TaxTMI 
TaxTMI 
2025 (11) TMI 1908
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....nsaction Description of the Transactions Amount (Rs.) 1 Megha Engineering and Infrastructure Limited('MEIL') Contract receipts 28,08,43,152 2 Sub-contract payments 4,65,41,19,269 3 Recoveries of materials and services 9,63,16,438 4 Purchase of goods 62,39,894 4. The assessee has maintained the TP documentation as prescribed under the Section 92D of the Income Tax Act, 1961 ('the Act') and considered Transactional Net Margin Method as the "most appropriate method" under Section 92C(l) of the Act and has filed the accountants report in Form 3CEB as prescribed under the Act, within the statutory time limit. The assessee has considered Operating Profit/ Operating Revenue ('OP/OR') as the Profit Level Indicator ('PLI') and computed the margin of the Company at 9.10%. The weighted average range of the comparable companies was in the range of 8.04% to 10.95%. Thus, the specified domestic transactions of the assessee were considered to be at arm's length. The assessee has selected a set of 15 Comparable companies, which were functionally similar to the assessee. 5. The assessee filed its return of income in ITR-....
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.... claiming deduction u/ s 80IA and having specified domestic transactions with Megha Engineering and Infrastructure Limited as the tested party, ignoring the entity level benchmarking carried out by the Assessee. * Proposed that the margin of the APSIDC Choutapalli Project at 48.90% was more than ordinary in comparison to the arm's length margin at 11.49% determined by the. Ld. TPO and proposed an adjustment of Rs. 2,57,05,203 to the specified domestic transactions. 10. The Assessee submitted its response to the SCN on January 22, 2021 and objected to the approach followed by the Ld. TPO and thereby proposing the adjustment on the specified domestic transactions carried out by the Assessee. 11. The Ld. TPO however rejected the objections raised by the assessee and passed the order dated January 31, 2021, wherein the Ld. TPO : * rejected the TP documentation of the Assessee as well as the economic analysis and undertaken a fresh economic analysis and determined the arm's length margin at 11.49% in respect of the specified domestic transaction of the Assessee. In doing so, the Ld. TPO has not disputed the application of the TNMM as the most appropriate ....
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....6,01,131/- was from the work done by the Appellant including some profit adjustment for the previous two year. The reasonableness of profit adjustment is not under dispute. * Therefore, the conclusion by the Ld. AO that profit of Rs. 3,36,01,131/- is from the work done by MEIL is not correct as the scope of work of MEIL for the year under consideration was limited to Rs. 1,05,01,516/-. * In other years also this kind of adjustment has not been made by the Assessing Officers. 15. Ld. CIT (A) with the above observations held that the TPO/ AO have wrongly assumed the profit of Rs. 3,36,01,131/- is from the work done by MEIL which is not correct. The profit margin of the assessee from the work done by MEIL was only 2% which is much below the ratio of 11.49 taken by the TPO /AO. Therefore, the addition of Rs. 2,57,05,203/- made by the AO u/s 92CA(3)/80IA of the Act is deleted and these grounds of appeal are hereby allowed. 16. Further ld. CIT (A) held that the AO has not given any identified particular bill / entry in the books of account which is either bogus or involves personal element. Without identifying any such discrepancy and without rejecting the books o....
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....h that the whole expenses were incurred o business purposes. 8. The order of the Ld. CIT(A) is erroneous and not tenable in law and on facts." 18. At the time of hearing, ld. DR of the Revenue submitted that the assessee had reported less expenses in order to claim inflated profits in the eligible units to claim deduction u/s 80A. Further he submitted by bringing to our notice page 3 of TPO order that there is large difference in profit margin in the transactions made with related and unrelated parties. Further, he brought to our notice pages 45 & 46 of ld. CIT (A) order to submit that profit element of 2% with MIEL is significantly lower that profit of the assessee. Ld. CIT (A) also ignored the fact that assessee has declared higher profits on the same projects in the last 3 years. He also overlooked the fact that the assessee had awarded 31.84% of its total tenders. With regard to expenses disallowed by Assessing Officer, he submitted that the assessee had not produced any documents and established the relevance of claim of such huge expenses. 19. On the other hand, ld. AR of the assessee submitted ground wise submissions as under :- 19.1 During the year 2014, t....
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....ed by the assessee as a % of the respective turnovers for 80IA eligible projects, non-80IA projects and also the margins achieved on the 80IA projects in which transactions with Associated Enterprises exists for the year ended March 31, 2017: Particulars Turnover Profit Profit Margin (%) 80IA project having Related party Transactions 4,97,13,43,108 29,51,69,144 5.94% 80IA project without having Related party Transactions 7,06,71,21,621 70,83,44,359 10.02% Other than 80IA Projects 2,02,68,51,445 20,43,96,611 10.08% Total Turnover 14,06,53,16,174 1,20,79,10,114 Less: Value Added Tax 61,47,74,093 Less: Service Tax 68,89,351 Total of Revenue from Operation as per P/L 13,44,36,52,730 19.5 The assessee submits, as can be seen from the above table, the percentage of profitability on 80IA eligible projects without having any related party transactions during the year is 10.02% as compared to the profitability of 80IA eligible projects in which related party transactions exist is only 5.94% establishing the fact that there has been no attempt to....
