TaxTMI 
TaxTMI 
2016 (5) TMI 1584
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....ment order dated October 19, 2011 (served on the Appellant on November 2, 2011) passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 ("the Act") is not in accordance with the law and therefore not sustainable. Transfer Pricing ("TP") Adjustment - Rs.1,89,53,444 That the Hon'ble Dispute Resolution Panel, New Delhi ("the DRP") has erred both in law and on facts by rejecting the Appellant's objections to the draft order dated December 16, 2010 passed by the Ld. AO under section 143(3) read with section 144C(1) of the Act. The Hon'ble DRP while issuing directions under section 144C(5) of the Act did not consider the facts and merits of Appellant's objections to the proposed adjustments, and merely relied on the reasons given by the Additional Commissioner of Income-tax, Transfer Pricing ("the TPO") vide order under section 92CA(3) of the Act dated June 30, 2010 ("TP Order"). On the facts and in the circumstances of the case and in law, the Ld. TPO and the Ld. AO have erred in proposing and the Hon'ble DRP has further erred in confirming the transfer pricing adjustment of Rs 1,89,53,444 on the followin....
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....cated to the Appellant with respect to Engineering Services during the relevant period. 1.3 By summarily rejecting the "Cost Plus Method" identified as the Most Appropriate Method u/s 92C(1) of the Act by the Appellant to test the arm's length nature of charges paid in connection to Engineering Services availed under the Agreement. 1.4 By misconstruing the Appellant's business model and functional characterisation as an "engineering service provider" and by disregarding the fact that the Appellant is as an erection, procurement and commissioning ("EPC") contractor, thereby upholding incorrect set of comparables to arrive at an erroneous conclusion that the Appellant's net operating profit was not in sync with the industry standards/ benchmarks. Accordingly, the DRP has erred by not giving any consideration to the corroborative analysis placed on record by the Appellant to justify the arm's length nature of Engineering Services on an aggregated basis using Transactional Net Margin Method ("TNMM"). Administrative Support Services - Rs.43,32,041 1.5 By arriving at a prima facie incorrect conclusion that administrative support services of Rs.4....
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....be added to the assessee's income only as against Rs.2,48,50,136/- as directed by the TPO. Consequently, addition of Rs.1,89,53,444/- has been made on account of ALP adjustment / difference. 5. Ld. TPO, during the TP proceedings, determined the ALP in respect of the payment made towards intra-group charges of Rs.1,89,53,444/- by returning following findings :- "4.2.1. Group charges of Rs.1,89,53,443 : Details of Group expenses from 01.04.2006 to 31.03.2007 charged by Voith Siemens Hydro Power Generation GmbH & Co. Germany to the taxpayer are as follows : Invoice No. Date Gross amount (Euro) Gross amount (INR) DR20625250 29.09.2006 27,678 16,31,035 DR20625160 28.06.2006 16,114 9,11,853 DT20725082 27.03.2007 59,042 34,59,861 DR20725038 05.01.2007 11,076 6,49,054 Voith Siemens Hydro Power Generation - provision from Jan. to March, 2007 1,36,000 79,69,600 2,49,910 1,46,21,403 Group charges - Admin Charges DR20625200 24.08.2006 43,600 26,06,495 DR20725037 22.12.2006 16,500 9,72,456 DR20725078 . 19.02.2007 12....
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....enses (clause 3.3) based on actual basis, subject to production of documentary evidence. The said expenses relate to : a. IT-Consultancy b. Business Consultancy c. Engineering Services d. Training For the service (charges paid at Rs.43,32,041, the taxpayer has justified the payment in the following manner:- VSH as the intellectual and administrative head of the group provides certain administrative and special services for all the companies of the Voith Siemens Hydro Group including VSID. These services include public relations human resources, corporate sourcing, ProCS and product data management (PDM) Similarly, in respect of engineering charges paid at Rs.l,46,21,403, the taxpayer has justified the payment in the following manner: VSID, being a new company, has much less experience compared to VSH who had been successfully present in international Hydro business now for many decades and who have amassed a vast experience in all types of Hydro projects - small, medium and large Hydro projects in every book and corners of the seven continents. To have a cutting edge over the otherwise highly competiti....
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....he projects undertaken by the taxpayer during the year are as follows: i. Omkareshwar Hydroelectric project of Narmada Hydro Corporation Ltd., Madhya Pradesh ii. Baglihar Hydroelectric Power Project, Jammu & Kashmir iii. Hirakud Hydroelectric Project, Orissa Therefore, the projects against whom it is aimed that the engineering services are provided by Voith Germany were not undertaken by the taxpayer. As per Annexure-XIV of the submissions made on 19.04.2010, it is claimed that the so-called OTO-Support and application services rendered b its AE are for submission of tender documents. What is so unique in this Offer to Order (OTO) and Order to Cash (OTC) services remained un answered. In fact, the taxpayer has debited an amount of Rs.6.98 crores on account of manpower that would take care of these types of services. Travel and conveyance expenses debited under the head administrative and selling expenses were to the tune of Rs.l.90 crores which is also quite substantial. The taxpayer could not furnish any evidence of any visits by the employees of Voitb Germany (AE) in connection with services rendered which entailed payment of group charges by t....
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....% on sale price was shown as against 5.17% during the year under consideration. Therefore, there is no tangible benefit in terms of higher profits during the year as compared to the preceding previous year. In fact, the operating margin has declined from 6.2% to 5.17%. Further, taxpayer could not demonstrate as to what is the economic rationale and the commercial expediency that necessitated group services when the business operations were carried on without any such services during the preceding previous years. Therefore, the arm's length price of payments made towards above services is determined at NIL under CUP method." 6. Ld. DRP, however, out of the total amount of Rs.2,48,50,136/- paid by the assessee company for intra-group charges directed to enhance the income of assessee by Rs.1,89,53,444/- as against Rs.2,48,50,136/- made originally. 7. TPO as well as DRP had made the addition of Rs.1,89,53,444/- on account of group charges on the ground that there is no justification to make these payments because any such type of technical input was not required by the assessee as it performs the same task on its own. Ultimately, the DRP came to the conclusion that the ....
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.... and not to determine whether there is a service or not from which assessee benefits - Held, yes - Whether, therefore, TPO cannot determine ALP of payments made by assessee to its AE at nil taking a view that assessee did not derive any benefit from services rendered by AE - Held, yes [Para 34] [Matter remanded]" 12. Instant case is squarely covered by the judgment in CIT vs. Cushman and Wakefield (India) (P) Ltd. (supra) because in the instant case also, TPO has exceeded his power by determining that the assessee has not received services from its AE, thus failed the benefit test and further held that the assessee had not furnished any evidence to any visit of the employee of its AE in connection with the services rendered entailing payment of group charges by the assessee. We are of the considered view that since the payment made by the assessee to its AE for services rendered was basically an expenditure incurred for the purposes of business, the same are to be determined u/s 37(1) of the Act, if allowable or not and this issue is in the exclusive domain of the AO to be determined. 13. Now, adverting to the assessment order passed by the AO which is in consonance with the ....