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2015 (6) TMI 418 - AT - Income TaxTransfer pricing adjustment - whether the transactions between the head office in India and branch office in Canada can be considered as international transactions, even though the assessee inadvertently reported the same so as a matter of abundant caution? - Held that:- It is not permissible to make transfer pricing adjustment by applying the average operating profit margin of the comparables on the assessee’s universal transactions entered into with both the AE and non- AEs. As the entire exercise under Chapter-X is confined to computing total income of the assessee from international transactions having regard to the arm’s length price, there is no scope for computing the income even from non-international transactions having regard to the ALP. As the TPO has computed the transfer pricing adjustment qua all the transactions carried out by the assessee with reference to the base of ‘total costs’, also inclusive of costs relevant for transactions with non- AEs, we vacate the impugned order on this issue and restore the matter to the file of AO/TPO for recalculating the amount of addition of transfer pricing adjustment by taking into consideration the international transactions only under this segment to the exclusion of transactions with Canada Office and non-AEs. - Decided in favour of assessee for statistical purposes. Depreciation on building let out to some third party - whether should be excluded from the total operating costs? - Held that:- The direction given by the DRP for verifying and excluding the excess amount of depreciation has not been adhered to by the TPO/AO, which position is contrary to law. As such, we set aside the impugned order on this score and remit the matter to the file of the AO/TPO for passing an order in conformity with the direction given by the DRP. We want to make it explicit that we have not undertaken the exercise of examining any aspect of the actual amount of the excess depreciation liable for exclusion. The DRP has also simply directed the TPO to verify this aspect, and, then, exclude the excess amount of depreciation in determining the ALP of the international transaction. As such, the Officer is not only entitled but also duty bound to verify the correctness of the claim lodged by the assessee before excluding the excess amount of depreciation. Treatment of hypothetical interest on security deposits as income u/s 28(iv) - Held that:- It is amply clear that the direction given by the DRP for deletion of this addition has not been taken into consideration by the AO while finalizing the assessment. We have noticed above that the direction given by the DRP is binding on the AO in terms of section 144C(13). Adopting the discussion made above, we hold that the addition of ₹ 11.58 lac is not warranted because of the direction given by the DRP for the deletion of the addition. Transfer pricing adjustment towards interest on interest free loan given by the assessee to its AE - Held that:- Respectfully following the precedent for the AY 2002-03, we set aside the impugned order and remit this matter to the file of AO/TPO for a fresh determination of the transfer pricing adjustment, on the basis of the directions given by the Tribunal for such earlier years.
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