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2016 (4) TMI 377 - AT - Income TaxTransfer pricing adjustment - selection of most appropriate method - Held that:- There is no contract between the assessee and its AEs regarding the remuneration and mark up in respect of the value added by the assessee in the manufacturing process and further when the assessee is using the raw material of its own and not supplied by the AE for job work or contract manufacturing. Further, we find that there are variations of cost components in respect of the manufacturing activity of the assessee as well as the other comparables selected either by the assessee or by the TPO. The assessee is also seeking adjustment on account of variation of depreciation method applied by the assessee in comparison to the comparables which itself shows that the cost components of the assessee are in variations with that of the comparables and therefore in our considered opinion CPM cannot be regarded as MAM in the case of the assessee. Accordingly, we uphold the orders of the authorities below on this issue in rejecting the CPM as MAM and adopting the TNMM as MAM for determination of ALP. - Decided against assessee Rejection of the Multi Year Data adopted by the assessee while computing the margins of the comparables and considering the current year data by the TPO for the purpose of determining the ALP - Held that:- 3 Rule 10D(4) further states that the information and documents specified under sub-rules (1) and (2), should, as far as possible, be contemporaneous and should exist latest by the specified date. Therefore, it is revealed by the provisions of transfer pricing that unless and until the current year data does not gives a true and correct picture of the uncontrolled comparable price more than one year data are not required to be considered. Only in the case when the current year data does not give a true and correct picture and more than one year data not being more than two years prior to the financial year can be considered if such data reveals the fact which have an influence on the determination of transfer pricing. In the case on hand, the assessee has not brought on record any fact to show that the current year data are not reflecting the correct uncontrolled comparable price. Therefore, this ground of the assessee's appeal is dismissed. Adjustment for difference in accounting policies, depreciation adjustment, etc.- Held that:- In order to provide any adjustment on account of differential depreciation cost, the figure of depreciation cost alone are not enough but the composite expenditure relating to the use of the fixed assets has to be taken into account like depreciation, maintenance, lease rentals if any, etc. We further note that the cost of depreciation depends on the level of automation of the manufacture process of a particular entity which in turn reduce the other direct expenses like cost of salary/wages. Therefore the comparison of the cost of depreciation has to be worked out in the ratio of turnover to the cost of depreciation and other expenditure for use of the asset/machinery. Accordingly, in the facts and circumstances of the case when this issue has not been decided either by the TPO or by the CIT (Appeals), we set aside the same to the record of the TPO/A.O for working out the comparative analysis of the cost of depreciation/use of machinery in the ratio of turnover of the assessee as well as the comparable companies and then grant an appropriate adjustment on account of differential ratio of the cost of depreciation including other incidental expenses of use of machinery/fixed assets in the margins of the comparable companies and then determine the ALP. No error or illegality in the order of the CIT (Appeals) in directing the A.O/TPO to grant working capital adjustment. Application of uniform PLI - Held that:- When there is no facts or circumstances to indicate that the change in PLI in respect of reference segments is applied to avoid distorted results then the TPO is not permitted to apply different PLI an international transactions which are similar except that in mass segment manufacturing of optical plastic lenses are on standard basis without a specific personal requirements and in the case of reference lenses are prepared as per the specific personal requirements. Therefore, the material as well as process in both the segments is not significantly different except the powering of the lenses which is as per the specific requirements under the referral segments as against the standard power of various levels in the mass production. This itself will not justify the adoption of different PLI. Therefore, the TPO was not justified in not maintaining the consistency of applying the PLI while computing the ALP in respect of the international transactions. In view of the above facts and circumstances of the case, we set aside this issue to the record of the TPO for applying the uniform PLI as applied in the case of mass production segment as well as in the Assessment Year 2008-09.
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