THE NATURE OF TRANSACTIONS ARE IDENTICAL AN D ARE EMANATING FROM SAME SET OF AGREEMENTS BETWEEN ASSESSEE AND AES. 4.2 IN RESPECT OF GROUND NO. 5 AND 6 RAISED IN APPEAL BY DEPARTMENT, THE LD. AR SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINE SS OF MANUFACTURE OF FULLY ASSEMBLED LIGHT AXLES AND DRIVE SHAFTS AND COMPONENTS THEREOF USED IN SPORT UTILITY VEHICLES (SUVS) AND LIGHT COMMERCIAL VEHICLES (LCV S) MANUFACTURED BY ORIGINAL EQUIPMENT MANUFACTURERS (OEMS). THE SALE ORDER OF THE CUSTOMERS INVARIABLY HAS A CLAUSE REGARDING WARRANT Y AND SALES INVOICE PRICE INCLUDES WARRANTY AS PART OF COST OF GOODS SOLD. THE ASSESSEE EMPLOYS MERCANTILE METHOD OF ACCOUNTING AND PROVIDES FOR WARRANTY LIABILITY AT 0.3% OF SALES BASED ON SCIENTIFIC ANALYSIS OF PAST DATA AND REPRES ENTS A RELIABLE ESTIMATE OF LIABILITY ARISING OUT OF SALES MADE DURING THE RELEVANT PREV IOUS YEAR. THE LD. AR ASSERTED THAT ASSESSEE QUALIFIES THE TEST LAID DOWN BY HON'BLE SUPREME 5 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 COURT OF INDIA IN THE CASE OF ROTORK CONTROLS INDIA P. LTD VS. CIT REPORTED AS 314 ITR 62. THE DRP HAS GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE LAW LAID DOWN IN THE CASE OF ROTORK CONTROLS INDIA P. LTD (SUPRA). 5. ON THE OTHER HAND, SHRI RAJEEV KUMAR REPRESENTING T HE DEPARTMENT VEHEMENTLY SUPPORTED THE FINDINGS OF TPO IN MAKING ADJUST MENT IN RESPECT OF ROYALTY PAYMENT TO DANA CORP., USA. HOWEVER, THE LD. DR FA IRLY ADMITTED THAT ISSUE RELATING TO PAYMENT OF ROYALTY AND PAYMENT OF MANAG EMENT SERVICES FEES HAS BEEN CONSIDERED BY TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009-10 AND 2010-11. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY REPRESENTATIV ES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF AUTHORITIES BELOW. WE HAV E ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR HAS PLACED HIS RELIANCE. FIRST, WE WILL TAKE THE APPEAL OF ASSESSEE. THE ASSESSEE IN ITS APPEAL HAS ASSAILED DISALLOWANCE OF MANAGEMENT SERVICES FEES RS.14,54,45,1 73/- PAID TO ASIA INVESTMENT PVT. LTD. WE FIND THAT IDENTICAL GROUND W AS RAISED BY ASSESSEE IN ITS APPEAL IN ITA NO. 251/PUN/2014 (SUPRA). IT IS AN UNDIS PUTED FACT THAT FACTS AND CIRCUMSTANCES IN THE PRESENT APPEAL ARE IDENTIC AL TO THE FACTS IN ASSESSMENT YEAR 2009-10. MANAGEMENT SERVICES FEES HAS BEEN PAID UNDER CORPORATE SERVICES AGREEMENT DATED 14 TH DECEMBER, 2004 AND RENEWED THEREAFTER, TO BE EFFECTIVE TILL 31 ST DECEMBER, 2015. THE SAID AGREEMENT IS AT PAGE 229 TO 237 OF THE PAPER BOOK. THE ASSESSEE UNDER THE SAID AGREEMENT AVAILED SUPPORT SERVICES IN RESPECT OF HUMAN RESOURCES, ENVIRONM ENT, HEALTH & SAFETY, BUSINESS DEVELOPMENT, MARKETING, FINANCE, LEGAL AND TAXATION A ND SECRETARIAL ETC. MANAGEMENT SERVICES FEES IS PAID TO ASIA INVESTMENT PVT. LTD AT THE RATE 2.85% OF SALES. IT HAS BEEN CONTENTED THAT TAX AT SOURC E HAS BEEN DEDUCTED IN 6 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 RESPECT OF SAID PAYMENT. THE CO-ORDINATE BENCH OF TRIBUNA L WHILE DECIDING THIS ISSUE IN FAVOUR OF ASSESSEE FOR ASSESSMENT YEAR 2009-10 HELD AS UNDER: 23.WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE CORPORATE ISSUE RAISED BY THE ASSESSEE IS AGAINST T HE DISALLOWANCE OF MANAGEMENT FEES PAID BY THE ASSESSEE. