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2018 (11) TMI 1782 - AT - Income TaxTP Adjustment - Selection of MAM - TNMM OR CUP - TPO has rejected TNMM as the Most Appropriate Method (MAM) to benchmark its international transactions qua payment of royalty and applied CUP method - Fee for receipt of technical support services and royalty - HELD THAT:- Applying the law laid down in CIT vs. EKL Appliances Ltd. [2012 (4) TMI 346 - DELHI HIGH COURT] and the fact that the Revenue has been applying TNMM approach on year to year basis in case of the taxpayer but, during the year under assessment, the TPO has abruptly applied the CUP method without assigning any reason, and the TPO has decided the issue by sitting on the armchair of the businessman/taxpayer by applying the benefit test which is not permissible, and the fact that payment of royalty and product development fee are intrinsically interlinked with the productions and sales and can only be decided under TNMM, this issue is required to be set aside to the TPO to decide afresh after providing an opportunity of being heard to the taxpayer. Comparable selection - Munjal Showa Ltd. as a valid comparable - HELD THAT:- TPO retained this comparable on the ground that it is engaged into manufacturing of auto parts - it is admitted fact on the file that the taxpayer has not contested this comparable before TPO by filing TP study. When we examine the order passed by DRP though it is discussed that the assessee is in initial year of production so its base and scale of operation is quite low whereas the comparable companies selected in the transfer pricing study in relation to the manufacturing segment are into manufacturing of auto components for years ranging from 31 years to 51 years and discussed the same in tabulated form but retained the Munjal Showa Ltd. as a valid comparable. Even during the course of arguments before the Tribunal, the taxpayer has not come up with financials of Munjal Showa Ltd. In the given circumstances, we deem it fit to remand this issue to ld. TPO to decide afresh. Bosch Chasis Systems India - It is the settled principle of law laid down by Hon’ble Delhi High Court in Mckinsey Knowledge Centre case [2015 (3) TMI 1226 - DELHI HIGH COURT] that a comparable cannot be rejected merely on the ground of having different financial year in case annual result can be reasonably extrapolated. Moreover, the ld. TPO was empowered enough to call for the complete data u/s 133 of the Act to reach at the logical conclusion. So, in these circumstances, we remand this issue to the TPO directing him to decide afresh - Appeal allowed for statistical purposes. Capacity utilization adjustment - HELD THAT:- When we examine the order passed by the ld. DRP of the order, it is recorded that complete data for claiming capacity utilization adjustment by the taxpayer has not been brought on record, so in these circumstances, we have no option except to remand this issue back to the TPO to decide afresh on providing complete data by its taxpayer to substantiate the claim for capacity utilization adjustment and after providing an opportunity of being heard to the taxpayer.
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