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2015 (7) TMI 915 - AT - Income TaxTransfer pricing adjustment - addition on account of alleged understatement of arm's length price in respect of commission income earned by the appellant from its AEs - according to the Ld DR, the TPO rightly rejected the Berry Ratio (PLI) adopted by the assessee and the TPO after rejecting the Berry ratio of the assessee, choose to follow OP/TC as the PLI for computing net profit margin in the support services segment - Held that:- As decided in Mitsubishi Corporation India Pvt. Ltd case [2014 (10) TMI 702 - ITAT DELHI] tribunal negated the contention of TPO and upheld the assessee’s action of use of berryratio, and we note that facts & circumstances of that case were identical & similar.We concur with the aforesaid view of the co-ordinate bench and so the adjustment for use of locational savings was unwarranted. We are of the view that use of intangibles cannot be inferred or assumed and needs to be demonstrated on the basis of cogent materials by the TPO/AO and adjustment for use of intangibles was unwarranted. the use of berry ratio as PLI is appropriate to the facts and circumstances of this case, the objections taken by the authorities below to the use of berry ratio are unsustainable in law, and the adjustments for use of intangibles and locational savings are unwarranted. With these observations, the computation of ALP so far as buy sell segment of assessee’s activities are concerned stands restored to the assessment stage. The matter will be examined afresh in the light of the above observations which we respectfully concur with that laid by the co-ordinate bench in Mitsubhishi Corporation India Pvt. Ltd. (supra) and the matter is remanded back to be examined afresh at the assessment stage. Service fee segment which the TPO treated as trading segment - Held that:- The same issue cropped in Mitsubishi Corporation India Pvt. Ltd. (supra) wherein held that it is impermissible to make notional additions in the cost base and thus take into account the costs which are not borne by the assessee – following the decision in LI And Fung India Pvt. Ltd. Versus Commissioner of Income Tax [2014 (1) TMI 501 - DELHI HIGH COURT] - It is no longer open to the revenue authorities to reconstruct the financial statements of the assessee by including the cost of products incurred by the AEs, in respect of which services are rendered, in its reconstructed financial statements, and then putting the hypothetical trading profits, so arrived at in these reconstructed financial statements, to the tests for determining arms' length price - the adjustments carried out in the cost base of ALP computation, in respect of service fee/commission segment, are indeed devoid of legally sustainable merits – the AO is directed to delete these adjustments.
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