BELLSONICA AUTO COMPONENT INDIA PRIVATE LIMITED,GURGAON vs. ACIT, CIRCLE-1(1), GURGAON

ITA 1041/DEL/2023Status: DisposedITAT Delhi07 October 2026AY 2015-1612 pages
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What were the facts?

The assessee, Bellsonica Auto Component India Private Limited, is engaged in manufacturing automobile products for Maruti Suzuki India Limited (MSIL) and pays royalty at 2% of sales to its Associate Enterprise (AE), Bellsonica Japan, for licensed information and technical know-how. The Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) for international transactions. The TPO held that the assessee failed to substantiate the benefits of the technical know-how and that there was no commercial expediency for royalty payment, reducing it to 'NIL'. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the TPO's findings. The assessee appealed to the Income Tax Appellate Tribunal (ITAT) against the upward adjustment of Rs. 18,72,59,249/- made by the AO, challenging the denial of royalty payment validity and an adjustment on account of manufacturing activity.

What did the Tribunal hold?

The Tribunal held that the issue of the applicability of the rate of royalty or fees for technical services to the AE stands concluded in favour of the assessee by a coordinate bench decision in the assessee's own case for AY 2014-15. Following the precedent set in Ranbaxy Laboratories Ltd. and the assessee's own case, the Tribunal directed that the royalty payment be capped at 1.9% of net sales, as per the UAPA dated November 29, 2022, substituting the 'NIL' determined by the TPO and the 2% offered by the assessee. Thus, grounds 3 and its sub-points were partly allowed. Regarding the TP adjustment on account of manufacturing activity, the Tribunal considered the legal position and the case of Texport Overseas (P) Ltd. The Tribunal found that the decision in Kolhapur Canesugar Works Ltd. was still relevant. Following Texport Overseas and various coordinate benches, the Tribunal held that no upward adjustment was possible and directed the deletion of the adjustment made by the AO/TPO. Thus, ground 4 was allowed. The Tribunal noted that grounds 1 and 2 were general in nature and were not specifically adjudicated.

What were the issues?

1. Whether the Tribunal had to decide on the validity of royalty payment to the AE and if so, what should be the Arm's Length Price (ALP) for the royalty payment, considering the assessee paid 2% and the TPO determined it as 'NIL', in light of the assessee's argument that a Unilateral Advance Pricing Agreement (UAPA) with the CBDT for 1.9% should be considered persuasive, and the revenue's contention that the UAPA was only for the years under consideration. 2. Whether the Tribunal had to decide on the adjustment made by the TPO on account of manufacturing activity amounting to Rs. 11,22,35,872/-, considering the assessee's argument that the TPO's comparables were functionally dissimilar and that amendments to Section 92BA of the Income Tax Act, 1961, by the Finance Act, 2017, had a retrospective effect, rendering the adjustment invalid, and the revenue's argument that the amendment was prospective and not applicable to the assessment year 2015-16. Assessee's Contentions: - For royalty payment: The assessee argued that the UAPA entered into with the CBDT for 1.9% of net sales for consolidated payment of royalty and fees for technical services should be considered a good benchmark for determining ALP, citing the case of Ranbaxy Laboratories Ltd. and the assessee's own case for AY 2014-15. The know-how provided by the AE was essential for manufacturing. - For manufacturing activity adjustment: The assessee argued that the TPO's comparables were functionally dissimilar. Alternatively, the adjustment should be restricted to the sale value of the international transaction. The assessee also relied on the case of Kolhapur Canesugar Works Ltd. and Texport Overseas (P) Ltd. to argue that the omission of clause (i) of Section 92BA by the Finance Act, 2017, had a retrospective effect, making the AO's action and reference to TPO invalid, and no adjustment was possible under Section 40A(2)(b). Revenue's Contentions: - For royalty payment: A UAPA for one year could not be extrapolated to other years. - For manufacturing activity adjustment: The amendment to Section 92BA was effective from 01.04.2017 and thus not applicable to AY 2015-16. The case of Kolhapur Canesugar was held per incuriam in Fiber Boards.

Which sections of the Income-tax Act were involved?

Section 250,Section 92CA,Section 40A(2),Section 92BA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH “I” NEW DELHI

Before: MS. KAVITHA RAJAGOPAL & SHRI SANJAY AWASTHI

For Appellant: Shri Rohit Tiwari, Adv
For Respondent: Shri Mahesh Kumar, CIT DR
Hearing: 13.08.2026

PER SANJAY AWASTHI, ACCOUNTANT MEMBER:

1.

This appeal arises from order dated 10.02.2023, passed u/s 250 of the Income Tax Act, 1961 (hereafter as “the Act”), by Ld. CIT(A), Delhi-44. 1.1 In this case, the assessee was established in 2006 in India as a Joint Venture (JV) between Bellsonica Japan (AE) and Maruti Suzuki India Limited (MSIL). The assessee’s primary business is to manufacture products for the production requirements of Automobiles being manufactured by MSIL and its associated

1 BELLSONICA AUTO COMPONENT INDIA PRIVATE LIMITED companies. The AE of the ass

The order continues below.

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