M/s Sasken Technologies Ltd , Bangalore v. Deputy Commissioner of Income TAx Circle-6(1)(1), Bangalore

ITA 2471/BANG/2017 | 2013-2014
Pronouncement Date: 31-08-2021 | Result: Allowed

Appeal Details

RSA Number 247121114 RSA 2017
Assessee PAN AAECS6424R
Bench Bangalore
Appeal Number ITA 2471/BANG/2017
Duration Of Justice 3 year(s) 9 month(s) 8 day(s)
Appellant M/s Sasken Technologies Ltd , Bangalore
Respondent Deputy Commissioner of Income TAx Circle-6(1)(1), Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-08-2021
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 31-08-2021
Last Hearing Date 26-02-2018
First Hearing Date 16-07-2021
Assessment Year 2013-2014
Appeal Filed On 22-11-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI BR BASKARAN ACCOUNTANT MEMBER AND SMT. BEENA PILLAI JUDICIAL MEMBER IT(TP)A NO.2471/BANG/2017 ASSESSMENT YEAR : 2013-14 M/S SASKEN TECHNOLOGIES LTD. (FORMERLY KNOWN AS SASKEN COMMUNICATION TECHNOLOGIES LTD. ) 139/25 DOMLUR ROAD DOMLUR BENGALURU-560 071. PAN AAECS 6424 R VS. THE DY. COMMISSIONER OF INCOME-TAX CIRCLE-6(1)(1) BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI PADAMCHAND KHINCHA C.A REVENUE BY : SHRI PRADEEP KUMAR CIT(DR) DATE OF HEARING : 16-07-2021 DATE OF PRONOUNCEMENT : 31-08-2021 ORDER PER BEENA PILLAI JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGA INST THE FINAL ASSESSMENT ORDER DATED 10/10/2017 PASSED BY THE LD. DCIT CIRCLE 6(1)(1) BANGALORE FOR ASSESSMENT YEAR 2013 -14 ON FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 6(1)(1) BANGALORE (HEREINAFTER REFERRED AS 'AO' FOR BREVITY ) LEARNED DEPUTY COMMISSIONER OF INCOME TAX (TRANSFER PRICING OFFICE R) - 2(2)(2) BANGALORE (HEREINAFTER REFERRED AS 'TPO' FOR BREVIT Y) AND THE HONOURABLE DRP-2 ('AO' 'TPO' AND DRP COLLECTIVELY REFERRED AS 'LOWER AUTHORITIES' FOR BREVITY) HAVE ERRED IN PASSING THE ORDERS: PAGE 2 OF 31 IT(TP)A NO.2471/BANG/2017 A. WITHOUT CONSIDERING ALL THE SUBMISSIONS AND/OR W ITHOUT APPRECIATING PROPERLY THE FACTS AND CIRCUMSTANCES OF THE CASE AN D THE LAW APPLICABLE; AND B. AT THE FAG END OF THE LIMITATION PERIOD. GROUNDS RELATING TO TRANSFER PRICING - GENERAL:- 2 THE LOWER AUTHORITIES HAVE ERRED IN: A. MAKING TRANSFER PRICING ADJUSTMENT OF RS. 2 04 2 2 991!-; B. MAKING A REFERENCE TO TRANSFER PRICING OFFICER F OR DETERMINING ARM'S LENGTH PRICE WITHOUT DEMONSTRATING AS TO WHY IT WAS NECESSARY AND EXPEDIENT TO DO SO; C. NOT APPRECIATING THAT THERE IS NO AMENDMENT TO T HE DEFINITION OF 'INCOME' AND CHARGING OR COMPUTATION PROVISION RELA TING TO INCOME UNDER THE HEAD 'PROFITS & GAINS OF BUSINESS OR PROFESSION ' DO NOT REFER TO OR INCLUDE THE AMOUNTS COMPUTED UNDER CHAPTER X' AND T HEREFORE ADDITION UNDER CHAPTER X IS BAD IN LAW; AND 3. PASSING THE ORDER WITHOUT DEMONSTRATING THAT THE APPELLANT HAD MOTIVE OF TAX EVASION. GROUNDS RELATING TO TRANSFER PRICING - BRAND ROYALT Y:- 4. THE LOWER AUTHORITIES HAVE ERRED IN: A. DETERMINING ADJUSTMENT OF RS.1 94 30 176!- UNDER SECTION 92CA IN RESPECT OF THE ROYALTY ON ALLEGED USAGE OF BRAND 'S ASKEN' BY THE AES. B. NOT APPRECIATING THAT THE AES HAVE NOT RECEIVED ANY FINANCIAL BENEFIT FROM USE OF TRADEMARK 'SASKEN' OWNED BY THE APPELL ANT. C. NOT PERFORMING ANY FUNCTIONAL ANALYSIS OF BRAND USAGE BY AE. D. NOT APPRECIATING THAT WORK IN THE SERVICE INDUST RY DEPENDS OF THE COMPETENCY AND NOT ON BRAND ALONE. E. INAPPROPRIATELY CONCLUDING THAT THE AE'S HAVE NO IDENTITY OR COMPETITIVE VALUE WITHOUT THE SUPPORT OF BRAND 'SAS KEN'. F. NOT QUANTIFYING THE FINANCIAL BENEFIT IF ANY D ERIVED BY THE AE'S BY USE OF TRADEMARK SASKEN'; G DETERMINING WITHOUT BASIS ALP OF ROYALTY 2% OF THE EXTERNAL TURNOVER OF THE AES WITHOUT APPRECIATING THE FACTS AND CIRCU MSTANCES OF THE CASE; AND H. EVEN OTHERWISE THE ROYALTY RATE ADOPTED IS EXCESSIVE. 5. ASSUMING WITHOUT ADMITTING THAT THE ROYALTY IS T O BE RECEIVED FROM AES FOR USING TRADEMARK 'SASKEN' THE LOWER AUTHORI TIES HAVE ERRED IN COMPUTING THE ALP WITHOUT ADOPTING ANY METHOD OR UN CONTROLLED COMPARABLE DATA. 6. ASSUMING WITHOUT ADMITTING THAT THE ADJUSTMENT I S TO BE MADE NOT ALLOWING THE BENEFIT OF THE +1-3% RANGE PRESCRIBED IN THE PROVISO TO SECTION 92C(2). GROUND RELATING TO INVOICING AND COLLECTION SERVICE S PROVIDED:- 7. THE LOWER AUTHORITIES HAVE ERRED IN: A. MAKING TP ADJUSTMENT OF RS.9 92 815/- IN RESPECT OF INVOICING AND COLLECTION SERVICES PROVIDED BY THE APPELLANT TO TH E AE; PAGE 3 OF 31 IT(TP)A NO.2471/BANG/2017 B. NOT APPRECIATING THAT THE APPELLANT HAS MERELY R ENDERED INVOICING AND COLLECTION SERVICE TO THE AE AND 0.5% OF REVENUE WA S FAIR REMUNERATION FOR ITS FUNCTION; C. CONCLUDING THAT THE APPELLANT HAS CONTRIBUTED IN TANGIBLES LIKE QUALITY STANDARDS LIKE ISO CERTIFICATION ETC. WHICH IS INCO RRECT IN THE FACTS AND CIRCUMSTANCES OF THE CASE; AND D. CONCLUDING THAT OWING TO THE INTANGIBLES HELD BY THE APPELLANT THE CONTRACT OF LICENSING WAS PROCURED 8. THE LOWER AUTHORITIES HAVE ERRED IN: A. CONCLUDING THAT PROFIT SPLIT METHOD IS THE MOST APPROPRIATE METHOD TO BENCHMARK THE TRANSACTION WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES APPLICABLE TO THE APPELLANT PROFIT S PLIT METHOD CANNOT BE SELECTED AS THE MOST APPROPRIATE METHOD; B. COMPUTING ARM'S LENGTH PRICE OF INVOICING AND CO LLECTION SERVICES AT 25% WITHOUT SELECTING ANY COMPARABLES. EVEN OTHERWI SE SUCH RATE IS EXCESSIVE; AND C. APPLYING ARM'S LENGTH PRICE OF 25% ON REVENUE WI THOUT APPRECIATING THAT UNDER PSM PROFITS NOT REVENUE HAVE TO BE SPLI T IN RELATIVE CONTRIBUTION. 