If the TPO is not satisfied with the assessee’s method of benchmarking royalty payments, he should independently benchmark the ALP by adopting any one of the prescribed methods. He cannot determine The ALP at nil on an ad-hoc basis. TNMM is the most appropriate method for determining the ALP of royalty and not the CUP method. If an authority like the RBI or Commerce Ministry has approved the rate of royalty, it carries persuasive value that the rate is at ALP. (ITA no.3668/Mum./2008,dt. 25.04.2019)(AY. 2003-04 to 2005 -06))
ACIT v. Netafim Irrigation India Pvt. Ltd. ( 2020) 185 DTR 30(Mum.)(Trib.), www.itatonline.org
S. 92C : Transfer pricing-Arm’s length price-cannot determine The ALP at nil on an ad-hoc basis-If an authority like the RBI or Commerce Ministry has approved the rate of royalty, it carries persuasive value that the rate is at ALP.