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2017 (12) TMI 801 - AT - Income TaxTransfer pricing adjustment - mechanism adopted by the TPO of applying the CUP method - CUP v/s TNMM - aggregation and application of the correct methods - Held that:- TPO has simply computed ratio of the expenses of Royalty and Technical services fees to Sales of the comparables at 0.28% and, then, proceeded to apply such benchmark for determining the ALP of the two international transactions under consideration. In the entire episode, there is no reference to the price paid by the comparables as a yardstick for comparing with the price paid by the assessee. The approach adopted by the TPO, as approved by the DRP, does not conform to the prescription of rule 10B(1)(a) inasmuch as he sought to compare percentage of expenses to sales rather than the price paid under a comparable uncontrolled situation. Ergo, we cannot countenance the mechanism applied under the CUP method, which is not in consonance with the procedure prescribed under the relevant rule. Similar view has been taken by the Delhi Tribunal in the case of Gruner India Pvt. Ltd. vs. DCIT [2016 (6) TMI 1005 - ITAT DELHI ]. HC of the same case [2017 (1) TMI 389 - DELHI HIGH COURT] did not disturb the overturning by the Tribunal of the similar mechanism adopted by the TPO of applying the CUP method and working out the transfer pricing adjustment by considering the Royalty and Technical services fee to Sales ratio of that assessee as well as the comparables. It is, therefore, held that the TPO did not correctly compute the ALP of the international transactions of Royalty and Technical Services fee under the CUP method. Thus set aside the impugned order and remit the matter to the file of Assessing Officer/TPO for a fresh adjudication in the light of the guidance provided in the case of Gruner India Pvt. Ltd. (supra).
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