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SAS Institute (India) Pvt Ltd. Versus ACIT, Circle 3 (3) , Mumbai

2016 (4) TMI 157 - ITAT MUMBAI

Transfer pricing adjustment - rejecting the CUP / RPA methods adopted by the assessee in respect of "royalty" and other international transactions - Held that:- TPO travelled in the wrong presumption that the assessee used TNMM method for benchmarking the transactions as evident from the language used in the order of the TPO. It is undisputedly wrong as the TP study indicates the application of different methods for different transactions by the assessee, which are already extracted and placed i .....

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ould be given to the assessee and the same is part of the submissions. But, either the AO or the TPO / DRP is bothered to furnish the same. In fact, as seen from para 7.3 of the DRP order, the onus is kept on the assessee by mentioning that the assessee agreed for substituting the TNMM method as an appropriate method, which is not proper. Considering the above deficiencies, inaccuracies and incompleteness, we are of the opinion the matter should be set aside to the file of the TPO / AO for fresh .....

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er of the AP / TPO / DRP for the A for the AY 2008-2009. 2. In this appeal, assessee raised 16 grounds in toto. At the outset, Shri M.P. Lohia, Ld Counsel for the assessee brought our attention to the grounds raised in this appeal and submitted that Ground nos. 1 to 7, 11, 12 and 15 are not pressed. After hearing both the parties, the said grounds are dismissed as not pressed and Ground no.16, being consequential, the same is required to be dismissed as consequential. That leaves, Ground nos. 8, .....

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rent. No transfer pricing adjustment could be made in the appellant‟s case because these extraordinary factors had nothing to do with the international transactions entered into by the appellant with its associated enterprises. 10. The DRP and the AO erred in upholding use of three comparables by the TPO for benchmarking the software licensing segment without appreciating that the said comparables were out of six comparables engaged in providing technical and consultancy services taken by .....

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on. 3. Referring to the above grounds, Ld Counsel for the assessee submitted that these grounds revolve around the following issues viz (i) either the lower authorities are justified in thrusting on the assessee the TNMM method without rejecting the assessee‟s most appropriate method of CUP method; (ii) if the lower authorities are justified in picking up the comparables, which are prim facie functionally distinct and different; (iii) whether the Officers are justified in not restricting t .....

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Royalty paid @ 50% of license 16,57,93,146/- CUP 3. Software licensing expense under 37,06,293/- TNMM 4. Software License Revenue received from global contract 7,18,50,060/- TNMM 5. International expenses fees received 1,16,25,556/- CPM 5. Assessee provided segmental results involving (i) consultancy and training; (ii) software licensing revenue segment. There is no dispute so far as the segmental results of consultancy and training. The dispute is only with reference to the software licensing r .....

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same without giving any justification as to why CUP method is not most appropriate. Consequently, out of the comparables provided in the TP studies, the TPO shortlisted 3 out of the 6 comparables and quantified the adjustments as under:- Comparables margin OP / NS 26.72% Comparables margin OP / OC -31.80% OP -117,821,893 AE Sales 83,475,616 Payments to AE 170,104,111 ALP sale price 99,005,296 Variation (shortfall) 216,827,189 ALP rate of payments to AE 67,523,286/- 7. Assessee reflected loss of .....

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/ NS, the same was rectified and enhanced the adjustment to ₹ 25,34,35,434/-. Subsequently, the said calculations were rectified vide the order dated 9.11.2011 u/s 154 read with section 92CA(3) of the Act. Para 7 of the rectification order is relevant in this regard and the same reads as under:- 7. Thus, overall adjustment in this case is enhanced from previous figure of ₹ 21,68,27,189/- to ₹ 25,34,35,434/- through this rectification. 8. During the proceedings before the DRP, .....

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ed through TNMM. 9. Eventually, DRP issued guidelines u/s 144C(5) of the Act confirming the adjustments made by the TPO / AO vide order dated 22.8.2012. Aggrieved with the above order of the AO / TPO / DRP, assessee filed the appeal before the Tribunal with the above extracted grounds. 10. During the proceedings before us, Shri M.P. Lohia, Ld Counsel for the assessee brought our attention to the above international transactions and submitted that the international transactions at Sl. No.1 being .....

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nature applying the CUP (Comparable Uncontrolled Price) method. In this regard, Ld Counsel for the assessee brought our attention to OECD instruction in support of the above. The contents of Page 67 of the paper book are relevant in this regard and the relevant lines are extracted as under:- .........As per the guidance notice issued by the Institute of Chartered Accountants of India, CUP method can be adopted in case of intangibles and the same is based on the OECD guidelines on the intangible .....

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gment of the jurisdictional High Court in the case of Thyssen Krupp Industries India Pvt Ltd vs. CIT (ITA No.2201/2013), dated 2.12.2015 [page 660 of the paper book is relevant], and submitted that the following question was answered in favour of the assessee. (a) Whether on the facts and in the circumstances of the case and law, the Tribunal was justified in law in restricting the Transfer Pricing (TP) adjustment only to the transaction between the Associated Enterprises (AEs). 12. The answer t .....

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he assessee in view of the above judgment of the Hon‟ble jurisdictional High Court in the case of Thyssen Krupp Industries India Pvt Ltd (supra). Further, Ld Counsel for the assessee submitted that the rejection of the assessee‟s CUP method and RPM method without giving reasons by the TPO / AP is improper and not in the interest of the justice. Explaining the logic, Ld Counsel for the assessee argued that rejection of the assessee‟s comparables on the basis of absence of contem .....

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.3 extracted above prima facie is wrong. He also mentioned that the TPO erroneously held that the assessee applied TNMM method to all the transactions, which is prima facie wrong. In this regard, Ld Counsel for the assessee brought our attention to the contents of para 6 of the TPO‟s order and the same are relevant here. 14. On the other hand, Ld DRs for the Revenue relied on the orders of the AO / TPO / DRP. On the issue of TPO‟s failure to provide reasons in the TPO‟s order w .....

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he TPO / AO, the matter has to be set aside to the file of the AO / TPO. Regarding the comments of the DRP in vide para 7.3 of their order (supra), they are silent on the issue. During the rebuttal time, Ld DR submitted that the matter can be set aside if the Bench so desires. 15. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant paper books filed before us. The undisputed facts are that the TPO has not given any reasons for rejecting the CU .....

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rder. The aggregation approach of benchmarking the international transactions by the TPO is not sustainable as per the today‟s legal position. It is a trait law that the transactions have to be independently benchmarked applying the appropriate method in benchmarking of the transactions. We also perused the submissions of the assessee before the TPO wherein it was categorically submitted by the assessee that the reasons for rejection of the CUP and RPA methods should be given to the assess .....

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