M/s Taksheel Solutions Limited, Hyderabad V. Asst.CIT, Cir-2(3), Hyderabad

ITA 1768/HYD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6434 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 13-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2012
• Court: TRIBUNAL
• Department Lawyers: PALLAVI AGARWAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Transfer pricing; International transaction; Additional evidence; Revised return
• Section: 143(3); 10B; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI J.SUDHAKARA REDDY, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A. NO. 1768/HYD/2012 ASSESSMENT YEAR: 2008-09 M/S. TAKSHEEL SOLUTIONS LIMITED, HYDERABAD [PAN: AAAIC7342P] VS THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(3), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SMT. PALLAVI AGARWAL, DR DATE OF HEARING : 13-06-2016 DATE OF PRONOUNCEMENT : 17-06-2016 O R D E R PER J. SUDHAKARA REDDY, A.M. : THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE OR DERS OF ASSESSING OFFICER (AO) U/S. 143(3) R.W.S. 92CA(3) O F THE INCOME TAX ACT, 1961 [THE ACT] CONSEQUENT TO THE DIRECTIONS ISS UED 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 WH OLLY OWNED SUBSIDIARY IN USA NAMED IBSS INC., IT FILED ITS RETURN OF INCOME ELECTRONICALLY ON 29-09-2008 DECLARING TOTAL IN COME OF RS. I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 2 -: 15,10,21,345/-. ASSESSEE SUBMITS THAT IT HAD CLAIMED D EDUCTION U/S. 10A OF THE ACT. THE RETURN WAS PROCESSED U/S. 1 43(1). THE CASE WAS REOPENED U/S. 147, AFTER RECORDING REASONS . NOTICE U/S. 148 DT. 10-09-2008 WAS ISSUED AND SERVED ON THE ASSES SEE. 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 ORDE R OF THE DRP AND RESTRICTED THE ADDITIONS TO THE FOLLOWING: A. TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF DETERMINATION OF ARMS 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/S. 10B OF THE ACT RS. 15,10,21,345/-. I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 3 -: 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 L AW CITED, WE HOLD AS FOLLOWS. WE DISPOSE-OFF THE CASE, ISSUE-WISE: DISALLOWANCE OF CLAIM OF DEDUCTION U/S. 10B OF THE AC T : 6. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR DE DUCTION U/S. 10B OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION IN THE ORIGINAL RETURN OF INCOM E FILED ON 29- 09-2008. IT IS THE CASE OF THE ASSESSEE THAT IT HAD CLA IMED DEDUCTION U/S. 10B IN THE ORIGINAL RETURN OF INCOME FI LED, AS WELL AS IN THE REVISED RETURN OF INCOME FILED IN RESPONSE TO A NOTICE U/S. 148. IN SUPPORT OF THIS CONTENTION, ASSESSEE HAS FILED A COPY OF THE RETURNS OF INCOME FILED WITH THE DEPARTMENT (AT PAG E NO. 291 OF THE PAPER BOOK) TO DEMONSTRATE THAT THE AO WAS FAC TUALLY IN CORRECT IN COMING TO A CONCLUSION TO THE CONTRARY. THE LD. DR RELIES ON THE ORDER OF THE AO AS WELL AS THE DRP ON THI S ISSUE. 