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TMI Blog2022 (6) TMI 1462X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions with its Associated Enterprises (AEs') u/s 92CA of the Income-tax Act, 1961. 2. The learned AO/ learned TPO/ Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection (3) of 92C of the Act. 3. The learned AO/ learned TPO/ Hon'ble DRP erred in disregarding the Transactional Net Margin Method (TNMM') search performed by the Appellant to justify the arm's length nature of the royalty transaction. 4. The learned AO/ learned TPO/ Hon'ble DRP erred in not understanding that the Appellant had adopted TNMM for benchmarking the royalty transaction in its TP Documentation of FY 2016-17 as the royalty paid is closely interlinked with the manufacturing operations carried out by the Appellant. 5. The learned AO/ learned TPO/ Hon'ble DRP erred in computing the percentages of purchase and sale to AEs, which has led to incorrect approach for aggregation of transaction. 6. The learned AO/ learned TPO/ Hon'ble DRP erred in stating that royalty transaction is not linked to the manufacturing activities without appreciating that the Appellant is a licensed manufacturer-and it needs the licens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsed technology for which application of Residual PSM is warranted. 15. The learned AO/ learned TPO/ Hon'ble DRP erred in assigning arbitrary weights to the functions performed by the Appellant vis-à-vis the Associated Enterprises without carrying out a detailed FAR analysis. 16. Further, the learned AO/ learned TPO/ Hon'ble DRP erred in applying a 50:50 profit split without giving any logical reasoning for arriving at this method. 17. The learned AO/ learned TPO/ Hon'ble DRP has also erred in determining the royalty rate at .17% on sales, without giving any logical basis for the same. Corporate tax 18. Interest under section 234B of the Act a) The learned AU erred in levying interest under section 234B of the Act at INR 7,78,58,680/- in the final assessment order. b) In light of the contentions in the aforesaid grounds, the learned AO erred in levying interest under section 234B of the Act in relation to such adjustments. c) Without prejudice to the above, the Appellant submits that interest under section 234B of the Act is consequential in nature. Accordingly, once the abovementioned adjustments are deleted, the interest under section 234B of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the Assessee even today. There is no basis for the TPO/DRP's conclusion that the useful economic life of the technology would be only 5 years. In any event passage of time cannot be the basis to discard TNMM which is already held by the Tribunal and upheld by the Hon'ble High Court as no longer the MAM because the conditions necessary for PSM as MAM are not met in the case of the Assessee. Even going by Rule 10B(1)(d), there should be contribution by each of the parties to a transaction for earning profits from sale of goods or provision of services. Then the contribution of each of the parties is identified and the profit is split between those parties. In the case of the Assessee the technology is given by TMC, Japan for which royalty is paid. The use of the technology in manufacturing and the sale of the product so manufactured contribute to the profit of the Assessee and TMC, Japan has nothing to do with that. There is therefore absence the first condition for application of PSM as MAM. As submitted by the Assessee PSM is used as MAM only in a case involving transfer of unique intangible or in multiple inter-related international transactions which cannot be valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y found to be the most appropriate. 2.126. The existence of unique and valuable contributions by each party to the controlled transaction is perhaps the clearest indicator that a transactional profit split may be appropriate. The context of the transaction, including the industry in which it occurs and the factors affecting business performance in that sector can be particularly relevant to evaluating the contributions of the parties and whether such contributions ale unique and valuable. Depending on the facts of the case, other indicators that the transactional profit split may be the most appropriate method could include a high level of integration in the business operations to which the transactions relate and /or the shared assumption of economically significant risks (or the separate assumption of closely related economically significant risks) by the parties to the transactions. It is important to note that the indicators are not mutually exclusive and on the contrary may often be found together in a single case. 2.127. At the other end of the, spectrum, where the accurate delineation of the transaction determines that one party to the transaction performs only simple fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the AO is directed to apply the said method in determining the ALP, after affording opportunity of being heard to the assessee. The grounds of appeal of the assessee are treated as allowed. 19. The facts in AY 2014-15 are identical and the reasoning given in AY 2013-14 will equally apply to the AY 2014-15 also and the TPO is directed to compute the ALP for AY 2014-15 by applying TNMM as the MAM, after affording due opportunity to the assessee." 6. Respectfully following the aforesaid decision, we set aside the question of determination of ALP to the TPO afresh applying TNMM as the most appropriate method as was done in Assessment Years 2013-14 and 2014-15 & 2015-16 in the order referred to above. Needless to say the assessee shall be given reasonable opportunity of hearing. Further, the Assessee does not make any unique contribution to the transaction, hence PSM in this case cannot be applied. 7. Ground No. 18 is with regard to interest u/s 234B, which is consequential in nature and does not require any adjudication. 8. Ground No. 19 is with regard to penalty proceedings u/s 274 r.w.s 270A of the Act. At this stage, it is preposterous, hence does not require any adjudication ..... X X X X Extracts X X X X X X X X Extracts X X X X
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