TaxTMI 
TaxTMI 
2026 (9) TMI 50
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect of the case. As such, the final assessment order passed by the ld. AO is bad in law. Adjustment to the transaction of US Tax return and Secondment charges: 2.a The Learned Dispute Resolution Panel-2, Mumbai erred in law as well as on facts of the case by confirming the proposed adjustment of Rs. 1,30,47,605/- for the transaction of Preparation of US Tax return and Secondment charges without appreciating the difficulties posed by COVID-19. The guidelines issued by the OECD were completely ignored. As such, the final assessment order passed by the Ld. AO is bad in law. 2.b The Learned Dispute Resolution Panel-2, erred in confirming the reduction of the export incentive and foreign exchange gain from the calculation of margin by the TPO. As such, the final assessment order passed by the Ld. AO is bad in law. Adjustment to the transaction of software support service by rejecting the CUP method: 3. The Learned Dispute Resolution Panel-2, Mumbai erred in law as well as on facts of the case by confirming the proposed adjustment of Rs. 65,16,053/- to the transaction of software support service by rejecting the CUP method adopted by the Asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oposed draft order by the Assessing officer. 4. The DRP upheld segmental benchmarking. While dealing with the objection concerning the preparation of US tax return segment, the DRP observed that duty drawback and foreign-exchange gain were non-operating in nature. At the same time, the DRP recorded that the comparables selected by the assessee were also engaged in export of services and that it was not clear whether the data of those comparables had been considered by including or excluding such incentives from their margins. Nevertheless, the objection was rejected. 5. In respect of the first adjustment, the learned Authorised Representative submitted that the year under consideration was materially affected by the COVID-19 pandemic. Owing to the sensitivity of client data and strict confidentiality obligations, the assessee was required to continue operations from its office premises and could not obtain the savings in rent, electricity and conveyance which entities following the work-from-home model may have obtained. It was contended that these extraordinary costs required adjustment in terms of the OECD guidance. It was further submitted that the computation did not resu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eturns and secondment segment. The plea for a COVID-19 adjustment cannot be accepted merely because the relevant year fell within the pandemic period. The pandemic was a general economic circumstance affecting the tested party as well as comparable enterprises, though its impact need not have been identical in every case. A specific adjustment is permissible only when the assessee identifies the additional or exceptional cost actually incurred because of the pandemic, establishes that it is not part of the normal operating cost, and demonstrates that the same cost or economic impact is absent from, or materially different in, the comparables. The assessee has explained that confidentiality requirements compelled office attendance, but the authorities below have not examined the supporting evidence, the precise expenditure claimed as exceptional, or its treatment in the comparable companies. Therefore, the claim requires factual verification and cannot be rejected only by observing that every enterprise faced the pandemic. 9. The computation of the profit level indicator in this segment also requires reconsideration. A comparison under TNMM can yield a reliable result only when o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....saction with the price charged in a comparable uncontrolled transaction, after making reasonably accurate adjustments for material differences. Since the assessee claims to have rendered software support services both to its AE and to an independent customer, the internal CUP, if the transactions are sufficiently comparable and reliable adjustments can be made, would ordinarily provide a direct benchmark. At the same time, similarity in the general description of services is not conclusive. The contractual scope, actual functions performed, assets employed, risks assumed, skill level and deployment of employees, volume, duration, geographic market, business circumstances and other material terms must be examined. 13. The TPO noticed a substantial difference in employee cost between the AE and non-AE segments. Such difference is a relevant indicator requiring examination of whether the nature, intensity or value of the services was materially different. However, employee cost by itself does not conclusively establish that the prices are incomparable, nor can the CUP be rejected solely by comparing the taxpayer's cost bases without examining the agreements, invoices and actual ser....