TaxTMI 
TaxTMI 
2016 (12) TMI 942
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.... method as compared to Transactional Net Margin Method (TNMM). 4. The brief facts of this issue is that the assessee (Lee Harris Pomeroy Architects P.C. -LHPA in short) a company established under the laws of United States of America ( "company" ) along with a consortium of members consisting of (i) M/s Maunsell Consultants Asia Ltd., a company incorporated under the laws of Hong Kong and having its registered office at 8/F, Grand Central Plaza, Tower 2, 138, Shatin Rural Committee Rd, Shatin, New Territories, Hong Kong, (ii) Consulting Engineering Services (India) Private Limited, a company incorporated under the Companies Act, 1956 and having its registered office at 57, Nehru Place, 5th Floor, New Delhi - 110019 , (iii) Yachiyo Engineering Co. Ltd., a company incorporated under the laws of Japan having its registered office at 18-12, 2, Nishiochiai, Shinjuku-ku , Tokyo, Japan , (iv) Egis Rail S.A., a company incorporated under the laws of France and having its registered office at 25, Cours Emile Zola - 69625, Vileurbanne Cedex, France (together with the company, the "consortium" ) were awarded a contract dated 20.2.2009 by Kolkata Metro Rail Corporation Limited, a company in....
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.... services under the General Consultancy Agreement. Offshore services are the main services for which LHPA was contracted for the project. These include primarily architectural design, safety planning, scheduling, cost analysis, transportation planning and sustainability and property development and outline specification. These are undertaken by the employees of LHPA in USA. Onshore services mainly include supervision of execution of the designs and specifications provided by LHPA USA. The onshore services have been subcontracted to Superior Global Infrastructure India Private Limited (SGI) a third party vendor, who undertakes the work on behalf of LHPA USA. LHPA has also deputed few of its employees to supervise the same. 4.3. For the purpose of computing the Arm's Length Price (ALP) of the above mentioned international transactions, the assessee had adopted CUP method in its Form 3CEB filed along with the return of income. The assessee had stated in Notes to Form 3CEB in Point No. 6 as below:- "The Company has determined Comparable Uncontrolled Price Method (CUP) as the most appropriate method u/s 92C of the Act. The CUP method evaluates the price charged in a controlled ....
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....g an upward adjustment of Rs. 2,38,81,864/-. The Learned AO passed a draft assessment order u/s 143(3) read with section 144C(1) of the Act in Feb 2014 . Against this draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP) who upheld the order of the Learned TPO & draft order of the Learned AO vide proceedings dated 29.12.2014. Later the Learned AO passed the final assessment order u/s 143(3) read with section 144C(13) of the Act on 10.2.2015 pursuant to the directions of the DRP. Aggrieved, the assessee is in appeal before us on various grounds. The assessee also filed additional grounds of appeal before us. But the central ground revolves around the most appropriate method to be adopted by the assessee in the facts and circumstances of the case and consequential determination of ALP. Hence all the grounds including the additional grounds are adjudicated together herein for the sake of convenience. 5. The Learned AR heavily relied on the paper book filed by him before us and gave a two page compilation of various case laws in support of his various oral submissions made during the course of hearing. He argued that though the assessee had ....
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....sed. He vehemently objected for admission of additional grounds of appeal filed by the assessee at the appellate stage in support of which , he relied on various case laws. 7. We have heard the rival submissions and perused the materials available on record including the paper books filed by the assessee and written submissions filed by the Learned DR. We find that the assessee in its TP study in respect of the following expenses incurred by it and project fees received by LHPA India from Kolkata Metro Rail Corporation Ltd (KMRCL) to the tune of Rs. 11,93,43,919/- , considering the functional and risk profile of these transactions and examining the available comparable data, had adopted TNMM as the most appropriate method for determination of its ALP using operating profit (OP) based on Income, as the profit level indicator (PLI) :- Labour expenses During the financial year 2009-10, LHPA India has to pay labour related cost of Rs. 9,84,14,467/- for the offshore services rendered by the personnel of associated enterprise in relation to the execution of Kolkata Metro Rail Project in India. Overhead expenses During the financial year 2009-10, LHPA India incurred an expe....
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....the Learned AR that the 11 comparables chosen by the Learned TPO are highly experienced companies and are in existence for a period of 22 years on an average and would have a lower fixed cost base, whereas the assessee had to incur lot of expenses in the initial year and the revenue for the same would flow to assessee subsequently. Moreover, the comparables are engaged in various fields that are functionally different from that of assessee. Reliance in this regard is placed on the decision of Pune Tribunal in the case of Skoda Auto India P Ltd vs ACIT reported in (2009) 30 SOT 319 (Pune ITAT) , wherein it was held that :- "19. One of the things which is clearly discernable from the facts of this case is that so far as the year before us is concerned, which was incidentally first full year of assessee's operations, the import content of the raw materials was as high at 98.55 per cent. This is materially different from the import content of the raw material in the cases of the comparables selected by the revenue authorities. The import content of raw material in these cases ranged from 26 per cent to 56.83 per cent [Hindustan Motors - 31 per cent; Honda Siel - 48.2 per cent; Hyund....
