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Income Tax Appellate Tribunal, MUMBAI ‘J’ BENCH, MUMBAI
ITA No.645/Mum/2011 Assessment Year: 2005-06 Page 1 of 7
INCOME TAX APPELLATE TRIBUNAL MUMBAI ‘J’ BENCH, MUMBAI [Coram: Pramod Kumar (Vice President)] and Sandeep S Karhail (Judicial Member)] ITA No.645/Mum/2011 Assessment Year: 2005-06
SS Oral Hygine Products Pvt. Ltd. …………………….. Appellant (Now merged with Colgate Palmolive (India) Ltd.) Colgate Research Centre, Main Street, Hiranandani Garderns, Powai, Mumbai400 076 [PAN: AADCS4028C] Vs. Deputy Commissioner of Income Tax-3(2) Hyderabad ………………….Respondent Appearances: Madhur Agarwal for the appellant Samruddhi Hande for the respondent Date of concluding the hearing : 14.10.2022 Date of pronouncement the order : 14.10.2022
ORAL ORDER Dictated in the open court Per Pramod Kumar, VP
By way of this appeal the assessee appellant has following the question correctness of the order dated 10.02.2011, in the matter of assessment u/s. 143(3) of the Income Tax Act, 1961 for the assessment year 2005-06. 2. The grievance of the assessee as set out in memorandum of appeal is as follows:- 1. On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals) [‘CIT(A)’] erred in confirming the adjustment with respect to the arm’s length price for technical assistance received by the appellant from Colgate Palmolive Company, USA (‘CP US’).
ITA No.645/Mum/2011 Assessment Year: 2005-06 Page 2 of 7 The appellant prays that the addition of Rs. 1,46,71,277 be deleted. 3. To adjudicate on the above grievance only a few material facts need to be taken note of. The assessee before us is a company engaged in the business of manufacturing and sale of the paste in collaboration with Colgate Palmolive Company, USA. During the course of the proceedings before the Transfer Pricing Officer it was noticed that the assessee has made a payment of Rs. 1,46,71,277/- to the said company for under a technical services agreement for upkeep and maintenance of their project. The Transfer Pricing Officer for the detailed reasons which are as under:- It is seen from record that assessee claimed payment of technical assistance fee of Rs.1,46,71,277 to Colgate Palmolive Company, USA(CP.,USA). Assessee filed audit report in Form-3CEB in respect of the international transaction. Assessee Company's sole customer is Colgate Palmolive India Ltd. Assessee Company is completely dependent on CP, USA for technical know-how. Section 92A(2)(g) reads as under: Section 92A(2)(g): (For the purposes of sub-section i(1), two enterprises shall be deemed to be associated enterprises, if at any time during the previous year,) g) the manufacture or processing of goods of articles or business carried out by enterprises is wholly dependent on the use of know-how, patents, copyrights, trade- marks, licenses, franchises or any other business or commercial rights of similar nature, or any data documentation, drawing or specification relating to any patent invention, model, design, secret formula or process, of which the other enterprise is the owner or in respect of which the other enterprise has exclusive rights. In view of the provisions of section 92A(2)(g), assessee company and CP,USA are associated enterprises. This international transaction of payment of technical fee was referred to the Transfer Pricing Officer for computation of arm's length price, with prior approval of the Commissioner of Income Tax-III, Hyderabad. Addl.CIT(Transfer Pricing), Hyderabad, vide Order dated 31.10.2008 u/s.92CA(3), computed the arm's length price at nil respect of technical assistance fee. Assessee was required to show cause as to why arm's length price in respect of technical assistance fee should not be computed and taken as nil. IN response assessee submitted as under: "The assessee submits that as per the TAA entered into by the assessee there is no mandatory requirement as to the number of the visits to be made by the personnel of CP-USA to impart training to the employees of SOPL in India. The personnel of the CP-USA would visit India as and when SOPL needs assistance from them. Accordingly, payment of Technical Assistance fees is not dependent on the number of visits made by the personnel of CP-USA but it is based on high degree of technical assistance received by SOPLK. The assessee further submits that apart from visits, SOPL receives online support and trouble shooting assistance through discussions over telephone and conference cells. The assessee submits that the important point is the high degree of the technical assistance imparted by CP-USA to the assessee. The value of the assistance cannot be linked to
