TaxTMI 
TaxTMI 
2026 (7) TMI 407
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....passing the final assessment order within the time limit prescribed under section 153 of the Act and passing the draft assessment order in the time limit prescribed under section 153 of the Act, accordingly the assessment proceedings are invalid and ought to be quashed; A) Transfer Pricing grounds Transfer Pricing adjustment amounting to INR 60,01,12,064 on provision of design and engineering services (D&E) Rejection of economic analysis 3. erred in not accepting the economic analysis undertaken by the Appellant which was in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('the rules') for establishing the arm's length price of the international transactions without providing any cogent reasons; Undertaking an entity level benchmarking approach 4. erred in adopting entity level net margins instead of segmental level net margins to determine the arm's length nature of international transactions undertaken by the Appellant by rejecting the audited segmental accounts; 5. erred in rejecting segmental profitability without considering that the same was accepted by the Learned TP....
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....nce tax credit of INR 6,10,00,000 while computing the total tax liability of the Appellant. Incorrect levy of consequential interest payable and incorrect computation of interest receivable due to eligible refund 15. erred in computing the consequential interest payable under section 234A, 234B and 234C and interest receivable under section 244A of the Act on account of eligible refund. Initiation of penalty proceedings 16. erred in initiating penalty proceedings under section 270A of the Act without appreciating the fact that Appellant has not under reported its income for the AY under consideration. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal." 2. Rival submissions of both the parties have been heard and record perused. At the outset of hearing, the learned Authorised Representative (ld. AR) of the assessee submits that ground no. 1 is general. Further, he is not pressing ground no. 6 and 12. Considering the submission of assessee, we find that ground no. 1 is general and need no specif....
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....n to file objection before Dispute resolution Penal (DRP) wherein the rejection of segmental profitability and adjustment suggested by TPO was upheld in its direction dated 21.09.2024. Consequently, on receipt of direction of DRP, final assessment order under section 144C(13) r.w.s. 143(3) dated 26.10.2024 was passed. 5. The learned Authorised Representative (ld. AR) of the assessee submits that assessee provided design and engineering services (D&E) to its global affiliates (associated enterprises) and third-party client that is non-AEs. The engineering services mainly are divided in two segments, firstly, AE segment and secondly non-AE segment. For AEs segment, the ld AR of the assessee submits that the assessee engaged in low-end work on a low-risk sub-contract basis for its AEs. This work primarily includes engineering and drafting of designs and drawings based on conceptual and basic engineering data. As the primary contractor, AEs handle strategic functions, marketing, and pre-sales support, while assuming overall service liability and credit risks for their customers. The detailed functional analysis forming part of the transfer pricing study of the assessee has been file....
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....87 of supplementary paper-book. 7. The ld. AR of the assessee submits that during FY 2020-21, assessee incurred losses in its non-AE segment, which were attributable, inter-alia, to the various factors like; (i) The COVID-19 pandemic adversely affected project timelines, resulting in incurrence of increased hours which were not previously budgeted for and the cost for which could not be recovered. (ii) The complexity of certain projects necessitated post facto allocation of senior personnel to such projects which was not initially envisaged and the cost for which could not be recovered. (iii) The assessee had to undertake re-work in case of some projects, the cost for which could not be recovered. (iv) The assessee was liable to pay liquidated damages on account of delay in completion of projects. The assessee provided a breakdown of non AE segment between project with the Government / PSU entities and other entities in the following manner: Particulars Key AE Segment Non-AE Segment Total Engineering Design Services Government Entities Other Entities Total Count of customers 7 47 54 Total Ho....
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....rofit margins have improved, indicating recovery. 10. The ld AR of the assessee submits that no consistent approach is followed by the TPO. The segmental profitability was accepted by the TPO in the prior year i.e. AY 2020-21 and subsequent year le. AY 2022-23, wherein the costs were allocated using similar approach as that of AY 2021-22 and no upward adjustment was made towards rendering D&E services. As there have been no change in the facts and circumstances in AY 2021-22 vis-à-vis the prior AY i.e. AY 2020-21 and no additional facts have emerged in the proceedings in AY 2021-22 which would have a bearing on the outcome of AY 2020-21, by applying the principle of consistency, the TPO cannot adopt a different view/ position for determination of the ALP of rendering of D&E services. The TPO order and audited segmental accounts of AY 2020-21 is placed on record at Page 890 to 894 of the supplementary paper-book. As there have been no change in the facts and circumstances in AY 2021-22 vis-à-vis the subsequent AY i.e. AY 2022-23 and no additional facts have emerged in the proceedings in AY 2021-22 which would have a bearing on the outcome of AY 2022-23, by applying ....
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....s of lower authorities carefully. We find that the TPO rejected segmental accounts by taking view that the same are not accurate and reliable by taking view that assessee failed to justify huge profit at 22.8% at AE segment and huge loss of (-17.50%) in non AE segment. No specific defect if pointed out by the TPO in his order. We find that in response to the show cause notice by TPO, the assessee filed its detailed reply explaining the difference in AE and non-AEs segmental profit as has been argued before us. The TPO has not considered such detailed explanation before rejection of segmental profit differences. We find that before TPO as well as before DRP the assessee specifically stated that similar segmental profitability has been accepted by TPO in previous and subsequent assessment years. To substantiate such submissions, the assessee has also filed orders of TPO in earlier and subsequent years. No doubt that principal of res-judicata is not applicable in the income tax proceedings, however, the tax authorities are bound to follow the principal of consistency, if there is no variation in facts. No variation in facts in brought on record by TPO. 13. We find that Mumbai Tribu....