TaxTMI 
TaxTMI 
2023 (9) TMI 1778
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....rst, we take up ITA No. 1129/AHD/2014, an appeal by the Revenue for A.Y. 2008-09 3. The revenue has raised following grounds of appeal: 1) The CIT(A) has erred in law and on facts in holding that accounts of the assessee could not be rejected inspite of clear evidence brought on record that the profit computed by the assessee was not reliable. 2) The CIT(A) has erred in law and on facts in allowing the claim of Rs.8.20 crores disallowed by the assessee u/s.40(a)-(ia) without appreciating that such a claim was contrary to the provision of section 40(a)(ia)of the I.T. Act. 3) The CIT(A) has erred in law and on facts in deleting the transfer pricing adjustment of Rs. 2,32,74,967/- recommended by the TPO without any cogent reason. 4) The CIT(A) has erred in law and on facts in not appreciating that since the HO of the assessee was regularly dealing with Cosco Logistics and all the documentation relating to the transaction between HO and Cosco were not available the TPO rightly excluded Cosco Logistics as comparable. 5) The Ld. CIT(A) has erred in law and on facts in concluding that the TPO had compared the arm's length price and made ....
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....t is only reimbursement of the expenses to the HO, and it is not required to report the same as payment made to AE to attract the transfer pricing provisions. 6.1.1 The Ld. TPO further on perusal of the shipping bills submitted by the assessee during the assessment proceedings found that there are serious deficiencies in such shipping bills. The TPO on verification of the bill No. IMTB10615001 raised by one of the Shipper namely M/s Cosco Logistics has charged the price 686 USD$ per ton which is higher by 300% from the price of USD 229 per ton charged by the same shipper on another bill No. XGG01A/GG01 for the same period. Similarly, another shipping agency, namely Adani International Shipping Agency Co. Ltd. raised bill No. 0711ATSHMD01 and charged price 180 USD$ per ton. Thus, the TPO found a huge difference in the price charged by the shipping agencies. 6.1.2 Furthermore, the assessee has not filed any contract agreement between the shipping company and HO of the assessee. 6.1.3 It was also observed by the TPO that the assessee has not furnished the information regarding whether the equipment shipped by the HO was in pursuance to the terms of agreement between the asses....
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....ately on rendering of the services of facilitation of transportation of goods. Further, the assessee is also engaged in rendering of services of erection, testing, installation, and commissioning of infrastructure project (power) and other similar services. The revenue from such activity is recognized upon rendering of services. The assessee has filed all the invoices raised by it to M/s Adani Power Limited which were raised in accordance with the contract agreement entered by it with M/s Adani Power Limited. 6.1.7 Without prejudice to the above, the assessee also submitted that adjustment should be confined in respect of rate per ton paid to M/s Cosco logistics to the shipping bill through whom the goods transported in respect of project carried out by the assessee. 6.1.8 However, the Ld. TPO/ AO rejected the contention of the assessee by observing that third party shipping bills offered by the assessee as CUP for the purpose of reimbursement is not acceptable since the assessee has not submitted any documents based on which shipping expenses under consideration has been incurred by the AE (HO). The Bills furnished by the assessee do not co-relate to the consultancy service ....
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....58,88,353/- only. However, the assessee company itself has made certain disallowance of expenses and added to the income of the assessee company. Thus, after addition of certain disallowances, loss was computed at Rs. 28,02,385/- only. 6.2.1 Further, on verification of the expenses it was found that major expenses were incurred by the assessee in respect of certain materials shipped from China to India and such material further delivered from the Indian port to work-station of M/s APL. Accordingly, the assessee was asked to explain the huge gap between income and expenses and further an explanation was sought how the assessee recognized the turnover of Rs. 26,57,45,191/- in its book, what was the method to record the turnover in its books, what was the relevant clause of the contract agreement between assessee which are deciding factor of revenue recognition. 6.2.2 The assessee in respect of such gap between income and expenses submitted that as per the contract agreement between assessee and Adani Power Ltd., the assessee company is responsible for transporting the power plant related equipment and various parts for the APL power project from China port to the Indian port an....
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....e assessee company was also submitted. 6.2.8 Further assessee in respect of Revenue recognition, submitted that it has recorded the revenue from operation during the year under consideration on mercantile basis as detailed under: Revenue from erection, commission, & installation 4,72,96,903/- Revenue from forwarding, handling, clearing 21,84,48,388/- Total 26,57,45,291/- 6.2.9 As per the Clause 4.2 of the contract agreement between assessee and M/s Adani power Ltd, the revenue recognition depends upon the performance of service as per the satisfaction of customer in accordance with the condition specified in the relevant clause of the contract and Revenue recognition in respect of service of facilitation of transportation of goods from the manufacturer sites in China to the work place in Kutch which is based on cost incurred by the assessee company. 6.2.10 The assessee also submitted that as per AS-9 certainty regarding receipt of amount of consideration is the essential element for recognition of revenue. In the case of an assessee such certainty is established only when the services are performed to the satisfaction of the conditions specified in the co....
