TaxTMI 
TaxTMI 
2018 (7) TMI 1468
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....61. l.a The AO ought to have appreciated that there was neither necessity nor expediency for such reference to the TPO as there was no attempt on the part of the appellant to understate wilfully the value of its international transactions. l.b The AO has erred in not providing opportunity of being heard to the appellant before referring the transfer pricing issues to the TPO which is in violation of principles of natural justice. 1.c The AO ought to have independently applied his mind to the order of the TPO with due cognizance to the appellant's various rebuttals before accepting mechanically, the conclusions stated in the TPO's order. 1.d The TPO erred in making the TP addition where the tax rate in the country of the AE s is higher than the rate of tax in India and where the establishment of tax avoidance or manipulation of prices or establishment of shifting of profits is not possible. 2. Erred in making the TP addition of Rs. 9,72,84,721/- towards the shortfall of ALP adjustment in respect to the transactions of Software Development Services. 3. Erred in calculating the operating margin of the company i.e. Profit Le....
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....d in not appreciating the fact that the comparable companies do not bear any idle costs in terms of excess staff capacity costs whereas the assessee company incurs significant idle employee cost. 3.j Erred in not excluding the foreign exchange loss of Rs. 90,93,482j - from the operating cost, as such loss has not been incurred during normal course of business and same cannot be considered as operating in nature. 3.k Erred in not excluding the expenditure of donation of Rs. 10,50,000jfrom the operating cost as same cannot be considered as operating in nature. 4. Erred in rejecting the TP Documentation, Search process, Filters, Comparability Analysis implemented by the assessee in accordance with the provisions of section 92C and Rule 10D of IT, Rules. 5. Erred in eliminating the following company which is not objected by the assessee from the final set of comparables selected by the TPO: 1. Akshay Software Technologies Ltd 5.a Ought to have followed the provisions of section 144C(11) of the Act in providing opportunity of being heard to the assessee before rejecting Akshay Software Technologies Ltd as the comparable to the assess....
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.... a captive service provider in comparison to full - fledged risk bearing comparable companies. 8.b Ought to have appreciated that as per Rule 10B (l)(e)(iii) of the IT Rules, an adjustment should be made to the profit margin of independent comparable companies to take into account the differences in functions and risks. 8.c Ought to have appreciated that the Central Board for Direct Taxes, has issued Instruction No. 5/2011 dated 5 March 2011 directing the Tax Authorities to take the opinion of technical experts in cases involving complex technical issues. Hence, the TPO/AO ought to have quantified the risks in consultation of the technical experts. 9. Erred in not giving the benefit of +/-5%, as provided under first proviso to section 92C(2) of the Act. 10. Erred in confirming the disallowance of the claim of assessee company u/ s 80G of the Act amounting to Rs. 1,12,790/-. 11. Erred in confirming the disallowance of the deduction claimed by the assessee company u/ s 10AA of the Act for Rs. 61,644/-. 11.a Ought to have appreciated the fact that profit from SEZ unit is allowable u/ s 10AA of the Act. 11.b Ought to have a....
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....he adjustment u/s 92CA(3) of the Act. The AO proposed the draft assessment order in accordance with the TP orders. Aggrieved, the assessee preferred its objections before the DRP. The DRP partially accepted the assessee's contentions and the final assessment order was passed, against which, the assessee is in appeal before us. 5. Ground No.3a is against the non-recalculation of the operating cost of the assessee company as per the directions of the Hon'ble DRP issued on 29.9.2015 to keep the deferred revenue expenditure and finance cost out of the computation of margin. We find that though the DRP has given a direction, the AO has not calculated the margin in accordance with the directions of the DRP. We therefore, remand this issue to the file of the AO with a direction to re-compute the operating cost of the assessee in accordance with the directions of the DRP. Ground No.3.a is accordingly treated as allowed for statistical purposes. 6. As far as Ground No.3h is concerned, it is the case of the assessee that the employee cost of the assessee is 76% as compared to the employee cost of the 3 comparables retained by the DRP being 58% of the turnover. He submitted that the....