When transfer pricing provisions are applicable general provisions under section 40A(2)(b) of the Act should not be invoked

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

6.6 The Learned Counsel of the assessee contended that in the assessment year 2013-14 the transaction of the royalty expenses was subjected to transfer pricing provisions. He submitted that in the assessment year 2013-14 average royalty payment was 2.99% of the sales, which stands accepted by the Department and therefore, no disallowance should be made in the year under consideration, where the royalty expenses are only 2.77% of the sales. This contention of the learned Counsel is rejected as the fair market value of the expenses has to be identified for the relevant year and percentile of the earlier year cannot be made the basis for comparison.

6.7 In view of the above discussion, the disallowance made out of royalty expenses amounting to ₹ 3,66,82,337/-is deleted. Ground No. 4 of the appeal is accordingly allowed.

7. The Learned Counsel of the assessee argued that in the case of the assessee the transaction of the royalty expenses between the assessee and its Associated Enterprises (AEs), is an international transaction and therefore its arm’s-length price can be determined only under the transfer pricing provisions and not under the provision of the section 40A(2)(b) of the Act. The contention of the Learned Counsel is that when there are specific provisions for dealing with the issue of expenses paid to related party under transfer pricing provisions, the general provisions under section 40A(2)(b) of the Act should not be invoked.

We have noticed that this issue was not raised before the lower authorities. It has been raised before us for the first time that too as an oral argument. Since we have already adjudicated the issue on merit, the arguments raised by the learned Counsel regarding the applicability of general versus specific provisions are rendered merely academic and we are not adjudicating the same.