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2014 (9) TMI 936 - ITAT HYDERABADDetermination of arm's length price - TP adjustment - Profit Level indicator - Held that:- TP adjustment to be made to the total income of the assessee was worked out by the Assessing Officer/TPO by taking the Operating Profit to Operating Cost as PLI instead of Operating Profit to Operating Revenue taken by the assessee as PLI. - As noted by the CIT(A), the purpose of identifying the PLI is to ensure that the comparability of the controlled transactions is objective and reference in this regard was made by him to the OECD Transfer Pricing Guidelines 2010, wherein it was explained that the denominator should be reasonably independent from controlled transactions, as otherwise, there would be no objective starting point. Explaining further, it was observed in the OECD Transfer pricing Guidelines that when analyising a transaction consisting in the purchase of goods by a distributor from an associated enterprise for resale to independent customers, one could not weigh the net profit indicator against the cost of goods sold because these costs are the controlled costs for which consistency with the arm’s length principle is being tested - CIT(A) was fully justified in accepting the Operating Profit to operating Revenue as the PLI, as claimed by the assessee for Transfer Pricing Analysis, and not Operating Profit to Operating Cost as taken by the Assessing Officer/TPO, relying on the relevant OECD Transfer Pricing Guidelines, 2010 - Decided against Revenue.
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