TaxTMI 
TaxTMI 
2026 (8) TMI 199
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....acts on the file in as much as he has gravely erred in computing total Income of Rs. 9,05,66,367/- as against returned income of Rs. Nil. 2 That the order dated 21-03-2022 passed by Ld. Dispute Resolution Panel - 1, New Delhi is against law and facts on the file in as much as it has gravely erred in issuing directions u/s 144C(5) of the Act by ignoring the facts of the case and position of law. 3 That the orders dated 06.01.2021 passed by the Ld. Transfer Pricing Officer u/s 92CA(3) of the Act and that dated 21-03-2022 passed by Ld. Dispute Resolution Panel - 1, New Delhi are against law and facts on the file as both the Ld Transfer Pricing Officer and Dispute Resolution Panel-1, New Delhi have:- (i) failed to understand and appreciate the nature of business of the Appellant Company which led them to apply a wrong set of filters and comparables, in turn, leading to wrong and misleading conclusions; (ii) misconstrued the nature of business of the Appellant Company as "construction and maintenance of broadways, roads, bridges" as against "operating and maintaining of the toll highway" which is its main and exclusive business activity. 4. T....
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....ment Board" {PRBDB} is, allegedly, not distributing income and profits from the project at arm's length. (ii) to propose an adjustment of Rs. 9,05,66,367/- to the business income of the Appellant Company on account of Transfer Pricing adjustment u/s 92CA(3) of the Act by rejecting the "Other method as prescribed by Rule 10AB of the Income Tax Rules, 1962" for determining the Arms's Length Price (ALP) as adopted by the Appellant Company and applying the Transactional Net Margin Method {TNMM} with the Appellant Company as tested party and Operating Profit/Operation Revenue{OP/OR} as Profit Level Indicator (PLI). (iii) arbitrarily rejecting the CSR prescribed by the PRBDB and mentioned in the "Concession Agreement for Operation, maintenance and Transfer" awarded by PRBDB to the Appellant Company and holding that CSR is not acceptable as a, method for determination of "Arm's Length Price" (ALP). 6 That the order dated 06.01.2021 passed by the Ld. Transfer Pricing Officer is against law and facts on the file in as much as he was not justified in holding that the Assessee has also failed to file provided following details which could prove that it p....
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....er (TPO) after taking relevant approval from PCIT, Hisar. Accordingly, the TPO issued notices u/s 92CA (2) of the Act and in response, ld. AR of the assessee attended and submitted the information as called for. 3. At the time of hearing, ld. AR of the assessee brought to our notice relevant facts of the case and submitted his submissions as under. Ld. AR submitted that Punjab Roads and Bridges Development Board ("PRBDB") under World Bank Aid had developed/ upgraded the Ludhiana - Malerkotla Sangrur Road having a length of 71.352 km. PRBDB under PPP model floated a "Request for Proposal" ("RFP") to allot Operation, Maintenance and Transfer ("OMT") of the said highway and copy of the relevant extracts from the said contract are enclosed at pages 166-185 of the paperbook. He submitted that scope of the project - Article 2 (Page No. 167 of the Paper Book) and the Project facilities that the appellant was to build is described in Schedule B at pages 173 - 175 of the Paper Book. He further submitted that the entire activity consisted not of construction of road but the construction of the project facilities such as toll plazas, roadside functions, street lighting, landscaping, traffi....
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....- 1. The Ld. Transfer Pricing Officer has misunderstood and failed to appreciate the basic nature of business of the Assessee Company. The Ld. Transfer Pricing Officer failed to appreciate that the Assessee Company is engaged in the business of "Operating and Maintaining of an existing road and Toll plaza" and maintaining the same and not in construction and development of roads. 2. The Ld Transfer Pricing Officer has erroneously rejected the CUP method and applied TNMM. Alternatively, without prejudice, even if TNMM is proposed to be applied it should be based on the comparable companies which are specifically engaged in the business of operation and maintenance of toll roads and collection of toll thereon and not construction of highway, bridges, etc. 3. The Ld. Transfer Pricing Officer has failed to appreciate that the rates given to AE are as per CSR rates which are prescribed by Government and are a valid comparison under the provisions of the Act and which are also the rate given to non- AE. Summary of rates charged by AE and Non AE in a comparative table are at pages 271 of the Paper Book. 4. The Ld Transfer Pricing Officer while applying ....
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....with relevant audited profit and loss account for the years displayed enclosed at pages 276-291 of the paper book. 10. It is also submitted that the appellant has continued to make the said claim in subsequent years and there has been no tinkering and hence on the ground of consistency also there should not be any adjustment to the profits of the appellant. 8. On the other hand, ld. DR of the Revenue brought to our notice pages 2 to 5 of the TPO order and further brought to our notice findings of the TPO at page 45 of the paper book. Further, ld. DR submitted the written submissions which are reproduced below :- A. Functional 'profile: Before proceeding further, reference is first invited to the functional profile of the assessee company and its AE, as given in PARA 3.1./ page 18 of the of the TP study report (Page no 65 of paper book). Being pertinent, the same as reproduced below: 3.1. Functions Performed Various functions performed by LSIR and its AE as under: * Bidding and Assigning - The first stage for development of project is bidding. AE was involved in bidding for the operation maintenance & transfer of Ludhiana-Malerkotl....
