TMI Blog2017 (12) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... DELHI ]. HC of the same case [2017 (1) TMI 389 - DELHI HIGH COURT] did not disturb the overturning by the Tribunal of the similar mechanism adopted by the TPO of applying the CUP method and working out the transfer pricing adjustment by considering the Royalty and Technical services fee to Sales ratio of that assessee as well as the comparables. It is, therefore, held that the TPO did not correctly compute the ALP of the international transactions of Royalty and Technical Services fee under the CUP method. Thus set aside the impugned order and remit the matter to the file of Assessing Officer/TPO for a fresh adjudication in the light of the guidance provided in the case of Gruner India Pvt. Ltd. (supra). - ITA No.1943/Del/2017 - - - Dated:- 13-12-2017 - SHRI R.S. SYAL, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER For The Assessee : Shri Ajay Vohra, Sr. Advocate, Shri Neeraj Jain, Advocate, Shri Ramit Katyal, CA Shri Sahil Sharma, CA For The Department : Shri Niamrata Panday, Sr. DR ORDER PER R.S. SYAL, VP: This appeal filed by the assessee is directed against the final assessment order passed by the AO u/s 143(3) read with sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as comparable whose SAG expenses/Sales ratio was near about the assessee company s. That is how, four comparables were shortlisted with their mean SAG expenses /Sales ratio of 8.59%, as under:- S.No. Name of comparables SGA Expenses/Sales (%) 1. Bimetal Bearings Ltd. 7.95% 2. Fiem Industries Ltd. 7.71% 9. Motherson Sumi Systems Ltd. 8.62% 14. Unitech Machines Ltd. 11.81% Tested Party 8.59% 4. Thereafter, the TPO worked out Royalty and Technical know-how fees to Sales ratio of these four companies as under:- S.No. Name of comparables Sales Royalty and Technical Know-How Fees Royalty Sales (%) 1. Bimetal Bearings Ltd. 1,88,80,93,318 0.00% 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, Fiem Industries Ltd. and Motherson Sumi Systems Ltd. at 0.28%. The assessee s actual expenses of Royalty and Technical services fees (after restricting it to the amount of depreciation claimed) were determined at ₹ 10.68 crore and the ratio of such expenses to sales was determined at 3.91%. Excess of the assessee s Royalty/Technical Services fee to Sales ratio over and above the arm s length Royalty/Technical Services fee to Sales ratio of the two comparables, was treated as foundation for the transfer pricing adjustment. The Assessing Officer, in the impugned order, made addition for this amount. The assessee is aggrieved against the addition. 6. We have heard the rival submissions and perused the relevant material on record. It is vivid that the assessee applied the TNMM to show that all of its international transactions including Royalty and Technical Services fee were at ALP on entity level. The TPO did not approve the aggregation of all the international transactions and applied the CUP as the most appropriate method in the manner discussed above for determining the ALP of the international transactions of Royalty and Technical Services fee. 7. The ld. AR cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices which constitutes the benchmark for comparison with the price paid for availing of any services in an international transaction. Corollary of the above is that the price paid for availing of services in a comparable uncontrolled transaction is compared with the price paid in an international transaction. The emphasis under the CUP method is on the comparison of price paid for availing services. 10. When we advert to the facts of the instant case, it is found that the TPO has simply computed ratio of the expenses of Royalty and Technical services fees to Sales of the comparables at 0.28% and, then, proceeded to apply such benchmark for determining the ALP of the two international transactions under consideration. In the entire episode, there is no reference to the price paid by the comparables as a yardstick for comparing with the price paid by the assessee. The approach adopted by the TPO, as approved by the DRP, does not conform to the prescription of rule 10B(1)(a) inasmuch as he sought to compare percentage of expenses to sales rather than the price paid under a comparable uncontrolled situation. Ergo, we cannot countenance the mechanism applied under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erit mention in this regard : - 10. In the light of the above discussion, it is held that the entire issue as to whether aggregation is warranted in the circumstances, should be gone into afresh in view of the law declared in Sony Ericsson (supra) and clarified in Magneti Marelli (supra) above. 11. As far as the issue of most appropriate method is concerned, this Court is of the opinion that no definitive ruling ought to be given at this stage. As to whether in the event of de-segregation the CUP method is the most appropriate rather than TNM method should in our opinion be left open for consideration depending on the determination of the issue of aggregation/ de-segregation itself. In other words, that whether in the event of de-segregation, which would be the appropriate method, should be left to the TPO to decide, after hearing counsel for the parties. However, we clarify that in the event it is held that aggregation is permissible in the facts of this case, the findings of the Revenue authorities and the Tribunal that the TNMM method was warranted, would not be disturbed. 12. In the light of the above findings, the appeal is partly allowed. The matter is re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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