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....3,32,499 Iv Total Cost (ii+iii) 2,45,87,537 1,02,91,486 3,48,79,023 V Contract Profit (iiv) 33,630,946 2,10,030 3,38,40,976 vi Profit % (v/i) 57.77 2 49.24 19.9 The assessee submits that the Contract that was awarded from Government and the value of the tender and the contract is fixed. The sub-contract value was also on a back-to-back basis, except for retaining the TDS portion by the assessee. Thus, there cannot be a presumption in the first instance that the sub-contract value was gross incorrect. The Ld. TPO has grossly erred in carrying out the TP adjustment, which is correctly deleted by Ld. CIT(A). 19.10 The assessee submits that the Ld. TPO has not brought any material on record to prove that there exists an arrangement between the assessee and the Associated enterprise, which has resulted in the specific Choutupalli Project making more than ordinary profits. The Ld. CIT(A) has also accepted our contention and thereby deleted in the addition made by the Ld. TPO. 19.11 The assessee submits that the Ld. TPO has merely on the presumption that assessee and the Associated enterprise are closely connected has gone on to carry ....
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....Assessee which might expected to arise in the business undertaking or the hotel. The word 'appears' cannot be taken in isolation de hors the qualifying words of 'so arranged' with the business more than the ordinary profits. While on the first aspect there is not much dispute. The second requirement viz., it is a course of business is so arranged as to result in an inflated profit is not forthcoming from the order of the Assessing Officer and unfortunately for the Revenue the findings of the Appellate Authority which also go into the facts is that the profit margin as revealed by the Assessee is a reasonable profit margin in comparison to other similar units. Ultimately, there being no material to indicate that the course of business had been so arranged as to inflate profits, i.e. to show a. higher profit margin to the two export units of the Assessee, we are unable to answer the question in favor of the Revenue, but the only answer can be that the Tribunal was justified in taking this view and therefore, the first question is answered in the affirmative and in favor of the Assessee and against the Revenue" * Hon'ble Bombay High Court in OT Vs. M/s. Schmet....
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...., the result of the Transfer Pricing assessment can at best be taken as an indicator for the Assessing Officer to investigate as to whether or not there exists any arrangement which, has resulted in more than ordinary profits qua the requirements of section 10A(7) r.w.s. 80-IA(10) of the Act. Even if it is accepted that the difference between the; 'operating margins of the assessee and the comparables show existence of more than the ordinary profits in the hands of the assessee, so however, it: was still imperative for the Assessing Officer to establish on the basis of substantive evidence and corroborative material that qua section 10A r. w. s. 80- IA(10) of the Act, the course of business between the assessee and the associated enterprises is so arranged that the business transacted between the produces to the assessee more than the ordinary, profits with the intent of abusing tax concession" * Digital Equipment India Ltd. 1(2006)103 TTJ 329 (Bang)] "In this case, the AO has failed to adduce any evidence or ea on to satisfy the invoking of s. 80-1 (9). First of all, a mere substantial profit does not give rise to a valid view that there could be any arrangem....
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.... after verification had allowed the claim of deduction under section 10A of the Act in respect of the activity of rendering Engineering Design Services. The question is whether deduction claimed under section 10A of the Act could be curtailed. The answer is,, No" in view of the ratio laid down by the Tribunal in Honeywell Turbo Technologies (India) Pvt. Ltd. Vs. DCIT in ITA No.2584/PUN/2012 order dated 10-02-2017 which has been applied by the Tribunal further in Tata Johnson Controls Automotive Limited Vs. DCIT (supra). The onus is upon the department to prove that there existed an arrangement between the assessee and its Associated Enterprises to earn more than ordinary profits and in the absence of the said onus having been discharged by the department and following the parity of reasoning as in Honeywell Turbo Technologies (India) Pvt. Ltd. Vs. DCIT and Tata Johnson Controls Automotive Limited Vs. DCIT (supra), we find no merit in the order of the Commissioner passed under section 263 of the Act in holding that the Assessing Officer while granting deduction under section 10A of the Act has passed the said order without any application of mind. Similar issue of invoking of jurisd....
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....ect which is for construction and development of Lift irrigation scheme From Pulichintala reservoir. In order to execute the civil works of the project, the Assessee Company had sub-contracted to MEIL for ease of execution only to the extent of civil works. The balance pipe lines and engineering work was executed by the Assessee Company. The entire civil work was awarded to MEIL on back to back contract basis and assessee had retained only 2% of the contract value. The above arrangement was made with the conscious decision with the awareness that the assessee is claiming deduction u/s 80IA. From the information submitted before us on the turnover and profit margin earned by the assessee with the related and unrelated parties in both 80IA projects and non-80IA projects, where the assessee had achieved lesser margin with the related party transactions, this evidence completely demolishes the views of the tax authorities that the assessee had inflated the profit. With related party transactions achieved only 5.94% whereas in other projects, it has achieved 10.02%. 23. Coming to the MIEL project, we observe that this project was awarded to MIEL with the conscious decision to allot o....