Oral Judgment Per K. R. Shriram J v. Deputycommissioner Of Income-Tax Which Ex-Facie Did Not Support And Wasin Fact Contrary To The View Set Out In The Impugned Order ?”

Digitallysigned byMEERAMEERAMAHESHMAHESHJADHAVJADHAVDate:2023.08.0712:27:03+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO.126 OF 2023 (ASSESSMENT YEAR 2015-2016) Cummins India Limited)having its registered office address at) Tower A, 5[th] floor, Cummins India)Office Campus, Balewadi, )Pune 411 045)..Appellant Vs.Assistant Commissioner of Income)Tax, Circle-1(1), Pune)Income Tax Office, PMT Building,)Shankar Seth Road, Swargate,)Pune Maharashtra 411 037)..Respondent WITHINCOME TAX APPEAL (L) NO.40246 OF 2022 (ASSESSMENT YEAR 2016-2017) WITH INCOME TAX APPEAL NO.125 OF 2023(ASSESSMENT YEAR 2017-2018) Cummins India Limited)having its registered office address at)Tower A, 5[th] floor, Cummins India)Office Campus, Balewadi, )Pune 411 045)..Appellant Vs.1.Additional / Joint / Deputy/)Assistant Commissioner of Income)Tax/ Income Tax Officer,)National Faceless Assessment,)Centre, Delhi)2.Assistant Commissioner of Income)Tax, Circle-1(1), Pune)Income Tax Office, PMT Building,)Shankar Seth Road, Swargate,)Pune Maharashtra 411 037) ..Respondents ---- Mr. J. D. Mistri, Senior Advocate i/b Mr. Jitendra Singh for Appellant in all the appeals. Mr. Suresh Kumar for Respondents in all the appeals. ---- CORAM : K.R. SHRIRAM & FIRDOSH. P. POONIWALLA, JJ DATED : 28[th] JULY 2023 (ORAL JUDGMENT PER K. R. SHRIRAM J.) 1These appeals are filed by Assessee under Section 260A of the IncomeTax Act 1961 (the Act) against the order dated 28[th] September 2022 passedby the Income Tax Appellate Tribunal (ITAT) for A.Y.2015-2016, 2016-2017and 2017-2018. The issue is in respect of transfer pricing adjustments. Theappeals were admitted on 11[th] April 2023 and in the three appeals, thefollowing three questions of law were framed:- “(i) Whether the Appellate Tribunal has erred in law in passing theorder dated 28th September 2022 directly contrary to the view takenby the Appellate Tribunal in Appellant’s own case for earlierassessment years on identical facts and law without referring the issueto a Special (Full) Bench in the event that it wished to differ from theview taken by a co-ordinate Bench of the Tribunal ? (ii) Whether the order dated 28th September 2022 passed by theAppellate Tribunal is bad in law as the same is passed ignoring thefact that on the very same transaction the department has acceptedthe methodology applied by the Appellate for benchmarking thetransactions for transfer pricing purposes in seven (7) earlier years inview of inter alia binding order of the Tribunal ? (iii) Whether in the facts and in the circumstances of the case and inlaw the Tribunal erred in passing the impugned order dated 28thSeptember 2022 purporting to rely on decision of Delhi High Court inthe case of Magneti Marelli Power Train India P. Ltd. Vs. DeputyCommissioner of Income-tax which ex-facie did not support and wasin fact contrary to the view set out in the impugned order ?” 2Assessee is engaged in the business of manufacture and sale of Internal Combustion Engines, Spares, Components (including Bought-Outs) (iii) Whether in the facts and in the circumstances of the case and inlaw the Tribunal erred in passing the impugned order dated 28thSeptember 2022 purporting to rely on decision of Delhi High Court inthe case of Magneti Marelli Power Train India P. Ltd. Vs. DeputyCommissioner of Income-tax which ex-facie did not support and wasin fact contrary to the view set out in the impugned order ?” 2Assessee is engaged in the business of manufacture and sale of Internal Combustion Engines, Spares, Components (including Bought-Outs) thereof & Generating Sets, service of Engines & Gensets / Generating Sets &Allied Equipment, etc. Assessee also has a 100% Export Oriented Unit atPirangut which is engaged in manufacture and exports of internalcombustion engines and its accessories and generating sets and accessories.The returns filed by Assessee was selected for scrutiny assessment by issuingstatutory notices under section 143(2) and section 142(1) of the Act. Duringthe years under consideration, Assessee had entered into variousinternational transactions with its Associated Enterprise(s) in the course ofits business. Assessee had paid royalty amounting to Rs.54,30,69,318/-for A.Y.2015-2016, Rs.46,99,15,361/- for A.Y.2016-2017 andRs.51,26,51,778/- for A.Y. 2017-2018 to its Associated Enterprise, i.e.,Cummins Inc. for providing technical know how and technical knowledgefor manufacturing of engines to be sold to the customers. For A.Y.