TaxTMI 
TaxTMI 
2023 (2) TMI 79
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.... 2. Transfer Pricing ground - upward adjustment to arm's length price. General Ground 2.1 The directions of the Dispute Resolution Panel (DRP) and the consequential transfer pricing order and the final assessment order is erroneous in so far as determining and quantifying a upward adjustment of Rs.85,15,716/- to the value of international transaction of income/ sales as declared by the appellant. Rejection of comparable companies: 2.2 The AO/DRP has erred in confirming the action of the TPO in including 'Shyama Power India Limited' which is functionally not comparable to that of the Appellant. 2.3 The AO/DRP has erred in confirming the action of the TPO in including 'Sunil Hitech Engineers Limited' which is functionally not comparable to that of the Appellant. 2.4 The AO/DRP has erred in confirming the action of the TPO in including 'Everest Infra Energy- Limited' which is functionally not comparable to that of the Appellant. 2.5 Without prejudice to the ground 2.4 above, the AO/DRP has erred in confirming the action of the TPO by considering the finance charges incurred by 'Everest Infra Energy Limited' as non-operating in natu....
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.... suo-moto enhancement of income amounting to Rs.29,05,634/- on account of non-deduction of TDS for reimbursement of expenses paid by the Appellant to its associated enterprises. 3.2 The DRP grossly erred in issuing directions for enhancement without issuing show cause notice to the Appellant. 3.3 The AO/DRP erred in law and facts of the case by concluding that the reimbursement of expenses paid were in the nature of Fees for Technical Services. 3.4 The AO/DRP ought to have appreciated that the reimbursements were on cost to cost basis i.e. without any mark-up and as such there is no income of non-resident AE, which is chargeable to tax in India warranting TDS. Restriction on claim of depreciation on UPS: 3.5 The AO/DRP erred in restricting the claim of depreciation on UPS. 3.6 The AO/DRP ought to have appreciated the fact the UPS is an integral part of the computer and as such it is eligible for higher rate of depreciation at the rate of 60%. 4. The Appellant craves leave to add, alter, amend, substitute, rescind, modify and/or withdraw in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 3. The brief ....
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....ee company has various international transactions during the FY 2012-13 with its AE as detailed below: Sl.No. Description of the transactions Amount (in Rs.) 1 Provision of Erection, testing and commissioning services 15,68,80,440 2 Provision for designing and drawing services 5,06,97,615 3 Reimbursement of expenses paid 29,05,634 4 Reimbursement of expenses received 36,61,971 5 Issue of shares 14,60,00,000 Total 36,01,45,660 5. Examination of TP study conducted by taxpayer: The taxpayer has carried out the economic analysis and has summarized it as under: Nature of international transaction Amount (in Rs.) MAM PLI Margin of taxpayer Margin of comparables Provision of erection, testing and commissioning services 15,68,80,440 TNMM OP/OC 3.35% 3.09% Provision for designing and drawing services 5,06,97,615 TNMM OP/OC 18.50% 15.08% Reimbursement of expenses paid 29,05,634 Other method Reimbursement of received 36,61,971 -- -- -- Issue of shares 14,60,00,000 Total 36,01,45,660 The taxpayer has discussed in brief the search procedure adopted by it....
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....he above limitation, we decided to adopt the single year data of the comparables given by the assessee. Further an independent search was conducted in Prowess by adopting requisite filters. As a result of search, 8 companies have been selected as comparable companies and their arithmetic mean is 13.82%. The detail is as under: Accordingly, a fresh study is carried out for comparable companies by taking the following filters and resulted the under mentioned comparable companies. 1 All industries - manufacturing activities - business of engineering, design, detailing, steel fabrication, development of residential buildings and commercial complexes. 2 Financials not available 3 Sales above 1 crore 4 Consecutive losses 5 RPT < 25% 6 Functionally similar Sl.No. Name of the company Average PLI (%) 1 Everest Infra Energy Ltd. 19.01 2 Petron Engineering Construction Ltd. 3.97 3 Rishi Laser Ltd. 1.80 4 Shyama Power India Ltd. 14.49 5 Sunil Hitech Engineers Ltd. 9.27 6 UB Engineering Ltd. 5.26 7 Zep Infratech Ltd. 29.17 8 Ansal Buildwell Ltd. 27.60 Arithmetic Mean 13.82% (OP/OC) 11. Above filter leads to a....
