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2016 (7) TMI 840 - ITAT HYDERABAD

2016 (7) TMI 840 - ITAT HYDERABAD - TMI - 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. - Tr .....

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O, 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 .....

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llowance 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 i .....

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ing Officer (AO) u/s. 143(3) r.w.s. 92CA(3) of the Income Tax Act, 1961 [the Act] consequent to the directions issued by Dispute Resolution Panel [DRP], Hyderabad U/s. 144C of the Act for the AY. 2008-09. 2. Assessee is a company and is engaged in IT products/services and software development. It has wholly owned subsidiary in USA named IBSS inc., it filed its return of income electronically on 29-09-2008 declaring total income of ₹ 15,10,21,345/-. Assessee submits that it had claimed dedu .....

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TPO 6,82,07,998 2. Expenditure incurred towards increase in Authorised Share Capital 3,25,000 3. Interest on TDS debited to P&L A/c 3,37,033 4. Unexplained Share Premium amount 40,22,90,501 5. Claim for deduction u/s. 10A was denied 4. The assessee filed its objections before DRP. The DRP after considering the objections of the assessee, passed an order 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 a .....

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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 cl .....

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led before us, it appears that the 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. In the result, this ground of the assessee is allowed for statistical purposes. TP .....

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lves analysis of functions performed, the determination of comparable companies, and finally the computation of arm's length price. Consequently, the first step in establishing a transfer pricing policy must be to gather all the relevant facts and circumstances surrounding a particular inter-company transaction, to perform a functional analysis. Functional analysis is the process of identifying the functions performed and risks assumed by each party in a transaction between related parties. .....

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ontrolled 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 .....

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ndled by IBSS Inc. U.S.A. 2. Software development and Qualify Assurance (Q.A.) Taksheel's Service Management, Development and QA groups in the United States work on the design. specifications, requirement and content parameters of each project. The U.S. group would then determine the projects that would be undertaken by Taksheel-India The U.S. group is responsible for all design specification, high level design, detail design specifications, and budgets for each project. Taksheel -India perf .....

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rd parties for its services based on the hourly rate provided in the supplier's agreement. Taksheel -India has its own operating cash accounts and pays directly all payrolls, office expenses, and other operating expenses. 5. General Administrative Functions IBSS Inc. U.S.A. and Taksheel -India are responsible for their own general administrative functions like Human resources, taxes, accounting, treasury, Payroll and facility management. VI C Assets employed by Taksheel Solutions Limited- In .....

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nting to ₹ 299,318,930/-. 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 .....

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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 reliable measure of an arm s length for the international transactions of IBSS India. Although the TNMM, theoretically, is based on transactional data, it recognizes that no comparable data as such on a transactional level is likely to exist. Further, in case the transactions are closely interlinked, the same .....

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tion Net Margin Method (TNMM) was adopted by it, as the most appropriate method and that its Operating Profit to sales ratio is 52.22% and whereas, the OP/sales margin of comparables identified have a percentage of 21.72%. The assessee submitted that the transactions are at arm s length. 7.4. The TPO held that the assessee himself has stated that CUP is the most appropriate method and that the transaction pertaining to sale of services, have been analysed under CUP method only. As no details wer .....

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as follows: In the absence of any valid information to substantiate the price differential for the services rendered to IBSS Inc., USA as to why not the total man hours utilized for IBSS Inc., USA be billed at USD 65 per man-hour under CUP method by taking the same as bench mark price, the shortfall in the price received is worked out as under: Per man-hour Total man-hours billed Price received Price receivable Shortfall 55 19,585 10,77,175 12,73,025 1,95,850 45 22,314 10,04,130 14,50,410 4,46, .....

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omputing 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 AO/TPO and the DRP s are at variance. The TP study, to say the least is amateurish and in-complete. In our view, AO/TPO was right in rejecting the TP study. 7.7. This brings us to the issue to what is the nature of service rendered by the assessee to .....

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e 1. Project Manager 65 MCA/BE/MTECH Above 13 years 2. Program Analyst 55 MCA/BE/MTECH 10-12 years 3. Senior Programmer 45 MCA/BE 5-7 years 4. Programmer 35 MCA/BE 3-4 years 5. Junior Programmer 25 Bsc/MCA 1-2 years The ALP has to be determined for this transaction. It is observed that the assessee is rendering similar service of man power regularly to its non-AE s also. Thus, an internal CUP is available in this case. 7.8. CUP is definitely the most appropriate method under the given circumstan .....

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is price should be compared with the billing rate charged for the supply of such personnel to its non-AE. Averaging or applying weighted 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 .....

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ssessee 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. Both parties are at liberty to lead fresh evidence including TP study, comparables et .....

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