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH AIPL DATED 14.12.2004. THE SAID CONC ERN WAS ENGAGED IN PROVIDING PROFESSIONAL AND MANAGEMENT SERVICES TO T HE ASSESSEE. THE ASSESSEE HAS ENLISTED BENEFITS RECEIVED BY IT BY MA KING THE SAID PAYMENT OF MANAGEMENT FEES TO AIPL WHICH ARE AS UNDER:- HUMAN RESOURCE : AIPL CONSISTENTLY PROVIDED HUMAN RESOURCE SERVICE S LIKE EDUCATION / TRAININGS SERVICES WITH THE INTENTION O F DEVELOPING A TALENT POOL, BY EDUCATING, TRAINING, AND DEVELOPING A CHAIN OF EMPL OYEES WHO ARE SLATED TO TAKE OVER THE BATON OF FUTURE LEADERSHIP. FURTHER, AIPL ADVISED SIPL BASED ON SURVEY OUTPUT LIKE COMPENSATION SURVEY, SUPPORTED IN FORMI NG HR POLICIES LIKE PERFORMANCE MANAGEMENT SYSTEM ETC., SUPPORTED ON SE TTING-UP AND DEPLOYING THE OPERATING ENGINEERING MODEL CONCEPT ACROSS SIPL. BUSINESS DEVELOPMENT, MARKETING AND DISTRIBUTION : SERVICES LIKE CONDUCTING PRESENTATIONS ON LATEST TECHNOLOGIES AT CLIENT LOCA TION, MEETING WITH KEY CUSTOMERS TO GENERATE OPPORTUNITIES FOR SIPL, SUPPORTING IN P ARTICIPATION AT VARIOUS BUSINESS EVENTS ETC. THIS SUPPORT FROM AIPL RESULTED IN INCR EASED TURNOVER YEAR ON YEAR AS WELL AS BOOST IN AFTERMARKET SALES AS PROVIDED VIDE SUBMISSION DATED 26 MARCH 2013 BEFORE THE LEARNED A O . FINANCE : AIPL'S STRONG CORPORATE RELATIONSHIP WITH LEADING LENDING INSTITUTIONS, COMMERCIAL BANKS, INSURANCE COMPANIES SUPPORTED SIP L IN ARRANGING AND AVAILING LONG TERM FUNDS AND SHORT TERM WORKING CAP ITAL NEEDS AT COMPETITIVE RATES, COVERING FOREIGN EXCHANGE EXPOSURE RISK, NEG OTIATING QUOTES FOR INSURANCE AS WELL AS REVIEWING AND ADVISING FOR RISK COVERAGE ETC. LEGAL AND TAXATION : IN ACCORDANCE WITH FREQUENT CHANGES IN VARIOUS AC TS AND RULES IN DIRECT AND INDIRECT TAX LAWS AND VARIOUS O THER LAWS, AIPL SUPPORTED IN ADVISING FROM TIME TO TIME WITH REGARD TO CHANGES W HICH HELPED SIPL TO COMPLY WITH ALL THE LAWS AND REGULATIONS. OPERATIONAL OVERVIEW : AIPL CONDUCTED PERIODIC OPERATION REVIEW MEETINGS TO DRIVE THE PERFORMANCE OF SIPL AND SUPPORTED FOR EXC ELLING THE OPERATIONS. IN ADDITION TO THAT, ADVISORS DRAWN FROM DIVERSE FIELD S WERE AVAILABLE FOR ADVISING SIPL IN THE MATTERS OF STRATEGIC ISSUES, KEY BUSINE SS DECISIONS, ORGANIZATIONAL MARKET DEVELOPMENT AND GLOBAL TREND. OPERATIONAL EXCELLENCE DRIVE : AS THE MAIN FOCUS WAS ON COMPETENCE WITH GLOBAL BENCHMARK, AIPL INITIATED VARIOUS PROGRAMS WITH AN OBJECTIVE WHICH DIRECTLY BENEFITED SIPL TO MANUFACTURE BASED ON THE REQUIREM ENT OF MARKET/ CUSTOMERS, FOCUS