TaxTMI 
TaxTMI 
2014 (9) TMI 117
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....acts 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. Assessing Officer that the TPO was wrong in initiated procee....
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....rty) 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 Length. 5. The Ld. TPO observed from the above submissions of the assessee that the assessee had computed the gross margin ratio of 69.65% in the case of unrelated party before adjustments and 6.97% after adjustments and similarly had computed gross margin ratio of 26.17% in the case of related party before adjustments and (-) 63.83% af....
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....pany. 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 respect to third parities during the relevant previous year 2003-04. Since the contracts with third parties were terminated during the month of Dec., 2005, the resultant cost absorption by the assessee would have been felt for the previous year 2005-06 and thus an irrelevant factor for the relevant assessment year 2004-05. 4. Past experience with contracts executed with unrelated parities resulted in termination with one month notice before which there was consistent ....
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....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 1,20,21,230 Marktg.commn.25% 30,05,307 1/3 as project management cost 10,01,769 (A) Total cost production 70,85,730 Gross Margin AE Transaction 49,35,500 (B) % of Gross Margin (A/B) 20.30% D. Credit and Credit Risks The assessee had submitted that 5% discount on GP or 3% discount on sales price was normal and reasonable discounting factor. However, the Ld.TPO opined that since the risk factors are taken into account for arriving at the discount factor of project management cos....
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....ny 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. On the other hand, Ld. A.R. supported the order of the Ld. CIT (A) and further submitted that the ALP worked out by the assessee is duly justifiable and the Ld.TPO/ AO had not offered reasonable opportunity to present his case before them. It was therefore prayed that the order of the Ld. CIT (A) may be upheld. 10. We have heard both the parties and carefully perused the materials available on record. From the facts of the case it is evident that the assessee had determined its ALP by reducing its gross margin ratio on cost of production from 69.65% to 6.97% by loading discounting factors with respect to long ....