Independent Royalty Agreement Cannot Be Benchmarked as Related-Party Transaction: ITAT Delhi

Mobitech Creations Private Limited Vs DCIT (ITAT Delhi)

Summary: Mobitech Creations Private Limited appealed against the CIT(A)’s order dated 27.12.2024 for AY 2021-22. The dispute concerned royalty of Rs.36,35,75,663/- paid to One Plus Technology (Shenzhen) Co. Ltd. (OPT) for rights connected with the promotion, advertisement and sale of TVs and accessories in India. The Assessing Officer treated the payment as an international transaction, compared the 7% royalty rate with a 5% rate drawn from the Royalty Stat database, and disallowed Rs.10,38,78,761/-. The CIT(A) sustained the addition after recording that the assessee had not complied with notices during the appellate proceedings.

The assessee raised additional grounds challenging, among other matters, OPT’s treatment as an associated enterprise and the Assessing Officer’s approach to the royalty payment. Relying on NTPC Limited vs. CIT, the Tribunal admitted the additional grounds because they went to the root of the matter. The assessee pointed to its licence agreement, its explanation that it was an authorised distributor, and financial-statement disclosures that did not identify OPT as a related party. The Revenue maintained that the royalty had not been adequately substantiated and that its benchmarking supported the disallowance.

The Tribunal found that OPT was not shown to be a related concern and that no independent material had been brought on record to establish a deemed associated-enterprise relationship. It observed that the Assessing Officer had not invoked transfer-pricing provisions to benchmark the payment, but had made the adjustment under section 37. In the Tribunal’s view, the royalty arose from an independent licence agreement between the parties, and the stated basis did not justify disturbing their agreed rate. It allowed the additional grounds and the appeal in those terms, leaving the other issues open without adjudication.