ITA No.645/Mum/2011 Assessment Year: 2005-06 Page 3 of 7 the number of visits made by the personnel of CP-USA. In other works, merely if personnel of CP-USA visit India on numerous occasions, it would not imply that the value of assistance is higher Technical Assistance received by the assessee has a valuable intangible without which the assessee would not be in a position to carry on its business. In fact the assessee would not be able to make any profit at all in absence of this assistance. In view of the above, the assessee submits that the technical assistance received, through technical reports, personnel visit, online support and trouble shooting from CP-USA is extremely valuable and essential to the assessee for carrying on its business." Assessee's submission has been carefully considered. Assessee entered into agreement with CP,USA provision of technical assistance. It is seen from the agreement that CP,USA agreed.... "to depute to the plant or premises of sunshine at Hyderabad, such number of its technicians at such time and for such period or periods as may be mutually agreed upon by the parties to be necessary for the purpose of effectively rendering or providing technical assistance to Sunshine and/or its employees to manufacture and produce the said product in India. All expenses on account of lodging, boarding and services related thereto and/or travel to/from/within India shall be borne and paid by SUNSHINE." It is also seen from the record that assessee company entered into an agreement, for right to use the know-how to manufacture toothpaste with CP.USA wherein know-how is defined as under: "Know-how" shall be construed to mean all secret information and data relating to manufacture of licensed Products which will comprise of confidential information with respect to formulation of and processes employed in producing Licensed Products, ingredients for incorporation in the Licensed Products, raw material specifications, packaging, quality controls and safety standards, good manufacturing practices, cost efficiency and productivity improvements. It may be seen the above, that royalty is payable by assessee to CP.USA for provision of services right from the stage of raw material till the stage of packing. The above payments for Royalty and technical assistance are closely inter-linked since both know-how and technical assistance are provided by CP,USA and the nature of services under both agreements are similar. It is seen from the documentary evidence filed by the assessee that the technical reports are only new letters containing details of information in respect of precautions at workplace, general occupation health and safety guidelines. Assessee has not received any specific service from CP,USA. It is submitted that only one person visited India, who stayed for only one day. in the entire year in connection with provision of technical assistance to assessee. The services in the form of technical reports are already covered by the Royalty agreement between assessee company and CP,USA. In view of facts and circumstances of the case and absolute dependence of the assessee company on cp,USA and Colgate Palmolive India Ltd. for the know-how and business respectively and nominal sevices received, it is held that the agreement for technical assistance is a self serving document and, hence rejected, Reliance is placed on the decisions of Supreme
ITA No.645/Mum/2011 Assessment Year: 2005-06 Page 4 of 7 Court in the case of CIT Vs Durga Prasa More (82 ITR 540) and in the case of Sumati Dayal Vs.CIT(214 ITR 801). In view of the above, the arm's length price for technical assistance from CP,USA requires re-computation. In view of the nominal services received by assessee and the fact that the said services are covered by Royalty agreement the arm's length price for technical assistance fee claim is excessive and hence recomputed at nil. Accordingly, the claim of Rs.1,46,71,277 is rejected and disallowed. In view of the above, assessee concealed particulars of income of furnished inaccurate particulars of income, hence this is a fit case for initiating penalty proceedings u/s. 271(1)(C). Disallowance Rs.1,46,71,277 4. It was in this backdrop that an ALP adjustment of Rs. 1,46,71,277/- was made by the Assessing Officer in the course of the assessment proceedings.
Aggrieved the assessee carried the matter in appeal before the learned CIT(A).
The assessee raised two objections, first that the assessee is not an associated enterprise of the Colgate Palmolive USA, and as such the question of ALP adjustment does not arrive, and second that even on merits the impugned ALP adjustment of Rs. 1,46,71,277/- is not sustainable in law. On none of the points the learned CIT(A) interfere in the matter. The learned CIT(A) held that the assessee and the Colgate Palmolive are associated enterprise by virtue of section 92B(2) and that the ALP of Rs. 1,46,71,277/- was warranted on the facts of this case. While doing so the learned CIT(A) inter alia observed as follows:-
6.7 Since, in the instant case, the appellant has failed to produce any evidence to prove their claim of rendering of technical assistance by the A during the previous year, relying on the above decisions, I am of the view that, the TPO and the AO, were justified in rejecting such claim of the appellant for technical assistance fees, and consequently determining ALP of such transaction at Nil, notwithstanding existence of such an agreement between the appellant and that AE. Hence such disallowance of Rs.1,46,71,277/-, made in the assessment order for this assessment year by the AO was justified, and thus, the same is upheld.
The assessee aggrieved is in further appeal before us.
When this appeal came up for hearing Shri Agarwal, learned counsel for the assessee pointed out that the agreement in question under which the impugned payment was made, was entered on 9th February 2001, and that the payments made by the assessee under the said contract for technical services in respect of upkeep and maintenance of the factory was all along accepted to be an arm’s length price in the assessment years 2001-02, 2002-03 & 2003-04 without making any ALP adjustment in respect thereof. However in the assessment year 2004-05 the Assessing
ITA No.645/Mum/2011 Assessment Year: 2005-06 Page 5 of 7 Officer did make an ALP adjustment of Rs. 1,46,88,907/-, based on the TPO’s findings, which was deleted by the learned CIT(A) vide order dated 2nd April 2009. While doing so the learned CIT(A) gave elaborate findings in paragraph 6.3 to 6.5 upholding the stand of the assessee. These findings for the sake of completeness are reproduced below:-
6.3 It was further submitted that the technical assistance fee is not linked to number of visits of the foreign technicians but to the high degree of technical know-how received by the appellant from Colgate Palmolive Company, USA. It was stated that visit by technical experts from that AE is only a part of the total package of services undertaken by the AE. It was further stated that the technical knowledge thus imparted cannot be specifically quantified with reference to a visit. It was further submitted that the assessee company also receives online support through telephone and conference calls. Lastly, stating that provision for technical assistance fee is different from royalty payment and such service fee can be equated to an annual maintenance contract, the Id. AR contended that the same is allowable as deduction. In this regard, he further referred to the said appellate order dated 02.04.2009 passed by the CIT(A)-III, Hyderabad, in the case of the appellant for the Asst. Year 2004-05.
6.4 I have considered the submissions of the appellant. From the said order passed by the. TPO, I find that before holding the ALP of such transaction as NIL, he has discussed the facts and reasons for the same in detail at page 13 to 16 of his order. During such proceedings, when the TPO has asked the appellant to produce evidence in support of the claim of rendering of technical assistance by CP. USA, the appellant has failed to produce the same. Since the appellant failed to produce even copy of email, notes etc. in that regard, the TPO held that such claim made by the appellant is not genuine and accordingly, he disallowed the said amount. In support of this disallowance, he referred to the decision of Hon'ble Madras High Court in CIT vs. Krishnaveni Ammal, 158 ITR 872.
6.5 Before me, merely making such general submissions, the appellant has not been able to produce any evidence in support of such claim regarding rendering of technical assistance by the said AE during the previous year. In ground no.3.3, though the appellant has stated that the correspondence through emails, notes etc. being confidential and sensitive were never maintained as record, there is no merit in such contention. When an assessee makes a claim for deduction of certain expenditure or any allowance, onus lies upon him to produce supporting evidence in that regard to the satisfaction of the AO for establishing that such expenditure was incurred wholly and exclusively for the business purpose. Since, in the instant case, the appellant has failed to produce any supporting evidence with regard to such claim of technical assistance by the AE, the TPO as well as the AO. In my view, have been justified in rejecting such claim of the appellant for technical assistance fees, notwithstanding existence of such an agreement between the appellant and that AE.
The relief so granted by the learned CIT(A) was not challenged in further appeal. Even though in respect of the same assessment year on different issues the assessee was in appeal
ITA No.645/Mum/2011 Assessment Year: 2005-06 Page 6 of 7 before the Tribunal. Learned counsel for the assessee also produced before us a copy of the appeal filed by the Assessing Officer for the assessment year 2004-05 and it is clear for the perusal on the said appeal that no grievance was raised in respect of this ALP adjustment.
Learned counsel short contention is that when on the same issue the revenue authorities have accepted a position taken by the assessee when no ALP adjustments are made for three consecutive assessment year and when in the fourth year even if ALP adjustments are made the decisions of these adjustments are not challenged in further appeal, it cannot be open to the revenue authorities to continue to make the same ALP adjustments in the present year. He invites our attention to Hon’ble Supreme Court judgment in the case of Radhasoami Satsang v. CIT (1992) 193 ITR 321 and wherein it is inter alia mentioned that while strictly speaking res judicata does not apply to Income Tax proceedings but where the fundamental aspect permeating through the different assessment years has been followed as the fact one way or the other and parties have allowed that position to be sustained by not challenging the order it would not at all be appropriate to allow the position to the change in subsequent year. Our attention is being invited to Hon’ble Supreme Court judgment in the case of Berger Paints India Ltd vs CIT 266 ITR 99, wherein Hon’ble Supreme has held that if the revenue has not challenged correctness of the law laid down and accepted it in one case, it will not be opened to revenue to challenge its correctness in the case of the other assessee without just cause. It is submitted that when the revenue authorities are denuded of the powers of raising point which has received finality in the case of one of the assessee’s in other cases, it is futile to even suggest that the matter which has reached finality in assessee’s own case can be raised again. We are thus urged that for the short reason of the revenue authorities having accepted the position has explained above in the preceding year this appeal must be allowed and the impugned ALP adjustment must be quashed.
The learned Departmental Representative has two short points. The first is that she wants to peruse the details of assessment years 2001-02, 2002-03 & 2003-04 before taking a call on whether actually the adjustment was made or not. Second point by the learned Departmental Representative is that while she fairly accepts that the grounds of appeal as available on the face of it this issue was not raised in appeal before the Tribunal, she would nevertheless try to find out as to what was the reason of not so raising ground of appeal. As for the legal principles emerging from the judgment of Hon’ble Supreme Court in the case of Radhasoami Satsang (supra) and Berger Paints India Ltd (supra) she did not have much to say except to place reliance on the stand of the authorities below.
We have heard rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.
ITA No.645/Mum/2011 Assessment Year: 2005-06 Page 7 of 7 13. As learned counsel rightly points out once its factual aspect which permeates from through different assessment years has been found one way on the other and the parties have allowed that position to be sustained by not challenging the order it would not at all be appropriate to allow that position to be changed in the subsequent year, as was held Hon’ble Supreme Court in its landmark judgment in the case of Radhasoami Satsang (supra). In other words when on a factual aspect there is an unchallenged and undisputed finding holding a particular position it would not normally be appropriate for the same to be disturbed. We find that is no reason to dispute the assessee contention that no ALP adjustment in respect of the similar payments made for the assessment years 2001-02, 2002-03 & 2003-04 and that the relief granted by the learned CIT(A) on this point when the adjustments were made in the assessment year 2004-05 has not been challenged. In these circumstances and for the short reason alone in our considered view the impugned ALP adjustment must be deleted.
As for the Departmental Representative apprehension about the factual basis of the relief being so granted being incorrect, there are appropriate remedial measures prescribed by the law. What we have decided is this is based on the material before us and we have no reason to dispute the correctness of validity of the statements being made before us and the documents being filed before us unless specific cogent reasons are pointed out for the same.
In view of our findings above the adjudication on merits is only academic and therefore we need not deal with the same as of this now. Those aspects are academic at present.
In the result, the appeal is allowed. Dictated and pronounced in the open court today on the 14th of October2022
Sd/- Sd/- Sandeep S Karhail Pramod Kumar (Judicial Member) (Vice President) Mumbai, dated the 14th day of October, 2022
Copies to: (1) The Appellant (2) The respondent (3) CIT (4) CIT(A) (5) DR (6) Guard File By order
Assistant Registrar/Sr. PS Income Tax Appellate Tribunal Mumbai benches, Mumbai