TaxTMI 
TaxTMI 
2026 (8) TMI 1774
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.... the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in sustaining the Assessment Order without considering that the alleged underlying transaction of payment made towards royalty amounting to Rs. Rs.36,35,75,663/-, does not qualify as "International Transaction" under Section 92B of the Act. iii. That, on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in sustaining the Impugned Assessment Order, passed without adhering the due compliance of making mandatory reference to the Transfer Pricing Officer (TPO) in terms of section 92CA of the Act. iv. That, without prejudice to the above, on the facts of the case and in law, the Ld. CIT(A) has erred in upholding the Assessment Order without appreciating the provisions of section 92C of the Act, providing for a tolerance limit on +/- % to' any variation between Ann's Length Price (ALP) so determined and price at which international transaction was undertaken. v. Without prejudice to the above, that on the facts of the case and in law, the Ld. CIT(A) erred in sustaining the Assessment Order by not considering the settled position oflaw that payment ma....
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.... agreement with OPT for the use of trade marks for promotion, advertisement and sale of TV in consideration of royalty payment. Assessee also enclosed an invoice dated 26.03.2021 and also enclosed copy of the relevant agreement. After considering agreements submitted by the assessee and by relying on the statement of Vikram Jain who stated that the assessee is the sole distributor of the One Plus TV and accessories. Further, it was stated that assessee is also distributor of One Plus Handsets and other accessories in India, the royalty payments are made solely on the sale of One Plus TV and other accessories. Assessee being sole distributor and also one of the main distributors, the royalty has been paid on account of use of design, software and produce know-how. Based on the above statement, the Assessing Officer observed that as per section 92A(1)(g) defines the 'Associated Enterprises' in relation to other enterprises means whether "as the manufacture or processing of goods or articles or business carried out by one enterprise is wholly dependent on the use of know-how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar n....
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....ed to disallow the difference as unexplained bogus expense on account of royalty payment to the extent of Rs. 10,38,78,761/ -. 7. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A)-30, New Delhi. During appellate proceedings, several notices were issued to the assessee and since no compliance from the assessee, he proceeded to dispose off the appeal on the basis of material already available on record. Based on the material available on record, ld. CIT(A) dismissed the appeal filed by the assessee by sustaining the additions made in the assessment order. 8. Aggrieved against the aforesaid order, assessee is in appeal before us. 9. At the time of hearing, ld. AR of the assessee brought to our notice the findings of the AO in the assessment order and the facts from the details submitted during the assessment proceedings. He brought to our notice page 42 to 48 of the assessment order and submitted that the AO himself proceeded to bench the mark the international transaction with the wrong understanding of facts. He further brought to our notice page 291 of the paper book and submitted that the assessee had clearly explained to the AO that the ....
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....td. @ 7% of net sales for use of trademarks and related rights in respect of TV and related accessories. As stated by Sh. Vikram Jain, M/s Mobitech Creations Pvt Ltd was the sole distributor of the Oneplus TV, TV wallmounts, TV stands and related TV accessories. Further, though M/s Mobitech Creations Pvt Ltd was also the distributor of Oneplus handsets, spare parts and accessories in India, the royalty payments were made solely on the sales of Oneplus TV, TV wall-mounts, TV stands and related tv accessories to M/s One Plus Technology (Shenzhen) Co Ltd which showed that the treatment of the transactions of M/s Mobitech Creations Pvt Ltd with M/s OnePlus Technology (Shenzhen) Co Ltd concerning the sales of Oneplus TV was different, the Company being the sole distributor of this segment of electronics, as compared to Oneplus handsets, spare parts and accessories wherein M/s Mobitech Creations Pvt Ltd was one of the many distributors. Royalty was paid on account of use of "design, software and product know how" as submitted by Sh. Vikram Jain. During assessment proceedings, the assessee was specifically required to furnish: * Copy of agreement along with annexures * B....
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....stification for higher rate of 7%. Thus, the excess royalty payment of 2% of net sales was considered excessive and unreasonable. 5. Legal Position: * As per Section 37(1), only those expenses which are wholly and exclusively incurred for business purposes and are reasonable are allowable. * Further, in case of international transactions involving associated enterprises, the arm's length principle is applicable. * The assessee failed to demonstrate that payment beyond 5% was justified or at arm's length. 6. Opportunity of Being Heard: Multiple opportunities were provided through notices u/s 142(1). A specific show cause notice dated 31.01.2023 was issued clearly confronting the proposed disallowance. Despite this, the assessee: * Did not file complete reply * Did not furnish supporting evidence * Only submitted general explanation without substantiation Hence, adequate opportunity was duly provided in line with principles of natural justice. 7. Findings of CIT(A): Aggrieved by the assessment order passed by the AO, the assessee filed by appeal before the Ld. CIT(A) wh....
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.... * Any Transfer Pricing study or benchmarking analysis. * Justification for charging royalty @ 7%. * Comparable agreements supporting higher rate. In absence of any contrary evidence, the determination of ALP @ 5% is reasonable, scientific, and in accordance with accepted transfer pricing principles. Hence, the disallowance of excess royalty of Rs. 10,38,78,761/- is justified. Ground No.3: That the Ld. AO did not consider the fact that the royalty paid for the trademark of M/s One Plus Technology (Shenzhen) company limited is incomparable. Comments of AO: This ground is not tenable. The assessee has merely made a general claim that its royalty transaction is incomparable without providing any supporting documentation or analysis. No evidence was submitted to demonstrate: * Unique nature of transaction. * Exclusive rights justifying higher royalty. * Functional differences warranting deviation from comparables. On the contrary, the AO conducted a detailed comparability analysis based on available data. In absence of any substantiated claim from the assessee, the benchmarking ca....
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....obtained exclusive right to sell the OPPO TV and other accessories and came to the conclusion that the assessee being distributor, instead of manufacturer, paid the royalty, which falls under the international transaction, hence he proceeded to bench the mark the same. We noticed that the AO had not invoked any of the transfer pricing provisions to bench mark the transaction rather he proceeded to bench mark the transaction u/s 37 of the Act. He proceeded with the wrong assumption that the above transaction falls under deemed associated concern considering the transactions with the assessee and OPT. The AO was of the view that the payment of royalty is in higher side and proceeded to compare the same utilising the royalty stat database. 12. After considering the facts on record, we are of the view that the licensor OPT is not the related concern, as we noticed that the licensor was never declared as related party anywhere in the financial statement or in any of the communication submitted before the tax authorities. Once the parties are not related, there is no scope for invoking the transfer pricing provisions in the case, the relevant transaction can only be considered as inde....