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2019 (12) TMI 440 - AT - Income TaxTP Adjustment - TPO in determining the Arm’s Length Price (ALP) in respect of payment for E-Connectivity services availed by the assessee from its Associated Enterprises (AE) at NIL - HELD THAT:- Whole purpose of having a centralized IT-set up within the group was to avoid duplication of efforts and to make the arrangement administratively convenient and cost effective. Accordingly, we hold that the said services are such that an independent enterprise in comparable uncontrolled circumstances would have been willing to pay for the activity if performed for it by an independent enterprise. We find that the cost has been allocated by the AE to the Indian entity (i.e assessee herein) by applying Indirect Charge Method based on the Usage. AR stated that each DSM group entity availing the services from the AE will give the AE the projected number of users for each service and based on that the AE will determine the per user cost. The total cost is accumulated with respect to each service and per user cost is calculated by dividing the total cost by number of budgeted users. The invoices raised by the AE on the assessee in this regard also goes to prove that the same are on cost to cost without any mark up. All these facts are confirmed by the AE vide separate letter dated 21.10.2014 filed before the lower authorities. Payment of e-connectivity charges forms part of the cost base (i.e operating cost in both marketing support services and distribution activity) and the entire operating costs had been recovered with arm’s length margin from the AE. Hence there is no reason to determine the ALP of the said international transaction at NIL by the ld TPO which has been wrongly upheld by the DRP. TPO had determined the ALP of payment for e-connectivity charges at NIL without resorting to any of the methods prescribed in the statute. Once a reference is received by the TPO u/s.92CA(1) from the ld. AO, TPO is required to determine the ALP of the international transaction as per the provisions contained in Section 92C and 92CA read with relevant rules thereon. From the conjoint reading of the relevant sections and the relevant rules, we find that the duty of the ld. TPO is restricted only to the determination of the arm’s length price of an international transaction between two related parties by applying any of the methods prescribed u/s.92C read with rule 10B of the rules. Thus, there is no provision made in the statute empowering TPO for determining the ALP on a particular international transaction at NIL without resorting to any of the methods prescribed. TPO in determining the ALP of payment for e-connectivity charges at NIL without resorting to any of the methods prescribed under the statute deserves to be dismissed. We have no hesitation in directing the TPO/ ld AO to accept the claim of payment for e-connectivity charges in the sum to be at Arm’s Length. Accordingly, the grounds raised by the assessee are allowed.
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