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2026 Supreme(Online)(ITAT) 4166
INCOME TAX APPELLATE TRIBUNAL (AHMEDABAD BENCH)
BRR Kumar, Vice President, T. R. Senthil Kumar, Judicial Member
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-2 1 1 VADODARA VADODARA – Appellant
Versus
NETAFIM IRRIGATION INDIA PRIVATE LIMITED VADODARA – Respondent
ITA Nos: 2005 & 2006/Ahd/2025
For the Appellants/Petitioners: Shri Kamlesh Makwana, CIT-DR
For the Respondents: Shri Dhinal Shah, A.R.
TPO cannot determine royalty ALP at NIL without prescribed TP method; assessee's CUP/TNMM benchmarking upheld per prior orders. 80IA(4) deduction allowed on documentary proof despite name error, focusing on contract substance over form.
Headnote:(A) Income Tax Act, 1961 - Sections 92B, 92C r.w.s. 92CA, 80IA(4), Rule 10B - Transfer pricing - Royalty payment to associated enterprise for technical know-how - TPO determined ALP at NIL without applying prescribed method or rejecting assessee's CUP/TNMM benchmarking - CIT(A) deleted adjustment relying on prior ITAT orders upholding 4% royalty rate, commercial expediency, and aggregation under TNMM as accepted in earlier years - Tribunal upheld deletion observing TPO failed to benchmark using statutory methods; royalty intrinsically linked to manufacturing, benchmarkable under TNMM with operating margins within arm's length range (7.48% vs. 7.66% comparables). (Paras 2, 4.6-4.18, 5-5.2)
(B) Income Tax Act, 1961 - Section 80IA(4) - Deduction for infrastructure project - Typographical error in agreement name not denying eligibility where documentary evidence (signed agreement, work orders, invoices, performance certificates, TDS, Form 10CCB) proved assessee as executing party - Mere TDS u/s 194C or government treatment as contractual not converting supply/installation of irrigation systems into pure works contract - Dominant object transfer of goods with skill/labour incidental. (Paras 2.1, 3.1, 5.3-5.9, 6)
Facts of the case:
Revenue appealed CIT(A) orders deleting TP adjustment on royalty payments (Rs.11,00,82,626/- for AY 2012-13; Rs.13,09,51,047/- for AY 2013-14) at 4% of sales for technical collaboration and disallowance of Rs.28,35,347/- deduction u/s 80IA(4) for micro irrigation project citing name error and works contract nature.
Findings of Court:
TP adjustments deleted; 80IA(4) deduction allowed. Revenue appeals dismissed for both AYs.
Issues: (1) Whether royalty ALP determination at NIL without prescribed benchmarking valid? (2) Whether royalty aggregable under TNMM or separately benchmarked? (3) Whether typographical name error and project nature disqualify 80IA(4) deduction?
Ratio Decidendi: TPO must apply Rule 10B method for ALP; ad-hoc NIL determination invalid. Prior consistent ITAT acceptance of royalty/aggregation binding absent changed facts. Deduction eligibility proved by substance/documents over form discrepancies; contract nature by dominant intention (goods transfer).
Result: Revenue appeals dismissed.
| Table of Content |
|---|
| 1. factual background of royalty payments and 80ia claim (Para 2 , 9) |
| 2. cit(a) deletes royalty adjustment and allows 80ia deduction (Para 3) |
| 3. revenue's grounds challenging cit(a) deletions (Para 4 , 8) |
| 4. tribunal upholds deletion of royalty adjustment following prior orders (Para 5) |
| 5. 80ia deduction allowed based on documentary evidence (Para 6) |
| 6. revenue appeals dismissed for both assessment years (Para 7 , 10) |
आदेश/ORDER
PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER
These two appeals are filed by the Revenue as against two separate appellate orders both dated 11-08-2025 passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad arising out of the assessment orders passed under section 143(3) r.w.s. 92CA of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Years 2012-13 and 2013-14 respectively. Since common issues are involved in both the appeals, for the sake of convenience, the same are disposed of by this common order.
2. Brief facts of the case is the assessee is a company engaged in the business of manufacturing and trading drip irrigation systems across various states in India. For the assessment year 2012-13, the assessee company paid Rs.11,00,82,626/- to M/s. Netafim Ltd., Israel towards Royalty under a Technical Collaboration Agreement for obtaining technical know-how, training and skills relating to extrusion, assembly and marketing of drip irrigation systems. The said transaction was reported as an international transaction under section 92B of the Act and the assessee conducted a transfer pricing study under section 92C of the Act using the Comparable Uncontrolled Price (CUP) method. As per the benchmarking analysis carried out by an independent Chartered Accountant firm, the royalty rate of 4% of adjusted sales paid by the assessee company was found to be within the arm's length range, with the mean rate of comparable agreements being 4.30%. Upon reference from the Assessing Officer (AO), Transfer Pricing Officer (TPO) examined the said transaction and issued a show cause notice proposing to determine the arm's length price (ALP) of the royalty payment at NIL. Assessee submitted a detailed reply in support of the transaction, however, Ld. TPO proceeded to determine the ALP at NIL and proposed an upward adjustment of Rs.11,00,82,626/. Ld. AO made a corresponding addition in the final assessment order.
2.1. The Assessee company also claimed deduction under section 80IA(4) of the Act in respect of its participation in the Andhra Pradesh Micro Irrigation Project (APMIP). The same was denied by the AO on the basis the reference to "Netafim ACS & India Ltd.” on the first page of the agreement. The appellant submitted that the said reference was a typographical error instead of “Netafim Irrigation India Pvt. Ltd.” and placed on record various documentary evidences to substantiate that it was in fact the executing party. However the AO denied the claim of deduction under section 80IA(4) of the Act of Rs.28,35,347/= to the assessee and demanded tax thereon.
3. Aggrieved against the Final assessment order, assessee filed an appeal before CIT[A], who considered the submissions of the assessee on the issue of Royalty payment and also earlier orders passed by the ITAT in assessee’s own case and deleted the additions made by the AO on Royalty payment by observing as follows:
“… … 4.6. I have carefully examined the facts of the case, the submissions made by the appellant, the assessment order, and the transfer pricing order passed under section 92CA(3) of the Act. The primary issue under consideration pertains to the determination of the ALP of the royalty payment of Rs.11,00,82,626/- made by the appellant to its associated enterprise, Netafim IS, under a Technical Collaboration Agreement. It is the appellant's contention that the royalty paid at 4% of adjusted sales was in fact within the arm's length range, as substantiated by an independent benchmarking analysis wherein c
