TaxTMI 
TaxTMI 
2016 (7) TMI 840
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....ice u/s. 148 dt. 10-09-2008 was issued and served on the assessee. The assessee filed its return of income in response to this notice and claimed deduction u/s. 10A. 3. The AO completed the assessment on 30-10-2012, determined the total income at Rs. 15,10,25,374/- inter alia making the following adjustments: Rs. 1. Difference in Arms Length Price as determined by the 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 adjustment on account of determination of Arm's Length Price (ALP) Rs. 1,33,48,392/-; b. Disallowance of interest on TDS debited to P&L A/c Rs. 3,37,033/-; c. Addition on account of unexplained share premium u/s. 68 of Rs. 10 Crores; d. Disallowance u....
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....onsequently, 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. The functional analysis forms the cornerstone on which arm's length price is to be computed. The Indian transfer pricing regulations also bring out the importance of undertaking a functional analysis. Specifically: 1. The rules for determination of arm's length price under prescribed methods provide that the comparable price/gross margin/net margin is to be adjusted to take 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 p....
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....2,98,983 Air conditioners and Refrigerators 8,75,707 Electrical Equipment 18,64,845 Furniture 29,64,268 Office Equipment and Others 16,57,382 Total 1,66,61,185 *These are written down values of assets as on 31.3.2008 and are taken from audited financial statements for the year 2007-08 Intangible Assets Taksheel Solutions Limited -India intangible assets of Goodwill amounting to Rs. 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 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 t....
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....he 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 4,46,280 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....
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....mparative 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. Both parties are at liberty to lead fresh evidence including TP study, comparables etc., to arrive at the ALP. Thus, this ground is allowed for statistical purposes. Disallowance of interest on TDS debited to P&L A/c: 8. Interest on TDS is not interest paid on income tax per se. Thus, in our view, the disallowance is unw....