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2019 (6) TMI 601 - ITAT MUMBAITP adjustment - applying TNMM after rejecting assessee’s bench marking under Resale Price Method (RPM) - whether the international transaction relating to purchase of reagents, spares, consumables from the AE is a simple trading activity, hence, can be benchmarked under RPM ? - HELD THAT:- It is revealed that the assessee has selected RPM as the most appropriate method and has also explained why TNMM is not applicable to the subject transaction. RPM is the most appropriate method to benchmark the subject international taxation relating to purchase of reagents analyzers, etc. Since, neither the Transfer Pricing Officer nor learned DRP has pointed out any other defect in the transfer pricing analysis of the assessee except that the assessee is involved in manufacturing activity, we are of the view that the benchmarking done by the assessee under RPM has to be accepted. More so, when the Transfer Pricing Officer has accepted the comparables selected by the assessee. That being the case, only thing which requires verification is the gross margin of the assessee with that of the comparables. We direct AO/TPO to examine this aspect and decide the issue accordingly after due opportunity of being heard to the assessee. With the aforesaid observations, grounds are allowed. Disallowance of expenditure by treating them as capital in nature - HELD THAT:- From the nature of expenditure incurred by the assessee, it is very much clear that they are for day–to–day running of the business and have not brought into existence any asset of enduring benefit to the assessee. Merely because the assessee has capitalized the expenditure in its accounts it will not change the nature and character of the expenditure. It is well settled principle of law that accounting entries are not conclusive and one has to look to the actual nature of expenditure. In this context, we rely upon the decision of Kedarnath Jute Mfg. Co. Ltd. [1971 (8) TMI 10 - SUPREME COURT] . Moreover, the AO himself has allowed 25% of the expenditure as revenue in nature. In view of the aforesaid, we uphold the decision of learned DRP on the issue. However, it is made clear, depreciation, if any, has been allowed to the assessee on the aforesaid expenditure has to be withdrawn. Grounds are dismissed.
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