TaxTMI 
TaxTMI 
2023 (8) TMI 714
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....ppeal: The grounds of appeal listed below are independent and without prejudice to each other. 1. GENERAL GROUND 1.1. The Learned AO and the Hon'ble DRP have erred, in law and in facts, by not accepting the economic analysis undertaken by the Assessee in accordance with the provisions of the Act read with the Rules, and conducting a fresh search for the determination of Arm's length price in connection with the impugned international transactions in the paint finishing segment ('PFS') and holding that the Assessee's international transactions are not at arm's length. 1.2. The Learned AO and the Hon'ble DRP have, in the facts and circumstances of the case, erred in passing orders with unwarranted adjustments to the reported income of the Appellant by misapplying the provisions of the Act. 2. TRANSFER PRICING ADJUSTMENT 2.1 The Learned TPO/AO and the Hon'ble DRP have erred in law and facts of the case by rejecting the detailed transfer pricing analysis carried out by the Appellant for impugned international transaction (in accordance with the provisions of Sec 92D of the Act read with Rule 10D of the In....
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....a contract on the basis of the percentage/ stage of completion of the contract. 3.3 The Learned AO and the Hon'ble DRP have grossly erred by not following the principles of AS 7 and ICDS 3 gad-have held that revenue accrues basis invoices raised by the Company without considering the percentage/ stage of completion of the contract. 3.4 The Learned AO and the Hon'ble DRP have grossly erred in not considering the fact that the method of accounting is followed consistently by the Assessee over the years. 3.5 The Learned AO and the Hon'ble DRP have erred in not appreciating the fact that the amount is recognized as revenue in the subsequent years. 3.6 Further, the Learned AO and the Hon'ble DRP have failed to appreciate the principles upheld by various courts on the abovementioned aspects which are squarely applicable to the Appellant. 3.7 The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. 3.8 The learned AO has erred in computing interest under section 234B and section 234C on the above adjustments and the appellant craves that such interest will not be leviable if the gro....
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.... respect of management fees paid to AE and also additions made by the AO towards reversal of billing in excess of Revenue. Thereafter, the AO passed final assessment order u/s. 143(3) r.w.s.92CA r.w.s.144C of the Act, dated 21.11.2019 and determined total income of Rs. 74,74,91,268/- by making addition towards downward adjustment on management fees paid to AE amounting to Rs. 3,78,78,968/- and additions towards reversal of billing in excess of Revenue amounting to Rs. 52,31,62,000/-. Aggrieved by the final assessment order, the assessee is in appeal before us. 4. The first issue that came up for our consideration from Ground Nos. 2.1 to 2.6 of the assessee's appeal is downward adjustment towards management fees paid to AE amounting to Rs. 3,78,78,968/-. The Ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the ITAT, in the assessee's own case for earlier assessment years, where the issue has been set aside to the file of the AO/TPO to re-examine the issue of management fees paid to AE in light of various evidences filed by the assessee. Therefore, this year also, the issue may be set aside to the file of the AO/TPO. ....
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....If so what was the evidence of cost incurred was not provided. 10.It is not a covered issue as TPO had dealt this elaborately at page-16. 11.It is humbly submitted that on the same issue in the case of M/s Lite-On Mobile India Pvt. Ltd. the Hon'ble ITAT D Bench has ruled in favour of the department. In page 14 of its order it is remarked as under:- "In this case, the assessee, except furnishing agreement between parties, invoices raised by AE and few e-mail correspondence, no other documents have been filed to prove any services in fact, was rendered by its AE. Therefore, in our considered view, even if agreement is considered to be genuine, the assessee has never tried to verify correctness of cost allocation done by service provider. Further, the assessee has failed to substantiate payment of such huge managerial fees month on month without any supporting evidences like technical specification of services rendered by its AE, personnel deployed for said purposes and other evidences including correspondence between parties. Although, the assessee refers to number of e-mail correspondence between few employees of the assessee and its AE, but on perusal....