-2015-16 Assessee filed its return of income on 30[th] November2015 declaring total income of Rs.3,83,80,77,530/-. For A.Y. 2016-2017Assessee filed its return of income on 30[th] November 2016 declaring totalincome of Rs.4,10,59,82,510/-, and for A.Y. 2017-2018 Assessee filed itsreturn of income on 30[th] November 2017 declaring total income ofRs.4,98,57,18,870/-. The returns filed by Assessee were processed andaccepted under the provisions of Section 143(1) of the Act. 3Assessee’s case was taken up for scrutiny and statutory notices underSection 143(1) and Section 142(1) of the Act were issued during the courseof assessment proceedings. Respondent No.1 made a reference under section 92CA (1) of the Act to the Transfer Pricing Officer, Pune (TPO) todetermine the arm's length price (ALP) of the international transactionswith the Associated Enterprise(s) of Assessee. The TPO issued a noticecalling upon Assessee to produce relevant evidence supporting thecomputation of ALP in relation to the international transactions andspecified domestic transactions. Assessee furnished all the relevant details /evidence as called for by the TPO. Assessee, in response to one of the pointsraised relating to royalty paid to Cummins (Inc.), explained that for the useof technology received from Cummins (Inc.) it has paid royalty on the saleof the certain types of internal combustion (IC) engines covered by thetechnology so provided. Assessee also provided copies of agreementsentered into with its Associated Enterprise and explained that theagreement that was in force for royalty, was an agreement dated 16[th]September 2010. Assessee also explained to the TPO that for benchmarking of royalty transaction it has aggregated the royalty paid with othertransactions relating to manufacturing of IC engines as these transactionsare closely linked transactions. 4TPO issued a notice under section 92C(3) of the Act whereinaggregation of royalty transactions with other transactions at the entity levelwas doubted and directed Assessee to show cause why the royalty rate usedfor domestic sales should not be used for benchmarking the royalty onexport transactions as well. Assessee submitted its reply and even explained,inter alia to the TPO as under: (a)Assessee is relying on its Associated Enterprise for various kindsof technical knowledge and knowhow received from time to time in order tomanufacture and sell the engines to its customers. (b) It had received technology updates and technical assistance inearlier years as well as in the relevant assessment year. 4TPO issued a notice under section 92C(3) of the Act whereinaggregation of royalty transactions with other transactions at the entity levelwas doubted and directed Assessee to show cause why the royalty rate usedfor domestic sales should not be used for benchmarking the royalty onexport transactions as well. Assessee submitted its reply and even explained,inter alia to the TPO as under: (a)Assessee is relying on its Associated Enterprise for various kindsof technical knowledge and knowhow received from time to time in order tomanufacture and sell the engines to its customers. (b) It had received technology updates and technical assistance inearlier years as well as in the relevant assessment year. (c)For the purposes of benchmarking, it had aggregated thepayment of royalty along with other international transactions ofmanufacturing activity. As the use of technology and consequential paymentof royalties are closely linked to the manufacturing activity of Assessee, itwas aggregated for the purposes of benchmarking. The manufacturingsegment benchmarked using the Transactional Net Margin Method [theTNMM] and selecting external comparable companies. Basis the saidbenchmarking analysis, Assessee contended that the internationaltransactions undertaken by it, including the transaction of payment ofroyalty, are at arm's length. (d) Assessee also brought to the notice of TPO that in its own casefor various assessment years, i.e., Assessment Years 2006-07 to 2011-2012,the Appellate Tribunal has upheld the principles of aggregation followed byAssessee for benchmarking the international transactions of manufacturingactivity. Assessee also furnished copies of order passed by the Income TaxAppellate Tribunal in its own case before the TPO. (e)Specific reference was made to the fact that the approachfollowed by the Company for payment of royalty was also accepted by the erstwhile TPOs for the previous assessment years. (f)Assessee on the basis of above submissions requested the TPOto accept the aggregation approach followed by it to benchmark theimpugned transaction of payment of royalty as the same is closely linkedwith manufacturing activity of Assessee. (g) Royalty was paid at the rate of 1%, 2%, 2.5% and 5% fordomestic sales and 4% and 8% for export sales. A detailed calculation ofroyalty was also provided. 