TaxTMI 
TaxTMI 
2018 (4) TMI 383
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.... 2. The only issue raised in this appeal is against the addition on account of transfer pricing adjustment amounting to Rs. 16,26,63,782/-. 3. Succinctly, the facts of the case are that the assessee reported certain international transactions including 'Provision of software development services' with a transacted value of Rs. 64,82,23,982/-. The Assessing Officer (A.O.) made reference to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of the international transactions. The TPO observed that the assessee employed the Transactional Net Margin Method (TNMM) for determining the ALP of the international transaction of 'Provision of software development services'. The TPO noticed that the assessee furnished segm....
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....ard both the sides and perused the relevant material on record. Shorn of unnecessary details, it is seen that the first and the foremost issue raised in this appeal is against the addition of Rs. 16,26,63,782/- made by the authorities on account of transfer pricing adjustment in respect of transactions with the Associated Enterprises (AEs) and non-AEs. Computation of the arm's length price (ALP) by the TPO in his order passed before and after the DRP directions, whose relevant parts have been reproduced above, divulges that he took total Operating costs at Rs. 87,52,83,158/- . By applying arithmetic mean of the comparables at 12.97%, he finally proposed a transfer pricing adjustment of Rs. 16,26,63,782/-. It is, thus, seen that the TPO cons....
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....lly finding out the operating profit margin of the assessee and then the average adjusted operating profit margin of comparables. Such adjusted profit margin of the comparables constitutes the benchmark margin, which is then compared with the operating profit margin from the assessee's international transactions, which only comprise of transactions with AEs. It is not permissible to make transfer pricing adjustment, by applying the average operating profit margin of the comparables, on the assessee's universal transactions entered into with both the AEs and non- AEs. As the entire exercise under Chapter-X of the Act is confined to computing total income of the assessee from international transactions having regard to the arm's length price,....