6.1. AFTER PERUSAL OF THE EVIDENCES FILED BEFORE US, IT APPEARS THAT THE AO, PRIMAFACIE HAS COMMITTED A FACTUAL ERROR IN RECORDING THAT THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION U/S. 1 0A IN ITS ORIGINAL RETURN OF INCOME. IN ANY EVENT, WE DEEM IT F IT AND PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTI ON THAT HE I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 4 -: 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 ADJUSTMENT OF RS. 1,33,48,392/- : 7. THE ASSESSEE HAS PROVIDED MAN POWER/HUMAN RESOUR CES TO ITS ASSOCIATED ENTERPRISE (AE). IT HAD BILLED ITS AE ON HOURLY BASIS BASED ON THE MAN POWER SUPPLIED. THE BILLING RATE PE R HOUR CHARGED DEPENDED ON THE QUALIFICATION AND EXPERTISE OF THE PERSONNEL PROVIDED TO THE AE. IN THE TP STUDY, THE FUNCTIONAL ANALYSIS READS AS FOLL OWS: SECTION VI FUNCTIONAL ANALYSIS: VIA OBJECTIVE OF FUNCTIONAL ANALYSIS THE PROCESS OF DETERMINATION OF ARM'S LENGTH PRICE INVOLVES ANALYSIS OF FUNCTIONS PERFORMED, THE DETERMINATION OF COMPAR ABLE COMPANIES, AND FINALLY THE COMPUTATION OF ARM'S LENGTH PRICE. CONSEQUENTLY, THE FIRST STEP IN ESTABLISHING A TRANSFER PRICING POLIC Y MUST BE TO GATHER ALL THE RELEVANT FACTS AND CIRCUMSTANCES SURROUNDIN G A PARTICULAR INTER-COMPANY TRANSACTION, TO PERFORM A FUNCTIONAL ANALYSIS. FUNCTIONAL ANALYSIS IS THE PROCESS OF IDENTIFYING T HE FUNCTIONS PERFORMED AND RISKS ASSUMED BY EACH PARTY IN A TRAN SACTION BETWEEN RELATED PARTIES. THE FUNCTIONAL ANALYSIS FO RMS THE CORNERSTONE ON WHICH ARM'S LENGTH PRICE IS TO BE CO MPUTED. 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 PRIC E UNDER PRESCRIBED METHODS PROVIDE THAT THE COMPARABLE PRIC E/GROSS MARGIN/NET MARGIN IS TO BE ADJUSTED TO TAKE INTO AC COUNT I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 5 -: FUNCTIONAL AND OTHER DIFFERENCES, IF ANY, BETWEEN T HE INTERNATIONAL TRANSACTION AND THE COMPARABLE UNCONT ROLLED TRANSACTIONS, OR BETWEEN THE ENTERPRISES ENTERING I NTO SUCH TRANSACTION, WHICH COULD MATERIALLY AFFECT PRICE/PR OFIT MARGIN IN THE OPEN MARKET. 2. THE RULES ALSO PROVIDE THAT THE COMPARABILITY OF AN INTERNATIONAL TRANSACTION WITH AN UNCONTROLLED TRAN SACTION SHALL BE JUDGED WITH REFERENCE TO THE FUNCTIONS PER FORMED, TAKING INTO ACCOUNT ASSETS EMPLOYED AND THE RISKS A SSUMED, BY THE RESPECTIVE PARTIES TO THE TRANSACTIONS. VIB FUNCTIONS PERFORMED BY CAN BE CLASSIFIED AS FOL LOWS: 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 TAKSHEELS CUS TOMERS ARE PERFORMED BY THE IBSS INC. U.S.A. IBSS LNC. HAS A CLIENT SUPPORT TEAM TO ADDRESS CUST OMER ISSUES AND MAINTAIN CUSTOMER RELATIONSHIPS. ALL BUSINESS DEVELOPMENT FUNCTIONS ARE HANDLED BY I BSS INC. U.S.A. 2. SOFTWARE DEVELOPMENT AND QUALIFY ASSURANCE (Q.A. ) TAKSHEEL'S SERVICE MANAGEMENT, DEVELOPMENT AND QA G ROUPS IN THE UNITED STATES WORK ON THE DESIGN. SPECIFICATION S, REQUIREMENT AND CONTENT PARAMETERS OF EACH PROJECT. THE U.S. GR OUP WOULD THEN DETERMINE THE PROJECTS THAT WOULD BE UNDERTAKEN BY TAKSHEEL-INDIA THE U.S. GROUP IS RESPONSIBLE FOR ALL DESIGN SPECIF ICATION, HIGH LEVEL DESIGN, DETAIL DESIGN SPECIFICATIONS, AND BUDGETS F OR EACH PROJECT. I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 6 -: TAKSHEEL -INDIA PERFORMED SOFTWARE CODING, QA, REPO RT WRITING, DATABASE ADMINISTRATION, AND SOFTWARE DEVELOPMENT S ERVICES FOR IBSS INC. TAKSHEEL -INDIA DID NOT USE ANY NON-ROUTINE INTANGI BLES IN PROVIDING SERVICES TO ITS U.S. SUBSIDIARY. IBSS INC. U.S.A. U NDERTAKES RESEARCH AND DEVELOPMENT ACTIVITIES AND IT ALSO HAS A CUSTOMER CARE, ENGAGEMENT AND TRAINING TEAM. ALL INTANGIBLE ASSETS RELATING TO THE BUSINESS ARE OWNED BY IBSS INC. U.S.A. 4. INVOICING AND COLLECTION TAKSHEEL -INDIA LIMITED INVOICES IBSS INC. AND THIR D PARTIES FOR ITS SERVICES BASED ON THE HOURLY RATE PROVIDED IN THE S UPPLIER'S AGREEMENT. TAKSHEEL -INDIA HAS ITS OWN OPERATING CA SH ACCOUNTS AND PAYS DIRECTLY ALL PAYROLLS, OFFICE EXPENSES, AN D OTHER OPERATING EXPENSES. 