TMI Blog2013 (12) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise and had received guarantee commission @ 1.2% per annum - TPO applied 3% guarantee commission - The assessee has not submitted any contradictory evidence to suggest that the rate applied by Ld. TPO at 3% was not appropriate - The evidence submitted by the assessee relates to Bank Guarantee which is less than ₹ 1.00 crore - The said evidence cannot be taken as comparable instance – Decided against assessee. - ITA No. 6394/MUM/2012 - - - Dated:- 28-8-2013 - I.P. BANSAL AND N.K.BILLAIYA, JJ. For the Appellant : M.P. Lohia. For the Respondent : Ajeet Kumar Jain. ORDER:- PER : I.P. Bansal This is an appeal filed by the assessee. It is directed against the assessment order dated 24/09/2012 passed under section 143(3) r.w.s. 144C(13) of Income Tax Act, 1961 (the Act) for assessment year 2008-09. The grounds of appeal read as under: "Based on the facts and circumstances of the case, Tecnimont ICB Private Limited (hereinafter referred to as the Appellant) respectfully craves leave to prefer an appeal against the final order passed by the learned Deputy Commissioner of Income-tax - 9(3) ('AO'), in pursuance of the directions issued by Dispute R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in for the determination of ALP on the corporate guarantee provided by the Appellants Tax credits 10. erred in not allowing the TDS credit of Rs.41,13,253, DTAA credit of Rs'1 1,40,59,219 and levying interest under section 234B of Rs 25628346. The Appellant craves leave to add/alter/amend/delete/withdraw any or all of the grounds at or before the hearing of the appeal so as to enable the Income tax Appellate Tribunal to decide the appeal according to law." 2. The assessee has also filed additional ground of appeal, which reads as under: "Tecnimont ICB Private Limited (hereinafter referred to as the Appellant) craves leave to prefer an appeal on the following additional ground against the final order passed by the learned Deputy Commissioner of Income-tax - 9(3) ('AO"), in pursuance of the directions issued by Dispute Resolution Panel- II ('DRP"), Mumbai under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the Act). On the facts and circumstances of the case and in law, the learned AO/DRP: 11. erred in considering Engineers India Ltd as a comparable company to Appellant without appreciating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gmental accounts as submitted by the assessee are actually insulated. Ld. TPO further observed that in respect of non-AE transactions the assessee has shown a loss of 30.66% on the turn over of Rs.29.14 crores which is apparently against the trend of the sector in which assessee operates. He required the assessee to explain the loss of Rs.12.88 crores incurred by the assessee in respect of non-AE segment and was required to furnish the basis of allocation of expenses with evidences such as copies of tender documents, copies of bills in support of expenses incurred, copies of documents etc. It is noted by the TPO that vide order sheet noting dated 7/9/2011 the assessee was required to furnish the following information: (i) the basis of allocation of indirect cost to AE and non-AE along with the necessary evidences. (ii) Complete details with evidences of the bidding cost. (iii) Audit notes with complete material on which the independent audit had relied to carry out the segmental audit and also to produce the working papers for the same. 3.4 Ld. TPO further observed that such information was not produced by the assessee and it was tried to explain that the los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59) Reliance Infrastructure Ltd. 14.60 7.17 NA 9.34 Tata Projects Ltd. 3.84 1.45 NA 2.24 Techno Electric Engg. Company Ltd. 4.98 10.30 11.62 9.56 UB Engineering Ltd. (2.40) (7.68) 6.61 (1.09) Arithmetic Mean 4.57 However, as updated margin of above comparables as on 31/3/2008 was available the mean average of the above comparables was computed as under: Company OP/TC BGR Energy Systems 10.75 Engineers India Ltd. 28.9 Techno electric and engg company 13.56 UB engg 11.75 R Infra 10.06 Tata Projects 4.58 Average 13.26 3.6 Examining the aforementioned comparables it was observed by Ld. TPO that the comparable namely Nicco Corporation Ltd. is functionally different from the activities of the assessee. He, therefore, excluded the same and he proposed a fresh set of comparables, wherein mean margin was computed at OP/TC at 33.43% and OP/Sales at 23.486%. The details ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objections is filed at page 181 to 190 of the paper book. The assessee firstly objected the action of the Ld. TPO by taking PLI of the assessee as entity level as according to assessee audited segmental results could not be rejected by TPO as the basis adopted by the assessee was scientific and rational. Before Ld. DRP reference was made to written submission furnished before Ld. TPO. It was submitted that vide letter dated 19/9/2011 it was mentioned that the assessee has a man hour tracking system. (TMA) which generates monthly reports for the purpose of tacking man hours. The entire staff fill time sheet and the same is used by the assessee to generate project wise man hours which in turn is used for work-in-progress(WIP) calculation. It was submitted that total number of man hours during the financial year 2007-08 were 904713 and the number of man hours pertaining to the AE segment and non-AE segment were 605907 and 192324 respectively. The balance number of hours amounts to 1,06,482/- represented bidding and idle time. To support these facts the assessee also submitted the man hour support details and man hour of E I Division in Annexure-1 2 with the aforementioned submissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be taken into consideration. He invited our attention towards the following observations of the Tribunal from the said order: 23. We have heard the rival submissions, perused the orders of the lower authorities