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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 ..... mental Representative, is a distinction without any difference. It is also incorrect to proceed on the basis, as has been doen by the TPO, that when TNMM in puts are available, the application of CUP can be rejected. CUP is not a residuary method. As a matter of fact, when perfect CUP inputs are available- as in this case in respect of back to back transaction, that is the best and inherently most suitable method, as it is a direct method and it hardly leaves any scope for distortion of results by extraneous factors. We reject the plea of the learned Departmental Representative on this point. So far as transaction of rendering software development services for US $ 1,57,739 to Calance US is concerned, we have noted that there is only one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2007-08. 2. Grievances raised by the appellant, which we will take up together, are as follows: 1. The Ld. CIT(A) erred on facts and in law in deleting the addition made on account of Arm s Length Price u/s 92CA(3) amounting to ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on to the assessee . The stand of the assessee was that since these are back to back transactions, these transactions are required to be taken as having been entered into at an arm s length price. As regards the third transaction, as noted by the TPO, there were some direct software development services also worth 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of CUP method on the facts of this case. He also observed that when reliable method viz TNMM is available, then there is no need to go to CUP especially when reliable data of the comparable cases is not available for ascertaining the man hourly charges for identical or near identical services in an uncontrolled transaction 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 ₹ 2,82,29,264, the arm s length price of the software development serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered facts of the case as also the applicable legal position. 5. We find that, so far as the back to back transactions are concerned, the services rendered by the assessee to the AE are exactly the same as, in effect, rendered by the AE to the independent transaction. The price charged for the same service by the AE to the independent end 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is only one comparable available, and that too, as learned Departmental Representative rightly points out, was at an exceptionally lower rate as the assessee was trying to enter a new market. This solitary transaction, according to the learned Departmental Representative, cannot be said to be representative of the commercial transactions of 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 compu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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