TMI Blog2020 (2) TMI 1642X X X X Extracts X X X X X X X X Extracts X X X X ..... erprises and that associated enterprises undertakes all risk related to service provided by assessee. TPO considered assessee to be a contract service provider, assuming minimal risk, which is contrary to the business model of assessee. We agree with contention of Ld.AR that Ld.TPO conducted TP analysis on erroneous understanding of business model of assessee, and comparables selected by Ld.TPO cannot be looked into. Adjustment made by Ld.AO on the proposed adjustment by Ld.TPO should be revisited de novo. Accordingly, we set aside all issues raised by assessee on transfer pricing issues to Ld.AO/TPO. LD.AO/TPO is directed to carry out transfer pricing analysis having regard to the business model of assessee. It is also directed that comparables selected should be functionally similar with assessee, having similar business model like assessee. Assessee is directed to produce all relevant documents to bring out its role in providing services to the parties situated outside India. Ld.TPO is also directed to grand working capital adjustments in comparables in actual where ever necessary, for computing correct margins of comparables. Disallowance u/s 14A - HELD THAT:- As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and products 12,06,78,01,00/- CUP Third-party billing 1,83,38,86,422/- CUP Total 1,20,67,80,100/- 1,84,03,07,432/- 5. It has been submitted by Ld.AR that Ld.TPO carried out analysis of international transaction without understanding business model of assessee. 6. Ld.TPO rejected analysis carried out by assessee and observed that functions of assessee was to develop software/providing software services, as was in previous year. Ld.TPO observed that in previous year, assessee chose TNMM as most appropriate method in transfer pricing analysis, whereas for current year, though there is no change in business scenario, and that assessee was providing same kind of services to both AE and non-AE, CUP has been used. Ld.TPO therefore rejected CUP, instead, considered TNMM for determining ALP of the transaction. Ld.TPO applied filters for determining set of following 8 comparables, with an average margin of 29.40%: Sl. No. Comparables selected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,92,074/- in Chennai unit and Hydrabad unit from export turnover. 10. Aggrieved by additions made by Ld.AO/TPO in draft assessment order, assessee raised objections before DRP. DRP simply upheld findings of Ld.TPO in respect of transfer pricing issues, however excluded ICRA Techno Analytics Ltd. DRP also held that, since assessee did not have any provision for doubtful debts during the year under consideration, objection in relation to treating it as operating item in respect of comparables was rejected. 11. Upon receipt of directions from DRP, Ld.AO passed impugned assessment order, against which assessee is in appeal before us. Ld.AR submitted that assessee do not wish to press Grounds 1, 2.1, 2.2., 2.3. Accordingly, these ground stands dismissed as not pressed. 12. At the outset, Ld.AR submitted that entire transfer pricing analysis carried out by Ld.TPO is without understanding the business model of assessee. He narrated the business model of assessee as under: 13. At the outset, Ld.AR submitted that assessee is the holding company of its subsidiaries located in USA and Japan. For all part practical purposes, the subsidiary companies in USA and Japan ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments it is clear that assessee bares all risk related to services rendered, whereas subsidiary AE s only. On the contrary, authorities below assumed that assessee is working on a cost-plus model with associated enterprises and that associated enterprises undertakes all risk related to service provided by assessee. 18. We observe that, Ld.TPO considered assessee to be a contract service provider, assuming minimal risk, which is contrary to the business model of assessee. We agree with contention of Ld.AR that Ld.TPO conducted TP analysis on erroneous understanding of business model of assessee, and comparables selected by Ld.TPO cannot be looked into. 19. We are therefore of opinion that, adjustment made by Ld.AO on the proposed adjustment by Ld.TPO should be revisited de novo. Accordingly, we set aside all issues raised by assessee on transfer pricing issues to Ld.AO/TPO. LD.AO/TPO is directed to carry out transfer pricing analysis having regard to the business model of assessee. It is also directed that comparables selected should be functionally similar with assessee, having similar business model like assessee. 20. Assessee is directed to produce all relevant documents ..... X X X X Extracts X X X X X X X X Extracts X X X X
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