FLOW, STABLE PRODUCTION ACROSS ALL TIERS, LES S FLUCTUATED DELIVERY REQUESTS ETC. FACILITIES : SIPL USED FACILITY SET UP OF AIPL WHICH IS WELL E QUIPPED FOR THEIR BOARD MEETINGS AND MEETINGS WITH OVERSEAS VISITORS AND AL SO OTHER FACILITIES LIKE TRANSIT FACILITIES FOR THE STAY OF EMPLOYEES OF CLIENT COMP ANIES ETC. SUPPORT IN NEW MANUFACTURING FACILITY SET-UP AND EX PANSIONS : AIPL SUPPORTED IN SETTING UP NEW FACILITIES FOR SIPL IN TERMS OF PREP ARATION OF FEASIBILITY STUDY, EFFECTIVE PLANNING AND EXECUTION FOR NEW PROJECT / MANUFACTURING FACILITY, MONITORING CONTROLLING ON CAPITAL SPENT AND IN EXEC UTING COST EFFECTIVE CONTRACTS, ETC. 7 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 GOVERNMENT LIASON : ASSISTED SIPL TO HAVE EFFECTIVE INTERACTION WITH VARIOUS GOVERNMENT AGENCIES, MINISTRY AND TRADE CHAMBERS OF COMMERCE ETC. CORPORATE RELATIONS AND COMMUNICATIONS : CONTINUOUS CORPORATE COMMUNICATION DEPARTMENT WITH CONTRACTS WITH MEDIA AND BROUGHT OU T A QUARTERLY CORPORATE PUBLICATION WHICH HELPED SIPL IN BRANDING AND PUBLI CITY. STRATEGIC SOURCING : SUPPORTED IN VENDOR DEVELOPMENT AND DEFINING STRA TEGY FOR SOURCING COMMODITIES OR MATERIALS THROUGH VARIOUS A CTIVITIES. ENVIRONMENT, HEALTH AND SAFETY : AIPL SUPPORTED IN FORMING GROUP ENVIRONMENT POLICIES WHICH LAID DOWN THE ACTIONS EXPECTED FROM EMPLOYEES AND VARIOUS GREEN INITIATIVES. STANDARDS OF SERVICES WITH BUSINESS CODE OF CONDUCT : AIPL DEPLOYED BUSINESS CODE OF CONDUCT IN CONFIRMATION WITH STANDARDS OF SERVIC ES AND MADE AVAILABLE ETHICS HELPLINE TO REPORT NON-COMPLIANCES. 24. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS PAYING ROYALTY TO DANA CORPORATION @ 2.85% AND WAS ALSO PAYING MANAGE MENT FEES TO AIPL FOR RENDERING SEVERAL TYPES OF SERVICES AT REMUNERA TION WHICH WAS EQUIVALENT TO THE AMOUNT OF ROYALTY I.E. 2.85% OF S ALES. THE PERUSAL OF AGREEMENT REFLECTS THE NATURE OF SERVICES TO BE PRO VIDED AND THE FEES TO BE CHARGED FOR PROVIDING THE SAID SERVICES. THE MAJORI TY OF SUPPORT SERVICES ARE BEING RENDERED BY THE SAID CONCERN TO THE ASSESSEE AND THE PERUSAL OF EXPENSES DEBITED BY THE ASSESSEE REFLECTS THAT NO M AJOR EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE AND THE BENEFITS FLOW FROM AIPL TO THE ASSESSEE. THE SAID BENEFITS WERE FOR SMOOTH CARRYI NG ON OF THE BUSINESS BY THE ASSESSEE AND WERE INCURRED FOR THE PURPOSE OF B USINESS. THE ASSESSEE IS THE BEST JUDGE TO DECIDE THE EXPENDITURE IT NEED S TO INCUR FOR SMOOTH CARRYING ON OF ITS BUSINESS. THE ASSESSING OFFICER CANNOT SIT IN JUDGMENT OF BUSINESSMAN POSITION IN INCURRING ANY EXPENDITURE. THE HONBLE SUPREME COURT IN HERO CYCLES (P) LTD. VS. CIT (SUPRA) HAVE APPLIED THE RATIO LAID DOWN BY THE APEX COURT IN S.A. BUILDERS LTD. VS. CI T(A) AND ANOTHER (2007) 288 ITR 1 (SC) AND UPHELD THE SCOPE OF COMMERCIAL E XPEDIENCY, WHEREIN IT WAS HELD THAT THE EXPRESSION 'COMMERCIAL