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2023 (8) TMI 1061 - AT - Income TaxTP Adjustment - upward adjustment made for AMP expenses - HELD THAT:- Considering the facts of the present case and the applicable law as well as the recent decision of Coordinate bench in assessee’s own case for the preceding two years [2020 (6) TMI 474 - ITAT KOLKATA], we are in agreement that AMP is not an International Transaction and thus, delete the ALP adjustment made - Accordingly, grounds taken by the assessee in this respect are allowed. ALP adjustment on account of payment of royalty - AO/TPO observed that many of the brands on which royalty for know-how and brand were paid are very old for which no patent exists and Assessee was show caused as to why not royalty paid for know-how on the brands be considered as junk and only the royalty on brand be allowed on the basis of comparable agreement - whether royalty is embedded in the import price paid by the assessee to its AEs, on the goods imported by it? - HELD THAT:- We find force in the submissions made by the Ld. Counsel vis-à-vis application of principle of consistency as well as jurisdiction of the Ld. TPO to test the commercial expediency of an international transaction while applying the benefit test for which we place our reliance on the decision of the Coordinate Bench in assessee’s own case for the preceding two years (supra). Also we observe that payment of royalty on the import of goods by the assessee from its AEs is governed by the licence agreement which is effective since the year 2005. We note that there is no legal bar on the commercial terms arrange by the assessee in respect of payment of royalty of the net sales - Also, Customs Authorities have duly examined the issue in respect of royalty if embedded within the import price in respect of goods imported by the assessee from its related parties i.e. AEs. The Special Valuation Branch of the Customs Authorities has given a categorical finding that royalty is not included in the invoice value of the goods imported by the assessee - while arriving at a conclusion, ld. TPO has no where recorded and referred to any material which could demonstrate that royalty payment by the assessee is embedded in the process of the imported goods. To our understanding, it is merely a presumption which cannot be upheld after looking into the facts of the case and corroborative material placed on record - thus we delete the upward adjustment in respect of payment of royalty. Upward adjustment for R&D services - TPO rejected certain comparables selected by the assessee owing to difference in functions, assets, risk (FAR analysis) - HELD THAT:- As we find it proper to remit the matter back to the file of Ld. TPO to undertake comparability test based on correct functionality of the comparables by considering the material on record and arrive at the benchmarking in accordance with the provisions of law. Assessee is at liberty to furnish any further details in this respect to justify its benchmarking of ALP of the transaction. Adjustment made towards IT support services - KPO or BPO services - Comparable selection - HELD THAT:- Counsel candidly submitted that after capturing the correct functional profile of the comparables based on material furnished by the assessee, the matter may be remitted back to the file of Ld. TPO to undertake a fresh comparability test to arrive at correct bench-marking. Considering the submissions made, facts of the case and material placed on record, we find it proper to remit this issue also to the file of Ld. TPO to undertake afresh comparability test by capturing the correct functionality as the assessee has described the IT support services which it has provided to its AEs. Upward adjustment on export of raw material and finished goods - TPO noted that margin in export of raw material and finished goods in the case of comparables selected is high for which assessee was issued a show cause notice and also proposed to consider internal Transaction Net Margin Method (TNMM) to determine the arms length price (ALP) - HELD THAT:- As on perusal of the charts furnished with the updated computation of margin by highlighting the functional profile of each of the comparables, we find it appropriate to remit this issue to the file of Ld. TPO to revisit the comparables by taking into consideration the material placed on record. Assessee is at liberty to furnish any further details in this respect to justify its benchmarking of the transaction to arrive at ALP. Upward adjustment for import purchases of finished goods from the AEs - TPO found functional difference in the comparables and recomputed the gross profit margin of 37.06% to arrive at the ALP of imported goods - As contended that the comparables considered by the Ld. TPO have functional differences and, therefore, the entire bench- marking exercise has to be revisited - HELD THAT:- As we find it proper to remit the matter back to the file of Ld. TPO to revisit the benchmarking exercise by taking into account the functional profile of the comparables and that of the assessee to arrive at justifiable ALP. Assessee is at liberty to furnish any further details to substantiate its claim. Adjustment made for mark-up of recovery and expenses - TPO observed that assessee has recovered expenses from its AEs which are in the nature of services provided in helping the AEs in the legal affairs and arranging for the trained manpower. He thus, treated this as support service and bench-mark by using the comparable companies to arrive at Profit Level Indicator (PLI) of 18.17% - assessee submitted that there is no adjudication by the Ld. TPO or Ld. DRP as to what services were rendered. According to him, expenses in question were in respect of system upgrade of the assessee for which costs were reimbursed to the assessee by the AEs - HELD THAT:- We remit this issue back to the file of Ld. TPO to adjudicate upon this issue by taking into consideration the evidence placed on record by the assessee. Upward adjustment towards allocation of expenses - Counsel submitted that there is no income element in the said transactions which are on cost to cost basis reimbursements and TPO has limited jurisdiction to determine the ALP of an international transaction and questioning the commercial expediency is not in his domain - HELD THAT:- As we find it proper to remit this issue back to the file of Ld. TPO to adjudicate upon the same by taking into account the details and evidence placed on record by the assessee.
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