AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (11) TMI 802
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....m's Length Price of International Transaction u/s 92CA(3) of the Income Tax Act. 1961 disregarding the Arm's Length Price of International transaction determined by the Transfer Pricing Officer u/s 92CA(3) 3. On the facts and circumstances of the case, the Ld. v CIT(A) has erred on facts and in law in deleting the addition of Rs. 2,52,406/- and Rs. 2,45,572/- made by the Assessing Officer on account of disallowance out of telephone and Car expenses ignoring the real life factual proposition that possibility of user of telephone and Car for non business purposes could not be absolutely ruled out and is in contrary to the decision of the Hon'ble Madras High Court in the case of CIT vs. Chitram and Co. (P) Ltd. 191 ITR 96 and CIT vs. Madura Coats Ltd. 263 ITR 241." 4. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 2. Briefly stated facts of the case are that: (1) During relevant year the assessee was engaged in the business of: (a) manufacturing hydro turbines governing equipments, spare parts of all types of turbines and (b) executing hydropower plan....
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....llows: Operation revenue Rs.1,21,62,344/- Operating expenditure Rs.1,14,11,76,625/- Operating profit Rs.7,50,40,719/- OP/OR (%) 6.17% OP/OR of the comparable 6.955% Adjusted operating profit Rs.8,45,87,916/- 5% of adjusted OP Rs.42,29,396/- Adjustment:- Difference between adjusted OP and OP shown by the assessee Rs. 95,47,197/- (8,45,87,916 - 7,50,40,719). (8) The Ld. Assessing Officer in the assessment order passed on 20/11/2008 under section 143(3) of the Act made transfer pricing addition of Rs. 95,47,197/- as proposed by the Ld. TPO. In addition to the transfer pricing addition, the Ld. Assessing Officer also made another disallowances/additions to the returned income, including procurement (commission) expenses, vehicle expenses, telephone expenses etc. (9) On further appeal, the Ld. CIT-(A), allowed part relief to the assessee. 2.1 Aggrieved, the Revenue is in appeal raising the grounds as reproduced above. 3. In ground No. 1, the Revenue has challenged deletion of the addition of Rs. 12,62,73,121/- made by the Assessing Officer on account of project procurement expenses. 3.1 During assessment proce....
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..../01/2010. The ld. CIT-(A) in the impugned order has expressed annoyance on delay in furnishing the remand report to him. The ld. CIT-(A) provided copy of the remand report to the assessee for rejoinder. The learned CIT-(A) has reproduced entire rejoinder of the assessee from page 13 to 31 of the impugned order, though contents of the remand report has not been produced. The Ld. CIT-(A) followed his finding on the issue in dispute in assessment year 2003-04 and held the commission expenses as genuine and allowed the ground of the appeal of the assessee on the issue in dispute. 3.3 At the outset, before us counsel of the assessee submitted that in the assessment year 2004-05, the Tribunal in ITA No. 3495/Del/2009 has upheld the finding of the Ld. CIT-(A) in deleting the disallowance of commission expenses. Therefore, he submitted that the issue in dispute is covered in favour of the assessee. The learned counsel also filed paper book in three volumes containing pages 1 to 893. In a brief synopsis filed, the learned counsel referred different pages in support of his contention of rendering services by the commission agents. 3.4 The Ld. Sr. DR, on the other hand, submitted that i....
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....agents, what are the services required by the assesses for obtaining orders in respect of its projects, as to whether the commission agent has requisite expertise in rendering the services in the relevant field to help the assessee in obtaining the orders and the documentary evidences of actually rendering of services for which commission expenses were incurred In the statement, Sh. 8.K. Kaul, M.D. has also simply repeated the particulars of services rendered by the commission agents, as shown in the 'Scope of Work' in the agreement, But he also could not furnish any documentary evidences nor could give particulars of any specific service rendered by them to justify the commission expenses. After examining the facts of the case, the commission expenses were not found genuine and therefore, were added to the income of the assessee for AY 2003-04. In the year under consideration also, the assessee has not furnished any evidence of services rendered by any of the commission agent. The assessee has simply furnished copies of some correspondence or agreements addressed to the so called commission agents by the assessee company regarding their appointment for r....
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....e ground to justify its claim. The execution of any agreement between the two parties and payments through cheques in terms of said agreements will not make the non-genuine transactions into genuine transactions when the basic concept of purpose of agreement is not beyond doubt. "(ii) The second factor on the issue will be as to what is the nature of expenses incurred by the assessee under the Garb of commission expenses arid as to whether the same am allowable expenses u/s 37(1) of the I.T. Act. From the facts of the case it is abundantly clear that the assessee has not made payment of any commission expenses in consideration of any services required from the commission agents for procurement of contract orders. At the most, the payments made by the assessee company can be said to have been made to influence the process of award of tender in its favour. Any payment made by the assessee which is not made for getting any genuine services required in carrying on the business-but is made to influence the decision making process will be the payment made against the public policy. Such expenditure is not allowable u/s 37(1} of the I.T. Act or any other provisions of the Act. In....
