2014 (8) TMI 1028 - HC - Income Tax

Transfer pricing adjustment - ITAT deleted the addition - Held that - As find that DRP has held that the royalty payment was at arm s length which cover a substantial part of TPO s disallowance at ₹ 1,56,43,832/-. The DRP has observed that as for the payment made under the other heads the stand taken by the TPO was approved. We find that regarding the payments made under other heads, TPO has not at all taken any detailed stand through out his transfer pricing order. The TPO has discussed the transaction of royalty payment. He has not taken up any other heads independently. In these circumstances, we find that there is no cogent basis for sustaining the addition made with regard to the payment of technical fee, training fee, testing expenses, payment of modification of tools and payment of design and development expenses. The DRP also has allowed the royalty payment and disallowed the other allied payments. For arriving at the above decision, DRP has not given any cogent reasons. In these circumstances, in our considered opinion, the addition on account of arm s length price amounting to ₹ 26,48,678/- is not sustainable. We are not inclined to interfere with the order passed by the Tribunal. - Decided against revenue

Summary

Issues Involved:
1. Disallowance of royalty and other payments under different heads by the Transfer Pricing Officer.
2. Disagreement between the Transfer Pricing Officer and the Dispute Resolution Panel regarding the arms length price of royalty and other payments.
3. Deletion of addition by the Tribunal based on the findings of the Dispute Resolution Panel.
4. Remand order by the Tribunal for the addition made by the Assessing Officer on account of payment to Minda Industries Ltd.

Analysis:
1. The Transfer Pricing Officer recommended disallowing royalty and other payments made by the assessee. The Income Tax Appellate Tribunal, in its order, noted the lack of evidence provided by the assessee regarding the payments and the economic benefits received. However, the Dispute Resolution Panel disagreed with the Transfer Pricing Officer's findings on royalty, accepting it as an Arms Length Price while sustaining the disallowance of other payments. The Assessing Officer then made an addition based on the sustained amount. The Tribunal, on further appeal, deleted the addition after finding that the Transfer Pricing Officer did not provide a detailed stand on the other payments, leading to the conclusion that the addition was not sustainable.

2. The Tribunal's decision was based on the fact that the Dispute Resolution Panel approved the royalty payment as arms length, covering a significant portion of the disallowance. However, the Tribunal found that the Transfer Pricing Officer did not provide a detailed stand on the other payments, leading to the deletion of the addition. The Tribunal rejected the Departmental Representative's request to remit the matter to the Transfer Pricing Officer for a detailed finding on the other payments, citing potential hardship to the assessee.

3. The Tribunal dismissed the appeal after examining the reasoning, the quantum of the amount involved, and the lack of specific findings by the Transfer Pricing Officer and the ambiguous nature of the Dispute Resolution Panel's observations. The Tribunal decided not to interfere with the order passed based on these considerations.

4. The second issue regarding the addition made by the Assessing Officer on account of payment to Minda Industries Ltd. was not considered as the Tribunal had already passed a remand order for further examination of the justification provided by the assessee for the said expenditure. The Tribunal noted that both the assessee and Minda Industries Ltd. were profit-making entities paying taxes at the same rate, leading to the dismissal of the appeal.

In conclusion, the Tribunal's decision to delete the addition based on the lack of detailed findings by the Transfer Pricing Officer on the other payments, and the rejection of the remand request by the Departmental Representative, led to the dismissal of the appeal. The Tribunal's consideration of the arms length price of royalty and the specific nature of the payments played a crucial role in the final outcome of the case.