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2015 (4) TMI 948 - HC - Income TaxTransactional Net Margin Method (“TNMM”) - Transfer pricing adjustment - whether TNMM was the most appropriate method for transfer pricing determination in arriving at the arm’s length price (ALP) to bench mark the assessee/respondent’s international transaction regarding “provision of agency and marketing support services” for AY 2008-09? - Held that:- TPO discarded TNMM as the most appropriate method, holding that the assessee assumed significant risks, and relied on unique intangibles thus resulting in higher profits of the AE which should be attributed to it. In a given case, concededly this can be argued if the facts can logically support such a conclusion. However, the revenue cannot merely state that significant risks, such as credit, operational, manpower and other risks were borne or that the assessee’s business was subjected to fluctuations. It merely mediated between the AEs and customers/vendors in India. Furthermore, it only supplied information to the AEs and mediated between them and Indian enterprises in the transactions arranged independently between them. The observations that the AE’s decisions were taken by the assessee is a general one, unsupported by any independent material; it is anecdotal and based on the TPO’s belief, rather than objective fact based analysis. There was, as a result, no question of its assuming higher risk or using its highly valued intangibles. This court also concurs with the ITAT’s finding that the assessee’s risk was limited and minimal with least capital employed, and that the TPO’s findings that it (the assessee) performed all the crucial functions on behalf of the AEs was not proved. The TPO did not dispute the facts given by the assessee and held without foundation that it undertook all the critical functions of its AEs. This finding was unsubstantiated and generally made; the TPO never elaborated any critical function or decision of the assessee inuring to the AEs except saying that the assessee was engaged in arranging for feasibility studies, industry analysis, and project evaluation for potential projects identified by its AEs. It is quite evident that the TPO based his findings and conclusions on the decision of the ITAT in Li Fung (2011 (9) TMI 204 - ITAT, New Delhi), which was subsequently reversed by this Court. Resultantly, we hold that the ITAT’s conclusion that the TNMM was the most appropriate method and that the TPO had to make a fresh determination of the ALP of the disputed international transactions of `Provision of Agency and marketing support services' amounting to ₹ 32.18 crores based on the TNMM is reasonable, not calling for interference - no substantial question of law arises . - Decided against revenue.
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