5. GENERAL ADMINISTRATIVE FUNCTIONS IBSS INC. U.S.A. AND TAKSHEEL -INDIA ARE RESPONSIBL E FOR THEIR OWN GENERAL ADMINISTRATIVE FUNCTIONS LIKE HUMAN RESOURC ES, TAXES, ACCOUNTING, TREASURY, PAYROLL AND FACILITY MANAGEME NT. VI C ASSETS EMPLOYED BY TAKSHEEL SOLUTIONS LIMITED- INDIA TAKSHEEL SOLUTIONS LIMITED -INDIA EMPLOYS FOLLOWING ASSETS IN ITS OPERATIONS: DESCRIPTION OF ASSET AMOUNT IN RS. COMPUTERS 92,98,983 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 YEA R 2007-08 INTANGIBLE ASSETS I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 7 -: 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 PRICIN G 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 SPECI FIC TERMS. ACCORDING TO SUPPLIER SPECIFIC TERMS IBSS INC. SHAL L 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 RAISIN G. 7.1. THE CHARACTERIZATION OF THE TRANSACTION IN THE TP STUDY IS AS FOLLOWS: FOR THE PURPOSE OF ECONOMIC ANALYSIS, TAKSHEEL SO LUTIONS LIMITED CAN BE CATEGORISED AS CAPTIVE SOFTWARE SERVICE PROV IDER THAT CARRIES MINIMUM RISK AND IS ASSURED OF ITS RETURN ON COST A S THE HOURLY RATE PROVIDED IN THE AGREEMENT IS SUFFICIENT ENOUGH TO C OVER ITS COSTS. 7.2. AT PAGE NO. 41, THE MOST APPROPRIATE METHOD SELECTE D AS PER THE TP STUDY READS AS FOLLOWS: AFTER REVIEWING ALL OF THE TRANSFER PRICING METHO DS DISCUSSED HEREIN, WE CONCLUDED THAT, GIVEN THE FACTS AND CIRC UMSTANCES, APART FROM CUP METHOD, TNMM PROVIDES THE MOST RELIABLE ME ASURE OF AN ARMS LENGTH FOR THE INTERNATIONAL TRANSACTIONS OF IBSS INDIA. ALTHOUGH THE TNMM, THEORETICALLY, IS BASED ON TRANS ACTIONAL DATA, IT RECOGNIZES THAT NO COMPARABLE DATA AS SUCH ON A TRA NSACTIONAL LEVEL IS LIKELY TO EXIST. FURTHER, IN CASE THE TRA NSACTIONS ARE CLOSELY INTERLINKED, THE SAME CAN BE AGGREGATED UNDER THE T NMM. I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 8 -: IN ORDER TO ASSESS, WHETHER THE INTERNATIONAL TRANS ACTIONS ENTERED INTO BY TAKSHEEL SOLUTIONS LIMITED ARE AT ARMS LEN GTH, A TRANSFER PRICING METHOD MAY BE APPLIED TO EACH OF THE SAID T RANSACTIONS SEPARATELY OR TO ALL SUCH TRANSACTIONS AS A SIMPLE GROUP OF TRANSACTIONS. IN THE INSTANT CASE, FOR THE PURPOSE S OF DETERMINING THE ARMS LENGTH PRICE, THE AFORESAID INTERNATIONAL TRANSACTIONS HAVE BEEN AGGREGATED FOR BENCHMARKING. 7.3. THE ASSESSEE CLAIMS THAT TRANSACTION NET MARGIN METHOD (TNMM) WAS ADOPTED BY IT, AS THE MOST APPROPRIATE METHO D AND THAT ITS OPERATING PROFIT TO SALES RATIO IS 52.22% AND W HEREAS, THE OP/SALES MARGIN OF COMPARABLES IDENTIFIED HAVE A PER CENTAGE OF 21.72%. THE ASSESSEE SUBMITTED THAT THE TRANSACTIONS ARE AT ARMS LENGTH. 