No ALP Adjustment Is Permitted On Notional Amount Of Royalty Paid By Overseas Subsidiary, Reiterates Mumbai ITAT

The Bench comprising Prashant Maharishi (Accountant Member) and Sandeep Singh Karhail (Judicial Member) observed that considering the financial position of subsidiaries located in Bangladesh and Sri Lanka, the assessee agreed to waive part of the royalty and thereby credited 1% of the royalty amount to the P&L account instead of 3% as per the agreement.

However, following its earlier approach adopted during AYs 2011-12 to 2014-15, the AO made addition of the balance royalty, i.e. 2%, which was deleted by the CIT(A), added the Bench.

The Bench observed that the Coordinate bench in assessee's own case for AY 2012-13 had deleted similar addition by holding that when only 1% Royalty is payable by overseas subsidiaries, AO has no authority to make an addition of balance 2% Royalty waived by the parties, which is nothing but a notional income considered taxable by the AO in assessee's hands.

Hence, finding this issue being recurring in nature which stands decided in favour of the assessee, the ITAT follows the earlier order and upholds CIT(A)'s decision.

Counsel for Tax Payer: Fenil Bhatt and Harshad Panchal

Counsel for Department: Vachashpati Tripathi

Case Title: Asian Paints Ltd

Case Number: ITA No 1673/Mum/2019

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