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2017 (7) TMI 1002 - AT - Income TaxTPA - ALP determination - payment to CWS and CWHK for no services rendered by them - Held that:- As decided in assessee's own case [2014 (5) TMI 897 - DELHI HIGH COURT] Hon’ble High Court observed that the authority of the TPO is to conduct the transfer pricing analysis to determine the ALP and not to determine whether there is a service or not from which the assessee benefits. This aspect of the exercise is left to the AO. Hon’ble High Court further held that in this case, the issue is, “whether an independent entity would have paid for such services”. Importantly in reaching this conclusion, neither the Revenue, nor this court, must question the commercial wisdom of the assessee, or replace its own assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee – interaction with IMB’s regional offices in Singapore and US was necessary. It is further held by Hon’ble High Court whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee’s exclusive domain and cannot be second–guessed by the Revenue. So, following the above the detail of specific activities for which cost was incurred by both CWS and CWHK and the attending benefit to the assessee have not been considered till date, which need to be provided, in addition to the consideration of the ALP vis-à-vis the total cost claimed by these AEs, the case is remanded to the AO/TPO for ALP assessment, followed by the AO’s assessment order in accordance with law. Reimbursement of cost and payment of referral fees to the foreign AEs - Held that:- Again following the aforesaid judgment passed by the Hon’ble High Court in assessee’s own case, the case is remanded to the file of AO to comply with the directions contained in paras 37 and 45 of the judgment (supra) on the question of referral fees, the report of TPO validating the arms length price is binding on the AO who may verify the transactions and assessed the deductions u/s 37 of the Act in accordance with law.
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