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Income tax Officer-9 (2) (1) , Mumbai Versus M/s. Intertoll ICS India Pvt. Ltd.

2016 (7) TMI 372 - ITAT MUMBAI

TPA - Arms length price (ALP) - Consultancy charges restricted to the extent of 75% - assessee had not submitted any evidence to justify the payment of consultancy fee to its AE - Held that:- Why was the transaction entered in to by the AE with MIT Hungary could not be a basis for arriving at ALP was never discussed by the AO. The assessee has discharged his burden of proof. After that onus had shifted to the assessee and in our opinion he has failed miserably to prove that his action of making .....

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. In the TP matters the rule had to be strictly followed as the Act has provided a special mechanism to deal with determination of ALP of IT. s. In our opinion, the order of the FAA does not suffer from any legal or factual infirmity. So, confirming his order, we decide first effective ground against the AO. - Decided in favour of assessee - Business promotion expenses disallowed - payment for expensive gifts of jewellery and watches were made to a sister concern - Held that:- We find that t .....

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the AO had exactly done it. He has not doubted the genuineness of the payment. If the payment was as per the provisions of the Act then irrespective of the figure involved same had to be allowed. We are of the opinion that no interference is required to disturb the order of the FAA - Decided in favour of assessee - Disallowance under the head travelling and conveyance expenses - Held that:- Ad hoc disallowance without any basis. The assessee had filed necessary details. Secondly, in the case .....

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d in favour of assessee - Addition being PCE mobilisation advance - Held that:- FAA does not suffer from any legal infirmity, that the amount in question was received as advance, that the assessee had recognized a portion of the said amount during the year under appeal, that the recognition was based on scientific method, that the assessee had taken into consideration factors like start-up, recruitment etc. , that the AO had disallowed the amount without considering the terms and conditions .....

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rn of income on 28. 11. 2003, declaring loss of ₹ 1. 62 lakhs. The AO completed the asst on 30. 3. 06 u/s. 143(3) of the Act, determining the total income at ₹ 1. 25 crores. 2. First Ground of appeal is about deleting the disallowance of 66. 55 lakhs . During the assessment proceedings the AO found that the assessee had paid heavy consultancy charges to M/s. Intertoll Pty. Ltd. , South Africa, that it was an Associated Enterprise(AE)of the assessee. As per the AO, he directed the ass .....

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onal Transactions (IT)with the AE, had only relied on the information provided by the assessee, that the assessee had not submitted any evidence to justify the payment of consultancy fee to its AE. Therefore, he restricted the consultancy charges, payable to the AE to the extent of 75% of the consultancy fees. He determined the Arm s Length Price(ALP)of the IT as under: Consultancy fees received(Rs.) Paid (Rs.) Allowed(Rs.) Disallowed(Rs.) MSRDC 3 Project 32,76,750 34,36,720 8,19,187 26,17,533 J .....

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e agencies, private BOT companies and NHAIL in a bid to secure consultancy and operational/maintenance contract, that it was positioning itself as one of the early entrants in India in the fields of operation and maintenance, that being a relatively new entrant in the market it did not have necessary expertise, that it took help of an established player in the business of toll road management i. e. its AE, that it had executed three contracts, that the AE was paid at man-hour rate, that the AE h .....

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also replied to the show cause notice dt. 23. 3. 2006 notwithstanding the time constraint on hand, that it was left with only two working days to file the requisite information, that the AO ignored the documents filed by it, that while disallowing the payment the he did not rely on any of the prescribed transfer pricing method(TPM) as required by the Act, that he acted on an ad hoc basis. During the appellate proceedings the assessee filed additional evidence and additional grounds before the F .....

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ulting services as against only support services contained in the agreement with MIT-Hungary, that as per the agreement the AE was also required to provide additional services to the assessee, that the AO had rejected the CUP analysis carried out by it without providing any cogent reason, hat the AO was duty bound to rebut the method adopted by the assessee before replacing his own analysis, that AO was mandatorily required to carry out an analysis and to select one of the prescribed methods. Af .....

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ervices and the rates charged by AE was as under : Contracting entities Intertoll PTY Ltd., S.A. and Intertoll ICS India Pvt. Ltd., India Intertoll PTY Ltd., S.A. and Magyar Limited, Hungary(MIT) Project and country where services were provided Ahmedabad-Mehsana Toll road projest-Gujarat, India. M5 motorway, Hungary. Nature of services provided Consultancy services for toll management Consultancy services for toll management Contract period FY 2002 to FY 2006 FY 2002 to FY 2008 Rate per hour cha .....

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ere heavily discounted and was less than even the base rate charged by it to the Hungarian-company, that the AO had rejected the analysis carried out by the assessee in a summary manner without assigning any reason, that it was a violation of the guidelines laid down in the decision of Maruti Suzuki and Mosear Baer (316ITR1). The FAA referred to the case of MSS India Pvt. Ltd. (ITA/ 393/ PN/ 2007) and held that it was necessary for the AO to demonstrate that on the given facts of the case a part .....

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re was no scope for such arbitrary assumptions. Finally, he held that the CUP method adopted by the assessee was in order and the transaction with its AE was at Arm s Length. 2. 2. Before us, the Departmental Representative(DR) supported the order of the AO and state that TPO had rightly rejected the CUP method, that the basis of the charges recovered from the Hungarian party was not available. The Authorised Representative (AR) stated that the year under consideration was the initial year of op .....

