DOW AGROSCIENCES INDIA P.LTD,MUMBAI vs. ASST CIT RG 14(1)(2), MUMBAI

Appellant by: Shri P.J. Pardiwala, Senior Advocate a/w Shri. Hiten Chande Respondent by: Shri Sunil Kumar Jha, CIT D.R Date of Hearing: 23.10.2020 Date of Pronouncement: 11.01.2021 O R D E R

PER RAVISH SOOD, JM

“Based on the facts and circumstances of the case, Dow AgroSciences India Private Limited (hereinafter referred to as the Appellant') respectfully craves to prefer an appeal against the order issued by the Assistant Commissioner of Income - tax, Range 14(1)(2), Mumbai [hereinafter referred to as the 'Assessing Officer'] under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-I, (hereinafter referred to as the Hon‟ble DRP') on the following grounds, each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned AO/ Additional Commissioner of Income-tax (Transfer Pricing) - 1(3) ('TPO') on fact and in law has: GENERAL 1. erred in assessing the total income at Rs.88,34,41,810 as against returned income of Rs.80,04,98,533 computed by the Appellant. TRANSFER PRICING ADJUSTMENTS PAYMENT OF ROYALTY TO ASSOCIATED ENTERPRISE ('AE') General 2. erred in making an adjustment of Rs 4,29,47,493 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of payment of royalty.

ITA No.203/Mum/2016 & 3 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

Rejection of economic analysis undertaken by the Appellant 3. erred in not accepting the economic analysis undertaken by the Appellant including the analysis using the Transactional Net Margin Method ('TN MM'), in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('the Rules'), for the determination of the arm's length price of the international transaction of payment of royalty. Rejection of Comparable Uncontrolled Price ('CUP') as the appropriate method 4. erred in not considering approvals received from Secretariat of Industrial Assistance ('SIA'), Ministry of Industry and Reserve Bank of India ('RBI') as valid CUP and rejecting the CUP analysis undertaken by the assessee as a primary analysis.

Disregarding the commercial benefits received from the AE 5. erred in not appreciating that the technical knowhow licensed by the AE to the assessee was an invaluable and unique intangible which yielded commercial benefits to the Appellant. 6. erred in not appreciating the commercial rationale of the assessee for extending the technology agreement as well as making royalty payment to the AE and thereby applying benefit test' to hold no benefit is received by the Appellant.

Inappropriately considered controlled transaction as CUP 7. erred in comparing, on without prejudice basis, the rate of royalty paid by the Appellant to its AE, Dow AgroSciences B.V (Dow Netherlands) with a controlled transaction (i.e. the royalty rate paid by UK King Lynns Plant (Dow UK), another AE of the Appellant to Dow AgroSciences B.V (Dow Netherlands) 8. without prejudice to the above, erred in ignoring the fact that prices of the products in UK is much higher as compared to India, since UK is a developed country and thereby the royalty paid by Dow UK cannot be compared with the royalty paid by the appellant. 9. without prejudice to the above, even if controlled rate of royalty paid by Dow UK to Dow Netherlands is taken as CUP, appropriate adjustment should be provided on the same to eliminate the differences. Inappropriately considered supplementary agreement as CUP 10. without prejudice to the above, erred in directing the Appellant to carry out a fresh search for identifying comparable royalty agreements using 'RoyaltyStat‟ database (during the remand proceedings) as the same was beyond the powers of the learned TPO 11. without prejudice to the above, failed to appreciate that none of the agreements derived from the above search were considered comparable by the Appellant. 12. without prejudice to the above, erred in considering the agreement between HERC products and CCT corporation as comparable agreement without giving

ITA No.203/Mum/2016 & 4 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) cognizance to the validity of the agreement as well as the fact that the complete information about the agreement is not available.

Variation of 5% from the arithmetic mean 13. the benefit of proviso to section 920(2) of the Act should be granted to the Appellant, if the transaction payment of royalty is within such range.

II. AVAILING OF INFORMATION TECHNOLOGY SERVICES, FINANCE AND TREASURY SUPPORT SERVICES, FINANCIAL AND ACCOUNTING SUPPORT SERVICES AND LEGAL AND ADMINISTRATIVE SUPPORT SERVICES FROM AEs General 14. erred in making an adjustment of Rs 3,99.95,779 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of availing of information technology services, finance and treasury support services, financial and accounting support services and legal and administrative support services. Rejection of the economic analysis undertaken by the Appellant 15. erred in not accepting the economic analysis undertaken by the Appellant including the analysis using TNMM, in accordance with the provisions of the Act read with the Rules, for the determination of the arm's length price of the international transaction of payment for availing of services. 16. erred in rejecting the aggregation approach adopted by the assessee using TNMM to benchmark the said international transaction and not appreciating that these S6iViCS are closely connected with the main business of the Appellant in relation to manufacturing, trading and indenting. Inappropriate application of CUP method to benchmark the international transaction 17. erred in not using any of the five method prescribed under section 92C to benchmark the international transaction of payment for availing of services. 18. without prejudice to the above, erred in considering hypothetical CUP (as against TNMM adopted by the Appellant), for determination of arm's length price, wherein the learned AO/ TPO held that third party will not pay anything for these services. Benefit test/ commercial expediency for availing services 19. failed to appreciate the business model and business realities of the Appellant and the role of its AEs and concluding that no service is received or benefits have been availed by the Appellant. Ignored evidences submitted for service availed and benefits derived 20. erred in brushing aside the additional evidences submitted by the Appellant to prove existence/ benefit received by the Appellant.

ITA No.203/Mum/2016 & 5 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

Short granting of credit of advance tax paid erred in only granting credit of Advance Tax of As 23,0000.000 as against 21. the total Advance Tax paid by the Appellant of As. 27,70,00,000. Short grant of credit for tax deducted at source ('TDS') erred in only granting credit of TDS of As. 1,35,18.126 as against the credit 22. of total TDS credit claimed by the Appellant of As 1,46,98,582.

23. Levy of interest under section 234B of the Act erred in levying of interest under section 234B of the Act of As. 3,29,22,946.

24. Levy of interest under section 234C of the Act erred in levying of interest under section 234C of the Act of As. 61.07,852. 25. erred in not appreciating that interest under section 234C would be 26. applicable only on the returned income as against on assessed income levied by the learned AC. Initiation of penalty proceedings under section 271(1)(c) of the Act erred in initiating the penalty proceedings under section 274 read with 27. section 271 (1)(c) of the Act.

The Appellant craves leave to add, alter, amend, delete or withdraw any or all of the grounds of appeal at or before the hearing of the appeal so as to enable the Income tax Appellate Tribunal to decide the appeal according to law.”

2. Briefly stated, the assessee company which is engaged in the business of manufacturing and trading of pesticides, agro chemicals & seeds had filed its return of income for A.Y. 2010-11 on 30.09.2010, declaring its total income at Rs.80,04,09,533/-. The return of income was initially processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.

3. Observing that the assessee company had during the year under consideration entered into international transactions with its Associate Enterprises (for short “AEs”), the A.O made a reference under Sec. 92CA(1) of the Act to the Addl. CIT, Transfer Pricing Officer-1(3), Mumbai (hereinafter referred to as “TPO”) for determining the Arm‟s Length Price of the said

ITA No.203/Mum/2016 & 6 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) transactions. The TPO vide his order passed under Sec. 92CA(3), dated 29.01.2014 made an adjustment of Rs.8,29,43,272/- to the ALP of the international transactions of the assessee, as under:

Sr. Particulars Amount No. 1. (a). Adjustment to the ALP of royalty paid by the assessee Rs.4,29,47,493/- to its AE viz. Dow AgroSciences BV by computing the same at Rs.nil as against the ALP of Rs.4,29,47,493/- determined by the assessee. (b). Alternatively, the TPO by applying CUP method had Suggested adjustment of Rs. 1,37,52,774/- that was to - be invoked only if the primary adjustment of taking the ALP of the royalty transaction at Nil was vacated by the lower authorities.

