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2015 (8) TMI 922 - AT - Income TaxTransfer pricing adjustment - inclusion of cost of sales incurred by the AEs - Held that:- It was not correct on the part of the TPO to include the cost of sales incurred by the AEs in respect of which the assessee company has rendered services and then to work out the profit for determination of the arm’s length prices. Our view is also supported by the judgment of the Delhi Tribunal in the case of Sojitz India (P) Ltd. vs DCIT (2013 (6) TMI 550 - ITAT DELHI ) where a similar issue has come up. The adjustment as confirmed by the DRP is otherwise untenable in view of the proviso to section 92C of the Act. The TPO has included the cost of sales of the AEs while making adjustment to the arm’s length price. The cost base as determined by the learned TPO in the assessment year 2007-08 is ₹ 4558,90,44,859. The adjustment proposed after order from the DRP is ₹ 116,70,79,548. This amount is within 5% of the cost base of ₹ 5589044859/- determined by the learned TPO himself. The cost base as determined by the TPO in the assessment year 2008-09 is ₹ 4071,95,89,546. The adjustment proposed after order from the DRP is ₹ 114,82,92,425. This amount is also within 5% of the cost base determined by the TPO himself. Accordingly, no adjustment could have been made in view of the proviso to section 92C of the Act. The TPO is not right in including the cost of sales while determining arm’s length price and not considering the same while applying proviso to section 92C of the Act. According to provision of section 92C first arm’s length price has to be determined. Thereafter the same has to be compared with the price charged by the assessee and if the difference between the price determined by TPO and the price charged by the assessee is within ±5% then no adjustment is required to be made. - Decided in favour of assessee.
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