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....shown income of Rs. 4,72,96,803/- as income from erection, commissioning, and installation charges against the expenses incurred of Rs. 6,39,77,334/- meaning thereby some of the invoices were not raised corresponding to such expenses. If any work which has been done by the assessee but has not been approved by the customer or such work is not completed, then it should have been shown as work in progress on the balance sheet. 6.2.18 Further, the assessee has not furnished the invoices raised on the employer. Thus, in the absence of an invoice, it is not possible to verify the service performed by the assessee. 6.2.19 The AO also observed that the assessee entered a fixed price contract and therefore, it could have maintained its books of accounts as per the AS-7 and recognized revenue as per the method specified in AS-7. 6.3 In view of the above, the ld., AO concluded that the assessee has not maintained the books of accounts as per the provisions of section 44BBB r.w.s. 145 of the Act. Accordingly, the AO rejected the books of accounts of the assessee. Further, in the absence of an invoice raised by the assessee to the employer it is not possible to compute the correct pro....
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....ation of goods is appellant's obligation. 7.3 Based on FAR analysis, the assessee submitted that project office is only responsible for execution of project in India. Further, the transportation of goods is also the responsibility of the project office. It can be seen from the relevant portion of the contract which is reproduced on pages 64 to 66 in the order of the ld. CIT-A. 7.4 The assessee also justified for making the payment to shipping agency through the involvement of the HO on account of two factors, firstly, the payment in such cases was expedited quickly and secondly, it provides saving to the PO from huge foreign exchange risk exposure. Otherwise, the HO first needs to send the required funds to India for making payment to such shipping agencies and thereafter, the PO for making payment to shipping agencies, would have to sell the currency received from the HO and re-buy the same while making payment. 7.5 The assessee further submitted that cost of shipping expenses incurred by the HO on behalf of the PO has been reimbursed to the HO by PO. Thus, it cannot be treated as international Transaction within the provision of section 92B of the Act. As per the ass....
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....bmitted that there is no requirement of estimating the cost where all receipt and expenses are verifiable and supported by the vouchers and certified by the auditors. The assessee also submitted that it has been following the mercantile system of accounting and accordingly expenses and income are debited and credited based on accrual system. Thus, there is no defect in the books of account and accounting method adopted by the assessee. The assessee further submitted that there is no statutory requirement mandating to file the estimate of cost. 7.11 The assessee further submitted that it has filed all the invoices raised by it to Adani Power Ltd against the expenses during the proceedings before the TPO/ AO. Therefore, the allegation of the AO that the assessee has not filed invoices raised to Adani Power Ltd was not correct. 7.12 The assessee also pointed out that it has maintained all the books of account specified under section 44AA of the Income tax Act like cash book, Bank book, Ledger, Journal, and such books of accounts were also got audited u/s 44AB of the Act. The assessee also submitted that the Ld. AO has not pointed out any expenses which were un-vouched or not gen....
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....the period activity of project continued and ultimately concluded. The assessee further submitted that it has incurred loss for the whole project. Accordingly, the assessee prepared its expected profit and loss account as per AS-7 which is reproduced on page 34 in the order of the ld. CIT-A. 7.17 It can be seen from the perusal of the profit and loss account that the assessee has estimated revenue of Rs. 165 crores against the estimated cost of Rs. 185 crores. Therefore, the assessee has expected loss of Rs. 20 crores. As per AS-7 all the expected loss should be accounted for in the year immediately as and when it arises. However, the assessee did not apply the principal of AS-7 but recorded the revenue based on accrual accounting system and loss claimed in over a period of four years during which this project is continued. Therefore, the Allegation that the assessee should have applied AS-7 to recognize the revenue is not justifiable. 7.18 Further, it is clear that the accounting method applied by the assessee for recording the transactions in the books of accounts and same books recognized as per AS-7 is a tax neutral exercise. 8. The Ld. CIT(A) during the appellate proc....
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....h corresponding income on APL. In this respect the appellant company extensively placed reliance on the chart, submitted during the course of the assessment proceedings. This chart is attached as Annexure-1 forming part to this order. Details of revenues and expenses for the aforementioned activities are summarized in tabular format as under: Revenue from Operations: Forwarding & Handling Charges (Including Freight & Clearing Charges) Amount (Rs.) Total (Rs.) 21,84,48,388 26,57,45,191 Operating Expenses: Forwarding & Handling Charges (Including Freight & Clearing Charges) 28,16,21,522 34,55,98,856 The appellant company is in fact responsible for transportation of equipments from China to India, custom clearance. The appellant was further responsible for unloading the goods and transporting the cargos to project site. Part of the contract for i.e. for port handling and transporting the cargos to the job site was awarded to J.M Baxi.& Co. Contract between the J.M baxi and the appellant was also produced before me along with all the invoices and worksheets (on sample basis.). The appellant also produced all th....
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....he appellant called for Quotation from various shipping companies viz. Sinotrans Tianjin Co., LTD, Chengdu Zhonghal Logistics Co., LTD. The same were also produced before me. Further the Baltic Dry Index (BDI), a shipping trade Index, rose to 6500 when the first shipment was sent from 3500 existing when the appellant signed the contract. This benchmark index further went up to 8000 in the month of August 2007. Although the appellant company had kept sufficient margins, however because of increase in shipping freight it incurred these losses. Apart from the oil prices the shipping freights have also increased on account of limited shipping capacity available for carrying such equipments from China to India. Further high demand of ships on account increase in Imports of Chinese power plant equipments in India also fueled the shipping rates. Therefore the appellant company had discharged its onus in explaining the reasons which led to losses. On the other hand the AO has not brought any evidence/material on record to disprove the factual position consistently submitted before him as well this office. Instead the AO has incorrectly quantified Rs. 42.10 lacs (approx.) as loss attributab....
