2020 (9) TMI 1289 - AT - Income Tax

TP Adjustment - comparable selection - exclusion of Engineers India Limited from the list of comparables, being a Government company - HELD THAT - Dispute Resolution Panel (DRP) rejected the Government undertaking as comparable by following the order of Tribunal in assessee s own case for AY 2008-09 2013 (11) TMI 930 - ITAT MUMBAI . We do not find any merit in ground No.1 of the appeal. Accordingly, the same is dismissed. TP adjustment on account of payment of royalty, project engineering and manufacturing drawings - assessee applied to the RBI seeking approval in respect of payment of royalty and technical fee through Central Bank of India - HELD THAT - We find that the DRP has deleted the addition by placing reliance on the order of the Tribunal in assessee s own case for assessment year 2008-09 2013 (11) TMI 930 - ITAT MUMBAI when a payment is made after obtaining due approval from the RBI, how its ALP can be computed at Rs. Nil, is anybody's guess. The fact of approval of the payment by the RBI has been succinctly recorded by the TPO in his order as well. He still chose to propose adjustment in respect of full payment. In our considered opinion, when the rate of royalty payment and fee for drawings etc. has been approved or deemed to have been approved by the RBI, then such payment has to be considered at ALP. We, therefore, direct to delete addition - Decided in favour of assessee.

Summary

Issues:
1. Exclusion of Engineers India Limited as a comparable company.
2. Deletion of transfer pricing adjustment on account of royalty, project engineering, and manufacturing drawings.

Analysis:
1. The first issue revolves around the exclusion of Engineers India Limited, a Government Undertaking, as a comparable company for transfer pricing purposes. The Tribunal has consistently held that Government companies are not suitable comparables due to operating constraints. The Tribunal's decision in the assessee's own case for the assessment year 2008-09 supported the exclusion of Engineers India Limited based on specific reasons related to profit motive and related party transactions. The Dispute Resolution Panel also rejected the Government undertaking as comparable by following the Tribunal's order in the earlier assessment year. Consequently, the Tribunal dismissed the Revenue's appeal challenging this exclusion.

2. The second issue concerns the deletion of a transfer pricing adjustment amounting to Rs.5,93,58,926 on payment of royalty, project engineering, and manufacturing drawings. The DRP deleted this adjustment based on the Tribunal's decision in the assessee's case for the assessment year 2008-09. The Tribunal's findings highlighted the approval of royalty payments by the RBI and the lack of justification for proposing adjustments when payments were approved or deemed approved. The Tribunal found no material to distinguish the facts in the current assessment year or challenge its earlier decision. As a result, the Tribunal dismissed the Revenue's appeal on this issue as well.

In conclusion, the Tribunal upheld the decisions of the DRP and dismissed the Revenue's appeal on both issues. The cross objections filed by the assessee were also dismissed as they became infructuous following the dismissal of the Revenue's appeal. The judgment reaffirmed the importance of consistent application of transfer pricing principles and adherence to legal precedents in determining arm's length prices for international transactions.