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2021 (2) TMI 1013 - AT - Income TaxTP Adjustment - MAM selection - benchmark the international transactions of freight receipts and expenses by taking TNMM as the most appropriate method and PLI of OP/VAE [Operating Profit/Value added expenses] - HELD THAT:- No infirmity did emerge from the adoption of the PLI of OP/VAE by the assessee for benchmarking of its international transactions of freight receipts and expenses, there was, thus, no justification for substitution of the same by the PLI of OP/TC by the TPO/DRP. We, thus, in terms of our aforesaid observations direct the A.O/TPO to benchmark the international transactions of freight receipts and expenses by taking TNMM as the most appropriate method and PLI of OP/VAE. Transfer pricing adjustment considering the entire turnover of the freight receipts and expenses - claim of the assessee before the DRP that for working out the TP adjustment the TPO was obligated to consider only the operating costs attributable to the AE sales - HELD THAT:- Admittedly, a TP adjustment envisaged in Chapter X is only in respect of the international transactions of the assessee with its AEs and cannot be extended to the transactions entered into by the assessee with the independent unrelated third parties. Insofar the aforesaid settled position of law as had been so canvassed by the ld. A.R before us is concerned, we are persuaded to be in agreement with the same. In fact, we find that in the case of CIT-8, Mumbai Vs. Tara Jewells Export (P) Ltd. [2015 (12) TMI 1130 - BOMBAY HIGH COURT] and CIT Vs. Thyssen Crup Industries India Pvt. ltd.[2015 (12) TMI 1076 - BOMBAY HIGH COURT] had clearly observed, that in terms of Chapter X of the Act the TP adjustment is mandated only in respect of International transactions and not the transactions entered into by the assessee with independent unrelated parties. We find that in case if a TP adjustment is allowed in respect of transactions entered into by the assessee with unrelated third parties then the same would be result into increasing of the profit in respect of such independent transactions which would be beyond the scope and ambit of Chapter X of the Act. Apparently, the claim of the ld. A.R that the TPO had wrongly worked out the TP adjustment in respect of the AE transactions by considering the total operating costs instead of the operating costs attributable to the AE sales is prima facie found to be correct. Accordingly, we restore the matter to the file of the A.O/TPO for the limited purpose of working out the TP adjustment only in respect of the transactions of the assessee with its AEs, and if the same is found to be within the safe harbour range of +/- 5% of the ALP then no adjustment shall be called for in its hands. Inclusion/exclusion of certain comparables by the TPO/DRP w.r.t benchmarking of the international transactions of freight receipts and expenses of the assessee - Exclusion of companies functionally dissimilar with that of assessee. Disallowance u/s 36(1)(iii) - disallowance of interest expenditure - HELD THAT:- More or less the assessee had been able to drive home its claim that the aforesaid amounts were advanced much prior to raising of the interest bearing loans/borrowings in question, as a result whereof no part of the interest expenditure was liable to be disallowed under Sec.36(1)(iii) of the Act. In sum and substance, the claim of the assessee that at the relevant point of time of giving the capital advances it had with it sufficient self owned funds to justify the same had not fairly been looked into by the lower authorities. In fact, both the lower authorities had approached the issue in question with a view that the assessee was obligated to disprove the existence of a one-to-one nexus between the capital advances and interest bearing loans/borrowings, which as observed by us hereinabove cannot be subscribed on our part. In the backdrop of our aforesaid deliberations, we are of a strong conviction that the aforesaid issue requires to be revisited and therein re-adjudicated by the A.O after calling for and considering the entire set of facts pertaining to the same. At this stage, we may herein clarify that in case if the assessee in the course of the ‘set aside’ proceedings is able to establish that it had at the relevant point of time sufficient interest free funds available with it to justify the capital advances given w.r.t the aforesaid properties, then, it would be presumed that the aforesaid capital advances/investments were made by it from the interest free funds so available with it. Accordingly, in all fairness and in the interest of justice we restore the issue to the file of the A.O for the purpose of readjudication of the same in terms of our aforesaid observations. Needless to say, the A.O in the course of the ‘set aside’ proceedings shall afford a reasonable opportunity of being heard to the assessee who shall remain at a liberty to substantiate its aforesaid claim on the basis of fresh material and submissions.
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