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....tock, closing work In progress and Matching of expenses for Erection, Commissioning and Installation with corresponding Revenues: The AO has also rejected books of accounts also on the ground that the appellant company had not reported opening stock and /or work in progress (WIP). The appellant submitted that this being initial year of operation the question of opening stock does not arise. I agree with the contention of the appellant and hence rejection of books of accounts on ground that no opening stock being recorded in is not at all justifiable. Further regarding closing WIP, the appellant submitted that WIP can only arise in Erections, commissioning and Installation work. The appellant further submitted that as per the chart reproduced above, the revenue recognized is Rs. 4,72,96,803/- as against expenses of 6,39,77,334/-. According to the appellant revenues from erection, commission and installation would be recognized only on submission of reports APL as laid down in the contract between them. It also submitted that the appellant had recognized revenues only after the work gets certified by APL. Therefore the appellant recognized revenues from erection, commissioni....
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....or carriage of goods. In this respect the appellant submitted that it had provided all copies of Invoices raised by shipping agencies on it, Copies of Bill of Ladings, Payment proof made to shipping companies and ledger copy of all the shipping agencies. On the other hand the AO failed to point out deficiencies or irregularities in the details compiled. Further it is also accepted by the AO that the appellant company was duty bound to transport goods from China to India and which it has carried out in accordance with the scope of the contract. It is also not denied that the cargos have not come to India. In fact the appellant has correlated custom clearance charges, port handling charges for each and every cargo shipment from China to India. This is again evident from the chart reproduced vide Annexure- I to this order. I am unable to accept the finding given by the AO in this respect as well. Therefore rejection of Books of Accounts on this ground is not tenable. 5. Method of Recognition of Revenues-Applicability of AS-7/ AS-9 The AO has further rejected the books of accounts for the reason that the appellant company has not followed Percentage completion method ....
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....cally asked by this office. I agree with the contention of the appellant that if at all revenues are recognized applying AS-7 / AS-9 the appellant company in light of the above mentioned principle of accounting HIT OF WER would be eligible for claiming budgeted losses. In my opinion, the appellant has discharged its obligation of giving satisfactory explanations to loss appearing in the books of account. The Books of Account of the Company have been audited and certified by the auditors. The method of accounting has been consistently followed by the assessee on a year-to-year basis. Hence, rejection of the Books of Account on this ground is unjustified and incorrect. Applicability of Section 44 BBB The AO has invoked the provisions of section 44888 mainly because the books were rejected. I have already held that the books have been incorrectly rejected by the AD. Therefore Section 448BB cannot be invoked on this ground. It is also a settled position that the appellant can claim lower profits and gains if Books of Account and documents, as are duly maintained in accordance with Section 44AA[2] of the I. T. Act, 1961 and gets the Books of Account audited u/....
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....the TPO in respect of non-submission of the supporting documents is not justifiable with the reasons that all details produced before me and there was no reason mentioned in the order by TPO which forced the appellant not to produce the same details before the TPO, the reasons best known to the TPO. 5.6 Before me the AR also contended that as per clause 4.2 of the agreement entered into with the appellant and APL, the transportation of equipment was within the scope of the appellant and hence out of business prudency the payments to such shippers were directly made by the HO and later reimbursed by the appellant. The said transaction, in essence, is a transaction entered into by the appellant and such shippers and shipping agencies. The appellant has also proved that the payment was made to the third parties (shipping agencies). There is no evidence brought on record to show that the appellant company and the shipping companies are parties. The Head Office of the appellant company only facilitated the appellant company to pay the cost to shipping agencies. It is not disputed at all that the appellant did not carry out the above function. In fact both the AO as well as the ....
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....e effectively the TPO has compared rates charged in an uncontrolled transactions with another uncontrolled transactions, as all the aforementioned entities are not related to appellant in any ways. Such treatment is against the essence of CUP method as per section 92C of the Act and Rule 10B(1)(a) of the Rules. The appellant submitted that the method relied by the TPO does not follows mandate of the any of the method prescribed in section 92B and hence the addition needs to be deleted. 5.10 I find force in the submissions of the appellant. As per section 92C r.w. rule 108(1)(a) of the Rules the prices charged in an uncontrolled transactions has to be compared with the price charges in a controlled transactions. The price charged in uncontrolled transactions after making appropriate changes has to be treated as arm's length price as per section 92C r.w. rule 10B(1)(a) of the Rules. The TPO after deriving the average freight ignoring Cosco Logistic Transactions ought to have compared such prices charged in the controlled transaction which has not been done by the TPO. The TPO has effectively compared charges paid in two uncontrolled transactions and has made adjustment i....
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....le to the increase in the oil price on ocean freight expenses. ii. Mismatch between the income and the expenses shown by the assessee. iii. Non-disclosure of opening/closing work in progress. There was no matching of expenses such as erection/ commissioning and installation with the corresponding revenues. iv. Non-submission of the contract with the shipping companies. v. Method of recognizing the revenue as per accounting standard-7 /accounting standard 9 issued by the ICAI. 10.2 The learned CIT-A after detailed analysis of the facts of the case, assessment records, remand report and the submission of the assessee reached to the conclusion that the books of accounts of the assessee were not liable to be rejected and therefore there was no occasion to estimate the profit under the provisions of section 44BBB(1) of the Act. It is the admitted position that books of accounts maintained by the assessee cannot be rejected by AO on the grounds discussed above which were mainly revolving to the loss shown by the assessee. In simple words, the losses declared by the assessee cannot be a ground for rejecting the books of accounts more particularly in ....
