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2011 (9) TMI 261 - AT - Income TaxArm's Length price (ALP) - Addition u/s 92CA(3) - Payment made to parent company - the basic reason of the Transfer Pricing Officer’s determination of ALP of the services received under cost contribution arrangement as ‘NIL’ is his perception that the assessee did not need these services at all, as the assessee had sufficient experts of his own who were competent enough to do this work. - Held that:- The TPO’s objection to this arrangement was two fold – first, that the cost should be shared in the ratio of actual use of services; and – second, that the costs should be charged to the assessee as per Indian employee costs. None of these objections has any legally sustainable merits. - the assessee has adopted TNMM as most appropriate method, and the revenue authorities have neither made an effort to show as to how this method is not appropriate to the facts of this case, nor shown as to which other prescribed method of ascertaining arm’s length price of services received under CCA will be more appropriate to these facts. Discount of 10% to AEs - the discount is allowed by the virtue of status as associated enterprise, but that is not a material factor; in our considered view, the material factor is whether such a discount of 10% is an arm’s length discount i.e. a discount which is given even in a situation in which an enterprise is dealing with independent enterprise. There is nothing on record to even suggest that such a discount is not an arm’s length discount, or that discounts have not been allowed under any other situations. In view of these discussions, and bearing in mind entirety of the case, we delete the impugned disallowance of Rs 4,70,000 as well. Disallowance u/s 40A(2)(b) - Held that: - As long as the services have been availed by the assessee is legitimate furtherance of its business interests and are, thus, wholly exclusively for the purposes of business, the costs of these shared services, as allocated to the assessee, are required to be treated to have been computed in a fair and transparent manner. Disallowance u/s 40(1)(i) - non deduction of TDS - assessee claims that payments made to the US based AE, under a cost contribution agreement, do not warrant any tax withholding as neither the AE has any permanent establishment in India, nor the services so rendered are covered by the scope of ‘fees for included services’. - since these services prima facie are not covered by the ‘make available’ clause of Article 12(4)(b), the payment so made cannot be taxed as ‘fees for included services’ either. - AO has not even made out the case for taxability of the impugned payments in India.
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