TaxTMI 
TaxTMI 
2017 (9) TMI 239
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.... Transfer Pricing Matters 2. That the Hon'ble DRP/Ld. TPO has erred both on facts and in law, by re-determining the arm's length price ("ALP") of the international transactions of the Appellant by rejecting the transaction-bytransaction approach followed in the Transfer Pricing ("TP") documentation and instead following an aggregated approach. 3. That the Hon'ble DRP grossly erred, on the facts and circumstances of the case and in law, in agreeing with the Ld. TPO's action of: 3.1. disregarding the arm's length price and the benchmarking process carried out by the Appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income Tax Rules, 1962 ("the Rules"). 3.2. disregarding multiple year/ prior years data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2011-12) data for comparable companies should be used considering the fact that the Appellant is engaged in the execution of long term turnkey contract and it is imperative to analyse the profitability of such contracts over a period of time, in line with the applicable Accounting Standards. ....
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.... the Act 9. On the facts and in the circumstance of the case and in law, the Ld. AO has grossly erred in initiating penalty proceedings u/s 27i(i)(c) of the Act." 2. The facts in brief of the case as culled out from the orders of lower authorities are that: (i) M/s RTA Alesa AG, Switzerland is a subsidiary of Rio Tinto Plc and engaged in the business of providing customers with material handling technologies and service including turnkey projects, harbour facilities, conveying systems, storage equipment, vehicle loading and unloading, training and technical assistance. Its expertise covers material handling, Anode plant technology, reduction technologies and automation. (ii) M/s RTA Alesa AG, Switzerland, was awarded a 'EPC' contract by M/s Bharat Aluminium Company Limited ( BALCO) for 55 TPH bath processing plant for carbon plant of BALCO smelter expansion project at Corba, Chattisgarh ( India). Accordingly, it set up a project office (PO) in India for executing EPC project with BALCO on a general permission from the Reserve Bank of India (RBI). This project office constituted permanent establishment (PE) of RTA Alesa, Switzerland India i.e. an entity....
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....05,925 NA NA NA (viii) In the transfer pricing study submitted, the assessee computed the operating profit margin (OP/OC) as under: Particulars Supply of Equipments Rendering of services Revenue Contract Income -Domestic 7,53,86,570 5,12,31,796 Less:- Non-operating income - - Total Income 7,53,86,570 5,12,31,796 Total Operating Revenue 7,53,86,570 5,12,31,796 Expenditure Other Contract Costs - 3,62,39,107 Material 6,85,19,996 - Provision of Warranty 51,15,650 - Depreciation - 34,53,206 Other expenses 467235 1,33,93,474 Provision for expected loss 1,94,040 1,31,868 Total Expenditure 7,42,96,921 5,32,17,655 Less:- Non-operating expenses - - Total Operating Cost 7,42,96,921 5,32,17,655 Profit before Tax 10,89,649 (19,85,858) Adjustments Expenses related to offshore contract debited in P&L 99,87,037 ....
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....Pvt. Ltd. [Merged] 2.92% 2 Holtec Counselting Pvt. Ltd. 59.00% 3 1-Design Engineering Solutions Ltd. 16.89% 4 Neilsoft Ltd. 2.57% 5 Tractebel Counselting Engineers Pvt. Ltd. 57.67% 6 Mahindra Engineering Services Limited Excluded 7 TCE Counselting Engineers Limited 21.15% 8 Mahindra Counselting Engineering Limited 23.92% 9 Balaji Rail Road Systems Ltd. 24.96% 10 Projects & Development India Ltd. (Seg.) 46.43% 11 Counselting Engineers Group Ltd 17.89% 12 BIL Infratech -0.21% 13 BGR EnergySystems Ltd. 15.34% Average 24.04% (xii) Based on the average PLI of comparables at 24.04%, the TPO computed the arm's length price as under: Total Operating Revenues (A) 12,66,18,367 Total Operating Cost (B) 12,75,14,576 Arm's Length Profit (C=24.04% of B) 3,06,54,504 Arm's Length Price (D= B+C) 15,81,69,080 Difference (E= D-A) 3,15,50,713 (xiii) In the draft assessment order passed under section 143(3)/144C(1) of the Act on 03/03/2016, the Ld.....
