Appeal Details
Counselvise Citation
[2017] 127 COUNSELVISE.COM (IT) 9428 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
17-05-2017
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Next Hearing Date
08-03-2017
Assessment Year
2009-2010
Appeal Filed On
24-04-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 828 /P U N/201 4 / ASSESSMENT YEAR : 20 0 9 - 1 0 JOHN DEERE INDIA PVT. LTD., (ERSTWHILE M/S. JOHN DEERE EQUIPMENT PVT. LTD.) CYBER CITY, MAGARPATTA CITY, HADAPSAR, PUNE 411013 . / APPELLANT PAN: AAACL7331A VS. TH E INCOME TAX OFFICER, WARD 11(2), PUNE . / RESPONDENT / APPELLANT BY : S HRI NIKHIL PATHAK / RESPONDENT BY : S HRI RAJEEV KUMAR / DATE OF HEARING : 08 .0 3 . 2017 / DATE OF PRONOUNCEMENT: 17 . 0 5 .201 7 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF DCIT, CIRCLE - 11(1), PUNE , DATED 27 . 0 2 .201 4 RELATING TO ASSESSMENT YEAR 20 0 9 - 1 0 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: - ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 2 ON FACTS AND IN LAW, 1] THE LEARNED A.O. / DRP ERRED IN HOLDING THE SALE TAX / PURCHASE TAX SUBSIDY OF RS.14,69,36,189/ - RECEIVED BY THE ASSESSEE FROM SICOM AS A REVENUE RECEIPT ON THE GROUND THAT THE SUBSIDY GIVEN WAS FOR INCREASING THE PROFITABILITY OF THE ASSESSEE. 1.1] THE LEARNED A.O. / DRP OUGHT TO HAVE APPRECIATED THAT THE SUBSIDY GIVEN IN THE FORM OF EXEMPTION FROM SALES TA X / PURCHASE TAX WAS FOR SETTING UP OF AN UNIT IN A BACKWARD AREA AND HENCE, IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF PONNI SUGAR & CHEMICALS LTD. [306 ITR 392] AND SPECIAL BENCH DECISION IN THE CASE OF RELIANCE INDUSTRIES LTD. [88 ITD 273 (SB) ], THE SAME WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. 2] THE LEARNED A.O. / DRP ERRED IN RECOMPUTING THE TRANSFER PRICE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY DESPITE THE FACT THAT NONE OF THE CONDITIONS AS PRESCRIBED IN SECTION 92C (3) OF THE INCOME TAX ACT, 1961 ('THE ACT') , HAD BEEN VIOLATED BY THE APPELLANT. THUS, THE A.O. ERRED IN MAKING AN ADDITION OF RS.7,50 , 00,000/ - U/S 92C ON THE BASIS OF THE ORDER OF THE TPO U/S 92CA(3) DATED 18.01.2013 IN THE CASE OF THE APPELLANT COMPANY. 2.1] THE LEARNED A.O. / DRP ERRED IN NOT APPRECIATING THAT IN VIEW OF ARTICLE 9 OF THE DTAA BETWEEN INDIA AND USA, NO ADDITION WAS WARRANTED ON ACCOUNT OF ANY ADJUSTMENT TO ALP ON ACCOUNT OF PAYMENT OF ROYALTY AS THE COMPARABLE DATA CLEARLY INDICATED THA T THE ASSESSEE COMPANY HAD PAID ROYALTY TO ITS AE AT ALP. 2.2] THE LEARNED A.O. ERRED IN NOT APPRECIATING THE FACT THAT THE ADJUSTMENT OF RS.75 ,00, 000/ - MADE TO THE TOTAL INCOME AS RETURNED IS BEYOND THE SCOPE OF TOTAL INCOME AS DEFINED IN SECTION 5 OF T HE ACT. THE LEARNED A. O. ALSO ERRED IN NOT APPRECIATING THE FACT THAT THE ADJUSTMENT OF RS. 75,000,000/ - DOES NOT PARTAKE THE CHARACTER OF INCOME AS DEFINED IN SECTION 2 OF THE ACT. IN VIEW OF THE ABOVE, THE ADJUSTMENT MADE BY THE A.O. / DRP ARE NOT WITHIN THE PURVIEW OF THE CONCEPT OF 'INCOME' AS PER IT ACT AND HENCE, IT REQUIRES TO BE DELETED. 2.4] THE LEARNED A.O. ERRED IN MAKING AD - HOC DISALLOWANCE OF RS. 7,50,00,000/ - ON ACCOUNT OF ROYALTY PAID BY THE ASSESSEE COMPANY TO ITS AE. 2.5] THE LEARNED A. O. ERRED IN MAKING AN ADHOC ADDITION IN RESPECT OF THE ROYALTY PAID BY THE ASSESSEE COMPANY TO ITS AE WITHOUT APPRECIATING THAT NO SUCH ADDITION WAS MADE BY THE TPO AND EVEN THE LEARNED DRP HAD NOT GIVEN ANY SUCH DIRECTIONS AND ACCORDINGLY, THE ADDITION MA DE BY THE LEARNED A.O. IS NOT JUSTIFIED AT ALL. 2.6] THE LEARNED A.O. FAILED TO APPRECIATE THAT THE ASSESSEE COMPANY HAD PAID ROYALTY @ 3 ON SALES TO ITS AE AND THE SAME WAS AT ALP AND HENCE, THERE WAS NO REASON TO MAKE SUCH ADHOC ADDITION. 