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....ngaged in the business of civil construction or business of erection of plant or machinery or testing or commissioning thereof in connection with a turnkey power project approved by the Central Government would be taxed at the rate of 10% of the amount paid or payable to the assessee or to any person on behalf of the assessee on account of such civil construction, erection etc work. Sub-section (2) of section 44BBB of the Act would however give an option to the assessee to claim lower profit if the assessee keeps and maintains the books of accounts and other documents as provided in sub- section (2) of section 44AA of the Act and gets the accounts audited and furnishes the audit report as required under section 44AB. The AO thereupon would frame an assessment of the total income of the assessee under sub-section (3) of section 143 of the Act. In the present case, the CIT (Appeals) as well as the Tribunal both held that the assessee had fulfilled all requirements of sub-section (2) of section 44BBB of the Act. It is not the case of the revenue that the assessee had not maintained the books of accounts and documents as required under sub-section (2) of section 44AA or that the assess....
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.... was no evidence brought on record by the AO suggesting that there was any margin or markup added by the head office in the value of the invoices raised by the shipping agencies. We also note that the ITAT Mumbai tribunal in the case of M/s Ness Technology India Pvt. Ltd. Vs. DCIT reported in 76 Taxmann.com 209 has held that where there is any transaction between the associated enterprises on cost-to-cost basis, without any markup, no adjustment in the international transaction is required to be made. The relevant extract of the order is reproduced as under: 13.3 We have considered the rival submissions. At the outset, in our considered opinion, it would be appropriate to cull out appropriate facts which are relevant to decide the controversy. Notably, assessee is rendering services to its associated enterprises abroad for which it is to be compensated on a cost plus mark-up basis and such transactions have been separately bench-marked. In the course of rendering such services, assessee also incurred certain costs relating to travel, accommodation, visa, per diem and other day-to- day expenses, which were expended by its personnel. Further, assessee also incurred certain o....
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....ute income qua the instant transaction in terms of section 92(1) of the Act. Another pertinent fact which has not been rebutted by the Revenue before us is to the effect that in similar situation, from assessment year 2004-05 to 2010-11, no transfer pricing adjustment has been made by the Assessing Officer in relation to the International Transactions on recovery of expenses. 10.6 Besides the above the learned CIT-A after analyzing all the facts on the issue in hand has reached to the conclusion that there was no need for making any adjustment in the cost incurred by the assessee towards the shipping charges which was reimbursed to the head office. Thus, in such facts and circumstances, we do not find any reason to interfere in the finding of the learned CIT-A. At the time of hearing, the learned DR has also not brought anything contrary to the finding of the learned CIT-A. Hence, the ground of appeal of the revenue is hereby dismissed. 11. The 2nd issue raised by the revenue in ground No. 2 is that the learned CIT-A erred in deleting the addition made by the AO for Rs. 8.20 crores under the provisions of section 40(a)(ia) of the Act. 12. The assessee before the learned CI....
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....ed and pald before due date of filing return. To substantiate the claim the appellant filed a paper book to prove that TDS was paid before due date of filling return. These details were sent to the AO for his verification and comments; however the AO has not made any comments on the merits. Instead the AO has commented only with respect to non-admissibility of the additional ground. He has also submitted that the operation of the proviso is prospective. Further the AO also stated that because the books of the appellant company have been rejected there would not be any effect on the estimated Income. I have already held that the books are incorrectly rejected in light of detailed findings given above. Therefore, the contention of the AO raised in the remand report for not admitting the additional ground is not sustainable. Further it is also not disputed that the appellant has deposited TDS on or before the due date of filing tax returns. This is also verifiable from the e-TDS returns filed before the AO. Hence by virtue of amendment brought in the statute books in section 40(a)(ia) vide Finance Act 2010 which has been held retrospective by many courts including the Gujarat High Cou....
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....nd circumstances, the AO was not justified in invoking the provisions of section 44BBB. 4. The Ld. CIT(A) has erred in holding that in the present set of facts, CUP was a better method of benchmarking as against TNMM adopted by the TPO. 5. The Ld. CIT(A) has erred in holding that the transaction of awarding the contract by Adani Power Limited to SFPML HO was a proper CUP for the transaction between the assessee {SFPML LO) and SFPML HO without appreciating that nature of transaction between SFPML HO and the assessee were totally different and functionally incomparable to the CUP cited by CIT(A). 6. The Ld. CIT(A) has erred in law and on facts in holding the comparables selected by the TPO as functionally incomparable merely on the basis of general observations without assigning any reason for rejection. 7. Therefore the order of the Ld. CIT(A) deserves to be deleted and that order of Assessing Officer be restored. Any other ground that may be urged at the time of hearing 17. The Revenue vide letter dated 17 January 2023 has also raised the additional ground of appeal which is reproduced as under: The ld. CIT(A) has erred in la....
