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2015 (5) TMI 858 - AT - Income TaxDetermination of arm's length price of international transactions - ‘Export of components and parts’ made by the assessee to its associated enterprises - CIT(A) deleted the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction - Held that:- In the domestic market assessee was supplying carburettors and ASVs to OEMs such as Bajaj Auto and Hero Honda who used these products in the production of vehicles that they manufactured. In contrast, the associated enterprises to whom the components and parts were exported were essentially manufacturers of carburettors, who used the products exported by the assessee for manufacture of carburettors which in turn they sold to the OEMs. This difference was brought out by the assessee to establish that there were differences in functions performed and risks assumed with regard to export of components/parts and the sale of carburettors/ASVs in the domestic market. The CIT(A) has appreciated the aforesaid differences and in our considered opinion, there is no cogent material or evidence before us to dissuade us from affirming the stand of the CIT(A). The CIT(A) has categorically noted that assessee had exported components and parts whose profit margins should be compared with the margins derived from sale of parts/components and not sale of manufactured products. Going further, the CIT(A) held that volume of domestic sale of components/parts was quite insignificant to constitute a valid comparable with the export transactions. For all the aforesaid reasons, CIT(A) has differed with the approach of the TPO in benchmarking the impugned transaction of export of components and parts with the profit margin of domestic sales which primarily consist of manufactured products i.e. carburettors. Thus no reason to interfere with the ultimate conclusion of the CIT(A) to delete the addition on the ground that the TPO wrongly compared the tested transactions with an incomparable transaction. Disallowance of engineering services fee - Held that:- No fault can be found in the manner in which the CIT(A) has come to conclude that the expenditure in question is to be allowed as a revenue expenditure. It is also not disputed before us that similar expenditure in assessment year 2006-07 stands allowed as a revenue expenditure by the Assessing Officer after due verification. The CIT(A) also noted that the engineering services provided by the parent company in this year related to day to day running of business in contrast to the earlier assessment year of 2004-05 wherein it related to the pre-installation stage of the imported machinery. Having regard to the facts and circumstances of the case and the findings of the CIT(A), we find no reasons to interfere with his decision of allowing deduction for ₹ 1,21,87,328/- representing engineering services fee as a revenue expenditure. The Revenue fails on this aspect. - Decided in favour of assesse.
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