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....models of the assessee-company and the comparable companies are the same and it is on account of initial stages of business that the unusually high costs are incurred. The adjustments are thus required either way. It is, therefore, permissible in principle to make adjustments in the costs and profits in fit cases. We also do not agree with the authorities below that the onus is an the assessee to get all such details of the comparable concerns so as to make this comparison possible. The assessee cannot be expected to get the details and particulars which are not in public domain. In such a situation, i.e., when information available in public domain is not sufficient to make these comparisons possible, it is inevitable that some approximations are to be made and reasonable assumptions are to be made. The argument before us was that it was first year of assessee's operations and complete facilities ensuring a reasonable indigenous raw material content was not in place. The assessee's claim is that it was in these circumstances that the assessee had to sell the cars with such high import contents, and essentially high costs, while the normal selling price of the car was computed in t....
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....ing Officer shall also give a due and fair opportunity of hearing to the assessee, shall deal with the contentions of the assessee in a fair and objective manner by way of a speaking order, and in accordance with the law and judicial precedents as may be available at that time. As we remit the matter to the file of the Transfer Pricing Officer, we are alive to the fact that it is difficult to miss, even on a cursory glance, that many of the arguments and facts in support of arguments are indeed taken up before us for the first time, and, to that extent, the authorities below never had an opportunity to examine these aspects of the matter. Take, for example, the submissions regarding capacity under utilization. It was never taken up before the Transfer Pricing Officer in the first place. Similarly, the issues regarding product cycles and impact of these product cycles on operating profit margins was never before the Assessing Officer. The relevance of multiple year data hinges on acceptance of this theory about relevance of product cycle. The CRISIL report which has been repeatedly referred before us was apparently not available to the Transfer Pricing Officer. In these circumstance....
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....lso it is not precluded from raising the contentions/objections before the TPO or the appellate Courts that such a method was not an appropriate method and is not resulting into proper determination of ALP and some other method should be resorted. The ultimate aim of the transfer pricing is to examine whether the price or the margin arising from an international transactions with the related party is at ALP or not. The determination of approximate ALP is the key factor for which most appropriate method is to be followed. Therefore, if at any stage of the proceedings, it is found that by adopting one of the prescribed methods other than chosen earlier, the most appropriate ALP can be determined, the assessment authorities as well as the appellate Courts should take into consideration such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate ALP on the facts of the case. Accordingly, we reject the contentions of the learned Departmental Representative and also the observations of the Assessing Officer and the learned Commissioner (Appeals) that the assessee cannot resort to adoption of RPM method instead of TNMM." ....
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....experts of his own who were competent enough to do this work. For example, the Transfer Pricing Officer had pointed out that the assessee has qualified accounting staff which could have handled the audit work and in any case the assessee has paid audit fees to external firm. Similarly, the Transfer Pricing Officer was of the view that the assessee had management experts on its rolls, and, therefore, global business oversight services were not needed. It is difficult to understand, much less approve, this line of reasoning. It is only elementary that how an assessee conducts his business is entirely his prerogative and it is not for the revenue authorities to decide what is necessary for an assessee and what is not. An assessee may have any number of qualified accountants and management experts on his rolls, and yet he may decide to engage services of outside experts for auditing and management consultancy; it is not for the revenue officers to question assessee's wisdom in doing so. The Transfer Pricing Officer was not only going much beyond his powers in questioning commercial wisdom of assessee's decision to take benefit of expertise of Dresser Rand US, but also beyond th....
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....concept of base erosion is not a logical inference from the fact that the AEs have only asked for reimbursement of cost. This being a transaction between related parties, whether that cost itself is inflated or not only is a matter to be tested under a comprehensive transfer pricing analysis. The basis for the costs incurred, the activities for which they were incurred, and the benefit accruing to the Taxpayer from those activities must all be proved to determine first, whether, and how much, of such expenditure was for the purpose of benefit of the Taxpayer, and secondly, whether that amount meets ALP criterion. 32. In fact in Assessee's own case the Tribunal on identical facts remanded the issue of determination of ALP to the TPO. The direction of the Tribunal has already been extracted in the earlier part of this order. The facts and circumstances are identical in the present assessment year and therefore the order of the AO is set aside and the issue remanded to the TPO/AO with identical directions as was given in Assessee's own case in AY 07-08. In a case where expenses are actually reimbursed with no mark-up, than as observed by the Hon'ble Delhi High Court, th....