AMWAY INDIA ENTERPRISES (P) LTD.,DELHI V. ACIT, TPO-1(1)(1), NEW DELHI

ITA 8597/DEL/2019

AI Insights

The case involves two appeals, ITA No.4930/Del/2018 by the Revenue and ITA No.8597/Del/2019 by the assessee, concerning transfer pricing adjustments made by the TPO/AO. The adjustments included significant amounts related to royalty payments and managerial remuneration. The assessee contested the adjustments, arguing that they were based on a mechanical rejection of the arm's length price and improper benchmarking. The Tribunal noted that similar issues had been resolved in favor of the assessee in previous assessment years and directed the TPO to re-evaluate the transactions in question, emphasizing the need for a fair and thorough examination of the provided data.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 846395 (ITAT-NEW DELHI)
• Duration Of Justice: 6 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Delhi
• Assessment Year: 2014-2015
• Appeal Filed On: 04-11-2019
• Other Referred Cases: ITA No.2833/Del/2018, AY 2013-14
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: GROSSLY
• Keywords: Opportunity of being heard; Transfer pricing; Principle of natural justice; Rectification of order
• Section: 143(3); 154; 92C; 92D

Judgement Text

" ITA No.4930/Del/2018 & ITA No.8597/Del/2019 Page 11 of 18 the file of the ld. TPO for determination of ALP. The assessee shall be bounden to comply with statutory notices by the ld. TPO and provide all the requested data which was hitherto requested by the TPO and not provided. The assessee shall be at liberty to provide any other data deemed necessary. Considering the fact that it is an old matter which deserves earliest resolution, the ld. AO shall be required to conclude his proceedings within 180 days of this order. The grounds of appeal raised by the Revenue are therefore allowed for statistical purposes. 12. In the result, the appeal of the Revenue in ITA NO.4930/Del/2018 is allowed for statistical purposes. ITA No.8597/Del/2019:- 13. The assessee has raised following grounds of appeal in ITA No.8597/Del/2019:- 1. The Ld. CIT(A) has erred on facts and in law in confirming the additions/adjustments made by the TPO/AO amounting to Rs.32,58,33,029 - comprising of Royalty Payment adjustments of Rs. 18,59,47,467/- and Managerial Remuneration paid to Managing Director adjustment of Rs. 13,98,85.562/-. 2. Grounds with respect to rejection of benchmarking approach of the appellant:- 2.1 The Ld. CIT (A) has erred on facts and in law in confirming the generalised/mechanical rejection by the TPO/AO of arm's length price discovered by the appellant in accordance with the provisions of section 92C of the IT Act (\"Act\") read with the relevant provisions of rules 10A/10B/10C/10AB/10CA of the Income Tax Rules (\"Rules\"). Printed from counselvise.com ITA No.4930/Del/2018 & ITA No.8597/Del/2019 Page 12 of 18 2.2 The Ld. CIT(A) has erred on facts and in law in confirming the generalised/mechanical rejection by the TPO/AO of the Benchmarking approach adopted by the appellant in its TP documentation prepared u/s 92D of the Act read with rule IOD of the Rules without examining the specific facts and circumstances of the appellant's case. 2.3 The Ld. CIT(A) has erred on facts and in law in confirming the generalised/mechanical rejection by the TPO/AO of arm's length price discovered by the appellant in gross violation of principal of natural justice without giving proper opportunity of being heard to the appellant especially in view of the fact that under the same facts and circumstances of the matter during the preceding AY 2013-14 the Ld. CIT(A) had herself disapproved the rejection made by the TPO/AO. 3. Grounds with respect to adjustments with regard to Royalty Payment:- 3.1 Ld. CIT(A) has erred on facts and in law in confirming the segregation of the transactions by the TPO/AO with respect to royalty payment without appreciating the fact that those transactions were integral and inseparable constituents of the overall composite business model of the appellant and for that reason were incapable of being tested separately. 3.2 Ld. CIT (A) has erred on facts and in law in confirming a new method adopted by the TPO/AO as the most appropriate method (\"MAM\") with regard to discovery of arm's length price for royalty payment without discharging statutory requirements as regard to fulfilment of relevant criteria for the method preferred by TPO/AO to supersede the method selected by the appellant in its TP documentation. 3.3 Ld. CIT(A) has erred on facts and in law in confirming the comparables selected by the TPO/AO for the purposes of discovery of arm's length price with regard to royalty payment without mentioning/disclosing/following the search methodology adopted by the TPO/AO and without giving any opportunity of being heard to the appellant with regard to the correctness/acceptability of the comparables selected by the TPO/AO for discovery of arm's length price. 