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2014 (8) TMI 1153 - AT - Income TaxTransfer pricing - royalty payments - For justifying the values of the international transaction entered into by it, assessee had adopted TNMM method and the TP documents submitted by the assessee were at an entity level. Learned TPO was of the opinion that activities of the assessee had to be segmented and TP analysis was required to be done for each segment separately. - As per the TPO Rule 10C(1) mandated adoption of most appropriate method. TPO rejected the entity level and analysis of international transaction done by the assessee. Held that:- The Tribunal had clearly held in assessee’s appeal for AY: 2007- 08 that TPO could not consider the ALP of royalty transactions as nil. No doubt, for assessment year 2007-08, wherein the Tribunal had held as above, learned TPO had not made any adjustment on royalty payments for a reason that the adjustment required on royalty stood merged with the TP adjustments made to the manufacturing segment. It is for this reason that the Tribunal held the exercise to be academic at para 48 of its order. However, on the other hand, for the impugned assessment year the TPO has not made any adjustment in the PLI of manufacturing segment nor trading segment, though he found that an adjustment of ₹ 97.82 Crores was required for royalty payments. Since the Co-ordinate Bench in its order for AY: 2007-08 has made a specific observation that analysis based on combined transactions alone could be adopted, it is necessary for us to have a look at the position for the impugned assessment year where segmental results in trading and manufacturing was considered by the TPO to be well within Arms Length. Going by the methodology adopted by the learned TPO, the combined results as mentioned by us above, gave the assessee a PLI of 4.878% for international transactions. In such a scenario, considering the argument of learned DR, that ALP of the royalty payments though not ‘nil’ had a value which required to be properly fixed, a fresh look by the TPO/AO is required. AO/TPO has to see whether in a case where there is no ALP adjustment required for manufacturing/trading segment or combining both of them, a separate consideration of ‘Royalty’ for ALP adjustments is required and if so what could be the ALP assigned for it and the result thereof. Order set aside - Matter remanded back for fresh consideration.
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