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TMI Blog2016 (8) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... ntellectual properties is not approved by any government or any competent authority - HELD THAT:- Nowhere the income tax act mandates the registration of the intellectual properties for the purpose of granting depreciation u/s 32 of the Act. Getting the intellectual properties registered is within the domain of the assessee and it only offers protection to the assessee from preventing other parties to use the same. The revenue cannot thrust the mandate of registration of the same and mere non-registration of the same does not make the transaction ingenuine or sham. Hence the version of the revenue that IP should be certified by the government authority and it does not fall within the assets specified in IT Rules is without any basis and not tenable. AO is also directed to rework the opening WDV of this asset in the subsequent year and rework the allowability of depreciation on the same pursuant to this order. In view of this decision, we are not inclined to entertain the alternative claim of the assessee vide ground no. 1(a) that the consideration so paid in the sum of ₹ 4,92,00,000/- has to be construed as Goodwill and depreciation has to be granted accordingly. Allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee was comparing AEs margin with comparable companies in AEs region rather than comparing the latter with assessee s margin earned in India. Thus the ld DRP summarily rejected the transaction by transaction approach adopted by the assessee. We find that the revenue had not brought anything concrete on records either factually or legally to negate the assessee s approach of determining the Arm s Length Transaction Price. Payment of Royalty Manufacturing Domestic Segment - HELD THAT:- We find that adoption of TNMM by the ld TPO for purchase of raw materials components under manufacturing domestic segment, had resulted in an abnormal outcome in the transfer pricing adjustment which was even more than the value of international transactions. Hence it would be just and fair to ignore the same. The ld TPO had made the adjustment of ₹ 43,27,604/- to Arm s Length Price based on a fallacious approach which is neither intended by the Act nor in OECD guidelines. In view of the above discussions, in order to meet the ends of justice in the facts and circumstances of the case, we deem it fit and appropriate, to set aside this issue to the file of the ld TPO / ld AO for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the international transaction and instead went ahead and clubbed the transaction under the TNMM analysis undertaken by TPO with respect to manufacturing segment. Moreover, when the ld DRP remanded back the case to the file of the ld TPO for analysis of the CUP benchmarking and providing ground wise observations for grounds filed in Form 35A, the ld TPO did not offer any adverse comments with regard to the payment of royalty. TPO while passing the order u/s 92CA(3) of the Act ignored the CUP analysis undertaken by the assessee for justifying the Arm s Length nature of the international transaction and instead went ahead and clubbed the transaction under the TNMM analysis undertaken by TPO with respect to manufacturing segment. Moreover, when the ld DRP remanded back the case to the file of the TPO for analysis of the CUP benchmarking and providing ground wise observations for grounds filed in Form 35A, the ld TPO did not offer any adverse comments with regard to the payment of royalty. Payment of Management Service fees Manufacturing (Domestic) Segment - HELD THAT:- Based on functional analysis, AE was determined as the least complex party and accordingly determined to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tune of ₹ 5,27,580/- which was disallowed by the Learned AO by invoking the provisions of section 43B(f) of the Act. The same was also upheld by the Learned Dispute Resolution Panel (DRP in short). Aggrieved, the assessee is in appeal before us. 2.1. We have heard the rival submissions. At the outset, we find that the CIT(A) confirmed the disallowance as made by the Ld. AO on account of claim for provision for leave encashment. Ld. counsel for the assessee stated that the deduction on account of provision for leave encashment was made on the basis of the judgment of Hon'ble jurisdictional High Court in the case of Exide Industries Ltd. Vs. Union of India (2007) 292 ITR 470 (Cal) but he fairly conceded that subsequently Hon'ble Supreme Court has stayed this judgment of Hon'ble jurisdictional High Court vide order 08-05-2009 by following observations:- Pending hearing and final disposal of the Civil Appeals, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain metering related software and was engaged in the business of sale (both domestic and export) of such software along with related services. Research and development expenses were incurred in the said business. Mr Gandhi and his personnel through their technical intelligence and expertise developed know-how for producing