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2015 (12) TMI 517 - AT - Income TaxTransfer pricing adjustment - adjustment to the arm's length price of the international transaction of provision of software development services provided by the appellant company to its holding company M/s ION Trading UK Ltd. - Held that:- Companies that are affected by factors like persistent losses, declining sales, extraordinary Income or expense, mergers and acquisitions or other such factors which affect the operations of the company substantially should not be used as comparables as they will not prove to be good benchmarks. Adjustment of unutilized rent and maintenance expenses as expenses incurred in relation to the international transaction of the provision of Software development services - Held that:- We uphold the order of Hon’ble DRP, as it has rightly held that as there is no objective basis led by the assessee to support its claim; mere submission that there was underutilization does not discharge the burden upon the assessee. Moreover, the assessee has not given any cogent basis to satisfy the reasons for underutilization. Once the assessee is a software service provider to its AE then there can be no claim on account of under utilization of capacity as it was AE who initiates such expansion. Hence, we reject the ground raised by the assessee. Risk adjustment under Rule 10B(1)(e)(iii) and Rule 10B(3) to account for differences in the risk profile of the comparable companies vis-ŕ-vis the Appellant - Held that:- Where the assessee succeeds in ably demonstrating that the comparables finally selected bore relatively more risk than it, then there should be no denial of the risk adjustment. If, however, the assessee fails in specifically pointing out the extra risks undertaken by the comparables, then, of course, there cannot be any question of granting risk adjustment. Under the transfer pricing regime, onus is always on the assessee to show the reasons for claiming any separate adjustment by pointing out the differences between it and the comparables. Risk adjustment can be allowed provided the assessee places on record some appropriate material to demonstrate that the risk undertaken by the comparable companies were relatively more than it, warranting downward adjustment in their profit rates. Further, the variation in such risks, if any, should be capable of quantification on some reasonable and logical basis. Since the ld. AR has failed to objectively demonstrate the relatively higher risks undertaken by the comparables on an overall basis, we are disinclined to grant any risk adjustment.In view of the foregoing discussion, we set aside the impugned order and remit the matter of determination of ALP of the international transaction of ‘Provision of IT enabled data conversion services’ to the file of TPO/AO for a fresh decision AO/Ld. TPO and the Hon’ble DRP did not erred in not granting the benefit of reduction/variation of 5 percent from the arithmetic mean while determining the arm’s length price to the Appellant as per the proviso to section 92C(2) of the Act.
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