2.7] THE L EARNED A.O. ERRED IN MAKING AN ADHOC ADDITION OF RS. 7,50 , 00,000/ - WITHOUT DEMONSTRATING THAT THE ROYALTY PAID BY THE ASSESSEE COMPANY WAS NOT AT ALP. 2.8] THE LEARNED A.O. OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD PAID ROYALTY IN THE EARLIER YEARS AND THE SAME WAS ACCEPTED TO BE AT ALP AND ACCORDINGLY, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE IN THIS YEAR. ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 3 2.9] THE LEARNED A.O. ERRED IN MAKING THE ADDITION OF RS.7,50,00,000/ - WITHOUT REJECTING THE METHOD FOLLOWED BY THE ASSESSEE COMPANY NOR C ARRYING OUT ANY BENCHMARKING STUDY AND THEREFORE, SUCH ADHOC ADDITION OUGHT TO BE DELETED. 3. THE ISSUE IN GROUNDS OF APPEAL NO.1 AND 1.1 RAISED BY THE ASSESSEE IS AGAINST THE TREATMENT OF SALES TAX / PURCHASE TAX SUBSIDY OF RS.14,69,36,189/ - RECEIVED FR OM SICOM. 4. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE OF SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE IS WHETHER CAPITAL RECEIPT OR REVENUE RECEIPT, AROSE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 IN ITA NOS.1476/PN/2010 AND 1686/PN/2011, ORDER DATED 20.02.2015. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE SAID RATIO WAS APPLIED BY THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 I N ITA NO.02/PN/2013, VIDE ORDER DATED 20.02.2015. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE RELIED ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD SET UP A UNIT AT S A NASWADI, NEAR PUNE, WHEREIN IT WAS ENGAGED IN MANUFACTURING OF TRACTORS, AGGREGATES AND PARTS WHICH WERE SOLD IN THE DOMESTIC MARKET AS WELL AS FOREIGN MARKET. THE ASSESSEE WAS A JOINT VENTURE BETWEEN LARSEN & TOUBRO LIMITED (L&T), INDIA AND DEERE & CO. BOTH THE JOINT VENTURE PARTNERS HAD AN EQUAL STAKE IN THE ASSESSEE COMPANY. DURING THE FINANCIAL YEAR 2005 - 06, JOHN DEERE INDIA PVT. LTD. ACQUIRED 48% OF L&TS STAKE AND AS A RESULT OF WHICH, JOHN DE ERE EQUIPMENT PVT. LTD. (JDEPL), THE ASSESSEE COMPANY BE CAME WHOLLY OWNED SUBSIDIARY OF JOHN DEERE INDIA PVT. ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 4 LTD. , WHICH WAS A WHOLLY OWNED SUBSIDIARY OF DEERE & CO., USA. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.14,69,36,189/ - ON ACCOUNT OF SALES TAX INCENTIVE. THE ASSES SEE HAD RECEIVED THE SAID INCENTIVE FOR THE UNITS SET UP IN NOTIFIED BACKWARD AREA UNDER THE GOVERNMENT OF MAHARASHTRA 1993 PACKAGE SCHEME OF INCENTIVES, UNDER WHICH THE PERSONS WERE ELIGIBLE FOR EITHER SALES TAX AND PURCHASE TAX EXEMPTION OR DEFERMENT O F THE SALES TAX AND PURCHASE TAX COLLECTED OVER A PERIOD OF 15 YEARS. THE ASSESSEE INITIALLY OPTED FOR DEFERRING SCHEME, A S PER WHICH, IT WAS AUTHORIZED FOR COLLECTION OF SALES TAX BUT PAYMENT WAS TO BE MADE AFTER 15 YEARS. LATER ON IN SEPTEMBER, 2001, A SSESSEE SHIFTED FROM DEFERRAL SCHEME TO EXEMPTION SCHEME. ACCORDINGLY, THE ASSESSEE WAS ENTITLED TO THE EXEMPTION FROM SALES TAX AND PURCHASE TAX. THE ASSESSEE TREATED THE SALES TAX AND PURCHASE TAX SUBSIDY OF RS.14,69,36,189/ - AS CAPITAL RECEIPT IN ITS RETURN OF INCOME. THE CASE OF ASSESSEE WAS THAT AS PER THE SCHEME OF GOVERNMENT OF MAHARASHTRA STATE , S UBSIDY WAS GRANTED IN ORDER TO ENCOURAGE SETTING UP OF UNITS IN BACKWARD AREAS. THE SAME WAS AVAILABLE ONLY TO CERTAIN INDUSTRIES DEPENDING UP ON FULFIL LMENT OF THE CONDITIONS. THE ASSESSING OFFICER ON THE OTHER HAND, HAD NOTED THAT THE SUBSIDY WAS GRANTED IN ORDER TO INCREASE PROFITABILITY OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER ACKNOWLEDGED THAT THERE WAS NO DOUBT THAT THE EXEMPTION WAS ALLOWED FOR SETTING UP OF UNITS IN BACKWARD AREAS. HOWEVER, THE PURPOSE OF CAPITAL INCENTIVE BY WAY OF EXEMPTION WAS CLEARLY TO ALLOW THE COMPANY TO RUN ITS BUSINESS MORE PROFITAB LY . THE ASSESSING OFFICER FURTHER OBSERVED THAT THE INCENTIVE WAS NOT CALCULATED O N THE