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TMI Blog2020 (6) TMI 428X X X X Extracts X X X X X X X X Extracts X X X X ..... (DRP). Both these appeals were heard together and hence they are disposed of by this common order, for the sake of convenience. 2. The assessee is engaged in software research and development service and also provides sales, and market support services. 3. We shall first take up the appeal filed by the assessee for the assessment year 2011-12. The grounds of appeal urged by the assessee relates to TP adjustment made by the TPO/AO both in Software development segment and Marketing support services segment. In its TP study the assessee adopted TNMM method for software development segment. The turnover of the assessee in Software R & D segment was Rs. 86.44 crores. Rejecting the TP study of the assessee, the TPO selected following nine comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport services segment, the Ld DRP confirmed the order passed by TPO. 6. However, the AO while passing the final assessment order did not exclude the companies that would be hit by turnover filter referred above. The AO was of the view that the ld. DRP did not give any relief to the assessee. Accordingly, the AO sustained the addition of Rs. 990 lakhs, i.e., aggregate amount of TP adjustment made in respect of both the segments. 7. The ld. AR submitted that the AO did not apply turnover filter while passing the final assessment order. He submitted that the companies which are having turnover of more than 200 Crores should be excluded as per the direction given by Ld DRP. He submitted that the following seven companies are liable to be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended by the ld. AR, then it shall lead to a position of stalemate, since both T.P study of assessee and the TPO's order do not survive. Accordingly he submitted that, if the contentions of the assessee with respect to the comparables selected by TPO are accepted, then the entire matter should be restored to the file of the TPO for selection of fresh set of comparable companies for determining ALP of international transactions. 9. We have heard the rival contentions and perused the records. The TPO had selected nine comparable companies and all the nine companies are liable to be excluded applying turnover filter and also following orders passed by the co-ordinate benches. Under this situation, we are of the view that there s merit in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopting the TNMM Method has erred in ignoring the operating margin as submitted by the appellant and computing the ALP on the entire operating costs incurred by the appellant failing to appreciate that the arm's length price ought to be computed only for the international transactions and not on the basis of costs incurred by the appellant. Accordingly, the remaining grounds are dismissed as not pressed. 12. The ld. AR submitted that the assessee has stopped operations during the year under consideration in the month of May. Hence, all its revenue generated during the year under consideration pertains to the first two months of the year, i.e., April and May months only. Accordingly, the assessee computed its operating margins the by cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in subsequent months, where no revenue was generated, would result in distorted picture. 14. Hence there is merit in the contentions of ld. AR that the expenditure incurred during the first two months should alone be considered for arriving at the profit, in view of the fact that the assessee has stopped the operations in the month of May. However, if it is found that any of the expenditure relating to the first two months has been accounted for by the assessee in any of the subsequent months, then the said expenditure should also be taken into account for determining the operating profit of the first two months. 15. Accordingly, for the reasons discussed above, we hold that the TPO was not justified in considering the operating resul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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