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14.1 However, the TPO separately benchmarked the royalty payment using the Profit Split Method (PSM) as the most appropriate method and made the necessary adjustment. The dispute reached this Tribunal in the assessee's appeal in IT(TP)A No. 1646/Bang/2017. The Tribunal, vide its order dated 13-04-2022, decided the issue in favor of the assessee by holding that TNMM was the most appropriate method. Accordingly, it directed the TPO to benchmark the royalty transaction as per TNMM. The relevant observations of the Tribunal are as follows:

11.3. The overall margin computed by the assessee was at 5.26%. From the transfer pricing study, we note that the assessee paid Rs.105,317,196/- as royalty to the AE, for use of technical knowhow relating to manufacture and sale of automotive components. The net sales earned by the assessee for the year under consideration is Rs.4,61,06,57,812/-. Thus, the effective rate of royalty paid by the assessee to the AE is at 2.28% over net sales. We note that, the Ld.TPO computed the royalty rate by using profit split method at 3.19%. The Ld.TPO considered the profit split ratio of 2:3 wherein 40% split was considered to be the share of the AE. There is in the overall margin of 5.26% 2.28% over the net sales are paid as royalty to the AE by assessee. 11.4. We note that, Ld.TPO referred to the decision of Hon'ble Delhi bench in case of Global One India (P.)Ltd. vs. ACIT (supra). On perusal of this decision, we learn that, that was a case where, Global One India, out of highly integrated operations and deployment of assets and functions of different entities located in different geographical locations, for execution of one transaction, to be ultimately delivered by way of combined effort. It was under

"Further reliance is also placed on OECD Guidelines, which clearly lay down the situations in which the PSM is selected as an appropriate method for benchmarking. The relevant extract from the OECD Guidelines (para 2.109) is as below:
"A transactional profit split method may also be found to be the most appropriate method in cases where both parties to a transaction make unique and valuable contributions (e.g. contribute unique intangibles) to the transaction, because in such a case independent parties might wish to share the profits of the transaction in proportion to their respective contributions and a two-sided method might be more appropriate in these circumstances than a one-sided method. In addition, in the presence of unique and valuable contributions, reliable comparables information might be insufficient to apply another method. On the other hand, a transactional profit split method would ordinarily not be used in cases where one party to the transaction performs only simple functions and does not make any significant unique contribution (e.g. contract manufacturing or contract service activities in relevant circumstances), as in such cases a transactional profit split method typically would not be appropriate in view of the functional analysis of that party".
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 functions, does not assume economically significant risks in relation to the transaction and does not otherwise make any contribution which is unique and valuable ........ "
"2.147. Under the transactional profit split method, the relevant profits are to be split between the associated enterprises on an economically valid basis that approximates the divisi6n of profits that would have been anticipated and reflected in an agreement made at arm's length. In general, the determination of the relevant profits to be split and of the profit splitting factors should: Be consistent with the functional analysis of the controlled transaction under review, and in particular reflect the assumption of the economically significant risks by the parties, and Be capable of being measured in a reliable manner."