BASIS OF CAPITAL EMPLOYED AND ALSO THE INCENTIVE HAS NOT BEEN ALLOWED BEFORE SETTING UP OF THE BUSINESS. WHERE THE BENEFIT WAS GRANTED TO THE ASSESSEE TO ASSIST HIM FOR CARRYING OUT THE BUSINESS OPERATIONS IN THE BACKWARD AREAS AND NOT TO HELP HIM I N SETTING UP OF HIS BUSINESS OR COMPLETE THE PROJECT, ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 5 THEN THE SAID SALES TAX INCENTIVE OF RS.14.69 CRORES IS TO BE ADDED AS INCOME OF THE ASSESSEE. THE ASSESSING OFFICER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CIT VS. PONNI SUGARS AND CHEMICAL LTD. (2008) 306 ITR 392 (SC). THE ASSESSEE ON THE OTHER HAND, RELIED ON THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. RELIANCE INDUSTRIES LTD. (2004) 88 ITD 273 (MUM) , WHICH WAS CONFIRMED BY THE HONBLE B OMBAY HIGH COURT . THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER NOTED THAT THE APEX COURT IN CIVIL APPEAL NO.7769/2011 HAD SET ASIDE THE ORDER OF THE HONBLE HIGH COURT AND THE ASSESSEES RELIANCE ON THE SAME WAS FOUND TO BE INCORRECT. 7. THE ISS UE WHICH ARISES IN THE PRESENT APPEAL IS IN RELATION TO TREATMENT OF SALES TAX / PURCHASE TAX SUBSIDY RECEIVED BY THE ASSESSEE UNDER 1993 PACKAGE SCHEME OF INCENTIVES PROMULGATED BY THE GOVERNMENT OF MAHARASHTRA. THE ASSESSEE HAD SET UP ITS UNIT AND HAD R ECEIVED SIMILAR SUBSIDY IN ASSESSMENT YEARS 2006 - 07 TO 2008 - 09. THE TRIBUNAL (SUPRA) HAD ALLOWED THE CLAIM OF ASSESSEE AND HAD HELD THAT THE SAID AMOUNT OF SUBSIDY RECEIVED BY THE ASSESSEE UNDER 1993 PACKAGE SCHEME OF INCENTIVES PROMULGATED BY THE GOVERNM ENT OF MAHARASHTRA WAS A CAPITAL RECEIPT. THE MUMBAI BENCH OF TRIBUNAL IN DCIT VS. RELIANCE INDUSTRIES LTD. (SUPRA) HAD ALSO CONSIDERED THE SAID CLAIM AND HAVE HELD THAT THE SALES TAX / PURCHASE TAX SUBSIDY RECEIVED UNDER 1993 PACKAGE SCHEME OF INCENTIVES IS A CAPITAL RECEIPT. THE FACTS AND ISSUE ARISING IN THE PRESENT APPEAL ARE IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE AND HENCE TO AVOID REPETITION, WE ADOPT OUR REASONING GIVEN IN ASSESSMENT YEAR 2006 - 07 FOR HOLDING THAT THE SALE S TAX / PURCHASE TAX SUBSIDY RECEIVED BY THE ASSESSEE IS CAPITAL RECEIPT. WE FIND THAT THE SAID SCHEME OF GOVERNMENT OF MAHARASHTRA WAS CONSIDERED BY THE HONBLE BOMBAY ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 6 HIGH COURT IN CIT VS. KIRLOSKAR OIL ENGINES LTD. (2014) 364 ITR 88 (BOM) AND IT HAS B EEN HELD THAT THE OBJECT OF ASSISTANCE UNDER SUBSIDY SCHEME TO ENABLE ASSESSEE TO SET UP NEW UNIT, WAS A CAPITAL RECEIPT. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS CAPITAL IN NATURE. ACCORDINGLY, GROUND S OF APPEAL NO.1 AND 1.1 ARE THUS, ALLOWED. 8. NOW, COMING TO THE SECOND ISSUE RAISED BY THE GROUNDS OF APPEAL NO.2 TO 2.9 , WHEREIN THE ASSESSEE IS AGGRIEVED BY THE ORDER OF ASSESSING OFFICER IN MAKING ADHOC DISALLOWANCE OF RS.7,50,00,000/ - ON ACCOUNT OF ROYALTY PAID BY THE ASSESSEE COMPANY TO ITS ASSOCIATED ENTERPRISES. 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL BY WAY OF GROUNDS OF APPEAL NO.2.4 AND 2.5 AND THE OTHER GROUNDS OF APPEA L I.E. 2.6 TO 2.9 ARE ARGUMENTATIVE IN NATURE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HOWEVER, DID NOT PRESS GROUNDS OF APPEAL NO.2.1 AND 2.2 RAISED BY THE ASSESSEE. 