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2020 (2) TMI 1642 - AT - Income TaxTP Adjustment - business model of assessee - Comparable selection - functions of assessee was to develop software/providing software services, as was in previous year. Ld.TPO observed that in previous year, assessee chose TNMM as most appropriate method in transfer pricing analysis, whereas for current year, though there is no change in business scenario, and that assessee was providing same kind of services to both AE and non-AE, CUP has been used - HELD THAT:- Admittedly, ongoing through agreements entered into by assessee at page 659 of paper book, it is clear that assessee has 2 segments being AE segment and non-AE segment. Associated enterprises are subsidiaries of assessee, and in order to have the ease of business, associated enterprises enter into contract with 3rd parties for providing services. From these agreements it is clear that assessee bares all risk related to services rendered, whereas subsidiary AE’s only. On the contrary, authorities below assumed that assessee is working on a cost-plus model with associated enterprises and that associated enterprises undertakes all risk related to service provided by assessee. TPO considered assessee to be a contract service provider, assuming minimal risk, which is contrary to the business model of assessee. We agree with contention of Ld.AR that Ld.TPO conducted TP analysis on erroneous understanding of business model of assessee, and comparables selected by Ld.TPO cannot be looked into. Adjustment made by Ld.AO on the proposed adjustment by Ld.TPO should be revisited de novo. Accordingly, we set aside all issues raised by assessee on transfer pricing issues to Ld.AO/TPO. LD.AO/TPO is directed to carry out transfer pricing analysis having regard to the business model of assessee. It is also directed that comparables selected should be functionally similar with assessee, having similar business model like assessee. Assessee is directed to produce all relevant documents to bring out its role in providing services to the parties situated outside India. Ld.TPO is also directed to grand working capital adjustments in comparables in actual where ever necessary, for computing correct margins of comparables. Disallowance u/s 14A - HELD THAT:- As per assessee did not have any exempt income during the year under consideration. Only dividend earned by assessee is from investment in foreign banks, which are subjected to tax. Based upon the submissions by both sides, we direct Ld.AO to call for necessary details for verifying the contentions of assessee, and if found correct to allow the claim as per law.
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