TaxTMI 
TaxTMI 
2019 (7) TMI 1317
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....e Income-tax Act,1961 ( hereinafter called " the Act"), which in turn was passed in pursuance to Directions issued by learned Dispute Resolution Panel-IV, Mumbai( hereinafter called " the DRP") dated 19.12.2014 issued u/s 144C(5) of the 1961 Act. Earlier, the AO passed draft assessment order dated 14.03.2014 u/s 144C(1) read with Section 143(3) of the 1961 Act, wherein transfer pricing additions were made by the AO in the aforesaid draft assessment order based on order dated 30.01.2014 passed by learned Transfer Pricing Officer, Mumbai (hereinafter called "the TPO") u/s 92CA(3) of the 1961 Act. Subsequently, the assessee filed objections before learned DRP against the aforesaid draft assessment order dated 14.03.2014 passed by the AO, which were disposed off by learned DRP by issuing directions dated 19.12.2014 u/s 144C(5) of the 1961 Act. 2. The grounds of appeals raised by the assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 1889/Mum/2015 for AY 2010-11, read as under:- "In the facts and circumstances of the case and in Law:- 1. The Hon'ble DRP failed to not appreciate th....
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.... Minimax PO office then no transfer pricing adjustment were required to be made in the hands of the appellant company again. 10. The Hon'ble DRP has erred in dismissing the objection raised for disallowance of forseeable loss of Rs. 17,61,703/- without appreciating the fact that this loss was on account of delay in completion of the project for which projectwise details of losses were filed before them. 11. The order of the Hon'ble DRP issuing directions as well as order passed by the TPO as well as Assessing officer in pursuance of the Directions issued by Hon'ble DRP are erroneous which deserves to be set aside. 12. The appellant reserves the right to add, withdraw, amend or alter any of the grounds of anneal at any time prior to or during the course of proceedings before the Hon'ble Tribunal." ITA no. 1889/Mum/2015-MX Systems International Private Limited 3. This appeal has arisen from assessment framed by the AO u/s. 143(3) r.w.s. 144C(13) of the 1961 Act vide assessment order dated 29.12.2014 passed by the AO in pursuance to directions given by learned DRP, wherein transfer pricing additions to the tune of Rs. 19,43,77,501/- were made w....
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....- Particulars Amount in Rs Sales 74,40,88,809 Operating Expenses 76,92,97,738 Operating Profit (-) 2,52,08,929 Operating Margin (-)3.28 3.6 The assessee selected two comparables after undertaking search process in Prowess. The margins of the comparables are as under:- S.No. Name of company F.Y.2007-08 FY 2008-09 FY 2009- 10 Weighted average 1 Kidde India Ltd -2.51% -11.00% .... -6.75% 2 Nitin Fire Protection -- 30.85% 21.99% 26.42% Arithmetic Mean 21.99% 9.84% 3.7 The TPO rejected Kidde India Ltd. as comparable for the following reasons, as detailed hereunder:- "Kidde India Ltd needs to be rejected for the following reasons : i) Single-year margin needs to be considered for considered and since the data of the said company is not available for FY 2009-10, the company cannot be considered for benchmarking. ii) Even if weighted average margin of three years is taken, it is seen that the company is a consistent loss-maker. In atleast two out of last three years, losses were shown." 3.8 Thus finally PLI was taken to be that of Nitin Fire Protection Industry L....
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....ts own PLI for the losses incurred. Adjustments to the PLI of the tested entity is not permissible under the domestic transfer pricing provisions and rules. This has been acknowledged and affirmed in various decisions of ITAT. For instance in a recent decision in the case of DCIT vs EDAG Engineers & Design India Pvt. Ltd. reported in (2014) 111 DTR (Del) (Trib) 70 it was held in Para 5 that 'The CIT(A) granted impugned relief by making adjustments, on account of capacity underutilization, in the results shown by the tested party and thus computing hypothetical financial results which the tested party would have achieved in perfect conditions. Such an exercise is impermissible. As is the undisputed legal position, such comparability adjustments can only be made in the comparables and not the tested party itself. It is specifically provided in Rule 10B (1)(e)(iii) that adjustments for variations, which could materially affect the amount of net profit margin in the open market in comparable uncontrolled transactions, are to be made in respect of net profits realized by the comparable transactions or enterprises. The CIT(A) was thus clearly in error in proceeding to make c....
