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2015 (11) TMI 788 - ITAT DELHITransfer pricing adjustment - TOP held that the correct compensation model at arm’s length price, in this case, would be commission of FOB cost of goods sourced from India - Held that:- In view of the enunciation of law by the Hon’ble jurisdictional High Court in the case of Li & Fung India Pvt. Ltd. order dated 16.12.2013, there remains no doubt whatsoever that the base of “total cost” as adopted by the TPO and approved by the DRP in considering the FOB value of goods between the third party enterprises cannot be accepted. Ex consequenti, the “total cost” being the denominator in the PLI of OP/TC, has to be taken as the cost incurred by the assessee and not the FOB value of goods between third party enterprises sourced through the assessee. In other words, the tested party should be the assessee and not its AE. Thus, we hold that the assessee is entitled to cost plus form of remuneration and not a commission based remuneration. See case of Li & Fung India Pvt. Ltd. [2014 (1) TMI 501 - DELHI HIGH COURT] There is no necessity of any TP adjustment. Even further, for the current year, we note that both as per the comparables chosen by the assessee which yield a markup on 11.66% on operating cost and also the comparables chosen by the TPO, which yield 18.06% on operating cost, after making necessary working capital adjustment, indicates that the assessee’s markup of 15.36% charged on its operating cost falls well within the arm’s length price after considering the range of +/- 5% as envisaged in the Proviso to section 92C (2) of the Act. Therefore, no TP adjustment is required in assessee’s case. - Decided in favour of assessee.
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