2014 (9) TMI 117

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....) is correct in law and proper appreciation of facts and law and evidence on record.      (2) The Ld. CIT (A) appreciated the fact that the salary of Rs. 73.27 lakhs paid non technical employees like unit head, finance and admn., employees in HR and admin dept, employees of accounts dept, employees in the system admn/network who come under the category of non technical employees and hence their salary cannot be classified rightly under direct cost. The respondent had included the salaries of technical persons who are involved in the development of software have been classified as a direct cost.      (3) The Ld. Assessing Officer ought to have appreciated that the appellant was prevented by sufficient cause in adoption of proper method in original proceedings as the AO was not in a position to give sufficient time and the method adopted by the appellant is scientific and permissible in law and the Ld. Assessing Officer fundamentally failed to appreciate that he himself had admitted the same method for determination of ALP in the subsequent assessment year and there exits no fiscal estoppels.      (4) The Ld. Assess....

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....   60897171.80 x 100/48262942.80= 126.18 12021230x100/7085730=169.65 Margin on cost of production C 26.17 69.65         Arm's length margin (related party)               Adjust: Risk Factors for gross margin       Long Term Contracts   30 20.90% Technology Transfer   15 10.45% Project Management Costs   40 27.86% Credits and Credit Risk   05 3.48% TOTAL RISK FACTOR D 90% 62.69% ( C - D )     6.96%         Related Party Transfer Price       Cost of Related Party Transactions   48262942.80   Add: Gross margin at 6.96% on A   3361711.00   Expected Transfer price   51624653.80   Actual Transfer price   60897171.80   Thus, the assessee had concluded that since the actual price charged to AE is higher than the expected ALP, the price charged to AE is considered to be at Arm's....

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....eet the required experience and knowledge and therefore, the cost for hiring the trained engineers would be high. For the aforesaid reasons, the cost of resources for executing the contract with unrelated party would be more expensive than with the related parties. The relationship between the assessee and the assessee's AE are inter-depending and mutual. The efficiency of the AE's holding company depends upon the efficiency of the assessee's company. Therefore, there is a perpetual contract and not an extendable contract. The transactions with the assessee's AE are arranged in such a fashion that the supply of software services by the assessee company to the assessee's AE continue regularly without any interruption. In such a situation, there will be overall reduction of cost for hiring the engineers which will increase the profit with respect to transactions with AEs and the third parties. 3. By experience, the estimate made by the assessee with respect to 30% & 20% discounting factors with respect to related party and unrelated party respectively is fairly consistent considering the risks involved. The assessee had earned profit of 41.06% with ....

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....ement cost related to transactions with assessee's AEs as follows:- Notional marketing commission = Rs. 1,52,24,293/ (6,08,97,172 x 25 / 100). This amount was considered as a part of direct cost for transaction related to AEs. The three factors considered for arriving at 25% of invoice value termed as marketing commission were attributed to project management, credit realization and skill marketing. Considering 1/3rd of marketing commission attributable to project management cost an amount of Rs. 50,74,764/- was arrived at(1/3x Rs. 1,52,24,293). Thereafter, project management cost was arrived at 40.17%of gross margin viz., (Rs. 50,74,764 x 100 / Rs. 1,26,34,230). However, the Ld.TPO did not agree to computation made by the assessee and opined that since the commission of 25% was payable to the assessee's AE's for transactions related to third parties on realization of the invoice value, similar computation has to be made taking into account of turnover related with third parties and not with the assessee's AEs. Accordingly the Ld.TPO worked out the project management cost as 20.30 % of gross margin for sales related to third parties as follows: Total sales ....

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....e findings of the TPO that the revised GP margin submitted by the appellant was only an after- thought is erroneous.      (5) The appellant could not submit any further revised data due to paucity of time and therefore he was not given reasonable opportunity.      (6) The appellant had correctly excluded certain expenses such as salary, marketing, marketing commission, salary of non-technical staff, foreign exchange loss on export sales, since these expenses were not incurred as direct cost of production.      (7) The TPO has not pointed out any short comings or weakness in the method adopted by the assessee. 9. The Ld. D.R vehemently argued before us by stating that the Ld. TPO had arrived at the ALP after due consideration of all the factors concerning the business of the assessee and in accordance with the provisions of the Act. Ld. D.R further argued that the Ld.TPO had reasoned with proper explanations for his computation in arriving at the ALP. Therefore, it was prayed that the order of the Ld.TPO may be upheld and the order of the Ld. CIT (A) may be set aside, which was not based on any specific findings....