EXPEDIENCY ' IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUD ENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION, BUT YET IT IS ALLOWABLE AS BUSINESS EXPENDITURE IF IT WAS INCURRED ON GROUNDS OF COMMER CIAL EXPEDIENCY. WHERE THERE IS NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE PURPOSE OF BUSINESS, THEN THE REVENUE CANNOT PUT ITSELF IN THE ARM CHAIR OF THE BUSINESSMAN TO DECIDE HOW MUCH OF THE EXPENDITURE I S REASONABLE. APPLYING THE ABOVE SAID PROPOSITION LAID DOWN BY TH E HONBLE SUPREME COURT, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON MANAGEMENT FEES IN ORDER TO FACILITATE SMOOTH RUNNI NG OF ITS BUSINESS IS AN ALLOWABLE EXPENDITURE IN THE HANDS OF ASSESSEE. SI MILAR EXPENDITURE HAS BEEN ALLOWED IN THE HANDS OF ASSESSEE IN PRECEDING YEAR. ANOTHER ASPECT OF THE ISSUE IS THAT THE SAID MANAGEMENT FEES IS TO BE TAXED IN THE HANDS OF RECIPIENT AND EVEN THE SERVICE TAX HAS BEEN PAID BY THE RECIPIENT, EVIDENCE OF WHICH IS PLACED IN THE PAPER BOOK. ONCE THE COM MERCIAL EXPEDIENCY OF EXPENDITURE IS ESTABLISHED, THEN THE SAME IS TO BE ALLOWED AS BUSINESS EXPENDITURE IN THE HANDS OF ASSESSEE. WE HOLD SO. THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 8 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 FOLLOWING THE DECISION OF CO-ORDINATE BENCH ON IDENTICAL SE T OF FACTS, WE HOLD THE MANAGEMENT SERVICE FEE PAID BY ASSESSEE TO ASIA INVESTMENT PVT. LTD IS ALLOWABLE. THUS, THE GROUND NO. 1 AND 2 RAISED BY ASSESSEE IN APPEAL IS ALLOWED . 7. NOW, ADVERTING TO THE APPEAL BY THE REVENUE, THE GRO UND NOS. 1 TO 4 ARE AGAINST DELETING OF ADDITION ON ACCOUNT OF PAYMENT OF ROYALT Y RS. 14,54,45,173/- TO DANA CORP., USA. THE CO-ORDINATE BENCH OF TRIBUNAL IN THE GROUND RAISED BY ASSESSEE ASSAILING THE ADDITION OF ENTIRE ROYALTY PAID TO AE I.E. DANA CORP., USA IN ASSESSMENT YEAR 2009-10 HELD AS UNDER : 48. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD ENTERED INTO A DRIVE SHAFT TECHNOLOGY LICENCING AGREEMENT AND TECHNOLOGY LICENCE AGREEMENT FOR AXLES ALONG WI TH SUPPLEMENTARY AGREEMENT WITH DANA CORPORATION, UNDER WHICH FOR TH E SERVICES AND ASSISTANCE PROVIDED BY ASSOCIATE ENTERPRISES, THE A SSESSEE WAS TO PAY ROYALTY INITIALLY @ 3% AND THEREAFTER, @ 2.85%. TH E COPIES OF AGREEMENTS ARE PLACED AT PAGES 116 TO 158 OF THE PAPER BOOK. THE ASSESSEE ALSO PROVIDED DOCUMENTATION, UNDER WHICH THE ASSESSEE HA D RECEIVED THE BENEFITS AND ASSISTANCE FROM ITS ASSOCIATE ENTERPRI SES IN RELATION TO THE ROYALTY TRANSACTION ON ACCOUNT OF TECHNICAL ASSISTA NCE, DESIGN, PROCESS REVIEW AND TECHNICAL KNOW-HOW, WHICH ARE PLACED AT PAGES 201 TO 210 OF THE PAPER BOOK. IT WAS POINTED OUT THAT ASSOCIATE ENTERPRISES SUPPORTS THE ASSESSEE IN TECHNOLOGY UPGRADATION BY BRINGING THE LATEST TECHNOLOGY IN DRIVE TRAIN SYSTEMS TO INDIA. THE ASSESSING OFFICE R REFERRED THE ISSUE OF COMPUTATION OF ARM'S LENGTH PRICE OF THE SAID INTER NATIONAL TRANSACTION TO THE TPO, WHO IN HIS ORDER TREATED THE ARM'S LENGTH PRIC E AT NIL. 49. