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Facts
The assessee, engaged in software development services, appealed against the DRP's confirmation of the AO/TPO's order. The DRP had rejected the assessee's preferred CUP method and adopted TNMM, significantly enhancing the taxable income.
Held
The Tribunal found that the Revenue did not dispute that CUP was the MAM in earlier years and acknowledged the assessee's argument regarding insufficient time. The Tribunal decided to remit the matter back to the TPO for de novo adjudication.
Key Issues
Whether the TNMM method was correctly adopted by the TPO/DRP instead of the CUP method, and whether the assessee was provided adequate opportunity to defend its case.
Sections Cited
144(c), 21.01.2021, 1961, 92D, 92C(3), 10B(2), 143(3), 144C
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Income Tax Appellate Tribunal, DELHI BENCH, ‘I’: NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD
ORDER PER AMITABH SHUKLA, AM,
The captioned appeal has been preferred by the assessee against order dated 31.03.2021 of the Assessing officer arising out of direction of learned Dispute Resolution Pannel, (in short ‘ld. DRP’) 21.01.2021 passed u/s 144(c) of the Income Tax Act, 1961 pertaining to Assessment Year 2017- 18. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
The assessee has raised following grounds of appeal:-
“1. On facts and in law, the learned DRP erred in confirming the order of the learned AO TPO, in determining the adjustment of Rs.
7,02,62,616 and consequently enhancing the taxable income of the appellant.
2. On the facts and in law, the Ld. AO / Ld. TPO / Ld. DRP erred in rejecting the economic analysıs undertaken by the Assessee in the Transfer Pricing ("TP) documentation maintained under section 92D of the Act and in failing to establish that any of the conditions specified in clause (a) to (d) of Section 92C (3) of the Act has not been satisfied.
3. On facts and in law, the Ld. AO/Ld. TPO/ Ld. DRP erred in rejecting the Comparable Uncontrolled Price ("CUP) Method and inappropriately applying the Transactional Net Margin Method ("TNMM") as the most appropriate method.
On facts and in law, the Ld. AO/the Ld. TPO/ Ld. DRP erred in ignoring the 'Rule of Consistency in case of the Assessee as CUP method was accepted as the most appropriate method in AY 2011-12 and AY 2012-13 by the erstwhile Ld. TPOs.
5. Without prejudice, on facts and in law, Ld. AO/ the Ld. TPO/ Ld. DRP erred in violating the provisions of Rule 10B(2) of the Rules by considering the following companies as comparable to the Assessee, thereby resorting to unsubstantiated selection of comparables. i. Infobeans Technologies Ltd. ii. Larsen & Tourbo Infotech Ltd. iii. Tata Elsi Ltd iv. Cigniti Technologies Ltd v. RS Software (India) Ltd.* * Name substituted in lieu of Kals Information Systems (P) Ltd. vide application requesting amendment filed on 05.09.2023 6. Without prejudice, on facts and in law, an appropriate adjustment to account for the differences in depreciation cost of the Assessee and the comparables should be allowed in computing the operating profit margin (Operating Profit/Operating Cost) of both the Assessee and the comparables specially when enough documents were presented before the Ld. DRP by the assessee in this regards.
Without prejudice, on facts and in law, the appropriate adjustments for working capital should be allowed to account for differences in working capital of the comparables vis-à-vis the Assessee.
8.1 Without prejudice, on facts and in law, the Ld. AO/ Ld. TPO / Ld. DRP erred in law in not appreciating that the TP adjustment should not result in the total operating profit margin percentage of assesse being more than the consolidated operating profit margin percentage earned by the Assessee and the AE put together 8.2 On facts and in law the Ld. DRP erred in law in not passing a speaking order with respect to Objection No. 11 filed before the Panel. 9.1 Without prejudice to the above grounds, since the assessment was picked up towards the fag end and ample opportunity of being heard was not granted to the Assessee, a fresh benchmarking analysis which could not be produced by the Assessee before the Ld TPO for identification of comparable companies engaged in provision of software development services should be accepted. 9.2 On facts and in law, the Ld. DRP erred in ignoring the documents presented before it regarding fresh benchmarking analysis and in observing that no such analysis was furnished before it.”
The principal issue which arises from the grounds of appeal raised by the appellant assessee concerns adoption of TNMM method by the learned Transfer Pricing Officer as the Most Appropriate Method (MAM) as against the CUP method adopted by the assessee. The assessee has also contested that the DRP has summarily rejected its contest without passing a speaking order. Further, the appellant assessee has also submitted that as the assessment proceedings were initiated towards the fag end, it was deprived of adequate opportunity to defend its case.
4. As per brief factual matrix of the case, the assessee company is engaged in the business of providing software development services primarily to its AEs based in USA. Return declaring income of Rs.56,51,710/- was filed on 18.11.2016. The ld. AO, after incorporating Page | 3 Transfer Pricing Officer, issued a draft assessment order to the assessee proposing assessed income of Rs.8,21,94,920/-. The learned Transfer Pricing Officer made adjustments in as much as against, CUP method adopted by assessee it choose, to opt for TNMM for his TP study. The ld. DRP partly confirmed the draft assessment order, leading to determination of taxable income of Rs.7,59,14,326/- vide order under section 143(3) r.w.s.144C dated 31.03.2021.
The ld. Counsel for the assessee vehemently argued that the adoption of TNMM method in its case is not based upon correct appreciation of facts on record. It was argued that the same was one off choice by the Revenue and that all along, in earlier and latter years CUP has been used for its TP study and that the same has been accepted by the Revenue. It was argued that as there has been no change in the facts of the present year with those in earlier and later years, CUP deserves to be adopted over TNMM. The ld. Counsel also pleaded for shortage of time available with the assessee for defending its case. It was accordingly requested that the matter be considered for remission back to the learned Transfer Pricing Officer for fresh adjudication de novo.
Per Contra, the ld. DR placed reliance upon the orders of the lower authorities.
7. We have heard rival submissions in the light of material available on records. The Revenue has not disputed that CUP has not been the MAM adopted in assessee’s case in earlier and later years. The argument of the assessee of not having adequate time to plead its case is also not totally unfounded. Be that as it may be, we are of the considered view that in the interest of justice, the matter deserves to be remitted back to the learned Transfer Pricing Officer for re-adjudication de novo. Accordingly, we set- aside the order of the lower authorities and direct the learned Transfer Pricing Officer to re-adjudicate the matter de novo after giving due opportunity of being heard to the assessee. The appellant assessee shall be entitled to produce all or any evidence, inter alia, including those filed through voluminous paper book before us, deemed appropriate to defend its case. Accordingly, all the grounds of appeal raised by the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 15th December, 2025.