9. ASSUMING WITHOUT ADMITTING THAT THE ADJUSTMENT I S TO BE MADE NOT ALLOWING THE BENEFIT OF THE +1-3% RANGE PRESCRIBED IN THE PROVISO TO SECTION 92C(2). GROUNDS RELATING TO COMPUTATION OF DEDUCTION UNDER SECTION 10AA:- 10. THE LOWER AUTHORITIES HAVE ERRED IN: A. CALCULATING DEDUCTION UNDER SECTION 1 OAA ON COM BINED BASIS FOR ALL THE ELIGIBLE UNITS RATHER THAN COMPUTING DEDUCTION EACH UNDERTAKING WISE. B. EXCLUDING RS.1 10 88 43 931 BEING COMMUNICATION EXPENSES TRAVEL INSURANCE PROFESSIONAL CHARGED SOFTWARE EXPENSES EXPENSES AT BRANCH OFFICE AND OTHER EXPENSES FROM EXPORT TURNOVER WITH OUT APPRECIATING THAT THE APPELLANT HAD ALREADY REDUCED RS.1 59 19 069/- FROM EXPORT TURNOVER IN THE COMPUTATION OF 1OAA DEDUCTION WHICH WERE ATTRIBUTABLE TO ELIGIBLE UNITS. C. NOT REDUCING RS.1 59 19 069/- FROM TOTAL TURNOVE R WHILE COMPUTING DEDUCTION UNDER SECTION 10AA. D. EXCLUDING INSURANCE CHARGES OF RS.1 24 44 000/- AND COMMUNICATION CHARGES OF RS.2 94 07 000/- FROM EXPORT TURNOVER OF SEZ UNITS WITHOUT APPRECIATING THE FACT THAT THE AFORESAID EXPENDITUR E WERE NOT INCURRED FOR THE PURPOSE OF EXPORT / DELIVERY OF COMPUTER SO FTWARE OUTSIDE INDIA. E. NOT APPRECIATING THAT THE INSURANCE EXPENSES OF RS. 1 24 44 000/- COMMUNICATION EXPENSES OF RS.2 94 07 000/- TRAVEL EXPENSE OF RS.7 02 89 000/- PROFESSIONAL CHARGES OF RS.11 08 27 00/- SOFTWARE EXPENSES OF RS.54 85 000/- EXPENSES AT BRANCH OFFI CE OF RS.83 91 76 000/- AND OTHER EXPENSES OF RS.5 71 35 000/- ARE INCURRED PAGE 4 OF 31 IT(TP)A NO.2471/BANG/2017 DURING THE YEAR IS AT ENTITY LEVEL AND NOT INCURRED FOR ELIGIBLE SEZ UNITS ONLY. F. ASSUMING WITHOUT ADMITTING THAT THE ABOVE FOREIG N CURRENCY EXPENDITURES ARE REQUIRED TO BE REDUCED FROM EXPORT TURNOVER OF SEZ UNITS NOT REDUCING THE AFORESAID EXPENDITURE FROM TOTAL TURNOVER WHILE COMPUTING DEDUCTION UNDER SECTION 1 OAA. GROUND RELATING TO DISALLOWANCE OF EXPENSES UNDER S ECTION 14A:- 11. THE LOWER AUTHORITIES HAVE ERRED IN MAKING DISA LLOWANCE UNDER SECTION 14A AMOUNTING TO RS.15 93 573/- BY INVOKING RULE 8D(2)(III) OF THE INCOME TAX RULES 1962 WITHOUT DEMONSTRATING AS TO HOW THE CLAIM OF THE APPELLANT REGARDING ATTRIBUTION OF EXPENSES RELATABLE TO INCOME NOT CHARGEABLE TO TAX IS INCORRECT. GENERAL GROUNDS OF OBJECTION:- 1. THE LOVER AUTHORITIES HAVE ERRED IN: A NOT GIVING CREDIT U/S 90/90A IN RESPECT OF TAXES PAID OUTSIDE INDIA AMOUNTING TO RS.1 69 72 434/- WHILE COMPUTING THE TAX PAYABLE BY THE APPELLANT. B. NOT GIVING MAT CREDIT AS PER THE PROVISIONS OF S ECTION 115JAA. C. NOT GIVING FULL CREDIT OF TDS OF RS.15 45 41 714 /-AS CLAIMED IN THE RETURN OF INCOME. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUND S/ SUB-GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD ALTER VARY OMI T SUBSTITUTE OR AMEND THE ABOVE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL SO AS TO ENABLE THE INCOME- TAX APPELLATE TRIBUNAL TO DECIDE THE APPEAL ACCORDING TO LAW. BRIEF FACTS OF THE CASE ARE AS UNDER: 2. THE ASSESSEE IS A COMPANY AND FILED ITS RETURN O F INCOME FOR YEAR UNDER CONSIDERATION ON 28/11/2012 DECLARING T OTAL INCOME OF RS.47 99 96 320/-. THE RETURN WAS PROCESSED UNDE R SECTION 143 (1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY. ACCORDINGLY NOTICE UNDER SECTION 143(2) WAS ISSUED TO ASSESSEE IN RESPONSE TO WHICH REPRESENTATIVE OF ASS ESSEE APPEARED BEFORE THE LD.AO AND CALLED FOR REQUISITE DETAILS. 2.1 THE LD.AO OBSERVED THAT ASSESSEE HAD INTERNATIO NAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES EXCEEDI NG RS.15 PAGE 5 OF 31 IT(TP)A NO.2471/BANG/2017 CRORES AND THEREFORE REFERENCE WAS MADE TO THE TRAN SFER PRICING OFFICER. 2.2 ON RECEIPT OF REFERENCE UNDER 92CA THE LD.TPO CALLED UPON THE ASSESSEE TO FILE ECONOMIC DETAILS OF INTERNATIO NAL TRANSACTION ENTERED INTO BY ASSESSEE WITH ITS AE IS IN FORM 3 C EB. 2.3 THE LD.TPO OBSERVED THAT FOLLOWING WERE THE IN TERNATIONAL TRANSACTION ENTERED INTO BY ASSESSEE: PARTICULARS AMOUNT RECEIVED RENDERING OF SALES AND MARKETING SERVICES 7 791 592 RENDERING OF SOFTWARE DEVELOPMENT SERVICES 97 869 088 RECEIPT OF SOFTWARE DEVELOPMENT SERVICES 24 995 724 RECEIPT OF SALES AND MARKETING SERVICES 21 146 671 RECEIPT OF HARDWARE SUPPORT SERVICES 2 160 495 RECEIPT OF SOFTWARE TESTING SERVICES 40 228 261 INVOICING AND COLLECTION SERVICE 21 568 TOTAL 194 213 399 2.4 DURING THE COURSE OF HEARING THE LD.TPO OBSERVE D THAT ASSESSEE HAS MULTIPLE SUBSIDIARIES IN USA CHINA F INLAND AND OTHER COUNTRIES AROUND THE WORLD. IT WAS NOTED BY T HE LD.TPO THAT ALL THESE COMPANIES USE THE TRADEMARK AND NAME OF SASKEN WHICH WAS OWNED BY ASSESSEE AGAINST WHICH NO ROYALTY WAS PAID BY THE SUBSIDIARIES. LD.TPO ACCORDINGLY C ALLED UPON ASSESSEE TO ESTABLISH AS TO WHY ROYALTY IS NOT PAY ABLE BY THE SUBSIDIARIES TO THE ASSESSEE. THE ASSESSEE SUBMITTE D THAT NO ROYALTY IS PAYABLE BY ANY AE EVEN THOUGH SASKEN BRAND IS REGISTERED BY ASSESSEE IN INDIA RUSSIA USA AND HO ST OF OTHER PAGE 6 OF 31 IT(TP)A NO.2471/BANG/2017 COUNTRIES. IT WAS SUBMITTED THAT THE BRAND NAME OF SASKEN GAVE A FOOTING TO THE SUBSIDIARY AES IN AN ALIEN M ARKET AND GIVES AN IDENTITY TO THESE AES AS SOFTWARE COMPANI ES. THE ASSESSEE FILED VARIOUS DETAILS IN SUPPORT OF ITS CO NTENTIONS. THE LD.TPO REJECTED THE CONTENTIONS OF ASSESSEE AS ASSE SSEE DID NOT FURNISH ANY ARMS LENGTH ANALYSIS IN REPLIES TO THE QUERIES RAISED BY THE LD.TPO THE LD.TPO DECIDE THE ROYALTY ISSUES ON MERITS. THE LD.TPO DETERMINED THE ROYALTY PAYABLE TO ASSESS EE AT 2% OF THE TOTAL TURNOVER OF SUBSIDIARY AES BASED ON FOLL OWING DATA: SUBSIDIARY SASKEN FINLAND SASKENINC SASKEN CHINA SASKEN JAPAN SNSI REVENUE FROM OPERATIONS 568 576 504 205 164 919 134 012 289 61 682 884 90 6 03 366 LESS INTERCOMPANY REVENUE 11 350 177 3 609 388 6 105 299 27 238 025 40 228 26 1 REVENUE FROM ENTREPRENEURIAL ACTIVITIES 557 226 327 201 555 531 127 906 986 34 444 859 50 3 75 105 2.5 THE LD.TPO COMPUTED PROPOSED ADJUSTMENT AT RS.1 94 30 176/- BEING 2% OF THE TOTAL TURNOVER OF AE FOR USING SASKEN BRAND. 2.6 THE NEXT ISSUE THAT LD.TPO OBSERVED IS ASSESSE E WAS COMPENSATED A FEE AT THE RATE OF 0.5% OF THE AMOUNT COLLECTED BY ASSESSEE FROM GE ULTRASOUND FOR CERTAIN TECHNOLOGY THAT WAS LICENSED BELONGING TO SASKEN INC. THE LD.TPO REASO NED THAT FOR TRANSACTION BETWEEN SASKEN INC. AND ASSESSEE PROF IT SPLIT PAGE 7 OF 31 IT(TP)A NO.2471/BANG/2017 METHOD (PSM) IS THE MOST APPROPRIATE METHOD AS THE CONTRACT IS COMING BECAUSE OF NUMEROUS INTANGIBLES CONTRIBUTED BY ASSESSEE AS WELL AS SASKEN INC. 2.7 THE LD.TPO CONCLUDED THAT SASKEN INC. OWNS THE MAIN ASSETS BEING THE PATENTS AND ASSESSEE OWNS SOME ASS ETS OWING TO WHICH THE CONTRACT NAME. THE LD.TPO GAVE WEIGHTAGE OF 3:1 TO SASKEN INC. TO ASSESSEE AND HELD THAT 25% OF RS.40 52 308/- SHOULD BE RETAINED BY ASSESSEE. SINCE THE ASSESSEE RETAINED ONLY 0.5% THE BALANCE 24.05% OF RS.40 52 308/- WAS HELD TO BE THE ADJUSTMENT PROPOSED. THE LD.TPO THUS PROPOSED ADDI TION AS UNDER: PARTICULARS AMOUNT (RS.) ROYALTY FROM AES FOR USING TRADEMARK 1 94 30 176 INCREMENTAL COLLECTION FEE TO BE RECEIVED FROM AE'S FOR ACTING AS COLLECTION AGENT 9 92 815 TOTAL 2 04 22 991 2.8 ON RECEIPT OF THE TRANSFER PRICING ORDER THE L D.AO PASSED THE DRAFT ASSESSMENT ORDER ON 21/12/2016 WHEREIN F OLLOWING DISALLOWANCES WERE ALSO MADE ON FOLLOWING CORPORATE TAX: DISALLOWANCE UNDER SECTION 14A AMOUNTING TO RS.15 93 573/- DISALLOWANCE UNDER SECTION 10AA AMOUNTING TO RS.11 05 19 452/- 2.9 AGAINST THE DRAFT ASSESSMENT ORDER ASSESSEE FI LED OBJECTIONS BEFORE DRP. THE DRP UPHELD THE ADDITION OF ROYALTY AT 2% OF THE PAGE 8 OF 31 IT(TP)A NO.2471/BANG/2017 TOTAL TURNOVER OF AES. THE DRP ALSO UPHELD THE ADDI TION ON ACCOUNT OF THE PAYMENT CHARGED BY AE TO SASKEN INC. TOWARDS INVOICING AND COLLECTION FROM THE COMPANY IN KOREA BEING GE ULTRASOUND UNDER PROFIT SPLIT METHOD AND DETERMINED 25% OF THE PAYMENT TO WORDS ROYALTY. 