Income Tax Appellate Tribunal - Mumbai
Sgs India P.;Ltd, Mumbai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "K", MUMBAI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 2406/Mum/2006
(Assessment year : 2002-03)
SGS India Private Limited, Vs Addl. Commissioner of
SGS House, Income-tax 10(3),
4B, Adi Shankracharya Marg, Aayakar Bhavan,
Vikhroli (West) M K Road,
Mumbai -400 083 Mumbai -400 020
(Appellant) (Respondent)
ITA No. 9035/Mum/2010
(Assessment year : 2003-04)
Addl. Commissioner of Vs SGS India Private Limited,
Mumbai -400 020 Mumbai -400 083
(Appellant) (Respondent)
C.O No. 245/Mum/2012
Arising out of ITA no. 9035/Mum/2010, AY. 2003-04
SGS India Private Limited, Vs Addl. Commissioner of
Mumbai -400 083 Mumbai -400 020
(Cross Objector) (Respondent)
ITA No. 9110/Mum/2010
(Assessment year : 2003-04)
SGS India Private Limited, Vs Addl. Commissioner of
Mumbai -400 083 Mumbai -400 020
PAN: AAACS 5514 Q
(Appellant) (Respondent)
Appellant-Cross Objector by : Shri Sunil Lala
Respondent-revenue by : Shri Ajeet Kumar Jain
Shri Praveen Kumar
Dates of Hearing :16 & 17-01-2013
Date of Pronouncement : 30-01-2013
ORDER
PER VIVEK VARMA, JM:
The instant appeal is filed by the assessee against the order of CIT(A) X, Mumbai, dated 20.01.2006.
2 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 The instant appeals : one cross appeal and one appeal by the assessee and a Cross Objection filed by the assessee, emanates from the different orders of the CIT(A), Mumbai, dated 20.01.2006 and 4.10.2010. As common issues are involved in all these appeals hence they are clubbed together and are being disposed off by this consolidated order for the sake of convenience.
2. The AR preferred to initiate proceedings on TP issues first, so he took up ground no. 3 and its sub-grounds, i.e. 3.1, 3.2 & 3.3. The AR submitted that he was not pressing sub ground no. 3.1, the DR had no objection, we, therefore, reject sub ground no. 3.1.
3. Ground no. 3 sub grounds 3.2 & 3.3 are connected, wherein there was an addition proposed by the TPO at Rs. 15,988,100 with respect to technical fee paid to AE.
4. The AR giving the description of the business of the assessee, submitted that the assessee is one of the affiliates of Generale De Survillance (SGS), based in Geneva, Switzerland, which operates a network of 840 offices & subsidiaries and have over 320 laboratories and have presence in over 140 countries around the world, who are providing verification, inspection and certifications services including in India for the past over 50 years. From India office, the assessee monitors internationally traded agricultural products, minerals, petroleum, petrochemicals, consumer goods and provides certification and other services to industrial environment, non destructive testing, project resourcing, logistics and hygiene sectors.
5. Since the assessee is providing such a wide range of services with its AEs and other affiliate with whom there were international transaction, reference was made to the TPO with regard to, 3 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 Particulars Amount Technical fees paid by SGS India for the year ended March 31, 2002 5.04 Break up of services/benefits received by SGS India: License fees @ 3% of turnover (Rs. 89.61 crores) for us of intellectual 2.69 property/intangibles Areas, Sector & function costs attributable to SGS India for the year ended March 31, 2.87 2002 Total 5.56
6. On the query raised by the TPO for justification of ALP, the assessee explained that the group is required to give high quality of service to its clients and has over the years developed a brand. To give high quality business, the assessee uses the parent AE's trademark, names and logos, marketing and sales knowhow, domain, it pays to its parent AE license fee as per the agreement entered into by the assessee with SGS SA, dated 26.09.2000, which are in continuation and incorporates approvals from government authorities dated December 1995 and accordingly pays license fee ranging between 2.5% to 4% on the revenue generated. As per the international study to analyze from fiscal and economic point of view, ALP at 3% was considered as reasonable for the use of the intangibles provided by the parent AE.