7.4. THE TPO HELD THAT THE ASSESSEE HIMSELF HAS STATED TH AT CUP IS THE MOST APPROPRIATE METHOD AND THAT THE TRANSACTION PERTAINING TO SALE OF SERVICES, HAVE BEEN ANALYSED UN DER CUP METHOD ONLY. AS NO DETAILS WERE FURNISHED IN THE TP S TUDY BY THE TAX-PAYER, THE TP DOCUMENTATION WAS REJECTED BY THE TPO. IT WAS ALSO HELD THAT THE TP REPORT WAS INCOMPLETE AND NOT VERI FIABLE. THEREAFTER, THE AO/TPO ADOPTED CUP METHOD AS THE MOST APPROPRIATE METHOD. HE GAVE A FINDING THAT THE ASSESSEE HAS FAILED TO LINK UP THE PRICES CHARGED AND THE SERVICES RENDERED AND IN THE ABSENCE OF ANY VERIFIABLE EVIDENCE, THE CLAIM OF THE ASSESSEE OF DIFFERENTIAL RATE BEING CHARGED WAS REJECTED. I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 9 -: AT PARA 11 OF THE TPOS ORDER, HE HELD AS FOLLOWS: IN THE ABSENCE OF ANY VALID INFORMATION TO SUBSTA NTIATE 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 4,46,280 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, 19 61. 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. FURTH ER 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 RE PORT AND THE FACTUAL SUBMISSIONS MADE BEFORE THE AO/TPO AND THE DRP S ARE AT VARIANCE. THE TP STUDY, TO SAY THE LEAST IS AMATE URISH AND IN-COMPLETE. IN OUR VIEW, AO/TPO WAS RIGHT IN REJE CTING THE TP STUDY. I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 10 -: 7.7. THIS BRINGS US TO THE ISSUE TO WHAT IS THE NATUR E OF SERVICE RENDERED BY THE ASSESSEE TO THE AE, WHICH IS THE INTERN ATIONAL TRANSACTION-IN-QUESTION. WE FIND THAT THE ASSESSEE HAS RENDERED SERVICES TO ITS AE BY PROVIDING MAN POWER. THE ASSES SEE WAS BILLING ITS AE ON HOURLY RATE FOR THE HUMAN RESOURCES SUPPLIED. THE HOURS BILLING RATE FOR THE SUPPLY OF MAN POWER W AS DETERMINED, BASED ON THE DESIGNATION OF THE EMPLOYEE, THE QUALIFICATION OF THE EMPLOYEE AND EXPERIENCE. A SUMM ARY OF THE SAME IS EXTRACTED BELOW: S.NO. DESIGNATION OF EMPLOYEE MAN HOUR RATE USD($) QUALIFICATION EXPERIENCE 1. PROJECT MANAGER 65 MCA/BE/MTECH ABOVE 13 YEARS 2. PROGRAM ANALYST 55 MCA/BE/MTECH 10 - 12 YEARS 3. SENIOR PROGRAMMER 45 MCA/BE 5 - 7 YEARS 4. PROGRAMMER 35 MCA/BE 3 - 4 YEARS 5. JUNIOR PROGRAMMER 25 BSC/MCA 1 - 2 YEARS THE ALP HAS TO BE DETERMINED FOR THIS TRANSACTION. IT IS OBSERVED THAT THE ASSESSEE IS RENDERING SIMILAR SERVICE OF MAN POWER REGULARLY TO ITS NON-AES ALSO. THUS, AN INTERNAL CU P IS AVAILABLE IN THIS CASE. 7.8. CUP IS DEFINITELY THE MOST APPROPRIATE METHOD UNDE R THE GIVEN CIRCUMSTANCES, AS THE ASSESSEE IS BILLING ITS A E FOR MAN POWER SUPPLYING ON A HOURLY RATE BASIS. SIMILAR IS THE BILLING DONE BY THE ASSESSEE TO ITS NON-AES FOR THE SAME FUN CTION. THE COMPARISON SHOULD BE BETWEEN THE MAN POWER RATE CHAR GED, FOR THE EMPLOYEE HAVING THE SAME DESIGNATION, QUALIFICATIO N AND EXPERIENCE. FOR EXAMPLE, AN EMPLOYEE DESIGNATED AS A PROJECT I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 11 -: MANAGER HAVING QUALIFICATION OF M. TECH., AND HAVING EXPERIENCE OF MORE THAN THIRTEEN YEARS, COMMANDS A BILLING OF MAN HOURLY RATE AT US$ 65. THIS PRICE SHOULD BE COMPARED WITH T HE 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 B E APPROVED. 