2.10 THE DRP UPHELD THE DISALLOWANCE MADE BY THE LD .AO UNDER SECTION 10AA OF THE ACT BY OBSERVING THAT THE VIEW TAKEN BY HONBLE KARNATAKA HIGH COURT IN CIT VS TATA ELXSI LTD. REPORTED IN (2012) 349 ITR 98 HAS BEEN APPEALED BEFORE HONBLE SUPREME COURT AND THAT THE ISSUE HAD TO BE KEPT ALIVE. 2.11 THE DISALLOWANCE MADE UNDER SECTION 14A WAS AL SO UPHELD BY THE DRP. 2.12 BEFORE DRP ASSESSEE HAD ALSO RAISED ONE GROUND IN RESPECT OF CREDIT IN TERMS OF TAXES PAID OUTSIDE INDIA WHIC H WAS NOT CONSIDERED WHILE COMPUTING MAT CREDIT AS PER PROVI SIONS OF SECTION 115 JAA BY THE LD.AO. THIS ISSUE WAS ALSO R EJECTED BY THE DRP BY HOLDING THAT IT DOES NOT EMANATE FROM THE R ETURN OF INCOME AND NOT RELATED TO THE VARIATIONS OF INCOME PROPOSED BY THE LD.AO. 2.13 ON RECEIPT OF THE DRP DIRECTIONS LD.AO PASSED THE FINAL ASSESSMENT ORDER MAKING TP ADJUSTMENT AT RS.2 04 22 991/-. AGGRIEVED BY THE ADDITIONS MADE BY THE LD.AO ASSES SEE IS IN APPEAL BEFORE US NOW. 2.14 THE LD.AR SUBMITTED THAT GROUND 1-3 ARE GENERAL IN NATURE AND THEREFORE DO NOT REQUIRE ADJUDICATION. PAGE 9 OF 31 IT(TP)A NO.2471/BANG/2017 3. GROUND NO.4-6 RELATES TO THE TRANSFER PRICING ADJUSTMENT ON BRAND ROYALTY COMPUTED BY AUTHORITIES BELOW. IT HAS BEEN SUBMITTED BY THE LD.AR THAT: 3.1 THE ASSESSEE IS A TELECOM SOFTWARE SOLUTIONS PR OVIDER WHICH OFFERS SOFTWARE SERVICES DEVELOPMENT CONSULTANCY A ND WIRELESS SOFTWARE PRODUCTS TO COMPANIES IN THE COMMUNICATION S SPACE. SASKEN OPERATES FROM RESEARCH AND DEVELOPMENT CENTE RS LOCATED IN BANGALORE PUNE CHINNAI AND HYDERABAD IN INDIA KAUSTINEN AND TAMPERE IN FINLAND. SASKEN IS ALSO PRESENT IN S HANGHAI AND BEIJING (CHINA) SEOUL (SOUTH KOREA) TOKYO (JAPAN) LONDON (UK) CHICAGO DALLAS AND SANTA CLARA (USA). SASKEN DELIV ERS END TO END SOLUTIONS THAT ENABLE RICHER CONTENT DELIVERY O N NEXT- GENERATION NETWORKS. 3.2 IT HAS BEEN SUBMITTED THAT SASKEN FINLAND OY S ASKEN INC. (U.S.) SASKEN NETWORK SOLUTION INC.(U.S.) SASKEN JAPAN SASKEN SHANGHAI AND SASKEN MEXICO ARE WHOLLY OWNED SUBSIDIARIES SET UP BY SASKEN INDIA. SASKEN FINLAND OY 3.3 SASKEN COMMUNICATIONS TECHNOLOGIES LTD. ACQUIR ED BOTNIA HIGHTEE IN FINLAND IN AUGUST 2006. IT IS SUBMITTED THAT THE PURPOSE OF ACQUISITION WAS: WITH THE REASON TO ACQUIRE COMPETENCIES IN THE TELE COM SPACE BOTNIA HAD A NICHE SET OF COMPETENCIES TO CA TER TO HANDSET AND ENTERPRISE TECHNOLOGY PAGE 10 OF 31 IT(TP)A NO.2471/BANG/2017 TO ACCESS THE LARGEST PLAYER IN TELECOM DOMAIN AS NOKIA HAD MAJOR MARKET SHARE IN HANDSET AND ENTERPRISE SEGMEN T AND BOTNIA HAD GOOD RELATIONS WITH NOKIA. TO ESTABLISH OPPORTUNITIES BEING A DEVELOPMENT CENT RE IN FINLAND AND TO EXPLOIT THE EUROPEAN MARKETS. 3.4 IT IS SUBMITTED THAT SASKEN FINLAND (FORMERLY BOTNIA) IS AN EXISTING COMPANY OPERATING IN THE MARKET AND THAT I T HAD ITS OWN CUSTOMER MARKET SHARE RELATIONSHIPS ETC. SASKEN INC USA 4. IT IS SUBMITTED THAT IT IS A WHOLLY OWNED SUBSI DIARY OF ASSESSEE AND HAS BEEN INCORPORATED AS AN INVESTMENT ARM OF THE COMPANY TO MAKE STRATEGIC INVESTMENT IN USA AND OTH ER OVERSEAS MARKET. IT HAS BEEN SUBMITTED THAT IN 2009 SASKEN INC PURCHASED THE PRODUCT PORTFOLIO CUSTOMER CONTRACTS AND CERTAIN ASSETS FROM INGENIENT INC USA. BY THIS ACQUISITION ASSESSEE ACQUIRED THE NICHE COMPETENCY (INCLUDING IPR) IN T HE FIELD OF CUSTOMER/AUTOMOTIVE ELECTRONICS AND ALSO PROVIDED A N ACCESS TO THE NASCENT TECHNOLOGY BEING RARE SEAT ENTERTAINME NT IN THE AUTOMOTIVE SECTOR. AS INGENIENT INC. ALREADY HAD CUSTOMER BASE AND REQUIRED SALES FORCE IN COUNTRIES LIKE SOUTH K OREA AND JAPAN CONSEQUENT TO THE ACQUISITION ASSESSEE GAIN ED ACCESS TO THE CUSTOMERS IN THE SAID REGION. 4.1 THE EXTERNAL REVENUE COMPRISES OF ROYALTY EARNE D FROM LICENSING OF IPRS. 4.2 SASKEN NETWORK SOLUTIONS INC (U.S.)(SNSI) PAGE 11 OF 31 IT(TP)A NO.2471/BANG/2017 IT IS SUBMITTED THAT THIS COMPANY IS A SUBSIDIARY OF SASKEN NETWORK ENGINEERING LTD. AND IS ENGAGED IN THE BUS INESS OF ERECTION AND INSTALLATION OF NETWORK EQUIPMENT AND PROVISION OF TESTING SERVICES. AS AN EXPANSION PLAN SASKEN NETW ORK ENGINEERING LTD. ACQUIRED A COMPANY NAMED WIRELESS LOGIC INC IN US IN A SIMILAR LINE OF BUSINESS IN ORDER TO G AIN AN ENTRY INTO THE U.S. MARKET SPACE. 4.3 PURSUANT TO THE ACQUISITION THE NAME WAS CHANG ED TO SASKEN NETWORK SOLUTION INC.(HEREINAFTER REFERRED T O AS SNSI) IN ORDER TO INCLUDE THE NETWORK SOLUTIONS BEING THE C ORE COMPETENCIES OF SNSI IT WAS SUBMITTED THAT SNSI H AD CUSTOMERS CONTRACTS EMPLOYEES ETC. OF ITS OWN AN D THE BUSINESS CAME THROUGH ITS PROVEN CREDIBILITY IN THE MARKET. 4.4 SASKEN SHANGHAI THIS COMPANY WAS ESTABLISHED IN CHINA IN JANUARY 20 06 PERSON WENT TO ACQUISITION OF SASKEN FINLAND (FORMERLY KNO WN AS BOTNIA). IT WAS SUBMITTED THAT FOR ECONOMIC REASONS THE COMPANY MOVED SOME OF ITS SOFTWARE AND HARDWARE DEVELOPMENT OPERATIONS TO CHINA AND THEREFORE IN ORDER TO MAINTAIN THE EX ISTING RELATIONSHIP THE COMPANY CO-LOCATED AND OVER A PE RIOD OF TIME SASKEN CHINA STARTED ENTERING INTO OTHER CUSTOMERS IN CHINA. 