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2014 (3) TMI 23 - AT - Income TaxTransfer pricing adjustment – Services to Associated Enterprise – Rejection of analysis for determination of ALP of International transaction - Held that:- All that is necessary for the purpose of computing arm’s length price, under TNMM on the basis of internal comparables, is computation of net profit margin, subject to comparability adjustments affecting net profit margin of uncontrolled transactions, on the same parameters for the transactions with AEs as well as Non AEs, i.e. independent enterprises, and as long as the net profits earned from the controlled transactions are the same or higher than the net profits earned on uncontrolled transactions, no ALP adjustments are warranted - It is not at all necessary that a computation should be based on segmental accounts in the books of accounts regularly maintained by the assessee and subjected to audit - the authorities below in error in rejecting the segmental results on the ground that the segmental accounts were not audited and that these segmental accounts were not maintained in the normal course of business. The allocation of expense is on the man hour basis, which is quite fair and reasonable, and that every person has to punch in hours on a specific project - We have also noted that all these details and expense allocation basis were also before the TPO and even then, no specific defects were pointed out by the TPO - the TPO indeed erred in rejecting the segmental accounts and thus declining to accept the internal comparable - the size of the uncontrolled transaction or transactions being smaller, by itself, does not make these transactions incomparable with the transactions in controlled conditions - Size of the comparable does matter in entity level comparison because scale of operations substantially vary and so does the underlying profitability factor, but in a transaction level comparison within the same entity, mere difference in size of the uncontrolled transactions does not render the transaction incomparable – thus, the authorities were clearly in error in rejecting the internal comparable, i.e. profitability of assessee’s transactions with non AEs, on the ground that the volume of business with non AEs was too small vis-à-vis business with AEs - the assessee was quite justified in adopting internal TNMM and comparing the profit earned on its transactions with AEs with profit earned with non -AEs – Decided in favour of Assessee. Addition on sales/services rendered by Head Office – Held that:- In the absence of assessee’s cooperation by submission of requisite information, the Assessing Officer had no option except to resort to the addition on estimate basis – Following the decision as decided in assessee’s own case for the previous year, the same has been decided in favour of Assessee – thus, the addition made is set aside – Decided in favour of Assessee.
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