5TPO passed an order under Section 92CA(3) of the Act, wherein TPOhas accepted Assessee’s contention for aggregation of transaction andapplication of the TNMM to test the ALP of most of Assessee’s internationaltransaction. Insofar as the payment of royalty made by Assessee to itsAssociated Enterprise is concerned, the TPO, after accepting the fact thatAssessee had indeed received technology of its Associated Enterprise,rejected the contention of Assessee of aggregating the royalty paid with theother international transactions in the manufacturing segment forbenchmarking the same, and made upward adjustment to the value ofinternational transaction pertaining to payment of royalty on export sales.TPO had his own reasons for making this upward adjustment, some ofwhich are as under: (a) for a related party transaction or the related party closely linkedtransactions to be benchmarked correctly, their value should form asubstantial part of the transactions being analyzed together as a group. (b) In order to determine the most precise approximation of arm'slength conditions, the arm's length principle should be applied on atransaction-by transaction basis unless the transactions are closely related.Transactions are said to be closely related when decision of price of oneproduct service depends on the price of another product or service. In thecase of Assessee, the royalty transactions do not in any manner impact orinfluence the pricing of the sale price or other transactions in themanufacturing segment. Therefore, aggregation of royalty in such situationwould be incorrect. (a) for a related party transaction or the related party closely linkedtransactions to be benchmarked correctly, their value should form asubstantial part of the transactions being analyzed together as a group. (b) In order to determine the most precise approximation of arm'slength conditions, the arm's length principle should be applied on atransaction-by transaction basis unless the transactions are closely related.Transactions are said to be closely related when decision of price of oneproduct service depends on the price of another product or service. In thecase of Assessee, the royalty transactions do not in any manner impact orinfluence the pricing of the sale price or other transactions in themanufacturing segment. Therefore, aggregation of royalty in such situationwould be incorrect. (c) The TPO also rejected the contention of Assessee that the royaltytransaction should be aggregated with other transactions and benchmarkedwith the overall TNMM margin and proposed separate benchmarking of thesame. While doing so, the TPO referred to various decisions of the Courtsand the Appellate Tribunal as set out in his order. (d) The TPO refused to follow the order passed by the AppellateTribunal in earlier years allowing the aggregation of various transactions byobserving that on perusal of the said Appellate Tribunal orders, it isobserved that Appellate Tribunal has opined on aggregation of AssociatedEnterprise and Non-Associated Enterprise segment for the manufacturingactivity in those particular years. Aggregation of royalty with othertransactions was not an issue being discussed in the Appellate Tribunalorders. Therefore, referring to the Appellate Tribunal Orders in the presentfacts would be incorrect. (e) The TPO held that the most appropriate method for benchmarkingof the royalty transaction is either the CUP method/other Method. (f) Since the same technology was being received and applied forvarious products that are sold in domestic as well as export markets the rateof royalty should also be similar and in line with uncontrolled transaction.When actual bifurcation of royalty on domestic and export market isavailable then effective rate should be calculated at overall domestic andexport segment level. Accordingly, the TPO passed the draft assessment order under Section143(3) read with Section 144C of the Act incorporating the upwardadjustment. 6Assessee filed the detailed objections before the Dispute ResolutionPanel-3, Mumbai (DRP). DRP issued its directions under Section 144(5)rejecting Assessee’s contentions and held that the transactions of royaltypayment of export sales is to be segregated and benchmarked on atransaction-by-transaction basis as was done by the TPO. Following thedirections of DRP, respondent passed the final assessment order underSection 143(3) read with Section 144C(13) of the Act making transferpricing adjustment on the transfer pricing. 