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of <h1>Appeal Dismissed: Arm's Length Transactions Upheld for Subscription Fees and Equipment Purchases</h1> <h3>D.C.I.T. Versus. C-Dot Alcatel-Lucent Research Centre</h3> D.C.I.T. Versus. C-Dot Alcatel-Lucent Research Centre - TMI Issues Involved:1. Disallowance of subscription fees of Rs. 52,718/-2. Acceptance of Comparable Uncontrolled Price (CUP) evidence for the purchase of equipment3. Characteristics of similarity in goods/services under the CUP methodIssue-wise Detailed Analysis:1. Disallowance of Subscription Fees of Rs. 52,718/-The first issue pertains to whether the CIT(A) erred in deleting the disallowance of Rs. 52,718/- for subscription fees. The assessee argued that the payment for subscription charges to Alcatel-Lucent, France, was a cost-to-cost recharge without any markup, thus justifying the use of the CUP method to confirm the arm's length nature of the transaction. The CIT(A) found no reason for adjustment as the TPO did not raise any objections to the assessee's claim, except to state that it appeared verifiable. Consequently, the subscription fee should not be disallowed.2. Acceptance of CUP Evidence for the Purchase of EquipmentThe second issue involves the acceptance of CUP evidence by the CIT(A) for the purchase of equipment. The assessee purchased base station equipment, modems, CPE cards, and cables from its AEs, which were manufactured in-house by the AEs and not purchased from third parties. The assessee provided cost certificates from its AEs, certifying that the equipment was supplied at cost without any markup. The CIT(A) accepted these certificates and the customs valuation certificates, which stated that the value of the imported equipment was declared truthfully.The TPO's approach of using internet search data from a different financial year (FY 2010-11) to determine the arm's length price for transactions in FY 2006-07 was found to be flawed. The CIT(A) noted that the provisions of Rule 10B(4) of the IT Rules require data from the same financial year or up to two years prior. Therefore, the TPO's method was incorrect, and the CUP analysis should be rejected.3. Characteristics of Similarity in Goods/Services Under the CUP MethodThe third issue addresses whether the CIT(A) ignored the strict characteristics of similarity required under the CUP method. The CIT(A) found that the assessee had provided sufficient evidence to demonstrate that the equipment was purchased at cost. The CIT(A) also noted that the TPO did not share the source of the prices identified through the internet search, depriving the assessee of the opportunity to verify the information.The CIT(A) further highlighted that the assessee is a research organization engaged in developing wireless broadband technology, and the equipment was provided for non-commercial use. The cost certificates confirmed that the equipment was sold on a cost-to-cost basis, satisfying the arm's length criterion.Conclusion:The CIT(A) directed the AO/TPO to delete the disallowance of Rs. 52,718/- for subscription fees and accepted the CUP evidence for the purchase of equipment. The CIT(A) found no reason to treat the subscription value as nil and concluded that the transactions were at arm's length. The appeal of the Revenue was dismissed.Order Pronounced:The order was pronounced in the open court on 19.01.2016.
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