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TMI Blog2012 (10) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... act that assessee's business suffered due to recession as result of 9/11 incident and assessee ultimately had to close down its operations. The CIT (A) also does not dispute this fact. Thus finding force in assessee's contention that assessee's income being exempt there was no need on its part to transfer its income to its AE whose profit was taxable. The assessee has demonstrated before us the ALP at Rs.12,99,42,172/- after deducting cost of 1370 man hours @61.39USD and the payment made by it to the AE to be within +/-5% of the ALP range which are inclined to accept. Thus the order of CIT (A)is set aside and AO is directed to verify the invoices raised by the assessee on its clients and invoices raised by the AE on the assessee to find out the actual unbilled hours lost in November, 2001. If the assessee's claim will be found to be correct, then no addition can be made under the Transfer Pricing Regulations - in favour of assessee for statistical purposes. - IT Appeal No. 962 (Hyd.) of 2003 - - - Dated:- 6-8-2012 - Chandra Poojari And Saktijit Dey, JJ. C.P. Ramaswamy for the Appellant. G. Gyna Prakash for the Respondent. ORDER Saktijit Dey, Judicial Mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h per employee. When the TPO asked the assessee about the huge gap between man hour utilisation, the assessee explained that the total man hours utilised after deducting holidays and others, it comes to 158 hours per month. The assessee submitted that the average rate charged as per invoice raised on AE by the assessee is Rs.66.40 per hour whereas it has paid @ 61.39 USD per hour to its AE. The assessee also explained the difference between man hours by submitting that in the month of November, even though it employed only 10 it had to pay the amount for 25 people to the AE as per the agreement. Due to recession in the aftermath of9/11 terrorist attack in USA man power could not be utilised properly and the assessee incurred losses, hence closed down its operations. The TPO found that while the AE has supplied its man power to independent parties on actual man hour utilisation basis, it has provided manpower utilisation to the assessee on monthly payment basis. The TPO found the terms and conditions mentioned in the agreement between the assessee with its AE has put the assessee in a disadvantageous position conceding undue benefits to the AE. The TPO also found that while raising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and man hours billed by the assessee on its clients the assessee submitted that in the aftermath of 9/11 incident in USA, there was steep loss incurred by the assessee which is evident from the invoices for the month of November, 2001 when payment was made for 25 personnel but the assessee could deploy only 10 personnel which resulted into a difference of 2370 man hours lost in 2001. And the balance difference of 1370 man hours was on account of various factors like privilege leave, sick leave, unbilled pilot projects and free demo purpose. 5. The assessee submitted that due to prevailing conditions in USA after 9/11 incident, there was sharp decline in the business of hiring technical personnel for which assessee was forced to close down its operation. The assessee was competing with bigger players in the field, hence it had to quote on low margin of profit and at the same time recruit software personnel by offering good packages. It was further contended by the assessee that TPO has not adopted proper number of man hours vis a vis the actual number of working days. If proper number of man hours were reworked the difference would be 1370 man ours which come to the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business and most of them have shown substantial profit compared to the assessee. The CIT (A) came to hold that out of the loss arising from payment made for extra 3500 man hours which were neither utilised or billed by the assessee 20% share in loss is allocable to the assessee considering the fact that as per the Transfer Pricing Study Report the AE had four times greater risk than the assessee. The CIT (A) treated the balance 80% man hour i.e. 2800 to have been excessively paid by the assessee to its AE. He therefore reduced the cost for 2800 man hours from the payment made by the assessee to its AE and determined the ALP at Rs.12,57,28,362 as below. Stated price of the services Rs.13,39,79,178 Less: 2800 man hours @ 61.39 USD Covered into Rs. @Rs.48 Per dollar i.e. 2800 61.39 48 Rs. 82,50,816 Arm's Length Price Rs.12,57,28,362 Since the payment made by the assessee to its AE was not within the +/- 5% of the ALP determined by the CIT (A) he directed the AO to adopt the ALP determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned DR strongly defending the order passed by the CIT (A) submitted that the assessee has deliberately made excess payment to its AE with an intention to reduce its profit. The learned DR submitted that the CIT (A) after considering all aspects has correctly determined the ALP. 9. We have heard rival submissions, perused the orders passed by the revenue authorities and also the documents submitted in the paper book by the assessee. After analysing the ALP determined by the TPO, CIT (A) and ALP computed by the assessee we find there is no dispute with regard to man hours paid to AE by the assessee and man hours charged by the assessee from its clients. The difference between the two being 3741. The TPO has determined the ALP by deducting excess payment for 3500 man hours after giving benefit of 241 man hours to the assessee being unbilled for demo purpose. The CIT (A) has allowed the assessee further benefit of 750 man hours and determined the ALP after considering 2800 man hours being excess payment made to AE. 10. The ld. AR has demonstrated before us that if at all it is to be assumed that the assessee has made excess payment to the AE then it should be confined to 1370 man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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