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....d.. 8.9 It has been argued that the TPO had not complied with the mandatory provision of Sec.92CA r.w. proviso to 92C(3) and therefore principle of natural justice was violated. If there was any lack of opportunity, the order does not become void but only remains voidable. The submissions filed before the TPO in this regard dated 20/01/2014 (paper book page 273) shows that the issue was discussed and clarifications were furnished by assessee. It is seen that an opportunity has admittedly been given through the order sheet noting. In any case, any deficiency in the opportunity has been made good during the DRP proceedings. Accordingly, this ground is dismissed. 8.10. The assessee has claimed that its own PLI should be taken as (-) 0.93% as against (-) 3.28% reported in TSPR and considered and accepted by the TPO. In the submissions filed it is seen that items of income that it had considered as non operating earlier, is now claimed to be operating. Similarly, expenses that it had claimed to be operating earlier, is now claimed to be non operating. Such income are foreign exchange gain, recovery of rent and salary expenses. These are non operating and are therefore ....
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.... India or evasion of tax ? held that "52. We have already reproduced the amended provisions of Chapter X. According to the petitioner, the same should be held to be inapplicable, as making the same applicable will render them unconstitutional. The petitioner has not challenged their validity. We do not find any substance in the submission that if the said provisions are made applicable to the petitioner, the same would be unconstitutional. There is no lack of legislative competence for enacting the said provisions and making them applicable to the petitioner or to a class of persons falling in the category of the petitioner. Potential of multinational companies to allocate profits in intra groups transactions to outside jurisdiction or resulting in tax evasion is an acknowledged fact and is duly recognized in legislation, not only in India but elsewhere also. Keeping in view this mischief to be remedied and to advance the object of taxing the real income, provisions have been enacted. The amended provisions certainly advance the declared object by laying down the requirement of and mechanism for determination of ALP. 'International transaction' and 'as....
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....he legislative competence to effectuate the charge of taxing real income in India. 54. We, thus, do find any merit whatsoever in the contention that provisions of Chapter X cannot be made applicable to parties which are subiect to jurisdiction of taxing authorities in India.,without there being any material to show transfer of profits outside India or evasion of tax between the two parties. The contention that according to the permission granted by the RBI under the FERA, the assessee cannot charge more than particular price, can also not control the provisions of the Act, which provides for taxing the income as per the said provision or computation of income, having regard to ALP in any international transaction, as defined, "(emphasis supplied). - even If transactions are between two resident entities, the Hon'ble ITAT in the case of Vodafone India Services Pvt Ltd. in its recent order dated 10/12/2014 in ITA 7514/Mum/2013 has upheld the applicability of the transfer provisions, in facts of that case. - In the TPSR in case of Minimax GMBH, it is clearly admitted that the Indian Transfer Pricing legislation applies to Minimax PO, it being a non resid....
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.... Further, during FY 2009-10, 32 % of its revenue is from sale of product and spares (item 16 in Notes to Accounts), it has acquired GE Security business in India as a part of Global acquisition of GE Security business (Business Outlook section of the director's report) in the current year F Y 2009-10. Thus its business has changed to include provision of Security Technology. This will further vitiate comparability. 8.15.. It has been argued that Nitin Fire Protection Industries Ltd., though considered as a comparable in. TPSR both in current and preceding year, should now be excluded since it has substantial related party transactions; it is functionally not comparable. Now this leaves a situation where if its contention is accepted, there are no comparables left and thus the benchmarking done by assessee fails. 8.16. Transfer Pricing is not an exact science. The availability of data has also to be considered when perfect comparability cannot be ensured within the data available. In the facts of the present case for this year, the TPO is directed to consider both Nitin Fire Protection Industries Ltd. and Kidde India Ltd as comparable wit....
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....pporting/ justification for making this claim was not filed. Even before the Panel, mere figures are stated and reference to AS-7 is made but details to show that the claim is correct is not available. The objection is dismissed." 3.11 This led AO to frame assessment order dated 29.12.2014 u/s. 143(3) r.w.s. 144C(13) of the 1961 Act, wherein aforesaid additions as per directions of learned DRP were made to the income of the assessee. 4 Now aggrieved with the additions as were made to the income of the assessee by authorities below, the assessee has filed an appeal with tribunal. The learned counsel for the assesssee has submitted before the Bench that the assessee is engaged in providing fire safety to various buildings in different sectors of economy. It was explained that 74% of equity is held by its foreign parent namely Minimax GmbH Co. KG. Our attention was drawn to the directions issued by DRP. It was explained that fire safety contract was awarded by DIAL in favour of L&T, who in turn sub-contracted work to Minimax GmbH who further in turn awarded work to the assessee. The assessee has in its TPSR submitted had included Nitin Fire Protection Industries Limited and K....
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....f Income-tax Rules, 1962 be applied and abnormal expenses incurred by the assessee towards project over-run be excluded. It was also submitted that the authorities below while making assessments in the case of the assessee as well Minimax Gmbh & Co. KG are different and prayers are made that since common issues are involved it will be in the interest of justice if there are co-ordinating among both the AO/TPO of both these assessee's to have co-ordinated assessment so that conclusions do not differ on similar facts. 5. We have considered rival contentions and perused the material on record. After hearing both the parties, we dismiss ground no. 1, 2, 3, 9 and 12 raised by assessee in its appeal in memo of appeal filed with tribunal as not being pressed by the assessee. We order accordingly. 5.2 With respect to other grounds of appeal namely ground number 4-8,10 and 11 raised by the assessee in memo of appeal filed with the tribunal, we have considered rival contentions and perused the material on record. We have observed that the assessee is engaged in the business of developer, integrator and consultant of all types of electronic, electrical mechanical, engineering systems re....
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....)3.28 5.6 The assessee in its TPSR selected two comparables after undertaking search process in Prowess. The margins of the comparables are as under:- S.No. Name of company F.Y.2007-08 FY 2008-09 FY 2009- 10 Weighted average 1 Kidde India Ltd -2.51% -11.00% .... -6.75% 2 Nitin Fire Protection -- 30.85% 21.99% 26.42% Arithmetic Mean 21.99% 9.84% 5.7 The TPO rejected Kidde India Ltd. as comparable for the following reasons, as detailed hereunder:- "Kidde India Ltd needs to be rejected for the following reasons : i) Single-year margin needs to be considered for considered and since the data of the said company is not available for FY 2009-10, the company cannot be considered for benchmarking. ii) Even if weighted average margin of three years is taken, it is seen that the company is a consistent loss-maker. In atleast two out of last three years, losses were shown." 5.8 Thus finally PLI was taken to be that of Nitin Fire Protection Industry Ltd., i.e. for FY 2009-10 at 21.99% and the adjustments were made to ALP of the international transactions entered into by the assessee with its AE, to the....
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....n income-tax proceedings but principles of res judicata are not applicable in income-tax proceedings. The onus is on the assessee to bring on record cogent material to substantiate inclusion of Keddy India Limited as comparable for computing ALP. 5.11 So far as Nitin Fire Protections Limited is concerned, perusal of audited financial statements for the year ended 31.03.2010 will reveal that apart from providing turnkey solutions including procurement, designing, system integration, commissioning and installation of safety and security solutions, is also in manufacturing and trading activities. 5.12 It was submitted before us that in these turnkey projects, the project cycle is of 2-3 years and comparable profits for last three years should be taken, as assessee is into executing turnkey project which take two to three years to execute/complete. It is also claimed that assessee has incurred extraordinary expenses due to delay in DIAL project and these extraordinary expenses incurred should be excluded while computing PLI of the assessee. The assessee apart from comparables as selected in TPSR through searches in Prowess, has also introduced new comparables namely New Fire E....