TaxTMI 
TaxTMI 
2025 (5) TMI 1392
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....against the principles of natural justice, violative of provisions of the Act, devoid of merits, without appreciating the facts involved, without appreciating the documents submitted in proper light, without conducting adequate inquiries and as such is without jurisdiction. 2. Transfer Pricing 2.1. The Lower authorities have finalized their order with improper adjustments, as a result of misapplying the law pertaining to TP and by adopting faulty processes/ methodologies to finalize the adjustment, such as but not limited to, applying filters, functional analysis selection of comparable companies, computation of profit margin of Appellant and comparable companies and undertaking economic adjustment. 2.2. The lower authorities have erred in disregarding the FAR analysis submitted by the Appellant and erroneously characterized the Appellant's transaction as a highend service. 2.3. Without prejudice to the above, the lower authorities have erred in selecting companies that are not comparable to the Appellant's business. 2.4. The Lower authorities have failed to take cognizance of the fact that the fees was paid at the rate of 5 perc....
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.... 4. The lower authorities have, in facts and circumstances of the case and in law, failed to appreciate that the Appellant has made the payment to its AE in accordance with its agreement valid for the current period and erred in considering the prior agreement of the Appellant with its AEs for determining arm's length price without bringing on record any benchmarking exercise using third party comparable prices. 5. The lower authorities have, in facts and circumstances of the case and in law, erred in disallowing the 2 percent of fees for technical services arbitrarily, without appreciating rationale and evidences provided to substantiate the additional services availed, and has erred in concluding that no tangible/direct benefits accrued to the Appellant from such services. 6. The lower authorities erred in law and in facts by ignoring the provisions of rule 10B while determining the arm's length price for receipt of technical services. III. TP Adjustment in relation to income received from deputation of personnel 7. The lower authorities have, in facts and circumstances of the case and in law, erred in disregarding the functional and ....
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....s and circumstances of the case and in law, erred in not providing relief for brought forward losses. 18. The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. ASSESSMENT YEAR: 2015-16: 1. The lower authorities have erred in finalizing an order of assessment which suffers from legal defects such as being passed in violation of principles of natural justice and the provisions of the Act and is devoid of merits and are contrary to facts on record and applicable law, and has been completed without adequate inquiries and as such is liable to be quashed. 2. The lower authorities have finalized their order with improper adjustments to the reported income of the Appellant, as a result of misapplying the provisions of the Act, by adopting faulty assessment procedure to finalize the adjustment, such as but not limited to, rejection of transfer pricing study, analysis of the functions carried out by the Appellant and those of the comparable companies, selection of comparable companies, computation of profit margins of the comparable companies, as well a....
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....ing and marine engineering services involving designing, construction, developing, modernising, extending and maintaining ports and harbours. The Company also carried out the maintenance of dredging works for public as well as private ports in India. During the scrutiny assessment proceedings, the Transfer Pricing Officer ('TPO' in short) and the Assessing Officer ('AO' in short) made certain adjustments / disallowances to the assessee's income. Against draft assessment order of the AO, the Appellant filed its objections before the Dispute Resolution Panel ('DRP' in short) for AY 2013-14 and 2014-15. The DRP deleted the transfer pricing adjustment towards lease rental payments for AY 2013-14 and upheld the other adjustments and disallowances for AY 2013-14. 1. Further for the AY 2014-15, the DRP allowed the exclusion of certain comparable companies for computation of the upward adjustment made towards income received from deputation of personnel, while upholding the other adjustments made by the TPO and AO. 2. For the AY 2015-16, the Appellant filed an appeal against the final assessment order before the CIT(A), who upheld the order of the AO and TΡ&Om....
