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2018 (4) TMI 501 - AT - Income TaxTPA - upward adjustment made on account of international transactions undertaken by the assessee - comparable selection criteria - MAM selection - Held that:- The assessee undoubtedly, had sold the products through its associated enterprises but the products sold by the assessee within domestic market and those exported to the markets of developing countries followed the same emission norms and had no difference in the product. The assessee in this regard has filed the evidence of emission norms applied in European Union and in Asia with special reference to Indonesia and also in South Africa, wherein emission norms are similar and consequently, cannot be said to have geographical differences. Even otherwise, geographical differences would not be relevant where the products were exported to markets similar to Indian markets, where emission norms were less stringent than as compared to Germany. Accordingly, we find no merit in the approach of DRP / TPO for rejecting the internal comparables available on geographical grounds. In the facts of present case, where there is no product dissimilarity and the geographical differences, if any, does not affect the quality of products sold by the assessee because of identical technical similarity, the issue arises is whether two transactions are comparable. Further, FAR dissimilarity, if any, warrants adjustments in the domestic segment since the assessee was selling the products through its associated enterprises on cost plus mark-up and had not to bear any risk, then the margins shown by the assessee in the export segment, need no adjustment. As pointed out in the paras hereinabove, adjustment, if any, is to be made in the domestic segment, wherein the assessee has already shown lower margins. Geographical differences do not stand as the market in which the goods were sold were comparable. Further, we have also held that it could not be said that FAR of sales in domestic segment and exports to associated enterprises were dissimilar; in addition to the same, is the input costs which are same and identical. Where comparable is available to the assessee by way of domestic sales made by it, then the margins of same should be applied in order to benchmark the margins earned by assessee for export segment. Accordingly, we hold that internal TNMM method should be applied as most appropriate method to benchmark the international transactions of export of trucks undertaken by the assessee. However, the Assessing Officer is directed to verify the stand of assessee as to the margins earned in domestic segment and in the export segment. The assessee is also directed to file segmental details in this regard before the Assessing Officer for necessary verification. Hence, we hold that aggregation approach applied by the Assessing Officer / TPO in the circumstances was not correct approach and also the method applied i.e. external TNMM on the aggregated transactions is not upheld.
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