TaxTMI 
TaxTMI 
2018 (3) TMI 940
X X X X Extracts X X X X
X X X X Extracts X X X X
....ears while determining the taxable income for AY 2010-11. The Assessee prays that the Ld. AO be directed to consider the brought forward loss of Rs. 8,87,13,096 while determining the taxable income for AY 2010-11. Ground No. 2: On the facts and circumstances of the case and in law, the Ld. AO has erred in not considering the business loss of Rs. 4,14,79,881 pertaining to AY 2010-11 while determining the taxable income for AY 2010-11. The Assessee prays that the Ld. AO be directed to consider the business loss of Rs. 4,14,79,881 pertaining to AY 2010-11 while determining the taxable income for AY 2010-11. Ground No. 3: On the facts and circumstances of the case and in law, the Ld. AO following the directions of the Ld. Dispute Resolution Panel ('DRP') has erred in disregarding the transfer pricing analysis conducted by the Assessee and consequently erred in making the transfer pricing adjustment of Rs. 9,61,57,054 in respect of Assessee's international transactions. The Assessee prays that the Ld. AO be directed to delete the transfer pricing adjustment of Rs. 9,61,57,054. Ground No. 4: On the facts and circumstances of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....able companies. Ground No.9: On the facts and in the circumstances of the case and in law, the Ld.AO has erred in not allowing the economic adjustments while calculating the operating margin of comparable companies. The Assessee prays that the Ld. AO be directed to allow economic adjustments while computing the operating margin of comparable companies. Ground No.10:On the facts and in the circumstances of the case and in law, the Ld. AO following the directions of the Ld. DRP has erred in considering only single year financial data which was not available in public domain at the time of conducting the transfer pricing analysis. The Assessee prays that the Ld. AO be directed to consider multiple year data while determining the arm's length price for the international transactions. Ground No.11: On the facts and in the circumstances of the case and in law, the Ld. AO following the direction of the Ld. DRP has erred in computing transfer pricing adjustment on the basis of entity level turnover instead of computing the adjustment only with respect to the revenue from international transactions of the Appellant following the principle of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... facts of the case, the assessee for the year under consideration had furnished return of income declaring total income of Rs. 26,82,997/-. The assessee was engaged in the business of Telecom software development in domestic and European market. The assessee had entered into international transactions with its associated enterprises at Rs. 16,91,26,367/-. Thus, the Assessing Officer made reference under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) for determining the arm's length price of international transactions. The TPO in view of the FAR analysis of functions performed, risk undertaken and the assets employed, took note of filters selected by the assessee. However, the TPO proposed application of different filters and issued show cause notice to the assessee. The PLI working was also re-computed considering the Forex loss as non-operative. The assessee objected to the same. The second proposal of the TPO for working of PLI was to consider the same at entity level. The case of the assessee before the TPO was that PLI with reference to work carried out with associated enterprises was 21.92% and with non-associated enterprises was (-) 24.85%. The TPO furth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....90% and proposal was made for an upward adjustment of Rs. 10,86,03,623/- to the international transactions relating to software development services of assessee. The Assessing Officer in the draft assessment order show caused the assessee as to upward adjustment, against which the assessee filed objections before the DRP. The DRP upheld the order of Assessing Officer / TPO in disregarding segmental results and in considering net margins of assessee at the entity level. Further, the DRP directed Assessing Officer / TPO to exclude certain concerns which were finally selected by the TPO. However, the plea of assessee in some cases was rejected. Further, certain directions were given by the DRP on account of different economic adjustments. The Assessing Officer / TPO in view of the above directions of DRP, drew final set of comparables which are enlisted at page 4 of the assessment order passed under section 143(3) r.w.s. 144C of the Act, dated 30.01.2015. The mean margins of comparables worked out to 20.67% as against PLI of assessee at 12%. In view thereof, adjustment on account of transfer pricing of Rs. 9,61,57,054/- was made to the income of assessee. 8. The assessee is in appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ores. Our attention was drawn to pages 380 to 388 of the Paper Book and it was pointed out that segment-wise operating profitability was available before the Assessing Officer / TPO and also before the DRP as mentioned in para 7.5.1. The learned Authorized Representative for the assessee explained that man hour data was system generated i.e. the data on working of employees for the services to be provided by the assessee to its associated enterprises. The assessee was remunerated on the basis of operating cost plus 15% as against non-associated enterprise business where the assessee was incurring losses. Our attention was drawn to page 7 of the DRP's order in para 7.5.2, wherein cost was allocated to associated enterprises and non-associated enterprises and then the margins were worked out. The learned Authorized Representative for the assessee further referred to Advance Pricing Agreement (APA) and document placed at page 30 of the Paper Book to point out that APA had accepted man hour allocation in the later years. He stressed that if segmental profitability was accepted then the margins of international transactions would be within range. Reliance was placed on the decision of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvices to its overseas group companies and third party customers in India. The assessee in TP study report had considered TNMM method as most appropriate method with OP / OC as PLI to benchmark its international transactions. The assessee in the TP study report had benchmarked the international transactions by comparing the operating margins of external comparable companies with operating margins of AE segment of assessee. The assessee had declared the margins earned by associated enterprise in AE segment at 12%, whereas that of comparable companies was 8.20%. Hence, the claim of assessee that international transactions were at arm's length. The TPO however, rejected the approach adopted by assessee i.e. segmental profitability of AE segment and benchmarked the international transactions by considering the entity level profitability of assessee. The first argument which has been raised by the assessee is that there is no merit in applying entity level results in order to benchmark the international transactions of provision of software services to overseas associated enterprises. The case of assessee in this regard was that the assessee was incorporated to provide the services ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lied a systematic manner of allocating the expenses to the AE segment i.e. on the basis of man-hour which is accepted method of allocation of cost. The same has also been applied under APA agreement signed by the assessee. Further, the assessee has also explained in detail the allocation of other costs either on actual basis or turnover basis and the same cannot be rejected. Accordingly, we reverse the order of Assessing Officer / TPO in applying the margins at entity level and direct the Assessing Officer to accept margins shown in segmental profitability of AE segment by the assessee. The case of assessee is that in case the segmental profitability of AE segment is applied, then the margins shown by the assessee are within +/- 5% range of mean margins of comparables as worked out by the TPO and no adjustment needs to be made on account of international transactions undertaken by the assessee. Accordingly, we hold so. 13. Before parting, we may also point out that in similar circumstances as in the year of appeal before us, no TP adjustment has been made on this count in any of the years both preceding and succeeding; in some cases there is no TP reference also. We have gone th....