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2019 (6) TMI 1529 - HC - Income TaxTP Adjustment - MAM selection - correct method to be applied for determining arm s length price of the international transaction between the assessee and the associated enterprise - TPO made the adjustment to the entire segment of the manufacturing activity instead of making the adjustment for only international transaction BUT Tribunal held that the TPO was not justified in making adjustment to the entire segment of manufacturing activity without restricting the same to the manufacturing transactionHELD THAT - Tribunal in the process relied upon and referred to the decision of the Division Bench of this Court in case of CIT v. Tara Jewels Exports (P.) Ltd 2015 (12) TMI 1130 - BOMBAY HIGH COURT . The principles laid down in the said decision have been followed consistently in later decisions such as in cases of CIT v. Thyssen Krupp Industries India (P.) Ltd. 2015 (12) TMI 1076 - BOMBAY HIGH COURT and CIT v. Alstom Projects India Ltd. 2016 (12) TMI 1408 - BOMBAY HIGH COURT In the result do not find any error in view of the Tribunal. The appeal is dismissed.
Issues:
1. Correct method for determining arm's length price of international transaction. 2. Justification of Transfer Pricing Officer's adjustment to entire segment of manufacturing activity. Issue 1: Correct method for determining arm's length price of international transaction The High Court addressed the first issue regarding the correct method for determining the arm's length price of the international transaction between the assessee and the associated enterprise. The Transfer Pricing Officer (TPO) had made adjustments to the entire segment of the manufacturing activity instead of restricting it to the international transaction. The Tribunal held that the TPO was not justified in making adjustments to the entire segment without limiting it to the manufacturing transaction. The Tribunal referred to the decision in the case of CIT v. Tara Jewels Exports (P.) Ltd. and upheld the principle that adjustments should be specific to the international transaction. This principle was consistently followed in subsequent decisions like CIT v. Thyssen Krupp Industries India (P.) Ltd. and CIT v. Alstom Projects India Ltd. The High Court found no error in the Tribunal's view and dismissed the appeal. Issue 2: Justification of Transfer Pricing Officer's adjustment to entire segment of manufacturing activity The second issue involved the justification of the Transfer Pricing Officer's adjustment to the entire segment of the manufacturing activity. The Tribunal emphasized that the TPO's adjustment should have been limited to the international transaction and not extended to the entire manufacturing segment. By referring to previous decisions, the Tribunal established the necessity of specific adjustments related to the international transaction. The High Court concurred with the Tribunal's reasoning and upheld the decision, dismissing the appeal filed by the revenue challenging the Tribunal's judgment. In conclusion, the High Court's judgment clarified the correct method for determining the arm's length price of international transactions and emphasized the need for specific adjustments related to such transactions. The decision highlighted the importance of restricting adjustments to the relevant transaction instead of applying them broadly to an entire segment of activity. This case serves as a precedent for future transfer pricing disputes involving similar issues.
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