Income Tax Appellate Tribunal - Delhi
M/S. Lumax Industries Ltd., New Delhi vs Acit, New Delhi on 4 May, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI 'I-1' BENCH,
NEW DELHI
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND
SHRI LALIET KUMAR, JUDICIAL MEMBER
ITA No. 1441/DEL/2016
[Assessment Year: 2011-12]
M/s Lumax Industries Ltd Vs. A. C.I.T
B - 86, Mayapuri Industrial Area Circle 15(2)
Phase - I. New Delhi New Delhi
PAN : AAACL 1126 D
[Appellant] [Respondent]
Date of Hearing : 03.05.2018
Date of Pronouncement : 04.05.2018
Assessee by : Shri R.K. Kapoor, CA
Shri Anubhav Jaggi, CA
Revenue by : Shri Sanjay I Bara, CIT DR
ORDER
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal filed by the assessee is directed against the order dated 27.01.2016 framed u/s 143(3) r.w.s 144C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short].
22. Ground Nos. 1, 2 and 10 are general in nature and, therefore, need no separate adjudication.
3. Ground Nos. 3 to 5 relate to the addition made on account of royalty payment amounting to Rs. 12,21,26,781/-. The assessee contends that the DRP/Assessing Officer has grossly erred in not following the judgment of the Hon'ble Delhi High Court in assessee's own case in earlier years by holding that the decision of the Hon'ble High Court was on specific facts which were different from the year under consideration. The assessee further contends that the DRP/Assessing Officer has grossly erred in upholding the disallowance on royalty payment applying the benefit test which was held as contrary to section 92C(1) of the Act by the Hon'ble Jurisdictional High Court of Delhi in assessee's own case.
4. At the very outset, the ld. counsel for the assessee pointed out that the issues raised in the present appeal have been decided by the Tribunal in assessee's own case in earlier assessment years in favour of the assessee and against the Revenue. The ld. counsel for the assessee supplied copies of the orders of the Tribunal.
35. The ld. DR fairly conceded to these submissions of the ld. counsel for the assessee.
6. We have given a thoughtful consideration to the contentions of the ld. counsel for the assessee. We find force in the submissions made and the claim that the issues are squarely covered in favour of the assessee and against the Revenue by the order of the Tribunal in earlier years.
7. Briefly stated, the facts of the case are that the TPO determined the ALP of royalty payment at NIL by applying the benefit test under CUP method. We find that the assessee has bench marked the royalty payment under internal TNMM and external TNMM at segment level as done in the earlier years. In the TNMM method, the PLI of the assessee i.e. OP/Sales was 4.09% as compared to 3 comparables whose PLI was 4.53%. These margins were within the range of +/- 5% as per proviso to section 92C of the Act.
8. We find that the TPO proceeded to examine the royalty separately on a stand-alone basis and determined the ALP of royalty at NIL by applying benefit test under CUP as in earlier years.
49. We find that the coordinate Bench of the ITAT in assessee's own case in ITA No. 6212/DEL/2013, vide order dated 22.04.2016 has considered an identical issue at para 12 page 10 and after considering the decision of the Hon'ble Delhi High Court in the case of the assessee for earlier years, deleted the adjustments made on account of ALP of royalty payment. We find that the coordinate Bench has followed the decision in assessment year 2008-09. We further find that in assessment year 2010-11 also, the coordinate Bench in ITA No. 69961/DEL/2014 vide order dated 05.12.2017 following the order in ITA No. 6212/DEL/2013 has deleted the addition made on account of ALP of royalty payment.
10. Incidentally, we find that in the subsequent assessment years i.e. 2012-13, 2013-14 and 2014-15, no adjustments have been made by the TPO on account of royalty payment.
11. As no distinguishing decision has been brought on record in favour of the Revenue, respectfully following the decision of the coordinate Benches and the decision of the Hon'ble Jurisdictional High Court of Delhi in assessee's own case, we direct the Assessing Officer to delete the addition of Rs. 12,21,26,781/- made on account of ALP in 5 respect of royalty payment. Accordingly, Ground Nos. 3 to 5 taken together are allowed.
12. Ground Nos. 6 and 7 relate to the incorrect finding of the DRP.
13. Facts on record show that the assessee has moved an application u/r 13 of the Income tax [DRP] Rules, 2009 to rectify the erroneous facts. However, the DRP, vide order dated 23.03.2017 dismissed the application of the assessee by holding that there is no mistake in the order of the Panel.
14. Relevant findings of the DRP read as under:
Observation of the Panel Remarks Relevant Extract from the TP Study Report
1. Stanley has only As per Page 31 of the TP Study Report It is apparent from the extract that the deputed some Reimbursement of Travelling assessee has only reimbursed travelling engineers for a short expenses" expenses of the engineers who were time for which the During the year, Stanley has deputed only for a short time as the other travelling expense deputed its enaineers to UL for expenses reimbursed by the assessee have been reimbursed renderina technicol assistance other than the travelling expenses was by the taxpayer, in oroduction and continuous only Rs. 31,961/-. Moreover, the use and absorption of technology to UL For this engineers must have been in India for purpose, Stanley's engineers short time as the assessee has not shown come to Indio, their entire that it is a service PE/Fixed Place PE in expenditure reloting to India.
travelling, boarding, lodging etc. was incurred bv Stanlev.