10. BRIEF FACTS RELATING TO THE ISSUE ARE THAT, THE ASSESSEE HAD ENTER ED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES WHICH ARE AS UNDER: - SR. NO. PARTICULARS AMOUNT RS. METHOD ADOPTED 1 IMPORT OF RAW MATERIAL & COMPONENTS 45,77,34,311 TNMM 2 RE - EXPORT OF DEFECTIVE MATERIAL 97,32,705 TNMM 3 EX PORT OF TRACTORS 675,86,15,895 TNMM 4 EXPORT OF AGGREGATES AND SPARES 155,94,38,860 TNMM 5 IMPORT OF HARVESTER MACHINES FOR DEMONSTRATION PURPOSES 33,97,583 TNMM 6 PAYMENT OF ROYALTY 46,05,01,804 TNMM 7 REIMBURSEMENT OF EXPENSES 28,64,32,322 ACTUALS 8 RECOVERY OF EXPENSES 22,85,35,162 ACTUALS 976,43,88,642/ - ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 7 11. THE ASSESSING OFFICER MADE REFERENCE UNDER SECTION 92CA(1) OF THE ACT TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO ITS INTERNATIONAL TRANSACT IONS. THEREAFTER, THE TPO CARRIED OUT THE TP PROCEEDINGS AND IN ITS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT HAD MADE AN ADJUSTMENT OF RS. 43,63,86,000/ - TO THE VALUE OF INTERNATIONAL TRANSACTIONS RELATING TO EXPORT OF TRACTORS TO THE ASSOCIATED ENTER PRISES . N O OTHER TRANSFER PRICING ADJUSTMENT WAS MADE IN RESPECT OF ANY OF THE OTHER INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE INCLUDING PAYMENT OF ROYALTY AT RS.46,05,01,804/ - . THE TPO ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE, WHEREIN IT WAS POINTED OUT THAT THE ASSESSEE WAS PAYING ROYALTY ON ALL PRODUCTS INCLUDING OLD PRODUCTS AS WELL AS EXPORTS. HE WAS OF THE VIEW THAT THE PAYMENT ON OLD PRODUCTS WAS NOT JUSTIFIED. HE FURTHER GOES ON TO SAY THAT THOUGH THE ROYALTY EXPENSES ARE CONSIDERED IN THE PRECEDING PARAGRAPHS, SINCE CPM WAS APPLIED TO INTERNAL COMPARABLES IN BOTH OF THE SEGMENTS . THE TPO WAS OF THE VIEW THAT SEPARATE ADJUSTMENT ON ACCOUNT OF ROYALTY IS CALLED FOR. IN THE ABSENCE OF ANY WORKINGS, THE TPO WAS OF THE VIEW THAT ON THE PRINCIPLE THAT FURTHER ROYALTY IS NOT JUSTIFIED ON OLD PRODUCTS , ADJUSTMENT IS PROPOSED AT RS.7.50 CRORES . IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT ROYALTY HAS ALREADY BEEN CONSIDERED AS EXPENSES IN CPM APPLIED AND FURTHER ADDITION W OULD RESULT IN DOUBLE ADJUSTMENT. THE TPO HELD THAT THE SAME WAS NOT STRICTLY CORRECT WHERE THE ROYALTY WAS PAID AT THE RATE OF APPROXIMATELY 3% ON BOTH THE DOMESTIC AND EXPORT SALES. HE WAS OF THE VIEW THAT IT WOULD HAVE NO BEARING ON INTERNAL COMPARABI LITY OF DIFFERENCE IN COST PLUS MARK UP OF THE TWO SEGMENTS. FURTHER, SINCE THE ADJUSTMENT WAS BEING MADE IN RESPECT OF EXPORT OF TRACTORS, NO SEPARATE ADJUSTMENT WAS MADE IN RESPECT OF ROYALTY BY THE TPO. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT OR DER PROPOSED THE DISALLOWANCE ON ACCOUNT OF INTERNATIONAL TRANSACTIONS AT RS.43.63 CRORES AND ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 8 DISALLOWANCE ON SALES TAX INCENTIVE OF RS.14.69 CRORES. NO OTHER DISALLOWANCE WAS PROPOSED BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER PASSED UNDER SE CTION 143(3) R.W.S. 92CA(3) OF THE ACT. THE ASSESSING OFFICER IN THE FINAL ASSESSMENT PROCEEDINGS AFTER FOLLOWING THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP), WHEREIN THE TPO WAS ASKED TO MAKE CERTAIN VERIFICATION, THE TP ADJUSTMENT OF RS.43.63 C RORES WAS DELETED. HOWEVER, SINCE THE TP ADJUSTMENT WAS DELETED, THE ASSESSING OFFICER OBSERVED THAT THE QUESTION OF DOUBLE ADJUSTMENT WITH RESPECT TO ROYALTY PAYMENT DID NOT ARISE. SINCE THE SHOW CAUSE NOTICE HAD ALREADY BEEN ISSUED TO THE ASSESSEE AND ITS SUBMISSION IN RESPONSE TO THE SAME WAS ON RECORD. THE ASSESSING OFFICER HELD THAT THE SAID ADJUSTMENT OF RS.7.50 CRORES NEEDS TO BE MADE AND THE SAME WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 12. THE ASSESSEE IS IN APPEAL AGAINST THE SAID DISALLOWANCE OF RS.7.50 CRORES OUT OF PAYMENT OF ROYALTY TO ITS ASSOCIATED ENTERPRISES. 