the approach that was adopted by the lower authorities for benchmarking the transaction of payment of royalty. Accordingly, the DRP upheld the determining of the arm‟s length price of the royalty transaction by the TPO at Nil. Adverting to the alternative view of the TPO wherein using the CUP method he had considered the royalty paid by an another AE of the assessee, viz. Dow U.K to Dow Netherlands as a comparable transaction and determined the arm‟s length price of the royalty paid by the assessee to its AE at 5% of its net export sales, and had suggested an alternate adjustment of Rs.1,37,57,774/- that was to be substituted in case the primary adjustment of taking the arm‟s length price of the royalty transaction at Nil was vacated by the appellate authorities, the DRP was of the view that as the said observation of the TPO was in conformity with the order passed by the Tribunal in the case of the assessee for A.Y. 2003-04, therefore, no infirmity could be related to the same. Accordingly, on the basis of his aforesaid observations the DRP upheld both the primary and alternate transfer pricing adjustments made by the TPO pertaining to the transaction of payment of royalty by the assessee to its AE. As regards the objection pertaining to the transfer pricing adjustment of Rs. 3,99,95,779/- made by the A.O regarding the intra-group services received by the assessee from its AEs, the DRP was of the view that as the assessee had neither filed evidence substantiating the rendering of services by the AEs and receipt of tangible benefits there from nor placed on record the details of total costs that were incurred by the AEs or the basis of cost allocation, therefore, the TPO had for justifiable reason taken the arm‟s length price of the intra-group Services at Nil. As regards the additional documentary evidence that was filed by the assessee to support its claim of rendition of intra-group Services by it AEs, the DRP called for a „remand report‟ from the TPO. After considering the „remand report‟ and the rejoinder filed by the assessee, the DRP concurred with the view taken by the TPO that the documents so filed were in the nature of a general correspondence and did not prove the amount of contribution the AEs by rendering the services had made to the assessee. It was further observed by the DRP that on a perusal of the e-mails filed by the assessee as additional

ITA No.203/Mum/2016 & 8 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) evidence, it could not be gathered that as to why payments were made by it to the AEs. After deliberating at length on the contentions advanced by the assessee in the backdrop of the orders of the lower authorities and the material available on record, the DRP was of the view that the TPO had rightly determined the ALP of the intra-group Service at Nil.

(A). Transfer pricing adjustment as regards the royalty paid by the assessee to its AE : Rs.4,29,47,493/- :

The assessee company had entered into a Process Technology Agreement, dated 23.01.1997 with its AE, viz. Dow AgroSciences, BV (formerly known as “Dow Elanco BV”) as per which the assessee was obligated to pay royalty to ITA No.203/Mum/2016 & 9 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) the aforesaid AE on manufacturing of “Chlorpyrifos” @ 5% and @ 8% of its net domestic sales and export sales, respectively. As stated before us, the aforesaid „agreement‟ was approved by the Secretariat of Industrial approval, Ministry of Industry (Government of India) vide its letter dated 17.09.1996. As per the approval the royalty was to be paid by the assessee for a period of 7 years during the period of the „agreement‟. Subsequently, the aforesaid „agreement‟ was also approved by the Reserve Bank of India (for short „RBI‟), vide its approval dated March 11, 1997. On 8th September, 2000, the Government of India issued a “Press Note No. 9 (2000 series)”, as per which, the wholly owned subsidiaries were allowed to make payment of royalty @ 5% and @ 8% of their net domestic sales and export sales, respectively, without any restriction on the duration of the royalty payment. As such, the duration of payment of royalty for a maximum period of 7 years as was earlier contemplated was dispensed with by the government. But then, as the assessee company was a Joint venture between Dow Mauritius and National Organic Chemical Industries Ltd. and not a wholly owned subsidiary, therefore, the aforesaid relaxation was of no avail to it. On 24th June, 2003, the Government of India issued a “Press Note No.2 (2000 series)” wherein it further relaxed the provisions relating to payment of royalty, and now, though all the companies irrespective of the extent of foreign holding were allowed to pay royalty without any restriction on the duration of the same, the cap on the quantum of the royalty that could be paid continued as earlier. In view of the above relaxation provided by the Government of India the AE of the assessee renegotiated and executed an “agreement”, dated 8th June, 2005 and modified the earlier Process Technology Agreement, dated 23rd January, 1997, whereby the time duration of 7 years for payment of royalty was removed and the rate of royalty @ 5% and @ 8% of the net domestic sales and export sales till the time technology was used by the assessee company for manufacture and sale of the product viz. “Chlorpyrifos” was agreed upon.

consideration paid a royalty of Rs. 4,29,47,493/- i.e @ 8% of its net export sales to its AE, viz. Dow AgroSciences BV. CUP method was used by the assessee as a primary analysis basis for benchmarking the aforesaid international transaction. Using the CUP method the assessee had considered the aforesaid approval received from the Government of India and RBI for the purpose of benchmarking the aforesaid transaction. As the royalty paid by the assessee company to its AE was approved both by the Government of India and RBI, vide their respective approvals dated 17th September, 1996 AND 22nd January 1997, therefore, the aforesaid transaction was considered by the assessee to be at arm‟s length. Alternatively, the assessee aggregated the transaction of payment of royalty with its other international transactions carried out in the manufacturing segment, for the reason, that such other transactions viz. import of raw material and export of finished goods in the manufacturing segment were closely connected with the transaction of payment of royalty. Adopting TNM method as a basis for a secondary analysis the assessee benchmarked the manufacturing segment, and finding the net margin of the said segment during the year under consideration higher than the net margin of the comparables, the payment of royalty to its AE was claimed as being at arm‟s length.

to be benchmarked separately, the TPO was of the view that merely because by applying TNM method at an enterprise level the margin of the assessee was found to be at arm‟s length would not mean that the transaction of payment of royalty by the assessee to its AE was to be taken as being at arm‟s length. Backed by his aforesaid conviction, the TPO was of the view that each transaction was to be benchmarked separately and the arm‟s length price of the royalty paid by the assessee to its AE was to be determined by applying CUP method. Further, it was observed by the TPO that as per Clause 6.1 of the original “agreement”, dated 23rd January, 1997 that was entered into by the assessee with its aforesaid AE viz. Dow AgroSciences BV, the assessee was liable to pay royalty to its AE for a period of 7 years, and thereafter, it was to be vested with a non-assignable and non-transferable right for use of such technology. It was observed by the TPO that as per Clause 11.1(B) of the aforesaid “agreement”, dated 23.01.1997 a new agreement was to be executed only in the event the assessee received additional technology. Accordingly, the TPO was of the view that the assessee after the consummation of the original “agreement”, dated 23.01.1997 remained under no obligation to pay any royalty to its AE unless any new technology was received by it during the year under consideration. In the backdrop of his aforesaid deliberations the TPO determined the arm‟s length price of the royalty paid by the assessee to its AE, viz. Dow AgroSciences BV at Nil. Alternatively, the TPO adopted the CUP method and considering an “agreement” entered into between two group companies of the assessee, viz. Dow UK King Lynn Plant („Dow, UK‟) with Dow B.V, as per which the former i.e Dow, UK was obligated to pay a royalty @ 3% and @ 5% of its domestic sales and export sales, respectively, for manufacture and sale of “Chlorpyrifos”, determined the arm‟s length price of the royalty paid by the assessee to its AE i.e Dow AgroSciences, BV at 5% of its export sales for the year under consideration. On the basis of his aforesaid alternate working the TPO suggested an alternate transfer pricing adjustment of Rs.1,37,52,774/-, which however was to be invoked only in case the determination of the arm‟s length price at Nil was subsequently vacated by the appellate authorities.

ITA No.203/Mum/2016 & 12 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

ITA No.203/Mum/2016 & 13 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) method and adopting the rate provided in the royalty „agreement‟ between two group concerns of the assessee company, viz. Dow UK and Dow Netherland. Lastly, the DRP had also found favour with the additional benchmarking that was suggested by the TPO in his „remand report‟ by taking the rate adopted in an “agreement” between two parties, viz. AARC Corporation and CCT Corporation, as per which, the arm‟s length price of the royalty paid by the assessee to its AE was to be taken at the rate of 2% of its export sales. To sum up, the DRP had upheld the view taken by the TPO both as regards, viz. (i). the determining of the arm‟s length price of the royalty paid by the assessee to its AE as per his order passed u/s 92CA(3) i.e (a). primary adjustment of taking the ALP of the royalty paid by the assessee to its AE at Nil AND (b). the alternate working of the ALP on the basis of an “agreement” between two group concerns of the assessee at Rs.1,37,52,774/-; and (ii). the transfer pricing adjustment of the royalty transaction @2% of the export sales as was suggested by the TPO in his „remand report‟, dated 13.11.2014.

assessee was under no obligation to pay any royalty to the AE beyond the aforesaid stipulated period of 7 years. Backed by their aforesaid conviction, the TPO/DRP had determined the arm‟s length price of the royalty paid by the assessee to its AE at Nil.

