TaxTMI 
TaxTMI 
2016 (8) TMI 555
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....is an EPC Contractor who requires technical knowledge in the nature of design, plans etc. Benefit test 1.3. erred in not appreciating the fact that substantial evidence was produced by the appellant for the technical consultancy services received by the appellant from its associated enterprises which can be substantiated through email correspondence and teleconferences and through word of mouth at the time of visit of the technical personnel; 1.4. erred in not appreciating the fact that the benefit derived from the payment of technical service fees has been adequately documented in the Transfer Pricing documentation prepared under section 92D read with rule 10D and the method adopted by the appellant for determining the arms length price in respect of the international transactions entered into by the appellant are as per Transfer pricing regulations; 1.5. erred in not appreciating the fact that services in nature of technical consultancy cannot be valued from the volume of documentation; Rejection of documents to prove benefit test on adhoc basis 1.6. erred in upholding that evidence submitted by the appellant for the Technical Services as being in nature of "General G....
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....ng and improvement of the existing 4-Lane highway from km 253 to km 265 on the Ibrahimpatnam to Vijayawada Section of the National Highway NO.9 (RNH-9") in Andhra Pradesh (the "Concession Agreement). 5. Another company by name Swarna Tollway Pvt. Ltd., had entered into an agreement on 29.06.2001 With CIDB Inventures Inventure Sdn Bhd and National Highways Authority of India (Assignment Agreement) to assign and transfer the above mentioned agreement in favour of the Swama Toliway-Pvt. Ltd. The company, Swama Tollway Pvt. Ltd., in turn entered into an agreement with the assessee-company, M/s. I.W.M. Constructions Pvt. Ltd, (called as Contract Agreement) for 'execution of the works known as design, engineering, construction and completion of the widening -and rehabilitation of the existing 2-Lane Highway from' Km 54.383 to Km 111.600 (Designed Chainages) on the Tada - Nellore Section of the' National Highway No.5 .("NH-5 (South)") in Andhra Pradesh, India (and Which forms part of the Employers obligations under the Concession Agreement) should be executed by the contractor, and has accepted an offer from the Contractor for the execution and completion of these works and t....
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....be provided by the Jt. Project Advisors involve the following: i) Project Management Services; ii) Design and Technical Services; iii) Budget and Tender services; iv) Contract and Legal services; v) Human Resources Services; and vi) Financial and Management Accounting Support. 9. The assessee claimed an expenditure of Rs. 7.5 crores towards the above technical and other support services as per the terms of the agreement. Since the assessee has entered into international transactions with the AEs, it maintained the documents as required under Rule 10D of the I.T. Rules. For its TP study, the assessee considered the Transactional Net Margin Method (TNMM) as the most appropriate method for determining the ALP of the transaction of payment of the technical and other support service fees to the Joint Project Advisors. Thereafter, after considering the average margin of the comparable companies, the assessee observed that the profit margin @11% in the case of the assessee is much more than 4% in the case of comparable companies and therefore, transaction was considered to be at Arm's Length Price. Accordingly, assessee filed its return of income before the AO. AO, however, observe....
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.... shows that few persons from AEs came to India from time to time and that their local expenses, stay etc., was borne by the assessee company only and further held that unless and until it is proved that these companies have provided technical services worth Rs. 7.5 crores to the assessee, the same cannot be treated as services rendered by the AEs. He also observed that the assessee was not the real contractor for the road project as the entire project was given on sub-contract to M/s. Madhucon Binapuri JV and that the role played by the assessee in the actual execution of the contract is insignificant. He further observed that the independent consultants also have been appointed by Swarna Tollways (P) Ltd and NHAI to monitor and supervise the project. Thus, he held that the role played by the assessee and its AEs is not proved. He, therefore, held the transaction to be a sham transaction. Further without the prejudice to the above finding, he also noted that the ratio of AE companies for sharing the expenditure and the income is the ratio of 61.90% and 38.10% i.e. the ratio of their sharing holding in the assessee company. He therefore, disbelieved that the AEs have provided any te....
