TaxTMI 
TaxTMI 
2016 (7) TMI 245
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....e learned Assistant Commissioner of Income-tax, Circle 17(1), New Delhi ('the AO'), vide final assessment order dated October 19, 2011 (served on the appellant on November 2, 2011) passed under section143(3) read with section 144C(13) of the Income-tax Act, 1961 ('the Act') is not in accordance with the law and, therefore, not sustainable. Transfer Pricing ('TP') adjustment-Rs. 1,89,53,444 That the hon'ble Dispute Resolution Panel, New Delhi ('the DRP') has erred both in law and on facts by rejecting the appellant's objections to the draft order dated December 16, 2010, passed by the learned Assessing Officer under section 143(3) read with section 144C(1) of the Act. The hon'ble Dispute Resolution Panel while issuing directions under section 144C(5) of the Act did not consider the facts and merits of the appellant's objections to the proposed adjustments, and merely relied on the reasons given by the Additional Commissioner of Income-tax, Transfer Pricing ('the TPO'), vide order under section 92CA(3) of the Act dated June 30, 2010 ('TP order'). On the facts and in the circumstances o....
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....mbit of the licence agreement. (d) By making an erroneous observation, though in passing reference, on page 6 of the Dispute Resolution Panel directions that there is no need to avail of 'engineering services' as the appellant is sub-contracting a portion of work to third party vendors on need basis. Benchmarking analysis 1.2 By summarily disregarding/overlooking the evidence in the form of certificate obtained from an independent auditor that certifies the appropriateness of cost allocated to the appellant with respect to engineering services during the relevant period. 1.3 By summarily rejecting the 'cost plus method' identified as the most appropriate method under section 92C(1) of the Act by the appellant to test the arm's length nature of charges paid in connection to engineering services availed of under the agreement. 1.4 By misconstruing the appellant's business model and functional characterisation as an 'engineering service provider' and by disre garding the fact that the appellant is as an erection, procurement and commissioning ('EPC') contractor, thereby upholding incorrect set of comp....
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....nto 16 numbers of international transactions during the year under assessment out of which at present transaction referred at Sl. No. (b), i.e., group charges to the tune of Rs. 1,89,53,444 is in dispute. 4. Pursuant to the order passed by the Transfer Pricing Officer (TPO) dated June 30, 2010, an addition of Rs. 5,42,39,943 on account of the arm's length price (ALP) adjustment/difference was made. The assessee carried the matter before the learned Dispute Resolution Panel who has directed not to make an addition of Rs. 2,93,89,807 on account of payment of royalty at the arm's length but at the same time the learned Dispute Resolution Panel held that since the assessee has failed to bring on record the evidence regarding payment of Rs. 1,89,53,444 on account of group charges, the same is ordered to be added to the assessee's income only as against Rs. 2,48,50,136 as directed by the Transfer Pricing Officer. Consequently, addition of Rs. 1,89,53,444 has been made on account of the arm's length price adjustment/difference. 5. The learned Transfer Pricing Officer, during the transfer pricing proceedings, determined the arm's length price in respect of the pay....
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....ublic relations, corporate human resources, corporate sourcing, PDM and ProCS, the taxpayer will be charged at 25 per cent. of the total amount of the fees based on the estimated costs of VSH (Voith Germany) and the expenses are allocated on the basis of sales (key) of group companies. Further, they have described the component of public relations that fall under the common services category (as per annexure XVI of the submissions dated April 19, 2010. In support of the services rendered by its associated enterprise, copies of certain magazines and some literature connecting with the business of the taxpayer are furnished. Similarly, for corporate human resources (annexure XVTII and corporate sourcing (annexure XX), evidence furnished for services received contain certain papers on technical write-up along with certain e-mails received. The second part of the agreement relates to charging of specific item of expenses (clause 3.3) based on actual basis, subject to production of documentary evidence. The said expenses relate to : (a) IT-consultancy (b) Business consultancy (c) Engineering services (d) Training For the service (cha....
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....ive and selling expenses for the year under consideration, which translates to 15 per cent. of the operating revenues. Also, an amount of Rs. 6.98 crores was debited on account of personnel expenses. When such a huge expenditure was incurred by taxpayer both on account of adminis trative and employee costs, the payments made towards the so-called intragroup services remained unjustified. Even if expenses debited on account of royalty (Rs. 2.94 crores) and group charges (Rs. 1.89 crores) are excluded, an amount of Rs. 10 crores spent under the head administrative and selling expenses is substantial. Further, it is noticed that the payments made towards so-called engineering services rendered by its associated enterprise (Rs. 1.46 crores), the invoices raised by Voith Germany speaks about OTO- support and application work. None of the projects mentioned therein in respect of whom OTO-support and application work given are undertaken during the year under reference. The projects under taken by the taxpayer during the year are as follows : (i) Omkareshwar Hydroelectric project of Narmada Hydro Corporation Ltd., Madhya Pradesh (ii) Baglihar Hydroelectric Power....
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....ise, Voith Germany in respect of work sub- contracted for Orissa Hydro Power Corporation Ltd., the scope of work as per the transfer pricing report include supervision of dismantling, supervision of repairing and supervision of erection as the taxpayer' possesses requisite expertise and resources required for the work. The services were charged on a monthly basis by the taxpayer to its associated enterprise. On one hand, the taxpayer has provided engineering and super visory services not only in the country but even outside the country to its associated enterprise, Voith Germany, but on the other hand, the taxpayer claims that certain engineering services were received from its associated enterprise. The taxpayer failed to substantiate as to why the services that are claimed to have been received by its associated enterprise could not be undertaken by its own manpower when they are having requisite expertise in this field. 4.2.1.3 No group charges paid by the taxpayer in the preceding previous year Also, it is important to note that no such group charges were paid by the taxpayer in the preceding previous year, i.e., the financial year 2005-06, when i....
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.... charges to the tune of Rs. 1,89,53,444 to its associated enterprise for rendering services, such as, OTO and support and application work in respect of various projects for which tenders were submitted. The Transfer Pricing Officer returned the categoric finding that the assessee has failed to demonstrate "as to whether the services were claimed to have been rendered by its associated enterprise were actually received" and as such failed "the benefit test" applied by the Transfer Pricing Officer, which amounts to assuming the powers of the Assessing Officer. 11. Identical issue has come up before the hon'ble jurisdictional High Court in judgment cited as CIT v. Cushman and Wakefield (India) Pvt. Ltd. [2014] 367 ITR 730 (Delhi) and operative part of the judgment is reproduced for ready reference as under : "Section 92CA, read with section 37(1) of the Income-tax Act, 1961 -Transfer pricing-Reference to TPO (Section 37(1) v. section 92CA)-Whether jurisdiction of Assessing Officer under section 37 and TPO under section 92CA is distinct and, therefore, a referral made by Assessing Officer to TPO for limited purpose of determining ALP does not take away power of Assessi....