R A K Ceramics India Private Limited, Hyderabad, East Godavari Dist. v. DCIT, Circle-3(1), Hyderabad, Hyderabad

ITA 193/HYD/2017 | 2012-2013
Pronouncement Date: 29-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 19322514 RSA 2017
Assessee PAN AACCR6424N
Bench Hyderabad
Appeal Number ITA 193/HYD/2017
Duration Of Justice 9 month(s) 12 day(s)
Appellant R A K Ceramics India Private Limited, Hyderabad, East Godavari Dist.
Respondent DCIT, Circle-3(1), Hyderabad, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 29-11-2017
Date Of Final Hearing 28-06-2017
Next Hearing Date 28-06-2017
First Hearing Date 28-06-2017
Assessment Year 2012-2013
Appeal Filed On 16-02-2017
Judgment Text
ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 1 OF 12 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN ACCOUNTANT MEMBER ITA NO.193/HYD/2017 (ASSESSMENT YEAR: 2012-13) M/S. RAK CERAMICS INDIA PRIVATE LIMITED SECUNDERABAD PAN: AACCR 6424 N VS DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI ABHIROOP BHARGAV FOR REVENUE : SMT. PALLAVI AGARWAL CIT(DR) O R D E R PER SMT. P. MADHAVI DEVI J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13 AGAIN ST THE ASSESSMENT ORDER DATED 20.12.2016 PASSED U/S 1 43(3) R.W.S. 144C(1) OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF CERAMIC V ITRIFIED TILES AND SANITARY WARES FILED ITS RETURN OF INCOME FOR THE A.Y 2012-13 ON 29.11.2012 ADMITTING AN INCOME OF RS.5 76 24 860 . THE RETURN WAS INITIALLY PROCESSED U/S 143(1) OF THE ACT BUT SUBSEQUENTLY THE AO NOTICED THAT THE ASSESSEE HAS ENTERED INTO I NTERNATIONAL TRANSACTIONS WITH ITS AES. THEREFORE THE MATTER WA S REFERRED TO THE TPO U/S 92CA OF THE ACT FOR DETERMINATION OF TH E ALP. THE DATE OF HEARING: 17.10 . 2017 DATE OF PRONOUNCEMENT: 29.11.2017 ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 2 OF 12 TPO OBSERVED THAT THE ASSESSEE HAS ENTERED INTO VAR IOUS INTERNATIONAL TRANSACTIONS AND HELD ALL THE TRANSAC TIONS TO BE AT ALP EXCEPT FOR THE PAYMENT OF ROYALTY. HE OBSERVED THAT THE ASSESSEE HAS PAID A SUM OF RS.11 96 02 712 TO ITS A E WHICH IS CALCULATED AT 3% OF ITS NET SALES. HE OBSERVED THAT AS PER THE ROYALTY AGREEMENT DATED 1.4.2009 THE ROYALTY IS BE ING PAID FOR THE TECHNOLOGY UPGRADATION AND ASSISTANCE ONGOING PROC ESS PRODUCT DESIGN AND IMPROVEMENT AND COMPLETE KNOWHOW ASSISTA NCE INCLUDING ANY TECHNOLOGY OR SERVICES PROVIDED DURIN G THE PERIOD PRIOR TO THE AGREEMENT. HE OBSERVED THAT IN THE T.P DOCUMENT THE ASSESSEE HAS ADOPTED CUP METHOD FOR ITS T.P STUDY A ND THAT THE DATABASE USED BY THE ASSESSEE IS FOR U.S BASED COMP ANIES WHEREIN THE COPIES OF THE AGREEMENTS OF THOSE COMPA NIES HAVE NOT BEEN FURNISHED. THE TPO HELD THAT THE BENCHMARKING IF ANY HAS TO BE DONE IN RESPECT OF INDIAN COMPANIES ENGAGED I N SIMILAR TRADE MAKING ROYALTY PAYMENT AND NOT THAT OF US C