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2021 (10) TMI 1206 - ITAT MUMBAITP adjustment on Export of finished products - Selection of MAM - application of CUP method - HELD THAT:- While considering the issue of comparability with an uncontrolled transaction, the condition prevailing in the market in which the respective parties to the transaction operate, including the geographical location along with other factors would be relevant to decide which method would be suitable for benchmarking the transactions. Finally, the application of CUP method has been rejected by the bench and the adjustment has been deleted - we reject application of CUP method and delete the impugned adjustment as proposed by Ld. TPO. This ground stand allowed. TP adjustment against payment for technical know-how (Royalty) - AO Adopted the benchmarked royalty rate of 4% as against effective rate of 4.57% paid by the assessee and proposed an adjustment - TPO disallowed the royalty payment on adhoc basis and benchmarked the transactions using CUP method - HELD THAT:- Tribunal deleted the adjustment on the premises that Ld. TPO was bound to determine the ALP by following any one of the prescribed method and determination of ALP on adhoc basis could not be sustained. It was also held that CUP method could not be applied since comparable agreements were between entities located outside India. In AY 2014-15[2019 (7) TMI 1314 - ITAT MUMBAI], Ld. TPO applied CUP method to benchmark the transactions. However, the coordinate bench, in its order for AY 2014-15, held that CUP was not most appropriate method for benchmarking the transactions because of geographical differences. We find that in this year, Ld. TPO has followed same methodology as in AY 2014-15 and applied CUP method which has already been rejected by Tribunal in AY 2014-15. Therefore, following consistent view of Tribunal, we delete this adjustment. The ground thus raised stands allowed. TP Adjustment against payment of interest on ECB Loan - HELD THAT:- ALP of such transaction could be more accurately determined by following rate of interest fixed by RBI in respect of ECB loan. This decision has subsequently been followed in AY 2014-15[2019 (7) TMI 1314 - ITAT MUMBAI] - The assessee has followed the same RBI rate to benchmark the transactions in this year. Therefore, respectfully following earlier stand of Tribunal, we delete the impugned adjustment. The grounds thus raised stand allowed. TP adjustment against payment to AE for Software charges - According to the terms of agreement, the assessee was required to pay two (2) charges namely, IS charge (a recurrent service fee for regular recurrent services) and S3 charge (a specific service fee for development /acquiring and implementation of "S3 ERP Program") - HELD THAT:- We find that IS charges were paid by the assessee for obtaining access to ERP software and for regular recurrent services and such charges were paid in earlier years also. In AY 2012-13, similar adjustment proposed by Ld. TPO was deleted by coordinate bench on the premises that Ld. TPO was duty bound to determine ALP by following any one of the prescribed methods and determination of ALP on adhoc basis could not be sustained. It was also observed that the assessee had submitted substantial evidences in support of the claim. This order was followed subsequently in AY 2013-14. In AY 2014-15, Ld. TPO allowed external cost but did not allow cost allocated to the assessee on the ground that the claim was unsubstantiated. This adjustment was also deleted by the Tribunal. Therefore, we find that this issue is recurring in nature. The charges have been paid pursuant to the agreement and the assessee has already placed on record third part audit certificate along with sample third party invoices raised by the vendors on its AE. In support of benefits, the assessee submitted a flowchart of the manufacturing operations, depicting the inter-linkage between the manufacturing operation and application provided /services received as part of IS and S3 services. Therefore, Ld. TPO, in our opinion, was not justified in denying this cost to the assessee.
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