TaxTMI 
TaxTMI 
TaxTMI 
2024 (12) TMI 628
X X X X Extracts X X X X
X X X X Extracts X X X X
....circumstances of the case and in law, the Ld.TPO/AO and subsequently Ld. CIT (A) have erred in disregarding the arm's Length Price ('ALP') for international transactions as determined by Appellant in the TP documentation maintained by it in terms of Section 92D of the Act read with Rule 10D of the Income- tax Rules. 1962 ('Rules'). 4. On the facts and in the circumstances of the case and in law, the Ld.TPO/AO and subsequently Ld. CIT (A) have erred in substituting CUP Method with TNMM. 5. Without prejudice to above grounds, the Ld.TPO/AO and subsequently Ld. CIT (A) have erred in including Jai Hind Projects Limited as comparable despite the fact that the above mentioned company is engaged in projects related to oil, gas, water pipeline, petrochemical complex and associated facilities and is functionally different from the Appellant which is engaged in construction of small to medium sized factories and industrial buildings on design/ cum build basis. 6. Without prejudice to above grounds, the Ld.TPO/AO and subsequently Ld. CIT (A) have erred in not including the comparables put forward by the Appellant and which are functionally similar to the Appellant. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of assessee that the comparable operate in different field and could not have been taken as a valid comparable. 4. Aggrieved against this, the assessee preferred appeal before this Tribunal. 5. Apropos to Grounds of appeal No.1 to 7 related to Transfer Pricing issue, the Ld. Counsel for the assessee submitted that the AO was not justified in making the impugned additions. He submitted that the AO grossly erred in applying the Transactional Net Margin Method ("TNMM") instead of Comparable Uncontrolled Price ("CUP") method for computation of ALP. Further, he contended that the AO has accepted CUP method for Assessment Year ("AY") 2011-12 and also in AY 2020-21. He contended that there is no change into facts and circumstances of the case. Further, he submitted that even on merit, the comparables as relied by the assessee, were not accepted and he re-iterated the contents of composite Synopsis. He urged even otherwise issue qua the adoption of CUP method is squarely covered in favour of the assessee by the decision of Hon'ble Co-ordinate Bench and cited in the written Synopsis. For the sake of clarity, the relevant contents of composite Synopsis are reproduced as under:- "Further....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of staff (for example staff level, manager, senior manager, etc) have been considered while applying CUP Method 3. Geographical Location Technical services received from Japan Hourly Rates for Japanese engineers only have been considered 4. Time period FY 2011-12 Hourly rates published by Japanese Government for same year i.e. FY 2011-12 v. Case Law accepting use of CUP Method for Technical/Engineering Services ADIT vs. ABB Lummus Heat Transfer BV (ITA No.2763/Del/2013) (Refer to Page No. 50-51 of the Case Law Compendium) Hughes Systique India Pvt. Ltd. vs. ACIT (2013(25) ITR (Trib)556(Delhi)) (Refer to Page No. 15 of the Case Law Compendium) DCIT vs. Calance Software Pvt. Ltd. (ITA 5023/Del/2012) (Refer to Page No. 4 of the Case Law Compendium) Income-tax Officer-9(2)(1), Mumbai vs. Intertoll ICS India (P.) Ltd [2016] 71 taxmann.com 353 (Mumbai - Trib.) vi. Under similar facts and circumstances CUP method was accepted by TPO for the previous FY ie FY 2010-11. Principle of Consistency demands that if there is no material change in facts then same method should also be accepted in FY 2011-12. Table - Comparison between Previous Year (ie FY 2010-11) and Current FY i.e. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e (in INR) General manager 6,875 6,875 77 7,44,716 Senior Manager Level 6,875 6,875 1,498 1,44,31,881 Assistant manager Level 5,600 5,600 2,104 1,65,07,031 Staff Level (A) 3,800 4,813 6 31,950 Staff Level (c) 3,213 3,213 1,143 51,33,142 Total 4,01,98,995 II. Rebuttal of TPO's contentions in TP Order S.NO. TPO'S CONTENTION REBUTTAL I. Rejection of CUP method due to variation in hourly rates charged by third parties (Refer Para 3.2.5 of the TP Order on page No.18 of the Paperbook) As assessee has paid its AE at a rate that is lower than or equal to the lowest rate, the variation in the third-party rates becomes irrelevant. CUP method does not require an identity in rates/prices charged by all third- party comparables but rather the price paid by assessee should be lower/favourable vis-à-vis the third-party rates. Supporting Case Laws * Dresser-Rand India Pvt. Ltd. Vs. Additional Commissioner of Income Tax (ITA No. 8753/Mum/2010) - variation in hourly rates not a reason to reject CUP Method * Effective Teleservices Pvt. Ltd. Vs. ACIT (ITA No. 2411/AHD/2014) [Refer written submission filed before CIT(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....C Turnkey projects, infrastructure projects such as roads, bridges etc., manufacture of railway wagons, freight containers etc. 6.42% 3. Engineers India Ltd EPC services to oil & gas and petrochemical industries; infrastructure, water and waste management, solar & nuclear power and fertilizers. 