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2019 (9) TMI 1342 - AT - Income TaxTransfer pricing adjustment in respect of technical knowhow fees paid by the assessee to its AE - TPO determining the ALP of a particular international transaction at Nil without resorting to any methods prescribed - assessee considered Net Profit Margin (NPM) as an appropriate Profit Level Indicator (PLI ) - HELD THAT:- Duty of the Ld. TPO is restricted only to the determination of arm's length price of an international transaction between two related parties by applying any of the methods prescribed under section 92C of the Act r/w rule 10B of the Rules. Thus, there is no provision under the Act empowering the Ld. TPO to determine the arm's length price on estimation basis, that too, by entertaining doubts with regard to the business expediency of the payment and in the process stepping into the shoes of the Ld. AO for making disallowance under section 37(1) of the Act. This, in our considered opinion, it is not in conformity with the statutory provision, hence, unacceptable. The Ld. TPO is duty bound to determine the arm's length price of the international transaction by adopting one of the method prescribed under the statute and cannot deviate from the restrictions/conditions imposed under the statute. We find that the ld. TPO having not determined the ALP in conformity with the statutory provision and in the process having failed to demonstrate that ALP shown by the assessee is incorrect, the contentions of the ld. DR to restore the issue to the file of the ld. TPO for fresh determination of the ALP, is unacceptable. Respectfully following the aforesaid decision, we hold that there is no provision made in the statute empowering the ld. TPO for determining the ALP of a particular international transaction at Nil without resorting to any methods prescribed. Since, the relief is granted to the assessee on the preliminary issue of the ld. TPO not following the prescribed methods as provided in the statute for determination of ALP, the other arguments advanced by the ld. AR and the ld. DR on merits of ALP adjustment are left open and not adjudicated herein. Accordingly, the ground Nos. 1.1 to 1.3 raised by the assessee are allowed. Transfer pricing adjustment in relation to mark up of recovery of expenses by the assessee from its AEs - primary facts are that the transaction being recovery of expenses from AE by the assessee, is not in dispute and hence, the same are not reiterated herein for the sake of brevity - HELD THAT:- It is not in dispute that the entire transaction of recovery of expenses is a pass through transaction which had been categorically accepted by the ld. TPO in his order. Once, it is a pass through transaction, it is only a balance sheet item for the assessee. Hence, there cannot be any mark-up on the same. We find that assessee also reimburses certain expenses incurred by the AE without any mark-up. These facts are also accepted categorically by the ld. TPO. We hold that there cannot be any mark-up on income side of the transaction alone as contemplated by the ld. TPO. Hence, the entire issue herein is only academic. We find that the Co-ordinate Bench decision of Bangalore Tribunal in the case of Tesco Hindustan Service Centre Pvt. Ltd., vs. DCIT [2015 (5) TMI 1129 - ITAT BANGALORE] in the context of ALP adjustment on reimbursement - we direct the ld. AO/TPO to delete the ALP adjustment made on recovery of expenses. The other arguments made by the ld. AR and DR on inclusion/exclusion of comparables are not adjudicated herein as the relief is granted on preliminary issue. Accordingly, the Ground No. 2.1 raised by the assessee is allowed.
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