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2017 (6) TMI 1357 - ITAT BANGALORETP Adjustment - Determination of ALP - transactions between related parties - computation of the location saving by the TPO - TPO proceeded to. make assessment on the basis of location saving available to the assessee being doing its research and trial activity in India in comparison to US - HELD THAT:- The location saving and advantage are universally accepted in cross border trade so far as the transactions are not entered into solely for the purpose of avoiding tax and particularly the transactions between the related party with motive to shift the benefit of location saving and advantage to the counter part where either there is no tax or very low tax is attracted. Therefore the concept of Base Erosion and Profit Shifting (BEPS) is relevant only in respect of the transactions which are entered into with the sole purpose of avoidance of tax and· treaty shopping. To deal with such transactions between related parties the transfer pricing provisions has been introduced in the statute and are applied for determination of ALP. Therefore the location savings and advantages are very much relevant in the cross border transaction but for limited purpose of carrying out exercise of examination and investigation of the transaction and not as a basis for determining the ALP and consequently adjustment. We find that the Mumbai Bench of the Tribunal in the case of Watson Pharma Pvt. Ltd. Vs. DCIT [2015 (1) TMI 699 - ITAT MUMBAI] has dealt with this aspect and held that when the local comparables are available then instead of going to the location saving as a basis of adjustment, the TNMM shall be preferred. The orders of the TPO and DRP are not sustainable as suffer from serious defect of considering the location saving as basis ·of adjustment. Further we find that the computation of the location saving by the TPO is purely based on some articles and not on the basis of actual cost in the US in comparison to India. Therefore the price/cost as computed by the TPO is not based on actual data but on presumption of accepting the article on the subject as the comparable cost. Since the functional comparability of the companies selected by the assessee has not been examined by the TPO as well as no steps were taken to find out the other comparables of the assessee for determination of ALP therefore, the issue of determination of ALP and consequential adjustment, if any, is required to be examined and adjudication afresh at the level of TPO/A.O - As assessee is receiving its price in foreign currency therefore the comparable uncontrolled price shall also have atleast 75% of their revenue in foreign currency otherwise the price received from domestic market may not be acceptable when the assessee is receiving its 100% revenue in foreign exchange. Accordingly, the matter is set aside to the record of the TPO/A.O. for adjudication of the same afresh in the light of our above observations.Appeals allowed for statistical purpose.
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