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2019 (1) TMI 1351 - AT - Income TaxTPA - ALP determination - rejecting transactional net margin method (TNMM) adopted by the assessee as the most appropriate method (MAM) - Held that:- TPO has made the transfer pricing adjustment purely on estimation basis without any supporting material. Though the TPO has mentioned that arms length price has determined by applying CUP method but in fact the TPO has not come up with any comparables to justify the application of cup method. TPO has not brought on record any material to substantiate that the AE provided the similar services to an independent enterprise in comparable circumstances. The Ld. TPO has also not brought on record any instance where comparable services were provided to an independent enterprise in the recipient market. So in view of the fact that the TPO has, in fact, not applied the CUP method to determine the arm’s length price of the transaction, there is no reason to reject the TNMM method applied by the assessee. Law does not permit the TPO to determine the arm’s length price on estimation basis. We are therefore, of the considered view that the arms length determined by the Ld. TPO is not in accordance with the provisions of the Act and the ratio of law laid down by the Hon’ble jurisdictional High Court. On the other hand the intra group services are closely linked to the business of the assessee and the assessee’s benchmarking approach is based on TNMM. Whether the legal infirmity in the impugned order can be cured by restoring the issue to the Ld. TPO? - Held that:- We hold that since the TPO has not made the transfer pricing adjustment by following the mandatory provisions of the law and determined the same on estimation basis, action of the Ld. DRP in upholding the TP adjustment so made by the TPO is bad in law. So far as the cases relied upon by the Ld. DR is concerned, we are of the considered view that the facts of the said cases are different from the facts of the present case. Since, the Ld. TPO has not determined the arm’s length price in accordance with the provisions of law, there is no reason to hold that the TNMM method applied by the assessee is not the most appropriate method within the meaning of section 92C of the Act. - Assessee appeal allowed.
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