4.5 SASKEN JAPAN THIS COMPANY WAS ESTABLISHED TO EXECUTE THE PROJECT ON-SITE PROCURED BY A FELLOW SUBSIDIARY THAT IS SASKEN INC AND THAT THE ENTIRE REVENUE OF SASKEN JAPAN CAME FROM THE SUB CO NTRACT BY SASKEN INC. PAGE 12 OF 31 IT(TP)A NO.2471/BANG/2017 4.6 IN THE TRANSFER PRICING STUDY THE ORGANISATION STRUCTURE OF ASSESSEE IS REPRESENTED AS UNDER: 4.7 THE LD.AR SUBMITTED THAT TRANSFER PRICING REGU LATIONS DO NOT PROVIDE ANY SPECIFIC GUIDELINES ON ROYALTY FOR USE OF TRADEMARKS OR TRADE NAMES BY GROUP COMPANIES. LD.AR RELIED OECD GUIDELINES-ALIGNING TRANSFER PRICING OUTCOME WITH VALUE CREATION KNOWN AS BEPS ACTION PLAN 8-10 WHEREIN PAYMENTS FOR USE OF COMPANY NAME WAS REFERRED TO. THE EXTRA CT OF COMMENTARY RELIED BY THE LD.AR PLACED AT PAGE 827 O F PAPER BOOK IS REPRODUCED HEREIN UNDER: B.4.3. PAYMENTS FOR USE OF THE COMPANY NAME 6.81 QUESTIONS OFTEN ARISE REGARDING THE ARM'S LEN GTH COMPENSATION FOR THE USE OF GROUP NAMES TRADE NAMES AND SIMILAR INT ANGIBLES. RESOLUTION OF SUCH QUESTIONS SHOULD BE BASED ON THE PRINCIPLES OF THIS SECTION B AND ON THE COMMERCIAL AND LEGAL FACTORS INVOLVED. AS A GENERAL RULE NO PAYMENT SHOULD BE RECOGNISED FOR TRANSFER PRICING P URPOSES FOR SIMPLE PAGE 13 OF 31 IT(TP)A NO.2471/BANG/2017 RECOGNITION OF GROUP MEMBERSHIP OR THE USE OF THE G ROUP NAME MERELY TO REFLECT THE FACT OF GROUP MEMBERSHIP. SEE PARAGRAPH 7.12 6.82 WHERE ONE MEMBER OF THE GROUP IS THE OWNER OF A TRADEMARK OR OTHER INTANGIBLE FOR THE GROUP NAME AND WHERE USE OF THE NAME PROVIDES A FINANCIAL BENEFIT TO MEMBERS OF THE GROUP OTHER THA N THE MEMBER LEGALLY OWNING SUCH INTANGIBLE IT IS REASONABLE TO CONCLUD E THAT A PAYMENT FOR USE WOULD HAVE BEEN MADE IN ARM'S LENGTH TRANSACTIO NS. SIMILARLY SUCH PAYMENTS MAY BE APPROPRIATE WHERE A GROUP MEMBER OW NS GOODWILL IN RESPECT OF THE BUSINESS REPRESENTED BY AN UNREGISTE RED TRADEMARK USE OF THAT TRADEMARK BY ANOTHER PARTY WOULD CONSTITUTE MI SREPRESENTATION AND THE USE OF THE TRADEMARK PROVIDES A CLEAR FINANCIAL BENEFIT TO A GROUP MEMBER OTHER THAN THAT OWNING THE GOODWILL AND UNRE GISTERED TRADEMARK. 6.83 IN DETERMINING THE AMOUNT OF PAYMENT WITH RESP ECT TO A GROUP NAME IT IS IMPORTANT TO CONSIDER THE AMOUNT OF THE FINAN CIAL BENEFIT TO THE USER OF THE NAME ATTRIBUTABLE TO USE OF THAT NAME THE COST S AND BENEFITS ASSOCIATED WITH OTHER ALTERNATIVES AND THE RELATIV E CONTRIBUTIONS TO THE VALUE OF THE NAME MADE BY THE LEGAL OWNER AND THE ENTITY USING THE NAME IN THE FORM OF FUNCTIONS PERFORMED ASSETS USE D AND RISKS ASSUMED. CAREFUL CONSIDERATION SHOULD BE GIVEN TO THE FUNCTI ONS PERFORMED ASSETS USED AND RISKS ASSUMED BY THE USER OF THE NAME IN CREATING OR ENHANCING THE VALUE OF THE NAME IN ITS JURISDICTION . FACTORS THAT WOULD BE IMPORTANT IN A LICENCE OF THE NAME TO AN INDEPENDEN T ENTERPRISE UNDER COMPARABLE CIRCUMSTANCES APPLYING THE PRINCIPLES OF CHAPTERS I - III SHOULD BE TAKEN INTO ACCOUNT. 6.84 WHERE AN EXISTING SUCCESSFUL BUSINESS IS ACQU IRED BY ANOTHER SUCCESSFUL BUSINESS AND THE ACQUIRED BUSINESS BEGIN S TO USE A NAME TRADEMARK OR OTHER BRANDING INDICATIVE OF THE ACQUI RING BUSINESS THERE SHOULD BE NO AUTOMATIC ASSUMPTION THAT A PAYMENT SH OULD BE MADE IN RESPECT OF SUCH USE. IF THERE IS A REASONABLE EXPEC TATION OF FINANCIAL BENEFIT TO THE ACQUIRED COMPANY FROM USING THE ACQU IRING COMPANY'S BRANDING THEN THE AMOUNT OF ANY PAYMENT SHOULD BE INFORMED BY THE LEVEL OF THAT ANTICIPATED BENEFIT. 6.85 IT MAY ALSO BE THE CASE THAT THE ACQUIRING BUS INESS WILL THE EXISTING POSITION OF THE ACQUIRED BUSINESS TO E XPAND THE BUSINESS OF ACQUIRER IN THE TERRITORY OF OPERATION OF THE ACQUI RED BUSINESS BY CAUSING THE ACQUIRED BUSINESS TO USE THE ACQUIRER'S BRANDIN G. IN THAT CASE CONSIDERATION SHOULD BE GIVEN TO WHETHER THE ACQUIR ER SHOULD MAKE A PAYMENT TO OR OTHERWISE COMPENSATE THE ACQUIRED BUS INESS FOR THE FUNCTIONS PERFORMED RISKS ASSUMED AND ASSETS USED (INCLUDING ITS MARKET POSITION) IN CONNECTION WITH EXPANDED USE OF THE ACQUIRER'S NAME. 4.9 THE LD.AR SUBMITTED THAT NO PAYMENT COULD BE R ECOGNISED FOR TRANSFER PRICING PURPOSES FOR RECOGNITION OF G ROUP PAGE 14 OF 31 IT(TP)A NO.2471/BANG/2017 MEMBERSHIP OR THE USE OF GROUP NAME TO REFLECT GRO UP MEMBERSHIP. HE SUBMITTED THAT PAYMENT OF ROYALTY W ILL ONLY BE REQUIRED IF THERE ACCRUES FINANCIAL BENEFIT TO THE GROUP COMPANIES ON USING THE TRADE NAME OF ASSESSEE. FURTHER IT WA S SUBMITTED THAT IN DETERMINING THE AMOUNT OF PAYMENT WITH RES PECT TO A GROUP NAME IT IS NECESSARY TO CONSIDER THE AMOUNT OF FINANCIAL BENEFIT TO THE USER OF THE NAME THAT COULD BE ATTRI BUTED TO THE USE OF THAT NAME THE COST AND THE BENEFITS ASSOCIATED WITH OTHER ALTERNATIVES AND RELATIVE CONTRIBUTIONS TO THE VALU E OF THE NAME MADE BY THE LEGAL OWNER AND THE ENTITY USING THE NA ME IN THE FORM OF FUNCTIONS PERFORMED ASSETS USED AND RISK A SSUMED BY THE USER IN ITS JURISDICTION. 4.10 IT WAS THUS SUBMITTED THAT WHEN ONE SUCCESSFUL BUSINESS IS ACQUIRED BY ANOTHER SUCCESSFUL BUSINESS AWND THE A CQUIRED BUSINESS BEGINS TO USE A NAME TRADEMARK OR OTHER B RANDING INDICATOR OF THE ACQUIRING BUSINESS THERE CANNOT B E AN AUTOMATIC ASSUMPTION THAT PAYMENT SHOULD BE MADE IN RESPECT O F SUCH USE. THE LD.AR THUS SUBMITTED THAT: SASKEN INC. WAS WHOLLY OWNED SUBSIDIARY OF ASSESSE E INCORPORATED AS AN INVESTMENT ARM OF ASSESSEE TO MA KE STRATEGIC INVESTMENT IN USA AND OTHER OVERSEAS MARK ET. SASKEN NETWORK SOLUTION INC. WAS A SUBSIDIARY OF S ASKEN NETWORK ENGINEERING LTD. OF ASSESSEE ENGAGED IN TH E BUSINESS OF ERECTION AND INSTALLATION OF NETWORK EQ UIPMENT AND PROVISION OF TESTING SERVICES. PAGE 15 OF 31 IT(TP)A NO.2471/BANG/2017 SASKEN JAPAN WAS A SUBSIDIARY OF ASSESSEE WHICH WAS ESTABLISHED TO EXECUTE PROJECT ON-SITE PURCHASED BY A FELLOW SUBSIDIARY BEING SASKEN INC. SASKEN FINLAND(WHICH WAS EARLIER KNOWN AS BOTNIA HI GTEC OY) WAS ACQUIRED BY SASKEN COMMUNICATION TECHNOLOG Y TO CATER TO HANDSET AND ENTERPRISE TECHNOLOGY. SASKEN SHANGHAI WAS ESTABLISHED IN CHINA FOR THE PU RPOSE OF SETTING UP CENTRE IN CHINA PERCENT TO ACQUISITIO N OF SASKEN FINLAND FORMERLY KNOWN AS BOTNIA THAT HAD ESTABLISHED A DEEP RELATIONSHIP WITH NOKIA (WHICH S HIFTED TO CHINA FOR A BETTER ECONOMIC REASONS). 4.11 HE SUBMITTED THAT THESE COMPANIES WERE ALREADY IN OPERATION AND ALREADY HAD A BASE REVENUE. IT WAS SU BMITTED THAT THESE COMPANIES DID NOT DERIVE ANY COMMERCIAL SUCCE SS OUT OF USING THE GROUPS NAME DURING THE YEAR UNDER CONSID ERATION. 