metering related softwares. Since TECRES possessed the requisite know-how, a key to survival in the market for static meters, the assessee entered into Business Transfer Agreement for acquisition of business of TECRES. Theo entire team of the said TECRES along with their developed codes and domain repository had joined the assessee pursuant to the Business Transfer Agreement. The intellectual property rights acquired by the assessee consisted of designs, software, data base, research and development material and facility, technical know-how, process know-how, confidential information, basic and detailed drawings, operation and maintenance manuals relating to the business carried out by TECRES. The ld AO observed that the Income Tax Rules recognizes intangible assets such as knowhow, patents, copyrights, trademarks, licences, franchises or any other business or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 4.69 lakhs, was evaluated at ₹ 4.92 crores wherein the major share of the consideration was attributed towards the intellectual property the said business possessed. The entire team together with the domain knowledge had been transferred to the assessee pursuant to the agreement. The same had been used by the assessee for its very survival in the business of static meters to be in line with the regulations of the Central Electricity Authority and hence the use of intellectual property for the purpose of business had been duly demonstrated by the assessee and it is not a colourable device as alleged by the Learned DRP. He argued that the allegation of the Learned DRP is without any basis by ignoring the fact that the knowhow in the instant case has been actually acquired by paying a consideration of ₹ 4.92 crores (pursuant to independent valuation by an expert) to Mr Gandhi pursuant to business transfer agreement. He argued that the provisions of the Act in more than one section had, in its wisdom, had defined intangible assets as knowhow, patents, copyrights, trade marks, licences , franchises or any other business or commercial rights of similar nature. Hence k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... record including the paper book filed by the assessee comprising of relevant extracts of Central Electricity Authority (Installation and operation of meters) Regulations, 2006 (pages 47 to 66 of paper book) with regard to this issue. We find that the assessee had capitalized the following assets under intellectual properties:- a. Low cost single phase static meter IP for domestic segment. b. Low cost single phase static meter IP for South Asian market like Vietnam, etc. c. RF AMR Radio frequency accelerated meter reading IP d. Salem 3T Metering Module IP e. Salem 1G HVDS IP f. PL Comm Evaluation Modem IP 3.3.1. It was argued that the intellectual property rights acquired by the assessee consisted of designs, software, data base, research and development material and facility , technical know how, process know how , confidential information, basic and detailed drawings, operation and maintenance manuals relating to the business carried out by TECRES. The valuation of the same was carried out by an independent expert and valuation report is enclosed in pages 25 to 82 of paper book. We find that the OECD Transfer Pricing Guidelines for Multinational Enterprises a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re intangibles. . Hence, it could be safely concluded that even OECD has laid down the principle that intellectual property in the form of knowhow is not required to be registered. 3.3.2. We find that the assessee had filed a copy of the Business Transfer Agreement (BTA) entered into with Mr. Gandhi as an additional evidence. It was submitted by the ld AR that the said agreement was never called for by the lower authorities and hence there was no occasion for the assessee to file the same and it was also submitted that the acquisition of business from Mr Gandhi by the assessee was never a subject matter of debate. In these circumstances, we deem it fit and appropriate to admit the said additional evidence for better appreciation of the facts to resolve the issue under dispute before us. 3.3.3. We find force in the argument advanced by the ld AR that the transfer of employees would also result in transfer of knowhow also. We find that the Explanation 4 to section 32(1) of the Act defines knowhow as any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products. Therefore, in essence what the assessee has acquired is knowhow in developing new type of meters which were digital meters with anti-tampering and other communication facilities. We find that the reliance placed by the ld AR on the Co-ordinate bench decision of Pune Tribunal in the case of Modular Infotech P Ltd vs DCIT reported in 131 TTJ 243 (Pune) is well founded. In the said case, the assessee company was engaged in the business of software development and also licensing of software. It had taken over the business of a firm namely M/s Modular Systems and claimed depreciation @ 25% on an amount of ₹ 4,27,00,000/- pertaining to the value of