19.55% 4. Gannon Dunkerley & Co.Ltd. Construction of power plants, petrochemical plants and refineries; infrastructure projects such as roads etc.; mechanical works such as steel fabrication, piping work etc. 7.58% 5. VKS Projects Ltd. Turnkey piping, firefighting projects, manufacturing of chemical equipment and commissioning of chemical plants for oil & gas, petrochemical industries etc. 8.13% 6. Jaihind Projects Ltd EPC company focussed on oil and pipeline construction, city gas distribution, horizontal directional drilling, water transmission projects, cross-country pipelines etc. 17.06% Mean 9.68% Thus, applying the above-mentioned mean profit margin of 9.68%, the Ld. TPO proposed a TP adjustment of Rs. 1,26,07,833. The above adjustment was subsequently confirmed by Ld. AO. CIT (A) accepted Assessee's submission and rejected all of TPO comparables exce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orting Case Laws Courts have held that CUP Method allows use of quotations provided the quotation furnished is contemporaneous and reliable or authentic (i) PCIT v. Toll Global Forwarding India (P.) [(2016) 66 taxman.com 53 (Del-HC)] (ii) Toll Global Forwarding India (P.) Ltd. v. DCIT Circle-2(1), New Delhi [2014] 51 taxmann.com 342 (Delhi - Trib.) (iii) Louis Dreyfus Commodities India (P.) Ltd v. Deputy Commissioner of Income Tax, Circle-4 (1), New Delhi (iv) Deputy Commissioner of Income-tax, Circle-13(1), New Delhi v. Noble Resources & Trading India (P.) Ltd [2016] 70 taxmann.com 300 (v) Gulf Energy Maritime Services Pvt Ltd [TS-74-ITAT-2016 (Mum)-TP] (vi) Commissioner of Income Tax Vs. Adani Wilmar Limited [TS- 114-HC-2014(GUJ)-TP] (vii) Adani Enterprise Ltd. v. Additional Commissioner of Income-tax, Range 1, Ahmedabad [2019] 111 taxmann.com 196 Courts have drawn a clear distinction between the principle of 'res judicata' and the principle of 'consistency'. Even if Res- judicata is not applicable in tax proceedings, the principle of consistency is preferred for the reasons of administration of justice and instilling confidence in the taxpayers. Court R....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otal cost. Indian Transfer Pricing regulations have prescribed the applicability of Most Appropriate Method (MAM) which has to be chosen after considering all the facts and circumstances of the case. Hence the plea taken by the assessee that quantum of international transaction is negligible with respect to total cost is not maintainable. The assessee himself has mentioned that the selection of the MAM involves a test of relative merit. 1. Assessee has further contended that the CUP is the most direct method of testing transfer pricing. Reliance has been placed on the UN & OECD guidelines and certain judgement whereby it has been contended that since CUP is the most direct method of testing and the examiner should always consider the feasibility of applying the same. However, the UN & OECD guidelines and judgements quoted by the assessee have also stressed that the CUP can be applied "provided proper comparables are available". In the instant case the assessee has used CUP and compared the international transaction with the rate fixed by the Japanese Government for various grade of technical employees which is in the nature of quotation which is only prescriptive in nature. It ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,570/- 97158333/- 2012-13 147103426/- 4,01,98,995/- 1025905729/- 2020-21 214970898/- 1,50,73,477/- 4867991403/- With regard to the material changes in the facts of the case, the following points are submitted for your due consideration: 2. In AY 2012-13, the assessee has benchmarked the transaction related to Fee from Technical Services using the CUP method. The CUP used by the assessee is the Standard daily fee for Construction Engineer for Public Works, 2012, issued by Land and Transport Ministry of Japan. The CUP data was therefore based on a guidance issued by the relevant Japan Authority. 2.1 For AY 2020-21, the assessee benchmarked the said transaction using CUP. However, the CUP used was different from AY 2012-13. In this year, the CUP used by the assessee was the hourly rates actually paid to the Japanese engineers employed by the assessee for the same financial year. 2.2 The difference between the two CUPs is evident from the above. 3 Further, guidance is sought from Rule 10B(1)(a)(i) of the Income Tax Rules, which clearly state that the arm's length price can be determined by using the comparable uncontrolled price method by which the price charged ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d is not applicable in this case. 2. Principle of Consistency The assessee has contended in his argument that since CUP method was accepted last year, the same should be accepted this year too. In this regard, the TPO relied on the decision in the case of Fulford India Ltd. (2011TI1-81-ITAT- MUM-TP) where it was held that the TPO should apply his mind afresh every year and should not rely on the orders for the preceding years. This year sufficient reasons have been given relating to the fallacious benchmarking approach of the assessee, due to which the change has been made. The TPO has fulfilled the mandate that is placed upon him that the method chosen by the assessee should be rejected only after giving cogent reasons. The Hon'ble CIT (A) has stated that the proceedings under the Income Tax Act, 1961 do not follow the principle of Res Judicata and are decided on the basis of facts and circumstances of the case and the progress made in the transfer pricing laws, rules, and regulations not only in India but also in Abroad. Hence, the argument of the assessee on this ground is not tenable. 3. The assessee has requested to remove the following comparable in the final ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the assessee in AYs 2011-12 & 2020-21. Ld.CIT(A) excluded certain comparable as included by the TPO on the ground that the comparable could not have been compared with the assessee. After exclusion of most of the comparable from the final set of comparables, Ld.CIT(A) retained the comparables namely, Coromandel Engineering Company Ltd. and Jai Hind Projects Ltd. from the final set of comparables. The contention of the assessee is that Jai Hind Projects could not have been compared as it is functionally different because it is engaged in the different business sectors i.e. projects related to oil, gas, pipeline and associated with facilities petro-chemical complex etc. Ld.CIT(A) did not accept the objection, stating that the nature of services provided by the AEs of the assessee are similar. In our view, the assessee has successfully demonstrated that the Ld.CIT(A) committed an error in retaining M/s. Jai Hind Projects Ltd. as one of the comparables as it operated in different field. However, considering the fact that the Revenue itself has accepted CUP method as most appropriate method in Financial Years 2010-11 and 2019-20. There is no substantial change into facts and circum....