7Aggrieved by the final assessment order, Assessee preferred an appealbefore the Income Tax Appellate Tribunal (ITAT). ITAT upheld the action ofthe authorities below in making that transfer price adjustment to theinternational transaction of payment of royalty and held as under: (a) the international transaction of payment of royalty is notinextricably linked with the other international transactions in themanufacturing segment; (b) the TPO, in the case of Assessee has, after rejecting Assessee'saggregation approach, resorted to the ALP determination of royalty paymenttransaction separately under the TNMM only; (c) the facts of the case of Assessee are similar to those in the case of Magneti Marelli Powertrain India (P.) Ltd. Vs. Deputy Commissioner ofIncome Tax 1 and held that international transaction of payment of royaltyby Assessee for use of technical support cannot be clubbed with otherinternational transactions under the manufacturing segment; (a) the international transaction of payment of royalty is notinextricably linked with the other international transactions in themanufacturing segment; (b) the TPO, in the case of Assessee has, after rejecting Assessee'saggregation approach, resorted to the ALP determination of royalty paymenttransaction separately under the TNMM only; (c) the facts of the case of Assessee are similar to those in the case of Magneti Marelli Powertrain India (P.) Ltd. Vs. Deputy Commissioner ofIncome Tax 1 and held that international transaction of payment of royaltyby Assessee for use of technical support cannot be clubbed with otherinternational transactions under the manufacturing segment; (d) rejected the reliance placed by Assessee on the order of theAppellate Tribunal in its own case for the Assessment Year 2006-2007 on theground that the Appellate Tribunal had rendered its decision in context ofan earlier agreement under which the royalty was paid; (e) the judgment in the case of Knorr-Bremse India (P.) Ltd. Vs. ACIT[2]was delivered prior to the Appellate Tribunal order for the Assessment Year 2006-07, but it was not brought to the notice of the Bench. Aggrieved by this finding the present appeals have been filed. 8Mr. Mistri submitted as under: (a) The Tribunal was not justified in rejecting the contention ofAssessee with respect to aggregation approach of royalty payment with 1. (2016) 389 ITR 8 469 (delhi) 2. (2016) 380 ITR 307 (P & H) other international transaction in the manufacturing segment fordetermining the ALP activity carried on by Assessee. (b) Assessee had paid royalty to its Associated Enterprise in its earlierAssessment Year 2006-07 under an identical agreement. The Tribunal videits order dated 3[rd] March 2017 for Assessment Year 2006-07 has held thatthe transaction of payment of royalty for use of technology is inextricablylinked with manufacturing activity and should be aggregated with otherinternational transactions in the manufacturing segment for the purposes ofbenchmarking the same. Thereafter, the TPO has accepted the action ofAssessee in aggregating the international transaction of payment of royaltywith other international transactions in the manufacturing segment and notdrawn any adverse inferences in respect of such aggregation of royaltypayment under identical agreement and in fact, in a majority of the years,from the Assessment Year 2007-08 up to the Assessment Year 2014-15 underthe very same agreement. The TPO accepted the aforesaid after thoroughlyscrutinising the international transactions entered into by Assessee, thetransfer pricing report obtained and the transfer pricing documentationmaintained by Assessee. (c) Assessee had also paid royalty to its Associated Enterprise in theearlier Assessment Years 2007-08 to 2014-15, under an identical / the sameagreement and had aggregated the international transaction of payment ofroyalty with the other international transactions under the manufacturingsegment, to benchmark the payment of royalty and the said aggregation approach adopted by Assessee was not disputed by the TPO in any of thoseyears and hence the impugned order is in violation of judicial discipline. (d) It is settled law that unless there is change in material facts thedepartment is bound by the previous decision. In Assessee’s case also, thereis no difference in material facts from the Assessment Year 2006-07 to theyear under consideration, i.e., Assessment Year 2015-16 or Assessment Year2016-2017 or Assessment Year 2017-2018. Hence, the Tribunal is notjustified in taking a different view. approach adopted by Assessee was not disputed by the TPO in any of thoseyears