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TMI Blog2017 (6) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... rice u/s 92CA(3) amounting to Rs. 52,57,418/-. 2. That the Ld. CIT(A) has erred in not considering the arguments put forth by the TPO in his order that in so far as application of CUP to the international transaction between assessee and Calance US for an independent contract is concerned. 3. That the Ld. CIT(A) has erred in not taking cognizance of the aberrations/differences between the agreement with Vision gain and that with Calance US, as pointed out by the TPO in para 6 on page 4 of the order while rejecting CUP method of the assessee. 4. That the Ld. CIT(A) has erred in his observation that under TNMM the margin between the comparables and the assessee is similar is also erroneous. The ld. CIT(A) has taken the total cost at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h US $ 1,57,739 which was rendered by the assessee to Calance US". It was also noted, in this context, that "the assessee has reported that identical services have been provided to a company (independent enterprise), namely Vision Gain (at a lower price), and, therefore, these services were also (stated to be) at an arm's length price". It was also noted that the benchmarking has been done on the basis of Comparable Uncontrolled Price (CUP) method. The Transfer Pricing Officer, however, did not approve the stand so taken by the assessee. The TPO was of the view, inter alia, that the CUP in not the most appropriate method on the facts of this case as the functions of the assessee company vis-à-vis Calance US are different inasmuch as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action or by an independent enterprise". He then proceeded to adopt TNMM, as the most appropriate method, for benchmarking these transactions. Based on the selection of comparables, which, for the reasons we will set out in a short while, we need not deal with in detail, an arm's length price margin of 25.32% was computed. Taking the cost base at Rs. 2,82,29,264, the arm's length price of the software development services was computed at Rs. 3,53,76,914- as against the price of Rs. 3,01,19,496 on which the services were actually rendered. Accordingly, an ALP adjustment of Rs. 52,57,418 was made. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) was of the view that when a reasonable CUP input, as in the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer is thus the best CUP input in respect of such a back to back transaction. If a unit sells a product to its AE for INR 100 and the AE sells the same product to an independent enterprise for INR 100, the intra AE transaction cannot but be termed as the arm's length transaction. The stand of the revenue however is that, as evident from FAR analysis, the functions performed by the Calance US are far more comprehensive, the assets employed Calance US are much more and risks assumed are much higher. What is, however, overlooked that this FAR analysis has to be with respect to the particular transaction, and when transaction is exactly the same, there cannot be any occasion for the FAR of the transaction being any different. In principle, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this nature in the US market. Learned counsel for the assessee was also fair enough in not contesting these facts, particularly with respect to a single comparables of small size and in respect of a new market that the assessee was trying to enter, but he did state that even if this CUP input is ignored, there will not be any need of ALP adjustment because the margin on this transaction, when computed correctly, will be comparable with the arm's length margin computed by the TPO. However, we have noted that this aspect of the matter has not been dealt with by the CIT(A) in sufficient detail, by way of a speaking order, and all that the CIT(A) has stated that the total costs of software development comes to Rs. 2,40,57,988. As evident from o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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