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2018 (5) TMI 2031 - ITAT KOLKATATP Adjustment - exclusion of E-Infochips Ltd as a comparable while determining the Arm’s Length Price of the assessee with regard to software development services (international transaction ) of the assessee - HELD THAT:- E-Infochips Ltd is not functionally comparable to the assessee and accordingly we direct the ld TPO to exclude the same from the final list of comparables. Determination of Arm’s Length Price (ALP) of Royalty payments at Rs Nil by the ld TPO - HELD THAT:- No finding whatsoever had been given by the lower authorities on the argument of the assessee that payment of 40% is made to AE pursuant to revenue sharing arrangement, though nomenclatured as royalty. In other words, the lower authorities had completely proceeded on the point that the payment made is only towards royalty. The ld AR also pointed out that the assessee to be on the safer side, had also subjected the payment of 40% to AE to withholding tax treating the same as royalty to avoid possible disallowance of the same u/s 40(a)(i) read with section 195 of the Act. We find that this has got no bearing on the determination of ALP of the subject mentioned payment in the scheme of transfer pricing. Since the ld AR before us had stated that what is paid is only share of AE pursuant to revenue sharing arrangement and not royalty, this aspect deserves to be remanded back to the file of the ld TPO for denovo adjudication. Accordingly, we hold that this issue of disallowance of payment of royalty is remanded to the file of ld TPO / ld AO for denovo adjudication with a direction to ld TPO to benchmark the subject mentioned payment vis a vis the comparables afresh, in order to determine the ALP of the said international transaction. Initiation of penalty proceedings u/s 271(1)(c ) of the Act which does not survive in view of the aforesaid decisions rendered for the quantum additions with a liberty granted to the revenue to initiate fresh penalty proceedings u/s 271(1)(c ) of the Act on completion of the set aside assessment, if they so desire
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