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2013 (5) TMI 219 - AT - Income TaxTransfer pricing adjustment on account of payment of royalty to its AE - assessee submitted that he had referred to contract manufacturing in transfer pricing analysis by mistake - Held that:- Tribunal in the assessee's own case in assessment years 2003-04 and 2004-05 held that TPO was required to determine arms-length-price and then recommend adjustment which had not been done. The disallowance had been made on the ground that there was no justification for royalty which was not correct. The Tribunal, therefore, held that TPO exceeded its jurisdiction in making recommendation for disallowance of royalty on the ground of no justification. Even on merit, no addition was required as assessee was manufacturing specific products as per specification of the principal and selling the same to principal and to other parties. The royalty was payable as per agreement for using of technical know-how on value added price to the principal as independent of manufacturing of goods. Further, royalty had been paid not on entire sale price but only value added price which was worked out separately. The royalty had also been paid on sale to third parties which had been allowed but royalty on sales to AE had not been allowed when rate of royalty was the same. Further, no disallowance had been made in the earlier year. Thus held by the Tribunal that the royalty was thus for the purpose of business - deleted of additions confirmed. In favour of assessee.
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