TaxTMI 
TaxTMI 
2019 (10) TMI 1261
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.... [AS] - 7. 3. Grievance of the Revenue relates to partial relief given by the Dispute Resolution Panel [DRP] against the addition towards contract revenue recognised under AS-7. 4. We will first address to the common grievance involved in both the appeals relating to addition towards contract revenue recognised under AS-7. 3. Briefly stated, the facts of the case are that the assessee's core activities are in the field of water supply, distribution, treatment, management, operation & maintenance, etc. Its activities, inter-alia, involves construction, capacity augmentation, installation and commissioning of various types of water infrastructure facilities i.e., sewerage treatment plant, water treatment plant etc. The assessee also performs operation and maintenance of such facilities. 4. During the year under consideration, the assessee executed two contracts, namely, Project Kanhan and Project Demo Zone. The scope of work in Project Kanhan relates to construction of water treatment plant of 240 MLD and in Project Demo Zone, work on rehabilitation and implementation of uninterrupted water supply and reduction of UFW with improvement in level of services to customers in ....
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....Costs = Contract Revenue minus Gross Profit based on the Company's Gross Margin of 6.97% reported by the Tax Auditor. The Ld. AO has, therefore, estimated the budgeted costs in an indirect manner by adopting the Gross Margin of 6.97% respecting all activities of the company including all the contracts. DRP's Method (Hybrid method - a variation of the AO's method w.r.t Gross Margin and by adding other operating expenses) Estimated Budgeted Contract Costs = Contract Revenue minus Gross Profit based on the Gross Margin of 6.97% reported by the Tax Auditor + Other Operating Expenses 11. Recognition of contract revenue as per aforesaid three methods is tabulated as under: Project Kanhan (Amounts are in Rs. ) Assessee's Method AO's Method (Draft assessment order) As per DRP's Directions (Final assessment order) (1) Name of the Project KANHAN KANHAN KANHAN (2) Contract Value 683,899,283 683,899,283 683,899,283 (3) Total Estimated i.e. Budgeted Cost 680,067,402 636,231,502 677,739,286 (4) Total Cost incurred till 31 March 2011 628,193,537 628,193,537 28,193,537 (5) Percen....
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....e same has been followed by the Assessing Officer. Therefore, no adverse inference is called for. 14. The ld. counsel for the assessee vehemently stated that adoption of gross margin of 6.97% from tax audit report is erroneous in as much as the margin of each contract has to be considered separately and the margin of 6.97% cannot be uniformly applied to all contracts because each contract has its own profitability. 15. It is the say of the ld. DR that similar issue arose in A.Y 2009-10 and the Tribunal in ITA No. 4027/DEL/2013 vide order dated 23.11.2015 has restored the issue to the file of the Assessing Officer for passing the assessment order after considering the details/ evidences submitted by the assessee pertaining to budgeted costs of both the projects and the revenue recognised therefrom. Since the facts and issues are identical, the ld. DR prayed for a similar direction. 16. The ld. counsel for the assessee pointed out that in subsequent A.Y viz., 2015-16, the Additional CIT has issued directions u/s 144 of the Act following the directions of the DRP given in A.Y 2011-12 [which is the year under consideration]. 17. We have considered the order of the co-ordina....
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.... 74,193,695 TNMM Veolia EAU- CGE, France Reimbursement received from AE 8,346,512 CPM Charges levied by the AE for corporate guarantee provided 1,287,693 CUP Insurance charges recovered by the AE 64,060 CPM Veolia Water Mena Charges levied by the AE for corporate guarantee provided 370,619 CUP Veolia Environment Campus Reimbursement made to the AE 547,856 CPM ELGA Labwater UK Rendering of services 2,802,792 TNMM Total 377,127,671 22. For the purposes of computation of arm's length price of above transactions, the assessee, in its transfer pricing study relied upon TNMM and considered operating profit earned from international transaction by operating cost as the relevant profit level indicator [PLI]. The PLI of the company was arrived at 10.90% on cost and when compared with PLI of the comparables at 8.55%, the assessee reported international transactions at arm's length. 23. The following companies were considered as comparables by the assessee: S. No. Name of the Company OP/OC Business profile of the comparables selected 1 Absotherm Facility Management Pvt....
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....s 98,582,279 Shortfall being adjustment u/s 92CA 5,368,398 27. Before us, the ld. counsel for the assessee vehemently argued for exclusion of four comparables. We will address each such comparable. APITCO LTD. 28. The Annual Report of this company is placed at pages 471 to 505 of the paper book. We find that this company is a Technical Consultancy Organization which provide services to the Entrepreneurs and be a catalyst for the economic growth of the country. Services of this company include project report preparation, techno economic studies, feasibility studies, micro enterprise development, skill development, project management consultancy, industrial cluster development, environmental management consulting, energy management consulting, market and social research and asset reconstruction management services. We find that the major revenue arises from cluster development, project related services and entrepreneurship development & training. 29. The revenue from cluster development is 41.43%. Considering the nature of activities of Aptico Ltd, vis a vis the business profile of the assessee, we are of the considered opinion that Aptico Ltd is involved in carr....
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....Information Technology that enables the business by improving the quality of service which cannot be considered for comparing with the service provided by the assessee to its AEs. We, accordingly, direct the TPO to exclude the same from the final set of comparables. TSR DARASHAW LTD 34. The Annual Report of this company is placed at pages 544 to 573 of the paper book. We find that this company is one of India's leading Business Process Outsourcing (BPO) organization certified under the ISO 9001:2000 guidelines having a total industry experience of over 35 years. This company has state-of-the-Art I.T. capabilities with well trained HR which are the key requirements for handling BPO activities. This company's main business products are Payroll & Employees Trust Fund Administration & Management, R & T for Shares, Debentures and FD, Category I Registrar by SEBI, Records Management, Transaction / Document Processing for Securitization, Loans etc. 35. These services speak for themselves and by any stretch of imagination cannot be compared with services provided by the assessee. 36. The TPO has himself observed that this company is involved in BPO services. Therefore, we f....