TaxTMI 
TaxTMI 
2018 (5) TMI 848
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....chemicals and compounds used for general metal finishing and production of printed circuit boards. The assessee reported six international transactions in Form No.3CEB. The Assessing Officer (AO) made reference to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of the international transactions. The assessee disclosed, inter alia, an international transaction of 'Cost sharing expenses paid' with two sub-transactions, viz., 'Management group cost' at Rs. 4,55,25,620/- and 'R&D assistance cost' at Rs. 5,53,55,453/-. The Transactional Net Margin Method (TNMM) was used by the assessee as the most appropriate method on entity level with Profit level indicator (PLI) of Operating Profit to Sales for demonstrating that all its international transactions were at ALP. The TPO did not dispute the ALP of any of the international transactions except 'Cost sharing expenses.' Here also, he concurred with the assessee's determination of the ALP of 'R&D assistance cost.' He did not accept the 'Management group cost' declared at Rs. 4,55,25,620/- as at ALP. On being called upon to justify the ALP of 'Management group cost', the assessee contended that it participated ....
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.... assessee's profit. A view to the contrary would then raise a question as to the extent of profitability necessary for an assessee to establish that the transaction was at an arm's length price. A further question that may arise is whether the arm's length price is to be determined in proportion to the extent of profit. Thus, while profit may reflect upon the genuineness of an assessee's claim, it is not determinative of the same. It went on to hold that business decisions are at times good and profitable and at times bad and unprofitable. Business decisions may and, in fact, often do, result in a loss. The question whether the decision was commercially sound or not is not relevant. The only question is whether the transaction was entered into bona fide or not or whether it was sham and only for the purpose of diverting the profits. 6. Reverting to the facts of the extant case, it is found that the assessee has placed on record a list of services received under the international transaction of 'Management cost services', a copy of which is available on pages 18 to 21 of the paper book. Certain other details of technical materials received from the AEs during some of the workshops ....
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....nal transactions and applied the TNMM on entity level. On the other hand, the TPO came to hold that the CUP was required to be applied for determining the ALP of the international transaction of 'Management Group cost', which view was accorded imprimatur by the ld. CIT(A). 9. The Hon'ble jurisdictional High Court in Knorr Bremse India (P) Ltd. (supra) considered the question of aggregation of international transactions. Their Lordships held that several transactions between two or more AEs can form a single composite transaction if they are closely linked transactions and the onus is always on the assessee to establish that such transactions are part of an international transaction pursuant to an understanding between various members of a group. The Hon'ble High Court observed that in case of a package deal where each item is not separately valued but all are given a composite price, these are one international transaction. It went on to hold that where a number of transactions are priced differently but on the understanding that the pricing was dependent upon the assessee accepting all of them together (i.e. either take all or leave all), then it is also an international transact....
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....herein. The ld. AR did not give any concession for the applicability of the CUP as the most appropriate method for the year under consideration. We further find from the order of the Tribunal for the assessment year 2011-12 that there is no adjudication on the applicability of a particular method as most appropriate for determining the ALP of the international transaction. 13. By now, it is fairly settled through a catena of decisions that the CUP is the most appropriate method to determine the ALP of an international transaction because it seeks to compare the price charged or paid for property transferred or services rendered, provided proper comparables are available. It is under this method alone that the price charged or paid is directly compared with the price charged or paid in an uncontrolled comparable transaction. The remaining four specific methods seek to make comparison of the price charged or paid indirectly through the medium of normal profit arising in a comparable uncontrolled transaction. Further, the CUP method is a transaction specific method which strives to determine the ALP of an international transaction on a micro level, thereby lending more credibility to....