TaxTMI 
TaxTMI 
2017 (11) TMI 802
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....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 plants on Engineering, Procurement and Construction(EPC) basis. (2) During the relevant year....
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....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 proceeding, the Assessing Officer noted expenses of Rs. 12,62,73,121/- towards project procurement expenses debited to the profit and loss account. The assessee furnished detail of project-wise commission pai....
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....e 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 in assessment year 2004-05 addition was made relying on the statement of Sri S. K. Kaul, Managing Director of the assessee company recorded under section 131 of the Act during assessment proceeding of assessmen....
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....ssessee 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 representation and liaison work for the different projects. Despite various opportunities granted from time to time, the assessee could not furnish evidences of any service in respect of various scope of works shown in the commission agreem....
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....ment 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 this connection reliance is placed on the decision Hon'ble Andhra Pradesh High Court in the case of CIT Vs Kodandarama And Company and other, 144 ITR 395. After considering the facts of the case and the details filed by the assessee, it m held that the com....
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....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 services for the assessee's business. The Assessing Officer did not bring any evidence on record that commission payments were made to influence the other parties for procurement of the contact. The Assessing Officer himself in his alternate contention allowed the deduction of part of the com....
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....d 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 business. The findings of fact recorded by the learned CIT(A) have not been rebutted through any evidence or material on record. The decisions relied upon by learned DR which are mostly not on the point in issue or for payment of illegal gratification which are not applicable to the facts and circumstances of the case becaus....
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....02A- 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 and M/s Artria regarding Brindavan Mini Hydel Project. 17. PB 215-230 is the copy of detailed order issued to the assessee regarding Brindavan Mini Hydel Project. 18. PB 1021-102J is appointment of M/s C.T. Cotton Yam Ltd. appointing them as representative in relation to Rani Awanti by Sagar Project. 19. PB-112 is letter from the assessee to M/s C.T. Cotton Yam Ltd. requesting the agent to send various informations in ....
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....26H-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 Orrisa Power consortium Ltd. regarding Samal Project. 41. PB 231-246 is the agreement between assessee and M/s Orrisa Power Consortium Ltd. regarding Samal Project. 42. PB 247- 263 is the copy of agreement between assessee and M/s Orrisa Power Consortium Ltd. regarding Samal Project. 43. PB 264-277 is the copy of agreement between assessee and M/s Orrisa Power Consortium Ltd. regarding Samal Project. 44. PB 102M-102N is appointment of M/s C.T. Cotton Yam Ltd. appointing them as representative in relation to Malana Power Project. 45. PB 129-134 are the co....
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....he 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 Hydro India Pvt. Ltd regarding the Teesta Project. 69. PB 302C - 302F is the copy of ledger account. 70. PB 655-656 is assessee's letter dated 26.10.2009 filed before Ld. CIT(A) praying for admission of additional evidences under Rule 46A(l)(d). 71. PB 658 - 661 is assessee's letter dated 30-11-2009 replying to counter comments filed to Ld. CIT(A). 72. PB 667 - 670 is assessee's letter dated 03-02-2010 replying to counter comments dated 28-01-2010. 73. PB 671 - 673 is assessee's letter dated 06-01-2010 filed to Ld. CIT(A) furnishing additional documents. 74. PB 674 - 675, 727 is the detailed chart showing project procurement expenses from the period 01-04-2004 to 31-03-2005. 75. PB 676 is the debit note dated 31-12-....
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....ot 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 evidence of interacting with those parties. 3.11 On being asked by the bench to both parties the status of the assessment before the Assessing Officer in assessment year 2003-04 subsequent to the restoration of the matter by the Tribunal, both the parties expressed inability in providing the present status of the assessment in assessment year 2003-04. 3.12 In view of the above facts and circumstances, we are of the opinion that the fact of services rendered has to be examined in each year on the basis of the documentary evidences submitted by the assessee and therefore, issue in dispute cannot be treated as covered by the decision of the Tribunal in assessment year 2004-05. The documentary evidences in the year under consideration for establishing the services rendered need to be produced by the assessee and exa....
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....he 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 required u/s 920 and 92E of the I.T. Act, 1961 I find that the TPO has indulged in merely finding faults with the transfer price determined through such adjustments that don't stand the tests of comparables chosen, data employed, and the methodology adopted by the appellant company which are found to be adequate u/s 920 and 92E. In this connection, it is not out of place to mention that the ALP methods and modalities u/s 92C of the appellant company have been accepted by the Department (the same TPO, New Delhi) for the next assessment year 2006-07 or the identical facts and issue under reference, as is apparent from assessments records of that assessment year. Keeping in view such a scission, therefore, I am satisfied that the adjustments made on account of ALP by the TPO are unsustainable and that the ALP u/s 92(2) submitted by the a....
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....rought 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 data of the two years prior to the relevant financial year could only be considered, if such data reveals facts which could have influence on the determination of the transfer price in relation to the transaction being compared. Before us, the assessee has not brought on record any evidences showing the influence of the cyclic nature of the transactions of the comparables or having financial impact of operational activity over the subsequent years. 4.7 In our opinion, the learned CIT-(A) was not justified in deleting the transfer pricing addition without giving reasons for taking average of multiple year data for computing PLI of comparables. In view of above discussion, we set aside the finding of the Ld. CIT-(A) on the issue in dispute and restore that of Ld. TPO/AO. The ground of appeal is accordingly allowed. 5. In ground No. 3, Revenue has....
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....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 case of DCIT Vs. Haryana Oxygen Ltd. (1999) 76 ITD 32 (Del). Therefore, both the disallowances stand deleted. 5.4 Before us, the Ld. counsel of the assessee relied on the order of the learned CIT-(A) . 5.5 On the other hand, Ld. CIT(DR) submitted that the Ld. CIT-(A) has not provided any opportunity to the Assessing Officer to examine the call register maintained for telephone and logbook of vehicles maintained by the assessee, in support of its claim that all expenses incurred were for the purpose of business. He submitted that the learned CIT-(A) allowed the ground in favour of the assessee only relying on the decision of the Tribunal in the case of Haryana oxygen Ltd. (supra). The Ld. CIT(DR) submitted that finding of the Ld. CIT-(A) was contrary to the decisions of the Hon'ble Madras High Court in the case of CIT Vs. Chitram and Company Private Limited 191....