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2023 (5) TMI 1052
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....eby sustained the part addition of Rs. 1,62,42,947/-. 3. That the ld. CIT (A) grossly erred in applying the G.P. rate of 3% and thereby sustained the part addition also ignored external comparable. 4. That appellant craves to leave, add, alter the ground of appeal. ITA NO. 431/JP/2022 (Revenue) 1. Whether the order of ld. CIT (A) is perverse in including the JV agreement between SMS Paryavaran Limited and the assessee as a comparable by ignoring the fact that the data is not contemporaneous in that the said comparable agreement pertained to 2013 whereas the subject agreement between the assessee and its AE pertained to 2010 ? 2. Whether the order of ld. CIT (A) is perverse in including the JV agreement between SMS Paryavaran Limited and the assessee as a comparable by ignoring the fact that the agreements in question were functionally incomparable in that the agreement with SMS Paryavaran Limited had a limited scope (i.e. replacement of worn out machinery and equipment) whereas the agreement with the AE was a full fledged civil construction project ? 3. Whether the order of ld. CIT (A) is perverse in including the JV agreement b....
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..... The Transfer Pricing Officer ("Ld. TPO") had passed the order on 19th September 2017 by computing the arm length price at Rs. 95,75,17,030/- as against the transaction value shown by the Appellant of Rs. 98,93,88,204/-. The Ld. TPO for determining arms-length price considered 4.5% of contract revenue (being retention percentage of one of the comparable considered by the Appellant in its Transfer Pricing ("TP") Report) and accordingly made adjustment by computing the retention profit @ 4.5% of the contract value thereby making an addition of Rs. 3,18,71,174/- disallowing certain expenses debited to profit and loss statement of the appellant, being royalty expense, labour, cess, VAT composition tax and entry tax to achieve the said retention percentage. 2.2. Basis the order passed under section 92CA, the AO had completed the assessment under section 143(3) by passing an order dated 11th December 2017 by making total addition amounting to Rs. 3,18,71,174/- as per the adjustments made by Ld. TPO in his order and determined the total income of the appellant at INR 4,09,22,960/- under the normal provisions of the Act. While passing the assessment order, the AO had placed reliance on....
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.... before the Tribunal. 4. Before us, the ld. A/R of the assessee has reiterated his submissions as submitted before the lower authorities. The assessee has submitted its written submissions as under :- "Issues Involved: Omission of transactions covered under-section 40A(2)(b) of the Act from the ambit of Specified Domestic Transactions. 1. We submit that the transfer pricing adjustment has been made in pursuance of provisions of clause (i) of sec. 92BA of the Act, which read as under:- "(i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of sub-section (2) of section 40A" We submit that section 92BA was inserted by Finance Act 2012 with effect from 1.4.2013. However clause (i) referred above was omitted by the Finance Act 2017 with effect from 01.04.2017. Accordingly we submit that the Transfer pricing adjustment made in the instant case is liable to be deleted, since clause (i) of section 92BA shall be deemed to be never existed in the Statute. Further, it did not contain saving clause or nothing was specified whether the proceeding initiated or action taken as ....
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....sion. 39. In the present case, as noted earlier, Section 6 of the General Clauses Act has no application. There is no saving provision in favour of pending proceeding. Therefore action for realisation of the amount refunded can only be taken under the new provision in accordance with the terms thereof." (ii) Hon'ble Supreme Court decision in the of GENERAL FINANCE CO. AND ANOTHER VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX 002 (3) TMI 3-SUPREME COURT Other Citation (2002) 257 (TH 338 (9C) AIR 2002 SC 3125 2002 (2) Supel SCR 106 2002 (7) SCC 1 2002 (6) JT 426, 2002 (6) SCALE 198. (Case law Paper Book page 13-16) Held that section 276DD stood omitted from the Act but not repealed and hence, a prosecution could not have been launched by invoking section 6 of the General Clauses Act after its omission. (iii) Hon'ble Karnataka High Court in the case of The Commissioner of Income Tax Versus M/S. GE Thermometrics India Pvt., Ltd., 2019 (12) TMI 1312- KARNATAKA HIGH COURT (Case law Paper Book page 17-19) The decision in KOLHAPUR CANESUGAR WORKS LTD., VS. UNION OF INDIA 2000 (2) TMI 823- Supreme Court of India was relied....
