2018 (11) TMI 1697 - HC - Income Tax

TP Adjustment - Royalty and Sales Commission paid were separate and independent international transactions which were required to be benchmarked separately by applying the Comparable Uncontrolled Price Method - HELD THAT - While examining the aforesaid question the respondent-assessee would be entitled to raise the issue and question that the Assessing Officer had disallowed the entire expenditure on royalty etc. without referring to any comparables by applying benefit test. Accordingly the Tribunal should not have remanded the matter to the Assessing Officer. Filing of printed paper book is dispensed with. However parties are at liberty to file documents/papers which were part of the assessment or appellate proceedings. Papers/documents would be filed within eight weeks. Admit substantial question of law.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was correct in holding that Royalty and Sales Commission paid were separate and independent international transactions requiring separate benchmarking?
2. Whether the Assessing Officer's disallowance of expenditure without referring to comparables by applying the "benefit" test was justified?

Analysis:

1. The High Court framed a substantial question of law regarding the correctness of the Income Tax Appellate Tribunal's decision on Royalty and Sales Commission payments. The Tribunal had held that these payments were distinct international transactions necessitating separate benchmarking using the Comparable Uncontrolled Price Method. The respondent-assessee was granted the opportunity to challenge the Assessing Officer's disallowance of the expenditure on royalty without considering comparables. The Tribunal's decision to remand the matter to the Assessing Officer was questioned by the respondent.

2. The respondent was allowed to raise the issue of the Assessing Officer's disallowance of the entire expenditure on royalty without citing any comparables and applying a "benefit" test. The Tribunal's decision to remand the matter was challenged on the grounds that the Assessing Officer did not properly consider relevant factors before disallowing the expenditure. The High Court directed the parties to file documents and papers related to the assessment or appellate proceedings within eight weeks for further consideration.

In conclusion, the High Court admitted the case for detailed examination and inclusion in the Regular List for further proceedings. The issues of separate benchmarking of Royalty and Sales Commission payments and the Assessing Officer's disallowance of expenditure without proper reference to comparables and the benefit test were to be thoroughly reviewed during the subsequent hearings.