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2016 (12) TMI 1792 - AT - Income TaxTransfer pricing adjustment - import of components as made by the lower authorities - HELD THAT:- We find that Rule 10B(e)(iii) hereinabove is regarding TNMM method only providing for various adjustments on account of the contemporaneous factors materially affecting the net profits. The above co-ordinate bench thereafter concludes that such capacity under utilization adjustments have to be made only in the hands of comparable entities instead of that in case of tested party itself. We thus accept assessee’s instant argument in principle and direct the TRO to proceed afresh as indicated hereinabove after affording adequate opportunity of hearing to the assessee. We thus direct the Transfer Pricing authority to confine the impugned adjustments to the extent of assessee’s international transactions only in consequential proceedings. The assessee’s first substantive ground is accordingly accepted for statistical purposes. Transfer pricing adjustment in respect of sale of cloth guiders to its associate enterprises - There is no dispute that it had sold cloth guiders no. KF 2020 and KF 2060 numbering 600 & 35 involving adjusted per unit price of ₹ 26180/- and ₹ 57849/- as against those numbering 30 & 3 sold to third parties involving adjusted per unit price of ₹ 26071/- & ₹ 56762/-; respectively. It had used CUP method in benchmarking the above transactions. TPO proceeded to make the impugned adjustment after noticing the above difference in the sale price involving assessee’s associate enterprises and third party customers. The DRP upholds the same as indicated in the instant ground. The assessee’s next argument is that it has to provide warranties to local purchasers as calculated at the rate of ₹ 608/- which is not the case with respect to its associate enterprises. Learned counsel accordingly submits that the lower authorities ought to have included the above two factors for the purpose of making adjustments before arriving at the ALP adjustment in question. The said gap is to the tune of 1/20th in case of former variety of cloth guider and almost 1/10th in latter category (supra). The Revenue further is unable to dispute the fact that assessee has been providing warranty cost to its local purchasers which has further shrunk its profit margins in question. We thus prima facie agree with assessee’s above two arguments in principle and leave it open for the ld. Transfer Pricing Officer to make appropriate adjustments as per law after affording adequate opportunity of hearing in consequential proceedings. The assessee’s latter substantive ground is remitted back to the TRO accordingly. Both the learned representatives point out that assessee’s third substantive ground seeking ±5% tolerance margin in ALP determination is identical to that raised in preceding assessment year forming part of this order itself. We find that we have already held the same to be consequential in nature to be decided at the time of final computation.
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