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....Officer TPO under section 92CA could be invalid and bad in law. (v) ITAT Bangalore in the case of M/S Nava Karnataka Steels Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle-5 (1) (1), Bengaluru 2022 (6) TMI 179-ITAT Bangalore (Case law Paper Book page 21-27) TP Adjustment - AO made a reference to TPO u/s 92CA to determine arms length price as the assessee had entered into specified domestic transaction Reference to the TPO in respect of specified domestic transactions - claim of expenditure in terms of the provisions of sec. 40A(2)(b) as submitted provisions of section 92BA of the income-tax Act 1961 have been amended vide Finance Act 2017 to exclude specified domestic transactions which are contained under section 92BA read with 40A(2)(b) from the purview of transfer pricing regulations-HELD THAT:- Considering the binding effect of the decision rendered in TEXPORT OVERSEAS (P.) LTD. [2019 (12) TMI 1312 KARNATAKA HIGH COURT] we respectfully follow the same and hold that the reference to the TPO in respect of specified domestic transactions mentioned in clause (i) of sec. 92BA is not valid as the said provision is omitted since inception. Accord....
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....017 and hence it would be deemed that clause (1) of section 92BA of the Act was never in the statute - HELD THAT: Where a particular provision in a statute is omitted with a saving clause in favour of the pending proceedings, then it can be reasonably inferred that the intention of the Legislature is that pending proceedings shall not continue. Therefore, the omission of clause (i) of section 92BA w.e.f 1/42017 shall render the pending proceedings invalid. (ix) ITAT Kolkata in the case of Asstt. Commissioner of Income Tax, Circle33, Kolkata Versus Rahee Jhajharia E To E JV And Vice- Versa 1.T.A. No. 1125/Kol/2019 1.T.A. No. 343/Kol/2019 Dated: 12-7-2022 2022 (7) TMI 790-ITAT KOLKATA (Case law Paper Book page 71-81) TP Adjustment - ALP determination qua domestic transactions entered into by the assessee with its partner u/s 92BA(i) of the Act-TP Adjustment of transactions falling u/s 40A(2)(b) - HELD THAT: We find that though all these arguments have been duly considered by the ITAT in the orders for the earlier years, particularly in the case of M/s. Raipur Steel Casting India (P) Ltd. [2020 (6) TMI 629 - ITAT KOLKATA] but after taking note the issue was ....
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....Karnataka High Court in case of Texport overseas [2019 (12) TMI 1312 KARNATAKA HIGH COURT] in favour of the assessee holding that as the provisions of Section 92BA (i) has been omitted from the Income Tax Act without any saving clause therefore the natural corollary would be that it did not exist at all in the statute book. Accordingly, we allow the additional ground of appeal and hold that the impugned transfer pricing adjustment made by the learned assessing officer is not sustainable. (xi) ITAT Delhi in the case of M/S SMR Automotive Systems India Ltd. Versus Addl. CIT Special Range-8, Delhi LTA No.6614/Del/2017 Dated:- 3-4 2021 reported in 021 (6) TMI 449-ITAT DELHI. (Case law Paper Book page 105-112) Determination of the Arm's Length Price - reference u/s 92CA - HELD THAT: The undisputed fact is that as per sub-clause (1) of section 92BA the assessee has undertaken the transaction which has exceeded the prescribed limit. It is also not in dispute that vide Finance Act, 2017 w.e.f. 01.04.2017 the said sub-clause (1) of section 92BA has been omitted. We find that the AO has made a reference u/s 92CA having observed that the assessee has entered int....
