CUP method not suitable to benchmark royalty payment in the absence of comparable uncontrolled transactions

DCIT v. Cabot India Ltd.  –  At the outset the Tribunal stated that the issue to be adjudicated upon is whether or not the royalty rate of five percent is arm’s length, and not whether the increase vis-à-vis two percent is justifiable. The Tribunal ruled that the royalty of two percent paid by the assessee to its AE in the previous year was a ‘controlled’ transaction and hence, could not be taken as a benchmark for determining the arm’s length nature of the five percent royalty charge in the current year. Although, the assessee had applied CUP Method, the TPO d...