2020 (2) TMI 728 - HC - Income Tax

TP Adjustment - determination of the royalty payment at Rs.nil by using the benefit test by assessee- HELD THAT - Tribunal gave a finding that the respondent-assessee has used the technologies supplied by its A.E. in its manufacturing process and for such use of technology, it has paid the royalty. It then referred to decisions of M/S. TOYOTA KIRLOSKAR AUTO PARTS PVT. LTD. VERSUS ASST. COMMISSIONER OF INCOME-TAX, LTU, BANGALORE. 2015 (1) TMI 921 - ITAT BANGALORE . In a similar case, the Tribunal had remitted the issue to the file of the A.O. to determinate the arm s length price of royalty by adopting TNMM after giving fair opportunity for hearing. Thus, the Tribunal has only remitted the matter back to the file of AO/TPO and did not adjudicate anything in the appeal and it allowed the appeal only for statistical purpose. We are not inclined to admit this appeal since after the remand order passed by the Tribunal, the matter will again be gone into as per its directions and fresh assessment would be made after complying the principles of natural justice.

Summary

Issues:
Challenge to Income Tax Appellate Tribunal order under Section 260-A of the Income Tax Act, 1961 regarding royalty payment adjustment in international transactions for the assessment year 2013-14.

Analysis:
The respondent-company, engaged in manufacturing high-performance flexible disc couplings, filed its income return for 2013-14, declaring an income of ?54,15,52,720 and a book profit of ?54,28,24,910. During assessment proceedings under Section 143(3) of the Income Tax Act, it was observed that the assessee had international transactions with its Associated Enterprise (A.E.). The Transfer Pricing Officer (TPO) proposed an adjustment of ?2,72,47,432 for royalty payment, stating that the assessee failed to prove the benefit obtained from the latest technology used.

Subsequently, the Assessing Officer (A.O.) passed a draft assessment order based on the proposed adjustment, leading the assessee to raise objections before the Dispute Resolution Panel (D.R.T.). The D.R.T. upheld the TPO's order, resulting in the final assessment order being passed accordingly. The assessee then appealed to the Tribunal, arguing that the royalty payment determination should not be based on the benefit test, citing precedents where royalty payment was not determined as nil.

In its decision dated 15-02-2019, the Tribunal found that the respondent-assessee did use technology supplied by its A.E., justifying the royalty payment. Referring to a similar case, the Tribunal remitted the issue back to the A.O. to determine the arm's length price of royalty using TNMM after providing a fair hearing opportunity. The Tribunal did not adjudicate on the appeal and allowed it only for statistical purposes.

The High Court declined to admit the appeal, noting that the matter would be re-examined following the Tribunal's remand order, ensuring compliance with natural justice principles. Consequently, the appeal was dismissed without costs, and any pending miscellaneous petitions were closed as a result.