and the materials available on record. At the outset, we may point out that there is no dispute between the assessee and the Department over the method adopted for determining the arm's length price being TNM method. The next issue for consideration is whether to apply TNM method at entity level or at transactional level for determining the arm's length price. The assessee had submitted segmental results for its transactions with A.E's and transactions with non A.Es. The TPO rejected the segmental results as contained at Page-62 of paper book on the ground that the same were not authenticated and also did not form part of audited financial statement of accounts. Learned Counsel, during the course of hearing, submitted before us that this objection was not brought to the notice of assessee. However, when it received the order, then it got the segmental results duly audited and filed the same before the DRP as additional evidence vide its petition dated 4.th May 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out that there is no variation in the segmental results submitted by it in course of proceedings before TPO and audited segmental results filed before the DRP. The only objection for not considering the same was that they were not audited. This was only a procedural requirement and once the same was complied with, the audited segmental accounts should have been admitted as additional evidence by the DRP in order to impart substantial justice to the assessee. We, therefore, admit the audited segmental results filed by the assessee vide its petition dated 4th May 2010, and restore the matter back to the file of Assessing Officer for denovo consideration in accordance with law. 24. Now, coming to the main issue whether the segmental results are to be taken into consideration or profit margin at entity level is to be considered, we find that Chapter-X incorporates special provisions relating to avoiding of tax in regard to international transactions and income from international transactions has to be determined at arm's length price. Therefore, as per the provisions contained under sections 92 to 94, international transactions are to be taken into consideration. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and contribution to PF of the staff relating to EPC Division (Rs. 8,10,43,713/- as salary and bonus + Rs.1,01,06,924/- as contribution to PF). Balance amount of Rs.2,06,65,942/- pertains to other expenses and thus entire loss of Rs.11,18,16,580/- on account of EPC Division was in no manner related to transactions with AE. For the sake of clarification it may be mentioned here that the loss of Rs.12,88,88,242/- taken by the TPO is in respect of E I Division and EPC Division ( loss of Rs.11,18,16,580/- for EPC Division and E I Division of Rs. 1,70,71,662/- in respect of bidding transaction). Therefore, Ld. AR submitted that segmental results submitted by the assessee are required to be accepted and as the margin of the assessee on segmental is 10.40% and margin computed by Ld. TPO is 13.18%, the difference will be within the safe harbour of +/-5% and no addition will be called for. He submitted that the relief is allowable to assessee only on this ground and this submission of the assessee is without prejudice to the other grounds which are taken in grounds of appeal and additional grounds, on which also the impugned addition is assailable. 5.3 In view of the aforementioned subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... monthly reports for the purpose of tracking man hours. The assessee has even given the details regarding the man hours utilized by it for the purpose of each project and on the basis of such system the assessee has prepared the segmental accounts. Out of total loss of EPC Division on account of AE bidding activity of a sum of Rs.11,18,16,580/-, objection can be raised only in respect of allocation of other expenses which is a total sum of Rs.2,06,65,942/-and which is in the nature of job work; consulting fee and service charge; staff welfare; rent; rate and taxes; repairs; insurance postal and telegraph; traveling and conveyance; electricity water and gas; hire charges for machinery and equipment etc. However, all these expenditure in their entirety cannot be said to be non-allocable on the basis of man hours relating to non bidding activity of EPC Division. Even, if we accept the contention of Ld. DR that this amount of Rs.2,06,65,942/- should not be considered as loss of the assessee on the activity of non-AE bidding of EPC Division then also the margin of the assessee on segmental basis for its AE will be 9.28% for which Ld. AR has submitted a calculation as under: "Without pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction was not reported in TP study. The TPO required the assessee to explain the same and vide letter dated 24/08/2011 it was submitted as under: "The assessee submits that for all its borrowings guarantee is provided by Technimont SpA, Italy and the assessee has not paid any consideration for this guarantee. Further, the assessee submitted that State Bank of India is a lead banker in its multiple banking consortium and they have issued sanction letter to TICB which details the rate of 1.2% as BG Commission. Based on the same rate, TICB has also recovered guarantee commission from its AE at the rate of 1.2% per annum. In light of the above TICB humbly submitted that considering the facts of the case the rate of 1.2% pa charged by TICB on the counter guarantee seems appropriate and mirror's the arm's length rate." 10.1 Ld. TPO did not accept such submission of the assessee and gathered information from State Bank of India, wherein Bank stated that the rate charged is 2.75% per annum for amount of guarantee between Rs.1.00 crore and Rs.5.00 crore. Relying upon that and adding a mark up 0.25% on the ground that assessee did not take any security from its AE and commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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