“ARTICLE 11 - TERM AND TERMINATION 11.1 This Agreement shall commence on the Effective Date and consummate at the end of the later of (a) ten (10) years after the Effective Date, or (b) seven (7) years after the Commencement of Production Date unless otherwise extended, cancelled or terminated under the provisions of this Agreement. The obligations of the parties for further technology exchange under Article 4 shall cease at the end of the seventh (7th) year after the Commencement of Production Date. A. Upon fully meeting all its obligations under this Agreement, LICENSEE shall have a fully-paid, non-assignable, non-exclusive right, without the right to sub-license: to practice, only at the Plant, the Process utilizing Technology received prior to such consummation, and to use and sell Product made thereby and Product Formulations formulated from such Products, in India and export for sale to such countries outside India as may be mutually agreed in writing from time to time between LICENSOR and LICENSEE. B. In the event LICENSEE subsequently wishes to receive from LICENSO any additional technical information related to the production of Product or to use Technology received under this Agreement outside the scope o the license granted in this Article 11.1 subsequent to consummation of this Agreement, it shall first negotiate a new technology license agreement with LICENSOR.” On a perusal of the aforesaid clause, we find that the same inter alia places the respective parties at a liberty to extend the same. As per the “agreement” the licensee i.e the assessee after meeting all its obligations under the original “agreement”, dated 23.01.1997 would stand vested with a fully paid, non- assignable and non-exclusive right, though without any right to sub-license, and would be entitled to practice, only at the plant, the process utilizing technology that was received prior to the consummation of the said agreement. It was ITA No.203/Mum/2016 & 15 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) therein further provided that if the licensee i.e the assessee subsequent to consummation of the aforesaid “agreement” wished to receive from the licensor i.e its AE, viz. Dow AgroSciences BV any additional technical information related to the production of product or to use technology received under the aforesaid agreement, it would be required to negotiate a new technology license agreement with the aforesaid licensor. It is the claim of the ld. A.R that the lower authorities had erred in drawing adverse inferences as regards the royalty paid by the assessee to its AE during the year under consideration, for the reason, that they were of the view that as the assessee had not received any new technology from the AE during the year, it was, thus, not obligated to pay any royalty to its AE. Rebutting the aforesaid observations of the lower authorities, it was submitted by the ld. A.R that the TPO vide his “remand report”, dated 14th, November, 2014 had accepted that the assessee had received technical assistance from its AE. However, the TPO observed that as the technical assistance received by the assessee from its AE was general in nature and no new technology was received from the AE, therefore, the assessee was not obligated to pay any royalty to its aforesaid AE. In other words, the TPO was of the view that it was only if the assessee after the consummation of the aforesaid original “agreement” wished to receive any new additional technology, it was only then required to enter into a new “agreement” with its AE. Backed by his aforesaid observation, the TPO was of the view that the assessee ought to have only reimbursed the expenses for the technical assistance received from its AE and was not required to pay any royalty. On a perusal of the aforesaid Clause 11.1(B), we find that the same provides that if the assessee after the consummation of the original “agreement” wished to receive from the licensor i.e the AE any additional technical information related to the production of product or to use technology received under the terms of the said agreement, it would be required to negotiate a new technology license “agreement” with the licensor. However, we find that the DRP had wrongly observed that as per Clause 11.1 of the aforesaid “agreement” the new agreement was to be executed only if the assessee company received any ITA No.203/Mum/2016 & 16 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) additional technology. As observed by the DRP, since the assessee had not produced any evidence of having received any new technology, therefore, it was not obligated to pay any royalty to its AE. Summing up, the Clause 11.1 required the AE to provide additional information in relation to the technology already provided. In the backdrop of the observation of the TPO in his „remand report‟ that the assessee had during the year under consideration got some kind of technical support from its AE, we are unable to comprehend as to on what basis it has thereafter been concluded by the lower authorities that no new “agreement” was required to be executed by the assessee with its AE. Admittedly, after consummation of the original “agreement”, dated 23.01.1997 the assessee was to be vested with a fully paid, non-assignable and non- exclusive right, though without any right to sub-license, and would be entitled to practice, only at the plant, the process utilizing technology that was received during the period of the aforesaid original “agreement”, dated 23.01.1997, and thus, remained under no obligation to pay any royalty to its AE for use of the aforesaid technology. But then, if the assessee after the consummation of the original “agreement” wished to receive from the licensor i.e the AE any additional technical information related to the production of product or to use technology received under the terms of the said agreement, it was required to negotiate a new technology license “agreement” with the licensor. At the outset, we may herein observe that we are unable to persuade ourselves to subscribe to the construing of Clause 11.1 of the original “agreement” by the DRP. As observed by us hereinabove, if the assessee after the consummation of the original “agreement” wished to receive any additional technical information related to the production of the product or to use the technology received under the said “agreement”, then, it was required to negotiate a new technology license “agreement” with the licensor i.e the AE. On a perusal of the „remand report‟ of the TPO, we find that he had accepted that the assessee had during the year under consideration received technical assistance from its AE. We may herein observe that it is the claim of the assessee that as it does not carry any research activity in respect of the product viz. “Chlorpyrifos” manufactured by it,

ITA No.203/Mum/2016 & 17 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) and for the technology support is completely dependant on its AE which carries out the research activity, therefore, in the absence of constant support in terms of improvements, new process and latest updates it would not have been able to manufacture and sell the competitive products. In order to drive home its claim that it had during the year under consideration received additional technical information related to the production of the product or to use the technology received under the original “agreement”, the assessee had filed with the DRP by way of “additional evidence” a letter dated 19.09.2014, (Page 467 – 476 of APB) demonstrating at length the aforesaid factual position. As observed by us hereinabove, the TPO after perusing the aforesaid “additional evidence” had accepted that the assessee had received technical assistance from its AE. In our considered view the receipt of technical assistance by the assessee during the year under consideration from its AE being related to the production of the product and/or use of the technology received as per the original “agreement”, after its consummation, safely justified negotiation of the new technology license “agreement” between the assessee and the licensor i.e the AE, and thus, the payment of royalty as per the terms therein contemplated. Also, we find substantial force in the claim of the ld. A.R that the TPO/DRP had wrongly construed the Clause 11.1(B) of the original “agreement”. All that Clause 11.1(B) required was receipt of additional technical information in relation to the technology already received by the assessee as per the original “agreement”. However, the lower authorities had wrongly observed that the “agreement” required receipt of new technology by the assessee from its AE. Be that as it may, we find substantial force in the claim of the assessee that now when on the basis of the supplementary royalty “agreement”, dated 08th June, 2005 that was made effective from 01st June, 2004, i.e A.Y 2005-06 the assessee had received necessary technical know-how and assistance from its AE, which had consistently been accepted by the department upto A.Y 2009- 10, therefore, in respect of the same “agreement” the department could not take a contrary stand during the year under consideration and therein assail the very existence of the same. To sum up, it is the claim of the assessee that now when

ITA No.203/Mum/2016 & 18 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) the department had for the period A.Y 2005-06 to A.Y 2009-10 accepted the technical know-how and assistance received by the assessee from its AE, it could not during the year in question i.e A.Y 2010-11 assail the validity of the said “agreement”. Admittedly, the aforesaid supplementary royalty “agreement”, dated 08th June, 2005 (effective from 01st June, 2004) had been accepted by the department for the period A.Y 2005-06 to A.Y 2009-10. Apropos the rejection of the supplementary royalty “agreement” which remains the same during the year under consideration, we are of the considered view that the department by so doing is trying to approbate and reprobate the same i.e quod approbo no reprobo, which is not permissible. On the basis of our aforesaid observations, we not being able to persuade ourselves to subscribe to the view taken by the TPO/DRP that the assessee after consummation of the original “agreement” was not obligated to pay any royalty to its AE, vacate the same.

