TaxTMI 
TaxTMI 
TaxTMI 
2017 (9) TMI 300
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....natural justice and is otherwise arbitrary and is thus bad in law and is void ab-initio. 2. That on the facts and circumstances of the case and in law, the leaned CIT(A) has erred in law by directing the learned TPO to verify the existence of the prior arrangements between overseas associated enterprise ("AE") and third parties in India and thereafter exclude transactions with companies who were not in prior contract with AEs as international transaction within the meaning of section 92B(2) of the Act. The learned CIT (A) has acted ultra vires the provision of section 251 of the Act since, CIT (A) can only confirm, reduce, enhance or annul the assessment and therefore cannot restore the matter back for fresh determination. 3. That on the facts and circumstances of the case and in law, the learned CIT (A) has grossly erred indenying the start-up cost adjustment while determining the arm's length price of the international transactions of the Appellant without taking into cognizance that the Appellant is a start-up company and the current financial year was the first year of the operations of the Appellant. 4. That on the facts and circumstances of the case and in law, the ....
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....stances of the case and in law, the learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act against the Appellant." 3. The assessee company is engaged in the business of providing telecommunication net working services which includes providing International Long Distance (ILD) and National Long Distance (NLD) services under licenses granted by Dept. of Telecommunication of India. The assessee is also providing net working design, project management and implementation and net work management services. The assessee was incorporated on 31.2007 as a joint venture between E&W, Singapore and an Indian Joint Venture Partner to provide end to end connectivity services, international, adopter point to point circuit, towards transmission of data to its customers. The assessee provides only the Indian leg of ILD Business and all the non-Indian capacity is provided by C&W Global. During the year under consideration, the assessee rendered the services, description of which has been reproduced by the TPO in para 3.1.1 as under: 3.1.1 Services rendered by CWNIPL Brief descriptions of the services rendered by CWNIPL are as follow: * Bandwidth Connect (IPLC)- B....
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....3CEB Report as under: (in Crores) Sl. No Transactions Amount Received/Receivable (in INR) Amount paid Payable (in INR) 1. Telecommunication and networking services 413,008,621 2. Network access cost 26,442,508 3. Receipt of loan - External commercial borrowings 375,184,013 4. Interest paid on ECB 6,959,156 5. Reimbursement of expenses 12,365,509 6. Financial subvention 117,313,767 7. Recovery- of expenses 31,608,117 To benchmark its international transactions, the assessee adopted TNMM as MAM and compare its entity level margin with mean margins of the comparables. Further while computing its margin, the assessee made an adjustment on account of capacity under-utilisation to the tune of Rs. 17,87,13,000 out of the total lease charges of Rs. 36 Crores on the ground that it is first year of operation and this part of the lease charges paid to Tata Communication are not utilized during the year under consideration. As per the assessee, during the year under consideration the connectivity infrastructure was in the development stage and setting up of POPS was not yet installed. The TPO noted that prior to....
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.....3 of the order of TPO and submitted that instead of computing the ALP strictly on the basis of TNMM, the TPO has considered the revenue of the assessee on the basis of CUP. The learned Authorised Representative has further submitted that the assessee considered the revenue of the assessee at entity level because separate computation of margin regarding the transactions with AE is not possible as the allocation of certain expenses is not possible. The learned Authorised Representative has further submitted that the entity level margin was considered and accepted by the TPO. In support of his contention, he has relied upon the Hon'ble Delhi High Court in the case of CIT v. Keihin Panalfa Ltd. [2016] 381 ITR 407 2016 (5) TMI 203. The learned Authorised Representative has then referred to clauses 2.1 and 2.2 of the agreement under which the services to be provided to the clients and submitted that the assessee was still in the testing phase of its system and infrastructure and therefore the entire bandwidth taken on lease from Tata Communications was not utilized during the year. The learned Authorised Representative has then referred to the findings of the CIT (Appeals) in para 8....
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....er TNMM. However it is pertinent to note that TNMM as MAM which is a profit based method wherein the transactional margin of the international transactions of the assessee is compared with the uncontrolled comparable transaction/prices. Section 92(1) contemplates that any income arising from international transactions shall be computed having regard to the ALP. Therefore the income from international transactions has to be computed as per the ALP determined on the basis of one of the method provided under Section 92C of the Act and in the manner provided under Rule 10B & Rule 10C of the IT Rules. In the case on hand, the assessee has carried out transactions with AE as well as non-AE therefore, the income of the transaction with AE has to be computed by comparing the same with ALP so determined as per the provisions of sections 92C and 92CA of the Act along with Rule 10 of the I.T. Rules. The non-AE transaction of the assessee are domestic and carried out in a different geography than the international transaction. Thus the domestic transaction with non-AE are entirely different in nature from the international transactions and hence cannot be clubbed together for computation of in....
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....r CUP. We further note that it is the stand of the assessee that the assessee as well as the TPO has accepted the TNMM as MAM. However when the assessee has expressed its helplessness to compute the margins separately in respect of the international transactions then the direct CUP available in case of the assessee would be an appropriate method of determination of ALP. We further note that the assessee claimed to have taken the network on lease from Tata Communications however the agreement filed before us by the assessee is with Tata Teleservices Ltd. (TTL)/Tata Teleservices (Maharashtra) Limited (TTML) and not Tata Communications Limited. Therefore this aspect is required to be verified properly. Hence when the assessee has substituted the Tata Communications Ltd. in providing the services to the AE then the CUP would be the MAM. Accordingly, we set aside the matter to the record of the TPO for determination of the ALP on the basis of CUP. The assessee has to provide all the relevant material, record and details including the agreement between the Tata Communications Ltd. and AE. Even otherwise, the TPO can requisition the information under Section 133(6) of the Act and then det....