Transfer pricing benchmark for royalty and technical fees was restricted by reference to the accepted APA rate.

Transfer pricing adjustment for royalty and technical fees was examined against the arm's length price methodology. The Tribunal found the later unilateral APA, under which a consolidated 1.9% of net sales was accepted for royalty and fees for technical services, persuasive for the year under appeal. On that basis, the excessive adjustment was not sustained and the APA rate was taken as the guiding benchmark, restricting the arm's length determination for those payments.

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Issues: Whether the transfer pricing adjustment on account of royalty and technical fees was to be upheld in full or restricted by applying the rate accepted in the assessee's unilateral advance pricing agreement.

Analysis: The Tribunal noted that the impugned adjustment arose from the determination of arm's length price of payments towards royalty and technical services. It found persuasive the later unilateral advance pricing agreement entered into with the CBDT, under which a consolidated rate of 1.9% of net sales was accepted for royalty and fees for technical services. On that basis, the Tribunal held that the excessive adjustment could not be sustained and that the rate accepted in the APA should guide the determination for the year under appeal.

Conclusion: The transfer pricing addition was restricted and the arm's length rate for royalty and technical fees was directed to be capped at 1.9% of net sales, in favour of the assessee.

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