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2018 (10) TMI 1818 - AT - Income TaxTP Adjustment - DRP directing the TPO to recompute the ALP by not including the FBO value of cost base of the assessee - HELD THAT:- Rule 10B(1)(e) recognizes that "the net profit margin realized by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs ITA 306/2012 Page 33 incurred or sales effected or assets employed or to be employed by the enterprise ..." (emphasis supplied). It thus contemplates a determination of ALP with reference to the relevant factors (cost, assets, sales etc.) of the enterprise in question, i.e. the assessee, as opposed to the AE or any third party. The textual mandate, thus, is unambiguously clear. TPO‟s reasoning to enhance the assessee’s cost base by considering the cost of manufacture and export of finished goods, i.e., ready-made garments by the third party venders (which cost is certainly not the cost incurred by the assessee), is nowhere supported by the TNMM under Rule 10B(1)(e) of the Rules. Having determined that (TNMM) to be the most appropriate method, the only rules and norms prescribed in that regard could have been applied to determine whether the exercise indicated by the assessee yielded an ALP. The approach of the TPO and the tax authorities in essence imputes notional adjustment/income in the assessee’s hands on the basis of a fixed percentage of the free on board value of export made by unrelated party venders. We further find that in A.Y 2012-13, the TPO himself has not made any T.P. adjustment on the impugned issue. Respectfully following the decision of the Hon'ble High Court [2014 (1) TMI 501 - DELHI HIGH COURT] we decline to interfere with the directions of the DRP.
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