Facts
a)
Assessee, an Indian Company, entered into a
transaction to provide software development services and IT enabled services to
its foreign AE.
b)
Assessee
used Transactional Net Margin Method (TNMM) to determine ALP of such
transaction. The Operating Profit to Total Cost ratio was adopted as PLI and
same was calculated by taking weighted average margin of four years, being the
actual figures for the current financial year plus projected figures for the
coming three years.
c)
The TPO accepted the TNMM as the most
appropriate method. However, the assessee's PLI computed on the basis of profit
of four years including projected profit of three years, was rejected.
d)
Accordingly, adjustment was made to
assessee’s ALP by considering the
operating profit margin of the assessee for the current year alone, calculated
on the basis of actual figures.
e)
Aggrieved by
the TP adjustment made by TPO, assessee filed the instant appeal before the
tribunal.
The tribunal held in favour of revenue as
under-
1)
Essence of the entire transfer pricing
provisions is to compare the actual profit earned by the assessee from an
international transaction with the profit earned from comparable uncontrolled transactions.
2)
It is totally impermissible to substitute
actual profit earned by the assessee from an international transaction with any
other profit base, either by considering the actual profits for the earlier
years or by taking into account the projected profits of the subsequent years,
for the purposes of determining the ALP of an international transaction.
3)
Hence, assessee was not right in working
out PLI under TNMM by considering projected profits of subsequent years- [2016]
66 taxmann.com 185 (Delhi - Trib.)
