2018 (7) TMI 2348 - AT - Income Tax

TP adjustment - difference in the arms length price of the international transactions relating to payment of royalty - HELD THAT - It is noticed that an identical issue having similar facts was a subject matter of the assessee s appeal for the earlier assessment years 2008-09 and 2009-10 in those years also assessee furnished the additional evidences as has been done in the year under consideration. This Bench of the ITAT in assessee s own case for the aforesaid assessment years 2008-09 and 2009-10 while deciding the identical issue in 2018 (5) TMI 953 - ITAT DELHI has restored the issue back to the file of the AO / TPO. So respectfully following assessee s own case issue under consideration in the present case relating to payment of royalty is also set aside to the file of the AO / TPO to be adjudicated afresh in accordance with law by keeping in view the directions given in the aforesaid referred to order dated 14.5.2018. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Error in completing the assessment u/s 144C/143(3) of the Income Tax Act, 1961.
2. Transfer pricing adjustment on account of the difference in the arms length price of the international transaction of payment of royalty.

Summary:

1. Error in Completing the Assessment u/s 144C/143(3) of the Income Tax Act, 1961:
The assessee challenged the assessment order dated 28.1.2015, wherein the AO completed the assessment at an income of Rs. 9,80,28,905 against the returned income of Rs. 8,75,02,380. The assessee contended that the AO/DRP erred on facts and in law.

2. Transfer Pricing Adjustment on Account of the Difference in the Arms Length Price of the International Transaction of Payment of Royalty:
The assessee raised multiple grounds related to the transfer pricing adjustment of Rs. 1,05,26,525. The AO/DRP held that the assessee was not required to pay royalty for services provided to the associated enterprise (AE). The AO/DRP determined that royalty was only payable on sales made to unrelated third parties, not appreciating that the entire revenue of the assessee was from sales of services to third parties, whether direct customers or customers of the AE.

The AO/DRP conducted a cost-benefit analysis to determine the arms length price of the royalty payment, which is not a prescribed method under Rule 10B of the Income Tax Rules, 1963. The AO/TPO applied the CUP method without providing comparable data and disregarded that the transaction had already been benchmarked using the TNM method.

The assessee submitted additional evidence, including an Addendum to the Intangible and Proprietary Property and Licensing agreement, which clarified the understanding between the parties. This evidence was essential for a proper adjudication of the matter.

Tribunal's Decision:
The Tribunal noted that an identical issue was previously addressed in the assessee's own case for the assessment years 2008-09 and 2009-10. The Tribunal had restored the issue back to the AO/TPO for a fresh decision after considering the additional evidence. Following this precedent, the Tribunal set aside the issue of payment of royalty to the AO/TPO for fresh adjudication in accordance with the law, considering the additional evidence provided.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, and the issue of the transfer pricing adjustment was remanded back to the AO/TPO for a fresh decision. The Tribunal emphasized the importance of considering the additional evidence to ensure substantial justice.