DCIT vs. Owens Corning Industries (India) Pvt. Ltd (ITAT Hyderabad)

DATE: October 13, 2014 (Date of pronouncement)
DATE: October 14, 2014 (Date of publication)
AY: 2009-10
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TPO cannot question commercial expediency of payment to AE. RBI approval to a transaction implies it is at arms' length price

We are of the opinion that the TPO was incorrect in going into the business expediency of payment of royalty and arriving at the conclusion of the quantum of the royalty. We find support for this proposition in the decision of Hon’ble Delhi High Court in CIT vs. EKL Appliances (345 ITR 241) (Del) wherein the Hon’ble Delhi High Court had occasion to consider the disallowance of royalty by TPO and held that if the expenditure has been incurred or laid out for the purposes of business it is no concern of the TPO to disallow the same on any extraneous reasons. In the case of Ericsson India Pvt. Ltd. vs. DCIT (ITA No. 5141/Del/2011) the Delhi High Court decision in CIT vs. EKL Appliances (supra) was followed wherein it was held that “it would be wrong to hold that the expenditure should be disallowed only on the ground that these expenses were not required to be incurred by the assessee”.

14. We also draw support from the decision of Ahmedabad Bench in KHS Machinery (P) Ltd. vs ITO (146 TTJ 692) ….. and … Air Liquide Engg. India (P) Ltd., vs DCIT (ITA No. 1040/Hyd/2011, 1159/Hyd/2011 and 1408/Hyd/2010) dated 13th February 2014 ….

17. We find merit in this claim that once the RBI approval of royalty rate was obtained the payment was considered to be held at arm’s-length. It is also noted that various Tribunals such as Air Liquide Engg. India (P) Ltd, Hyderabad (ITA No.1159, l040/Hyd/2011 & ITA No.1408/Hyd/ 2010), DCIT vs. Sona Okegawa Precision Forgins Limited (ITA No. 5386/DeI/2010), Hero Motocorp Limited vs. Addl. CIT (ITA No. 5130/Del/2010), ThyssenKrup Industries India Ltd vs Addl. CIT (ITA No. 6460/Mum/2012), Abhishek Auto Industries Ltd. vs. CIT (ITA No. 1433/Del/2009) have taken a view that RBI approval of the Royalty rates itself implies that the payments are at Arm’s Length and hence no further adjustment needs to be made viewed from this angle too.

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