ITA No.203/Mum/2016 & 19 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) in the markets, overall economic development and level of completion and whether the markets are wholesale or retail.” Accordingly, now when the royalty paid by the assessee to its AE was approved by the Government of India and RBI by their respective approvals dated 17th September, 1996 and 22nd January, 1997, and the same was also in conformity with the rates that were prescribed in the “Press Note No. 2 (2003 series)”, dated 24th June, 2003, therefore, no infirmity could be related to the assessee in considering the same for benchmarking the royalty paid by the assessee to its AE using CUP method. Insofar the reliance placed by the TPO on the judgment of the Hon’ble High Court of Punjab and Haryana in the case of Coca Cola India Inc. Vs. Asst. CIT (2009) 309 ITR 194 (P&H), we find that the said order had been relegated by the Hon’ble Supreme Court vide its order, viz. M/s Coca Cola India Inc. Vs. Addl. CIT & Ors. [SLP (Civil) No(s). 646/2009, dated 25.10.2010] to the file of the lower authorities before whom the proceedings were pending. Also, we find, that the Hon’ble High Court of Bombay in the case of CIT Vs. SI Group India Ltd. (2019) 107 taxmann.com 314 (Bom) and CIT Vs. SGS India Pvt. Ltd. (2015) 94 CCH 338 (Bom), had held, that where the payment made by the assessee to its AE is within the limits prescribed by the Government of India, then, the same can be considered as being at arm‟s length. In fact, we find that the DRP in the assessee‟s own case for A.Y 2012-13 by relying on the judgement of the Hon‟ble High Court of Bombay in the case of SGS India Pvt. Ltd. (supra) had though accepted that the issue as regards determining of the arm‟s length price of the royalty transaction was in favour of the assessee, however, only for the purpose of keeping the issue alive it had declined to accept the said claim of the assessee. Also, a similar view had been taken by the Tribunal in the assessee‟s own case for A.Y. 2004-05 to A.Y 2009-10, and it has been held that the royalty paid by the assessee to its AE having been approved by the Government of India/RBI and being as per the rates prescribed in the Press Note No. 2 (2000 series) was to be taken as being at arm‟s length. In the backdrop of the aforesaid facts, we adopt a similar view and conclude that as the royalty paid during the year under ITA No.203/Mum/2016 & 20 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) consideration by the assessee to its AE @ 8% of its net exports was approved by the Government of India and RBI, and also, in conformity with the rates prescribed in Press Note No. 2 (2003 series), thus, the same on the said count too was to be held as being at arm‟s length.

“(a) CIT vs. Lever India Exports Ltd. (78 taxmann.com 88) (b) CIT vs. Merck Ltd. (73 taxmann.com 23) (c) CIT vs. Johnson & Johnson (80 taxmnn.com 269) (d) CIT vs. RK Ceramics India P. Ltd. (78 taxmann.com 230) (e) Firmenich Aromatics India (P) Ltd. Vs. DCIT (96 taxmann.com 649)” In the backdrop of the aforesaid facts, now when the TPO without following any of the methods prescribed under Sec. 92C of the Act had determined the ALP

ITA No.203/Mum/2016 & 21 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) of the royalty paid by the assessee to its AE at Nil, the same, on the said count also is liable to be struck down.

ITA No.203/Mum/2016 & 22 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) in blatant violation of the mandate of Sec.92F(ii) r.w. Rule 10B(i)(a) could not have been considered for the purpose of determining the arm‟s length price of the royalty paid by the assessee to its AE. Our aforesaid view is supported by the decision of a „third member‟ of the ITAT, Mumbai in the case of Tecnimont ICB P. Ltd. Vs. Addl. CIT (2012) 24 taxmann.com 28 (Mum)(TM). In the said case, it has been held by the Tribunal that a controlled transaction or a transaction with an AE cannot be taken as a comparable for the purpose of determining the arm‟s length price of an international transaction of the assessee with its AE. Accordingly, in the backdrop of our aforesaid deliberations, we herein vacate the alternate transfer pricing adjustment of Rs.1,37,52,774/- made by the TPO.

ITA No.203/Mum/2016 & 23 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

(i) On a perusal of the records, we concur with the ld. A.R that what has been relied and acted upon by the TPO is only an “amendment agreement” and as the full “agreement” is neither available in the Royaltstat database nor in the public domain, therefore, in the absence of the terms and conditions being available the same could not have been adopted for benchmarking the payment of royalty by the assessee to its AE.

(ii) As per the aforesaid “amendment agreement” royalty at the rate of 2% was payable only up to 31st December, 2006, and for the year under consideration the royalty was payable as per Clause C.9(b), as it was not applicable during the year in question before us. As per Rule 10B(4), the data to be used for analysing the comparability of an uncontrolled transaction shall be the data relating to the financial year in which the international transaction has been entered into between the assessee and its AE. Since the “agreement” selected by the TPO was not in force during the year, therefore, we agree with the ld. A.R that the same could not have been considered for the purpose of benchmarking the payment of royalty by the assessee to its AE.

(iii) As the aforesaid “agreement” had been entered into between the parties based in USA, therefore, on account of geographical difference between the aforesaid agreements the same could not have been feasibly adopted for the purpose of comparability.

(iv) Lastly, we find that as the products licensed under the aforesaid “amendment agreement” are biological granular matrix pest control as opposed to “Chlorpyrifos” in the case of the assessee, therefore, on account of the variance in the products also the aforesaid “agreement” could not have been ITA No.203/Mum/2016 & 24 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) selected for the purpose of comparability.

In the backdrop of our aforesaid observations, we are of the considered view that the benchmarking of the royalty paid by the assessee to its AE could not have been carried out by selecting the aforesaid royalty “agreement”. Accordingly, we vacate the alternate benchmarking that was suggested by the TPO in the course of the remand proceedings.

ITA No.203/Mum/2016 & 25 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) company. As regards the remaining methods, viz. Resale Price Method (RPM), Cost Plus Method (CPM) and Profit Split Method (PSM), the same are not applicable to the aforesaid transaction under consideration i.e payment of royalty by the assessee to its AE. As such, we are of the considered view that since comparable transactions cannot be found under the CUP method AND RPM, CPM & PSM are not applicable on the prevalent facts, therefore, the transaction of payment of royalty by the assessee to its AE had rightly been benchmarked by the assessee by applying the TNM method. Our aforesaid view is supported by the following judicial pronouncements, wherein it has been held the transaction of payment of royalty by an assessee to its AE can be benchmarked by applying TNM method:-

(i). Good Year India Ltd. Vs. DCIT (2016) 70 taxmann.com 67 (Delhi) (ii). Frigoglass India P. Ltd. Vs. DCIT (2016) 68 taxmann. Com 370)(Delhi) (iii) DCIT Vs. Air Liquide Engineering India P. Ltd. (2014) 43 taxmann.com 299 (Hyd). (iv). Daksh Business Process Services P. Ltd. Vs. DCIT (2016) 72 txamann.com 44 (Delhi) In the backdrop of our aforesaid deliberations, we are of the considered view that as the net margin of the assessee company is shown to be higher than the margin of the comparables, therefore, the adjustment made by TPO/DRP on the said count also could not have been sustained.

(B). Transfer pricing adjustment as regards the Intra-Group services received by the assessee from its AEs : Rs.3,99,95,779/- :

ITA No.203/Mum/2016 & 26 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) authorities had erred in making a transfer pricing adjustment of Rs.3,99,95,779/- as regards the Intra-Group Services received by the assessee from its AEs, viz. information technology services, financial and treasury support services, financial and accounting support services and legal and administrative support services. As observed by us hereinabove, the assessee company had received the aforementioned Intra-Group Services for which its AEs had raised a charge upon it on cost plus mark up basis. Since, the above services rendered by the AEs were used by all the business segments of the assessee company, viz. manufacturing segment, trading segment, indenting segment and technical support services segment, therefore, the cost was allocated by the assessee to all the business segments on a pro rata basis considering the revenue of each segment. As the aforesaid transaction of receipt of Intra-Group Services by the assessee from its AEs was closely connected with the other international transactions carried out with the AEs, the assessee, thus, had aggregated the same and benchmarked the same by applying TNM method for each segment. As the margin of the assessee in each segment was higher than those of the comparables, therefore, the transactions were treated by the assessee as being at arm‟s length.

readily available with it. After perusing the details furnished by the assessee, it was observed by the TPO that the assessee had failed to establish the services rendered by its AEs on the basis of supporting documents and evidence which were required to be maintained. Also, it was observed by the TPO that the assessee could not produce any evidence relating to direct and tangible benefits that was received by it from the services rendered by the AEs. Backed by his aforesaid observations, the TPO determined the arm‟s length price of the aforesaid services at Nil.