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..... We have considered the rival contentions and perused the orders of the authorities below. Case of the assessee is that TNMM was rejected without proper reasoning and a method which was unknown to the law was used by the ld. TPO for the transfer pricing analysis. A look at the international transactions entered by the assessee during the previous years relevant to impugned assessment year which have been reproduced by us at para 2 above would clearly show that these were not pure independent transactions amenable to an independent analysis for pricing. Parts and accessories imported from Associated Enterprise would have been used by the assessee for installation and other services in India as well as engineering services. Reimbursement of expenditure could also have been only in connection with these activities. Ld. TPO had singled out management fees and R & D fees and subjected it to a separate analysis disregarding the TNMM adopted by the assessee. Ld. TPO did not discuss anything regarding the comparables considered by the assessee for the TNMM study. Ld. TPO had summarily rejected the TNMM study citing a reason that intra-group services had to be benchmarked separately by ana....
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....et margin method. There is residual clause (f) which gives freedom to the ld. TPO to follow a method which takes into account the price which was charged or paid or would have been charged or paid and rule 10AB defines it so. Mumbai Bench in the case of DET Norske Veritas As (supra) has clearly held that once method of ascertaining Arms Length Price followed by the assessee was rejected by the ld. TPO, for good and sufficient reason, he had to select most appropriate method out of these which were set out in Rule 10B or Rule 10AB. Co-ordinate Bench in the case of M/s. Flakt (India) Ltd (supra) had held as under at para 9 of its order:- ''The Transfer Pricing Officer has not taken any pain to identify uncontrolled transaction between two independent entities. In the absence of any comparison of the transaction with transaction carried out in a uncontrolled market, this Tribunal is of the considered opinion that the Transfer Pricing Officer cannot independently come to a conclusion that volume and quality of services was disproportionate to the payment made by the assessee. The matter may be totally different if the Transfer Pricing Officer was able to Identify the uncontrol....
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....e necessary. Thus, while setting aside the orders of the lower authorities for all the impugned assessment years, we remit the issue of fixing the Arm's Length Price of the international transactions of the assessee under TNMM, back to the file of the ld. Assessing Officer /ld. TPO for consideration afresh in accordance with law." 8. In this case, neither the TPO nor the DRP could identify a single uncontrolled comparable for bench marking R&D fees and management fees paid by the assessee. Hence, Rule 10AB, extracted supra, and relied on by the Revenue cannot be applied in this case. Since, there is no change in the facts, by following this tribunal order extracted supra, on the same lines, we remit the issue, for fixing the ALP of the international transaction of the assessee under TNMM, to the file of the AO/TPO for a fresh consideration in accordance with law. 4.3 In this view of the matter and consistent with view taken by the coordinate Bench, we are of the considered view that this issue needs to go back to the file of the AO/TPO for the impugned assessment year also. In so far as the arguments of the CIT-DR in light of decision of ITAT Chennai Benches, in the cas....
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....ining addition towards billing in excess of Revenue by not accepting the Revenue recognition method followed by the assessee which is in line with the prescribed Accounting Standards and Income Computation & Disclosure Standards. The Ld.Counsel for the assessee further submitted that the assessee following this method of accounting for recognition of Revenue right from the beginning and the Department has accepted the method followed by the assessee in the past. Therefore, unless there is a change in the facts, the Department cannot follow a different method for the impugned assessment year. In this regard, the Ld.Counsel for the assessee has explained method of accounting followed by the assessee and recognition of Revenue in the books of accounts. 5.2 The CIT-DR filed written submissions on this issue and argued that there is no dispute with regard to method followed by the assessee for recognition of Revenue, but fact remains that when entire cost is debited, how can they claim that there was excess billing in advances. Further, unless, the assessee does work, it cannot rise bill to its customers. Further, the moment bill is raised, Revenue is accrued to the assessee when the....
