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Facts
The assessee, M/s. Schaeffler India Ltd., filed returns for AYs 2006-07 to 2009-10. The TPO made upward adjustments to royalty payments to Associated Enterprises (AEs) using the Comparable Uncontrolled Price (CUP) method, which was partially upheld by the DRP. Previously, the ITAT had remanded the issue to the CIT(A) with directions to use the Transactional Net Margin Method (TNMM) for determining the Arm's Length Price (ALP) of royalty.
Held
The CIT(A) followed the ITAT's directions and applied the TNMM method. The TPO's own remand report for the current assessment year concluded that if TNMM was used, the royalty payments were at arm's length. Relying on its consistent findings in the assessee's earlier assessment years (AY 2002-03 and AY 2010-11 to 2014-15) where TNMM was upheld and similar royalty adjustments were deleted, the tribunal found no infirmity in the CIT(A)'s order deleting the additions. Consequently, all appeals filed by the Revenue were dismissed.
Key Issues
Whether the Arm's Length Price (ALP) for royalty payments to Associated Enterprises (AEs) should be determined by the Comparable Uncontrolled Price (CUP) method or the Transactional Net Margin Method (TNMM), and if such transactions should be aggregated.
Sections Cited
Section 143(3) of the Income Tax Act, 1961, Section 144C of the Income Tax Act, 1961, Section 92CA(1) of the Income Tax Act, 1961
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Revenue Represented: Shri Kamlesh Makwana, CIT-DR Assessee Represented: Shri Milin Mehta & Shri Bhavin Marfatia, A.Rs. Date of hearing : 09-02-2026 Date of pronouncement : 13-02-2026 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
These four appeals are filed by the Revenue as against separate appellate orders dated 19-08-2025 and 14-08-2025 passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad arising out of the assessment orders passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2006-07 to 2009-10. Since common issues are involved in all these appeals, for the sake of convenience the same are disposed of by this common order.
, 2018, 2019 & 2036/Ahd/2025 A.Ys. 2006-07 to 2009-10 2 ACIT vs. M/s. Schaeffler India Ltd. for A.Y. 2006-07 is taken as the lead case. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing of various types of Ball and Roller Bearings. For Asst. Year 2007-08, assessee filed its Return of Income declaring total income of Rs.59,30,95,740/-. The return was taken for scrutiny assessment and referred to Transfer Pricing Officer to determine the Arms’ Length Price u/s. 92CA(1) of the Act. Ld TPO made addition of Rs.350.56 lakh on account of upward adjustment of payment of Royalty to Associated Enterprises ("AEs") applying CUP as the most appropriate method in the order passed u/s. 92CA of the Act. The DRP, Ahmedabad vide order dated 27-9-2010 held that the royalty is to be benchmarked using CUP method and royalty at the rate of 2.3% is the correct ALP. Therefore, as against addition of Rs.350.56 lakh on account of royalty payment made by the AO/TPO, the DRP upheld addition to the extent of Rs. 339.24 lakh.
2.1. Aggrieved against the order, the Assessee had filed appeal before ITAT, Ahmedabad vide common order dated 30-04-2019 in co-ordinate Bench of this Tribunal set aside the issue involving determination of ALP of international transaction of payment of Royalty to AEs to the file of CIT(A) and directed the CIT(A) to adopt the method of TNMM to determine and re-compute the ALP in respect of royalty. Accordingly, this ground was restored back to the file of CIT(A) for re-computation of ALP and Ld CIT[A] passed the following order after calling for a Remand Report from the TPO by observing as follows:
, 2018, 2019 & 2036/Ahd/2025 A.Ys. 2006-07 to 2009-10 3 ACIT vs. M/s. Schaeffler India Ltd.