OMPANIES. FURTHER THE TPO HAS ALSO OBSERVED THAT THE ASSESSE E HAS NOT BEEN ABLE TO CONCLUSIVELY ESTABLISH THE BENEFIT DER IVED BY IT BY THE RECEIPT OF TECHNOLOGY. THEREFORE HE HELD THAT THE ALP OF THE ROYALTY SHOULD BE AT 2% OF ITS NET SALES AND ACCORD INGLY COMPUTED THE ADJUSTMENT U/S 92CA OF THE ACT. THE AO PASSED T HE DRAFT ASSESSMENT ORDER BASED ON THE TP PRICING ADJUSTMENT PROPOSED BY THE TPO. AGGRIEVED THE ASSESSEE PREFERRED ITS O BJECTIONS BEFORE THE DRP WHICH CONFIRMED THE ORDER OF THE TPO AND IN ACCORDANCE WITH THE SAME THE FINAL ASSESSMENT ORDER WAS PASSE D AND THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REIT ERATING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUT HORITIES ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 3 OF 12 BELOW SUBMITTED THAT THE TPO HAS HELD THAT THE ASS ESSEE HAS FAILED TO ESTABLISH THE BENEFIT TEST ON RECEIPT OF THE TECHNOLOGY FOR PAYMENT OF ROYALTY AND FURTHER FAILED TO ADOPT ANY OF THE METHODS PRESCRIBED UNDER THE ACT JUSTIFYING THE PAYMENT OF ROYALTY WHILE REJECTING THE CUP METHOD ADOPTED BY THE ASSESSEE TO DETERMINE THE ALP AND HAS GIVEN NO REASON OR BASIS FOR ARRIVI NG AT 2% AS THE ALP. THEREFORE ACCORDING TO HIM THE ORDER OF THE TPO IS NOT SUSTAINABLE. HE ALSO PLACED RELIANCE UPON THE DECIS ION OF THE ITAT IN ASSESSEES OWN CASE FOR THE A.Y 2010-11 WHEREIN THIS ISSUE HAS BEEN CONSIDERED AT LENGTH AND AT PARA 10 TO 11 IT W AS HELD AS UNDER: 10. WE ARE REALLY SURPRISED TO SEE THE REASONING OF TPO IN FIXING THE ALP OF ROYALTY PAYMENT AT 2%. IT IS MANI FEST FROM TPO'S ORDER HE HAS REJECTED ASSESSEE'S TP ANALYSIS UNDER TNMM. FURTHER IN PARA 6.4 OF HIS ORDER TPO HAS ME NTIONED OF UNDERTAKING AN INDEPENDENT ANALYSIS UNDER TNMM F OR SELECTING COMPARABLES AND DETERMINING ALP. HOWEVER EVEN AFTER REPEATEDLY SCANNING THROUGH HIS ORDER WE FAI LED TO FIND ANY SUCH ANALYSIS BEING DONE BY HIM. SIMILARLY THO UGH IN PARA 5.1.1 LD. DRP HAS OBSERVED THAT TPO HAS BENCHMARKE D INTANGIBLE TRANSACTIONS BY USING CUP BUT THE ORDE R PASSED BY TPO DOES NOT SUPPORT SUCH CONCLUSION. IT IS AN ACCE PTED PRINCIPLE OF LAW THAT TPO HAS TO DETERMINE THE ALP BY ADOPTING ANY ONE OF THE METHODS PRESCRIBED U/S 92C OF THE ACT. MODE AND MANNER OF COMPUTATION OF ALP UNDER DIFFERE NT METHODS HAVE BEEN LAID DOWN IN RULE 10B. EVEN ASSU MING THAT TPO HAS FOLLOWED CUP METHOD FOR DETERMINING ALP OF ROYALTY PAYMENT AS HELD BY LD. DRP IT NEEDS TO BE EXAMINED IF IT IS STRICTLY IN COMPLIANCE WITH STATUTORY PROVISI ONS. RULE 10B(1)(A) LAYS DOWN THE PROCEDURE FOR DETERMINING A LP UNDER CUP METHOD. AS PER THE SAID PROVISION TPO AT FIRST HAS TO FIND OUT THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFER RED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRAN SACTION OR A NUMBER OF SUCH TRANSACTIONS. THEREAFTER MAKING N ECESSARY ADJUSTMENTS TO SUCH PRICE ON