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-Pune Expressway and Delhi Gurgaon Expressway, that it had made payment to its AE for providing it consultancy, that it had selected CUP method for determining the ALP of the IT, that the AO had directed the assessee to justify the basis of determination of the ALP, that it furnished an agreement entered in to between its AE and an independent Hugarian entity, that the agreement clearly proved that the rates charged by the AE were much less than the rates charged from the independent party, that .....

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the disallowance holding it to be arbitrary. First of all we would like to mention that Transfer Pricing(TP)is a systematic, logical and step by step approach, that it envisages an in-depth analysis commencing with screening of data for choice of comparables through statistical tools and application of the Most Appropriate Method (MAM), that the provisions of Chapter-X of the Act require that a certain discipline is maintained by the assessee as well as the AO while computing the ALP of an IT, t .....

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e the business decisions of Indian entities, including the payments made to or received by them from the non-resident entity, are not able to shift payment of taxes from India to other countries, by shifting the income which genuinely belongs to the Indian entity, to the non-resident entity, which is not taxed in India. The arm s length principle of transfer pricing is based on the premise that the amount charged by one related party to another for a product must be the same as if the parties we .....

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rs discretionary powers have been given to the AO. s. , but they are expected to use the power in a fair and just manner. State as an institution can levy and collect only due taxes from its subjects. So, the if the AO. s. determine the tax liability in an unfair manner and if the demand is not of the DUE taxes appellate authorities are expected to allow relief to the assessee . It is what the FAA has done in the case before us. He found that the assessee had selected CUP method one of the valid .....

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t the very basis of the TP provisions. Either he was ignorant of the TP provisions or he was adamant to make the disallowance at any cost. But, his action cannot be endorsed. Why was the transaction entered in to by the AE with MIT Hungary could not be a basis for arriving at ALP was never discussed by the AO. The assessee has discharged his burden of proof. After that onus had shifted to the assessee and in our opinion he has failed miserably to prove that his action of making disallowance was .....

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ers the rule had to be strictly followed as the Act has provided a special mechanism to deal with determination of ALP of IT. s. In our opinion, the order of the FAA does not suffer from any legal or factual infirmity. So, confirming his order, we decide first effective ground against the AO. 3. Next effective ground (GOA-3) is about deleting the disallowance of ₹ 4 lakhs. During the asst proceedings, the AO found that the assessee had shown business promotion expenses(BPE)of ₹ 7, 70 .....

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r the AO on the date of hearing there was no compliance on behalf of the assessee . Therefore, in absence of details he disallowed an amount of ₹ 5lacs on estimated basis out of total expenditure of ₹ 7. 70 lakhs holding that the expenses were not incurred of the purpose of business. 3. 1. During the appellate proceedings before the FAA, the assessee argued that it had filed full details of the expenditure incurred during the year under consideration, that there was no allegation tha .....

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request made by it, that sufficient opportunity was not given to the assessee, that the AO failed to avail the opportunity granted by the-then- FAA and did not add anything new in his remand report, that the payment for expenditure on business promotion including that to the sister concern was by cheque, that there was no finding of fact that the gifts were either not bought or not given, that the AO cannot step into the shoe of the businessman to decide what expenditure to incur, that the acco .....

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reason. In our opinion the basic approach of the AO is fautly. During the remand report when all the material was available to him he should have conducted fresh inquries to justify the disallowance. Documentary evidence cannot be brushed aside without dealing them logically. In our opinion the FAA has rightly held that the AO. s. are not authorised to enter in to the proverbial shoes of the assessee. In the case before us, the AO had exactly done it. He has not doubted the genuineness of the p .....

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4. 83 lakhs as travelling expenses vide his letter dt. 23. 3. 2006, the AO has asked the assessee to justify the expenses incurred on account of infrastructure charges, travelling and conveyance. As per the AO the assessee did not file any detail in that regard. He disallowed an amt of ₹ 1. 00 lakhs on an estimate basis holding that the assessee had not proved that the expenses were incurred for the purpose of business. 4. 1. Before the FAA the assessee submitted that the details of trave .....

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e had filed necessary details. Secondly, in the case of a corporate entity no disallowance should be made citing personal element of expenditure . So, endorsing the order of the FAA we dismiss fourth ground. 5. Next ground of appeal is about deleting the disallowance of ₹ 75, 000/-. While completing the assessment, the AO held that the assessee had claimed telephone expenses of ₹ 1. 16lakhs for the month of March 2006 out of the total expenditure of ₹ 3. 80 lakhs. Vide his lett .....

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e case the FAA deleted the addition. 5. 2. The DR stated that the issue could be decided on merits. AR relied upon the order of the FAA. In our opinion, the order of the FAA does not suffer from any legal infirmity. The incurring of expenditure is not doubted. As stated in earlier part our order-it is a case of a company, so, no disallowance can be made on account of personal element of expenditure. We uphold the order of the FAA and dismiss ground no. 6. 6. Last Ground of appeal is about deleti .....

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dvance, that it was shown as advance in the book of advance, it was carried forward as a liability, that during the year under consideration assessee further received ₹ 1. 09 crores, that out of the aggregate amount of ₹ 1. 59 croes (50 lakhs +1. 09 cr. ), the assessee recognized a sum of ₹ 81. 80 lakhs as income attributable to the year under appeal, that it carried forward the balance amount i. e. ₹ 77. 49 lakhs as advance. The AO treated the entire amount of ₹ 1. .....

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ms of contract the mobilization advance could be appropriated only upon receipt of a completion certificate from the appointed engineer, that because of dispute the amount was not received during the year, even then the assessee had offered income of ₹ 81. 80 lakhs under the head mobilization charges. 6. 2After considering the submission of the assessee the FAA perused the contract and called for remand report from the AO. He held that in the remand report the AO had himself produced certa .....

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