7. The AR submitted that as per the agreement and approval granted by Foreign Investment Promotion Board (FIPB) dated 25.09.2000, the assessee was required to pay to its parent AE, USD 10 million in 20 equal quarterly installments of USD 5 million each (it was later extended to 38 equal quarterly installments).
8. The assessee AR submitted that since the assessee was bound by the worldwide agreement and approval of the government agency, i.e. FIPB, it has to be accepted that the assessee has complied with the arm length principles and no adjustment was required to be made.
4 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012
9. With regard to the above submissions, the TPO adopted TNMM to test the payment of royalty and proposed to select comparables on functionally similar companies and the TPO observed that the study considers European countries and comparable companies located there and since Indian business conditions cannot be matched with them, the TPO observed that profit margin cannot be matched and cannot be taken as the benchmark and hence Indian companies normal profit could not be accepted. The TPO, therefore, enquired from the assessee as to how the license fee could be regarded at arms length, specifically with regard to Press note no. 9, issued by Ministry of Commerce and Industry which permitted payment @ 1% on domestic sale and 2% on export for the use of trademark and brand name on foreign collaboration.
10. In response to this notice, the assessee submitted before the TPO that it had adopted comparables of four entities and made comparisons, wherein one of the comparables was an independent entity. And to give an idea with regard to margins recovered against turnover, the assessee provided the following table :
SGS India's turnover & margins over the years Particulars 2000-01 2001-02 2002-03 2003-04 SGS India's turnover 83.54 89.61 107.45 116.40 (Rupees in crores) SGS India's 13.46% 6.63% 20.05% 32.63% OP/TC Payment of lumpsum Technical 0.52 1.05 1.05 1.05 fees (Amount in USD million) Margin of comparable companies S.No. Company Name Operating Profit/Total Cost 1 Utility Powertech Ltd. 7.81% 2 Vimta Labs Ltd. 32.54% 5 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 3 Choksi Laboratories Ltd. 16.36% 4 Enviro Technology Ltd. 5.76% Mean 15.62%
11. From the above tables it is seen that in the case of comparables, OP/TC comes to 15.62%, as against the assessee average 18.44%. It was also stated that affiliates located in Asia region such as Malaysia, Thailand & Pakistan were paying license fee @ 5% of the turnover. The assessee also submitted with respect to license fee @ 1% that guidelines issued by the RBI or FIPB are not necessarily indicative of the ALP. It was also submitted that in instances of particular merit, RBI or FIPB can allow approval of higher amount also. In the case of the assessee, FIPB has allowed a higher amount.
12. Considering all facts, the TPO considered the rates as prescribed by the Press no. 9, wherein the license fee was allowed at 1% on local turnover and 2% on export turnover and arrived at the adjustment, which he computed as Particulars Amount License fees paid 2,69,00,000 License fee @ 1% on local sales of Rs 70,10,38,000/- 70,10,380 License fee @ 2% on export sales of Rs 19,50,76,000/- 39,01,520 Arms length price of license fee 1,09,11,900 Adjustment 1,59,88,100
13. The TPO, therefore, suggested the adjustment by lowering the ALP and computed the same at Rs. 1,59,88,100.
14. The assessee approached the CIT(A), wherein the assessee submitted (in the SOF) a. To justify that payment of license fees @ 3% is at arm's length; reliance was placed on the international benchmarking study commissioned by the SGS Group. The study has concluded the 2.5%-4% range to be arm's length.
b. The said study also mentioned that in principle a higher rate than 4% could be justified, particularly in countries where the SGS image plays a 6 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 more significant role in generating business. Further, other group affiliates in the Asia Regional (Malaysia, Thailand, Pakistan and Bangladesh) are paying license fees @ 5% of turnover and internal license agreements with minority shareholders and one third party also range between 2.5% - 10%.
c. The Addl. C.I.T. has erred in law and on facts by accepting the treatment accorded by the TPO in determining the arm's length price of license fees for use of intangibles/intellectual property on the basis of Government of India's press note No. 9 of 2000 issued by the Ministry of Commerce and Industry which permits royalty @ 1% on domestic sales and 2% on export sales for the use of trade mark and brand name. In doing so, the TPO has failed to take cognizance of the fact that the where the payment is intended to be made for trademarks, brand name and other intangibles such as know-how, technology etc. then the ceiling-rates for permission under automatic route are 8% on exports and 5% on domestic sales without any restriction on the duration of royalty payments.