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....d by law and accordingly explanation-I to Section 37 of the Act is not applicable. 13. The assessee has claimed the expenses on the basis of accrual on the provisions of the accounting standard and the accounts of the company are duly audited and no defect in the same has been pointed out. 14. Assessee produced sufficient evidence and material before the authorities below to establish the nature and genuineness of the transaction. There is no challenge to the finding of learned CIT(A) in admitting additional evidence at appellate stage. The agreement and material produced on record with the commissions agents clearly established that the commission agents were legally bound to execute the work of procuring contacts for the business for which they were paid commission. The assessee filed various correspondences on record between the commission agents and the assessee which clearly revealed that various types of works done by the commission agent for the assessee. All the payments of commission were paid by cheques and subject to TDS. Thus, the assessee produced sufficient evidence and material before the authorities below to prove that commission agents did render ....
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....of ACIT vs. Sanjay Enterprises, 23 SOT 0498 in which it was held: "Commission paid to agents for making representation and mobilizing public opinion for continuation of sale of lottery tickets of other states in the State of Madhya Pradesh was neither an offence nor prohibited by law as envisaged by Explanation to s. 3 7(1) nor even against public policy, hence allowable under 37(1). " 15.1 Learned counsel for the assessee also relied upon the order of ITAT Delhi Bench in the case of Anupam Synthetics Pvt. Ltd. vs. JOT; J 04 TTJ 113 in which it was held: "Commission to agent for procuring Government contract - Assesseecompany having procured a Government supply contract only through guidance and assistance of an agent who rendered effective services to the assessee in securing the tenders, making negotiations with the. concerned officers, ensuring timely supplies and also obtaining the release of payment, the payment of commission made to said agent was fully justified and same is allowable as business expenditure. " 15.2 The assessee filed all the relevant and cogent evidence to prove that commission agents rendered services for the assessee's b....
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....n exhaustive note on the nature of services rendered by the commission agents in regard to the project procurement. 8. PB-70 is the details of commission expenses showing the amount of commission / project procurement expenses, name of the project and name of the commission agents. 9. PB-2 is P&L A/c showing contract revenue to the tune of Rs. 1,1,68 Crores. 10. PB 102A- 102B is letter dated 02-06-2008 filed to Ld. A.O. through which copy of agreement was also furnished. 11. PB 102G-102H is appointment of M/s C.T. Cotton Yam Ltd. appointing them as representative in relation to Brindavan Mini Hydel Project. 12. PB 148-150, 152 are the correspondences between M/s C.T. Cotton Yam Ltd. with the assessee in relation to Brindavan Mini Hydel Project. 13. PB-153 is the copy of invoice from M/s C.T. Cotton Yam Ltd. to the assessee in respect of Brindavan Mini Hydel Project. 14. PB 154-155 are the evidence of payment released by Brindavan Mini Hydel Project. 15. PB 210-211 is the copy of award of project to assessee regarding Brindavan Mini Hydel Project. 16. PB 213-214 is the copy of agreement between assessee....
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....valuable information regarding Rani Awanti by Sagar Project. 31. PB 125 is invoice raised by M/s C.T. Cotton Yam Ltd. in respect of Rani Awanti by Sagar Project. 32. PB 125A-126 is the copy of certificate issued by ITO authorizing the assessee to pay without TDS to M/s C.T. Cotton Yam Ltd. 33. PB 126A-126C is MOU between M/s SEW Construction Ltd. and assessee in relation to Rani Awanti by Sagar Project. 34. PB 126D-126E, 126F-126G are the copies of GPA issued by M/s SEW Construction Ltd. 35. PB 126H-126K are the papers relating to Rani Awanti by Sagar Projects. 36. PB 102K -102L is appointment of M/s C.T. Cotton Yam Ltd. appointing them as representative in relation to Samal Project. 37. PB 165 is copy of bill raised by M/s C.T. Cotton Yam Ltd. regarding Samal project 38. PB 166-168 is the copy of no TDS certificate in respect of M/s C.T. Cotton Yam Ltd. 39. PB 169-173, 194,195, 196, 197, 198, 199, 200 & 201 are the copies of correspondence between M/s C.T. Cotton Yam Ltd. and the assessee in respect of Samal Project. 40. PB 174-193 are the copies of correspondence between the assessee and M/s....
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.... Jorge in respect of Sabarigari Project. 60. PB 278-293 is the copy of contract between the assessee and M/s Va-Tech Hydro regarding Teesta Power Project. 61. PB 294-302F are purchase order etc. between the assessee and M/s VATech Hydro. 62. PB 302G are further evidences in this regard. 63. PB 676 is debit note raised by M/s V A Tech Hydro India P. Ltd towards commission charges. 64. PB 208-209 is the copy of bill from M/s Vishal Pipes Ltd. regarding Shiva Samudram Project. 65. PB 278 - 284 is the copy of contract agreement (second contract) between M/s National Hydro Electric Power Corporation Ltd. and M/s Va Tech Hydro India Pvt. Ltd. 66. PB 285 - PB 293 is the copy of contract agreement (first contract) between M/s National Hydro Electric Power Corporation Ltd. and M/s Va Tech Hydro India Pvt. Ltd. 67. PB 294 is assessee's letter dated 20-04-2006 addressed to M/s Va Tech Hydro India Pvt. Ltd. acknowledging receipt of their purchase orders along with copies of the purchase orders at PB 295 - 296, 298. 68. PB 297 - 302 is the consortium agreement entered between the assessee company and M/s VA Tech Hy....
