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2018 (3) TMI 940

vel profitability of assessee - assessee had applied man-hour basis for preparing segmental details of AE segment - Held that:- The assessee has filed on record the copies of orders of TPO / Assessing Officer in this regard. In the totality of the above said facts and circumstances, we hold that while benchmarking international transactions of provision of services to Tieto Group companies by the assessee, the segmental details of AE segment need to be applied and not the results at entity level are to be applied. The assessee had applied a systematic manner of allocating the expenses to the AE segment i.e. on the basis of man-hour which is accepted method of allocation of cost. - The same has also been applied under APA agreement signed by the assessee. Further, the assessee has also explained in detail the allocation of other costs either on actual basis or turnover basis and the same cannot be rejected. Accordingly, we reverse the order of Assessing Officer / TPO in applying the margins at entity level and direct to accept margins shown in segmental profitability of AE segment by the assessee. The case of assessee is that in case the segmental profitability of AE segment is .....

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0-11 while determining the taxable income for AY 2010-11. The Assessee prays that the Ld. AO be directed to consider the business loss of ₹ 4,14,79,881 pertaining to AY 2010-11 while determining the taxable income for AY 2010-11. Ground No. 3: On the facts and circumstances of the case and in law, the Ld. AO following the directions of the Ld. Dispute Resolution Panel ('DRP') has erred in disregarding the transfer pricing analysis conducted by the Assessee and consequently erred in making the transfer pricing adjustment of ₹ 9,61,57,054 in respect of Assessee s international transactions. The Assessee prays that the Ld. AO be directed to delete the transfer pricing adjustment of ₹ 9,61,57,054. Ground No. 4: On the facts and circumstances of the case and in law, the Ld. AO following the directions of the Ld. DRP has erred in disregarding the segmental information pertaining to the transactions with associated enterprise ('AE business') and transactions with third parties ('Non-AE business') and consequently erred in considering the operating margin of the Assessee at an entity level while determining the arm's length price of the interna .....

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ng only single year financial data which was not available in public domain at the time of conducting the transfer pricing analysis. The Assessee prays that the Ld. AO be directed to consider multiple year data while determining the arm's length price for the international transactions. Ground No.11: On the facts and in the circumstances of the case and in law, the Ld. AO following the direction of the Ld. DRP has erred in computing transfer pricing adjustment on the basis of entity level turnover instead of computing the adjustment only with respect to the revenue from international transactions of the Appellant following the principle of proportionality. The Assessee prays that the transfer pricing adjustment, if any, should be computed on a proportionate basis. Ground No.12: On the facts and in the circumstances of the case and in law, the Ld. AO has erred in computing the transfer pricing adjustment while passing the final assessing order. The Assessee prays that correct amount of transfer pricing adjustment, if any, should be computed. All the above grounds are independent and without prejudice to one another. 4. The Revenue in ITA No.335/PUN/2015 has raised the following .....

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rformed, risk undertaken and the assets employed, took note of filters selected by the assessee. However, the TPO proposed application of different filters and issued show cause notice to the assessee. The PLI working was also re-computed considering the Forex loss as non-operative. The assessee objected to the same. The second proposal of the TPO for working of PLI was to consider the same at entity level. The case of the assessee before the TPO was that PLI with reference to work carried out with associated enterprises was 21.92% and with non-associated enterprises was (-) 24.85%. The TPO further observed that the auditor in the audit report had not given segmental account as provided by the assessee with regard to its work with associated enterprises and non-associated enterprises. The basis of cost allocation between associated enterprises and non-associated enterprises by the assessee was based on hours in respect of man power cost; and at actuals in respect of administration and other overheads. The depreciation was based on hours and the financial cost on the basis of exchange gains and losses in the ratio of exports with associated enterprises and non associated enterprises .....

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owever, the plea of assessee in some cases was rejected. Further, certain directions were given by the DRP on account of different economic adjustments. The Assessing Officer / TPO in view of the above directions of DRP, drew final set of comparables which are enlisted at page 4 of the assessment order passed under section 143(3) r.w.s. 144C of the Act, dated 30.01.2015. The mean margins of comparables worked out to 20.67% as against PLI of assessee at 12%. In view thereof, adjustment on account of transfer pricing of ₹ 9,61,57,054/- was made to the income of assessee. 8. The assessee is in appeal against the order of Assessing Officer / DRP. However, before us it has raised several grounds of appeal regarding inclusion / exclusion of comparables but had restricted the arguments only to the issue of application of segmental details pertaining to transactions with associated enterprises as against the order of Assessing Officer / TPO / DRP in considering the operating margins of assessee at entity level. The Revenue is in appeal against directions of the DRP in excluding Infosys Technologies Ltd. 9. The learned Authorized Representative for the assessee while referring to the .....

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ee was incurring losses. Our attention was drawn to page 7 of the DRP s order in para 7.5.2, wherein cost was allocated to associated enterprises and non-associated enterprises and then the margins were worked out. The learned Authorized Representative for the assessee further referred to Advance Pricing Agreement (APA) and document placed at page 30 of the Paper Book to point out that APA had accepted man hour allocation in the later years. He stressed that if segmental profitability was accepted then the margins of international transactions would be within range. Reliance was placed on the decision of the Pune Bench of Tribunal in Visteon Engineering Center (India) Pvt. Ltd. Vs. DCIT in ITA No.331/PN/2014, relating to assessment year 2009-10, order dated 11.04.2016 and Mumbai Bench of Tribunal in DCIT Vs. Technimont ICB Ltd. in ITA No.1820/Mum/2015 along with CO No.68/Mum/2015, relating to assessment year 2010-11, order dated14.09.2016. The learned Authorized Representative for the assessee also filed on record the intimation received under section 143(1) of the Act for assessment year 2009-10, wherein the assessee had undertaken similar transactions on account of associated ent .....

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ee that international transactions were at arm's length. The TPO however, rejected the approach adopted by assessee i.e. segmental profitability of AE segment and benchmarked the international transactions by considering the entity level profitability of assessee. The first argument which has been raised by the assessee is that there is no merit in applying entity level results in order to benchmark the international transactions of provision of software services to overseas associated enterprises. The case of assessee in this regard was that the assessee was incorporated to provide the services to third parties i.e. non-associated enterprises. However, since it had surplus available workforce and other resources, services were also provided to associated enterprises and the revenue from AE segment comprised 43% of total revenue. The assessee claims that the operating margins of AE segment had to be compared with the mean margins of comparables finally selected in the case of assessee. It may be put on record that the assessee has raised various grounds of appeal against selection and exclusion of comparables by the TPO and applying the margins of said finally selected companie .....

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e case of assessee is that in case the segmental profitability of AE segment is applied, then the margins shown by the assessee are within +/- 5% range of mean margins of comparables as worked out by the TPO and no adjustment needs to be made on account of international transactions undertaken by the assessee. Accordingly, we hold so. 13. Before parting, we may also point out that in similar circumstances as in the year of appeal before us, no TP adjustment has been made on this count in any of the years both preceding and succeeding; in some cases there is no TP reference also. We have gone through the assessment orders and orders passed by the TPO in this regard starting from assessment year 2009-10 to 2014-15 which are placed on record and there is no adjustment was made in this regard. Accordingly, we find no merit in the order of Assessing Officer / TPO for the instant assessment year in rejecting the accepted method of applying segmental details of AE segment for benchmarking the international transactions with associated enterprises. 14. Another issue which is raised by the Revenue is against rejection of concern on turnover basis. Though the ground of appeal raised by the R .....

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