15. The CIT(A), sustaining the adjustment made by the TPO observed, "....It is not in dispute that appellant had not justified such payment @ 3% based on any comparable cases not with any prescribed method where such higher payments could be justified", he, therefore, sustained the addition.
16. It has been contended before us that the assessee has made payments for use of logos and other intangibles, strictly in accordance with the authorization of the Government of India and the Board controlling the payments. The AR referred to the case of Sona Okegawa Precision Forgings Ltd. vs Add. CIT, ITA No. 4781/Del/2010, wherein coordinate Bench at Delhi, held, "It is seen that the main question is whether the royalty paid by the assessee @ 3 per cent of the net sale price stands justified under CUP. The assessee has placed on record a copy of the letter dt. 30th April, 1993 written by the RBI, Exchange Control Department , to SSS Ltd. in which payment of royalty @ 3 per cent on domestic sales was allowed to be paid for a period of five years. There are similar other correspondences which have been placed on record. The assessee has also placed on record a press note issued by the Government of India, Ministry of Commerce and Industries, Department of Industrial Policy and Promotion, issued in 2003, under which royalty payment @ 8 per cent on export sales and 5 per cent on domestic sales has been referred to be reasonable for the purpose of processing approval of payments. On the other hand, the AO failed to bring any material on record that payment of royalty @ 3 per cent was not at arm's length. Therefore, the payment stands justified under the CUP method.
7 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 The main question is whether the royalty paid by the assessee @ 3 per cent of the net sale price stands justified under CUP. The assessee has placed on record a copy of the letter dt. 30th April, 1993 written by the RBI, Exchange Control Department, to Sona Steering Systems Ltd. in which payment of royalty @ 3 per cent on domestic sales was allowed to be paid for a period of five years. Assessee has also placed on record a press not issued by the Government of India, Ministry of Commerce and Industries, Department of Industrial Policy and Promotion, issued in 2003, under which royalty payments @ 8 per cent on export sales and 5 per cent on domestic sales have been referred to be reasonable for the purpose of processing approval of payments. On the other hand, the AO failed to bring any material on record that payment of royalty @ 3 per cent was not at arm's length. Therefore, the payment stands justified under the CUP method".
17. The AR also referred to the assessee's own case before the Hon'ble Bombay High Court against the reassessment proceedings initiated by the AO on the basis of the addition made in the instant year, it was held, "Further, the expenses in question have been incurred after obtaining FIPB approval and approval from the RBI -Impugned notice quashed and set aside. Admittedly, the expenses in question have been incurred after obtaining FIPB approval and approval from the RBI. Therefore, reopening of the assessment for assessment year 2001-02 on the ground that the transactions are not at arm's length is without any merit. The law in the subsequent year being different, reopening of the assessment based on the subsequent assessment order cannot be sustained. In this view of the matter, the reopening of the assessment for assessment year 2001-02 on the ground that transactions were not at arm's length as held in the assessment order for assessment years 2002-03 cannot be sustained. The impugned notice issued by the AO under s.148 of the Act is quashed and set aside. Admittedly, the expenses in question have been incurred after obtaining FIPB approval and approval from the RBI. Therefore, reopening of the assessment for assessment year 2001-02 on the ground that the transactions are not at arm's length is without any merit".
18. When we look into the table 1, where the breakup of services/benefits received by SGS India, we find that there are two elements, i.e. license fee @ 3% of turnover of 89.61 crores, which comes to 2.69 crores and ASF payment which comes to 2.87 crores, which, apparently stands accepted by the TPO as there is no proposed adjustment, therefore, we are concerned with a net of 2.17 (5.04 - 2.87). In that case computation made by the TPO at 5.56 is factually incorrect. Hence 5.56 could not have been the payment made, as the payments debited to the P&L account was in accordance with press 8 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 note, agreement dated 26.09.2000 and FIPB approval dated 06.04.2000, said the payments to be made net of taxes.
