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2018 (10) TMI 1785 - AT - Income TaxTP Adjustment - selection of MAM - CUP or TNMM - whether the higher standard of comparability required under the CUP method are met or not? - HELD THAT:- As been brought to our notice that from the Assessment Years 2011-12 to 2018-19 under the MAP agreement it has been agreed that TNMM should be the most appropriate method to determine the ALP of the international transaction of the indent keeping into the fact that assessee is a low risk service provider and there is no change in FAR right from Assessment Years 2003-04 to 2018-19. Once TNMM has been accepted under the similar FAR, we do not find any reason to deviate by adopting some other method. Otherwise also we have held that CUP method cannot be applied and other methods admittedly are incapable of capturing the true arm’s length result and therefore, we hold that TNMM should be taken as a most appropriate method for benchmarking the said transaction. What should be the base for computing the PLI? - Profit derived by the assessee is mainly depended on its operating expenditure as the value of goods does not enter in its financial. As a low risk service provider, it seeks to obtain adequate return on its operating expenses as the operating expenses incurred represents the value added carried on by the assessee. The operating expenses adequately and sufficiently represents the functions performed and the risk undertaken by the assessee. Thus, we hold that the ‘berry ratio’ should be accepted as the most appropriate PLI for taking as base under TNMM while determining the ALP of the Indian transaction for all the five years under appeal. Accordingly, we remand the matter back to the file of the TPO to examine and benchmark the international transaction by adopting TNMM as the most appropriate method by taking ‘berry ratio’ as PLI. The assessee has to substantiate its margin by bringing comparable uncontrolled transactions to demonstrate that its commission earned in this segment is at arm’s length; and the TPO shall examine the same and decide accordingly. Needless to say that TPO shall give due and effective opportunity to the assessee to substantiate its ALP as per direction given above. Disallowance of claim of expenditure incurred under the head ‘legal and professional’ charges and addition on account of bad debts and deposits written off - HELD THAT:- These expenses have been incurred as per the details given above. It is quite apparent that these are routine expenditure incurred during the regular course of business and nowhere has it been alleged by the Assessing Officer that these are for non business purpose and are not related to the assessee’s business. Once similar addition has been deleted in the earlier and subsequent year which has attained finality then no addition could be made here, accordingly the same is deleted. Claim of deduction of deposit written off, it has been brought to our notice that assessee has not written off any such deposit in the instant year, albeit the same was debited in the Assessment Year 2006-07 and that was claimed in the same year only and the Assessing Officer has completely misunderstood and has taken the figure from the P&L account of Assessment Year 2006-07 and has been understood to have been claimed and Assessment Year 2007- 08. In fact DRP has directed the Assessing Officer to delete the same if the same has not been debited and yet the Assessing Officer has not carried out the direction of the DRP. Accordingly, we hold that the addition made by the Assessing Officer is unjustified on facts and same is directed to be deleted.
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