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT ADHOC ADDITION HAS BEEN MADE BY DISALLOWING THE ROYALTY PAID BY THE ASSESSEE TO ITS ASSOCI ATED ENTERPRISES TO THE EXTENT OF RS.7.50 CRORES. HE FURTHER POINTED OUT THAT THE TOTAL ROYALTY PAID WAS RS.46.05 CRORES. HE ALSO REFERRED TO THE SHOW CAUSE NOTICE ISSUED BY THE TPO FOR MAKING THE AFORESAID ADHOC DISALLOWANCE AND THE CONTENTION OF THE AS SESSEE THAT THE SAID ADDITION WOULD BE DOUBLE ADJUSTMENT. HE REFERRED TO THE OBSERVATIONS OF THE TPO, WHEREIN HE HAD SAID THAT ROYALTY @3% HAD NO BEARING ON CPM BUT THE TPO CONTRACTED HIMSELF BY FURTHER SAYING THAT CPM WAS DIFFERENT AND ROYALTY WAS PAID A ND IN CASE IT WAS S 0 , THEN HE SHOULD HAVE MADE ADDITION. HE STRESSED THAT WHERE ROYALTY WAS SEPARAT E TRANSACTION WITH ITS ASSOCIATED ENTERPRISES, WHICH WAS AN ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 9 INTERNATIONAL TRANSACTION AND NO ADJUSTMENT WAS PROPOSED BY THE TPO, SO THE ASSESSING OFFICER CA NNOT MAKE THIS DISALLOWANCE. HE ALSO REFERRED TO THE ORDER OF DRP, WHEREIN THE ADDITION ON ACCOUNT OF ARM'S LENGTH PRICE OF RS.43 CRORES WAS DELETED BUT NO ENHANCEMENT WAS MADE ON ACCOUNT OF ROYALTY. THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER VI DE PARA 10.2 OBSERVED THAT WHERE SHOW CAUSE NOTICE WAS ISSUED BY THE TPO, THE ADDITION COULD BE MADE IN THE HANDS OF ASSESSEE. HE REFERRED TO THE PROVISIONS OF SECTION 144C OF THE ACT WHICH PROVIDED OVERALL MECHANISM AND UNDER SUB - SECTION (13), THE ASSESS ING OFFICER CANNOT BUT FOLLOW THE DIRECTIONS OF THE DRP. HE FURTHER RELIED ON THE RATIO LAID DOWN BY THE TRIBUNAL IN M/S. SPICER INDIA LIMITED VS. ACIT IN ITA NO.251/PUN/2014, IN ACIT VS. M/S. SPICER INDIA LIMITED IN ITA NO.1327/PUN/2014 AND CROSS OBJEC TION NO.06/PUN/2015, RELATING TO ASSESSMENT YEAR 20 0 9 - 10, ORDER DATED 10.02.2017, WHEREIN THE TPO HAD FIRST DETERMINED THE ADJUSTMENT AND THE SAME WAS SUBSUMED WITH OTHER ADDITIONS. HOWEVER, IN THE PRESENT CASE, NO SUCH EXERCISE WAS CARRIED OUT BY THE TPO AND HENCE, NO MERIT IN THE ADDITION MADE ON ACCOUNT OF ADHOC DISALLOWANCE OF ROYALTY. 14. WITH REGARD TO THE MERITS OF CASE, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ROYALTY HAS BEEN ALLOWED IN THE HANDS OF ASSES SEE IN ALL THE PRECEDING YEARS AND EVEN IN THE SUCCEEDING YEAR I.E. ASSESSMENT YEAR 2010 - 11. OUR ATTENTION WAS DRAWN TO THE COPY OF THE ORDER OF TPO RELATING TO ASSESSMENT YEAR 2010 - 11 AT PAGES 69 AND 71 OF THE PAPER BOOK, WHEREIN ONE OF THE INTERNATIONAL TRANSACTIONS WAS PAYMENT OF ROYALTY AT RS.42.33 CRORES AND NO ADJUSTMENT HAS BEEN PROPOSED BY THE TPO. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO THE COPY OF THE TECHNICAL COLLABORATION AGREEMENT BETWEEN THE ASSESSEE AND T HE ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 10 DEERE & CO ., PLACED AT PAGES 49 TO 66 OF THE PAPER BOOK. HE FURTHER REFERRED TO THE REPLY OF THE ASSESSEE TO THE TPO WHICH IS PLACED AT PAGES 73 TO 79 OF THE PAPER BOOK, WHEREIN IT WAS POINTED OUT THAT RATE WAS LESS THAN 3%. HE ALSO POINTED OUT THAT P AYMENT OF ROYALTY WAS IN ACCORDANCE WITH THE APPROVAL OF THE RBI. VIS - - VIS, THE MERITS OF ALLOWABILITY OF PAYMENT OF ROYALTY, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN M /S. SPICER INDIA LIMITED VS. ACIT (SUPRA). 15 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT THE TPO HAD ISSUED SHOW CAUSE NOTICE AND HAD SUGGESTED THE SAID DISALLOWANCE BUT NO ISSUE WAS RAISED BEFORE THE DRP, SO THERE WAS NO ORDER OF DRP ON THIS ASPECT. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STRESSED THAT THE MATTER MAY BE REFERRED BACK TO THE ASSESSING OFFICER FOR DENO PROCEEDINGS . 1 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE REC ORD. THE ASSESSEE WAS WHOLLY OWNED SUBSIDIARY OF JOHN DEERE INDIA PVT. LTD. AFTER STAKE OF LARSEN & TOUBRO LIMITED (L&T), INDIA IN THE JOINT VENTURE WAS ACQUIRED BY IT. M/S. JOHN DEERE INDIA PVT. LTD. WAS WHOLLY OWNED SUBSIDIARY OF DEERE & CO., USA. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES TOTALING RS.976,43,88,642/ - . THE BREAKUP OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES IS PROV IDED IN THE PARAS HEREINABOVE WHICH ALSO INCLUDES PAYMENT OF ROYALTY AT RS.46,05,01,804/ - . THE ASSESSING OFFICER HAD MADE REFERENCE TO THE TPO UNDER SECTION 92CA(1) OF THE ACT AND THE TPO IN HIS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT HAD AFTER DELI BERATING UPON ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 11 VARIOUS TRANSACTIONS PROPOSED TP ADJUSTMENT IN RESPECT OF EXPORT OF TRACTORS TO THE ASSOCIATED ENTERPRISES AT RS.43.63 CRORES . S HOW CAUSE NOTICE DATED 28.12.2012 WAS ISSUED TO ASSESSEE IN WHICH IT WAS ALLEGED THAT THE ASSESSEE WAS PAYING ROY ALTY ON ALL PRODUCTS INCLUDING OLD PRODUCTS AS WELL AS EXPORTS. THE TPO W AS OF THE VIEW THAT THE PAYMENT ON OLD PRODUCTS WAS NOT JUSTIFIED. HE ALSO NOTES THAT THE ASSESSEE IS NOT INTERESTED TO GIVE DETAILS OF ROYALTY ON OLD PRODUCTS INCLUDED IN THE CURRE NT YEAR. HE FURTHER ACKNOWLEDGED THAT THOUGH ROYALTY EXPENSES ARE CONSIDERED IN THE PRECEDING PARAGRAPHS, SINCE CPM IS APPLIED TO INTERNAL COMPARABLES, BUT SEPARATE ADJUSTMENT IS CALLED FOR. HOWEVER, IN THE ABSENCE OF ANY WORKINGS ON A PRINCIPLE THAT FUR THER ROYALTY IS NOT JUSTIFIED ON ALL OLD PRODUCTS, ADJUSTMENT WAS PROPOSED AT RS.7.50 CRORES. THE PLEA OF THE ASSESSEE WAS THAT WHERE THE ROYALTY HAS BEEN CONSIDERED AS EXPENSES IN THE CPM APPLIED, NO FURTHER ADJUSTMENT IS TO BE MADE. IT WAS ALSO POINTED OUT THAT ROYALTY WAS PAID AT IDENTICAL RATES APPROXIMATELY AT 3% ON BOTH DOMESTIC AND EXPORT SALES AND IT WOULD HAVE NO BEARING ON INTERNAL COMPARABILITY OF DIFFERENCE IN COST PLUS MARK UP OF THE TWO SEGMENTS. THE ASSESSEE ALSO RAISED OBJECTIONS TO THE A DHOC ADJUSTMENT PROPOSED BY THE TPO WITHOUT GIVING COMPUTATION ON ROYALTY OR NEW PRODUCTS AND / OR OLD PRODUCTS OR JUSTIFY THE SAME BY CONTEMPORANEOUS DOCUMENTATION OF WORKING CONSIDERED FOR EVALUATING ROYALTY TO BE MADE. THE TPO IN THE FINAL OBSERVED THA T WITHOUT PREJUDICE TO THE VIEW EXPRESSED IN THE SHOW CAUSE NOTICE, SINCE ADJUSTMENT IS BEING MADE IN RESPECT OF EXPORT OF TRACTORS, NO SEPARATE ADDITION IS MADE IN RESPECT OF ROYALTY. THE TPO IN OTHER WORDS, DID NOT PROPOSE ANY ADJUSTMENT IN RESPECT OF R OYALTY SINCE THE ADJUSTMENT WAS MADE IN RESPECT OF EXPORT OF TRACTORS. THE TP ADJUSTMENT MADE BY THE TPO IN RESPECT OF EXPORT OF TRACTORS WAS DELETED IN VIEW OF THE DIRECTIONS OF THE DRP . T HE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER, THEREAFTER PR OPOSED THAT SINCE THE SHOW CAUSE NOTICE ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 12 HAS ALREADY BEEN ISSUED TO THE ASSESSEE AND ITS SUBMISSIONS ON THAT WAS ALREADY ON RECORD, THE SAID ADJUSTMENT OF RS.7.50 CRORES NEEDS TO BE DISALLOWED. ACCORDINGLY, THE SAME WAS DISALLOWED AND ADDED BACK TO THE TOT AL INCOME OF THE ASSESSEE. 1 7 . IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE, THE MODE OF COMPUTATION OF ADJUSTMENT WITH REGARD TO THE SAME IS PROVIDED IN SECTION 92C OF THE ACT AND THEREAFTER IN SECTION 144C OF THE ACT. AS PER SECT ION 92C OF THE ACT, ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTIONS IS TO BE DETERMINED BY ANY OF THE METHODS PRESCRIBED BEING THE MOST APPROPRIATE METHOD, HAVING REGARD TO THE NATURE OF TRANSACTION. UNDER SECTION 92CA OF THE AC T, FIRST REFER ENCE IS MADE BY THE ASSESSING OFFICER TO THE TPO WHERE THE PERSON HAS ENTERED INTO ANY INTERNATIONAL TRANSACTION AND THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT TO REFER THE COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE SAID INTERNATIO NAL TRANSACTION UNDER SECTION 92C OF THE ACT TO THE TPO. THE SAID REFERENCE IS TO BE MADE AFTER RECEIVING PREVIOUS APPROVAL OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER. ONCE REFERENCE IS MADE, THEN UNDER SECTION 92CA(3) OF THE ACT, THE TRANSFER PRICING OFFICER AFTER HEARING SUCH EVIDENCE AS THE ASSESSEE MAY PRODUCE OR AFTER CONSIDERING SUCH OTHER EVIDENCES AS THE TPO HAS COLLECTED, SHALL, BY ORDER IN WRITING, DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTIONS IN ACCORDANCE WI TH THE SECTION 92C(3) OF THE ACT AND SEND A COPY OF THE ORDER TO THE ASSESSING OFFICER AND TO THE ASSESSEE. IN OTHER WORDS, THE TPO IS GIVEN THE RESPONSIBILITY OF DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS BY APPLYING ANY OF THE METH ODS WHICH ARE PRESCRIBED UNDER SECTION 92C OF THE ACT AS THE MOST APPROPRIATE METHOD. THE PROVISIONS OF THE ACT THUS, PROVIDE A MECHANISM TO DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 13 TRANSACTIONS , WHICH HAS TO BE APPLIED BY THE TPO BY CONSIDERING THE CONTEMPORANEOUS DATA AFTER PICKING UP ONE OF THE METHODS TO BE THE MOST APPROPRIATE METHOD. THEREAFTER, AS PER SECTION 144C OF THE ACT, THE ASSESSING OFFICER SHALL IN THE FIRST INSTANCE, FORWARD DRAFT OF THE PROPOSED ORDER OF ASSESSMENT TO THE ELIGIBLE ASSESSEE , IN CASE SHE PROPOSED TO MAKE ANY VARIATION IN THE INCOME OR LOSS RETURNED , WHICH IS PREJUDICIAL TO THE INTEREST OF REVENUE. AS PER SUB - SECTION (2) ON RECEIPT OF SAID DRAFT ORDER, THE ELIGIBLE ASSESSEE SHALL WITHIN 30 DAYS OF THE RE CEIPT OF THE DRAFT ORDER FILE HIS ACCEPTANCE OF THE VARIATION TO THE ASSESSING OFFICER OR FILE HIS OBJECTIONS, IF ANY, TO SUCH VARIATION WITH THE DISPUTE RESOLUTION PANEL AND THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS THE POWER TO COMPLETE THE ASSES SMENT ON THE BASIS OF DRAFT ORDER WHERE THE ASSESSEE INTIMATES TO THE ASSESSING OFFICER THE ACCEPTANCE OF THE VARIATION OR NO OBJECTIONS ARE RECEIVED WITHIN PERIOD SPECIFIED IN SUB - SECTION (2). THEREAFTER, THE ASSESSMENT ORDER IS TO BE PASSED WITHIN PERIO D OF ONE MONTH BY THE ASSESSING OFFICER. IN CASE , AS PER SUB - SECTION (4) , IN CASE THE ASSESSEE FILES OBJECTIONS TO THE DRP, THEN THE DRP SHALL ISSUE DIRECTIONS AS IT THINKS FIT FOR THE GUIDANCE OF THE ASSESSING OFFICER TO ENABLE HIM TO COMPLETE THE ASSESS MENT AS PER SUB - SECTIONS (5) AND (7) OF SECTION 144C OF THE ACT. AS PER SUB - SECTION (8), THE DRP MAY CONFIRM, REDUCE OR ENHANCE THE VARIATION PROPOSED IN THE DRAFT ORDER. HOWEVER, IT SHALL NOT SET ASIDE ANY PROPOSED VARIATION OR ISSUE ANY DIRECTION FOR F URTHER ENQUIRY OR PASSING OF THE ASSESSMENT ORDER. AS PER SUB - SECTION (10), EVERY DIRECTION ISSUED BY THE DRP SHALL BE BINDING ON THE ASSESSING OFFICER. FURTHER, IT IS PROVIDED IN THE ACT THAT UPON RECEIPT OF DIRECTIONS ISSUED, THE ASSESSING OFFICER SHAL L IN CONFORMITY WITH THE DIRECTIONS COMPLETE , NOTWITHSTANDING CONTRARY CONTAINED IN SECTION 153 / 153B OF THE ACT, THE ASSESSMENT, WITHOUT PROVIDING ANY FURTHER OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FROM THE END OF MONTH IN WHICH ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 14 SUC H DIRECTIONS ARE ISSUED. THE ASSESSING OFFICER THUS, HAS TO APPLY THE ORDER OF TPO SUBJECT TO THE DIRECTIONS OF DRP AND NOT TO PROVIDE FURTHER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND SUCH AN ORDER IS TO BE PASSED WITHIN ONE MONTH , FROM THE END OF M ONTH IN WHICH THE DIRECTIONS ARE SO RECEIVED. 1 8 . NOW, COMING TO THE PRESET CASE WHERE REFERENCE WAS MADE TO THE TPO UNDER SECTION 92CA(1) OF THE ACT TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE AND WHETHER THE SAME ARE AT ARM'S LENGTH OR NOT. THEN, IT WAS INCUMBENT UPON THE TPO TO FOLLOW THE PROVISIONS OF THE ACT IN ORDER TO BENCHMARK THE SAID TRANSACTION OF PAYMENT OF ROYALTY AND WHETHER IT WARRANTS ANY ADJUSTMENT ON ACCOUNT OF ARM'S LENGTH PRICE. THE TPO IS AT LIBERTY TO MAKE ANY SEPARATE ADJUSTMENT ON THIS ACCOUNT , WHERE ADJUSTMENT IS MADE IN RESPECT OF ANY OTHER INTERNATIONAL TRANSACTION. HOWEVER, THE TPO IS NOT EMPOWERED TO PROPOSE AN ADHOC ADJUSTMENT WHICH ADMITTEDLY, IS NOT AS PER LAW. THE OBJECTION OF THE TPO WAS THAT THE ASSESSEE IS PAYING ROYALTY TO ASSOCIATED ENTERPRISES BOTH ON OLD PRODUCTS