PR. COMMISSIONER OF INCOME TAX-7, DELHI vs. SONY INDIA PVT. LTD.

PDF · subscribers
ITA/367/2026HC DelhiDLHC01019853202606 May 2026Author: HON'BLE MR. JUSTICE VINOD KUMAR,HON'BLE MR. JUSTICE DINESH MEHTA5 pages
AI SummaryDismissed

What did the High Court hold?

The Delhi High Court dismissed the appeal. Regarding Question A, the Court noted that the Assessee's counsel correctly pointed out that this Court, in ITA 7/2023, had held that the Bright Line Test (BLT) is not provided under the Income Tax Act, 1961, or its rules, and therefore, being alien to statutory provisions, it cannot be adopted. For questions B to F, relating to royalty payments, the Assessee's counsel submitted that these aspects were decided in ITA No. 551/2023 and ITA No. 7/2023. The Revenue's counsel could not dispute this. The Court found that the Assessee's submissions regarding these questions were supported by previous judgments of this Court. Regarding Question H, concerning the comparability of Febulka Advertising Pvt. Ltd., the Court found that the ITAT had recorded a finding of fact that the entity was engaged in an entirely different business and its figures could not be taken selectively. The Court held that this aspect essentially involves a finding of fact and does not give rise to a substantial question of law, thus not warranting interference under Section 260A. Consequently, the appeal was dismissed.

What were the facts?

This is an appeal by the Pr. Commissioner of Income Tax-7, Delhi (Revenue) against an order of the Income Tax Appellate Tribunal (ITAT) concerning Sony India Pvt. Ltd. (Assessee) for Assessment Year (AY) 2015-16. The Revenue challenges several findings of the ITAT, particularly concerning transfer pricing adjustments related to the Bright Line Test (BLT), intensity-based adjustments, royalty payments, and the comparability of an entity named Febulka Advertising Pvt. Ltd. The Assessee contends that the proposed questions of law have already been decided by the Delhi High Court in its own cases, ITA No. 7/2023 and ITA No. 551/2023. The Revenue's counsel was unable to dispute this position or present any contrary Supreme Court judgments.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether the Hon'ble Tribunal erred in upholding the assessee's contention that the Bright Line Test (BLT) is not in accordance with law, especially when it was used as an economic/statistical tool to determine the cost of services rendered to a foreign enterprise, as mandated by the Rules for AY 2015-16, 2017-18, and 2018-19 (Question A). 2. Whether the Hon'ble Tribunal erred in upholding the assessee's contention that an intensity-based adjustment is not in accordance with law, despite the TPO applying the Transactional Net Margin Method (TNMM) and making a comparability adjustment for higher functional intensity of AMP expense borne by the assessee under the Rules for AY 2015-16 (Question B). 3. Whether the Hon'ble Tribunal erred in directing the deletion of the entire royalty adjustment without appreciating evidence of the assessee not demonstrating tangible benefits commensurate with royalty payments to its Associated Enterprise (AE) under the Rules for AY 2015-16, 2017-18, and 2018-19 (Question C). 4. Whether the Hon'ble ITAT was correct in not appreciating that third-party manufacturers are liable to pay royalty to the AE Sony Corp as they are ultimate users of intangibles provided by the AE under the Rules for AY 2015-16, 2017-18, and 2018-19 (Question D). 5. Whether the Hon'ble ITAT was correct in not appreciating that the assessee Sony India Pvt. Ltd. has not used licensed patents and know-how for manufacturing and is thus not liable to pay royalty to the AE Sony Corp under the Rules for AY 2015-16, 2017-18, and 2018-19 (Question E). 6. Whether the Hon'ble ITAT erred in relying on Cushman and Wakefield (ITA 475/2012) when the issues were different, and the TPO had determined the arm's length price of royalty within the authority prescribed under Section 92C of the Income Tax Act, 1961 for AY 2015-16, 2017-18, and 2018-19 (Question F). 7. Whether the Hon'ble ITAT was correct in not appreciating the TPO's action of calculating ALP as nil for royalty payments made by the assessee to the AE Sony Corp for licensed patents and know-how actually owned by third parties under the Rules for AY 2015-16, 2015-16, and 2017-18 (Question G). 8. Whether the Hon'ble ITAT was right in considering Febulka Advertising Pvt. Ltd. as functionally non-comparable without considering the TPO's findings on broad product similarity under TNMM, while the ITAT failed to give detailed FAR analysis regarding inclusion and exclusion of comparables under the Rules for AY 2015-16 (Question H). Assessee's Contention: All proposed questions have been decided against the Revenue by this Court in ITA No. 7/2023 and ITA No. 551/2023. Specifically, the BLT method is not provided under the Act and is alien to statutory provisions. The Tribunal's order on royalty payments and quantum has also been decided in the aforementioned cases. Question H is a factual issue. Revenue's Contention: The Revenue's counsel could not dispute the Assessee's submissions or cite any contrary Supreme Court judgments.

