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2012 (11) TMI 1107 - AT - Income TaxTP - Determination of arms length price - disallowance of Royalty amount - whether contract manufacturer or an independent manufacturer - safe harbor limit of +/- 5% - Held that:- Hon'ble Delhi High Court in the case of CIT vs. EKL Appliances [in ITA No.1068/70/2011] - assessee is having proper license to manufacture products and hence cannot be considered as contract manufacturing - royalty has to be made for technology transfer which was approved by the RBI at 5% on value addition made by assessee in the manufacturing process - The rule does not authorize the TPO to disallow any expenditure on the ground that it was not necessary or prudent for assessee to have incurred the same - As royalty is paid for allowing assessee in utilizing the technical knowhow and the license for manufacturing activity - the payment of royalty is wholly and exclusively for the purpose of business - Hence Royalty is allowed as claimed - decided in favor of assessee TP adjustment shall be within the safe harbor limit of +/- 5% - The TPO determined ALP at NIL which is at 100% variation - 5% royalty rate is at arm length price - assessee's payment of royalty cannot be disallowed invoking the TP provisions - Decided in the favor of assessee
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