Tribunal Partly Allows Appeals: Royalty Payments Not Separately Benchmarked, Rendering Other Grounds Academic.

The Tribunal partly allowed the assessee's appeals and dismissed the department's appeals concerning the assessment years 2015-16 and 2016-17. The Tribunal upheld the assessee's contention that royalty payments should not be separately benchmarked, aligning with previous decisions for earlier assessment years. Consequently, grounds related to the Arm's Length Price computation of royalty were deemed academic. The revenue's appeal regarding the characterization of testing expenses as R&D expenses was also rendered academic following the decision on royalty benchmarking. The judgment was pronounced on December 21, 2023.

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Issues Involved:
Cross-appeals by assessee and revenue against separate Orders of CIT(Appeals) for AYs 2015-16 & 2016-17.

Issue 1: Separate Benchmarking of Royalty

The assessee contended that royalty payment is part of operating cost and should not be separately benchmarked. Citing precedent cases, the assessee argued against the separate benchmarking of royalty. The Tribunal referred to a previous decision in the assessee's favor for AY 2012-13 & 2014-15, where it was held that royalty payment should not be separately benchmarked. As the TNMM approach was adopted at the entity level, including royalty, no separate adjustment was deemed necessary. Consequently, ground No.3 was allowed, rendering grounds 4 to 9 on ALP computation of royalty academic.

Issue 2: Departmental Appeals

The revenue raised a common ground questioning the characterization of testing expenses as R&D expenses without verifying the nature of expenses. However, since the assessee's appeals were allowed regarding the benchmarking of royalty payments, this issue became academic and did not require separate consideration.

In conclusion, the Tribunal partly allowed the assessee's appeals and dismissed the department's appeals, emphasizing the decision on royalty benchmarking. The judgment was pronounced on December 21, 2023.

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