ITA No.203/Mum/2016 & 28 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) us, we find that it is a matter of fact borne from records that the TPO by calling upon the assessee on 25th January, 2014 (5 days before the time limit) to furnish the details and evidence to support its claim of having received intra- group services from the AEs, had afforded insufficient time for doing the needful. In the backdrop of the aforesaid fact, the assessee in order to substantiate its claim of having received the intra-group services from its AEs had vide its letter dated 19th September, 2014 furnished “additional evidence” with the DRP. On a perusal of the “remand report” of the TPO dated 13th November, 2014, we find that although he had accepted that services were received by the assessee from its AEs, however, it was observed by him that the benefit which was received from availing the said services could not be shown by the assessee. DRP vide its order dated 26th November, 2014 though accepted that the assessee company had received services from its AEs, but then, it held that the services so received were general in nature.

being at arm‟s length no adjustment was made by the department in their hands. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that now when the department had accepted the receipt of the same intra-group services from the same AEs as being at arm‟s length price in the case of the other group companies in India, therefore, it could not be allowed to take a contrary stand while framing the assessment in the case of the assessee company. Further, it was submitted by the ld. A.R that similar services were rendered by the AEs in the earlier assessment years, i.e A.Y 2006-07, A.Y 2007-08, A.Y 2008-09 and A.Y 2009-10, and the TPO in his orders passed for the said respective years under Sec. 92CA(3) of the Act holding the services to be at arms‟ length had not made any adjustment as regards the same. It was averred by the ld. A.R that as there was no change in the facts and circumstances of the assessee‟s case as in comparison to those of the preceding years, therefore, the TPO was not entitled to adopt a contrary view and draw adverse inferences during the year under consideration. It was submitted by the ld. A.R that the AEs of the assessee company had filed their returns of income and had offered the amount received from the assessee company to tax, and the same had been accepted by the department. In fact, it was submitted by the ld. A.R that in case of one of the AE, viz. Dow Chemical Singapore Pte. Ltd., the assessment and transfer pricing order was passed without making any adjustment. On the basis of the aforesaid facts, it was the claim of the ld. A.R that once the department had accepted that the amounts received by the AEs is chargeable to tax as fees for services rendered and had assessed the same at the rate provided for in the relevant article in the treaty dealing with “fees for technical services”, then, it was not open to the department to take a contrary stand and contend that no services had been rendered by the AEs, since the income received by the AEs had already been taxed on the basis that the services had been rendered by them. Adverting to the determining of the arm‟s length price of the intra-Group services, it was stated by the ld. A.R that the lower authorities had observed that on application of CUP method the arm‟s length price of the intra-Group Services was ITA No.203/Mum/2016 & 30 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) determined by the TPO at nil. However, it was stated by the ld. A.R that the TPO without bringing a single comparable on record, and without following any of the method provided in Sec. 92C of the Act had determined the arm‟s length price of the services received by the assessee from its AEs at Nil. Reiterating the contentions that were advanced while assailing the determination of the ALP of royalty paid by the assessee to its foreign AE at nil by the TPO without following any of the prescribed method provided in Sec. 92C, the ld. A.R had on the same count challenged the validity of the jurisdiction assumed by the TPO for making the transfer pricing adjustment regarding the intra-group services received from its AEs. On the basis of the aforesaid facts, it was submitted by the ld. AR that the TPO/DRP had not only erred on facts in observing that no services had been received by the assessee from its AEs, but had also wrongly assumed jurisdiction in determining the arm‟s length price of the intra-Group services at Nil as against that worked out by the assessee at Rs.3,99,95,779/-.

ITA No.203/Mum/2016 & 31 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) borne from records that the assessee had received intra-group services from its AEs during the year under consideration. In our considered view, now when it is an undisputed fact that services were rendered by the AEs to the assessee, it was, then, obligatory on the part of the TPO to have benchmarked the said services by adopting any of the method provided in Sec. 92C of the Act. As per the settled position of law, we are of the considered view that the lower authorities had erred in rejecting the benchmarking analysis of the assessee on the ground that the cost and benefit analysis was not done by the assessee, and it had not shown as to what benefit was derived by it from rendition of the aforesaid services by its AEs. We are afraid that the aforesaid observations of the lower authorities cannot be sustained. It is not obligatory for the assessee to demonstrate as to whether or not the international transaction had resulted into an economic benefit or not, for the reason, that the same would depend on various factors and would be beyond the control of the assessee. Apart from that, whether a benefit is obtained is a matter of perception for a businessman, and it is not open for the revenue to sit in judgment over this exercise. Accordingly, we are unable to subscribe to the rejection of the benchmarking analysis by the TPO/DRP, for the reason, that the assessee had failed to demonstrate the benefits which were derived by it from rendition of the services by its AEs. Our aforesaid view is fortified by the following judicial pronouncements:

“(a) CIT vs. Lever India Exports (78 taxmann.com 88) (Bom.) (b) PCIT vs. RAK Ceramics (78 taxmann.com 230) (AP) (c) AWB India P. Ltd. Vs. DCIT (50 taxmann.com 323) (d) Emerson Climate Vs. DCIT (ITA No. 2182/Pun/2013) (e) Merck Ltd. Vs. DCIT (69 taxmann.com 45) (f) Schneider Electric India P. Ltd. Vs. DCIT (82 taxmann.com 364) (g) Sabic Innovative Plastics India P. Ltd. Vs. ACIT (88 taxmann.com 810)

Also, we are unable to persuade ourselves to subscribe to the determination of the ALP of the Intra-Group Services received by the assessee from its AEs at Nil by the TPO without following any of the method provided in Sec. 92C of the Act. As observed by us at length hereinabove, the TPO is obligated to ITA No.203/Mum/2016 & 32 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) benchmark the arm‟s length price of an international transaction by adopting any of the prescribed method contemplated in Sec. 92C of the Act, failing which the adjustments made by him cannot be sustained in the eyes of law. Our aforesaid view is fortified by the following judicial pronouncements :

“(a) CIT Vs. Merck Ltd. (74 taxmann.com 23) (Bom) (b) CIT vs. Lever India Exports (78 taxmann.com 88) (Bom) (C) CIT vs. RAK Cermics (78 taxmann.com 230) (AP) (d) CIT vs. Johnson & Johnson (80 taxmann.com 269) (Bom.) (e) Firmenich Aromatics Vs. DCIT (ITA No. 2590/Mum/2017)” Accordingly, in the backdrop of our aforesaid deliberations, the transfer pricing adjustment carried out by the TPO as regards the intra-group services received by the assessee from its AEs cannot be sustained and is liable to be struck down.

ITA No.203/Mum/2016 & 33 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) dealing with fees for technical support services, then, it would not be open for the department to take a contrary stand in the case of the assessee, and contend, that no services had been rendered by the AEs, for the reason, that the said income received by the AEs had been taxed on the basis that the services were rendered by them. Again, we though are principally in agreement with the aforesaid claim of the assessee, however, we find that though the assessee during the year under consideration was in receipt of intra-group services from its various AEs but documentary evidence to support its claim that returns of income had been filed by the AEs and the amounts received from the assessee had been brought to tax in their hands is available before us only in respect of one such AE, viz. Dow Chemical Pacific Singapore Pte. Ltd., and no such details in respect of the remaining AEs had been brought to our notice. Accordingly, in the backdrop of the fact that complete details in respect of the remaining AEs supporting the aforesaid claim of the assessee are not there before us, we, therefore, refrain from adjudicating the said claim of the assessee.

ITA No.203/Mum/2016 & 34 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) therefore, TNM was the only method that could have been applied to benchmark the aforesaid transaction. Our aforesaid view that in case the TPO is not able to bring comparables on record by applying CUP method, then, the TNM method applied by the assessee is to be accepted is supported by the following judicial pronouncements: “(a) Knorr Bremse vs. ACIT (77 taxmann.com 101) (Delhi) (b) AWB India P. Ltd. vs. DCIT (50 taxmann.com 323) (c) Emerson Climate Vs. DCIT (ITA No 2182/Pun/2013) (d) Merck Ltd. Vs. DCIT (69 taxmann.com 45) (e) TNS India Vs. ACIT (48 taxmann.com 128) (f) Schneider Electric India P. Ltd. Vs. DCIT (82 taxmann.com 364) (g) Sabic Innovative Plastic India P. Ltd. Vs. ACIT (88 taxmann.com 810)

Apart from that, we are also in agreement with the claim of the assessee that now when the TPO/DRP had accepted the benchmarking carried out by the assessee by applying TNM method insofar other transactions are concerned, therefore, it was not open for them to subject the royalty transaction to a separate analysis. In support of our aforesaid observation that once TNM method is accepted for benchmarking, then, the TPO cannot pluck out one transaction and subject it to separate analysis, reliance is placed on the following judicial pronouncements :

(a) Magneti Marelli Powertrain India P. Ltd. (75 taxmann.com 213) (Del.) (b) Woodward India Pvt. Ltd (ITA No. 916/Del/2015) (Para 5.3-5.5 Pg. 1633-1635 of Compilation). Accordingly, in the backdrop of our aforesaid deliberations, we are of the considered view that in light of the aforesaid peculiar facts of the case, the benchmarking of the intra-group services received by the assessee from its AEs by applying TNM method could not have been faulted with by the lower authorities.

