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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI N.K.PRADHAN
आदेश/ ORDER
PER VIKAS AWASTHY, JM:
This appeal by the Revenue is directed against the assessment order dated 31/01/2014 for the assessment year 2009-10 passed under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (in short “the Act”).
2. The Revenue in its appeal has raised following grounds:- “1.Whether on the facts and circumstances of the case, has the DRP erred in rejecting the comparable case of Engineers India Ltd. being government undertaking without appreciating the fact that the comparable was continuously making profits and was functionally comparable with assessee and was selected appropriately by the TPO as comparable as per the provisions of the Act.
2. Whether on the facts and circumstances of the case, did the DRP erred in giving relief to the assessee by deleting the TP adjustment of Rs.5,93,58,926/- on account of payment of royalty, project engineering and manufacturing drawings without appreciating the fact that the adjustment was made appropriately as per the provisions of the Act.”
The assessee in its Cross Objections has raised the following grounds: “1. On the facts and in the circumstances of the case and in law the learned Additional Commissioner of Income Tax (Transfer Pricing-11(6) (“TPO”) and learned Deputy Commissioner of Income Tax-3(3) (“AO") under directions issued by the Hon’ble Dispute Resolution Panel (“DRP”) erred in considering IL & FS Transportation Network Ltd as comparable company for determining arm’s length price of international transactions of the Respondent.
(A.Y.2009-10) C.O. NO.94/MUM/2014
On the facts circumstances of the case, and in law, the learned TPO and the learned AO under the directions of the Hon’ble DRP erred in rejecting the Internal Transactional Net Margin Method (“TNMM”) analysis carried out by the Respondent.” 4. Shri Madhur Agrawal, appearing on behalf of the assessee submitted at the outset that both the grounds raised by the Revenue in appeal are squarely covered in favour of the assessee by the order of the Tribunal in assessee’s own case for assessment year 2008-09. The facts in the impugned assessment year are identical to facts in AY 2008-09. The ld. Counsel for the assessee furnished a copy of Tribunal order reported as 33 taxmann.com 107(Mum) in assssee’s own case for immediately preceding assessment year. The ld. Counsel for the assessee further contended that if the Department’s appeal is dismissed, cross objections filed by the assessee would become infructuous as the margin of the assessee would be at arm’s length.
Shri A. Mohan, representing the Department vehemently defended the order of Transfer Pricing Officer (TPO). However, the ld. Departmental Representative fairly admitted that both the grounds raised by the Revenue in appeal were considered by the Tribunal in assessee’s own case in the preceding assessment year.
We have heard the submissions made by rival sides and have examined the orders of authorities below. In ground No.1 of the appeal, the Revenue has assailed exclusion of Engineers India Limited, a Government Undertaking from the list of comparable companies. The Tribunal in various cases has consistently held that the Government companies are not good comparables as they work under constrains. In assessee’s own case for assessment year 2008-09 the Co-ordinate Bench has excluded Engineers India Limited from the (A.Y.2009-10) C.O. NO.94/MUM/2014 list of comparables, being a Government company. For the sake of completeness the relevant extract of the observations of the Tribunal are reproduced herein below:-
“12.8.2 We find it as undisputed that Engineers India Limited is a Government company. It has several segments which also include Turnkey project'. Page 700 of the paper book is a copy of annual report of Engineers India Limited on turnkey project. It can be seen that the revenue has arisen from completing Para xylene Plant of IOCL and further that company is engaged in execution of other unit of IOCL's Panipat Naphtha Cracker Project. In our considered opinion, this case should not have been included in the list of final comparables for two reasons. First reason is that profit motive is not a relevant consideration in case of Government undertakings. Many Government Undertakings even operate on losses in furtherance of the social obligations of the government. The second reason is that Engineers India Limited earned income from turnkey project by successfully completing the project of IOCL and other Public Sector Undertakings. In that sense of the matter, the related party transactions are much more than the filter of 25%. We, therefore, order for the exclusion of this case from the list of comparables.”
The Dispute Resolution Panel (DRP) rejected the Government undertaking as comparable by following the order of Tribunal in assesse’s own case for AY 2008-09. We do not find any merit in ground No.1 of the appeal. Accordingly, the same is dismissed.
