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2019 (3) TMI 1353 - AT - Income TaxDisallowance of payments made for royalty and technical know-how received - Accepted Most appropriate method for benchmarking the manufacturing segment as TNNM - Different method (CUP method) for royalty and technical knowhow - HELD THAT:- Neither the TPO nor the CIT (A) has discarded the most appropriate method adopted by the Assessee which was TNMM in the present case for benchmarking the manufacturing segment. Facts on the record also show that the TPO has not discarded the exercise undertaken by the Assessee in determining the ALP of the international transaction related to royalty and technical fees by using the aggregate approach and benchmarking it with manufacturing segment. We find force in the arguments of the Ld. AR that where the assessee had used TNMM to benchmark all its transactions and the TPO having accepted TMNN as the most appropriate method, it was not open to the TPO to subject only one element, i.e. payment of technical assistance fee, to an entirely different method (CUP) as this would lead to chaos and be detrimental to the interests of both the assessee and the revenue. We also find it appropriate to mention that the TPO, in the subsequent years, has accepted the aggregate approach and the TNMM method as against the approach of the TPO in this year to benchmark the transaction separately. The TPO has arbitrarily applied CUP, which is not supported by the approach of the TPO in the subsequent years. The view of the lower authorities that the benchmarking done by the Assessee is incorrect and the approach of the TPO, as has been upheld by the CIT (A), is not sustainable. Our view is also supported by comparison of margins of the Assessee with the margin of the comparable companies. As stated elsewhere in the order, the Assessee has earned the margin of 9.25% with respect to manufacturing activities as against the margin of 11.98% earned by the comparable companies. Thus, the Assessee’s margin is within the (+/-) 5% range. Therefore, the approach of the Assessee is correct in so far as it relates to the payment of Royalty and Fee for Technical know-how and the adjustment in relation to international transactions pertaining to payments for royalty and technical know-how deserve to be deleted.
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