3.4 Ld. CIT(A) has erred on facts and in law in confirming the adjustments made by the TPO/AO on account of royalty payment when in the identical facts and circumstances of the matter the Ld. CIT(A) had herself found the adjustments made by the TPO/AO in the preceding AY 2013-14 to be unsustainable. Printed from counselvise.com ITA No.4930/Del/2018 & ITA No.8597/Del/2019 Page 13 of 18 3.5 Ld. CIT(A) has erred on facts and in law in confirming the adjustments made by the TPO/AO by relying upon inappropriate/incorrect comparables discovered through undisclosed/ defective search process. 3.6 Ld. CIT(A) has erred on facts and in law in confirming the rejection made by the TPO/AO of six comparables submitted by the appellant before the TPO with regard to arm's length price for royalty payments as discovered in its Global Royalty Benchmarking Study. 3.7 Ld. CIT(A) has erred on facts and in law in confirming the adjustments made by the TPO/AO on account of royalty payment by grossly misleading/misdirecting herself in making absolutely false and incorrect inference/assumption that the TPO has given detailed and cogent reasons for determining the arm's length price of Royalty as 3.64% instead of 5% held by the appellant\" when on the face of it the order of the Ld. TPO had no such detailed and cogent reasons whatsoever. 3.8 Ld. CIT(A) has erred on facts and in law in confirming the adjustments made by the TPO/AO on account of royalty payment in gross violation of principal of natural justice without considering the interim submission made by the appellant and also ignoring specific request/submission made by the appellant to make further detailed submissions and detailed arguments, as may be warranted. 3.9 Ld. CIT(A) has erred on facts and in law in confirming the adjustment made by the TPO/AO on account of Royalty payment when she had herself deleted the similar adjustment on account of Royalty payment made by the TPO in the preceding A.Y. 2013-14 on the identical/similar basis specially considering the fact that there was no difference in the facts and circumstances of the matter with regard to the Royalty payment for both these years. 4. Grounds with respect to adjustments with regard to Managerial Remuneration 4.1 Ld. CIT(A) has erred on facts and in law in confirming the segregation of the transactions by the TPO/AO with respect to managerial remuneration paid to the Managing Director without appreciating that those transactions were integral and inseparable constituents of the overall composite business model of the appellant and for that reason were incapable of being tested separately. 4.2 Ld. CIT(A) has erred on facts and in law in confirming a new method adopted by the TPO/AO as the most appropriate method (\"MAM\" for the purpose of carrying out arm's length analysis with Printed from counselvise.com ITA No.4930/Del/2018 & ITA No.8597/Del/2019 Page 14 of 18 regard to discovery of arm's length price for managerial remuneration paid to the Director without discharging onus as regard fulfilment of relevant statutory criteria for method preferred by TPO to supersede the method selected by the appellant in its TP documentation. 4.3 Ld. CIT(A) has erred on facts and in law in confirming the adjustment made by the TPO/AO on account of managerial remuneration paid to the Managing Director by benchmarking the same with another related party to discover arm's length price which is against the basic principal of transfer pricing especially when the Ld. CIT(A) herself in the preceding assessment year (AY 2013-14) had under the identical facts and circumstances passed rectification order u/s 154 of the Act and deleted the identical adjustment for the same reason. 4.4 Ld. CIT(A) has erred on facts and in law in confirming the adjustment made by the TPO/AO on account of managerial remuneration paid to the Managing Director by comparing the same with the remuneration paid to the directors when they were functionally not comparable in terms of qualification, experience, responsibilities, duties etc 4.5 Ld. CIT(A) has erred on facts and in law in confirming the adjustment made by the TPO/AO on account of managerial remuneration paid to the Managing Director ignoring the fact that the remuneration paid to the Managing Director were fully taxable in India as he was resident in India and for that reason there was no tax advantage to the appellant or the appellant and the Managing Director as a whole by paying alleged excessive and unreasonable remuneration within the meaning of section 40A(2)(b) of the Act. 4.6 Ld. CIT(A) has erred on facts and in law in confirming the adjustment made by the TPO/AO on account of managerial remuneration to the Managing Director by ignoring the fact that there was always a similar variation between the remuneration paid to the Managing Director and the other directors during several preceding years and the Assessing Officer found them to be reasonable inspite of having completed the assessments u/s 143(3) of the Act. 4.7 Ld. CIT(A) has erred on facts and in law in confirming the adjustments made by the TPO/AO on account of managerial remuneration paid to the Managing Director in gross violation of principal of natural justice without considering the interim submission made by the appellant and also ignoring its specific Printed from counselvise.com ITA No.4930/Del/2018 & ITA No.8597/Del/2019 Page 15 of 18 request/submission made by the appellant to make further detailed submissions and detailed arguments, as may be warranted. 