4.12 LD.AR SUBMITTED THAT THE SUBSIDIARY IN FINLAND ESTABLISHED DEEPER RELATIONSHIP WITH NOKIA SUBSEQUENT TO SASKE N FINLAND ACQUISITION AND IN ORDER TO MAINTAIN EXISTING RELA TIONSHIP ASSESSEE ESTABLISHED SUBSIDIARY IN CHINA. IT WAS S UBMITTED THAT OVER A PERIOD OF TIME SASKEN CHINA STARTED CATERING TO OTHER CUSTOMERS IN CHINA AND THE REVENUE FROM OTHER CUSTO MERS WAS MUCH LESS THAN THE REVENUE GENERATED FROM NOKIA. IN SUPPORT HE PLACED RELIANCE ON THE DETAILS GIVEN AT PAGE 472 OF PAPER BOOK IN PARAGRAPH 5.22. PAGE 16 OF 31 IT(TP)A NO.2471/BANG/2017 SASKEN CHINA (EXCLUDING INTERCOMPANY) INR REVENUE FROM NOKIA 10 55 65 034 REVENUE FROM OTHER CUSTOMERS 2.24.29.533 TOTAL 12 79 94 567 4.13 THE LD.AR SUBMITTED THAT WHERE ONE MEMBER OF THE GROUP IS THE OWNER OF A TRADEMARK AND WHERE USE OF THE NA ME PROVIDES A FINANCIAL BENEFIT TO THE MEMBERS OF THE GROUP OTH ER THAN THE MEMBER LEGALLY OWNING SUCH INTANGIBLE IT IS REASON ABLE TO CONCLUDE THAT PAYMENT WOULD HAVE BEEN MADE AT ARMS LENGTH. THUS HE SUBMITTED THAT IT NEEDS TO BE EVALUATED WHE THER THE AES HAVE DERIVED ANY FINANCIAL OR COMMERCIAL BENEFIT OU T OF THE BRAND SASKEN. THE LD.AR IN SUPPORT RELIED ON PAGE 474 OF PAPER BOOK WHEREIN THE COMPUTATION HAS BEEN TABULATED SH OWING THE REVENUE GENERATED BY THE SUBSIDIARIES OF ASSESSEE A S UNDER: SUBSIDIARY SASKEN FINLAND SASKEN INC SASKEN CHINA SASKEN JAPAN SNSI TOTAL REVENUE FROM OPERATIONS 56 85 76 504 20 51 64 919 13 40 12 285 6 16 82 884 9 06 03 366 1 06 000 39 958 LESS: INTERCOMPANY 1 13 50 177 36 09 388 61 05 299 2 72 38 025 4 02 28 261 8 85 31 150 REVENUE REVENUE FROM EXTERNAL CUSTOMERS 55 72 26 327 20 15 55 531 12 79 06 986 3 44 44 859 5 03 75 105 97 15 08 808 REVENUE IN THE YEAR 80 07 42 797 69 69 79 557 10 37 63 220 - - - OF ACQUISITION REVENUE BASE FOR - 13 97 53 230 9 77 92 311 12 79 06 986 3 44 44 859 5 03 75 105 31 05 19 261 ROYALTY ROYALTY AT 2% ON THE 10 07 502 - 19 55 846 25 58 140 6 88 897 62 10 385 PAGE 17 OF 31 IT(TP)A NO.2471/BANG/2017 4.14 ON THE CONTRARY THE LD.CIT.DR SUBMITTED THAT A UTHORITIES BELOW WERE RIGHT IN DETERMINED ROYALTY AT 2% OF THE TURNOVER EARNED BY THE SUBSIDIARY COMPANIES. HE SUBMITTED TH AT THE SAID ROYALTY HAS BEEN DETERMINED BY THE LD. TPO FOR USE OF BRAND VALUE AND THE BENEFIT THAT HAS DERIVED BY THE SUBSI DIARY COMPANIES BY USING THE NAME SASKEN. HE SUBMITTED THAT THE REVENUE HAS INCREASED UPON THE USE OF BRAND NAME BY THE SUBSIDIARY COMPANIES IN THE RESPECTIVE JURISDICTION S. HE ALSO SUBMITTED THAT IN CERTAIN JURISDICTION THE LOSS EAR NED BY THE SUBSIDIARY COMPANIES REDUCED. HE PLACED RELIANCE ON THE OBSERVATIONS OF LD.CIT(A). 4.15 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH S IDES IN THE LIGHT OF RECORDS PLACED BEFORE US. 4.16 THE AES CONSIDERED IN THE PRESENT FACTS ARE A DMITTEDLY 100% SUBSIDIARIES OF ASSESSEE. THESE SUBSIDIARIES H AVE FURTHER ACQUIRED OTHER COMPANIES TO EXPAND THE CLIENT BASE AND TO ACQUIRE NICHE TECHNOLOGIES OWNED BY SUCH COMPANIES IN THE RESPECTIVE GEOGRAPHICAL LOCATIONS. WITH SPECIFIC RE FERENCE TO SASKEN FINLAND OY. SASKEN INC USA WAS SET UP TO M AKE STRATEGIC INVESTMENTS IN USA AND OTHER OVERSEAS MAR KETS. ADMITTEDLY THE LD. AO RECORDED THAT SUBSIDIARIES O F ASSESSEE IS WORKING AS FULL-FLEDGED ENTREPRENEURS IN USA FINLA ND AND OTHER COUNTRIES AND THAT SASKEN BRAND IS REGISTERED BY TH E ASSESSEE IN INDIA AS WELL AS RUSSIA USA AND A HOST OF OTHER CO UNTRIES. THE LD. TPO OBSERVED THAT ASSESSEE OWNS 25 WEBSITES WIT H THE NAMES SASKEN AS THE DOMAIN NAME. PAGE 18 OF 31 IT(TP)A NO.2471/BANG/2017 4.17 WE NOTE THAT THE LD.TPO ATTRIBUTED ROYALTY TO WARDS THE USE OF BRAND NAME SASKEN BY THE SUBSIDIARIES IN THE RESPECTIVE COUNTRIES BASED ON A DECISION BY HONBLE DELHI HIGH COURT IN CASE OF SASKEN COMMUNICATIONS TECHNOLOGIES LTD. VS ANUPAM A GARWAL &ORS. HONBLE HIGH COURT THEREIN FOUND THAT SASKEN BRAND IS PROPRIETORILY OWNED BY ASSESSEE BEFORE US AND THAT THE RESPONDENT BEFORE HONBLE DELHI HIGH COURT HAD TO PAY DAMAGES FOR USING THE NAME SASKEN IN A COMPANY OPENED BY H IM. 4.18 THE ENT*IRE ATTRIBUTION OF ROYALTY IS BASED ON THE OBSERVATIONS OF HONBLE DELHI HIGH COURT WHEREIN DAMAGES FOR LOSS OF REPUTATION AND GOODWILL ON ACCOUNT OF INFRI NGEMENT OF THE ASSESSEES RIGHTS WAS DIRECTED TO BE PAYABLE BY ONE MR. ANUPAMA AGARWAL. WE NOTE THAT THE RESPONDENT BEFORE HONBLE DELHI HIGH COURT WAS OWNING A COMPANY INDEPENDENTLY WITHOUT HAVING ANY CONNECTION WITH THAT OF ASSESSEE BASED ON WHICH HONBLE DELHI HIGH COURT HELD THAT SASKEN IS AN INALIENABLE BRAND OF ASSE SSEE AND CANNOT BE USED BY ANUPAM AGARWALS COMPANY. THE LD. TPO WENT ON A FOOTING THAT ASSESSEE CLAIMED DAMAGES AND FILE SUIT ON MULTIPLE ISSUES FROM THIRD-PARTY F OR USING THE SAME BRAND NAME BUT ALLOWED ITS OWN SISTER CONCERN TO USE THE BRAND NAME WITHOUT PAYING A PENNY. HE THUS COMPUTED 2% OF THE TURNOVER OF AES BEING ROYALTY PAYABLE TO THE AS SESSEE. 4.19 WE NOTE THAT APART FROM THE OBSERVATIONS OF HONBLE DELHI HIGH COURT IN CASE OF A THIRD-PARTY LD.TPO DO NOT HAVE ANY O THER EVIDENCE MATERIAL ON RECORD TO ESTABLISH THAT ASSES SEE TRANSFERRED ANY OF THE ASSETS LIKE TECHNICAL KNOWHO W AND R&D PAGE 19 OF 31 IT(TP)A NO.2471/BANG/2017 OWNED BY IT TO THE SUBSIDIARIES BASED ON WHICH R OYALTY COULD BE ATTRIBUTED. ON ONE HAND THE LD.TPO OBSERVES THAT TH E SUBSIDIARIES ARE FULL-FLEDGED ENTREPRENEURS WHEREAS ON THE OTHER HAND HE PROPOSES AN ADJUSTMENT FOR USE OF TRADE NAM E AND HOLDS THAT THE SUBSIDIARIES CANNOT STAND ON ITS OWN LEGS WITHOUT THE USE OF BRAND NAME SASKEN. IN OUR VIEW ASSESSEE CANN OT BLOW HOT AND COLD AT THE SAME TIME. 4.20 WE NOTE THAT IN CERTAIN CASES THERE HAS BEEN INCREASE IN PROFITS OR REDUCTION OF LOSS DURING THE YEAR UNDER CONSIDERATION VIS-A-VIS PRECEDING ASSESSMENT YEAR. BUT THAT ALON E CANNOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE SUBSIDIARIES WERE ABLE TO GET PREMIUM PRICE DUE TO THE USE OF BRAND NAME SASKEN THEREBY TO PAY ROYALTY. WE REFER TO THE FOLLOWING EXTRACT FROM OECD BEPS ACTION PLAN 8-10: 7.13 SIMILARLY AN ASSOCIATED ENTERPRISE SHOULD NOT BE CONSIDERED TO RECEIVE ON INTRAGROUP SERVICES AND IT OBTAINS INCIDENTAL BENEFITS ATTRIBUTABLE SOLELY TO ITS BEIN G PART OF A LARGER CONCERN AND NOT TO ANY SPECIFIC ACTIVITY BE ING PERFORMED. FOR EXAMPLE NO SERVICE WOULD BE RECEIVE D WHERE AN ASSOCIATED ENTERPRISE BY REASON OF ITS AFFILIATI ON ALONE HAS A CREDIT RATING HIGHER THAN IT WOULD IF IT WERE UNA FFILIATED BUT AND INTRAGROUP SERVICES WOULD USUALLY EXIST IS WHER E THE HIGHER CREDIT RATING WERE DUE TO A GUARANTEED BY AN OTHER GROUP MEMBER OR WHERE THE ENTERPRISE BENEFITED FROM DELIBERATE CONCERTED ACTION INVOLVING GLOBAL MARKET ING AND PUBLIC RELATIONS CAMPAIGNS. IN THIS RESPECT PASSIVE ASSOCIATION SHOULD BE DISTINGUISHED FROM ACTIVE PROMOTION OF TH E MANY GROUPS ATTRIBUTES THAT POSITIVELY ENHANCE THE PROFI T-MAKING POTENTIAL OF PARTICULAR MEMBER OF THE GROUP. EACH C ASE MUST BE DETERMINED ACCORDING TO ITS OWN FACTS AND CIRCUM STANCES. PAGE 20 OF 31 IT(TP)A NO.2471/BANG/2017 4.21. THERE IS NOTHING ON RECORD BROUGHT BY THE AUTHORITI ES BELOW TO ESTABLISH THAT USE OF THE NAME SASKEN P ROVIDED FINANCIAL BENEFIT TO THE MEMBERS OF THE GROUP OTHER THAN THE MEMBER LEGALLY OWNING SUCH INTANGIBLE AS REQUIRED U NDER BEPS ACTION PLAN 8-10. 