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....f the decision of Hon'ble High Court nor cannot be construed as the verdict of Apex Court on the correctness of the decision of Hon'ble High Court. 1.2. From the plethora of judgments as mentioned above, it is clear that once a particular provision of section is omitted from the statute, it shall be deemed to be omitted from its inception unless and until there is some saving clause or provision to make it clear that action taken or proceeding initiated under that provision or section would continue and would not be left on account of omission. In the instant case, undisputedly, by the Finance Act, 2017, clause (i) of section 92BA has been omitted w.e.f. 01.04.2017. Once this clause is omitted by subsequent amendment, it would be deemed that clause (i) was never there in the statute. In view of the above, it is prayed to hold that the reference made to TPO u's 92CA is invalid and bad in law. Therefore, the consequential order passed by the Id TPO and Id AO is also not sustainable in the eyes of law and that addition made /sustained by ld CIT(A) deserves to be deleted. 1.3. The assessee company was a SPV (Special Purpose Vehicle). The work exec....
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....n as SPML Infraprojects Ltd) and M/s Om Metals Infra Projects Ltd and being the qualifying party of the contract, for complete execution of work was made on Turnkey Basis as OM INFRA has vast experience in the field of turnkey execution from Design, Detailed Engineering, Manufacture, Supply, Installation, Testing & Commissioning of complete range of Hydro mechanical equipment for Hydroelectric Power & Irrigation projects, PHED, PWD etc. 1.8. Therefore, in real sense it was not a sub contract in between assessee company M/s Om Metal- SPML Infra Projects Pvt Ltd (Now known as Worship Infra Projects Pvt Ltd) and M/s Om Metal Infra Projects Ltd as mentioned in para 6 of Assessment order. The dictionary meaning of sub contract is - (i) employ a firm or person outside one's company to do (work) as part of a larger project. (ii) to engage a third party to perform under a subcontract all or part of (work included in an original contract). (iii) a contract between a party to an original contract and a third party that assigns part of the performance (as building a house) of the original contract to the third party. (iv) Contract between a par....
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....o an international transaction or a specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- (a) comparable uncontrolled price method, by which, - (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between '[the international transaction or the specified domestic transaction] and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (if) is taken to be an arm's length price in respect of the property transferred or services provided in [the international transaction or the specified domestic transaction]; As per clause (ii) of Rule 10B such price is to be adjusted for difference. No appropriate adjustment was made by TPO/AO for basic difference i.e. the assessee company was not in existence at the tim....
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....ctivity on the sub- contracting model in the relevant assessment year only and the revenue from sub- contracting is comparatively low as compared to the revenue of the Appellant. Further, almost 90% of revenue of the company is from trading and construction contracts only form a very small part of the same. Perusal of Annual report of Silverpoint Infratech Ltd. and prospectus document of Anubhav Infrastructure Ltd shows that both the comparables are engaged in construction business by sub-contracting the project to the third parties and accordingly FAR of comparables are same as Appellant's. Appellant was therefore able to provide substantial documents for the said comparables and the arguments taken by appellant has been considered. Hence both the companies are to be retained as comparables. (Copy of the public documents available for all the three comparables selected by the Appellant were filed before TPO) In addition to above, the reason for low margin is also because of the fact that the parent company i.c. OM Infra Limited has furnished the bank guarantee on behalf of the Appellant. The same would have been approx. 10% of the contract value i.e INR 42.98....
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.... * The TPO observed for application of CUP strict comparability is required. As the assessee failed to submit complete details, the TPO concluded that these comparables cannot be taken into consideration as their terms of agreements could not be verified. The assessee has submitted detailed reply on these issues to TPO vide letter dated 24/08/2017 (copy enclosed with the WS) which has not been considered in judicial perception by the lower authorities. 3. Rejection of Internal Comparable JV Agreement between SMS Paryavaran Limited and SPML:- Internal Comparable: The aforesaid percentage retained by OM SPML has been compared with the percentage retained by SPML on account of sub-contracting the execution of similar projects to unrelated parties. The details of the internal comparables are as under: Agreement Percentage of Revenue retained for subcontracting the work JV Agreement between SMS Paryavaran Limited and SPML 1.5% of the contract revenue retained by SPML Agreement between Jain & Rai Construction Co. and SPML 4.5% of the contract revenue retained by SPML Average Mean 3% The ld CIT(A) applied the average mean of 3....