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.... the execution of projects and providing operational assistance including support functions such as finance. These employees are not involved in any decision-making processes. Accordingly, the Appellant had benchmarked the mark-up charged to AEs based on the arm's length margin of comparable companies involved in providing administrative support services. Referred Pg 144 of Paper Book dated 07.06.2018 filed for AY 2013-14 and Pg 125 of Paper Book for AY 2014-15 dated 29.01.2019. 4. With regard to deputation to AEs aids recovery of idle time employee cost, the Appellant also highlighted the fact that employees deputed to AEs perform only operational activity and moreover, since only idle item of the employees are utilized, the amount recovered from AEs results in recovery of employee cost which otherwise would have been incurred by the Company resulting in lower profits. TPO's stand in the light of similar facts in earlier and subsequent assessment years, the Appellant refers to the transfer pricing assessment concluded during the earlier AYs 2011-12 and 2012-13 in the Appellant's own case and subsequent AY 2015-16. It may also be noted that for the AY 2009-10, the TP....
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....n connection with the deputation of personnel. Further for the AY 2014-15, it is also submitted that there are material discrepancies in the computation of operating margins of the comparable companies selected by the TPO. The workings for the computation of operating margins of the comparable companies were not provided by the TPO. The Appellant submits that the operating margins of the comparable companies must be computed as per the audited financials of the companies. Therefore, it is prayed by the assessee that the transfer pricing adjustment towards income received from deputation of personnel may be deleted. 5. The submissions of the appellant on Adjustment of royalty payment to AEs for availing technical services for AY 2013-14 ( Grounds 2.4 to 2.7), AY 2014-15 (Grounds 3 to 6) and AY 2015-16 (Grounds 3 to 6): 6. Facts of the issue are that the Appellant had entered into an agreement with Tideway BV ("TBV") for receipt of technical services. As per the agreement, the Appellant was required to pay a fee (hereinafter referred to as FTS) amounting to 3% of its turnover. From FY 2012-13, the appellant received additional services from its TBV in the nature of contractual ....
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....case of Flakt (India) Ltd. 70 taxmann.com 342 that "Without identifying comparable uncontrolled transactions, TPO could not simply come to conclusion that quality and volume of services received by assesse were not commensurate with payment made by assessee" The assessee further submitted that the TPO in his order held that there is no increase in operational efficiency and the same is evidenced from the losses being incurred by the Appellant over the years. In this regard, it is pertinent to note that the loss incurred by the Appellant amounting to INR 19.5 crores during the financial year 2012-13 which considerably constitutes of the impairment loss on Kaveri dredger owned by the Appellant. Without prejudice to the above, the Appellant also wishes to submit that the ALP of a transaction does not depend on whether a transaction results in profit or loss to the Appellant. The Hon'ble Punjab & Haryana High Court had in the case of Knorr-Bremse India (P) Ltd. (63 taxmann.com 186):(2016) 380 ITR 307 (P&H) has held that "whether a transaction is at an ALP or not is not dependent on whether transaction results in an increase in assessee's profit. Mere failure to establish ....
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....Provision for loss on contracts charged in Profit and Loss Account in AY 2014-15 is Rs.2,72,425/-, Reversal of provision for loss on contracts reduced from expenses in the Profit and Loss Account in AY 2015-16 is loss of Rs.2,72,425/-. Assessee pointed out that the profit before tax in item VII as per the Profit and Loss account for AY 2015-16 is the same appearing in Annexure 1 to Computation of Total Income. Thus, it may be noted that the reversal of provision for losses has been duly offered to tax in the immediate subsequent AY. In light of the above, the Appellant submits that the said disallowance during the Impugned AY would result in double-taxation of the same amount that has already been duly offered to tax in the subsequent AY, at the same rates of tax. The said disallowance would therefore unfairly prejudice the Appellant. Hence, the assessee pleaded that the only dispute is regarding the year of allowability of expenditure and given that the rate of tax applicable for the said years is uniform, the entire exercise of seeking to disturb year of allowability of expenditure would, in any case, be revenue neutral. The Appellant relies on the following decisions in this ....
