TaxTMI 
TaxTMI 
2016 (4) TMI 157
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....MM method for determination of Arm‟s Length Price (ALP) in respect of the software licensing segment. 9. The DRP and the AO failed to appreciate that the software licensing segment had resulted in a loss for the year under consideration on account of extraordinary factors viz reduction in turnover and other income and increase in salary and other employee cost and lease rent. No transfer pricing adjustment could be made in the appellant‟s case because these extraordinary factors had nothing to do with the international transactions entered into by the appellant with its associated enterprises. 10. The DRP and the AO erred in upholding use of three comparables by the TPO for benchmarking the software licensing segment without appreciating that the said comparables were out of six comparables engaged in providing technical and consultancy services taken by the appellant for benchmarking compensatory receipts and payments which had no functional similarity with the appellant‟s business of marketing and distribution of software. 13. The DRP and the AO ought to have held that the transfer pricing adjustment made by the TPO should be restricte....
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....sequently, out of the comparables provided in the TP studies, the TPO shortlisted 3 out of the 6 comparables and quantified the adjustments as under:- Comparables margin OP / NS 26.72% Comparables margin OP / OC -31.80% OP -117,821,893 AE Sales 83,475,616 Payments to AE 170,104,111 ALP sale price 99,005,296 Variation (shortfall) 216,827,189 ALP rate of payments to AE 67,523,286/- 7. Assessee reflected loss of Rs. 47% in software licensing division. In the TP studies, relying on 6 comparables data, assessee held that the same is at Arm‟s Length. However, TPO noticed that in only 3 of the said 6 comparables, the contemporaneous data was verified. He, accordingly, shortlisted the 3 comparables for TP studies and found a weighted average comes to 26.72%. Accordingly, the adjustments were initially worked out to Rs. 21,68,27,189/-. Considering the mistakes in the said calculations quo the OP / NS, the same was rectified and enhanced the adjustment to Rs. 25,34,35,434/-. Subsequently, the said calculations were rectified vide the order dated 9.11.2011 u/s 154 read with section 92CA(3) of the Act. Para 7 of the rectificati....
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....ed that the said orders are deficient on why the CUP method is inapplicable to such intangible based international transactions. Digging the mistakes in the orders of the TPO, Ld Counsel for the assessees demonstrated that the TPO benchmarked whole of the income receipts without restricting to the international transactions only. In this regard, Ld Counsel for the assessee brought our attention to the judgment of the jurisdictional High Court in the case of Thyssen Krupp Industries India Pvt Ltd vs. CIT (ITA No.2201/2013), dated 2.12.2015 [page 660 of the paper book is relevant], and submitted that the following question was answered in favour of the assessee. "(a) Whether on the facts and in the circumstances of the case and law, the Tribunal was justified in law in restricting the Transfer Pricing (TP) adjustment only to the transaction between the Associated Enterprises (AEs)." 12. The answer to the above question s given in para 5 of the said judgment and the said para reads as under: "5. In the above view, as per the provisions of the Act in respect of transfer pricing are self evident, Question No.(a) as proposed does not give rise to any substantial ques....
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....nt on the issue. During the rebuttal time, Ld DR submitted that the matter can be set aside if the Bench so desires. 15. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant paper books filed before us. The undisputed facts are that the TPO has not given any reasons for rejecting the CUP / RPA methods adopted by the assessee in respect of „royalty‟ and other international transactions. It is also a fact that the TPO travelled in the wrong presumption that the assessee used TNMM method for benchmarking the transactions as evident from the language used in the order of the TPO. It is undisputedly wrong as the TP study indicates the application of different methods for different transactions by the assessee, which are already extracted and placed in the above paras of this order. The aggregation approach of benchmarking the international transactions by the TPO is not sustainable as per the today‟s legal position. It is a trait law that the transactions have to be independently benchmarked applying the appropriate method in benchmarking of the transactions. We also perused the submissions of the assessee before t....