IPR paid to the firm. The AO disallowed the claim of depreciation on IPR against which assessee filed appeal before the ld CITA. During the appellate proceedings with the CITA, the assessee pointed out that the amount of ₹ 4.27 crores included composite consideration in respect of all the intangible assets of the firm namely IPRs and the goodwill and submitted a fresh valuation of the assets including that of the goodwill at ₹ 79,50,000/-. The CITA disallowed depreciation on goodwill of ₹ 79,50,000/- and allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relied upon hereinabove, we allow the grounds 2(a) to 2(d) raised by the assessee for the Asst Year 2007-08 and grounds 12(1) to 12(c ) raised for the Asst Year 2008-09. The ld AO is also directed to rework the opening WDV of this asset in the subsequent year and rework the allowability of depreciation on the same pursuant to this order. In view of this decision, we are not inclined to entertain the alternative claim of the assessee vide ground no. 1(a) that the consideration so paid in the sum of ₹ 4,92,00,000/- has to be construed as Goodwill and depreciation has to be granted accordingly. 3.3.6. With regard to the additional ground raised by the assessee vide ground no. 1(b) and 1(c ) on the allowability of depreciation on goodwill amounting to ₹ 93,41,680/- for Asst Year 2007-08 and ₹ 81,73,970/- for Asst Year 2008-09, we find that the Hon ble Apex Court in the case of CIT vs Smifs Securities ltd reported in 348 ITR 302 (SC) had held that the assessee is entitled for depreciation on goodwill. It is not in dispute that the assessee had paid consideration towards acquisition of Goodwill. This issue is now well settled and not with any dispute. We find lot o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Purchase of finished goods Trading of finished goods 3,93,62,040 Payment of management fees Others 1,81,96,263 Reimbursement of expenses 12,93,345 Payment of bank guarantee fees 5,94,482 The ld AO based on the order passed by the ld TPO u/s 92 CA(3) of the Act had made additions/disallowances against the international transactions undertaken by the assessee as encompassed under the 'Manufacturing Segment - Domestic' and 'Trading Segment' by imputing a downward adjustment of ₹ 43,27,604/- and ₹ 51,29,012/- respectively. All other international transactions of the assessee have been determined to be at arm's length. 5.1 Trading Segment The transactions encompassed under the Trading Segment have been summarized below:- a) Purchase of Finished Goods - ₹ 3,93,62,040/- b) Payment of consultancy charges for EMPS - ₹ 9,25,716/- The assessee had justified the Arm s Length nature of its international trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and retain high profit making companies in the final set of comparables chosen by the ld TPO. Accordingly, the ld TPO computed the arithmetic mean rate of GP/Sales for 3 comparable companies which came to 27.66% and concluded that the international transactions under the Trading Segment of the assessee were not at Arm s Length and hence a downward adjustment of ₹ 51,29,012/- was warranted on the prices of the international transactions. 5.1.2. The ld AR submitted the single year margins of remaining 4 comparable companies, which could not be produced before the ld TPO as the same were not available at the time of transfer pricing assessment, as below:- Name of the Company GP / Sales for FY 2006-07 Amzel Automotive Ltd NA Alert Fire Protection Systems Ltd NA Remi Sales Engg. Ltd NA Digitechtronics Ltd NA 5.1.3. The ld AR argued that, as per paragraphs 2.23 and 2.24 of Chapter II : Transfer Pricing Methods of the OECD Transfer Pricing Guidelines for Multinationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. Accordingly he argued that in all the cases, the transactions as encompassed under the trading segment would be at Arm s Length. He prayed for setting aside of this aspect for verification by the ld TPO to proceed with the determination of Arm s Length Price based on the margins computed from the audited financials with either of the following options:- a) To accept the comparables as selected by the assessee at the time of transfer pricing documentation with the margins computed from audited financials , or b) To accept the comparables as selected by the ld TPO whose single year margins were available at the time of transfer pricing assessment with the margins computed from audited financials , or c) To accept the comparables as selected by the ld TPO including the comparables whose margins were not available at the time of transfer pricing assessment with the margins computed from audited financials. 5.1.6. In response to this, the ld DR fairly agreed for setting aside of this issue to the file of the ld TPO for determine the margins based on audited financials and also give the benefit of 5% tolerance limit. 