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....ntract with Adani Power Limited (APL) for transportation of equipment from China to India, clearing the goods at port of entry i.e. India (custom clearance) and thereafter transferring the goods to the site office. The appellant has also been assigned to carry out erection, commissioning the appellant company submitted that the Invoices were raised on APL i.e. its employer on the basis of the work done and on the progress of the work executed. The Invoices were raised mainly for carrying out two activities: (A) Forwarding and Handling, and (B) Erection, Commissioning and Installation. The breakup of the revenues from the aforesaid activities was submitted to the AO during the course of the assessment proceedings. It has been reproduced by him in the assessment order as well on page No. 12 of his order. The appellant Company had given the break-up of revenues arising from the aforesaid activities along with the expenses incurred for earning the above during the year under consideration. In support of the above revenues and expenses, the appellant Company had submitted the following documentary evidence in its support: a) Sample copy of the invoice....
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.... (A) Forwarding and Handling; and (B) Erection, Commissioning and Installation. The breakup of the revenues from the aforesaid activities was submitted to the A.O. during the course of the assessment proceedings. It has been reproduced by him in the assessment order as well on page No. 12 of his order. The appellant Company had given the breakup of revenues arising from the aforesaid activities along with the expenses incurred for earning above during the under consideration. Against the observation of the AO, appellant filed a detailed statement of facts, along with Form 35 and reply during the appellate proceedings. Before proceeding to the reasons highlighted by the AR for rejecting the books of accounts, it would be worthwhile to refer to the scope of work, the appellant company had undertaken pursuant to clause 4.2 of the service contract between APL and the appellant. The appellant was engaged mainly to carry out following activities: ● Erection, commission Installation; ● Forwarding and handling & clearing which shall include the following: ● Transportation of Good from China Port to India Port (M....
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.... of the contract i.e. port handling, transportation of cargos has been awarded to the sub-contractor viz. J.M. Baxi & Co and other sub-contractors. The appellant company submitted copy of the contract as well as copy of the invoice and ledger copy of sub-contractors before me. No specific deficiency has been pointed out by the AO in respect of the above expenses. The appellant-company has raised a consolidated invoice for all the above services viz. transportation of equipment, custom clearance and transferring goods to the project site. This also transpires from the copy of the invoice raised by the appellant on APL. Therefore the observation of the AO that the appellant-company has not billed its employer for transportation of goods from China port to India port is absolutely incorrect and misplaced. On similar issue, I have also held for the earlier assessment year that the books of account cannot be rejected and therefore I am of the opinion that for this year as well, the books of cannot be rejected for the above reasons. Further, one of the main reasons attributable for such loss was the increase in oil prices, which in turn inflated the freight charges substantially....
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....tes were based on quotes received from various shipping agencies. The appellant called for Quotation from various shipping agencies viz Sinotrans Tianjin Co. Ltd., Chengdu Zhongal Logistics Co., Ltd. The same were also produced before me. Further the Baltic Dry Index (BDI), a shipping trade index, rose to 6500 when the shipment was sent from 3500 existing when the appellant signed the contract. This benchmark further went up to 8000 in the month of August 2007. Although the appellant company has kept sufficient margins, however because of increase in shipping freight it incurred these losses. Apart from the oil prices the shipping freights have also increased on account of limited shipping capacity available for carrying such equipment from China to India. Further high demand of ships on account of increase in imports of Chinese power plants equipment in India also uelled the shipping rates. Therefore the appellant company has discharged the onus in explaining the reasons which led to losses" Therefore, following the order of the earlier assessment year i.e. A.Y. 2008-09 coupled with identical facts and findings by the I, I hold that the rejection of books of account on th....
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....oices have been raised by it on a progressive basis and that invoices for all the months i.e. from April, 2008 to March, 2009 have been raised. Summary of all the revenues booked by the appellant has also been furnished by filing ledger copy of APL appearing in its books of account. I have carefully gone through all the evidence in the form of Bills of Lading, bills raised by appellant-company on APL, ledger copy, copies of contracts of sub-contractor, copy of the contract between APL and the appellant-company, bills, vouchers and all other documents compiled in the paper book. I do not find any discrepancy in the invoices raised and/or vouchers for all the expenses incurred. The entire approach of the AO for rejecting the books is mainly because the appellant company had incurred loss which has been duly explained by the appellant-company. The appellant-company had also discharged its onus of matching the entire expenses and revenue. Therefore, the observations of the AOto this extent are reversed. (iii) No opening stock, closing/work-in-progress: The AO has also rejected the books of accounts on the ground that the appellant company has not reported ope....
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....sion of contract with shipping companies: The AO has stated in the order that the appellant company has failed to provide written copies of agreement entered into by its Head- office in China for carriage of goods from China port to Indian port. In this respect, the appellant-company has submitted that it had furnished all copies of invoices raised by shipping agencies on it, Copies of Bill of Ladings, Payment proof made to shipping companies and Ledger copy of all the agencies. No defects whatsoever have been pointed out by the AO. It is also accepted by the AO that the appellant-company was duty bound to transport goods from China to India and that that it had carried out in accordance with the scope of the contract. It has also not denied that the cargos have come to India. Therefore, I am unable to accept the findings given by the AO that the books ought to have been rejected merely on the ground that written agreement between the shipping agencies and the appellant company has not been submitted. Rejection of books of account on this ground is not tenable. Books were by the AO on similar grounds for the earlier assessment year also i.e. AY 2008-09. The findin....
