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TMI Blog2016 (7) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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-substantiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 144C(5) dt. 27-09-2012. The AO gave effect to the order of the DRP and restricted the additions to the following: a. Transfer Pricing adjustment on account of determination of Arm s Length Price (ALP) ₹ 1,33,48,392/-; b. Disallowance of interest on TDS debited to P L A/c ₹ 3,37,033/-; c. Addition on account of unexplained share premium u/s. 68 of ₹ 10 Crores; d. Disallowance u/s. 10B of the Act ₹ 15,10,21,345/-. Aggrieved, assessee is before us. 5. We have heard Shri Murali Mohan Rao, Ld. Counsel for the assessee and Smt. Pallavi Agarwal, Ld. DR on behalf of the Revenue. On a careful consideration of the facts and circumstances of the case, a perusal of the papers on record and the orders of the authorities below, as well as case law cited, we hold as follows. We dispose-off the case, issue-wise: Disallowance of claim of deduction u/s. 10B of the Act: 6. The AO disallowed the claim of the assessee for deduction u/s. 10B of the Act on the ground that the assessee has not claimed the deduction in the original return of income filed on 29- 09-2008. It is the case of the assessee that it had claimed deduction u/s. 10B in the orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke into account functional and other differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transaction, which could materially affect price/profit margin in the open market. 2. The rules also provide that the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the functions performed, taking into account assets employed and the risks assumed, by the respective parties to the transactions. VIB Functions performed by can be classified as follows: Each of the functional area is briefly explained as follows: 1. Business Development Business Development includes: (a) Advertisement, Marketing and Selling (b) Developing and maintaining customers , IBSS Inc. U.S.A. will identify potential customers.: All advertising and promotional activities targeting Taksheel s customers are performed by the IBSS Inc. U.S.A. IBSS lnc. has a client support team to address customer issues and maintain customer relationships. All business development functions are handled by IBSS Inc. U.S.A. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VID Service agreement between IBSS Inc. U.S.A. and its holding company Taksheel Solutions Limited (Internal Pricing mechanism): According to the service agreement between IBSS Inc. and Taksheel -India , Taksheel shall be paid for the engagement in the manner and at such rate as set forth in the supplier specific terms. According to supplier specific terms IBSS Inc. shall pay Taksheel - India for its services based on the project and its priority in the range of 20 to 75 USD per hour. Invoice has to be paid within 90 days of its raising . 7.1. The characterization of the transaction in the TP study is as follows: For the purpose of economic analysis, Taksheel Solutions Limited can be categorised as captive software service provider that carries minimum risk and is assured of its return on cost as the hourly rate provided in the agreement is sufficient enough to cover its costs . 7.2. At Page No. 41, the most appropriate method selected as per the TP study reads as follows: After reviewing all of the transfer pricing methods discussed herein, we concluded that, given the facts and circumstances, apart from CUP Method, TNMM provides the most relia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,77,175 12,73,025 1,95,850 45 22,314 10,04,130 14,50,410 4,46,280 35 16,218 5,67,630 10,54,170 4,86,540 25 13,521 3,38,025 8,78,865 5,40,840 Total 29,86,960 46,56,470 16,69,510 From the above table, as per the exchange value of USD 40.86, the shortfall translates to INR 6,82,07,998 and the same is treated as adjustment under section 92CA of I.T. Act, 1961 . 7.5. When the matter travelled to the DRP, the action of the AO in adopting the CUP as the most appropriate method was upheld. Thereafter, the DRP directed the TPO to apply weighted average method for computing ALP. It granted part relief. Further aggrieved, the assessee is before us. 7.6. On a careful consideration of the facts, we find that, the functional profile given by the assessee in the TP report and the factual submissions made before the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted average, as directed by the DRP, in our opinion, distorts the CUP method. This cannot be approved. 7.9. 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. He 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 asi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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