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....nd perused the voluminous paper books filed by the assessee. A. Our adjudication on the issue 'Deputation of Personnel': We find from the Pg 144 of Paper Book dated 07.06.2018 filed for AY 2013-14 and Pg 125 of Paper Book for AY 2014-15 dated 29.01.2019, the Appellant provides only support services which cannot be termed as specialized services. We also endorse the arguments of the assessee that the employees deputed have a basic graduation degree in engineering and cannot be treated as highly qualified and specialised employees. In this case, the employees deputed are operational level employees. These employees are involved in the execution of projects and providing operational assistance including support functions such as finance. These employees are not supposed to do the action or process of making important decisions. We also note that there is/was no adjustment made during the previous and subsequent Assessment Years [see TPO's order u/s 92CA, paper book page 358, 364, 379 for AY 2014-15 dated 29.01.2019]. Therefore, in the light of above factual matrix, we direct the AO to follow the judicial consistency and accept the detailed benchmarking based on the comparable se....
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....age 1799-206 of paper book filed for AY 2013-14 dated 07.06.2018 and page 219 of paper book filed for AY 2013-14 dated 07.06.2018]. Further, while applying CUP method, TPO has to follow the rule 10B(1)(a)(i) which speaks of 'price paid for similar services received by parties in an uncontrolled transaction. However, in the present case the TPO has compared the rate of FTS paid by the Appellant with assessee's own agreed price during a prior year, which is not an uncontrolled transaction and cannot be used as a CUP. In this respect, the Mumbai Bench of the Tribunal had held in the case of Cabot India Ltd. (12 taxmann.com 70 that "where no data was available in respect of uncontrolled transactions which were similar to transactions of assessee with its foreign associated enterprise, CUP method could not be considered as most appropriate method to determine arm's length price (ALP) of royalty paid by assesse to its AE for technology collaboration". Similarly, the Chennai Bench of the Tribunal has held in the case of Flakt (India) Ltd. 70 taxmann.com 342 that "Without identifying comparable uncontrolled transactions, TPO could not simply come to conclusion that quality and volume o....
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....oss is to be immediately recorded as an expense. Following the same, the assessee has estimated the total contract cost to be Rs.238.72 Crores as against contract revenue of Rs.218.74 crores which leads to an expected loss of Rs.19.98 crores. During this year, the assessee has incurred actual contract cost of Rs.102.86 crores and has also recorded contract revenue of Rs.94.25 crores (based on POCM) thereby booking an actual loss of Rs.8.61 crores. The Ld. AR submitted that though actual revenue billed during the year was Rs.47.26 Crores, considering the fact that the project was completed to the extent of 43.09% during this year, the assessee booked additional revenue of Rs.46.99 Crores during this year. Further, out of total expected loss of Rs.19.98 Crores, the assessee has already recorded actual loss Rs.8.61 Crores and made provision for the balance expected loss of Rs.11.37 Crores. Hence, the provision has been created as per mandate of AS- 7 and the same could not be held to be unascertained / contingent liability for the assessee. It is the submission that both revenue and expenditure as recorded by the assessee has been recognized as per percentage of completion method. The....
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.....10.56 Crores as per estimate made in subsequent year. On these facts, the provision of this year would be nothing but an ascertained liability / probable loss for the assessee. It could not be said that the provision was not made on a scientific basis. In our considered opinion, both the lower authorities have erred in appreciating the fact that revenue from the contract has also been recognized on percentage of completion basis only. The case laws as cited by Ld. AR duly support our view. The case law of Hon'ble High Court of Madras in FLSmidth v DCIT (456 ITR 300) is distinguishable on facts. Upon perusal of Para-28, it is clear that in that case the assessee could not explain as to how the total contract costs would exceed total contract revenue despite being specifically asked to explain. The assessee merely relied on AS-7. However, in the present case, the assessee has recognized the revenue as well as expenses on same methodology. The claim is supported by computations / workings. The provision has been reversed in subsequent years as per estimation made in subsequent year. Therefore, this case law would not render any assistance to the case of the revenue. The case law of H....