V2 TECH VENTURES P.LTD,NAVI MUMBAI vs. DCIT 15(3)(1), MUMBAI

The first grievance raised in this appeal is that on and the facts and in the circumstances of the case, the learned Assessing Officer was not justified in making the arm’s length price adjustment (ALP) of Rs. 2,26,10,544 in respect of provision for software development services, and that the Transfer Pricing Officer erred in recommending the said ALP adjustment and the Dispute Resolution Panel erred in confirming the said ALP adjustment. The twelve grounds of appeal, set out in summarized grounds of appeal, are primarily arguments in support of this grievance.

To adjustment on this issue in appeal, only a few material points need to be taken note of. The assessee is a private limited company operating in software development industry and is primarily engaged in providing customized software developments services as per end user

Aggrieved, assessee raised the objections before the Dispute Resolution Panel but without any success by making a rather cryptic observation as follows:-

We are of the considered view that the reasons, for which internal TNMM is rejected, as a most appropriate method (MAM), are not really correct and convincing. The disclaimer by the auditor with respect to “information and explanation provided to us (i.e. the auditor)” is too common a disclaimer which is almost a standard practice, and, in any case, there is no specific information that is sought to be disclaimed vis-à-vis it’s authenticity. It is not a clear as to which is the figure with respect to authenticity of which learned TPO had doubts. It was open to TPO to ask a specific question and deal with the reply thereto, or to at least point out which is the information in respect of which he had issues. This disclaimer may raise a bonafide doubt but that cannot be reason enough to reject the segmental accounts as a whole. Rejecting the internal TNMM on the basis of such a sweeping generalization cannot meet a judicial approval. Similarly, the segmental accounts showing different PLIs in different segments, i.e. 13.79%-153.9% as against 8.01%-9.44%, cannot be reason enough to reject the segmental accounts. Having said that, the observations regarding “allocation of expenses have been arbitrarily done resulting in skewed result”, in our considered view, need to be examined on merits by calling for further explanations of the assessee and taking a call on those explanations in a fair and reasonable manner in accordance with the law and by giving yet another opportunity of hearing we are thus of the considered view that while we must uphold the plea of the assessee in principle, we should remit the matter to the assessment stage so that the matter may be examined afresh, in the terms indicated above. The limited purpose of adjudicating upon the expense allocation basis, and if no defects are found in the same, the internal TNMM will have to be accepted. In any other case, however, all contentions will remain open. With these observations the matter stands restored to the file of the Assessing Officer. As the matter is remitted to the assessment stage for this short reason alone, all other issues raised in the appeal are academic and infructuous as now.

The only other grievance raised in the appeal is with respect of Assessing Officer’s declining the depreciation of Rs. 5,455. Looking to the smallness of amount, however, this grievance was not really pressed.

In the result, the appeal is allowed for statistical purposes in the terms indicated above. Pronouncement in the open court today on the 10th March, 2022.