TaxTMI 
TaxTMI 
2026 (7) TMI 1238
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....he order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 28.03.2013 by the Assessing Officer, DCIT, Circle-1(1), Gurgaon (hereinafter referred to as 'ld. AO'). As these are cross appeals, they are heard together and disposed of by this common order for the sake of convenience. 2. The assessee has raised the following grounds of appeal before us:- "1. On facts and in law, the Hon'ble Commissioner of Income Tax (Appeals) - 2 ('Hon'ble CIT(A)') erred in confirming the action of the Assistant Commissioner of Income-tax, Circle-1(1) ("Ld. AO') and the Learned Additional Director of Income Tax, Transfer Pricing Officer-II(1) ('Ld. TPO') of rejecting t....
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....e Act read with Rule 10B(2) of the Rules. 5. On facts and in law, the Hon'ble CIT(A) erred in confirming the Ld. AO's/Ld. TPO's action of computing incorrect Net Cost Plus margins of the comparable companies by incorrectly classifying operating/Non-operating items. 6. On facts and in law, the Hon'ble CIT(A), Ld. AO and Ld. TPO erred in not allowing a risk adjustment under Rule 10B(1)(e) of the Rules for determination of the ALP to account for the difference in the risk profile of the Appellant and of comparable companies. 7. On facts and in law, the Hon'ble CIT(A), Ld. AO and Ld. TPO erred in not allowing the benefit of (+/-) 5% as provided in the proviso to Section 92C(4) of the Act, while det....
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....saction has remained the same and there is no substantial change in FAR of the parties. It is pertinent to mention here that the Ld. CIT(A) misconstrued in deriving a concept which outside the scope of ambit of the APA. 4. That the appellant craves for the permission to add delete or amend grounds of appeal before or at the time of hearing of appeal." 4. We have heard the rival submissions and perused the materials available on record. The assessee is a wholly owned Indian subsidiary of Churchill Management Ltd. The assessee provides routine software development and maintenance support services to its Associated Enterprise (AE) and is remunerated on a cost plus basis. During the year under consideration, the assessee had entered....
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....(in INR) Operational cost (A) 3,137,095,195 Arm's length markup at NCP margin of 28.74% (B) 901,601,159 Arm's Length Price (ALP) (C = A + B) 4,038,696,354 Price shown in international transaction (D) 3,594,148,170 Total adjustment (C-D) 444,548,184 6. Aggrieved by the said order, the assessee filed an appeal before the Learned CITA. The assessee pleaded for allowance of working capital adjustment while working out the margins of the comparable companies selected by the Learned TPO. The assessee also pleaded foreign exchange gain to be considered as part of operating income while working out the margin of the assessee as well as the comparable companies selected by the Learned TPO. The Learned CITA allowed th....
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....e Learned CITA. The assessee filed rectification application pursuant to which the Learned TPO vide rectification order dated 17-08-2017 accepted foreign exchange fluctuation as operating in nature and accordingly revised the margin of the assessee to 15.34%. The revised transfer pricing adjustment stood determined at Rs. 9,91,05,698 as under:- Particulars Amount (in INR) Operational cost (A) 3,137,095,195 Arm's length markup at NCP margin of 18.50% (B) 580,362,611 Arm's Length Price (ALP) (C = A + B) 3,717,457,806 Price shown in international transaction (D) 3,618,352,108 Total adjustment (C-D) 99,105,698 8. Since the APA margin of 18.50% was applied by the Learned CITA for the year under consideratio....
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....assessee margin falls within the benefit of + / - 5% tolerance range as provided in the proviso to section 92C(4) of the Act and even on that count no transfer pricing adjustment would be warranted. 10. We hold that the foreign exchange fluctuation should be treated only as part of operating income as the said fluctuation is inextricably linked with the main transaction of provision of software development services. The law is now very well settled that once the workings of working capital are provided by the assessee, the adjustment on account of working capital is required to be granted while determining the arm's length margins. However, as stated earlier, this working capital adjustment workings need to be verified by the Learned TPO....