TaxTMI 
TaxTMI 
2022 (3) TMI 1480
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....section 143(3) r.w.s.144C(13) of the IncomeTax Act,196] (`the Act'), is bad in law and on facts. 1.2. On the facts and in the circumstances of the case and in law, the Ld. Transfer Pricing Officer (`TPO')/ the Ld. AO under the directions issued by the Hon'ble DRP, erred in making an addition to the Appellant's total income of Rs. 496,110,616 and computing the total income of the Appellant for Assessment Year ("AY") 2015-16 at Rs. 1,089,813,036 as against the returned income of Rs. 593,702,420. 1.3. On the facts and in law, the Ld. AO, led. TPO and the Hon'ble DRP erred in modifying the economic analysis and filters applied by the Appellant in the Transfer Pricing ("TP") documentation maintained under section 92D of the Act read with Rule 10D of the Income-Tax Rules, 1962 (`the Rules') and applying new filters for the purpose of identification of companies comparable to the Appellant. In doing so, the Ld. AO, Ld. TPO and the Hon'ble DRP failed to discharge the statutory onus to establish that any of the conditions specified in clause (a) to (d) of Section 92C(3) of the Act have not been satisfied. Transfer Pricing adjustment rel....
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.... transaction pertaining to payment of royalty at Rs. 278,618,715 as against Rs. 353,288,531 as determined by the Appellant. 6. On the facts and in law, the Ld. AO, Ld. TPO and the Hon'ble DRP violated the provisions of Rule log(2) of the Rules by rejecting all the comparable agreements selected by the Appellant in the TP documentation for the purpose of benchmarking the transaction of payment of Royalty without providing any cogent reason for the same. 7. Without prejudice, on the facts and in law, the Ld. AO, ld TPO and the Hon'ble DRP violated the provisions of Rule 108(2) of the Rules by arbitrarily introducing two additional companies/agreements which are functionally dissimilar to the Appellant for the purpose of determining the arm's length price. Corporate Tax Adjustments 8. The Ld. AO and Hon'ble DRP erred on the facts and in law in disallowing employee's contribution to Provident Fund ("PF") and employee's contribution to Employee State lnsurance ("ESI") amounting to INR 5,100,766. 9. The Ld. AO and Hon'ble DRP erred in disallowing INR 5,100,766 under section 36(1)(va) of the Income-tax Act ("the Act") on acco....
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....fficer (in brevity TPO) to determine ALP of international transactions of the assessee with its AEs. During transfer pricing assessment proceedings, the TPO made downward adjustment of Rs. 49,37,12,961/- towards the value of International Transaction & another downward adjustment amount of Rs 7,46,69,816/- towards payment of Technical Royalty. Based on the TPO order dated 31/10/2018, Assessing Officer has passed draft assessment order u/s. 143(3) r.w.s 92CA of the Act on 28/12/2018 and proposed following transfer pricing adjustments. The Assessing Officer has also proposed additions towards corporate tax issues like disallowance u/s. 36(1)(va) of the Act amount of Rs.51,00,766/-. The details of adjustments proposed by the Assessing Officer in draft assessment order are as follows:- TP Adjustment:- Transfer pricing adjustment Rs 59,37,02,420/- Corporate Adjustment:- Disallowance U/s 36(1)(va) Rs 51,00,766/- 4. The assessee has filed its return of income for assessment year 2015- 16 on 30.11.2015 admitting total income of Rs. 59,41,23,930/-. The assessee has filed auditor's report in form 3CEB related to international transactions, as per which ....
