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2020 (3) TMI 1200 - AT - Income TaxTP Adjustment - addition made under royalty segment and advertisement segment - MAM selection - Adopting the CUP method for comparing ALP of advertisement expenses - HELD THAT:- Admittedly TPO has not made any adjustment upon segregating trading and manufacturing segment. However, Ld. AR vehemently submitted that, the two segments cannot be segregated, as they are interlinked and intertwined with each other and that assessee has determined the ALP by using TNMM at entity level. It is observed that, this issue has been considered by this Tribunal in assessee’s own case for AY 2003-04, 2007-08, 2008-09 and 2010-11.TPO for AY 2012-13 accepted manufacturing and trading segment as integrated and combined transaction for purpose of determining ALP under TNMM. Revenue has not been able to establish any factual differences between the year under consideration as well as preceding Assessment and successive assessment year. More over Revenue has accepted combined transaction approach of Trading and Manufacturing segment in immediate subsequent assessment year. We therefore do not find any reason to deviate from the same. Further Ld. TPO has held Trading and Manufacturing segments independently to be at arm’s length. On the basis of above discussions, respectfully following earlier orders of this Tribunal, we direct Ld.AO/TPO to compute ALP by considering trading and manufacturing segments as interlinked with each other and as a combined transaction. Addition made to royalty - Assessee in transfer pricing study considered royalty as a part of operating expenses in TNMM as most appropriate method. AR submitted that comparison of percentage of average royalty in respect of comparables was submitted which comes to 3% and 2.27%. Whereas assessee has paid royalty to its AE at 5%. He submitted that, since average percentage of royalty expenditure on net sales of assessee is much lower than percentage of royalty and R&D expenditure on net sales of proposed comparables, the transaction of royalty payments to AE has to be treated at arm’s length. It is also been submitted that, most of the auto parts companies are paying royalty of 3% to 5% and assessee is being royalty at 3% on part sales. He thus submitted that, even if royalty is to be considered independently, the transaction is at arm’s length as compared to the comparables considered by Ld.TPO. We agree with the submissions made by Ld. AR insofar as considering the margin of transaction computed by assessee vis-a-vis average margin of comparables. However, in our view this needs to be verified by Ld. AO/TPO. Direct Ld.AO/TPO to consider the above submissions of assessee and to recompute ALP of the transaction, in accordance with law. It is also directed that, comparables considered by Ld.TPO in the order passed under section 92CA of the Act, should be considered for computing ALP of the tr ansaction.Accordingly, we set aside this issue back to Ld. AO/TPO with the aforestated directions. Adjustment made towards the claim of expenditure - HELD THAT:- We are of the opinion that Ld. AO/TPO shall verify the details filed by assessee and to compute ALP of transaction by using most appropriate method, that would be applicable in accordance with law. Needless to say, that assessee shall be granted proper opportunity of being represented.
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