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2015 (12) TMI 1513 - DELHI HIGH COURT

2015 (12) TMI 1513 - DELHI HIGH COURT - [2016] 381 ITR 38 - Transfer pricing adjustment - ALP adjustment - appropriateness of adopting CUP method as against the TNMM for determination of the ALP - Held that:- As the present appeals are concerned, the Court finds the impugned order of the ITAT to be well reasoned and researched to hold that the assesseeís contention to the effect that the armís length price of services rendered to, or received from, the associated enterprises, which was computed .....

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ralidhar And Vibhu Bakhru, JJ. For the Appellant : Ms Suruchi Aggarwal, Senior Standing Counsel with Ms Vibhooti Malhotra, Junior Standing Counsel and Ms Radhika Gupta, Advocates For the Respondent : Dr. Rakesh Gupta, Ms. Poonam Ahuja Mr. Rohit Kumar Gupta, Advocates ORDER 1. These are two appeals by the Revenue under Section 260A of the Income Tax Act 1961. 2. ITA No. 374/2015 is directed against the impugned order dated 18th November, 2014 passed by the Income Tax Appellate Tribunal ( ITAT ) i .....

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benchmarking its international transactions with its Associated Enterprises ( AEs ). The residual profits were split between the Assessee and the AEs in the ratio of 50:50. 4. A reference was made by the Assessing Officer (AO) to the Transfer Pricing Officer ( TPO ) to determine the Arm s Length Price (ALP) under Section 92CA(3) in respect of the international transactions entered into by the Assessee during the financial years in question. In the order 21st August, 2009, the TPO observed that i .....

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transactions. The TPO, therefore, proceeded to adopt the Transactional Net Margin Method ( TNMM ) and benchmarked the profitability of the Assessee with comparable companies engaged in a similar business by application of the TNMM at the entity level by using operating margin as the profit level indicator. On this methodology, the TPO determined that there was a difference of ₹ 20,900,179/- between the booked value and the ALP and since the same was more than 5%, the said difference was a .....

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pugned order of the ITAT for AY 2006-07 noted at the outset in para 5 as under: We find that in the present case it is not really even in dispute that in this field of business activity, the 50:50 business model (i.e. the business model of sharing residual profits in equal ratio with the service provider at the other end of the transaction i.e. at the consignee s end in the case of export transaction and at consigner s end in the case of import transaction), is a standard practice. In other word .....

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ly the same amount was charged for the same service in the uncontrolled transactions, the TPO rejected the CUP method and instead adopted the TNMM, which is normally deployed as a method of last resort for computation of ALP. 8. The ITAT then proceeded to examine, in light of Rule 10B(1)(a), the appropriateness of adopting the CUP Method in the present case notwithstanding that the Assessee has not even made any efforts to demonstrate nor claimed that actual amount charged for comparable service .....

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also important to bear in mind the fact that what we are dealing with at present is a classic case in which while there is no, and there cannot be any, dispute even at the assessment stage, that the terms at which the assessee has entered into the arrangements with the AEs are the same as the terms at which the assessee has entered into arrangements with the independent enterprise, there are still some procedural issues, with regard to application of methods of determining arm s length price as .....

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at can at best be described as, unresolved procedural issues. 9. The ITAT concluded in para 29 of the impugned order as under: We hold that the assessee s contention to the effect that the arm s length price of services rendered to, or received from, the associated enterprises, which was computed on the basis of the same 50:50 model as is the industry norm and as has been employed by the assessee for computing similar services to the independent enterprises, was at arm s length. Accordingly, the .....

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