TaxTMI 
TaxTMI 
2023 (2) TMI 79
X X X X Extracts X X X X
X X X X Extracts X X X X
....y to law, facts and circumstances of the case. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ile conducting search for comparable companies. 3. Corporate Tax Grounds Disallowance u/s.40(a) - Reimbursement of expenses: 3.1 The DRP erred in law and facts of the case in making a 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (ECPL) was incorporated on 14 August 2009 in Chennai to carry on the business of engineering, design, detailing, steel fabrication, development of residential buildings and commercial complexes. 4. Associated Enterprises & International transactions: The assessee 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....years weighted average. Even as per the proviso of Rule 10B(4), use of previous year data is applicable only when it is established that usage of such data is necessary as it influences the current year profit of the company. The assessee company has not provided any such evidences to prove that the earlier year data have influenced the current year profit of the company. Therefore, the act of the assessee company to use weighted average of 3 years is not compliance of with rule 10B (4). 10. Owing to the 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 Financ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee. The contentions of the assessee is considered and both companies have been removed from the selection of comparable companies for calculation of PU. 'Finally selected companies by this office. Description OP/OC (%) Everest Infra Energy Ltd. 19.01 Petron Engineering Construction Ltd. 3.97 Rishi Laser Ltd. 1.80 Shyama Power India Ltd. 14.49 Sunil Hitech Engineers Ltd. 9.27 U B Engineering Ltd. 5.26 Average 8.96% 15. Revised ALP calculated by this office is as below: Value of the international transaction = Rs. 15,68,80,440 Margin of the assessee company = 3.35 % Margin of the comparable companies taken by TPO = 8.96%% Cost Markup (%) Sales 100 3.35 103.35 100 8.96 108.96 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen compared to simpliciter fabrication and civil construction work. Therefore, M/s.Shyama Power India Ltd., is not a good comparable and needs to be excluded. 6.1.2 The Ld.DR, supporting the order of the DRP, submitted that the TPO as well as the DRP brought out clear facts in light of profile of both the companies and held that M/s.Shyama Power India Ltd., is functionally similar to functions carried out by the assessee and thus, same cannot be excluded. 6.1.3 We have heard both the parties, and perused the materials available on record and after going through the profile of the both the companies, we find that functions carried out by the assessee is altogether different from functions carried out by M/s.Shyama Power India Ltd., which is evident from the nature of work carried out by M/s.Shyama Power India Ltd., 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 function....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Energy Ltd., cannot be a good comparable and needs to be excluded. 6.3.2 The Ld.DR, on the other hand, supporting the TP documentation filed by the assessee submitted that the assessee itself has included M/s.Everest Infra Energy Ltd., in the list of comparables on the ground that both companies are into similar line of business and comparable to the profile of the assessee. Therefore, there is no merit in the arguments of the assessee for exclusion of M/s.Everest Infra Energy Ltd. 6.3.3 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that assessee itself had included M/s.Everest Infra Energy Ltd., in the TP documentation and considered as a good comparable. The assessee could not explain, as to why and how, at 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 I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bmitted that working capital adjustment is not automatic and the assessee needs to prove with evidences that there is a gap between working capital employed by the assessee when compared to working capital employed by comparables. Since, the assessee could not justify working capital adjustment, the TPO/DRP rightly rejected the claim of the assessee and their orders should be upheld. 8.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the working capital plays an important role in operating margin of any entity including that of the assessee. Therefore, when assessee seeks adjustment for working capital considering the amount of working capital employed in their business consisting of own funds and borrowed funds in light 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/Ch....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... No.2.16 of the assessee's appeal is application of turn over filters and during the course of hearing, the Counsel for the assessee submitted that the assessee does not want to press the ground and thus, ground No.2.16 of the assessee's appeal is dismissed as not pressed. 12. The next issue that came up for our consideration from Ground Nos.3.1 to 3.4 of the assessee's appeal is disallowance of reimbursement of expenses u/s.40(a)(i) of the Act. The TPO did not make any disallowance for reimbursement of expenditure u/s.40(a)(i) of the Act. But, the DRP in their order, after considering relevant facts and also submissions of the assessee observed that in absence of any details with regard to the claim of reimbursement of expenses and also after considering the nature of expense opined that payment towards reimbursement of expenses is nothing but FTS and was 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 disallowanc....