19. The DR strongly opposed and contended that very basis of adoption of a particular method would itself render the computation and reliance by the assessee on an infirmity, as there cannot be any benchmarking for ALP
20. At this juncture, we enquired from the AR, as to how CUP could be suggested, the AR pointed out that in that set of comparables as provided by the assessee, there is one entity, which could be taken as falling in CUP which could be compared with the assessee, i.e. W. Rabbal & Co. The AR also referred to the relevant rule i.e. Rule 10B(2)(d) which reads as under:
"10B(2) ...
(a) ...;
(b) ...;
(c) ...;
(d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail".
21. The DR, submitted that since there is neither any comparable nor any benchmarking done as per the provisions of Act and Rules, it would be appropriate that the case be set aside to the AO for fresh appraisal for fresh search and comparables, as may be available.
22. We have heard the arguments and also perused the documents, placed on record. The issue before us is only on royalty and not other charges, which have been accepted by the TPO. In the TP study, the assessee chose CUP as the most appropriate method for this segment 9 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 and also relied on Government's directives. The AR also demonstrated before us that the issue was covered by FIPB instructions, where royalty is accepted to be 5% to 8%. It was pointed out by the AR that this instruction was before the TPO, who, maybe under some misconception, did not refer in his draft order. When we apply the circumstances of the case with the provisions of Act and Rules, we do find that on the basis of global study, reliance can be made on one entity, which can be accepted to be CUP, so far as the business of the assessee and its affiliates are concerned, where the TP study identified the uncontrolled transaction of royalty of 10%, against which, the assessee's payment was at 3%, which can be accepted to be the ALP. In any case, the comparables as suggested by the TPO cannot be accepted in the defined segment of the business, which does not have global presence. We also find that the assessee has done its business, strictly in accordance with the business agreement with its parent AE and has made the payments also in accordance with the norms as prescribed by the Government of India regulations and FIPB, Ministry of Commerce. We have take into consideration that the TPO also used FIPB route to benchmark the ALP, hence, the DR's observations that FIPB cannot be taken as the benchmark, cannot be accepted.
23. In the light of our observations, we reverse the adjustment proposed by the TPO and hold that assessee payment made on account of royalty/license fee of Rs. 1,59,88,100 to be at arm's length.
24. Grounds no. 3, 3.2 & 3.3 are, therefore, allowed.
25. Grounds no. 4 & 4.1 with regard payment of Rs. 28,794,000 on account of Research and Development.
26. Since the payments made under this segment pertained to international transactions, this segment was also referred to the TPO, before whom, the assessee submitted, 10 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 "10. It is explained by the assessee that in order to keep abreast with the vari6us developments on account of technological strides and breakthroughs in the recent years, rapid globalization and the computerization the associate entity Switzerland had undertaken several computerization and communication projects. It is stated that the associate entity spent sizeable are sums of money in conducting research and development in new areas and is constantly developing better and more economical and efficient methods, techniques and process. It is stated that such projects benefit the assessee and the other group entities and are aimed at developing latest customised software, network systems and in training employees for implementation. It is stated that as such projects undertaken by the associate entity would benefit several affiliates of the group the costs relating to the same are shared by them. It is stated that during the previous year the costs incurred in relation to the e-business plan was allocated to them by the associate entity. It is stated that the assessee has obtained the approval from the FIPB for the payment of a lump- sum amount of $3 million in 20 equal quarterly instalments for the availing the benefits of such research and development activities pursued by the associate entity. 10.2 As regards the reasons given by the assessee regarding the arms length nature of this transaction, the only submission made by the assessee in the study report at paragraph 5.53 is as follows. "Based on understanding provided by SOS Switzerland, that such research and development fees paid by the assessee represents the costs attributable to it using a certain apportionment mechanism, it would be possible to conclude that such payment is not inconsistent with the arms length principle".
10.3 In support of this transaction the assessee has furnished a copy of the FIPB approval dated September 26, 2000 which permits the remittance of a sum of USD 3 million payable in 20 equal quarterly instalments of USD 1.5 million each. The assessee has also filed a copy of letter dated October 4, 2002 wherein the assessee has agreed to bear these costs. Regarding the ALP for this transaction the assessee has merely stated that it is a cost allocation and hence as no markup is involved, it is complies with the arm's length principle.
