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2014 (5) TMI 1066 - AT - Income TaxTransfer pricing adjustment - CUP v/s TNMM method - Held that:- TPO has wrongly applied the CUP method for determining the ALP in respect of some mentioned transactions pertaining to export of finished goods. More so, when the TPO accepts that more than 90% of the exports to the AEs are at ALP, there is no reason to apply CUP method for part of the exports. Accordingly, the additions made on this account are not justified and they are directed to be deleted. Adjustment towards imports - Held that:- On behalf of assessee that in respect of most of the products, the assessee has paid lower price to its AEs as compared to the prices paid to Third Parties. This fact has been clarified by the assessee to the TPO filed by the assessee. In this background, it was submitted that considering the fact that in respect of most of the instances, the assessee has paid lower prices to the AEs as compared to Third Parties, which indicates that the pricing of the products is influenced by economic circumstances and underlying transactional differences. In some of the products where the price paid by the assessee to its AEs is more than the price paid to Third Parties, such higher price paid amounts to ₹ 2,55,063/-. However, in most cases, where the prices paid by the assessee to its AEs is lower than the price paid to Third Parties, the lower price paid is to the tune of ₹ 18,08,201/- as detailed on page 217 of the Paper Book. This aspect has not been appreciated by the TPO.In view of above discussion, the TPO was not justified in adopting CUP method for determining ALP in respect of some of the international transactions pertaining to import of goods. Adjustment towards Commission paid to AE - According to the TPO, CUP method is the most appropriate method for computing the ALP of the commission payment made by the assessee to its AEs and compared the rate of commission paid by the assessee to unrelated domestic agents against the rate of commission paid to the AEs located in Europe - Held that:- We find that considering the vast differences in the functions performed, the comparison of the rate of commission paid by the assessee to the AEs and third parties is not justified. It is further to be appreciated that the assessee has given the details of the parties to whom commission is paid in the domestic market. The rate of commission varies from 1 % to 7% which itself indicates that depending upon the services rendered, the commission is paid. Accordingly, the TPO has wrongly applied the CUP method for determining the ALP in respect of transactions of payment of commission by the assessee company to its AEs. Similar issues i.e. determination of ALP for export, import & commission arose in other A.Ys. 2007-08 and 2008-09. Facts being similar, so following the same reasoning, we hold that the TPO was not justified in applying CUP method for determining ALP on account of some export, import transactions and commission payments as discussed above. - Decided in favour of assessee.
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