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2021 (10) TMI 877 - AT - Income TaxTP Adjustment - selection of MAM - assessee applied the CUP as the most appropriate method, which got repelled at the hands of the authorities below - HELD THAT:- The assessee purchasing similar products from non-AEs or a third party in India purchasing similar goods in an uncontrolled situation would have constituted the next best comparable uncontrolled price(s). Neither the best nor the next best comparable uncontrolled transactions are available and further, the assessee has provided no basis to crease out the effect of geographical differences in the transaction so chosen as comparable in terms of rule 10B(3). In such circumstances, we fail to comprehend as to how the sale transactions made by German AE to non-German AEs constitute valid comparable uncontrolled transactions insofar as the assessee’s purchases of raw material from Spain, USA, China and Germany are concerned. Remaining part of the international transaction of purchase of finished goods. It is seen that the assessee made finished goods purchases from its German AE as well as Italian AE. In order to benchmark these transactions, the assessee relied on a transaction of sale made by its Italian AE to German non-AE - As fairly conceded that no comparable data of the sales made by German AE to non-AE is available. Geographical differences, as noted above, do not justify the adoption of the price charged by Italian AE from a German non-AE as a good comparable for the purposes of benchmarking the international transactions in India. The raison d’etre given in the context of purchase of raw materials supra applies with equal force to the purchase of finished goods from the AEs for which no worthwhile comparable uncontrolled transaction is available. No separate argument was advanced qua the remaining part of the transaction under consideration, namely, Purchase of Stores, spares and consumables from the AEs.We, therefore, approve the view point taken by the authorities below to the effect that the CUP is not the most appropriate method in the facts and circumstances of the case. Application of the TNMM - transfer pricing addition proportionate to the international transactions - HELD THAT:- As AR submitted that if the CUP method is not to be adopted as the most appropriate method, then he has no grievance against the application of the TNMM or any of its other aspects except restricting the transfer pricing addition proportionate to the international transactions. The issue of proportionate adjustment is fairly settled by a judgment of the Hon’ble jurisdictional High court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. [2017 (6) TMI 1240 - BOMBAY HIGH COURT] holding that the transfer pricing adjustment made at entity level should be restricted to the international transactions only. It is pertinent to mention that the Department’s SLP against this judgment has since been dismissed by the Hon’ble Supreme Court in CIT Vs. Phoenix Mecano (India) Pvt. Ltd. [2018 (7) TMI 798 - SC ORDER]. Similar view has been espoused by the Hon’ble Bombay High Court in CIT Vs. Thyssen Krupp Industries Pvt. Ltd.[2015 (12) TMI 1076 - BOMBAY HIGH COURT] and CIT Vs. Tara Jewels Exports (P). Ltd. [2015 (12) TMI 1130 - BOMBAY HIGH COURT]. We, ergo, direct to restrict the transfer pricing addition only to the extent of international transaction under consideration. We restore the matter to the file of AO/TPO for re-determining the ALP of the international transaction of `Purchase of raw material, sale of finished goods, spares and consumables’ under the TNMM but restricting the amount of transfer pricing adjustment only to the international transaction.
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