ACCOUNT OF DIFFERENCE S BETWEEN THE INTERNATIONAL TRANSACTION AND COMPARABLE UNCONT ROLLED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING IN TO SUCH TRANSACTIONS WHICH COULD MATERIALLY AFFECT THE PRI CE IN THE ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 4 OF 12 OPEN MARKET TPO WILL DETERMINE THE ALP. IT IS PATE NT AND OBVIOUS FROM TPO'S ORDER THE DETERMINATION OF ALP AT 2% IS NOT AT ALL IN CONFORMITY WITH RULE 10B(1)(A). THE T PO HAS NOT BROUGHT EVEN A SINGLE COMPARABLE TO JUSTIFY ARM'S L ENGTH PERCENTAGE OF ROYALTY AT 2% EITHER UNDER CUP OR TNM M METHOD. ON THE CONTRARY OBSERVATIONS MADE BY TPO G IVES AMPLE SCOPE TO CONCLUDE THAT ADOPTION OF ROYALTY AT 2% IS NEITHER ON THE BASIS OF ANY APPROVED METHOD NOR ANY REASONABLE BASIS. RATHER IT IS ON ADHOC OR ESTIMATE BASIS HENCE NOT IN ACCORDANCE WITH STATUTORY PROVISIONS. THE AP PROACH OF TPO IN ESTIMATING ROYALTY AT 2% BY APPLYING THE BEN EFIT TEST IN OUR VIEW IS NOT ONLY IN COMPLETE VIOLATION OF TP P ROVISIONS BUT AGAINST THE SETTLED PRINCIPLES OF LAW. ITAT MU MBAI BENCH IN CASE OF M/S CASTROL INDIA LTD. VS. ADDITIONAL CI TY ITA NO. 1292/MUM/2007 DATED 20/12/2013 WHILE EXAMINING IDENTICAL ISSUE OF DETERMINATION OF ALP AT 'NIL' BY APPLYING THE BENEFIT TEST HELD AS UNDER: '11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSE RVED THAT THE IMPUGNED ROYALTY WAS PAID BY THE ASSESSEE COMPANY TO ITS AE NAMELY CASTROL LTD. UK AT 3.5 % O F THE NET EX-FACTORY SALE PRICE OF PRODUCTS MANUFACTU RED AND SOLD IN INDIA AS PER THE TECHNICAL COLLABORATIO N AGREEMENT. THIS INTERNATIONAL TRANSACTION INVOLVING PAYMENT OF ROYALTY TO ITS AE WAS BENCH-MARKED BY TH E ASSESSEE BY FOLLOWING CUP METHOD IN ITS TP STUDY REPORT AND SINCE AVERAGE RATE OF ROYALTY OF THREE COMPARABLES SELECTED BY IT WAS HIGHER AT 4.67% THAN THE RATE AT WHICH ROYALTY WAS PAID BY THE ASSESSEE TO ITS AE THE TRANSACTION INVOLVING PAYMENT OF ROYALTY WA S CLAIMED TO BE AT ARM'S LENGTH. A PERUSAL OF THE ORD ER PASSED BY THE TPO U/S 92CA (3) OF THE ACT SHOWS THA T NEITHER THESE COMPARABLES SELECTED BY THE ASSESSEE IN ITS TP STUDY REPORT WERE REJECTED BY HER NOR ANY NE W COMPARABLES WERE SELECTED BY HER BY MAKING A FRESH SEARCH IN ORDER TO SHOW THAT THE PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS AE WAS NOT AT ARM'S LENGTH. SHE SIMPLY RELIED ON THE APPROVAL OF SIA TO HOLD THAT A NY ROYALTY PAID BY THE ASSESSEE ON EXPORTS AND OTHER INCOME WAS NOT ALLOWABLE AND DISALLOWED THE ROYALTY PAYMENT TO THE EXTENT OF RS. 40 51 486/- TREATING T HE SAME AS THE ROYALTY PAID BY THE ASSESSEE IN RESPECT OF EXPORTS SALE AND OTHER INCOME. WE ARE UNABLE TO AGR EE WITH THIS STRANGE METHOD FOLLOWED BY THE TPO TO MAK E A TP ADJUSTMENT IN RESPECT OF ROYALTY PAYMENT WHICH IS ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 5 OF 12 NOT SUSTAINABLE EITHER IN LAW OR ON THE FACTS