Bellsonica Auto Component India Pvt. Ltd.(the “Assessee”) paid royalty and technical services fees to its Associated Enterprise (AE). The TPO determined the Arm's Length Price (ALP) of these payments at NIL and made a transfer pricing adjustment of ₹8.48 crore, which was upheld by the CIT(A). Before the ITAT, the assessee relied on a Unilateral Advance Pricing Agreement (UAPA) entered into with CBDT on 29.11.2022.
Assessee’s Contentions | Revenue’s Contentions | Court’s Judgment |
The royalty and technical services fee arrangement had already been accepted by CBDT under a UAPA at 1.9% of net sales. | The TP adjustment was justified as the assessee had not adequately substantiated the arm’s length nature of the payments. | ITAT noted that the rate accepted by CBDT under the UAPA constitutes a reliable benchmark for evaluating the transaction. |
The principles and methodology accepted under the UAPA should be considered for the year under appeal as the nature of transactions and FAR profile remained similar. | The UAPA pertained to a different period and should not affect the TP adjustment for the year under consideration. | Relying on Ranbaxy Laboratories Ltd., ITAT held that APA principles can guide comparability analysis for earlier years involving similar facts. |
The royalty and technical services fees should be benchmarked at the rate .i.e. 1.9% of net sales accepted under the UAPA. | The adjustment made by the TPO and upheld by CIT(A) was justified. | ITAT directed the AO to restrict the royalty and technical services fee rate to 1.9% of net sales, thereby reducing the TP adjustment. |
Ruling Summary
The Delhi ITAT held that a CBDT-approved UAPA has strong persuasive value for determining the arm's length price of similar transactions in earlier years. Following the principles laid down in Ranbaxy Laboratories Ltd., the Tribunal directed the AO to restrict royalty and technical services fees to 1.9% of net sales, as accepted under the UAPA, and deleted the excessive transfer pricing adjustment.
