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TMI Blog2014 (11) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... mount has been shown to be recovered from Juno Online - Total generator expenses/power charges were not placed before us so as to examine whether 50% of the expenditure was only charged to Juno recoveries and not 100% - in order to examine the nature and extent of expenditure and the vouchers therein, the matter is remitted back to the AO for examination of nature of expenditure and if the expenditure was spent on behalf of Juno Online, then the expenditure not recovered from the said company has to be excluded – Decided in favour of assessee. Option of +/- 5% - Held that:- There is no need to make any claim of the statutory provision - In case ALP determined after due analysis is within +/- 5% range as provided in the proviso to section 92C(2) - AO/TPO is bound to give the benefit to the assessee - There is no need to make any separate claim - Since assessee has shown ALP within the range, there is no requirement of making a claim in its T.P. study, CIT(A) erred in observing that assessee has not made the claim before the TPO - TPO/AO is directed to keep this statutory provision in mind while arriving at the addition, if any, required - this +/- 5% is not a standard deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin arms length. While doing so, it excluded amount of ₹ 29,44,130 representing irrecoverable amount of expenses receivable from M/s. Juno Online Services P. Ltd., for computing operating profit margin. Assessee arrived at the profit margin at 12% on total cost. TPO however, did not accept this contention. While re-determining the cost incurred by assessee, TPO also made a detailed analysis of various comparables and selected seven comparables whose arithmetic mean of profit came at 17.27%/ after giving 0.5% adjustment to take into account the differences, the average profit margin of 16.77 was adopted by the TPO to arrive at the ALP and proposed an amount of ₹ 77,86,574 as an addition vide his order dated 20th February, 2006. Following the same, A.O. added the amount to the total income of the assessee. In view of provisions contained in section 92C(4) proviso, deduction at 10A was not allowed on this addition. 3. Being aggrieved, assessee has taken-up the matter before the Ld. CIT(A). Ld. CIT(A) while considering the risk adjustment, enhanced risk adjustment to 1% as against 0.5% given by A.O. and directed the A.O. to exclude three comparables namely M/s. SAARC Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on before the TPO that assessee had a Cost Reimbursement Agreement with M/s. June Online Service Development P. Ltd., who is sharing premises for which certain costs are commonly spent by assessee but being reimbursed by the said company. It has placed the agreement before the TPO. It was submitted by assessee that it has incurred total cost of ₹ 38,78,574 towards electricity, generator expenses, repairs and maintenance, telephone, security, pest control and coffee, tea etc., expenses on behalf of M/s. Juno Online and has recovered only an amount of ₹ 9,34,444. The balance amount of ₹ 29,44,130 was not recovered and therefore, the operating cost incurred on behalf of Juno Online cannot be considered as operating cost for the services rendered to A.E., since it is a domestic expenditure not connected with assessee's activity. TPO, however, did not accept the contention on the reason that (a) that assessee has not taken any steps to recover the amount (b) that the amount has not been charged to P L account and (c) on verification from statements of Juno Online Services, there is no such claim of expenses payable to assessee company. Accordingly, TPO did not al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower expenses placed at page 79 indicates expenditure from 8th April, 2002 to 9th January, 2003 to the extent of ₹ 29,93,214. The entire amount has been shown towards Juno Online recovery. Likewise, generator charges at page 80 from 11th April, 2002 to 16th January, 2003 were shown to have been paid to Sunil Service Station amounting to ₹ 78,806 and the entire amount has been shown to be recovered from Juno Online. Total generator expenses/power charges were not placed before us so as to examine whether 50% of the expenditure was only charged to Juno recoveries and not 100%. Therefore, in order to examine the nature and extent of expenditure and the vouchers therein, the issue is restored to the file of A.O. who should examine the nature of expenditure and if this expenditure was spent on behalf of Juno Online, then the expenditure not recovered from the said company has to be excluded. Therefore, for actual verification of the expenditure involved therein, the matter is restored to the A.O. who should examine the expenditure and allow assessee's contentions accordingly. With these directions, ground No.4 of the assessee is allowed for statistical purposes. OPTIO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by the TPO/A.O. In fact, in page 121 of the TPO order, learned TPO mentions margin on sales of E.Star at 27.24% and margin on cost at 32.82%. However, the basis for arriving at those figures are not available. As seen from the details filed by assessee, operating cost was arrived at ₹ 19.04 crores and operating profit at ₹ 4.81 crores thereby, OP/OC at 25.28%. Since, there is a substantial variation between the margin computed by assessee vis- -vis computation by TPO, we are of the opinion that this aspect requires re-examination by TPO/A.O. The TPO/A.O. should examine how the margin on cost was arrived at and give an opportunity to assessee to file its objections and then arrive at the correct margin on cost, so as to include the same in arriving at the ALP. Needless to say, that assessee should be given an opportunity to explain the working. Accordingly, additional ground of the assessee is considered allowed for statistical purposes. ITA.No.486/Hyd/2007 - Revenue Appeal 13. Revenue in its appeal in ground No.2 has objected to the exclusion of M/s. Zen Technologies Ltd., from the list of comparables considered by CIT(A). It was the assessee's objection b ..... 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