ITA No.203/Mum/2016 & 35 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) commercial performance of the region. It was submitted by the ld. D.R that the assessee except for filing the copies of the e-mails which only revealed the involvement of the aforesaid person in managerial support survives, had however, failed to demonstrate the basis of the cost to the AE. Ld. A.R in his rejoinder submitted that Mr. Jeorge La Roza was the managing director of the company and no payment was made to him except for the cost allocated to the assessee by its AE for the services rendered. Ld. A.R took us through a letter dated 1st Ocober, 2014 filed with the TPO wherein at Sr. No 3 of the reply the said fact was brought to his notice. As regards the nature of services rendered by the aforesaid person alongwith documents supporting the factum of receipt of services, the ld. A.R took us through certain e-mail correspondences between Mr. Jeorge La Roza and Shr. Suresh Ramchandran, Country Manager of the assessee company, Page 661 to 679 of APB. Also, our attention was drawn to the “additional evidence” that was filed by the assessee with the DRP, wherein at Page 469-470 the details as regards the payment made to Mr. Jeorge La Roza were stated.

ITA No.203/Mum/2016 & 36 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

AEs. The Grounds of appeal No(s).14 to 20 are partly allowed in terms of our aforesaid observations.

37. The appeal of the assessee are allowed in terms of our aforesaid observations.

IT(TP)A. No.203/Mum/2016 (Assessment Year: 2011-12) 38. We shall now take up the appeal of the assessee for A.Y 2011-12. The assessee had assailed the impugned order on the following grounds of appeal raised before us :

ITA No.203/Mum/2016 & 37 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

“Based on the facts and circumstances of the case, Dow AgroSciences India Private Limited (hereinafter referred to as the Appellant') respectfully craves to prefer an appeal against the order issued by the Deputy Commissioner of Income - tax, Range 14(1)(1), Mumbai [hereinafter referred to as the Assessing Officer'] under section 143(3) read with section 144C(1 3) of the Income-tax Act, 1961 (the Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel-I, (hereinafter referred to as the Hon‟ble DRP) on the following grounds, each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned AO/ Additional Commissioner of Income-tax (Transfer Pricing) - 1(2) ('TPO') on fact and in law has: GENERAL 1. erred in assessing the total income at Rs.83,85,77,731 as against returned income of Rs.73,38,86,264 computed by the Appellant. TRANSFER PRICING ADJUSTMENTS I. REFERENCE TO THE TPO 2. erred in making reference of the Appellant's case to the TPO, without applying its mind and without recording its satisfaction, merely making the entire process of referring the matter to the TPO as invalid. II. PAYMENT OF ROYALTY TO ASSOCIATED ENTERPRISE ('AE') General erred in making an adjustment of Rs.5,90,82,363 to the total income of the Appellant 3. under Section 92CA(3) of the Act on account of downward adjustment in the arm's length price of the international transaction of payment of royalty. Rejection of economic analysis undertaken by the Appellant erred in not considering approvals received from Secretariat of Industrial Assistance (SIA'), Ministry of Industry and Reserve Bank of India (RBI') as valid CUP and rejecting the CUP analysis undertaken by the assessee as a primary analysis. erred in not accepting the economic analysis undertaken by the Appellant including the 4. analysis using the combined Transactional Net Margin Method ('TNMM'), in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (the Rules'), for the determination of the arm's length price of the international transaction of payment of royalty. Disregarding the commercial benefits received from the AE 5. erred in not appreciating that the technical knowhow licensed by the AE to the assessee was an invaluable and unique intangible which yielded commercial benefits to the Appellant. erred in not appreciating the commercial rationale of the assessee for extending the 6. technology agreement as well as making royalty payment to the AE and thereby

ITA No.203/Mum/2016 & 38 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) applying benefit test' to hold no benefit is received by the Appellant. Inappropriately considered supplementary agreement as CUP erred in considering the supplementary agreement between HERO products and COT 7. corporation as comparable without giving cognizance to the validity of the agreement as well as the fact that the complete information (i.e. the master agreement) is not available. without prejudice to the above, failed to appreciate that the supplementary agreement 8. mentions 2 different rates (i.e. 2 percent of the gross value and 5 percent of gross value on sales based on customer) and conveniently considering the lower royalty rate for making transfer pricing adjustment (i.e. 2 percent). without prejudice to the above, erred in not considering the fact that royalty rates as 9. mentioned in the agreement is on gross sales value and the rates at which appellant is paying is based on net sales value. Inappropriately considering controlled transaction as CUP 10. erred in comparing (on without prejudice basis) the rate of royalty paid by the Appellant to its AE [Dow AgroSciences B.V (Dow Netherlands)], with a controlled transaction i.e. the royalty rate paid by Dow UK, another AE of the Appellant, to Dow Netherlands. 12. erred in not considering the difference in definition of net sales as per agreement between Appellant and Dow Netherlands and as per agreement between Dow UK and Dow Netherlands 13. without prejudice to the above, erred in ignoring the fact that prices of the products in UK is much higher as compared to India, since UK is a developed country and thereby the royalty paid by Dow UK cannot be compared with the royalty paid by the appellant. 14. without prejudice to the above, erred in ignoring the fact that there exists technological differences between the technology availed by the Appellant and Dow UK (where the technology was old) and hence the same cannot be taken as comparable. 15. without prejudice to the above, even if controlled rate of royalty paid by Dow UK to Dow Netherlands is taken as CUP, appropriate adjustment should be provided on the same to eliminate the differences. Variation of 5% from the arithmetic mean 16. the benefit of proviso to section 92C(2) of the Act should be granted to the Appellant, if the transaction payment of royalty is within such range. II. PAYMENT TO AE’S FOR AVAILING OF SERVICES General 17. erred in making an adjustment of Rs.4,56,09,104 to the total income of the Appellant under Section 92CA(3) of the Act on account of downward adjustment in the arm's length price of the international transaction pertaining to availing of services. Rejection of the economic analysis undertaken by the Appellant 18. erred in not accepting the economic analysis undertaken by the Appellant including the analysis using combined TNMM, in accordance with the provisions of the Act read with ITA No.203/Mum/2016 & 39 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) the Rules, for the determination of the arms length price of the international transaction of payment for availing of services. Inappropriate application of CUP method to benchmark the international transaction 19. erred in not using any of the five method prescribed under section 92C to benchmark the international transaction of payment for availing of services and computing the arms length price by applying some ad-hoc man hour rate to some ad-hoc number of man hours (so called CUP) which is not in accordance with the transfer pricing regulations prescribed in India. Benefit test/ commercial expediency for availing services 20. failed to appreciate the business model and business realities of the Appellant and the role of its AE5 and concluding that there is no significant benefit received by the Appellant from the services being rendered by the AEs.

Not appreciating the evidences submitted for service availed and benefits derived 21. erred in brushing aside the additional evidences as well as submission filed during the course of transfer pricing assessment proceedings to prove existence/ benefit received by the Appellant. 22. erred in not considering the detailed cost allocation sheet submitted by the Appellant which demonstrates that cost has been allocated using appropriate allocation keys and that the transaction is at arm‟s length.

Non-granting of credit of taxes deducted at source ('TDS') 23. erred in not granting credit for TDS of Rs. 83,34,009 as claimed by the Appellant. Levy of interest under section 234B of the Act 24. erred in levying of interest under section 234B of the Act of Rs. 2,19,76122. Levy of interest under section 234C of the Act 25. erred in levying of interest under section 234C of the Act of Rs. 37,787. 26. erred in not appreciating that interest under section 234B would be applicable only on the returned income as against on assessed income levied by the learned AO. Levy of interest under section 234D of the Act 27. erred in levying of interest under section 234D of the Act of Rs.10,93,282.

Initiation of penalty proceedings under section 271(1)(c) of the Act 28. erred in initiating the penalty proceedings under section 274 read with section 271(1)(c) of the Act. The Appellant craves leave to add, alter, amend, delete or withdraw any or all of the grounds of appeal at or before the hearing of the appeal so as to enable the Income tax Appellate Tribunal to decide the appeal according to law.”