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.... commission agents. The assessee was required to explain the role of the commission agent in procuring contracts from the government agencies and other principle parties. The assessee was required to furnish documentary evidence, whether the commission agent represented before the parties, who awarded contract to the assessee and whether those commission agent participated in any contract awarding activity or any activity provided in the scope of work in the agreement. The documents submitted by the assessee are mostly computer-generated printouts of correspondence between the assessee and the commission agent. No evidence is available in paper book, as how these correspondences exchanged between the assessee and the commission agent, whether it was through post or whether it was through emails. The assessee has not produced any evidences supporting the technical expertise and experience of the commission agents in the field of services rendered. The assessee has not produced any certificate from the parties who awarded contract that said commission agents played the role as per the scope of work in the agreement between the assessee and the commission agent, alongwith documentary ....
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....d the contentions of the learned AR and perused the order of assessment. I have also gone through the order of the TPO on the issue. Without acceding to the request of the AO that the TPO may be called for his comments on the workings of the valuation made by him in his order u/s 92CA- dated 05.09.2008, in accordance with the provisions of section 92D(3) of the I.T. Act, 1961, this office is quite a competent authority to adjudicate the issue on the computation of the ALP shown by the appellant. After going through all the documentary evidences produced by the appellant company in support of the ALP shown as desired u/s 920(3) which are found to be quite specific and rational material, and considering also the well-reasoned rebuttal offered by the Ld. A.R. to the A.O's method of establishing the ALP of this taxpayer, I find that the TPO's action does not conform to the basic intent and purpose of the provisions of Indian Transfer Pricing principles read with the OECD guidelines, the most reliable source of comparable statistics and economic and social data. The appellant company has fully discharged its onerous burden of maintaining and furnishing detailed documents as requ....
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....uch plea was taken before the Ld. CIT-(A), which shows that the assessee was not aggrieved with finding of the Ld. CIT(A) or the Ld. Transfer Pricing Officer, therefore, this plea of the assessee cannot be considered by us at this stage. Accordingly, we reject the contention of the Ld. counsel on this issue. On the issue of single year data versus multiple year data of comparables is concerned, we are of the opinion that for justifying multiple year data of comparables before the Ld. CIT- (A), the assessee contested variation in net profit of the comparables companies. In our opinion, merely variation in the profit cannot justify use of multiple year data until and unless, the reason for variation in the profit are linked to the cyclic nature of business transactions, having financial impact on more than one year. No factual information was brought on record in respect of the comparables other than presenting theoretical or general arguments supporting adoption of multiple year data. 4.6 In the year under consideration before us, the Rule 10B(4) of the Income-tax Rules, 1962 (in short 'the Rules') has specifically provided for using the data of the relevant financial year and da....
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....d that no show-cause was given before making any disallowance. The assessee also claimed to file copy of Ledger of car hiring expenses and other hiring expenses before the Ld. CIT-(A). 5.3 The learned CIT-(A) relying on the decision of the Tribunal in the case of DCIT Vs. Haryana Oxygen Ltd. (1999) 76 ITD 32 (Del.), held that assessee company is a juristic entity and the disallowance, if any could be made only in the hands of the directors as perquisite. The finding of the learned CIT-(A) on the issue in dispute is reproduced as under: "22 I have carefully considered the contentions of the learned AR perused the order of assessment. Evidently, these two disallowances have been made in a very mechanical and stereotyped manner without bringing any specific instances of nonbusiness use and especially in the case of a company like present one which has been subject to audit both under the Indian Companies Act, 1956 and Income Tax Act, 1961. Moreover, the company is a juristic entity and the disallowance, if any, for such non-business use of these assets can be made only in the hands of the Directors as a 'perquisite", as held by the Ld. Jurisdictional Tribunal in the ca....
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....in the case of Haryana Oxygen Ltd. (supra) considered the decision of the Hon'ble Madras High Court in the case of Chitram & Co. P Ltd (supra), however, observed that in the case in hand issue of expenses on running of car was involved rather than issue of depreciation on the car. The finding of the Tribunal is reproduced as under: "19. A bare perusal of the relevant statutory provision indicates that where the plant and machinery are not used exclusively for the purpose of business only, the deductions towards current repairs, insurance premium against risk of damage or destruction and depreciation will be restricted to a fair proportionate part thereof as the AO may determine. It is obvious that expenses on running of cars, such as petrol, etc., do not fall within the ambit of this sub-s. (2). It is only the amount of current repairs, which are the subject-matter of disallowance in the instant case and repairs are certainly distinct from running expenses, inasmuch as the repair presupposes damage to the asset which is sought to be remedied by incurring expenditure" 5.8 In the case of CIT Vs. Madura Coats limited (supra), the Hon'ble High Court held as under: ....