5.1.7. We have heard the rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd name Landis + Gyr for marketing the meters in India, the customers being usually the State Electricity Boards in the Government Sectors. For the manufacturing segment with two further sub-segments of domestic sales and exports, the ld TPO found its bifurcation untenable because despite calling two subsegments as two separate ones, the assessee had merely divided various costs on the basis of turnovers, except the Export Incentive and Excise Duty which had been done on the actual basis. The cost of raw materials and cost of manpower had merely been proportionately allocated. The ld TPO was of the view that the combined Profit Level Indicator (PLI) would reflect a more appropriate indicator. The assessee had justified the Arm s Length nature of the aforesaid international transactions selecting itself as the tested party wherein it benchmarked the gross profitability of its manufacturing segment using Cost Plus Method (CPM). The ld TPO rejected some of the comparables selected by the assessee in its transfer pricing study either on the contention that these comparables do not have import of raw materials as their international transactions or because they had high export to turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... combined net profit of the associated enterprises arising from the international transaction in which they are engaged, is determined: .... 10B(1)(e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; .... Therefore, it has been warranted in each of the methods that the price/profit earned from 'the (relevant) international transaction' should be tested. 5.2.3. The OECD TP Guidelines also states in para 3.9 of the document as under: 3.9 Ideally, in order to arrive at the most precise approximation of arm's length conditions, the arm's length principle should be applied on a transaction-by-transaction basis. However, there are often situations where separate transactions are so closely linked or continuous that they cannot be evaluated adequately on a separate basis.... 5.2.4. The United Nations Practical Manual on Transfer Pricing for Developing Countries, 2013 also states ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.1 From the facts mentioned above, it is clear that assessee's manufacturing export activities: buying/sourcing and commission earning activities are independent of each other. Each activity has different factors in respect of source, identification of vendors, merchandise, designs quality control, handling etc. The FAR analysis in each of the activity will have distinct and separate considerations. 7.2 We find merit in the argument of the learned counsel that the TPO should have accepted the method of assessee's benchmarking analysis on the basis of transaction to transaction basis in respect of different segments of assessee's international transactions with associated enterprises. In our view, assessee's functions, risk and assets FAR considerations, which are given in the above table, deserves to be merited. TPO did not appreciate the assessee's transactions correctly and applied entity level bench marking on TNMM method by combining assessee's all international transactions with associated enterprise without justification. 7.3 Our view is supported by ITAT judgments - Mumbai Bench in the cases of UCB India (P) Ltd. Vs. ACIT (2009) 30 SOT 95 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Landys+Gyr (Based in Greece) Landys + Gyr (Based in USA)\ Ampy Email Metering (Based in Australia) Dalian Email Metering (Based in China) i)Graphite Bearing ii) Hollow Rivet Fo iii)MM Base Assembl iv) MM Base Assembl (Voltage Assy) v) Rotor Assy vi) Rotor Spindle vii) Tab for Base AU viii) Terminal Cover ix) Voltage Element x) suspension Magnet xi) Sensor Assemblies xii) Theread Cutting screws 8,489,007 13,885,122 30,213 703,720 We find that the assessee had contended that under the manufacturing (domestic) segment, the assessee being engaged in importing raw materials and components (i.e. semi finished goods from its AEs for manufacturing electric meters which are subsequently sold in the domestic market, the goods so purchased by the assessee being semi-finished in nature, finding close comparable companies engaged in import of such products becomes difficult. Hence, in such a situation it would be ideal to benchmark the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted TNMM by rejecting CPM and considered OP / Sales instead of GP / DICOP Page 89 of Part B of Paper Book 1. Accurate Transformers Ltd Functionally incomparable Page 89 of Part B 2. RTS Power Corporation Ltd as they have significant of Paper Book 3. Gupta Machine Tools Ltd export transactions 4. Controls and Switchgears Functionally incomparable Page 89 of Part B Contractors Ltd as they have no imports of Paper Book 5. Pitti Laminators Ltd 6. Remaining 7 Companies TPO adopted TNMM by Page 89 of Part B of rejecting CPM and Paper Book considered OP / Sales instead of GP / DICOP 5.2.10. As a result, the Ld. TPO arrived at results which showed that the arm's length OP/Sales of comparable companies is 13.09% vis-a-vis 3.24% for the assessee. Consequently, the international transactions undertaken by the assessee under the manufacturing (domestic) segment