10.4 The assessee has a further explained the nature of this transaction in their letter dated November 20, 2004. It is stated that to respond to the opportunities emerging from the growth in Internet trade, in the year 1999 the associate entity in Switzerland commissioned the creation of business plan which analyzed the prospects of the group in the business to business segment (B2B). The object of the business plan was to develop a strategy to allow the group entities to progressively e-enable the interface with existing clients while adding new revenue generating services. It is stated that the project was specifically undertaken for the benefit of few of the group entities to enable them to gain from the communication revolution in the business to business segment. It is stated that the cost hence had to be allocated amongst these entities only. The assessee contends that the charge in this regard is in the nature of cost contribution arrangement and is in accordance with the OECD guidelines in this regard".
11 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012
27. The TPO, after examining the contentions of the assessee, observes, "In the case of a cost contribution arrangement, it would be necessary for e assessee to enter into a prior agreement with the other parties to the arrangement wherein the costs proposed to be incurred by the various entities would be determined, as also the benefits that each of the entity expects to derive from the arrangement. In the case of a cost contribution arrangement through no specific method is prescribed under the Indian Tax Laws, the principles of OECD requires that the benefits which a person expects to derive from the arrangement should be commensurate with the costs allocated to it. Therefore, in order to justify the transaction the assessee at least needs to establish that it expected to derive certain benefits from the arrangement, there must be a approximate quantification of such benefits and at least at a broad level the assessee should show that contributions made by it are proportionate to the benefits expected. In the given case no such information has been provided by the assessee. All that has been furnished is the approval of the RBI for remittance and a letter dated October or 2002. Nothing is contained in these two documents from which we may infer the assessee's expectations from the arrangement and its estimate as to the cost that it may have to bear. In fact there is no basis for the 70% allocation made by the associate entity. Hence the allocation made to the assessee is held to be not relatable to it and the ALP for the same is determined at Nil,"
28. The TPO refers to the assessee's working and observes, "In this connection, the assessee was requested by this office to justify e various international transactions by performing a entity level TNM method. In this connection, this office had undertaken a search in the database to identify other companies engaged in similar activities. On the basis of the information obtained a list of cases was forwarded to the assessee which according to this office were considered to be comparable to it. Subsequently the assessee has undertaken another search on the specific direction of this office (on without prejudice basis) in the database and through their letter dated 4.3.2005 have submitted that the average margins of comparable companies during the previous year was 15.62% [details reproduced at para 7(a) earlier]. As against the same the assessee's margins during the relevant period was 6.63% on cost. The assessee's costs and revenues are as under
(Rs. In thousands) Particulars Amount Income (A) 965,415 Fees 896,114 Other income 69,301 Expenditure (B) 901,720 Profit before Tax (C = A-B) 63,695 12 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 Add: Non operating expenses (D) 24,713 Loss on sale of Fixed Assets 53 Interest 24,660 Less: Non operating Income (E) 30,300 Other Income 69,301 Less: Recovery of expenses (39,001) Operating Profit (F=C+D-E) 58,108 OP/TC % [F/C(B-D)] 6.63% Hence clearly even if the comparables as identified by the assessee are not disturbed, it is found that the margins earned by the assessee are not comparable with other entities functioning in this industry. Further, it was found that TUV India Pvt. Ltd. which is engaged in a business similar to that of the assessee and is in fact a competitor in many segments was making a net profit of 36% on sales during the previous year which is also much higher than that of the assessee. Though the transactions entered into by TUV India Pvt. Ltd. are controlled transactions and by definition can not be used to determine the ALP, they still give a fair indication of the margins prevailing in the industry. Hence even at an entity level TNMM it is established that the international transactions entered into by the assessee are not at arm's length. After making the adjustment to the extent proposed above, the assessee's operating profit margins would still be lower than that of the comparables. Hence the determination of ALP on transaction by transaction basis is lesser than what is required to be made under the TNM method and hence corroborated to that extent."
and suggests an adjustment of Rs. 28,794,000 in this segment.
29. The assessee preferred an appeal before the CIT(A), who, after examining the submissions made before him, observes, "As far as payment of research and development expenses is concerned it is also seen that the appellant had agreed to pay sue amount despite that prior arrangement of sharing the income, true is the fact that expenses incurred in respect of research and development does not necessarily accrue the benefit and as such the same could not be the determinative factor of the payment however it is equally true that such arrangement should clearly lay down the method of sharing such benefit in case of cost sharing arrangements. And therefore in absence of such categoric arrangement I am unable to accede to the arguments of the appellant that expenses were justified for allowance of the same in term's length transactions. Further as has been seen that FIPB approval cannot be treated as acceptance of arm's length price more so in view of the specific method prescribed under the Act. Thus considering the fact that in cost sharing arrangement appellant company's terms of sharing of benefit being not defined expenses can not be said to meet the criteria laid down under the statute or for that matter OECD model and as such I am also not inclined to accept the arguments of the appellant in this regard and as such disallowance made by the AO in this regard is also confirmed."
13 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 The CIT(A), thus confirmed the addition, suggested by the TPO.
30. The assessee is now before the ITAT. Before us, the AR submits that the case of the assessee is covered by the Hon'ble Bombay High Court in its case, wherein, the Hon'ble Bombay High Court had set aside the reopening on this issue, holding that the payments had been made as per government norms and approvals.
31. The DR on the other hand contended that no doubt the Hon'ble Bombay High Court had set aside the reopening on the issue in the preceding year but the fact remains that no details or clarifications had been provided by the assessee, as stated by the CIT(A). Therefore, in the circumstances, the DR pleaded that the addition may be confirmed.
32. We have heard the arguments of the contending parties and on going through the impugned order, that the CIT(A) has very categorically observed that, "there is nothing on record to suggest the bench marking the ALP. Even in the records, we find that there is nothing specific, which clearly suggests the bench mark for the impugned addition".
33. In the interest of justice, we, deem it fit to restore the issue back to the file of the AO, who shall adjudicate the issue afresh, needless to say that proper and adequate opportunity shall be provided to the assessee to present its case.
34. In the result, the grounds no. 4 and 4.1 are treated as allowed for statistical purposes.
35. Resorting ourselves to domestic issues in grounds no. 1 & 2.
14 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012
36. Ground no. 1 is in respect to the disallowance of Rs. 70,844 on account of delayed payment of contribution to PF, Rs. 45,907 on account of ESIC and Rs. 32,518 on account of the fund Amount (Rs.) Date of Pension EDLI Inspection Admn. Payment Due Date Fund charges charges 22,582 1,355 2,981 7 13.08.2001 15.06.2001 4,413 265 583 0 17.04.2002 15.04.2002 26,995 1,620 3,564 7 Amount Date of Due Date (Rs. ) payment 32,518 13.08.2001 15.06.2001 31,966 16.03.2002 15.03.2002 6,360 17.04.2002 15.04.2002 70,844 The amount of Rs. 70,844/- is added to the income of the assessee.
Employees contribution to ESIC:-
Amount Date of Due Date (Rs. ) payment 1,435 23.01.2001 21.10.2001 1,508 13.01.2002 21.02.2002 7,980 23.01.2002 21.02.2002 1,159 23.01.2002 21.02.2002 542 23.01.2002 21.02.2002 9,364 25.02.2002 21.02.2002 1,142 25.02.2002 21.02.2002 414 25.02.2002 21.02.2002 273 25.02.2002 21.02.2002 10,248 25.03.2002 21.03.2002 1,311 26.03.2002 21.03.2002 9,155 01.05.2002 21.04.2002 1,376 01.05.2002 21.04.2002 45,907 The amount of Rs. 45,907/- is added to the income of the assessee.
37. From the order of assessment, we find that the above payments have been made before the due date of filing of the return, in which case, the impugned addition cannot be made. We, therefore, delete the same.
38. Ground no. 1 is, therefore allowed.
15 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012
39. Ground no. 2 is in respect to the allowance of credit of Rs. 5,44,475 on account of TDS.
40. The AO is directed to allow the credit of TDS as per law. Ground no. 2 is therefore, allowed.
41. In the result, the appeal, as filed is partly allowed.
42. For assessment year 2003-04, the following appeals are filed:
Appeal filed by the department, bearing ITA No. 9035/Mum/2010, Cross Objection filed by the assessee, bearing CO No. 245/Mum/2012 and Appeal filed by the assessee, bearing ITA No. 9110/Mum/2010
43. The department, in ITA No. 9035/Mum/2010 has raised the following grounds:
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the payment of technical fees by the assessee to its associated enterprise is at arm's length and hence no adjustment is required to be made on account of technical fees.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that no evidence was produced by the assessee to establish that the payment made for Area, Sector & Functions (ASF) costs would be Rs 4.20 crores and hence the arm's length price of ASF costs should have been restricted to the difference between the technical fees paid of Rs. 5.10 crores and the license fees paid of Rs. 3.22 crores".
