TaxTMI 
TaxTMI 
2017 (12) TMI 801
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....essee started its operations in India in 1997 and is engaged in manufacturing auto ancillaries. It manufactures car seats, door trims, seat frames, etc. for Honda cars and two-wheelers in India. The entire manufacturing is done by the assessee from its plants located in Noida, Manesar along with a new plant in Pathredi set up during the year under consideration for twowheeler scooter seats. The assessee filed return of income along with Form No.3CEB declaring 11 international transactions. The Assessing Officer (A.O) referred the question of determination of arm's length price (ALP) of the international transactions to the Transfer Pricing Officer (TPO). In the present appeal, we are concerned only with two international transactions, namely, Payment of royalty amounting to Rs. 6,46,47,851/- and Payment of Technical know-how fees amounting to Rs. 16,73,28,883/-. The assessee applied Transactional Net Margin Method (TNMM) on entity level as the most appropriate method to demonstrate that all its international transactions including the transactions of payment of Royalty and Technical know-how fees were at ALP. The TPO accepted the other international transactions at ALP. He, however....
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.... amount debited to the Profit & Loss Account. This was necessitated because the assessee paid Technical know-how fees and capitalized the same. A part of such expenditure was claimed as depreciation. The TPO, in his analysis, considered the entire amount of Technical know-how fees capitalized for the purpose of computing transfer pricing adjustment, which action was restricted by the DRP to only such amount of Technical know-how as was amortized by way of a debit to the Profit & Loss Account. Out of the four comparables taken by the TPO, the DRP excluded Bimetal Bearings Ltd. and Unitech Machines Ltd., being, the companies which had not paid any Royalty and Technical know-how fees. Pursuant to the directions given by the DRP, the TPO, vide his order dated 12.01.2017, reduced the amount of transfer pricing adjustment to Rs. 9,93,69,480/- from the originally proposed adjustment at Rs. 22.84 crore. The fresh amount of transfer pricing adjustment was determined by considering Royalty and Technical know-how fees/Sales ratio of the two existing comparables, namely, Fiem Industries Ltd. and Motherson Sumi Systems Ltd. at 0.28%. The assessee's actual expenses of Royalty and Technical servi....
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....nder sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction ;" 9. A careful perusal of the mechanism provided under Rule 10B(1)(a) for determining the ALP of an international transaction divulges that under sub-clause (i), the price charged or paid for services provided in a comparable uncontrolled transaction is identified. Under sub-clause (ii), the price so determined under sub-clause (i) is adjusted to account for differences, if any, between international transaction and the comparable uncontrolled transactions. Under sub-clause (iii), the adjusted price arrived under sub-clause (ii) is taken as ALP in respect of property transferred or services provided in the international transaction. Thus, it is explicit from the mandate of sub-clause (i) of Rule 10B(1)(a) that it is the 'price charged or paid' for the services provided in a comparable uncontrolled transaction, which is taken into consideration. It is this adjusted price paid for availing services which constitutes the benchmark for comparison with the price paid for availing of any services in an international transaction. Coroll....
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.... method in respect of the international transactions in dispute. For this proposition, he relied on the judgment of the Hon'ble jurisdictional High Court in Gruner India Pvt. Ltd. (supra). 12. On going through the above judgment, we find that the Tribunal in that case did not approve the application of the TNMM on entity level and upheld the application of the CUP method for determining the ALP of the international transactions of Royalty and Technical services fee. It was argued by the assessee before their Lordships that aggregation approach was the correct method. After considering its earlier judgments in the case of Sony Ericson Mobile Communication India Ltd. vs. CIT (2015) 374 ITR 118 (Del) and Magneti Marelli Powertrain India Pvt. Ltd. vs. DCIT (2016) 290 CTR (Del) 60, the Hon'ble High court remitted the matter to the TPO for considering the question of aggregation and application of the correct methods afresh in the hue of discussion made in the order. Following observations of the Hon'ble High Court merit 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 circ....