ITA No.203/Mum/2016 & 40 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

Sr. No. Particulars Amount 1. (a). Adjustment to the ALP of royalty paid by the Rs. 5,90,82,363/- assessee to its AE viz. Dow AgroSciences BV by computing the same at Rs.nil as against the ALP of Rs.5,90,82,363/- determined by the assessee. (b). Alternatively, the TPO by applying CUP method had suggested adjustment of Rs. 2,15,25,030/-/- that was to be invoked only if the primary - adjustment of taking the ALP of the royalty transaction at Nil was vacated by the lower authorities. (c). Further, the TPO on the basis of the remand proceedings for A.Y 2010-11 had carried out an alternate benchmarking by selecting an “agreement” between two parties, viz. AARC Corporation and CCT corporation (HERC agreement as referred by the TPO) from the Royaltystat database and had suggested a transfer pricing adjustment as regards the royalty - transaction @ 2% of the export sales, that was to be invoked only if both of the aforesaid adjustments i.e the primary adjustment of taking the ALP of the royalty transaction at Nil and alternative adjustment of taking the ALP at Rs. 2,15,25,030/- were vacated by the lower authorities.

2. Adjustment to the ALP on account of Intra-Group Rs 4,56,09,104/- Services Total Rs.10,46,91,467/-

ITA No.203/Mum/2016 & 41 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

92CA(3), dated 22.01.2015 passed a draft assessment order under Sec. 143(3) r.w.s 144C(1), dated 11.02.2015 and proposed to assess the income of the assessee company at Rs.83,85,77,730/-.

ITA No.203/Mum/2016 & 42 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) therefore, no infirmity could be related to the same. Further, the TPO on the basis of the remand proceedings for A.Y 2010-11 had carried out an alternate benchmarking by selecting an “agreement” between two parties, viz. AARC Corporation and CCT corporation (HERC agreement as referred by the TPO) from the Royaltystat database and had suggested a transfer pricing adjustment as regards the royalty transaction @ 2% of the export sales. DRP relying on the order passed by the panel in the immediately preceding year i.e A.Y 2010-11 also approved the aforesaid alternative transfer pricing adjustment which was to be invoked only if the determination of the arm‟s length price of the royalty transaction at Nil and Rs. 2,15,25,030/- (alternative adjustment) was vacated by the appellate authorities. Accordingly, on the basis of his aforesaid observations, the DRP upheld both the primary and alternate transfer pricing adjustments made by the TPO pertaining to the transaction of payment of royalty by the assessee to its AE. As regards the objection regarding the transfer pricing adjustment of Rs. 4,56,09,104/- made by the A.O regarding the intra-group services received by the assessee from its AEs, it was observed by the DRP that the TPO had observed that the services received by the assessee would be 950 hours and the cost of the AE in providing the services was to be estimated @ Rs. 3,000/- per hour. It was observed by the DRP that the total cost of services by applying CUP method was determined by the TPO at Rs. 28,50,000/-. Accordingly, it was noticed by the DRP that the TPO had allowed a deduction of Rs. 28,50,000/- and disallowed the balance amount of Rs. 4,56,09,104/-. After exhaustive deliberations, though it was observed by the DRP that the number of hours of service and the per hour rate of the services estimated by the TPO were too low considering the facts of the case, but, despite so observing, it upheld the transfer pricing adjustment made by the TPO as regards the intra-group services received by the assessee from its AEs.

the assessee company at Rs.83,85,77,730/-.

45. We shall now advert to the claim of the assessee that the TPO/DRP had erred in making an adjustment of Rs. 4,56,09,104/- as regards the arm‟s legnth price of the intra-group services that were received by the assessee from its AEs. On a perusal of the orders of the lower authorities, we find that the TPO vide his order passed under Sec. 92CA(3) had accepted that intra-group Services were received by the assessee company from its AEs. However, for determining the arm‟s length price of the aforesaid transaction he had adopted an ad hoc method and held that 950 hours would have been spent by the AEs for rendering the aforesaid services to the assessee company, and therein, taking a rate of Rs.3000/- per hour had estimated the arm‟s length price of the aforesaid Intra Group Services at Rs. 28,50,000/-.

46. On objections filed by the assessee, the DRP observed that the assessee company had received services from its AEs. Although, it was observed by the DRP that considering the facts of the case the number of hours and the rate estimated by the TPO were too low, but then, despite so observing the DRP mechanically confirmed the adjustment made by the TPO in context of the aforesaid issue under consideration.

ITA No.203/Mum/2016 & 44 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

ITA No.203/Mum/2016 & 45 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

IT(TP)A. No.1528/Mum/2017 (Assessment Year: 2012-13) 51. We shall now take up the appeal of the assessee for A.Y. 2012-13. The assessee had assailed the impugned order on the following grounds of appeal before us :

“Based on the facts and circumstances of the case, Dow AgroSciences India Private Limited (hereinafter referred to as 'the Appellant') respectfully craves to prefer an appeal against the order issued by the Income Tax Officer, Range 14(1)(3), Mumbai [hereinafter referred to as the Assessing Officer'] under section 143(3) read with section 1440(13) of the Income-tax Act, 1961 ('the Act') in pursuance of the directions issued by the Hon'ble Dispute Resolution Panel- I, (hereinafter referred to as the Hon'ble DRP') on the following grounds , each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law, the learned AO/ Additional Commissioner of Income-tax (Transfer Pricing) - 1(2) ('TPO') on fact and in law has: GENERAL

1. Erred in assessing the total income at Rs.72,85,47,300 as against returned income of Rs.60,98,52.220 computed by the Appellant. TRANSFER PRICING ADJUSTMENTS I. PAYMENT OF ROYALTY TO ASSOCIATED ENTERPRISE ('AE')

General 2. Erred in making an adjustment of Rs.2,51,41,162 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of payment of royalty. Rejection of economic analysis undertaken by the Appellant 3. Erred in not considering approvals received from Secretariat of Industrial Assistance ('SIA'), Ministry of Industry and Reserve Bank of India ('RBI') as valid CUP and rejecting the CUP analysis undertaken by the assessee as a primary analysis.

ITA No.203/Mum/2016 & 46 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

Disregarding the commercial benefits received from the AE 5. Erred in not appreciating that the technical knowhow licensed by the AE to the assessee was an invaluable and unique intangible 'which yielded commercial benefits to the Appellant.

6. Erred in not appreciating the commercial rationale of the assessee for extending the technology agreement as well as making royalty payment to the AE and applying 'benefit test' to hold no benefit is received by the Appellant. Inappropriately considered supplementary agreement as CUP 7. Erred in considering the supplementary agreement between HERC products and CCT corporation as comparable without giving cognizance to the validity of the agreement as well as the fact that the complete information (i.e. the master agreement) is not available.

8. Without prejudice to the above, failed to appreciate that the supplementary agreement mentions 2 different rates (i.e. 2 percent of the gross value and 5 percent of gross value on sales, based on customer) and conveniently considering the lower royalty rate for making transfer pricing adjustment (i.e. 2 percent).

9. Without prejudice to the above, erred in not considering the fact that royalty rates as mentioned in the agreement is on gross sales value and the rates at which Appellant is paying is based on net sales value. Inappropriately considering controlled transaction as CUP 10. Erred in comparing the rate of royalty paid by the Appellant to its AE [Dow AgroSciences B.V (Dow Netherlands)], with a controlled transaction i.e. the royalty rate paid by Dow UK, another AE of the Appellant, to Dow Netherlands.

11. Erred in not considering the difference in definition of 'net sales' as per agreement between Appellant and Dow Netherlands and as per agreement between Dow UK and Dow Netherlands 12. Without prejudice to the above, erred in ignoring the fact that prices of the products in UK is significantly different as compared to India, since UK is a developed country and thereby the royalty paid by Dow UK cannot be compared with the royalty paid by the appellant.

13. Without prejudice to the above, erred in ignoring the fact that there exists technological differences between the technology availed by the Appellant and Dow UK (where the technology was old) and hence the same cannot be taken as comparable.

14. Without prejudice to the above, even if controlled rate of royalty paid by Dow UK to Dow Netherlands is taken as CUP, appropriate adjustment should be provided on the same to eliminate the differences.

