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2016 (4) TMI 521 - AT - Income TaxTransfer pricing adjustment - Addition in respect of payment of royalty to the associated enterprise - rejection of assessee’s benchmarking under CUP method - Held that:- There cannot be an adhoc adjustment in the course of ascertaining the arm’s length price. If the Transfer Pricing Officer was to reject the assessee’s benchmarking on the basis of Reserve Bank of India’s approval under CUP method, the Transfer Pricing Officer was required to decide the correct mechanism of deciding the arm’s length price and compute the arm’s length price on that basis. It was not open to him to simply brush aside the benchmarking done by the assessee and adopt the NIL value. That is not a scientific method of determining the arm’s length price and it cannot meet any judicial approval. In this view of the matter, and also having regard to a series of judicial precedents from the co-ordinate benches holding that even Reserve Bank of India’s approval of royalty can be a reasonable CUP input for determining arm’s length price - Decided in favour of assessee Addition in respect of import of product PTOP from the associated enterprise - Held that:- The quantities and sale instances in the case of the tested party are fewer but that does not lead to the inference that a comparison cannot be made at all. It is only when comparable instances are of relative smaller quantity and based on fewer sale instances that the bonafides of comparable are in the dock. When the quantity and the instances of comparables is much higher vis-a-vis the transaction with AE, issues cannot be raised about the bonafides. So far as CUP comparability is concerned, differences in the size, geographical location etc. cannot be reason enough to discard the comparables, unless it is shown that such factors influence conditions in the market in which respective parties to the transactions operate. There is, in the orders of the authorities below, not even a whisper about the impact, if any, of these factors on the market conditions. It is also important to bear in mind the fact that the imports are of very small quantities which does not even account for one percent of total transactions. In the light of all these factors, and particularly bearing in mind smallness of the amount involved, in our considered view, it was not a fit case for rejection of CUP method, as employed by the assessee. We, therefore, deem it fit and proper to uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned ALP adjustment - Decided in favour of assessee Addition in respect of export of the product IBB to the associated enterprise - Held that:- We have noted that the assessee has incurred a loss on this transaction but when arm’s length price is determined on the basis of CUP, it is wholly immaterial as to whether the assessee has earned profit or incurred a loss. The Transfer Pricing Officer was thus swayed by a wholly irrelevant consideration. The suitability of CUP method cannot be rejected because of the commercial outcome of the transaction being in the nature of loss. - Decided in favour of assessee
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