OF TH E CASE. SHE HAS NEITHER REJECTED THE METHOD FOLLOWED BY THE ASSESSEE TO BENCH-MARK THE TRANSACTION IN RESPECT O F PAYMENT OF ROYALTY NOR HAS BEEN ADOPTED ANY RECOGNIZED METHOD TO DETERMINE THE ALP OF THE SAID TRANSACTIONS. THE APPROVAL OF SIA ADOPTED BY THE TP O AS BASIS TO MAKE TP ADJUSTMENT IN RESPECT OF ROYALT Y PAYMENT WAS UNTENABLE AND EVEN GOING BY THE SAID BASIS WRONGLY ADOPTED BY THE TPO NO TP ADJUSTMENT IN RESPECT OF ROYALTY PAYMENT WAS LIABLE TO BE MADE . AS PER THE SAID BASIS THE NET SALES OF THE ASSESSEE A FTER EXCLUDING EXPORT SALE AND OTHER INCOME WERE TO THE EXTENT OF RS. 1118.70 CRORES AND THE ROYALTY PAID THEREON AT RS. 24.38 CRORE BEING LESS THAN THE RATE OF 3.5% APPROVED BY SIA THERE WAS NO CASE OF ANY EXCE SS PAYMENT MADE OF ROYALTY BY ASSESSEE THAN APPROVED BY SIA TO JUSTIFY ITS DISALLOWANCE BY WAY OF TP ADJUSTMENT. IN OUR OPINION THE LD. CIT (A) COULD N OT APPRECIATE THESE INFIRMITIES IN THE ORDER OF THE TP O DESPITE THE SAME WERE SPECIFICALLY BROUGHT TO HIS N OTICE ON BEHALF OF THE ASSESSEE AND CONFIRMED THE TP ADJUSTMENT MADE BY THE TPO IN RESPECT OF ROYALTY PAYMENT WHICH WAS TOTALLY UNJUSTIFIED. WE THEREFORE DELETE THE ADDITION MADE BY THE AO/TPO AND CONFIRMED BY THE LD. CIT ON ACCOUNT OF TP ADJUSTMEN T IN RESPECT OF ROYALTY PAYMENT AND ALLOW GROUND NO. 3 OF THE ASSESSEE'S APPEAL.' 11. SIMILAR VIEW HAS ALSO BEEN EXPRESSED IN THE OTH ER DECISIONS RELIED UPON BY LD. AR. AT THE COST OF REP ETITION IT NEEDS REITERATION ASSESSEE HAS BENCHMARKED THE ROY ALTY PAYMENT BY BRINGING COMPARABLES BOTH UNDER TNMM AS WELL AS CUP. WHEREAS TPO HAS REJECTED THE ANALYSI S DONE BY ASSESSEE UNDER BOTH THE METHODS WITHOUT ANY REAS ONABLE BASIS NOR HAS BROUGHT A SINGLE COMPARABLE TO JUSTIF Y ALP OF ROYALTY AT 2%. UNFORTUNATELY LD. DRP HAS APPROACHE D THE ENTIRE ISSUE IN RATHER MECHANICAL MANNER WITHOUT EX AMINING WHETHER APPROACH OF THE TPO IS IN ACCORDANCE WITH STATUTORY MANDATE. THEREFORE DETERMINATION OF ALP OF ROYALTY AT 2% CANNOT BE SUPPORTED HENCE DESERVES TO BE STRUCK DOWN. MOREOVER THEORY OF BENEFIT TEST APPLI ED BY TPO ALSO FALLS FLAT CONSIDERING THE FACT THAT TPO D OES NOT QUESTION THE NECESSITY OF PAYING ROYALTY BUT ONLY O BJECTS TO THE QUANTUM. FURTHER QUANTUM INCREASE IN SALE WITH NO APPARENT INCREASE IN PRODUCTION MINIMAL PRODUCT RE CALLS LOW AFTER SALES MAINTENANCE COST CERTAINLY GOES TO PROVE ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 6 OF 12 ASSESSEE'S CLAIM THAT THESE COULD BE ACHIEVED DUE T O UTILIZATION OF ADVANCED TECHNICAL KNOW-HOW TRANSFER RED BY AE. THE TPO HAS NOT BEEN ABLE DISPROVE THESE FACTS WITH ANY SOUND ARGUMENT. CONSIDERING THE TOTALITY OF FAC TS AND CIRCUMSTANCES WE ARE OF THE OPINION REDUCTION OF RATE OF ROYALTY BY TPO FROM 3% TO 2% IS WITHOUT ANY BASIS HENCE CANNOT BE ACCEPTED. ACCORDINGLY WE DELETE THE ADDI TION MADE ON ACCOUNT OF TP ADJUSTMENT TO ROYALTY PAYMENT . GROUNDS RAISED ARE ALLOWED. 4. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO DR AWN OUR ATTENTION TO THE ORDER OF THE JURISDICTIONAL HI GH COURT IN THE ASSESSEES OWN CASE FOR THE A.Y 2010-11 WHEREIN THE HON'BLE HIGH COURT HAS CONFIRMED THE ABOVE ORDER OF THE ITAT. 5. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD WE FIND THAT THE ISSUE AS TO WHETHER THE ASSESSEE IS REQUIRED TO ESTABLISH THE BENEFIT DERIVED BY IT AND ALSO THE ALP RATE OF ROYALTY HAS BEEN CONSIDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE IN ITTA NO.59 5/2016 FOR THE A.Y 2010-11 AND VIDE ORDERS DATED 23.12.2016 IT WAS HELD AS UNDER: 8. HAVING CONSIDERED THE RIVAL SUBMISSIONS WE FIND THAT THE ASSESSEE OFFERED TWO TRANSFER PRICING STUDIES IN RELATION TO PAYMENT OF ROYALTY. IN SO FA R AS THE ACCEPTABLE STUDY ADOPTING THE COMPARABLE UNCONTROLLED PRICE METHOD IS CONCERNED IT IS NOT I N DISPUTE THAT THE ASSESSEE OFFERED THREE COMPARABLES WITH AN AVERAGE ROYALTY PAYMENT OF ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 7 OF 12 3.65% AS AGAINST ITS OWN RATE OF ROYALTY AT 3%. SIGNIFICANTLY THE TPO REJECTED THESE COMPARABLES ON THE GROUND THAT THEY WERE US BASED WHILE THE AE OF THE ASSESSEE WAS UAE BASED. HAVING REJECTED THESE COMPARABLES IT WAS FOR THE TPO TO COME UP WITH OTHER COMPARABLES SO AS TO JUSTIFY REDUCTION OF THE ROYALTY PAYMENT. HOWEVER NO SUCH EXERCISE WAS UNDERTAKEN BY THE TPO AND BY GOING INTO THE WHYS AND WHEREFORES OF THE IMPROVEMENT IN THE NET SALES AND PROFIT OF THE ASSESSEE THE TPO DETERMINED THAT THE REASON FOR THE SAME WAS INCREASED MARKETING ALONG WITH OFFER OF DISCOUNTS AND THAT THERE WAS NO JUSTIFICATION FOR PAYMENT OF ROYALTY AT 3% TO THE AE BY THE ASSESSEE. THIS REASONING IS WITHOUT LEGAL BASIS OF LAW AS IT IS NO T FOR THE TPO TO DECIDE THE BEST BUSINESS STRATEGY FO R THE ASSESSEE. 9. IN WALCHAND & CO. (P.) LTD. (SUPRA) THE SUPREME COURT OBSERVED IN THE CONTEXT OF THE INCOME TAX ACT 1922 THAT WHEN A CLAIM IS MADE FOR AN ALLOWANCE BY THE ASSESSEE THE INCOME TAX AUTHORITIES HAVE TO DECIDE WHETHER THE EXPENDITURE CLAIMED AS AN ALLOWANCE WAS INCURRED VOLUNTARILY AND ON GROUNDS OF COMMERCIAL EXPEDIENCY. THE SUPREME COURT POINTED OUT THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IT HAS TO BE ADJUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE REVENUE. THE SUPREME COURT CONCLUDED THAT IT IS OPEN TO THE REVENUE TO COME TO THE CONCLUSION THAT THE ALLEGED PAYMENT WAS NOT REAL OR THAT IT HAD NOT BEEN INCURRED BY ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 8 OF 12 THE ASSESSEE IN THE CHARACTER OF A TRADER OR THAT I T WAS NOT LAID OUT EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS SO AS TO DISALLOW IT BUT IT IS NOT THE FUNCTION OF THE REVENUE TO DETERMINE WHAT REMUNERATION SHOULD BE PAID TO AN EMPLOYEE BY THE ASSESSEE. 