4.22 BRAND LICENSING IS WHEN A BRAND OWNER LICENSES THE RIGHT TO THEIR BRAND ASSETS TO A LICENSEE LETTING THE LICEN SEE USE THEIR BRAND FOR A SET PERIOD OF TIME IN A SET WAY WITHI N AN AGREED MARKET. THE BRAND OWNER AND LICENSEE MUST AGREE ON THE TERMS AND SCOPE OF THE LICENSING AGREEMENT WHICH IS A LE GAL WRITTEN CONTRACT BETWEEN THE TWO PARTIES. THIS WILL OUTLINE EXACTLY WHAT BRAND ASSETS ARE BEING LICENSED HOW THEY CAN BE US ED FOR HOW LONG THEY CAN BE USED IN WHAT MARKET THEY CAN BE U SED AND WHAT REMUNERATION IS REQUIRED IN RETURN. WE NOT THA T THERE IS NOTHING BROUGHT ON RECORD BY THE REVENUE TO ESTABLI SH THAT THERE IS TRANSFER OF ASSET OR TECHNOLOGY BY ASSESSEE. PRO VISIONS OF SECTION 9 READS AS UNDER: 9. INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA : (VI) INCOME BY WAY OF ROYALTY PAYABLE BY (A) THE GOVERNMENT ; OR (B) A PERSON WHO IS A RESIDENT EXCEPT WHERE THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT PROPERTY OR INFORMATION US ED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSI ON CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MA KING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA ; OR (C) A PERSON WHO IS A NON-RESIDENT WHERE THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT PROPERTY OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSI ON CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA : .. PAGE 21 OF 31 IT(TP)A NO.2471/BANG/2017 EXPLANATION 2.FOR THE PURPOSES OF THIS CL AUSE 'ROYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECI PIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GR ANTING OF A LICENCE) IN RESPECT OF A PATENT INVENTION MODEL DESIGN SECR ET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF OR THE USE OF A PATENT INVENTION MODEL DESIGN SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (III) THE USE OF ANY PATENT INVENTION MODEL DESIGN S ECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNI CAL INDUSTRIAL COMMERCIAL OR SCIENTIFIC KNOWLEDGE EXPERIENCE OR S KILL ; (IVA) THE USE OR RIGHT TO USE ANY INDUST RIAL COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GR ANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT LITERARY ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTIO N WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING BUT NOT INCLUDING CONSIDERATION FOR THE SALE DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH T HE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV) (IVA) AND(V ). .. 4.23 EXPLANATION 4 AND 5 INSERTED BY THE FINANCE ACT 2012 W.E.F. 1.6.1976 WERE INTRODUCED TO THE DEFINITION OF ROYALTY U/S.9 (1)(VI) OF THE ACT. EXPLANATION 4.FOR THE REMOVAL OF DOUBTS IT IS HER EBY CLARIFIED THAT THE TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIG HT PROPERTY OR INFORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSF ER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE (INCLUD ING GRANTING OF A LICENSE) IRRESPECTIVE OF THE MEDIUM THROUGH WHICH S UCH RIGHT IS TRANSFERRED. EXPLANATION 5.FOR THE REMOVAL OF DOUBTS IT IS HER EBY CLARIFIED THAT THE ROYALTY INCLUDES AND HAS ALWAYS INCLUDED CONSIDERAT ION IN RESPECT OF ANY RIGHT PROPERTY OR INFORMATION WHETHER OR NOT PAGE 22 OF 31 IT(TP)A NO.2471/BANG/2017 (A) THE POSSESSION OR CONTROL OF SUCH RIGHT PROPE RTY OR INFORMATION IS WITH THE PAYER; (B) SUCH RIGHT PROPERTY OR INFORMATION IS USED DIR ECTLY BY THE PAYER; (C) THE LOCATION OF SUCH RIGHT PROPERTY OR INFORMA TION IS IN INDIA. EXPLANATION 6.FOR THE REMOVAL OF DOUBTS IT IS HER EBY CLARIFIED THAT THE EXPRESSION 'PROCESS' INCLUDES AND SHALL BE DEEMED T O HAVE ALWAYS INCLUDED TRANSMISSION BY SATELLITE (INCLUDING UP-LI NKING AMPLIFICATION CONVERSION FOR DOWN-LINKING OF ANY SIGNAL) CABLE OPTIC FIBRE OR BY ANY OTHER SIMILAR TECHNOLOGY WHETHER OR NOT SUCH PROCE SS IS SECRET; 4.24 THEREFORE AS PER THE AFORESAID PROVISIONS C ONSIDERATION FOR TRANSFER OF RIGHTS (INCLUDING GRANTING OF A LICENCE ) IN RESPECT OF A TRADE MARK OR SIMILAR PROPERTY OR FOR USE OF A TRAD EMARK OR TRANSFER OF RIGHTS (INCLUDING GRANTING OF A LICENCE ) IN RESPECT OF ANY COPYRIGHT LITERARY ARTISTIC OR SCIENTIFIC WOR K FALLS UNDER THE DEFINITION OF ROYALTY UNDER THE IT ACT. 4.25 THE REVENUE HAS NOT BEEN ABLE TO PRODUCE ANY AGREEMENT TO ESTABLISH THE PAYMENT OF ROYALTY BY THE ASSOCIAT ED ENTERPRISES TO ASSESSEE. IT IS ALSO NOT BEEN ESTABLISHED THAT B Y THE USE OF BRAND SASKEN THE SUBSIDIARY ASSOCIATED ENTERPRISE S WERE ABLE TO GET PREMIUM PRICE WHICH COULD BE ULTIMATELY TRAN SLATE INTO PROFITS TO PAY ROYALTY. 4.26 ADMITTEDLY IN THE PRESENT FACTS OF THE CASE ASSESSEE HAS REGISTERED THE TRADEMARK AT ALL THE JURISDICTION WH ERE THE SUBSIDIARIES ARE LOCATED. IT IS ALSO NOT BROUGHT ON RECORD THAT ASSESSEE HAS INCURRED ANY EXPENDITURE OR CONTRIBUTE D ANY MONEY FOR ESTABLISHMENT OF ITS NAME IN THE GEOGRAPHICAL A REAS THAT BENEFITED THE ASSOCIATED ENTERPRISES. BASED ON THE ABOVE WE CANNOT UHOLD 2% ROYALTY COMP UTED ON THE TURNOVER OF THE AES BY THE LD.AO/TPO. PAGE 23 OF 31 IT(TP)A NO.2471/BANG/2017 4.27 HOWEVER WE REMAND THIS ISSUE BACK TO THE LD .TPO FOR FRESH CONSIDERATION. THE LD.TPO SHALL VERIFY ALL TH E AGREEMENTS ENTERED INTO BY ASSESSEE WITH ITS SUBSIDIARIES TO CHECK: WHETHER THERE EXIST A LICENSOR-LICENSEE RELATIONSHI P BETWEEN THE ASSESSEE AND EACH OF THE ASSOCIATED ENTERPRISES . ASSESSEE IS DIRECTED TO FILE ALL DETAILS BEFORE THE LD.TPO TO ANALYSE IMPACT OF THE USE OF BRAND SASKEN BY THE SUBSIDIARIES ON THEIR PROFITS ON YEAR TO YEAR BASIS . THE LD.TPO IS DIRECTED TO VERIFY NOT JUST THE TERMS AND CONDITIONS FOR USE OF BRAND SASKEN BY THE AES BUT ALSO THE FACTS AND CIRCUMSTANCES SURROUNDING THE AGREEME NT. THE LD.TPO IS TO VERIFY IF THE AES ACQUIRED ANY RI GHT IN THE BRAND SASKEN FOR THE PURPOSE OF SELLING THEIR P RODUCTS AND THAT WHETHER AT ANY POINT OF TIME THE AES WERE ENTITLED TO BECOME THE EXCLUSIVE OWNER OF THE TECHNICAL KNOW HOW AND THE TRADE MARK. WHETHER THERE IS AN ACTIVE PROMOTION OF GROUPS ATT RIBUTES THAT POSITIVELY ENHANCES THE PROFIT MAKING POTENTIA L OF A PARTICULAR MEMBER OF THE GROUP. 