and hence the impugned order is in violation of judicial discipline. (d) It is settled law that unless there is change in material facts thedepartment is bound by the previous decision. In Assessee’s case also, thereis no difference in material facts from the Assessment Year 2006-07 to theyear under consideration, i.e., Assessment Year 2015-16 or Assessment Year2016-2017 or Assessment Year 2017-2018. Hence, the Tribunal is notjustified in taking a different view. (e) The Tribunal was wrong in concluding that the agreement underwhich Assessee has paid the royalty is different from the agreementconsidered by the co-ordinate bench of the Tribunal in the Assessment Year2006-07. The TPO or DRP has not even whispered or mentioned in theirorder(s) about the facts being different from the earlier years. Only duringthe hearing before the Tribunal, the DR raised a completely different andnew argument and the Tribunal has accepted the same without evenverifying the agreements available on record. (f)The royalty agreement for the year under consideration wasidentical to the earlier agreement. (g) The Tribunal failed to appreciate that the TPO himself has afterthe date of the new agreement, i.e., after 16[th] September 2010 and from theAssessment Year 2011-12 up to the Assessment Year 2014-15 accepted thebenchmarking of the international transaction of payment of royalty underthe aggregation approach along with transactions of the manufacturing segment. Hence, the Tribunal was not justified in taking a different view. (h) The Tribunal has distinguished its decision in the case of Assesseefor the Assessment Year 2006-07 seeking to rely on the decision of thePunjab & Haryana High Court in the case of Knorr-Bremse India (P.) Ltd.(supra). While doing so the Tribunal has ignored the test laid down by theDelhi High Court on the subject vis-à-vis the principles of aggregationapplied by the co-ordinate Bench of the Tribunal in Assessee’s own case forthe earlier Assessment Years and the Tribunal has reached a conclusion thatthe transaction of payment of royalty is closely linked to the otherinternational transactions under the manufacturing segment. (i) The Tribunal has wrongly applied the decision of the Delhi HighCourt in the case of Magneti Marelli (supra) without appreciating that thefacts of Assessee's case is different from the facts Magneti Marelli (supra). Inthat case, the Court had specifically held that the “lower authorities quitecorrectly turned down the method of explaining the justification of thetechnical fee-with ‘proof’ of its necessity by relying on profits”, and it is forthis reason that the Delhi High Court affirmed the remit directed by theTribunal in that case. In the case at hand, the TPO himself has stated that heis not disputing the fact that Assessee has received technology from itsAssociated Enterprise for which it is making the payment of royalty.Therefore, the Tribunal could not have relied on the decision in MagnetiMarelli (supra). (j) Delhi High Court in Magneti Marelli (supra) held that the Tribunal was right in holding that royalty and technical assistance fee did not formpart of a composite transaction and have to be treated as two separatetransactions for the purpose of benchmarking and computing the ALPbecause in that case, Assessee was unable to explain why the payment fortechnical assistance was made when the royalty had already been paid.Therefore, the facts in that case were different from the case at hand. (j) Delhi High Court in Magneti Marelli (supra) held that the Tribunal was right in holding that royalty and technical assistance fee did not formpart of a composite transaction and have to be treated as two separatetransactions for the purpose of benchmarking and computing the ALPbecause in that case, Assessee was unable to explain why the payment fortechnical assistance was made when the royalty had already been paid.Therefore, the facts in that case were different from the case at hand. (k) At the same time, Delhi High Court in Magneti Marelli (supra) hasheld that once the TPO accepted TNMM method applied by Assessee, as themost appropriate method in respect of all the international transactionsincluding payment of royalty, it was not open to the TPO to subject only oneelement, i.e payment of technical assistance fee, to an entirely differentComparable Uncontrolled Price (CUP) method. The adoption of the methodas the most appropriate one assures the applicability of one standard orcriteria to judge an international transaction by each method is a package initself, as it were, containing the necessary elements that are to be used asfilters to judge the soundness of the international transaction in an ALPfixing exercise. (l) The TPO has accepted the transactions to be part of manufacturingactivity and approved TNMM as the transfer price method but out of 14only one item, payment of royalty for consideration of technology, wassegregated which is not permissible. 