5. Ground with respect to the consistency:- 5.1 Ld. CIT(A) has erred on facts and in law in rejecting the ground of the consistency raised by the appellant by grossly misdirecting/misleading herself in assuming that \"The TPO/AO has given detailed and cogent reasons distinguishing the facts of the case in the year under reference\" when the irrefutable fact of the matter is that there was no such distinction pointed out by the TPO/AO. 14. Ground of appeal no.2 and 4 with reference to addition made on account of managerial remuneration and the ALP determination, are resting on the identical facts as in AY 2013-14 (supra). We have noted from para-5.26 and 5.27 of the ld. CIT(A)’s order that the assessee had not provided details qua its director Mr. William S Pinckney which led to upward adjustment by the TPO. Facts being same, we are of the considered view that the decision taken in AY 2013-14 of Revenue’s appeal shall apply mutatis mutandis. Accordingly, we remit the matter to the file of the ld. TPO for determination of ALP. The assessee shall be bounden to comply with statutory notices by the ld. TPO and provide all the requested data which was hitherto requested by the TPO and not provided. The assessee shall be at liberty to provide any other data deemed necessary. Considering the fact that it is an old matter which deserves earliest resolution, the ld. AO shall be required to conclude his proceedings within 180 days of this order. The grounds of appeal no.2 and 4 raised by the assessee are therefore allowed for statistical purposes. Printed from counselvise.com ITA No.4930/Del/2018 & ITA No.8597/Del/2019 Page 16 of 18 15. The next ground of appeal raised by the assessee is regarding the addition made by the ld. AO on account of royalty amounting to Rs.18,59,47,467/- as per recommendation of ld. TPO. 16. We have heard rival submissions in the light of material placed on record. The ld. Counsel for the assessee has argued that on this issue in AY 2013-14, the ld AO had made an addition of royalty amounting to Rs.15,66,27,250/- which was deleted by the ld. CIT(A) vide appellate order dated 28.02.2018. The matter was taken to the Tribunal by the Revenue which upheld the order of the ld. CIT(A) vide order dated 08.10.2021 in ITA No.2833/Del/2018. The Revenue contested the matter before the Hon’ble jurisdictional High Court, which also dismissed the Revenue’s petition through its order dated 18.09.2022. The ld. Counsel thus argued that the matter is squarely covered in its favour. It was also submitted that no adjustment on royalty was made by the Revenue authorities for assessment year 2009-10 to 2012-13 and for AY 2015-16 and further that for AY 2016-17, the issued was dropped after issuance of a show- cause notice. The ld. Counsel further argued that the arguments taken by ld. TPO for AY 2013-14 and AY 2014-15 are nearly identical save changes in figures. 17. The ld DR tried to distinguish the case on its facts and that therefore reliance cannot be placed upon past decisions of this Tribunal as well as Hon’ble High Court. Printed from counselvise.com ITA No.4930/Del/2018 & ITA No.8597/Del/2019 Page 17 of 18 18. We have noted that there is no change in the facts of the case vis-à-vis AY 2013-14 and for which year the matter stands decided in favour of the assessee by the decisions of this Tribunal as well as Hon’ble High Court mentioned supra. Accordingly, in respectful compliance to the cited judicial precedents, we are of the considered view that there is no case for any adjustment in assessee’s case in respect of royalty. We, therefore, set-aside the order of the ld. CIT(A) and direct the ld. AO to delete the impugned addition. Ground of appeal no.3 raised by the assessee is allowed. 19. In the result, the appeal in ITA NO.8597/Del/2019 is partly allowed. 20 Finally, ITA NO.4930/Del/2018 of Revenue is allowed for statistical purposes and appeal in ITA NO.8597/Del/2019 of the assessee is partly allowed Order pronounced in the open court on 25th March, 2026. /- Sd/- Sd/- [CHALLA NAGENDRA PRASAD] [AMITABH SHUKLA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25.03.2026 Shekhar Copy forwarded to: 1. Appellant 2. Respondent 3. PCIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi, Printed from counselvise.com "