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....) v. ITD Cementation India Ltd. bearing ITA No. ITA. No. 3669/Mum/2011 which in turn followed various other rulings viz Mazagaon Dock Ltd v. Jt. CIT (2009) 29 SOT 356 (Mum.) JacobsEngg. India (P) Ltd. v. Asstt. CIT [2011] 14 taxmann.com 186 (Mum.), Dredging International v. Asstt.DIT (IT) [2011] 48 SOT 430 / 15 taxmann.com 198 (Mum.). In all these cases it has been held that foreseeable losses from a fixed price contract are allowable. Once it has been established that the appellant company has incurred loss in the entire the issue of allocating more revenues in the current year becomes purely academic This o mainly because the contract with AP is a fixed price contract Even the revenues are estimated for the current year the AO would have to reduce the revenues accounted in the subsequent year. The entire exercise of the AO would be tax neutral It appears that the AO has himself knowing this fact not applied AS-7 while deciding the order. Further the AD has also not given any comments on applicability of para 21 and 35 referred by the appellant even when specifically asked by this office. I agree with the contention of the appellant that if at all revenues are recognized applying ....
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....s cannot be rejected for reasons as discussed herein above, the provisions of section 44BBB(1) cannot be applied" The only difference in the current year is that the AO has not accepted the revenue declared by the appellant company. Instead, the AO has accepted all the costs declared and recorded in the audited financial statement by the appellant company while estimating profit u/s.44BBB of the Act. Once I have already held that the rejection of books of account is not justified, provisions of section 44BBB being optional should not be invoked. The AO is accordingly directed not to estimate profits applying section 44888 of the Act. Consequently ground no. 2 to 7 are allowed subject to directions given above. 21. Being aggrieved by the order of the ld. CIT-A, the Revenue is in appeal before us. 21.1 The ld. DR before us has not controverted the finding of the learned CIT-A. On the other hand, the learned AR before us vehemently supported the order of the ld. CIT-A. 22. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the learned CIT-A has given a finding that the fac....
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....nly for the satisfactory execution of the project. As per the TPO, the transactions between the assessee and the head office should be at arm length price. In other words, the consideration to be received by the project office should be at arm length price. However, it was the contention of the assessee that all the income and the expenses have been booked by the project office in India for the services to be rendered to APPL and therefore no adjustment is required to be made. Without prejudice to the above, the assessee contended that at the most, the expenses reimbursed by the assessee to the Head Office on account of freight and salary expenses can be considered for the purpose of the arm length price. 24.1 However, the TPO rejected the contention of the assessee by observing that as per the provisions of section 92A of the Act the transaction between the head office and the TPO is to be decided at the arm length price as it comes within the meaning of the international transaction between the associated enterprises. Accordingly, the TPO proceeded to determine the arm length price based on the TNMM which was objected by the assessee on the reasoning that Internal CUP method s....
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....ead office, with the APPL, has been given to the project office which is responsible for all the risk and rewards. Therefore, if the CUP method is applied, then no addition to the given facts and circumstances is warranted. 25.3 Besides the above, the assessee also objected to the comparable selected by the TPO while determining the ALP in the given case. The objection raised by the assessee has been reproduced by the ld. CIT-A in his order. 25.4 The learned CIT-A after considering the submission of the assessee and the order of the authorities below held that the transaction between the assessee and the head office is an international transaction between the associated enterprises. Therefore, the same has to be carried out at the arm length price. Thus, the learned CIT-A rejected the contention of the assessee by observing as under: I have perused the order passed by the TPO, submissions made by the appellant-company in its statement of facts and further submissions field during the course of appellant proceedings. I am unable to agree with the contention of the appellant that the transaction between head office of the appellant company and is PE in India need not b....
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.... Pricing. In the given case, the transaction have taken place between the foreign company i.e Head office and its PE in India i.e project office in India and therefore the contention of the appellant that he Transfer Pricing provisions are not applicable to it is incorrect as project office. This finding also gets support from the vital fact that the appellant company has itself filed report under form 3 CEB wherein transaction between itself i.e the PO and is Head office in Chine is reported. 25.5 The learned CIT-A accepted the selection of the CUP method as submitted by the assessee by observing as under: 8.5. I find force in the facts and legal submissions of the appellant the transactions between SFPML HO and APPL is uncontrolled in nature. Thus the contract between SFPML HO and APPL is an uncontrolled transaction and is at arm's length as per the requirements of Indian Transfer Pricing provisions. Further as substantially all the functions in respect of the project is carried out from India the price at which contract was entered between HO of the appellant company and APL the same can be considered as comparable price of the appellant and since the same price ....
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.... (Delhi - Trib.); Livingstones v. Deputy Commissioner of Income-tax 16(3), Mumbai - [2014] 41 taxmann.com 499 (Mumbai - Trib.); KTC Ferro Alloys (P.) Ltd. v. Additional Commissioner of Income-tax, Range -3, Visakhapatnam [2014] 43 laxmann.com 152 (Visakhapatnam - Trib.); Tilda Riceland (P.) Ltd. v. Assistant Commissioner of Income-tax, Circle -16(1), New Delhi [2014] 42 taxmann.com 400 (Delhi - Trib.); and J.P. Morgan India Private Limited Vs. ACIT, Mumbai for AY 2002-03, ITA 8.7. The TPO in his order has rejected this plea of the appellant stating that the standard of comparability are very strict in CUP and a small difference in the factor of comparability may have large difference in price. However the TPO while doing so conceded that the transaction between the HO and APL may pass the test of "uncontrolled" nature, he further went on to make observation that it doesn't satisfy the test of comparability. As against the aforesaid, the case of the TPO is further that all documents as prescribed in rule 10D were not maintained. The market conditions in China, in which Chinese HO carried out their business, had not been spelt out. FAR....
