2019 (5) TMI 1331 - HC - Income Tax

TP Adjustment - royalty payment - withdrawal of appeal - principle of aggregation of closely linked transactions using Transactional Net Margin Method - HELD THAT - Petitioner has placed before this Court copy of a letter dated 2nd May 2019 received by the Petitioner from the office of the Deputy Commissioner of Income Tax Section 13(2) in regard to the settlement reached between the Assessee and the department under the Mutual Agreement Procedure ( MAP ) between the Competent Authority (CA) of India and CA of UK under Article 27 of the India UK Double Taxation Avoidance Agreement ( DTAA ). This specifically deals with the issue of royalty failed by the Assessee during the AY in question. Assessee having agreed to abide by the settlement reached is required to withdraw the present appeal as far as the Question No.1 framed by the Court is concerned. The above fact has not been disputed. Mr. Ruchir Bhatia, learned Senior Standing Counsel for the Revenue, has no objection to the Court permitting the Appellant to withdraw his appeal as far as Question No.1 is concerned. Whether the Income Tax Appellate Tribunal erred in law in adjudicating upon Issues not arising from the order under challenge in relation to Section 37? - HELD THAT - Since the remand to the TPO, in terms thereof no longer survives on account of the settlement reached under MAP between the Assessee and its department, the Court is not called upon to answer the second question since it no longer survives.

Summary

Issues:
1. Rejection of aggregation of closely linked transactions using Transactional Net Margin Method.
2. Adjudication on issues not arising from the order under challenge in relation to Section 37 of the Income Tax Act.

Analysis:
1. The appeal before the High Court challenged the judgment passed by the ITAT regarding the rejection of the principle of aggregation of closely linked transactions using Transactional Net Margin Method. The Court framed two questions for consideration, questioning the justification of ITAT's decision. The grievance raised in the appeal was against the addition made by the AO on account of transfer pricing adjustment. The ITAT remanded the matter to the Transfer Pricing Officer for a fresh determination of the arm's length price of the transaction of payment of royalty. The Petitioner filed a miscellaneous application under Section 254(2) of the Act before the ITAT, which was dismissed. The Assessee then filed a writ petition challenging the dismissal of the application.

2. The Court noted that a settlement had been reached between the Assessee and the department under the Mutual Agreement Procedure (MAP) between the Competent Authority of India and the Competent Authority of the UK. This settlement specifically addressed the issue of royalty failed by the Assessee during the assessment year in question. As per the settlement, the Assessee agreed to withdraw the appeal concerning Question No.1 framed by the Court. The Revenue had no objection to the withdrawal of the appeal concerning Question No.1. Regarding Question No.2, which was a direct outcome of the ITAT's order, the Court found that it no longer survived due to the settlement reached under MAP. Consequently, the impugned orders of the ITAT dated 31st March 2016 and 31st March 2017 were deemed to no longer survive, and the appeal and the writ petition were disposed of accordingly.