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TMI Blog2013 (5) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... /revenue relates to the manner in which the profit level indicator has been computed by the Transfer Pricing Officer for the purposes of determing the arm's length price of the international transactions entered into between the respondent/assessee and its associated enterprise. 2. The Assessing Officer, on receipt of the report of the Transfer Pricing Officer under section 92CA(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the said Act'), finalised the assessment of the assessee by making an addition of Rs. 1,19,41,893/- on account of the arm's length price adjustment. Being aggrieved by the said addition, the respondent/assessee preferred an appeal before the Commissioner of Income Tax (Appeals), who, allowed the appeal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional transactions involving commission and warranty, the respondent/assessee also undertakes installation of the said equipment. It also provides for annual maintenance under the head of re-engineering and maintenance contracts. The respondent/assessee, carries out these activities of installation and maintenance in India under independent contracts. It is, therefore, the case of the respondent/assessee that the transaction of installation and maintenance are not international transactions but are pure and simple domestic transactions. 6. The point in issue before us is with regard to the manner of computing the profit level indicator. The Transfer Pricing Officer had adopted the Transactional Net Margin Method (TNMM) as the most appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Transfer Pricing Officer then went ahead with the selection of comparables and determined the arm's length operating margin in respect of the comparables at a figure of 16.34%. Thereafter, the Transfer Pricing Officer determined the arm's length price in respect of the international transactions of warranty support services and commission income as under:- "Determination of Arm's Length Price The arm's length price of the international transactions entered into with the AE is computed in the flowing manner:- Total Cost Rs. 7,94,78,065 Operating Profit Rs. 10,44,822 Operating Profit margin 1.31 % Arm's Length Operating profit Margin 16.34% Arm's Length Operating Profit Rs. 1,29,86,715 Difference being adjustment required Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Act. No adverse inference is drawn in respect of other international transactions." 8. From the above, it is apparent that while computing the profit level indicator, the Transfer Pricing Officer took into account not only the operating revenue and operating costs of the international transactions involving warranty services and commission income but, he also took into account the operating revenue and operating costs of the installation/commissioning and maintenance services which were domestic transactions. It is also evident that the Transfer Pricing Officer, himself, did not consider installation/commissioning and maintenance to be international transactions inasmuch as no adjustment was made by him in respect thereof. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and maintenance as domestic transactions was that, in the order of the Transfer Pricing Officer itself, no adjustment was made in respect of these trnasactions. The Tribunal further held that since the profit level indicator shown by the assessee on the internationl transactions of waranty service and commission income was 18.98%, there was no need for any adjustment in the arm's length prices of these transactions inasmuch as the profit level indicator of the comparables were determined by the Transfer Pricing Officer at 16.34%, which was lower. It is in this backdrop that the Tribunal felt that there was no reason to examine the issue on the argument of the assessee that the Transfer Pricing Officer had not applied the proper comparables ..... X X X X Extracts X X X X X X X X Extracts X X X X
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