Which sections of the Income-tax Act were involved?

Section 92C,Section 260A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Page 1 of 5 $~89 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 367/2026, CM APPL. 30411/2026, CM APPL. 30412/2026 PR. COMMISSIONER OF INCOME TAX-7, DELHI.....Appellant Through: Mr. Puneet Rai, SSC and Mr. Ashvini Kumar and Mr. Rishabh Nangia, JSCs versus SONY INDIA PVT. LTD. .....Respondent Through: Mr. Nageswar Rao, Adv. CORAM: HON'BLE MR. JUSTICE DINESH MEHTA HON'BLE MR. JUSTICE TEJAS KARIA

O R D E R %

06.05.

2026 CM APPL. 30413/2026 (Delay in re-filing)

1.

For the reasons stated, 60 days’ delay in re-filing the appeal is condoned.

2.

The application is allowed. ITA 367/2026, CM APPL. 30411/2026, CM APPL. 30412/2026

3.

The appeal qua Assessment Year (AY) 2015-16 has been filed seeking adjudication of following proposed questions of law:- “A. Whether the Hon'ble Tribunal has erred in law and on facts in upholding the contention of the assessee that the Bright Line Test (BLT) is not in accordance with law without appreciating the facts that the BLT was not used as a method to determine the ALP but only as an economic/statistical tool to arrive at the cost of services rendered to foreign enterprise by Indian entity and when the TPO has the This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/05/2026 at 12:13:31

mandate to determine such cost as a primary step in ALP determination as provided under the Rules for A.Y 2015-16, 2017-18 and 2018- 19? B. Whether the Hon'ble Tribunal has erred in law and on facts in upholding the contention of the assessee that the intensity based adjustment is not in accordance with law without appreciating the facts that the TPO has applied the Transactional Net Margin Method (TNMM) in accordance with Rule 10B(1)(e), and then consistent with Rule 10B(2) read with Rule 10B(3) has made a comparability adjustment to comparables' profit level indicator to neutralize a material functional difference of higher functional intensity of AMP expense borne by the assessee under the Rules for A.Y 2015-16? C. Whether the Hon'ble Tribunal has erred in directing the deletion of the entire royalty adjustment without appreciating the evidence on record indicating that the assessee had not demonstrated tangible benefits or commercial rationale commensurate with the royalty payment made to its Associated Enterprise under the Rules for A.Y 2015-16, 2017-18 and 2018-19? D. Whether in the facts and circumstances of the case the Hon'ble ITAT was correct in not appreciating that third party manufacturers are liable to pay royalty to the AE Sony Corp as these companies are the ultimate users of the intangibles in the form of licensed patents and know-how provided by the AE Sony Corp for manufacturing of licensed products under the Rules for A.Y 2015-16, 2017-18 and 2018-19? E. Whether in the facts and circumstances of the case the Hon'ble ITAT was correct in not appreciating that the assessee Sony India Pvt. Ltd. has not used the licensed patents and know-how for manufacturing of licensed products and accordingly it is not liable to pay royalty charge to the owner of the intangibles i.e. the AE Sony Corp under the Rules for A.Y 2015-16, 2017-18 and 2018-19? This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/05/2026 at 12:13:31

