TaxTMI 
TaxTMI 
2017 (4) TMI 1007
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....y the ld. AR for filing the appeal belatedly is bonafide. Accordingly, the delay is condoned. 4. The brief facts of the case are that the assessee company is engaged in the business of software development and IT enabled services. The assessee filed its return of income for assessment year 2012-13 on 13.09.2012 declaring a loss of Rs. 7,30,694/- after claiming refund of Rs. 14,96,700/-. As the Company was having international transactions, a reference was made to TPO u/s.92CA of the Act. The TPO passed an order u/s.92CA dated 27.01.2016 making an upward adjustment of Rs. 2,64,00,000/- to the expenses incurred by the assessee company disregarding the adjustments made by the assessee to arrive at the operating expenses. 4.1 The ld. TPO observed that adopting TNMM as the most appropriate method to substantiate the arm's lengthiness of their transaction with the associated enterprises, the assessee has short-listed eight comparable companies whose margin is 38% as against the assessee's margin of 57% after making suitable adjustment for the non-operating costs as prescribed in the Act. Hence the appellant holds the transaction to be within arm's length. It was alleged tha....
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.....6 Further, the appellant also submitted its alternative analysis under CUP as during the financial year the assessee had carried out jobs both for AE and Non-AE clients. The learned TPO rejected the same for the reason that, the assessee's corroborative analysis under the CUP method during the course of the assessment is not acceptable because, the assessee has not submitted any agreement with the non-AE that would detail its functions and the method of remuneration. In the absence of such information wherein the functions, assets and risks are assumed by the assessee and the non-AE is not ascertainable, the comparability of the same with the transactions of the assessee cannot be affirmed. Also since the assessee itself has adopted TNMM as the MAM in its TP Study and in the Form No3CEB the reasons for a change in the method during the course of the proceedings without any reasoning is not acceptable. 4.7 The learned TPO has stated that the appellant has not submitted any agreement with the non-AE detailing its functions and the method of remuneration and for the same reason the TPO has not accepted the comparability of the same with the transactions of the appellant company.....
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....2016 proposing an upward adjustment of Rs. 2.64 crores to the value of international transactions. Ld.A.R further submitted that the assessee had adopted TNMM as the MAM to benchmark its transactions with the AE. However, the appellant had adopted 3 years weighted margin which is not in compliance of with rule 10B(4). The appellant had also claimed certain economic adjustments which were not found to be acceptable. The TPO had rejected the claim of reduction of extra ordinary expenses while arriving at the PLI on the following grounds:- "1. The financials do not throw light on the assessee's claim. This cost is not a distinct line item in the financials. 2. There were no comments made in the financials as to whether such an event has a material impact on the profitability of the year under consideration. 3. Assessee did not choose to file its Director's report to verify such comments. 4. Further the assessee has listed the projects alongside which he said adjustment is claimed. However the assessee has not been able to furnish information on whether these are projects for the A.E or non-AE. In the absence of any of the information, and in the absence of the relevant d....
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....ires adjustment in its PLI. Further, the adjustment , if any, has to be done in the margin of the comparables to bring them at par with the assessee. However, the comparables selected for determination of ALP will also be similarly situated. Nothing has been brought on record by the assessee to show that it was at a disadvantageous position vis a vis the comparables in this regard. Considering the above facts and circumstances, the recruitment charges and salary paid to such employees during the year under consideration cannot be treated as non-operating in nature. Hence, the contention of the assessee may not be accepted. 6.1 Furhter, ld.D.R submitted that the assessee had also claimed certain expenditure incurred for certain interior modification and consultancy charges paid to C.A, which is not operating expenses. According to ld.D.R, the assessee did not raise the issue before the TPO and did not submit any details in this regard. These expenses are related to routine expenditure and operating in nature. Further, adjustment, if any, has to be done in the margins of the comparables to bring them at par with the assessee. Howeer, nothing has been brought on record bythe assessee....
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....4), The assessee had claimed certain economic adjustments, which were not appreciated by the TPO. Even, the comparables selected by the company was rejected by the ld. TPO and proposed upward adjustments by the TPO. The TPO considered 8 comparables and their arithmetic mean worked out at 18% while computing the Profit Level Indicator (PLI). The Ld. TPO considered the employee salary cost and consultancy charges as operating cost. Against the claim of assessee, the non-operating cost, it was submitted by the assessee that these expenses were incurred towards products being developed for future use. According to Ld. TPO, the revenue from the project is generated only in future and this expenditure to be capitalized as work-in-progress. The ld. TPO has treated it as operating cost and computed the operating margin of the assessee (-) 0.81%. Thus, the TPO arrived at ALP and made upward adjustments at Rs. 2.64 crores. Now, the main contention of the ld.A.R is that impugned man power and consultancy charges are non-operating cost, it cannot be considered as work-in-progress. 7.1 The ld.D.R drew our attention is that there is no comment made in the financials of the assessee as to whethe....