2019 (7) TMI 2030 - AT - Income Tax

TP Adjustment on Payment of Royalty - HELD THAT - Since the facts of the impugned assessment year are identical to the facts of the preceding assessment year, therefore, following the order of the Tribunal in assessee s own case for the immediately preceding assessment years, we restore the issue to the file of the A.O./TPO with a direction to decide the issue afresh 2018 (7) TMI 2348 - ITAT DELHI and in accordance with the law in the light of the directions of the Tribunal. The ground of appeal No.2 raised by the assessee is accordingly allowed for statistical purposes. TP adjustment in respect of the realization of receivables from the AEs considering the same to be an international transaction of loan - No adjustment is required on account of interest on receivables. We accordingly set aside the order of the AO/TPO/DRP and direct the A.O. to delete the disallowances so made. The grounds of appeal on this issue are accordingly allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustment for Payment of Royalty
2. Transfer Pricing Adjustment for Receivables

Summary:

1. Transfer Pricing Adjustment for Payment of Royalty:
The assessee, M/s CRM Services India Pvt. Ltd., contested the transfer pricing adjustment of Rs. 1,25,61,795 made by the Assessing Officer (A.O.)/Transfer Pricing Officer (TPO) on account of royalty payment to its Associated Enterprise (AE). The Dispute Resolution Panel (DRP) partially upheld the adjustment, restricting it to Rs. 1,25,61,795 from Rs. 2,53,00,568. The assessee argued that the royalty payment was legitimate and fully compliant with the 'Intangible and Proprietary Property and Licensing agreement' dated 02-01-2002, and that the entire revenue derived from services to third parties warranted the royalty payment. The Tribunal, referencing its previous orders for assessment years 2008-09, 2009-10, and 2010-11, restored the issue to the file of the A.O./TPO for fresh adjudication with the consideration of additional evidence filed u/s Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.

2. Transfer Pricing Adjustment for Receivables:
The assessee challenged the transfer pricing adjustment of Rs. 10,28,714 made by the A.O./TPO on account of receivables, which were considered an international transaction of loan. The DRP upheld this adjustment. The assessee argued that its profit margin from AE transactions was significantly higher than from unrelated parties, thus negating the need for any adjustment. The Tribunal referred to the Delhi High Court's decision in PCIT vs. Kusum Healthcare Pvt. Ltd., which held that not all receivables constitute an international transaction and that any adjustment should consider the overall profitability and working capital impact. The Tribunal also cited similar decisions in Global Logic India Ltd. vs. DCIT and M/s Bechtel India Pvt. Ltd., concluding that no adjustment on account of notional interest on receivables was warranted. Consequently, the Tribunal directed the A.O. to delete the disallowance made on this ground.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the A.O./TPO to re-adjudicate the issues concerning the payment of royalty and the receivables in accordance with the law and the Tribunal's directions.