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2019 (4) TMI 1786 - ITAT PUNERejection of Foreign/Associated Enterprises (AEs) as tested party - whether the foreign/Associated Enterprise(s) can be considered as tested party or only the Indian entity, which has recorded the transaction in its books of account, can be so considered? - HELD THAT:- No exception can be taken to the view canvassed by the authorities below in rejecting foreign/Associated Enterprises as a tested parties. Notwithstanding the above legal position, even if we presume for a moment on a hypothetical basis that the stand of the assessee of having foreign/AEs as a tested party is correct, the assessee still cannot be said to have successfully established the particulars of the so called seven foreign/AEs simultaneously as tested party. Not only the assessee failed to furnish the basic information of the foreign/AEs, such as, Annual Reports and Financial statements etc., the assessee categorically admitted before the TPO that these foreign/AEs were engaged in many activities other than supply of material to the assessee. Similar is the position of foreign comparables chosen by the assessee qua each of the seven foreign/AEs. It is trite that if an assessee has chosen a comparable, onus is on him to prove that the said company is comparable to the international transaction. We find that the assessee chose certain foreign companies as comparable, but on being called upon by the TPO, failed to lead any evidence to show that they were comparable. Ergo, we accord our imprimatur to the view canvassed by the lower authorities on this issue. Non granting appropriate adjustment on account of higher depreciation claimed by it vis-à-vis the comparables - HELD THAT:- DRP has recorded a categorical finding that the assessee could not lead any evidence showing difference in the rates of depreciation charged by it vis-à-vis the comparables. Per contra, the ld. AR has placed on record a chart showing difference in the rates of depreciation charged by the assessee and comparables. We find that the authorities below did not have any occasion to consider this chart as the same has been placed before us for the first time. Ends of justice would meet adequately, if we set aside the impugned order to this extent and send the matter back to the file of the AO/TPO for allowing adjustment to the operating profit margin of the comparable companies, if there is some difference in rates of depreciation charged by the assessee vis-à-vis these companies. The amount of depreciation of the comparable companies on their assets shall be recomputed under straight line method alone as per the rates at which the assessee has provided depreciation. To clarify, if the comparables have charged depreciation at a higher rate in comparison with the assessee on some of its assets, then suitable reduction should be made in the amount of their depreciation and if the comparable companies have charged depreciation at a lower rate in comparison with the assessee, then suitable increase should be made to their amount of depreciation - if the assessee as well as the comparable companies are using the SLM and there is some difference in the rates of depreciation charged by them vis-à-vis the assessee, then suitable adjustment should be made to the profits of the comparables. Transfer pricing adjustment only to the international transactions and not to the entity level - HELD THAT:- No exception can be taken to the decision of the DRP in directing that the transfer pricing addition should be restricted only to the international transactions and not the non-international transactions of the assessee. First subsection of section 92 of the Act, which is the first section of the Chapter X, provides in unambiguous terms that - `Any income arising from an international transaction shall be computed having regard to the arm’s length price’. The Chapter extends in its application only to the international transactions, which term has been defined in section 92B to mean : `a transaction between two or more associated enterprises’. Thus it is patent that the transfer pricing provisions apply only to the transactions between the associated enterprises and not unrelated or non-associated enterprises. Hon’ble jurisdictional High Court in CIT Vs. Tara Jewels Exports Pvt. Ltd. [2015 (12) TMI 1130 - BOMBAY HIGH COURT] has held that sections 92A and 92B require Transfer Pricing adjustment to be done only in respect of the transactions entered into between the assessee with its AEs and not with the non-AEs. Transfer pricing addition by the AO in respect of the international transaction of “Import of trading goods”, on the direction of the DRP for applying the Resale Price Method (RPM) for benchmarking the international transaction - HELD THAT:- The assessee admittedly imported steel cord from its AEs and sold the same to the non-AEs without any value addition or further processing. The Resale price method, as the name itself suggests, is preferably used when the goods are `resold’. The mechanism for the computation of the ALP under this method is based on this foundation. In our considered opinion, the RPM is the most appropriate method for determining the ALP in case of distribution of goods. In other words, if the goods purchased are sold as such without any further processing or value addition, then the RPM is the most appropriate method. Our view is fortified by the judgment of the Hon’ble Jurisdictional High Court in CIT Vs. L’oreal India Pvt. Ltd. [2015 (2) TMI 407 - BOMBAY HIGH COURT] . We, therefore, countenance the impugned order on this score and hold that the RPM is the most appropriate method for benchmarking the international transaction. Addition by application of the RPM - AR fairly pointed that similar issue was raised in its appeal before the Tribunal for a preceding year and the Tribunal has approved the application of the RPM but restored the matter to the TPO for determining the ALP by applying this method. A copy of such an order has been placed on record. Respectfully following the precedent, we send the matter to the AO/TPO with a direction to compute the ALP of the international transaction under consideration by applying the RPM
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