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....d Formerly known as Doosan Power Systems Ltd., United Kingdom 1,78,92,834 20 Reimbursement of Bank Guarantee Charges Doosan Heavy Industries and Constructions Co. Limited, Korea 8,16,88,043 21 Recovery of travelling expenses Doosan Babcock Limited Formerly known as Doosan Power Systems Ltd., United Kingdom 1,14,063 22 Recovery of travelling expenses Doosan Engineering & Services LLC, USA, USA 1,44,55,637 Total 1248,85,65,231 5. The brief fact of the case is that assessee, M/s. Doosan Power Systems India Private Limited is engaged in the business of designing, building, installation and maintaining engineering plants with specialization in thermal and coal power plants. The assessee also renders engineering services to its associate enterprises. The assessee company is a subsidiary of Doosan Heavy Industries & Construction Co. Ltd (DHIC). The details of shares held by shareholders in the company as per the audited balance sheet as on 31.03.2015 is as follows: Name of Shareholder Number of Shares held Percentage Doosan Heavy Industries and Constructions Co. Limited, Korea, the holding company ....
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.... etc. Accordingly, the details were accumulated by the TPO in its order. The TPO mostly focused in two words specifically "energy & Boiler" during its filter related to the agreement of the assessee with it's AE. As per the TPO two words are missing in the assessee's agreement. Accordingly the filter was made for search. The DRP inclined with view of the TPO & rejected the ground of assessee in their order. But, the assessee clarified the issue in such a way that the boiler or energy should not be based on the rejecting search and the TPO arbitrarily rejected the search. 6. The assessee has filed objections against draft assessment order passed by Assessing Officer before DRP-2, Bengaluru, and challenged various adjustments proposed by the Assessing Officer, but could not succeed. The learned DRP has upheld adjustments proposed by the Assessing Officer towards downward adjustments on value of international transaction & payment of royalty. The learned Assessing Officer has passed final assessment order on 21/11/2019 in pursuant to directions of DRP and made additions proposed by TPO towards international transactions & payment of royalty. The assessee carried matter in appeal be....
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....cated as to how such disallowance could be made where the claim of the assessee was that it had not earned any exempt income." (ii) IT(TP)A No.83/Chny/2018 , Assessment Year: 2014-15 "7. The Ld. AR for the assessee referring to various grounds of appeal filed before the Tribunal submitted that although the assessee has challenged TP adjustment, in light of comparables selected by the AO to determine the margin earned by comparables and further to compare the same with margin earned by the assessee, but he is going to restrict his arguments only in respect of entity level adjustment proposed by the Ld. TPO and affirmed by the ld. DRP because the issue of adjustment towards international transactions alone is almost settled by the decisions of Hon'ble Supreme Court and other Hon'ble High Courts, where it was categorically held that TP adjustments needs to be made at transactions level with reference to international transactions of the assessee with its AE but not at entity level. The Ld. AR for the assessee further submitted that although the assessee has challenged comparables selected by the AO, but keeping in view of the fact that there is no much variation in....
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....9;ble High Court held that TP adjustments cannot be made beyond the transactions of the assessee with its associated enterprises. The Hon'ble Bombay High Court in yet another case of CIT vs. Tara Jewels Exports Pvt. Ltd. (supra) had also considered identical issue and held that TP adjustments cannot be made at entity level. The ITAT, Chennai in the case of Prodapt Solutions Pvt. Ltd. vs. DCIT in ITA No.566/Chny/2017 has considered an identical issue and held that transfer pricing adjustment has to be made only in respect of transactions of the assessee being a tested party, with associated enterprises after comparing the transactions made by similarly placed company in uncontrolled transactions with non associated enterprises. The sum and substance of the ratios laid down by Hon'ble Supreme Court and Hon'ble High Courts are that TP adjustment can be made only in respect of transactions of the assessee with its associated enterprises, but not to a third party transactions at entity level. Although the Ld. TPO as well as Ld. DRP have accepted the fact that the issue has been decided in favour of the assessee by various Hon'ble High Courts, but because the SLP filed by....