15. Violation of principles of Judicial discipline

ITA No.203/Mum/2016 & 47 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

15. Erred in violating the principles of judicial discipline in not following the order of Jurisdictional High Court in case of SGS India Private Limited of 2013 wherein it has been held that FIPB approval is a valid CUP for benchmarking purposes. II. PAYMENT TO AE'S FOR AVAILING OF SERVICES General 16. Erred in making an adjustment of As 935.53,919 to the total income of the Appellant under Section 92CA(3) of the Act on account of adjustment in the arm's length price of the international transaction of availing of services. Rejection of economic analysis undertaken by the Assessee 17. Erred in rejecting the economic analysis undertaken by the Assessee using TNMM, in accordance with the provisions of the Act read with the Rules and instead using hypothetical CUP as the most appropriate method, for the determination of the arm's length price of the international transaction of payment for availing of services from AEs, without providing any cogent reasons for the same. 18. Erred in not appreciating that since costs in relation to the services availed by the Assessee were allocated to the manufacturing, trading and indenting segment which were at arm's length (based on net level margin analysis using TNMM), the transaction of availing services by the Assessee from its AEs also meets the arm's length test. Inappropriate application of CUP method to benchmark international transaction 19. Erred in not using any of the six methods prescribed under section 92C to benchmark the international transaction of payment for availing of services. 20. Without prejudice to the above, erred in computing the arm's length price by applying some ad-hoc man hour rate to some ad-hoc number of man hours (so called CUP) which is not in accordance with the transfer pricing regulations prescribed in India. 21. Erred in not appreciating the fact that one of the basic conditions for applying CUP is availability of the price of the same service in uncontrolled condition and it cannot be hypothetical or imaginary value but real value on which similar transactions have taken place. Benefit test/ commercial expediency for availing services 22. Failed to appreciate the business model and business realities of the Assessee and the role of its AEs and thereby stating that no service is received or benefits have been availed by the Assessee. Ignored evidences submitted for service availed and benefits derived 23. Erred in stating that the services availed by the Assessee are in the nature of shareholder activities/ routine services without appreciating the nature of services availed from AEs and benefits derived by the Assessee therefrom. 24. Erred in not appreciating the evidences submitted to substantiate services received/ benefits derived/ basis of allocation of costs and disregarded the same without giving

ITA No.203/Mum/2016 & 48 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) any cogent reasons. Levy of interest under section 234B of the Act 25. Erred in levying of interest of As. 2,1844,093 under section 234B of the Act.

Levy of interest under section 234C of the Act 26. Erred in levying of interest of As. 19,43,855 under section 234C of the Act. Initiation of penalty proceedings under section 271(1)(c) of the Act 27. Erred in initiating the penalty proceedings under section 274 read with section 271 (1)(c) of the Act. The Appellant craves leave to add, alter, amend, delete or withdraw any or all of the grounds of appeal at or before the hearing of the appeal so as to enable the Income tax Appellate Tribunal to decide the appeal according to law.”

52. Briefly stated, the assessee company had filed its return of income for A.Y. 2012-13 on 29.11.2012, declaring its total income at Rs.61,00,92,220/-. The return of income was thereafter revised by the assessee on 10.02.2014, at an income of Rs. 60,98,52,220/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.

53. Observing that the assessee company had during the year entered into international transactions with its Associate Enterprises (for short “AEs”), the A.O made a reference under Sec. 92CA(1) of the Act to the Addl. CIT, Transfer Pricing Officer-1(2), Mumbai (hereinafter referred to as “TPO”) for determining the Arm‟s Length Price of the said transactions. The TPO vide his order passed under Sec. 92CA(3), dated 11.01.2016 made an adjustment of Rs.11,86,95,081/- to the ALP of the international transactions of the assessee, as under:

Sr. No. Particulars Amount 1. (a). Adjustment to the ALP of royalty paid by the Rs. 2,51,41,162/- assessee to its AE viz. Dow AgroSciences BV by computing the same at Rs.nil as against the ALP of Rs.2,51,41,162/- determined by the assessee. (b). Alternatively, the TPO by applying CUP method had suggested adjustment of Rs. 89,91,752/- that was to be invoked only if the primary adjustment of taking the ALP of the royalty transaction at Nil was vacated by the lower authorities.

ITA No.203/Mum/2016 & 49 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

(c). Further, the TPO on the basis of the view taken by his predecessor in the case of the assessee for A.Y 2011-12 had on the basis of an alternate benchmarking by selecting an “agreement” between two parties, viz. AARC Corporation and CCT corporation (HERC agreement as referred by the TPO) from the Royaltystat database and suggested a transfer pricing adjustment as regards the royalty transaction @ 2% of the export sales, that was to be invoked only if both of the aforesaid adjustments i.e the primary adjustment of taking the ALP of the royalty transaction at Nil and alternative adjustment of taking the ALP at Rs. 2,15,25,030/- were vacated by the lower authorities.

2. Adjustment to the ALP on account of Intra-Group Rs 9,35,53,919/- Services Total Rs.11,86,95,081/-

ITA No.203/Mum/2016 & 50 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2) proposed to file a SLP, and also, as no right of appeal as against the directions of the DRP was vested with the department, therefore, in order to keep the matter alive and safeguard the interest of the revenue the adjustment made by the TPO was to be upheld. Also, the alternative view of the TPO wherein using the CUP method he had considered the royalty paid by an another AE of the assessee, viz. Dow U.K to Dow Netherlands as a comparable transaction and determined the arm‟s length price of the royalty paid by the assessee to its AE at the rate of 5% of the net export sales, and had suggested an alternate transfer pricing adjustment of the royalty paid by the assessee to its AE at Rs.1,61,49,411/- that was to be substituted in case the primary adjustment of taking the arm‟s length price of the royalty transaction at Nil was vacated by the appellate authorities, the DRP also did not dislodge the said observation of the TPO. Further, the TPO relying on the order passed by his predecessor for A.Y 2011-12 had carried out an alternate benchmarking by selecting an “agreement” between two parties, viz. AARC Corporation and CCT corporation (HERC agreement as referred by the TPO) from the Royaltystat database and had suggested a transfer pricing adjustment as regards the royalty transaction @ 2% of the export sales. DRP relying on the order passed by the panel in the immediately preceding year i.e A.Y 2011-12 also approved the aforesaid alternative transfer pricing adjustment which was to be invoked only if the determination of arm‟s length price of the royalty transaction at Nil and Rs. 1,61,49,411/- (alternative adjustment) was vacated by the appellate authorities. Accordingly, on the basis of his aforesaid observations the DRP upheld both the primary and alternate transfer pricing adjustments made by the TPO pertaining to the transaction of payment of royalty by the assessee to its AE. As regards the objection regarding the transfer pricing adjustment of Rs. 9,35,53,919/- made by the A.O regarding the intra-group services received by the assessee from its AEs, it was observed by the DRP that the issue was squarely covered by the order of the panel in the assessee‟s own case for the immediately preceding year i.e A.Y 2011-12. It was observed by the DRP that the total cost of services by applying CUP was determined by the TPO at Rs.

ITA No.203/Mum/2016 & 51 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

28,50,000/-. Accordingly, it was noticed by the DRP that the TPO had allowed a deduction of Rs. 28,50,000/- and disallowed the balance amount of Rs. 9,35,53,919/-. Relying on the order of the panel for A.Y 2011-12, the DRP upheld the transfer pricing adjustment made by the TPO as regards the intra- group services received by the assessee from its AEs.

59. We shall now advert to the claim of the assessee that the TPO/DRP had erred in making an adjustment of Rs. 9,35,53,919/- as regards the arm‟s legnth price of the intra-group services that were received by the assessee from its AEs. On a perusal of the orders of the lower authorities, we find that the TPO vide his order under Sec. 92CA(3) had accepted that intra-group services were received by the assessee company from its AEs. However, for determining the arm‟s length price of the aforesaid transaction he had adopted an ad hoc method and held that 950 hours would have been spent by the AEs for ITA No.203/Mum/2016 & 52 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)

rendering the aforesaid services to the assessee company, and therein, taking a rate of Rs.3000/- per hour had estimated the arm‟s length price of the aforesaid intra-group services at Rs. 28,50,000/-.

no(s). 25 &

26. We herein direct the A.O to consider the aforesaid grievance of the assesee while giving appellate effect to our order. The Grounds of appeal Nos. 25 and 26 are disposed off in terms of our aforesaid observations.

ITA No.203/Mum/2016 & 53 A.Ys 2010-11 to 2012-13 Dow Agrosciences India Pvt. ltd. Vs. ACIT, Range-14(1)(2)