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....ppropriate Method (MAM) 25.6 The learned CIT-A further found that the comparables selected by the TPO for determining the ALP under the TNMM were not right comparables. The ld. CIT- A analyzed each comparables selected by the TPO and thereafter rejected the same. The reasons given by the learned CIT-A are available on pages 87 to 94 of his order. 26. Being aggrieved by the order of the learned CIT-A, both the revenue and assessee are in appeal before us. The assessee has raised the cross objections in the CO bearing No. 300/AHD/2014 which are reproduced as under: 1. In law and in facts and circumstances of the case, the Learned Commissioner of Income Tax (Appeals) ("Ld. CIT(A)") has erred in confirming the view of Transfer Pricing Officer ('TPO') as well as the Assessing Officer in presuming that the contract with Adani Power Limited was subcontracted by the Head office of the appellant company to the Project Office of the appellant company. Accordingly the CIT(A) has erred in confirming the action of the TPO in treating the above transaction as an international transaction under the Income-tax, Act 1961 ('the Act'). 2. In law and in facts an....
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....or this method to be applicable, characteristics of the transactions among related individuals must be comparable with characteristics of the transactions among unrelated individuals. This concept of comparable characteristics here refers to similarity between the characteristics of transactions among related individuals and transactions among unrelated individuals on exchange of goods and services in question. In case of small measurable discrepancies between those transactions, the method would be applicable upon elimination of those discrepancies. However, in case of larger discrepancies, the method would not be applicable. This is the most frequently used method for comparable uncontrolled transactions by virtue of its feature of direct comparison. ● Resale price method; refers to estimation of the price compliant with the arm's length principle by deducing an appropriate gross sales profit from the price to be charged for resale of goods and services to unrelated natural persons or legal entities. The essential element for reaching the price or remuneration compliant with the arm's length principle in this method is the price or remuneration to be ....
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....3rd party being APPL which assigned by the HO to the project office. Thus the price charged the HO of the assessee from APPL is certainly act as the benchmark considering the same as the internal cup. In holding so, we draw support and guidance from the judgement of Hon'ble Delhi High Court in case of Clear Plus India (P.) Ltd vs. DCIT reported in 10 taxmann.com 249 where it was held as under: 7. We have examined the ratio of these cases in the context of the facts of the case. At the cost of repetition it may be mentioned that goods were sold by the Chinese manufacturers in the USA market. The assessee has also sold the goods in U.S.A. market. Therefore, market conditions in the territory of sale are the same. In view thereof, we are in agreement with the learned counsel that the buyer in the USA market will be more concerned with quality and price rather than economic conditions prevailing in China and India. 7.1 The second point to be seen is regarding comparability of the products. No data or report is available in this regard. The case of the learned counsel is that wipers do not require any sophisticated technology for manufacture; therefore, no great di....
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.... Further, no calculation in this regard has been furnished. In absence thereof, the Assessing Officer could compute arm's length price of these wipers by adopting comparable sale price of US dollars 1.50 per wiper. 8. In view of aforesaid discussion, it is held :- (i) the CUP method is the most suitable method in this case; (ii) the assessee shall provide the sale data of the associated enterprise in terms of sale price of Chinese and assessee's goods in the USA market; (iii) the assessee shall also provide quantitative data of purchase of Chinese and Indian wipers by the associated enterprise, and the terms of payment; and (iv) the Assessing Officer shall compute the arm's length price using this data, on CUP method after hearing the assessee. 27.2 In view of the above, we hold that the internal cup method is the right course of action adopted by the CIT-A for working out the ALP for the transaction between the head office and the project office. There is no ambiguity, all the risk and rewards relating to the agreement in question were recorded at the project office. Therefore, the same can be said at the arm length price under the C....
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....g the comparables selected by the TPO as functionally incomparable merely on the basis of general observations without assigning any reason for rejection. 7. Therefore the order of the Ld. CIT(A) deserves to be deleted and that the order of Assessing Officer be restored. 8. Any other ground that may be urged at the time of hearing. 30. The interconnected issue raised by the revenue in ground numbers 1 to 3 is that learned CIT-A erred in accepting the book result shown by the assessee in the income tax return. 31. At the outset, we note that the issues raised by the Revenue in it grounds of appeal for the AY 2010-11 are identical to the issues raised by the Revenue in in ITA No. 1129 and 2916/AHD/2014 for the assessment year 2008-09 and 2009- 10. Therefore, the findings given in ITA No. 1129 and 2916/AHD/2014 shall also be applicable for the assessment year 2010-11. The grounds of appeal of the revenue for the A.Y. 2008-09 and 2009-10 have been decided by us vide paragraph No. 10 and 22 of this order against the revenue. The learned DR and the AR also agreed that whatever will be the findings for the assessment year 2008-09 and 2009-10 shall also be applied f....