were not at arm's length. Accordingly, the Ld. TPO made a downward adjustment to the international transactions included under the Manufacturing Domestic segment. (enclosed in page 90 and 91 of Part B of the paper book) . It is well settled that for the purpose of transfer pricing analysi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re on the principle of selection of tested party, which is least complex. We are of the view that there is no dispute on this principle as it is well recognized and well accepted in all those decisions. This too has been held by coordinate bench in the case of the assessee for A.Y. 2004-05. We have perused those decisions and applied the same in reasoning and our findings 35. Therefore, for the reasons stated above, ground no. 2.2 of the appeal is allowed with a direction that overseas associated enterprises are accepted as tested party being the least complex of the transacting entity for the year for comparability analysis of international transactions of the assessee assessee. 5.2.12. We find that in the transfer pricing analysis with respect to purchase of materials, the ld TPO had continued to select assessee as the tested party for imports of raw materials of ₹ 2.31 crores which is consumed in the manufacturing segment with a turnover of ₹ 90.45 crores. The margin earned from the entire segment cannot be a representation of 2.55% of the international transaction encompassed therein. Hence the selection of the assessee as the tested party would result in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n considering the single year data , it comes under the Arm s Length Price. c) No FAR analysis undertaken and it could not be determined that the comparable companies have a branch or AE in India. We find that this is irrelevant whether the comparable companies have a PE or a branch in India as the assessee had benchmarked the profitability earned in the regions of the AEs. 5.2.13. We find that the ld DRP failed to understand the benchmarking approach as submitted by the assessee. The ld DRP did not recognize the fact that assessee was comparing AEs margin with comparable companies in AEs region rather than comparing the latter with assessee s margin earned in India (vide page 316 of the Paper Book). Thus the ld DRP summarily rejected the transaction by transaction approach adopted by the assessee. We find that the revenue had not brought anything concrete on records either factually or legally to negate the assessee s approach of determining the Arm s Length Transaction Price. 5.2.14. Payment of Royalty Manufacturing Domestic Segment We find that the assessee had received technology and technical assistance for manufacture of electric and static meters under a Tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in the course of TP assessment for subsequent years i.e AYs 2009-10, 2010-11 2011-12 , the said transaction has been considered to be at Arm s Length by the ld TPO (for AY 2009-10 AY 2011-12 ) and also confirmed by the ld DRP (AY 2010-11) wherein, same economic analysis has been adopted by the assessee to determine the Arm s Length Price of the transaction. We hold that the study made by the assessee with regard to payment of royalty using CUP method as the MAM and using specific database RoyaltyStat for benchmarking royalty transactions which has been accepted by the revenue in the subsequent years, should be applied for the years under appeal also to put an end to this controversy. Hence in order to meet the ends of justice, we direct the ld TPO/ ld AO accordingly. 5.2.16. We find that adoption of TNMM by the ld TPO for purchase of raw materials components under manufacturing domestic segment, had resulted in an abnormal outcome in the transfer pricing adjustment which was even more than the value of international transactions. Hence it would be just and fair to ignore the same. The ld TPO had made the adjustment of ₹ 43,27,604/- to Arm s Length Price based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Domestic and imputed an adjustment of ₹ 84,35,423/-. The ld AR reiterated his submissions made for the Asst Year 2007-08 that in transfer pricing analysis, a transaction by transaction approach should be undertaken for benchmarking analysis to determine the Arm s Length Price of the international transactions being entered into. 6.1. The ld AR reiterated the arguments advanced for the Asst Year 2007-08 with regard to the OECD TP Guidelines and UN TP Manual wherein they had given primary preference to undertake a transaction by transaction analysis. He stated that it is only under certain exceptional circumstances, where separate transaction level analysis could not be undertaken or separate transactions are so closely inter-linked, that aggregation of transaction approach could be adopted. He argued that however, in the instant case, each of the four transactions undertaken by the assessee on which TP adjustment has been imputed were distinct, independent and warrant separate analysis to determine the Arm's Length Price. Like for instance, payment of management service