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....d two issues that during comparable study the TPO excluded M/s Engineers India Limited & included M/s Larsen and Toubro Ltd in its TP Study. As per the order of the TPO, Engineers India Limited is a functionally dissimilar and the company provided engineering consultancy and EPC services on the oil and gas and petrochemical industries. So, the particular company Engineers India Limited should be rejected from the list. On the other hand, the TPO had included the Larson and Turbo Limited (in short L&T) in its TP study and data was compared accordingly. The three weighted average mean is 7.82 as per the Ld. TPO by the TNMM method. 10.2 The Ld. TPO had made an order and rejected the assessee's claim in the following observations: Name of the Comparable Company TPO contentions Assessee's contentions DRP directions Engineers India Ltd Functionally dissimilar (Company provides engineering consultancy and EPC services on the oil & gas and petrochemical industries) 1. Functionally comparable 2. Satisfying the filters applied by the TPO 3. Considered as a comparable in earlier years as well. This company is a public sector company of Govt. of India and declared "N....
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....purpose of transfer pricing audit and/or fixation of Alp. There is no reason why a government owned company cannot treated as a comparable. It is reiterated that the learned Tribunal found, on facts, that the functionality of M/s. HMT Limited and the assessee were the same." The counsel of the assessee also pointed out that the Engineers India Ltd is Navratna Company and as per the Government of India publication dated 21.07.2014 all the data are available in online and the issues are functionally comparable. On the other hand the DR argued considering the observation of the order of TPO. He mentioned that Government Concern should be excluded as they have different procedure of business. 10.4 Considering all the facts, the TPO was wrong to exclude the Engineers India Ltd so, the Engineers India Ltd is included in the TP study. 10.5 During TP study, the TPO had included M/s Larsen and Turbo Limited and the counsel of the assessee made objection that the turnover of L&T is 16 times higher than assessee and the fixed asset is more than 15 times comparable to DPSI's fixed assets. The observations of the DRP was that there is a huge comparable data. The TP study can be done....
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....ssessee and filed in its paper book page no 449 which is reproduced as under: Sl.No Name of comparable Weighted Average NPM as pr TPO order Weighted Average NPM as per Assessee 1 Tata Projects Ltd 3.845 3.82%* 2 Indure Pvt. Ltd 6.11% 4.13% 3 Abir Infrastructure Pvt Ltd 10.12% 9.35% 4 Larsen & Toubro Ltd 9.44% 8.82%** 5 Thermax Ltd 9.60% 9.19% Average 7.82% 7.06% * NPM for the EPC segment ** NPM for the Power Segment The matter was came before the DRP and the DRP reduced the margin from 7.19% to 6.95%. 11.2 Considering both the facts of observations, we herein restore the matter back to the TPO with a direction to calculate OP/OC margin by comparing the entities as mentioned above. The matter is setting aside to AO for further calculation. 12. Ground No. 5 to 7: Transfer Pricing adjustment relating to payment of Technical Royalty: 12.1 During examination, the search was conducted by the TPO. The following observations were made in its order relating to calculation of payment of Technical Royalty to AE, total sum of Rs. 353,288,531/-. The assessee paid Royalty @ 3.17% ....
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....The DR vehemently argued on this issue and relied on the order of the TPO and the DRP. 12.5 We heard both the parties. The AO has benchmarked royalty payment to the AE by rejecting TNMM adopted by the assessee to benchmark its transactions with AO on entity level and has selected CUP method. The TPO has selected two comparables with the average rate of 2.5% royalty under similar circumstances and then compared with royalty paid by the assessee @ 3.17% and has made adjustments of Rs. 7,46,69,866/-. It was an argument of the ld. Counsel of the assessee that once TNMM has been accepted as most appropriate method, then there is no scope for cherry picking individual transactions and applied different method. In this regard, he relied upon the decision of ITAT in the case of M/s. Durr India Private Ltd in ITA No. 754/2014. We have considered the arguments of the Ld. AR of the assessee. In the light of the reasons given by the AO to separately benchmark royalty payment by adopting CUP method, we find that even if assessee adopted TNMM has most appropriate method on entity level, but there is no restriction under the Act to separately benchmark royalty payment if comparables are availa....