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....reciation 2,32,414 2,32,414 Total Expenses 56,88,968 56,88,968 Adjusted Profit before tax (A) 4,09,19,882 2,52,91,655 Profit before tax as reported (B) 90,48,708 90,48,708 Adjustment (A-B) 3,18,71,174 1,62,42,947 Actual Price undertaken by Assessee 98,93,88,204 98,93,88,204 Arm's length price after TP adjustment 95,75,17,030 97,31,45,257 Difference 3,18,71,174 1,62,42,947 Difference in percentage 3.22% 1.64% Since the difference in between the Arm's length price and actual price is within the limit prescribed in the second proviso to section 92C(2) of Income Tax Act, the difference should be ignored. 4.2 No disallowance can be made by applying the provisions of Section 40A(2)(b) as there is no question of diversion of profit to evade tax liability. ....
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....the interest are paying the income tax at the highest rate and equivalent to the rate of tax at which the assessee's paying tax. To substantiate the contention, the learned AR of the assessee has relied upon the decision of the Hon'ble jurisdictional High Court in the case of CIT Vs. Indo ITA No.7119/2011 Saudi Services (Travel) P. Ltd. (supra), wherein the Hon'ble High Court has observed in para 5 as under :- "5. In view of the aforesaid admitted facts we are of the view that the Tribunal was correct in coming to the conclusion that the Commissioner of Income-tax (Appeals) was wrong in disallowing half per cent commission to the sister concern of the assessee during the assessment years 1991-92 and 1992-93. The learned advocate appearing for the appellant is also not in a position to point out how the assessee evaded payment of tax by the alleged payment of higher commission to its sister concern since the sister concern was also paying tax at higher rate and copies of the payment orders of the sister concern were taken on record by the Tribunal." 2.5 Similarly, in the case of CIT Vs. V.S. Dempo & Co. (P.) Ltd (supra), the Hon'ble High Court has h....
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....d by the AO. The circular is binding on the Department and on this ground also the appeal should be dismissed" 2.6 Following the decision of the Hon'ble jurisdictional High Court we are of the view that if the assessee is able to establish that the recipient of interest are paying tax at the highest rate on the income and at least on the income to the extent of interest received, then no disallowance is called for under Section 40A(2) for want of motive of evasion of tax Accordingly on principle, we accept the contention of the learned AR however, the Assessing Officer to directed to verify the rate of tax at which the recipient of interest have paid tax and if the rate of tax paid by the recipient is equivalent to the rate of sax paid by the assessee, the assessee's claim should be allowed" 5) Departmental Appeal:- SUBMISSION OF ASSESSEE:- (i) JV agreement was not in between the assessee and SMS Paryavaran Limited. The department has raised Ground No 1 to 3 presuming the JV agreement was in between the assessee and SMS Paryavaran Limited in the internal comparables submitted by the assessee, which is factually wrong, as the JV a....
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....sultancy and offer complete turnkey profetes from concept to commissioning with expertise. Its promoters/ directors are Manimay Sengupta, Munendra Kumar Singh and Sudhir Narayan Rao Modak. 9.4 It appears that the TPO got confused with the name of the company (SMS) in inferring that the same is a related party of SPML. The TPO has not given any reason or basis for forming the view that SMS Paryavaran Limited was a related party. As SMS Paryavaran Limited was an unrelated party, the TPO was not justified in rejecting this comparable on the sole basis that it is a related party...". The department has not brought any positive material to show that M/s. SMS Paryavaran Ltd and SPML has common director, common shareholders and common management." 4.1. In addition to the above written submissions submitted by the ld. A/R of the assessee on 20.04.2023, he further submitted the following submissions in support of his case : " The assessee has filed detailed submission on the hearing of the case on 20/04/2023. The assessee in addition to what has been submitted on 20/04/2023 further submits as under for your kind perusal and consideration. 1....