F. Whether the Hon'ble ITAT has not erred in its decision to rely on the decision of the Hon'ble Delhi High Court in the case of Cushman and Wakefield (ITA 475/2012) whereas the issues involved in this case are different from that of the assessee's case as arm's length price of the international transaction related to payment of royalty has been determined by the TPO within the authority as prescribed under section 92C of the Income Tax Act, 1961 for A.Y 2015-16, 2017-18 and 2018-19? G. Whether in the facts and circumstances of the case the Hon'ble ITAT was correct in not appreciating the action of the TPO for calculating ALP nil for royalty payment made by the assessee to the AE Sony Corp for the licensed patents and know-how which are actually owned by third parties and not by the AE under the Rules for A.Y 2015-16, 2015-16 and 2017-18? H. Whether in the facts and circumstances of the case the Hon'ble ITAT was right in law in considering Febulka Advertising Pvt. Ltd as functionally non comparable without considering the findings of the TPO w.r.t broad level of products similarity under TNMM after conducting a detailed FAR analysis while ITAT has failed to give detailed FAR w.r.t, inclusion and exclusion of comparable under the Rules for A.Y 2015-16?”

4.

Learned counsel for the respondent-assessee at the outset submitted that all the questions proposed by the appellant have already been decided by this Court against the Revenue in assessee’s own cases being ITA No. 7/2023 decided on 13.12.2023 and ITA No. 551/2023 decided on 30.09.2024. 5. He pointed out that so far as question No. A in relation to the method of valuation of transfer pricing is concerned, the Assessing Officer (AO) had adopted a method called Bright Line Test (BLT), whereas this Court vide its This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/05/2026 at 12:13:31

judgment being ITA 7/2023 dated 13.12.2023 has held that since the BLT method is not provided under the Income Tax Act, 1961 or rules framed thereunder, such test being alien to the statutory provisions, cannot be adopted.

6.

Adverting to the remaining questions (i.e question Nos. B to F) relating to royalty payment, learned counsel for the respondent submitted that the Tribunal’s order deals with following two aspects:- (i) Whether the transfer pricing adjustment is required to be made in respect of royalty payment? (ii) And if yes, what should be the method of calculation and quantum of royalty for such adjustment?

7.

Mr. Puneet Rai, learned Senior Standing Counsel for the Income Tax Department was not in a position to dispute the position that aspects have been decided in ITA No. 551/2023 vide judgment dated 30.09.2024 and 7/2023 decided on 13.12.2023. He could not bring to our notice, any judgment of Hon’ble the Supreme Court in which the Apex Court have taken a view other than what has been taken by this Court in assessee’s own cases (being ITA No. 7/2023 decided on 13.12.2023 and ITA No. 551/2023 decided on 30.09.2024).

8.

Apart from above questions, another question i.e. question No. H has also been proposed by the appellant.

9.

On the perusal of the order dated 08.08.2025 of the Income Tax Appellate Tribunal (ITAT) (hereinafter referred to as „the Tribunal‟) impugned before us, we find that while accepting the assessee’s appeal on this ground, the Tribunal has recorded a finding that Febulka Advertising Pvt. Ltd is engaged in entirely different business and therefore, the figures of This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/05/2026 at 12:13:31

Febulka, that too when they are not available on public domain in its entirety, cannot be taken selectively.

10.

According to us, this aspect essentially involves a finding of fact recorded by the Tribunal on the basis of appreciation of material available on record. It does not give rise to any question of law, much less a substantial question of law.

11.

The question No. H proposed by the appellant being a factual issue, thus, does not call for any interference in limited jurisdiction of this Court under Section 260A of the Act of 1961. 12. The appeal qua this ground is also rejected.

13.

The appeal thus stands dismissed. Pending applications are disposed of.

DINESH MEHTA, J

TEJAS KARIA, J MAY 6, 2026/cd

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 12/05/2026 at 12:13:31

More judgments on Section 92C

All 1,769 judgments and leading authorities on Section 92C →

Recent GST High Court judgments

Search GST case law →