2025 (12) TMI 192

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....sment Year 2020-21. 2. The grounds of Appeal of the Assessee are as under:- "1. On the facts and circumstances of the case and in law, the Ld. DRP/Ld. TPO/Ld AO grossly erred in not appreciating the Appellant's business model and not aggregating closely linked transaction of payment of royalty with the transactions benchmarked under manufacturing segment using Transactional Net Margin Method. 2. Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. TPO/Ld. AO grossly erred in selecting agreements based on inappropriate and unreasonable criteria to benchmark the royalty transaction of the Appellant. In that process, the Ld. TPO/Ld. AO also rejected certain comparable agreement....

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.... in its TP report, by modifying the applied filters, rejecting the selected comparable companies, introduced certain other comparable companies. The Ld. TPO rejected Three comparable companies and introduced Seven new companies to bench mark Assessee's International transactions and proposed transfer pricing addition of Rs. 7,45,79,449/- attributable to manufacturing operations of the Assessee. The TPO has also challenged the Assessee's approach to bench mark the international transaction of payment of royalty to the AE based on aggregate approach. In response, apart from arguing in favour of use of aggregate approach, without prejudice to Assessee's contention, justifying the TNMM approach, submitted a CUP analysis to substantiate the paym....

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....tly submitted that the entry level operating profit margin of 4.19% earned by the Assessee has already been held to be at Arm's length by the TPO vide order dated 08/07/2024 while passing the order giving effect to the directions of the DRP and the said entry level operating profit margin of 4.19% includes payment of royalty as on operating expense. Therefore, submitted that once the combined bench marking approach, which PLI includes payment of royalty is accepted by the TPO to be Arm's Length, separate adjustment pertaining to the concerned intentional transaction ought not to be made to Assessee's income. 8. The Ld. Counsel for the Assessee relied on following Judgments in support of his contentions and sought for allowing Ground No. ....

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....ute that the entry level operating profit margin of 4.19% earned by the Assessee has already been held to Arm's Length by the TPO while giving effect to the directions of the DRP which is reproduced as under:- "The operating margin of the assessee is 4.19%, which falls within the arm's length range of the comparable. Thus, the earlier adjustment in respect of Manufacturing of auto components is reduced from Rs. 7,45,79,449/- to NIL. The Assessing Officer shall pass the give effect order accordingly." 11. The aforesaid entry level operating margin of 4.19% includes payment of royalty as on operating expenses, the relevant extract of computation of margin is reproduced as under:- Particulars AMOUNT (INR) Revenue from ....