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....ct management control and monitoring of the project :- The ld. TPO mentioned "Yes" in column 2 of this table in para 8.1 meaning thereby he presumed that the assessee participated in management control and project. Whereas, the assessee was new in the line, it have no experience, It was not involved in management control and monitoring the project. Whereas in the case of SPML Ltd & Jain & Rai Construction co (comparable case) M/s SPML. Ltd and M/s Jain & Rai Construction co both participated in the project management and monitoring the project. As stated earlier that SPML Ltd is a listed company and it has vast experience in civil construction, incorporated on 27/08/81 whereas the assessee has no experience, it was formed on 10/05/2010 as SPV just as a conduit to full fill the requirement of the contract agreement. This factor alone reduce the retention of profit margin by the assessee. 3) Functional difference in JV in between the assessee and Om Metals Infraprojects Ltd and JV in between SPML Ltd and Jain & Rai construction Co. As mentioned in Para 7.2 (b) of Assessment order, agreement in between SPML Ltd and M/s Jain and Rai Construc....
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....tory of the assessee is best guiding factor. In this case net profit rate was fixed on the basis of past history. Hon'ble ITAT Jaipur Bench in the case of M/s Asian Construction Co. Vs ITO 34 Tax World 89 has also held that the past history of assessee's case is the best reflector of the true trade results. Therefore, the humble assessee prays kindly to delete the addition sustained by Ld CIT(A) and dismiss the appeal filed by the revenue which is listed at ITA 431/JPR/2022 and allow the appeal filed by the assessee which is listed at ITA No.394/JPR/2022." 5. On the other hand, the ld. D/R relying on the orders of the revenue authorities, submitted that the order of the AO be sustained. 6. We have heard the rival contentions, perused the material on record and gone through the orders of the revenue authorities. After appreciating the facts of the case, we noticed that the transfer pricing adjustment was made in the present case in pursuance of provisions of clause (i) of section 92BA of the Act which reads as under :- " (i) any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of subsection (....
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....statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings then it can be reasonably inferred that the intention of the legislature is that the pending proceeding shall not continue bu a fresh proceeding for the same purpose may be initiated under the new provision. 39. In the present case, as noted earlier, Section 6 of the General Clauses Act has no application. There is no saving provision in favour of pending proceeding. Therefore action for realisation of the amount refunded can only be taken under the new provision in accordance with the terms thereof." Further, the Hon'ble Supreme Court in another case of General Finance Co and Another vs. ACIT (2002) 257 ITR 338 (SC) has held that section 276DD stood omitted from the Act but not repealed and hence, a prosecution could not have been launched by invoking section 6 of the General Clauses Act after its omission. In this regard, we further place reliance on the following case laws :- Hon'ble Karnataka High Court in the case of The Commissioner of Income Tax vs. M/s. GE Thermometrics India Pvt. Ltd. (2019)(1....
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....law never been existed. Hence, decision taken by the Assessing Officer under the effect of section 92BA and reference made to the order of Transfer Pricing Officer TPO under section 92CA could be invalid and bad in law. ITAT Bangalore in the case of M/S Nava Karnataka Steels Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle-5 (1) (1), Bengaluru 2022 (6) TMI 179-ITAT Bangalore (Case law Paper Book page 21-27) TP Adjustment - AO made a reference to TPO u/s 92CA to determine arms length price as the assessee had entered into specified domestic transaction Reference to the TPO in respect of specified domestic transactions - claim of expenditure in terms of the provisions of sec. 40A(2)(b) as submitted provisions of section 92BA of the income-tax Act 1961 have been amended vide Finance Act 2017 to exclude specified domestic transactions which are contained under section 92BA read with 40A(2)(b) from the purview of transfer pricing regulations-HELD THAT:- Considering the binding effect of the decision rendered in TEXPORT OVERSEAS (P.) LTD. [2019 (12) TMI 1312 KARNATAKA HIGH COURT] we respectfully follow the same and hold that the reference to the TPO ....