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.... 31.03.2012 was Rs. 192.93 Cr and the cost debited to P&L was Rs. 112.22 Crinthe A.Y. 2012-13. 2. AY 2013-14: As on 31.03.2013, the aggregate amount of construction cost was Rs. 381.24 Cr and the cost debited to P&L a/c was Rs. 185.51 Cr. 3. AY 2014-15: As on 31.03.2014, the aggregate cost has gone up to Rs. 525.76 Cr; the cost of material debited into P&L a/c was Rs. 173.26 Cr. 4. AY 2015-16: However, as on 31.03.2015, the aggregate amount of contract cost was disclosed into Rs. 481.93 Cr and the cost debited to P&L a/c was Rs. 92.92 Cr. In this year, the amount of billing in excess of revenue disclosed was Rs. 52.31 Cr and that was added into total income by the Assessing Officer. It was observed that these are already billed to the client and the cost incurred was already debited in the P&L a/c. Hence, there cannot be any such deferment. 5. However, the appellant claimed that it was "legally accrued" in subsequent assessment year. Cost is not differed; only revenue is differed. 6. The DRP also held that in AS-7, when the assessee follows percentage completion method for their construction contract, there cannot be billing in excess of....
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....f Revenue, even though, it has completed certain percentage of work and rise bills to the clients for the reasons best known to the assessee. Therefore, we are of the considered view that there is no error in the reasons given by the AO/DRP to make additions towards billing in excess of Revenue, and thus, we are inclined to uphold the findings of the DRP and reject the ground taken by the assessee. 6. The next issue that came up for our consideration from additional grounds raised by the assessee is refund of excess DDT paid over and above the DTAA rate. The Ld. Counsel for the assessee fairly agreed that this issue is covered against assessee by the decision of ITAT Special Benches in the case of DCIT v. Total Oil India Pvt. Ltd., in ITA No.6997/Mum/ 2019, where it has been held that non-resident shareholders cannot take advantage of lower tax rate prescribed in DTAA for taxation of dividend where Dividend Distribution Tax is applicable. 6.1 The CIT-DR supporting the order of the DRP submitted that now this issue has been resolved by the decision of the ITAT Mumbai Bench in the case of Total Oil India Pvt. Ltd., where it has been held that DDT rate prevails over DTAA Rate in....
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....9;), to the extent prejudicial to the Appellant, is erroneous, bad in law, and contrary to the facts and circumstances of the case. 1.2. The Learned AO, TPO and the Hon'ble DRP have, in the facts and circumstances of the case, erred in passing orders with unwarranted adjustments to the reported income of the Appellant by misapplying the provisions of the Act 2. Procedural irregularity and breach of time limit for completion of proceedings 2.1. The TPO has erred, in law by passing the transfer pricing (TP) order on 01 November 2019, which is beyond the timeline for completion of proceedings under section 92CA(3A) of the Act, and hence the TP order is invalid and unsustainable in law. Further, the AO has erred, in law and facts, by passing a draft assessment order incorporating an invalid adjustment proposed in the TP order. 3. Grounds relating adjustment towards transfer pricing matters 3.1. The TPO/AO and DRP have erred in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules by re-determining the ALP in connection with the impugned intern....
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.... Company without considering the percentage/ stage of completion of the contract. 4.5. The AO and DRP have grossly erred in not considering the fact that the method of accounting is followed consistently by the Assessee over the years. 4.6. The AO and DRP have erred in not appreciating the fact that the amount is recognized as revenue in the subsequent years. 4.7. The AO and DRP have grossly erred in computing the disallowance amount by not considering the corresponding cost involved in amount billed in excess of revenue. 4.8. Further, the AO and DRP have failed to appreciate the principles upheld by various courts on the abovementioned aspects which are squarely applicable to the Appellant. 5. Interest for delayed remittance of Dividend Distribution Tax ('DOT') 5.1. The AO has erroneously computed interest for delayed remittance of DOT under section 115P of the Act amounting to INR 3,60,111. 6. Refund of excess DDT paid over and above the Double Taxation Avoidance Agreement ('DTAA') rate 6.1. In the facts and circumstances of the case and in law, the benefit of applicable DTAA between India and....
