High Court denies appeal on royalty payment adjustment in international transactions for AY 2013-14. Remanded for arm's length price determination.

The High Court declined to admit the appeal challenging the Income Tax Appellate Tribunal's order regarding royalty payment adjustment in international transactions for the assessment year 2013-14. The matter was remanded back to the Assessing Officer for determining the arm's length price of royalty using TNMM after providing a fair hearing opportunity, following the Tribunal's decision that the respondent-assessee did use technology supplied by its Associated Enterprise, justifying the royalty payment. The appeal was dismissed without costs, and pending miscellaneous petitions were closed.

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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 Rs. 54,15,52,720 and a book profit of Rs. 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 Rs. 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.

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