TaxTMI 
TaxTMI 
2017 (4) TMI 1487
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....visions of the Companies Act, 1956. It is a subsidiary of Key Managing Group Inc., USA. It is engaged in the business of rendering software development services to its Associated Enterprises (AEs) and non AEs. Return of income for the assessment year 2011-12 was filed on 29/11/2012 declaring total loss of Rs. 1,06,99,198/-.The assessee-company also reported the following international transactions in its Form 3CA/3CA: i. Software development services ... Rs. 22,93,93,247/- ii. Reimbursement of expenses ... Rs. 8,97,06,639/- iii. Commission paid ... Rs. 4,03,35,732/- It is submitted that KMG USA does extensive marketing and secure the contracts with third parties and outsources the same to KMG India on Back to Back basis....
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....l operating revenues were excluded. • Companies whose software development service income is less than Rs.l crore were excluded. • Companies who have less than 75% of the revenue as export sales were excluded. • Companies who have more than 25% related party transactions of the sales were excluded. • Companies whose employee cost to revenues is less than 25% of the revenues were excluded. • Companies having different financial year (i.e., not March 31, 2010) or data of the company does not fall within 12 month period i.e. 01-04-2010 to 31-03-2011, were rejected. • Companies who have persistent....
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.... -1.12% Adjusted average margin 25.94% Operating Cost 25,40,92,274 Arm's length price - 125.94% 32,00,03,810 Price received for international transaction 24,74,79,636 3. The AO passed draft assessment order dated 17/03/2015 u/s 143(3) r.w.s. 144C of the Act incorporating the above TP adjustments. 4. Being aggrieved, assessee-company filed objections before the DRP contending inter alia that very reference by the AO to TPO for the purpose of determining ALP is not valid in law as the AO failed to demonstrate as to why it was necessary and expedient to do so. It was further contended that since the assessee-company had entered into arrangement with AE on back to back billing there was no question of any AL....
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.... comparables. The assessee-company raised the following objections before the DRP: i. The Appellant's renders software development services to its AE on back-to-back revenue model and the AE passes on the entire consideration received from third parties to the Appellant. ii. The learned TPO has erred in rejecting the TP analysis of the Appellant under CUP Method. iii. The learned TPO has erred in adopting TNMM as the most appropriate method for determining the ALP of international transactions; iv. The learned TPO has erred in rejecting the alternate analysis of the Appellant considering internal comparables under TNMM and selecting external companies....
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....ecure contracts with third parties and outsources the same to KMG India on Back to Back basis. The assessee-company serves as an execution centre for contracts won by KMG USA. KMG USA does not retain any margins from the amount billed to end customers. For the services performed by AE, assesseecompany pays commission at 10% for offshare services and 25% on onsite revenue services. Thus, revenue earned by the assessee-company from its AE is only pass through income and they are not an international transaction. It is the contention of the learned counsel for the assessee that TPO had not considered the submissions of the assessee-company. DRP rejected the assessee-company's contentions without assigning reasons whatsoever. The assessee also ....