TaxTMI 
TaxTMI 
2020 (2) TMI 1642
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....isite details as called for. Ld.AO observed that assessee had international transaction with associated enterprises exceeding Rs.15 crores, and accordingly case was referred to transfer pricing officer for determining arm's length price of international transaction. 3. Upon receipt of reference, Ld.TPO called upon assessee to file economic details of international transaction in Form 3 CEB. Ld.TPO observed that, assessee is providing information technology services to global clientele to high technology, banking, healthcare, insurance, telecom manufacturing clients. It was observed that assessee has its operations in USA, Japan and India. In USA assessee operates through its subsidiaries. 4. Ld.TPO observed that, assessee had following transaction with associated enterprises: Description Payable (Rs.) Receivable (Rs.) MAM Loan 64,21,010/- CUP Purchase of services and products 12,06,78,01,00/- CUP Third-party billing 1,83,38,86,422/- CUP Total 1,20,67,80,100/- 1,84,03,07,432/- 5. It has been submitted by Ld.AR that Ld.TPO carried out analysis of international transaction without understa....
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....erating item while calculating margins of comparable companies. • Ld. TPO rejected certain comparables alleged for inclusion by assessee. 9. Ld.AO while passing draft assessment order computed disallowance under section 14 A at Rs.23,90,960/-, and also did not grant deduction under section 10AA of the Act to the extent of certain expenditure in foreign currency amounting to Rs.19,92,074/- in Chennai unit and Hydrabad unit from export turnover. 10. Aggrieved by additions made by Ld.AO/TPO in draft assessment order, assessee raised objections before DRP. DRP simply upheld findings of Ld.TPO in respect of transfer pricing issues, however excluded ICRA Techno Analytics Ltd. DRP also held that, since assessee did not have any provision for doubtful debts during the year under consideration, objection in relation to treating it as operating item in respect of comparables was rejected. 11. Upon receipt of directions from DRP, Ld.AO passed impugned assessment order, against which assessee is in appeal before us. Ld.AR submitted that assessee do not wish to press Grounds 1, 2.1, 2.2., 2.3. Accordingly, these ground stands dismissed as not pressed. 12. At the outs....
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.... records before us. 17. Admittedly, ongoing through agreements entered into by assessee at page 659 of paper book, it is clear that assessee has 2 segments being AE segment and non-AE segment. Associated enterprises are subsidiaries of assessee, and in order to have the ease of business, associated enterprises enter into contract with 3rd parties for providing services. From these agreements it is clear that assessee bares all risk related to services rendered, whereas subsidiary AE's only. On the contrary, authorities below assumed that assessee is working on a cost-plus model with associated enterprises and that associated enterprises undertakes all risk related to service provided by assessee. 18. We observe that, Ld.TPO considered assessee to be a contract service provider, assuming minimal risk, which is contrary to the business model of assessee. We agree with contention of Ld.AR that Ld.TPO conducted TP analysis on erroneous understanding of business model of assessee, and comparables selected by Ld.TPO cannot be looked into. 19. We are therefore of opinion that, adjustment made by Ld.AO on the proposed adjustment by Ld.TPO should be revisited de novo. Accordingly, ....
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....hed for the reason that the same is not in conformity with the directions of the Hon'ble Dispute Resolution Panel ("DRP") and has been passed by the learned AO without application of mind. 1.2. The order passed by the learned AO is not line with the statutory procedure prescribed in sections 144C (10), 144C (13) and 144C (14) of the Income-tax Act, 1961 ("the Act") and is accordingly liable to be quashed. 1.3. The learned AO has failed to comply with the rules framed by the Central Board of Direct Taxes ("CBDT") under section 144C(14) of the Act i.e. Rule 12 of Income-tax (Dispute. Resolution Panel) Rules, 2009, under which the learned AO is required to pass an order in conformity with the directions of the DRP. 1.4. The final assessment order passed by the learned AO were not in accordance with the directions of the DRP and hence a void order under the provisions of the Act. 2. Transfer Pricing 72.1. The learned Assessing Officer ('learned AO'), learned Transfer Pricing Officer ('learned TPO') and the Honourable Dispute Resolution Panel ('Hon'ble DRP') have grossly erred in determining an adjustment of INR 42,79,30,761/- to revenue earn....
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....ble DRP have erred in applying the service income filter of 75% of the total sales, leading to a narrower set of comparable companies. (e) the learned AO/learned TPO/Hon'ble DRP have erred in applying export earning filter of 75% of the total sales, leading to a narrower set of comparable companies. (f) the learned AO/learned TPO/Hon'ble DRP have erred in rejecting companies having employee cost of less than 25% of the total sales, leading to a narrower set of comparable companies. (g) the learned AO/learned TPO/Hon'ble DRP have erred in applying Related Party Transactions (RPT) filter of more than 25% of the sales, leading to a narrower set of comparable companies. (h) the learned AO/learned TPO/Hon'ble DRP have erred in not considering the provision for bad and doubtful debts as operating in nature. (i) the learned AO/ learned TPO/ Hon'ble DRP have grossly erred in not rejecting the following companies as comparable: • Infosys Ltd. • Larsen & Toubro Infotech Ltd. • Mindtree Ltd. Holdings Persistent Systems Ltd. • Cigniti Technologies Ltd. • RS Software (India) Ltd. Thirdware Solutio....