TMI Blog2017 (4) TMI 1487X X X X Extracts X X X X X X X X Extracts X X X X ..... on as to why CUP method is not most appropriate method in the nature of transactions assesseecompany had with its AE. It was also submitted that TPO has not considered the alternative submissions of the assesseecompany that in case TNMM is adopted as the most appropriate method, same should be applied based on internal comparables rather than external comparables. Now, law is quite settled that internal comparables are more preferable to external comparables. Finally, learned authorised representative of the assessee submitted that the TPO had not considered the submissions of the assessee-company for adjustment towards unutilized capacity. The AO also not followed directions of the DRP while passing final assessment order. In the circumstances, it was prayed that the matter may be restored back to the file of the AO for de novo consideration. CIT(DR) had no serious objections for restoring the matter back to the file of the AO/TPO for fresh analysis of TP study. In the circumstances, we remit the matter back to the AO to consider the above submissions de novo after affording due opportunity of being heard to the assessee-company. - IT(TP)A No.286/Bang/2016 - - - Dated:- 4-4-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . TPO rejected TP study report submitted by the assessee-company and also rejected the CUP method adopted by the assesseecompany. The TPO computed ALP by adopting TNMM as the most appropriate method and proceeded with different set of comparables by applying the following filters: Companies whose data is not available for the FY 2010-11 were excluded. Companies whose Software Development Service and related services is less than 75% of the total operating revenues were excluded. Companies whose software development service income is less than Rs.l crore were excluded. Companies who have less than 75% of the revenue as export sales were excluded. Companies who have more than 25% related party transactions of the sales were excluded. Companies whose employee cost to revenues is less than 25% of the revenues were excluded. Companies having different financial year (i.e., not March 31, 2010) or data of the company does not fall within 12 month period i.e. 01-04-2010 to 31-03-2011, were rejected. Companies who have persistent losses for the last three years upto and including FY 2010-11 were excluded. Companies that are functionally diffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational transaction 24,74,79,636 3. The AO passed draft assessment order dated 17/03/2015 u/s 143(3) r.w.s. 144C of the Act incorporating the above TP adjustments. 4. Being aggrieved, assessee-company filed objections before the DRP contending inter alia that very reference by the AO to TPO for the purpose of determining ALP is not valid in law as the AO failed to demonstrate as to why it was necessary and expedient to do so. It was further contended that since the assessee-company had entered into arrangement with AE on back to back billing there was no question of any ALP in the transaction and also challenging rejection of CUP method adopted by the assessee-company by TPO and rejection of internal comparable and adopting of in-operative filters. The assessee-company also sought the adjustment on account of under-capacity utilization. After considering the submissions of the assessee-company, the DRP held that following 6 companies are not comparable with the assessee-company on the application of upper turnover limit of ₹ 200 crores and confirmed the findings of the TPO: Sl. No. Name of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk and making negative working capital adjustment while computing Arm's length price; and vii. The learned AO/ TPO ha erred in not following the direction of the honourable DRP. The Appellant also filed additional ground for adjustment for under utilisation of manpower and capacity. The issue of adjustment for under utilisation of manpower and capacity was raised before the lower authorities, who were inadvertently the ground did not form part of Grounds of Appeal filed before the honourable Tribunal The Appellant therefore filed the additional Ground and petition for admitting the same. 7. During the course of hearing before us, learned counsel for the assessee vehemently argued that the assessee only exports software development services to AEs as well as non-AEs in USA and domestic clients. Thus KMG USA does extensive marketing and secure contracts with third parties and outsources the same to KMG India on Back to Back basis. The assessee-company serves as an execution centre for contracts won by KMG USA. KMG USA does not retain any margins from the amount billed to end customers. For the services performed by AE, assesseecompany pays commission at 10% for off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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