2025 (12) TMI 1161 - AT - Income Tax

Unilateral APA on AE royalty transfer pricing and CSR-linked donations u/s80G: upward adjustment displaced, deduction allowed

On transfer pricing for royalty to an AE, the ITAT held that where the assessee had executed a unilateral APA with CBDT covering the royalty transaction ... Draft assessment order u/s 144C(1) making an upward adjustment in relation to payment of royalty to the total income of the appellant by computing arm’s length price of royalty at 53% as per earlier Advance Pricing Agreement (APA) - DRP has confirmed this upward adjustment - appellant company has stated that the appellant company has signed Unilateral Advance Pricing Agreement with CBDT in terms of payment of Royalty to Associated Enterprises (AE) was a covered transaction - HELD THAT:- As the appellant company has signed the Unilateral Advance Pricing Agreement with CBDT and accordingly filed a modified Return of Income enhancing the income, the Ld. AO is directed to give effect to this Agreement and pass the order accordingly. Deduction u/s 80G being 50% of the expenditure incurred as Corporate Social Responsibility (CSR) expenses - AO disallowed the deduction provided by recipients of donation pertains to earlier year were not valid for the captioned year and second being the CSR expenses cannot be given benefit under section 80G of the Act again - HELD THAT:- AO disallowed the deduction provided by recipients of donation pertains to earlier year were not valid for the captioned year and second being the CSR expenses cannot be given benefit under section 80G of the Act again. Whether 80G deduction cannot be allowed where appellant has already claimed the same as CSR expenses? - Bench decided to follow the decisions mentioned by Ld. AR – Castrol India [2024 (3) TMI 665 - BOMBAY HIGH COURT] and Sikka Ports [2024 (12) TMI 1600 - ITAT MUMBAI] and hence the disallowance made by Ld. AO with respect to 80G deduction is deleted. Issues: (i) Whether the Assessing Officer/DRP's upward transfer-pricing adjustment in respect of royalty payment should be revised in view of the Unilateral Advance Pricing Agreement (APA) and the modified return filed under section 92CD; (ii) Whether deduction under section 80G can be allowed in respect of amounts claimed when (a) approval certificates relied upon pertain to earlier years and (b) the amounts are also claimed as CSR expenditure.Issue (i): Whether the upward adjustment of INR 66,96,52,179/- to income on account of royalty payment should be revised in accordance with the Unilateral APA and the modified return filed under section 92CD.Analysis: The Tribunal considered the signed Unilateral APA covering the royalty transaction which specifies the arm's length measure (percentage of operating profit) and noted that the appellant filed a modified return under section 92CD after conclusion of the APA. The Tribunal directed the Assessing Officer to give effect to the APA and the modified return, thereby requiring recomputation of income in accordance with the APA's prescribed arm's length measure.Conclusion: The issue is decided in favour of the assessee; the Assessing Officer is directed to give effect to the Unilateral APA and the modified return filed under section 92CD.Issue (ii): Whether deduction under section 80G can be allowed where the approval certificates relied upon are from earlier years and where the same amounts have been treated as CSR expenditure.Analysis: The Tribunal examined the effect of the legislative amendment removing the proviso limiting the validity of approvals and accepted that approvals subsisting as on 1.10.2009 continue in perpetuity unless withdrawn. The Tribunal also considered precedents cited by the assessee holding that CSR expenditures do not preclude claiming deduction under section 80G and followed those decisions.Conclusion: The issue is decided in favour of the assessee; the disallowance of deduction under section 80G is deleted and the certificates from earlier years are held valid.Final Conclusion: The Tribunal allowed the appeal, directed the Assessing Officer to give effect to the Unilateral APA and the modified return, deleted the disallowance under section 80G, and directed the Assessing Officer to verify and grant due TDS credit and interest adjustments as per records.Ratio Decidendi: A valid Unilateral Advance Pricing Agreement, once signed by the taxpayer and concluded with the tax authority, must be given effect to by the Assessing Officer including consequent modification of return under section 92CD; approvals subsisting on 1.10.2009 under section 80G continue in perpetuity unless withdrawn, and amounts treated as CSR expenditure do not automatically preclude allowance under section 80G where applicable.