Case Law Details
ASB International Pvt Ltd Vs Additional Income Tax Officer (ITAT Mumbai)
ITAT Mumbai held that “other method” provided in Rule 10AB r.w.s. 92C (1) would be a good substitute for CUP as there is lack of reliable comparables in case of royalty transactions as royalty payments have been made for unique intangibles
Facts- The assessee is a wholly owned subsidiary of Nissei ASB Machine Co. Ltd. and was set up as a 100% Export Oriented Unit (EOU). It is engaged in the manufacturing of injection stretch blow molding machines, molds and parts, components, and subassemblies of machines and molds. The assessee has paid a royalty of Rs.20,63,83,848/- as per the agreement. It was stated that the royalty payment was in connection with the technology received by M/s. ASB India and ASB Japan provide maintenance and enhancement of technical know-how to ASB India. The assessee was required to pay royalty at 12% and it is payable only in respect of net domestic sales. As per the original TP study report assessee had used overall entity level TNMM approach for benchmarking the royalty payment. The assessee adopted the ‘Other Method’ in its revised Transfer Price (TP) study report.
TPO observed that the ‘Other method’ adopted by the assessee has been rejected by the DRP and has upheld the comparable uncontrolled price (CUP) method as the most appropriate method for benchmarking the transaction of royalty and directed the TPO to take Optokos Corporation and DynEco Corporation by taking the average of royalty payments of these two agreements as CUP.
TPO finally adopted 5.5% as the royalty rate taking comparable companies of Optikos Corporation and DynEco Corporation held that arm’s length price of the royalty transaction would be Rs.9,45,92,597/- and accordingly, adjustment of Rs.11,17,91,252/- was made.
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