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2014 (4) TMI 614 - AT - Income TaxDeletion made on account to international transaction with AE Determination of method Held that:- The method specifies in Clause (ii) that the relative contribution made by each of associated enterprise should be evaluated on the basis of FAK analysis and on the basis of reliable external data - bench marking by selection of comparables is mandatory under this Method - Relying upon Aztec Software & Technology Services Ltd. v. Asstt. CIT, Bangalore (SB) [2007 (7) TMI 50 - ITAT BANGALORE] - The profits need to be split among the AEs on the basis of reliable external market data, which indicate how unrelated parties have split the profits in similar circumstances - For practical application, bench marking with reliable external market data is to be done, in case of residual profit split method, at the first stage, where the combined net profits are partially allocated to each enterprise so as to provide it with an appropriate base returns keeping in view the nature of the transaction - The residual profits may be split as per relative contribution of the Associated Enterprise - splitting of residual profits, no bench marking is necessary, as it is not practicable. The transfer pricing report furnished by the assessee is not in accordance with rules prescribed in this regard - The PSM has not been correctly applied as per law - No bench marking has been done thus, it cannot be approved - the most appropriate method in this type of function/transaction would be profit split method only - the relevant years were the formative years, when transfer pricing was introduced and the law was developing thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Revenue.
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