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TMI Blog2024 (8) TMI 1121X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 154 of the Act against the TP appeal effect order issued by the TPO wherein it was submitted that the TPO has made mistakes apparent from record by considering non-AE revenue and nonAE cost in the computation of TP adjustment. TPO has not followed the directions of the ITAT and Ld. DRP in the second round of litigation and has erroneously considered non-AE revenue and non-AE cost for computation of TP adjustment. This is against the basic principles of transfer pricing regulations and Chapter X of the Act wherein addition on account of transfer pricing adjustment can be made only in respect of international transactions with the AEs and not the non-AEs. Hence, we direct the AO/TPO to consider transactions between the assessee and the AEs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the Ld. DRP/ Ld. TPO/ Ld. AO erred in selecting comparable companies for provision of SDS segment without appreciating the fact that the same are not comparable by way of functions, assets and risk profile to the Appellant and hence fail Ld. TPO s own filter of rejecting companies which are functionally not comparable to the Appellant. 5. That on the facts and circumstances of the case and in law, the Ld. DRP/ Ld. TPO/ Ld. AO erred in retaining Satyam Computer Services Limited ( Satyam ) and Infosys Technologies Limited ( Infosys ) as comparables in spite of the fact that both the comparables fails the Ld. TPO s own qualitative filters viz. Satyam having unreliable financial statements and Infosys, being non-comparable, on account of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the Transfer Pricing Officer in both SDS and ITeS segment. The ITAT had remanded the matter providing directions to the AO: To include/ exclude certain comparable and verify filters To verify the computation of TP adjustment as it was not restricted to international transactions and non-AE revenue and non-AE costs have been considered by the TPO while computing the TP adjustment. 8. Subsequently while giving effect to this ITAT's order, the TPO made certain mistakes while determining the arm's length price of the international transactions in both SDS and ITeS segment. 9. Aggrieved with the said appeal effect passed by the TPO, the assessee filed a rectification application with the TPO dated July 7, 2022. The TPO passed a rect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r X of the Act, provides that the addition on account of transfer pricing adjustment can be made only in respect of international transactions with the AEs and not the non-AEs: The objective for introducing Chapter X was that there can be no scope for arranging the transactions with non-AEs so as to evade the taxes in India. That is the reason for which the transactions with non-AEs have been excluded from the ambit of Chapter X of the Act. 13. The view of restricting TP adjustments to AE transactions only has been held in the following judgments: Thyssen Krupp Industries India Pvt. Ltd [2016] 70 taxmann.com 329 (Bom. HC) Syniverse Technologies Services (India) (P.) Ltd. vs. ACIT [2018] 91 taxmann.com 435 (Delhi - Trib.) IL Jin Electronics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the material available on record. As regards the re-computation from the order of the CIT(A) it cannot be made out that how the computation has been done by the CIT(A) and same needs to be verified at the level of TPO/AO. Therefore, this issue is remanded back to the file of the TPO/AO for consideration and arriving at the proper calculation after verifying all the documents provided by the assessee. Needless to say, that the assessee be given opportunity of hearing by following principals of natural justice. This ground is partly allowed for statistical purpose. 15. The TPO has not followed the ITAT order during the remand proceedings and not verified the computation and has considered the non-AE revenue and non-AE cost for computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C as well as ITES segment which resulted in mismatch of amount considered by Ld. TPO and the amount that was reported in audited financial statement of the assessee. The TPO also ignored (loss)/profit on sale of fixed assets while calculating margins of the assessee. Non AE transactions considered. The TPO while doing so, has overlooked the fact that the segmental disclosure also included the revenue and expenses from providing services to unrelated third party and the same needed to be excluded as the basic intent was to test the net margins earned by the assessee from its international transaction. 4.3.4 The ld. DRP has considered the submission of the assessee. The AO/TPO is directed to verify the margin computations of the assessee as w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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