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2018 (9) TMI 1007 - AT - Income TaxTransfer pricing adjustment made to the arm's length price of royalty paid to Associated Enterprise (A.E) for technical knowhow - comparable selection - Held that:- As could be seen from the order passed by the Transfer Pricing Officer, referring to three agreements / comparables stated to have been selected by him on search of a particular data base, he found that the arm's length price of the royalty payment to the AE should be @ 1% of the net sales. As during the transfer pricing proceedings, in response to a show cause notice issued by the TPO, the assessee has specifically objected to the comparables proposed by the TPO by stating that none of the comparable are functionally similar to the assessee since all of them related to asset purchase agreement and further all the parties relating to such agreement are located outside India, hence, are not governed by Indian rules and regulations. The aforesaid objection of the assessee has neither been dealt with nor controverted by the Transfer Pricing Officer. Thus, when the comparable proposed by the Transfer Pricing Officer are in different geographical location we do not understand how they can be compared to the assessee. Transfer Pricing Officer having not determined the arm's length price in conformity with statutory provision and in the process having failed to demonstrate that arm's length price shown by the assessee is incorrect, the contention of the learned Departmental Representative to restore the issue to Transfer Pricing Officer for fresh determination of arm's length price is unacceptable - adjustment made to the arm's length price of royalty payment is unsustainable.- Decided in favour of assessee Addition on account of adjustment made to the arm's length price of payment to the AE towards availing Information Systems (IS) services - Held that:- The material submitted before us, which also forms part of the Transfer Pricing Officer’s record, indicates that the cost of the software has been allocated to 40 group companies across the globe who are using the software and related services and assessee’s share in cost allocation works out to 2.3%. Moreover, when the Transfer Pricing Officer himself agrees that the AE has provided software and certain services, there is no reason for not accepting the payment made to the AE to be at arm's length in the absence of any contrary evidence brought on record and by simply applying the benefit test. If the Transfer Pricing Officer did not agree to the arm's length price shown by the assessee it was open for him to determine the arm's length price by applying one of the most appropriate methods being backed by supporting material. Without complying to the statutory provisions, the Transfer Pricing Officer certainly cannot determine the arm's length price on ad–hoc / estimation basis. Our reasoning in paragraph 11 to 15 will equally apply to this issue also. We delete the adjustment made to the arm's length price of payment made towards availing information system services from AE. This ground is allowed - Decided in favour of assessee
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