2023 (2) TMI 1306 - AT - Income Tax

Tribunal upholds 4% royalty rate as arm's length price, restores notional interest matter for fresh examination

M/s. Praxair India Pvt. Ltd. Versus DCIT, Circle - 1 (3), Bengaluru

ITAT Bengaluru ruled on transfer pricing adjustment for royalty payments, holding that 4% royalty rate should be treated at arm's length price based on ... TP adjustment - assessee has benchmarked the payment of Royalty - TPO rejected the method adopted by the assessee - HELD THAT:- As decided in own case by Tribunal in AY 2013-2014 [2022 (8) TMI 1272 - ITAT BANGALORE] we hold that the payment of Royalty at 4% is to treated at ALP. It is ordered accordingly. Addition being notional interest while computing the total income - HELD THAT:- Since the AO has not examined the issue due to paucity of time, in the interest of justice and equity we restore the matter to the file of the AO to decide the matter afresh. AO is directed to examine whether the interest income is real or notional and if it is notional in nature the same ought not to be brought to tax during the relevant assessment year. Credit of Tax Collected at Source - HELD THAT:- After hearing the rival submission, we direct the AO to examine the claim of the assessee and take decision in accordance with law Issues Involved:1. Transfer Pricing Adjustment2. Corporate Tax MattersSummary:Issue 1: Transfer Pricing AdjustmentThe assessee, a company engaged in the manufacturing and supply of industrial gases, filed a return of income for AY 2018-19 declaring 'Nil' income. The assessment was selected for scrutiny, and the Transfer Pricing Officer (TPO) proposed TP adjustments regarding Royalty payment, restricting the ALP on Royalty at 1% (assessee had claimed 4%). The Assessing Officer (AO) incorporated the TP adjustment proposed by the TPO in the draft assessment order. The Dispute Resolution Panel (DRP) confirmed the TPO's view. Aggrieved, the assessee appealed to the Tribunal, arguing that the issue is covered by the Tribunal's orders in the assessee's own case for AY 2012-13 to 2016-17. The Tribunal found that on identical facts, it had previously decided in favor of the assessee, holding that the payment of Royalty at 4% is to be treated at arm's length. Consequently, Ground No. 5 and its sub-grounds were allowed.Issue 2: Corporate Tax MattersGround 6.3: Addition of Notional IncomeThe AO made an addition of Rs.32,72,532/- being notional interest while computing the total income for AY 2018-19. The DRP directed the AO to re-examine the issue, but due to time constraints, the AO sustained the addition without detailed examination. The Tribunal restored the matter to the AO to decide afresh, directing the AO to examine whether the interest income is real or notional and if it is notional, it should not be taxed during the relevant assessment year.Ground 6.4: Credit of Tax Collected at SourceThe assessee contended that credit of tax collected should be given at Rs.5,86,229/- as claimed in the return of income instead of Rs.5,71,912/- granted in the final assessment order. The Tribunal directed the AO to examine the claim and take a decision in accordance with the law.Conclusion:The appeal filed by the assessee was partly allowed. The Tribunal ruled in favor of the assessee on the transfer pricing adjustment issue and remanded the corporate tax matters for fresh examination by the AO. The order was pronounced in the open Court on 28th February, 2023.