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....ns may be evaluated together. He further submitted that the assessee has maintained separate records for provision of onshore services and supply of equipment and thus analysis should be done on transaction by transaction approach. 4.1 He referred to contract agreement between BALCO and project office of RTA, which is available on page 106 to 164 of the paper book. He submitted that the assessee entered into contract with BALCO for supply of equipments, spares etc. and service, erection and commissioning of plant and independently negotiated the contract for supply as well as services. He referred to page 120 of the paper book and submitted that price was separately identified for onshore equipments supply and onshore services. He further referred to page 122 of the paper book and submitted that payment terms were separately agreed in the contract for supply of equipments and rendering of services. He also referred to page 167 of the paper book and submitted that separate invoices were raised in respect of supply of equipment and services rendered. In view of the above, the Ld. counsel submitted that both transactions of supply of equipments and services are separate and accordi....
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....n aggregate basis following TNMM as the most appropriate method. 4.3.1 The issue of arms length price of international transaction on "transaction by transaction" basis or as a "bundle transaction" has been discussed by the Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communication India Private Limited Vs. CIT, [2015] 55 taxmann.com 240 (Delhi). The Hon'ble High Court observed that expression " class of transaction", "functions performed by the party" under section 92C(1) of the Act, illustrate the word " transaction" included bundle or a group of connected transactions. Clubbing of closely linked, which include continuous transaction, may be permissible under the Act and the taxpayer can aggregate the controlled transactions if the transaction meet the common portfolio or packet parameter. 4.3.2 In the instant case, the Ld. counsel referred to page 517 of the paper book and submitted that the expenditure incurred was identifiable towards supply of equivalent and rendering of services. The Ld. counsel submitted that wherever the expenses were not identifiable to the transaction, same have been allocated on the basis of the revenue recognized. The Ld. counsel ....
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....thin the engineering and construction industry, growth in such contracts is positively correlated to the growth of these two sectors. The salient features of an EPC contract are (i) single point of contact i.e. the contractor for design, engineering, procurement, construction, commissioning and testing of the facility, (ii) fixed contract price under which the risk of costs overruns and the benefit of any cost saving accrue to the contractor and the investment required is pre-decided, (iii) fixed completion date which is decided at the time of commencement of the EPC contract failure to abide by which might result in delayed liquidated damages to the contractor, (iv) performance guarantees regarding output, efficiency and reliability requirements failure to live up to which might cause liquidated damages payable by the contractor and (v) security which is to be given by the contractor to the project company to ensure compliance of obligations prescribed under the EPC contract. The EPC sector performance is primarily interlinked with infrastructure investment. Contractors for EPC projects are selected on the basis of a tender process for large hightech project which are executed in ....
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....ubmitted that the TPO has accordingly chosen the comparables engaged in the service industry or engaged in consulting to clients. He specifically brought our attention to comparables, namely, TCE Consulting Engineer Limited (TCE) and Holtec Consultancy Private Limited (Holtec). 5.2 The Ld. counsel submitted that according to the TPO, the TCE Consulting Engineers India Ltd. was engaged in providing consultancy services in relation to the project activities, design and engineering, procurement assistance, project management and coordination, inspection construction and supervision etc activity in eight business segments which includes infrastructure, minings and minerals, steels and metals, power, oil and gas, construction, nuclear, industrial. 5.3 Regarding the Holtec, the Ld. counsel submitted that it was engaged in providing service to entire needs of the global cement industry and offered comprehensive services in the areas of power, highways and bridges, engineering support services for bulk material handling, structural steel detailing etc. According to the Ld. counsel, the comparable was engaged in service segment of rendering engineering consultancy services and, theref....
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....d by the Assessing Officer. According to the Assessing Officer allowing such claim was not within his purview, according to the decision of the Hon'ble Supreme Court in the case of Goetze India Ltd. Vs. CIT (2006) 284 ITR 323. The Ld. counsel submitted that the Ld. DRP was empowered to grant additional claim of the salary expenses, however same was not accepted. He prayed to consider the grant of claim of additional salary, relying on the decision of the Bombay High Court in the case of CIT Vs. Pruthvi Brokers and Shareholders Private Limited, 349 ITR 336 (Bombay). 6.1 The Ld. CIT(DR), on the other hand, opposed to consider the claim of the additional salary on the ground that it was failure on the part of the assessee to claim the expenses in the original return of income or in the revised of income. 6.2 We have heard the rival submission and perused the relevant material on record. The Hon'ble Bombay High Court in the case of Pruthvi Brokers and Shareholder's Private Limited (supra) has observed as under: "15. It is indeed a question of exercise of discretion whether or not to allow an assessee to raise a claim which was not raised when the return was filed or the ....