TMI Blog2017 (12) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances of the case as discussed from paras 4.1 to 4.8.2 of this order (supra), we deem it appropriate to set aside the orders of the authorities below and remand / restore the entire issue of TP comparability analysis to the file of the TPO/A.O. to decide the matter afresh, including the determination of the MAM and the comparable companies - I.T. (T.P) A. No.1760/Bang/2013 And I.T. (T.P) A. No.1858/Bang/2013 - - - Dated:- 3-11-2017 - SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For The Assessee : Shri K.R. Vasudevan, Advocate For The Respondent : Smt. Padma Meenakshi, JCIT (D.R) ORDER Per Shri Jason P Boaz, A.M. : These are cross appeals, by the assessee and Revenue, directed against the order of Commissioner of Income Tax (Appeals)-IV, Bangalore dt.11.10.2013 for the Assessment Year 2002-03. 2. Briefly stated, the facts of the case are as under : 2.1 The assessee, a company that renders software development services to its Associated Enterprises (AEs), filed its return of income for Assessment Year 2002-03 on 30.10.2002 declaring income of ₹ 9,08,420 after claiming deduction of ₹ 59,53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason. 6. Notwithstanding and without prejudice to the contention that the comparable companies identified by the appellate has to be considered for determining the arm's length price of the international transaction, the Learned CIT (A) has erred in: i. adopting the comparable companies identified for M/s. Sun Microsystems India Private Limited for AY 2002-03 for determining the arm's length price of the international transactions entered into by the appellant and without analyzing whether the comparable companies are functionally comparable to the appellant. ii. adopting the comparable companies identified for M/s. Sun Microsystems India Private Limited for AY 2002-03 for determining the arm's length price of the international transactions entered into by the appellant without analyzing whether the Functions, Assets and Risks of Sun Microsystems India Private Limited are similar to that of the appellant; iii. adopting the comparable companies identified for M/s. Sun Microsystems India Private Limited for AY 2002-03 for determining the arm's length price of the international transactions entered into by the appellant without providing any op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeal. 4.1 Before proceeding to address the grounds of appeal raised by the assessee and revenue (supra), the brief facts related to the TP issues are summarized hereunder : 4.2 The assessee company is engaged in the provision of software development services to its AEs. For the year under consideration, the assessee has reported that it has entered into the following international transactions : Sl. No. International Transaction Value (Rs.) 1 Provision of Software Development Services. 7,48,91,856 2 Marketing Services. 2,07,67,512 3 Reimbursement of communication expenses received. 25,00,627 4.3 The assessee carried out a TP Study in respect of the international transactions reported adopting TNMM as the Most Appropriate Method (MAM). Based on the comparability analysis conducted, the assessee identified 6 companies as comparable companies to the assessee with the Profit Level Indicator (PLI) at 10.79%. Since the assessee profit margi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MAM by the assessee and adopted CUP method as the MAM by merely stating that TNMM is not the appropriate method without giving any reason or rationale for the same. It is submitted that after having adopted CUP as the MAM the TPO has arbitrarily adopted certain rates for on-site and offshore works, without undertaking any comparability analysis. It is contended that the TPO has not detailed as to how the rates per man hour were worked out and how these rates are applicable to the assessee in the case on hand. 4.6.2 In respect of the impugned order of the learned CIT (Appeals), the learned Authorised Representative submitted that it suffers from various infirmities both on principles and procedure, and in this regard contended as under : (i) At para 4.4 of the impugned order, the learned CIT (Appeals) has observed that - Adjustments made on account of the arm s length price by the tax authorities can be deleted in appeal only if the appellate authorities are satisfied and record a finding that the arm s length price submitted by the assessee is fair and reasonable. Merely by finding fault with the transfer price determined by the revenue authorities additions on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded, without specifying which of the companies are not functionally comparable to the assessee. 4.6.3 The learned Authorised Representative of the assessee submitted that in view of all the above infirmities and errors pointed out in the orders of the TPO and learned CIT (Appeals), the impugned order of the learned CIT (Appeals) ought to be set aside. 4.7 The learned Departmental Representative for Revenue also assailed the impugned order of the learned CIT (Appeals) on almost similar grounds as those submitted by the assessee. According to the learned Departmental Representative, the directions contained / issued by the learned CIT (Appeals) in the impugned order virtually amounts to setting aside the order of assessment, which is beyond the scope and mandate of the powers of the CIT (Appeals). The learned Departmental Representative also contended that if any criteria / filter is relaxed, then the entire set of comparable companies will get changed; thereby implying that the entire TP comparability analysis exercise requires to be carried out afresh. 4.8.1 We have heard the rival contentions, perused and carefully considered the material on record; including the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace of TNMM adopted by the assessee without rendering any finding or reasoning as to why TNMM was rejected and CUP Method was adopted. The TPO has merely stated that TNMM is not the appropriate method and that CUP is the appropriate method. We also find that the TPO has adopted certain rates for offshore and on-site work without assigning any reasons as to how these rates are applicable to the assessee's case, which is sine quo non for applying CUP method. We also notice that the TPO has adopted TNMM as the MAM in the subsequent assessment year 2005-06 in the case on hand, as seen from the documents placed at pages 7 to 41 of the paper book. This, however, cannot be the reason or basis for deciding the MAM in the year under consideration. 4.8.3 Taking into consideration the facts and circumstances of the case as discussed from paras 4.1 to 4.8.2 of this order (supra), we deem it appropriate to set aside the orders of the authorities below and remand / restore the entire issue of TP comparability analysis to the file of the TPO/A.O. to decide the matter afresh, including the determination of the MAM and the comparable companies. Needless to add that the assessee shall be af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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