2016 (7) TMI 840 - AT - Income Tax

Reopening of assessment - deduction u/s. 10A claimed - Held that - AO, prima facie has committed a factual error in recording that the assessee has not claimed the deduction u/s. 10A in its original return of income. In any event, we deem it fit and proper to set aside the issue to the file of the AO with a direction that he shall verify the original returns of income filed by the assessee and dispose-off the issue denovo in accordance with law. Transfer pricing adjustment - what is the nature of service rendered by the assessee to the AE, which is the international transaction-in-question - MAM - Held that - As the assessee claim that it had supplied the work charts, copies of bills raised etc., to prove that the rate billed for a particular category of employee to the AE and to the non-AE is the same and alleges that likes have not been compared with likes and that he had furnished the details along with comparative charges to the TPO/AO, to demonstrate his claim that there is no variation in the hourly billing rate between the AE and non-AE for man power supply. The AO/TPO is directed to verify the details and recomputed the ALP. In view of the above discussion, we set aside the issue to the TPO should make an analysis of the rates charged to non-AEs and AEs keeping in view the categorisation of the employee and then only arrive at the ALP. In case the assessee is unable to provide the required details and in case the TPO is also unable to cull out the required data, then, in our view, application of TNMM as the most appropriate may be considered. In any event, we are of the opinion that a denovo exercise has to be done on this issue on determination of ALP. Hence, we set aside the matter to the file of the AO/TPO for fresh adjudication in accordance with law. Disallowance of interest on TDS debited to P&L A/c - Held that - Interest on TDS is not interest paid on income tax per se. Thus, in our view, the disallowance is unwarranted. Addition on account of un-explained share premium - Held that - The addition was not made by the AO on the ground of non-filing of the evidence to prove the identity, genuineness and creditworthiness of the transaction. The basis of making the addition was non-substantiation of the share premium charged. We hold that the DRP was wrong in coming to a conclusion that the assessee has not provided evidence of identity etc., of the shareholder. In any event, we deem it fit and proper to set aside the matter to the file of AO/TPO for fresh adjudication in accordance with law. The AO/TPO shall provide adequate opportunity to the assessee.

Summary

Issues Involved:
1. Disallowance of claim of deduction u/s. 10B of the Income Tax Act.
2. Transfer Pricing adjustment of ?1,33,48,392/-.
3. Disallowance of interest on TDS debited to P&L A/c.
4. Addition on account of unexplained share premium u/s. 68.

Detailed Analysis:

1. Disallowance of Claim of Deduction u/s. 10B of the Income Tax Act:
The Assessing Officer (AO) disallowed the assessee's claim for deduction u/s. 10B on the ground that it was not claimed in the original return filed on 29-09-2008. The assessee contended that the deduction was claimed in both the original and revised returns filed in response to a notice u/s. 148. The assessee provided evidence to support this claim. The Tribunal found that the AO might have committed a factual error and directed the AO to verify the original returns and dispose of the issue afresh in accordance with the law. Consequently, this ground was allowed for statistical purposes.

2. Transfer Pricing Adjustment of ?1,33,48,392/-:
The assessee provided manpower to its Associated Enterprise (AE) and billed on an hourly basis. The Transfer Pricing Officer (TPO) rejected the assessee's Transfer Pricing (TP) study, which used the Transaction Net Margin Method (TNMM), and instead adopted the Comparable Uncontrolled Price (CUP) method. The TPO found that the assessee failed to substantiate the price differential for services rendered to the AE. The Dispute Resolution Panel (DRP) upheld the AO's action but directed the TPO to apply the weighted average method for computing Arm’s Length Price (ALP). The Tribunal found discrepancies in the assessee’s TP study and directed a fresh analysis using the CUP method, comparing rates charged to AE and non-AE for similar services. If the required details are unavailable, TNMM may be considered. The issue was set aside for fresh adjudication.

3. Disallowance of Interest on TDS Debited to P&L A/c:
The Tribunal held that interest on TDS is not interest paid on income tax per se and thus, the disallowance by the AO was unwarranted. This ground of appeal was allowed in favor of the assessee.

4. Addition on Account of Unexplained Share Premium u/s. 68:
The AO added an amount on account of unexplained share premium due to the assessee’s failure to provide details justifying the premium. The DRP confirmed the addition on different grounds, citing non-furnishing of details regarding the identity, creditworthiness, and genuineness of the transaction. The Tribunal found that the DRP's conclusion was incorrect as the addition was not based on these grounds. The Tribunal rejected the assessee’s application for additional evidence due to lack of justification but set aside the matter for fresh adjudication, directing the AO/TPO to provide adequate opportunity to the assessee.

Conclusion:
The appeal was partly allowed with directions for fresh adjudication on certain issues and acceptance of certain claims made by the assessee. The Tribunal emphasized the need for accurate verification and proper application of methods in determining ALP and other assessments.