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2019 (2) TMI 104 - AT - Income TaxTPA - ALP determination - assessee was charging cost plus 18% markup to its associated enterprises under the said software distribution segment - as per assessee where the assessee was remunerated at cost plus basis for providing the services to its associated enterprises, then there is no merit in making any adjustment in the hands of assessee - re-allocation of cost - Held that:- In assessment years 2011-12 and 2012-13, re-allocation of cost has been carried out and the analysis filed by the assessee has been accepted as such. This was the position in assessment year 2013-14 despite the fact that in earlier years i.e. assessment years 2011-12 and 2012-13, margins of assessee were re-allocated and upward adjustment on account of international transactions was proposed in the hands of assessee. So, following the principle of consistency, cost allocation method which has been regularly followed by the assessee in allocating the cost to the software distribution segment need not be disturbed and the margins declared by assessee in its transactions with its associated enterprises should be accepted as the said margins are higher than the margins of selected comparables. Where the TPO himself has considered the cost incurred on sales & marketing, delivery services and client care cost centres to be attributable to distribution segment and where the assessee had re-charged cost with 18% markup to its associated enterprises, then cost plus revenue related to the aforesaid cost should also be attributed to the distribution segment. It is not disputed that the TPO had accepted the assessee’s segmental bifurcation to arrive at TP adjustments. The cost allocated to software distribution segment had neither been challenged nor been disturbed by TPO, wherein the operating cost used by the TPO for margin computation of software distribution segment matches the total expenses in Row AA, column 2, matches operating cost used by TPO for margin computation of software distribution segment. Accordingly, no adjustment is warranted in the hands of assessee under the head ‘software distribution segment’. The arm's length price of software development segment is thus accepted to be at arm's length price. Consequently, the addition made by the Assessing Officer / TPO / DRP is deleted in the hands of assessee. DRP including the concern which was persistent loss making - comparable selection - Held that:- The findings of DRP had held that the finding of Tribunal is that the concern could not be rejected merely on account of having loss situation in the current year. Hence, the DRP directed the Assessing Officer / TPO to include the company Nouveau Global Ventures in the set of final comparable companies. This is the only direction given by DRP in respect of any of the comparables. The concern was excluded as it had losses in the said year but it was not persistent loss making concern and hence, we find no error in the directions of DRP to include the said concern in final set of comparables. The ground of appeal No.1 raised by Revenue is thus, dismissed. Treatment of Forex exchange fluctuations - Held that:- As decided in APPROVA SYSTEMS PVT. LTD. VERSUS CIT(A) -IT/TP AND DCIT, CIRCLE-1(1), PUNE [2015 (3) TMI 151 - ITAT PUNE] Forex exchange fluctuation should be treated as operating income for transfer pricing purposes. Accordingly, we hold that Forex exchange fluctuation is to be held as operating in nature and to be included in the margins of software development segment for computing PLI of assessee. Selection of comparable - Held that:- Companies to be rejected as being functionally not comparable to that of assessee who is in software development services.
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