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2018 (2) TMI 1210 - ITAT DELHITransfer pricing adjustment - assessee’s payment of royalty to its AE - MAM selection - ALP determination - Held that:- The assessee’s payment of royalty to its AE was justified by using the external CUP, that is, by placing catena of comparable uncontrolled transaction of the third parties. TPO without actually carrying out any analysis of the comparables during the remand proceedings or assigning any basis had simply held that royalty should be taken at Nil, because assessee has incurred loss at entity level and that is why the technical knowledge or knowhow from AE has not provided any economic benefit to the assessee. Such an observation or reasoning cannot be upheld at all, because once there is a valid agreement for transfer of non-exclusive right for use of license to use technology including knowhow of AE for the purpose of carrying out manufacturing of automotive parts from which assessee has earned substantial revenue receipts, then such a use of technology and knowhow is directly linked with manufacturing and resultantly sales. Incurring of loss cannot be the parameter to hold that the technological knowhow or license was of no benefit hence there was no requirement to pay the royalty. Loss cannot be co- related with the economic benefit of use of technology or knowhow because profit and loss are market driven and host of other economic factors. TPO was only required to see, whether the payment of royalty meets the arm’s length requirement of ALP or not. When the chance was given to the TPO in the remand proceedings by the CIT(A) he has failed to examine the external CUP. CIT (A) has analyzed all the factors and various comparable uncontrolled transactions to reach to a conclusion that royalty payment @ 3.15% is at ALP, and accordingly, we do not find any reason to deviate from such a finding and the same is upheld. - Decided against revenue.
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