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2021 (7) TMI 1308 - AT - Income TaxTP Adjustment - benchmarking the international transactions - segments bifurcation - Software development services /ITES services - As per taxpayer he is engaged in two distinct activities i.e. CSDS and ITES services - HELD THAT:- All the facts substantiate the claim of the taxpayer that it has a full-fledged team of software development engineers to carry out its software development activities and they are carrying out software development activities independently. The taxpayer has also brought on record list of employees working in contracts of contract software development services /ITES services along with the monthly cost of each employee available of the convenience compilation. When we examine this evidence in the light of the order passed by the AO/TPO in AYs 2010-11 & 2011-12, there is no change in the functional profile of the taxpayer company and likewise, there is no change in the international transactions as well as functions performed by the taxpayer. The TPO/DRP/Tribunal have reached the conclusion that because of paucity of evidence the taxpayer has failed to substantiate that it is carrying out activities in two segments viz. CSDS and ITES. When Revenue has been accepting and benchmarking such international transactions in segregated manner in earlier years in taxpayer’s own case and there is no change in the nature of international transactions as well as functional profile of the taxpayer during the year under assessment vis-à-vis earlier assessment years, following the “rule of consistency” as has been held by Hon’ble Supreme Court in Radhaswami Satsang [1991 (11) TMI 2 - SUPREME COURT] we are of the considered view that both the segments viz. CSDS and ITES are required to be benchmarked independently/in segregated manner. How to allocate certain common expenses incurred by the taxpayer in various segments for the purpose of calculation of the gross profit margin? - Keeping in view the evidence brought on record by the taxpayer and following the reasons rendered by Hon’ble High Court of Delhi in case of Fujitsu India Private Ltd. [2019 (2) TMI 1993 - DELHI HIGH COURT] we are of the considered view that ld. TPO should allocate common expenditure incurred by the taxpayer in two segments i.e. ITES & IT segment for the purpose of benchmarking the two separate transactions for calculation of the gross profit margin by applying the “head count” method. In the first round of litigation, ld. TPO in this case had proceeded to benchmark international transactions qua CSDS and ITES segment by adopting aggregated approach. Now, as per our findings returned in the preceding paras, both the segments i.e. CSDS and ITES are required to be benchmarked independently. Ld. AR for the taxpayer as well as ld. DR for the Revenue have contended in one voice that the issue of benchmarking both the segments independently is required to be remanded back to the ld. TPO as the entire exercise of benchmarking international transactions are to be redone. Since the issue of benchmarking the international transactions is required to be examined qua both the segments i.e. CSDS and ITES separately and independently for factual analysis of taxpayer’s TP study, the case is remanded back to ld. TPO who shall determine the ALP of international transactions of both the segments independently afresh after providing an opportunity of being heard to the parties. Consequently, the appeal filed by the taxpayer is allowed for statistical purposes.
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