4.28 THE LD.TPO WHILE CARRYING OUT NECESSARY VERIF ICATION KEEP IN MIND THE FOLLOWING EXTRACT FROM OECD BEPS ACTION PLAN 8-10: 7.13 SIMILARLY AN ASSOCIATED ENTERPRISE SHOULD NO T BE CONSIDERED TO RECEIVE AN INTRA GROUP SERVICE WHEN IT OBTAINS INCI DENTAL BENEFITS ATTRIBUTABLE SOLELY TO ITS BEING PART OF A LARGER C ONCERN AND NOT TO ANY SPECIFIC ACTIVITY BEING PERFORMED. FOR EXAMPLE NO SERVICE WOULD BE RECEIVED WHERE AN ASSOCIATED ENTERPRISE BY REASON O F ITS AFFILIATION ALONE HAS A CREDIT-RATING HIGHER THAN IT WOULD IF I T WERE UNAFFILIATED BUT AN INTRA-GROUP SERVICE WOULD USUALLY EXIST WHERE TH E HIGHER CREDIT PAGE 24 OF 31 IT(TP)A NO.2471/BANG/2017 RATING WERE DUE TO A GUARANTEE BY ANOTHER GROUP MEM BER OR WHERE THE ENTERPRISE BENEFITTED FROM DELIBERATE CONCERTED ACT ION INVOLVING GLOBAL MARKETING AND PUBLIC RELATIONS CAMPAIGNS. IN THIS R ESPECT PASSIVE ASSOCIATION SHOULD BE DISTINGUISHED FROM ACTIVE PRO MOTION OF THE MNE GROUP'S ATTRIBUTES THAT POSITIVELY ENHANCES THE PRO FIT-MAKING POTENTIAL OF PARTICULAR MEMBERS OF THE GROUP. EACH CASE MUST BE DETERMINED ACCORDING TO ITS OWN FACTS AND CIRCUMSTANCES. 4.29 THE LD.TPO SHALL CARRY OUT NECESSARY VERIFICA TION BASED ON THE WHICH IT MUST FIRST BE DETERMINED WHETHER THERE IS ANY ROYALTY THAT COULD BE ATTRIBUTED. IN THE EVENT ROYA LTY IS TO BE ATTRIBUTED PROPER BENCHMARKING NEEDS TO CARRIED OU T THE ACCORDANCE WITH SECTION 92CA OF THE ACT BY SELECTI NG AN AUTHORISED METHOD AND COMPARABLES. WE PLACE RELIANC E ON PARA 6.83-6.85 OF BEPS ACTION PLAN REPRODUCED HEREIN ABO VE. NEEDLESS TO SAY THAT PROPER OPPORTUNITY OF BEING HEARD MUST BE GRA NTED TO ASSESSEE. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 7 IT HAS BEEN SUBMITTED THAT SASKEN INC. (SUBSIDIARY OF ASSESSEE IN USA) ACQUIRED THE BUSINESS CONTACTS FRO M INGENIENT TECHNOLOGIES INC IN 2009. SASKEN INC. THUS HOLDS 4 DIFFERENT KINDS OF TECHNICAL PATENTS WHICH WAS REQUIRED BY A CUSTOMER BASED IN KOREA BEING GE ULTRASOUND LTD. IN THIS RES PECT SASKEN INC. AND GE ULTRASOUND LTD. ENTERED INTO AN AGREE MENT DATED 30/03/2010 WHEREIN GE ULTRASOUND WAS ALLOWED TO US E THE PATENTS ACQUIRED BY SASKEN INC. FOR ITS R&D ACTIVI TIES. THE SAID AGREEMENT IS PLACED AT PAGE 417-432 OF PAPER BOOK. THIS AGREEMENT WAS VALID FOR A PERIOD OF 3 YEARS AS PER CLAUSE 13. PAGE 25 OF 31 IT(TP)A NO.2471/BANG/2017 HOWEVER THE TIME OF RENEWAL GE ULTRASOUND DENIED T O ENTER INTO AGREEMENT WITH SASKEN INC. AS PER THE GLOBAL VENDO R GUIDELINES FOLLOWED BY GE ULTRASOUND SINCE SASKEN INC. WAS A COMPANY HAVING NEGATIVE RESULTS AT THE RENEWAL PERIOD. IN O RDER TO SAVE THE BUSINESS OPPORTUNITY THE MANAGEMENT OF ASSESSEE DE CIDED TO HAVE A TRIPARTE AGREEMENT BETWEEN GE ULTRASOUND SA SKEN INC. AND ASSESSEE. THIS AGREEMENT IS PLACED AT PAGE 306- 311 OF PAPER BOOK. 5.1 THE INVOICES RAISED BY ASSESSEE ON BEHALF OF SA SKEN INC. ON GE ULTRASOUND IS PLACED AT PAGE 303-305 OF PAPER BO OK WHEREIN ROYALTIES HAVE BEEN RECEIVED FROM GE ULTRASOUND DUR ING THE YEAR UNDER CONSIDERATION TOWARDS THE USE OF PATENTS ACQU IRED BY SASKEN INC. SINCE ASSESSEE WAS FACILITATING SASKEN INC. IN INVOICING AND COLLECTION FROM GE ULTRASOUND SASKEN INC. COMPENSATED ASSESSEE AT 0.5% TOWARDS SUCH SERVICES RENDERED. THE LD.TPO APPLIED PROFIT SPLIT METHOD AS MOST APPR OPRIATE METHOD. THE LD. TP AFTER ANALYZING FAR OF BOTH THE TRANSACTIONS CONCLUDED THAT SASKEN INC. OWNS THE MAIN ASSET THE PATENTS. IT IS ALSO OBSERVED BY THE LD.TPO THAT ASSESSEE ALSO O WNS ASSET OWING TO WHICH THE CONTRACT CAME. THE LD.TPO THUS D EEMED IT FIT TO GIVE WEIGHTAGE OF 3:1 TO SASKEN INC. AND ASSESS EE. THE ADJUSTMENT PROPOSED TO BE RETAINED BY THE ASSESSEE WAS COMPUTED AT 25% OF THE INVOICE AMOUNT AS AGAINST 0. 5%. THE LD.TPO THUS PROPOSED AN ADJUSTMENT OF 9 92 815/-. PAGE 26 OF 31 IT(TP)A NO.2471/BANG/2017 5.2 THE DRP UPHELD THE OBSERVATIONS OF LD.TPO FOLLO WING WHICH THE LD.AO PASSED THE FINAL ASSESSMENT ORDER CONFIRM ING THE PROPOSED ADJUSTMENT. 5.3 AGGRIEVED BY THE ADDITION ASSESSEE IS IN APPEA L BEFORE US NOW. 5.4 THE LD.AR SUBMITTED THAT SASKEN IS 100% SUBSIDI ARY OF ASSESSEE INCORPORATED IN USA. SASKEN INC. HAD ACQU IRED BUSINESS CONTRACTS FROM INGENIENT TECHNOLOGIES INC. IN 2009. IT HAS BEEN SUBMITTED BY THE LD.AR SUBMITTED THAT TO S AVE THE BUSINESS OPPORTUNITY THE MANAGEMENT OF ASSESSEE DEC IDED TO HAVE AN AGREEMENT BETWEEN THE ASSESSEE GE ULTRASOU ND LTD. AND SASKEN INC. WHEREIN GE ULTRASOUND LTD. WOULD C ONTINUE TO USE THE PATENTS TO MEET THEIR REQUIREMENT. IT WAS S UBMITTED THAT IN THIS ARRANGEMENT THE ASSESSEE COMPANY IS NOT REQ UIRED TO DO ANYTHING AS GE ULTRASOUND IS USING THE PATENTS OWNE D BY SASKEN INC. THE LD.AR THUS SUBMITTED THAT IN THIS W HOLE BUSINESS OF FACILITATING THE INVOICE AND COLLECTION FROM GE WAS THE ONLY ACTIVITY CARRIED OUT BY ASSESSEE AGAINST WHICH SASKEN INC. COMPENSATED ASSESSEE AT 0.5% TOWARDS A COLLECTION M ADE FROM GE. 5.5 ON THE CONTRARY THE LD.CIT.DR SUPPORTED THE ACT ION OF AUTHORITIES BELOW. 5.6 WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US 5.7 DURING THE FINANCIAL YEAR 2009-10 SASKEN INC. AND GE ULTRASOUND LTD. HAD ENTERED INTO AGREEMENT WHEREIN GE PAGE 27 OF 31 IT(TP)A NO.2471/BANG/2017 ULTRASOUND WAS ALLOWED TO USE THE 4 DIFFERENT TECHN ICAL PATENTS HELD BY SASKEN INC.. HOWEVER AT THE TIME OF RENEWAL IN THE YEAR 2012 GE ULTRASOUND LTD. COULD NOT CONTINUE THE AGR EEMENT WITH SASKEN INC. AS IT WAS HAVING NEGATIVE RESULTS DUE TO THE GLOBAL VENDOR GUIDELINES FOLLOWED BY GE ULTRASOUND. 