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT C ASE, THE ROYALTY PAID BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES HAD BEEN APPROVED BY THE SECRETARIAT OF INDUSTRIAL APPROVAL, MINISTRY OF IND USTRY, GOVERNMENT OF INDIA, VIDE LETTER DATED 28/31.01.2003 AND INITIALL Y BY THE RBI @ 3%. HOWEVER, SUBSEQUENTLY, THE RBI VIDE COMMUNICATION D ATED 21.07.2003 ACCORDED AUTOMATIC APPROVAL ROUTE TO MAKE THE ROYAL TY PAYMENT AT 8% ON EXPORTS AND 5% ON DOMESTIC SALES WITHOUT ANY RESTRI CTION ON THE DURATION OF ROYALTY PAYMENTS. THEREAFTER, THIS RATE WAS REDUCE D TO 2.85% BY THE RBI. THE CASE OF THE ASSESSEE BEFORE THE TPO WAS THAT SI NCE THE ROYALTY PAYMENTS WERE IN TERMS OF APPROVAL GRANTED BY SIA A ND RBI, THE SAME WERE AT ARM'S LENGTH PRICE AND THE ASSESSEE PLACED RELIANCE ON CUP METHOD FOR BENCHMARKING THE SAID TRANSACTION OF PAYMENT OF ROYALTY IN THIS REGARD. THE PLEA OF ASSESSEE THAT THE RATE APPROVED BY THE SIA AND RBI WAS TO BE USED AS RELIABLE CUP DATA, WAS NOT ACCEPTED BY THE TPO. THE TPO ON THE OTHER HAND, REJECTING THE EXPLANATION OF ASSESSEE O F TECHNOLOGY SUPPORTS PROVIDED BY ASSOCIATE ENTERPRISES TO THE ASSESSEE, FURTHER HELD THAT SIA / RBI WERE NOT RELATED TO TRANSFER PRICING. THE TPO STRESSED THAT NO PROPER DOCUMENTATION HAD BEEN BROUGHT ON RECORD TO JUSTIFY THE BENEFITS RECEIVED BY THE ASSESSEE AGAINST PAYMENT OF ROYALTY AND HENC E, THE ROYALTY 9 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 TRANSACTION WAS HELD TO BE NOT AT ARM'S LENGTH. TH E FIRST ISSUE WHICH HAS BEEN RAISED BEFORE US IS AGAINST JUSTIFICATION OF R OYALTY PAYMENT VIS--VIS BENEFITS RECEIVED BY THE ASSESSEE AND WHETHER IT WA S BEYOND THE SCOPE OF TPO WHILE DETERMINING THE ARM'S LENGTH PRICE OF SAI D TRANSACTIONS. THE SECOND ISSUE RAISED BEFORE US WAS THAT THE TRANSACT IONS UNDERTAKEN BY THE ASSESSEE ON ACCOUNT OF ROYALTY PAYMENT WERE AT ARM' S LENGTH OR NOT. 50. THE FIRST ASPECT OF THE ISSUE IS THAT THE ASSES SEE HAS BEEN PAYING THE SAID ROYALTY PAYMENT FROM YEAR TO YEAR, WHICH HAS B EEN ALLOWED IN THE HANDS OF ASSESSEE BY THE TPO WITHOUT MAKING ANY ADJ USTMENT IN ASSESSMENT YEARS 2005-06 TO 2008-09. THE ASSESSING OFFICER HAD ALSO ALLOWED THE CLAIM OF ASSESSEE. FURTHER, IN ASSESSM ENT YEAR 2010-11, IT HAS BEEN ALLOWED BY THE CIT(A) AND IN ASSESSMENT YEAR 2 011-12, ALLOWED BY THE DRP. THE SECOND ASPECT IS THAT WHETHER THE RAT E OF ROYALTY APPROVED BY SIA / RBI WOULD CONSTITUTE CUP DATA AND THE TRAN SACTION IS AT ARM'S LENGTH PRICE. THE HONBLE BOMBAY HIGH COURT IN CIT VS. SGS INDIA PVT. LTD. (SUPRA) HAS HELD SO. THE SAID PROPOSITION HAS ALSO BEEN LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN ACIT VS. M/S. DOW AGROS CIENCES INDIA PVT. LTD. (SUPRA) AND IT HAS BEEN HELD THAT WHERE THE RO YALTIES WERE PAID