In ground No.2 of the appeal, Revenue has assailed the findings of DRP in deleting the transfer pricing adjustment of Rs.5,93,58,926/- on account of payment of royalty, project engineering and manufacturing drawings. We find that the DRP has deleted the addition by placing reliance on the order of the Tribunal in assessee’s own case for assessment year 2008-09. The Co-ordinate Bench of the Tribunal deleted the addition in respect of payment of royalty in the assessment year 2008-09. The relevant extract of the findings of the Tribunal on this issue are as under:-
(A.Y.2009-10) C.O. NO.94/MUM/2014
“14.1 The next issue is against the adjustment of Rs. 4,29,03,966 pertaining to payment of royalty. The facts concerning this issue as recorded in the order of the TPO are that the assessee obtained know-how and project-engineering drawings from its Associated Enterprise vide collaboration agreement dated 23.07.1996. As per this agreement, the assessee availed technical and engineering support for cement plant equipment and machinery. For availing the said manufacturing drawings and project engineering services, the assessee paid 2% of contract value to its AE and for know-how. It also paid royalty at 5% of the selling price to its AE. Royalty agreement between the assessee and Krupp Polysius AG was approved by Reserve Bank of India and FIPB. The assessee selected itself as the tested party and TNMM as the most appropriate method for benchmarking this transaction. The TPO noted that similar issue was involved in assessee's case for the assessment year 2007-2008. Following the view taken by him in earlier year, the TPO determined ALP at Rs. Nil thereby proposing adjustment of Rs. 4.29 crore. The DRP also, following the view taken by it in the earlier year, declined to interfere with the order of the AO/TPO in respect of royalty payment.
14.2 The learned Counsel for the assessee contended that the said earlier year came up for adjudication before the Tribunal. Placing on record a copy of the order dated 27.11.2012 passed by the Tribunal in assessee's own case in Thyssen Krupp Industries India (P.) Ltd. v. Asstt. CIT [2013] 55 SOT 497/[2012] 27 taxmann.com 334 (Mum.) for the A.Y. 2007-08, the learned AR stated that this point has been decided in assessee's favour. The learned Departmental Representative, however, relied on the impugned order.
14.3 After considering the rival submissions and perusing the relevant material on record, we find that the assessee entered into collaboration agreement with its AE for payment of 2% of contract value for manufacturing, drawing and engineering services and 5% of the selling price as royalty. The assessee applied to the RBI seeking approval in respect of payment of royalty and technical fee through Central Bank of India. A copy of letter addressed by the Central Bank of India to the RBI dated 26.03.2008 is available on page 240 of the paper book. Through this letter, the Central Bank of India forwarded relevant documents along with a copy of the agreement. The RBI vide its letter dated 21.04.2008 requested Central Bank of India to consider the assessee's case in accordance with its AP (DIR Series) No.76 dated 24.02.2007. It is in pursuance to the deemed approval by RBI under the automatic approval scheme that the assessee made payment of royalty and technical fee to its AE. It is relevant to note that such payment has been approved or deemed to have been approved by the RBI. When a payment is made after obtaining due approval from the RBI, how its ALP can be computed at Rs. Nil, is anybody's guess. The fact of (A.Y.2009-10) C.O. NO.94/MUM/2014 approval of the payment by the RBI has been succinctly recorded by the TPO in his order as well. He still chose to propose adjustment in respect of full payment. In our considered opinion, when the rate of royalty payment and fee for drawings etc. has been approved or deemed to have been approved by the RBI, then such payment has to be considered at ALP. We, therefore, direct to delete addition of Rs. 4.29 crore made by the A.O. in this regard.” No material has been placed on record by the Revenue to show that the facts in assessment year under appeal are distinguishable or to controvert the decision of the Tribunal. We see no infirmity in the directions of DRP in deleting the addition. The ground No.2 of the appeal is without any merit, hence, the same is dismissed.
In the result, appeal of the Revenue is dismissed.
The ld. Counsel for the assessee has stated at the Bar that if appeal of the Revenue is dismissed, cross objections of the assessee would not survive as the margin of the assessee would be within arm’s length. Since, the appeal of Revenue has been dismissed, cross objections filed by the assesse are dismissed having become infructuous.
In the result, appeal by the Revenue and cross objections of the assessee are dismissed.
Order pronounced in the Court on Monday , the 07 day of September 2020.