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2018 (11) TMI 43 - AT - Income TaxTPA - selection of MAM for determining ALP of transaction - APM v/s RPM - comparable selection - functinal dissimilarity - Held that:- We advert to functions performed by assessee. It is admitted fact that assessee simply purchase products from its AE's and is resold without any further value addition. Assessee has cataragorised itself to be low risk bearing entity. There is no dispute regarding very minimal risk/no risk withstood by assessee on the basis of low intensity function performed by it. The product imported from AEs representing international transaction, is neither processed further, nor used as raw material for manufacturing any other product. Thus on the basis of legal position enumerated hereinabove, in our considered opinion RPM has to be the most appropriate method to determine ALP of transaction having regard to the arrangement between assessee and the AE of simple purchase and sale of product without having any value addition by assessee. Thus, we are inclined to uphold APM to be the MAM for determining ALP of transaction. Once it is held, RPM to be the most appropriate method, comes the turn of AO/TPO/DRP to satisfy himself that not only correct method has been applied by assessee but also that proper data for determination of a repeat under such method has been made available. Admittedly, comparables proposed by assessee and used by Ld.TPO/AO/DRP for purposes of analysis, do have significant intensity functions, as compared to that of assessee. AO/TPO/DRP overlooked these huge differences between low risk function performed by assessee vis-a-vis high intensity functions performed by comparables which is not acceptable when RPM is used as MAM. We are thus of opinion that Ld.AO/TPO erred in not conducting fresh search of comparables which would have strict functional similarity while using RPM as MAM. TPO erred in not conducting fresh search of comparables for purposes of determining the comparability of the arm’s length price by using RPM as MAM. Further before DRP even after assessee having submitted additional evidence in relation to fresh comparables for determining ALP by using RPM as most appropriate method was rejected. Adjustment on account of difference in the ALP of the international transaction of receipt of localisation support - Held that:- We reject the benefit test applied Ld. TPO. On careful perusal of the agreement it is observed that supply of know-how and training by AE is to the suppliers and not to assessee. In our considered opinion, it cannot be said that such expenditure is subsumed with royalty agreement. Ld.TPO was required to simply determine ALP of transaction, unconnected with the fact, of any benefit that is accrued to assessee. Ld.AO/TPO/DRP has acted contrary to ratio laid down by Hon’ble High Court in case of Cushman & Wakefield India (Pvt.)(Ltd.) [2014 (5) TMI 897 - DELHI HIGH COURT]. We accordingly set aside the issue to Ld.AO/TPO for deciding this issue within broader parameters
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