“…. 6.0. I have considered the appellant's submission, the TPO's remand report and the directions given by the ITAT in its order dated 30-4-2019. The issue of payment of royalty in this appeal has been remanded back to the file of this office by ITAT with specific directions. In the remand proceedings, the directions issued by the higher authority are to be strictly followed and the scope of such proceedings is limited to the extent of remand given by the higher authority. 6.1 In the present case, the ITAT has clearly directed that the ALP of the international transaction of payment of royalty should be determined following TNMM method. The contention of the TPO that in many decisions referred in the remand report it has been held that the ALP of royalty payment should be determined by using CUP method is not acceptable at this stage. The TPO has not pointed out any defect in the ALP determined by the appellant using TNMM considering royalty payment for such computation. 6.2 It is also a fact that similar directions were issued by the ITAT in & 817/Ahd/2006 dated 14-11-2014 in the appellant's own case for AY 2002-03 wherein the issue of payment of royalty was set aside to the file of CIT(A) for fresh adjudication as per the directions of the ITAT. The CIT(A)-1 Vadodara in the order giving effect to the ITAT's order in set aside proceedings vide order dated 26-10-2015 deleted the addition of royalty holding that payment of royalty is at arm's length using TNMM method. The order of the CIT(A)-1, Vadodara was challenged by the Department with the ITAT, Ahmedabad vide ITA No. 108/Ahd/2016. The ITAT, Ahd vide order dated 24- 1-2017 upheld the order of the CIT(A)-1, Vadodara dated 26-10- 2015. Further, the Department's MA against the order of the ITAT in was also dismissed. It is also the contention of the Appellant that the ITAT, And for AY 2010-11 to AY 2014-15 vide order dated 12-1-2024 on similar facts has upheld the order of the CIT/A)-13, Ahd wherein the addition of payment of royalty was deleted. The relevant findings of the ITAT, Ahd in order dated 12-01-2024 are reproduced below: "18 In our considered view this issue is squarely covered in fame of the assesses vide ITAT orders passed in favour of the assessee for earlier assessment years, while dealing with this very same issue and accordingly there is no 2018, 2019 & 2036/Ahd/2025 A.Ys. 2006-07 to 2009-10 4 ACIT vs. M/s. Schaeffler India Ltd. infirmity in the order of Ld. CIT(A) so as to call for any interference We observe that ITAT Ahmedabad in assessee's own case for AY 2002-03 has held that TNMM may be used for determination of Arm's Length Price for Royalty payments The relevant extracts of the order passed by ITAT Ahmedabad in assessee’s own case for AY 2002-03 has been reproduced by Ld. CIT(A) (at Page 20- 21 of his order), while deciding the issue in favour the assessee. Further, we observe that even the AO/TPO in the remand proceedings have given a specific findings that if TNMM has taken to be the most appropriate method, the transactions is at Arm's Length Price (refer Para 3.6.1.. Page 21 of CIT(A) for AY 2010-11) Accordingly, in view of the decision of ITAT Ahmedabad in assessee’s own case on this issue we are of the considered view that Ld. CIT(A) has not erred in facts and in law in deciding this issue in favour of the assessee.” 6.3 In the remand report sent by the TPO for the current assessment year the TPO has given a finding in para 4 of the remand report that if the Arm's Length Price (ALP) of royalty payment is to be determined by following Transactional Net Margın method (TNMM) then the International Transactions of payment of royalty of the appellant company with its AEs are at Arm's Length Price. Considering the entire facts and circumstances of the case, the directions issued by the ITAT that the benchmarking of payment of royalty is to be done using TNMM method, the orders of the ITAT, Ahmedabad for AY 2002-03 and AY 2010-11 to AY 2014- 15 in the case of the Appellant and also taking into consideration the findings of the TPO in the remand report, it is held that the international transaction of payment of royalty is at arm's length and no upward adjustment is required to be made. Accordingly, the adjustment made on account of payment of royalty in the earlier orders of the TPO and the DRP in the original proceedings) stand deleted.”
, 2018, 2019 & 2036/Ahd/2025 A.Ys. 2006-07 to 2009-10 5 ACIT vs. M/s. Schaeffler India Ltd.