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....-As stated since the provisions of clause(i) to section 92BA of the Act has been omitted by the Finance Act, 2017 w.e.f 1/4/2017 and hence it would be deemed that clause (1) of section 92BA of the Act was never in the statute - HELD THAT: Where a particular provision in a statute is omitted with a saving clause in favour of the pending proceedings, then it can be reasonably inferred that the intention of the Legislature is that pending proceedings shall not continue. Therefore, the omission of clause (i) of section 92BA w.e.f 1/42017 shall render the pending proceedings invalid. ITAT Kolkata in the case of Asstt. Commissioner of Income Tax, Circle-33, Kolkata Versus Rahee Jhajharia E To E JV And Vice- Versa 1.T.A. No. 1125/Kol/2019 1.T.A. No. 343/Kol/2019 Dated: 12-7-2022 2022 (7) TMI 790-ITAT KOLKATA (Case law Paper Book page 71-81) TP Adjustment - ALP determination qua domestic transactions entered into by the assessee with its partner u/s 92BA(i) of the Act-TP Adjustment of transactions falling u/s 40A(2)(b) - HELD THAT: We find that though all these arguments have been duly considered by the ITAT in the orders for the earlier years, particularly in th....
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.... 92BA (i) for assessment year 2013-14 till it was omitted. This issue has been dealt with by the honourable Karnataka High Court in case of Texport overseas [2019 (12) TMI 1312 KARNATAKA HIGH COURT] in favour of the assessee holding that as the provisions of Section 92BA (i) has been omitted from the Income Tax Act without any saving clause therefore the natural corollary would be that it did not exist at all in the statute book. Accordingly, we allow the additional ground of appeal and hold that the impugned transfer pricing adjustment made by the learned assessing officer is not sustainable. ITAT Delhi in the case of M/S SMR Automotive Systems India Ltd. Versus Addl. CIT Special Range-8, Delhi LTA No.6614/Del/2017 Dated:- 3-4 2021 reported in 021 (6) TMI 449-ITAT DELHI. (Case law Paper Book page 105-112) Determination of the Arm's Length Price - reference u/s 92CA - HELD THAT: The undisputed fact is that as per sub-clause (1) of section 92BA the assessee has undertaken the transaction which has exceeded the prescribed limit. It is also not in dispute that vide Finance Act, 2017 w.e.f. 01.04.2017 the said sub-clause (1) of section 92BA has b....
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.... judgment referred to in the order of ld. CIT (A) is different from the paramateria contained as per facts of the present case. Therefore, the same are distinguishable. 6.3. Apart from the above, we also noticed that in para 7.9 of ld. CIT (A)'s order, the plea of the assessee was rejected on the ground that this legal issue was not raised during the assessment proceedings. In this regard, we are of the firm view that the present issue under discussion is purely legal issue and there is no dispute over the facts relevant to this issue. In our considered view the legal issue which is beneficial for the parties can be raised at any step of proceedings even before the Appellate Authorities and there is no estoppels against the law. Even the Coordinate Bench of the ITAT Delhi in the case of M/s. SMR Automotive Systems India Ltd. (supra) allowed the additional ground on this issue. 6.4. Further, in para 7.9 of the order, the ld. CIT (A) rejected the reliance made by the assessee on the decision of Hon'ble Karnataka High Court in the case of PCIT vs. M/s. Texport Overseas Pvt. Ltd. by holding that Hon'ble Supreme Court has admitted the SLP against the decision of Hon'ble Karnataka ....