AND NEW PRODUCTS AND AS PER THE TPO, THE PAYMENT OF ROYALTY ON OLD PRODUCTS DOES NOT APPEAR TO BE JUSTIFIED. IT IS NOT THE ROLE OF TPO TO DETERMINE WHETHER THE PAYMENT OF ROYALT Y IS JUSTIFIED OR NOT , ON ADHOC BASIS BUT THE ARM'S LENGTH PRICE OF SAME HAS TO BE DETERMINED BY FOLLOWING THE PROCEDURES LAID DOWN IN THE INCOME TAX ACT. THE TPO HAS FAILED TO DO SO. FURTHER, SINCE THE TPO HAD NOT PROPOSED THE ADJUSTMENT AS PER THE ACT, THERE WAS NO OCCASION FOR THE ASSESSEE TO RAISE ANY OBJECTIONS BEFORE THE DRP AND HENCE, THE ORDER OF DRP IS SILENT ON THIS ISSUE. THE ASSESSING OFFICER WHILE PASSING FINAL ASSESSMENT ORDER UNDER SECTION 144C(13) OF THE ACT , HAS MADE THE SAID ADDITION IN THE HANDS OF ASSESSEE ON THE GROUND THAT SHOW CAUSE NOTICE WAS ISSUED BY THE TPO IN THIS REGARD AND THE ASSESSEE HAD ALREADY REPLIED. HOWEVER, SUCH ADHOC DISALLOWANCE OF ROYALTY IS NOT WARRANTED ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 15 BY APPLYING THE PROVISIONS RELATING TO TRANSFER PRICING. T HE PROCEDURE LAID DOWN UNDER THE TRANSFER PRICING PROVISIONS HAS NOT BEEN FOLLOWED BY THE TPO AND HENCE, THERE IS NO MERIT IN THE ADHOC DISALLOWANCE OF ROYALTY. IN ANY CASE, AS IS EVIDENT FROM THE ORDER OF TPO RELATING TO ASSESSMENT YEAR 2010 - 11, THE ASSE SSEE HAS ALSO UNDERTAKEN THE INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY TO ITS ASSOCIATED ENTERPRISES IN THE SUCCEEDING YEAR ALSO AND THAT TRANSACTION HAS BEEN ACCEPTED TO BE AT ARM'S LENGTH. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE H AS FAILED TO POINT OUT ANY DIFFERENCE IN FACTUAL ASPECTS VIS - - VIS PAYMENT OF ROYALTY IN THE INSTANT ASSESSMENT YEAR AND IN THE SUCCEEDING YEAR. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS REFERRED TO THE DECISION OF PUNE BENCH OF TRIBUNAL IN M/S. SPICER INDIA LIMITED VS. ACIT (SUPRA), WHEREIN THERE WAS SIMILAR CASE OF PAYMENT OF ROYALTY WHERE THE TPO HAS VIOLATED THE PROVISIONS OF THE ACT AND PROPOSED THE TP ADJUSTMENT , BUT NO SEPARATE ADJUSTMENT WAS MADE ON ACCOUNT OF ANOTHER ADJUSTMENT AN D THE SAME WAS SUBSUMED IN THAT ; WHEREIN THE OTHER TP ADJUSTMENT WAS DELETED BY THE DRP AND T HE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER PROPOSED THE TP ADJUSTMENT ON ACCOUNT OF ROYALTY . S UCH PROCEDURE HAS NOT BEEN FOLLOWED BY THE TPO / ASSESSING O FFICER IN THE PRESENT FACTS AND ACCORDINGLY, WE HOLD THAT THERE IS NO MERIT IN THE ADHOC DISALLOWANCE OF RS.7.50 CRORES. 1 9 . COMING TO THE MERITS OF THE CASE, WHERE THE ROYALTY HAS BEEN PAID BY THE ASSESSEE AT A RATE LESSER T H AN 3% AS AGAINST WHICH THE RB I HAS APPROVED THE RATE AT 3% FOR PAYMENT OF ROYALTY, THEN THE SAME IS AT ARM'S LENGTH AND THIS ISSUE ALSO CONSIDERED BY THE PUNE BENCH OF TRIBUNAL IN M/S. SPICER INDIA LIMITED VS. ACIT (SUPRA). THE HONBLE BOMBAY HIGH COURT IN CIT VS. SGS INDIA PVT. LTD. IN INCOME TAX APPEAL NO.1807 OF 2013, JUDGMENT DATED ITA NO. 828 /P U N/20 14 M/S. JOHN DEERE INDIA P. LTD. 16 18.11.2015 HAD HELD THE RATE OF ROYALTY APPROVED BY SIA / RBI WOULD CONSTITUTE CUP DATA AND THE TRANSACTION WOULD BE AT ARM'S LENGTH PRICE. ACCORDINGLY, WE HOLD THAT WHERE THE PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES IS AT RATE LESS THAN 3%, THEN THE SAME IS LIABLE TO BE CONSIDERED AT ARM'S LENGTH RATE AND NO ADDITION IS WARRANTED ON THIS ACCOUNT. ACCORDINGLY, WE HOLD SO. THE GROUNDS OF APPEAL NO.2.4 AND 2.5 ARE THUS, ALLOWED AND THE GROUNDS OF APPEAL NO.2.6 TO 2.9 ARE ALSO ALLOWED. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 20 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 17 TH DAY OF MAY , 201 7 . SD/ - SD/ - (ANIL CHATURVEDI ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 17 TH MAY , 201 7 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / ASSISTANT REGISTRAR, , / ITAT, PUNE