9Mr. Suresh Kumar submitted as under: (a) The TPO has not disputed the fact the Assessee has received technology. The TPO has also accepted and acknowledged that Assessee hasused the TNMM method as the most appropriate method to benchmark itsinternational transactions all under the manufacturing activity whichincluded the royalty that it has paid on the export sales as well. But thetransaction of royalty and other international transactions of Assessee areinterlinked is not acceptable because the transaction of payment of royaltyon exports is Rs. 46.16 crore which is only 2.7% of the total turnover of thecompany of Rs. 1654 crore with which it has been aggregated and thenbenchmarked. (b) For a related party transaction or the related party closely linkedtransactions to be benchmarked correctly, their value should form asubstantial part of the transactions being analyzed together as a group. Inabsence of the same, profitability from other unrelated transactionssubsumes the profit/ loss from the related party transactions being analyzedand examination of the profit at a very broad level masks the ALP of therelated party transaction and does not lead to correct determination of itsALP. (c) Hence, in order to determine the most precise approximation ofarm's length conditions, the arm's length principle should be applied on atransaction-by- transaction basis unless the transactions are closely related.Transactions are said to be closely related when decision of price of oneproduct or service depends on the price of another product or service. Forexample, in the portfolio approach if Assessee demonstrates that original equipment (e.g.printer) is priced cheaper so that more revenue can begenerated from sale of consumables (e.g. ink cartridges), they can beaggregated. In the case of Assessee, the royalty transactions do not in anymanner impact or influence the pricing of the sale price or othertransactions in the manufacturing segment. Therefore, aggregation ofroyalty in such situation would be incorrect. (d) In assessee's own case for earlier years, the Pune ITAT has allowedand considered the aggregation of various Income transactions. In thisregard, on perusal of the said ITAT’s order, it is observed that the ITAT hasopined on aggregation of Associated Enterprise and Non AssociatedEnterprise segment for the manufacturing activity in those particular years.Aggregation of royalty with other transactions was not an issue beingdiscussed in the ITAT order. Therefore, referring to the Pune ITAT Order inthe present facts would be incorrect. (d) In assessee's own case for earlier years, the Pune ITAT has allowedand considered the aggregation of various Income transactions. In thisregard, on perusal of the said ITAT’s order, it is observed that the ITAT hasopined on aggregation of Associated Enterprise and Non AssociatedEnterprise segment for the manufacturing activity in those particular years.Aggregation of royalty with other transactions was not an issue beingdiscussed in the ITAT order. Therefore, referring to the Pune ITAT Order inthe present facts would be incorrect. (e) Considering the above, the contentions of Assessee that the royaltytransaction should be aggregated with other transactions and benchmarkedwith the overall TNMM margin is not accepted and separate benchmarkingof the same is proposed to be done. (f) Assessee is making royalty payment based on various rates rangingbetween 1% to 5% in the domestic market and 4% to 8% on the exportsales. With respect to the domestic sales, maximum sales are with respect toproduct on which rate of royalty is 1% (more than 90%) , whereas in case ofexports maximum amount of sales are on royalty rate of 8% (nearly 99%). There is no difference in technology supplied by Cummins Inc. which is usedfor manufacturing the product meant for sale in domestic market andforeign market and, therefore, Assessee paid the royalty on goods meant forsale to its associate Enterprise at higher rate so as to reduce its income andconsequential tax instances in India. Therefore, segregating the royalty ondomestic sale and exports for the separate benchmarking by the TPO wascorrect. (g) Merely because payment of royalty for use of technical supportleads to manufacture of final product, it does not follow that they both aredependent or closely-linked transactions. In such