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TMI Blog2018 (4) TMI 383X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions with non-AEs, we cannot countenance such a point of view. Hon’ble Delhi High Court in CIT VS. Keihin Panalfa Ltd. (2016 (5) TMI 203 - DELHI HIGH COURT), in which it has been held that the transfer pricing adjustment can be made only with reference to the international transactions and not the transactions with the non-associated enterprises. Transfer pricing adjustment cannot be made with reference to the non-AE transactions, but, the same has to be confined only to the international transactions. Since the TPO/AO has proposed/made the addition on the basis of transactions even with non- AEs, we set aside the impugned order and send the matter back to the file of the AO/TPO for deciding the issue afresh as per law after allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national transaction of Provision of software development services . The TPO noticed that the assessee furnished segmental accounts which were not audited. He, therefore, rejected the assessee s separate operating profit margin from the international transactions declared at 17.00% as against loss from the non-international transactions at 43.26%. He proceeded to calculate profit of the assessee on overall basis. Thereafter, he computed OP/TC of comparables at average of 18.67%. On this basis, he determined the amount of transfer pricing adjustment at ₹ 21,25,54,922/- as under :- Total Operating Cost 875,283,158 Arm s length Price at a margin of 18.67% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of transactions with the Associated Enterprises (AEs) and non-AEs. Computation of the arm s length price (ALP) by the TPO in his order passed before and after the DRP directions, whose relevant parts have been reproduced above, divulges that he took total Operating costs at ₹ 87,52,83,158/- . By applying arithmetic mean of the comparables at 12.97%, he finally proposed a transfer pricing adjustment of ₹ 16,26,63,782/-. It is, thus, seen that the TPO considered total Operating costs at ₹ 87.52 crore. When we advert to the Final accounts of the assessee, whose copy is available at page 115 of the stay file, it emerges that the assessee earned revenue of ₹ 64,82,23,982/- from its AEs at Bangalore office and ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the operating profit margin from the assessee s international transactions, which only comprise of transactions with AEs. It is not permissible to make transfer pricing adjustment, by applying the average operating profit margin of the comparables, on the assessee s universal transactions entered into with both the AEs and non- AEs. As the entire exercise under Chapter-X of the Act is confined to computing total income of the assessee from international transactions having regard to the arm s length price, there is no scope for computing income from non-international transactions also having regard to the ALP. Since the TPO has computed the transfer pricing adjustment qua all the transactions carried out by the assessee with referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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