To get the reimbursement of the above expenses, Stanley invoices UL with the amount of actual cost Incurred by it which includes the roundtrip airfares, domestic travel expenses There is no incurred As per page 3 of the TP Study Report The in Japan and Indio, It is apparent that there has been no
2. reimbursement of any expenses only reimbursement for expenses overseasmentioned travel reimbursement of any salary expense or salary expenses or formalities, under internationaloverseas transactions withtravel the AE any secondment of employees/ any secondment of insurance, are lodging, etc. expatriates of Stanley 6 employees/expatriates of Reimbursement of Travelling expenses Rs. Stanley. 23,39,063/- Further, the Hon'ble ITAT had ruled in Reimbursement of Other expenses Rs. favour of the assessee on the basis that 31,961/- the employment of the expatriates of Stanley ensured that the technology provided was properly applied by the Assessee to the production of licensed products. Further, no mark-up on remuneration of expatriates was charged by Stanley.
During the year there was no reimbursement of any remuneration of expatriates as is apparent from the details in the TP Study Report of the assessee.
The employees of the taxpayer have thus imbibed the technical capability of manufacturing the products As mentioned above, there has been no reimbursement of any salary expense of any employee of Stanley. It is apparent that the employees of the AE are visiting India for only short intervals. Moreover, as They are no longer per the TP study report, the purpose of dependent on Stanley these visits is to "render technical assistance in production and continuous use and absorption of technology to LIL".
Even the absence fee paid by the taxpayer is only Rs. 8,92,101/-. As per the agreement the absence fee is to be paid at the rate of 35000 yen daily for each engineer that is Rs. 18,830/- per day at conversion rate 0.53 for 1 yen as on 31-03- 2011. Thus, the engineer were in India for only 47 days. Since, manufacturing/ production is a continuous process and there is no continuous guidance/ supervision by the employees of the AE, these facts have led to the conclusion by the Panel that the employees of the taxpayer have imbibed the technical capability of manufacturing the product and are no longer dependent upon Stanley 7 The agreement relied upon by As per Page 30 of the TP Study Report LIL has The agreement before the ITAT on the the assessee is also fresh and entered into Technical Assistance Agreement basis of which decision was taken by the not the same which was before with Stanley Electric Co. Ltd; Japan.as on 1" Hon'ble Bench was on the basis of a the hon'ble ITAT. April 2007 for grant of a non-exclusive and technical collaboration agreement nan-transferable license without a right to between the Assessee and Stanley since sub-license, to manufacture and sell licensed 1984.There is no mention either in the TP 1 products in India, using the Technical Study Report or in the Agreement (placed information of Stanley. LIL is also receiving1 in the paper book filed by the assessee on "Packaged Technical Assistance" under the pages 183 - 193) that the agreement Techincal Assistance Agreement. dated 1st April 2007 is on extension of the 1984 agreement.
The package consists of i. Technical information applied by Stanley for its mass production.
ii. Other technical advice and instruction to manufacture the licensed products and iii. Other technical advice regarding installation and operation of manufacturing equipments and selection and purchae of moulds and dies The issue raised by the assessee in the rectification application is clarified as above. It is apparent that there is no mistake in the order of the Panel. The application of the assessee under rule 13 is. therefore, dismissed."
15. We have carefully considered the allegations of the DRP but we do not find any merits in the allegations. The Absence Fee paid by the assessee to the engineers coming on short visits during the year under consideration does not make any difference as these engineers were coming in the earlier years also and the assessee was paying them absence fee. This fact is also evident from the TP Study Report that absence fee has been paid for technical assistance in production and absorption technology, which is also evident from Exhibit 85 of the paper book.
816. In so far as reimbursement of salary expense is concerned of seconded employees in the form of management support charges to the Stanley for providing modern management and technical methods in order to effectively use the technology and manage relation with Japanese customers. It is not in dispute that the assessee needs the services and technical capabilities of these seconded employees year after year and dependent on Stanley for technical assistance.
17. It is incorrect to say that the decision of the Hon'ble High Court of Delhi was on facts which were different from the facts of the year under consideration are similar to those of the earlier years. The agreement under consideration is technical assistance agreement dated 1.4.2007 which is evident from TP Study itself. The same agreement was applicable in the earlier year also as is evident from the TP Study of assessment year 2008-09 and the order of the coordinate Bench in assessment year 2009-10. We, therefore, hold that the facts of the year under consideration are not different from the earlier years and, therefore, the issues are squarely covered by the decision of the Hon'ble Jurisdictional High Court of Delhi and decision of the coordinate Benches in earlier assessment years as mentioned elsewhere. Accordingly, ground Nos. 6 and 7 are allowed.
918. Ground No. 8 relates to charging of interest u/s 234B and 23C of the Act.
19. Charging of interest is mandatory, though consequential.
Therefore, we direct the Assessing Officer to levy interest as per the provisions of law.
20. Ground No. 9 has not been pressed and hence dismissed as not pressed.
21. In the result, the appeal of the assessee in ITA No. 1441/DEL/2016 is allowed.
The order is pronounced in the open court on 04.05.2018.
Sd/- Sd/-
[LALIET KUMAR] [N.K. BILLAIYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 04th May, 2018
VL/
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Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi