TMI Blog2017 (9) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... vide proper services as manifest from the agreement with the client. Thus it is apparent that the services of the assessee were not better than the earlier provided by Tata Communications to the AE of the assessee and therefore, the contention of the ld. AR is devoid of any substance or merit. Further in case CUP is adopted as a MAM the question of non-utilisation of network and corresponding adjustment on account of lease, charges would not arise. Accordingly, in the facts and circumstances of the case, when direct CUP between the AE and Tata Communications from whom the assessee has taken the network on lease is available then the ALP has to be computed under CUP. We further note that it is the stand of the assessee that the assessee as well as the TPO has accepted the TNMM as MAM. However when the assessee has expressed its helplessness to compute the margins separately in respect of the international transactions then the direct CUP available in case of the assessee would be an appropriate method of determination of ALP. Also the assessee claimed to have taken the network on lease from Tata Communications however the agreement filed before us by the assessee is with Tata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s length price of the international transactions of the Appellant without taking into cognizance that the Appellant is a start-up company and the current financial year was the first year of the operations of the Appellant. 4. That on the facts and circumstances of the case and in law, the learned CIT (A) has grossly erred in denying the start-up cost adjustment by erroneously holding that such adjustment can be made only to the financial of the comparable companies and not on the operating margin of the Appellant. Without prejudice, the CIT (A) has also erred in not appreciating the start-up adjustment workings submitted by the Appellant on the financial results of the comparable companies. 5. That on the facts and circumstances of the case and in law, the learned CIT (A) has erred in concluding that the unutilized capacity cost incurred by the Appellant is a deemed international transaction under Section 92B(2) of the Act. In doing so the CIT (A) has erred in not appreciating the fact that both the Appellant and third party telecom operators are Indian Companies and thus, provision of Section 92B(2) is not applicable which requires third party companies to be a non-re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n capacity is provided by C W Global. During the year under consideration, the assessee rendered the services, description of which has been reproduced by the TPO in para 3.1.1 as under: 3.1.1 Services rendered by CWNIPL Brief descriptions of the services rendered by CWNIPL are as follow: * Bandwidth Connect (IPLC)- BC are digital transmission channels of defined bandwidth between two fixed points-one in India, connected to the CWNIPL network and another outside India, connected to the clients/C W Global network. This product offers dedicated, fixed, point-to-point, digital transmission channels available for a specified annual rental, regardless of the degree of use. Circuits can carry data, digitised voice, fax, video or any other form of digital transmission, at bandwidths from 64 kbit/s to 55Mbit/s. * Internet Protocol Virtual Private Line (IP-VPN)- IP-VPN is a high-speed, global IP network service. It can provide an economical virtual private network (VPN.) connecting all sites via the secure dedicated network infrastructure of CWNIPL. * Managed Private Line (MPL) - The managed private Line is a managed, digital fiber, private circuit service. Managed Private Line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Recovery- of expenses 31,608,117 To benchmark its international transactions, the assessee adopted TNMM as MAM and compare its entity level margin with mean margins of the comparables. Further while computing its margin, the assessee made an adjustment on account of capacity under-utilisation to the tune of ₹ 17,87,13,000 out of the total lease charges of ₹ 36 Crores on the ground that it is first year of operation and this part of the lease charges paid to Tata Communication are not utilized during the year under consideration. As per the assessee, during the year under consideration the connectivity infrastructure was in the development stage and setting up of POPS was not yet installed. The TPO noted that prior to the incorporation of the assessee, the AE of the assessee was availing services from Tata Communications and the same service continued with only difference that the assessee became the lease holder of the network owned by Tata Communications. Thus the assessee entered into the shoes of the Tata Communications and raised bills on C W Global, the AE of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of margin regarding the transactions with AE is not possible as the allocation of certain expenses is not possible. The learned Authorised Representative has further submitted that the entity level margin was considered and accepted by the TPO. In support of his contention, he has relied upon the Hon'ble Delhi High Court in the case of CIT v. Keihin Panalfa Ltd. [2016] 381 ITR 407 2016 (5) TMI 203 . The learned Authorised Representative has then referred to clauses 2.1 and 2.2 of the agreement under which the services to be provided to the clients and submitted that the assessee was still in the testing phase of its system and infrastructure and therefore the entire bandwidth taken on lease from Tata Communications was not utilized during the year. The learned Authorised Representative has then referred to the findings of the CIT (Appeals) in para 8 of the impugned order and submitted that while upholding the action of the TPO, the CIT (Appeals) also directed the TPO to verify the fact whether all the local companies to whom payments were made by the assessee were in prior contract with the AE of the assessee. Thus the learned Authorised Representative has subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international transactions shall be computed having regard to the ALP. Therefore the income from international transactions has to be computed as per the ALP determined on the basis of one of the method provided under Section 92C of the Act and in the manner provided under Rule 10B Rule 10C of the IT Rules. In the case on hand, the assessee has carried out transactions with AE as well as non-AE therefore, the income of the transaction with AE has to be computed by comparing the same with ALP so determined as per the provisions of sections 92C and 92CA of the Act along with Rule 10 of the I.T. Rules. The non-AE transaction of the assessee are domestic and carried out in a different geography than the international transaction. Thus the domestic transaction with non-AE are entirely different in nature from the international transactions and hence cannot be clubbed together for computation of income of the international transactions as mandated by Section 92(1) and 92C of the Act. Hence we are of the considered opinion that entity level results comprising of international transactions and domestic transactions cannot be considered for the purpose of testing the price of the interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in case of the assessee would be an appropriate method of determination of ALP. We further note that the assessee claimed to have taken the network on lease from Tata Communications however the agreement filed before us by the assessee is with Tata Teleservices Ltd. (TTL)/Tata Teleservices (Maharashtra) Limited (TTML) and not Tata Communications Limited. Therefore this aspect is required to be verified properly. Hence when the assessee has substituted the Tata Communications Ltd. in providing the services to the AE then the CUP would be the MAM. Accordingly, we set aside the matter to the record of the TPO for determination of the ALP on the basis of CUP. The assessee has to provide all the relevant material, record and details including the agreement between the Tata Communications Ltd. and AE. Even otherwise, the TPO can requisition the information under Section 133(6) of the Act and then determine the ALP in the light of above findings. 9. For the Assessment Years 2010-11 and 2011-12, the assessee has raised common grounds as under: 1. That on the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the rectification order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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