2023 (3) TMI 254

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.... the current year without passing a reasoned order, even when there is no change in facts of the case and ignoring the fact that for the earlier years the same methodology was followed and accepted by the department consistently. 3. The AO/DRP erred in applying the generalized literature on application of CUP without discussing as its applicability to facts of the Appellant's case? 4. The AO/DRP erred in choosing Transaction Net Margin Method (TNMM) as the most appropriate method without any reasoned order and choosing the same by default on rejection of CUP method? 5. The DRP erred in substituting TNMM over CUP method as the most appropriate method? 6. The DRP/AO failed to see that they cannot take different stand on same set of facts on the applicability of quantum of services provided, quality and nature of services provided, geographical location of the customers, credit, market risk when applying CUP method and when applying TNMM? 7. Without prejudice to the ground that TNMM is not the most appropriate method, the DRP/AO erred in making a separate upward adjustment on Corporate guarantee provided to the Associated Enterprise (AE....

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....ete the additions made by the AO/DRP and render justice. 3. The brief facts of the case are that the assessee company is engaged in the business of providing IT consulting services to its AEs XIUS Corp, USA, Megasoft Consultants Sudan Bhd and non-AEs like Tata Communications, Canada. The return of income for the AY 2012-13 was filed on 22.12.2012 declaring total income of Rs.1,00,18,450/-. During the year under consideration, the assessee has entered into various international transactions with its AEs. The assessee has selected CUP as most appropriate method and bench marked transactions with its AE and claimed to be a tested party. During the course of assessment proceedings, the TPO rejected the CUP method adopted by the assessee and has adopted TNMM as most appropriate method. The TPO, after conducting fresh TP study, has selected certain comparables and then, compared with operating margin of the assessee and suggested TP adjustment of Rs.4,40,89,432/- towards AE sales and also made upward adjustment on corporate guarantee of Rs.58,80,000/- @ 1% on total corporate guarantee given by the assessee. Pursuant to TP adjustment as suggested by the TPO, the AO has passed draft ass....

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....LI of the assessee after considering bad debts written off and forex fluctuation loss as operating expenses and has worked out OP/OC @5.01% and then, compared margin of the assessee with comparables and made TP adjustment of Rs.4,40,89,432/- towards AE sales. 5. The Ld.AR for the assessee submitted that the DRP erred in rejecting CUP as most appropriate method without appreciating the fact that for earlier two assessment years, the assessee has adopted CUP as most appropriate method and the TPO has accepted CUP method without any adjustments towards international transactions with its AEs. The Ld.AR for the assessee referring to various documents and Paper Books filed by the assessee submitted that the turnover of the assessee consisting of 74% from AE transactions and 26% from non-AE transactions. The assessee has earned margin on sales @18.81% and margin on cost of 24.61%. The assessee has considered internal CUP on the basis of transactions with third party customers and claimed margin earned on AE sales is higher than the third party sales. Therefore, he submitted that when there is no change in facts and circumstances of the case for the impugned assessment year when compar....

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.... AE. Therefore, we are of the considered view that under these facts and circumstances, there is no reason for the TPO to reject CUP method selected by the assessee to bench mark international transactions with its AEs when the assessee was consistently following said CUP method. Further, the assessee has filed comparable transactions of third party sales and proved that margin earned from AE transactions is higher than the margin earned from non-AE transactions. It is a well settled principle of law by the decision of the Hon'ble Supreme Court in the case of Radhasaomi Satsang (supra) that although, res judicata is not applicable to Income Tax proceedings, but rule of consistency needs to be followed unless there is a change in facts and circumstances which requires to be considered a different approach or method for considering any issue. In this case, as pointed out by the Ld.AR for the assessee, there is no change in the facts and circumstances of the case for the impugned assessment year when compared to previous two years and thus, we are of the considered view that the TPO ought to have followed CUP method selected by the assessee for benchmarking international transactions ....