IN TERMS OF APPROVAL GRANTED BY SIA / RBI, THEN THE SA ME ARE TO BE CONSIDERED AT ARM'S LENGTH RATE. FOLLOWING THE SAID PROPOSITI ON LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. SGS INDIA PVT. LTD. (SUPRA) AND MUMBAI BENCH OF TRIBUNAL IN ACIT VS. M/S. DOW AGROS CIENCES INDIA PVT. LTD. (SUPRA), WE HOLD THAT WHERE THE PAYMENT OF ROY ALTY BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISE DANA CORPORATION IS @ 2.85 %IS LIABLE TO BE CONSIDERED AT ARM'S LENGTH RATE AND NO ADDITION IS WARRANTED ON THIS COUNT. ACCORDINGLY, THE CLAIM OF ASSESSEE IS THUS, ALLOWED. IN ANY CASE, THE JURISDICTION AND POWER OF TPO IS TO DETERMINE ARM'S LENGTH PRICE OF ROYALTY AND THE ORDER OF TPO HOLDING THAT THE ASSESSEE HAD NOT DERIVED ANY BENEFIT UNDER THE SAID AGREEMENT IS BEYOND THE SCOPE OF TPO WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION FOR THE PURPOSE OF DE TERMINING ARM'S LENGTH PRICE. ACCORDINGLY, WE HOLD SO. THE GROUNDS OF OB JECTIONS RAISED BY THE ASSESSEE ARE THUS, ALLOWED. THE DRP GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE O RDER OF COMMISSIONER OF INCOME TAX (APPEAL) IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2010-11. SINCE, IDENTICAL ISSUE HAS ALREADY BEEN DECID ED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL IN ASSESSMENT YEARS 2009-10 A ND 2010-11 AND NOW THERE IS NO DISPUTE WITH REGARD TO SIMILARITY IN FACTS AND C IRCUMSTANCES, THERE IS NO REASON TO TAKE A DIFFERENT VIEW. ACCORDINGLY, GROUND NOS. 1 TO 4 RAISED BY THE REVENUE IN APPEAL ARE DISMISSED . 8. SO FAR AS GROUND NOS. 5 AND 6 RELATING TO WARRANTY P ROVISION IS CONCERNED, THE DRP HAS GIVEN CATEGORIC FINDING THAT PROVISION OF WARR ANTY MADE BY ASSESSEE ARE BASED ON SCIENTIFIC ANALYSIS OF THE PAST DAT A AND REPRESENTS A 10 ITA NOS. 376 & 826/PUN/2016 A.Y. 2011-12 RELIABLE ESTIMATE OF OBLIGATION ARISING OUT OF SALES MADE DURIN G THE RELEVANT PREVIOUS YEAR. THE LD. DR HAS NOT BEEN ABLE TO CONTROVE RT THE FINDINGS OF DRP. THE HON'BLE APEX COURT IN THE CASE OF ROTORK CONTROLS I NDIA P. LTD.(SUPRA) HAS HELD THAT WHERE PROVISION FOR WARRANTY IS MADE ON SCIENTIFIC BASIS, THE SAME IS TO BE ALLOWED. THUS, IN VIEW OF WELL SETTLED LAW, WE FIND NO INFIR MITY IN THE FINDINGS OF DRP/ASSESSING OFFICER. ACCORDINGLY, GROUND NO. 5 AND 6 RAISED BY THE REVENUE IN APPEAL ARE DISMISSED BEING DEVOID OF ANY MERIT . 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 09 TH DAY OF FEBRUARY, 2018. SD/- SD/- ( / ANIL CHATURVEDI ) ( # !$ /VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; !' / DATED : 09 TH FEBRUARY, 2018. SB * + ,-# .#( / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-13, PUNE. 4. THE CIT-IT/TP, PUNE. 5. %&' () , * () , +,- , / DR, ITAT, A BENCH, PUNE. 6. './ 01 / GUARD FILE. // % // TRUE COPY // *2 / BY ORDER, 3 (- / PRIVATE SECRETARY * () , / ITAT, PUNE.
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