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2017 (1) TMI 1815 - AT - Income TaxTP Adjustment - sub-contracting cost paid to A.Es - whether should form part of the operating cost of the assessee for determining the arm's length price? - HELD THAT:- DRP in case of assessee’s A.E. (TOIVL) for assessment year 2011-12 and Transfer Pricing Officer’s order in assessee’s case for assessment year 2012- 13, there cannot be any manner of doubt in coming to the conclusion that the sub-contract payment made by the assessee to its A.E. was merely in the nature of pass through cost as the assessee has passed on the work of off-shore drilling operation to its A.Es on back-to-back basis and it has acted merely as an intermediary in obtaining the contract and passing on the same to the A.E. and for which it has been remunerated on cost plus mark-up basis by the A.E. We hold that sub-contract payment cannot be considered as part of the operating cost of the assessee for determining the arm's length price. Accordingly, we direct the AO to determine the arm's length price of the international transaction relating to the provision of Support service by the assessee to its A.E. after excluding the sub-contracting cost paid to A.E. from its cost base. In the course of hearing as well as in the written submission, it was submitted by the learned Authorised Representative if the sub-contract cost paid to the A.E. is not included in the cost base, the margin of the assessee would be higher than the margin of comparables considered by the Transfer Pricing Officer himself. Hence, the issue relating to comparables need not be gone into. As we have accepted assessee’s claim in relation to non-inclusion of sub-contract cost paid to the A.E. in the cost base of the assessee, the other issues relating to comparability analysis having become academic in nature, we do not intend to adjudicate them.
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