fee pertains to amount paid for various managerial level of services rendered from the AE in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The details of the same are enclosed in Pages 65-67 of the Paper Book. Six comparable companies were identified to be dealing in manufacturing of meter business having substantial level of export sales. On comparing the average OP/Sales of these comparable companies with OP/Sales earned by the assessee under the 'Manufacturing Export' segment, the transaction value of export sales was determined to be at arm's length, applying proviso to Section 92C(2). The Ld. TPO also acknowledged that TNMM should be the most appropriate method and OP/Sales as the most appropriate PLI. However, the Ld. TPO preferred to consider the combined 'Manufacturing Segment' of the assessee ( Manufacturing Domestic segment and Manufacturing Export segment) to determine the PLI as per certified segmental financials (enclosed in Page 306 of the paper book). Further, the Ld. TPO considered single year data of comparables selected by the assessee under both the subsegment of 'Manufacturing Segment' to determine the arm's length PLI and imputed an adjustment on the value of international transactions of the assessee. (enclosed in Page 84 of the paper book). The contention raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty from entire sales value of ₹ 108.35 crores would be a better reflection of ₹ 7.35 crores sales rather than profitability determined from ₹ 7.35 crores sales itself. Accordingly he argued that the action of combining the segments by the Ld. TPO is erroneous and do not reflect the appropriate PLI for benchmarking purposes as it ignores the functional and risk analysis which forms the genesis of any transfer pricing analysis. He further argued that the segmentation undertaken by the assessee was to achieve greater functional comparability and the benchmarking was also undertaken keeping in mind the specific characteristics of the international transactions captured within the relevant segments. The Indian TP regulation require a thorough analysis of the functions performed by any company before determining the arm's length nature of the international transactions. Further, in the context of comparability and FAR analysis, it would not be out of place to quote the following paras of OECD TP Guidelines since the Indian transfer pricing law is largely based on the principles and technicalities laid down in these guidelines. Para 1.51 of the OECD TP Guidelin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. TPO's above contention relating to determination of segmental profitability, the assessee would humbly like to submit herein that the assessee has re-submitted the segmental profitability after considering the direct cost at actual and indirect cost allocated on the basis of sales. Also, to infuse authenticity on the segmental profitability, the assessee also had the segmental financials audited and certified by a Chartered Accountant which are enclosed in Page 305 306 of the paper book. He submitted that where the international transaction(s) could be more specifically related to a particular business segment of the assessee and the segmented result with respect to such segments could be obtained, use of segmented profitability would provide a better and more scientific method for determining the arm's length operations of the company rather than adopting an overall/entity level TNMM approach. In this regard he drew out attention to para 2.78 of Chapter 11 of Transfer Pricing Methods of the OECD TP Guidelines as under:- An analysis under the transactional net margin method should consider only the profits of the associated enterprise that are attributable to parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tcome wherein a loss of 5.81% (8.31% - 2.50%) was determined to have occurred for a transaction value of 2.47% of the entire segment. Hence it would be just and fair to ignore the same. The ld TPO had made the downward adjustment to Arm s Length Price based on a fallacious approach which is neither intended by the Act nor in OECD guidelines. In view of the above discussions, in order to meet the ends of justice in the facts and circumstances of the case, we deem it fit and appropriate, to set aside this issue to the file of the ld TPO / ld AO for determination of Arm s Length Price based on transaction to transaction approach submitted by the assessee taking the AE as a tested party using CPM as the Most Appropriate Method. 6.3.3. Payment of royalty Manufacturing (Domestic) Segment The ld TPO while passing the order u/s 92CA(3) of the Act ignored the CUP analysis undertaken by the assessee for justifying the Arm s Length nature of the international transaction and instead went ahead and clubbed the transaction under the TNMM analysis undertaken by ld TPO with respect to manufacturing segment. Moreover, when the ld DRP remanded back the case to the file of the ld TPO for ana ..... X X X X Extracts X X X X X X X X Extracts X X X X
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