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....at income from profits and gains of business is to be computed as per section 30 to 43D and section 44888 is not mentioned therein. 4. The Id. CIT(A) has erred in law and on facts, CUP was a better method of benchmarking as against TNMM adopted by the TPO. 5. The Id. CIT(A) has erred in law and on facts, in holding that the transaction of awarding the contract by Adani Power Limited to SFPML HO was a proper CUP for the transaction between the assessee (SFPML LO) and SFPML HO without appreciating that nature of transaction between SFPML HO and the assessee were totally difference and functionally incomparable to the CUP cited by CIT(A). 6. The Ld. CIT(A), has erred in law and on facts in holding the comparables selected by the TPO as functionally incomparable merely on the basis of general observations without assigning any reason for rejection. 7. Therefore the order of the Ld. CIT(A), deserves to be deleted and that the order of Assessing Officer be restored. 8. Any other ground that may be urged at the time of hearing. 36. The interconnected issue raised by the revenue in ground numbers 1 to 3 is that learned CIT-A erred in allowing....
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....audited and file a tax audit report u/s 44A8 of the Act. Strictly following the condition stipulated by Section 44888 the appellant offered entire revenues generated from erection and commissioning of turnkey power projects for taxation. The said income has been characterized as business income. Against the said income the appellant has claimed set off of carry forward losses. Provisions pertaining to set off and carry forward are stipulated u/s 70 to 80 of the Act. Section 72 provides a statutory right to the appellant to daim set off of carried forward losses. This statutory right cannot be withheld since the loss is assessed loss. Copies of return of income as well as assessment order for earlier years have been placed before me. The manner of computing profits and gains under the head should not influence the right of claiming set off and carry forward of losses. It is observed that Hon'ble Delhi ITAT in the case of Rolls Royce Industrial Power Ltd. 42 SOT 264 after elaborate discussion of set off of brought forward loss against current year income has held as under. 69. We have considered the rival contentions and given our careful consideration to the ma....
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....ll. Consequently, ground no.2 to 3 are allowed subject to direction given below. 39. Being aggrieved by the order of the learned CIT-A, the revenue is in appeal before us. 39.1 Both the learned DR and the AR before us vehemently supported the order of the respective authorities as favourable to them. 40. We have heard the rival contentions of both the parties and perused the materials available on record. Regarding the setoff of the brought forward losses, we note that there is no ambiguity/ confusion that such loss is eligible for set off against the income determined under the provisions of section 44BBB of the Act. In holding so we rely on the order of the Delhi tribunal in the case of Rolls Royee Industrial Power Ltd 42 SOT 264 wherein it was held as under: 69. We have considered the rival contentions and given our careful consideration to the materials placed on record and are of the opinion that carry forward business loss is a statutory right allowable to the assessee by section 72 of the Act. This statutory right cannot be withheld from the assessee as this loss has been properly computed and allowed to be carried forward in the previous assessment years w....
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....nabsorbed depreciation allowance does not enter into the computation of the business loss of the assessee in that particular year. 17. In the subsequent year such unabsorbed depreciation allowance is treated to be a part of the depreciation allowance of the succeeding year and the assessee is entitled to claim for absorption in respect of the same in the succeeding year. 18. On a strict reading of section 72 it cannot be said that unabsorbed depreciation allowance of an assessee is a business loss particularly, as it does not enter into the computation contemplated under the said section, 19. If a depreciation allowance cannot be and is not absorbed in a particular year from the point of view of an accountant the business suffers a loss but for the purpose of enabling an assessee to obtain the advantage of carrying forward such unabsorbed depreciation allowance and having it adjusted against the business income of the subsequent year un absorbed depreciation allowance and the business loss carried forward must be treated as separate. 20. In view of the clear language of section 44B it appears to us that while it is open to the assessee to claim a....
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.... law as section 44BBB(1) starts with 'notwithstanding' clause and unabsorbed depreciation under section 32(2) is not to be considered when income is estimated under section 44BBB(1). 2. The CIT(A) erred in law and on facts in holding that the assessee is eligible for set off of unabsorbed depreciation under section 32(2) of the Act against current year deemed income offered by assessee under section 44BBB(1) without taking into account the decision of Hon'ble Calcutta High Court in the case of Universal Cargo Carriers Inc. Vs. Commissioner of Income Tax (1987) 165 ITR 209. 3. The CIT(A) erred in law and on facts in allowing the set off of brought forward business losses under section 72 of the Act against the current year deemed income offered by the assessee under section 44BBB(1) not appreciating the position as enshrined in section 29 which provides that income from profits and gains of business is to be computed as per section 30 to 43D and section 44BBB is not mentioned therein. 4. Therefore the order of the Ld. CIT(A) deserves to be deleted and that the order of Assessing Officer be restored. 5. Any other ground that may be urge....
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....ction 448BB(1) starts with 'notwithstanding' clause and unabsorbed depreciation under section 32(2) is not to be considered when income is estimated under section 44BBB(1). 2. The CIT(A) erred in law and on facts in holding that the assessee is eligible for set off of unabsorbed depreciation under section 32(2) of the Act against current year deemed income offered by assessee under section 44BBB(1) without taking into account the decision of Hon'ble Calcutta High Court in the case of Universal Cargo Carriers Inc. Vs. Commissioner of Income Tax (1987) 165 ITR 209. 3. The CIT(A) erred in law and on facts in allowing the set off of brought forward business losses under section 72 of the Act against the current year deemed income offered by the assessee under section 44BBB(1) not appreciating the position as enshrined in section 29 which provides that income from profits and gains of business is to be computed as per section 30 to 43D and section 44BBB is not mentioned therein. 4. Therefore the order of the Ld. CIT(A) deserves to be deleted and that the order of Assessing Officer be restored. 5. Any other ground that may be urged at the t....