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2019 (4) TMI 2103 - AT - Income TaxTP Adjustment - action of the CIT(A) in accepting the segment reporting prepared by the assessee company - Revenue alleged that the segment reporting was prepared by the assessee company without having regard to the nature of business - HELD THAT:- As decided in Lummus Technology Heat Transfer BV [2014 (3) TMI 23 - ITAT DELHI] wherein it was held that segmental results could not be rejected on the ground that the same was not audited. The TPO/DRP was required to examine the segmental results if the same were maintained in the ordinary course of business. On perusal of, inter alia, the aforesaid decisions, in the matter of CSR Technology (India) (P.) Ltd [2017 (12) TMI 809 - ITAT DELHI] held that the AO/TPO/DRP erred in disregarding the segmental result of the taxpayer by proceeding to consider the margin of the taxpayer at the entity level for the transfer pricing analysis. Thus we note that there was valid reason for non-disclosure of segment reporting in the audited accounts of the assessee company and submission of segment reporting before the TPO. Therefore, the allegation made by the Revenue in this regard needs to be rejected. Benchmarking approach adopted by the TPO - MAM - Application of entity level TNMM approach - We note that while determining the arm's length nature of the international transaction under the TNMM, the TPO erred in adopting the entity level TNMM approach because the assessee company had undertaken broadly seven different types of revenue generating transactions with varied risks and returns and the provision of software development service to AE was only one of them. The assessee company correctly prepared the segment reporting for the purpose of computing net profit indicator that arose solely from the international transaction under consideration and applied the TNMM only in respect thereof. We accept the ALP analysis undertaken by the assessee company under the TNMM based on the segment report submitted by the assessee company to the TPO which is duly verified and certified by the independent Statutory Auditor of the assessee company. The erroneous benchmarking approach adopted by the TPO needs to be rejected, and therefore, the ground No.1 raised by the Revenue is dismissed. CIT(A) justification in not appreciating the fact that the segmental accounts are liable to be rejected as the assessee is engaged only in one activity - software development - as can be observed from the website of the assessee and there is no mention of engineering services performed as claimed by the assessee company in the Transfer Pricing Study Report, in which it has incurred a loss - Allegation of the Revenue that the assessee company was engaged only in one activity i.e. software development, is erroneous. Therefore, we accept the segment reporting submitted by the assessee company to the TPO and dismiss the ground No.2 raised by the Revenue.
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