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2020 (10) TMI 504 - AT - Income TaxAdjustment to arm’s length price of trading segment - adjustment made to trading in industrial chemicals - restrict the adjustment to the transaction with the Associated Enterprises (AE) only - TPO rejected both internal TNMM as well as RPM applied by the assessee - AO proceeded to determine the arm’s length price under TNMM by short listing external comparables - HELD THAT:- Observations of learned DRP do not reflect the correct factual position. The legal principle is fairly well settled that if internal comparables are available, then they have to be preferred over external comparables. Therefore, when the assessee has sold products both to AEs and non–AEs and audited segmental results of the AE and non–A.E. segments are available, then, the net margin earned on non–AE transaction can be considered for determining the arm’s length price of the transaction with the AE. The decisions relied upon by the learned Counsel for the assessee, referred to above, clearly support this view. Even otherwise also, the contention of the learned Counsel for the assessee that the adjustment, if any, has to be restricted to the AE transaction is acceptable as it is supported by a number of judicial precedents. In view of the aforesaid, the addition made on account of transfer pricing adjustment to the trading in industrial chemical deserves to be deleted. Adjustment made in trading in agro chemicals and public health chemicals - Assessee benchmarked the transaction by applying RPM. Whereas, the Transfer Pricing Officer has benchmarked them by applying TNMM - HELD THAT:- It is fairly well settled that in a case of import of goods for resale in domestic market merely as a reseller/distributor, the most appropriate method to benchmark is RPM. Even, a reading of rule 10B(1)(b) makes the aforesaid position clear. The decisions relied upon by the learned Counsel for the assessee also clearly support this view. In contrast, the Department has not brought any material on record to either show that the assessee has made any value addition to the products imported from AEs or establish the nature of such value addition. Prima facie, it appears, RPM has been rejected merely on unsubstantiated allegation. The decisions cited by assessee support this view - in the cited decisions, it has also been held that re–packaging and re–labeling of goods do not amount to value addition RPM is the most appropriate method to benchmark the transaction. Even, otherwise also, we accept the contention of the assessee that adjustment, if any, has to be restricted to the AE transaction. Adjustment made to the arm’s length price of fee paid towards management services - HELD THAT:- Assessee has not benchmarked the transaction relating to payment of management and accounting service fee independently, but, has allocated such payment to all the segments. This, in our view, is not a correct approach. The assessee should have benchmarked the aforesaid transaction independently. On the other hand, the TPO has determined the arm’s length price at nil purely on ad–hoc basis without following any prescribed method. This is also not acceptable, as held in various decisions cited by assessee. Assessee may not be required to prove the benefit derived by it, however, it is required to furnish the basic documentary evidences as well as proper benchmarking to show the arm's length nature of the transaction. Since, the aforesaid exercise has neither been done by the assessee nor by the Transfer Pricing Officer, we are inclined to restore the issue to the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. Disallowance of depreciation on goodwill acquired - HELD THAT:- We find that this is a recurring issue between the assessee and the Revenue since assessment year 2006–07 onwards. While deciding the issue in earlier assessment years, in the orders referred to above, the Tribunal has allowed assessee’s claim of depreciation on goodwill. Respectfully following the aforesaid decisions of the Tribunal, we allow assessee’s claim of depreciation. This ground is allowed. Set off of brought forward loss and unabsorbed depreciation as well as proper credit to advance tax and TDS - HELD THAT:- Direct the AO to verify assessee’s claim and in accordance with law. These grounds are allowed for statistical purposes.
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