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2018 (9) TMI 2015 - AT - Income TaxTP Adjustment - selection of MAM - Resale Price method (RPM), Cost Plus Method (CPM) and Transaction Net Margin Method (TNMM) - HELD THAT:- As far as international transactions for purchase of raw materials is concerned, the only reason given by the TPO in rejecting CPM as MAM is the absence of gross margins of the assessee and the manner in which it was computed. In this regard, we find that in a letter dated 14.10.2014 filed by the assessee before the TPO the assessee has given cost of sales and other indirect cost. The same is at page 525 of assessee’s PB. In these circumstances, we are of the view that the reasons given by the TPO for rejecting CPM as MAM cannot be sustained. As far as international transaction of trading in water heaters is concerned, this Tribunal has already taken a view in assessee’s own case for AY 2010-11 that RPM is the MAM. Following the aforesaid order, we hold that the TPO is not correct in rejecting the RPM as MAM. Determination of ALP for both international transactions are concerned, we are of the view that the provisions of section 92 mandate determination of ALP. The fact that after carrying out such exercise, the profit margins of the assessee would be abnormal cannot be the basis to accept the price paid in the international transactions as at arm’s length. In other words, it is mandatory to determine the ALP in the manner contemplated by the Act and the Rules. In our view, the DRP fell into an error in accepting the price received by the assessee in international transactions as at arm’s length without carrying out such an exercise. We therefore feel it proper to set aside the order of DRP and remand to the AO/TPO for fresh consideration the determination of ALP on the basis of MAM as adopted by the assessee in its TP study. As assessee submitted before us that the comparables chosen by the assessee in its TP study were also chosen by the TPO, when he adopted TNMM. His prayer was that pursuant to the remand by the Tribunal, the TPO should be directed to restrict himself from choosing any fresh comparables. In our view, the TPO has to carry out the exercise in accordance with the law and no restriction can be placed on his powers to bring any relevant and appropriate data on record in the matter of determination of ALP. Appeal by the revenue is allowed for statistical purposes.
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