5.8 ON A CAREFUL PERUSAL OF THE AGREEMENT PLACED IN THE PAPER BOOK REFER TO HEREIN ABOVE BY THE LD.AR WE NOTE TH AT THERE IS NO DOCUMENT TO SHOW THE RISK ASSUMED OR THAT ASSESSEE HAD ANYTHING TO DO BEYOND MEDIATING BETWEEN SASKEN INC. AND GE ULTRASOUND LTD. WE NOTE THAT THE OBSERVATIONS OF AU THORITIES BELOW THAT THE CONTRACT IS COMING BECAUSE OF NUMERO US INTANGIBLES AND THAT ASSESSEE HAS CONTRIBUTED TO TH E INTANGIBLES ALONG WITH SASKEN INC. IS ALL ASSUMPTIONS IN THIN AIR WITHOUT ANY BASIS. WE FURTHER NOTE THAT ON THESE FACTS THE LD. TPO USED PSM WITHOUT THERE BEING ANY DISCUSSION ABOUT THE COMPAR ABLES CHOSEN AND WHETHER THEY WERE ACCEPTABLE OR NOT TO T HE ASSESSEE. SUCH ACTION BY LD.TPO CANNOT BE APPROVED AS IT IS N OT IN ACCORDANCE WITH THE RULE 10(1)(D) OF INCOME-TAX RUL ES. WE THEREFORE REMAND THIS ISSUE BACK TO THE LD.AO/TPO F OR CARRYING OUT THE BENCHMARKING OF THE INTERNATIONAL TRANSACTI ON BETWEEN THE ASSESSEE AND SASKEN INC. IN ACCORDANCE WITH LA W TO DETERMINE IF THE PRICE CHANGED BY ASSESSEE TO BE A FACILITATOR IS AT ARMS LENGTH. ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED FOR STATISTICAL PURPOSES. PAGE 28 OF 31 IT(TP)A NO.2471/BANG/2017 6. GROUND NO.10 RELATES TO DISALLOWANCE OF DEDUCTION UNDER SECTION 10 AA OF THE ACT. 6.1 THE LD.AR SUBMITTED THAT THE LD.AO EXCLUDED COMMUNICATION EXPENSES TRAVEL INSURANCE PROFESSIO NAL CHARGED SOFTWARE EXPENSES EXPENSES AT THE BRANCH OFFICE AN D OTHER EXPENSES FROM EXPORT TURNOVER WITHOUT APPRECIATING THAT ASSESSEE HAD ALREADY REDUCED RS.1 59 19 069/- FROM THE EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION WHICH IS ATT RIBUTABLE TO THE ELIGIBLE UNITS. 6.2 ADMITTEDLY THIS ISSUE IS NOW SETTLED BY THE DEC ISION OF HONBLE SUPREME COURT IN CASE OF YOKOGAWA INDIA LTD. REPORTED IN 391 ITR 274 WHEREIN IT HAS BEEN HELD AS UNDER: THAT FROM A READING OF THE RELEVANT PROVISIONS OF SECTION 10A IT IS MORE THAN CLEAR THAT THE DEDUCTIONS CONTEMPLATED THEREIN IS QUA THE ELIGIBLE UNDERTAKING OF AN ASSESSEE STANDING ON ITS OWN AND WITHOUT REFERENCE TO THE OTHER ELIGIBLE OR NON-ELIGIBLE UNITS OR UNDE RTAKINGS OF THE ASSESSEE. THE BENEFIT OF DEDUCTION IS GIVEN BY THE ACT TO THE INDIVIDUAL UNDERTAKING AND RESULTANTLY FLOWS TO THE ASSESSEE. THIS IS ALSO MORE THAN CLEAR FROM THE CONTEMPORANEO US CIRCULAR NO. 794 DATED 9-8-2000. IF THE SPECIFIC PROVISIONS OF THE ACT PROVIDE [FIRS T PROVISO TO SECTIONS 10A(1); 10A(1A) AND 10A(4)] THAT THE UNIT THAT IS C ONTEMPLATED FOR GRANT OF BENEFIT OF DEDUCTION IS THE ELIGIBLE UNDERTAKING AND THAT IS ALSO HOW THE CONTEMPORANEOUS CIRCULAR OF THE DEPARTMENT (NO. 794 DATED 9-8- 2000) UNDERSTOOD THE SITUATION IT IS ONLY LOGICAL AND NATURAL THAT THE STAGE OF DEDUCTION OF THE PROFITS AND GAINS OF THE BUSINESS OF AN ELIGIBLE UNDERTAKING HAS TO BE MADE INDEPENDENTLY AND THERE FORE 'IMMEDIATELY AFTER THE STAGE OF DETERMINATION OF IT S PROFITS AND GAINS. AT THAT STAGE THE AGGREGATE OF THE INCOMES UNDER OT HER HEADS AND THE PROVISIONS FOR SET OFF AND CARRY FORWARD CONTAINED IN SECTIONS 70 72 AND 74 WOULD BE PREMATURE FOR APPLICATION. THE DEDU CTIONS UNDER SECTION 10A THEREFORE WOULD BE PRIOR TO THE COMMENC EMENT OF THE EXERCISE TO BE UNDERTAKEN UNDER CHAPTER VI FOR ARRI VING AT THE TOTAL INCOME OF THE ASSESSEE FROM THE GROSS TOTAL INCOME. THE SOMEWHAT DISCORDANT USE OF THE EXPRESSION 'TOTAL INCOME OF T HE ASSESSEE' IN SECTION 10A HAS ALREADY BEEN DEALT WITH EARLIER AND IN THE OVERALL PAGE 29 OF 31 IT(TP)A NO.2471/BANG/2017 SCENARIO UNFOLDED BY THE PROVISIONS OF SECTION 10A THE AFORESAID DISCORD CAN BE RECONCILED BY UNDERSTANDING THE EXPR ESSION 'TOTAL INCOME OF THE ASSESSEE' IN SECTION 10A AS 'TOTAL IN COME OF THE UNDERTAKING'. FOR THE AFORESAID REASONS IT IS HELD THAT THOUGH SE CTION 10A AS AMENDED IS A PROVISION FOR DEDUCTION THE STAGE OF DEDUCTION WOULD BE WHILE COMPUTING THE GROSS TOTAL INCOME OF THE ELIGI BLE UNDERTAKING UNDER CHAPTER IV AND' NOT AT THE STAGE OF COMPUTATI ON OF THE TOTAL INCOME UNDER CHAPTER VI. 6.3 ACCORDINGLY WE DIRECT THE LD. AO TO COMPUTE DE DUCTION UNDER SECTION 10 AA OF THE ACT IN ACCORDANCE WITH T HE RATIO LAID DOWN BY HONBLE SUPREME COURT IN CASE OF YOKOGAWA INDIA LTD. (SUPRA). ACCORDINGLY THIS GROUND RAISED BY ASSESSEE STANDS A LLOWED. 7. GROUND NO. 11-12 RELATES TO DISALLOWANCES MADE UNDER SECTION 14A AND MAT CREDIT NOT GRANTED IN RESPECT OF TAXES PAID OUTSIDE INDIA UNDER SECTION 90/90A OF THE ACT. 7.1 THE LD.AR SUBMITTED THAT IN RESPECT OF 14 A CA LCULATIONS ADOPTED BY ASSESSEE IS PLACED AT PAGE 211 OF THE PA PER BOOK AND THE DETAILS OF INVESTMENTS AND SUBSIDIARY IS PLACED AT PAGE 113 AND 142 OF PAPER BOOK. HE SUBMITTED THAT ASSESSEE H AS SUO MOTO DISALLOWED SUM OF RS.8 59 327/-AND THE LD.AO HAS FU RTHER DISALLOWED EXCESS OF RS.3 09 513/-. IT HAS BEEN SUB MITTED THAT NEEDS TO BE VERIFIED. 7.2 IN RESPECT OF MAT CREDIT NOT GRANTED ON TAXES P AID BY ASSESSEE UNDER SECTION 90/90A OF THE ACT ALSO NEED S TO BE VERIFIED. 7.3 THE LD.CIT.DR DID NOT OBJECT FOR REMANDING THIS ISSUE BACK TO THE LD.AO. PAGE 30 OF 31 IT(TP)A NO.2471/BANG/2017 7.4 WE NOTE THAT THE LD.AO HAS NOT CONSIDERED THE SUBMISSIONS OF ASSESSEE BEFORE COMPUTING THE DISALL OWANCE IN THE HANDS OF ASSESSEE ON THESE ISSUES ALLEGED. ACCO RDINGLY WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE BACK TO THE LD.AO. THE LD.AO IS DIRECTED TO VERIFY ALL THE DETAILS FIL ED BY ASSESSEE AND TO CONSIDER THE CLAIM IN ACCORDANCE WITH LAW. ACCORDINGLY THESE GROUNDS RAISED BY ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST 2021 SD/- SD/- (B.R BASKARAN) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMB ER BANGALORE DATED THE 31 ST AUG 2021. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT BANGALORE PAGE 31 OF 31 IT(TP)A NO.2471/BANG/2017 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR -8-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER -8-2021 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. -8-2021 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS -8-2021 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON -8-2021 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE -8-2021 SR.PS 8. IF NOT UPLOADED FURNISH THE REASON -- SR.PS 9. FILE SENT TO THE BENCH CLERK -8-2021 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS