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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI AMARJIT SINGH & SHRI RAHUL CHAUDHARY
आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order passed by the DRP-1(WZ), which in turn arises from the order passed by the A.O u/s 143(3) r.w.s 144C(3) of the Act for A.Y. 2014-15. The assessee has raised the following grounds before us:
2 Anchor Electricals Pvt. Ltd. VS. JCIT, CC-7(2)
“General ground 1. On the facts and in the circumstances of the case and in law the learned AO based on directions of DRP erred in confirming transfer pricing adjustment to the extent of INR 25,22,618 pertaining to technical know- how royalty paid to Panasonic Corporation, Japan Transfer pricing adjustments Adjustment on account of payment of royalty for use of technical know-how. On facts and circumstances of the case, the learned AO based on directions from DRP: 2. erred in making proportionate transfer pricing adjustment of INR 25,22,618 on royalty paid for use of technical know-how @ 3% of sales amounting to INR 59,35,572 without appreciating that transfer pricing adjustment was made on Anchor brand royalty; 3. erred in making proportionate TP adjustment without appreciating that the royalty paid for use of technical know-how @ 3% was inadvertently included as a part of the transaction of payment of royalty on Anchor brand name; 4. Without prejudice to the above, erred in making proportionate transfer pricing adjustment of 25,22,618 on royalty paid for use of technical know- how @ 3% of sales to INR 59,35,572, wherein the TP adjustment was made by applying the arm's length rate of 1.15% of sales for use of 'Anchor brand name, without appreciating the fact that the brand royalty cannot be compared with royalty for technical know-how. Levy of interest under section 234C of the Act 5. erred in levying interest under section 234C of the Act of INR 10,20,963 where interest under section 234C can be levied only on returned income and not on assessed income; Initiation of penalty proceedings under section 271(1)(c) 6. erred in initiating penalty proceedings under section 274 r.w.s 271(1)(c) of the Act. The Appellant further prays that any other relief as your Honor may deem fit be granted Each of the above ground is independent and without prejudice to one another The Appellant craves leave to add to alter, to amend or to delete any or all of the above grounds of appeal, at or prior to hearing of the appeal, so as to enable your Honor to decide the appeal according to law.”
3 Anchor Electricals Pvt. Ltd. VS. JCIT, CC-7(2) 2. The fact in brief is that the assessee is a manufacturer of electrical components, i.e electrical accessories, wires, and FAN etc. The assessee has been granted exclusive license to use the trademark „Anchor‟ for all products manufactured by the assessee for which it has paid royalty @ 2% for net selling price of the products bearing the trade mark. During the year under consideration AEPL assessee had paid royalty to Panasonic Corporation in respect of Brand name/trademark owned by Panasonic Corporation, Japan to the amount of Rs.32,06,84,684/-. The Panasonic Corporation owns the brand name/trademark anchor under which AEPL assessee‟s manufactured product were sold. The assesse had entered into a trademark license agreement with Panasonic Corporation dated 24.10.2007. As per the agreement the assessee shall pay to Panasonic Corporation a royalty of 2% of the net selling price of the product bearing the trademark. During the year under consideration the TPO observed that the assessee had paid royalty on exclusive license granted to it to use the trademark anchor and other brand name at the 2% of the net selling of the product bearing the trademark. The TPO had restricted the royalty rate as per mutual agreement procedure between India and Japan Government @ 1.15% to be at arm‟s length. Accordingly, adjustment of Rs.13,62,90,991/- was made as arm‟s length rate of royalty and added back to the total income of the assessee. The issue contested in this appeal by the assessee is pertained to making of proportionate adjustment of Rs. 25,22,618/- relating to technical know-how included incorrectly in the adjustment in respect of transaction for payment of brand royalty of anchor. In this regard before the Dispute Resolution Panel (DRP) the assessee submitted that the transaction of payment of royalty of brand name amounting to Rs.32,06,84,684/- inadvertently included royalty for use of technical 4 Anchor Electricals Pvt. Ltd. VS. JCIT, CC-7(2) knowhow @ 3% of sales on which there was no transfer pricing adjustment proposed. The assessee had submitted before the DRP that TPO had made adjustment of Rs.13,62,90,991/- on the amount of Transaction of Rs.32,06,84,684/- for using the brand name anchor, however, inadvertently an amount of Rs.59,35,572/- pertaining to payment of royalty for use of technical know-how @ 3% on sales was also included in the aforesaid amount of transactions which resulted in also making proportionate adjustment by the TPO to the amount of Rs.25,22,618/- included in the amount of adjustment of Rs.13,62,90,991/-. During the course of DRP proceedings the assessee had brought these facts before the DRP and requested to reduce proportionate adjustment of Rs.25,22,618/- pertaining to technical knowhow. However, the DRP has rejected the objection raised by the assessee.
