Aggregation of transactions - Payment of Technical know how whether disallowable outside of TNMM method adoption

Facts:

Assessee had paid Rs. 9.07 crores as fees for technical knowhow and had benchmarked their AE payments adopting the TNMM method. TPO held the Arm's length price of the technical knowhow as NIL and subjected the entire technical knowhow as an addition. It was the plea of the assessee that once the TNMM method is followed the technical knowhow payment also is assumed to be contained in the TNMM benchmarking thus it cannot be read as NIL and no addition is sustainable. On appeal the CIT(A) upheld the views of the AO besides holding that since no TDS was remitted the technical knowhow was also worthy of disallowance under section 40(a)(i) of the act. The assesseee had capitalized the said technical knowhow in their books and no expenditure was claimed on the same and it was only depreciation which was charged/claimed on the said capitalized asset including the technical knowhow payout. On further appeal -

Held in favour of the assessee that once transactions are aggregated and TNMM is used for benchmarking splitting the transactions for ALP is incorrect/unwarranted.

Depreciation is not an expense but a claim and hence not subject to section 40(a)(i) disallowance.

Applied: 

TNMM method once accepted no transaction wise ALP is warranted

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Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT (2015) 374 ITR 118 (Del HC) : 2015 TaxPub(DT) 1653 (Del-HC) 

Lenovo (India) (P.) Ltd. v. ITO [IT(TP)A No. 195/Bang/2022, dt. 31-01-2023] (blr ITAT)

Aggregation of transactions under TP benchmarking

CIT v. Air Liquide Engineering India P Ltd. reported in (2014) 43 taxmann.com 299 (Hyd.-Trib) : 2014 TaxPub(DT) 1948 (Hyd-Trib)

Dell International Services India Pvt. Ltd. v. JCIT in [IT(TP)A No. 130/Bang/2014 & ITtTPIA 121/Bang/2014, dt. 22-12-2021] : 2022 TaxPub(DT) 1813 (Bang-Trib)

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M/s. Thyssen Krupp Industries India Pvt Ltd v. ACIT [ITA No. 7032/Mum/2011, dt. 27-11-2012] : 2013 TaxPub(DT) 0654 (Mum-Trib)

Lumax Industries Ltd v. ACTT [TS-152-I TAT-2013 (DEL)-TP].

Hindustan Unilever Limited v. Ad CIT [ITA No. 7868/Mum/2010, dt. 10-12-2012] : 2013 TaxPub(DT) 0813 (Mum-Trib)

DCIT v. CMA CGM Global India (P) Ltd [ITA No. 5979/Mum/2010, dt. 21-11-2012] : 2013 TaxPub(DT) 0390 (Mum-Trib)

Yokogawa India Limited v. ACIT [ITA No. 1329/Bang/2011].

If no expenditure is claimed then no disallowance under section 40(a)(i) can be done. Depreciation is not an expense and thus not subject to section 40(a)(i) disallowance

PCIT v. Tally Solutions (P) Ltd. (2021) 430 ITR 527 (Kar) : 2021 TaxPub(DT) 0126 (Karn-HC)

CIT v. Mark Auto Industries Ltd in [ITA No. 57 of 2009, dt. 8-10-2012] : 2013 TaxPub(DT) 2663 (P&H-HC)

ITO v. Kawasaki Microelectronics Inc. [IT(IT)A No.1221/13/2014]

Sartorius Stedim India (P) Ltd v. ACIT (2023) 146 taxmann.com 343 (Bang-Trib) : 2023 TaxPub(DT) 1064 (Bang-Trib).

Nector Beverages (P.) Ltd. v. DCIT (2009) 314 ITR 314 (SC) : 2009 TaxPub(DT) 1871 (SC)

Case: Tata Power Solar Systems Ltd. v. ACIT 2023 TaxPub(DT) 3278 (Bag-Trib)