10. APPLYING THE SAME LOGIC TO THE CASE ON HAND ONCE IT IS ADMITTED BY THE REVENUE THAT THE ASSESSEE ENTERED INTO A ROYALTY AGREEMENT WITH THE AE AND THE ASSESSEE CLAIMED BENEFIT FROM SUCH AGREEMENT IN THE FORM OF QUANTUM INCREASE IN SALES WITH NO APPARENT INCREASE IN PRODUCTION MINIMAL PRODUCT RECALLS AND LOW AFTER SALES MAINTENANCE COST AND CONSEQUENTLY PAID ROYALTY IN TERMS THEREOF IT WAS NOT FOR THE TPO TO DETERMINE AS TO WHAT COULD BE THE OTHER REASONS FOR INCREASE IN THE ASSESSEE'S SALES AND PROFIT. 11. ABOVE ALL THERE IS NO EXPLANATION FORTHCOMING AS TO WHY THE TPO DECIDED UPON 2% INSTEAD OF THE CONTRACTUAL RATE OF 3% FOR PAYMENT OF ROYALTY. NO REASON IS OFFERED BY THE TPO FOR PICKING ON 2%. THIS WHIMSICAL FIXATION BY THE TPO AMOUNTS TO AN ARBITRARY AND UNBRIDLED EXERCISE OF POWER. IN CONSEQUENCE WE FIND THAT THE TPO HAVING REJECTED THE COMPARABLES CITED BY THE ASSESSEE DID NOT TAKE THE TROUBLE TO EXAMINE ALTERNATE COMPARABLES SO AS TO JUSTIFY REDUCTION OF THE RATE FOR PAYMENT OF ROYALTY AND BY APPLYING A WHOLLY INAPPLICABLE METHODOLOGY OF DETERMINING THE BENEFIT FROM PAYMENT OF SUCH ROYALTY HE CAPRICIOUSLY REDUCED THE RATE FOR PAYMENT OF SUCH ROYALTY FROM 3% TO 2%. ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 9 OF 12 12. ON THE ABOVE ANALYSIS WE FIND NO GROUNDS TO INTERFERE WITH THE COGENT AND WELL REASONED ORDER PASSED BY THE TRIBUNAL. NO QUESTION OF LAW MUCH LESS A SUBSTANTIAL QUESTION OF LAW THEREFORE ARISE S FOR CONSIDERATION IN THIS APPEAL. 7. SINCE THE ISSUE IS THE SAME FOR THE RELEVANT A.Y BEFORE US THE ASSESSMENT ORDER ON THIS ISSUE IS SET ASIDE AND THE ROYALTY PAYMENT AT 3% OF THE NET SALES IS CONFIRMED TO BE A T ARMS LENGTH. GROUNDS OF APPEAL NO. 2 & 3 ARE ACCORDINGLY ALLOWE D. 8. AS REGARDS GROUND OF APPEAL NO.4 AGAINST THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO ESI AFTE R THE DUE DATE PRESCRIBED IN THE STATUTE U/S 36(1)(VA) AND CONSEQU ENT ADDITION TO THE RETURNED INCOME U/S 2(24)(X) OF THE I.T. ACT OF RS.1 53 432 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT EXCEPT FOR THE PAYMENT OF RS.1 24 057 WHICH WAS MADE WITH A DELAY OF ONLY ONE DAY ALL OTHER PAYMENTS HAVE BEEN MADE BEFORE THE P RESCRIBED DUE DATE AS IS EVIDENT FROM PAGE 3 OF THE ASSESSMENT OR DER. HE SUBMITTED THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD (2009) REPORTED IN 319 ITR 306 (SC). 9. THE LEARNED DR HOWEVER PLACED RELIANCE UPON TH E JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. GUJARAT TRANSPORT CORPORATION (2014) 366 ITR 17 0 (GUJ) AND KERALA HIGH COURT IN THE CASE OF COMMISSIONER OF IN COME-TAX COCHIN VS. MERCHEM LTD (378 ITR 443)(KER.). SHE SUBMITTED THA T ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 10 OF 12 IN THE CASE OF CIT VS. ALOM EXTRUSIONS LTD THE HON'BLE SUPREME COURT WAS CONSIDERING THE DISALLOWANCE MADE BY THE AO U/S 43B OF THE ACT WHEREAS IN THE CASE BEFORE US THE AO H AS NOT INVOKED THE PROVISIONS OF SECTION 43B BUT HAS INVOKED THE P ROVISIONS OF SECTION 36(1)(VA) AND THEREFORE THE DISALLOWANCE H AS TO BE SUSTAINED. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT THE ASSESSEE HAS R EMITTED THE EMPLOYEES CONTRIBUTION TO THE GOVT. A/C WITHIN THE PRESCRIBED DUE DATES EXCEPT FOR ONE DAY DELAY WITH RESPECT T O A SUM OF RS.1 24 657. CLAUSE (VA) OF SECTION 36(1) CLEARLY LAYS DOWN THAT THE DEDUCTION OF EMPLOYEES CONTRIBUTION RECEIVED BY THE ASSESSEE SHALL BE ALLOWED ONLY IF SUCH SUM IS CREDITED BY T HE ASSESSEE TO THE EMPLOYEES A/C IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE AND FOR THE PURPOSE OF THIS CLAUSE DUE DATE MEANS THE DATE BY THE ASSESSEE IS REQUIRED AS AN EMPLOYER TO CREDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT I N THE RELEVANT FUND. THEREFORE IN THE STRICT SENSE THE SUM WHICH HAS NOT BEEN CREDITED TO THE EMPLOYEES A/C IN THE RELEVANT FUND IS TO BE DISALLOWED. HOWEVER WE FIND THAT THE ASSESSEE HAS ALL ALONG BEEN REMITTING THE AMOUNT BEFORE THE DUE DATE EXCEPT FOR THE DELAY OF ONE DAY WITH REGARD TO THE SUM OF RS.1 24 657. AS T HE DELAY IS NOT INORDINATE WE ARE INCLINED TO DELETE THE DISAL LOWANCE AND THE CONSEQUENT ADDITION MADE TO THE RETURNED INCOME OF THE ASSESSEE. GROUND OF APPEAL NO.4 IS ACCORDINGLY ALLO WED. ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 11 OF 12 11. AS REGARDS GROUND NO.5 IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DRP HAS D IRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE WITH REFEREN CE TO THE DIVIDEND DISTRIBUTION TAX OF RS.2 08 89 625 PAID BY THE ASSESSEE AS DISCLOSED IN THE ROI AND TO REFUND THE TAX OF RS .4 85 806 CLAIMED BY THE ASSESSEE IN ACCORDANCE WITH LAW BUT THE AO WHILE GIVING EFFECT TO THE ORDER OF THE DRP HAS FA ILED TO GIVE THE SAID CREDIT. WE THEREFORE DIRECT THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW THE BENEFIT OF CREDIT OF TAX SO PAID AND PROCESS THE REFUND ACCORDINGLY. 12. AS REGARDS GROUND NO.6 FOR THE CREDIT OF THE MA T CREDIT CARRIED FORWARD FROM PREVIOUS YEARS WE DIRE CT THE AO TO VERIFY THE ASSESSEES CLAIM AND ALLOW THE SAME IN A CCORDANCE WITH LAW. 13. IN THE RESULT ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH NOVEMBER 2017. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD 29 TH NOVEMBER 2017. VINODAN/SPS ITA NO 193 OF 2017 RAK CERAMICS INDIA P LTD HYDERA BAD. PAGE 12 OF 12 COPY TO: 1 M/S. R.A.K. CERAMICS INDIA PRIVATE LIMITED PB NO .11 IDA PEDDAPURAM ADB ROAD EAST GODAVARI DISTT. SAMALKOT 533440 2 DY. CIT CIRCLE 3(1) SIGNATURE TOWERS HYDERABAD 3 DRP-1 G-16 CENTRAL REVENUE BUILDING QUEENS ROAD BENGALURU 560001 4 TPO-2 3 RD FLOOR B BLOCK IT TOWERS AC GUARDS HYDERABAD 500004 5 THE DR ITAT HYDERABAD 6 GUARD FILE BY ORDER