circumstances, the ALP ofthe international transaction of payment of royalty for use of technologycannot be aggregated with others. (h) In Magneti Marelli (supra), Delhi High Court accepted that royaltyand technical assistance fee did not form part of a composite transactionand have to be treated as two separate transactions for the purpose ofbenchmarking and computing the ALP and answered against Assessee. Thecourt had affirmed the view of the Tribunal that aggregation of transactionof payment of technical fees with other international transactions under thecommon TNMM was not correct. (i) Even in Magneti Marelli (Supra) the court did not approveclubbing payment of technical fees with other transactions under themanufacturing segment. (j) Though the Tribunal in Assessee’s own case for Assessment Year 2006-2007 and some of the later years in which the contention of theasseessee for aggregation of payment of royalty with other internationaltransactions under the manufacturing segment came to be accepted, thedecision of the Tribunal was rendered in the context of an earlier agreementunder which the royalty was paid. Assessee, however, has entered into anew agreement on 16[th] September 2010 with Cummins Inc. under which thetechnical support was received for which payment of royalty was made byAssessee for the year under consideration. The terms and conditions weredifferent and the new agreement was not subject of consideration before theTribunal for Assessment Year 2006-2007. Sections 92, 92-C, 92-D and 92-Eof the Act read with Rule 10-B and 10-D of the Income Tax Rules indicatethe approach of the TPO tasked with the obligation to discern, if in a givenset of circumstances, Assessee has disclosed international transactions wasentered into with Associate Enterprise. These TP reports should be factuallycorrect and Assessee has to satisfy the queries of the TPO. Section 92-C ofthe Act underlines that the method appropriate to the transaction, amongstthe four specified ones, is to be applied. OUR CONCLUSIONS:- OUR CONCLUSIONS:- 10In our view, the Tribunal has entirely misread the law as laid down inMagneti Marelli (Supra). It is correct that in that case also Assessee had paidroyalty to its associate Enterprise for use of technical support formanufacturing its product and the court held that royalty and technicalassistance fee did not form part of a composite transaction and have to be treated as two separate transactions for the purpose of benchmarking andcomputing the ALP because Assessee had paid the royalty and separatelytechnical assistance fees. During the transfer pricing proceedings, Assesseewas unable to substantiate the need for payment of technical assistance feesto its foreign associate Enterprise and the TPO had observed that Assesseedid not undertake any cost benefit analysis or any benchmarking exercise atthe time of entering into the agreement. The court observed that the initialburden is upon Assessee to prove that the international transaction was atALP but Assessee was unable to explain why he had paid technicalassistance fee which did not form part of composite transaction. But in thecase at hand, the assessing officer has accepted that Assessee had receivedtechnology from Cummins Inc. - Associate Enterprise and the rate of royaltypayment was made on exports. The TPO has also accepted that Assessee hasused the TNMM method as the most appropriate method to benchmark itsinternational transactions under the manufacturing activity includingroyalty that it had paid on the export sales as well. The TPO has acceptedthe TNMM method as the most appropriate method to benchmark Assessee’sinternational transactions under the manufacturing activity but decided toseparately benchmark the royalty. This is what has been held notpermissible (and we respectfully agree with this view) in Magneti Marelli(supra), where paragraph 16 reads as under: “16. As far as the second question is concerned, the TPO acceptedTNMM applied by the assessee, as the most appropriate method inrespect of all the international transactions including payment ofroyalty. The TPO, however, disputed application of TNMM as the mostTNMM applied by the assessee, as the most appropriate method inrespect of all the international transactions including payment ofroyalty. The TPO, however, disputed application of TNMM as the most appropriate method for the payment of technical assistance fee of `38,58,80,000 only for which Comparable Uncontrolled Price ("CUP")method was sought to be applied. Here, this court concurs with theassessee that having accepted the TNMM as the most appropriate, itwas not open to the TPO to subject only one