TaxTMI 
TaxTMI 
2016 (7) TMI 671
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....erred in computing the total income of the Appellant at INR 1,39,12,291/- as against the returned income of INR NIL by making an upward adjustment of INR 1,39,12,291/- with respect to Arm's Length Price of the international transaction. 3 That on facts of the case and in law, the Ld. TPO/AO have erred in not complying with the directions of the Hon'ble DRP while passing the impugned order. 4 That on facts of the case and in law, the DRP/TPO/AO have erred in arbitrarily rejecting the segmental accounts prepared by the Appellant for benchmarking the international transaction pertaining to provision of software consulting and support services. 5 That on facts of the case and in law, the DRP/TPO/AO have erred in rejecting the economic analysis undertaken by the Appellant wherein the Appellant had applied Cost Plus Method ('CPM') to compare the gross margins earned by the Appellant from provision of software consulting and support services to associated enterprises and non-associated enterprises. 6 That on facts of the case and in law, the Ld. TPO has erred in applying Transactional Net Margin Method (TNMM') as the Most Appropriate Method ('MAM') ....
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....order passed under section 143(3) read with section 144C of the Act. 15. That on the facts and in the circumstances of the case, the Ld. AO has erred in charging interest under section 234 of the Act, as a consequence of the addition made in the impugned order passed under section 143(3) read with section 144C of the Act." 2. In the present case, ground nos. 1 and 2 are general in nature. Ground nos. 3 and 9 to 15 were not pressed so these grounds do not require any comments on our part. 3. Vide ground no. 4 to 7, the grievance of the assessee relates to the arm's length price adjustment (ALP) by applying Transactional Net Margins Method (TNMM) as most appropriate method for bench marking the International Transaction instead of Cost Plus Method (CPM) adopted by the assessee and selecting the companies in final set off alleged comparables which have different benefit / operative models than the assessee and rejecting the segmental accounts prepared by the assessee for benchmarking the international transaction pertaining to provosion of Software Consulting and Support Services. 4. Facts of the case in brief are that the assessee derived income from Software Consulting a....
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....lopment Services :- S. No. COMPANY NAME OP/OC(5) (Corrected) i Akshay Software Technologies Ltd. 0.86% ii E-Infochips 56.44% iii Evoke Technologies Pvt. Ltd. 8.11% iv E-Zest Solutions 39.98% v Infosys Ltd. 43.39% vi Larsen & Toubro Infotech Ltd. 18.40% vii LGS Global Limited 14.11% viii Persistent Systems & Solutions Ltd.(Merged) 21.51% ix Persistent Systems Ltd. 23.08% x R S Software (India) Ltd. 16.20% xi Sasken Communications Technologies Ltd. 24.33% xii Wipro Technology Services Ltd. (Merged) 54.42% xiii Celstream Technologies Ltd. Ltd. 13.20% xiv Acropetal technologies Ltd. (Seg.) 22.06% xv Mindtree Ltd. (Seg) 10.29% xvi Sankhya Infotech Limited (Seg.) 26.20% xvii Tata Elxsi Ltd. (Seg.) 26.20% xviii Thirdware Sol (Seg) 18.30% xix Zylog Systems Limited 28.74% Average 23.81% 6. The TPO worked out the adjustment on account of arm's length price as under :- Particulars Amount (INR) Operating Cost 7,11,10,000 Arm's Length Margin (%) 23.81% Arm's Length Ma....
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....atter to Transfer Pricing Officer ("TPO") to determine arms' length price of international transaction entered into by the Appellant, Vide order dated 12 January, 2015, the TPO added Rs. 1,39,12,291/- to the total income of the Appellant as adjustment on account of the arm's length price ("ALP") of the international transaction pertaining to provision of software consulting and support services by the Appellant to its AE which was upheld by the Dispute Resolution Panel ("DRP") vide directions dated 31 August, 2015. AO passed the final assessment order dated 26 October, 2015 in line with the directions of DRP. 7. That the Appellant had benchmarked its 'international transaction' pertaining to rendering of software consulting and support services by using Cost Plus Method. The TPO however rejected the most appropriate method applied by the Appellant for benchmarking the subject transaction, by erroneously concluding that segmental data was not available with respect to the services provided by the Appellant to the AE & non-AEs. In this regard, we respectfully submit that segmental data was duly available & produced before the TPO (segmental details are produced at para 5 on page 3....
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.... 13. While adjudicating the issue of rejection of Cost Plus Method as the most appropriate method for determining the ALP of the international transaction entered into by the Appellant, the DRP rejected Appellant's objections without passing a speaking order and upheld the approach of TPO in applying TNM Method. The DRP merely observed that TNMM gives a very pointed and straight comparison as ultimately it is the margins from a transaction that help in determination of it being at arm's length or not, therefore, the Appellant's objections were dismissed by the DRP as untenable. 14. Being aggrieved by the final assessment order dated 26 October, 2015, the Appellant preferred the present appeal before this Hon'ble Tribunal which has been registered as ITA no. 6192/Del/2015. 15. We wish to submit that once Profit Margin of AE & Non-AE segments are available for the purpose of benchmarking the subject international transaction, internal comparables ought to have been preferred as it is now a settled position in law that internal comparables are preferred over external comparables." 9. The reliances is placed on the following case : " a) Tecnimont ICB (P) Ltd. V. ACIT, ITA ....
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.... independent Chartered Accountant of its segmental financial results for the financial year ended on 31st March, 2011. 3. That Seven N Consulting Private Limited has duly furnished the same to the Hon'ble ' I-1' Bench of the Income Tax Appellate Tribunal vide application dated 3 March, 2016 under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 (Rules) for admission of audited segmental results as additional evidence. 4. That as per the general practice followed by Seven N Consulting Private Limited and in terms of AS-17, the company was not required to maintain separate segmental accounts in-as-much as the nature of services in respect of transactions undertaken with Seven N A/S, Denmark (related party) and the unrelated parties. However during the course of Transfer Pricing Assessment the Transfer Pricing Officer had rejected the Most Appropriate Method selected by Seven N Consulting Private Limited on the ground that the segmental data was not audited. Hence, on advice in the appeal before the Hon'ble Tribunal the audited segmental results have now been obtained from an independent Chartered Accountant." 12. During the course of hearing the ld. Counsel for the....