44. The assessee, in CO No. 245/Mum/2012 has raised the following grounds :
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the remittance of license fee even if computed at the rate of 3% of turnover was at arm's length..
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the remittance of technical fees (comprising of license fee and Area, Sector and 16 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 Function (ASF) Cists(m being specifically approved by the Foreign Investment Promotion Board, was at arm's length".
45. Ground no. 1 is already covered by our detailed observations in ITA no. 2406/Mum/2006, where we have accepted technical fee at 3% to be at arm's length and deleted the addition, therefore, relying on the same facts, we hold that payment of license fee at 3% in the current year would be at arm's length, as well.
46. The ground as raised by the department is, therefore, rejected and the assessee's ground stand in CO stands allowed.
47. Ground no. 2 pertains ASF costs.
48. The issue had not been impugned by the TPO and the revenue authorities, therefore, at this stage, taking up a ground, which was never in dispute cannot be entertained and has to be held to be non maintainable.
49. In the result, the ground taken in the appeal by the department & in CO by the assessee are rejected.
50. In the result, the appeal filed by the department is dismissed and the cross objections filed by the assessee are allowed in part.
51. Assessee's appeal : ITA No. 9110/Mum/2010
52. The assessee has taken the following grounds:
"1. The following grounds of appeal are independent of, and without prejudice to, one another:
1. The learned CIT(A) has erred in law and on facts in upholding the addition made by the Assessing Officer/Transfer Pricing Officer with respect to Research & Development (R&D) Expenses of Rs. 1,46,51,865/- by:
17 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 • not appreciating the additional evidences presented by the assessee for justifying the payment of R&D expenses;
• disregarding the 'Remand report' prepared by the Joint Commissioner of Income Tax-Transfer Pricing II(4), which stated that the additional evidence provided in respect of the R&D expenses seems acceptable;
• not applying a fresh mind or appreciating the new facts an circumstances, while following precedent for AY 2002-03 which is under appeal before the Income Tax Appellate Tribunal.
2. On the facts and circumstances of the case, and in law, the learned CIT(A) ought to have granted the benefit of Article 10 of the India Switzerland Double Taxation Avoidance Agreement, that the dividend declared by the Appellant is liable to dividend distribution tax at the rat of 10 per cent".
53. Ground no. 1 is with regard to TP adjustment on R&D expenses at Rs. 1,46,51,865. In the preceding year, we have restored the issue to the file of the AO for reconsidering the impugned issue, afresh, after affording a reasonable and adequate opportunity.
54. In the instant year as well, we restore the issue to the file of the AO, so that a consistent view may be taken by the revenue authority.
55. The ground is, thus, treated as allowed for statistical purposes.
56. Ground no. 2 is not pressed, hence the ground is rejected.
57. In the result, the appeal filed by the assessee is treated as allowed partly.
58. To sum up:
Appeal by the assessee for AY 2002-03 in ITA No. 2406/Mum/2006 is partly allowed Appeal by the assessee for AY 2003-04 in ITA. No. 9035/Mum/2010 is partly allowed Appeal by the department for AY 2003-04 in ITA No. 9110/Mum/2010 is partly allowed 18 SGS India Private Limited ITA No. 2406/M/2006 ITA no. 9110/M/2010 ITA no. 9035/M/2010 CO no. 245/M/2012 CO by the assessee for AY 2003-04 in CO No. 245/Mum/2012 is partly allowed Order pronounced in the open Court on 30th January, 2013 Sd/- Sd/-
(R.S. SYAL) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai: 30th January, 2013
Copy to:
1) The Appellant
2) The Respondent
3) The CIT (A)-X, Mumbai.
4) The CIT, MC-X, Mumbai.
5) The DR, "K" Bench Mumbai.
6) Copy to Guard File
By Order
/ / True Copy / /
Asst. Registrar,
ITAT, Mumbai
*Chavan