During the course of appellate proceedings the ld. Counsel referred page no. 148 of the paper book pertaining to copy of resolution under Article 25 of the Indo Japan Double Taxation Avoidance Convention r.w.s 90 of the Income Tax Act, 1961 for assessment year 2013-14 and 2014- 15 dated 21.10.2019 wherein it is categorically stated that amount of Rs.25,22,618/- for A.Y. 2014-15 claimed by the assessee on account of technical knowhow royalty will be subject to domestic remedies. Ld. Counsel also referred para 4.3 of the order of DRP wherein reference to the assessee‟s submission for proportionate adjustment was made on payment of royalty for technical knowhow. The ld. Counsel also submitted that during the course of hearing before the Dispute Resolution Panel the DRP was of the view that existing record was not sufficient to consider the claim of the assessee regarding incorrect proportionate adjustment of Rs.25,22,618/- pertaining to technical
5 Anchor Electricals Pvt. Ltd. VS. JCIT, CC-7(2) knowhow. Therefore, the ld. Counsel submitted additional evidences vide letter dated 08.10.2020 during the course of appellate proceedings before the ITAT i.e (i) copy of technical knowhow agreement dated 24.10.2007; (ii) copy of debit note of royalty for trademark for A.Y. 2013-14 dated 25.01.2014 & 26.04.2014; and (iii) copy of trademark agreement dated 11.09.2014. The ld. Counsel has also placed reliance on the following case law for admitting additional evidences:
“i. Prabhavati S. Shah 231 ITR 1 (Bom). ii. CIT Vs. Ganibhai Wahabbhai (1998) 232 ITR 900 (MP) iii. Dwarka Prasad 63 ITD 1 (Pat) (TM) iv. Abhay Kumar Shroff 63 ITD 144 (Pat (TM) v. K. Venkataramiah Vs. A. Seetharama Reddy AIR 1963 (SC) 1526 vi. Rajmoti Industries (1995) 52 ITD 286.”
We have perused the additional evidences furnished by the assessee and also perused the finding of the DRP, it is observed that DRP had not directed the assessee to furnish any other evidences before rejecting the plea of the assessee on incorrect adjustment made pertaining to technical knowhow to the amount of Rs.25,22,618/-. Therefore, we admit the additional evidence for adjudicating the ground of appeal of the assessee on merit. On the other hand, the ld. D.R supported the order of the lower authorities.
4. Heard both the sides and perused the material on record. Without reiterating the facts as elaborated above during the course of proceedings before the DRP the assessee has submitted that the transaction of payment of royalty of brand name amounting to Rs.32,06,84,684/- inadvertently included transactions of royalty for use of technical knowhow @ 3% of sales to the amount of Rs.59,35,572/- on which there
6 Anchor Electricals Pvt. Ltd. VS. JCIT, CC-7(2) was no transfer pricing adjustment proposed. The error in computing the proportionate adjustment is provided as under:
Particulars of adjustment Amount of Amount of proportionate transaction adjustment by the learned (INR) TPO (INR) Adjustment proposed to be made by 32,06,84,684 13,62,90,991 the learned TPO The said adjustment amount inadvertently includes the following Payment of royalty for use of technical 59,35,572 25,22,618 know-how @ 3% of sales We have also perused the form 3CEB filed before the lower authorities wherein at column no. 12 the amount of Rs.32,06,84,684/- was shown as amount of transaction on which royalty for use brand name @ 2% was computed. We have also perused the page no. 24 of the paper book pertaining to payment of royalty for use of brand name and trademark submitted before the lower authorities. We have also perused the copy of agreement for technical knowhow in respect of payment of royalty @ 3% and the debit note and calculation of royalty for trademark as per page 173 and 174 of the additional evidences furnished by the ld. Counsel. During the course of appellate proceedings the ld. Counsel has substantiated with the support of documents filed that the royalty payment for technical knowhow was inadvertently report in payment for royalty anchor brand transaction as under:
Sr. No. International transaction Amount (INR) PB/Add. E ref. 1. Payment of royalty „Anchor‟ Debit Note 14,23,73,508 PB Pg No. -120 Debit Note 17,05,13,927 PB Pg No. -122 Total (A) 31,28,87,435 Agreement PB Pg. No -104 2. Payment of royalty „Panasonic‟
7 Anchor Electricals Pvt. Ltd. VS. JCIT, CC-7(2)
Debit Note 10,24,798 Add. E Pg. No. 156Q Debit Note 8,36,879 Add. E Pg. No. 156S Total (B) 18,61,677 Agreement Add. E. Pg. No. 156U 3. Payment for technical know- how Debit note (C) 59,35,572 PB Pg. No. – 151 Agreement Add. E Pg. no. 156C Grand Total (A+B+C) 32,06,84,684 32,06,84,684 PB Pg. No. 22 TP Report: Payment of royalty for use of brand PB Pg. No. 5 Report in Form 3CEB In the light of the above facts and material we consider that there was an inadvertent mistake in including the royalty for use of technical know- how @ 3% of Rs.39,35,572/- on which no transfer pricing adjustment proposed which resulted in making impugned adjustment of Rs.25,22,618/-. We direct the A.O to modify the amount of adjustment accordingly. Accordingly, this ground of appeal of the assessee is allowed.
Additional Ground No. 2
This ground of appeal is not pressed therefore the same stand dismissed.
Ground No. 1:
Since reference for constitution of special bench was made by the coordinate bench of the ITAT in dated 23.06.2021 for A.Y. 2016-17, Therefore this ground of appeal of the assessee is restored to the file of A.O for deciding as per the outcome of the special bench. Therefore, this ground of appeal is allowed for statistical purposes.
8 Anchor Electricals Pvt. Ltd. VS. JCIT, CC-7(2) 7. In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 13.10.2022 Sd/- Sd/- (Rahul Chaudhary) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 13.10.2022 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविवनवध, आयकर अपीलीय अवधकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file.