INCOME TAX ACT, 1961
--Transfer pricing--Computation of ALPReference to TPO--Assessee a public limited company, filed returns of income declaring losses in it. AO noticed that there were international transactions entered into by assessee during relevat previous years and accordingly invoked the provisions of section 92CA(3) of Act and referred the question of determination of ALP to Transfer Pricing Officer (TP)). TPO noticed there were 13 types of international transactions entered into by assessee in previous year 2003-04 TPO accepted all of them to be arm's length transactions, except payment of brand fee/royalty. TPO further noticed that as assessee has been incurring huge losses year after year, considered payment of brand fee/royalty to be unjustified, and added back the said payment to the total income of assessee. Accordingly AO for both the years under appeal disallowed and added back the brand fee/royalty payment made bty assessee while completing assessment under section 143(3) of the Act. CIT(A) held that royalty/branchfer payment for acquisition of use of technical know-how was incurred for genuine business purposes and should be allowed even if assessee had sufered cotinuous losses in the business. Losses were partly due to internal and external factors and if there was a financial crunch then assessee should have discontinued to payemnt of brand fee/royalty. On further appeal by revenue Tribunal also conferred the view of CIT(A). Held: Full justification supported by facts and figures to demonstrate that increase in the employees' cost, finance charges, administratice expenses, depreciation cost and capacity increase have contributed to the continuous losses.
Income Tax Act, 1961 Section 92CA
Income Tax Rules, 1962 Rule 10B(10(a)
IN THE DELHI HIGH COURT
SANJIV KHANNA & R. V. EASWAR JJ.
CIT v. Ekl Appliances Ltd.
ITA Nos. 1068 & 1070 of 2011
29 March, 2012
Appellantby : Kamal Sawhney, Senior Standing Counsel and Amit Shrivastava, Advocate
Respondent by : V.P. Gupta, Bassant Kumar and Anuj Bansal, Advocates
R.V. Easwar J.
In these appeals filed under section 260A of the' Income-tax Act, 1961 ('the Act', for short), the Commissioner of Income-tax challenges the common order passed by the Income-tax Appellate Tri'bunal ('the Tribunal', for short) on 11-2-2011, for the assessment years 2002-03 and 2003-04.
2. The appeals arise this way. The assessee is a public limited company engaged in the business of manufacturing of refrigerators, washing machines, compressor and spares thereof and also trading all these items and microwave ovens, dish washers, cooking ranges, air-conditioners and spares thereof. In respect of the assessment years 2002-03 and 2003-04, it filed returns of income declaring losses amounting to Rs. 148,23,80,117 and Rs. 1,14,59,660 respectively. The assessing officer noticed that there were international transactions entered into by the assessee during the relevant previous years and accordingly invoked the provisions of section 92CA(3) of the Act and referred the question of determination of the arms length price ('ALP', for short) to the Transfer Pricing Officer ('TPO', for short). The Transfer Pricing Officer examined the matter in considerable detail and noticed that AB Elec-trolux, Sweden, held 76 per cent, of the assessees equity as on 31-3-2002, and out of the balance, 26 per cent, was held by the local joint venture partners and the balance 18 per cent, was held by the public. He noted that the turnover of the assessee for the assessment year 2003-04 amounted to Rs. 440.97 crores including trading sales of Rs. 48.29 crores pertaining to goods partly imported from the associated enterprises and also purchased locally. The major international transactions undertaken by the assessee were also noticed by him and he has listed the same at page 2 of the order passed by him on 20-3-2006, under section 92CA(3) of the Act. It is noticed from the order that there are 13 types of international transactions entered into by the assessee in the previous relevant year 2003-04. The Transfer Pricing Officer accepted all of them to be the arms length transactions, except the payment of brand fee/royalty of Rs. 3,42,97,940. The corresponding figure for the assessment year 2002-03 is Rs. 3,99,51,000. We may clarify that the Revenue has filed before us the order passed by the Transfer Pricing Officer for the assessment year 2003-04 on 20-3-2006, but the order passed by the Transfer Pricing Officer for assessment year 2002-03 has not been made available. This, however, is not material because it is common ground that the facts and the controversy arising in both the assessment years are the same so far as the arms length price is concerned. Reverting to the order of the Transfer Pricing Officer, he considered the payment of brand he/royalty by the assessee to the associated enterprise, namely, AB Electrolux, Sweden under an agreement dated 1-10-1998, to be unjustified.