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2016 (7) TMI 661 - AT - Income TaxAddition on account of transfer pricing adjustment - TNMM applied as the most appropriate method - assessee used OP/VAE as its profit level indicator, by impliedly treating base of 'Value added expenses’ as akin to `any other relevant base’ - Held that:- Having held that the assessee is a 'Commission agent’ as regards its transactions under the Indent model and a 'Trader’ as regards its transactions under the Buy-Sell model, we again revert to the moot point of determination of ALP. It is noticed that the assessee clubbed transactions under both the models and determined their ALP by computing OP/VAE on consolidated basis and then compared the same with OP/OC of comparables. The TPO adopted denominator of ‘Operating Costs’ in the computation of operating profit margin of the assessee from combined international transactions under both the models with similar base of comparables. We have noticed above that operating costs of a `Commission agent’ are always exclusive of cost of goods sold, whereas a 'Trader’ has to have them as an essential element. Albeit a `Trader’ can ascertain his operating profit margin as a percentage of VAE to be designated as `any other base’, but in our considered opinion that can not be described as a 'relevant’ base, so as to fall within the ambit of the expression `any other relevant base’ as used in sub-clauses (i) and (ii) of rule 10B(1)(e). The corollary, which ergo follows, is that whereas 'any other relevant base’ under the TNMM in case of a `Commission agent’ can be 'Value added expenses’, which, in fact, represents his total operating costs alone, but in case of a `Trader’, it can be cost of goods sold plus other operating expenses, which represents his total operating costs and not 'Value added expenses’ to the exclusion of cost of goods sold. It can be seen that the assessee tried to demonstrate that its combined international transactions under both the models were at ALP by comparing its PLI of OP/VAE on overall basis with OP/OC of comparables, which is an incorrect approach. In the like manner, the TPO, though compared the assessee’s PLI of OP/OC with OP/OC of the comparables, but he also fell in error by jointly considering the international transactions of both the business models, namely, Indenting and Trading, under one umbrella. We thus hold that both the assessee as well as the TPO fell in error in considering the international transactions under both the models as of uniform character. It has been noticed supra that the ingredients of Operating costs under the Trading model are different from those under Indenting model. Ex consequenti, transactions under both the models are required to be benchmarked separately. We find that there is insufficient information available on record facilitating the determination of ALP of the international transactions under these two business models separately at our end. Following the view taken for the preceding year, we set aside the impugned order and remit the matter to the file of AO/TPO for processing the international transactions of 'Indenting’ and 'Trading’ separately under Chapter X of the Act in consonance with our above analysis. Needless to say, the assessee will be allowed an adequate opportunity of hearing in such a de novo determination. - Decided in favour of assessee for statistical purposes
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