(1) On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting of Rs.3,50,56,457/- adjustment made on account of Royalty payment to Associated Enterprise (AE) without considering the material contained in the order of the Transfer Pricing Officer on merits and just by relying on the order of his predecessor for the assessment year 2002-03, to apply TNMM instead of CUP while benchmarking the royalty payment? (ii) Whether on facts and in the circumstances of the cases and in law, the Ld. CIT(A) has erred in holding that Royalty payment to Associated Enterprise (AE) to be aggregated under TNMM without appreciating that only intrinsically linked transaction can be aggregated and payment of royalty is a separate class of transaction is not intrinsically linked transaction and has to be benchmarked separately? (iii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.
Ld. CIT-DR appearing for the Revenue in support of its grounds submitted Ld. CIT(A) is not correct in determining the royalty payment under CUP method instead of TNMM method. However Ld. CIT-DR fairly admitted in Para 4 of the Remand Report filed by the TPO, ALP of royalty payment is to be determined following TNMM method. Ld. CIT-DR could not place on record that the earlier order passed by this Tribunal was challenged before Higher Judicial Forum. Whereas the TPO himself has admitted TNMM method is most appropriate method bench-marking the royalty payment. Therefore we do not find any infirmity in the order passed by the Ld. CIT(A). Thus the Grounds of appeal raised by the Revenue is devoid of merits and liable to be dismissed.
, 2018, 2019 & 2036/Ahd/2025 A.Ys. 2006-07 to 2009-10 6 ACIT vs. M/s. Schaeffler India Ltd. , 2019 and 2036/Ahd/2025 relating to Asst. Years 2007-08 to 2009-10
The Grounds of appeal
raised by the Revenue in for A.Y. 2007-08 are as follows: (1) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting of Rs. 426.64 lacs adjustment made on account of Royalty payment to Associated Enterprise (AE) without considering the material contained in the order of the Transfer Pricing Officer on merits and just by relying on the order of his predecessor for the assessment year 2002-03, to apply TNMM instead of CUP while benchmarking the royalty payment? (ii) On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in holding that Royalty payment to Associated Enterprise (AE) to be aggregated under TNMM without appreciating that only intrinsically linked transaction can be aggregated and payment of royalty is a separate class of transaction is not intrinsically linked transaction and has to be benchmarked separately? (iii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.
7. The Grounds of appeal raised by the Revenue in for A.Y. 2008-09 are as follows: (i) On the facts and circumstances of the case and in law, the Ld.CITIA) erred in deleting of Rs. 502.33 lacs adjustment made on account of Royalty payment to Associated Enterprise (AB) without considering the material contained in the order of the Transfer Pricing Officer on merits and just by relying on the order of his predecessor for the assessment year 2002-03, to apply TNMM instead of CUP while benchmarking the royalty payment? (ii) On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in holding that Royalty payment to Associated Enterprise (AE) to be aggregated under TNMM without appreciating that only intrinsically linked transaction can be aggregated and payment of royalty is a separate class of transaction is not intrinsically linked transaction and has to be benchmarked separately? (ii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.
, 2018, 2019 & 2036/Ahd/2025 A.Ys. 2006-07 to 2009-10 7 ACIT vs. M/s. Schaeffler India Ltd.
The Grounds of appeal raised by the Revenue in for A.Y. 2009-10 are as follows:
(i) On the facts and circumstances of the case and in law, the Ld.CITTA) erred in deleting of Rs.2,60,77,000/- adjustment made on account of Royalty payment to Associated Enterprise (AE) without considering the material contained in the order of the Transfer Pricing Officer on merits and just by relying on the order of his predecessor for the assessment year 2002-03, to apply TNMM instead of CUP while benchmarking the royalty payment? (ii) On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in holding that Royalty payment to Associated Enterprise (AE) to be aggregated under TNMM without appreciating that only intrinsically linked transaction can be aggregated and payment of royalty is a separate class of transaction is not intrinsically linked transaction and has to be benchmarked separately? (iii) The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.
9. In these appeals, Ld. CIT(A) in Paragrpah 7.3 considered the Remand Report filed by the TPO that TNMM method is most appropriate method for bench-marking the royalty payment. Thus, there is no merits in the grounds raised by the Revenue in these three appeals, therefore the same are hereby dismissed.
In the combined result, the appeals filed by the Revenue are dismissed.