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....placed reliance upon. Copies of the said judgments are also filed before us in the form of a paper book. Copies of the agreement between Swarna Tollways (P) Ltd and the assessee and the assessee and its AEs also form part of the paper book. The learned Counsel for the assessee submitted that the TPO is empowered only to determine the ALP of the international transactions and cannot go into the genuineness or otherwise of the transactions. He submitted that the TPO has erred in holding that no method can be applied for determination of Arm's Length Price of transaction by holding that the transaction is not a genuine transaction. As regards the AO's finding that the AEs have not rendered any services to the assessee and that the payment of commission is unwarranted and unreliable, he has placed reliance upon several judgments. As regards the determination of the ALP, he submitted that the TPO has to follow one of the methods prescribed by the Act and the rules to determine the ALP whereas in the case before us, the TPO, without following any of the methods prescribed has taken the ALP at 'zero' which is not in accordance with law. As regards the quantum of payment made by the assess....
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....projects. Therefore, according to him, the technical and support services have not been provided to the assessee by the AE's. He submitted that even if it is to be accepted but not admitted that the TPO cannot go into the veracity of the transactions or decision of the assessee to avail the services, it is within the realm of the AO to examine the genuineness of the same and the AO in the present case has done so before disallowing the same. Therefore, according to him, the assessment order is to be upheld. 15. Having regard to the rival contentions and the material on record, we find that the main grievance of the assessee in this appeal is against the order of the CIT (A) confirming the finding of both the TPO and the AO that the transactions of the assessee with its AE's are sham transactions and therefore, no value could be assigned to them. From the facts of the case brought out in detail in the paragraphs above, it is seen that in March, 2001, Govt. of India had authorized the NHAI to enter into an agreement with CIDBI Malaysia which was awarded a civil project of NHAI based on Memorandum of agreement between Govt. of India and Govt. of Malaysia, regarding various highway pr....
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....cuted by the sub contractor only is not correct. The technical and other support service agreement between the assessee and its AE's is placed at pages 344 to 382 of the paper book. The AE's have been described as "joint project Advisors" and the contract is to provide the assessee herein described as the employer, the engineering, technical and other support service required for smooth and timely performance by the employer of its obligations under the EPC contract. The clause 2 of the agreement defines the scope and purposes of the services while, clause 2.5 sets out the general obligations of the joint project advisors. The details of the services to be provided by joint project advisors are given in Schedule A attached to the agreement. For the sake of ready reference, the same is reproduced hereunder: "SCHEDULE A SERVICES TO BE PROVIDED BY JOINT PROJECT ADVISORS A. Project Management Services * Design and development of construction plan and subcontracting strategies * Development of work sequence and project construction framework * Review of monthly project status to ensure compliance with work sequence and project construction framework * Provision of specialist ....
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....s provided to the company. 19. It is submitted that design management plays a key part in the overall project and such a resource was not sufficiently incorporated in the operations of the assessee in India and in order to minimize the project risks, the assessee has received adequate support from the AEs in this regard. It is submitted that the AEs also provided value engineering services and design enhancement services and that such services were utilized to further enhance the quality of the end product and in compliance with such benchmarks as American Association of State Highway and Transportation Official (AASHTO), Bureau of Indian Standards and other standards prescribed. 20. With regard to budget and tender management, it is submitted that the AEs have provided the company viable expertise in project management wherein a systematic approach of controlling costs was adopted and are providing cost control through special cost management techniques. 21. As regards contractual and other services, it was submitted that the AEs were instrumental in assisting the company to review the EPC contract agreement from the toll concessionaire and also to produce a very risk-mitigated....
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....s rendered are so general in nature that even an employee of the assessee could have rendered the same. It was in these circumstances that the Tribunal held that though the finding is given to the fact that no services are rendered in the light of the contradiction in the findings and the observations, it is clear that in effect, the commercial expediency of these payment is questioned. In the case before us also, though the TPO & AO have given finding that no services have been rendered to the assessee by the AEs, the AO has also treated the assessee as a representative assessee of the AEs and has treated their income as chargeable to tax in India in the hands of the assessee on the ground that the employees of the AE's have visited India and have rendered services in India. Therefore, we find that these are contradictory stands of the AO. Similar view has been expressed by the Coordinate Bench of this Tribunal in the case of TNS India (P) Ltd vs. DCIT, reported in 40 ITR (Trib.)125 dated 17.04.2015 after considering the evidence on record to prove that the assessee therein had received services. The Tribunal had also considered and held that the role of the TPO is only to determi....