ITAT Ahmedabad Rejects Revenue’s Transfer Pricing Adjustment on Royalty and Allows Section 80IA Deduction

The Ahmedabad “D” Bench of the Income Tax Appellate Tribunal delivered a common order on 24 February 2026 in appeals fi led by the Revenue against Netafim Irrigation India Pvt. Ltd. for Assessment Years 2012–13 and 2013–14. The Tribunal examined transfer pricing adjustments on royalty payments to the associated enterprise and denial of deduction under Section 80IA(4) of the Income-tax Act.

Royalty Payments Held at Arm’s Length

The assessee had paid substantial royalty to Netafim Ltd., Israel under a technical collaboration agreement for know-how related to drip irrigation systems. The transactions were benchmarked using transfer pricing methods, showing the royalty rate to be within arm’s length range. However, the Transfer Pricing Officer determined the arm’s length price of royalty at NIL without applying any prescribed method and proposed large adjustments, which were added by the Assessing Officer.

The Commissioner (Appeals) deleted the additions, relying on earlier ITAT orders in the assessee’s own case which had upheld similar royalty payments. The Tribunal agreed, noting that the TPO had not followed statutory benchmarking procedures and that past decisions consistently accepted the royalty as commercially justified and at arm’s length. The Revenue failed to show any contrary ruling or change in facts.

Deduction Under Section 80IA(4) Restored

The Assessing Offi cer had denied deduction under Section 80IA(4) in relation to the Andhra Pradesh Micro Irrigation Project, citing a typographical error in the project agreement referring to a different entity name. The CIT(A) examined extensive documentary evidence showing that the assessee itself executed the project, received payments, and accounted for related income and expenses. The Tribunal upheld these findings, observing that the Revenue produced no material to contradict them.

Accordingly, the ITAT dismissed both Revenue appeals, confirming deletion of royalty adjustments and allowing the infrastructure-related deduction.