TaxTMI 
TaxTMI 
2012 (10) TMI 177
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....omb attack on World Trade Centre on 9/11 in US. 6(b) The ld. CIT (A) erred in overlooking the basic facts that the appellant was obliged to take 25 persons on a monthly basis as per the contract between the appellant and its AE and due to 9/11 incident, there were personnel "sitting on the bench", who could not be deputed to any client/customer of the appellant. Consequently, the ld. CIT (A) failed to appreciate the loss incurred, and erred in attributing such business loss as unbilled hours of the AE" 3. Brief facts of the issue are, the assessee is in the business of software development by resourcing qualified personnel for the purpose. The assessee during the relevant financial year had international transactions with its Associated Enterprise (AE) M/s Cypress Associates Inc. Of USA which is its 100% subsidiary. On a reference made by the AO u/s 92CA(1) of the Act the TPO issued notice u/s 92CA(2) to the assessee for fixation of Arm's length Price (ALP) in respect of the international transaction entered into by the assessee with its AE in USA. In course of the proceeding the TPO found that the assessee had paid an amount of Rs.13,39,79,178 to its AE M/s Cypress Associate....
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....assessee has paid the AE for 3500 man hours in excess. He accordingly calculated the ALP. The payment made to the AE by the assessee was found to be not within the +/- 5% range and therefore was not accepted. The calculation of ALP by the TPO is reproduced below for the sake of convenience. Man hours paid to A.E : 45,662 Man hours charged from clients 41,921 Difference 3,741 Less: Unbilled for demo purpose etc. 241 Balance 3,500 Payments by the assessee to AE Rs.13,39,79,178 Less: 3500 man ours @ 61.39$ x 48 Being excess paid to AE when compared to Actual services rendered Rs. 1,03,13,520 Arm's Length Price Rs.12,36,65,658 ALP Range + 5% : 14,06,78,136 - 5% : 12,72,80,219 4. The AO completed he assessment by adopting the ALP determined by the TPO and made an addition of Rs. 1,03,13,520/-. The assessee challenged the determination of ALP and addition made as a result of such determi....
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....e AE since the entire loss arising out of non availability and non utilisation of the employees has to be borne by the assessee which is contrary to the accepted contractual norms involving transaction between unrelated parties. The CIT (A) came to a conclusion that sharing of loss/expenditure arising out of unforeseen situations should be in the ratios of comparative situations and risks of the parties involved in the transactions which were not found to be the case in the agreement between assessee with its AE. As has been observed by the CIT (A) in his order after analysing the Transfer Pricing Study Report filed by the assessee the CIT (A) found that in the transactions between the assessee and its AE, most of the risk factors were associated with the AE. However the agreement with AE regarding payment for minimum 25 Nos. Of personnel put the assessee at a disadvantageous position contrary to the findings in the Transfer Pricing Study Report. The CIT (A) ultimately came to a conclusion that the agreement with AE was deliberately constructed in a manner so as to put all possible losses arising on account of unutilised manpower on the assessee. On the aforesaid conclusion the CIT....
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....to its AE for a minimum of 25 persons every month. Due to deployment of only 10 persons in November 2001 the number of unbilled hours lost was 2370 hours which leaves a shortfall of 1370 hours only which was also explained by the ld. AR to be due to personnel deployed for demo purpose., sick leave, privilege leave etc. The ld. AR further submitted even assuming there is excess payment for 1370 man hours the payment made by the assessee to its AE will be within +/- 5% range of ALP. The ld. AE demonstrated it with the following calculation. "Number of hours paid for to M/s Cypress Associates Inc. Rs.45,662 Less: Number of hours billed to clients Rs.41,922 Balance 3740 Less: No. Of unbilled hours lost in November, 2001 2370 Balance 1370 Payments by the assessee to AE Rs.13,39,79,178 Less: 1370 man hours @ 61.39$ x 48 Being excess paid to AE when Compared to actual services Rendered Rs. 40,37,006 Arm's length Price Rs.12,99,42,172 ALP R....