7.9. THE ASSESSEE CLAIM THAT IT HAD SUPPLIED THE WORK C HARTS, COPIES OF BILLS RAISED ETC., TO PROVE THAT THE RATE BIL LED FOR A PARTICULAR CATEGORY OF EMPLOYEE TO THE AE AND TO THE NO N-AE IS THE SAME. HE ALLEGES THAT LIKES HAVE NOT BEEN COMPARED WI TH LIKES AND THAT HE HAD FURNISHED THE DETAILS ALONG WITH COMPA RATIVE CHARGES TO THE TPO/AO, TO DEMONSTRATE HIS CLAIM THAT TH ERE IS NO VARIATION IN THE HOURLY BILLING RATE BETWEEN THE AE AN D NON-AE FOR MAN POWER SUPPLY. THE AO/TPO IS DIRECTED TO VERIFY THE DETAILS AND RECOMPUTED THE ALP. IN VIEW OF THE ABOVE DISCUSS ION, 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 CATEGO RISATION OF THE EMPLOYEE AND THEN ONLY ARRIVE AT THE ALP. IN CASE THE ASSESSEE IS UNABLE TO PROVIDE THE REQUIRED DETAILS AN D 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 CONS IDERED. 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 ADJ UDICATION IN ACCORDANCE WITH LAW. BOTH PARTIES ARE AT LIBERTY TO LE AD FRESH EVIDENCE INCLUDING TP STUDY, COMPARABLES ETC., TO AR RIVE AT THE ALP. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PUR POSES. I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 12 -: 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 UNWARRANTED. THUS, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 9. THE LAST ADDITION IS ON ACCOUNT OF UN-EXPLAINED SHA RE PREMIUM. THE AO/TPO IN HIS ASSESSMENT ORDER RECORDS THAT VIDE HIS QUERY IN THE ORDER SHEET DT. 23-12-2011, HE REQUE STED THE ASSESSEE TO PRODUCE THE DETAILS OF THE SHARE PREMIUM V ALUATION AND TO JUSTIFY THE PREMIUM RECEIPT. AS THE ASSESSEE HAD NOT PROVIDED THE DETAILS, THE ADDITION HAS BEEN MADE. 9.1. WHEN THE MATTER TRAVELLED TO THE DRP, THE ADDITION WA S CONFIRMED ON A TOTALLY DIFFERENT GROUND BY HOLDING THAT THE ASSESSEE HAS NOT FURNISHED DETAILS AS REGARDS THE IDE NTITY, CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION. IT IS THE CASE OF THE ASSESSEE THAT NO SUCH DETAILS WERE SOUGHT F ROM HIM EITHER BY THE AO/TPO OR THE DRP. HE SOUGHT TO FILE AD DITIONAL EVIDENCE AND REQUESTED FOR ADMISSION OF THE SAME. 9.2. WE HAVE PERUSED THE APPLICATION FOR ADMISSION O F ADDITIONAL EVIDENCE. NO REASON WHAT-SO-EVER IS MENTIONED IN THI S APPLICATION TO JUSTIFY THE ADMISSION OF ADDITIONAL EVIDENCE. HENCE , THE SAME IS REJECTED. 9.3. BE THAT AS IT MAY, THE ADDITION WAS NOT MADE BY THE AO ON THE GROUND OF NON-FILING OF THE EVIDENCE TO PROVE THE I DENTITY, GENUINENESS AND CREDITWORTHINESS OF THE TRANSACTION. THE BASIS OF MAKING THE ADDITION WAS NON-SUBSTANTIATION OF THE S HARE PREMIUM CHARGED. WE HOLD THAT THE DRP WAS WRONG IN C OMING TO I.T.A. NO. 1768/HYD/2012 M/S. TAKSHEEL SOLUTIONS LIMITED :- 13 -: A CONCLUSION THAT THE ASSESSEE HAS NOT PROVIDED EVIDE NCE OF IDENTITY ETC., OF THE SHAREHOLDER. IN ANY EVENT, WE DE EM IT FIT AND PROPER TO SET ASIDE THE MATTER TO THE FILE OF AO/TPO FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. THE AO/TPO SHA LL PROVIDE ADEQUATE OPPORTUNITY TO THE ASSESSEE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2016 SD/- SD/- (P. MADHAVI DEVI) (J. SUDHAKARA REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBE R HYDERABAD, DATED 17 TH JUNE, 2016 TNMM COPY TO : 1. M/S. TAKSHEET SOLUTIONS LIMITED, HYDERABAD. C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-2(3 ), HYDERABAD. 3. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 4. THE DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION , INCOME TAX TOWERS, HYDERABAD. 5. THE ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICING), HYDERABAD. 6. D.R. ITAT, HYDERABAD. 7. GUARD FILE.