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....any was Showing the operations and maintenance only for contract/ agreement purposes, accordingly the profit ratios of AE was taken and it was duly benchmarked with the comparable companies involved in the work of construction, operation and maintenance of highway / roads etc. B. Work performed as part of concessionaire agreement During the course of arguments, the assessee has taken the ground that it is not doing any major works in the contract and only involved in undertaking some minor modification like landscaping, constructing Toll plaza etc. This contention of assessee is incorrect and contrary to the facts, as mentioned in the contract/ agreement documents. For the sake of ready reference, the following details as mentioned in the contract/ agreement documents are given below. i) The references is invited to the RFP proposal given by the M/s. Punjab Roads which is mentioned in Page 176 to 185 of the paperbook. Attention is invited to para 1.1.3 at page no.176/177 wherein the scope of work of RFP is mentioned and ready reference of the same is reproduced below: PUNJAB PUBLIC WORKS DEPARTMENT (B&R) OPERATION, MAINTENANCE AND TRANSF....
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....essionarie following COD in. accordance with specifications & standards as per schedule-C and Good industry practice includes: Sr.No. Description of Work 1. Periodic Overlay on Carriageway and Service Roads as determined by Benkleman Beam Deflection as per provision of IRC:81 in accordance with manual of specification and standards. 2. Pavement marking with thermoplastic paint, repainting of kers, kerb stones etc for carriageway and service roads in accordance with Manual of specifications and standards. 3. Reconstruction of service road of ROB at km 62+000 in Dhuri town (approx length 800m) 4. Construction of concrete crash barriers as per IRC Code of Practice - 10 nos. existing bridges (where not existing at present) 5. Raising and remodeling of rotaries and approaches at RD 6+900 and 9+100 to take care of flooding. From the perusal of the above, it is crystal clear that the assessee, as part of the contract / argument was supposed to perform major works, as clearly delineated in the contract /agreement. The assessee is definitely not involved in doing minor works like landscaping, constructing toll plazas etc. and all the works which ....
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....ns The assessee has arranged its accounts in such a way that the major expenses are transferred to the P&L account of the AE whereas the income component gets reflected in the assessee's P & L account which results in the inflated claim of deduction u/s. 80IA. All this exercise of showing the excess profits has been done mainly with intention of claiming excess 80IA deductions which is not allowable to the assessee company under the provision of Income Tax Act. In the Transfer Pricing, the rule is to benchmark each transactions separately however, the various courts have decided/ ruled, that if the transaction are so closely linked that they cannot be separately benchmarked, then it is preferable. and desirable to benchmark the transactions in a aggregated manner. In the case of assessee, there is a single contract awarded by a state government agency i.e. M/s. PRBDB which is for the construction, operation and maintenance of project facilities and in lieu of performing that work, the Concessionaire is entitled for collection of Toll for a limited period of time. Two things are very clear from the perusal of the contract / agreement, TP Study report, that the work invo....
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....se of Knorr Bremse India P. Ltd. vs, ACIT 2015 63 taxmann.com 186/380 ITR 307 wherein the Hon'ble Court had held that "in order to combine two or more transactions, it is essential that they should be either inextricably linked to each other either by way of a package deal or that a number of transactions are priced differently but on the understanding that the assessee will accept all of them together (i.e. either take all or leave all). The relevant extract of the decision is reproduced below 37. We will assume that the various international transactions were entered into with respect to the final commercial venture undertaken by the assessee, be it the manufacture and the sale of goods or the provision of services by it. The AO or the TPO, as the case may be, is required to determine the arm's length price in relation to "an international transaction". The acquisition of various items/components in the assessee's venture could indeed be telescoped into and form a single transaction. For instance, in the case of a package deal where each item of the package is not separately valued but all the components thereof are given a composite price, the transactions f....
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....s of a single composite transaction. 39. The assessee would, however, have to prove that although each sale and each provision of service is priced separately, they were all provided under one composite agreement which constitutes an international transaction. Thus, the above decisions clearly lays down the law that if the transactions are so closely linked that they form a single composite transaction or they cannot be evaluated separately, then they have to be benchmarked on aggregated basis. Thus, to summarize, the following points may kindly be considered. i) Collection of toll is not an isolated activity, it is dependent on the other works i.e. construction, operation and maintenance of highway/ road, accordingly both these activities are to be aggregated for benchmarking purposes, as they cannot be separately benchmarked. Further there is common agreement for both these activities and as they emanate from single source / contract, they cannot be seen in isolation. ii) AE of the assessee company i/e. M/s Gawar constructions is performing all the major activities/ works and accordingly profit ratios of this company/ AE were considere....