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2019 (10) TMI 296 - AT - Income TaxTP Adjustment - payment of royalty to the AE - MAM - Assessee adopted TNMM method at entity level aggregating all the international transactions with OP/OR as the PLI - HELD THAT:- There is no dispute that the assessee has derived the benefit from the technical information given by the AE. There was an agreement reduced in writing between the assessee and the AE for payment of royalty and for extending necessary technical support to the assessee for manufacturing product continuously and consistently. CIT(A) has given a finding that the technical information on the manufacturing the activity was received and benefitted by the assessee. AR submitted that the manufacturing activity of company and the continuous technical support for which the royalty is paid are independent and interrelated and as held in the case of M/s. Johanson & Johnson [2017 (3) TMI 1520 - BOMBAY HIGH COURT] the TPO obliged to follow any one of the methods prescribed in section 92C of the Act. Instead, the ld.TPO adopted the benefit test which is not one of the prescribed methods. Thus, the order of the TPO is defective in not following the methods prescribed under the Act. Commercial expediency is the business decision of the tax payer and the AO cannot sit and judge the business expediency as decided by the Hon'ble Delhi High Court. The coordinate bench of ITAT, Delhi also held that TNMM is the most appropriate method for benchmarking the royalty payment. On application of TNMM as MAM at the entity level the PLI of the assessee more than the comparable cases, thus the transactions of the assessee company are at Arm’s length. Following the judicial precedents discussed in the preceding paragraphs, we hold that determination of royalty at Rs. NIL is unjustified and the most appropriate method for determining the royalty payment is TNMM method at the entity level aggregating all the transactions including the payment for royalty. Accordingly, we hold that the adjustment made by the TPO is not warranted and the addition made by the Assessing Officer is deleted and the order of the ld. CIT(A) is upheld. For A.Y. 2007-08, the facts are identical and having held that TNMM is the most appropriate method, no adjustment is called for on account of transfer pricing issues. In the instant case, the tax effect involved in this appeal is also less than ₹ 50.00 lakhs which is squarely covered by the CBDT Circular No. No.17/2019, dated 08/08/2019, therefore, this appeal is not maintainable.
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