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TMI Blog2017 (4) TMI 1487X X X X Extracts X X X X X X X X Extracts X X X X ..... to end customers. For the services performed by AE, assessee-company pays commission at 10% for offshare services and 25% on onsite revenue services. Thus, revenue earned by the assessee-company from its AE is only pass through income and they are not an international transaction. It is the contention of the assessee that TPO had not considered the submissions of the assessee-company. DRP rejected the assessee-company s contentions without assigning reasons whatsoever. The assessee also contends that the TPO as well as DRP had not assigned any reason as to why CUP method is not most appropriate method in the nature of transactions assesseecompany had with its AE. It was also submitted that TPO has not considered the alternative submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Key Managing Group Inc., USA. It is engaged in the business of rendering software development services to its Associated Enterprises (AEs) and non AEs. Return of income for the assessment year 2011-12 was filed on 29/11/2012 declaring total loss of ₹ 1,06,99,198/-.The assessee-company also reported the following international transactions in its Form 3CA/3CA: i. Software development services … ₹ 22,93,93,247/- ii. Reimbursement of expenses … ₹ 8,97,06,639/- iii. Commission paid ... ₹ 4,03,35,732/- It is submitted that KMG USA does extensive marketing and secure the contracts with third parties and outsources the same to KMG India on Back to Back basis. The assessee-company serves as an executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment service income is less than Rs.l crore were excluded. * Companies who have less than 75% of the revenue as export sales were excluded. * Companies who have more than 25% related party transactions of the sales were excluded. * Companies whose employee cost to revenues is less than 25% of the revenues were excluded. * Companies having different financial year (i.e., not March 31, 2010) or data of the company does not fall within 12 month period i.e. 01-04-2010 to 31-03-2011, were rejected. * Companies who have persistent losses for the last three years upto and including FY 2010-11 were excluded. Companies that are functionally different from the taxpayer were excluded. Applying the above filtersin the Order passed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. 4. Being aggrieved, assessee-company filed objections before the DRP contending inter alia that very reference by the AO to TPO for the purpose of determining ALP is not valid in law as the AO failed to demonstrate as to why it was necessary and expedient to do so. It was further contended that since the assessee-company had entered into arrangement with AE on back to back billing there was no question of any ALP in the transaction and also challenging rejection of CUP method adopted by the assessee-company by TPO and rejection of internal comparable and adopting of in-operative filters. The assessee-company also sought the adjustment on account of under-capacity utilization. After considering the submissions of the assessee-company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Appellant under CUP Method. iii. The learned TPO has erred in adopting TNMM as the most appropriate method for determining the ALP of international transactions; iv. The learned TPO has erred in rejecting the alternate analysis of the Appellant considering internal comparables under TNMM and selecting external companies as comparables even though they are not comparable to the Appellant. Most of the comparables selected by the TPO deserve to be rejected. The learned TPO has also not considered the additional comparables proposed by the Appellant during the course of the assessment proceedings; v. The TPO/AO has not appropriately computed the operating margins of the Appellant and comparable companies; vi. The learned TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the learned counsel for the assessee that TPO had not considered the submissions of the assessee-company. DRP rejected the assessee-company's contentions without assigning reasons whatsoever. The assessee also contends that the TPO as well as DRP had not assigned any reason as to why CUP method is not most appropriate method in the nature of transactions assesseecompany had with its AE. It was also submitted that TPO has not considered the alternative submissions of the assesseecompany that in case TNMM is adopted as the most appropriate method, same should be applied based on internal comparables rather than external comparables. Now, law is quite settled that internal comparables are more preferable to external comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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