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....ithout prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 10. The brief facts of the case are that the assessee is engaged in the business of design and installation of paint finishing system to automobile manufactures. For the AY 2016-17, the assessee has filed its return of income on 30.11.2016 declaring total income of Rs. 28,86,05,780/-. The case was selected for scrutiny and during the course of assessment proceedings, reference was made to TPO to determine ALP of international transactions of the assessee with its AE. The TPO vide their order dated 01.11.2019 made a downward adjustment of Rs. 3,84,71,227/- towards management services fees and upward adjustment of Rs. 45,96,564/- towards engineering design segment to the international transactions of the assessee. In pursuant to TPO order, the AO has passed draft assessment order u/s. 144C of the Act on 16.12.2019, and proposed TP adjustment as suggested by the TPO. The AO had also made various additions towards disallowance of expenditure u/s. 40(a)(ia) of the Ac....
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....d any date prior thereto would come to 31st October or before. If an order was passed on 01.11.2019, then same would be barred by limitation and this legal principle is supported by the decision of Hon'ble jurisdictional High Court of Madras in the case of M/s. Pfizer Healthcare India Pvt. Ltd. & Ors. in WP No.32688 of 2019 order dated 07.09.2020. The co-ordinate Bench of ITAT in the case of M/s. Verizon Data Services India Pvt. Ltd., in IT (TP) A No.37/Chny/2021 order dated 18.11.2022 had considered an identical issue and by following the decision of the Hon'ble High Court of Madras in the case of M/s. Pfizer Healthcare India Pvt. Ltd., held that TP order passed by the TPO on 01.11.2019 is beyond limitation prescribed u/s. 92CA(3) of the Act, and consequently, final assessment order passed by the AO on 30.04.2021 would be barred by limitation, since, in terms of section 153(1) r.w.s.153(4) of the Act, the same should have been passed on or before 31.12.2019. The same is accordingly liable to be quashed. The relevant findings of the Tribunal are as under: 5. The undisputed fact that emerges is that for AY 2016-17, the order has been passed by Ld. TPO u/s 92CA (3) on 01.11.....
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....ty for completion of draft assessment that may be challenged before the DRP. Limitation, which is the issue raised in these writ petitions, is a mixed question of law and facts, but there are no disputes on factual aspects in the present case. The writ petitions are thus, held to be maintainable. 22. Limitation has been prescribed for each stage/process in an assessment, commencing with the filing of a return, transfer pricing proceedings under Section 92, filing of objections to draft assessment order in terms of Section 144C(2), passing of final order of assessment after expiry of the period for filing of objections in terms of Section 144C(4), issuance of directions by the DRP in terms of Section 144C(12) and passing of final assessment order after receipt of directions from the DRP in terms of Section 144C(13). An assessment involving issues of transfer pricing is thus measured by limitation at every step. 23. On the question of interpretation of the language employed in the provisions, the following judgements of the Supreme Court settle the position that one should not proceed blindly on the basis of the words/phrases employed in Statute, whether 'may', 'sha....
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.... has been pointed out that the present assessee was also a party to this litigation. Since at that stage, the draft assessment order was under challenge by assessee before Ld. DRP, it was directed by Hon'ble Court that the petitioner would pursue the remedy opted by them. 6. The revenue's writ appeals against this decision came up for hearing before Division Bench of Hon'ble Court which was disposed-off on 31.03.2022 wherein the writ appeals were dismissed and the adjudication of Ld. Judge was confirmed. With respect to assessee, the revenue preferred similar WA No. 2051 of 2021 which was disposed-off on 16.09.2021 wherein it was held that since the assessee chose to avail alternative provided under the Act by approaching DRP, it would be open for the assessee to canvass all legal and factual issues before Tribunal before which the appeal was pending at that stage. 7. The assessee raised similar legal plea before Ld. DRP who held that the intention was never to make this time limit of 60 days mandatory since the expression used in Sec. 92CA(3A) is "may" in contrast to "shall" as used in Sec. 92CA(4). The word "may" could not be read as "shall" and therefore, the t....