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2018 (5) TMI 900 - AT - Income TaxTPA - International transaction involving of export of printed circuit boards ('PCBs') by the appellant to its Associated Enterprise (‘AE’) - sale of finished goods by the assessee to its AE [AT & S AG(Europe)] for further sale of the same to individual customers in Europe at the same price and in the same quantity - TPO held that the TNMM method should be applied to determine the ALP of the assessee’s transactions - comparable selection criteria - Held that:- In the assessee’s case under consideration there are independent customers, and the price is fixed by the Principal (Assessee), the product design and specification is decided by the assessee. The Associated Enterprise, the AT & S AG (AE) plays a limited role, that is, it collect the money on behalf of the assessee and remits the same to assessee, for that AE is paid commission. Even commission and warranty expenses are determined and decided by the assessee (Principal). The AT & S AG (AE) does not do any value addition in the goods manufactured by the assessee. Therefore, in this scenario, the stand of the ld DR that CUP Method is not applicable to the assessee, is not acceptable. Tested party - Held that:- The Indian TP regulation per chapter X of the Income Tax Act 1961 is an anti-evasion tool to prevent adverse profit shifts. The materiality of examination of the International Transactions has to be in this light. Therefore, the testing has to be done in order to examine if the Indian entity is offering its profits to lawful taxation in India. In order to determine the correct profits by ascertaining correct ALP, the transactions have to be examined by keeping the Indian entity in primary focus. Therefore, keeping the AE as a tested party would fundamentally defeat the basic purpose of the TP regulations. In the facts and circumstances of the case, the assessee Indian Company is justified to be taken as the tested party. TPA addition to be deleted. International transactions involving payments made by the assessee in respect of purchase, order handling services and sales services - Held that:- at exercise off actual verification would be left to the AO under section 37 of the Act. The AO could, therefore, determine under Section 37 of the Act that the expenditure claimed was not for the benefit of the business, and thus, disallow that amount. This does not restrict or in any way bypass the functions of the TPO. The jurisdiction of the TPO is specific and limited i. e. to determine the arm's length price of an international transaction in terms of Chapter X of the Act read with Rule 10A to 10E of the lncome Tax Rules. Therefore, we are of the view that the assessee has derived benefits from these services as per CCA agreement and hence the arguments advanced by the ld DR for the Revenue is not acceptable. Hence, we direct the AO/TPO to delete the arm’s length price adjustment in respect of the international transactions involving payments made by the assessee in respect of purchase, order handling services and sales services.
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