element, i.e payment oftechnical assistance fee, to an entirely different (CUP) method. Theadoption of a method as the most appropriate one assures theapplicability of one standard or criteria to judge an internationaltransaction by each method is a package in itself, as it were,containing the necessary elements that are to be used as filters tojudge the soundness of the international transaction in an ALP fixingexercise. If this were to be disturbed, the end result would bedistorted and within one ALP determination for a year, two or evenfive methods can be adopted. This would spell chaos and bedetrimental to the interests of both the assessee and the revenue. Thesecond question is, therefore, answered in favour of the assessee; theTNMM had to be applied by the TPO/AO in respect of the technicalfee payment too. (emphasis supplied) (emphasis supplied) 11Therefore, the TPO having accepted that TNMM method applied byAssessee was the most appropriate method in respect of all the internationaltransactions including payment of royalty cannot dispute application ofTNMM method as the most appropriate method for the payment of royaltyonly for which CUP method was sought to be applied. We would concurwith Mr. Mistri that having accepted the TNMM method as the mostappropriate, it was not open to the TPO to subject only one element, i.e,payment of royalty, to an entirely different CUP method. The adoption of amethod as the most appropriate one assures the applicability of onestandard or criteria to judge an international transaction. Each method is apackage in itself, as it were, containing the necessary elements that are to beused as filters to judge the soundness of the international transaction in anALP fixing exercise. If this were to be disturbed, the end result would bedistorted and within one ALP determination for a year, two or even five methods can be adopted. This would spell chaos and be detrimental to theinterests of both Assessee and the revenue. 12Further the Tribunal was totally incorrect in saying that acceptingaggregation of royalty payment with other international transactions underthe manufacturing segment for the Assessment Year 2006-2007 was in thecontext of an earlier agreement under which the royalty was paid. ButAssessee having entered into a new agreement on 16[th] September 2010 withCummins Inc. under which the technical support was received for whichpayment of royalty was made by Assessee for the year under considerationand hence they need not follow the earlier approach of the Tribunal. This isbecause the new agreement on which reliance has been placed by theTribunal was dated 16[th] September 2010, and even after the said agreementwas entered into, for the Assessment Year 2011-2012 to Assessment Year2014-2015 the TPO himself had accepted the benchmark of theinternational transaction of payment of royalty under the aggregationapproach along with transactions of the manufacturing segment. TheTribunal failed to recognize that the royalty agreement for the years underconsideration was the same agreement. We have to notice that neither theTPO nor the DRP had even whispered or mentioned in their orders aboutany facts being different from the earlier orders. In such situation, theTribunal was not justified in taking a different view for these threeassessment orders. The Apex Court in Radhasoami Satsang Vs. CIT[3] has held that in the absence of change in material facts, the department isbound by the previous decision. 13Once the Tribunal in its earlier orders has held that the transaction ofpayment of royalty for use of technology is inextricably linked withmanufacturing activity and should be aggregated with other internationaltransactions in the manufacturing segment for the purposes ofbenchmarking the same, and the TPO having accepted the aggregating ofinternational transaction of payment of royalty with other internationaltransactions in the manufacturing segment and not drawn any adverseinferences in respect of such aggregation of royalty payment under identicalagreement, the Tribunal should have followed the order of the co-ordinatebench rendered under identical facts. More so, when in a majority of theyears from the Assessment Year 2006-07 up to the Assessment Year 2014-15it was under the very same agreement and the orders were passed afterthoroughly scrutinising the international transactions entered into byassessee, the transfer pricing report obtained and the transfer pricingdocumentation maintained. 14Therefore, we answer all the three questions in favour of assessee. 15Appeals accordingly allowed. No order as to costs. (FIRDOSH P POONIWALLA, J.) (K.R. SHRIRAM, J.)