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2020 (11) TMI 476 - AT - Income TaxTP Adjustment - MAM selection - CIT(A) in determining the arm’s length price of the international transactions based on aggregate benchmarking approach under TNMM instead of transaction-by-transaction approach - HELD THAT:- On careful consideration of all the facts of this case, the arguments of both the sides and the material available on record, we hold that the Transactional Net Margin Method in relation to the impugned international transactions at the entity level, is accepted and this ground of the revenue is dismissed. MAM selection - CUP OR TNMM - CIT(A) rejecting the Comparable Uncontrolled Price (CUP) Method for benchmarking the transaction of purchase of raw materials/components and adopting TNMM on an entity level for determining arm’s length price of the said transaction - HELD THAT:- As relying on ATLAS COPCO (INDIA) LIMITED [2019 (8) TMI 448 - ITAT PUNE] and NLC NALCO INDIA LTD. [2016 (3) TMI 639 - ITAT KOLKATA] TPO has erroneously applied the CUP Method in the instant case without considering two important factors of comparability such as geographical location and volume of purchase. TPO, in similar circumstances for the AY 2003-04 and AY 2004-05 and AY 2006-07, has accepted that the international transaction involving purchase of raw materials by the assessee from associated enterprises is at arm’s length under the TNMM and he has not directed ALP adjustment in respect of this international transaction by applying the CUP Method on transaction-by-transaction basis. Hence, we uphold the order of the ld. CIT(A) on this issue and dismiss Ground No. II of the revenue. Computing the figure for value addition for royalty computation - CIT-A considering only the cost of standard materials without appreciating the fact that cost of non-standard materials should also be considered for the purpose of analysis as raw material means both standard and non-standard materials - HELD THAT:- In the order issued under section 92CA (3) TPO has not disputed the computation of operating revenue and operating cost made by the assessee of its transfer pricing study report as aforesaid. As the operating cost includes royalty expenses in the instant case, we, in the light of the aforesaid decision of M/S. KAYPEE ELECTRONICS & ASSOCIATES[2018 (6) TMI 36 - KARNATAKA HIGH COURT] decide that there is no need to benchmark royalty separately in the instant case. TPO, for the immediately succeeding assessment years (AY 2006-07 and 2007-08) has accepted that the international transaction involving payment of royalty by the assessee to EPCOS AG under the TALA is at arm’s length on the same facts - Dismiss Ground No. 3 of the revenue Sales revenue generated by associated enterprise in the Indian market - action of the CIT(A) in stating that the financial indicator for the indenting activity segment of the assessee has nothing to do with the sales revenue generated by associated enterprise in the Indian market without appreciating that the indenting activity is performed for promoting sales of AE in the Indian market - HELD THAT:- TPO has erroneously considered the sales made by associated enterprise directly in India (INR 50,64,18,000/-) through the marketing service rendered by assessee to the associated enterprise, as sales of the assessee and based on this consideration, he has taken the aforesaid sales figure as the denominator of the financial indicator of the assessee under the indenting segment (0.492% i.e. INR 2494835 / INR 50,64,18,000). That the TPO has failed to appreciate that the aforesaid sales figure does not pass through the books of account of the assessee and it is solely the commission income (INR 2,95,50,194/-) that passes through the books of account of the assessee as revenue under the indenting segment. CIT(A) has correctly computed the financial indicator of the assessee under the indenting segment at 8.44% (=24,94,835/2,95,50,194). We uphold the same and dismiss this ground of the revenue.
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