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.....96 108.96 ALP of the international transaction = 15,68,80,440108.96/103.35=16,53,96,156 +3% range = Rs.15,21,740,268 to Rs.16,15,86,853. Adjustment to be made is Rs.85,15,716 16. The ALP for the sales calculated on an international transaction of EPC segment has not been determined by the assessee company in accordance with section 92C(3). Hence the arm's length price has been calculated as per the provision of sub-sections (1) and (2) of 92C. Hence an adjustment amounting to Rs.85,15,716 is to be made to the sales of the international transactions. 5. Pursuant to the TPO order u/s.92CA(3) of the Act, dated 28.10.2016, the AO has passed draft assessment order u/s.143(3) r.w.s.144C(1) of the Act, on 30.06.2017 and proposed TP adjustment as suggested by the TPO. The AO had also made additions towards disallowance of employee's contribution to PF & ESI for belated remittances under respective Acts and also disallowed excess depreciation claimed on printer, UPS and port switch, etc. Aggrieved by the draft assessment order, the assessee filed objection before the DRP and the DRP vide their order passed u/s.144C(5) of the Act, dated 05.05.2017 rejected the objection filed....
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.... on client base, which is predominantly power generation companies. On the other hand, the assessee is providing steel fabrication and construction services to L&T Construction and Samsung which are engaged in commercial and residential work. Therefore, we are of the considered view that M/s.Shyama Power India Ltd., is not a good comparable when it comes to functions carried by the assessee. Therefore, we direct the TPO to exclude M/s.Shyama Power India Ltd., from the list of comparables. M/s.Sunil Hitech Engineers Ltd.: 6.2.1 The Ld.Counsel for the assessee referring to annual report of M/s.Sunil Hitech Engineers Ltd., submitted that said company is engaged in the business of construction work for power projects which includes fabrication, erection, testing and commissioning of bunkers electro static pre-boilers, turbines and generators in power plants, whereas, the assessee company is in simple steel structural fabrication and erection for commercial or residential works. Therefore, M/s.Sunil Hitech Engineers Ltd., cannot be considered as good comparable. 6.2.2 The Ld.DR, supporting the order of the DRP, submitted that the TPO as well as the DRP brought out clear facts in lig....
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.... this stage M/s.Everest Infra Energy Ltd., is not a good comparable. Further, functions carried out by the assessee and M/s.Everest Infra Energy Ltd., are broadly similar in nature, although, the client base is different. Therefore, we are of the considered view that there is no error in the reasons given by the TPO and the DRP to include M/s.Everest Infra Energy Ltd., in the list of comparable and thus, we reject the ground taken by the assessee. 7. The next issue that came up for our consideration from Ground No.2.8 of the assessee's appeal is consideration of foreign exchange loss as operating in nature. The assessee while computing PLI has excluded foreign exchange loss on the ground that it is non-operating in nature and does not have any effect on operating margin of the assessee. The TPO had included foreign exchange loss as operating in nature on the ground that the assessee has mainly incurred foreign exchange loss in connection with debtors and creditors which is having a bearing on operating margin on the assessee. 7.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The question whether foreign....
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....ght of working capital position of comparable goes, then it is the duty of the TPO to provide necessary working capital adjustment while computing operating margin of the assessee and this position is supported by the decision of ITAT Chennai Benches in the case of M/s. Doosan Power Systems India Pvt. Ltd., v. ACIT (OSD) in IT (TP) A No.83/Chny/2018 dated 31.03.2021, where similar decision has been reiterated by the Tribunal. Therefore, by following the decision of ITAT, we direct the TPO to reconsider the issue of working capital adjustment in light of various averments made by the assessee and also evidences placed on record. 9. The next issue that came up for our consideration from Ground Nos.2.11 & 2.12 of the assessee's appeal is adjustment for underutilization of capacity. The Ld.Counsel for the assessee submitted that the TPO/DRP is not appreciating the fact that the fixed cost to sales ratio to the assessee is 26.62% as against 13.01% of the comparable companies selected in TP order. Therefore, suitable adjustment needs to be provided. 9.1 The Ld.DR, on the other hand, supporting the order of the DRP submitted that the assessee has failed to make out a case for providing ....
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....s liable for TDS. Since, the assessee failed to deduct TDS on the said payment as required u/s.195 of the Act, DRP has made disallowance u/s.40(a)(i) of the Act. 12.1 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. Admittedly, the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, is not before the TPO. For the first time, the DRP on the basis of international transaction reported by the assessee in Form No.3CEB, opined that payment towards reimbursement of expenses, is in the nature of FTS. The assessee, although, claimed before the DRP that reimbursement of expenses is on 'cost to cost' basis without any mark-up, but no details or explanation was submitted by the assessee. Therefore, we are of the considered view that the issue needs to go back to the file of the TPO for further verification. Hence, we set aside the issue of disallowance of reimbursement of expenses u/s.40(a)(i) of the Act, and direct the TPO to re-examine the claim of the assessee in accordance with law. 13. The next issue that came up for our consideration from Ground Nos.3.5 & 3.6 of the assessee's appeal is ....